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 ¨☐
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Preliminary Proxy Statement |
Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) |
Definitive Proxy Statement |
Definitive Additional Materials |
Soliciting Material under §240, Rule 14a-12 |
Anadarko Petroleum Corporation
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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Fee paid previously with preliminary materials. |
Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. |
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March 21, 201417, 2017
TO OUR STOCKHOLDERS:
The 20142017 Annual Meeting of Stockholders of Anadarko Petroleum Corporation will be held at The Hyatt Market Street Hotel, 9595 Six Pines Drive, Suite 1100,Westin at The Woodlands, 2 Waterway Square Place, The Woodlands, Texas, 77380 on Tuesday,Wednesday, May 13, 2014,10, 2017, at 8:00 a.m. (Central Daylight Time).
The attached Notice of Annual Meeting of Stockholders and proxy statement provide information concerning the matters to be considered at the Annual Meeting. The Annual Meeting will cover only the business contained in the proxy statement and will not include a management presentation.
WePursuant to rules promulgated by the U.S. Securities and Exchange Commission (SEC), we are also provideproviding access to our proxy materials over the Internet. As a result, we are mailing to most of our stockholders a Notice of Internet Availability of Proxy Materials (Notice) instead of a paper copy of this proxy statement, a proxy card and our 20132016 annual report. The Notice contains instructions on how to access those documents over the Internet, as well as instructions on how to request a paper copy of our proxy materials. All stockholders who do not receive a Notice should receive a paper copy of the proxy materials by mail. We believe that the Notice process will allow us to provide you with the information you need in a timelier manner, will save us the cost of printing and mailing documents to you, and will conserve natural resources.
Your vote is important and we encourage you to vote even if you are unable to attend the Annual Meeting. You may vote by Internet or by telephone using the instructions on the Notice, or, if you received a paper copy of the proxy card, by signing and returning it in the postage pre-paidpaid envelope provided for your convenience. You may also attend and vote at the Annual Meeting.
Very truly yours,
R. A. WALKER
Chairman of the Board, President
and Chief Executive Officer
1201 Lake Robbins Drive
The Woodlands, Texas 77380-1046
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
The Annual Meeting of Stockholders of Anadarko Petroleum Corporation will be held at The Hyatt Market Street Hotel, 9595 Six Pines Drive, Suite 1100,Westin at The Woodlands, 2 Waterway Square Place, The Woodlands, Texas, 77380 on Tuesday,Wednesday, May 13, 2014,10, 2017, at 8:00 a.m. (Central Daylight Time) to consider the following proposals:items:
(1) | elect |
(2) | ratify the appointment of KPMG LLP as the Company’s independent auditor for |
(3) | an advisory vote to approve the Company’s named executive officer compensation; |
(4) |
(5) | transact such other business as may properly come before the Annual Meeting and any adjournments or postponements thereof. |
If you are a holder of record of common stock at the close of business on March 18, 2014,14, 2017, the record date, then you are entitled to receive notice of and to vote at the Annual Meeting.
Please take the time to vote by following the Internet or telephone voting instructions provided. If you received a paper copy of the proxy card, you may also vote by completing and mailing the proxy card in the postage-prepaidpostage-paid envelope provided for your convenience. You may also attend and vote at the Annual Meeting.You may revoke your proxy at any time before the vote is taken by following the instructions in this proxy statement.
As a stockholder, your vote is very important and the Company’s Board of Directors strongly encourages you to exercise your right to vote.
BY ORDER OF THE BOARD OF DIRECTORS
Amanda M. McMillian
Senior Vice President, Deputy General Counsel,
Corporate Secretary and Chief Compliance Officer
March 21, 201417, 2017
The Woodlands, Texas
Important Notice Regarding the Availability of Proxy Materials
for the StockholderAnnual Meeting of Stockholders to be Held on May 13, 2014:10, 2017:
The Proxy Statementproxy statement and Annual Reportannual report for 20132016 are available at
https://materials.proxyvote.com/032511
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT | |||||
COMPENSATION AND BENEFITS COMMITTEE REPORT ON | 28 | ||||
LETTER FROM THE CHAIR OF THE COMPENSATION AND BENEFITS COMMITTEE | 29 | ||||
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ITEM 2 — RATIFICATION OF THE APPOINTMENT OF THE INDEPENDENT AUDITOR | |||||
ITEM 3 — ADVISORY VOTE TO APPROVE THE COMPANY’S NAMED EXECUTIVE OFFICER COMPENSATION | |||||
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1201 Lake Robbins Drive
The Woodlands, Texas 77380-1046
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
May 13, 201410, 2017
We are furnishing you this proxy statement in connection with the solicitation of proxies by our Board of Directors (Board) to be voted at the 20142017 Annual Meeting of Stockholders (Annual Meeting) of Anadarko Petroleum Corporation, a Delaware corporation, sometimes referred to herein as the Company, Anadarko, us, we or like terms. The Annual Meeting will be held on Tuesday,Wednesday, May 13, 2014,10, 2017, at 8:00 a.m. (Central Daylight Time). The proxy materials, including this proxy statement, proxy card or voting instructions and our 20132016 annual report, are being distributed and made available on or about March 28, 2014.24, 2017.
We provide our stockholders access to our proxy materials to our stockholders on the Internet.Internet (https://materials.proxyvote.com/032511). Accordingly, a Notice of Internet Availability of Proxy Materials (Notice) will be mailed to most of our stockholders on or about March 28, 2014.24, 2017. Stockholders will have the ability to access the proxy materials on the website referred to in the Notice or request a printed set of the proxy materials to be sent to them by following the instructions in the Notice.
The Notice also provides instructions on how to inform us whether to send future proxy materials to you electronically bye-mail or in printed form by mail. If you choose to receive future proxy materials bye-mail, you will receive ane-mail next year with instructions containing a link to those materials and a link to the proxy voting site. Your election to receive proxy materials bye-mail or printed form will remain in effect until you terminate it.
Choosing to receive future proxy materials bye-mail will allow us to provide you with the information you need in a more timely manner, save us the cost of printing and mailing documents to you, and conserve natural resources.
QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING
Where and when is the Annual Meeting?
The Annual Meeting will be held at The Hyatt Market Street Hotel, 9595 Six Pines Drive, Suite 1100, The Woodlands, Texas, 77380, on Tuesday, May 13, 2014, at 8:00 a.m. (Central Daylight Time).
Who may vote?
You may vote if you were a holder of record of Anadarko common stock as of the close of business on March 18, 2014, the record date for the Annual Meeting. Each share of Anadarko
common stock is entitled to one vote at the Annual Meeting. On the record date, there were 512,076,629 shares of common stock outstanding and entitled to vote at the Annual Meeting. There are no cumulative voting rights associated with Anadarko common stock.
May I attend the Annual Meeting?
Yes. Attendance is limited to stockholders of record as of the record date for the Annual Meeting, Company employees, and certain guests invited by the Company. Admission will be on a first-come, first-served basis. You may
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be asked to present valid picture identification, such as a driver’s license or passport. If your shares of common stock are held in the name of a bank, broker, or other holder of record and you plan to attend the Annual Meeting, you must present proof of your ownership, such as a current bank or brokerage account statement reflecting ownership as of the record date for the Annual Meeting, to be admitted. Cameras, recording devices, cell phones and other electronic devices cannot be used during the Annual Meeting.
Why did I receive a Notice in the mail regarding the Internet availability of proxy materials instead of a full set of proxy materials?
We are providing access to our proxy materials over the Internet. As a result, we have sent to most of our stockholders a Notice instead of a paper copy of the proxy materials. The Notice contains instructions on how to access the proxy materials over the Internet and how to request a paper copy. In addition, stockholders may request to receive future proxy materials in printed form by mail or electronically by e-mail. A stockholder’s election to receive proxy materials by mail or e-mail will remain in effect until the stockholder terminates it.
Why didn’t I receive a Notice in the mail regarding the Internet availability of proxy materials?
We are providing certain stockholders, including those who have previously requested to receive paper copies of the proxy materials, with paper copies of the proxy materials instead of a Notice. If you would like to reduce the costs incurred by Anadarko in mailing proxy materials, you can consent to receive all future proxy statements, proxy cards and annual reports electronically via e-mail or the Internet. To sign up for electronic delivery, please follow the instructions provided with your proxy materials and on your proxy card or voting instruction card to vote using the Internet. When
prompted, indicate that you agree to receive or access stockholder communications electronically in the future.
Can I vote my stock by filling out and returning the Notice?
No. The Notice will, however, provide instructions on how to vote by Internet, by telephone, by requesting and returning a paper proxy card, or by submitting a ballot in person at the Annual Meeting.
How can I access the proxy materials over the Internet?
Your Notice or proxy card will contain instructions on how to view our proxy materials for the Annual Meeting on the Internet. Our proxy materials are also available at https://materials.proxyvote.com/032511.
What am I voting on and how does the Board recommend that I vote?
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What is the effect of an “advisory” vote?
Because your vote with respect to approval of our named executive officer (NEO) compensation is advisory, it will not be binding upon the Board. However, our Compensation and Benefits Committee (Compensation Committee) and the Board will carefully consider the outcome of the vote when reviewing future compensation arrangements for our executive officers.
Why should I vote?
Your vote is very important regardless of the amount of stock you hold. The Board strongly encourages you to exercise your right to vote as a stockholder of the Company.
How do I vote?
You may vote by any of the following four methods:
(i)Internet. Vote on the Internet at http://www.proxyvote.com. This website also allows electronic proxy voting using smartphones, tablets and other web-connected mobile devices (additional charges may apply pursuant to your service provider plan). Simply follow the instructions on the Notice, or if you received a proxy card by mail, follow the instructions on the proxy card and you can confirm that your vote has been properly recorded. If you vote on the Internet, you can request electronic delivery of future proxy materials. Internet voting facilities for stockholders of record will be available 24 hours a day and will close at 11:59 p.m. (Eastern Daylight Time) on May 12, 2014.
(ii)Telephone. Vote by telephone by following the instructions on the Notice or, if you received a proxy card, by following the instructions on the proxy card. Easy-to-follow voice prompts allow you to vote your stock and confirm that
your vote has been properly recorded. Telephone voting facilities for stockholders of record will be available 24 hours a day and will close at 11:59 p.m. (Eastern Daylight Time) on May 12, 2014.
(iii)Mail. If you received a proxy card by mail, vote by mail by completing, signing, dating and returning your proxy card in the pre-addressed, postage-paid envelope provided. If you vote by mail and your proxy card is returned unsigned, then your vote cannot be counted. If you vote by mail and the returned proxy card is signed without indicating how you want to vote, then your proxy will be voted as recommended by the Board. If mailed, your completed and signed proxy card must be received by May 12, 2014.
(iv)Meeting. You may attend and vote at the Annual Meeting.
The Board recommends that you vote using one of the first three methods discussed above, as it is not practical for most stockholders to attend and vote at the Annual Meeting. Using one of the first three methods discussed above to vote will not limit your right to vote at the Annual Meeting if you later decide to attend in person. If your stock is held in street name (for example, held in the name of a bank, broker, or other holder of record), you must obtain a proxy executed in your favor from your bank, broker or other holder of record to be able to attend and vote at the Annual Meeting.
If I vote by telephone or Internet and received a proxy card in the mail, do I need to return my proxy card?
No.
If I vote by mail, telephone or Internet, may I still attend the Annual Meeting?
Yes.
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Can I change my vote?
Yes. You may revoke your proxy before the voting polls are closed at the Annual Meeting, by the following methods:
If you are a street name stockholder (for example, if your shares are held in the name of a bank, broker, or other holder of record) and you vote by proxy, you may later revoke your proxy by informing the holder of record in accordance with that entity’s procedures.
How many votes must be present to hold the Annual Meeting?
Your stock is counted as present at the Annual Meeting if you attend the Annual Meeting and vote in person or if you properly return a proxy by Internet, telephone or mail. In order for us to hold our Annual Meeting, holders of a majority of our common stock entitled to vote must be present in person or by proxy at the Annual Meeting. This is referred to as a quorum. Abstentions and broker non-votes will be counted as present for purposes of determining a quorum.
What is a broker non-vote?
The New York Stock Exchange (NYSE) permits brokers to vote their customers’ stock held in street name on routine matters when the brokers have not received voting instructions from their customers. The NYSE does not, however, allow brokers to vote their customers’ stock held in
street name on non-routine matters unless they have received voting instructions from their customers. In such cases, the uninstructed shares for which the broker is unable to vote are called broker non-votes.
What routine matters will be voted on at the Annual Meeting?
The ratification of the independent auditor is the only routine matter on which brokers may vote in their discretion on behalf of customers who have not provided voting instructions.
What non-routine matters will be voted on at the Annual Meeting?
The election of directors, the advisory vote to approve our NEO compensation and the stockholder proposals, if presented, are non-routine matters on which brokers are not allowed to vote unless they have received voting instructions from their customers.
How many votes are needed to approve each of the proposals or, with respect to the advisory vote, to be considered the recommendation of the stockholders?
(i)Election of Directors. The election of each director requires the affirmative vote of a majority of the votes cast for such director. Under our By-Laws, a majority of votes are cast for the election of a director if the number of votes cast “for” the director exceeds the number of votes cast “against” the director. For this purpose, abstentions and broker non-votes are not counted as a vote cast either “for” or “against” the director.
(ii)Independent Auditor. The ratification of the independent auditor requires the affirmative vote of a majority of the stock entitled to vote and present in person or by proxy at the Annual Meeting. Abstentions will have the same effect as votes cast “against” the proposals.
(iii)NEO Compensation. Our NEO compensation will be considered approved by
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our stockholders in an advisory manner upon the affirmative vote of a majority of the stock entitled to vote and present in person or by proxy at the Annual Meeting. For this purpose, abstentions will have the same effect as votes cast “against” the proposal. Broker non-votes are not counted as a vote cast either “for” or “against” the proposal.
(iv)Stockholder Proposals. The approval of the stockholder proposals, if presented, requires the affirmative vote of a majority of the stock entitled to vote and present in person or by proxy at the Annual Meeting. For this purpose, abstentions will have the same effect as votes cast “against” the proposals. Broker non-votes are not counted as a vote cast either “for” or “against” the proposals.
Could other matters be decided at the Annual Meeting?
We are not aware of any matters that will be considered at the Annual Meeting other than those set forth in this proxy statement. However, if any other matters arise at the Annual Meeting, the persons named in your proxy will vote in accordance with their best judgment.
Where can I find the voting results of the Annual Meeting?
We will announce the preliminary voting results at the Annual Meeting and disclose the final voting results in a current report on Form 8-K filed with the U.S. Securities and Exchange Commission (SEC) within four business days of the date of the Annual Meeting unless only preliminary voting results are available at that time. To the extent necessary, we will file an amended report on Form 8-K to disclose the final voting results within four business days after the final voting results are known. You may access or obtain a copy of these and other reports free of charge on the Company’s website at http://www.anadarko.com, or by contacting our investor relations department at investor@anadarko.com. Also, the referenced Form 8-K, any amendments thereto and other
reports filed by the Company with the SEC are available to you over the Internet at the SEC’s website at http://www.sec.gov.
How can I view the stockholder list?
A complete list of stockholders of record entitled to vote at the Annual Meeting will be available for viewing during ordinary business hours for a period of ten days before the Annual Meeting at our offices at 1201 Lake Robbins Drive, The Woodlands, Texas 77380-1046.
Who pays for the proxy solicitation related to the Annual Meeting?
We do. In addition to sending you these materials or otherwise providing you access to these materials, some of our directors and officers as well as management and non-management employees may contact you by telephone, mail, e-mail or in person. You may also be solicited by means of press releases issued by Anadarko, postings on our website at http://www.anadarko.com, advertisements in periodicals, or other media forms. None of our officers or employees will receive any extra compensation for soliciting you. We have retained Morrow & Co., LLC, 470 West Ave., Stamford, CT 06902, to assist us in soliciting your proxy for an estimated fee of $12,500, plus reasonable out-of-pocket expenses. Morrow ensures that brokers, custodians and nominees will supply additional copies of the proxy materials for distribution to the beneficial owners. We will also reimburse banks, nominees, fiduciaries, brokers and other custodians for their costs of sending the proxy materials to the beneficial owners of Anadarko common stock.
Who will tabulate and certify the vote?
Broadridge Financial Solutions, Inc., an independent third party, will tabulate and certify the vote, and will have a representative to act as the independent inspector of elections for the Annual Meeting.
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If I want to submit a stockholder proposal for the 2015 Annual Meeting, when is that proposal due?
If you are an eligible stockholder and want to submit a proposal for possible inclusion in the proxy statement relating to the 2015 Annual Meeting, your proposal must be delivered to the attention of our Corporate Secretary and must be received at our principal office, 1201 Lake Robbins Drive, The Woodlands, Texas 77380-1046, no later than November 28, 2014. We will only consider proposals that meet the requirements of the applicable rules of the SEC and our By-Laws.
If I want to nominate a director for the 2015 Annual Meeting, when is that nomination due?
If you are an eligible stockholder and want to nominate an individual for election to our Board, our By-Laws provide that you must provide your nomination in writing to our Corporate Secretary (at the same address noted above) no later than the close of business on February 12, 2015, and no earlier than the close of business on January 13, 2015.
How can I obtain a copy of the Annual Report on Form 10-K?
Stockholders may request a free copy of our Annual Report on Form 10-K by submitting such request to Investor Relations, Anadarko Petroleum Corporation, P.O. Box 1330, Houston, Texas 77251-1330. Stockholders may also submit such request via e-mail at investor@anadarko.com or by calling
(855) 820-6605. Alternatively, stockholders can access our Annual Report on Form 10-K on Anadarko’s website at http://www.anadarko.com. Also, our Annual Report on Form 10-K and other reports filed by the Company with the SEC are available to you over the Internet at the SEC’s website at http://www.sec.gov.
Will I get more than one copy of the proxy statement, annual report or Notice if there are multiple stockholders at my address?
In some cases, only one copy of this proxy statement, annual report or Notice is being delivered to multiple stockholders sharing an address unless we have received contrary instructions from one or more of the stockholders. We will deliver promptly, upon a written or oral request, a separate copy of this proxy statement, annual report or Notice to a stockholder at a shared address to which a single copy of the document was delivered. Stockholders sharing an address may also submit requests for delivery of a single copy of the proxy statement, annual report or Notice, but in such event will still receive separate proxies for each account. To request separate or single delivery of these materials now or in the future, a stockholder may submit a written request to the Corporate Secretary, Anadarko Petroleum Corporation, 1201 Lake Robbins Drive, The Woodlands, Texas 77380-1046 or a stockholder may make a request by calling the Corporate Secretary at (832) 636-1000, or by contacting our transfer agent, Computershare, P.O. Box 30170, College Station, TX 77842-3170.
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ITEM 1 — ELECTION OF DIRECTORS
Our Restated Certificate of Incorporation provides that all directors are to be elected annually and that any director (or the entire Board) may be removed with or without cause at and after the Annual Meeting at which he or she is elected.
At the 2014 Annual Meeting, the terms of our eleventhirteen incumbent directors will expire. NineTwelve of those incumbentthirteen directors have each been nominated to stand for election and, if elected at thisthe Annual Meeting, will hold office until the expiration in 20152018 of each of theirone-year terms. As of the Annual Meeting, the number of directors shall be decreased from eleven to nine.
The Board is not aware of any reason why the director nominees would not be able to serve as directors of the Company. However, if a nominee is unavailable for election, then the proxies will be voted for the election of another nominee proposed by the Board or, as an alternative, the Board may reduce the number of directors to be elected at the Annual Meeting.
OurBy-Laws provide for the election of directors by the majority vote of stockholders in uncontested elections. This means the number of votes cast “for” a nominee’s election must exceed the number of votes cast “against” such nominee’s election in order for him or her to be elected to the Board. In addition, each incumbent nominee is required to provide an irrevocable letter of resignation that statesstating that he or she will resign if that director does not receive the required majority vote. If a director were to fail to receive a majority of votes cast and the Board were to accept the resignation tendered, then that director would cease to be a director of Anadarko. Each of the ninetwelve incumbent director nominees named below has submitted an irrevocable letter of resignation that becomes effective if he or she does not receive a majority of the votes cast for his or her election and the Board decides to accept such resignation.
As discussed in more detail on page 1816 of this proxy statement, the Board considers several qualifications, characteristics and other factors when evaluating individual directors, as well as the composition of the Board as a whole. As part of this process, the Board and its Governance and Risk Committee (formerly the Nominating and Corporate Governance Committee) review the particular experiences, qualifications, attributes and skills that caused the Governance and Risk Committee and the Boardof each nominee to determine if that the person should serve as a director of the Company. The biographies of each of the nominees below contain information regarding the person’s experience and director positions held currently or at any time during the last five years, and information regarding involvement in certain legal or administrative proceedings, to the extent applicable. They also highlight the particular experiences, qualifications, attributes or skills that caused the Governance and Risk Committee and the Board to conclude that the person should be nominated to serve as a director of the Company.
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THE BOARD RECOMMENDS THAT YOU VOTE “FOR” EACH OF THE NOMINEES LISTED BELOW.
Nominees for Director Nominated by the Board of Directors for Terms Expiring in 20152018
ANTHONY R. CHASE | ||||
Mr. Chase,
Key Contributions to the Board.Mr. Chase’s unique experience as a successful and widely respected entrepreneur, business leader, |
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Director Since: February 2014
Independent
Current Directorships:
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Director Since:
July 2016
Independent
Current Directorships:
Rio Tinto plc
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THE BOARD RECOMMENDS THAT YOU VOTE “FOR” EACH OF THE NOMINEES LISTED BELOW.
Nominees for Director Nominated by the Board of Directors for Terms Expiring in 20152018
H. PAULETT EBERHART (Lead Director) | ||||
Ms. Eberhart,
Key Contributions to the Board.Ms. Eberhart brings a wealth of accounting and financial experience to the Board, as well as managerial, manufacturing and global experience, through her numerous years of service as an executive officer for EDS, Invensys and CDI. She also held various other operating and financial positions during her 26 years at EDS. In addition, she gained significant experience through her service on the boards of other public companies and her involvement with various civic and charitable organizations. |
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Director Since: August 2004
Independent
Current Directorships:
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THE BOARD RECOMMENDS THAT YOU VOTE “FOR” EACH OF THE NOMINEES LISTED BELOW.
Nominees for Director Nominated by the Board of Directors for Terms Expiring in 2018
CLAIRE S. FARLEY | ||||
Ms. Farley, 58, serves as Vice Chair of Energy, advising the Energy group for KKR & Co. L.P. (NYSE: KKR) (KKR), a global investment firm that manages investments including private equity, energy, infrastructure, real estate, credit strategies and hedge funds, since February 2017. Prior to that she served as Vice Chairman for KKR’s energy and infrastructure business from 2015 through February 2017, as Partner for KKR’s energy and infrastructure business from 2012 through 2015 and as Managing Director for KKR’s energy and infrastructure business from November 2011 through December 2012. Prior to joining KKR, from September 2010 to October 2011, Ms. Farley co-founded and served as Co-Chief Executive Officer of RPM Energy, LLC, which partnered with KKR to invest in unconventional oil and gas resources. Prior to co-founding RPM Energy, Ms. Farley was a Senior Advisor at Jefferies Randall & Dewey, the global oil and natural gas industry advisory group at Jefferies Group, Inc., from August 2008 to September 2010 and was Co-President of Jefferies Randall & Dewey from February 2005 to July 2008. Prior to that, Ms. Farley served as Chief Executive Officer of Randall & Dewey, an oil and natural gas asset transaction advisory firm, from September 2002 until its acquisition by Jefferies Group, Inc. in February 2005. From January 2001 to May 2002 she served as Chief Executive Officer of Trade-Ranger Inc., a start-up-venture, and as Chief Executive Officer of Intelligent Diagnostics Corporation, also a start-up-venture, from October 1999 to January 2001. Prior to that, Ms. Farley spent 18 years (1981 to 1999) at Texaco, Inc. where her roles included Chief Executive Officer, Hydro Texaco; President, North American Production Division; and President, Worldwide Exploration & New Ventures. In addition to Ms. Farley’s current public-company directorships noted in the box to the right, in the past five years she also served on the boards of Encana Corporation (TSX: ECA) (NYSE: ECA), FMC Technologies, Inc. and Samson Resources Corporation. Key Contributions to the Board. Ms. Farley is a respected leader in the energy industry with a strong track record of success, including extensive experience in finance, strategic investments, mergers and acquisitions, and exploration and new ventures. | ||||
Director Since: February 2017 Independent Current Directorships: LyondellBasell Industries TechnipFMC plc | ||||
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THE BOARD RECOMMENDS THAT YOU VOTE “FOR” EACH OF THE NOMINEES LISTED BELOW.
Nominees for Director Nominated by the Board of Directors for Terms Expiring in 2018
PETER J. FLUOR | ||||
Mr. Fluor,
Key Contributions to the Board.Mr. Fluor brings more than 40 years of exploration and production operations, exploration and production service, finance, banking and managerial experience to the Board as a result of his experience at Texas Crude Energy, |
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Director Since: August 2007
Independent
Current Directorships:
Fluor Corporation
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RICHARD L. GEORGE | ||||
Mr. George,
Key Contributions to the Board.Mr. George’s extensive leadership roles and career experiences in the global energy industry |
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Director Since: May 2012
Independent
Current Directorships:
Penn West Petroleum Ltd.
Royal Bank of Canada
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THE BOARD RECOMMENDS THAT YOU VOTE “FOR” EACH OF THE NOMINEES LISTED BELOW.
Nominees for Director Nominated by the Board of Directors for Terms Expiring in 20152018
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Mr.
Key Contributions to the Board.Mr. |
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Director Since:
Independent
Current Directorships: Valero Energy Corporation Valero Energy Partners LP | ||||
JOHN R. GORDON | ||||
Mr. Gordon,
Key Contributions to the Board.Mr. Gordon’s role as Senior Managing Director of Deltec Asset Management LLC since 1988 provides him with significant finance and banking experience (including in the energy industry) as well as considerable managerial expertise. He also has significant involvement in various civic and charitable organizations. |
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Director Since: April 1988
Independent
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THE BOARD RECOMMENDS THAT YOU VOTE “FOR” EACH OF THE NOMINEES LISTED BELOW.
Nominees for Director Nominated by the Board of Directors for Terms Expiring in 2018
SEAN GOURLEY | ||||
Dr. Gourley, 37, has served as Chief Executive Officer of Primer Technologies, Inc., a company building software to power artificial intelligence applications for the finance and military intelligence industries, since he founded it in February 2015. From March 2009 to January 2015, he was the Chief Technology Officer of Quid, Inc., a San Francisco-based augmented intelligence company he founded which builds software for strategic decision-making. Dr. Gourley studied at The University of Oxford as a Rhodes Scholar where he received a Ph.D. in physics, and he received both his Bachelor of Science and Master of Science in physics from the University of Canterbury in Christchurch, New Zealand. He was additionally a Post-Doctoral Research Fellow at the Said Business School at Oxford University and is currently an Equity Partner with Data Collective Venture Capital Fund, investing in key data and algorithmic technologies. Key Contributions to the Board. As a highly successful executive and entrepreneur in the technology sector, Dr. Gourley brings a unique and valuable perspective to the Board. His leadership in big data, algorithmic technologies, information technology and software pertaining to artificial intelligence and strategic decision making adds new skill sets to the Board that can be beneficially applied and leveraged across the Company’s global operations. Dr. Gourley’s expertise complements and enhances the Company’s ability to leverage technology as a competitive advantage. | ||||
Director Since: September 2015 Independent | ||||
MARK C. McKINLEY | ||||
Mr. McKinley, 60, has served as Managing Partner of MK Resources LLC, a private oil and gas development company specializing in the recovery and production of crude oil and the development of unconventional resource projects, for more than ten years. He is also the founder and President of Labrador Oil Company, a private oil and natural gas exploration and development firm. In addition, Mr. McKinley is the Managing Partner of M Natural Resource Partners, LP, which holds mineral, royalty and real estate interests, both directly and indirectly through various partnerships. Mr. McKinley currently serves on the Boards of Directors of the Merrymac McKinley Foundation and the Tip of the Spear Foundation. Key Contributions to the Board. Mr. McKinley’s entrepreneurial, operational and business achievements during his long career in domestic and international oil and natural gas development bring valuable perspective to the Board. | ||||
Director Since: February 2015 Independent Current Directorships: Buckeye GP LLC | ||||
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THE BOARD RECOMMENDS THAT YOU VOTE “FOR” EACH OF THE NOMINEES LISTED BELOW.
Nominees for Director Nominated by the Board of Directors for Terms Expiring in 2018
ERIC D. MULLINS | ||||
Mr. Mullins,
Key Contributions to the Board.Mr. Mullins’s career experiences and knowledge in financing and strategic mergers and acquisitions for exploration and production companies greatly assists and enhances the Board’s ability to |
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Director Since: May 2012
Independent
Current Directorships:
PG&E Corporation | ||||
R. A. WALKER (Chairman of the Board) | ||||
Mr. Walker,
Key Contributions to the Board.Mr. Walker has |
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Director Since: May 2012
Not Independent -
Current Directorships:
BOK Financial
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BOARD AND COMMITTEE GOVERNANCE
Our Board recognizes that excellence in corporate governance is essential in carrying out our responsibilities to our stakeholders, including our stockholders, employees, customers, communities, and creditors, as well as to the environment. Our Corporate Governance Guidelines, By-Laws, Code of Business Conduct and Ethics, Code of Ethics for the Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer, and written charters for the Audit Committee, the Compensation and Benefits Committee (Compensation Committee), and the Governance and Risk Committee, all as amended from time to time, can be found on the Company’s website athttp://www.anadarko.com/About/Pages/Governance.aspx.responsibility/good-governance. These documents provide the framework for our corporate governance. Any of these documents will be furnished in print free of charge to any stockholder who requests them.upon request. You can submit such a request to the Corporate Secretary at 1201 Lake Robbins Drive, The Woodlands, Texas 77380-1046.
Under the Company’s Corporate Governance Guidelines, directors are expected to attend regularly scheduled Board of Director meetings and meetings of committees on which they serve, as well as the Annual Meetingannual meeting of Stockholders.stockholders. Each incumbent director thatwho served on our Board during 20132016 attended at least 75% of the meetings of the Board and the committees on which he or she served. There were eightsix Board meetings and 19a total of 20 Board committee meetings in 2013.2016. In addition, all of the incumbent directors attended the 20132016 Annual Meeting of Stockholders (2016 Annual Meeting), other than Mr. Chase,Constable, who joined the Board in July 2016, Ms. Farley, who joined the Board in February 2014.2017, and Mr. George.
BOARD LEADERSHIP STRUCTURE
Mr. Walker was elected Chairman of the Board, effective following the Company’s 2013 Annual Meeting. Mr. Walker, as the Company’s Chief Executive Officer (CEO), works in concert with the rest of our majority-independent Board and the independent Lead Director, Mr. Gordon, to oversee the execution of the Company’s strategy. The Board believes that the combined Chairman and CEOChief Executive Officer (CEO) role ensures open communication between the Board and executive management and promotes consistent and effective leadership of both the Board and executive management. Given Mr. Walker’s successful leadership transition during 2012 and 2013,In addition, the Board believes that a combined Chairman and CEO role is currently the best approach to promote long-term stockholder value for several reasons:the reasons listed below. Mr. Walker was initially elected Chairman of the Board effective following the Company’s 2013 Annual Meeting and has been re-elected to such role each year since that time. As the Company’s CEO, Mr. Walker works in concert with the rest of our majority-independent Board and the independent Lead Director, Ms. Eberhart, to oversee the execution of the Company’s strategy.
• | Promotes Unified Approach on Corporate Strategy Development and Execution — Maintaining a combined |
• | Requires that the CEO Recognize Importance of Good Corporate Governance — Maintaining a combined position requires that the CEO’s responsibilities include a mastery of good corporate governance, a focus on broad stakeholder interests, and an open channel of communication, and requires the CEO to work together with the Lead Director as a team and to appreciate the vital importance of good governance practices in executing the Company’s |
• | Provides Clear Lines of Accountability — A combined position has the practical effect of simplifying the accountability of the executive management team, thereby reducing potential confusion and fractured |
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Corporate Governance
• | Provides Clear Roadmap for Stockholder/Stakeholder Communications — A combined position provides the Company’s stakeholders the opportunity to deal with |
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Corporate Governance
Role of Lead Director. Consistent with industry best practices, the Board has a strong and active Lead Director whose duties and responsibilities ensure the Company maintains a corporate-governancecorporate governance structure with appropriate independence and balance. Our independent Lead Director’s duties are closely aligned with the role of an independent, non-executive chairman. Ms. Eberhart was appointed as Lead Director effective February 9, 2016. As the Lead Director, elected exclusively by the independent directors, Mr. Gordon’sMs. Eberhart’s role is to assist the Chairman and the remainder of the Board in assuring effective corporate governance in managing the affairs of the Board and the Company. Mr. GordonMs. Eberhart, who has previously served as Chair of the Audit Committee and currently serves as Chair of the Governance and Risk Committee, serves as a liaison between the Chairman and the independent directors and works with the Chairman to approve all meeting agendas. HeShe presides at (i) executive sessions of the non-employeeindependent directors, which are held in conjunction with each regularly scheduled quarterly meeting of the Board, (ii) executive sessions of the independent directors, which are held at least once a year, and (iii) any other meetings as determined byshe, in her capacity as the Lead Director. Mr. GordonDirector, determines appropriate. Ms. Eberhart also approves information sent to the Board and approves meeting schedules to assure there is sufficient time for discussion of all agenda items. In addition, as Lead Director, Mr. GordonMs. Eberhart has authority to call special meetings of the Board and is also a member of the Board’s Executive Committee, providing additional representation for the independent directors in all actions considered by the Executive Committee between Board meetings. Mr. GordonMs. Eberhart is required, if requested by major stockholders, to be available for consultation and direct communication.
THE BOARD’S ROLE IN RISK OVERSIGHT
The Board’s role in the identification, assessment, oversight and management of potential risks that could affect the Company’s ability to achieve its strategic, operational and financial objectives consists of (i) of:
BoardRole of the Board’s Committees. The Governance and Risk Committee is responsible for oversight of the Company’s significant risk exposures and periodically reviews and discusses with members of management those risk exposures and the steps being taken to identify, monitor and mitigate such exposures. With the assistance of the Compensation Committee’s independent executive compensation consultant, the Compensation Committee is responsible for the oversight of the annual risk assessment of the Company’s compensation programs. The Audit Committee is responsible for oversight of the Company’s risk assessment framework and risk management policies, including the
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Corporate Governance
framework with respect to significant financial risk exposures, and periodically reviews and discusses such framework and policies with members of management.
Role of the Internal Risk Council. In order to facilitate oversight of potential risk exposures to the Company that have not been specifically delegated to any Board committee, the Board periodically meets with members of the Company’s internal Risk Council to review and assess the Company’s risk managementrisk-management processes and to discuss significant risk exposures. Members of senior management comprise the Company’s internal Risk Council and provide periodic reports to the CEO, the Governance and Risk Committee and the full Board regarding the Company’s risk profile and risk-management strategies. In addition, the Company’s internal audit function regularly provides additional perspective and insight to the BoardAudit Committee regarding potential risks facing the Company.
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Corporate Governance
COMPENSATION COMMITTEE RISK ASSESSMENT
The Compensation Committee reviewed a comprehensive compensation risk assessment conducted independently by Frederic W. Cook & Co., Inc. (FWC)(FW Cook), the Compensation Committee’s executive compensation consultant. The assessment focused on the design and application of the Company’s executive and non-executive compensation programs and whether such programs encourage excessive risk taking by executive officers and other employees. Based on the outcomes of this assessment and the Compensation Committee’s review, the Compensation Committee believes that the Company’s compensation programs (i) do not motivate our executive officers or our non-executive employees to take excessive risks, (ii) are well designed to encourage behaviors aligned with the long-term interests of stockholders, and (iii) are not reasonably likely to have a material adverse effect on the Company.
Anadarko’s compensation programs are designed to support and reward appropriate risk taking and include the following:
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Corporate Governance
COMMITTEES OF THE BOARD
The Board has four standing committees: (i) the Audit Committee,Committee; (ii) the Compensation Committee,Committee; (iii) the Governance and Risk Committee,Committee; and (iv) the Executive Committee. For each of the current committees of the Board, the table below shows the current membership, the principal functions and the number of meetings held in 2013:2016:
Name, Members
| Principal Functions | |||
AUDIT COMMITTEE(1) Eric D. Mullins (Chair)(2) Kevin P.
Mark C. McKinley
Meetings in | • | Discusses the integrity of the Company’s accounting policies, internal controls, financial reporting practices and the financial statements with management, the independent auditor and internal audit. | ||
• | Reviews and discusses with management the Company’s risk assessment framework and risk management policies, including the framework with respect to significant financial risk exposures. | |||
• | Monitors the qualifications, independence and performance of the Company’s internal audit function and independent auditor, and meets periodically with management, internal audit and the independent auditor in separate executive sessions. | |||
• | Establishes and maintains procedures for the submission, receipt, retention and treatment of complaints and concerns received by the Company regarding accounting, internal controls or auditing matters, including those received through the confidential anonymous Anadarko Hotline. |
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Corporate Governance
|
| |||
| • | Monitors compliance with legal and regulatory requirements and the business practices and ethical standards of the Company. | ||
• | Approves the appointment, compensation, retention and oversight of the work of the Company’s independent auditor and establishes guidelines for the retention of the independent auditor for any permissible services. | |||
• | Prepares the Audit Committee report, which is on page | |||
COMPENSATION AND BENEFITS COMMITTEE(4)
Peter J. Fluor
John R. Gordon
Meetings in | • | Approves and evaluates the Company’s director and officer compensation plans, policies and programs. | ||
• | Conducts an annual review and evaluation of the CEO’s performance in light of the Company’s goals and objectives. | |||
• | Retains, and is directly responsible for the oversight of, compensation or other consultants to assist in the evaluation of director or executive compensation and otherwise to aid the Compensation Committee in meeting its responsibilities. For additional information on the role of compensation consultants, please see Compensation Discussion and Analysis beginning on page 30. |
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Corporate Governance
Name, Members and Meetings | Principal Functions | |||
COMPENSATION AND BENEFITS COMMITTEE (Continued) | • | Annually reviews the Company’s compensation-related risk profile to confirm that compensation-related risks are not reasonably likely to have a material adverse effect on the Company. | ||
• | Periodically reviews and discusses with its independent compensation consultants and senior management the Company’s policy on executive severance arrangements, and recommends any proposed changes to the Board to the extent required by the Compensation Committee charter. | |||
• | Reviews the Compensation Discussion and Analysis, disclosures for advisory votes by stockholders on executive compensation, including frequency of such votes, and other relevant disclosures made in the proxy statement. | |||
• | Produces an annual Compensation Committee report, which is on page | |||
GOVERNANCE AND RISK H. Paulett Eberhart (Chair) Anthony R. Chase
Sean Gourley
Meetings in | • | Recommends nominees for director to the full Board and, subject to the Board’s power and authority to determine the eligibility of nominees nominated by stockholders pursuant to Section 2.9 of the Company’s By-Laws, ensures such nominees possess the director qualifications set forth in the Company’s Corporate Governance Guidelines. | ||
• | Reviews the qualifications of existing Board members before they are nominated for re-election to the Board. | |||
• | Recommends members of the Board for committee membership. | |||
• | Proposes Corporate Governance Guidelines for the Company and reviews them annually. | |||
• | Oversees the Company’s compliance structure and programs. |
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Corporate Governance
|
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| • | Develops and oversees an evaluation process for the Board and its committees. | ||
• | ||||
Reviews and approves related-person transactions in accordance with the Board’s procedures. | ||||
• | Reviews and investigates reports to the confidential anonymous Anadarko Hotline regarding material non-financial matters. | |||
• | Reviews and discusses with management the Company’s significant risk exposures and the steps management has taken to identify, monitor and mitigate such exposures. | |||
• | Oversees the work of the Company’s independent reserve engineering consultant. | |||
• | Oversees the Anadarko Petroleum Corporation Political and Public Engagement Policy and the Company’s political activity, including annually reviewing the Company’s political contributions and trade association payments. | |||
• | Reviews and discusses with management the Company’s environmental, health and safety programs. |
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Corporate Governance
Name, Members and Meetings | Principal Functions | |||
EXECUTIVE COMMITTEE R. A. Walker (Chair) H. Paulett Eberhart
Eric D. Mullins
Meetings in | • | Acts with the power and authority of the Board, in accordance with the Company’s By-Laws, in the management of the business and affairs of the Company while the Board is not in session. | ||
• | Approves specific terms of financing or other transactions that have previously been approved by the Board. | |||
(1) | The Board has determined that each member of the Audit Committee is independent as independence for audit committee members is defined in Rule 10A-3(b)(1) of the Securities Exchange Act of 1934, as amended (Exchange Act), and under the standards set forth by the NYSE. None of the Audit Committee members serve on the audit committee of more than two other public companies. |
(2) | The Board has determined that Mr. Mullins qualifies as an “audit committee financial expert” under the rules of the SEC based upon his education and employment |
(3) | Gen. Chilton will retire from the Board effective as of the close of the Annual Meeting. |
(4) | The Board has determined that each member of the Compensation Committee |
The Board has determined that each member of the Governance and Risk Committee is independent under the standards set forth by the NYSE |
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Corporate Governance
BOARD OF DIRECTORS
Director Independence
In accordance with NYSE rules, the Sarbanes-Oxley Act of 2002, the Exchange Act, and the rules and regulations adopted thereunder, and the Company’s Corporate Governance Guidelines, the Board must affirmatively determine the independence of each director and director nominee in accordance with the Company’s director independence standards, which are contained in the Company’s Corporate Governance Guidelines found on the Company’s website at http://www.anadarko.com/About/Pages/Governance.aspx.content/documents/apc/responsibility/governance_documents/corp_gov_guidelines_111016.pdf.
Based on the standards contained in our Corporate Governance Guidelines, and the recommendation by the Governance and Risk Committee, the Board has determined that each of the following non-employee director nominees is independent and has no material relationship with the Company that could impair such nominee’s independence:
• Anthony R. Chase | • | |
• | • | |
• H. Paulett Eberhart | • | |
• Claire S. Farley | • Mark C. McKinley | |
• Peter J. Fluor | • Eric D. Mullins | |
• Richard L. George |
Mr. Walker is not independent because he is the Chairman,given his role as President and CEO of the Company.
For information regarding our policy on Transactions with Related Persons, please see page 7576 of this proxy statement.
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Corporate Governance
Director Nominee Selection of DirectorsProcess
The Company’s Corporate Governance Guidelines require that with respect to Board vacancies, the Governance and Risk Committee (or a subcommittee thereof): (i) identify the personal characteristics needed in a director nominee so that the Board as a whole will possess such qualifications as more fully identified below; (ii) compile, through such means as the Governance and Risk Committee considers appropriate, a list of potential director nominees thought to possess the individual qualifications identified in the Corporate Governance Guidelines, as well as any additional specific qualifications the Board deems appropriate at the time; (iii) engage an outside consultant, as necessary, to assist in the search for qualified nominees; (iv) review the background, character, experience and temperament of each potential nominee; (v) conduct interviews, and if appropriate recommend that other members of the Board and/or management interview such potential nominee; and (vi) evaluate each potential nominee in relation to the culture of the Company and the Board, which emphasizes independent thinking and teamwork.
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Corporate GovernanceBoard Qualifications.
As stated in our Corporate Governance Guidelines, one of the core competencies our Board has identified in assessing the qualifications of the Board as a whole is a diversity of experience, professional expertise, perspective and age. The Board recognizes that such diversity is an important factor in board composition and the Governance and Risk Committee ensures that such diversity considerations are discussed in connection with each candidate for director. For the past several years, our Board has reviewed on at least an annual basis a director skillsetskill set chart that identifies expertise, experience and other characteristics that the Board believes contribute to an effective and well-functioning board and that the Board as a whole should possess. The factors the Board considers include the following:
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Corporate Governance
The Governance and Risk Committee considers these and other factors and the extent to which such skillsetsattributes can be represented when evaluating potential candidates for the Board. Other factors considered include board refreshment and director tenure. Together, this diversity of skillsets,skill sets, experiences and personal backgrounds allows our directors to provide the diversity of thought that is critical to the Board’s decision-making and oversight process.
Annual EvaluationsBoard Evaluation Process
The Board and each of the independent committees have conducted self-evaluations related to their performance in 2013.2016, including an evaluation of each director. The performance evaluations were supervised by the Governance and Risk Committee supervises the performance evaluations and uses various processes from year to year in order to solicit feedback, including periodic in-person interviews conducted by the Lead Director with each of the Board members. Following a discussion of the results were discussed byof the applicable committee andevaluations, the Board. The Board and each committee have implemented any necessary changes as a resultreview and discuss the evaluation results, and take this information into account when assessing the qualifications of these evaluations.the Board and further enhancing the effectiveness of the Board and its committees over time.
Communication with the Directors of the Company
The Board welcomes questions or comments about the Company and its operations. Interested parties who wish to communicate with the Board, including the Lead Director, the non-employee or independent directors, or any individual director, may contact the ChairpersonChair of the Governance and Risk Committee at governanceriskchair@anadarko.com or at Anadarko Petroleum Corporation, Attn: Corporate Secretary, 1201 Lake Robbins Drive, The Woodlands, Texas 77380-1046. If requested, any questions or comments will be kept confidential to the extent reasonably possible. Depending on the subject matter, the ChairpersonChair of the Governance and Risk Committee, with the assistance of the Corporate Secretary, will:
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Corporate Governance
These procedures may change from time to time, and you are encouraged to visit our website at http://www.anadarko.com for the most current means of contacting our directors. If you wish to request copies of any of our governance documents, please seerefer to page 1310 of this proxy statement for instructions on how to obtain them.instructions.
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Corporate Governance
Stockholder Participation in the Selection of Director Nominees
DuringProxy Access. In September 2015, the past year, noBoard amended the Company’s By-Laws to implement proxy access after conducting robust stockholder submitted namesengagement. Eligible stockholders may nominate a candidate for election to the GovernanceBoard for inclusion in the Company’s proxy materials in accordance with the proxy access provisions of Section 2.9(C) of our By-Laws. An eligible stockholder generally must deliver the Stockholder Notice (as defined in our By-Laws) to the Corporate Secretary at the principal executive offices of the Company not later than the close of business on the 120th day, nor earlier than the close of business on the 150th day, prior to the first anniversary of the date (as stated in the Company’s proxy materials) the definitive proxy statement was first sent to stockholders in connection with the preceding year’s annual meeting of stockholders and Risk Committeeotherwise comply with all of individualsthe requirements of the By-Laws. For the 2018 annual meeting of stockholders, we must receive notice of the nomination for inclusion in the Company’s proxy materials no earlier than October 25, 2017 and no later than November 24, 2017.
Other Director Nominations. Our By-Laws also provide that any stockholder intending to nominate a candidate for election to the Board or proposing any business to be brought before an annual meeting of stockholders, which nomination is not submitted for inclusion in the Company’s proxy materials pursuant to Section 2.9(C) of the By-Laws, generally must deliver written notice by mail to the Company’s Board pursuantCorporate Secretary at the principal executive officers of the Company not later than the close of business on the 90th day, nor earlier than the close of business on the 120th day, prior to the procedures discussed below.first anniversary of the preceding year’s annual meeting. The notice must include information specified in the By-Laws. For nominationthe 2018 annual meeting of stockholders, we must receive notice of your intention to nominate a director or to introduce an item of business at the 2015 Annual Meeting, thethat meeting no earlier than January 10, 2018 and no later than February 9, 2018.
The Board will consider individuals identified by stockholders on the same basis as nominees identified from other sources. To nominate a directorDuring the past year, no stockholder submitted names of individuals to the Governance and Risk Committee for the 2015 Annual Meeting, a stockholder must follow the procedures described in the Company’s By-Laws, which require that the stockholder give written noticenomination to the Company’s Corporate Secretary at the Company’s principal executive offices. The noticeBoard pursuant to the Corporate Secretary must include the following:procedures discussed above.
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Corporate Governance
In addition, the nominee must be in compliance, if elected as a director of the Company, and agree to continue to comply with all applicable publicly disclosed corporate governance, conflict of interest, confidentiality and stock ownership and trading policies and guidelines of the Company.
Generally, nominations must be received no earlier than the close of business on the 120th day prior to, and no later than the close of business on the 90th day prior to, the first anniversary of our last annual meeting of stockholders, or, if the nomination is with respect to a special meeting of stockholders, not earlier than the close of business on the 120th day prior to, and no later than the close of business on the 90th day prior to, such special meeting.Act. For more information on stockholder participation in the selection of director nominees, please refer to that sectionSection 2.9 in our Corporate Governance Guidelines and our By-Laws, which are posted on the Company’s website at http://www.anadarko.com/About/Pages/Governance.aspx.content/documents/apc/responsibility/governance_documents/2015-09-21_by-laws.pdf.
Directors’Director Continuing Education
The Company’s Director Education Policy encourages all members of the Board to attend director education programs appropriate to their individual backgrounds to stay abreast of developments in corporate governance and best practices relevant to their contribution to the Board as well as their responsibilities in their specific committee assignments. The Director Education Policy provides that the Company will reimburse directors for allthe costs associated with attending any director education program.
Compensation and Benefits Committee Interlocks and Insider Participation
The Compensation Committee is made up of three independent directors.directors, Messrs. Fluor, Gorder and Gordon. None of our executive officers currently serve, or in the past year have served, as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving on our Board or our Compensation Committee.
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Corporate Governance
Director Compensation
Non-employee directors receive a combinationThe Compensation Committee is responsible for determining the type and amount of cash and stock-based compensation for non-employee directors. The program is reviewed annually to ensure that it is appropriately designed to attract qualified individuals who possess the expertise and retain qualified candidates to serve onskill set required by the Board. Mr. Walker does not receive any compensation for his service as a director.Company’s Board members. In setting non-employee director compensation, the BoardCompensation Committee considers the competitive market as well as the significant amount of time that non-employee directors spend in fulfilling their duties to the Company and its stockholders as well as the skill level required by the Company’s Board members. The Compensation Committee is responsible for determining the type and amount of compensation for non-employee directors.stockholders. To assist in the 20132016 annual review of director compensation, the Compensation Committee directly retained FWCFW Cook as its outside independent compensation consultant to provide benchmark compensation data and recommendations for compensation program design.
Non-employee directors receive a combination of cash and stock-based compensation. In February 2016, the Compensation Committee adopted an amendment to the Anadarko Petroleum Corporation 2008 Director Compensation Plan to limit the total compensation, both cash and stock-based compensation, that non-employee directors may receive annually under any of the Company’s compensation plans. Mr. Walker does not receive any compensation for his service as a director.
Retainer and Meeting Fees.Cash Compensation Program. The following is a schedule of current annual retainers and meeting fees for non-employee directors in effect during 2013 and2016, payable on a quarterly basis:
| Amount($) | ||||
Annual Board Retainer | |||||
Additional Annual Retainer | |||||
| |||||
Additional Annual Retainer | 35,000 | ||||
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Additionally, to compensate a director in a year when there is an unusually high level of service required, a per-meeting fee of $2,000 will be paid for each meeting attended in excess of 20 combined Board and committee meetings in a calendar year.
Non-employee directors may receive their cash compensation in cash or, if eligible, defer cash compensation into the Anadarko Deferred Compensation Plan (described below), or any combination thereof. Beginning in 2016, the Compensation Committee eliminated the non-employee directors’ option to elect to receive their annual retainers in shares of common stock. Instead, non-employee directors may elect to receive, their retainer and meeting fees in cash, common stock, or deferred cash under the Anadarko Deferred Compensation Plan described below, or any combination thereof. The amount of stock issued to non-employee directors for payment in lieu of all or a portion of their cash fees is determined at the endcompensation, a number of the quarter for which compensation is earned, and is calculated by dividing the closing stock pricedeferred shares of the Company’s common stock, onthe grant date fair value of which, calculated pursuant to FASB ASC Topic 718, is approximately equal to the forgone cash compensation. These deferred shares may not be distributed to the non-employee director earlier than one year from the date of grant into(except in the applicable fee for that period.event of a separation from the Board due to death, disability or a change of control). This election option to receive deferred shares of common stock, in lieu of cash compensation, provides non-employee directors a method to invest in the Company as a stockholder and further align their interests with the interests of the Company’s stockholders.
Deferred Compensation Plan for Non-employeeNon-Employee Directors. Non-employee directors who are eligible toresident in the U.S. may participate in the Company’s Deferred Compensation Plan. The Deferred Compensation Plan allows non-employee directors to defer receipt of up to 100% of their retainers and meeting fees,cash compensation, and to allocate the deferred amounts among a group of notional accounts that mirror the gains and/or losses of various investment funds, including commonfunds. Effective January 1, 2016, the Compensation
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Corporate Governance
Committee eliminated the Anadarko stock offund as an investment option under the Company.Deferred Compensation Plan. The interest rate earned on the deferred amounts is not above-market or preferential. In general, deferred amounts are distributed to the participant upon leaving the Board or at a specific date as elected by the participant. Messrs. Fluor and Geren and Ms. ReynoldsMr. Gordon is the only director who elected to defer compensation during 2013.
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Corporate Governance
2016.
Stock Plan for Non-employeeNon-Employee Directors. In addition to cash compensation, non-employee directors receive annual equity grants. Equity grants to non-employee directors are awarded each year on the date of the Company’s annual meeting of stockholders. For 2016, each non-employee director who was elected at the 2016 Annual Meeting received an annual deferred share grant with a grant date fair value (calculated pursuant to FASB ASC Topic 718) of approximately $250,000. Mr. Constable and Ms. Farley each received a prorated equity grant when they were elected to the Board in July 2016 and February 2017, respectively. Non-employee directors may elect to receive their shares on a specific date, but not earlier than one year from the date of grant (except in the event of a separation from the Board due to death, disability or a change of control). Stock-based awards made to non-employee directors are made pursuant to the Anadarko Petroleum Corporation 2008 Director Compensation Plan. In addition to the retainer and meeting fee compensation, non-employee directors receive annual equity grants. Equity grants to non-employee directors are automatically awarded each year on the date of the Company’s annual meeting of stockholders. For 2013, each non-employee director received an annual equity grant with a value targeted at approximately $250,000. For U.S. and Canadian-resident non-employee directors, 100% of the value was delivered in deferred shares. Non-employee directors may elect to receive these shares on a specific date, but not earlier than one year from the date of grant, or when they leave the Board. For non-employee directors residing in the United Kingdom, 100% of the value was delivered in restricted shares, which vest on the fifth anniversary of the date of grant.
Stock Ownership Guidelines for Non-employee Directors. Non-employee directors are required to hold stock with a value equivalent to seven times the annual Board retainer and have three
Stock Ownership Guidelines for Non-Employee Directors. Non-employee directors are required to hold stock with a value equivalent to seven times the annual Board retainer and have five years from the date of their initial election to the Board to comply with the |
Other Compensation. Non-employee directors are covered under the Company’s Accidental Death & Dismemberment Plan and the Company pays the annual premium for such coverage on behalf of each non-employee director. The Company also provides each non-employee director with Personal Excess Liability coverage and pays the annual premium on their behalf. The Company maintains an Aid to Education Program under which certain gifts by employees, officers, non-employee directors and retired employees to qualified institutions of learning are matched on a two-to-one basis. The maximum contribution matched per donor, per calendar year is $2,500, resulting in a maximum Company yearly match of $5,000.$5,000 per donor.
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Corporate Governance
DIRECTOR COMPENSATION TABLE FOR 20132016
The following table sets forth information concerning total non-employee director compensation earned during the 20132016 fiscal year by each incumbent director who served on the Board in 2013,2016, other than Mr. Walker, who does not receive any compensation for his service as a director:
Name | Fees Earned or Paid in Cash($) | Stock Awards ($)(1) | Option Awards ($)(2) | Non-Equity Incentive Plan Compensation ($) | Change in Pension Value and Non- qualified Deferred Compensation Earnings($) | All Other Compensation ($)(3) | Total($) | ||||||||||||||||||||||||||||
Kevin P. Chilton | 116,558 | 250,065 | 0 | 0 | 0 | 4,381 | 371,004 | ||||||||||||||||||||||||||||
Luke R. Corbett(4) | 97,000 | 250,065 | 0 | 0 | 0 | 4,381 | 351,446 | ||||||||||||||||||||||||||||
H. Paulett Eberhart | 139,640 | 250,065 | 0 | 0 | 0 | 4,381 | 394,086 | ||||||||||||||||||||||||||||
Peter J. Fluor(5) | 141,558 | 250,065 | 0 | 0 | 0 | 4,381 | 396,004 | ||||||||||||||||||||||||||||
Richard L. George(6) | 116,558 | 250,065 | 0 | 0 | 0 | 4,381 | 371,004 | ||||||||||||||||||||||||||||
Preston M. Geren III(4)(5) | 128,903 | 250,065 | 0 | 0 | 0 | 4,381 | 383,349 | ||||||||||||||||||||||||||||
Charles W. Goodyear | 126,558 | 250,065 | 0 | 0 | 0 | 4,381 | 381,004 | ||||||||||||||||||||||||||||
John R. Gordon | 146,558 | 250,065 | 0 | 0 | 0 | 4,381 | 401,004 | ||||||||||||||||||||||||||||
Eric D. Mullins | 122,245 | 250,065 | 0 | 0 | 0 | 4,381 | 376,691 | ||||||||||||||||||||||||||||
Paula R. Reynolds(4)(5) | 116,558 | 250,065 | 0 | 0 | 0 | 4,381 | 371,004 |
Name | Fees Earned or Paid in Cash($) | Stock Awards ($)(1) | Option Awards ($)(2) | Non-Equity Incentive Plan Compensation ($) | Change in Pension Value and Non- Qualified Deferred Compensation Earnings ($) | All Other Compensation ($)(3) | Total($) | ||||||||||||||||||||||||||||
Anthony R. Chase(4) | 0 | 360,045 | 0 | 0 | 0 | 1,800 | 361,845 | ||||||||||||||||||||||||||||
Kevin P. Chilton(5) | 110,000 | 250,036 | 0 | 0 | 0 | 6,800 | 366,836 | ||||||||||||||||||||||||||||
David E. Constable(6) | 47,850 | 213,076 | 0 | 0 | 0 | 893 | 261,819 | ||||||||||||||||||||||||||||
H. Paulett Eberhart(4) | 0 | 416,243 | 0 | 0 | 0 | 1,800 | 418,043 | ||||||||||||||||||||||||||||
Peter J. Fluor(4) | 0 | 368,914 | 0 | 0 | 0 | 1,800 | 370,714 | ||||||||||||||||||||||||||||
Richard L. George(4) | 0 | 360,244 | 0 | 0 | 0 | 1,800 | 362,044 | ||||||||||||||||||||||||||||
Joseph W. Gorder(4) | 0 | 376,100 | 0 | 0 | 0 | 1,800 | 377,900 | ||||||||||||||||||||||||||||
John R. Gordon(7) | 113,763 | 250,036 | 0 | 0 | 0 | 1,800 | 365,599 | ||||||||||||||||||||||||||||
Sean Gourley | 110,000 | 250,036 | 0 | 0 | 0 | 1,800 | 361,836 | ||||||||||||||||||||||||||||
Mark C. McKinley | 110,000 | 250,036 | 0 | 0 | 0 | 1,800 | 361,836 | ||||||||||||||||||||||||||||
Eric D. Mullins(4) | 0 | 385,023 | 0 | 0 | 0 | 1,800 | 386,823 |
(1) |
(2) | The non-employee directors did not receive any stock option awards in |
(3) | For all non-employee directors, except for Mr. Constable, the amounts in this column include annual premiums paid by the Company for each director’s benefit in the amount of |
21 |
Corporate Governance
Education Program” made by the Company on |
(4) | In lieu of this director’s retainer, the director elected to receive a grant of deferred shares: Mr. |
(5) | Gen. Chilton will retire from the Board effective as of the close of the Annual Meeting. |
(7) | Mr. Gordon deferred all of |
|
Beneficial Owners and Management
The information provided below summarizes the beneficial ownership of our NEOs,each named executive officer (NEO), each of our directors and director nominees, all of our directors, director nominees and executive officers as a group, and owners of more than five percent of our outstanding common stock. “BeneficialGenerally, “beneficial ownership” generally includes those shares of common stock held by someone who has investment and/or voting authority of such shares or has the right to acquire such common stock within 60 days. The ownership includes common stock that is held directly and also stock held indirectly through a relationship, a position as a trustee, or under a contract or understanding.
DIRECTORS, DIRECTOR NOMINEES AND EXECUTIVE OFFICERS
The following table sets forth the number and percentage of Anadarko common stock beneficially owned by our NEOs, each of our directors and director nominees, and all of our executive officers, directors and director nominees as a group as of March 3, 2014:1, 2017. None of the common stock beneficially owned as set forth below is pledged as security.
Amount and Nature of Beneficial Ownership | Amount and Nature of Beneficial Ownership | |||||||||||||||||||||||||||||||||||||||
Name of Beneficial Owner | Number of Shares of Common Stock Beneficially Owned(1)(2) | Stock Acquirable Within 60 Days | Total Beneficial Ownership(3)(4) | Percent of Class | Number of Shares of Common Stock Beneficially Owned(1)(2) | Stock Acquirable Within 60 Days | Total Beneficial Ownership(3)(4)(5) | Percent of Class | ||||||||||||||||||||||||||||||||
R. A. Walker | 194,639 | 535,078 | 729,717 | * | 265,418 | 672,963 | 938,381 | * | ||||||||||||||||||||||||||||||||
Robert G. Gwin | 61,257 | 345,202 | 406,459 | * | 112,474 | 278,203 | 390,677 | * | ||||||||||||||||||||||||||||||||
Charles A. Meloy | 107,802 | 198,594 | 306,396 | * | ||||||||||||||||||||||||||||||||||||
Robert P. Daniels(6) | 86,976 | 215,824 | 302,800 | * | ||||||||||||||||||||||||||||||||||||
Mitchell W. Ingram | 13,409 | — | 13,409 | * | ||||||||||||||||||||||||||||||||||||
Ernest A. Leyendecker | 17,441 | 98,001 | 115,442 | * | ||||||||||||||||||||||||||||||||||||
Robert K. Reeves(7) | 156,456 | 288,378 | 444,834 | * | 213,457 | 217,702 | 431,159 | * | ||||||||||||||||||||||||||||||||
Anthony R. Chase | 765 | 0 | 765 | * | 16,385 | — | 16,385 | * | ||||||||||||||||||||||||||||||||
Kevin P. Chilton | 10,030 | 0 | 10,030 | * | 21,566 | — | 21,566 | * | ||||||||||||||||||||||||||||||||
David E. Constable | 4,610 | — | 4,610 | * | ||||||||||||||||||||||||||||||||||||
H. Paulett Eberhart | 25,707 | 0 | 25,707 | * | 40,614 | — | 40,614 | * | ||||||||||||||||||||||||||||||||
Claire S. Farley | 1,018 | — | 1,018 | * | ||||||||||||||||||||||||||||||||||||
Peter J. Fluor | 32,089 | 5,650 | 37,739 | * | 132,407 | 5,650 | 138,057 | * | ||||||||||||||||||||||||||||||||
Richard L. George | 17,339 | 0 | 17,339 | * | 29,960 | — | 29,960 | * | ||||||||||||||||||||||||||||||||
Preston M. Geren III | 25,158 | 8,900 | 34,058 | * | ||||||||||||||||||||||||||||||||||||
Charles W. Goodyear | 17,313 | 0 | 17,313 | * | ||||||||||||||||||||||||||||||||||||
Joseph W. Gorder | 13,519 | — | 13,519 | * | ||||||||||||||||||||||||||||||||||||
John R. Gordon | 164,543 | 32,100 | 196,643 | * | 171,079 | 9,600 | 180,679 | * | ||||||||||||||||||||||||||||||||
Sean Gourley | 8,693 | — | �� | 8,693 | * | |||||||||||||||||||||||||||||||||||
Mark C. McKinley | 10,700 | — | 10,700 | * | ||||||||||||||||||||||||||||||||||||
Eric D. Mullins | 6,584 | 0 | 6,584 | * | 20,871 | — | 20,871 | * | ||||||||||||||||||||||||||||||||
Paula R. Reynolds | 30,333 | 5,650 | 35,983 | * | ||||||||||||||||||||||||||||||||||||
All directors, director nominees and executive officers as a group (17 persons) | 1,001,196 | 1,750,581 | 2,751,777 | * | ||||||||||||||||||||||||||||||||||||
All directors, director nominees and executive officers as a group (19 persons) | 1,121,704 | 1,416,278 | 2,537,982 | * |
* | Less than one percent. |
(1) | This column does not include shares of common stock that the directors or executive officers of the Company have the right to acquire within 60 days of March |
23 |
Security Ownership of Certain
Beneficial Owners and Management
the individuals do not have the power to dispose of, or direct the disposition of, such shares until such shares are distributed to them. In addition, some shares of common stock reflected in this column for certain individuals are subject to restrictions. |
|
Security Ownership of Certain
Beneficial Owners and Management
(2) | This column does not include the following number of restricted stock units, which |
(3) | In addition to the Anadarko common stock reported in the table, as of December |
(4) | In addition to the Anadarko common stock reported in the table, as of December |
(5) | In addition to the Anadarko common stock reported in the table, as of December 31, 2016 Mr. Walker owned 2,500 tangible equity units (TEUs). In June 2015, the Company issued 9.2 million TEUs. Each TEU is comprised of a prepaid equity purchase contract for common units of WGP and a senior amortizing note. Anadarko has a right to elect to issue and deliver shares of Anadarko common stock in lieu of delivering WGP common units at settlement, which, unless settled earlier at the holder’s option, is June 7, 2018. The directors and executive officers, individually and as a group, beneficially own less than one percent of the outstanding TEUs. |
(6) | Includes 108,000 |
(7) | Includes 95,000 shares of common stock held by |
24 |
Security Ownership of Certain
Beneficial Owners and Management
CERTAIN BENEFICIAL OWNERS
The following table shows the beneficial owners of more than five percent of the Company’s common stock as of December 31, 2013,2016, based on information available as of February 14, 2014:2017:
Title of Class | Name and Address of Beneficial Owner | Amount and Nature of Beneficial Ownership | Percent of Class | Name and Address of Beneficial Owner | Amount and Nature of Beneficial Ownership | Percent of Class | ||||||||||||||||||
Common Stock | BlackRock Inc. 40 East 52nd Street New York, NY 10022 | 40,059,983(1) | 8.00% | BlackRock, Inc. 55 East 52nd Street New York, NY 10055 | 42,431,757(1) | 7.60% | ||||||||||||||||||
Common Stock | The Vanguard Group 100 Vanguard Blvd. Malvem, PA 19355 | 25,647,988(2) | 5.09% | The Vanguard Group 100 Vanguard Blvd. Malvern, PA 19355 | 37,643,758(2) | 6.73% | ||||||||||||||||||
Common Stock | FMR LLC 245 Summer Street Boston, MA 02210 | 35,291,542(3) | 6.31% | |||||||||||||||||||||
Common Stock | State Street Corporation State Street Financial Center One Lincoln Street Boston, MA 02111 | 28,410,712(4) | 5.08% |
(1) | Based upon its Schedule 13G/A filed |
(2) | Based upon its Schedule |
(3) | Based upon its Schedule 13G filed February 14, 2017, with the SEC with respect to Company securities held as of December 31, 2016, FMR LLC has sole voting power as to 2,060,049 shares of common stock and sole dispositive power as to 35,291,542 shares of common stock. |
(4) | Based upon its Schedule 13G filed February 9, 2017, with the SEC with respect to Company securities held as of December 31, 2016, State Street Corporation has shared voting power as to 28,410,712 shares of common stock, and shared dispositive power as to 28,410,712 shares of common stock. |
| 25 |
Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires the Company’s directors and executive officers, and persons who own more than 10% of a registered class of the Company’s equity securities, to file with the SEC and any exchange or other system on which such securities are traded or quoted, initial reports of ownership and reports of changes in ownership of the Company’s common stock and other equity securities. Officers, directors and more than 10% stockholders are required by the SEC’s regulations to furnish the Company and any exchange or other system on which such securities are traded or quoted with copies of all Section 16(a) forms they filed with the SEC.
To the Company’s knowledge, based solely on a review of the copies of such reports furnished to the Company and written representations that no other reports were required, the Company believes that all reporting obligations of the Company’s officers, directors and more than 10% stockholders under Section 16(a) were satisfied during the year ended December 31, 2013, except that James J. Kleckner, Executive Vice President, International and Deepwater Operations of the Company, inadvertently omitted 8,436 shares of the Company’s common stock from an otherwise timely filed Form 3. An amended Form 3 was filed on February 13, 2014.2016.
|
The following report of the Audit Committee of the Company, dated February 25, 2014,8, 2017, shall not be deemed to be “soliciting material” or to be “filed” with the Securities and Exchange Commission, nor shall this report be incorporated by reference into any filing made by the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.
The Audit Committee of the Board is responsible for independent, objective oversight of the Company’s accounting functions and internal controlscontrol over financial reporting. The Audit Committee is composed of fourthree directors, each of whom is independent as defined by the NYSENew York Stock Exchange (NYSE) listing standards. The Audit Committee operates under a written charter approved by the Board of Directors, which is available on the Company’s web sitewebsite at http://www.anadarko.com/About/Pages/Governance.aspx.content/documents/apc/responsibility/governance_documents/2013-11-07_audit_committee_charter.pdf.
Management is responsible for the Company’s internal controlscontrol over financial reporting. The independent auditor is responsible for performing an independent audit of the Company’s consolidated financial statements in accordance with generally accepted auditing standards in the United States of America and issuing a report thereon. The independent auditor is also responsible for performing an independent auditsaudit of the Company’s internal controlscontrol over financial reporting. The Audit Committee’s responsibility is to monitor and oversee these processes.
KPMG LLP served as the Company’s independent auditor during 20132016 and was appointed by the Audit Committee to serve in that capacity for 20142017 (and we are seeking ratification by the Company’s stockholders at this Annual Meeting of such appointment). KPMG LLP has served as the Company’s independent auditor since its initial public offering in 1986.
In connection with these responsibilities, the Audit Committee met with management and the independent auditor to review and discuss the December 31, 20132016 audited consolidated financial statements and matters related to Section 404management’s assessment of the Sarbanes-Oxley Acteffectiveness of 2002.the Company’s internal control over financial reporting as of December 31, 2016. The Audit Committee also discussed with the independent auditor the matters required to be discussed by Statement on Auditing Standards No. 61 (Communication with Audit Committees), as superseded by Auditing Standard No. 16.standards of the Public Company Accounting Oversight Board (PCAOB).
The Audit Committee also received the written disclosures and the letter from the independent auditor required by Public Company Accounting Oversight Board Rule 3526 regardingthe PCAOB regulating the independent auditor’s communications with the Audit Committeeaudit committee concerning independence and the Audit Committeehas discussed with the independent auditor that firm’s independence.
Based upon the Audit Committee’s review and discussions with management and the independent auditor referred to above, the Audit Committee recommended thatto the Board of Directors includethat the audited consolidated financial statements be included in the Company’s Annual Report on Form 10-K for the year ended December 31, 20132016 filed with the SEC.
THE AUDIT COMMITTEE
Eric D. Mullins, ChairpersonChair
Kevin P. Chilton
Charles W. Goodyear
Paula R. ReynoldsMark C. McKinley
| 27 |
Compensation and Benefits Committee Report on
20132016 Executive Compensation
The Compensation Committee, the members of which are listed below, is responsible for establishing and administering the executive compensation programs of the Company. The Compensation Committee of the Company has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management and, based on such review and discussions, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in this proxy statement.
THE COMPENSATION AND BENEFITS COMMITTEE
Joseph W. Gorder, Chair
Peter J. Fluor Chairperson
Richard L. George
John R. Gordon
28 |
Compensation and Benefits Committee
The Compensation and Benefits Committee values the feedback of our investors related to our executive compensation programs, and while we think they have been thoughtfully constructed, we also understand there is always room for improvement. During 2016, the Company actively engaged with stockholders following our 2016 say on pay vote in which we received approximately 62% support. Based on feedback we received from stockholders, the Company reviewed our compensation programs to identify features that could be improved to strengthen alignment with stockholder interests. As a result, the Compensation Committee made changes to the Company’s Annual Incentive Program (AIP), which are discussed in detail beginning on page 30.
We believe that Anadarko’s executive compensation programs are well designed for a cyclical, commodity driven and capital intensive industry that must focus and retain top talent throughout periods of rising and falling commodity prices. As you will see by the disclosure that follows, the Compensation Committee believes that the compensation programs we have established are operating as intended to align the pay that executives may realize with stockholder returns. We appreciate your ongoing engagement, feedback and support as we continue our efforts to structure programs aligned with long-term stockholder value.
THE COMPENSATION AND BENEFITS COMMITTEE
| |||||
Joseph W. Gorder, Chair |
|
29 |
Compensation Discussion and Analysis
This Compensation Discussion and Analysis focuses on the following:EXECUTIVE SUMMARY
Committee Response to 2016 Advisory Vote on Executive Compensation. We have a strong track record of engaging with stockholders and responding to the feedback received. At the 2016 Annual Meeting, our executive compensation program received the support of approximately 62% of the votes cast. Acknowledging our vote result and in line with our commitment to ongoing stockholder engagement, during the spring of last year we solicited feedback from our top stockholders representing approximately 62% of the Company’s outstanding common stock. In the fall we again solicited feedback from stockholders representing approximately 60% of the Company’s outstanding common stock. See page 36 for more details on our active engagement with stockholders. | WHERE TO FIND IT | |||||
Executive Summary | 30 |
Stockholder Engagement | 36 |
Governance Practices | 36 |
Performance-Based Annual Cash Incentives | 39 |
Equity Compensation | 44 | ||||
Retirement Benefits | 50 | ||||
Perquisites | 51 |
EXECUTIVE SUMMARY
TheBased on specific feedback expressed by stockholders during our outreach efforts, the Compensation Committee believes that Anadarko achieved exceptional operational(referred to in this section of the proxy statement as the Committee) commissioned FW Cook, the Committee’s executive compensation consultant, to develop and financial performancepresent a thorough analysis outlining various design alternatives in 2013, as it has done overresponse to stockholder concerns. The Committee sought an appropriate balance to best serve the last several years. This performance has not, however, been reflectedinterests of our stockholders while continuing to attract and retain the talent necessary to achieve the Company’s strategic goals, taking into account standards in our stock performance, which we believe is largely as a result of uncertainty relatedindustry and peer group, along with appropriate decisions for our business. Following multiple meetings with FW Cook and management and extensive discussions regarding the merits and issues associated with various design alternatives, the Committee approved the following changes to the Tronox Adversary Proceeding (described below). Our delivery of executive compensationAIP for 2013 reflects these factors — while payouts under the Annual Incentive Plan were above target, reflecting strong annual performance, the value of long-term equity awards (representing more than 75% of target total compensation) decreased as a result of lower stock price performance.2017 in response to stockholder feedback:
Operational and Financial Performance. Anadarko is among the world’s largest independent exploration and production companies, with approximately 2.8 billion barrels of oil equivalent of proved reserves at December 31, 2013. Our asset portfolio is aimed at delivering long-term valueAIP Enhancements in Response to stockholders by combining a large inventory of development opportunities in the U.S. onshore with high-potential worldwide offshore exploration and development activities.Stockholder Feedback
The Company’s 2013 performance continued the trend over the last several years of delivering consistent high-quality additions of proved reserves, increasing year-over-year margins, increasing year-over-year sales volumes, and allocating capital efficiently, all while maintaining a strong safety record. Achieving these key business objectives is fundamental to delivering superior returns for our stakeholders over time. Specific achievements included:
What We Heard |
A desire for structural changes in |
| Reduces the |
30 |
Compensation Discussion and Analysis
| ||||
What We Heard | What We Did | Why | ||
The AIP should include a financial goal | Added an additional financial goal, Cash Operating Income/BOE, with a weighting of 25% | Addresses stockholder requests for the AIP to include financial performance and further aligns AIP goals with stockholders’ interests; Defined as operating income (loss) plusnon-cash items as reflected on the | ||
More transparency regarding goal setting process | Enhanced the disclosure regarding the rigorous process utilized to develop strategic AIP performance goals | Better illustrates the strategic alignment of |
For a full discussion of the AIP and the results for 2016, see pages 39 - 44.
Reduction to Severance Payout Multiple. The Committee also modified the form ofchange-of-control contract used for newly appointed executive officers, whether or not they were subject to an existing agreement prior to their appointment, in order to reduce the severance multiple from 2.9 to 2.5 and to implement other changes. The Company entered into these newchange-of-control contracts with Messrs. Ingram and Leyendecker. The key employeechange-of-control contracts are discussed in more detail beginning on page 52.
Operational and Financial Accomplishments in 2016. The Company successfully managed through the challenging commodity environment of recent years. It took certain steps during 2016 in order to position the Company for growth and value appreciation as the commodity price environment improves. These included:
completing a successful strategic acquisition of deepwater Gulf of Mexico assets, which doubled the Company’s production in the Gulf of Mexico and is expected to generate substantial future free cash flow that the Company plans to deploy to accelerate the development of core assets in the Delaware and DJ basins, which was attractively
31 |
Compensation Discussion and Analysis
financed through the | ||
• significantly enhancing liquidity and balance sheet strength by reducing net debt; and | ||
• implementing actions which reduced the Company’s cost structure by approximately $800 million annually. |
In addition to these achievements, during 2013 Anadarko was once again recognized by various independent organizations forThese accomplishments improve the Company’s leadership, innovation and environmental stewardship in its operating areas. For example, based on our ability to find, develop and produce onshore resources Wood Mackenzie identified Anadarkodeliver strong performance in a December 2013 studyvolatile commodity environment for price discovery and provide a greater line of sight to future growth as the top company in our industry for creating value from U.S. onshore resources. Additionally, we received the 2013 Platts Global Energy Award for E&P Leadership, the Oil Council’s Large Cap Company of the Year and the Colorado Oil & Gas Conservation Commission’s Technology Application/Community Relations/Local Government Coordination Award. For a full list of Anadarko’s awards and recognitions see http://www.anadarko.com/Responsibility/Pages/AwardsRecogniton.aspx.industry’s fundamental outlook improves.
Stock PriceTSR Performance. Our relative total stockholder return (TSR) for 2013 does not reflect the Company’s exceptional operational and financial performance. We believe this apparent disconnect is largely due to the ongoing litigation relating to the Tronox Adversary Proceeding, including the issuance of a Memorandum of Opinion, After Trial in December 2013 by the U.S. Bankruptcy Court for the Southern District of New York in which the court found Kerr-McGee Corporation, a subsidiary acquired by theThe Company in 2006, liable for fraudulent transfer in connection with a 2002 internal corporate restructuring of Kerr-McGee and the 2005 initial public offering of Tronox Incorporated, a subsidiary of Kerr-McGee. For additional information regarding the nature and status of the Tronox Adversary Proceeding, seeNote 17 — Contingencies—Tronox Litigation in the Notes to Consolidated Financial Statements under Item 8 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2013. While the Company’s TSR performance relative to our peers ranked in the top quartile for the three-year periods ending in 2011 and 2010, we believe uncertainty related to the Tronox Adversary Proceeding has adversely affected the Company’shad strongtop-quartile stock price performance for bothduring 2016, driving an absoluteone-year Total Stockholder Return (TSR) of the three-year periods ending in 2012 and 2013. For 2010-2012,close to 44%. This TSR performance relative toplaced us fourth within our peers was in the third quartile and for 2011-201312 company peer group at year end. On a three-year basis, our TSR performance was in the fourth quartile.top half of our peer group.
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ImpactPay For Performance. The Committee believes that the Company’s executive compensation programs are appropriately designed to pay for performance and align the executive officers’ interests with those of 2013 Company Performancestockholders. As demonstrated in the charts on Executive Compensation
We have structured our cash and equity-based compensation program to position more than 85%page 37, the vast majority of our executive officers’ target total compensation opportunity is delivered inat-risk compensation components tied to the achievement of short- and long-term performance criteria aligned with our business objectives. Long-term incentives combine performance units, stock optionsFor 2016, the payouts under ourat-risk programs were as follows:
Long-Term Equity Based Incentives — The executive officers earned 128% payouts (out of a maximum 200%) based on second-quartile TSR performance for the three-year performance period ended December 31, 2016. See page 44 for more details regarding our performance units. |
Annual Incentive Program — As a result of the Company’s strong operating and financial performance in 2016 despite the challenging commodity markets, the executive officers were awarded above-target bonuses equivalent to a 158% performance score to recognize their successful execution of the Company’s strategic goals. |
32 |
Compensation Discussion and restricted stock unitsAnalysis
A detailed description of the Company’s executive compensation programs and the compensation decisions made by the Committee for 2016 are reported beginning on page 38. 2016 AIP Performance Goals Designed to Increase Stockholder Value Over Time. The AIP performance goals are designed to motivate and reward exceptional near-term operational performance on key metrics that work together to achieve long-term strategic performance objectives intended to drive differentiating performance year-over-year and increase stockholder value. The Committee believes that the AIP’s annual performance goals, although short-term in nature, should position the Company for exceptional TSR performance over the long term. | The AIP performance goals are directly tied to the Company’s annual budget, which is largely driven by commodity prices. | |
The AIP is directly tied to provide a compensation opportunity aligned with the Company’s annual budget. The budget is driven to a large degree by the prevailing market price for oil and natural gas, which we do not control or influence. The Company is committed to investing within cash flow over a multi-year period and commodity prices impact our cash inflows more than any other single variable. Considering the relatively weak commodity market environment facing the Company during our budgeting process for 2016 and its impact on our expected cash inflows, the Board approved a 2016 budget that was nearly 50 percent lower than actual 2015 capital investment and almost 70 percent lower than 2014. The overarching goal was to preserve stockholder value for a time when the Company could achieve better returns as commodity prices improved, thereby preserving and ultimately enhancing stockholder value over the long term. The Committee believes that structuring incentive programs to simply reward increased absolute performance on operational goals does not support our long-term stockstrategy nor does it necessarily drive strong returns for our stockholders.
Because of the Company’s significantly reduced budget for 2016 and asset sales during 2015, the Committee approved performance delivered through awardstargets that are performance-basedwere challenging in absolute and relative terms, whilethe prevailing commodity-price environment but were also encouraging retention.lower than actual performance compared to the prior year. Setting 2016 performance goals that were numerically lower than actual 2015 performance does not indicate a lack
|
Compensation Discussion and Analysis
Theof rigor; instead, it reflects the realities of a challenging commodity-price environment and a focus on preserving stockholder value in the near term to increase long-term stockholder returns.
See pages 39 - 44 for a full discussion of the AIP and the results for 2016.
CEO Realized Pay. Consistent with our pay-for-performance philosophy, 91% of the CEO’s total direct compensation is at-risk. Accordingly, the value that is intended to be received by the CEO is aligned with the Company’s excellentactual operational and financial performance, was reflectedincluding absolute and relative stock-price performance. The value actually received by the CEO can differ substantially from the grant date values required to be reported in above target payouts under the AIP:Summary Compensation Table (SCT) and related proxy tables. To illustrate the actual difference between compensation reported in the SCT and the actual pay realized by the CEO in 2014, 2015 and 2016, the chart below compares reported pay and realized pay during those years. The chart compares each direct compensation element comprised of: Salary; Non-Equity Incentive Plan Compensation; and Stock Awards and Option Awards (performance units, restricted stock units and non-qualified stock options). The reported pay column in the chart depicts the data reported in the 2016 SCT and related proxy tables, while the realized pay column depicts the actual value received (or vested) by the CEO in each year. The calculation for realized pay for purposes of this chart is more fully described and calculated in the table below.
CEO Compensation - Reported Pay vs. Realized Pay
The Company’s lagging stock price performancefollowing table illustrates the calculations used to determine the differences between the amount reported in 2013, however, resultedthe 2016 SCT and the amount actually realized, or received, by the CEO in below target payouts2016 for each of the performance units payable for the performance periods 2011-2013following direct compensation elements: Salary; Non-Equity Incentive Plan Compensation; and 2012-2013.Long-Term Incentive Awards (Stock Awards and Option Awards):
CEO Reported Pay(1) | CEO Realized Pay* | |||||||||
2016 Summary Compensation Table ($) | 2016 Actual Compensation Paid ($) | |||||||||
Salary | 1,300,000 | 1,300,000 | ||||||||
Non-Equity Incentive Plan Compensation(2) | 2,670,200 | 1,930,500 | ||||||||
Stock Awards - Performance Units(3) | 5,587,116 | 1,156,617 | ||||||||
Option Awards(4) | 2,828,445 | 0 | ||||||||
Stock Awards - Restricted Stock Units(5) | 2,775,055 | 2,016,323 | ||||||||
Total 2016 Compensation | 15,160,816 | 6,403,440 |
* | Includes actual performance-based compensation paid to CEO in 2016 as determined in footnotes 2 – 5 below. |
|
Compensation Discussion and Analysis
Furthermore, the lagging 2013 stock price performance has negatively impacted the current value of executive long-term incentive awards. The following chart illustrates that as of December 31, 2013, the intrinsic value of the CEO’s 2013 long-term incentive awards (as defined below) is 75% less than the original grant date values and a revised year-end fair market valuation of the awards is 30% less than the original grant date values:
|
Award Type | Grant Date | Grant Date Fair Market Values($)(2) | 12/31/2013 Intrinsic Values($)(3) | 12/31/2013 Fair Market Values($)(4) | ||||||||||||
Stock Options | 11/6/2013 | 3,848,495 | 0 | 3,019,648 | ||||||||||||
Restricted Stock Units | 11/6/2013 | 2,755,539 | 2,375,237 | 2,375,237 | ||||||||||||
Performance Units(1) | 11/5/2012 | 2,775,473 | 0 | 1,183,364 | ||||||||||||
Total |
| 9,379,507 | 2,375,237 | 6,578,249 | ||||||||||||
% Decrease from Grant Date Value | -75% | -30% |
(1) | The |
(2) |
(3) |
(4) | The |
In addition
(5) | The realized pay column reflects the value at vesting of restricted stock units that vested during 2016 (33,871 units valued at vesting of $2,016,323). See the Options Exercises and Stock Vested in 2016 Table on page 63 for more details. |
CEO Target Total Compensation Opportunity Unchanged Since 2012. NEO Target Compensation Held Flat. As part of its annual review of executive compensation in November 2016, for the third consecutive year the Committee determined that the target total compensation opportunity for the executive officers (other than for two recently appointed executive officers) should remain substantially flat year-over-year and that no changes should be made to the Company’s performance,current base salaries, target bonus opportunities, and target grant value of annual long-term incentive awards. Mr. Walker’s target total compensation opportunity has remained the Committee’s compensation decisions for 2013, summarized below, were influencedsame since his appointment to CEO in May 2012, at which time the Committee positioned him at the median of CEOs of our industry peer group. The Committee believes that the pay opportunity provided by the following:
CEO Compensation.complexity. In connection with Mr. Walker’s appointment to CEO in May 2012, the Committee positioned his targeted annual total direct compensation opportunity at the median of the survey data, which represented a 22% decrease relative to his predecessor in 2011. In November 2013, based on a recommendation from Mr. Walker in light of the lack of clarity at the time with regard to the Tronox Adversary Proceeding, the Committee determined not to adjust Mr. Walker’s targeted annual total direct compensation opportunity for 2013.
|
Compensation Discussion and Analysis
As CEO, Mr. Walker’s compensation is higher than the compensation of the other NEOs. This difference in compensation is supported by the industry peer group benchmark data, which is substantially higher for the CEO role than for the other NEO positions, and is indicative of the greater responsibility the CEO position entails for the strategic direction, financial condition, operating results and reputation of the Company.
Other NEO Compensation. In November 2013, the Committee approved salary increases for the other NEOs ranging from 4.9% to 16.7%. The base salary increase for Mr. Gwin represents his first increase since November 2010 and the base salary increases for Messrs. Meloy, Daniels and Reeves represent their first increases since November 2011. No changes were made to the NEO bonus targets for 2014. The annual equity awards made to the other NEOs in November 2013 reflect approximately 12% increases over their prior year awards. These compensation actions were determined based on the Committee’s consideration of each NEO’s contribution, individually and collectively as an executive team, to the successful execution of the Company’s strategic goals for the year; the importance of retaining and motivating the executive team for the execution of the Company’s long-term strategy, particularly in light of the departure of a senior executive officer to a peer company during the year; Peer Proxy Data (as defined on page 37); and internal equity factors. These actions position the aggregate total target direct compensation of our NEOs at approximately the 75th percentile of the Peer Proxy Data, which is similarly aligned with the Company’s total assets and market capitalization positioning against the industry peer group as discussed on page 37.
A detailed description of our executive compensation program and the compensation decisions made by the Committee for 2013 are reported on the pages that follow.
Continued Engagement with Stockholders
Our stockholders’ views on corporate governance and executive compensation are important to us, and we value the feedback and insights that we receive from our stockholders through ongoing dialogue. Since our 2013 Annual Meeting, we have continued to engage in periodic dialogue with stockholders and have solicited feedback from stockholders representing approximately 48% of the Company’s outstanding common stock.
At our 2013 Annual Meeting, more than 85% of our stockholders who voted on the proposal voted in support of our executive compensation program. We believe our stockholders’ strong support reaffirmed the design and structure of our compensation program. While the feedback we receive from our stockholders varies depending upon investment goals and strategies, our stockholders have consistently emphasized that executive compensation should be closely aligned with long-term performance results. Following discussions with stockholders, the Committee took the following actions:
| 35 |
Compensation Discussion and Analysis
OUR PAY-FOR-PERFORMANCE PHILOSOPHY AND PRACTICES
Active Engagement with Stockholders — We Listen and Respond. We regularly engage with our stockholders, reaching out specifically to the governance and voting teams, to solicit feedback on Anadarko’s executive compensation programs, as well as corporate governance, sustainability and environmental issues and other matters. Since 2012, we have held more than 140 separate engagements with our stockholders as well as several meetings with proxy advisory firms. Our stockholder engagement team consists of senior management from our Human Resources, Legal, Investor Relations, and Health, Safety and Environment departments and has also included the chair of the Committee. Members of our engagement team also participate in various governance forums with our stockholders. We generally reach out to our top 50 stockholders each spring and fall, with engagement also occurring at other times throughout the year. Our stockholders’ views on executive compensation and corporate governance are important to us, and we value and use their feedback and insights. | We have a robust stockholder engagement program and, based on feedback received, have made several changes to our executive compensation program and governance practices over the years, including the changes to the AIP for 2016 and 2017 discussed onpages 30 -31. | |||
The main objectiveBoard and its committees regularly discuss and consider the significant concerns that are identified through this engagement process as well as the outcome of the annual advisory vote on executive compensation. As a result, we have made several changes to our executive compensation program isand governance practices over the years, including the changes to paythe AIP for performance while aligning executives’ interests2016 and 2017 discussed on pages 30 - 31. The Board and our Investor Relations team welcome questions or comments about the Company and its operations. See page 17 for more details on Communication with Directors of the Company or email Investor Relations at investor@anadarko.com.
Track Record of Good Governance Practices. Through our commitment to good governance, including our continued stockholder interests. Our compensation philosophy recognizesengagement efforts, we have implemented the value of rewarding our NEOs for their performance and motivating them to continue to excel infollowing practices over the future. We provide competitive pay levels to attract and retain the best talent and we structure pay to support our business objectives with appropriate rewards for short-term operating results and long-term stockholder value creation.
What We Dopast several years:
What We Do | What We Don’t Do | |||||||
Structure our executive officer compensation so that more than 85% of |
No employment contracts with our executive officers | ||||||||
Emphasize long-term performance in our equity-based incentive awards | No taxgross-ups on perquisites except with respect to |
Provide for | No excise taxgross-ups in key employeechange-of-control contracts entered into by newly appointed and/or newly hired executive | |||||||
Maintain a competitive compensation package | No pledging of Company securities | |||||||
Require robust stock ownership for executive officers and directors | No short sales or |
Provide for | No current payment of dividends or | |||||||
Consider deductibility when structuring compensation | No repricing of |
|
Compensation Discussion and Analysis
WhatELEMENTS OF OUR 2016 COMPENSATION PROGRAMS
Our executive compensation programs include direct and indirect compensation elements. We Don’t Dobelieve that a majority of an executive officer’s total compensation opportunity should be performance-based; however, we do not have a specified formula that dictates the overall weighting of each element.
As illustrated in the charts below, 79% of the current CEO and 75%, on average, of target total compensation opportunity for the other NEOs is provided through equity-based incentives that are dependent upon long-term corporate performance and stock-price appreciation. Any value ultimately realized for these long-term equity-based awards is directly tied to Anadarko’s absolute and relative stock-price performance and will fluctuate along with stockholder returns.
The charts above are based on the following: current base salaries, as discussed on page 39; target bonus opportunities approved by the Committee in 2016, as discussed on page 43; and the grant date value for the 2016 annual equity awards, as discussed on page 46.
37 |
Compensation Discussion and Analysis
Direct Compensation Elements
The direct compensation elements are described below. The indirect compensation elements are outlined in the table on page 50.
2016 COMPENSATION DECISIONS AND LINK TO STRATEGY
The following is a discussion of the specific actions taken by the Committee in 2016 related to each of our direct compensation elements. Each element is reviewed annually, as well as at the time of a promotion, other change in responsibilities, other significant corporate events or a material change in market conditions.
As discussed above, the Committee determined that the target total compensation opportunity for the NEOs should remain flat year-over-year (other than for two recently appointed executive officers) and that no changes should be made to the current base salaries, target bonus opportunities, and target grant value of annual long-term incentive awards.
38 |
Compensation Discussion and Analysis
Base Salary
The table below reflects the base salaries for the NEOs. As part of its annual review of executive compensation, in November 2016 the Committee determined that no changes should be made to the base salaries for the NEOs.
Name | Salary as of January 1, 2016($) | Salary as of January 1, 2017($) | Increase | ||||||||||||
Mr. Walker | 1,300,000 | 1,300,000 | 0% | ||||||||||||
Mr. Gwin | 750,000 | 750,000 | 0% | ||||||||||||
Mr. Ingram | 625,000 | 625,000 | 0% | ||||||||||||
Mr. Reeves | 700,000 | 700,000 | 0% | ||||||||||||
Mr. Leyendecker | (1) | 575,000 | 0% |
(1) | Mr. Leyendecker served as a senior vice president of the Company on January 1, 2016 and was not appointed as an executive vice president until August 2016, at which time his base salary was increased to $575,000. |
Performance-Based Annual Cash Incentives (Bonus)
The AIP is designed to focus on key performance goals and targeted levels of performance that are intended to drive differentiating performance year-over-year. All employees of the Company, including our executive officers, participate in the AIP, which is part of our 2012 Omnibus Incentive Compensation Plan, as amended and restated (2012 Omnibus Plan), that was approved by our stockholders in May 2016. At the beginning of each year, the Committee reviews and approves the performance goals and targeted levels of performance. These performance goals align with the Board-approved budget for the year and reflect the market and business environment in which we operate.
The following 2016 AIP performance goals are intended to work together to achieve long-term strategic performance objectives and provide the best, most direct means of aligning the actions of our executive officers and employees in the short term to position the company to deliver exceptional total stockholder returns over the long term.
2016 AIP Performance Goals | Purpose | |
Operational: • Reserve Additions • Sales Volumes | Proved reserves are the single most important asset of an exploration and production company. Since this asset depletes by nature, the cost-effective addition of new proved reserves is key to increasing the underlying intrinsic value of the Company and ultimately the stock price. The Company also focuses on sales volumes since it is the means by which reserves are converted into cash flow. | |
Financial: • Capital Expenditures • Controllable Cash Costs | These goals focus on financial discipline. The Company allocates the majority of its capital to assets that generate strong economic returns while a portion is allocated to long-term projects that are intended to provide future reserves and sales volumes. The Controllable Cash Costs performance goal incentivizes employees to manage and reduce costs to maximize margins and profitability. | |
Safety: • Total Recordable Incident Rate | The health and safety of employees is very important to the Company and critical to success. Accordingly, the performance goals include a target total recordable incident rate per 100 employees so that employees are focused on maintaining a safe work environment. |
39 |
Compensation Discussion and Analysis
| Structuring incentive programs to simply reward increased absolute performance on operational goals does not | |||
When the AIP performance goals were set at the beginning of 2016, oil was trading at less than $30 per barrel and the duration and magnitude of the decline in commodity prices could not be accurately predicted. As a result, the Company substantially reduced its planned capital expenditures to balance capital spending with the reduced cash flow resulting from lower commodity prices. To enhance value and maximize the reduced budget, the Company strategically allocated most of its capital (~70%) to core assets in the DJ and Delaware basins as well as high margin opportunities in the deepwater Gulf of Mexico and other international operations. Accordingly, the Company allocates capital to opportunities with the highest rates of return seeking to optimize value accretion for its stockholders. The 2016 AIP performance goals were directly tied to the strategic approach of a reduced budget and this, as well as asset sales which occurred in 2015, resulted in target performance levels which were lower in absolute terms than previous years. The Committee determined at the time the 2016 AIP performance goals were approved that the targets established were challenging in the prevailing commodity price environment and appropriately required our executive officers and employees to strive for strong performance on key metrics.
Rigorous Process Utilized to Develop Strategic AIP Performance Goals.The Company employs a rigorous and robust process to establish the annual capital budget, which directly promotes the Company’s strategic objectives and is the basis for developing the AIP performance goals. A Company-wide portfolio evaluation and asset optimization effort, led by the Company’s Corporate Planning team, is the foundation for establishing the annual budget. By definition, assets which do not generate accretive rates of return compared to the Company’s weighted average cost of capital are not considered. The budget is then “built up” from the asset level to a consolidated corporate budget, and includes a detailed analysis, including each asset’s capital efficiency and return metrics. The analysis also includes consideration of the Company’s long-term strategy, prior performance, service cost and commodity prices. Multiple reviews are conducted with executive management as well as the full Board during the budget cycle and prior to approval to ensure a comprehensive understanding of all assumptions. The Committee approves the associated AIP performance goals to align with the short- and long-term strategic objectives of the budget. Once the goals have been established, the Committee monitors progress during the year through quarterly updates and then reviews and certifies the final corporate-wide results in February of the following year. From time to time, the Committee may
40 |
Compensation Discussion and Analysis
exercise appropriate discretionary adjustments depending on various internal/external factors, including stock performance.
Changes to Performance Goals for 2016. While the 2016 AIP performance goals were similar to 2015, the Committee simplified the overall design andre-allocated the weighting of the performance goals to provide increased focus on the key areas that were essential to delivering higher returns and emphasizing financial discipline, while maintaining a safe work environment and creating stockholder alignment. The LOE and Controllable G&A performance goal from the 2015 AIP was renamed Controllable Cash Costs and expanded to include gathering, processing and marketing costs and oil and gas transportation costs. The Committee believed that such modifications would focus the executive officers’ efforts on the controllable aspects of the business performance to maximize operational and financial results during a challenging commodity-price environment.
The performance goals are intended to work together to achieve the Company’s short-term and long-term objectives. For example, the 2016 financial performance goals, Controllable Cash Costs and Capital Expenditures which each had the strongest weighting of 25%, worked together to ensure the Company exercised financial discipline. To the extent the Company was successful in achieving its target on Controllable Cash Costs, resulting in reduced expenses, more cash flow was available to invest in projects that provide strong economic returns and enhance sales volumes or increase reserves in a cost-efficient manner.
Operating Base Volumes were excluded from the 2016 AIP performance goals as a result of potential difficulties in isolating direct performance-related effects on the score. EBITDAX/BOE was eliminated due to unusually high commodity price uncertainty and volatility, which made it particularly difficult to set an appropriate target. Since the AIP applies to all employees of the Company, TSR was excluded as results can be heavily influenced by corporate actions or factors outside of direct employee control. In addition, most of our executive officers’ compensation opportunity is delivered in equity-based incentives that are tied to TSR.
41 |
Compensation Discussion and Analysis
Impact of Divestitures and Variance with Guidance. At the time the Committee approved the 2016 AIP performance goals, the Company intended to monetize certainnon-core assets throughout the year. Due to the uncertainty regarding both the timing and execution of these divestitures, the assets were initially included in the Company’s budget as well as the AIP targets. However, the Committee excluded the effects of the asset divestitures closed during the year by removing them from the AIP targets, performance results and the calculated performance score. This was done to ensure that neither the timing nor execution of the divestiture program had any | The Committee made changes to the AIP for 2016 and 2017 based on stockholder feedback to improve and strengthen the alignment of the program with stockholder interests. See further discussion on pages 30 - 31. | |||
2016 Performance Results. The table below reflects the 2016 performance results against each of the specified targets. Each performance goal and the total AIP score was capped at 200%.
2016 AIP Performance Goals | Relative | AIP Target Performance(1) | AIP Target Performance Adjusted for Divestitures(2) | AIP Performance Results Adjusted for Divestitures(3) | AIP Score(3) | ||||||||||||||
Reserve Additions (before price revisions, acquisitions and divestitures), MMBOE | 20% | 164.1 | 164.1 | 278.7 | 40.0% | ||||||||||||||
Sales Volumes, MMBOE | 20% | 285.6 | 254.9 | 265.7 | 40.0% | ||||||||||||||
Capital Expenditures, $MM(4) | 25% | 2,946 | 2,929 | 2,932 | 24.8% | ||||||||||||||
Controllable Cash Costs ($/BOE)(5) | 25% | 13.35 | 13.56 | 12.70 | 44.8% | ||||||||||||||
Total Recordable Incident Rate (Safety) | 10% | 0.34 | 0.34 | 0.36 | 8.0% | ||||||||||||||
|
| ||||||||||||||||||
Total | 100% | 158.0% |
(1) | The 2016 AIP performance goals were directly tied to the Company’s reduced budget. As a result of this and asset sales that occurred in 2015, certain target performance levels for 2016 were lower in absolute terms than the previous year. See page 40 for additional discussion. |
For AIP purposes, Capital Expenditures excludes the capital expenditures of WES and WGP, expenditures for acquisitions, |
42 |
Compensation Discussion and Analysis
(5) | Controllable Cash Costs is the sum of lease operating expense (LOE), controllable general and administrative (G&A) costs, oil and gas transportation costs and gathering, marketing and processing costs per barrel of oil equivalent sales volume. LOE excludes the cost of deepwater work-overs because of timing uncertainty and magnitude. Controllable G&A includes costs that are subsequently reclassified to exploration expense for accounting purposes and excludes restricted stock, severance costs, bonus plans and benefits costs. |
The Company delivered very strong operating performance in 2016 despite the challenging commodity markets by delivering 3% sales volume growth (on an acquisition and divestiture adjusted basis) while investing nearly 50% less capital than in 2015. The Company performed above the targets established for three AIP performance goals (Reserve Additions, Sales Volumes and Controllable Cash Costs). Highlights from 2016 include:
• | Reserve Additions — The Company delivered maximum performance for reserve additions driven by reservoir performance in core assets, cost reductions that extended the economic limit in certain fields, and infill drilling results and extensions/discoveries in the Company’s key |
• |
• | Controllable Cash Costs— Performance exceeded target due to strong cost control efforts, continued renegotiations with vendors, and reductions in |
The AIP awards for 2016 for the NEOs are shown in the table below and are reflected in the“Non-Equity Incentive Plan Compensation” column of the Summary Compensation Table. Individual target bonus opportunities are determined based on the executive officer’s position. Executive officers may earn from 0% to 200% of their individual bonus target. Following its annual review of executive compensation in November 2016, the Committee made no changes to the NEO bonus targets for 2017.
Name | Base Salary Earnings for 2016($) | Target Bonus % | Approved AIP Performance Score | Individual Performance Adjustments | Actual Bonus Award ($) | ||||||||||||||||||||||||||||||||||||||||
Mr. Walker | 1,300,000 | X | 130% | X | 158% | ± | 0 | = | 2,670,200 | ||||||||||||||||||||||||||||||||||||
Mr. Gwin | 750,000 | X | 95% | X | 158% | ± | 0 | = | 1,125,750 | ||||||||||||||||||||||||||||||||||||
Mr. Ingram | 625,000 | X | 95% | X | 158% | ± | 0 | = | 938,150 | ||||||||||||||||||||||||||||||||||||
Mr. Reeves | 700,000 | X | 95% | X | 158% | ± | 0 | = | 1,050,700 | ||||||||||||||||||||||||||||||||||||
Mr. Leyendecker(1) | 473,654 | X | 85.19% | X | 158% | ± | 0 | = | 637,550 |
(1) | Mr. Leyendecker’s bonus target was prorated as a result of |
The Committee did not make individual performance adjustments for any NEO’s 2016 bonus payments in recognition of the team effort necessary to drive the Company’s success.
43 |
Compensation Discussion and Analysis
Section 162(m) Performance Hurdle. In March 2016, the Committee established a baseline AIP performance hurdle for the NEOs of the Company’s attainment during 2016 of positive Cash Flow from Operating Activities (Net cash provided by (used in) operating activities) as calculated in the Consolidated Statements of Cash Flows of the Company’s financial statement published in the Company’s annual report on Form10-K, but excluding the effect of any legal settlements/satisfaction of judgments that are $1 million or greater. If this performance hurdle was not achieved, the NEOs subject to Section 162(m) of the IRC would earn no AIP bonuses for the year under the 2012 Omnibus Plan. If the performance hurdle was met, the bonus pool would be funded at the maximum bonus opportunity level for each NEO and the Committee would consider our performance against the AIP performance goals, as well as any other relevant factors, when determining the actual amount of the AIP bonuses to be paid to each NEO. The Committee may apply negative discretion in determining actual awards. The Committee does not have the discretion to increase bonuses above funded amounts. The AIP bonus pool was funded for the 2016 performance year because the Company exceeded the established performance hurdle.
Equity Compensation
Our equity-based long-term incentive program is designed to reward our executive officers for sustained long-term share performance. This program represents 75% or more of target total compensation opportunity and includes a combination of equity-based awards (performance units, stock options and restricted stock units) that we believe are performance-based in absolute and relative terms. Pursuant to our equity grant administration procedures established by the Committee, annual equity-based awards for executive officers are typically made at the regularly scheduled Committee meeting in the fall. Equity awards for newly hired executive officers or awards made in connection with promotions are made on the date such awards are approved by the Committee.
The 2016 targeted equity award value was allocated 50% in performance units that reward relative TSR performance and 25% innon-qualified stock options that reward absolute value creation (for a total of 75% long-term equity awards that are performance-based). The remaining 25% is granted in restricted stock units, the value of which is tied to our share price and which we believe is necessary to retain executive talent. The Committee believes that this allocation provides a combination of equity-based awards that is performance-based in relative and absolute terms, while also providing a necessary retentive element. For additional details on the terms of these awards see page 60.
Performance Units. The Committee has established TSR as the performance criterion for the Company’s performance unit awards, and believes that a single focus on TSR as the performance criterion for the performance units is appropriate at this time and is consistent with most energy industry peers. TSR provides an effective relative comparison of our performance against an industry peer group. The Committee has discussed the extent to which certain operational or financial measures could be used as relative long-term performance criteria, such as return on capital employed. The Committee concluded that the performance measures included in our AIP are intended to capture the key drivers of the Company’s business, and that such AIP performance goals should drive TSR performance over time. However, the Committee will continue to consider whether to include additional performance goals in the performance unit program.
Performance Unit Peer Group. The peer group for the 2016 performance unit awards was identical to the peer group that was used for conducting the 2016 compensation benchmarking assessment, which is listed on page 48. If any of the peer companies undergoes a change in corporate capitalization or a corporate transaction (including, but not limited to, a going-private transaction, bankruptcy, liquidation, merger or consolidation) during the performance period, the Committee shall
44 |
Compensation Discussion and Analysis
undertake an evaluation to determine whether such peer company will be replaced. At the time the 2016 awards were granted, the Committeepre-approved Southwestern Energy, Inc., Cabot Oil and Gas Corporation, Concho Resources, Inc. and Cimarex Energy as replacement companies (in that order).
Performance Unit Performance Period and Payout Opportunity. Beginning with awards granted in November 2014, the Committee eliminated ourtwo-year performance unit program so that all performance unit awards granted in or after 2014 are subject to a three-year performance period. In addition, the Committee reduced the payout opportunity for achievement of TSR performance at the 55th percentile from a payout of 110% to a payout of 100% and reduced the payout opportunities for achievement of all applicable TSR performance levels in the third quartile by 12% to 14% for all new awards. During our prior engagement discussions, certain stockholders suggested eliminating the payout opportunity for TSR performance below median. However, the Committee believes that completely eliminating any opportunity would place the Company at a competitive disadvantage in attracting and retaining executive talent as all of the companies in the industry peer group provide for some level of payout below median.
The following table reflects the payout scale for the annual performance unit program for awards granted in and after November 2014 as well as outstanding performance unit awards granted prior to November 2014:
Final TSR Ranking | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | 11 | 12 | ||||||||||||
TSR Performance Percentile | 100% | 91% | 82% | 73% | 64% | 55% | 46% | 36% | 27% | 18% | 9% | 0% | ||||||||||||
Payout as % of Target | ||||||||||||||||||||||||
Awards Granted | 200% | 182% | 164% | 146% | 128% | 100% | 80% | 60% | 40% | 0% | 0% | 0% | ||||||||||||
Awards Granted | 200% | 182% | 164% | 146% | 128% | 110% | 92% | 72% | 54% | 0% | 0% | 0% |
The examples below illustrate how the performance unit payout scale works under two different TSR ranking outcomes, assuming an executive officer received a target award of 20,000 performance units in November 2016 subject to a three-year performance period. Each performance unit earned is a right to receive a cash payment equal to the closing price of one share of our common stock on the date the Committee certifies the performance results for the performance period.
Relative TSR Ranking for Three-Year Performance Period | Payout Percentage | Number of Performance Units Earned | ||||
Example 1 | 3rd | 164% | 32,800 units (20,000 x 164%) | |||
Example 2 | 10th | 0% | 0 units (20,000 x 0%) |
Caps on Earned Performance Unit Awards for Negative TSR. The Committee once again considered placing a cap on earned awards at target if absolute TSR is negative for the performance period, regardless of relative TSR, as well as other mechanisms for capping payout if TSR is negative. After robust review and discussion, the Committee determined that placing such a cap on earned awards is not appropriate in our business which is highly dependent on the market-driven prices we
45 |
Compensation Discussion and Analysis
receive for our oil, natural gas and natural gas liquids. The Committee strongly believes that stockholders are best served by a management team that is highly incentivized to deliver differentiating performance in a challenging industry-wide environment, including focusing on items that are within management’s direct control, and that the current design of the long-term incentive awards is achieving the desired results. In addition, the Committee maintains the ability to apply negative discretion to these awards should the Committee deem such discretionary adjustment necessary.
Stock Options. Stock options typically vestpro-rata annually over three years, beginning with the first anniversary of the date of grant, and have a term of seven years. The exercise price is not less than the market price on the date of grant and repricing of stock options to a lower exercise price is prohibited, unless approved by stockholders.
Restricted Stock Units. The Committee establishes objective performance criteria for each calendar year that must be achieved before any restricted stock units are awarded the following year to executive officers expected to be subject to Section 162(m) of the IRC. If the performance criteria are achieved, the Committee may make awards of restricted stock units to the executive officers. The restricted stock units awarded vestpro-rata annually over three years, beginning with the first anniversary of the grant date. All of the restricted stock unit awards made in November 2016 were made after the Company’s achievement of the 2015 performance criterion, which was to obtain at least $750 million of Cash Flow from Operating Activities (Net cash provided by (used in) operating activities) as calculated in the Consolidated Statements of Cash Flows but excluding the effect of any significant (i.e., $100 million or greater) legal settlements/satisfaction of judgments (as described in Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Sources of Cash — Operating Activities) for the fiscal year as published in the Company’s Annual Report on Form10-K for the year ended December 31, 2015.
Equity Awards Granted During 2016
In 2016, the Committee approved the following awards under our 2012 Omnibus Plan for the NEOs. The target grant value of each of the awards was held flat as compared to awards granted in 2015, other than for Mr. Ingram, who did not receive an equity award in 2015, and Mr. Leyendecker, who was not an executive officer in 2015. These awards, as well as a description of the methodology for calculating the grant date fair value, are included in the Grants of Plan-Based Awards Table on page 60.
Name | Total LTI Grant Date Value($) | Performance Units (50%) | Stock Options (25%) | Restricted Stock Units (25%) | |||||||||||||||||||||||||||||||
Target # of Units | Grant Date Value($) | # of Stock Options | Grant Date Value($) | # of Units | Grant Date Value($) | ||||||||||||||||||||||||||||||
Mr. Walker | 11,190,616 | 79,385 | 5,587,116 | 136,661 | 2,828,445 | 44,853 | 2,775,055 | ||||||||||||||||||||||||||||
Mr. Gwin | 4,486,396 | 31,826 | 2,239,914 | 54,788 | 1,133,936 | 17,982 | 1,112,546 | ||||||||||||||||||||||||||||
Mr. Ingram(1) | 5,669,976 | 62,826 | 3,423,494 | 54,788 | 1,133,936 | 17,982 | 1,112,546 | ||||||||||||||||||||||||||||
Mr. Reeves | 3,498,370 | 24,817 | 1,746,620 | 42,722 | 884,209 | 14,022 | 867,541 | ||||||||||||||||||||||||||||
Mr. Leyendecker | 2,520,453 | 17,880 | 1,258,394 | 30,780 | 637,048 | 10,102 | 625,011 |
(1) | Since Mr. Ingram was not employed with the Company in October 2015 and did not receive an annual long-term incentive award at the same time as the other NEOs, he received a similar performance unit award in February 2016 for the three-year performance period ended December 31, 2018. He also received the annual long-term incentive award in November 2016 for the three-year performance period ended December 31, 2019. As a result, he received two performance unit awards in 2016. |
46 |
Compensation Discussion and Analysis
Performance Units — Results for Performance Period Ended December 31, 2016
In January 2017, the Committee certified the performance results for the 2013 annual performance unit awards for the three-year performance period that ended December 31, 2016. Under the provisions of these awards, the targeted performance units were subject to our relative TSR performance against a defined TSR peer group. TSR performance is based on the difference between (1) the average closing stock price for the 30 trading days preceding the beginning of the performance period, and (2) the average closing stock price for the last 30 trading days of the performance period, plus dividends paid for the performance period, and further adjusted for any other distributions or stock splits, where applicable.
For the performance period ended December 31, 2016, the performance results and Anadarko’s ranking, as highlighted, were as follows:
2013 Annual Award — Three-Year Performance Period (January 1, 2014 to December 31, 2016)
Final TSR Ranking | 1 | 2 | 3 | 4 | APC 5 | 6 | 7 | 8 | 9 | 10 | 11 | 12 | ||||||||||||
TSR | 24.9% | 4.0% | 1.2% | -12.1% | -16.8% | -20.2% | -21.1% | -23.5% | -23.6% | -42.2% | -43.5% | -46.6% | ||||||||||||
Payout as % of Target | 200% | 182% | 164% | 146% | 128% | 110% | 92% | 72% | 54% | 0% | 0% | 0% |
The following table lists the number of performance units awarded at minimum, target, and maximum levels and the actual number of performance units earned by the NEOs for the 2013 annual performance unit awards for the three-year performance period that ended December 31, 2016:
2013 Annual Performance Unit Award | ||||||||||||||||||||
Name | Minimum # Units | Target # Units | Maximum # Units | Actual # Units Earned | ||||||||||||||||
Mr. Walker | 0 | 21,999 | 43,998 | 28,158 | ||||||||||||||||
Mr. Gwin | 0 | 8,782 | 17,564 | 11,240 | ||||||||||||||||
Mr. Ingram(1) | 0 | 0 | 0 | 0 | ||||||||||||||||
Mr. Reeves | 0 | 6,874 | 13,748 | 8,798 | ||||||||||||||||
Mr. Leyendecker | 0 | 2,795 | 5,590 | 3,577 |
(1) | Mr. Ingram began employment with the Company in November 2015 and did not receive performance unit awards for the three-year performance period ended December 31, 2016. |
HOW WE MAKE COMPENSATION DECISIONSBase Salary
The Committee has overall responsibilitytable below reflects the base salaries for approving and evaluating the director and officer compensation plans, policies and programsNEOs. As part of the Company. The Committee is also responsible for producing a Compensation Committee report reviewing the Company’s Compensation Discussion and Analysis. The Committee uses several different tools and resources in reviewing elementsits annual review of executive compensation, and making compensation decisions. These decisions, however, are not purely formulaic andin November 2016 the Committee exercises judgmentdetermined that no changes should be made to the base salaries for the NEOs.
Name | Salary as of January 1, 2016($) | Salary as of January 1, 2017($) | Increase | ||||||||||||
Mr. Walker | 1,300,000 | 1,300,000 | 0% | ||||||||||||
Mr. Gwin | 750,000 | 750,000 | 0% | ||||||||||||
Mr. Ingram | 625,000 | 625,000 | 0% | ||||||||||||
Mr. Reeves | 700,000 | 700,000 | 0% | ||||||||||||
Mr. Leyendecker | (1) | 575,000 | 0% |
(1) | Mr. Leyendecker served as a senior vice president of the Company on January 1, 2016 and was not appointed as an executive vice president until August 2016, at which time his base salary was increased to $575,000. |
Performance-Based Annual Cash Incentives (Bonus)
The AIP is designed to focus on key performance goals and discretiontargeted levels of performance that are intended to drive differentiating performance year-over-year. All employees of the Company, including our executive officers, participate in making them. In making compensation decisions,the AIP, which is part of our 2012 Omnibus Incentive Compensation Plan, as amended and restated (2012 Omnibus Plan), that was approved by our stockholders in May 2016. At the beginning of each year, the Committee may formreviews and delegate authority to subcommitteesapproves the performance goals and individual directors whentargeted levels of performance. These performance goals align with the Committee determines that such action is appropriate.
Compensation Consultant. The Committee has retained Frederic W. Cook & Co., Inc. (FWC) as an independent consultant to provide advice on executive compensation matters. The decision to engage FWC was made by the Committee and FWC reports directly and exclusively to the Committee; however, at the Committee’s direction, the consultant works directly with management to review or prepare materialsBoard-approved budget for the Committee’s consideration. While engaged asyear and reflect the Committee’s consultant,market and business environment in which we operate.
The following 2016 AIP performance goals are intended to work together to achieve long-term strategic performance objectives and provide the best, most direct means of aligning the actions of our executive officers and employees in the short term to position the company to deliver exceptional total stockholder returns over the long term.
2016 AIP Performance Goals | Purpose | |
Operational:
• Sales Volumes | ||
Financial: • Capital Expenditures • Controllable Cash Costs | These goals focus on financial discipline. The Company allocates the majority of its capital to assets that generate strong economic returns while a portion is allocated to long-term projects that are intended to provide future reserves and sales volumes. The Controllable Cash Costs performance goal incentivizes employees to manage and reduce costs to maximize margins and profitability. | |
Safety: • Total Recordable Incident Rate | The health and safety of employees is very important to the Company and critical to success. Accordingly, the performance goals include a target total recordable incident rate per 100 employees so that employees are focused on maintaining a safe work environment. |
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Compensation Discussion and Analysis
FWC did not perform any services for the Company outside the scope of its arrangement with the Committee. During 2013, the Committee reviewed FWC’s independence and determined that there were no conflicts of interest as a result of the Committee’s engagement of FWC. The Committee did not engage any consultant other than FWC during 2013 to provide executive compensation consulting services.
In 2013, FWC attended all of the Committee meetings and provided the Committee with market analyses, including both survey and Peer Proxy Data (as defined below), and an annual independent assessment of the risk associated with the Company’s compensation programs. In addition, FWC advised the Committee on the following: market trends; regulatory and governance developments and how they may impact our executive compensation programs; the design and structure of our executive compensation programs to ensure linkage between pay and performance; setting the pay for our CEO; and compensation recommendations for the other executive officers, in consultation with the CEO.
Benchmarking Peers. Each year, FWC conducts an independent review of the Company’s industry peer group for the Committee to use as a reference point for assessing competitive executive compensation data (including base salary, target annual incentives and annualized long-term incentive grant values). This review includes an evaluation of Anadarko’s peers as designated by proxy advisors, peers of direct peers, and companies included in Anadarko’s broad Global Industry Classification Standard Industry Group. In each case, FWC assesses whether there are companies that should be added to or deleted from Anadarko’s existing peer group based on relevant size, scope and nature of business operations. Following this review, the Committee determined that, with the exception of Plains Exploration & Production Company, which was acquired in May 2013, the other 11 companies in the Company’s industry peer group remain appropriate for comparison. The Committee also determined that Murphy Oil Company should replace Plains Exploration & Production Company since it meets the industry criteria and is the appropriate size, is a peer of the Company’s direct peers and is also designated as a peer of Anadarko by various proxy advisors. At the time of the 2013 review, the Company’s revenues were at the median and its total assets and market capitalization approximated the 75th percentile of the peer group. The Company’s industry peer group used for conducting the 2013 executive compensation benchmarking assessment is listed below.
2016 AIP Performance Goals Designed to Enhance Returns and Increase Stockholder Value. Within the exploration and production industry, revenues, operating results, cash flow, capital spending, and future growth rates are highly dependent on the global commodity markets. During the years of higher commodity prices prior to 2015, the Committee established increasingly challenging annual AIP performance goals on key metrics, such as sales volumes and reserve additions, that were designed to advance long-term growth objectives. In alow-commodity price environment, the market rewards exploration and production companies that focus investment on accretive projects and exercise financial discipline. The 2016 performance goals were strategically designed in order to enhance stockholder value during a low commodity price environment by focusing on competitive returns and disciplined investment. | ||||
WithinWhen the AIP performance goals were set at the beginning of 2016, oil and gas industry, there are a very limited number of companies that closely resemble us in size, scope and nature of business operations. Our industry peer group contains companies in our industry that vary in these respects because we compete with these companies for talent and believe the selected companies are currently the most appropriate with respect to executive compensation benchmarking. The differences and similarities between uswas trading at less than $30 per barrel and the companiesduration and magnitude of the decline in commodity prices could not be accurately predicted. As a result, the Company substantially reduced its planned capital expenditures to balance capital spending with the reduced cash flow resulting from lower commodity prices. To enhance value and maximize the reduced budget, the Company strategically allocated most of its capital (~70%) to core assets in the DJ and Delaware basins as well as high margin opportunities in the deepwater Gulf of Mexico and other international operations. Accordingly, the Company allocates capital to opportunities with the highest rates of return seeking to optimize value accretion for its stockholders. The 2016 AIP performance goals were directly tied to the strategic approach of a reduced budget and this, as well as asset sales which occurred in 2015, resulted in target performance levels which were lower in absolute terms than previous years. The Committee determined at the time the 2016 AIP performance goals were approved that the targets established were challenging in the prevailing commodity price environment and appropriately required our industry peer group are taken into consideration when referencing benchmarksexecutive officers and employees to strive for executive compensation decisions.strong performance on key metrics.
Benchmarking Data.Rigorous Process Utilized to Develop Strategic AIP Performance Goals. To assist in reviewingThe Company employs a rigorous and robust process to establish the designannual capital budget, which directly promotes the Company’s strategic objectives and structureis the basis for developing the AIP performance goals. A Company-wide portfolio evaluation and asset optimization effort, led by the Company’s Corporate Planning team, is the foundation for establishing the annual budget. By definition, assets which do not generate accretive rates of ourreturn compared to the Company’s weighted average cost of capital are not considered. The budget is then “built up” from the asset level to a consolidated corporate budget, and includes a detailed analysis, including each asset’s capital efficiency and return metrics. The analysis also includes consideration of the Company’s long-term strategy, prior performance, service cost and commodity prices. Multiple reviews are conducted with executive compensation program, FWC providesmanagement as well as the full Board during the budget cycle and prior to approval to ensure a comprehensive understanding of all assumptions. The Committee approves the associated AIP performance goals to align with the short- and long-term strategic objectives of the budget. Once the goals have been established, the Committee with an independent assessmentmonitors progress during the year through quarterly updates and then reviews and certifies the final corporate-wide results in February of the compensation programs and practices offollowing year. From time to time, the companies in our industry peer group. This comprehensive analysis includes both third-party survey data and supplemental compensation data that is obtained from the latest peer proxy statements and updated, as applicable, with recent public filings for company-by-company detail on peer NEO positions (Peer Proxy Data).Committee may
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Compensation Discussion and Analysis
Historically,exercise appropriate discretionary adjustments depending on various internal/external factors, including stock performance.
Changes to Performance Goals for 2016. While the primary focus2016 AIP performance goals were similar to 2015, the Committee simplified the overall design andre-allocated the weighting of the performance goals to provide increased focus on the key areas that were essential to delivering higher returns and emphasizing financial discipline, while maintaining a safe work environment and creating stockholder alignment. The LOE and Controllable G&A performance goal from the 2015 AIP was renamed Controllable Cash Costs and expanded to include gathering, processing and marketing costs and oil and gas transportation costs. The Committee has beenbelieved that such modifications would focus the executive officers’ efforts on third-party survey datathe controllable aspects of the business performance to maximize operational and financial results during a challenging commodity-price environment.
The performance goals are intended to work together to achieve the Company’s short-term and long-term objectives. For example, the 2016 financial performance goals, Controllable Cash Costs and Capital Expenditures which each had the strongest weighting of 25%, worked together to ensure the Company exercised financial discipline. To the extent the Company was successful in achieving its target on Controllable Cash Costs, resulting in reduced expenses, more cash flow was available to invest in projects that provides aggregated data by functional position. Dueprovide strong economic returns and enhance sales volumes or increase reserves in a cost-efficient manner.
Operating Base Volumes were excluded from the 2016 AIP performance goals as a result of potential difficulties in isolating direct performance-related effects on the score. EBITDAX/BOE was eliminated due to organizational differences in executive leadership structuresunusually high commodity price uncertainty and business strategies across our peers,volatility, which made it has become increasinglyparticularly difficult to benchmark comparable executive leadership positions for manyset an appropriate target. Since the AIP applies to all employees of the Company, TSR was excluded as results can be heavily influenced by corporate actions or factors outside of direct employee control. In addition, most of our NEOs. As a result, the Committee placed more emphasis on the Peer Proxy Data in making compensation decisions for 2013 because this data provides greater transparency and insight into the comparability of our NEOs and executive leadership structure relative to the NEOs and executive leadership structure of our peers. The Peer Proxy Data includes individual incumbent data for each company in our industry peer group and illustrates the differences in job scope, incumbent tenure and overall experience level of peer NEOs compared to our NEOs. In assessing the Peer Proxy Data, the Committee reviewed data summarized by functional positions, by order of pay (i.e., second highest paid, third highest paid, etc.), and aggregated by the total directofficers’ compensation opportunity of the NEOs collectively as a management team at each peer company. Evaluating the total direct compensation opportunity for each peer company’s management team as a whole allows the Committeeis delivered in equity-based incentives that are tied to consider how each peer company structures the compensation opportunity for their management team regardless of individual functional responsibilities. This approach recognizes the differences in executive leadership structures and business strategies across our peers. When reviewing benchmarking data, the Committee reviews 25th, 50th, and 75th percentile data; however, the Committee does not target a specific percentile of the benchmark data and in making officer compensation decisions takes into account other considerations as noted below.
Role of CEO and/or Other Executive Officers in Determining Executive Compensation. The Committee, after reviewing the information provided by FWC and considering other factors and with input from FWC, determines each element of compensation for our CEO. When making determinations about each element of compensation for the other executive officers, the Committee also considers recommendations from our CEO. Additionally, at the Committee’s request, our executive officers may assess the design of, and make recommendations related to, our compensation and benefit programs, including recommendations related to the performance measures used in our incentive programs. The Committee is under no obligation to implement these recommendations. Executive officers and others may also attend Committee meetings when invited to do so.
Other Important Considerations. In addition to the above resources, the Committee strongly considers other factors when making compensation decisions, such as individual experience, individual performance, internal pay equity, development and succession status, and other individual or organizational circumstances. With respect to equity-based awards, the Committee also considers the expense of such awards, the impact on dilution, and the relative value of each element comprising total target executive compensation.
Tally Sheets. The Committee uses tally sheets in its annual executive compensation review to enhance the analytical data used by the Committee to evaluate our executive officer compensation and to provide the Committee with a consolidated source for viewing the aggregate value of all elements of executive compensation. The Committee does not assign a specific weighting to the tally sheets in their overall decision-making process, but uses them to gain additional perspective and as a reference in the decision-making process.TSR.
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Compensation Discussion and Analysis
ELEMENTS OF OUR COMPENSATION PROGRAM
Impact of Divestitures and Variance with Guidance. At the time the Committee approved the 2016 AIP performance goals, the Company intended to monetize certainnon-core assets throughout the year. Due to the uncertainty regarding both the timing and execution of these divestitures, the assets were initially included in the Company’s budget as well as the AIP targets. However, the Committee excluded the effects of the asset divestitures closed during the year by removing them from the AIP targets, performance results and the calculated performance score. This was done to ensure that neither the timing nor execution of the divestiture program had any impact on the final AIP performance score. As a result of this methodology, the target performance goals differed from the Company’s initial public guidance provided at the beginning of 2016. | The Committee made changes to the AIP for 2016 and 2017 based on stockholder feedback to improve and strengthen the alignment of the program with stockholder interests. See further discussion on pages 30 - 31. | |||
Our executive compensation program includes direct and indirect compensation elements. We believe that a majority of an executive officer’s total compensation opportunity should be performance-based; however, we do not have a specified formula that dictates2016 Performance Results. The table below reflects the overall weighting of2016 performance results against each element. The Committee determines total compensation opportunity based on a review of competitive compensation data, including both survey and Peer Proxy Data, consistency with our compensation philosophy, and its judgment as a committee. In doing so, the Committee considers any specific circumstances related to the Company and/or the executive officer.
As illustrated in the charts below, 79% of the current CEOspecified targets. Each performance goal and 75%, on average, of targetthe total compensation for the other NEOs is provided through equity-based incentives that are dependent upon long-term corporate performance and stock-price appreciation. Any value ultimately realized for these long-term equity-based awards is directly tied to Anadarko’s absolute and relative stock-price performance.AIP score was capped at 200%.
2016 AIP Performance Goals | Relative | AIP Target Performance(1) | AIP Target Performance Adjusted for Divestitures(2) | AIP Performance Results Adjusted for Divestitures(3) | AIP Score(3) | ||||||||||||||
Reserve Additions (before price revisions, acquisitions and divestitures), MMBOE | 20% | 164.1 | 164.1 | 278.7 | 40.0% | ||||||||||||||
Sales Volumes, MMBOE | 20% | 285.6 | 254.9 | 265.7 | 40.0% | ||||||||||||||
Capital Expenditures, $MM(4) | 25% | 2,946 | 2,929 | 2,932 | 24.8% | ||||||||||||||
Controllable Cash Costs ($/BOE)(5) | 25% | 13.35 | 13.56 | 12.70 | 44.8% | ||||||||||||||
Total Recordable Incident Rate (Safety) | 10% | 0.34 | 0.34 | 0.36 | 8.0% | ||||||||||||||
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Total | 100% | 158.0% |
(1) | The 2016 AIP performance goals were directly tied to the Company’s reduced budget. As a result of this and asset sales that occurred in 2015, certain target performance levels for 2016 were lower in absolute terms than the previous year. See page 40 for additional discussion. |
(2) | The Committee excluded the effects of the asset divestitures executed during the year by removing them from the AIP targets, performance results and calculated AIP performance score to ensure that neither the timing nor execution of the divestiture program had any impact on the final AIP score. In addition, the Controllable Cash Costs performance goal was adjusted following the completion of a workforce reduction program. |
(3) | The Committee did not make any adjustments to the measured 2016 AIP performance results or overall calculated 2016 AIP performance score other than to exclude the effects of the asset divestitures executed during the year by removing them from the performance results and performance score. In addition, the AIP performance results do not include any impact from the acquisition of assets in the deepwater Gulf of Mexico in December 2016. |
(4) | For AIP purposes, Capital Expenditures excludes the capital expenditures of WES and WGP, expenditures for acquisitions,non-cash investments or investments associated with the divestment program and capital that is carried or subsequently reimbursed by another party. |
Compensation Discussion and Analysis
(5) | Controllable Cash Costs is the sum of lease operating expense (LOE), controllable general and administrative (G&A) costs, oil and gas transportation costs and gathering, marketing and processing costs per barrel of oil equivalent sales volume. LOE excludes the cost of deepwater work-overs because of timing uncertainty and magnitude. Controllable G&A includes costs that are subsequently reclassified to exploration expense for accounting purposes and excludes restricted stock, severance costs, bonus plans and benefits costs. |
The chartsCompany delivered very strong operating performance in 2016 despite the challenging commodity markets by delivering 3% sales volume growth (on an acquisition and divestiture adjusted basis) while investing nearly 50% less capital than in 2015. The Company performed above the targets established for three AIP performance goals (Reserve Additions, Sales Volumes and Controllable Cash Costs). Highlights from 2016 include:
• | Reserve Additions — The Company delivered maximum performance for reserve additions driven by reservoir performance in core assets, cost reductions that extended the economic limit in certain fields, and infill drilling results and extensions/discoveries in the Company’s key development areas. |
• | Sales Volumes — The Company delivered maximum performance on sales volumes driven largely by core assets in the DJ and Delaware basins as well as Algeria. As a result of improvements in both efficiency and absolute cost, the Company was able to drill and complete more wells in the DJ and Delaware basins than expected, while investing largely within budget. The Company also continued to focus on delivering high-margin oil and liquids production. |
• | Controllable Cash Costs— Performance exceeded target due to strong cost control efforts, continued renegotiations with vendors, and reductions innon-essential project spending. Performance on this goal was also enhanced by higher volumes which were produced without associated incremental cost, driving improved profitability on a unit basis. |
The AIP awards for 2016 for the NEOs are shown in the table below and are reflected in the“Non-Equity Incentive Plan Compensation” column of the Summary Compensation Table. Individual target bonus opportunities are determined based on the following: current base salaries, as discussed on page 41; targetexecutive officer’s position. Executive officers may earn from 0% to 200% of their individual bonus opportunities approved bytarget. Following its annual review of executive compensation in November 2016, the Committee made no changes to the NEO bonus targets for 2017.
Name | Base Salary Earnings for 2016($) | Target Bonus % | Approved AIP Performance Score | Individual Performance Adjustments | Actual Bonus Award ($) | ||||||||||||||||||||||||||||||||||||||||
Mr. Walker | 1,300,000 | X | 130% | X | 158% | ± | 0 | = | 2,670,200 | ||||||||||||||||||||||||||||||||||||
Mr. Gwin | 750,000 | X | 95% | X | 158% | ± | 0 | = | 1,125,750 | ||||||||||||||||||||||||||||||||||||
Mr. Ingram | 625,000 | X | 95% | X | 158% | ± | 0 | = | 938,150 | ||||||||||||||||||||||||||||||||||||
Mr. Reeves | 700,000 | X | 95% | X | 158% | ± | 0 | = | 1,050,700 | ||||||||||||||||||||||||||||||||||||
Mr. Leyendecker(1) | 473,654 | X | 85.19% | X | 158% | ± | 0 | = | 637,550 |
(1) | Mr. Leyendecker’s bonus target was prorated as a result of his appointment as executive vice president in August 2016. For 2017, his bonus target will be 95%. |
The Committee did not make individual performance adjustments for any NEO’s 2016 bonus payments in 2013 for 2014, as discussed on page 42; andrecognition of the estimated grant date value forteam effort necessary to drive the 2013 annual equity awards, as discussed on page 48.Company’s success.
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Compensation Discussion and Analysis
DirectSection 162(m) Performance Hurdle. In March 2016, the Committee established a baseline AIP performance hurdle for the NEOs of the Company’s attainment during 2016 of positive Cash Flow from Operating Activities (Net cash provided by (used in) operating activities) as calculated in the Consolidated Statements of Cash Flows of the Company’s financial statement published in the Company’s annual report on Form10-K, but excluding the effect of any legal settlements/satisfaction of judgments that are $1 million or greater. If this performance hurdle was not achieved, the NEOs subject to Section 162(m) of the IRC would earn no AIP bonuses for the year under the 2012 Omnibus Plan. If the performance hurdle was met, the bonus pool would be funded at the maximum bonus opportunity level for each NEO and the Committee would consider our performance against the AIP performance goals, as well as any other relevant factors, when determining the actual amount of the AIP bonuses to be paid to each NEO. The Committee may apply negative discretion in determining actual awards. The Committee does not have the discretion to increase bonuses above funded amounts. The AIP bonus pool was funded for the 2016 performance year because the Company exceeded the established performance hurdle.
Equity Compensation Elements
The directOur equity-based long-term incentive program is designed to reward our executive officers for sustained long-term share performance. This program represents 75% or more of target total compensation elementsopportunity and includes a combination of equity-based awards (performance units, stock options and restricted stock units) that we believe are outlinedperformance-based in absolute and relative terms. Pursuant to our equity grant administration procedures established by the Committee, annual equity-based awards for executive officers are typically made at the regularly scheduled Committee meeting in the table below. fall. Equity awards for newly hired executive officers or awards made in connection with promotions are made on the date such awards are approved by the Committee.
The indirect2016 targeted equity award value was allocated 50% in performance units that reward relative TSR performance and 25% innon-qualified stock options that reward absolute value creation (for a total of 75% long-term equity awards that are performance-based). The remaining 25% is granted in restricted stock units, the value of which is tied to our share price and which we believe is necessary to retain executive talent. The Committee believes that this allocation provides a combination of equity-based awards that is performance-based in relative and absolute terms, while also providing a necessary retentive element. For additional details on the terms of these awards see page 60.
Performance Units. The Committee has established TSR as the performance criterion for the Company’s performance unit awards, and believes that a single focus on TSR as the performance criterion for the performance units is appropriate at this time and is consistent with most energy industry peers. TSR provides an effective relative comparison of our performance against an industry peer group. The Committee has discussed the extent to which certain operational or financial measures could be used as relative long-term performance criteria, such as return on capital employed. The Committee concluded that the performance measures included in our AIP are intended to capture the key drivers of the Company’s business, and that such AIP performance goals should drive TSR performance over time. However, the Committee will continue to consider whether to include additional performance goals in the performance unit program.
Performance Unit Peer Group. The peer group for the 2016 performance unit awards was identical to the peer group that was used for conducting the 2016 compensation elements are outlined in a tablebenchmarking assessment, which is listed on page 49.
48. If any of the peer companies undergoes a change in corporate capitalization or a corporate transaction (including, but not limited to, a going-private transaction, bankruptcy, liquidation, merger or consolidation) during the performance period, the Committee shall
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Compensation Discussion and Analysis
ANALYSIS OF 2013 COMPENSATION ACTIONSundertake an evaluation to determine whether such peer company will be replaced. At the time the 2016 awards were granted, the Committeepre-approved Southwestern Energy, Inc., Cabot Oil and Gas Corporation, Concho Resources, Inc. and Cimarex Energy as replacement companies (in that order).
Performance Unit Performance Period and Payout Opportunity. Beginning with awards granted in November 2014, the Committee eliminated ourtwo-year performance unit program so that all performance unit awards granted in or after 2014 are subject to a three-year performance period. In addition, the Committee reduced the payout opportunity for achievement of TSR performance at the 55th percentile from a payout of 110% to a payout of 100% and reduced the payout opportunities for achievement of all applicable TSR performance levels in the third quartile by 12% to 14% for all new awards. During our prior engagement discussions, certain stockholders suggested eliminating the payout opportunity for TSR performance below median. However, the Committee believes that completely eliminating any opportunity would place the Company at a competitive disadvantage in attracting and retaining executive talent as all of the companies in the industry peer group provide for some level of payout below median.
The following is a discussion oftable reflects the specific actions taken bypayout scale for the Committeeannual performance unit program for awards granted in 2013 related to each of our direct compensation elements. Each element is reviewed annually,and after November 2014 as well as outstanding performance unit awards granted prior to November 2014:
Final TSR Ranking | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | 11 | 12 | ||||||||||||
TSR Performance Percentile | 100% | 91% | 82% | 73% | 64% | 55% | 46% | 36% | 27% | 18% | 9% | 0% | ||||||||||||
Payout as % of Target | ||||||||||||||||||||||||
Awards Granted | 200% | 182% | 164% | 146% | 128% | 100% | 80% | 60% | 40% | 0% | 0% | 0% | ||||||||||||
Awards Granted | 200% | 182% | 164% | 146% | 128% | 110% | 92% | 72% | 54% | 0% | 0% | 0% |
The examples below illustrate how the performance unit payout scale works under two different TSR ranking outcomes, assuming an executive officer received a target award of 20,000 performance units in November 2016 subject to a three-year performance period. Each performance unit earned is a right to receive a cash payment equal to the closing price of one share of our common stock on the date the Committee certifies the performance results for the performance period.
Relative TSR Ranking for Three-Year Performance Period | Payout Percentage | Number of Performance Units Earned | ||||
Example 1 | 3rd | 164% | 32,800 units (20,000 x 164%) | |||
Example 2 | 10th | 0% | 0 units (20,000 x 0%) |
Caps on Earned Performance Unit Awards for Negative TSR. The Committee once again considered placing a cap on earned awards at target if absolute TSR is negative for the timeperformance period, regardless of relative TSR, as well as other mechanisms for capping payout if TSR is negative. After robust review and discussion, the Committee determined that placing such a promotion, other changecap on earned awards is not appropriate in responsibilities, other significant corporate events orour business which is highly dependent on the market-driven prices we
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Compensation Discussion and Analysis
receive for our oil, natural gas and natural gas liquids. The Committee strongly believes that stockholders are best served by a material changemanagement team that is highly incentivized to deliver differentiating performance in market conditions.a challenging industry-wide environment, including focusing on items that are within management’s direct control, and that the current design of the long-term incentive awards is achieving the desired results. In addition, the Committee maintains the ability to apply negative discretion to these awards should the Committee deem such discretionary adjustment necessary.
Stock Options. Stock options typically vestpro-rata annually over three years, beginning with the first anniversary of the date of grant, and have a term of seven years. The exercise price is not less than the market price on the date of grant and repricing of stock options to a lower exercise price is prohibited, unless approved by stockholders.
Restricted Stock Units. The Committee establishes objective performance criteria for each calendar year that must be achieved before any restricted stock units are awarded the following year to executive officers expected to be subject to Section 162(m) of the IRC. If the performance criteria are achieved, the Committee may make awards of restricted stock units to the executive officers. The restricted stock units awarded vestpro-rata annually over three years, beginning with the first anniversary of the grant date. All of the restricted stock unit awards made in November 2016 were made after the Company’s achievement of the 2015 performance criterion, which was to obtain at least $750 million of Cash Flow from Operating Activities (Net cash provided by (used in) operating activities) as calculated in the Consolidated Statements of Cash Flows but excluding the effect of any significant (i.e., $100 million or greater) legal settlements/satisfaction of judgments (as described in Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Sources of Cash — Operating Activities) for the fiscal year as published in the Company’s Annual Report on Form10-K for the year ended December 31, 2015.
Equity Awards Granted During 2016
In 2016, the Committee approved the following awards under our 2012 Omnibus Plan for the NEOs. The target grant value of each of the awards was held flat as compared to awards granted in 2015, other than for Mr. Ingram, who did not receive an equity award in 2015, and Mr. Leyendecker, who was not an executive officer in 2015. These awards, as well as a description of the methodology for calculating the grant date fair value, are included in the Grants of Plan-Based Awards Table on page 60.
Name | Total LTI Grant Date Value($) | Performance Units (50%) | Stock Options (25%) | Restricted Stock Units (25%) | |||||||||||||||||||||||||||||||
Target # of Units | Grant Date Value($) | # of Stock Options | Grant Date Value($) | # of Units | Grant Date Value($) | ||||||||||||||||||||||||||||||
Mr. Walker | 11,190,616 | 79,385 | 5,587,116 | 136,661 | 2,828,445 | 44,853 | 2,775,055 | ||||||||||||||||||||||||||||
Mr. Gwin | 4,486,396 | 31,826 | 2,239,914 | 54,788 | 1,133,936 | 17,982 | 1,112,546 | ||||||||||||||||||||||||||||
Mr. Ingram(1) | 5,669,976 | 62,826 | 3,423,494 | 54,788 | 1,133,936 | 17,982 | 1,112,546 | ||||||||||||||||||||||||||||
Mr. Reeves | 3,498,370 | 24,817 | 1,746,620 | 42,722 | 884,209 | 14,022 | 867,541 | ||||||||||||||||||||||||||||
Mr. Leyendecker | 2,520,453 | 17,880 | 1,258,394 | 30,780 | 637,048 | 10,102 | 625,011 |
(1) | Since Mr. Ingram was not employed with the Company in October 2015 and did not receive an annual long-term incentive award at the same time as the other NEOs, he received a similar performance unit award in February 2016 for the three-year performance period ended December 31, 2018. He also received the annual long-term incentive award in November 2016 for the three-year performance period ended December 31, 2019. As a result, he received two performance unit awards in 2016. |
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Compensation Discussion and Analysis
Performance Units — Results for Performance Period Ended December 31, 2016
In January 2017, the Committee certified the performance results for the 2013 annual performance unit awards for the three-year performance period that ended December 31, 2016. Under the provisions of these awards, the targeted performance units were subject to our relative TSR performance against a defined TSR peer group. TSR performance is based on the difference between (1) the average closing stock price for the 30 trading days preceding the beginning of the performance period, and (2) the average closing stock price for the last 30 trading days of the performance period, plus dividends paid for the performance period, and further adjusted for any other distributions or stock splits, where applicable.
For the performance period ended December 31, 2016, the performance results and Anadarko’s ranking, as highlighted, were as follows:
2013 Annual Award — Three-Year Performance Period (January 1, 2014 to December 31, 2016)
Final TSR Ranking | 1 | 2 | 3 | 4 | APC 5 | 6 | 7 | 8 | 9 | 10 | 11 | 12 | ||||||||||||
TSR | 24.9% | 4.0% | 1.2% | -12.1% | -16.8% | -20.2% | -21.1% | -23.5% | -23.6% | -42.2% | -43.5% | -46.6% | ||||||||||||
Payout as % of Target | 200% | 182% | 164% | 146% | 128% | 110% | 92% | 72% | 54% | 0% | 0% | 0% |
The following table lists the number of performance units awarded at minimum, target, and maximum levels and the actual number of performance units earned by the NEOs for the 2013 annual performance unit awards for the three-year performance period that ended December 31, 2016:
2013 Annual Performance Unit Award | ||||||||||||||||||||
Name | Minimum # Units | Target # Units | Maximum # Units | Actual # Units Earned | ||||||||||||||||
Mr. Walker | 0 | 21,999 | 43,998 | 28,158 | ||||||||||||||||
Mr. Gwin | 0 | 8,782 | 17,564 | 11,240 | ||||||||||||||||
Mr. Ingram(1) | 0 | 0 | 0 | 0 | ||||||||||||||||
Mr. Reeves | 0 | 6,874 | 13,748 | 8,798 | ||||||||||||||||
Mr. Leyendecker | 0 | 2,795 | 5,590 | 3,577 |
(1) | Mr. Ingram began employment with the Company in November 2015 and did not receive performance unit awards for the three-year performance period ended December 31, 2016. |
The table below reflects the base salaries for the NEOs that were approved byNEOs. As part of its annual review of executive compensation, in November 2016 the Committee in 2013:determined that no changes should be made to the base salaries for the NEOs.
Name | Salary as of January 1, 2013($) | Salary as of November 10, 2013($) | Increase% | Salary as of January 1, 2016($) | Salary as of January 1, 2017($) | Increase | ||||||||||||||||||||||||
Mr. Walker | 1,300,000 | 1,300,000 | 0% | 1,300,000 | 1,300,000 | 0% | ||||||||||||||||||||||||
Mr. Gwin | 715,000 | 750,000 | 4.9% | 750,000 | 750,000 | 0% | ||||||||||||||||||||||||
Mr. Meloy | 600,000 | 700,000 | 16.7% | |||||||||||||||||||||||||||
Mr. Daniels | 600,000 | 700,000 | 16.7% | |||||||||||||||||||||||||||
Mr. Ingram | 625,000 | 625,000 | 0% | |||||||||||||||||||||||||||
Mr. Reeves | 650,000 | 700,000 | 7.7% | 700,000 | 700,000 | 0% | ||||||||||||||||||||||||
Mr. Leyendecker | (1) | 575,000 | 0% |
Mr. Walker’s base salary has not been increased since his appointment to CEO in May 2012. The base salary increase for Mr. Gwin represents his first increase since November 2010 and the base salary increases for Messrs. Meloy, Daniels and Reeves represent their first increases since November 2011. See page 34 for additional discussion regarding the Committee’s decision to increase certain of our NEO’s base compensation in 2013.
(1) | Mr. Leyendecker served as a senior vice president of the Company on January 1, 2016 and was not appointed as an executive vice president until August 2016, at which time his base salary was increased to $575,000. |
Performance-Based Annual Cash Incentives (Bonuses)(Bonus)
OurThe AIP is designed to focus on key performance goals and targeted levels of performance that are intended to drive differentiating performance year-over-year. All employees of the Company, including our executive officers, participate in the Annual Incentive Program (AIP),AIP, which is part of our 2012 Omnibus Incentive Compensation Plan, as amended and restated (2012 Omnibus Plan), that was approved by our stockholders in May 2012. Our2016. At the beginning of each year, the Committee reviews and approves the performance goals and targeted levels of performance. These performance goals align with the Board-approved budget for the year and reflect the market and business environment in which we operate.
The following 2016 AIP is designedperformance goals are intended to reward our executives for effectively managing the Company’s investment dollars in the safework together to achieve long-term strategic performance objectives and efficient growth of sales volumes, reserves and cash flows by focusing on the following performance criteria:
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Capital expenditure and cash flow margin targets are incorporated in the incentive compensation program to incentivize financial discipline and cost management. We believe these five metrics together provide the best, most direct means of aligning the actions of our executive officers and employees in the short term to position the company to deliver superiorexceptional total stockholder returns over the long term.
2016 AIP Performance Goals | Purpose | |
Operational: • Reserve Additions • Sales Volumes | Proved reserves are the single most important asset of an exploration and production company. Since this asset depletes by nature, the cost-effective addition of new proved reserves is key to increasing the underlying intrinsic value of the Company and ultimately the stock price. The Company also focuses on sales volumes since it is the means by which reserves are converted into cash flow. | |
Financial: • Capital Expenditures • Controllable Cash Costs | These goals focus on financial discipline. The Company allocates the majority of its capital to assets that generate strong economic returns while a portion is allocated to long-term projects that are intended to provide future reserves and sales volumes. The Controllable Cash Costs performance goal incentivizes employees to manage and reduce costs to maximize margins and profitability. | |
Safety: • Total Recordable Incident Rate | The health and safety of employees is very important to the Company and critical to success. Accordingly, the performance goals include a target total recordable incident rate per 100 employees so that employees are focused on maintaining a safe work environment. |
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Compensation Discussion and Analysis
2016 AIP Performance Goals Designed to Enhance Returns and Increase Stockholder Value. Within the exploration and production industry, revenues, operating results, cash flow, capital spending, and future growth rates are highly dependent on the global commodity markets. During the years of higher commodity prices prior to 2015, the Committee established increasingly challenging annual AIP performance goals on key metrics, such as sales volumes and reserve additions, that were designed to advance long-term growth objectives. In alow-commodity price environment, the market rewards exploration and production companies that focus investment on accretive projects and exercise financial discipline. The 2016 performance goals were strategically designed in order to enhance stockholder value during a low commodity price environment by focusing on competitive returns and disciplined investment. | Structuring incentive programs to simply reward increased absolute performance on operational goals does not support the Company’s long-term strategy nor does it necessarily drive strong stockholder returns. | |||
When the AIP performance goals were set at the beginning of 2016, oil was trading at less than $30 per barrel and the duration and magnitude of the decline in commodity prices could not be accurately predicted. As a result, the Company substantially reduced its planned capital expenditures to balance capital spending with the reduced cash flow resulting from lower commodity prices. To enhance value and maximize the reduced budget, the Company strategically allocated most of its capital (~70%) to core assets in the DJ and Delaware basins as well as high margin opportunities in the deepwater Gulf of Mexico and other international operations. Accordingly, the Company allocates capital to opportunities with the highest rates of return seeking to optimize value accretion for its stockholders. The 2016 AIP performance goals were directly tied to the strategic approach of a reduced budget and this, as well as asset sales which occurred in 2015, resulted in target performance levels which were lower in absolute terms than previous years. The Committee determined at the time the 2016 AIP performance goals were approved that the targets established were challenging in the prevailing commodity price environment and appropriately required our executive officers and employees to strive for strong performance on key metrics.
Rigorous Process Utilized to Develop Strategic AIP Performance Goals.The Company employs a rigorous and robust process to establish the annual capital budget, which directly promotes the Company’s strategic objectives and is the basis for developing the AIP performance goals. A Company-wide portfolio evaluation and asset optimization effort, led by the Company’s Corporate Planning team, is the foundation for establishing the annual budget. By definition, assets which do not generate accretive rates of return compared to the Company’s weighted average cost of capital are not considered. The budget is then “built up” from the asset level to a consolidated corporate budget, and includes a detailed analysis, including each asset’s capital efficiency and return metrics. The analysis also includes consideration of the Company’s long-term strategy, prior performance, service cost and commodity prices. Multiple reviews are conducted with executive management as well as the full Board during the budget cycle and prior to approval to ensure a comprehensive understanding of all assumptions. The Committee approves the associated AIP performance goals to align with the short- and long-term strategic objectives of the budget. Once the goals have been established, the Committee monitors progress during the year through quarterly updates and then reviews and certifies the final corporate-wide results in February of the following year. From time to time, the Committee may
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Compensation Discussion and Analysis
exercise appropriate discretionary adjustments depending on various internal/external factors, including stock performance.
Changes to Performance Goals for 2016. While the 2016 AIP performance goals were similar to 2015, the Committee simplified the overall design andre-allocated the weighting of the performance goals to provide increased focus on the key areas that were essential to delivering higher returns and emphasizing financial discipline, while maintaining a safe work environment and creating stockholder alignment. The LOE and Controllable G&A performance goal from the 2015 AIP was renamed Controllable Cash Costs and expanded to include gathering, processing and marketing costs and oil and gas transportation costs. The Committee believed that such modifications would focus the executive officers’ efforts on the controllable aspects of the business performance to maximize operational and financial results during a challenging commodity-price environment.
The performance goals are intended to work together to achieve the Company’s short-term and long-term objectives. For example, the 2016 financial performance goals, Controllable Cash Costs and Capital Expenditures which each had the strongest weighting of 25%, worked together to ensure the Company exercised financial discipline. To the extent the Company was successful in achieving its target on Controllable Cash Costs, resulting in reduced expenses, more cash flow was available to invest in projects that provide strong economic returns and enhance sales volumes or increase reserves in a cost-efficient manner.
Operating Base Volumes were excluded from the 2016 AIP performance goals as a result of potential difficulties in isolating direct performance-related effects on the score. EBITDAX/BOE was eliminated due to unusually high commodity price uncertainty and volatility, which made it particularly difficult to set an appropriate target. Since the AIP applies to all employees of the Company, TSR was excluded as results can be heavily influenced by corporate actions or factors outside of direct employee control. In February 2013,addition, most of our executive officers’ compensation opportunity is delivered in equity-based incentives that are tied to TSR.
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Compensation Discussion and Analysis
Impact of Divestitures and Variance with Guidance. At the time the Committee approved the 2016 AIP performance goals, the Company intended to monetize certainnon-core assets throughout the year. Due to the uncertainty regarding both the timing and execution of these divestitures, the assets were initially included in the Company’s budget as well as the AIP targets. However, the Committee excluded the effects of the asset divestitures closed during the year by removing them from the AIP targets, performance results and the calculated performance score. This was done to ensure that neither the timing nor execution of the divestiture program had any impact on the final AIP performance score. As a result of this methodology, the target performance goals differed from the Company’s initial public guidance provided at the beginning of 2016. | The Committee made changes to the AIP for 2016 and 2017 based on stockholder feedback to improve and strengthen the alignment of the program with stockholder interests. See further discussion on pages 30 - 31. | |||
2016 Performance Results. The table below reflects the 2016 performance results against each of the specified targets. Each performance goal and the total AIP score was capped at 200%.
2016 AIP Performance Goals | Relative | AIP Target Performance(1) | AIP Target Performance Adjusted for Divestitures(2) | AIP Performance Results Adjusted for Divestitures(3) | AIP Score(3) | ||||||||||||||
Reserve Additions (before price revisions, acquisitions and divestitures), MMBOE | 20% | 164.1 | 164.1 | 278.7 | 40.0% | ||||||||||||||
Sales Volumes, MMBOE | 20% | 285.6 | 254.9 | 265.7 | 40.0% | ||||||||||||||
Capital Expenditures, $MM(4) | 25% | 2,946 | 2,929 | 2,932 | 24.8% | ||||||||||||||
Controllable Cash Costs ($/BOE)(5) | 25% | 13.35 | 13.56 | 12.70 | 44.8% | ||||||||||||||
Total Recordable Incident Rate (Safety) | 10% | 0.34 | 0.34 | 0.36 | 8.0% | ||||||||||||||
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Total | 100% | 158.0% |
(1) | The 2016 AIP performance goals were directly tied to the Company’s reduced budget. As a result of this and asset sales that occurred in 2015, certain target performance levels for 2016 were lower in absolute terms than the previous year. See page 40 for additional discussion. |
(2) | The Committee excluded the effects of the asset divestitures executed during the year by removing them from the AIP targets, performance results and calculated AIP performance score to ensure that neither the timing nor execution of the divestiture program had any impact on the final AIP score. In addition, the Controllable Cash Costs performance goal was adjusted following the completion of a workforce reduction program. |
(3) | The Committee did not make any adjustments to the measured 2016 AIP performance results or overall calculated 2016 AIP performance score other than to exclude the effects of the asset divestitures executed during the year by removing them from the performance results and performance score. In addition, the AIP performance results do not include any impact from the acquisition of assets in the deepwater Gulf of Mexico in December 2016. |
(4) | For AIP purposes, Capital Expenditures excludes the capital expenditures of WES and WGP, expenditures for acquisitions,non-cash investments or investments associated with the divestment program and capital that is carried or subsequently reimbursed by another party. |
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Compensation Discussion and Analysis
(5) | Controllable Cash Costs is the sum of lease operating expense (LOE), controllable general and administrative (G&A) costs, oil and gas transportation costs and gathering, marketing and processing costs per barrel of oil equivalent sales volume. LOE excludes the cost of deepwater work-overs because of timing uncertainty and magnitude. Controllable G&A includes costs that are subsequently reclassified to exploration expense for accounting purposes and excludes restricted stock, severance costs, bonus plans and benefits costs. |
The Company delivered very strong operating performance in 2016 despite the challenging commodity markets by delivering 3% sales volume growth (on an acquisition and divestiture adjusted basis) while investing nearly 50% less capital than in 2015. The Company performed above the targets established for three AIP performance goals (Reserve Additions, Sales Volumes and Controllable Cash Costs). Highlights from 2016 include:
• | Reserve Additions — The Company delivered maximum performance for reserve additions driven by reservoir performance in core assets, cost reductions that extended the economic limit in certain fields, and infill drilling results and extensions/discoveries in the Company’s key development areas. |
• | Sales Volumes — The Company delivered maximum performance on sales volumes driven largely by core assets in the DJ and Delaware basins as well as Algeria. As a result of improvements in both efficiency and absolute cost, the Company was able to drill and complete more wells in the DJ and Delaware basins than expected, while investing largely within budget. The Company also continued to focus on delivering high-margin oil and liquids production. |
• | Controllable Cash Costs— Performance exceeded target due to strong cost control efforts, continued renegotiations with vendors, and reductions innon-essential project spending. Performance on this goal was also enhanced by higher volumes which were produced without associated incremental cost, driving improved profitability on a unit basis. |
The AIP awards for 2016 for the NEOs are shown in the table below and are reflected in the“Non-Equity Incentive Plan Compensation” column of the Summary Compensation Table. Individual target bonus opportunities are determined based on the executive officer’s position. Executive officers may earn from 0% to 200% of their individual bonus target. Following its annual review of executive compensation in November 2016, the Committee made no changes to the NEO bonus targets for 2017.
Name | Base Salary Earnings for 2016($) | Target Bonus % | Approved AIP Performance Score | Individual Performance Adjustments | Actual Bonus Award ($) | ||||||||||||||||||||||||||||||||||||||||
Mr. Walker | 1,300,000 | X | 130% | X | 158% | ± | 0 | = | 2,670,200 | ||||||||||||||||||||||||||||||||||||
Mr. Gwin | 750,000 | X | 95% | X | 158% | ± | 0 | = | 1,125,750 | ||||||||||||||||||||||||||||||||||||
Mr. Ingram | 625,000 | X | 95% | X | 158% | ± | 0 | = | 938,150 | ||||||||||||||||||||||||||||||||||||
Mr. Reeves | 700,000 | X | 95% | X | 158% | ± | 0 | = | 1,050,700 | ||||||||||||||||||||||||||||||||||||
Mr. Leyendecker(1) | 473,654 | X | 85.19% | X | 158% | ± | 0 | = | 637,550 |
(1) | Mr. Leyendecker’s bonus target was prorated as a result of his appointment as executive vice president in August 2016. For 2017, his bonus target will be 95%. |
The Committee did not make individual performance adjustments for any NEO’s 2016 bonus payments in recognition of the team effort necessary to drive the Company’s success.
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Compensation Discussion and Analysis
Section 162(m) Performance Hurdle. In March 2016, the Committee established a baseline AIP performance hurdle for the NEOs of $3.1 billionthe Company’s attainment during 2016 of positive Cash Flow from Operating Activities (Net cash provided by (used in) operating activities) as calculated in the Consolidated Statements of Cash Flows of the Company’s financial statement published in the Company’s annual report on Form10-K, but excluding the effect of any legal settlements/satisfaction of judgments that are $1 million or greater. If this performance hurdle was not achieved, the NEOs subject to Section 162(m) of the IRC would earn no AIP bonuses for the year under the 2012 Omnibus Plan. If the performance hurdle was met, the bonus pool would be funded at the maximum bonus opportunity level for each NEO and the Committee would consider our performance against the AIP performance goals, as well as any other relevant factors, when determining the actual amount of the AIP bonuses to be paid to each NEO. The Committee may apply negative discretion in determining actual awards. The Committee does not have the discretion to increase bonuses above funded amounts. The AIP bonus pool was funded for the 2016 performance year because the Company exceeded the established performance hurdle.
Equity Compensation
Our equity-based long-term incentive program is designed to reward our executive officers for sustained long-term share performance. This program represents 75% or more of target total compensation opportunity and includes a combination of equity-based awards (performance units, stock options and restricted stock units) that we believe are performance-based in absolute and relative terms. Pursuant to our equity grant administration procedures established by the Committee, annual equity-based awards for executive officers are typically made at the regularly scheduled Committee meeting in the fall. Equity awards for newly hired executive officers or awards made in connection with promotions are made on the date such awards are approved by the Committee.
The 2016 targeted equity award value was allocated 50% in performance units that reward relative TSR performance and 25% innon-qualified stock options that reward absolute value creation (for a total of 75% long-term equity awards that are performance-based). The remaining 25% is granted in restricted stock units, the value of which is tied to our share price and which we believe is necessary to retain executive talent. The Committee believes that this allocation provides a combination of equity-based awards that is performance-based in relative and absolute terms, while also providing a necessary retentive element. For additional details on the terms of these awards see page 60.
Performance Units. The Committee has established TSR as the performance criterion for the Company’s performance unit awards, and believes that a single focus on TSR as the performance criterion for the performance units is appropriate at this time and is consistent with most energy industry peers. TSR provides an effective relative comparison of our performance against an industry peer group. The Committee has discussed the extent to which certain operational or financial measures could be used as relative long-term performance criteria, such as return on capital employed. The Committee concluded that the performance measures included in our AIP are intended to capture the key drivers of the Company’s business, and that such AIP performance goals should drive TSR performance over time. However, the Committee will continue to consider whether to include additional performance goals in the performance unit program.
Performance Unit Peer Group. The peer group for the 2016 performance unit awards was identical to the peer group that was used for conducting the 2016 compensation benchmarking assessment, which is listed on page 48. If any of the peer companies undergoes a change in corporate capitalization or a corporate transaction (including, but not limited to, a going-private transaction, bankruptcy, liquidation, merger or consolidation) during the performance period, the Committee shall
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Compensation Discussion and Analysis
undertake an evaluation to determine whether such peer company will be replaced. At the time the 2016 awards were granted, the Committeepre-approved Southwestern Energy, Inc., Cabot Oil and Gas Corporation, Concho Resources, Inc. and Cimarex Energy as replacement companies (in that order).
Performance Unit Performance Period and Payout Opportunity. Beginning with awards granted in November 2014, the Committee eliminated ourtwo-year performance unit program so that all performance unit awards granted in or after 2014 are subject to a three-year performance period. In addition, the Committee reduced the payout opportunity for achievement of TSR performance at the 55th percentile from a payout of 110% to a payout of 100% and reduced the payout opportunities for achievement of all applicable TSR performance levels in the third quartile by 12% to 14% for all new awards. During our prior engagement discussions, certain stockholders suggested eliminating the payout opportunity for TSR performance below median. However, the Committee believes that completely eliminating any opportunity would place the Company at a competitive disadvantage in attracting and retaining executive talent as all of the companies in the industry peer group provide for some level of payout below median.
The following table reflects the payout scale for the annual performance unit program for awards granted in and after November 2014 as well as outstanding performance unit awards granted prior to November 2014:
Final TSR Ranking | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | 11 | 12 | ||||||||||||
TSR Performance Percentile | 100% | 91% | 82% | 73% | 64% | 55% | 46% | 36% | 27% | 18% | 9% | 0% | ||||||||||||
Payout as % of Target | ||||||||||||||||||||||||
Awards Granted | 200% | 182% | 164% | 146% | 128% | 100% | 80% | 60% | 40% | 0% | 0% | 0% | ||||||||||||
Awards Granted | 200% | 182% | 164% | 146% | 128% | 110% | 92% | 72% | 54% | 0% | 0% | 0% |
The examples below illustrate how the performance unit payout scale works under two different TSR ranking outcomes, assuming an executive officer received a target award of 20,000 performance units in November 2016 subject to a three-year performance period. Each performance unit earned is a right to receive a cash payment equal to the closing price of one share of our common stock on the date the Committee certifies the performance results for the performance period.
Relative TSR Ranking for Three-Year Performance Period | Payout Percentage | Number of Performance Units Earned | ||||
Example 1 | 3rd | 164% | 32,800 units (20,000 x 164%) | |||
Example 2 | 10th | 0% | 0 units (20,000 x 0%) |
Caps on Earned Performance Unit Awards for Negative TSR. The Committee once again considered placing a cap on earned awards at target if absolute TSR is negative for the performance period, regardless of relative TSR, as well as other mechanisms for capping payout if TSR is negative. After robust review and discussion, the Committee determined that placing such a cap on earned awards is not appropriate in our business which is highly dependent on the market-driven prices we
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Compensation Discussion and Analysis
receive for our oil, natural gas and natural gas liquids. The Committee strongly believes that stockholders are best served by a management team that is highly incentivized to deliver differentiating performance in a challenging industry-wide environment, including focusing on items that are within management’s direct control, and that the current design of the long-term incentive awards is achieving the desired results. In addition, the Committee maintains the ability to apply negative discretion to these awards should the Committee deem such discretionary adjustment necessary.
Stock Options. Stock options typically vestpro-rata annually over three years, beginning with the first anniversary of the date of grant, and have a term of seven years. The exercise price is not less than the market price on the date of grant and repricing of stock options to a lower exercise price is prohibited, unless approved by stockholders.
Restricted Stock Units. The Committee establishes objective performance criteria for each calendar year that must be achieved before any restricted stock units are awarded the following year to executive officers expected to be subject to Section 162(m) of the IRC. If the performance criteria are achieved, the Committee may make awards of restricted stock units to the executive officers. The restricted stock units awarded vestpro-rata annually over three years, beginning with the first anniversary of the grant date. All of the restricted stock unit awards made in November 2016 were made after the Company’s achievement of the 2015 performance criterion, which was to obtain at least $750 million of Cash Flow from Operating Activities (Net cash provided by (used in) operating activities) as calculated in the Consolidated Statements of Cash Flows but excluding the effect of any significant (i.e., $100 million or greater) legal settlements/satisfaction of judgments (as described in Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Sources of Cash — Operating Activities) for the fiscal year as published in the Company’s Annual Report on Form10-K for the year ended December 31, 2013. If this performance hurdle was not achieved, the NEOs subject to Section 162(m) of the IRC would earn no AIP bonuses for the year under the 2012 Omnibus Plan. If the performance hurdle was met, the bonus
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Compensation Discussion and Analysis2015.
pool would be funded at the maximum bonus opportunity level for each NEO. The Committee may apply negative discretion in determining actual awards, taking into consideration our actual performance against corporate annual performance goals, each individual officer’s performance and contributions, and other factors. The Committee does not have the discretion to increase bonuses above funded amounts. The AIP bonus pool was fully funded for the 2013 performance year because the Company exceeded the established performance hurdle.
If the initial performance hurdle is met, the Committee uses the following formula as a guideline for determining individual bonus payments:
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Individual Target Bonus Opportunities. Individual target bonus opportunities are set as a percentage of base salary. Executive officers may earn from 0% to 200% of their individual bonus target. The bonus targets for the NEOs for 2013 are shown in the table below. Following its annual review of executive compensation in November 2013, the Committee made no changes to the NEO bonus targets for 2014.
Name | Minimum Payout as a % of Salary | Target Payout as a % of Salary | Maximum Payout as a % of Salary | ||||||||||||
Mr. Walker | 0% | 130% | 260% | ||||||||||||
Mr. Gwin | 0% | 95% | 190% | ||||||||||||
Mr. Meloy | 0% | 95% | 190% | ||||||||||||
Mr. Daniels | 0% | 95% | 190% | ||||||||||||
Mr. Reeves | 0% | 95% | 190% |
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Compensation Discussion and Analysis
AIP Performance Score. The Company’s AIP performance score for 2013 was based on the achievement of targeted levels of performance for the following internal operational, financial and safety goals:
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Compensation Discussion and Analysis
As illustrated in the charts below, the Committee establishes increasingly challenging annual operational performance goals under our AIP to generate competitive returns and advance our longer-term growth objectives, without compromising the safety of our employees. For 2013 the Committee again increased the targeted goals for reserve additions, sales volumes and safety performance (as compared to the targets established for 2012) and the Company outperformed each goal with record-setting operational results and a continued commitment to safety.
For 2013 the Company also outperformed the targeted financial goals established by the Committee for Capital Expenditures and EBITDAX/BOE (as reflected in the table below), which demonstrates our continued commitment to financial discipline by spending efficiently and maximizing margins. Because the targeted performance levels for Capital Expenditures and EBITDAX/BOE may fluctuate each year based on the oil and gas operating budget approved by the Board of Directors and the commodity price environment in which we operate, historical performance charts are not helpful for these two performance goals. The Committee believes that the targets established for all of the AIP performance goals are challenging and appropriately require the executive officers to strive for strong performance on key metrics that will result in long-term stockholder value creation.
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Compensation Discussion and Analysis
The relative weighting and the 2013 performance targets were established by the Committee at the beginning of the year. The table below reflects the 2013 performance results against each of these specified targets. Each performance goal is capped at 275% and the total AIP score cannot exceed 200%.
2013 AIP Performance Goals | Relative | AIP Target Performance | AIP Performance Results(1) | AIP | ||||||||||
Reserve Additions (before price revisions and divestitures), MMBOE | 25% | 454 | 514.3 | 52% | ||||||||||
Sales Volumes, MMBOE | 25% | 281 | 284.2 | 39% | ||||||||||
Capital Expenditures, $MM | 20% | 7,700 | 6,954 | 33% | ||||||||||
EBITDAX/BOE($) | 20% | 31.80 | 34.79 | 26% | ||||||||||
Total Recordable Incident Rate (Safety) | 10% | 0.49 | 0.28 | 23% | ||||||||||
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Total | 100% | 173% |
Individual Performance Adjustments. The Committee may make an adjustment to an executive officer’s bonus payment based on individual performance to recognize an individual’s significant contributions that may not be reflected in the overall AIP performance score. Such adjustment cannot result in a bonus payment that exceeds the maximum bonus opportunity funded for each NEO by the achievement of the prescribed IRC Section 162(m) performance hurdle. The Committee did not make individual performance adjustments for any NEO’s 2013 bonus payments in recognition of the team effort necessary to drive the Company’s success.
Actual Bonuses Earned for 2013. The AIP awards for 2013 for the NEOs are shown in the table below and are reflected in the “Non-Equity Incentive Plan Compensation” column of the Summary Compensation Table.
Name | Base Salary Earnings for 2013($) | Target Bonus as % of Base Salary | AIP Performance Score | Individual Performance Adjustments | Actual Bonus Award ($) | ||||||||||||||||||||||||||||||||||||||||
Mr. Walker | 1,300,000 | X | 130% | X | 173% | + | 0 | = | 2,923,700 | ||||||||||||||||||||||||||||||||||||
Mr. Gwin | 719,038 | X | 95% | X | 173% | + | 0 | = | 1,181,740 | ||||||||||||||||||||||||||||||||||||
Mr. Meloy | 611,539 | X | 95% | X | 173% | + | 0 | = | 1,005,064 | ||||||||||||||||||||||||||||||||||||
Mr. Daniels | 611,539 | X | 95% | X | 173% | + | 0 | = | 1,005,064 | ||||||||||||||||||||||||||||||||||||
Mr. Reeves | 655,769 | X | 95% | X | 173% | + | 0 | = | 1,077,757 |
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Compensation Discussion and Analysis
Equity Compensation
Our equity-based long-term incentive program is designed to reward our executive officers for sustained long-term share performance. This program represents 75% or more of target total compensation opportunity and includes a combination of equity-based awards (performance units, stock options and restricted stock units) that are performance-based in absolute and relative terms. Pursuant to our Equity Grant Administration Procedures established by the Committee, annual equity-based awards for executive officers are typically made at the regularly scheduled Committee meeting in November. Equity awards for newly hired executive officers or awards made in connection with promotions are made on the date such awards are approved by the Committee.
Our annual awards are determined based on a targeted dollar value. The 2013 targeted equity award value was allocated 40% in performance units, 35% in non-qualified stock options, and 25% in restricted stock units. This allocation provides a combination of equity-based awards that is performance-based in absolute and relative terms, while also encouraging retention. For additional details on the terms of these awards see page 59.
Performance Units. With respect to performance units, the Committee has established TSR as the performance criterion because it provides a relative comparison of our performance against an industry peer group. As part of its annual assessment, the Committee considered whether to include additional performance metrics in the performance unit program. The Committee specifically discussed various operational and financial measures, including return measures, but concluded that the performance measures with the strongest correlation to TSR are already included in our AIP. It was also determined that return metrics are not appropriate given the long-natured and upfront-capital requirements of our exploration program as the capital we invest today may not generate cash returns for many years. The Committee believes that such a metric would not appropriately incentivize the executive officers. Instead, the Committee believes that a focus on TSR and growth should improve return over time without requiring a specific return metric. As a result, the Committee determined that a single focus on TSR as the performance criterion for the performance units was appropriate and is consistent with most energy industry peers.
The industry peer group for our awards granted in 2013 is listed below:
If any of these peer companies undergoes a change in corporate capitalization or a corporate transaction (including, but not limited to, a going-private transaction, bankruptcy, liquidation, merger or consolidation) during the performance period, the Committee shall undertake an evaluation to determine whether such peer company will be replaced. The Committee has pre-approved Chesapeake Energy Corporation and Talisman Energy as replacement companies (in that order).
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Compensation Discussion and Analysis
The following table reflects the payout scale for the annual performance unit program:
Final TSR Ranking | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | 11 | 12 | ||||||||||||||||||||||||||||||||||||||||||||||||
Payout as % of Target | 200% | 182% | 164% | 146% | 128% | 110% | 92% | 72% | 54% | 0% | 0% | 0% |
Below is an example of how the performance unit payout scale works, assuming an executive officer received a target award of 20,000 performance units.
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Stock Options. Stock options vest pro-rata annually over three years, beginning with the first anniversary of the date of grant, and have a term of seven years. The exercise price is not less than the market price on the date of grant and repricing of stock options to a lower exercise price is prohibited, unless approved by stockholders.
Restricted Stock Units. With respect to the restricted stock units, the Committee establishes objective performance criteria for each calendar year that must be achieved before any restricted stock units are awarded to executive officers the following year. If the performance criteria are achieved, the Committee may make awards of restricted stock units to the executive officers. The restricted stock units awarded vest pro-rata annually over three years, beginning with the first anniversary of the grant date. All of the restricted stock unit awards made in November 2013 were made after the Company’s achievement of the 2012 performance criterion, which was to obtain $2.5 billion in Cash Flows from Operating Activities (Net cash provided by (used in) operating activities), as calculated in the Consolidated Statements of Cash Flows for the fiscal year as published in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012.
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Compensation Discussion and Analysis
Equity Awards MadeGranted During 20132016
On November 6, 2013,In 2016, the Committee approved the following awards under our 2012 Omnibus Plan for the NEOs. The target grant value of each of the awards was held flat as compared to awards granted in 2015, other than for Mr. Ingram, who did not receive an equity award in 2015, and Mr. Leyendecker, who was not an executive officer in 2015. These awards, as well as a description of the methodology for calculating the grant date fair value, are included in the Grants of Plan-Based Awards Table on page 59.60.
Total LTI Grant Date Value($) | Performance Units (40%) | Stock Options (35%) | Restricted Stock Units (25%) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Name | Total LTI Grant Date Value($) | Performance Units (50%) | Stock Options (25%) | Restricted Stock Units (25%) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total LTI Grant Date Value($) | Target # of Units | Grant Date Value($) | # of Stock Options | Grant Date Value($) | # of Units | Grant Date Value($) | Target # of Units | Grant Date Value($) | # of Stock Options | Grant Date Value($) | # of Units | Grant Date Value($) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Mr. Walker | 43,997 | 4,435,339 | 148,378 | 3,848,495 | 29,945 | 2,755,539 | 11,190,616 | 79,385 | 5,587,116 | 136,661 | 2,828,445 | 44,853 | 2,775,055 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Mr. Gwin | 4,406,940 | 17,564 | 1,770,627 | 59,232 | 1,536,306 | 11,954 | 1,100,007 | 4,486,396 | 31,826 | 2,239,914 | 54,788 | 1,133,936 | 17,982 | 1,112,546 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Mr. Meloy | 4,507,133 | 17,963 | 1,810,852 | 60,579 | 1,571,244 | 12,226 | 1,125,037 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Mr. Daniels | 4,507,133 | 17,963 | 1,810,852 | 60,579 | 1,571,244 | 12,226 | 1,125,037 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Mr. Ingram(1) | 5,669,976 | 62,826 | 3,423,494 | 54,788 | 1,133,936 | 17,982 | 1,112,546 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Mr. Reeves | 3,449,489 | 13,748 | 1,385,936 | 46,363 | 1,202,522 | 9,357 | 861,031 | 3,498,370 | 24,817 | 1,746,620 | 42,722 | 884,209 | 14,022 | 867,541 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Mr. Leyendecker | 2,520,453 | 17,880 | 1,258,394 | 30,780 | 637,048 | 10,102 | 625,011 |
(1) | Since Mr. Ingram was not employed with the Company in October 2015 and did not receive an annual long-term incentive award at the same time as the other NEOs, he received a similar performance unit award in February 2016 for the three-year performance period ended December 31, 2018. He also received the annual long-term incentive award in November 2016 for the three-year performance period ended December 31, 2019. As a result, he received two performance unit awards in 2016. |
46 |
Compensation Discussion and Analysis
Performance Units — Results for Performance PeriodsPeriod Ended in 2013December 31, 2016
In January 2014,2017, the Committee certified the performance results for the 2010 and 20112013 annual performance unit awards for the three-year and two-year performance periods, respectively,period that ended December 31, 2013.2016. Under the provisions of these awards, the targeted performance units were subject to our relative TSR performance against thea defined TSR peer group discussed under the Equity Compensation section on page 46. However, Plains Exploration & Production Company, which was included in the TSR peer group at the time the awards were granted, was acquired in May 2013 and the Committee replaced it with Murphy Oil Company.group. TSR performance is based on the difference between (1) the average closing stock price for the 30 trading days preceding the beginning of the performance period, and (2) the average closing stock price for the last 30 trading days of the performance period, plus dividends paid for the performance period, and further adjusted for any other distributions or stock splits, where applicable.
For the performance periodsperiod ended December 31, 2013,2016, the performance results and Anadarko’s ranking, as highlighted, were as follows:
20102013 Annual Award — Three-Year Performance Period (January 1, 20112014 to December 31, 2013)2016)
Final TSR Ranking | 1 | 2 | 3 | 4 | 5 | 6 | APC 7 | 8 | 9 | 10 | 11 | 12 | ||||||||||||||||||||||||||||||||||||||||||||||||
TSR | 118.4% | 82.9% | 78.5% | 69.5% | 59.1% | 53.5% | 26.8% | 13.6% | 12.4% | 8.5% | -14.4% | -20.3% | ||||||||||||||||||||||||||||||||||||||||||||||||
Payout as % of Target | 200% | 182% | 164% | 146% | 128% | 110% | 92% | 72% | 54% | 0% | 0% | 0% | ||||||||||||||||||||||||||||||||||||||||||||||||
2011 Annual Award — Two-Year Performance Period (January 1, 2012 to December 31, 2013) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Final TSR Ranking | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | APC 9 | 10 | 11 | 12 | ||||||||||||||||||||||||||||||||||||||||||||||||
TSR | 106.3% | 69.2% | 51.9% | 47.5% | 43.9% | 42.2% | 36.3% | 27.7% | 11.8% | 6.6% | -0.3% | -2.3% | ||||||||||||||||||||||||||||||||||||||||||||||||
Payout as % of Target | 200% | 182% | 164% | 146% | 128% | 110% | 92% | 72% | 54% | 0% | 0% | 0% |
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Compensation Discussion and Analysis
Final TSR Ranking | 1 | 2 | 3 | 4 | APC 5 | 6 | 7 | 8 | 9 | 10 | 11 | 12 | ||||||||||||
TSR | 24.9% | 4.0% | 1.2% | -12.1% | -16.8% | -20.2% | -21.1% | -23.5% | -23.6% | -42.2% | -43.5% | -46.6% | ||||||||||||
Payout as % of Target | 200% | 182% | 164% | 146% | 128% | 110% | 92% | 72% | 54% | 0% | 0% | 0% |
The following table lists the number of performance units awarded at minimum, target, and maximum levels and the actual number of performance units earned by the NEOs for the 2013 annual performance unit awards for the three-year and two-year performance periodsperiod that ended December 31, 2013:2016:
2010 Annual Performance Unit Award | 2011 Annual Performance Unit Award | 2013 Annual Performance Unit Award | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Name | Minimum # Units | Target # Units | Maximum # Units | Actual # Units Earned | Minimum # Units | Target # Units | Maximum # Units | Actual # Units Earned | Minimum # Units | Target # Units | Maximum # Units | Actual # Units Earned | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Mr. Walker | 0 | 12,875 | 25,750 | 11,845 | 0 | 8,178 | 16,356 | 4,416 | 0 | 21,999 | 43,998 | 28,158 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Mr. Gwin | 0 | 8,200 | 16,400 | 7,544 | 0 | 4,902 | 9,804 | 2,647 | 0 | 8,782 | 17,564 | 11,240 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Mr. Meloy | 0 | 7,343 | 14,686 | 6,756 | 0 | 5,032 | 10,064 | 2,717 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Mr. Daniels | 0 | 7,343 | 14,686 | 6,756 | 0 | 5,032 | 10,064 | 2,717 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Mr. Ingram(1) | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Mr. Reeves | 0 | 6,418 | 12,836 | 5,905 | 0 | 3,837 | 7,674 | 2,072 | 0 | 6,874 | 13,748 | 8,798 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Mr. Leyendecker | 0 | 2,795 | 5,590 | 3,577 |
(1) | Mr. Ingram began employment with the Company in November 2015 and did not receive performance unit awards for the three-year performance period ended December 31, 2016. |
HOW WE MAKE COMPENSATION DECISIONS
The Committee has overall responsibility for evaluating and approving the officer and director compensation plans, policies and programs of the Company. The Committee is also responsible for producing a report reviewing the Company’s Compensation Discussion and Analysis. The Committee uses several different tools and resources in reviewing elements of executive compensation and making compensation decisions. These decisions, however, are not purely formulaic and the Committee exercises judgment and discretion as appropriate.
Indirect Compensation ElementsConsultant. The Committee has retained FW Cook as an independent consultant to provide advice on executive compensation matters. The decision to engage FW Cook was made by the Committee and FW Cook reports directly and exclusively to the Committee; however, at the Committee’s direction, the consultant works directly with management to review or prepare materials for the Committee’s consideration. While engaged as the Committee’s consultant, FW Cook did not
47 |
Compensation Discussion and Analysis
perform any services for the Company outside the scope of its arrangement with the Committee. During 2016, the Committee reviewed FW Cook’s independence and determined that there were no conflicts of interest as a result of the Committee’s engagement of FW Cook. The Committee did not engage any consultant other than FW Cook during 2016 to provide executive compensation consulting services.
In 2016, FW Cook attended all of the Committee meetings and provided the Committee with market analyses, including Peer Proxy Data (defined below), and an annual independent assessment of the risk associated with the Company’s compensation programs. In addition, FW Cook advised the Committee on the following: market trends; regulatory and governance developments and how they may impact our executive compensation programs; the design and structure of our executive compensation programs to ensure linkage between pay and performance; setting the pay for our CEO; and compensation recommendations for the other executive officers, in consultation with the CEO.
Benchmarking Peers. Within the oil and gas industry, there are a very limited number of companies that closely resemble us in size, scope and nature of business operations. Our industry peer group contains companies in our industry that vary in these respects because we compete with these companies for talent and believe the selected companies are currently the most appropriate with respect to executive compensation benchmarking. The differences and similarities between us and the companies in our industry peer group are taken into consideration when referencing benchmarks for executive compensation decisions.
Each year, FW Cook conducts an independent review of the Company’s industry peer group for the Committee to use as a reference point for assessing competitive executive compensation data (including base salary, target annual incentives and annualized long-term incentive grant values). This review includes an evaluation of Anadarko’s peers as designated by proxy advisors, peers of direct peers, and companies included in Anadarko’s broad Global Industry Classification Standard Industry Group. In each case, FW Cook assesses whether there are companies that should be added to or deleted from Anadarko’s existing peer group based on relevant size, scope and the nature of their business operations. Unless significant and material changes have affected the companies in our peer group such that a company is no longer an appropriate peer, the Committee prefers to maintain a high degree of continuity of the peer group to ensure consistent comparison for both pay and performance from year to year. Following this year’s annual review, the Committee determined that the 11 companies included in the Company’s industry peer group remain appropriate for the 2016 executive compensation benchmarking comparison.
The Company’s industry peer group used for conducting the 2016 executive compensation benchmarking assessment is listed below.
• Apache Corporation | • Devon Energy Corporation | • Noble Energy, Inc. | ||||
• Chesapeake Energy Corporation | • EOG Resources, Inc. | • Occidental Petroleum Corporation | ||||
• Chevron Corporation | • Hess Corporation | • Pioneer Natural Resources Company | ||||
• ConocoPhillips | • Marathon Oil Corporation |
Benchmarking Data. To assist in reviewing the design and structure of our executive compensation programs, FW Cook provides the Committee with an independent assessment of the compensation programs and practices of the companies in our industry peer group. This comprehensive analysis includes compensation data that is obtained from the latest peer proxy statements and updated, as applicable, with recent public filings forcompany-by-company detail on peer NEO positions (Peer Proxy Data) as well as supplemental third-party survey data.
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Compensation Discussion and Analysis
Due to organizational differences in executive leadership structures and business strategies across our peers, it is difficult to benchmark comparable executive leadership positions for many of our NEOs. As a result, the Committee places emphasis on the Peer Proxy Data in making compensation decisions because this data provides greater transparency and insight into the comparability of our NEOs and executive leadership structure relative to the NEOs and executive leadership structure of our peers. When reviewing benchmarking data, the Committee reviews 25th, 50th, and 75th percentile data; however, the Committee does not target a specific percentile of the benchmark data and in making officer compensation decisions takes into account other considerations as noted below.
Role of CEO and/or Other Executive Officers in Determining Executive Compensation. The Committee, after reviewing the information provided by FW Cook and considering other factors and with input from FW Cook, determines each element of compensation for our CEO. When making determinations about each element of compensation for the other executive officers, the Committee also considers recommendations from our CEO. Additionally, at the Committee’s request, our executive officers may assess the design of, and make recommendations related to, our compensation and benefit programs, including recommendations related to the performance measures used in our incentive programs. The Committee is under no obligation to implement these recommendations. Executive officers and others may also attend Committee meetings when invited to do so, but the executive officers do not attend when their individual compensation is being discussed.
Other Important Considerations. In addition to the above resources, the Committee strongly considers other factors when making compensation decisions, such as individual experience, individual performance, internal pay equity, development and succession status, and other individual or organizational circumstances, including the current market and business environment. With respect to equity-based awards, the Committee also considers the expense of such awards, the impact on dilution, and the relative value of each element comprising the executive officers’ target total compensation opportunity.
Tally Sheets. The Committee uses tally sheets in its annual executive compensation review to enhance the analytical data used by the Committee to evaluate our executive officer compensation and to provide the Committee with a consolidated source for viewing the aggregate value of all elements of executive compensation. The Committee does not assign a specific weighting to the tally sheets in their overall decision-making process, but uses them to gain additional perspective and as a reference in the decision-making process.
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Compensation Discussion and Analysis
INDIRECT COMPENSATION ELEMENTS
As identified in the table below, the Company provides certain benefits and perquisites (considered indirect compensation elements) that are considered typical within our industry and necessary to attract and retain executive talent. The value of each element of indirect compensation is generally structured to be competitive within our industry.
Indirect Compensation Element | Primary Purpose | |||
Retirement Benefits | • • | Attracts talented executive officers and rewards them for extended service Offers secure andtax-advantaged vehicles for executive officers to save effectively for retirement | ||
Other Benefits (for example, health care, paid time off, disability and life insurance) and Perquisites | • • | Enhances executive welfare and financial security Provides a competitive package to attract and retain executive talent, but does not constitute a significant part of an executive officer’s compensation | ||
Severance Benefits | • • | Attracts and helps retain executives in a volatile and consolidating industry Provides transitional income following an executive’s involuntary termination of employment |
Retirement Benefits
Our executive officers participate in the following retirement and related plans:
Anadarko Employee Savings Plans. The Anadarko Employee Savings Plan (401(k) Plan) is atax-qualified retirement savings plan that allows participating U.S. employees to contribute up to 30% of eligible compensation, on abefore-tax basis or on anafter-tax basis (via a Roth or traditionalafter-tax contribution), into their 401(k) Plan accounts. Eligible compensation includes base salary and AIP bonus payments. Under the 401(k) Plan, we match an amount equal to one dollar for each dollar contributed by participants up to six percent of their total eligible compensation. The 401(k) Plan is subject to applicable IRC limitations regarding participant and Company contributions. Due to IRC limitations that restrict the amount of benefits payable undertax-qualified plans, we also sponsor anon-qualified Savings Restoration Plan. The Savings Restoration Plan accrues a benefit equal to the
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Compensation Discussion and Analysis
excess, if any, of Company matching and Personal Wealth Account (PWA) contributions that would have been allocated to a participant’s 401(k) Plan account each year without regard to the IRC limitation over amounts that were, in fact, allocated to a participant’s account. For additional details on the Savings Restoration Plan see page 67. Amounts deferred, if any, under the 401(k) Plan and the Savings Restoration Plan (collectively, the Savings Plans) by the NEOs are included, respectively, in the “Salary” and “Non-Equity“Non-Equity Incentive Plan Compensation” columns of the Summary Compensation Table. Our matching contributions allocated to the NEOs under the Savings Plans are included in the “All Other Compensation” column of the Summary Compensation Table.
Pension Plans. Anadarko provides funded,tax-qualified retirement benefits for all U.S. employees. Due to IRC limitations that restrict the amount of benefits payable undertax-qualified plans, we also sponsornon-qualified restoration plans that cover the executive officers and certain other employees. The pension plans do not require contributions by participants and a participant becomes vested in his or her benefit at the completion of three years of service as defined in the pension plans. Eligible compensation covered by the pension plans includesconsists of base salary and AIP bonus payments.
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Compensation Discussion and Analysis
Messrs. Walker and Reeves each have supplemental retirement benefits under ournon-qualified Retirement Restoration Plan that provide for special service credits of eight years and five years, respectively, if they each remain employed by us until the age of 55. Messrs. Walker and Reeves vested in these benefits in 2012. The service credits are considered applicable service towards our retirement benefit programs, including pension and retiree medical and dental benefits.benefits, where applicable. These supplemental retirement benefits were provided to Messrs. Walker and Reeves in 2007 to recognize that they weremid-career hires that we would like to retain for the remainder of their careers. Providing them additional service credits recognizes a portion of their prior industry experience and service years which directly benefit us and our stockholders. Mr. Meloy is eligible to receive supplemental pension benefits under the terms of his retention agreement, which was entered into in August 2006 in connection with the closing of the Kerr-McGee acquisition (2006 Retention Agreement).
The accrued benefits for each of the NEOs, including the benefits related to any special service credits are discussed in the Pension Benefits Table on page 66.67. The Committee does not intend to grant any additional pension credits to executive officers and has not done so since 2007.
Other Benefits
We provide other benefits such as medical, dental, and vision insurance, flexible spending and health savings accounts, paid time off, payments for certain relocation costs, disability coverage and life insurance to each executive officer. These benefits are also provided to all other eligible U.S.-based employees. Certain employees, including the executive officers, are eligible for participation in the Company’s Management Life Insurance Plan, which provides an additional life insurance benefit of two times base salary, and the Deferred Compensation Plan, which allows participants to voluntarily defer receipt of up to 75% of their salary and/or up to 100% of their AIP bonus payments. Details regarding the Deferred Compensation Plan and participation in the plan by the NEOs are discussed beginning on page 67.
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Compensation Discussion and Analysis
Perquisites
We provide a limited number of perquisites to the executive officers. These perquisites are assessed annually by the Committee as part of the total competitive review. The expenses related to the perquisites are imputed and considered taxable income to the executive officers as applicable. We do not provide any taxgross-ups on these perquisites. The perquisites provided to the executive officers are as follows:
Mr. Walker has a personal usage limit allowingof up to $300,000 that allows him to use Company aircraft for a limited amount of personal travel and, totravel. To the extent his usage exceeds such amount, requiring himhe is required to reimburse the Company pursuant to a time-sharing agreement. The prior year’s aggregate incremental direct operating costs for each aircraft is used to calculate the value of personal usage. Mr. Walker is allowed up to $250,000 of personal usage annually.
The incremental costs of the various perquisites provided are included in the “All Other Compensation” column of the Summary Compensation Table on page 5758 and in the All Other Compensation Table and supporting footnotes following the Summary Compensation Table on page 58.59.
Severance Benefits
Post-termination andchange-of-control severance benefits are typical within our industry. The Company currently provides the severance benefits described below to its executive officers. These plans are an essential component of our executive compensation programprograms and are necessary to attract and retain executive talent in a highly competitive market, provide continuity of management in the event of an actual or threatened change of control and provide executive officers with the security to make decisions that are in the best long-term interest of the stockholders. On a periodic basis, the
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Compensation Discussion and Analysis
Committee, in consultation with its executive compensation consultant, will review, consider and adjust, as necessary and appropriate, the provisions of post-termination andchange-of-control severance benefits provided to executive officers to ensure that such arrangements serve the Company’s interests in retaining key executives, are consistent with market practice and are reasonable.
Officer Severance Plan. Our executive officers are eligible for benefits under the Officer Severance Plan.Plan with the exception of Mr. Walker whose severance benefits are included in his Severance Agreement, which is described on page 54. Benefits provided under this planthe Officer Severance Plan may vary depending upon the executive officer’s level within the organization and years of service with us and are made at the discretion of the Committee. Executive officers receiving benefits under the Officer Severance Plan are required to execute an agreement releasing us from any and all claims from any and all kinds of actions arising from the executive officer’s employment with us or the termination of such employment. Mr. Walker does not participate in this plan as his severance benefits are included in his Severance Agreement, which is described on page 54.
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Compensation Discussion and Analysis
The typical severance benefits that may be provided for our executive officers following the occurrence of an involuntary termination event (as described on page 69) include the following:
Key EmployeeChange-of-Control Contracts. We have key employeechange-of-control contracts with all of our executive officers including the NEOs, with the exception ofother than Mr. Walker, whosechange-of-control severance benefits are included in his Severance Agreement, which is described on page 54.
If we experience a change of control (as defined on page 69) during the term of the contract, then the contract becomes operative for a specified protection period. These contracts generally provide that the executive officer’s terms of employment (including position, work location, compensation and benefits) will not be adversely changed during the protection period. If we (or any successor in interest) terminate the executive officer’s employment (other than for cause (as defined on page 69), death or disability), the executive officer terminates for good reason (as defined on page 70) during such protection period, or upon certain terminations prior to a change of control or in connection with or in anticipation of a change of control, the executive officer is generally entitled to receive certain payments and benefits. In 2013,2016, no payments were paid under thechange-of-control contracts.
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Compensation Discussion and Analysis
In February 2011, the Committee approved changes to the form contracts that reduced the level ofpost-change-of-control severance benefits under the Key EmployeeChange-of-Control Contracts, on a prospective basis, for newly appointed and newly hired executive officers who are not otherwise subject to an existing agreement. In November 2016, the Committee determined that the revised contract should be entered into with all newly appointed executive officers, regardless of whether or not they were subject to an existing agreement prior to their appointment as an executive officer. In
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Compensation Discussion and Analysis
addition, the Committee determined that the form contracts should align with the significant provisions of Mr. Walker’s Severance Agreement, including reducing the severance multiple from 2.9 to 2.5 (2016 Key EmployeeChange-of-Control Contract).
The table below summarizes the general provisions of the contracts (our current NEOs have contractswith Messrs. Gwin and Reeves that were entered into prior to February 2011).2011 and the 2016 Key EmployeeChange-of-Control Contracts with Messrs. Ingram and Leyendecker. Mr. Walker’schange-of-control severance benefits are included in his Severance Agreement, which is described on page 54.
Key EmployeeChange-of-Control Contracts Entered Into Prior to February 2011 | 2016 Key EmployeeChange-of-Control Contracts
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• | Initial three-year term automatically extended each year unless either party provides notice not to extend | • | Initial | |||
• | Modified single-trigger provision(1) | • | Double-trigger provision(2) | |||
• | Three-year protection period | • | ||||
• | 2.9 times base salary plus AIP bonus (based on highest AIP bonus paid over last three years) | • | ||||
• | Prorated annual bonus (based on highest AIP bonus paid over last three years) | • | Prorated annual bonus (based on the higher of target performance or actual performance) | |||
• | Up to three additional years of matching contributions into the Savings Restoration Plan | • | Up to three additional years of matching contributions into the Savings Restoration Plan | |||
• | Up to three additional years of age and service credits under the Company’s retirement and pension plans | • | Up to three additional years of age and service credits under the Company’s retirement and pension plans | |||
• | Three years continuation of medical, dental, and life insurance benefits | • | Three years continuation of medical, dental, and life insurance benefits | |||
• | Three years of financial planning benefits | • | No continuation of financial planning benefits | |||
• | Excise taxgross-up(3) | • | Best-of-net tax provision (i.e., no taxgross-up by the Company)(4) | |||
• | Outplacement services up to a maximum of $30,000 | • | Outplacement services up to a maximum of $30,000 | |||
• | Officer is subject to a confidentiality provision | • | Officer is subject to a confidentiality provision |
(1) | A good reason provision allowing an executive officer to terminate for any reason during the30-day period immediately following the first anniversary of a change of control and receive severance benefits. |
(2) | Severance payments are made only in the event of both a change of control and the termination of the executive officer’s employment without cause or for good reason during the applicable protection period. |
(3) | The executive officer will be entitled to receive a payment in an amount sufficient to make the executive whole for any excise tax on excess parachute payments imposed under IRC Section 4999. |
(4) | Requires the Company to either (1) reduce the amount of certain severance benefits otherwise payable so that such severance benefits will not be subject to the tax imposed by IRC Section 4999, or alternatively (2) pay the full amount of severance benefits to the executive officer (but with no taxgross-up), whichever produces the betterafter-tax result for the executive officer. |
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Compensation Discussion and Analysis
As a condition to receipt ofchange-of-control severance benefits, the executive officer must remain employed by us and provide services commensurate with his or her position until the executive officer is terminated pursuant to the provisions of the contract. The executive officer must also agree to retain in confidence any and all confidential information known to him or her concerning us and our business so long as the information is not otherwise publicly disclosed.
The above descriptions of the Key EmployeeChange-of-Control Contracts are not a full summary of all of the terms and conditions of these agreements and are qualified in their entirety by the full text of the agreements, which are on file with the SEC.
Change of Control — Treatment of Outstanding Unvested Equity Awards. The treatment of unvested outstanding equity awards upon a change of control of Anadarko is prescribed by the applicable plan document under which the awards were granted. The Company’s 2008 Omnibus Plan, which governs awards made prior to May 15, 2012, included a single-trigger provision for the accelerated vesting of equity awards upon a change of control. All outstanding awards to the NEOs under the 2008 Omnibus Plan will be fully vested by the end of 2014. The 2012 Omnibus Plan, which governs awards made on or after May 15, 2012, includes a double-trigger provision that provides that, unless otherwise specified in the award agreement, there is only accelerated vesting of awards in the event of both a change of control of the Company and the termination of the participant’s employment without cause or for good reason during the applicable protection period. All equity awards issued under the 2012 Omnibus Plan contain this double-trigger feature.
AGREEMENTS WITH EXECUTIVE OFFICERS
Mr. Walker — Severance Agreement
In connection with Mr. Walker’s appointment to CEO in 2012, the Committee determined that his employment should be continued on anat-will basis. On February 16, 2012, the Company and Mr. Walker entered into a Severance Agreement to combine and restructure certain severance benefits previously provided to him under the Officer Severance Plan and through his key employeechange-of-control contract. Effective May 15, 2012, Mr. Walker was no longer eligible to receive benefits under the Officer Severance Plan and waived the severance benefits under his key employeechange-of-control contract, thereby reducing the level ofchange-of-control severance benefits that he was formerly eligible to receive. The general provisions of the Severance Agreement are described in the tables below:
Severance Benefits Outside of a Change of Control | ||
• | Pro-rated annual bonus based on actual performance for the year of termination | |
• | Two times the sum of his annual base salary and annual target bonus for the year of termination | |
• | Up to six months continued participation in the Company’s medical and dental care plans at active employee rates and reimbursement for the cost of up to 18 additional months of COBRA continuation coverage |
Change-of-Control Severance Benefits | ||
• | Double-trigger provision (requiring both achange-of-control and a termination of employment) | |
• | Three-year protection period following Change of Control | |
• | 2.5 times annual salary plus the higher of target bonus for the year of termination or the average bonus for the last two years | |
• | Prorated annual bonus (based on the higher of target performance or actual performance) | |
• | Up to three additional years of matching contributions into the Savings Restoration Plan | |
• | Up to three additional years of age and service credits under the Company’s retirement and pension plans |
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Compensation Discussion and Analysis
• | Three years continuation of medical, dental, and life insurance benefits | |
• | Best-of-net tax provision (i.e., no taxgross-up by the Company) | |
• | Outplacement services up to a maximum of $30,000 | |
• | Subject to a confidentiality provision |
Mr. Ingram — Retention Agreement
When Mr. Ingram began employment with the Company on November 1, 2015, he entered into a retention agreement (Retention Agreement) with the Company as part of his employment package. The Compensation Committee determined that the Retention Agreement was necessary to ensure retention of Mr. Ingram’s services and leadership during a critical period of the Company’s LNG development project in Mozambique, especially since competition for talented executive leadership in the LNG industry is highly competitive. Under the terms of the agreement, Mr. Ingram received a cash retention award of $800,000, less applicable taxes, payable in two equal installments. The first installment was paid in November 2016. The second installment is due on November 1, 2017 provided Mr. Ingram remains with the Company through such date. As set forth in the terms of the Retention Agreement, if Mr. Ingram’s employment is terminated prior to November 1, 2017 due to death, disability, Involuntary Termination by the Company (as defined in the Retention Agreement), or a termination that entitles him to receive benefits under his Key Employee Change of Control Contract, then he will receive the unpaid portion of the retention award within 60 days following his termination. If Mr. Ingram’s employment terminates for any other reason prior to November 1, 2017, he will forfeit the remaining balance of the cash retention payment. Mr. Ingram will continue to be subject to confidentiality andnon-solicitation provisions following a termination of employment, as provided in the Retention Agreement.
The above descriptions of Mr. Walker’s Severance Agreement and Mr. Ingram’s Retention Agreement are not a full summary of all of the terms and conditions of these agreements and are qualified in their entirety by the full text of the agreements, which are on file with the SEC.
DIRECTOR AND OFFICER INDEMNIFICATION AGREEMENTS
We have entered into indemnification agreements with our directors and certain executive officers, in part to enable us to attract and retain qualified directors and executive officers. These agreements require us, among other things, to indemnify such persons against certain liabilities that may arise by reason of their status or service as directors or officers, to advance their expenses for proceedings for which they may be indemnified, and to cover such person under any directors’ and officers’ liability insurance policy that we may maintain from time to time. These agreements are intended to provide indemnification rights to the fullest extent permitted under applicable Delaware law and are in addition to any other rights our directors and executive officers may have under our Restated Certificate of Incorporation,By-Laws and applicable law.
AGREEMENTS WITH EXECUTIVE OFFICERS
Mr. Walker — Severance Agreement
At the time the Board announced Mr. Walker’s appointment to President and CEO in 2012, the Committee determined that Mr. Walker’s employment should be continued on an at-will basis. On February 16, 2012, the Company and Mr. Walker entered into a Severance Agreement to combine and restructure certain severance benefits previously provided to him under the Officer Severance Plan and through his key employee change-of-control contract. Effective May 15, 2012, Mr. Walker was no longer eligible to receive benefits under the Officer Severance Plan and waived the severance benefits under his key employee change-of-control contract, thereby reducing the level of change-of-control severance benefits that he was formerly eligible to receive. The general provisions of the Severance Agreement are described in the tables below:
| 55 |
Compensation Discussion and Analysis
The above description of Mr. Walker’s Severance Agreement is not a full summary of all of the terms and conditions of the agreement and is qualified in its entirety by the full text of the agreement, which is on file with the SEC.
STOCK OWNERSHIP GUIDELINES
We have maintained stock ownership guidelines for executive officers since 1993 with the goal of promoting equity ownership and aligning our executive officers’ interests with those of our stockholders. These guidelines must be met within three years after becoming subject to them. Currently, all of our executive officers either meet or exceed their specified guidelines. The ownership guidelines are currently established at the following minimum levels:
Position | Guideline | Meets Ownership Requirement as of 12/31/ | ||||||||
Chief Executive Officer | 6 x base salary | |||||||||
Executive Vice Presidents | 3 x base salary | |||||||||
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The Committee reviews the stock ownership levels annually. During 2013, Messrs. Gwin, Meloy, Daniels and Reeves were promoted from Senior Vice Presidents to Executive Vice Presidents and their stock ownership requirements were subsequently increased to three times base salary. In determining stock ownership levels, we include shares of common stock held directly by the executive officer (including shares beneficially owned in a trust, by a limited liability company or partnership, and by a spouse and/or minor children, unless the non-management director or officer expressly disclaims beneficial ownership of such shares); shares of common stock held indirectly through the Anadarko Employee Savings Plan; deferred share balances resulting from an investment in the Company Stock Fund as defined in the Anadarko Petroleum Corporation Deferred Compensation Plan provided such balance is payable in shares; and unvested restricted stock and unvested restricted stock units. For those executive officers of Anadarko who are also officers of WES and/or WGP, any WES and/or WGP equity they own is also included in the calculation to determine their compliance. Outstanding
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Compensation Discussion and Analysis
performance units and unexercised stock options are not included. If an executive officer does not satisfy the stock ownership requirements, during the applicable timeframe, he or she must retain all shares acquired on the vesting of equity awards or the exercise of stock options (net of exercise costs and taxes) until compliance is achieved. Because of our robust ownership levels, other than as described above we do not maintain separate holding requirements for our equity awards.
CLAWBACK POLICY
All awards granted under Anadarko’s 2012 Omnibus Plan are conditioned on repayment or forfeiture in accordance with applicable laws, Company policy, and any relevant provisions in the related award agreement. Each award agreement under the 2012 Omnibus Plan specifically provides that the awards are subject to forfeiture or repayment if the Company is required to prepare an accounting restatement due to material noncompliance of the Company with applicable rules as a result of misconduct. In addition, the 2012 Omnibus Plan provides that the Committee may specify in an award agreement or otherwise that a recipient’s rights, payment, and benefits with respect to the award shall be reduced, cancelled, forfeited or recouped upon the occurrence of certain specified events, including termination of employment for cause, violations of material Company policies, or other conduct by the recipient that is detrimental to the business or reputation of the Company.
REGULATORY REQUIREMENTS
Together with the Committee, the Company carefully reviews and takes into account current tax, accounting and securities regulations as they relate to the design of our compensation programs and related decisions.
IRC Section 162(m) of the IRC limits a company’s ability to deduct compensation paid in excess of $1 million during any fiscal year to each of certain NEOs, unless the compensation is performance-based as defined under federal tax laws. Stock options, performance units and cash awards granted under our 2008 and 2012 Omnibus Plans and our 1999 Stock Incentive Plan are intended to satisfy the performance-based requirements and, as such, are designed to be fully deductible. Since 2008, the Committee has approved an annual program intended to qualify our restricted stock awards (including restricted shares and restricted stock units) as performance-based compensation under IRC Section 162(m). The Committee reviews and considers the deductibility of our executive compensation programs; however, the Committee believes it is important to provide
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Compensation Discussion and Analysis
compensation that is not fully deductible when necessary to retain and motivate certain executive officers and when it is in the best interest of the Company and our stockholders. For these reasons, Mr. Walker receives a base salary above $1 million, and therefore the portion of base salary in excess of $1 million is not deductible.
Awards of performance units, stock options, restricted shares and restricted stock units under our 2012 Omnibus Plan, 2008 Omnibus Plan and 1999 Stock Incentive Plan are accounted for under FASB ASC Topic 718.
The benefits payable undernon-qualified plans for our executive officers and directors are unsecured obligations to pay. Assets to pay these benefits may be held under the Company’s Benefits Trust, which is subject to the claims of the general creditors of the Company.
CONCLUSION
We believe our executive compensation program isprograms, together with the Committee’s oversight, are designed to pay for performance. It aligns the interests of our executive officers with those of our stockholdersperformance and providesenable us to attract, retain and motivate a strong leadership team. The programs provide executive officers with the necessary motivation to maximize the long-term operational and financial performance of the Company, while using sound financial controls and maintaining high standards of integrity. We alsoEspecially in these complex and volatile times, we believe that total compensation for each executive officer should be, and is, commensurate with the execution of specified short- and long-term operational, financial and strategic objectives. The programs currently offered have been effective in retaining executive officers during a period of strong competitive demand and a shortage of talented executives within the oil and gas exploration and production industry. We believe that the quality of our executive compensation program willprograms continue to be reflected in positive long-term operationalalign the executive officers’ interest, as well as the value they may ultimately realize, with the interests and financial performance which will result in long-term stockholder value creation.returns of our stockholders.
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The following table summarizes the compensation for the fiscal years ended December 31, 2013, 2012,2016, and, 2011if the individual was an NEO for the applicable fiscal year, for the fiscal years ended December 31, 2015, and 2014 for our CEO, our Chief Financial Officer (CFO) and our three highest paid executive officers other than our CEO and CFO:
Name and Principal Position | Year | Salary ($) | Bonus ($) �� | Stock Awards ($)(1) | Option Awards ($)(1) | Non-Equity Incentive Plan Compensation ($)(2) | Change in Pension Value and Non-Qualified Deferred Compensation Earnings ($)(3) | All Other Compensation ($)(4) | Total ($) | |||||||||||||||||||||||||||||||||||||||||
R. A. Walker(5) Chairman, President | 2013 | 1,300,000 | 0 | 7,190,878 | 3,848,495 | 2,923,700 | 1,154,412 | 501,944 | 16,919,429 | |||||||||||||||||||||||||||||||||||||||||
2012 | 1,105,769 | 0 | 8,578,095 | 5,694,735 | 2,248,890 | 1,545,387 | 492,009 | 19,664,885 | ||||||||||||||||||||||||||||||||||||||||||
2011 | 742,500 | 0 | 3,892,653 | 2,647,467 | 1,128,600 | 1,105,184 | 290,270 | 9,806,674 | ||||||||||||||||||||||||||||||||||||||||||
Robert G. Gwin Executive Vice President, | 2013 | 719,038 | 0 | 2,870,634 | 1,536,306 | 1,181,740 | — | (6) | 236,592 | 6,544,310 | ||||||||||||||||||||||||||||||||||||||||
2012 | 715,000 | 0 | 2,361,475 | 1,566,974 | 0 | 840,846 | 188,380 | 5,672,675 | ||||||||||||||||||||||||||||||||||||||||||
2011 | 715,000 | 0 | 2,333,484 | 1,586,972 | 1,032,460 | 637,703 | 146,829 | 6,452,448 | ||||||||||||||||||||||||||||||||||||||||||
Charles A. Meloy Executive Vice President, | 2013 | 611,539 | 0 | 2,935,889 | 1,571,244 | 1,005,064 | — | (6) | 232,411 | 6,356,147 | ||||||||||||||||||||||||||||||||||||||||
2012 | 600,000 | 0 | 2,424,231 | 1,608,632 | 974,700 | 1,729,903 | 173,034 | 7,510,500 | ||||||||||||||||||||||||||||||||||||||||||
2011 | 577,885 | 0 | 2,395,464 | 1,629,204 | 834,465 | 2,253,427 | 148,653 | 7,839,098 | ||||||||||||||||||||||||||||||||||||||||||
Robert P. Daniels Executive Vice President, | 2013 | 611,539 | 0 | 2,935,889 | 1,571,244 | 1,005,064 | — | (6) | 173,942 | 6,297,678 | ||||||||||||||||||||||||||||||||||||||||
2012 | 600,000 | 0 | 2,424,231 | 1,608,632 | 974,700 | 1,425,005 | 113,439 | 7,146,007 | ||||||||||||||||||||||||||||||||||||||||||
2011 | 577,885 | 0 | 2,395,464 | 1,629,204 | 834,465 | 1,330,904 | 121,801 | 6,889,723 | ||||||||||||||||||||||||||||||||||||||||||
Robert K. Reeves Executive Vice President, | 2013 | 655,769 | 0 | 2,246,967 | 1,202,522 | 1,077,757 | — | (6) | 174,495 | 5,357,510 | ||||||||||||||||||||||||||||||||||||||||
2012 | 650,000 | 0 | 1,848,466 | 1,226,577 | 1,000,350 | 992,888 | 109,674 | 5,827,955 | ||||||||||||||||||||||||||||||||||||||||||
2011 | 621,869 | 0 | 2,826,579 | 1,242,190 | 850,717 | 872,784 | 121,759 | 6,535,898 | ||||||||||||||||||||||||||||||||||||||||||
Name and Principal Position | Year | Salary ($)(1) | Bonus ($) | Stock Awards ($)(2) | Option Awards ($)(2) | Non-Equity Incentive Plan Compensation ($)(3) | Change in Pension Value and Non-Qualified Deferred Compensation Earnings ($)(4) | All Other Compensation ($)(5) | Total ($) | ||||||||||||||||||||||||||||||||||||
R. A. Walker | 2016 | 1,300,000 | 0 | 8,362,171 | 2,828,445 | 2,670,200 | 3,019,011 | 470,425 | 18,650,252 | ||||||||||||||||||||||||||||||||||||
Chairman, President | 2015 | 1,350,000 | 0 | 8,321,429 | 2,794,960 | 1,930,500 | 2,200,242 | 487,251 | 17,084,382 | ||||||||||||||||||||||||||||||||||||
and Chief | 2014 | 1,300,000 | 0 | 8,317,674 | 2,779,856 | 2,551,900 | 5,205,613 | 565,144 | 20,720,187 | ||||||||||||||||||||||||||||||||||||
Executive Officer | |||||||||||||||||||||||||||||||||||||||||||||
Robert G. Gwin | 2016 | 750,000 | 0 | 3,352,460 | 1,133,936 | 1,125,750 | 929,080 | 192,813 | 7,484,039 | ||||||||||||||||||||||||||||||||||||
EVP, Finance and Chief | 2015 | 778,846 | 0 | 3,336,853 | 1,120,768 | 813,894 | 20,204 | 216,505 | 6,287,070 | ||||||||||||||||||||||||||||||||||||
Financial Officer | 2014 | 750,000 | 0 | 3,320,425 | 1,109,704 | 1,075,875 | 740,102 | 223,255 | 7,219,361 | ||||||||||||||||||||||||||||||||||||
Mitchell W. Ingram EVP, Global LNG | 2016 | 625,000 | 400,000 | (6) | 4,536,040 | (7) | 1,133,936 | 938,150 | 47,687 | 304,060 | 7,984,873 | ||||||||||||||||||||||||||||||||||
Robert K. Reeves | 2016 | 700,000 | 0 | 2,614,161 | 884,209 | 1,050,700 | 1,265,737 | 121,004 | 6,635,811 | ||||||||||||||||||||||||||||||||||||
EVP, Law and Chief | 2015 | 726,923 | 0 | 2,601,996 | 873,946 | 759,635 | 265,865 | 154,315 | 5,382,680 | ||||||||||||||||||||||||||||||||||||
Administrative Officer | 2014 | 700,000 | 0 | 2,599,174 | 868,621 | 1,004,150 | 1,433,125 | 179,368 | 6,784,438 | ||||||||||||||||||||||||||||||||||||
Ernest A. Leyendecker EVP, International and Deepwater | 2016 | 473,654 | 0 | 1,883,405 | 637,048 | 637,550 | 698,025 | 71,694 | 4,401,376 |
(1) | As part of its annual review of executive compensation in November 2016, the Committee determined that no changes should be made to the base salaries for the NEOs. The amounts reflected in this column for 2015 include a total of 27 pay periods, rather than the usual 26, as a result of the Company’s payroll schedule for 2015. In most years, paying abi-weekly pay schedule results in 26 pay periods. However, every 11 years, a 27th pay period occurs. The reported value in 2016 does not represent a change in base salary for any of the NEOs. Mr. Leyendecker’s amount represents salary earned prior to and upon his appointment as executive vice president in August 2016. |
(2) | The amounts included in these columns represent the aggregate grant date fair value of the awards |
The amounts in this column reflect the incentive cash bonus awards for |
|
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Executive Compensation
(4) | The amounts in this column reflect the annual aggregate change in the actuarial present value of each NEO’s accumulated benefit, expressed as a lump sum, under the Company’s pension plans described in more detail beginning on page 63. The amounts reported in this column are not a current cash payment but represent the year-over-year change in the value of the NEO’s pension based on specified interest and discount rate assumptions for each year and include amounts that the NEO may not currently be entitled to receive because such amounts are not vested. As of December 31, 2016, Mr. Ingram was not vested in his PWA balance. The actual value of the pension will be determined at the time each NEO retires from the Company. The Company’s Deferred Compensation Plan does not provide for above-market or preferential earnings so no such amounts are included. |
The amounts shown in this column are described further in the All Other Compensation Table below. |
All Other Compensation Table for 20132016
The following table describes each component of the “All Other Compensation” column for the fiscal year ended December 31, 20132016 in the Summary Compensation Table:
Name | Personal Use of Aircraft ($)(1) | Payments by the Company to Employee 401(k) Plan and Savings Restoration Plan ($) | Club Membership Dues ($)(2) | Financial/ Tax/Estate Planning ($) | Excess Liability Insurance ($) | Tax Benefit ($) | Totals ($) | ||||||||||||||||||||||||||||
R. A. Walker(3) | 247,600 | 212,933 | 37,488 | 2,166 | 1,757 | 0 | 501,944 | ||||||||||||||||||||||||||||
Robert G. Gwin | 150,013 | 43,142 | 27,415 | 14,265 | 1,757 | 0 | 236,592 | ||||||||||||||||||||||||||||
Charles A. Meloy | 47,588 | 158,624 | 10,177 | 14,265 | 1,757 | 0 | 232,411 | ||||||||||||||||||||||||||||
Robert P. Daniels | 37,542 | 95,174 | 25,204 | 14,265 | 1,757 | 0 | 173,942 | ||||||||||||||||||||||||||||
Robert K. Reeves | 34,070 | 99,367 | 8,936 | 30,365 | 1,757 | 0 | 174,495 |
Name | Personal Use of Aircraft ($)(1) | Payments by the Company to Employee 401(k) Plan and Savings Restoration Plan ($) | Club Membership Dues ($)(2) | Financial/ Tax/Estate Planning ($) | Excess Liability Insurance ($) | Other ($)(3) | Totals ($) | ||||||||||||||||||||||||||||
R. A. Walker(4) | 241,969 | 193,830 | 30,910 | 2,035 | 1,681 | 0 | 470,425 | ||||||||||||||||||||||||||||
Robert G. Gwin | 36,951 | 93,834 | 44,922 | 15,425 | 1,681 | 0 | 192,813 | ||||||||||||||||||||||||||||
Mitchell W. Ingram | 0 | 73,804 | 12,377 | 27,992 | 1,681 | 188,206 | 304,060 | ||||||||||||||||||||||||||||
Robert K. Reeves | 20,082 | 87,578 | 7,933 | 3,730 | 1,681 | 0 | 121,004 | ||||||||||||||||||||||||||||
Ernest A. Leyendecker | 0 | 54,588 | 0 | 15,425 | 1,681 | 0 | 71,694 |
(1) | The amount reported above reflects the value of personal aircraft use for |
(2) | The amounts disclosed represent the payment of club membership fees. For those clubs not used exclusively for business, the entire amount has been included, although we believe that only a portion of this cost represents a perquisite. |
(3) | The amount for Mr. Ingram represents reimbursements for the cost of relocation assistance with associatedgross-up payments in the amount of $183,207 and an executive physical in the amount of $4,999. The relocation assistance and associatedgross-up payments were in accordance with the general relocation policy provided to employees. |
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Executive Compensation
(4) | Mr. Walker has a personal usage limit |
GRANTS OF PLAN-BASED AWARDS IN 20132016
The Grants of Plan-Based Awards Table sets forth information concerning annual incentive awards, performance units, stock options, and restricted stock units granted or modified during 20132016 for each of the NEOs as described below.
Non-equity incentive plan awards.Non-Equity Incentive Plan Awards (AIP). Values disclosed reflect the estimated cash payouts under the Company’s AIP, as discussed beginning on page 41,39, based on actual salaries earned in 2013.2016. If threshold levels of performance are not met, the payout can be zero. If maximum levels of performance are achieved, the payout can be 200% of each NEO’s target. The amounts actually paid to the NEOs for 20132016 are disclosed in the Summary Compensation Table in the “Non-Equity“Non-Equity Incentive Plan Compensation” column.
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Executive Compensation
Equity incentive plan awards.Incentive Plan Awards (PU). Awards reported reflect performance units, as discussed beginning on page 46,44, which are denominated as an equivalent of one share of ourCompany common stock and, if earned, are paid in cash. Executive officers may earn from 0% to 200% of the targeted award based on the Company’s relative TSR performance against a specified peer group over a designatedthree-year performance period. The threshold value reported represents the lowest earned amount, other than zero, based on a defined payout scale. Fifty percent of the award is tied to a two-year performance period and the remaining fifty percent is tied to a three-year performance period. Executive officers do not have voting rights with respect to performance units, and unless after a change of control the award has been converted into restricted stock units of the surviving company, no dividend equivalents are paid on the awards.
Stock awards.Awards (RSU). Awards reported reflect restricted stock unit awards that vestpro-rata annually over three years, beginning with the first anniversary of the grant date. Dividend equivalents are reinvested in shares of the Company’s common stock and paid upon the applicable vesting of the underlying award. Awards are eligible to be voluntarily deferred.
Stock option awards.awards (NQSO). Stock options vestpro-rata annually over three years, beginning with the first anniversary of the date of grant and have a term of seven years. The exercise price is not less than the market price on the date of grant and repricing of stock options to a lower exercise price is prohibited, unless approved by stockholders.
Estimated Future Payouts Under Non-Equity Incentive Plan Awards | Estimated Future Payouts Under Equity Incentive Plan Awards | All Other Stock Awards: Number of Shares of Stock or Units (#) | All Other Option Awards: Number of Securities Underlying Options (#) | Exercise or Base Price of Option Awards ($/Sh) | Grant Date Fair Value of Stock and Option Awards ($)(1) | ||||||||||||||||||||||||||||||||||||||||||||||||||
Name | Grant Date | Threshold ($) | Target ($) | Maximum ($) | Threshold (#) | Target (#) | Maximum (#) | ||||||||||||||||||||||||||||||||||||||||||||||||
R. A. Walker | 0 | 1,690,000 | 3,380,000 | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
11/6/2013 | — | — | — | — | — | — | — | 148,378 | 92.02 | 3,848,495 | |||||||||||||||||||||||||||||||||||||||||||||
11/6/2013 | — | — | — | — | — | — | 29,945 | — | — | 2,755,539 | |||||||||||||||||||||||||||||||||||||||||||||
11/6/2013 | — | — | — | 11,879 | 43,997 | 87,994 | — | — | — | 4,435,339 | |||||||||||||||||||||||||||||||||||||||||||||
Robert G. Gwin | 0 | 683,087 | 1,366,174 | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
11/6/2013 | — | — | — | — | — | — | — | 59,232 | 92.02 | 1,536,306 | |||||||||||||||||||||||||||||||||||||||||||||
11/6/2013 | — | — | — | — | — | — | 11,954 | — | — | 1,100,007 | |||||||||||||||||||||||||||||||||||||||||||||
11/6/2013 | — | — | — | 4,742 | 17,564 | 35,128 | — | — | — | 1,770,627 | |||||||||||||||||||||||||||||||||||||||||||||
Charles A. Meloy | 0 | 580,962 | 1,161,924 | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
11/6/2013 | — | — | — | — | — | — | — | 60,579 | 92.02 | 1,571,244 | |||||||||||||||||||||||||||||||||||||||||||||
11/6/2013 | — | — | — | — | — | — | 12,226 | — | — | 1,125,037 | |||||||||||||||||||||||||||||||||||||||||||||
11/6/2013 | — | — | — | 4,850 | 17,963 | 35,926 | — | — | — | 1,810,852 | |||||||||||||||||||||||||||||||||||||||||||||
Robert P. Daniels | 0 | 580,962 | 1,161,924 | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
11/6/2013 | — | — | — | — | — | — | — | 60,579 | 92.02 | 1,571,244 | |||||||||||||||||||||||||||||||||||||||||||||
11/6/2013 | — | — | — | — | — | — | 12,226 | — | — | 1,125,037 | |||||||||||||||||||||||||||||||||||||||||||||
11/6/2013 | — | — | — | 4,850 | 17,963 | 35,926 | — | — | — | 1,810,852 | |||||||||||||||||||||||||||||||||||||||||||||
Robert K. Reeves | 0 | 622,981 | 1,245,962 | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
11/6/2013 | — | — | — | — | — | — | — | 46,363 | 92.02 | 1,202,522 | |||||||||||||||||||||||||||||||||||||||||||||
11/6/2013 | — | — | — | — | — | — | 9,357 | — | — | 861,031 | |||||||||||||||||||||||||||||||||||||||||||||
11/6/2013 | — | — | — | 3,712 | 13,748 | 27,496 | — | — | — | 1,385,936 |
60 |
Executive Compensation
Estimated Future Payouts Under Non-Equity Incentive Plan Awards | Estimated Future Payouts Under Equity Incentive Plan Awards | All Other Stock Awards: Number of Shares of Stock or Units (#) | All Other Option Awards: Number of Securities Underlying Options (#) | Exercise or Base Price of Option Awards ($/Sh) | Grant Date Fair Value of Stock and Option Awards ($)(1) | ||||||||||||||||||||||||||||||||||||||||||||||||||
Name | Grant Date | Threshold ($) | Target ($) | Maximum ($) | Threshold (#) | Target (#) | Maximum (#) | ||||||||||||||||||||||||||||||||||||||||||||||||
R. A. Walker | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
AIP | — | 1,690,000 | 3,380,000 | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
PU | 11/10/2016 | — | — | — | 31,754 | 79,385 | 158,770 | — | — | — | 5,587,116 | ||||||||||||||||||||||||||||||||||||||||||||
RSU | 11/10/2016 | — | — | — | — | — | — | 44,853 | — | — | 2,775,055 | ||||||||||||||||||||||||||||||||||||||||||||
NQSO | 11/10/2016 | — | — | — | — | — | — | — | 136,661 | 61.87 | 2,828,445 | ||||||||||||||||||||||||||||||||||||||||||||
Robert G. Gwin | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
AIP | — | 712,500 | 1,425,000 | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
PU | 11/10/2016 | — | — | — | 12,730 | 31,826 | 63,652 | — | — | — | 2,239,914 | ||||||||||||||||||||||||||||||||||||||||||||
RSU | 11/10/2016 | — | — | — | — | — | — | 17,982 | — | — | 1,112,546 | ||||||||||||||||||||||||||||||||||||||||||||
NQSO | 11/10/2016 | — | — | — | — | — | — | — | 54,788 | 61.87 | 1,133,936 | ||||||||||||||||||||||||||||||||||||||||||||
Mitchell W. Ingram | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
AIP | — | 593,750 | 1,187,500 | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
PU | 11/10/2016 | — | — | — | 12,730 | 31,826 | 63,652 | — | — | — | 2,239,914 | ||||||||||||||||||||||||||||||||||||||||||||
PU | 02/08/2016 | — | — | — | 12,400 | 31,000 | 62,000 | — | — | — | 1,183,580 | ||||||||||||||||||||||||||||||||||||||||||||
RSU | 11/10/2016 | — | — | — | — | — | — | 17,982 | — | — | 1,112,546 | ||||||||||||||||||||||||||||||||||||||||||||
NQSO | 11/10/2016 | — | — | — | — | — | — | — | 54,788 | 61.87 | 1,133,936 | ||||||||||||||||||||||||||||||||||||||||||||
Robert K. Reeves | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
AIP | — | 665,000 | 1,330,000 | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
PU | 11/10/2016 | — | — | — | 9,927 | 24,817 | 49,634 | — | — | — | 1,746,620 | ||||||||||||||||||||||||||||||||||||||||||||
RSU | 11/10/2016 | — | — | — | — | — | — | 14,022 | — | — | 867,541 | ||||||||||||||||||||||||||||||||||||||||||||
NQSO | 11/10/2016 | — | — | — | — | — | — | — | 42,722 | 61.87 | 884,209 | ||||||||||||||||||||||||||||||||||||||||||||
Ernest A. Leyendecker | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
AIP | — | 403,506 | 807,012 | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
PU | 11/10/2016 | — | — | — | 7,152 | 17,880 | 35,760 | — | — | — | 1,258,394 | ||||||||||||||||||||||||||||||||||||||||||||
RSU | 11/10/2016 | — | — | — | — | — | — | 10,102 | — | — | 625,011 | ||||||||||||||||||||||||||||||||||||||||||||
NQSO | 11/10/2016 | — | — | — | — | — | — | — | 30,780 | 61.87 | 637,048 |
(1) | Unless otherwise noted, the amounts in this column reflect the aggregate grant date fair value of awards made to NEOs in |
|
Executive Compensation
OUTSTANDING EQUITY AWARDS AT FISCALYEAR-END 2013 2016
The following table reflects outstanding stock option awards and unvested and unearned stock awards (both time-based and performance-contingent) as of December 31, 2013,2016, assuming a market value of $79.32 a$69.73 per share (the closing stock price of the Company’s common stock on December 31, 2013)30, 2016).
Option Awards(1) | Stock Awards(2)(3) | Option Awards(1) | Stock Awards | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Equity Incentive Plan Awards | Equity Incentive Plan Awards | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Restricted Stock/Units | Performance Units | Restricted Stock/Units(2) | Performance Units(3) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Number of Shares or Units of Stock That Have Not Vested(#) | Market Value of Shares or Units of Stock That Have Not Vested ($) | Number of Unearned Shares, Units or Other Rights That Have Not Vested(#) | Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested($) | Number of Shares or Units of Stock That Have Not Vested(#) | Market Value of Shares or Units of Stock That Have Not Vested ($) | Number of Unearned Shares, Units or Other Rights That Have Not Vested(#) | Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested($) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Number of Securities Underlying Unexercised Options | Option Exercise Price($) | Option Expiration Date | Number of Securities Underlying Unexercised Options | Option Exercise Price($) | Option Expiration Date | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Name | Exercisable(#) | Unexercisable(#) | Number of Shares or Units of Stock That Have Not Vested(#) | Market Value of Shares or Units of Stock That Have Not Vested ($) | Grant Date | Exercisable(#) | Unexercisable(#) | Number of Shares or Units of Stock That Have Not Vested(#) | Market Value of Shares or Units of Stock That Have Not Vested ($) | Number of Unearned Shares, Units or Other Rights That Have Not Vested(#) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
R. A. Walker | 62,200 | 0 | 59.87 | 11/6/2014 | 9,033 | 716,498 | 11,845 | 939,545 | 11/09/2010 | 85,189 | 0 | 63.34 | 11/09/2017 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
182,900 | 0 | 35.18 | 11/4/2015 | 11,541 | 915,432 | 8,832 | 700,554 | 11/08/2011 | 87,076 | 0 | 83.95 | 11/08/2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
72,700 | 0 | 65.44 | 11/10/2016 | 36,576 | 2,901,208 | 5,674 | 450,062 | 05/15/2012 | 52,511 | 0 | 66.38 | 05/15/2019 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
85,189 | 0 | 63.34 | 11/9/2017 | 30,013 | 2,380,631 | 18,541 | 1,470,672 | 11/05/2012 | 169,600 | 0 | 70.70 | 11/05/2019 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
58,051 | 29,025 | 83.95 | 11/8/2018 | 43,997 | 3,489,842 | 11/06/2013 | 148,378 | 0 | 92.02 | 11/06/2020 | 28,159 | 1,963,527 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
17,504 | 35,007 | 66.38 | 5/15/2019 | 11/06/2014 | 78,670 | 39,335 | 93.51 | 11/06/2021 | 10,066 | 701,902 | 55,606 | 3,877,406 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
56,534 | 113,066 | 70.70 | 11/5/2019 | 10/26/2015 | 51,539 | 103,076 | 69.00 | 10/26/2022 | 27,041 | 1,885,569 | 77,548 | 5,407,422 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
0 | 148,378 | 92.02 | 11/6/2020 | 11/10/2016 | 0 | 136,661 | 61.87 | 11/10/2023 | 44,884 | 3,129,761 | 79,385 | 5,535,516 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Robert G. Gwin | 21,700 | 0 | 59.87 | 11/6/2014 | 5,415 | 429,518 | 7,544 | 598,390 | 11/09/2010 | 54,256 | 0 | 63.34 | 11/09/2017 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
22,300 | 0 | 64.69 | 3/12/2015 | 13,036 | 1,034,016 | 5,295 | 419,999 | 11/08/2011 | 52,196 | 0 | 83.95 | 11/08/2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
78,600 | 0 | 35.18 | 11/4/2015 | 11,981 | 950,333 | 6,608 | 524,147 | 11/05/2012 | 60,447 | 0 | 70.70 | 11/05/2019 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
66,200 | 0 | 34.95 | 3/1/2016 | 17,564 | 1,393,176 | 11/06/2013 | 59,232 | 0 | 92.02 | 11/06/2020 | 11,241 | 783,835 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
47,200 | 0 | 65.44 | 11/10/2016 | 11/06/2014 | 31,405 | 15,702 | 93.51 | 11/06/2021 | 4,018 | 280,175 | 22,198 | 1,547,867 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
54,256 | 0 | 63.34 | 11/9/2017 | 10/26/2015 | 20,667 | 41,333 | 69.00 | 10/26/2022 | 10,843 | 756,082 | 31,096 | 2,168,324 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
34,797 | 17,399 | 83.95 | 11/8/2018 | 11/10/2016 | 0 | 54,788 | 61.87 | 11/10/2023 | 17,994 | 1,254,722 | 31,826 | 2,219,227 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
20,149 | 40,298 | 70.70 | 11/5/2019 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
0 | 59,232 | 92.02 | 11/6/2020 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Charles A. Meloy | 34,600 | 0 | 59.87 | 11/6/2014 | 5,559 | 440,940 | 6,756 | 535,886 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
26,500 | 0 | 35.18 | 11/4/2015 | 13,382 | 1,061,460 | 5,435 | 431,104 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
32,500 | 0 | 65.44 | 11/10/2016 | 12,254 | 971,987 | 6,784 | 538,107 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
48,586 | 0 | 63.34 | 11/9/2017 | 17,963 | 1,424,825 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
35,723 | 17,862 | 83.95 | 11/8/2018 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
20,685 | 41,369 | 70.70 | 11/5/2019 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
0 | 60,579 | 92.02 | 11/6/2020 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Robert P. Daniels | 40,100 | 0 | 59.87 | 11/6/2014 | 5,559 | 440,940 | 6,756 | 535,886 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
95,400 | 0 | 35.18 | 11/4/2015 | 13,382 | 1,061,460 | 5,435 | 431,104 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
32,500 | 0 | 65.44 | 11/10/2016 | 12,254 | 971,987 | 6,784 | 538,107 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
48,586 | 0 | 63.34 | 11/9/2017 | 17,963 | 1,424,825 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
35,723 | 17,862 | 83.95 | 11/8/2018 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Mitchell W. Ingram | 11/01/2015 | 40,223 | 2,804,750 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
20,685 | 41,369 | 70.70 | 11/5/2019 | 02/08/2016 | 31,000 | 2,161,630 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
0 | 60,579 | 92.02 | 11/6/2020 | 11/10/2016 | 0 | 54,788 | 61.87 | 11/10/2023 | 17,994 | 1,254,722 | 31,826 | 2,219,227 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Robert K. Reeves | 50,900 | 0 | 59.87 | 11/6/2014 | 4,239 | 336,237 | 5,905 | 468,385 | 11/09/2010 | 42,469 | 0 | 63.34 | 11/09/2017 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
115,300 | 0 | 35.18 | 11/4/2015 | 3,971 | 314,980 | 4,145 | 328,781 | 11/08/2011 | 40,856 | 0 | 83.95 | 11/08/2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
36,700 | 0 | 65.44 | 11/10/2016 | 10,204 | 809,381 | 5,173 | 410,322 | 11/05/2012 | 47,316 | 0 | 70.70 | 11/05/2019 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
42,469 | 0 | 63.34 | 11/9/2017 | 9,378 | 743,863 | 13,748 | 1,090,491 | 11/06/2013 | 46,363 | 0 | 92.02 | 11/06/2020 | 8,799 | 613,554 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
27,237 | 13,619 | 83.95 | 11/8/2018 | 11/06/2014 | 24,582 | 12,291 | 93.51 | 11/06/2021 | 3,145 | 219,301 | 17,376 | 1,211,628 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
15,772 | 31,544 | 70.70 | 11/5/2019 | 10/26/2015 | 16,116 | 32,230 | 69.00 | 10/26/2022 | 8,456 | 589,637 | 24,248 | 1,690,813 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
0 | 46,363 | 92.02 | 11/6/2020 | 11/10/2016 | 0 | 42,722 | 61.87 | 11/10/2023 | 14,031 | 978,382 | 24,817 | 1,730,489 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Ernest A. Leyendecker | 03/05/2010 | 3,025 | 0 | 72.11 | 03/05/2017 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
05/03/2010 | 5,803 | 0 | 64.03 | 05/03/2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
11/09/2010 | 13,059 | 0 | 63.34 | 11/09/2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
11/08/2011 | 13,397 | 0 | 83.95 | 11/08/2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
11/05/2012 | 18,502 | 0 | 70.70 | 11/05/2019 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
11/06/2013 | 18,847 | 0 | 92.02 | 11/06/2020 | 3,578 | 249,494 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
11/06/2014 | 14,965 | 7,483 | 93.51 | 11/06/2021 | 1,368 | 95,391 | 6,045 | 421,518 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
10/26/2015 | 10,403 | 20,806 | 69.00 | 10/26/2022 | 3,899 | 271,877 | 8,945 | 623,735 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
11/10/2016 | 0 | 30,780 | 61.87 | 11/10/2023 | 10,109 | 704,901 | 17,880 | 1,246,772 |
(1) | Stock options have a7-year term and will vest ratably over three years in equal installments on the first, second, and third anniversaries of the date of grant. Stock options awards do not accrue dividends or dividend equivalents. |
(2) | The restricted stock units will vestpro-rata annually over three years, beginning with the first anniversary of the grant date. At the end of each Vesting Period, unless deferred, the number of restricted stock units that vest are converted into shares of unrestricted Common Stock, less applicable withholding taxes. The shares reflected in these columns include dividend equivalents, which are accrued and reinvested in additional shares of Common Stock and paid upon the applicable vesting of the underlying award, less applicable withholding taxes. |
|
Executive Compensation
Vesting Date | Mr. Walker | Mr. Gwin | Mr. Meloy | Mr. Daniels | Mr. Reeves | ||||||||||||||||||||
5/15/2014 | 17,503 | — | — | — | — | ||||||||||||||||||||
11/5/2014 | 56,533 | 20,149 | 20,684 | 20,684 | 15,772 | ||||||||||||||||||||
11/6/2014 | 49,460 | 19,744 | 20,193 | 20,193 | 15,455 | ||||||||||||||||||||
11/8/2014 | 29,025 | 17,399 | 17,862 | 17,862 | 13,619 | ||||||||||||||||||||
5/15/2015 | 17,504 | — | — | — | — | ||||||||||||||||||||
11/5/2015 | 56,533 | 20,149 | 20,685 | 20,685 | 15,772 | ||||||||||||||||||||
11/6/2015 | 49,459 | 19,744 | 20,193 | 20,193 | 15,454 | ||||||||||||||||||||
11/6/2016 | 49,459 | 19,744 | 20,193 | 20,193 | 15,454 |
Vesting Date | Mr. Walker | Mr. Gwin | Mr. Meloy | Mr. Daniels | Mr. Reeves | ||||||||||||||||||||
5/15/2014 | 5,770 | — | — | — | — | ||||||||||||||||||||
11/5/2014 | 18,288 | 6,517 | 6,690 | 6,690 | 5,102 | ||||||||||||||||||||
11/6/2014 | 10,004 | 3,994 | 4,085 | 4,085 | 3,126 | ||||||||||||||||||||
11/8/2014 | 9,033 | 5,415 | 5,559 | 5,559 | 8,210 | ||||||||||||||||||||
5/15/2015 | 5,771 | — | — | — | — | ||||||||||||||||||||
11/5/2015 | 18,288 | 6,519 | 6,692 | 6,692 | 5,102 | ||||||||||||||||||||
11/6/2015 | 10,004 | 3,993 | 4,084 | 4,084 | 3,126 | ||||||||||||||||||||
11/6/2016 | 10,005 | 3,994 | 4,085 | 4,085 | 3,126 |
(3) | The |
Performance Period | Performance to Date Payout | Mr. Walker | Mr. Gwin | Mr. Meloy | Mr. Daniels | Mr. Reeves | ||||||||||||||||||||||||
1/1/2011 to 12/31/2013 | 92% | 11,845 | 7,544 | 6,756 | 6,756 | 5,905 | ||||||||||||||||||||||||
1/1/2012 to 12/31/2013 | 54% | 4,416 | 2,647 | 2,717 | 2,717 | 2,072 | ||||||||||||||||||||||||
1/1/2012 to 12/31/2014 | 54% | 4,416 | 2,648 | 2,718 | 2,718 | 2,073 | ||||||||||||||||||||||||
5/15/2012 to 5/14/2014 | 54% | 2,837 | — | — | — | — | ||||||||||||||||||||||||
5/15/2012 to 5/14/2015 | 54% | 2,837 | — | — | — | — | ||||||||||||||||||||||||
1/1/2013 to 12/31/2014 | 54% | 9,270 | 3,304 | 3,392 | 3,392 | 2,586 | ||||||||||||||||||||||||
1/1/2013 to 12/31/2015 | 54% | 9,271 | 3,305 | 3,392 | 3,392 | 2,587 | ||||||||||||||||||||||||
1/1/2014 to 12/31/2015 | 100% | 21,998 | 8,782 | 8,981 | 8,981 | 6,874 | ||||||||||||||||||||||||
1/1/2014 to 12/31/2016 | 100% | 21,999 | 8,782 | 8,982 | 8,982 | 6,874 |
|
Executive Compensation
OPTION EXERCISES AND STOCK VESTED IN 20132016
The following table provides information about the aggregate dollar value realized during 20132016 by the NEOs for Anadarko awards, including option exercises, vesting of restricted stock units and performance unit payouts.
Option Awards | Stock Awards | Option Awards | Stock Awards | |||||||||||||||||||||||||||||||||||||
Name | Number of Shares Acquired on Exercise(#) | Value Realized on Exercise($)(1) | Number of Shares Acquired on Vesting(#)(2) | Value Realized on Vesting($)(1) | Number of Shares Acquired on Exercise(#) | Value Realized on Exercise($)(1) | Number of Shares Acquired on Vesting(#)(2) | Value Realized on Vesting($)(1) | ||||||||||||||||||||||||||||||||
R. A. Walker | 87,400 | 3,702,772 | 66,077 | 5,787,906 | 0 | 0 | 66,470 | 3,172,940 | ||||||||||||||||||||||||||||||||
Robert G. Gwin | 87,100 | 3,564,501 | 33,106 | 2,868,584 | 66,200 | 198,600 | 26,032 | 1,249,450 | ||||||||||||||||||||||||||||||||
Charles A. Meloy | 0 | 0 | 34,599 | 2,982,019 | ||||||||||||||||||||||||||||||||||||
Robert P. Daniels | 19,100 | 730,366 | 39,862 | 3,460,794 | ||||||||||||||||||||||||||||||||||||
Robert K. Reeves(5) | 76,500 | 3,239,195 | 29,850 | 2,603,833 | ||||||||||||||||||||||||||||||||||||
Mitchell W. Ingram | 0 | 0 | 20,097 | 1,204,815 | ||||||||||||||||||||||||||||||||||||
Robert K. Reeves | 0 | 0 | 20,360 | 976,982 | ||||||||||||||||||||||||||||||||||||
Ernest A. Leyendecker | 0 | 0 | 8,543 | 414,548 |
(1) | The value realized reflects the taxable value to the NEO as of the date of the option exercise, vesting of restricted stock units, or payment of performance unit awards. |
(2) | The numbers disclosed include restricted stock units and performance unit awards paid in shares and cash, respectively, for which restrictions lapsed during |
(3) |
Mr. Gwin’s value includes the exercise of expiring stock options purchased with shares of Company common stock previously held by Mr. Gwin. On |
The Company maintains the Anadarko Retirement Plan (the APC Retirement Plan) and theKerr-McGee Corporation Retirement Plan (the KMG Retirement Plan), both of which are fundedtax-qualified defined benefit pension plans. In addition, the Company maintains the Anadarko Retirement Restoration Plan, or the APC Retirement Restoration Plan, and the Kerr-McGee Benefits Restoration Plan, or the KMG Restoration Plan, both of which are unfunded,non-qualified pension benefit plans that are designed to provide for supplementary pension benefits due to limitations imposed by the IRC that restrict the amount of benefits payable undertax-qualified plans.
APC Retirement Plan and APC Retirement Restoration Plan
The APC Retirement Plan covers all U.S.-based Anadarko employees, except for legacyKerr-McGee employees. The APC Retirement Restoration Plan covers certain U.S.-based Anadarko employees, except for legacy Kerr-McGee employees, who are affected by certain IRC limitations.
For those employees hired prior to January 1, 2007, which includes all of the NEOs except(except for Mr. Meloy (who is a participantLeyedencker, who participates in the KMG Retirement Plan)Plan and the KMG Restoration Plan, and Mr. Ingram, who was hired in November 2015), benefits under these plans are based upon the employee’s years of service and the average monthly earnings during the 36 highest paid consecutive months of the last 120 months of employment with the Company.
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Executive Compensation
The APC Retirement Plan and the APC Retirement Restoration Plan (collectively, APC Retirement Plans) do not require contributions by employees. An employee becomes vested in his or her benefit at the completion of three years of service. Compensation covered by the APC Retirement Plans includesconsists of base salary and payments under the AIP. The maximum amount of compensation for 20132016 that may be considered in calculating benefits under the APC Retirement Plan was $255,000$265,000 due to the annual IRC limitation. Compensation in excess of $255,000$265,000 was recognized in determining benefits payable under the APC Retirement Restoration Plan.
For employees hired prior to January 1, 2007, benefits under the APC Retirement Plans are calculated as a life-only annuity (meaning that benefits end upon the participant’s death) and are equal to the sum of the following:
Covered compensation is the average (without indexing) of the Social Security taxable wage base during the35-year period ending with the last day of the year in which an individual reaches Social Security retirement age. Benefits are calculated based on a normal retirement age of 65; however, employees may receive a reduced early retirement benefit as early as age 55. Employees may choose to receive their benefits under several different forms provided under the APC Retirement Plan. Employees receive their benefits from the APC Retirement Restoration Plan in the form of alump-sum payment.
As of December 31, 2013,2016, Messrs. Walker and Reeves were the only NEOs eligible for early retirement under the APC Retirement Plans. Early retirement benefits are calculated using the formula described above; however, the value is multiplied by an early retirement reduction factor as follows:
Age | Early Retirement Factor | ||||
62 and older | 100% | ||||
61 | 97% | ||||
60 | 94% | ||||
59 | 91% | ||||
58 | 88% | ||||
57 | 85% | ||||
56 | 82% | ||||
55 | 79% |
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Executive Compensation
For employees hired on or after January 1, 2007, such as Mr. Ingram, benefits under the APC Retirement Plans are calculated as a Retirement Income benefit. An employee becomes vested in his or her benefit at the completion of three years of service. Mr. Ingram, who was hired in November 2015, is not yet vested in his benefits under the APC Retirement Plan. The PWA is an Anadarko Retirement Plan benefit program that consists of company contributions to a notional account based on age and length of service, plus weekly interest credits. The current pay credits provided under the PWA (expressed as a percentage of eligible compensation) are as follows:
Points | Pay Credit | ||||
80 or more | 13% | ||||
70 | 11% | ||||
60 | 9% | ||||
50 | 7% | ||||
40 | 6% | ||||
Less than 40 | 5% |
A participant is also entitled to interest credits, which are applied weekly, at an interest rate that is equal to the annual effective rate of the variable interest rate; however, the annual interest credit will never be less than a 3.24% annual rate, unless a lower rate is required to comply with any requirement that the rate of interest be reasonable or market rate, or unless the minimum interest rate is otherwise impermissible by law.
KMG Retirement Plan and KMG Restoration Plan
The KMG Retirement Plan covers all U.S.-based, legacy Kerr-McGee employees who have not incurred a break in service of greater than one year since the date Kerr-McGee was acquired by Anadarko. The KMG Restoration Plan covers certain legacy Kerr-McGee U.S.-based employees that are affected by the IRC limitations. Mr. Leyendecker is the only NEO who participates in the KMG Retirement Plan and the KMG Restoration Plan. Benefits under these plans are based upon the employee’s years of service and the average monthly earnings during the 36 highest paid consecutive months of the last 120 months of employment.
The KMG Retirement Plan and the KMG Restoration Plan (collectively, KMG Retirement Plans) do not require contributions by employees. An employee becomes vested in his or her benefit at the
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Executive Compensation
completion of three years of service. Compensation covered by the KMG Retirement Plans includes base salary and payments under the AIP. The maximum amount of compensation for 20132016 that may be considered in calculating benefits under the KMG Retirement Plan was $255,000$265,000 due to the annual IRC limitation. Compensation in excess of $255,000$265,000 was recognized in determining benefits payable under the KMG Restoration Plan.
Benefits under the KMG Retirement Plans are calculated as a life-only annuity for single participants, and a joint and 50% contingent annuity for married participants who are eligible for retirement. Benefits under this plan are equal to the sum of Part A and Part B:
Part A:
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Part B:
Covered compensation is the average (without indexing) of the Social Security taxable wage base during the35-year period ending with the last day of the year in which an individual reaches Social Security retirement age. Benefits are calculated based on a normal retirement age of 65; however, employees may receive a reduced early retirement benefit as early as age 52. Employees may choose to receive their benefits under several different forms provided under the KMG Retirement Plan. Employees receive their benefits from the KMG Restoration Plan in the form of alump-sum payment.
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Executive Compensation
Mr. MeloyLeyendecker is eligible for early retirement under the KMG RestorationRetirement Plan. Early retirement benefits under the KMG Retirement Plans are calculated using the formula described above, however, the value is multiplied by an early retirement reduction factor as follows:
First Formula Percentage of Normal Retirement Age Benefit Payable (Age Reductions for Benefits Earned Before March 1, 1999) | Second Formula Percentage of Normal Retirement Age Benefit Payable (Age Reductions for Benefits Earned On or After March 1, 1999) | |||||
Age Benefit Payments Start | Part A | Part B | ||||
62 and older | 100% | 100% | 100% | |||
61 | 100% | 95% | 100% | |||
60 | 100% | 90% | 100% | |||
59 | 95% | 85% | 95% | |||
58 | 90% | 80% | 90% | |||
57 | 85% | 75% | 85% | |||
56 | 80% | 67.5% | 80% | |||
55 | 75% | 60% | 75% | |||
54 | 70% | 55% | 70% | |||
53 | 65% | 50% | 65% | |||
52 | 60% | 45% | 60% |
As of December 31, 2011, recognizing the high percentage of employees eligible to retire and based upon a recommendation from the Committee, the Board provided legacy participants in both the APC and KMG Retirement Plans a one-time option to either (1) continue to accrue benefits as outlined above (Option 1) or (2) accrue future benefits under the PWA using the same cash balance formula as employees hired on or after January 1, 2007 (Option 2). This one-time election was designed to increase employee retention by minimizing the impact of interest rate fluctuations on early retirement decisions and to accelerate the migration of employees into the PWA. For participants electing Option 2, the above formulae were modified such that:
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Executive Compensation
Messrs. Walker, Gwin, Daniels, and Reeves chose to continue receiving benefits under Option 1. Mr. Meloy chose to accrue benefits under the PWA beginning in 2012, according to Option 2. The current pay credits provided under the PWA are as follows:
Points | Pay Credit | ||||
80 or more | 13% | ||||
70 | 11% | ||||
60 | 9% | ||||
50 | 7% | ||||
40 | 6% | ||||
Less than 40 | 5% |
First Formula Percentage of Normal Retirement Age Benefit Payable (Age Reductions for Benefits Earned Before March 1, 1999) | Second Formula Percentage of Normal Retirement Age Benefit Payable (Age Reductions for Benefits Earned On or After March 1, 1999) | |||||
Age Benefit Payments Start | Part A | Part B | ||||
62 and older | 100% | 100% | 100% | |||
61 | 100% | 95% | 100% | |||
60 | 100% | 90% | 100% | |||
59 | 95% | 85% | 95% | |||
58 | 90% | 80% | 90% | |||
57 | 85% | 75% | 85% | |||
56 | 80% | 67.5% | 80% | |||
55 | 75% | 60% | 75% | |||
54 | 70% | 55% | 70% | |||
53 | 65% | 50% | 65% | |||
52 | 60% | 45% | 60% |
The present values provided in the table below are based on the pension benefits accrued through December 31, 2013,2016, assuming that such benefit is paid in the same form as reflected in the accounting valuation. The benefits are assumed to commence at the specified plan’s earliest unreduced retirement age, which is age 62 for those NEOs under the APC Retirement Plans and age 5560 for Mr. MeloyLeyendecker under the KMG Retirement Plans pursuant to his 2006 Retention Agreement.Plans. Allpre-retirement decrements such aspre-retirement mortality and terminations have been ignored for the purposes of these calculations. The interest rate used for discounting payments back to December 31, 2013,2016, is 4.50%4.11% in the APC Retirement Restoration Plan and 5.00%4.20% in the APC Retirement Plan; and 4.50%4.06% in both the KMG Restoration Plan and the KMG Retirement Plan, consistent with the discount rates used in the accounting valuation. The long-term
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Executive Compensation
interest rate used for converting the benefit to alump-sum form of payment is set at 100 basis points less than the discount rate, but not less than the most recently published30-year Treasury rate. Lump sums for NEOs who have locked in or will lock in a known interest rate pursuant to Option 2 (PWA) choice are valued using such lock-in rate. The interest rates used for calculating the values below are 3.89%3.11% in the APC Retirement Restoration Plan and 4.00%3.20% in the APC Retirement Plan; and 3.89%3.11% in both the KMG Restoration Plan and the KMG Retirement Plan.
PENSION BENEFITS
Name | Plan Name | Number of Years of Credited Service (#) | Present Value of Accumulated Benefit ($) | Payments During 2013 ($) | Plan Name | Number of Years of Credited Service (#) | Present Value of Accumulated Benefit ($) | Payments During 2016 ($) | |||||||||||||||||||||||
R. A. Walker(1) | APC Retirement Plan | 8.000 | 358,153 | 0 | APC Retirement Plan | 11.000 | 663,634 | 0 | |||||||||||||||||||||||
APC Retirement Restoration Plan | 16.000 | 7,699,683 | 0 | APC Retirement Restoration Plan | 19.000 | 17,819,068 | 0 | ||||||||||||||||||||||||
Robert G. Gwin | APC Retirement Plan | 8.000 | 261,513 | 0 | APC Retirement Plan | 11.000 | 508,173 | 0 | |||||||||||||||||||||||
APC Retirement Restoration Plan | 8.000 | 1,825,600 | 0 | APC Retirement Restoration Plan | 11.000 | 3,268,327 | 0 | ||||||||||||||||||||||||
Charles A. Meloy(2) | KMG Retirement Plan | 31.583 | 1,639,093 | 0 | |||||||||||||||||||||||||||
KMG Restoration Plan | 36.583 | 20,092,233 | 0 | ||||||||||||||||||||||||||||
Robert P. Daniels | APC Retirement Plan | 28.000 | 1,137,717 | 0 | |||||||||||||||||||||||||||
Mitchell W. Ingram(2) | APC Retirement Plan | 1.167 | 22,755 | 0 | |||||||||||||||||||||||||||
APC Retirement Restoration Plan | 28.000 | 6,706,206 | 0 | APC Retirement Restoration Plan | 1.167 | 31,700 | 0 | ||||||||||||||||||||||||
Robert K. Reeves(1) | APC Retirement Plan | 10.000 | 429,854 | 0 | APC Retirement Plan | 13.000 | 757,861 | 0 | |||||||||||||||||||||||
APC Retirement Restoration Plan | 15.000 | 4,045,479 | 0 | APC Retirement Restoration Plan | 18.000 | 6,682,199 | 0 | ||||||||||||||||||||||||
Ernest A. Leyendecker | KMG Retirement Plan | 14.500 | 897,619 | 0 | |||||||||||||||||||||||||||
KMG Restoration Plan | 14.500 | 2,778,223 | 0 |
(1) | The value of Messrs. Walker’s and Reeves’s APC Retirement Restoration benefit in the table includes the effect of the additional pension service credits equal to eight and five years of credited service, respectively, provided in 2007 to recognize that they weremid-career hires that we would like to retain for the remainder |
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Executive Compensation
of their careers. Providing them additional service credits recognized a portion of their prior industry and service years, which directly benefits us and our stockholders. Messrs. Walker and Reeves vested in these additional pension service credits on February 20, 2012 and December 12, 2012, respectively. Messrs. Walker’s and Reeves’s total pension values as of December 31, |
(2) |
NON-QUALIFIED DEFERRED COMPENSATION FOR 20132016
The Company maintains a Deferred Compensation Plan for certain employees, including the NEOs. Under this Plan, certain employees may voluntarily defer receipt of up to 75% of their salary and/or up to 100% of their AIP payments. The Company does not match these deferred amounts. In general, deferred amounts are distributed to the participant upon separation from service or at a specific date as elected by the participant. At the time deferral elections are made, participants also elect to receive their distributions in eitherlump-sum or annual installments not exceeding 15 years.
Due to IRC limitations that restrict the amount of benefits payable under thetax-qualified 401(k) Plan, the Company sponsors anon-qualified Savings Restoration Plan. The Savings Restoration Plan accrues a benefit equal to the excess, if any, of Company matching and PWA contributions that would have been allocated to a participant’s 401(k) Plan account each year without regard to IRC limitations over amounts that were, in fact, allocated to a participant’s account. After a participant reaches the IRC limitations under the 401(k) Plan, the Company makes contributions on their behalf up to thesix-percent match on eligible compensation they would have otherwise been entitled to receive under the 401(k) Plan and, if applicable, an additional four percent of eligible compensation for PWA participants. Eligible compensation includes base salary and AIP bonus payments. In general, deferred amounts are distributed to the participant inlump-sum upon separation from service.
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Executive Compensation
Both the Deferred Compensation Plan and the Savings Restoration Plan permit participants to allocate the deferred amounts among a group of notional accounts that mirror the gains and/or losses of various investment funds provided in the 401(k) Plan (but excluding the Company stock fund). These notional accounts do not provide for above-market or preferential earnings. Each participant directs investments of the individual accounts set up for the participant under the plans and may make changes in the investments as often as daily. Since each executive officer chooses the investment vehicle or vehicles (including a selection of funds ranging from fixed income to emerging markets, as well as other equity, debt and mixed investment strategies in between) and may change their allocations from time to time, the return on the investment will depend on how well each underlying investment fund performed during the time the executive officer chose it as an investment vehicle. The aggregate performance of such investment is reflected in the “Aggregate Earnings/Losses in 2013”2016” column.
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Executive Compensation
Executive officers were given the opportunity to make voluntary deferral elections for all of their annual restricted stock unit and performance unit awards granted under the Company’s 1999 Stock Incentive Plan and the 2008 and 2012 Omnibus Plans. Any earnings and/or losses attributable to the deferred shares otherwise payable under these awards are based on the performance of the Company’s stock over the deferral period. In general, deferred awards are distributed to the participant, in the form of Company common stock or cash, as designated by the Compensation Committee at the time of grant, upon termination or at a specific date as elected by the participant. The Company does not subsidize or match any deferrals of compensation into these plans.
Name | Executive Contributions in 2013 ($) | Company Contributions in 2013 ($) | Aggregate Earnings/(Losses) in 2013 ($) | Aggregate Withdrawals / Distributions ($) | Aggregate Balance at End of 2013 ($) | Executive Contributions in 2016 ($) | Company Contributions in 2016 ($) | Aggregate Earnings/(Losses) in 2016 ($) | Aggregate Withdrawals / Distributions ($) | Aggregate Balance at End of 2016 ($) | ||||||||||||||||||||||||||||||||||||||||
R. A. Walker | ||||||||||||||||||||||||||||||||||||||||||||||||||
Deferred Compensation Plan | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||||||||||||||||||
Savings Restoration Plan(1) | 0 | 200,933 | 109,964 | 0 | 1,011,348 | 0 | 184,830 | 119,466 | 0 | 1,818,845 | ||||||||||||||||||||||||||||||||||||||||
1999 Stock Incentive Plan | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||||||||||||||||||
2008 Omnibus Plan | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||||||||||||||||||
2012 Omnibus Plan | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||||||||||||||||||
Robert G. Gwin | ||||||||||||||||||||||||||||||||||||||||||||||||||
Deferred Compensation Plan | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||||||||||||||||||
Savings Restoration Plan(1) | 0 | 27,842 | 191,430 | 0 | 704,153 | 0 | 88,641 | 213,008 | 0 | 1,209,355 | ||||||||||||||||||||||||||||||||||||||||
1999 Stock Incentive Plan | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||||||||||||||||||
2008 Omnibus Plan | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||||||||||||||||||
2012 Omnibus Plan | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||||||||||||||||||
Charles A. Meloy | ||||||||||||||||||||||||||||||||||||||||||||||||||
Mitchell W. Ingram | ||||||||||||||||||||||||||||||||||||||||||||||||||
Deferred Compensation Plan | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||||||||||||||||||
Savings Restoration Plan(1) | 0 | 149,393 | 130,985 | 0 | 960,848 | |||||||||||||||||||||||||||||||||||||||||||||
1999 Stock Incentive Plan | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||||||||||||||||||||||
2008 Omnibus Plan | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||||||||||||||||||||||
2012 Omnibus Plan | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||||||||||||||||||||||
Robert P. Daniels | ||||||||||||||||||||||||||||||||||||||||||||||||||
Deferred Compensation Plan(2) | 0 | 0 | 435,127 | 0 | 2,028,461 | |||||||||||||||||||||||||||||||||||||||||||||
Savings Restoration Plan(1) | 0 | 89,636 | 68,485 | 0 | 618,062 | 0 | 47,304 | 1,512 | 0 | 48,816 | ||||||||||||||||||||||||||||||||||||||||
1999 Stock Incentive Plan | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||||||||||||||||||
2008 Omnibus Plan | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||||||||||||||||||
2012 Omnibus Plan | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||||||||||||||||||
Robert K. Reeves | ||||||||||||||||||||||||||||||||||||||||||||||||||
Deferred Compensation Plan | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||||||||||||||||||
Savings Restoration Plan(1) | 0 | 93,367 | 74,078 | 0 | 739,329 | 0 | 82,732 | 68,541 | 0 | 1,116,726 | ||||||||||||||||||||||||||||||||||||||||
1999 Stock Incentive Plan | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||||||||||||||||||
2008 Omnibus Plan | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||||||||||||||||||
2012 Omnibus Plan | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||||||||||||||||||
Ernest A. Leyendecker | ||||||||||||||||||||||||||||||||||||||||||||||||||
Deferred Compensation Plan | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||||||||||||||||||||||
Savings Restoration Plan(1) | 0 | 51,681 | 26,061 | 0 | 344,185 | |||||||||||||||||||||||||||||||||||||||||||||
1999 Stock Incentive Plan | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||||||||||||||||||||||
2008 Omnibus Plan | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||||||||||||||||||||||
2012 Omnibus Plan | 0 | 0 | 0 | 0 | 0 |
68 |
Executive Compensation
(1) | Company contributions in the Savings Restoration Plan are reported in the Summary Compensation Table for each of the NEOs under the “All Other Compensation” column for the fiscal year |
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Executive Compensation
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE OF CONTROL
The following tables reflect potential payments to our NEOs under existing contracts, agreements, plans or arrangements, whether written or unwritten, for various scenarios involving a change of control or termination of employment of each NEO, assuming a termination date of December 31, 2013,2016, and, where applicable, using the closing price of our common stock of $79.32$69.73 (as reported on the NYSE as of December 31, 2013)30, 2016).
The following are general definitions that apply to the termination scenarios detailed below. These definitions have been summarized and are qualified in their entirety by the full text of the applicable plans or agreements to which our NEOs are parties.
Involuntary Termination is generally defined as any termination that does not result from the following termination events: resignation; retirement; for cause; death; qualifying disability; extended leave of absence; continued failure to perform duties or responsibilities; a termination in connection with any corporate sale transaction where continued employment is available; or a termination if the NEO is eligible to receive benefits from a Key EmployeeChange-of-Control Contract, or under an employment or severance agreement.
For Cause is generally defined as the following:
A Change of Control is generally defined as any one of the following occurrences:
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Executive Compensation
– | all or substantially all of the beneficial owners of our outstanding common stock prior to the business combination own more than 60% of the outstanding common stock of the corporation resulting from the business combination; |
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Executive Compensation
– | no person, entity or group owns 20% or more of the outstanding voting securities of the corporation resulting from the business combination; and |
– | at least a majority of the board of the corporation resulting from the business combination were members of our Board prior to the business combination; or |
Good Reason is generally defined as any one of the following occurrences within three years of a Change of Control:
In February 2011, the Compensation Committee eliminated on a prospective basis the Good Reason provision allowing an executive officer to terminate for any reason during the30-day period immediately following the first anniversary of a Change of Control for all key employeechange-of-control contracts executed with any newly appointed and/or newly hired senior executive
70 |
Executive Compensation
officers who are not otherwise subject to an existing agreement. The newMr. Walker’s Severance Agreement for Mr. Walkerand the Key Employee Change of Control Contracts with Messrs. Ingram and Leyendecker also excludes this modified single-trigger provision.
Disability is generally defined as the absence of the executive officer from his or her duties with the Company on a full-time basis for 180 business days as a result of incapacity due to mental or physical illness that is determined to be total and permanent by a physician selected by the Company or its insurers and acceptable to the executive officer or the executive officer’s legal representative.
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Executive Compensation
Additional details of the post-termination arrangements can be found beginning on page 51.
Involuntary For Cause Termination
Mr. Walker($) | Mr. Gwin($) | Mr. Meloy($) | Mr. Daniels($) | Mr. Reeves($) | |||||||||||||||||||||
Cash Severance | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||
Total | 0 | 0 | 0 | 0 | 0 |
Voluntary Termination (Including Retirement) |
| ||||||||||||||||||||||||
Mr. Walker($)(1) | Mr. Gwin($) | Mr. Meloy($)(1) | Mr. Daniels($) | Mr. Reeves($)(1) | |||||||||||||||||||||
Prorated Portion of Performance Unit Awards(2) | 546,049 | 0 | 143,718 | 0 | 109,595 | ||||||||||||||||||||
Total | 546,049 | 0 | 143,718 | 0 | 109,595 |
Mr. Walker($) | Mr. Gwin($) | Mr. Ingram($) | Mr. Reeves($) | Mr. Leyendecker($) | |||||||||||||||||||||
Cash Severance | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||
Total | 0 | 0 | 0 | 0 | 0 |
Voluntary Termination (Including Retirement) |
| ||||||||||||||||||||||||
Mr. Walker($)(1) | Mr. Gwin | Mr. Ingram | Mr. Reeves($)(1) | Mr. | |||||||||||||||||||||
Prorated Portion of Performance Unit Awards(2) | 4,387,412 | 0 | 0 | 1,371,357 | 488,924 | ||||||||||||||||||||
Total | 4,387,412 | 0 | 0 | 1,371,357 | 488,924 |
(1) | As of December 31, |
(2) | Under the terms of the performance unit agreements, retirement-eligible participants receive a prorated payout, paid after the end of the performance period, based on actual performance and the number of months worked during the performance period. However, the performance unit awards granted on November 10, 2016 are not included in the table above as the treatment described in the preceding sentence only applies to such awards if they have been held for at least 180 days after the grant date, which would not be the case in the event of a retirement that occurred on December 31, 2016. Messrs. Walker’s, |
Involuntary Not For Cause Termination
Mr. Walker($) | Mr. Gwin($) | Mr. Meloy($) | Mr. Daniels($) | Mr. Reeves($) | Mr. Walker($) | Mr. Gwin($) | Mr. Ingram($) | Mr. Reeves($) | Mr. Leyendecker($) | |||||||||||||||||||||||||||||||||||||||||
Cash Severance(1) | 5,980,000 | 2,212,500 | 2,065,000 | 2,065,000 | 2,065,000 | 5,980,000 | 2,212,500 | 1,843,750 | 2,065,000 | 1,639,843 | ||||||||||||||||||||||||||||||||||||||||
Pro-rata AIP Bonus(2) | 2,923,700 | 1,181,740 | 1,005,064 | 1,005,064 | 1,077,757 | 2,670,200 | 1,125,750 | 938,150 | 1,050,700 | 637,550 | ||||||||||||||||||||||||||||||||||||||||
Accelerated Equity Compensation(3) | 12,631,562 | 4,364,421 | 4,471,391 | 4,471,391 | 3,731,254 | 13,021,700 | 5,213,255 | 5,397,013 | 4,070,702 | 1,669,640 | ||||||||||||||||||||||||||||||||||||||||
Retirement Restoration Plan Benefits(4) | 0 | 0 | 2,704,483 | 0 | 0 | 0 | 0 | 35,222 | 0 | 1,323,926 | ||||||||||||||||||||||||||||||||||||||||
Health and Welfare Benefits(5) | 130,033 | 68,856 | 52,873 | 510,813 | 80,226 | 202,158 | 86,063 | 55,411 | 107,296 | 104,617 | ||||||||||||||||||||||||||||||||||||||||
Retention Award(6) | 0 | 0 | 400,000 | 0 | 0 | |||||||||||||||||||||||||||||||||||||||||||||
Total | 21,665,295 | 7,827,517 | 10,298,811 | 8,052,268 | 6,954,237 | 21,874,058 | 8,637,568 | 8,669,546 | 7,293,698 | 5,375,576 |
(1) | Mr. Walker’s value assumes two times the sum of his base salary in effect at the end of |
71 |
Executive Compensation
(2) | All payments, if provided, will be paid at the end of the performance period following the Compensation Committee’s certification of corporate performance. All NEO values in the table are based on base salary earnings for the year and reflect the actual bonuses awarded under the Company’s |
(3) | Reflects thein-the-money value of unvested stock options (subject to Board approval), the estimated current value of unvested performance units (based on performance |
(4) | Reflects thelump-sum present value of additional benefits related to the Company’s supplemental pension benefits which are contingent upon the termination event. All values include special pension credits, provided through an employment agreement, retention agreement, the APC Retirement Restoration Plan or the KMG Restoration Plan, respectively. On acase-by-case basis, the Compensation Committee may approve a special retirement benefit enhancement that is equivalent to the additional supplemental pension benefits that would have accrued assuming they were eligible for subsidized early retirement benefits. Messrs. |
|
Executive Compensation
Walker |
(5) | Reflects the value of a total of 24 months of health and welfare benefit coverage. All amounts are present values determined in accordance with FASB ASC Topic 715. |
(6) | Per the terms of Mr. |
Change of Control: Involuntary Termination or Voluntary Termination For Good Reason
Mr. Walker($) | Mr. Gwin($) | Mr. Meloy($) | Mr. Daniels($) | Mr. Reeves($) | Mr. Walker($) | Mr. Gwin($) | Mr. Ingram($) | Mr. Reeves($) | Mr. Leyendecker($) | |||||||||||||||||||||||||||||||||||||||||
Cash Severance(1) | 7,475,000 | 5,344,973 | 4,856,630 | 4,856,630 | 4,931,015 | 8,853,000 | 5,602,046 | 3,046,875 | 5,155,495 | 2,662,106 | ||||||||||||||||||||||||||||||||||||||||
Pro-rata AIP Bonus(2) | 2,923,700 | 1,093,094 | 974,700 | 974,700 | 1,000,350 | 2,670,200 | 1,181,740 | 938,150 | 1,077,757 | 565,321 | ||||||||||||||||||||||||||||||||||||||||
Accelerated Equity Compensation(3) | 12,929,954 | 4,543,317 | 4,655,031 | 4,655,031 | 3,871,292 | 21,686,978 | 8,687,204 | 8,870,962 | 6,779,573 | 3,621,313 | ||||||||||||||||||||||||||||||||||||||||
Retirement Restoration Plan Benefits(4) | 6,390,043 | 2,238,386 | 2,704,483 | 4,753,675 | 1,537,936 | 1,254,184 | 2,671,717 | 192,134 | 879,090 | 1,323,926 | ||||||||||||||||||||||||||||||||||||||||
Nonqualified Deferred Compensation(5) | 638,800 | 135,000 | 502,410 | 301,446 | 306,063 | 581,490 | 281,501 | 221,412 | 262,734 | 182,008 | ||||||||||||||||||||||||||||||||||||||||
Health and Welfare Benefits(6) | 193,391 | 102,893 | 81,038 | 536,656 | 119,766 | 302,425 | 132,855 | 85,316 | 169,121 | 157,701 | ||||||||||||||||||||||||||||||||||||||||
Outplacement Assistance | 30,000 | 30,000 | 30,000 | 30,000 | 30,000 | 30,000 | 30,000 | 30,000 | 30,000 | 30,000 | ||||||||||||||||||||||||||||||||||||||||
Financial Counseling(7) | 0 | 46,309 | 46,309 | 46,309 | 46,309 | 0 | 50,070 | 0 | 50,070 | 0 | ||||||||||||||||||||||||||||||||||||||||
Excise Tax and Gross-Up(8) | N/A | 0 | 0 | 0 | 0 | N/A | 0 | N/A | 0 | N/A | ||||||||||||||||||||||||||||||||||||||||
Best-of-Net Tax Adjustment(9) | (4,324,441 | ) | N/A | N/A | N/A | N/A | 0 | N/A | 0 | N/A | 0 | |||||||||||||||||||||||||||||||||||||||
Retention Award(10) | 0 | 0 | 400,000 | 0 | 0 | |||||||||||||||||||||||||||||||||||||||||||||
Total | 26,256,447 | 13,533,972 | 13,850,601 | 16,154,447 | 11,842,731 | 35,378,277 | 18,637,133 | 13,784,849 | 14,403,840 | 8,542,375 |
72 |
Executive Compensation
(1) |
(2) |
(3) | Includes thein-the-money value of unvested stock options, the value of unvested restricted stock units and the estimated current value of unvested performance units, all as of December 31, |
(4) | Reflects thelump-sum present value of additional benefits related to the Company’s supplemental pension benefits which are contingent upon the termination event. For |
|
Executive Compensation
(5) | Includes the value of an additional three years of employer contributions into the Savings Restoration Plan based on each officer’s current contribution rate to the Plan. |
(6) | Values represent 36 months of health and welfare benefit coverage. All amounts are present values determined in accordance with FASB ASC Topic 715. |
(7) | Values reflect the cost of continuation of financial counseling services for three years after termination. Per the terms of Mr. Walker’s Severance Agreement, |
(8) | Values estimate the total payment required to make each executive officer whole for the 20% excise tax imposed by IRC Section 4999. Mr. Walker is |
(9) | Reflects the aggregate impact of thebest-of-net tax adjustment as prescribed under Mr. Walker’s Severance Agreement, and the Key Employee Change of Control Contracts with Messrs. Ingram and Leyendecker (as discussed on |
(10) | Per the terms of Mr. Ingram’s November 1, 2015 Retention Agreement, if Mr. Ingram’s employment is terminated prior to November 1, 2017 due to death, disability, Involuntary Termination by the Company (as defined in the Retention Agreement), or a termination that entitles him to receive benefits under his Key Employee Change of Control Contract, then he will receive the unpaid portion of the retention award within 60 days following his termination. |
73 |
Executive Compensation
Disability
Mr. Walker($) | Mr. Gwin($) | Mr. Meloy($) | Mr. Daniels($) | Mr. Reeves($) | Mr. Walker($) | Mr. Gwin($) | Mr. Ingram($) | Mr. Reeves($) | Mr. Leyendecker($) | |||||||||||||||||||||||||||||||||||||||||
Cash Severance | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||||||||||||||||||
Pro-rata AIP Bonus(1) | 1,690,000 | 683,087 | 580,962 | 580,962 | 622,981 | 1,690,000 | 712,500 | 593,750 | 665,000 | 403,506 | ||||||||||||||||||||||||||||||||||||||||
Accelerated Equity Compensation(2) | 12,929,954 | 4,543,317 | 4,655,031 | 4,655,031 | 3,871,292 | 21,686,978 | 8,687,204 | 8,870,962 | 6,779,573 | 3,621,313 | ||||||||||||||||||||||||||||||||||||||||
Health and Welfare Benefits(3) | 906,673 | 459,225 | 399,831 | 380,211 | 360,112 | 448,175 | 289,388 | 236,473 | 187,762 | 193,275 | ||||||||||||||||||||||||||||||||||||||||
Retention Award(4) | 0 | 0 | 400,000 | 0 | 0 | |||||||||||||||||||||||||||||||||||||||||||||
Total | 15,526,627 | 5,685,629 | 5,635,824 | 5,616,204 | 4,854,385 | 23,825,153 | 9,689,092 | 10,101,185 | 7,632,335 | 4,218,094 |
(1) | Represents payment of apro-rata target AIP bonus based on target bonus percentages effective for the |
(2) | Includes thein-the-money value of unvested stock options, the value of unvested restricted stock units and the estimated current value of unvested performance units, all as of December 31, |
(3) | Reflects the cost of the continuation of additional death benefit coverage provided to executive officers of the Company until age 65. All amounts are present values determined in accordance with FASB ASC Topic 715. |
(4) | Per the terms of Mr. Ingram’s November 1, 2015 Retention Agreement, if Mr. Ingram’s employment is terminated prior to November 1, 2017 due to death, disability, Involuntary Termination by the Company (as defined in the Retention Agreement), or a termination that entitles him to receive benefits under his Key Employee Change of Control Contract, then he will receive the unpaid portion of the retention award within 60 days following his termination. |
Death
Mr. Walker($) | Mr. Gwin($) | Mr. Meloy($) | Mr. Daniels($) | Mr. Reeves($) | |||||||||||||||||||||
Cash Severance | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||
Pro-rata AIP Bonus(1) | 1,690,000 | 683,087 | 580,962 | 580,962 | 622,981 | ||||||||||||||||||||
Accelerated Equity Compensation(2) | 16,036,777 | 5,514,036 | 5,651,528 | 5,651,528 | 4,631,099 | ||||||||||||||||||||
Life Insurance Proceeds(3) | 2,928,510 | 2,463,394 | 2,067,183 | 2,067,183 | 2,239,449 | ||||||||||||||||||||
Total | 20,655,287 | 8,660,517 | 8,299,673 | 8,299,673 | 7,493,529 |
|
Executive Compensation
Mr. Walker($) | Mr. Gwin($) | Mr. Ingram($) | Mr. Reeves($) | Mr. Leyendecker($) | |||||||||||||||||||||
Cash Severance | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||
Pro-rata AIP Bonus(1) | 1,690,000 | 712,500 | 593,750 | 665,000 | 403,506 | ||||||||||||||||||||
Accelerated Equity Compensation(2) | 21,686,978 | 8,687,204 | 8,870,962 | 6,779,573 | 3,621,313 | ||||||||||||||||||||
Life Insurance Proceeds(3) | 6,373,816 | 2,583,979 | 2,153,316 | 2,411,714 | 1,981,051 | ||||||||||||||||||||
Retention Award(4) | 0 | 0 | 400,000 | 0 | 0 | ||||||||||||||||||||
Total | 29,750,794 | 11,983,683 | 12,018,028 | 9,856,287 | 6,005,870 |
(1) | Represents payment of apro-rata target AIP bonus based on target bonus percentages effective for the |
(2) | Includes thein-the-money value of unvested stock options, the target value of unvested performance units, and the value of unvested restricted stock units, all as of December 31, |
(3) | Includes amounts payable under additional death benefits provided to executive officers and other key employees of the Company. These liabilities are not insured, but are self-funded by the Company. Proceeds are not exempt from federal taxes; values shown include an additional taxgross-up amount to equate benefits with nontaxable life insurance proceeds. Values exclude death benefit proceeds from programs available to all employees. |
(4) | Per the terms of Mr. Ingram’s November 1, 2015 Retention Agreement, if Mr. Ingram’s employment is terminated prior to November 1, 2017 due to death, disability, Involuntary Termination by the Company (as defined in the Retention Agreement), or a termination that entitles him to receive benefits under his Key |
74 |
Executive Compensation
Employee Change of Control Contract, then he will receive the unpaid portion of the retention award within 60 days following his termination. |
In addition to the benefits outlined above for each termination scenario, each of the NEOs would be paid following termination for any reason, the following vested amounts under our nonqualified benefit programs, which have been previously earned but not paid:
Mr. Walker($) | Mr. Gwin($) | Mr. Meloy($) | Mr. Daniels($) | Mr. Reeves($) | Mr. Walker($) | Mr. Gwin($) | Mr. Ingram($) | Mr. Reeves($) | Mr. Leyendecker($) | |||||||||||||||||||||||||||||||||||||||||
Retirement Restoration Plan Benefits(1) | 10,360,461 | 1,891,960 | 21,111,121 | 6,562,068 | 5,588,367 | 20,994,192 | 3,255,958 | 0 | 8,109,034 | 3,097,288 | ||||||||||||||||||||||||||||||||||||||||
Non-qualified Deferred Compensation(2) | 1,011,348 | 704,153 | 960,848 | 2,646,523 | 739,329 | |||||||||||||||||||||||||||||||||||||||||||||
Health and Welfare Benefits(3) | 113,518 | 0 | 0 | 0 | 122,289 | |||||||||||||||||||||||||||||||||||||||||||||
Non-Qualified Deferred Compensation(2) | 1,818,845 | 1,209,355 | 29,290 | 1,116,726 | 344,185 | |||||||||||||||||||||||||||||||||||||||||||||
Total | 11,485,327 | 2,596,113 | 22,071,969 | 9,208,591 | 6,449,985 | 22,813,037 | 4,465,313 | 29,290 | 9,225,760 | 3,441,473 |
(1) | Reflects thelump-sum present value of vested benefits related to the Company’s supplemental pension benefits. |
(2) | Reflects the combined vested balances in thenon-qualified Savings Restoration Plan and Deferred Compensation Plan. |
| 75 |
Transactions with Related Persons
The Company recognizes that related-person transactions can present potential or actual conflicts of interest and it is the Company’s preference that related-person transactions are avoided as a general matter. However, the Company also recognizes that there are situations, including certain transactions negotiated on an arm’s length basis, where related-person transactions may be in, or may not be inconsistent with, the best interest of the Company and our stockholders. Therefore, the Company has written procedures for the approval, ratification and review of ongoing related-person transactions. Either the Board’s Governance and Risk Committee or the full Board (as determined by the Governance and Risk Committee) will review, ratify or approve, as necessary, any related-person transactions prior to the transaction being entered into, or ratify any related-person transactions that have not been previously approved, in which a director, five-percent owner, executive officer or immediate family member of any such person has a material interest, and where the transaction is in an amount in excess of $120,000, either individually or in the aggregate of several transactions during any calendar year. This review typically occurs in connection with regularly scheduled Board meetings.
In addition to those matters described above, the Governance and Risk Committee has approved in advance the following categories of related-person transactions: (i) the rates and terms involved in such transactions where the Company’s standard rates and terms for such transactions apply; and (ii) the hiring of a related person (including immediate family members) as an employee of the Company (but not an officer), provided that total annual compensation (meaning base salary, annual incentive bonus and other amounts to be reported on aW-2) does not exceed $120,000.
In 2011, the Company leased a mineral interest in Ward County, Texas owned by Mr. Geren. The Company paid Mr. Geren $134,902 in royalty payments during 2013, pursuant to a lease with standard industry terms.
|
ITEM 2 — RATIFICATION OF THE APPOINTMENT OF THE INDEPENDENT AUDITOR
The Audit Committee is responsible for the appointment, compensation, retention and oversight of the work of the independent auditor employed by the Company and establishes guidelines for the retention of the independent auditor for any permissible services. In performing these responsibilities, among other things, the Audit Committee (1) reviews the qualifications, performance and independence of the independent auditor, (2) reviews and evaluates the lead partner of the independent auditor having primary responsibility for the Company’s audit and ensures the rotation of such partners as required by law, and (3) considers whether the audit firm should be rotated in order to maintain the independence between the independent auditor and the Company.
The Audit Committee has appointed KPMG LLP, an independent registered public accounting firm, to audit the Company’s consolidated financial statements for 2014.2017. The Board believes that the continued retention of KPMG LLP to serve as the Company’s independent auditor is in the best interests of the Company and its stockholders and at the request of the Audit Committee, is asking you to ratify that appointment.
THE BOARD RECOMMENDS THAT YOU VOTE “FOR” RATIFICATION OF THE APPOINTMENT OF KPMG LLP TO AUDIT THE COMPANY’S CONSOLIDATED FINANCIAL STATEMENTS FOR 2014.2017. If the stockholders do not ratify the appointment of KPMG LLP, the Audit Committee will make the final determination of the independent auditor for 2014.2017.
KPMG LLP, an independent registered public accounting firm, served as the Company’s independent auditor during 2013.2016 and has served as the Company’s independent auditor since its initial public offering in 1986. Representatives of KPMG LLP will be present at the Annual Meeting to make a statement, if they desire to do so, and to respond to appropriate questions from stockholders.
The following table presents fees for the audits of the Company’s annual consolidated financial statements for 2013 and 2012 and for other services provided by KPMG LLP.
2013 | 2012 | ||||||
Audit Fees | $ | 6,530,000 | $ 6,042,000 | ||||
Audit-related Fees | 1,219,000 | 871,000 | |||||
Tax Fees | 0 | 4,000 | |||||
All Other Fees | 274,000 | 0 | |||||
|
|
| |||||
Total | $ | 8,023,000 | $ 6,917,000 | ||||
|
|
|
Audit fees are primarily for the audit of the Company’s consolidated financial statements included in the Form 10-K, including the audit of the effectiveness of the Company’s internal controls over financial reporting, and the reviews of the Company’s financial statements included in the Forms 10-Q. KPMG LLP also served as the independent auditor of WES and fees for the audit of WES’s annual consolidated financial statements for 2013 and 2012 were $1,031,000 and $948,000, respectively, which are not included in the table above. In addition, KPMG LLP served as the independent auditor of WGP and fees for the audit of WGP’s annual consolidated financial statements for 2013 and 2012 were $300,000 and $450,000, respectively, which are not included in the table above.
Audit-related fees are primarily for the audits of the Company’s benefit plans, other audits, consents, comfort letters and certain financial accounting consultation. Audit-related fees related to WES for 2013 and 2012 were $758,000 and $665,000, respectively, which are not included in the table above. Audit-related fees related to WGP for 2013 and 2012 were $75,000 and $275,000, respectively, which are not included in the table above.
Tax fees are primarily for tax planning compliance and services. The Audit Committee has concluded that the provision of tax services is compatible with maintaining KPMG LLP’s independence.
All Other Fees are primarily for consulting services. The Audit Committee has concluded that these services are compatible with maintaining KPMG LLP’s independence.
The Audit Committee adopted aPre-Approval Policy with respect to services which may be performed by KPMG LLP. This policy lists specific audit audit-related, and tax services as well as any
|
Independent Auditor
otheraudit-related services that KPMG LLP is authorized to perform and sets out specific dollar limits for each specific service, which may not be exceeded without additional Audit Committee authorization. The Audit Committee receives quarterly reports on the status of expenditures pursuant to thatPre-Approval Policy.
The Audit Committee reviews the policy at least annually in order to approve services and limits for the current year. Any service that is not clearly enumerated in the policy must receive specificpre-approval by the Audit Committee or by its Chairperson,Chair, to whom such authority has been conditionally delegated, prior to engagement. During 2013,2016, no fees for services outside the scope of audit, review, or attestation that exceed the waiver provisions of 17 CFR210.2-01(c)(7)(i)(C) were requested of or approved by the Audit Committee.
The following table presents fees for the audits of the Company’s annual consolidated financial statements for 2016 and 2015 and for other services provided by KPMG LLP.
2016 | 2015 | |||||||||
Audit Fees | $ | 6,117,000 | $ | 7,041,000 | ||||||
Audit-related Fees | 1,294,000 | 961,000 | ||||||||
Tax Fees | 80,000 | 23,000 | ||||||||
All Other Fees | — | — | ||||||||
|
|
|
| |||||||
Total | $ | 7,491,000 | $ | 8,025,000 | ||||||
|
|
|
|
77 |
Independent Auditor
Audit fees are primarily for the audit of the Company’s consolidated financial statements included in the Form10-K, including the audit of the effectiveness of the Company’s internal control over financial reporting, and the reviews of the Company’s consolidated financial statements included in the Forms10-Q. KPMG LLP also served as the independent auditor of WES and fees for the audit of WES’s annual consolidated financial statements were $1,020,000 for 2016 and $1,309,000 for 2015, which are not included in the table above. In addition, KPMG LLP served as the independent auditor of WGP and fees for the audit of WGP’s annual consolidated financial statements were $225,000 for 2016 and $325,000 for 2015, which are not included in the table above.
Audit-related fees are primarily for statutory and other audits, consents, comfort letters and certain financial accounting consultation. Audit-related fees related to WES were $690,000 for 2016 and $423,000 for 2015, which are not included in the table above. Audit-related fees related to WGP were 250,000 for 2016 and $175,000 for 2015, which are not included in the table above.
Tax fees are primarily for tax compliance and consultation services. The Audit Committee has concluded that the provision of tax services is compatible with maintaining KPMG LLP’s independence.
KPMG LLP did not provide any “other services” during the years ended December 31, 2015 and 2016.
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78 |
Executive Compensation
ITEM 3 — ADVISORY VOTE TO APPROVE THE COMPANY’S NAMED EXECUTIVE OFFICER COMPENSATION
The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, along with section 14A of the Exchange Act enacted thereunder, enables our stockholders to vote to approve, on ananon-binding advisory basis, the compensation of the Company’s NEOs, as disclosed in this proxy statement pursuant to the SEC’s compensation disclosure rules. The Board recognizes the importance of our stockholders’ opportunity for an advisorysay-on-pay vote as a means of expressing views regarding the compensation practices and programs for our NEOs. Based upon the outcome ofThe Company has held an advisorysay-on-pay vote at our 2011 say-on-pay frequency vote, the Company will hold an annual advisory say-on-pay vote until the next say-on-pay frequency vote, which, in accordance with applicable law, will occur no later than the Company’s annual meeting of stockholders in 2017.every year since 2011.
As described in detail in the Letter from the Chair of the Compensation Committee on page 29 and under the heading Compensation Discussion and Analysis beginning on page 30, the Compensation Committee believes that the main objective of our executive compensation programprograms is to pay for performance while aligning executives’and align executive officers’ interests with stockholder interests. We pay competitive levels of compensation to attract and retain experienced, talented executives and we structure pay to support our business objectives with appropriate rewards for short-term operating results and long-term stockholder value creation. Accordingly, our compensation philosophy recognizes the value of rewarding our executive officers for their performance and motivating them to continue to excel in the future.
At the 2016 Annual Meeting, our executive compensation program received the support of approximately 62% of the votes cast. Based on specific feedback expressed by stockholders during outreach efforts, the Compensation Committee commissioned FW Cook to develop and present a thorough analysis outlining various design alternatives to address stockholder concerns. The Compensation Committee sought an appropriate balance to best serve the interests of our stockholders while continuing to attract and retain the talent necessary to achieve the Company’s strategic goals, taking into account standards in our industry and peer group and the appropriate decisions for our business. Following extensive discussions regarding the merits and issues associated with various design alternatives, in February 2017 the Compensation Committee approved changes to the AIP for 2016 and 2017 in response to stockholder feedback.
The incentive compensation earned and paid to our NEOs for 2013 and the decisions made by the Compensation Committee impacting compensation for our NEOs in 20132016 and 2017, including changes made in consideration of stockholder feedback, reflect thepay-for-performance alignment of our compensation programs and adherence to our compensation philosophy. Specifically:
| 79 |
Advisory Vote to Approve
Executive Compensation
As described on page 35,36, our executive compensation program consistsprograms consist of several practices that we believe contribute to good governance. These practices include the following:
What We Do | What We Don’t Do | |
| No Employment Contracts | |
Emphasize Long-Term Performance | No TaxGross-Ups on Perquisites | |
|
| |
|
| |
Provide for Double-Trigger Equity Acceleration Upon a Change of Control | No | |
Maintain a Competitive Compensation Package | No Hedging or Pledging of Company Stock | |
Require Robust Stock Ownership | No Permitted Short Sales or Derivative Transactions in Company Stock | |
Provide for Clawback Provisions Applicable to Incentive Awards | No Current Payment of Dividends or Dividend Equivalents on Unvested Awards | |
Consider Deductibility When Structuring Compensation | No Repricing of Stock Options and Stock Appreciation Rights | |
|
|
Please read the Compensation Discussion and Analysis beginning on page 30 for additional details about our executive compensation program,programs, including information about the compensation of our NEOs during 2013.2016.
The Board has determined that the Company’s NEO compensation aligns with our business strategy, focuses on long-term value creation for our stockholders and delivers competitive pay relative to our performance.
THE BOARD RECOMMENDS THAT STOCKHOLDERS VOTE “FOR” THE APPROVAL, ON AN ADVISORY BASIS, OF THE COMPANY’S NAMED EXECUTIVE OFFICER COMPENSATION AS DISCLOSED IN THIS PROXY STATEMENT PURSUANT TO THE COMPENSATION DISCLOSURE RULES OF THE SECURITIES AND EXCHANGE COMMISSION,SEC, WHICH DISCLOSURE SHALL INCLUDE THE COMPENSATION DISCUSSION AND ANALYSIS, THE SUMMARY COMPENSATION TABLE, AND THE RELATED TABLES AND DISCLOSURE IN THIS PROXY STATEMENT.
|
Stockholder ProposalsAdvisory Vote on the Frequency of Future
Advisory Votes on Executive Compensation
ITEM 4 — STOCKHOLDER PROPOSAL — REPORTADVISORY VOTE ON POLITICAL CONTRIBUTIONSTHE FREQUENCY OF FUTURE ADVISORY VOTES ON THE COMPANY’S NAMED EXECUTIVE OFFICER COMPENSATION
The New York State Common Retirement Fund, located at 633 Third Avenue-31st Floor, New York, NY 10017, telephone (212) 681-4489, is the beneficial ownerDodd-Frank Wall Street Reform and Consumer Protection Act of more than $2,000 worth2010, together with section 14A of the Company’s common stock,Exchange Act enacted thereunder, enables our stockholders to indicate how frequently we should seek an advisory vote on the compensation of the NEOs, as disclosed pursuant to the SEC’s compensation disclosure rules, such as Item 3 included in this proxy statement. By voting on this Item 4, stockholders may indicate whether the advisory vote should occur every three years, every two years or every year, or abstain on this matter.
At our 2011 Annual Meeting of Stockholders, our stockholders voted on a proposal regarding the frequency of holding advisory votes on executive compensation. At that time, approximately 67% of our stockholders approved, on an advisory basis, an annual advisory vote on compensation for our NEOs. After considering the stockholder vote, the Board determined that we would hold an advisory vote on executive compensation every year until the next stockholders advisory vote on this matter.
After careful consideration of this Item 4, the Board has determined that an advisory vote on executive compensation that occurs every year (an annual vote) is appropriate as described further below.
Holding an annual vote on executive compensation will enhance transparency and has notified the Company that it intendsgive stockholders an opportunity to present the following resolution at the meeting for action by the stockholders.
What is the Proposal?
Resolved, that the shareholders ofAnadarko Petroleum (“Company”) hereby request that the Companyexpress their concerns with our compensation program other than through director elections. An annual vote will provide a report, updated semiannually, disclosingclear, simple and effective means for us to obtain information on investor sentiment about our executive compensation philosophy and react thereto.
We have in the Company’s:
The report shall be, presentedproactively engaged with our stockholders on a number of topics, including executive compensation. Thus, we view the advisory vote on executive compensation as an additional, but not exclusive, opportunity for our stockholders to the board of directors or relevant board committee and postedcommunicate with us regarding their views on the Company’s website.executive compensation programs.
STOCKHOLDER SUPPORTING STATEMENT
As long-term shareholdersThis advisory vote on the frequency of Anadarko Petroleum, we support transparencyfuture advisory votes on executive compensation isnon-binding on the Board. Notwithstanding the Board’s recommendation and accountabilitythe outcome of the stockholder vote, the Board may in corporate spendingthe future decide to conduct advisory votes on political activities. These include any activities considered intervention in any political campaign under the Internal Revenue Code,alternative bases and may vary its practice based on factors such as directdiscussions with stockholders and indirect contributionsthe adoption of material changes to political candidates, parties, or organizations; independent expenditures; or electioneering communicationsour executive compensation programs. Under applicable law, the next advisory vote on behalfthe frequency of federal, state or local candidates.
Disclosure is in the best interest of the company and its shareholders and critical for compliance with federal ethics laws. Moreover, the Supreme Court’s Citizens United decision recognized the importance of political spending disclosure for shareholders when it said, “[D]isclosure permits citizens and shareholders to react to the speech of corporate entities in a proper way. This transparency enables the electorate to make informed decisions and give proper weight to different speakers and messages.” Gaps in transparency and accountability may expose the company to reputational and business risks that could threaten long-term shareholder value.
Anadarko Petroleum contributed at least $2,044,863 in corporate funds since the 2003 election cycle. (CQ: http://moneyline.cq.com and National Institutefuture advisory votes on Money in State Politics: http://www.followthemoney.org)
However, relying on publicly available data does not provide a complete picture ofexecutive compensation will occur no later than the Company’s political spending. For example,annual meeting of stockholders in 2023.
You may cast your vote on your preferred voting frequency by choosing the Company’s paymentsoption of three years, two years, one year or abstain from voting when you vote in response to trade associations used for political activities are undisclosed and unknown. In some cases, even management does not know how tradethis Item 4.
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Stockholder Proposals
associations use their company’s money politically. The proposal asks the Company to disclose all of its political spending, including payments to trade associations and other tax exempt organizations used for political purposes. This would bring our Company in line with a growing number of leading companies, including Qualcomm, Exelon, Merck and Microsoft that support political disclosure and accountability and present this information on their websites.
The Company’s Board and its shareholders need comprehensive disclosure to be able to fully evaluate the political use of corporate assets. We urge your support for this critical governance reform.
What does the Board recommend?
THE BOARD RECOMMENDS THAT STOCKHOLDERS VOTE FOR A FREQUENCY OF DIRECTORS RECOMMENDS A VOTE “AGAINST”“ONE YEAR” FOR FUTURENON-BINDING STOCKHOLDER ADVISORY VOTES ON COMPENSATION OF THE ABOVE
STOCKHOLDER PROPOSAL FOR THE FOLLOWING REASONS:
The Board has adopted a Political and Public Engagement Policy that addresses the items to be included in the reports requested in the proposal. The Policy can be found on the Company’s website at https://www.anadarko.com/Responsibility/Pages/PoliticalContributions.aspx. As a result of this Policy and the additional actions described below, the Board believes that the requested reports would result in an unnecessary and unproductive use of the Company’s time and resources.
Anadarko believes that it is in the best interest of Anadarko and its stockholders for the Company to participate in the political process. The oil and gas industry, and as a result, the Company’s business and operations, are directly affected by political developments, including but not limited to policies related to energy, tax, and the environment. Anadarko has a stake in helping to elect candidates who understand and support the oil and gas industry. Accordingly, the Company maintains a government relations program to educate public officials about our position on issues significant to the Company’s business, and to support those candidates who advocate pro-growth, free enterprise economic policies and for causes consistent with Company goals and interests. Anadarko participates in the political process only to the extent that it is permissible under federal, state, and local laws, rules and regulations. Its political contributions originate from corporate funds, where permitted by law, as well as through Anadarko’s non-partisan political action committee (APC PAC), which is financed through voluntary contributions made by eligible employees.
To ensure that Anadarko’s political activities are transparent to the Company’s stockholders and other stakeholders, the Policy requires the Company to post on its website, at least annually, a report regarding its political contributions and its contributions to 501(c)(4) social welfare organizations. The report identifies Anadarko’s corporate and PAC political contributions in the United States, as well as contributions to state or local ballot measure committees and other organizations organized under Section 527 of the Internal Revenue Code. The report also discloses all 501(c)(4) social welfare organizations to which the Company made payments in excess of $25,000 in the aggregate for a fiscal year that are paid or managed through Anadarko’s Government Relations department.
The Company participates in various industry trade associations. The Company’s dues and other payments to trade associations are used for a wide variety of purposes by those organizations, such as educational initiatives, developing and publishing technical industry standards and providing professional development and research. Some trade associations also engage in certain lobbying activities that seek to promote legislative solutions that are sound and responsible and appropriately advance Anadarko’s business goals and interests. Since the primary reason for membership in such associations is not political, the Company believes that it is not necessary to report such payments.NAMED EXECUTIVE OFFICERS.
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Stockholder ProposalsGeneral Information
QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING
Where and when is the Annual Meeting?
The Governance and Risk CommitteeAnnual Meeting will be held at The Westin at The Woodlands, 2 Waterway Square Place, The Woodlands, Texas, 77380 on Wednesday, May 10, 2017, at 8:00 a.m. (Central Daylight Time).
Who may vote?
You may vote if you were a holder of record of Anadarko common stock as of the Board, a committee which consists solelyclose of independent directors, has oversight responsibilitybusiness on March 14, 2017, the record date for the PolicyAnnual Meeting. Each share of Anadarko common stock is entitled to one vote at the Annual Meeting. On the record date, there were 558,701,782 shares of common stock outstanding and entitled to vote at the Annual Meeting. There are no cumulative voting rights associated with Anadarko common stock.
May I attend the Annual Meeting?
Yes. Attendance is limited to stockholders of record as of the record date for Anadarko’s political activity. The Policy requires that the Vice President, Government Relations provide an annual reportAnnual Meeting, Company employees, and certain guests invited by the Company. Admission will be on a first-come, first-served basis. You may be asked to present valid picture identification, such as a driver’s license or passport. If your shares of common stock are held in the Governancename of a bank, broker, or other holder of record and Risk Committee. The reportyou plan to attend the Annual Meeting, you must detailpresent proof of your ownership, such as a current bank or brokerage account statement reflecting ownership as of the Company’s political contributions, contributionsrecord date for the Annual Meeting, to 501(c)(4) social welfare organizationsbe admitted. Cameras, recording devices, cell phones and trade association payments.other electronic devices may not be used during the Annual Meeting.
Why did I receive a Notice in the mail regarding the Internet availability of proxy materials instead of a full set of proxy materials?
In addition,accordance with SEC rules, we are providing access to our proxy materials over the Policy establishes the Company’s internal approval processInternet. As a result, we have sent to ensure that its political contributions comply with applicable laws and are consistent with the Company’s public policy agenda and business priorities. Pursuant to the policy, no Company resources, including the usemost of Company premises, useour stockholders a Notice instead of Company equipment, or monetary payments, may be contributed to any political candidate, political committee (other than for the administrative or solicitation expensesa paper copy of the APC PAC, as permittedproxy materials. The Notice contains instructions on how to access the proxy materials over the Internet and how to request a paper copy. In addition, stockholders may request to receive future proxy materials in printed form by law), political party, ballot measure committee, trade association,mail or 501(c)(4) social welfare organization,electronically bye-mail. A stockholder’s election to receive proxy materials by mail ore-mail will remain in effect until the stockholder terminates it.
Why didn’t I receive a Notice in the mail regarding the Internet availability of proxy materials?
We are providing certain stockholders, including those who have previously requested to any other organization forreceive paper copies of the purposeproxy materials, with paper copies of attemptingthe proxy materials instead of a Notice. If you would like to influence elections or ballot measures without advance approvalreduce the costs incurred by the Vice President, Government RelationsAnadarko in mailing proxy materials, you can consent to receive all future proxy statements, proxy cards and annual reports electronically viae-mail or the Senior Vice President, Internet. To sign up for electronic delivery, please follow the instructions provided with your proxy materials and on your proxy card or voting instruction card to vote using the Internet. When prompted, indicate that you agree to receive or access stockholder communications electronically in the future.
Can I vote my stock by filling out and returning the Notice?
No. The Notice will, however, provide instructions on how to vote by Internet, by telephone, by requesting and returning a paper proxy card, or by submitting a ballot in person at the Annual Meeting.
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General Counsel and Chief Administrative Officer.Information
The Policy further requires that all political contributions made with Company funds or resources, or made through APC PAC, must promote the interests of the Company and must be made without regard for the personal political preferences of Company officers or executives. Contribution decisions are made based upon the following principles:
How can I access the Company’s business goalsproxy materials over the Internet?
Your Notice or proxy card will contain instructions on how to view our proxy materials for the Annual Meeting on the Internet. Our proxy materials are also available at https://materials.proxyvote.com/032511.
What am I voting on and interests.
The Board believesrecommend that the Policy substantially fulfills the purposes of the reports requested in the proposal. Requiring the Company to provide such additional reports would result in an unnecessary and unproductive use of the Company’s time and resources.
THE BOARD RECOMMENDS THAT YOU VOTE “AGAINST” THIS STOCKHOLDER PROPOSAL.
I vote?
| Board Vote | |
Election of Directors | FOR EACH DIRECTOR NOMINEE | |
Management Proposals | ||
Ratification of KPMG LLP as Independent Auditor for 2017 | FOR | |
Advisory Vote to Approve the Company’s Named Executive Officer 2016 Compensation | FOR | |
Advisory Vote on the Frequency of Future Advisory Votes on Named Executive Officer Compensation | ONE YEAR |
Stockholder Proposals
ITEM 5 — STOCKHOLDER PROPOSAL — REPORT ON CLIMATE CHANGE RISK
The Park Foundation Inc., located at P.O. Box 550, Ithaca, NY 14851, telephone (607) 272-9124, is the beneficial owner of more than $2,000 worth of the Company’s common stock, and has notified the Company that it intends to present the following resolution at the meeting for action by the stockholders.
What is the Proposal?effect of an “advisory” vote?
WHEREAS:
Anadarko Petroleum Corporation is amongBecause your vote with respect to approval of our NEO compensation and the world’s largest independent oilfrequency of future advisory votes on the approval of our NEO compensation are advisory, they will not be binding upon the Board. However, our Compensation Committee and natural gas exploration and production companies.
In recognitionthe Board will carefully consider the outcomes of the need to address climate changevotes when reviewing future compensation arrangements for our executive officers and minimize global temperature rise, nearly every national government has agreed that “deep cuts in greenhouse gas emissions (GHG) are required;” and that “the increase in global temperature should be below 2 degrees Celsius.”
The International Energy Agency (IEA) states that “No more than one-thirdwhen determining the frequency of proven reservesfuture advisory votes on the approval of fossil fuels can be consumed prior to 2050 if the world is to achieve the 2 degrees Celsius goal, unless carbon capture and storage technology is widely deployed.”
To achieve a 66 percent probability of not exceeding a global temperature rise above 2 degrees Celsius, the Intergovernmental Panel on Climate Change estimates that approximately 987 gigatons of carbon dioxide can be emitted through 2100. The IEA states that total proven reserves of coal, oil, and natural gas, represent approximately 2,860 gigatons of potential CO2 emissions.
Several analysts indicate that companies may not be adequately accounting for or disclosing the downside risks that could result from lower than expected demand or prices for oil.
Why should I vote?
Your vote is very important regardless of oil producers could dropthe amount of stock you hold. The Board strongly encourages you to exercise your right to vote as a stockholder of the Company.
How do I vote?
You may vote by 40 to 60 percent under a low emissions scenario.
Givenany of the growing public concern about climate change, investors are concerned that actions to significantly reduce GHG emissions could reduce the value of Anadarko’s oil and gas reserves and/or related infrastructure before the end of their expected useful life.following four methods:
Investors require additional information on how Anadarko is preparing for potential scenarios in which demand for oil and gas is greatly reduced due to regulation or other climate-associated drivers. Without additional disclosure, shareholders are unable to determine whether Anadarko is adequately managing these risks or seizing related opportunities.
RESOLVED:
Shareholders request Anadarko to prepare a report by September 2014, omitting proprietary information and prepared at reasonable cost,(i)Internet. Vote on the company’s goalsInternet at http://www.proxyvote.com. This website also allows electronic proxy voting using smartphones, tablets and plansotherweb-connected mobile devices (additional charges may apply pursuant to address global concerns regarding fossil fuelsyour service provider plan). Simply follow the instructions on the Notice, or if you received a proxy card by mail, follow the instructions on the proxy card and their contributionyou can confirm that your vote has been properly recorded. In addition, we have included a Quick Response code (QR code) on the Notice and proxy card. When you scan the QR code with yourweb-connected mobile device, you will be sent directly to climate change, including analysisa personalized webpage where you can indicate how you would like to vote. If you vote on the Internet, you can request electronic delivery of longfuture proxy materials. Internet voting facilities for stockholders of record will be available 24 hours a day and short term financialwill close at 11:59 p.m. (Eastern Daylight Time) on May 9, 2017.
(ii)Telephone. Vote by telephone by following the instructions on the Notice or, if you received a proxy card, by following the instructions on the proxy card.Easy-to-follow voice prompts allow you to vote your stock and operational risks toconfirm that your vote has been properly recorded. Telephone voting facilities for stockholders of record will be available 24 hours a day and will close at 11:59 p.m. (Eastern Daylight Time) on May 9, 2017.
(iii)Mail. If you received a proxy card by mail, vote by mail by completing, signing, dating and returning your proxy card in the company.pre-addressed, postage-paid envelope provided.
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Stockholder ProposalsGeneral Information
STOCKHOLDER SUPPORTING STATEMENTIf you vote by mail and your proxy card is returned unsigned, then your vote cannot be counted. If you vote by mail and the returned proxy card is signed without indicating how you want to vote, then your proxy will be voted as recommended by the Board. If mailed, your completed and signed proxy card must be received by May 9, 2017.
We recommend(iv)Meeting. You may attend and vote at the report include:Annual Meeting.
The Board recommends that you vote using one of the first three methods discussed above, as it is not practical for most stockholders to attend and vote at the Annual Meeting. Using one of the first three methods discussed above to vote will not limit your right to vote at the Annual Meeting if you later decide to attend in person. If your stock is held in street name (for example, held in the name of a bank, broker, or other holder of record), you must obtain a proxy executed in your favor from your bank, broker or other holder of record to be able to attend and vote at the Annual Meeting.
If I vote by telephone or Internet and received a proxy card in the mail, do I need to return my proxy card?
No.
If I vote by mail, telephone or Internet, may I still attend the Annual Meeting?
Yes.
Can I revoke my proxy?
Yes. You may revoke your proxy before the voting polls are closed at the Annual Meeting, by the following methods:
If you are a street name stockholder (for example, if your shares are held in the name of a bank, broker, or other holder of record) and opportunities associatedyou vote by proxy, you may later revoke your proxy by informing the holder of record in accordance with various low-carbon scenarios, including reducing GHG emissionsthat entity’s procedures.
How many votes must be present to hold the Annual Meeting?
Your stock is counted as present at the Annual Meeting if you attend the Annual Meeting and vote in person or if you properly return a proxy by 80 percentInternet, telephone or mail. In order for us to hold our Annual Meeting, holders of a majority of our common stock entitled to vote must be present in person or by 2050, as wellproxy at the Annual Meeting. This is referred to as a scenario in which global oil demand declines due to evolving policy, technology, or consumer responses to address climate change;
determining a quorum.
What does the Board recommend?is a brokernon-vote?
THE BOARD OF DIRECTORS RECOMMENDS A VOTE “AGAINST” THE ABOVEThe NYSE permits brokers to vote their customers’ stock held in street name on routine matters when the brokers have not received voting instructions from their customers. The NYSE does not, however, allow brokers to vote their customers’ stock held in street name onnon-routine matters unless they have received voting instructions from their customers. In such cases, the uninstructed shares for which the broker is unable to vote are called brokernon-votes.
STOCKHOLDER PROPOSAL FOR THE FOLLOWING REASONS:What routine matters will be voted on at the Annual Meeting?
Anadarko continues to demonstrate its commitment to responsible environmental stewardship by continually looking for ways to minimize the overall environmental impacts of its activities, including the reduction of GHG emissions. In lightThe ratification of the Company’s current reportingindependent auditor is the only routine matter on this matter and other steps the Company has taken to assess various risks associated with climate change which are discussed below, the Board believes that the requested report would result in an unnecessary and unproductive use of the Company’s time and resources.brokers may
In support of its commitment to responsible environmental stewardship, in 2003 Anadarko formed a Climate Change Committee to organize, evaluate and take action on climate change and GHG emissions. The committee’s charter can be found on the Company’s website at http://www.anadarko.com/SiteCollectionDocuments/PDF/ClimateChangeCmtCharter.pdf. The committee, which reports annually to the Governance and Risk Committee of the Board, assists management with monitoring the science of climate change, monitoring the Company’s measures to reduce GHG emissions and overseeing implementation of GHG emission programs in an effort to maximize the commercial value of proactive GHG management.
Anadarko already reports information responsive to the proposal that addresses the long and short term financial and operational risk to the Company of concerns regarding climate change. Anadarko annually reports climate-related risks and opportunities to the Carbon Disclosure Project (CDP) and will continue to do so in 2014. As part of this disclosure, for each identified risk, Anadarko reports potential financial implications, methods for mitigation, and costs of mitigation. Anadarko’s reports can be found on the Company’s website at http://www.anadarko.com/Responsibility/Pages/ClimateChange.aspx.
In its CDP reports, Anadarko has identified the potential for changing consumer behavior, particularly a decline in the demand for petroleum products, to represent an indirect financial risk to revenues from Anadarko’s crude oil production. Anadarko currently considers this risk to have little to
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Stockholder ProposalsGeneral Information
no impactvote in their discretion on behalf of customers who have not provided voting instructions.
Whatnon-routine matters will be voted on at the Annual Meeting?
The election of directors, the advisory vote to its operations and revenues based on its deep, balanced and diversified portfolioapprove our NEO compensation and the flexibilityadvisory vote on the frequency of future advisory votes on NEO compensation arenon-routine matters on which brokers are not allowed to vote unless they have received voting instructions from their customers.
How many votes are needed to approve each of the proposals or, with respect to the advisory votes, to be considered the recommendation of the stockholders?
The election of each director requires the affirmative vote of a majority of the votes cast for such director. Under ourBy-Laws, a majority of votes are cast for the election of a director if the number of votes cast “for” the director exceeds the number of votes cast “against” the director. Abstentions will not be taken into account in director elections. The frequency of future advisory votes on our NEO compensation receiving the greatest number of votes (every one, two or three years) will be considered the frequency recommended by stockholders in an advisory manner. For this purpose, abstentions and brokernon-votes are not counted as a vote cast “for” any of a one, two or three year frequency. Each of the other proposals will be approved if it affords. Specifically, Anadarkoreceives the affirmative vote of a majority of the stock entitled to vote and present in person or by proxy at the Annual Meeting. Although the advisory votes on our NEO compensation and the frequency of such vote arenon-binding, the Board will review the results of such votes and, consistent with our record of stockholder engagement, will take the results into account when making decisions going forward. Except as otherwise provided above, abstentions are counted as votes present and entitled to vote and have the same effect as votes against a proposal. Brokernon-votes are
not counted as either votes for or votes against a proposal. Both abstentions and brokernon-votes are counted in determining that a quorum is amongpresent for the largest producersmeeting.
Could other matters be decided at the Annual Meeting?
We are not aware of clean-burning natural gasany matters that will be considered at the Annual Meeting other than those set forth in this proxy statement. However, if any other matters arise at the U.S. Natural gas isAnnual Meeting, the persons named in your proxy will vote in accordance with their best judgment.
Where can I find the voting results of the Annual Meeting?
We will announce the preliminary voting results at the Annual Meeting and disclose the final voting results in a low-carbon alternative supported by state and federal administrations to reduce global greenhouse gas emissions, while providing reliable, efficient and affordable energy to consumers. Anadarko anticipates that natural gas demand may increase as consumer preferences shift away from more carbon-intensive fuels, particularly as end users seek greater energy security, recoil from volatile oil prices, and refining demand lowers.
To further demonstrate its commitment to responsible environmental stewardship Anadarko has incorporated best practices into its operations that are intended to reduce GHG emissions, including:
The Company also supports and participates in ongoing GHG emission-mitigation research. For example, Anadarko partneredcurrent report on Form8-K filed with the Environmental Defense Fund (EDF) and university research teamsSEC within four business days of the date of the Annual Meeting unless only preliminary voting results are available at that time. To the extent necessary, we will file an amended report on Form8-K to conduct studies based on sound scientific principles to assess emissions, find and more accurately measure leaks and releases acrossdisclose the natural gas supply chain, determinefinal voting results within four business days after the impacts and ultimately reduce them. In addition, Anadarko worked collaboratively with Colorado’s Governor, the EDFfinal voting results are known. You may access or obtain a copy of these and other industry peersreports free of charge on proposed state regulations that would utilize industry-leading practices and more formal processes for identifying, controlling and reducing methane leaksthe Company’s website at http://www.anadarko.com, or by contacting our investor relations department at investor@anadarko.com. Also, the referenced Form8-K, any amendments thereto and other emissions.
Finally, in orderreports filed with or furnished to implement the proposal,SEC by the Company wouldare available to you over the Internet at the SEC’s website at http://www.sec.gov.
How can I view the stockholder list?
A complete list of stockholders of record entitled to vote at the Annual Meeting will be required to engage in speculation onavailable for viewing during ordinary business hours for a varietyperiod of matters, including future possible restrictions on carbon emissions andten days before the reaction and conduct of consumers in response to any such regulations.Annual Meeting at our offices at 1201 Lake Robbins Drive, The Company cannot, at a reasonable cost, determine what actions political bodies, including U.S. federal, state or foreign governments, are likely to take in the future relating to restrictions on fossil fuels and their contribution to climate change.Woodlands, Texas 77380-1046.
For these reasons, the Board believes that the requested report would result in an unnecessary and unproductive use of the Company’s time and resources.
THE BOARD RECOMMENDS THAT YOU VOTE “AGAINST” THIS STOCKHOLDER PROPOSAL.
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General Information
Who pays for the proxy solicitation related to the Annual Meeting?
We do. In addition to sending you these materials or otherwise providing you access to these materials, some of our directors and officers as well as management andnon-management employees may contact you by telephone, mail,e-mail or in person. You may also be solicited by means of press releases issued by Anadarko, postings on our website at http://www.anadarko.com, advertisements in periodicals, or other media forms. None of our officers or employees will receive any extra compensation for soliciting you. We have retained Morrow Sodali LLC (Morrow Sodali), 470 West Avenue, Stamford, Connecticut 06902, to assist us in soliciting your proxy for an estimated fee of $12,500, plus reasonableout-of-pocket expenses. Morrow Sodali ensures that brokers, custodians and nominees will supply additional copies of the proxy materials for distribution to the beneficial owners. We will also reimburse banks, nominees, fiduciaries, brokers and other custodians for their costs of sending the proxy materials to the beneficial owners of Anadarko common stock.
Who will tabulate and certify the vote?
Broadridge Financial Solutions, Inc., an independent third party, will tabulate and certify the vote, and will have a representative to act as the independent inspector of elections for the Annual Meeting.
If I want to submit a stockholder proposal for the 2018 Annual Meeting, when is that proposal due?
If you are an eligible stockholder and want to submit a proposal for possible inclusion in the proxy statement relating to the 2018 Annual Meeting, your proposal must be delivered to the attention of our Corporate Secretary and must be received at our principal office, 1201 Lake Robbins Drive, The Woodlands, Texas 77380-1046, no later than November 24, 2017. We will only consider
proposals that meet the requirements of the applicable rules of the SEC and ourBy-Laws.
If I want to nominate a director for the 2018 Annual Meeting, when is that nomination due?
Eligible stockholders may nominate a candidate for election to the Board for inclusion in the Company’s proxy materials in accordance with the “proxy access” provisions of ourBy-Laws. OurBy-Laws require that you provide notice in writing to our Corporate Secretary (at the same address noted above) no later than the close of business on November 24, 2017, and no earlier than the close of business on October 25, 2017. For more information regarding the “proxy access” provisions of ourBy-Laws, see page 18.
OurBy-Laws also provide that any stockholder may nominate a candidate for election to the Board or propose any business to be brought before an annual meeting of stockholders, which nomination or proposal is not submitted for inclusion in the Company’s proxy materials. Assuming that our Annual Meeting is held on schedule, ourBy-Laws require that you provide notice in writing to our Corporate Secretary (at the same address noted above) no later than the close of business on February 9, 2018, and no earlier than the close of business on January 10, 2018. For additional information, see page 18.
How can I obtain a copy of the Annual Report on Form10-K?
Stockholders may request a free copy of our Annual Report on Form10-K by submitting such request to Investor Relations, Anadarko Petroleum Corporation, P.O. Box 1330, Houston,Texas 77251-1330. Stockholders may also submit such request viae-mail at investor@anadarko.com or by calling(855) 820-6605. Alternatively, stockholders can access our Annual Report on Form10-K on Anadarko’s website at http://www.anadarko.com. Also, our Annual
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General Information
Report on Form10-K and other reports filed by the Company with the SEC are available to you over the Internet at the SEC’s website at http://www.sec.gov.
Will I get more than one copy of the proxy statement, annual report or Notice if there are multiple stockholders at my address?
In some cases, only one copy of this proxy statement, annual report or Notice is being delivered to multiple stockholders sharing an address unless we have received contrary instructions from one or more of the stockholders. We will deliver promptly, upon a written or oral request, a separate copy of this proxy statement,
annual report or Notice to a stockholder at a shared address to which a single copy of the document was delivered. Stockholders sharing an address may also submit requests for delivery of a single copy of the proxy statement, annual report or Notice, but in such event will still receive separate proxies for each account. To request separate or single delivery of these materials now or in the future, a stockholder may submit a written request to the Corporate Secretary, Anadarko Petroleum Corporation, 1201 Lake Robbins Drive, The Woodlands, Texas 77380-1046 or a stockholder may make a request by calling the Corporate Secretary at (832)636-1000 or by contacting our transfer agent, Computershare, P.O. Box 30170, College Station, Texas77842-3170.
BY ORDER OF THE BOARD OF DIRECTORS | ||
Amanda M. McMillian | ||
Senior Vice President, Corporate Secretary and Chief Compliance Officer |
Dated: March 21, 201417, 2017
The Woodlands, Texas
See enclosed proxy card — please vote promptly
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1201 LAKE ROBBINS DRIVE
THE WOODLANDS, TX 77380
WE ENCOURAGE YOU TO TAKE ADVANTAGE OF INTERNET OR TELEPHONE VOTING.
BOTH ARE AVAILABLE 24 HOURS A DAY, 7 DAYS A WEEK
VOTE BY INTERNET -www.proxyvote.com or scan the QR Barcode above
Use the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 p.m. Eastern Daylight Time the day before the cut-off date or meeting date. Have your proxy card in hand when you access the website and follow the instructions to obtain your records and to create an electronic voting instruction form.
ELECTRONIC DELIVERY OF FUTURE PROXY MATERIALS
If you would like to reduce the costs incurred by Anadarko Petroleum Corporation in mailing proxy materials, you can consent to receiving all future proxy statements, proxy cards and annual reports electronically via e-mail or the Internet. To sign up for electronic delivery, please follow the instructions above to vote using the Internet and, when prompted, indicate that you agree to receive or access proxy materials electronically in future years.
VOTE BY PHONE - 1-800-690-6903
Use any touch-tone telephone to transmit your voting instructions up until 11:59 p.m. Eastern Daylight Time the day before the cut-off date or meeting date. Have your proxy card in hand when you call and then follow the instructions.
VOTE BY MAIL
Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Anadarko Petroleum Corporation, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717.
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS:
KEEP THIS PORTION FOR YOUR RECORDS |
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DETACH AND RETURN THIS PORTION ONLY |
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
ANADARKO PETROLEUM CORPORATION
THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” ITEMS 1, 2 and 3. | ||||||||||||||||||||||
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1. | Election of Directors | |||||||||||||||||||||
Nominees: | For | Against | Abstain | |||||||||||||||||||
1a. Anthony R. Chase | ☐ | ☐ | ☐ | |||||||||||||||||||
1b. David E. Constable | ☐ | ☐ | ☐ | |||||||||||||||||||
1c. H. Paulett Eberhart | ☐ | ☐ | ☐ | |||||||||||||||||||
1d. Claire S. Farley | ☐ | ☐ | ☐ | |||||||||||||||||||
1e. Peter J. Fluor | ☐ | ☐ | ☐ | |||||||||||||||||||
1f. Richard L. George | ☐ | ☐ | ☐ | |||||||||||||||||||
1g. Joseph W. Gorder | ☐ | ☐ | ☐ | |||||||||||||||||||
1h. John R. Gordon | ☐ | ☐ | ☐ | |||||||||||||||||||
1i. Sean Gourley | ☐ | ☐ | ☐ | |||||||||||||||||||
1j. Mark C. McKinley | ☐ | ☐ | ☐ | |||||||||||||||||||
For address changes and/or comments, please check this box and write them on the back where indicated. | ☐ | |||||||||||||||||||||
Please indicate if you plan to attend this meeting. | ☐ | ☐ | ||||||||||||||||||||
Yes | No |
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For | Against | Abstain | ||||||||||||||||||||
1k. Eric D. Mullins | ☐ | ☐ | ☐ | |||||||||||||||||||
1l. R. A. Walker | ☐ | ☐ | ☐ | |||||||||||||||||||
Vote On | ||||||||||||||||||||||
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| 2. | Ratification of Appointment of KPMG LLP as Independent Auditor. | ||||||||||||||||||||
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3. | Advisory Vote to Approve Named Executive Officer Compensation. | ☐ |
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR “1 YEAR” FOR ITEM 4. | 3 Years | 2 Years | 1 Year | Abstain | ||||
4. Advisory Vote on the Frequency of Future Advisory Votes on Named Executive Officer Compensation. | ☐ | ☐ | ||||||
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The shares represented by this proxy, when properly executed, will be voted in the manner directed herein by the undersigned stockholder(s).If no direction is made, this proxy Each signatory to this proxy acknowledges receipt from Anadarko Petroleum Corporation, prior to execution of this proxy, of a notice of Annual Meeting of Stockholders and a proxy statement dated March 17, 2017. |
Please sign exactly as your name(s) appear(s) hereon. When signing as attorney, executor, administrator, or other fiduciary, please give full title as such. Joint owners should each sign personally. All holders must sign. If a corporation or partnership, please sign in full corporate or partnership name by authorized officer.
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Signature [PLEASE SIGN WITHIN BOX] | Date | |||||||||||||||||||||||||||||||||
Signature (Joint Owners) | Date |
Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting:Meeting
The Notice and Proxy Statement and10-K/Annual Report are available at:
https://materials.proxyvote.com/032511
¨ê FOLD AND DETACH HERE¨ê
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M67543-P49060-Z62564 E19046-P87972
ANADARKO PETROLEUM CORPORATION
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
ANNUAL MEETING OF STOCKHOLDERS May
The undersigned hereby appoint(s) R. A. Walker, Robert G. Gwin and Robert K. Reeves, and each of them, as proxies, each with the power to appoint his substitute, and hereby authorizes them to represent and vote, as designated on the reverse side of this proxy, all of the shares of Common Stock of Anadarko Petroleum Corporation that the undersigned is entitled to vote at the Annual Meeting of Stockholders to be held at 8:00 a.m., Central Daylight Time, on May
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AS DIRECTED BY THE UNDERSIGNED. IF NO SUCH DIRECTIONS ARE MADE, THIS PROXY WILL BE VOTED FOR THE ELECTION OF THE NOMINEES LISTED ON THE REVERSE SIDE FOR THE BOARD OF DIRECTORS AND AS RECOMMENDED BY THE BOARD OF DIRECTORS FOR EACH PROPOSAL.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED REPLY ENVELOPE.
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Address Changes/Comments: | ||||||||||||||
(If you noted any Address Changes/Comments above, please mark the corresponding box on the reverse side.)
(CONTINUED AND TO BE SIGNED ON THE REVERSE SIDE)
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