The Association of British Insurers, whose members account for about 17% of all investment in the FTSE All-Share index, issued a "red-top" warning highlighting its concern over a £172 million ($270 million) pool of retention bonuses slated for Xstrata's top 73 managers.

London-listed Xstrata and Glencore revealed the bonuses at the end of May and said that the packages, which include a £28.8 million bonus payable to Xstrata CEO Mick Davis over the period from 2013 to 2015, were one of the conditions for the $100 billion-plus merger to go ahead.

"The ABI is always skeptical about the effectiveness of retention payments," said Andrew Ninian, ABI's head of corporate governance, in a statement. "In this case we have raised further concerns around the significant retention awards being offered to Xstrata executives which are not linked in any way to performance."

Xstrata shareholders are due to vote on Glencore's offer of 2.8 shares for each Xstrata share on July 12. The deal has already attracted criticism from some institutional shareholders, including Standard Life Investments Ltd., which believe that it undervalues Xstrata and have indicated they will vote against the deal. Standard Life owns about 2% of Xstrata.

Xstrata's management had an earlier taste of a shareholder rebellion on May 1, when about 14% of votes cast at a shareholder meeting opposed the re-election of Glencore CEO Ivan Glasenberg to the Xstrata board.

Xstrata needs the support of 75% of its shareholders eligible to vote on the deal. That excludes Glencore, which owns 34% of the target, meaning that a rebel group of about 16.5% of Xstrata shareholders would be large enough to block the deal.

The ABI issues so-called red-top warnings on executive pay when proposed arrangements either breach the U.K.'s Corporate Governance Code, which is not the case with Xstrata, or breach the ABI's own principles of remuneration. The warning is designed to highlight a concern and is not in itself a recommendation on how members should vote.

The vote on the retention bonuses comes against a backdrop of increased shareholder activism in the U.K., which has resulted in six remuneration packages being blocked so far this year. The most recent of those was at advertising company WPP plc where, on June 13, 56% of voters opposed CEO Martin Sorrell's pay package after it rose 60% over 2011.

The ABI issued a warning about WPP's executive pay plans ahead of that meeting.