The Director Compensation Project: Valero Energy

This post is part of an ongoing series that examines the way stock exchange independence rules influence director compensation. We are including companies from 2007’s Fortune 100 and using information disclosed in each company's 2008 proxy statements. In addition to state standards and the requirements of SOX, the stock exchanges each have their own standards for independence. Meeting stock exchange requirements is mandatory for most listed companies.

Under NYSE Rule 303A.01, all listed companies must have a majority of independent directors sitting on their boards. Directors are not independent if they received over $100,000 in direct compensation, other than director’s fees, in any one year period over the last three years pursuant to Rule 303A.02(b)(ii). This is a looser restriction than the equivalent NASDAQ Rule, 4200(a)(15), which includes all compensation. Rule 303A.06 requires that, in addition to the general independence standards, audit committee members must comport with the requirements of Exchange Act Rule 10A-3 (C.F.R. §240.10A-3), also known as SOX 301.

One can see some of the effects of these rules when looking at the director compensation table from Valero Energy’s (VLO-NYSE) 2008 Proxy Statement.

	Fees												Non-Equity				and Nonquali-
	Earned				Stock				Option				Incentive Plan				fied Deferred				All Other
	or Paid in				Awards ($)				Awards				Compen-				Compensation-				Compensa-
Name		Cash ($)				(1)(2)(3)				($)(1)(3)				sation ($)(5)				Earnings ($)(6)				tion ($)(7)				Total ($)
W.E. “Bill” Bradford			111,250				57,808				5,450				—				—				—				174,508
Ronald K. Calgaard			94,750				57,808				5,450				—				—				—				158,008
Jerry D. Choate			96,250				57,808				5,450				—				—				—				159,508
Irl F. Engelhardt			103,250				42,809				35,900				—				—				—				181,959
Ruben M. Escobedo			115,750				60,309				5,450				—				—				—				181,509
William E. Greehey (4)			700,000				3,872,884				48,125				9,909,592				16,143				334,530				14,881,274
William R. Klesse			—				—				—				—				—				—				(8	)
Bob Marbut			115,750				60,309				5,450				—				—				—				181,509
Donald L. Nickles			88,750				72,812				21,988				—				—				—				183,550
Robert A. Profusek			91,250				51,150				62,872				—				—				—				205,272
Susan Kaufman Purcell			94,250				57,808				5,450				—				—				14,925				172,433

Director Compensation

In 2007 the independent directors averaged $177,584 in total compensation. They received an average of $101,250 in the form of fees paid in cash. Mr. William Greehey retired from the board in January of 2007, but received $700,000 in cash, and nearly $15 million in total compensation pursuant to his employment agreement with Valero.

Director Tenure

The average tenure of directors at Valero is almost eight years; however, three out of the ten directors have served on the board for twelve years or more. Mr. Ruben Escobedo and Ms. Susan Kaufman have each served on the board for fourteen years. Seven of the ten directors currently serve on at least one other board. Mr. Donald Nickles currently serves on three other boards, in addition to Valero.

CEO Compensation

In 2007, CEO, President, and Chairman of the Board William Klesse received $15,033,652 in total compensation. Only $1,500,000 of Mr. Klesse’s compensation was in the form of base salary, and $3,720,015 in the form of a bonus. A large portion of Mr. Klesse’s compensation was in the form of stock awards and option awards, amounting to $8,573,862. Executive officers at Valero receive a variety of perquisites including reimbursement for club dues, residential alarm monitoring, tickets to sporting and entertainment events, and travel on the company jet with family members for business purposes.