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Alvarez & Marsal 2022/2023 Energy Compensation Report Reveals Shift Away from Expense Performance Metrics

December 07, 2022, 07:27 AM
Filed Under: Energy

Alvarez & Marsal (A&M) issued its 2022 / 2023 Energy Compensation Report which analyzes executive and board of directors compensation arrangements at the largest US exploration & productions (E&P), oilfield services (OFS) and clean energy (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 percent 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 percent 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 percent 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 percent 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 percent of a CEO’s and 84 percent of a CFO’s total compensation package on average.

“Effective compensation programs are critical to attract, retain and drive performance of executives,” said Brian Cumberland, a Managing Director who leads the firm’s Restructuring Compensation practice. “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,” said J.D. Ivy, a Managing Director and co-leader of A&M’s Compensation and Benefits practice. “We anticipate ongoing volatility, uncertainty and industry consolidation to create new challenges for retaining and motivating executives.”

Allison Hoeinghaus, a Managing Director with Alvarez & Marsal Taxand, LLC's Compensation and Benefits practice, said, “Our in-depth research can help individual organizations use the sector’s big picture lens to determine long-term solutions for their compensation structures.”

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