Maybe Transocean’s safety bonuses are not big enough

Transocean drew the ire of many this past weekend for awarding safety bonuses to executives for the drilling company’s performance in 2010 — despite the death of 11 workers on the Deepwater Horizon.

“What a slap in the face to those who died, their families and those who got hurt and all those who were affected on the Gulf coast from the Horizon incident,” a reader wrote, responding to our original post.

Secretary of the Interior Ken Salazar and the former co-chair of the Presidential Spill Commission William Reilly also criticized the move.

“Some companies just don’t get it,” Reilly said. “I think Transocean just doesn’t get it.”

The reactions prompted Transocean to apologize on Monday – not for the bonuses, but for the language in the filing in which it said 2010 was its best year for safety — and to donate the bonuses to a fund for the victim’s families.

But maybe readers and regulators shouldn’t be angry about the existence of Transocean safety bonuses and should be upset about their size — as in maybe the bonuses are too small.

Bear with me for a moment on this one.

The cash bonus system that Transocean used in 2010 had four components (or five, depending on how you look at it), according to the company’s proxy filing:

  • Safety Performance (25%)
    • Total Recordable Incident Rate (“TRIR”)
    • Total Potential Severity Rate (“TPSR”)
  • Cash Flow Value Added (“CFVA”) relative to our annual budget (50%);
  • Newbuilds (10%); and
  • Enterprise Resource Planning (15%).

There’s plenty of legal precedent that says corporate officers’ first duty is to their shareholders, that they put share price ahead of being nice to kittens and old ladies (assuming they don’t break any laws in the process of dissing the kittens and old ladies).

Obviously, no one at the company wants an injury or a death to occur. But if safety really matters to a firm, if the goal really is “an incident-free workplace—all the time, everywhere,” as stated, shouldn’t the incentive be more than just 25 percent of total cash bonuses?

There are already pay incentives for Transocean executives based on total shareholder returns — stock and stock options worth several million were granted this year based on that metric.

Why not just have all the shareholder-related performance targets lead to equity-related payouts and have the safety measures lead to cash payouts, and large ones at that?

Following the Exxon-Valdez accident Exxon Mobil seemed to have found a way to make safety a priority from the top of the company down to the average worker.

Is one-quarter of one incentive program at Transocean enough to tell workers the bosses really value safety?

7 Comments

  1. Signal2Noise

    25% seems adequate. The fact that they were rewarded for it in light of Macondo is what’s odd. TSR (50%), Safety (25), Growth (10) and Personnel (15) seems like a good mix.

    #1
  2. BON JOVI

    Yeah they paid for safety. 1 million dollar safety budjet and 50 million dollar budget to payoff legislators.

    #2
  3. Ross

    Given their stance that Transocean did nothing wrong and it was all BP’s fault at Macondo… why would they dock safety bonuses and thereby admit they were partially at fault?

    #3
  4. Tom Fowler

    Ross:
    That’s an interesting point: whether withholding safety bonuses would be seen as some sort of admission of culpability that an attorney could seize on. Although lawsuits by shareholders against companies for poor performance are very common, and I don’t think I’ve seen referece to performance bonuses as proof in such a suit. But maybe they do. Thanks for raising that point.

    #4
  5. Scott

    Ross:

    Because they had employees who died in the accident. Even if Transocean is not to blame it seems a little callous to champion a banner safety year when some of their employees died. The company I work for has some of the same bonus metrics, but one fatality would void all of them.

    #5
  6. RunningBear

    The lawsuit; prevails over all. But….they could donate their awards to a charity or fund for the deceased, without admitting culpability. Financial rewards are an excellent incentive to achieve this critical goal in every production industry. My client’s demands are weighed against “Good Engineering Judgment”; which may be a slower process in the Deep Water environment.

    #6
  7. It’s not the amount of the bonuses that needs to change it’s the system used to calculate them. TRIR rates are the metrics used that’s averaged over the fleet and put’s too much weight on occupational safety and relatively none on disaster prevention.

    So your question “Maybe Transocean’s safety bonuses are not big enough?” is valid but ONLY IF the system for recording safety incidents is fixed.

    #7