Featured: James Mulva, CEO, ConocoPhillips
Originally published: May 18, 2012
In the highflying world of CEO pay, it's tough to stay on top for long.
Last week, when we named Herbalife ( HLF ) CEO Michael Johnson our "One Percenter of the Week," his paycheck was by far the highest reported for a CEO in 2011, at a cool $89.4 million.
But new CEO pay numbers roll in fast this time of year, and there's a new leader.
That would be former ConocoPhillips ( COP ) CEO James Mulva , who got an astonishing $154.7 million last year. And yes, a lot of that came from 99 Percenters shelling out more at the pump last year.
Mulva earned most of his pay by exercising a ton of stock options in 2011. ConocoPhillips stock soared along with oil and gasoline prices that year, and all three have remained relatively high since. The result: big gains on Mulva's options.
So for reaping about 12 times the average pay for CEOs of companies on the Standard & Poor's 500 Index ( $INX ), with help from customers whose paychecks barely budged and who got squeezed at the pump especially hard, I'm making Mulva my latest "One Percenter of the Week."
The options bonanza
Mulva's 2011 compensation of $154.7 million was "realized pay," as calculated by GMI, an independent corporate governance research company. Unlike companies, which report theoretical pay based on estimated options values, GMI calculates pay by looking at gains on exercised options, gains on pension plans, and salary and cash bonuses.
Mulva exercised a boatload of long-term options last year, triggering the big gains calculated by GMI. But two things are worth noting here. First, Mulva hasn't sold the stock yet, according to Thomson Reuters records, so he hasn't actually pocketed the gains. He's betting the stock goes higher.
Second, Mulva exercised 3.48 million options last year because they were set to expire. Most of those options, about 3 million, were a special grant awarded about a decade ago during the merger between Conoco and Phillips Petroleum, where Mulva was CEO.
Since then, ConocoPhillips stock has advanced nicely, benefiting Mulva and long-term shareholders alike. The stock has gone up 275% from the end of 2002 through this week, to trade recently at $52.50, compared with a 47% gain for the S&P 500 over the same time.
But a lot of those stock gains have happened since the summer of 2010 due to soaring energy prices -- meaning that Mulva has benefited from high-priced oil, something he might not want to take credit for.
Pain at the pump
ConocoPhillips revenue soared 26.7% last year to $251.2 billion, and earnings per share advanced 17.7% to $8.97 -- as oil and gasoline prices shot up. As you probably recall, prices for regular gasoline hit $4 or more a gallon in parts of the country in 2011. And average prices nationwide were above $3.40 per gallon for much of the year, compared with around $2.70 a gallon the summer before.
All of this helps explain why ConocoPhillips stock has gotten such a nice bump since the summer of 2010. Even with a recent slide to about $51 from $60, ConocoPhillips shares are up 31% since the summer of 2010. In contrast, the S&P 500 is up about 22% over the same period.
Of course, we all like to see CEOs help shareholders beat the market, and they should be rewarded for doing so. But you could argue that these stock gains came from high oil prices, not the work of Conoco's management.
Why did Mulva, who has since stepped down as CEO, chairman and director, get so much more than the typical CEO?
One reason might be that ConocoPhillips' executive compensation committee has historically had freedom to set pay however it wants. It has done a poor job of linking pay to the company's financial performance, and it certainly has not done so in any transparent way, according to Glass, Lewis & Co., which advises investors on how to vote at annual meetings.
A ConocoPhillips spokesman responds that pay is set by independent directors with help from an independent pay consultant, and that executive pay is set "competitively" with ConocoPhillips peers.
Plus, the company made some improvements in compensation policies last year, and the number of shareholders voting against ConocoPhillips pay plan dropped significantly at the company's May 11 annual meeting.
None of this will affect Mulva. He's gone. But he still has more than 3 million options. About a third of them are priced at around $24 a share, which means that on this slug of options alone, Mulva is looking at an additional $30 million in profits.
