Oil and gas giant BP has cut CEO Bob Dudley's pay for 2016 by 40% after a shareholder revolt against perceived boardroom excess.
Dudley took home $11.6 million, after the company's remuneration committee "exercised downward discretion" to shave $2.2 million off what he could have received under the company's standard formula setting executive pay.
BP has been at the center of a long-running battle over executive pay in the U.K. in recent years, which reached a climax last year when 60% of proxy votes cast at the annual shareholder meeting rejected the pay awards for Dudley and other senior management.
Dudley had received a 20% pay rise for 2015, despite the company reporting its biggest ever annual loss, driven by charges related to the 2010 Deepwater Horizon disaster (which happened before Dudley took over as CEO). The company ignored the proxy vote, which was not legally-binding, and went ahead with the awards anyway.
At this year's annual meeting next month, BP is asking for approval of a new remuneration policy for 2017-2019, which it says will be simpler and more transparent, designed to "more clearly link pay to shareholder outcomes and delivery of BP’s strategy, and to lead to lower levels of reward."
Under the new policy (click here for details), Dudley, or whoever may succeed him as CEO if he leaves before 2019, will have their 'maximum potential opportunity' cut by $3.7 million, "and achieving this maximum will also be significantly more challenging," the company said in a statement.
U.K. Prime Minister Theresa May had initially signalled a much tougher line on corporate governance than her predecessors in the traditionally business-friendly Conservative Party when she took office last year, promising to introduce binding annual votes on executive pay and pushing for greater representation of workers on company boards, modelled on German practice. However, her initial proposals have been watered down considerably.
That hasn't stopped big institutional investors from pushing for more restraint though, with some success. Tobacco giant Imperial Brands was pressured into abandoning a change to its incentive plan that would have lifted CEO Alison Cooper's pay package to 8.5 million pounds ($10.6 million) from 5.5 million pounds in 2015, while consumer products group Reckitt Benckiser, the maker of Durex condoms that recently bought baby-food maker Mead Johnson, cut the pay of CEO Rakesh Kapoor by more than 40% to 14.6 million pounds – also after a shareholder revolt at his award for 2015.
The issue has gained more and more importance politically as CEO pay has continued to race ahead even as pay nationwide stagnates, and the government continues to cap welfare benefits for the out of work and low-paid. Average CEO pay among the U.K.'s biggest 100 companies rose over 10% last year to 5.48 million, while average earnings rose less than 2.5%, according to the Office for National Statistics.
"It's a step in the right direction," Stefan Stern, director of the London-based think-tank The High Pay Centre, told Fortune. "I think people are being a bit more thoughtful now, a bit more careful, but it's far too soon to declare that a new era of restraint and moderation has dawned."