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Some of Vodafone’s biggest shareholders are squaring up for a fight with the telecommunications giant about directors’ bonuses.

The mobile operator wrote to leading shareholders last week proposing changes to its pay policy for senior executives. It requested feedback by May 23, a week before it is due to report preliminary full-year figures.

In the letter, Vodafone sought support for plans to cut the earnings growth performance targets on share option awards, from 8-16 per cent to 5-10 per cent. It also proposed to link directors’ bonuses to four performance measures: revenues, earnings before interest and tax, free cash flow and “customer delight”, an independently defined measure of customer satisfaction.

The company said in the letter, signed by Luc Vandevelde, a non-executive director and chairman of its remuneration committee, that the changes were limited in scope and in line with existing remuneration policy, so it did not feel individual meetings with investors were necessary.

Vodafone confirmed the content of the letter and said the proposed lower hurdles for the awards were “in line with lower growth prospects for the sector overall”.

One leading shareholder described the letter as “staggering” and said it was concerned about the appropriateness of the new targets. Another said it would call for a meeting with the company to discuss the plans.

However, a third shareholder said the changes were “fine-tuning” and noted that Vodafone had been particularly diligent on remuneration ever since a row six years ago over proposals to pay Sir Christopher Gent, then chief executive, a £10m special bonus for taking over Mannesmann of Germany.

The letter comes amid investor concern about Vodafone’s strategy and underperforming share price. The shares have underperformed the FTSE All-Share index by 36 per cent and the telecoms sector by 17 per cent over the past three years.

Arun Sarin, chief executive, announced in February a goodwill write-down of up to £28bn, a record for a British company, and acknowledged that Vodafone was entering an era of lower growth.

Some investors had questioned whether earnings and revenue targets have encouraged executives to pursue growth via acquisitions without taking sufficient account of shareholders’ interests.

Copyright The Financial Times Limited 2017. All rights reserved.
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