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Daily Telegraph: Shell will abolish ‘discovery bonus’

Daily Telegraph: Shell will abolish ‘discovery bonus’

“Crisis-hit Shell is scrapping a controversial scheme which links staff pay levels to the amount of oil and gas employees find.”: “latest attempt by Shell to restore its reputation”

By Christopher Hope, Business Correspondent (Filed: 30/08/2004)

Crisis-hit Shell is scrapping a controversial scheme which links staff pay levels to the amount of oil and gas employees find.

Van der Veer: new scheme would encourage staff to think ‘enterprise first’ rather than ‘self first’

The news is the latest attempt by Shell to restore its reputation after its disastrous admission that it had exaggerated its “proven” oil and gas reserves by 23pc earlier this year.

The company is hoping a new bonus scheme, to be introduced in January, will encourage Shell’s 90,000 employees to work for the good of the group, rather than Shell’s individual business units.

Jeroen van der Veer, the chairman of Shell’s committee of managing directors, said in an interview that the new bonus scheme would encourage staff to think “enterprise first” rather than “self first”. Mr Van der Veer had been concerned about whether “the balance between ‘enterprise first’ and ‘self first’ had moved too much to ‘self first’ “.

He added that ambition is good “but ambition with disregard for peers or subordinates creates the wrong culture”.

At present, all Shell staff are eligible for an annual bonus, which depends on company and individual performance. These criteria will be replaced by a group-wide “one-size-fits-all bonus”. Controversial bonuses for exploration and production staff, which were linked to oil reserves replacement, will also be axed under the plans. These bonuses were seen as wrongly providing staff with an incentive which could lead them to exaggerate reserves levels.

A Shell spokesman said yesterday: “Multiple score cards will be replaced by single group score cards, focusing on execution of strategy, delivery of operational objectives and enterprise first.” ‘Enterprise first’ addresses the importance of group needs over the needs of individual or operating units. It is still subject to discussions. We hope to have new score cards in place for the calendar year 2005 bonus scheme.”

The news was welcomed by UK investors in Shell. William Claxton-Smith, director of UK equities at Insight, which has a 1.1pc stake, said: “This is good news and we are supportive of what they are doing. We believe that it is important companies set appropriate targets for their staff. It appears that this oil replacement target acted as a perverse incentive.”

Shell admitted in February that it had been adding extra oil and gas to its “proved reserves” roster since before 1994. Shell was later fined more than £80m by regulators, which heavily criticised the company for the “unprecedented misconduct” which led to the overstatement. Shell has agreed to spend $5m updating its internal compliance systems.

Separately, Shell yesterday declined to comment on reports that the US law firm leading class action lawsuits over the reserves affair was considering targeting Shell’s external auditors KPMG and PricewaterhouseCoopers.

Both firms have said that they stand by their work for Shell.

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