THE LONDON TIMES: Chiefs at Shell must eclipse rivals to win shares: “After a year of turmoil in which three directors lost their jobs over the misreporting of reserves, Shell is keen to link reward to performance. Sir Philip Watts, the former chairman and managing director, received £1 million in severance pay after his dismissal over the reserves scandal.” (ShellNews.net) 18 March 05

By Carl Mortished

March 18, 2005

SHELL’S directors will no longer gain automatic riches from the soaring oil price, but will have to outperform rivals at BP and ExxonMobil, according to a new remuneration policy.

The Anglo-Dutch oil company intends to scrap traditional stock option grants to executive directors. Instead, the granting of shares will form part of a long-term incentive plan under which the final award will depend on Shell’s stock market return ranked against its four peers: ExxonMobil, BP, ChevronTexaco and Total.

After a year of turmoil in which three directors lost their jobs over the misreporting of reserves, Shell is keen to link reward to performance.

Sir Philip Watts, the former chairman and managing director, received £1 million in severance pay after his dismissal over the reserves scandal.

Under the scheme, Jeroen van der Veer, the current chairman and soon to be chief executive, could receive up to five times his salary in Shell stock if its shareholder return over three years is ahead of its four rivals. However, if Shell’s return is in fourth or fifth place, he receives nothing. A Shell spokesperson said it wished to avoid executives benefiting solely from market forces.

Aarnout Loudon, the head of Shell’s executive remuneration committee, said: “These proposals are designed to reward performance that enhances the value of the group and we believe they serve shareholders well.”

Executives will receive a conditional award of stock at the beginning of the three-year period, up to a value of two and a half times base salary.

Shell’s remuneration committee will determine the size of the conditional award “to reflect competitive market practice”. The final award will be equal to 200 per cent of the initial award if Shell is in first place, 150 per cent for second place and 80 per cent for third place. If the company is fourth or fifth, the share award lapses.

Shell is also amending the annual bonus for executives, so a quarter of the payout must be made in deferred shares.

The proposals will be put to shareholders at the annual meeting on June 28.

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