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UK: Shell at risk of investor pay revolt

by Kate Burgess and Ed CrooksFinancial Times
May 5th, 2009

Royal Dutch Shell is facing the risk of a shareholder rebellion over pay for the second successive year after two influential investor advisory groups raised concerns about discretionary pay awards made to board-level executives.

RiskMetrics, which provides advice on voting to investors including members of the National Association of Pension Funds, has recommended a vote against Shell’s remuneration report at its annual meeting on May 19.

The Association of British Insurers’ voting service has also issued an “amber top” alert on Shell’s pay report, warning its members of a potential breach of good governance.

Shell is asking its investors to approve the board’s decision to make a performance-based award of shares to executive directors, even though the group has failed to reach set targets for shareholder returns.

Shell’s incentive scheme for senior executives was set up to pay out according to the company’s performance against its peer group of “big five” international oil companies (ExxonMobil and Chevron of the US, BP of the UK and Total of France).

Under the scheme’s terms, it was intended that executives would be paid nothing if Shell ranked fourth or fifth in that group by total shareholder returns during 2006-08.

The group ranked fourth but the remuneration committee, led by Sir Peter Job, the former Reuters chief executive, decided to award half the shares they would have received if the company had been ranked third. The value of the award has not been disclosed.

Shell has argued that while it ranked fourth, the difference with the third-ranked company was “marginal” and “Shell’s overall performance warranted discretion”.

But a voting adviser to shareholders said: “It is excessive application of discretion.” The vote on May 19 follows shortly after BP faced shareholder protests over its decision to pay directors a bonus even though the group failed to beat set targets.

It is also the second year that shareholders have raised concerns about Shell’s pay plans.

The latest award comes after Jeroen van der Veer, the chief executive who steps down at the end of June, was paid a total of €10.3m (£9.2m) in 2008, up 58 per cent on his remuneration in 2007. His package included €2.69m and €386,946 from long-term incentive plans related to performance in 2005-07 during which Shell also ranked fourth in its peer group.

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