HR Function Effectiveness: Measurement and Delivery

1
HR Function EffectivenessMeasurement and
Delivery

• Association of European Businesses, 16 May 2005
• Clark Cridland
• Vice President, Human Resources
• TNK-BP

2
Presentation Themes - Measurement

• People, and the capability of the organization,
  are essential.
• The Human Resources function can be equal in
  importance and value to any other business
  function.
• Other presentations have demonstrated specific
  examples.
• Human Resources functional delivery can be
  measured as a business result.
• For example, lets look at the TNK-BP journey

3
TNK-BP Equal Ownership and Oversight
BP
Alfa, Access, Renova
50
50
Board of Directors
Chairman Mikhail Fridman Four Members
including Compensation Committee Chair
Deputy Chairman Richard Olver Four Members
including Audit Committee Chair
President CEO Dudley
Executive Director Vekselberg
COO McVay
Executive Director Khan
COO McVay
EVP Strategy Bus. Development
EVP Internal Affairs
Chief Legal Counsel
VP Human Resources
VP Comms PA
EVP Support Services
EVP Field Services
CFO
EVP Planning Perform-ance
EVP Support Services Bennett
EVP Upstream
EVP Downstream
EVP Technology
Audit
EVP Support Services Bennett
BP
TNK
External Hire
Human Resources Function
4
TNK BP Operations

• Taxes, Duties, Fees 6.5 Billion
• Current Production 1.50 mmbopd
• End 2004 Liquid Reserves
• SPE Total Proved 9,060 mmbbls
• SPE Total Proved Probable 17,383 mmbbls
• Total number of fields 250
• Wells 15,000 producing and 9,500 idle
• Pipeline 28,000 kilometers
• Retail Sites Over 2,100
• Refineries 6
• Employees 99,000 in Russia and Ukraine

5
Business Snapshot

• Positives
• Opportunities exceed expectations
• Performance exceeds plan
• Brownfield Renaissance is well under way
• People processes improved and accepted
• HSE reporting and standards are in place
• Exploration accelerated showing results

• Challenges
• Production increases harder to realize
• Mature producing assets, high watercut
• Huge projects must be developed and
• completed to renew reserves
• Regulatory environment uncertainties
• Company culture still developing

6
Human Resources Snapshot

• Positives
• Opportunity is everywhere every HR process can
  be improved.
• Very diverse and talented HR team.
• 230 Expatriates have been deployed.
• Shareholders are committed to people and to
  capability development.
• Track record of HR delivery established.

• Challenges
• Administration burdens are heavy.
• HR matters are important and can create tension
  much pressure on HR function.
• Human Resources profession is not well developed
  in Russia talent is scarce (esp. outside
  Moscow), basic processes not in place yet

7
HRs Role in Value Creation
BP
11.5/boa
Gap due to Lower diversification Value chain
limitation Distance to markets
HR is a part of the opportunity

• Reserves Management
• Production Growth
• Value Chain Optimisation

Emerging Market company valuation ceiling
TNK-BP
PEOPLE CAPABILITY
R/P Management

• Value available from
• Transparency
• Governance
• Control
• Performance Mgt

1.8 TNK
2.6 Current NPV/boa
At the deal announcement date
8
New Organization Development - and HRs Role
2003
2004
2005

• Build new capability in the people and the
  organization to achieve the strategy.
• Identify the skills in which TNK-BP must be
  exceptional.
• Create systems for people to grow, and the
  organization to renew.
• Communicate empowerment

• One organization
• One set of processes
• One set of systems
• Alignment
• Communicate Strategy

• Cash control
• Operational control
• Communicate Company

Merge
Consolidate
Build Capability
9
STI Performance ContractAnnual Bonus Cycle
Performance Contracts Corporate, Stream,
Function Quarter 1
Incentive Payout April
Individual KPIs Quarter 1
Results Calculation Quarter 4-1
20
30
50
Monitoring Reporting Quarter 2-4
Personal Stream/Function Corporate
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HR Example Measure 1Training
Training and Recruitment Costs Optimisation
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HR Example Measure 2Compensation Policy
Implementation
Performance-driven Bonus Plan for Performance
Units
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Monitoring Performance
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NEW - HR Activity Cost Line
Training by 3rd parties/ ???????? 3-? ???????

• Comments/ ???????????
• The entire training budget for Moscow-based
  personnel sits within ACL Training Development.
  6,041k is the cost of training covered by 3rd
  parties./ ???? ?????? ???????? ?????????
  ??????????? ????? ????????? ? ??????? ??????????
  ?? ?????? ? ??? ???????? ? ????????. 6041 ???.
  ????????? ????? ?? ????????, ????????????????
  3-?? ?????????.
• When the cost of training (6,041k) is excluded
  from Training Development ACL, the internal HR
  cost of support is 0.19k per person trained./ ??
  ??????? ???????? ?? ???????? ? ?????? ???????
  ?????? (6041 ???.), ????????? ????????????
  ???????? 1 ?????????? ???????? ?????????? 0,19
  ???. ? ???.
• Like Training Development ACL, when the cost
  of recruiting by 3rd parties (2,120k) is
  excluded from Recruiting ACL, the internal HR
  cost of support is 4.8k per filled vacancy./
  ????? ?? ???????, ?? ??????? ???????? ?? ?????
  ??????????? ? ?????? ??????? ?????? (2120 ???.)
  ?? ??? ?????????, ?????????? ???????
  ???????????? ?? ?????? ?? ??????????? ??????????
  1 ???????? ?????????? 4,8 ???.
• HR Budget includes among other the costs of
  subsidiary staff comprising 48 for ACL Training
  development and 96 for Compensations
  benefits./ ?????? ?????????? ?? ?????? ? ???
  ????? ???????? ??????? ? ?????? ???????????
  ???????? ???????, ??????? ?????????? 48 ??? ???
  ???????? ? ???????? ? 96 ??? ??? ???????????
  ? ??????.

Recruiting by 3rd parties/ ???????? 3-? ???????
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Administrative Strategic

• If we are
• Consolidating training calendar and get line
  management input and approval.
• Installing consistent pay bonus system across
  all businesses and locations.
• Installing system of individual objectives
  including skills development plan.

• Then we are
• Building capability to execute the business
  strategy.
• Aligning rewards with accomplishing business
  success.
• Enforcing accountability for performance and
  improvement.

We are strategic business partners, because we
say we are!
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Thank you for your attention!

• Questions?
• Comments?