The Pay Puzzle at Centrica: A Test of Corporate Governance in the Energy Sector
19min read Proxy advisory firm ISS has ignited a governance firestorm at Centrica, urging shareholders to reject the energy firm’s 2025 remuneration report. The recommendation hinges on its view that proposed pay hikes for CEO Chris O’Shea and CFO Steve Marshall are unjustified and risk eroding trust in an era of heightened shareholder activism. With Centrica’s AGM on May 8 looming, the vote will test whether the company’s financial turnaround justifies its compensation strategy—or whether its leadership has overstepped in rewarding itself amid operational challenges.
The Pay Dispute
ISS’s most pointed criticism targets O’Shea’s 28.7% salary increase, raising his base pay to £1.1 million from £855,000. The finance chief also receives an 8.5% raise, while the broader workforce gets 3.5-4% adjustments. ISS calls the disparity “materially above” acceptable thresholds, particularly given the CEO’s admission in 2024 that his £4.3 million total pay (down from £8.6 million in 2023) was “impossible to justify.” The firm further lambasts the inclusion of “quasi-guaranteed restricted stock plan awards,” which ISS argues weaken the link between pay and performance.
Centrica’s Financial Performance: Progress vs. Pay Equity
Centrica’s financials present a mixed picture. Adjusted EBITDA rose to £2.3 billion in 2024, while its market cap surged from £1.9 billion in 2020 to £6.8 billion by 2024—a testament to its turnaround under O’Shea. The company also increased its dividend by 13%, hitting a 7.25p per share payout, with a target of 8p by 2028. Centrica defends the pay raises as necessary to retain leadership in a competitive market, citing “benchmarking against peer groups.”
Yet ISS contends that performance metrics still lag. Despite service improvements, Centrica’s record 1.4 million customer complaints over 18 months (2022–2024) underscore operational vulnerabilities. Meanwhile, its focus on shareholder returns over ESG priorities—a stance O’Shea has openly endorsed—has drawn criticism from stakeholders demanding greater corporate responsibility.
The Broader Shareholder Revolt Context
Centrica’s situation mirrors a UK trend. Companies like Unilever and Melrose have faced similar backlash over pay ratios, with shareholders increasingly demanding transparency and alignment between executive compensation and long-term value creation. ISS’s report underscores that Centrica’s pay proposals “fail to demonstrate a cogent rationale” for the disconnect between leadership and employee pay.
Risks and Considerations
The stakes are high. A rejection of the remuneration report could force Centrica to revise its policies, potentially reshaping incentives for leadership. Conversely, approval might reinforce its strategy but risk amplifying reputational damage. The stock’s 8% dip in early 2025—erasing nearly £500 million in market value—suggests investors are already pricing in governance risks.
Conclusion: A Crossroads for Governance and Growth
Centrica’s AGM vote is a microcosm of evolving corporate governance norms. On one hand, its financial recovery—driven by a 13% dividend hike and a tripling of market value since 2020—supports leadership’s case for higher pay. On the other, the 28.7% CEO raise and guaranteed equity awards clash with ISS’s emphasis on pay-performance alignment.
Shareholders must weigh two critical questions: Does the compensation structure reward executives for past performance, or does it set a dangerous precedent for future inequity? ISS’s data underscores that the pay hikes exceed peer benchmarks and employee raises by a wide margin. Meanwhile, Centrica’s focus on shareholder returns over ESG priorities risks alienating a growing segment of investors prioritizing sustainability and fairness.
If shareholders side with ISS, Centrica may face a costly governance overhaul. If not, the company could cement its stance as a shareholder-centric firm—but at the risk of reputational scars. With the energy sector facing heightened regulatory and public scrutiny, this vote may well define whether Centrica’s revival is built on a foundation of trust or expediency. Either way, the outcome will send a signal across industries about where the pendulum of corporate accountability now swings.
