In today's era of over-inflated CEO compensation, a $1 CEO can garner plenty of attention. Larry Page, John Mackey, and Meg Whitman all have received press for running huge companies for a buck a year. One of the lesser known $1 CEOs, Kelcy Warren, has quietly led midstream master limited partnership Energy Transfer Partners (NYSE: ETP) on that same annual salary. He prefers to be compensated the same way his shareholders are, by dividends and units in Energy Transfer and its general partner, Energy Transfer Equity (NYSE: ETE).
Getting paid
Warren's compensation is tied directly to the performance of these two companies. Though he receives no annual stock awards, he is currently the largest stakeholder in Energy Transfer Equity, holding more than 20% of the common units. Because ETE holds the general partner stake in ETP, Warren has an incredibly vested interest in the performance of ETP.
Warren volunteered to receive an annual salary of $1, plus the costs of payroll deductions and health and welfare benefits, which in 2011 amounted to $3,240. Make no mistake, because of his large holding in ETE Warren is a billionaire, but he will not create any headaches for investors over exorbitant pay packages.
Show ME the money
Instead of creating headaches for investors, Warren has been working to create value. Over the past four years, ETP has taken some flak for holding its distribution payout steady in favor of spending cash to grow the business. As a result of heavy spending on organic growth projects -- some $2 billion this year alone -- and none on distribution growth, units of ETP have languished and are down over 5% year to date.
Many analysts expect the partnership to begin increasing its distribution as early as 2013. Once that happens, don't be surprised to see investors flocking to ETP again. In the meantime, we will have to somehow make do with a steady 8% yield.
Looking ahead
Obviously, the reality of a distribution increase depends not on analysts hopes and dreams, but on Energy Transfer Partners' ability to secure additional distributable income. The partnership has really pushed to develop its portfolio, both through the organic growth projects mentioned above and acquisitions.
Integrating assets can prove challenging, but Kelcy Warren and his management team have done it all before. ETP has successfully integrated eight major acquisitions since 2004. Warren has 25 years of experience in the industry, and while he has only been at the helm of ETP since 2007, COO Marshall McCrea has been with ETP since 1997, and that kind of tenure is important.
Here is a brief rundown of some of the recent changes Warren has spearheaded at ETP aimed at bettering the business and growing distributable income:
- The Sunoco (NYSE: SUN) acquisition: Expected to close by year's end, it adds crude oil assets to ETP's footprint for the first time.
- Citrus pipeline acquisition: ETP picked up a 50% stake in this pipeline via ETE's acquisition and the ensuing drop down. The line runs from Texas into Florida and represents a move to geographically diversify ETP's assets.
- Greater emphasis on fee-based business: ETP jointly acquired LDH Energy with Regency Energy Partners (NYSE: RGP) in May of last year. Fee-based contracts mitigate commodity risk, providing more reliable revenue streams.
- Push for organic midstream growth: Approximately $3 billion in announced projects since 2010. Most of them will come online by the end of this year.
As this new income begins to roll in, ETP will be positioned nicely to begin increasing its distributions again, as well as continuing to make smart decisions about growing its business.
Foolish takeaway
Merely accepting a $1 salary will not guarantee the success of your company, but it is very much a symbolic gesture that not every CEO is willing to make. Kelcy Warren has aligned himself firmly with shareholder interests, and I'm confident enough in his leadership and decision-making ability to head over to Motley Fool CAPS and give a thumbs-up to both Energy Transfer entities.
There is a lot of focus on the future of ETP's shareholder return right now. The company is not alone on this one -- click here to check out nine more companies with great dividends, handpicked by Motley Fool analysts.
