Exxon Mobil's executive pay plan gets thumbs down from top proxy adviser

Darren Woods, Chairman and CEO, Exxon Mobil.
Katie Kramer | CNBC
Darren Woods, Chairman and CEO, Exxon Mobil.

Exxon Mobil shareholders should not support the continuation of the oil major's executive payment program, influential proxy advisory ISS has determined.

The advisory says the company's payment structure for its CEO is out of step with current market standards, and Exxon offers too little detail on the criteria for bonuses.

"Exxon's executive pay program has remained largely unchanged for the better part of a decade. What has not remained constant over this period, however, are prevailing market practices and investors' expectations around executive compensation and related disclosure," it concluded.

CEO Darren Woods' transition to the top job following Rex Tillerson's exit to became U.S. secretary of State presents an opportunity for Exxon and its shareholders to reevaluate the pay program, ISS concluded.

In a statement, Exxon said, "Our compensation program ensures that executives focus on the long-term performance of the business and is aligned with shareholder interests. ExxonMobil continues to demonstrate strong business performance relative to industry peers. The program ensures that the majority of compensation of senior executives is linked to the performance of ExxonMobil stock and resulting shareholder returns."

To be sure, ISS acknowledged that stock awarded to Exxon executives is paid out over an "unusually long vesting schedule," something the company says mitigates risk.

However, the firm notes that Tillerson received the same number of shares — 225,000 — each year since 2008, despite significant deterioration in Exxon's financial and operational performance over several years.

ISS also raised red flags about Exxon's annual and long-term bonus structure, saying it lacks sufficient disclosure on issues like performance targets to to allow shareholders to "fully asses the rigor of this program."

Another complaint: Tillerson's base salary was outsize compared to peers. As of January, base pay was up 3.9 percent to $3.2 million, nearly double the median of peers, according to ISS analysis.

An analysis by Evercore ISI of executive compensation versus total shareholder return put Exxon roughly in the middle of the pack. This metric compares the trend in an executive's pay with how much value shareholders get out of their investment over a five-year period.

Evercore has raised concerns about executive compensation among integrated oil companies. It noted last year big oil executives earned 121 percent of target annual bonus compensation over the last three years.

"If most entities earn 100 percent of target bonus pay every year, we question whether this pay element is truly 'at risk,'" Evercore's Doug Terreson, a top-rated oil analyst, said in a research note.

Separately, ISS also supported a shareholder proposal that would require Exxon to disclose how its business would be impacted within the context of a global climate change effort to restrict temperature rise to 2 degrees Celsius above pre-industrial levels.

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