The higher they go the softer they fall: Anger at huge pay-offs for business chiefs

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The Independent Online
PETER HOLROYD and John Cahill are both ex-employees of British Aerospace. Both left unexpectedly after two years' service and both received lump sum severance payments.

The similarity ends there. Mr Holroyd, a storeman, had to survive on a meagre pounds 1,200 while he sought work. Mr Cahill walked away with pounds 3.1m to a comfortable retirement in the United States. Even losing your job is lucrative if you are company chairman.

This weekend Mr Holroyd, 28, was still seeking permanent work three years after being made redundant from BAe's military aircraft plant at Samlesbury, near Preston, Lancashire. At the time of his departure he was living with his girlfriend and baby son. The subsequent hardship put an end to the relationship.

Mr Cahill however, heads a league table of executives who have received enormous 'golden handshakes' on leaving their company. The table, compiled by the Independent on Sunday, examines pay-offs received by high-profile directors who have been sacked or have left before their contract expired. It covers the years since 1990, when executive pay-offs began to soar.

The table underlines a trend which has angered politicians, the public and business executives themselves. On top of being well rewarded while in office, senior directors are being paid millions of pounds when they depart prematurely, often after failing.

Robin Cook, the shadow Trade and Industry secretary, said: 'It is amazing. Rewarding failure is not something which should be encouraged. It does nothing to make Britain more competitive.'

The BAe chairman's departure, rumoured to be the result of a rift between him and the chief executive rather than a sacking, produced a package which is unbeaten but not unchallenged.

Last year, Glaxo, the drugs group, paid its former chief executive, Dr Ernest Mario, nearly pounds 3m when he left after a clash of personalities with the chairman. A similar confrontation led to Peter Davis's departure from Reed Elsevier last week with pounds 2m.

Some executives have cashed in despite falling profits. Philip Green left Amber Day, the discount retail company, two years ago, following a profit fall of pounds 2.5m over a year. His severance pay of pounds 1.13m accounted for nearly half that.

Bob Horton, currently at the centre of the signal workers' dispute as head of Railtrack, was sacked by BP but given a parting payment of pounds 1.5m. Just this weekend, it was revealed that four directors of Tiphook, a big transport company which has fallen into debt, left with pounds 4m between them.

The pattern of multi-million-pound pay-offs can be traced back to Sir Ralph Halpern, who got pounds 2m when he left Burton four years ago. He and other City whizz-kids of the Eighties were able to demand longer and longer rolling contracts. These contracts are renewed automatically and continuously, so at any time the executive is guaranteed employment for the length of the agreed term. A decade ago, agreements for five and seven years were common.

The justification was that they protected directors in the event of a coup, which could see them removed through no fault of their own. If their term of office was cut short, they could claim a salary for the full term of their contract. Employers paid up to avoid the possibility of costly litigation.

Peter Brown, chairman of the Top Pay Research Group, which advises firms on executive remuneration, said: 'The idea is quite reasonable, but they grew excessive. People began to object when some of the stars were being paid off for failure.'

Although rolling contracts have shrunk to a norm of three years, campaigners still feel they are too generous. Most want them to become either fixed-term, so that compensation diminishes with time served, or if rolling, then of a much shorter duration.

Postel, the Post Office pension fund, has led the battle by voting against lengthy contracts for directors at companies' annual meetings. Alastair Ross Goobey, the chief executive, said: 'Our clients were suffering from large payments made to executives who had been deemed to have failed.

'The main cause was the length and character of these contracts. We believe a reduction in the term will lead to a reduction in pay-offs for failure.'

The campaign, which favours voluntary change rather than legislation, has won support from ministers and from Tim Melville-Ross, director- general of the influential Institute of Directors. Mr Melville- Ross said: 'I am perfectly happy about the idea of real entrepreneurs who take big risks taking away substantial rewards. But for bureaucrats to be similarly rewarded is wrong.'

Industry sources believe the tide of opposition has left the days of the large pay-off numbered. There is already evidence that many companies are moving unilaterally towards shorter contracts.

However, the prospect of reform in the boardroom provides no comfort for Peter Holroyd and about 300 former colleagues, now claiming unfair dismissal against BAe because of the way they selected people for redundancy. Peter Bramah, the union official handling the claim, said: 'When Cahill left, there was just a cynical laugh. It is one law for the rich and one law for the poor.'

Business, page 2

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