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MarketWatch: U.S. oil executives enjoyed biggest paychecks on record in 2005: report

EXTRACT: In contrast, leaders of giant oil companies based outside of the U.S., such as Royal Dutch Shell PLC (RDSA) and BP PLC (BP), received more modest pay last year. BP CEO Lord Browne, for instance, pulled in $5.6 million in 2005, while Shell CEO Jeroen van der Veer made $4.1 million. “While hardly suffering, their combined average pay was a mere 12.4% of the average pay of the top two U.S. oil company CEOs,” the report said of Browne and van der Veer.

THE ARTICLE

By Maya Jackson Randall
Of DOW JONES NEWSWIRES

WASHINGTON (MarketWatch) — While consumers grapple with higher prices at the gas pump, oil company executives are enjoying their biggest paychecks on record, according to a new report released Tuesday.
 
The CEO compensation report released by two social policy organizations found that the top 15 oil executives in the U.S. brought home an average of $32.7 million in 2005 – or 50% more than what they earned in 2004.
 
That pay was 518 times more than what the average oil and natural gas industry worker made.
 
It’s almost three times more than the average compensation for chief executives of large U.S. companies in all industries in 2005.
 
The report, authored by the Institute for Policy Studies and United for a Fair Economy, comes only a few months after A.G. Edwards came to similar conclusions. The investment bank found that the pay for chief executives at nine of the world’s largest oil companies averaged $21.2 million in 2005, or 43% more than in 2004.
 
Valero Chairman Is No. 1

Congressional calls for taxes on windfall profits and threats to end industry tax breaks have simmered down since earlier this year when gasoline prices first spiked and prompted U.S. lawmakers to take action.

The report proves the need to revive those legislative proposals, said the Institute for Policy Studies, a progressive research organization based in Washington, and United for a Fair Economy, a Boston-based group that aims to fight economic inequality. “Energy executives have walked off with record profits and overstuffed wallets” while “we face sticker shock every time we fill up,” the groups wrote in the report.

The report lists the highest-paid oil executive as Valero Energy Corp. (VLO) Chairman William Greehey, who made $95.2 million in 2005.

Ray Irani of Occidental Petroleum Corp. (OXY) followed close behind with $84 million, and former Exxon Mobil Corp. CEO (XOM) Lee Raymond was paid $69.7 million in 2005.

In contrast, leaders of giant oil companies based outside of the U.S., such as Royal Dutch Shell PLC (RDSA) and BP PLC (BP), received more modest pay last year. BP CEO Lord Browne, for instance, pulled in $5.6 million in 2005, while Shell CEO Jeroen van der Veer made $4.1 million. “While hardly suffering, their combined average pay was a mere 12.4% of the average pay of the top two U.S. oil company CEOs,” the report said of Browne and van der Veer.
 
Tied To The Stock Price

John Felmy, the chief economist at oil industry lobbying group the American Petroleum Institute, said he hadn’t yet seen the study but that it appears to be misleading.
“You have to look at what they earn in the context of what they produce,” said Felmy. “Just extracting the numbers out of context” is “inappropriate.” He said that executive compensation also is “tied to the stock price, so if the stock price goes up, the executives are compensated accordingly.”

But social policy groups argue that new legislation is needed to keep oil companies’ profits in check and keep the CEO-worker pay gap from widening beyond control.
Profits should be tied to environmental performance – not just oil barrel price increases, they say, adding that oil company profits should be taxed when the price of oil soars beyond a certain level and various oil industry tax breaks and royalty relief programs should be eliminated.

But API’s Felmy said taxes on oil profits haven’t worked in the past. “I think it was widely recognized that it was a colossal failure 25 years ago – it reduced production and increased imports,” he said. Any politician who openly advocates a windfall profits tax is advocating taking money from his constituents, Felmy said, saying that such a tax would hurt shareholders. He said that officials at large companies outside of the oil industry such as General Electric Co. (GE) and Home Depot Inc. (HD), for example, are also being compensated well. “You can’t tell me that folks like (ex-CEO) Jack Welch of GE (have) a little paycheck,” he said.

Earlier this year, Democrats, including Sen. Byron Dorgan of North Dakota, proposed a windfall profits tax that would remain in effect as long as the price of crude oil stays above $40 a barrel. In addition, Arlen Specter, R-Pa., led efforts for a bill that aimed to prevent anti-competitive mergers in the oil and gas industry.

While the outlook is murky for those bills, concerns about pay packages seem to be increasing in Washington, with some members of Congress saying that shareholders should have a greater say over executive compensation. U.S. lawmakers addressed the issue of executive pay at a hearing in May, and the Securities and Exchange Commission in July agreed to require more transparency on executive pay packages and perks.

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