The price of peace at BG Group is £1.4m. That’s the difference between the face value of incoming chief executive Helge Lund’s original golden hello (£12m) and the rejigged version (£10.6m).
The latter comes with tougher performance conditions so if, like BG, you prefer to talk about the “expected value” of awards, the key numbers are £10m and £4.6m. Either way, the new deal falls within BG’s agreed policy for new hires so there is no need for shareholders to vote at a general meeting. The quarrel with investors has been defused.
The obvious question, though, is why BG chairman Andrew Gould and his boardroom colleagues ever thought plan A was a good idea or would survive shareholder scrutiny. It was obvious that a rebellion was on the cards. BG’s board was ignoring a binding three-year pay policy that had been agreed with shareholders as recently as May.
Its grounds for doing so were weak. Gould’s argument was that Lund was an exceptional hire who would not come for anything less than £12m as a signing-on carrot. That plea has now been exploded by Lund’s willingness to accept a smaller sum. It rather looks as if Gould did not negotiate hard enough at the outset.
Indeed, many will wonder why Lund was offered a golden hello of any size, even one that falls within agreed policy. Even by the yardstick of FTSE 100 chief executives running oil and gas giants, he has the chance to become extremely rich via the conventional elements of his pay package. He will get a £1.5m salary; £450,000 a year for five years instead of a pension; an annual cash bonus of up to £3m; and up to £9m a year in long-term share awards.
That lot adds up to a maximum £14m a year if Lund hits his targets. If he does so, the value of his share-based awards would improve with BG’s share price. So, at the maximum, he might clear £80m for half a decade’s work. That is not a pauper’s rate.
The only welcome development in this affair is that boards everywhere now know that a binding pay policy is indeed binding. Most, though, had surely understood the point already. Gould has now appointed one chief executive (Chris Finlayson) who was ditched after 15 months and created an unnecessary row over the pay arrangements for a second. It’s not an impressive record. Normal form after a mishandled pay row dictates that the head of the remuneration committee should provide cover for boardroom colleagues by leaving quietly after a decent interval. Tough luck, Sir John Hood.
JLIF’s cheeky pitch
In the world of construction and public-private assets such as hospitals, the polite fiction has always been that a “directors’ valuation” of an infrastructure portfolio should be on the low side.
The directors would argue this shows admirable conservatism on their part. A cynic would say the board wants a pat on the back every time it achieves the relatively simple task of selling an asset for more than book value. Either way, a £1bn offer for a portfolio valued by the directors at £1bn ought to be a non-starter.
You can’t blame John Laing Infrastructure Fund (JLIF) for making such a cheeky pitch to Balfour Beatty. It costs nothing to send a letter. And, after a string of profit warnings from the construction division, there is a slight chance that Balfour’s shareholders might be sufficiently desperate to grab anything that looks like hard value for their collection of PFI assets.
Yet JLIF’s offer deserves a straightforward rejection. The price is too low. Balfour would be silly to sell before conducting an auction. And new chief executive, Leo Quinn, due to arrive at the start of January, deserves a say.
Quinn, incidentally, should ask current employer Qinetiq for early release from his contract. JLIF, one suspects, may see advantage in putting its real offer on the table soon. It would be useful if Quinn were in position before then.
Less than stressed
The Co-op Bank doesn’t seem to be too stressed about the idea that it will fail the stress tests the Bank of England is currently conducting on major UK lenders. Failure to meet desired capital ratios would “come as no surprise”, it says.
It sounds as if Niall Booker, chief executive, is expecting to receive a get-out card from Threadneedle Street in the form of more time to generate capital. Perhaps he will. But it would very odd if the Bank’s Prudential Regulation Authority concludes that a fail carries no consequences.
If the regulator thinks improvements at the Co-op Bank mean the lender is now capable of raising more capital from its shareholders why wouldn’t it order it to act? Isn’t that the point of stress tests?
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