April 11, 2013 6:23 pm

Investor assault on BP pay awards

Staff direct shareholders at the BP AGM at Excel in London this morning.©Charlie Bibby

UK energy group's annual meeting was marked by sharp criticism of executive pay levels

A top-10 investor in BP launched a strong public assault on the company’s pay policies on Thursday, saying they allowed executives to be rewarded handsomely for poor performance.

The attack by Guy Jubb, global head of governance and stewardship at Standard Life Investments, came as the UK energy group’s annual general meeting was marked by sharp criticism of executive pay levels.

The issue of executive pay, and particularly performance-related awards, has become a key focus of shareholder anger in recent years and is expected to dominate this year’s AGM season.

Mr Jubb, who said Standard Life had voted against or abstained on remuneration-related resolutions at seven out of the last eight BP AGMs, said he was concerned that BP executives “have the potential to receive significant rewards for achieving unchallenging performance targets, which, as a matter of principle, we oppose”.

In the end, 93 per cent of shareholders who voted approved BP’s remuneration report, 6 per cent were against and a bit less than 1 per cent withheld their vote. BP said the vote in favour was higher than at the last AGM.

Mr Jubb said he wanted to see BP’s pay policies simplified, noting that management was measured against 15 performance metrics. “We want to see the remuneration committee raise its game and make significant improvements to address our concerns,” he said.

Antony Burgmans, head of BP’s remuneration committee, insisted that its pay policies were appropriate. “In the past we have set targets which were challenging, and unfortunately were not met,” he said. “As a result we did not pay out.”

BP was keen to present a positive snapshot of the company to shareholders, three years after the Deepwater Horizon disaster. Chairman Carl-Henric Svanberg characterised 2012 as a year of milestones for BP, pointing to the criminal settlement it had reached with the US government over the giant oil spill and the sale of its 50 per cent stake in TNK-BP, its Russian joint venture, to the Kremlin-controlled oil giant Rosneft.

He said the company had completed its $38bn asset disposal programme a year early, leaving it “a bit smaller but ... more focused, stronger and safer”. He also noted BP’s decision to spend $8bn of the proceeds from the TNK-BP sale on a share buyback, a move that was welcomed by shareholders.

But investor dissatisfaction with BP runs strong. The company’s share price is still around 30 per cent lower than it was before the Gulf of Mexico accident, when an explosion aboard the Deepwater Horizon drilling rig killed 11 men and triggered the worst offshore oil spill in US history.

One shareholder pointedly asked the board: “You say the company is in a healthy state: why is it not reflected in your share price?”

Mr Svanberg said BP was still in the midst of a trial to determine liability for civil damages and penalties related to the accident, which “creates some uncertainties” and was depressing the share price.

Some investors expressed outrage at the way BP was being treated by US regulators, and pointed to the $34bn of claims for economic damage presented by US Gulf states. “What are we doing to defend ourselves against these extortionate claims?” said Martin Simons, who has been a BP shareholder since 1954. “Do we need to threaten a boycott of Walt Disney in Florida to make the people come to their senses?”

But overall, pay was one of the biggest irritants. One investor, John Farmer, urged the board to “exercise restraint” in bonuses and other forms of variable pay until BP started “behaving ethically and safely and ... delivering at last a positive total shareholder return which it’s signally not done for some considerable time.”

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