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Paying for staying: Retention Bonuses


Paying for staying

Published: May 22 2008 03:00 | Last updated: May 22 2008 03:00

“Pay as you go” tariffs have become commonplace. Now the idea of “pay as you don’t go” seems to be catching on in the boardroom. This week, Royal Dutch Shell forced through a proposal to pay bonuses to three executives just to stay in their jobs, even though investors holding almost half its voting shares failed to back the plan. Back in 2005, when software company Misys had to withdraw its retention proposals in the face of shareholder resistance, such payments were a UK novelty. It is a move in the wrong direction that their use is more widespread.

Shell’s scheme for the three frontrunners to become chief executive next year is a particularly unappealing example of the genre. There was not enough consultation with shareholders. This reflects badly on the board, whether it realised the hostility that might be provoked or was oblivious to it. And performance conditions play no part in the award. The remuneration report merely refers to the importance of continuity in a business that is capital intensive and geared to the long term. No wonder so many investors were unpersuaded.

There can be exceptional cases where retention payments are justified, for example, where a highly marketable senior executive is critical to the integration of a new division. But even then they require proper explanation. Used more casually in succession planning, they arouse unease among shareholders.

The first point is that they may well not work. Executives who lose out on the top job tend to go elsewhere anyway. Those with the ability and will to move on are unlikely to find an extra tranche of deferred stock reason enough to stay. In these instances, retention payments merely give them another bargaining chip when they move.

Second, they represent misdirected effort and money. If a company is concerned that two or three executives are genuinely irreplace-able, then instead of retention bonuses based on an inherently un-certain succession process it should in-crease the performance-related incentives for such superstars. It should also improve the ways of promoting and rewarding talent further down the organisation.

The shareholder protest at Shell turns a spotlight on corporate behaviour more generally. It underlines that the mood is turning fractious between publicly quoted companies and their owners. Even in good times, executive remuneration can be a flashpoint for underlying grievances. When earnings are under pressure, it becomes more likely that investors will voice discontent over pay. Shell’s revolt is the latest: it will not be the last. and its also non-profit sister websites,,,,, and are all owned by John Donovan. There is also a Wikipedia article.

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