About Those Bonuses . . .

We're still waiting to see whether anyone is criminally charged in connection with the Deepwater Horizon explosion one year ago. A handful of people have been charged with filing fraudulent oil spill compensation claims, but so far, there has been no charge resulting from the criminal probe of the event that triggered the spill.

One of the companies involved, Transocean Ltd., on April 1 published its 2010 annual report and related proxy statement, in which the company said it paid safety bonuses to its executives for achieving the best safety performance in the company's history during 2010. This section from the statement explains why they were paid:

"As a direct consequence of the Macondo Incident, we were forced to revise our short-term business priorities and expand our focus to protect the immediate and long-term interests of our Company. In addition to the activities described above, we accomplished the following:

  • maintained close contact with our customers in the Gulf of Mexico and elsewhere to keep them informed and to minimize any potential impact on our contract backlog;
  • launched a proactive communication program with our employees to facilitate their continued engagement with the Company and to maintain their focus on running safe and efficient operations for our customers;
  • conducted a thorough review of our safety protocols, including additional emphasis on safety training and drills for our offshore personnel;
  • worked with our banks, insurers and other financial institutions to maintain our reputation as a credible investment grade organization; and
  • notwithstanding the tragic loss of life in the Gulf of Mexico, we achieved an exemplary statistical safety record as measured by our total recordable incident rate ("TRIR") and total potential severity rate ("TPSR"). As measured by these standards, we recorded the best year in safety performance in our Company’s history, which is a reflection on our commitment to achieving an incident free environment, all the time, everywhere."

Update: Apparently responding to widespread criticism of the bonuses, President/CEO Steven L. Newman announced April 5 that he and the other four executives were donating their safety bonuses, amounting to more than $250,000, to the Deepwater Horizon Memorial Fund, which Transocean created last year. "The executive team made this decision because we believe it is the right thing to do," Newman said. "Nothing is more important to Transocean than our people, and it was never our intent to diminish the effect the Macondo tragedy has had on those who lost loved ones. We offer our most sincere apologies and we regret the impact this matter has had on the entire Transocean family."

A section of the statement titled Safety Performance says Transocean's Executive Compensation Committee weights the TRIR and TPSR rates equally when measuring the company's safety performance. The TRIR goal for 2010 was 0.73 recordable incidents per 200,000 employee hours worked. The statement says TPSR is a proprietary safety measure the company uses to monitor the total potential severity of incidents, where each incident is reviewed and assigned a number based on the impact it could have had on Transocean's employees and contractors; the total of the numbers is the TPSR.

"The Committee set our TRIR target for 2010 at 0.73 and our TPSR target at 38.0," it states. "For TRIR, achievement of this target would reflect a 5% improvement over 2009 actual results. For TPSR, the target set for 2009 was maintained as the target for 2010, as 2009 actual results fell short of the 2009 target by 9.6%. Achieving performance at the target levels would result in the Named Executive Officers receiving a payout of 100% of the target bonus amount for this performance measure.

"Based on the foregoing safety performance measures, the actual TRIR was 0.74 and the TPSR was 35.4 for 2010. These outcomes together resulted in a calculated payout percentage of 115% for the safety performance measure for 2010. However, due to the fatalities that occurred in 2010, the Committee exercised its discretionary authority to modify the TRIR payout component to zero, which resulted in a modified payout percentage of 67.4% for the safety performance measure."

Transocean, the largest offshore drilling contractor in the world, will hold its 2011 Annual General Meeting on May 13 in Cham, Switzerland. In their letter to shareholders in the annual report, Chairman Robert E. Rose and Newman said the "Macondo Well Incident" reduced 2010 net income by more than half, to $961 million, but cash flow from operating activities remained strong. They said they've ordered a newbuild rig that can drill in water depths up to 400 feet and construct wells 30,000 feet deep, and it will be named Transocean Honor in tribute to the 11 workers on the Deepwater Horizon who were killed.

Posted by Jerry Laws on Apr 05, 2011