Government launches fresh inquiry into golden goodbyes

The Government pledged yesterday to look again at the controversial issue of executive pay though it said Archie Norman's Private Member's Bill to end the practice of underperforming directors receiving "golden goodbyes" was not the way forward.

It said it was prepared to look at the size of the problem, the success or otherwise of previous changes and the steps that could be taken to improve pay guidelines. It said it would also examine the implications of potential changes for UK and European law.

Meanwhile, the Association of British Insurers and the National Association of Pension Funds said they recognised there was a problem with "rewards for failure" but said the Bill was unenforceable. The organisations said it would founder on reaching a definition of failure and could lead to companies overturning employment contracts.

Mr Norman, a Conservative MP and former chairman of Asda, the supermarket group, published his Private Member's Bill yesterday proposing to allow boards to curb pay-offs to sacked directors. It would give companies the power to override contractual obligations.

A spokesman for the Department of Trade and Industry said: "We have a good deal of sympathy for this Bill but, unfortunately, it is not the answer. It would undermine the fundamentals of contract law and be a contravention of the European Convention on Human Rights." The DTI said it could lead to directors seeking "golden hellos", upfront payments for joining companies, if they knew there was no possibility of receiving a "golden goodbye" when they left. The spokesman added: "There is no precedent for this kind of thing and it would have worrying implications for employment contracts." It is thought the Government is concerned that it could lead to a bar on pay-offs on all employment contracts.

The Government has already recommended that companies' remuneration reports should be published in their annual reports and put to a shareholder vote at annual meetings. The changes come into force this year, though the shareholders' vote is only advisory and cannot overrule a "golden goodbye" payment.

Shareholding bodies such as the NAPF and AIB favour guidelines and codes rather than legislation for matters relating to boardroom structures.

Mr Norman has claimed that the Government's failure to back his Bill would, in effect, kill it. But he has said the Government could then not complain when "rewards for failure" pay-offs hit the headlines again.

The impending pay-off to Robin Jeffrey, the departing chairman of the nuclear generator British Energy, is an example. The company has required a government bailout. Patricia Hewitt, the Secretary of State for Trade and Industry warned in November that a high pay-off for Mr Jeffrey would send a "very damaging signal".