BP could be in a collision with investors over a bonus of up to PS11.4million for its chief executive. This is due to booming energy prices after Russia’s invasion.
Bernard Looney could receive the amount under a three year share award plan that began in 2020. BP is consulting investors before the annual report to determine whether it should reduce the size of Looney’s windfalls and that of senior executives.
Strong opinions have already been expressed about the FTSE 100 giant. One shareholder stated that the payouts at the top of the range would be “quite a blatant grab”, given the massive rally in oil prices.
Political pressure would mount on BP if investors clash over pay. BP has also been subject to calls from the left for higher windfall tax rates. Looney is also under fire because BP’s ambitious renewable energy strategy has caused its share price to fall behind those of rivals that are more dependent on fossil fuels. BP had to cancel its plans to reduce oil production by 40% this month.
BP’s executive compensation package includes shares that mature after three year. Looney gets five times his salary, while Murray Auchincloss is the finance director and receives four-and-a half times.
When the 2020-22 plan was drafted in August 2020, BP’s share prices were at their lowest point. Covid lockdowns had smashed energy demand. Looney was given just over 2 million shares at a PS3.08 price. This gave it a face value of PS6.4 million. Auchincloss received almost one million shares, with a face worth of PS3.1million.
BP shares have risen to PS5.50 since then, boosted by higher oil and gas prices, and this month’s strategic Uturn. Looney would get PS11.4 million and Auchincloss PS5.5 millions if the scheme was fully paid off. These payments would be in addition to salaries and annual bonuses. Looney’s package would reach PS15.4 million while Auchincloss would receive PS7.7million, provided that other elements remain the same.
The total shareholder returns, the return on capital, strategic progress and peer group all determine the size of the payouts. The average payout percentage from similar schemes over the last decade has been 50 percent. One investor claimed that BP was preparing to pay its top executives. According to him, the company was evaluating ways to increase pension benefits and pay more cash bonuses each year. There is less deferral of shares. Looney, Auchincloss accept cash as an alternative to pension contributions. He stated that “a lot of people are going against this, even us.”
This year, the stakes are especially high because BP’s remuneration policies will be subject to a binding 3-year vote.
BP declined comment. Paula Rosput Reynolds (head of the pay committee) noted that Covid was “uncharted territory”, and stated that the plan would need to be “adjusted to the circumstances as they develop”. She stated that her committee would exercise “judgment in applying discretion” and that they would take great care to determine the timing of equity awards.