Business Times Singapore: Ousted Shell chief gets generous pay and option deal Package worth 5.8m, excluding severance deal, says annual report

Published May 31, 2004

Posted 1 June 04

PHILIP Watts, the ousted chairman of the Royal Dutch/Shell Group, was given a pay and option package worth more than 5.84 million (S$18.2 million) in 2003, according to annual reports filed in London and Amsterdam on Friday.

Mr Watts: his pay package is likely to be a hot issue among investors at the shareholder meeting in June.

The reports also showed that the company's proven annual reserves were overstated by about one-fifth in each of the last six years.

The third-largest oil and gas company shocked investors in January by cutting its estimates for proven oil and gas reserves by 20 per cent. 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.

Mr Watts' total compensation is dwarfed by some packages given to departing executives in the US.

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 Mr Watts' severance agreement, which is still being discussed by the board.

'I don't think Mr Watts' 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 per cent in 2000 from 16 per cent in 1997, with properties in Nigeria and Australia accounting for the bulk of the incorrect numbers, according to the annual reports.

Mr Watts was head of the exploration and production group, which is in charge of reserves, in those years.

Properties in Nigeria accounted for more than 40 per cent 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.

Mr Watts, as well as the other managing directors at Shell, received no bonuses last year, a decision investors have applauded.

Still, in 2003, Mr Watts' salary was 843,021, about a 10 per cent 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 79,697 shares as part of a deferred bonus plan.

Mr Watts 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 Mr Watts' employment contract, before the company's problems came to light, she said. - NYT, Bloomberg

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