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Tide of opinion turns against Shell

Financial Times

By Ed Crooks and Michael Steen

Published: May 20 2009 03:00 | Last updated: May 20 2009 03:00

Jeroen van der Veer has won widespread praise for the way he has steadied the ship as chief executive of Royal Dutch Shell, after the reserves misreporting scandal that threatened to sink the company when it was exposed early in 2004.

The message from shareholders at Shell’s annual meeting yesterday was that however great his achievement might be, it did not deserve to be rewarded as generously as Shell’s remuneration committee believed.

The decision to pay bonuses to executives even though performance targets had been missed has made Shell a lightning rod for anger about executive pay.

As Martin Simons, a British retail investor who spoke to the meeting in The Hague via video link from London, put it: “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.”

At first glance, Shell seems an unlikely flashpoint for anger. Post-tax profits for 2008 were $31.4bn, and even though they fell 58 per cent in the first quarter, they were still a healthy $3.3bn. The decline was in line with Shell’s leading rivals BP and ExxonMobil.

In recent years, while Shell’s performance in terms of total shareholder return has been at or near the bottom of its peer group of the five “super-major” oil companies – the others being Exxon, BP, Chevron and Total – the remuneration committee is right to point out that the difference between Shell in fourth place and Total in third for 2006-08 was very small.

And while Mr van der Veer’s pay rose sharply last year, it is still much lower than the rewards paid to rival chief executives.

Shell’s problem is in part that its huge profits last year were seen as unde-served. If you are producing more than 3m barrels of oil and gas per day when commodity prices hit record highs, you do not require any special brilliance to make a lot of money.

More particular, however, is the sense it conveys that shareholders’ concerns are not taken seriously.

Guy Jubb, head of corporate governance at Standard Life Investments, who described Mr van der Veer’s award as “not acceptable”, said his company had not supported a vote on Royal Dutch Shell’s remuneration report since 2003.

Speaking after the meeting, Sir Peter Job, former chief executive of Reuters who is a non-executive director at Shell and has chaired the remuneration committee since 2007, said Shell “takes the outcome of this vote seriously”.

However, he also said the discretion used by the remuneration committee in making incentive payments, which was the focus of shareholder opposition, had been explicity approved in the 2005 vote.

His offer to shareholders was merely that “we will be discussing the implications of this vote with them”.

Shell is introducing new rules for its incentive plans, which it says follow consultation with shareholders. However, by introducing operational performance measures as criteria, it risks further blunting the focus on shareholder return.

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.

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