C- suites are feeling the heat from oil price crisis
A handful of executives in Calgary’s downtown towers have been casualties of the severe downturn hitting the oilpatch, but current corner- office occupants should be able to keep their jobs — for now.
“The downturn is where a Csuite’s true mettle will come in — were you just a positive and upmarket CEO and CFO, or were you really able to deliver value when the chips were down,” said Arden Dalik, managing partner at Global Governance Advisors, a Calgarybased compensation advisory firm. “We’ll see a bit of housecleaning.”
Adam Pekarsky, founding partner at executive research firm Pekarsky Stein in Calgary, says while senior executives may be able to ride out low commodity prices during the next six months, “if we are in December, with oil sitting at $ 43 US per barrel, I think it will be a different story.”
There have been some departures already as oil prices plummet. Calgary- based oilfield services company Savanna Energy Service Corp. saw its founding chief executive officer Ken Mullen and chief operating officer John Cooper depart within the space of a month in the first quarter, as the company took on an impairment charge of $ 384 million and worked through elevated debt levels.
Calgary- based Gran Tierra Energy Inc. also let go its CEO, Dana Coffield, as the South America- focused company announced several cost- cutting measures including significantly reducing full- time employees. Its stock fell 26.2 per cent during the first quarter, as its Peru development was put on hold.
In late March, Legacy Oil + Gas Inc. said its CFO Matt Janisch was resigning as the company struggled to get around debt covenant issues. Athabasca Oil Corp.’ s former CEO Sveinung Svarte also resigned from its board of directors, as the company hoped to turn over a new leaf after a long drawn- out oilsands deal with PetroChina Co. last year.
Larger players such as Suncor Energy and Cenovus Energy have announced across- the- board wage freezes and reduce head counts.
“Historically, C- suite isn’t where you see companies cutting,” said Koula Vasilopoulos, Calgarybased senior regional manager at recruitment firm Robert Half. “If anything, they would really wrap their arms around them and retain their strongest people and their leadership infrastructure in this downturn.”
Human resource departments at companies have already initiated a number of measures including unpaid Friday leaves, unpaid summer holidays and even temporary cuts in executive salaries.
“I have some clients who are freezing their staff salaries and they are actually rolling back their executive salaries,” Dalik said. “I don’t know what their motives are, but honestly, they’re acting very responsibly — for the most part.”
Historically, C- suite isn’t where you see companies cutting. If anything, they would really wrap their arms around them and retain their strongest people.
Senior management across the North American oil and gas space saw their compensation shrink 13 per cent in the 2008- 09 downturn, according to Alliance-Bernstein LP, and the investment bank expects at least a five per cent pullback this year across the sector.
“More companies are expecting flat salaries or slight decrease in salaries this year,” said Jim Fearon, regional director at Hays Canada, noting that half the oil and gas companies in Alberta the recruitment firm surveyed recently expect to reduce overall head count by 50 per cent this year.
A new round of mergers and acquisitions will also see some top executives and entire divisions get the dreaded axe, as was evident in Repsol’s ASA’s takeover of Talisman Energy Inc. in February.
Meanwhile, the industry is facing a “retirement bubble” which may compel many boards to persevere with their top brass.
“Some companies are forced into ( letting go senior management) if profits and revenues drop to untenable levels, but to hasten the speed at which knowledge gets lost without new talent coming through is unwise for the industry,” Fearon said.
But even as they hunker down, many companies remain in a selective hiring mode, especially at the top. Natural gas giant Encana Corp. recently recruited a new general counsel in the midst of the severe downturn.
“From an executive search perspective, we find ourselves quite busy right now, and it’s a bit contrarian,” Pekarsky said. “This is not only a great time to get talented people who might otherwise not be available during boom times, but it is also a great time to load them up with long- term incentives and non- cash compensations.”
Companies are also looking to bulk up on senior human resource talent to manage staffing levels, financial controllers to keep an eye on costs and recruit compliance officers to ensure employees don’t cut corners that “might be expedient to the bottom- line but may not pass the smell test,” Pekarsky said.
For their part, most executives are looking to secure long- term incentive plans in the form of share options at rock bottom prices, “which is where the real wealthcreation opportunity lives,” Pekarsky said.
But for now the depressed commodity prices have forced companies to revise how they reward employees.
“What’s different this year is how they are setting the compensations target. Often they just dust off previous year’s metrics and work it into the new budget,” said Dalik, noting that companies are changing the metrics by which they assess performance in the down cycle. “We are not in Kansas anymore, Toto.”