Consequences: BP's CEO Should Get No Pay This Year
His 2009 compensation, which was 41% above 2008, was given for, among other things, hitting safety and cost-reduction targets. These may have set the stage for the deadly Apr. 20 explosion on the Deepwater Horizon rig that caused the worst oil spill in U.S. history and one of the worst environmental calamities ever.
The Board Should Be Replaced, Too
The board of directors failed to hold Hayward accountable. Where was Carl-Henric Svanberg, who became BP's chairman in January and was paid 750,000 pounds ($1.1 million)? He failed to manage Hayward and should go, too. His remark yesterday about BP's desire to help "small people" (he subsequently apologized) only underscores how ill-suited the Swede is for the job. The board should be replaced as well.
Hayward's salary and those of his top executives may come up today in Congressional hearings. Critics have accused the U.K. company of placing profits before safety. His opening statement did not explain what went wrong on the Deepwater Horizon. The hearing will be a bloodbath because of Hayward's own thoughtless remarks, which have rubbed salt in the wounds of Gulf Coast residents.
Hayward's shoot-from-the-hip style was seen as an asset before the spill. Now, it's a liability. While BP has hired an army of public relations consultants, they may not be able to do much good. All of the public relations in the world won't make Hayward seem like less of a jerk. Masters of spin don't have magic wands.
BP Beat 2009 Cost-Cutting Targets
Before the spill, BP had the wind at its backs. It managed to boost production at a time when output at its rivals fell. The U.K. company even outproduced ExxonMobil (XOM) for the first time. BP's board of directors ignored the 22% decline in 2009 net income because it outperformed rivals. At the time, BP expected to increase profitability by an annual $3 billion over the next three years after beating its 2009 cost-cutting targets.
"In a volatile year for the world economy, the BP executive team produced excellent results," DeAnne Julius, chairman of BP's remuneration committee, said in a statement. "While salaries were frozen for all directors in 2009, the variable performance-related pay reflected the impressive achievements of the year."
Julius, an American-born economist who heads the British think-tank Chatham House, declined through a spokeswoman to comment. Clearly, she did not know what she was talking about. BP had the worst safety record in the industry. The company was found at fault for the deadly 2005 accident at its Texas City, Tex. refinery. In 2009, BP was fined a record $87 million for "life-threatening" safety failures at the plant. BP spent $250 million replacing 16 miles of leaking pipeline that caused an oil spill in Alaska in 2006. Congress then accused BP of cutting costs at the expense of safety.
Bonus This Year?
Interestingly, Hayward headed BP's exploration and production business, becoming CEO in May 2007 when he promised to focus on safety. One of the best decisions he has made was agreeing yesterday to fund a $20 billion escrow fund to pay for restoration efforts. Getting a raise this year, though, will be difficult.
Sheila Williams, a BP spokeswoman, says in a brief interview: "Certainly, the bonuses for 2010 won't be decided until the end of 2010."