Oiling the wheels of pay envy
INVESTORS in BG Group will be thanking their lucky stars that Shell is buying them out at a hefty premium with its eye-popping £47bn bid. But the potential gift of up to £32m to BG chief executive Helge Lund, who barely had enough time to find his way to the men’s room, is not popular with shareholders.
The dismay over Lund’s likely pay-off could come as a relief to the architect of the Shell takeover, Ben van Beurden.
It may distract from his own remuneration package of £20m last year that will likely be greatly enhanced by the BG purchase.
What makes the pay of big oil executives even more perplexing is that they are on the table at a time when the industry is in the doldrums and many energy industry workers in the North Sea and across the globe face the axe.
Executives failed to predict the collapse in oil prices and are now having to backpedal furiously and embrace new resources such as liquefied natural gas.
Faith in Lund, BG Group and its governance among the big institutional shareholders was badly damaged last year by the ineptly generous pay deal negotiated for him before he joined.
The BG chief eventually was required to accept a cut in his golden hello from £12m to £10.8m.
The way that the BG chairman Andrew Gould and the pay panel at the group, headed by former vice-chancellor of Oxford University Sir John Hood, mishandled Lund’s pay has become legendary.
If there were any serious attention to corporate governance in the City and Whitehall, Hood and his cohorts on the pay group might find it hard to become directors of a FTSE 100 company board again.
Despite the BG experience, Hood has also ended up as chairman of the compensation committee at WPP where every year the company’s entrepreneurial chief executive Sir Martin Sorrell receives a handsome pay award. This reached £36m in 2014 and trampled over repeated shareholder protests.
That Hood should end up in charge of pay at two of the greediest enterprises in the Footsie speaks volumes for the backscratching culture. It is enough to make one sympathetic to the ravings of Ed Miliband about the evils of the rich and non-domiciles.
Anyone interested in how BG sets pay for its directors can wade through six pages of the ‘constitution and purpose’ of the remuneration committee to understand the stringency of the process.
There is lip service to the independence and a promise of regular consultations with shareholders.
Most significantly, it talks of having regard to ‘remuneration trends’ across the globe and a right to employ consultant advice. This means that groups of nonexecutive directors are cowed into bidding up salaries and benefits which are out of kilter to everyone else in society.
One of the grandest loopholes, which will make Helge Lund an ever richer man, is the takeover clause. Almost every contract for a chief executive has a stipulation which says that if the firm is bid for then pay and share options will be paid up in full, irrespective of the circumstances of the takeover and the time served.
Such contracts are a built-in advantage for the bidding company.
If there were honour, Lund would take his basic pay and no more and van Beurden would refuse any performance pay or enhanced options. Instead, like secret lottery winners, they will take the money and hope no one notices.
Cradle to grave
UNDER the leadership of chairman Allan Leighton and chief executive Richard Pennycook, the shape of the Co-op is slowly reforming.
By rebranding itself as a community organisation it is seeking to be a big winner in the convenience store market. Home and car insur- ance, as well as funerals, are also on the menu.
Moreover, at this year’s annual meeting members will for the first time have the chance to vote for divorce from the Labour Party.
Despite a tepid financial performance – the group was only in the black by virtue of the sale of assets, including its pharmacy chain – the Co-op has a bad habit of throwing members’ money at top staff.
Pennycook received a pay packet of £2.5m last year and human resources director Rebecca Skitt a termination package of £1.6m.
That should allow Skitt to quaff fine wines with the same abandon as when she was on expenses.
Frozen in aspic
AT 0.5pc, interest rates have not moved once since David Cameron took office in May 2010.
That has not happened since Labour PM Clem Attlee ruled Downing Street from 1945 to 1951 and rates were held at 2pc.
In the face of deflation, Bank of England Governor Mark Carney may face a race against the clock if he is to nurse rates up to the same 2pc level before he completes his own five-year term in 2018.