Cairn shareholder power scuppers Gammell's £2.5m 'thank you' bonus
LONDON BRIEFING:Oil company’s decision to withdraw chairman’s payout could help curb boardroom excess
IN A RARE show of shareholder power, leading investors in Cairn Energy have forced the FTSE 100 oil company to withdraw plans to award a special £2.5 million payout to chairman Sir Bill Gammell.
The former Scottish rugby international, who founded Cairn Energy three decades ago after injury ended his sporting career, had been due to receive the bonus as a “thank you” for securing the lucrative sale of the group’s Indian operations.
But, ahead of a shareholder vote on the windfall, institutional shareholders complained they had not been consulted sufficiently, forcing Cairn to withdraw rather than face an embarrassing revolt at the meeting.
The retreat by Cairn, one of Britain’s leading companies, could hardly have come at a better time for Business Secretary Vince Cable, who on Monday launched the government’s latest, and most ambitious, attempt to curb boardroom excess.
Handing more power to shareholders to take action against greedy directors is one of the key proposals of the Cable pay plan, along with simplification of the over-complex presentation of board pay.
A vote would be required on pay-offs of more than a year’s salary and fees to remuneration consultants will also have to be disclosed.
Cable failed, though, to include any employee representation on remuneration committees, which unions had been calling for.
The week didn’t start well for the business secretary. He had been due to launch his proposals at a think-tank on Tuesday but was forced to bring them forward a day when the Speaker of the House of Commons insisted that MPs be the first to hear about them.
Cable was given a rough ride from all sides of the House, particularly over his refusal to say whether the Royal Bank of Scotland boss Stephen Hester would be receiving a bonus this year. Although the state-
controlled bank insists no decision has yet been taken, its boss is in line for a bonus of over £1 million despite a 40 per cent fall in the bank’s share price last year.
The RBS question “is beyond my pay grade” the business secretary told jeering MPs. But the question is also being dodged by the man on the higher pay grade – prime minister David Cameron, who is said to fear Hester will quit if he is denied his contractual entitlement to a payout.
Pressed on the subject last week, Cameron would say only that, if the RBS chief executive does receive a bonus, it would be a lot less than last year. Hester accepted a £2 million payout last year, however, which leaves plenty of room for manoeuvre.
Cable scored a few points himself amid the jeers, notably against Chuka Umunna, the Labour shadow business secretary. It was Umunna who led the calls for Cable to be ordered to Westminster on Monday and the business secretary got his own back by highlighting the opposition’s woeful record on pay inequality, pointing out that when Labour came into power, executive pay was 46 times greater than the average salary and that the gap had soared to 120 times by the end of their reign.
Things are unlikely to improve any time soon; indeed, a gloomy report this week from the independent Resolution Foundation warned that millions of British families will not see their earnings return to pre-
recession levels until at least 2020. The wealthy, on the other hand, will continue to enjoy increased disposable income.
The report defines the “squeezed middle” as a childless couple with a gross annual income of between £12,000 and £29,000 or couples with two children and an income of between £17,000 and £41,000; in total 5.8 million people, or almost a third of working-age households. The report also notes that the average time taken by the squeezed middle to save for a deposit on a house has soared from eight years in 2001 to 22 years today.
No such trouble for Cairn’s Bill Gammell, even if he has been forced to forgo his £2.5 million share award. The handout was part of a £4 million bonus deal for Gammell, including a £1.4 million payment to compensate him when he stepped down as chief executive and switched to the less lucrative role of non-executive chairman.
Cairn’s generous remuneration committee also agreed to make a £1 million gift to a charity or charities of Gammell’s choice. The beneficiaries of that gift would have been young people in Scotland, with a particular focus on sport.
Unfortunately for budding Scottish sportsmen and women, the £1 million donation has now been dropped along with Gammell’s bonus.
Fiona Walsh writes for the Guardiannewspaper in London