Annual Cash Bonus for Devon

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Devon Energy (DVN)

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This excerpt taken from the DVN DEF 14A filed Apr 24, 2009.

Annual Cash Bonus

Overall in 2008, the Committee is of the view that the Company achieved key operational and other successes in a challenging economic environment. In its evaluation, the Committee noted the following metrics related to Company performance:


	•	Increased oil and gas production by 6% to 238 million barrels of oil equivalent (BOE), generating record oil and gas sales of more than $13 billion;

	•	Significantly exceeded budgeted oil and gas reserves additions with greater than 550 million BOE (prior to giving effect to price revisions);

	•	Accumulated significant acreage in emerging natural gas plays that have significant production and reserve potential;

	•	Exercised significant financial discipline in relation to capital expenditure and operating budgets in a highly inflationary market;

	•	Recorded pre-income tax cash costs per BOE in the lower half of our E&P peers; and

	•	Delivered competitive shareholder returns that were in the top half of peers for both percentage earnings per share growth and percentage share price appreciation.

The Committee also noted that the Company did not meet its budget goals in the areas of lease operating expenses and general and administrative expenses.

Commitment Runs Deep

In its evaluation of the Company’s performance relating to stakeholders, business processes and learning and people, the Committee noted that the Company met the following goals:


	•	Strengthened the Company’s positive reputation with stakeholder groups;

	•	Furthered business improvement strategies to increase operational effectiveness and speed of execution;

	•	Improved the workforce planning process to align with corporate strategy and budgeting process;

	•	Enhanced strategies for cultivating leadership talent, including succession management; and

	•	Improved goal-setting capability throughout the organization to better align each employee’s performance with the overall goals of the Company.

The Committee conducted a thorough evaluation of each named executive officers’ performance, including the individual interviews described above. Among the named executive officers for whom it made bonus determinations, the Committee determined that each had made significant contributions to the Company’s overall results. As previously noted, the Committee does not determine the bonus for Mr. Heatly.

The 2008 benchmarking indicated that bonuses paid to the named executive officers for 2007 performance generally met the Company’s market objective on an overall basis, with individual bonuses approximating the 75^th percentile of the benchmarking data.

Based on the Committee’s evaluation of the Company’s performance in 2008 and other factors that it considers when making annual cash bonus decisions (described in “Annual Cash Bonus” under the “Overview of Executive Compensation Elements in 2008” section of this CD&A), the following cash bonuses were awarded to the named executive officers:


	2008
Name	Cash Bonuses
J. Larry Nichols	$	3,000,000
John Richels	$	2,000,000
Danny J. Heatly	$	350,000
Stephen J. Hadden	$	975,000
Darryl G. Smette	$	900,000

Please refer to the Summary Compensation Table for further information on the annual cash bonuses of named executive officers.

This excerpt taken from the DVN DEF 14A filed Apr 28, 2008.

Annual Cash Bonus

The Committee awards, on an annual basis, cash bonuses to our named executive officers. The Committee believes that executives’ cash bonuses should reflect, above all, the ongoing enhancement of shareholder value, both in the short-term and the long-term. In that regard, bonuses awarded by the Committee are intended to be competitive with the market while rewarding senior executives for:


	•	delivering near-term financial and operating results;

	•	developing long-term growth prospects;

	•	fostering internal talent;

	•	ensuring positive relationships with regulators, landowners and other stakeholders;

	•	continuous improvement in the efficiency and effectiveness of business processes; and

	•	building a culture of mutual respect and teamwork focused on creating long-term shareholder value.

To that end, in determining the appropriate bonus amounts, the Committee considers recent Company performance; each senior executive officer’s individual performance during the year; competitive market conditions; historical practices; incentive awards for others in the organization; and our compensation philosophy. The Committee does not assign target or maximum cash bonus award levels to the named executive officers.

When evaluating recent Company performance, the Committee considers performance against goals approved by the Board at the beginning of the year. The Company’s performance goals cover a number of both quantitative and qualitative targets. Consistent with the flexible nature of the annual bonus program, the Committee does not assign any specific weight to any particular performance goal nor is any specific weight assigned to the performance goals in the aggregate.

The Committee considers not only the Company’s performance during the year with respect to the quantitative and qualitative goals set at the beginning of the year, but also market and economic trends and forces, extraordinary internal and market-driven events, unanticipated developments, and other extenuating circumstances. In short, the Committee analyzes the total mix of available information (including performance against any quantitative performance goals) on a qualitative, rather than quantitative, basis in making bonus determinations.

For 2007, the Committee noted, in its evaluation of Company performance:


	•	continued success and leadership in developing the Barnett Shale in north Texas;

	•	the commencement of production by the Company from the Merganser field in the deepwater Gulf of Mexico;

	•	completion of construction at the Jackfish project in the Alberta oil sands;

	•	increased production from the Lloydminster area of Canada;

	•	initial production in the Polvo field offshore Brazil; and

	•	progress in developing discoveries in the Lower Tertiary trend of the Gulf of Mexico.

Commitment Runs Deep

Further, the Committee determined that the Company substantially met the goals related to:


	•	production volumes;

	•	reserves additions;

	•	execution of the capital budget;

	•	both drill-bit and all-sources finding and development costs;

	•	operating expenses; and

	•	operating profit from both the exploration and production business and the marketing and midstream business.

With respect to finding and development costs, the Committee especially noted that the Company achieved competitive costs even while it invested significant capital in long-term projects that were not expected to yield new reserve additions in 2007. The Committee concluded that negative variances from performance goals were minor and due to circumstances largely beyond management’s control.

The Committee determined that the Company had substantially met the goals related to environmental, health and safety performance, though it noted that improvement was needed in the area of tracking corrective actions. With respect to regulatory matters, the Committee determined that the Company managed favorable permitting turnaround times and conducted our operations in a manner so as to avoid any material operational delays related to regulatory action. The Committee also found that considerable efforts had been made to broaden and strengthen the Company’s relationships with key stakeholders. In addition, the Committee considered the significant strides made by the Company in improving the efficiency of business processes. The Committee did note that workforce planning and leadership development efforts had been delayed but that momentum had been achieved in each of these areas.

The Committee conducted a thorough evaluation of individual senior executive performance, including the individual, in-depth interviews described above. Among the named executives for which it made bonus determinations, the Committee determined that each had made the expected balanced contribution to overall results.

While our approach to annual bonuses is not formulaic, it is methodical and purposeful. We have considered the relative merits of a non-formulaic, subjective approach to paying annual bonuses versus a formulaic approach. We have concluded that the present non-formulaic approach results in the creation of a highly-effective, nimble management team that is evaluated on its ability to be flexible in addressing changing market and industry conditions while executing the Company’s overall business strategy. We think the Company’s recent and long-term performance demonstrate that this flexible approach works well.

The 2007 benchmarking indicated that bonuses for the named executive officers would generally meet the Company’s market objective on an overall basis, with individual bonuses ranging from below to above the 75^th percentile of the benchmarking data.

For additional detail on the bonuses awarded in 2007, please refer to the Summary Compensation Table.

EXCERPTS ON THIS PAGE:

DEF 14A	Apr 24, 2009

DEF 14A	Apr 28, 2008

Devon Energy (DVN)

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