Three-year rolling deals thrive at top: Research shows 37% of directors in biggest firms on controversial contracts

ABOUT 37 per cent of directors of Britain's top 250 companies are on three-year rolling contracts, according to a preliminary assessment carried out by the National Association of Pension Funds.

Its 'voting issues' service, which monitors up-coming issues for its institutional investor members, has run a check on the accounts of the UK's biggest groups. Initial analysis shows that of the remaining companies about 19 per cent have two-year rolling contracts, 16 per cent have one-year rolling contracts, 16 per cent gave no details, 9 per cent have fixed- term contracts and 3 per cent have contracts for less than a year.

Long rolling service contracts, especially those for three years or more, have come under attack from institutional shareholders, as they often result in huge payoffs if the director leaves early.

Many chief executives remain on three-year rolling contracts, including Peter Job of Reuters and Sir Richard Sykes of Glaxo. Glaxo's former chief executive, Ernest Mario, left in March 1993 with a payoff of pounds 3m.

But public criticism has led to a number of companies reducing or modifying service contracts.

In July, for instance, Guinness, the drinks group, switched Tony Greener, its executive chairman, from a three-year rolling contract to a contract fixed for three years, but renewable annually.

This means that the length of his contract in effect varies from two years to three years, depending on the point during the year at which it is measured.

In practice, such fixed contracts may result in little or no change in the compensation payable in the event of early termination, either because the parting may happen at the beginning of the three-year period or because of the principle of mitigation, under which the compensation a director receives is usually reduced to reflect the chances of finding a new job.

There may be little practical difference between receiving two years' worth of damages from a three-year contract or the full two years' worth on a two-year one.

There are also disadvantages for shareholders in very short contracts, since companies are not obliged to reveal the terms of contracts that have less than 12 months to run.

A number of FT-SE 100 chairmen and chief executives are on contracts of less than a year, including Shell Transport and Trading's John Jennings, Lord Hanson of Hanson Group and Barclays Bank's Andrew Buxton.