BP 2012 Annual Report Download - page 130

Corporate governance
BP Annual Report and Form 20-F 2012
128
Chairman’s introduction
Dear shareholder
BP made many further positive steps in its recovery journey during 2012.
The remuneration committee recognizes the patience of investors during
this period since the 2010 Deepwater Horizon accident. Equally we
recognize the persistence of our executives in embedding safe and
effective operations deeply into the fabric of the company while
systematically restoring value. Progress is being made, reflecting a clear
strategy and disciplined execution.
Our remuneration system for executive directors is tied closely to this
progress. The company’s strategy forms the basis for an annual plan and
the measures and targets used for both annual and long-term variable pay.
Variable pay, based on performance, makes up the vast majority of total
potential remuneration for executive directors, and of that, most is
long-term, reflecting the nature of BP’s business and providing strong
alignment with shareholders.
Our process for determining pay is both rigorous and independent. I have
met with a number of our key shareholders again this year to understand
their perspectives. We seek to reflect shareholders’ interests as well as
to fairly reward the achievements of our executives, recognizing the
contentious nature of top executive pay while ensuring competitiveness
for our talented leadership. We believe informed, balanced judgement,
and transparency of our decisions is vital. These principles continue to
guide the committee’s operation and have led to large variability in total
remuneration for our executive directors over the past decade, reflecting
the underlying performance of the company.
2012 outcomes
The outcomes of the various plans that make up 2012 total remuneration
for executive directors are summarized in the table on page 130.
Annual bonus
Overall group performance was assessed at just below target. Annual
bonus results were based on performance assessed against targets
established at the start of the year and reflected the strategic priorities of
safety and operational risk management, rebuilding trust and restoring
value.
Safety and risk management results, accounting for 30% of bonus, were
generally at or better than plan, with significant improvement and high
standards in both loss of primary containment and process safety tier 1
incidents – both key indicators of process safety.
Rebuilding trust accounted for 20% of bonus, and the company continued
to make important gains as measured by independent surveys.
Restoring value metrics accounted for 50% of bonus with somewhat
mixed results. Upstream major project delivery was on target, and
divestment targets were exceeded but operating cash flow, underlying
replacement cost profit and total cash costs did not achieve plan targets.
Performance shares
No shares vested in the 2010-2012 share element. Performance
measures for this plan related to total shareholder return, production, net
income, and downstream profitability – all relative to the other oil majors.
As the starting point for these metrics was prior to the Deepwater Horizon
accident, performance failed to meet the level required for vesting.
Other elements
Salaries were increased 3% mid-year for Bob Dudley, Iain Conn and
Dr Byron Grote. The deferred bonus component was first introduced
following shareholder approval in 2010, and so no plan is yet eligible for
vesting and will not be until early 2014. Pension increases reflect the
application of relevant plan rules. As Bob Dudley’s defined benefit pension
is based on three-year average remuneration, its increased value reflects a
catching up with his promotion, first to the board in 2009 and secondly to
group chief executive in 2010. Similarly, Dr Brian Gilvary’s pension increase
reflects his promotion to chief financial officer at the start of 2012.
2013 policy
For 2013 our overall policy for executive directors will remain largely
unchanged, and is summarized on page 136. The continuity of our pay
structure comprising salary, annual bonus, deferred bonus, performance
shares, and pension, provides a relatively simple, performance-based
system tied directly to strategy. Salaries will be reviewed mid-year taking
into consideration both external and internal relativities. Annual bonus will
operate in the same way as last year but the metrics have evolved slightly
to reflect annual plan priorities and with increased weight on restoring
value. Performance shares follow the same format as last year with minor
change in the metrics to align with strategy.
Report format
The UK government has issued draft regulations on revised reporting for
directors’ remuneration which are expected to be finalized later this year.
We support many of the changes planned and have incorporated these
into the current report to the extent we believe is appropriate while still
complying with current regulations.
We hope that you find this report both informative and reassuring. Our
commitment to both shareholder interests and executive engagement
continues, and we are confident that our approach to executive pay aligns
well with the recovery of BP’s business.
The continuity of our pay structure provides a
relatively simple, performance-based system
tied directly to strategy.
Antony Burgmans KBE
Chairman of the remuneration committee
6 March 2013