BG Group faces shareholder revolt over £25m pay deal for new boss

Investors threaten not to support deal for Helge Lund, recently recruited from the Norwegian state oil company Statoil

BG Group is facing mounting criticism over a £25m pay deal for its new chief executive, with all the main investor advisory bodies raising concerns about the package offered to Helge Lund.

The influential US-based advisor Glass Lewis on Friday added to the chorus of dissenting voices by saying shareholders in the oil and gas group should reject the package as it stands.

There are expectations that the company will meet investors for discussions over the package for Lund, who is being offered a one-off £12m in shares and up to £13.5m a year if he hits performance targets. The award of shares is being put to a vote scheduled for 15 December and the company has warned shareholders that Lund is “not obliged” to join the company if it is not approved. But Glass Lewis asserts that the need for shareholder approval could be averted altogether if the award of shares was cut to £8.3m.

Meanwhile investors – including Railpen which manages £20bn of funds for railway workers – are also urging each other not to support the deal for Lund, who has been hired from Statoil and is due to join in March.

Glass Lewis’s verdict comes after those of rival advisory bodies ISS, the Investment Management Association, Manifest and Pirc. This heaps pressure on the BG chairman, Andrew Gould –who has been standing in as chief executive since April and recruited Lund – as well as the chairman of the remuneration committee, Sir John Hood.

Manifest has suggested the meeting should not go ahead for now and Glass Lewis said that as Lund was not due to join until March there was “sufficient time to revise the terms of the award, or devise an alternative award structure under the existing policy”.

Attaching new performance targets to the award of shares may help defuse the situation, as Glass Lewis said the current ones were “somewhat vague personal objectives that appear to set the bar quite low”.

The row over pay comes as BG’s shares were sent sliding on Friday after Thursday’s decision by the major oil-producing countries not to cut production to shore up world oil prices. BG’s shares were the biggest fallers on the FTSE 100, closing more than 8% down, which will affect the ultimate value of the shares awarded to Lund.

The package is causing controversy with investors because it breaches a pay policy they agreed to only six months ago. It includes a salary set at £1.5m for five years and is around seven times more than Lund earned at Statoil. The salary alone, according to Glass Lewis, is more than 30% above that of the bosses of BP and Royal Dutch Shell, the other two main rivals listed in London.

The vote is regarded as a major test for investors as BG is the first major company to have broken its own policy since the business secretary, Vince Cable, introduced rules last year guaranteeing shareholders such a say over long-term pay.

Deborah Gilshan, the corporate governance counsel at Railpen, said she would not back the award.

“Railpen will not be supporting this pay package at the meeting on 15 December as we do not consider it is in the long-term interests of our beneficiaries.

“We are now calling on the fund management industry to consider the long-term interests of their clients by voting against this,” she said.

“This is a situation no board should put its shareholders in and our concerns are not limited to the situation at BG Group itself but the wider implications it has for the UK marketplace,” she said.

Legal & General, which owns 2.7% of BG’s shares, spoke out earlier this week to say that BG could set a precedent by abandoning its pay policy so quickly. Aviva also said it was concerned.

A BG spokesman said: “We believe Helge Lund is the right person to lead BG Group. His proposed remuneration is competitive in the international oil and gas industry. The shareholder vote on Helge Lund’s pay is in line with the letter and spirit of corporate governance legislation.”


Jill Treanor

The GuardianTramp

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