Top executives at telecoms giant Cable & Wireless could receive unlimited multimillion-pound bonuses under changes unveiled today to its controversial pay plan.
C&W is proposing to scrap the individual #20 million cap on performance-related bonuses for the group’s 60 executives, while also introducing an incentive package for chairman Richard Lapthorne, potentially worth millions in three years.
The plans come just a year after the group caused shareholder outrage with the launch of its incentive scheme, deemed too generous at last July’s annual general meeting by 14% of investors.
C&W was forced to cut the bonus maximum from #22 million to #20 million after shareholders complained about the plan in initial consultations, but the company is now asking investors to vote for the cap to go altogether.
Today’s announcements follow a marked recent recovery at the group, which last month reported full year pre-tax profits more than doubled from #100 million to #249 million.
But the revival has come at a cost, with its latest programme of staff cuts having already claimed hundreds of jobs and more planned over the next three years, leading to a possible 50% reduction on the 5,614 employed last March.
The group said today its return to health had been largely driven by the incentive plans put in place last April.
C&W added that investors stood to gain alongside executives, to the tune of #1.5 billion in extra shareholder value over the past financial year.
Mr Lapthorne’s possible windfall, which will go ahead if he is re-elected at next month’s AGM, is designed to reflect the part he has played in the company’s transformation, according to C&W.
The 64-year-old chairman stands to gain up to 5.5 million shares - worth around #11 million based on today’s share price - as part of the bonus scheme.
To secure the payout, Mr Lapthorne must ensure total shareholder return over the next three years is in the top tier of a peer group of global telecoms companies, including same-sector firms such as BT, Vodafone and Deutsche Telekom.
He was previously excluded from the incentive scheme.
Clive Butler, C&W senior non-executive director, said: "The board considered it a priority to secure Richard’s continuing contribution to the turnaround and transformation of our business.
"These proposed arrangements reflect the reality of the chairman’s involvement."
Mr Lapthorne joined C&W in January 2003 as the group embarked on a radical restructure, which saw its international and UK operations split.
The group’s share price has more than doubled in the time since his appointment.
C&W’s incentive plan is linked to the stock market value of the group, with the international and UK operations - headed by joint managing directors Harris Jones and John Pluthero - each having to grow by at least 8% a year by the end of 2010.
The international business must increase in value from #1.9 billion to #3.6 billion by April 2010, while the value of the UK arm must rise from #700 million to #2 billion.
C&W’s two bosses are close to achieving these aims, with the share price already around 200p - not far off the 228p needed to achieve the required growth in market value.
The combined value of the two reward pools was already #120 million as at the end of March.
Mr Pluthero and Mr Jones will scoop 20% of their business bonus pools if they meet all the targets, which have not been changed in the proposals outlined today to axe the #20 million cap.
But executives will have to retain at least one times their salary in C&W shares.
Three-quarters of the bonus pots are set to be paid in April 2009, with the remainder due the following April.
Jeanie Drake, deputy general secretary of the Communication Workers’ Union, said: "Is there no limit to Mr Lapthorne’s cheek and to shareholders’ gullibility?
"Last year they agreed to a huge reward system for top executives to deliver a programme they had failed to deliver the previous year.
"Now they’ve got to pay Mr Lapthorne an additional #10 million to do his job enthusiastically. The morale of the workforce must be in freefall."