If an industry’s health can be measured by how much it pays its employees, then the oil and gas industry is hale and hearty. But carefully tracking just how well compensated employees are industry-wide can help employers maintain a competitive edge.

Toward this end, Mercer conducts an annual survey called the Total Compensation Survey for the Energy Sector. Energy companies are queried yearly about their compensation packages, and that information is compiled, analyzed, and presented to organizations.

“It’s a very comprehensive process,” said Joanna Stacke, a senior consultant for Mercer. “At the beginning of the year we reach out to the companies asking them if we should add more jobs to the survey and what different elements it should entail. We want to make sure we’re keeping up with what’s going on in the market.” For instance, she said, the most recent survey included information about shale plays.

The questionnaires are distributed in March with a May deadline, and during the summer the data are verified and then published. “We meet with our clients at the end of the year to talk about the results and let them know what’s going on with the market,” Stacke said.

The survey itself is open to any company that employs people with those job descriptions, but only those who purchase the survey are privy to the results.

“On the upstream side, for the most part the survey is made up of a number of independents,” said Joshua Ross, a senior consultant. “You typically find that the fully integrated companies look amongst themselves and a short list of peers to determine compensation. This survey is much broader.”

The results

Overall, base pay rose between 2010 and 2011 in every category, with fully qualified drilling engineers seeing one of the highest pay increases of 9% during that time. Chief operating officers also got a nice boost of around 10.8%. Stacke described “fully qualified” as someone with a minimum of four years of experience who works with a higher degree of independence.

Ross said that drilling engineers already had a premium over other engineering disciplines, and the demand for their skills is closely related to the price of oil. HSE professionals also are seeing pay increases. “With new regulations, it’s harder to find people to handle them,” he said. “These people have the responsibility of developing new policies.”

Upstream oil and gas companies have spent, on average, 4.4% of payroll on base pay increases in 2012. These same companies have forecast a 4.1% base pay increase budget in 2013; however, Ross points out they typically spend more than forecasted.

chart- a chart showing pay diffrence

Results from the 2011 Mercer Total Compensation Survey for the Energy Sector show that salaries rose in all but one category between 2010 and 2011. (Data courtesy of Mercer)

The survey indicates some interesting trends, he added. “One is just the abundance of new entrants into the market for oil and gas,” he said. “We’re seeing the entry of nontraditional competitors, private equity firms that have bought positions in different upstream organizations or have started their own. We also see national oil companies from other countries coming into the US. They come here for the knowledge.

Age, of course, will become increasingly obvious as more workers near retirement age. Ross said the gap between the fully qualified workers and their project leads is 12 to 15 years.

“A 35-year-old petroleum engineer is looking at the person at the next level who is 12 to 15 years older,” Ross said. “What are companies doing to keep those people engaged? They might not see a promotion for a few years.”

He added that some companies are creating “reverse mentoring” to create rapport and share knowledge both ways. “There’s a lot to learn,” he said.

Stacke added that organizations look to the company and its survey for answers. “They want information about the aging population, how they can keep them going,” she said. “It’s important to do that now. Once these employees retire, the makeup of the workforce is going to change.”

Knowledge transfer not only helps a company keep its competitive advantage; it also can be an expensive proposition not to, Ross said, since technical talent hired on the spot market does not come cheap.

Companies have gotten creative about their workforce challenges. Stacke said technical knowledge in the US is in high demand in other parts of the world, so many companies use a rotational program to direct employees to different regions. This helps them to build a longer talent pipeline.

In general, these surveys bear out the overall health of the oil and gas industry. Even the global financial crisis of 2008 and the Macondo incident in 2010 had only minor impacts on compensation, mostly affecting those at the corporate executive level.

“In 2008 the projected pay increase was 4.2%, and in 2009 it was 3.4%,” said Stacke. “There was a drop, but not as significant as in the general industry.”