Irani's Compensation Continues To Mystify

Todd Shriber
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The oil industry is littered with controversial executives, some of which arrive at that point by their own doing while others get there simply because they help run a big oil company and picking on big oil is sport for some folks. When it comes to compensation though, one oil executive takes the cake, that being Occidental Petroluem's soon-to-be former CEO Ray Irani who earned a tidy $76.1 million in 2010, more than double his 2009 pay.

In the essence of fairness, Irani is not being forced out the door at Occidental (OXY). He has been running the fourth-largest U.S. oil company since 1990 and when he leaves next month, he'll be able to hang his hat on delivering value for shareholders, including a rise of nearly 600% in Occidental shares under his stewardship. Not to mention, the company's dividend has nearly quadrupled since 2003 in which time there has been ten increases.

On the other side of the fairness coin, Irani has had some years of downright excessive compensation and Occidental shareholders finally had enough in 2010. They have at least earned a pledge from the company that it will rein in its compensation practices in the future. How much Irani has made is only part of the issue. What investors get in return is the other part.

In 2010, shares of Chevron (CVX) and Occidental were both up roughly 20%, but Irani made nearly $60 million more than Chevron CEO John Watson. No one is going to cry for Watson, but he runs a company that is almost two-and-a-half times as large as Occidental based on the market values as of the close Tuesday.

Again, I'll be fair and say Occidental shares doubled the returns of Exxon Mobil, the largest U.S. oil company, in 2010. But Irani made more than triple what Exxon CEO Rex Tillerson made and Exxon (XOM) is more than five times bigger than Occidental. Rounding up by a few pennies and including the dividend, had you bought 100 shares of Occidental on Dec. 30, 2009, that would have cost $8,200. Today that is worth roughly $10,100. Put another way, for every one dollar Irani made shareholders in 2010, he made $4 million.

Yes, Irani is departing and overall, he has done a fine job leading Occidental, but neither he nor the company is immune from more compensation controversy in the near-term. Think back to 2006 when former Exxon CEO Lee Raymond retired and the company was widely criticized for lavishing a $400 million retirement package on him. That's a lot of money under any circumstances and should last for the rest of Raymond's life.

In the same year, Occidental paid Irani a staggering $460 million. That makes his 2010 pay look like a bargain and is enough to perhaps cause some slight shareholder concern over what kind of golden parachute Irani will be flying off with. Occidental shareholders can only hope gone are the days of the company's CEO making nearly half a billion dollars in a single year.