Chevron CEO David O’Reilly received $27.8 million in stock options this week just as the price of gasoline hit record highs in O’Reilly’s hometown in Northern California, closing in on 4 bucks per gallon at some Bay Area stations.
Chevron’s been making a killing on high gasoline prices in the West, particularly California, where gas prices are 70 cents higher than around the nation and Chevron refines more than one quarter of the gasoline. O’Reilly’s options point to big first quarter profits for the West’s biggest refiner, which explains the $4 per gallon price a lot better than problems with Iran or the cost of crude or any of the other phony reasons the oil companies have given us lately.
O’Reilly’s Spring pay day should remind Chevron shareholders who meet in April why management is opposing a shareholder bid to split O’Reilly’s position of Chairman and CEO into two separate jobs. As the AFL-CIO reports:
According toThe Wall Street Journal, "Year after year, some companies’ top executives received options on unusually propitious dates.”
Excessive CEO pay is fundamentally a corporate governance problem. When CEOs have too much power in the boardroom, they are able to extract what economists’ call “economic rents” from shareholders—the equivalent of monopoly profits. These rents are known as “agency costs,” and arise from the separation of ownership and control.
The board of directors is supposed to protect shareholder interests and minimize these agency costs. However, at approximately two-thirds of companies, the CEO is the board’s chair. When one single person serves as both chair and CEO, it is impossible to objectively monitor and evaluate his or her own performance.
David O’Reilly is one of the few people in Northern California smiling as he pumps $4 per gallon gas.