Weekly Market Commentary
June 8, 2021

Big Oil Board Battles and CEO Pay

The Markets

Are we at a tipping point?

One side effect of the pandemic was a collapse in demand for oil, which led to “the largest revision to the value of the oil industry’s assets in at least a decade,” reported Collin Eaton and Sarah McFarlane of The Wall Street Journal.

Last week brought another reckoning for big oil as a court ruling and shareholder influence made it clear companies need to revisit their strategies for emissions reductions and clean energy. Here’s what happened:

1.    Do it faster. In the Netherlands, a court ruled an Anglo-Dutch oil producer would need to lower its emissions by 45 percent from 2019 levels by 2030, far more quickly than the company had intended.

2.    Change direction. For weeks, a U.S. oil supermajor had done battle with an investment group that holds 0.02 percent of its shares. The investment group wanted the company “to gradually diversify its investments to be ready for a world that will need fewer fossil fuels in coming decades” rather than focus on carbon capture and storage solutions, reported the The Wall Street Journal.

Other shareholders agreed and, in a highly unusual outcome, two of the four candidates were elected to the board.

3.    Less is more. Two other multinational energy companies experienced shareholder uprisings recently, reported Bloomberg. Shareholder proposals to aggressively reduce emissions and limit pollution by a company’s customers were approved despite the companies’ boards urging shareholders to vote against the changes.

HOW MUCH IS A CEO WORTH? The COVID-19 pandemic created enormous losses for many companies so it might seem logical some CEO pay packages would decline along with companies’ profits.

The stinger is salary is often a small part of CEO compensation. While executive compensation packages vary from company to company, they often include:

•    Base salary
•    Short-term incentives such as bonuses
•    Long-term incentives such stock options
•    Benefits such as health and life insurance, retirement plans, and paid vacations
•    Perquisites (perks), such as financial counseling, tax preparation, security, cars and drivers, corporate aircraft, and country club fees

When all aspects of CEO pay are considered, the majority of CEOs received higher pay in 2020.

As a result, median pay for CEOs at companies in the Standard & Poor’s 500 Index was $12.7 million, according to the AP. That’s a 5 percent pay increase over 2019 levels. In contrast, wages and benefits for non-government workers who were employed went up by 2.6 percent in 2020.

Focus On The Positive

“Consumption is the sole end and purpose of all production; and the interest of the producer ought to be attended to, only so far as it may be necessary for promoting that of the consumer.” –Adam Smith, Economist and philosopher