Shareholders exercise voting leverage amid govt pressure

Institutional investor pressure has forced Cairn Energy to drop a £2.5m share reward for its chief executive.

The oil and gas exploration company withdrew a resolution from its general meeting to hand chairman and chief executive Sir Bill Gammel the shares after a chorus of dissent from institutional investors.

The Association of British Insurers confirmed it issued a red top alert - the most serious - to its members highlighting issues with the award.

Cairn Energy intended to reward its chairman following a deal with India-based mining company Vedanta Resources for Cairn's stake in its former Indian business arm, Cairn India.

The transaction raised $5.5bn (£3.5bn) for the FTSE100 company, of which $3.5bn (£2.2bn) will be returned to shareholders.

But institutional investors like F&C Investments expressed concern that Gammel should not receive a "transaction bonus" as he will already receive a pay-out from his existing shares in Cairn.

F&C director of corporate governance George Dallas (pictured) told PP sensitivity to executive remuneration was "heightened" in the current political and economic climate.

He said: "I think Cairn is an important case which shows investors have expressed concerns to the company about a remuneration point and the company to its credit listened."

Dallas added other companies in similar position might now think twice.

PIRC head of communications Tom Powdrill said it was too early to tell if there had been any change in shareholder voting practices before the UK AGM season kicks off in April and May, but added the Cairn Energy decision was "pretty significant".

"Any company that loses a vote on remuneration is a relative rarity so to put up a proposal like that and to lose it - a big company - is quite significant. It doesn't happen very often," he said.

Meanwhile, pensions minister Steve Webb has indicated he is taking the issue of transparency around scheme investment strategy seriously.

A spokesman for The Pensions Regulator confirmed that Webb discussed the subject with chief executive Bill Galvin and chairman Michael O'Higgins at a meeting in late January.