BP 2012 Annual Report Download - page 134

Corporate governance
BP Annual Report and Form 20-F 2012
132
Annual bonus – 2012 outcomes
Framework
All executive directors were eligible for an overall annual bonus, including
deferral, of 150% of salary at target and a maximum of 225% of salary.
Bob Dudley’s annual bonus was based entirely on group results and Iain
Conn’s, Dr Brian Gilvary’s, and Dr Byron Grote’s were based 70% on group
results and 30% on their respective segment or function.
Measures and targets for the annual bonus were set at the start of the year
and were derived from the company’s annual plan which, in turn, reflected
its strategy and key performance indicators. Measures were grouped under
the three dominant strategy themes of safety and operational risk
management (S&OR), rebuilding trust, and restoring value. Targets were set
so that meeting plan equates to on-target bonus.
At group level, S&OR was set to account for 30% of total bonus and
included targets for loss of primary containment, process safety tier 1
events, and recordable injury frequency. Rebuilding trust was weighted at
20% of the total and included external reputation, and internal morale and
engagement. Both components were assessed via results of surveys.
Finally, restoring value was set to account for 50% of total bonus and
included targets for operating cash flow, underlying replacement cost profit,
total cash costs, gearing, divestments, upstream unplanned deferrals,
upstream major project delivery, and Downstream net income per barrel.
Additional measures and targets were set for Iain Conn’s, Dr Brian Gilvary’s
and Dr Byron Grote’s respective segments or functions. These focused on
safety, operating efficiency and profitability for the Downstream segment
and key strategic priorities and outcomes for the functions.
As well as the specific measures set out, the committee considers any other
results or factors it deems relevant and applies its judgement in determining
final bonus outcomes.
Performance outcomes for the year are summarized in the table above,
with a more detailed explanation following.
Safety and operational risk management performance was strong. Loss
of primary containment showed a 19% improvement and process safety
tier 1 events dropped by 42% over last year. Both metrics are important
indicators of process safety performance. Recordable injury frequency
(RIF) included, for the first time, the biofuels business acquired last year.
Demanding targets had been set to bring overall safety standards in the
biofuels business to a level consistent with the rest of the company. In the
end, performance in that business improved significantly but failed to
meet the targets set and this meant that overall company targets were
missed. Excluding biofuels, RIF performance was strong and improved
over 2012.
Rebuilding trust showed overall satisfactory results. In terms of external
reputation, independent external surveys showed important progress
towards rebuilding reputation in both the US and UK. Internally, the ‘pulse
survey’ reflected good and improving overall engagement with 11 of 12
areas of specific ongoing monitoring all showing like-for-like better results
than last year.
Performance related to restoring value was somewhat mixed, in part
reflecting the priority throughout the company’s business of continuing to
embed safe and effective operations. Operating cash flow, underlying
replacement cost profit and total cash costs all came in between threshold
and target. Divestment targets were far exceeded and gearing just below
target. Upstream major project delivery was on target but unplanned deferrals
missed threshold levels. Downstream net income per barrel also achieved
between threshold and target.
Based on these results, the formulaic outcome for group results was 97%
of target. The remuneration committee concluded that this represented
fairly the overall performance of the business during the year, and
confirmed the score for group purposes. Bob Dudley’s total overall bonus
therefore was 97% of target, resulting in 146% of salary. The same score
was applied to each of the other executive directors for 70% of their
bonus that was determined by group results. Combined with the results
for their respective segments and functions the total overall scores were
101% of target for Iain Conn, 106% for Dr Brian Gilvary and 97% for
Dr Byron Grote.
Of the total bonuses referred to above, one-third is paid in cash, one-third
is deferred on a mandatory basis, and one-third is paid either in cash or
voluntarily deferred at the individual’s discretion. As all four executive
directors chose to participate in the voluntary deferral, amounts received
by each of the individuals are shown below (as well as in the total
remuneration summary chart on page 130).
Cash
bonus
thousand
Mandatory
deferral
thousand
Voluntary
deferral
thousand
Bob Dudley $837 $837 $837
Iain Conn £374 £374 £374
Dr Brian Gilvary £366 £366 £366
Dr Byron Grote $710 $710 $710
Outcomes
2012 annual bonus outcomes
Measures Weight Outcomes relative to plan
Safety and operational risk management 30.0% Threshold Target Max
Loss of primary containment 10.0%
Process safety tier 1 events 10.0%
Recordable injury frequency 10.0%
Rebuilding trust 20.0% Threshold Target Max
External reputation 10.0%
Internal morale and alignment 10.0%
Value 50.0% Threshold Target Max
Operating cash flow 11.7%
Underlying replacement cost profit 11.7%
Total cash costs 11.7%
Gearing 3.0%
Divestments 3.0%
Upstream unplanned deferrals 3.0%
Upstream major project delivery 3.0%
Downstream net income per barrel 3.0%
Overall outcome
See pages 28-29 for how our bonus measures for
2012 and 2013 are directly linked to business KPIs.