ENERGY TO BURN
ConocoPhillips CEO tops the list of highest-paid executives of Houston publicly traded companies
Last year was difficult for all companies, but particularly those in the energy sector. At one point in 2020, oil prices seemed to defy logic by dipping into negative territory, leading to dramatic declines in revenue and earnings at many of Houston’s top companies.
Despite this, leaders of energy companies again dominate the list of Houston’s highestpaid corporate executives in 2020. Out of the Top 10, six were in the energy industry or providers of service to it.
Together, the 10 highest-paid executives of Houston-based publicly traded companies earned a combined $211 million in 2020, an average of $21.1 million each. If you expand the list to the top 50 executives, their aggregate compensation added up to about $630 million, for an average of $12.6 million each.
“This was an unusual year by almost any measure,” said Ani Huang, president and CEO of the Center on Executive Compensation. “By and large companies were careful about modifications made to executive pay plans due to the pandemic.”
Executives in the oil and gas industry populated much of the list, as one would expect in Houston. Out of the top 10, six were in the energy industry or providers of service to it.
On the surface, despite the turmoil of the past year, there was surprisingly little impact on executive compensation. Below the surface, however, are a pair of powerful trends that could shape the pay trends in the years ahead.
One of the biggest undercurrents that companies and compensation consultants are grappling with nowadays concerns the demands from large institutional investors — companies such as BlackRock and State Street, two of the world’s largest asset managers — to tie corporate governance practices and executive compensation plans to environmental, social and governance (ESG) variables, said Huang. The other issue is retaining workers, which has become a greater challenge during the pandemic.
New players
Ryan Lance, chairman and CEO of ConocoPhillips, topped the list, with total compensation of $28 million last year. (Lance ranked second in 2019.) Only $1.6 million of the 58-year-old’s total pay consisted of salary, while nearly half of it, or $13 million, was made up of restricted stock awards that vest in three years.
Lance’s pay dropped by about 7 percent from the year before, as the pandemic and plummeting oil prices wreaked havoc on ConocoPhillips’ top and bottom lines. The company’s revenue was nearly cut in half last year, falling from $33 billion in 2019 to $19 billion in 2020, while its net income swung from $7.2 billion to a $2.7 billion loss, according to S&P’s Capital IQ. The combination translated into a 39 percent decline in ConocoPhillips’ stock price over the course of 2020.
One thing to keep in mind, noted Wes Hart, managing director of the Houston office of Pearl Meyer, an executive compensation consultant, is that “disclosed
statistics like these may differ significantly from an executive’s actual pay.” This is because much of these executives’ compensation comes in the form of stock grants, which fluctuate in value between when they are announced and issued.
While Lance’s compensation was 175 times the average ConocoPhillips worker’s, it was still in the middle of the pack. The average ratio among the 10 highest-paid Houston-area CEOs last year was 210, with a minimum ratio of 148 and a maximum of 374.
Thomas Winter, president of Golden Nugget Online Gaming, part of Houston billionaire Tilman Fertitta’s portfolio, was an unusual addition to the list of highest earners, coming in at No. 2. Golden Nugget Online Gaming announced in June 2020 that it would go public by merging with a special purpose acquisition company, a streamlined, backdoor alternative to a traditional initial public offering.
Most of Winter’s compensation last year — roughly $25.5 million out of a total of $28 million — stemmed from Golden Nugget’s transition to a public company. Upon completion of the merger, Winter was awarded 1 million shares of restricted stock, which vests in equal installments over four years. The company, which traded above $20 a share when the merger was completed at the end of December, has since seen its share price back off. It was trading last week at less than $12 a share.
Winter’s payout could come sooner, however. According to filings with the Securities and Exchange Commission, under the terms of his employment agreement if there is a change in control of the company he would fully vest in all stock awards. Fertitta remains the controlling shareholder in Golden Nugget Online Gaming, and it is set to be
absorbed when he merges the bulk of his holdings with another “blank check” company later this year.
The third-highest paid executive on the list is also one of the newest occupants of the corner office. Kevin Hourican, CEO of Sysco Corp., earned $25.9 million last year, thanks in part to a $3.6 million payment compensating him for forfeited incentives he would have otherwise received from his previous employer.
Hourican is new to Sysco, joining in February 2020 to replace then-outgoing CEO Tom Bené, who was later named president and CEO of the National Restaurant Association, an industry
lobbying group based in Washington, D.C. (Bené ranked 12th on this year’s list, due in part to a $6 million severance payment he received upon leaving Sysco.)
The 47-year-old Hourican previously oversaw the retail operations at CVS Pharmacy, an $85 billion business with 9,900 stores. Prior to that, he led CVS’pharmacy operations, professional services and retail pharmacy product innovation and development.
It was an inauspicious time for Hourican to become CEO, especially at Sysco, which provides supplies to restaurants. Within two months of joining the company, Sysco’s sales fell by 60 percent in the weeks following the pandemic shutdown in March 2020.
Trading at around $80 a share in February 2020, the value of Sysco stock was halved in a matter of weeks, trading for less that $40 in mid-March. It has since rebounded to trade last week in the $75 range, not far from its 52-week high of $86.73. At 374 times the average pay for a Sysco employee, Hourican’s compensation had the highest ratio on the list.
The rebound in Sysco’s stock came amid a recovery that saw Hourican respond by taking steps to shore up Sysco’s shortterm operations, announcing a broader, long-term transformation of the company and changing out much of the executive team. Sysco’s sales have made up much of the lost ground.
Filling out the top five earners on the list are Greg Garland, chairman and CEO of Phillips 66, who ranked first in terms of compensation among Houston executives in 2019; and Jeffery Miller, president and CEO of Halliburton, who earned $10 million more last year compared with 2019. Other chief executives making the Top 10 are Crown Castle International Corp.’s Jay Brown, Nabors Industries’ Anthony Petrello, LyondellBasell Industries’ Bhavesh “Bob” Patel, Academy Sports and Outdoors’ Kenneth Hicks and Baker Hughes Co.’s Lorenzo Simonelli.
In addition to navigating the pandemic, CEOs also had to face a variety of challenges on the governance side .
Huang of the Center on Executive Compensation cited a recent study by Meridian Compensation Partners that found that 58 percent of S&P 500 companies now include ESG metrics in their annual executive incentive plans and 5 percent include the metrics in their long-term incentive plans.
“We saw a sharp uptick in the use of social metrics, especially diversity and inclusion, and many companies paired this with additional disclosures regarding their diversity initiatives and the demographic makeup of their workforce,” said Huang. “I expect this to continue as companies evolve and hone their approach to tying ESG metrics to pay.”
Another challenge that all businesses face right now is hiring and retaining talent. This isn’t only the case at the lower end of the pay scale — hiring servers at restaurants and retail employees, for instance. It’s also impacting executive-level positions.
This is especially apparent now, as baby boomers retire. Pearl Meyer’s Hart has seen more issues around CEO succession, as well as other types of leadership succession, in the last few years than in the entire decade before that, he noted.
The pandemic seems to have added to this by giving workers a chance to rethink how they’re living their lives, with many taking the opportunity to quit their jobs.
In May alone, 3.6 million people voluntarily quit. That’s the highest level since the Bureau of Labor Statistics began publishing the statistic more than 20 years ago.
“One thing we’re seeing is that there's really a lack of available talent,” said Hart. “There’s always a push and pull in terms of talent coming and going, but it’s gotten worse with the pandemic. When crises arise and bad things happen, you've got to have good people to weather the storm.”