C&W chief accepts 75% payoff cut

Cable & Wireless has finally settled a dispute with ousted chief executive Graham Wallace over the size of his settlement payment, giving him barely a quarter of the £1.5m he could have received.

After five months of wrangling, Mr Wallace has agreed to accept the equivalent of six months' salary despite his two-year contract, and has also seen his pension bumped up by £500,000.

While he was legally entitled to £1.5m under the terms of his contract, Mr Wallace yesterday accepted £387,500, which will be paid in six monthly instalments from July, averting what initially promised to be one of the year's largest rows over payoffs for corporate failure.

The deal draws to a close Mr Wallace's six years at the helm of the business, a time which saw C&W amass a multibillion cash pile as it sold non-core assets and then almost collapse as its move into global internet communications went dramatically wrong.

After a series of profit warnings last year he finally announced his intention to resign just less than two weeks after new chairman Richard Lapthorne joined the company, in early January.

Earlier this month Mr Lapthorne and new chief executive Francesco Caio revealed the group's annual results, which made plain the folly of Mr Wallace's strategy as C&W was forced to shed over a quarter of its UK workforce, end dividend payments and quit the US market.

In addition, hidden behind Mr Wallace's split of the business into the international internet communications unit C&W Global and a regional business with operations in former British colonies, was a huge loss at C&W's core UK business. Mr Lapthorne's reorganisation of the business took a step forward yesterday as C&W sold its German business to a private equity house. Details were not disclosed but the assets of the business were valued at just €2m.

Yesterday's pay deal, which contrasts with several other recent large payouts to failed executives, was heralded by institutional investors in C&W as a success for Mr Lapthorne, the man credited with helping turn around British Aerospace.

A spokesman for the National Association of Pension Funds, whose members control about a fifth of the stock market, welcomed C&W's success in convincing Mr Wallace to accept less than he could have claimed.

"We are pleased to see that the company is applying good corporate practice and not rewarding former executives for failure," he said.

C&W insiders openly admitted that Mr Wallace, who received a salary of £775,000 in 2002, could have taken the company to court and claimed the whole of his salary under his contract. "We did not have a leg to stand on - it would have cost our shareholders even more money to fight this," said one source.

A year and a half ago another executive whose business gamble failed to pay off did take his former employer to court. John Mayo, the chief executive designate of Marconi, dragged the business through the legal system in an effort to try to recover £1.6m in pension contributions. The argument was finally settled in March this year, but details of the payoff will not be made public until Marconi publishes its annual report this summer.

Sir Peter Bonfield recently left BT with a package worth around £1.5m.