As a modest but steady recovery continues, one of the legacy issues now facing the energy sector is how to retain the highly skilled workforce on which the industry depends and how to convince the next generation of engineers, technicians and support specialists that they have a future in exploration and production (E&P).
It has been widely recognised that the oil industry has been a “repeat offender” in failing to grow and nurture talent when times were good. Higher wages and a flexible and mobile workforce encouraged a culture where it was reluctantly accepted that the best and brightest were a potential flight risk for a few dollars more.
It could be some years before salary levels enjoyed pre-slump are again comparable and major oil and gas operators and contractors are rightly continuing to focus on rigid cost control and increasing efficiencies. However, one route that could help improve staff retention rates and stem the outward flow of highly experienced employees is the reintroduction of employee share schemes, which can be a useful tool in incentivising staff in the medium term and securing their buy-in and loyalty to a business’s long-term growth strategy.
Share schemes can be implemented to operate at a senior level, for selected board and senior management participation, and/or on a broad-based all-employee basis. Each has its role and can be used to meet alternative business objectives. Awards made under an “executive” plan can be subject to the achievement of performance conditions, aligned with company or individual participants’ targets.
All-employee share plans can unite the workforce in a shared desire to improve the company’s performance, strengthening employees’ identity with the company. Where specific conditions are met, tax-efficient plans may be used, allowing the workforce to retain a larger proportion of the value realised.
As the financial services and banking sector continues to stabilise, we have recently seen a number of institutions relaunching or reintroducing share plans and this is something from which the oil and gas sector should take encouragement.
For firms considering an IPO or private equity injection, this could be an appropriate mechanism that allows employees to celebrate and share in further growth in value as the company moves forward.
Communication surrounding share employee schemes is important – not only at the outset but throughout the scheme’s lifetime – to ensure employees remain informed of the benefits of participation, and engaged and supportive of the long-term objectives. Failure to follow up initial communications once share award documents are issued to staff, and to keep them informed of further developments, can lead to disenchantment, disengagement and less incentive to remain in a particular role or business.
Tullow Oil, advised by Pinsent Masons, was a fine example of how to communicate the introduction of an employees’ share incentive plan and to secure staff buy-in. The E&P business was highly commended in the ProShare annual awards for sending share plan experts to visit colleagues in South Africa, Gabon, Ethiopia, Uganda, Kenya and Ghana.
For businesses that have passed the turning point and are looking towards a promising future, now is a good time to consider offering equity incentives as a reliable and trusted strategy for ensuring the business is built around a motivated and loyal workforce.
Lynette Jacobs, partner and specialist in employee share plans at legal firm Pinsent Masons