The big bucks
The bust hits CEOs’ pay, but some still get nice raises.
AVERAGE compensation for Houston’s top executives fell last year as the worst oil bust in a generation battered earnings of the energy companies that dominate the region’s economy.
Average compensation among the 500 highest-paid executives in the Houston area’s publicly traded companies fell by 9 percent, to about $3.3 million last year from $3.6 million in 2015, according to data compiled by corporate consultants Longnecker & Associates.
“This is energydriven, no doubt,” said Chris Crawford, Longnecker’s president.
But that doesn’t mean that all CEOs went without raises, even as the earnings of their companies took a beating. Greg Garland, chief executive of Phillips 66, saw his compensation rise 9.3 percent last year to more than $25 million, as the Houston refiner’s profit plunged 60 percent to $1.6 billion from $4.2 billion in 2015. The compensation of Halliburton CEO Dave Lesar, who recently gave up his chief executive duties, climbed 12.4 percent to $17.8 million last year, even as his planned merger with Baker Hughes collapsed under antitrust concerns and the oil field services company’s losses widened to nearly $6 billion in 2016 from less than $700 million in 2015.
Anadarko Petroleum Corp. lost nearly $3 billion last year, but the compensation of Al Walker, CEO of The Woodlandsbased exploration and production company, rose 9.2 percent in 2016 to $18.7 million. Halcón Resources Corp. filed for bankruptcy last year; when it emerged, CEO Floyd Wilson received shares of the
reorganized company that pushed the value of his annual compensation to $24.1 million, nearly 800 percent above his 2015 compensation of around $2.9 million.
Total compensation for executives very rarely gets cut, even in the wake of billions of losses, bankruptcies and thousands of layoffs, said Praveen Kumar, executive director of the Gutierrez Energy Management Institute at the University of Houston and a corporate governance specialist. Often, company boards, which determine executive compensation, are picked and directed by the CEO, who is often the chairman of the board, too, Kumar noted.
Meanwhile, worker pay across the country has stagnated.
“The one compensation that has totally bucked that trend is CEO compensation — that has had no shortage of growth,” Kumar said.
Phillips 66 said it sees executive compensation as a crucial part of attracting and retaining high-quality executives. Halcón and Halliburton declined to comment. Anadarko did not respond to requests for comment.
In 2016, Houston’s energy companies, which dominate the local economy, had one of their worst years since the 1980s — oil prices bottomed out at $26 a barrel from a 2014 peak of $107 and natural gas prices sank to their lowest in nearly two decades as companies laid off tens of thousands in the oil patch and struggled with a sluggish recovery.
The decline in average compensation for Houston’s executives bucked the national trend, in which average executive compensation rose slightly, said Marc Hodak, a partner at Farient Advisors, a California consulting firm specializing in executive compensation and corporate governance. He said it’s likely a sign that Houston’s economy remains weighed down by the effects of the last oil bust.
“The Houston economy is still in the doldrums because of the concentration of energy, versus the rest of the country,” he said.
Executive compensation is a complex mix of salaries, cash bonuses, stock awards, pension benefits and other perks, typically tied to performance goals and comparisons to how much CEOs at similar companies are earning.
Local energy companies have likely protected their CEO compensation from the shock of plummeting oil prices, said David De Angelis, an assistant professor of finance at Rice University who studies executive compensation. Companies use benchmarking, basing compensation on performance relative to similar companies as a way to account for economic forces, such as falling oil prices, that are beyond the control of CEOs.
Performance benchmarking is a particularly common practice in the energy industry, De Angelis said.
“Even if oil prices are going down, the stock price needs to go up relative to their competitors,” De Angelis said. “So as long as it does not go down as much as (other companies’), they are going to get their award.”
Among companies with the highest-paid executives, stock prices at the end of 2016, when oil price were rising again, were higher than at the end of 2015, when prices were careening toward a 13-year low in early 2016. Shares of Phillips 66 closed at $86.41 on the last trading day of 2016, up from $81.80 in 2015. Halliburton’s stock ended 2016 at $54.09, up from $34.04 in 2015, while Anadarko’s stock ended last year at $69.73, up from $48.58 in 2015.
The result: Compensation for Houston’s top-paid CEOs showed little impact from the recent downturn. Of the 10 bestpaid CEOs in Houston, only two — Ryan Lance of the oil independent ConocoPhillips and Martin Craighead of energy services company Baker Hughes — saw their total compensation decline.
Lance’s compensation slid by 10 percent as the value of his pension fell by more than $1 million. His pay package still totaled more than $19 million.
Compensation rose sharply for Houston executives outside the energy sector. William Delaney, CEO of the food distribution company Sysco Corp., received a 51 percent bump to more than $14 million; Sysco earned a profit of nearly $1 billion during its fiscal 2016, which ended in July that year.
Former Waste Management CEO David Steiner, who left the company in November, received a bump of nearly 49 percent to boost his pay package to more than $17 million. The company reported a profit of $335 million in 2016.