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Royal Dutch Shell’s pay committee bears brunt of anger

May 20, 2009

Investors in Royal Dutch Shell rejected the company’s executive pay plan yesterday and, in a resounding defeat for the oil group’s board, called for the pay-setting committee to resign.

At a stormy annual meeting in The Hague lasting nearly five hours, three fifths of shareholders voted against a plan to exercise discretion and award managers bonuses in spite of the company’s failure to meet targets. The rejection is only advisory.

The Shell vote was the second time this year that one of Britain’s biggest companies has endured such a shareholder rebellion.

Last month more than 90 per cent of investors opposed the remuneration report at the Royal Bank of Scotland annual meeting. And today Pirc, the investment research consultancy, will oppose the remuneration report at the GlaxoSmithKline annual meeting.

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Under a three-year scheme agreed in 2005, Shell directors would have earned up to 200 per cent of their salaries in shares if the company outperformed three peers. The company finished fourth but the remuneration committee decided to exercise discretion and allow some of the award.

Jeroen van der Veer, the outgoing chief executive who is due to retire this summer, was offered an 8 per cent increase on basic salary and paid a total of €10.3 million.

Guy Jubb, head of corporate governance at Standard Life, which owns 1.7 per cent of Shell, said the awards were not acceptable. “We were not impressed by the remuneration committee’s decision to exercise its discretion, for the second year in a row, to reward its executives for below-average performance,” he said.

As Jorma Ollila, the chairman, fought to control a fractious meeting, a succession of shareholders took to the microphone to berate Shell. “The system is sick and needs fixing,” Errol Keyner from VEB, the Dutch shareholders association, said.

A spokesman for Franklin Mutual, part of the giant Templeton group of funds in the US, described as “pathetic” the defence offered by Sir Peter Job, chairman of the remuneration committee, and called for the resignation of the committee, which includes Josef Ackermann, the Deutsche Bank chairman and chief executive, and Lord Kerr of Kinlochard, Shell’s deputy chairman and a former British Ambassador to Washington.

There were gasps as the results of the vote were announced, showing 59.42 per cent against the resolution. Mr Ollila made it clear that Shell would consider new proposals for next year: “We as the board take the outcome of this vote very seriously and we will reflect carefully upon it.”

The rejection at Shell follows a string of protests over pay at other companies.

Last month 38 per cent of BP shareholders rejected its pay plans and last week Amec, the support services group, narrowly fought off a revolt by 46 per cent of shareholders.

In another sign that activism was yielding results, Cable & Wireless, the telecoms group, announced an apparent climbdown on its long-term bonus scheme that had dropped a £20 million cap to allow executives unlimited payouts. C&W said that it was launching a more conventional programme from 2012 where payments would be limited to four times salary.

At the GSK annual meeting today Pirc will oppose the pay package of J-P Garnier, the former chief executive whose share incentive scheme pays out on the basis of the performance of the company’s shares until the end of this year, despite the fact he stood down last summer.

In 2003 shareholders rejected a £22 million pay-and-benefits package for Mr Garnier.

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