Exxon’s CEO didn’t really get a $398 million retirement package

Bill Sjostrom —  17 April 2006

There’s been a number of headlines lately (see, e.g., here and here) about the $398 million “retirement packageâ€? Exxon awarded to Lee Raymond, its former Chairman and CEO. A quick review of the underlying proxy statement, however, reveals that the headlines are materially misleading, if not dead wrong. The $398 million number comes from an unsophisticated summation of ’05 and other compensation components listed in the proxy statement, many of which were awarded in prior years, had nothing to do with Raymond’s retirement, or both. Here is where the number came from:

2005 salary $4,000,000
2005 bonus 4,900,500
2005 Restricted stock awards 32,087,000
2005 Incentive plan payout 7,484,508
Other 2005 compensation 450,800
Value of previously granted restricted stock 151,027,200
Dividends paid on restricted stock in 2005 3,089,400
Value realized on ’05 option exercises 21,212,022
Value of unexercised options 69,630,280
Future payouts under incentive plan 4,900,500
Lump sum pension payout 98,437,831
Post-retirement consulting 1,000,000
TOTAL $398,220,041

Obviously, only the last two items had anything to do with Raymond’s retirement. And it is only the $1 million consulting fee that was awarded by the board this year in connection with his retirement. The $98.4 million lump sum payment was made pursuant to Exxon’s existing pension plan and reflected the fact that Raymond put in 43 years of service at Exxon and retired with a “covered compensation� of $11,895,175. Note also that vesting on Raymond’s restricted stock (the $32 million and $151 million numbers) was not accelerated as a result of his retirement.

Any way you look at it, Raymond was extremely well compensated by Exxon. But asserting that he was awarded a $398 million retirement package is just plain wrong, especially if others will use it as support for a windfall profit tax on Exxon. It makes for an attention getting headline though.

20 responses to Exxon’s CEO didn’t really get a $398 million retirement package


    I noticed the article said little was known about Lee Raymonds youth. Well, I grew up about a block
    away from his house in Watertown , S. D. I was his
    older brothers best friend and my folks were very
    close friends and Lees’ father was an engineer on
    the M& St. L. railroad while my dad was agent. I was with my father the morning Lee was born, his father called my dad and told him Lee was
    born to , Irma, that morning and that
    Lee had been born with a bad cleft lip like his
    father had. His dad was distraught and my father
    comforted him and later helped get medical aid to
    repair the lip. I was 10 years old at the time
    and Lees’ brother George was about 6 years older than Lee. We moved into the neighborhood about
    1930 and spent many winter days at their house where the folks played pinochel. Lee displayed a
    brilliant mind all through his youth and was an
    outstanding student at Watertown High and was a
    leader on the debate team. I haven’t talked with
    Lee since he was President in New York many years
    before Dallas. It is truly a Horatio Alger story
    and Lee deserves every penny he was paid. Don’t
    forget Uncle Sam probably took half of it. We spent many summers picknicking on Lake Kampeska
    and hunting pheasants with his dad in the fall.
    Lee was close to his dad and his dad told me that
    Lee would lead Exxon someday and he was right.


    I know this comment is a little late but I just saw the article and comments above. I would like to make a statement and ask a question. The Economic Policy Institute published a memorandum (#120) in 2007 which reported on congress action which allowed hedge fund managers to count a lot of their income as investment income so it could reduce their tax rate to 15% on this income.

    Sometimes actions like this flow into other categories. Is it possible that he could have received special treatment so that his taxes were also reduced?

    Just curious.


    How can anyone try and defend a $398 million dollar retirement package???? When the working poor are paying $2-3.50 for a gallon of gas. We paid his retirement package. As someone else said divide the money between all exxon workers for their retirement package.


    Exxon will have its day but it won’t be in some
    kangaroo court.
    It may take decades but as they always say “what comes around goes around.”
    They have been ruining our earth for a long time
    but the earth will have its say.


    Oh Christ, Bill, your arguement is PURELY SEMANTICS. because Lee Raymond is “retiring” he will cash in those OPTIONS and STOCKS from previous years.

    BTW, I noticed you never mentioned that Lee Raymond led the fight against Alaskans on their punative judgement against Exxon for the Valdez disaster that destroyed lives and careers.

    Exxon STILL has not paid, after almost 2 decades! Exxon has even manufactured evidence that “juries cannot decide punative decisions” by paying psyhcitrists to publish such papers on medical journals, and then presenting the journals in court.

    Lee Raymond should be going to jail for entering fraudulent evidence in court.

    Go to the wall for something else.


    My appologies, $396,000,000


    What the hell is one guy going to do with $400,000,000??? The real question to ask is: How many people got screwed over so one man could earn that much money. This man could have a GREAT retirement with $4,000,000, which is WAY more than what most other people are making. The other $36,000,000 along with, say 8 billion in PROFITS could be distributed to the rest of Exxon employees pension plans. No one needs that much money.


    All of your statiscal inferences are irrelevent to the central issue, which is that the CEOs of oil companies ARE being inordinant salaries while raising gas prices to extreme highs. No number-play can deny that, you are all clearly using fallacies which aren’t fooling anyone.

    And the fact is, 2005 was Lee’s final year and final year salary is included in his retirement package as this is part of his pension. Idiots.


    Oh, one last thing (really):

    A more legitimate complaint about CEO pay to my mind is that far too often, CEO pay is like money made by a heavyweight prizefighter, where even a losing fighter can earn $10 mil. I certainly don’t know the Oil&Gas business, but unless there are good reasons for their lower % profits, the CEOs and execs of Valero Energy and Sunoco should probably be fired, with very little golden parachute. The fact that even terrible CEOs get away with multi-million dollar severances does seem to be a serious problem with corporate boards and their oversight (although even terrible CEOs still have their pay used as an incentive for the many underling execs that aspire to have a ‘C’ at the beginning of their job title.


    Also, while this is somewhat off-track to the Exxon CEO pay, it is interesting to note that Exxon only has ‘record profits’ in an absolute sense, with record absolute total dollar of profits since Exxon is the largest revenue-producing company in the world. But Exxon only ranks 23 in percentage profitability, at 10.6%, in the recent Fortune 100 published in April 06. This is not particularly surprising, since Oil&Gas is an industry with fairly high cost of infrastructue, even in an era of high oil prices. Also not surprising is that Microsoft is the clear winner in percentage of profits in the Fortune 100, at a stunning 30.8%, since they have little infrastructure costs, only really pay for employees’ salaries, and have very high average margins for their products. Next in percentage of profitability are also unsurprising: Cisco (a very distant second at 23.1%), Intel (22.3%), Coca-Cola (21.1%), Merck (21.0%), Johnson & Johnson (20.6%), Bank of America (19.6%), Wells Fargo (19.0%), Citigroup (18.8%), Wachovia Group (18.5%), then Pfizer, Abbott Labs, Altria Group, Goldman Sachs, P&G, PepsiCo, Motorola, Amex, Prudential, AT&T, Merril Lynch THEN Exxon. So clearly, Congress should pass a windfall profits tax on high-tech, banks and brokers, pharmaceutical and consumer products companies before Exxon and Oil&Gas companies.

    It is also very interesting to note that among the Fortune 100 Petroleum companies, Exxon clearly beats all of them in profitability, a striking measure of productivity and efficiency despite XOM’s size. Here are the Fortune 100 Petro companies, ranked by percentage of profitability:

    Amerada Hess.88……….5.3%….59
    Marathon Oil….23……….5.1%….62
    Valero Energy..15……….4.4%….71

    Clearly, size does seem to help profitability in Oil&Gas. And maybe Raymond is worth some money, since his company has between 23.5% and 242% greater % of profit than his direct Fortune 100 competitors. (I might do this analysis for the rest of the Fortune 1000, just for yuks.)


    Thanks for this great breakdown. As one who seeks the truth and gets completely sick of the easy 2-sentence stupid and simplistic attack, as well as the too-common lazy journalism, I am glad to be able to cite these stats. How many of the news reports or other articles that have cited the $400 mil number know the breakdown, much less those many others who have blinded cited the number?

    One question: are the numbers for the value of the unexercised options in 2005 (the $69.6 mil) present value or just the 2005 total value? I assume the ‘value’ of the options is net the current Exxon stock price. And, of course, if the value of Exxon stock declines, or is even just flat in the future, the total value of this compensation would decline significantly.

    Another fairly significant point, I believe, is that Raymond presided over Exxon during a period where XOM grew from a split-adjusted $5 (when he was first president of Exxon) or $10 when he became CEO, to its current roughly $60. So of course, if your company’s stock has increased 6- or 12- fold during a time that you have received big stock option grants, your stock grants will have great value. Plus, through aggressive leadership and wise mergers, Raymond guided Exxon to be the largest corporation in the world (revenue-wise) (although NOT by any stretch the most profitable Fortune 500 company by %), increasing XOM’s market cap by billions of dollars for XOM’s investors.

    Lastly, isn’t it correct that a $98.4 mil lump-sum pension payout for a CEO with a roughly $10 mil (salary + bonus) is roughly equivalent to a $1 mil payout for an employee who earns $100k? That’s still a nice, generous, old-style pension that is disappearing for most workers in today’s increasing 401k world, but that makes the $98.4 mil look more reasonable.

    It does seem like a fool’s errand to try to defend such extremely high CEO pay, but I also know that paying a CEO high amounts for the very difficult job that most CEOs do also has a very powerful ripple-down effect where many, many other executives and other officials in the company also work very, very hard in hopes of reaching those heights of power and compensation. That is a value of high CEO pay to the company as a whole that is pretty hard to absolutely determine.


    I do disagree about capture of the FTC. Strongly. Do you have some reason to believe they have been captured? The view that PGR’s not only are inefficient but are likely to harm consumers comes from both inside and outside the agency and from a variety of folks. Capture does not seem like a useful or helpful description of the FTC’s analysis. For that matter, I don’t care much about the motives as much as the accuracy of the analysis. Do you have any reason to believe that their analysis is flawed on the merits?

    I understand that your response to the FTC’s position that PGR’s decrease social wealth is that this leaves open the distribution question. But I have to admit I do not understand the moral superiority of the PGR or windfall profit tax. What alternatives are you comparing? What effects follow from increasing (they are already taxed) the profits of oil refiners? How do these consequences play in your morality analysis?

    The FTC’s analysis says some interesting things about “consumer interests” and not just social wealth. I thought that this point was responsive to your morality claim. I still do. Consumer harm must be incorporated into your morality analysis, no? Maybe I just don’t get the moral hook here. In what sense is forcing consumers to wait longer to alleviate the shortage morally superior? Isn’t rent control justified by your argument as well?


    In essence, though, this would seem to present a fairly problematic point for your argument. I guess we can argue about the morality of theoretical laws in a Utopian, abstract sense, but it seems like a pretty silly exercise. The real problem with your claims is that they are impractical and, in the real world, dangerous. Who will set the tax? Who will administer it? Who will ensure that it falls on the intended parties? Who has enough information to determine how much profit is enough? Why do you believe that the market is less likely to reach the “right” result, net of enforcement and error costs, than the government? Is there collusion? Information asymmetry?

    Shorter: The FTC is subject to limited information, stasis, bureaucracy and capture (and by different constituencies). Why do you believe they will get it right?


    Yup, we must have crossed wires, and I think we’re still sort of arguing past each other.

    I agree with you that the FTC’s position on PGRs in the oil context is important. I do think the agency is subject to capture, especially in year five of an administration. Do you disagree?

    Holding capture constant, isn’t the FTC saying that disabling PGRs will remove inefficiencies and increase net social wealth? My response to that argument, which I’ve made a few times in different contexts, is that this is a straightforward Kaldor-Hicks measure of the normative attractiveness of a policy choice. And, therefore, taxing the winners after the choice has been made may in some instances be required to make sure the policy is morally fair. Shorter: no PGRs in this context; yes taxing oil producers.


    Sorry Dave, I must have crossed with your comment and missed it. But perhaps my comment accidentally anticipated and responded to Dave’s morality point? The theory that PGR’s are morally justified must mean that they are helping somebody. But those who represent consumer interests (see, e.g., the FTC above) and have spent some time and research effort thinking about the economics and looking at the data almost uniformly reject the idea that PGR’s actually help consumers. If not helping consumers, on what hook is your morality argument based?


    Great work Bill. It was a very nice headline that you ruined for the pro-windfall profit tax crowd. Dave Hoffman suggests in response to your correction that the windfall profit argument remains. I’m not sure why — and have explained my position in the post Geoff links to above — this is so.

    Is it because the contracts are inherently “unfair?” But requiring PGR’s that would reduce the incentives to increase supply to the afflicted area would be what? More fair? I don’t know why that would be the case, but I’m not very good at comparing the relative fairness of regulations.

    FTC Chairman Majoras, in testimony to Congress, concluded likewise, opining that “price gouging laws that have the effect of controlling prices likely will do consumers more harm than good . . . While no consumers like price increases, in fact, price increases lower demand and help make the shortage shorter-lived than it otherwise would have been.� Simple economics gives the right answer.


    Obviously, I disagree. The bulk of the payment is equity, and its value is linked to Exxon’s tremendous profit taking in the last year. And it isn’t silly to point out that Josh’s earlier work on gouging simply ignores the distributive question. That doesn’t make the analysis wrong, it makes it, in my view, morally problematic.


    Truly excellent work, Bill. It is, as you suggest, obviously exceptionally pertinent to the silly windfall profits debate: If the bulk of these payments were made in accordance with pre-existing contract rights, the case (weak as it was to begin with — see Josh’s earlier post on gouging) for windfall profits on this score is extremely weak.

Trackbacks and Pingbacks:

  1. A Stitch in Haste - April 18, 2006

    Exxon — Exxoff…

    Take a moment to learn about Exxon.

    Then ask yourself whether you could serve as Chairman and CEO of that company, even if you had 43 years to le……

  2. Ideoblog - April 17, 2006

    How much was Lee Raymond’s retirement package?…

    The journalists, and this blogger, think it was $398 million. Bill Sjostrom restores my faith in blogs’ ability to add something to the professional journalists’ accounts….