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BP shareholders criticise executive pay deals

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Financial Times: BP shareholders criticise executive pay deals

By Tom Burgis and Kate Burgess
Published: April 17 2008 20:27 | Last updated: April 17 2008 20:27

Britain’s leading investors sent out a stern warning to boards on Thursday that they take a dim view of the hefty retention bonuses increasingly offered to executives who have been passed over for the top job.

More than a third of BP’s shareholders failed to support last year’s executive pay packages at the oil company’s annual meeting, a level of protest seldom seen in the UK. The revolt was caused by one-off bonuses proposed for two executives, passed over for the job of chief executive.

One of the group’s top-10 investors said: “The huge protest against retention bonuses for people who didn’t get the chief exec’s job is a shot across the bows for all companies, not just BP.”

Andy Inglis and Iain Conn, both executive directors who lost the succession battle to Tony Hayward, were granted a £1.5m one-off retention award, to be paid over three to five years, subject to their remaining at BP and to “satisfactory performance”.

Investors were concerned about what they saw as the weak link to performance and that they were not consulted.

Peter Montagnon, director of investment affairs at the Association of British Insurers, said: “The issue of retention pay-outs is becoming one which gives shareholders serious food for thought, especially when no consultation is advanced.”

The ABI, whose members hold one in six London-listed shares, wrote recently to leading consultants advising to boards on pay, warning them of investors’ concerns about a rising trend for retention bonuses.

A number of companies have proposed similar plans, including GlaxoSmithKline.

At the BP meeting, 87.7 per cent of those who turned out to vote supported the remuneration report – which included a total of £2.15m for Mr Hayward – with 12.3 per cent voting against. However, 3.3bn of the total 12bn ballots were withheld, meaning that less than two-thirds of investors backed the board’s proposal.

Some shareholders also objected to the structure of the executive incentive plan put in place in 2005.

Standard Life Investments, a top-10 investor, has voted against the remuneration scheme in successive years. It said it “did not support executive incentive schemes that have the potential to reward participants for achieving unchallenging performance conditions”.

The meeting was the first for Mr Hayward since he replaced Lord Browne last year. He has sought to reinvigorate BP after a string of calamities, including an explosion that killed 15 people at the Texas facility in 2005, and ongoing friction with Russian authorities over its joint venture there.

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