Shell is changing the way it rewards senior managers, less than a year after shareholders revolted against its executive-pay policies, the Wall Street Journal reported.
In a letter to investors, Hans Wijers, chairman of Shell’s remuneration committee, said salaries paid to Chief Executive Peter Voser and Chief Financial Officer Simon Henry-who stepped into their current roles last year-will be 20% lower than what their predecessors earned. Base salaries for Shell’s three executive directors will be frozen until January of next year.
The Shell board also is restricted from awarding performance-based shares to Messrs, Voser, Henry and Malcolm Brinded, head of Upstream International-this year if they don’t meet targets.
Former CEO Jeroen van der Veer had a 2008 base salary of about $2.6 million, while Voser, as finance chief, had a base salary of about $1.4 million. Shell said the affected individuals wouldn’t be commenting on the proposals.
The move is to prevent a repeat of last year when shareholders shot down Shell’s executive-compensation plan in a nonbinding vote that symbolized public discontent with boardroom excess in the middle of the economic crisis. Investors were especially concerned about the company’s award of performance-based shares to executives despite the company’s failure to reach internal targets.
Investors welcomed the proposals by Shell, but some said they didn’t go far enough. “This was a missed opportunity to make their remuneration policy simpler and more transparent to investors,” Errol Keyner, deputy director of the Dutch shareholder association VEB told the Wall Street Journal. He added the criteria for judging executive performance should be “measurable and verifiable.”
Standard Life Investments, a Shell shareholder that had been at the forefront of last year’s protest, said it had been involved in consultations with Shell and would be “evaluating their proposals very carefully.”
In a letter on its Web site Tuesday, Shell said it consulted with major investors that the proposals that resulted were designed to show “appropriate restraint in the current economic environment.”
The changes address performance-based shares, distributed under Shell’s long-term-incentive plan. In the past, executives were only awarded the shares if Shell placed in the top three of its peers in a ranking of total shareholder return, based on its share price and dividend payouts. But last year, Shell ranked fourth and the board still handed out bonuses.
Under Tuesday’s proposals, executives will have to hold the shares awarded under the plan for five years, and the CEO will have to own shares equivalent to three times his salary, (now two times the salary) to provide “greater alignment with shareholders’ interests.”
Annual bonuses will now be linked to measures such as making sure Shell’s oil and gas projects are delivered on time and on budget, rather than total shareholder return, and executive directors will have to use 25% of their bonuses to purchase shares in the company.