Unlike most of us, CEOs and other senior executives at U.S. oil and gas companies derive the lion’s share of their compensation not from salaries, but from bonus and incentive programs tied to performance targets set by their boards of directors. So it’s no surprise that the dramatic strategic shift implemented by U.S. E&Ps and integrated energy companies over the last decade has been steered by an equally dramatic change in their compensation incentives. In today’s RBN blog, we review how top executives at oil and gas companies are compensated and analyze the shift in the incentives they are motivated to meet.
Over the past decade, the oil and gas industry has undergone a significant change in operating philosophy. Under the old way of thinking, production growth was the most important criteria. Today, E&Ps and integrated energy companies are most concerned with financial performance. The dramatic strategic shift was triggered by two gut-wrenching oil and gas price declines that raised such serious concerns about the industry’s viability that investors largely fled the sector. To win them back, producers shifted to a model based on maximizing cash flow and profits to accelerate shareholder returns. This involved an intense focus on cost control and high-grading portfolios rather than rapid production growth. Environmental, social, and governance (ESG) issues also became higher priorities for employees and investors.
The strategic shift resulted in a remarkably rapid recovery in share prices and industry liquidity. Higher commodity prices were one significant factor. But another, less-visible driver was that company boards steered the recovery by changing executive compensation incentives to motivate CEOs and NEOs (named executive officers; i.e., the top brass) to keep their eyes on the ball. Before we discuss the specific changes in criteria, let’s look at the impact of incentives on total executive compensation.
Join us at our historic 20th School of Energy!
School of Energy: Foundations is a two day, in person conference designed to help energy professionals better understand the forces shaping crude oil, natural gas, NGLs, refined products, and petrochemicals.
Attendees will learn from RBN experts, work with Excel based analytical models, participate in Q&As, and network with industry peers.
Build the foundation to better navigate volatile energy markets.
Join Backstage Pass to Read Full Article
About the song
“She Works Hard for the Money” was written by Donna Summer and Michael Omartian and is the first song on side one of Donna Summer’s album of the same name. Released in May 1983, the song was a big hit for Summer, reaching #3 on Billboard’s Hot 100 Singles chart and #1 on the Billboard R&B Singles chart. Summer performed the song live at the opening of the Grammy Awards show in 1984. Personnel on the record were: Donna Summer (vocals), Michael Boddicker (synthesizer), Marty Walsh (guitar), Nathan East (bass guitar), Mike Baird (drums), John Gilston (Simmons drum), Lenny Castro (congas), Gary Herbig (saxophone), and Dick Hyde, Charlie Loper, Chuck Findley, Gary Grant, Jerry Hey (horns).
The She Works Hard for the Money LP was recorded between November 1982 and March 1983 and released in June 1983. Produced by Michael Omartian, the album was Donna Summer’s most successful of the 1980s, peaking at #9 on Billboard’s 200 Albums chart.
Donna Summer — born Donna Adrian Gaines in Boston in 1948 — was an American singer and songwriter who rose to fame in the disco era in the 1970s. Among her disco hits were “Love to Love You Baby,” “Last Dance,” “Hot Stuff” and “On the Radio.” Summer released a total of 17 studio albums and amassed a total of 32 chart singles on the Hot 100 list in her lifetime, including 14 Top 10 hits and four songs that made it to #1. Summer died of lung cancer in 2012.
