Two of Xstrata's biggest shareholders have condemned the mining giant for paying chief executive Mick Davis £28.8m just to keep him at the company for three years following its proposed merger with Glencore.
Standard Life, which owns 1.41 per cent of Xstrata, and Fidelity, with a 0.83 per cent stake, criticised these so-called "golden handcuffs" yesterday. The cuffs are part of total retention payments of £170m that will be made to the miner's 73 most essential staff if the £57m deal goes through.
David Cummings, Standard Life Investments' head of equities, said that the "excessive retention payments" lacked any performance requirement and were "unacceptable and depressing". He said: "This document makes supporting Glencore's already inadequate offer for Xstrata even less palatable. Consequently, we still believe it should be opposed."
Dominic Rossi, of Fidelity, echoed Mr Cummings' concern. "The terms of the pay arrangement associated with the merger of Glencore and Xstrata are provocative and insensitive given the current climate.
"In effect, the interests of management have been placed ahead of those of shareholders."
Xstrata and Glencore insist that the payments are necessary to ensure the business flourishes after the merger, which shareholders are due to vote on next month.
Revealing the payouts in a substantial prospectus to shareholders on Thursday, the company said: "These arrangements depend upon retaining the core senior management of Xstrata."
Xstrata's chairman Sir John Bond added yesterday: "Retaining a stable management team with a track record of value delivery is in the interests of Xstrata shareholders."
Relatively little opposition is needed to scupper the transaction. This is because Xstrata and Glencore have opted to implement the merger using a scheme of arrangement, which requires agreement from three-quarters of shareholders rather than the usual half. Furthermore, Glencore already owns 34 per cent of Xstrata and will be able to vote its holding on the deal.
As a result, only 16.4 per cent of Xstrata's shareholders need to vote against the deal to block it.
- More about: