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Strong, independent board is key to fair executive compensation, expert says

Problems with executive compensation generally signal corporate governance issues, expert says.
by Adam Wilmoth Modified: January 15, 2013 at 9:40 pm •  Published: January 16, 2013

SandRidge also has disclosed that director Roy Oliver has an ongoing business relationship with the company. SandRidge for the past six years has leased office space from Oliver's R.T. Oliver Investments Inc. for $510,000 a year. The regulatory filings do not state which building is leased.

SandRidge said that relationship, too, is immaterial because the deal has “a relatively small value compared to Mr. Oliver's other business interests.”

In a 2008 regulatory filing, SandRidge disclosed that the company paid director Daniel W. Jordan more than $23 million from 2004 to 2007 to buy leases, oil and natural gas wells and other related transactions. SandRidge also said that from 2004 to 2007, Jordan contributed more than $12.6 million to the company's drilling projects.

The company said in 2008 each of the transactions “was determined to be in the best interest by the disinterested members of our board of directors.”

“We believe the terms of these transactions were similar to those that could have been obtained from an unrelated third party,” the 2008 filing stated.

Ed McGaughey, managing director of executive compensation consultant Pearl Meyer and Partners, could not address SandRidge specifically, but said public disclosure can help companies meet regulatory requirements.

If a business relationship is disclosed, it is up to shareholders to decide whether they agree that the relationships are immaterial, McGaughey said.

Guay could not address SandRidge specifically, but he said disclosure of potential conflicts often is the most important factor in whether those conflicts are considered material.

“If it is disclosed, presumably the SEC is aware of it,” he said. “The auditor has signed off on it and the chief executive officer has signed off on it.”