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

Name	Total ($)
R.L. Armitage	220,015
R.H. Auchinleck	255,237
J.E. Copeland, Jr.	251,008
K.M. Duberstein	250,015
R.R. Harkin	242,015
H.W. McGraw III	220,644
H.J. Norvik	227,820
W.K. Reilly	246,515
B.S. Shackouls	236,595
V.J. Tschinkel	240,076
K.C. Turner	230,015
W.E. Wade, Jr	258,776

Director Compensation.  During fiscal year 2009, ConocoPhillips held nine Board of Directors meetings.  Each director attended at least 75% of the total number of meetings of the Board of Directors and meetings of the Board Committees on which he or she served.  Directors participate in an equity compensation program and a cash compensation program.  Under the equity compensation program, non-employee directors receive an annual grant of restricted stock units with an aggregate value of $120,000 on the date of grants.  Under the cash compensation program, all non-employee directors receive $100,000 annual cash compensation and receive additional cash compensation if they serve in specified committee positions.  Due to the difference in tax laws in other countries, in July 2003 the Board approved a modification of compensation for directors living in other countries. This compensation plan applies to Mr. Auchinleck, who lives in Canada, and Mr. Norvik, who lives in Norway.

Director Tenure.  Mr. Reilly, Ms. Tschinkel, Ms. Turner, Ms. Harkin, and Mr. Mulva have served the longest on the board.  All of these directors joined the board in August 2002, when Phillips Petroleum Company merged with Conoco, Inc.  Robert A. Niblock joined the board in February 2010 and has the shortest tenure as a director.  Several directors also sit on other boards.  Mr. Niblock is also the Chief Executive Officer and Chairman of the Board for Lowe’s Companies, Inc., a position he has held since January 2005.  Harold J. McGraw is the Chairman, President, and Chief Executive Officer of The McGraw-Hill Companies.  Kenneth Duberstein serves on the boards of The Boeing Company, Mack-Cali Realty Corporation, and The Travelers Companies, Inc.  Mr. Mulva is also a director of General Electric Company.

CEO Compensation.  J.J. Mulva, who serves as ConocoPhillips’ Chief Executive Office & Chairman, earned $14,388,661 in 2009.  Mr. Mulva began his career with Phillips Petroleum Company over 35 years ago, and was the Chief Executive Officer and Chairman of the Board for Phillips Petroleum beginning in 1999 until its merger with Conoco, Inc. in 2002.  He has personal use of the company aircraft, a company car and also a home security system.  All of these perks are required under the company’s Comprehensive Security Program.  Rather than award bonuses to employees, the Human Resources and Compensation Committee annually awards employees, including executives, under the Variable Cash Incentive Program.  J.A. Carrig, President and Chief Operating Officer of ConocoPhillips earned $12,297,171 in 2009.  This total compensation reflects a 15% increase in salary to $1,145,000 in 2009 and a 50% increase in option awards.