Evidently the board of BG Group was listening when investor groups complained about a huge pay package for Helge Lund, who is set to become the new CEO of the British energy giant.
Lund's annual salary had been set at nearly $18.8 million, plus an incentive payment that would have gained him $20.4 million during his first five years on the job.
The incentive payment was not covered by BG's pay rules, which were set by the company's shareholders during their annual meeting in May, so BG's investors had been scheduled to vote whether to approve or reject the offer for the former chief executive of the Norwegian energy giant Statoil on Dec. 15.
Related: Norway's Energy Policies A Lesson For The World
Investor groups didn't wait until then to express their disapproval. The Investment Management Association issued its strongest recommendation against the plan. And Simon Walker, the director general of the Institute of Directors (IoD), 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, Lund's pay would exceed that earned by the CEOs of much larger competitors, the Anglo-Duch Royal Dutch Shell and Britain's BP.
What's more, BG hasn't had a stellar 2014. The company's production goals had to be slashed because of problems that arose in its gas fields in Egypt back in January and that persist as the year comes to a close. These problems have had a painful impact on the company's revenues. At the end of October, BG announced a 29 percent drop in third-quarter earnings to under $1.2 billion.
To resolve the dispute over Lund, BG issued a statement on Dec. 1 saying, "Following extensive shareholder consultation, the BG Group board and Helge Lund wish to respond to BG Group shareholder concerns."
The response: Part of the incentive package, worth $15.7 million, would be cut to less than half that amount, just under $7.4 million.
Related: Outrage At Pay Package For New BG Group CEO
Now that the terms of Lund's remuneration have changed, BG Group has canceled Dec. 15 vote because the terms of his pay are consistent with the company's policies.
All, evidently, is forgiven. Walker, of the IoD, declared, "While substantial, the total remuneration is reduced and now falls within proper limits for a company of BG's size and international importance. We continue to welcome Helge Lund's appointment and wish him and BG well in the challenges they face."
Forgiveness aside, though, the company is still feeling pressure financially. OPEC's decision on Nov. 27 not to shore up oil prices has hurt energy stocks, including those of BG Group, which lost an additional 3 percent even as the company was announcing Lund's revised pay package.
By Andy Tully of Oilprice.com
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Andy Tully is a veteran news reporter who is now the news editor for Oilprice.com More