The executives of bankrupt coal industry giant Arch Coal, which declared itself insolvent back in February, apparently were quite proud of themselves for driving their company into the ditch. So proud, in fact, that they decided to give themselves $8 million in bonuses right before filing bankruptcy paperwork.
Arch Coal Inc. paid its top executives more than $8 million in bonuses the business day before the company filed for bankruptcy in January, according to U.S. Bankruptcy Court for the Eastern District of Missouri filings published last week.
Bonuses on Friday, bankruptcy on Monday! You’d almost have to admire the chutzpah, if it weren’t for the fact that the bankruptcy process has squeezed retirees and shortchanged mine cleanup responsibilities. And what makes the self-serving bonuses even more galling is that they’re a drop in the bucket, considering that Arch’s corporate insiders paid themselves more than $29 million in the year leading up to bankruptcy.
Arch, along with many of its peers in the coal industry, simply choked on the overconfidence and incompetence of its own executives.
Now that the major players in the coal industry—not just Arch, but also Alpha, Peabody, Foresight, Murray Energy, and nearly 50 other coal companies—have descended into insolvency, it’s important to remember that most of them are victims of their executives’ own hubris. The coal industry likes to blame its financial collapse on Obama’s alleged “war on coal.” But mostly they’re just drowning in the debts their senior corporate officers took on at the very height of the international coal bubble—when coal industry executives flat-out misread global economic trends and assumed that coal’s best days were ahead of it.
In Arch’s case, the company’s real undoing was its multi-billion-dollar acquisition of International Coal Group, which was essentially a high-stakes bet that China’s consumption of high-value metallurgical coal would continue its meteoric rise for years. Like many of the coal majors, Arch got that bet dead wrong: they bought ICG close to the peak in the market, acquiring enormous and unsustainable debts for assets that ultimately were worth only a fraction of the purchase price. At the same time, technological shifts in natural gas and renewable energy left Arch’s portfolio of “thermal” coal (the kind used in power plants) increasingly uneconomic, reinforcing Arch executives’ folly in taking on so much debt.
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So in the end, the so-called “war on coal”—which was mostly just a belated effort to bring coal power plants up to twentieth-century health and safety standards—was almost irrelevant to the industry’s demise. Arch, along with many of its peers in the coal industry, simply choked on the overconfidence and incompetence of its own executives.
Soon after the bankruptcy filing we flagged the issue of executive compensation—i.e., how much coal-industry executives would pay themselves for destroying the wealth of their investors, the security of their retirees, and the integrity of the communities where they operate—as the #1 issue to watch in the Arch coal bankruptcy. Now we have a good idea of how that has played out: Arch’s top brass decided to make themselves obscenely wealthy for being supremely incompetent.