UK - Pension funds and insurance companies are joining forces to crackdown on excessive payoffs to disgraced executives.
The National Association of Pension Funds and the Association of British Insurers are setting up a working group to produce a best-practice document for companies and shareholders.
It is likely to suggest staggered payments at termination as the best way to avoid lump sum payoffs to ousted bosses.
NAPF investment director David Gould - who will be a member of the working group - said: “Over the last couple of years there have been some big payoffs for people who have not been good to shareholders.
“We’ll look at mitigation and whether there should be some linking between share options and the price of the company’s share standing at departure. If an executive has damaged a company’s health, the payoff should reflect that.”
But Gould added that there was reluctance among firms to stagger payoffs, as many favoured a clean break.
PIRC research director Stuart Bell said there was widespread agreement that current payoff practices were unsatisfactory.
Bell said: “It is clear that all directors are going to be on one-year contracts very soon. Staggered payments will take a fair while longer because it is an unusual practice.”
Last week the practice hit the headlines after Standard Chartered brokered a deal with its ousted chief executive, Rana Talwar, to pay his £3.2m compensation in instalments.
Bell cited the deal as a good example of how companies can reduce payoffs and appease shareholders.
Morley Fund Management corporate governance manager Anita Skipper welcomed the working group saying it was “long overdue”.
She said the industry had hoped the move towards one-year service contracts would reduce payoffs but the inclusion of share options and bonuses in contracts had kept them high.
“The payoffs have not become any smaller even though the service contacts are going down. It’s time that someone looked at it.”
The working group will comprise eight industry figures from the NAPF and ABI, including key members and secretariats. The first meeting will be held next week.
By Simon Meek
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