Just days Whiting Petroleum it became the first shale casualty of the current oil price crash, when it filed for prepackaged Chapter 11 bankruptcy on Wednesday morning after the plunge in oil prices left it unable to pay its debts, the company's board - supposedly with the approval of the company's creditors - approved $14.6 million in cash bonuses for top executives.
As part of this KERP, or Key Employee Retention Plan, CEO Brad Holly would collect $6.4 million of the total, which will be “paid immediately,” the company said in a filing Wednesday according to Bloomberg. Four other executives including Chief Financial Officer Correne Loeffler will get the rest.
The board said employees eligible for variable compensation can receive payouts that amount to no more than their target levels. The payouts will be made quarterly. As part of the deal, the senior executives agreed to forfeit equity awards they were in line to receive this year.
The bonus plan which was signed off by the board on March 26, or 5 days before the Chapter 11 filing, is "part of an overhaul of the company’s variable compensation program" with the filing noting that the coronavirus pandemic, coupled with a price war between Russia and Saudi Arabia, has dealt a crushing blow to the oil and gas industry, making it “virtually impossible” to set short-term performance goals.
To be sure, the board knew just how bad the optics of this deal would be, so why do it? The stated reason: the program "is intended to ensure the stability and continuity of the company’s workforce and eliminate any potential misalignment of interests that would likely arise if existing performance metrics were retained."
CEO Holly, who was executive vice president at Anadarko before he was named Whiting CEO in 2017, has collected $4 million in salary and bonuses since then; he’s also received payouts of stock that have plunged in value. CFO Loeffler, who joined the company just eight months ago, will receive $2.2 million from the bonus plan.
In other words, only the people who pushed Whiting into Chapter 11 can deliver it from bankruptcy, or so the thinking goes.