The Financial Times: Performance bonuses for 2003 scrapped
By Clay Harris in London
Published: March 18 2004 18:54 | Last Updated: March 18 2004 19:00
None of Royal Dutch/Shell's top executives will receive a performance-related bonus for 2003, the oil and gas group said on Thursday, as it confirmed that the booking of reserves was no longer a factor in bonuses.
Reeling from the embarrassment of being forced to announce another cut in reserves and to postpone its annual meeting by two months, Shell outlined changes in internal reporting structures, efforts to improve its ability to comply with Securities and Exchange Commission reporting requirements, and plans for a wider review of governance.
It said external experts would have a "systematic" role in the audit of reserves. Malcolm Brinded, the new head of exploration and production (EP), called this a "key change".
The booking of new reserves had previously constituted between 5 and 15 per cent of the possible annual bonus for certain EP staff. That element has now been removed for anyone involved in the assurance of reserves.
This will include the committee of managing directors (CMD), all of whom will now have to sign off reserves each year. Jeroen van der Veer, the new chairman, said yesterday that meant CMD members "need to bring their knowledge to a level that they feel confident [to do so]". The group audit committee will also see reserves figures and be able to ask questions.
Other changes related to reserves include:
Reserves auditors will report to the group internal audit, outside the business line. Within EP, reserves reporting will come through the technical rather than the planning side.
Approval will involve peer challenge at regional level.
Reporting guidelines are being "revised to remove any remaining ambiguity in the application of SEC rules and guidance" and EP staff will be trained to "ensure that SEC rules, guidance and compliance requirements are fully understood and adhered to throughout the organisation".
In addition to a significant increase in staff, including external experts, the frequency of country reserve audits will be increased, with important countries now audited annually.
Guidelines will include "clear, auditable commercial triggers for recognising new proved reserve bookings . . . and clearer guidance on technical and commercial issues".
Mr van der Veer said: "It's belt and braces on various levels so we can make sure that we will never drop this ball again." On a wider issue, he said: "We think that the whole reserves issue . . . is not related to the structure of the Shell group." But that "was not a justification to keep the governance and structure . . . exactly the same".
He said the "listening phase" would last for about a month after the re-scheduled annual meetings on June 28. Proposals would be completed by early 2005, in time for next year's annual meetings.
Some governance changes have already been made:
Chief financial officers in operating businesses will report to the group CFO, rather than to divisional chief executives.
The group internal audit will report directly to the group CFO, with the group chief internal auditor having direct access to the general audit committee.
Mr van der Veer said Shell's goal was "to be out in front with the best behaviour in a very complex and transparent world. If we can master that task, I see it as a competitive advantage."