A&M Tax Advisor Weekly

Latest Trends in Compensation Practices at the Top US Oil and Gas E&P Companies

Brian Cumberland, Managing Director

bcumberland@alvarezandmarsal.com

J.D. Ivy, Managing Director

jivy@alvarezandmarsal.com

James Deets, Senior Director

jdeets@alvarezandmarsal.com

January 25, 2018 / North America

Feature Content:
Alvarez & Marsal’s Compensation and Benefits Practice recently released its 2018 study on compensation practices in the oil and gas exploration and production (E&P) industry. Our study analyzes the total value of CEO and CFO compensation packages, annual and long-term incentive pay practices, and the prevalence and value of change in control benefits to which these executives are entitled. Additionally, given the volatility in the commodity markets, we address compensation arrangements at distressed E&P companies. 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 (LTIs) — makes up 85 percent of a CEO’s and 82 percent of a CFO’s total compensation package.
Total compensation for CEOs increased 18 percent over the previous year, while total compensation for CFOs increased 30 percent.

Annual and Long-Term Incentive Compensation
With the volatility in the energy sector, we have seen a notable increase in the use of cost control and safety metrics in annual incentive plans, while the use of growth metrics such as production and reserves has decreased.
The prevalence of long-term incentive awards varies by company size, but time-vesting restricted stock/restricted stock units are the most common form of award granted (used by 86 percent of all companies).

70 percent of companies grant long-term incentive awards where vesting or payout is determined by one or more performance metrics. Relative total shareholder return is the most commonly used performance metric (used in 91 percent of performance awards).

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…

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North America