Exxon Mobil Corp.
Summary:
After combing through the SEC filings we have concluded that the stock incentive program is inappropriate and excessive. Exxon is paying its execs in stock awards like it has money growing on trees in the backyard… but money trees don't exist. Instead of taking the money from its backyard, Exxon is taking it from the pockets of its shareholders. Is this how you want to be treated by the companies you invest in?
Analysis:
The Petroleum Industry is doing OK – Understatement of the Year! If you're in this industry, you're now playing with the big boys. This industry has some of the biggest companies the world has ever seen. Total sales for this industry in 2007 were approximately $1,600,000,000,000. That's a lot of zeroes. Further still, future projections have sales climbing as high as $2.3 trillion within the next 3 to 5 years.
In addition to being large in size, the industry can claim some of the best margins around. With average operating margins standing at a robust 18.9%, we would say that it's definitely a good time to be an oil man.
Exxon Mobil has come to benefit from these booming years as well. The stock price has risen from $30 in 2003 to as high as $95 recently. No wonder everyone is paid in stock!
So… What Are They Paid?
Exxon Mobil has an interesting executive compensation program. On the surface, it looks like the program compensates executives well, but not excessively. The company does not account for any options or non-equity incentive compensation and bonuses and stock awards appear to be appropriate. However, when you do a little digging you begin to see why the program appears unusual. The further you dig, the more you discover.
The crux of the incentive program is stock "incentives" given out to management. Although the company provides a salary and some bonuses, all of the executives get the majority of their money from stock. The reported stock awards for the CEO, Rex Tillerson, were a modest $5.7 million, but that doesn't tell the whole story. If we look at what he received this year in restricted stock, we find out that he was given 185,000 shares, with a current market value of $16 million! That's just under his total reported compensation for 2007. Additionally, too much of this award is based on the discretion of the compensation committee.
An additional section in the Proxy statement shows that Mr. Tillerson has a total of 830,500 shares worth approximately $78 million that have not yet vested. This tells us that awards, like the 2007 stock award, are very common and are accumulating quickly.
The story is similar for all of the other NEOs. They also have a large number of shares that have not yet vested. The value of these awards range from $21 million to as much as $52 million. This program is meant to align the goals of the executives with the long-term objectives of the company and long-term shareholder value, but isn't it a little excessive? How much more incentive do they need to do a good job? They should want the company to perform well because of the stock they already have, not just keep adding on to the stockpile of money buried deep in the footnotes of SEC filings.
Compensation Details:
| CEO | NEO Avg. | |
|---|---|---|
| Base Salary | $1,750,000 | $830,313 |
| Bonus | $3,360,000 | $1,742,800 |
| Stock | $5,675,362 | $8,387,366 |
| Options | $0 | $0 |
| non-Equity Incentives | $0 | $0 |
Reference Links:
(1) Annual
Proxy Statement
(2) Annual
Report