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Cairn to test shareholders with planned payout to chief executive

The Edinburgh-based FTSE 100 oil plans to hand Sir Bill Gammell, its chief executive who is stepping up to chairman, some £4.9m

The stage is being set for a key test of investors’ appetite to fight over executive pay: Cairn Energy.

The Edinburgh-based FTSE 100 oil company plans to hand Sir Bill Gammell, its chief executive who is stepping up to chairman, some £4.9m. The handout takes the form of an award of 940,321 shares for Gammell, valued at about £2.5m, which vest after three years and are not subject to any performance criteria. Another £1m is being handed to him which will be given to charities of his choice.

Some £1.4m is also due to Gammell, according to the company, because as he is no longer going to be chief executive he is entitled to his contractual entitlement for the year – salary, benefits and bonus for 2010/11.

The company believes the contractual payment was necessary because the company was in the midst of a restructuring, with its part of Cairn India being sold to Vedanta and it wanted to motivate Gammell to get the deal done by 15 December 2011 – a date which was later than expected because it had been delayed by the regulatory requirements in India.

Gammell, a former Scottish rugby international, has built the company into a FTSE 100 company after buying exploration sites in India, for £4.5m, that Royal Dutch Shell had given up hope on. It is the sale of these – for £6.5bn – that is now allowing the company to make a major distribution to shareholders and requiring the extraordinary general meeting taking place in Edinburgh on 30 January.

Shareholders are being asked to vote on a number of items, including the £3.5bn capital reorganisation and the share award to Gammell. The Association of British Insurers is understood to have issued a “red top” alert of the meeting, its highest level of warning about corporate governance breaches. It is up to shareholders now to decide if the payments to Gammell should go ahead.

A spokesman for company justified the payments, saying they “reflect the exceptional scale of the capital return to shareholders from the Indian development and the very considerable task of securing approvals for the sale”. © 2012 Guardian News and Media Limited or its affiliated companies. All rights reserved. | Use of this content is subject to our Terms & Conditions | More Feeds