Occidental finally caps CEO pay gusher
U.S. oil group Occidental Petroleum is phasing out its $857 million man, Chief Executive Ray Irani. It’s hard to grudge him handsome pay over the years, given the company’s performance. But his board allowed it to get too generous. Shareholders should thank the activists who helped cap Irani’s rewards.
By any metric Irani has been lavishly rewarded for his 20-year stewardship of Occidental. His almost $900 million haul over a decade made him the third best paid U.S. chief executive over the period, according to a Wall Street Journal analysis published in July — ahead, for example, of Apple’s Steve Jobs.
Occidental shareholders should not be too upset. An investment of $100 made in Occidental 10 years ago would now be worth over $1,000 on a total return basis, against essentially no gain on the S&P 500.
Good fortune has played a part. Around three-quarters of Occidental’s production is oil, a source of energy that sells at a massive premium to the natural gas many of the company’s peers increasingly rely on. Plus the lion’s share of Oxy’s reserves is in Texas and California, so the firm benefits from the low royalty rates and political stability of the United States. That said, Irani can take credit, too. The company’s enviable position is the result of management judgment as well as historical luck. His contacts in the Middle East have also helped the firm win lucrative business.
Even so, the Oxy boss’s pay got out of hand and left industry peers trailing. Over the decade considered by the Wall Street Journal, Irani made more than twice as much as the bosses of XTO Energy and Chesapeake Energy, whose shareholders did even better than Occidental’s. Hence the push by two big Oxy shareholders, Relational Investors and the California State Teachers’ Retirement System, to force the company’s board to pay out less.
The outcome is a grown-up one of a kind that bankers’ egos would probably prevent ever happening at a Wall Street firm. The 75-year-old Irani will be paid much less, but as executive chairman for several years the company won’t lose his services. Meanwhile, the capable chief operating officer, Stephen Chazen, will take over as CEO, with a pay scale lower than his predecessor’s. It looks like a successful example of a board engaging, if perhaps belatedly, with activists for the good of shareholders.