The Director Compensation Project: ConocoPhillips

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 have each adopted their own standards for director 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 ConocoPhillips’s (COP-NYSE) 2008 proxy statement. According to the proxy statement, directors were paid the following amounts:

Name	Fees Earned or Paid in Cash ($)	Stock Awards ($)	Option Awards ($)	All Other Compensation ($)	Total ($)
R.L. Armitage	100,000	123,726	—	43,628	267,354
R.H. Auchinleck	115,000	157,425	—	43,628	316,053
N.A. Augustine	112,500	357,157	—	75,988	545,645
J.E. Copeland, Jr.	120,000	134,739	—	61,756	316,495
K.M. Duberstein	129,167	156,924	—	60,899	346,990
R.R. Harkin	102,500	144,911	—	50,878	298,289
C.C. Krulak	101,875	154,403	—	61,115	317,393
H.W. McGraw III	100,000	126,516	—	43,628	270,144
H.J. Norvik	106,250	126,516	—	43,628	276,394
W.K. Reilly	100,000	159,457	—	73,910	333,367
W.R. Rhodes	100,000	144,911	—	44,357	289,268
J.S. Roy	100,000	141,652	—	61,237	302,889
B.S. Shackouls	100,000	123,726	—	60,505	284,231
V.J. Tschinkel	110,208	376,605	—	50,647	537,460
K.C. Turner	106,250	301,335	—	53,628	461,213
W.E. Wade	103,750	123,726	—	60,628	288,104

Director Compensation. ConocoPhillips’s board met eight times last year. Board members are required to attend at least seventy-five percent of the total number of board meetings. Ten of the sixteen non-employee directors received more than $100,000 in director’s fees paid in cash. Non-employee directors as a group averaged $340,706 in total compensation for their services. As can be seen in the table, much of the director’s compensation came in the form of stock awards, which are considered director’s fees for purposes of complying with exchange rules. "Other compensation" includes a charitable donation program, a matching donation program, and travel expenses for spouses/significant others to attend certain board meetings.

Director Tenure. Ten of the sixteen non-employee directors served on the boards of either Conoco, Inc. or Phillips Petroleum Company before the two companies merged in 2002. Of these directors, Norman Augustine has the longest tenure at nineteen years while Victoria Tschinkel and Kathryn Turner have served fourteen years and twelve years, respectively. Currently, non-employee directors serve staggered three-year terms. Stockholders will consider a proposal at the 2008 shareholder meeting that would require the annual election of non-employee directors. Many of the directors also sit on other boards, including those of E. I. du Pont de Nemours and Company , Coca-Cola Enterprises, Time Warner Cable, and the Boeing Company.

CEO Compensation. The compensation paid to the CEO, J.J. Mulva, who also serves as Chairman and President, was $50,549,026 last year, of which $1,500,000 came in the form of cash. Roughly $3,500,000 of his compensation was tied to performance incentives while most of the remaining compensation ($43,034,327) was in the form of stock and options awards. Mr. Mulva’s compensation included $387,647 in "other compensation."