Oil giant Royal Dutch Shell suffered a shareholder revolt yesterday amid fury over executive pay.
The group saw about 59.4% of investors vote against its remuneration report at the annual meeting held in The Hague and London.
Shell has come under fire after making huge payouts as part of its long-term incentive plan, despite missing performance targets.
The shareholder rejection – a rare occurrence in UK corporate history – is only advisory and does not mean the pay deals will be thrown out automatically.
Sir Peter Job, chairman of Shell’s remuneration committee, said: “We take this outcome very seriously and we’ll reflect carefully on it.
“We have already introduced additional performance measures for future awards, reflecting comments from shareholders.”
According to Shell’s annual report, chief executive Jeroen van der Veer, who received a package worth £8.2million in 2008, was awarded 77,518 shares, worth almost £1.3million at current prices.
The UK-Dutch firm maintained it had used its discretion under previously agreed rules when deciding on the bonuses. Its incentive award targets are largely based on its performance against peers BP, Chevron, ExxonMobil and Total.
Despite record £22billion profits last year on soaring oil prices, Shell was ranked fourth out of five. This should have meant no share awards were made under its long-term incentive plan (LTIP), but Shell’s remuneration committee decided that the difference between third and fourth place had been “marginal” and therefore allowed payouts of 50% of the maximum entitlement.
The group said it outlined plans each year in its annual report on how it would use other measures to assess bonus windfalls in cases where the ranking did not fully reflect Shell’s relative performance.
Yesterday’s vote demonstrated investor discontent at the decision and came after at least two voting advisory firms recommended that investors throw out the report, including the Association of British Insurers. ABI director of investment affairs Peter Montagnon said in response to the shareholder vote: “This shows that shareholders are very wary about how discretion is used and want to hold remuneration committees to account.”
The Co-operative Asset Management – an institutional shareholder which voted against the Shell remuneration report – welcomed yesterday’s AGM result.
Its corporate governance analyst, Abigail Herron, said: “It is time that the company listened to its shareholders.
“This is a serious shot across the bows; Shell should re-appraise its whole remuneration package and put it back to the vote of its shareholders.”
Shell said it had regular engagements with major shareholders and would be discussing the implications of the vote with them. The vote marks the latest in a line of shareholder protests over pay, although only a few have previously resulted in a majority rejection.
Last month, housebuilder Bellway’s shareholders voted down a controversial bonus payment of £630,000 to executives after a disastrous year for the group.
Others to suffer investor defeats over pay deals include GlaxoSmithKline in 2003 and more recently the Royal Bank of Scotland amid the furore over Sir Fred Goodwin’s pension payment.