By Paul Hodgson – CCO and Senior Research Associate
Last year, almost a third of shareholders voted against ExxonMobil’s Say on Pay resolution.
This is well below average levels of support for Say on Pay, even among other oil companies some of whom actually paid their CEOs more than ExxonMobil despite being much smaller, and, as the company claims, much easier to run companies.
Proxy advisory firm exhortations to vote against the same Say on Pay resolution at the 2012 annual meeting caused Exxon to issue not only a written special proxy, but even to run a special webcast to defend their compensation policies.
We are already on record – indeed we frequently use it as a shining example – as congratulating the company on the lengthy restriction and retention periods attached to its restricted stock grants. Restriction periods of five years, 10 years, or through retirement are far more draconian than are found almost anywhere else and the company is rightly proud of them.
So why are shareholders so miffed about executive compensation at Exxon?
Could it be the $55 million in pensions amassed by CEO Rex Tillerson? Could it be the $122 million in unvested restricted stock?
Or could it be that they would like the restricted stock tied, and I mean really tied, to performance?
This is what the company said in the webcast:
The Compensation Committee has carefully considered this result as well as shareholder feedback on executive compensation through a wide-ranging dialogue between management and numerous shareholders, including the Company’s largest shareholders.
There was no consensus recommendation for any specific change to the design of our compensation program.
Dialogue included discussion on whether the Company should consider the use of formula-based pay tied to shorter-term metrics, such as 1- and 3-year TSR.
We believe that applying a short-term, formula-based approach to ExxonMobil’s compensation program would undermine the uniquely long-term requirements of our proven business strategy, which are characterized by investment lead times that can span decades.
Well, they were asking the wrong people.
No shareholder in their right mind would be interested in replacing five and 10-year restricted stock with performance shares based on three-year TSR. That’s ridiculous. Let me say here and now that most of this problem would go away if the company retained the restriction periods and applied performance conditions to them. Yesterday, speaking to a reporter, I suggested a 5-10 year return on capital employed (ROCE) metric against the company’s closest industry peers, and low and behold, on the webcast the company indicated that this was its favorite metric.
Who said anything about lack of consensus?
I’d encourage them to give me a call, except, of course, GMI Ratings doesn’t do consulting for corporations.
GMI Ratings gives ExxonMobil an ESG rating of D, largely driven by poor compensation and environmental scores, though its AGR is average.