Santos cops first strike on executive pay
The South Australian producer was hit with a first strike on pay, which it blamed in part on an adverse proxy adviser report from ISS
Santos has blasted proxy adviser Institutional Shareholder Services, blaming a negative report on the oil and gas giant for a first strike on its remuneration report.
The South Australian producer saw 25.32 per cent of proxy votes against the remuneration report at its annual general meeting on Tuesday meaning the company copped a first strike on pay after ISS told shareholders to vote it down.
Santos said issues included ISS basing its advice on comparisons against a peer group which is not representative of its competitors while saying the proxy adviser did not annualise the value of a $6m bonus to chief executive Kevin Gallagher.
“Four of the five major proxy advisors recommended that their institutional clients vote in favour of the report. One proxy advisor produced a report which was materially flawed,” Santos chairman Keith Spence told its annual general meeting, noting issues with benchmarking.
“We made them aware of these flaws, and it‘s very disappointing that they did not subsequently adjust their advice further. I point out that the CEO’s incentive opportunity...is subject to key performance measures.”
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.
While the board suffered the remuneration strike, the vote will not cancel Mr Gallagher’s potential windfall which remains based on incentives through to 2025.
ISS defended its report and said it stood by its recommendations.
“We highlight issues which are inconsistent with the market, and then make a recommendation. It is then for clients and shareholders to review the issues and cast their final votes,” ISS told The Australian.
Santos also said it backed a crackdown on proxy advisers by Treasurer Josh Frydenberg which called for greater consultation with companies.
“There‘s a whole lot of things in this thing that led to a recommendation to vote against the remuneration report that was fundamentally flawed, and I have a lot of sympathy for that legislation that was proposed more recently about requiring proxy advisors to engage with companies on the outcome of the research report.”
A first strike occurs when 25 per cent or more of shareholders vote against a company‘s remuneration report.
Mr Spence earlier called Mr Gallagher a “visionary leader”and told the AGM the bonus was justified.
“Overall the board considers that the strong leadership of our CEO Kevin Gallagher and key management personnel is appropriately recognised in the 2021 remuneration outcome,” Mr Spence said on Tuesday.
“In addition, the visionary leadership provided by our CEO has been recognised in Australia and globally.”
Investors were able to cast a non-binding vote for the first time at Tuesday‘s AGM through the Say on Climate pledge.
Some 36.93 per cent of shareholders voted against Santos’ climate plan.
Energy security concerns had shown the world still needs fossil fuels, Santos said.
“2021 brought global energy security into the spotlight with higher prices and a supply crunch in the wake of rapidly recovering demand and a lack of investment in new supply,” Mr Gallagher said.
“2021 showed us that we must reduce our emissions without compromising on energy security. And we can only do this through decarbonisation, not defossilisation.”
Mr Gallagher is now working through a raft of asset sales as it looks to trim its funding exposure for a pipeline of projects.
Santos hired investment bank Moelis to garner interest in its Pikka oil field in Alaska, seen as ripe for a partial or full sale given funding barriers for the development. It’s also expected to sell down its 42.5 per cent stake in PNG LNG and will consider trimming its 80 per cent stake in the Dorado oil project in Western Australia.
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.
Santos fell 0.4 per cent to $7.98.