UPDATE: BP shareholders voted against Dudley's pay package in a non-advisory vote.
It’s not always easy to have sympathy for the chief executives of multinational companies. Having the media complaining that your £14m salary is too high is definitely a first world problem. But spare a thought for Bob Dudley, chief executive of BP.
He’s facing a very public shareholder revolt over his £13.9m remuneration for 2015, a 20% pay rise that was announced last month. Several institutional investors including Aberdeen Asset Management and Royal London have complained about this, given that BP took a $6.4bn (£4.5bn) loss last year and is making thousands of workers redundant. IoD director-general Simon Walker joined in, saying it sent ‘the wrong message to other companies.’
It’s a fair point. How can Dudley’s pay rise possibly be fair in those circumstances? Well the most obvious reason is that the remuneration structures don’t rely on whether the firm made a profit or a loss, but instead on its performance relative to its peers. That’s a sensible policy, given that the global oil price is obviously by far the biggest determining factor in an oil company’s performance.
‘Despite the very challenging environment... BP's performance surpassed the board's expectations on almost all of the measures that determine remuneration - and the outcome therefore reflects this,’ a BP spokesman told the BBC.
But there’s another, bigger reason why shareholders can’t complain. Despite BP’s tremendous loss, it still paid a whopping $6.7bn in dividends to those very shareholders last year – some 320 times the amount it will pay Dudley. They didn’t take a cut for the good of the business, so why should he?
Presuming Dudley is a skilful and valued leader, he should be paid global market rates. Those rates may themselves be unfair, but if BP decides to be the one oil firm to pay half market rates, the business (and therefore the shareholders) will surely suffer for it. Financially it’s a no brainer - £14m is peanuts to a firm like BP (and to its institutional investors), whereas a good leader and a good strategy are crucial.
Arguably, BP and its shareholders suffer from the bad PR Dudley’s pay is generating (bad PR they have largely created by complaining publicly about it), but the same could equally be said of them taking handsome dividends while workers are being let go.
Ultimately, Dudley may find it wise to surrender some of his pay in solidarity like Co-Op boss Richard Pennycook recently did, or give the surplus away to charity. It would certainly help the image of the company, which it’s been desperately trying to recover since the Deepwater spill six years ago. But that’s Dudley’s choice to make. Having a grown up conversation with him behind closed doors and respecting his decision - or even voting to change the remuneration policies when they come up for review in 2017 - is surely better for the business than using the media to pressurise him publicly.