BG Group revises CEO remuneration

Oil and gas company BG Group will revise the salary package for its newly appointed CEO, Helge Lund after a significant number of shareolders questioned the structure of the package.

According to the company, the revised package brings all elements of Lund’s remuneration within the company’s remuneration policy approved by shareholders in May 2014. This removes the need for shareholder approval for the conditional award of shares previously proposed for Lund.

The conditional share award will no longer be made. Instead, Lund will be granted an initial award of shares under the Company’s Long Term Incentive Plan (LTIP), with a face value equal to £10.6 million, which will be subject to Company performance conditions. This revised package reduces the expected value of Lund’s initial share award from approximately £10 million to approximately £4.7 million.

The initial LTIP award will be made after Lund starts work at BG Group, and will be in addition to an annual LTIP award. According to BG Group, Lund has indicated that he still intends to hold any shares that vest to him (net of tax) for the duration of his employment with the Company.

The changes mean that 62% of Lund’s remuneration package in the first year, on an expected value basis, will now be subject to quantitative company performance criteria.

As a result of these changes, at the General Meeting convened for 15 December 2014, the Company intends to withdraw the previously proposed ordinary resolution to approve the conditional share award. Consequently, Lund has waived his right not to join the Company.

CEO remuneration

All elements of Helge Lund’s employment contract are within the policy approved by shareholders, BG has explained, and the principal terms are as follows:

· A base salary of £1.5 million, fixed for the first five years of employment;

· An annual cash payment in lieu of pension equivalent to 30% of salary, also fixed for the first five years of employment;

· A short term annual cash incentive worth 100% of salary for target performance with a maximum payment of 200% of salary;

· An initial LTIP grant with an expected value on award of approximately £4.7 million, and a face value of £10.6 million;

· An annual LTIP grant with a face value on award of up to £9 million (6 times salary) and, for 2015, an expected value of up to £4 million;

· All LTIP awards made to Lund are subject to quantitative Company performance conditions measured over a three-year period. Any shares that vest at the end of the performance period must be held for a further two years;

· Lund has indicated that he intends in any event to hold all shares that vest to him (net of tax) for the duration of his employment with the Company;

· A one-off relocation allowance up to a maximum net value of £480,000;

· A 12 month notice period, with a right for the Company to make a payment in lieu of notice equal to 130% of salary on termination of the contract (being 12 months’ salary and 30% pension payment); and

· A one-off buy-out of forfeited variable Statoil pay in BG Group shares up to a maximum of £3 million and which is currently valued at £1 million.

To remind, Institute of Directors (IoD), a UK-based body that represents and set standards for company directors, last week slammed BG Group’s decision to award a £25 million ($39.36 million) pay deal to incoming Chief Executive, Helge Lund, describing the remuneration package as “excessive, inflammatory and contrary to the principles of good corporate governance.”