BP 2015 Annual Report Download - page 27

Conclusion
In conclusion, BP has performed well and
surpassed the board’s expectations on almost all
of the measures. I am pleased that our current
policy has appropriately recognized this in the
2015 outcomes. There remain challenging times
with an evolving remuneration landscape. During
2016, the committee will be undertaking a full
review of our policy. I have already met with
some of our key shareholders and look forward
to continuing this engagement as we develop a
new proposed policy for approval at the 2017
Annual General Meeting.
BP is a strong company with strong leadership.
The company continues to evolve as will our
remuneration policy and practice to ensure we
remain performance driven and competitive.
Professor Dame Ann Dowling
Chair of the remuneration committee
The safety and operational risk performance has
been excellent. This has led to increased
reliability and more efficient operations. There is
a proposed settlement of the federal and state
claims and settlement of most of the local
government claims relating to the Deepwater
Horizon incident. BP responded quickly and
decisively to the drop in oil price, continuing to
simplify its activities and significantly reducing
its cost base. Capital discipline has been
demonstrated in a strategic way that offers
flexibility and resilience now and options for
future growth. Our belief is that management
has delivered very well in a difficult year.
The overall group score achieved was 1.91 out of
a maximum of 2.00. As is our normal practice,
the committee reviewed this result and
considered whether it produced a fair outcome
in light of the underlying performance of the
company and the wider environment. As part of
this both the committee and the group chief
executive believed some recognition of the
dramatic fall in oil prices and its impact on
shareholders was warranted. As a result the
group score was lowered to 1.70 and this has
been used to determine annual bonuses for BP’s
wider management group. For executive
directors our approved policy limits annual bonus
to 1.50.
Long-term performance
The 2012 deferred bonus was contingent on
safety and environmental sustainability over a
three-year period. The committee saw good
evidence of a continued improvement on safety
that is both ingrained in the culture and has led
to more reliable and efficient operations. The
award vested in full.
The 2013-15 performance share plan was, as in
previous years, based on three sets of measures
equally weighted: relative total shareholder return
(TSR) over the three-year period, 2015 operating
cash flow and finally, strategic imperatives which
included safety and operational risk, relative
reserves replacement ratio (RRR) and major
project delivery over the three years.
For TSR, BP was in third place. The target set in
2013 for operating cash flow in 2015 was $35
billion based on the plan assumptions.. At the start
of the year, this was normalized for the change in
oil and gas price, and refining margins since 2013.
We also, as in previous years, adjusted for major
divestments and for contributions to the Gulf of
Mexico restoration. The resulting target was $17.7
billion. This compared to an outcome of $19.1
billion. Safety performance at the end of the
three-year period, against targets previously set at
the outset, was strong. The final results from the
comparator group for RRR are not yet available
but on the evidence, our preliminary assessment
is that the company is in first place. There will be
a final assessment later in the year. Major project
delivery exceeded target.
As a result 77.6% of the shares are expected to
vest. Reviewing the period 2013-15, the
committee believes that this represents a fair
outcome. In that time there has been the
delivery of the 10-point plan in 2014, consistent
improvements in safety performance and
effective budgetary and capital discipline in
difficult circumstances.
2
11%
3
20%
4
54%
$13.1m
1
15%
1. Salary and benefits
2. Annual cash bonus
3. 2012 deferred bonus
4. 2013-15 performance shares
Group chief executive
£4.8m
Chief financial officer
4
46%
3
26%
2
12%
1
16%
Long-term: performance share plan
Measure Result Target Outcome
Relative TSR BP’s TSR ranked third
versus other oil majors.
Outperform
peers
Third
Operating cash flow Strong operating cash
flow in 2015 relative to
plan.
$17.7bn $19.1bn
Strategic imperatives
Relative reserves replacement
ratio (RRR)
BP’s RRR preliminary
ranked first versus other
oil majors.
Outperform
peers
First
Safety and operational risk:
• Loss of primary containment
• Process safety tier 1 events
• Recordable injury frequency
Downward trend over
the last three years. ≤ 212 events
≤ 30 events
≤ 0.240/200k
hoursb
208 eventsa
20 events
0.223/200k
hours
Major project delivery 15 major projects were
commissioned.
11 15
three-year retention period before being released
to the individual.
In our assessment, the overall quantum of
remuneration is market competitive and
represents a balanced outcome. It is based
heavily on performance and mainly paid in equity
with long retention periods. Executive directors
are required to hold shares in excess of
five-times salary. While the value of their shares
has, as for all shareholders, dropped with the oil
price, they satisfy that requirement.
Pay outcomes
The resulting remuneration for executive directors
is shown below. Consistent with the wider
population of BP employees, executive directors
received no increase in base salary in 2015. This
is being continued with no salary increase for the
senior leadership and executive directors in 2016.
As described above, annual bonus was limited to
a group score of 1.50, the 2012 deferred bonus
vested fully and 77.6% of shares in the
2013-2015 performance share plan are expected
to vest. These will be finally determined later in
the year when results from all oil majors are
known. The shares that vest will have a further
For the single figure remuneration
table see page 77.
Total remuneration (excluding pensions)
★ Defined on page 256.
a Adjusted in accordance with the treatment of the loss of primary containment key performance indicator on page 20.
b Excluding biofuels.
BP Annual Report and Form 20-F 2015 23
Strategic report