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

Directors’ remuneration reportRemuneration policy overviewComponent Policy 2012 applicationSalaryBase salaries should be competitive relative to relevant market Peer group for executive directors includes large Europeanpeer groups.multinationals and the oil majors.Pension and otherbenefitsExecutive directors should participate in the normal pension andbenefit schemes applying in their home countries.Both UK and US executive directors remain on defined benefitpension plans reflecting respective national norms. UKdirectors, as for all UK employees who exceed the annualallowance set by legislation, may receive a cash supplement inlieu of future service pension accrual.Variable remunerationAnnual bonusDeferred bonusPerformancesharesAnnual bonus should be based on performance relative tomeasures and targets reflecting the annual plan.Achieving plan results should equate to on-target bonus.On-target bonus is set at 150% of salary for executive directorswith a maximum of 225% of salary.A portion of annual bonus should be paid in shares and deferredto add long-term sustainability and shareholder alignment toshort-term performance achievement.A large portion of total remuneration for executive directorsshould be tied to the long-term performance of the company.Shares to a value of 5.5 times salary for the group chiefexecutive and 4 times salary for the other executive directorsare normally awarded annually.Vesting of the shares after three years is dependent onperformance relative to measures reflecting the strategicpriorities of the company.Bonus measures for 2012 are:• Safety and risk management (30%).– Recordable injury frequency.– Loss of primary containment.– Process safety related major incident announcementsand high potential incidents.• Rebuilding trust (20%).– External reputation.– Internal morale and alignment.• Value creation (50%).– Operating cash flow.– Underlying replacement cost profit.– Total cash costs.– Gearing.– Divestments.– Upstream production efficiency.– Upstream major project delivery.– Refining and Marketing net income per barrel.One-third of annual bonus is deferred on a mandatory basis anda further one-third can be deferred on a voluntary basis.All deferred shares are matched on a one-for-one basis.All deferred and matched shares vest after three yearscontingent on an assessment of safety and environmentalsustainability over the three-year deferral period.The 2012-2014 share element will vest based equally on thefollowing three performance metrics:• Total shareholder return versus oil majors.• Operating cash flow.• Strategic imperatives.– Reserves replacement versus oil majors.– Process safety.– Rebuilding trust.Directors’ remuneration reportThose shares that vest are held for an additional three-yearretention period, after payment of tax on vesting.Personalshareholdingin BPExecutive directors should develop significant personalshareholding in order to align their interests with shareholders.Executive directors are required to develop, and maintain, ashareholding equivalent to five times salary, within a reasonabletime of appointment.BP Annual Report and Form 20-F 2011 145