Fossil fuel firms slammed for incentivising production rises with improved executive pay

Oil and gas companies are increasingly tying executive pay to improvements in environmental performance, but incentives are also being linked to increased oil and gas production, says a report by Carbon Tracker

An analysis of 25 of the world’s biggest oil and gas companies has shown that almost all are rewarding their executives for increases in hydrocarbon output, despite the expectation that demand for oil, gas and coal will peak before 2030.

Many companies are now linking executive pay to improvements in environmental performance and rewarding executives for reductions in their carbon footprint and more energy efficiency. However, a report by think-tank Carbon Tracker claims the oil and gas sector is incentivising greater fossil fuel production.

US company Occidental Petroleum was the only firm out of the 25 oil and gas businesses analysed that did not incentivise fossil fuel production growth with its remuneration policy in 2022, the report states.

Seven companies had remuneration policies where measures of hydrocarbon volume growth accounted for at least 30 per cent of an executive’s target variable pay.

The report highlights PetroChina, the listed arm of the state-owned China National Petroleum Corporation, as having the most growth-focused pay policy. Two-thirds of target variable pay — compensation linked to a metric — was set directly or indirectly by volume growth of fossil fuel production, the report says. PetroChina has been contacted for comment.

Italian energy company Eni and Spanish peer Repsol’s remuneration plans also have “a high proportion of growth metrics” associated with fossil fuel production, says the report, adding that Repsol has “attached more weight to renewables and other genuinely ‘low carbon platforms'” inside its 2023 incentive plans.

An Eni spokesperson said: “Hydrocarbon production accounts for only 12.5 per cent of the [executive remuneration] Short-Term Plan, while it is completely absent in the Long-Term Share-based Incentive Plan,” adding that “energy transition and decarbonisation targets [account] for 25 per cent of the Short-Term Plan and 35 per cent of the Long-Term Share-based Incentive Plan.” 

A Repsol spokesperson said: “This report is at odds with our stated and public strategy, which contemplates a reduction in oil and gas production as well as an industry-leading increase in spending on low carbon businesses, including renewable fuels and renewable power production.”

Carbon Tracker says the encouragement of increased oil and gas production jars with the International Energy Agency’s prediction that oil, coal and gas demand will peak before the end of the decade. 

The report also highlights nine remuneration policies as being either partially or completely undisclosed, with national oil businesses singled out as the worst culprits for poor transparency. 

It is encouraging investors to demand that oil and gas companies provide full transparency over executive remuneration.

“We’re increasingly likely to see peak demand for each of the fossil fuels by the end of the decade,” says Carbon Tracker associate analyst Saidrasul Ashrafkhanov. “For most oil and gas companies this means planning for their own output to decline over time, yet going by their remuneration policies, this generally doesn’t seem to be in [their] planning.”

You can find the full report here.