Global professional services firm, Alvarez & Marsal (A&M), issued its 2022 / 2023 Energy Compensation Report which analyzes executive and board of directors compensation arrangements at the largest U.S. exploration and productions (E&P), oilfield services (OFS) and clean energy companies.
A&M’s Compensation and Benefits Practice examined the 2022 proxy statements of the largest E&P, OFS and clean energy companies in the U.S. to develop the 2022 / 2023 Energy Compensation Report findings.
A&M’s 2022 / 2023 report found that compared to compensation disclosed in 2021, total compensation for both CEOs and CFOs increased. On average, incentive compensation, including annual and long-term incentives, comprises 83% of an E&P and OFS executive’s total compensation package.
The report’s key findings include:
- Use of Environmental, Social and Governance (ESG) metrics continues to grow, but the typical weighting for such metrics is no greater than 20% of the overall annual incentive plan.
- Time-vesting restricted stock / restricted stock units and performance-vesting awards are the most common forms of long-term incentive compensation, each utilized by at least 90% of E&P and OFS companies. For performance-vesting awards, relative total shareholder return is the most common performance metric, used by 95 and 67% of E&P and OFS companies, respectively.
- In the context of a change in control, the most common cash severance multiples for CEOs are 3x or greater of compensation. The most common cash severance multiples for CFOs are between 2.00x to 2.99x of compensation.
- For clean energy companies, incentive compensation, including annual and long-term incentives, comprises approximately 87% of a CEO’s and 84% of a CFO’s total compensation package on average.
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“Effective compensation programs are critical to attract, retain and drive performance of executives,” Brian Cumberland, a managing director who leads the restructuring compensation practice at A&M, said. “This report highlights the increasing role of ESG on executive compensation and why it should be factored into executive compensation program planning.”
“Incentive programs can play a key role in driving executive performance,” J.D. Ivy, a managing director and co-leader of A&M’s compensation and benefits practice, said. “We anticipate ongoing volatility, uncertainty and industry consolidation to create new challenges for retaining and motivating executives.”
“Our in-depth research can help individual organizations use the sector’s big picture lens to determine long-term solutions for their compensation structures,” Allison Hoeinghaus, a managing director with Alvarez & Marsal Taxand’s compensation and benefits practice, said.
