Shares storm at Cable & Wireless

By SIMON WATKINS FOR THE MAIL ON SUNDAY
Updated: 05:20 EST, 10 June 2007

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Richard Lapthorne, chairman of Cable & Wireless, is making a habit of going to the City with staggering plans to reward his directors. Back in 2003, he described a deal guaranteeing his chief executive a £1m pay day in his first year as 'bog standard'. Last year, after sacking that failed boss, he took his platinum begging bowl back to major shareholders with an astonishing plan to give joint managing directors Harris Jones and John Pluthero - plus a select group of executives - a private equity-style deal earning them as much as £20m each.

Now, after squeezing that through in the face of investor fury, Lapthorne is back with his most audacious proposal yet. First, he wants the £20m cap axed, replaced by unlimited bonuses if C&W shares soar or it is sold. But even more amazingly, Lapthorne is demanding that he should get up to 5.5m free shares - worth £11m at today's prices - if the company's shares outperform its rivals in the next three years.

What makes this suggestion even more unpalatable for some investors is that Lapthorne only plans to work two days a week. The C&W chairman, however, does not understand what all the fuss is about.

The pay proposal challenges City convention that chairmen receive a fee, not shares, and therefore have some distance from executive decisions.

Private equity's multi-millionaires have borne the brunt of criticism of corporate greed in recent years. But Lapthorne's scheme puts the spotlight back on excess in quoted companies that many thought had been curbed.

With candidates for the Labour Party deputy leadership arguing over whether a tax should be introduced to curb excessive City bonuses, Lapthorne and his cohorts could hardly have picked a worse moment to unveil the scheme.

Investors will vote on the proposals at next month's agm and corporate governance experts predict a rough ride.

Sarah Wilson, managing director of shareholder voting services company Manifest, said: 'There are an awful lot of angry people. They are concerned there are no guarantees that shareholders' interests are aligned with the chairman's.'

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Peter Montagnon, director of investment affairs at the Association of British Insurers - which speaks for one in five shares in the London market - said C&W's board had little support from investors for unlimited bonuses.

'The cap was an integral part of last year's carefully negotiated agreement,' he said.

Huge pay deals are making waves all over the City. Stuart Rose's pay at Marks & Spencer is set to hit £8 million this year, but despite the highly successful retail turnround, investors are also balking at a plan which could see the M&S boss get four times his salary in free shares.

Clara Furse, chief of the London Stock Exchange, has just been awarded a bigger bonus than the maximum approved by shareholders, after fighting off a bid.

Sir Terry Leahy, head of supermarket giant Tesco, is attracting flak for a new deal which could pay him £12m. However, Sir Terry is running one of the greatest success stories in UK corporate history, with more than £1 in every £8 that consumers spend going through his tills. Furse and Rose can also point to triumphant - and muchimproved - operating numbers.

However, Lapthorne, who is also chairman at retail group New Look, in the middle of a foundering sale process, is still struggling with C&W.

W's strong international business mainly comprises former monopoly phone operators in the Caribbean. But the UK business, headed by John Pluthero, formerly of telecoms company Energis and internet provider Freeserve, is still losing money - after paying £750m for Energis.

Shares have soared because the City believes Pluthero will stem losses and private equity will eventually put the business out of its misery. Some big shareholders have backed the new pay scheme. But others are less happy and its workers are distinctly unimpressed.

'Is there no end to Mr Lapthorne's cheek or shareholders' gullibility?' Jeannie Drake, deputy general secretary of the Communication Workers Union asked delegates at its annual conference.

Lapthorne clearly believes the deal is in the bag. He does not see the rewards package as rekindling public antagonism towards top executive pay.

'We won't be resting on our laurels at 200p a share,' he told Financial Mail, 'We will be pushing forward to drive performance to the next level.'

Yet with every penny on the share price worth a potential £55,000 to him, what incentive does he have to criticise decisions by executives if they boost shortterm profits at the expense of longerterm investors?

Shareholders may accept the conflict of interest at C&W. But Lapthorne's greed could once again call into question boardroom standards.