Oil, Gas Salary Adjustments Amid Oil Price Decline
As many energy industry companies revise their capital expenditures downward for 2015 amid the steep drop in crude oil values, they are making a variety of decisions with regard to worker compensation, according to Aon Hewitt, a global human resource company that tracks corporate performance, reward and talent.
The slide in crude oil prices picked up speed late in 2014, about the time that financial decisions for 2015 were being made. As prices continued to dip, many companies within the industry revisited the budgeting process early in the new year in light of the current reality of sub-$50/barrel crude oil.
While the downturn in prices has touched all sectors of the oil and gas industry, the effects of the downturn are not being felt equally by all companies, and they are therefore responding in different ways regarding their budget decisions, Joshua Ross, associate partner with Aon Hewitt, told Rigzone.
The good news for workers in the industry, Ross said, is that 58 percent, or almost six out of ten of the companies surveyed plan to keep salary increases unchanged from their initial budgets, despite the slump in crude oil prices.
The industry had originally budgeted for pay increases averaging 3.7 percent, Ross said. However, following budget revisions at some companies following the drop in crude oil prices, the salary increases now average about 3 percent, which is still as much as those in most other industries.
Ross noted that while small companies had been less likely to lower the original budget increases, they were more likely to “shed head count.”
Regarding the companies that changed their original budgets, the data on budget revisions was driven in large part by oilfield equipment and services organizations, which are strongly feel the effects of rig shutdowns. And while most companies in the industry were still planning to increase salaries, the size of the increases was somewhat less than originally budgeted for.
“What we’ve found is that about 38 percent of organizations in the oil and gas industry are planning to decrease their budgets for base pay increases in 2015,” Ross said. “About 8 percent of organizations have indicated base pay levels would be frozen across the entire organization. That’s the most seen in the past six years,” Ross said, adding that “while 8 percent doesn’t sound that high, we haven’t seen base pay freezes for six years in the oil and gas industry, not since the last downturn.”
Pay freezes hit the oilfield service sector harder than the industry as a whole.
“We found that 25 percent of oilfield service and equipment providers were planning to freeze pay levels across the organization, and 45 percent were expecting to freeze base pay levels for executives,” Ross said, noting that because many companies in this sector of the economy are making staffing reductions, “the optics around exempting executives from pay freezes would not look good” at companies planning hiring reductions.
While most companies either left salary increases at original budgeting levels, reduced the increases or even froze salaries, a few companies – about 5 percent, Ross said – actually plan to increase salary increases in 2015.
Bonuses are also a mixed bag, with about 40 percent of companies planning to keep bonuses at or above previous levels, while 35 percent said funding levels are expected to be below target levels. Another 25 percent of respondents had yet to make a decision.
Finally, about 64 percent of the organizations surveyed plan to use supplemental cash incentives, discretionary stock awards and higher base pay increases to reward workers who perform at a particularly high level.
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