The random political thoughts thread (Part Deux)

[innerSpaceman]

Sorry, but I think taxes should fund research into energy alternatives, and into health solutions. I think great, vast, unbearable evils come from running life-essential endeavors for the standard profit motive.

[€uroMeinke]

And yet it seems to have worked quite nicely up to this point - the government has too much politics around it, favors to play - research funneled into pet projects for a given district corn based ethenol for example.

[Alex]

You can use the taxes to fund research into alternatives but if you cap prices those alternatives don't necessarily become economical until the commodity simply runs out.

If fuel cells become economical when gas hits $90 a barrel then it will never become economical if government caps it at $75 a barrel. Plus, unless you have a world government imposing a global cap, a cap will just encourage oil to flow away from capped nations to nations without caps and we begin to set up a repeat of what caused the power shortages in California back in 2000.

As for the salary, can you point me to the story on that iSm? I was shocked by that number myself and looking at the 2005 proxy for ExxonMobil it shows that Raymond's salary in 2005 was $4 million with a $4.9 million bonus. That's a lot of money but nowhere near $150,000/day (which would be $54 million/year). Are you sure you're not talking about his retirement package?

[scaeagles]

You cannot tell another country at what price to sell their oil. Simple supply and demand. OPEC restricts production, prices rise. They raise production, prices fall. The only alternative is to saturate the market place to bring the prices down. (This, of course, does not bring into consideration natural disasters and political unrest.)

Hmmm....how can we do that? Sadly, we don't have the production capacity to do anything about it, and while I won't go into discussion of those I beleive responsible for our inability to produce domestic oil, the only solution to ensure the free flow of oil to meet our needs is to produce oil domestically.

Anyone who wishes can go read various information at the USGS website, and I have in the past, but there is a whole mess of oil we could access in a wide variety places domestically.

Aside from that, though, I believe the shortest and most practical answer lies in the trillions of tons of shale throughout the rocky mountains. If I recall what I've read correctly, shale oil can be extracted at a cost (to the purchaser) of about $90/barrel. That will cap what the price of oil is coming from foreign sources. What needs to happen is development and streamlining of existing processes to enable extraction more inexpensively. Should we lower what it costs to extract that by 20%, OPEC then has incentive to raise their production limits to lower the costs to again be significantly below that production cost of shale oil, making it impractical from a profit standpoint to continue to pursue shale oil.

My personal favorite, though, is US investment in Mexico oil exploration and production, They have a hell of a lot of oil, so if they become a major player in the oil market, they have more money locally, and Mexican citizens can find work in Mexico, solving their economic problems as well as our illegal immigration problem.

[CoasterMatt]

Mexico has a hell of a lot of resources, but they've got a hell of a lot of political corruption, too.

[Alex]

Did some more poking around and it appears that the $150,000/day number refers to his 2005 income only, not 1993-2005. Most of the $51 million he made in 2005 came not in salary or bonus but in exercising previously granted stock options.

On tonight's Daily Show Jon Stewart said the total retirement package of $400 million (most of which is tied up in outstanding stock options as well as participation in the same pension plan that all Exxon people are part of) was equal to $150,000/day for every day Raymond worked for Exxon. This is neither true of his full run at Exxon (46 years) nor his time as Chairman (12 years). At $150,000/day that equals about 7 years. Still a lot of money, though.

What's interesting to me in looking deeper at this is how screwed up the general media is at reporting financial numbers. Headline after headline says he is getting a $400 million dollar retirement package. As near as I can the source of this number is a cobbling together of money mostly unrelated to his retirement and the biggest chunk of it is pretty much statutorily required.

Components of the $400 million number seems to be:

$4,000,000 - 2005 salary
$4,900,500 - 2005 bonus
$32,087,000 - 2005 restricted stock award
$7,484,508 - 2005 incentive plan payout
$450,800 - other compensation

You can argue that these are excessive and I'd generally support that notion. But they have nothing to do with his retirement. That is compensation for 2005, prior to his retirement. Also, the third item there is not actual cash payout, according to the proxy statement he can't sell any of those shares for five years so the value could go down significantly before then. That's about $48 million of the $400. The other expenses are mostly non-cash such as bodyguards, club memberships, cars, personal use of company aircraft.

Then there is this stuff:

$3,089,400 - Restricted stock dividends paid in 2005.
$21,212,022 - Exercised stock options in 2005.

Again, neither of these have anything to do with his retirement. They also have nothing to do with compensating him for work in 2005. This is the result of compensation given in previous years.

Then we have some pseudo-money:

$69,630,280 - unexercised stock options
$151,027,200 - value of previously granted restricted stock
$4,900,500 - future payouts from existing long-term incentive program


Again, nothing to do with either retirement or 2005 compensation. These are grants that accumulated in previous years. Approximately 1/3 Raymond's existing stock options are under water and by the time he can exercise it is possible they all would be or they could be worth much more than this amount. Same with the restricted shares which can't be sold for 5-9 years depending on grant date.

The incentive plan I can quite figure out but I believe it also derives from past years and not current years.

$98,437,831 - lump sum pension payout
$1,000,000 - post-retirement "consulting" fee
Other services exptected to be under $1,000,000 year

Finally, these are the only things in the $400 million retirement package that actually have anything to do with his retirement. The lump sum payment is part of the defined pension plan at ExxonMobil and the executives participate in the exact same plan as everybody else. The man has been an executive in the company for 46 and gets a huge payout. But this big piece of change was not a gift from the Board of Directors; there was absolutely no discression in its receipt. The consulting thing is a sham that most major companies do to "ensure a smooth transition" and the other services mostly have to do with continuing bodyguards, club memberships, and other personal services.


Sorry to go into such detail but I didn't really have another venue for it and the way the non-financial press covers these things always pisses me off. Yes, Raymond was paid a lot. But they've essentially screwed up the $400 million thing completely. Also, they act like this was all a surprise.

The man did not negotiate a retirement package and get a big old bear hug from the directors. If in January 2005 you had been told Raymond would retire in January 2006 you could put together almost the entire $400 million detailed here by looking at the public informatin in the last few proxy reports. The only uncertain spot would be the 2005 bonus and restricted stock grant.

I have no problem with the argument that the market has overvalued CEOs and chairmen (they have) but when people show so little understanding of what they are talking about it just distracts the discussion from where it should be.

[innerSpaceman]

^ Thanks for the detail, Alex. I was too lazy to go digging for confirmation of what I heard on the car radio and then glanced at in the newspaper. What a cool thing this here intraweb is.

[scaeagles]

That is amazing detail, and I share your disgust of the laziness of the news media. I am curious - how long did it take you to compile the information you post, Alex?

[Alex]

It took me longer to write the post than to compile the information. All it can be found in the 2005 ExxonMobil proxy statement. Not only that, it is all on just 10 consecutive pages of the proxy statement.

People are too afraid of SEC filings. Yes, they can sometimes be arcane but 90% of the time everything is laid out in relatively plain English. Just remember to read the footnotes.

[scaeagles]

What I am amazed by is that no reporters decided to do the same thing as you did. Laziness? Sensationalizing? Figuring the stupid public (which is what I think most in the media think of the public in general) couldn't grasp it?