Marks & Spencer has bowed to shareholder pressure and modified the terms of its controversial bonus scheme for Stuart Rose, its chief executive, and other top directors at the high street retailer.

It is understood that after meetings with the Association of British Insurers (ABI), M&S has increased the earnings-per-share targets that determine the level of performance-related payouts for Mr Rose and other executives.

The ABI, a powerful shareholder lobby group, was happy to wave through a bumper cash-and-shares payout for Mr Rose worth £7.8 million this year, but it insisted that in order to qualify for the same payout next year, earnings per share must rise by 12 per cent above inflation. M&S had sought an increase of 10 per cent.

The move came as the ABI yesterday advised shareholders to oppose a controversial pay scheme at Cable & Wireless that would provide uncapped bonuses for two directors and a bonus deal for Richard Lapthorne, the chairman, worth more than £10 million. The group’s opposition was revealed by The Times on Monday.

BACKGROUND

• M&S bows to pressure over top bonuses

• Marks & Spencer chief reaps bonus benefit

• How the M&S boss turned green

• Marks & Spencer ousts retail director in broad reshuffle

• Rose’s turnaround plan is paying off for M&S

M&S comment: Quite an achievement

Stuart Rose has achieved the biggest high street turnaround in years

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• Keep eyes on the bonus carrot

• ABI joins dispute over C&W pay plan

Changes to M&S’s performance-related scheme also apply to Ian Dyson, the finance director, and Steven Sharp, the marketing director. They picked up maximum bonuses, worth 250 per cent of their salaries this year.

Having written to the ABI in April to kick off a consultation process on the bonus proposals, it is understood that M&S also held meetings with individual investors. The ABI’s members own one in every five UK shares. The ABI has now given M&S’s annual report a “blue top”, advising shareholders not to oppose resolutions.

Michael McKersie, the assistant director of investment affairs at the ABI, declined to comment on the specifics of the M&S bonus scheme, but he said: “We had a constructive dialogue with the company involving both the amounts and appropriate performance vesting schedules and we are pleased the actual vesting schedules reflect the nature of the discussion we had with them.”

M&S said: “We listen to all our shareholders and have taken on board comments from investors on our remuneration policy.”

M&S still faces a potential investor revolt over pay at its annual shareholder meeting next week after Pirc, the corporate governance lobby group, vetoed its remuneration report yesterday.

Another lobby group, RREV, the joint venture between the National Association of Pension Funds and the American proxy voting group ISS, said that it had not yet reached a recommendation for shareholders.

Pirc, in its weekly round-up of issues for investors, described the potential rewards on offer at M&S as “excessive” and recommended a vote against the report. It said it did not believe that performance targets were sufficiently challenging, because they either matched or were below brokers’ forecasts.

M&S called its performance targets “stretching” and added: “Our policy is focused on the retention, attraction and motivation of high-calibre individuals like Stuart Rose, who are key to the long-term growth of M&S.”

Mr Rose has spearheaded a dramatic turnaround in the retailer’s fortunes. Annual pretax profits surged 28.5 per cent to £965.2 million last year, with sales rising 10 per cent to £8.6 billion. Shares in the retailer have surged past £6, from below £4 three years ago.

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