Commentary by David F. Larcker, James Irvin Miller Professor of Accounting & Director, Stanford GSB Corporate Governance Research Program; and Brian Tayan, Stanford GSB Case Writer, MBA ’03.
Source: Clean Energy Fuels Corp., Form DEF 14A, Filed April 7, 2010
Clean Energy Fuels is a relatively young energy company that delivers natural gas for automotive fuel through company-owned fueling stations. The company was founded in 1996 by T. Boone Pickens, and went public in 2007. It currently has a market valuation of $1.2 billion.
Pickens serves as a director and is the company’s largest shareholder. According to the most recent proxy, he holds 45 percent of the common shares, worth more than $500 million.
What is interesting is the compensation that Pickens has received for his services. In 2009, he was awarded more than $4 million in compensation, primarily in the form of stock options. It was by far the most paid to a director (others received $300,000). It was even more than CEO Andrew Littlefair, who received $2 million. According to the proxy, “Boone Pickens was granted larger option grants than our other non-employee directors during 2009 in recognition of his extraordinary direct contributions to the Company’s marketing program and his advocacy for the use of natural gas as a vehicle fuel.”
We have all seen the ads, and commend his efforts. Still, it is not clear why some executives who are already wealthy and own a significant percentage of the company insist on paying themselves additional sums of money (Larry Ellison of Oracle also comes to mind). What possible incentive value does $4 million in options provide to an individual who already holds $500 million in stock in the same company? Even if the awards are merited, at what point should an individual, of his or her own accord, simply refuse to accept what is offered?
The case of Pickens makes the question worth asking. Some wealthy executives continue to take more. Others refuse to. In many cases, both continue to perform well. It may be that these actions have no bearing whatsoever on governance quality. They do, however, seem to have a moral component. Investors can decide for themselves just how important that moral component is.