Occidental Petroleum DEF 14A 2009
Documents found in this filing:
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
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Filed by a Party other than the Registrant [ ]
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(Name of Registrant as Specified In Its Charter)
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Occidental Petroleum Corporation
Notice of 2009 Annual Meeting
OCCIDENTAL PETROLEUM CORPORATION
10889 WILSHIRE BOULEVARD, LOS ANGELES, CALIFORNIA 90024
March 17 , 2009
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Our Stockholders:
Occidental's 2009 Annual Meeting of Stockholders will be held at 10:30 a.m. on Friday, May 1, 2009, in the Starlight Ballroom, The Fairmont Miramar Hotel, 101 Wilshire Boulevard, Santa Monica, California.
At the meeting, stockholders will act on the following matters:
These matters are described in detail in the Proxy Statement. The Board of Directors recommends a vote FOR Proposals 1, 2 and 3 and AGAINST Proposal 4.
Stockholders of record at the close of business on March 11, 2009, are entitled to receive notice of, to attend and to vote at the meeting.
Whether you plan to attend or not, it is important that you read the Proxy Statement and follow the instructions on your proxy card to submit a proxy by mail, telephone or Internet. This will ensure that your shares are represented and will save Occidental additional expenses of soliciting proxies.
Donald P. de Brier
Executive Vice President, General Counsel and Secretary
TABLE OF CONTENTS
This Proxy Statement is furnished in connection with the solicitation of proxies by the Board of Directors of Occidental Petroleum Corporation, a Delaware corporation, for use at the Annual Meeting of Stockholders on May 1, 2009, and at any adjournment of the meeting. All numbers of shares and prices per share of Occidental common stock have been adjusted to give effect to the two-for-one stock split in August 2006.
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE STOCKHOLDER MEETING TO BE HELD ON MAY 1, 2009
This Proxy Statement and Occidentals Annual Report on Form 10-K for the year ended December 31, 2008 are available on Occidentals web site at www.oxypublications.com or by writing to the Communications and Public Affairs Department, Occidental Petroleum Corporation, 10889 Wilshire Boulevard, Los Angeles, California 90024.
ADMISSION TO THE ANNUAL MEETING
Attendance is limited to stockholders and one guest per stockholder. If you plan to attend the Annual Meeting in person and you are a stockholder of record, you must bring the admission ticket attached to your proxy or information card. If your shares are held in the name of a bank, broker or other holder of record and an admission ticket is not part of your voting instruction card, you will be admitted only if you have proof of ownership on the record date, such as a bank or brokerage account statement. In addition to your admission ticket or account statement, you may be asked to present valid picture identification, such as a driver's license or passport.
This Proxy Statement and accompanying proxy card are being mailed beginning on or about March 17, 2009, to each stockholder of record as of March 11, 2009, which is the record date for the determination of stockholders entitled to receive notice of, to attend, and to vote at the Annual Meeting. As of the record date, Occidental had outstanding and entitled to vote 810,567,459 shares of common stock. A majority of outstanding shares must be represented at the Annual Meeting, in person or by proxy, to constitute a quorum and to transact business. You will have one vote for each share of Occidentals common stock you own. You may vote in person at the Annual Meeting or by proxy. Proxies may be submitted by completing and mailing the proxy card, by telephone or Internet as explained on the proxy card. You may not cumulate your votes.
VOTING OF PROXIES
The Board of Directors has designated Dr. Ray R. Irani, Mr. Aziz D. Syriani and Miss Rosemary Tomich, and each of them, with the full power of substitution, to vote shares represented by all properly executed proxies. The shares will be voted in accordance with the instructions on the proxy card. If no instructions are specified on the proxy card, the shares will be voted:
In the absence of instructions to the contrary, proxies will be voted in accordance with the judgment of the person exercising the proxy on any other matter presented at the Annual Meeting in accordance with Occidental's By-laws.
If your shares are held in street name, under New York Stock Exchange Rules, your broker can vote your shares on Proposals 1, 2 and 3 but not the stockholder proposal (Proposal 4). If your broker does not have discretion and you do not give the broker instructions, the votes will be broker nonvotes, which will have the same effect as votes against the proposal.
The vote required to elect directors and to approve each proposal is described with each proposal.
The Report of Inspector of Elections will be published on Occidentals web site, www.oxy.com, within 14 calendar days following the date of the Annual Meeting, and the results of the vote will be included in Occidentals Quarterly Report on Form 10-Q for the quarter ended June 30, 2009, and in the Report on the Annual Meeting, both of which may be accessed through www.oxy.com or obtained by writing to the Communications and Public Affairs Department, Occidental Petroleum Corporation, 10889 Wilshire Boulevard, Los Angeles, California 90024.
All proxies, ballots and other voting materials are kept confidential, unless disclosure is required by applicable law or expressly requested by you, you write comments on your proxy or voting instruction card, or the proxy solicitation is contested. Occidentals confidential voting policy is posted on www.oxy.com and may also be obtained by writing to Occidentals Corporate Secretary, 10889 Wilshire Boulevard, Los Angeles, California 90024.
REVOKING A PROXY OR CHANGING YOUR VOTE
You may revoke your proxy or change your vote before the Annual Meeting by filing a revocation with the Corporate Secretary of Occidental, by delivering to Occidental a valid proxy bearing a later date or by attending the Annual Meeting and voting in person.
Expense of this solicitation will be paid by Occidental. Morrow & Co., Inc. has been retained to solicit proxies and to assist in the distribution and collection of proxy material for a fee estimated at $15,000 plus reimbursement of out-of-pocket expenses. Occidental also will reimburse banks, brokers, nominees and related fiduciaries for the expense of forwarding soliciting material to beneficial owners of its common stock. In addition, Occidental's officers, directors and regular employees may solicit proxies but will receive no additional or special compensation for such work.
Directors, other than first-time nominees, are elected by a plurality of votes. Pursuant to Occidentals By-laws, an incumbent director who receives a greater number of votes against his or her election than votes for in an uncontested election (a Majority Against Vote) must tender his or her resignation. The Corporate Governance, Nominating and Social Responsibility Committee (Nominating Committee) will consider the resignation and possible responses to it based on the relevant facts and circumstances, and make a recommendation to the Board of Directors. The Board of Directors must act on the Nominating Committees recommendation within 90 days following certification of the stockholder vote by the Inspector of Elections. Any director who tenders his or her resignation pursuant to such By-law provision cannot participate in the Nominating Committees recommendation or Board of Directors action regarding whether to accept the resignation. The Board of Directors will disclose promptly its decision-making process and decision whether to accept or reject the directors resignation in a Form 8-K filed with the Securities and Exchange Commission.
Unless you specify differently on the proxy card, proxies received will be voted FOR Spencer Abraham, Ronald W. Burkle, John S. Chalsty, Edward P. Djerejian, John E. Feick, Dr. Ray R. Irani, Irvin W. Maloney, Avedick B. Poladian, Rodolfo Segovia, Aziz D. Syriani, Rosemary Tomich and Walter L. Weisman to serve for a one-year term ending at the 2010 Annual Meeting, but in any event, until his or her successor is elected and qualified, unless ended earlier due to his or her death, resignation, disqualification or removal from office. The Nominating Committee and the Board of Directors have waived the retirement age requirement with respect to Messrs. Chalsty and Maloney and requested that Messrs. Chalsty and Maloney serve an additional term. In the event any nominee should be unavailable at the time of the meeting, the proxies may be voted for a substitute nominee selected by the Board of Directors.
The following biographical information is furnished with respect to each of the nominees for election at the 2009 Annual Meeting.
The Board of Directors recommends a vote FOR all of the nominees.
INFORMATION REGARDING THE BOARD OF DIRECTORS AND ITS COMMITTEES
CORPORATE GOVERNANCE The Corporate Governance Policies, together with information about Occidentals Code of Business Conduct and other governance measures adopted by the Board of Directors, are set forth in Exhibit A and are also available at www.oxy.com or by writing to Occidentals Corporate Secretary, 10889 Wilshire Boulevard, Los Angeles, California 90024.
RELATED PARTY TRANSACTIONS Pursuant to Occidentals written Conflict of Interest Policy, each director and executive officer has an obligation to avoid any activity, agreement, business investment or interest, or other situation that could be construed either as divergent to or in competition with Occidentals interest or as an interference with such persons primary duty to serve Occidental, unless prior written approval has been granted by the Audit Committee of the Board of Directors. Each director and executive officer is required to complete an annual questionnaire that requires disclosure of any transaction between Occidental and the director or executive officer or any of his or her affiliates or immediate family members. A summary of the Conflict of Interest Policy is included in Occidentals Code of Business Conduct. There were no transactions by any of the directors or executive officers in 2008 that were required to be reported pursuant to the Conflict of Interest Policy or otherwise.
DIRECTOR EDUCATION In 2006 and 2007, corporate governance training sessions were provided to directors by the University of Southern California Marshall School of Business. For 2008, the Board waived the director education requirement.
INDEPENDENCE Each of Miss Tomich and Messrs. Abraham, Burkle, Chalsty, Djerejian, Feick, Maloney, Poladian, Segovia, Syriani and Weisman has been determined by the Board of Directors as meeting the independence standard set forth in Occidentals Corporate Governance Policies (see Exhibit A) and the New York Stock Exchange Listed Company Manual. In making its determination of independence, the Board considered that, as disclosed under Compensation of Directors on page 8, Occidental matched the gifts made by certain of the directors to charitable organizations. Except for the Executive Committee and the Dividend Committee, all committees of the Board are composed of independent directors.
MEETINGS The Board of Directors held six regular meetings during 2008, including one executive session at which no members of management were present. Mr. Syriani, the Lead Independent Director, presided over the executive session. Each director attended at least 75 percent of the meetings of the Board of Directors and the committees of which he or she was a member, and all of the directors attended the 2008 Annual Meeting. Attendance at the annual meeting of stockholders is expected of all directors as if it were a regular meeting.
SUCCESSION PLANNING The Board of Directors annually reviews Occidentals policies and principles for recruiting, developing and selecting the persons to succeed the Chairman and Chief Executive Officer and the other executive officers. The review includes the background, training, qualities and other characteristics that would be desirable in candidates as well as consideration of possible successors.
COMMUNICATIONS WITH BOARD MEMBERS Stockholders and other interested parties may communicate with any director by sending a letter or facsimile to such directors attention in care of Occidentals Corporate Secretary, 10889 Wilshire Boulevard, Los Angeles, California 90024; facsimile number 310-443-6977. The Corporate Secretary opens, logs and forwards all such correspondence (other than advertisements or other solicitations) to directors unless the director to whom the correspondence is addressed has requested the Corporate Secretary to forward correspondence unopened.
LEAD INDEPENDENT DIRECTOR AND COMMITTEES The Board of Directors has a Lead Independent Director and seven standing committees: Executive; Audit; Corporate Governance, Nominating and Social Responsibility; Charitable Contributions; Dividend; Executive Compensation and Human Resources; and Environmental, Health and Safety. The Audit Committee Charter, the Executive Compensation and Human Resources Committee Charter and the Corporate Governance, Nominating and Social Responsibility Committee Charter and the enabling resolutions for each of the other committees are available at www.oxy.com or by writing to Occidentals Corporate Secretary, 10889 Wilshire Boulevard, Los Angeles, California 90024. The general duties of the Lead Independent Director and the committees are described below. From time to time, the Board of Directors delegates additional duties to the standing committees.
COMPENSATION OF DIRECTORS
For 2008, each non-employee director:
Directors are eligible to participate on the same terms as Occidental employees in the Occidental Petroleum Corporation Matching Gift Program, which matches contributions made by employees and directors up to an aggregate of $50,000 per year to educational institutions and organizations, as well as arts and cultural organizations. In addition, Occidental reimburses non-employee directors for expenses related to service on the Board, including hotel, airfare, ground transportation and meals for themselves and their significant others, and permits, subject to availability, non-employee directors to make use of company aircraft on the same reimbursement terms applicable to executive officers of Occidental. Occidental does not provide option awards, non-equity incentive awards, deferred compensation or retirement plans for non-employee directors. A table summarizing the total compensation for 2008 for each of the non-employee directors who served in 2008 is set forth below.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Pursuant to Section 16(a) of the Securities Exchange Act of 1934 and the rules issued thereunder, Occidental's executive officers, directors and any beneficial owner of more than 10 percent of any class of Occidental's equity securities are required to file, with the Securities and Exchange Commission and the New York Stock Exchange, reports of ownership and changes in ownership of Occidental common stock. Copies of such reports are required to be furnished to Occidental. Based solely on its review of the copies of the reports furnished to Occidental or written representations that no reports were required, Occidental believes that, during 2008, all persons required to report complied with the Section 16(a) requirements.
At the close of business on February 28, 2009, there was no person known to Occidental to be the beneficial owner of five percent or more of the outstanding voting securities of Occidental.
The following table sets forth certain information regarding the beneficial ownership of Occidental common stock as of February 28, 2009, by each of the named executive officers, the directors of Occidental, and all executive officers and directors as a group. The directors are subject to stock ownership guidelines as described in Occidentals Corporate Governance Policies (see Exhibit A). The executive officers are subject to stock ownership guidelines, which range from two to ten times base salary (see Executive Stock Ownership at www.oxy.com). All of the directors and current executive officers were in compliance with the guidelines as of February 28, 2009.
COMPENSATION PHILOSOPHY AND OBJECTIVES
Occidentals executive compensation program is designed to attract and retain outstanding executives, and incentivize them to achieve superior performance in the pursuit of Occidentals long-term strategic objectives. The intent of the program is to put a substantial portion of compensation at-risk and tied to performance, and to reward unique or exceptional contributions to overall sustainable value creation for stockholders and the attainment of long- and short-term performance targets. The Executive Compensation and Human Resources Committees (the Compensation Committee) intent is to maintain an executive compensation program that:
ELEMENTS OF STOCKHOLDER VALUE CREATION
Occidental believes that its executive management team has created, and continues to create, long-term value for stockholders through the consistent development and execution of a business model that produces returns well in excess of Occidentals estimated cost of capital. Occidentals executive compensation program seeks to incent and reward the following elements of value creation:
EVOLUTION OF OCCIDENTAL'S CORPORATE GOVERNANCE PRACTICES RELATED TO EXECUTIVE COMPENSATION
As its business model and the broader corporate governance environment have evolved, Occidental has maintained an ongoing, constructive dialogue with stockholders and certain stockholder advisory groups, with the goal of achieving continuous improvement in all aspects of our corporate governance practices, including executive compensation. As a result of this ongoing dialogue, Occidental has implemented a number of new policies related to executive compensation, including:
EVOLUTION OF OCCIDENTAL'S BUSINESS MODEL AND EXECUTIVE COMPENSATION PRACTICES
Occidentals business model has changed over the past 18 years. It had been a conglomerate of unrelated businesses with operations in approximately 35 countries. Today it is an oil and gas company focused on long-lived assets with long-term growth potential. It is supported by a chemical segment capable of providing cash flow in excess of normal capital expenditures.
In the early stages of the evolution of Occidentals business model, Occidentals executive compensation program was focused more on longer-term, equity-based compensation, primarily in the form of stock options and restricted stock. These awards were designed to incent and reward the desired strategic shift to an oil and gas company focused on growing stockholder value. Beginning in 1999 a portion of the equity awards were tied to Occidentals stock performance relative to its peers over a four-year performance period. A combination of oil and gas and chemical companies were chosen as the peer group in the early years of such awards to reinforce Occidentals then new business model and to reward for performance superior to its peers. During this same period emphasis was also placed on the deferral of equity awards, including mandatory deferral of restricted stock awards, to assure long-term alignment between management and stockholders.
With its strategic transformation largely completed, in recent years Occidental has shifted its focus principally to superior results relative to its peers through consistent, exceptional execution of its business model. In 2006 and in 2007, the Compensation Committee engaged Hewitt Associates LLC to recommend design changes to the compensation program that would provide incentives for future performance consistent with the ultimate objective of long-term growth in stockholder value. The resulting compensation program, which was not changed in 2008, focuses on two fundamental elements: base compensation and at-risk compensation. The current executive compensation program is almost entirely at-risk, and includes two performance measures: total stockholder return over a four-year term compared to a peer group and cumulative return on equity over a three-year term.
The following graphs show the at-risk compensation, option awards1, and non-performance-based compensation2 as a percentage of the total target compensation value established by the Compensation Committee for each of the named executive officers for 2008, 2007 and except for Mr. Olson, 2006. See pages 19 to 22 for the total compensation values established for each of the named executive officers.
Comparison of Compensation Program Elements
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The table below illustrates the success of Occidentals business model relative to industry peers and the equity markets in the aggregate:
Total Cumulative Stockholder Return
Over 3, 5 and 10 Years
COMPENSATION PROGRAM ELEMENTS
The two fundamental elements of Occidentals current executive compensation program are base compensation and at-risk compensation. Base compensation, which includes salary, defined contribution retirement and savings plans, and other non-cash benefits, is the smallest portion of the total compensation received by executive officers. At-risk compensation may be either equity- or cash-based or a combination of both, and accounts for a substantial majority of the total compensation value established by the Compensation Committee for the named executive officers in recent years.
The following table summarizes the components of at-risk compensation in Occidentals 2008 executive compensation program. No payout is made for performance below the minimum performance target. In order to receive maximum payout, the maximum performance target must be met or exceeded. See Discussion of Specific Compensation Program Elements for 2008 beginning on page 14.
The key performance measures used for at-risk awards and the performance they are intended to reward are:
ROLE OF MANAGEMENT IN EXECUTIVE COMPENSATION
The Compensation Committee sets compensation for Occidentals senior executives. Dr. Irani recommends compensation for Messrs. Chazen, de Brier, Morgan and Olson to the Compensation Committee. Dr. Iranis compensation is set only by the Compensation Committee. Dr. Irani and the Executive Vice President - Human Resources may be present for a portion of each of the Compensation Committee meetings, but are not present when compensation decisions regarding Dr. Irani are discussed and made. Mr. Chazen may be present for a portion of certain meetings to provide the Compensation Committee information regarding Occidentals financial and operating plans and results. Mr. de Brier may be present for a portion of certain meetings to discuss legal matters. Occidental prepares materials for each Compensation Committee meeting to assist the Compensation Committee in its consideration of executive compensation programs and policies and its administration of plans and programs.
ROLE OF INVESTORS AND PROXY ADVISORY SERVICES
Occidental maintains an on-going dialogue with its stockholders and certain stockholder advisory groups. As a follow-up to successful meetings between members of Occidentals management team and institutional investors in 2007, the Chairman of the Compensation Committee participated in meetings with some of Occidentals institutional investors in September 2008. Discussions at the meetings included, among other things, the concept of an advisory vote on compensation and Occidentals compensation philosophy and practices. Feedback obtained from these meetings was provided to the Compensation Committee and the full Board. Comments from the investor meetings were taken into consideration in Occidentals efforts to change some elements of its compensation program and to improve the quality of its compensation disclosures. In addition to meeting with institutional investors, Occidental has from time to time discussed its compensation practices and procedures with RiskMetrics Group to make certain that the persons evaluating its proxy statement understand the compensation program.
ROLE OF COMPENSATION CONSULTANTS
Each year, Occidental participates in compensation surveys conducted by Hewitt Associates LLC (Hewitt), Towers Perrin, Frederic W. Cook & Co. and other compensation consultants in order to better understand general external compensation practices, including executive compensation. From time to time, Occidental, through its executive compensation department or the Compensation Committee, will engage a consultant to provide advice on specific compensation issues. The Boards policy on retention of independent compensation consultants adopted in 2008 is set forth in Exhibit A under Other Governance Measures.
Because of the changes made in response to the study of long-term incentives performed for the Compensation Committee in 2007 by Hewitt, which were discussed in Occidentals 2008 Proxy Statement, the Committee decided that it was appropriate to not make further program changes in 2008 but rather wait to assess whether the revised program performed as intended. Accordingly, no compensation consultant was engaged to assist the Compensation Committee with respect to its 2008 compensation decisions.
For 2009, Pearl Meyer & Partners has been retained by the Compensation Committee to provide information related to current and changing market and regulatory environments.
DISCUSSION OF SPECIFIC COMPENSATION PROGRAM ELEMENTS FOR 2008
The Compensation Committee discussed the components of the compensation for the named executive officers for 2008 at its regularly scheduled meetings held in December 2007; February, May, July, October and December 2008; and February 2009. The Compensation Committee reviewed the elements of total compensation for each of the named executive officers as compared to the total compensation for the top five executives at other oil and gas companies, as disclosed in those companies respective proxy statements. The Compensation Committee also reviewed the long-term incentive value and mix of awards granted to each of the named executive officers for the last five years; estimated future values of possible awards; and financial and other performance measures contrasting Occidental with other oil and gas companies, including return on capital employed, return on equity, total stockholder return, revenues and market capitalization. No options, stock appreciation rights, restricted stock units or performance-based restricted stock units were granted in 2008 or 2007.
Salary and other base compensation. Base salary was reviewed at the December 2007 meeting of the Compensation Committee. Because it prefers to emphasize performance-based compensation, the Compensation Committee does not grant regular annual salary increases to executive officers. Accordingly, except for Mr. Chazen who received an increase in his base salary from $720,000 to $800,000, none of the named executive officers received an increase in salary for 2008. No changes to the other non-performance based elements of the compensation program (See page 12) were made in 2008, other than changes made to assure compliance with the regulations issued pursuant to Internal Revenue Code Section 409A and the changes to the distribution options under the Supplemental Retirement Plan II described on page 33.
At-risk compensation. Performance-based incentive awards are made twice a year. The short-term award under the Executive Incentive Compensation Plan is made in February and the longer-term awards under the 2005 Long-Term Incentive Plan are made in July.
OTHER COMPENSATION AND BENEFITS
Occidental does not have a defined benefit pension program that provides salaried employees a fixed monthly retirement payment.
STOCK OWNERSHIP GUIDELINES
Occidental has had minimum stock ownership guidelines for Occidentals senior management since 1996. Stock ownership includes stock owned by the officer directly and through Occidentals Savings Plan as well as outstanding stock awards under the equity incentive plans. Under the current guidelines, the cumulative ownership targets are 10 times salary for Dr. Irani and five times salary for Messrs. Chazen, de Brier, Morgan and Olson. As of February 28, 2009, all of the named executive officers held stock in excess of the guidelines. See www.oxy.com for the executives individual targets on holdings as of February 28, 2009. Additionally, members of senior management are expected to retain 50 percent of the net after-tax shares received pursuant to equity awards granted after 2008 for at least three years from the vesting date.
EQUITY GRANT PRACTICES
The Compensation Committee grants equity awards at regularly scheduled meetings normally held the day before regularly scheduled Board meetings. Board meeting dates are set in the prior year. The grant date value of Occidental stock is based on the closing price on the New York Stock Exchange on the day the Compensation Committee grants equity awards. As specifically authorized by the terms of the 2005 Long-Term Incentive Plan, the Compensation Committee has delegated to the Chairman and Chief Executive Officer the authority to grant awards in the event a new employee is hired between Compensation Committee meeting dates, and an equity award has been deemed to be an important element in persuading the employee to join Occidental. In such cases, the award is generally made on the date the employee starts employment. Any such award granted to an executive officer is reported to the Compensation Committee. Dr. Irani has never granted any equity awards to the named executive officers.
The Compensation Committee does not anticipate granting any additional options, stock appreciation rights or restricted stock units to Occidentals named executive officers at this time. To the extent that any such awards are granted in the future, such grants would vest on a pro rata basis in the event of the grantees death; and, if such awards are performance-based, payout of any vested portion would continue to be subject to satisfaction of the performance objective.
The 2005 Long-Term Incentive Plan provides that no individual may be granted awards under that Plan in excess of the specified Plan limits. For purposes of applying the share limit, the target incentive value of awards, regardless of whether equity or cash awards, may be converted to a share unit equivalent.
INDIVIDUAL COMPENSATION CONSIDERATIONS
Overall, the Compensation Committee concluded that the senior executive management team has delivered financial results that have been consistently superior compared to the performance of its peer group and has delivered exceptional growth in stockholder value over the long term. See 2008 Performance Highlights beginning on page 24. The Compensation Committee believes the management team is uniquely qualified to extend Occidentals superior performance while growing stockholder value over the long term. Consequently, the Compensation Committee has provided the executives exceptional compensation, both to reward their outstanding performance, and to encourage their continued focus on growth in stockholder value.
The specific considerations for each of the named executive officers with respect to their 2008 compensation are discussed below. The table accompanying the discussion of each executives compensation sets forth the minimum to maximum total compensation value range established by the Compensation Committee for such executive for 2008, 2007 and, except for Mr. Olson, 2006. In addition to salary, option awards and other compensation, the total compensation value ranges shown in the tables below include each at-risk component of compensation at its minimum payout level and maximum payout level for the specified year without regard to if and when the award will vest or, if applicable, the value of the equity when the award vests. That portion of the at-risk components that is attributable to awards under the 2005 Long-Term Incentive Plan is subject to the individual award limit contained in that Plan. The amounts shown in the total compensation value tables differ from the amounts reported in the Summary Compensation Table, which includes amounts attributable to equity awards, including options, granted in prior years but does not include non-equity awards payable in future years.
DR. IRANI - Dr. Irani is the Chairman and Chief Executive Officer of Occidental. Under his leadership, Occidental has grown to become the fourth-largest oil and gas company in the U.S., based on market capitalization as of December 31, 2008. Dr. Irani sets the strategic direction for Occidental and oversees its implementation.
In setting the total compensation value for Dr. Irani, the Compensation Committee considered:
After considering Dr. Iranis contributions to Occidentals attainment of these achievements, the Compensation Committee concluded that Dr. Irani has added, and will continue to add, significant value to Occidental and its stockholders. The Compensation Committee also noted that while Dr. Irani has received a substantial amount of compensation from Occidental over his career, he has retained more than 50 percent of the net after-tax shares he acquired through his equity awards even though he far exceeds the required executive stock ownership guidelines. Dr. Irani is Occidentals largest individual stockholder and as such his interests are strongly aligned with Occidentals stockholders. Accordingly, the Compensation Committee believes that Dr. Irani provides unique value to Occidental and that his compensation package should provide him with the opportunity to realize significant value consistent with the amounts he has received in prior years. The components of Dr. Iranis compensation for 2008, 2007 and 2006 are set forth below.
MR. CHAZEN The Board of Directors elected Mr. Chazen President and Chief Financial Officer on December 13, 2007 and increased his base salary for 2008 to $800,000 in recognition of his additional responsibilities. He had previously served as Senior Executive Vice President and Chief Financial Officer. Mr. Chazen has added oversight of worldwide oil and gas exploration to his responsibilities, which continue to include implementing Occidentals overall strategy and overseeing corporate development, the midstream, marketing and other segment and the chemical segment, in addition to his duties as Chief Financial Officer.
The components of Mr. Chazens compensation for 2008, 2007 and 2006 are set forth below.
MR. DE BRIER Mr. de Brier is Executive Vice President, General Counsel and Corporate Secretary. As Executive Vice President and General Counsel, he is responsible for Occidentals worldwide legal and compliance, health, environment and safety and communications and public affairs functions.
The components of Mr. de Briers compensation for 2008, 2007 and 2006 are set forth below.
MR. MORGAN Mr. Morgan was an Executive Vice President of Occidental until his retirement, which began on January 1, 2009, and President, Oxy Oil and Gas Western Hemisphere until April, 2008. He was responsible for Occidentals oil and gas operations in the United States and Latin America. In addition, he had worldwide responsibility for the oil and gas segments engineering operations and its health, environment, safety and security programs.
The components of Mr. Morgans compensation for 2008, 2007 and 2006 are set forth below.
MR. OLSON As Executive Vice President of Occidental, Mr. Olson is responsible for Occidentals oil and gas operations other than those in the U.S. and for the oil and gas segments worldwide business development and engineering operations.
The components of Mr. Olsons compensation for 2008 and 2007 as established by the Compensation Committee are set forth below.
CONSEQUENCES OF MISCONDUCT
In 1997, Occidentals Board of Directors adopted a Code of Business Conduct that prohibits any officer, employee or director from violating or circumventing any law of the United States or a foreign country during the course of his or her employment. The Audit Committee of the Board of Directors oversees compliance with the Code of Business Conduct and has put in place procedures, including a compliance hotline, to ensure that all violations or suspected violations of the Code of Business Conduct are reported promptly, without fear of retaliation. If a named executive officer were found to have violated the Code of Business Conduct, the officer would be subject to disciplinary action, which may include termination, referral for criminal prosecution and reimbursement to Occidental or others for any losses or damages resulting from the violation. Stock awards are forfeited if a grantee is terminated for cause. Beginning with the awards granted in 2008, awards for continuing employees may be forfeited in whole or in part for violations of the Code of Business Conduct or other provisions of the award agreement.
TAX AND ACCOUNTING CONSIDERATIONS
Section 162(m) of the U.S. Internal Revenue Code of 1986, as amended, places a limit of $1 million on the amount of compensation that Occidental may deduct in any one year with respect to each of its five highest-paid executive officers, other than the Chief Financial Officer. Certain performance-based compensation elements approved by stockholders are not subject to the deduction limit. Although tax consequences are considered in its compensation decisions, the Compensation Committee has not adopted a policy that all compensation must be deductible. Rather, the Compensation Committee gives priority to the overall compensation objectives discussed above.
It is expected that certain performance-based awards will not be subject to the deduction limits prescribed by Section 162(m) of the Internal Revenue Code.
In 2008, the employment contracts between Occidental and Dr. Irani and Messrs. Chazen and de Brier as well as Occidentals non-qualified retirement and deferred compensation plans were amended to bring them into compliance with Internal Revenue Code Section 409A. The amendments did not increase any payments or benefits under the agreements.
The Executive Compensation and Human Resources Committee of the Board has reviewed and discussed with management the Compensation Discussion and Analysis for the year ended December 31, 2008, including the Committees commitment to pay for performance and the decisions made by the Executive Compensation and Human Resources Committee that recognize the exceptional performance of Occidental under the leadership of Dr. Irani and the other named executive officers. Based on these reviews and discussions, the Executive Compensation and Human Resources Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in the Proxy Statement for the 2009 Annual Meeting of Stockholders.
THE EXECUTIVE COMPENSATION AND
HUMAN RESOURCES COMMITTEE
John S. Chalsty (Chair)
Irvin W. Maloney
Occidental Petroleum Corporation (NYSE:OXY) is the fourth largest oil and gas company based in the U.S. measured by market capitalization of $48.6 billion as of December 31, 2008. The following graphs illustrate Occidentals performance for 2006, 2007, and 2008 with respect to net income, return on equity (ROE), return on capital employed (ROCE), oil and natural gas sales volumes, oil and natural gas proved reserves and employee injury and illness rate. Occidental has shown improvement in each of these important measures over the past three years. See Occidentals Annual Report on Form 10-K for the year ended December 31, 2008 for more information about these and other performance measures, the factors that affect Occidentals results and risks associated with future performance.
[the following are tabular representations of graphical materials]
The following graph compares Occidentals cumulative total return on its common stock with the cumulative total return of the Standard & Poors 500 Stock Index (S&P 500) and with that of Occidentals peer group over the five year period ended December 31, 2008. The graph assumes that $100 was invested in Occidental common stock, in the stock of the companies in the Standard & Poors 500 Index and in a portfolio of the peer group companies weighted by their relative market values each year and that all dividends received were reinvested. In addition to Occidental, the peer group consists of Anadarko Petroleum Corporation, Apache Corporation, BP p.l.c., Chevron Corporation, ConocoPhillips, Devon Energy Corporation, ExxonMobil Corporation and Royal Dutch Shell plc.
COMPARATIVE TOTAL RETURN
Set forth below are tables showing for Dr. Irani, Occidentals principal executive officer, Mr. Chazen, Occidentals principal financial officer, and the three other highest-paid executive officers of Occidental serving as executive officers on December 31, 2008: (1) in summary form, the compensation attributed to such executives for 2008, 2007 and, except for Mr. Olson, 2006, including the compensation cost related to the portion of stock and option awards granted in 2008 and in prior years that are reported as compensation expense in Occidentals 2008, 2007 and 2006 Consolidated Financial Statements; (2) the equity and non-equity incentive awards granted to such executives in 2008; (3) the outstanding equity awards held by such executives as of December 31, 2008; (4) the options exercised by such executives and their stock awards vested; and (5) the required information related to the nonqualified deferred compensation plans for such executives. The compensation tables should be read in conjunction with the Compensation Discussion and Analysis (see page 10), which explains Occidentals compensation plans and philosophy and provides information about the compensation decisions made with respect to the named executive officers for 2008.
The table below and the accompanying footnotes summarize the compensation attributed to the principal executive officer, principal financial officer and the three other highest-paid executives in 2008, 2007 and except for Mr. Olson, 2006, including the compensation cost related to the stock and option awards granted in 2003 through 2008 (no option awards were granted in 2008 or 2007) that are reported as compensation expense in Occidentals 2008, 2007 and 2006 Consolidated Financial Statements computed in accordance with Statement of Financial Accounting Standard No. 123 (Revised 2004), Share-Based Payment (FAS 123(R)). Under FAS 123(R), awards that are payable in stock are valued at the grant date stock price. Of the amounts shown in the table below for total 2008 compensation, approximately 86 percent, 85 percent, 78 percent, 81 percent and 74 percent for Dr. Irani and Messrs. Chazen, de Brier, Morgan and Olson, respectively, of the total compensation was attributable to stock and option awards granted prior to 2008. Occidentals net income for 2008, 2007 and 2006 was $6,857 million, $5,400 million and $4,191 million, respectively.
The table below summarizes the plan-based awards granted by the Compensation Committee to the named executive officers in 2008: Executive Incentive Compensation Plan (Non-Equity Incentive Portion) EICP, Total Stockholder Return Incentive Awards TSRI, Return on Equity Incentive Awards ROEI. Immediately following the table is a summary of key terms of the award agreements.
For additional information on the performance objectives and determination of threshold, target and maximum payouts for these awards, see Compensation Discussion and Analysis beginning on page 10. For the actual amounts earned under the EICP awards, see the Summary Compensation Table on page 26.
The equity incentive awards listed below are the only stock awards granted to the named executive officers for 2008. No option awards or non-performance-based stock awards were granted in 2008.
The following table sets forth the outstanding option awards and stock awards held by the named executive officers as of December 31, 2008, including options, Stock Appreciation Rights (SAR), Restricted Stock Units (RSU), Performance-Based Restricted Stock Units (PRSU), Performance Stock Awards (PSA) and Total Stockholder Return Incentives (TSRI). These were granted to the named executive officers over a period of several years, including 2008. The FAS 123(R) grant date fair values for the awards granted in 2008 are shown in the Grants of Plan-Based Awards table above. The portion of such awards reported as compensation expense in Occidentals 2008 Consolidated Financial Statements is a component of the current year total compensation for each of the named executives. For a description of the performance criteria for equity plan awards made in 2008, see Compensation Discussion and Analysis on page 10.