Occidental Petroleum chops top executives’ pay and sets Irani’s exit as CEO
After years of shareholder complaints about executives’ compensation, Occidental Petroleum Corp. said Thursday that it would significantly reduce how much it pays top officers and confirmed that Chief Executive Ray R. Irani would relinquish that job next year.
President Stephen I. Chazen will succeed Irani as CEO; Irani will stay as chairman but won’t be involved in most daily operations of the nation’s fourth-largest oil company.
Both changes grew out of shareholder concerns.
One involved Irani’s age, 75, and the lack of a clear succession plan at the Westwood company.
But of equal concern to investors was Irani’s compensation, which topped $30 million in 2009. Under the overhauled pay plan, the chief executive’s potential maximum earnings would drop to no more than $25 million from $90 million, with much steeper incentives attached to qualify for the maximum.
“These initiatives are an excellent example of how shareholders and a proactive board of directors can work together to solve complex governance issues,” said Anne Sheehan, director of corporate governance at the California State Teachers’ Retirement System, which in recent months joined with another big institutional investor, Relational Investors fund, to push for changes. Together, the two own 10.1 million shares in Occidental stock.
Spencer Abraham, an Occidental board member and chairman of its executive compensation and human resource committee, said that the changes in long-term compensation would put the company more in line with its peer companies.
“Under the old system, if a company finished in the top third of its peer group you could get the maximum. Now, you have to finish first in the peer group and outperform the S&P 500” to receive maximum pay, Abraham said.
The new program applies to Irani, Chazen and other senior Occidental executives. Abraham said that 2011 compensation figures won’t reflect the changes because they will reflect the last year’s performance and pay system.
Chazen could also help Occidental fall more in line with its peers in another important way, analysts said.
“My concern is the succession. Who will they bring in from the outside and who will they be grooming from the inside?” said Fadel Gheit, senior energy analyst for Oppenheimer & Co. Most major oil companies make it clear who the first, second, third and even fourth choices are for moving up to chief executive, he said.
Because Chazen is 65, Gheit said, “his task will be to build an executive team that will eventually succeed Irani and him.” Irani joined the company in 1983 as chief executive of Occidental Chemical Corp. He was the sixth potential successor who came to the company to be groomed for the top spot, and the only one who did not fall out of favor with founder Armand Hammer.
Irani, after 20 years as CEO, isn’t going away. His new role as executive chairman will be “to focus primarily on corporate strategy, Middle East operations and international business development,” the company said. Irani plans to step down from that post in 2014, the company said.
Analysts said that the choice of Chazen was never in doubt, especially because he and Irani considered themselves close partners in running Occidental.
Chazen joined Occidental in 1994 as executive vice president for corporate development, moving up to chief financial officer in 1999. He was named president in 2007 and added the duties of chief operating officer in August. Chazen also was elected to the board of directors this year.
“Steve is a proven leader who has been an integral member of the senior management team for many years, and I am confident that he will continue to make significant contributions to Occidental’s ongoing success and development,” Irani said in a statement.
Chazen said in an interview that there would be no major changes in how the company operated. Occidental has a reputation for finding surprising amounts of crude in old fields, sparring successfully with bigger competitors in making Middle East oil field partnerships and being tightly disciplined in everything but how much Irani earned.
Chazen said Irani’s new role would be real and not just window dressing.
“Ray and I have had this partnership for a very long time. Any changes would be evolutionary,” Chazen said.
“No one should think he’s going to be out playing golf all of the time.”
