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

September 28, 2020, 08:43 AM
Filed Under: Industry News
Related: Alvarez & Marsal

Alvarez & Marsal (A&M) has released its Compensation & Benefits “2020/2021 Oil and Gas Oilfield Services Compensation Report.” The A&M report analyzes executives’ and board of directors’ compensation arrangements at the largest U.S. oilfield services (OFS) companies alongside commentary from Equilar, a Board Intelligence Solutions provider.

The 2020/2021 Oil and Gas Oilfield Services Compensation Report, authored by A&M Compensation & Benefits practice Managing Directors Brian Cumberland, J.D. Ivy and Allison Hoeinghaus, assesses total compensation, annual and long-term incentive (LTI) 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.

Detailed below are key research findings:

  • COVID-19 related compensation reductions were common amongst executives (69 percent of study participants). Many of these reductions though are temporary, and apply only to base salary.
  • On average, incentive compensation, including annual and LTIs, comprises around 79 percent of a CEO’s and 72 percent of a CFO’s total compensation package.
  • Time-vesting restricted stock / restricted stock units and performance-vesting awards are the most common form of long-term incentive compensation, utilized by 90 percent and 77 percent of companies, respectively.
  • For performance-vesting awards, relative total shareholder return is the most common performance metric, used by 78 percent of companies. The use of alternative metrics like return on invested capital (ROIC) continues to rise.

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

“Effective compensation programs are critical to attracting and retaining executive talent along with driving performance,” said Mr. Cumberland. “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.”

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