Talks urged to avert investor revolt over BG Group’s pay deal

The oil and gas company BG Group is coming under sustained pressure over a £25m pay deal for its new boss from investors who are warning that the package may end up being blocked.

One City investor speaking out against the proposed pay award for Helge Lund called for fresh talks to avert a rebellion.

Ashley Hamilton Claxton, corporate governance manager at Royal London Asset Management (RLAM), backed the appointment of Lund, who has been running Statoil in Norway and is due to join BG in March, but said the company was wrong to override a pay policy it had agreed with shareholders only in May.

“We think the responsible thing to do is to call a halt to the vote and enter into meaningful discussions with shareholders in order to reach an acceptable outcome which motivates the CEO and clearly aligns his interests to shareholders’. Barring that, we plan to vote against the pay package,” said Hamilton Claxton.

RLAM owns a 0.6% stake in BG and made its views known after Manifest, the shareholder advisory group, took the unusual step of calling for the vote, scheduled for 15 December, to be delayed.

BG, which has been without a permanent chief executive for nine months, is expected to meet investors before then to discuss the one-off award to Lund of £12m in shares. As well as the shares, Lund could receive £13.5m a year if he hits performance targets. The package – which includes a salary set at £1.5m for five years – is around seven times more than he earned at Statoil.

BG has already warned shareholders that Lund is “not obliged” to join the company if the share award is not approved. In a letter sent to invite them to the vote next month, the company said: “There is a risk, therefore, that if the resolution is not passed at the general meeting, Mr Lund will not join BG Group and the company would need to recommence its chief executive search process”.

Chairman Andrew Gould, who has been acting as chief executive since April, has told investors that Lund’s arrival “is critical to the delivery of BG Group’s next stage of growth as it accelerates the creation and delivery of value to shareholders”.

Investors have already wrung some concessions from the company. But as the vote draws closer, BG is facing further scrutiny. Simon Walker, head of the Institute of Directors, has urged shareholders to block the package, and the business secretary, Vince Cable, has also spoken out against it.

BG risks becoming a test of the new government policy to require companies to put their pay policies to a vote.

These policies are intended to last three years, and BG’s was voted through in May It would now become the first major company to call a vote on a pay package that breaks its own policy.

The influential shareholder advisory body ISS, which is recommending voting against the share award, has raised concerns that a victory for the BG board could prompt recruits at other companies to demand bigger pay deals.

In recent days, investors have started to voice concerns publicly. Legal & General, one of BG’s top five investors, and Aviva have both expressed unease.

Another investor said the deal should be defeated. “We think this is excessive and it needs to be voted down. I don’t think shareholders should be put in this position. The company was very badly advised. It’s a no-win situation for the chief executive, the company and shareholders”.

The company insists that Lund is the best person for the job. Among his credentials, the company said, is the performance of Statoil, where during his tenure as chief executive total shareholder return was 190% – a yearly total shareholder return average of approximately 11%.

The number of shares Lund will be awarded under the terms currently proposed will be calculated just after he joins. His arrival date is scheduled for 2 March. The company’s shares fell 6% to 968p on Thursday after the decision by the Opec oil-producing countries not to cut production to bolster prices.