June 21, 2012 / 4:33 PM / in 6 years

Top UK investor lobby slams Xstrata pay plan

LONDON (Reuters) - The Association of British Insurers, an influential shareholder body, on Thursday condemned mining group Xstrata’s XTA.L plans to pay key executives large sums to ensure they stay on after its proposed merger with commodities trader Glencore (GLEN.L).

“The ABI is always skeptical about the effectiveness of retention payments,” ABI head of corporate governance Andrew Ninian said after the body issued a rare “red-top” alert on Xstrata’s pay proposals.

“In this case we have raised further concerns around the significant retention awards being offered to Xstrata executives which are not linked in any way to performance.”

Xstrata plans to hand more than 170 million pounds ($267.56 million) to its top 73 managers to deter them from leaving, arguing that their expertise is key to future profit.

Xstrata shareholders are due to vote on the group’s proposed $30 billion takeover of Glencore on July 12, but cannot oppose the retention packages without also voting down the deal, a course that could expose them to losses.

The ABI, whose members own about 17 percent of the British stock market, issues color-coded reports when it believes publicly quoted companies may be breaching corporate governance standards.

Red-top reports, indicating the most serious level of concern, have historically accounted for about 10 percent of the total.

By 1155 EDT, Xstrata shares were down 3.6 percent and Glencore shares were off 3.2 percent, underperforming the FTSE 100, which was 1 percent lower.

Xstrata said holding onto key executives was “integral to delivery” of the investment case underpinning the Glencore tie-up.

“Retaining a stable management team with a track record of value delivery is in the interests of Xstrata shareholders,” a spokesman said.

    Leading Xstrata investors including Standard Life Investments and Fidelity have previously spoken out against the miner’s pay plans, describing them as “provocative” and “unacceptable.”

    One fund management source said investors were concerned that retention payments do not work because sought-after executives are often bought out of their contracts by their new employers.

    The row over Xstrata’s pay comes amid growing investor intolerance of high boardroom pay that is not backed by strong management performance.

    A wave of shareholder revolts in Britain last month forced two high-profile chief executives - Aviva’s (AV.L) Andrew Moss and Trinity Mirror’s (TNI.L) Sly Bailey - to quit.

    The ABI said that while it opposed Xstrata’s retention packages, it had no opinion on the tie-up with Glencore.

    Reporting by Myles Neligan.; Editing by Jane Merriman

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