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UK firm wants to nix payoffs to lackluster executives

A London investor firm has hired a law firm to draw up a universal employment contract in an effort to prevent executives walking away with rewards for failure.

F&C Asset Management, which has been leading a campaign to clamp down on such payoffs, is devising a "template" for directors' contracts that, where appropriate, will permit companies to claw back salary and bonus payments after executives have left troubled companies.

There have been a series of controversial payoffs to board directors that companies have argued they were powerless to prevent, as executives were entitled to the money under their contracts.

In some cases, corporations attempted to halt payments they believed had been made inappropriately. Last summer, the UK supermarket giant J Sainsbury called in lawyers in an attempt to stop the supermarket group's ousted chairman, Peter Davis, from receiving a £2 million (US$3.5 million) bonus. But the lawyers were powerless in the face of his contract.

Karina Litvack, head of governance and socially responsible investment at F&C, said: "We have hired employment lawyers to come up with model language for contracts. We are hopeful this will be emulated by others in the industry."

F&C has sent its draft contract to the Association of British Insurers (ABI), which is working on its revised guidance to companies for remuneration policies for next year. The ABI is supportive of attempts to halt failure payments and is now considering the F&C contract and its practicality.

The proposal includes a clause that cash can be recouped from executives when it has been "paid in error" when remuneration committees did not know the full facts about a company's finances at the time it was awarded. Litvack said clawback should be immediate if accounts had to be restated after a director's departure or if there were any later findings of fraud.

"There shouldn't even be a debate," she said. "If they have collected a bonus ... they owe it."

However, F&C hopes also to come up with a wording that will enable cash to be clawed back from executives who are judged either incompetent or negligent.
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