U.S.-Bred Fat Cats

Chuck Collins

August 31, 2006

Chuck Collins is a senior scholar at the Institute for Policy Studies. He is also co-author of “Executive Excess 2006,” jointly published by IPS and United for a Fair Economy.

With the price of gas topping $3 dollars a gallon in many parts of the country, it’s a sweet time to be the chief executive officer of a major U.S. oil company.
 
New research shows that the paychecks of Big Oil CEOs have risen dramatically along with gas prices. Between 2004 and 2005, the top 15 U.S. oil company CEOs got an average 50 percent raise. These CEOs were paid an average salary of $32.7 million in 2005, almost three times more than the already excessive pay of CEOs in comparably sized U.S. businesses.
 
CEO William Greehey of Valero Energy got the industry’s biggest paycheck in 2005, collecting $95.2 million. CEO Ray Irani of Occidental Petroleum received $84 million.
 
Between 2004 and 2005, CEO James Mulva of ConocoPhillips saw his own paycheck almost double from $16.1 million to $31 million. In a classic understatement, on “Good Morning America” Mulva observed, “Obviously, these are very, very large numbers.”
 
Mulva believes Big Oil CEO pay is fair given the complicated job they have. “If you look at the international oil companies,” he explained in an ABC News interview, “there are huge responsibilities with respect to asset bases and hundreds of billions of dollars.”
 
This fails to explain, however, why U.S. oil chieftains are paid so much more than CEOs of other global oil companies. After all, the CEOs of BP and Royal Dutch Shell—the second and third biggest oil companies on the planet—have similar duties and operate in the same complex world marketplace. Yet in 2005, BP’s Lord Brown of Britain and Shell’s Joeron van de Veer of the Netherlands were paid an average of one-eighth their U.S. counterparts. They collected $5.6 million and $4.1 million in 2005 respectively.
 
There are several explanations for the overpricing of U.S. CEOs, including the culture of greed that has enveloped corporate America in the last two decades. But the most important is that in Europe a wide range of stakeholders—workers, shareholders, communities—use their power to ensure greater fairness and reasonableness.
 
In Britain, a four-year old law subjects executive compensation to a shareholder vote. When shareholders believe top managers have performed well, they approve pay packages. But they have been reluctant to approve windfall pay packages for mediocre or bad performance. While the shareholder vote is advisory, British corporate boards have generally followed the will of shareholders.
 
Rep. Barney Frank, D-Mass., has introduced similar legislation in the U.S.—the Protection Against Executive Compensation Abuse Act (H.R. 4291)—that would require shareholder approval of top manager pay packages. The proposed law would also give recourse to boards and shareholders when they payout a huge performance bonus to a chief only to find out later that the CEO cooked the books.
 
Big Oil money and influence is also much more pervasive in U.S. politics than in Europe.  Since the 1990 election cycle, oil industry groups have funneled over $192 million to candidates and parties. 
 
The political influence of big oil has warped our nation’s political priorities in foreign affairs and tax, energy and environmental policy. Their agenda includes extending tax breaks for oil production, deregulation, opposition to “green taxes,” the opening of the Alaska wilderness for new drilling, and the lifting of bans on off-shore drilling.
 
One hope for sane energy policy is an emerging U.S. movement to “separate oil and state” which is calling on candidates and politicians to give up their addiction to big oil political contributions. Again, our role models are in Europe. BP’s CEO Lord Brown has led the way in renouncing the practice of making political donations anywhere in the world. "We will engage in the policy debate stating our views and encouraging the development of ideas,” he has said. “But we won't fund any political activity or any political party.”
 
Reducing the power of Big Oil is a necessary condition for a “beyond oil” politics that addresses climate change, sustainable energy policy and corporate price-gouging. Pressing candidates and elected officials to swear off big oil contributions and reigning in excessive pay will move us in the right direction.