British oil & gas multinational BG Group plc has revised the pay package of incoming CEO Helge Lund in the face of a potential shareholder revolt regarding a proposed (and now withdrawn) £12 million recruitment award, which exceeded the company’s pay policy approved just a few months ago.
Instead, BG will grant a £10.5 million award subject to more stretching and transparent performance conditions; because the revised award is allowed for under the approved pay policy, it will not be subject to a shareholder vote.
Despite the slight reduction in maximum award size (and larger reduction in expected value) Mr. Lund will continue to be one of the highest paid CEOs on the London Stock Exchange, with an annual potential pay package in the region of £15 million; however, the climb down from BG represents a victory for investors, as well as Vince Cable, whose introduction of a binding vote on companies’ remuneration policies meant that the Company was required, by law, to seek shareholder approval of the golden hello, due to it falling outside the Company’s approved remuneration policy.
The U-turn on the original pay package follows public complaints from a number of the company’s largest shareholders over the size of the proposed award, and particularly the opacity of performance conditions attached to it; as disclosed by BG, the award would only be reduced if Mr. Lund’s performance deteriorated significantly, with no connection to overall company performance or shareholder returns. The Company had originally described the award as necessary to lure one of the industry’s top executives. While not serving to reduce his pay opportunity greatly, investors may well be satisfied that the new CEO’s joining award will be subject to company performance measures, namely TSR, cash flow and capital efficiency measures, as opposed to relatively vague an unstretching personal objectives.
In addition, investors had spoken of their hesitancy to vote upon a remuneration proposal a mere six months after the policy’s approval, with BG stating: “A significant number of shareholders questioned the structure of the package, in particular whether it was appropriate to go outside the remuneration policy approved by shareholders earlier this year. Both the board and Mr Lund recognise and wish to respond to shareholder concerns.”
While unexpected, the reversal is not entirely unusual; just two years ago, Cairn Energy similarly withdrew a proposed transaction bonus before submitting it to shareholders after institutional investors raised concerns (BG should note that even after withdrawing the award, Cairn Energy faced significant opposition to its next remuneration report). The cancellation of the BG meeting aptly demonstrates the ever-increasing significance of shareholder engagement at UK issuers, with shareholders seemingly defeating a proposal without even casting a vote.