Hilton pay rises spark fresh row

Hilton Group, the hotels operator, is set to ignite a fresh row on executive pay with substantial increases in boardroom pay and bonuses as the group battles against a market overshadowed by the Iraqi war and fear of terrorism.

The company is proposing to increase the maximum bonus payable to its executive directors to 120 per cent of basic salary. This change will be subject to shareholder approval at the group's annual meeting on 16 May.

Hilton is also courting controversy by choosing to retain a two-year rolling contract for David Michels, its chief executive. Such contracts are contrary to corporate governance best practice. Hilton has moved to one-year deals for new executives but said its remuneration committee had "considered the position of the executive directors who have held two-year rolling contracts for a significant period of time". It added: "Given that the group chief executive, Mr Michels, is in his 57th year, no change is proposed."

Hilton explained that this was due to legal precedents which meant that changes in contracts so close to retirement might be unenforcable. Asked whether he had considered giving up his two-year contract voluntarily, Mr Michels said: "I considered it and then rejected it."

Brian Wallace, 48, group finance director, has seen his two-year contract replaced by a one-year deal. However, he will enjoy a two-year payout, worth £1.45m, in the event of a takeover.

Pirc, the corporate governance specialist, objected to the plans. Stuart Bell, research director, said: "Generally speaking there is no excuse for the retention of two-year rolling contracts. Eighty five per cent of directors of FTSE 350 companies are on one year or less."

Mr Michels and Mr Wallace have been awarded two pay rises in the past year in order to bring them up to industry norms. Mr Michels saw his basic salary rise from £541,000 to £600,000 on 1 July. On 1 January this year it went up by another 2.5 per cent to £615,000. In total Mr Michels received £826,000 last year, including bonuses, up from £772,000 the previous year.

Mr Wallace received two similar rises to take his basic pay to £456,000. Staff at Hilton's main operations, such as its hotels and the Ladbrokes betting shops, received a pay rise pegged to the rate of inflation of 2.5 per cent.

Hilton recorded a 3 per cent increase in underlying profits to £271m last year.