ConocoPhillips

Annual Meeting: May 12, 2015

Total disclosed compensation for ConocoPhillips CEO Ryan Lance increased from $23.4 million in 2013 to $27.5 million in 2014. This 18% increase came as one year TSR was 1.5%, well below that of the S&P 500 generally.  In 2013, Lance’s compensation was higher than that of his peers and a regression analysis performed by HIP Investor identified excess pay of $11.7 million.

In addition to voting on the compensation package at ConocoPhillips shareholders have the opportunity to weigh in on two important shareholder proposals related to compensation.

The company attempted to exclude a new, and very specific proposal that calls on the compensation committee to adopt a policy that it will no longer use “reserve additions,” “reserve replacement ratio” (“RRR”) or any other metric based on reserves to determine the amount of any senior executive’s incentive compensation unless they take the step of adjusting reserves to “exclude barrels of oil equivalent that are not economically producible under a Demand Reduction Scenario in which the price of a barrel of Brent crude oil decreases to $65.”  The proponents base the $65 figure on the number Standard and Poor’s used in a “stress scenario” to evaluate oil companies’ creditworthiness.

In the supporting statement the proponents express concern “that basing senior executive incentive compensation on reserves may encourage the addition of reserves that are so costly to access that projects may be cancelled if prices fall.” The company’s own 10-K as well as International Energy Agency reports undergird the argument of challenges faced in estimating reserves.  The proponent concludes that, “incorporating an analysis under a Demand Reduction Scenario would better reflect increasing uncertainty over climate regulation and future oil demand and would more closely align senior executives’ and long-term shareholders’ interests.”

This issue of reserves is one we raised in our analysis of Anadarko Petroleum.

The company sought to have the proposal excluded on the grounds that it related to the companies ordinary business (and thus should be beyond the purview of shareholders) and that it was vague and misleading. The SEC disagreed and did not permit the company to exclude the proposal.

The other compensation proposal calls on the board to adopt a policy to adopt a policy that in a change in control there shall be no accelerated vesting of performance-based shares or units granted to any senior executive, “provided, however, that the board’s Human Resources and Compensation Committee may provide in an applicable grant or purchase agreement that any such unvested award will vest on a partial, pro rata basis up to the time of the senior executive’s termination, with such qualifications for an award as that Committee may determine.”