Oil explorer Cairn Energy dropped plans to award chairman and founder Bill Gammell share options worth 2.5 million pounds on Tuesday, bowing to pressure from investors.

Cairn had wanted to reward Gammell, a former Scottish international rugby player who in 1980 founded what is now a FTSE 100 blue-chip company, for helping pull off the $5.5 billion (3.5 billion pounds) sale of its Indian operations last year.

The proposed payout, which shareholders had been due to vote on at the end of the month, comes as the government launches a crackdown on executive pay in response to public anger over big bonuses at a time when jobs are being cut and many salaries are falling in real terms.

Business secretary Vince Cable said on Monday shareholders should be given a binding vote over how big companies manage executive pay.

Shareholder revolts over executive pay have been on the rise since the onset of the global financial crisis but opposition is usually insufficient to vote down a resolution.

Under the current system such revolts are also often seen as purely symbolic given shareholders are asked to vote on a remuneration report for salaries that have already been paid rather than on proposed packages for individual directors.

In the case of Cairn, however, shareholders had been asked to vote on a special one-off bonus in relation to a specific deal.

Cairn ... has noted the comments received from several institutional shareholders and their representative bodies in connection with the proposed share award, it said. In the light of those comments ... the board has determined that it will withdraw resolution 2, which proposed approval of the share award.

The Edinburgh-based group said it would continue to discuss the issue with shareholders.

Cairn had proposed making the award to Gammell as part of plans to return $3.5 billion in cash to shareholders following the sale of its Indian business. Shareholders had been due to vote on the payout and share award at a meeting on January 30.

In a circular to shareholders dated January 10, Cairn had justified the award by saying that it had wanted to incentivise Gammell to complete the India deal.

It noted that negotiations were still underway when Gammell stepped down as chief executive to become chairman and that his experience doing business in India was vital.

The remuneration committee therefore saw it as essential to incentivise Sir Bill (Gammell) to deliver the disposal, the company told shareholders.

Gammell, who currently owns over 3 million shares in the company worth about 9 million pounds, also received 1.4 million pounds on stepping down as chief executive.

As part of the incentive scheme attached to the India deal, the company also offered, subject to shareholder approval, to donate 1 million pounds to charities nominated by him.

Shares in Cairn, which under Gammell grew from a $10 million company in 1992 to one worth over $6 billion today, were down 2.6 percent at 284.5 pence by 8:36 a.m. (Reporting by Paul Hoskins; Editing by Lorraine Turner and Mark Potter)