San Ramon-based company, facing consumer group criticism, says 2006 salary was actually only $13.5 million

The Contra Costa Times (California)

Chevron Corp. reported Monday that it awarded its top boss with a total pay package in 2006 that was worth $31.6 million, amid a backdrop of skyrocketing oil prices that helped propel the energy giant to record profits.

San Ramon-based Chevron, however, said that it believes the $31.6 million overstates the total pay that Chairman and Chief Executive Officer David O’Reilly actually was given in 2006. By Chevron‘s reckoning, O’Reilly’s total pay specific to 2006 was more like $13.5 million.

Chevron officials said the larger amount includes compensation packages from two prior years and the long-term change in the value of a deferred compensation plan.

A consumer group pilloried the pay package. The Foundation for Taxpayer and Consumer Rights described both the pay package and the company’s profits as “obscene.”

In addition to the total pay for O’Reilly, the Chevron CEO captured a separate windfall from the sale of stock he had previously obtained, Securities and Exchange Commission files show. O’Reilly’s gain from the stock sales in 2006 was $7.8 million.

The compensation amounts, coupled with the gains from selling stock, irked Judy Dugan, research director for the consumer foundation.

“In California, we constantly pay more for gasoline than the rest of the country, and the result is pure profiteering by Chevron and other oil companies,” Dugan said. “These are obscene profits that go to pay for an obscene salary.”

Chevron, though, believes the company’s executive pay is not outlandish in the context of Chevron‘s corporate benchmarks.

“Executive compensation at Chevron is directly related to company performance relative to our peers,” said Kent Robertson, a Chevron spokesman. “If you look at the numbers for 2006, 88 percent of Mr. O’Reilly’s compensation was at risk. Had the company not performed well, there is a good chance he would not have realized that compensation.”

O’Reilly’s base salary in 2006 was up 4.6 percent from 2005. His bonus was unchanged.

Robertson also suggested that O’Reilly’s pay for 2006 was not out of line when compared with the pay of CEOs of other companies, including some based in the Bay Area.

That may be true in some cases and perhaps not in others. Comparisons can be difficult, however, partly because of new SEC rules that oblige public companies to make executive compensation transparent and make it easier to see an official’s total pay. Some companies used the previous method of reporting executive pay. Others, such as Chevron, are using the new system, depending on when a company filed its compensation report.

By comparison, here are the values for the most recent total pay packages, including pay and stock options, reported for the CEOs of some big Bay Area firms, according to a Times review of SEC filings:

– Oracle Corp.’s Lawrence Ellison, $55.8 million.

– Wells Fargo & Co.’s Richard Kovacevich, $29.8 million.

– McKesson Corp.’s John Hammergren, $23.7 million.

– Cisco Corp.’s John Chambers, $14.5 million.

– PG&E Corp.’s Peter Darbee, $7 million.

It is not surprising that the pay of top executives at a company would provoke controversy, said David Broman, chief executive of Syzygy Consulting Group, a Lafayette-based firm that tracks compensation trends.

“There can be an outcry about companies that are in industries where the consumer feels trapped in supporting management and their pay,” Broman said. “Oil companies, utilities, hospital groups, insurance companies are among the industries that get criticism.”

The anger can run especially high at a time when Bay Area oil prices have topped $3 a gallon.

“The consumers literally feel the financial pinch and they feel they have funded an executive’s outrageous compensation,” Broman said.

Still, a pay package comes back to the company’s performance, Robertson said.

“You have to measure the compensation against how the company’s stock did, shareholder return, market value, and earnings,” Robertson said.
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George Avalos covers the economy, jobs, financial markets, insurance and banks. Reach him at 925-977-8477 or [email protected].