Massey Energy Awarded Coal Boss $2 Million Bonus for Safety Numbers in 2009, Even as Mines Amassed Record Violations

Investors cite bonus, detail charges of self-dealing in bid to shake up board.

April 22, 2010, 6:10 PM

April 29, 2010— -- Massey Energy paid its controversial CEO more than $2 million in bonuses for exceeding goals on mine safety, even as the coal mines were piling up record numbers of federal citations and fines for safety infractions.

"In 2009, when the company had more violations than in any prior year, and was warned more than any other company, [CEO Don Blankenship] got the maximum payout for bonus money tied to safety," Michael Garland, a spokesman with CtW Investment Group, told ABC News on Thursday.

The union-backed investment group highlighted the bonus payments in a letter to shareholders Thursday as they argued that three corporate board members – all allies of Blankenship -- should be ousted at an upcoming company meeting. Massey's dismal safety record, the investor group argued, provides evidence of "a risk oversight failure that likely led to the catastrophic and preventable mine explosion on April 5 that killed 29 miners and destroyed $1.1 billion in shareholder value."

In a press release issued Thursday night, Massey Energy responded to the CtW allegations, calling them "unfounded and misinformed." "CtW insists on distorting the facts to influence the opinion of respected shareholders and is motivated by a political agenda that does not meet the best interests of Massey's employees or shareholders, nor the best practices of corporate governance," the company statement says. "It is unfortunate that CtW has attempted to leverage the accident at Upper Big Branch to its benefit at a time when Massey is focused on that tragedy and its aftermath." In a letter to shareholders, the corporate board's lead director, retired Admiral Bobby Inman, answers the most serious allegations of safety lapses, calling any assertion that Massey has been lax on safety untrue. "I want to reassure you that Massey puts the safety of its members first -- and always first," Inman writes. Inman also takes issue with suggestions that board members are compromised by other financial ties to the company. "Massey Energy is dedicated to maintaining the highest level of integrity in every aspect of its operations. Directors, executives and members sign ethics statements pledging to adhere to high standards of behavior. The ethics agreement includes guidelines for avoiding conflicts of interest and for reporting questionable accounting practices," his letter states.

Blankenship's safety bonus came as part of an eye-popping compensation package, the shareholder group said, which in 2009 was valued at $17.8 million. That was 186 percent above the average total compensation of the CEOs at Massey's three larger U.S. peers (Arch Coal, Consol Energy and Peabody Energy), even though Massey reported net income that was 70 percent lower than the average of its larger peers, the investor group said in the letter signed by executive director William Patterson.

Patterson's letter noted two separate bonus programs. In one, Blankenship was promised up to $225,000 if the mines met targets with respect to the number of "non-fatal days lost," a measure that reflects the number of workers who are forced out of the mines because of job-related injuries. The same figure is also used to calculate a long term incentive package, and led to $2 million of a total $9 billion package of cash and stock bonus payments.

Using the injury figures to measure Massey mines' safety record is misleading, Garland said in an interview, because it does not account for the dangerous conditions that could lead to a catastrophic event, such as the fatal mine blast earlier this month.

"That's the bigger point," Garland said. "The injury rate doesn't capture their violations, their serious violations, which are indicative of hazardous conditions in the mine."

In an April 27 response to congressional testimony critical of its safety record, Massey issued a press release stating that efforts to paint Massey "as a renegade operator seeking only to evade the inspectors" are ill informed. "Massey consistently has an accident record that is 33% superior to the average underground mine," the company said. Massey officials added that from November 1 forward, the Upper Big Branch facility "turned around its compliance record and greatly improved its safety record after Massey assigned two safety professionals to work full time in the mine."

The shareholder effort to restructure Massey's board and wrestle control from Blankenship is not a first for the publicly-traded company. Massey Energy executives settled a lawsuit filed by corporate shareholders in May 2008, after a different group of investors alleged that safety and environmental shortcuts at the mines were proving too costly in legal fees and fines. To settle the case, Massey agreed to form an independent safety committee, hire outside safety consultants, and enhance the safety procedures at its underground mines.

Joseph F. Rice, who represented the investors in the case, told ABC News earlier this month that the explosion at the mine led him to question whether Massey complied with the court's order enforcing that agreement. "We are in the process of determining whether they ignored that court order," Rice said. "We intend to find out what they've done. Our shareholders are concerned about what the company has or has not done after they made this agreement."

Patterson argued in his letter to shareholders Thursday that one reason they believe Blankenship has not been challenged more aggressively on the company's safety record is that "the governance committee has permitted Massey to engage in disclosed and undisclosed transactions with directors."

"We believe these transactions create conflicts of interest that compromise the directors' independence, exacerbating investor concerns with the board's independence and accountability," the letter states.

The shareholder group, which is comprised of several large state pension plans, and has backing from the Change to Win labor union, revealed that one Massey director owns an auto dealership that sold more than $870,000 in vehicles to Massey between 2005 and 2008. Another director has been hired by Massey as a consultant. A third solicited six-figure contributions from Massey for an educational and leadership foundation he runs.

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