Occidental Chairman May Get $38 Million If Forced Out
Occidental Petroleum Corp. (OXY) Chairman Ray Irani may be eligible for a lump-sum severance payment of about $38 million and annual payments of $2.2 million if he is forced out by investors in a vote today.
Shareholders will decide at the company’s annual meeting in Los Angeles whether to keep Irani, the chairman since 1990. Cambiar Investors LLC and other Occidental investors have questioned his role in the board’s decision in February to replace Chief Executive Officer Stephen I. Chazen two years after he took over the job from Irani, 78.
“They could potentially be influencing a termination,” said Robert Travis, managing director at executive recruiter Boyden in Atlanta. “This could be really, really messy. It’s a pretty volatile scenario.”
If Irani fails to garner a majority of investor votes, he will have to tender his resignation from the board, according to Los Angeles-based Occidental’s bylaws. Having to leave under such circumstances may entitle him to $21.6 million in retirement pay and, if it’s considered a termination, about $16.8 million more, according to the company’s proxy filing.
Irani, the best paid oil industry CEO in 2009, reiterated on April 8 his intention to retire at the end of 2014. Since 2001, he has received average annual compensation of almost $80 million, according to data compiled by Bloomberg. Irani earned more than $45.6 million last year after he gave up the CEO role.
Occidental may be able to avoid the payments if Irani stays as an employee after resigning from the board, said Andrew Restaino, founder of Technical Compensation Advisors, a Bellmore, New York-based consulting firm.
“His package over the past decade has been unbelievable,” said David Neuhauser, a managing director of Northbrook, Illinois-based Livermore Partners Inc. “He should turn down any type of extra incentives he’s entitled to if he’s rejected and exit graciously from the company. That would allow him to leave with dignity.”
Neuhauser, who helps oversee $100 million in assets including Occidental shares, plans to vote against Irani at the meeting today.
Irani’s current severance is part of an Oct. 9, 2008 employment agreement that doesn’t expire until 2015, according to the proxy. Melissa Schoeb, an Occidental spokesman, declined to comment on the severance agreement or how it might apply to an investor vote.
Proxy adviser Institutional Shareholder Services has advised shareholders to vote against Irani to give Chazen clear control over the company’s strategic future. Chazen will stay at Occidental until the end of next year and the company has said Irani didn’t participate in the board’s decision to replace him.
Irani’s retirement agreement includes a lump-sum payment of $9.23 million for so-called total shareholder return incentive rewards and $5.91 million for restricted stock incentive awards that are part of his long-term incentive plan, according to the proxy. The agreement also pays out $800,000 for unused vacation and $5.7 million for life insurance coverage.
In addition, he would receive annual payments that include $480,000 for security, $400,000 for financial planning and tax preparation and other costs such as administrative assistance, travel benefits and club dues totaling $1.2 million as well as another $1 million annually for other costs.
If Irani is terminated, he gets all that compensation and another $16.8 million.
“We’re so far outside of what a common person is going to consider reasonable,” said Boyden’s Travis, whose recruitment company works with energy companies. “What is shared in that proxy is generous from a CEO perspective. To know that sort of package was operating in the background when he’s no longer CEO is incredibly generous.”
A lot of onus falls on the Occidental board, which is also generously compensated, said Charles Elson, director of the John L. Weinberg Center for Corporate Governance at the University of Delaware in Newark.
“You have to ask, why did the board ever approve such a compensation agreement?” said Elson, who has studied governance for more than 20 years and serves on the board of HealthSouth Corp. (HLS) “Occidental from a compensation status has been controversial for a number of years.”
The Occidental board had the eighth-highest average compensation in the Standard & Poor’s 500 Index (SPX) last year, according to proxy compensation tables compiled by Bloomberg. The directors earned an average $540,000 in total compensation in 2012, including fees, stock and other remuneration, according to the Occidental proxy.
“The higher the pay, the more you are linked in many people’s minds to management because you are afraid to leave,” Elson said. “That’s quite a bit of money.”
The company last week announced it would cut board and CEO pay plans and set a mandatory retirement age of 68 for CEOs. Future chairmen of Occidental will be independent and former CEOs can’t remain on the board after they leave, the crude producer said in an April 29 statement. Chazen said the board will continue to rely on Irani after he leaves in 2014.
“The board and I look forward to calling on Ray for advice, counsel and help in advancing the company’s business interests for the benefit of our shareholders, employees, and business partners,” Chazen said in the statement last week. “We know that he will be forthcoming with all of the wisdom and judgment he has always given us.”
First Pacific Advisors LLC, Livermore Partners and other shareholders have pushed for Irani to leave sooner.
“My guess is that the whole group is fighting tooth and nail to avoid this being a terminating event,” Travis said. “This is a compensation issue that caused the revolt on the island in the first place and may result in him being kicked off.”
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