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The Independent: Investor fury over £1m pay-off for Shell chief

The Independent: Investor fury over £1m pay-off for Shell chief

By Michael Harrison, Business Editor

26 June 2004

Shell outraged investors yesterday by giving its disgraced former chairman Sir Philip Watts a pay-off worth more than £1m.

Sir Philip, who was ousted from the oil giant in March following a scandal over the misreporting of reserves, has also been allowed to keep 2.9 million share options in Shell and start drawing a £584,000-a-year pension immediately.

The size of the pay-off is certain to provoke fury from shareholders at Monday’s twin annual meetings of the Anglo-Dutch company in London and The Hague. Investors are still recovering from January’s shock reserves downgrade which wiped £16bn from Shell’s market value.

One top 10 shareholder said yesterday: “It is hard to square the pay-off with the damage done to Shell’s share price in the short term and its reputation in the longer term.”

The company is not thought to have consulted any of its big institutional shareholders directly about Sir Philip’s severance deal before going ahead with the payment.

Shell said that Sir Philip had received a lump sum payment of £1,057,971 to compensate him for loss of employment until his normal retirement date of June next year.

A spokesman said the payment was a discretionary one which reflected the contribution Sir Philip had made to Shell during his 36 years with the company. “In the circumstances, the board determined that a payment was appropriate taking into account the longevity of service,” he added. “The company approached the issue of the severance payment on the basis of its core value of respect for people.”

Sir Philip, like the rest of the Shell board, was on a three-month service contract and so legally was entitled to a pay-off worth only £192,000. But the company said it had decided to take other factors into account such as the many functions Sir Philip had performed for Shell since joining the company as a graduate in his early twenties.

Shell also said that Sir Philip had forfeited £752,000 of performance shares granted to him last year under the company’s long-term incentive plan. Of his 2,847,000 share options, only 308,750 are currently exercisable at prices below Shell’s current market price. At last night’s closing price of 416p, these options are showing a paper profit of just under £160,000.

Severance deals for the other two Shell executives who lost their jobs over the scandal – the head of exploration and production Walter van de Vijver and finance director Judy Boynton – have yet to be decided. Under her contract of employment, however, Ms Boynton is guaranteed a pay-off worth at least $1m.

There was further bad news for Shell yesterday after a fresh multibillion-dollar class action lawsuit was filed against the company and several of its serving directors in the US.

The filing is the first to also name Shell’s auditors, KPMG and PricewaterhouseCoopers, accusing them of negligence and malpractice over a five-year period during which Shell’s reserves were being over-estimated. During the period, the two firms earned an estimated £150m in fees from Shell.

Along with Sir Philip and Ms Boynton, the lawsuit also names the current Shell chairman Jeroen van der Veer and a number of the company’s non-executive directors, including the former Reuters chief Sir Peter Job, the former head of the UK diplomatic service Sir John Kerr and the ex-Dutch prime minister Wim Kok.

There remains a possibility the US Justice Department, which is investigating the reserves scandal, will bring criminal charges against Shell and its former chairman. A Shell spokesman stressed that Sir Philip’s pay-off did not preclude the possibility of the company taking legal action against him in the future.

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