Royal Dutch Shell has severed the link between executive bonuses and the Dow Jones Sustainability Index.
Responsible Investor had reported in October 2010 that the oil giant was reviewing whether to use the DJSI as a bonus metric after it was dumped from the benchmark in what executives termed a “subjective” decision.
Dow Jones and its partner SAM, the sustainable investing arm of Robeco, dropped Shell from the index in September 2010 after deleting rival BP in June following the Gulf of Mexico oil spill.
Now Hans Wijers, the chairman of Shell’s remuneration committee, has written to investors informing them that it had to consider its exclusion from the DJSI “notwithstanding improvements in our 2010 DJSI score”.
“In consultation with shareholders, the Remuneration Committee therefore determined to exercise downward discretion and set the DJSI-based element of the 2010 Executive Directors’ Scorecard to zero.”
The link to DJSI was only introduced for 2010 as part of a set of metrics to make executive bonuses, according to the 2009 annual report, “more closely aligned withthe year-by-year delivery of Shell’s business plans and the safeguarding of Shell’s licence to operate”.
The index was given a 20% weight in bonus payments. In March 2010 Wijers said it “sharpened the pay link to sustainable development”, making a point of its external assessment factor.
For 2011, Shell will link 10% of each executive’s bonus to its own environmental criteria, relating to operational spills, energy efficiency and water usage.
“We believe that short-term annual bonus targets should be tied to Executive Directors’ annual performance and year by year business priorities and measureable KPIs (key performance indicators),” Wijers said.
Wijers, who also heads Dutch industrial group Akzo Nobel and is a former Dutch Minister for Economic Affairs, in addition writes that the company has reviewed aspects of executive director contracts at the request of some shareholders
He added the firm will meet shareholders in London and Amsterdam for “further engagements” in April. Shell’s remuneration report is due to be published on March 15.