Southwestern Energy Executive Comp 2012
|Company||Southwestern Energy Co.|
|Sector||Oil and Gas|
|Subject(s)||Governance; Link Executive Compensation To ESG|
|Resolved Clause Summary||Executive compensation linked to ESG|
|Status||Withdrawn; Company will address|
RESOLVED: The shareholders of Southwestern Energy Co. (the “Company”) ask the board of directors to adopt a policy that incentive compensation for senior executives should include a range of non-financial measures based on sustainability principles and reducing any negative environmental impacts related to Company operations. For purposes of this resolution, “sustainability” refers to the methods by which environmental, social and economic considerations are integrated into long-term corporate strategy.
As shareholders, we support executive compensation policies that motivate and reward senior executives for actions that contribute to a company’s long-term growth.
An important element of senior executive compensation is incentive compensation, including both annual cash bonuses and long-term incentive awards. At-risk pay is the predominant form of compensation for the Company’s senior executives. According to last year’s proxy statement, such pay comprised up to 70% of the total compensation for the five most senior executives that year.
Considering the significance of incentive pay in the Company’s compensation policies, we believe it is important for the board of directors to ensure that compensation incentives are aligned with business strategies for creating sustainable, long-term shareholder value and mitigating risks that could have a detrimental impact on value creation. The Company recognizes environmental performance as a key risk, stating in its annual report for 2010: “Our operations are subject to all the risks normally incident to the operation and development of natural gas and oil properties, the drilling of natural gas and oil wells and the sale of natural gas and oil, including but not limited to encountering well blowouts, cratering and explosions, pipe failure, fires, formations with abnormal pressures, uncontrollable flows of oil, natural gas, brine or well fluids, hydrocarbon drainage from adjacent third-party production, release of contaminants into the environment and other environmental hazards and risks and failure of counterparties to perform as agreed….These risks could give rise to significant costs not covered by insurance that could have a material adverse effect upon our financial results.” We note that the Company is currently defending lawsuits alleging environmental contamination in both its Marcellus Shale and Fayetteville Shale operations. State and local governments have passed moratoria on fracking operations in part due to environmental concerns.
Accordingly, we believe the board should consider and disclose a variety of factors in determining incentive pay, including metrics that promote sustainable value creation and reduce negative environmental impacts. In its discussion of factors that go into setting compensation levels for senior executives’ compensation, the Company’s proxy statement for 2010 makes no mention of environmental, safety or sustainability issues. By contrast, approximately two-thirds of the 42 energy firms in the S&P 500 index cite non-financial factors, such as environmental performance and worker safety, in their 2010 proxies.
We believe that the need for a greater emphasis on sustainability factors in incentive pay is illustrated by BP’s 2010 Deepwater Horizon oil spill, where a single incident caused significant losses to a company’s shareholders.
We urge you to vote FOR this proposal.