Occidental Vs. Unocal: 2 Sides of Coin : Salary: The oil firms are similar in many ways. But one chief executive’s compensation is triple that of the other.
Occidental Petroleum Corp. and Unocal Corp. are similar in many ways. They’re both Los Angeles-based oil companies boasting more than $10 billion in sales. And they’ve both announced major restructuring plans that caused them to jettison thousands of workers.
But when it comes to executive compensation, the two firms seem polar opposites.
On one side, there’s Richard Stegemeier, who started his career at Unocal and slowly worked his way up the ranks before being named chief executive in 1988. He was paid $923,918 last year.
On the other, there’s Ray Irani, a dark-haired engineer with some 150 U.S. and foreign patents who was wooed away from Olin Corp. in 1983 and groomed as the successor to Armand Hammer, Occidental’s founder. Irani earned $3.2 million in total compensation last year.
At first glance, this striking difference in pay highlights the seemingly stark black-and-white arguments about executive compensation--a debate of excesses, fairness and pay-for-performance. But a closer examination reveals the complexity of the executive pay issue in its many shades of gray.
At Unocal, there is a lot of talk these days about executive pay. Stegemeier, who likes “consensus decisions,” took the relatively unusual step of presenting a sweeping pay-for-performance plan to shareholders a year ago. Unocal’s plan was designed to tie management pay to the company’s financial performance and returns to shareholders.
The end result was that Stegemeier took a $278,628 pay cut. Together, Unocal’s five most highly compensated executives earned roughly $450,000 less in 1991 than the year before, largely the result of reduced bonuses.
“The company’s return on equity did not meet its target,” Stegemeier told shareholders at the company’s annual meeting a few weeks ago. “Compensation for Unocal’s top management now more directly reflects the company’s performance, positive or negative.” (Unocal’s net income fell to $73 million in 1991 from $401 million the year before.)
Although 23% lower than last year, some would argue that Stegemeier’s annual paycheck is still generous. However, in comparison to his peers, it is low. As head of California’s ninth-largest public company, Stegemeier doesn’t even rank among the state’s 150 most highly compensated executives.
That’s caused him to win praise from shareholders and analysts alike.
“Kudos to Dick Stegemeier,” said Vivian Faure Rilliet, a longtime shareholder and critic of some Unocal operations.
She and others say it is proper for Stegemeier to suffer along with shareholders who saw stock prices languish as Unocal battled declining earnings in 1991. Some analysts said Unocal’s pay plan may help the company improve its long-term performance.
Across town, executive pay is probably not openly discussed in the company corridors. Occidental Petroleum officials declined to discuss how the company arrives at executive salary levels, except to say that it is set by the board.
What is clear is that Irani has quickly become one of California’s best-paid oil executives. He earned $2.3 million in salary and bonus alone in 1991. He was paid another $900,000 in stock awards and other compensation, according to the company’s proxy statement.
Occidental pays Irani’s state income taxes, which amounted to $366,626 in 1991. He got a $36,000 “relocation-related” payment. He earned $124,563 in director’s fees and $192,995 in incentive compensation from publicly held Occidental affiliates in 1991. His personal use of Occidental’s cars and property was worth another $45,724.
Some analysts and shareholders note that Irani has done good things during his short tenure as chief executive. Irani, Occidental’s president since 1984, gained the top spot in late 1990 when Hammer died.
In a little more than a year, Irani orchestrated an aggressive restructuring program that cut employment and sales in half while disposing of many unprofitable and “peripheral” businesses, including a coal mine in China, Arabian horses, a cattle-breeding operation, a movie production house and research facilities looking into shale oil and hybrid seeds. The restructuring program should make Occidental more profitable in the long run, the company says.
During 1991, Occidental also returned to profitability, posting net earnings of $460 million, contrasted with a loss of $1.69 billion the previous year. However, much of the income was from one-time gains from the sale of subsidiaries. Whether Irani can turn around Occidental’s long-term performance, which has been called everything from “lackluster” to “disastrous” by shareholder activists and analysts, remains to be seen.
Richard Koppes, general counsel for the California Public Employees Retirement System, says he is disturbed by Occidental’s pay practices. CalPers, which owns 2.6 million Occidental shares and frequently meets with company managers to air shareholder gripes, plans to investigate Irani’s pay and may formally object to the company’s board, he said.
“Pay packages like this are a symptom of something being wrong with the company’s board,” Koppes said.
Occidental defended Irani’s salary in a prepared statement that said he took the helm “at a very difficult time.”
The company also noted that while Irani’s pay may have jumped, total cash compensation paid to all executive officers fell by almost $5 million because Occidental jettisoned 11 of 29 executive officers.
