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Elliott Management Corporation (“Elliott”) today sent a letter to the
shareholders of Hess Corporation
. Full text of the letter follows:
“Dear Fellow Shareholder:
We are writing to you because Hess Management has made repeated untrue
statements to Shareholders regarding Shareholder Nominees. After 460%
underperformance, John Hess has no record to run on and has resorted to
misrepresentations and scare tactics. We want to set the record straight so
that Shareholders can make a determination based on facts.
Why Is Hess Making False Statements to Its Own Shareholders?
#1: Hess FALSE Statement: Hess Management says Shareholder Nominees are paid
to “liquidate the Company” or carry out “an Elliott plan.”
REALITY: Shareholder Nominees, if elected to the Board, receive $30,000 for
each 1% that Hess's stock outperforms Hess's own proxy peers as measured at
the end of the Shareholder Nominee's three-year term as a director (2016). The
agreement is filed along with Elliott's preliminary proxy materials. The
obligation to pay is contractually fixed and not subject to Elliott's
discretion.
In other words, each Shareholder Nominee receives compensation three years
from now and only to the extent that Hess's stock outperforms its peer group.
For example, if Hess's stock—which you and we own—outperforms its peers by 10%
over the next three years, a Shareholder Nominee who served a full term would
receive $300,000 (10 x $30,000). Money well-earned, we believe, and earned in
a manner clearly aligned with long-term Shareholders' interests.
Shareholder Nominees are completely independent, would constitute a minority
of directors, and, unlike Hess's nominees, have not preapproved any plan. If
elected to the Board, each of these executives will bring substantial
expertise, experience, and independence that we believe is sorely needed at
Hess.
In sharp contrast, Hess has been a Golden Meal Ticket awarding $540 million to
Management and Directors under the current CEO's tenure despite
underperforming peers by (460)%. Furthermore, according to public records,
John Hess through his family estate has paid millions of dollars directly to
board members for service to the estate.
#2: Hess FALSE Statement: We have been told that Hess Management in several
private meetings with fellow Shareholders stated that Shareholder Nominees
would be paid $9 million to sell the Company.
REALITY: This is simply not true. The $9 million figure represents the
contractual cap (i.e., the maximum payment) in the compensation agreement. In
order to achieve a $9 million payment, Hess would need to outperform peers by
300%! 300% outperformance implies a stock price of ~ $250 per share or market
capitalization increasing by ~ $60 billion. Here is what that would look like:
http://goo.gl/c80AI
We believe that all Shareholders should find any such mischaracterizations
offensive. Hess has a detailed description of the agreement and competent
attorneys paid for with Shareholder money. Any such attempt to mislead these
same Shareholders would be outrageous and inconsistent with Management's
obligations as a fiduciary.
#3: Hess FALSE Statement: Hess Management characterizes Shareholder Nominee
compensation as short-term focused.
REALITY: Shareholder Nominee compensation is more long-term oriented than any
plan currently at the Company. At Hess, Directors are paid in fully vested
stock they can sell immediately and Management receives performance share
units and options that vest over three years. Furthermore, existing
compensation arrangements with Management include a collective $80+ million
change of control payment.
What Could Be Hess's Motivation?
Rather than attack the Shareholder Nominee compensation plan, Hess should
adopt it. Hess's current compensation arrangements have failed to link payment
to performance, prompting Glass Lewis to write:
In our view, shareholders should be deeply concerned with the compensation
committee's sustained failure in this area.^1
In 2012, in response to repeated criticism for poor payment practice, Hess put
in place performance share units. These units pay out over three years based
on Hess performance versus peers—same term and concept as Shareholder Nominee
compensation. However, Hess performance units award recipients 50% to 100% of
their target bonuses even if Hess is in the bottom 3^rd quartile. ISS has
commented:
Shareholder returns continue to underperform peers… while CEO pay compensation
outranked most peers…. [G]oals for performance shares… do not appear rigorous
relative to historical award opportunities.^2
Under the current CEO's tenure Hess has been a Golden Meal Ticket for the
Board and Management:
FACT #1: Total Compensation Paid to Current Directors: $31.8 million
FACT #2: Total Compensation Paid to John Hess: $194.9 million
FACT #3: John Hess in Forbes Top 25 Highest-Paid CEOs in 3 of last 5 years
FACT #4: Total Compensation Paid to Management (excluding the CEO): $313.2
million
FACT #5: Total Compensation Paid to Management and Directors: $539.9 million^3
FACT #6: John Hess's family estate has paid $7.9 million directly to current
and past board members, including $2.9 million paid to Lead Independent
Directors
These numbers are STAGGERING… They are even more shocking in light of Hess's
unrelenting underperformance that has gone unchecked due to a Board lacking
independence:
John Hess Tenure
17 Years 5-Year 4-Year 3-Year 2-Year 1-Year
vs Proxy Peers (333 )% (31 )% (43 )% (29 )% (40 )% (17 )%
vs Revised Proxy (460 )% (45 )% (63 )% (44 )% (47 )% (20 )%
Peers
vs Bakken Operators NA (263 )% (984 )% (184 )% (70 )% (16 )%
vs XLE NA (31 )% (57 )% (43 )% (44 )% (20 )%
vs XOP NA (39 )% (81 )% (52 )% (39 )% (15 )%
Hess Has an Indefensible Record
It Is Time for Change
We Ask for Your Support for the Independent Shareholder Nominees
Sincerely,
Elliott Associates & Elliott International”
Please visit www.ReassessHess.com for more information.
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