Shell investors stage largest rebellion over retention pay

One in three Royal Dutch Shell shareholders at the oil company’s annual meeting yesterday voted against plans to award three executives one-off bonuses worth about €1m ($1.6m) to stay in their jobs.

The vote adds to a growing chorus of dissent over so-called “retention payments”, in which managements at some of the UK’s most venerable companies have felt the wrath of investors in recent weeks.

It is a sensitive time for the Anglo-Dutch oil company. Jeroen van der Veer retires as chief executive in June next year and the company is in the midst of making record investments.

Shell plans to make retention payments to the three likely candidates to succeed Mr Van der Veer: Peter Voser, chief financial officer; Malcolm Brinded, head of exploration and production; and Linda Cook, gas and power chief.

The bonuses, each worth about €1m in stock, become payable in 2011 provided the three are still in their posts. They are not linked to performance.

Peter Montagnon, director of investment affairs at the Association of British Insurers, said: “Dissent of this size is something that should make companies think quite carefully about using retention payments in the future . . . The votes can be a useful signal of market sentiment.”

Both the ABI and Risk Metrics, which also advises institutional investors how to use shareholders’ votes, have warned about a growing trend in what is referred to in the US as “pay for respiration”.

BP, Rexam, the packaging group, Bradford & Bingley and Reed Elsevier have been rebuked by shareholders this year for making or planning retention payments.

The rebellion at Shell, though the biggest so far, was not enough to stall the plan. The company also faced criticism and a smaller rebellion on its wider bonus policy, echoing a trend among shareholders in Dutch multinationals to criticise generous executive bonus schemes.

Sir Peter Job, chairman of Shell’s remuneration committee, said of the retention scheme ahead of the vote: “We are going into a period of scheduled change at the top and we thought this was the right thing to do.”

GlaxoSmithKline, whose shareholders convene today, has also been flagged by shareholder agencies. The healthcare group is paying a performance-linked retention package worth £2m ($3.9m) over three years to an executive who was overlooked for the chief executive post last year.