Shell to Reduce Executive Salaries
HOUSTON -- Less than a year after shareholders staged a revolt against its executive-pay policies, Royal Dutch Shell PLC, parent company to Shell Oil Co., unveiled far-reaching changes it is making to the way it rewards senior managers, The Wall Street Journal reported.
In a letter to investors cited by the newspaper, Hans Wijers, chairman of Shell's remuneration committee, said salaries paid to Chief Executive Peter Voser and Chief Financial Officer Simon Henry, who stepped into their current roles last year, will be 20 percent lower than what their predecessors earned. Base salaries for Shell's three executive directors will be frozen until January of next year, Wijers also noted in the letter.
Former Shell CEO Jeroen van der Veer had a 2008 base salary of approximately $2.6 million, while Voser, when he was finance chief, had a base salary of roughly $1.4 million. 2008 was the final year both men were in those positions, the report stated.
The company's moves aim to head off a repeat of last year's rebellion, when shareholders shot down Shell's executive-compensation plan in a nonbinding vote that symbolized mounting public outrage at boardroom excess in the midst of the economic crisis. The heart of the investor anger centered on the company's award of performance-based shares to executives despite the company's failure to reach internal targets.
In the letter on its Web site Tuesday, Shell said it responded to last May's shareholder vote by consulting with major investors and undertaking what it called a "wholesale review of remuneration policy." The company said the proposals that resulted were designed to show "appropriate restraint in the current economic environment."
The current changes address one of the main sources of shareholder resentment -- performance-based shares distributed under Shell's long-term-incentive plan. Previously, executives were only to be awarded the shares if Shell placed in the top three of its peers in a ranking of total shareholder return, based on its share price and dividend payouts. Last year, Shell ranked fourth, but the board awarded the bonuses anyway.
Under the new proposals, Shell's board won't apply such upward discretion for 2010 and in the future will only do so after "engaging" with shareholders. Also, executives will have to hold the shares awarded under the plan for five years, and the CEO will have to own shares equivalent to three times his salary, from two times currently, to provide "greater alignment with shareholders' interests," according to the report.
Additionally, under the new rules, annual bonuses will be linked to measures such as making sure Shell's oil and gas projects are delivered on time and on budget, rather than total shareholder return, and executive directors will have to use 25 percent of their bonuses to purchase shares in the company.
In the old system, Shell automatically matched the number of shares top managers acquired with their annual bonuses. From now on, only half of those shares may be matched and will only be awarded if Shell ranks in the top three among its peers.
Shell investors welcomed the proposals, but some said they didn't go far enough.
"This was a missed opportunity to make their remuneration policy simpler and more transparent to investors," Errol Keyner, deputy director of the Dutch shareholder association VEB, told the Journal. The means for judging executive performance are still far too complex, he said. "The criteria should be measurable and verifiable."
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In a letter to investors cited by the newspaper, Hans Wijers, chairman of Shell's remuneration committee, said salaries paid to Chief Executive Peter Voser and Chief Financial Officer Simon Henry, who stepped into their current roles last year, will be 20 percent lower than what their predecessors earned. Base salaries for Shell's three executive directors will be frozen until January of next year, Wijers also noted in the letter.
Former Shell CEO Jeroen van der Veer had a 2008 base salary of approximately $2.6 million, while Voser, when he was finance chief, had a base salary of roughly $1.4 million. 2008 was the final year both men were in those positions, the report stated.
The company's moves aim to head off a repeat of last year's rebellion, when shareholders shot down Shell's executive-compensation plan in a nonbinding vote that symbolized mounting public outrage at boardroom excess in the midst of the economic crisis. The heart of the investor anger centered on the company's award of performance-based shares to executives despite the company's failure to reach internal targets.
In the letter on its Web site Tuesday, Shell said it responded to last May's shareholder vote by consulting with major investors and undertaking what it called a "wholesale review of remuneration policy." The company said the proposals that resulted were designed to show "appropriate restraint in the current economic environment."
The current changes address one of the main sources of shareholder resentment -- performance-based shares distributed under Shell's long-term-incentive plan. Previously, executives were only to be awarded the shares if Shell placed in the top three of its peers in a ranking of total shareholder return, based on its share price and dividend payouts. Last year, Shell ranked fourth, but the board awarded the bonuses anyway.
Under the new proposals, Shell's board won't apply such upward discretion for 2010 and in the future will only do so after "engaging" with shareholders. Also, executives will have to hold the shares awarded under the plan for five years, and the CEO will have to own shares equivalent to three times his salary, from two times currently, to provide "greater alignment with shareholders' interests," according to the report.
Additionally, under the new rules, annual bonuses will be linked to measures such as making sure Shell's oil and gas projects are delivered on time and on budget, rather than total shareholder return, and executive directors will have to use 25 percent of their bonuses to purchase shares in the company.
In the old system, Shell automatically matched the number of shares top managers acquired with their annual bonuses. From now on, only half of those shares may be matched and will only be awarded if Shell ranks in the top three among its peers.
Shell investors welcomed the proposals, but some said they didn't go far enough.
"This was a missed opportunity to make their remuneration policy simpler and more transparent to investors," Errol Keyner, deputy director of the Dutch shareholder association VEB, told the Journal. The means for judging executive performance are still far too complex, he said. "The criteria should be measurable and verifiable."
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