UKSA policy: Director Severance Packages

There have been many concerns about the amounts paid to directors whose contracts are terminated. Often this appears to be because of failure by the director concerned, and yet he can be paid more than he is contractually entitled to receive. Hence the commonly used phrase "rewards for failure". Sometimes these "dismissed" directors move into new positions with other companies very rapidly, with the result they are better off than if they had continued to be employed by the terminating company.

A particular issue here is also the length of service contracts, where multi-year rolling contracts are now frowned upon. In such cases, it can be very expensive to remove a director.

UKSA would like to see some limitation on severance payments, more information provided to shareholders, and more control on their amount, before they are paid. This document, from October 2003, was a submission to the DTI on the subject of Director's Contracts, Performance and Severance.