BP 2012 Annual Report Download - page 141

Corporate governance
Corporate governance
BP Annual Report and Form 20-F 2012
139
Operation
For 2013, as last year, one-third of the annual bonus will be deferred
on a mandatory basis into shares for three years. Under the rules of the
plan, the average share price over the three days following announcement
of full-year results is used to determine the number of shares. Deferred
shares are matched by the company on a one-for-one basis.
Executive directors may defer a further one-third of their annual bonus
into shares on a voluntary basis, which will be capable of vesting, and
will qualify for matching, on the same basis as set out above.
Both deferred and matched shares will vest in early 2017 contingent on an
assessment of safety and environmental sustainability over the three-year
deferral period. Where shares vest, the executive director will also receive
additional shares representing the value of the re-invested dividends.
Deferred bonus – 2013 policy
The structure of deferred bonus, paid in shares, places increased focus on long-term alignment with shareholders, and reinforces the critical importance
of maintaining high safety and environmental standards. It effectively translates the outcome of a portion of the annual bonus into a long-term plan with
additional performance hurdles. As shown below, the performance results of 2013 will form the basis for determining the deferred bonus in 2014.
Performance measures
Since 2010, the deferred bonus has been subject to a safety and
environmental sustainability hurdle, and this will again be applied
this coming year.
If the committee assesses that there has been a material deterioration
in safety and environmental metrics, or there have been major incidents
revealing underlying weaknesses in safety and environmental
management, then it may conclude that shares should vest in part, or not
at all. In reaching its conclusion, the committee will obtain advice from
the SEEAC.
The committee believes that this safety and environmental hurdle is
appropriate for several reasons. First, high standards in this area are
an important priority of BP’s strategy. Second, maintaining safety
and environmental standards over the long-term is a good qualitative
determinant of the sustainability of the business. Third, this non-financial
hurdle will complement the financial and operational performance
conditions applicable to performance share awards.
2017 vest based
on performance
Cash
Performance
Performance
Total
indicative
bonus
2013 2015
2016
T
ime
l
ine
f
or 2013
d
e
f
erre
d
b
onus
Mandatory
deferral
Voluntary
deferral
Converted to
shares and matched
and deferred 2014
3 year
deferral