Posted on 01/25/2015 8:12:38 AM PST by thackney
As many energy industry companies revise their capital expenditures downward for 2015 amid the steep drop in crude oil values, they are making a variety of decisions with regard to worker compensation, according to Aon Hewitt, a global human resource company that tracks corporate performance, reward and talent.
The slide in crude oil prices picked up speed late in 2014, about the time that financial decisions for 2015 were being made. As prices continued to dip, many companies within the industry revisited the budgeting process early in the new year in light of the current reality of sub-$50/barrel crude oil.
While the downturn in prices has touched all sectors of the oil and gas industry, the effects of the downturn are not being felt equally by all companies, and they are therefore responding in different ways regarding their budget decisions, Joshua Ross, associate partner with Aon Hewitt, told Rigzone.
The good news for workers in the industry, Ross said, is that 58 percent, or almost six out of ten of the companies surveyed plan to keep salary increases unchanged from their initial budgets, despite the slump in crude oil prices.
The industry had originally budgeted for pay increases averaging 3.7 percent, Ross said. However, following budget revisions at some companies following the drop in crude oil prices, the salary increases now average about 3 percent, which is still as much as those in most other industries.
Ross noted that while small companies had been less likely to lower the original budget increases, they were more likely to “shed head count.”
Regarding the companies that changed their original budgets, the data on budget revisions was driven in large part by oilfield equipment and services organizations, which are strongly feel the effects of rig shutdowns. And while most companies in the industry were still planning to increase salaries, the size of the increases was somewhat less than originally budgeted for.
“What we’ve found is that about 38 percent of organizations in the oil and gas industry are planning to decrease their budgets for base pay increases in 2015,” Ross said. “About 8 percent of organizations have indicated base pay levels would be frozen across the entire organization. That’s the most seen in the past six years,” Ross said, adding that “while 8 percent doesn’t sound that high, we haven’t seen base pay freezes for six years in the oil and gas industry, not since the last downturn.”
Pay freezes hit the oilfield service sector harder than the industry as a whole.
“We found that 25 percent of oilfield service and equipment providers were planning to freeze pay levels across the organization, and 45 percent were expecting to freeze base pay levels for executives,” Ross said, noting that because many companies in this sector of the economy are making staffing reductions, “the optics around exempting executives from pay freezes would not look good” at companies planning hiring reductions.
While most companies either left salary increases at original budgeting levels, reduced the increases or even froze salaries, a few companies – about 5 percent, Ross said – actually plan to increase salary increases in 2015.
Bonuses are also a mixed bag, with about 40 percent of companies planning to keep bonuses at or above previous levels, while 35 percent said funding levels are expected to be below target levels. Another 25 percent of respondents had yet to make a decision.
Finally, about 64 percent of the organizations surveyed plan to use supplemental cash incentives, discretionary stock awards and higher base pay increases to reward workers who perform at a particularly high level.
Does that mean Walmart and McDonald’s workers won’t be getting $20 an hour any more in South Dakota?!
Such is life.
I wonder if they look at how much cheaper it is to drive to work...and how many more gallons of gasoline will be sold due to reduced cost???
Or is this just beyond the liberal “raise taxes” mantra??
The oil and gas industry kept much of the economy going during the Obama Depression. Which industries will take their place now? These cutbacks will have an effect on the GDP numbers for the entire economy this year.
North Dakota...
Ooooops ... :-) ...
Probably almost any other segment of the economy now that we aren’t being raped for fuel.
What additional spending are you now doing, with the lower fuel prices?
Quite a lot actually. Planning a vacation for next month and just bought a new large screen TV and dryer. I put off taking a vacation past two years. Right now, my wife and I are saving around $200 a month on gas.
My wife’s job is in transportation and they were of edge of bankruptcy, now the business is booming. Since most everything in this country move by truck, look for prices to start inching down.
Considering how dense the truck traffic has been on the interstate highways for the past several years it is hard to believe any would be on the verge of BK. The interstates have become a constant stream of 18 wheelers hauling butt.
Do not hold your breath waiting for goods to start declining in prices, I don’t think it will happen.
PS-You might save that 200/month for when the carpet flyers finish the west off with 5 bucks a gallon.
You oil guys are funny. We’ve been bent over like a teenaged prom date ever since oil prices skyrocketed plunging the country into a depression for the past 7 years.
Oil has been manipulated for past 7 years. No reason it should have ever cracked the 70 dollar a barrel range.
I think you under estimate how much of the countries economy is tied to oil & gas. Also, how much declining global economy is part of the cause of the decline in oil prices.
This is not the first time we have had to significant drops in gasoline prices. Since none of the previous times created a economic boom, what do you see different this time?
I didn’t claim it was causing an economic boom, bt it will be a blessing for the average person paying for gas that now has extra money in their pocket.
Wrong, oil has been manipulated since it was allowed to be traded on the futures markets in about 1983(?) or so. Until then it was a more true market that set the price.
Actually the general public is stupid enough to think the oil companies control the price of their product when in fact they have no control other than having the right to produce with wells and when not too. Something that is very rarely done.
Maybe but for some reason diesel really hasn’t gone down much. It is still at about $3.50 around here while gas is $1.90.
Diesel is taxed at a much higher rate to offset the evil “global-warming” alarmists.
I never said the oil companies were the ones manipulating the oil market. The big banks were the primary instigators.
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