Southwestern Energy

Meeting date: May 19, 2015

Southwestern Energy CEO Steven Mueller’s pay increased 9.5% while TSR fell by 30% in one year. A major component of this increase was a discretionary bonus of $1,284,480. Southwestern Energy, however, has a history of discretionary bonuses. This year Mueller’s bonus increased by 242%.

The company has been criticized for giving discretionary bonuses in the past. Because no shareholder-approved metrics were required to be achieved the company loses a tax deduction. Southwestern Energy, however, has a history of discretionary bonuses.

The definition of the performance requirements is extraordinarily easy to fill, which is why many refer the Section 162M as a loophole, so nearly all companies take full advantage of it. The company says that 40% of executive bonus is discretionary. Southwestern Energy, however, has a history of discretionary bonuses.

Southwestern Energy’s annual bonus includes some metrics (tied to 60% of total potential bonus.)  For 2014, the company reports it “achieved results below our required minimum level performance goal for PV10 per dollar invested, achieved a result between target and maximum for production, and achieved an above maximum result for reserve replacement and ROE.” As we’ve discussed with pay analysis at other oil companies including Exxon and ConocoPhillips, short term operational metrics are highly unlikely to provide long-term shareholder value.

The board also increased base salary for all of the Named Executive Officers, including an upcoming raise of 3.5% for the CEO.  Executive Vice President Jeffrey Sherrick has had a salary increase – the guaranteed cash portion of pay not linked to stock price or any performance criteria – of 33% since January 1, 2014.