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Hess Corp. said it is prepared to add two of Elliott Management Corp.'s nominees to the energy company's board after the dissident hedge fund scrapped an unorthodox bonus plan.
Elliott, which is seeking seats on Hess's board, earlier Monday ditched a plan to pay bonuses to its nominees if the company's shares outperform competitors.
It is the latest about-face in a hard-fought proxy battle for five seats on the 14-member board of Hess, an international energy company whose stock performance has sagged in recent years. The move comes after New York-based Hess said Friday that Chief Executive John Hess would give up his chairmanship and the company would appoint an independent chairman, a reversal of its previous position. The proxy contest will come to an end at its annual shareholders meeting in Houston on Thursday.
Hess, in a statement, said it is prepared to add two Elliott nominees that the energy company would choose if all five of Hess' nominees are elected.
Elliott, which owns about 4.5% of Hess's shares, is seeking new directors because it says the current board has allowed management to destroy shareholder value. Hess has said it is in the midst of a successful transition to becoming a more profitable and focused company, and that Elliott's bid would derail that progress.
Hess aimed much of its criticism at an unusual arrangement in which Elliott's nominees, if elected, would receive bonuses from the hedge fund based on how the company's shares performed against peers. The hedge fund would pay those directors $30,000 for every percentage point the company's stock outperformed a group of peers over three years, up to $9 million. Hess has said the plan compromises the nominees' independence while rewarding strategies to boost its stock in the short term.
The hedge fund's nominees said Monday they had amended their contracts to waive their right to the bonus payments, calling the pay plan a "distraction" but maintaining it was appropriate. The only payment they will receive from Elliott is the $50,000 they were paid when nominated in late January.
Elliott said it supported its nominees' decision. "The shareholder nominees have taken this distraction off the table," a spokesman said.
John Mullin, currently Hess's lead independent director, said in a statement Monday that Elliott's shift on the pay plan "makes it clear that shareholders agree that Elliott's scheme was unacceptable, and exposed Elliott's campaign for what it is, short termism at the expense of all shareholders."
Elliott's plan to pay its nominees for the company's stock performance had drawn criticism--even from some who had endorsed them. Proxy adviser Glass Lewis, for instance, recommended its clients vote for Elliott's nominees but expressed a concern that paying them differently than current directors could create discord on the board.
Relational Investors LLC, which owns about 3% of Hess's shares, has described concerns about the bonuses as overblown.
David Batchelder, a principal at Relational, said in an interview last week that the pay program wouldn't encourage Elliott's nominees to take action at the expense of long-term gains.
"Every day, a stock trades on a multiple of future cash flow," Mr. Batchelder said. "Every day it trades on its long-term value."
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