A&M Tax Advisor Weekly

Latest Trends in Compensation Practices at the Top U.S. Oil and Gas Oilfield Services Companies

Brian Cumberland, Managing Director

bcumberland@alvarezandmarsal.com

December 11, 2018 / North America

Alvarez & Marsal’s Compensation and Benefits practice recently released its 2019 study on compensation practices in the oil and gas oilfield services (OFS) industry. Our study analyzed the total value of CEO and CFO compensation packages, annual and long-term incentive pay practices, CEO pay ratios, and the prevalence and value of change in control benefits to which these executives are entitled. We also address compensation arrangements at distressed OFS companies, as well as initial public offerings in the OFS sector. Below are key takeaways from our research. The full report can be downloaded here.

Key Takeaways

Total Direct Compensation

  • On average, incentive compensation — including annual and long-term incentives (LTI) — comprises approximately 86 percent of a CEO’s and 80 percent of a CFO’s total compensation package.
  • Total compensation for CEOs increased 21 percent year-over-year, while total compensation for CFOs increased 22 percent. Our report discusses the reason for this dramatic increase.

Annual and Long-Term Incentive Compensation

  • Annual incentive plan metrics are varied and diverse. EBITDA is the most prevalent metric, followed by health, safety and environmental, cash flow, return on capital and earnings.
  • The prevalence of LTI awards varies by company size, and our report discusses the most common LTI vehicles used in the sector.
  • For performance-based LTI awards, relative total shareholder return is the most common performance metric.

Change in Control Benefits

  • The most valuable benefits received in connection with a change in control are accelerated vesting and payout of long-term incentives and severance.
  • Only a small percentage of CEOs and CFOs are entitled to receive excise tax “gross-up” payments. The vast majority of companies do not address excise tax protection at all.

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North America