Beating up on fat cats

19 May 2003 By Hugo Dixon

This is an outbreak of common sense. Passing laws to stop departing executives from walking away with cash would have been barmy. Far better to leave it to shareholders to control executive pay. They are now doing that: just look at Glaxo.

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The UK government is backing away from plans to introduce specific legislation to stop failed executives from collecting big payoffs, according to a person familiar with the situation.

The move came as 51% of Glaxo SmithKline shareholders voted against the company's remuneration policy. They were complaining about the large payoff that JeanPierre Garnier, the chief executive, would receive if he lost his job. The vote is nonbinding but Glaxo said it had registered shareholders' sensitivities and hired Deloitte & Touche to conduct a review.

Patricia Hewitt, the trade and industry secretary, was until recently keen on introducing such fat cat legislation. But she has been persuaded that interfering with the ability of companies to set contracts with their employees would have been a legal minefield.

The government is still planning to publish a consultation paper in the coming weeks.

One idea, which would not involve new legislation, would be to urge industry to adopt a standardised contract allowing companies to avoid payoffs to underperforming executives. This provision would only apply to new contracts.

Another idea, which would involve a change to the law, is to prevent companies from signing contracts with employees that last longer than three years unless they gain consent from shareholders. At present, they are prevented from signing contracts that last longer than five years.

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