Page
4
4.
|
TSR measure relevant to the oil and gas industry:
|
One of the seven pre-established performance
metrics on which the ExxonMobil program is based is TSR relative to industry peers. However, the ISS model relies on relative 3-year TSR versus companies across multiple industries. This cross-industry TSR comparison does not recognize the
counter-cyclical aspects of different industries, particularly when those industries are affected in substantially different ways by changes in commodity prices. We would expect that ISS consider the impact of commodity prices in the upcycle when
TSR is outperforming other industries, and the same should be true in the current downcycle.
5.
|
CEO market orientation is at the 35
th
percentile:
|
Since the ISS model relies on short-term TSR of other industries, the analysis should give weight to the actual level of compensation versus those of
other industries. Specifically, ISS asserts that ExxonMobils CEO compensation is in the top quartile, while TSR is below the median of these cross-industry companies. This conclusion is based on compensation as reported in the Summary
Compensation Table, which serves an important purpose, but is not the optimal method for comparing the actual full value of compensation across different companies and industries.
More specifically, we believe an analysis on the basis of data in the Summary Compensation Table does not capture the combined value of all compensation
actually realized and paid out and the market value of unrealized (unvested or unexercised) compensation granted. When considering the full value of combined realized and unrealized compensation, as demonstrated in the CD&A, chart 14, page 33,
the market orientation falls to the
43
rd
percentile
(or
35
th
percentile
if including 2016 compensation per the April 21,
2017 Supplemental Disclosure, chart 14, page 1). In our opinion, this analysis is more complete as it captures the current value of all compensation both paid and granted during the CEOs time in position. The time period is particularly
relevant given the long-term vesting requirements of the equity program.
Finally, ISS asserts that shareholders should question why the CEOs
bonus decreased 30 percent while the number of shares underlying the long-term award remained the same, when the proxy indicates that both are based on performance against the same seven metrics. However, this analysis implies that the short-term
program should yield the same results as the long-term program. In addition, it does not capture the different inputs for the short-term versus the long-term incentive programs.
For the bonus program, the size of the annual bonus pool is determined by a formula, aligned with the change in annual earnings (CD&A, page 32).
Award levels for all quintiles were reduced by 30 percent as a result of the change in earnings from 2016 versus 2015, following a 35-percent reduction in 2015. Eligibility for a top quintile award was then determined by our industry-leading
performance as described on pages 28 to 29 of our CD&A.
For the long-term incentive program, award levels at each quintile and pay grade were
determined as described in section 3 above, then eligibility for a top quintile award was determined by industry-leading performance as described on pages 28 to 29 of the CD&A.
As you can see on page 32 of the CD&A, short-term earnings performance is a key factor in determining the size of short-term annual bonuses. However,
by design, this is not an ingredient in the long-term award program which comprises over 70 percent of the CEOs total compensation.