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. )
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PDC ENERGY, INC. | ||
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PDC ENERGY, INC.
1775 Sherman Street, Suite 3000
Denver, Colorado 80203
(303) 860‑5800860-5800
April [•], 202014, 2021
Dear Stockholder of PDC Energy, Inc.:
You are cordially invited to attend the 20202021 Annual Meeting of PDC Energy, Inc. to be held via virtual web conference at www.virtualshareholdermeeting.com/PDCE2021 on May 26, 2020,2021, at 8:00 a.m. Mountain Time at Lincoln Crossing at 1775 Sherman Street, Denver, Colorado 80203 (the “Annual Meeting”).
The accompanying Notice of Annual Meeting 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.
We hope you will join us at the Annual Meeting.Meeting online. Your vote is extremely important this year regardless of the number of shares you own. We value your opinion and encourage you to participate by voting your proxy card. Whether or not you plan to attend personally,virtually, it is important that your shares be represented at the Annual Meeting. You may vote your shares by using the telephone or Internet voting options described in the attached Notice of Annual Meeting and proxy card. If you receive a proxy card by mail, you may cast your vote by completing, signing and returning it promptly. This will ensure that your shares are represented at the Annual Meeting even if you cannot attend in person.are unable to virtually attend.
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| Sincerely, |
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| Barton R. Brookman |
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON
Tuesday,Wednesday, May 26, 20202021
April [•], 202014,2021
To the stockholders of PDC Energy, Inc.:
The 20202021 Annual Meeting of PDC Energy, Inc. (the “Company”) will be held via the Internet through a virtual web conference at www.virtualshareholdermeeting.com/PDCE2021 on May 26, 2020,2021, at 8:00 a.m. Mountain TimeTime. You will be able to attend the meeting online by visiting the website above, and submit questions to be answered at Lincoln Crossingthe Annual Meeting prior to the meeting. You will also be able to vote your shares electronically at 1775 Sherman Street, Denver, Colorado 80203,the Annual Meeting. The meeting will be held online only, and will be held for the following purposes:
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| To approve, on an advisory basis, the compensation of the Company’s named executive officers |
| To ratify the appointment of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, |
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| To transact any other business that may properly come before the meeting and at any and all adjournments or postponements thereof. |
The Board has fixed the close of business on March 31, 202030, 2021 as the record date for determining the stockholders having the right to receive notice of, to attend virtually and to vote at the Annual Meeting or any adjournment or postponement thereof. A list of these stockholders will be open for examination by any stockholder for any purpose germane to the Annual Meeting for a period of 10 days prior to the Annual Meeting at our principal executive offices at 1775 Sherman St., Suite 3000, Denver, CO 80203, and electronically during the Annual Meeting at www.virtualshareholdermeeting.com/PDCE2021 when you enter your control number. The presence in person, virtually or by proxy of the holders of a majority of the outstanding shares of the Company’s common stock entitled to vote is required to constitute a quorum.
We intend to hold our annual meeting in person. However, we are sensitive to the public health and travel concerns our stockholders may have and recommendations that public health officials may issue in light of the evolving COVID-19 situation. As a result, we may impose additional procedures or limitations on meeting attendees or may decide to hold the meeting in a different location or solely by means of remote communication (i.e., a virtual-only meeting). Because there are certain costs associated with holding a
virtual-only meeting, we currently plan to address COVID-19 concerns relating to the meeting by having directors and others whose physical presence at the meeting is not essential attend the meeting via teleconference. In addition, (i) stockholders and others may listen to the meeting in real-time by calling [•] and (ii) stockholders may submit questions they would like to have answered at the meeting by sending those questions to our Corporate Secretary in advance of the meeting at the address set forth in “Information About Voting and the Meeting—Contact Information”. We believe that these procedures will reduce risks relating to COVID-19 and provide many of the benefits of a virtual-only meeting while minimizing associated costs. We will continue to monitor the COVID-19 situation and if changes to our current plan become advisable, we will disclose the updated plan on our proxy website (www.proxyvote.com/[•]). We encourage you to check this website prior to the meeting if you plan to attend.
If you are a record holder of shares, or an owner who owns shares in “street name” and obtains a “legal” proxy from your broker, bank, trustee or nominee, you still may attend the Annual Meeting and vote your shares or revoke your prior voting instructions.
Your vote is especially important to us at this Annual Meeting. Regardless of the number of shares of our common stock that you own, your vote will be very important. Thank you for your continued support, interest and investment in the Company.
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| By Order of the Board of Directors, |
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| Nicole L. Martinet |
PDC ENERGY, INC.
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
To be held on May 26, 2020 at8:00 a.m. Mountain Time atLincoln Crossing1775 Sherman Street2021
Denver, Colorado 80203
The accompanying proxy is being solicited by the Board of Directors (“Board”) of PDC Energy, Inc. (“PDC,” the “Company,” “we,” “us” or “our”) to be voted at the annual meeting of the stockholders of the Company (the “Annual Meeting”) to be held on May 26, 2020,2021, at 8:00 a.m. Mountain Time and at any and all adjournments or postponements of the meeting, for the purposes set forth in this Proxy Statement and the accompanying Notice of Annual Meeting. On or about April [•], 2020,14, 2021, we began mailing proxy materials to stockholders. For information on how to vote your shares, see the instructions included on the proxy card or instruction form described under “Information About Voting and the Meeting” herein.
IMPORTANT NOTICE REGARDING THE INTERNET AVAILABILITY
OF PROXY MATERIALS FOR THE ANNUAL MEETING
TO BE HELD ON MAY 26, 20202021
The Notice of Annual Meeting, the Proxy Statement for the 20202021 Annual Meeting, and the 20192020 Annual Report, which includesis the Company’s Annual Report on Form 10‑K10-K for the fiscal year ended December 31, 2019,2020, are available at [www.proxyvote.com/[•]]www.proxyvote.com.
Virtual Meeting Admission
Stockholders of record as of March 30, 2021 will be able to participate in the Annual Meeting by visiting our Annual Meeting website at www.virtualshareholdermeeting.com/PDCE2021. To participate in the Annual Meeting, you will need the 16-digit control number included on your proxy card or on the instructions that accompanied your proxy materials.
The Annual Meeting will begin promptly at 8:00 a.m. Mountain Time on Wednesday, May 26, 2021. Online check-in will begin at 7:45 a.m. Mountain Time, and you should allow approximately 15 minutes for the online check-in procedures.
Voting
Whether or not you plan to virtually attend the Annual Meeting and regardless of the number of shares that you own, please cast your vote, at your earliest convenience, as instructed in the proxy card. Your vote is very important. Your vote before the Annual Meeting will ensure representation of your shares at the Annual Meeting even if you are unable to virtually attend. You may submit your vote by the Internet, telephone, mail or in person by participating virtually in the meeting. Voting over the Internet or by telephone is fast and convenient, and your vote is immediately confirmed and tabulated. By using the Internet or telephone, you help us reduce postage, printing and proxy tabulation costs. We encourage all holders of record to vote in accordance with the instructions on the proxy card and/or voting instruction form prior to the Annual Meeting even if they plan on virtually attending the meeting. Submitting a vote before the Annual Meeting will not preclude you from voting your shares at the meeting should you decide to virtually attend.
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PDC ENERGY, INC. - PROXY STATEMENT
This Proxy Statement Summary highlights information contained elsewhere in this document. Please read the entire Proxy Statement carefully before voting.
Annual Meeting of Stockholders
TIME AND DATE | PLACE | RECORD DATE |
8:00 a.m. Mountain Time on |
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VOTING
Stockholders as of the record date are entitled to vote. To vote via the Internet, by telephone, mail or mail,virtually at the Annual Meeting, please refer to the instructions on your proxy card in the postage paid envelope provided.
Voting Matters
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To approve, on an advisory basis, the compensation of the Company’s named executive officers. | | FOR | |
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| | PROPOSAL To ratify the appointment of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, | | FOR |
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| PDCENERGY 2021 PROXY | 1 |
PDCENERGY 2020 PROXY 1
PDC ENERGY, INC. - PROXY STATEMENT
PROPOSALNO. 1—AMEND THE CERTIFICATE ELECTIONOF INCORPORATION TO DECLASSIFY THE BOARD AND PROVIDE FOR THE IMMEDIATE ANNUAL ELECTION OF SEVENDIRECTORS
THE BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE ON THE PROXY CARD AND VOTING INSTRUCTION FORM “FOR” THE PROPOSAL TO AMEND THE COMPANY’S CERTIFICATE OF INCORPORATION TO DECLASSIFY THE BOARD AND TO PROVIDE FOR THE IMMEDIATE ANNUAL ELECTION OF DIRECTORS. PROPERLY SUBMITTED PROXIES SOLICITED BY THE BOARD WILL BE SO VOTED UNLESS STOCKHOLDERS SPECIFY A CONTRARY VOTE.
After careful consideration, on February 20, 2020, the Board unanimously approved and declared advisable, and resolved to recommend to the Company’s stockholders that they approve an amendment to Article Fifth of the Certificate of Incorporation to provide for the elimination of the classified structure of the Board and for the annual election of directors (the “Declassification Amendment”). Declassifying the Board will allow the Company’s stockholders to vote on the election of the entire Board each year, rather than on a three-year staggered basis as with the current classified board structure. The proposed amendment to the Certificate of Incorporation is attached as Appendix B to this Proxy Statement. A copy of the full Certificate of Incorporation, which incorporates the changes made by the amendment and marks those changes specifically, is provided as Appendix C to this Proxy Statement.
If the Declassification Amendment is approved by the Company’s stockholders, the Certificate of Incorporation will be amended immediately following such approval and during the Annual Meeting to provide for the immediate annual election of all directors and all eight nominees for director will be proposed for election (see Proposal No. 2). If the Company’s stockholders approve the Declassification Amendment, the Board will be declassified during the Annual Meeting and all of the directors will be proposed for re-election at the meeting. As of the date of distribution of this Proxy Statement, the Company’s directors whose terms do not expire at the Annual Meeting have acknowledged and agreed that if the Declassification Amendment is approved, their terms shall end at the 2021 annual meeting of stockholders and they will no longer be Class II or III Directors, as applicable. If the Company’s stockholders do not approve the Declassification Amendment, the Board will remain classified and the Company’s stockholders will instead be asked to elect only those two Class I directors proposed for election (see Proposal No. 3).
In addition, if the Declassification Amendment is approved, the Board intends to adopt conforming amendments to the Company’s Corporate Governance Guidelines.
Current Classified Board Structure
Under Article Fifth of the Certificate of Incorporation, the Board is currently separated into three classes as nearly equal in number as is reasonably possible. Absent the earlier resignation or removal of a director, each year the stockholders are asked to elect the directors comprising one of the classes for a three-year term. The term of the current Class I directors is set to expire at the Annual Meeting. The term of the Class II directors is set to expire in 2021 and the term of the Class III directors is set to expire in 2022. Under the current classified board structure, stockholders may only elect approximately one-third of the Board each year.
Rationale for Declassification
Although the Board believes that the classified board structure has promoted continuity and stability, encouraged a long-term perspective on the part of directors and was beneficial in the event of an unsolicited takeover attempt, the Board recognizes the sentiment of the Company’s stockholders and institutional
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PDC ENERGY INC. - PROXY STATEMENT
investor groups in favor of the annual election of all directors. In response to input from the Company’s stockholders, the Board considered the various positions for and against a classified board and recognized that an annual election fosters Board accountability, enables the Company’s stockholders to express a view on each director's performance by means of an annual vote and supports the Company's ongoing efforts to maintain “best practices” in corporate governance. Based on the Company's desire to maintain best practices in corporate governance, as well as input received from the Company’s stockholders, the Company is proposing the immediate elimination of its classified board at the Annual Meeting.
Stockholder Approval Required
The approval of this Proposal No. 1 will require the affirmative vote of the holders of a majority of the outstanding shares of common stock of the Company. In determining whether this Proposal No. 1 has received the requisite number of affirmative votes, abstentions and broker non-votes will not be counted and will have the same effect as a vote against the proposal. If a stockholder of the Company returns a validly executed proxy, the shares represented by the proxy will be voted on this Proposal No. 1 in the manner specified by the stockholder. If a stockholder of the Company does not specify the manner in which shares represented by a validly executed proxy are to be voted on this matter, such shares will be voted for this Proposal No. 1.
ACCORDINGLY, THE BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THE DECLASSIFICATION AMENDMENT.
PDCENERGY 2020 PROXY 3
PDC ENERGY INC. - PROXY STATEMENT
PROPOSAL NO. 2—ELECTION OF EIGHT DIRECTORS, IF PROPOSAL NO. 1 IS APPROVED
IF PROPOSAL NO. 1 IS APPROVED, THE BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE ON THE PROXY CARD AND VOTING INSTRUCTION FORM “FOR” THE ELECTION OF THE EIGHTSEVEN DIRECTORS NOMINATED BY THE BOARD. PROPERLY SUBMITTED PROXIES SOLICITED BY THE BOARD WILL BE SO VOTED UNLESS STOCKHOLDERS SPECIFY A CONTRARY VOTE.
If the Company’s stockholders approve the Declassification Amendment described in Proposal No. 1 at the Annual Meeting, the stockholders will beYou are asked to consider eightseven nominees for election to the Board. Each nominee would serve for a one-year term until the 20212022 annual meeting of the stockholders of the Company. If the Company’s stockholders do not approve Proposal No. 1, the current classified board structure will remain in placeCompany and this Proposal No. 2 will not be submitted to a vote of the Company’s stockholders at the Annual Meeting,until his or her successor is duly elected and instead Proposal No. 3 (Election of two Class I Directors) will be submitted in its place.qualified.
ACCORDINGLY, THE BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THE ELECTION OF EACH AND ALL OF THE BOARD NOMINEES.
The appointed proxies will vote your shares in accordance with your instructions on the proxy card and for the election of all of the Director nominees unless you withhold your authority to vote for one or more of them. The Board does not contemplate that any of the Director nominees will become unavailable for any reason; however, if any Director is unable to stand for election, the Board may reduce the size of the Board or select a substitute. Your proxy cannot otherwise be voted for a person who is not named in this Proxy Statement as a candidate for Director or for a greater number of persons than the number of Director nominees named. The Directors will be elected by an affirmative vote of a plurality of the outstanding common shares. Abstentions“Withhold votes” and broker non-votes will have no effect on the election of Directors.
As of the Annual Meeting, the composition of the Board and the term of each Director is expected to be as follows:
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David C. Parke |
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Lynn A. Peterson |
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Jeffrey C. Swoveland* |
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Anthony J. Crisafio |
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Christina M. Ibrahim |
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Randy S. Nickerson |
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Barton R. Brookman |
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Mark E. Ellis |
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Paul J. Korus |
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DIRECTORS | | THE BOARD | |
Barton R. Brookman | 2015 | ||
Anthony J. Crisafio(1) | 2006 | ||
Mark E. Ellis | | 2017 | |
Christina M. Ibrahim(2) | 2018 | ||
Paul J. Korus | 2020 | ||
Randy S. Nickerson(3) | | 2017 | |
David C. Parke | 2003 | ||
Lynn A. Peterson | | 2020 | |
Carlos A. Sabater(4) | | — | |
Diana L. Sands | | 2021 | |
* On February 24, 2020, Mr. Swoveland informed the Company that he will not stand for re-election at the Annual Meeting. Following the Annual Meeting and at the request of the Board, Mr. Swoveland has agreed to serve for a
Mr. Lillo was appointed to the Senior Management Team in September 2020; his annual cash incentive target was increased to 80% effective September 1, 2020 in connection with his appointment. |
(1) On February 17, 2021, Mr. Crisafio informed the Company that he will not stand for re-election at the Annual Meeting. (2) On April 9, 2021, Ms. Ibrahim informed the Company that she will not stand for re-election at the Annual Meeting. (3) On February 17, 2021, Mr. Nickerson informed the Company that he will not stand for re-election at the Annual Meeting. (4) Mr. Sabater is not currently a member of the Board as of the Annual Meeting. However, on April 13, 2021, Mr. Sabater was nominated by the Board to stand for election at the Annual Meeting, as noted in his biography below. |
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PDC ENERGY, INC. - PROXY STATEMENT
limited period of time as a non-voting Director EmeritusAll of the Company in orderDirector nominees named hereafter will be standing for election to among other things, assistserve a one-year term. The Board, based on the recommendation of the Nominating and Governance Committee (the “N&G Committee”), has recommended Mr. Brookman, Mr. Ellis, in transitioning the responsibilities of Non-Executive ChairmanMr. Korus, Mr. Parke, and Mr. Peterson for re-election and Mr. Sabater and Ms. Sands for election as directors. All of the Board.
If Proposal No. 1director nominees are current members of the board, other than Mr. Sabater, who is approved at the Annual Meeting, the meeting will recess so that a Certificate of Amendmentnominated for election to amend the Certificate of Incorporation to declassify the Board can be filed withfor the Secretary of State offirst time. Ms. Sands was appointed to the State of Delaware. When that filing becomes effective, each of Messrs. Brookman, Crisafio, Ellis, Korus, Nickerson, ParkeBoard on February 18, 2021 and Peterson and Ms. Ibrahim will standis also seeking election for re-election for one-year terms pursuant to Proposal No. 2.the first time.
NAME, PRINCIPAL OCCUPATION FOR PAST FIVE YEARS AND OTHER DIRECTORSHIPS
BARTON R. BROOKMAN DIRECTOR President and Age: Committees: None | Background Mr. Brookman, the Company’s President and Chief Executive Officer (“CEO”), was appointed to the Board in January 2015, simultaneously with his appointment as the Company’s CEO. Mr. Brookman joined the Company in July 2005 as Senior Vice President—Exploration and Production; he was appointed to the position of Executive Vice President and Chief Operating Officer in June 2013 and then served as President and Chief Operating Officer from June 2014 through December 2014. Prior to joining PDC, Mr. Brookman worked for Patina Oil and Gas and its predecessor Snyder Oil from 1988 until 2005 in a series of operational and technical positions of increasing responsibility, ending his service at Patina as Vice President of Operations. Education B.S. in Petroleum Engineering from the Colorado School of Mines and a M.S. in Finance from the University of Colorado. Experience The Board has concluded that in addition to his role as CEO of the Company, Mr. Brookman is qualified to serve as a Director due to, among other things, his many years of oil and gas industry executive management experience, his active involvement in industry groups and his knowledge of current developments and best practices in the industry. |
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PDC ENERGY INC. - PROXY STATEMENT
MARK E. ELLIS DIRECTOR (Non-Executive Chairman) Age: Committees:
Governance (Chair) | Background Mr. Ellis was elected to the Board in 2017 and was appointed Non-Executive Chairman of the Board in February 2020. He served as a director and President and Chief Executive Officer of Linn Energy, Inc., the reorganized successor to Linn Energy, LLC (“LINN”), which filed for bankruptcy in the federal bankruptcy court, Southern District of Texas, in May 2016. From January 2010 until his retirement from LINN in August 2018, Mr. Ellis was the President and Chief Executive Officer and a director of LINN. From 2012 until August 2018, Mr. Ellis also served as Chairman of LINN’s board of directors. Prior to joining LINN in 2006, Mr. Ellis served in varying roles of increasing responsibility for Burlington Resources and ConocoPhillips. Education B.S. in Petroleum Engineering from Texas A&M University. Experience The Board has concluded that Mr. Ellis is qualified to serve as a Director because his service as the chief executive officer and director of another public energy company provides extensive oil and gas industry executive management experience, as well as knowledge of current developments and best practices in the industry. |
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PDC ENERGY, INC. - PROXY STATEMENT
PAUL J. KORUS DIRECTOR Age: Committees: Audit Nominating and Governance | Background Mr. Korus joined the Board in January 2020 in connection with the closing of the Company’s merger with SRC Energy Inc. (“SRC”). From 2011 to 2019, Mr. Korus served on the UND College of Business and Public Administration Alumni Advisory Council and was its chairperson from 2017 to 2019. Mr. Korus is a former CPA. Education B.S. in Economics and M.S. in Accounting from the University of North Dakota. Experience The Board has concluded that Mr. Korus is qualified to serve as a Director because of his service as an officer and director of other public energy companies, providing for extensive oil and gas industry executive and board experience. He also brings strong financial and accounting expertise based on his experience as |
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PDC ENERGY INC. - PROXY STATEMENT
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DAVID C. PARKE DIRECTOR Age: Committees: Audit Compensation (Chair) Nominating and | Background Mr. Parke, who joined the Board in 2003, has over 30 years of investment banking experience. He has served as a Managing Director of Gordian Investments LLC since October 2014. He has also been a member of the Life Science Advisory Group of IP Group plc since July 2018. From June 2011 until October 2014, he was a Managing Director in the investment banking group of Burrill Securities LLC, an investment banking firm. From 2006 until June 2011, he was a Managing Director of Boenning & Scattergood, Inc., a regional investment bank. Prior to joining Boenning & Scattergood, from October 2003 to November 2006, he was a Director with the investment banking firm Mufson Howe Hunter & Company LLC. From 1992 through 2003, Mr. Parke was Director of Corporate Finance of Investec, Inc. and its predecessor, Pennsylvania Merchant Group Ltd., both investment banking companies. Prior to joining Pennsylvania Merchant Group, Mr. Parke served in the corporate finance departments of Wheat First Butcher & Singer, now part of Wells Fargo, and Legg Mason, Inc., now part of Stifel Nicolaus. Education B.S. in Finance from Lehigh University and an M.B.A. from the Wharton School at the University of Pennsylvania. Experience The Board has concluded that Mr. Parke is qualified to serve as a Director because, among other things, he has extensive investment banking and strategic advisory experience, including experience in the oil and gas area, allowing him to contribute broad financial and investment banking expertise to the Board and to provide guidance on capital markets and acquisition matters. |
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IANA 68 | | Chairman of the Board, Chief Executive Officer and President of SRC allows him to provide the Company with critical guidance regarding the SRC integration. [ADD] |
LYNN A. PETERSON DIRECTOR Age: Committees: Compensation | Background Mr. Peterson joined the Board in January 2020 in connection with the closing of the merger with SRC. Mr. Peterson was appointed President, Chief Executive Officer and director of Whiting Petroleum Corporation (“Whiting”) in September 2020. He was the Chairman of the Board, Chief Executive Officer and President of SRC from May 2015 until January 2020. He was a co-founder of Kodiak Oil & Gas Corporation (“Kodiak”), and served Kodiak as a director (2001-2014) and as its President, Chief Executive Officer (2002-2014) and Chairman of the Board (2011-2014) until its acquisition by Whiting Education B.S. in Accounting from Northern Colorado University. Experience The Board has concluded that Mr. Peterson is qualified to serve as a Director because of his extensive oil and gas industry and leadership experience. Mr. Peterson’s |
CARLOS A. SABATER DIRECTOR Age: 62 Committees: None | Background On April 13, 2021, Mr. Sabater was nominated by the Board for election as a director at the Company’s Annual Meeting. Mr. Sabater is a certified public accountant with nearly 40 years of leadership, accounting and financial reporting experience. During his extensive career at Deloitte Touche Tohmatsu Limited (“Deloitte”), Mr. Sabater served in various senior leadership and operational roles, including CEO for both the U.S. and global audit practices. He also served as the managing partner for all of Deloitte’s businesses across 28 countries in North and South America. Mr. Sabater also led various risk, governance, audit, finance, compensation and global committees during his service as an elected board member for the Deloitte firms in the U.S., Mexico, Central and Latin America, the Caribbean and Bermuda. Mr. Sabater has a multi-cultural business background, is fluent in Spanish, was born in Cuba and retired from Deloitte as a Senior Global Partner in 2020. Education B.B.A. in Accounting and Finance from Florida International University Experience The Board has concluded that Mr. Sabater is qualified to serve as a Director because, among other things, of his extensive leadership, executive and board service and experience in audit, finance, risk and governance matters for public companies. |
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PDC ENERGY, INC. - PROXY STATEMENT
DIANA L. SANDS DIRECTOR Age: 55 Committees: None | Background Ms. Sands was appointed to the Board in February 2021. She retired in 2020 from the Boeing Company (“Boeing”) as Executive Officer and Senior Vice President, Office of Internal Governance and Administration, a role she held since 2016. Reporting to Boeing’s CEO and the audit committee, Ms. Sands oversaw a diverse team including corporate audit, ethics and investigations, compliance risk management, security, and internal services. During her 20-year career at Boeing, Ms. Sands served in several financial and governance roles with increasing responsibility, including Director of Corporate Treasury, Vice President Investor Relations, Financial Planning & Analysis, and Corporate Controller. Prior to Boeing, Ms. Sands served in finance roles at General Motors Corporation and Ameritech Communications, Inc., among others. Education Bachelor of Business Administration from University of Michigan and an M.B.A. from the Kellogg School of Management at Northwestern University. Experience The Board has concluded that Ms. Sands is qualified to serve as a Director because, among other things, she has extensive executive finance and governance experience in large public companies, allowing her to contribute broad financial, audit and compliance expertise to the Board. |
The eightseven Director nominees or Class I Directors, as applicable, will be elected by an affirmative vote of a plurality of the outstanding common shares. Broker non‑votesnon-votes will have no effect on the election of Directors.
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PDC ENERGY, INC. - PROXY STATEMENT
We compensate Directors with a combination of cash and equity-based incentives to attract and retain qualified candidates to serve on our Board and to align Directors’ interests with those of our stockholders. In determining how to compensate our Directors, we consider the significant amount of time they spend fulfilling their duties, as well as the competitive market for skilled directors. Cash payments are paid quarterly. No compensation is paid to our CEO for his service on the Board.
Compensation for our non-employee Directors (“Non-Employee Directors”) is reviewed annually by the Compensation Committee and is approved by the Board. The Compensation Committee uses its independent compensation consultant to conduct this annual review, which includes board and committee retainers, meeting fees and equity-based awards using the same peer group used to determine executive compensation. See “Compensation Policies and Practices” and “Role of Independent Compensation Consultant” in the Compensation Discussion and Analysis section of this Proxy Statement. Based on this review for 2020, the Compensation Committee recommended maintaining the same compensation amounts and structure as 2019, with the exception of the N&G Committee Chair which it recommended be increased from $10,000 to $15,000 given the increased focus on corporate governance by investors generally and the resulting increased time commitment by the N&G Committee Chair. However, Director compensation was temporarily decreased as detailed below following voluntary reductions to cash compensation in response to the precipitous drop in commodity prices and negative impacts to our business during the first quarter of 2020 as a result of the COVID-19 pandemic.
Annual Board and Committee Retainers
Subject to the 2020 pay reductions described below, each Non-Employee Director receives an annual cash retainer for service on the Board, which covers attendance at all Board and committee meetings. In addition, Non-Employee Directors receive an additional cash retainer to compensate them for the extra responsibilities associated with their roles. The 2020 Board and committee retainers are reflected in the following table (which does not give effect to the pay reductions described below).
| | | | | | |
|
| | Member |
| | Chair |
| | | Retainer |
| | Retainer |
Board | | $ | 100,000 | | $ | 100,000 |
Audit Committee | | | 10,000 | |
| 20,000 |
Compensation Committee | | | — | |
| 15,000 |
Nominating and Governance Committee | | | — | |
| 15,000 |
Compensation Actions in Response to COVID-19
As a result of the COVID-19 pandemic and the precipitous drop in commodity prices that followed, each Non-Employee Director took a voluntary 15% reduction in his or her annual cash retainer and any additional cash retainer beginning on April 1, 2020 and continuing through September 30, 2020. Further, our Non-Executive Chairman did not receive his additional chair retainer beginning on April 1, 2020 through September 30, 2020, resulting in a cumulative 50% reduction in his chair retainer for 2020.
On February 19, 2020, Mr. Ellis, the Non-Executive Chairman, was granted an award with an intended value of $175,000 in restricted stock units (“RSUs”) and the remaining Non-Employee Directors each received an award with an intended value of $140,000 in RSUs for their service on the Board. The RSUs were granted
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| PDCENERGY 2021 PROXY | 7 |
PDC ENERGY, INC. - PROXY STATEMENT
under our 2010 Equity Incentive Plan. The actual number of RSUs granted was determined based on the five-day average closing stock price ending the day prior to the date of grant. The RSUs vest on the one-year anniversary of the grant date (subject, generally, to the director not resigning or being removed for cause prior to the vesting date).
Prior to 2018, each Non-Employee Director had the option to defer all or a portion of his or her annual cash compensation and all or a portion of his or her eligible RSUs pursuant to the Non-Employee Director Deferred Compensation Plan (the “Deferred Comp Plan”). Effective December 31, 2017, the Compensation Committee amended the Deferred Comp Plan to prohibit future deferral elections of cash and/or RSUs into the plan, and no further amounts have been contributed to the Deferred Comp Plan. All compensation that was previously deferred pursuant to the Deferred Comp Plan will continue to be credited with hypothetical earnings and losses as if invested in common stock of the Company until such amounts are distributed. As of December 31, 2020, two Directors and our Director Emeritus had balances resulting from prior deferrals of cash director fees and/or equity compensation. The Board voted to terminate the Deferred Comp Plan on May 26, 2020. In connection with the termination, and in order to liquidate all funds remaining in the Deferred Comp Plan, the Company will make distributions to each of the two Directors and Director Emeritus with outstanding balances on or about June 1, 2021.
Compensation paid to the Non-Employee Directors for 2020 was as follows:
| | | | | | | | | |
|
| Fees |
| | |
| | | |
| | Earned | | | | | | | |
| | or Paid | | Stock | | | | ||
| | in Cash(1) | | Awards(2)(3) | | Total | |||
Name | | ($) | | ($) | | ($) | |||
Anthony J. Crisafio | | $ | 120,250 | | $ | 142,793 | | $ | 263,043 |
Mark E. Ellis | |
| 142,500 | |
| 178,486 | |
| 320,986 |
Christina M. Ibrahim | | | 106,376 | | | 142,793 | | | 249,169 |
Paul J. Korus | |
| 96,209 | |
| 142,793 | |
| 239,002 |
Randy S. Nickerson | |
| 92,500 | |
| 142,793 | |
| 235,293 |
David C. Parke | |
| 115,626 | |
| 142,793 | |
| 258,419 |
Lynn A. Peterson | | | 88,333 | | | 142,793 | | | 231,126 |
Jeffrey C. Swoveland(4) | |
| 110,861 | |
| 142,793 | |
| 253,654 |
(1) | Includes annual Board retainer, committee and committee chair retainers and the retainer for the Non-Executive Chairman of the Board and the effect of all 2020 voluntary reductions to such retainers noted above. |
(2) | Represents RSUs granted to our Non-Employee Directors. The RSU amounts reported in this table reflect the grant date fair value of the RSUs computed in accordance with FASB ASC Topic 718 based solely on the stock price on the date of grant. Such amounts differ slightly from the intended award amount described above. (The amounts do not reflect the actual amounts that may be realized by the Directors.) |
(3) | At December 31, 2020, the aggregate number of unvested RSUs outstanding for each Non-Employee Director were as follows: Mr. Crisafio – 7,285; Mr. Ellis – 8,877; Ms. Ibrahim – 7,285; Mr. Korus – 6,369; Mr. Nickerson – 7,285; Mr. Parke – 7,285; Mr. Peterson – 6,369; Mr. Swoveland – 7,514. Additionally, Mr. Peterson holds 66,906 PSUs, which were granted in connection with the SRC merger. |
(4) | Mr. Swoveland stepped down as Non-Executive Chairman of the Board on February 20, 2020. Following the 2020 Annual Meeting of Stockholders (the “2020 Annual Meeting”), in which Mr. Swoveland did not stand for re-election, he became a non-voting Director Emeritus for the Company for a period of one year from the 2020 Annual Meeting. Compensation includes cash and stock awards for service as Non-Executive Chairman and Director Emeritus during 2020. |
8 | PDCENERGY 2021 PROXY |
PDC ENERGY, INC. - PROXY STATEMENT
DIRECTOR STOCK OWNERSHIP REQUIREMENTS AND PROHIBITION ON CERTAIN TRANSACTIONS
Each Non-Employee Director is expected to hold shares of Company stock in an amount equal to at least five times his or her annual cash retainer ($500,000 for 2020). Compliance with ownership requirements is reviewed annually. Qualifying stock holdings include directly-owned shares and unvested RSUs, as well as stock equivalents held in the Deferred Comp Plan. Directors are expected to comply with the ownership guidelines within five years of their election to the Board. As of December 31, 2020, all of the Directors met or exceeded the ownership expectations under the guidelines, with the exception of Messrs. Nickerson and Korus and Ms. Ibrahim, each of whom are still within their respective compliance grace period. The Stock Ownership Guidelines can be reviewed on the Company’s website at www.pdce.com under “Corporate Governance.”
The Company’s Insider Trading Policy expressly prohibits Directors from short-term trading (purchasing and selling Company securities within a six-month period), short sales of Company securities, hedging or monetization transactions through financial instruments (such as prepaid variable forwards, equity swaps, collars and/or exchange funds), holding securities in margin accounts or pledging securities as collateral for loans, or engaging in other transactions that are intended to hedge against the economic risk of owning Company stock.
DIRECTOR QUALIFICATIONS AND SELECTION
The Board has adopted Director Nomination Procedures that describe the process the N&G Committee will use to evaluate nominees for election to the Board. The Director Nomination Procedures can be viewed on the Company’s website at www.pdce.com under “Corporate Governance.” The N&G Committee evaluates each candidate based on his or her level and range of experience and knowledge (industry-specific and general), skills, education, reputation, integrity, professional stature and diversity in terms of race, gender and ethnicity, as well as other factors that may be relevant depending on the particular candidate.
Additional factors considered by the N&G Committee include the size and composition of the Board at the time, and the benefit to the Company of a broad mixture of skills, experience and perspectives on the Board. The Director nomination process also includes consideration of the diversity provided by each candidate, and diversity is considered as part of the overall assessment of the Board’s functioning and needs. The N&G Committee also considers tenure and prioritizes continuous Board refreshment initiatives in the Director nomination process. One or more of these factors may be given more weight in a particular case at a particular time, although no single factor is viewed as determinative. The N&G Committee has not specified any minimum qualifications that it believes must be met by any particular nominee.
Most recently, the N&G Committee identifies potential Director nominees primarily through recommendations made by independent third-party search firms. The N&G Committee also considers recommendations made by Non-Employee Directors, employees, stockholders and others. All recommendations, regardless of the source, are evaluated on the same basis against the criteria contained in the Director Nomination Procedures. In November 2020, the Board engaged Russell Reynolds Associates to conduct a Director search, which resulted in the appointment of Ms. Sands and nomination of Mr. Sabater.
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| PDCENERGY 2021 PROXY | 9 |
PDC ENERGY, INC. - PROXY STATEMENT
STANDING COMMITTEES OF THE BOARD
The Board has a standing Audit Committee, Compensation Committee and Nominating and GovernanceN&G Committee. The Midstream Committee was dissolved on May 29, 2019. Actions taken by these committees are reported to the Board at its next meeting. During 2019,2020, each Director attended at least 75% of all meetings of the Board and committees of which he or she was a member. As specified in the Corporate Governance Guidelines, Directors are strongly encouraged, but not required, to attend the Annual Meeting. All of the Directors, who were directors of the Company at such time, attended the 2019 annual meeting of stockholders2020 Annual Meeting by phone held on May 29, 2019.26, 2020.
The non‑employeeNon-Employee Directors (“Non-Employee Directors”) generally meet in “executive session” in connection with each regularly scheduled Board meeting—i.e., without Mr. Brookman, the Company’s President and CEO, or other members of management present. The Non-Executive Chairman of the Board chairs these sessions; however, the other Non‑EmployeeNon-Employee Directors may, in the event of his absence, select another Director to preside over the executive session.
The following table identifies the members of each committee of the Board and the chair of each committee, and the number of meetings held in 2019.2020.
20192020 BOARD AND COMMITTEE MEMBERSHIPS
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| ||||
| |||||||||
DIRECTORS | Board of | Audit | Compensation | Nominating | Midstream Committee(1) | Board of | Audit | Compensation | Nominating |
Barton R. Brookman |
|
|
|
| |||||
Anthony J. Crisafio |
|
|
| | |||||
Mark E. Ellis(2) |
|
| | (3) | (4) | ||||
Christina M. Ibrahim |
| (3) | (4) | | |||||
Larry F. Mazza(5) |
|
|
| ||||||
Paul J. Korus(6) | |||||||||
Randy S. Nickerson |
| (6) | (7) | | |||||
David C. Parke |
| ||||||||
Jeffrey C. Swoveland(8) |
|
| |||||||
Lynn A. Peterson | (8) | ||||||||
Jeffrey C. Swoveland(9) | (10) | (11) | |||||||
Number of Meetings Held | 13 | 14(9) | 7 | 5 | 3 | 13 | 10 | 5 | 7 |
= Chairperson Member Chairman of the Board
(1) |
|
|
(2) |
| On February 20, 2020, Mr. Ellis was appointed Non-Executive Chairman of the Board. |
(3) | Mr. Ellis was a member of the Compensation Committee until his appointment as Non-Executive Chairman of the Board on February 20, 2020. |
(4) | On February 17, 2021, Mr. Ellis was appointed as Chairman of the N&G Committee. |
|
|
|
10 |
|
|
|
|
|
|
PDCENERGY 2020 PROXY 9
PDC ENERGY, INC. - PROXY STATEMENT
(5) |
|
(6) | On February 20, 2020, Mr. Korus was appointed to the N&G and Audit Committees. |
(7) | On February 2, 2021, Mr. Nickerson |
(8) | Mr. Peterson was appointed to the Compensation Committee |
(9) |
| Mr. Swoveland stepped down as Non-Executive Chairman of the Board on February 20, |
(10) |
| Mr. |
(11) | Mr. Swoveland served as a member of the |
The Audit Committee is composed entirely of persons whom the Board has determined to be independent under NASDAQ Listing Rule 5605(a)(2), Section 301 of the Sarbanes‑OxleySarbanes-Oxley Act of 2002, Section 10A(m)(3) of the Exchange Act and the relevant provisions of the Audit Committee Charter. The Board has adopted the Audit Committee Charter, which was most recently amended and restated on February 20, 2020 and is posted on the Company’s website at www.pdce.com under “Corporate Governance.” The Board has determined that all members of the Audit Committee qualify as “financial experts” as defined by SECSecurities and Exchange Commission (“SEC”) regulations. The Company’s website materials are not incorporated by reference into this Proxy Statement.
NOMINATING AND GOVERNANCE COMMITTEE
The Board has determined that all members of the Nominating and GovernanceN&G Committee (the “N&G Committee”) are independent of the Company under NASDAQ Listing Rule 5605(a)(2). The Board has adopted a N&G Committee Charter, which was most recently amended and restated on September 20, 2019 and is posted on the Company’s website at www.pdce.com under “Corporate Governance.” The Company’s website materials are not incorporated by reference into this Proxy Statement.
The Board has determined that all members of the Compensation Committee are independent of the Company under NASDAQ Listing Rules 5605(a)(2) and 5605(d)(2). The Board has adopted a Compensation Committee Charter, which was most recently amended and restated on September 20, 2019 and is posted on the Company’s website at www.pdce.com under “Corporate Governance.” The Company’s website materials are not incorporated by reference into this Proxy Statement.
10PDCENERGY 2020 PROXY
PDC ENERGY INC. - PROXY STATEMENT
Compensation Committee Interlocks and Insider Participation
None of the members of the Compensation Committee is or has been an officer of the Company, nor did any of them have any relationships requiring disclosure by the Company under Item 404 of Regulation S‑KS-K in 2019.2020. During 2019,2020, none of our executive officers served as a director or member of the Compensation
| | |
| PDCENERGY 2021 PROXY | 11 |
PDC ENERGY, INC. - PROXY STATEMENT
Committee (or other committee serving an equivalent function) orof any other entity whose executive officers served on our Compensation Committee or the Board.
AUDIT COMMITTEE |
| COMPENSATION COMMITTEE |
| NOMINATING AND GOVERNANCE COMMITTEE |
Responsibilities: ⦁ Monitors the integrity of the Company’s financial reporting process and systems of internal controls regarding finance, accounting and legal compliance; ⦁ Monitors the independence of the independent registered public accounting firm; and ⦁ Provides an avenue for communications among the independent registered public accounting firm, management and the Board. | Responsibilities: ⦁ Oversees the development of a compensation strategy for the Company’s Named Executive Officers; ⦁ Evaluates the performance of and establishes the compensation of the CEO; ⦁ Reviews and approves the elements of compensation for other senior executive officers of the Company; ⦁ Negotiates and approves the terms of employment and severance agreements with executive officers of the Company and approves all Company severance and change of control plans; ⦁ Reviews the Non-Employee Directors’ compensation and recommends to the Board any changes in such compensation; ⦁ Reviews and approves performance criteria and results for bonus and performance-based equity awards for senior executive officers and approves awards to those officers; ⦁ Recommends to the Board equity-based incentive plans necessary to implement the Company’s compensation strategy, approves equity grants under the plans and administers all equity-based incentive programs of the Company, which may include specific delegation to management to grant awards to non-executive officers; and ⦁ Reviews and approves Company contributions to Company sponsored retirement plans. | Responsibilities: ⦁ Assists the Board by identifying and recruiting individuals qualified to become Board members and recommending nominees for election at the next annual meeting of stockholders or to fill any vacancies; ⦁ Recommends to the Board and oversees development of corporate governance and ethics policies applicable to the Company; ⦁ Leads the Board in its annual self-assessment of the Board’s and its committees’ performance and the Directors’ contributions; and ⦁ Assists the Board in creating and maintaining an appropriate committee structure, and recommends to the Board the nominees for membership on, and Chair of, each committee, as well as the Non-Executive Chair position. |
Although the Board has no specific policy with respect to the separation of the offices of Chairman and CEO, the Board believes that our current leadership structure, under which Mr. Brookman serves as President and CEO and Mr. Swoveland through February 2020, and Mr. Ellis thereafter, serves as Non‑ExecutiveNon-Executive Chairman of the Board, is the appropriate structure for our Board at this time. Since June 2011, the roles of Chairman and CEO have been held by separate individuals. We currently believe that it continues to be beneficial to have an independent, separate Chairman who has the responsibility of leading the Board, allowing the CEO to focus on leading the Company. We believe our CEO and Chairman have an excellent working relationship, which, given the separation of their positions, provides strong Board leadership while positioning our CEO as
PDCENERGY 2020 PROXY 11
PDC ENERGY INC. - PROXY STATEMENT
the leader of the Company in front of our employees and stockholders. The Board evaluates this dividedseparated structure at least annually.
We compensate Directors with a combination of cash and equity‑based incentives to attract and retain qualified candidates to serve on our Board and to align Directors’ interests with those of our stockholders. In determining how to compensate our Directors, we consider the significant amount of time they spend fulfilling their duties, as well as the competitive market for skilled directors. Cash payments are paid quarterly and are pro-rated for partial years of service in a role. No compensation is paid to our CEO for his service on the Board.
Compensation for our Non‑Employee Directors is reviewed annually by the Compensation Committee and is approved by the Board. The Compensation Committee uses its independent compensation consultant to conduct this annual review, which includes board and committee retainers, meeting fees and equity-based awards using the same peer group used to determine executive compensation. See “Compensation Policies and Practices” and “Role of Independent Compensation Consultant” in the Compensation Discussion and Analysis section of this Proxy Statement. Based on this review for 2019, the Compensation Committee recommended maintaining the same compensation amounts and structure as 2018 as set forth below. Furthermore, the Compensation Committee has recommended the same compensation amounts and structure for 2020, with the exception of the Nominating and Governance Chair which it has recommended be increased to $15,000 given the increased focus on corporate governance by investors generally and the resulting increased time commitment by the Nominating and Governance Chair.
Annual Board and Committee Retainers
Each Non‑Employee Director receives an annual cash retainer of $100,000 for service on the Board, which covers attendance at all Board and committee meetings. In addition, the following Non-Employee Directors receive an additional cash retainer to compensate them for the extra responsibilities associated with their roles:
|
|
|
|
|
| Additional | |
|
| Retainer | |
Non-Executive Chairman |
| $ | 100,000 |
Audit Committee Member |
|
| 10,000 |
Audit Sub-Committee Member(1) |
|
| 5,000 |
| PDCENERGY 2021 PROXY |
Annual Committee Chair Retainers
The chair of each committee receives an additional annual retainer for his or her services as chair. The following table shows the chair retainers:
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|
|
|
|
| Committee | |
|
| Chair | |
COMMITTEE |
| Retainer | |
Audit |
| $ | 20,000 |
Compensation |
|
| 15,000 |
Nominating and Governance |
|
| 10,000 |
12PDCENERGY 2020 PROXY
PDC ENERGY, INC. - PROXY STATEMENT
On February 20, 2019, Mr. Swoveland, the Non‑Executive Chairman at that time, was granted an award with an intended value of $175,000 in restricted stock units (“RSUs”) and the remaining Non‑Employee Directors each received an award with an intended value of $140,000 in RSUs for their service on the Board. The RSUs were granted under our 2018 Equity Incentive Plan. The actual number of RSUs granted was determined based on the five‑day average closing stock price ending the day prior to the date of grant. The RSUs vest on the one-year anniversary of the grant date (subject to continued provision of service on the Board from the grant date through such date).
Prior to 2018, each Non-Employee Director had the option to defer all or a portion of his or her annual cash compensation and all or a portion of his or her eligible RSUs pursuant to the Non-Employee Director Deferred Compensation Plan (the “Deferred Comp Plan”). Effective December 31, 2017, the Compensation Committee amended the Deferred Comp Plan to prohibit future deferral elections of cash and/or RSUs into the plan, and no further amounts have been contributed to the Deferred Comp Plan. All compensation that was previously deferred pursuant to the Deferred Comp Plan will continue to be credited with hypothetical earnings and losses as if invested in common stock of the Company until such amounts are distributed. As of December 31, 2019, three Directors have balances resulting from prior deferrals of cash director fees and/or equity compensation.
Compensation paid to the Non‑Employee Directors for 2019 was as follows:
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|
|
|
|
|
|
|
|
|
|
| Fees |
|
|
|
|
|
| |
|
| Earned |
|
|
|
|
|
| |
|
| or Paid |
| Stock |
|
|
| ||
|
| in Cash(1) |
| Awards(2)(3) |
| Total | |||
DIRECTORS |
| ($) |
| ($) |
| ($) | |||
Anthony J. Crisafio |
| $ | 135,000 |
| $ | 151,151 |
| $ | 286,151 |
Mark E. Ellis |
|
| 100,000 |
|
| 151,151 |
|
| 251,151 |
Christina M. Ibrahim |
|
| 105,879 |
|
| 151,151 |
|
| 257,030 |
Larry F. Mazza(4) |
|
| 75,000 |
|
| 151,151 |
|
| 226,151 |
Randy S. Nickerson |
|
| 110,000 |
|
| 151,151 |
|
| 261,151 |
David C. Parke |
|
| 125,000 |
|
| 151,151 |
|
| 276,151 |
Jeffrey C. Swoveland(5) |
|
| 210,000 |
|
| 188,919 |
|
| 398,919 |
|
|
|
|
|
|
|
|
|
|
PDCENERGY 2020 PROXY 13
PDC ENERGY INC. - PROXY STATEMENT
DIRECTOR STOCK OWNERSHIP REQUIREMENTS AND PROHIBITION ON CERTAIN TRANSACTIONS
Each Non‑Employee Director is expected to hold shares of Company stock in an amount equal to at least five times his or her annual cash retainer ($500,000). Compliance with ownership requirements is reviewed annually. Qualifying stock holdings include directly‑owned shares and unvested RSUs, as well as stock equivalents held in the Deferred Comp Plan. Directors are expected to comply with the ownership guidelines within five years of their election to the Board. As of December 31, 2019, all of the Directors met or exceeded the ownership expectations under the guidelines, with the exception of Messrs. Nickerson and Ellis, both of whom were appointed to the Board in 2017 and are still within their compliance grace period, and Ms. Ibrahim, whose Board service commenced on January 1, 2018 and is also within her compliance grace period. The Stock Ownership Guidelines can be reviewed on the Company’s website at www.pdce.com under “Corporate Governance.”
The Company’s Insider Trading Policy expressly prohibits Directors from short‑term trading (purchasing and selling Company securities within a six‑month period), short sales of Company securities, hedging or monetization transactions through financial instruments (such as prepaid variable forwards, equity swaps, collars and/or exchange funds), holding securities in margin accounts or pledging securities as collateral for loans, or engaging in other transactions that are intended to hedge against the economic risk of owning Company stock.
DIRECTOR QUALIFICATIONS AND SELECTION
The Board has adopted Director Nomination Procedures that describe the process the N&G Committee will use to evaluate nominees for election to the Board. The Director Nomination Procedures can be viewed on the Company’s website at www.pdce.com under “Corporate Governance.” The N&G Committee evaluates each candidate based on his or her level and diversity of experience and knowledge (industry‑specific and general), skills, education, reputation, integrity, professional stature and other factors that may be relevant depending on the particular candidate.
Additional factors considered by the N&G Committee include the size and composition of the Board at the time, and the benefit to the Company of a broad mixture of skills, experience and perspectives on the Board. The Director nomination process also includes consideration of the diversity provided by each candidate, and diversity is considered as part of the overall assessment of the Board’s functioning and needs. The N&G Committee also considers tenure and prioritizes continuous Board refreshment initiatives in the Director nomination process. One or more of these factors may be given more weight in a particular case at a particular time, although no single factor is viewed as determinative. The N&G Committee has not specified any minimum qualifications that it believes must be met by any particular nominee.
The N&G Committee identifies Director candidates primarily through recommendations made by the Non‑Employee Directors. These recommendations are developed based on the Non‑Employee Directors’ knowledge and experience in a variety of fields and on research conducted by the Company at the N&G Committee’s direction. The N&G Committee also considers recommendations made by Directors, employees, stockholders and others, including search firms. All recommendations, regardless of the source, are evaluated on the same basis against the criteria contained in the Director Nomination Procedures. The N&G Committee has the authority to engage consultants to help identify or evaluate potential Director nominees, but did not do so in 2019.
The N&G Committee will consider Director candidates recommended by stockholders of the Company on the same basis as those recommended by other sources. Any stockholder who wishes to recommend a prospective Director nominee should notify the N&G Committee by writing to the N&G Committee at the
14PDCENERGY 2020 PROXY
PDC ENERGY INC. - PROXY STATEMENT
Company’s headquarters or by email to board@pdce.com. All recommendations will be reviewed by the N&G Committee. A submission recommending a nominee should include:
| Sufficient biographical information to allow the N&G Committee to evaluate the potential nominee in light of the Director Nomination Procedures; |
| An indication as to whether the proposed nominee will meet the requirements for independence under NASDAQ and SEC guidelines; |
| Information concerning any relationships between the potential nominee and the stockholder recommending the potential nominee; and |
| An indication of the willingness of the proposed nominee to serve if nominated and elected. |
Stockholders may nominate candidates for election to the Board. The Company’s Bylaws require that stockholders who wish to submit nominations for election to the Board at a meeting of stockholders follow certain procedures. See “Stockholder Nominations and Proposals—Advance Notice Procedures under the Company’s Bylaws” for a description of these procedures.
We believe that the Board has implemented a sound structure for the governance of the Company, including as a result of the following:
| Responsiveness to Stockholder Feedback: In 2019 and early 2020, we conducted a comprehensive engagement with our stockholders in order to better understand their views on compensation and corporate governance. In response to stockholder feedback, the Board made material changes to its 2020 executive compensation plan and |
● | Environmental, Social and Governance (“ESG”) Focus: We continue to place an emphasis on furthering our ESG progress and strategy and increasing transparency, including |
| Independent Board Leadership: |
| Majority Independent Directors: |
| Continuous Board Refreshment: Over |
| | |
| PDCENERGY 2021 PROXY | 13 |
PDC ENERGY, INC. - PROXY STATEMENT
| Strong Independent Oversight: The majority of the Company’s Directors have significant operating, financial, strategic and other relevant experience in the oil and gas |
| Share Ownership Requirement: Directors are required to hold a minimum number of shares of our common stock with a transition period for new directors. |
| Majority Voting Policy: Except in the case of a contested election, any director who receives more “withhold” votes than votes in favor must tender his or her resignation. |
PDCENERGY 2020 PROXY 15
PDC ENERGY INC. - PROXY STATEMENT
| Stockholder-called Special Meetings and Action by Consent: Stockholders that have ten percent combined voting power have the right to call special stockholders’ meetings and stockholders can act by written consent. |
| No Poison Pill: We do not have a poison pill. |
| One Vote per Share: The Company does not have any super-voting shares. |
CORPORATE GOVERNANCE GUIDELINES
The Board has adopted Corporate Governance Guidelines that govern the structure and function of the Board and establish the Board’s policies on a number of corporate governance issues. Among other matters, the Corporate Governance Guidelines address:
| Director selection, qualification and responsibilities; |
| The holding and frequency of executive sessions of independent directors, Board |
| Board committee structure and function; |
| Succession planning; and |
| Governance matters, standard of business conduct and Board committee responsibilities. |
The Corporate Governance Guidelines were most recently amended on September 20, 2019as of May 26, 2020 and can be viewed on the Company’s website at www.pdce.com under “Corporate Governance.”
The Corporate Governance Guidelines include an Uncontested Elections Policy (the “Policy”). Under the Policy, any nominee for Director in an uncontested election who receives a greater number of “withhold” votes than “for” votes will submit to the Board a letter of resignation for consideration by the N&G Committee. The N&G Committee will promptly consider the tendered resignation and will recommend to the Board whether or not to accept the tendered resignation or to take other action, such as rejecting the tendered resignation and addressing the apparent underlying causes of the “withhold” votes in a different way.
In making this recommendation, the N&G Committee will consider all factors deemed relevant by its members. These factors may include the underlying reasons for stockholders’ withholding of votes from such Director nominee (if ascertainable), the length of service and qualifications of the Director whose resignation has been tendered, the Director’s contributions to the Company, whether the Company will remain in compliance with applicable laws, rules, regulations and governing documents if it accepts the resignation and, generally, whether or not accepting the resignation is in the best interests of the Company and its stockholders. In considering the N&G Committee’s recommendation, the Board will take into account the factors considered by the N&G Committee and such additional information and factors as the Board believes to be relevant.
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CODE OF BUSINESS CONDUCT AND ETHICS
The Company has a Code of Business Conduct and Ethics (the “Code of Conduct”) that applies to all Directors, officers, employees, agents, consultants and representatives of the Company and is reviewed at least annually by the N&G Committee. The Company’s principal executive officer, principal financial officer and principal accounting officer are subject to additional specific provisions under the Code of Conduct. The Code of Conduct was most recently updated on September 20, 2019is reviewed and acknowledged annually by the Board and can be viewed on the Company’s website at www.pdce.com under “Corporate Governance.” In the event the Board approves an amendment to
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or a waiver of any provisions of the Code of Conduct, the Company will disclose the information on its website.
FAMILY RELATIONSHIPS AND OTHER ARRANGEMENTS
There is no family relationship among any Directors or executive officers of the Company. There are no arrangements or understandings among any Directors or officers and any other person pursuant to which the person was selected as an officer or Director of the Company, except with respect to Paul J. Korus and Lynn A. Peterson who were appointed to the Board following the closing of the merger with SRC in January 2020 pursuant to the related merger agreement.
In affirmatively determining whether a Director is “independent,” the Board analyzes and reviews NASDAQ listing standards, which set forth certain circumstances under which a director may not be considered independent. Mr. Brookman, the President and CEO of the Company, is not independent under such standards. Audit Committee and Compensation Committee members are subject to additional, more stringent independence requirements.
The Board has reviewed the business and charitable relationships between the Company and each Non‑EmployeeNon-Employee Director to determine compliance with the NASDAQ listing standards and to evaluate whether there are any other facts or circumstances that might impair a Non‑EmployeeNon-Employee Director’s independence. The Board has affirmatively determined that each of the Non‑EmployeeNon-Employee Directors was independent under NASDAQ Listing Rule 5605, the Exchange Act, and our Board committee charter requirements at all times while serving as a Non‑EmployeeNon-Employee Director.
THE BOARD’S ROLE IN RISK MANAGEMENT
In the normal course of its business, the Company is exposed to a variety of risks. The Company operates an enterprise risk management program which is designed to strengthen the consistency of risk consideration in making business decisions. The Board understands that it is not possible or desirable to eliminate all risk and that appropriate risk‑takingrisk-taking is essential in order to achieve the Company’s objectives.
The Board is responsible for general oversight of the risks of the Company, including overseeing risks related to the Company’s key strategic goals. While the entire Board is responsible for Company‑wideCompany-wide risk oversight, individual committees also have roles in risk review. The Audit Committee is the primary committee overseeing the risk management process and specifically reviews risks and related controls in areas that it considers fundamental to the integrity and reliability of the Company’s financial statements. The Compensation Committee considers the structure and size of the Company’s compensation plans to ensure the incentives therein are appropriately aligned with the Company’s risk management strategy, as described in this Proxy Statement. The Company believes the Board leadership structure supports its risk oversight function. Among other things, there is open and continuous communication between the Company’s management and the Directors.
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TRANSACTIONS WITH RELATED PARTIES
During 2019,2020, there was no transaction or series of transactions, nor is there any currently proposed transaction, involving an amount exceeding $120,000 in which the Company is or was a participant and in which any Director, executive officer, known holder of more than five percent of the Company’s voting securities, or any member of the immediate family of any of the foregoing persons, had or has a direct or indirect material interest for which disclosure is required under Item 404 of Regulation S‑K.S-K.
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POLICIES AND PROCEDURES WITH RESPECT TO TRANSACTIONS WITH RELATED PARTIES
The Board has adopted a written policy for the review, approval and ratification of transactions that involve related parties and potential conflicts of interest. The related‑partyrelated-party transaction policy applies to each Director and executive officer of the Company, any nominee for election as a Director, any security holder who is known to own more than five percent of the Company’s voting securities, any immediate family member of any of the foregoing persons and any corporation, firm or association in which one or more of the Company’s Directors or executive officers have a substantial interest.
Under our related‑partyrelated-party transaction policy, a related‑partyrelated-party transaction is a transaction or arrangement involving a related party in which the Company is a participant or that would require disclosure in the Company’s filings with the SEC as a transaction with a related party. The related party must disclose to the Audit Committee any potential related‑partyrelated-party transactions and must disclose all material facts with respect to such transaction and relationship. All related‑partyrelated-party transactions so disclosed will be reviewed by the Audit Committee. In determining whether to approve or ratify a transaction, the Audit Committee will consider the relevant facts and circumstances of the transaction, which may include factors such as the relationship of the related party to the Company, the materiality or significance of the transaction to the Company and the business purpose and reasonableness of the transaction, whether the transaction is comparable to a transaction that could be available to the Company from an unrelated party and the impact of the transaction on the Company’s business and operations.
OTHER CORPORATE GOVERNANCE DOCUMENTS
The Company’s website includes the following governance documents:
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COMMUNICATION WITH DIRECTORSTHE COMPANY BY STOCKHOLDERS
The Company values comprehensive engagement with its stockholders. Stockholders may communicate with the Company’s management by writing to the Company’s corporate headquarters or by emailing to IR@pdce.com, or with the Board or a committee of the Board by writingemailing to the attention of the Board or committee at the Company’s corporate headquarters or by emailing the Board at board@pdce.com with “Board Communication” or the appropriate Board committee indicated in the subject line.
The Company files annual, quarterly and current reports, proxy statements and other information with the Securities and Exchange Commission (“SEC”).SEC. Copies of the Company’s SEC filings are available at http://www.sec.gov and through a link from the Company’s website at www.pdce.com. The Company’s website materials are not incorporated by reference into this Proxy Statement.
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PROPOSAL NO. 3—ELECT TWO CLASS I
2—APPROVE, ON AN ADVISORY BASIS, THE COMPENSATION OF THE COMPANY’S NAMED EXECUTIVE OFFICERS
THE BOARD OF DIRECTORS IFUNANIMOUSLY RECOMMENDS A VOTE “FOR” THE RESOLUTION SET FORTH IN THIS PROPOSAL NO. 1 IS NOT APPROVED
IF PROPOSAL NO. 1 IS NOT APPROVED, THE BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE ON THE PROXY CARD AND VOTING INSTRUCTION FORM “FOR” THE ELECTION OF EACH OF LYNN A. PETERSON AND DAVID C. PARKE AS CLASS I DIRECTORS.2. PROPERLY SUBMITTED PROXIES SOLICITED BY THE BOARD WILL BE SO VOTED UNLESS STOCKHOLDERS SPECIFY A CONTRARY VOTE.
The Company’s stockholders will be asked to vote on this Proposal No. 3 solely in the event that at the Annual Meeting the Company’s stockholders do not approve the Declassification Amendment described in Proposal No. 1. If the Company’s stockholders approve the Declassification Amendment, then the Company will amend its Certificate of Incorporation to eliminate its classified Board by filing the applicable Certificate of Amendment with the Secretary of State of the State of Delaware during the Annual Meeting as described above, and the stockholders will proceed to vote on Proposal No. 2 and not this Proposal No. 3. If, however, the Company’s stockholders do not approve the Declassification Amendment, a vote will be taken on this Proposal No. 3.
If the stockholders do not approve the Declassification Amendment described in Proposal No. 1, Lynn A. Peterson and David C. Parke are nominated for election to serve a three-year term each as a Class I director subject to re-election at the 2023 annual meeting.
ACCORDINGLY, THE BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THE ELECTION OF THE TWO NOMINEES TO SERVE AS CLASS I DIRECTORS.
The appointed proxies will vote your shares in accordance with your instructions on the proxy card and for the election of the two nominees to serve as Class I Directors unless you withhold your authority to vote for one or more of them. The Board does not contemplate that either of the Class I Director nominees will become unavailable for any reason; however, if either of the Class I Director nominees is unable to stand for election, the Board may reduce the size of the Board or select a substitute. Your proxy cannot otherwise be voted for a person who is not named in this Proxy Statement as a candidate to serve as a Class I Director or for a greater number of persons than the number of Class I Director nominees named if a vote is taken on this Proposal No. 3. The Class I Directors will be elected by an affirmative vote of a plurality of the outstanding common shares. Abstentions and broker non-votes will have no effect on the election of Class I Directors.
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PROPOSAL NO. 4—APPROVE, ON AN ADVISORY BASIS,THE COMPENSATION OF THE COMPANY’S NAMEDEXECUTIVE OFFICERS
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” THE RESOLUTION SET FORTH IN THIS PROPOSAL NO. 4. PROPERLY SUBMITTED PROXIES SOLICITED BY THE BOARD WILL BE SO VOTED UNLESS STOCKHOLDERS SPECIFY A CONTRARY VOTE.
The stockholders of the Company are entitled to cast a non‑bindingnon-binding advisory vote at the Annual Meeting on the compensation of the Company’s Named Executive Officers. While this vote is non‑binding,non-binding, the Board and the Compensation Committee value the opinions of our stockholders and take into consideration the outcome of the vote in connection with their ongoing evaluation of the Company’s executive compensation program. The Company has determined to hold this advisory, “say‑on‑pay”“say-on-pay” vote annually, consistent with the stated preferences of our stockholders and with the results of our 2017 Annual Meeting of Stockholders where the majority of the votes cast were in favor of an annual advisory vote. The next non‑bindingnon-binding advisory vote regarding such frequency will be held at the 20222023 Annual Meeting of Stockholders, in accordance with SEC rules.
As described more fully under “Compensation Discussion and Analysis” below, the Company’s executive compensation program is designed to attract, motivate and retain individuals with the skills required to formulate and drive the Company’s strategic direction and achieve the annual and long‑termlong-term performance necessary to create stockholder value. The program also seeks to align executive compensation with stockholder value on an annual and long‑termlong-term basis through a combination of base pay, annual incentives and long‑termlong-term incentives.
The Company’s practice of targeting the median in compensation and placing a significant portion of each Named Executive Officer’s compensation at-risk demonstrates its pay‑for‑performancepay-for-performance philosophy. In 2019, 86%2020, 87% of our CEO’s compensation and 79%82% of the compensation of our Named Executive Officers’ compensationCFO, EVP – Corporate Development and Strategy, and General Counsel was made up of “at-risk” components.
Each of the Named Executive Officers has been granted significant equity awards, including awards subject to annual vesting over a three-year period and performance share units subject to a three-year performance period, to provide a stake in the Company’s long‑termlong-term success. The Company also has demanding Stock Ownership Guidelines applicable to its Named Executive Officers. The Company believes that this “tone at the top” guides the Company’s other officers and management personnel to obtain and maintain meaningful ownership stakes in the Company.
The Compensation Committee considers the results of the non-binding “say on pay” vote of our stockholders in making prospective compensation decisions. At our 2019 annual meeting of stockholders, approximately 76%2020 Annual Meeting, over 95% of the votes cast approved, on an advisory basis, the compensation of our Named Executive Officers. Based onNotwithstanding the 2019 “say-on-pay” results and the discussions we had with approximately 85% of our stockholders as part of the 2019 proxy process and through general discussions with stockholders during the remainder of 2019, the Compensation Committee concluded that we needed to make certain changes topositive support for our compensation programs to better align with the expectations of our stockholders. As such, for 2019 we modified our annual incentive program to eliminate the purely discretionary nature of the program, in effect for prior yearsresponse to shareholder feedback received throughout 2019 and established an equal-weighting payment structure where 50% of the annual incentive is determined strictly by formula based on quantitative metrics, with the remaining 50% based on qualitative performance metrics. In addition, our 2019 quantitative metrics are designed to more closely align with stockholder values. Forearly 2020 we further modified our compensation programsthe program in 2020 to (i) increase the portion of our annual incentive program for our NEOsNamed Executive Officers that is determined strictly by formula metrics from 50% to 75%, (ii) adjust the weighting of our long-term incentive program weighting for our CEO from 50% performance stock units (“PSUs”)
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and 50% time-based RSUs to 60% PSUs and 40% RSUs, and (iii) add an absolute total stockholder return modifier to our 2020 PSU grantsgrants. In addition, in response to the precipitous drop in commodity prices and negative impacts to our business during the first quarter of 2020 as a result of the COVID-19 pandemic, the Board instituted a 15% reduction in base salary for our NEOs. See “2020 Compensation Program Changes.”Named Executive Officers beginning May 16, 2020 and continuing through October 3, 2020.
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PDC ENERGY, INC. - PROXY STATEMENT
In light of the foregoing, the Company believes that the compensation of the Named Executive Officers is appropriate and reasonable, and that its compensation programs and practices are sound and in the best interests of the Company and its stockholders. Stockholders are being asked to vote on the following resolution:
RESOLVED, that the Company’s stockholders approve, on an advisory basis, the compensation of the Company’s Named Executive Officers, as disclosed pursuant to Item 402 of Regulation S‑K,S-K, including the “Compensation Discussion and Analysis,” compensation tables and narrative disclosure in this Proxy Statement for the Company’s 20202021 Annual Meeting.
This advisory vote will be approved if it receives the affirmative vote of a majority of shares of common stock of the Company present or represented at the Annual Meeting and entitled to vote on this proposal. Abstentions will be counted as votes against this proposal. Broker non‑votesnon-votes will not affect the outcome of this proposal.
The current executive officers of the Company, their principal occupations for the past five years and additional information is set forth below.
BARTON R. BROOKMAN, 57,58, joined the Company in 2005 and currently serves as Director, President and CEO. See biographical information concerning Mr. Brookman on page 5.3.
LANCE A. LAUCK, 57,58, joined the Company in August 2009 as Senior Vice President Business Development and was named Executive Vice President Corporate Development and Strategy in January 2015. Mr. Lauck has overall responsibility for PDC’s business development, acquisitions and divestitures, strategic planning, corporate risk, reserves and midstream and marketing. Previously, Mr. Lauck served as Vice President—Acquisitions and Business Development for Quantum Resources Management LLC from 2006 to 2009. From 1988 until 2006, Mr. Lauck worked for Anadarko Petroleum Corporation, where he initially held production, reservoir and acquisition engineering positions before being promoted to various management level positions in the areas of acquisitions and business development, ending his service as General Manager, Corporate Development. From 1984 to 1988, Mr. Lauck worked as a production engineer for Tenneco Oil Company. Mr. Lauck graduated from the University of Missouri‑RollaMissouri-Rolla in 1984 with a Bachelor of Science degree in Petroleum Engineering.
R. SCOTT MEYERS, 45,46, a CPA, joined the Company in March 2009, and was named Chief Accounting Officer in April 2009 and Chief Financial Officer in January 2018. Prior to joining the Company, Mr. Meyers served as a Senior Manager with Schneider Downs Co., Inc., an accounting firm based in Pittsburgh, Pennsylvania, from 2008 to 2009, and PricewaterhouseCoopers LLP from 2002 to 2008. Mr. Meyers holds a Bachelor of Science degree in Accounting from Grove City College, Pennsylvania.
SCOTT J. REASONER, 59, joined the Company in April 2008 as Vice President of Western Operations and was named Chief Operating Officer in January 2017. Mr. Reasoner has over 30 years of technical and management experience in the energy industry. Before joining PDC, he served as a Business Unit Manager with Noble Energy Inc. from 2005 to 2008, where he was responsible for the Mid‑Continent team. Prior to his work with Noble Energy, Mr. Reasoner worked for
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Patina Oil and Gas Company as Production Manager and later as Vice President Operations. His earlier experience includes positions with Snyder Oil Corporation and Vessel Oil and Gas Company. Mr. Reasoner graduated from of the Colorado School of Mines with a degree in Petroleum Engineering, has earned an MBA from the University of Colorado, and is a Registered Professional Engineer.
NICOLE L. MARTINET, 43,44, joined the Company in March 2011 as Associate General Counsel and Vice President, serving in that position for eight years. In January 2019, Ms. Martinet was named General Counsel, Senior Vice President and Corporate Secretary. Prior to joining PDC, she served as an associate in the Corporate Finance and Acquisitions group at Davis Graham & Stubbs LLP in Denver from 2006 to 2011. Ms. Martinet received her Juris Doctor from the University of Denver, Sturm College of Law, where she graduated in 2005 with Order of St. Ives and served on the Denver University Law Review. Ms. Martinet has over 2022 years of professional experience and holds a
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Bachelor of Science in Economics and French and Francophone Studies from Santa Clara University in California.
JOHN A. DELAWDER, 59, joinedDAVID J. LILLO, 56, was appointed as a member of the Senior Management Team for the Company in April 2006 as Director of Human Resources andSeptember 2020. He was appointedpromoted to Senior Vice President, Corporate AdministrationOperations in January 2019.March 2019 after joining the Company as Vice President, Operations in September 2015. Mr. Lillo has over 32 years of experience in exploration, production, and operations engineering management. Prior to joining the Company, Mr. Lillo was with Bonanza Creek Energy from 2013-2015 serving as Senior Vice President of Production & Operations, after being promoted from VP, Rocky Mountain Asset Management over the Rocky Mountain and Mid-Continent assets. From 2005-2013, Mr. Lillo held numerous positions with Noble Energy, Inc. including Development and Operations Manager, Manager of Major Projects and Infrastructure, and District Manager for the DJ Basin. Prior to that, he servedwas with Patina Oil and Gas Corporation from 1998-2005, serving in a varietypositions of vice president level human resourcesincreasing responsibility, including Operations Manager and District Production Manager overseeing Wattenberg operations. Prior to 1998, Mr. Lillo held several operational and technical positions for various companies with the Company, beginningoperations in July 2009.Kansas, North Dakota, and California. Mr. DeLawder has over 35 years of professional experience. Mr. DeLawder earnedLillo holds a Bachelor of Science degree in Business Administration with an emphasis in Personnel ManagementPetroleum Engineering from West Virginia University, and his career includes human resources, operations, facilities management and communications experience in the energy, government contracting, high-tech and manufacturing sectors.Colorado School of Mines.
Messrs. Brookman and Lauck were executive officers of the Company in September 2013, when each of twelve partnerships for which the Company was the managing general partner filed for bankruptcy in the federal bankruptcy court, Northern District of Texas, Dallas Division. Messrs. Brookman, Lauck and Reasoner were executive officers of the Company in September 2016, when two other partnerships, for which the Company also served as the managing general partner, filed for bankruptcy in the same federal bankruptcy court. With the exception of Ms. Martinet and Mr. DeLawder,Lillo, each of the above were executive officers of the Company in October 2018, when two additional partnerships, for which the Company also served as managing general partner, filed for bankruptcy in the same federal bankruptcy court. All partnerships for which the Company was the managing general partner have been settled.
The Compensation Committee of the Board of Directors of the Company has reviewed and discussed the following Compensation Discussion and Analysis with management and, based on its review and discussions, recommends its inclusion in this Proxy Statement.
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| David C. Parke, Chair |
| Christina M. Ibrahim Randy S. Nickerson |
| Lynn A. Peterson |
| COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS |
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COMPENSATION DISCUSSION AND ANALYSIS
In establishingDuring 2020, the Company’s compensationCOVID-19 pandemic presented unprecedented challenges, including the resulting drop in commodity prices which forced the Company to quickly shift its operational and strategic focus. The Company implemented new health and safety protocols, including adjusting to a full time remote work program for most employees. Despite these challenges, the Company successfully met its 2020 financial, operational and strategic goals as highlighted in more detail throughout this Compensation Discussion and Analysis (“CD&A”). As such, the Compensation Committee (referred to in this section as the “Committee”) decided to appropriately compensate its employees, including our Named Executive Officers, as further described below.
In establishing the Company’s compensation program, the Committee continuously considers feedback from the Company’s stockholders and its compensation consultant and strives to adhere to compensation best practices. As such, this Compensation Discussion and Analysis (“CD&A”)&A illustrates the evolution of the Company’s compensation program and provides stockholders with an understanding of our compensation philosophy, objectives, policies and practices in place during 2019,2020, as well as the factors considered by the Committee in making compensation decisions. This CD&A focuses on the 20192020 compensation of our President and Chief Executive Officer (“CEO”), our Chief Financial Officer (“CFO”), and our three other most highly compensated executive officers. This CD&A also includes our former Senior Vice President, Chief Operating Officer who would have been among the most highly compensated executive officers had he still been employed by the Company at year end. The individuals described above are identified by name and title in the chart below and are collectively referred to throughout this Proxy Statement as our “Named Executive Officers,” or “NEOs”:
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Barton R. Brookman | President and Chief Executive Officer |
R. Scott Meyers | Senior Vice President—Chief Financial Officer |
Lance A. Lauck | Executive Vice President—Corporate Development and Strategy |
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Nicole L. Martinet | Senior Vice President—General Counsel and Secretary |
David J. Lillo(1) | Senior Vice President—Operations |
Scott J. Reasoner(2) | Former Senior Vice President—Chief Operating Officer |
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(1) Mr. Lillo was appointed to the Senior Management Team in September 2020. (2) On August 31, 2020, Mr. Reasoner retired as Senior Vice President—Chief Operating Officer. For a description of the amounts paid in connection with his retirement, see “Potential Payments upon Termination or Change of Control—Reasoner Retirement Agreement.” |
Response to COVID-19 Pandemic
In response to the COVID-19 pandemic and precipitous drop in commodity prices, resulting in negative impacts to our business during the first quarter of 2020, the Committee took the following actions:
● | Temporarily reduced salaries for over 40% of Company employees, including a 15% reduction in base salaries for NEOs beginning May 16, 2020 and continuing through October 3, 2020; |
● | Temporarily reduced annual cash retainers for our Non-Employee Directors by 15% beginning April 1, 2020 and continuing through September 30, 2020; |
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● | Temporarily eliminated the Non-Executive Chairman’s additional chair retainer beginning April 1, 2020 through September 30, 2020, resulting in a cumulative 50% reduction in his chair retainer for 2020; and |
● | Made the following changes to our 2020 short-term incentive program: |
o | Modified the quantitative metrics by removing four metrics previously approved in February 2020 (free cash flow margin, LOE and G&A per BOE, production and capital efficiency) and replacing them with three new metrics that were more appropriate measuring performance in light of the COVID-19 pandemic, our drastic cut in capital spending, lower commodity prices and our overall changed operational plans (absolute free cash flow, absolute LOE and G&A, and leverage ratio); and |
o | Reduced the quantitative metric payouts from 100% to 50% for target performance and 200% to 100% for above target performance. |
2020 Business Highlights
ResultsDespite the numerous challenges in 2020 due to the COVID-19 pandemic, the Company successfully integrated the assets, people and processes of 2019 Say-On-Pay VoteSRC, while continuing to develop its two premier U.S. onshore assets in the core Wattenberg Field and Stockholder Engagement
We heldDelaware Basin. The Company generated significant free cash flow in 2020 improving our annual advisory vote on our executive compensation program atbalance sheet through the 2019 annual stockholder meeting. PDC has historically received strong stockholder support of its executive compensation programs, averaging 95% approval on its “say-on-pay” votes over the prior three years (2016-2018). In 2019, however, we received only 76% support following a contested director election. Consequently, we conducted a comprehensive engagement with approximately 85%reduction of our stockholdersabsolute debt level. The Company also further enhanced its focus on ESG initiatives and commitment to understand their views on compensationbest-in-class environmental and tosafety practices and consistent stakeholder engagement.
Key highlights and achievements in 2020 are illustrated and further understand the drivers behind the lower support we received. Outlined in the table below is a summary of what we heard and how we have responded.described below:
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2020 Key Compensation Actions and Outcomes
The Evolution of Our Compensation Program Design is ResponsiveIn 2020, the Committee implemented the following key design changes to Stockholder Concerns as Well as Market and Business Trends
Based on stockholder feedback and our analysis of market and business trends, we have made a number of changes over the years to ensure ourexecutive compensation program remains responsive to stockholder concernsdesign:
● | Utilized a more formulaic approach to the annual cash incentive program based on 75% quantitative metrics and 25% qualitative performance goals; |
o | added absolute free cash flow, absolute LOE and G&A, and leverage ratio as quantitative metrics; |
o | removed adjusted cash flow/debt adjusted share, free cash flow margin, capital efficiency and production as quantitative metrics from 2019; |
o | in response to the COVID-19 pandemic, the Committee reduced payout opportunities from 100% to 50% for target performance and 200% to 100% for above target performance; |
● | Increased weighting of PSUs for the CEO from 50% to 60%, with long-term equity awards granted in the form of RSUs comprising the remaining 40%; and |
● | Adopted an absolute stock price modifier and payout cap to PSUs to better align with absolute stockholder performance. |
The Committee made the following pay outcome determinations for our NEOs for fiscal year 2020:
● | The Committee kept base salaries flat year over year, other than for Ms. Martinet, whose salary was increased to bring it closer to the market median as the number of years in her role increases; and |
● | The Compensation Committee kept target bonus percentages and long-term incentive amounts flat year over year, other than for Mr. Meyers and Ms. Martinet, who received modest increases in both categories to bring them closer to the market median. |
In February 2021, our Compensation Committee evaluated the Company’s 2020 financial, operational and market conditions. New quantitative compensation metrics for 2020 are highlightedstrategic accomplishments in blue.determining the following pay outcomes:
● | A 2020 annual cash incentive payout at 96% of target; and |
● | 2018 PSU awards ranked at the 65th percentile of peers, which would ordinarily correlate to a 138% payout based on PDC’s relative three-year TSR performance. This award, however, was reduced to 100% of target due to the negative stock price returns over the three-year period. The value realized, based on a 2020 year-end stock price of $20.53, represented 40% of the targeted grant date value. |
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Compensation Best Practices
We believe our executive compensation program is aligned with current governance trends, and contains stockholder‑friendlystockholder-friendly features as outlined below:
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Our Practices | Practices We Have Not Implemented | |
✓Pay for Performance—Our NEOs’ total compensation is heavily weighted toward ✓Executive Ownership Guidelines—We have Stock Ownership Guidelines for our executives and directors that are consistent with what we believe to be corporate governance best practices. ✓External Benchmarking—We assess competitors’ compensation data based on an appropriate group of peers and other relevant survey data prior to making any compensation decisions. ✓ ✓Clawback Policy—We have clawback provisions in place in the event of a restatement of all or a portion of our financial statements due to material noncompliance with financial reporting requirements under securities laws. ✓Compensation Doesn’t Encourage Excessive Risk—There is an appropriate balance between ✓Independent Compensation Consultant—We have engaged an independent ✓Independent Compensation Committee—Our Committee is comprised solely of independent directors. | | ✘No Golden Parachute Excise Tax ✘No New Employment Contracts and/or Excessive Severance Benefits—We no longer provide employment contracts to new executives (Mr. Lauck is our only remaining executive with a grandfathered contract). Severance benefits under both our severance plan and employment ✘No Excessive Perquisites—We provide only modest perquisites that are consistent with peer companies in our industry. ✘No Repricing—We do not permit repricing of underwater stock options/SARs without stockholder approval. ✘Prohibited Transactions—Hedging transactions, short selling, |
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Responsiveness to Stockholder Interests and Market Environment
Business Strategy and 2019 Business Highlights
Business Strategy
Our long-term business strategy focusesAt our 2020 Annual Meeting, over 95% of the votes cast approved, on being a responsible and respected provider of energy while generating stockholder value throughan advisory basis, the exploration and development of crude oil and natural gas properties. We leverage technology and innovation to increase operational efficiencies and prioritize health, safety and the environment. We are focused on the growthcompensation of our cash flows, productionNamed Executive Officers. Based on stockholder feedback and reserves, primarily through developmentour analysis of our existing leasehold, but also through acquisitionmarket and acreage swap opportunities. Our drilling plan is designed to achieve repeatable results and attractive returns on investment inbusiness trends, we have made a rangenumber of commodity price environments.
2019 Business Highlights
In 2019,changes over the Company focused on the continued development of its two premier U.S. onshore assets in the core Wattenberg Field and Delaware Basin. In addition to an ongoing focus on improving our capital efficiencies through long-lateral drilling and reduced drilling and completion times, the Company’s strategy centered itself around generating free cash flow to improve its balance sheet and returning capital to stockholders through its share repurchase program. The Company believes its strategic combination with SRC, which was announced in August 2019 and consummated in January 2020, further strengthens its ability to successfully achieve and improve upon these strategic initiatives for years to come. Key highlights and achievements in 2019 are illustrated and further described below:
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Financial Highlights:
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2019 Key Changes to Executive Compensation and Corporate Governance:
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2019 Key Compensation Outcomes
In February 2020, our Compensation Committee evaluated the Company’s 2019 financial, operational and strategic accomplishments in determining the following pay outcomes. These actions were taken prior to severe crude oil market downturn caused by COVID-19 and the Saudi-Russian oil price war. The Committee is continuing to evaluate these developments and the Company’s 2020 Board and executive compensation outcomes (which will be described in next year’s proxy statement) may be further modified given the current environment.
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Pay for Performance
Our executive compensation program is designedremains responsive to align Company performance with the interests of our stockholders. The majority of our executives’ pay isstockholder feedback and evolving market conditions. We also continue to move towards a more formulaic bonus program, eliminating discretion, to establish a methodology strictly tied to the short- and long-termachievement of performance of the Company and our absolute and relative stock price performance. The following table illustrates the alignment of pay and performance by comparing our CEO’s targeted compensation opportunity awarded in each of the last three years against the realizable value of those opportunities as of December 31, 2019.metrics.
PDCENERGY 2020 PROXY 29
PDC ENERGY INC. - PROXY STATEMENT
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EXECUTIVE COMPENSATION PHILOSOPHY
The principal tenets of our compensation philosophy are as follows:
| Our executive compensation programs should be designed to align our executives’ interests with those of our stockholders. We continue to evolve our executive compensation programs to meaningfully address stockholder feedback and adopt best practices. A substantial portion of our NEOs’ compensation is provided in the form of |
| Our executive compensation programs should be competitive with our peers to attract, retain and reward effective leaders. We evaluate the range of current industry compensation practices to provide external benchmarks that help to guide our executive compensation structure. We determine individual total compensation targets within this framework to provide compensation that correlates with the compensation of the Company’s peers. Generally, we target total compensation around the median level for similar positions at comparable companies, unless specific circumstances warrant otherwise. |
| Our executive compensation programs should be designed to support a |
24 | PDCENERGY 2021 PROXY |
PDC ENERGY, INC. - PROXY STATEMENT
| Our executive compensation programs should encourage appropriate risk management. We believe that effective leadership in the oil and gas business requires taking prudent, but not excessive, business risks. To encourage this balance, we have structured our compensation programs to include |
30PDCENERGY 2020 PROXY
PDC ENERGY INC. - PROXY STATEMENT
2019 COMPENSATION PROGRAM DESIGN AND DECISIONS
Components and Purpose of Executive Compensation Program
Our executive compensation program is comprised of the following primary compensation elements:
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PDCENERGY 2020 PROXY 31
PDC ENERGY INC. - PROXY STATEMENT
2019 Compensation Mix
By design, a significant portion of our executive officers’ compensation is performance-based. The following graphic shows the targeted fixed and variable or “at-risk” components of compensation awarded to our NEOs as a percentage of their total direct compensation for 2019. Eighty-six percent of our CEO’s compensation and 79% of our NEOs’ (excluding our CEO’s) compensation was made up of variable or “at-risk” components.
The charts above are based on 2019 base salaries, target bonus amounts with respect to 2019 annual cash incentive awards and the target values of the 2019 grants of performance-based PSUs and time-based RSUs. The amounts actually realized by our NEOs with respect to these awards will depend on a variety of factors including the level of attainment of the relevant performance goals and the extent of vesting of PSUs and RSUs and the value of our stock when the PSUs and RSUs vest. These charts are not a substitute for the “Summary Compensation Table” below, which includes amounts supplemental to target total direct compensation.
Base Salaries
In determining base salary adjustments for 2019, the Committee considered the market data provided by its independent compensation consultant (see “Role of Independent Compensation Consultant” below), the role of each individual NEO, inflation and the recommendations of the CEO based on individual and Company performance. Based on the foregoing, in February 2019, we approved adjustments in base salary for each of the NEOs, other than Mr. Brookman. The adjustment for Mr. Meyers reflects his recent promotion and the Compensation Committee’s determination to bring his base salary closer to the market median over time, as the number of years in his new role increase. End of year base salaries for our NEOs are as follows:
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NAMED EXECUTIVE OFFICER |
| 2018 |
| 2019 | ||
Barton R. Brookman |
| $ | 850,000 |
| $ | 850,000 |
R. Scott Meyers(1) |
|
| 370,000 |
|
| 425,000 |
Lance A. Lauck |
|
| 435,000 |
|
| 455,000 |
Scott J. Reasoner |
|
| 425,000 |
|
| 455,000 |
Nicole L. Martinet(2) |
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| N/A |
|
| 325,000 |
|
32PDCENERGY 2020 PROXY
PDC ENERGY INC. - PROXY STATEMENT
Annual Incentive Awards
Bonuses under the Company’s 2019 annual incentive program were based 50% on a strict formulaic determination of the level of achievement of quantitative operational and financial metrics established by the Compensation Committee in the first quarter of the year and 50% based on the Compensation Committee’s assessment of the Company’s achievement of qualitative corporate goals. See “2019 Performance Metrics – Quantitative and Qualitative.”
Throughout the year, the Committee reviews the Company’s progress toward meeting the quantitative metrics and qualitative goals for the year. Following the end of the fiscal year, the Committee determines an overall Company performance rating based on the metrics and goals. Individual awards may be adjusted upward or downward at the Committee’s discretion based on individual performance. Such individual adjustments are anticipated to have a maximum range of +/−20%.
Target Bonus Amounts
The Committee sets a target annual cash incentive award for each NEO expressed as a percentage of base salary. Actual awards can range from 0% ‑ 200% of the targets depending on the payout percentage achieved and any individual performance adjustment. In February 2019, based upon its review of peer compensation data, the Committee decided to increase Mr. Brookman’s target annual cash incentive while keeping his annual base salary flat, to increase the portion of his total direct compensation opportunity that is variable and subject to performance. The 2019 target annual cash incentive award levels for each NEO are as follows:
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NAMED EXECUTIVE OFFICER |
| 2018 |
| 2019 |
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Barton R. Brookman |
| 100 | % | 115 | % |
R. Scott Meyers(1) |
| 80 | % | 80 | % |
Lance A. Lauck |
| 90 | % | 90 | % |
Scott J. Reasoner |
| 90 | % | 90 | % |
Nicole L. Martinet(2) |
| — |
| 70 | % |
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PDCENERGY 2020 PROXY 33
PDC ENERGY INC. - PROXY STATEMENT
2019 Performance Metrics – Quantitative and Qualitative
In early 2019, we established specific quantitative targets and weightings for the operational and financial metrics used for the formulaic portion of the annual incentive program based on our 2019 budget and operating plans. These metrics are used to ensure we balance operational objectives with capital discipline. During 2019, we also developed the qualitative corporate goals that we used for the qualitative portion of the annual incentive plan. The quantitative performance metrics and qualitative performance goals used in 2019 were as follows:
2019 CORPORATE METRICS METHODOLOGY
The Committee generally reserves the right to adjust the quantitative metrics for certain adjustments pre-approved by the Committee at the time the 2019 quantitative metrics were established, including but not limited to, unexpected business events such as acquisitions/dispositions, capital markets transactions, legal settlements or similar events, as further described in “2019 Results on Quantitative Metrics” below. We believe that the NEOs are compensated for stock price performance through the Company’s long‑term equity incentive program and not through their annual bonus; however, the Committee may also consider absolute stock price performance in determining the qualitative portion of the annual incentive program for the year.
34PDCENERGY 2020 PROXY
PDC ENERGY INC. - PROXY STATEMENT
2019 Results on Quantitative Metrics
In early 2020, the Committee reviewed the Company’s 2019 performance relative to the quantitative operational and financial metrics described above, and determined that the metrics were achieved at 104% of target, as follows:
2019 QUANTITATIVE CORPORATE METRICS
* Actual performance was modified for certain adjustments approved by the Committee at the time the 2019 quantitative metrics were established, as follows:
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PDCENERGY 2020 PROXY 35
PDC ENERGY INC. - PROXY STATEMENT
2019 Assessment on Qualitative Metrics
Based on its review and measurement of the following 2019 qualitative goals, the Committee determined that the Company achieved 13 of 14 of the strategic priorities as set forth below, demonstrating significant accomplishments during the year.
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Based on the Company’s quantitative and qualitative achievements, the Committee awarded an overall Payout Percentage under the annual incentive plan of 104% of target.
2019 Bonus Awards
In determining the individual cash incentive awards, the Committee generally felt that management achieved the results as a team and each was instrumental in the overall accomplishments of the Company. Therefore, no individual performance adjustments were made to the awards. Actual cash bonus amounts paid for 2019 performance were as follows:
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| 2019 ANNUAL |
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NAMED EXECUTIVE OFFICER |
| BONUS |
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Barton R. Brookman |
| $ | 1,017,000 |
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R. Scott Meyers |
| $ | 354,000 |
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Lance A. Lauck |
| $ | 426,000 |
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Scott J. Reasoner |
| $ | 426,000 |
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Nicole L. Martinet |
| $ | 237,000 |
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Long‑Term Incentive Awards
To align our long‑term incentives with the interests of our stockholders over the long term and with our pay‑for‑performance philosophy, we award equity-based incentives to our NEOs on an annual basis. These
36PDCENERGY 2020 PROXY
PDC ENERGY INC. - PROXY STATEMENT
awards ensure that a meaningful portion of our NEOs’ compensation is at risk based on stock price performance and provides NEOs with significant equity ownership in the Company. In 2019, equity grants were allocated 50% to PSUs and 50% to time-based RSUs.
2019 Award Types and Terms
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PDCENERGY 2020 PROXY 37
PDC ENERGY INC. - PROXY STATEMENT
2019 Long-Term Incentive Awards
We typically determine the dollar value of the long‑term incentive awards we want to deliver to the NEO to place total target compensation at the appropriate level for that position, based on market data, individual performance, and other relevant factors. While we consider long‑term incentives to be primarily forward‑looking, we may consider the Company’s and the NEOs’ performance in the prior year in determining the size of the awards. For 2019, the Committee adjusted long‑term incentive values to further align the value of the long‑term incentives with the market competitive range. The table below shows the grants and corresponding value awarded to each NEO in February 2019.
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| Target Value |
| RSUs |
| PSUs | |
NAMED EXECUTIVE OFFICERS |
| ($) |
| (#) |
| (#) | |
Barton R. Brookman |
| $ | 4,400,000 |
| 60,490 |
| 60,490 |
R. Scott Meyers |
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| 1,450,000 |
| 19,935 |
| 19,935 |
Lance A. Lauck |
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| 1,700,000 |
| 23,371 |
| 23,371 |
Scott J. Reasoner |
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| 1,700,000 |
| 23,371 |
| 23,371 |
Nicole L. Martinet |
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| 600,000 |
| 8,249 |
| 8,249 |
The award values shown above differ from the accounting values reported in the Summary Compensation Table. In determining the number of RSUs and PSUs awarded, we used the five‑day average closing stock price ending the day prior to the date of grant. The accounting value reflected in the Summary Compensation Table and 2019 Grants of Plan‑Based Awards table is based on the grant date fair value of the awards on the date of grant.
38PDCENERGY 2020 PROXY
PDC ENERGY INC. - PROXY STATEMENT
2017-2019 Performance Share Unit (PSU) Payout
In 2017, we granted PSUs covering the three-year period from January 1, 2017 through December 31, 2019. The Company’s relative TSR for the performance period ranked at the 58th percentile of its peers, which would generally correlate to a payout of 120% of target; however the payout was reduced by the terms of the PSU grant agreement to 100% of target due to the negative absolute stock price performance over the three-year measurement period. See the “Option Exercise and Stock Vested” table below for the actual amounts received by each NEO. Due to the decline in stock price over the three-year period, the value earned at vesting was 35% of the original target value (based on a 2019 year-end stock price of $26.17). The chart below shows the members of the peer group used for the 2017 grant, each company’s TSR performance and their relative rankings at the end of the period.
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Company |
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| Adjusted Payout(1) |
Diamondback Energy, Inc. |
| (16%) |
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| 1 |
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| 100% |
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Energen Corp. (2) |
| (17%) |
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| 2 |
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| 93% |
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WPX Energy, Inc. |
| (19%) |
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| 3 |
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| 86% |
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Matador Resources Company |
| (37%) |
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| 4 |
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| 79% |
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RSP Permian (3) |
| (43%) |
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| 5 |
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| 72% |
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Parsley Energy, Inc. |
| (52%) |
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| 6 |
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| 65% |
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PDC Energy |
| (68%) |
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| 7 |
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| 58% |
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| 120% |
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| 100% |
SM Energy Company |
| (71%) |
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| 8 |
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| 50% |
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NewField Exploration Co. (4) |
| (71%) |
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| 9 |
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| 43% |
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Callon Petroleum |
| (73%) |
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| 10 |
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| 36% |
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QEP Resources, Inc. |
| (79%) |
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| 11 |
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| 29% |
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Carrizo Oil and Gas, Inc. (5) |
| (81%) |
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| 12 |
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| 22% |
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Laredo Petroleum, Inc. |
| (81%) |
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| 13 |
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| 15% |
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Oasis Petroleum, Inc. |
| (82%) |
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| 14 |
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| 8% |
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Gulfport Energy Corp. |
| (88%) |
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| 15 |
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| 0% |
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PDCENERGY 2020 PROXY 39
PDC ENERGY INC. - PROXY STATEMENT
Other Elements of Compensation
In addition to the elements of total target direct compensation described above, our executive compensation program includes other elements of compensation that are designed primarily to attract and retain executives critical to our long-term success and to provide an overall compensation and benefits program that is competitive with other companies in our industry.
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40PDCENERGY 2020 PROXY
PDC ENERGY INC. - PROXY STATEMENT
2020 Compensation Program Changes
In a continued effort to adhere to compensation best practices, and based on stockholder feedback, the Company made numerous changes to its 2020 compensation program, as summarized below.
Base Salary
For● Compensates executives for their level of responsibility, skills, capabilities, experience and leadership.
Annual Cash Incentives
✓ Cash Bonus – 75% based on quantitative metrics; 25% based on qualitative goals
● Rewards annual performance and aligns participants’ compensation with short-term financial, operational and strategic objectives specific to each calendar year;
● Motivates participants to meet or exceed internal and external performance expectations; and
● Recognizes individual contributions to the organization’s overall results.
Long-Term Equity-Based Incentives
✓ Performance Share Units (PSUs) –
60% for our CEO; 50% for other NEOs
✓ Restricted Stock Units (RSUs) –
40% for our CEO; 50% for other NEOs
● Rewards long-term performance directly aligned with stockholders’ interests;
● Provides a strong performance-based equity component;
● Recognizes and rewards share performance relative to industry peers;
● Aligns compensation with sustained long-term value creation;
● Helps executives to acquire a meaningful and sustained ownership stake; and
● Fosters executive retention by vesting awards over multiple years.
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| PDCENERGY 2021 PROXY | 25 |
PDC ENERGY, INC. - PROXY STATEMENT
2020 Compensation Mix
By design, a significant portion of our executive officers’ compensation is performance-based. The following graphic shows the targeted fixed and variable or “at-risk” components of compensation awarded to our NEOs as a percentage of their total direct compensation for 2020. Eighty-seven percent of our CEO’s compensation and 82% of our other NEOs’ (excluding Mr. Lillo and Mr. Reasoner) compensation was made up of variable or “at-risk” components.
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The charts above are based on 2020 base salaries, target bonus amounts with respect to 2020 annual cash incentive awards and the target values of the 2020 grants of performance-based PSUs and time-based RSUs. The amounts actually realized by our NEOs with respect to these awards will depend on a variety of factors including the level of attainment of the relevant performance metrics and the extent of vesting of PSUs and RSUs and the value of our stock when the PSUs and RSUs vest. Mr. Lillo is excluded from the Named Executive Officer compensation calculation due to the fact he was promoted to the Company’s Senior Management Team in September 2020 and did not receive PSUs or additional RSUs in connection with his promotion, making it such that his 2020 compensation mix is not reflective of our executive compensation program design. Mr. Reasoner is also excluded from the Named Executive Officer compensation calculation due to his retirement from the Company in September 2020. These charts are not a substitute for the “Summary Compensation Table” below, which includes amounts supplemental to target total direct compensation.
Pay for Performance
Our executive compensation program is designed to align Company performance with the interests of our stockholders. The majority of our executives’ pay is tied to the short- and long-term performance of the Company and our absolute and relative stock price performance. The following table illustrates the alignment
26 | PDCENERGY 2021 PROXY |
PDC ENERGY, INC. - PROXY STATEMENT
of pay and performance by comparing our CEO’s targeted compensation opportunity awarded in each of the last three years against the realizable value of those opportunities as of December 31, 2020.
Target Pay | Realizable Pay | |
● Base salary rate as of year-end ● Target annual cash incentive based on salary rate ● Intended equity award grant values for grants made in each year | | ● Base salary rate for the year ● Actual annual cash incentive paid for 2018, 2019 and 2020 performance ● Long-term incentive value of grants made in each year as of Dec 31, 2020 stock price ($20.53) ✓ SARs: In-the-money value ✓Restricted Stock: number of shares granted x Dec 31, 2020 stock price (assumes all shares, vested/unvested, are held through Dec 31, 2020) ✓ Performance Award: target number of shares x relative TSR ranking factor x Dec 31, 2020 stock price (note: all performance awards have been reduced to target level based on negative stock price returns) |
Base Salaries
In determining base salary adjustments for 2020, the Committee considered the market data provided by its independent compensation consultant (see “Role of Independent Compensation Consultant” below), the role of each individual NEO, inflation and the recommendations of the CEO based on individual and Company performance. Based on the foregoing, for 2020, the Committee held NEO salaries flat except for Ms. Martinet whose base salary was increased to reflect the Committee’s determination to bring her base salary closer to the market median over time, as the number of years in her role increases.
However, given the severe downturn in commodity prices and anticipated impacts to the Company’s business in the early part of 2020 due to the COVID-19 pandemic, we implemented a salary reduction for a majority of our employees, including our NEOs who took a voluntary 15% reduction to their base salaries from May 16, 2020 through October 3, 2020. End of year base salaries and reduced 2020 base salaries for our NEOs are as follows:
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| | Year End | | Reduced | | Year End | |||
NAMED EXECUTIVE OFFICER |
| 2019 |
| 2020 |
| 2020 | |||
Barton R. Brookman | | $ | 850,000 | | $ | 803,000 | | $ | 850,000 |
R. Scott Meyers | |
| 425,000 | | | 401,000 | |
| 425,000 |
Lance A. Lauck | |
| 455,000 | | | 430,000 | |
| 455,000 |
Nicole L. Martinet | |
| 325,000 | | | 378,000 | |
| 400,000 |
David J. Lillo(1) | | | — | | | 378,000 | | | 400,000 |
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| PDCENERGY 2021 PROXY | 27 |
PDC ENERGY, INC. - PROXY STATEMENT
(1) Mr. Lillo was appointed to the Senior Management Team in September 2020; his base salary increased effective September 1, 2020 in connection with his appointment. |
Annual Incentive Awards
Bonuses under the Company’s 2020 annual incentive program were based 75% on a strict formulaic determination of the level of achievement of quantitative operational and financial metrics established by the Compensation Committee and 25% based on the Compensation Committee’s assessment of the Company’s achievement of qualitative corporate goals. See “2020 Performance Metrics – Quantitative and Qualitative.”
Throughout the year, the Committee reviews the Company’s progress toward meeting the quantitative metrics and qualitative goals for the year. Following the end of the fiscal year, the Committee determines an overall Company performance rating based on the metrics and goals. Individual awards may be adjusted upward or downward at the Committee’s discretion based on individual performance. Such individual adjustments are anticipated to have a maximum range of +/−20%.
Target Bonus Amounts
The Committee sets a target annual cash incentive award for each NEO expressed as a percentage of base salary. Actual awards can range from 0% - 200% of the targets depending on the payout percentage achieved and any individual performance adjustment. In February 2020, based upon its review of peer compensation data, the Committee decided to increase the target annual cash incentive for Mr. Meyers and Ms. Martinet to bring their target awards closer to the market median for their respective positions. The 2020 target annual cash incentive award levels for each NEO are as follows:
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| | Cash Incentive as |
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NAMED EXECUTIVE OFFICER |
| 2019 |
| 2020 |
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Barton R. Brookman | | 115 | % | 115 | % |
R. Scott Meyers | | 80 | % | 90 | % |
Lance A. Lauck | | 90 | % | 90 | % |
Nicole L. Martinet | | 70 | % | 80 | % |
David J. Lillo(1) | | — | % | 80 | % |
Scott J. Reasoner | | 90 | % | 90 | % |
(1) Mr. Lillo was appointed to the Senior Management Team in September 2020; his annual cash incentive target was increased to |
28 | PDCENERGY 2021 PROXY |
PDC ENERGY, INC. - PROXY STATEMENT
2020 PERFORMANCE METRICS – QUANTITATIVE AND QUALITATIVE
In 2020, we established specific quantitative targets and weightings for the operational and financial metrics used for the formulaic portion of the annual incentive program based on our 2020 budget and operating plans, as revised in response to the COVID-19 pandemic as described below. These metrics are used to ensure we balance operational objectives with capital discipline. During 2020, we also developed the qualitative corporate performance goals that we used for the qualitative portion of the annual incentive plan. The quantitative performance metrics and qualitative performance goals used in 2020 were as follows:
2020 Corporate Metrics Methodology
In February 2020, the Committee originally approved the 2020 quantitative metrics to be used in our 2020 short-term incentive program; however, in response to the COVID-19 pandemic, in May 2020, the Committee modified the quantitative metrics by removing four metrics previously approved for 2020 (free cash flow margin, LOE and G&A per BOE, production, and capital efficiency) and replacing them with three new metrics that were more appropriate for measuring performance in light of the COVID-19 pandemic, our drastic cut in capital spending, lower commodity prices, and our overall changed operational plans (absolute free cash flow, absolute LOE and G&A, and leverage ratio). The Committee also reduced short-term incentive payout opportunities for 2020 from 100% to 50% for target performance and 200% to 100% for above target performance. At that time, given the unforeseen impacts on the economy due to the COVID-19 pandemic and the precipitous drop in commodity prices, the Committee also reserved the right to award no bonuses for 2020 even if quantitative and qualitative metrics were achieved.
The Committee generally reserves the right to adjust the quantitative metrics for certain categories of adjustments that are pre-approved by the Committee at the time the 2020 quantitative metrics are established, including but not limited to, unexpected business events such as acquisitions/dispositions, capital markets transactions, legal settlements or similar events, as further described in “2020 Results on Quantitative Metrics” below. We believe that the NEOs are compensated for stock price performance through the Company’s long-term equity incentive program and not through their annual bonus; however, the Committee may also consider absolute stock price performance in determining the qualitative portion of the annual incentive program for the year.
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| PDCENERGY 2021 PROXY | 29 |
PDC ENERGY, INC. - PROXY STATEMENT
2020 Results on Quantitative and Qualitative Metrics
2020 Assessment on Quantitative Corporate Metrics
In early 2021, the Committee reviewed the Company’s 2020 performance relative to the quantitative operational and financial metrics described above, and determined that the metrics were achieved at well above target level (and in most cases above the maximum level), corresponding to a payout at 96% of target, as follows:
Actual performance was modified for certain categories of adjustments approved by the Committee at the time the 2020 quantitative metrics were established, as follows:
● | EHS excludes incidents outside of PDC’s control, such as injuries sustained in no-fault vehicle accidents, bee stings and third-party actions against PDC employees. Targets apply to assets operated for an entire calendar year (and, in 2020, assets acquired in the SRC merger). |
● | Free Cash Flow, a non-GAAP financial measure, was not adjusted to an assumed base case oil price. Capital investments are the same as reported in year-end results, and exclude corporate capital. See Appendix A for reconciliation. |
● | LOE and G&A exclude legal-related costs in excess of $2.5 million, deal costs in excess of $5 million, Colorado ballot initiative expenditures in excess of $2 million, the net impact of severance and retirement costs, costs associated with capital market transactions or debt restructuring and variance in actual bonus to be paid versus mid-year forecasts. |
● | Cash Return on Capital Invested (“CROCI”) excludes acquisition and divestiture activity valued at more than $5 million, including effects on adjusted cash flow and PP&E, valuation changes greater than $5 million for SRC (compared to an estimated $1.7 billion) and the |
● | Leverage ratio excludes A&D activity, capital market |
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NAMED EXECUTIVE OFFICER |
| 2019 |
| 2020 | ||
Barton R. Brookman |
| $ | 850,000 |
| $ | 850,000 |
R. Scott Meyers |
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| 425,000 |
|
| 425,000 |
Lance A. Lauck |
|
| 455,000 |
|
| 455,000 |
Scott J. Reasoner |
|
| 455,000 |
|
| 455,000 |
Nicole Martinet |
|
| 325,000 |
|
| 400,000 |
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PDC ENERGY, INC. - PROXY STATEMENT
2020 Assessment on Qualitative Corporate Metrics
The Committee establishes qualitative metrics tied to the Company’s strategic priorities, which include additional environmental, health and safety goals; building a best-in-class organization through streamlined communications and efficient processes; technological innovations; top-tier performance and financial metrics; maintaining competitive high-value inventory; and delivery of sustainable, peer-competitive results. Based on its review and measurement of the Company’s 2020 qualitative goals, the Committee determined that the Company achieved all of its 2020 qualitative goals, demonstrating significant accomplishments during the year, including the following:
● | Met environmental, health and safety training, compliance and reporting milestones; |
● | Successfully implemented COVID-19 protocols while maintaining operational excellence; |
● | Shared situational updates and contingency plans through regularly scheduled management communications to employees; |
● | Further developed and implemented an ESG strategy and execution plan, including finalization of a working team and publication of an inaugural Sustainability Report with 70% alignment with the Sustainability Accounting Standards Board (“SASB”) standards; |
● | Successfully met technology enterprise resource planning project milestones and integrated SRC data into the Company’s systems in accordance with the approved project plan and timeline; |
● | Curtailed high-cost production activities in response to the COVID-19 pandemic and the mid-year drop in commodity prices, then quickly returned once conditions improved, achieving maximum financial results; and |
● | Reduced LOE below revised forecasts through price re-negotiations and optimized runtime of wells. |
Based on the Company’s quantitative and qualitative achievements, the Committee awarded an overall Payout Percentage under the annual incentive plan of 96% of target.
2020 Bonus Awards
In determining the individual cash incentive awards, the Committee generally felt that management achieved the results as a team and each was instrumental in the overall accomplishments of the Company. Therefore, no individual performance adjustments were made to the awards. Actual cash bonus amounts paid for 2020 performance were as follows:
| | | |
|
| 2020 ANNUAL | |
NAMED EXECUTIVE OFFICER | | BONUS | |
Barton R. Brookman | | $ | 938,400 |
R. Scott Meyers | | $ | 367,200 |
Lance A. Lauck | | $ | 393,120 |
Nicole L. Martinet | | $ | 307,200 |
David J. Lillo | | $ | 307,200 |
Scott J. Reasoner(1) | | $ | 263,390 |
(1) Mr. Reasoner received a pro-rated annual cash
|
To align our long-term incentives with long-term equity awards granted in the form of RSUs comprising the remaining 40%. We continued the practice of delivering our long-term equity incentives 50% in PSUs and 50% in RSUs for the interests of our stockholders over the long term and with our pay-for-performance philosophy, we award equity-based incentives to our NEOs on an annual basis. These awards ensure that a meaningful portion of our NEOs’ compensation is at risk based on stock price performance and provides NEOs with significant equity ownership in the Company. In 2020, equity grants were allocated 60% to PSUs and 40% to time-based RSUs for our CEO and 50% to PSUs and 50% to time-based RSUs for all other NEOs. In addition, in 2020 the Company adopted an absolute stock price modifier to its PSUs to better align with absolute stock performance.
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| PDCENERGY 2021 PROXY | 31 |
PDC ENERGY, INC. - PROXY STATEMENT
2020 Award Types and Terms
| PDC ENERGY |
PDC ENERGY, INC. - PROXY STATEMENT
2020 Long-Term Incentive Awards
We typically determine the dollar value of the long-term incentive awards we want to deliver to the NEO to place total target compensation at the appropriate level for that position, based on market data, individual performance, and other relevant factors. While we consider long-term incentives to be primarily forward-looking, we may consider the Company’s and the NEOs’ performance in the prior year in determining the size of the awards. For 2020, the Committee adjusted long-term incentive values for Mr. Meyers and Ms. Martinet to further align the value of the long-term incentives with the market competitive range. The table below shows the grants and corresponding value awarded to each NEO in February 2020.
| | | | | | | |
|
| Target Value |
| RSUs |
| PSUs | |
Name | | ($) | | (#) | | (#) | |
Barton R. Brookman | | $ | 4,600,000 | | 83,712 | | 125,569 |
R. Scott Meyers | |
| 1,780,000 | | 40,491 | | 40,491 |
Lance A. Lauck | |
| 1,780,000 | | 40,491 | | 40,491 |
Nicole L. Martinet | | | 1,100,000 | | 25,023 | | 25,023 |
David J. Lillo(1) | |
| 558,777 | | 25,422 | | — |
Scott J. Reasoner | |
| 1,780,000 | | 40,491 | | 40,491 |
(1) | Mr. Lillo was appointed to the Senior Management Team in September 2020. Mr. Lillo’s target value and RSUs reflected herein were awarded prior to his promotion; he did not receive additional RSUs or PSUs upon promotion. |
The award values shown above differ from the accounting values reported in the Summary Compensation Table. In determining the number of RSUs and PSUs awarded, we used the five-day average closing stock price ending the day prior to the date of grant. The accounting value reflected in the Summary Compensation Table and 2020 Grants of Plan-Based Awards table is based on the grant date fair value of the awards on the date of grant.
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| PDCENERGY 2021 PROXY | 33 |
PDC ENERGY, INC. - PROXY STATEMENT
2018-2020 Performance Share Unit (PSU) Payout
In 2018, we granted PSUs covering the three-year period from January 1, 2018 through December 31, 2020. The Company’s relative TSR for the performance period ranked at the 65th percentile of its peers, which would generally correlate to a payout of 138% of target; however the payout was reduced by the terms of the PSU grant agreement to 100% of target due to the negative absolute stock price performance over the three-year measurement period. See the “Option Exercises and Stock Vested” table below for the actual amounts received by each NEO. Due to the decline in stock price over the three-year period, the value earned at vesting was 40% of the original target value (based on a 2020 year-end stock price of $20.53). The chart below shows the members of the peer group used for the 2018 grant, each company’s TSR performance and their relative rankings at the end of the period.
| | | | | |
Company | TSR | Rank | % Rank | Preliminary | Adjusted |
WPX Energy, Inc. | (39%) | 1 | 100% | 200% |
|
Parsley Energy, Inc. | (48%) | 2 | 93% | 200% | |
Energen Corp. (2) | (50%) | 3 | 86% | 190% | |
Diamondback Energy, Inc | (57%) | 4 | 79% | 173% | |
Matador Resources Company | (58%) | 5 | 72% | 155% | |
PDC Energy, Inc. | (58%) | 6 | 65% | 138% | 100% |
RSP Permian (3) | (66%) | 7 | 58% | 120% |
|
SRC Energy (4) | (72%) | 8 | 50% | 100% |
|
SM Energy Company | (72%) | 9 | 43% | 86% |
|
NewField Exploration Co. (5) | (74%) | 10 | 36% | 72% |
|
QEP Resources, Inc. | (75%) | 11 | 29% | 58% |
|
Carrizo Oil and Gas, Inc. (6) | (77%) | 12 | 22% | 0% |
|
Callon Petroleum (7) | (88%) | 13 | 15% | 0% |
|
Laredo Petroleum, Inc. (7) | (91%) | 14 | 8% | 0% |
|
Oasis Petroleum, Inc. (8) | (100%) | 15 | 0% | 0% |
|
(1) | If PDC’s TSR is less than 0%, the maximum payout that could be earned is 100%. If PDC's TSR is an averaged annualized return of 15% (52.0875% over 3 years), the minimum payout that can be earned is 50%. |
(2) | Energen Corp. was acquired by Diamondback Energy with a final trading date of 11/30/18. The successor index was used subsequently. |
(3) | RSP Permian was acquired by Concho Resources with a final trading date of 7/19/18. The successor index was used subsequently. |
(4) | SRC Energy was acquired by PDC Energy with a final trading date of 1/13/20. The successor index was used subsequently. |
(5) | Newfield Exploration was acquired by Ovintiv Inc. with a final trading date of 2/13/19. The successor index was used subsequently. |
(6) | Carrizo Oil and Gas was acquired by Callon Petroleum with a final trading date of 12/20/19. The successor index was used subsequently. |
(7) | Callon Petroleum underwent a 1 for 10 reverse stock split on 8/4/20. Laredo Petroleum underwent a 1 for 20 reverse stock split on 5/14/20. Year-end average share price for each company reflects a post-split equivalent price. |
(8) | Oasis Petroleum Inc. filed for chapter 11 on 9/30/20 and force-ranked to last place. |
34 | PDCENERGY 2021 PROXY |
PDC ENERGY, INC. - PROXY STATEMENT
OTHER ELEMENTS OF COMPENSATION
In addition to the elements of total target direct compensation described above, our executive compensation program includes other elements of compensation that are designed primarily to attract and retain executives critical to our long-term success and to provide an overall compensation and benefits program that is competitive with other companies in our industry.
| | |
---|---|---|
Element | Description and Purpose | |
Health and Welfare Benefits | | We provide competitive health and welfare benefits that are intended to be comparable to those provided to employees at other companies in our industry. Our NEOs participate in our health and welfare programs on the same basis as all other employees. |
Retirement Benefits (401(k) and Profit Sharing) | | We provide retirement benefits that are intended to be comparable to those provided to employees at other companies in our industry. These benefits are intended to provide financial security by allowing employees to save for retirement through the Company’s 401(k) and Profit Sharing Plan. The Company provides a 10% dollar-for-dollar match up to IRS limits plus a Profit Sharing contribution that can range from 0% - 5% on an annual basis (up to IRS limits). Our NEOs participate in our 401(k) and Profit Sharing Plan on the same basis as all other employees up to the IRS allowable limit. |
| | For 2020, the 401(k) Match and Profit Sharing Contribution for each NEO is shown in the Summary Compensation Table. |
Perquisites | | We provide modest perquisites for the convenience of our executives in meeting the demands of their positions, the value of which is generally consistent with those offered by other companies in our industry. These perquisites include a car allowance for business and personal use, athletic/non-golf club dues, and annual physicals. |
| | For 2020, the value of the perquisites provided to each NEO is outlined in the Summary Compensation Table. |
Severance and Change of Control Arrangements | | We believe that severance protection plays a valuable role in attracting, motivating and retaining highly talented executives and that having an existing agreement in place is preferable to negotiating an exit package at the time of an NEO’s departure. Severance provisions give us the flexibility to make decisions regarding organizational issues with pre-established severance terms in place. In the event the Company faces an actual or potential change of control, severance benefits encourage executive officers to remain with the Company even though prospects for continued employment may be uncertain. We believe that the severance amounts that may be paid upon a change of control of the Company help to align the interests of the executive officers with the interests of the Company’s stockholders and strike a proper balance between the hiring, motivating and retention effects described above, and the need to avoid excessive benefits to executives. We consider these protections to be an important part of an executive’s compensation and believe that they are consistent with competitive practices in the oil and gas industry. |
| | For a description of the severance programs and other individual arrangements, see “Potential Payments Upon Termination or Change of Control.” |
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| PDCENERGY 2021 PROXY | 35 |
PDC ENERGY, INC. - PROXY STATEMENT
2021 COMPENSATION PROGRAM AND BOARD CHANGES
For 2021, the Company made additional changes to its compensation program and Board composition, including the following:
● | To emphasize our commitment to ESG, strong corporate governance and focus on shareholder returns, the Committee added certain qualitative goals to our 2021 short-term incentive program related to emission reduction, increased SASB alignment in our 2020 Sustainability Report, shareholder returns and board refreshment. |
● | The Company engaged Russell Reynolds Associates to conduct a director search which resulted in the appointment of a new diverse independent Director in February 2021 and the nomination of an additional diverse independent Director for election at this Annual Meeting. Following the Annual Meeting, it is expected that: |
o | Four out of six of the Company’s independent directors will have joined the Company within the last two years; and |
o | Average board tenure will be reduced by approximately 33.3% to 4 years following the Annual Meeting. |
COMPENSATION POLICIES AND PRACTICES
Process for Determining Executive Compensation
Annually, we review and approve our compensation program design, determine target total direct compensation, establish performance metrics under our annual and long-term incentive programs and determine award payouts based on achievement of Company and individual results. These discussions usually span numerous meetings and involve significant deliberation among the Committee, management and the Consultant before approval. With respect to equity programs, we also consider the tax and accounting effect of the awards, dilution and stock burn rates (based on total outstanding shares).
In determining target total direct compensation for our NEOs, we consider the following: