BG Group – A personal view by ShareSoc director, Mark Bentley
BG Group will be holding an EGM on 15th December to consider a resolution to approve a “Conditional Share Award” for newly appointed CEO Helge Lund. Details can be found here: http://www.bg-group.com/assets/files/cms/2014Meeting_ShareholderCircular.pdf
Mr Lund’s appointment was announced on 15 October 2014, taking effect from 2 March 2015. He has served as CEO of Statoil, the Norwegian oil and gas company, since August 2004. Prior to Statoil, Mr Lund was the CEO of Aker Kvaerner for 2 years, following the merger of Aker RGI and Kvaerner in 2002, where he served in various executive roles including Chief Operating Officer of Aker RGI between 1999-2002. BG are now proposing the following remuneration package: A base salary of £1.5 million, fixed for the first five years of employment; A 30% cash payment in lieu of pension; A short term annual cash incentive target performance with a maximum payment of 200% of base salary; An annual LTIP grant with a face value on award of 6 times salary; A one-off relocation allowance up to a maximum net value of £480,000; and A buy-out of unvested variable pay (otherwise due to him under his previous contract with Statoil) in BG shares up to a maximum of £3 million. Mr Lund’s contract will provide for a 12-month notice period, with a right for the Company to make a payment in lieu of notice equal to 130% of base salary on termination of the contract (being 12 months’ salary and 30% pension payment).
On top of this already generous pay package, shareholders are now being asked to approve an additional conditional award of shares with a face value of £12 million at date of grant, the vesting of which would be based upon personal performance criteria. The shares would vest in three equal tranches on the 3rd, 4th and 5th anniversary of the date of award. On vesting, 50% of each tranche (net of such number of shares as may need to be sold to cover any tax arising on vesting) would be capable of being sold, with the 50% balance being capable of being sold half on the 6th anniversary of the date of award and half on the 7th anniversary.
The conditional allocation of shares is outside the Company’s remuneration policy approved by shareholders at its Annual General Meeting in 2014 – but which I voted against, as I already consider that excessive. The Company states that it has consulted extensively with shareholders about Mr Lund joining BG Group and the proposed remuneration package. Shareholders have ‘overwhelmingly’ welcomed the appointment, supporting the view that Mr Lund has the necessary skills and experience to lead BG Group.
Is such a massive remuneration package really justified? Firstly, Mr Lund’s 2013 total taxable compensation at Statoil is shown as NOK13.8m = £1.27m – hence it appears that the package offered by BG Group represents a huge increase on his current remuneration, at a company that is substantially larger than BG Group itself. Was it really necessary to offer such a generous package to secure his services?
It is long overdue that shareholders put their foot down in the face of such excessive awards – and pay schemes that are so complex that a PhD in mathematics is required to fully understand them. Unless we take such a stand, the trend of massive rises in top executive pay will continue, with those executives taking an ever great share of corporate profits, leaving less for shareholders and for other employees. There is no evidence that massive executive pay leads to better performance – on the contrary, the lessons of the banking crisis show that a focus on high remuneration, linked to short-term performance, leads to decision making that is not in the long term interests of shareholders. The study referenced here: http://highpaycentre.org/blog/cambridge-study-shows-that-excessive-ceo-pay-packages-harm-company-performa shows that high pay is negatively correlated with company performance.
I expressed my disquiet in person over the already overgenerous pay to BG Group Remuneration Committee chairman, John Hood at the last two AGMs – but he seems impervious to that disquiet. Perhaps that is not too surprising, when we learn that Mr Hood also chairs the remuneration committee of WPP Group, which offers the highest pay of any FTSE100 company to its Chief Executive, Sir Martin Sorrell.
I urge any BG Shareholders to vote against this “conditional share award” and, at the earliest opportunity, to vote against the re-election of John Hood as a director of the company. We cannot succumb to the blackmail implicit in the statement included in the circular that: “Mr Lund is not obliged to join BG Group if the Conditional Share Award is not approved by shareholders.”