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A word in your Shell-like about those bonuses

May 6, 2009

This is the third year that Standard Life has voted against Shell’s remuneration report. Maybe Shell should start to listen

Sir Peter Job, of all people, should know that the governance of one of the world’s top companies is expected to operate to rather different standards than the governance of children’s party games.

Yet, as chairman of Shell’s remuneration committee, Sir Peter appears to have adopted the “little Johnny did so well and tried so hard let’s give him a prize anyway” approach to executive bonuses.

When it comes to the construction of bonus schemes, Shell goes through the complex procedure expected of companies these days, involving committees and expensive consultants and committees of expensive consultants.

Out of this process came a scheme that would award share bonuses to executives if Shell’s total shareholder return between 2006 and 2008 ranked at least third in its peer group.

So what happened when Shell’s total shareholder return was pipped to third place by Total? The remuneration committee ignored the rules and decided to give the executives a consolation prize of half the shares they would have received had Shell come third.

What were they thinking of? Have they been on another planet for the past few years? Have they not picked up the slightest hint of public and shareholder unease at “rewards for failure” and a culture of executive remuneration that seems to amount to “heads you win, tails you, er, also win”?

What makes this so extraordinary is that Shell came under criticism from shareholders over pay last year.

Investors were angry at the company’s decision to make discretionary awards to three directors who were in the race to become chief executive. There were no targets attached to the awards, which disgruntled shareholders described as “pay for respiration”.

Yet Shell has gone ahead with another discretionary award this year that the committee must have known would incense investors.

Worse still, it comes after shareholders clashed with the rival BP over pay for top executives. At BP’s recent annual meeting, the remuneration report was backed by only 62 per cent of shareholders, after the company decided to pay bonuses even though the company failed to beat targets.

Top shareholders are, understandably, hopping mad at Shell. Guy Jubb, head of corporate governance at Standard Life, which owns 1.7 per cent of the shares, says that the decision raises serious questions about whose interests the board was looking after.

It is not the first time this question has been raised about Sir Peter. The former Reuters chief executive has been involved in more pay disputes than most during his time on the remuneration committees of GlaxoSmithKline and Schroders.

Standard Life has voted against Shell’s remuneration report for the past three years, which suggests that the company is not listening very hard.

Things look rather better over at RBS.

The bank yesterday announced the departure of Guy Whittaker, the finance director, who is rather too associated with Sir Fred Goodwin.

But he is staying on for up to six months to ensure an orderly handover. And the clock starts ticking on his severance pay with immediate effect, which means his package on departure is likely to be a relatively modest £559,000 – one thirtieth the size of his former boss’s golden goodbye.

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