Patterson-UTI Energy, Inc.: Equity Retention Requirements
BE IT RESOLVED: The shareholders of Patterson-UTI urge the Compensation Committee of the Board of Directors (the “Committee”) to adopt a policy, applicable to future grants and awards of equity compensation, requiring that senior executives retain a significant percentage of shares acquired through equity compensation programs for a significant period of time following the termination of their employment (through retirement or otherwise).
SUPPORTING STATEMENT: Among other issues to be considered by the Committee at its discretion concerning this issue, Shareholders request that the Compensation Committee consider the benefits of adopting a two year holding period. In addition, shareholders suggest that the policy address the permissibility of transactions such as hedging transactions which are not sales but reduce the risk of loss to the executive.
WHEREAS: Requiring senior executives to hold a significant portion of shares obtained through compensation plans after the termination of employment helps focus their attention on Patterson-UTI’s long term success and better aligns their interests with those of Patterson-UTI shareholders. One reason boards provide incentives with stock is to create such long-term alignment. Awards that fail to include such requirements instead allow executives to cash out options near the top of the market.
In 2017, the company significantly increased the CEO's base salary and annual incentive targets, resulting in considerably higher cash compensation than in 2016. At the 2018 annual meeting, 75.5% of shareholders cast a vote against the company’s advisory vote on compensation, largely due to a failure to adequately link pay and performance.
Shareholders believe it is important for the company to promote long-term and sustainable value creation that can withstand predictable long-term risks. This requires a comprehensive understanding and evaluation of longer term risks by executive management. As an example, environmental risks, including elements of resource availability and climate risk, as well as potential regulatory and market response to these risks must be considered. To succeed over the long term, Patterson-UTI will need to acknowledge, evaluate, and manage long-term risks and opportunities. If executive compensation plans are focused on shorter term stock price fluctuations, management may not be incentivized to take such long-range actions.
Patterson-UTI currently has a very limited retention requirement that is only effective until its modest ownership guidelines have been met. We view a more rigorous retention requirement as superior to the current stock ownership guidelines.
We urge shareholders to vote for this proposal.