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It should be three strikes and you're out.
Nabors Industries (NYSE: NBR ) claims that it listened to shareholder concerns about its executive compensation and used those critiques to reformulate its compensation structure. However, for the third year in a row, it failed to gain majority shareholder support for its executive compensation.
Also, shareholders again voted on a shareholder proposal pushing Nabors to clear future severance agreements above a certain threshold with shareholders. While that proposal didn't pass this year (as in 2012), it received 45.9% shareholder support. In fact, more shares voted in favor of the proposal than against it. However, including broker non-votes and abstentions in the final tally tipped the balance against the proposal's supporters.
The shareholders have spoken -- repeatedly. It remains to be seen, however, whether the board will finally give shareholders what they want.
Outrageous compensation at Nabors
I believe shareholders are right to balk at Nabors' compensation decisions.
For starters, shareholder concerns about severance packages didn't come out of left field. When he left the CEO position, board Chair Eugene Isenberg was granted a $100 million severance. While Isenberg later forfeited the payment, the board defended the initial severance by claiming that its payments are "paid pursuant to binding contractual agreements," giving shareholders reason to worry that the board may make mistakes in the future that require them to make similarly outrageous payouts.
And that's not the only concerning compensation decision approved by Nabors' board. The SEC was suspicious enough of Nabors' decision to allow directors and executives significant personal access to company aircraft that they chose to investigate. And as is observed by corporate-governance expert Nell Minow's organization GMI Ratings, companies with the highest personal jet use costs often display other red flags associated with their compensation and accounting systems, including pay packages that lack sufficient performance requirements.
The Foolish takeaway
I hope shareholders' continued disapproval of Nabors' executive compensation, along with their repeated calls for more control over decisions about compensation, sends a strong message to Nabors' leadership. With the incorporation of two new board members in response to pressure from major shareholder Pamplona Capital Management, there may be more of a push for governance revisions that are more hospitable to shareholders. Without a clear sign that these changes will happen, however, I believe investors would do best to avoid the stock.