Demise of the mega-bonus? Cairn Energy boss stripped of £2.5 million

By TOM PETERKIN
Published on Wednesday 25 January 2012 12:09

THE withdrawal of a £2.5 million Cairn Energy share windfall from the pay packet of the oil firm’s founder Sir Bill Gammell has been hailed as a “hugely significant” moment by corporate governance experts.

City analysts and the Association of British Insurers now hope other large companies will follow suit and withhold massive bonuses, amid anger over the hefty cheques received by executives.

Sir Bill had been due to receive the multi-million shares windfall as a reward for helping to bring about the company’s $5.5 billion (£3.5bn) sale of its Indian operations last year.

A week before shareholders were due to vote on the payment, Edinburgh-based Cairn said it had pulled the resolution in the wake of discussions with several institutions. It now plans further talks with shareholders.

Cairn shareholders had been asked to vote on a special one-off bonus in relation to the sale of the Indian operations.

In a statement, the company said: “Cairn … has noted the comments received from several institutional shareholders and their representative bodies in connection with the proposed share award.

“In the light of those comments … the board has determined that it will withdraw Resolution 2, which proposed approval of the share award.”

The move will be seen as a victory by shareholder groups. It comes a day after Business Secretary Vince Cable outlined plans to address the growing controversy over executive pay, including by offering company shareholders a binding vote on remuneration policies.

Cairn Energy’s share price fell by 3.35 per cent to close at 282.4p yesterday.

Tom Powdrill of Pensions Investment Research Council, an adviser to institutional investors on corporate governance and social responsibility issues, described Cairn’s decision as “huge”, adding that it was seen as a “test case” for other companies.

He said: “This could be regarded as a weather vane pointing to how things are going.

“You have got to remember that the company did try [to award the bonus] … but the fact they have backed off and have been challenged by the shareholders is indicative of the fact shareholders know they have to take a tougher line on pay.

“In the longer term, we have to hope that companies don’t try this in the first place. That’s the nut that has to be cracked.

“This decision is significant in that the shareholders have managed to stop them.

“This is a big, well-known company and this was seen in the corporate governance world as a test case as to whether this sort of thing can be tolerated. We are pleased that it has not.”

A spokesman for the Association of British Insurers said: “We certainly hope that all companies take a responsible attitude to remuneration. Companies are under more scrutiny than ever before.”

Earlier this month, Aberdeen Asset Management paid out a total of £11m in bonuses to senior fund managers. The package included £4m in cash and shares to chief executive Martin Gilbert, to be spread over the next four years.

Royal Bank of Scotland, majority-owned by the taxpayer, will announce its latest executive pay package shortly.

The bank said yesterday that no decision had been taken on the bonus to be awarded to chief executive Stephen Hester. Some reports have suggested Mr Hester is in line to pocket £1.6m on top of his salary.

Cairn Energy was founded by Sir Bill, a former Scotland rugby international, in 1980. He was chief executive from its stock market listing in 1988 until June last year, when he moved to become non-executive chairman. He was knighted in 2006 for services to industry in Scotland.

Explaining its original decision to award the shares, Cairn told shareholders that Sir Bill was involved in “extensive and rigorous negotiation” to bring about the Indian sale to Vedanta Resources.

As part of the incentive scheme, Cairn also planned to make a £1m donation to charities nominated by Sir Bill. He was entitled to receive £1.4m on stepping down as chief executive.

The India disposal is due to generate a return to shareholders worth $3.5bn (about £2.5bn), which will still be the subject of a vote next Monday.

Comments

There are 4 comments to this article

Order by:

• Newest first
• |
• Oldest first

Page 1 of 1

• 1
• Show all

4

Brian Millar

Wednesday, January 25, 2012 at 11:22 AM

Lamentable decision that beggars belief. Sir Bill through his skill, fortitude and success it would seem deserved the agreed bonus having fulfilled the remit. Along comes big bad institutions ( no fat cats there one assumes ) moans and hey presto - Sir Bill gets Nil. Surely complete transparency is required here - name the institutional antagonisers and check their next Balance Sheets for "Bonuses" paid? Methinks no objections will be hindering them. Perverse situation to that of the previous "Bonus" scandals?

• Report Unsuitable

3

aberdingdong

Wednesday, January 25, 2012 at 11:18 AM

Riiight. So we hammer those who make a success of things, but reward incompetent greedy scoundrels like Goodwin and co.....yeah, that makes sense (not)

• Report Unsuitable

2

Scotland the Dave

Wednesday, January 25, 2012 at 09:47 AM

He's got some interesting pals.

• Report Unsuitable

1

THX1138

Wednesday, January 25, 2012 at 09:01 AM

This is probably the worst possible 'test case' for the idea of shareholder constraint on executive pay. A man who founds, develops and builds a company, then sells it at a huge profit to the benefit of both workers and shareholders is nothing like the same position as the likes of Robert Evans or Fred Goodwin, who got pay rises that were completely detached from either the work they did or their performance in that work.

• Report Unsuitable

Order by:

• Newest first
• |
• Oldest first

Page 1 of 1

• 1
• Show all

Logged in as:

Comment here. Start typing your comment here:

Post comment

Please adhere to our Community guidelines

Your view

Please sign in to be able to comment on this story.