Cable & Wireless saw off a shareholder rebellion last night over its controversial pay and perks policy.

Plans to remove a £20 million cap on an incentive scheme for executives, including John Pluthero, the UK head, and to make Richard Lapthorne, the chairman, eligible for up to £11 million in a share-based perks scheme, were voted through by investors.

However, in a sign of the unease felt over the plans, almost one in five votes failed to support the lifting of the cap and 11 per cent of votes cast by shareholders failed to back Mr Lapthorne’s re-election.

The controversial proposals were waived through as C&W revealed that a planned demerger of the business was on the cards for 2008.

The remuneration plans triggered a fierce debate in the City. Investor groups had questioned whether the group was following best corporate governance practice by including Mr Lapthorne in an incentive scheme.

Questions had also been raised about whether the potential rewards for the 60-odd directors included in the long-term incentive scheme were excessive.

At the annual meeting yesterday, Mr Lapthorne came under fire from small shareholders. One, John Farmer, claimed that the “patchy performance” of the company is “not a justification for fanciful private equity-style remuneration . . . On present showing, performance of the company is still faltering and, despite the customary acquiescence of institutional shareholders, this kind of scheme is repellant and contrary to the combined code.”

Another shareholder declared: “You haven’t really got back the City’s confidence and this hasn’t been helped by these massive incentive bonuses.”

Investors could express discontent with Mr Lapthorne’s pay plan only through a vote on his reelection.

Defending the pay scheme, Mr Lapthorne, who claimed he had a more executive role than a normal nonexecutive chairman, said that he had “worked 120 days” at Cable & Wireless last year.

He said: “I don’t feel fat-catish, I feel that this is hard work to get to those numbers [at which the bonus payment kicks in].”

Since the private equity-style scheme was introduced last year, he said, C&W’s share price had risen from £1.09 to its £1.88 level yesterday. The company, he said, was “acutely aware” of the importance of strong corporate governance. He highlighted a statement from the group’s independent nonexecutive directors endorsing the corporate governance controls within the business.

While none of the management would net any bonus payment until 2009, shareholders, he said, could reap the benefits of an upturn in the group by cashing in their shares at any stage.

Mr Lapthorne said that his chairmanship had also been extended to accommodate moves by the company towards a demerger.

Asked about whether money alone motivated him, Mr Pluthero said: “I get a lot out of my work, but I am in an employment market and I want to be paid fairly.”

Standard Life, which backed the plans, said that it was in shareholders’ best interests to ensure the leadership team at C&W “continues to make a vital contribution to improving performance and restoring value.”

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