BP 2013 Annual Report Download - page 105

Corporate governance
BP Annual Report and Form 20-F 2013 101
Operation
Highlights
A third mandatory and up to a third voluntary deferral.
Converted to shares, matched one-for-one and deferred for three years.
Vesting of all conditional on safety and environmental sustainability hurdle.
Matched shares subject to additional three-year retention period post
vesting.
A third of the annual bonus is required to be deferred for three years. Under
the rules of the plan, the average share price over the three days following
the announcement of full-year results is used to determine the number of
shares awarded. Deferred shares are matched on a one-for-one basis.
Executive directors may elect, with the committee’s agreement, to take up
to a further third of their annual bonus in shares, which will vest and will
qualify for matching on the same basis as above.
Both deferred and matched shares vest after three years depending on the
committee’s 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 reinvested
dividends on those shares.
Beginning with the 2013 bonus deferral, matched shares that vest (half of
the total that vests) will normally be subject to a compulsory retention
period of a further three years. Sufficient shares may be sold to discharge
tax liabilities at the vesting date.
Balance released
Y
e
a
r
6
Y
e
a
r
5
Converted to shares
and matched
Three-year
deferral
Total deferred
bonus
Vests based on
performance
Half released
Y
e
a
r
3
Y
e
a
r
2
Three-year
retention
for half
Y
e
a
r
1
Y
e
a
r
4
Performance measures
The safety and environmental sustainability hurdle, in place since 2010, will
continue to be applied to all deferred shares. If the committee assesses
that there has been a material deterioration in safety and environmental
metrics, or there have been major incidents either of which reveal
underlying weaknesses in safety and environmental management, then it
may conclude that shares 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:
• High standards in this area are an important priority of BP’s strategy.
• Maintaining safety and environmental standards over the long term is a
good qualitative reflection of the sustainability of the business.
• This non-financial hurdle complements the financial and operational
performance conditions applicable to performance share awards.
Deferred bonus
The structure of deferred bonus, awarded in shares, focuses on long-term
alignment with shareholder interests and reinforces the critical importance
of maintaining high safety and environmental standards. It translates the
outcome of a portion of the annual bonus into a long-term plan with
additional performance hurdles. As shown below, the deferred bonus is
converted to shares, matched and deferred for three years. Half the total
that vests will then normally have an additional three-year retention
period before release.