LONDON Careful what you wish for.
That could be advice for corporate governance advocates who sought a separate vote on the lavish executive pay deal that was bundled in as part of the terms of the $33 billion merger between Glencore and Xstrata.
Thanks to a voting structure shake-up, shareholders will now be able to vote for the deal without the pay, and have an option to reject the proposed retention packages, achieving what looks like a victory against excessive boardroom remuneration.
But as unpopular as the retention packages are, fund managers may prove too worried about threatening the commercial promise of the union - and going against the advice of Xstrata's board - to risk making a stand.
That means at the end of the day, Glencore and Xstrata executives are likely to get both their merger and their pay, while silencing critics who had initially accused them of ramming the deal through without a separate pay vote.
One former Xstrata shareholder, who sold out of his position soon after the Glencore merger talks began, described the awkward dilemma facing shareholders as "appalling".
"There's nothing wrong with paying executives well if the shareholders are doing well too. But the whole obfuscation that is going on here and across the industry on pay, we are very much against," the fund manager said, asking not to be identified while discussing an investment decision on a deal that is still up in the air.
"The idea that you can be paid a lot before investors have made any money is ridiculous. Retention packages? Why have any of that? Why shouldn't we just pay people well after they have performed?"
Instead of a single up-or-down vote on a merger including the pay deal, shareholders will now have three votes: to allow the merger if the pay deal is approved, to allow the merger to go ahead without the pay deal, and finally an up-or-down vote on the pay deal itself.
That means that when the vote on the pay deal finally takes place, shareholders will know whether their decision would scupper the merger or not.
The voting shake-up plays on a division of responsibility at fund houses, whereby separate teams shape views on the logic of the merger and on resolutions linked to governance issues like incentives and bonuses.
"This separation of investment and corporate governance decision-making is a problem that requires addressing," said Simon Wong, a partner at Governance for Owners, a fund manager that invests on the premise that guarantees of shareholder rights improve long-term returns.
"Under the bundled scenario, the corporate governance and investment teams have to work together to reconcile views. Now they can just vote separately, and the likely objections to the retention package and corporate governance will be much less consequential."
Bundled resolutions are broadly unpopular as they force investors into a binary choice on a complex deal and all its accompanying terms, preventing managers from fully expressing a view on remuneration or corporate governance issues without jeopardizing a deal that on balance makes investment sense.
In this case, some investors may accept management's argument that the future success of the merged group relies on how many of Xstrata's operational staff remain in their roles.
Unlike in other mergers, there is little overlap in revenue-generating staff between Glencore and Xstrata. Were many Xstrata staff to leave and take their revenue streams with them, that could cost investors more than they gain from curbing pay.
Miner Xstrata will be tying its future to trader Glencore at a turning point as it moves from an acquisition-fuelled first decade to a period of organic growth, intended to boost volumes by 50 percent and cut costs.
Among the projects set to come on stream are Koniambo, a challenging greenfield ferronickel mine in New Caledonia, and the Las Bambas copper project in Peru. Investors may conclude that now is no time to risk losing staff.
"Investors should make a joined up decision, to say - we may not like the retention packages but on balance, do we need them because these executives are so essential to the merged entity? The way the deal is now structured, means that you can almost divorce the two," Wong added.
With its opaque image and corporate governance record, Glencore's bid to merge with Xstrata has provoked opposition from institutional owners of the miner at every turn.
Some asset managers like Threadneedle and Schroders feel Glencore - Xstrata's biggest shareholder - is forcing through a deal that fails to reward fellow investors for their long-term support of the miner or for the increased volatility on future returns that a union with Glencore would probably bring.
Xstrata shareholders who have opposed the deal from the outset have had to weigh the merits of speaking out against the union and the risk of inflicting damage to the share price.
Even after heated battles on pay at a number of companies this year, in a series of votes that became known among corporate governance advocates as the "shareholder spring", fund managers proved reluctant to actually vote down pay deals which could spur talented executives to take their skills elsewhere.
Data compiled by Legal & General Investment Management showed just six remuneration reports were voted down this year.
If the Xstrata pay deal is rejected and the merger goes ahead without it, there is no clarity on what terms the merged company would then decide offer Xstrata staff. Investors in a merged firm without the pay deal may find they have less clout because votes on pay could be advisory rather than binding.
Nigel Read, partner at law firm Hogan Lovells in London, said the voting shake-up was "quite a clever tactical ploy" to make sure that if people are wavering they will vote in line with the advice of the Xstrata independent directors.
He thinks investors are now more likely to take that guidance than risk scuppering the deal altogether.
This sort of decoupling may become the prevalent custom, said Read, as management boards seek to retain influence while addressing the concerns of disaffected shareholders.
In both bundled and unbundled votes, funds say they are aware how vulnerable they are to manipulation.
While declining to comment directly on the merger while the deal is pending, large Xstrata shareholder Legal & General Investment Management said it has had to weigh similar issues in the past, when pay packages were linked to deals.
"There have been some corporate events where the companies have tried to put horrendous pay packages through that have been linked to the corporate action and we've had to say yes and sign it off because we want the actual corporate event to happen," said Angeli Benham, LGIM's UK Corporate Governance Manager.
(Additional reporting by Clara Ferreira-Marques; Editing by Peter Graff)