BP 2012 Annual Report Download - page 142

Corporate governance
BP Annual Report and Form 20-F 2012
140
Performance shares – 2013 policy
The performance share element reflects the committee’s policy that a large proportion of total remuneration is tied to long-term performance.
A three-year performance period, combined with a further three-year retention period for those shares that vest, creates a six-year incentive structure
which is designed to ensure executive interests are aligned with those of shareholders.
For the relative measures, TSR and the reserves replacement ratio,
the comparator group will consist of ExxonMobil, Shell, Total and Chevron.
This group can be altered if circumstances change, for example, if there is
significant consolidation in the industry. While a narrow group, it continues
to represent the comparators that both shareholders and management
use in assessing relative performance.
The TSR will be calculated as the share price performance over the
three-year period, assuming dividends are reinvested. All share prices
will be averaged over the three-month period before the beginning and
end of the performance period. They will be measured in US dollars.
The reserves replacement ratio is defined according to industry standard
specifications and its calculation is audited. As in previous years, the
methodology used for the relative measures will rank each of the five
oil majors on each measure. Performance shares for each component
will vest at levels of 100%, 70% and 35% respectively, for performance
equivalent to first, second and third rank. No shares will vest for fourth
or fifth place.
Operating cash flow has been identified as a core strategic priority of
the company. Targets have been established reflecting agreed plans,
$100/bbl oil price and other normal operating assumptions.
Finally the remaining strategic imperatives relating to process safety and
major project delivery will be determined by a mixture of internal targets
and external assessment. In the case of safety, loss of primary
containments, process safety tier 1 incidents and recordable injury
frequency will provide the key factual data as well as the input of the
SEEAC. Major project delivery component will be based on the
commissioning success of major projects.
The committee considers that this combination of quantitative
and qualitative measures reflects the long-term value creation priorities of
the company as well as the key underpinnings for business sustainability.
As in previous years, the committee may exercise its discretion, in a
reasonable and informed manner, to adjust vesting levels upwards or
downwards if it concludes that the formulaic approach does not reflect
the true underlying health and performance of BP’s business relative to its
peers. It will explain any adjustments in the directors’ remuneration report
following vesting, in line with its commitment to transparency.
Operation
Performance shares are awarded conditionally at the start of each year.
For 2013, as last year, shares have been awarded to a value of 5.5 times
salary for the group chief executive and 4 times salary for the other
executive directors (the maximum allowed under the plan).
Performance shares will only vest to the extent that performance
conditions, as described below, are met. The committee also has an
overriding discretion, in exceptional circumstances, to reduce the number
of shares that vest.
Where shares vest, the executive director will receive additional shares
representing the value of the re-invested dividends on those shares.
Sufficient shares may be sold at vesting to discharge tax liabilities.
The remaining vested shares will normally be subject to a compulsory
retention period of a further three years. Furthermore, these shares will
only be released once the company’s minimum shareholding target of five
times salary has been met.
The history of vesting of the share element for the past plan and the
five previous ones is shown below, reflecting both demanding
performance conditions and poor company performance during this
period.
History of share element vesting
2005-07 2006-08 2007-09 2008-10 2009-11 2010-12
100
80
60
40
20
% of maximum vested
2013 performance measures
Performance conditions for the 2013-2015 share element will be aligned
with the company’s strategic agenda which continues to focus on value
creation and reinforcing safety and operational risk management. Vesting
of shares will be based one-third on BP’s total shareholder return (TSR)
compared to other oil majors, reflecting the central importance of
restoring the value of the company. A further third will be based on the
operating cash flow of the company, reflecting a central element of value
creation. The final third will be based on a set of strategic imperatives; in
particular, reserves replacement, safety and operational risk, and major
project delivery.
2017
2018
Award
3 year
performance
period
Release
2016 2019
2014
2013
2013
3 year
performance
period
3 year
retention
period
2015 Vesting of shares based
on performance
T
imeline
f
or 2013-2015 share element