Performance Bonuses: It’s All Relative

by Todd Shriber

Wall Street firms often dole out bonuses that raise eyebrows among the general public. But the latest round of bonuses that will make the average person go, “Hmmmm,” doesn’t come courtesy of a big bank or hedge fund. Rather, it comes from the energy sector.

Transocean (RIG), the world’s largest provider of offshore drilling services, shelled out millions of dollars in bonuses to high-ranking executives for 2010. The fact that the company was granting bonuses isn’t the issue. The issue is why Switzerland-based Transocean was rewarding some of its executives: safety. Apparently, 2010 was the best year in terms of safety performance for the company, Forbes reports, citing Transocean’s annual report.

That’s interesting when considering it was last April when the Transocean-owned Deepwater Horizon rig exploded in the Gulf of Mexico, killing 11 workers and creating the biggest oil spill in U.S. Not surprisingly, Transocean appears to be taking a big-picture view of its safety record, according to its annual report:

“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 (‘‘TRIR’’) and total potentials everity rate (‘‘TPSR’’). As measured by these standards, we recorded the best year in safety performance in our Company’s history, which is a reflection on our commitment to achieving an incident free environment, all the time, everywhere.”

Even with the tragedy in the gulf, Transocean’s safety record was deemed good enough to give Chief Executive Officer and President Steven L. Newman a raise. Newman’s total compensation for 2010 equaled $6.6 million – almost $1 million more than he earned in 2009, according to Forbes.

Transocean’s decision to grant bonuses to executives on the basis of safety appears all the more questionable when considering that BP (BP), the operator of the Deepwater Horizon and the company regarded by many as the chief villain of the gulf spill, denied bonuses to its top executives, according to Reuters.

Perhaps it’s OK to give safety bonuses when the accident isn’t your fault or when you’re not going to face legal liability from it. Transocean said in its annual report that it thinks it’s “contractually indemnified” from spill claims.

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