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Alarm at Shell ‘retention’ awards of over $1.5 million each for Malcolm Brinded, Linda Cook and Peter Voser

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Financial Times: Alarm at Shell retention awards

By Tom Burgis and Kate Burgess
Published: April 26 2008 03:00 | Last updated: April 26 2008 03:00

Royal Dutch Shell and several other leading companies stand to feel the wrath of shareholders in coming weeks because of a growing trend towards paying executives handsome bonuses simply for staying in their jobs.

Shell plans to make one-off retention payments to three executive directors worth about €1m (£787,000) each. A similar move by BP prompted a shareholder backlash at its annual meeting last week.

Risk Metrics, which advises 1,500 companies worldwide, including large institutional investors on how to vote at shareholder meetings, is warning clients that at least 10 large companies have made retention payments or are seeking permission to do so.

David Paterson, head of UK research at Risk Metrics, said retention awards – known disparagingly in the US as “pay for respiration” – were “not consistent with the normal structure that aligns the individual executive’s interests with that of the shareholders’.” Of particular concern, he said, were those awards that had little or no link to performance.

The Association of British Insurers is worried about an emerging trend in retention payments for executives passed over for the top job. In a letter to remuneration consultants, it said: “Additional awards to unsuccessful candidates, particularly if there are no performance conditions attached, should be the exception rather than the norm.”

Shell is planning one-off stock awards to the three likely contenders to succeed Jeroen van der Veer when he retires as chief executive in June 2009. They are Peter Voser, chief financial officer, Malcolm Brinded, head of exploration and production, and Linda Cook, gas and power chief. The fifth board executive, Rob Routs, head of oil sands and refining, is due to depart by the end of the year. Shell said it was seeking continuity in a period of record investment.

The awards, which vest in 2011 provided the trio are still at the company, have no performance conditions other than their value being dependent on the share price. The payouts will be put to a shareholder vote at the annual meeting on May 20.

GlaxoSmithKline, whose shareholders convene the day after Shell’s, is paying a performance-linked retention package worth £2m over three years to an executive overlooked for the chief executive post last year. Voting agencies stressed, however, that Glaxo had consulted investors.

BAE Systems is also singled out ahead of its meeting on May 7, as is Rexam, the UK packaging company, which meets on Thursday.

Mike Turner, BAE’s outgoing chief executive, is set to receive a retention package of stock and cash worth more than £2m even though he is departing in August. The award is contingent on his performance before his departure.

Packaging group Rexam paid a deferred retention bonus dependent on share price to the executive who oversaw the integration of a big acquisition. The company said the award did not set a precedent and was made in “exceptional circumstances”.

One big institutional investor said it was concerned about a lack of challenging performance criteria attached to some retention bonuses.

In particular, the investor looked askance at the “soft award” being proposed by Shell “for executives deemed to be a candidate for the job of chief executive. These kind of payments raise important principles”.

Some of the companies flagged by Risk Metrics have already been rebuked by shareholders.

At BP’s annual meeting, more than a third of investors failed to support last year’s remuneration scheme, which included one-off bonuses of £1.5m for each of the two executives passed over when Tony Hayward succeeded Lord Browne as chief executive.

Bradford and Bingley, which introduced a one-off incentive scheme to “act as a retention tool”, and Reed Elsevier, whose former chief executive received a total of £2.3m for staying past his retirement date to oversee the sale of a division, suffered rebellions last week.

Copyright The Financial Times Limited 2008

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