Directors’ Remuneration for 2022

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

Pension

During the year, Ben van Beurden and Sinead Gorman were eligible to participate in the defined contribution UK Shell Pension Plan with an employer contribution rate of up to 20% of salary, or take this as a pension cash alternative. They chose the latter. The UK Shell Pension Plan or associated pension cash alternative is available to new Shell employees in the UK at the same contribution levels and currently around half of UK employees participate in these arrangements. The majority of the remainder participate in a legacy defined benefit plan, which closed to new members in March 2013. Sinead Gorman was a member of this plan prior to her appointment as CFO.

Jessica Uhl was a member of the Shell US retirement benefit arrangements, which included the Shell Pension Plan (a defined benefit plan), and a defined contribution plan where she received an employer contribution of 10% of salary. This was the same as the average employer contribution rate for US employees. As for all other pre-2013 members of the Shell Pension Plan, she had 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 2022 under the former. Around 7,700 out of 13,000 Shell US employees have the option of choosing between the two formulas. These arrangements are the same for all employees who joined Shell US before 2013. The difference in Jessica Uhl’s pension provision, compared with other employees who joined before 2013, is that because she was an Executive Director her bonus was not pensionable. For other relevant US employees the bonus is pensionable.

The REMCO believes these pension arrangements are aligned with best practice guidance in the UK which focuses on the alignment of Executive Directors’ pension arrangements with those for the general employee population.

Annual bonus

The annual bonus is intended to reward the delivery of short-term targets derived from the operating plan. The REMCO reviewed performance against the scorecard, as follows:

Financial delivery (35% weighting): in a turbulent economic environment, robust operational performance and a resilient portfolio have enabled Shell to deliver CFFO (including working capital) of $68 billion. This exceeded our outstanding performance threshold of $45 billion, leading to a maximum outcome on this measure. It is worth repeating that the REMCO has long had a policy of not adjusting remuneration measures to take account of changes in energy prices and currency fluctuations, which supports alignment between pay outcomes and the shareholder experience. In engagements with our largest shareholders, many have appreciated the transparency that this brings.

Operational excellence (35%): delivery of our Powering Progress strategy is underpinned by Shell’s ability to operate its assets efficiently, deliver major projects on time and on budget, and leverage its strong customer relationships to create value:

• Asset management excellence: Upstream controllable availability was below threshold, and Midstream availability was below target. Refining and Chemicals availability was on target against the plan.
• Project delivery excellence: project delivery was at target.
• Customer excellence: customer satisfaction was above target, as the collective effort and resilience of our teams, together with proactive customer engagements, helped reduce the impact on customers from supply chain challenges that continue to negatively impact some businesses. However, our Brand Share of Preference (BSP) was below threshold.

Overall the outcome for operational excellence was below target.

Shell’s journey in the energy transition (15%): Powering Progress sets out a strategy to accelerate Shell’s transition to net-zero emissions; this means changing the products we sell and reducing our emissions. For 2022, the REMCO introduced three new metrics designed to more fully reflect Shell’s role in the energy transition:

• Selling lower-carbon products: we are evolving our business models to include lower-carbon energy products (thereby reducing emissions), as well as non-energy products and convenience retail. Performance is measured based on the proportion of earnings in the Marketing segment coming from lower-carbon energy products, as well as non-energy products (see "Remuneration Committee and principles" for the list of products included in this metric). In 2022, the REMCO set a target of 60% of earnings from these products, which was met.
• Reducing our emissions as an energy user: performance is assessed based on GHG abatement projects that result in ongoing Scope 1 and 2 GHG reductions such as flare reduction and energy efficiency projects, site closures, decommissioning and transformations, and increasing the use of renewable electricity in our operations. This metric is about the delivery of projects which result in sustained emission reductions. It does not include the impact of divestments and acquisitions. The 2022 outcome was outstanding, with total emissions reductions of 2,010 Kt of CO₂ well ahead of our target of 1,700 Kt of CO₂.
• Partnering to decarbonise: we have set annual targets measuring our roll-out of electric vehicle charging points, in line with Shell’s target of having more than 500,000 electric vehicle charging points by 2025. The target for 2022 was to achieve 130,000 charging points by the end of the year, and 138,610 charging points were in operation by the end of 2022, resulting in above-target performance.

Overall the score on the Shell’s journey in the energy transition measure was above target.

Safety (15%): Powering Progress is underpinned by a focus on safety. It is critical that Shell runs its day-to-day operations safely and ensures the well-being of all our people.

• Process safety continues to be measured through the number of Tier 1 and 2 operational safety incidents and was above maximum, with 66 events recorded compared with 103 in 2021.
• Personal safety SIF-F performance is assessed based on the number of serious incidents which might occur in Shell’s businesses based on the work plan for the year and our knowledge of industry incident rates. Our ultimate goal is zero harm to people working for Shell. Shell has made tremendous improvements to safety performance over a long period of time. Measures such as SIF-F are important tools to give focus to those incidents with the most serious consequences and continue to drive improvement. Overall, in 2022, we had fewer serious safety incidents, recording eight incidents in 2022, down from 32 in 2021, which is testament to the ongoing focus of our employees in keeping colleagues safe.

Overall, the score on the safety measure was at maximum. As noted in the REMCO Chair’s introduction, the REMCO reflected carefully on safety particularly in light of the two fatalities, and determined not to make any adjustments.

Further information is provided in the “REMCO reflections on safety” section.

The table below summarises the 2022 annual bonus scorecard measures including their weightings, targets and outcomes. The scorecard outcome for 2022 was 1.46.

Accordingly, the REMCO decided the final bonus outcome should be 146% of target and 73% of maximum. This results in a bonus of £2,590,000 for Ben van Beurden and £1,180,000 for Sinead Gorman for the period she was CFO during 2022.

Long-term Incentive Plan vesting: 2020 LTIP

In 2020, Ben van Beurden was granted a conditional share award under the LTIP of 300% of salary. Sinead Gorman’s 2020 award is also disclosed for transparency, notwithstanding that she was not an Executive Director at the time. The awards were made prior to the onset of COVID-19 in March 2020, meaning there was no possibility of windfall gains from the subsequent fall in share price. While there was a 13% reduction in share price since the 2019 award, this was below the threshold at which an adjustment would be considered, and therefore no adjustment was made to the award size.

In determining the vesting outcome, the REMCO considered Shell’s performance over the three-year period January 1, 2020 to December 31, 2022:

• Relative CFFO: in absolute terms, 2022 performance was strong with CFFO at $68 billion (including working capital). On a relative basis as compared against the 2019 base year when Shell also generated strong CFFO of $42 billion, Shell ranked fourth, resulting in 0% vesting for this measure.
• Relative TSR: over the performance period, Shell returned around $44 billion to shareholders in the form of dividends and share buybacks, whilst TSR was 14.3%. Relative to the other energy majors, Shell’s TSR ranked fourth, resulting in 0% vesting for this measure.
• Relative ROACE: Shell’s absolute 2022 ROACE for LTIP purposes was 15.9% (note that ROACE for the LTIP calculation is based on disclosed net income and is not adjusted for the after-tax interest expense and therefore differs from disclosed ROACE). On a relative growth basis compared against 2019 when Shell’s ROACE was 5.80%, Shell ranked third, resulting in a 80% of target vesting outcome.
• Absolute FCF: strong performance in 2021 and 2022 resulted in total FCF of $107.1 billion being generated over the three years, above our maximum threshold of $80 billion. This resulted in a 200% of target vesting outcome on this measure. Note that FCF for the first three quarters of 2022 is 3.5x higher than the equivalent in 2013, when Brent price was similar, evidencing strong management performance in addition to price tailwinds.
• Absolute energy transition: the outcome of this measure is determined holistically by the REMCO, taking account of Shell’s performance against defined performance indicators and also Shell’s wider performance in accelerating its transition to a net-zero emissions business. Overall, the REMCO determined the vesting outcome as 180% of target. Commentary on energy transition performance is provided below.

The 2020 LTIP energy transition metrics focused on those elements that we understood at the time would make the most impact in achieving our goals over the three-year performance period relating to net carbon intensity, the growth of our power business, the growth of lower-carbon products, and the development of systems to absorb, capture and store carbon. The approach to the LTIP allows us to experiment and learn what is effective and which behaviours and actions will deliver net zero in a profitable way. Accordingly, the REMCO uses the performance indicators as guidance, rather than applying a formulaic vesting outcome, when making its decisions.

Our carbon targets

In 2022 we continued our progress on our path to net zero by 2050. At the end of 2022, we reduced our Scope 1 and 2 emissions by 30%, and the net carbon intensity of our energy products by 3.8% from our 2016 reference year.

2020 energy transition performance condition: outcome

To help to transform the energy system, Shell’s strategy is to develop a portfolio that will:

• provide more electricity to customers, while also driving a shift to renewable electricity;
• develop low- and zero-carbon alternatives to traditional fuels, including biofuels and hydrogen; and
• address any remaining emissions from conventional fuels with solutions such as carbon capture and storage and nature-based solutions.

Progress against these strategic goals is assessed under the LTIP, alongside the reduction in the total net emissions of all energy products sold, as measured by Shell’s net carbon intensity (NCI) target.

The REMCO reviewed Shell’s broader performance over the performance period (see below for detailed discussion), and also reflected on the share price at award and on vesting, noting that the share price had increased by 24%, and that appreciation accounted for 16% of the total value of the CEO’s LTIP at vest, and was satisfied that no windfall gain had arisen.

The REMCO decided that the LTIP outcome was consistent with the target opportunity and intended operation of the plan under the Policy and appropriate, and therefore no adjustment to the vesting outcome was required. Accordingly, the REMCO decided that the LTIP should vest at 81% of target (equivalent to 41% of maximum).

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

Consideration of 2022 final pay outcomes

In determining the final pay outcomes for 2022, the REMCO also considered the personal performance of the Executive Directors.

Personal performance

It has been an unprecedented period for the energy sector. The exceptionally strong financial performance in 2022 is attributable in part to the macro environment, but also, in the view of the REMCO, reflects the outstanding personal contributions and teamwork from management in recent years. Over the last three years, the Executive Directors have demonstrated strong and compassionate leadership navigating the Company through the pandemic and volatility in energy prices. They also implemented a new organisational structure (Project Reshape), simplified the share structure and aligned the Company’s tax residence with its country of incorporation to strengthen Shell’s competitiveness and accelerate both shareholder distributions and delivery of strategy to become a net-zero emissions energy company.

The REMCO considered the single figure outcomes for the CEO and the CFO. It noted that the overall remuneration outcome was higher than last year for the CEO. The REMCO was satisfied that these single figure outcomes represented a fair level of remuneration. In finalising its remuneration decisions for 2022, the REMCO considered a range of factors, including:

• Shell’s performance in 2022 and over the LTIP performance period 2020-2022 and the formulaic outcomes of the bonus and the LTIP performance condition;
• The impact of fatalities on the formulaic scorecard outcome;
• Absolute and relative TSR performance over the period;
• A range of other factors that take account of Shell’s performance beyond the formulaic outcomes of the variable pay structures, including safety, reputation, ethics and compliance, and feedback from the Audit Committee and the Safety, Environment and Sustainability Committee (SESCo);
• The macro-economic environment and wider stakeholder experience, and shareholders’ expectations with regard to executive pay decision-making;
• The Executive Directors’ remuneration compared with the variable pay outcomes for the general workforce;
• The alignment of the Executive Directors with the shareholder experience through their high shareholding requirements;
• The Executive Directors’ remuneration compared with historical outcomes; and
• The personal performance of the Executive Directors.

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

2022 LTIP

Scheme interests awarded to Executive Directors in 2022 (audited)

In 2022, the Executive Directors were granted conditional share awards under the LTIP as set out in the table below. In approving the awards, the REMCO considered Shell’s historical share price, including the share price over the prior year, and noted that the share price at grant was not lower than average historical levels for both Executive Directors and was higher than in 2021. The REMCO determined that the risk of windfall gain was limited, and therefore no adjustment was made to the award size.

The measures and weightings applying to LTIP awards made in 2022 were: CFFO (20% weighting), TSR (20%), ROACE (20%), FCF (20%), and energy transition (20%).

Relative measures

The relative measures are based on our performance on a number of key financial and external measures against our closest comparators. For each measure, we rank growth based on the data points at the end of the performance period compared with those at the beginning of the period.

• As in prior years, the CFFO metric is based on point-to-point growth in CFFO from the base year to the final year of the performance period.
• TSR is based on the change in share price plus dividends, and is calculated in US dollars using a 90-day averaging period (based on 45 days either side of the start and end date of the performance period).
• The ROACE metric is defined as point-to-point growth in ROACE from the base year to the final year of the performance period, where ROACE is net income as a percentage of the average capital employed for the period. Capital employed consists of total equity, current debt and non-current debt. To facilitate comparison, our calculation of Shell’s ROACE for the purpose of the LTIP differs from that described in “Performance indicators” in that there is no adjustment for after-tax interest expense.

Vesting under each relative measure is assessed independently, with the vesting outcome ranging from 0% to 200% of the target award in respect of the measure, in accordance with the following vesting schedule:

• Ranking first equals 200% vesting;
• Ranking second equals 150% vesting;
• Ranking third equals 80% vesting; and
• Ranking fourth or fifth equals 0% vesting.

Outperforming Shell’s closest competitors on key financial metrics is challenging. The REMCO is aware that vesting for median performance is generally set at a limit of 25% of maximum for other UK companies, but notes that this is typically applied against a larger comparator group. A vesting outcome of 80% for median performance (40% of maximum) in a small comparator group is considered appropriate by the REMCO.

Absolute measures

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 performance targets for FCF will be set by reference to Shell’s annual operating plans, based on the aggregate of 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 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.

Under the FCF measure, achievement of threshold performance will result in 40% of the target award (20% of maximum) in respect of the FCF measure vesting, increasing to full vesting for achievement of outstanding performance. A straight-line vesting schedule will apply for performance between threshold and outstanding.

Energy transition

For the 2022 award, the energy transition element comprised a number of strategic measures that laid the foundation for Shell to achieve our longer-term ambitions in the energy transition. There are four main categories, a mix of leading and lagging indicators, each comprising a number of quantitative and qualitative performance indicators. Performance in each category is reviewed independently; together, it provides a guiding framework for the REMCO’s holistic assessment of energy transition performance over the three years. In determining the final vesting outcome between 0% and 200% of the target level, the REMCO takes account of Shell’s wide progress in the energy transition beyond the defined measures.

The four measures are as follows:

• Build a valuable power business: our ambition is to expand our power business through selective investments in generation and by reselling power generated by others;
• Grow new low- and zero-carbon energy product offerings: continue to invest in low- and zero-carbon products such as renewable electricity, hydrogen, biofuels and chemicals;
• Develop emission sinks: invest in carbon capture and storage opportunities, to reduce emissions where there are no currently scalable low-carbon alternatives, and in the development of high-quality nature-based projects, to compensate for emissions; and
• Net Carbon Intensity: reduce NCI of the energy products Shell sells.

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, performance indicators have been set as ranges. The quantitative performance indicators 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).

Further information on the energy transition performance measure is provided in the section “Executive Directors”.

For an update on Shell’s energy transition, see the Shell Energy Transition Progress Report from www.shell.com.

TSR underpin

If Shell’s 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

2021 LTIP award

At December 31, 2022, FCF performance was above target, with a strong outcome of $40.3 billion for 2021 (target $9 billion), and $46 billion for 2022 (target $18 billion). As one year of FCF performance remains, and 80% of the award is subject to relative and energy transition performance conditions, this does not reflect the potential vesting of the award.

2022 LTIP award

At December 31, 2022, FCF performance was above target, based on $46 billion for 2022 (target $18 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.

Executive Director changes

The previous CFO, Jessica Uhl, began working in the UK effective December 31, 2021. In early 2022, we announced that given her family circumstances, a long-term relocation to the UK was not sustainable, and the Company accelerated the managed succession plan and Jessica Uhl stepped down as CFO and as a Director of Shell plc on March 31, 2022, and left Group service on June 30, 2022. Details of Jessica Uhl’s remuneration for 2022 may be found in the single figure table on top of this page, and the “Payments for loss of office” and “Payments to past Directors” sections.

As disclosed in last year’s Directors’ Remuneration Report, Sinead Gorman was appointed to the Board as CFO effective April 1, 2022. On appointment, her salary was £900,000 per annum, and during 2022, she received salary and benefits in line with the Policy, and her pension is aligned to the UK defined contribution pension arrangements offered to new Shell employees. Sinead Gorman was also eligible to receive a pro rata annual bonus of up to 240% of salary and a target LTIP award of 270% of salary, in line with the Policy. The remuneration paid to Sinead Gorman in respect of her service as an Executive Director during 2022 is disclosed in the single figure table.

As a result of a managed succession process led by the Chair of the Board, Ben van Beurden stepped down as CEO on December 31, 2022. He will continue working as a full-time adviser to the Board, focusing on matters related to the cost-of-living crisis, energy security, and supporting advice to governments and regulators until June 30, 2023, after which he will leave the Group. Ben van Beurden will be eligible for a pro-rated annual bonus in relation to the performance year 2023, and his outstanding LTIP awards will be reduced to reflect time served, and vest at the normal time subject to performance. Ben van Beurden will not receive a 2023 LTIP award.

Ben van Beurden’s contract was a rollover of the Dutch end-of-employment arrangements under which cessation of employment was by mutual agreement and not by notice. Accordingly, the 2020 Policy provided for a maximum loss of office payment of one year’s annual pay (base salary plus target bonus), in line with Dutch statutory end-of-employment compensation.

Following relocation to the UK, the Dutch statutory provisions are no longer the appropriate point of reference and in determining the appropriate compensation for loss of office the REMCO took into consideration UK market norms and acted in the best interests of Shell and shareholders as a whole. Ben van Beurden will receive a payment of £1,420,000, equivalent to one times base salary (which, for the avoidance of doubt, does not include target bonus), to be phased in six equal monthly instalments between July 1, 2023 and December 31, 2023, and outstanding payments will be reduced by 50% if he secures a paid position (excluding Non-executive Directorships) in that period.

While Ben van Beurden was under a four-month notice period as a legacy of his Dutch arrangements, his cessation of employment is by mutual agreement and therefore notice has neither been given nor received. Had cessation of employment been by notice, it would have commenced from the date of announcement of his stepping down as an Executive Director. Going forward, the 2023 Policy proposes alignment to UK market practice (i.e. a 12-month notice period).

Ben van Beurden and Jessica Uhl are subject to post-employment shareholding requirements for a period of two years post-termination, and their share awards remain subject to holding periods.

As previously announced, Wael Sawan was appointed as CEO effective January 1, 2023. His salary is £1,400,000, and he receives benefits and pension (in the form of pension cash allowance of 20% of salary) in line with the Policy. He is eligible for a target annual bonus of 125% of salary, and he received a target award under the LTIP of 300% of salary in February 2023.