1) The oil and gas sector faces significant talent challenges as nearly half of its workforce is expected to retire by 2017 and the average employee age is 46. This is exacerbating an existing talent shortage. 2) The sector remains an important global economic driver but also faces volatility based on market forces. It is forecasted that Asia Pacific will see a 15.7% increase in oil and gas volume since 2006, highlighting growth opportunities in the region. 3) The oil and gas industry has a current shortage of around 15% for jobs requiring experienced engineering talent. Companies must strengthen their talent and reward strategies to attract, retain, and motivate this specialized workforce given the intensifying "war for talent".

1. TALENT MANAGEMENT
desperately
seeking talent
By Simran Oberoi
T
he global financial crisis has not changed the world based on sheer volume and the influence it
the talent challenges faced by the Oil & Gas can exert on the world economy. The flipside is that
sector. Even though oil prices remain robust this sector is vulnerable to changes in the market forces,
since the beginning of this year, the fact thus impacting price and profitability.
remains that almost half of professionals Crude oil production is the second fastest
working in the sector are due to retire by growing industry in the world. This generates a huge
2017. The average employee age is 46, which is fuelling global demand for a workforce which has high levels
the perception amongst emerging talent that their of technical expertise and knowledge of the industry
career may be blocked by a ceiling of entrenched nuances.
technical professionals. This also provides further Looking forward into 2011, the Asia-Pacific oil and
ammunition for the more environmentally aware gas market is forecasted to have a volume of 10,224.9
Generation Y that oil and gas is just not an industry of million barrels equivalent, an increase of 15.7% since
the future. 2006. This exponential business
How do we attract, retain and growth and sound fundamentals have
reward the specialized talent in this
sector? This is the question that keeps
Fixing the talent put this sector in an advantageous
position. There is a growth in
HR professionals in the industry
awake at night. conundrum in Exploration & Production (E&P) and
Oilfield Services sectors, with new
fields being discovered in the region.
The current state of play India's oil & gas In India, in the past recessionary
Before we venture into understanding year, this sector has shown a greater
the reward programs and the
important role they play in the oil
sector. degree of stability than several other
sectors. The consumption of energy
and gas sector, it is critical to analyze in India is currently lower as
a few facts about the industry itself from a global, compared to other industrialized nations and the
Asian and finally Indian perspective. demand is expected to increase due to the population
Six out of the top ten companies ranked in growth. For the E&P subsector the discovery of new
Fortune 500 are Oil & Gas companies. This translates oilfields by domestic players has been the key growth
into the sector becoming extremely powerful around driver. In the Refining space, India is already a strong
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2. TALENT MANAGEMENT
presence and has surplus capacity. Oil & national gas others, it was business as usual, where they assumed
contribute to about 45% of the total energy mix of the that rising revenues from high oil prices are guaranteed
country and that proves to be a strong economic year on year. Now is a time for reflection and change,
growth engine. for the sector.
Broadly there are 3 sub sectors - Exploration &
Production (Upstream), Refining & Distribution The war for specialized talent
(Downstream) and Oil Field Services. Each of these It is forecasted that the global oil industry has a current
sub sectors operates like a stand-alone industry since shortage of around 15% for the jobs that requires
the differences in the operating models, end users, experienced engineering talent.
employee profiles and business landscapes are Organizations need to be cognizant that their
significant. businesses will grow rapidly but the talent pool will
During the global downturn in 2008 and 2009, the remain limited. The war for talent will intensify in the
sector remained insulated for a period of time but by coming years and it will not be restricted by geographic
July 2009 the impact became more apparent. However, boundaries. Specialist talent from Asia is and will
that period presented a significant opportunity for the continue to be lured away by higher compensation
sector to become more performance-oriented. Some packages from organizations in the Middle East.
companies have developed a visible performance When we take a closer look at the India, skill pools
culture, with strong leadership and a clear such as Petroleum or Reservoir Engineers and
understanding of what high performance means. For Geophysicists/ Geologists are core roles for the
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3. TALENT MANAGEMENT
Exploration sector, but there are few professionals who philosophy. For example, since the Oil and Gas is a
have the expertise to manage both the technical critical sector for the Indian economy and is
challenges and the hazardous nature of the jobs. demonstrating high growth, it serves as a benchmark
The Indian industry body ASSOCHAM has shared for pay practices.
a research paper in 2010, explaining that the upstream Pay practices are relatively easier to define,
sector faces a skill shortage to the extent of 30 percent understand and communicate to your employees. When
against its total requirement. According to their the sector is less complex, there are multiple sources
estimates, the global exploration and production for talent acquisition and therefore Job Size is the key
workforce alone is around 375,000 people. Looking at parameter to measure pay. But when your organization
the current demand supply scenario of trained belongs to a sector that requires employees with
manpower for professional services in oil & gas sector significant different profiles and facing an impending
by 2012, the manpower requirement would double. talent shortfall, it becomes imperative to define, develop
From the end of 2009 to the beginning of 2010, the and communicate a reward strategy that encompasses
shortage of specialized technical staff and growing the parameters of Job Size, Function and Location.
economic confidence pushed up the salary increases The figure below details how Hay Group collects
in the Asian market as companies battled for mission- and analyzes data for the Oil and Gas sector so as to
critical talent. draw concise and valuable insights.
This begs the question: How prepared are the oil During the recession last year, Reward managers in
and gas companies for this challenge? How robust are this sector were under tremendous pressures to
the current reward programs to ensure retention of manage pay budgets without sacrificing competitiveness
the critical workforce that forms the majority of their and technical talent. The oil and gas sector are
employee pool? accustomed to the cyclical flows of the global economy
and thus were already preparing for the upswing.
Take a closer look
Knowing the industry challenges, let us take a look at Rewarding Oil & Gas
our reward practices to see how we can use it as a tool The talent shortage will only get worse. So what should
to meet our business objectives. oil and gas companies be doing with their reward
Hay Group captures and analyzes total reward data programs?
in four key aspects: ■ Differentiated pay - Build a reward program that
● Hay Reference Levels (Job size) attracts engineers into the industry and differentiates
● Job Family/Function them from competitors. It is imperative to understand
● Location the DNA and demographic profile of high potential
● Sector engineering talent and create corresponding fast track
Typically pay differentials exist due to difference in development plans. The talent shortage lies in of 35 to
one or more of these criteria. At a macro level, the 45-year-old age bracket; more significantly they have
positioning of the sector in terms of the country's valuable onsite experience.
growth spectrum drives the approach an organization Many Oil and gas firms are using reward to tackle
would take regarding the the chronic skills shortage by differentiating and
compensation stance rewarding 'mission critical roles: channeling the
mission critical'
and reward limited rewards available in a far more
focused way to key employees: top
Hay Group Individual oil and
performers, high potentials, and
oil and gas job gas sector cuts/
those with scarce skills. In terms
model special analyses
of cross-sector comparisons,
there is a pay differential that
these companies follow: a
high base salary relative to
The Hay Group companies in other sectors
Insight via sector Time-tested job
Integrated sizing methodology
and this differential can be
events and
Approach and services
in the range of 50-70 per
newsletters cent.
Broadly, several
organizations have also
chosen to have different
Globally consistent market stances/competitiveness
People on
the ground total remuneration positioning by function. Hence they
methodology may have different reward
philosophy for their core employees
(upstream, downstream or other field
roles) and a different one for everyone else.
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4. TALENT MANAGEMENT
industry peers on base pay, but through
performance-related bonuses, the employees
earn more in Total Cash. Hence employees view
merit increases as investments, not staff
entitlements.
■ Communication - In the current upturn, it
is important to communicate any decisions
related to salary since it is immediately relevant
for employees. Clear communication has a
strong impact on engagement and motivation
levels. For example, if there has been a freeze
last year, a review date should be set and
communicated so that employees do not take
the absence of communication as bad news.
The end result? Employees feel a sense of
optimism about the organization's growth and
are more likely to stay even though headhunters
are knocking on their doors.
■ Total rewards approach - To attract and
rewar
ewards approach
motivate mission-critical talent, organizations
need to know what they value, for example,
autonomy to make some decisions, better
hardship allowances or skills upgrading.
This will require organizations to take the Total
Rewards approach which combines tangible and
intangible compensation to communicate an
entire package. For this to be successful, it is
also essential to ensure that the line managers
understand and promote a 'total rewards' view
across the organization and leverage intangible
rewards. Otherwise, the objective of such an
approach will be undermined.
■ Innovative compensation practices -
Certain reward practices are essential for the
■ Paying for parity - During the downturn, base
technical employees especially due to the nature of
salary increases in Asia were higher than the rest of the
the job. Therefore for this set, organization may want
world. The underlying reason for this is to maintain
to have flexible-timing, special benefits (for example,
parity with other regions. Currently oil and gas
premium packages or allowances for night shifts, field
employees are paid lower in Asia as compared to their
allowances for rig-based roles, discomfort/hardship
peers for the same jobs in other regions. Hence,
allowance). We have noticed some clients also provide
although Asia was also facing the impact of the global reimbursements for hardship locations, primarily in
meltdown, the increase percentages are higher in order the form of housing support.
to reduce the wide pay gap so as to prevent their ■ Career progression - Create career ladders that
mobile talent from being poached. provide a coherent sense of progression linked to the
■ Paying for performance - Companies know that
Paying perfor
formance 'what' and 'how' of performance. Most professional
talent is a critical success factor for their performance cadres need to see the route map that is available to
during the downturn, especially in a sector as talent- them both in terms of hierarchy and personal
scarce as Oil and Gas. Their priority therefore should development. Reducing the time for growth from 15 to
be their high performers. In Asia, oil and gas companies 10 years, for instance, by replicating best practices can
can be more strategic in using salary increment. In this reduce the skill shortage problems.
way, companies are not only rewarding their best and Now, more than ever, is the time to ask ourselves:
keeping them motivated, but are also sending out strong What does our most valuable talent see as the key
signals on the value they place on performance, benefits of working for us and what can we do to build
especially for critical business-driving roles. and defend this position in the coming years? Failure
Up to now, oil and gas companies traditionally have to answer this effectively may mean that the offer of
not placed a significant emphasis on performance- a 'new deal' promised by the headhunters may look
based reward as a talent management tool. Therefore even more enticing in the upturn. HC
there is a need also for more variable bonuses program.
Hay Group's research on Fortune's World's Most
Admired Companies show that these globally-admired Simran Oberoi is Asia Pacific Chemicals Sector Leader and India Oil and Gas
organizations pay, on average, 5% less than their Sector Lead for the Oil, Hay Group India
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