Review the total direct compensation (base salary, annual incentives, and long-term incentives) for the NEOs;
Assess the competitiveness of executive compensation, based on revenue size, asset size, enterprise value and market capitalization, as compared to the peer group and published survey companies in the energy services industry; and
Provide conclusions and recommend considerations for total direct compensation.
Longnecker performed services solely on behalf of the compensation committee. In accordance with the rules and regulations of the SEC and the NYSE, the compensation committee assessed the independence of Longnecker and concluded that no conflicts of interest exist that would prevent Longnecker from providing independent and objective advice.
Longnecker also provides guidance on industry best practices. This information assists us in developing and implementing compensation programs generally competitive with those of other companies in our industry and other companies with which we generally compete for executive talent. The compensation committee reviews salary ranges for all senior executive positions annually.
Longnecker tailored its recommendations to (i) balance external market data, (ii) reflect our internal environment to ensure fiscal responsibility, and (iii) address potential retention concerns. Specifically, Longnecker evaluated the total direct compensation of the senior executives, assessed the competitiveness of our executive compensation and analyzed other factors such as cost of management, pay versus total stockholder return performance, mix of pay, peer annual incentive targets and mix of peer long-term incentive awards.
The companies used for the executive compensation comparisons in November 2017 included the following:
Basic Energy Services, Inc.
Patterson-UTI Energy, Inc.
C & J Energy Services, Inc.
Pioneer Energy Services Corp.
Helix Energy Solutions Group, Inc.
Superior Energy Services, Inc.
Oceaneering International, Inc.
Based on its review of the compensation program in 2017, Longnecker recommended to the compensation committee that we consider the following compensation practices for 2018:
maintain the practice of generally aligning targeted total cash opportunity at the median, but paying above market only when performance warrants;
use of restricted stock units and performance units for the senior executive team to continue alignment of executive and stockholder interests with 50% of the NEO’s long-term incentive award vesting only when performance metrics are met;
consider no base salary increases;
assess the market 50th percentile for long-term incentive awards, but give consideration to the total stockholder return, as well as share usage and retention concerns.
As a result of discussions with its compensation consultant, and in light of the macro-economic conditions affecting the industry and the need to retain employees critical to the operations of the Company, the compensation committee elected to issue Replacement Awards to holders of the 2016 Awards, including each of the NEOs, and certain additional critical employees.
Executive Compensation Risk Management
We do not believe that our compensation policies and practices encourage excessive or unnecessary risk-taking. Historically, our compensation committee annually reviews and discusses risks that relate to compensation policies and practices, and considers risk management in connection with overseeing the executive compensation program. We believe that our executive compensation program is designed with an appropriate balance of risk and reward. To achieve this balance, our program includes:
performance incentives with both financial and operational metrics that are not completely based on arithmetic formulas, but also incorporate the exercise of negative and positive discretion and judgment;