This excerpt taken from the DEP 10-K filed Apr 2, 2007.
Compensation Discussion and Analysis
During 2006, none of our executive officers had any of their time or compensation allocated specifically to our assets or businesses. Our chief executive officer (Mr. Bachmann), chief financial officer (Mr. Creel) and three other officers (Messrs. Radtke, Fowler and Knesek) constitute our most highly compensated executive officers at December 31, 2006 (collectively, the named executive officers). Our named executive officers will have substantially less than a majority of their time and compensation allocated to us, other than Mr. Radtke, who we expect may have a majority of his time allocated to us. With respect to our named executive officers, compensation paid or awarded by us in 2007 will reflect only that portion of each individuals compensation paid by EPCO that is allocated to us pursuant to the administrative services agreement, including an allocation of a portion of the cost of equity-based long-term incentive plans of EPCO.
Dan L. Duncan controls EPCO and has ultimate decision-making authority with respect to the compensation of our named executive officers. The following elements of compensation, and EPCOs decisions with respect to determinations of payments, are not subject to approvals by our Board or our ACG Committee. Equity-based awards under long-term incentive plans involving securities of Enterprise Products Partners or Enterprise GP Holdings are approved by the ACG Committee of their respective general partners. Our general partner, the general partner of Enterprise Products Partners and the general partner of Enterprise GP Holdings have no separate compensation committees.
As discussed in the following paragraphs, the elements of EPCOs compensation program, along with EPCOs other rewards (for example, benefits, work environment, career development), are intended to provide a total rewards package designed to drive performance and reward contributions in support of the business strategies of EPCO and its affiliates at the partnership and individual levels. During 2006, EPCO did not include any elements based on targeted performance-based criteria.
The primary elements of EPCOs compensation program are a combination of annual cash and long-term equity-based incentive compensation. During 2006, the elements of compensation for our named executive officers consisted of the following:
With respect to compensation objectives and decisions regarding our named executive officers during 2006, Mr. Duncan sought and received recommendations of Robert G. Phillips, the chief executive officer of Enterprise Products Partners, after preliminary formulation of such recommendation by him and the senior vice president of Human Resources for EPCO with respect to employees other than Mr. Phillips. EPCO takes note of market data for determining relevant compensation levels and compensation program elements through the review of and, in certain cases, participation in, various relevant compensation surveys. EPCO considered market data in a 2004-2005 survey prepared for EPCO by an outside compensation consultant, but did not otherwise consult with compensation consultants with respect to determining 2006 compensation for our named executive officers.
During late 2006, EPCO engaged an outside compensation consultant to prepare a report that it expects to consider when determining future compensation, but EPCO did not use this report with respect to decisions on discretionary annual cash compensation with respect to 2006 performance for any of our named executive officers. Mr. Duncan and EPCO do not use any formula or specific performance-based criteria for our named executive officers in connection with services performed for us, Enterprise Products Partners or their affiliates. All compensation determinations are discretionary and, as noted above, subject to Mr. Duncans ultimate decision-making authority. EPCO is expected to base the 2007 salaries of our named executive officers on the historical salaries paid to such individuals, market data and responsibilities of our named executive officers that may or may not be related to our business.
The discretionary cash awards paid to each of our named executive officers for work done on behalf of Enterprise Products Partners for the year ended December 31, 2006, were determined by consultation among Mr. Duncan, Mr. Phillips and the senior vice president of Human Resources for EPCO, and were subject to Mr. Duncans final determination. The cash awards, in combination with base salaries, are intended to yield competitive total cash compensation levels for the executive officers and drive performance in support of our business strategies, as well as the performance of Enterprise Products Partners and other EPCO affiliates for which our named executive officers perform services. The portion of any discretionary cash awards paid by EPCO allocable to us and reported as compensation to these executive officers are based on the administrative services agreement. It is EPCOs general policy to pay these awards during the first quarter of each year.
The equity awards granted to our named executive officers in 2006 were determined by consultation among Mr. Duncan, Mr. Phillips and the senior vice president of Human Resources for EPCO, and were approved by the ACG Committee of the general partner of Enterprise Products Partners. These awards (restricted units and unit options) are intended to align the long-term interests of the executive officers of Enterprise Products Partners with those of its unitholders. It is EPCOs general policy to recommend these grants to current employees during the second quarter of each fiscal year. Such awards were immaterial to the combined financial position, results of operation, and cash flows of Duncan Energy Partners Predecessor for all periods presented. See Note 2 of the Notes to Combined Financial Statements of Duncan Energy Partners Predecessor included under Item 8 of this annual report for additional information regarding our accounting for equity awards.
Each of our named executive officers are Class B limited partners of EPE Unit L.P. (the Employee Partnership). These limited partner interests (or profits interests) were awarded and issued during 2005 in connection with the initial public offering of Enterprise GP Holdings and provide additional long-term incentive compensation for our named executive officers. The profits interests awards entitle the holder to participate in the appreciation in value of Enterprise GP Holdings units since its initial public offering and are subject to forfeiture. The vesting date of these awards is December 5, 2011.
At December 31, 2006, our named executive officers held Class B limited partner interests in EPE Unit L.P. as follows: Richard H. Bachmann 7.2%; Michael A. Creel 7.2%; Gil H. Radtke 2.4%; W. Randall Fowler 4.8%; and Michael J. Knesek 2.4%. Based on a closing market price of Enterprise GP Holdings units of $36.97 per unit at December 29, 2006 and taking into account the terms of liquidation outlined in the EPE Unit L.P. partnership agreement, we estimate that the total profits interest would have been worth $14.4 million, of which each named executive officer would have received his proportionate share. Since Enterprise GP Holdings has an indirect interest in us through its limited and
general partner ownership interests in Enterprise Products Partners, our named executive officers may derive some benefit from these profits interests due to our results of operations. We, Enterprise Products Partners and Enterprise GP Holdings do not reimburse EPCO, the Employee Partnership or any of their affiliates or partners, through the administrative services agreement or otherwise, for any expenses related to the Employee Partnership.
EPCO generally does not pay for perquisites for any of our named executive officers, other than reimbursement of certain parking expenses, and expects to continue its policy of covering very limited perquisites allocable to our named executive officers. EPCO also makes matching contributions under its 401(k) plan for the benefit of our named executive officers in the same manner as for other EPCO employees.
EPCO does not offer our named executive officers a defined benefit pension plan. Also, none of our named executive officers had nonqualified deferred compensation during 2006.
We believe that each of the base salary, cash awards, and equity awards fit the overall compensation objectives of us, EPCO and Enterprise Products Partners, as stated above (i.e., to provide competitive compensation opportunities to align and drive employee performance toward the creation of sustained long-term unitholder value, which will also allow us to attract, motivate and retain high quality talent with the skills and competencies required by us).