Energy Insights

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Effective Use of Discretion in Annual Incentives

Analyzing bonus payout outcomes of publicly traded E&P companies.

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Going into 2015, annual incentive goal-setting was challenging for oil & gas companies, to say the least. E&P companies were wrestling with lowering production, where production growth is traditionally a cornerstone E&P bonus metric. Services and drilling companies were experiencing…

The BP Shareholder Vote: A Cautionary Tale

Despite using the "correct" process, BP shareholders still took issue with the company's compensation programs.

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Compensation is often more about the message than the money. BP’s recent shareholder vote offered some valuable lessons for other energy companies about sending the right messages to shareholders when commodity prices impact business results. On April 14th, nearly 60%…

The Impact of Lower Stock Prices on 2016 Say on Pay

Many energy companies should anticipate tripping ISS's absolute stock price test.

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The current industry downturn is already impacting compensation programs and will likely also impact the upcoming Say on Pay season. Based on our research, the market decline will cause an increased number of energy companies to trip a key ISS…

The Impact of Lower for Longer

Oil prices seem to be remaining "lower for longer," so what does that mean for compensation?

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In a previous Energy Insights post, Jim Wolf discussed the impact of $40 oil prices on early 2015 compensation decisions. At the time, energy companies speculated whether we’d see a “V”-shaped or “U”-shaped recovery. After a volatile summer – doubts…

ISS’s Say on Pay Vote Recommendations Surprisingly Similar to Last Year

Some experts expected more "against" votes for the energy industry this year, but that did not come to fruition.

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Heading into this recently past proxy season, experts speculated that ISS might recommend “against” say on pay proposals among the energy industry at a higher rate compared to last year assuming the dramatic decline in stock prices, driven by the…

Proposed Pay for Performance Disclosures May Actually Help

Benefits of the proposed disclosures include a standardized methodology for realizable pay and additional data that will facilitate shareholder analysis.

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The SEC recently proposed rules outlining a new CD&A disclosure coming out of Dodd-Frank (see Meridian Alert here) – these rules require disclosure of the link between performance and compensation “actually paid”. While the proposed disclosures will likely require a…

Compensation When Oil is in the $40’s

With oil prices in the $40 per-barrel range, this creates an entirely new environment for oil and gas compensation decisions. Meridian analyzes the themes and realities for 2015.

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Oil prices in the $40s create an entirely new environment for oil and gas compensation decisions this year. From our vantage point across the industry we’ve noted several important themes and realities: Situations differ. Low prices impact everyone, but some…

Energy Industry Influences ISS Peer Approach

ISS recently released its policy updates for the 2015 proxy season, with one notable change.

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ISS recently released its policy updates for the 2015 proxy season (Meridian summaries here and here). One notable change is ISS’s methodology for selecting peers for energy companies for use in its pay for performance analysis. This change was likely…

Setting Annual Incentive Targets When Commodity Price Drops

One of the hardest challenges for a Compensation Committee is to set annual incentive performance targets at levels that are lower than the prior year’s actual performance.

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One of the hardest challenges for a Compensation Committee is to set annual incentive performance targets at levels that are lower than the prior year’s actual performance. It is difficult to explain to shareholders when share price is dropping, how…

The Real Problem with the CEO Pay Ratio

SEC issued proposed rules on the CEO pay ratio rule are still no closer to finding out what’s going to be in the final rules, when they will be issued, or when they will be effective.

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It’s been more than a year since the SEC issued proposed rules on the CEO pay ratio rule, and we are still no closer to finding out what’s going to be in the final rules, when they will be issued,…

The Line Between Ownership and Compensation

Cheniere Energy’s recent challenges offer interesting lessons in understanding the differences between “ownership” and “compensation”.

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Cheniere Energy’s recent challenges offer interesting lessons in understanding the differences between “ownership” and “compensation”. Cheniere has faced notable public challenges to its executive compensation program, including the withdrawal of an incentive plan proposal to shareholders and failed Say on…

Should bonus outcomes be different by level?

Insights into whether there should be different standards for executive bonuses than for the broader population, and whether executives shouldbe held to a higher standard of accountability to shareholders.

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In our experience, a large number of oil & gas companies provide the same bonus funding level for all bonus-eligible employees in the organization. There may be differentiation based on individual or business unit performance (horizontal differentiation) but no differentiation…

Making the Most of Lighter Summer Agendas

Summer is an opportune time to think about the company’s preparedness in the event of significant change.

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Summer tends to be a less busy time in the executive compensation cycle where Committees meet less frequently, agendas are lighter and any “pet projects” are addressed. It offers an opportune time to think about the company’s preparedness in the…

SEC Releases New Guidance on Proxy Advisors

Meridian Expects to See Change, but it Might not be as Much as Some Would Like

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After months of speculation, the SEC has recently released its highly anticipated guidance on investment advisors and on proxy advisors (see our recent client alert). I know many Boards and senior executives will be pleased to see progress in this…

ISS Continues its Unpredictability

While ISS Remains Influential, Some of its Decisions are Inconsistent From Company to Company

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The 2014 proxy season is almost over for calendar year companies. Based on our analysis, ISS continues to play an influential role and the energy industry continues to be one of their favorite targets, but it’s getting more difficult to…

Looking for Shareholder Value Drivers

Analyzing Common Annual Bonus Metrics to Predict Shareholder Value

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Annual incentive metrics should be key drivers of long-term shareholder value. Most energy companies include this in their philosophy statements, and it sounds straightforward. But what are the drivers of long-term shareholder value? The answer to that question obviously varies…

The End of Deferred Compensation?

Proposed Legislation Could Render the Tax Saving Effectiveness of Deferred Compensation Inert

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Our last post introduced some thoughts around proposed legislation by the Republican Chair of the House Ways and Means Committee that would effectively end tax deductibility of compensation under IRC Section 162(m). I’d like to explore the other aspect of…

Shareholders Will Likely Feel the Pain of Proposed Tax Reforms

Changes Intended to Address Executive Compensation Will Likely Have a Larger Effect on Shareholders

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As noted in a recent Meridian Client Update, a comprehensive draft proposal to reform the Internal Revenue Code (IRC) was released in February by the Chairman of the House Ways and Means Committee. Among the proposed reforms is the elimination…

Compensation Implications of CEO Transitions

Executive Compensation Plays an Important Role in Planning for CEO Transitions

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It’s no secret that CEO succession and transition planning has become an increasingly hot topic in the boardroom and a focus of outside investors. Board committees responsible for succession planning are including this topic as a part of the ongoing…

Keeping Pace During Growth

How to Avoid the Lag in Compensation Practices That Occurs When Firms Grow Quickly

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Recent headlines of Aubrey McClendon’s American Energy Partners LP receiving a $5 billion equity valuation and a flurry of energy IPOs in the last 12-24 months are reminders that change and growth can occur quickly, especially in the energy industry.…