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July 08, 2021

Occidental Petroleum? What Corporation Will do to Save Their Dividends

Even before the pandemic took its toll on the American economy, Occidental Petroleum had been cutting costs.  According to CNBC, Occidental announced in 2019 they would be cutting jobs in order to reduce costs after spending $38 billion to acquire Anadarko Petroleum. The Coronavirus hurt most industries, but the oil & gas industry was hit especially hard. The Houston Business Journal reported that Occidental cut salaries back in March when oil prices dropped significantly. 

Fortune 500 companies have been scrambling to protect their dividends and keep their shareholders happy. The results have been generally negative for workers at those companies. This trend has affected companies in many different industries. Let’s take a look at some specific examples from AT&T & ExxonMobil.

Back in June, The Dallas Morning News reported that AT&T was planning a $6 billion job cost cutting initiative which would “make ‘sizable’ job cuts and close hundreds of retail stores”. This is obviously a response to the current economic downturn, but the plan was made with the goal of preserving their dividend in mind. That same article reported that, “AT&T has been under pressure to reduce costs and sell assets to help pay down debt, expand 5G wireless networks, raise its shareholder dividend and expand its WarnerMedia entertainment offerings”. The results have been several thousand job cuts and several hundred closed storefronts. 

A year ago, Reuters reported that Neil Chapman, ExxonMobil’s Senior Vice President, stated that the company would be cutting capital and operating expenses to protect their dividend.  ExxonMobil has since announced that they will no longer be matching U.S. employee’s contributions to their retirement savings plans. The suspension of these benefits started on October 1st, 2020, and is set to resume on October 1st, 2021, per Reuters. That was the latest step in a long line of troubling economic developments in which companies are attempting to save their dividend. According to Reuters, ExxonMobil has now experienced “its first back-to-back quarterly loss in 36 years because of the drop in demand during the novel coronavirus pandemic”. This announcement comes on the heels of several stories claiming that ExxonMobil was effectively laying people off through PIP.

A PIP or “Performance Improvement Plan” is essentially a severance offer to leave the company. According to Forbes, ExxonMobil made changes to their performance evaluation process in order to justify more job cuts. Back in April, 2020, they raised the number of employees who were in the “Needs Significant Improvement” (NSI) category from 3% to 8% of all US workers. Employees who were placed in the NSI category qualified for a PIP. ExxonMobil employs about 75,000 people, so an 8% reduction would result in about 6,000 people out of a job. According to Business Insider, the changes made to ExxonMobil’s employee evaluation process were an attempt to, “cut more jobs without traditional layoffs." 

All of these decisions are being made in the name of protecting dividends. ExxonMobil has raised the payout on their dividend annually for 37 straight years, and it is very much a streak they would like to continue. When corporations prioritize their dividend, the result is typically a lot of employees out of a job. 

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Sources:

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“The Retirement/Transition Guide for Occidental Petroleum Employees.” The Retirement Group, 11 Aug. 2020, https://energy.theretirementgroup.com/occidental-educate
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XOM Summary Plan Description, 2017

https://www.reuters.com/business/energy/exxon-plans-reinstate-employer-401k-match-oct-1-2021-07-02/