Michael Ovitz, move over. You're just a piker next to Ray R. Irani, chairman and chief executive of Occidental Petroleum Corp.
Irani was handed a shocking $95 million in cash on Sept. 11--about $20 million more than Ovitz got in his stock and cash severance package from Walt Disney Co. last year. Like Ovitz, Irani's employment contract has been bought out by the company. Unlike the ex-Disney prez, however, Irani isn't even losing his job.
In fact, the board handed the 62-year-old executive a new five-year contract on top of the unprecedented payout. The deal--along with a $17 million buyout for President Dale R. Laurance--will result in an aftertax charge of 16 cents per share in the third quarter, bringing earnings per share to roughly 40 cents. That's deeply troubling news for Occidental investors, whose returns have trailed both the Standard & Poor's 500-stock index and the company's industry peers in the past five years. Indeed, over the past 12 months, Occidental's total returns are 15.5%, vs. 43.9% for its oil-industry peers in the S&P index.
WINNER TAKE ALL. Big paydays for bigwigs are hardly new in Corporate America, even when an executive fails to deliver the goods. Besides the Ovitz payout, which prompted a shareholder lawsuit against Disney, former AT&T President John R. Walter left the becalmed telecom giant $26 million richer in July after just nine months' work. Michael J. Fuchs got $60 million when he bailed out of Time Warner in 1995, and Ross Johnson walked away from RJR Nabisco in 1989 with more than $50 million.
But the Irani payment stuns even longtime observers of the executive-pay game. "It's extraordinary," says Pearl Meyer, a New York-based compensation consultant. "I have never seen a transaction like this. There have been big payouts when companies changed control or the CEO has been fired, but not for a new contract."
How could anyone justify a $95 million payout in cash? The company disclosed on Oct. 6--nearly a month after forking over the cash to Irani--that it paid him the loot to cancel an earlier employment agreement and replace it with one that is more directly related to performance. No one will argue with the need for that change.
Irani, who became Occidental's chief executive in 1990, had one of the most lucrative pay contracts in America. Regardless of performance, the deal guaranteed him more than $8 million a year in salary, bonus, restricted stock, and other perks. A supplemental retirement benefit annually put aside for him as much money as many other CEOs get in total compensation: $2.6 million. Occidental even paid his $1.2 million California income tax bill last year.
His new contract won't send Irani to the poorhouse, either. Although it cut his base salary by $700,000, to $1.2 million, it will still pay him cash bonuses, restricted stock awards, and options. Now, though, the amount of those rewards is not guaranteed. They will be set at the "discretion of the board." Given the "discretion" displayed by the board in this latest obscene milestone in the annals of executive pay, however, investors aren't likely to be comforted by that provision.
Four of Occidental's 14 directors are current or former Oxy execs. And four directors are over the age of 80, including Vice-President Al Gore's father, who is 88, and Compensation Committee Chairman George O. Nolley, a rancher and farmer, who is 81.
LIMITLESS GREED. Already, some shareholders are thinking of filing a lawsuit against the board. William S. Lerach, a San Diego-based attorney who brought the shareholders' suit against Disney for the Ovitz payout, says he has already been contacted by Occidental shareholders outraged by the deal. "It further demonstrates that the greed of corporate executives knows no limits," says Lerach, who plans to look into Irani's payment.
Maybe nobody should be surprised. Under founder Armand Hammer, Occidental's board showered huge rewards on the CEO, including the construction and upkeep of an art museum to house Hammer's collection. "Dr. Hammer isn't going to turn over in his grave over this," says executive-pay critic Graef "Bud" Crystal. "He is going to sit up and applaud." Hopefully, Occidental's shareholders will sit up and make a different type of noise.