Alliance Trust has bowed to persistent shareholder pressure by abandoning its historic structure and scrapping the post of chief executive held by one of Scottish finance’s highest-profile figures Katherine Garrett-Cox.

The radical shake-up will create a wholly non-executive board, and is likely to mean a pay cut for Ms Garrett-Cox, whose £1.3m a year package came under shareholder scrutiny earlier this year. She becomes chief executive of subsidiary Alliance Trust Investments, but with a brief to outperform or lose the management of the £2.5billion trust.

On Ms Garrett-Cox’s remuneration, a company source said: “The board will be reviewing remuneration. Her responsibilities have changed, though I wouldn’t say they have reduced. ATI is going to be expected to deliver consistent outperformance over the coming months and years. What she won’t now be doing is having oversight or accountability for the savings side of the business, and it frees her up from being involved in the main board.”

Charles Cade, an analyst with Numis Securities, commented: “It is not quite clear where the changes will leave Katherine Garrett-Cox in the long term. Her influence over the board has been significantly reduced.”

The overhaul will also see the departure of finance director Alan Trotter. The company could not comment on whether he would receive a pay-off.

The Dundee-based company is to create two new separate boards to run its subsidiaries ATI and Alliance Trust Savings, but it promises sharp cost cuts, lower charges for investors, and a narrower discount for the shares.

Chairman Karin Forseke said: “The board is open to the option of moving to an external manager ....in the future. “ But it had concluded that it was “in the best interests of all shareholders to continue with the recently appointed investment team”.

ATI would be paid a standard industry fee of 0.35per cent of assets, and given a target of outperforming of a new formal benchmark, the MSCI world index, by at least one per cent, Ms Forseke said. The trust was 2.3 per cent ahead of that index in the 12 months since current managers Peter Michaelis and Simon Clements were appointed last autumn, but its performance would be reviewed regularly by a new committee .

“In the event that performance does not consistently deliver against the new benchmark, a full review will be undertaken and external managers considered,” the chairman said.

The arrangement effectively delivers a reprieve for ATI, which needs the trust’s fee for viability, and for Ms Garrett-Cox, whose future had been questioned.

Alan Brierley, analyst at Canaccord Genuity, said the move to a fully independent board was a “very important development” and the openness to a future outsourcing move “should focus the minds of the manager”.

Earlier this year the board spent £3m on a campaign to stop the appointment of three new external directors nominated by New York hedge fund and 14per cent shareholder Elliott Advisers, only to accept two of them in a last-minute climbdown ahead of the annual meeting.

Simon Elliott, analyst at Winterflood Securities, commented: “Elliott acted as the catalyst in this process but the role of other large, long-term shareholders should not be underestimated”.

The refreshed brief to the trust’s managers includes the final abandonment of Alliance Trust’s flirtation with assets such as property and private equity, and the disposal of its fixed income holdings, to focus entirely on global equities.

It also promises to cut its ongoing charges ratio (OCR) for investors from 0.6 per cent – previously claimed to be very competitive – to 0.45 per cent or less.

ATI’s costs, under shareholder fire in recent years, are now to be cut by a further £6m which the company says amounts to over 20 per cent. ATI “is expected to achieve monthly profitability by the end of 2016”, the company says.

It also promises more vigorous action to narrow the discount on the trust’s shares, a focus for shareholder unrest in the 2011 campaign against the board and currently at 10per cent against a sector average of three per cent.

The board says it “believes...the measures announced today will lead to a narrowing of the discount into single figures” and it is now “committed to the active use of share buybacks, as required, in pursuit of this aim”.