Shared from the 6/24/2019 Houston Chronicle eEdition

COVER STORY

Recovering oil prices help Houston’s

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JEFFERY ALLEN MILLER

Halliburton Company

$16,999,898

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BHAVESH PATEL Lyondell Basell Industries N.V.

$18,206,797

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GREG GARLAND

Phillips 66

$19,278,335

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JACK FUSCO

Cheniere Energy, Inc.

$21,266,901

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RYAN LANCE

ConocoPhillips

$23,406,270

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STEVEN KEAN

Kinder Morgan Inc.

$16,908,961

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PAUL KIBSGAARD

Schlumberger Ltd.

$16,199,200

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LORENZO SIMONELLI

Baker Hughes, a GE company

$15,959,761

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ROBERT WALKER

Anadarko Petroleum Corporation

$15,516,305

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JOHN CHRISTMANN IV

Apache Corporation

$15,201,447

If the 10 Houston executives who made the most in 2018 were punching a time clock, they would’ve made about $8,600 an hour.

Overall, Houston-area executives’ compensation ranged from a few hundred thousand dollars, such as Westlake Chemical Partners CEO Albert Chao’s total compensation of $110,000, to ConocoPhillips CEO Ryan Lance’s reported $23.4 million in 2018.

S&P Global and the Houston Chronicle compiled and analyzed compensation data on more than 150 Houston-area companies and found that the median pay raise for their top executives totaled 5.4 percent in 2018, equivalent to nearly $147,500. The median compensation was $4.16 million.

In fact, most of Houston’s wealthiest executives got araise working in industries ranging from oil production to biotechnology. Those who topped the list saw compensation balloon tens of millions of dollars last year. Some executives, however, saw the value of their compensation diminish from 2017 amid a still-recovering energy sector and end-of-year stock market turmoil.

The earnings vary widely by structure of compensation and total value. Lance, for example, saw a compensation raise of about $1.56 million last year, or 7 percent. He made more than four times the average Houston-area executive, who made $5.6 million, excluding a few outliers who skew the average with exceptionally large paydays.

The company’s return on its shares during his tenure as CEO is on average about 4 percent per year, according to Bloomberg data. In a statement, aConocoPhillips spokesperson wrote that executive compensation at the company links pay with performance.

Houston is home to 20 Fortune 500 companies, according to Fortune’s latest rankings, and more than 150 publicly traded companies. Their executives’ total compensation includes salary, stocks, options, bonuses and other benefits, which public companies report as asingle estimate of annual compensation in regular filings.

All about oil

Executive compensation in Houston rose last year mostly due to a solid performance by energy companies and a strong economy on a record run of expansion.

“I think it’s asign of health of Houston-area companies,” said David Bixby, the managing director of Pearl Meyer, an executive compensation consulting firm in Houston.

Oil exploration and production companies did well in the rankings. Vicki Hollub, CEO of Occidental Petroleum Corp., and John Christmann, CEO of Apache Corp. made the top 20 and saw compensation increase from 2017.

But of the executives included in the Houston Chronicle’s analysis, 49 saw their compensation fall in 2018, primarily for executives in energy service companies, such as Paal Kibsgaard, CEO of Schlumberger, the world’s biggest energy services company. The Chronicle’s analysis included 131 executives who held their position for the entire fiscal year.

Energy service companies had a tough year. Since an industry downturn in 2014, many of their customers have continued to refrain from spending too much in recovery years.

And, a shortage of pipelines and infrastructure caused a slowdown in drilling activity last year. Bixby described oilfield service companies as the “tip of the whip” for the oil market — when prices are high, companies see their stock go way up, and when prices drop, their stock does way down, and executive compensation follows.

Stock prices for Schlumberger and Halliburton, for example, had fallen to about half of their value by the end of 2018 than when they started it. Jeffrey Miller, CEO of the $18.7 billion oil and gas services company Halliburton, saw a decrease of more than $6 million in reported compensation from 2017, due primarily to losses in restricted stock award values last year. But while Miller appears to have taken apay cut from 2017, he actually got a 19 percent raise on his base salary last year, which was $1.4 million.

Executive compensation experts said it’s important to understand that much of what makes up a CEO’s reported compensation isn’t cash. It’s the value of the shares they own in company stock.

“It’s not actual money in their pockets yet,” said Cory Morrow, a senior client partner in executive pay practice at Korn Ferry, a consulting firm that specializes in executive compensation. “Generally, company size and industry are the two biggest drivers in pay.”

Most of the value of an executive’s compensation is made up of long-term incentives, which are tied to the financial success of the company in its stock. For example, John Christmann IV, the CEO of Apache Corp., an oil and gas production company, saw his compensation increase from $14.4 million in 2017 to $15.2 million in 2018. But, his salary was unchanged at $1.3 million for both years.

Executive pay analysts say companies are simply paying what, in the world of CEOs, is a competitive wage to get the right person for the job. Cory Morrow, a senior client partner in executive pay practice at Korn Ferry, a consulting firm that specializes in executive compensation, said it is becoming increasingly difficult to find and retain that person.

“The public companies today are dramatically larger and more complex,” Morrow said. “The complexity of these roles only continues to increase, which can lead to challenges finding the right men and women to do the jobs. Paying based on performance is a delicate balance because there’s a limited pool of talent for the senior-most executive roles.”

So, even though pay has become more tied to company performance in the last decade, executives have more bargaining power in negotiations with the board to obtain benefits.

Bhavesh Patel, CEO of LyondellBasell Industries N.V., a chemical company, had the best performance of an executive in Houston’s top 10, with about a 7 percent higher annual return to his company’s shares compared with his peer group, according to Bloomberg data.

Patel’s reported compensation was $18.2 million in 2018, and he ranked fourth on the list of Houston companies. His base salary was $1.57 million.

“The stock performance should reflect the company performance, so where the company has seen a decrease in their stock price, executives will see a corresponding decrease,” Morrow said. “The goal of boards is to properly align the compensation with company performance.” erin.douglas@chron.com twitter.com/erinmdouglas23

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