BP’s (LSE: BP) chief executive Bob Dudley is facing a shareholder revolt at the company’s annual general meeting today over his 20% pay rise.
Mr Dudley is set to receive a pay rise of 20% for 2015, taking his total salary package to £14m, despite the fact that the company reported a record loss only a few months ago.
Lower crude prices coupled with continuing liabilities emanating from the Gulf of Mexico oil spill in 2011 led BP to report a record loss of $6.5bn for 2015. And alongside the company’s full-year 2015 results announcement BP also revealed that it was slashing a further 7,000 jobs as part of its plan to lower costs.
A mix of benefits
Dudley’s £14m or $20m pay package is a combination of cash, shares, and pension payments. The company has pointed out that the 2015 total pay package was swollen by an additional $3.5m pension adjustment to bring payments under Dudley’s US pension scheme back in line with UK financial regulations.
Dudley’s pay rise has been met with a storm of criticism from media outlets and shareholders alike. The BBC reports that shareholder group Sharesoc has branded the pay deal “simply too high,” while Glass Lewis, ShareSoc, Pirc and Institutional Shareholder Services have also expressed their opposition. However, BP has sought to defend the pay rise stating that: “Despite the very challenging environment, BP delivered strong operating and safety performance throughout 2015…The oil price is outside BP’s control, but executives performed strongly in managing the things they could control and for which they are accountable…”
This statement immediately drew criticism from Stefan Stern, a director at the High Pay Centre: “This is another example of where a company has lost contact with reality – as well as the English language. Talking about bonuses and performance-related pay at a time of crisis in the industry does not seem like the real world.”
How should you react?
According to the BBC, it’s expected that 20% to 25% of shareholders could vote down Dudley’s pay package at BP’s AGM. But even if shareholders block the pay rise, the vote is “advisory”, so even a vote against wouldn’t require the company to change the remuneration policy.
BP’s executive compensation policy is subject to a binding shareholder vote every three years. So, shareholders are effectively giving management the green light to set pay levels up to three years in advance.
The question is, should existing shareholders be worried?
Well, aside from the moral issues surrounding the pay issue, it’s difficult to answer this question. For a company of BP’s size, an additional £4m or so in pay for the CEO is a drop in the ocean – it won’t force the company to cut shareholder distributions to save cash. Moreover, Dudley’s remuneration is in line with the oil industry average. Shell chief executive Ben van Beurden received $26m in 2014.
Overall, Bob Dudley’s 20% pay hike may seem out of touch with reality, but the company can afford the payout and BP’s 7.7% dividend yield is safe for the time being