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03/06/2003
Hewitt launches probe into 'fat cat' pay
The issue of so-called 'fat cats' pay awards for Britain's top executives is to be examined in a consultation by the department for trade and industry.
Directors' contracts, performance, severance payments and the linkage between them are all to be put under the spotlight. In preparing the document 'Rewards For Failure', the department seek views on whether further measures are needed to ensure that compensation reflects performance when directors' contracts are terminated. Both best practice and legislative options are to be explored.
The government is consulting in response to shareholders' concerns over directors who leave companies that have performed poorly, but who still receive excessive compensation payouts.
The government has stipulated, however, that the premise of the document remains that individual directors' pay is a matter for companies and their shareholders. The government says that its role is to create a framework to allow shareholders to play their part in this process effectively and responsibly.
Trade and Industry Secretary Patricia Hewitt said: "Britain has some of the best and most successful businesses in the world. But the good reputation of the majority is being tarnished by the bad practice of the minority.
"We have no problems with big rewards for big success but shareholders are rightly concerned when directors leave failing companies and walk away with excessive payouts.
"But in response to continuing shareholder concern, this consultation explores whether further action is needed on the issue of directors' contracts and severance. It explores a range of possible best practice and legislative options. We welcome contributions to this very important debate from all interested parties."
The issue of 'fat cat' pay, or so-called golden parachute severance payments to executives who leave a company, has garnered thousands of column inches in the national press in recent weeks.
A proposed pay award worth around $15 million in shares and options to JP Garnier of GlaxoSmithKline caused considerable consternation among shareholders last month. The GSK board has said that it will consult with shareholders in coming months over the proposals.
The remuneration packages of executives has been defended by companies as reflective of the marketplace – to secure the best talent, boards must offer the most competitive pay deals.
The consultation will end on 30 September 2003.
(GMcG)
Directors' contracts, performance, severance payments and the linkage between them are all to be put under the spotlight. In preparing the document 'Rewards For Failure', the department seek views on whether further measures are needed to ensure that compensation reflects performance when directors' contracts are terminated. Both best practice and legislative options are to be explored.
The government is consulting in response to shareholders' concerns over directors who leave companies that have performed poorly, but who still receive excessive compensation payouts.
The government has stipulated, however, that the premise of the document remains that individual directors' pay is a matter for companies and their shareholders. The government says that its role is to create a framework to allow shareholders to play their part in this process effectively and responsibly.
Trade and Industry Secretary Patricia Hewitt said: "Britain has some of the best and most successful businesses in the world. But the good reputation of the majority is being tarnished by the bad practice of the minority.
"We have no problems with big rewards for big success but shareholders are rightly concerned when directors leave failing companies and walk away with excessive payouts.
"But in response to continuing shareholder concern, this consultation explores whether further action is needed on the issue of directors' contracts and severance. It explores a range of possible best practice and legislative options. We welcome contributions to this very important debate from all interested parties."
The issue of 'fat cat' pay, or so-called golden parachute severance payments to executives who leave a company, has garnered thousands of column inches in the national press in recent weeks.
A proposed pay award worth around $15 million in shares and options to JP Garnier of GlaxoSmithKline caused considerable consternation among shareholders last month. The GSK board has said that it will consult with shareholders in coming months over the proposals.
The remuneration packages of executives has been defended by companies as reflective of the marketplace – to secure the best talent, boards must offer the most competitive pay deals.
The consultation will end on 30 September 2003.
(GMcG)
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