Alvarez & Marsal’s (A&M’s) Compensation and Benefits Practice is pleased to share the results of its 2021/2022 Oil and Gas Exploration & Production (E&P) Compensation Report. This report analyzes compensation arrangements for executives and boards of directors at the largest U.S. E&P companies. Once again, we partnered with Equilar, who added commentary on their research and observations regarding compensation trends across numerous industries.
- 38 percent of the study participants announced COVID-19-related base salary reductions for executives. Of those, 62 percent have announced a return to pre-pandemic levels of base salary.
- Companies have shifted away from using growth metrics such as production and reserves to focus their efforts on expenses, promoting health, safety and environmental metrics, and cash flow.
- Use of Environmental, Social and Governance (ESG) metrics continues to grow, and the typical weighting for such metrics is between 10 and 20 percent of the overall annual incentive plan (39 percent of companies that use ESG metrics).
- Time-vesting restricted stock / restricted stock units and performance-vesting awards are the most common forms of long-term incentive compensation, utilized by 67 and 59 percent of companies, respectively. For performance-vesting awards, relative total shareholder return is the most common performance metric, used by 89 percent of companies.
- In the context of a change in control, the most common cash severance multiples for CEOs and CFOs are between 2x to 2.99x of compensation (applicable to 50 percent of the CEOs and 55 percent of the CFOs in this report).
Effective compensation programs are critical to attract, retain and drive performance of executives. Boards of directors should ensure that their executive compensation programs are aligned with market throughout each potential phase of a company’s lifecycle, including initial public offering, transaction/merger, steady state and bankruptcy. This report includes detailed market information on executive compensation for each of these phases.
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