Power storm shakes Greenbury

The Greenbury report into executive pay, published today, hit a political storm after it was revealed that directors of National Power cashed in almost pounds 2m of share options.

Sir Richard Greenbury's report will urge privatised utilities to review their pay packages and adjust them voluntarily in line with a new code of practice.

It also calls on water and power companies to make a full report on what they are doing about directors' packages to the earliest possible annual general meeting.

However, the committee's attack on earnings policy at the utilities is more muted than expected, saying the majority have acted properly and that only in some instances was behaviour poor.

The Labour Party yesterday claimed that the report had been watered down, and said its recommendations could never stop the sort of "corporate greed" seen at National Power.

The latest controversy surrounds the six National Power directors, including the chairman, John Baker, who exercised share options between them worth pounds 1.98m in May and June. Mr Baker made pounds 366,000 to add to the pounds 713,000 of shares he exercised last November, taking his share earnings above pounds 1m, according to the Labour Party.

The biggest amount was made by Granville Camsey, managing director of National Power's group technology, who recently exercised pounds 567,000 of shares.

Dr Jack Cunningham, Labour's trade and industry spokesman, said the report scored "maybe five out of 10, and must try harder. I doubt that the final report meets all our requirements, though it does meet some of them."

Dr Cunningham was particularly critical of the proposal that privatised utilities should voluntarily revise their remuneration practices. He said: "To say to people that have abused their stewardship that they should adopt some code of self-regulation is not on. We have no confidence in these people to behave properly." Labour would look at the powers and duties of utility regulators to see what more could be done.

On the utilities the report refers to mistakes and misjudgements by a minority of UK companies. It says there is little doubt that remuneration committees at a number of privatised water and energy companies have developed "perhaps unintentionally" pay packages that are richer than required to recruit, retain and motivate managers.

The keystones of the report will be demands that earnings are related to performance and that disclosure is widened to include details of every director's pay - backed by changes to the Companies Act.

Sir Richard expects some tough criticism of his proposals from business leaders as well as from politicians. Last week in an interview with the Independent he said of the likely reaction of businessmen: "I think we will push some of them too far." In the area of share options and incentive schemes "our proposals will go much further than some people would like but I am satisfied they are fair."

Sir Richard admitted that he personally disagreed with parts of the report, such as the extent of its plans for pay disclosure, but he accepted them because they were the majority view.

Despite the Labour Party's attempt to undermine faith in the report, the 11-man Greenbury committee is likely to meet approval from Labour on the taxation of executive share options.

It is to recommend that Inland Revenue-approved schemes under which option profits are liable to capital gains tax when the shares are sold, but not before, should be abolished. Instead the committee wants all profits taxed immediately as income on the exercise of the options.

There will be a code of practice which the committee wants incorporated in the Stock Exchange's listing rules, but the committee itself is to disband and will ask the Cadbury Committee on corporate governance to take over the monitoring role on executive pay.

The report says remuneration committees should consist only of non-executive directors, who should make a report to shareholders in the annual report.