Did oil execs luck into record pay?

Chevron said O'Reilly got no increase in base pay last year and that it links executive pay to company performance relative to peers. However, the company makes it difficult to judge how challenging this hurdle is because it does not reveal how much the company has to outperform peers for Chevron executives to get bonuses.

Robertson drew laughs during the Judiciary Committee hearing when he said he couldn't remember whether he made more than $4 million. "You know, if I made over $4 million a year, I probably wouldn't remember either," Sen. Patrick Leahy, D-Vt., responded.

ConocoPhillips CEO James Mulva made $15 million last year, including a $3.4 million bonus. He also had at least $234 million worth of unvested performance stock, thanks to an increase in the company's stock price to $90 a share from $68 during 2007.

Like Chevron and Exxon Mobil, ConocoPhillips readily concedes Mulva benefited from rising oil prices. His pay is tied to shareholder return, return on capital and income per barrel of oil, factors that are affected by the price of oil.

Profiteering concerns

Part of the problem is that U.S. oil companies aren't investing enough in the millions of acres of "untapped" lease holdings they have in the U.S., said Benjamin Cardin, D-Md., one of the senators who questioned energy company execs in the Judiciary Committee hearing in May. He also thinks they fail to put enough money into developing renewable-energy resources. Spending more in both of these areas could increase the security of the country's energy supplies or bring down the cost of energy in the long run, he said.

Cardin believes legislation may be needed to impose a "windfall" tax if oil companies fail to invest more in the U.S. and in renewable energy.

"They like the status quo," he said. "They are very happy with this. If energy prices go up even more, they are going to make even more money. I do think there is a legitimate concern about top management profiteering from the economic vulnerabilities of our country."

Exploration investments often take many years to pay off, said consultant Van Clieaf, whereas the executives' pay packages are typically tied to relatively short, three-year averages. "There is a disconnect," he said.

To fix the problem, he said, more compensation should be linked to long-term factors such as the average growth in proven reserves over three to five years, measures of how much is spent on exploration and whether it pans out, or consistent increases in the percentage of profits from renewable-energy sources.

Another part of the problem is that the rewards oil execs are enjoying now were set up years ago, when few people thought oil prices would go up so much.

"I don't think anybody ran a sensitively analysis and asked what would happen if oil went to $100 or $150 a barrel," Cardin said. "If they had, they would have said, 'Oh, shoot, that executive is going to get that much?'"

The energy companies all told the Judiciary Committee that they are doing their part.

Chevron's Robertson said his company's capital budget for new energy projects this year is $23 billion, triple what the company spent in 2004. "We're an investing machine," he said. He also said Chevron is a leading producer of geothermal energy.

ConocoPhillips' Lowe said his company has reinvested 106% of its income on average over the past six years to increase oil and gas supplies, expand refining capacity, and develop renewable fuels.

ExxonMobil's Simon said the company had invested $355 billion in new energy projects over the past five years, "which is more than we earned during this same period." But it's still not a huge number compared with its $1.7 trillion in revenues during that period.

Chevron does appear to be reinvesting in development at a decent rate. But in the cases of ConocoPhillips and ExxonMobil, I'm not buying it. The latter two are giving most of their newfound wealth back to shareholders rather than deploying it to find new reserves.

That's good for shareholders, including the well-heeled CEOs. But it doesn't do much to bring down energy prices by increasing production levels.

At the time of publication, Michael Brush did not own or control shares of any company mentioned in this column.

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