Alvarez & Marsal’s Compensation and Benefits Practice recently released its 2020/2021 study on compensation practices in the oil and gas oilfield services (OFS) industry. Our study analyzed the total value of CEO, CFO, and Board of Director 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 compensation arrangements during times of recovery. Below are key takeaways from our research.
COVID-19 and Russia-Saudi Arabia Oil Price War
- As a result of plummeting oil prices caused by the COVID-19 pandemic and the Russia-Saudi Arabia oil price war, many oilfield services companies have announced changes to their 2020 executive compensation programs.
- Through the first two quarters of 2020, 69% of the companies in the study have announced a reduction in executive compensation. Many of these reductions though are temporary and apply only to base salary.
- In terms of announced base salary reductions, 62% of companies have disclosed an equal reduction across the board for all executives while 38% disclosed a greater percent reduction for the CEO.
Total Direct Compensation
- On average, incentive compensation — including annual and long-term incentives (LTI) — comprises approximately 79% of a CEO’s and 72% of a CFO’s total compensation package.
- While it remains unclear what constitutes a “good” CEO pay ratio, the data indicates that a ratio of 50x–200x is most prevalent.
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, and cost/cost ratio.
- 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…