ABI issues "red top" over Xstrata pay Xstrata's $65bn merger plan with Glencore is facing a fresh threat after a leading UK investor group admonished the miner's plans to pay £173m to retain its senior management if the deal goes through. The influential Association of British Insurers issued a so-called "red-top alert"- its most serious warning of a corporate governance breach - to its more than 300 members after Xstrata last month unveiled the payouts. The pay plans must be approved by shareholders in July for the deal with Glencore to proceed as the vote on the deal is conditional on them going ahead. Xstrata must win support of half of voting shareholders for the pay arrangements, with Glencore unable to vote its 34 per cent stake. The shareholdings of ABI members represent about 17 per cent of the UK stockmarket. The ABI stressed it was not voicing an opinion on the merger itself but said it was "always sceptical about the effectiveness of retention payments." Shareholders reacted angrily last month when Xstrata said its board had decided to pay Mick Davis, Xstrata's chief executive, £29m over three years to stay on as head of the combined group. Overall, the miner would pay £217m to senior employees, including £44m in other contractual payouts. The proposed payouts - dubbed "provocative and insensitive" by fund manager Fidelity - were announced after weeks of discord between UK investors and management teams over pay, culminating in last week's vote by investors at WPP against the remuneration proposed for Sir Martin Sorrell. The company has argued that its board, lead by Sir John Bond, believes it crucial to keep Xstrata's core team - most of whom have been in place for the past decade - to reap the benefits of combining with Glencore. The miner said on Thursday, "retaining a stable management team with a track record of value delivery is in the interests of Xstrata shareholders." Investors on Thursday told the Financial Times that in meetings with Sir John and David Rough, Xstrata's senior independent director, the miner had not indicated a willingness to separate the vote on the deal from the pay vote, or add performance thresholds. One investor said the proposals showed "disdain for shareholders," adding that "making comparisons with Xstrata's peers it is hard to explain [Mr Davis"] compensation over the last few years, let alone for the next few years." Xstrata must make any changes to the proposed payouts two weeks before July's shareholder meeting under Takeover Panel rules. Meetings with investors are continuing and the two companies are expected to reconvene in the next week to assess their options after hearing feedback from shareholders. Xstrata shares fell 1.86 per cent to £8.53. Xstrata's shares have tumbled since the pay deal was announced, underperforming the mining sector and also Glencore shares, amid fears the pay storm could derail the merger. The ratio between Xstrata and Glencore shares last week touched 2.59, the lowest since news of the merger first leaked, and well below the 2.8 Glencore shares that each Xstrata shareholder would receive if the deal goes ahead. Additional reporting by Rebecca Bream