Transocean Safety Bonus Shenanigans

800px-deepwater_horizon_offshore_drilling_unit_on_fireHypothetical situation:

Let’s suppose you run the largest offshore oil rig contracting company in the world.  Let’s also suppose that your company owned a certain drilling rig located in the Gulf of Mexico that exploded one fateful morning on April 20th, 2010, resulting in the deaths of 11 crew men (nine of whom worked for your company) and one of the largest environmental catastrophes in United States history.

Given this scenario, would you rate 2010 as your “best year in safety performance in our company’s history” and award your top executives with two-thirds of their annual target safety bonuses?  You probably wouldn’t, right?

Well, the top brass at Transocean LTD disagree with your conclusion.

According to a proxy statement filed with the SEC on April 1st (not part of some elaborate April Fool’s prank, apparently), Transocean’s CEO and Chairman of the Board announced just that.

This round of bonuses comes just one year after the Transocean board decided to forgo safety bonuses entirely in 2009 as a result of the deaths of four employees in rig-related accidents “to underscore the company’s commitment to safety.”

So what exactly are they thinking here?

Well, according to their filing statement, Transocean believes that in 2010 “notwithstanding the tragic loss of life in the Gulf of Mexico, we achieved an exemplary statistical safety record as measured by our total recordable incident rate and total potential severity rate.”

In other words, using Transocean’s safety metrics to calculate executive bonuses, 2010 was a stellar year.  And what are these metrics?

According to the Wall Street Journal “Transocean uses two safety criteria to calculate executive bonuses: the rate of incidents per 200,000 hours that employees work, and the potential severity of those incidents. In 2010, the rate of incidents dropped by 4% from 2009. A number that measures potential severity of those incidents fell nearly 15% from last year.”

Now clearly, large organizations have to use quantitative measures to properly evaluate performance against a baseline. When you rely on numbers exclusively, though, you sometimes miss the bigger picture. For example, you could possibly overlook the fact that a rig you were operating blew up, killed 11 people, leaked oil into the Gulf of Mexico for 87 consecutive days, destroyed the livelihood of  thousands, did possibly irreversible damage to the surrounding ecosystem and made front-page headlines for weeks. Little things like that.

So what's going to happen?

Despite public outcry and some saber rattling from the Obama administration, there really isn’t a whole lot that can be done.  Transocean is operating completely within their legal rights as a corporation to pay out these bonuses.  And since Transocean operates in a business that doesn’t sell any sort of product or service directly to the US consumer, public protests or boycotts will likely do little to impact their bottom line.

The only way these bonuses can be touched is through a possible disgorgement settlement in one of the many Deepwater Horizon lawsuits slowly making their way through our legal system. And even in this scenario, it could be years or perhaps decades before any decision is reached.

Image Credit: US Coast Guard