ABI warns top FTSE firms it will not put up with potential breaches of its guidelines on executive pay packages
LONDON: Leading investors have put the UK’s 350 biggest companies on notice that they will not tolerate new pay deals that provide potentially unlimited bonuses to senior executives.
Institutional shareholders have become increasingly aware that bonus deals offering potentially blank cheques are being devised for boardroom bosses. These new-style deals differ from more traditional long-term bonus arrangements which would usually limit the ultimate size of a bonus to a pre-determined level of a director’s salary.
The new arrangements being proposed for directors set a performance hurdle for directors – say a 10% rise in the share price – but do not set any limit on the bonus that can be achieved once the conditions are met. They mimic the private equity style deals that were put in place at Cable & Wireless for directors who had been charged with turning the troubled communications company around.
A letter seen by the Guardian has been sent to the chairmen of the remuneration committees of firms in the FTSE-350 share index by the Association of British Insurers to warn them about using such “uncapped incentive plans”. The letter makes clear that the ABI’s institutional voting information service (IVIS) arm would issue a “red-top” alert on such pay deals where proof cannot be provided that exceptional circumstances apply. Red tops are used to warn investors of serious concerns over corporate governance.