Oil company CEOs likely to avoid big hit to compensation – for now

Sun Feb 8, 2015 1:32pm EST
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By Ross Kerber

BOSTON (Reuters) - These are nervous times at the top of North America’s oil companies. Executives are trying to cope with the plunge in oil prices and are slashing costs as they watch earnings and revenue drop. Their own compensation, though, may not yet be on the chopping block.

According to compensation consultants and some investors, the mostly generous packages executives were receiving when the oil price was much higher, and the U.S. shale oil boom was roaring away, are in most cases going to survive – at least for awards based on their performance in 2014. Those will be announced in the next few months. 

“2014 is going to look like a pretty good year for most," said Mike Halloran, senior partner and executive compensation specialist at the Dallas office of consulting firm Mercer.

This is largely because the oil price decline did not push down company profits until well into the second half of 2014 and some shares finished the year around where they began.

Given the substantial increases many of them received in 2013, compensation that is little changed should not be much of a hardship. The median increase in total compensation packages for oil and gas company CEOs was 11 percent for 2013, according to Institutional Shareholder Services, compared with a 7 percent median increase for all Russell 3000 CEOs. In dollar terms, energy company CEOs made an average of $7.3 million in 2013 compared with an average of $5.3 million among all Russell 3000 CEOs, ISS found.

Still, the C-suite won’t be altogether unscarred. Some CEOs and other top executives have already seen the value of the stocks and options they hold in their companies drop in the past few months.

And Halloran warned that in a year’s time total compensation – which mainly consists of base pay, bonus and long-term incentive payments - may be a different story. If oil prices stay low throughout the year then executive packages could shrink by 30 percent as bonus goals become harder to reach, while stocks and options may not keep their value if shares fail to recover or sink further.


A motorist holds a fuel pump at a Gulf petrol station in London April 18, 2006.   REUTERS/Luke MacGregor