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Directors’ Remuneration for 2021

Non-executive Directors’ remuneration for 2021

Single total figure of remuneration for Non-executive Directors (audited)

 

 

 

 

 

 

€ thousand

 

Fees

Taxable benefits [A]

Total

 

2021

2020

2021

2020

2021

2020

Dick Boer [B]

167

98

167

98

Neil Carson

192

184

192

184

Ann Godbehere

212

206

1

213

206

Euleen Goh

224

201

1

225

201

Charles O. Holliday [C]

324

850

61

69

385

919

Catherine J. Hughes

185

180

1

186

180

Martina Hund-Mejean [D]

165

98

1

166

98

Jane Holl Lute [E]

99

1

100

Sir Andrew Mackenzie [F]

582

37

17

599

37

Abraham Schot [G]

152

38

152

38

Sir Nigel Sheinwald [H]

69

184

69

184

Gerrit Zalm

177

177

177

177

[A]

UK regulations require the inclusion of benefits where these would be taxable in the UK, on the assumption that Directors are tax residents in the UK. On this premise, the taxable benefits include the cost of a Non-executive Director’s occasional business-required partner travel. Shell also pays for travel between home and the head office, where Board and committee meetings are typically held, and related hotel and subsistence costs. For consistency, business expenses for travel between home and the head office are not reported as taxable benefits because for most Non-executive Directors this is international travel and hence would not be taxable in the UK.

[B]

Appointed as a Director with effect from May 20, 2020.

[C]

Stepped down as a Director with effect from May 18, 2021. Benefits include the use of a Shell-provided apartment while in The Hague (2021: €27,848, 2020: €68,942).

[D]

Appointed as a Director with effect from May 20, 2020.

[E]

Appointed as a Director with effect from May 19, 2021.

[F]

Appointed as a Director with effect from October 1, 2020, and as Chair with effect from May 18, 2021.

[G]

Appointed as a Director with effect from October 1, 2020.

[H]

Stepped down as a Director with effect from May 18, 2021.

Executive Directors’ remuneration for 2021

Single total figure of remuneration for Executive Directors (audited)

 

 

 

 

€ thousand

 

Ben van Beurden

Jessica Uhl

 

2021

2020

2021

2020

Salaries [A]

1,588

1,588

1,035

1,035

Taxable benefits [B]

17

16

323

418

Pension [C]

402

540

281

288

Total fixed remuneration

2,007

2,144

1,639

1,741

Annual bonus [D]

2,560

1,600

LTIP [E]

2,812

3,698

1,388

1,993

Total variable remuneration

5,372

3,698

2,988

1,993

Total remuneration

7,380

5,841

4,627

3,734

in dollars

8,728

6,671

5,473

4,264

in sterling

6,344

5,197

3,978

3,322

[A]

As disclosed in the 2020 Directors’ Remuneration Report, the REMCO maintained Ben van Beurden’s base salary for 2021 at €1,588,000 (+0.0% compared with 2020), and Jessica Uhl’s base salary at €1,035,000 (+0.0% compared with 2020).

[B]

For Ben van Beurden these include motoring allowance (€14,400) and transport between home and the office (€2,494). Jessica Uhl’s benefits include tax equalisation (€292,334), medical insurance and risk benefits (€17,047), transport between home and the office (€10,051) and international mobility benefits (€3,391). Jessica Uhl’s benefits include tax equalisation of pension contributions to foreign pension plan(s), when they are taxable above a certain pensionable salary threshold or once a double tax treaty exemption ceases, under Dutch law. Tax equalisation is applied for the loss of pension relief for members of a foreign pension plan(s) in their host country. Jessica Uhl’s benefits also include tax equalisation of employer contributions to benefits and certain US social taxes that are taxable in the Netherlands.

[C]

For Ben van Beurden, the amount reported for pension consists of a net pay-defined contribution amount of €402,311. The amount to be reported for his defined benefit pension accrual is 0 calculated in accordance with UK reporting requirements. For Jessica Uhl, the amount reported for pension consists of a defined contribution amount of €99,816 and a defined benefit pension accrual €181,363.

[D]

The full value of the bonus, comprising both the 50% delivered in cash and 50% bonus delivered in shares. For 2021, the market price of shares on February 21, 2022 for Amsterdam listed shares (€23.34) and on February 24, 2022 for London listed shares (£19.528), was used to determine the number of shares delivered, resulting in 29,677 ordinary shares for Ben van Beurden and 18,551 ordinary shares for Jessica Uhl, net of tax. This was split between the Netherlands and UK due to the relocation of the Directors on December 31, 2021.

[E]

Remuneration for performance periods of more than one year, comprising the value of released LTIP awards. The amounts reported for 2021 relate to the 2019 LTIP award, which vested on March 3, 2022, at the market price of €24.79 and $52.85 for ordinary shares and ADSs respectively. The value in respect of the LTIP is calculated as the product of: the number of shares of the original award multiplied by the vesting percentage; plus accrued dividend shares; and the market price of ordinary shares or ADSs at the vesting date. The market price of ADSs is converted into euros using the exchange rate on the respective date. Share price depreciation accounted for -€229,832 for Ben van Beurden and -$244,395 for Jessica Uhl.

Notes to the table: Single total figure of remuneration for Executive Directors (audited)

Annual bonus

As disclosed in section “Directors’ Remuneration Policy”, the annual bonus is intended to reward delivery of short-term operational targets.

All targets are derived from Shell’s annual operating plan.

Determination of the 2021 annual bonus

The table below summarises the 2021 annual bonus scorecard measures including their weightings, targets and outcomes. The mathematical scorecard outcome for 2021 was 1.32. This was adjusted downwards by the REMCO to reflect the number of fatalities in the year to 1.29. Please refer to pages 166-167 for a commentary on the scorecard outcome.

2021 annual bonus scorecard measures and weightings

Performance Measures

Weighting

Unit

Thres­hold

Target

Out­standing

Outcome

Score

Financial delivery

35%

Cash flow from operations [A]

35%

$ – bn

22

28

34

45

2.00

Operational excellence

35%

Asset management excellence [B]

25%

Availability – %

See note B

0.77

Project delivery excellence [C]

10%

Projects delivered on schedule and budget – %

30/110

65/103

100/96

87/104

1.24

Progress in the energy transition

15%

Greenhouse gas emissions intensity [D]

10%

Tonne CO2e intensity

See note D

0.48

Greenhouse gas abatement

5%

Thousand Tonne CO2e

168

224

280

279

1.98

Safety

15%

Personal safety

7.5%

Serious Injury & Fatality Frequency (SIF-F) cases per 100 million working hours

9.7

6.9

4.1

6.9

1.00

Process safety

7.5%

Number of events

130

105

80

102

1.12

 

 

 

 

Mathematical performance outcome

1.32

 

 

 

 

Adjusted outcome

1.29

[A]

Including working capital adjustments.

[B]

Upstream controllable availability: Target: 88.1% (Threshold 86.1%, Outstanding 90.1%), midstream availability: 89.2% (87.2%/91.2%), Downstream (Refining and Chemicals) availability: 95.2% (94.2%/96.2%). Full-year outcomes were 87.8%, 87.3% and 95.6% respectively. Performance assessment is equally weighted between Upstream, midstream and Downstream availability.

[C]

Performance assessment is equally weighted between project schedule and budget.

[D]

Upstream/midstream (Tonne CO2 equivalent per Tonne of hydrocarbon production available for sale): Target 0.152 (0.160/0.144); Refining GHG (Tonne CO2 equivalent per Solomon’s Utilised Equivalent Distillation Capacity): Target 1.03 (1.08/0.98); Chemicals (tonne CO2 equivalent per tonne of steam cracker high-value chemicals production): Target 0.97 (1.07/0.87).
Full-year outcomes were: 0.172, 1.05 and 0.95 respectively. Performance assessment is split 4% Upstream/midstream, 4% Refining and 2% Chemicals.

Accordingly, the REMCO decided the final bonus outcome for the CEO should be €2,560,000, which is 129% of target and 64% of maximum. The REMCO decided the final bonus outcome for the CFO should be €1,600,000, which is 129% of target and 64% of maximum.

2021 bonus outcome calculation

Target bonus: €1,588,000 (base salary) x 125% = €1,985,000 2021 scorecardresult 1.29 €2,560,000 [A] Ben van Beurden Jessica Uhl Target bonus: €1,035,000 (base salary) x 120% = €1,242,000 2021 scorecardresult 1.29 €1,600,000 [A] 2021 scorecardresult 1.29 Target bonus: €1,588,000 (base salary) x 125% = €1,985,000 €2,560,000 [A] Ben van Beurden Jessica Uhl Target bonus: €1,035,000 (base salary) x 120% = €1,242,000 €1,600,000 [A] 2021 scorecardresult 1.29
[A] Rounded down to the nearest €5,000. Half was delivered in shares subject to a three-year holding period which extends beyond the Executive Director's tenure.

LTIP Vesting

In 2019, Ben van Beurden was granted a conditional LTIP award of 340% (maximum 680%) of base salary and Jessica Uhl an award of 270% (maximum 540%), excluding share price movement and dividends.

In making the vesting decision, the REMCO considered Shell’s performance over the three-year vesting period. On the relative measures, Shell ranked fourth on total shareholder return (TSR), and fifth on cash flow from operations (CFFO) and return on average capital employed (ROACE), leading to a nil vesting outcome on each of the relative measures. On the absolute measures, Shell exceeded the free cash flow (FCF) target of $82 billion, generating $87.5 billion over the performance period, and substantively met all of the four energy transition performance targets. (See below for more details.)

The REMCO also noted the impact of the decline in share price between award and vesting on the overall outcome. The REMCO further reflected on the overall single outcome for the CEO. The REMCO decided that the outcome was consistent with the target opportunity and intended operation of the plan under the remuneration policy and no adjustment to the vesting outcomes was required.

Accordingly, the REMCO decided that the LTIP should vest at 49% without the use of discretion. This is illustrated below.

See section "Directors’ Remuneration Report" for more detail.

2019 LTIP vesting outcomes – performance measures

0% CFFO TSR 0% 0% ROACE FCF 31% Energy Transition 18% + + + + + Total formulaicvesting outcome 49%

Performance Measures

Weighting

Threshold performance

Maximum performance

Outcome (out of the maximum 200%)

Relative
Performance ranked against the other energy majors: BP, Chevron, ExxonMobil and TotalEnergies

CFFO

22.5%

Third

First

Fifth

0%

TSR

22.5%

Third

First

Fourth

0%

ROACE

22.5%

Third

First

Fifth

0%

Absolute
Performance assessed against internal financial and strategic targets

FCF

22.5%

$73bn

$97bn

$87.5bn

137%

Energy transition

10%

1/4 target areas

4/4 target areas

180%

Formulaic vesting outcome 49% Formulaic vesting outcome 49% The The REMCO reviewed Shell’s performance over the vesting period, considering financial and safety performance, whether there had been any breaches of ethics and compliance standards or other events that might damage Shell’s reputation, and individual performance. The REMCO decided that the LTIP outcome was a fair reflection of perfor-mance and should vest without discretionary adjustment..

Vesting of the energy transition performance condition

The energy transition condition supports delivery of Shell’s net carbon intensity (NCI) target (measured by Shell’s Net Carbon Footprint (NCF) methodology). This is a broad metric which consists of a mix of strategic measures that set the foundations for Shell achieving our longer-term ambitions in the energy transition, as well as Shell’s success in reducing the NCI of all energy products sold. The outcome was intended to be determined holistically by the REMCO, after taking advice from the Safety, Environment and Sustainability Committee (SESCo), taking account of performance against quantifiable targets but also with regard to Shell’s wider progress in the energy transition beyond the defined measures.

The metrics for the first LTIP cycle (2019-2021) were focused on laying the foundations for Shell’s future growth, building the customer base and developing the organisational capability to deliver against the key strategic ways of decarbonising Shell’s business: growing a power business, developing lower-carbon energy products and developing emission sinks.

Build a material Power business: The first cycle of the LTIP was orientated toward creating the foundations on which a material power business can be built: entering new markets to access customers, and developing new commercial pathways by creating a funnel of renewable power capacity options and then converting those options to realised investments. The REMCO considered that this target had substantively being met. Noting the movement into new markets for direct power sales to end customers through acquisitions such as ERM in Australia (now trading as Shell Energy), and the expansion of the North American renewables power business with the acquisition of Inspire. Strong progress has also been made on renewables, with a funnel of installed renewable capacity and pipeline of options well ahead of what was expected in 2019 following the acquisition of solar and energy storage developer, Savion. Demonstrable progress was made on converting those options into the renewable energy projects that a lower-carbon energy future will require, for example with the CrossWinds joint venture in the Netherlands.

Advanced biofuels technology: Biofuels are expected to play an important role in energy transition, providing a key decarbonisation lever for sectors that will continue to need to use liquid fuels. This element of the LTIP measure reflects our strategy, which is to prove multiple technology platforms that can be subsequently replicated at pace, with performance assessed based on Shell developing or taking an equity position in commercial scale biofuels projects. The initial target was focussed on taking the first steps to implement this strategy, and the REMCO considered this had been met in full through Enerkem Varennes, a biofuels plant in Québec, Canada, that will produce low-carbon fuel and chemicals from non-recyclable waste, and LanzaJet, which will produce jet fuel from ethanol from a plant in Georgia in the US.

Developing emissions sinks: The development of systems that capture and absorb carbon are required as part of the global response to climate change. The target for the first LTIP cycle was based on setting the foundations to develop future commercial value chains and REMCO considered this element of the LTIP measure had been met in full. This was through the Northern Lights project in Norway, with the REMCO noting that this project provided the opportunity to build the commercial knowledge and organisational capacity for future carbon capture projects. The REMCO also took account of the significant progress made on investment in the nature based solutions (NBS), which will make a big contribution to Shell reaching net-zero emissions, with nine investments in NBS projects that are verified by recognised carbon credit standards over the performance period.

Net carbon intensity: Finally, the REMCO paid particular attention to the outcome on the metric based on the NCI reduction. This a comprehensive metric covering the Scope 1, 2 and 3 emissions from all energy products sold by Shell and provides a concrete marker of Shell’s success in decarbonising. The REMCO believes that Shell remains the only major energy company to tie executive pay to a target for reducing the Scope 1, 2 and 3 emissions intensity from the sale of all energy products. The outcome of this metric is a reduction of 2.5% against a target range of 2-3%. This target has evolved over time to reflect the decarbonisation actions necessary to meet our longer-term NCI targets (NCI reduction targets for later LTIP cycles are 2020-2022: 3-4%, 2021-2023: 6-8%, 2022-2024 9-12%, compared to the 2016 base year).

Further detail is available in section "Climate Change and Energy Transition.

The REMCO considered the alignment to the financial statements and the enhancement of the quality of our emissions data when making their decision.

After taking advice from the SESCo REMCO decided the energy transition performance condition should vest at 180%.

The overall vesting outcome, including an illustration of the impact of share price movement and accrued dividends, is set out below. The CEO and CFO’s vested awards are subject to a further three-year holding period which extends beyond their tenure as Executive Director.

2019 LTIP vesting outcome

Vesting outcome: [A] 49,927 x 49% = 24,464 ADS$1,537,318 Change in share price: [B] 24,464 x -$9.99-$244,395 Accrued dividends: [C] 4,670 ADS$246,810 Total LTIP Vesting: [C][D] 29,134 ADS$1,539,732 CEO CFO Vesting outcome: [A] 194,625 x 49% = 95,366 Ordinary shares €2,593,955 Change in share price: [B] 95,366 x -€2.41-€229,832 Accrued dividends: [C] 18,079 Ordinary shares €448,178 Total LTIP Vesting: [C][D] 113,445 Ordinary shares €2,812,302 Change inshare price: [B] Vesting outcome: [A] 49,927 x 49% =24,464 ADS $1,537,318 24,464 x -$9.99-$244,395 Accrueddividends: [C] 4,670 ADS$246,810 Total LTIP Vesting: [C][D] 29,134 ADS$1,539,732 Change inshare price: [B] Vesting outcome: [A] 194,625 x 49% =95,366 Ordinary shares €2,593,955 95,366 x -€2.41-€229,832 Accrueddividends: [C] 18,079 Ordinary shares €448,178 Total LTIP Vesting: [C][D] 113,445 Ordinary shares €2,812,302 CEO CFO
[A] Based on the share price at award of €27.20 for CEO and $62.84 for CFO.
[B] Calculated based on the opening share price March 3, 2022 minus the share price at the date of award for CEO €24.79-€27.20 = -€2.41 and for CFO: $52.85 – $62.84 = -$9.99.
[C] Based on the opening share price on March 3, 2022 of €24.79 for CEO and $52.85 for CFO.
[D] Vested shares are subject to a three-year holding period, which extends beyond tenure as an Executive Director.

In determining the final pay outcomes, the REMCO also considered the personal performance of the Executive Directors.

Personal performance 2019 – 2021

It has been a challenging period for business as the world has grappled with the challenges of the COVID-19 pandemic and, for the energy sector in particular, as society accelerates towards a future of cleaner energy. Responding to these challenges has demanded strong leadership which both the CEO and CFO have provided. The REMCO acknowledges the exceptional personal contributions made by both the CEO and CFO in delivering a very strong set of financial results, coupled with a number of key strategic and organisational developments in 2021. This includes an updated strategy, Powering Progress, the first shareholder advisory vote on Shell’s Energy Transition Report and the implementation of a new organisational structure (Project Reshape). This culminated with the simplification, an important step, which the Board believes will strengthen Shell’s competitiveness and accelerate both shareholder distributions and delivery of its strategy to become a net-zero emissions energy business.

Ben van Beurden

Against a backdrop of transformational strategic and organisational change, the strength of Shell integrated business, quality of portfolio and operational delivery allowed Shell to capitalise on improved prices to deliver adjusted earnings of $19.3bn and generated an outstanding $45.1bn of CFFO (including working capital). The work has also continued to reshape Shell’s portfolio with the delivery of divestment proceeds of $15.1bn in 2021, far beyond target. These operating cash flows and divestment proceeds significantly contributed to reducing net debt to $52.6 billion at the end 2021, down from $75.4 billion at the end of 2020. This strong financial performance has enabled Shell to deliver on our commitment to increase shareholder distributions in keeping with our successful net debt reduction. Starting from Q2 2021, we rebased our quarterly dividend to 24 US cents per share and started share buybacks. The REMCO acknowledges the fundamental role the CEO’s strategic and operational leadership has played in enabling these financial outcomes and delivery of shareholder returns.

Tackling climate change is an urgent challenge. This is why Shell has set a target to become a net-zero emissions energy business by 2050, in step with society and our customers. The CEO has led the development of Shell’s updated strategy, Powering Progress, which sets out a comprehensive strategy on how Shell intends to decarbonise energy customers while running legacy businesses for value rather than volume, integrating business and investment decisions with Shell’s longer-term ambitions. This was supported by the implementation of the new organisation (Project Reshape) necessary to support this updated strategy, which was completed in August 2021 without operational disruption.

Externally, the CEO has played a leading role in the energy transition debate through such initiatives as the first joint statement with institutional shareholders, encouraging other companies to adopt the net carbon intensity methodology. He has been instrumental in galvanising coalitions to start action on sectoral decarbonisation. His personal role, for example in the Aviation Clean Skies Initiative, is recognised by both customers and external stakeholders. His interventions have helped in shifting the climate agenda towards the practical measures that will be needed for creating sustained demand for lower-carbon products.

The refreshed safety programme was rolled out and a new personal safety measure designed to focus attention on the most serious incidents was introduced. To deliver the safety refresh Shell aims to apply a learner mindset, believing people can always improve, enhance their capabilities, learn from mistakes and successes, and speak up freely. The REMCO recognise the work across the leadership team at Shell, from the CEO down, in embracing a learner mindset and driving this across the organisation.

Jessica Uhl

The REMCO recognises the leadership of the CFO in delivering a number of key enterprise initiatives over the course of 2021. Notably this included the successful delivery of the simplification of Shell plc. This was a complex and challenging undertaking that involved the establishment of a single line of shares to eliminate the complexity of Shell’s A/B share structure and aligning Shell’s tax residence with its country of incorporation in the UK.

Shell’s strong financial results were underpinned by discipline on capital, operating and lease expenditure and by the delivery of a divestment programme in excess of $15 billion. This enabled a reduction in net debt by $23 billion over the course of 2021. Dividends were increased twice in the year and share buybacks commenced, accelerating the pace of shareholder distributions. The CFO played a critical role in guiding the company through the implementation of an updated capital allocation framework to balance growth and shareholder distributions.

To support ongoing transparency for shareholders, the CFO led the introduction of significantly improved external financial and operational quarterly disclosures in 2021 with positive feedback from the market.

Over the performance period, the CFO has made significant progress maturing the internal management systems relating to carbon dioxide (CO2) and ensuring these are reflected in decisions about portfolio, planning and resource allocation. In 2021, this included the delivery of carbon budgets within the annual business planning cycle for the first time. From the 2021 Annual Report, improved disclosure in the Annual Report.

The CFO led the delivery of the Shell Energy Transition Strategy publication, which is part of our continuing work to implement the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD). The report sets out how Shell plans to be resilient to expected changes in the energy system and how its strategy helps it to thrive as the world transitions to lower-carbon energy culminating in the first shareholder advisory vote at the 2021 AGM in May (88.74% of votes cast were in favour).

The REMCO considered the single-figure outcomes for the CEO and CFO. It noted that the overall remuneration outcomes were higher than in 2020, by 26% for the CEO and 24% for the CFO. The REMCO was satisfied that these single-figure outcomes represented a fair level of remuneration.

In finalising its remuneration decisions for 2021, the REMCO considered a range of factors, including:

  • Shell’s performance in 2021 and over the LTIP performance period 2019-2021;
  • The impact of the fatalities on the formulaic scorecard outcome, and further downwards adjustment applied by the REMCO on the bonus scorecard;
  • the ongoing leadership shown by the CEO and CFO in continuing to set out a clear strategic direction for Shell in the energy transition and delivering the organisational redesign necessary to deliver on those strategic promises;
  • a range of other factors taking account of Shell’s performance beyond the formulaic outcomes of defined pay architecture, including safety, ethics and compliance, and feedback from the Audit Committee and the Safety, Environment and Sustainability Committee (SESCo);
  • the final LTIP vesting outcome;
  • the CEO’s and CFO’s remuneration compared with the variable pay outcomes for the general workforce;
  • the alignment of the CEO and CFO with the shareholder experience through their high shareholding requirements; and
  • the personal performance of the Executive Directors.

After reflecting on the above factors, the REMCO was satisfied that the remuneration policies had operated as intended.

Pension

In 2021, Ben van Beurden’s pension arrangements comprised a defined benefit plan with a maximum pensionable salary of €100,861; and a net pay defined contribution pension plan with a 2021 employer contribution of 27% of salary in excess of €100,861. He has the option of taking cash as an alternative to pension contributions (in either case subject to income tax). He elected to take his benefit in the form of contributions up to and including November 2021.

The employer contribution levels were in line with those applicable to other Netherlands-based employees. Under the Dutch pension regulations applicable to the pension arrangement in which the CEO participates, the contribution rate increases with age and is shown below. At December 31, 2021, the average employer contribution rate for Netherlands employees who participate in the net pay defined contribution pension arrangement on the same terms as Ben van Beurden was 22%.

After relocating to the UK, from December 31, 2021, the CEO is eligible to participate in the UK Shell Pension Plan, with a contribution rate of 20%, or to take this as a pension cash alternative. The UK Shell Pension Plan and associated pension cash alternative are available to new employees in the UK at the same contribution levels and currently around half of the UK employees participate in these arrangements. The majority of the remainder participate in a legacy defined benefit plan which closed to new members from March 2013.

Jessica Uhl is a member of the Shell US retirement benefit arrangements, which include the Shell Pension Plan (a defined benefit plan), and a defined contribution plan where she receives an employer contribution of 10% of salary. This is the same as the average employer contribution rate for US employees, which was 10%. As for all other pre-2013 members of the Shell Pension Plan, she has an annual choice of two accrual formulas with different forms of benefits, one in the form of a lifetime annuity and the other allowing for a lump-sum payment. She elected to accrue benefits for 2021 under the former. Around 9,000 out of 15,000 Shell US employees have the option of choosing between the two formulas. These arrangements are the same for all employees who joined Shell US at the same time as Jessica Uhl. The difference in Jessica Uhl’s pension provision, compared with other employees who joined before 2013, is that because she is an Executive Director her bonus is not pensionable. For other relevant US employees the bonus is pensionable. She also has a deferred Dutch defined benefit pension plan, as a result of a previous Shell assignment on local Dutch terms and conditions.

The REMCO believes these arrangements are aligned with corporate governance developments in the UK which emphasise the desirability of Executive Directors’ pension arrangements being the same as those for the general employee population.

Shell Netherlands Pension Stichting net pay defined contribution ladder

0 5 10 15 20 25 30 35 65 – 67 60 – 64 55 – 59 50 – 54 45 – 49 40 – 44 35 – 39 30 – 34 25 – 29 20 – 24 15 – 19 65 – 67 60 – 64 55 – 59 50 – 54 45 – 49 40 – 44 35 – 39 30 – 34 25 – 29 20 – 24 15 – 19 30.13% 27.02% (2021 rate for Ben van Beurden) 23.29% 19.77% 17.07% 14.38% 12.31% 10.44% 8.99% 7.54% 6.30% Age Employer contribution

Scheme interests awarded in 2021

Scheme interests awarded to Executive Directors in 2021 (audited)

 

 

 

 

Potential amount vesting

Scheme interest type

Type of interest awarded

End of performance period

Target award [A]

Minimum performance (% of shares awarded) [B]

Maximum performance
(% of shares of the target award) [A]

LTIP

Performance shares

December 31, 2023

Ben van Beurden: 231,679 A shares, equivalent to 2.645 x base salary or €4,200,344. Jessica Uhl: 69,972 A ADS shares, equivalent to 2.485 x base salary or €2,572,119

0%

Maximum number of shares vesting is 200% of the shares awarded, before dividends.

[A]

The award for Ben van Beurden was based on the closing market price on the date of grant, March 5, 2021, for A shares of €18.13. The award for Jessica Uhl was based on the closing market price on the date of grant, March 5, 2021, for A ADSs of $43.85.

[B]

Minimum performance relates to the lowest level of achievement, for which no reward is given.

The measures and weightings applying to LTIP awards made in 2021 were: energy transition (20%), FCF (20%), TSR (20%), ROACE growth (20%) and growth in cash flow from operating activities (20%).

Absolute measures

Energy transition

The energy transition condition supports the delivery of Shell’s net carbon intensity (NCI) target (calculated using Shell’s Net Carbon Footprint (NCF) methodology).

The condition consists of a mix of leading and lagging measures that help establish the basis for achieving Shell’s longer-term strategic ambitions. They are as follows:

Lagging measure – a measure of our progress in meeting our ambition:

  • Reducing the carbon intensity of all energy products sold: a target for reducing the NCI of the energy products Shell sells (a carbon intensity measure that takes into account the full life-cycle emissions of products, including customers’ emissions associated with using them).

Leading measures – Shell will use these to reduce our NCI in the future:

  • The growth of our Power business: all scenarios recognise that one of the main ways to cut greenhouse gas emissions is to use more electricity, produced via lower-carbon means such as renewables and gas-fired power generation. Our ambition is to expand our Power business through selective investments in generation and by reselling power generated by others.
  • Offer more lower-carbon energy products: biofuels are expected to play a valuable role in the changing energy mix. They are likely to be one of the main ways to reduce carbon emissions in sectors that need to keep using liquid fuels for a significant number of years, such as some segments of transport and industry.
  • The development of systems to capture and absorb carbon: carbon capture usage and storage (CCUS) and carbon sinks, such as nature-based solutions, need to be part of the global response to climate change.

Shell has set targets for each element. Progress in the energy transition is not expected to be linear because it will reflect the pace of change of society as a whole and the speed at which Shell makes progress with its strategic business objectives. As a result, targets have been set as ranges. These targets are commercially sensitive, so they will not be disclosed until the end of the performance period (or until they are no longer considered commercially sensitive). An update on our performance in relation to the measures set for the 2019 LTIP is provided on page 180.

The vesting outcome for the part of the LTIP weighted to the energy transition condition ranges from 0% to 200% of award. The REMCO, at its sole discretion, will determine vesting outcomes after considering achievement against the target ranges and feedback from the SESCo. The REMCO will consider, in relation to each element, progress over the performance period relative to short-term aims that encourage progress towards Shell’s long-term NCI ambition. The starting point for determining the vesting outcome will be how many of the targets have been met for each of the four areas. One out of four will equal 40%, two will equal 100%, three will equal 150%, and 200% will be awarded for scoring four out of four. It is important to note that performance against these elements will serve simply as a starting point for the REMCO, which will also take into account any other considerations it deems appropriate, including (without limitation) the relative importance of these elements in meeting the long-term ambition announced by Shell. For example, the REMCO may decide to allocate a greater importance to overall performance in relation to the NCI than the other three elements. The REMCO believes this approach is appropriate, given the uncertainties around the speed and direction of progress in the energy transition. The REMCO will fully disclose and explain the application of any discretion.

2021 energy transition performance condition – measures

Performance is assessed based on our reduction in the carbon intensity of all energy products sold and progress on the key strategic means of achieving decarbonisation:

Reducing the carbon intensity of all energy products sold intensity vs. base yearmeasured by Net Carbon Footprint Develop emission sinks Nature-based solutions Carbon capture, utilisation and storage Grow new lower-carbon energy product offerings Electric vehicle charging network Advanced biofuels Deployment of low-carbon fuels Hydrogen business development Build a material Power business Total power sales Reduce the carbon intensity of the Power portfolio Renewable powergeneration capacity Reducing the carbonintensity of all energy products sold Build a materialPower business Grow new lower-carbonenergy product offerings Develop emissionsinks intensity vs. base yearmeasured by Net Carbon Footprint Total power sales Electric vehicle charging network Nature-based solutions Carbon capture, utilisation and storage Advanced biofuels Deployment oflow-carbon fuels Hydrogen businessdevelopment Reduce the carbon intensity of the Power portfolio Renewable powergeneration capacity
Quantitative targets are set for each metric. Vesting will be based on how many of the four targets are met. 1/4 equals 40%, 2/4 equals 100%, 3/4 equals 150% and 4/4 equals 200%. The REMCO will apply judgement in determining the final outcome after taking advice from the SESCo.

FCF

The FCF performance condition supports the delivery of our cash flow priorities, which are to service and reduce debt, pay dividends, buy back shares and make future capital investments.

The target for FCF, along with the ranges for threshold and outstanding performance, will be set by reference to Shell’s annual operating plans, being the aggregate of our plan FCF targets over the three-year performance period. Given that FCF is heavily influenced by the volatility of oil and gas prices, the annual operating plans are updated each year to set an annual target to reflect a changing oil price premise. As a result, FCF targets are set annually for each annual operating plan and will only be disclosed in aggregate retrospectively after the three-year period. The REMCO has considered setting a three-year target at the outset, but it believes such an approach would require adjustments for the oil and gas price premise and other matters at the end of the period, given the unpredictability and volatility in oil and gas prices. The REMCO has a long-standing no-adjustments policy which leads it to believe that a more appropriate approach is to set the target based on the aggregation of the annual operating plans.

The amounts payable under this measure will range from 20% of the available maximum, for threshold performance, to full vesting for outstanding performance. A straight-line vesting schedule will apply for performance between threshold and outstanding.

Relative measures

The relative measures are based on our performance on a number of key financial measures against the our closest comparators.

For relative measures, we rank growth based on the data points at the end of the performance period compared with those at the beginning of the period, using publicly reported data.

  • TSR, calculated in US dollars using a 90-day averaging period, 45 days either side of the start and end of the performance period;
  • ROACE growth. For this purpose, to facilitate the comparison, the calculation of ROACE differs from that described in “Performance indicators because there is no adjustment for after-tax interest expense; and
  • growth in cash flow from operating activities.

Each relative measure affects vesting independently, with the amounts payable ranging from 0% to 200%, in accordance with the following vesting schedule:

  • ranking first equals 200% vesting for the LTIP element weighted to that measure;
  • ranking second equals 150% vesting for the LTIP element weighted to that measure;
  • ranking third equals 80% vesting for the LTIP element weighted to that measure; and
  • ranking fourth or fifth equals 0% vesting for the LTIP element weighted to that measure.

TSR Underpin

If the TSR ranking is fourth or fifth, the level of the award that can vest on the basis of the other measures will be capped at 50% of the maximum.

Performance update on FCF

2020 LTIP award

At December 31, 2021, FCF performance is above target, with a below-threshold outcome for 2020 of $20.8 billion (target $38 billion) balanced by a strong performance in 2021 of $40.3 billion (target $9 billion). As one year of FCF performance remains, and 77.5% of the award is subject to relative and energy transition performance conditions, this does not reflect the potential vesting of the award.

2021 LTIP award

At December 31, 2021, FCF performance, $40.3 billion for 2021, is above target ($9 billion). As two years of FCF performance remain, and 80% of the award is subject to relative and energy transition performance conditions, this does not reflect the potential vesting of the award.

AGM
Annual General Meeting
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FCF
free cash flow
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LTIP
Long-term Incentive Plan
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REMCO
Remuneration Committee
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ROACE
return on average capital employed
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TSR
total shareholder return
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