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Despite Strong 2016 Shareholder Returns, Certain Energy Companies Struggle with Say on Pay

In 2016, the oil and gas industry generated positive returns for shareholders, but in 2017 oil and gas companies lagged general industry in Say on Pay support.

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ISS recommended against 18% of oil and gas companies vs. 12% for the entire Russell 3000, and 3% of oil and gas companies failed Say on Pay (i.e., <50% support) compared to only 1% in the Russell 3000. ISS recommended…

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 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…

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…

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…

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…

Exercise of Discretion in Incentive Plans: Good, Bad or Ugly

The Question of How to Appropriately Exercise Discretion is Becoming More and More Difficult for Firms

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As shareholders and proxy advisors increase their focus on pay for performance, the questions of whether and how to exercise discretion in compensation programs have become more important and much more difficult to answer. For energy companies in particular the…