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Golden Parachutes Are Still Very Much in Style

June 29, 2013 by Leave a Comment

Executives who choose to retire — or are forced to retire — often receive millions when they leave. And despite years of public outcry against such deals, multimillion-dollar severance packages are still common.

In 2012, the biggest package went to James J. Mulva, who stepped down as C.E.O. of ConocoPhillips after 10 years, according to an analysis by Equilar of the 10 largest exit packages. His total: about $156 million. As with all C.E.O.’s on the list, his exit sum is on top of salary, bonus and other compensation received while working for the company.

“We calculated severance pay as the total of any amounts given in connection with end of service as C.E.O.,” said Aaron Boyd, director of governance research at Equilar.

In Mr. Mulva’s case, much of the payout came from the market value of stock gains he received. But he also received payouts from a cash severance, a bonus and additional retirement distributions.

ConocoPhillips said that the pay packages were fully disclosed to shareholders and that they were “the same pension and benefits programs as described in the proxy statement as any other retiring executive.”

“The vast majority of Mulva’s compensation that he earned during his long and successful career as an executive remained in the form of company stock at his time of retirement,” Aftab Ahmed, a spokesman for ConocoPhillips, said in an e-mail.

Among Equilar’s top 10, four were former chief executives of large oil and gas companies, including Sunoco and the El Paso Corporation. “Typically you are seeing these big energy companies that tend to have these big payouts upon retirement,” Mr. Boyd said.

In some cases, retiring chief executives will continue to receive millions years after their retirement. In addition to his exit package of $46 million in 2012, Edward D. Breen, formerly the chief of the conglomerate Tyco International, received deferred shares, valued at $55.8 million, in 2013. Mr. Breen, who remains chairman, will also receive $30 million more as a lump-sum pension payment in 2016 as part of his employment agreement, Equilar said.

Brett Ludwig, a Tyco spokesman, said the company’s success “in large part results from key strategic decisions made by Mr. Breen and the Tyco board to create five new publicly held companies, each of which is a leader in its respective field,” adding that Mr. Breen’s pay “reflects the increase in value of Tyco’s shares.”

Other times, huge payouts go to executives as a result of takeovers. Douglas L. Foshee received millions after El Paso, the energy company he led, was taken over by Kinder Morgan.

Extreme exit packages for chief executives became more common during the hostile-takeover era of the 1980s, when the so-called golden parachute proliferated. Boards realized that without the promise of compensation, executives would be unwilling to negotiate deals to sell their companies if an outside takeover would force them into the unemployment line. Provisions were written into employment agreements that provided everything from lump-sum payments equivalent to several years’ worth of salary to extended health insurance benefits.

“They became larger in an era when executives were resistant to having companies sold and having new management come in and basically firing the C.E.O.,” said Mark Kennedy, an assistant professor at Imperial College Business School in London. “Nobody had any idea how big they would become.”

Professor Kennedy, a co-author of a paper about this practice with Peer C. Fiss of the University of Southern California and Gerald F. Davis of the University of Michigan, said that more than 60 percent of Fortune 500 companies had golden parachutes in place by 1990. Today, about 82 percent of the chiefs of Standard Poor’s 500 companies are entitled to some type of cash payment if they are replaced upon a change in control, according to GMI Ratings, a corporate governance firm.

Amid public anger over ballooning compensation, such contracts often became more complex and opaque. And many companies disputed that current severance payouts or enhanced retirement packages are really “golden parachutes,” designed to offer soft landings in the event of takeovers. However they are characterized, hefty packages for departing executives are still common.

“The main reform that I would like to see is not have severance agreements that are soft landings for executives who did a poor job,” Professor Kennedy said.

EVEN those forced out of the corner office can receive giant payouts. John R. Charman, the former chairman and chief executive of Axis Capital Holdings, an insurer and reinsurer based in Bermuda, received more than $26.5 million to walk away from the company, according to Equilar.

In an interview with a newspaper in Bermuda, Mr. Charman called his ouster from Axis Capital “an act of monumental betrayal.”

Axis said last year that he had been terminated as chairman “without cause” after the board could not resolve “differences with Mr. Charman over his understanding of the role and responsibilities of the chairman position.”

Mr. Charman became chairman and chief executive of Endurance Specialty Holdings, an insurer based in Bermuda, which gave him about $35 million in restricted stock as well as 800,000 stock options when he joined last month.

A spokeswoman for Endurance said in an e-mail that Mr. Charman would not comment for this article.

Shareholders are starting to push back against packages that may seem excessive. Proxy advisory firms have been suggesting that shareholders reject those that seem too generous, but such votes are generally nonbinding.

Laws like the Sarbanes-Oxley Act of 2002 and the Dodd-Frank Act of 2010 intended to try to claw back pay from executives when it was undeserved. But a 2011 study by Jesse M. Fried, a law professor at Harvard, and Nitzan Shilon, then a law student there, found that effective clawback policies were lacking at most S. P. 500 companies.

“If you actually read what these policies say, they are not very robust,” Professor Fried said. “They all stem from the same basic problem: the directors are not paying with their own money.”

Some companies have renegotiated their goodbye packages with departing executives. Vikram S. Pandit, the former chief of Citigroup, who is not on the top 10 list, agreed to forfeit a $26.6 million “retention” package from 2011 after he was forced out in October. The bank said in its proxy that he “did not receive a severance payment or special treatment of his outstanding awards as part of his separation from Citi.”

But the board awarded him $6.7 million as a 2012 bonus, based on the performance of the company that year.

Article source: http://www.nytimes.com/2013/06/30/business/golden-parachutes-are-still-very-much-in-style.html?partner=rss&emc=rss

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Venezuela Will Not Recognize World Bank Ruling in Exxon Case

January 9, 2012 by Leave a Comment

Exxon took Venezuela to the World Bank’s International Center for Settlement of Investment Disputes, or ICSID, seeking as much as $12 billion in compensation after Mr. Chavez ordered the nationalization of the Cerro Negro oil project in 2007.

“I tell you now: We will not recognize any decision by ICSID,” Mr. Chavez said during a televised speech. He has repeatedly accused the U.S. oil major of using unfair deals in the past to “rob” the South American OPEC member of its resources.

“They are trying the impossible: to get us to pay them,” he said. “We are not going to pay them anything.”

It was not immediately clear whether Mr. Chavez was also referring to about 20 other cases that Venezuela faces before the World Bank’s arbitration tribunal that were triggered by a wave of state takeovers in recent years.

They include separate multibillion-dollar proceedings brought by ConocoPhillips, another major American oil company.

Last week, another arbitration panel, this one with the International Chamber of Commerce, awarded Exxon $908 million in a separate case relating to the Cerro Negro nationalization.

On Saturday, Venezuelan Oil Minister Rafael Ramirez said he did not expect a verdict in Exxon’s World Bank case before the end of this year. Exxon said it was due to start being argued in February.

Both cases have been closely watched by the industry for precedents in future disputes between companies and oil-producing countries, which have increasingly sought a greater share of revenue as prices soar and new reserves become tougher to find.

For years, Venezuela’s socialist leader has accused foreign oil companies of plundering the nation’s reserves, but he has also maintained close ties with many of them.

Some lawyers said the decision by the International Chamber of Commerce covered only a commercial dispute between Exxon and the state oil company PDVSA over earnings Exxon lost as a result of the takeover.

By contrast, the World Bank case is over compensation for Exxon’s assets, and experts say it could yield a larger award.

The government has insisted Exxon receive only slightly more than the $750 million it said it invested in the project. Last September, Venezuela offered to settle for $1 billion.

For years, Mr. Chavez has confronted oil companies with tax increases and contract changes aimed at increasing revenue from the industry to fund state-led anti-poverty development programs.

Venezuela’s push to boost control over its oil industry has been followed by similar efforts in other oil-producing nations. Critics say it has scared investors away from Venezuela and left crude production stagnant.

But some oil companies have remained eager to invest in Venezuela’s Orinoco extra heavy oil belt, which is considered one of the world’s largest mostly untapped reserves of crude.

Chevron of the United States and Repsol of Spain both signed deals in 2010 for new multibillion-dollar projects there.

Article source: http://feeds.nytimes.com/click.phdo?i=9143770b1bf64eb694bf03a3dbba7aa8

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The Scramble for Access to Libya’s Oil Wealth Begins

August 22, 2011 by Leave a Comment

Even before Libyan rebels could take full control of Tripoli, Foreign Minister Franco Frattini of Italy said on state television Monday that the Italian oil company Eni “will have a No. 1 role in the future” in the North African country.

Mr. Frattini even reported that Eni technicians were already on their way to eastern Libya to restart production. But Eni quickly denied that it had sent any personnel to the still-unsettled region, which is Italy’s largest source of imported oil.

The awkward exchange suggested that the scramble to secure access to Libya’s oil wealth is already on. Libyan production has been largely shut down during the long conflict between rebel forces and troops loyal to Libya’s leader, Col. Muammar el-Qaddafi.

Eni, as well as BP of Britain, Total of France and OMV of Austria, were all big producers before the fighting and stand to gain the most once the conflict ends. American companies like Hess, ConocoPhillips and Marathon also made deals with the Qaddafi regime, although the United States relies on Libya for less than 1 percent of its imports.

But it’s unclear whether a rebel government would honor the contracts struck by the Qaddafi regime.

Even before taking power, the rebels were suggesting that they would remember their friends and foes, and negotiate deals accordingly.

“We don’t have a problem with Western countries like Italians, French and U.K. companies,” Abdeljalil Mayouf, a spokesman for the Libyan rebel oil company Agoco, was quoted as saying by Reuters. “But we may have some political issues with Russia, China and Brazil.”

Russia, China and Brazil did not back strong sanctions on the Qaddafi regime, and they generally supported a negotiated settlement to the fighting. All three countries have large oil companies that are seeking deals in Africa for oil reserves.

Before fighting broke out in February, Libya exported 1.3 million barrels of oil a day. While that is less than 2 percent of world supplies, only Nigeria, Algeria and a few other countries can supply equivalent grades of sweet crude that many refineries around the world depend on.

The European benchmark price for oil fell moderately on Monday morning on speculation that Libyan oil production would quickly begin ramping up again. Brent crude oil prices initially dropped more than 3 percent, but in midafternoon trading in New York, Brent was at $107.60 a barrel, down $1.02. The American benchmark crude, which is less sensitive to events in the Middle East, was up slightly to $83.36.

Colonel Qaddafi proved to be a problematic partner for the international oil companies, frequently raising fees and taxes and making other demands. A new government with close ties to NATO may be an easier partner for Western nations to deal with. Some experts say that given a free hand, oil companies could find considerably more oil in Libya than they were able to locate under the restrictions placed by the Qaddafi government.

The civil war forced major oil companies to withdraw their personnel, and production plummeted over the last several months to a minuscule 60,000 barrels a day, according to the International Energy Agency. That would account for roughly 20 percent of the country’s normal domestic needs. The rebels were able to export a modest amount of crude that was stored at ports, and sold it for cash on the international market through Qatar.

Oil experts caution that it could take as much as a year for Libya to make repairs and get its oil fields back to full speed, although exports may resume within a couple of months.

Since oil is far and away Libya’s most important economic resource, any new government would be obliged to make oil production a high priority. That means establishing security over major fields, pipelines, refineries and ports, and quickly establishing relationships with foreign oil companies.

Most oil companies involved in Libya denied to comment Monday or said they would wait to see how the security situation evolved before sending their personnel into the country.

“Clearly we are monitoring the situation like everyone,” said Jon Pepper, a Hess vice president. “Obviously the situation has to stabilize there before people start thinking about resuming production.”

Italy in recent years has relied on Libya for more than 20 percent of its oil imports, and France, Switzerland, Ireland and Austria all depended on Libya for more than 15 percent of their imports before the fighting began. Libya’s importance to France was underscored on Monday when President Nicolas Sarkozy invited the head of the rebels’ national transitional council, Mustafa Abdel Jalil, to Paris for consultations.

The United States does not rely on Libya for imports, but the reduction of high-quality crude on world markets has pushed up oil and gasoline prices for Americans as well.

Oil analysts say that most reports from oil service companies, which continued to pay their Libyan crews through the war, indicate that there has been relatively little damage to oil facilities. That suggests that production could begin to ramp up in a matter of weeks. But it will probably take months for the country to resume significant exports.

Eni’s chairman, Giuseppe Recchi, recently told analysts that it would probably take a year to return Libya to normal export levels. On Monday, he denied that his company would immediately send back personnel, but he told reporters that he expected the new Libyan government to respect his company’s previous contracts.

Article source: http://feeds.nytimes.com/click.phdo?i=50d6d3f8182e7d8e06a50f49ccba7785

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DealBook: Kraft Foods, in Split, Is Keeping Oreos but Not Velveeta

August 5, 2011 by Leave a Comment

Irene Rosenfeld, Kraft’s chairwoman, who led Kraft’s purchase of the British candy maker Cadbury. Kraft will keep its snack food business.Jacky Naegelen/ReutersIrene Rosenfeld, Kraft’s chairwoman, who led Kraft’s purchase of the British candy maker Cadbury. Kraft will keep its snack food business.

After years of mergers and takeovers, Kraft Foods is undertaking its biggest deal yet: breaking itself apart.

The food giant said on Thursday that it planned to split into two businesses. Kraft will spin off its North American grocery business — home to familiar brands like Velveeta, Kraft macaroni cheese and Oscar Mayer meats — to its shareholders. It will hold onto its global snacks business, with brands like Oreos, Cadbury and Trident.

By cleaving itself in two, the company is essentially letting shareholders choose between the fast-growing snacks business or the grocery business, which generates a lot of cash and enjoys strong profit margins despite its lower growth.

Dividing the two will also allow each business to pursue its own investment strategy. That could mean the grocery spinoff seeking out more brands from which it could reap cost savings, while the snacks business could continue its push into new markets.

The move occurred after some shareholders pressed management for years to act to lift the company’s market value. They were frustrated that growth in Kraft’s snacks operations was consistently weighed down by the groceries unit. One activist investor had contemplated publicly calling on Kraft to reorganize its businesses later this year, according to a person briefed on the matter who requested anonymity because the plans are private.

Kraft’s plan follows a number of other companies that are breaking up, including Sara Lee, Fortune Brands and ConocoPhillips. But Kraft’s is the biggest, creating a snacking business with about $32 billion in annual sales and a grocery company with $16 billion in sales.

Its split would follow a rash of deals that Kraft has undertaken since fully spinning off from the Altria Group in 2007. Under Irene B. Rosenfeld, its chairwoman and chief executive, the food giant has sought to remake its store of household brand names, including buying Cadbury and Danone’s biscuits unit and selling off Post Brands and its North American frozen pizza business.

“This is something that we’ve been studying for some time,” Ms. Rosenfeld, said in a telephone interview. “This is a logical step that comes after the actions that we’ve taken over the last several years.”

It was last year’s $19 billion acquisition of candy maker Cadbury of Britain that gave Kraft’s snack business sufficient scale to be a stand-alone company able to compete against the likes of Nestlé and PepsiCo.

At the time, Kraft’s biggest shareholder, Warren E. Buffett, had some unusually harsh and public comments on Kraft’s management, calling the Cadbury deal “dumb.” On Thursday, however, Mr. Buffett told two business television programs that he supported the split, adding that that he first learned about Kraft’s plans over breakfast with Ms. Rosenfeld in his hometown, Omaha.

Another big investor in Kraft, Nelson W. Peltz’s Trian fund, called the planned split “an excellent corporate development that should create significant shareholder value.”

Shares of Kraft initially surged on Thursday before they were caught up in a broad and powerful stock market downdraft. For a while, the stock was the only component of the Dow Jones industrial average to show a gain. But it ended the day down 1.5 percent, at $33.78. Kraft shares have risen 15.3 percent over the last 12 months.

Kraft, which is based in Northfield, Ill., had considered alternatives to the split for years, including selling off various businesses, according to people briefed on the matter who requested anonymity because the discussions were private. But a breakup of the company was seen as the most tax-efficient way of slimming the food conglomerate. That process picked up speed over the last three months, these people added.

The decision was announced on the same day that Kraft released its second-quarter earnings, which at 55 cents a share narrowly beat analyst estimates.

“The strategic rationale for such a move is strong,” Alexia Howard, an analyst with Bernstein Research, wrote in a research note on Thursday. “Given the different investment priorities and growth trajectories of the two businesses, it makes a lot of sense to separate them.”

Robert Moskow, an analyst with Credit Suisse, put it more succinctly in his own research note: “Kraft beats and breaks up. Brilliant!”

Article source: http://feeds.nytimes.com/click.phdo?i=ac752630beb19d7733041c0aa4e66f91

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Oil Executives, Defending Tax Breaks, Say They’d Cede Them if Everyone Did

May 13, 2011 by Leave a Comment

At a three-hour Senate Finance Committee hearing that was largely political theater interrupted occasionally by a serious tax policy discussion, the oil industry executives said their current tax breaks were not subsidies but legitimate tax deductions, shared in some cases with other industries.

Rex W. Tillerson, chief executive of Exxon Mobil, said that the provisions, such as a tax deduction for certain types of manufacturing, were not “special incentives, preferences or subsidies for oil and gas, but rather standard deductions applied across all businesses in the United States.”

He said that eliminating the provision just for the oil industry would be “misinformed and discriminatory.”

Under questioning from Senator Max Baucus, Democrat of Montana, the panel’s chairman, Mr. Tillerson said that he would support repeal of the manufacturing tax credit and other tax incentives, as long as all businesses were treated the same.

“Repeal it for everybody, gone,” he said. “Everything for everybody everywhere ought to be on the table.”

At issue was a Democratic-sponsored bill to rescind roughly $2 billion of the $4 billion in tax incentives the oil industry now enjoys annually, with the money dedicated to deficit reduction. Mr. Tillerson shared the witness stand with top executives of the four other biggest multinational oil companies, John S. Watson of Chevron; Marvin E. Odum of the United States division of Shell; H. Lamar McKay of BP America; and James J. Mulva of ConocoPhillips.

Collectively, the five companies reported more than $35 billion in first-quarter profits, and are on a pace to set record profits for the year. Their profits, their tax treatment and gasoline that in many areas is over $4 a gallon have made them juicy targets for Democrats seeking political points and painless revenue.

The bill, which is expected to come to a vote on the Senate floor next week, is unlikely to command a filibuster-proof majority in the Senate. Even if it passes, it has little chance in the Republican-dominated House, which seems more inclined to provide the oil companies more access to public lands and waters than to clamp down on their tax incentives.

The House passed the third of three Republican pro-drilling bills on Thursday. The measure would force the Interior Department to open large tracts of the Atlantic, Pacific and Arctic coasts to oil exploration and to set annual production goals. The administration and most Democrats opposed it, saying that the Deepwater Horizon accident a year ago demonstrated the dangers of offshore operations.

The Senate tax bill’s chief sponsor, Senator Robert Menendez of New Jersey, demanded that Mr. Mulva apologize for a ConocoPhillips press release on Wednesday that called the tax proposal “un-American.”

“I think that’s beyond the pale,” Mr. Menendez said. “I was hoping you would come here and apologize for that.”

“Nothing was intended personally,” Mr. Mulva said.

“So the bottom line is you’re unwilling to apologize,” Mr. Menendez said. “So I’ll continue to take offense.”

Most Republicans, along with Democratic senators from energy-producing states, appear sure to oppose the plan. One oil-state Democrat, Mary L. Landrieu of Louisiana, said this week that oil and gas subsidies accounted for less than 13 percent of all United States energy subsidies.

The ranking Republican on the finance committee, Senator Orrin Hatch of Utah, suggested that Democrats were playing a cynical game, seeking to blame oil companies while, he asserted, intending to raise gasoline prices to force reduced consumption.

“So while the American people ask Congress to do something about high gas prices,” he said, “the response of Democrats is to rail against oil executives, to mask the fact that their policy is actually to make the price at the pump more painful.”

He called the hearing a “dog and pony show” and displayed a blown-up picture of a dog riding a pony, to underscore his argument that the hearing was just a chance for Democrats to score political points, without doing anything about high gas prices or a sensible energy policy.

Mr. Odum of Shell said in an interview after the hearing that he was disappointed that the discussion focused on the relatively small value of the oil industry’s tax breaks and not on the broader question of how to address the deficit and expand domestic production of oil and gas.

“The piece I take the most exception to, once you get past some of the theater aspects of the setting, is that it’s such a narrow view,” he said. “If the purpose is to address the deficit and the long-term health of the economy, the bigger picture is more important. And that is to produce more oil and gas and get the revenue streams and jobs from that.”

Brian Knowlton contributed reporting.

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