New SMG chief executive Rob Woodward is set to be handed free shares in the troubled media group potentially worth £2.5m.
A revamped long-term incentive plan (LTIP), which will be put to a shareholder vote at an extraordinary meeting on Friday, will see a clutch of executives share 2007 awards with a potential value of £6.8m.
Finance director George Watt, sole survivor of the much-criticised "ancien regime" at SMG, could pocket more than £900,000 when the 2007 LTIPs vest in three years' time.
SMG's new remuneration committee chairman is Vasa Babic of Hanover, the activist investor that engineered the removal of the previous leadership team.
In a letter to shareholders, Babic said changes to remuneration policy were needed to "incentivise and retain a predominantly new executive team to achieve the company's recovery strategy".
In 2007, the first year of the new LTIP scheme, the vesting conditions attached to the awards will be absolute share price targets. Participants will be able to "bank" parts of the award on an annual basis until 2010, which Babic said will ensure the executive team is "rewarded appropriately for good performance in the early stages" of the three-year performance period. This will also insulate participants from an adverse share price move towards the end of this timescale.
SMG intends to hand new chief executive Woodward a 2007 LTIP award of three times his £380,000 salary, while Watt will get twice his basic pay of £214,000.
In 2010, when the awards vest, Woodward will get shares worth £2,493,749 if the share price sits at the maximum stated target of 140p. Watt would get shares worth £936,250 on the same basis, while all the participants would share £6,816,248.
SMG shares closed at 62p last night.
The company is also proposing to amend the rules of the LTIP so executives do not lose out if SMG is taken over. Babic acknowledged that best practice guidelines, and a "significant number" of shareholders, believe the number of shares that vest should be automatically linked to the amount of time that elapsed between the award and the change of control.
In proposing that this arrangement should no longer apply, Babic added: "The (remuneration) committee believes strongly that the company's circumstances as a recovery company make this discretion critical to providing a motivational and retentive package to the new executive team."
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