Dissent mounts over ‘excessive’ retention bonus for Xstrata chief

By MARTIN FLANAGAN
Published on 02/06/2012 00:00

STANDARD Life Investments was one of two influential Xstrata shareholders that yesterday branded the mining giant’s plan to pay a $46 million (£30m) retention package to its chief executive as “excessive”.

Mick Davis is set to receive the highly-lucrative three-year retention deal if Xstrata’s $30 billion takeover by the commodities trader Glencore goes ahead.

David Cumming, head of equities at the Edinburgh-based investment manager, hit out at the proposed salary increases for a slew of senior executives after any merger, and “excessive retention payments”. He claimed they lacked any performance requirement and were “unacceptable and depressing”.

Cumming added that an Xstrata document revealing the “golden handcuffs” deal for Davis “makes supporting Glencore’s already inadequate offer for Xstrata even less palatable. Consequently we still believe it should be opposed.”

Fidelity Worldwide Investment, another big investor in Xstrata, echoed SLI’s opposition.

Dominic Rossi, global chief investment officer for equities at Fidelity, said: “The terms of the pay arrangements associated with the merger of Glencore and Xstrata are provocative and insensitive given the current climate. In effect, the interests of management have been placed ahead of those of shareholders.”

Initial surprise at the size of the retention bonus offered to Davis – unveiled on Thursday – escalated to anger, with several minority shareholders also claiming it flies in the face of good corporate governance.

A third institutional investor in Xstrata said: “This goes against every corporate governance principle – the idea he’s being paid a retainer to stay and there’s no performance metrics attached.”

The controversy surrounding Davis’s retention package has deflected attention away from the blockbuster fees investment banks and advisers will earn should the deal be completed as planned in the third quarter of the year.

The two companies face a bill of as much as $200m, with banks receiving up to $130m in a bumper windfall that has also irked shareholders.