Home > Compensation, Internacional Remuneracion > What is behind BP`s 2015 remuneration report and policy and investors` revolt on it?

What is behind BP`s 2015 remuneration report and policy and investors` revolt on it?

 

News regarding an expected revolt at the Pay vote session in the next BP`s AGM to be held on April 14th 2016 appeared in press recently, (1). I dived into the remuneration report proposed to its shareholders and into the Remuneration Policy approved last year by 96% of them, in order to assess whether the revolt would be reasonable. (2)

The main argument by revolting shareholders concerns annual losses having peaked in 2015, and the inconsistency shown by BP when it increased its Ceo pay strongly. It is true that results in 2015 (3) have been deceiving, $ 6482 m in losses and revenue falling by 37%.

In its annual report (page 22) the company tries to explain the relationships among strategy, pay and performance. They argue that executives noticed the “lower for longer” forecast for oil prices, and reacted in every tool under their control to reduce costs and inefficiencies, while delivering priority projects and enhancing safety and operational performance. BP then drafts a view of their pay proposals: long-term and performance-based, focused on what executives can control, biased towards equity and long enough holding periods.

Short-term pay (annual bonus) is based on measured depicted below, most of then showing good scores both on Safety and operational risk metrics and on value ones, which focus on CF, replacement cost profit and corporate cost reductions, Capex reductions and project delivery. Although target reach was 1.91 over 2, 1.70 was used to determine bonuses, (1.50 only for executive directors).

Short Term

Long-term incentives consisted (i) on a bonus deferred since 2012 that vested fully, as it was conditioned to safety and environmental sustainability, that the board assessed in good shape even after the oil spill episode; (ii) on a performance share plan for 2013-15 based on Relative TSR (33.3%), 2015 Operating CF, (33.3%) and reserves replacement ratio and project delivery in the last three years, (33.3%). The company is said to have performed adequately and 76% of shares will vest as a result.

Long term

In summary, the company offers a single table included below, that accepted their structure drafted until now, only shows a major problem that regards the pension allocations. In fact in the case of Mr Dudley, a $3m increase in value is shown, which according to the report doesn`t tell us the true increase as the UK regulation requires the increase to be multiplied by 20, (14 in the US). The net increase in value would have been up to $309k, (pensions aim at 1.3% accrual out of his salary+bonus for each year of service.

Table

We should wait and see if the negative vote advanced by Royal London Asset Management and others and recommended by ISS finally receives majority support and/or affects remuneration policy and outcomes.

  1. See The Guardian: http://www.theguardian.com/business/2016/apr/08/bp-facing-revolt-bob-dudley-20m-pay-package-remuneration
  2. See http://www.bp.com/content/dam/bp/pdf/investors/bp-directors-remuneration-report-2015.pdf, and
    http://www.bp.com/content/dam/bp/pdf/investors/bp-remuneration-policy-report-2014.pdf
  3. See Annual report for 2015 here: http://tools.bp.com/~/media/Files/B/BP-Tools-v2/20-f-and-sec-filings/bp-annual-report-and-form-20f-2015.pdf
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