BP's chief executive Bob Dudley's total remuneration for 2016 was cut by 40 per cent as the oil major announced a new remuneration policy that will cut millions off of future pay incentives to avoid another shareholder revolt.
Dudley received $11.6m (£9.3m) in 2016 compared with $19.4m in 2015 due to lower performance-related pay and a discretionary reduction of $2.2m by the remuneration committee.
The pay cut follows last year's shareholder revolt when almost 60 per cent of BP investors voted against a 20 per cent pay increase amid the company's reports of record losses. However, the non-binding vote meant Dudley still got the pay rise.
Royal London Asset Management, which holds 0.74 per cent of BP's shares worth £679m, called BP's response to the shareholder rebellion a "milestone".
Ashley Hamilton Claxton, corporate governance manager at Royal London, said:
"It is rare for a company to consult with us on proposals for reducing pay, setting an example for other companies holding binding votes this year.
"We applaud the BP remuneration committee for being proactive in responding to the shareholder revolt last year and see this as a milestone in the engagement between companies and shareholders. In particular, the committee applied discretion to override the formulaic outcome of the pay policy, which is a welcome step in the right direction."
Changes to the remuneration policy, which will affect Dudley and other executives' pay to 2019 if approved by shareholders at the firm's annual general meeting in May, include:
- The level of bonus paid for an "on-target" score will be reduced by 25 per cent
- The maximum annual bonus will only be earned where stretch performance is delivered on every measure
- The bonus performance scale for executive directors will be the same as the wider professional and managerial employee population
- The proportion of annual bonus that must be deferred into shares will be increased from 33 per cent to 50 per cent.
- The maximum longer-term incentives will be reduced from seven times salary to a maximum of five times salary
As a result of the changes, Dudley's maximum pay over the next three years will be reduced by $3.7m, and achieving this maximum will also be significantly more challenging, BP said.
Dame Ann Dowling, chair of the remuneration committee, said: “After a thorough review and extensive shareholder engagement, we believe the new policy is simpler, more transparent and has strategic focus.”
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