Blankenship: Don’t cry for me, Massey Energy…

December 7, 2010

Don Blankenship, the irascible chief executive of embattled Massey Energy (MEE), may be retiring from the company he has led for a decade, but don’t be tempted to see him as a broken executive limping into the sunset with nothing but regrets for solace.

Whether or not his departure comes in a time and manner of his own choosing — months after an explosion at the company’s Upper Big Branch Mine killed 29 employees and brought Massey’s practices under harsh scrutiny, and a week after a scathing Rolling Stone profile — he’s nonetheless likely to make out nicely. That’s because Massey has been generous with Blankenship’s pay ($38.2 million total compensation in the last three years alone, $26.7 million of it in cash) and promises to be just as generous with his retirement benefits. And, of course, speculation about Massey’s acquisition — which we wrote about in a FootnotedPro report (subscription required) on November 19 — has driven the company’s shares up, which doesn’t hurt Blankenship’s pocketbook in the slightest.

Blankenship isn’t exactly a dotard — he’s 60, which wouldn’t qualify him for full retirement under Social Security or most corporate retirement programs. But of course, Massey and its executives play by different rules: Under a “Special Successor Development and Retention Program” initially established more than a decade ago (and updated last year), Massey’s compensation committee “agreed to approve Mr. Blankenship’s early retirement at age 55″ at least for the purposes of his primary pension.

Like a lot of executives, Blankenship’s pension is bigger than most, worth $5.7 million as of the company’s April 16 proxy filing. He’s also built up $27.2 million in his deferred-compensation account, a combination of pay he set aside and interest Massey has promised to pay him on those sums. And simply retiring lets Blankenship continue to cash in his options for as long as three years; performance-based restricted-stock units will pay out (or not) depending on the performance measures baked into them. That’s particularly nice given the run-up in Massey’s shares, which means more of them are likely to be in the money. Blankenship will probably still get a bonus for 2010, too, should the board conclude his performance actually merited one under Massey’s incentive plans.

Then there’s his “salary continuation retirement benefit,” which will keep paying Blankenship $18,241 a month for 10 years after his retirement ($2.2 million, nominally) — or his heirs if he dies before the decade is up. Technically, this benefit kicks in on retirement at age 65, but, as the proxy puts it, the “agreement grants Mr. Blankenship a right to an approved early retirement that vests his retirement benefit, provided he actually severs from employment with us for reasons other than death prior to age 65.” If Blankenship prefers, he may be able to take $4 million in life-insurance coverage during retirement instead.

Meantime, Blankenship also gets free housing for his golden years, in the form of a $305,000 “company-owned residence and associated property in Sprigg, West Virginia,” as well as reimbursement for any income taxes he owes for getting the house. (Estimated total value: $517,168.) And if federal rules on deferred compensation get in the way of giving him the house immediately on his departure, Massey will effectively let him live there rent-free in the meantime (charging him rent and then reimbursing him for it).

We can’t even be sure that that’s everything: There’s plenty of time for Massey’s board to shower more largesse on Blankenship before he actually steps down on December 31, should it want to. And while the company is obliged to be pretty complete in laying out retirement and compensation obligations in its annual proxy, that was months ago — and Massey has tweaked its executive-comp program periodically, including most recently on November 30, when it filed an 8-K noting that it had enhanced payouts for executives terminated after a change-in-control.

All in all, it’s a nice deal — not quite as nice as the death benefits Blankenship would have gotten for dying on the job, which we footnoted back on April 22 — but those have a certain drawback that we suspect Blankenship would find unappealing.

In a sense, we suppose it’s a win-win for Blankenship and Massey’s shareholders: They get rid of him, get a nice bump in their portfolios, and perhaps pave the way for an acquisition. Blankenship gets a few decades, if all goes well, to count his millions from that house in Spriggs.

Except, of course, that shareholders are paying the price at both ends.

Image source: Massey Energy presentation [pdf]

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