Sir Bill's treatment at Cairn will make every board quake

Cairn, which now has a market value of £4 billion, can thank the £4.5 million acquisition of an Indian exploration site for its good fortune. Sir Bill, a former Scottish rugby international, saw potential there after the big boys had given up trying. A similar spirit has given it the confidence to hunt for oil in far-flung corners of the world such as Greenland.

It is the partial sale of the Indian business which has got Sir Bill into trouble with investors now.

Cairn is offloading a 40% stake in its Indian subsidiary to fellow shareholder Vedanta Resources for a welcome £3.5 billion, with £2.2 billion coming straight back to shareholders.

There are few greater examples of value creation that can be linked directly to a single executive.

However, the mistake the board made was to misjudge the current mood.

It proposed to hand Sir Bill, who stepped up to become company chairman last summer, a £4.9 million thank you. The combination of a £2.5 million share award, £1.4 million in contractual entitlement for giving up as chief executive, and £1 million which he can donate to charity, didn't go down well with investors. Within a fortnight of the circular detailing the resolution being sent out, the share award and charity cash has been canned.

Sir Bill had already breached one golden rule of corporate governance by elevating himself from the role of chief executive to chairman.

This is one instance where the rulebook falls down. If shareholders had to choose between keeping his wise counsel at their disposal or not, which would most of them opt for?

Share awards for chairmen aren't a great idea though. It is the sort of thing that Sir Richard Lapthorne picked up at Cable & Wireless - and look what happened there. The point at Cairn is, these are happy shareholders. It wasn't a reward for failure, but a badly judged reward for success.

The other thing to mention is that Sir Bill had not been hauled over the coals by Vince Cable and David Cameron who have mainly focused their gaze on the banking sector. This was an issue tackled by investors, largely behind closed doors. Perhaps shareholders aren't as laid back about these issues as Cable and co would have us believe.

It also sends out a warning shot to boards up and down the country. Those which might have otherwise braved a chorus of disapproval this annual meeting season will be forced to think again. Whether this year is a one-off in that respect, or whether we're seeing a whole new attitude to boardroom rewards remains to be seen.