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Shell Starts Talks With Shareholders on Executive Pay Rejection

By Fred Pals

May 20 (Bloomberg) — Royal Dutch Shell Plc, Europe’s largest oil company by market value, has started to invite shareholders to discuss the rejection of an executive pay package after performance targets were missed.

“We have been approached by Shell today to set up a meeting and discuss the matter,” Erik Breen, head of responsible investing at Rotterdam-based Robeco, said in a phone interview today. Talks will take place at short notice, said Breen, who represented 10 Dutch institutions and stockholders with 44 million Shell shares at yesterday’s annual meeting.

The Shell vote was part of an investor backlash in Europe against rising executive pay awards, fueled by concern that performance targets may not be tough enough. Last month 34 percent of  BP Plc shareholders opposed its remuneration proposal for senior management, with a further 9 percent abstaining.

“It didn’t wash very well with shareholders that they missed targets and paid themselves, but I don’t think it will have huge repercussions across the market,” said Colin Morton, who helps manage about $2 billion, including 4 million Shell shares, at Rensburg Fund Management in Leeds, England. “I think all these things will be looked at on a case by case basis.”

Other companies under scrutiny include Next Plc, the U.K.’s second-largest clothing retailer, which said today 18 percent of shareholders opposed the pay report at its annual meeting.

Last month, Royal Bank of Scotland Group Plc shareholders rejected former Chief Executive Officer Fred Goodwin’s 703,000- pound ($1 million) annual pension with a vote of 90 percent, the first U.K. bank to have its pay report repudiated.

‘Changed Times’

A total of 59 percent of Shell shareholders voted against the remuneration proposal, which was backed by 41 percent, Shell Chairman Jorma Ollila told an annual meeting of shareholders in The Hague yesterday. Although the vote was only advisory, Ollila said Shell would “reflect very carefully upon it.”

The U.K.-based Pensions Investment Research Consultants Ltd., an advisory group, and investors including Standard Life Investment Ltd. had urged shareholders to vote down the pay proposal after performance targets weren’t met.

“Times have changed and we need people that are more aware of that,” Errol Keyner, who represented Dutch shareholder lobby group VEB at yesterday’s meeting, said in a phone interview today. VEB wants the Anglo-Dutch oil company’s remuneration committee to step down following the vote.

It was the second consecutive year that Shell faced censure. In 2008, just under half of its shareholders declined to back a proposal to award three board members bonuses to stay at the company.

Guy Jubb, head of corporate governance at Standard Life Investments, said at yesterday’s meeting he was “dismayed” at Chief Executive Officer Jeroen Van der Veer’s remuneration. Standard Life has been opposed to Shell’s pay policy since 2003, Jubb added. “It is not about winning or losing the vote but it is about listening to the strength and tone of the views expressed,” he added.

Fourth Ranking

Shell’s remuneration committee decided to award members of the board shares after the company came fourth in a peer group, based on total shareholder returns. The committee awarded half of what they would have received if the company had been placed third.

Van der Veer received total compensation of $15.1 million last year, including a base salary. A bonus as part of Van der Veer’s long term incentive plan totaled $3.7 million at current prices. That compares with compensation of $8.96 million in 2007, including pension benefits and share-option gains, Bloomberg calculations show. Shell didn’t disclose Van der Veer’s total 2007 compensation in its report.

Shell awarded 78,889 shares to Van der Veer worth about 1.34 million euros ($1.8 million) while Chief Executive Officer- designate Peter Voser got 39,656 shares under the same program. Shell paid out shares worth 4.2 million euros to its five directors, David Williams, a spokesman based in The Hague, said in a phone interview today.

“Shell has regular engagements with major shareholders, and we will be discussing the implications of this vote with them during the course of the year,” Peter Job, head of the remuneration committee, said in a statement. “We have already introduced additional performance measures for future awards, reflecting comments from shareholders.”

Incentive Program

Shell said during yesterday’s meeting that it adjusted its incentive program and future awards in response to comments from shareholders.

Shell rose 24 pence, or 1.5 percent, to 1,660 pence in London, a three-month high. The shares have declined 8 percent since the start of this year.

PIRC was also urging shareholders of GlaxoSmithKline Plc, the U.K.’s biggest drugmaker, to oppose its remuneration report at an annual meeting today because of “highly excessive” pay packages to executives. It said the aggregate value of bonuses, share plans and other awards at the London-based pharmaceutical manufacturer “equated to over eight times combined base salaries.”

To contact the reporter on this story: Fred Pals in Amsterdam on[email protected]


Last Updated: May 20, 2009 12:18 EDT 

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