Rebellion over Misys ‘retention’ bonus plan

Misys, the software and services group, is facing a shareholder rebellion next month over plans to award two executives a “retention” bonus worth £1.2m each to stop them quitting if they fail to become chief executive.

The investment committee of the Association of British Insurers, whose members control about a fifth of the UK stock market, issued “red-top” guidance on the proposed awards, signifying its highest level of concern.

Several of the company's institutional investors plan to vote against the proposal at the company's annual meeting on September 13. The vote is binding.

The dispute has been sparked by Misys's plans to find a chief executive to replace Kevin Lomax, founder and executive chairman, who plans to become non-executive chairman by 2008.

Misys is worried that its two most important divisional directors Tom Skelton, head of healthcare, and Ivan Martin, head of banking could walk out if they are passed over for the top job.

It is proposing to award each executive shares worth £600,000 in four years' time if they “successfully execute business strategy” and the same amount after three years if each hits performance targets based on increasing divisional operating profits. Many disgruntled investors said this was the first time proposed retention awards had been linked to the search for a chief executive.

If it were passed it would set a “dangerous precedent”. Deborah Gilshan, of Co-operative Insurance Society, which owns about 2.5 per cent of Misys, said: “We are concerned and plan to vote against.” UBS, which owns 11 per cent, is likely to determine whether the proposal fails.

Misys said: “The performance targets are stretching and some of our largest shareholders have signalled support. We have been proactive with investors and remain in discussions with them.”