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

Directors’ remuneration reportSafety and risk management performance was strong with most targetsexceeded. Loss of primary containment showed a 14% reduction onthe number of incidents that occurred in the previous year and processsafety related high potential incidents dropped 26% – both metricsare important indicators of process safety performance. Recordableinjury frequency was better than target. A major change programmerelated to safety and risk management progressed very well. A centralpart of this was the completed implementation of the safety andoperational risk function as a group-wide organization independent of linemanagement. The change programme also included a major upstreamreorganization, the introduction of a contractor management process,global rollout of a values and behaviours charter, implementation of a newindividual performance and reward framework and completion of a riskmanagement review.Rebuilding trust showed some early signs of improvement butwith clear work remaining to be done related to the long-term impactof the Deepwater Horizon oil spill. Independent external surveysreflect some recovery of trust and reputation in key markets as theyear progressed. Internal employee alignment and morale remainedencouragingly strong through a difficult period for the company. Employeesatisfaction, as measured by survey, was near pre-Deepwater Horizonlevels and a new ‘progress index’ was implemented to track specificemployee alignment related to the company’s strategic priorities.Rebuilding value measures were at or near target. Relative totarget, underlying replacement cost profit was around 90% and total cashcosts were 7% above. Upstream operating cash was some 3% betterthan target and Refining and Marketing profitability met its plan level.Refining and Marketing had a strong year overall with record earnings,good safety, and high utilization availability.Based on these results, the committee assessed groupperformance to be on-target. Mr Dudley therefore received a total bonusof 150% of salary including deferral, reflecting on-target performance.Mr Conn’s total bonus of 165% of salary reflected achievements abovetarget for the Refining and Marketing segment. Dr Grote’s total bonus of150% of salary reflects on-target results at both group and function level.Of the total bonuses referred to above, one-third is paid in cash,one-third is deferred on a mandatory basis and one-third is paid eitherin cash or voluntarily deferred at the individual’s discretion. Amounts, asreceived by the individuals, are shown in the table on page 141.Deferred bonusOne-third of the total bonus awarded to the executive directors is deferredinto shares on a mandatory basis under the terms of the deferred bonuselement. Their deferred shares are matched on a one-for-one basisand will vest in three years contingent on an assessment of safety andenvironmental sustainability over the three-year deferral period.Individuals may elect to defer an additional one-third into shareson the same basis as the mandatory deferral. All three executive directorschose to participate in the voluntary deferral. Again this is reflected in thetable on page 141.All deferred bonuses will be converted to shares based on theaverage price of BP shares over the three days following the company’sannouncement of 2011 results (£4.91/share, $46.70/ADS).ResultsReflecting the impact of the Deepwater Horizon oil spill, the TSR,production growth and net income growth measures for the three-yearperiod 2009-2011 were all below the third place required for vesting.Refining and Marketing profitability was strong and based on a firstplace ranking achieved full vesting for that portion. Based on the agreedformula, this resulted in a vesting of 16.67% of the original award.The committee considered this result was a fair reflection ofoverall performance over the period. The resulting shares and value of thevesting is shown in the table on page 149.2011 total remuneration outcomesThe charts below summarize the actual total remuneration outcome of2011 for each of the executive directors.The salary is the amount actually received during the year andthe cash bonus reflects the portion of total bonus for 2011 that isreceived in cash.The deferred bonus reflects that portion of total bonus for 2011that is deferred, either on a mandatory or voluntary basis. The valueshown is converted to shares, matched one-for-one and vests after threeyears contingent on the review of safety and environmental sustainabilityover the three years.Finally the share element portion reflects the value of the vestingthat occurred for the 2009-2011 plan. These shares now enter a furtherthree-year retention period before they are released to the individual.2011 total remuneration outcomesR W DudleySalaryCash bonusDeferred bonus (before match)Share element vestingI C ConnSalaryCash bonusDeferred bonus (before match)Share element vesting$1,700£626$688£792$850$1,700£720£396thousandDirectors’ remuneration report2009-2011 share elementFrameworkPerformance shares were awarded to each executive director in early2009 with vesting after three years dependent on performance relativeto measures reflecting the company’s strategic priorities at the time. Forthe 2009 plan, vesting was based 50% on total shareholder return (TSR)versus the oil majors, and 50% on a balanced scorecard of underlyingperformance factors versus the same peers. The underlying performancefactors were production growth, Refining and Marketing profitability, andunderlying net income growth. The peer group included ExxonMobil,Shell, Total, Chevron and ConocoPhillips. Vesting was set at 100%, 70%and 35% for performance equivalent to first, second, and third rankrespectively and none for fourth or fifth place.Dr B E GroteSalaryCash bonusDeferred bonus (before match)Share element vesting$1,267$1,427$1,427$713BP Annual Report and Form 20-F 2011 143