By Dan Ferris in Extreme Value:
ExxonMobil filed its proxy statement with the SEC last week. It's a better read than you might guess.
For example, I bet you didn't know ExxonMobil executives get none of the safety net provisions that are standard among public companies' compensation packages:
- No employment contracts; all employment is "at will."
- No severance agreements.
- No change of control provisions.
Equity compensation must be held beyond retirement, which can be forfeited "in case of detrimental activity, unapproved early termination, or material negative restatement of financial or operating results."
Without executive safety nets, employees have to perform to keep their jobs. If they don't perform, they risk forfeiting substantial amounts of equity compensation if they get fired. Even if they don't get fired, a restatement of results is enough to wipe out a large portion of their pay, perhaps a fourth or more. Executives have to get results that stick.
I realize ExxonMobil's executive compensation program has a mediocre reputation. For example, The Corporate Library, a consulting group, rates ExxonMobil as a "High Concern," meaning it got a grade of "C" or lower. But I don't let ratings firms make my decisions for me. I think it's important ExxonMobil doesn't have the standard safety nets and encourages its employees to be risk-averse and take long-term outlooks. The oil business is plenty risky. Avoiding unnecessary risk is what leads ExxonMobil to its strong contrarian business strategy. I believe that's the only way to make money in natural resources.
Click here to learn more about Extreme Value and the "gold stock distortion."
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