Schlumberger

Annual meeting April 3

 Schlumberger CEO Paal Kibsgaard’s total compensation for 2018 was $16,199,200. After nearly a third of shareholders opposed the pay package last year, the company has made minor changes to its performance shares since last year. The company has also added questionable peers to the group uses “for executive compensation decisions.”

Schlumberger added Netflix to this list in 2018. What does an oilfield services company have in that common with a video streaming service? I can think of a few things: excessive compensation and shareholder frustration over pay.

Last year Netflix received negative publicity when it increased salaries for executives by an extraordinary amount. For example, the salary of the Chief Content Officer increased from $1 million to $18 million (the salary is just one component of the pay).  At Netflix’s most recent annual meeting in June 2018, 38.8% of investors voted against this proposal – a substantial level of opposition.

Another company on Schlumberger’s peer list, Johnson Controls, received even higher opposition of approximately 45%. Motorola and Mylan – both new also new additions to Schlumberger’s peer list for 2018 – also had that dubious distinction of high levels of opposition to their pay packages.  There were only 32 companies in the S&P 500 where pay packages were opposed by more than 30% of shareholders in 2018.

Why add so many companies with shareholders unhappy about pay to a peer list? When shareholders express dissatisfaction that the company’s executives are paid higher than their peers the proper response is to reconsider pay; not to look for more highly paid peers.

I wrote about excessive pay at Schlumberger last year as well, in particular the performance shares. The company notes that after meeting with shareholders it “introduced a modifier based on relative TSR to all of our 2019 performance share unit (“PSU”) awards.”

Under this modifier, the number of shares earned upon vesting will be reduced by 25 percentage points if the “cumulative TSR during the three-year TSR performance period is ranked in the bottom 33rd percentile relative to the TSR of the companies comprising the Philadelphia Oil Service Sector (OSX) Index.” In other words, if 62% of companies in the same industry outperform Schlumberger, the executives will get a 25% reduction in shares. Simple math suggests that means even if the company underperforms the executives will still receive 75% of the performance shares.

I expect this will not be a persuasive reform to most shareholders given the lack of pay for performance alignment and unusual peers.

Guest User