The UK Government hailed the power of shareholders after it emerged that Cairn Energy had withdrawn controversial plans to give its chairman Sir Bill Gammell a £2.5 million share bonus.

The Edinburgh-based company appeared to bow to concern over the deal, pulling the proposal a week before it was due to be voted on by investors.

Sir Bill, a former Scottish international rugby player who founded the oil exploration company, had been expecting to receive the huge payout as reward for his part in Cairn's £3.5 billion sale of its Indian arm.

Loading article content

Under the deal, another £1 mil- lion was due to be donated to charity on his behalf.

However, both these plans are now effectively on hold following yesterday's decision.

In a stock exchange statement, the company said it "noted the comments received from several institutional share- holders and their representative bodies in connection with the proposed share award in favour of Sir Bill Gammell".

It continued: "In the light of those comments and as recommended by the remuneration committee of the company, the board has determined that it will withdraw resolution 2, which proposed approval of the share award, from consideration at the general meeting to be held on January 30, 2012, and consult further with shareholders on the matter."

It came just a day after Business Secretary Vince Cable set out plans to offer shareholders binding votes on executive pay.

Mr Cable also said the UK Government would consult on a "clawback" mechanism, which could mean executives having to pay back bonuses they had already received.

The Tory-LibDem Coalition wants to bolster the power of those who invest in companies to curb excessive wages and bonuses. It is also drawing up proposals to make top-flight pay packages, which can include up to seven or more different payouts, more transparent.

Asked about the Cairn Energy announcement, the Prime Minister's official spokesman said yesterday: "We are in favour of shareholders taking a more active role on pay."

He added: "What we want to see, which is at the heart of the reforms we announced yesterday, is the enhancing of the power of shareholders. Making sure that the owners of a company take an active interest in remuneration policy – that's about changing the culture in the long term."

Mr Cable's proposals on shareholder power drew derision from both sides of the political divide earlier this week.

Labour complained the plans did not go far enough, while Tory right-wingers dismissed them as "liberal left-wing clap-trap".

The Business Secretary also faced criticism that he had avoided taking up some more controversial proposals for tackling executive pay, such as publishing the ratio between top executives' pay and that of their lowest-paid staff.

Cairn Energy said it would continue to discuss the issue with its shareholders, who had been due to vote on the payout and share award on Monday.

The Association of British Insurers, which had previously warned of its concerns, welcomed the announcement by Cairn Energy, saying: "We are pleased that the company has listened to the concerns of its shareholders."

Earlier this month, Cairn had justified the award, saying it had wanted to incentivise Sir Bill to complete the India deal. He currently owns more than three million shares in the company, worth about £9m, and received £1.4m on stepping down as chief executive.

Sir Bill founded the oil explora-tion business in the early 1980s and was chief executive until June last year, when he became non-executive chairman.

Explaining its decision to award the shares, Cairn had told shareholders that Sir Bill was involved in "extensive and rigorous negotiation" to bring about the Indian sale to Vedanta Resources.