Big Oil CEOs have Reasons for Focusing on Energy

As Energy demand rises and commodities market pundits predict a return to $100 oil, new factors in the Energy sector are pressuring producers to extract less. It ranges from increased fiscal discipline in the United States after a decade-long bust to ESG pressure and how shareholders compensate Energy executives. Royal Dutch Shell was the first oil company to link ESG to executive compensation in 2018, allocating 10% of long-term incentive plans to carbon reduction.

BP followed suit, incorporating ESG factors into both its yearly bonus and long-term incentive plan. While the European majors were the first to integrate greenhouse gas emissions targets into executive compensation plans, Chevron and Marathon Oil are U.S.-based oil corporations. The oil and gas businesses are joining a long list of public companies tying ESG to executive pay, including Apple, Clorox, PepsiCo, and Starbucks. Last week, industrial Caterpillar announced the creation of a new role of chief sustainability and strategy officer and the announcement that a portion of the CEO salary will subsequently be tied to ESG.

According to research from Willis Towers Watson, 51 percent of S&P 500 corporations incorporated some ESG indicators in their executive compensation plans last year. However, only 4% of organizations employ ESG in long-term incentive plans, whereas half use it in annual bonus or incentive schemes (LTIP). According to a comparable survey by Pricewaterhouse Coopers (PwC), 45 percent of FTSE 100 companies have an ESG aim in their annual bonus, long-term incentive plan, or both. “We will continue to see the percentage of companies increase,” said Ken Kuk, senior director of talent and rewards at Willis Towers Watson.