CEOs Bank Big Bonuses As Oil Companies Go Bankrupt

CEOs Bank Big Bonuses As Oil Companies Go Bankrupt
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When public oil and gas companies are doing relatively well, many are happy to adopt a pay-for-performance model to reward CEOs and executives.

However, the tables are quickly turned when things go to the dogs. When these companies go bankrupt, the misery is shared by employees who lose their jobs; retirees see their benefits and pensions go up in smoke, while shareholders and bondholders get wiped out. In sharp contrast, it’s very common for blue-chip executives who have run their companies to the ground to receive multi-million dollar golden sendoffs. Indeed, top executives of oil and gas companies going through Chapter 11 frequently receive very fat payouts in the form of cash bonuses, stock grants, and other benefits that often exceed payments during the good times.

It’s not any different this time around.

At a time when hundreds of thousands of employees in the U.S. shale industry have lost their jobs, Bloomberg has reported that some 35 executives at Whiting Petroleum Inc.(NYSE:WLL), Chesapeake Energy Corp.(NYSE:CHK) and Diamond Offshore Drilling Inc.(OTCMKTS: DOFSQ) are set to receive nearly $50 million after their companies declared bankruptcy or are on the verge of doing so.

Rewarding Failure

It’s the manner in which these head honchos continue to award themselves fat bonuses despite federal legislation to crack down on the practice that really grates.

The board at Whiting, an oil and gas producer that filed for Chapter 11 in Aprilapproved a $6.4M bonus for CEO Brad Holly just days before the company went under, exceeding his previous annual compensation package by nearly a million dollars.

In May, California Resources Corp. (NYSE:CRC) warned investors about “…a substantial doubt about the company’s ability to continue as a going concern…” but still went ahead and guaranteed company executives their 2020 bonuses.

So, what’s the justification for this egregious, bizarre, and perverse practice?

According to Kelly Mitchell, an analyst at corporate watchdog group Documented, companies do it so as to incentivize these executives to stick around because they understand the company better and, ostensibly, have better odds of pulling them through. Never mind the fact that their decisions are very often to blame for the company’s sad situation in the first place. They also do it in a bid to cut costs and maximize value for creditors using tools such as tax credits or untapped resources.

Source: Zero Hedge

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