As You Sow

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Hess

Proxy filed 4/2/15  Meeting date 5/6/15

Like many companies in business of the exploration and production of crude oil and gas, Hess has seen a sharp decline in Total Shareholder Return over the past year.  In this case, it has been accompanied by an increase in CEO pay.  The total disclosed compensation for CEO John Hess increased from $16.1 million to $23.5 million.  A major component of the increase was an $8 million change in pension value.

The company has made significant changes in its compensation plan, lowering the CEO’s bonus target and issuing stock options for the first time in many years. The proxy statement notes that in March 2014, the compensation committee reduced Hess’ cash bonus target for 2014 by $1 million and “approved a corresponding increase in the value of his target LTI award for 2015 by $1 million.”  Thus the target annual bonus declined from 217% to 150% of Hess’s $1.5 million salary, in other words from $3.25 to $2.25 million.  His actual bonus paid for 2014, based on “enterprise results” that include environmental health and safety goals, proved reserve additions, as well as four additional metrics, was at 135% of target: $3 million.

In terms of long-term incentives (LTI), in 2014 the compensation committee decreased the weighting on time-based restricted stock from 50% to 20% of the LTI package, increased the weighting on performance share units (PSUs) from 50% to 60%, and re-introduced stock options at 20%. Payout of PSUs is contingent upon the company’s TSR compared with that of peer companies over a three-year period. However, even if Hess outperforms its peers, there will be no payout if total shareholder return is negative.

Shareholders at Hess also have an opportunity to vote on a proposal by As You Sow that urges Hess to prepare a scenario analysis report addressing the risk of stranded assets presented by global climate change and associated demand reductions for oil and gas, including analysis of long and short term financial and operational risks to the company.