Patriot Coal named coal industry veteran Paul H. Vining as its president and chief operating officer -- and is going to compensate him handsomely to stick around after it completes its $709 million purchase of privately held rival Magnum Coal, where Vining is currently CEO.
But it's really not that much of a surprise, because Vining is just part of the Appalachian-coal family so far as Patriot is concerned.
Patriot, one of the top five producers of metallurgical coal in the U.S., agreed to buy Magnum last April in a deal that will bolster its proven and probable coal reserves by almost a third, to 1.9 billion tons. (One interesting tidbit about that acquisition: Magnum is partly owned by Cascade Investments -- the personal investment fund of none other than Bill Gates.) Prior to last September, however, Patriot didn't exist except as part of mining behemoth Peabody Energy, which bills itself as the largest private-sector coal company in the world.
Now consider Vining's pay package. He'll start with a base salary of $600,000 -- almost twice the $329,000 average annual salary earned by coal-mining COOs, according to 2007 survey results of U.S. coal mining executives, published by InfoMine media. Vining also gets a $1 million retention bonus if he stays for two years, half of it payable on his first anniversary, and he'll be eligible for a performance bonus that could be worth another $1+ million.
He's in line to receive options and restricted stock, too, worth $3.9 million. It's a pretty rich compensation package by almost any standard, and even more so when you realize that Patriot's current COO had a base salary of only $375,000 in 2007 (pro rata based on the figures in Patriot's proxy filing, which only includes data for the last two months of the year following the company's spinout from Peabody).
In addition, unlike the Patriot miners digging for coal in shafts located miles under the earth, Vining also stands to win financially if the company fires him "without cause" or if he resigns for "good reason" -- the latter defined in the agreement as almost any reduction in his compensation, any rollback in his authority or significant relocation. Under those conditions, Vining could recoup twice his base salary, plus a bonus calculated via a complex formula.
Why is Vining being so handsomely rewarded? Is Patriot grooming Vining as a future CEO?
Doubtful. Rick Whiting, Patriot's current chief exec, is only 53, which is a little young to be considering retirement unless he has undisclosed health problems. (Vining is also 53.) Some further digging, however, unearthed another interesting fact that came out in the Patriot conference call in which it announced the Magnum acquisition:
Whiting: We know Paul Vining, Magnum's CEO, and several members of his senior management team very well, all having worked together in the past at Peabody.So at one level, Patriot may simply be welcoming other wayward Peabody sheep back into the fold. That's probably not the full explanation -- it's entirely possible that Vining's relationships within Magnum are so strong that integrating the two companies would be difficult without him. But it's intriguing nonetheless.