The Director Compensation Project: Chevron

This post is part of an ongoing series that examines the way stock exchange independence rules influence director compensation.  We are including companies from 2010’s Fortune 500 and using information found in their 2010 proxy statements.  In addition to state standards and the requirements of SOX, the stock exchanges each have their own standards for independence.  While substantially the same, there are some minor differences between NYSE and NASDAQ rules that are worth noting. 

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 $120,000 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, 5605(a)(2), 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 know as SOX 301.

One can see some of the effects of these rules when looking at the director compensation table from Chevron’s (NYSE:CXV) 2010 proxy statement.  According to the proxy statement, the company paid the directors the following amounts:

Name	Total ($)
Samuel H. Armacost	302,430
Linnet F. Deily	288,263
Robert E. Denham	293,263
Robert J. Eaton	312,697
Sam Ginn*	57,475
Enrique Hernandez Jr.	351,697
Franklyn G. Jenifer	306,955
Sam Nunn	307,205
Donald B. Rice	293,263
Kevin W. Sharer	288,263
Charles R. Shoemate	315,697
Ronald D. Sugar	293,263
Carl Ware	288,263

Note: Cash totals reflect 11 monthly payments as opposed to 12 monthly payments due to a change in payment timing in 2009.

*Mr. Ginn retired from the Board, effective May 26, 2009.

Director Compensation.  In 2009, Chevron held eight regularly scheduled board meetings and 22 board committee meetings, which included ten Audit Committee, five Board Nominating and Governance Committee, four Management Compensation Committee, and three Public Policy Committee meetings.  All directors attended 93% or more of the board meetings and their board committee meetings during 2009. All directors except one attended the 2009 annual meeting. The Board Nominating and Governance Committee may retain the services of an independent compensation consultant to assist the Committee with its work in connection with Chevron’s nonemployee director compensation program. The Committee did not do so in 2009.

Director Tenure.  In 2009, Mr. Armacost, who has held his position as a member of the Board of Directors since 1982, held the longest tenure.  He also serves on the boards of Callaway Golf Company, Del Monte Foods Company, Exponent, Inc., and Franklin Resources, Inc.  Several other directors also sit on other boards.  Ms. Deily sits on the board of Honeywell International, Inc., and has been a Chevron director since 2006.  Mr. Hernandez, who joined the Chevron Board in 2008, also sits on the boards of McDonald’s Corporation, Nordstrom, Inc., and Wells Fargo & Company. Of twelve directors, four have served on the Chevron Board for over ten years.

CEO Compensation.  On December 31, 2009, Mr. D.J. O’Reilly ended a 41-year career at Chevron, including ten years as Chair and Chief Executive Officer.  In 2009, he earned a total of $16,550,745, with a base salary of $1,750,000.  Mr. O’Reilly made personal use of the company aircraft at a total cost of $81,658 in 2009.  His base salary ranked fourth among the base salaries of CEOs in the oil industry peer group.  Ms. Patricia Yarrington, the Chief Financial Officer of Chevron, received $6,345,878, with a base salary of $720,000.  She earned less than the Vice Chair, Mr. John Watson, who received $8,792,691.  The independent board increased his base salary in 2009 to $1,000,000, in recognition of his promotion to Vice Chair.  Mr. Watson has now succeeded Mr. O’Reilly as Chair and CEO.  During 2009, Chevron’s Management Compensation Committee retained an independent compensation consultant, Exequity LLP, to assist with compensation decisions.