NEW YORK and DENVER, July 20, 2021 / PRNewswire / – Kimmeridge Energy Management Company, LLC (“Kimmeridge” or “the Company”), an upstream energy-focused private investment firm, today released a white paper titled: “Executive Compensation : the good, the bad and the ugly. ”
2020 was the ultimate test of board accountability in the E&P sector. The extraordinary volatility in commodity and stock prices forced boards to react in real time, and some have, by modifying their compensation plans to reflect new market realities. However, the combination of higher commodity prices and a growing number of rigs has sparked a debate over whether the vows of capital discipline made deep in the crisis will hold. As the industry struggles to restore credibility with investors, overhauling executive compensation is key to accelerating real change.
Kimmeridge’s white paper analyzes the proxies of E&P 2021 companies and assesses how well boards have addressed shortcomings, particularly those noted in the company’s original white paper on governance: “Bringing Alignment and Accountability to the E&P Sector ”.
Apart from a significant reduction in the prevalence of production growth parameters, progress over the past year has been too gradual. Long-term incentives remain heavily weighted by time-based pay, while performance-based pay is still largely tied to relative total shareholder return (“RTA”) within a narrow peer group. . Moreover, the pandemic has once again highlighted the reluctance of boards of directors to hold management teams accountable. CEO compensation in 2020 was only 1% lower than in 2018, despite a 60% drop in stock prices over the three-year period1, and boards were quick to change performance metrics once it became apparent that companies would miss their operational and financial targets.
Marc Viviano, Head of Public Actions at Kimmeridge, said: “The aim of our white paper is to help ensure that the progress made over the past year is seen as a starting point for further engagement between investors and boards. . Investors should applaud those who are prepared to make more meaningful changes to their compensation plans, while holding laggards accountable. ”
Mr. Viviano continued, “E&P companies are currently seeing relief as rising commodity prices temporarily ease some of the investor pressure on governance reform. But it’s important to remember that this is a highly cyclical industry destined to repeat the mistakes of the past if the underlying alignment and accountability issues are not properly addressed. “
To learn more about Kimmeridge’s research and thought leadership, please visit: https://kimmeridge.com/research-archive/.
Founded in 2012 by Ben Dell, Dr. Neil mcmahon and Henri makansi, Kimmeridge is a private equity firm focused on direct investments in unconventional oil and gas assets in the United States. The company sets itself apart through its direct investment approach, in-depth technical knowledge, active portfolio management and proprietary research and data collection. In addition to his new York head office, Kimmeridge has a fully staffed in-house operations and geology team Denver, with experience in all major upstream functions and disciplines. For more information on Kimmeridge and her exclusive research, please visit www.kimmeridge.com.
Daniel Yunger / Simone leung / Hallie wolff
1 Median change in compensation calculated from a subset of 19 US E&P companies that kept the same CEO from 2018 to 2020. Three-year cumulative TSR calculated on Bloomberg from 01/01/18 to 12/31/20.
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SOURCE Kimmeridge Energy Management Company, LLC