|
|
Get Four
|  | APRIL 14, 2006
By Peter Coy A Black Eye for Big OilThe outsize paycheck of former Exxon chief Lee Raymond is perfect ammo for industry criticsThose of us who have been defending Big Oil against talk of a tax on windfall profits are feeling embarrassed and ridiculous today. That's because Exxon Mobil (XOM ), which earned a record $36 billion in profit last year, has played right into the hands of its critics by lavishing an enormous pay package on its recently retired chairman and chief executive. According to a filing with the Securities & Exchange Commission posted on the ExxonMobil Web site, the company gave Lee Raymond a compensation package worth about $49 million last year, including salary, bonus, $32 million of restricted stock, and other forms of compensation (click here to read the filing). That's a lot of money, especially considering that ExxonMobil underperformed the Standard & Poor's 500 energy-company index over the last one-, two-, and three-year periods. On top of that, the SEC filing reveals that Raymond accumulated an enormous pile of money from the company over his 43 years of service. He has restricted stock worth $183 million (including the shares that were part of his 2005 pay package). He has $70 million worth of unexercised stock options, even after exercising $21 million worth last year. And the company gave him truly princely pension benefits, which he chose to take as a lump sum of $98 million. "LAST HURRAH"? Then there's the little but annoying stuff. You would think a retiree as rich as Raymond could pay for his own leisure and travel -- but no. Exxon is paying for Raymond's country club fees and part of his use of a company jet for personal travel. Not to mention a security system for his principal residence, security personnel, a car, and a driver. Graef Crystal, a Las Vegas-based compensation expert, says it all seems excessive. Referring to the restricted shares that were the bulk of Raymond's 2005 compensation, Crystal says, "In a way, I think it's a last hurrah. The gold watch has been replaced by $32 million in free shares." What's wrong with such enormous pay? Simply put, it's undeserved. ExxonMobil didn't earn $36 billion last year because Raymond did an amazing job as CEO. It earned that sum because world oil prices were extremely high, which reflected strong demand and tight supply. THANK THE SHEIKS. There was a time when oil-company executives understood this. Crystal says he was a compensation consultant to Mobil in the 1970s, when it was still an independent company, and remembers a conversation about whether to award the then-CEO a big bonus after profits shot up because oil prices rose in the aftermath of the first Arab oil embargo in 1973. According to Crystal, a member of the compensation committee thought a big bonus was unjustified, saying something like: "We're still pumping the same number of barrels we pumped last year. Our success is due to those white-robed sheiks." Precisely. That's a point that seems to have escaped the members of ExxonMobil's super-generous compensation committee last year. UNDER PRESSURE. When people advocate a windfall-profits tax on oil companies, it's because they're disgusted that people like Raymond are getting rich while ordinary motorists get sucked dry at the pump. As it happens, the instinct is wrong. In most years, oil companies don't earn big profits in comparison to their revenue. They depend on the occasional windfall to give them respectable overall returns. Taking away oil companies' profits when prices are high would discourage them from exploring for and producing more oil, which is essential to meeting the world's future energy needs. But when Big Oil chooses to spend its profits on making its top executives fabulously wealthy instead of drilling for more crude, it makes it extremely hard to resist the pressure to confiscate some of those enormous earnings. A response from Exxon Mobil: I would like to provide a comment. Mr. Lee Raymond's compensation reflects the long-term nature of his leadership at the corporation, and a very long and distinguished career. Mr. Raymond was with the company for 43 years, including 12 years as Chairman and CEO and 7 years as president. During Mr. Raymond's tenure as Chairman, the market capitalization of the company increased more than four times, and shareholder value more than five times. He oversaw the third largest merger in U.S. history, the fourth largest in the world. Shareholder dividends have increase every year for 23 years, and the company replaced more than 100% of its proved reserves for 11 years in a row. In 2005, the company had superior results, including the best safety performance among peer companies, record earnings and cash flow for any corporation, and the highest return on capital employed in industry. Well over half of the total compensation you mentioned is long-term in nature. In fact, the largest single component, restricted stock, is subject to 5 and 10 year restrictions, the longest restrictions of any major corporation. These restrictions continue even after his retirement. -Dave Gardner Media Relations Adviser Exxon Mobil Corporation  Coy is BusinessWeek's Economics Editor
BW MALL
SPONSORED LINKS
Get BusinessWeek directly on your desktop with our RSS feeds.
Buy a link now! Add BusinessWeek news to your Web site with our headline feed. Click to buy an e-print or reprint of a BusinessWeek or BusinessWeek Online story or video. To subscribe online to BusinessWeek magazine, please click here. Learn more, go to the BusinessWeekOnline home page  | | |
 Copyright 2006, by The McGraw-Hill Companies Inc. All rights reserved.Terms of Use | Privacy Notice |
Printer-Friendly Version
