Schlumberger

Annual Meeting: April 4, 2018

Schlumberger Ltd. CEO Paal Kibsgaard received $20.8 million in reported pay for 2017, a 12 percent increase over last year’s package. ISS has already issued a recommendation against the advisory vote on pay, and this is not the first time compensation actions taken by the company have angered shareholders.

The most recent package includes $2 million salary component, much higher than average among CEOs. An inflated salary inflates every component of pay. In this case, Kibsgaard’s above-target payout for his cash bonus at 214 percent of his base salary amounted to $4.28 million. Had he a typical CEO salary of $1 million the bonus would have been half that. The remainder of the CEO’s package is $12 million in performance shares

Notably, the company also awarded time-based restricted stock to the remaining named executive officers:  20,000 RSUs to each of executives Ayat, Belani and Le Peuch, and 15,000 to Juden. All will vest in October 2020 if the executives remain at the company through that period. Such awards have become exceedingly rare over the years. They are often derided as “pay for pulse” to contrast them to “pay for performance.”

ISS has issued a recommendation against the package, according to a filing by Schlumberger, based on the, “Compensation Committee’s decision to make a one-time grant of restricted stock awards (“RSUs”) to four of our named executive officers (“NEOs”) for retention purposes. The ISS report suggests that the sole purpose of the RSU grants was to compensate our executives for past performance-based equity awards that did not vest. It also suggests that the RSUs grants insulated our executives from the pay-for-performance process. ISS also did not acknowledge the Committee’s rationale for the RSU grant which was key executive retention at the beginning of the industry recovery.”

The company’s filing includes a graphic detailing the difference between reported pay and realized pay for given years.  The chart does not include in “realized pay” the value of options cashed in. In the past year Ayat realized nearly $3 million in value from the acquisition on of exercise 100,000 options. The company discloses that Ayat’s remaining options would be worth $9 million in the event of a change in control.

Long-term focused compensation is designed with targets in mind. Estimates of the values of PSUs and options are reported based on forward-looking estimates of future pay based on targeted results.

This is not the first time that Schlumberger has shown a reluctance to accept the outcome of the company’s failure to meet targets. In 2016, I wrote about the fact that company set significantly lower earnings per share (EPS) goals for than it had in the past, and subsequently lowered them half way through the year.

In its 2017 proxy statement the company noted that “Many stockholders we engaged with disapproved of the Compensation Committee’s exercise of discretion when it awarded our executives 100% payout under the performance stock unit (“PSU”) awards that vested in 2016, when the actual performance results called for an 81% payout.”

I expect many shareholders will likewise disapprove of restricted stocks.

 

Pay Ratio

Schlumberger CEO’s 2017 total compensation was 234 times that of the median employee. The company provided interesting context disclosure in its report.

"The excluded employees represented 3,206 employees from India, 933 employees from Venezuela, 726 employees from Pakistan, 29 employees from Ukraine and 4 employees from Sudan."

"We determined that the median employee was a full-time, salaried employee located in Colombia and working as a Wireline Field Engineer, who is paid a base salary of $38,893." The company made conversion to dollars, and calculated all of the elements of that employee’s compensation, resulting in a stated annual total compensation to that employee of $88,604. The company says the difference between the figures was "due to field bonus pay plus payments related to a food stipend and cost of living expenses for his location"

 

Rosanna Weaver