Nabors $100M CEO Payout Irks Some, Change Is Cheered



HOUSTON (Dow Jones Newswires), Oct. 31, 2011

Nabors Industries Inc. $100 million payout to its departing chief executive could be a hard pill for some investors to swallow, but Wall Street seems hopeful about the transition.

The departure of long-time CEO Eugene Isenberg, 81, clears the way for newly appointed CEO Anthony Petrello to make moves that some predict could include divesting some of the oilfield-services company's non-core businesses, and focusing on the profitable area of oil-and-gas drilling.

Monday, analysts seemed resigned to the payout, for which Nabors will take a $100 million charge in the fourth quarter. While Nabors shares slipped 2.2% to $18.64, other energy stocks were also lower Monday as the broader stock market fell.

The appointment of Petrello was announced late Friday. Isenberg will remain chairman of the board.

"We believe the compensation to Mr. Isenberg is excessive and a $100 million payment for what we view as essentially retiring will be offensive to some," said analysts with Simmons & Co. in a research note. But "we also know that the market will likely view the [management] change as a positive."

Dahlman Rose & Co. upgraded its investment rating on Nabors shares to "buy" from "hold," as it anticipates the new management will sell the company's rig-building, oil-and-gas-production and U.S. well-fluid-handling services. "The management change will bring positive operating changes, and it could lead over time to divestitures...leading to a more focused company," Dahlman analysts said.

The size of Isenberg's goodbye package exceeds the $84.3 million salary made last year by Viacom Inc. (VIA, VIAB) CEO Philippe Dauman, the highest-paid executive in 2010, according to a Wall Street Journal survey.

It also exceeds Nabors's third-quarter earnings of $74 million, a fact that Brandon Rees, deputy director for the AFL-CIO Office of Investment, called "astounding." The union's fund holds more than 14,000 shares in Nabors.

"He was compensated for his performance, and now he's being paid to leave," Rees said. "You have to wonder what the board was thinking when they put this plan in place."

A clause in Isenberg's contract called for the $100 million payout in the event of his death or disability, or under various termination scenarios, including "constructive termination without cause." The amount was scaled back in 2009 after shareholders complained about a much-larger exit deal.

Part of the reason why Nabors agreed to such an amount may be what Nabors was able to achieve during Isenberg's nearly 25-year tenure, said Yan Anthea Zhang, professor of strategic management at Rice University. Isenberg took the helm of Nabors in 1987, when the company was just emerging from bankruptcy, and helped expand it to a multinational business with a 2010 net income of nearly $300 million.

"If we compare where the firm was 20 years ago and then now, I think that's probably why," Zhang said.

Although Isenberg helped the company grow, his board-approved contract ensured he was paid well for his time, said Morningstar analyst Stephen Ellis. In the past 20 years, not counting the latest sum but including the value of exercised stock options, Isenberg made almost $750 million, according to Standard & Poor's ExecuComp.

"Isenberg did create a lot of value at Nabors," Ellis said. "However, he certainly claimed a substantial portion of that value for himself over the years."

Copyright (c) 2011 Dow Jones & Company, Inc.



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