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 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 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 (NYSE:VLO) 2010 proxy statement. According to the proxy statement, the company paid the directors the following amounts:

Name	Total ($)
W.E. "Bill" Bradford	290,010
Ronald K. Calgaard	273,010
Jerry D. Choate	280,010
Irl F. Engelhardt	275,010
Ruben M. Escobedo	291,010
William R. Klesse	0*
Bob Marbut	288,010
Donald L. Nickles	265,010
Robert A. Profusek	270,010
Susan Kaufman Purcell	281,935
Stephen M. Waters	265,010

*See below for Mr. Klesses compensation for service as Valero’s Chief Executive Officer.

Director Compensation. During fiscal year 2009, Valero Energy held 7 Board of Directors meetings and 24 Board Committee meetings. No member of the Board attended less than 75% of the meetings of the Board and committees of which he or she was a member. All non-employee directors received a retainer fee of $91,000 per year, plus $2,000 for each committee meeting attended in person.

Board Tenure. Mrs. Purcell and Mr. Escobedo, who have held their positions as members of the Board of Directors since 1994, held the longest tenure. Several directors also sit on other boards. Senator Nickles sits on the boards of Chesapeake Energy Corporation, Washington Mutual Investors Fund, JP Morgan Value Opportunities Fund, and American Funds Tax Exempt Series I. Mr. Choate also serves as a director of Amgen, Inc. and Van Kampen Mutual Funds.

CEO Compensation. William Klesse, who has served as Valero’s Chief Executive Officer since the end of 2005 and was elected President in January, 2008, earned $11,698,231 in 2009. This represented a 49% increase from his 2008 earnings. Richard J. Marcogliese, Executive Vice President and Chief Operating Officer, earned $5,940,686 during the fiscal year.