Transocean - They're Out of Their Depth

I found this little gem in the Globe and Mail on Tuesday May 4th . It is one of those page 13 stories that peaks my interest because no journalist ever seems to follow up on the whole story. Sometimes we accept what the mainstream media tells us because we simply don't have the time, energy or resources to get the story behind the story. This is a case where the story behind the story tells a lot about the lead character.

As backup, Transocean is the world's largest offshore drilling contractor. They have over 18000 employees with nearly 140 drilling rigs. They are headquartered in Switzerland and Houston Texas. I found it rather interesting that the world's largest offshore drilling contractor is headquartered in Switzerland, a land-locked country, but that's a discussion for another time.

Now that they've been at least partially responsible for the ecological debacle in the Gulf of Mexico, Transocean Ltd., the owner of the Deepwater Horizon rig that burned and sank in the Gulf has done some PR work of their own in an attempt to make the deaths of 11 of their workers and untold numbers of sea creatures seem more palatable to the general public. Their corporate spokesman Guy Cantwell informed the media on Tuesday that Transocean had eliminated the 2009 bonuses for their executive team ““to underscore the company's commitment to safety” after four workers died in accidents in 2009.

Here's a quote telling us just how it was in 2009 from page P-38 of Transocean's 2009 Proxy Statement and Annual Report.

"Actual Bonus Plan Compensation for 2009

Based on the performance measures outlined above, each of our named executive officers would have received 30.7% of his targeted bonus plan compensation opportunity in 2009. However, during 2009, we incurred four fatalities with varying causes in varying regions around the world. As a result, the Committee used its discretion and set the actual Bonus Plan award to $0 for all executive officers, including named executive officers. The Committee took this extraordinary action to underscore the Company’s commitment to safety and to increase the incentive for executive officers to promote the goal of an incident-free workplace and, in particular, the avoidance of future fatal accidents." (my bold)

It is just so reassuring to think that those at the top of the executive heap in any corporation would make personal sacrifices for the betterment of their company and their employees.

But wait just one minute.

If you actually dig a little below the surface, and fortunately, you can do this quite easily, you will find that while what Transocean has said about executive bonuses is technically true, their management team is hardly suffering from poverty.

Up until he retired on March 1, 2010, Robert L. Long had been Chief Executive Officer of Transocean Ltd. for nearly 8 years from October 2002. He had a long history of growing executive responsibilities for the company so he was likely deserving of the title of CEO. The position of CEO has now been taken over by Stephen L. Newman. Now let's look at Mr. Long's bonuses over the years. For those of you who don't mind scanning through pages of mind-numbingly boring Annual Reports and Management Circulars, you can find the original documents here. For those of you who don't care to do the digging, I'm getting the data from Transocean's 2009 Proxy Statement and Annual Report.

In 2007, Robert Long received a "Non-Equity (i.e. cash) Incentive Plan Compensation" of $2,158,002 which decreased to $918,611 in 2008 and then, as advertised, to $0 in 2009. Fair enough, he really did take a bonus haircut. Poor (literally) fellow

But what Transocean failed to advertise was the following that appeared on Page P-48 of their 2009 Proxy Statement and Annual Report:

Notice how Mr. Long's total compensation package went from $10.6 million in 2007 to $13.1 million in 2008 and then to $15.2 million in 2009, despite the fact that the executive team had determined that Transocean's safety record did not pass their own moral guidelines!

If you do a little more mind-numbingly boring digging, you also find that, effective March 1, 2010, Mr. Stephen Newman, the new CEO is in line for a raise of $900,000 in 2010. Transocean's other Executives are in line for raises ranging from $392,000 to $450,000 annually. Wow, that's even more than Canada's much vaunted Senators make!

It will be interesting to see, in light of the death of 11 of their workers, whether the Executive team takes a pass on their 2010 raises AND their bonuses again. Not to worry though boys, I don't think you'll need to worry about ending up living on the streets of Houston.

...and just in case you're interested, Transocean has 2 rigs in Canadian waters.

References:

http://www.theglobeandmail.com/report-on-business/gulf-rig-owner-had-safety-concerns/article1556632/