Executive Directors

Salary and pensionable base salary

Purpose and link to strategy

Provides a fixed level of earnings to attract and retain Executive Directors.

Maximum opportunity

€2,000,000

Operation and performance management

Reviewed annually with adjustments effective from January 1.

In making salary determinations, the REMCO will consider:

• the market positioning of the compensation packages;
• comparison with Senior Management salaries;
• the employee context, and planned average salary increase for other employees across the Netherlands, the UK and the USA;
• the experience, skills and performance of the Executive Director, or any change in the scope and responsibility of their role;
• general economic conditions, Shell’s financial performance, and governance trends; and
• the impact of salary increases on pension benefits and other elements of the package.

For Executive Directors employed outside their base country, euro base salaries are translated into their home currency for pension purposes. Pensionable base salaries are maintained in line with euro base salaries taking into account exchange rate fluctuations and other factors as determined by the REMCO.

Benefits

Purpose and link to strategy

Provides benefits, in line with those applicable to the wider workforce, in order to attract and retain Executive Directors.

Maximum opportunity

The maximum opportunity is the cost of providing the benefit under Shell’s standard policy. These costs can vary.

For certain benefits, for example, relocation and tax equalisation, the maximum opportunity will be the grossed-up cost of meeting the specific Executive Director’s costs.

Operation and performance management

Typical benefits include car allowances and home-to-office transport, risk benefits (for example ill-health, disability or death-in-service), security provision, and employer contributions to insurance plans (such as medical). Precise benefits will depend on the Executive Director’s specific circumstances. Post-retirement benefits such as healthcare and ongoing security provision may be applicable. Shell’s mobility policies may apply, such as for relocation and tax return preparation support, as may tax equalisation related to expatriate employment prior to Board appointment, or in other limited circumstances to offset double taxation. The REMCO may adjust the range and scope of the benefits offered in the context of developments for other employees in relevant countries. Personal loans or guarantees are not provided to Executive Directors.

Annual bonus

Purpose and link to strategy

Rewards the delivery of short-term operational targets as derived from Shell’s operating plan.

To reinforce alignment with shareholder interests, 50% is delivered in cash and 50% is delivered in shares. The shares are subject to a three-year holding period, which applies beyond an Executive Director’s tenure.

Maximum opportunity

Maximum bonus (as a percentage of base salary):

• Chief Executive Officer (CEO): 250%
• Chief Financial Officer (CFO): 240%

Target levels (as a percentage of base salary):

• CEO: 125%
• CFO: 120%

Operation and performance management

• The bonus is determined by reference to performance from January 1 to December 31 each year;
• Annual bonus = base salary x target bonus % x scorecard result (0–2);
• Taking the Shell operating plan into consideration, REMCO sets stretching scorecard targets and weightings which support the delivery of the strategy. Measures are related to financial performance, operational excellence and sustainable development. Indicative weightings are 30%, 50% and 20% respectively. This balance ensures that the achievement of short-term financial performance does not undermine future shareholder value creation;
• Scorecard targets will be disclosed in a subsequent Directors’ Remuneration Report when they are no longer deemed to be commercially sensitive;
• There are no prescribed thresholds or minimum levels of performance that equate to a prescribed payment under the Policy and this structure can result in no bonus being awarded;
• The annual bonus is subject to malus provisions before it is delivered and to clawback provisions thereafter;
• The REMCO retains the ability to adjust performance measure targets and weightings year-by-year within the overall target and maximum payouts approved in the Policy; and
• In the event that another Executive Director joins the Board, the REMCO will determine their target and maximum bonus, which will not exceed the target and maximum for the CEO.

Long-term Incentive Plan (LTIP)

Purpose and link to strategy

Rewards longer-term value creation linked to Shell’s strategy. The measures predominantly focus on financial growth and increases in value compared with the other oil majors, supported by measures focused on the achievement of Shell’s ambitions in the energy transition.

To reinforce alignment with shareholder interests, shares delivered from vested LTIP awards are subject to a three-year holding period, which applies beyond an Executive Director’s tenure.

Maximum opportunity

Target award of 300% base salary.

Awards may vest at up to 200% of the shares originally awarded, plus dividends.

Operation and performance management

• Award levels are determined annually by the REMCO within the approved policy maximum;
• Awards may vest between 0% and 200% of the initial award, depending on Shell’s performance assessed on either an absolute basis against strategic targets or on a relative basis against the other oil majors;
• Performance metrics and targets are set by the REMCO at the beginning of the relative performance period. When setting performance targets, the REMCO allocates weightings to each metric as it considers appropriate, taking into account strategic priorities;
• For 2020, performance is assessed over three years based 90% on financial metrics (TSR, ROACE, FCF and CFFO) which support our strategic ambition to provide a world-class investment case and 10% on a measure focused on thriving in the energy transition;
• Additional shares are released representing the value of dividends payable on the vested shares, as if these had been owned from the award date;
• LTIP awards (net of tax) must be held for a further three years to align with Shell’s longer-term time horizon and strategy;
• The LTIP award is subject to malus provisions before it is delivered and to clawback provisions thereafter;
• The REMCO may adjust or change the LTIP measures, targets and weightings to ensure continued alignment with Shell’s strategy; and
• In the event that another Executive Director joins the Board, the REMCO will determine their award level.

Discretion, Malus and Clawback

Purpose and link to strategy

Enables the management of risks from behavioural-based incentive schemes and the REMCO to manage the range of pay outcomes.

Maximum opportunity

Adjustment events exist for the purposes of applying malus and clawback.

The REMCO retains discretion to adjust pay outcomes.

Operation and performance management

The REMCO retains the discretion to adjust mathematical outcomes of the annual bonus scorecard and/or LTIP vesting for any Executive Director if and to the extent that it considers this appropriate at their sole discretion.

The use of any discretion will be disclosed and explained.

The REMCO may adjust pay outcomes for the purposes of managing quantum. This would be done at the REMCO’s discretion after considering single figure outcome for the year, taking into account Shell’s performance, the operation of the remuneration structures and any other relevant considerations.

Please refer to Notes to the Executive Directors’ remuneration policy table for a summary of the defined adjustment events.

Pension

Purpose and link to strategy

Provides a competitive retirement provision under the individual’s base country benefits policy, to attract and retain Executive Directors.

Maximum opportunity

Determined by the rules of the base country pension plan of which the Executive Director is a member.

Operation and performance management

Executive Directors’ retirement benefits are maintained in line with those of the wider workforce in their base country. Only base salary is pensionable, unless country plan regulations specify otherwise and cannot legally be disapplied. The rules of the relevant plans detail the pension benefits which members can receive. The REMCO retains the right to amend the form of any Executive Director’s pension arrangements where appropriate, for example in response to changes in legislation to ensure the original objective of this element of remuneration is preserved.

New Executive Directors, whether internal appointees or external hires, will be provided with a retirement benefit in line with the wider workforce in their base country. For individuals who are members of a defined benefit pension arrangement:

• The pensionable salary will be capped at the salary applicable immediately prior to appointment, with the exception of existing US base country participants who will have the bonus removed from the definition of pensionable base salary instead; and
• The Executive Director will join a defined contribution scheme in their base country for contributions made in respect of salary above the defined benefit pensionable salary, or in exceptional circumstances, receive a cash allowance equivalent to the contribution above the cap.

Shareholding requirement

Purpose and link to strategy

Aligns interests of Executive Directors with those of shareholders by creating a connection between individual wealth and Shell’s long-term performance.

Maximum opportunity

Shareholding (% of base salary):

• CEO: 700%
• CFO: 500%

Operation and performance management

Executive Directors are expected to build up their shareholding to the required level over a period of five years from appointment and, once reached, to maintain this level for the full period of their appointment. The intention is for the shareholding guideline to be reached through retention of vested shares from share plans. The REMCO will monitor individual progress and retains the ability to adjust the guideline in special circumstances on an individual basis.

The Executive Director will be required to maintain their shareholding requirement (or existing shareholding if lower) for a period of two years from the date they cease to be an employee.

In the event that another Executive Director joins the Board the REMCO will determine their Shareholding requirement level, which will not be less than 200% in line with corporate governance best practice.