The Institute of Directors has made a rare intervention on executive pay, urging BP shareholders to think twice before backing a decision to award $20m (£14m) to chief executive Bob Dudley in a year when the company ran up its worst-ever losses.
Simon Walker, the director general of the IoD, said the enormous remuneration deal for 2015 sent “the wrong message” to investors and other boards, given the $6.5bn annual loss and the decision to axe 7,000 jobs.
His comments came on the eve of what is likely to be a stormy BP annual general meeting in London, with the oil company facing criticism over a range of issues including controversial new drilling plans in waters off Australia.
“It is rare that the IoD intervenes on the subject of an individual chief executive’s pay. We are concerned, however, that Mr Dudley’s £14m pay package will seem unjustified to many shareholders, considering the performance of the company over the past 12 months,” said Walker.
Like other oil companies BP was hit hard by a collapse in oil prices last year, but the company argued that Dudley had done a good job in difficult circumstances.
A spokesman said: “Despite the very challenging environment, BP’s safety and operating performance was excellent throughout 2015 and management also responded early and decisively to the steep fall in the oil price.”
He added that BP’s performance had surpassed the board’s expectations on almost all of the measures that determine remuneration – and that the oil company’s investors had agreed to the pay deal.
“These clear measures derive directly from BP’s remuneration policy, which was approved by shareholders at the 2014 AGM with over 96% of the vote.”
Some of BP’s major shareholders including Aberdeen Asset Management and Royal London Asset Management have already both spoken out on the pay issue, as have proxy advisers Glass Lewis, ISS and ShareSoc.
Walker said BP was not a badly run company and its current woes are common to other firms in the sector, but the corporate governance code was clear that pay should be tightly linked to performance and that targets should be stretching and rigorously applied.
“Should the pay package be approved, it could send the wrong message to investors and other boards. We therefore urge all shareholders to scrutinise the pay deal of Mr Dudley very closely,” said the IoD boss.
BP will also face fire at the AGM from investors and conservationists concerned about whether or not a promise to be transparent over the threats to its business from climate change is being kept, about plans to drill in the Great Australian Bight and a continuing unwillingness to fully open a company archive to the public despite a commitment to do so.
In addition, there is a threat that the shareholder meeting will be one of a number targeted by Brexit campaigners to highlight their desire for Britain to leave the European Union.
The responsible investment group ShareAction says the issue of high remuneration and what it believes is a high-risk project off southern Australia are linked. The country’s offshore oil and gas authority has already rejected BP’s original application to drill four exploration wells in the Great Australian Bight because of alleged inadequacies in its plans, but the oil company has since resubmitted new plans.
Catherine Howarth, chief executive of ShareAction, said: “BP should take heed of the groundswell of opposition on remuneration. Shareholders expect to see value for money and long-term strategic thinking in exchange for high pay packets – not the pursuit of high-risk, high-cost projects like the controversial Great Australian Bight proposal.
“Investors will be keen to know how BP can justify a 20% increase in Bob Dudley’s pay when the company appears to be gambling on a project with the potential to become a second Deepwater Horizon.”
Phil Vernon, managing director of Australian Ethical Investment, criticised BP over its southern drilling plans, saying it should not be happening at a time when the world was trying to move to a low carbon economy.
“The Paris agreement increases the imperative for oil and gas companies to urgently change their portfolios to reflect the shift to a lower-carbon mix. Directing capital to costly projects like the Great Australian Bight is high risk as the world moves to cut emissions. Further, BP can’t afford the prospect of a Macondo-like oil spill in an area of such exceptional marine significance. The case against this project is both an ethical and a financial one.”
And in a third strand of attack, campaigners at Warwick University said BP was continuing to resist opening its corporate archive based on the student campus. The records are believed to contain years of BP research and development into solar and other renewable energy technologies that the company has since largely turned its back on.
At last year’s AGM, the BP chairman, Carl Henric Svanberg, insisted the archive was open to public use as part of a plan to be totally transparent about climate change issues.
guardian.co.uk © Guardian News and Media Limited 2010