Pay incentives for the chief executives of the biggest publicly-held fossil fuel companies in the U.S. are worsening climate change by encouraging recklessness from management teams and rewarding companies' strongholds over oil, gas, and coal reserves, according to a new report published Wednesday by the Institute for Policy Studies.
Money to Burn: How CEO Pay is Accelerating Climate Change (pdf), an annual analysis of executive excess, outlines the complex cycle in which corporate bosses are given "enormous personal financial incentive" to promote the development of fossil fuels, which in turn allows them to donate ever-increasing funds to lobbyists and lawmakers who promote climate denial policies.
In addition, corporations "lower the performance bar by super sizing the number of equity-based rewards they grant executives during stock slumps," the report states. That's the same kind of high-stakes gambling that contributed to the 2008 economic crash and set up bankers for enormous windfalls if shares increased even slightly after the recovery began.
"Our perverse executive pay system encouraged the recklessness that led to the 2008 financial crisis," co-author and IPS Global Economy Project director Sarah Anderson said on Wednesday. "These same misplaced incentives are encouraging the recklessness of fossil fuel executives that is putting the entire world at risk."
CEOs of the 30 largest publicly-held fossil fuel companies averaged $14.7 million in total compensation in 2014, while their management teams took home roughly $6 billion over the past five years. That's twice the size of the country's recent $3 billion pledge to the Green Climate Fund, a United Nations body that redistributes wealth to developing countries in order to help them stave off the effects of global warming.
In another example, Exxon-Mobile spent $13.2 billion buying up its own stock in 2014, a tactic that inflates executive pay. That's double what all global corporations spent on researching renewable energy, IPS found. Chevron spent $4.4 billion.
In addition to sky-high financial rewards, the incentives most often come in the form of stock options, which encourage executives to cash in their bonuses within three or four years—while climate change takes decades to play out.
"Short-termism," as the report calls it, allows executives to "reap massive windfalls before the climate change their behaviors nurture starts hitting."
As co-author and IPS senior scholar Chuck Collins explains, "The short-term incentive system is not only bad for the planet, it’s bad for investors as well. A rational system would encourage global energy leaders to shift investment away from drilling and mining untapped reserves towards renewable energy options."
Moreover, the report continues, "Our perverse pay incentives are also encouraging executives to deploy their considerable corporate political clout against attempts to end fossil fuel subsidies, put a price on carbon, or introduce regulations that could speed the transition to a safe energy future."
The analysis comes just after President Barack Obama visited Alaska to promote a shift to renewable energy, even as his administration continues to approve offshore oil drilling in the Arctic's vulnerable Chukchi and Beaufort seas—remote waters just off the coast from where the president gave his speech.
"I think our numbers show that CEO pay encourages executives to behave in a way that is deepening the climate crisis," said co-author Sarah Anderson. "If we don't reverse these perverse incentives, we all remain at risk."
Some of the top-earning executives named in the IPS report include:
- Peabody CEO Greg Boyce, who took home $26 million between 2008 and 2011;
- James Roberts, former CEO of the now-defunct Alpha Natural Resources, who pocketed more than $15 million in one year before retiring;
- Console Energy CEO J. Brett Harvey, who cashed in $19.4 million between 2010 and 2012 at the same time as the company itself laid off 600 workers and revoked retiree benefits for 4,400 former employees;
- Anadarko Petroleum CEO R.A. Walker, who got $20.7 million in 2014 alone.
The IPS report proposes a number of solutions to alleviate the crisis. Among them are already-passed bills and provisions, such as those within the 2010 Dodd-Frank financial reform law which require all U.S. corporations to reveal CEO-worker pay ratios and allow shareholders a say on compensation, among other rules.
However, as Common Dreams has previously reported, less than two-thirds of Dodd-Frank's regulations have been enacted five years after the bill's passage into law.
Robin Roberts, an accounting professor at the University of Florida, told Inside Climate News that such efforts could help limit excessive payouts, but that even increased transparency would not be able to temper the conflict between short-term incentives for executives and long-term climate impacts.
"They are depending on fossil fuels to drive their profit with very little regard for low carbon energy solutions," Roberts said. "Those remain low priorities because those aren't where they get the most money."