Executive Compensation: The Increasing Importance of Equity

By Jamie Ferguson, VP of Global Business Development, Maxwell Drummond

In today’s economy and amidst the global war on talent within the oil and gas industry, companies must leverage their equity and executive compensation offerings to maintain a competitive edge. As current executive leadership approaches retirement age, a company’s ability to retain the next generation of senior leaders will be crucial to their ability to succeed. Boards of Directors have a heightened pressure to address these issues and compensating these leaders with equity is an increasingly important trend.

Equity is a non-cash composition that represents a form of ownership interest in a company. One common form of equity is stock options, giving employees the right to purchase shares of the companies’ stocks at a predetermined price. This right can “vest” with time or performance, so employees can gain control of the option over time. When the option vests, they gain the right to sell or transfer the option thus motivating employees to stay with the company long term. Other popular forms of equity include incentive stock options and nonqualified stock option plans, restricted stock and restricted stock unit awards, performance shares and employee stock ownership elements.

Equity is used in large part to align recipients with shareholder interests. It is also a way of providing appropriate performance incentives and rewarding top talent. It is a critical element and an important way to retain top talent and reduce the risk of employees being lured by other companies. Shareholders welcome this contingent, performance-based compensation and appreciated the necessity of retaining/rewarding the talent that drives their interests in the company.

In a recent survey by Price Waterhouse Cooper (PwC), the majority of companies surveyed projected a continuing rise in compensation; however there will be a shift to compensation being contingent on performance. 43% of companies are expecting an increase in equity compensation levels to executive and senior management in the coming year and 28% expect to increase equity compensation levels to middle management through vice president levels as well. It is also reported that in an effort to move towards linking compensation to performance, companies will base vesting conditions for restricted share units and restricted share awards on performance or market condition.

As talent competition intensifies, oil and gas companies will face pressure to continue creating inventive and appealing compensation packagesMaxwell Drummond urges clients to continually sweep the market, acknowledge trends in compensation packages and adapt theirs to continue attracting the industry’s top talent.

About the author
Jamie Ferguson joined Maxwell Drummond’s Aberdeen team in 2006 and by July 2011 was promoted to Vice President of Global Business Development. Jamie has extensive experience managing executive level searches for clients spanning the oil and gas value chain and has deep industry networks developed from working on assignments in over 20 countries on 6 continents.

Maxwell Drummond International is a world leading retained search consultancy offering professional search services to clients in all sectors of the energy and natural resources industries.

Health, Safety and Environment in Oil and Gas

By Jamie Ferguson, VP of Global Business Development, Maxwell Drummond

As the oil and gas industry continues exploration in deeper waters and harsher environments and environmental concerns continue, the demand for Health, Safety and Environmental talent is at an all high time high. Supplemented by the increasingly stringent regulatory framework in the post-Macondo industry, companies are required to certify that their operations are compliant with the regulations defined by the regulatory bodies in their respective regions, thus requiring more manpower. Greater supervision is also required to prevent another environmental crisis.

Maxwell Drummond has seen a rise in the demand for HSE talent globally, though recently more so in the Gulf of Mexico region as offshore activity is beginning to pick up. The Bureau of Offshore Energy Management, Regulation and Enforcement’s regulations have increased the need for more processes for inspecting and monitoring operations and equipment and more workers are required in order to properly document these efforts.

Unfortunately, like most other disciplines within the oil and gas industry, there are challenges in recruiting for HSE professionals. There is a missing generation of workers as a gap exists between the baby boomer generation, and the young professionals that are just now entering the workforce. There is also a shortage of professionals that have an operational understanding of the oil and gas industry. Companies must look outside of the industry, and then implement fast-tracked training programs to verse these professionals on oil and gas operations. Specifically in the Houston market, initiatives have been made to recruit engineers from NASA. Ex-NASA aerospace engineers have the relevant, transferrable understanding of health and safety as well as the advanced technical issues that platforms and pipelines face.

Outside the US, the European Commission has enforced laws stating that offshore oil and gas production will respect the world’s highest safety, health and environmental standards everywhere in the EU. Most oil and gas produced in Europe comes from the harsh geographical and geological conditions in the North Sea offshore the UK and Norway, and the increased regulatory demands has caused the risk and safety job market to boom. In July 2012, Oil and Gas UK released its first Health and Safety Report detailing a number of improvements already being made to offshore safety in the UK, proposed regulations and reductions in target hydrocarbon releases. As these proposed regulations come into effect, even more HSE consultants, engineers and managers will be needed in a region that is already facing a severe lack of qualified individuals. The UK must commit to sourcing global talent to meet the demand it is facing.

About the author
Jamie Ferguson joined Maxwell Drummond’s Aberdeen team in 2006 and by July 2011 was promoted to Vice President of Global Business Development. Jamie has extensive experience managing executive level searches for clients spanning the oil and gas value chain and has deep industry networks developed from working on assignments in over 20 countries on 6 continents.

Maxwell Drummond International is a world leading retained search consultancy offering professional search services to clients in all sectors of the energy and natural resources industries.

Corporate Culture

By Jamie Ferguson, VP of Global Business Development, Maxwell Drummond

In an effort to overcome the skills shortages in the oil and gas industry, there has been much debate about the image of the industry and how it can be improved to attract the next generation of talent. While this is an incredibly important cause, oil and gas leaders must look beyond the industry’s image and ensure that their own companies are exuding stellar corporate cultures as well. Doing so can play a vital role in retaining top talent.

What defines a company’s culture? Corporate culture encompasses all the factors that determine how the people within a company think and act, both as a group and as individuals. It is the mindset, beliefs and shared values of a company. These are often translated through a company’s mission statement and values but the key is to act on these and uphold the set standards and attitudes internally as well as externally.

Corporate culture is an increasingly important area within a company’s HR department and has become essential to attracting, recruiting and retaining talent. Where compensation and benefits play a large factor in individuals’ decisions for employment, so does the company’s culture. A study by Personnel Journal demonstrated that candidates for executive roles inquire about corporate culture almost as much as benefits. Creating a pitch-perfect branding strategy that successfully communicates the culture of an organization is key to recruiting individuals in the war for talent the industry is facing. People want to work for a company they can be proud of, empowering them to pour their best efforts into helping it succeed. Companies with strong cultures have employees that know and believe in their companies’ vision and are committed to fulfilling it. Organizations with clearly defined cultures also benefit from labor cost advantages. Through its culture, companies become better places to work and they become well known among prospective employees. Turnover of current employees decrease, thus decreasing the amount spent on recruiting and on-boarding.

Creating a successful corporate culture is difficult in one office.When companies become multinational, as is often the case in today’s world, it is even tougher.Leadership is crucial in developing and maintaining an organizational purpose, values and vision. This process should begin by examining past earnings and looking forward to where the company wants to be in relation with its stakeholders and environment. Developing a clear vision for how the company will progress in the future is extremely important. Company leaders must also be committed to communicating the vision through their actions and set an example by living the elements of their company’s culture-the behaviors, measures and actions that are set through their values. Seeing top executives portray their company’s standards will cause employees at all levels of an organization to notice and validate the elements of culture. They must also invest the time, money and manpower to see the culture through to every employee within their organization and ensure buy-in over time.

There have been several examples throughout the years of companies developing strong corporate cultures and their success in attracting and retaining talent is proof of their strength. When an organization consistently builds and reinforces such a culture, it creates a tangible competitive edge.The strength of Apple’s corporate culture is infamous and its’ late, but renowned, leader Steve Jobs played a critical role in personally embodying this.A great corporate culture can transcend industry and sector boundaries and generate results that will pay-off for years to come.;

About the author
Jamie Ferguson joined Maxwell Drummond’s Aberdeen team in 2006 and by July 2011 was promoted to Vice President of Global Business Development. Jamie has extensive experience managing executive level searches for clients spanning the oil and gas value chain and has deep industry networks developed from working on assignments in over 20 countries on 6 continents.

Maxwell Drummond International is a world leading retained search consultancy offering professional search services to clients in all sectors of the energy and natural resources industries.

Research and Development in Oil and Gas

By Sean Buchan, VP Europe, Middle East and Africa, Maxwell Drummond

To address the world’s increasing energy demands over the next 30 years and beyond, a substantial increase in research and development is vital. Without this, we face a potentially bleak future: adequate and affordable energy for the masses will be inconceivable.

As deepwater reserves, mature fields and unconventional hydrocarbons become the norm, oil and gas is becoming more technically difficult and economically challenging to exploit. The industry requires a new approach.

Long-term thinking is required to push research and development through the boom and bust cycles. Technological innovation has the power to transform processes and operations but our typically risk adverse industry tends to postpone adopting new technology due to unfamiliarity, preferring to let others make the first move. This means the research and development budgets of oil and gas companies tend to lag behind those in other sectors, such as consumer electronics, software and pharmaceuticals, even though some aspects of the technologies may be transferrable.

Employees involved in research and development include development engineers, design engineers, engineering managers, product development managers and technical authorities. Like all roles within the energy industry, there is high demand for people with the right qualifications and skills.

As one of the most mature exploration and production regions, Aberdeen has become renowned for its pioneering culture and ability to extract precious hydrocarbons from a volatile environment. Due to the high concentration of local subsea and offshore production expertise, Maxwell Drummond’s Aberdeen office frequently places individuals globally, particularly in Australia, to overcome skills shortages in newer markets.

Known locally as ‘black gold’, oil and gas has been extracted from the North Sea since the early 1970s. Given the maturity of many of the North Sea’s fields, the recovery of remaining reserves will be maximised by an investment in extended oil recovery techniques. Tiebacks and subsea infrastructures are more common in the North Sea and as a result, subsea specialist and EOR specialist roles are a very specific need within the region.

Investment in research and development in the North Sea is critical to ensure talent remains in the local market. Government officials must continue to attract investment to prevent a knowledge gap from one generation to the next. Specific technical challenges created by declining oil production in mature fields can be overcome by investment in technical training and developing new technologies. These should be important priorities for companies operating in the region and will help ensure the North Sea’s role in the global energy mix for years to come.

About the author

Sean Buchan joined Maxwell Drummond as a Research Consultant in 2006 and was quickly promoted to Consultant where he worked on a range of senior projects across the Oil and Gas value chain for positions in Europe, the Middle East, West Africa, Southeast Asia and the Americas. In January 2009 Sean was promoted to General Manager for the UK and in 2011 became Vice President Europe, Middle East and Africa. He is now responsible for leading these regional teams and driving the consistent delivery of the firm's executive search projects.

Maxwell Drummond International is a world leading retained search consultancy offering professional search services to clients in all sectors of the energy and natural resources industries.