Chevron Corp.
Summary:
After reviewing the entire executive compensation program we feel that there are two main issues: (1) Bonuses and other awards are given out on a highly discretionary basis and (2) Stock awards given out are sky high and need to be reeled in. If these two problems are fixed, the executive pay will be highly aligned with shareholders and the company will be able to avoid giving out excessive awards. Until then our grade can only be average.
Analysis:
Everyone in the oil industry seems to be enjoying the recent climb in oil prices. Oil speculation has become a booming industry in and of itself. The refineries are perhaps taking in the most out of everyone. As prices skyrocketed to over $4.00 per gallon for consumers throughout the country, companies like Chevron have experienced record-breaking profits. Chevron's stock price has also experienced a steady climb, even as most of the stock market has fallen.
So does Chevron pass on the windfall profits to its executives? As you will see, they do indeed payout a lot of money to their executives, especially the CEO. The real question is how aligned this is with shareholder interests.
So… What Are They Paid?
Base salary for both the CEO and the NEOs was normal for 2007. Bonuses given out were average ($3.6 million for the CEO and an average of $1.1 million for the NEOs), but there appeared to be a lot of discretion involved in the decision. In addition to bonuses, option awards given out were average to above average.
Perquisites received were relatively small compared to other DOW 30 companies. The CEO's personal usage of corporate aircraft accounted for $85,000, which is more than we would like to see, but far from the worst. All other perks are very minimal. When we looked at the termination and change in control section, we didn't see anything alarming. They do account for the accelerated vesting of options, but the total amount isn't too high.
So you may be thinking, "Where are all of the windfall profits they mentioned earlier?" Stock awards, stock awards, and more stock awards. Usually we like to see the compensation structure where most of the awards are coming from stock. This effectively aligns the interests of the executives with the interests of the shareholders. However, how much should executives be given? Certainly not as much as the CEO received… $19.4 million! The NEO average is not exactly small either… $5.4 million.
Compensation Details:
| CEO | NEO Avg. | |
|---|---|---|
| Base Salary | $1,650,000 | $776,407 |
| Bonus | $0 | $0 |
| Stock | $19,387,350 | $5,411,040 |
| Options | $6,650,584 | $1,915,537 |
| non-Equity Incentives | $3,600,000 | $1,118,750 |
Reference Links:
(1) Annual
Proxy Statement
(2) Annual
Report