CEOs Feel Pain as Oil Price Slump Hits Canadian Energy Producersby and
Realized compensation may come in millions below listed pay
Oil, gas producers tend to include more equity in pay packages
Activist shareholder Marijke Knipscheer spent most of her allotted time at Suncor Energy Inc.’s annual meeting deploring Chief Executive Officer Steve Williams’ C$12.2 million paycheck.
What she may not have realized is that what he’ll actually take home -- and that’s before taxes -- could be 30 percent less.
The realizable value of Williams’ fiscal year 2015 pay package is closer to C$8.6 million ($6.6 million), the company said in its proxy circular to shareholders. That’s because a portion of Williams’ paycheck is related to how Suncor performs over three years, and the company’s shares have slumped about 25 percent since the price of crude began falling in June 2014.
Calgary-based Suncor isn’t alone in seeing lower oil prices weigh down executive pay. As of the end of 2015, the realizable values of compensation awarded to CEOs at five of Canada’s largest oil companies had slid an average of 40 percent below the figures that were reported to shareholders in the proxy statements, according to a Bloomberg review of regulatory filings.
“Unless you’re knowledgeable about this subject, you’ll say: ‘Here we go again, they just gave our CEO another big compensation package,’” said John Ellerman, a founding partner of executive pay consultant Pay Governance. “But that’s just the opportunity. It’s not what’s actually realized.”
Crescent Point Energy Corp. disclosed a total of C$30.6 million in compensation for CEO Scott Saxberg in the past three fiscal years. As of March 10, the combined value of his pay packages, which consisted mostly of stock tied to various goals, had dropped to C$20.6 million as the company’s shares fell by more than half over that three-year period.
“We take votes on say-on-pay very seriously,” Trent Stangl, a Crescent Point spokesman, said in an interview. “We put a lot of thought into compensation."
The C$25.6 million package Cenovus Energy Inc. reported for CEO Brian Ferguson in the past three fiscal years had plunged in value to C$11.7 million at the end of 2015.
Cenovus has a “pay-for-performance philosophy,” spokeswoman Sonja Franklin said, adding that one-third of Ferguson’s 2015 bonus was deferred until 2017 amid the share slump and "market conditions."
Oil and gas producers tend to include more equity in executive compensation than similar-sized companies in other industries, said David Bixby, a managing director at executive pay consultant Pearl Meyer.
But some shareholders still only look at the reported figure, not the realized figure. That’s because pinpointing how much an executive actually makes can be difficult as some awards vest over several years and because not all companies show the difference between reported and realized compensation. Investors, analysts and reporters therefore tend to pay the most attention to reported pay figures because they’re new each proxy season and easy to find.
"I am absolutely flabbergasted. I think the better word is disgusted. I look to see that a Mr. Williams: $12 million. Do any of you understand even that type of a number?" Knipscheer, a retired real estate agent, said at Suncor’s April 28 annual meeting in Calgary.
Most galling for shareholders like Knipscheer is the absolute amount executives make compared to rank and file employees, especially in Calgary where many of the 44,000 unemployed in Canada’s oil and gas industry reside.
"The rest of Calgary is laboring under layoffs, cutbacks, no increases and no jobs, and you up there have the audacity to give increases and/or pay people $12 million," she said in remarks directed to the company’s board.
While the downturn for oil companies was “challenging” in 2015, Suncor had a “very strong year,” spokeswoman Sneh Seetal said in response to questions on the company’s pay program. “We are one of the few companies in the sector that is continuing to invest in growth.”
Williams is betting that acquisitions the company has made since the downturn, including buying Canadian Oil Sands Ltd. to boost Suncor’s stake in the Syncrude bitumen mine, will pay off once oil prices recover.
Reported pay figures can also be inflated compared to realized values due to timing issues. Since filings for companies’ general meetings list compensation from the previous fiscal year, there can be a one-year lag between when stock awards are granted and when they are disclosed.
Many figures in 2016 proxies are based on “grants valued back in February of last year, when we were still midway down the slope,” said Bixby. “There were a lot of firms that saw their stock price decline another 50 percent between that time and now.”
Encana Corp., for example, reported compensation for CEO Doug Suttles of C$8.8 million for 2015. About 70 percent came from restricted shares and stock options valued last March when shares traded at about C$14. When the pay figures were eventually revealed to investors this March, the stock had fallen another 42 percent, bringing his realizable pay to about C$3.1 million.
“The board has designed the executive compensation to be strictly aligned with shareholder interests and achievement of strategic objectives,” said Encana spokesman Jay Averill.
Canadian Natural Resources Ltd.’s president Steve Laut saw his combined pay for 2012-2014 fall to C$16.3 million from a reported C$26.2 million when it was initially disclosed. A company spokeswoman said Canadian Natural’s senior management took two 10 percent salary reductions in fiscal 2015.
But even these lower paychecks may not be enough to satisfy some investors.
"Even if it were to be only -- and I laugh at that -- only C$8 million, that’s still grossly overpaid," Knipscheer said in a telephone interview on June 28 of Williams’ pay package. "Nobody needs that kind of money per year."