FINANCIAL TIMES: BP succumbs to shareholders over incentives: “Investors said Royal/Dutch Shell, BP's rival, would come under pressure to revise its next executive incentive scheme, which has also proposed awarding half the maximum permitted shares for median performance. Shell last week met leading City investors to discuss the introduction of new executive pay and incentive schemes.” (ShellNews.net) 23 Feb 05
By Sundeep Tucker, Investment Correspondent
Published: February 23 2005
BP has bowed to shareholder pressure and agreed to change a proposed executive incentive plan that would have rewarded its senior management with large amounts of shares for average performance.
The oil giant has held extensive consultations with its leading shareholders over the introduction of a new three-year Executive Directors Incentive Plan, final details of which must be unveiled in next month's annual report.
Last month the company proposed that, if it delivered "median" performance compared with its closest rivals over the three-year period, executives should collect half the maximum number of shares allowed under the plan.
However, several investors contacted BP to express their concern that the potential award for median performance was too high.
Many also dislike the fact that the plan features a single performance target: total shareholder return relative to that of BP's four leading global competitors.
The previous plan, which is about to expire, involved three such targets, including return on capital employed and earnings per share growth.
The company is consulting shareholders in response. It has signalled that the maximum share award for median performance will be capped at about 35 per cent, the typical figure for FTSE 100 executive incentive schemes.
The scheme will pay out mainly in restricted shares, not share options as in the previous plan. It is believed that Lord Browne, chief executive, could collect shares worth more than £4m if BP delivers top-quartile performance. In 2003 he was paid a basic salary and bonus of £3.3m.
Shareholders welcomed the U-turn but remain concerned that the comparator group featured only four other companies. Typical FTSE 100 comparator groups consist of 10 to 15 companies.
One shareholder said: "The comparator group is too narrow and, as a result, it might not be too difficult for BP to achieve median performance. In that case, why should the executives be entitled to 50 per cent of the maximum award?"
Investors said Royal/Dutch Shell, BP's rival, would come under pressure to revise its next executive incentive scheme, which has also proposed awarding half the maximum permitted shares for median performance.
Shell last week met leading City investors to discuss the introduction of new executive pay and incentive schemes.