The BG Group’s big pay blunder – a £25m package in election year

The City now has a textbook example of how not to recruit a chief executive, courtesy of blue-chip oil group BG. That is not to say that the City doubts the stellar background of the new man, Helge Lund, who turned Norway’s Statoil into a world-class exploration company during his 10 years at the top.

But having made a widely applauded choice, the oil and gas company went on to achieve the rare feat of uniting business leaders, politicians and shareholders, who have all lined up to criticise the £25m pay deal that has been devised for Lund.

The timing is not helpful: Simon Walker, director general of the Institute of Directors, pointed out last week that a general election is just six months away, and packages such as Lund’s risk thrusting executive pay back on to the agenda.

As it is, BG is the first major company to try to override its own pay policy, which was approved in a shareholder vote only six months ago. These votes are in their infancy, having been introduced by the business secretary, Vince Cable, last year with the aim of kicking any future rows over pay into the long grass for three years.

BG perhaps should have thought about this when it decided Lund should get a one-off award of shares worth £12m – a handout too big to be allowed under those rules approved by its shareholders in the spring.

Even worse, the company has made it clear that if investors do not give the package their formal blessing, Lund is under no obligation to turn up for work in March.

This puts shareholders in an unenviable position: approve a pay deal that breaks all the rules (and face criticism from politicians for being too supine to take a stand) or risk a collapse in the share price if the candidate walks way.

It is a sorry tale. The BG board – under chairman Andrew Gould – is damaged even though it found a superb candidate; and Lund, even before he starts his job, is already being associated with his pay packet rather than his management credentials.