Please ensure Javascript is enabled for purposes of website accessibility

Investors Standing Up to CEO Pay Is a Welcome Sign

By Motley Fool Staff - May 7, 2016 at 8:16AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Both BP and Anglo American's bosses had shareholders vote down their pay packages voted down. Could this move finally start to reel in corporate CEO pay?

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 (BP 1.00%) and Anglo American (NASDAQOTH: 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.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

BP p.l.c. Stock Quote
BP p.l.c.
$29.36 (1.00%) $0.29

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 06/29/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.