Occidental Petroleum on Thursday confirmed that Ray Irani will step down as chief executive in May, and the company will cut the salaries of its top executives to bring them more in line with peers in their industry.

The Los Angeles oil company said Irani, 75, will retire at the 2011 annual meeting but remain executive chairman until the end of 2014. Chief Operating Officer Stephen Chazen will replace him as CEO.

Irani, Chazen and others in the executive team will get a "substantially lower" maximum payout under a new long-term compensation plan than they were eligible for in previous plans. "Under the new program, at all performance levels, the compensation for Occidental's chairman and chief executive officer is expected to be lower than that of one or more peer companies," the company said.

Irani has topped the Los Angeles Business Journal’s list of highest paid chief executives in the Los Angeles area for five years, with a $31.4 million compensation package in 2009, down 48 percent from the previous year.

The report comes after two of Occidental’s institutional shareholders launched proxy fight for seats on the company's board. Relational Investors LLC and the California State Teachers' Retirement System, which together own about 1 percent of the company's shares, said they hope to unseat at least four of Occidental's 13 directors at next year’s annual meeting.

In addition to issues over Irani’s compensation, which in some years has exceeded $87 million, the institutions have criticized Occidental for not announcing a formal CEO-succession plan as Irani reached the company's retirement age of 75 for directors. The board waived the retirement-age rule for Irani and two other directors at this year's annual meeting.

“Throughout this process, our goal has been to redesign Occidental’s compensation program to bring compensation in the ranges used by our peer companies, provide the proper incentives for our executives, reflect current best practices, and address concerns raised by investors,” Spencer Abraham, chairman of the board’s compensation committee, said in a statement.

Shares were up 24 cents, or less than a percent, to $84.53 in midday trading on the New York Stock Exchange.

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