'Fat cats' face crackdown on pension deals

Ministers are to introduce curbs on "fat cat" directors' pensions after an outcry at the decision of companies such as Marks & Spencer to abolish traditional final salary schemes for their workers.

Patricia Hewitt, the Secretary of State for Trade and Industry, is drawing up plans to change the law so that shareholders have a veto on awards made to top executives. Under the changes bosses will also be forced to make the true value of their retirement packages public. The move follows unease among cabinet ministers at directors who have not had to publish the total value of their pensions, which often form part of their employment packages.

Ms Hewitt, who finishes consulting on moves to clamp down on directors' pay this week, is said by aides to want to make sure that new curbs on pensions are included in any future change in the law on executive pay.

She also wants to ensure that directors of failing businesses, particularly those who cut the pensions of their employees, are held to account over their retirement packages.

The proposals will form part of an amendment to the Companies Act 1985. "Directors should share in the gain, but they should also share in the pain," said a source close to Ms Hewitt.

Her concern is shared by several members of the Cabinet who believe that directors should be more accountable over the size of their pension schemes.

Marks & Spencer, British Telecom and Iceland have all stopped offering traditional salary-linked retirement schemes in recent months.

Yesterday John Monks, the general secretary of the Trades Union Congress, said that government policy over private-sector pensions was in danger of "going wrong".

He attacked rich directors who cut their employees' pension funds while inflating their own and said that the Government should take action. "Pensions are being cancelled all over the show," he said in an interview on GMTV, "and it seems to us that while executives are stuffing their own pension funds, and worsening workers' pension funds, that's an area that needs attention too."

The controversy over pensions mirrors the outcry over disclosures of the salaries of directors such as Cedric Brown, the former chief executive of British Gas.

Last year directors of the Mayflower engineering group received huge pension payments after the company's profits slid. More than three-quarters of the dive last year was accounted for by a £3.9m injection into the directors' pension pot.

A government source said that the plans were expected to be brought forward later this year and that a new Bill would not be required to change the law. The changes could be made by using secondary legislation.

"Under the old rules when a director disclosed a pension it was ambiguous. We want to make it clear and explicit how much they are getting," said a DTI source. "We are looking at directors' pensions packages. We have been consulting and we are now looking at allowing shareholders to vote on the size of their pensions as well as their salaries."