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A Rare Win for Say on Pay

Nabors Industries’ (NBR) announcement that its former CEO agreed to waive a $100 million termination payment was a rare win for shareholders, who experts say often gripe about excessive compensation but rarely act.

Under pressure from shareholders, who voted against Nabors’ pay packages and directors in a recent proxy voting, the oil drilling company said this morning that former CEO Eugene Isenberg will waive the huge payout. Instead, his estate will receive a payment of $6.6 million plus interest upon his death. “Isenberg has more than enough money. So having him defer this $100 million is a good thing for shareholders,” says Stephen Ellis, a Morningstar equity analyst.

In recent years, compensation has become a lightning rod for criticism from investor advocates, who say poorly designed pay policies often give executives the wrong incentives. Instead, shareholders want to see management paid for performance, says Jesse Fried, a professor of law at Harvard University. Nabors’ $100 million payment was a perfect example of “pay for failure,” he says. “There’s a lot of things that are wrong with pay practices in the United States, but this was particularly egregious, so it’s not surprising it drew shareholder anger,” he says.

This case also proves that shareholder outrage has an impact: Boards pay attention, and companies do change their policies, Fried says. “Pressure matters, and investors shouldn’t feel shy about applying it,” he says.

Thanks to the Dodd-Frank financial reform bill, and to the recession, investors are now paying more attention than ever to compensation issues, says Michael Littenberg, a partner at Schulte Roth & Zabel LLP who focuses on corporate governance issues. The Dodd-Frank bill required annual (though non-binding) say on pay votes, and companies do take those votes very seriously, because a few companies whose pay policies haven’t passed muster have been sued by shareholders, Littenberg says.

But investors aren’t taking as much advantage of this new power as some had hoped (or feared). Last year (the first with the new say on pay rule in place), shareholders voted down pay policies at only 36 companies in the Russell 3000, or 1.6%, although roughly another 350 companies saw their policies pass with low enough votes that they’d be considered at risk for a “no” vote in the future, Littenberg says.

Nabors is one of the few companies that has suffered a “no” vote on its pay practices, according to Governance Metrics International, an independent research firm. “We have long rated Nabors poorly, because of concerns over poor compensation practices,” including “a bonus formula rarely seen in modern practice with no measure against a peer group,” says Greg Ruel, a research associate with GMI.

Many companies that see “no” votes or worryingly low “yes” votes do make some changes, but they don’t always change the actual pay policy, Littenberg says. Some companies might try to better explain how pay is determined, or simply sit down with institutional shareholders to figure out what’s most important to investors, he says. Of course, individual shareholders aren’t privy to those conversations.

All observers agree that Isenberg had long enjoyed an unusually lavish compensation package. He was “extraordinarily well paid,” in part because of an unusual compensation plan that was put in place back in 1987, when he took on the CEO role to lead the company out of bankruptcy, Ellis says. His contract with the company entitled him to a cash bonus of 10% of any amount of the company’s cash flow that exceeded 10% of average shareholder equity. This arrangement made his pay work more like a hedge fund manager’s than like a typical CEO’s, Morningstar’s Ellis says.

Since the current CEO, Tony Petrello, took over, the company has taken some other steps that show it’s responding to widespread shareholder anger over pay practices, Ellis says. They’re now going to allow their board of directors to be elected by a majority instead of a plurality, making it easier for shareholders to vote out directors they’re not happy with, and hold annual “say-on-pay” votes. However, Petrello is still being paid in a similar hedge-fund-like fashion, getting a percentage of cash flow above a certain benchmark, and while the recent shareholder-friendly moves are good signs, it would certainly be better for investors if the company got rid of this unusual pay policy, Ellis says.

A spokesman for the company said that Isenberg, who holds more than 8 million shares of Nabors, decided that waiving the payment was best for his fellow shareholders, and that the company views the decision as “positive,” but declined to comment on whether any other changes would be made to pay policies in the future.

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      Moving from ClearCase to Mercurial — practical implications
      Moving from ClearCase to Mercurial — practical implications
      Dilip M
      dilipm79 at gmail.com
      Mon Feb 21 01:17:44 CST 2011
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      Hi Chris,
      Thanks for posting your inputs here…it helps…:)
      On 2/18/11, Chris Scott <Chris.Scott at mmodal.com> wrote:
      >> Isn’t it best to keep all things that depend on each other in one
      >> repository? If there is some tight coupling between two software
      >> modules, I’d say to keep them in one repository.
      >> Of course, if two modules are independent (e.g. generate a different
      >> build product) then splitting them to different repositories could be
      >> acceptable.
      >> One of the reasons for this viewpoint is that you have less chance of
      >> getting an inconsistency between your repositories.
      >>
      >> Or am I viewing this the wrong way?
      >
      > tl;dr: It’s better and easier to break big projects into small ones. Using
      > an artifact management system mitigates much of the binary/large file pain.
      >
      > —
      >
      > I’ve been waiting to chime in here because my company (who fortunately I can
      > name – MultiModal Technologies Inc.) completed a ClearCase to Mercurial
      > transition. I’m putting together a longer document of our transition
      > experience, but that was taking a bit more time than I initially anticipated
      > so I’ll just add a few short(er) notes now.
      >
      > Background: we had a dozen VOBS (version object base, clearcase speak for
      > repository) ranging from 1/2 gig to around 20 gigs in size. There was a
      > *lot* in there, and every operation (especially merges and release builds)
      > took *very* long. Basically, it was a huge effort to do simple things, and
      > herculean for harder things.
      >
      > Obviously we had some of the same problems as are being discussed here:
      >
      > * HG in its distributed nature doesn’t scale well with very large repos.
      > Don’t get me wrong, it works, but it’s not optimal to pull down 20 gigs on a
      > new clone.
      > * How do we work with large binary dependencies and resources?
      >
      > The answer to these questions was two-fold:
      >
      > 1. Break every individual project (every .exe, stand-alone .dll/jar/lib or
      > server project) into its own repository
      > 2. Invest in a dependency management tool to host both internal builds and
      > external dependencies
      >
      > The reasoning is as follows:
      >
      > * With smaller projects, there are less "blind" merges (from different
      > projects with 100% different files) and it is much easier to review
      > particular projects. The tree graphs are simpler and easier to follow.
      >
      > * Smaller repositories = faster hg status, hg cloning, etc.
      >
      > * Project interdependencies have to be explicitly defined instead of
      > assumed. Inadvertent coupling goes down and orthogonality goes up.
      > Projects are easier to reuse.
      >
      > * Instead of just checking in 3rd party libs into our "external" VOB, we
      > use artifactory + ivy to explicitly state and manage dependencies. This
      > alone got rid of an entire VOB (our "external" VOB), that was several tens
      > of gigs.
      >
      > * There are very few, non-artifact (artifacts being the result of some
      > build process), non-3rd party library large binary files in our source repo.
      > We do have a few very large data files, but those are small in number
      > enough to segment in its own repository.
      >
      > * Since we have dependency management for external libs, we get dependency
      > management for internal projects for "free". Thus if project C depends on A
      > and B, we can get prebuilt known-good QA’ed versions of A and B. This can
      > *drastically* reduce build and patch times, since we don’t have to rebuild A
      > and B. Patches can now be down in as little as 15 minutes instead of a
      > whole day!
      >
      > * The rule-of-thumb is, "if it doesn’t diff, then don’t put it in source
      > control". Meaningful diffs are the cornerstone. For course with have
      > binary icons/images, etc., but those tend to be small in number and
      > relatively small in size (<1Mb)
      >
      > * Incorporating automated continuous builds once the above were in place
      > was easy.
      >
      > * The project break doesn’t need to happen all at the same time. hg
      > convert with a filemap makes it painless to break smaller pieces out of a
      > big repo when it’s ready
      >
      > In practice, separating projects wasn’t all that hard, and was well worth
      > the benefits. Maintaining 20 repos is around the same level of effort as 1.
      > You may pay a hit if you’re doing client-side hooks for everything, but
      > it’s not all that hard. This approach worked very well across languages and
      > platforms as well. A full build incorporates C++, Java, .Net, and a
      > sprinkling of python and groovy on multiple operating systems.
      >
      > I have a lot more notes on the actual mechanisms of moving (e.g. we only
      > took stable history snapshots from CC, instead of a more sophisticated
      > history import; it turns out we don’t miss the old history much. how did we
      > handle ‘source’ dependencies like headers) that I plan on posting later.
      >
      > ~Chris
      >
      >
      >
      > _______________________________________________
      > Mercurial mailing list
      > Mercurial at selenic.com
      > selenic.com/mailman/listinfo/mercurial
      >

      Sent from my mobile device
      D<M
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    • Correction, Nabors stock returned almost 10x more than the S&P500 after Eisenberg took it out of bankruptcy.

      This guy was a bargain at $100mn. I’ll hire his ghost for the same if it could give me just half the performance.

    • “Nabors’ $100 million payment was a perfect example of “pay for failure,” he says.”

      Nabors stock returned more than twice the S&P500 under Eisenberg since 1987. It outperformed during the last five years and last decade. All done in an industry famous for big booms and busts that Nabors exploited.

      Was this performance an oversight? Context matters.

      If attempting to exhibit overpaid CEOs, of whom there are innumerable, this example is entirely unconvincing—it’s backfiring. Give me another Eisenberg for the next couple decades and I’ll give her a $200mn goodbye kiss, too.

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