It may have taken a global financial crisis and slumping equity returns but it appears that finally global investors may be starting to take some action against incompetent boards and executive largesse. Last month, 38 percent of BP shareholders voted against the Anglo-American oil major’s remuneration scheme. The anger appears even more intense at BP’s local rival, Shell, which controversially decided to pay executives share awards under its long-term incentive plan, despite the company failing to meet required targets.

The Financial Times reports that global proxy advisory service, RiskMetrics, recommended to clients that they vote against Shell’s remuneration plan, while the Association of British Insurers’ voting service told members that Shell may have breached good governance requirements and issued an “amber top” alert on the company’s remuneration report.

Dutch Shell CEO, Jeroen van der Veer, was paid US$8.3 million in cash alone during 2008, while his total remuneration was more than US$15 million — this was more than double the remuneration paid to BP CEO, Tony Hayward.

Most controversially, Shell determined that it would pay share awards to top executives despite the company failing to meet the criteria for the grants. Shell’s Annual Report provides that long-term bonuses are payable if the company ranks in the top three performing oil companies (out of Exxon, BP, Chevron and Total). Despite Shell ranking fourth, the board decided to pay the bonuses anyway, due to “the difference between third and fourth place was ‘marginal’ [and the ranking] not fully [reflecting] Shell’s relative performance”.

It appears that when it comes to executive pay, near enough is certainly good enough for the Shell board.

The members of Shell’s remuneration committee are Lord Kerr of Kinlochard, Sir Peter Job and company chairman Jorma Ormilla. Kinlochard, a former politician, also has the dubious honour of serving on the inept Rio Tinto board, which has successfully destroyed tens of billions of dollars of shareholder wealth through its acquisition of Alcan and rejection of BHP’s takeover forays.

Shareholders certainly appear unhappy at the Shell board’s willingness to spend their money on under-performing executives. Guy Jubb, head of corporate governance at Standard Life Investments, stated:

…as a matter of principle we don’t support rewarding executives for achieving unchallenging performance conditions…this is the second year in a row that the remuneration committee has used its discretion to reward the executives for below-average returns to shareholders, which raises serious questions about whose interests they are looking after.

We have voted against Shell’s Remuneration Report for each of the last three years.

Last year, Shell declared a profit of £22 billion, however, the falling oil prices has already harmed the company’s bottom line, with first quarter earnings for 2009 slumping by 58 percent.

Peter Fray

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Peter Fray
Editor-in-chief of Crikey