EMI gives new chief of music arm £35m three-year incentive package

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EMI boss takes the rap for failing on US stage

EMI has given Alain Levy a blockbuster pay deal to become chairman and chief executive of the group's recorded music division.

Though Mr Levy's salary is expected to be "about a third" of the £2m enjoyed by Ken Berry who Mr Levy is replacing with immediate effect, he is being heavily incentivised with a potentially lucrative share option package. The deal could net him £35m over three years.

The former PolyGram president has been granted options over 3 million shares exercisable at 300p per share, another 3 million at 400p, 2 million at 500p and an additional 2 million at 700p. He is also entitled to a further five option grants of 2 million shares at the prevailing share price every year from January 2002. The options cannot be exercised for three years after the grant date. EMI shares closed 12.75p lower at 265.25p yesterday, close to their five-year low. This means that if EMI shares recover to their early 2000 peak of 800p by 2004 Mr Levy will be sitting on a profit of £35m.

However, Mr Levy's appointment is not expected to alleviate City pressure on Eric Nicoli, EMI's chairman who has been criticised for overseeing failed merger attempts with rivals AOL/Time Warner and Bertelsmann. "The spotlight has not moved," one of EMI's leading institutional shareholders said. "We would say there are other management issues that are still to be resolved."

City analysts said Mr Levy had a good track record in music where he built PolyGram into the world's largest and most profitable music company prior to its takeover by Seagram in 1998. But they said there had been mistakes such as his decision to pour huge sums into building a film division for PolyGram with very little return. Since leaving PolyGram, Mr Levy has been a director of Boxman.com, the internet CD retailer which collapsed last year. He was also a director of a company called The Digital Broadcasting Company which is in liquidation.

One EMI shareholder said: "Mr Levy has been out of the business for a little while. If you cut through the spin we think it is best to reserve judgement."

Another analyst said Mr Levy was expected to cut costs and rationalise back office functions whilst attempting to drive market share higher. Joining EMI alongside Mr Levy, is David Munns, another former PolyGram executive, who becomes vice chairman of EMI recorded music with special responsibility for sales and marketing.

Mr Berry's departure was seen as a surprise in the City yesterday despite the recent poor performance of EMI in the US. Mr Berry's division was blamed for a shock profits warning from EMI last month when the company said margin pressure and a weak US performance would push EMI recorded music into a small loss for the first six months of the year. Media analysts said Mr Berry had paid the penalty for EMI's failure to make inroads in the United States where it ranks number four among the record groups. He will receive a £5m pay-off. His estranged wife, Nancy Berry, is also expected to leave her post as vice chairman of EMI's Virgin Records subsidiary.

Simon Barker, at SG Securities, said of the changes: "It is fresh blood and an opportunity to revitalise the decline in the US which is encouraging. But the grass isn't always greener. Beneath the problems in the US, there is a long-term structural issue which relates to EMI's independent status and its inability to leverage sales across movie studios (unlike rivals such as AOL/Time Warner, Sony and Universal)."

Mr Barker said Mr Levy faced "an enormous task" to build market share in the US and other markets in the face of weak global music sales and the threat of internet piracy.