Proxy published: 3/25/15 Annual meeting date: 5/6/15

CONSOL Energy is another S&P 500 company in the midst of an executive transition.  Following last year’s annual meeting Nicholas Deluliis began as CEO; former CEO J. Brett Harvey assumed the position of executive Chairman.  In 2014, total disclosed compensation for Harvey was $15,061,360 and was $8,326,097 for Deluliis.  As executive chairman, Harvey received a salary of $750,000 as well as additional compensation. While this represents a reduction from his CEO salary, many shareholders are concerned with the practice of paying a former CEO to be an executive chairman. In addition, his employment agreement “provides service credit for eleven additional years of service for purposes of [the company’s] supplemental retirement plan,” a practice that inflates pension earnings and is now rarely seen.

We note, however, that Harvey retired from the executive chairman role effective January 2015, and that the company has no additional employment agreements.

The company made major changes to its annual incentive plan in 2014, “largely in response to certain shareholder comments that our program was too subjective and insufficiently based on our financial results.”  While in general we concur that objective, disclosed measures are preferable to subjective ones, it is critical that when such changes are made, the measures be appropriate.  That is particularly important in the quickly changing energy industry.

At CONSOL short term incentive is based 50% on coal performance, and 50% on gas performance. The compensation committee states that among changes it made to the program are “an increased emphasis on production, operating cost, and reserve replacement.” We had initial concern with the “reserve replacement” term – as there is a real risk of stranded assets in high cost, high carbon coal reserves (see As You Sow’s shareholder proposal in the proxy statement.)  However, further review showed that particular replacement metric is only for gas reserves, where it is more appropriate.  The two primary metrics under coal are production and operating cost. We note as well that environmental and safety metrics make up nearly a third of the metrics on coal, goals which seem appropriate. These appear to be appropriate metrics.