Does it seem strange that some oil companies appear fairly willing to address the massive implications of global warming while others have been fighting it tooth and nail?
David Anderson was wondering the same thing when he was Canada’s Environment Minister between 1999 and 2004. About half of the oil companies he dealt with were very resistant to reducing carbon emissions or even to admitting that global warming was real. And the other half?
According to Anderson, “the other half were very friendly. Shell, BP, Syncrude, Suncor, all those companies were quite willing to put in restrictions [to curb climate change].”
And why not? Ballooning oil prices meant soaring profits, so they could easily afford the costs of mitigating carbon emissions.
“God, they were making money like it was going out of style,” Anderson said. “You just wouldn’t believe the money that’s being made. They could quite afford the trivial amount, which was about 38 cents a barrel as the calculation for climate-change measures, to make them carbon-neutral. Christ, they were getting up to $75 a barrel”¦ Everything over $20 a barrel is profit.”
So why does the former minister think companies like ExxonMobil weren’t willing to move on this? Anderson offered some interesting speculations.
“One of the issues that I think is really important is the impact of the quarterly statement. No one likes to have their quarterly statement doing anything but going up and up because that affects share price. Share price affects bonuses and pay of executives. The head of Exxon gets paid $70 million per year. A lot of money would be affected by what you might call tremors in the market that might come from climate-change measures”¦”
Stock options have become a very popular way for North American companies to motivate senior executives to pump up the share price. The idea is simple: rather than paying managers a straight salary, companies give them options to buy company stock at a set price. If these executives can increase the share price, they can cash in those options and reap staggering profits.
“The use of stock options has skyrocketed over the last 20 years,” said Kin Lo, associate professor of accounting at the UBC Sauder School of Business.
However, making senior management fixated on share price rather than on business fundamentals can also affect corporate ethics. “I believe the prevalence [of stock options] contributes to some of the malfeasance that you have seen, the big blowups with Enron and WorldCom,” Lo said.
In the case of oil companies it also creates a gravy train that most senior executives would want to keep going at all costs.
Soaring global oil prices have meant that oil companies are tally ng record profits and sending share prices into the stratosphere— regardless of company performance. For instance, ExxonMobil’s share price has almost doubled since 2004, and its profits for 2006 were a record US$39.5 billion, making it the world’s top publicly owned oil company. This is making some senior oil executives very rich, whether they are doing a good job or not.
According to a recent study from the Washington-based Institute for Policy Studies, in 2005 the average CEO compensation for the top 15 U.S.-based oil companies was a whopping $32.7 million per year—more than four hundred times what the average oil industry worker is paid annually. Compare that with the average pay of CEOs for all large U.S. firms, at $11.6 million.
And then there is the paycheque of former ExxonMobil CEO Lee Raymond. In 2005, Raymond’s base salary was $4 million—not bad, to be sure, but the real money came from soaring share prices. That year, Raymond made an additional $65 million in the form of stock options and other benefits, fully 93 percent of his compensation. With a payday like that, who wants to rock the boat by dealing with climate change?
Compare that with the compensation paid to executives with the world’s number two and three publicly owned oil companies: BP and Royal Dutch Shell PLC, both based in Europe. BP CEO Lord John Browne made $5.6 million in 2005—not so shabby either, but a mere eight percent of what Exxon’s CEO was paid. Shell CEO Jeroen van der Veer made just $4.1 million, one-sixteenth what Raymond was paid.
Interestingly, there are also some striking differences in the way these companies dealt with climate change. BP now officially stands for “beyond petroleum” in some of the company’s advertising campaigns, not British Petroleum. Shell’s van der Veer has stated publicly that global warming makes him “really very worried for the planet”. Both companies signed on to a letter to U.K. Prime Minster Tony Blair calling for urgent government regulation on climate change and are investing heavily in alternative- energy technologies.
In contrast, Exxon has been dubbed by Greenpeace “the world’s number-one climate criminal”, stating that it has “done more than any other company to stop the world from tackling climate change”. Exxon was recently accused by the Union of Concerned Scientists of funding a Big Tobacco–style PR campaign—to the tune of $16 million over the past 10 years— to misinform the public on climate science.
Anderson speculated that the overreliance on stock options puts many North American oil company executives in a compromised position. “Deep down, most of these people knew the game had to end eventually and we had to take climate-change measures. Deep down, what they were really saying was, ”˜I know that I’m not doing the right thing but I am going to pass that on to my successor to handle the problem. I’m going to get out of here with my bonuses intact and I am going to get out of here a wealthy man.’ ”
That last point might be particularly poignant in the case of ExxonMobil. When Raymond retired at the end of 2005, he was awarded one of the most lucrative retirement packages in corporate history, totalling almost $400 million, including stock options, pension, use of a corporate jet, and even $210,800 in country-club fees and other perks. This includes the $69 million in cash and stock options he made that year.
The Georgia Straight contacted ExxonMobil, and a spokesman denied that compensation schemes of senior executives like Raymond could affect how the company has responded to climate change. “The largest portion of his compensation is restricted stock, and those restrictions are five and 10 years, and those restrictions maintain on stock even after he retires”¦He can’t sell it until the restriction matures, and some of those restrictions go out to the year 2015,” said Mark Boudreaux, media relations manager for ExxonMobil Corp.
Raymond will be 77 in 2015. It seems strange that he will not be able to collect for all his years of work at ExxonMobil until he is two years past the life expectancy of the average male in the U.S.
Perhaps it is not as simple as that. According to UBC’s Lo, “what someone can do is to arrange an ”˜equity monetization’, which allows him, in essence, to ”˜short’ the [restricted] stock with an investment banker. It’s the same as selling the restricted stock at that date. Later on, when the restriction comes off, you can net out the two positions”¦There are plenty of investment bankers that would be willing to do that for a fee.”
If there are specific barriers prohibiting Raymond from “short- selling” his restricted stock, Exxon is not telling their shareholders about them. Looking at the 2005 proxy statements (legal filings) of ExxonMobil to the U.S. government, it appeared to Lo that “there is nothing to prevent Lee Raymond”¦to arrange for a separate side deal to get around the restrictions.”
Interestingly, Raymond also sits on the advisory board of the American Enterprise Institute (AEI), which recently offered scientists $10,000 plus expenses to undermine or dispute the findings of the fourth assessment report of the Intergovernmental Panel on Climate Change. Exxon partially funds the American Enterprise Institute.
Could something as trivial as the personal finances of already obscenely wealthy individuals have caused some powerful oil companies to resist dealing with the most pressing issue of our times? Stranger things have happened.
Mitchell Anderson’s blog is at www.mitchellanderson.blogspot.com/.