In one of the largest executive paydays in recent years, Nabors Industries Ltd. is giving its chairman $100 million in cash in a severance-style deal, even though he isn't leaving the company.
Eugene M. Isenberg, 81 years old, had been chairman and chief executive of the oil-drilling company since 1987. Late Friday afternoon, Nabors said it was promoting his longtime lieutenant, 57-year-old Anthony G. Petrello, to CEO, but that Mr. Isenberg would keep his job as chairman.
The shift triggered a clause in Mr. Isenberg's employment contract, entitling him to a payment of $100 million "as a result of this change in responsibility," Nabors said in a regulatory filing.
The payment exceeds the Bermuda-registered company's third-quarter net income, which was $74.3 million on revenue of $1.66 billion.
By comparison, the highest-paid executive in the U.S. last year, according to a Wall Street Journal survey published in May, was Viacom Inc. CEO Philippe P. Dauman, whose 2010 compensation was valued at around $84.3 million. Of that, Mr. Dauman received $13.9 million in cash; much of the rest came in one-time stock and option awards tied to a contract renewal.
Workers of Nabors Industries mark drell pieces on a drilling rig in the Orinoco Belt near San Diego de Cabrutitas 300 miles from Caracas, Venezuela, in 2007
A Nabors spokesman declined to comment beyond Friday's filing.
A clause in Mr. Isenberg's contract, which was scaled back in 2009 after shareholders objected to an even-richer exit deal, called for the $100 million payout in the event of his death or disability, or under various termination scenarios, including "constructive termination without cause." That is defined as, among other things, his removal as either CEO or chairman.
The change in management at Nabors was decided at a board meeting in Bermuda late last week, according to William T. Comfort, an outside director. Asked how Mr. Isenberg took the news that he would no longer be CEO, Mr. Comfort said:
"Just like you would. If this is your life, clearly this is not fun for you."
Mr. Isenberg couldn't be reached for comment.
Mr. Comfort called Mr. Isenberg a "brilliant strategic thinker" who should get credit for building Nabors. But, he said, "clearly Tony [Petrello] had to take on this company. It was time."
Asked if there was a way the board could have avoided paying the $100 million severance, Mr. Comfort said,
"If there was, the board would have found a way to not pay it. It was contractual."
According to Mr. Isenberg's 2009 contract, he wouldn't have been entitled to the $100 million payout had he retired or resigned voluntarily.
Big severance packages have sparked corporate-governance controversies in the past, including a $140 million payment to Michael Ovitz in 1997 after his brief stint as president of Walt Disney Co. Robert Nardelli received an exit package valued at $210 million, including $20 million in cash, when he left Home Depot Inc. in early 2007.
Among current severance deals, Sanjay Jha, CEO of Motorola Mobility Holdings Inc., is in line for about $65.7 million if he leaves within two years after Google Inc. completes its pending acquisition of his company.
Mr. Isenberg has long been one of the highest-paid executives in the U.S. Not counting the latest sum, he has made almost $750 million since 1992, including the value of his exercised stock options, according to Standard & Poor's ExecuComp. In a Journal ranking, which used a slightly different formula, he was the nation's seventh-highest-paid U.S. executive over the decade ended in 2009, with compensation of $518 million, including salary, bonuses, the vesting of restricted stock and gains on the exercise of stock options.
In 2009, the Corporate Library, a corporate-governance research firm that is now part of GovernanceMetrics International, listed Mr. Isenberg as one of the previous year's five highest-paid, worst-performing U.S. executives.
The stock of Nabors has fallen 19% this year, and has underperformed the S&P 500-stock index for the prior one-year, five-year and 10-year periods. On Friday, the shares were up 1.7% at $19.05 in 4 p.m. trading on the New York Stock Exchange.
Nabors Industries Chairman & CEO Eugene Isenberg was interviewed by Bloomberg in 2008 after their second quarter earnings collapsed due to a drop in the price and demand for natural gas
Charles Elson, director of the Weinberg Center for Corporate Governance at the University of Delaware said.
"I think shareholders will have some issues with this latest payment to Mr. Isenberg."
Mr. Elson said $100 million was exceptionally large for a severance-type payment, and almost unheard of when an executive is staying on as chairman, in theory a company's highest post.
Mr. Elson said.
"It's obviously governed by the contract, but from an outside standpoint this doesn't seem to be a severance event. Severance means you're leaving the company."
It isn't clear when Mr. Isenberg will receive his $100 million payment, but Nabors said it would record a "contingent liability" for that amount in its fourth quarter.
According to Nabors's annual proxy statement, filed in April, Mr. Isenberg also would be due $26.4 million in other pay under various severance scenarios, including constructive termination. The other pay, from vesting of option and restricted stock awards, was based on Nabors's year-end 2010 stock price, which was higher than the current price. Mr. Isenberg also was entitled to another $3.6 million in a deferred compensation plan.
In the April filing, Nabors said "severance protection, particularly in the context of a change-in-control transaction, can play a valuable role in attracting and retaining key executive officers."
Mr. Isenberg's severance arrangement was a focus of a 2008 page-one article in The Wall Street Journal on "golden coffins," or unusual payments due to the estates of top executives upon their death. At the time, Mr. Isenberg's severance pay was even larger—at $264 million.
Amid pressure from unhappy shareholders, the board in 2009 renegotiated Mr. Isenberg's pay package and reduced his death and severance benefit to $100 million, in a deal that initially extended through March 2013. The board also reduced a similar death and severance benefit for Mr. Petrello, now CEO, to $50 million from $90 million. Mr. Petrello, who is deputy chairman and has been president of Nabors since 1991, previously was an attorney at Baker & McKenzie in New York.
Nabors said at the time of the reductions that the terms of the new contracts reflected "significant executive concessions," and were "substantially more favorable to the company and its shareholders."
For years, Mr. Isenberg has lived in Palm Beach, Fla., and has commuted to Nabors's operational headquarters in Houston. Records of Nabors-operated jets have shown frequent stops in Palm Beach, Martha's Vineyard, Mass., and New York, places where Mr. Isenberg has homes. A Nabors spokesman said previously that the company had offices in Palm Beach and Martha's Vineyard and that Mr. Isenberg is frequently in New York on business.
Mr. Comfort, the outside director, said Nabors "was everything" to Mr. Isenberg. "I don't think he ever stopped working." He said he isn't yet clear what Mr. Isenberg's duties will be as chairman. "If he wants to make it a productive role, he can make it a productive role."
Mr. Isenberg is an alumnus of and major donor to the University of Massachusetts, whose Isenberg School of Management is named for him.
COMMENTARY: Nabors Canada markets a broad range of land rigs and ancillary services throughout Canada. These products and services are marketed under four major product lines:
NABORS DRILLING: This unit operates 86 drilling rigs including 12 state-of-the-art PACE™ rigs. Activity is primarily in Western Canada’s Sedimentary Basin. Four of the PACE™ rigs are heli-portable and one other 500 hp rig has been converted to heli-portable status. The heli-portable rigs are moved using a Russian MI26 helicopter capable of lifting 20 long tons. Nabors Drilling in Canada also operates eight coiled tubing rigs. These rigs allow the company to more aggressively participate in the shallow gas market domestically and internationally. Most of these are deployed in Western Canada’s Sedimentary Basin, but the company also drills in the eastern provinces and the Northern territories. Oil rigs is Nabors bread-and-butter business.
- The PACE™ 750 - Is a programmable AC electric rig with PLC controls, allowing the driller to control the drawworks, the top drive, the mud pumps and virtually every other significant piece of equipment from a central control center. This compact, powerful rig was designed to drill to a broad range of depths in a variety of geographical and geological areas. It is engineered to move rapidly, reducing the time between wells.
- The PACE™ 1,500 - Is a larger version of the PACE™ 750. It is also programmable AC electric and PLC controlled, but has a stronger mast and substructure and an additional mud tank, allowing it to drill the deeper horizontal wells that are frequently required today.
- PACE™ 2000 AND PACE™ 3000 - Worldwide drilling is going deeper, especially for natural gas in the Middle East. All of this requires special purpose ultra-deep capacity drilling rigs. Nabors has been engaged in a proactive building program to meet this demand and has produced twelve 2,000 and five 3,000 HP rigs incorporating the latest in performance-enhancing features. These rigs are easily adapted to the “lift and roll” moving system and automated pipe handling systems, and are equipped with a system for pre-assembly of drill pipe stands.
- ARCTIC - Nabors pioneered cold-weather drilling, having drilled some of the most important wells on Alaska's North Slope and in Canada. The company is a leader in winterizing rigs for harsh environments and originally developed pad drilling techniques which are now being used all over the world to move rigs between wells more rapidly.
- SUPERSUNDOWNER MODS SERIES - Nabors continues to expand its fleet of proprietary MODS and SuperSundowner (SSD) offshore platform rigs. These rigs have realized extraordinarily high utilization due to their light weight, small footprint and ease of mobilization and demobilization. MODS rigs are drilling rigs available in 1,500-, 2,000- and 3,000-horsepower depth ratings while SuperSundowner rigs are ideally suited for heavy workover, re-entry and re-drilling applications, as well as medium-depth drilling projects. MODS rigs are designed specifically to accommodate the motion characteristics of deepwater floating SPAR and tension leg platforms, while SuperSundowners can easily be upgraded to similar capability.
- BARGE – 35,000' CAPABILITY - Nabors constructed barge Rig 300 in 2005 and has subsequently undertaken the construction of barge Rig 301 and barge Rig 100, both of which will deploy in early 2007. These rigs are geared towards the ultra-deep gas prospects in the shallow waters of the Gulf of Mexico. Barge Rig 100 is designed for deep workover and/or shallow drilling, while barge Rigs 300 and 301 are capable of drilling to 35,000 feet in water depths as shallow as seven feet.
- WELL-SERVICING 200 SERIES - The new 200 series rig is ideal for servicing shallow, closely spaced wells in rugged terrain. Its shorter wheelbase and drive-in capability give the driver improved visibility and greater maneuverability, critical features when working in tight quarters. An advanced instrumentation system gives the operator real-time performance monitoring of the rig.
- WELL-SERVICING 400-500 SERIES - Millennium Rigs from Nabors Well Services are a breakthrough in workover and well-servicing. Six years in Millennium Rigs from Nabors Well Services are a breakthrough in workover and well-servicing. Six years in design and construction, they combine a variety of features which make them safer, more efficient, more durable and easier to operate. Available in 400- and 500-horsepower models, these rigs are designed to service the increasing population of deeper and more directional wells. A total of 39 are currently deployed, with another 141 scheduled for delivery by early 2009.
Rig 353 Rouighnecks working through the night on a Nabors oil rig
NABORS PRODUCTION SERVICES: Nabors Canada markets 154 service rigs including swab rigs, slant rigs and skid and mobile doubles and singles. The company introduced the industry’s first AC-powered service rig with PACE™ technology in 2008. Nabors Production Services provides reclamation, remediation and downhole abandonment services through its subsidiary company, Abandon-Rite. Swabbing and swabbing technology services are also available through subsidiary Swabtech and production testing is available through Nabors Production Testing.
ACADEMY SERVICES: Academy provides oilfield electrical services, maintenance and manufacturing. This division developed and continues to expand the PACE™ technology and also developed the proprietary Commander drawworks, which is only available on Nabors rigs. Academy was also responsible for the design and construction of the moving systems which have made Nabors rigs the standard for pad drilling. Academy also designed, engineered and manufactured the company’s innovative AC coiled tubing/ jointed pipe hybrid rig.
Incidentally, I looked it up, and Mr. Isenberg received total executive compensation of $44. million in 2007 (Ranked #8), $79.3 millin in 2008 (Ranked #8), but did not make the top 10 list in 2009 or 2010. But, it sure looks like 2011 is going to make up for the last two years big time. Only in America.
Below is Forbes list of the Top 25 Highest Paid CEO's of the U.S. for 2010:
- John Hammergren - McKesson (Pharmaceuticals) - Compensation: $131.2 million
- Ralph Lauren - Polo Ralph Lauren (Apparel) - Compensation: $66.7 million
- Michael Fascitelli - Vornado Realty (Real Estate) - Compensation: $64.4 million
- Robert Iger - Walt Disney (Entertainment) - Compensation: $53.3 million
- George Paz - Express Scripts (Healthcare) - Compensation: $51.5 million
- Jeffrey Boyd - Priceline.com (Internet) - Compensation: $50.2 million
- Lew Frankfort - Coach (Women's Apparel & Accessories) - Compensation: $49.5 million
- Stephen Hemsley - UnitedHealth Group (Managed Health) - Compensation: $48.8 million
- John D. Wren - Omnicom Group (Advertising) - Compensation: $45.6 million
- Michael Watford - Ultra Petroleum (Oil & Gas) - Compensation: $43.7 million
- John C Martin - Gilead Sciences (Biotech) - Compensation: $42.7 million
- James Dimon - JPMorgan Chase (Banking & Finance) - Compensation: $42 million
- Leslie Moonves - CBS (Broadcasting) - Compensation: $41.5 million
- John Plant - TRW Automotive Holdings (Auto parts) - Compensation: $41.1 million
- David Zaslav - Discovery Communications (Broadcasting) - Compensation: $40.7 million
- Laurence Fink - BlackRock (Investment Management) - Compensation: $39.9 million
- Richard Adkerson - Freeport-McMoRan Copper & Gold (Materials) - Compensation: $39.5 million
- James Hackett - Anadarko Petroleum (Oil & Gas) - Compensation: $38.9 million
- John Chambers - Cisco Systems (Technology) - Compensation: $37.9 million
- David Pyott - Allergan (Pharmaceuticals) - Compensation: $33.8 million
- Gregory Lucier - Life Technologies (Biotech) - Compensation: $33.8 million
- Charles Davidson - Noble Energy (Oil & Gas) - Compensation: $33.4 million
- Louis C. Camilleri - Philip Morris (Tobacco) - Compensation: $32.7 million
- Joe Tucci - EMC (Computer Services) - Compensation: $31.6 million
- Gregory Boyce - Peabody Energy (Coal) - Compensation: $30.7 million
The board of directors approve all executive compensation for corporations, whether public or private, and they should bear their share of the criticism for the outrageous payout for Mr. Isenberg. Just so you know, here are the names of the individuals on the Nabors Industries board of directors:
- Eugene M. Isenberg, Chairman and Chief Executive Officer, Nabors Industries Ltd.
- Anthony G. Petrello, Deputy Chairman, President and Chief Operating Officer, Nabors Industries Ltd.
- John Yearwood, Lead Director, Nabors Industries Ltd.
- William T. Comfort, Chairman, Citigroup Venture Capital
- Dr. John V. Lombardi, President, Louisiana State University System
- James L. Payne, Chairman and Chief Executive Officer, Shona Energy Company, Inc.
- Myron M. Sheinfeld, Counsel, King & Spalding, L.L.P.
- Martin J. Whitman, Director Emeritus
- Jack Wexler, Director Emeritus, In Memoriam (passed away April 2011)
I would like to know just what the hell a dead man (Jack Wexler) is doing on the board of directors. When you die, you are dead. Is somebody voting for this man?