Cheniere CEO, despite ouster, got $54 million

At some companies, a bad year for shareholders and workers still meant a good year for chief executives.

The liquid natural gas exporting company Cheniere Energy lost nearly $1 billion in 2015 and its stock price fell by half, to $37 from $70.

But Chief Executive Charif Souki, who was forced out of his post in December, walked away with a stock-based award worth almost $54 million, seven times what he earned in 2014.

Nabors Industries, one of the largest oil drilling companies in the country, lost $373 million in 2015. Its revenues fell by more than 40 percent, to $3.9 billion from $6.8 billion, and its stock price dropped by more than one-third, to $9 a share from $13.

But Chief Executive Anthony Petrello’s pay almost doubled, to $27.6 million, including $16.9 million in stock awards.

C&J Energy Services bought Nabors’ well production and completion businesses shortly before oil prices peaked in 2014, an ill timed deal that cost the company $1.5 billion, loaded it with debt, and contributed to losses that reached almost $900 million in 2015.

The company’s stock plunged to less than $5 a share, from about $13, but the board more than doubled the pay of chief executive Josh Comstock to $13.5 million — including $9.1 million in stock.

Comstock died from acute bacterial pneumonia in March. The company filed for bankruptcy in July.

Representatives from Cheniere, Nabors and C&J didn’t respond to requests for comment. Cutting back

Executive pay remains one of the most contentious issues in business and politics, a symbol in the debate over income inequality, the direction of the economy, and how both pain and prosperity are shared in modern society.

Executive compensation typically comprises a complicated mix of salaries, cash bonuses, stock awards and perks — from health club memberships to use of corporate jets.

It is usually based on an equally complex mix of performance measures and comparisons to what peers in similar companies are earning.

Cash incentive pay, similar to annual bonuses, fell an average by $118,000 per executive between 2014 and 2015, according to the Longnecker data.

Executives also lost about $200,000 on average in corporate perks — club memberships, auto stipends, the personal use of corporate jets, and rich retirement plans.

Some consultants said those pay cuts are a sign that executive compensation does respond to changing business conditions.

As oil prices tanked, boards of local energy companies chopped end-ofyear incentives. “It’s pay for performance,” said Longnecker President Chris Crawford. “And it’s working.”

Up to a point. For most of Houston’s top executives, the value of new stock awards more than made up for the losses in these other areas of compensation, according to the data.

Stock awards are granted to executives as longterm incentives, tying the executives’ personal interests to their companies; if the company does well over the long term, so do the executives.

In the oil and gas industry, stock awards are often linked to measures such as the prior year’s oil production.

And, because oil production remained high through 2014, stock awards rose last year, too — on average by 23 percent, from $1.5 million in 2014 to $1.9 million last year.

Now, with the industry struggling under a glut of oil, companies have rethought production-based incentives, Crawford said. This year, companies are using different markers, such as cash preservation, balance sheet health and debt management.

“A lot of companies recognized, ‘Gosh, we may have missed the mark on our measure,’ ” Crawford said. “I just don’t think anybody fully anticipated the depth of the downturn.” Stock option bounties

Energy companies employed the 10 highest-paid Houston executives in 2015. They made up 19 of the top 20 slots; 43 of the top 50.

And energy companies had a rough year. Oil prices peaked at $107 a barrel in the summer of 2014, and then started to slide. By the start of 2015, they’d slipped under $53, recovering a bit in the summer, but ultimately plunging below $37 a barrel by the end of the year.

Some analysts estimate the oil bust has cost Texas more than 100,000 jobs in oil production and services — one-third of the state’s energy workforce and nearly all of the jobs added in the shale oil boom that began in 2010.

Over 2015, the impact spread to the Houston economy. Job growth stalled. Total wages fell nearly 10 percent over the year, from $48 billion in the last quarter of 2014 to $44 billion over the same period last year. Retail sales slipped 9 percent, from $29 billion to $26.5 billion. Office vacancy rates rose; topshelf apartment occupancy slid.

Executive pay, however, has kept climbing, although not in a straight line. The top 500 executives averaged $3.1 million in total compensation in 2010. Averages peaked in 2013 — arguably the height of the shale boom — at $4.1 million, dipped in 2014 by $500,000, or 13 percent, to $3.6 million, and then rose again last year by a hair.

Compensation consultants point out that Cheniere’s $54 million payout to Souki, its departing CEO, skewed the averages. They also note that stock awards — the very benefit that buoyed executive pay last year — aren’t worth much if the company’s stock price tanks, regardless of the value placed on them in regulatory filings.

“Many of the stock awards don’t pay out anything if the stock price doesn’t appreciate,” Crawford said.

“The wives and husbands of these top executives are going to read the paper and they’re going to say, ‘Honey, this is not what we realized in pay.’ ”

For instance, Bob Patel, chief executive of LyondellBasell Industries, one of the world’s largest plastics and refining companies, got a 600 percent raise last year, rising from $3.3 million as a vice president to $24 million as chief executive — nearly twice as much as his predecessor, James Gallogly.

Patel was the third highest paid among Houston CEOs.

But Patel’s pay included a one-time grant of stock awards and stock options worth $12 million, given for his promotion, that vest over five years. If Patel leaves after a year, he only gets 15 percent of the pay. And if the company’s stock doesn’t increase in value, the stock options aren’t worth anything.

“Mr. Patel’s actual compensation,” a spokeswoman wrote in an email to the Chronicle, “may differ significantly over time.” Some progress

Federal regulations enacted since the 2008 financial crisis are helping bring corporate pay more into line with company perfor- mance, several consultants said.

The Dodd-Frank act, for instance, gave shareholders an advisory vote on their company’s compensation.

And while that vote has no direct authority over a company’s board, shareholders have used it as a bully pulpit, demanding that directors better link executive pay to production, revenues, profits or stock prices.

Boards have done a little more each year, consultants said, as directors aim to avoid shareholder wrath and media scrutiny.

But Edward Lawler, a business professor at the University of Southern California, said there’s not much evidence that CEO pay is very well tied to company performance.

Stock prices, for example, are a key driver of executive pay — but shares don’t necessarily follow company earnings as they rise and fall and can be pumped up by executives through measures such as stock buybacks, even though they may hurt longterm profits.

Lawler said study after study has demonstrated the missing connection between pay and profits.

“I just don’t think we’re in an era or heading into an era where we see much correlation between earnings and executive compensation,” said Lawler, who runs the Center for Effective Organizations, a management research wing of the USC business school.

At the same time, Lawler and other specialists are rethinking the long-held notion of measuring company and executive performance by stock prices.

Zhang, the Rice University professor, said some companies have smartly rewarded chief executives for the amount of money the company spends on capital investment — a factor that can help businesses maintain existing operations, expand facilities, and add new technology and equipment to stay competitive in the future.

Recessions give healthy companies great opportunities to expand, she said. But smart executives grow cautiously during economic booms.

As a result, Zhang said, boards of directors should examine company efficiency in those halcyon years. Because, when the boom ends, flabby operations will have to trim spending and lay off employees.

“We need to think twice about the practice of payfor-performance,” Zhang said.

“It looks good on paper, but it doesn’t make sense all the time.”