Top pay curbs to hit middle managers

Greenbury code will hurt rank-and-file employees
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The Independent Online
DONALD MACINTYRE

and RUSSELL HOTTEN

Ian Lang, the President of the Board of Trade, yesterday mounted a vigorous defence of top salaries after Kenneth Clarke, the Chancellor of the Exchequer, provoked protests on behalf of middle-ranking managers and claims of a "humiliating U-turn" from Labour by ending tax relief for executive share option schemes.

In a 6am response to one of the most radical proposals in the Greenbury report on executive pay, Mr Clarke announced that share option windfalls would be subject to full income tax. The change took effect immediately although the law will not be changed until the Budget.

The long-awaited Greenbury report urged wide-ranging disclosure of executives' salaries and perks and called for a code of best practice aimed at preventing pay abuse.

Although it stopped short of recommending legislation, the Government moved quickly to implement some of the key proposals in the hope that the controversy over "fat cats" would die down. The Inland Revenue said taxing profits on share options would bring in pounds 80m a year.

Tax consultants said that the most serious effect would be on employees below the top tier who benefited from over 5,000 executive share option schemes. The average value of options granted is around pounds 18,000.

David Cohen, a lawyer specialising in employee share schemes, said: "The tax changes will have very little impact on senior executives. The real pain will be felt by the tens and thousands of rank and file employees who participate in the significant number of executive schemes.''

Greenbury's key recommendations include:

t Annual reports to shareholders by remuneration committees to include full explanation of a company's pay policy and disclosure of pay packages of each director by name.

t Annual bonuses for directors and any long-term incentive schemes and share options to be subject to "challenging performance criteria".

t Shorter contracts with periods above one year to be justified to shareholders.

t Privatised water and power companies to review directors' pay-and-perks packages.

t No share options to be granted in future privatisations for at least six months.

Mr Lang told the Commons that the "firm, fair and practical" proposals in the Greenbury report - which maintains the self-regulatory regime for top pay but includes a toughened new code for disclosing and seeking shareholder approval for top salary packages - "would deliver more effective, speedier results than legislation would achieve".

He welcomed the Stock Exchange's decision to include the report's main recommendations in its Listing Rules. He added: "The Government has no intention of introducing a top people's pay policy. We do not begrudge top salaries for top performance ... We must pay the rate for the job."

Jack Cunningham, the shadow Industry Secretary, said the committee, under Sir Richard Greenbury, chairman of Marks & Spencer, had failed to tackle the "central problem" that had led to to its establishment - "the unacceptable abuses in the privatised utilities which have so outraged the British public".

Gordon Brown, the Shadow Chancellor, said that while the Government had done "too little, too late", the move by Mr Clarke was a U-turn by a Chancellor who had "consistently opposed and rubbished the idea of taxing executive share options as income".

Sir Richard Greenbury said: "We have gone a lot further than a lot of people would have liked ... although we have not gone as far as some people would have wished. Quite clearly people are concerned."

The committee was set up in January, spurred by a row over a 75 per cent pay rise for Cedric Brown, chief executive of British Gas. Yesterday, Richard Giordano, chairman of British Gas, admitted the company had been a "lightning rod" for attacks on pay, but said it was "at the leading edge of best practice".

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