Exxon Mobil Corp. is planning to put about $175 million in cash into a trust for Rex Tillerson, who stepped down as the company’s chief executive officer on Jan. 1 in order to pursue a new career opportunity at the U.S. State Department. This giant payout is likely to be an issue at his Senate confirmation hearing this week. It should be. So should lots of other things. But there’s some background here that should be understood.

The reason the secretary of state nominee has cut this strange deal with his former employer, instead of just selling his stock holdings like CEOs aiming to take government jobs usually do, is that Exxon is excruciatingly slow about handing over stock to its top executives. The biggest part of their pay each year comes in restricted stock that they can’t get their hands on for a while. Half of it takes five years to vest, the other half vests either after 10 years or at retirement, whichever is later.

Why does Exxon do this? I’ll let Sam Palmisano, the former International Business Machines Corp. CEO who is chairman of the compensation committee of Exxon’s board of directors, explain: Read More