Margareta Pagano: It's wrong to try to kick out Davis's pay prize when he's such a winner

Midweek View: Now there is another danger, that the newly discovered evangelism of investors will be directed at the wrong targets
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The Independent Online

It really is a game of two halves. On the one side is Chelsea going on the attack and splashing out £78m to buy Belgian footballer, Eden Hazard, beating off rivals to steal the brilliant young star who they hope will help them retain the Champions League next season. Although half of the money will go to his club, Lille, Hazard is said to be taking home an annual salary – net of tax – of £4.6m, or £170,000 a week. You don't hear even a peep in the press while the Blues' fans are out tweeting with joy over the player they hope will be the new Cristiano Ronaldo.

Yet shareholders of Xstrata, the mining giant, are threatening to stop the chunky package which it plans to pay striker Mick Davis to lock him in for three years if the "merger of equals" with Glencore goes ahead. It's high, running into tens of millions, but not the £50m reported elsewhere.

Even so it's superstar levels. Xstrata fans are also worried that the package will not be linked to performance, fearing if the deal goes through he won't be bothered to go to work any more and only "show up". Obviously they don't know Mr Davis; one of the reasons the board is so desperate to keep him is that mining makes up about 80 per cent of the new group but there are at least 20 big mining projects on the go which only he can mastermind.

But investors are smelling blood. Up to 40 per cent of investors voted against his £8.95m pay and pension package last year. Some are muttering they will vote against it when asked to approve the scheme document for the £58bn merger, a move that could even derail the deal. Shareholder spring fever has already cost a few company bosses their heads – those of Aviva and Trinity Mirror to name a few.

But are they right to object to the Mr Davis lock-in? We haven't seen the details – the document is due to be published this week – so it may be premature to go out on a limb but it seems to me that Mr Davis, and his top executives, are sitting more comfortably than most because of Xstrata's extraordinary success. Mr Davis took over 11 years ago when the heavily indebted firm, then worth about $500m, had only zinc and ferroalloys assets in Spain and South Africa. After floating a decade ago at 250p, Xstrata is worth 950p a share, valuing it at £27bn, and employs nearly 70,000 people. Since the IPO investors have seen a total return on equity of 370 per cent, against the average of 54 per cent for FTSE 100 companies.

The South-African Mr Davis has achieved this by being entrepreneurial; not just by managing other people's money. Of course, there is an element of luck too as Xstrata set off just as the world's commodities boom took off. If shareholders had invested £1,000, and reinvested their dividends, that is worth about £4,268 compared with £1,590 invested in the FTSE 100 index.

It's taken big investors over a decade to wake up to the fact that corporate pay, and the way executives are rewarded, has grown out of kilter with average pay. More pertinently, they allowed companies to employ pay consultants who like to benchmark everyone, which has meant pay has soared across the board. So bad bosses have been rewarded as much as the good. At least in football, someone like Sly Bailey, who oversaw such value destruction at Trinity, would have been relegated years ago.

Now there is another danger, that the newly discovered evangelism of investors will be directed at the wrong targets. Mr Davis gets good money for what he does, probably worth about £100m from his various share option schemes. But shouldn't this be put into a wider perspective of what he has achieved for investors and the wider community – the jobs etc?

The different reactions to how much top footballers are paid and to what top-performing businessmen earn is instructive because it shows how confused we are about how to value someone's work. Mr Hazard and his peers have unique talents, and should be paid accordingly. Or so the orthodox view goes. Does Mr Davis? And is he worth keeping? Glencore's Ivan Glasenberg (a multi-billionaire) certainly thinks so. The next question is how Mr Davis and Mr Glasenberg will get along together, and who it is they want to buy to put them in a league of their own. It may be fantasy but they would love to buy Anglo American, competition rules permitting. And, if the merger doesn't work out, Mr Davis can always walk with his fat transfer fee. But that's the risk.