Funding an Updated PSAC Oil Service Compensation Survey is Critical for Shaping the Right Recovery Strategies: Read WHY Here
David Yager – Yager Management Ltd. February 16, 2017
Oilfield Service Management Consulting – Oil & Gas Writer – Energy Policy Analyst
One of the most significant benefits for oilfield service (OFS) companies in being members of the Petroleum Services Association of Canada (PSAC) has been the annual salary study, officially titled Total Compensation Survey. For the past 20 years this comprehensive analysis and review has been a benchmark reference from which to set and compare compensation for executives, managers, administration and a wide range of field service personnel. This includes 280 different positions in six distinct OFS sectors: well services, manufacturing, supply, workover/service rigs and all sectors combined.
This is surely the most comprehensive research of its type conducted in the Canadian OFS industry because it was created and administered by the trade association whose sole purpose is to support and advocate for the needs of Canada massive, diversified and dynamic OFS sector.
In early 2015, before OFS realized it was in the early stages of a long and severe downturn, 62 PSAC member companies representing 28,000 Canadian employees participated. As usual, the data was comprehensive and granular. The only problem is the information was for the most part trailing from 2014 and preceded what would be the complete upheaval of the OFS pay structure to ensure survival.
A year ago in early 2016 when PSAC went to its members to fund an update there was not enough member company interest to proceed so the project was cancelled for the year. Why worry about wage rates when you can hardly afford to pay staff anything? Going back to members in early 2017, PSAC reports the total company participation commitment is still a bit light to cover the costs of the research and compilation. But finding out what the status of compensation is after the past two years of cuts and bruises is critical for companies planning their recovery strategies.
The rest of this article is dedicated to why the PSAC annual salary survey matters, why PSAC members should step up and participate, and why more OFS companies should join PSAC for this reason alone. It is that important.
The number one cost of oil and gas field services is labor. The number one factor separating winning OFS companies from the rest of the pack is their personnel and job execution. That’s why it is called a service industry. The most important thing that should matter to a client and employer in terms of job efficiency and profitability is that they have the right people doing the right things at the right time. Recruiting. Training. Retention. Career development. Job satisfaction. Remember when this mattered? As the recovery takes hold and many of the people let go are reluctant to return to the industry, this matters once again.
What could be more important than understanding industry-wide compensation levels? Ensuring that your company is paying what it must to be competitive in attracting the best possible personnel but simultaneously ensuring you’re not overpaying so you can make a decent margin on your efforts?
The PSAC study has several elements to it, all important. The first is Executive Compensation covering CEOs, COOs, divisional managers, president of Canadian subsidiaries and regional general managers. Knowing what your outfit pays compared to your competitors and peers if particularly relevant if the company is publicly traded. One of the required elements of the annual Information Circular to shareholders prior to annual general meeting is a discussion and analysis of the metrics by which the executive team is compensated and how this compares to the rest of the industry.
The typical boiler plate in one TSX listed OFS company Information Circular this year read, “…(the) executive compensation program is administered by the Compensation and Governance Committee of the Board of Directors. The purpose of the Compensation and Governance Committee is to assist the Board of Directors in fulfilling its oversight obligations relating to human resources, compensation and governance matters with a view toward making recommendations to the Board of Directors as appropriate. Such matters are set out in the Mandate of the Compensation and Governance Committee and from a compensation perspective, include the compensation philosophy, compensation for the executive team, bonus and benefit plans, and succession planning. The Compensation and Governance Committee may retain special legal, compensation, accounting, financial or other consultants or advisors to advise the committee at the Company’s expense and shall have sole authority to retain and terminate any such consultants or advisors and to approve any such consultant or advisor fees and terms.”
So this outfit paid a private compensation consultant to build the company’s executive compensation structure to analyse what the company should be paying compared to the rest of the industry. The pay grid for OFS executives is about the same for private and public operators and is often based on revenue and employees. Finding information about what private companies pay their executives is not easy. The PSAC study levels the playing the field among private and public operators providing, in my view, the most comprehensive and industry-specific data available.
Since listed companies are prepared to pay for this data anyway, why they wouldn’t all support the PSAC study considering its low and shared cost and fabulous granularity is difficult to understand. Most public company compensation committees would find the PSAC study quite adequate for benchmarking purposes if they knew it existed and how it was assembled. At only $2,400 for PSAC members (plus a bit of time for HR and/or payroll to answer all the questions), it is, at minimum, a high value cross reference. Plus the collateral benefits to the rest of the organization.
Then there’s the really good stuff which the various positions essential to running an OFS outfit. Finance covers some 30 position from CFO to controller to junior accounting clerks to payroll staff. Human Resources has 10 categories from the junior to senior level. Office encompasses over 20 positions including store manager to receptionist to clerical and communications. The Manufacturing/Distribution element of the study details about 60 different job classifications including machinists, welders, millwrights, mechanics to plant managers and inventory control.
Under Engineering/Technical the PSAC study tracks dozens of positions ranging from engineers to technologists to CAD designers and operators and laboratory technicians. There are five differing job categories under Purchasing. Sales/Marketing has 16 categories such as order desk clerks, inside sales, account reps and marketing managers. Field Operations is the most comprehensive in terms of granularity where it talks about everybody from rig personnel to field operators of various pieces of equipment to wireline hands and solids control technicians. The 15 positions under Information Technology reflect that every OFS operator today requires significant investment in IT and systems support. Other captures whomever has slipped through the cracks in the previous including QHSE, estimators and truck drivers with details such as swampers and winch truck operators.
The last element of the compensation study is benefits by employee level. This is really interesting because it includes life and accident insurance, retirement and savings plans, stock purchase or ownership plans, health care plans and benefits, dental care, disability insurance. All companies offer some version of these to their salaried employees but this coverage was eroded by the recession in two ways; the generosity of the program and the number of workers pushed from salaries to hourly which usually excluded them from the company benefit plan. As managers wonder what they need going forward, this information and which employees get what is particularly valuable.
What makes the PSAC study so relevant in 2017 is it is unlikely any previous compensation studies are meaningful after two years of contraction by OFS as a whole. Just about everybody in every position took a pay cut or pay deferral of some sort. For example, the compensation of most of the pressure pumping sector at the field level was changed entirely as it moved from a base salary and field job bonus to hourly. Virtually everybody had to be prepared to work for less if they wanted to work at all. The only study available that could possibly and accurately summarize who gets paid what nowadays on such a broad base of job categories is PSAC’s.
What makes PSAC and the Canadian OFS industry unique in the world is that through this organization fierce competitors agree to cooperate on matters of mutual interest that are best resolved through collective efforts. Then they go out into the marketplace and try to clobber each other. The PSAC annual Total Compensation Survey is also one-of-a-kind in this global industry and is of great value to those who participate and use it. Get with the program people and get this valuable initiative back on track. OFS Companies Need to Step Up and Join PSAC.
About David Yager – Yager Management Ltd.
Based in Calgary, Alberta, David Yager is a former oilfield services executive and the principle of Yager Management Ltd. Yager Management provides management consultancy services to the oilfield services industry in a number of areas including M&A, Strategic Planning, Restructuring and Marketing. He has been writing about the upstream oil and gas industry and energy policy and issues since 1979.