As consumers around the world struggle to fill their gas tanks, captains of the oil industry are getting a raise.
Starting with info provided by Capital IQ (which, like BusinessWeek, is a unit of The McGraw-Hill Companies (MHP)), BusinessWeek asked executive compensation research firm Equilar to analyze compensation of the chief executives of the 25 largest publicly traded global oil and gas companies (see the accompanying slide show for the full list of CEOs and what they were paid). Equilar's study found that for the 12 CEOs at the largest U.S.-based, publicly traded oil companies, median total compensation increased by more than four times the rate of that of executives in the Standard & Poor's 500-stock index as a whole.
Oil executives' pay is rising at the same time consumers are spending more on everything from gasoline to food, and movie tickets to airline fares. Crude oil prices reached an all-time trading high of $139.89 on June 16, before settling at $134.44 on the New York Mercantile Exchange—double the price of one year ago. Also on June 16, gasoline prices set another all-time record of $4.08 per gallon.
Managerial Prowess?
Some analysts say these CEOs are receiving pay raises based more on factors they don't control—such as sharply rising oil prices—than on managerial prowess. "Energy companies' improved performance is almost entirely due to high oil prices," says Paul Hodgson, an executive pay expert for Corporate Library, a Portland (Me.) corporate governance research organization. "But if [their executives] deny culpability for high oil prices, why are they getting rewarded for them?"
Equilar found that executive compensation for the CEOs of the 12 largest U.S. oil outfits rose by 5.8% from 2006 to 2007, from a median of $14.6 million to a median of $15.4 million. That's more than four times the increase of compensation for S&P 500 CEOs, whose median increased by 1.3% from 2006 to 2007, or $8.7 million to $8.8 million, according to Equilar.
For the U.S. companies in the study, total compensation includes base salary, bonus, payouts form short-term and long-term incentive plans, the grant-date value of new stock and option awards, and other compensation.
The Top Two
Topping the list for 2007 compensation in the sector was Occidental Petroleum's (OXY) longtime chief Ray Irani, who received a $33.62 million package in 2007, actually down from $52.14 million in 2006. The head of the No. 1 U.S. energy major had the No. 2 compensation package: ExxonMobil's (XOM) Rex Tillerson, with $21.66 million in 2007, up from $18.37 million in 2006.
Occidental spokesperson Richard Kline says Irani's pay is well deserved. "Last year the company hit the ball out of the park with a record performance, and the best in the industry," says Kline. "This is superior pay for superior performance, and it serves the best interests of the corporation and its shareholders."