'Fat cat' bonuses

M&S' Luc Vandevelde: promised �810,000 RBS directors: �2.5m for Natwest takeover Vodafone's Chris Gent: �10m for Mannesmann buy United Business Media's Lord Hollick: �648,900 for sales of TV interests

Likewise, a few weeks ago Royal Bank of Scotland awarded �2.5m in bonuses and share options to two of its directors.

But such windfalls are peanuts compared with the �10m paid to Vodafone chief executive Chris Gent last year, following the takeover of German telecom group Mannesmann.

Shareholders have vehemently protested against all of the above, expressing their dissatisfaction through representative groups, such as the National Association of Pension Funds (NAPF) and the Association of British Insurers.

Luring top talent

Mr Vandevelde was promised a potential bonus as part of his financial package when M&S hired him away from French supermarket group Promodes in February 2000.

And many believe that bonuses - or golden handshakes - are needed to attract top-ranking talent to UK companies.

Donald Macleod says bonuses are needed to attract top talent

"Bonuses do attract people from another environment," says Donald Macleod, a partner at the international recruitment firm, Korn/Ferry International.

"Bonus opportunities" are a standard part of any package, he adds.

Kevin Lomax, a non-executive director of M&S, underlined this point on Sunday.

Speaking on behalf of the remuneration committee, Mr Lomax said: "The problems at Marks & Spencer were already well known a year ago when the contract was negotiated and no world-class retailer would have taken such a high risk position without a number of assurances on the financial front."

Performance problems

Nevertheless, although the size of such bonuses attracts attention, shareholders are usually more concerned with the performance of the recipient.

John Rogers: "It's not the amount, it's the performance"

"It's not the amount, it's the performance," agrees John Rogers, director at the NAPF's voting issues service, which monitors corporate governance issues for investors.

So far Mr Vandevelde's early promise as a retail wonder-kid has not paid dividends for M&S shareholders. The retailer's shares are still down and profits continue to head south.

By contrast, initial controversy over the size of a �648,900 bonus for United Business Media's chief executive Lord Hollick has abated, mainly because Lord Hollick is seen as an acceptable recipient.

Korn/Ferry's Mr Macleod believes the payment is insignificant compared to the shareholder value Lord Hollick has created while at the company.

Accountability

A primary source of aggravation for many M&S shareholders is the company's reluctance to disclose its criteria for determining the size of the bonus.

In a climate of increased corporate governance and the need to be open and fair, such secrecy rankles.

It doesn't help to create an atmosphere of distrust, in the perception of the company

Donald Macleod Korn/Ferry International

Jamie Bell, a senior policy adviser in human resources at the Confederation of British Industry, also stresses that companies continually need to monitor their bonus and awards structure.

Korn/Ferry's Mr Macleod goes further. He says bonuses are "a fact of life", but have to be seen to be "explainable".

"It doesn't help to create an atmosphere of distrust, in the perception of the company," he says of companies like M&S that choose to award bonuses behind closed doors.

Policing remuneration

The government is also keen to improve corporate accountability when it comes to bonuses.

In March, Trade and Industry Secretary Stephen Byers announced proposals to force companies to give a detailed breakdown of directors' pay in their annual report.

Stephen Byers has unveiled proposals to curb excessive bonuses

Companies will also need to account for individual pay packages.

In addition, the NAPF would like to see the introduction of a compulsory annual vote by shareholders to approve the strategy of company remuneration committees.

So far, however, the government has held back from imposing such stringent measures - perhaps for fear of alienating the business community before a general election.

Merger money

The proliferation of merger-related boons, such as the �10m "performance" payment to Vodafone's Mr Gent, has also raised shareholder hackles.

"What incentive is there to work in the future?" asks Mr Rogers at the NAPF, which places great value on bonuses boosting performance in the future.

Even the CBI is cautious about the size of bonuses that should be awarded in this situation.

Mr Bell argues that managers need to have a stake in putting the deal together and that payment should not be overly delayed, but he concedes "it depends on the scale of the bonuses".

In a rare concession, RBS expressed regret earlier this month for paying sizeable bonuses to two directors following its acquisition of Natwest Bank.

Although RBS has had a successful year, the bonuses were awarded in March 2000, only a month after the acquisition was completed.

The outgoing chairman of RBS, Viscount Younger said, "I take the point that there has been discomfort about this and if we decide to make such remunerations in the future we will certainly consult with shareholders before doing it".

In a further sign that companies are wising up to the bonus versus performance issue, John Chambers, president of the tech company Cisco Systems, has elected to take a nominal salary of $1 this year.

The company issued a profits warning last week and said sales for the third quarter would come in 30% lower than the previous three months.

Last year, he earned a salary of $323,319, a cash bonus of $1m and stock options with a potential value of between $100m and $300m.

Winning the war

The NAPF takes such sensitivity toward awarding large bonuses seriously. Although angry shareholders, can rarely prevent companies from paying out a large bonus, Mr Rogers believes progress is being made.

It's not winning particular skirmishes. It's winning the battle

John Rogers NAPF

"It's not winning particular skirmishes," he says. "It's winning the battle."

But even the NAPF agrees that bonuses are needed to drive "world-class performance" in British industry.

"If you don't get the right people running top companies, you've got a problem," says Mr Rogers.

Bonuses are certainly around to stay, but so is accountability.