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Financial Times: Lord Browne’s pay cut for the second year running

By Carola Hoyos,Chief Energy Correspondent
Published: March 7 2007 02:00 | Last updated: March 7 2007 02:00

BP slashed Lord Browne’s pay again last year because of the recent string of safety failures in the US.

The chief executive’s total pay fell for a second year in a row, this time by 28 per cent to £4.57m, the company said in its annual reportyesterday.

His salary, bonus and non-cash payments came to £2.5m, down from £3.3m in 2005, while the value of the shares he has been awarded under BP’s long-term incentive schemes fell from £3.1m to £2m.

His entitlement for shares for 2006-2008 performance fell to a maximum of 1,761,249, down from the 2,006,767 maximum specified in last year’s annual review.

One big UK fund manager said cutting Lord Browne’s pay-out “was the right thing to do. It shows that Lord Browne has taken responsibility for the recent mistakes that BP has made. But it is unlikely to quell recent moves by two pension funds to block Lord Browne’s pension arrangements. [The BP situation also shows that] companies in certain sectors should make health and safety central to pay arrangements.”

All BP’s senior executives suffered a 50 per cent cut in their performance bonus.

This includes Tony Hayward, head of exploration and production, who will succeed Lord Browne this summer. Mr Hayward’s total pay was £1.3m in 2006 but his salary will jump from £486,000 to £750,000 when he takes over as chief executive of BP.

Lord Browne’s retirement settlement, which includes the £2m bonus he did not get for 2006, adds up to £5.3m and he is entitled to an annual pension of £1.05m.

This falls short of the retirement settlement of up to $400m (£208m) that Lee Raymond, chief executive of ExxonMobil, the largest listed international energy group, was granted last year.

In the decade after Lord Browne became chief executive, BP’s shares outperformed the FTSE 100 share index by 80 per cent.

But more recently they have slipped dramatically, pushing BP below its rival Royal Dutch Shell in market capitalisation. In fact, BP in 2006 fell from second to fifth place among the world’s listed oil companies in terms of market capitalisation.

Last month, a panel led by James Baker, the former US secretary of state, concluded that BP management was to blame for the March 2005 Texas City refinery explosion that killed 15 people.

Meanwhile, delayed production start-ups at the Thunder Horse platform in the Gulf of Mexico and leaks at its Alaskan pipeline system hit the company’s performance. The US authorities are also investigating alleged market manipulation among BP traders.

The company’s annual report says: “The year also brought serious challenges and in key operational and safety areas company performance fell short of expectations.” It added that the remuneration committee “also made a qualitative assessment of the effect on the company and its reputation of adverse events and developments in the year”.

The report said seven of BP’s staff had died in 2006 compared with 27 (including the 15 fatalities at Texas City) in 2005.

The annual report also says BP, which was part of a group that owns Alyeska, the company that runs Alaska’s Valdez port, will fight any attempt by ExxonMobil to force it to help pay for legal claims resulting from the Valdez oil spill in Alaska in 1989.

ExxonMobil acknowledged that there were unresolved disputes arising out of the oil spill but said “neither side has pursued them”.

Additional reporting by Kate Burgess

Copyright The Financial Times Limited 2007

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