LONDON (Thomson IM) – The 75 bln stg Local Authority Pension Fund Forum (LAPFF), whose members own over 1 pct of shares in Royal Dutch Shell, has urged its pension fund members to vote against the company’s remuneration report at its annual general meeting on May 15.
The Forum is recommending an opposing vote on grounds that the company has failed to link directors’ management of non-financial issues such as health and safety with long-term pay awards.
The body said that, currently, such a linkage only exists to the annual bonus. It added the sustainable development component of the bonus, which covers a range of non-financial factors including safety, represents a maximum of only 5 pct of a director’s potential package.
‘The Forum does not consider this to be an adequate incentive, given the critical importance of issues like safety in the oil sector,’ LAPFF said in a statement.
It added that it also has ‘concerns’ about Shell’s climate change targets: ‘The Forum is not convinced that Shell’s target to reduce emissions to 5 pct below 1990 levels by 2010 is adequate.’
The Forum said that, while a reduction in emissions had been achieved between 2004 and 2006, the target effectively allows for a 20 pct increase in emissions between 2006 and 2010 rather than providing a real incentive for further emissions reductions.
It is now calling for an adjustment of Shell’s target in the bonus calculation to ensure that directors are ‘adequately stretched’ before receiving a payout.
LAPFF chairman Darrell Pulk said: ‘If companies believe that issues such as climate change, or safety, are critical to their future success then they need to make this crystal clear in the manner in which they reward their directors.
‘Simply linking a small portion of the annual bonus to non-financial targets does not focus executives enough on the longer term instead of the quarterly results treadmill.’
The forum said: ‘These are long-term issues, so why not link them to long-term incentives?’ By Raji Menon: +44 (0) 20 7422 4954; firstname.lastname@example.org ims/tc