A british oil company is cutting its new CEO’s pay by more than half, in a rare win for shareholders who had opposed the company’s initial proposal for compensating chief executive Helge Lund.
After major shareholders and a U.K. government official publicly opposed BG Group’s plan to award Lund 12 million pounds ($19 million) in stock this year, the company announced Monday that it will stretch the award out over 5 years and attach stricter performance incentives to it. It now expects the award to be worth 4.7 million pounds, or about $7.4 million.
The change means Lund’s pay will follow the company’s existing rules for executive compensation schemes, which BG had sought to bend to help it woo Lund away from his previous post at a competitor firm. Abandoning its usual pay rules and accelerating Lund’s stock award had brought criticism from multiple large investment advising companies including four of the largest institutional investors in the company. Vince Cable, the top minister for business issues in Prime Minister David Cameron’s government, also publicly criticized the proposal as “excessive.”
Monday’s reversal offers a contrast to unsuccessful efforts to curb CEO pay plans by shareholders in America. Institutional Shareholder Services (ISS), one of the advisory firms that helped back BG into a corner over Lund’s pay in recent weeks, has also called for Microsoft investors to vote against the tech giant’s plan to pay new CEO Satya Nadella about $90 million in fiscal year 2014. But ISS’ call for a non-binding “no” vote hasn’t chastened Microsoft, which insists that it is only trying to bind Nadella’s personal fortunes to the company’s performance in the same way as it did with previous CEOs who held far more company stock.
Giant stock awards to CEOs on both sides of the Atlantic illustrate the deficiencies in the current system for determining executive pay at the largest companies. Actual company performance only accounts for about 12 cents out of every dollar of the variation in CEO pay between comparable companies, and corporations often rely on compensation consultants who consistently drive CEO pay higher and higher regardless of job performance. From Walmart to Wynn Resorts to Walt Disney, the largest and most profitable American companies have either ignored their own performance pay rules or rigged those performance targets to essentially guarantee their bosses extra compensation.
Because these companies often compete with one another for what is perceived to be the top executive talent in their industry, CEO pay tends to snowball over time. The gap between what CEOs make and what working people earn for their labor has exploded since the 1980s, and today stands at nearly 300-to-1 among the largest U.S. corporations. While people around the world know that CEO-to-worker pay ratios are higher than they would like, they still severely underestimate just how far out of hand the comparison has become. Americans think that CEOs make a mere 30 times more than what they pay their workers.