The rout in the energy sector has been felt far and wide as energy stocks are crashing to levels not seen in years. However, one would be mistaken to think that all energy bosses are feeling the full impact as it has been the case with investors. It is emerging that some companies are making it easier for top managers to meet set targets to enjoy bumper bonuses.
Controversial Pay Packages
Recent regulatory filings suggest that the lowering of performance goals is rampant in both struggling companies and solid performers. How struggling companies in the energy sector are planning to reward top managers should be a point of heated discussion among investors going forward.
Linn Energy LLC (NASDAQ:LINE), which has shed more than 87% in market value over the past year, has announced a new compensation package that focuses more on cash rather than stock. Security fillings also show EXCO Resources Inc (NYSE:XCO) is planning to reward directors with restricted rewards worth $140,000 a year. That is about ten times the amount awarded last year.
Schlumberger Limited (NYSE:SLB) CEO, Paal Kibsgaard, walked away with a total pay of $18.3 million last year even on the company’s shares falling 18%. Halcon Resources Corp (NYSE:HK) CEO, Floyd Wilson walked away with a pay package worth $3 million as other executives were rewarded $800,000 each. In the case of Halcon, the payments were made to prevent the executives from leaving for at least one year.
All the companies have come out to defend the bumper pay packages. Linn says it was forced to make the payment as one of the ways of ensuring the executives stayed to secure the company’s future. Exco on its part says the payments took into consideration executive’s performance. In either case, the market price for anything is the market price, as the price of food does not, for example, fall when farming conditions become difficult. Neither does the price of top executive labor.
Financial incentives are usually forked out to ensure executives stay through an upheaval. However, such changes can at times undercut the relationship between pay and performance. The fact that such payments are being made at a time of aggressive cost cuts that ahve seen thousands of workers lose their jobs should continue to elicit mixed reactions.
Some companies, however, paid their executives less in 2015 in response to oil prices falling to multi-year lows. Executive pay at large energy firms is believed to have dropped by a fifth on average. How far the cuts have gone should become clear in the coming days as publicly traded companies detail their 2015 pay.