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Anadarko Petroleum DEF 14A 2008 Documents found in this filing:
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. ) Filed by
the Registrant þ
Filed by a Party other than the Registrant o Check the appropriate box:
Anadarko Petroluem
Corporation
Payment of Filing Fee (Check the appropriate box):
March 31,
2008
TO OUR STOCKHOLDERS:
The 2008 Annual Meeting of Stockholders of Anadarko Petroleum
Corporation will be held at The Woodlands Resort &
Conference Center, 2301 N. Millbend Drive, The
Woodlands, Texas, 77380 on Tuesday, May 20, 2008, at
8:00 a.m. (Central Daylight Time).
The Notice of the Annual Meeting and Proxy Statement, which are
attached, provide information concerning the matters to be
considered at the Annual Meeting. The Annual Meeting will cover
only the business contained in the Proxy Statement and will not
include a management presentation.
Pursuant to new rules promulgated by the Securities and Exchange
Commission, we are providing access to our proxy materials over
the Internet. As a result, we are mailing to many of our
stockholders a Notice of Internet Availability of Proxy
Materials (Notice) instead of a paper copy of this Proxy
Statement and our Annual Report. The Notice contains
instructions on how to access those documents over the Internet,
as well as instructions on how to request a paper copy of our
proxy materials. All stockholders who do not receive a Notice
will receive a paper copy of the proxy materials by mail. We
believe that this new process will reduce the environmental
impact and lower the costs of printing and distributing our
proxy materials.
We value your opinions and encourage you to participate in this
year’s Annual Meeting by voting your proxy. You may vote by
Internet or by telephone using the instructions on the Notice,
or, if you received a paper copy of the proxy card, by signing
and returning it in the envelope provided. You may also attend
and vote at the Annual Meeting.
Very truly yours,
JAMES T. HACKETT
Chairman of the Board, President and
Chief Executive Officer
P. O. Box 1330
Houston, Texas
77251-1330
The Annual Meeting of Stockholders of Anadarko Petroleum
Corporation will be held at The Woodlands Resort &
Conference Center, 2301 N. Millbend Drive, The
Woodlands, Texas, 77380, on Tuesday, May 20, 2008, at
8:00 a.m. (Central Daylight Time) to consider the following
proposals:
(1) elect three directors;
(2) ratify the appointment of KPMG LLP as the
Company’s independent auditor for 2008;
(3) approve the Anadarko Petroleum Corporation 2008 Omnibus
Incentive Compensation Plan;
(4) approve the Anadarko Petroleum Corporation
2008 Director Compensation Plan;
(5) if presented, consider and vote on two stockholder
proposals; and
(6) transact such other business as may properly come
before the Annual Meeting and any adjournments or postponements
thereof.
If you are a record holder of common stock at the close of
business on March 26, 2008, the record date, then you are
entitled to receive notice of and to vote at the meeting.
Please take the time to vote by following the Internet or
telephone voting instructions provided. If you received a paper
copy of the proxy card, you may also vote by completing and
mailing the proxy card in the postage-prepaid envelope provided
for your convenience. You may also attend and vote at the Annual
Meeting. You may revoke your proxy at any time before the vote
is taken by following the instructions in this proxy statement.
As a stockholder, your vote is very important and the Board
strongly encourages you to exercise your right to vote.
BY ORDER OF THE BOARD OF DIRECTORS
Robert K. Reeves
Senior Vice President, General Counsel,
Chief Administrative Officer and Corporate Secretary
March 31, 2008
The Woodlands, Texas
Important
Notice Regarding the Availability of Proxy Materials
for the Stockholder Meeting to be Held on May 20, 2008: The Proxy Statement and Annual Report for 2007 are available at http://bnymellon.mobular.net/bnymellon/apc.
P. O. Box 1330
Houston, Texas
77251-1330
PROXY
STATEMENT
May 20, 2008
We are furnishing you this proxy statement in connection with
the solicitation of proxies by our Board of Directors to be
voted at the Annual Meeting of Stockholders of Anadarko
Petroleum Corporation, sometimes referred to as the Company or
Anadarko. The Annual Meeting will be held on Tuesday,
May 20, 2008. The proxy materials, including this proxy
statement, proxy card or voting instructions and our 2007 Annual
Report are being distributed and made available on or about
April 4, 2008.
In accordance with rules and regulations recently adopted by the
U.S. Securities and Exchange Commission, or SEC, we have
elected to provide access to our proxy materials to our
stockholders by providing access to such documents on the
Internet. Accordingly, a Notice of Internet Availability of
Proxy Materials, or the Notice, was mailed to most of our
stockholders on or about April 4, 2008. Stockholders will
have the ability to access the proxy materials on a website
referred to in the Notice or request a printed set of the proxy
materials to be sent to them, by following the instructions in
the Notice.
The Notice will also provide instructions on how to inform us to
send future proxy materials to you electronically by
e-mail or in
printed form by mail. If you choose to receive future proxy
materials by
e-mail, you
will receive an
e-mail next
year with instructions containing a link to those materials and
a link to the proxy voting site. Your election to receive proxy
materials by
e-mail or
printed form will remain in effect until you terminate it.
Choosing to receive future proxy materials by
e-mail will
allow us to provide you with the information you need in a
timelier manner, will save us the cost of printing and mailing
documents to you, and will conserve natural resources.
QUESTIONS
AND ANSWERS ABOUT THE ANNUAL MEETING
The Annual Meeting will be at The Woodlands Resort &
Conference Center, 2301 N. Millbend Drive, The
Woodlands, Texas, 77380, on Tuesday, May 20, 2008, at
8:00 a.m. (Central Daylight Time).
You may vote if you were the record holder of Anadarko common
stock as of the close of business on March 26, 2008, the
record date for the Annual Meeting. Each share of Anadarko
common stock is entitled to one vote at the meeting. On the
record date, there were 478,386,502 shares of common stock
outstanding and entitled to vote at the Annual Meeting.
Yes. Attendance is limited to stockholders of record as of the
record date for the Annual Meeting. Admission will be on a
first-come, first-served basis. You may be asked to present
valid picture identification,
such as a driver’s license or passport. If your shares are
held in the name of a bank, broker, or other holder of record
and you plan to attend the Annual Meeting, you must present
proof of your ownership of Company stock, such as a current bank
or brokerage account statement reflecting ownership as of the
record date for the Annual Meeting, to be admitted. Cameras,
recording devices and other electronic devices will not be
permitted at the Annual Meeting.
This year, in connection with new SEC rules that allow companies
to furnish their proxy materials over the Internet, we have sent
to most of our stockholders a Notice of Internet Availability of
Proxy Materials instead of a paper copy of the proxy materials.
Instructions on how to access the proxy materials over the
Internet or to request a paper copy may be found in the Notice.
In addition, stockholders may request to receive proxy materials
in printed form by mail or electronically by
e-mail on an
ongoing basis. A stockholder’s election to receive proxy
materials by mail or
e-mail will
remain in effect until the stockholder terminates it.
We are providing certain stockholders, including those who have
previously requested to receive paper copies of the proxy
materials, with paper copies of the proxy materials instead of a
Notice. If you would like to reduce the costs incurred by us in
mailing proxy materials, you can consent to receiving all future
proxy statements, proxy cards and annual reports electronically
via e-mail
or the Internet. To sign up for electronic delivery, please
follow the instructions provided in your Notice, or if you
received a printed version of the proxy materials by mail, by
following the instructions provided with your proxy materials
and on your proxy card or voting instruction card to vote using
the Internet. When prompted, indicate that you agree to receive
or access stockholder communications electronically in the
future.
No. The Notice will, however, provide instructions on how to
vote by Internet, by telephone, by requesting and returning a
paper proxy card, or by submitting a ballot in person at the
Annual Meeting.
Your Notice or proxy card will contain instructions on how to
view our proxy materials for the Annual Meeting on the Internet.
Our proxy materials are also available at
http://bnymellon.mobular.net/bnymellon/apc.
You are voting on:
The Board recommends that you vote:
Your vote is very important regardless of the number of shares
you hold. The Board strongly encourages you to exercise your
right to vote as a stockholder of the Company.
You may vote by any of the following methods:
If I vote
by telephone or Internet and received a proxy card in the mail,
do I need to return my proxy card?
No.
If I vote
by mail, telephone or Internet, may I still attend the Annual
Meeting?
Yes.
If you are a stockholder of record, you may revoke your proxy at
any time before the voting polls are closed at the Annual
Meeting, by the following methods:
If you are a street name stockholder and you vote by proxy, you
may later revoke your proxy by informing the holder of record in
accordance with that entity’s procedures.
Your shares are counted as present at the Annual Meeting if you
attend the Annual Meeting and vote in person or if you properly
return a proxy by Internet, telephone or mail. In order for us
to hold our Annual Meeting, holders of a majority of our common
stock entitled to vote must be present in person or by proxy at
the Annual Meeting. This is referred to as a quorum. Abstentions
and broker non-votes will be counted as present for purposes of
determining a quorum.
The New York Stock Exchange, or the NYSE, permits brokers to
vote their customers’ shares held in street name on routine
matters when the brokers have not received voting instructions
from their customers. Brokers may not vote their customers’
shares held in street name on non-routine matters unless they
have received voting instructions from their customers.
Non-voted shares on non-routine matters are called broker
non-votes. Broker non-votes will have no effect on the vote for
any matter properly introduced at the Annual Meeting.
The election of directors and the ratification of the
independent auditor are examples of routine matters on which
brokers may vote even if they have not received instructions
from their customers.
Non-routine matters are matters such as new equity compensation
plans and stockholder proposals.
The election of each director requires the affirmative vote of a
majority of the votes cast for such director. Under our By-Laws,
a majority of votes are cast for the election of a director if
the number of votes cast “for” the director exceeds
the number of votes cast “against” the director, with
abstentions and broker non-votes not counted as a vote cast
either “for” or “against” the director. The
ratification of the independent auditor requires the affirmative
vote of a majority of the shares entitled to vote and present in
person or by proxy at the Annual Meeting. The approval of each
of the new equity compensation plans requires the affirmative
vote of the majority of votes cast for each respective proposal,
provided that the total votes cast represent a majority of all
shares entitled to vote.
We are not aware of any matters that will be considered at the
Annual Meeting other than those set forth in this proxy
statement. However, if any other matters arise at the Annual
Meeting, the person named in your proxy will vote in accordance
with their best judgment.
We will announce voting results at the Annual Meeting, and we
will publish the final results in our quarterly report for the
second quarter of 2008. You may access or obtain a copy of this
and other reports free of charge on the Company’s website
at www.anadarko.com, or by contacting our Investor Relations
department at investor@anadarko.com.
A complete list of stockholders entitled to vote at the Annual
Meeting will be available to view during the Annual Meeting. You
may access this list at our offices at 1201 Lake Robbins Drive,
The Woodlands, Texas 77380 during ordinary business hours for a
period of ten days before the Annual Meeting.
We do. In addition to sending you these materials or
otherwise providing you access to these materials, some of our
directors and officers as well as management and non-management
employees may contact you by telephone, mail,
e-mail or in
person. You may also be solicited by means of press releases
issued by Anadarko, postings on our website, www.anadarko.com,
and advertisements in periodicals. None of our officers or
employees will receive any extra compensation for soliciting
you. We have retained Morrow & Co., Inc. to assist us
in soliciting your proxy for an estimated fee of $7,500, plus
reasonable out-of-pocket expenses. Morrow will ask brokers and
other custodians and nominees whether other persons are
beneficial owners of Anadarko common stock. If so, we will
supply them with additional copies of the proxy materials for
distribution to the beneficial owners. We will also reimburse
banks, nominees, fiduciaries, brokers and other custodians for
their costs of sending the proxy materials to the beneficial
owners of Anadarko common stock.
If you are an eligible stockholder and want to submit a proposal
for possible inclusion in next year’s proxy statement, your
proposal must be delivered to the attention of our Corporate
Secretary and must be received at our principal executive
offices no later than November 30, 2008 to be considered
for inclusion in the proxy statement and form of proxy relating
to the 2009 Annual Meeting. We will only consider proposals that
meet the requirements of the applicable rules of the Securities
and Exchange Commission, or SEC. Similarly, if you wish to
nominate an individual for election to our Board of Directors,
our By-Laws provide that you must provide your nomination in
writing to our Corporate Secretary no later than
February 19, 2009 and no earlier than January 20, 2009.
Stockholders may request a free copy of our Annual Report on
Form 10-K
by submitting such request to the Corporate Secretary, Anadarko
Petroleum Corporation, 1201 Lake Robbins Drive, The Woodlands,
Texas
77380-1046.
Alternatively, stockholders can access our Annual Report on
Form 10-K
on Anadarko’s website at www.anadarko.com.
In some cases, only one copy of this proxy statement, annual
report or Notice is being delivered to multiple stockholders
sharing an address unless we have received contrary instructions
from one or more of the stockholders. We will deliver promptly,
upon written or oral request, a separate copy of this proxy
statement, annual report or Notice to a stockholder at a shared
address to which a single copy of the document was delivered.
Stockholders sharing an address may also submit requests for
delivery of a single copy of the proxy statement, annual report
or Notice. To request separate or single delivery of these
materials now or in the future, a stockholder may submit a
written request to the Corporate Secretary, Anadarko Petroleum
Corporation, 1201 Lake Robbins Drive, The Woodlands, Texas
77380-1046
or an oral request by calling the Corporate Secretary at
(832) 636-1000.
The Board of Directors of Anadarko is divided into three classes
of directors for purposes of election. One class of directors is
elected at each Annual Meeting of stockholders to serve for a
three-year term. All of the director nominees listed below are
current directors of the Company.
At the Annual Meeting, the terms of three directors will expire.
All three of the directors have been nominated and, if elected
at this meeting, will hold office until the expiration of each
of their terms in 2011. Those directors not up for election this
year will continue in office for the remainder of their terms.
If a nominee is unavailable for election, then the proxies will
be voted for the election of another nominee proposed by the
Board or, as an alternative, the Board may reduce the number of
directors to be elected at the Annual Meeting.
Our By-Laws provide for the election of directors by the
majority vote of stockholders in uncontested elections. This
means the number of votes cast for a nominee’s election
must exceed the number of votes cast against such nominee’s
election in order for him or her to be elected to the Board of
Directors. In addition, each nominee is required to provide an
irrevocable letter of resignation that states that he or she
will resign in the event that director does not receive the
required majority vote. In the event a director fails to receive
a majority of votes cast and the Board accepts the resignation
tendered, then that director would cease to be a director of
Anadarko. Each of the nominees named below has submitted an
irrevocable letter of resignation that becomes effective in the
event he does not receive a majority of the votes cast for his
election and the Board decides to accept such resignation.
THE BOARD RECOMMENDS THAT YOU VOTE “FOR” EACH OF
THE NOMINEES LISTED BELOW.
John R. Butler, Jr. (69) — Since 1976,
Mr. Butler has been Chairman of J. R. Butler and Company, a
reservoir engineering company located in Houston, Texas. Since
August 2006, Mr. Butler has served as a director of
BreitBurn Energy Partners L.P., a publicly-traded upstream
master limited partnership, and also serves as a director of the
Houston chapter of the National Association of Corporate
Directors. He is currently a member of the Society of Petroleum
Evaluation Engineers. Mr. Butler has been a director of the
Company since 1996.
Luke R. Corbett (61) — Mr. Corbett has
been a retired business executive since Kerr-McGee
Corporation’s merger with Anadarko in August 2006. He
served as Chairman and Chief Executive Officer of Kerr-McGee
from 1999 until August 2006. Mr. Corbett had been with
Kerr-McGee since 1985 when he joined the company’s
Exploration and Production Division as vice president of
geophysics. In subsequent years, he held a wide array of senior
executive positions with Kerr-McGee. Mr. Corbett also
serves on the boards of OGE Energy Corporation and Noble
Corporation. Mr. Corbett has been a director of the Company
since August 2006.
John R. Gordon (59) — Mr. Gordon is Senior
Managing Director of Deltec Asset Management LLC, an investment
firm located in New York, New York. He was President of Deltec
Securities Corporation from 1988 until it was converted into
Deltec Asset Management LLC. Mr. Gordon has been a director
of the Company since 1988.
Robert J. Allison, Jr. (69) —
Mr. Allison has been Chairman Emeritus of the Board of the
Company since January 2006 and a director since 1985. He was
Chairman of the Board from 1986 until December 2005, and served
as Chief Executive Officer of the Company from 1986 until
January 2002, and from March 2003 until December 2003.
Mr. Allison is also a director of Freeport-McMoRan
Copper & Gold Inc.
Peter J. Fluor (60) — Mr. Fluor has been
Chairman and CEO of Texas Crude Energy, Inc., a private,
independent oil and gas exploration company located in Houston,
Texas, since 1990. He has been employed by Texas Crude Energy,
Inc. since 1972 and took over the responsibilities of President
in 1980. Mr. Fluor serves as lead director of Fluor
Corporation, a director of Cameron International Corporation and
a director of The Welch Foundation. Mr. Fluor has been a
director of the Company since August 2007.
John W. Poduska, Sr. (70) —
Mr. Poduska is a retired business executive. He was
Chairman of Advanced Visual Systems, Inc., a provider of
visualization software, from 1992 until 2002. Mr. Poduska
is a director of Novell, Inc. and Safeguard Scientific, Inc. He
was a director of Union Pacific Resources Group, Inc. from 1995
until 2000. Mr. Poduska has been a director of the Company
since 2000.
Paula Rosput Reynolds (51) — Ms. Reynolds
is President and CEO of Safeco Corporation, a property and
casualty insurance company located in Seattle, Washington. Prior
to joining Safeco in January 2006, she served as Chairman,
President and CEO of AGL Resources Inc., a regional energy
services holding company from August 2002 to December 2005.
Ms. Reynolds also previously served as President and CEO of
Houston-based Duke Energy North America, a subsidiary of Duke
Energy, which operated power-generating facilities across the
United States, and as Senior Vice President of Pacific Gas
Transmission Company, which owned and operated a major natural
gas pipeline in the Pacific Northwest. She is also a director of
Safeco Corporation and Delta Air Lines, Inc. Ms. Reynolds
has been a director of the Company since August 2007.
Larry Barcus (70) — Since January 2008,
Mr. Barcus has served as Vice Chairman of L.G. Barcus and
Sons, Inc., a general contractor, located in Kansas City, Kansas
with operations nationwide. He had previously served as Chairman
from 1990 to January 2008. He also served as Chairman of First
Community Bancshares and Chairman of First Community Bank, both
banking institutions, from 1995 to January 2007. Mr. Barcus
has been a director of the Company since 1986.
James L. Bryan (71) — Mr. Bryan is a
retired business executive. From 1999 until December 2003,
Mr. Bryan was Executive Vice President of Newpark Drilling
Fluids, Inc., an oilfield services firm headquartered in
Houston, Texas. He retired as Senior Vice President of Dresser
Industries, Inc. in 1998. He had been a Vice President of
Dresser since 1990. Mr. Bryan has been a director of the
Company since 1986.
H. Paulett Eberhart (54) —
Ms. Eberhart has served as President and Chief Executive
Officer of Invensys Process Systems, a process automation
company located in Plano, Texas, since January 2007. From 2003
until March 2004, Ms. Eberhart was President —
Americas of Electronic Data Systems Corporation (EDS), an
information technology and business process outsourcing company.
From 2002 to 2003, she was Senior Vice President — EDS
and President — Solutions Consulting. She was also a
member of the Executive Operations Team and Investment Committee
of EDS. Ms. Eberhart was an employee of EDS from 1978 to
2004. Ms. Eberhart is a member of Financial Executives
International and the American Institute of Certified Public
Accountants. Ms. Eberhart also serves as a director of
Advanced Micro Devices, Inc. Ms. Eberhart has been a
director of the Company since August 2004.
James T. Hackett (54) — Mr. Hackett was
named President and Chief Executive Officer of the Company in
December 2003 and Chairman of the Board of the Company in
January 2006. Prior to joining the Company, Mr. Hackett was
the Chief Operating Officer of Devon Energy Corporation from
April 2003 to December 2003, following Devon’s merger with
Ocean Energy, Inc. Mr. Hackett was President and Chief
Executive Officer of Ocean Energy, Inc. from March 1999 to April
2003 and was Chairman of the Board from January 2000 to April
2003. He currently serves as a director of Fluor Corporation and
Temple-Inland, Inc. and serves as Chairman of the Board of the
Federal Reserve Bank of Dallas. Mr. Hackett is retiring
from the Temple-Inland Board of Directors effective at
Temple-Inland’s May 2, 2008 annual stockholder meeting.
Our Board of Directors recognizes that excellence in corporate
governance is essential in carrying out its responsibilities to
our constituents, including our stockholders, employees,
customers, communities and creditors. Our By-Laws, Corporate
Governance Guidelines, Board Committee charters and Code of
Business Conduct and Ethics provide the structure for our
corporate governance. We have been committed to good governance
for several years; a majority of our Board has been comprised of
independent directors since the Company became an independent
company in 1986. In addition, we have recently implemented the
director majority voting standard in uncontested director
elections, including the election of our directors at the Annual
Meeting.
The Audit Committee, the Compensation and Benefits Committee
(generally referred to in this proxy statement as the
Compensation Committee) and the Nominating and Corporate
Governance Committee have each been comprised entirely of
independent directors since their inception. The written
charters for the Audit Committee, the Compensation Committee and
the Nominating and Corporate Governance Committee, as amended
from time to time, can be found on the Company’s website at
http://www.anadarko.com/investor_relations/governance.asp,
together with the Code of Business Conduct and Ethics, the Code
of Ethics for the Chief Executive Officer, Chief Financial
Officer and Chief Accounting Officer, and the Corporate
Governance Guidelines. Any of these documents will be furnished
in print free of charge to any stockholder who requests it.
You can submit such a request to the Corporate Secretary,
Anadarko Petroleum Corporation, 1201 Lake Robbins Drive, The
Woodlands, Texas 77380-1046.
Each director that has served on our Board during 2007 has
attended at least 75 percent of the meetings of the Board
and of each committee on which he or she served. There were five
Board meetings and 27 Board committee meetings in 2007. In
addition, each of the incumbent directors, except for
Ms. Reynolds and Mr. Fluor who were elected in August
2007, attended the 2007 Annual Meeting of Stockholders. Under
the Company’s Corporate Governance Guidelines, directors
are expected to attend regularly scheduled Board meetings and
meetings of committees on which they serve, as well as the
Annual Meeting of Stockholders.
The Board of Directors has four standing committees: the Audit
Committee; the Compensation Committee; the Nominating and
Corporate Governance Committee; and the Executive Committee. The
Audit Committee, the Compensation Committee and the Nominating
and Corporate Governance Committee are each comprised of
independent directors. The Executive Committee is not an
independent committee because it has both non-management and
management directors as members; however, a majority of the
members of the Executive Committee are independent directors. In
addition, the Board designates special committees from time to
time to address certain significant matters on behalf of the
Board. In January 2005, the Board created the Enterprise
Resource Planning Committee to provide input and advice to the
Company during its implementation of the Enterprise Resource
Planning project, which modernized and integrated back-office
software systems across the Company. That committee did not meet
during 2007 and expired by its terms in February 2007. In August
2007, the Board designated a Master Limited Partnership, or MLP,
Special Committee to handle certain Board matters related to the
creation and initial public offering of our midstream MLP.
The table below shows the current membership of each committee
of the Board and the number of meetings each committee held in
2007:
The Board re-appointed Ms. Eberhart and Messrs. Barcus
and Butler as members of the Audit Committee in May 2007, and
appointed Ms. Reynolds as a member of the Audit Committee
upon her election to the Board in August 2007. The Audit
Committee elected Ms. Eberhart as its chairperson during
2007. In February 2007, the Board of Directors designated
Ms. Eberhart as “an audit committee financial
expert” as defined by the SEC.
The purpose of the Audit Committee is to assist the Board in
monitoring:
The Audit Committee is also directly responsible for:
All of the members of the Audit Committee meet the independence
requirements of the NYSE, the Sarbanes-Oxley Act, the Securities
Exchange Act and the rules of the SEC adopted thereunder, and
the Company’s Corporate Governance Guidelines.
The Compensation Committee is responsible for translating our
compensation objectives into a compensation strategy that aligns
the interests of our executives with that of our stockholders.
The Compensation Committee has overall responsibility for:
For a more detailed discussion of the composition and
responsibilities of the Compensation Committee and the processes
and procedures related to the determination of executive
compensation, please see the Compensation Committee’s
Charter and the Compensation Discussion and Analysis section of
this proxy statement beginning on page 21.
The Compensation Committee is comprised of four independent,
non-employee directors. The Board re-elected Messrs. Bryan,
Gordon and Poduska as members of the Compensation Committee in
May 2007, and elected Mr. Fluor as a member of the
Compensation Committee upon his appointment to the Board of
Directors in August 2007. Mr. Poduska was re-elected as
chairman of the Compensation Committee by the Board in May 2007.
Mses. Eberhart and Reynolds and Messrs. Barcus, Bryan,
Butler, Fluor, Gordon and Poduska served as members of the
Nominating and Corporate Governance Committee during 2007.
Mr. Barcus was appointed as chairman of the Nominating and
Corporate Governance Committee in May 2007.
The Nominating and Corporate Governance Committee has overall
responsibility for:
The Board re-elected Messrs. Allison, Bryan, Butler, Gordon
and Hackett as members of the Executive Committee in May 2007.
Mr. Gordon serves on the Executive Committee in his
capacity as Lead Director. This Committee is not an independent
committee; however, the majority of the members of the Executive
Committee are independent directors. Mr. Allison, a retired
Company executive, and Mr. Hackett, the Company’s
Chairman, President and CEO, are members of this Committee.
Mr. Hackett is chairman of the Executive Committee. In
accordance with the Company’s By-Laws, the Executive
Committee acts with the power and authority of the Board in the
management of the business and affairs of the Company while the
Board is not in session. The Executive Committee has generally
held meetings to approve specific terms of financing or other
transactions that have previously been approved by the Board.
The MLP Special Committee of the Board was established in August
2007 to provide oversight on behalf of the Board, and report
periodically to the Board as the Committee deems appropriate, in
connection with our formation of a midstream MLP and initial
public offering of limited partner interests in the MLP. The
Board appointed the Lead Director, Mr. Gordon, and the
chairperson of each independent Board Committee
(Mr. Barcus, Mr. Poduska and Ms. Eberhart) to the
MLP Special Committee. The Committee has a term of one year.
Board of
Directors
In accordance with NYSE rules, the Board must affirmatively
determine the independence of each director and director nominee
in accordance with the Company’s director independence
standards, which are contained in the Company’s Corporate
Governance Guidelines found on the Company’s website at
http://www.anadarko.com/investor_relations/governance.asp.
Based on these standards our Board, based upon a recommendation
from the Nominating and Corporate Governance Committee, has
determined that each of the following non-employee directors is
independent and has no relationship with the Company, except as
a director and stockholder of the Company:
In addition, the Board has affirmatively determined that:
(a) Mr. Hackett is not independent because he is the
President and Chief Executive Officer of the Company;
(b) Mr. Corbett is not independent because, as part of
his change of control agreement with Kerr-McGee Corporation, the
Company provided him office space (or compensation for such
space) and secretarial assistance through August 2007; and
(c) Mr. Allison is not independent because he had been
an executive officer of Anadarko for many years and, as part of
his retirement package, the Company will continue to provide him
use of the Company’s aircraft, office space, secretarial
assistance and a monitored residential security system during
his lifetime.
With respect to Mr. Butler, the Board specifically
considered that Mr. Butler’s
son-in-law
is a non-executive employee of the Company. The Board determined
that this does not impact Mr. Butler’s independence.
With respect to Mr. Fluor, the Board specifically
considered that Mr. Fluor’s daughter is a
non-executive employee of the Company. The Board determined that
this does not impact Mr. Fluor’s independence. The
Board also specifically considered that Invensys Process
Systems, Inc. and its affiliates provide the Company with
process automation services. In 2007, Anadarko paid Invensys
approximately $536,000 in connection with these services. This
amount is less than 1% of Invensys’s consolidated gross
revenues for its fiscal year ended March 31, 2007.
Ms. Eberhart, a director of the Company, became President
and CEO of Invensys in January 2007. Finally, the Board
specifically considered that Puget Sound Energy, Inc. and its
affiliates engage in gas purchases with the Company and its
affiliates. Ms. Reynolds, who joined the Company’s
Board of Directors in August 2007, is married to
Mr. Stephen P. Reynolds, who currently serves as Chairman,
President and CEO of Puget. In 2007, Anadarko paid Puget
approximately $785,000 in connection with these purchases. This
amount is less than 1% of Puget’s consolidated gross
revenues for its fiscal year ended at March 31, 2007.
For information regarding our policy on Transactions with
Related Persons, please see page 54 of this proxy statement.
The Company’s Corporate Governance Guidelines require that,
with respect to Board vacancies, the Nominating and Corporate
Governance Committee: (a) identify the personal
characteristics needed in a director nominee so that the Board
will possess the qualifications of the Board as a whole as these
qualifications are set forth in the Corporate Governance
Guidelines; (b) compile, through such means as the
Committee considers appropriate, a list of potential director
nominees thought to possess the individual qualifications
identified in the Corporate Governance Guidelines; (c) if
the Committee so determines it to be appropriate, engage an
outside consultant to assist in the search for nominees and to
conduct background investigations on all nominees regardless of
how nominated; (d) review the resume of each nominee;
(e) conduct interviews with the nominees meeting the
desired set of qualifications; (f) following interviews,
compile a short list of nominees (which, at the discretion of
the Committee, may consist of a single individual) who may meet,
at a minimum, with the Chairman of the Board, the Chief
Executive Officer and the Chairman of the Nominating and
Corporate Governance Committee
and/or the
Lead Director; and (g) evaluate the nominee(s) in
relationship to the culture of the Company and the Board and its
needs.
The Board and each of the independent committees have conducted
self-evaluations related to their performance in 2007. The
performance evaluations were supervised by the Nominating and
Corporate Governance Committee and discussed by the applicable
committee and the Board.
The Board of Directors welcomes questions or comments about the
Company and its operations. Interested parties may contact the
Board of Directors, including the Lead Director or any
individual director, at nominating_governance@apcdirector.com or
at Anadarko Petroleum Corporation, Attn: Corporate Secretary,
1201 Lake Robbins Drive, The Woodlands, Texas, 77380. Any
questions or comments will be kept confidential to the extent
reasonably possible, if requested. These procedures may change
from time to time, and you are encouraged to visit our website
for the most current means of contacting our directors. If you
wish to request copies of any of our governance documents,
please see page 8 of this proxy statement for instructions
on how to obtain them.
The Nominating and Corporate Governance Committee did not
receive any names of individuals suggested for nomination to the
Company’s Board of Directors by its stockholders during the
past year. However, the Board will consider individuals
identified by stockholders on the same basis as nominees
identified from other sources. Stockholders wishing to submit
the name of an individual for consideration must submit the
recommendation in writing to the Company’s Corporate
Secretary at the Company’s principal executive offices,
including:
Nominations must be received no earlier than the close of
business on the 120th day prior to, and no later than the
close of business on the 90th day prior to, the first
anniversary of our last Annual Meeting. For more information on
stockholder participation in the selection of director nominees,
please refer to that section in our Corporate Governance
Guidelines and our By-Laws, which are posted on the
Company’s website at
http://www.anadarko.com/investor_relations/governance.asp.
The Company’s Director Education Policy encourages all
members of the Board of Directors to attend director education
programs appropriate to their individual backgrounds to stay
abreast of developments in corporate governance and “best
practices” relevant to their contribution to the Board of
Directors as well as their responsibilities in their specific
committee assignments. The Director Education Policy provides
that the Company will reimburse the Board of Directors for all
costs associated with attending any director education program.
The Board of Directors has elected Mr. Gordon as its Lead
Director. As Lead Director, Mr. Gordon’s role is to
aid and assist the Chairman and the remainder of the Board of
Directors in assuring effective corporate governance in managing
the affairs of the Board of Directors and the Company.
Additionally, Mr. Gordon presides at executive sessions of
the non-employee directors. Executive sessions are held after
each regularly scheduled quarterly meeting of the Board of
Directors and at any other board meetings as requested by the
directors. Mr. Gordon is also a member of the Executive
Committee of the Board, providing additional representation for
the independent directors in any actions taken by the Executive
Committee between Board meetings.
The Compensation Committee is made up of four independent,
non-employee directors, Messrs. Bryan, Fluor, Gordon and
Poduska. No interlocking relationship exists between the members
of our Compensation Committee or our executive officers and the
board of directors or compensation committee of any other
company.
Non-employee directors receive a combination of cash and
stock-based compensation designed to attract and retain
qualified candidates to serve on the Board. In setting director
compensation, the Board considers the significant amount of time
that directors spend in fulfilling their duties to the Company
and its stockholders as well as the skill level required by the
Company’s Board members. The Compensation Committee is
responsible for determining the type and amount of compensation
for non-employee directors. The Compensation Committee directly
retained Hewitt Associates LLC in 2007 as its independent
consultant to assist in the annual review of director
compensation by providing benchmark compensation data and
recommendations for program design.
Retainer and Meeting Fees. The non-employee
directors receive the following compensation related to
retainers and meeting fees:
(1) an annual retainer of $50,000;
(2) an annual committee membership retainer of $6,000 for
each director who serves on the Audit Committee;
(3) an annual committee membership retainer of $3,000 for
each committee on which the director serves (except for members
of the Audit Committee and the MLP Special Committee);
(4) an annual retainer of $15,000 for serving as the
chairman of the Compensation Committee or the Nominating and
Corporate Governance Committee, an annual retainer of $25,000
for serving as Audit Committee chairman, an annual retainer of
$25,000 for serving as Lead Director;
(5) a fee of $2,000 for each Board meeting attended, plus
expenses related to attendance; and
(6) a fee of $2,000 for each committee meeting attended,
plus expenses related to attendance.
Members of the MLP Special Committee receive only meeting fees
and no other special retainer fees for their service on that
committee. Non-employee directors may elect to receive their
retainer and meeting fees in cash, common stock or a combination
of both. Receipt of compensation in the form of common stock
provides non-employee directors the opportunity to increase
their personal ownership in the Company and comply with the
established director stock ownership guidelines that require
directors to hold stock equivalent to three times the annual
Board retainer. This option also provides the directors a method
to invest in the Company as a stockholder and aligns their
interest with the stockholders of the Company. The number of
shares issued to directors for payment in lieu of their cash
fees is determined at the end of the quarter for which
compensation is earned, and is calculated by dividing the
closing stock price of the Company’s common stock on the
date of grant into the applicable fee for that period.
Stock Plan for Non-employee
Directors. Stock-based awards made to
non-employee directors are made pursuant to the
1998 Director Stock Plan. In addition to the retainer and
meeting fee compensation discussed above, non-employee directors
receive annual equity grants. Equity grants to non-employee
directors will automatically be awarded each year on the date of
the Company’s annual stockholder meeting. For 2007, each
non-employee director, other than Ms. Reynolds and
Mr. Fluor, received an annual equity grant with a value
targeted at approximately $200,000, with 65% of the value
delivered in deferred shares and 35% delivered in stock options.
The deferred stock will be distributed to the director only when
he or she ceases to serve as a director. The options vest one
year from the date of grant and expire ten years from the date
of grant. For 2007, upon initial election to the Board in
August, Ms. Reynolds and Mr. Fluor received an initial
grant of approximately $150,000 in deferred shares.
Under the Company’s stock ownership guidelines for
non-employee directors, each director is required to own Company
stock in an amount equal to three times the annual Board
retainer. Directors have three years from the date of their
initial election to the Board to comply with the guidelines. All
non-employee directors currently exceed the Company’s stock
ownership guidelines.
In February 2008, the Compensation Committee approved, subject
to approval by our stockholders at the Annual Meeting, the
2008 Director Compensation Plan. This Plan will replace the
1998 Director Stock Plan. If approved, the
1998 Director Stock Plan will be terminated and no further
awards will be made under the plan. The 2008 Director
Compensation Plan is described beginning on page 64 and is
attached to this proxy statement as Appendix B.
Deferred Compensation Program for Non-employee
Directors. Non-employee directors are eligible to
participate in the Company’s Deferred Compensation Plan,
which allows directors to defer receipt of up to 100% of their
board and committee retainers
and/or board
and committee meeting fees. The Deferred Compensation Plan
permits participants to allocate the deferred amounts among a
group of notional accounts that mirror the gains
and/or
losses of various investment funds. The interest rate earned on
the deferred amounts is not above-market or preferential. In
general, deferred amounts are distributed to the participant
upon termination or at a specific date as elected by the
participant. Ms. Reynolds is the only director who elected
to defer compensation during 2007.
Other Compensation. Non-employee directors are
covered under the Company’s Accidental Death &
Dismemberment Plan and the Company pays the annual premium for
such coverage on behalf of each director. The Company also
provides each director with Personal Excess Liability coverage
and pays the annual premium on their behalf.
Director
Compensation Table for 2007
The following table sets forth information concerning total
director compensation during the 2007 fiscal year for each
non-employee director:
The following table contains the grant date fair value of stock
option and deferred share awards made to each non-employee
director, as indicated, during 2007.
The information provided below summarizes the beneficial
ownership of officers and directors of the Company and owners of
more than 5% of outstanding common stock. “Beneficial
ownership” generally includes those shares of common stock
someone has the power to vote, sell or acquire within
60 days. It includes common stock that is held directly and
also shares held indirectly through a relationship, a position
as a trustee or under a contract or understanding.
Directors
and Executive Officers
As of March 21, 2008, the directors and executive officers
of the Company beneficially owned, in the aggregate,
2,864,490 shares of Anadarko common stock, including shares
that may be acquired within 60 days (approximately 0.6% of
the outstanding shares entitled to vote at that time).
The following table shows the beneficial owners of more than
five percent of the Company’s common stock as of
December 31, 2007 based on information available as of
February 15, 2008.
Section 16(a) of the Securities Exchange Act of 1934, as
amended, requires the Company’s directors and executive
officers, and persons who own more than ten percent of a
registered class of the Company’s equity securities, to
file with the SEC and any exchange or other system on which such
securities are traded or quoted, initial reports of ownership
and reports of changes in ownership of the Company’s common
stock and other equity securities. Officers, directors and
greater than ten percent stockholders are required by the
SEC’s regulations to furnish the Company and any exchange
or other system on which such securities are traded or quoted
with copies of all Section 16(a) forms they filed with the
SEC.
To the Company’s knowledge, based solely on a review of the
copies of such reports furnished to the Company and written
representations that no other reports were required, the Company
believes that all reporting obligations of the Company’s
officers, directors and greater than ten percent stockholders
under Section 16(a) were satisfied during the year ended
December 31, 2007, except that in February 2008 a late
Form 4 was filed for Robert P. Daniels relating to the
charitable donation in 2006 of 100 shares of the
Company’s common stock.
The following report of the Audit Committee of the Company
shall not be deemed to be “soliciting material” or to
be “filed” with the Securities and Exchange
Commission, nor shall this report be incorporated by reference
into any filing made by the Company under the Securities Act of
1933, as amended, or the Securities Exchange Act of 1934, as
amended.
The Audit Committee of the Board is responsible for independent,
objective oversight of the Company’s accounting functions
and internal controls over financial reporting. The Audit
Committee is composed of four directors, each of whom is
independent as defined by the NYSE listing standards. The Audit
Committee operates under a written charter approved by the Board
of Directors.
Management is responsible for the Company’s internal
controls over financial reporting. The independent auditor is
responsible for performing an independent audit of the
Company’s consolidated financial statements in accordance
with generally accepted auditing standards in the United States
of America and issuing a report thereon. The independent auditor
is also responsible for performing independent audits of the
Company’s internal controls over financial reporting. The
Audit Committee’s responsibility is to monitor and oversee
these processes.
KPMG LLP served as the Company’s independent auditor during
2007 and was appointed by the Audit Committee to serve in that
capacity for 2008. KPMG LLP has served as the Company’s
independent auditor since its initial public offering in 1986.
In connection with these responsibilities, the Audit Committee
met with management and the independent auditor to review and
discuss the December 31, 2007 financial statements and
matters related to Section 404 of the Sarbanes-Oxley Act of
2002. During 2007, the Company changed its method of accounting
for its oil and gas exploration and development activities from
full cost to the successful efforts method. The Audit Committee
met with management and the independent auditor to review and
discuss this change in accounting principle. The Audit Committee
also discussed with the independent auditor the matters required
by Statement on Auditing Standards No. 114 (Communication
with Audit Committees).
The Audit Committee also received written disclosures from the
independent auditor required by Independence Standards Board
Standard No. 1 (Independence Discussions with Audit
Committees) and the Audit Committee discussed with the
independent auditor that firm’s independence.
Based upon the Audit Committee’s (i) review and
discussions with management and the independent auditor and
(ii) review of the representations of management and the
independent auditor, the Audit Committee recommended that the
Board of Directors include the audited consolidated financial
statements in the Company’s Annual Report on
Form 10-K
for the year ended December 31, 2007 filed with the SEC.
THE AUDIT COMMITTEE
H. Paulett Eberhart, Chairperson Larry Barcus John R. Butler, Jr. Paula G. Rosput Reynolds
The Compensation Committee, listed beginning on page 10, is
responsible for establishing and administering the executive
compensation programs of the Company. The Compensation Committee
of the Company has reviewed and discussed the Compensation
Discussion and Analysis required by Item 402(b) of
Regulation S-K
with management and, based on such review and discussions, the
Compensation Committee recommended to the Board that the
Compensation Discussion and Analysis be included in this Proxy
Statement.
THE COMPENSATION AND BENEFITS COMMITTEE
John W. Poduska, Sr., Chairman
James L. Bryan Peter J. Fluor John R. Gordon
This Compensation Discussion and Analysis focuses on the
following:
We believe that the interests of our executive officers must be
aligned with the interests of our stockholders and that we must
be able to attract and retain highly qualified executive
officers as leaders to ensure our success. In support of this
belief, our executive compensation programs are designed to
adhere to the following principles:
Resources
and Other Considerations Used in the Compensation
Decision-Making Process
The Compensation Committee utilizes several different tools and
resources in reviewing elements of executive compensation and
making compensation decisions. These decisions, however, are not
purely formulaic and the Compensation Committee ultimately
exercises judgment and discretion in making them.
Compensation Consultant. The Compensation
Committee utilizes an independent executive compensation
consultant to review executive compensation and benefit
programs. In 2007, the Compensation Committee directly retained
Hewitt Associates LLC, or Hewitt, as its outside compensation
consultant. In this engagement, Hewitt reports directly and
exclusively to the Compensation Committee; however, at the
Compensation Committee’s direction the consultant works
directly with management to review or prepare materials for
Compensation Committee consideration. Hewitt attended seven of
the nine Compensation Committee meetings in 2007. The
Compensation Committee did not engage any consultant other than
Hewitt during 2007 to provide executive compensation consulting
services. The Compensation Committee’s engagement of Hewitt
included the following services:
In 2007, Hewitt provided additional services to the Company not
related to executive compensation, including broad-based
employee compensation and benefits services and actuarial
services. In early 2008, we retained a firm other than Hewitt to
provide the actuarial services on a go-forward basis. As part of
Hewitt’s engagement agreement with the Compensation
Committee, any significant new engagement between us and Hewitt
is contingent upon notification to the full Compensation
Committee. The Compensation Committee reviews the engagement of
its independent compensation consultant on an annual basis, and
as part of that process reviews a summary of all services
provided by Hewitt and related costs.
Benchmarking. Benchmarking is a tool that
provides the Compensation Committee a relative comparison of how
competitive and reasonable our current executive compensation
practices and programs are against companies of similar size and
purpose. As part of the benchmarking process, the Compensation
Committee utilizes a competitive compensation analysis, prepared
by Hewitt, as a frame of reference in making
compensation-related decisions.
The competitive executive compensation analysis conducted by
Hewitt during 2007 continued to reflect increasing levels of
executive compensation, driven largely by a shortage of
qualified executive talent, high commodity prices and the
appreciation of stock prices in the oil and gas industry. This
increase is further reflected in the overall size of the
compensation packages being offered to all levels of employees
by companies within our industry. Because we operate in a very
competitive and challenging industry, we target total executive
compensation above median levels in order to successfully
compete for talent. Offering competitive compensation
arrangements to attract and retain our executives is beneficial
to us and to our stockholders because it supports continuity in
our leadership and operations and allows us to avoid the
significant costs and loss of efficiency involved with
recruiting and replacing talent.
In August 2007, the Compensation Committee conducted its annual
review of two benchmarking groups to use as reference points for
assessments of competitive executive compensation data:
We benchmark total executive compensation against the primary
peer group. The supplemental group illustrates broader trends
and provides an additional reference point for executive officer
positions that are not exclusive to the oil and gas industry.
Our current primary peer group consists of the following
companies in our industry:
Within the oil and gas industry, there are a very limited number
of companies that closely resemble us in size, scope and nature
of business operations. Our primary peer group contains
companies in our industry that are both larger and smaller in
scope and that operate in related business segments in the
industry in which we have no operations, such as refining. We
compete with these companies for talent and believe the selected
companies are currently the most appropriate with respect to
executive compensation benchmarking. The
differences and similarities between us and the companies in our
primary peer group are taken into consideration when referencing
benchmarks for executive compensation decisions. No changes were
made to the primary peer group in 2007.
The supplemental group, as listed below, was revised in 2007
based on recommendations from Hewitt and the Compensation
Committee’s request that more local companies be reflected
in the benchmarking process. The selection of these companies
was based primarily on revenue size, capturing companies both
above and below our relative position.
Tally Sheets. In order to provide the
Compensation Committee a single source for viewing the aggregate
value of all material elements of executive compensation,
“tally sheets” are created for each of our named
executive officers on an annual basis. The tally sheets provide
a snapshot of:
The Compensation Committee does not assign a weighting to the
tally sheets in their overall decision making process.
Role of CEO
and/or Other
Executive Officers in Determining Executive
Compensation. Our Chief Executive Officer,
Mr. Hackett, provides recommendations to the Compensation
Committee for each element of compensation for each of the
executive officers other than himself. The Compensation
Committee, with input from Hewitt, determines each element of
compensation for Mr. Hackett and the other named executive
officers. At the Compensation Committee’s request, our
executive officers assess the design of and make recommendations
related to our compensation and benefit programs, including
recommendations related to the appropriate financial and
non-financial performance measures used in our incentive
programs. Executive officers may also attend meetings at the
invitation of the Compensation Committee.
Other Considerations. In addition to the above
resources, the Compensation Committee considers other factors
when making compensation decisions, such as individual
experience, individual performance, internal equity, development
and/or
succession status, and other individual or organizational
circumstances. With respect to equity-based awards, the
Compensation Committee also considers the cost of such awards,
the impact on dilution, and the relative value of each element
comprising total target executive compensation.
Stock Ownership Guidelines. We have maintained
stock ownership guidelines for executive officers since 1993
with the goal of promoting equity ownership and aligning our
executive officers’ interests with our stockholders. The
ownership guidelines are currently established at the following
minimum levels:
The Compensation Committee reviews the stock ownership levels
annually. In determining stock ownership levels, we include:
shares held directly by the executive; shares held indirectly
through our Employee Savings Plan; unvested restricted stock;
unvested restricted stock units; and the target number of
outstanding performance units. Outstanding unexercised stock
options are not included. In addition, the Company has a policy
that prohibits directors, officers or employees from engaging in
short sales, transactions involving stock options or restricted
stock, or other derivative-type transactions relating to our
stock.
Regulatory Requirements. Together with the
Compensation Committee, we carefully review the design of our
compensation programs and related decisions as they relate to
current tax, accounting and securities regulations. We seek to
comply with all required regulations while providing executive
compensation opportunity that is mutually beneficial to us, our
employees, and our stockholders and in support of our
compensation principles.
Section 162(m) of the Internal Revenue Code of 1986, as
amended, limits a company’s ability to deduct compensation
paid in excess of $1 million during any fiscal year to each
of certain named executive officers, unless the compensation is
“performance-based” as defined under federal tax laws.
Stock options and performance units awarded under the 1999 Stock
Incentive Plan and cash awards under the Annual Incentive Plan
satisfy the performance-based requirements and, as such, are
fully deductible. Because Mr. Hackett’s base salary is
above $1 million, the portion of base salary in excess of
$1 million is not deductible. Grants of restricted stock
unit awards made in 2007 are not considered performance-based
and the value of those awards are generally subject to the
deductibility limitations under Section 162(m). In March
2008, the Compensation Committee approved a plan to qualify 2009
restricted stock and restricted stock unit grants as
“performance-based” compensation under
Section 162(m). The Compensation Committee is committed to
providing compensation that qualifies as performance-based and
is fully deductible. However, the Compensation Committee
believes it is important to provide compensation that is not
fully deductible when it is in our best interest and the best
interest of our stockholders.
Section 409A of the Internal Revenue Code provides that all
amounts deferred under a nonqualified deferred compensation plan
are currently included in gross income, to the extent not
subject to a substantial risk of forfeiture and not previously
included in gross income, unless certain requirements are met.
We have designed or amended our programs to either be exempt
from Section 409A or, if subject to Section 409A, to
be in compliance with applicable regulations.
Statement of Financial Accounting Standards No. 123
(revised 2004), Share-Based Payment, or
SFAS No. 123(R), requires the recognition of expense
for the fair value of share-based payments. The statement became
effective for us beginning January 1, 2006. We had
previously adopted the fair value method of accounting for
share-based payments effective January 1, 2003, using the
“modified prospective method” described in
SFAS No. 148, Accounting for Stock-Based
Compensation — Transition and Disclosure. Awards
of Stock Options, Performance Units, Restricted Shares and
Restricted Stock Units under our 1999 Stock Incentive Plan are
accounted for under SFAS No. 123(R). The adoption of
SFAS No. 123(R) did not have a material impact on our
results of operations or its financial position. We did not make
any changes to our programs in 2007 as a result of the
implementation of SFAS No. 123(R).
Elements
of Total Executive Compensation
The elements of the total compensation program we provide to our
executive officers include: base salary, annual cash incentives,
equity compensation, and other benefits, including welfare and
retirement benefits, perquisites, severance benefits and change
of control benefits. We believe that a majority of executive
compensation should be performance-based; however, we do not
have a specific formula that dictates the overall weighting of
each element as a part of total compensation. The Compensation
Committee determines total compensation based on a review of
competitive compensation data, consistency with our overall
compensation philosophy and their judgment as a committee.
The table below identifies each element of total compensation
and the primary purpose for using each element. The level of
each element of direct compensation (both “fixed” and
“variable”) is generally targeted between the
50th and 75th percentiles of our primary peer group,
unless otherwise specified. When making decisions on each of
these elements, the Compensation Committee takes into
consideration the multiple factors discussed above in the How We
Make Compensation Decisions section.
The charts below illustrate each of the fixed and variable
elements as a proportion of the total amount of the executive
officers’ total direct compensation. Base salary
information is based on salaries that were effective in November
2007, as discussed on page 27, target bonus opportunities
effective for 2008, as discussed on page 29, and the
estimated grant date value for the 2007 annual equity awards, as
discussed on page 32.
The above charts indicate that over 85% of total direct
compensation is variable and over 70% is in the form of equity
grant values, with the CEO having approximately 82% of his
compensation in the form of equity. In addition to the above
elements of total direct compensation, we also provide indirect
elements of compensation, such as retirement and other benefits
that are considered a part of the total compensation package
offered to our executive officers. These programs are designed
to be competitive in our industry and enable us to attract and
retain qualified executive talent.
Following is a discussion of each compensation element and the
specific actions taken by the Compensation Committee in 2007
related to each element, including the implementation of
executive compensation program design changes. In determining
each of these elements, the Compensation Committee considers the
resources discussed above. Each of these elements is reviewed on
an annual basis, and may be reviewed at the time of a promotion,
other change in responsibilities, other significant corporate
events or a material change in market conditions. The same
design principles and factors are applied in a consistent manner
to all named executive officers. Material differences in the
amount of compensation awarded to each of the named executive
officers generally reflect the differences in the individual
responsibility and experience of each officer and the
differences in the amounts of compensation paid to officers in
comparable positions in our primary peer group. For example, our
CEO’s compensation is significantly higher than the
compensation of the other named
executive officers. This difference in compensation reflects
that our primary peer group benchmark data is substantially
higher for the CEO role than for the other named executive
officer positions, reflecting the higher degree of
responsibility and scrutiny the CEO position entails for the
image, strategic direction, financial condition, and operating
results of the Company.
The table below reflects the base salaries that were approved by
the Compensation Committee in 2007:
The benchmarking analysis provided by Hewitt showed that base
salaries for executives in our primary peer group increased 15%
on average from last year’s analysis. As a result of this
significant movement, larger than normal increases were approved
to maintain a competitive position relative to our primary peer
group. Generally, the base salaries for the named executive
officers fall within the targeted range (between 50th and
75th percentiles) except as noted below.
Mr. Kurz’s base salary was increased from $475,000 to
$525,000 in February 2007 and to $650,000 in November 2007 in
recognition of his increased responsibilities in his new role as
Chief Operating Officer. Despite these significant increases in
base salary, Mr. Kurz’s base salary is still
positioned slightly below the competitive market median based in
part on his experience and relatively new appointment to the
Chief Operating Officer role. Mr. Meloy received a larger
than normal increase to reflect the value we place internally on
operational leadership and to reflect his individual performance
over the past year, specifically related to integrating the
operations of three separate companies as a result of our
acquisitions of Kerr-McGee Corporation and Western Gas
Resources, Inc. in 2006. His base salary is positioned above the
competitive market 75th percentile to reflect his
individual contributions and the emphasis we place on senior
operational leadership.
Annual
Cash Incentives (Bonuses)
Our executive officers participate in the Annual Incentive Plan,
which we sometimes refer to as the AIP, which was last approved
by stockholders in 2004. In February 2007, the Compensation
Committee established a baseline performance hurdle under the
AIP for the named executive officers of $2.5 billion of
cash flow from continuing operations for the fiscal year. If
this performance hurdle is not achieved, no bonuses are earned
under the AIP. If the performance hurdle is met, the bonus pool
is funded at the maximum bonus opportunity level for each named
executive officer. The Compensation Committee may apply negative
discretion in determining actual awards, taking into
consideration our actual performance against corporate annual
performance goals (as discussed below), each individual
officer’s performance and contributions, and other factors
as deemed appropriate by the Compensation Committee. The bonus
pool was fully funded based on our exceeding the established
performance hurdle by more than $2 billion in cash flow
from continuing operations (adjusted to exclude the taxes
associated with asset divestitures) for the year ended
December 31, 2007.
Once the bonus pool is funded, the Compensation Committee uses
the following formula as a guideline for applying negative
discretion in determining individual bonus payments:
Individual Target Bonus
Opportunities. Individual target bonus
opportunities are generally established to provide bonus
opportunities between the 50th and 75th percentile
levels of our primary peer group. Individual target bonus
opportunities are set as a percentage of base salary. Executive
officers may earn up to 200% of their individual bonus target.
The bonus targets for 2007 are shown in the table below:
Mr. Kurz’s incentive target was increased from 95% to
100% in February 2007 in recognition of his appointment to the
role of Chief Operating Officer. Mr. Meloy’s target
bonus was established based on internal equity factors rather
than the benchmark data in order to reflect the value we place
internally on operational leadership; as a result of this
approach, his target opportunity is above the
75th percentile of the benchmark data.
AIP Performance Score. In determining the
performance score under the Company’s AIP for 2007, the
Compensation Committee approved the following internal
operational, financial and safety measures and weightings:
In both approving performance goals and measuring the
Company’s performance against those goals, the Compensation
Committee may use its discretion in determining the extent to
which such goals or results properly reflect the Company’s
achievement of overall business objectives, including any
material changes in the Company’s operations or business
objectives during the course of a given year. The table below
reflects both the target and performance results against the
target for each measure under the AIP:
Individual Performance Adjustments. In
determining a named executive officer’s bonus payment, the
Compensation Committee may make an adjustment based on
individual performance, while maintaining an overall view toward
downward discretion from the maximum bonus pool funding. This
adjustment allows the Compensation Committee to recognize an
individual’s significant contributions that may not be
reflected in the overall AIP performance score. The Compensation
Committee did not make any individual performance adjustments
for the named executive officers’ 2007 bonus payments in
recognition of the team effort exhibited by our senior
management in driving the Company’s success.
The Annual Incentive Plan awards earned for 2007 and paid to
each of the named executive officers are shown in the table
below and are reflected in the “Non-Equity Incentive Plan
Compensation” column of the Summary Compensation Table.
The Compensation Committee established the following bonus
targets for the named executive officers effective
January 1, 2008:
These targets reflect a fifteen and five percent increase over
the 2007 bonus targets for Messrs. Walker and Reeves,
respectively. These increases were made based on competitive
benchmark data and provide each of them with target bonus
opportunities that fall between our targeted position of the
50th and 75th percentiles of our primary peer group.
Equity
Compensation
The Compensation Committee makes equity-based awards under our
1999 Stock Incentive Plan. Equity-based awards for named
executive officers have typically been made at the regularly
scheduled meeting of the Compensation Committee each November.
Equity awards for newly-hired executive officers are made on the
executive officer’s first day of employment with us. Equity
awards made in connection with promotions or in recognition of
achievements are approved by the Compensation Committee and the
grant date is generally the date of approval.
Our annual awards consist of a combination of stock options,
time-based restricted stock units and performance unit awards,
with each award type allocated to represent approximately
one-third of the total
grant date value for the named executive officers. The
Compensation Committee believes this award structure provides a
combination of equity-based awards that is performance-based in
absolute and relative terms, while also encouraging retention.
In addition, the use of performance unit awards and restricted
stock units enables us to better manage our stock dilution.
Annual equity award levels are generally positioned between the
50th and 75th percentile levels of our primary peer
group. Mr. Meloy’s annual award level was established
based on internal equity factors rather than the benchmark data
in order to reflect the value we place internally on operational
leadership; as a result of this approach, his annual equity
award is above the 75th percentile of the benchmark data.
In November 2007, the Compensation Committee made changes to the
design of our annual executive long-term incentive program.
Below is a summary of the provisions of each of the equity award
types, including a description of any plan design changes made
and the reasons for those changes.
Stock Options. Stock options incorporate the
following features:
Restricted Stock Units. Restricted stock units
were introduced in 2007 to replace the Company’s prior
practice of granting shares of restricted stock. Restricted
stock units are similar to restricted shares, but also provide
executive officers the ability to defer taxation on a voluntary
basis. Restricted stock units incorporate the following features:
Performance Units. Performance units may be
earned by the executive officers if specific goals, focused on
our long-term strategic objectives, are achieved. Each
performance unit award is denominated in shares of our stock,
with payout based on performance over a specified performance
period. Each executive officer is awarded a target award, with
actual payment ranging from 0% to 200% of the target award.
Executives do not have voting rights and no dividends are paid
on these awards until earned.
Historically, our performance unit program was based on the
attainment of two separate performance objectives over a
three-year performance period. Fifty percent of the award was
based on an internal measure, Reserve Replacement Efficiency
(RRE) and the remaining fifty percent was based on an external
relative measure, Total Stockholder Return (TSR). In 2007, the
Compensation Committee approved the following changes to our
performance unit program:
The TSR measure provides an external comparison of our
performance against an industry peer group. The industry peer
group includes Apache Corporation, ConocoPhillips, Devon Energy
Corporation, EnCana Corporation, EOG Resources Inc., Hess
Corporation, Marathon Oil Corporation, Noble Energy Inc.,
Occidental Petroleum Corporation, Pioneer Natural Resources
Company and Talisman Energy Inc. If any of these peer companies
ceases to exist during the performance period, the Compensation
Committee has approved Chevron Corporation, Chesapeake Energy
Corporation and XTO Energy, Inc. as replacement companies (in
the order provided).
The following table reflects the payout scale for the new annual
performance unit program:
Below is an example of how the performance unit payout scale
works, assuming an executive officer received a target award of
20,000 performance units.
Equity
Awards Made During 2007
On January 10, 2007, the Compensation Committee approved
special stock option awards for Messrs. Hackett, Walker,
Kurz, Reeves and certain other executive officers. The grants to
named executive officers were made to recognize each executive
officer’s performance and leadership in executing the
successful acquisitions of Kerr-McGee and Western Gas and the
subsequent integration of these companies with Anadarko, as well
as leadership during our implementation and integration of
accounting and information technology systems. On
January 23, 2007, at the request of Messrs. Hackett,
Walker, Kurz and Reeves, the Compensation Committee modified the
terms of such stock option awards for these officers to raise
the exercise price of their stock option awards from $40.51 to
$48.90 so that these executive officers could only realize the
value of such awards after our stock price exceeded the trading
price prior to the announcement of the acquisitions. Each of
these executive officers executed an amendment to his respective
stock option agreement reflecting this change in exercise price.
On November 6, 2007, the Compensation Committee approved
the following annual long-term incentive awards. These awards,
together with the above-referenced awards, are also included in
the Grants of Plan Based Awards Table on page 41.
Also, in November 2007, the Compensation Committee determined
that the corporate acquisitions in 2006, the divestitures in
2006 and 2007, and our change to the successful efforts
accounting method in 2007 had an impact on both the
appropriateness of RRE as a performance measure and our ability
to measure RRE under the outstanding performance unit
agreements. The Compensation Committee determined that the
original performance targets established for RRE in prior
performance unit awards did not contemplate these significant
organizational changes and were no longer relevant. As a result,
in November 2007, the Compensation Committee cancelled, without
value and subject to approval by participants, all outstanding
performance unit awards that had performance periods ending
after December 31, 2007 and had performance metrics of both
RRE and relative TSR. This decision allowed for an immediate and
complete transition away from RRE as a performance metric. The
table below shows the performance unit awards cancelled for each
named executive officer.
In addition to the annual equity awards set forth above, each of
the named executive officers received a one-time transitional
performance unit award, with payout based solely on our relative
TSR performance over a specified performance period. The purpose
of these transitional awards was to recognize that in cancelling
the outstanding performance unit awards with one and two years
remaining under their performance periods, the executive
officers’ total compensation opportunity relative to our
primary peer group would not remain competitive. The
transitional awards are similar in value and opportunity to only
the unexpired portions of the cancelled awards, considering the
Company’s performance achieved from their respective grant
through the date they were cancelled. Fifty percent of the
transitional performance unit awards have a one-year performance
period and the remaining fifty percent have a two-year
performance period. Both performance periods began on
January 1, 2008. The table below reflects the number of
units each officer received under this transitional program and
are also included in the Grants of Plan-Based Awards Table on
page 41:
In February 2008, the Compensation Committee certified the
performance results for the four-year performance period ending
December 2, 2007 under Mr. Hackett’s performance
share award. The performance shares awarded to Mr. Hackett
in 2003 were part of his new hire package and provided him the
opportunity to earn payouts, based on Anadarko’s relative
TSR ranking, for both a two-year performance period and a
four-year performance period. A target of 80,000 performance
shares was established for each performance period with the
opportunity to earn a maximum of 160,000 performance shares for
each performance period. In February 2006, based on
Anadarko’s relative TSR performance under the prescribed
performance matrix for the two-year performance period
(December 3,
2003-December 2,
2005), the Compensation Committee awarded Mr. Hackett
28,800 shares. The following table lists the target number
of performance shares granted and actual performance shares
earned by Mr. Hackett under his performance share award for
the four-year performance period that ended December 2,
2007:
Also in February 2008, the Compensation Committee certified the
performance results for the 2005 annual performance unit awards
for specified executives with a three-year performance period
that ended December 31, 2007. Under the provisions of this
award, 50% of the targeted performance units were subject to
Anadarko’s relative TSR against a defined group of oil and
gas companies and 50% of the targeted performance units were
subject to Anadarko’s average RRE for the performance
period. The following table lists the target number of
performance units awarded and actual performance units earned by
the named executive officers under the provisions of the 2005
performance unit awards for the three-year performance period
that ended December 31, 2007:
In February 2008, the Compensation Committee approved, subject
to approval by our stockholders at the Annual Meeting, the 2008
Omnibus Incentive Compensation Plan. This Plan will replace both
the AIP and the 1999 Stock Incentive Plan. If approved, the AIP
and the 1999 Stock Incentive Plan will be terminated and no
further awards will be made under those plans. The Plan is
described beginning on page 57 and is attached to this
proxy statement as Appendix A.
Our executive officers participate in the following retirement
and related plans.
Employee Savings Plan. The Anadarko Employee
Savings Plan is a tax-qualified retirement savings plan that
allows participating employees the opportunity to contribute up
to 30% of eligible compensation, on a before-tax basis or on an
after-tax basis, into their Savings Plan accounts. Eligible
compensation for named executive officers includes base salary
and certain annual cash incentive payments. Under the Savings
Plan, we match an amount equal to one dollar for each dollar
contributed by participants up to six percent of their total
eligible compensation. This plan is subject to applicable IRS
limitations regarding contributions under this plan.
Savings Restoration Plan. The Savings
Restoration Plan accrues a benefit substantially equal to the
amount that, in the absence of any IRS limitations, would have
been allocated to an employee’s account as a matching
contribution under the Savings Plan. The Savings Restoration
Plan permits participants to allocate the matching contributions
among a group of notional accounts that mirror the gains
and/or
losses of various
investment funds provided in the Savings Plan. Notional earnings
are credited to their account based on the market rate of return
provided by the investment funds.
Amounts deferred, if any, under the Savings Plan and the Savings
Restoration Plan by the named executive officers are included,
respectively, in the “Salary” and “Non-Equity
Incentive Plan Compensation” columns of the Summary
Compensation Table. Our matching contributions allocated to the
named executive officers under the Savings Plan and the Savings
Restoration Plan are included in the “All Other
Compensation” column of the Summary Compensation Table.
Retirement Plans. Anadarko provides funded,
tax-qualified retirement benefits for all U.S. employees,
including the named executive officers, under the Anadarko
Retirement Plan for legacy Anadarko employees and the Kerr-McGee
Corporation Retirement Plan for legacy Kerr-McGee Corporation
employees. Due to IRS limitations that restrict the amount of
benefits payable under tax-qualified plans, we also sponsor
nonqualified restoration plans that cover the named executive
officers and certain other employees. These nonqualified
restoration plans include the Retirement Restoration Plan for
legacy Anadarko employees and the Benefits Restoration Plan for
legacy Kerr-McGee Corporation employees. Benefits under the
retirement plans are based upon the employee’s years of
service and a final average pay calculation.
The retirement plans do not require contributions by employees
and an employee becomes vested in his or her benefit at the
completion of five years of service as defined in the retirement
plans. Compensation covered by the retirement plans for the
participants includes base salary and certain annual cash
incentive payments. The amount of compensation that may be
considered in calculating benefits under the retirement plans is
limited by IRS regulations.
In November 2007, the Compensation Committee amended the
Retirement Restoration Plan to provide for certain supplemental
retirement benefits for Messrs. Hackett, Walker and Reeves.
The amendment provides for a one-time service credit of eight
years and five years to Messrs. Walker and Reeves,
respectively, if they each remain employed by us until the age
of 55. This service credit will be considered applicable service
towards our retirement benefit programs, including pension and
retiree medical and dental benefits. The amendment also provides
that Mr. Hackett will receive a special service credit to
be applied towards his eligibility for our retiree medical and
dental benefit programs. This benefit will accrue in a manner
similar to the special pension crediting in
Mr. Hackett’s employment agreement. The value of the
retiree medical and dental benefit will be provided to
Messrs. Hackett, Walker and Reeves through a lump sum
payment upon termination of their employment. However, the lump
sum payment for such benefits will not be made to
Messrs. Walker and Reeves if, at the time of termination of
employment, (1) they have not reached age 55;
(2) we no longer provide subsidized retiree and medical
benefits; or (3) if they have satisfied the eligibility
requirements for the current subsidized retiree medical and
dental benefits in normal course under our retiree medical plan.
Such payment will not be made to Mr. Hackett if, at the
time of termination of employment, (1) we no longer provide
subsidized retiree medical benefits; (2) he has satisfied
the eligibility requirements for the current subsidized retiree
medical and dental benefits in normal course under our retiree
medical plan; or (3) he voluntarily resigns or is
terminated for cause prior to reaching age 55. The current
estimated value of the supplemental pension benefit is
approximately $1.75 million for Mr. Walker and
approximately $800,000 for Mr. Reeves. The present value of
the lump sum payment for the retiree medical and dental for each
individual is currently estimated to be between $60,000-$71,000
for retiree-only coverage, $130,000-$155,000 for
retiree-plus-spouse coverage, and $170,000-$195,000 for
retiree-plus-family coverage.
These supplemental retirement benefits were provided to
Messrs. Walker and Reeves to recognize that they were both
mid-career hires that we would like to retain for the remainder
of their careers. Providing them additional service credits
recognizes a portion of their prior industry experience and
service years which directly benefits us and our stockholders.
They are both approximately five years away from the vesting
requirement of age 55 and we believe this retention period
is significantly long enough to be beneficial to our
stockholders. The size of the equity awards that would have
otherwise been granted to Messrs. Walker and Reeves, had
the supplemental benefits not been provided, was reduced by
approximately 50% of the current estimated value of the
supplemental pension benefit. These benefits will also be
coordinated with these
individuals’ Key Employee Change of Control Contracts to
ensure no duplication of benefits under this arrangement.
In addition to the retirement benefits included in the
Retirement Restoration Plan and the Benefits Restoration Plan,
Messrs. Hackett and Meloy are both eligible to receive
supplemental pension benefits upon meeting certain employment
conditions under the terms of their employment agreement and
retention agreement, respectively. Details of these
arrangements, including the accrued benefits for each of the
named executive officers, are discussed further in the
Employment Agreements section beginning on page 38 and in
the Pension Benefits Table on page 45.
In addition to the retirement benefits discussed above, we also
provide other benefits such as medical, dental, vision, flexible
spending accounts, payments for certain relocation costs, life
insurance and disability coverage to each named executive
officer. These benefits, along with paid time off and holidays,
are also provided to all other eligible U.S. based
employees.
We also maintain a Deferred Compensation Plan for directors and
certain employees, including the named executive officers. The
Deferred Compensation Plan allows employees to voluntarily defer
receipt of up to 75% of their salary
and/or up to
100% of their annual incentive bonus payments. The Deferred
Compensation Plan permits participants to allocate the deferred
amounts among a group of notional accounts that mirror the gains
and/or
losses of various investment funds provided in the Savings Plan.
In general, deferred amounts are distributed to the participant
upon termination or at a specific date as elected by the
participant. We do not subsidize or match these deferred
amounts. Details regarding participation in the plan by the
named executive officers can be found in the Nonqualified
Deferred Compensation Table on page 48.
We provide a limited number of perquisites to the named
executive officers to supplement their other compensation. These
perquisites are assessed annually as part of the total
competitive review and include:
Mr. Hackett has voluntarily declined to utilize the
financial planning, tax preparation and estate planning
perquisites offered by us. As required by the Board, we provide
security services for Mr. Hackett at his home. Pursuant to
our security policy, we also require Mr. Hackett to use our
aircraft for personal use as well as business travel. Any time
Mr. Hackett uses our aircraft for personal use, although it
is understood that he engages in business activities while in
flight, compensation is imputed to Mr. Hackett for that use
and for any passengers that accompany Mr. Hackett. Personal
use includes his participation on outside board service, which
indirectly benefits us.
Our incremental cost of the various perquisites provided is
included in the “All Other Compensation” column of the
Summary Compensation Table. Individual perquisite values are
disclosed in the All Other Compensation Table and supporting
footnotes following the Summary Compensation Table on
page 39.
Officer Severance Plan. Our named executive
officers are eligible for benefits under the Officer Severance
Plan. Benefits provided under this plan may vary depending upon
the executive officer’s level within the organization and
years of service with us and are made at the discretion of the
Compensation Committee. Executive officers receiving benefits
under the Officer Severance Plan are required to execute an
agreement releasing us from any and all claims from any and all
kinds of actions arising from the executive officer’s
employment with us or the termination of such employment. In
practice, we have typically provided the following involuntary
termination (as defined on page 49) severance benefits for
our executive officers:
Key Employee Change of Control Contracts. We
have also entered into key employee change of control contracts
with all of our executive officers, including the named
executive officers, with the exception of Mr. Hackett whose
change of control benefits are included in his employment
agreement described on page 38. These key employee change
of control contracts have an initial three-year term that is
automatically extended for one year upon each anniversary,
unless we provide notice not to extend. If we experience a
change of control (as defined on page 49) during the term
of the executive officer’s contract, then the contract
becomes operative for a fixed three-year period. These contracts
generally provide that the executive officer’s terms of
employment (including position, work location, compensation and
benefits) will not be adversely changed during the three-year
period after a change of control. If we (or any successor in
interest) terminate the executive officer’s employment
(other than for cause (as defined on page 49), death or
disability), the executive officer terminates for good reason
(as defined on page 50) during such three-year period, or
upon certain terminations prior to a change of control or in
connection with or in anticipation of a
change of control, the named executive officer is generally
entitled to receive the following payment and benefits:
In addition, the change of control contracts provide for a
continuation of various medical, dental, disability and life
insurance benefits and financial counseling for a period of up
to three years. The contracts also provide for outplacement
services and the payment of all legal fees and expenses incurred
by the executive officer in enforcing any right or benefit
provided by the change of control contract. The executive will
also be entitled to receive a payment in an amount sufficient to
make the executive whole for any excise tax on excess parachute
payments imposed under Section 4999 of the Internal Revenue
Code. These provisions, in addition to attracting and retaining
executive officers, also allow these officers to realize the
full value of the intended benefit awarded under these
contracts. If an executive officer loses his or her job
following a change of control event that meets certain IRS
criteria, the executive officer must pay an additional 20%
excise tax simply for collecting the pay that is due. The
gross-up
makes the executive officer whole by paying the 20% excise tax
amount and the additional income taxes generated by such
payment. It does not pay the executive’s normal income
taxes.
As a condition to receipt of change of control benefits, the
executive officer must remain employed by us and provide
services commensurate with his or her position until the
executive is terminated pursuant to the provisions of the
contract. The executive officer must also agree to retain in
confidence any and all confidential information known to him or
her concerning us and our business so long as the information is
not otherwise publicly disclosed. In 2007, no amounts were paid
under the change of control contracts.
Change of Control — Equity Plans. In
addition to the change of control benefits discussed above, our
equity plans provide that upon a change of control of Anadarko:
We believe this “single-trigger” treatment in our
stock plans is appropriate because:
We have entered into indemnification agreements with our
directors and certain executive officers, in part to enable us
to attract and retain qualified directors and executive
officers. These agreements require us,
among other things, to indemnify such persons against certain
liabilities that may arise by reason of their status or service
as directors or officers, to advance their expenses for
proceedings for which they may be indemnified and to cover such
person under any directors’ and officers’ liability
insurance policy that we may maintain from time to time. These
agreements are intended to provide indemnification rights to the
fullest extent permitted under applicable Delaware law and are
in addition to any other rights our directors and executive
officers may have under our restated certificate of
incorporation, bylaws and applicable law.
We have entered into an employment agreement with
Mr. Hackett and a retention agreement with Mr. Meloy.
Both agreements are discussed below.
Under the terms of Mr. Hackett’s employment agreement,
he receives a minimum annual base salary of $1,500,000, and is
eligible for an annual incentive cash bonus at a target of not
less than 130% of annual base salary with a maximum annual
incentive cash bonus of 200% of the target. This agreement also
outlines certain payments and benefits to be paid to
Mr. Hackett under various termination scenarios, including:
The above scenarios are discussed in more detail on page 49
of this proxy statement. We will provide a
gross-up
payment to Mr. Hackett to the extent any of the above
payments become subject to the federal excise tax relating to
excess parachute payments. Pre-change of control severance
benefits are conditioned upon the execution of a mutual release
between us and Mr. Hackett.
Mr. Hackett is also subject to covenants regarding
confidentiality, non-competition and non-solicitation. The
non-competition obligation applies for one year following
Mr. Hackett’s termination of employment with us if
Mr. Hackett voluntarily terminates his employment with us
(other than for good reason) on or before December 3, 2010.
If Mr. Hackett remains employed by us until at least
December 3, 2008, the agreement also provides
Mr. Hackett with a special pension benefit, computed so
that his total pension benefits from us will equal those to
which he would have been entitled if his actual years of
employment with us were doubled. This service crediting
provision was implemented when Mr. Hackett was hired in
order to compensate for projected retirement benefits being
forgone in leaving his former employer.
Mr. Meloy was an officer for Kerr-McGee at the time of its
acquisition by us in August 2006. As a result of our desire to
retain him as an executive officer, we entered into a retention
agreement with him. The retention benefits were intended to
compensate him for certain severance benefits he was otherwise
entitled to receive under the change of control agreement he had
with Kerr-McGee. Under the terms of his retention agreement,
Mr. Meloy is to receive the following benefits:
If Mr. Meloy were to voluntarily terminate or be terminated
for cause prior to the designated vesting dates, he would
forfeit any unvested or unpaid retention benefits.
The above descriptions of Mr. Hackett’s employment
agreement and Mr. Meloy’s retention agreement are not
a full summary of all of the terms and conditions of these
agreements and are qualified in their entirety by the full text
of the agreements.
We believe the design of our total executive compensation
program aligns the interests of our executive officers with
those of our stockholders and provides executive officers with
the necessary motivation to maximize long-term operational and
financial performance of the Company, while using sound
financial controls and high standards of integrity. The programs
currently offered have been critical elements in the successful
hiring of numerous executives and have been equally effective in
retaining executive officers during a period of strong
competitive demand and a shortage of talented executives within
the oil and gas exploration and production industry. We believe
that our executive compensation program will continue to be
reflected in positive operational, financial and stock price
performance. We also believe that total compensation for each
executive officer should be, and is, commensurate with the
execution of specified short-term and long-term operational,
financial and strategic objectives.
EXECUTIVE
COMPENSATION
The following table summarizes the compensation of our Chief
Executive Officer, Chief Financial Officer and our three highest
paid executive officers other than our CEO and CFO for the
fiscal year ended December 31, 2007.
Summary
Compensation Table
All Other
Compensation Table
The following table describes each component of the All Other
Compensation column in the Summary Compensation Table:
Grants of
Plan-Based Awards in 2007
The following table sets forth information concerning annual
incentive awards, stock options, restricted stock units and
performance units granted during 2007 to each of the named
executive officers:
Outstanding
Equity Awards at Fiscal Year-End 2007
The following table reflects outstanding stock option awards
classified as exercisable and unexercisable as of
December 31, 2007 for each of the named executives. The
table also reflects unvested and unearned stock awards (both
time-based and performance-contingent) assuming a market value
of $65.69 a share (the closing stock price of the Company’s
stock on December 31, 2007).
Pension
Benefits for 2007
The Company maintains the Anadarko Retirement Plan, or the APC
Retirement Plan, and the Kerr-McGee Corporation Retirement Plan,
or the KMG Retirement Plan, both of which are funded
tax-qualified defined benefit pension plans. In addition, the
Company maintains the Anadarko Retirement Restoration Plan, or
the APC Retirement Restoration Plan, and the Kerr-McGee Benefits
Restoration Plan, or the KMG Restoration Plan, both of which are
unfunded, nonqualified pension benefit plans that are designed
to provide for supplementary pension benefits due to limitations
imposed by the Internal Revenue Code, or IRC, that restrict the
amount of benefits payable under tax-qualified plans.
APC Retirement Plan and APC Retirement Restoration Plan,
collectively the APC Retirement Plans. The APC
Retirement Plans cover all legacy Anadarko United States based
employees. The APC Retirement Restoration Plan covers all legacy
Anadarko United States based employees that are affected by the
IRC limitations. Benefits under these plans are based upon the
employee’s years of service and the greater of either:
The APC Retirement Plans do not require contributions by
employees and an employee becomes vested in his or her benefit
at the completion of five years of service. Compensation covered
by the APC Retirement Plans includes base salary and payments
under the Annual Incentive Plan. The amount of compensation for
2007 that may be considered in calculating benefits under the
APC Retirement Plan is $225,000 due to the annual IRC
limitation. Compensation in excess of $225,000 is recognized in
determining benefits payable under the APC Retirement
Restoration Plan.
Benefits under the APC Retirement Plans are calculated as a
“life-only” annuity (meaning that benefits end upon
the participant’s death) and are equal to the sum of:
Covered compensation is the average (without indexing) of the
Social Security taxable wage base during the
35-year
period ending with the last day of the year in which an
individual reaches Social Security retirement age. Benefits are
calculated based on a normal retirement age of 65, however,
employees may receive a reduced benefit as early as age 55.
Employees may choose to receive their benefits under several
different forms provided under the APC Retirement Plans.
KMG Retirement Plan and KMG Restoration Plan, collectively
the KMG Retirement Plans. The KMG Retirement Plan
covers all legacy Kerr-McGee Corporation United States based
employees. The KMG Restoration Plan covers all legacy Kerr-McGee
Corporation United States based employees that are affected by
the IRC limitations. Benefits under these plans are based upon
the employee’s years of service and the average monthly
earnings during the 36 highest paid consecutive months of the
last 120 months of employment.
The KMG Retirement Plans do not require contributions by
employees and an employee becomes vested in his or her benefit
at the completion of five years of service. Compensation covered
by the KMG Retirement Plans includes base salary and payments
under the Annual Incentive Plan. The amount of compensation for
2007 that may be considered in calculating benefits under the
KMG Retirement Plan is $225,000 due to the annual IRC
limitation. Compensation in excess of $225,000 is recognized in
determining benefits payable under the KMG Restoration Plan.
Benefits under the KMG Retirement Plans are calculated as a
life-only annuity equal to the sum of Part A and
Part B:
Part A:
Part B:
Covered compensation is the average (without indexing) of the
Social Security taxable wage base during the
35-year
period ending with the last day of the year in which an
individual reaches Social Security retirement age. Benefits are
calculated based on a normal retirement age of 65; however,
employees may receive a reduced benefit as early as age 52.
Employees may choose to receive their benefits under several
different forms provided under the KMG Retirement Plans.
The present values provided in the below table are based on the
pension benefits accrued through December 31, 2007,
assuming that such benefit is paid in the same form as reflected
in the accounting valuation. The benefits are assumed to
commence at the plan’s earliest unreduced retirement age,
which is age 62 for the APC Retirement Plans and
age 60 for the KMG Retirement Plans. All pre-retirement
decrements such as pre-retirement mortality and terminations
have been ignored for the purposes of these calculations. The
interest rate used for discounting payments back to
December 31, 2007 is 6%, consistent with the weighted
average discount rate used in the accounting valuation.
Nonqualified
Deferred Compensation for 2007
The Company maintains a Deferred Compensation Plan for directors
and certain employees, including the named executive officers.
The Deferred Compensation Plan allows certain employees to
voluntarily defer receipt of up to 75% of their salary
and/or up to
100% of their annual incentive bonus payments. The Deferred
Compensation Plan allows directors to defer receipt of up to
100% of their board and committee retainers
and/or board
and committee meeting fees. The Deferred Compensation Plan
permits participants to allocate the deferred amounts among a
group of notional accounts that mirror the gains
and/or
losses of various investment funds. The notional accounts do not
provide for above-market or preferential earnings. In general,
deferred amounts are distributed to the participant upon
termination or at a specific date as elected by the participant
or as required by the Plan. The Company does not subsidize or
match any deferrals of compensation into the Plan.
The Company has a Savings Restoration Plan that accrues a
benefit substantially equal to the amount that, in the absence
of certain IRC limitations, would have been allocated to a named
executive officer’s account as Company matching
contributions under the Savings Plan. Prior to January 2007,
amounts in the Savings Restoration Plan received earnings based
on the performance of Company stock. In January 2007, the
Company amended this Plan so that the earnings are no longer
tied to the performance of Company stock, but permits
participants to allocate the deferred amounts among a group of
notional accounts that mirror the gains
and/or
losses of various investment funds provided in the Savings Plan.
The following tables reflect potential payments to our named
executive officers under existing contracts, agreements, plans
or arrangements, whether written or unwritten, for various
scenarios involving a change of control or termination of
employment of each named executive officer, assuming a
December 31, 2007 termination date, and, where applicable,
using the closing price of our common stock of $65.69 (as
reported on the NYSE as of December 31, 2007). As of
December 31, 2007, none of our executive officers were
eligible for retirement; accordingly, no table is included for
this event.
The following are general definitions that apply to the
termination scenarios detailed below. These definitions have
been summarized and are qualified in their entirety by the full
text of the applicable plans or agreements to which our
executive officers are parties.
“Involuntary Termination” is generally defined as any
termination that does not result from the following termination
events:
“For Cause” is generally defined as:
A “Change of Control” is generally defined as any one
of the following occurrences:
“Good Reason” is generally defined as any one of the
following occurrences within three years of a Change of Control:
“Disability” is generally defined as the absence of
the Executive from the Executive’s duties with the Company
on a full-time basis for 180 business days as a result of
incapacity due to mental or physical illness which is determined
to be total and permanent by a physician selected by the Company
or its insurers and acceptable to the Executive or the
Executive’s legal representative.
Additional details of the post-termination arrangements can be
found in the Compensation Discussion and Analysis on
page 36.
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