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The gravy train has got to stop

Financial Times

Shell investors reject pay plans

By Michael Steen in Amsterdam

Published: May 19 2009 15:31 | Last updated: May 19 2009 15:31

Shareholders voted against approving the executive pay policies of Royal Dutch Shell on Tuesday, giving the energy company a clear signal it had not done enough to address remuneration concerns that dominated proceedings at its annual meeting for a second year.

Initial results from electronic voting showed that 59.42 per cent of shareholders voted against approving the company’s 2008 remuneration report, with only 40.58 per cent backing the company’s board.

Jorma Ollila, chairman, said: “We take the outcome of this vote very seriously and will reflect on it.” However, the vote is only advisory and will not have any immediate impact on the pay packages that executives received.

It is the second year in a row that shareholders have criticised the company for ignoring performance in awarding pay. Opposition to the policies was voiced by both institutional investors and retail shareholders.

Jeroen van der Veer, the chief executive who steps down at the end of June, was paid a total of €10.3m (£9.2m) in 2008, up 58 per cent on his remuneration in 2007, according to Shell’s annual report.

His package included €1.93m salary, €3.75m bonus, €1.54m pension benefits and €2.69m from a long-term incentive plan related to performance in 2005-07.

The long-term incentive plan proved controversial as Shell had failed to meet its own targets.

The bonuses would have been automatically paid out had Shell’s total shareholder return in the period ranked third or higher among its peer group of five oil majors. However, Shell ranked a close fourth and the remuneration committee, headed by Sir Peter Job, resorted to discretionary powers.

“I fail to understand what judgment has been applied by the remuneration committee,” said Errol Keyner of the Dutch shareholders’ association VEB. “At best you’re middle of the road.”

Last year, shareholders objected to retention payments for three executives who were in the running to replace Mr van der Veer. The bonuses, dubbed “pay for respiration”, stirred shareholder ire because they had no performance criteria attached.

Guy Jubb, head of corporate governance at Standard Life Investments, told the meeting he was “dismayed” at Mr van der Veer’s remuneration.

The asset manager has not supported Shell’s remuneration policy since 2003 and Mr Jubb said it was abstaining on a vote to re-appoint Lord Kerr of Kinlochard as a director, the only member of the remuneration committee due for re-election.

Sir Peter, seeking to justify his committee’s decision, noted ahead of the vote that Shell had explicitly won shareholder approval in 2005 to use discretion in cases where the company only narrowly failed to meet its total shareholder return targets.

“None of this comes as a surprise to shareholders,” he said.

Shell has also announced that it will broaden performance criteria to include operational and financial measures.

However, it was clear the proposed changes did not go far enough for many shareholders.

One retail investor, speaking to the meeting in The Hague via video link from London, said: “What really troubles me about the board is you have not had the nous to realise the general public concern about the behaviour of large companies… The gravy train has got to stop.”

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