Shell Answers Investor Concerns With Executive Pay Cut

LONDON (Dow Jones), Feb. 16, 2010

Royal Dutch Shell PLC Tuesday proposed changes to the way it pays its executive directors in an attempt to assuage concerns that led to shareholders rejecting its remuneration package last year.

The proposals constitute a significant step toward greater pay restraint at one of the world's largest companies at a time when excessive awards to executives, particularly at banks, are a political hot potato.

The salaries of Shell's new Chief Executive, Peter Voser, and Chief Financial Officer, Simon Henry, will be 20% lower than those paid to their predecessors and will be frozen from July 2009 until January next year, according to proposals outlined in a letter from the chairman of Shell's remuneration committee, Hans Wijers. The letter has been posted on the company's Web site.

However, the maximum award of shares to the Chief Executive under the performance-related Long Term Incentive Program would be increased from two times to three times salary, "thereby providing greater alignment with shareholders' interests," the letter said.

Shell has broadened the criteria by which this performance is assessed. Formerly, the only measure of performance was comparing total shareholder return against Shell's peer group of integrated oil companies. Now this has been broadened to include earnings per share, net cash flow from operations and oil and gas production.

The main concern that led to shareholders' rejection of last year's pay package was that directors were awarded a share bonus under the company's Long Term Incentive Plan despite performance targets being missed. The new proposals would prevent the remuneration committee from doing this, the letter said, although only for 2010. "In future, there will be no use of upward discretion in the vesting of these plans without prior shareholder engagement," Wijers said.

The proposals are the result of a "wholesale review of remuneration policy" and extensive consultations with Shell investors, following a highly unusual vote at the company's annual general meeting last year in which 60% of shareholders rejected the executive directors' remuneration package, the letter said.

"I believe there was broad support [from shareholders] for the direction we are taking," wrote Wijers.

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