Estimated Annual Retirement Benefit:  $8,187,200*

*Calculated by The Corporate Library for the AFL-CIO Executive PayWatch

Exxon Mobil CEO Lee R. Raymond’s retirement in January 2006 coincided with record profits for Exxon Mobil. On retirement, Raymond was entitled to receive an estimated annual retirement benefit of over $8 million.[1] He choose instead to take a lump sum payment of $98 million.[2] Raymond will also get an administrative assistant, company-provided life insurance, a car, driver, and airplane use for two years.[3]

Like many CEOs, Raymond’s pension is calculated based on his highest average salary and bonus over a three-year period. Between 2002 and 2005, Raymond’s annual bonus more than doubled from $2.1 million to $4.9 million.[4] According to Exxon Mobil, long-term returns on capital, growth in earnings per share and operating results are key considerations in determining the CEO’s salary and bonus.[5]

But does the CEO deserve credit for high gas prices that led to Exxon Mobil’s record profits? Not according to Jeb Armstrong, an analyst at Argus Research Corp., who said, “There’s a perception that they’re making too much. The simple truth of the matter is that prices are set by supply and demand, and they are a price taker, not a price maker.”[6]

Paying pension benefits on a CEO’s bonus acts as a compensation multiplier by dramatically increasing the value of a CEO’s future pension. This is because CEOs typically receive much higher bonuses than other employees, and one year’s record bonus can translate into a lifetime of higher pension payments.

While Exxon Mobil states “there is no special program for senior executives,” the company does make special pension provisions for executive bonuses. Exxon Mobil’s tax-qualified pension plan—the one in which most employees participate—is based on average annual salary. [7]

Exxon Mobil executives who receive bonuses also get an additional pension benefit from a “non-qualified additional payments plan.”[8] As a result, Raymond’s pension will be calculated on $11.8 million in compensation, including his bonus and long-term incentive plan payouts.[9] In contrast, his salary only averaged $3.5 million between 2002 and 2005.[10]

Meanwhile, the pensions of the rest of Exxon Mobil's employees remain on tenuous footing. According to BusinessWeek, Exxon Mobil's employee pension plans have one of the biggest funding deficits of all U.S. corporations.[11] According to the company’s annual report for 2005, Exxon Mobil’s pension for its U.S. workers is underfunded by $1.2 billion.[12]

 

[1] Pension estimate calculated by The Corporate Library for Executive PayWatch.

[2] 2006 Exxon Mobil proxy statement, page 25.

[3] 2006 Exxon Mobil proxy statement, pages 26.

[4] 2005 Exxon Mobil proxy statement, page 18 and 2006 Exxon Mobil proxy statement, page 20.

[5] 2006 Exxon Mobil proxy statement, page 18.

[6] “Exxon Profit Sets Record, Stirs Anger,” Los Angeles Times, Jan. 31, 2006.

[7] 2006 Exxon Mobil proxy statement, page 24.

[8] 2006 Exxon Mobil proxy statement, page 24.

[9] 2006 Exxon Mobil proxy statement, page 25.

[10] 2005 Exxon Mobil proxy statement, page 18 and 2006 Exxon Mobil proxy statement, page 20.

[11] “Shortfall At Exxon: All Those Profits—But Underfunded Pensions,” BusinessWeek, May 29, 2006.

[12] Exxon Mobil annual report for fiscal year ended Dec. 31, 2005.