Small though it may be, shareholders have a voice in the companies they're invested in, and last week's news proves it.
In this clip from the Industry Focus: Energy podcast, analysts Sean O'Reilly and Tyler Crowe talk about what on earth the CEOs of BP plc (NYSE:BP) and Anglo American (OTC:AAUKY) were thinking when they proposed giving themselves exorbitant raises in the face of huge losses, and how shareholders were able to nix their plans.
A full transcript follows the video.
This podcast was recorded on April 22, 2016.
Sean O'Reilly: Can you tell our audience really quickly why, if your stock falls 50%, a CEO shouldn't get a 20% raise?
Tyler Crowe: At least that's what a couple of companies have said recently with some shareholder votes. Both Anglo American, a major diversified mining company, and BP, both in their shareholder votes, both companies had either a large plurality or a majority of their shareholders saying no to the pay packages that were proposed by the board for these companies' CEOs. In the case of Bob Dudley, the CEO of BP, he was looking at a 20% raise to about $19.6 million annually.
O'Reilly: Which is absurd.
Crowe: It all comes down to how you evaluate what your -- how you structure your compensation packages. If you look at some of the ways that BP had structured it, it was rather favorable to the business on these certain metrics that looked favorable almost regardless of the current price environment -- the total return that a shareholder would get. Contrast that with ExxonMobil or Chevron's CEOs. Both of them saw pretty decent sized declines in their salary from 2014-2015, because their compensation packages were based somewhat on total return. When you have your stock drop 20%, 30% in a year, some of that is going to be reflected in your pay package.
This is one of those things, and I think as a shareholder it's one of the nice things, where you can actually say no to something like this and actually have a voice in it. That's one of the great things about being an individual shareholder of a company, is as little as it may be, you still have a voice in what goes on in the company. You can say, "Hey you guys are paying your CEO too much." Or you can even sometimes bring up amendments for oil companies. A lot of them have to bring forth votes on things like climate change disclosure. It's encouraging to see shareholders actually holding companies' feet to the fire for a change. Sometimes these guys can get away with a few things every once in a while. To see this happening is a little encouraging.