IoD blazes over gas chief's pay deal
26 November 2014 -
Influential business lobbying group mounts unusual attack on proposed £25m package for fuelling negative public image of big business and executive pay
Bosses’ advocacy group the Institute of Directors (IoD) has blasted oil and gas giants BG Group for offering their incoming leader a £25 million salary, over fears that the “excessive” earnings could put executive pay on the political agenda in the run up to the general election. IoD director general Simon Walker says the proposed deal for chief executive Helge Lund is likely to spawn a negative public impression, damaging the image of UK business in the process.
Consisting of £12m in shares and up to £13.5m in pay, pension and other benefits – if performance targets are hit – the package has been described by BG Group as a “competitive market package.” However, the sum is considerably bigger than the amount received by the top figures at BG Group’s much larger rivals, Royal Dutch Shell and BP. Shell boss Ben van Beurden’s remuneration is up to £11.9m until 2015, while BP’s Bob Dudley has seen his pay rise to £5.53m last year – just half of van Beurden’s takings.
Walker told the BBC: “We think in any terms this £25m pay settlement is grossly excessive. It will inflame public sentiment, it will be a red rag to the critics of capitalism.” He stressed: “It damages the reputation of British business as a whole to behave in this cavalier fashion, that has no regard for strongly held public sentiment … this is six months before a general election, in which you have an opposition that is already campaigning vigorously against big business.”
The IoD’s move to weigh in with a particularly strong stance on the issue highlights its insecurity regarding the public image of executives and the firms they represent. Among the most scandalous stories to come out of the 2008 recession were those relating to multi-million pound payments made to City executives, and the likes of banker Fred Goodwin came in for heavy criticism from the media and public alike for being out of touch with the economic hardships experienced by the rest of the nation.
Following further, recent criticism aimed at pay structures within Barclays and Sports Direct, it is clear the IoD is worried about driving a wedge between investors and the public, especially with little time to go before a hard-to-predict national poll.
For BG Group, the substantial deal for Lund – who takes up his position in March – will be justified, as his most recent work has involved turning Statoil into a global competitor with operations in the Gulf of Mexico and the Russian Arctic. Lund was hired by acting executive chairman Andrew Gould to replace Chris Finlayson, who left after just 15 months in the role.
However, the 51-year-old’s pay deal will be put to a shareholder vote on 15 December, because it breaches pay policies that investors were asked to back only six months ago in order to comply with new rules imposed by Business Secretary Vince Cable. Even so, commentators have suggested that BG Group wants to override the agreement to ensure that Lund definitely starts at the company.
Guardian financial editor Nils Pratley wrote in an opinion column for the paper: “Yes, everybody agrees Lund is a fine fellow who did great things at Statoil. But the heart of the matter is the issue identified by Walker: ‘It cannot be right to put fund managers in a position where, unless they approve excessive pay way beyond agreed policy, their shares will fall in value.’ Quite. If BG’s board gets its way a grim precedent will be set. A chairman in Gould’s position will feel entitled to write whatever cheque he wishes to make a succession headache go away.”
Pratley added: “Fund managers are irritated, as comments this week from L&G and Aviva Investors indicate. Whether they have the backbone next month to vote against Lund’s lucre (seven times what he earned at Statoil) is another matter. But they should – otherwise it’s open season for another damaging round of boardroom pay excess.”
Shareholder body the Investment Management Association has issued a “red-top”, priority alert over Lund’s deal. Meanwhile, Walker has urged BG Goup’s investors to vote against the salary package next month.
“We urge shareholders to call BG’s bluff,” he said, adding: “The IoD is always reluctant to criticise an individual company. However, we do have a responsibility to criticise an action that brings the whole of British business into disrepute and threatens already fragile attitudes to corporate Britain.”
For more on these issues, read CMI Ambassador Prof Colin Coulson-Thomas’ thoughts on why remuneration packages may be doing more harm than good.
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