Nabors Industries: Anything but Neighborly

Nabors Industries (NYSE: NBR  ) shareholders must be seeing red right now. Chairman and Chief Executive Officer Eugene Isenberg has been relieved of his CEO post, and he's due to receive a $100 million payout after his ouster triggered a clause in his contract. But in a weird twist, Isenberg isn't even entirely leaving the company. He'll continue on as chairman, so this isn't even a regular severance situation.

It's like having a golden parachute when you never even had to jump out of the plane.

Believe it or not, Isenberg's previous goodbye package was supposed to be even more lucrative at $264 million, but it was reduced after shareholders objected several years ago. In addition, had Isenberg voluntarily retired or vacated the post, he wouldn't have been eligible for the $100 million.

There's no excuse for any of this, since Nabors Industries hasn't been a performance powerhouse. Nabors' stock price has dropped 19% in the last year, and it's underperformed the S&P for a decade.

Dig around Nabors' numbers and there are warning signs of less-than-stellar long-term corporate performance. If you're looking for impressive compound annual growth rates over the last five years, forget it; Nabors' revenue has increased just 5% annually and net income shrunk at an annual rate of 16.6% over that time frame. Nabors' debt-to-capital ratio is an uncomfortable 76.4% in the last 12 months.

Let's put the payout in another perspective: Nabors only has $395 million in cash on its books. This isn't even a cash-rich company like Apple (Nasdaq: AAPL  ) or Google (Nasdaq: GOOG  ) we're talking about here. A big severance payment could sap a huge chunk of the company's available cash.

Nabors' goodbye package isn't making up for lost time, since Isenberg wasn't exactly hurting in the compensation department over the years. In 2009, governance experts The Corporate Library called out Isenberg as being one of the highest paid, worst performing CEOs of 2008. Nabors' compensation situation strongly mirrors outrageous pay at industry peers like Chesapeake Energy (NYSE: CHK  ) and Occidental Petroleum (NYSE: OXY  ) .

This is a slap in shareholders' faces. At Nabors' most recent annual meeting, 57% of shareholders voted against the company's compensation policies.

Shareholders have the board's compensation committee to thank. As of Nabors' latest proxy statement, John Lombardi, William Comfort, James Payne, and Martin Whitman comprised the compensation committee. Also note that shareholders voted in favor of policies that would help hold the board more accountable, including a majority vote standard for director elections and declassification of the board.

Nabors strikes me as a stock no individual investor should hold unless they're really spoiling for a fight through their proxy votes; shareholders have really gotten the shaft despite their clear displeasure with compensation policies and lack of commensurate performance. With friends like Nabors, who needs enemies?

Alyce Lomax does not own shares of any of the companies mentioned. The Motley Fool owns shares of Google and Apple. Motley Fool newsletter services have recommended buying shares of Apple, Google, and Chesapeake Energy, as well as creating a bull call spread position in Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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  • Report this Comment On October 31, 2011, at 3:32 PM, griderX wrote:

    I'm not a shareholder and after reading this will never become a shareholder of NBR!

    What I found shocking in the WSJ is that the incoming CEO has a similar package but not as rich...it's disgusting that such packages EXIST in the first place...every CEO should be held accountable for their performance and companies performance not get a retirement package!

  • Report this Comment On October 31, 2011, at 4:18 PM, studentofthegame wrote:

    I don't own this stock either and never will. Nabors is the last drilling contractor to hire at any time and ranks last in customer satisfaction industry wide. The only time you pick up a Nabors rig is if you have no choice.

  • Report this Comment On September 19, 2012, at 9:08 AM, theghost284 wrote:

    What you don't know is even though Isenberg was voted one of the top paid CEO's in 2008, his entire salary for the past 10 years has gone directly into the "Isenberg College fund".

    This fund is for Nabors employees and their families to attend college. Sounds pretty generous to me. Oh, and as a follow up, he did not take his $100 Million severance.

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