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Royal Dutch Shell Faces Criticism From Glass Lewis on Payment Plans

 

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Royal Dutch Shell plc (ADR) (NYSE:RDS.A) has faced huge criticism from Glass Lewis, a shareholder advisory firm to award its CEO Ben Van Beurden with a huge bonus in 2015. The shareholder advisory firm further persuaded the shareholders of the oil giant to cast their vote against the payment plans of the company.

As reported by the Wall Street Journal, Glass Lewis said in a report: “We remain concerned by the disconnect between bonus payouts and financial performance. We find it troubling that the CEO continues to receive payouts at just short of maximum while the company’s financials deteriorate.”

Objections were raised as the CEO’s bonus was increased 6% over 2014. That said, the CEO got 8% cut in salary last year. Recall that the oil companies executives across the globe faced salary cuts as oil prices tumbled. Shell’s profits dipped by a massive 80% year-over-year (YoY), that led to the 8% salary cut for the CEO.

The oil glut began in mid-2014 led to prices falling to $60 per barrel last year from $115 per barrel when the oil crisis first struck. Currently, with West Texas Intermediate trading at $44.74 per barrel and Brent crude at $45.89 per barrel, companies are faced with financial constraints and have opted for cost cutting. Shell is no exception to the rule and has reduced its headcount and sold assets asset to conserve cash.

The CEO managed the company well in tough times that Shell was going through since 2014. In response to low oil prices, the CEO cancelled projects in Alaskan Arctic and Canadian oil sands and implemented cost cuts. In addition, the CEO made a $50 billion acquisition of BG Group PLC possible.

The persistent low prices have got investors overly concerned on the payment plans of companies. This is because the largely oversupplied oil market that is showing no signs of recovery, is already squeezing profits of oil and gas companies. If the companies increase bonuses and remuneration packages of their executives, it could result in further cash constraints. More than the financial implications, it is the optics of such steps, that do not down well with investors, as they also fear for dividend payout of the companies.

As recently as last month, investors of BP plc voted in large numbers against the salary increase of Mr. Bob Dudley, CEO of BP. Although the votes are non-binding, they pointed towards shareholder discontent to the company’s board.

In the wake of criticism that the oil giant is facing, Shell’s spokesman said that its payment plans are a reflection of its strategy measured by the company’s short term and long term targets. The spokesperson added that the oil giant’s performance and its compensation policies are in line with each other. In its annual report in March, the company said that the increase in bonus of Mr. Beurden was largely based on “strong leadership both strategically and operationally.”

Contrary to Glass Lewis, Institutional Shareholder Services Inc., another notable shareholder firm advised investors of Shell to vote in favor of the payment plans.

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