BP 2011 Annual Report Download - page 146

Directors’ remuneration report
144 BP Annual Report and Form 20-F 2011
Remuneration policy
This section provides information on principles underlying the company’s
remuneration policy followed by an overview and an in-depth review of
the policy.
Remuneration principles
Remuneration policy for executive directors is guided by key principles:
• Link to strategy – A substantial portion of executive remuneration
should be linked to success in implementing the company’s business
strategy.
• Performance linked – The major part of total remuneration should vary
with performance, with the largest elements share based, further
aligning interests with shareholders.
• Long-term based – The structure of pay should reflect the long-term
nature of BP’s business and the significance of safety and
environmental risks.
• Rigorous process – Performance conditions for variable pay should be
set by the committee at the start of each year and assessed by the
committee at the end of each performance period. Assessment should
take into account material changes in the market environment
(predominantly oil prices) and BP’s competitive position (primarily
vis-à-vis other oil majors).
• Informed judgement – There should be both quantitative and qualitative
assessments of performance with the committee making an informed
judgement within a framework approved by shareholders.
• Fair treatment – The committee reviews the pay policy and levels for
executives below board, as well as pay and conditions of employees
throughout the group. These are considered when determining
executive directors’ remuneration. Salaries should be reviewed annually,
in the context of the total quantum of pay, and taking into account both
external market and internal company conditions.
• Personal shareholding – Executives should develop and be required to
hold a significant shareholding as this represents the best way to align
their interests with those of shareholders.
• Shareholder engagement – The remuneration committee will actively
seek to understand shareholder preferences and be transparent in
explaining its remuneration policy and practices.
These principles result in a remuneration policy that is directly linked to
strategy, strongly performance related and heavily weighted towards long
term.
The chart below shows the range of results possible for the group chief
executive depending on performance outcomes.
The on-target column assumes one-third of total bonus is deferred
and matched, and the share element is valued at half the award.
The maximum column assumes that two-thirds of the total bonus
is deferred and matched, and full vesting of the share element.
Remuneration is strongly performance dependent:
• Bonus based on metrics from annual plan.
• Deferred bonus vesting based on additional safety and environment
sustainability assessment.
• Share element based on metrics reflecting strategic priorities.
It is also heavily weighted towards the long term:
• Deferred bonus – three years.
• Share element – six years.
Salary
Cash bonus received after deferral
Deferred bonus including matching
Share element
200
400
600
800
1,000
1,200
Minimum On-target Maximum
Range of pay outcomes based on performance
% of salary