When Helge Lund takes over as CEO of BG Group in March 2015, he’ll be greeted with what sports economists call a “signing bonus” of $23.6 million as well as a salary of $22.07 million during his first year. That is unless investors in the British energy giant have their way.
No one is denying the assessment by the British multinational energy company that Lund is “ideally suited” for the job, given his 10 years’ service as CEO of Norway’s Statoil. But many investors believe that doesn’t warrant the amount of money the British company wants to pay him.
Lund’s pay package will be the subject of a shareholder vote on Dec. 15. In the meantime, BG executives are talking with leading investors ahead of that meeting.
The Investment Management Association opposes Lund’s pay package and reportedly issued what it calls a “red top,” its strongest recommendation against a company’s announced plans. And Institutional Shareholder Services (ISS) has demanded that the pay package be rejected in an effort to maintain investor control of the companies.
One investor group, the Institute of Directors (IoD), was particularly outspoken in its criticism. Its director general, Simon Walker, said the pay package “brings the whole of British business into disrepute.”
“It is excessive, inflammatory and contrary to the principles of good corporate governance,” Walker said. “It is a red rag to enemies of the free market. We urge shareholders to call BG’s bluff.”
Further, Walker said the proposed pay package to Lund was excessive given the size of BG. He said Britain’s BP and the Anglo-Dutch Royal Dutch Shell are much bigger than BG, yet pay their CEO’s less.
The investors’ criticism flies in the face of BG’s recent announcement that shareholders had “overwhelmingly welcomed” Lund’s appointment. As criticism has grown, however, the company has made slight adjustments to his pay package to link it in part to his performance.
BG’s chairman, Andrew Gould, has been running the company on an interim basis since the previous CEO, Chris Finlayson, resigned in April, citing personal reasons.
That explanation aside, BG’s production targets had to be reduced dramatically because of continuing problems in its Egyptian gas fields, which had for some time been dampening the company’s earnings. Last month BG announced a 29 percent drop in third-quarter earnings to under $1.2 billion.
BG Group plc is based in Reading and has oversees operations in 25 countries across Africa, Asia, Australasia, Europe, North America and South America, which together produce about 680,000 barrels of oil equivalent per day. The company also is a giant in liquefied natural gas (LNG), and is the largest supplier of the fuel to the United States.
The company was created in 1997 when British Gas plc divested the electricity and gas utility Centrica and became BG plc. It was reorganized in 1999 and renamed BG Group plc.
By Andy Tully of Oilprice.com
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