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 oilfield services (OFS) companies, the Compensation and Benefits Practice of Alvarez & Marsal (A&M) examined the 2017 proxy statements of the largest OFS companies in the U.S.
This report also reviews the total compensation packages for Chief Executive Officers (CEOs) and Chief Financial Officers (CFOs) in the OFS 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 long-term incentives –comprises approximately 76 percent of a CEO’s and CFO’s total compensation package.
- The average total compensation for CEOs was $5,728,571. The average total compensation for CFOs was $2,041,739.
- The types of annual incentive plan metrics utilized within the OFS sector are varied and diverse. EBITDA is the most prevalent metric, utilized by 71 percent of companies. Health, safety and environmental is the next most prevalent performance metric, utilized by 57 percent of companies.
- For performance-based LTI awards, relative total shareholder return (TSR) is the most common performance metric — used by 74 percent of companies. The most common performance period is three years, used by 92 percent of all companies.
- The most valuable benefit received in connection with a change in control is accelerated vesting and payout of long-term incentives, making up 61 percent of the total for both CEOs and CFOs.
- Incentive programs, when properly structured, can help bridge the compensation gap between the onset of financial hardship and a healthy go-forward restructuring.