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U.K. Pay Plans CriticizedSubmitted by: L. Reed Walton, Publications

After more than one-third of investors protested executive pay practices at energy firm BP, executive retention bonuses and stock plans at other large U.K. firms may also see opposition this year.

According to a BP release, 9 percent of shares were voted against last year?s pay packages at the April 18 annual meeting. An additional 27 percent withheld their votes, amounting to a cumulative 36 percent not cast in favor of the remuneration report, according to news reports. BP spokesman David Nicholas told Risk & Governance Weekly that the company does not count votes withheld as cast either ?for? or ?against.?

The protest votes, which are the largest at a U.K. company so far this year, came in response to the company?s award of £1.5 million ($3 million) retention bonuses to two executives who were passed over for the CEO?s post. The executives, Iain Conn and Andy Inglis, were in the running for the top spot at the London-based company after former CEO Lord John Brown resigned in 2007. The board decided to offer the retention bonuses to Conn and Inglis in February as incentive to stay with the company after a third candidate, Tony Hayward, was named CEO. Conn and Inglis will receive the bonuses in the form of stock awards that vest over the next three years.

Prior to the meeting, the Association of British Insurers (ABI), whose members hold approximately 20 percent of stocks listed on the London Stock Exchange, weighed in on retention bonuses. Though the association does not make vote recommendations for its members, the ABI sent a letter to compensation consultants warning them of possible shareholder opposition to one-off retention bonuses. In the letter, which was sent to many of the large global pay consultancies--including BP?s primary adviser Towers Perrin--the ABI wrote that non-performance-based awards to unsuccessful executive candidates should be the exception rather than the rule in pay decisions. The ABI letter did not mention any companies by name.

?The issue of retention pay-outs is becoming one which gives shareholders serious food for thought especially when no consultation is advanced,? Peter Montagnon, director of investment affairs for ABI, told the Financial Times.

DeAnne Julius, a director at BP who also previously served as chief economist for Royal Dutch Shell Group, defended the retention bonuses. Julius told the U.K. newspaper The Daily Mail that the payments were intended to signify important safety improvements and make up for the reduced bonuses paid in 2007 due to a legal action against BP officers and directors because of a 2006 oil spill in Alaska, and a 2005 Texas oil refinery explosion that killed 15 people. BP agreed to settle a shareholder derivative suit in early April by instituting a number of governance reforms. (For more on this settlement, please see the ?Global Roundup? section of the April 11 issue of Risk & Governance Weekly).

Hayward?s 2007 bonus was about £1 million ($2 million) less than that earned by his predecessor, Lord Browne, the London-based Independent reported. The article also noted that Conn and Inglis received lower bonus payments for fiscal 2007.

These assurances did not seem to mollify investors, who expressed greater dissatisfaction than last year, when shareholders voted about 17 percent of shares against the pay report in protest of Lord Browne?s £5 million ($10 million) exit package. Shareholder Standard Life Investments has voted against BP?s remuneration packages since 2006. Standard Life spokeswoman Hilda Stewart told R&GW the organization could not comment on its BP proxy votes this year.

Full post as published by Institutional Shareholder Services -- Corporate Governance Blog on April 28, 2008 (boomark / email).