Directors remuneration report Letter from the remuneration committee chair

Transcription

1 Directors remunertion report Letter from the remunertion committee chir After thorough review nd extensive shreholder enggement, we elieve the new policy is simpler, trnsprent nd hs strtegic focus. Professor Dme Ann Dowling Chir of the remunertion committee Der shreholder, Lst yer s AGM remunertion vote ws cler messge out how we mnge executive py. We mde commitment to respond in constructive wy nd hve tken comprehensive look t remunertion of our executive directors. We hve held extensive dilogue with mny of our lrgest shreholders s well s representtive odies eginning in My 2016 nd running through to this yer s AGM. We hve listened nd sought to respond to their concerns. I would like to thnk ll those who took prt in the process for their time nd insight. It is cler tht shreholders nd other stkeholders would like our remunertion policy to e simpler, more trnsprent, nd to led to reduced levels of rewrd. There is lso wish to see the committee mke greter use of discretion. BP is glol compny with glol mngement tem, competing for tlent in demnding environment. The compny s ility to ttrct nd retin the high-clire executives required to led this complex usiness is importnt for shreholders. We re mindful of this nd hve tried to lnce these commercil pressures with the wider socil context when determining executive py. We re proposing to mke numer of significnt chnges to our remunertion policy for 2017 which will mke it simpler, etter lign py nd performnce, nd led to reduced mximum wrd for the group chief executive (GCE) nd the chief finncil officer (CFO). Although we re still working under our 2014 policy, we hve used some of the principles from our new policy in mking our decisions for py in We hve considered the formulic results nd outcomes for shreholders nd then exercised downwrd discretion to rech our finl decisions. As result in yer of good performnce nd progress Bo Dudley s totl single figure for 2016 hs een reduced y some 40% compred to lst yer. Future remunertion policy The proposed remunertion policy is designed to ensure cler link etween delivery of BP s strtegy nd py. Over the pst yer, there hs een much dete in the UK regrding py models. We ppointed new independent dvisers nd pproched our review with n open mind. We explored numer of different Key outcomes for 2016 Bo Dudley totl py A yer of progress nd performnce for the compny. Totl single figure in 2016 for Bo Dudley is $11.6 million 40% lower thn for $19.4m $13.8m Committee discretion reduced py y $2.2 million. Mximum opportunity for 2017 nd eyond significntly reduced. $11.6m Formulic Outcome fter outcome committee discretion 80 BP Annul Report nd Form 20-F 2016

2 Directors remunertion report overview remunertion structures efore focusing on two for further considertion restricted shres nd performnce shres. We consulted with shreholders nd the ord hs reffirmed its view tht performnce shres rther thn restricted shres remin the pproprite structure t the current time s they lign py outcomes with long-term performnce. Key chnges From 2017, we propose simplified pproch with significnt reduction in overll remunertion levels. We will operte only two incentive plns short-term nnul onus nd long-term performnce shre pln. The mximum nnul onus will only e erned where stretch performnce is delivered on every mesure. The level of onus pid for n on-trget score will e reduced y 25%. The onus performnce scle for executive directors will e the sme s the wider professionl nd mngeril employee popultion. The proportion of nnul onus tht must e deferred into shres will e incresed from 33% to 50%. Deferred shres will no longer e mtched with dditionl shres. The mximum longer-term incentives for the GCE will e reduced from seven times slry (previously grnted s mtching shres on the deferred nnul onus nd performnce shres) to mximum of five times slry. Policy fetures In ddition, the following fetures of the new policy support the group s long-term strtegic priorities, which re in the interests of ll stkeholders: A simplified performnce ssessment providing cler link etween the delivery of BP s strtegy, outcomes for shreholders nd py. An nnul onus tht rewrds sfety, relile opertions nd finncil performnce during the yer sed on the nnul pln. For long-term performnce shre wrds, performnce will e tested nd shres will vest fter three yers, ut wrds will not e relesed until the end of further three-yer period six-yer period in totl. This lengthy period reinforces the executive s stewrdship of the compny. Trget rnges for totl shreholder return (TSR) nd return on verge cpitl employed (ROACE) will e disclosed t the strt of the performnce period. For 2017 wrds, these determine eighty per cent of the ville performnce shres. The reminder of the performnce shres will e sed on strtegic mesures, including lignment with the compny s progress towrds lower cron trnsition over the longer term. Where pproprite, the committee will exercise its discretion in determining outcomes, which will include roder considertion of outcomes for shreholders, sfety nd environmentl performnce. Stronger mlus nd clwck provisions. Minimum shreholding requirements of five times se slry will e mintined, nd significnt portion of the new pckge will continue to e linked to performnce nd delivered in BP shres. It is expected tht Bo Dudley nd Dr Brin Gilvry will mintin shreholding of t lest 250% of slry for two yers following retirement. Corporte governnce How we responded to shreholders in developing our new policy 1 Simplifiction 2 Reduced pckge versus 2014 policy 3 Link to strtegy 4 Stewrdship Simpler pckge fixed py, onus nd long-term shres. Removl of mtching shres. Mximum opportunity for long-term incentives hs een significntly reduced from seven times to five times slry for the GCE. On-trget onus reduced y 25%. Clerer link etween strtegy nd incentive trgets. Review of mesures for onus nd long-term incentives. TSR nd ROACE trgets disclosed in dvnce. Five times slry shreholding requirements. Post-retirement shreholding. Sfety nd the environment remin importnt considertions. BP Annul Report nd Form 20-F

3 Directors remunertion report overview Performnce nd py for 2016 Our full yer results were good in the context of tough conditions; however the ord recognizes the opportunity for further improvement. We hve mde considerle progress over the yer on numer of the mesures y which we judge our performnce. We hve executed our projects sfely nd more efficiently. We hve driven down costs nd mde creful judgements out the est use of cpitl. The ord hs worked with Bo Dudley nd the executive tem on BP s strtegic direction. This hs een significnt step forwrd in defining BP s pthwy to sustined growth. The yer closed with the nnouncement of numer of mjor dditions to our portfolio, ll imed t contriuting to returns over oth the short nd the longer term. All of this hs een reflected in n improved shre price during the yer nd good returns for shreholders outcomes We determined executive py for 2016 nd hve exercised downwrd discretion in coming to our finl decision. The nnul onus for 2016 ws sed on comintion of sfety nd vlue sed mesures. Overll performnce hs een good; however the threshold performnce for loss of primry continment (LOPC) ws not met, prtly due to hrsher winter operting conditions in our unconventionl gs opertions in the US. The committee exercised discretion nd pplied some of the principles of our new policy erly. As result, onus of 81% of mximum sed on the previous formulic outcome ws reduced to 61% of the mximum. For performnce shres wrded in 2014, vesting will e determined y comintion of reltive TSR, finncil, sfety nd opertionl performnce ssessed over the three yers from 2014 to Agin the committee hs exercised discretion to reduce the vesting outcome, which is expected to e 40% of the mximum wrd. This discretion ws pplied to the operting csh flow element of the wrd, reflecting the wider performnce of the usiness nd outcomes for shreholders over the three-yer period. A portion of the nnul onuses for 2013 ws deferred nd corresponding mtching wrd mde in Vesting required stisfctory sfety nd environmentl sustinility performnce over the three yers from 2014 to The committee ws stisfied tht this condition hd een met nd these wrds hve vested in full. From Septemer 2016 Bo Dudley hd no further service ccrul under the defined enefit pension rrngements. In yer of good performnce nd progress, the totl single figure for Bo Dudley in 2016 is $11.6 million, 40% lower thn for In ddition to the ove, the executive directors hve voluntrily greed the extension of vesting periods for certin legcy shre wrds s trnsitionl pproch to the new policy. Conclusion I elieve tht the ord hs responded positively to the events of 2016 nd hs tken significnt ction. In this, we hve worked collortively with Bo Dudley nd Dr Brin Gilvry. The committee elieves tht the decisions on the 2016 outcomes represent lnce etween BP s performnce nd shreholder outcomes over the relevnt periods. I hve consulted widely with shreholders nd listened to nd sought to ct on their concerns, nd hve een sensitive to developments in the society in which we work. We elieve tht the new policy is simpler, trnsprent nd hs strtegic focus. Professor Dme Ann Dowling Chir of the remunertion committee 6 April 2017 How did we determine 2016 outcomes? Assess performnce Review outcomes with ord committees Align with employees Apply discretion Checked performnce ginst sfety nd vlue mesures. Reviewed the mesures ginst trgets set. Sought views from the udit nd sfety, ethics nd environmentl ssurnce committees to ensure thorough review of performnce. Considered outcomes in reltion to BP s group leders nd the roder comprtor group of US nd UK employees in professionl nd mngeril roles. Used judgement to reflect the roder mrket environment nd outcomes for shreholders. More informtion Single figure tle Pge 90 Annul onus scorecrd Pge performnce shres scorecrd Pge BP Annul Report nd Form 20-F 2016

4 Directors remunertion report overview Summry of our py nd performnce for Business performnce We hve mde good progress, with strong shre price growth nd the nnouncement of numer of mjor investments ll imed t contriuting to returns over the short nd longer term. Key strtegic highlights Six Upstrem mjor project strt-ups. Deepwter Horizon commitments clrified. Biggest Downstrem fuels lunch in decde. $17.6n Operting csh flow, excluding Gulf of Mexico pyments. $7.5n Dividends pid, including scrip. $7n Csh cost reduction trget chieved one yer hed of pln. Performnce outcomes Annul onus 81% Formulic outcome (% of mximum) -20% Committee discretion to reduce wrd 61% Finl outcome fter committee discretion (% of mximum) Performnce shres 57% Formulic outcome (% of mximum) -17% Committee discretion to reduce wrd 40% Expected outcome fter committee discretion (% of mximum) Corporte governnce Performnce mesures (% weighting) Nil Mximum Performnce mesures (% weighting) Nil Mximum Vlue Operting csh flow (excluding Gulf of Mexico oil spill pyments) (30%) Underlying replcement cost profit (25%) Corporte nd functionl costs (10%) Mjor project delivery (5%) Sfety Loss of primry continment (10%) Tier 1 process sfety events (10%) Recordle injury frequency (10%) Finncil Reltive TSR (33.3%) Operting csh flow (excluding Gulf of Mexico oil spill pyments) (33.3%) Strtegic impertives Reltive reserves replcement rtio (RRR) (11.1%) Mjor project delivery (11.1%) Sfety nd opertionl risk Loss of primry continment (3.7%) Tier 1 process sfety events (3.7%) Recordle injury frequency (3.7%) The finl outcome for prt of this wrd is sed on the compny s reltive RRR rnking, presently ssumed to e third mongst its peers: this will not e known until fter the puliction of our peers reports nd will therefore e reported in the directors remunertion report for Remunertion outcomes Bo Dudley, group chief executive Totl remunertion Dr Brin Gilvry, chief finncil officer Totl remunertion 2016 $11.6m m $16.4m $19.4m m 5.1m Overll py down 40% 32% Performnce py down Overll py down 18% 23% Performnce py down Slry nd enefits Retirement enefits Annul onus Performnce shres Bonus nd performnce shres. Shre ownership Shreholding is key mens y which the interests of executive directors re ligned with those of shreholders. As t 22 Mrch 2017 oth directors hd holdings in BP which significntly exceeded their shreholding requirement. Further detils re set out on pge 95. Policy requirement: minimum of 500% of slry Bo Dudley, group chief executive Dr Brin Gilvry, chief finncil officer 2,700,516 shres 825% c of slry 1,543,297 shres 959% of slry c Held s ADSs. BP Annul Report nd Form 20-F

5 Directors remunertion report overview Summry of our remunertion policy nd pproch for New pproch Simplifiction. Reduced pckge versus 2014 policy. Link to strtegy. Stewrdship. Elements of pckge Slry nd enefits Retirement enefits Annul onus Performnce shres Shre ownership Competitive slry nd enefits to reflect role nd home country norms Bonus ligned with nnul ojectives Shre wrd for meeting three-yer trgets Long-term shreholding Approch Slry nd enefits Retirement enefits Annul onus Up to 225% of slry Performnce shres GCE 500% CFO 450% of slry Fixed py policy is unchnged. Slry nd enefits re set t level which reflects the scle nd complexity of the role while recognizing competitive prctice in the relevnt mrket. The slry for the group chief executive will remin t $1,854,000 for Bo Dudley hs not received slry increse since July With effect from the AGM, the slry for the chief finncil officer will e 759,000. The increse to Dr Brin Gilvry s slry reflects the chnges mde to his role in 2016 when he took on dditionl From Septemer 2016, Bo Dudley hs no further service ccrul under the defined enefit pension rrngements. The 401(k) enefits hve een prtilly cpped for future yers. responsiilities for BP s trding nd shipping functions. This increse of 3.75% is within the rnge used y the compny for other UK nd US employees. Benefits will remin unchnged these include cr-relted enefits, security ssistnce, insurnce nd medicl enefits. Dr Brin Gilvry receives csh supplement on the sme terms s other prticipnts in the BP UK defined enefit scheme. He receives no further service ccrul under the defined enefit pension rrngements. The onus links vrile py to sfety, relile opertions nd finncil performnce for the yer. Mximum onus only pyle for outperformnce on every mesure. Bonus pyle for delivery of onus scorecrd of 1.0 out of 2.0 reduced y 25% to hlf of mximum. 50% of ny onus erned will e pid in csh; there will e mndtory deferrrl of 50% into shres for three yers. Removl of onus shre mtching rrngements deferred shres will not ccrue ny mtch. Awrds will e suject to clwck nd mlus provisions. The mesures for the onus re set nnully to reflect nnul priorities. For 2017, performnce judged on three key res: sfety (20%) relile opertions (30%) finncil performnce (50%). Overll discretion to review outcomes in the context of nnul performnce. Directly linked to long-term performnce nd represents the lrgest prt of the pckge. Three-yer performnce period, with further three-yer holding period. Mesures ligned to long-term strtegy nd shreholders interests. Awrds will e suject to clwck nd mlus provisions. For 2017 wrds, performnce judged on three key res: TSR reltive to oil nd gs mjors over three yers (50%) ROACE in 2019 (30%) strtegic progress ssessed over the performnce period (20%). Additionl sfegurd roder performnce including solute TSR performnce nd sfety nd environmentl fctors to e considered efore determining vesting outcomes. Shre ownership Stewrdship nd lignment with shreholders Continuing requirement for directors to mintin holding of five times slry. It is expected tht Bo Dudley nd Dr Brin Gilvry will mintin holding of t lest 250% of slry for two yers following retirement. In ddition the executive directors hve voluntrily greed to extend the vesting periods of certin legcy shre wrds until post retirement. 84 BP Annul Report nd Form 20-F 2016

6 Introduction This yer the ord hs prepred two reports on remunertion. First, report on how directors will e pid in 2017 nd how the 2014 policy hs een implemented for This will e the suject of n dvisory vote t the 2017 AGM. Second, report which sets out the proposed 2017 remunertion policy for the three yers commencing t the 2017 AGM. This will e the suject of inding vote. Contents 86 Fetures of 2017 policy 87 Implementtion of 2017 policy 90 Single figure tle for Py nd performnce for Stewrdship nd regultory informtion proposed policy Corporte governnce BP Annul Report nd Form 20-F

7 Directors remunertion report Fetures of 2017 policy The remunertion policy proposed for 2017 is sed on detiled review of py nd n extensive progrmme of shreholder enggement following the 2016 AGM. Clerer link etween py nd strtegy BP set out n updte of its strtegy in Ferury The foundtions for strong performnce re sfe nd relile opertions, lnced portfolio nd focus on returns. Our strtegic priorities include: Shift to gs nd dvntged oil in the upstrem Venturing nd low cron cross multiple fronts Shreholders hve een cler tht they wish to see remunertion mesures tht re relevnt to BP s strtegy nd long-term performnce nd which re genuinely stretching. We re putting in plce lnced set of mesures to enle rounded ssessment of performnce ginst our strtegy. Weightings for ech of the mesures my vry over time. Annul onus Mesures reflect sfety, relile opertions nd finncil performnce over the yer. Mrket-led growth in the downstrem Modernizing the whole group Performnce shres Mesures focus on finncil returns over the longer term nd progress ginst the strtegic priorities. The culture of long-term stewrdship is reinforced y the requirement for our senior ledership to own shres in BP over the long term. Shreholder involvement in the new policy The new policy reflects the outcome of n intense period of enggement with shreholders eginning in My 2016 nd running through to this yer s AGM. There hs een extensive work y the remunertion committee nd the ord. The committee chir hs held 68 meetings or clls nd the committee hs met 13 times since the 2016 AGM. The committee hs sought to ddress numer of mtters rised during this enggement. Simplifiction nd trnsprency Mny shreholders sid they found our 2014 policy too complicted. In response the committee hs simplified the structure y removing the mtching shre element of the deferred nnul onus. We hve lso reduced the numer of mesures used to determine the vesting of performnce shres nd hve eliminted ny dupliction of mesures etween nnul nd long-term plns. We hve simplified the formul used to determine the pyment of the nnul onus. Outperformnce on every mesure is now required to chieve mximum pyment, ligning executive directors with the wider professionl nd mngeril employee popultion. In ddition to this simplifiction, to improve trnsprency we will disclose the threshold nd outperformnce levels tht determine the vesting of up to eighty per cent of the ville performnce shres for 2017 t the eginning of the performnce period. As result, we re proposing some fundmentl chnges to simplify the structure nd reduce the level of py for our 2017 policy onwrds. Sfety The 2014 policy used sfety mesures in ll three of its performnce elements: the nnul onus, deferred shres nd performnce shres. A numer of shreholders considered tht this plced too much rewrd focus on sfety mesures. The new policy retins tier 1 process sfety events nd recordle injury frequency s mesures for the nnul onus. There re no longer sfety mesures for performnce shres, however the committee will incorporte the group s longer-term sfety nd environmentl performnce s n underpin when evluting outcomes for performnce shre wrds. This will include considertion of numer of mesures, including LOPC nd input from the sfety, ethics nd environment ssurnce committee (SEEAC) to inform the exercise of the committee s discretion. This ensures tht BP s sfety performnce in the short nd long term remins significnt considertion in remunertion. Climte chnge In 2015 the ord supported shreholder resolution which sought disclosure round BP s evolving pproch to KPIs nd executive incentives, in the context of the trnsition to low cron economy, including the role plyed y the reltive reserves replcement rtio (RRR). The committee elieves tht our new strtegic priorities support lower cron future. These include the shift towrds gs in our portfolio nd the growth of lower cron ctivities including venturing, renewle trding nd lterntive energy. The new policy provides n explicit link to our strtegic priorities s longer-term mesure. The committee elieves tht the reltive RRR mesure does not fit with the group s strtegic focus on vlue over volume. The environmentl underpin for performnce shres will include considertion of issues round cron nd climte chnge. Remunertion in the wider group Some shreholders hve sked out the reltionship etween executive director py with the wider BP employee se. The committee hs considered this reltionship in numer of wys: Any percentge increse in executive directors slries will not exceed the wider employee popultion. Pension plns for the current executive directors hve een scrutinized y the committee. The committee is stisfied tht these plns should remin in plce on the terms set out in the report, on the sis tht they re open to roder groups of employees in the sme home country nd ny discretion (e.g. pyment in lieu of pension) is lso pplicle to wider groups of employees elow executive level. The rtio etween GCE nd employee py, see pge 96. Discretion Discretion nd judgement remin fetures of the new policy nd the committee hs cler understnding of the views of shreholders in respect of their use. More informtion Our strtegy Pge 14 Implementtion of 2017 policy Pge proposed policy Pge BP Annul Report nd Form 20-F 2016

8 Directors remunertion report Implementtion of 2017 policy Slry nd enefits The committee noted tht slry increses for UK nd US sed employees cross the group were generlly etween 3-4%. Bo Dudley hs informed the committee tht he does not intend to ccept slry increse for 2017 nd therefore his slry will remin unchnged. His slry hs not een incresed since 1 July Following the AGM, Dr Brin Gilvry s slry will e incresed y 3.75%, which does not exceed increses within the roder employee popultion. This increse reflects the chnges mde to his role in 2016 when he took on dditionl responsiilities for BP s trding nd shipping functions. Benefits for 2017 will remin rodly unchnged from prior yers. Annul onus For 2017, the onus mesures will focus on three res: sfety, relile opertions nd finncil performnce. This pproch is intended to provide lnced ssessment of how the usiness hs performed over the course of the yer ginst stted ojectives. Trgets re ligned with the nnul pln nd strtegic nd opertionl priorities for the yer. The sfety element hs een simplified to focus on mesures tht re roust nd cn e redily enchmrked ginst sector peers. In ddition, the mesures linked to relile opertions lso require execution of good sfety prctices. Although the detil of the trgets is currently commercilly sensitive, the committee intends to continue to provide retrospective disclosure following the yer end. Slry increses over the lst five yers Bo Dudley 2017 Nil Nil Nil 3.0% 2.8% Dr Brin Gilvry Nil Nil 3.0% 2.9% 3.75% Slry with effect from AGM Increse Bo Dudley $1,854,000 Nil Dr Brin Gilvry 759, % In order to provide fir ssessment of underlying performnce, chnges in pln conditions (including oil nd gs prices nd refining mrgins) re considered when reviewing finncil outcomes. Awrds will e suject to mlus nd clwck provisions s set out in the policy. The mximum onus opportunity is 225% of slry for onus scorecrd of 2.0 out of 2.0. As noted in the policy, the onus pyle for performnce which meets the nnul pln (i.e. onus scorecrd of 1.0 out of mximum of 2.0) hs een reduced y 25% to hlf of mximum. For ny onus erned, 50% will e delivered in csh nd 50% must e deferred into shres tht will vest fter three yers. The committee retins overll discretion to review outcomes in the context of overll performnce. Corporte governnce Mesures for 2017 nnul onus Element 1 Sfety 2 Relile opertions 3 Finncil performnce 20% 30% 50% Mesures include Metric weighting for 2017 Mesures include Metric weighting for 2017 Mesures include Metric weighting for 2017 Recordle injury 10% frequency Tier 1 process sfety events 10% Upstrem operting 15% efficiency Downstrem refining 15% vilility (Solomon Assocites opertionl vilility) Operting csh flow (excluding 20% Gulf of Mexico oil spill pyments) Underlying replcement 20% cost profit Upstrem unit production costs 10% BP Annul Report nd Form 20-F

9 Directors remunertion report implementtion of 2017 policy Performnce shres The mesures for 2017 performnce shre wrds now focus on shreholder vlue, cpitl discipline nd future growth. Shreholder vlue The totl shreholder return (TSR) element will continue to e mesured on reltive sis ginst the oil mjors: Chevron, ExxonMoil, Shell nd Totl. The committee hs reviewed the current comprtor group nd elieves tht it remins pproprite s it is used for enchmrking cross rnge of ctivities in other prts of the group. There will e no vesting of this element if BP s TSR is positioned elow third plce in the group. Cpitl discipline Return on verge cpitl employed (ROACE) will e clculted y dividing the underlying replcement cost profit (fter dding ck net interest) y verge cpitl employed excluding csh nd goodwill. This ssessment will e sed on the finl yer of the three-yer period. Trgets for TSR nd ROACE mesures for 2017 determining 80% of the performnce shres ville re set out elow t the strt of the ssessment period. Future growth Mesures for the strtegic element re ligned with the compny s longterm strtegy, positioning the portfolio for resilience nd future growth. We will e following the implementtion of our strtegy through the four mesures relting to the strtegic priorities set out elow. The committee hs lso sought input from the ord regrding the specific mesures. Detils of the strtegic priorities trgets determining 20% of the performnce shres ville re commercilly sensitive nd re not included in this report. However, the committee intends to provide detiled retrospective disclosure fter the end of the performnce period so tht shreholders cn understnd the sis of pyment. Mesures for 2017 performnce shres Element 1 Reltive TSR versus oil mjors 2 Return on verge cpitl employed 3 Strtegic progress 50% 30% 20% Threshold vesting 25% of element Third out of five 0% of element 6% return on verge cpitl employed Shift to gs nd dvntged oil in the upstrem Mximum vesting 100% of element First plce 100% of element 11% return on verge cpitl employed Mrket led growth in the downstrem Venturing nd low cron cross multiple fronts Gs, power nd renewles trding nd mrketing growth Nil vesting for fourth nd fifth plce. Vesting of 80% for second plce. Bsed on performnce in There will e stright-line vesting for performnce etween the threshold nd mximum vesting level. Adjustments my e required in certin circumstnces (e.g. to reflect chnges in ccounting stndrds). Opertion of the performnce shre pln Prior to pproving vesting outcomes the committee will dditionlly tke into ccount the roder performnce of the usiness including solute TSR performnce, together with sfety nd environmentl fctors over the three-yer period. The mximum opportunity for shre wrds will e 500% of slry for Bo Dudley nd 450% of slry for Dr Brin Gilvry. This represents significnt reduction from the previous long-term vrile py opportunity delivered vi wrds of performnce nd mtching shres on the deferred nnul onus of 700% of slry for Bo Dudley nd 550% of slry for Dr Brin Gilvry. Performnce will e mesured over three yers, with ny vested shres eing suject to mndtory holding period for further three yers. Awrds will e suject to mlus nd clwck provisions s set out in the policy. 88 BP Annul Report nd Form 20-F 2016

10 Directors remunertion report implementtion of 2017 policy Retirement enefits Bo Dudley nd Dr Brin Gilvry prticipte in the pension rrngements which re ville to wider groups of employees in the US nd UK, s set out elow. Bo Dudley Bo Dudley is provided with pension enefits nd retirement svings through comintion of tx-qulified nd non-qulified enefit plns, consistent with pplicle US tx regultions. The BP supplementl executive retirement enefit pln (SERB) is non-qulified pension pln which provides pension of 1.3% of finl verge ernings (s defined in pln rules) for ech yer of service, less enefits pid under ll other BP (US) tx-qulified nd non-qulified pension plns. Finl verge ernings include se slry, csh onus nd onus deferred into shre wrd under the deferred element of the EDIP. Service, including service with TNK-BP, is limited to 37 yers. Bo Dudley completed 37 yers of service in Septemer 2016 nd therefore will not receive ny further service ccrul under these rrngements. There will e no dditionl pyment in lieu of ny further service ccrul. The enefit pyle under the SERB is unreduced t ge 60 or ove. Bo Dudley is lso memer of other tx-qulified nd non-qulified pension plns. However, the enefits from those plns re offset ginst the SERB enefit nd so his enefit entitlement is determined y his prticiption in the SERB. The BP Employee Svings Pln (ESP) is US tx-qulified section 401(k) pln to which oth Bo Dudley nd BP contriute. BP mtches contriutions y Bo Dudley 1:1 up to 7% of eligile py up to n IRS limit. The BP Excess Compenstion (Svings) Pln (ECSP) is nonqulified retirement svings pln under which BP provides notionl mtch in respect of eligile py tht exceeds the IRS limit. In common with other prticipnts, Bo Dudley does not contriute to the ESCP. From 2017 onwrds, for the purposes of oth plns, eligile py for Bo Dudley is se slry only. Under oth tx-qulified nd non-qulified svings plns, Bo Dudley is entitled to mke investment elections, involving n investment in the relevnt fund in the cse of the ESP nd notionl investment (the return on which would e delivered y BP under its unfunded commitment) in the cse of the ECSP. Benefits pyle under non-qulified plns re unfunded nd therefore pid from corporte ssets. Benefits re generlly pid s lump sum, with ny pension enefit eing converted to lump sum equivlent. Dr Brin Gilvry Dr Brin Gilvry prticiptes in UK finl slry pension pln, the BP Pension Scheme (BPPS), in respect of service prior to 1 April The BPPS provides pension of one sixtieth of finl se slry for ech yer of service, up to mximum of two thirds of finl se slry, nd dependnt s enefit of two thirds of the memer s pension. Since 1 April 2011, Dr Brin Gilvry hs, long with some other prticipnts in the BPPS, elected to receive csh supplement in lieu of future service pension ccrul in the BPPS. In 2016 Dr Brin Gilvry received csh supplement of 35% of se slry. It hs een greed for ll prticipnts who hve elected to receive csh supplement, including Dr Brin Gilvry, tht trnsition will tke effect from April 2021 when the level of csh supplement will progressively reduce to 15% of se slry y Pension enefits in excess of the individul lifetime llownce set y legisltion re provided to Dr Brin Gilvry vi n unpproved, unfunded pension rrngement provided directly y the compny. The rules of the BPPS were mended in 2006 to introduce norml retirement ge of 65, ut in common with other BPPS prticipnts in service on 30 Novemer 2006, Dr Brin Gilvry hs norml retirement ge of 60. If Dr Brin Gilvry were to retire etween ge 55 nd 60, then suject to the consent of the committee, he would e entitled to n immedite pension, with reduction (currently 3%) for ech yer efore norml retirement ge in respect of the enefit tht reltes to service since 1 Decemer 2006 nd no reduction in respect of the reminder of his enefit. Irrespective of this, on leving in circumstnces of totl incpcity, n immedite unreduced pension would e pyle s from his leving dte. Corporte governnce Shreholding requirements Both executive directors meet the shre ownership requirements of five times slry. It is expected tht Bo Dudley nd Dr Brin Gilvry will mintin shreholding of t lest 250% of slry for two yers following retirement. BP Annul Report nd Form 20-F

11 Directors remunertion report implementtion Single figure for 2016 executive directors Single figure of remunertion for executive directors in 2016 (udited) Remunertion is reported in the currency in which the individul is pid Bo Dudley (thousnd) Dr Brin Gilvry (thousnd) Slry nd enefits Slry $1,854 $1, Benefits $74 $ Annul onus Bonus erned $2,545 $4,172 1,004 1,646 Less: mount deferred nd t risk suject to future performnce ($848) ($2,781) ( 335) ( 1,097) Performnce shres Performnce shres $3,713 $6,890 c 1,387 2,229 c Legcy: deferred onus nd mtch d $2,015 $2,603 1,046 1,272 Totl remunertion $9,353 $12,857 3,901 4,835 Retirement enefits Pension nd retirement svings vlue increse e $2,205 $6,519 Csh in lieu of future ccrul Totl including pension $11,558 $19,376 4,157 5,091 Bo Dudley s totl including pension for 2016 is equivlent to 8.57 million sed on the verge dollr-sterling exchnge rte for This reflects the portion of the nnul onus which is deferred into shres nd will only vest suject to chievement of future performnce s descried elow. Represents the ssumed vesting of shres in 2017 following the end of the relevnt performnce period, sed on preliminry ssessment of performnce chieved under the rules of the pln nd includes reinvested dividends on shres vested. In ccordnce with UK regultions, the vesting price of the ssumed vesting is the verge mrket price for the fourth qurter of 2016 which ws 4.73 for ordinry shres nd $35.39 for ADSs. The finl vesting will e confirmed y the committee in second qurter 2017 nd provided in the 2017 directors remunertion report. c In ccordnce with UK regultions, in the 2015 single figure tle, the performnce outcome vlue ws sed on n estimted vesting t n ssumed shre price of 3.72 for ordinry shres nd $33.81 for ADSs. In April 2016, fter the externl dt ecme ville, the committee reviewed the reltive reserves replcement rtio position. This resulted in n djustment to the finl vesting from 77.6% to 74.3%. On 28 April 2016, 205,731 ADSs for Bo Dudley nd 583,571 shres for Dr Brin Gilvry vested t prices of $33.49 nd 3.82 respectively. The 2015 vlues for the totl vesting hve decresed y $226,330 for Bo Dudley nd incresed y 6,065 for Dr Brin Gilvry. d Vlue of vested deferred onus nd mtching shres. The mounts reported for 2016 relte to the 2013 nnul onus deferred over three yers, which vested on 24 Ferury 2017 t the mrket price of 4.47 for ordinry shres nd $33.50 for ADSs nd include reinvested dividends on shres vested. There ws n dditionl ccrul of notionl dividends on 31 Mrch 2017 which will vest in 2017 nd will e provided in the 2017 directors remunertion report. The mounts reported for 2015 relte to the 2012 nnul onus. e Represents (1) the nnul increse net of infltion in ccrued pension multiplied y 20 s prescried y UK regultions, nd (2) the ggregte vlue of the compny mtch under Bo Dudley s US retirement svings rrngements. Full detils re set out on pge 94. Bo Dudley Overll py down 40% 32% Performnce py down Dr Brin Gilvry Overll py down 18% 23% Performnce py down Bonus nd performnce shres. Key outcomes for 2016 Bo Dudley totl py A yer of progress nd performnce for the compny. Totl single figure in 2016 for Bo Dudley is $11.6 million 40% lower thn for $19.4m $13.8m Committee discretion reduced py y $2.2 million. Mximum opportunity for 2017 nd eyond significntly reduced. $11.6m Formulic Outcome fter outcome committee discretion 90 BP Annul Report nd Form 20-F 2016

12 Directors remunertion report implementtion Py nd performnce for 2016 Slry nd enefits Bse slry No slry increses were wrded to executive directors for The 2016 slries therefore remined unchnged from 1 July 2014: $1,854,000 for Bo Dudley nd 731,500 for Dr Brin Gilvry. Benefits Executive directors received cr-relted enefits, security ssistnce, insurnce nd medicl enefits. Annul onus The trgets for the 2016 nnul onus were set t the strt of the yer sed on comintion of sfety nd vlue sed mesures. Trgets were set in the context of the group s strtegy nd the nnul pln. During 2016 BP s shre price performed strongly nd the group distriuted $7.5 illion to shreholders in csh nd scrip dividends. However, it hs clerly een nother chllenging yer for the industry. Over the course of 2016, the oil price verged $44 per rrel, nd oth gs prices nd refining mrgins remined wek compred to historic levels. In this context, the group s operting csh flow ws solid. Gols for reduction in controllle costs were delivered one yer hed of schedule, nd there hs een good discipline on cpitl expenditure. Trends in sfety nd environmentl mesures continued to e positive with outperformnce ginst trgets for tier 1 process sfety events nd recordle injury frequency. The outcome for loss of primry continment ws prtly impcted y hrsher winter operting conditions in our unconventionl gs opertions in the US, nd therefore the threshold set ws not met. Although there ws no pyment ginst this performnce mesure, the committee noted tht the 2016 outcomes did not crete ny sfety concerns nd tht the longer-term trend for the mesure remined positive. More generlly, good progress ws mde during 2016 to crete pltform for future growth: the remining mteril uncertinties regrding Deepwter Horizon liilities hve now een clrified; visile progress hs een mde in numer of upstrem projects; nd in our downstrem usiness we rolled out our iggest fuels lunch in decde. When reviewing performnce over the period, the committee lso sought input from the chirs of the udit committee nd the sfety, ethics nd environment ssurnce committee to ensure comprehensive review of peformnce. Overll, the performnce delivered during the yer resulted in scorecrd outcome of Under the policy pplicle for the yer, pproved y shreholders in 2014, this scorecrd outcome would hve resulted in onus outcome equl to 81% of the mximum ville. The committee considered the overll outcome nd noted tht while performnce during the second nd third qurters ws strong, there were some chllenges during the finl qurter. The committee exercised discretion nd pplied some of the principles of the new policy erly. As result, the onus of 81% of mximum sed on the previous formulic outcome ws reduced to 61% of the mximum nnul onus ville. Overll, the committee elieves tht the onuses for 2016 firly reflect performnce over the period. Outcome Adjusted outcome fter committee discretion (thousnd) Pid in csh (thousnd) Deferred into BP shres (thousnd) Nme Bo Dudley $2,545 $1,696 $848 Dr Brin Gilvry 1, Due to rounding, the totl does not gree exctly with the sum of its component prts. Under the terms of the existing directors remunertion policy pplicle for 2016, directors mndtorily defer third of their onus nd could volunteer to defer further third; the deferred portion of the nnul onus is then mtched with further performnce-sed wrd. The deferred nd mtching wrds vest suject to sfety nd environmentl sustinility performnce hurdle. As trnsition to the new policy, for 2016 the executive directors will defer third of their onus ut will not hve the opportunity to increse the potentil mtching wrd y voluntrily incresing the proportion of their onus to e deferred. In ddition, with the support of the committee, the executive directors hve elected to extend the vesting period for their mtching wrds in respect of the compulsorily deferred 2016 onus, so tht vesting will not occur until fter retirement rther thn the norml three-yer period. During this extended period, the mtching wrd will remin suject to the performnce hurdle. The committee is of the view tht this is positive step s it significntly increses the time horizons for mngement s incentives, nd reinforces the emphsis on stewrdship, sfety nd the environment which remin core priorities for the group. Corporte governnce BP Annul Report nd Form 20-F

13 Directors remunertion report implementtion Annul onus continued Scorecrd 2016 nnul onus More informtion Key performnce indictors pge 18 1 Sfety Vlue Formulic score 1.22 out of 2.0 Mesures Threshold 0 performnce nd score 1 Sfety Loss of primry continment Tier 1 process sfety events Recordle injury frequency 230 events 0 25 events /200k hrs 0 Pln/trget 1.0 performnce nd score 214 events events /200k hrs 0.1 Mximum 2.0 performnce nd score 182 events events /200k hrs 0.2 Sfety outcome Vlue Operting csh flow (excluding Gulf of Mexico oil spill pyments) Underlying replcement cost profit Corporte nd functionl costs Mjor project delivery 2 0 $14.8n 0 $2.1n 0 $4.04n 0 $16.8n 0.3 $2.9n 0.25 $3.74n 0.1 $18.8n 0.6 $3.7n 0.5 $3.44n 0.2 Vlue outcome Performnce nd outcome 233 events 0 16 events /200k hrs 0.17 $17.6n 0.42 $2.6n 0.16 $3.49n Totl onus score 1.22 out of Appliction of the score The mximum nnul onus ville to e pid is 225% of slry. By using the methodology under the 2014 policy, score of 1.22 would result in pyment of 81% of tht mximum. The committee hs used discretion to reduce the pyment from 81% to 61%. Bonus fter discretion 61% of mximum 92 BP Annul Report nd Form 20-F 2016

14 Directors remunertion report implementtion Performnce shres For performnce shres wrded in 2014, vesting ws determined y comintion of reltive TSR, sfety, finncil nd opertionl performnce ssessed over the three yers from 2014 to The results re summrized in the tle elow. Mesured over the three-yer period, the compny s TSR ws in third plce mongst the five oil mjors. The committee noted tht returns on the vlue of BP s shres in sterling hve lso risen y 22% over this period, outperforming returns on the FTSE 100 index over the sme timefrme. The group delivered positive scores for tier 1 process sfety events nd recordle injury frequency. As noted ove, the outcome for loss of primry continment ws prtly impcted y hrsher winter operting conditions in our unconventionl gs opertions in the US. While the threshold for this element ws not met, the outcomes did not crete ny sfety concerns nd the longer-term trend for the mesure remins positive. The nil outcome provides n indiction of the stretch of the originl trget rnge set. In respect of project delivery, the vesting outcome reflects the strong progress over the three-yer period. Further detils of performnce re set out in the strtegic report. Preliminry ssessment of reltive reserves replcement rtio indictes vesting for this mesure. For the purpose of this report, forecst hs een used. The finl outcome for this mesure will e confirmed lter in the yer, once competitor dt is pulished in full. For operting csh flow, the hurdle for full vesting ws originlly set t $34.9 illion, sed on n ssumed oil price of $105 per rrel. Under the methodology used nd disclosed in prior yers, this trget would hve een djusted to reflect the price environment in 2016, when the ctul verge oil price ws $44 per rrel. The djusted trget would men tht 60% of the wrd would vest for $15.3 illion, with full vesting occurring t $19.3 illion. The performnce in 2016 would hve resulted in vesting outcome of just over 80% of the mximum ville for this prt of the wrd. However, in light of shreholder feedck in 2016, the committee determined tht it would e pproprite to exercise its discretion on this prt of the wrd to ensure tht the overll vesting outcome firly reflected the performnce of the usiness nd outcomes for shreholders. The committee undertook wider review of performnce over the three-yer performnce period, with dditionl consulttion with the chirs of the udit committee nd the sfety, ethics nd environment ssurnce committee. Following this review of performnce, the committee determined tht the vesting for the 2016 wrd should e reduced from the formulic outcome of 57% of mximum to 40% of mximum. Corporte governnce Scorecrd performnce shres Vesting % of the 2014 wrd More informtion Key performnce indictors pge 18 1 Finncil 35.9% 2 Strtegic impertives % Totl formulic vesting 57% Mesures 1 Finncil Weighting t mximum % Threshold performnce Mximum performnce Reltive totl shreholder return 33.3 Third First Third 8.3% Operting csh flow (excluding Gulf of Mexico oil spill pyments) 2 Strtegic impertives Reltive reserves replcement rtio 33.3 See discussion ove $17.6n 27.6% Performnce nd outcome 35.9% 11.1 Third First Third 2.8% Mjor project delivery % Sfety nd opertionl risk Loss of primry continment events 172 events 233 events 0% Tier 1 process sfety events events 15 events 16 events 3.5% Recordle injury frequency /200k hrs 0.215/200k hrs 0.202/200k hrs 3.7% 3 Totl formulic vesting 57% 21.1% Vesting fter committee judgement Vesting fter discretion 40% BP Annul Report nd Form 20-F

15 Directors remunertion report implementtion Performnce shres continued Preliminry outcome performnce shres Shres vesting including dividends Vlue of vested shres Nme Shres wrded Bo Dudley 1,304, ,484 $3,712,906 Dr Brin Gilvry 605, ,296 1,387,290 These vlues re sed on forecst vesting levels. As noted ove, finl vesting will e determined once competitor dt is pulished in respect of reltive reserves replcement performnce shres finl outcome Lst yer the committee mde preliminry ssessment of first plce for the reltive RRR in the performnce shres element. In April 2016 the committee reviewed the results for ll comprtor compnies s pulished in their nnul reports nd ssessed tht BP ws in second plce reltive to other oil mjors nd tht 7.8% of shres out of mximum of 11.1% would vest for this performnce mesure. This resulted in finl overll vesting of 74.3% of mximum insted of the preliminry outcome of 77.6% outlined in the 2015 directors remunertion report. Legcy: deferred onus nd mtching wrd Both Bo Dudley nd Dr Brin Gilvry deferred one third of their 2013 nnul onus in ccordnce with the terms of the deferred onus pln. The three-yer performnce period for this deferred wrd ended on 31 Decemer The committee reviewed sfety nd environmentl sustinility performnce over this period nd sought the input of the sfety, ethics nd environment ssurnce committee. This included n ssessment of oth ctul outcomes under sfety nd sustinility mesures nd lso considertion of the long-term performnce trend. Over the three-yer period sfety performnce continued to demonstrte progress nd improvement. The committee lso noted the extent to which sfety performnce hd ecome emedded into the culture of the orgniztion nd the degree to which this hs supported stronger opertionl nd finncil performnce. This strengthened sfety performnce hs lso informed the committee s thinking when including sfety mesures in py rrngements under the new policy. Following the committee s review, full vesting of the deferred nd mtching shres in respect of the 2013 deferred onus ws pproved. Suject to pprovl of the new policy, which will e presented to shreholders t the 2017 AGM, the committee does not intend to grnt further mtching shre wrds under this pln deferred onus vesting outcome Shres deferred Vesting greed Totl shres including dividends Totl vlue t vesting Nme Bo Dudley 299, % 360,900 $2,015,025 Dr Brin Gilvry 193, % 234,070 1,046,293 Conclusions of the sfety nd sustinility ssessment No systemic issues identified No mjor incidents Sfety culture nd vlues emedded within the glol orgniztion Strong performnce supports efficiency nd finncil results cross the group Retirement enefits 2016 outcomes Bo Dudley prticiptes in the US pension nd retirement svings plns descried on pge 89. In 2016, Bo Dudley s ccrued pension incresed, net of infltion, y $59,000. This increse hs een reflected in the single figure tle on pge 90 y multiplying it y fctor of 20 in ccordnce with the requirements of the UK regultions (giving $1,185,000). In reltion to the retirement svings plns, Bo Dudley mde contriutions in 2016 to the ESP totlling $26,500. For 2016 the totl vlue of BP mtching contriutions in respect of Bo Dudley to the ESP nd notionl mtching contriutions to the ECSP ws $422,000, 7% of eligile py. After djusting for investment gins within his ccumulting unfunded ECSP ccount (ggregting the unfunded rrngements relting to his overll service with BP nd TNK-BP) the mount included in the single figure tle on pge 90 is $1,020,000. Dr Brin Gilvry prticiptes in the UK pension rrngements descried on pge 89. In 2016 Dr Brin Gilvry s ccrued pension did not increse. In ccordnce with the requirements of the UK regultions, the vlue shown in the single figure tle on pge 90 is zero. He hs exceeded the lifetime llownce under UK pensions legisltion nd, in ccordnce with the policy, receives csh supplement of 35% of se slry, which hs een seprtely identified in the single figure tle on pge 90. The committee continues to keep under review the increse in the vlue of pension enefits for individul directors. 94 BP Annul Report nd Form 20-F 2016

16 Directors remunertion report implementtion Stewrdship The committee plces significnt emphsis on executive directors hving mteril interests in the shres of the compny. Such shreholding not only provides direct lignment with the experience of shreholders, ut lso encourges longer-term focus when considering the performnce of BP. Executive directors re required to uild personl shreholding of five times slry within five yers of their ppointment. Both executive directors significntly exceed the minimum holding required. This ensures they re suject to ny fluctution in the shre price nd the wider shreholder experience. Post-retirement shre ownership interests Given the long-term nture of the group s opertions, the committee sees the merits of ensuring tht executives hve performnce lignment eyond the timefrme of existing incentive plns. The executive directors hve tken numer of steps in this respect. Firstly, the current executive directors hve indicted to the committee tht they expect to mintin shreholding of t lest 250% of slry for two yers following retirement. Secondly, s noted ove, for deferred wrds grnted in respect of the 2016 onus, Bo Dudley nd Brin Gilvry hve greed to dely vesting of wrds of mtching shres until fter retirement, rther thn the norml three-yer period. Thirdly, Bo Dudley hs further voluntrily opted to dely the vesting of ll outstnding deferred onus nd mtching shres in respect of his 2014 nd 2015 onus (representing totl interest over 1,691,784 ordinry shres), which were originlly due to vest in 2018 nd 2019 respectively, so tht vesting is delyed until fter retirement. These fctors significntly extend the time horizons for oth executive directors, nd in prticulr Bo Dudley. The committee fully endorses the steps tken y oth executive directors s they clerly demonstrte continued commitment to the long-term stewrdship of the group. Directors shreholdings The tle elow shows the sttus of ech of the executive directors in developing the required level of shre ownership. These figures include the vlue s t 22 Mrch 2017 of the directors interests shown elow excluding the ssumed vesting of the performnce shres. Vlue of current % of policy Current directors Appointment dte shreholding chieved Bo Dudley Octoer 2010 $15,298, Dr Brin Gilvry Jnury ,018, The figures elow indicte nd include ll eneficil nd non-eneficil interests of ech executive director of the compny in shres of BP (or clculted equivlents) tht hve een disclosed to the compny under the Disclosure nd Trnsprency Rules (DTRs) s t the pplicle dtes. Ordinry shres or equivlents t 1 Jn 2016 Ordinry shres or equivlents t 31 Dec 2016 Chnges from 31 Dec 2016 to 22 Mrch 2017 Ordinry shres or equivlents totl t 22 Mrch 2017 Current directors Bo Dudley 1,554,198 2,509, ,016 2,700,516 Dr Brin Gilvry 903,856 1,419, ,034 1,543,297 Held s ADSs. The following tle shows oth the performnce shres nd the deferred onus element wrded under the executive directors incentive pln (EDIP) nd yet to vest. These figures represent the mximum possile vesting levels. The ctul numer of shres/adss tht vest will depend on the extent to which performnce conditions hve een stisfied over three-yer period. Ordinry shres or equivlents t 1 Jn 2016 Ordinry shres or equivlents t 31 Dec 2016 Chnges from 31 Dec 2016 to 22 Mrch 2017 Ordinry shres or equivlents totl t 22 Mrch 2017 Current directors Bo Dudley 5,536,950 6,607,314 (299,256) 6,308,058 Dr Brin Gilvry 2,789,921 3,259,891 (193,306) 3,066,585 Held s ADSs. At 22 Mrch 2017, the following directors held options under the BP group shre pln schemes over ordinry shres or their clculted equivlent set out elow. None of these re suject to performnce conditions. Additionl detils regrding these plns cn e found on pge 100. Current director Shre options Dr Brin Gilvry 503,103 No director hs ny interest in the preference shres or deentures of the compny or in the shres or lon stock of ny susidiry compny. There re no directors or other memers of senior mngement who own more thn 1% of the ordinry shres in issue. At 22 Mrch 2017, ll directors nd other memers of senior mngement s group held interests of 13,080,536 ordinry shres or their clculted equivlent, 9,619,319 restricted shre units (with or without conditions) or their clculted equivlent, 9,374,643 performnce shres or their clculted equivlent nd 5,513,021 options over ordinry shres or their clculted equivlent under the BP group shre option schemes. Senior mngement comprises memers of the executive tem. See pges for further informtion. Further informtion Historicl TSR performnce Vlue of hypotheticl 100 holding FTSE This grph shows the growth in vlue of hypotheticl 100 holding in BP p.l.c. ordinry shres over eight yers, reltive to hypotheticl 100 holding in the FTSE 100 Index of which the compny is constituent. BP Corporte governnce BP Annul Report nd Form 20-F