BP Annual Report and Form 20-F 2011 - Company Reporting

Directors’ remuneration reportExecutive directors’ remunerationRemuneration committeeDuring the year the committee met seven times, and was made up of thefollowing independent non-executive directors:Mr Antony Burgmans (chairman from 2011 Annual General Meeting (AGM))Mr George DavidMr Ian DavisDr DeAnne Julius was chairman of the committee until her retirement atthe 2011 AGM. Mr Svanberg has attended all meetings.The group chief executive is consulted on matters relating to the otherexecutive directors and senior executives who report to him and onmatters relating to the performance of the company; neither he nor thechairman of the board participate in decisions on their own remuneration.The committee’s tasks are set out in the board governance principles:• To determine, on behalf of the board, the terms of engagement andremuneration of the group chief executive and the executive directorsand to report on these to the shareholders.• To determine, on behalf of the board, matters of policy over which thecompany has authority regarding the establishment or operation ofthe company’s pension schemes of which the executive directors aremembers.• To nominate, on behalf of the board, any trustees (or directors ofcorporate trustees) of such schemes.• To review and approve the policies and actions being applied by thegroup chief executive in remunerating senior executives other thanexecutive directors to ensure alignment and proportionality.• To recommend to the board the quantum and structure of remunerationfor the chairman of the board.The committee operates with a high level of independence. The boardconsiders all committee members to be independent (see page 121). Theyhave no personal financial interest, other than as shareholders, in thecommittee’s decisions. Each member of the remuneration committee issubject to annual re-election as a director of the company.Gerrit Aronson, an independent consultant, is the committee’sindependent adviser as well as secretary. He is engaged directly by thecommittee and not by executive management. Advice is also receivedfrom David Jackson, the company secretary, and from the companysecretary’s office, which is independent of executive management andreports to the chairman of the board.The committee also appoints external advisers to provide specialist adviceand services on particular remuneration matters. The independence ofthe advice is subject to periodic review. In 2011, the committee continuedto engage Towers Watson as its principal external adviser, primarily formarket information. Towers Watson also provided other remuneration andbenefits advice to parts of the group. Freshfields Bruckhaus Deringer LLPprovided legal advice on specific matters to the committee, as well asproviding some legal advice to the group.The committee values its dialogue with major shareholderson remuneration matters. The committee is accountable to shareholdersthrough its annual report on executive directors’ remuneration. It willconsider the outcome of the vote at the AGM on the directors’remuneration report and take into account the views of shareholders in itsfuture decisions.Executive directors’ remuneration 2011This section contains detail on executive directors’ remuneration includingsalary, annual bonus and deferred bonus relating to 2011 and the shareelement for the performance period 2009-2011.SalaryMr Dudley’s current salary of $1,700,000 was unchanged during 2011.As reported in last year’s remuneration report, Mr Conn’s and Dr Grote’ssalaries were increased in April 2011 to £730,000 and $1,442,000respectively, their first increase since 2008.Annual bonusFrameworkAll executive directors were eligible for an overall annual bonus, includingdeferral, of 150% of salary at target and a maximum of 225% of salary.Mr Dudley’s annual bonus was based entirely on group results andMr Conn’s and Dr Grote’s based 70% on group results and 30% on theirrespective segment and function.Measures and targets for the annual bonus were set at the start ofthe year and were derived from the company’s annual plan which, in turn,reflected its strategic priorities of reinforcing safety and risk management,rebuilding trust and reinforcing value creation. Targets are set so thatmeeting plan equates to on-target bonus.At group level, the safety and risk management componentincluded targets for recordable injury frequency, loss of primarycontainment and implementation of change programmes. Rebuilding trustwas focused on external reputation as measured by external surveys andinternal morale as measured by surveys. Finally, the value componentincluded measures for underlying replacement cost profit, total cashcosts, upstream operating cash and downstream profitability.Mr Conn’s Refining and Marketing segment similarly includedtargets for various safety measures, onstream availability, cost efficiencyand profitability. Dr Grote’s functional segment included measures for ISTcompliance, succession and divestments.Apart from the specific measures set out, the committee mayconsider any other results that it deems relevant and apply its judgementin determining final bonus scores.ResultsOutcomes for the year are summarized in the table below, with a moredetailed explanation following.2011 bonus measures and outcomesKey measures for 2011 bonusBelow target On target Better thantargetSafety and risk managementRecordable injury frequencyLoss of primary containmentImplementation of changeprogrammesRetaining and building capabilityRebuilding trustExternal reputationInternal alignment and moraleRestoring valueUnderlying replacement cost profitTotal cash costsUpstream operating cashRefining and Marketing profitability142 BP Annual Report and Form 20-F 2011