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 2009’s Fortune 100 and using information found in their 2009 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 known as SOX 301.

One can see some of the effects of these rules when looking at the director compensation table from the ConocoPhillips (COP-NYSE) 2009 proxy statement. According to the proxy statement, the company paid the directors the following amounts:

Name*	Fees Earned or Paid in Cash ($)	Stock Awards ($)	All Other Compensation ($)	Total ($)
R.L. Armitage	100,000	127,112	129,978	357,090
R.H. Auchinleck	135,571	166,571	73,762	375,671
N.H. Augustine	41,667	157,687	278,824	478,188
J.E. Copeland, Jr.	120,441	140,007	147,137	407,585
K.M. Duberstein	100,000	165,984	154,756	420,740
R.R. Harkin	110,352	151,918	146,023	408,293
H.W. McGraw III	100,499	130,379	89,030	319,908
H.J. Norvik	106,159	130,379	113,474	350,012
W.K. Reilly	100,499	168,951	194,755	464,205
W.R. Rhodes	41,667	151,918	263,372	456,957
J.S. Roy	41,828	148,102	280,073	470,003
B.S. Shackouls	100,000	127,112	106,390	333,502
V.J. Tschinkel	107,500	219,814	113,583	440,897
K.C. Turner	100,000	196,287	112,279	408,566
W.E. Wade, Jr.	115,435	127,112	213,294	455,841

*Unlike some boards, Conoco pays its employee directors for service on the board, like CEO J.J. Mulva.

Director Compensation. Conoco’s board met eight times in 2008. Each director attended at least 75% of all board and committee meetings. Directors received between $41,828 and $135,571 in cash compensation. Board members received an average of $403,531 in total compensation. Conoco directors’ “other compensation” was an abnormally high percentage compared to other boards, averaging slightly over 40% of their total fees. “Other compensation” constitutes fees paid as tax reimbursements, a charitable gift program, and monies paid for a matching gift program.

Director Tenure. No Conoco director was elected prior to 2002. Directors Messrs. Auschinleck, Duberstein, Harkin, Reilly, Mulva, Tschinkel, Turner, all share the longest tenure at six years on the board. Several directors serve on other boards. Director Mulva serves on the board of General Electric Company and Mr. Schackouls is on the board of Kroger Co.

CEO Compensation. Mr. Mulva serves as Chairman and CEO of ConocoPhillips. He earned $29,391,987 in total compensation for 2008. Within this compensation is a $1,500,000 salary, $10,400,453 in stock awards, option awards of $5,781,994, and other compensation of $515,975. Conoco paid for their CEO’s personal use of company aircraft amounting to $54,802 and $25,409 for use of company automobiles. Mr. Mulva’s compensation was down over $20 million from his 2007 compensation of $50,549,026. Mr. Carrig, COO of ConocoPhillips, comes in a distant second in compensation, earning $11,243,955 in 2008.