BP 2010 Annual Report Download - page 117

Directors’ remuneration report
Directors’remunerationreport

MrDudley’sbonusin2011willbebasedentirelyongroupmeasures.
MrConnandDrGrotewillhave70%oftheirbonusbasedongroup
measuresand30%ontheresultsoftheirrespectivesegments.For
MrConnthesewillincludereningavailability,safetyandcostefciency.
ForDrGrotetheywillfocusonfunctionalcostsandsuccession.
Asinpastyears,inadditiontothespecicbonusmetrics,the
committeewillalsoreviewtheunderlyingperformanceofthegroupinlight
oftheoverallbusinessplan,competitors’results,analysts’reportsandthe
viewsofthechairmenoftheothercommittees.
Basedonthisbroaderview,thecommitteecandecidetoreduce
bonuseswherethisiswarrantedand,inexceptionalcircumstances,topay
nobonuses.
Deferred bonus
One-thirdoftheannualbonuswillbedeferredintosharesforthreeyears
andmatchedbythecompanyonaone-for-onebasis.Undertherulesofthe
plan,theaveragesharepriceoverthethreedaysfollowingannouncement
offull-yearresultsisusedtodeterminethenumberofshares.Both
deferredandmatchedshareswillvestcontingentonanassessmentof
safetyandenvironmentalsustainabilityoverthethree-yeardeferralperiod.
Ifthecommitteeassessesthattherehasbeenamaterialdeteriorationin
safetyandenvironmentalmetrics,ortherehavebeenmajorincidents
revealingunderlyingweaknessesinsafetyandenvironmental
management,thenitmayconcludethatsharesshouldvestinpart,ornot
atall.Inreachingitsconclusion,thecommitteewillobtainadvicefromthe
safety,ethicsandenvironmentassurancecommittee(SEEAC).
Executivedirectorsmayvoluntarilydeferafurtherone-thirdoftheir
annualbonusintoshares,whichwillbecapableofvesting,andwillqualify
formatching,onthesamebasisassetoutabove.
Wheresharesvest,theexecutivedirectorwillalsoreceive
additionalsharesrepresentingthevalueofthere-investeddividends.
Thisstructureofdeferredbonuses,paidinshares,placesincreased
focusonlong-termalignmentandreinforcesthecriticalimportanceof
maintaininghighsafetyandenvironmentalstandards.
Performance shares
TheshareelementoftheEDIPhasbeenafeatureoftheplan,withsome
modications,sinceitsinceptionin2000.Themaximumnumberofshares
thatcanbeawardedwillbe5.5timessalaryforthegroupchiefexecutive
andfourtimessalaryfortheotherexecutivedirectors.
Performanceshareswillonlyvesttotheextentthataperformance
conditionismet,asdescribedunderperformanceconditions.Inaddition,
thecommitteewillhaveanoverridingdiscretion,inexceptional
circumstances(relatingtoeitherthecompanyoraparticularparticipant)to
reducethenumberofsharesthatvest(ortoprovidethatnosharesvest).
Thecompulsoryretentionperiodwillalsobedecidedbythe
committeeandwillnotnormallybelessthanthreeyears.Togetherwiththe
performanceperiod,thisgivesexecutivedirectorsasix-yearincentive
structure,whichisdesignedtoensuretheirinterestsarealignedwiththose
ofshareholders.
Wheresharesvest,theexecutivedirectorwillreceiveadditional
sharesrepresentingthevalueofthere-investeddividends.
Thecommittee’spolicy,reectedintheEDIP,continuestobethat
eachexecutivedirectorbuildsasignicantpersonalshareholding,witha
targetofsharesequivalentinvaluetovetimessalary,withinareasonable
timefromappointmentasanexecutivedirector.
Performanceconditions
Performanceconditionsforthe2011-2013shareelementwillbealigned
withthestrategicagendathathasevolvedinresponsetolastyear’s
events.Thisfocusesonvaluecreation,reinforcingsafetyandrisk
management,andrebuildingtrust.
Vestingofshareswillbebased50%onBP’stotalshareholder
return(TSR)comparedtotheotheroilmajors,reectingthecentral
importanceofrestoringthevalueofthecompany.Afurther20%willbe
basedonthereservesreplacementratio,alsorelativetotheotheroil
majors,reectingacentralelementofvaluecreation.Thenal30%willbe
basedonasetofstrategicimperativesforrebuildingtrust;inparticular,
reinforcingsafetyandriskmanagementculture,rebuildingBP’sexternal
reputation,andreinforcingstaffalignmentandmorale.
Fortherelativemeasures,TSRandthereservereplacementratio,
thecomparatorgroupwillconsistofExxonMobil,Shell,Total,
ConocoPhillipsandChevron.Thisgroupcanbealteredifcircumstances
change,forexample,ifthereissignicantconsolidationintheindustry.
Whileanarrowgroup,itcontinuestorepresentthecomparatorsthatboth
shareholdersandmanagementuseinassessingrelativeperformance.
TheTSRwillbecalculatedasthesharepriceperformanceoverthe
three-yearperiod,assumingdividendsarere-invested.Allsharepriceswill
beaveragedoverthethree-monthperiodbeforethebeginningandendof
theperformanceperiod.TheywillbemeasuredinUSdollars.Thereserve
replacementratioisdenedaccordingtoindustrystandardspecications
anditscalculationisaudited.
Asinpreviousyears,themethodologyusedfortherelative
measureswillrankeachofthevecompetitorsoneachmeasure.BP’s
performancewillthenbecomparedtotheotherve.Performanceshares
foreachcomponentwillvestatlevelsof100%,70%and35%
respectively,forperformanceequivalenttorst,secondandthirdrank.No
shareswillvestforfourthorfthplace.Forperformancebetweensecond
andthirdorrstandsecond,thevestingpercentagewillbeinterpolated
basedonBP’sperformancerelativetothecompanyrankeddirectlyabove
andbelowit.
Theremaining30%ofvestingwillbebasedonabalanced
scorecardofstrategicimperatives.Thesewillcomprisesafetyandrisk
managementculture,externalreputation,andinternalstaffalignmentand
morale.Foreachofthese,specicmetricsderivedfromexternally
tabulatedsurveyswillbeusedtotrackprogress.Thisevidencewillbeused
bythecommittee,alongwithinputfromtheotherboardcommittees,to
judgeperformanceoneachmetric.Theresultswillbeexplainedinthe
subsequentdirectors’remunerationreport.
Thecommitteeconsidersthatthiscombinationofquantitativeand
qualitativemeasuresreectsthelong-termvaluecreationprioritiesofthe
companyaswellasthekeyunderpinningsforbusinesssustainability.Asin
previousyears,thecommitteemayexerciseitsdiscretion,inareasonable
andinformedmanner,toadjustvestinglevelsupwardsordownwardsifit
concludesthattheformulaicapproachdoesnotreectthetrueunderlying
healthandperformanceofBP’sbusinessrelativetoitspeers.Itwillexplain
anyadjustmentsinthedirectors’remunerationreportfollowingvesting,in
linewithitscommitmenttotransparency.
BPAnnualReportandForm20-F2010 115