BP 2008 Annual Report Download - page 79

BP Annual Report and Accounts 2008
Directors’ remuneration report
Part 1 Summary
BP executives delivered a strong performance in a turbulent environment
during 2008 and restored the group’s operations to a high standard after
several years of focused effort. We commend them for a job well done.
Key financial targets for the year were exceeded, even after
adjusting for the effect of high oil prices during part of the year. Safe and
reliable operations remained at the top of the agenda and key safety
metrics and milestones were achieved. The year’s results were especially
strong in Exploration and Production, with the start-up of the Thunder
Horse platform and excellent overall reserves replacement. Key targets
were also met in Refining and Marketing and both the Texas City and
Whiting refineries were safely restored to full capacity by the end of the
year. The annual bonus results, set out in the table opposite, reflect this
strong performance and determined leadership.
The committee undertook a detailed review of BP’s underlying
performance against competitors in determining the 2006-2008 share
element vesting under the executive directors’ incentive plan (EDIP). This
review included financial measures such as earnings per share, returns on
average capital employed, free cash flow, operating measures for both
Exploration and Production and Refining and Marketing, and non-financial
measures for safety and reputation. All measures were compared across
competitors and showed BP firmly in the pack of the other European oil
majors. The comparison of total shareholder return (TSR) was less
favourable to BP, partly due to exchange rate movements and turbulence in
the financial markets. After careful review, the committee concluded that
TSR alone was not a fair reflection of underlying performance over the
2006-2008 period. We concluded that it was appropriate to approve the
vesting of 15% of the shares in the plan for the current directors. This too
is set out in the table opposite.
Salaries were increased mid-2008 after our normal review. For
2009, we have agreed with the group chief executive’s view that salaries
should be frozen at their current level. There also will be no change in the
target and normal maximum levels of bonus for 2009. The group chief
executive’s and group chief financial officer’s bonuses will be based 70%
on group performance against key metrics in the annual plan, 15% on
safety performance and 15% on people. The chief executives of
Exploration and Production and Refining and Marketing will have 50% of
their bonuses determined on the above basis and 50% on the
performance of their respective businesses.
The EDIP share element will again provide the long-term
component of remuneration for the 2009-2011 period, with some slight
modifications. First, reflecting its recent growth, ConocoPhillips will be
added to the peer group of comparators (currently ExxonMobil, Shell,
Total and Chevron). Second, to provide a more balanced assessment,
vesting will be based half on BP’s total shareholder return relative to the
peer group and half on underlying performance compared with this same
peer group. BP’s performance will be compared on an interpolated basis
relative to the performance of the other five. As in previous years, shares
will vest at 100%, 70% and 35% for performance equivalent to first,
second and third rank respectively and none for fourth or fifth.
We remain committed to a remuneration policy and practice that
aligns with the long-term interests of shareholders and provides an
appropriate reward for talented and committed executives. In the current
volatile climate, executive leadership is more important than ever. The
committee will continue to use careful and rigorous judgement in
assessing performance, and to communicate our assessment in a clear
way to shareholders.
Dr DeAnne S Julius
Chairman, Remuneration Committee
24 February 2009
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