Institutional shareholders have welcomed an announcement by Shell, the Anglo-Dutch oil giant, that it plans to limit top executives’ pay and include sustainable development as a significant part of performance bonuses. Shell said the move followed lengthy talks with shareholders, many of who revolted against the company’s pay plans at its AGM in May, 2009 when 60% voted against. Erik Breen, head of responsible investment at Robeco Investment Management, said: “This has been a good process and more companies could look at this example. We are pleased with the outcome.” Breen led large-scale Dutch shareholder opposition last year to the oil giant’s plans to award millions of pounds of shares to executives despite missing performance targets. Shell said its 2010 pay measures followed months of “open and constructive dialogue” with shareholders. In the letter to shareholders, it announced that the salaries of chief executive Peter Voser and chief financial officer Simon Henry would be frozen until 2011. Shell remuneration committee chairman Hans Wijers said the company wanted to “demonstrate appropriate restraint in the current economic environment” and increase “alignment between executive and shareholder interests”.
Breen said shareholders were satisfied with Shell’sproposal that there would be no use of upward discretion in the vesting of long-term incentive plans without prior shareholder engagement. He said he welcomed the fact that total shareholder return had been removed as a metric for executive performance. And he pointed to the company’s decision to increase the role of sustainability in executive performance evaluation as a positive response to shareholder lobbying. In future 20% of performance will be benchmarked to criteria used for the Dow Jones Sustainability Index. Breen stopped short of referring to Shell’s volte-face in terms of a victory for shareholders. He said: “It’s not about winning because that would imply losing on the other side.” Looking forward to Shell’s AGM in May, Breen said shareholders would seek further sustainability improvements: “We’ll keep wanting the best of the company as a whole but we do understand that it is a long-term process.”
Last month a group of UK institutional shareholders including the Co-operative Asset Management and the Unison Staff Pension Scheme, filed a shareholder resolution for Shell’s 2010 AGM calling on the company to report on the investment risks associated with controversial oil sands projects in Canada. Shell is also
under pressure from Church investors, whose members control or advise on over £17bn in assets, to adopt a ten-point plan to combat environmental and social damage in the Niger Delta. A study by the London-based Ecumenical Council for Corporate Responsibility (ECCR), recommends measures such as ending gas-flaring, cleaning up pollution, ensuring local communities have access to clean drinking water and carrying out a full environmental audit.Shell currently faces a lawsuit in the Netherlands lodged by Friends of the Earth over alleged oil pollution in Nigeria. ECCR Co-ordinator Miles Litvinoff, said: “The case studies in our report identify opportunities for Shell to do things better in the Niger Delta. After years of unresolved community tensions, Shell could reap benefits by making accountability to local people a higher priority.”