Where have our Bonuses gone?

My most widely read internal blog

Shell’s results were released yesterday, somewhat below market expectations, though mainly explainable by our relative exposure to refining and gas, two areas where market conditions were weak. Nonetheless, there does seem to have been a depressingly long streak of fourth quarters and full years where Shell has lost ground to peers. And, you may not have noticed, don’t just look at Exxon and the rest. Petrochina overtook Exxon last year in market capitalization. It is arguable that the IOC’s as a group have lost their relevance, and are busy fighting yesterday’s battles with each other.
One piece of good news is that a recent Goldman Sachs report called Shell as a “winner” for the second year in a row. This is based on the bubble of volumes we have coming on stream in the next 2-3 years (where all that capex was spent). They see market prices firming and some pay off for us as we enjoy a production spike. I hope they are right.
However, the corridor talk is less about Shell’s performance than about our own bonuses and job prospects, after Peter Voser put in a downward adjustment to the scorecard and announced further retrenchment in 2010. With morale already battered, that is a tough pill for many to swallow.
The retrenchment should come as no surprise. Well run firms are always pruning to grow, world demand remains subdued and our capex programme is shrinking. Furthermore, the markets do reward cost cutting. What is a shame is that the process last year became so drawn out and stifling, so now it feels we are being kicked while we are still on the floor, or at best still picking ourselves up. I still miss energy and purpose and buzz around Shell, we should be motoring again by now. Perhaps that is the only way in such a large enterprise, though others seem to manage to be quicker and I do recall that speed and simplicity were supposed to be hallmarks of the new Shell. Perhaps next time.
As for the bonuses, personally I admire and support the move, even if it can be argued that it is designed as a cynical sop to potentially rebellious shareholders. I really did not approve of the upward revisions for share award purposes of the previous two years, though I have to confess I didn’t give the money back! We have to live in the real world. Performance is poor. There should be consequences for all of us. A credible case could be made to be even tougher and cancel all bonuses. And we can’t argue that it has nothing to do with us, or we risk double standards – accepting bonuses in good times while absconding ourselves from blame in bad. And if we don’t like Shell we can always choose to leave.
Nonetheless, I do have serious gripes about this. Firstly, when the upward revisions were made it was to share awards – skewed enormously to the upper echelons – while the downward revision lands on everyone. That doesn’t feel right. Already the spread of remuneration in Shell feels almost obscene to some of us, though of course that is only reflecting the same trend right across capitalism. It is some mitigation that the greater sin was in the previous years, though of course many of the same executives remain on seat. Perhaps the bonus downgrade could have been made relatively harder hitting at senior levels?
My next gripe concerns the target setting itself. The whole point of scorecards is that they should be designed to reflect what matters. Essentially, these moves admit that our historical scorecards have not done that. So whoever designed and agreed those scorecards has screwed up. Now THAT is a good reason for a scorecard adjustment! And this is not just making a semantic point, this really matters. In a performance culture, KPI’s and targets drive behaviour, and it is a very slippery slope indeed to introduce management adjustments. If that is acceptable at the top, it soon becomes acceptable all the way down, and the performance culture is fatally compromised.
Finally, we have to accept that our bad performance trend is not just happenstance, and I wish I could see more going on to accept that and respond radically. To sell 15% of the refining portfolio now is all very well, but we are right at the bottom of the market so hardly likely to secure good value. How did we miss the golden opportunity of 2005-07 with bumper margins and Russians and Libyans and others knocking at the door (I’m sorry, I’m not convinced the French refineries were enough)? And then there is cultural change. It is required. But how can this happen with barely any infusion of external talent at senior leadership levels? Sometimes I get very frustrated with my lifetime employer. I obviously haven’t done enough myself. Nor have you. We can’t just point upwards, Shell is us.