[Editor's note: A version of this story appears in the May 2021 issue of Oil and Gas Investor magazine.]
Marathon Oil Corp.’s press release announcement in late January was anything but ordinary. The Houston-based oil and gas producer wanted the world to know that, beginning in 2021, it was retooling the fundamental structure for how its executives would be paid going forward. First and foremost, production and growth metrics—the golden bonus-award ring for E&P management for decades—cease to exist on the compensation scorecard. The new priority: long-term shareholder value.
Marathon joins a growing number of public E&Ps not only promising capital discipline in the face of investor exodus, but also restructuring executive compensation plans to incentivize these changing business models into an improving commodity price environment.
Yet, asking the oil and gas sector to change longstanding executive pay bonuses is akin to asking Congress to instate term limits: laughable without a grassroots uprising. But the upstream E&P space burned $342 billion in negative cash flows from 2010 through 2020, according to a Deloitte report, and during that same period the XOP Index of exploration and production companies trailed the S&P 500 by 225%, achieving an unremarkable 40% negative return.
And despite being one of the worst-performing sectors during the past decade, E&P executive compensation continued to rise. According to a 2019 PwC study, it’s one of the highest paying sectors in the U.S. with one of the lowest termination rates.