May 20, 2006
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DOW JONES
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Reprints tool at the bottom of any article or visit:http://www.djreprints.com/. • See a sample reprint in PDF format. • Order a reprint of this article now. Exxon Pensions May
Draw By JEFFREY
BALL
May 20, 2006; Page A2 A proxy-advisory firm is recommending Exxon Mobil Corp. shareholders withhold votes from four company directors to pressure the oil giant to change the way it computes pensions, citing an "excessive" $98.4 million pension payment to Lee Raymond, Exxon's recently retired chairman and chief executive. In response, Exxon fired off a letter to institutional shareholders Friday disputing the criticism by Institutional Shareholder Services and urging shareholders to support the board members. Exxon, of Irving, Texas, defended its method of computing executive bonuses -- the basis of ISS's criticism -- as "compensation best practice." The spat between ISS, whose recommendations hold significant sway with institutional investors, and Exxon, the world's largest publicly traded oil company, reflects the public uproar over the amount of money Exxon paid Mr. Raymond. That included the lump-sum pension payment on top of a $69.7 million compensation package for 2005, made up mostly of restricted-stock awards and the exercise of options. Coming on the heels of record earnings reports by Exxon and other major oil companies, Mr. Raymond's compensation package is being trumpeted by Big Oil's critics as a sign the industry is benefiting handsomely while consumers are chafing under soaring fuel bills. The dispute is over how Exxon calculates executive pensions. ISS says its concern isn't just Mr. Raymond's pension, which it says "tops the charts as one of the highest pension payments paid to a CEO in the U.S." ISS also worries that, "years from now, shareholders can expect another eye-popping pension distribution" for Rex Tillerson, Mr. Raymond's successor as Exxon chairman and CEO. At issue is a type of compensation known at Exxon as "earnings-bonus units," which Exxon awards along with cash to executives for their annual bonuses. The units are future cash payments pegged to an increase in the company's per-share earnings. Exxon factors in the annual bonus -- both the cash and the earnings units -- when computing the executive's pension package. Exxon categorizes the earnings-bonus units as long-term incentive plans under Securities and Exchange Commission rules. That, says ISS, means the company shouldn't include the units in calculating pension payments. Doing so amounts to "double dipping," ISS says, because the bonus is "earned once, but used as compensation twice." ISS says the inclusion of the units "inflated" Mr. Raymond's pension package "substantially." His package was worth $81.3 million in February 2005 but rose 21% to $98.4 million by the time he retired in January of this year. ISS wants the compensation committee to stop counting the earnings units for pension purposes. As a symbolic sign of pressure, it recommends shareholders withhold votes from the four members of the compensation committee who were on the committee before this year: James R. Houghton, William R. Howell, Reatha Clark King and Walter V. Shipley. But because the board members are running unopposed, and because Exxon board members are elected with a plurality of votes cast, the board members are certain to be re-elected regardless of what institutional shareholders do. Exxon, in its letter, which it also filed with the SEC, says using the earnings units to help calculate pensions is proper. They are classified for SEC purposes as long-term payouts, but in practice they are a part of the annual bonus that happens to be paid out over multiple years and that is tied to the company's stock performance. Both those qualities are intended to spur executive performance and loyalty to Exxon, the company says. Because the units amount to part of the annual bonus, including the units in pension calculations "reflects standard practice among corporations that continue to provide defined benefit plans," Exxon says. Write to Jeffrey Ball at jeffrey.ball@wsj.com1
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