Ray Irani, chairman and chief executive of Occidental Petroleum Corp., outflanked his peers to become the highest paid executive in Los Angeles last year, getting $87.5 million in compensation.

Though Irani received a salary of just $1.3 million, he was loaded up with $43 million in long-term compensation and an estimated $38.5 million in new stock options.

But Irani was also sitting on a pile stock options awarded in previous years and last year he cashed in $37.6 million worth.

Put it all together, and Irani’s aggregate compensation amounted to $125 million.

Every year the Los Angeles Business Journal compiles a list of the highest-paid executives of publicly traded companies in Los Angeles. This year, the Business Journal took a cue from the Securities and Exchange Commission by assigning a value to new stock option grants that were includes in executives’ total pay.

Stock options that were granted in previous years but exercised last year were figured separately.

And, as the numbers show, the big payoff for some executives comes in the form of stock options.

Bruce Karatz, chairman and chief executive of homebuilder KB Home, and Angelo Mozilo, chairman and chief executive of mortgage company Countrywide Financial Corp., each pocketed nearly
$120 million last year just by exercising stock options at the peak of the market.

Karatz, who received $47.7 million in company compensation, had the highest pay of any executive when cashed-in options are added in, at $166 million.

Mozilo, who held the top spot last year, received $41.3 million in compensation, which quadrupled to $160 million with options exercised.

Only John Kilroy, chief executive and president of Kilroy Realty Corp., ranked in the top rungs of pay without exercising any options. Kilroy was paid $42.5 million last year, which included $40 million in long-term incentive pay.

Even by the standards of most millionaires, executive pay continues to skyrocket – especially for executives who are sitting on large piles of stock options, which can grow dramatically over time.

Because Karatz, Mozilo and Irani have worked at their respective companies for 20 years or more, they have all accumulated millions in stock options. Corporate governance experts say executives are seeing massive increases in their total compensation this year due largely to the exercising of stock options that were granted anywhere from three to 10 years ago.