Kimmeridge Publishes White Paper: "Executive Compensation: The Good, The Bad and The Ugly"
NEW YORK and DENVER, July 20, 2021 /PRNewswire/ -- Kimmeridge Energy Management Company, LLC ("Kimmeridge" or "the Firm"), a private investment firm focused on upstream energy, today published a white paper entitled: "Executive Compensation: The Good, The Bad and The Ugly."
2020 was the ultimate test of Board accountability in the E&P sector. Extraordinary volatility in both commodity and share prices forced Boards to react in real-time—and some did, by making changes to their compensation plans that reflect new market realities. However, the combination of higher commodity prices and a rising rig count has sparked a debate over whether the vows of capital discipline made at the depths of the crisis will hold. As the sector struggles to reestablish credibility with investors, overhauling executive compensation is the key to accelerating true change.
Kimmeridge's white paper analyzes 2021 E&P company proxies and assesses the degree to which Boards have addressed deficiencies, particularly those noted in the Firm's original white paper on governance: "Bringing Alignment and Accountability to the E&P Sector."
Apart from a meaningful reduction in the prevalence of production growth metrics, the progress over the past year has been too incremental. Long-term incentives remain heavily weighted to time-based based pay, while performance-based pay is still largely tied to relative total shareholder return ("TSR") within a narrow peer group. Furthermore, the pandemic once again exposed the unwillingness of Boards to hold management teams accountable. CEO compensation in 2020 was only 1% lower than 2018, despite a 60% decline in share prices over the three-year period1, and Boards were quick to change performance metrics once it became clear companies would miss their operational and financial targets.
Mark Viviano, Head of Public Equities at Kimmeridge, said, "The goal of our white paper is to help ensure that the progress made over the past year is viewed as a starting point for further engagement between investors and Boards. Investors should applaud those who are willing to make more meaningful changes to their compensation plans, while holding the laggards accountable."
Mr. Viviano continued, "E&P companies are currently seeing relief, as higher commodity prices temporarily alleviate some of the investor pressure on reforming governance. But it's important to remember that this is a highly cyclical industry destined to repeat the mistakes of the past if the underlying issues of alignment and accountability are not properly addressed."
To view more of Kimmeridge's research and thought leadership, please visit: http://kimmeridge.com/research-archive/.
About Kimmeridge
Founded in 2012 by Ben Dell, Dr. Neil McMahon and Henry Makansi, Kimmeridge is a private equity firm focused on making direct investments in unconventional oil and gas assets in the U.S. The Firm is differentiated by its direct investment approach, deep technical knowledge, active portfolio management and proprietary research and data gathering. In addition to its New York headquarters, Kimmeridge maintains a fully-staffed, in-house operating and geology team in Denver, with experience across all major upstream functions and disciplines. For additional information on Kimmeridge and its proprietary research, please visit www.kimmeridge.com.
Media Contact:
Daniel Yunger / Simone Leung / Hallie Wolff
Kekst CNC
212.521.4800
[email protected]
1 Median change in compensation calculated from a subset of 19 of the US E&P companies which maintained the same CEO from 2018-2020. Cumulative three-year TSR calculated on Bloomberg from 1/1/18 to 12/31/20.
SOURCE Kimmeridge Energy Management Company, LLC
WANT YOUR COMPANY'S NEWS FEATURED ON PRNEWSWIRE.COM?
Newsrooms &
Influencers
Digital Media
Outlets
Journalists
Opted In
Share this article