Updated from 2:09 p.m. EDT
( EP) has ended a crucial shopping trip with a big-ticket CEO.
Just a month after winning a nasty fight that left it in place to choose the company's next leader, El Paso's board selected
COO Douglas L. Foshee to lead a turnaround. Foshee, who spent most of his two-year Halliburton career as CFO, last held the top spot at
But he left the Houston oil minor in a dispute that could trouble shareholders at El Paso, which has been struggling with corporate-governance issues in the wake of a steep plunge in its stock. Investors who criticized the current board's compensation arrangements, among other things, were narrowly defeated in a fierce proxy battle last month.
While at Nuevo, Foshee refused to budge on the issue of executive pay, and in taking the El Paso job he accepted a package that appears more lucrative than the guidelines proposed by dissident shareholders. Nearly half of El Paso's shareholders have made it clear -- by voting for the frugal dissident camp -- that they favor cuts in the company's notoriously fat checks to management.
"The incumbent board ... was unprepared to commit to basic executive compensation reforms," the AFL-CIO complained last month as it joined with influential proxy firm Institutional Shareholder Services to endorse the dissident camp.
El Paso's stock, expected to bounce with the CEO question answered, actually slid 8 cents, to $8.13, in the middle of Wednesday's session.
El Paso has promised Foshee the same base salary of $900,000 the dissidents suggested for their own CEO candidate, former Tenneco leader Steve Chesebro. But Foshee's compensation hardly ends there. He's entitled to a maximum target bonus of twice his annual salary, higher than the 150% bonus promoted by the dissidents. He will also receive an initial grant of 1 million El Paso stock options, more than double the grant backed by the dissident camp. And he's eligible for 300,000 restricted shares -- triple the dissidents' pledge -- if he meets performance targets.
It is "performance-based compensation that's in line with industry standards," said El Paso spokeswoman Norma Dunn. "We believe it is fair and appropriate for someone who is taking on the leadership role in a company of El Paso's size and stature."
In addition to his basic compensation package, Foshee will receive a one-time signing bonus of $1.75 million -- half of it in El Paso shares he must keep for two years -- to make up for money he would have earned through his contract at Halliburton. Foshee is leaving behind a $2.07 million-a-year job at the nation's second-largest oil services corporation to become the new head of troubled El Paso.
"El Paso has made great strides in the past six months, but I recognize that there is more to be done," Foshee said in a prepared statement Wednesday. "I am joining El Paso with a true sense of excitement about its future."
El Paso Chairman Ronald Kuehn, who stepped in as interim CEO after this year's ouster of highly paid William Wise, applauded his replacement.
"From the beginning of this search, our board was determined to select a world-caliber executive with strong energy experience and proven leadership qualities," Kuehn said. "Doug Foshee brings to El Paso the attributes of a great CEO."
But Foshee was not necessarily El Paso's first choice, some sources believe. In a story last week, citing headhunters and Houston energy experts,
didn't even mention Foshee as one of eight likely candidates for the El Paso post. David Arledge, the former president and CEO of Coastal -- a company founded by powerful El Paso dissident Oscar Wyatt -- was instead dubbed "the ideal candidate" by veteran energy analyst John Olson.
But a source close to the situation told
Wednesday that Arledge, who had an "exceptional" working relationship with Wyatt, had refused the offer from El Paso's incumbent board.
El Paso quickly dismissed all the speculation. The company insisted that Foshee "was on our top list all along" and said it never even offered Arledge the job.
Meanwhile, some critics are already starting to rumble about El Paso's final choice for CEO. Foshee became Halliburton's operating chief less than six months ago, vacating his original position as CFO during the midst of a formal investigation into the company's accounting practices. While Halliburton first adopted the controversial "cost-overrun" accounting before Foshee's arrival -- when Vice President Dick Cheney was at the helm as CEO -- Foshee went on to defend the technique as standard industry practice.
Securities and Exchange Commission
formalized its probe in late 2002, Halliburton announced that it planned to shop for a new CFO. The oil services giant said Wednesday that it has no plans to fill the position Foshee is now vacating.
Foshee came to Halliburton -- where he landed on the
best-paid executive list -- after a stormy compensation fight with the board at Nuevo Energy. In a special report last year, the
Wall Street Journal
used the Nuevo dispute as a centerpiece in a story detailing conflicts about executive pay. The story stated that Foshee stubbornly fought against compensation reforms that would partially replace cash bonuses with options for Nuevo's struggling stock. He also battled to keep sweet change-of-control provisions reminiscent of those that riled dissident shareholders during the recent El Paso proxy fight.
"Nuevo would have to shell out $37 million for worthless options -- including $9.7 million just for Mr. Foshee's," the
The board ultimately stood its ground, and Foshee walked out six weeks later. His replacement, James Payne, volunteered to be paid entirely in Nuevo stock. But Foshee left behind a more troubled Nuevo than he inherited in 1997. Nuevo's stock had spiraled as the company lost money through 1998 and 1999. During that period, the
reported, Nuevo was clearly desperate, going so far as to splash an image of a Swiss Army knife -- with the slogan "It's all about survival" -- on the cover of one annual report.
Nuevo's share price continued to slide through 2000, Foshee's last full year at the helm. But the stock has started to rebound under the leadership of Payne, who -- with a new base salary of just $26,000 -- also ranks among Houston's highest-paid executives because of the value of his long-term incentives.