Pipeline gridlock and falling oil prices took a bite out of executive salaries and bonuses in the energy sector in 2018, new data shows.
According to a survey conducted for Postmedia by Global Governance Advisors, weak economic conditions in Alberta in the latter half of the year directly affected many of Calgary’s C-suite executives, particularly those in the hard-hit oilfield services industry.
The annual survey of Calgary’s Top 100 publicly traded companies shows that energy sector executives saw their median total compensation fall by 6.7 per cent in 2018, compared to executives in non-oil-and-gas industries who saw their median compensation increase by 8.4 per cent from a year earlier.
The energy services sector saw the most significant decline in executive pay, with total compensation down 14.2 per cent year-over-year and annual bonuses down 26.6 per cent.
“We’re seeing the continued negative effect of commodity prices on the energy space and that is having an impact on compensation levels,” said Arden Dalik, senior partner with Global Governance Advisors . “2018 was not a good year for Alberta oil companies.”
There has been a great deal of volatility in executive pay in recent years, beginning with the oil price crash of 2015. However, as the price of oil began to rebound in late 2016 and 2017, so did executive pay. Energy executives had a healthy year in 2017, with their median compensation up 9.5 per cent from a year earlier. In 2017, service company executives also began to make up some of the ground they had lost during the depths of the downturn, with many companies paying bonuses that hadn’t a year earlier.
Alberta as a whole generated GDP growth of 4.5 per cent in 2017, but the economy slowed again in the latter half of 2018, when pipeline constraints began to undercut the price of the province’s crude. Western Canadian Select — which had been priced at more than $50 a barrel during the summer — tumbled to $15 a barrel by November. And as oilpatch activity slowed, so did job growth — year-end Statistics Canada numbers pegged Alberta’s unemployment rate at 7.9 per cent in December 2018, up from 7.5 per cent the year before.
Anup Srivastava — associate professor at the University of Calgary’s Haskayne School of Business and a newly named Canada research chair in accounting, decision-making and capital markets — said it’s no surprise to see CEO and executive pay in Calgary following the fluctuations of oil prices.
Most companies aim to incent talent by linking pay to performance, he said, so there is a clear link between executive compensation, general stock performance and the overall economy.
There is also a link between the economy and how shareholders react to the compensation of top executives, Srivastava said.
According to the Postmedia survey, 83 per cent of Calgary-based public companies had negative share price performance in 2018, compared to 58 per cent in 2017. In addition, of the 42 companies that have conducted a say-on-pay vote so far in 2019, nine had an approval percentage of less than 90 per cent — indicating some level of concern around the size of executive paycheques.
“Shareholders are people like you and me,” Srivastava said. “Shareholders are saying, if we have seen a 50 to 60 to 70 per cent reduction in our portfolio, our retirement nest, why shouldn’t senior executives also share the pain?”
Srivastava added that reducing executive compensation won’t do much to improve a struggling company’s financial performance, since CEO pay is a minuscule percentage of total expenses.
“But if the company takes some short-term decisions that make it look like management is responding to shareholders’ concerns, then shareholders can be cooled off,” he said. “It’s about optics.”
Twitter: @AmandaMsteph
Copyright Postmedia Network Inc., 2019
