Institutions produce tighter rules

Leading institutional investors have drawn up tough guidelines designed to thwart a repeat of the controversial £15m "windfall" payment to Carlton boss Michael Green following this year's merger with Granada.
There was shareholder fury in March when it emerged that nearly half of Mr Green's pay-off had been triggered by an opaque "change of control" clause in his share incentive plan. He was ousted by investors before the full merger, which created ITV.
Mr Green's pay-off was also fuelled by an extraordinary rise in Carlton's share price after the government imposed surprisingly lenient regulatory conditions on the merger.
City investors yesterday unveiled a series of measures designed to "discourage" such payments. Companies will have to disclose what they expect to pay a director in the event of a change of control and any payment "should reflect the underlying financial performance of a company".
The changes formed part of revised guidelines on boardroom pay issued by the Association of British Insurers, an influential investor lobby group whose members control a fifth of the shares on the stock market. Peter Montagnon, ABI's head of investment affairs, said: "The tighter language has been inspired by the Carlton
experience. The new guidelines should help prevent excessive payments."
The ABI also warned companies against bumping up executives' pay ahead of pensions tax changes. Under new Inland Revenue rules from April 2006 pension pots of more than £1.5m will lose tax advantages.
Thousands of company directors will be affected and some pay analysts believe executives are planning to receive compensation via "back-door" methods such as higher cash bonuses, or increased performance-related pay. The ABI said: "Companies are not responsible for compensating individuals for changes in personal tax liabilities."
Investors also demand companies provide greater transparency over short-term bonuses. The ABI acknowledged that companies were wary of advance disclosure of performance targets as they could be commercially sensitive.
However, it said that, as such payments were increasing, shareholders would expect to be told the criteria used - after the bonus was paid - so they could judge whether it was justified.
The ABI guidelines also rule against company chairman being paid in shares and concede that the introduction of new international accounting standards "may make reported earnings more volatile".