DEFA14A: Hess Corporation Defends Executive Pay Practices Amid Strong Performance

Hess Corporation emphasizes that its executive compensation program is performance-based, aligned with shareholder interests, and justified by strong operational results and stock price appreciation.

Summary

• Hess Corporation has released a document defending its executive compensation practices.
• The company asserts that its compensation programs are straightforward, aligned with market practices, and designed to be durable and tied to performance.
• A significant portion of executive compensation is linked to the company's operational and stock price performance, with incentives tied to rigorous goals.
• The company's long-term incentive (LTI) program primarily uses performance share units (PSUs) based on three-year total shareholder return (TSR) against the XOP index and S&P 500.
• The annual bonus program is based on a quantitative scorecard with a strategic modifier.
• Executive target pay was adjusted in 2023 to reflect the company's strong track record of shareholder returns and the accumulation of high-value reserves.
• Hess highlights its disciplined investment strategy, particularly in Guyana and the Bakken, which has driven production increases and cash flow.
• The company anticipates production growth of approximately 10% annually through 2027 and cash flow growth of around 25% annually over the same period, subject to price assumptions.
• Hess's TSR has significantly outperformed its peers, with a 232% increase on a three-year basis and a 182% increase on a five-year basis.
• The 2023 bonuses were achieved at 165.5% of target, the best payout year in some time.
• The company emphasizes that its pay program aligns with the interests of its shareholders.

Sentiment

Score: 7

Explanation: The document presents a positive outlook for Hess, emphasizing strong performance and future growth potential. However, it is primarily focused on justifying executive compensation, which could be a point of contention for some investors.

Positives

• Hess's executive compensation is heavily tied to performance metrics, aligning executive interests with shareholder value.
• The company has a strong track record of shareholder returns, significantly outpacing its industry peers and the broader market.
• Hess has made significant discoveries, particularly in Guyana, which are expected to drive high-margin production for many years.
• The company anticipates strong production and cash flow growth through 2027.
• Hess's carbon intensity is below the industry average, demonstrating responsible execution.

Negatives

• The document focuses on justifying executive compensation, which may be perceived negatively by some shareholders if they believe pay is excessive.
• The PSU cycle paid out at 66% of target, while absolute TSR over the period was strong at 232%, the company's early recovery in navigating the low oil price environment in 2020 impacted our relative ranking.

Risks

• The forward-looking statements regarding production and cash flow growth are subject to risks and uncertainties, including fluctuations in oil prices.
• The company's performance is heavily reliant on the success of its projects in Guyana and the Bakken, which could be affected by operational challenges or geopolitical risks.

Future Outlook

Hess anticipates production growth of approximately 10% annually through 2027 and cash flow growth of around 25% annually over the same period, subject to price assumptions.

Management Comments

• Our executive compensation programs are straightforward, conform to market practice, and are designed to be durable, tied to performance, and in the best interests of our investors.
• We have built a strong track record with shareholder returns far outpacing our industry and the broader market while at the same time stocking the cupboard with significant high-value reserves that will generate returns far into the future.
• We believe this positioning is an appropriate reflection of our performance, and our programs are structured such that executives will only receive competitive payouts if our performance continues going forward.

Industry Context

The document positions Hess as a top performer in the oil and gas sector, particularly in terms of shareholder returns, and emphasizes its commitment to responsible and safe execution with below-average carbon intensity.

Comparison to Industry Standards

• Hess compares its TSR performance to the XOP index and the S&P 500, highlighting its outperformance.
• The document notes that Hess's five-year TSR is the highest among its peers.
• The company's average bonus payout over the last 5 years was 116%, vs. a peer average of 132%.

Stakeholder Impact

• Shareholders are expected to benefit from the company's strong performance and growth prospects.
• The company's commitment to responsible execution and below-average carbon intensity may positively impact environmental stakeholders.

Key Dates

Keywords

executive compensation, TSR, PSU, production growth, cash flow, Guyana, Bakken, Hess Corporation, oil and gas