Due Compensation at Exxon?

Although the economy has been thriving over the last few years, not everyone has benefited. Some have been left behind even as corporate profits surge. While many corporate executives are doing quite well, others are not. For some CEOs the benefits of the booming economy have yet to trickle up to them. Take Lee Raymond the chairman of Exxon Mobil, who is retiring this year. Although he has been taking some flak from a few pundits who have squawked that his $400 million retirement package is excessive, when you crunch the numbers it turns out that Raymond is grossly underpaid.

Last year Exxon made the biggest profit of any company in history, due almost entirely to record gas prices. Do people think those gas prices just raised themselves on their own? Of course not. Raymond deserves the credit for coming up with the idea to raise gas prices and blame it on global supply and demand. It was a courageous business decision to make in the middle of a war, one that might have backfired. Indeed, Raymond had to endure an excruciating grilling by Congress where he was sniped at by Sen. Barbara Boxer for taking a $3.6 million bonus in 2004. Boxer, however, was just playing politics, annoyed that of the many candidates Exxon has supported with its largesse, 95% have been Republicans.

While $400 million may sound like a lot of money, it is actually a drop in the bucket, just 1/90th of the profit Exxon made last year. So Raymond has gotten a mere .01% of the money Exxon earned in one year in exchange for 43 years of service to the company. Like most retired people Raymond will now have to live off of this fixed income for the rest of his life.

And compared with other executives Raymond's annual compensation has been comparatively low. For example, Ivan Seidenberg, chief executive of Verizon Communications received $19.4 million in salary, bonus, and stock last year, a 48% increase over the year before. Seidenberg earned this raise by making sure that earnings fell only 5% and the Verizon stock price was down a mere 26% this year. Occidental Petroleum gave Chief Executive Ray Irani a raise of more than 50% last year. Contrast that with Raymond's comparatively paltry compensation: Although Exxon's earnings were up 44% last year and the stock rose 13%, he was given a raise of just 29%, to $69.7 million. From 1993, when he became Exxon's chairman, to 2005, Raymond has made only $686 million, which averages out to just $144,573 a day--the equivalent of 53,884 gallons of gasoline at today's average U.S. price per gallon of $2.683. That's not even enough to fill the fuel tanks of 3,000 SUVs. And despite guiding Exxon to record profits this year, Raymond's compensation has risen at little more than the average rate for corporate executives, which last year was 27% over the year before, barely enough to keep up with the cost of living.

Why are there such vast iniquities in corporate compensation? Who decides what these executives get paid? Unfortunately, most executives are at the mercy of independent consultants hired by the executives to decide what their compensation should be. These independent consultants are bound by a strict code of ethics that requires them to completely forget who hired them and render a totally objective decision, which is why many executives don't earn as much as they think they deserve. If executives don't like the independent consultants' decision, the only recourse they have is to not hire the consultants next time or take business away from them, since many of these consultants do other work for the company, which helps familiarize them with what the company does.

So what has Exxon been doing with its profits if it hasn't been handing them out willy-nilly to executives? The company has plowed them right back into the community, donating large sums of money to such charitable foundations as the Competitive Enterprise Institute, the American Petroleum Institute, the Frontiers of Freedom Foundation and the Cato Institute, organizations that have bucked the scientific community to prove that global warming is just a myth. Raymond himself has taken the issue on as a personal crusade, unafraid to confront lobbyists who stir up hysteria about climate change. "We do not now have sufficient scientific understanding of climate change to make reasonable predictions and/or justify drastic measures," he said in 2000. "Some reports in the media link climate change to extreme weather and harm to human health. Yet experts see no such pattern." In fact, in the 1980s Raymond was charged by Exxon to put an end to all the pointless and wasteful research at Exxon laboratories into alternative energy sources to fossil fuels.

After all of the service that Raymond has given to Exxon, some ungrateful and greedy stockholders are apparently not satisfied with the profits he has made for them. They are planning to introduce a resolution at the next shareholders meeting to cap executive compensation. But they would do well to heed the words that Raymond himself delivered to the Acton Institute in 2003. "In every aspect of life, including the economic dimension we are always challenged to do the right thing," he said, echoing Spike Lee. "We have seen that in this country in the last few years, particularly on Wall Street, with the rise of the old human frailty of greed. This occurs when people serve their own needs to the detriment of everyone else. To counter such trends, we must work to become not just players or owners but also stewards of the free market system."

While the shareholders' resolution has little chance of success, if the Democrats take over Congress this year, you can be sure they will play the Envy Card. They will probably raise the minmum wage for the first time in 10 years, further squeezing corporate profits. They might pass a windfall profits tax for Big Oil and scapegoat corporate executives like Raymond, who will become pawns in a new class war. Most Americans, I think, are too smart to fall for this ruse, however. The reason an overwhelming majority of Americans support tax cuts for the wealthy, for example, is that they think they might be wealthy themselves some day. Every American has an equally random chance to strike it rich or be born into a wealthy family. Someday, for example, it's possible I might be the chief executive of Exxon. And I don't want some politicians telling me how much I can earn for my hard work.

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