A group representing shareholders who control nearly one-fifth of the London stock market said British companies should consider rewriting employment contracts that guarantee lucrative severance packages for top executives.
The Association of British Insurers (ABI) has sent a letter to the UK's 350 largest companies, encouraging them to review the contracts of top executives.
"We've said to companies that if they have old contracts, particularly with regard to pensions, which would commit them to very large payments on severance, then we think it's appropriate for the companies to review them," said ABI director of investment affairs Peter Montagnon yesterday.
"It is damaging to the reputation of business when these kind of payments are made to people who haven't added value."
Executives' pension arrangements became a topic of controversy earlier this year when the former chief executive of Scottish Power left the firm with a payment that doubled the size of his pension pot and allowed him to retire on a full pension at the age of 50.
Pensions are a sensitive issue as many British workers are facing smaller pensions as firms shut plans that offered guaranteed payments based on final salary in favour of retirement plans where ultimate payouts depend on the performance of investment markets.
Investors are unsure how many companies have agreed on contracts with top managers that would bind them to bumper payouts if they leave.
"We don't know what's out there. We think there are probably some, but I don't think there will be a lot," said Mr Montagnon.
Companies that defy the request to update their managers' employment contracts and go ahead and pay lucrative severance packages are likely to face the ire of shareholders.
"Until now, it's been possible for companies to say, 'It's in the contract and we can't do anything about it', as a defence for some large packages," he said.
"But if you have a contract that is way out of line with best practice, which you haven't reviewed or sought to do anything to, then don't presume that defence is going to be accepted automatically."
