In regards to the lack of reported compensation by Phillips 66 Partners (PSXP): due to its relationship with Philips 66 (PSX), CEO Greg Garland devotes only a small part of his working time to the MLP. As such, his compensation from the MLP is not material to his overall compensation. Like PXSP, the executive officers of Valero Energy Partners (VLP), including CEO Joseph Gorder, spend only a portion of their time working for the MLP. Ditto for Delek Logistics Partners (DKL). However, executives of VLP and DKL are eligible to receive MLP-unit-based awards under the long term incentive plan, although no awards were granted in 2015.
Is that unfair? Potentially. But one reason (perhaps even the main reason) all but one of the ten listed companies have been able to increase their distributions so much is because of the drop-down relationship with their parent companies. If the MLP has been engineered, even before IPO, in such a way as to grow the distribution by double digits via scheduled dropdown assets from the parent, should a CEO get credit for that growth?
While the dropdown stories have all shown remarkable distribution increases, few of them have been rewarded in the market. Part of that is changing forward expectations for the entire energy space, but at the same time, communication with the markets and investors is one of the (unwritten) responsibilities of the CEO. This makes it all the more unfortunate that VLP and DKL (the companies with positive equity performance) do not have pure MLP compensation information.
The only non-dropdown story is Sunoco Logistics Partners (SXL), although its general partner is owned by Energy Transfer Partners (ETP). The growth projects it pursued have been nearly entirely organic, and while it has partnered with other companies, including ETP, the success has not relied on the relationship with the parent.
Far from having a hands-off GP, in the case of Rose Rock Midstream Partners (RRMS), executive compensation is decided by the parent company, SemGroup (SEMG), although the MLP does decide the unit-based awards. The compensation for CEO Carlin Conner in 2014 involves his $108k signing bonus, as he began work in April of that year, as well as SemGroup stock issued to him. Unfortunately, the 10-k provides no further details as to the decrease in his overall compensation, but the percentage change is quite similar to the drop in the price of RRMS units.
As implied above, the chart cannot include all relevant details without being footnoted into oblivion. The CEO of Sunoco LP (SUN), Bob Owens, appears to have been given a stunning raise, but for the purposes of reporting SUN compensation, he was only CEO of SUN for part of 2014, due to the merger of Susser Holdings (former ticker: SUSS) that year with ETP. It’s all a little confusing, but the important point is that Owens’ reported 2014 compensation does not represent a full year’s compensation.
The Plural of Anecdote Is Not Data
I could go on, explaining MPLX (MPLX)’s easy-to-follow, yet still quite complicated formulaic method of determining performance-based awards, or how the executives of Western Refining Logistics (WNRL) earn a salary even lower than Rich Kinder’s famous $1/year. All of these stories may be intriguing, in a trivial sort of way, but without a large study, or at least a standardized compensation method across the industry, they remain simply anecdotes.
At the end of the day, CEO compensation is negotiated between a CEO and the company. With billions of units outstanding, even a difference of ten million dollars is unlikely to affect individual unitholders. However, like in all companies, the CEO’s vision, performance, and motivations will absolutely change the course of the MLP over time. There is so much variation in the compensation structures and incentives provided for MLP CEOs that the well-educated investor would be wise to be sure she invests in those MLPs with an incentive structure that suits her portfolio needs.
Just one final example: TEP, while also having the advantages of a parent, also pursued organic growth and third-party acquisitions in 2015. Performance awards (bonuses) for 2015 were based on meeting specific EBITDA, DCF, coverage, and distribution growth goals, all of which were achieved. The specificity of these metrics no doubt contributed to their achievement.
