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Exxon Mobil Corporation, Chevron Corporation: Oil Slump Persists, Compensation Packages Take a Nosedive

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By Micheal Kaufman on Apr 14, 2016

The oil slump has persisted for over 18 months now and it’s not surprising that several small and mid-sized companies have yielded to bankruptcy and debt pressures. Previously, the Street analysts were optimistic about the future outlook and the profitability of the oil giants; however, those expectations were reversed when the market situation took a turn for the worse in January.

The oil majors undertook several measures to tackle the slump. For starters, they lowered their capital and operating expenditures, went forth with mergers and acquisitions and debt and equity financing. They have taken the decision to reduce top executives’ pay amid one of the worst commodity downturns in the industry.

We take a look at their total compensation packages that have shrunk owing to a declining stock price, which is directly related to the price of crude oil.

Exxon Mobil

Exxon Mobil Corporation (NYSE:XOM) announced on Wednesday that CEO Rex W. Tillerson’s total compensation for 2015 came in at $27.3 million, falling 18% from a year earlier. This drop was driven by shrinking profits due to the oil crisis.

Mr. Tillerson’s bonus fell drastically from $3.7 million a year earlier to $2.4 million, and the stock awards saw a decline of almost 17%, dropping to $18.3 million. This was reflected in the reduction in compensation package.

Chevron Corporation

Chevron Corporation (NYSE:CVX) CEO John Watson’s compensation package met the same fate. He received $22 million in total compensation in 2015, a decline of 15% from what he received in 2014.

The decline was triggered by the drop in Mr. Watson’s non-qualified deferred compensation earnings and pension value, from $7.36 million in 2014 to $2.81 million in 2015. However, the decline in total compensation package was offset by a slight increment of 1.6% in Mr. Watson’s base salary. In 2015, he received $1.83 million in base salary, despite prices falling more than 65% since June 2014. He amassed $14.68 million in the form of stock options, up 9.5% compared to 2014.

Royal Dutch Shell

Royal Dutch Shell plc (ADR) (NYSE:RDS.A) CEO Ben van Beurden led from the front, with compensation dropping to $5.61 million in 2015— an 8% drop. On the flip side, Mr. Beurden’s salary remained static in 2015, and annual bonus rose from €3.3 million to €3.5 million. The market value of his stock options was badly shaken since he received only 16% of his shares.

Shell has failed to outperform its peers for the past three years now, based on metrics including growth in oil and gas production, and increasing shareholder value. It reported a massive decline of 80% in its 2015 net income, as the low oil price dented its ability to generate solid revenue.

BP: An Outlier

BP plc (ADR) (NYSE:BP) announced last month that CEO Bob Dudley would receive an increment of 20% in his total compensation package in 2015. According to The Wall Street Journal, much of the increase in package is driven by UK reporting standards. Moreover, Mr. Dudley’s cash bonus and pension increased from $1 million in 2014 to $1.4 million in 2015.

The bump in compensation package comes at a time when BP reported a year-over-year (YoY) decline of 51.3% in its earning in 2015. Many BP shareholders are unhappy with the decision and are expected to vote against it at the annual general meeting scheduled for April 14. BP lost 19.8% of its stock value in 2015, the second lowest decline after Exxon Mobil’s 16.37%.

The company is in the process of cutting 25,000 jobs in order to keep its operating costs intact, in a bid to counter low oil prices.

Key Takeaways

The aforementioned companies’ earnings and revenue have declined from a year ago. Chevron, Exxon, and Shell are expected to vote on the executive pay next month but the results won’t affect the decision. They are expected to post first quarter of fiscal year 2016 (1QFY16) results soon.

As the oil slump has persisted for an extended period of time, these companies have exhausted almost all options including reduction in capital expenditure, asset disposals and layoffs. The top executives have taken the hit now, helping the companies save cost. In BP’s case, shareholders are unlikely to vote in favor of increasing the CEO’s compensation package, following a massive penalty paid by the oil giant.

Since oil prices have started to recover and reached $40 per barrel since January levels, Bidness Etc believes that the top executives won’t suffer the same fate next year. With oil expected to recover by year-end, the compensation packages may surge, offsetting the reductions witnessed this year.

Editing by Omair Siddiqui; Graphics by Mansoor Shafqat

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