The Rich Get Richer…
Fortunately for James Mulva, COP’s CEO during the 2011/2012 stock buyback era, his overly generous compensation is beyond COP’s ability to reclaim. Mr. Mulva retired in June of 2012 after repurchasing approximately 20% of the company’s outstanding shares. Upon retirement he received a $260 million golden parachute from the company. That was on top of $141 million in total compensation he received in 2011.
The board of directors and shareholders must have been enamored with Mulva’s performance despite poor earnings trends in his final 2 years. From 2011 to 2012 the company earnings per share fell 25% from $8.97/share to $6.72/share. Had the board factored in the effect of buybacks on earnings per share when determining Mr. Mulva’s compensation, they would have realized that earnings per share were actually 40% lower at $5.37 per share.
We provide the following snippets written in regard to James Mulva to better gauge the potential motivations behind the tremendous stock buyback program.
“The vast majority of Mulva’s compensation that he earned during his long and successful career as an executive remained in the form of company stock at his time of retirement,” Aftab Ahmed, a spokesman for ConocoPhillips, said in an e-mail. – (New York Times – Pradnya Joshi – 6/30/2013 from Golden Parachutes Are Still Very Much in Style)
This isn’t the first time Mulva put himself before the interests of others. Consider ConocoPhillips (COP). In January, CEO James J. Mulva cut 4% of the Houston oil giant’s workforce. Two months later the company announced that Mulva had earned $29 million in 2008, on top of nearly $100 million he had made in the two prior years. In Bartlesville, Okla., where a chunk of the layoffs hit, many are still looking for work. The fact that Mulva took a $10 million stock grant in 2008 instead of the $38 million he got the year before hasn’t been much comfort to former employees there, some of whom lost their homes. Conoco did not respond to repeated requests for comment. – (Bloomberg Businessweek – Jena McGregor and Nanette Byrnes – 8/26/2009 from CEO Pay: Is It Still Out of Sync?)
Summary
While the financial media cheers stock buybacks, we continue to harp on the topic and hope others take notice. It is vital, not only for investors but the public at-large, to understand the tremendous harm already caused by corporate buybacks and the potential for further harm down the road. Unfortunately, ConocoPhillips is not an isolated case. Hess Oil, for instance, just sold 25 million shares at $39 per share to improve their capital position. Sadly for Hess shareholders, many of whom likely supported stock buybacks, this shareholder dilution was unnecessary had Hess not bought nearly 63 million shares at a price of nearly $60 per share in the 3 years prior. Money that could have been spent spurring future growth for the benefit of investors was instead wasted only benefitting senior executives paid on the basis of fallacious earnings per share.
As stock prices fall, companies that performed un-economic stock buybacks are now finding themselves with financial losses on their hands, more debt on their balance sheets, and fewer opportunities to grow in the future. Equally disturbing, many CEO’s like James Mulva, who sanctioned stock buybacks, are much wealthier and unaccountable for their actions.
Thanks for reading.
Twitter: @michaellebowitz
The author does not have a position in any of the mentioned securities at the time of publication. Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.
