Under heavy criticism from shareholders over his lofty compensation, Occidental Petroleum Corp.'s longtime chief executive said Thursday he'll relinquish his role as CEO next year and take a pay cut.
Ray Irani, who made nearly $150 million from 2006 to 2009 and was America's sixth-highest paid CEO last year, will remain company chairman. He plans to retire at the end of 2014, according to a regulatory filing.
Occidental made the decision five months after investors protested Irani's pay package at the company's annual meeting. It's a sign that investors are gaining some sway over corporate boards, especially those that granted executives handsome pay packages during the recession. Earlier this year, the House and Senate passed bills that gave shareholders the right to cast nonbinding votes on executive pay.
"Investors are increasingly agitated, and they have increased power to do something with that agitation," said Charles Elson, director of the Weinberg Center for corporate governance at the University of Delaware said.
Executive pay cuts "are going to happen more and more," he said.
Last year, Irani received compensation worth $31.4 million, the highest amount for any energy company CEO according to a calculation by The Associated Press. That was almost $10 million more than the compensation package that Exxon Mobil Corp., the largest publicly traded oil company, granted CEO Rex Tillerson.
In May, an investor group led by the California State Teachers' Retirement System (CalSTRS) and Relational Investors LLC _ which together own 1.24 percent of Occidental's outstanding shares _ complained that Irani's pay "wastes shareholder money and creates enormous pay disparities."
They noted that Irani's compensation, which included base salary, a bonus, stock options and other incentives, was more than three-times the average for his peer group.
On Tuesday, the company agreed to bring executive compensation packages in line with those at other major oil companies, including Exxon and Chevron Corp.
Irani will step down as CEO in May at the next annual meeting. He'll be succeeded by Stephen Chazen, who is currently the company's president and chief operating officer.
The Los Angeles oil and gas producer said its long-term performance incentives will be scaled down. The CEO's maximum performance incentive award, for example, drops from $90 million to $25 million.
Spencer Abraham, chairman of Occidental's executive compensation committee, said Irani's pay package will change immediately with the smaller performance incentives. However, his total compensation this year could still top 2009 because the first 10 months are tied to the older, more generous compensation system.
Irani's pay package for next year will also likely drop because he's giving up his role as CEO.
Abraham acknowledged that the board acted in response to the shareholder complaints.
Elson said this shows that "boards are much more responsive to the pressure (from shareholders) than they traditionally were."
CalSTRS and Relational Investors said Thursday Occidental has satisfied their concerns with its compensation program.
Irani joined Occidental in 1983 and has held the company's top executive position since 1990. He has been credited with transforming Occidental from a collection of unrelated businesses into one of the largest petroleum companies in the U.S. Occidental's market value increased during the past 20 years from $5 billion to more than $68 billion.
Occidental said Irani will focus on corporate strategy, Middle East operations and international business development.
Occidental shares rose 26 cents to $84.5 in afternoon trading.