Can BG Group plc Outperform Royal Dutch Shell Plc And BP plc After Cutting CEO’s Pay?

Having been the focus of media and shareholder attention in recent months, BG (LSE: BG) has decided to reduce the remuneration package for its new CEO, Helge Lund. There had been disappointment regarding the scale of his deal, with it being reported that he could earn up to £13 million per year if all targets were met, plus a sizeable ‘golden hello’.

It was felt that the package was overly generous and, as a result, BG has reduced it. Today’s announcement means that the revised package reduces the expected value of the CEO’s initial share award from £10 million to around £4.7 million, with the controversial performance-linked additional share award that had angered shareholders (and was reputedly worth £12 million over five years) having been dropped in favour of an initial award of shares under the company’s long term incentive plan.

Crucially, following the changes, Helge Lund’s remuneration is in-line with the remuneration package approved by shareholders in May 2014 and, therefore, requires no additional shareholder vote.

Looking Ahead

Of course, BG’s new CEO has a major job ahead of him. The company has disappointed investors in recent years, with profit warnings and slow progress with regard to the development of numerous projects hurting shareholder sentiment and being a major reason for shares in BG falling by a third in 2014.

The new pay deal, although arguably less generous than the initial agreement, still heavily incentivises the new CEO and, as a result, is unlikely to change the way in which he manages the business. Indeed, the initial award of shares could mean that he is more, rather than less, incentivised to deliver improved share price performance moving forward.

Sector Peers

Clearly, a lower oil price has hurt BG in recent months, with shares in BP (LSE: BP) and Shell (LSE: RDSB) also weaker than the wider market. They are down 11% and 1% respectively year-to-date and, looking ahead to 2015, they could be better placed than BG to deliver a strong total return.

For example, Shell and BP both trade on more attractive valuations that BG. While BG has a price to earnings (P/E) ratio of 12.9, Shell’s P/E is just 9.6, while BP’s is even lower at just 9.5. Furthermore, BP and Shell are also forecast to provide a much higher income than BG in 2015, with them set to yield 5.4% and 6% respectively next year, versus just 2.2% for BG.

So, while BG’s longer term future still looks bright, with its new CEO having performed extremely well at Statoil and the company continuing to have a strong asset base with huge potential, BP and Shell still appear to be better buys for 2015, with both companies having the potential to deliver excellent returns from top notch incomes and very cheap share prices.

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Peter Stephens owns shares of BP and Royal Dutch Shell. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.