BP 2011 Annual Report Download - page 142

Directors’ remuneration report
140 BP Annual Report and Form 20-F 2011
Remuneration overview
Dear shareholder,
For the senior executives of BP, remuneration is directly linked to strategy,
strongly performance related and heavily weighted towards the long term.
In a year of consolidation following the events of 2010, the company
achieved a creditable performance overall in 2011. The outcome of the
various plans that make up 2011 total remuneration for executive directors
is set out in the table opposite.
The remuneration committee is keenly aware of its responsibility to
balance sometimes conflicting perspectives in making judgements on
senior executive pay. We recognize a concern by government, and society
at large, of excess in this area, but cannot ignore the reality of a global
competitive market for top executive talent. We respect investors’
expectation for pay to be strongly tied to performance while also wanting
to ensure that executives receive fair reward for their achievements.
The committee’s commitment to exercising judgement in a
balanced way and being transparent in communicating its conclusions
continues. In years where performance has been strong, bonuses have
reflected that and when performance has been poor, bonuses have
appropriately been reduced and even in some cases, as in 2010,
eliminated. The long-term plan has, over the last five years, vested less
than 10% of the possible shares, reflecting the impact of major incidents.
In this context, the committee carefully considered 2011
performance against targets set at the start of the year. Safety and risk
management metrics were all met or exceeded including recordable injury
frequency, loss of primary containment, implementation of change
programmes and capability building. Group results were at or near target
for financial metrics, including replacement cost profit, cash costs,
upstream operating cash and downstream profitability. External survey
results show some modest recovery in the company’s external reputation,
as well as good results on internal employee morale. The overall
assessment of group results based on the above was judged to be
‘on-target’ for the group as a whole.
Summary of remuneration components
Salary • Salaries as at 1 January 2012 are: Bob Dudley $1,700,000, Iain Conn £730,000, Brian Gilvary £690,000 and Byron Grote
$1,442,000.
Bonus • On-target bonus of 150% of salary and maximum of 225% of salary based on performance relative to targets set at
start of year relating to financial and operational metrics.
Deferred bonus
and match
• One-third of actual bonus awarded as shares with three-year deferral and the ability to voluntarily defer an additional
one-third.
• All deferred shares matched one-for-one, with vesting of both subject to an assessment of safety and environmental
sustainability over the three-year period.
Performance shares • Award of shares of up to 5.5 times salary for group chief executive, and 4 times for other executive directors.
• Vesting after three years based on performance relative to other oil majors and strategic imperatives.
• Three-year retention period after vesting before release of shares.
Pension • Final salary scheme appropriate to home country of executive.
Bob Dudley’s bonus was based entirely on group results, resulting in an
amount, including the deferred element, at ‘on-target’ level. Iain Conn’s and
Byron Grote’s bonuses were based 70% on group results and 30% on
their respective business or functional units. Mr Conn’s results met or
exceeded targets resulting in a bonus just above ‘on-target’, and Dr Grote’s
largely met resulting in an ‘on-target’ bonus. In all cases one-third of their
bonus is deferred into shares on a mandatory basis, matched, and will vest
in three years subject to a review of safety and environmental sustainability
during the period. They may elect to defer an additional one-third into shares
on the same basis as the mandatory deferral, which they all chose to do for
this year’s bonus. All of the above is reflected in the table opposite.
The 2009-2011 share element included performance conditions
relating to total shareholder return, production growth, group net income,
and Refining and Marketing profitability – all relative to the other oil majors.
Of these all but Refining and Marketing profitability missed the level
required to vest. Refining and Marketing profitability compared to the other
oil majors was strong, and based on this, the overall vesting was 16.67%
of the shares – again reflected in the table opposite. The committee
concluded that the result from a straight numerical assessment relative to
agreed metrics provided an appropriate vesting level in light of overall
company performance during the period.
For 2012 the overall policy for executive directors will remain largely
unchanged, as summarized below. The committee will continue to monitor
trends and external perspectives in reviewing the quantum and structure of
total remuneration. It will also continue to operate with independence and
rigour in making its judgements. Ultimately decisions will be guided by our
commitment to both shareholder interests and executive engagement.
Antony Burgmans, KBE
Chairman of the remuneration committee
6 March 2012