FINANCIAL TIMES: BP aims to abandon share option incentives: “…Royal Dutch/ Shell has requested a meeting with City investors to discuss the introduction of new remuneration policies. The size of executive bonuses used to be partially linked to the level of the company's reserves but that pay scheme was abandoned last year following the embarrassing downgrades of its oil and gas stocks.” (ShellNews.net) 20 Jan 05
By Sundeep Tucker, Investment Correspondent
Published: January 20 2005
BP, the oil giant, is set to abandon the use of share options as a way of incentivising its senior management.
The move is part of a plan to modernise its boardroom pay plan.
It follows lengthy consultations with leading shareholders over changes to its Executive Directors Incentive Plan, which is expiring after three years.
BP has signalled to investors that the new plan will pay out mainly in restricted shares and not share options as in the previous plan. The plan, whose total potential value is believed to be largely unchanged, applies to BP's six executive directors, including Lord Browne, chief executive.
Many companies have decided to move away from paying options as a result of changes to international accounting rules, which will soon require them to be charged to the profit-and-loss account.
Stock options can also be rendered worthless if the company's share price falls.
The previous share plan paid out a complicated mixture of shares and options. As well as options, Lord Browne was awarded shares worth an estimated £1.5m last year, having received an award worth £887,000 the year before. The figures compared with his basic salary and bonus in 2003 of £3.3m.
BP last year declared record profit of $12.3bn on annual turnover of $235bn. The plan will feature a single performance target: total shareholder return compared with BP's four leading international competitors.
The previous plan involved three such targets, including return on capital employed and earnings per share growth.
Most shareholders said they were comfortable with the changes, although others said they were disappointed that the performance target would be judged against only four companies.
One said: "Given the sheer size of this company, the potential quantums involved in the plan seem like a rounding error."
BP will reveal the final details of the plan in its annual report in March and investors will vote on the changes at the annual meeting in April.
Separately, Royal Dutch/ Shell has requested a meeting with City investors to discuss the introduction of new remuneration policies.
The size of executive bonuses used to be partially linked to the level of the company's reserves but that pay scheme was abandoned last year following the embarrassing downgrades of its oil and gas stocks.
Shell has pledged to develop new executive remuneration policies ahead of its annual meeting in June. It is to unveil its ideas to a group of London-based investment institutions at the offices of the Association of British Insurers early next month.