Occidental Petroleum chairman Ray Irani lost his job Friday after 76% of shareholders opposed his reelection, the latest high-profile executive to be shown the doors.
He won’t be able to collect unemployment but, in this case, getting fired might be the best thing to happen to the longtime oil executive: Irani stands to receive an exit package of over $50 million if his departure is considered a “termination” vs. a merely $20 million package had he retired at the end of 2012, The WSJ reports.
The heft of Irani’s golden parachute adds a bit of absurdity to the excess of his tenure at Occidental: Always among America’s most highest-paid executives, Irani’s overall compensation from 2004-2012 totaled over $1.1 billion.
Two years ago, shareholders voted to remove Irani as CEO, in part because of a backlash against his outsized compensation given Occidental shares were lagging major competitors. Scheduled to retire at the end of 2014, Irani sought to install a former executive as CEO, which prompted the latest shareholder revolt. Arguably, it’s also a sign of how the executive had come to believe the company belonged to him vs. other stakeholders, i.e. shareholders, customers, employees and the community at large.
As Henry Blodget and I discuss in the accompanying video, Irani is just one extreme example of the sickness infection corporate America: The Myth of the Irreplaceable Executive.
The myth holds that certain individuals must be paid extravagantly because they and only they have the talent and temperament to guide XYZ company. History has shown that’s almost never the case and the 2008 financial crisis pretty clearly showed these "masters of the universe" are all too human.
The dirty (yet open) secret is C-level executives often serve on the boards of other companies where they vote for outsized pay packages; in turn, compensation consultants then cite those packages as a rationale for paying other CEOs big bucks. To say that it’s very clubby and cliquey is an understatement.
Even worse, these compensation packages are often tied to specific company performance metrics, giving individual executives huge personal incentives to focus on short-term goals vs. what’s in the company’s best long-term interests. This focus on the short-term – exacerbated by Wall Street’s fixation with quarterly results -- has contributed to the erosion of American industry’s long-term ability to compete in a global economy.
Furthermore, a combination of stagnant wages for median workers and rising CEO pay undermines our democracy and, if left unchecked, is the building blocks for a populist uprising, if not outright revolution. Sound far-fetched? Louis XVI and Marie-Antoinette didn’t see it coming either, much less more recent examples like Hosni Mubarak and other autocratic Arab leaders.
As noted above, Irani joins executives such as Hewlett-Packard’s Ray Lane, Chesapeake Energy’s Aubrey McClendon, Wellpoint’s Angela Braly and JC Penney’s Ron Johnson who’ve been shown the door recently in what The Wall Street Journal calls “a rising wave of shareholder activism.”
With income inequality continuing to rise, corporate wages hitting all-time lows as a percent of the economy and the ratio of CEO-to-worker pay hitting new heights, it’s a stretch to say the ‘Era of the Imperial Executive’ is ending.
But perhaps the pendulum is finally starting to swing against the C-Suite.
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