Some of BP’s largest shareholders are going to battle with the energy giant today over the CEO’s massive pay rise.
In March, CEO Bob Dudley received a huge 20% boost to his overall total pay package, reaching $19.6 million. His base salary remains at $1.8 million, the rest of the $19.6 million for his total pay package is made out of bonuses, share awards, and pension investments.
In other words — his salary stayed the same but his bonus and other elements of his pay deal increased.
Now this may seem normal for an executive pay package at one of the largest companies in the world but Dudley got this pay rise despite BP losing $5.2 billion in 2015 due to the oil price crash that saw oil falling from triple digits in the summer of 2014 to around $35 per barrel right now.
Major fund managers Aberdeen Asset Management and Royal London Asset Management have previously spoken out against the pay rise while other shareholders Glass Lewis, ShareSoc, Pirc and ISS have also advised a vote against.
Shareholders get a binding vote on BP’s pay policy every three years.
On Wednesday, the Institute of Directors weighed in and said that Dudley’s pay increase risks sending “the wrong message to other companies.”
Here is the full statement (emphasis ours):
It is rare that the IoD intervenes on the subject of an individual chief executive’s pay. We are concerned, however, that Mr Dudley’s £14 million pay package will seem unjustified to many shareholders, considering the performance of the company over the last 12 months.
BP is not a badly run company, and its current woes are common to other firms in the sector. Nevertheless, the UK Corporate Governance Code is clear that pay should be tightly linked to performance and that targets should be stretching and rigorously applied. Should the pay package be approved, it could send the wrong message to investors and other boards. We therefore urge all shareholders to scrutinise the pay deal of Mr Dudley very closely.
If his pay deal is approved, but with a significant minority voting against, the BP board must explain how it will engage with this group of shareholders — they cannot and should not be ignored.
On BBC’s Today programme, Tim Bush, head of governance at the investors’ advisory consultancy Pirc, said BP’s “pay model is broken” and that “there is a major problem in the way chief executives are recruited and paid.
Last month, the company defended the move in its annual report by saying that the pay package was because of Dudley’s improvements to the company’s safety, project management and cost-cutting.
“Despite the very challenging environment, BP delivered strong operating and safety performance throughout 2015 and responded early and decisively to the steep fall in oil price” said Ann Dowling, chair of BP’s remuneration committee.