February 1, 2021
Proxy Season Theme? Linking Pay to Sustainability Progress
– Lynn Jokela
A few things come to mind when thinking about possible themes for the 2021 proxy season and one could involve companies linking executive pay to progress on sustainability initiatives. And, last week, Marathon Oil took action by modifying its incentive programs to better align with the company’s ESG framework. The company issued a press release about the changes, which also includes new targets for greenhouse gas emissions reductions. SEC filings show the company usually files its proxy statement in the spring but this excerpt from the press release helps explain changes made to the company’s executive incentive programs:
Marathon Oil’s short-term incentive (STI) annual cash bonus scorecard has been restructured to better reflect the Company’s financial and ESG framework. The scorecard has been simplified to prioritize performance in 5 areas deemed critical for long-term shareholder value creation:
- safety (total recordable incident rate);
- environmental (GHG emissions intensity);
- capital efficiency (corporate free cash flow breakeven);
- capital discipline/free cash flow (reinvestment rate); and
- financial/balance sheet strength (cash flow per debt adjusted share).
All production and growth metrics have been eliminated from the Company’s annual bonus scorecard.
Additionally, the Company has revised its LTI compensation framework, now focused on three vehicles, all of which are denominated in shares: restricted stock units (RSUs), relative total shareholder returns performance stock units (TSR PSUs), and free cash flow performance stock units (FCF PSUs). The revised framework is intended to mitigate an overreliance on relative TSR against direct E&P peers by introducing the S&P 500 and S&P Energy indices as peer comparators within the relative TSR calculation to promote improved performance vs. the broader market. Additionally, the introduction of FCF PSUs further diversifies the LTI performance metrics and underscores the Company’s priority to generate sustainable free cash flow.