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This excerpt taken from the EOG DEF 14A filed Mar 30, 2006. REPORT FROM THE COMPENSATION COMMITTEE REGARDING Compensation for the Company’s executive officers is administered by the Compensation Committee of the Board (the “Committee”). It is the responsibility of the Committee to develop compensation philosophy, authorize salary increases, annual bonuses and long-term incentive grants for executive officers, and approve other incentive programs, including stock-based programs, consistent with the philosophy described below. The Committee believes that appropriately balanced compensation components contribute to the success of the Company and that the best compensation philosophy is to put a substantial portion of the total compensation package at risk, tied to both the financial results achieved by the Company and the performance of the Common Stock of the Company. The Committee supports a practice of paying base salaries that approximate the median of the competitive market, and bonuses and long term incentives which deliver above average compensation if financial results and/or shareholder returns exceed the average achieved by peer companies. On an annual basis, the Committee reviews a tally sheet setting forth base salary, annual bonus, long-term incentives awarded, perquisites and other benefits for the Chief Executive Officer and each Named Executive Officer as compared to the industry peer companies included in the “Comparative Stock Performance” section, based on data reported in current proxy statements. Based on this review, the Committee finds the total compensation of the Chief Executive Officer and other Named Executive Officers to be reasonable and not excessive. The Committee also believes that it is in the best interest of shareholders for executive officers to maintain a certain level of ownership in the Company. Therefore, stock ownership guidelines have been established ranging from one times base salary for Vice Presidents up to five times base salary for the Chief Executive Officer. Each executive officer currently meets the stated ownership guideline. Annual Bonuses. Annual bonuses are paid to executive officers under the Company’s Executive Officer Annual Bonus Plan, which was approved by shareholders in 2001. The performance goal necessary for payment of bonuses is the achievement of positive Net Income Available to Common, excluding nonrecurring or extraordinary items, as reported in the Company’s year-end earnings release. This performance goal was met in 2005. The maximum individual bonus for any calendar year is $2,000,000. The Committee may reduce the bonus payable to an executive officer below the maximum amount based on objective or subjective criteria in its sole discretion. The criteria currently considered by the Committee are the reinvestment rate of return of the capital expenditure program, production volume growth, reserve replacement, finding cost of adding new reserves, stock price performance relative to peer companies and the level of cash flow and net income. These goals are designed to address both current financial performance and the long-term development of the Company. No specific formula is used for weighting these performance criteria. For bonuses paid in 2006 for 2005 performance, for retention purposes, the Committee approved delivery of 20% of the bonuses paid to executive officers, other than the Chief Executive Officer, in restricted stock units. The restricted stock units have a current value equal to three times the amount of cash withheld, and will vest after five years of additional service with the Company. Stock Plan. The Company’s 1992 Stock Plan constitutes the long-term incentive component for executive officers of the Company. Under the 1992 Stock Plan, the Committee is authorized to grant awards of stock options, stock appreciation rights, restricted stock and restricted stock units. Historically, stock options have been granted to executive officers on an annual basis. Such stock options become vested over four years and have an option price equal to the fair market value of Common Stock on the date of grant. Beginning with grants made in August 2005, stock options are exercisable for seven years, instead of the historical ten years. Prospectively, the Committee may utilize the other types of awards available under the 1992 Stock Plan in order to 1) balance the long-term objectives of market competitiveness, motivation, and retention, 2) maximize the perceived compensation value to the executive, and 3) minimize the actual cost to the Company, all in the best interest of shareholders. Chief Executive Officer Compensation. Under the provisions of Mr. Papa’s employment agreement with the Company, which was executed on June 15, 2005, Mr. Papa’s annual salary will be no less than $940,000. In August 2005, Mr. Papa was granted 165,000 stock options that were priced at the fair market value of Common 9 Stock on the date of grant, consistent with the stated long-term incentive objectives. The options vest over four years and are exercisable for seven years. In March 2006, Mr. Papa was awarded a bonus for 2005 performance under the Company’s Executive Officer Annual Bonus Plan. The bonus consisted of a cash component of $1,000,000 and, for retention purposes, 14,981 restricted stock units that vest after five years of additional service with the Company. In determining the level of Mr. Papa’s bonus, the Committee considered the criteria previously discussed. Compliance with Internal Revenue Code Section 162(m). Section 162(m) of the Internal Revenue Code, as amended, generally disallows a tax deduction to public companies for compensation over $1 million paid to the Chief Executive Officer and the four other most highly compensated executive officers of a company, as reported in that company’s proxy statement. Qualifying performance-based compensation is not subject to the deduction limit if certain requirements are met. Historically, the Company has structured the key component of its long-term incentives in the form of stock option grants that comply with the statute. The Company’s Executive Officer Annual Bonus Plan also complies with the statute. The Committee is committed to preserving the deductibility of compensation under Section 162(m) whenever practicable, but does grant awards that are non-deductible, such as restricted stock and restricted stock units, when it feels such grants are in the best interest of the Company and its shareholders. In 2005, $2,146,235 of Mr. Papa’s compensation was not deductible. COMPENSATION COMMITTEE George A. Alcorn (Chairman) 10 This excerpt taken from the EOG DEF 14A filed Mar 30, 2005. REPORT FROM THE COMPENSATION COMMITTEE REGARDING Compensation for the Company’s executive officers is administered by the Compensation Committee of the Board of Directors (the “Committee”). It is the responsibility of the Committee to develop compensation philosophy, authorize salary increases, annual bonuses and long-term incentive grants for executive officers, and approve other incentive programs, including stock-based programs, consistent with the stated philosophy.
The Committee believes that appropriately balanced compensation components contribute to the success of the Company and that the best compensation philosophy is to put a substantial portion of the total compensation package at risk, tied to both the financial results achieved by the Company and the performance of the Common Stock of the Company. The Committee supports a practice of paying base salaries that approximate the median of the competitive market, and bonuses and long term incentives which deliver above average compensation if financial results and/or shareholder returns exceed the average achieved by peer companies. On an annual basis, the Committee reviews a tally sheet setting forth base salary, annual bonus, long-term incentives awarded, perquisites and other benefits for the Chief Executive Officer and each Named Executive Officer as compared to the industry peer companies included in the “Co
mparative Stock Performance” section, based on data reported in current proxy statements. Based on this review, the Committee finds the total compensation of the Chief Executive Officer and other Named Executive Officers to be reasonable and not excessive.
The Committee also believes that it is in the best interest of shareholders for executive officers to maintain a certain level of ownership in the Company. Therefore, stock ownership guidelines have been established ranging from one times base salary for Vice Presidents up to five times base salary for the Chief Executive Officer. Each executive officer currently meets the stated ownership guideline.
Annual Bonuses. Annual bonuses are paid to executive officers under the Company’s Executive Officer Annual Bonus Plan, which was approved by shareholders in 2001. The performance goal necessary for payment of bonuses is the achievement of positive Net Income Available to Common, excluding nonrecurring or extraordinary items, as reported in the Company’s year-end earnings release. This performance goal was met in 2004. The maximum individual bonus for any calendar year is $2,000,000. The Committee may reduce the bonus payable to an executive officer below the maximum amount based on objective or subjective criteria in its sole discretion. The criteria currently considered by the Committee are the reinvestment rate of return of the capital expenditure program, production volume growth, reserve replacement, finding cost of adding new reserves, stock price performance relativ
e to peer companies and the level of cash flow and net income. These goals are designed to address both current financial performance and the long-term development of the Company. No specific formula is used for weighting these performance criteria. For bonuses paid in 2005 for 2004 performance, for retention purposes, the Committee approved delivery of 20% of the bonuses paid to executive officers, other than the Chief Executive Officer, in restricted stock units. The restricted stock units have a current value ranging from two to three times the amount of cash withheld, and will vest after five years of additional service with the Company.
Stock Plan. The Company’s 1992 Stock Plan constitutes the long-term incentive component for executive officers of the Company. Under the 1992 Stock Plan, the Committee is authorized to grant awards of stock options, stock appreciation rights, restricted stock and restricted stock units. Historically, stock options have been granted to executive officers on an annual basis. Such stock options become vested over four years, are exercisable for ten years and have an option price equal to the fair market value of Common Stock on the date of grant. In 2004, the Committee added a feature to stock options that limits the potential gain that can be realized by requiring vested options to be exercised if the market price reaches 200% of the grant price for five consecutive trading days. If such options are not exercised upon attainment of the cap, they will be forfeited. Prospectively,
the Committee may utilize the other types of awards available under the 1992 Stock Plan in order to 1) balance the long-term objectives of market competitiveness, motivation, and retention, 2) maximize the perceived compensation value to the executive, and 3) minimize the actual cost to the Company, all in the best interest of shareholders.
7 Chief Executive Officer Compensation. Under the provisions of Mr. Papa’s employment agreement with the Company, which was amended on June 20, 2001, Mr. Papa’s annual salary will be no less than $650,000. In August 2004, based on competitive market data, Mr. Papa’s salary was increased to $940,000. Also in August 2004, Mr. Papa was granted 135,000 stock options (270,000 post-split) that were priced at the fair market value of Common Stock on the date of grant, consistent with the stated long-term incentive objectives. The options vest over four years, are exercisable for ten years, and have a 200% exercise price cap, as described above. In February 2005, Mr. Papa was awarded a bonus for 2004 performance under the Company’s Executive Officer Annual Bonus Plan. The bonus consisted of a cash component of $846,000 and, for
retention purposes, 24,857 restricted stock units that vest after five years of additional service with the Company. In determining the level of Mr. Papa’s bonus, the Committee considered the criteria previously discussed.
Compliance with Internal Revenue Code Section 162(m). Section 162(m) of the Internal Revenue Code, as amended, generally disallows a tax deduction to public companies for compensation over $1 million paid to the Chief Executive Officer and the four other most highly compensated executive officers of a company, as reported in that company’s proxy statement. Qualifying performance-based compensation is not subject to the deduction limit if certain requirements are met. Historically, the Company has structured the key component of its long-term incentives in the form of stock option grants that comply with the statute. The Company’s Executive Officer Annual Bonus Plan also complies with the statute. The Committee is committed to preserving the deductibility of compensation under Section 162(m) whenever practicable, but does grant awards that are non-deductible, such as restr
icted stock and restricted stock units, when it feels such grants are in the best interest of the Company and its shareholders. In 2004, $165,860 of Mr. Papa’s compensation was not deductible.
COMPENSATION COMMITTEE
George A. Alcorn (Chairman)
Charles R. Crisp William D. Stevens H. Leighton Steward Donald F. Textor Frank G. Wisner 8 | EXCERPTS ON THIS PAGE:
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