Energy Insights

Long-Term Incentives and Stock Ownership Ensure Alignment with Shareholders

Annual incentive metrics serve an important purpose: communicate a company’s priorities and provide incremental annual feedback on performance.

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Much of the commentary on energy industry pay programs has focused on annual bonus metrics. Annual incentives are easier to analyze because the payouts are clearly disclosed each year in the Summary Compensation Table, and those payments can communicate how…

Relative TSR Still Delivers Real Pay-for-Performance Alignment in the Oil & Gas Industry

Among the ten largest Oil & Gas production companies that have reported 2017-2018 compensation actions, each has either implemented or enhanced a financial returns metric for 2018 incentive compensation.

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The menu of industry annual incentive metrics (and some long-term incentive metrics) now includes several instances of ROCE, Cash ROCE, ROIC, estimated wellhead returns, and other non-GAAP measures of investment returns. Investors may welcome the incentive accountability to financial returns,…

Measuring E&P Capital Decisions in an Annual Incentive Plan is Complicated

Are E&P companies using the right metrics in their annual incentive programs?

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There has been a lot of attention (both from the media and investors) focused on whether E&P companies are using the right metrics in their annual incentive programs. E&P companies have been criticized for a heavy focus on production and…

Controlling Activist Investors

Potential Texas legislation would curtail activist investors and proxy advisors.

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While we wait to see what deregulation might come out of the new administration regarding Dodd-Frank or other executive compensation regulations, the Texas legislature might take a huge step in favor of corporate boards and management. A bill currently pending…

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…

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…

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…

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.…

What if there were no annual bonuses?

Removing Annual Bonuses Could Help Companies Avoid Time-Consuming Discussions

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Each February, boards and management spend thousands of hours on their annual bonus programs. Energy companies in particular can struggle to evaluate annual performance in what is inherently a long-term business. Arguing over an incremental handful of bonus points can…

Commodity Price Impact on Evaluating Performance

How to Manage Pay for Performance Measures in a Volatile Commodity Market

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Commodity prices can have a significant effect on share price and also on financial performance measures used by energy companies. This makes paying for performance at energy companies challenging because commodity price volatility can create misalignment between management efforts, management…