Link between energy firms and their CEO’s pay

NEW YORK: Oil and gas companies continue to link executive pay to the discovery of energy resources the world can’t safely burn, potentially jeopardising shareholder value, according to a new report.

As many parts of the world shift toward a low-carbon economy, energy companies may be at increasing risk “of over-investing, and wasting capital on projects that turn out to deliver poor returns and destroy value,” the report by the Carbon Tracker, a UK nonprofit focused on climate risks to fossil-fuel companies, finds. Companies that encourage executives to discover and produce new fossil fuels tend to see poorer stock performance than those who base compensation on financial returns and cost metrics, the study says.

That dynamic was particularly pronounced in the two years following the 2014 oil-price collapse, when executives whose pay was less dependent on growth performed 7% better than those whose compensation was tied to reserves or production.

There has been “a clear trend” towards basing executive pay on returns since that volatility, writes Andrew Grant, Carbon Tracker senior analyst and author of the report, which is based on publicly available 2017 compensation data. If it’s a trend, it’s a nascent one. In 2017, about 90% of companies in the study offered executives growth incentives based on maximising oil-and-gas reserve replacement, production or revenue.