The Director Compensation Project: Marathon Oil

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 Marathon Oil (MRO-NYSE) 2009 proxy statement.  According to the proxy statement, the company paid the directors the following amounts:

Name	Fees Earned or Paid in Cash ($)	Stock Awards ($)	Option Awards ($)	All Other Compensation ($)	Total ($)
Charles F. Bolden, Jr.	135,000	125,000	0	0	260,000
Gregory H. Boyce	93,750	125,000	0	0	218,750
David A. Daberko	145,000	125,000	0	7,500	277,500
William L. Davis	135,000	125,000	0	0	260,000
Shirley Ann Jackson	150,000	125,000	0	0	275,000
Phillip Lader	145,000	125,000	0	0	265,000
Charles L. Lee	135,000	125,000	0	0	260,000
Dennis H. Reilly	145,000	125,000	0	0	270,000
Seth E. Schofield	135,000	125,000	0	0	260,000
John W. Snow	135,000	125,000	0	0	260,000
Thomas J. Usher	350,000	0	0	10,000	360,000

Director Compensation.  Marathon Oil’s board met eight times in 2008.  All directors attended 100% of the board meetings.  Of the eleven directors, all but one of the directors received between $110,000 and $140,000 in cash compensation.  The average total compensation for the board is $269,659. 

Director Tenure.  Ten of the directors have been serving on the board since 2000.  Mr. Usher and Mr. Lee are the longest tenured board members; they have served on the board since 1991.  Several directors also sit on other boards.  Mr. Lee also serves on the Boards of Directors of United States Steel Corporation, The Proctor & Gamble Company, United Technologies Corporation, and DIRECTV Group, Inc.  Mr. Reilley also serves on the Boards of Directors of H. J. Heinz Co., Dow Chemical Company, Covidien, Ltd. and the Conservation Fund.

CEO Compensation.  Mr. Cazalot, who serves as CEO and President, received $3,975,950 in total compensation for 2008.  Of his total compensation, Mr. Cazalot received $1,381,250 as base cash salary.  In contrast, Mr. Cazalot received $19,470,725 in total compensation last year.  The company attributes the disparity in total compensation to the declining value of his stock options

Mr. Heminger, an Executive Vice President, received $856,250 as base cash salary.  His total compensation for 2008 totaled $3,125,897.  Mr. Heminger’s total compensation is slightly less than his 2007 number of $3,936,865.

Named executive officers may seek reimbursement for certain tax, estate, and financial planning services up to a specified annual maximum each year, including the year following death or retirement.  Beginning in March 2008, Marathon discontinued the reimbursement of club membership monthly dues and fees and now only provides the initiation fees associated with one club membership.  Unless otherwise authorized by the CEO (or in the case of the CEO, the Chairman of the Board of Directors), Marathon Oil’s named executive officers may not use corporate aircraft for personal use.