Alvarez & Marsal Report: COVID-19 Compensation Reductions Amongst Executives Common

Alvarez & Marsal released its compensation & benefits “2020/2021 Oil and Gas Oilfield Services Compensation Report”.

Authored by managing directors Brian Cumberland, J.D. Ivy and Allison Hoeinghaus, the report assesses total compensation, annual and long-term incentive compensation and change-in-control benefits trends. The Report notes that LTIs make up the largest portion of an executive’s compensation package, while severance and the accelerated vesting of LTIs comprise the most substantial portion of executives’ change-in-control benefits.

Key research findings are below:

• COVID-19 related compensation reductions were common amongst executives (69% of study participants). Many of these reductions though are temporary, and apply only to base salary.

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• On average, incentive compensation, including annual and LTIs, comprises around 79% of a CEO’s and 72% of a CFO’s total compensation package.

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• Time-vesting restricted stock / restricted stock units and performance-vesting awards are the most common form of long-term incentive compensation, utilized by 90% and 77% of companies, respectively.

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• For performance-vesting awards, relative total shareholder return is the most common performance metric, used by 78% of companies. The use of alternative metrics like return on invested capital (ROIC) continues to rise.

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• In the context of a change-in-control, the most common cash severance multiple is between 2x to 2.99x compensation, utilized by 50% of the CEOs and 71% of the CFOs in this report.

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“Effective compensation programs are critical to attracting and retaining executive talent along with driving performance,” Cumberland said. “Our research underscores the challenge of aligning executive compensation programs with the market through each phase of a company’s lifecycle. Given the volatile economic environment, we anticipate developing compelling compensation programs that also reflect current market realities will be a top priority for boards of directors.”

A&M is a global professional services firm that provides advisory, business performance improvement and turnaround management services.