On March 31, CBS- TV's 60 Minutes did a segment on executive pay. The show critiqued the salaries and perks of numerous corporate executives, including the bosses at ATT, IBM, and Coca-Cola. Perhaps 60 Minutes should have made a stop in New Orleans. On March 21, Freeport-McMoRan Copper & Gold released its annual proxy statement, which estimated that former UT football player and current Crescent City resident Jim Bob Moffett was paid $27.2 million last year in stock options and cash for his work at the mining company.
However, those numbers do not include all of Moffett's pay for 1995, nor do they give a current valuation of his stock options. In figuring the value of the 2.4 million Freeport C&G Class B shares granted to Moffett in 1995, the company used the figure $25.87 per share, which put the value of his stock at $25,422,952. (Moffett's stock options were granted in 3 different blocks with exercise prices of $18.727, $15.372, and $19.925). However, on March 20, the day before the proxy statement was released, those same shares were trading at $30.87, making the options worth $34.6 million. And by the close of trading on the New York Stock Exchange last Friday, April 12, Freeport's Class B stock was trading for $33.37, making Moffett's options worth $40.8 million. According to the proxy, all but 143,548 of those options can be exercised immediately. The rest can be exercised on August 4 of this year.
Those stock options come on top of a $1.8 million bonus, Freeport C&G paid Moffett, who is the company's chairman of the board and chief executive officer. That does not include the salary, bonus, and options he received as chairman of the board of affiliate Freeport-McMoRan, Inc. According to documents filed with the Securities and Exchange Commission last month, Moffett was paid a total of $5.06 million for his work at the New Orleans-based mining and fertilizer company. So, based on the value of Freeport C&G's stock last week, Moffett's total pay package for 1995 exceeded $47.6 million.
In the 60 Minutes segment, "Easy Money in Hard Times," reporter Leslie Stahl sought out ATT's CEO, Robert Allen, to have him explain why he was paid some $20 million last year, at a time when the company was announcing that it would lay off 40,000 of its workers. Allen replied "I didn't come here to talk about this subject." When Stahl asked if he thought such large pay packages were bad for America, Allen replied, "I don't think it's hurting the country." Stahl and her guest, compensation analyst Graef Crystal, who authored the book In Search of Excess, critiqued the pay packages given to Allen, Sanford Weill of the Travelers, Louis Gerstner of IBM, and Robert Goizueta of Coca Cola, all of whom Crystal said were paid far more than was appropriate.
But each of those companies is far larger than Freeport C&G, whose primary asset is a huge gold, copper, and silver mine in Irian Jaya, Indonesia. According to revenue figures published in the April 22 edition of Forbes magazine, ATT had 1995 sales of $79.6 billion and profits of $139 million. At IBM, which paid Gerstner $15 million, revenues were $71.9 billion and profits were $4.1 billion. Revenues at Coke, where Goizueta made $23 million, were $18 billion and profits were $2.9 billion. By comparison, Freeport C&G had revenues of $1.8 billion and profits of $253 million.
So why would Freeport, a company much smaller than the companies listed above, pay Moffett so much? Freeport, like many other companies, has a committee made up of members of the board of directors that decides compensation issues. One long time member of that committee: Moffett's friend, William H. "Dollar Bill" Cunningham, the chancellor of the University of Texas, who resigned from Freeport's board last December after the company threatened legal action against seven people, including three UT professors (as well as this reporter). According to company documents, Cunningham served on Freeport's "corporate personnel committee" from 1990 to the time of his departure. Cunningham did not return calls from the Chronicle.
Perhaps a note sent to Cunningham by Moffett earlier this year provides some clues as to why Cunningham did not oppose Moffett's compensation package. Obtained under the Texas Open Records Act, the handwritten note says, "Bill, Happy Holidays. 1995 has been a year of friends sticking together. You're a great pal. 1996 will be a winner for us. -- JBM"
Cunningham has made his own news regarding stock options. Two weeks ago, the local daily reported that Cunningham made $650,000 in one day by exercising stock options granted to him during his eight-year tenure on Freeport's board. Cunningham will not pay any federal income taxes on the money he made; Freeport will pay the taxes for him.
Moffett may deserve a large pay package. From 1990 to 1995, Freeport Copper's stock nearly doubled the performance of the S&P 500. Freeport-McMoRan's stock also performed well over that time period. Although it lagged behind the performance of the S&P 500 through 1994, it surged in 1995 and ended the year slightly ahead of the S&P benchmark over the five-year period.
Nevertheless, Moffett's name has appeared several times in surveys of overpaid executives. In 1991, Business Week reported that Moffett was paid a total of $19.2 million over the preceding three years, making him the 12th-highest-paid executive during that time period. In 1992, Crystal named Moffett the fifth most overpaid executive in the U.S., based on his 1990 compensation of $8.82 million. At that time, Crystal said Moffett's pay should be about $1.28 million per year. Moffett appeared on Crystal's list again last year. In a story that appeared in the New York Times on June 27, Crystal estimated that Moffett, in his position as head of Freeport-McMoRan, was overpaid by 133%.
For some perspective on Moffett's $47 million pay package, figure that he made $915,000 a week, or about $1.50 per second. That's an increase of nearly 600% over his 1990 salary, when he was earning about 28 cents per second. Moffett's pay may be an issue at the annual shareholders' meeting, which will be held at Freeport's New Orleans headquarters at 9am, April 30th. Environmentalists are planning to protest at the event.
Calls to Garland Robinette, the former anchorman at WWL-TV in New Orleans who now works as Freeport's spokesperson, were not returned.
The details of Moffett's pay package are coming out at a time when the company is struggling with serious public relations problems. Last year, a trio of reports detailed numerous cases of murder, torture, and human rights abuses in and around the Indonesian mine site. One of the reports alleged that Freeport security personnel were involved in the wrongdoing; the other two blamed the misdeeds on the Indonesian military. Last month, villagers in the mining town of Tembagapura rioted, and did an estimated $15 million worth of damage to Freeport property. Five people were killed.
Shortly after the riots, a tearful Moffett met with the villagers, who presented the company with a list of demands, which included the stipulation that Freeport dismantle its extensive security apparatus at the mine. The villagers also demanded better jobs and health care. And, they demanded that the company begin sharing some of the wealth generated by the mine with them. According to Australian and wire service news reports, Moffett met again with the villagers on April 14. While details of Freeport's response to the indigenous people have not been released, the company has apparently offered to share some $15 million per year with the local villagers.
Thus, Moffett's 1995 pay package is equivalent to three years' worth of payments to the people who inhabited the land prior to the start of Freeport's mining operation. UT is planning to name a new microbiology building after Moffett, who contributed $2 million to the university for the project. The idea to name the building for Moffett came from Cunningham.
Moffett is also well-known for his ties to FM Properties, a publicly traded real estate company that was spun off from Freeport-McMoRan a few years ago. Freeport acts as the company's managing general partner. FM Properties plans to develop a 4,000-acre project upstream of Barton Springs with luxury homes, apartments, and commercial projects. However, the plans have stagnated in recent years because the city has refused to provide it with sewer service.
The soldiers are part of a massive show of force by the Indonesian government in the area around the mine. According to TAPOL, the London-based group which monitors human rights in Indonesia, Freeport's area of operation has been invaded by more than 2,000 heavily armed soldiers over the past few weeks, in addition to the ones who were already stationed near the mine. The best source for information on Freeport continues to be the Web site run by Robert Boyer, a member of the "Freeport Seven" and a professor of computer science at UT. Boyer's page has the account of the first meeting between Moffett and the indigenous people from the mine. Here's the URL: www.cs.utexas.edu/users/boyer/fp.