See, it can be done. After a push and a shove from a few institutional investors, Cairn Energy has capitulated. It has ditched its cheeky attempt to hand £2.5m-worth of freebie shares to Sir Bill Gammell, founder and chairman. The company, knowing it was risking defeat on the relevant resolution at next week's meeting of shareholders, now says it wants to "consult further" with its owners.
Gammell, of course, is a hero among shareholders after pulling off one of the great oil exploration coups of recent decades. Cairn bought a plot in Rajasthan from Shell for next to nothing in 1999, found a huge oil and gas field under the desert and is now distributing $3.5bn (£2.25bn) to shareholders from a sale to Vedanta. But Gammell's star status, and the completion of a great investment, should not give the company a licence to hand him an extra £2.5m for doing a job for which he was already paid and incentivised.
Cairn, naturally, never put it as brazenly as that. It argued that the freebie shares were required to motivate Gammell to get the Vedanta deal, which at times met resistance within the Indian government, completed by Christmas. This reasoning is laughably thin. Gammell had already been thrown £1.4m after switching last summer from chief executive to non-executive chairman, a sum that ought to be sufficient to encourage any self-respecting chairman with a large personal holding in the company to continue to badger his contacts in Delhi and Downing Street.
James Buckee, chairman of Cairn's pay committee, would have stood a better chance of receiving a green light for the £2.5m (plus an extra £1m for a charity of Gammell's choosing) if he had told shareholders about the proposed arrangements at the time. That was last summer. But shareholders only found out a fortnight ago. No wonder they're furious – their consent was taken for granted. If they let Cairn off the hook, others would try their luck.
The best guess is that Cairn will be allowed to return with some form of face-saving fudge – say, a reduced award to Gammell and his favourite charity, since a $3.5bn return to shareholders is indeed a handsome sum. But, if institutions wish to play that game, they ought to insist that Buckee is kicked off the pay committee. He's shown he's hopelessly out of touch.
