- relevant to F8, P1 and P7
Corporate Governance is a critical hot topic. See how the CHECK AND BALANCE against Executive Directors powers are at play -
real life.
BP shareholders reject chief Bob Dudley's £14m pay deal
BP shareholders have rejected a pay
package of almost £14m for chief executive Bob Dudley at the oil
company's annual general meeting.
Just over
59% of investors
rejected Mr Dudley's 20% increase, one of the largest rejections to date
of a corporate pay deal in the UK.
The vote is non-binding on BP, but earlier, chairman Carl-Henric Svanberg promised to review future pay terms.
Mr Dudley received the rise despite BP's falling profits and job cuts.
Corporate
governance adviser Manifest says the vote is at or above the
fifth-largest in the UK against a boardroom remuneration deal.
'Last chance saloon'
In
his opening address to the shareholders' meeting, before the vote had
been formally announced, Mr Svanberg acknowledged the strength of
feeling, saying: "Let me be clear. We hear you."
He continued: "We
will
sit down with our largest shareholders to make sure we understand
their concerns and return to seek your support for a renewed policy."
"We
know already from the
proxies received and conversations with our
institutional investors that there is real concern over the directors'
pay in this challenging year for our shareholders.
"On
remuneration, the shareholders' reactions are very strong. They are
seeking change in the way we should approach this in the future," he
said.
The Institute of Directors said the shareholder rebellion would "determine the future of corporate governance in the UK".
"British
boards are now in the last chance saloon, if the will of shareholders
in cases like this is ignored, it will only be a matter of time before
the government introduces tougher regulations on executive pay," said
director general Simon Walker.
Out of touch'
S
hareholders that criticised the pay deals included Aberdeen Asset Management and Royal London Asset Management.
Investor
group Sharesoc branded the pay deal "simply too high", while Glass
Lewis, ShareSoc, Pirc and Institutional Shareholder Services have also
expressed their opposition.
Earlier on Thursday, Ashley Hamilton
Claxton, corporate governance manager at Royal London, told the BBC:
"The
executives received the maximum bonuses possible in a year when
[BP] made a record loss, and to us that just does
not translate into
very good decision-making by the board.
"We think it sends the wrong message. It shows that the board is out of touch."
She
told the BBC's Today programme that if 20%-25% of shareholders vote
down the pay deal, it would force BP to "think long and hard about their
decision".
The early voting figures suggest that the opposition is even bigger that she expected.
Analysis: Simon Jack, BBC business editor
Giving
someone a 20% pay rise for a year's work that saw BP record its biggest
ever operating loss seems perverse even by chief executive pay
standards.
If it's any consolation, (I doubt it will be), bosses
at Exxon and Chevron got paid even more than Bob Dudley even though the
value of their companies fell by more than BP. That's the bit that
sticks in the craw for many. Under what circumstances don't these guys
get paid a fortune? It would be fine if some years you win, some years
you lose - but they never seem to lose.
We may get a rebellion of
20-30% of shareholders today but even if it was more than 50%, the board
doesn't have to listen. Shareholders do have a binding vote every three
years on the pay policy and formula. No use crying now, the formula
that spat out £14m for Bob Dudley was approved in 2014 by 96% of
shareholders.
Pic 1: New CEO after the BP's disaster in gulf. Does Bob deserve higher pay?
BP's
pay policy is subject to a binding shareholder vote every three years.
It was last set in 2014, meaning new proposals are due to be put forward
for shareholder approval again in 2017.
'Surpassed expectations'
Many experts argue that Mr Dudley is merely earning the market rate for international executives.
Mark
Freebairn, partner at recruitment firm Odgers Berndtson, told Today:
"If Bob Dudley was to leave [BP] it would be for a competitive company
and remuneration would be part of the discussion. If you operate in a
global market, you have to operate on a global scale."
BP was now in a far better position than when Mr Dudley took the helm, he said.
After
the Gulf of Mexico oil disaster, BP's share price collapsed and it was
forced to sell off assets worth billions of pounds to pay costs, fines
and compensation.
Pic2: Deepwater Horizon disaster that costs BP billions in repairs and compensation.
However, the collapse in the oil price over the
past 18 months saw BP's profit tumble, and the company is
axing another
3,000 jobs worldwide on top of the 4,000 cuts already announced.
A
spokesman for BP said before the meeting at London's ExCel centre had
begun that shareholders had previously backed the pay formula.
"Despite
the very challenging environment, BP's safety and operating performance
was excellent throughout 2015... BP's performance surpassed the board's
expectations on almost all of the measures that determine remuneration -
and the outcome therefore reflects this.
"And these clear
measures derive directly from BP's remuneration policy which was
approved by shareholders at the 2014 AGM with over 96% of the vote," the
spokesman said.
Mr Dudley's pay package was less than that earned
by some rivals in the oil and gas industry, including at Exxon and
Chevron. But it was more than the award for Ben van Beurden, chief
executive at Royal Dutch Shell, whose salary package fell from €24.2m
(£19m) in 2014 to €5.58m last year.
Experts point out, though,
that it can be difficult to compare like-with-like. For instance, Mr van
Beurden's 2014 pay involved one-off pension payments and "tax
equalisation" measures when he moved from the UK to the Netherlands.
And
in 2015 Mr Dudley and Mr van Beurden received very different rewards
under their long-term incentive plans, LTIPs. Shell gave its chief
executive 8% of the LTIP, down from 49% in 2014. Mr Dudley's long-term
bonus increased from 63.8% of maximum to 77.6%.
Source:
http://www.bbc.com/, 2016, BP shareholders reject chief Bob Dudley's £14m pay deal , http://www.bbc.com/news/business-36040210, Visited on: 22nd Sept, 2016
