Matalan chief digs into his pocket to keep top managers

John Hargreaves, the founder and chairman of Matalan, yesterday sought to halt the exodus of the discount retailer's top management by pledging to foot the bill for multi-million-pound payouts to his top six executives if the company is taken over in the next four years.

The promise, which came as Matalan unveiled a new share-based bonus scheme, was made to soothe City fears that yet another wave of executive departures could derail the group's tentative recovery. It was designed to compensate the newly promoted management team, led by John King, for its lack of a backlog of share options.

Mr Hargreaves, whose family controls 52 per cent of Matalan stock, could pay out up to £22.5m if the out-of-town discount retailer is acquired at the end of next year at around 400p per share. At this level, his family would net around £850m from any sale.

He said the new arrangement demonstrated "the family shareholders' commitment to the new management team," adding: "It will fully incentivise them to grow the value of the business for the benefit of all shareholders."

Analysts welcomed Mr Hargreaves' plan, although Matalan shares slipped 2.75p to 253.5p as the prospect of an imminent takeover receded. Nick Bubb, at Evolution Beeson Gregory, said: "It's an excellent idea. It indicates that he wants to keep them [the team], which is a change. He wouldn't be doing this if he thought there was a risk of some big bust-up."

The City largely blamed Mr Hargreaves, who started the business in the Seventies, for the surprise departure of Matalan's former chief executive Paul Mason and Phil Clarke, its retail director, earlier this year. Institutional investors lobbied the company, tipped as a potential target for either Tesco or Wal-Mart, to draw up an incentive plan that would give Mr King's team a reason to stay.

Charles Thompson, who heads the group's remuneration committee, said: "Institutional shareholders were very concerned indeed as to how we would retain this team." Asked whether the new plan had helped to reassure investors that Mr Hargreaves' notoriously difficult working temperament would not hinder Mr King's nascent recovery, he added: "I've seen nothing in this particular relationship that gives me any cause for concern."

Under the new long-term incentive plan, Matalan's six senior executives will be required to build a minimum shareholding in the company equal to double basic salary. A third of their annual bonus will also have to be invested in the company's shares, and held for at least three years. Shareholders will be allowed to vote on the plan at an extraordinary meeting on 18 November.