Royal Dutch Shell PLC, Europe's largest oil company, suffered a
stunning rebuke Tuesday when investors shot down its
executive-compensation plan, in the latest display of shareholder anger
over big paychecks and boardroom excesses amid the economic crisis.
Shell is the largest among a growing group
of British companies whose shareholders have voted down compensation plans
in advisory votes, including
Royal Bank of Scotland Group,
Bellway PLC and
Provident Financial PLC.
Large numbers of shareholders, though not a
majority, voted against compensation plans at miner Xstrata PLC, oil major
BP PLC, and Pearson, owner of the Financial Times.
The Shell vote, although nonbinding, shows
how the economic downturn has inspired a new activism among shareholders,
particularly in Europe, and a greater willingness to challenge board
decisions, especially those perceived as rewarding failure.
In a charged meeting at Shell's
headquarters in The Hague, which was broadcast live in London to
U.K.-based shareholders, a succession of investors lined up to excoriate
the board of the Anglo-Dutch company for awarding performance-based shares
to executives despite the company's failure to reach its own internal
Investors gasped in disbelief when results
of the vote were displayed.
European investors are angry over bonuses
that are relatively modest by U.S. standards. At
Exxon Mobil Corp., the largest U.S. oil company, Chief Executive Rex
Tillerson received a 2008 compensation package valued at $23.9 million,
including $1.87 million in salary, a $4 million bonus and stock grants
initially valued at $17.6 million, according to the company's latest
Shell Chief Executive Jeroen van der Veer
was awarded 78,889 shares, worth about €1.3 million ($1.76 million at
current prices), in addition to his salary, bonus and benefits of €5.7
Chief Financial Officer Peter Voser was
awarded 38,967 shares, worth about €666,336. Mr. van der Veer is to step
down at the end of June, and some shareholders complained that he will
also get an award for a three-year period that ends in 2010.
Executives were supposed to get the
performance-based shares only if Shell placed in the top three of its
peers in a ranking of total shareholder return, based on its share price
and dividend payouts.
Shell placed fourth, but the board's
remuneration committee decided to exercise its discretion and award the
Shareholders in London's financial district
were met by protesters holding banners and handing out leaflets accusing
Shell of human rights abuses in the oil-rich Niger Delta region of
Stony-faced board members also heard
strident criticism of Shell's investments in Canadian oil sands, which
green groups have condemned as polluting, carbon-intensive and damaging to
the environment. There was also strong disapproval of Shell's decision to
back away from investments in renewables such as solar and wind energy.
"The gravy train has got to stop," Martin
Simons, a retiree, told the board at Tuesday's meeting. In the end, 59.42%
of shares voting opposed the remuneration proposal, and 40.58% backed it.
The rebellion hasn't yet spread to the
U.S., where shareholders, generally voting on executive-compensation
practices for the first time, have approved every plan, including those at
troubled banks such as
Citigroup Inc. and
Bank of America Corp.
Shell Chairman Jorma Ollila said board
members "take the outcome of this vote very seriously and we will reflect
carefully upon it." But Sir Peter Job, head of Shell's remuneration
committee, stressed it was "advisory" and wouldn't invalidate the pay
The board had previously said it awarded
the shares because the difference between Shell and the third-ranking
Total SA, was marginal and Shell's ranking didn't fully reflect its
Investors in British companies have been
skeptical of pay plans since they gained the annual advisory vote in 2003.
That year, investors rejected the compensation plan at GlaxoSmithKline
PLC, which later amended it.
But this year's votes reflect a significant
change in investor behavior, with institutional investors and small
private shareholders coming together to oppose awards seen as excessive.
Governance watchers said the relatively
muted reaction among U.S. shareholders reflected the novelty of the
advisory vote on pay, which was enacted by Congress in February for
recipients of federal bailout funds. That gave activists relatively little
time to organize "vote no" campaigns among other investors.
In the U.K., more experienced shareholders
"are not afraid to cast a vote no" on pay plans, said Richard Ferlauto,
director of corporate governance and pension investment at the American
Federation of State, County and Municipal Employees.
Mr. Ollila, Shell's chairman, said its
remuneration committee had exercised discretion in recent years, in two
cases denying share bonuses when directors had qualified for them. He also
said the board had received shareholder approval to use discretion in
operating the company's long-term share plan.
U.S. shareholders are voting on
compensation plans for the first time this year at about 400 companies
that received federal bailout funds, plus a scattering of others that have
adopted the practice voluntarily.
Congress may extend the required vote to
all publicly traded companies this year. Sens. Charles Schumer, a New York
Democrat, and Democrat Maria Cantwell of Washington, introduced a bill
Tuesday to do so.
Although many large U.S. companies have
already held their annual meetings, a few potential flashpoints remain.
American International Group Inc., which is nearly 80% owned by the
U.S. government, said Tuesday it will hold its annual meeting June 30. As
a recipient of bailout funds, AIG must offer investors an advisory vote on
Ingersoll-Rand Co. investors will vote on management pay practices
June 3. At Exxon and
Lowe's Cos., shareholders will cast votes this month on resolutions
urging the appointment of independent board chairmen.
Activist investors at
Time Warner Inc. and
Wal-Mart Stores Inc. have submitted proposals that would make it
easier for investors to call special shareholders' meetings.
Write to Guy Chazan at
email@example.com and Joann S. Lublin at
Printed in The Wall
Street Journal, page B1