ConocoPhillips investors reject executive pay plan

Investors delivered a stern rebuke to Conoco-Phillips on Tuesday when they rejected its compensation plan for top executives by a wide margin.

At its annual meeting in Houston, more than two-thirds of ConocoPhillips' shareholders voted against or abstained in an advisory vote on its biggest paychecks, an unusually large upset for a Fortune 100 company. It's also the first time Houston's largest oil company has failed to garner shareholder approval in the nonbinding say-on-pay vote since it spun off its oil refining business five years ago.

ConocoPhillips paid CEO Ryan Lance $15.6 million in total compensation last year, off nearly 8 percent from the year before. Even though Lance's pay has fallen in recent years, alongside oil prices, the company still compares itself to much larger, more diversified peers when setting pay levels.

The company used Exxon Mobil Corp., Chevron Corp., Royal Dutch Shell and BP among its corporate benchmarks for executive compensation, according to regulatory filings. Investors of these companies suffered far less than ConocoPhillips' during the oil downturn because those larger companies have refining and other businesses that offset sharp losses from oil production.

ConocoPhillips left the elite club of so-called integrated companies, which have both drilling and refining operations, in 2012 when it spun off refiner Phillips 66.

Its stock price has slid by nearly half, to $47.13 a share on Tuesday from $86 a share at the peak of the oil boom in 2014. ConocoPhillips' stockmarket value is only half the size of its closest peer on the list, BP.

Exxon Mobil is six times its size. The Irving oil giant's shares have dropped only 18 percent over the same period. Exxon Mobil produces 4.1 million barrels of oil equivalent a day, while ConocoPhillips pumps 1.6 million barrels a day.

"Conoco may see them as peers and competitors, but in today's world, it looks out of whack," said Chris Crawford, president of compensation consultancy Longnecker & Associates in Houston. While it appears ConocoPhillips has responded to shareholder concerns by reducing Lance's pay in recent years, it likely has not been quick enough for investors' tastes, he added.

Shareholders received the right to vote on executive compensation in the Dodd-Frank financial overhaul bill that followed the global financial crisis that began in 2008 and led to the worst U.S. recession in 70 years. Say-on-pay, which is advisory and not binding on directors, went into effect in 2011.

The rebuke at ConocoPhillips is among the rare instances in which investors have rejected compensation plans. The failure rate of say-on-pay votes across corporate America has fallen to its lowest point since 2011 this year, falling below 1 percent, according a recent report by executive compensation firm Semler Brossy. Last week, shareholders of Apache Corp., another Houston oil company, approved a compensation package that reduced the total pay for CEO John Christmann from $15.1 million in 2015 to $13.4 million last year.

Apache shareholders blessed the compensation packages with 95 percent of the vote.

Sixty-eight percent of ConocoPhillips' shareholders voted against or abstained in the so-called say-on-pay vote over its 2016 compensation, according to preliminary tallies. Last year, 83 percent of ConocoPhillips' investors approved its 2015 executive pay packages.

"We're disappointed the proposal didn't pass and acknowledge how the shareholders have voted," said Daren Beaudo, spokesman for Conoco-Phillips. "We plan to actively engage in dialogue with our shareholders to better understand their views regarding our compensation programs."

ConocoPhillips cut its workforce 30 percent during the oil bust in 2015 and 2016 and reduced capital spending 70 percent since 2014. In February 2016, when oil prices fell to a 12-year low of just over $26 a barrel, the company cut its shareholder dividend by two-thirds to 25 cents a share.

ConocoPhillips, meanwhile, continues to get smaller. This year it is on track to sell $16.3 billion in assets with the sale of natural gas holdings in the San Juan Basin that straddles New Mexico and Colorado and most of its Canadian oil sands assets.

The base salary of CEO Lance was kept flat at $1.7 million last year. His stock and option awards declined, but his cash incentives increased 4.5 percent to $2.6 million, filings show.

The company's board of directors and its human resources and compensation committee plan to take the outcome of the vote into consideration in future pay packages, Janet Carrig, senior vice president and general counsel at Conoco-Phillips, said during a recent conference call.