BP 2014 Annual Report Download - page 83

Corporate governance
Performance shares
Ties the largest part of remuneration to long-term performance. The level varies according to performance relative to measures linked directly to
strategic priorities.
Policy summary
Operation and opportunity
 
can be awarded annually.
 
 
 
period.
Performance framework
 
 
 
 
 
fourth or fifth position.
฀ 
to be more aligned to strategic priorities. These are explained in the annual report on remuneration.
฀ 
performance of the company’s business or is inconsistent with shareholder benefits.
฀ 
other data.
Framework
Performance shares were conditionally awarded to each executive director
in 2012. Maximum awards under the policy were granted representing
five-and-a-half-times salary for Bob Dudley and four-times salary for
Dr Brian Gilvary and Iain Conn. Vesting of these awards was subject to
delivering targets set over the three-year performance period.
One third of the award was based on relative total shareholder return
(TSR), one third on operating cash flow and one third on strategic
imperatives which were relative reserves replacement ratio (RRR), safety
and operational risk (S&OR) and rebuilding trust internally and externally, all
equally weighted. Again, performance against each of these measures
was designed to be aligned with group strategy, future direction and
creation of shareholder value.
Relative TSR represents the change in value of a BP shareholding between
the average of the fourth quarter of 2011 and the fourth quarter of 2014
compared to other oil majors (dividends are re-invested). RRR represents
organic reserves added over the three-year performance period divided by
the reserves extracted. This ratio is ranked against like-for-like organic RRR
for other oil major peers.
The 2012-2014 comparator group for relative TSR (33.3% weight) and
relative RRR (11.1% weight) was Chevron, ExxonMobil, Shell and Total.
The number of conditional shares that would vest for each of the relative
performance measures for first, second and third place was set at the start
of 2012 and equals 100%, 70% and 35% respectively. This reflects the
approved rules applicable to the 2012-2014 plan. No shares would vest for
fourth or fifth place.
For S&OR, percentage improvement targets were set. For rebuilding trust
measures, the committee determined that it would use qualitative and
quantitative data to assess the improvement of external and internal
perception of the group and to gauge whether trust was being rebuilt.
Judgement would then be exercised as appropriate.
2014 outcomes
The committee considered the performance of the group over the
three-year period of the plan and the specific achievements against each of
the targets set for the measures. Based on a preliminary assessment of
relative RRR, 60.5% of the shares awarded in the 2012-2014 plan are
expected to vest.
Relative TSR did not achieve the minimum required for any vesting. The
significant weight associated with this measure (one third in total) aligns
the actual value delivered to executive directors with that to shareholders.
Operating cash flow, representing a further one third of the award, was
$32.8 billion. This notably exceeded the target set in 2011 to increase
operating cash flow by more than 50% between 2012 and 2014 at
$100/bbl. Consequently, maximum shares for this component will vest.
Strategic imperatives represented the final third. These included relative
RRR, S&OR, and rebuilding trust internally and externally. These elements
are discussed individually below.
Preliminary assessment of BP’s relative RRR indicated a positive outcome
with a minimum expected second place amongst the comparator group.
The final ranking will be determined once the actual results for 2014 have
been published by other comparator companies. For the purposes of this
report, and in accordance with the UK regulations, second place has been
assumed. Any adjustment to this will be reported in next year’s annual
report on remuneration. Based on a provisional second place assessment,
7.8% of the maximum of 11.1% shares are expected to vest for RRR.
S&OR has improved significantly over the 2012-2014 period. Loss of
primary containment showed a reduction of 32%, the number of reported
work related incidents (RIFs) reduced by 15% and tier 1 process safety
events reduced by 62%. The underlying trend of continuing improvement
over the past three years has been very positive. Consequently, the
maximum of 11.1% shares will vest for the safety measures.
In 2011, shortly after the Deepwater Horizon incident, restoring trust both
externally and internally was an important priority for the group and, as
such, featured as one of the strategic imperatives of the plan. Since then,
external and internal trust has been measured by surveys conducted with
external audiences and internally with employees. External trust is tracked
through six indicators with key stakeholders in the US and UK. Over the
three years, external surveys showed improvements ranging from one to
six percent with different external audiences.
Employee engagement is assessed by an index which measures
employees’ perceptions of BP including understanding of business
priorities, trust in BP leaders and confidence in BP’s future strategy. This
index has shown a four percent improvement since 2011 and a two
percent improvement since 2012 across different levels of the organization.
Defined on page 252. BP Annual Report and Form 20-F 2014 79