ShareSoc Advises Investors to Vote Against BP Plc Remuneration Report

PRESS RELEASE 73 11/4/2016

ShareSoc (the UK Individual Shareholders Society) is advising its Members to vote against the Remuneration Report resolution at the forthcoming Annual General Meeting of BP. We consider the pay of the CEO to be simply too high, and particularly so in a year when the company suffered a record loss of $6.4 billion in 2015. Even so his pay went up by 20%. Part of the reason for the high pay was the excessively complex remuneration scheme. 

Background

  • The bonus has 6 performance measures, bonus is pensionable and the LTI has 5 performance measures. 
  • Why does the BP remuneration committee think their pay structure is simple when it is highly complex? 
  • Why is the CEO paid so much ($20 million), when performance has been below average over the long term? 

Not simple nor transparent.

The remuneration chair says “our pay structure is relatively simple”. ShareSoc disagrees.

Cliff Weight, ShareSoc spokesman on remuneration issues said “If you want to be simple, then it would be much better to say that the maximum bonus is 375% of salary, of which 20% is paid in cash, 40% is paid in deferred shares with no performance conditions (other than clawback) and a further 40% is subject to satisfactory safety and environmental sustainability performance. The BP explanation of 225% of salary maximum bonus, deferred bonus, discretionary deferred bonus and potential matching payments is confusing and adds complexity, in my view.”

The annual bonus has six performance measures, two of which are normalised for changes in oil and gas price and refining margins. The impact in $ on cash flow, profits and bonus of normalising is not explained.

Making bonus pensionable for the CEO adds enormous complexity. The CEO is aged 60 with 36 years’ service. His pension is based on his final salary which includes the average of the best three consecutive years of bonus in the last 10 years of service. The problem with making bonus pensionable is that it creates far too large an incentive for short-term performance. These issues have been well debated in the UK and it is now considered (and has been for many years) that best practice is that bonus is not pensionable. 

Cliff Weight also commented “By my calculations, the CEO’s accrued pension is nearly $2.5 million per annum, which means that the transfer value of the accrued pension could be about $35 million.”

The long-term incentive plan has five performance measures, and an annual award of a maximum of 5.5 times salary of shares. Only one of the performance measures is transparent, BP’s TSR ranked relative to the other oil majors. The others are set against internal BP targets. Cliff Weight noted “This makes it very difficult for shareholders to judge how easy or difficult the targets are. It also means the plan is complex – not ‘simple’”.

For further information, please contact:

Roger Lawson
Deputy Chairman, ShareSoc
Telephone: 020-8295-0378