FTSE 100 firm Cairn Energy bows to pressure and drops a £3.5 million payout.
Earlier, I wrote about business secretary Vince Cable's proposals to curb excessive executive pay. After finishing and filing this article, I spotted a story that ideally illustrates Cable's complaints.
Cairn deals with Vedanta
Last December, Cairn Energy (LSE: CNE) sold a 30% stake in subsidiary Cairn India to fellow FTSE 100 firm Vedanta Resources (LSE: VED). As a result, Cairn received $4.1 billion (£2.6 billion) in cash. Earlier, in July 2011, Vedanta bought a 10% stake in Cairn India for $1.4 billion in cash.
After these transactions, Cairn has retained a 22% stake in Cairn India, but it now has $4.7 billion of net cash. Hence, the oil explorer proposes to return $3.5 billion of excess capital to its shareholders. This will come from a cash dividend of £1.60 a share, or one B share per ordinary share. This allows shareholders to elect to receive their cash as income or a return of capital, whichever suits their personal tax status.
Cairn backs down
While Cairn shareholders will be delighted with these transactions, they were less than happy with the company's planned generosity towards its chairman and co-founder, Sir Bill Gammell.
Cairn's board intended to pay the former international Rugby Union player a special, one-off bonus in shares worth £2.5 million. On top of this, the energy company planned to splash out another £1 million on a mega-donation to the Winning Scotland Foundation, a sports charity linked to Sir Bill.
Concerned by this corporate largesse, the Association of British Insurers (ABI) today issued a 'Red Top' warning notice to investors, expressing its disapproval of Sir Bill's bonus. What's more, leading shareholders in Cairn piled pressure on its directors and remuneration committee to drop both payments.
In a rare example of successful shareholder democracy, Cairn issued a regulatory announcement confirming that it had withdrawn both share bonus and charitable donation from the agenda for the general meeting next Monday, 30 January.
With typical understatement, the ABI responded, "We are pleased that the company has listened to the concerns of its shareholders."
Remind us: whose money is it?
Happily, Sir Bill Gammell won't face the poorhouse as the result of losing this cancelled £2.5 million windfall. After all, Cairn's rapid growth since it listed in London in 1988 has made him one of Scotland's richest and most well-connected men (Sir Bill was a school friend of ex-PM Tony Blair).
Even so, Sir Bill must be smarting after being singled out as the latest in a lengthy line of corporate 'fat cats' all too eager to feast on shareholders' money. Then again, though £2.5 million is a tiny bonus when compared to the billions Sir Bill has made for his fellow shareholders, it stands as yet another glaring example of the lack of clear transparency between director pay and company performance.
Although 'one swallow does not a summer make', perhaps this latest episode will remind other boards of directors that they are merely agents of the company's owners. Therefore, they do not have an absolute right to splash shareholders' cash without first winning them over!
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