Our executive compensation program aligns pay with performance. Our compensation philosophy provides for a competitive base salary to attract strong talent, an annual bonus to align and motivate all employees around near-term company targets plus a long-term incentive plan that focuses executive management on strategic multi-year delivery and long-term value creation through share-based rewards.
Our annual bonus metrics are rigorously vetted and reflect the building blocks that support long-term value creation. We incorporate ESG metrics into our corporate score card as ESG is one of the Board’s highest priorities. Strong safety and environmental performance are critical to maintaining a well-managed company. From our ongoing dialog with investors and other stakeholders, we know they share the importance we place on this topic.
We continue to drive ESG progress and have committed to reduce our Scope 1 & 2 GHG intensity by 50% by 2030 from 2019 levels. This goal was included in Ovintiv’s annual incentive compensation program for all employees beginning in 2022. Due to the strength of our team and their commitment to innovation and continuous improvement, we are confident we can achieve these milestone reductions by focusing on efficiency and utilizing new technology. We have a proven track record of success exemplified by achieving our methane intensity reduction target in 2021, four years ahead of schedule.
The long-term incentive awards tie to both total shareholder return and specific strategic milestones over a longer horizon. Executive compensation is substantially “at risk,” plus the Board retains discretion to ensure our pay programs produce outputs that align closely with changes in shareholder value.
The HRC Committee believes that direct feedback from shareholders is an important part of the compensation-setting process. We regularly solicit feedback from shareholders as well as input from independent compensation advisors to maintain a competitive executive compensation program that attracts and retains top talent and encourages sustainable performance.
Our compensation continues to evolve and the Board remains attuned to shareholder feedback, changing shareholder expectations and evolving market standards. Reflecting that feedback, the HRC Committee made a number of changes to the compensation program for 2021.
2021 Compensation Program Changes
The HRC Committee approved the following changes to our compensation program to strengthen the alignment of executive compensation with company performance and shareholder experience and expectations. These changes are a result of Board engagement with shareholders and reflect the Board’s compensation consultant’s review of pay practices and programs in a broad range of industries.
Annual Bonus Changes
- Emissions metrics were included in the company scorecard tied to compensation for all employees beginning in 2021.
- Key financial metrics were prioritized in the 2021 company scorecard, which included debt reduction, free cash flow, capital efficiency and total costs. Rigorous 2021 payout curves were approved, which made target and above-target payouts more difficult to obtain.
- Reduced EH&S scorecard modifier from +/- 20% to +/-10% starting in 2021.
Long-Term Incentive Changes
- Added both the S&P 400 and XOP indices to our Performance Stock Unit (PSU) Performance Peer Group, measuring our performance against the general industry and a larger group of E&P peers
- 2021 PSU metrics included a return-on-invested-capital measure.
- Starting in 2021, and resulting from direct shareholder feedback, all eligible long-term incentive (LTI) awards were settled in shares, creating stronger alignment to market practice and increasing employee share ownership.