Directors of Shell suffered a resounding defeat today as shareholders revolted against their pay packages.

There were gasps at the annual meeting when investors holding about 60 per cent of the shares in the company voted against the oil group's pay policy in one of the biggest victories for shareholders on a corporate governance issue.

Jorma Ollila, the chairman of Shell, said: “We are taking this very seriously and we will be meeting with shareholders to take the right decisions."

Under a three-year incentive scheme agreed in 2005, directors would have earned up to 200 per cent of their salaries in shares if the company had outperformed three of its peers. However, even though Shell ended in fourth place, directors decided to exercise their discretion and allow some of the award.

The result makes Shell one of the biggest victims of a shareholder revolt on executive pay. In 2003, GlaxoSmithKline's shareholders rejected a £22 million pay-and-benefits package for its then chief executive, Jean-Pierre Garnier.

Remuneration reports are usually waved through by shareholders, but there has been a wave of protest votes in recent weeks as anger over plummeting share prices mounts. Although this does not mean that the directors will have to pay the money back to Shell, the company will face pressure to change its policies for next year - and executives will have to consult angry shareholders on how they can change their policies.

Next, the retailing chain, also suffered a rebuke from shareholders today when 18 per cent voted against its directors' pay awards. Organisations including the Aassociation of British Insurers and Pirc urged shareholders to vote against a package agreed after performance targets were torn up in September, which meant that the executive pay structure changed during the company's financial year.

Xstrata won just 64.4 per cent shareholder support for its executive pay earlier this month, and last month Shell's rival BP got only 62 per cent backing.

Ahead of the Shell meeting, major institutional investors expressed concern about the remuneration of executives. One, the Co-op, said that it would oppose the re-election of Lord Kerr of Kinlochard, a director sitting on Shell's remuneration committee.

Another, Standard Life, also spoke out against Shell's remuneration polices.

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