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

Directors’ remuneration reportRemuneration policyThis section provides information on principles underlying the company’sremuneration policy followed by an overview and an in-depth review ofthe policy.Remuneration principlesRemuneration policy for executive directors is guided by key principles:• Link to strategy – A substantial portion of executive remunerationshould be linked to success in implementing the company’s businessstrategy.• Performance linked – The major part of total remuneration should varywith performance, with the largest elements share based, furtheraligning interests with shareholders.• Long-term based – The structure of pay should reflect the long-termnature of BP’s business and the significance of safety andenvironmental risks.• Rigorous process – Performance conditions for variable pay should beset by the committee at the start of each year and assessed by thecommittee at the end of each performance period. Assessment shouldtake into account material changes in the market environment(predominantly oil prices) and BP’s competitive position (primarilyvis-à-vis other oil majors).• Informed judgement – There should be both quantitative and qualitativeassessments of performance with the committee making an informedjudgement within a framework approved by shareholders.• Fair treatment – The committee reviews the pay policy and levels forexecutives below board, as well as pay and conditions of employeesthroughout the group. These are considered when determiningexecutive directors’ remuneration. Salaries should be reviewed annually,in the context of the total quantum of pay, and taking into account bothexternal market and internal company conditions.• Personal shareholding – Executives should develop and be required tohold a significant shareholding as this represents the best way to aligntheir interests with those of shareholders.• Shareholder engagement – The remuneration committee will activelyseek to understand shareholder preferences and be transparent inexplaining its remuneration policy and practices.The chart below shows the range of results possible for the group chiefexecutive depending on performance outcomes.The on-target column assumes one-third of total bonus is deferredand matched, and the share element is valued at half the award.The maximum column assumes that two-thirds of the total bonusis deferred and matched, and full vesting of the share element.Range of pay outcomes based on performance% of salary1,2001,000800600400200Share elementDeferred bonus including matchingCash bonus received after deferralSalaryMinimum On-target MaximumRemuneration is strongly performance dependent:• Bonus based on metrics from annual plan.• Deferred bonus vesting based on additional safety and environmentsustainability assessment.• Share element based on metrics reflecting strategic priorities.It is also heavily weighted towards the long term:• Deferred bonus – three years.• Share element – six years.These principles result in a remuneration policy that is directly linked tostrategy, strongly performance related and heavily weighted towards longterm.144 BP Annual Report and Form 20-F 2011