Is Exxon Mobil's $400 Million Retirement Package for Its Former CEO Justifiable?

[Astronuc]

Senator rips ex Exxon CEO's retirement package
http://news.yahoo.com/s/nm/20060418/pl_nm/energy_exxon_senator_dc_1

WASHINGTON (Reuters) - Amid record oil prices and soaring gasoline costs, Exxon Mobil's $400 million retirement package to its former CEO is a "shameful display of greed" that should be reviewed by Congress and investigated by federal regulators, Democratic Sen. Byron Dorgan said on Tuesday.

Dorgan said he wants Exxon Mobil officials to appear at a Senate Commerce Committee hearing to explain how the corporation "justifies" giving its former boss, Lee Raymond, such a huge retirement package.

"There can be no more compelling evidence that the price gouging and market manipulation which has produced record oil prices is out of control, and is working to serve the forces of individual greed and corporate gluttony at the painful expense of millions of American consumers," Dorgan said.

Dorgan's criticism of Raymond's financial package came on the same day that U.S. crude oil prices hit a record high of more than $71 a barrel at the New York Mercantile Exchange.

and "For Leading Exxon to Its Riches, $144,573 a Day" NYTimes - April 15.


Meanwhile - Oil Prices Settle Above $71 a Barrel

WASHINGTON - Oil prices settled at a new high above $71 a barrel Tuesday as supply threats around the world overshadowed a new report from OPEC forecasting weakening global demand.

So gasoline will be more expensive for the forseeable future.


Well, it's not like anyone's forcing you to buy gasoline.

 

[chroot]

I ride my bike to work as often as I can. It's wonderful, especially in spring. More people should try it.

- Warren

 

[luckycharms]

Subway rider and/or walker here. My seldom used car gets 30+ mpg.

If you don't like his retirement package, don't buy his product.

 

[Pengwuino]

Yah, corporations should be forced to bow down to public opinion more often no matter how much gas the public decides on its own to use. Consumers' responsibilities and the US Constitution does not apply here.

 

[russ_watters]

People use a lot of oil so oil prices are high so oil companies make big profits so the outgoing CEO gets a big golden parachute. Seems logical to me...

Politician pontificating.

I'm just upset that I didn't invest in Valero when my parents did.

 

[Pengwuino]

I wonder why aren't senators "outraged" at Bill Gates being worth more then the GDP of many small nations while Windows XP and Office are being sold for $300 and $500 respectively, thus, gouging computer users.

 

[chroot]

Personally, I don't think oil prices should be fixed by the government; I still blindly believe in a free-market economy. To make this point clear: I could care less about the consumers who continue to voluntarily buy so much gasoline to fund this little pig-out. They really do have other options.

I'm more concerned that a $400 million executive retirement package is screwing the shareholders. Keep in mind that most of that package is restricted stock and options that involve the company actually issuing new shares, thus diluting the value of the shares owned by other people. It's a pretty clever way, essentially, of taking a little money out of a lot of investors' pockets and amassing a fortune in your own pocket.

When you consider that most of the floating shares of publicly-traded companies are held by institutions (money-market funds, mutual funds, and so on), you begin to realize that such retirement packages actually screw everyone who has a 401k, an IRA, a certificate of deposit, a T-note, or any other investment of any kind. That ticks me off, Russ.

Pengwuino -- this is the reason no one is crying about the cost of Windows. You don't have to buy Windows, but Big Oil is forcing you and everyone else with any kind of market investment to fund this CEO's pig-out.

Unreasonable executive compensation has been a big issue for a long time now; investors are basically trying to lynch this guy as an example.

- Warren

 

[Pengwuino]

Wait wait wait, since when has MSFT been a private company?

 

[chroot]

Wait wait wait, since when has MSFT been a private company?

What are you talking about?

- Warren

 

[Pengwuino]

What are you talking about?

- Warren

Microsoft is a publicly traded company just like oil companies. Investment institutions own microsoft just like oil companies. 401k's, IRA's, CD's and MMA's may have microsoft shares as asetts just like oil companies. What's the difference?

 

[russ_watters]

Personally, I don't think oil prices should be fixed by the government; I still blindly believe in a free-market economy. To make this point clear: I could care less about the consumers who continue to voluntarily buy so much gasoline to fund this little pig-out. They really do have other options.

Agreed, and frankly, I think high oil prices are necessary to encourage people to find alternatives. Being a believer in the free-market as well, I think that if thin wallets are required to convince people to go back to nuclear power (among other things), then so be it.

I'm more concerned that a $400 million executive retirement package is screwing the shareholders...

That ticks me off, Russ.

Ehh, yeah, I might agree with that. I didn't read the article and don't know quite where that money comes from, but often these things are tied to stock performance, so it may just be that he got a big package because the stock doubled. If the stock got diluted by 0.1% while going up 100%, am I going to complain? Probably not.

Options are more fair (to the shareholders) than a stock gift, though, because they require the stock to go up before the CEO makes any money.

 

[chroot]

Microsoft is a publicly traded company just like oil companies. Investment institutions own microsoft just like oil companies. 401k's, IRA's, CD's and MMA's may have microsoft shares as asetts just like oil companies. What's the difference?

You have no clue what you're talking about.

I'm talking about grants of options and restricted stock diluting maket value of a company's float, which affects everyone in the market, including me and everyone else with a retirement plan or investment of any kind. I have no choice; I cannot opt out of it.

Microsoft pricing a product higher than what you (or I) deem reasonable doesn't affect me at all, unless I actually choose to purchase it.

Your "argument" isn't even remotely related to mine.

- Warren

 

[russ_watters]

Microsoft is a publicly traded company just like oil companies. Investment institutions own microsoft just like oil companies. 401k's, IRA's, CD's and MMA's may have microsoft shares as asetts just like oil companies. What's the difference?

I'm not following you either...

 

[Pengwuino]

Oh geez ok nevermind. I understand what you were saying. I seem to have been way off the mark there.

 

[russ_watters]

You seem to have been talking about price gouging (which was mentioned in the OP), but that isn't what chroot was talking about...

 

[chroot]

If the stock got diluted by 0.1% while going up 100%, am I going to complain? Probably not.

The first rule of arguing finance: don't make up numbers to support made up arguments. Many people will say this: I'm a shareholder. What do I care if the company rips me off a little, so long as the share price keeps going up? The truth is that if every other company, in which you are not a shareholder, does the same thing, the entire market is paying for these greedy executive's unreasonable compensation packages. It adds up to a significant impact on the market as a whole.

Options are more fair (to the shareholders) than a stock gift, though, because they require the stock to go up before the CEO makes any money.

This is also incorrect. A gift of floating stock is exactly equivalent to cash. There's no harm to the market at all if a company buys x shares of stock and hands them to the CEO. Most people wouldn't be so pissed off if the companies just paid their execs in cash. Options, on the other hand, create new shares. They don't affect just the buyer and seller, they affect the entire market.

- Warren

 

[luckycharms]

He's probably the wrong one to pick on for unfair executive compensation. Under his tenure, he took the company from $280 bn market cap to $388 bn. That means he added $108 bn to the company's value and is keeping <0.4% for himself.

In principle, I'd probably agree, but I'd guess that most investors probably aren't upset that he nearly doubled the price of their stock. It's the guys who tank their stocks and then walk away rich who should be the boogie-men. This is just political posturing.

Plus, he's a ChemE PhD. I went to all those grad school career counseling workshops and no one mentioned oil mogul. I'm writing a strongly-worded letter.

 

[chroot]

Again, the only people who care that the stock price doubled are the shareholders. These grant-based executive compensation packages screw everyone, even people who have no intention of ever buying the company's stock.

- Warren

 

[Pengwuino]

I still don't get your point chroot. Which investment vehicles actually give the user 0 ability to actually see what companies are being invested in?

Wait wait don't answer that yet... got to get a grip on what's going on here.

Actually chroot, isn't what your extending extendable to every person who gets stock options down to the lowest salesman? Are you saying all stock option plans are bad?

 

[luckycharms]

You make a good point. I just don't think that this is what the politicians are getting in an uproar about. They're selling a far simpler product: "Look at that rich guy and look at your life. Vote for me."

 

[Pengwuino]

You make a good point. I just don't think that this is what the politicians are getting in an uproar about. They're selling a far simpler product: "Look at that rich guy and look at your life. Vote for me."

Well of course they are but this is actually something that would have implications in the non-ranting world of politics, ie wall street, thus it has some merit to be discussed (although i suspect in a more sensible portion of the forum).

 

[russ_watters]

The first rule of arguing finance: don't make up numbers to support made up arguments.

Heh - yeah, I considered that. Probably doesn't help that I still haven't read the article...

Many people will say this: I'm a shareholder. What do I care if the company rips me off a little, so long as the share price keeps going up? The truth is that if every other company, in which you are not a shareholder, does the same thing, the entire market is paying for these greedy executive's unreasonable compensation packages. It adds up to a significant impact on the market as a whole.

Not really. For stock options to yield an absurd amount of money for a CEO (or anyone else who gets stock options), the stock must go up an absurd amount. I'm going to have to make up some more numbers to explain that...

Lets say some company's stock is currently worth $50 a share. If the company wants to give the CEO a $1 million salary this year on a nominal 5% rise in the stock price (a half-decent year), that's 400,000 shares of stock at a rise of $2.50. If the stock doubles instead, the CEO has made $20 million instead of $1 million.

This is also incorrect. A gift of floating stock is exactly equivalent to cash. There's no harm to the market at all if a company buys x shares of stock and hands them to the CEO. Most people wouldn't be so pissed off if the companies just paid their execs in cash. Options, on the other hand, create new shares. They don't affect just the buyer and seller, they affect the entire market.

- Warren

I thought options were paid out of the same pool of stock that the company already owned. The reason why I would prefer options is because they require the stock to go up before the recipient makes any money. A buddy of mine worked at UNISYS for 5 years, did well enough to get awareded some options, and ended up with worthless options (actually, I'm not sure if he still has them, but they were worthless when he left the company).

 

[chroot]

I still don't get your point chroot. Which investment vehicles actually give the user 0 ability to actually see what companies are being invested in?

Let's say I directly buy a floating share of company X. I have no connection with Big Oil, but Big Oil is sucking money out of the entire economy, depressing the share price of its own stock, and thus depressing the capital that other people might use to buy my share of company X. The result: my share of company X is less valuable because Big Oil screwed many (or all) of my potential buyers.

Again, it's a "small" effect. If I own mutual funds or other financial products that involve Big Oil, I am assuredly still in the black -- just less so. Our economy is doing well these days, so we're not going to die of a thousand paper cuts. That doesn't mean investors should just let the paper cuts happen. They're still egregious market-screwing events.

The $400 million has to come from somewhere, after all. The shareholders are paying $400 million for an expense that does nothing but weaken the value of their investments. It's not a good deal for anyone but the piggie CEO.

- Warren

 

[chroot]

Actually chroot, isn't what your extending extendable to every person who gets stock options down to the lowest salesman? Are you saying all stock option plans are bad?

Stock options are always bad for investors, but they're good for employees. Attracting good employees and keeping them happy, of course, feeds back into making a company good for its investors. It's a delicate balance. A $400 million pig-out, however, is abusing that balance.

- Warren

 

[Pengwuino]

Yah there is that connection and that small effect. This is still pretty rediculous to be calling for senate sponsored lynchings to a single small group of companies or whatnot just so some politician from new england can keep himself in office.

 

[chroot]

Yah there is that connection and that small effect. This is still pretty rediculous to be calling for senate sponsored lynchings to a single small group of companies or whatnot just so some politician from new england can keep himself in office.

This is a problem that's happening (to more and more ridiculous extent) in every large company all across America. It's a recent phenomenon, and people would like to see it stopped.

- Warren

 

[Pengwuino]

Stock options are always bad for investors, but they're good for employees. Attracting good employees and keeping them happy, of course, feeds back into making a company good for its investors. It's a delicate balance. A $400 million pig-out, however, is abusing that balance.

- Warren

Whoa but where do you draw the line? When is it good vs. pigging out for an employee that produces $100k worth of goods compared to a CEO that arguably could have produced $100billion worth of goods based on their management?

 

[russ_watters]

Again, the only people who care that the stock price doubled are the shareholders. These grant-based executive compensation packages screw everyone, even people who have no intention of ever buying the company's stock.

- Warren

I'm not following you now - how does it screw every investor if one company gave stock options?

For stock options to be worth something, the company has to perform well. If the company performs well, then the effect of dilution would be minimal. If the company peforms badly, then the effect of dilution would be nonexistent (all the options would be worthless). For a gift, there would be a dilution effect regardless of whether the stock is performing well.

 

[chroot]

I thought options were paid out of the same pool of stock that the company already owned.

No. Employee stock option grants involve the creation of new shares.

- Warren

 

[chroot]

Whoa but where do you draw the line? When is it good vs. pigging out for an employee that produces $100k worth of goods compared to a CEO that arguably could have produced $100billion worth of goods based on their management?

When the investors (or Senators, I guess) are pissed off, you've crossed the line. :rofl:

- Warren

 

[chroot]

For a gift, there would be a dilution effect regardless of whether the stock is performing well.

How many times do I need to tell you that option grants involve the creation of new shares?

- Warren

 

[Pengwuino]

When the investors (or Senators, I guess) are pissed off, you've crossed the line. :rofl:

- Warren

Yah but Senators are just trying to get votes, they are worthless. The guy could have gotten a $40 million plan and the same reaction would have happened. Are the shareholders "pissed off"?

 

[chroot]

Do you read any investment literature? Magazines? The Wall Street Journal? Anything? Value Line? :rofl:

Investors from here to Japan are pissed off about this. It's pretty much the grudge du jour.

- Warren

 

[russ_watters]

Let's say I directly buy a floating share of company X. I have no connection with Big Oil, but Big Oil is sucking money out of the entire economy, depressing the share price of its own stock, and thus depressing the capital that other people might use to buy my share of company X. The result: my share of company X is less valuable because Big Oil screwed many (or all) of my potential buyers.

Again, it's a "small" effect. If I own mutual funds or other financial products that involve Big Oil, I am assuredly still in the black -- just less so. Our economy is doing well these days, so we're not going to die of a thousand paper cuts. That doesn't mean investors should just let the paper cuts happen. They're still egregious market-screwing events.

The $400 million has to come from somewhere, after all. The shareholders are paying $400 million for an expense that does nothing but weaken the value of their investments. It's not a good deal for anyone but the piggie CEO.

- Warren

That's a tough scenario. The economy is doing well but could be doing better if Big Oil weren't turning so much profit. Ehh, sure, but how much? If Big Oil did only well enough that this ceo got $200 million (heck, or even $2 million), would it pump another hundred billion (1%) into the economy? Probably not, and that's about what it would take for me to care.

 

[chroot]

would it pump another hundred billion (1%) into the economy? Probably not, and that's about what it would take for me to care.

Who cares about the entire economy? I care most about my investments, which comprise a small percentage of my cash flow. I'm concerned about my retirement savings, even if you're not.

- Warren