BP must find extra £450m as pension fund deficit hits £3.5bn
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Your support makes all the difference.BP will have to inject up to £450m into its US pension fund this year to cover a dramatic increase in the scheme's deficit because of declining equity markets.
The oil giant disclosed yesterday that the overall deficit across its three main UK, US and European pension funds had risen to £3.5bn, of which £1.6bn is accounted for by the hole in the US fund. The cash cost of BP's pension and post retirement benefit payments is expected to increase by about £190m this year.
News of the increase in the pension deficit came as BP disclosed that the pay of its chief executive, Lord Browne of Madingley, fell by almost a third last year to £3.9m after the oil giant missed successive production targets and reported sharply lower profits.
Lord Browne's basic salary last year remained unchanged at £3.03m but the value of his share award dropped sharply from £2.7m in 2001 to £883,000 because of the company's underperformance. This resulted in a 31 per cent fall in his overall pay in 2002 from £5.7m the previous year.
In addition, Lord Browne received no increase in his basic pay at the start of this year and he has also agreed to reduce his notice period from two years to one year to comply with best boardroom practice.
Last year was a difficult 12 months for BP. Its profits fell by a quarter to $8.7bn, it was forced to downgrade its production growth target three times and then abandon it altogether and it was outperformed by most rival oil majors. Over the three-year period to the end of 2002, BP's total shareholder return has been half that of Shell and a quarter of that achieved by ExxonMobil.
The three directors appointed to the BP board in February, David Allen, Tony Hayward and John Manzoni, are each receiving a base salary of £400,000. The only two board members to receive a pay rise this year are chief finance officer Byron Grote, whose £475,000 salary has been increased by 5 per cent, and Dick Olver, deputy chief executive, whose £530,000 salary has also been increased by 5 per cent.
BP is reviewing the actuarial value of its US pension fund and expects to have to inject a further £319m to £445m this year. Although the surplus in its UK pension fund had shrunk from £2.6bn to £201m, it does not expect to have to top up the fund this year.
The European fund shows a deficit of £2bn but BP has already provided for £1.7bn of this in its accounts.
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