Occidental Petroleum Corp., the U.S. oil company whose board drew shareholder ire over pay practices and its leadership succession plan, bowed to investors and announced that Chief Executive Officer Steve Chazen will keep his post through the end of 2014.
Future chairmen of Occidental will be independent and former CEOs can’t assume the top board spot after they leave, the Los Angeles-based crude producer said in a statement Monday. The changes would prevent the current situation, in which Chairman Ray Irani has remained and earned more than $45.6 million last year after he was ousted as CEO in 2011 amid shareholder complaints over his compensation.
Shareholders including First Pacific Advisors LLC and the California State Teachers’ Retirement System had advocated for Chazen, 66, to remain after the board announced plans to find a successor in February. Investors have questioned the role Irani, 78, played in the decision to replace Chazen.
“Chazen never got a chance to run the company in the short time that he was CEO,” said Tim Beranek, a money manager at Cambiar Investors LLC, which oversees about $8 billion including about 1.5 million Occidental shares. “Irani was still always in charge.”
Irani, the best paid oil industry CEO in 2009, reiterated April 8 his intention to retire at the end of 2014. He was CEO for 20 years.
First Pacific, Livermore Partners Inc. and other shareholders have pushed for him to leave sooner and proxy advisers Institutional Shareholder Services and Glass Lewis & Co. recommended investors vote against him at Occidental’s annual meeting May 3.
“I’d like to see Irani retire ahead of the meeting and have someone else potentially identified to take that role,” David Neuhauser, a managing director at Northbrook, Ill.- based Livermore, said Monday in a telephone interview. “If Irani fails on Friday, that would be a good lift for the company.”
A situation like Occidental’s, with a former CEO overseeing the board as chairman, hampers the ability of a new executive to run the company, said Michael Garland, who oversees governance issues in the office of New York City Comptroller John Liu, which controls pension funds holding more 2.35 million shares in Occidental.
“This is very positive news,” Garland said in a telephone interview today. “The board bears some responsibility for creating confusion and concern among investors, but it has now moved aggressively to address those concerns and strengthen independence going forward.”
Occidental rose 1.4 percent to $87.86 at the close in New York. The shares have gained 15 percent this year.
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As part of the compensation package changes, Occidental said its long-term incentive program will be reviewed and changed to “fully align pay and performance.” Chazen has proposed not to receive a bonus or “current earnings-based compensation” for the rest of his tenure, the company said.
Dale Petroskey, an Occidental spokesman, didn’t respond to a call and e-mail seeking clarification on Chazen’s proposal.
“Occidental is committed to revising its executive compensation program to reflect shareholder feedback, as well as to insure that our compensation program is in alignment with our peers,” Spencer Abraham, Occidental board member and former U.S. Energy Secretary, said in the statement.
The company also announced that Chazen will immediately assume control of Occidental’s international operations, a move that will free him to pursue “more aggressive measures to improve shareholder returns throughout the company,” Roger Read, a Houston-based analyst at Wells Fargo & Co., wrote Monday in a note to investors.
Some shareholders have pressed the company to consider a breakup, including selling off or splitting the company’s U.S. and international operations.
Occidental will set a mandatory retirement age of 68 for CEOs, the company said. It will add two independent board members and review its pay practices for directors to bring them in line with peers.
Occidental directors made an average of $754,000 each in 2011, making them the highest-paid among all energy companies on the Standard & Poor’s 500 Index, according to the 2012 Spencer Stuart Board Index Report.
Monday’s announcement reflects pressure on Occidental’s board as shareholders cast votes on Irani and executive compensation, Ted Harper, a fund manager at Frost Investment Advisors LLC, said in a phone interview.
“Shareholder activism has been heard by the board,” said Harper, whose firm manages more than $8 billion including Occidental shares. “They probably got a sense that the shareholder proxy vote was coming and it was not going to go the way they had hoped. I think they’re heeling to what the vote likely portends.”