(Washington, DC) President Barack Obama is using his trip to Alaska to urge a speedy transition to a new energy economy. A just-released Institute for Policy Studies report sheds light on one overlooked obstacle to this shift—our CEO pay system.
Executive Excess 2015: Money to Burn explains how fossil fuel executives are incentivized to continue down a destructive climate path. The report is based on in-depth analysis of the 30 largest U.S. publicly held oil, gas, and coal companies.
- Beating the S&P 500 average: CEOs of these 30 largest fossil fuel companies averaged $14.7 million in total 2014 compensation, over 9 percent more than the S&P 500 CEO average.
- Five years, $6 billion: These firms’ management teams have taken home $6 billion over the past five years. That would be enough to weatherize 3.3 million homes or double the $3 billion U.S. pledge to the Green Climate Fund, a new institution to help vulnerable nations address climate change.
- Bonus incentives: All 13 oil producers on our list of 30 major U.S. fossil-fuel corporations reward executives for expanding carbon reserves, even though these firms are already sitting on far more reserves than could be burned without catastrophic climate effects.
- Short-termism: Most CEO compensation comes in the form of options and stock grants, a pay stream that encourages a fixation on pumping up share prices. Executives at distressed coal companies Peabody and Alpha Natural Resources cashed in stock options worth $47 million and $33 million, respectively, in the four years before their industry began to implode.
- Buybacks: In 2014, 23 of the top 30 fossil fuel companies spent a combined $38.5 billion on share repurchases. That was six times global corporate spending on research into renewable energy that year. Buybacks artificially inflate share prices, which, in turn, inflates executives’ stock-based pay.
- Pay for non-performance: The top 10 U.S. publicly held coal companies have also been increasing their cash-based executive pay as their share prices have been plummeting. When paychecks grow even as businesses sink, executives have little incentive to shift to a new energy future.
- Retirement security: Top fossil fuel executives have accumulated company-provided retirement assets worth a combined $1.2 billion at the same time their indifference to environmental degradation has been putting the futures of average Americans at risk.
“Our perverse executive pay system encouraged the recklessness that led to the 2008 financial crisis,” notes Sarah Anderson, IPS Global Economy Project Director and a veteran executive compensation analyst. “These same misplaced incentives are encouraging the recklessness of fossil fuel executives that is putting the entire world at risk.”
“The short-term incentive system is not only bad for the planet, it’s bad for investors as well,” adds IPS Senior Scholar Chuck Collins. “A rational system would encourage global energy leaders to shift investment away from drilling and mining untapped reserves towards renewable energy options.”
This Executive Excess report, the Institute’s 22nd annual, also includes an updated CEO pay reform scorecard.
Elaine de Leon, IPS Communications Director
Elaine@ips-dc.org, Office: 202.787.5271, Mobile: 202.714.3443
Sarah Anderson, Institute for Policy Studies
(202) 787 5227, firstname.lastname@example.org
The Institute for Policy Studies (IPS-DC.org) has conducted path-breaking research on executive compensation for 22 years. The 2014 edition of their annual Executive Excess report received coverage in the Washington Post, Reuters, and Wall Street Journal Marketwatch, among other outlets. IPS also provides a constant stream of inequality analysis and solutions through our online weekly Too Much and our website Inequality.org.