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Shell faces revolt by its key shareholders

May 6, 2009

Investors in the Anglo-Dutch oil and gas group are angry that directors received shares despite missing a key target

Royal Dutch Shell, the Anglo-Dutch oil and gas group, was facing a shareholder rebellion last night after it allocated tens of thousands of shares to executive directors despite missing a key performance target.

In a rare public statement, Standard Life Investments, a top-ten shareholder, signalled that it would be voting against the discretionary payments at Shell’s annual meeting this month.

Guy Jubb, head of corporate governance at Standard Life, said: “As a matter of principle, we don’t support rewarding executives for achieving unchallenging performance conditions. This is the second year in a row that the remuneration committee has used its discretion to reward the executives for below-average returns to shareholders, which raises serious questions about whose interests they are looking after.”

Standard Life holds 46.6million shares in Shell, or 1.73 per cent of the company, according to Thomson Reuters. Its stake is worth £735.3million, based on the £15.78 closing price for Shell’s London-listed shares last night.

Mr Jubb said that Standard Life had voted against the remuneration report every year for the past three years.

Standard Life’s public criticisms of Shell’s remuneration policy came after RiskMetrics, the voting advisory service watched by pension funds, recommended that shareholders vote against Shell’s remuneration report at the annual meeting on May 19.

The Association of British Insurers, the trade body for fund managers, issued an “amber top” alert to its members last week, highlighting that Shell’s policy could be flouting best governance practice.

Several leading Shell investors echoed the concerns yesterday. Another top-ten investor said that its pay policy marked a moving of the goalposts in the wake of missed targets.

One fund management executive said: “You have to stick to the agreements that are in place; that is why they are there. Unless there are very special circumstances, we would be opposed to this.”

The shares award, including a 79,000 allocation worth £1.25million to Jeroen van der Veer, the chief executive, comes after Shell finished fourth behind Total, the French group, in a comparative table of its peers.

Under Shell’s remuneration policy, covering total shareholder returns for 2006 to 2008, this should mean that Shell’s five senior executives do not qualify for a shares payout.

Ranking first would have meant that directors qualified for shares worth 200 per cent of their salary, in a sliding scale that results in an 80 per cent payout if the group ranks in third position.

But Shell’s remuneration committee decided to award directors shares worth half of what they would have received if the group had been placed in third position.

A spokesman for Shell said that this was because the gap between the group and Total was narrow and the underlying operating performance of the group was strong last year.

Mr van der Veer, who steps down next month, received a total of £9.2million in salary and bonuses last year after meeting a two-year incentive target put in place in 2005. During that period, Shell also ranked fourth in its five-strong peer group, which featured BP and the American groups ExxonMobil and Chevron.

The looming revolt at Shell comes less than a month after BP shareholders staged a rebellion over discretionary bonuses to directors, with almost 38 per cent of the votes cast refusing to endorse its pay report.

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