Choosing performance metrics and setting incentive award opportunity targets in executive compensation programs is hard in any industry. It’s even harder in highly cyclical industries, with oil and gas posing a particular challenge due to the frequent cycles that are extreme at both the lower and higher ends. Companies and their boards must balance a variety of issues such as motivating performance (even if the company may enter bankruptcy or a restructuring in a downturn); retaining critical leadership talent (especially if on the upswing, executives become recruiting targets); and ensuring stockholder support, which can be tricky at any time.

Decisions and communication about metrics and compensation levels have always sent important signals to current and potential investors about where a company is focused, its strength of position within its own industry and how it intends to create stockholder value over the long term. And we know there is no shortage of armchair quarterbacks in executive compensation—regulators, institutional advisory firms, the media, activists and so on.

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