The good news is that yesterday BG Group cut incoming Chief Executive, Helge Lund’s remuneration package to within the scope of the remuneration policy agreed by shareholders less than six months ago. The board responded to considerable pressure from shareholders and no doubt from the Institute of Directors.
The bad news is that the BG Group reneged on the promise it made to shareholders in the first place in proposing this departure.
I have a small number of shares in BG Group. I have considered selling, but always think I’d better hang onto them for the long-term. I’ve never been to an AGM or paid close attention to the management or governance of BG Group until two things coincided a couple of weeks ago.
Just before the BG Group story broke some colleagues explored how ACCA may address the CG shortfalls in transparency in the UK identified in a recent ACCA and KPMG Singapore study ranking the CG requirements of 25 markets. The UK came number one but the research did identify some issues; that executive remuneration disclosure is not mandated, nor is the process for executive and director performance.
The second was before I was aware of the BG proposal outcry, I received a 30 page letter from the Chairman calling the extraordinary general meeting to vote on the conditional share award ahead of Helge Lund’s appointment.
It was a long well-crafted and compelling argument of how thorough the independent executive remuneration benchmarking was and that a package of this magnitude was needed to secure someone of Lund’s calibre. It sounded desperate.
Once I got over (kind of) the huge annual package and “golden hello” Lund was due to receive, I was nearly convinced to vote in favour. But it didn’t feel right to me at all and I felt like it was going to be a huge issue. It was and here’s what I’ve learnt from all this.
More good news
Shareholders (and others) are speaking louder
The Chairman’s proposal really hit a few nerves with institutional investors (Legal and General, Aviva), individual shareholders (me), politicians (Vince Cable), and the public (IOD, High Pay Centre) calling for a shareholders to vote against a binding pay deal being overturned so soon. Interestingly Standard Life Investments has long opposed the rewards given for “meeting unchallenging performance targets” – abstaining from votes on remuneration for 13 consecutive years.
UK corporate governance “saves face”
The U-turn from BG Group has allowed UK corporate governance to “save face”. The UK is considered a leader in corporate governance principles and practices since the Cadbury Report in 1992. It has a reputation to uphold, and many countries look to the UK when developing instruments and codes. I hope they still will.
And more bad news …. Wealth inequality is still growing
Executive pay packages like this one are driving greater wealth inequality between the UK’s top and bottom earners. The pay deal is still enormous – potentially £18m reduced from £25m – and this reduction won’t address the widening gap. Is it time to seriously consider a maximum pay ratio?
Transparency and performance
The chairman’s letter was transparent about how much Lund would receive, but I still struggle to understand how performance will be measured. So do others.
Studies indicate that pay packages linked to short-term financial measures and share price movement encourage excessive risk taking, with calls for performance based on non-financial measures to be included as well.
So, on 15 December, I will be going to the BG Group EGM and I have to say that I am a little disappointed that I won’t need to use my vote at the meeting! However, I am pleased that the much discussed Mr Lund has still decided to join BG with the generous package pre-approved by shareholders. But most of all I am pleased that we “voted” for the long-term societal impact and not short-term shareholder value. This will serve as a warning to companies thinking of breaching their remuneration policies any time soon.