Executive Compensation Trends in the Oil and Gas Industry for 2025
The oil and gas industry faces a pivotal 2025 with declining oil prices, reduced drilling activity, and growing emphasis on sustainability. Executive compensation across key sectors—upstream (exploration and production, E&P), midstream, oilfield services, refining, drilling, and integrated—is adapting to align incentives with operational challenges and shareholder expectations. Drawing on a 2025 Pay Governance study of named executive officers (NEOs) across 110 oil and gas companies and broader industry insights, this Pay Governance Viewpoint examines year-over-year (Y-O-Y) changes in base salary, bonus payouts, long-term incentive (LTI) awards, and their mix, alongside the industry’s outlook and sector-specific pay trends.
Industry Outlook: Balancing Volatility and Sustainability
In 2025, the oil and gas sector is navigating lower oil prices, trade disruptions, and environmental priorities like emissions reduction. Companies are leveraging digital tools and capital discipline to maintain profitability, with significant activity in U.S. regions like the Permian Basin. Declining U.S. rig counts and softening demand signal a cautious outlook, pushing firms to prioritize cash flow and operational efficiency to address market volatility while advancing sustainability goals.
Base Salary: Modest Growth Across Sectors
Base salary increases for 2024, per the 2025 Pay Governance study, reflected cautious growth tied to sector performance. For CEOs, the industry median Y-O-Y base salary increase was 3.96%, with E&P at 4.45%, midstream at 3.98%, and integrated at 4.52%. Drilling and refining saw lower median increases at 0.00% and 1.57%, respectively, while oilfield services reported a more typical 3.86%. CFOs followed a similar trend, with a median industry increase of 4.50%, led by midstream (5.11%) and E&P (5.00%). COOs had a median increase of 3.50% industry-wide, with refining at 9.69%. These modest adjustments balance cost control with the need to remain competitive in talent markets, particularly in high-cost regions.
Bonus Payouts: Tied to Sector-Specific Metrics
Annual bonus payouts—expressed as a percentage of target—vary by sector, reflecting performance against tailored metrics. The 2025 NEO dataset shows CEOs with an industry median actual bonus payout of 120.30% of target, with E&P at 142.30%, midstream at 140.90%, and drilling at 109.00%. Oilfield services and refining lagged at 94.90% and 78.70%, respectively, due to weaker financial results. CFOs saw a median industry payout of 120.30%, with E&P at 137.50% and midstream at 134.50%, while refining was lower at 94.30%. COOs had a median payout of 118.30%, with E&P leading at 155.00%. For E&P, bonuses are driven by production volumes, reserve replacement, cash flow, and environmental measures, while refining bonuses emphasize cash flow, refining margins, and operational efficiency, ensuring alignment with sector-specific priorities.
Long-Term Incentive Awards: Evolving Performance Focus
LTI awards are critical for aligning executive incentives with long-term goals. The 2025 Pay Governance dataset shows median Y-O-Y LTI value increases for CEOs at 7.78% industry-wide, with drilling at 16.16%, midstream at 12.89%, and E&P at 4.24%. CFOs saw a median increase of 6.62%, with drilling leading at 27.21%; COOs reported 8.93%, with midstream at 21.44%. The LTI award mix in 2024 comprised 46% performance share units, 52% restricted stock units, and 2% stock options, down from an already non-existent 4% in 2023, reflecting a shift toward performance-based awards. Performance LTI awards are tied to measures such as production growth, reserve additions, margins, cash flow, total shareholder return of course, and an emerging trend of incorporating return on capital employed to measure capital efficiency.
Looking Ahead: Navigating a Market Slowdown
In 2025, the oil and gas industry faces a slowdown driven by declining oil prices and rig counts. The U.S. Energy Information Administration forecasts Brent crude prices falling from $81 per barrel in 2024 to $74 in 2025 and $66 in 2026 due to rising global production and slower demand growth. U.S. rig counts dropped to 578 by mid-May 2025, a 7% decline in the past month, with Permian rigs down 6% to 279, signaling production declines. This reduction, coupled with tariff-related cost pressures, will likely lead to modest salary increases and below-target bonus payouts for drilling and oilfield services, reflecting weaker financial performance. E&P, midstream, and refining are expected to maintain payouts closer to or slightly above target, supported by stable cash flows. Compensation strategies will emphasize performance-based awards to ensure alignment with shareholder returns and balance competitive pay with fiscal discipline in a volatile market.
