BP 2007 Annual Report Download - page 74

Advice
Advice is provided to the committee by the company secretary’s office,
which is independent of executive management and reports to the
chairman of the board. Mr Aronson, an independent consultant, is the
committee’s secretary and special adviser. Advice was also received
from Mr Jackson, the company secretary.
The committee also appoints external advisers to provide specialist
advice and services on particular remuneration matters. The
independence of the advice is subject to annual review.
In 2007, the committee continued to engage Towers Perrin as its
principal external adviser. Towers Perrin also provided limited ad-hoc
remuneration and benefits advice to parts of the group, principally
changes in employee share plans and some market information on
pay structures.
Freshfields Bruckhaus Deringer provided legal advice on specific
matters to the committee, as well as providing some legal advice to
the group.
Ernst & Young reviewed the calculations on the financial-based
targets that form the basis of the performance-related pay for executive
directors, that is, the annual bonus and share element awards described
on page 66, to ensure they met an independent, objective standard. They
also provided audit, audit-related and taxation services for the group.
Part 3: Non-executive directors’ remuneration
Policy
The board sets the level of remuneration for all non-executive directors
within a limit approved from time to time by shareholders. In accordance
with BP’s board governance principles, the remuneration of the chairman
is set by the board rather than by the remuneration committee, as the
performance of the chairman is seen as a matter for the board as a
whole rather than any one committee.
Key elements of BP’s non-executive director remuneration policy
include:
– Remuneration should be sufficient to attract and retain world-class
non-executive talent.
– Remuneration of non-executive directors is set by the board and
should be proportional to their contribution towards the interests
of the company.
– Remuneration practice should be consistent with recognized best
practice standards for non-executive directors’ remuneration.
– Remuneration should be in the form of cash fees, payable monthly.
– Non-executive directors should not receive share options from the
company.
– Non-executive directors are encouraged to establish a holding in BP
shares of the equivalent value of one year’s base fee.
Remuneration review
In 2007, an ad-hoc board committee was formed to review the structure
and quantum of BP non-executive directors’ remuneration (having
previously been reviewed in 2004).
The committee considered the existing BP policy on non-executive
directors’ remuneration and concluded that it should remain unchanged.
The committee evaluated non-executive director remuneration levels and
trends in both the UK and internationally, using a number of external data
sources. Outside the UK, particular focus was given to the remuneration
practices for non-executive directors in the US. The committee also
examined how the time commitment and workload for the board and its
committees had changed in the three years since the previous review.
Following the review, the committee proposed a revised structure
and level of remuneration for BP non-executive directors. Key changes
included:
– Increases to the fees for the chairman and deputy chairman/senior
independent director to reflect the market rates paid for those
positions in companies of comparable size to BP.
– The introduction of a flat fee for membership of the audit, the safety,
ethics and environment assurance, the remuneration and the
nomination committees (but not the chairman’s committee) to reflect
the increased time commitment for board committees over the past
three years.
– An increase in the fee for the chairmen of the audit committee and
SEEAC to reflect the increase in time commitment and market rates
for those committees.
Consideration was also given to abolishing the transatlantic attendance
allowance, but the committee concluded that this would be to the
detriment of non-executives based outside Europe, who would not
otherwise be compensated for the additional travel time required for
UK meetings.
Changes to the structure and an increase to the level of non-executive
directors’ fees were approved by the board and became effective
1 November 2007.
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