James Moore: No big payout now, but a golden chance for Cairn chief to display his charity

Outlook: It couldn't have been timed better. Just a day after Vince Cable rushed forward his plans for a crackdown on executive pay, Cairn Energy bowed to pressure from shareholders and withdrew a £2.5m bung plus a £1m donation it had been planning to lavish on its chairman, Sir Bill Gammell, and his favourite charities.

This pot of gold was for Sir Bill's work on the disposal of the group's Indian business. Shareholders were told it was "essential" to incentivise him to "deliver the disposal". Understandably, they have asked why.

Sir Bill had been leading the negotiations to sell off the operation as chief executive, but in the middle of the process was made non-executive chairman. However, he munificently agreed to see the deal through, which meant him retaining some executive responsibilities.

That is where the problems start. Setting aside the fact that elevating a company's chief executive to chairman is considered bad practice, he was already getting a £1.4m payment to compensate him for the move upstairs.

And, anyway, if the deal was so important, why not simply ask him to stay on until its completion, with an interim chairman to run the board? Then he would have been eligible for his ample salary, bonus, long-term incentive scheme and all the other sweeties a chief executive gets.

To be fair, this is no reward for failure. The deal will see £2.25bn returned to shareholders. Cairn's initial investment was about £300m, and it had previously returned £478m in 2007. It will retain a stake worth £1.7bn.

As a substantial shareholder (he owns 3 million) Sir Bill benefits hugely from all of this. Shouldn't that be all the incentive needed to get the deal done?

It is worth noting here that shareholders were given a binding vote on the payment, which was intended to be made in shares, as part of the egm called to approve the disposal.

The vote carried teeth, and Cairn withdrew the payment because its directors knew they might lose.

Perhaps there is wisdom in Mr Cable making votes on remuneration reports binding. There have been warnings about potential unintended consequences of doing this. But if companies act like Cairn and respond before a potential train wreck, there shouldn't be a problem.

This isn't over. Cairn is still intending to hold "talks" with shareholders over what might end up to be a smaller payout. They should resist that too.

Sir Bill has had his reward, and the only issue now is that £1m donation. It seems a shame to deprive the charities, all doubtless worthy.

Sir Bill likes to do his bit for charity. So perhaps, given that he is not short of a few quid, he might like to make good the donation personally? That way it would qualify for gift aid and set Sir Bill apart from much of corporate Britain not only by dint of his performance but by showing he is just as keen to donate his own money as he is on donating his shareholders'.

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