BP 2005 Annual Report Download - page 169

according to their market capitalization at the beginning of each
three-year period in order to give greatest emphasis to oil majors.
BP’s ROACE and EPS growth are measured against ExxonMobil,
Shell, Total and Chevron. All calculations are reviewed by Ernst &
Young to ensure that they meet an independent objective standard.
The relative position of the company within the comparator group
determines the number of shares awarded per performance unit,
subject to a maximum of two shares per unit.
2. Share option element The share option element of the EDIP
permits options to be granted to executive directors at an exercise
price no lower than the market value of a share at the date the
option is granted. The committee does not currently intend to use
this element.
3. Cash element The cash element allows the committee to grant
long-term cash-based incentives. This element has not been used
since the EDIP was established in 2000 and the committee would
only do so in special circumstances.
Pensions Executive directors are eligible to participate in the
appropriate pension schemes applying in their home countries.
UK directors UK directors are members of the regular BP Pension
Scheme. Scheme members’ core benefits are non-contributory.
They include a pension accrual of 1/60th of basic salary for each year
of service, subject to a maximum of two-thirds of final basic salary,
and a dependant’s benefit of two-thirds of the member’s pension.
Bonuses are not pensionable for UK directors. The scheme pension
is not integrated with state pension benefits.
Normal retirement age is 60, but scheme members who have
30 or more years’ pensionable service at age 55 can elect to retire
early without an actuarial reduction being applied to their pension.
In accordance with the company’s past practice for executive
directors who retire from BP on or after age 55 having accrued at
least 30 years’ service, Lord Browne remains eligible for consideration
for a payment from the company of an ex-gratia lump-sum
superannuation payment equal to one year’s base salary following his
retirement. All matters relating to such superannuation payments are
considered by the remuneration committee. Any such payment would
be additional to his pension entitlements referred to above. No other
executive director is eligible for consideration for a superannuation
payment on retirement, because the remuneration committee decided
in 1996 that appointees to the board after that time should cease to
be eligible for consideration for such a payment.
The UK government has made important changes to the
operation and taxation of UK pensions, which come into effect
from 6 April 2006 and affect all UK employees. The remuneration
committee has reviewed and approved proposals by the company
that maintain the pension promise for all UK employees but that
deliver pension benefits in excess of the new lifetime allowance of
£1.5 million (or personal lifetime allowance as at 6 April 2006 under
statute if higher) via an unapproved, unfunded pension arrangement
paid by the company direct.
The trustee directors of the BP Pension Scheme have reviewed,
in accordance with its statutory obligation, the actuarial basis under
which cash equivalent transfer values are payable to all UK employees
who participate in that scheme. Consistent with evolving actuarial
practice, the trustee directors have resolved to base cash equivalent
transfer values on a similar basis to that underlying the company’s
accounts, including allowance for improving longevity in accordance
with standard tables; this has the effect of increasing cash equivalent
transfer values for the UK executive directors on average by about
15%. Although the change became effective in January 2006, the
table on page 171 shows both 31 December 2004 and 31 December
2005 transfer value figures on the new basis.
US director As a US director, Dr Grote participates in the US BP
Retirement Accumulation Plan (US plan), which features a cash
balance formula. The current design of the US plan became effective
on 1 July 2000.
Consistent with US tax regulations, pension benefits are provided
through a combination of tax-qualified and non-qualified benefit
restoration plans, as applicable.
The Supplemental Executive Retirement Benefit (supplemental
plan) is a non-qualified top-up arrangement that became effective
on 1 January 2002 for US employees above a specified salary level.
The benefit formula is 1.3% of final average earnings, which
comprise base salary and bonus in accordance with standard US
practice (as specified under the qualified arrangement) multiplied
by years of service, with an offset for benefits payable under all other
BP qualified and non-qualified pension arrangements. This benefit is
unfunded and therefore paid from corporate assets.
Dr Grote is an eligible participant under the supplemental plan
and his pension accrual for 2005 includes the total amount that may
become payable under all plans.
Other benefits
••• Benefits and other share schemes: Executive directors are eligible
to participate in regular employee benefit plans and in all-employee
share schemes and savings plans applying in their home countries.
Benefits in kind are not pensionable.
••• Resettlement allowance: Expatriates may receive a resettlement
allowance for a limited period.
SERVICE CONTRACTS
Director Contract date Current salary
Lord Browne 11 Nov 1993 £1,486,400
Dr D C Allen 29 Jan 2003 £441,000
I C Conn 22 Jul 2004 £441,000
Dr B E Grote 7 Aug 2000 $945,000
Dr A B Hayward 29 Jan 2003 £441,000
J A Manzoni 29 Jan 2003 £441,000
The committee’s policy is for service contracts to expire at normal
retirement date and have a notice period of one year. All contracts
comply with this.
The service contracts of Dr Allen, Mr Conn, Dr Hayward and
Mr Manzoni may be terminated by the company at any time
with immediate effect on payment in lieu of notice equivalent to
one year’s salary or the amount of salary that would have been paid
if the contract had terminated on the expiry of the remainder of the
notice period.
Dr Grote’s service contract is with BP Exploration (Alaska) Inc. He is
seconded to BP p.l.c. under a secondment agreement dated 7 August
2000 that had an unexpired term of two years at 31 December 2005.
The secondment may be terminated by one month’s notice by either
party and terminates automatically on the termination of Dr Grote’s
service contract.
There are no other provisions for compensation payable on early
termination of the above contracts. In the event of early termination
under any of the above contracts by the company other than for
cause (or under a specific termination payment provision), the relevant
director’s then current salary and benefits would be taken into account
in calculating any liability of the company.
Since January 2003, the committee has included a provision in
BP Annual Report and Accounts 2005 167