Anadarko Petroleum DEF 14A 2008
Documents found in this filing:
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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 years 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 Companys 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
P. O. Box 1330
Houston, Texas 77251-1330
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 drivers 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.
Why did I receive a Notice in the mail regarding the Internet availability of proxy materials this year instead of a full set of proxy materials?
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 stockholders 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?
If I vote by mail, telephone or Internet, may I still attend the Annual Meeting?
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 entitys 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 Companys website at www.anadarko.com, or by contacting our Investor Relations department at email@example.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 I want to submit a stockholder proposal or nominate a director for the 2009 Annual Meeting, when is that proposal or nomination due?
If you are an eligible stockholder and want to submit a proposal for possible inclusion in next years 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 Anadarkos website at www.anadarko.com.
Will I get more than one copy of the proxy statement, annual report or Notice if there are multiple stockholders at my address?
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 nominees election must exceed the number of votes cast against such nominees 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 Corporations 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 companys 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 Devons 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-Inlands 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 Companys 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 Companys 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 Companys 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 Committees 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 Companys Chairman, President and CEO, are members of this Committee. Mr. Hackett is chairman of the Executive Committee. In accordance with the Companys 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 Companys director independence standards, which are contained in the Companys Corporate Governance Guidelines found on the Companys 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 Companys 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. Butlers son-in-law is a non-executive employee of the Company. The Board determined that this does not impact Mr. Butlers independence. With respect to Mr. Fluor, the Board specifically considered that Mr. Fluors daughter is a non-executive employee of the Company. The Board determined that this does not impact Mr. Fluors 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 Invensyss 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 Companys 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 Pugets 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 Companys 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 firstname.lastname@example.org 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 Companys 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 Companys Corporate Secretary at the Companys 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 Companys website at http://www.anadarko.com/investor_relations/governance.asp.
The Companys 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. Gordons 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 Companys 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 Companys 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 Companys 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 Companys 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 Companys 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 Companys 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 Companys 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 Companys 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 Companys directors and executive officers, and persons who own more than ten percent of a registered class of the Companys 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 Companys common stock and other equity securities. Officers, directors and greater than ten percent stockholders are required by the SECs 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 Companys 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 Companys 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 Companys 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 Companys 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 Companys internal controls over financial reporting. The independent auditor is responsible for performing an independent audit of the Companys 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 Companys internal controls over financial reporting. The Audit Committees responsibility is to monitor and oversee these processes.
KPMG LLP served as the Companys independent auditor during 2007 and was appointed by the Audit Committee to serve in that capacity for 2008. KPMG LLP has served as the Companys 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 firms independence.
Based upon the Audit Committees (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 Companys Annual Report on Form 10-K for the year ended December 31, 2007 filed with the SEC.
THE AUDIT COMMITTEE
H. Paulett Eberhart, Chairperson
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 Committees 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 Committees 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 Hewitts 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 Committees 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 Committees 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 companys 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. Hacketts 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 CEOs 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 years 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. Kurzs 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. Kurzs 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 officers 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. Kurzs incentive target was increased from 95% to 100% in February 2007 in recognition of his appointment to the role of Chief Operating Officer. Mr. Meloys 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 Companys 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 Companys performance against those goals, the Compensation Committee may use its discretion in determining the extent to which such goals or results properly reflect the Companys achievement of overall business objectives, including any material changes in the Companys 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 officers 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 individuals 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 Companys 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.
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 officers 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. Meloys 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 Companys 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 officers 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 Companys 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. Hacketts 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 Anadarkos 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 Anadarkos 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 Anadarkos relative TSR against a defined group of oil and gas companies and 50% of the targeted performance units were subject to Anadarkos 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 employees 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 employees 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. Hacketts 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 officers 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 officers 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 officers contract, then the contract becomes operative for a fixed three-year period. These contracts generally provide that the executive officers 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 officers 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 executives 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. Hacketts 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. Hacketts 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. Hacketts employment agreement and Mr. Meloys 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.
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 Companys 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 employees 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 participants 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 employees 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:
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 plans 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 officers 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 Executives 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 Executives legal representative.
Additional details of the post-termination arrangements can be found in the Compensation Discussion and Analysis on page 36.