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By Matthew Quinn
Following a shareholder revolt over executive compensation in May, Royal Dutch Shell announced major changes to its pay practices on Tuesday, including salary freezes for its CEO and CFO until 2011 and new bonus guidelines.
Investors were infuriated that Shell executives were granted bonus payments even when performance goals were missed. The remuneration committee awarded board members half the shares they would have received if the company had placed third in a peer group based on total shareholder return, even though they finished fourth in the group.
The oil company said that the salaries of its CEO and CFO, who both took over their positions last year, are 20 percent less than what the previous CEO and CFO were paid. That effectively means that Simon Henry, Shell's CFO, will make a fifth less than what the company's CEO, Peter Voser, used to make, since he had held the top finance position since 2004 before becoming chief executive in July 2009.
The chairman of Shell's remuneration committee, Hans Wijers, said in a letter to shareholders that their "initial feedback to us was that the basic structure of the remuneration policy at Shell is still appropriate going forward, but that there needed to be changes in various elements, in order to better align the remuneration policy with shareholder interests and the company's long-term strategy."
Wijers took over as head of the pay committee in October from Peter Job, who stepped down from that role after shareholders blasted him over bonuses paid to executives this year. In May, more than 59 percent of shareholders voted against Shell's 2008 remuneration report.
Under the new compensation guidelines, vested shares awarded under the company's long-term incentive plan must be held for two years.
Annual bonuses will no longer be tied to total shareholder return. Rather, they will be based on project delivery, operational cash flow, operational excellence and sustainable development.
Shell also will require its CEO to hold shares valued at three times his or her salary. The current guideline requires just two times salary. The current shareholding guideline is two times salary.
Wijers said this will provide "greater alignment with shareholders' interests."
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