Does it seem strange that some oil companies seem willing to acknowledge the massive implications of global warming while others are fighting it tooth and nail?
David Anderson was wondering the same thing when he was Canada’s Environment Minister between 1999 and 2005. About half of the oil companies he dealt with including Exxon Mobil 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, PB, 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. 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,” says Anderson.
So why does the former Minister think companies like Exxon Mobil weren’t willing to move on this? He offers 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 stock 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 University of British Columbia Sauder School of Business.
However, making senior management fixated on share price rather than 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”, says Lo.
However 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 recording record profits, and sending share prices into the stratosphere – regardless of company performance. For instance, Exxon Mobil’s share price has almost doubled since 2004. 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 Institute for Policy Studies, in 2005 the average CEO compensation for top 15 US based oil companies was a whopping$32.7 million - more than four hundred times what the average oil industry worker is paid. Compare that with the average pay of CEOs for all large US firms at $11.6 million.
And then there is the paycheque of former Exxon Mobil CEO Lee Raymond. In 2005, Mr. Raymond’s base salary was $4 million - not bad jack to be sure, but the real money came from soaring share prices. That year, Mr. Raymond made an additional $65 million compensation in the form of stock options and other benefits - fully 93% of his compensation. With a payday like that, who wants to rock the boat by dealing with climate change?
Compare that to the compensation paid to executives with the world’s number two and three oil companies in the world: BP and Shell – both based in Europe. BP CEO Lord Browne made $5.6 million in 2005 – not so shabby either, but a mere 8% of what Exxon’s CEO was paid. Shell CEO Jeroen van der Veer made just $4.1million – one sixteenth what Lee 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”. The CEO of Shell has stated publicly that global warming makes him "really very worried for the planet". Both companies signed onto a letter to UK 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 “the world’s number one climate criminal” stating that they have “done more than any other company to stop the world from tackling climate change”. They were recently implicated by the Union of Concerned scientists of funding a Big Tobacco-style PR campaign to misinform the public on climate science.
Anderson speculates that the over reliance 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 Exxon Mobil. When Lee Raymond retired as CEO of Exxon Mobil at the end of 2005, he was awarded one of the most lucrative retirement packages in corporate history – totaling almost $400 million, including stock options, pension, use of a corporate jet, and $210,800 in country club fees and other perks. This includes the $69 million in cash and stock options he made that year.
When I contacted Exxon Mobil by phone they denied that compensation schemes of senior executives like Mr. Raymond could effect on how the company has responded to climate change. “The largest portion of his compensation is restricted stock and those restrictions are five and ten 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 Exxon Mobil Corporation.
Mr. Raymond will be 77 in 2015. It seems rather strange that he will not be able to fully collect for all his years of work at Exxon Mobil until he is two years past the life expectancy of the average male in the United States.
Perhaps is not as simple as that. According to 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 restrictions prohibiting Raymond from short selling his restricted stock, Exxon is not telling their shareholders about them. Looking at the legal filings of Exxon Mobil to the US government, it appeared to Lo that “there is nothing to prevent to 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 caused some powerful oil companies to resist dealing with the most pressing issue of our times? It's a big world. Stranger things have happened.
Mitchell Anderson is a freelance writer living in Vancouver. The piece ran in the February 15, 2007 issue of the Georgia Straight.