Seems there is some complaining about CEO pay and performance, Ford and Home Depot being but two recent examples. The latest headline I saw today: Occidental CEO got more than $400 million in 2006. According to the article, most of this $400 M is from the exercise of options awarded during the last ten years. Dr. Ray Irani’s pay was “only” $1.3 M, with a cash bonus of $1.4 M, with $55.6 M in stock and other options, and $93.3 M in stock and options from a deferred stock program. With the $270.2 M in options, this comes to a total of $421.8 M. Wow.
Occidental’s proxy statement (filed here with the SEC), states that “during his leadership as CEO since December 1990, the strategy set by Dr. Irani has resulted in significant increase in stockholder value. From December 1990 through 2005, Occidental’s stock price increased from approximately $9 per share to approximately $40 per share, and its cumulative total stockholder return for this period has been 699 percent.” However, during the last ten years, haven’t we also seen a dramatic increase in the price of oil, from around $10 a barrel in 1998-99 to just over $60 today? (Source) And looking at the stock chart, we can see that most of the increase in the stock price occurred since 2003, when oil was still in the $25-30 range. If you had owned Occidental stock from 1990 to 2003, you would have not seen any gain in share price, although I have not been able to find out how the stock performed with the dividend.
The question that should be asked is whether this amount of compensation (and options, and bonuses, and deferred compensation) is justified. The market cap is currently $41 billion, revenues (as of 12/31/06) of $18 B, and net income of $4 B, so the compensation total is 10% of the company’s net income for the entire year (although I’m not sure how the compensation would be accounted for in the company’s balance sheets). Was the increase in stock price the result of Dr. Irani’s leadership, or the fortuitous result of the 6X increase in oil prices? Let’s just say I think Dr. Irani is pretty glad that oil is as expensive as it is…
BTW, serving as a Director of the company seems to be a pretty good gig as well. There are only 6 meetings during the year (with some additional subcommittee meetings), and the Directors earned from $334,000 to $469,000. Pretty nice…
