High oil and gas prices aren’t the only signals it’s a good time to be in the industry. A recent survey of base pay and total compensation for oil and gas company employees in the United States shows a distinct upward trend.

Mercer has conducted the survey since 1999, but this may be the last year it appears in the current form.

Next year, the company hopes to take a broader and deeper vertical look at the industry and include compensation plans worldwide. It also will streamline the survey for employers, said Erin Packwood, a principal with the human resources consulting company.

Although some positions on the chart show sharp rises for individual positions — average base pay for chief executive officers climbed from US $500,000 to $612,500 in the past year, for example — those individual statistics don’t tell the whole story, Packwood said.

“Movement in one job is not a trend, but movement in families of jobs can be a sign of hot areas.”

For example,in the table, all levels of production/ drilling engineer showed hefty pay and compensation gains.

The survey showed the results of high demand for petrotechnical people, geologists, geophysicists and engineers.

Visualizing significant trends, Packwood said base pay for all industries, as indicated in another annual Mercer survey, rose an average 3.8%, while base pay in the oil and gas industry climbed 5.3% during the past year. Pay in the geological and geophysical families climbed as much as 10%, and pay increases for some levels of engineers rose about 8%.

Just as trend conclusions are inaccurate for individual jobs, focus on a single year can result in biased results, Packwood added.

“You can’t draw conclusions on one-year shifts.”

In this case, however, the 2007 comparison with 2006 is consistent with the upward trend from 2005 to 2006, and that solidifies the trend toward higher pay for oil and gas company employees.

Not only that, but the growth rates for the petrotechnical positions are consistently higher in both surveys than for less technical positions.

Basic observation of activity in the industry underscores the demand in the industry for qualified people. “Many projects are on hold for lack of human resources,” Packwood said.

In their search for qualified people, oil and gas company hiring teams have reached beyond the periodic paycheck to get and keep good people. “Energy companies are using short-term incentives increasingly,” she said, and that partially explains the trend for total compensation packages to grow faster than base pay.

For professional positions in general the total compensation can reach 10 to 20% higher than the base pay, but some positions have the opportunity to reach twice that level. Not only that, she said, but companies have recently awarded short-term compensation above target levels due to strong company performance, boosting those incentives about 15% over planned levels; that is, a position targeted for a 10% bonus might actually get an 11 to 12% boost, based on performance.

However, it would be unusual, below the top executive level, for a person to earn more in incentive pay that his or her base pay.

Companies also increased their use of long-term incentives, since those are significant components to a continuing employee’s total reward.

Those long-term incentives engage the employee in the appreciation of the value of the company. If the company does better, the employee does better. They also serve as an effective retention tool, as the value of pay packages rises with the length of service to the company.

Mercer doesn’t specifically include new hires in its survey, but the company does observe trends.

For example, in the current tight market for good employees, 93% of the participating companies in another recent Mercer survey of energy employers said they offer sign-on awards. The amount varies, but it’s typically 5 to 10% for the lowest level roles to 15 to 30% for people in management positions.

Those incentives become particularly important when a company tries to attract an employee from another employer. An experienced employee at another company usually requires some reward for giving up incentives built up at the original company.
Another plus, particularly in the southwest, is flexible work hours.

Some companies offer a 9/80 plan that allows the employee to work 80 hours in nine days over a two-week period. The employee usually gets every other Friday off for more leisure time. That incentive is more popular at larger companies, Packwood said.

When talent was less scarce, exploration and production companies normally would look toward other exploration and production companies for talent. Now, she said, they are looking at companies across the oil and gas spectrum for skilled employees.

In the area of short-term incentives, most of the programs already are in place. Companies may play with the application of those programs, but no new trends are emerging in the way of short-term incentives.

In some isolated situations, such as incentives for people below the managerial level working in remote locations, working conditions can play a part in drawing an employee.

A recent Wall Street Journal article reported on working conditions for employees at heavy oil projects near Fort McMurray, Canada, where some workers get private rooms with satellite television sets and the promise of allocations of six pounds of meat a week. Leisure-time bonuses include health and recreational areas for workers.

On the long-term side, few new incentives seem likely, but companies are broadening the eligibility of employees for long-term incentives, she added.

Some companies also offer full-value restricted stock awards to employees below the executive level. The restrictions require the employees to hold the stock for a period of time before they can sell it, but this tool is becoming more common than stock options.

“It’s doing what it’s designed to do; put significant value in the hands of employees who contribute to building the value of the organization,” Packwood said.

Those trends are likely to continue, particularly in petrotechnical positions. The talent shortages in those positions continue, primarily for engineers, she said. Those shortages still are a function of an aging and retiring work force and too few new petrotechnical graduates from universities.

In the absence of new incentive plans, companies are concentrating more on career development and career planning. More training helps employees develop and accelerate their upward movement along chosen career paths.

The availability of choices and flexibility of the systems also allows versatile employees an opportunity to move off one path and pursue another, more attractive area of the business. That flexibility includes not only occupational lines, but geographic lines, as well, Packwood said.

In spite of short-term incentives to join and long-term incentives to stay, piracy of key employees among companies is a major issue in the industry, she said. It is one of the key drivers behind the sharp increases in both base pay and incentives.

Companies are offering more incentives to draw good people from their present jobs, and employers are increasing incentives to keep good people from jumping ship and joining another crew.

Base pay, short-term incentives, long-term incentives and flexible work hours all are effective ways to get and hold employees, she added. The oil and gas industry is well informed about how the markets works and how people in the industry act and react.

The big differentiator in the pictureis the way a company helps employees attain their career-path goals. Personal success is an important driver for employees in any line of work, and the oilpatch is no different.

Although the survey focused on positions and companies in the United States, the trends are similar around the world, Packwood said.