HOUSTON — Oil-field-services firm Nabors Industries said it will launch an additional review of its executive stock-option program after a newspaper report Dec. 27 raised questions about the propriety of grants made to its top officer.
Although Nabors said an internal review of its stock-option program earlier this year turned up nothing, it is initiating a “further” review “as a result of issues raised in today's Wall Street Journal,” the company said in a prepared statement Dec. 27.
Over time, Nabors has awarded chief executive officer Eugene Isenberg more than 25 million stock options, a windfall that has helped him take home $450 million in the last 19 years and made him one of the highest paid corporate executives in history, the Journal report said.
The world's largest onshore oil and natural gas driller, which is based in Bermuda but run from Houston, doled out some of the stock options to Isenberg as a reward for boosting the firm's stock price through the years. But it also took some controversial steps that jacked up his pay even higher, the Journal report said.
Among them: Nabors allowed Isenberg to trade in some options and replace them with new ones at lower prices after a drop in the company's share price made them worthless, the paper said.
But Nabors officials deny any suggestion that the company “backdated” Isenberg's stock options to ensure his grants paid good returns.
In a still unfolding corporate scandal, many U.S. companies are now under investigation for backdating stock options, or claiming a grant was issued earlier than it really was and at a more favorable price.
After disclosures about stock-option granting practices at other companies, Nabors said it undertook a “precautionary” internal review earlier this year of the company's stock-option program dating back to 1998.
“That review did not suggest there was reason to question the propriety of the company's option-granting practices,” Nabors said in its statement. But the company nonetheless reopened the investigation. And at least one major Wall Street firm did not seem spooked by the company's move.
Standard & Poor's issued a statement saying the additional internal review would not affect Nabors' credit rating. However, it warned it would include the company's option-granting practices in a larger review of the firm at a later date.
Meanwhile, investors were mostly indifferent to the news, sending Nabors' stock price up almost 1 percent to close at $30.53 per share Dec. 27.
Dennis Smith, a Nabors spokesman, declined to comment about the scope or timing of the additional review of the stock-option granting program.
But in the Journal story, he said the company is discussing a restructuring of Isenberg's future pay arrangement.
For several years running, Isenberg has been among the highest-paid executives among public companies in Houston.
In 2005, he topped the list, taking home $45.6 million, almost triple his $15.7 million pay package the previous year, according to an annual Houston Chronicle list. The pay includes salary, bonuses and long-term incentives like stock options.
Such whopping payouts have given stock options a bad name and made executive compensation a bigger focus of regulators and corporate governance advocates in recent years.
Brent Longnecker, an executive compensation expert in Houston, said stock options can be a useful tool to retain top talent. Yet firms must continually evaluate their programs to ensure they are doing what they're intended to do.
“Are you truly administering them in alignment with shareholder interest?” he asked. “Or are you just trying to make an executive rich?”
