Cable & Wireless is on course for a bruising encounter with investors and unions after changes to its pay and perks policy that will enable top executives to share in potentially limitless bonuses.

The Association of British Insurers (ABI), whose members hold up to a sixth of all investments traded on the stock market, declared yesterday that it had “little enthusiasm” for a new scheme that could see top executives at the telecoms group handed awards of more than £20 million.

It is consulting members on whether to issue the group with an “amber-top” warning ahead of its annual meeting next month.

The ABI was joined by a top-ten C&W shareholder in condemning the company for a lack of consultation on the changes, which also mean that Richard Lapthorne, the chairman, will stand to gain up to £10 million if the group hits tough performance targets.

A controversial £220 million private-equity style bonus scheme was introduced at C&W last year as the final piece in Mr Lapthorne’s plan to turn around the struggling telecoms group.

A cap ensured that no individual could receive more than £20 million under the scheme, which, though waived through at the annual meeting last year, met with some shareholder anger. C&W is now proposing to remove that cap, ensuring a potentially limitless payout for John Pluthero, its UK head, and Harris Jones, head of its international division, if they meet tough turnaround targets.

C&W insisted that the proposal to remove the cap and to introduce an award of up to 5.5 million shares for Mr Lapthorne, was “in the interest of shareholder value”.

The group, whose shares have climbed by 90 per cent in the past six months, is understood to feel that, without the additional incentives, its ambitious turnaround plan could be stifled. Mr Pluthero, for example, is already close to qualifying for a £20 million payout.

In an effort to receive that money when it is due to him in three years’ time, he could become risk-averse and opt to keep the company on an even keel rather than taking risks aimed at further boosting the share price, the group is thought to have argued.

It also emphasised that the 60 executives participating in the scheme will be required to put “skin in the game” by holding the value of their salary in C&W shares once their reward pool hits £15 million.

But investors and unions at the group, which has slashed thousands of jobs as part of its turnaround efforts, criticised the plans.

Peter Montagnon, director of investment affairs at the ABI, said: “There is not much overall enthusiasm for these proposals, particularly with regard to the removal of the cap — although views are mixed. The cap which is to be removed was an integral part of last year’s carefully negotiated arrangement.”

He added: “Unfortunately there has not been time to complete discussions about the details, and shareholders will make up their minds in due course.”

Another key shareholder, which declined to be named, said it had not been consulted.

Jeannie Drake, deputy general-secretary of the Communication Workers Union, said: “Is there no limit to Mr Lapthorne’s cheek and to shareholders gullibility? Last year they agreed to a huge reward system for top executives to deliver a programme they had failed to deliver the previous year. Now they’ve got to pay Mr Lapthorne an additional £10 million to do his job enthusiastically I should think the morale of the actual workforce must be in freefall.”

Poor reception

2000 Shares peak at £15

2000 Chief executive Graham Wallace embarks on ill-fated acquisitions spree

January 2003 Shares at 60p, Richard Lapthorne joins

April 2003 Wallace resigns, replaced by Francesco Caio

June 2003 Row erupts over Wallace’s payoff and non-executive remuneration

January 2006 Caio departs, former Freeserve boss John Pluthero joins

May 2006 C&W unveils a potential £220 million executive incentive scheme

June 2007 Bonus row escalates as C&W says individual bonuses will not be capped

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