Remuneration roadshow – Q4 2018 engagement

Title: Remuneration - November 2018 Shareholder Engagement - Gerard Kleisterlee

Duration 05:31 seconds

 

[Audio]

Theme music begins

[Animation footage]

Graphic on screen reads: Remuneration - November 2018 Shareholder Engagement

[Vison]

Gerard Kleisterlee stands in front of wallpaper background.

[Animation footage]

Gerard Kleisterlee Chair of the Remuneration Committee

[Gerard to Camera]

Hello, I am Gerard Kleisterlee, Chair of the Remuneration Committee at Shell.

In November 2018 I met with many of our largest shareholders.

[Vison]

A photograph of Gerard Kleisterlee sitting at a board meeting desk.

[Audio]

As I cannot meet everyone, I want to share my thoughts in this video.

[Vison]

Gerard Kleisterlee stands in front of wallpaper background.

[Gerard to Camera]

I will address three topics. Firstly, the 2018 Annual General Meeting voting; secondly, CEO pay; and finally, how we plan to link energy transition to remuneration.

[Animation footage]

Graphic appears reading 2018 AGM voting. CEO pay. Energy transition and remuneration

[Gerard to Camera]

At first, the 2018 AGM voting.

[Animation footage]

Graphic appears reading 2018 AGM voting.

[Gerard to Camera]

At the 2018 AGM we learned some tough lessons, not least that we had a blindspot in explaining some of our remuneration outcomes. In 2017, there was a devastating road tanker incident in Pakistan. This was a terrible event that we had discussed frequently over the course of the year. And while it was outside our operational control, it had the Board's fullest attention and we should have done a better job of explaining our view in the remuneration report. This is a lesson we have taken to heart and we will continue to look for ways to communicate with all of our shareholders on the things that matter most.

[Gerard to Camera]

Secondly, CEO pay.

[Animation footage]

Graphic appears reading CEO pay.

[Gerard to Camera]

Shell has a clear strategy, with three strategic ambitions that link to variable pay.

[Animation footage]

Graphic appears reading Thrive in the energy transition. World-class investment case. Strong license to operate.

[Gerard to Camera]

Based on business performance over the period 2016-2018, we are expecting a significant level of vesting for the long-term incentive plan. The shares will vest in 2019 and are subject to a further holding period.

[Animation footage]

Graphics appears reading 2-year holding period for 2016 awards, 3-year holding period for 2017 and 2018 awards. Then disappears.

[Gerard to Camera]

The single figure for the CEO will likely be notably higher than the previous year and we will share more on that in March 2019 when we publish our Directors’ Remuneration report. Our long-term incentive targets are tough. Executives can achieve up to 200% of their award if they are better than all of our competitors based on four key financial metrics.

[Animation footage]

Graphic appears reading 4 key financial metrics. Total Shareholder Return. Earnings per Share. Cash Flow from Operations Growth. Return on Average Capital Employed growth.

[Gerard to Camera]

Our competitors are four of the strongest companies in the industry.

[Animation footage]

A bar graph appears titled LTIP Vesting at Q2 2018. The left-hand side marks percentages and the bottom line shows target numbers. There is a line reading the 10-year average: 87% of target (including 16-18 estimate at Q2 2018)

[Gerard to Camera]

It is hard it is to achieve relative outperformance. Over the last 10 years, while the long-term incentive plan vesting has varied from 0% to 175%, the average has been 87% of target or 43.5%of the maximum opportunity.

[Vison]

Gerard Kleisterlee stands in front of wallpaper background.

[Gerard to Camera]

The Remuneration Committee is sensitive to the public debate on executive pay and we ensure that pay is internally proportioned and that everyone shares in the same success. CEO salary increases have been broadly aligned with relevant staff increases. The same annual bonus scorecard is applied for both the CEO and the majority of Shell staff. Nearly 20% are also granted performance share awards that incorporate the same measures to those applied to the CEO.

[Animation footage]

A graphic appears reading Energy transition and 2020 policy review and then disappears.

[Gerard to Camera]

Finally, the energy transition and the 2020 policy review.

[Animation footage]

Full frame graphic appears titled How the strategy links to the CEO’s variable pay elements. Three boxes are marked with CEO Individual Performance, Long-Term Incentive Plan and Annual Bonus. Next to each box is an explanation of each strategy.

[Gerard Audio Over Vision]

As you can see, there are several measures in the existing remuneration structure designed to reward good execution of our strategy. For the CEO and the CFO, individual performance goals are set based on Shell’s strategic ambitions.

[Vison]

Gerard Kleisterlee stands in front of wallpaper background.

[Gerard to Camera]

Investing in assets that will remain financially resilient in the energy system of the future is key to delivering a world-class investment case, and we purposely align our CEO pay to this. I would like specifically to talk about Energy Transition and the 2020 Remuneration Policy Review, a topic which has received a great deal of interest from investors in the last few roadshows.

[Animation footage]

A graphic appears reading GHG 10% of annual bonus scorecard. Long-term NCF ambition. 3 or 5 year targets. Link to remuneration. Graphics then disappear.

[Gerard to Camera]

Since 2017 we have included Greenhouse Gas management as part of our annual bonus scorecard. We announced our Net Carbon Footprint Ambition in late 2017. This is a long-termambition that takes us to 2050. More recently, in December 2018, Shell announced that it will start setting shorter-term targets of 3 or 5 years, and link these to pay. This is an industry first. Linking the Net Carbon Footprint ambition and the energy transition to remuneration is not a straightforward task. We are mindful not to create unintended consequences from the targets we set. We will need to balance the needs and interests of all our shareholders and stakeholders and accept that in doing so,we may not please everyone. We are at the beginning of something ground-breaking that will go beyond the tenure of the current management team and many after that.

[Vison]

Gerard smiles and shakes hands with an investor.

[Gerard Audio Over Vision]

In conclusion, engagement with shareholders is important to us,

[Vison]

Gerard Kleisterlee stands in front of wallpaper background.

[Gerard to Camera]

so I encourage you to have a look at the other materials on our website, and send any feedback you may have. Thank you for your attention.

[Animation footage]

A graphic appears reading Email: IR-Europe@Shell.com and then disappears.

[Audio]

Theme music

[Graphic]

Shell logo

©Shell International Limited 2019