A Publication of NorthStar Asset Management, Inc.

NorthStar Takes on ExxonMobil’s CEO Pay Practices

We took a cab from the hotel so we wouldn’t melt in the Dallas heat in our atypical business suits. Pulling up to the Meyerson Symphony Hall where the meeting was conducted, the tenor of the meeting was glaringly apparent. Uniformed police far outnumbered the 75 or so protesters. Once inside, the x-ray machine, metal detector, and credential examination made it clear that ExxonMobil wanted no trouble for CEO Rex Tillerson’s first meeting.

Walking around the exhibits before the meeting opened, board members in dark business suits mingled on the floor alongside stockholders dressed in their cowboy boots and sparkling rhinestones. Bags of free coffee were scooped up and put into the petroleum based plastic bags proudly sporting the company logo. Next to a new design for a gas pump stood a booth describing in detail the microfinance work ExxonMobil’s foundation is funding in India and Indonesia. Another discussed funding for girls’ education programs. The public relations department had been very busy.

Once inside, the rules of the meeting were unambiguous. English only. No one could speak more than three minutes and former CEO Lee Raymond’s infamous stoplight was installed on either side of the stage. Green, then yellow to signify thirty seconds left and then red, with three loud beeps to let you know your time was up. And please be civil. We thought the stoplight wasn’t really civil but the rules were clear. In years past, we were told, grown men had been brought to tears by former CEO Raymond’s blunt dismissal of their concerns. At his kindest, he was rude. Rex Tillerson is cut from a different fabric. A very expensive one. Smooth, like a well-rehearsed actor, Tillerson directed the meeting with humor and hospitality. Few speakers ran over their allotted time and no microphones were cut off. Questions were answered, if only in short, prepared sound bites. If ever there was a question about impact on ExxonMobil’s way of doing business, Rex Tillerson is the example of the company’s efforts to clean a tarnished image. He said nothing new. He questioned the science around global warming. He stuck to all the same lines and business beliefs espoused by Raymond before him. He simply did it with elegance. The company still believes oil and oil refineries are the most lucrative avenue for business. He touted the research effort of 20,000 scientists employed by ExxonMobil as the basis for such beliefs.

Progress and change in the world’s largest oil company will never come quickly. But for the first time ever, only 70 percent of shareholders voted for the Board of Directors – normally, boards are re-elected with percentages in the 90s. Thirteen resolutions were presented. NorthStar’s resolution to report on CEO compensation was number 9.

Julie rose to speak:

Good morning. My name is Julie Goodridge. I am the President of NorthStar Asset Management and beneficial owner of 10,000 shares of ExxonMobil. I am here to ask for your support of resolution #9, a request for an Executive Compensation Report.

Our Company, ExxonMobil, gave a $400 million retirement package to former CEO Lee Raymond. This, on top of his 2004 compensation totaling $80 million.

Due in part to Raymond’s exorbitant compensation, CEO compensation in general has come under greater scrutiny by the SEC, by Congress, by the media and by shareholders. In fact, Mr. Raymond’s pay package is being held up as an example by Representative Barney Frank of Massachusetts as reason to file a House bill requiring public companies to submit detailed executive compensation plans to the shareholders for approval.

We believe the historically high executive compensation level of our Company diminishes shareholder value. Our resolution asks shareholders to join us in questioning why it takes our lowest paid employees 1.6 years to earn what Mr. Raymond takes home after sixty minutes at his desk.

We are asking our Company to examine the significant gap between the lowest paid worker and the highest paid worker because we believe it is fiscally irresponsible for a company to put so much of its resources into a single individual.

We are asking for a justification of this gap at a time in our history when it takes an ExxonMobil employee earning minimum wage a full day’s pay to fill her car with gas from one of our Company’s gas pumps.

We believe that reinvesting Exxon-Mobil’s history-making profits of 2005 in all of ExxonMobil’s employees — from the line workers, the administrative assistants to management — will increase shareholder value by protecting us from declining value when times are less favorable. Our resolution will help polish ExxonMobil’s tarnished image. A fresh look at our executive compensation will show that in times of historical profit, ExxonMobil plans for our company’s future.

Lee Raymond’s 2004 compensation is an example of corporate greed; his retirement package is a rubber stamp on excessive spending by our Company. It is our responsibility as shareholders to ask why.

We must send this message to our board, and to all companies, that high gas prices and high company profits do not justify outrageous CEO compensation. Please join us in voting FOR resolution #9.

The room burst into applause. It was the only resolution that garnered the support of loyal company followers and activists alike. Resolution #9 received 12.9% of the vote, well past the SEC’s threshold for automatic resubmission. We will be back next year to continue the fight.

And then an elderly gentleman, with his cowboy boots and suspenders, stood up at the microphone and said, “The most important job in the world is the President of the United States.” He paused and shook his head, “And he don’t make that kinda money. It’s just wrong.” Change is sometimes slow. But it is happening. Even at ExxonMobil.

CEO Pay Gap Escalates

As if to drive our point home, the Economic Policy Institute released its 2005 report of CEO pay shortly after the ExxonMobil meeting. The pay gap between the lowest paid worker and the highest has increased to historic levels, just like ExxonMobil’s profits. Back in 1965, the highest paid worker made 51 times that of the lowest paid worker. Today, that multiple has increased to an unbelievable 821 times. To further the pain of working class people, when adjusted for inflation, minimum wage earners are experiencing their lowest level of purchasing power since 1955.

Home Depot’s Sham Meeting

What if you held a meeting and none of your primary managers showed up? You’d be ticked, muttering, “What a waste of time!” You’d feel disrespected. That’s how shareholders of Home Depot reacted when the Board of Directors didn’t even show up for the annual shareholder meeting in May.

Instead, the much-maligned CEO Bob Nardelli presided over the scant half hour meeting where no shareholder questions were answered, no management response to the eight shareholder resolutions was given and afterward, no votes were revealed.

Perhaps Nardelli feared shareholder outrage at the $245 million he’s been paid since he came to Home Depot in 2000. In the same time period, Home Depot’s stock has fallen by 12% as its main competitor Lowe’s stock price rose 173%. However, as one critic points out, “If you run an $82 billion, 345,000 employee organization, running the shareholder meeting, even if it’s contentious, surely can’t count as your toughest moment of the year.”

Still, it wasn’t until two weeks later, after shareholders and the media ran Home Depot through the ringer, did the company “change its meeting policy.” In a statement Nardelli belatedly announced, “Consistent with the way we run our company – in which we listen, learn and lead – we will return to our traditional format for next year’s annual shareholder meeting, which will include a business overview, the presentation of proposals, an opportunity for shareholder questions and with the board of directors in attendance.”

“I think it’s quite arrogant frankly – it’s disrespectful to investors,” said Charles Elson, director of the University of Delaware Center for Corporate Governance. “I don’t take much stock in apologies, as actions speak louder than words – the fact that Home Depot shut out questions, that the directors didn’t bother to show up – the company effectively limited their shareholders’ ability to legitimately question management.”

Other companies have limited shareholder access this year as well. At the Whole Foods meeting, investors were not allowed to present shareholder resolutions despite SEC rules requiring the filing shareholders to be present at the meeting and to present the resolution to the meeting attendees.

At the Coca-Cola meeting, color-coded cards distinguished in-person share-holders (red cards) from those attendees representing shareholders (yellow cards.) Because many shareholders assign their attendance rights to activists (like NorthStar sometimes does), the color-coded cards clearly delineated for the board which audience members were likely to be activists. During the controversial resolution addressing labor abuses in Columbia, the “yellow cards” were ignored as the company clamped down the democratic discussion of tough issues thus undermining shareholders’ ability to hold the corporation accountable.

General Mills Agrees to Political Disclosure

After negotiating with NorthStar, General Mills became the latest major company to agree to disclosure and board oversight of its soft money political contributions. Under the policy, all soft money political contributions will be reviewed annually at the board level and disclosed on the corporate website along with the company’s political giving guidelines.

Current campaign finance law allows corporations to make donations in many states and to political committees commonly known by their IRS code number as “527s.” The law does not allow company contributions to federal candidates. However, companies aren’t required to disclose political contributions made with corporate funds, leaving investors in the dark about the use of company resources for political activities.

General Mills has long been viewed as a good corporate citizen. When NorthStar suggested that a comprehensive political disclosure polity would augment the good corporate governance policies the company already has in place, General Mills agreed.

“A growing number of companies are recognizing that political spending poses serious risks to them and their share-holders,” said Bruce Freed, co-director of the Center for Political Accountability, a Washington, DC based advocacy group seeking corporate transparency for political giving. “Adopting transparency and accountability can help shield them from these risks. As companies head into the next election season, it is increasingly urgent that they follow General Mills’ example and adopt disclosure and accountability. It’s just a matter of good governance.”

Resolution Round Up

The General Mills’ policy change rounded out a successful shareholder resolution season. Of the resolutions Northstar filed, Emerson Electric and Sherwin Williams agreed to add anti-discrimination protections for gay and lesbian employees. Hain Celestial agreed to release a CEO compensation review for which we continue to wait. Thirty-six percent of Home Depot shares agreed that the company should release its equal employment data (which many companies voluntarily disclose.) Staples changed its political contributions policy to include board oversight and transparency for shareholders. Wal Mart continues to stall on revealing how it disperses options. Wells Fargo maintains it doesn’t discriminate in its lending practices.

Written by Margaret J. Covert & Sara Whitman

Edited by Julie N. W. Goodridge