THE board of oil explorer Cairn Energy will go back to its institutional shareholders with new pay proposals for chairman Sir Bill Gammell after the firm yesterday pulled a vote proposing to give him a £2.5 million bonus.
Last week, the company backed down from awarding the company’s founder the proposed bonus, which was to include a further £1m donation to charity, after a number of large shareholders told the board they would vote against the deal.
The firm also met opposition from the Association of British Insurers, which issued a “red top” alert objecting to the granting of the shares, which would vest in three years but had no performance conditions attached.
When it was first outlined on 10 January, the bonus was described as an incentive package for Gammell to conclude the sale of Cairn’s 40 per cent stake in its Indian division – Cairn India – to Vedanta Resources for $5.5 billion (£3.5bn) after he had moved from his role of chief executive to non-executive chairman.
As Gammell had changed roles in June, the board said the incentive would be required to retain him for his “unique” and “vital” role in concluding negotiations on the deal which required the consent of the government of India. Cairn announced the completion of the deal on 8 December.
Speaking after a general meeting to vote on the return of cash to shareholders from the Vedanta deal, Gammell said that the board “took the decision, there was no point in forcing the issue” but indicated that it would continue consultation with the group’s shareholders about a revised pay-out. “We will have a conversation,” he added.
Private shareholders at the meeting in Edinburgh defended Gammell and argued that he was a victim of the current political debate raging about “fat cat” pay-outs.
Peter de Vink, a long-term shareholder of Cairn, said the board’s U-turn on the pay-out was due to “hang ups about bonuses”.
He said: “Here is somebody who really deserves one [a bonus], and who is being treated like somebody who doesn’t deserve one.”
Shareholders voted to approve the group’s £2.23bn payback to its investors following the Vedanta deal.
The company also won approval to sell its remaining 22 per cent stake in Cairn India, which the firm’s prospectus said was worth about $2.7bn.
The company previously said the vote was “good housekeeping”, but Mike Watts, the firm’s deputy chief executive, said it was “entirely logical that in two years we will be out” of Cairn India.
Simon Thomson, who replaced Gammell as chief executive of Cairn last year, said the value of its stake in Cairn India would grow as daily production increased beyond the government-set limit of 175,000 barrels per day.
Thomson added that Cairn would continue to give its shareholders “transformational exploration potential” particularly through its holdings in Greenland and the Mediterranean.
He said: “In that period we have raised $500m from our shareholders. In the last five years we will have returned $4.5bn.
“The return of cash today and the completion of this transaction leaves us ideally positioned for the future.”
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