Did oil execs luck into record pay?
Oil stocks and oil company profits are soaring, and their CEOs’ compensation is hitting the stratosphere — even as the companies claim they’re not to blame for high oil prices.
By Michael Brush
Many Americans are struggling to make ends meet because of $75 and $100 trips to the gas station.
Executives at oil companies are getting rich because of those same trips. And what do those CEOs have to say for themselves?
“It’s not our fault” — or something along those lines.
Big Oil CEOs are pulling down record pay even as their companies tacitly concede they didn’t do anything extra to earn it. When anyone asks why gasoline costs $4.50 a gallon, they cite factors beyond their control, such as speculators or global demand.
That doesn’t stop these CEOs from cashing in. Their pay hinges largely on two things: profit and stock price. It’s no surprise that an oil company’s profit would rise with the price of oil, as would its stock price. The CEO doesn’t have to be a genius. A pulse will suffice.
“They are getting a gift for being in the right place and being lucky,” said Mark Van Clieaf of MVC Associates International, a consulting company that advises boards on pay for performance.
And don’t buy the pleas of innocence. These CEOs negotiated pay packages that compensate them with millions of dollars during normal years — and during times like now, stock awards propel their pay into the stratosphere.
Chief executives at big oil companies such as ExxonMobil (XOM, news, msgs), Chevron (CVX, news, msgs) and ConocoPhillips (COP, news, msgs) earned from $15 million to $21.7 million last year, well above the $9.9 million median for CEOs at S&P 500 ($INX) companies, according to The Corporate Library. Plus, these energy company CEOs are now sitting on hundreds of millions of dollars worth of incentive stock and options grants.
ExxonMobil chief Rex Tillerson made $21.7 million last year, according to Equilar, an executive compensation research firm.
Tillerson’s pay included a bonus of $3.36 million. In addition, he was sitting on about $77.9 million worth of unvested incentive stock, thanks to an increase in ExxonMobil’s stock price last year to $95 a share from $63.
Why did Tillerson make so much more than the average CEO last year? By the company’s own admission, you can’t attribute it to his management skills. Instead, Tillerson realized an enormous amount of wealth because much of his pay was linked to short-term metrics such as increases in ExxonMobil’s stock price and net income, factors driven primarily by the price of oil.
After all, when it comes to the price of oil or gasoline at the pump, Tillerson or ExxonMobil have little control, said J. Stephen Simon, a company senior vice president and board member, when he testified in May before the Senate Judiciary Committee.
“It’s not our profitability in this business that’s driving the higher price that consumers pay. It’s the raw materials that we have to purchase on the open market to produce those products for our customers,” said Simon, blaming scarcity and geopolitical uncertainty.
ExxonMobil said executive pay isn’t all linked to short-term metrics, though. Last year, for example, 60% of Tillerson’s compensation consisted of restricted stock that wouldn’t vest for 10 years or until retirement, whichever period was longer.
The company also links some portion of executive pay to strategy development and to improvements to safety, health and environmental impact. But it didn’t say how much.
At Chevron, chief David O’Reilly made $15.7 million last year, according to Equilar, including $3.6 million in bonus pay. O’Reilly had $26.3 million worth of unvested stock grants at the end of the year.
Like Tillerson, much of O’Reilly’s salary is linked to short-term metrics that include earnings and the movement of the stock price.
Chevron Vice Chairman Peter Robertson, in essence, conceded O’Reilly’s bonus pay had little or nothing to do with his management skills. That’s because, he said, Chevron isn’t to blame for the soaring cost of crude in the world markets. Yet it’s those same high crude prices that helped Chevron perform so well last year, leading to executive bonuses.