Proxy adviser ISS slams Santos over CEO Kevin Gallagher’s pay
Influential proxy adviser ISS says it has a ‘high degree’ of concern about CEO Kevin Gallagher’s proposed $6m bonus.
A $6m payday for Santos boss Kevin Gallagher has been slammed by Institutional Shareholder Services with the influential proxy adviser saying it had a “high degree” of concern about misalignment of pay should the one-off bonus be granted.
Mr Gallagher received an unusual $6m “once-off growth projects incentive” a year ago to deliver the oil and gas giant’s major projects to 2025, in a move that proved successful in keeping him out of winning Woodside Petroleum’s top job.
However, ISS said Santos remuneration practices were not consistent with market standards “due mainly to the uplift in remuneration in FY21 associated with the one-off grant of incentive rights valued at $6m to deliver strategic growth projects and gas emission reductions.”
The Santos board agreed to pay Mr Gallagher the incentive, subject to shareholder approval at its May 3 annual general meeting, to see through its major projects, including the $4.7bn Barossa gas project in the Northern Territory, Dorado and Moomba carbon capture and storage project developments.
The growth projects incentive will be delivered in the form of share acquisition rights with a face value at grant of $6m.
“Shareholder concerns are raised in regard to this one-off award because it is based on achieving strategic objectives which are typically regarded as being part of the “day job” for a CEO,” ISS said.
“Some shareholders may consider it to be unclear why the strategic performance measures in the one-off grant are excluded from the CEO’s annual STI award over the performance period and an additional bonus is created.”
ISS called for a vote against Santos’ remuneration report and also said shareholders should reject its climate change report saying investors may be concerned that the absence of tangible Scope 3 targets and no clear disclosure of shorter term Scope 1 and 2 targets was a material deficiency. Investors will be able to cast a non-binding vote for the first time through the Say on Climate pledge.
Some investors have been calling for the company to address its Scope Three emissions, including those generated by the oil and gas it sells.
The main shortcoming is the absence of quantifiable Scope 3 targets,” ISS said. “Shareholders may be concerned that without Scope 3 targets the company‘s Climate Change Report is not sufficiently comprehensive and are likely to expect Scope 3 targets to be established in the near future.
Opposition to the $6m bonus being paid follows Mr Gallagher in March reversing a decision to join the board of iron ore and lithium producer Mineral Resources following a rebuke from investors, saying he wanted to “leave no doubt” his focus was on leading the South Australian energy producer.
Mr Gallagher was named a non-executive director of billionaire Chris Ellison’s MinRes on February 1, an unexpected appointment just a month after Santos wrapped up its $21bn blockbuster merger with rival Oil Search.
The move at the time was slammed by a prominent investor activist, warning it would distract from the Oil Search integration and Santos’s ability to tackle broader climate issues.
Santos in March boosted its climate targets and introduced a new pledge requiring emissions to be offset before it signs off on new offshore greenfield energy projects while maintaining new gas supply is needed to meet surging demand.
The South Australian producer, which sealed a $21bn takeover of Oil Search in December, has vowed to make a 30 per cent cut from its Scope 1 and 2 emissions by 2030, at the top end of a previous 26-30 per cent range set in November 2020.
Scope 1 and 2 emissions refer to pollution directly emitted as part of a company’s operations, and those released by core parts of its supply chain such as energy generation.
Santos shares rose 1.3 per cent – pr 10c – to close at $8.00.