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Exxon CEO's 40% Bonus Cut A Measure of Oil Company's Sanity

The sanity of a company's board should be measured in how it doles out year-end bonuses. Take ExxonMobil for example. The world's biggest company based on market value, will slash CEO Rex Tillerson's bonus by 40 percent this year to $2.4 million.

Tillerson will still receive the same amount of shares -- 225,000 -- as last year and his salary will increase 7 percent, according to information filed with the Securities and Exchange Commission. But his bonus, which is based on the company's annual performance, was cut. Other top execs at the energy giant also saw their year-end bonuses reduced. Exxon's profit fell 68 percent in the third quarter.

This makes perfect sense. And yet so many other companies have failed to take similar steps. Investor groups raised a ruckus last year after Royal Dutch Shell was accused of trying to push through bonuses despite not reaching its own growth targets. Chesapeake Energy's $112.5 million compensation package for CEO Aubrey McClendon last year pushed public outrage into overdrive. Even Exxon came under scrutiny for Tillerson's 2008 compensation package, which included a 10 percent salary increase, $4 million bonus and stock grants valued at $17.6 million.

The decline in oil prices and weak demand for fuel, especially in developed countries, such as the United States and in Europe, has hurt earnings of virtually every integrated oil company. Oil refiners were punished even further. Companies have had to slash their workforce and cut back spending in 2009.

We will see how closely a company's annual performance aligns with its CEOs' bonuses this year. If the gap is too wide, investor outrage may hit a whole new level.

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