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Noble Energy DEF 14A 2009 Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. ) Filed by the Registrant þ
Filed by a Party other than the Registrant o Check the appropriate box:
Noble Energy, Inc.
(Name of Registrant as Specified In Its Charter)
Payment of Filing Fee (Check the appropriate box):
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100 Glenborough Drive
Suite 100
Houston, Texas 77067
To the Stockholders of
Noble Energy, Inc.:
The annual meeting of stockholders of NOBLE ENERGY, INC., a
Delaware corporation (“Company”), will be held on
Tuesday, April 28, 2009, at 9:30 a.m., Central Time,
at The Woodlands Waterway Marriott Hotel & Convention
Center, 1601 Lake Robbins Drive, The Woodlands, Texas 77380, for
the following purposes:
The Board of Directors has fixed the close of business on
March 10, 2009 as the record date for the determination of
stockholders entitled to notice of, and to vote at, the meeting
and any adjournment or postponement thereof. Only stockholders
of record at the close of business on the record date are
entitled to notice of, and to vote at, the meeting. A complete
list of the stockholders will be available for examination at
the offices of the Company in Houston, Texas during ordinary
business hours for a period of 10 days prior to the meeting.
A record of the Company’s activities during 2008 and its
financial statements for the fiscal year ended December 31,
2008 are contained in the Company’s 2008 Annual Report on
Form 10-K.
The Annual Report does not form any part of the material for
solicitation of proxies.
All stockholders are cordially invited to attend the meeting.
Stockholders are urged, whether or not they plan to attend
the meeting, to complete, date and sign the accompanying proxy
card and to return it promptly in the postage-paid return
envelope provided, or, alternatively, to vote their proxy by
telephone or the internet according to the instructions on the
proxy card. If a stockholder who has returned a proxy
attends the meeting in person, the stockholder may revoke the
proxy and vote in person on all matters submitted at the meeting.
By Order of the Board of Directors of
Noble Energy, Inc. 
Arnold J. Johnson
Senior Vice President, General Counsel and Secretary
Houston, Texas
March 23, 2009
The Company’s Proxy Statement for the 2009 Annual Meeting
of Stockholders, Annual Report to Stockholders for the fiscal
year ended December 31, 2008 and Annual Report on
Form 10-K
for the fiscal year ended December 31, 2008 are available
at
http://materials.proxyvote.com/655044.
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100 Glenborough Drive
Suite 100
Houston, Texas 77067
For Annual Meeting of Stockholders
To Be Held On April 28, 2009
The accompanying proxy, mailed together with this proxy
statement, is solicited by and on behalf of the Board of
Directors (“Board of Directors” or “Board”)
of Noble Energy, Inc., a Delaware corporation
(“Company”), for use at the annual meeting of
stockholders of the Company to be held at
9:30 a.m. Central Time on Tuesday, April 28,
2009, at The Woodlands Waterway Marriott Hotel &
Convention Center, 1601 Lake Robbins Drive, The Woodlands, Texas
77380, and at any adjournment or postponement thereof. The
approximate date on which this proxy statement and the
accompanying proxy will first be mailed to our stockholders is
March 25, 2009.
Shares represented by valid proxies will be voted at the meeting
in accordance with the directions given. If no directions are
given, the shares will be voted in accordance with the
recommendations of our Board unless otherwise indicated. Any
stockholder of the Company returning a proxy has the right to
revoke the proxy at any time before it is voted by communicating
the revocation in writing to Arnold J. Johnson, Secretary, Noble
Energy, Inc., 100 Glenborough Drive, Suite 100,
Houston, Texas 77067, or by executing and delivering a proxy
bearing a later date. No revocation by written notice or by
delivery of another proxy will be effective until the notice of
revocation or other proxy, as the case may be, has been received
by the Company at or prior to the meeting.
In order for an item of business proposed by a stockholder to be
considered properly brought before the annual meeting of
stockholders as an agenda item or to be eligible for inclusion
in our proxy statement, our By-laws require that the stockholder
give written notice to our Secretary. The notice must specify
certain information concerning the stockholder and the item of
business proposed to be brought before the meeting. The notice
must be received by our Secretary no later than 120 calendar
days before the anniversary of the previous year’s annual
meeting of stockholders; provided, however, that in the event
that (1) no annual meeting was held in the previous year or
(2) the date of the annual meeting has changed by more than
30 days from the date of the previous year’s meeting,
notice by the stockholder must be received no later than the
close of business on the tenth day following the earlier of the
day on which notice of the meeting date was mailed or public
disclosure of the meeting date was made for such notice to be
timely. Accordingly, proper notice of a stockholder proposal for
the 2010 annual meeting must be received by us no later than
December 29, 2009.
Holders of record of our common stock may vote using one of the
following three methods:
By Mail: Stockholders of record may vote by
signing, dating and returning the proxy card in the accompanying
postage-paid envelope.
By Telephone: Stockholders of record may call
the toll-free number on the accompanying proxy card to vote by
telephone, in accordance with the instructions set forth on the
proxy card and through voice prompts received during the call.
By Internet: By accessing the voting website
listed on the accompanying proxy card, stockholders of record
may vote through the internet in accordance with the
instructions included on the proxy card and on the voting
website. Stockholders electing to vote through the internet may
incur telephone and internet access charges.
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Proxies submitted by telephone or the internet are treated in
the same manner as if the stockholder had signed, dated and
returned the proxy card by mail. Therefore, stockholders of
record electing to vote by telephone or the internet should not
return their proxy cards by mail.
Stockholders whose shares of our common stock are held in the
name of a bank, broker or other holder of record (that is,
“street name”) will receive separate instructions from
such holder of record regarding the voting of proxies.
We will appoint one or more inspectors of election to act at the
meeting and to make a written report thereof. Prior to the
meeting, the inspectors will sign an oath to perform their
duties in an impartial manner and according to the best of their
ability. The inspectors will ascertain the number of shares
outstanding and the voting power of each, determine the shares
represented at the meeting and the validity of proxies and
ballots, count all votes and ballots, and perform certain other
duties as required by law.
The inspectors will tabulate the number of votes cast for, or
withheld from, each matter submitted at the meeting for a
stockholder vote. Votes that are withheld will be excluded
entirely from the vote and will have no effect. Under the rules
of the New York Stock Exchange (“NYSE”), brokers who
hold shares in street name have the discretionary authority to
vote on certain “routine” items when they have not
received instructions from beneficial owners. For purposes of
our 2009 annual meeting, routine items include the election of
directors and the ratification of the appointment of our
independent auditor. In instances where brokers are prohibited
from exercising discretionary authority and no instructions are
received from beneficial owners with respect to such item
(so-called “broker non-votes”), the shares they hold
will have no effect on the vote. For purposes of our 2009 annual
meeting, brokers will be prohibited from exercising
discretionary authority with respect to the proposal to approve
the amendment to our 1992 Stock Option and Restricted Stock Plan
(“1992 Plan”).
We are committed to integrity, reliability and transparency in
our disclosures to the public. To this end, we adhere to
corporate governance practices designed to ensure that our
business is conducted in the best interest of our stockholders
and in compliance with our legal and regulatory obligations,
including the listing standards of the NYSE and the rules and
regulations of the Securities and Exchange Commission
(“SEC”). We monitor developments in the area of
corporate governance.
Our Board recently approved an amendment to our By-laws that
will require each of our directors to receive a majority of the
votes cast in uncontested elections. In contested elections, the
vote standard will continue to be a plurality of votes cast. Our
Board also approved an amendment to our Corporate Governance
Guidelines to address situations where a director nominee fails
to receive the required majority vote in an uncontested
election, requiring a director nominee to execute an irrevocable
letter of resignation in order to be nominated by our Board for
election. The tendered resignation will only go into effect if
(1) that nominee does not receive a majority of the votes
cast in the uncontested election and (2) the nominee’s
resignation is accepted by our Board. These amendments will not
apply to the director election covered by this proxy statement,
which will utilize the plurality vote standard, but will become
effective on June 1, 2009.
The standards applied by our Board in affirmatively determining
whether a director is “independent” in compliance with
the listing standards of the NYSE generally provide that a
director is not independent if:
1. the director is, or has been within the last three
years, an employee of the Company, or an immediate family member
(defined as including a person’s spouse, parents, children,
siblings, mothers- and
fathers-in-law,
sons-and
daughters-in-law,
brothers- and
sisters-in-law,
and anyone, other than domestic employees, who shares such
person’s home) is, or has been within the last three years,
an executive officer, of the Company;
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2. the director has received, or has an immediate family
member who has received, during any twelve-month period within
the last three years, more than $120,000 per year in direct
compensation from us, other than director and committee fees and
pension or other forms of deferred compensation for prior
service (provided such compensation is not contingent in any way
on continued service);
3. (a) the director is a current partner or employee
of our internal or external auditor; (b) the director has
an immediate family member who is a current partner of that
firm; (c) the director has an immediate family member who
is a current employee of that firm and personally works on our
audit; or (d) the director or an immediate family member
was, within the last three years, a partner or employee of that
firm and personally worked on our audit during that time;
4. the director or an immediate family member is, or has
been within the last three years, employed as an executive
officer of another company where any of our present executive
officers at the same time serves or served on that
company’s compensation committee; or
5. the director is a current employee, or an immediate
family member is a current executive officer, of a company that
has made payments to, or received payments from, us for property
or services in an amount which, in any of the last three fiscal
years, exceeds the greater of $1 million or 2% of such
other company’s consolidated gross revenues.
In addition to these objective standards, our Board has adopted
a general standard, also in compliance with the NYSE listing
standards, to the effect that no director qualifies as
“independent” unless the Board affirmatively
determines that the director has no material relationship with
the Company that could interfere with the director’s
ability to exercise independent judgment. Our Board exercises
appropriate discretion in identifying and evaluating the
materiality of any relationships directors may have with us or
with parties that conduct business with us.
On February 17, 2009, our Board reviewed our
directors’ relationships with the Company (and those of
their immediate family members), including information related
to transactions, relationships or arrangements between the
Company and our directors or parties related to our directors.
The following is a description of categories or types of
transactions, relationships or arrangements considered by our
Board in making its determination that these directors are
independent:
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After reviewing these transactions, relationships and
arrangements, and after applying the NYSE independence standards
described above, our Board affirmatively determined that no
material relationship existed that would interfere with the
ability of Messrs. Berenson, Cawley, Cox, Grubman, Hedrick,
Urban or Van Kleef to exercise independent judgment and that
each is independent for Board membership purposes. Our Board
also determined that all members of our Audit Committee,
Corporate Governance and Nominating Committee and Compensation,
Benefits and Stock Option Committee are independent under the
NYSE independence standards and applicable SEC rules.
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We comply with, and operate in a manner consistent with,
applicable law prohibiting extensions of credit in the form of
personal loans to, or for the benefit of, our directors and
executive officers.
All of our directors are expected to attend each annual meeting
of our stockholders. A director who is unable to attend the
annual meeting, which it is understood will occur on occasion,
is expected to notify the Chairman of the Board in advance of
such meeting. Attendance at our annual meeting will be
considered by our Governance Committee in assessing each
director’s performance. Last year, all of our directors
attended our annual meeting of stockholders.
Stockholders and other interested parties may contact any member
of our Board, any Board committee or any chair of any such
committee by mail, electronically or by calling our independent,
toll-free compliance line. To communicate by mail with our
Board, any individual director or any group or committee of
directors, correspondence should be addressed to our Board or
any individual director or group or committee of directors by
either name or title. All correspondence should be sent to Noble
Energy, Inc., Attention: Secretary, at 100 Glenborough,
Suite 100, Houston, Texas 77067. To communicate with any of
our directors electronically, stockholders should go to our
website at www.nobleenergyinc.com. Under the
headings “Corporate Governance/Corporate Governance
Guidelines,” you will find a link under Exhibit 3
(“Shareholder Communications with Directors”) that may
be used for writing an electronic message to our Board, any
individual director, or any group or committee of directors. In
addition, stockholders may call our independent, toll-free
compliance line listed on our website under the heading
“Corporate Governance/Audit Committee Complaints
Policy.”
All stockholder communications properly received will be
reviewed by the office of our General Counsel to determine
whether the contents represent a message to our directors. Any
contents that are not in the nature of advertising, promotions
of a product or service, or patently offensive material will be
forwarded promptly to the appropriate director or directors.
Only holders of record of our common stock, par value
$3.331/3
per share, at the close of business on March 10, 2009, the
record date for our annual meeting, are entitled to notice of,
and to vote at, the meeting. A majority of the shares of common
stock entitled to vote, present in person or represented by
proxy, is necessary to constitute a quorum. Abstentions and
broker non-votes on filed proxies and ballots are counted as
present for establishing a quorum. On the record date for our
annual meeting, there were issued and outstanding
173,328,806 shares of common stock. Each share of common
stock is entitled to one vote.
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The following tabulation sets forth, as of March 10, 2009,
information with respect to the only persons who were known to
us to be beneficial owners of more than five percent of the
outstanding shares of our common stock, based on statements
filed with the SEC pursuant to Section 13(g) or 13(d) of
the Securities Exchange Act of 1934, as amended (the
“Exchange Act”).
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PROPOSAL I
As of the date of this proxy statement, our Board consists of
nine directors, seven of whom are independent. Information
regarding the business experience of each nominee is provided
below. All directors are elected annually to serve until the
next annual meeting and until their successors are elected.
Directors will be elected by plurality vote of the shares
present at the 2009 annual meeting, meaning that the director
nominee with the most affirmative votes for a particular slot is
elected for that slot. The proxyholders will vote in favor of
the nine candidates listed below unless contrary instructions
are given.
If you sign your proxy card but do not give instructions with
respect to the voting of directors, your shares will be voted
for the nine persons recommended by our Board, except where
authorization to do so is withheld.
Our Board expects that all of the nominees will be available to
serve as directors as indicated. In the event that any nominee
should become unavailable, however, the proxyholders will vote
for a nominee or nominees who would be designated by our Board
unless the Board chooses to reduce the number of directors
serving on our Board.
Jeffrey L. Berenson — Mr. Berenson,
age 58, is President and Chief Executive Officer of
Berenson & Company, a private investment banking firm
in New York City that he co-founded in 1990. From 1978 until
co-founding Berenson & Company, Mr. Berenson was
with Merrill Lynch’s Mergers and Acquisitions department,
becoming head of that department in 1986 and then co-head of its
Merchant Banking unit in 1988. He was appointed to the Board of
Directors of Patina Oil & Gas Corporation
(“Patina”) in December 2002 and joined our Board upon
completion of our merger with Patina on May 16, 2005.
Mr. Berenson is also a member of the Board of Directors of
Epoch Holdings Corporation.
Michael A. Cawley — Mr. Cawley,
age 61, has served as President and Chief Executive Officer
of The Samuel Roberts Noble Foundation, Inc.
(“Foundation”) since February 1, 1992, after
serving as Executive Vice President of the Foundation since
January 1, 1991. Prior to 1991, Mr. Cawley was the
President of Thompson, Cawley, Veazey & Burns, a
professional corporation, attorneys at law. Mr. Cawley has
served as a trustee of the Foundation since 1988 and is also a
director of Noble Corporation. He has served on our Board since
1995 and has been our Lead Independent Director since 2001.
Edward F. Cox — Mr. Cox, age 62, is
Of Counsel to, and prior to 2009 was a partner in, the law firm
of Patterson Belknap Webb & Tyler
llp, New York, New
York, for more than five years serving as the chair of the
firm’s corporate department and as a member of its
management committee. He is chair of the New York League of
Conservation Voters Education Fund, of the community college and
charter school committees of the Trustees of The State
University of New York and of the State University Construction
Fund. He is also a member of New York’s merit selection
constitutional Commission on Judicial Nomination. In 2006 and
2007, Mr. Cox served as the New York State Chair of Senator
John McCain’s presidential campaign. Mr. Cox has
served on our Board since 1984.
Charles D. Davidson — Mr. Davidson,
age 59, has served as our President and Chief Executive
Officer since October 2000 and has served as Chairman of our
Board since April 2001. Prior to October 2000, he served as
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President and Chief Executive Officer of Vastar Resources, Inc.
(“Vastar”) from March 1997 to September 2000 (Chairman
from April 2000) and was a Vastar director from March 1994
to September 2000. From September 1993 to March 1997, he served
as a Senior Vice President of Vastar. From 1972 to October 1993,
he held various positions with ARCO.
Thomas J. Edelman — Mr. Edelman,
age 58, founded Patina Oil & Gas Corporation and
served as its Chairman and Chief Executive Officer from its
formation in 1996 through its merger with Noble Energy, Inc. in
2005. He co-founded Snyder Oil Corporation and was its President
from 1981 through 1997. He served as Chairman and Chief
Executive Officer and later as Chairman of Range Resources
Corporation from 1988 through 2003. From 1980 to 1981, he was
with The First Boston Corporation and, from 1975 through 1980
with Lehman Brothers Kuhn Loeb Incorporated. Mr. Edelman is
Managing Partner of White Deer Energy LP, an energy private
equity fund, and serves as Chairman of Berenson &
Company. He is also President of Lenox Hill Neighborhood House,
a Trustee and Chair of the Investment Committee of The Hotchkiss
School and a member of the Board of Directors of Georgetown
University.
Eric P. Grubman — Mr. Grubman,
age 51, has served as Executive Vice President of the
National Football League since 2004. He was responsible for
Finance and Strategic Transactions from 2004 to 2006, and has
served as the League’s President of Business Ventures from
2006 to present. He was a private investor from 2001 to 2004,
Co-President of Constellation Energy Group, Inc. from 2000 to
2001 and Partner and Co-Head of the Energy Group at Goldman
Sachs from 1996 to 2000. Mr. Grubman joined our Board on
January 27, 2009.
Kirby L. Hedrick — Mr. Hedrick,
age 56, served as Executive Vice President over upstream
operations for Phillips Petroleum Company from 1997 until his
retirement in 2000. He joined our Board on August 1, 2002.
Scott D. Urban — Mr. Urban, age 55,
served in executive management positions at Amoco and its
successor, BP, from 1977 to 2005. At the time of his retirement
from BP in 2005, he was Group Vice President, Upstream for
several profit centers including North America Gas, Alaska,
Egypt and Middle East and, before that, Group Vice President,
Upstream North Sea. Mr. Urban held various positions at
Amoco including, at the time of its merger with BP, Group Vice
President, Worldwide Exploration. He is also a partner in
Edgewater Energy Partners, an organizational consulting firm for
energy-related industries, and a member of the Board of
Directors of Pioneer Drilling. Mr. Urban joined our Board
on October 23, 2007.
William T. Van Kleef — Mr. Van Kleef,
age 57, served in executive management positions at Tesoro
Corporation (“Tesoro”) from 1993 to 2005, most
recently as Tesoro’s Executive Vice President and Chief
Operating Officer. During his tenure at Tesoro, Mr. Van
Kleef held various positions, including President, Tesoro
Refining and Marketing, and Executive Vice President and Chief
Financial Officer. Before joining Tesoro, Mr. Van Kleef, a
Certified Public Accountant, served in various financial and
accounting positions with Damson Oil from 1982 to 1991, most
recently as Senior Vice President and Chief Financial Officer.
He joined our Board on November 11, 2005. Mr. Van
Kleef is also a member of the Board of Directors of Oil States
International, Inc.
Generally, our By-laws provide that a stockholder must deliver
written notice to our Secretary no later than 120 calendar days
prior to our annual meeting naming the stockholder’s
nominee(s) for director and specifying certain information
concerning the stockholder and nominee(s) as described below
under the section “Evaluation of Director Nominees.”
Accordingly, a stockholder’s nominee(s) for director to be
presented at our 2010 annual meeting of stockholders must be
received by us no later than December 29, 2009.
Our Board unanimously recommends that stockholders vote FOR
the election of each of its nine nominees.
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Our Board held eleven meetings in 2008, consisting of five
regular meetings, its annual organizational meeting and five
special meetings.
Our Governance Committee believes that the minimum
qualifications for serving as a director of the Company are that
a nominee demonstrate, by significant accomplishment in his or
her field, an ability to make a meaningful contribution to our
Board’s oversight of the business and affairs of the
Company and have an impeccable record and reputation for honest
and ethical conduct in both his or her professional and personal
activities. Nominees for director shall be those people who,
after taking into account their skills, expertise, integrity,
diversity, character, judgment, age, independence, corporate
experience, length of service, potential conflicts of interest
and commitments (including, among other things, service on the
boards or comparable governing bodies of other public companies,
private business companies, charities, civic bodies or similar
organizations) and other qualities, are believed to enhance our
Board’s ability to manage and direct, in an effective
manner, the affairs and business of the Company, including, when
applicable, to enhance the ability of committees of our Board to
fulfill their duties and to satisfy any independence
requirements imposed by law, regulation or listing standards of
the NYSE.
In general, nominees for director should have an understanding
of the workings of large business organizations such as the
Company and senior level executive experience, as well as the
ability to make independent, analytical judgments, the ability
to be an effective communicator and the ability and willingness
to devote the time and effort to be an effective and
contributing member of our Board. In addition, our Governance
Committee will examine a candidate’s specific experiences
and skills, time availability in light of other commitments,
potential conflicts of interest and independence from management
and the Company. Our Governance Committee will also seek to have
our Board represent a diversity of backgrounds, experience,
gender and race.
Our Governance Committee will identify potential nominees by
asking current directors and executive officers to notify the
committee if they become aware of persons meeting the criteria
described above who have had a change in circumstances that
might make them available to serve on our Board — for
example, retirement as a CEO or CFO of a public company or
exiting government or military service or business and civic
leaders in the communities in which our facilities are located.
Our Governance Committee also, from time to time, will engage
firms that specialize in identifying director candidates. Our
Governance Committee will also consider candidates recommended
by our stockholders.
Once a person has been identified by our Governance Committee as
a potential candidate, the committee may collect and review
available information regarding the person to assess whether the
person should be considered further. If our Governance Committee
determines that the person warrants further consideration, the
committee Chair or another member of our Governance Committee
will contact the individual. Generally, if the person expresses
a willingness to be considered and to serve on our Board, our
Governance Committee will request information, review the
person’s accomplishments and qualifications, including in
light of any other candidates that the committee might be
considering, and conduct one or more interviews with the
candidate. In certain instances, Governance Committee members
may contact one or more references provided by the candidate or
may contact other members of the business community or other
persons that may have greater first-hand knowledge of the
candidate’s accomplishments. Our Governance
Committee’s evaluation process will be the same whether or
not a candidate is recommended by a stockholder, although our
Board may take into consideration the number of shares held by
the recommending stockholder and the length of time that such
shares have been held.
Our Governance Committee will consider director nominees of
stockholders, provided that such recommendations are made in
writing to the attention of our Secretary and generally received
not less than 120 days before the anniversary date of the
immediately previous year’s annual meeting of stockholders.
A stockholder must include the following information with each
recommendation for a director nominee:
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Bruce A. Smith resigned from our Board effective
February 1, 2008. After evaluation of director candidates
to fill the position vacated by Mr. Smith, Eric P. Grubman
was appointed to our Board on January 27, 2009.
Our Board has four standing committees, whose names, current
members and purposes are as follows:
Audit Committee — William T. Van Kleef, Chair;
Michael A. Cawley; and Scott D. Urban. The primary purpose of
our Audit Committee is to: (1) assist our Board in
fulfilling its responsibility to oversee the integrity of our
financial statements, our compliance with legal and regulatory
requirements, the independent auditor’s qualifications and
independence, and the performance of our internal audit function
and independent auditor and (2) prepare a committee report
as required by the SEC to be included in our annual proxy
statement. Our Audit Committee held eight meetings during 2008.
For more details, see information under the section “Report
of the Audit Committee.”
Compensation, Benefits and Stock Option
Committee — Kirby L. Hedrick, Chair; Jeffrey L.
Berenson; and Edward F. Cox. The purpose of our Compensation
Committee is to: (1) review and approve our goals and
objectives in the areas of: (a) salary and bonus
compensation, (b) benefits, and (c) equity-based
compensation, as they relate to our Chief Executive Officer
(“CEO”), evaluating our CEO’s performance based
on those goals and objectives and, either as a committee or
together with the other independent directors (as directed by
our Board), determine and approve our CEO’s compensation
level based on that evaluation; (2) make recommendations to
our Board with respect to non-CEO executive officer
compensation, incentive-compensation plans and equity-based
plans that are subject to Board approval; and (3) produce
an annual report on executive compensation as required by the
SEC to be included, or incorporated by reference, in our proxy
statement or other applicable SEC filings. Our Board has
delegated authority to our Compensation Committee to determine
and approve our compensation philosophy; the annual salary,
bonus, equity-based compensation and other benefits applicable
to our executive officers; and equity-based compensation
applicable to non-executive-officer employees. Our Compensation
Committee held seven meetings during 2008. For more details, see
information under the section “Compensation Discussion and
Analysis.”
Corporate Governance and Nominating Committee —
Michael A. Cawley, Chair; Jeffrey L. Berenson; Edward F. Cox;
Kirby L. Hedrick; Scott D. Urban; and William T. Van Kleef. The
overall purpose of our Governance Committee is to: (1) take
a leadership role in providing a focus on corporate governance
to enable and enhance our short- and long-term performance;
(2) engage in appropriate identification, selection,
retention and development of qualified directors consistent with
criteria approved by our Board; (3) develop, and recommend
to our Board, a set of corporate governance principles or
guidelines applicable to us; (4) advise our Board with
respect to the Board’s composition, procedures and
committees; and (5) oversee the evaluation of our Board and
management. Our Governance Committee held five meetings during
2008.
Environment, Health and Safety Committee —
Edward F. Cox, Chair; Charles D. Davidson; Thomas J. Edelman;
Kirby L. Hedrick; and Scott D. Urban. The overall purpose of our
Environment, Health and Safety
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Committee is to assist our Board in determining whether we have
appropriate policies and management systems in place with
respect to environment, health and safety
(“EH&S”) matters and to monitor and review
compliance with applicable EH&S laws, rules and
regulations. Our Environment, Health and Safety Committee held
three meetings during 2008.
Each of our directors attended at least 75% of the meetings of
our Board and its committees of which such director was a member
during 2008.
Kirby L. Hedrick, Jeffrey L. Berenson and Edward F. Cox served
on our Compensation Committee for all of 2008. There were no
Compensation Committee interlocks nor insider (employee)
participation during 2008.
PROPOSAL II
The Audit Committee of our Board has appointed the firm of KPMG
LLP to serve as our independent auditor for the fiscal year
ending December 31, 2009. This firm has audited our
accounts since May 2002. Although action by our stockholders on
this matter is not required, our Audit Committee believes that
it is important to seek stockholder ratification of this
appointment in light of the critical role played by our
independent auditor in maintaining the integrity of our
financial controls and reporting.
One or more representatives of KPMG LLP are expected to be
present at our annual meeting, will be able to make a statement
if they so desire, and will be available to respond to
appropriate questions.
Our Board unanimously recommends that stockholders vote FOR
ratification of the appointment of KPMG LLP as our independent
auditor.
PROPOSAL III
APPROVAL
OF AMENDMENT TO
Our 1992 Plan was adopted by our Board and approved by our
stockholders at the 1992 annual meeting of stockholders, and was
most recently amended in 2007. At the 2009 annual meeting, our
stockholders are being asked to approve an amendment to our 1992
Plan to increase the number of shares of common stock authorized
for issuance under the 1992 Plan from 22,000,000 shares to
24,000,000 shares (an increase of 2,000,000 shares).
Our Board unanimously adopted this amendment on March 18,
2009, subject to stockholder approval at our annual meeting.
Our Board recommends approval of the amendment to the 1992 Plan
to enable the continued use of the 1992 Plan for stock-based
grants consistent with the objectives of our compensation
program in order to:
We believe that the success of our compensation program,
including the use of stock-based grants under our 1992 Plan, is
well-evidenced by the performance of our common stock over the
last several years, as we ranked third
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among our peer group in total stockholder return for the
three-year period 2006 through 2008 at 24.9%. Stockholder
return represents the change in capital value of our common
stock for the period indicated, plus dividends, expressed as a
percentage.
The use of stock-based grants under our 1992 Plan continues to
be an important part of our compensation program. Of the
22,000,000 shares currently authorized for issuance under
the 1992 Plan, 2,805,109 shares remain as of March 10,
2009 after January 31, 2009 grants totaling
1,893,679 shares. We do not believe that this leaves
sufficient shares available for more than one additional year of
grants under the 1992 Plan. By increasing the number of shares
authorized for issuance under our 1992 Plan by 2,000,000, a
total of 4,805,109 shares would be available. This increase
would, in essence, replenish the shares consumed in our
January 31, 2009 grants and give us the flexibility to
continue to make stock-based grants over the next two years in
amounts determined appropriate by our Compensation Committee.
The proposed amendment will not be implemented unless approved
by our stockholders. If the proposed amendment is not approved
by our stockholders, the 1992 Plan will remain in effect in its
present form.
As of the record date of March 10, 2009, there were a total
of 173,328,806 shares of our common stock issued and
outstanding. In addition to the shares remaining available for
issuance under the 1992 Plan, there were 568,841 shares
available for grant under the 2005 Stock Plan for Non-Employee
Directors of Noble Energy, Inc. (“2005 Plan”). The
Company had a total of 7,004,445 stock options outstanding with
a weighted average exercise price of $44.55 and a weighted
average remaining term of 6.6 years, and 1,341,989 shares
of restricted stock outstanding as of the record date.
The following is a summary of the principal features of our 1992
Plan as amended to reflect the proposed plan amendment. The
summary does not purport to be a complete description of all
provisions of our 1992 Plan and is qualified in its entirety by
the text of the 1992 Plan, a copy of which (as amended to
reflect the proposed plan amendment) is attached to this proxy
statement as Appendix A. Capitalized terms not otherwise
defined below have the meanings ascribed to them in the 1992
Plan.
Under our 1992 Plan, shares of Common Stock may be subject to
grants of Nonqualified Options, SARs or awards of Restricted
Stock to officers and other employees of the Company or one of
its Affiliates. Our 1992 Plan originally also permitted grants
of Incentive Options but was amended in 1996 to provide, among
other things, that no Incentive Options or any SARs that relate
to such Incentive Options could be granted after
December 9, 2006. Nonqualified Options and any SARs related
thereto may be granted, and Restricted Stock may be awarded,
until the shares of Common Stock available under the 1992 Plan
have been exhausted or the 1992 Plan has been terminated. Shares
of Common Stock covered by a Nonqualified Option that expires or
terminates prior to exercise and shares of Restricted Stock
returned to the Company are again available for grant of
Nonqualified Options and awards of Restricted Stock. Our 1992
Plan contains antidilution provisions that apply in the event of
an increase or decrease in the number of outstanding shares of
Common Stock, effected without receipt of consideration therefor
by the Company, through a stock dividend or through a stock
split, combination or exchange of our shares that results from a
recapitalization, merger or other restructuring in which the
Company is the surviving company. In the event of such increase
or decrease, appropriate adjustments will be made in the maximum
number of shares subject to the 1992 Plan and the number of
shares and option prices under then outstanding Nonqualified
Options.
Our 1992 Plan provides that it is to be administered by a
committee of our Board. The committee must consist of two or
more of our directors, all of whom must be (1) Non-Employee
Directors as defined in
Rule 16b-3
of the Exchange Act and (2) Outside Directors as defined in
Section 162(m) of the Internal Revenue Code of 1986, as
amended (“Internal Revenue Code”), and the regulations
promulgated thereunder. Our Compensation Committee meets these
requirements and thus administers our 1992 Plan. In doing so,
our Compensation Committee determines the grants of Nonqualified
Options and awards of Restricted Stock, the terms and provisions
of the respective agreements covering the grants or awards and
all other decisions concerning the 1992 Plan. Our 1992 Plan
provides that the determination of the committee is binding with
respect to all questions of interpretation and
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application of the 1992 Plan and of Nonqualified Options granted
or awards of Restricted Stock made thereunder, subject to the
express provisions of the 1992 Plan and except as set forth
below under “Stock Options and SARs” and
“Amendment and Duration of the 1992 Plan.”
All of our regular salaried executive officers and other
employees and those of our Affiliates are eligible to
participate in the 1992 Plan. As of March 10, 2009, all of
our executive officers and approximately 492 other current
employees participate in the 1992 Plan.
On March 10, 2009, the reported closing price per share of
our Common Stock on the NYSE was $45.74.
Our 1992 Plan provides that, from time to time during the term
of the plan, the committee, in its sole discretion, may grant
Nonqualified Options, Restricted Stock or any combination
thereof to any employee eligible under the 1992 Plan. Each
person who accepts a Nonqualified Option is required to enter
into an agreement with the Company whereupon the person shall
become a participant in the 1992 Plan in accordance with the
terms of the agreement.
The committee may, from time to time, grant SARs in conjunction
with all or any portion of a Nonqualified Option either at the
time of the initial Nonqualified Option grant or at any time
after the initial grant while the Nonqualified Option is
outstanding. SARs generally will be subject to the same terms
and conditions and exercisable to the same extent as
Nonqualified Options, as described above. SARs entitle an
Optionee to receive without payment to the Company (except for
applicable withholding taxes) the excess of the aggregate fair
market value per share with respect to which the SAR is then
being exercised (determined as of the date of the exercise) over
the aggregate purchase price of the shares as provided in the
related Nonqualified Option. Payment may be made in shares of
already owned Common Stock or in cash, or a combination thereof,
as determined by the committee.
The option price for each Share covered by a Nonqualified Option
shall not be less than the greater of (1) the par value of
the Share or (2) 100% of the Fair Market Value of the Share
at the time the Nonqualified Option is granted. If the Company
agrees to substitute a new option under the 1992 Plan for an old
Nonqualified Option, or to assume an old Nonqualified Option, as
provided for in the 1992 Plan, the option price of the Shares
covered by each new Nonqualified Option or assumed Nonqualified
Option may be otherwise determined by a formula; provided,
however, in no event shall: (a) the excess of the aggregate
Fair Market Value of the Shares subject to the Nonqualified
Option immediately after the substitution or assumption over the
aggregate option price of the Shares be more than the excess of
the aggregate Fair Market Value of all Shares subject to the
option immediately prior to the substitution or assumption over
the aggregate option price of the Shares; or (b) the ratio
of the option price to the Fair Market Value of the stock
subject to the Nonqualified Option immediately after the
substitution or assumption be more favorable to the Optionee
than the ratio of the option price to the Fair Market Value of
the stock subject to the old Nonqualified Option immediately
prior to the substitution or assumption, on a Share by Share
basis.
Our 1992 Plan provides that Restricted Stock may be awarded by
the committee to the eligible recipients as it may determine
from time to time. The eligible recipients are those individuals
who are eligible for Nonqualified Option grants. Restricted
Stock is Common Stock that may not be sold, assigned,
transferred, discounted, exchanged, pledged or otherwise
encumbered or disposed of until the terms and conditions set by
the committee, which terms and conditions may include, among
other things, the achievement of specific goals, have been
satisfied (“Restricted Period”). During the Restricted
Period, unless specifically provided otherwise in accordance
with the terms of the 1992 Plan, the recipient of Restricted
Stock would be the record owner of the shares and have all the
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rights of a stockholder with respect to the shares, including
the right to vote and the right to receive dividends or other
distributions made or paid with respect to the shares.
Our 1992 Plan provides that the committee has the authority to
cancel all or any portion of any outstanding restrictions prior
to the end of the Restricted Period with respect to any and all
of the shares of Restricted Stock awarded to an individual on
the terms and conditions as the committee may deem appropriate.
If the terms and conditions for the removal of the restrictions
on the Restricted Stock that has been awarded to a recipient are
not satisfied, the Restricted Stock is forfeited by the
recipient and returned to the Company.
The Board may at any time amend, suspend or terminate our 1992
Plan; provided, however, the Board may not, without the approval
of the stockholders of the Company, amend the 1992 Plan so as to
(1) increase the maximum number of shares subject thereto,
or (2) reduce the option price per share covered by Options
granted under the 1992 Plan below the price specified in the
1992 Plan. Additionally, the Board may not modify, impair or
cancel any outstanding Option or SARs related thereto, or the
restrictions, terms or conditions applicable to Shares of
Restricted Stock, without the consent of the holder thereof.
The following summary is based upon an analysis of the Internal
Revenue Code, existing laws, judicial decisions, administrative
rulings, regulations and proposed regulations, all of which are
subject to change. Moreover, the following is only a summary of
United States federal income tax consequences and the
consequences may be either more or less favorable than those
described below depending on an employee’s particular
circumstances.
Nonqualified Options. No income will be
recognized by an Optionee for federal income tax purposes upon
the grant of a Nonqualified Option. Upon exercise of a
Nonqualified Option, the Optionee will recognize ordinary income
in an amount equal to the excess of the fair market value of the
shares on the date of exercise over the amount paid for such
shares and, subject to the deduction limitations described
below, the Company will be entitled to a deduction equal to the
ordinary income recognized by the Optionee.
The basis of shares transferred to an Optionee pursuant to
exercise of a Nonqualified Option is the price paid for the
shares plus an amount equal to any income recognized by the
Optionee as a result of the exercise of the option. If an
Optionee thereafter sells shares acquired upon exercise of a
Nonqualified Option, any amount realized over the basis of the
shares will constitute capital gain to the Optionee for federal
income tax purposes.
If an Optionee uses already-owned shares of Common Stock to pay
the exercise price for shares under a Nonqualified Option, the
number of shares received pursuant to the Nonqualified Option
which is equal to the number of shares delivered in payment of
the exercise price will be considered received in a nontaxable
exchange, and the fair market value of the remaining shares
received by the Optionee upon the exercise will be taxable to
the Optionee as ordinary income. If the already-owned shares of
Common Stock are not “statutory option stock” (as
defined in Section 424(c)(3)(B) of the Internal Revenue
Code) or are statutory option stock with respect to which the
applicable holding period referred to in
Section 424(c)(3)(A) of the Internal Revenue Code has been
satisfied, the shares received pursuant to the exercise of the
Nonqualified Option will not be statutory option stock and the
Optionee’s basis in the number of shares received in
exchange for the stock delivered in payment of the exercise
price will be equal to the basis of the shares delivered in
payment. The basis of the remaining shares received upon the
exercise will be equal to the fair market value of the shares.
However, if the already-owned shares of Common Stock are
statutory option stock with respect to which the applicable
holding period has not been satisfied, it is not presently clear
whether the exercise will be considered a disqualifying
disposition of the statutory option stock, whether the shares
received upon the exercise will be statutory option stock, or
how the Optionee’s basis will be allocated among the shares
received.
The ordinary income recognized by an Optionee upon the exercise
of a Nonqualified Option is compensation subject to withholding
for federal income tax purposes, and the Company must make
arrangements with the Optionee to ensure that the amount of the
tax required to be withheld by the Company is paid to the
Internal
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Revenue Service for the benefit of the Optionee. This tax
withholding obligation may be satisfied by an Optionee at the
time of the exercise of a Nonqualified Option by paying cash to
the Company or by transferring already-owned shares of Common
Stock to the Company. If an Optionee transfers already-owned
shares of Common Stock to the Company in order to satisfy the
Company’s tax withholding obligation, the transfer of such
shares will be a taxable event.
If the already-owned shares of Common Stock are not statutory
option stock or are statutory option stock with respect to which
the applicable holding period has been satisfied, the amount by
which the consideration received by the Optionee (i.e., the
amount of the Optionee’s tax withholding that is satisfied
by the transfer, plus any cash paid by the Company to the
Optionee in lieu of a fractional share) exceeds the
Optionee’s basis in the transferred stock will be a capital
gain to the Optionee (or, if the consideration received is less
than the Optionee’s basis, the difference will be a capital
loss to the Optionee). If the already-owned shares of Common
Stock are statutory option stock with respect to which the
applicable holding period has not been satisfied, the transfer
of the shares will be a disqualifying disposition of statutory
option stock.
SARs. There will be no federal income tax
consequences to either the recipient or the Company upon the
grant of SARs. Generally, the recipient will recognize ordinary
income subject to withholding upon the exercise of SARs in an
amount equal to the amount of cash received and the fair market
value of any shares acquired pursuant to the exercise. Subject
to the deduction limitations described below, the Company
generally will be entitled to a corresponding tax deduction
equal to the amount includable in the recipient’s income.
Restricted Stock. If the restrictions on an
award of Restricted Stock are of a nature that the shares are
both subject to a substantial risk of forfeiture and are not
freely transferable within the meaning of Section 83 of the
Internal Revenue Code, the recipient will not recognize income
for federal income tax purposes at the time of the award unless
the recipient affirmatively elects to include the fair market
value of the shares of restricted stock on the date of the
award, less any amount paid therefor, in gross income for the
year of the award pursuant to Section 83(b) of the Internal
Revenue Code. In the absence of an election, the recipient will
be required to include in income for federal income tax purposes
in the year in which the shares either become freely
transferable or are no longer subject to a substantial risk of
forfeiture within the meaning of Section 83 of the Internal
Revenue Code, the fair market value of the shares of restricted
stock on that date, less any amount paid therefor. The Company
will be entitled to a deduction at the time of income
recognition to the recipient in an amount equal to the amount
the recipient is required to include in income with respect to
the shares, subject to the deduction limitations described
below. If a Section 83(b) election is made within
30 days after the date the Restricted Stock is received,
the recipient will recognize ordinary income at the time of
receipt of the Restricted Stock and the Company will be entitled
to a corresponding deduction equal to the fair market value
(determined without regard to applicable restrictions) of the
shares at the time less the amount paid, if any, by the
recipient for the Restricted Stock. If a Section 83(b)
election is made, no additional income will be recognized by the
recipient upon the lapse of restrictions on the Restricted
Stock, but, if the Restricted Stock is subsequently forfeited,
no deduction will be allowed to the recipient with respect to
the forfeiture. Dividends paid to a recipient holding restricted
stock before the expiration of the restriction period will be
additional compensation taxable as ordinary income to the
recipient, unless the recipient made an election under
Section 83(b). Subject to the deduction limitations
described below, the Company generally will be entitled to a
corresponding tax deduction equal to the dividends includable in
the recipient’s income as compensation. If the recipient
has made a Section 83(b) election, the dividends will be
dividend income rather than additional compensation to the
recipient.
If the restrictions on an award of Restricted Stock are not of a
nature that the shares are both subject to a substantial risk of
forfeiture and not freely transferable, within the meaning of
Section 83 of the Internal Revenue Code, the recipient will
recognize ordinary income for federal income tax purposes at the
time of the award in an amount equal to the fair market value of
the shares of Restricted Stock on the date of the award, less
any amount paid therefor. The Company will be entitled to a
deduction at that time in an amount equal to the amount the
recipient is required to include in income with respect to the
shares, subject to the deduction limitations described below.
Limitations on the Company’s Compensation
Deduction. Section 162(m) of the Internal
Revenue Code limits the deduction that the Company may take for
otherwise deductible compensation payable to certain officers of
the Company to the extent that compensation paid to any such
officer for the year exceeds $1.0 million, unless the
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compensation is performance-based. Compensation attributable to
a stock option or stock appreciation right is deemed to satisfy
the requirements for performance-based compensation if
(1) the grant or award is made by a compensation committee
composed of two or more outside directors; (2) the plan
under which the option or right is granted states the maximum
number of shares with respect to which options or rights may be
granted during a specified period to any employee; and
(3) under the terms of the option or right, the amount of
compensation the employee could receive is based solely on an
increase in the value of the stock after the date of the grant
or award. The 1992 Plan has been designed to enable awards of
Options and SARs granted by the committee to qualify as
performance-based compensation for purposes of
Section 162(m) of the Internal Revenue Code.
Our Board unanimously recommends that stockholders vote FOR
the approval of the proposed amendment to our 1992 Plan.
The following tabulation sets forth, as of March 10, 2009,
the shares of common stock beneficially owned by each director,
each named executive officer listed in the Summary Compensation
Table included in this proxy statement, and all directors and
named executive officers as a group.
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EXECUTIVE
COMPENSATION
The first part of our Compensation Discussion and Analysis,
entitled Compensation Considerations in the Current Environment,
discusses how our executive compensation program operates in the
current economic environment. The second part, entitled Overview
of Our Executive Compensation Program, discusses the elements
and provides an analysis of our executive compensation program.
The third part includes a presentation of executive compensation
in tabular form.
Our Compensation Committee evaluated and set 2008 executive
compensation in the context of the Company’s operational
performance, the current global economic environment and the
recent decline in the oil and natural gas commodity market. In
this difficult environment, we believe that our 2008
compensation program is balanced and reasonable. Our goal is to
link compensation strongly to performance through the use of
financial incentives that are tied to the Company’s
operational and financial performance. We do not use highly
leveraged incentives that might encourage adverse short-term
behavior, but instead strive to incentivize consistent,
longer-term performance and achievement of strategic objectives.
We recognize that value-creating performance by a group of
executives does not always translate immediately into
appreciation in our stock price, particularly in periods of
economic stress and commodity price declines. Our Compensation
Committee considered the impact that recent global economic and
commodity market declines have had on our stock price. It is the
committee’s belief that the Company made exceptional
progress on a number of strategic objectives during 2008,
significantly enhancing the future value of the Company.
Performance during 2008 was a one of extreme contrasts. We
reported record net income of $1.4 billion and record
discretionary cash flow of $2.4 billion. We also saw record
annual daily production, up eight percent from 2007. We replaced
147% of our production (before adjustment of reserves for
year-end prices), and had the most successful exploration effort
in the Company’s history with significant discoveries in
West Africa, Israel, and the deepwater Gulf of Mexico. In
contrast to this excellent operational and financial
performance, our stockholder return for the year was a negative
37.5%. Although this was within the median range of our peer
group and the Standard & Poor’s 500, it was
disappointing to experience such a sudden loss in stockholder
value given our operational and financial performance. Over the
longer term, we ranked third among our peer group in total
stockholder return for the three-year period 2006 through 2008
at 24.9%. Taking these factors into account, we reduced the
payout versus target of our 2008 Short Term Incentive Plan award
compared to 2007 by an average of 31.5% for executive officers
other than the CEO. The CEO’s payout was reduced
approximately 45% compared to 2007.
Our executive compensation program is overseen by our
Compensation Committee, with input from our management and
outside compensation consultants.
The purpose of our Compensation Committee is set out in detail
in the committee’s charter but generally is to:
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The committee also serves an important role in setting the
overall compensation philosophy, goals and objectives of the
Company.
Our Board has delegated authority to our Compensation Committee
to determine and approve (1) our compensation philosophy,
(2) the compensation of our non-CEO executive officers, and
(3) equity-based compensation applicable to
non-executive-officer employees.
Our Board appoints our Compensation Committee members and Chair,
and these appointees continue to be members until their
successors are elected and qualified or until their earlier
resignation or removal. Any member of our Compensation Committee
may be removed, with or without cause, by our Board. Our
Governance Committee, after consultation with our Lead
Independent Director, makes recommendations to our Board with
respect to the appointment of Board members to all of its
committees considering, in the case of our Compensation
Committee, criteria such as experience in compensation matters,
familiarity with our management and other key personnel,
understanding of public company compensation issues, time
availability necessary to fulfill committee responsibilities and
independence and other regulatory requirements. No member of our
Compensation Committee participates in any of our employee
compensation programs, and our Board has determined that none of
our Compensation Committee members has any material business
relationship with us.
We believe that these membership criteria are met by Kirby L.
Hedrick, Jeffrey L. Berenson and Edward F. Cox, who currently
serve on our Compensation Committee and did so throughout 2008.
Each has been determined by our Board to meet the NYSE standards
for independence, to be a “Non-Employee Director” as
defined in
Rule 16b-3
under the Exchange Act, and to be an “outside
director” as defined for purposes of Section 162(m) of
the Internal Revenue Code.
Our Compensation Committee’s meeting schedule is determined
annually and meeting agendas are based on an annual calendar of
recurring agenda items approved by the committee. The meeting
agendas may include additional items as determined by the
committee in its discretion, and the committee may also hold
special meetings. Committee meeting agendas are reviewed by our
Lead Independent Director and approved by the committee Chair.
Our Compensation Committee held seven meetings during 2008.
In an effort to minimize the need for special meetings of our
Compensation Committee to address routine compensation matters
involving non-executive-officer employees, the committee has
delegated limited authority to our CEO to (1) grant stock
options and restricted stock to new hires for employment
inducement purposes, (2) approve cash retention payments,
and (3) make adjustments related to change of control
severance plan participation resulting from organizational
changes affecting employees not participating in the Change of
Control Severance Plan for Executives. Actions taken by our CEO
under these delegations are required to be reported to our
Compensation Committee at its next regularly scheduled meeting
and the committee reviews the appropriateness of the delegation
on an annual basis.
Our CEO and our Vice President — Human Resources
generally attend Compensation Committee meetings and provide
input to the committee with respect to executive compensation,
key job responsibilities, performance objectives and
compensation trends. They also coordinate with our compensation
consultant to ensure that committee requests regarding executive
compensation matters are addressed. We believe that our CEO and
Vice
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President — Human Resources are best qualified to
support the committee in these areas given their understanding
of our business and personnel, compensation program and
competitive environment. In this supporting role they may
provide information and recommendations relevant to establishing
performance measures, weightings, targets, and similar items
that affect compensation, including that of our CEO and other
executive officers, and may request that our Compensation
Committee schedule special meetings to address executive
compensation matters as appropriate. Our CEO is closely involved
in assessing the performance of our executive officers, and
advising our Compensation Committee in that regard. Our CEO and
Vice President — Human Resources may also communicate
directly with our compensation consultant in this supporting
role. Our Compensation Committee is not obligated to accept our
management’s recommendations with respect to executive
compensation matters, and meets in executive session to discuss
such matters outside of the presence of our management. During
2008, the committee held four executive sessions.
Our Compensation Committee may retain, at our expense,
independent compensation consultants it deems advisable to
assist it in executive compensation matters. The committee meets
with the compensation consultants, with and outside the presence
of our management, to review findings based on market research
regarding executive compensation and considers those findings in
determining and making adjustments to our executive compensation
program.
The committee retained Towers Perrin as its independent
compensation consultant for purposes of reviewing our 2008
executive compensation program and providing comparative market
data on compensation practices and programs based on an analysis
of our peer companies and other factors. The committee further
reviewed its compensation consultant needs in January 2009,
considering Towers Perrin’s past performance and its
familiarity with our executive compensation program and the
compensation programs of our peer companies and sector, the
benefits of retaining the same consultant compared to those of
engaging a different consultant, and independence taking into
account that of the total approximate $81,000 we paid to Towers
Perrin in 2008, approximately $66,000 represented consulting
services in the area of executive compensation. Based on this
review, our Compensation Committee found Towers Perrin to be
independent and retained Towers Perrin as its compensation
consultant for 2009.
Towers Perrin also provided compensation consulting services to
our Governance Committee in 2008, and in 2009 continues to
assist it in reviewing and determining fees and equity
compensation paid or awarded, as the case may be, to our
non-employee directors.
When making compensation decisions, we also look at the
compensation of our CEO and other executive officers relative to
that paid to similarly-situated executives at companies that we
consider to be our peers — this is often referred to
as “benchmarking.” We consider benchmarking data in
determining executive officer base salary, our short term
incentive plan target bonus percentage factors, equity grant
levels and the overall structure of our compensation program. We
believe, however, that a benchmark should be just
that — a point of reference for
measurement — but not the determinative factor for our
executives’ compensation. Because comparative compensation
information is just one of the several analytic tools that are
used in setting executive compensation, our Compensation
Committee has discretion in determining the nature and extent of
its use. Further, given the limitations associated with
comparative pay information for setting individual executive
compensation, the committee may decide to not use comparative
compensation information at all in the course of making
compensation decisions.
Our Compensation Committee established our current peer group of
companies in 2008, which consists of larger and smaller publicly
traded oil and gas exploration and production companies that
have similar operating and financial characteristics. With the
assistance of our CEO and our compensation consultant, as
appropriate, our Compensation Committee reviews the composition
of the peer group annually to ensure that companies remain
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relevant for comparative purposes. After review in January 2009,
our Compensation Committee retained the same compensation peer
group from 2008. Our compensation peer group, therefore,
consists of:
We believe that this group of companies continues to be
representative of the sector in which we operate, and was chosen
for a variety of reasons including each of the companies’
market size and geographic scope of operations, the nature and
relative complexity of their businesses and the roles and
responsibilities of their executive officers.
When making executive compensation decisions, our Compensation
Committee analyzes total compensation with a focus on base
salary, short term incentive plan and long term incentive plan
elements. To facilitate this analysis, our CEO and Vice
President — Human Resources work with our compensation
consultant to provide the committee comparative compensation
information in these areas for each executive officer, along
with summary information on post-employment compensation trends,
benefits and other relevant factors. This information is
compiled in written report format and includes recent publicly
available information and other market data, as well as tally
sheets detailing the base salary, short term incentive plan and
long term incentive plan elements. We believe that this
information provides our Compensation Committee with a
sufficient basis to evaluate executive officer compensation by
presenting a comprehensive review of compensation data on each
executive officer and the opportunity for related discussion
with our compensation consultant.
While comparisons to compensation levels at companies in our
compensation peer group are helpful in assessing the overall
competitiveness of our executive compensation program, we
believe that our program must also be internally consistent and
equitable. In its review of total compensation, our Compensation
Committee considers the relationship between our CEO’s
total compensation and that of our other executive officers. The
committee has not adopted a formal policy regarding internal pay
equity, but in 2008 concluded that CEO compensation was
equitable compared to that of our Chief Operating Officer (COO)
and other named executive officers in recognition of the
CEO’s broad responsibility and accountability for the
Company’s strategy and operations, compliance and controls,
investor relations and role as Chairman of the Board of
Directors. The 2008 total compensation of the COO was likewise
found to be equitable compared to that of the next named
executive officer in recognition of the COO’s broad
responsibility for the Company’s worldwide exploration and
production operations, our Compensation Committee’s views
on that position relative to the other named executive officer
positions and the fact that two of the other named executive
officers report directly to the COO. The Compensation Committee
likewise concluded that the compensation of our other named
executive officers was equitable in light of their respective
roles, responsibilities and reporting relationships.
Our executive compensation program is designed to incentivize
consistent, longer-term performance and achievement of strategic
objectives in a manner that will:
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We believe that linking executive compensation to Company
performance is in the best interest of our stockholders and, as
an individual’s level of responsibility increases, a
greater portion of total compensation should be at risk and the
mix of total compensation should be weighted more heavily in
favor of incentive-based compensation including equity-linked
compensation. As performance goals are met or exceeded,
resulting in increased value to stockholders, our executive
officers should be rewarded commensurately. Our Compensation
Committee believes that our 2008 executive compensation program
fulfilled these objectives.
Elements
of Our Executive Compensation Program
Our executive compensation program consists of four principal
elements: base salary, a short-term incentive plan, a long-term
incentive plan and post-employment compensation. The following
is a discussion of each of these elements and their respective
roles in our compensation program.
Base salary provides a cash foundation for our total
compensation program that helps us attract and retain
individuals of high quality. Our Compensation Committee believes
that base salaries for executive officers should be competitive
with comparable positions in peer companies to allow us to
attract and retain such individuals. The policy of our
Compensation Committee generally is to establish base salary
levels that approximate the market median. Competitive
information is obtained through oil and gas industry
compensation surveys and other analyses conducted by our
compensation consultant. Our Compensation Committee analyzes
this information and makes appropriate annual adjustments. Based
on the results of market data provided by Towers Perrin
regarding 2008 executive compensation, adjustments were made in
2008 to certain executive officers’ base salaries to more
closely approximate the market median.
Our short-term incentive plan (“STIP”) is a
performance-based annual incentive bonus plan that is payable in
cash and available to all of our full-time employees, including
executive officers. It provides a performance-based incentive
beyond base salary that is designed to motivate performance and
compensate employees for the value of their annual
contributions. In addition, given its annual nature and
discretionary component, the STIP has flexibility to respond to
changing market conditions.
The target STIP bonus for an employee is the employee’s
base salary at year-end multiplied by the percentage factor
assigned to the employee’s salary classification. Target
bonus percentage factors range from 6 to 100%, with factors of
100% for the CEO and from 75% to 90% for the other named
executive officers, with the differences primarily attributable
to each officer’s respective scope of responsibility within
the Company. Payout under the plan may range from 0 to 2.5 times
the aggregate target bonus pool for all employees.
In January of each year, our Compensation Committee approves
annual STIP performance-based measures, including their relative
weighting and specific targets, in addition to a discretionary
component to be determined by the committee as discussed below.
The measures, weighting and targets are communicated to our
executive officers at that time. The 2008 measures approved by
our Compensation Committee on January 21, 2008 accounted
for 50% of the STIP formula and consisted of quantitative
targets for proved reserve additions, production, controllable
unit costs, and discretionary cash flow. Discretionary cash flow
is a non-GAAP financial measure that is calculated by adding
back depreciation, depletion, amortization and various other
non-cash expense items to net income.
Our Compensation Committee approves the target for each
performance measure after considering prior year financial and
operational results, the Board-approved budget, planned projects
and capital spending plans for the upcoming year. Our
Compensation Committee also considers that the achievement of
those targets can be significantly affected by availability of
labor and equipment, acquisitions and sales, weather, product
demand and pricing, competition and other industry conditions
that cannot be determined with certainty at the time the targets
are set. This is particularly true in the current economic and
commodity price environment. We believe that our targets are set
aggressively in light of these variables and require achievement
of significant performance.
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The targets for the annual STIP performance measures may include
certain adjustments that are not normally included in publicly
reported results. For instance, the production target is
significantly reduced from reported production by discounting
gas volumes sold at a lower price in Equatorial Guinea. In
addition, any significant acquisitions or divestitures are
excluded when considering performance against the production and
discretionary cash flow targets. Also, the reserve target is
adjusted at the end of the year to reflect actual capital
expenditures and the discretionary cash flow target excludes
deferred taxes. Including these adjustments, the targets for
2008 were 120.7 million barrels of oil equivalent for
proved reserve additions, 187.2 thousand barrels oil equivalent
per day for production, the 50th percentile relative to
compensation peer group for controllable unit costs for the
12-month period ending September 30, 2008 and
$1.72 million in discretionary cash flow. The first three
targets were weighted 14% each and the discretionary cash flow
target was weighted 8%. The remaining 50% is the discretionary
component determined by the Compensation Committee.
Payout curves were approved for each measure at the time targets
were set, ranging from a factor of 0 to 2.5, with a 1.0 factor
at each target. The Company’s 2008 performance exceeded the
targets for production, controllable unit costs and
discretionary cash flow, but fell short of the target for proved
reserve additions due to commodity price-related revisions. Our
Compensation Committee reviewed information provided by
management on actual performance for each measure as applied to
the measure’s payout curve to determine the bonus factor
for that measure. Each bonus factor was then multiplied by the
weighting for its respective measure, with the sum of the four
bonus factors, as adjusted for weighting, yielding the
performance-based STIP component.
The discretionary component, which accounted for the remaining
50% of the 2008 STIP formula, was determined by our Compensation
Committee based on the committee’s review of overall
Company performance, including other performance-based measures
such as exceptional exploration results, strong operational
performance after adjusting for the impact of Hurricane Ike,
average relative stockholder return versus peers, and the
negative annual stockholder return.
The sum of the performance-based and discretionary components
was applied to the Company’s aggregate target bonus pool to
determine our total bonus amount to be paid. This amount was
then allocated between executive officers and other employees.
In the case of executive officers, the Committee considered the
performance of the CEO as measured against operational and
financial goals submitted by the CEO earlier in the year, as
well as the CEO’s assessment of the performance of the
other executive officers as measured against goals each
submitted earlier in the year for his or her business unit or
organization, and allocated the pool based on that assessment of
individual performance and each executive officer’s
respective target bonus percentage factor. A cash payout under
the plan based on the Company’s 2008 performance occurred
in February 2009.
The 2009 performance-based measures and specified targets were
approved by our Compensation Committee on January 26, 2009
and communicated to our executive officers. Our Compensation
Committee elected to retain the same four performance-based
measures used in 2008 with the same relative weighting, but
different specified targets. We believe that the approved
targets for 2009 will be appropriately difficult to achieve
since they will be affected by many of the same challenges and
uncertainties as described above. While those targets are
disclosed above in the context of historical 2008 performance,
we believe that the disclosure of 2009 targets would result in
competitive harm to us and are therefore omitted since
(1) we are engaged in a highly competitive business,
(2) we may pursue opportunities in areas without first
publicly disclosing our intention to do so and
(3) disclosure of these targets might enable our
competitors to determine our strategic areas of interest and
priorities throughout the year. We also do not believe that the
disclosure of 2009 targets is material to an understanding of
our 2008 executive compensation program as covered by this proxy
statement.
Our long-term incentive plan (“LTIP”) was approved by
our Compensation Committee and adopted by our Board on
January 27, 2004 and is primarily an equity-linked plan
that is available to our executive officers and certain other
key employees determined on an annual basis. It is designed to
attract, motivate and retain individuals of high quality by:
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Under our LTIP, which was effective January 1, 2004, grants
or awards of stock options, restricted stock and performance
units were made in 2004, 2005 and 2006. The stock options and
restricted stock were granted under our 1992 Plan, which was
approved by our stockholders in 1992 and most recently amended
in 2007. The 1992 Plan permits the use of nonqualified stock
options, with or without stock appreciation rights, and
restricted stock. Pursuant to the 1992 Plan, stock options may
be granted for a period of up to ten years at fair market value,
as defined in the 1992 Plan, on the date of grant and upon such
terms and conditions, consistent with the provisions of the
plan, as are specified by our Compensation Committee at the time
of grant. Restricted stock may be granted by our Compensation
Committee subject to such terms and conditions as may be set by
the committee. Restricted stock granted under the LTIP in 2004,
2005 and 2006 generally vests after three years, provided that
certain performance goals are satisfied during the relevant
three-year performance period; specifically, that total
stockholder return over that period must be at or above the
25th percentile of total stockholder return for our
compensation peer group as defined at the time of the grant. In
January 2009, our Compensation Committee reviewed the
Company’s performance for the three-year performance period
covered by the restricted stock granted in 2006, confirming that
the relevant performance goal necessary for vesting had been
achieved.
Performance units awarded under our LTIP in 2004, 2005 and 2006
vest and are paid out in cash at the end of the three-year
period following the date of the award based on the levels of
achievement of certain performance goals during the three-year
period. Performance units have a target value of $1.00 per unit
with a maximum payout of $2.00 per unit. Our Compensation
Committee established the performance goals and target award
levels prior to the beginning of each performance period. For
2006 awards with a three-year performance period ending
December 31, 2008, the performance goals were growth in
reserves and production per share, both debt-adjusted, and total
stockholder return, in each case relative to our compensation
peer group as defined at the time of the award. The payout of
performance units awarded in 2006 will be determined at a
meeting of our Compensation Committee in April 2009. Subject to
final audit and approval by our Compensation Committee, the
preliminary estimate of payout for the units awarded in 2006 is
$1.78 per unit, which was used in making the estimate shown in
the compensation tables. This estimate is based on the Company
achieving the highest stockholder return, the highest
debt-adjusted production growth per share and fifth highest
debt-adjusted reserve growth per share over the three-year
period relative to the compensation peer group.
In January 2007, and with information regarding competitive
compensation practices from Towers Perrin, our Compensation
Committee reviewed the effectiveness of the LTIP structure in
light of our LTIP and compensation program objectives. Based on
that review, our Compensation Committee concluded that a
combination of stock options and time-vested restricted stock
would reduce plan complexity and more effectively meet our
compensation program objectives. Accordingly, our Compensation
Committee suspended the granting of performance-based restricted
stock and performance units under the LTIP in 2007, and began
making 1992 Plan grants of stock options that vested ratably
over a three-year period and restricted stock that did not vest
until the end of the third year. In January 2009 our
Compensation Committee made grants of stock options on the same
terms but, in order to facilitate grant administration while
encouraging retention consistent with our compensation program
objectives, began making 1992 Plan grants of restricted stock
that time-vested 20% after year one, an additional 30% after
year two and the remaining 50% after year three.
Stock options and shares of restricted stock are granted to our
executive officers under our 1992 Plan. Our Compensation
Committee approves all such grants, which are determined based
on input from the CEO and market data provided by our
compensation consultant. Grants for the CEO and other executive
officers are approved by our Compensation Committee and
discussed with our Board, outside the presence of the CEO or
other executive officers. In approving such grants, our
Compensation Committee also assesses the reasonableness of grant
levels
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considering the Company’s relative performance versus our
compensation peer group on measures such as total stockholder
return, debt-adjusted per share growth in reserves and
production versus our compensation peer group, executive officer
total compensation and internal pay equity.
The regular Board and Compensation Committee meeting schedule
for the upcoming year is set in April of the prior year, with
regular Board meetings held in January, April, July, October and
December. Our Compensation Committee meetings are usually held
the day before each Board meeting. The timing of these meetings
is not determined by executive officers and is usually in
advance of the announcement of earnings. We do not time the
release of material non-public information for the purpose of
affecting the values of executive compensation. Our Compensation
Committee may be aware of approximate earnings results at the
time of making equity grant decisions, but it does not adjust
the size or timing of grants to reflect possible market reaction.
Generally, annual stock option and restricted stock grants are
approved at the January meeting of our Compensation Committee.
Stock options and restricted stock are granted annually on
February 1 (or the preceding business day if February 1 falls on
a Saturday, Sunday or holiday). It is our policy to make grants
to executive officers and other employees at the same time.
However, specific grants of stock options or restricted stock
may be approved at other regular or special meetings to
recognize the completion of a significant transaction, a change
in an employee’s responsibility or a specific achievement,
or as an inducement to, or for the retention of, employment. No
such special grants were made to executive officers in 2008. We
communicate grants to executive officers and other employees
shortly after the date of approval, in accordance with our
customary human resource practices.
Stock option grants represent the right to purchase shares of
our common stock over a period of up to ten years at fair market
value, as defined in the 1992 Plan, on the date of grant and
upon such terms and conditions, consistent with the provisions
of the plan, as are specified by our Compensation Committee at
the time of grant. The 1992 Plan defines “fair market
value” for grant purposes as the average of the reported
high and low trading price of our common stock on the NYSE on
the date of grant (or if there was no reported sale on such
date, on the last preceding date on which any reported sale
occurred). We believe that this method of determining fair
market value is neutral to the use of the closing price of our
common stock and provides a valid representation of fair market
value. Therefore, consistent with the terms of our 1992 Plan, we
continue to grant stock options on this basis.
We encourage, but do not require, stock ownership by our
executive officers and directors. We also do not require our
executive officers and directors to hold a substantial portion
of their equity awards until they retire from service.
Historically, our executive officers have received periodic
grants of shares of restricted stock and stock options under our
1992 Plan, consistent with the objectives of our executive
compensation program, providing them with meaningful equity
ownership in the Company and allowing them to demonstrate their
commitment as stockholders in the Company. We periodically
review stock ownership by our executive officers and directors
and believe that they generally maintain shares sufficiently
significant in value to align their interests with those of our
stockholders. If circumstances change, we will review whether
stock ownership or holding requirements are appropriate.
Our post-employment compensation is provided under qualified and
non-qualified defined benefit plans, qualified and non-qualified
defined contribution plans, and either individual change of
control agreements or, alternatively, a change of control plan.
Through its various components, our post-employment compensation
facilitates our efforts to retain individuals of high quality
and support a long-standing internal culture of loyalty and
dedication to our interests.
Our qualified defined benefit plan (“Retirement Plan”)
provides employees originally hired prior to May 1, 2006,
which includes our named executive officers, with retirement
income benefits commencing upon retirement
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after attaining the normal retirement age of 65 or upon early or
deferred vested retirement after attaining age 55 and
completing 5 years of vesting service. Early retirement
reductions apply if retirement benefits are commenced prior to
age 65. The amount of an employee’s monthly Retirement
Plan benefit will depend upon the employee’s final average
monthly compensation, age and the number of his or her years of
credited service (which is limited to a maximum of
30 years). Monthly Retirement Plan benefits commencing upon
retirement after attaining the normal retirement age of 65 are
calculated using the greater of the following two formulas:
Final average monthly compensation generally means the
employee’s average monthly compensation from the Company
for the 60 consecutive months prior to retirement that results
in the highest average monthly compensation for the employee.
The compensation taken into account for Retirement Plan purposes
includes the employee’s salary and STIP payment. The annual
amount of compensation that can be taken into account for
Retirement Plan purposes is limited by the Internal Revenue
Code. This annual compensation limit was $230,000 for 2008 and
is $245,000 for 2009. The maximum annual benefit that may be
paid to an employee under our Retirement Plan is also limited by
the Internal Revenue Code. This maximum annual benefit was
$185,000 for 2008 and is $245,000 for 2009.
Our Compensation Committee reviewed our Retirement Plan in 2006
and concluded that an enhanced defined contribution plan would
be better aligned with our compensation program objectives
because it would offer employees more investment choices, be
portable and be more cost-effective to the Company. Accordingly,
beginning on May 1, 2006, our Retirement Plan was closed to
new participants and new employees became eligible to instead
receive an enhanced Company contribution in the qualified
defined contribution plan described below. Employees originally
hired prior to May 1, 2006, which include all of our named
executive officers, continue to accrue benefits under the
Retirement Plan.
We amended our Retirement Plan effective January 1, 2008 to
allow existing plan participants to elect to receive a lump-sum
distribution upon separation from service. Lump sums are
calculated using Internal Revenue Service mandated rates.
Our non-qualified defined benefit plan (“Restoration
Plan”) is an unfunded plan that provides the benefits under
the Retirement Plan’s benefit formula that cannot be
provided by the Retirement Plan because of the annual
compensation and annual benefit limitations applicable to the
Retirement Plan under the Internal Revenue Code. The amount of
an employee’s monthly Restoration Plan benefit will depend
upon the employee’s final average monthly compensation, age
and the number of his or her years of credited service (which is
limited to a maximum of 30 years). Existing plan
participants were allowed to make a one-time election prior to
January 1, 2008 to receive plan benefits in a lump sum
payment upon separation from service, as permitted by the
transition relief provisions of Internal Revenue Code
Section 409A. Restoration Plan benefits are calculated
using the same methodology utilized for our Retirement Plan.
Employees originally hired prior to May 1, 2006, which
include all of our named executive officers, continue to accrue
benefits under the Restoration Plan.
Our qualified defined contribution plan (“Thrift
Plan”) allows employees to make pre-tax contributions to
the plan out of their basic compensation. For the purposes of
the Thrift Plan, basic compensation generally means cash
compensation, including overtime but excluding incentive
payments, bonuses, allowances and other extraordinary
remuneration. The amount of an employee’s basic
compensation taken into account under the Thrift Plan cannot
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exceed the Internal Revenue Code limit, which was $230,000 for
2008 and is $245,000 for 2009. The annual contribution made by
an employee to the Thrift Plan cannot exceed 50% of his or her
basic compensation and is limited to a maximum contribution
amount specified under the Internal Revenue Code (which for 2008
was $15,500 and is $16,500 for 2009, plus a
catch-up
contribution of $5,000 for 2008 and $5,500 for 2009 for
employees who are at least 50 years of age). An
employee’s pre-tax contributions (other than
catch-up
contributions) made to the Thrift Plan are matched by the
Company on a dollar-for-dollar basis up to 6% of the
employee’s basic compensation. In addition, beginning in
2006, the Company makes the following age-weighted contribution
to the Thrift Plan for each participant whose initial employment
date with the Company is on or after May 1, 2006 (which
does not include any of our named executive officers) and who is
employed by or on authorized leave of absence from the Company
on the last day of the calendar year (or whose retirement,
permanent disability or death occurred during such year while
employed by or on authorized leave of absence from the Company):
The contributions made to our Thrift Plan by or for a
participant are credited to accounts maintained for such
participant under the plan. The amounts credited to a
participant’s accounts are invested at the direction of the
participant in various investment fund options available under
the Thrift Plan, including investment in shares of our common
stock. The amounts credited to a participant’s accounts
that are attributable to his or her pre-tax contributions are
immediately 100% vested. Amounts attributable to the
Company’s matching contributions become 34% vested upon the
completion of one year of service, 67% vested upon the
completion of two years of service, and 100% vested upon the
completion of three years of service. The amounts attributable
to the Company’s age-weighted contributions become vested
after three years of service. The amounts credited to a
participant’s accounts become distributable upon the
participant’s termination of employment with the Company,
and certain amounts are available for loans, hardship
distributions and in-service withdrawals.
Our non-qualified deferred compensation plan (“Deferred
Compensation Plan”) allows executive officers, and certain
other employees, to save for retirement in a tax-effective way
at minimal cost to us. Under the Deferred Compensation Plan,
participants are allowed to defer portions of their salary and
bonus and to receive certain matching contributions that would
have been made to our Thrift Plan if the Thrift Plan had not
been subject to Internal Revenue Code compensation and
contribution limitations. Under this unfunded program, amounts
deferred by the participant are credited annually with interest
at a rate equal to the greater of 125% of the
120-month
rolling average of
10-year
U.S. Treasury Notes or the
120-month
rolling average of the prime rate as published in The Wall
Street Journal.
We have adopted change of control arrangements for our executive
officers and certain other employees. These arrangements are
intended to preserve morale and productivity and encourage
retention in the face of the disruptive impact of an actual or
rumored change of control of the Company. Based on information
provided by Towers Perrin, we believe that these arrangements
are common practice and align our executive officer interests
with those of our stockholders by enabling our executive
officers to consider corporate transactions that are in the best
interest of stockholders without undue concern over whether the
transactions may jeopardize their continued employment.
A change of control will be deemed to have occurred under our
change of control arrangements if any of the following events
occurs:
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We believe that these change of control events are an accurate
depiction of circumstances that could reasonably be expected to
result in a material change in the leadership and direction of
the Company, creating uncertainties among employees and
executive officers in such areas as the continuity of
management, continued employment opportunities, and our ability
to execute existing programs.
All of our change of control arrangements include provisions
regarding severance benefits that our executive officers and
certain other employees may be entitled to receive if they are
terminated within two years following a change of control of the
Company. Under these arrangements, if a named executive officer
is terminated for any reason (other than for cause, disability
or death) within two years after a change of control, we will
then pay or provide the following to that named executive
officer:
If we terminate the named executive officer for cause, no
benefit is payable to, or with respect to, that named executive
officer under our change of control arrangements. A termination
for cause may only be made by the affirmative vote of a majority
of the members of our Board.
Our change of control arrangements also provide for a tax
gross-up
payment to the named executive officer that will fully offset
the effect of (1) any excise tax imposed by
Section 4999 of the Internal Revenue Code upon the benefits
payable under such arrangements (or under any other Company
plan, arrangement or agreement), and (2) any federal, state
or local income tax or additional Section 4999 excise tax
that is attributable to the tax
gross-up
payment.
Our change of control arrangements include a plan or, in the
alternative, individual change of control agreements.
Specifically, on October 24, 2006, our Board approved a
Change of Control Severance Plan for Executives (“Executive
Change of Control Plan”), which became effective on that
date. The plan covers our executive officers and certain key
employees, provided that they are not already party to
pre-existing change of control agreements with us. All of our
named executive officers, except Mr. Cook, are parties to
pre-existing change of control agreements and therefore may not
participate in the plan at this time. Mr. Cook currently
participates in our Executive Change of Control Plan.
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Our Severance Benefit Plan (“Severance Benefit Plan”)
is an unfunded plan that provides for severance benefits to
eligible employees, including our executive officers, in certain
instances based upon years of completed service. The severance
benefits are comprised of:
Perquisites: We do not consider perquisites to
be a principal element of executive compensation. In 2008,
certain of our executive officers received non-material personal
benefits in the form of club membership dues reimbursement.
We offer a number of other benefits to our executive officers
pursuant to benefit programs that provide for broad-based
employee participation. These benefit programs include medical,
dental and vision insurance, long-term disability
(“LTD”) and short-term disability insurance, life and
accidental death and dismemberment (“AD&D”)
insurance, health and dependent care flexible spending accounts,
relocation/expatriate programs and services, educational
assistance, employee assistance and certain other benefits.
We have entered into an indemnification agreement with each of
our non-employee directors and our executive officers. These
agreements provide for us to indemnify such persons against
certain liabilities that may arise by reason of their status or
service as directors or executive officers and to advance their
expenses incurred as a result of a proceeding as to which they
may be indemnified. We also cover such persons under a
directors’ and officers’ liability insurance policy
that we choose, in our discretion, to maintain. These
indemnification agreements are intended to provide
indemnification rights to the fullest extent permitted under
applicable law and are in addition to any other rights the
individual may have under our Certificate of Incorporation,
By-laws and applicable law. We believe these indemnification
agreements enhance our ability to attract and retain
knowledgeable and experienced executive officers and
non-employee directors.
Under Section 409A of the Internal Revenue Code, amounts
deferred for an executive officer under a nonqualified deferred
compensation plan may be included in gross income when vested
and subject to a 20% or more additional federal tax, unless the
plan complies with certain requirements related to the timing of
deferral election and distribution decisions. Effective
January 1, 2009, our Board approved the amendment of the
following compensatory plans and arrangements in which our named
executive officers participate to comply with recently issued
Section 409A final regulations: the Restoration Plan and
the Deferred Compensation Plan.
Section 162(m) of the Internal Revenue Code may limit our
ability to deduct annual compensation in excess of $1,000,000
that is paid to our CEO and other named executive officers,
unless that compensation is “performance-based
compensation” within the meaning of Section 162(m) and
the regulations promulgated thereunder. We believe that all of
the stock options granted under the 1992 Plan qualify as
performance-based compensation and therefore are not subject to
the deduction limitation of Section 162(m). However, the
salary and STIP payouts paid to our executive officers, certain
restricted stock awards, and certain payments provided for under
our change of control arrangements with the named executive
officers are not exempt from this deduction limit.
Section 280G of the Internal Revenue Code limits our
ability to deduct amounts paid to certain disqualified
individuals, including our executive officers, that are treated
as excess parachute payments. Excess parachute payments are also
subject to an excise tax payable by the recipient of such
payment. Parachute payments are
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payments that are contingent on a change in the ownership or
effective control of the Company or in the ownership of a
substantial portion of our assets, and they become excess
parachute payments with respect to a disqualified individual to
the extent that the total amount of the parachute payments made
to such individual exceeds a certain threshold amount. Examples
of the types of payments that could give rise to parachute
payments are the accelerated vesting of stock options and
restricted stock upon a change of control and severance payments
made upon a termination of employment in connection with a
change of control.
Although we consider tax deductibility in the design and
administration of our executive officer compensation plans and
programs, we believe that there are circumstances where our
interests are best served by maintaining flexibility in the way
compensation is provided, even if it results in the
non-deductibility of certain compensation under the Internal
Revenue Code.
Rules under generally accepted accounting principles determine
the manner in which we account in our financial statements for
grants of equity-based compensation to our employees. Our
accounting policies for equity-based compensation are further
discussed in Notes to Consolidated Financial Statements,
Footnotes 2 and 13, of our 2008
Form 10-K.
The following report of the Compensation, Benefits and Stock
Option Committee of the Board of Directors shall not be deemed
to be “soliciting material” or to be “filed”
with the SEC or subject to the SEC’s proxy rules, except
for the required disclosure in this proxy statement, or subject
to the liabilities of Section 18 of the Securities Exchange
Act of 1934 (“Exchange Act”), and the information
shall not be deemed to be incorporated by reference into any
filing made by the Company under the Securities Act of 1933 or
the Exchange Act.
The Compensation, Benefits and Stock Option Committee has
reviewed the Compensation Discussion and Analysis contained in
this Proxy Statement and discussed this disclosure with
management. Based on this review and discussions with
management, the Compensation, Benefits and Stock Option
Committee recommended to the Board of Directors that the
Compensation Discussion and Analysis be included in this Proxy
Statement and incorporated by reference in the Company’s
Annual Report on
Form 10-K
for the fiscal year ended December 31, 2008 for filing with
the SEC.
March 23, 2009
Compensation, Benefits and
Stock Option Committee
Kirby L. Hedrick, Chair
Jeffrey L. Berenson Edward F. Cox
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Summary
Compensation Table
The following table sets forth certain summary information
concerning the compensation earned by our CEO and Chief
Financial Officer and each of our three most-highly compensated
executive officers other than the CEO and Chief Financial
Officer (collectively, the “named executive officers”)
during 2006, 2007 and 2008.
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As reflected in the table above, the salary received by each of
our named executive officers as a percentage of their respective
total compensation during the year indicated was as follows:
Grants of
Plan Based Awards
The table below sets forth information regarding grants of
plan-based awards made to our named executive officers during
2008.
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Our Compensation Committee, with input from our other directors,
evaluates Mr. Davidson’s performance, with that
evaluation supporting the determination of
Mr. Davidson’s compensation level. The Company’s
key results during 2008 under Mr. Davidson’s
leadership include:
Stockholder return represents the change in capital value of our
common stock for the period indicated, plus dividends, expressed
as a percentage.
Mr. Davidson earned a total salary of $1,025,000 in 2008.
Mr. Davidson did not receive a base salary increase in
2008. Based on the results of Towers Perrin’s review of
2008 executive compensation, our Compensation Committee
determined that Mr. Davidson’s salary was appropriate
based on the market median for his position relative to our
compensation peer group giving consideration to the scope and
nature of our operations.
Mr. Davidson received a total STIP payment of $1,435,000 in
February 2009, based on our Compensation Committee’s review
of overall performance of the Company for the 2008 fiscal year,
as well as Mr. Davidson’s performance, as measured
against operational and financial goals for 2008 that he
submitted earlier in the year. Mr. Davidson’s STIP
payment for 2008 performance decreased approximately 45%
compared to 2007.
Mr. Davidson was granted awards under our LTIP of 125,200
stock options and 48,459 shares of restricted stock on
February 1, 2008, based in part on market data from Towers
Perrin and considering our performance against our compensation
peer group and Mr. Davidson’s leadership performance.
We believe that Mr. Davidson’s compensation level is
consistent with the objectives of our compensation program,
provides an appropriate mix of salary and incentive
compensation, rewards leadership performance by
Mr. Davidson that has produced some key results by the
Company in 2008 and provides motivation for the future
achievement of short-term and long-term goals necessary to
stockholder value creation. We also believe that it is
internally consistent and equitable compared to our other
executive officers in recognition of Mr. Davidson’s
broad responsibility and accountability for the Company’s
strategy and operations, compliance and controls, investor
relations and role as Chairman of the Board of Directors.
In determining the compensation of Messrs. Tong and Stover,
Ms. Cunningham, and Mr. Cook for 2008, our
Compensation Committee considered their respective roles,
responsibilities and reporting within the Company; their
respective contributions to the overall performance of the
Company; the performance of their respective business units or
organizations; comparisons to our compensation peer group; and
internal pay equity.
Based on the results of Towers Perrin’s review of 2008
executive compensation, our Compensation Committee determined
that an increase in base salary for each of our named executive
officers was appropriate to more closely
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approximate market median for their respective positions
relative to our compensation peer group giving consideration to
the scope and nature of our operations. Effective August 1,
2008, Mr. Stover’s base salary was increased to
$600,000, Mr. Tong’s base salary was increased to
$445,000, Ms. Cunningham’s base salary was increased
to $440,000, and Mr. Cook’s base salary was increased
to $385,000.
After reviewing the overall performance of the Company for the
2008 fiscal year and the contributions to that performance of
each non-CEO named executive officer and his or her respective
business unit or organization, our Compensation Committee
approved the following STIP payments: Mr. Tong —
$417,188; Mr. Stover — $764,296;
Ms. Cunningham — $493,831; and
Mr. Cook — $432,437. The STIP payments for 2008
performance for Mr. Tong, Mr. Stover and
Ms. Cunningham decreased approximately 36%, 24%, and 26%,
respectively, compared to 2007. We believe that these STIP
payments are appropriate in light of the Company’s
performance in 2008 and reflect the relative contributions of
these executive officers.
On February 1, 2008, Messrs. Tong and Stover,
Ms. Cunningham and Mr. Cook were granted awards of
stock options under our LTIP of 27,669, 59,749, 29,622, and
18,780, respectively. On that same date, Messrs. Tong,
Stover, Ms. Cunningham and Mr. Cook were awarded
10,709, 23,126, 11,465 and 10,269 shares of restricted
stock, respectively. Our Compensation Committee considered the
Company’s performance against our compensation peer group
plus individual performance in determining the level of these
grants. These grants were also based on market data from Towers
Perrin regarding our compensation program and appropriate
long-term incentive grant levels in light of compensation peer
group practices.
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Outstanding
Equity Awards at Fiscal Year-End
The following table sets forth certain information with respect
to restricted stock and stock options held by our named
executive officers as of December 31, 2008.
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Stock
Option Exercises and Stock Vesting
The following table sets forth certain information with respect
to vesting of restricted stock and the exercise of stock options
held by our named executive officers during fiscal year 2008.
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Pension
Benefits
The amounts reported in the table below reflect the present
value of accumulated benefits as of December 31, 2008 for
the named executive officers under our Retirement Plan and
Restoration Plan. The estimates assume that benefits are
received in the form of a ten-year certain and life annuity.
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Nonqualified
Deferred Compensation Table
The following table sets forth certain information with respect
to contributions made to our Deferred Compensation Plan by our
named executive officers during fiscal year 2008.
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