Energy

Chris Hughes is a Bloomberg Gadfly columnist covering deals. He previously worked for Reuters Breakingviews, as well as the Financial Times and the Independent newspaper.

BP shareholders have blown a big raspberry at the oil major's board by voting against the CEO's $20 million pay packet. Chairman Carl-Henric Svanberg now has some serious diplomacy to do.

A company of this stature shouldn't really leave itself in the position of having showdowns like this at annual meetings. Something is awry with the way it and its shareholders engage on pay. That's squarely Svanberg's job to fix.

Dudley's Pay
BP's CEO is in line for a controversial 20% pay increase
Source: Bloomberg
Package includes salary, cash bonus, benefits, deferred bonus, performance shares and pension benefits.

Investors have been lining up to criticize Bob Dudley's 2015 pay award in recent weeks, rightly pointing out that it was simply too high, sent the wrong message or was plain insensitive. Cheap oil means thousands of industry employees are losing their jobs, while staff who remain suffer pay freezes.

However well Dudley has managed BP in the recent tough environment, the award -- a big hike year-on-year thanks to a significantly increased pension contribution -- was excessive. Some 59 percent of investors voting by proxy were against the remuneration report.

Sliding Shares
BP's shares have tumbled 23% in the past 12 months, lagging Exxon Mobil
Source: Bloomberg

How could a company like BP get into such a pickle? The explanation is partly that Dudley's pay was determined by an executive pay policy that was itself approved overwhelmingly by shareholders in 2014. The remuneration committee applied some discretion in paying Dudley slightly less than he could have received. Nevertheless, even after that tiny haircut, it should have been pretty clear that he was still getting a provocatively larger number.

Things could have gone differently. For starters, the remuneration committee could have applied much more discretion last year and taken the award down further. Instead, it seems to have absolved itself of responsibility by deferring too much to the shareholder-ratified pay policy. That shows poor judgement.

When shareholder discontent became evident in recent weeks, BP could have taken pre-emptive action and sought to persuade Dudley to return some of the award. This was a trick deployed effectively by British banks ahead of similar AGM rows, when CEOs pre-empted show-downs by sacrificing part or all of what they had been awarded.

As is it, BP comes away looking removed from society, investors and its own industry -- quite an achievement. Svanberg has some reconnecting to do.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Chris Hughes in London at chughes89@bloomberg.net

To contact the editor responsible for this story:
James Boxell at jboxell@bloomberg.net