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May 19, 2012
Two-thirds of Cairn Energy Shareowners Reject Say-on-Pay Proposal
    by Robert Kropp

The vote at the UK-based energy exploration company comes after Business Secretary Vince Cable proposes that shareowner votes on executive compensation be binding.

The traditional view of the differences between shareowner engagement in the US and the UK was captured in a 2009 paper written by James Gifford, Executive Director of the United Nations' Principles for Responsible Investment (PRI).

"There is a cultural difference between the US and the UK on the issue of filing shareholder resolutions, with this tool being much more common in the US due to weaker shareholder rights leaving shareholders with fewer options, as well as a more confrontational corporate culture," Gifford wrote.

But the cultural difference referred to by Gifford may be narrowing. Here in the US, the number of resolutions filed by members of the Interfaith Center on Corporate Responsibility (ICCR) has declined, as the organization increasingly emphasizes engagement instead.

Reflecting on ICCR's status as an organization of faith-based investors, Executive Director Laura Berry told in February, "When you start to use language around transformation and collaboration, it starts to leave the field of adversarial conversations and pushes us toward everyone having a stake in transformation."

Meanwhile, in the UK, Business Secretary Vince Cable proposed that shareowners "be given binding votes on a company's pay policy and pay-outs to departing executives while also being given clawbacks when executives failed," the Financial Times reported earlier this year. Cable also proposed that executive compensation packages be approved by 75% of shareowners in order to pass.

If such regulations were in place today, the remuneration committee of Cairn Energy's board of directors would be revising its proposed executive compensation package to address the concerns of the majority of its shareowners. This week, two-thirds of those shareowners voted against the proposed package. Eleven percent voted against the reelection of board chairman Bill Gammell as well.

Cairn Energy has spent at least $1 billion since 2010, drilling deep water exploratory wells off the coast of Greenland without success. Since last year, when the company sold its Indian business unit to Vedanta Resources, its stock price has declined by 15%.

And what if the 75% threshold for passage proposed by Cable were applied in the US? In 2011, according to GovernanceMetrics International (GMI), the executive pay packages at 38 companies in the Russell 3000—including eight in the S&P500—were rejected by majorities of shareowners.

In addition, GMI reported, 157 companies in the Russell 3000, and 42 in the S&P500, failed to win the support of 70% of shareowners. Failing to reach such a threshold, GMI said, "suggests a substantial number of shareholders disapprove of these companies' pay practices."

If the regulations proposed in the UK were to be implemented here, perhaps we would begin to see more corporate executives joining the "stake in transformation" referred to by Berry of ICCR.


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