MORE ENERGY COMPANIES ARE TYING EXECUTIVE PAY TO PERFORMANCE, ACCORDING TO BDO SEIDMAN, LLP SURVEY
CFOS WEIGH IN ON OIL AND GAS RESERVE DISCLOSURES, ACCOUNTING ISSUES AND EMPLOYEE PAY
Chicago, IL – December 15, 2008 – According to a new survey by BDO Seidman, LLP, one of the nation’s leading accounting and consulting organizations, 49 percent of chief financial officers (CFOs) at U.S. oil and gas exploration and production companies say their companies’ executive compensation programs are now more closely tied to performance than they were before new proxy disclosure rules became effective, and 44% say they employ greater discipline in setting executive compensation opportunities since the rules were published. While there is increased pressure for transparency on executive pay, a majority of CFOs responding to the survey (68%) do not expect to receive a “say on pay” proposal from shareholders of their companies in the next year.
“Nevertheless, shareholders will have a microscope on executive pay in 2009, and companies that have not developed and communicated transparent programs that link compensation to performance will be feeling increased pressure to implement best practices,” said Lance Froelich, a Senior Director in the National Energy Industry Practice
at BDO Seidman, LLP and Regional Practice Leader for the firm’s Compensation and Human Capital Consulting
practice. “In regard to 2009 compensation opportunities, we expect many energy companies to reign in pay for employees at all levels next year. Economic conditions are driving companies to re-evaluate their 2009 budgets regularly.”
These findings are from the BDO Seidman Natural Resources 2009 Outlook Survey
which examined the opinions of 100 chief financial officers at U.S. oil and gas exploration and production companies. The survey was conducted in October and November of 2008.
The survey also asked CFOs about their views on the U.S. Securities & Exchange Commission’s (SEC’s) proposed changes to modernize oil and gas reserve reporting requirements, and found that although 58 percent said the proposed rules will provide investors with better information, approximately 54 percent believe the time required to comply with those proposed rules will be substantial or even unreasonable.
- IFRS Adoption: Still Distant for Most Companies. Only 13 percent of respondents expect to be early adopters of International Financial Reporting Standards (IFRS). A little more than one-third (35%) think that oil and gas companies reporting financial results using IFRS have a competitive advantage over U.S. companies filing under Generally Accepted Accounting Principles.
- FAS 141R Implementation will be Moderately to Highly Difficult. Energy companies must implement Financial Accounting Standard No. 141R for any acquisitions effective as of December 15, 2008. A majority (57%) of respondents believe implementation will be moderately to highly difficult.
“One of the big issues for oil and gas companies is that FAS 141(R) requires acquisitions to be recorded based on the fair value of assets received, instead of based on the amounts paid for those assets,” says Rocky Horvath, assurance partner in the National Energy Industry Practice at BDO Seidman. “That and other changes in the rules will present challenges to those charged with properly reporting such transactions.”
- Small Ceiling on Employee Pay Increases. Nearly half of energy CFO respondents (46%) are budgeting salary increases of less than three percent for employees in 2009. A little over one-quarter (26%) are planning increases of three to four percent, and 17 percent are planning increases of four to five percent. Few (11%) are planning increases of five percent or more.
The BDO Seidman Natural Resources 2009 Outlook Survey
is a national telephone survey conducted by Market Measurement, Inc., an independent market research consulting firm, whose executive interviewers spoke directly to chief financial officers, using a telephone survey performed within a scientifically-developed, pure random sample of U.S. oil and gas exploration and production companies.
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