Shell freezes pay of top executives
• Shell responds to last May's shareholder revolt over pay
• Salaries frozen until 2011, with pledge on bonuses and targets
Zoe Wood
@zoewoodguardian
Shell has frozen salaries after a row with shareholders. Photograph: Leon Neal/AFP/Getty Images
Royal Dutch Shell has today bowed to pressure from major investors by announcing a major overhaul of executive pay. It will freeze the salaries of top directors and set new limits on bonuses.
The oil group has been in talks with major shareholders since the embarrassing revolt at last May's annual meeting when 60% voted against a pay deal that included discretionary bonuses for top directors who had failed to hit targets.
The chief executive, Peter Voser, and finance director Simon Henry will have their salaries frozen until January 2011. Their pay is already 20% less than their predecessors'. The company said the move demonstrated "appropriate restraint in the current economic environment".
In a letter to shareholders setting out the changes, Hans Wijers, chairman of the remuneration committee, said the freeze aimed to "better align remuneration policy with shareholder interests and long-term strategy".
Shell said it had conducted a "wholesale review" of pay since the May showdown and had drafted the proposals with the help of external consultants.
Wijers, who took over the post in September, said that while investors had accepted the "basic" structures were correct they had demanded change elsewhere.
Base salaries are frozen and new appointment salaries will be lower. In the letter Wijers promised there would be no review of salary, bonus, and share levels until 1 January 2011.
The company also said directors would no longer be allowed to award management bonuses if they missed targets.
Furthermore, it is introducing a new "individual performance" element to payments. With the goal of increasing personal accountability for short-term results among senior managers they will be scored by Voser, affecting the payout.
The company will also demand executives own more shares, and keep them for longer, to better entwine their fortunes with the company. The previous shareholding guideline for the chief executive was two times salary but that will now rise to three.
"I believe that holding shares probably aligns executive interests with those of shareholders better than any long-term incentive plan," said Wijers.
Shell has also ruled that executives must hold long-term incentive plan shares for two years after qualifying for them.
Wijers conceded that shareholders still had reservations, particularly over targets within the long-term incentive plan, but added: "In the absence of perfect metrics we will have to work with these new measures and adapt as necessary … However, I do believe these proposals will provide an improvement and sit within more broadly balanced structures."
In the letter Wijers promised more transparency around executive pay in general, with the 2009 annual report to spell out remuneration of current as well as former directors. This would include the head of its gas business, Linda Cook, who quit with a controversial golden goodbye, and former chief executive Jeroen van der Veer, who also left last year.
Oil and gas companies
Executive pay and bonuses