Investors try to curb corporate bonuses

Controversy has been sparked by board members taking huge rewards, but
influential parties are seeking to slow the executive gravy train, rather than
derail it.

Last week, the Association of British Insurers used its considerable weight
to force Marks & Spencer’s management to up their earnings per share
improvement target to 12% above the cost of inflation if they wanted to receive
their bonuses.

Ian Dyson, FD of the high street giant, raked in a total bonus of more than
£1.3m – substantially more than his £525,000 basic salary – but there are key
safeguards in place. Of his bonus, 60% will be paid into the company’s deferred
bonus scheme to be held for three years. ‘The value of any dividends accrued
either in the form of dividend equivalents or through a Dividend Reinvestment
Plan will be paid at the end of the period,’ Marks and Spencer said in its
annual report.

Of Tesco shareholders, 18% have refused to back a new pay scheme for chief
executive Sir Terry Leahy, who could generate up to £11.5m if the grocer’s new
convenience store chain in the US proves successful.

Cable & Wireless is facing a substantial vote against changes to its pay
plan, which could reward chief executive John Pluthero with more than £20m, and
provide a bonus payout to the group’s part-time chairman Richard Lapthorne.

Pressure is being exerted from all sides, as the DTI is shaping its designs
to put an amendment to the Companies Act demanding that companies take pay
conditions in other sections of the company into account when setting directors’


US-quoted UK companies face increased claim threat

The result of a US Supreme Court trial could see British companies dragged
through the courts for having business links to companies that submit false
accounts. This suggests that UK corporates quoted on the New York stock
exchange, will be at much greater risk of litigation, because of their focus on
US operations.

The situation rests on the outcome of the case involving Scientific-Atlanta,
an electronics supplier sued by Stonebridge Investments for its links with
Charter Communications, a cable TV provider, between 1999 and 2002. In court
papers, the investors claimed Scientific-Atlanta was involved in ‘sham
transactions’ designed to inflate the cashflow of Charter ­ audited by Arthur
Andersen at the time ­ by $17m(£8.5m).

Under current law, any company that issues shares in the US is liable for big
class-action compensation pay-outs if they file false accounts or mislead their
shareholders. On the back of the current case, the US Supreme Court is now
considering whether any other third-party supplier, legal firm, accountant or
bank that works with the offending company should face claims from defrauded
investors and shareholders.

Deloitte in £400m auto VAT threat

Deloitte is recruiting automotive industry companies to join a £400m class
action against the government. The Big Four firm will bring the action in the
autumn, unless the government bows to claims based on a European Court of
Justice ruling in the 1990s that ruled some Italian companies were being
illegally charged VAT, according to press reports. Some claims of VAT
over-payment could date as far back as the 1970s.

The claim relates to refunds already made by the government but at a much
lower rate than the companies believe they are entitled to given real inflation

David Raistrick, Deloitte’s European head of automotive, said: ‘If we can’t
reach agreement our clients are pushing to obtain the money by going to court.’

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