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 Among the beneficiaries are bosses of both solid performers and
struggling companies, and the changes may rankle investors facing
losses.
Oilfield services company Schlumberger NV, for example, used lower
earnings targets for the second half of 2015, which helped its CEO
Paal Kibsgaard receive total pay of $18.3 million, only slightly
below the 2014 level. The company's shares fell 18 percent last
year, about half the decline of its index and have since recovered
about 7 percent.
Linn Energy , meanwhile, whose shares nosedived 87 percent last year
under the weight of its swelling debt and dwindling financing
options, announced a new incentive plan last month for its top
executives that focuses more on cash rather than stock. Dallas-based
oil and gas exploration company Exco Resources Inc will offer its
directors restricted stock worth $140,000 a year – about 10 times
the value of shares awarded in 2014, according to securities
filings, even though its shares fell 43 percent last year.
In another example, Halcon Resources Corp - built by its CEO Floyd
Wilson, who has made a fortune launching and selling off oil
companies - disclosed in a securities filing last week that Wilson
received $3 million and three other top executives $800,000 each in
exchange for an agreement to stay for at least another year.
A representative for Halcon, which has hired financial and legal
advisors to navigate the downturn, did not return messages.
Schlumberger declined to comment beyond its recent proxy statement.
An Exco representative said the new plan makes its director pay more
competitive and aligns their compensation with performance of the
company.
A representative for Linn Energy told Reuters in February the
compensation changes were designed to ensure management stayed on to
secure the company's future. The company did not respond to requests
for further comment. Offering executives financial incentives to
stay through upheaval, be it a merger or restructuring, is a common
practice.
ONE WAY BET?
But whatever the merits, frequent changes in incentives “can
absolutely undercut the relationship between pay and performance,”
said Ken Bertsch, head of the Council of Institutional Investors,
whose members include big pension funds and asset managers.
Anne Simpson, who oversees corporate governance at the $279.5
billion California Public Employees' Retirement System, told Reuters
that it planned to take a hard look at pay adjustments in coming
months when proxy votes are due.
"Performance is not a one way bet, paying off on the way up, and
never going down," she said in an e-mailed response.
A Reuters analysis of filings through mid-March showed that a number
of companies changed their payout plans for leaders in ways that
shielded them from the collapse in oil prices, even as they
continued to slash other spending and lay off thousands of workers.
Since November 2014 Schlumberger alone has laid off 34,000 people,
or about a quarter of its workforce.
Most companies, however, paid their top executives less in 2015 to
reflect falling profits and share prices amid crude's more than 60
percent fall since mid-2014, compensation consultants said.
(Graphic: http://tmsnrt.rs/1Pa5AFT)
"A lot of wealth has come off the table for senior executives in the
span of 18 months," said Mike Halloran, senior partner at consulting
firm Mercer.
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Halloran estimates 2015 executive pay at large energy firms fell by
a fifth on average. That compares with a 24 percent drop in the
energy sector index
For example, John Lindsay, CEO of contract driller Helmerich & Payne
Inc. saw his total pay drop by nearly a quarter to $3.7 million for
the 12 months ended Sept. 30 after the company skipped bonus
payments for top executives citing missed performance targets.
Exxon Mobil Corp, the largest energy company, has yet to release all
details on compensation paid to its CEO Rex Tillerson. However, his
total $33.1 million package in 2014 included $21.4 million in
225,000 shares granted on Nov. 25, 2014 and although he received the
same number of shares last November, they were worth $3.1 million
less.
Many publicly-traded energy companies will detail their 2015 pay,
including annual bonuses, in proxy filings beginning this month and
those that bucked the trend are likely to face particular scrutiny.
Schlumberger's 2015 compensation for its CEO Kibsgaard included an
incentive payment of $3.3 million. It rose from $2.9 million in 2014
after the company used lower earnings targets for the second half of
the year, citing in its recent proxy "the continued challenges of
the industry."
That payment would be roughly unchanged had Schlumberger used the
same targets for the whole year, estimated Chris Crawford, president
of compensation consultant Longnecker & Associates.
At the Houston-based Linn Energy, which warned on March 15 it might
have to file for bankruptcy, CEO Mark Ellis is now eligible for cash
payments of up to $6.9 million this year. In 2014, when Ellis made
$10 million, about the average of recent years, $7.6 million of that
was in stock.
For its part, Exco, which has hired Credit Suisse as its
restructuring advisor to help lighten its debt load, boosted the
stock award for its non-employee directors.
Exco representative Chris Peracchi said the move aimed to make
directors' pay more competitive and was not meant to shield them
against the downturn since shares could still lose value.
John Groton, director of equity research at Thrivent Asset
Management, which has investments in energy companies though not in
Exco, questioned the move's rationale. Among other things, he said,
the slump has made it easier to find talented people to serve on
boards.
Exco's new plan, Groton said, was "just egregious."
(Reporting by Ross Kerber in Boston and Michael Erman in New York;
Editing by Carmel Crimmins and Tomasz Janowski)
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