NEW YORK (TheStreet) -- BP announced concurrent with its earnings that Tony Hayward is leaving the CEO post. Will Hayward's departure be enough to placate public outcry over his mismanagement of the oil spill, or will Hayward's golden parachute severance package become the next target of BP wrath from the U.S. public and politicians?
The British press reported Monday afternoon that Hayward would receive a severance payment roughly equal to one year's salary, or in the neighborhood of $1 million -- possibly as high as $1.6 million -- and annual pension payments totalling $1 million per year. The Sunday Times, taking a stab at the overall financial parachute, reported that Hayward would received $18 million. Hayward also holds millions of BP shares in a long-term incentive plan.
As news broke on Hayward's departure and the financial terms of his stepping down as BP CEO, the political backlash was immediate, and not surprising.
Rep. Edward J. Markey (D-Mass.), Congressional thorn-in-the-side of BP, demanded that BP not provide a golden parachute to Hayward until it had paid all of the costs resulting from the company's spill. BP has not yet fully funded the $20 billion escrow account set up to compensate Gulf of Mexico victims from the spill.
"At a time when BP should be devoting every possible resource to ending the spill, cleaning up the Gulf and fully compensating the residents who have had their livelihoods impacted, I find it extremely troubling that BP's board would consider providing such a large severance package to Mr. Hayward," Rep. Markey wrote to Carl-Henric Svanberg, Chairman of BP, on Monday afternoon. "BP should be dedicating its resources to compensating the residents of the Gulf Coast who are the victims of this tragedy, not handing out multi-million dollar golden parachutes."
If Hayward's severance agreement with BP does become a political pawn of ongoing public anger at BP, it wouldn't be the first time that BP faces a decision about when "enough is enough" in ceding to U.S. government demands, especially when it has the law on its side.
When BP agreed to U.S. government demands that it suspend its $10.5 billion in annual dividend payments, and set up a $20 billion escrow fund to pay oil spill liabilities, some BP experts thought the oil company caved, as opposed to meeting the U.S. government demands half way.
The $10.5 billion in scheduled 2010 BP dividends had become political fodder for President Obama, who talked about BP "nickel and diming" the Gulf coast while paying its shareholders a king's ransom. Yet the U.S. government had no legal authority to force BP to suspend its dividend.
Notably, a UBS analyst on the conference call during which BP CFO Byron Grote explained the financial concessions made by BP, asked, "It seems to me that BP agreed to pay $20 billion into escrow and suspended the dividend for three quarters, yet the BP chairman described the meeting as being constructive. So what did you get out of the meeting, from what appears to not be a legal requirement and something people thought was an aggressive stance taken by the U.S. government?"
Now, any severance package that Hayward receives will be subject to the same comparison: the ongoing nickel-and-diming of the Gulf coast in the oil spill claims process, while Hayward walks away with a reported $18 million for quitting after the worst disaster in U.S. oil spill and BP history. When BP releases its earnings on Tuesday, the world is also expected to get its first peek at the amount BP thinks the oil spill will ultimately cost its balance sheet.
With expectations that BP will ballpark oil spill liabilities at $30 billion, the Hayward severance package will be a drop in the oil-spill bucket, even compared to the existing BP dividend and escrow fund. BP has already paid out more than $235 million in claims to Gulf coast residents and businesses also, and spent $4 billion so far in its oil spill cleanup and containment effort.
Nevertheless, Hayward's golden parachute has the potential to become a PR gaffe, maybe the last gaffe made by Hayward as BP CEO. There would be something fitting about that, in a sick sense of oil-spill irony. BP shareholders may be none too happy either, about seeing their dividends taken away while Hayward gets paid for failure.
The terms of Hayward's contract are no doubt clear, and whatever golden parachute he walks away with would have its undeniable legal standing. However, questions will be asked as to whether Hayward should forfeit the package, or if BP should force the outgoing CEO to do so.
There have been notable recent examples of CEOs accepting that crisis situations demand a huge toll on their personal pay. Think of Citigroup CEO's Vikram Pandit agreeing to be paid an annual salary of $1 until Citigroup recovered from the financial crisis. It's an irony of the BP oil spill that the man now in charge of the claims process, Ken Feinberg, was formerly the executive pay czar for President Obama.
What's more, according to reports, Hayward may stay on with BP in some capacity. Speculation currently is focused on Hayward taking a non-executive job, possibly a board spot, with BP's huge venture in Russia, TNK-BP. No word yet on how much Hayward would be paid for his serving on that board.
At some point, focusing all the oil spill anger on one person -- even the person with whom the buck should rightly stop, the BP CEO -- hugs a dangerous edge of populist sentiment.
Hayward's golden parachute could be seen as the latest in a long line of bone-headed decisions made by the British oil company in managing the PR crisis wrought by the oil spill. CEO compensation hasn't really gone away as an issue on Main Street or for Washington. The BP oil spill just provides another means for examining the contentious issue.
Indeed, it all raises the question for the American public, and in particular, the Gulf coast residents and businesses, about picking battles carefully: Do you think Tony Hayward should relinquish any golden parachute in the spirit of accepting his personal role in the Gulf of Mexico oil spill?
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