The New York Times: Shell Discloses a Large Pay Package for Its Former Chairman
By HEATHER TIMMONS
Published: May 29, 2004
LONDON, May 28 - Sir Philip B. Watts, the ousted chairman of the Royal Dutch/Shell Group, was awarded a pay and option package worth more than £5.84 million ($10.7 million) in 2003, according to annual reports filed on Friday in London and Amsterdam.
The reports also showed that the company's proven annual reserves were overstated by about one-fifth in each of the last six years.
Shell, the third-largest oil and gas company, had been viewed as one of world's most conservative energy companies. In January, however, the company shocked investors by cutting its estimates for proven oil and gas reserves by 20 percent. Since then, it has hired scores of outside advisers to investigate the discrepancy, and has ousted three top executives.
The picture that has emerged from these investigations is one of an institution with lax controls and struggling to keep promises made to markets and investors, particularly in its exploration and production department.
Sir Philip's total compensation is dwarfed by some recent packages awarded departing executives in the United States. But in Britain, where executive compensation is much more modest and shareholder activism on the rise, it could become yet another issue for investors to rally around. And this figure does not include Sir Phillip's severance agreement, which is still being discussed by the board.
"I don't think Mr. Watts's pay package will be particularly popular" at the shareholders meeting in June, said Richard Singleton, director of corporate governance for Isis Asset Management in London. In addition to what is legal to award executives, Shell should also consider "what is right and what is just," Mr. Singleton said.
Friday's annual reports, filed by the two companies that make up Shell, only added to the impression that the company has been troubled for years.
The percentage of proven reserves that Shell was overstating rose steadily, peaking at 25 percent in 2000 from 16 percent in 1997, with properties in Nigeria and Australia accounting for the bulk of the incorrect numbers, according to the annual reports. Sir Philip was head of the exploration and production group, which is in charge of reserves, during those years.
Properties in Nigeria accounted for more than 40 percent of the overstated reserves in 1999 through 2001, the report said. It did not break out Nigeria's impact separately before 1999 or after 2001. Africa accounted for more than half of the restated reserves in 2001 and 2002, the reports said.
Shell's overstatement of Nigerian reserves was in part to protect the country's OPEC quotas, documents viewed earlier this year by The New York Times show. Sir Philip ran a Shell development company in Nigeria during the early to mid-1990's, but it is unclear what, if any, connection he had to the overbooked Nigerian reserves.
Sir Philip, as well as the other managing directors at Shell, received no bonuses last year, a decision investors have applauded. Still, in 2003, Sir Philip's salary was £843,021, about a 10 percent raise from the previous year. He was also awarded 1.165 million stock options that vest in 2006 at a price below Shell's current trading levels, worth £4.59 million at Friday's close, and another 79,697 shares as part of a deferred bonus plan.
Sir Philip was denied another 1.165 million share options that were related to performance, a company spokeswoman said. The other 1.165 million options were awarded in March 2003 as part of the terms of Sir Philip's employment contract, before the company's problems came to light, she said.
On Friday, Standard & Poor's reiterated its negative outlook on the Shell Group companies, based on the details in the annual reports. Those Shell subsidiaries include the Shell Oil Company, the Shell Petroleum Company and Shell Petroleum N.V. Weak fundamentals, including a poor reserve replacement ratio, as well as questions about corporate governance, are reason for caution, the rating agency said.
"We're waiting for the company to tell us where they stand" on corporate governance issues, said Emmanuel Dubois-Pelerin, an analyst at Standard & Poor's. "They've named some remedies. Now we want to see how they implement them."