Shareholders Force Smaller BG CEO Pay Package

Oil and gas firm BG Group (BRGXF) has cut millions of pounds off the pay package for its incoming chief executive Helge Lund, bowing to pressure from shareholders in the biggest such revolt over executive pay in recent years.

Britain's Business Secretary threw his weight behind disgruntled investors last week, urging the new chief executive's "excessive" pay package to be voted down.

Norwegian oil major Statoil (STO)'s chief executive for the last 10 years, Lund will take over at the helm of Britain's third-biggest energy firm on March 2 with an initial share award cut from around 10 million pounds to 4.7 million pounds a year, after investors complained about plans to sidestep the company's usual remuneration policy.

"The company today announces revisions to the remuneration package for its new chief executive, Mr Lund," BG Group said in a statement on Monday, adding that a "significant" number of shareholders had complained about the special remuneration arrangements that would make him one of the best paid in the sector.

Shares in BG were trading down 2 percent at 1048 GMT, in line with losses across the wider energy sector.

"We are encouraged to see BG responding positively to shareholders' concerns," said Sacha Sadan, director of corporate governance at Legal & General Investment Management, one of BG's largest shareholders, owning 2.7 percent according to Reuters data.

Salaries in the oil and gas sector are typically above-average due to strong competition for high-calibre leaders in the niche field, but BG shareholders were concerned about the level of Lund's pay. At Statoil Lund earned a base salary of $1.15 million last year and his totla package amounded to $2.1 million.

As well as a reduced share award, Lund's long-term incentive payments will also be more closely linked to the performance of the company than BG's initial proposal, the company said.

"We are glad that the award is now subject to clear financial targets," said Ashley Hamilton Claxton, corporate governance manager for Royal London Asset Management which holds a 0.67 percent share in BG.

Lund, who in 10 years transformed Norway's once domestic-focused state oil firm into a $77 billion international major, played an active role in revising his remuneration package, BG said, indicating he is content with the changes made.

Even after those changes, Lund will receive an attractive compensation package that outstrips those of chief executives at larger London-listed competitors BP and Shell if he meets all targets.

Originally Lund was to receive a yearly compensation package of up to 14 million pounds, assuming maximum target performance, compared with 2013 remuneration of 7.1 million pounds for Shell's Peter Voser and around 8.4 million pounds for BP's Bob Dudley, according to company filings.

BG said that based on historic performance, Lund's annual remuneration will now be around 7 million pounds.

Analysts say that chief executives at other oil companies could also face shareholder revolts in the light of a sector-wide push to cut costs amid weak oil prices.

"For the companies that haven't delivered operationally and where there haven't been any returns in terms of share price performance, while the CEO appears to have a salary that's gone up exponentially, those guys will be under pressure to bring down salaries," said Tim Hurst-Brown, equity analyst at Mirabaud.

BG had scheduled a general meeting for Dec. 15 to vote on the share award proposal that has now been withdrawn.

A spokesman said the meeting would still take place but was expected to be immediately adjourned.

Britain's last big shareholder revolt against chief executive pay took place over the summer when investors in Burberry Group expressed opposition to the board's remuneration report at the company's annual general meeting.
 

By Karolin Schaps