BG GROUP PLC
LSE: BG Annual Meeting: 5/05/2015
When it rains it pours, but there’s nothing like a takeover offer at a 40% premium to market value to put a silver lining on an otherwise cloudy outlook. BG Group had a tough year in 2014, with the company exposed to the cyclicle downturn in energy prices and rudderless after former CEO Chris Finlayson departed in April; in addition, the board was caught without an umbrella twice in a deluge of shareholder concerns over recruitment pay. The first downpour occurred at the 2014 AGM; the Company’s binding pay policy was overwhelmingly approved, but one-third of voting shareholders rejected the advisory remuneration report, primarily reflecting concerns over the board’s decision to grant recently hired finance director Simon Lowth a second, ‘parallel’ recruitment award that wasn’t subject to performance after the Company’s share price dive made it unlikely that his initial, performance-based award would vest.
Having dried off, the board set about finding a new CEO. Mr. Finlayson had a short and difficult tenure, so the board took its time to ensure that it picked the right candidate this time around, eventually settling on Helge Lund, a veteran of Norway’s Statoil. While the well-received choice seemed to clear the air, the terms of his remuneration package proved contentious. The board initially proposed to go outside of the remuneration policy that had been approved just months earlier to grant Mr. Lund a £12 million award that would vest in full so long as his performance did not fall “significantly below the level expected of him” — moreover, the award would require a shareholder vote, and Mr. Lund wasn’t required to take the position if it wasn’t approved. Golden hello’s of this nature are uncommon in the UK, and pay proposals that effectively serve as a proxy for appointments or strategic transactions are not well received, as the former board of Xstrata (now Glencore) can attest. After extensive shareholder consultation, the board sought shelter in the approved policy, nixing the proposed award and replacing it with a slightly smaller grant of £10.6 million that would be subject to more stretching performance conditions and would not require shareholder approval.
After all that, the board must have seen some light poking through the clouds when Mr. Lund started work in March 2015. But a bigger cloudburst came just days later with Royal Dutch Shell’s offer to acquire BG’s entire issued share capital. After negotiations, the board recommended a cash and shares offer valuing the company at £47 billion, prompting a 42% increase in share price. However, the board may wish to keep their umbrellas handy — with the deal in place, they will likely face questions at the 2015 AGM as to the treatment of executive awards once it is completed. In particular, investors may question whether returns-based performance conditions should be treated as achieved as a result of the recent surge in trading, which reflects a transaction that was prompted by a market downturn, rather than recent performance.
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