Oil and gas group BG faces an all-out battle with its shareholders after the biggest investor advisory group, ISS, rejected a £25m pay deal for the company’s new chief executive, while business secretary Vince Cable urged shareholders to vote against the huge pay packet.
ISS, which influences the votes of many City investors, said it appeared the company’s pay committee had not done its job properly. It urged investors to vote down Helge Lund’s package at the extraordinary general meeting called to approve the pay package next month.
Another shareholder advisory group, Manifest, called for the meeting to be adjourned.
BG announced last month that it had recruited Lund, the boss of Norway’s state oil group, with the lure of a £12m “golden hello” in shares and the chance to earn £13.5m a year if he hits performance targets. BG has not disclosed those targets. Lund will be earning about seven times his previous pay package at Statoil.
Cable told the Evening Standard: “We have given shareholders the power to vote this kind of excessive pay down and they have got to use it.”
Lund’s pay deal has turned into a major test of shareholders’ resolve when faced with outsize pay deals. The proposed deal requires approval at the meeting on 15 December because it breaches the pay policy approved by shareholders in May.
ISS said: “The proposed award to the incoming CEO, agreed so soon after approval of the policy, suggests that the remuneration committee did not sufficiently anticipate the needs of the business.”
BG has warned shareholders that Lund might decide not to join the company if the vote goes against him, which some unhappy investors have viewed as an ultimatum.
ISS said a vote for Lund’s deal could encourage other incoming executives to demand pay that contravenes a company’s pay policy by threatening not to join if shareholders reject the deal.
BG has a fight on its hands because fund managers without corporate governance departments rely on ISS recommendations when voting on company resolutions.
ISS’s intervention follows criticism of BG by the Investment Management Association, which on Monday gave Lund’s deal a “red-top” alert, reserved for the most serious breaches of corporate governance. On Tuesday, the Institute of Directors (IoD) attacked the award as “excessive, inflammatory and contrary to the principles of good governance”. Simon Walker, director general of the IoD, said the bosses’ group had “a responsibility to criticise an action that brings the whole of British business into disrepute.”
Legal & General, BG’s fourth biggest shareholder, and Aviva, also a major investor in the UK stock market, have both expressed unease about the deal.
BG and its City investors will also come under pressure from individual shareholders and pension savers over the deal.
ShareAction, the responsible investment campaign group, on Wednesday launched an online means for thousands of its supporters to write to their pension funds about Lund’s pay. Share Action said the campaign will have added impact after a recent Law Commission ruling that pension funds could pay attention to their savers’ views as well as financial performance.
ShareSoc, which represents individual shareholders, said it was mobilising its members and working with its German equivalent, DSW, to put pressure on BG.
Mark Bentley, a ShareSoc director, said: “As shareholders, we need to show we are not susceptible to blackmail.”
After early criticism of Lund’s pay, BG tried to placate investors by saying that he would not sell any of his shares while employed by the group. But with little more than two weeks until the meeting, further concessions are unlikely.
A BG spokesman said: “In putting this to the vote, we are in line with the letter and the spirit of the new corporate governance legislation.”
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