Welcome to Manifest-I

Welcome to Manifest-I the blog of Manifest Information Services Ltd. Here we take a wide ranging view of topical governance and stewardship issues. Please feel free to add your comments and join the debate. Sign up to receive free weekly updates.

Manifest is a signatory of the Best Practice Principles for Shareholder Voting Research

Delivering Diverse Viewpoints

In the pursuit of secure investment returns, diverse viewpoints based on high-quality data and varied information are critical for portfolio construction. We believe that share ownership is no different. Manifest intelligently navigates the complexities of global governance and voting delivering actionable and defensible stewardship insights.

Manifest: showing, not telling

Get in touch to find out more about Manifest's governance research, data and advisory services

CEOs Don’t Fear the Reaper….

“He who dies with the most toys still dies” was a quote on the No Fear brand of T-shirts a few years ago. Funnily enough that saying came to mind when news of Amalgamated Bank’s shareholder proposals against “Golden Coffins” came out this week.

For the uninitiated, a Golden Coffin, in exec comp terms, is not that dissimilar to a Golden Parachute or Golden Handcuffs, only, yes, that’s right, when a US exec goes to that final AGM in the sky it’s their last perk as they pass through the pearly gates. Or, in the case of certain bank executives, Dante’s eighth circle of hell.

To be fair, such arrangements are not universal at US companies, but those that are around are sufficiently egregious in Amalgamated Bank’s view that they were deserving of shareholder resolution this proxy season.  A total of 14 companies have been targeted for their death-bed benefits this year, of which Amalgamated were behind five; four actually went to the ballot, the fifth, at Plains Exploration, was withdrawn after negotiations.

Talking with Scott Zdrazil, Amalgamated’s Director of Corporate Governance he told Manifest that  a “pay for performance approach is needed to align the interests of executives with those of shareholders” but that “we disagree that these agreements enhance executive retention; an executive who is deceased cannot be “retained”. It’s also not clear how a post-mortem “no compete clause” would work either, but that’s not stopping Shaw Group.

The arrangements which Amalgamated focused on would have to come straight out of company resources, said Zdrazil as they were un-insured risks.  “Senior executives should have ample opportunities while they are alive to contribute to a pension fund, purchase life insurance, voluntarily defer compensation or engage in other estate planning strategies suitable to their needs. We see no reason to saddle shareholders with payments or awards when shareholders receive no services in return.” he said.

Based on preliminary proxy results, Amalgamated has achieved a very creditable average support level of over 50%. Here’s the detailed breakdown of the results, which are subject to adjustment when the companies 10Qs are lodged with the SEC.

  1. Johnson Controls – 42%
  2.  Nabors Industries – 41%
  3. Plains Exploration and Production – withdrawn
  4. Shaw Group – 67%
  5. XTO Energy – 50.46%

So what exactly would shareholders be expecting to pay out for an unscheduled CEO departure? In the UK the typical CEO’s estate would expect to be in receipt of  4-6 x salary or occasionally 10 x salary for death in service, usually as part of the pension plan or other company-sponsored life insurance program. Here’s what Amalgamated’s proposals found at their target companies:

Johnson Controls
According to the December 2007 proxy statement, the Company would be obliged to pay out $36.3 million worth of annual and long-term bonuses, stock options, and restricted stock upon the death of John M. Barth, the chairman and chief executive officer. Additionally, the Company would be obliged to pay his base salary for ten years at an estimated cost of $14.2 million, for a total of $50.5 million. The value of similar packages for the other senior executives ranges from $12 million to $24.5 million per executive.

Nabors Industries
In its June 2008 proxy, the Company estimated that if it had been required to make a payment at the end of 2007 upon the death to Eugene M. Isenberg, the Chairman and CEO, the cost would have been over $263 million in cash, representing multiples of Mr. Isenberg’s base salary plus bonuses in recent years. Anthony G. Petrello, the President and COO, would have cost over $100 million in cash. These cash payouts compare to the Company’s earnings of $230 million and $266 million, respectively, in the first two quarters of 2008.

Plains Exploration & Production
James C Flores, Chairman & CEO. $6 million in cash, plus health insurance and gross-up payment; accelerated vesting of 869,999 shares, then worth $47 million; a grant and vesting of 2.1 million in ungranted shares, then worth $113 million, for a total equity award of $160 million (which would still be worth $100 million nine months later, even with the decline in stock price).
(Resolution Withdrawn)

Shaw Group
According to the December 2007 proxy statement, the Company would be obliged under agreements with J.M. Bernhard, Jr., the chairman, president and chief executive officer, to pay upon his death an estimated $38.2 million, representing, inter alia, a year’s salary, a pro rata bonus, and $32.5 million worth of accelerated equity awards. Additionally, the Company would be obliged to pay $15 million plus interest under an agreement that Mr. Bernhard will not compete with Shaw Group after his employment is terminated, whether by death or otherwise. The value of compensation awards upon the death of other senior executives ranges from $2.5 million to $7.1 million per executive.

XTO Energy
In its April 2008 proxy, the Company estimated that if it had been obliged to pay death benefits to Bob R. Simpson, the Chairman and CEO, at the end of 2007, the cost would include: a bonus of $111 million in cash plus another $4.35 million as salary; accelerated vesting of stock options, then worth $20.5 million; payment of life insurance worth $3 million; a “car allowance” worth $158,000; and continued health insurance plus a “gross-up” payment for tax on that insurance.

We couldn’t help noting that all the companies in questions were being extremely generous to their Joint Chair/CEO. Perhaps this is another good reason for separation at the top.

What do you think?