Executive Compensations Rising in Sync with Shareholder Payoffs

Chief executive and CFO compensation is growing at an average rate of 8% to 10% based on incentive metrics closely aligned to shareholder interests, according to Alvarez & Marsal biannual 2024/2025 Energy Compensation Report.

The data compared compensation and benefits of top executives at the 20 largest public E&Ps and oilfield services firms. A smaller group of clean energy companies were also examined.

CEO and CFO wage growth outpaced the typical cost of living adjustment (COLA) at a healthy clip, said Ryan Wells, an Alvarez & Marsal senior director in Dallas.

The Social Security Administration’s COLA adjustment for 2024 was 3.2%; for 2025, the benefits were adjusted by 2.5%, according to the Federal Register.

“It's not necessarily surprising given the strength in the equity markets over the last several years as well. It seems like ever since the rebound from COVID, there's been strong performances across all sectors, and we've seen that in energy for the most part as well,” Wells told Hart Energy.

“I think it has all the earmarks of a very healthy industry when compensation is growing, and it's growing at a very healthy clip. That's always the sign of a good healthy industry. If compensation numbers were stagnant or even going down, that would mean that typically share prices are going down, shareholders are putting more pressure on compensation,” Wells said. “When times are tough, shareholders are always coming out to get that pound of flesh, so to speak. But if times are good, shareholders tend to be a little quieter.”

Steady growth in compensation is especially important in competitive industries, such as oil and gas, which hustle to recruit top talent.

“There's a limited supply of key talent in this area beyond just the CEO and CFO. Everybody in that kind of upper C-suite, whether it's general counsel or chief operating officers, there's a limited supply of really good talent in this industry, and that's driving up compensation rates as well. It's a large number of companies competing for very, very specific, very limited talent.”

Most of the industry’s C-suite compensation is derived from long-term incentives (LTI).

Consolidation changed the composition of the lists by up to 15%. Analysts accounted for the changes by evaluating the compensation of the same executives at the same companies with year-over-year comparisons.

The trend has played a role in the higher compensation numbers, Wells said.

“There's been a lot of strategic acquisitions in this space, and some of that is driving these higher comp numbers. A lot of the compensation amounts come from LTI,” Wells said. “I think that's why these higher equity valuations are driving some of these higher comp numbers. It's really driven by their long-term incentives.”

LTI became a bigger part of executive compensation packages when companies tied them to performance—instead of growth, which had been a source of shareholder ire. Corporate boards responded by restructuring compensation metrics to better align executive interests with those of their shareholders, particularly via equity awards, both annual and long-term.

“That's a broader trend we've seen across a longer period in this industry and across a lot of industries is the shareholder push for executives to be better aligned with the shareholders. A lot of the comp [is] being pushed to LTI, as opposed to base salary and annual bonuses. Base salary for these top executives, their fixed salary is definitely the smallest part of their compensation,” Wells said. “That's an exactly direct response to the shareholders.”

At private companies, the biggest chunk of executive pay is derived from cash bonuses and short-term incentives. Shareholders and activist investors in a public market have different expectations than private investors, he said. Those differences are important when companies consider going public.

“I think some of that is with respect to the structure of the LTI award. Sometimes in a private company, the LTI awards may be more time-based as opposed to performance based. Typically, if a company is going through a public offering, there will be—and every company is different— but there will oftentimes be provisions where their existing equity will essentially vest upon that public offering.”

That might be viewed as a change of control, he said.

“Once the company is public, they're going to have to put an entirely new management incentive program in place to keep those executives incentivized going forward,” he said. “Now, when they're public, they're going to want to shift more of those dollars, most likely into equity awards to be more aligned with what a typical public company looks like.”