Cable & Wireless facing shareholder revolt over executive pay

Cable & Wireless faces a shareholder revolt over plans to pay senior executive John Pluthero up to £11m under a controversial incentive scheme that has already drawn fire from corporate governance bodies.

The company is also braced for protests against "golden handcuff" proposals that would lock in senior managers at one of the companies that is being demerged and separately floated on the stock exchange this month. Under the terms of the scheme, three executives would be in line for millions of pounds if targets are met.

Pluthero, a former boss of the internet company Freeserve, has already received £8m under the cash part of the company's long-term incentive plan (LTIP), but stands to collect another £3m by 2011 if he can boost the group's share price. Details of his pay arrangements are contained in the company's demerger document, which sets the stage for a breakup of the group.

Andy Kerr, of the Communication Workers Union, said: "John Pluthero is completely out of touch with both the business world and his staff. He should pay this bonus back and give Cable & Wireless workers a decent pay rise. This scandalous bonus culture for senior managers is disgraceful." The company has recently cut 1,900 jobs.

Investors say they are ready to vote against the firm's remuneration report at the annual meeting this summer because pay awards at C&W are excessive.

One shareholder who spoke on the basis of anonymity said: "C&W shouldn't be inflaming tensions at a time of heightened investor sensitivity to excessive pay in the wake of the world financial crisis.Executive remuneration has become an explosive issue."

But the company said: "We pay our executives what we consider to be a reasonable rate, in line with their duties and comparable packages at peer companies." It added that Pluthero, chairman of C&W Worldwide, and other managers had increased shareholder returns by 44% since 2006. Richard Lapthorne, group chairman, said that shareholders had "benefited" from the scheme, which had underpinned the company's revival. Shares are up 30% in three years.

The company has published a document that sets the stage for separate listings of its UK and international businesses, known respectively as C&W Worldwide and C&W Communications.

The document also outlined proposed modifications to C&W's LTIP, which last year paid out £32m to senior managers. Changes to the plan are designed to pave the way for big share awards for exceptional performance for Jim Marsh, chief executive of C&W Worldwide; Tim Weller, finance director, and Ivan Gunatilleke, chief operating officer. The proposed awards for Marsh and his colleagues reflect how C&W is trying to ensure that managers responsible for the turnaround of the British business stay at the company well beyond the demerger.

But the proposals, which will be discussed by the company with investors after the split, have angered activists who are concerned that C&W's pay policies breach best practice. Alan MacDougall, of corporate governance champions Pirc, said: "The fundamental problem here is that C&W is encouraging risk because if executives really want these rewards they could be tempted to make decisions that are not in the long-term interests of the company or its shareholders."

The demerger will begin on 22 March with the listing of C&W Communications. C&W Worldwide will follow on 26 March.

Opposition to C&W's pay plans has been the norm since 2006 when it introduced a private equity-style LTIP that was designed to pay executives cash of up to 10% of growth in shareholder returns. Shareholders said there was not enough downside and that hurdles were based on too short a timescale. The scheme could have paid out £220m in total if C&W's shares had performed even more strongly.

Last year, C&W suffered one of the biggest shareholder rebellions of the year when 38% of its investors failed to endorse its pay policy after the Association of British Insurers objected to its remunerationstance by issuing a "red top" alert.

Source: The Telegraph, 11th March 2010

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