Irani’s golden years all green
Occidental Petroleum Corp. Chief Executive Ray Irani, who collected more than $55 million in compensation last year, appears destined to become one of the nation’s highest-paid octogenarians.
Under a newly extended contract with the Westwood-based oil company, Irani, 72, is set to keep his job -- and continue to earn top-dollar payouts -- past his 80th birthday in 2015.
Occidental has also revamped its long-term compensation plans for Irani and other top executives, adopting ones that more closely link pay to performance benchmarks favored by shareholders, according to a report filed late Friday with the U.S. Securities and Exchange Commission. Last year, Irani collected a $270-million profit on previously granted stock options.
Corporate governance experts questioned why Occidental made such a lengthy extension to Irani’s existing contract, which wasn’t set to expire for more than two years. The new contract stretches Irani’s service well beyond the company’s stated age limit of 75 for board members.
“That’s kind of cutting against best practice,” said Patrick McGurn, executive vice president of Institutional Shareholder Services, a group that advises companies and investors about corporate governance issues. “That’s outside the norm.”
Occidental spokesman Richard Kline said the company would waive the age limit in Irani’s case.
“The board is extremely pleased with Dr. Irani’s leadership,” Kline said. The company’s performance has been good, he added -- the stock price has risen from $9 to more than $61 since Irani took over in 1990 -- “and this reaffirms that he is going to be a part of driving that for the next eight years.”
Irani stands to gain more than $82 million in cash and stock, an amount roughly in line with previous years, if Occidental meets new three- and four-year performance goals, Kline said.
Irani would collect $58.5 million if Occidental earned a return on equity of 54% or more over the next three years.
Return on equity, a common statistic on Wall Street, measures a company’s profit against shareholders’ investment in the business. If the measure falls below 33%, Irani would earn nothing under that part of the plan.
Under a second new plan, Irani could earn up to $23.6 million in cash and stock based on how well Occidental’s total return to shareholders stacks up against returns of the company’s peers over a four-year period. Chief Financial Officer Stephen Chazen and four other Occidental executives are also included in the new incentive plans.
McGurn said the company’s latest approach was an improvement over the kinds of compensation packages that had in the past made Occidental “the poster company for excessive pay.”
“It shows you how far the debate on compensation has come when a company and a board that didn’t seem to know the meaning of pay-for-performance a couple years ago, now has taken steps to move more in that direction,” McGurn said.
Occidental’s stock has been soaring. Its share price is up more than 25% this year and closed at $61.37 on Monday, down 73 cents.
Occidental and most other oil companies have been enjoying record profit and soaring stock prices, but much of it has been fueled by the higher prices they can charge for their crude oil. That has caused McGurn and others to question how much of an oil company’s gains can be attributed to good management as opposed to rising commodity prices.
“While a lot of CEOs in the oil industry have benefited from the rise in oil prices in recent years ... given the size of the company, [Irani’s] pay is extraordinary compared to his peers,” McGurn said. Even under the new plans, he said, Irani “still stands to make a significant amount of money.”
