During the most recent energy downturn, many energy companies are considering how to best compensate executives for their performance. Compensation generally includes a base level of compensation combined with some form of incentive compensation that is tied to performance. It can be very challenging to develop a compensation program that links entity value growth with management’s performance. This is compounded when attempting to develop multiyear performance goals for management in a volatile business environment.

Companies have many alternatives for incentive compensation programs. Stock options and restricted stock have their unique challenges and there is not necessarily a high correlation between executive performance and the value the executives receive as compensation. Executives may receive value as long as the company remains viable and the recipient does not quit or is not terminated. These forms of incentive compensation are also frequently tied to a predetermined plan or budget. Read More