Incentive compensation is an integral part of the total compensation package for executives at most large, publicly-traded companies. To understand annual and long-term incentive compensation pay practices in the energy sector, specifically for exploration and production (E&P) companies, the Compensation and Benefits Practice of Alvarez & Marsal (A&M) examined the 2017 proxy statements of the largest E&P companies in the U.S.
This report reviews the annual and long-term incentive (LTI) practices of these companies, as well as the total compensation packages for Chief Executive Officers (CEOs) and Chief Financial Officers (CFOs) in the E&P sector and the benefits to which those executives are entitled upon a change in control.
Some key findings from the report include:
- On average, incentive compensation – including annual and LTI – comprises 85 percent of a CEO’s and 82 percent of a CFO’s total compensation package. Compared to last year, the average total compensation was up 18 percent for CEOs and 30 percent for CFOs.
- Production / production growth remains the most prevalent performance metric in annual incentive plans and is utilized by 81 percent of companies. Production as a metric has slightly decreased over the past three years.
- 70 percent of companies grant LTI awards where vesting or payout is determined by one or more performance metrics. The most common performance period is three years, used by 85 percent of all companies.
- The most valuable benefit received in connection with a change in control is accelerated vesting and payout of LTI awards, making up 66 percent of the total for CEOs and 60 percent of the total for CFOs.
- Incentive programs, when properly structured, can help bridge the compensation gap between the onset of financial hardship and a healthy go-forward restructuring.
CONTACT US FOR ASSISTANCE WITH YOUR COMPANY’S EXECUTIVE COMPENSATION NEEDS: