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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Brady | Nov. 13, 2011
So I guess if you work for Nabors you shouldn't expect a bonus or even a ham when they were actually the ones that did the manual labor... but he got his didn't he. SHAME...

Jerry Basco | Nov. 7, 2011
I think he did a great job and deserved to be paid for it but I also think he was pretty greedy. 750 million + 100 million buy out is ridiculous, it was not his company and to say he was well paid and deserved it no matter how successful he was is not worth what he received or is receiving. This shows some people have no morals and their greed makes anyone who gets paid well for a job well done look like they are greedy also. A more than adequate for him would have been 1-2 million a year and a 10-20 million buy out.

Mike Schoenberg | Nov. 5, 2011
While a lot, this is nothing compared to a former CEO of Home Depot who over a 6-7 year period say the company shares fall by 50% and still walked away with $277 million.

Al | Nov. 4, 2011
Although everyone will agree that this payout is beyond excessive, Nabors knew it would take place at some point in time quite some time ago. I think it would be more than appropriate that he also leave the Board of Directors as his involvement would no longer be productive in that aspect. It will be nice to have some new direction for the company.

theredsuit | Nov. 4, 2011
If one were to look at all these CEO payout packages and ask "Why does the board of directors (BOD) approve this?". From my own experiences and observations working in a business environment; the answer somewhat lies in this: *puts on tinfoil hat* Most BODs are stacked with the CEOs of other companies and high caliber businessmen. The way this works is: "I scratch your back, you scratch mine". The members of the BOD when attending the BOD meeting for each company, vote each other massive pay packages, massive bonuses, and on top of that, massive exit packages as seen in the article. Of course this must all come with approval of the shareholders, generally of which the majority share holders are of the same guys that make up BODs, so of course they're approved. And we all wonder why its so damn expensive to get a rig now. Its not the crew thats costing you, its the guy at the top running the show. I mean taking a third (1/3) of the companys 2010 revenue on his exit package and no real hit on the companys stock value is beyond amazing but also possibly shows where the majority of the shares lie. You're best chance of reaping the same rewards is to get educated(some may argue this, but check the credentials for most top CEOs), work hard, and work your way into a position where your "buddies" vote you your wage.

Dick | Nov. 4, 2011
Look out folks! The oil patch is cyclical. When the rig count hits the numbers it did in 1999, you will wish those non-core businesses were still in the fold. Isenberg earned that money. If you dont think he did you ought to quit the whining and elect a new board so when Petrello divests Nabors down to its "profitable areas" and you are letting your 20,000 rated rigs at $5M a day, he wont be getting a $100MM payout when he gets the boot.

Phil Miller | Nov. 2, 2011
A 2 dollar an hour raise for rough necks would have cost less than 1% of this and I am thinking the return for investors might have been greater. Just sayin.

Warren Oxner | Nov. 1, 2011

james zarychta | Nov. 1, 2011
Something has gone wrong, he is getting more compensation then a professional sports figure. James Zarychta 11-1-11

david | Nov. 1, 2011
Business as usual!!!! Fricken shameful!

Joe Oliver | Nov. 1, 2011
I think this is so out of whack that it should be investigated by SEC. $750 Million for 29 years of service, what a joke.

Kirby Arceneaux | Oct. 31, 2011
He should distribute half of it to the people who helped him build the company. No one is that valuable. KA

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