Royal Dutch Shell Plc  .com Rotating Header Image

Shell-shocked shareholders finally rebel over bonuses

guardian.co.uk home

The behaviour of Shell’s remuneration committee was outrageous

  • Nils Pratley
    • The Guardian, Wednesday 20 May 2009

The behaviour of Shell’s remuneration committee was outrageous. The rules said bonuses for executives would be due if Shell came third or better in a league of five oil majors ranked by total shareholder return. But Shell finished fourth, prompting the non-executives to declare that the race was so close that fourth was as good as third.

That decision was so brazen that a shareholder rebellion was guaranteed. Even so, it was a shock yesterday to see the rebels secure a 59% majority. Have investors finally decided to get serious about excessive boardroom rewards?

There are signs. Votes cast against remuneration reports are set to reach a record high this year, according to Manifest, a proxy-voting agency. Cases like Shell’s – where the remuneration committee pleads “discretion” to justify its action – provoke the most anger.

Discretion has become a licence to ignore the expressed wishes of shareholders. So what if a few more pennies on Shell’s share price would have elevated the company into third place? Bad luck is part of life and when, like Shell’s chief executive, Jeroen van der Veer, you’re paid a basic salary of €1.93m and a short-term bonus €3.75m, the loss of a couple more million is not a reason to grumble. In any case, third out of five is no triumph: shareholders were foolish in the first place to approve a scheme that rewarded mediocre results.

That fact, one suspects, partly explains the sudden outbreak of rebellion. Investors are finally realising that the wool has been pulled over their eyes for years. Stockmarkets are back where they were a decade ago but boardroom pay has gone to the moon.

In this case, Shell moved the goalposts. But in other cases, the goalposts were simply set in the wrong place, with shareholders’ approval. Directors have been incentivised to pursue short-term financial targets with the predictable consequence that long-term risks were ignored – the banks are just one example.

What’s the solution? It’s not easy, but two improvements seem to be essential. The hard one is to create a better definition of “performance” – more incentives tied to non-financial targets would be a good place to start. The easier one is to make votes on remuneration reports binding, rather than advisory. In other words, bonuses would be paid only after shareholders have given their consent – then investors might get somewhere.

royaldutchshellplc.com and its also non-profit sister websites royaldutchshellgroup.com, shellenergy.website, shellnazihistory.com, royaldutchshell.website, johndonovan.website, shellnews.net and shell2004.com are all owned by John Donovan. There is also a Wikipedia article.

0 Comments on “Shell-shocked shareholders finally rebel over bonuses”

Leave a Comment

%d bloggers like this: