Output remains a driving force for executive bonuses

Despite the crash in oil prices and corporate profits, oil executives are still being rewarded for exceeding annual production targets, instead of protecting company capital and reducing debt, according to a report by the credit rating agency Moody’s.

Moody’s studied executive compensation agreements at 15 of the largest U.S. and Canadian energy exploration and production companies. The firm found that about a quarter of executives’ possible bonuses relied on increasing production and reserves, despite a glut of oil and natural gas that is depressing prices, profits and energy company values.

Although crude oil production and stockpiles have declined recently, the world is still awash with petroleum.

The U.S. Energy Department reported last week that any declines in crude inventories have been more than offset by increases in refined products.

Total petroleum stocks hit a record of nearly 1.4 billion barrels, the Energy Department said.

Overall, Moody’s said, production was the single most-used factor in determining executive bonuses among the companies it studied. On the other hand, the smallest portion of the executive bonuses generally comprised metrics that would improve company credit, Moody’s said.

“This system of compensation is negative for credit investors,” Moody’s said. “It also suggests that many E&P company boards and managements are finding it difficult to shed their high-growth strategies.”

Controlling expenses was the second most-used factor in determining compensation.

Seven companies increased the weight for that factor. On average, it represented about 20 percent of executives’ target awards in 2015, up from 14 percent in 2014.