Failing coal CEOs rake in big bonuses as they screw workers

  • Published on May 20th, 2016

By Meteor Blades

The advocacy group Public Citizen released a report Tuesday showing how top executives for three giant people power beats big coal at Otter Creek, Montanacoal companies got large compensation boosts even as they laid off workers and cut their benefits. The three companies—Peabody Energy, Arch Coal, and Alpha Natural Resources—are all continuing their operations under Chapter 11 bankruptcy filings. Over the past few years, they went deeply into debt expanding via mergers and other purchases even as coal prices were falling and their bottom lines were going from black to red.

Their choices were not criminal. But they illustrate the stupidity of how executive compensation works these days. Bonuses and stock options when times are good, higher cash compensation when the company tanks. The so-called “war on coal” has been good to these men.

In conjunction with their report, Public Citizen also sent letters to the CEOs of the three companies asking them to invest in a trust fund for laid-off employees.

Nice gesture. But the folks at Public Citizen surely know that a positive response to their request is about as likely to happen as coal-fired steam locomotives making a comeback.

The guys at the top may no longer qualify as coal barons, but they’ve adequately padded their nests with millions of dollars extracted the way they extracted the coal itself, ripping the resource from the ground and leaving the economic, environmental and social debris from their operations for somebody else to clean up.

The Public Citizen report points out:

Although these companies and their trade association allies have often blamed environmental regulations for their precarious financial state, the truth is that debt-fueled acquisitions hobbled their finances at a time when market conditions were rapidly souring. Namely, Alpha Natural Resources, Peabody Energy, and Arch Coal bet big on future Chinese coal demand growth in 2011, going into debt to finance major expansions into metallurgical coal production during the year it was at peak price, only to see markets decline soon after the transactions were complete. […]

Instead of taking responsibility for their decisions, coal industry representatives lay the blame for their financial woes on mine workers, unions, environmental regulations, and the federal government in an effort to shirk their contractual obligations. In 2015, West Virginia Coal Association President Billy Raney blamed the federal government for the coal industry’s economic problems.

Of Alpha Natural Resources, which filed for bankruptcy last year, Nicole Gentile wrote:

Seven executives and eight other employees who remain unnamed in court documents are eligible for the bonus if they hit certain metrics for cutting costs while protecting the company’s cash reserves. Top executives were already promised $2 million retention bonuses for staying with the company through August 2016. These bonuses are described by Alpha as incentives to ensure high-level performance, something that is apparently not covered by annual salaries. In 2014, as the company was evidently on the verge of financial collapse, Alpha paid CEO Kevin Crutchfield nearly $8 million, and former President Paul Vinning more than $4.5 million.

The plan to dole out millions of dollars to the same executives that bankrupted the company is the latest in a series of controversial steps taken by the industry giant. Late last year, Alpha also proposed to eliminate health insurance, disability, and other benefits for mine workers. According to court documents, this move would affect more than 4,500 disabled former employees, non-union retirees, and their families.

Complaints to Alpha’s shareholders about such bonuses were obviously bound to be ignored. Those executives are, after all, just doing what they have been bidden to do, right? If they performed their screw-job efficiently, surely they deserved the extra money for it.

Then there’s Peabody. It created the Patriot Coal Corporation specifically to walk away from its contractually mandated benefits to retirees and disabled workers. Patriot filed for Chapter 11 protection just two years after acquiring the financial obligations for these workers. The bankruptcy outcome means the workers and retirees will get few if any of the obligations their union had negotiated.

Last September, Tim McDonnell at Mother Jones wrote:

According to a report today from the Institute for Policy Studies, which bills itself as the country’s oldest progressive think tank, executive salaries and bonuses at the top 10 publicly traded coal companies increased an average of 8 percent between 2010 and 2014, even as the companies’ combined share price fell 58 percent. Meanwhile, the same executives cashed in well over $100 million in stock options, according to the report, which analyzed the companies’ public filings with the Securities and Exchange Commission. In other words, coal execs are cashing in while their companies tank. ”That [stock-based] part of their compensation package is not so valuable right now, so the value of their cash-based pay has been going up,” said Sarah Anderson, the report’s author. “We’re seeing this move to insulate them from the implosion of the coal sector by handing out more cash.”

It’s not just coal companies. From that IPS study cited by McDonnell and titledExecutive Excess 2015: Money to Burn:

Bonus incentives: None of the 30 oil, gas, and coal companies on our list reward their executives for diversifying into green energy or reducing greenhouse gas emissions. A review of the 13 oil producers on our list revealed that all of them reward executives for expanding carbon reserves.

Retirement security: The ongoing disregard for our environment that fossil fuel executives have shown has left the future much less secure for billions of people around the world. These same executives, meanwhile, can all look forward to lavishly secure futures. Executives at America’s top 30 oil, gas, and coal firms have accumulated company-provided retirement assets worth a combined $1.2 billion, enough to cover the entire flood control budget of the U.S. Army Corps of Engineers for nearly three years. […]

The CEOs of the 30 largest U.S. publicly held fossil fuel companies took in an average $14.7 million in 2014, over 9 percent more than the average $13.5 million that went that year to S&P 500 CEOs. […] The 30 fossil fuel CEOs had outsized pay packages, despite leading companies with market caps that are smaller on average than the S&P 500.

Ordinary American taxpayers prop up this stratospheric pay for oil, gas, and coal executives through federal subsidies to fossil fuel companies. According to Oil Change International, these subsidies run about $37.5 billion per year.

It’s a grotesque system that penalizes workers, investors, taxpayers and the planet itself while rewarding those whose policies, lobbyists and campaign funding of climate change-denying politicians have kept us headed into the ever-growing climate crisis long after critics warned us and them it would happen.

As IPS’s Sarah Anderson told McDonnell: “The smart thing would have been to diversify their portfolio so they wouldn’t be so vulnerable.” And the smartest thing would have been to diversity into renewables.

Meanwhile, coal miners and other workers continue to get screwed. As I wrote in 2012 after the election:

Over the generations, coal communities have been devastated by an extractive economy in which workers have risked their lives and sacrificed their health to keep the juice flowing to our refrigerators and televisions. It’s a matter of environmental justice to help pull these communities out of a dirty 19th Century extractive economy into a cleaner 21st Century path.

We progressives, environmental advocates or not, don’t like the way a lot of people in western Virginia, West Virginia, southern Illinois, Kentucky and Wyoming voted in this election. There are, of course, other reasons than economics for their choices. But finding answers to their economic issues, helping them—really helping them—create sustainable, renewable communities amid the carnage coal has wrought ought to be as high on our list as stopping that carnage.

There are many ways that can be done. The nation already has invested billions of dollars to spur homeowners and commercial operations to install renewable energy. As a nation we spend billions to deal with the diseases caused by burning coal. Given the urgency of getting us off coal, there is no reason billions can’t be spent to ease the lives of coal workers and their families as we make this crucial transition.

For those workers and their families, the situation has only gotten worse. As Public Citizen and IPS have shown, coal executives continue to profit even as their companies flounder.

(Originally appeared at DailyKos.)

 

About the Author

Meteor Blades is a writer and contributing editor at DailyKos. He believes there is something profoundly wrong with our system. - the unchecked accumulation of wealth and power into the hands of a very small group of corporate business interests has contributed to the wholesale corruption of our political system. For an understanding about the level of corruption in our country, he encourages you to view these two PBS documentaries: (1). ,The Untouchables; (2) The United States of ALEC.