Trio's £94m incentive to lift Rentokil back into the rat race

Former ICI team McAdam, Brown and Ransom appointed; Long tours City to ensure support

Desperate times call for desperate measures. That was the explanation Rentokil Initial was giving yesterday for the highly generous remuneration packages that it has agreed to lavish on a trio of new executives it hopes can right the long-suffering rat-catcher.

The executives who were appointed yesterday – chairman John McAdam, chief executive Alan Brown and Andy Ransom, who will take over as director of corporate development – will between them pocket more than £94m if they can quadruple the company's share price in the next five years. Unlike conventional bonus structures, under which a company's share performance is indexed to peers or the wider market, the deal for Rentokil's new team is based on absolute share price performance.

Peter Long, the executive chairman, did a whirlwind tour of the company's biggest investors in the City on Wednesday to ensure they supported the unusual plan, which also saw the exit of Rentokil's chairman Brian McGowan and the chief executive he appointed, Doug Flynn. "If you're doing something that is going to be seen as controversial, you want to be in a position beforehand where you know people are on board. It was kind of 'speak now or forever hold your peace,'" said one of the investors who was consulted. Mr Long put the shake-up to a boardroom vote later that night.

Mr McAdam and his colleagues are highly respected in the City after having turned around and sold the paint group ICI to Akzo Nobel last year for £8bn at the top of the market. Mr McGowan, who has chaired the group for a decade, and Mr Flynn will step down next week. Rentokil's shares rocketed on the news, ending the day up 18 per cent at 85.5p.

Mr Long qualified the hirings as a "big, bold move" and that the remuneration deals were "necessary to secure one of Britain's top management teams". In many ways, they start in a privileged position. As they are taking over at a low point for the company operationally amid a market that has already fallen sharply, critics will argue the company can only go up from here. The return of a bull market would also undoubtedly lift Rentokil's shares, regardless of its underlying performance, making the big paydays for Mr McAdam and Co more easily attainable.

They nonetheless have their work cut out. The company's shares have hit new lows in recent months after a pair of profit warnings – today it is worth a quarter of what it was six years ago. Mr McAdam will get paid if he can return the company to that level.

The shake-up brings a dramatic end to Mr McGowan's reign. Investors have waged a campaign for at least two years to try to force him out. The campaign gathered pace last December after Rentokil issued a profit warning, which the company blamed on a general economic slowdown. A second profit warning less than two months later was explained by a botched integration of courier service Target Express with Rentokil's division, City Link. "The story changed along the way. [Mr] McGowan has been a marked man since December," said the investor. He will receive no severance, but Mr Flynn will get a £1.2m pay-off.

Among those who received a visit or a call from Mr Long before yesterday's announcement were Franklin Templeton, the largest investor with 8.7 per cent, along with ValueAct Capital, Hermes, Scottish Widows and Legal & General.

Under the five-year remuneration deal, each of the new executives will be given 7.5 million shares in the company. If the average share price over 60 days ever reaches 120p, 20 per cent of their shares will vest. If the stock hits 180p, they will be able to exercise the rest. If it gets to 280p per share, they will be granted another 3.75 million shares. If they hit all the targets, it would mean a pay day of up to £31.5m each. Mr McAdam will also collect an annual salary of £350,000, while Mr Brown will pocket £775,000 a year. Mr Ransom will be paid £450,000. The latter two are eligible for bonuses equal to their annual salary.

Rentokil is no stranger to controversy. Sir Gerry Robinson tried to oust the previous management and install himself at the company in 2005. Investors rejected his proposals because of the vast compensation demands he made – he would have pocketed at least £56m regardless of the performance of the company. Mr Flynn, who had only taken over the chief executive chair a couple months before, saw off Sir Gerry. The last time Rentokil shares hit 280p per share was six years ago in March 2002.