Thursday, June 3, 2010

BP - A Look at Tony Hayward's Compensation Package

Updated to December 8th, 2010

Tony Hayward's options are still out of the money other than 275,000 EDIPs issued at 422 pence in February 2005.  As it stands now, he'll make about £90,000 at today's trading price.

Updated to September 17th, 2010

BP has finally abandoned their Macondo well. CEO Tony Hayward's options - still out of the money with a closing price of 410.88 pence. It will be interesting to see if the stock reacts positively to the news this week.

Updated to July 15th, 2010

From reports yesterday, it appears that BP has been at least partially successful at capping their blowout in the Gulf of Mexico. Anger has also been building toward the Obama administration; many feel that their response to the catastrophe has been insufficient.

The stock market has already punishing BP shareholders and its executive team. Here's a screen cap of the chart for the past year from the London Stock Exchange. Notice that the price is in pence (for reasons that will become apparent later):

The stock is now off its 52 week low; it hit a high of 658 pence back in April 2010 and closed at 401 pence on July 15th, 2010, a haircut of 39% from its peak.

Here's the 5 year chart:

Back in mid-2006, BP stock peaked at just over 700 pence, and for the preceding year it traded in the 550 to 650 pence range. The stock hit a five year low just under 400 pence in October 2008 when the world's markets tanked in anticipation of the second Great Depression.

In looking through BP's 2009 Annual Report, I found information on the performance share element (EDIP or Executive Directors' Incentive Plan) of the compensation package for Dr. A. B. (Tony) Hayward, CEO of BP. Under the performance shares element of his compensation package, Dr. Hayward is entitled to receive up to 5.5 times his annual salary in shares which vest after three years based on performance relative to other major oil companies and are then retained for three years after vesting. Here's what was in the BP Annual Report for 2009 showing Dr. Hayward's performance share receipts over the past 4 years:

Note that the market price of the shares ranges from 510 to 654 pence. At the price BP stock is trading today, he's out of the money for all 2.36 million potential maximum performance shares as well as all 214,000 performance shares that have vested effective December 31, 2009.

Here's a chart from the same report showing Dr. Hayward's stock option holdings:

As of December 31, 2009, Dr. Hayward had 550,000 shares in option with prices ranging from 422 pence to 599 pence with expiry dates ranging from May 15, 2010 to February 29, 2012. None of his options are in the money; he exercised 220,000 options on February 17, 2010 at 588 pence for net proceeds of 440,000 British Pounds ($792,000 Canadian using an average of $1.80 Canadian per British Pound for 2009).

Other than Dr. Hayward's base salary of 1.045 million British Pounds ($1.88 million Canadian) and his 2009 Annual Performance Bonus of 2.090 million British Pounds ($3.762 million Canadian) which should be plenty to live on, his compensation package consisting of BP stock is relatively valueless at this point in time with today's depressed share price. In fact, compared to much smaller oil companies, even when BP's share price was at normal levels, the stock compensation package was quite modest. In fact, if we compare Dr. Hayward's total compensation package of 3.158 million British Pounds ($5.68 million Canadian) for 2009, it appears to be almost cheap when compared to the remuneration paid to Mr. Robert Long, CEO of Transocean who owned the ill-fated rig that sank in the Gulf. Mr. Long's total compensation package went from $10.6 million in 2007 to $13.1 million in 2008 and then to a whopping $15.2 million in 2009. Now that's what I call bringing home the bacon...a whole lot of bacon!

Having said that, BP investors have to ensure that BP doesn't make an ill-advised decision to issue stock options to their executives while their stock price is low, a practice that takes place far too often. I would hope that BP would issue no performance stock under their EDIP for 2010 and that no additional options would be issued until all costs of the Gulf of Mexico cleanup have been paid and dividends restored should they be cut. As well, Annual Performance Bonuses should also be off the table for at least 2010.

Let's hope that BP does the right thing. Share the misery with your stakeholders.


  1. I heard he sold all his shares of BP , a month before the spill happened ! Notice the price of BP is going up as of of today 7/12/10 @sneakerme on Twitter

  2. these people are corporate criminals. they belong in jail and cannot be trusted to do any of the right things. profit is their creed. they care about nothing else. screw the redcoats.

  3. Come on people. Get real. Profit is what drives the world. Who among us will work for free? What we need to concentrate on is abuse of power. The oil companies abuse the power by raising prices at the pumps when things go wrong and expecting the public to pay for their mistakes. Insurances and emergency funds should bail them out, not the public at large. They know we have to have their product and rape us at the pumps.

  4. this kind of money is criminal. these execs certainly don't carry the amount of personal or corporate or humane responsibility that would warrant these kind of paychecks.