More Thoughts on Lee Raymond's Compensation

Here's more on Exxon Chairman Lee Raymond's compensation. A typical grouse over executive compensation is that the person at the top earns far too much relative to the grunt. Well OK, if a grunt at Exxon earns $25,000 (that's probably low except if you work in the mail room) Raymond's $52 million 2005 pay package was 2080 times that of those on the bottom of the totem pole. It certainly is a matter of opinion whether this is egregiously high. However, Tom Cruise earned $70 million for Mission Impossible and I bet a production assistant, the movie industry's grunt equivalent, earned about $25,000. So Cruise was paid 2800 times better than the grunts. I don't see alot of stories decrying the injustice of the movie industry or labelling Tom Cruise some rapacious fat cat. Intellectual honesty folks, take on Cruise too or leave Raymond alone.

Another thought. If you earn a $1 every year for 13 years and you can compound that dollar, say by deferring payment and taking stock instead, at 12% (the rate that Exxon shares have increased each year for the 13 years Raymond has led the company) you will wind up with $28.02. When you factor in dividends that the stock paid, you are looking at something like $29 and change. Well, this is what Raymond did, so the $98 million lump some payment has to be broken down into actual pay and compounded earnings on that pay. Turns out this element Raymond's compensation was roughly $3.4 million per annum. This is on top of his salary and perqs of course, but that is hardly an egregious amount of money to run the world's largest company and run it well. My point is the numbers seem large to people and can definitely be off-putting but you have to be cognizant of the power of compounding. Over time, modest amounts compounded at healthy rates of return become large numbers. Little wonder then that Albert Einstein said that compound interest was man's greatest invention.