BP 2012 Annual Report Download - page 144

Corporate governance
BP Annual Report and Form 20-F 2012
142
Service contracts
Summary details of each executive director’s service agreement are
as follows:
Table of contracts
Service agreement date
Salary as at
1 Jan 2013
Bob Dudley 6 Apr 2009 $1,751,000
Iain Conn 22 Jul 2004 £752,000
Dr Brian Gilvary 22 Feb 2012 £690,000
Dr Byron Grote 7 Aug 2000 $1,485,000
Bob Dudley’s contract is with BP Corporation North America Inc. He
is seconded to BP p.l.c. under a secondment agreement dated 15 April
2012, which expires on 15 April 2014. Dr Byron Grote’s agreement is with
BP Exploration (Alaska) Inc. He is seconded to BP p.l.c. under a
secondment agreement of 7 August 2000, which expires at the date of
the 2013 AGM. Both secondments can be terminated by one month’s
notice by either party and terminate automatically on the termination of
their service agreements. Iain Conn’s and Dr Brian Gilvary’s service
agreements are with BP p.l.c.
Each executive director is entitled to pension provision, details of which
are summarized on page 133 of this report.
Each executive director is entitled to the following contractual benefits:
t A company car for business and private use, on terms that the company
bear all normal servicing, insurance and running costs. Alternatively, the
executive director is entitled to a car allowance in lieu.
t Medical and dental benefits; sick pay during periods of absence; tax
preparation assistance.
t Indemnification in accordance with applicable law.
Each executive director participates in bonus or incentive arrangements at
the committee’s sole discretion. Currently, each participates in the
discretionary bonus scheme and the EDIP, described on pages 138 and
139 and 140 of this report respectively.
Each executive director may terminate his employment by giving his
employer 12 months’ written notice. In this event, for business reasons,
the employer would not necessarily hold the executive director to his full
notice period.
Other than in the case of Dr Brian Gilvary (who became a director on
1 January 2012), the service agreements are expressed to expire at a
normal retirement age of 60; however, such executive directors could not,
under UK law, be required to retire at this (or any other) age following
abolition of the default retirement age.
The employer may lawfully terminate the executive director’s employment
in the following ways:
t By giving the director 12 months’ written notice.
t Without compensation, in circumstances where the employer is
entitled to terminate for cause, as defined for the purposes of his
service agreement.
Additionally, in the case of Iain Conn and Dr Brian Gilvary, the company
may lawfully terminate employment by making a lump sum payment in
lieu of notice equal to 12 months’ base salary. The company may elect to
pay this sum in monthly instalments rather than as a lump sum.
The lawful termination mechanisms described above are without
prejudice to the employer’s ability in appropriate circumstances to
terminate in breach of the notice period referred to above, and thereby to
be liable for damages to the executive director.
In the event of termination by the company, each executive director may
have an entitlement to compensation in respect of his statutory rights
under employment protection legislation in the UK and potentially
elsewhere.
The committee considers that its policy on termination payments arising
from the contractual provisions summarised above provides an
appropriate degree of protection to the director in the event of termination,
and is consistent with UK market practice.
Exit payment policy
If it became necessary for the company to terminate an executive
director’s employment, and therefore to determine a termination payment,
the committee’s policy would be as follows in relation to the matters
described below:
t The director’s primary entitlement would be to a termination payment in
respect of his service agreement, as set out above. The committee will
consider mitigation to reduce the termination payment to a leaving
director when appropriate to do so, having regard to the circumstances
and the law governing the agreement. Mitigation would not be
applicable where a contractual payment in lieu of notice is made. In
addition, the director may be entitled to a payment in respect of his
statutory rights. Other potential elements are as follows. First, the
committee would consider whether the director should be entitled to an
annual bonus in respect of the financial year in which the termination
occurs; normally, any such bonus would be restricted to the director’s
actual period of service in that financial year. Second, the committee
would consider whether conditional share awards held by the director
under the EDIP should lapse on leaving or should, at the committee’s
discretion, be preserved (in which event the award would normally
continue until the normal vesting date and be treated in the manner
described on pages 139 and 140 of this report). Any such determination
will be made in accordance with the rules of the EDIP, as approved by
shareholders. Third, if the departing director is eligible for an early
retirement pension, the committee would consider, if relevant under
the terms of the plan in which the director participates, the extent of
any actuarial reduction that should be applied.
t In determining the overall termination arrangements, the committee
would have regard to all relevant circumstances, and would therefore
distinguish between types of leaver and the circumstances under
which the director left the company. This is primarily relevant to
consideration of how discretion would be exercised in relation to
conditional share awards under the EDIP. It is also relevant where a
departing director has a right to an early retirement pension. UK
directors who leave in circumstances approved by the committee may
have a favourable actuarial reduction applied to their pensions (which
has to date been 3%). Departing directors who leave in other
circumstances are subject to a greater reduction.
t The performance of the leaving director would be taken into account in
various respects. In particular, in deciding whether to exercise
discretion to preserve EDIP awards, the committee would have regard
to the director’s performance during the performance cycle of the
relevant awards, as well as a range of other relevant factors, including
the proximity of the award to its maturity date.
t The committee would also have regard to all other relevant factors,
including consideration of whether a contractual provision in the
director’s arrangements complied with best practice at the time the
director’s employment was terminated as well as at the time the
provision was agreed to.
Director leaving the board
Dr Byron Grote will be retiring from the board at the 2013 AGM, and
ceasing employment with the company soon after. Under the rules of the
EDIP, his outstanding performance share awards pertaining to the
2011-2013, 2012-2014 and 2013-2015 performance periods, as well as the
matching share awards in respect of 2010, 2011 and 2012 deferred bonus
will all be prorated to reflect actual service during the applicable three-year
performance periods. These share awards will vest at the normal time to
the extent the performance targets or hurdles are met. His 2013 bonus
eligibility will likewise be prorated to reflect his service and based on
group results for the year. He will not receive any termination payments
on leaving service.