British Gas owner Centrica is to hand its new boss, Iain Conn, a pay-and-shares package of up to £3.7m this year, less than his predecessor's remuneration, in an effort to avoid a new political row in the energy sector.
Centrica confirmed Conn's appointment two days before its half-year results.
Sam Laidlaw, who leaves at the end of the year after leading Centrica since 2006, received £1.4m last year. However, he was in line for an annual package of up to £7m had he stayed in the job and was paid £5.7m in 2012. Centrica caused a public outcry in April when it handed Laidlaw shares worth up to £2m. Just days earlier he had handed his £851,000 cash bonus to charity.
Centrica has come under fire from politicians on both sides as the average annual household energy bill has soared from £819 to £1,353 in the past five years. The big six energy companies are now the subject of the widest investigation into the sector to date, by the new watchdog, the Competition and Markets Authority. It has already identified opaque pricing and lack of competition as the main negative factors. Consumer groups accuse the suppliers of profiteering, which Laidlaw has always vigorously denied. The investigation could result in the energy companies being split up.
Conn, who has been BP's refining boss for the last seven years and takes over from Laidlaw on 1 January, will get a lower base salary and maximum potential reward than his predecessor. His base salary is £925,000, compared with £950,000 for Laidlaw. In addition, he gets a share incentive award equal to salary, subject to performance, vesting in 2016, and another share incentive award equal to two times salary, vesting in 2017 and released in 2018. He will also get an unspecified pension and other benefits, which totalled £379,000 and £55,000 respectively for Laidlaw last year.
Centrica stressed that Laidlaw will not get a payoff. A spokesman said his package for this year will be a lot less than the potential £7m maximum. It is unclear whether he will get a cash bonus this year.
Conn, who missed out on the top job at BP, said: "Centrica has a major responsibility for long-term energy supplies, particularly for the UK. I recognise the challenges which we face in rebuilding customer trust in the sector and helping to create an effective and sustainable approach to energy markets."
Conn is getting a termination payment of up to £453,677 from BP, as part of a potential payout, partly made up of share options, that could be worth as much as £16m.
Centrica chairman Rick Haythornthwaite paid tribute to Laidlaw, saying he had shown exceptional leadership over the past eight years. "Under his stewardship Centrica has achieved strength and scale which is of great benefit to the UK as we secure the future energy needs of our customers in an increasingly international gas market."
