Xstrata’s planned $65 billion (€52 billion) merger with Glencore is facing a fresh threat after a leading UK investor group admonished the miner’s plans to pay £173 million to retain its senior management if the deal goes through.

The influential Association of British Insurers issued a “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, the world’s biggest commodities trader, to proceed, since the vote on the merger is conditional on their going ahead.

Xstrata must win the support of half of voting shareholders for the pay arrangements, but Glencore is unable to vote its 34 per cent stake. The shareholdings of Association of British Insurers members represent about 17 per cent of the UK stock market.

The association stressed it was not voicing an opinion on the merger itself but said it was “always sceptical about the effectiveness of retention payments”. – (Copyright The Financial Times Limited 2012)