BP – Pay Cut or Downward Discretion

I seem to be spending a lot of time talking about pay at companies of late. It would be better if we could concentrate on more important matters, like their strategy, the lack of productivity in UK companies, how they are revising their plans to cope with Brexit and exchange rate changes, and all those other matters that affect shareholder returns. But it seems everyone wants to talk about pay. So here’s the latest story.

The BP Annual Report has been published and the Remuneration Report shows that the CEO, Bob Dudley, had his pay reduced by 40% last year. That was after a revolt at the AGM last year where there was a majority of shareholders against the Remuneration Report, albeit only an advisory vote. That followed a pay rise for Mr Dudley after horrible financial results in 2015.

The Remuneration Committee have “exercised downward discretion” to reach their decisions on the pay cut, which as Matthew Vincent in the FT has pointed out is a major innovation in the invention of a new euphemism by BP. Let us hope other companies also find it a useful new paradigm.

But even after the reduction, Mr Dudley still received total single figure remuneration of $11.5 million last year.

For 2017 a new Pay Policy will be voted upon at the AGM. The basic pay of Mr Dudley will be unchanged at $1.85 million. But it is proposed that there will also be an Annual Bonus of up to 225% of salary, and the award of Performance Shares (a form of LTIP) of up to 500% of salary. So despite the suggestions of some simplification, this is in essence yet another complex formula with many different measures of performance in use and which could result in total pay of over $15 million. And that’s excluding other “benefits”.

The Chair of the Remuneration Committee, Professor Dame Ann Dowling reports “substantial engagement with shareholders during the year”, and with proxy voting agencies. That’s sixty eight meetings or telephone calls in all. But did they consult private shareholders? Not so far as I am aware.

So the outcome which we are being asked to vote on at the AGM on the 17th May in London is hardly a revolution at all it appears to me. A lot more work clearly remains to be done to simplify and reduce pay at major public companies it seems to this writer. More “downward discretion” must be exercised to put it bluntly!

Roger Lawson

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