London, June 04: Britain has proposed new laws to stop bosses leaving failing companies with massive payoffs in response to the growing public concern over "fat cat" greed. Trade and Industry Secretary Patricia Hewitt launched a new consultation document entitled "Reward for Failure" that recommends that remuneration be linked to performance.
The move follows widespread anger at excessive severance packages for top directors, including a historic veto by shareholders of a proposed $36-million pay package for the boss of drugmaker GlaxoSmithKline last month.
The government is now seeking the views of companies, unions and the public by September to see whether a change to company law or a code of practice is the best way to stop the current excesses.
"We have no problems with big rewards for big success but shareholders are rightly concerned when directors leave failing companies and walk away with excessive payouts," Hewitt said.
"This consultation explores whether further action is needed on the issue of directors' contracts and severance. It explores a range of possible best practice and legislative options."
According to the new proposals executives leaving failing companies could have their pay-off limited to a maximum of one year's salary. Another option is to give boards the right to veto the pay packages of failed directors.
Executives could also end up being being given ordinary shares in their companies so their remuneration became linked to company performance, rather than options that they can cash in when the stock market value is high. Bureau Report