The Company faced a challenging year in 2015, with oil prices falling by more than 50%. It incurred losses before taxes of -$9,571.0m. Nevetheless, the Board pays a dividend, which has not been submitted for shareholder approval, of £0.2709 per share uncovered by the operating cash flow…
Why then ?
Was this to court small sharehodlers and get easily the approval of resolution 2 approving the remuneration policy ? in the end BP’s (BP.L) shareholders have voted against the £14.13 million pay deal for Chief Executive Bob Dudley’s for 2015, a notceable investor move.
Some 59 percent of shareholders on Thursday opposed the pay and benefits package, according to preliminary figures, in stark contrast with previous years when over 80 percent and sometimes as many as 90 percent voted in favour of the pay packages for senior executives
The total expected value of the CEO’s remuneration is £16,011,460 an increase of 41% over 2014. This increase was due to a pension contribution valued at £6,176,000 (+151%), a higher bonus (+38.4%) and a higher LTIP award (+20%).
The salary appeared to be potentially excessive. It is in the upper quartile with respect to the Oil & Gas Producers Sector with turnover above £10,000m . Incentive pay at the company is also considered potentially excessive with a maximum bonus of 225% of base salary and a maximum LTIP of 550%. During the year under review, the CEO’s bonus was paid at the maximum and the LTIP was 533% of salary.
The majority of performance conditions associated with LTIP awards are not fully disclosed. There are no specific forward looking targets disclosed with regards to annual bonus awards. In general, pension contributions made by the Company are considered to be excessive . The pension plans are aimed at an overall accrual rate of 1.3% of final earnings (which include salary and bonus), for each year of service. In 2015, Mr Dudley’s accrued pension increased, net of inflation, by $309,000 totalling $6,176,000.
But the linkage structure of remuneration policy is an issue as it pretends to establish a strong link between current Company strategy and executive remuneration opportunities. While it incorporates extra-financial targets (including the number of oil spills) into its incentive arrangements it has no basis in overall company profits and limited relation to shareholder returns.
Indeed, in 2014, only 86.4% of shareholders voted in favour of the remuneration report. There was engagement with shareholders during 2015 and an updated remuneration policy is set to be submitted for approval at the 2017 AGM. However, there were no significant policy changes in the current year. Our ECGS research partner Manifest had given the company a remuneration rating of E ????and we recommend shareholders oppose to this excessive remuneration.
Remind also that the Company announced it had reached agreements in principle with the United States federal government and five US states to settle all federal and state claims arising from the Deepwater Horizon incident for $18.7bn payments to be spread over 18 years.
But we observed also that the governance of the group has remained satifactory with a fairly independant Board. In April 2015, two days before the 2015 AGM, we note that George David and Antony Burgmans left the Board for normal retirement and Phuthuma Nhleko stepped down due to external committments. Antony Burgmans and Phuthuma Nhleko had been proposed for re-election and were replaced by two new directors, Paula Reynolds and Robert Sawers, in May 2015. We had raised concerns over Burgmans (independence and time commitments) and Nhleko (time commitments) and the new directors are both considered independent. Nevertheless, the timing of the change means that they served on the Board for almost a year before being presented for shareholder approval.
ECGS accordingly support all Board appointments at BP this year.
