BP 2014 Annual Report Download - page 77

Corporate governance
Performance shares
The 2012-2014 performance share plan was, as in the previous year, based
on three sets of measures equally weighted; relative total shareholder
return (TSR), operating cash flow and finally strategic imperatives, which
include relative reserves replacement ratio (RRR), safety and operational
risk and rebuilding trust. The committee made its assessment of
performance over the three-year period against the agreed targets and its
view of the achievements over that time. There were no shares awarded
for TSR as the minimum threshold was not reached. As I have mentioned
above, there was strong performance against the safety measures and the
committee exercised its judgement based on qualitative data in respect of
the need to rebuild trust. As for 2013, the assessment was preliminary as
the final results from the comparator group for RRR were not available. On
the basis of information available, second place was recorded. Based on
this preliminary assessment, 60.5% of the shares are expected to vest.
The committee believes that this represents a fair outcome for a
continually improving performance over the period. Again, there is
retrospective disclosure of many of the targets used for the 2012-2014
performance share plan in this report.
2015 and the future
During 2014, BP set out a clear proposition to shareholders aimed at
delivering value rather than volume through active portfolio management,
growing sustainable free cash flow through capital discipline and growing
distributions for shareholders. The company’s key performance indicators
(KPIs) are designed to measure performance against this proposition. The
committee is determined that the remuneration of the directors remains
clearly linked to the company’s strategy. There has been a refocus of some
of the measures for the 2015 annual bonus to reflect this and the current
short-term imperatives facing BP. The graphic below sets out BP’s
strategic priorities and links them to the measures used for short and long
term remuneration with further detail in this report.
Previously, the committee reviewed the executive directors’ salaries in
May each year. In future, it will do so in January for implementation in April,
at the same time as the rest of the organization. Given the general company
pay freeze, no salary increases were awarded to directors for 2015.
Policy issues
In 2014, the UK Corporate Governance Code was revised. The Code
introduced, on a ‘comply or explain’ basis, a requirement to introduce
malus and clawback provisions into all performance related elements of
directors’ remuneration. The committee has reviewed the terms of the
executive directors’ remuneration and confirmed that malus and clawback
provisions exist in all terms save the cash element of the annual bonus. It
will propose an appropriate provision on the next occasion that it renews
the remuneration policy. The committee also undertook a detailed
examination of its tasks. The changes that have been made are set out in
more detail later in this report.
Conclusion
Whilst BP has performed well in recent years and momentum has been
building, there are clearly more challenging times ahead. We have set out
our approach in this changing world. It is likely that, within our policy, we
will need to exercise judgement and discretion based on solid data. Should
we be required to do so, it will be done within our policy and with
subsequent disclosure so that our shareholders are clear on the decisions
that we have taken.
Finally, I will be standing down as the chair of the committee in June and I
will be succeeded by Professor Dame Ann Dowling. Ann has sat on the
committee after joining the board in 2012 and I look forward to introducing
her to our shareholders. I would like to thank our shareholders for the
support, and the challenge, over the past four years.
Antony Burgmans
Chairman of the remuneration committee
3 March 2015
Grow our
exploration
position
Focus on
high-value
upstream
assets
Quality portfolio
Build high-quality
downstream businesses
Proven
expertise
Strong
relationships
Distinctive capabilities
Advanced
technology
2015 bonus and equity plans supporting BP’s strategic priorities
Short-term: annual bonus Long-term: performance share plan
Safety and operational risk Safety and operational risk
Operating cash flow Operating cash flow
Underlying replacement
cost profit Net investment (organic) Total shareholder return
Major projects delivery Corporate and functional costs Major projects delivery Reserves replacement
Creating long-term shareholder value
Strategic priorities
Disciplined
financial
choices
Competitive
project
execution
Clear priorities
Safe, reliable and
compliant operations
Defined on page 252.
Group key performance indicator. Safety and operational risk KPIs include loss of primary containment, tier 1 process safety events★ and recordable
injury frequency.
BP Annual Report and Form 20-F 2014 73