DEF 14A 1 d130272ddef14a.htm DEFINITIVE PROXY STATEMENT Definitive Proxy Statement
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

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Definitive Proxy Statement

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DEVON ENERGY CORPORATION
(Name of registrant as specified in its charter)
(Name of person(s) filing proxy statement, if other than the registrant)

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LOGO

 

 

 

Devon Energy

Notice of 2016 Annual

Meeting of Stockholders  

and Proxy Statement

 

Wednesday, June 8, 2016 at 8:00 a.m., local time

Devon Energy Center Auditorium

333 West Sheridan Avenue, Oklahoma City, Oklahoma

 

 

Commitment Runs Deep

 


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LETTER TO STOCKHOLDERS

FROM THE BOARD OF DIRECTORS

 

 

LOGO

Dear Fellow Stockholders,

We are pleased to invite you to attend the 2016 Annual Meeting of Stockholders of Devon Energy Corporation to be held at 8:00 a.m. Central Time on Wednesday, June 8, 2016, in the Devon Energy Center Auditorium located at 333 W. Sheridan Avenue, Oklahoma City, Oklahoma 73102. The meeting will focus on the items of business listed in the Notice of Annual Meeting of Stockholders and Proxy Statement that follows. Your vote on these matters is important to us. Whether or not you plan to attend the meeting, please review the proxy material and vote by internet, phone or mail as soon as possible.

2015 was pivotal for Devon’s portfolio as we continued to sharpen our focus on the very best resource plays in North America by successfully executing a transaction that added to our position in the Oklahoma Anadarko Basin and announcing our intent to monetize $2 billion to $3 billion of non-core assets.

Looking forward from 2015, we find ourselves in the worst industry downturn in recent history. The circumstances that brought us here and the downward spiral of oil prices are unprecedented. Despite this price environment, we remain committed to delivering strong results through superior execution. Devon continues to be focused on delivering meaningful cost reductions and efficiency gains across our asset portfolio. Our drilling programs consistently generate top-tier industry results through higher production rates and rapidly declining capital costs. These efforts will continue in 2016 and are focused on capturing full value from our assets and improving stockholder returns.

It is important that your shares be represented and voted at the Annual Meeting. We urge you to submit your proxy using the internet or telephone or by completing and mailing your Proxy Card in the envelope provided. You may also attend and vote at the Annual Meeting.

Sincerely,

 

LOGO

J. Larry Nichols

Executive Chairman of the Board

 

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DEVON ENERGY CORPORATION

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

 

 

Time   

8:00 a.m. (central time) on Wednesday, June 8, 2016

Place   

Devon Energy Center Auditorium

333 W. Sheridan Avenue

Oklahoma City, Oklahoma 73102

Items of Business   

•    Elect nine directors for a term of one year;

•    Approve, in an advisory vote, executive compensation;

•    Ratify the appointment of the independent auditors for 2016;

•    Consider and vote upon the stockholder proposals set forth in this Proxy Statement, if presented; and

•    Transact such other business as may properly come before the meeting or any adjournment of the meeting.

Who Can Vote   

Stockholders of record at the close of business on April 11, 2016 are entitled to notice of and to vote at the meeting. You may examine a complete list of stockholders entitled to vote at the meeting during normal business hours for the ten days prior to the meeting at our offices and at the meeting.

Voting by Proxy   

Please submit a proxy as soon as possible so that your shares can be voted at the meeting in accordance with your instructions. You may submit your proxy by:

 

•    internet;

•    telephone; or

•    mail

For specific information, please refer to the section entitled “Information About the Annual Meeting” beginning on page 4.

 

Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting of Stockholders to be Held on June 8, 2016:

Our 2016 Proxy Materials, including the 2016 Proxy Statement and Annual Report on Form 10-K for the year ended December 31, 2015, are available at www.proxydocs.com/dvn.

BY ORDER OF THE BOARD OF DIRECTORS

 

LOGO

Carla D. Brockman

Vice President Corporate Governance

and Corporate Secretary

Oklahoma City, Oklahoma

April 27, 2016

 

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PROXY STATEMENT TABLE OF CONTENTS

 

PROXY STATEMENT SUMMARY

  1

INFORMATION ABOUT THE ANNUAL MEETING

  4

AGENDA ITEM 1. ELECTION OF DIRECTORS

  8

CORPORATE GOVERNANCE

  18

Board of Directors’ Information

  18

Practices for Considering Diversity

  18

Committees

  19

Director Independence

  21

Lead Director

  21

Board Involvement in Risk Oversight

  21

Leadership Structure

  21

Stockholder Engagement

  22

Director Contact Information

  22

Compensation Committee Interlocks and Insider Participation

  23

Related Party Transactions

  23

Director Compensation for the Year Ended December 31, 2015

  23

Annual Retainer and Meeting Fees

  24

Equity Awards to Directors

  24

Changes to Director Compensation

  24

GOVERNANCE COMMITTEE REPORT

  25

AUDIT COMMITTEE REPORT

  27

Fees to Independent Auditor

  28

Audit Committee Pre-Approval Policies and Procedures

  28

RESERVES COMMITTEE REPORT

  29

AGENDA ITEM 2. APPROVE, IN AN ADVISORY VOTE, EXECUTIVE COMPENSATION

  30

NAMED EXECUTIVE OFFICER COMPENSATION

  31

COMPENSATION DISCUSSION AND ANALYSIS

  31

Introduction

  32

Executive Summary

  32

2015 Company Performance and Pay Alignment

  32

Response to Stockholder Feedback

  38

Compensation Decisions for 2015

  40

Effect of Company Performance on President & CEO Realizable Pay

  47

Compensation Process Background

  48

ADDITIONAL COMPENSATION INFORMATION

  50

Retirement Benefits

  50

Other Benefits

  51

Post-Termination or Change in Control Benefits

  51

Stock Ownership Guidelines

  52

Compensation Program and Risk Taking

  52

Policy for Recovery of Compensation (Clawback)

  53

Considerations of Tax Implications

  53

Change in Pension Value

  53

COMPENSATION COMMITTEE REPORT

  54

2015 COMPENSATION TABLES

  54

Summary Compensation Table

  54

Grants of Plan-Based Awards

  56

Outstanding Equity Awards at Fiscal Year End

  58

Option Exercises and Stock Vested During 2015

  60

Pension Benefits Table

  61

BENEFIT PLANS

  62

Defined Benefit Plan

  62

Benefit Restoration Plan

  63

Supplemental Retirement Income Plan

  64

Nonqualified Deferred Compensation in 2015

  65

401(k) Plan

  66

Deferred Compensation Plan

  66

Supplemental Contribution Restoration Plans

  66

Supplemental Executive Retirement Plan

  66

POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL

  67

EMPLOYMENT AGREEMENTS

  72

EQUITY COMPENSATION PLAN INFORMATION

  74

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

  74

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

  76

INFORMATION ABOUT EXECUTIVE OFFICERS

  76

AGENDA ITEM 3. RATIFICATION OF INDEPENDENT AUDITORS FOR 2016

  78

AGENDA ITEM  4. STOCKHOLDER PROPOSAL FOR A REPORT ON LOBBYING ACTIVITIES RELATED TO ENERGY POLICY AND CLIMATE CHANGE

  79

AGENDA ITEM 5. STOCKHOLDER PROPOSAL FOR A REPORT ON THE IMPACT OF POTENTIAL CLIMATE CHANGE POLICIES

  82

AGENDA ITEM 6. STOCKHOLDER PROPOSAL FOR A REPORT DISCLOSING LOBBYING POLICY AND ACTIVITY

  86

AGENDA ITEM  7. STOCKHOLDER PROPOSAL TO REMOVE RESERVE ADDITION METRICS FROM THE DETERMINATION OF EXECUTIVE INCENTIVE COMPENSATION

  89

SUBMISSION OF STOCKHOLDER PROPOSALS AND NOMINATIONS

  92
 

 

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PROXY STATEMENT SUMMARY

 

We provide below highlights of certain information in this Proxy Statement. As it is only a summary, please refer to the complete 2016 Proxy Statement and Annual Report before you vote.

2016 ANNUAL MEETING OF STOCKHOLDERS

 

Date and Time:

June 8, 2016, 8:00 a.m. (central time)

Place:

Devon Energy Center Auditorium

333 W. Sheridan Avenue

Oklahoma City, Oklahoma 73102

 

Record Date:

April 11, 2016

Voting:

   

internet

   

telephone; or

   

mail

 

 

VOTING MATTERS AND BOARD RECOMMENDATIONS

 

Proposals    Board’s Recommendation    Page  

Agenda Item 1: Election of Directors

   FOR each of the nominees      8   

Agenda Item 2: Approve, in an Advisory Vote, Executive Compensation

   FOR      30   

Agenda Item 3: Ratification of Independent Auditors for 2016

   FOR      78   

Agenda Item 4: Stockholder Proposal for a Report on Lobbying Activities Related to Energy Policy and Climate Change

   AGAINST      79   

Agenda Item 5: Stockholder Proposal for a Report on the Impact of Potential Climate Change Policies

   AGAINST      82   

Agenda Item 6: Stockholder Proposal for a Report Disclosing Lobbying Policy and Activity

   AGAINST      86   

Agenda Item 7: Stockholder Proposal to Remove Reserve Addition Metrics from the Determination of Executive Incentive Compensation

   AGAINST      89   

 



 

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PROXY STATEMENT SUMMARY (cont’d)

 

STOCKHOLDER ENGAGEMENT

As part of Devon’s commitment to corporate governance we conduct investor outreach throughout the year to obtain feedback from our stockholders on our corporate governance practices and executive compensation programs. In the past year we reached out to holders of approximately 43 percent of Devon’s outstanding shares to discuss, among other issues, implementation of proxy access rights, executive compensation and important environmental, social and governance issues. A more complete discussion of our stockholder engagement efforts and proxy access is included on page 22.

CORPORATE GOVERNANCE

 

  Corporate Governance Highlights

 

   

Annual Election of All Directors

 

   

Majority Voting and a Director Resignation Policy in Uncontested Elections

 

   

Stockholder Right to Call a Special Meeting

 

   

Independent Lead Director

 

   

Proxy Access Rights

   

78% of Directors Are Independent

 

   

Executive Sessions of Independent Directors Held at Each Regularly Scheduled Board Meeting

 

   

Director Stock Ownership Guidelines

 

   

Board Participation in Succession Planning

 

EXECUTIVE COMPENSATION PROGRAMS

 

  Our Executive Compensation Programs Include the Following Factors

 

   

Long-Term Incentive Stock Awards are Performance-Based

 

   

Quantitative Process Utilized for Performance Cash Bonus Awards

 

   

Realizable Pay Opportunities are Tied to Company Performance

 

   

Stock Ownership Requirements

 

   

Recoupment Policy

 

   

Double Trigger Vesting of Long-Term Incentives upon Change in Control

 

 

 



 

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PROXY STATEMENT SUMMARY (cont’d)

 

Say-on-Pay Vote and Response to Stockholder Feedback

At the Company’s 2015 Annual Meeting, 93% of the Company’s stockholders voted to approve the Company’s executive compensation for 2014. We continue to engage in discussions with stockholders on executive compensation and its tie to Company performance. Stockholders have reacted favorably to the Company’s compensation practices, including the changes made over the past few years, which are detailed in the Compensation Discussion and Analysis section beginning on page 31 of this Proxy Statement.

2015 Company Performance and Pay Alignment

The Company met or exceeded most targets for financial and operational goals for 2015. For example, Devon’s oil and overall production in 2015 exceeded the top end of the guidance range issued by the Company on February 17, 2015, and oil production in the fourth quarter of 2015 increased by 16% as compared to the same quarter in 2014. The Company also successfully maintained capital expenditures below the goal established at the beginning of the year and reduced lease operating and general and administrative expenses, which resulted in greater operational efficiency for the year.

The Company achieved significant enhancements to its asset portfolio in 2015 through the successful execution of a transaction that added significant acreage positions in one of the most promising oil plays in North America in Oklahoma’s Anadarko Basin STACK play. The Company also announced plans to monetize non-core upstream assets.

During 2015, Devon’s stock price reached an intra-year high price of $70.48, which was approximately 15% above 2014’s closing price. Devon’s relative TSR was consistently in the top quarter of the peer group for the first half of the year before finishing the full year in 11th position in the Company’s 15 member peer group. Overall, Devon’s full year total stockholder return (TSR) underperformed that of many peer companies in 2015.

The Company’s 2015 overall performance is a reflection that the Company performed well on many operational measures but also recorded disappointing results on important measures such as TSR and reserves additions. For this reason, at the January 2016 meeting in which the Compensation Committee considered cash bonuses for 2015 Company performance, the Compensation Committee awarded bonuses at 90% of target.

In early 2016, the Compensation Committee awarded long-term incentives at lower values than recent years. Executive officers in the same position as the prior year received long-term incentive awards valued at 33% less than the prior year, and executive officers with increased job duties and responsibilities as compared to the prior year received long-term incentive awards valued at 33% less than benchmarks. The Compensation Committee determined that this outcome would appropriately reflect, among other factors, a greater alignment between executive officers and stockholders.

Please see the Compensation Discussion and Analysis section beginning on page 31 of this Proxy Statement for a detailed description of our executive compensation

 



 

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INFORMATION ABOUT THE ANNUAL MEETING

 

We are furnishing you this Proxy Statement in connection with the solicitation of proxies by our Board of Directors (Board) to be used at the Annual Meeting and any adjournment thereof. The Annual Meeting will be held on Wednesday, June 8, 2016 at 8:00 a.m. Central Time.

All references in this Proxy Statement to we, our, us, or the Company refer to Devon Energy Corporation.

What are the Board of Directors’ voting recommendations?

 

   

For the election of the nine Director nominees named in this Proxy Statement for a term expiring at the next Annual Meeting of Stockholders;

 

   

For the approval, on an advisory basis, of executive compensation;

 

   

For the ratification of the appointment of our independent auditors for 2016; and

 

   

Against the stockholder proposals set forth in this Proxy Statement, if presented.

Who is entitled to vote?

Stockholders as of the close of business on April 11, 2016 (the Record Date) are eligible to vote their shares at the Annual Meeting. As of the Record Date, there were 523,909,102 shares of our common stock outstanding. Each share of common stock is entitled to one vote at the Annual Meeting.

How do I vote?

You may:

 

   

attend the Annual Meeting and vote in person; or

 

   

dial the toll-free number listed on the Proxy Card or Voting Instruction Form. Easy-to-follow voice prompts allow you to vote your shares and confirm that your

   

voting instructions have been properly recorded. Telephone voting will be available 24 hours a day, and will close at 11:59 p.m. Eastern Time on June 7, 2016; or

 

   

go to the website www.proxyvote.com and follow the instructions, then confirm that your voting instructions have been properly recorded. If you vote using the website, you can request electronic delivery of future proxy materials. Internet voting will be available 24 hours a day, and will close at 11:59 p.m. Eastern Time on June 7, 2016; or

 

   

if you elected to receive a paper copy of your proxy materials, mark your selections on the Proxy Card, date and sign it, and return the card in the pre-addressed, postage-paid envelope provided.

Why did I receive a Notice Regarding the Internet Availability of Proxy Materials in the mail instead of a full set of proxy materials?

The United States Securities and Exchange Commission (the SEC) rules allow companies to furnish proxy materials over the Internet. We have sent a Notice of Internet Availability of Proxy Materials (the Notice) to most of our stockholders instead of a paper copy of the proxy materials. Instructions on how to access the proxy materials over the Internet or to request a paper copy may be found in the Notice. In addition, stockholders may request to receive future proxy materials in printed form by mail or electronically by email. A stockholder’s election to receive proxy materials by mail or email will remain in effect until the stockholder terminates it.

Why did I receive paper copies of proxy materials?

We are providing paper copies of the proxy materials instead of a Notice to certain stockholders, including those who have

 

 

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INFORMATION ABOUT THE ANNUAL MEETING (cont’d)

 

previously requested to receive them. If you prefer to no longer receive printed proxy materials, you may consent to receive all future proxy materials electronically via email or online. To sign up for electronic delivery, please follow the instructions provided in your proxy materials. When prompted, indicate that you agree to receive or access stockholder communications electronically in the future.

How do I vote the shares held in my Devon 401(k) Plan account?

If you are a current employee participating in the Devon Energy Incentive Savings Plan (the 401(k) Plan), please follow the instructions you received via email from Broadridge Financial Solutions, Inc. (Broadridge).

If you are a former employee and have shares of our common stock credited to your 401(k) Plan account as of the Record Date, such shares are shown on the Voting Instruction Form you received from Broadridge. You have the right to direct Fidelity Management Trust Company (the 401(k) Plan Trustee) regarding how to vote those shares, which you can do by voting your shares in the same manner as provided above.

The 401(k) Plan Trustee will vote your shares in the 401(k) Plan account in accordance with your instructions. If instructions are not received by June 5, 2016, the shares credited to your account will not be voted.

Will each stockholder in our household receive proxy materials?

Generally, no. We try to provide only one set of proxy materials to be delivered to multiple stockholders sharing an address unless you have given us other instructions. Any stockholder at a shared address may request delivery of single or multiple copies of proxy materials for future meetings or an additional copy of the proxy materials for this meeting by contacting us at Devon Energy Corporation, Attention: Corporate Secretary, 333 W. Sheridan Avenue, Oklahoma City, Oklahoma 73102, email: corporatesecretary@dvn.com or by calling (405) 235-3611 and requesting to speak to the Corporate Secretary.

Who will be admitted to the Annual Meeting?

Admission to the Annual Meeting will be limited to our stockholders of record, persons holding proxies from our stockholders, beneficial owners of our common stock and our employees. If your shares are registered in your name, we will verify your ownership at the meeting in our list of stockholders as of the Record Date. If your shares are held through a broker, bank or other nominee, you must bring proof of your ownership of the shares. This proof could consist of, for example, a bank or brokerage firm account statement or a letter from your bank or broker confirming your ownership as of the Record Date.

If I vote via telephone or the Internet or by mailing my Proxy Card, may I still attend the Annual Meeting?

Yes.

What if I want to change my vote?

You may revoke your proxy before it is voted by submitting a new proxy with a later date (by mail, telephone or Internet), by voting at the Annual Meeting, or by filing a written revocation with our Corporate Secretary. Your attendance at the Annual Meeting will not automatically revoke your proxy.

Who will count the votes?

Broadridge will tabulate the votes.

What constitutes a quorum?

A majority of the shares entitled to vote, present in person or represented by proxy, constitutes a quorum. If you vote by telephone or Internet or by returning your Proxy Card, you will be considered part of the quorum. Broadridge, the Inspector of Election, will treat shares represented by a properly executed proxy as present at the meeting. Abstentions and broker non-votes will be counted for purposes of determining a quorum. A broker non-vote occurs when a nominee holding shares for a beneficial owner submits a proxy but does

 

 

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INFORMATION ABOUT THE ANNUAL MEETING (cont’d)

 

not vote on a particular proposal because the nominee does not have discretionary voting power for that item and has not received instructions from the beneficial owner.

How many votes will be required to approve a proposal?

For the election of Directors, in an uncontested election, a nominee for Director shall be elected if the votes cast “for” such nominee’s election exceed the votes “withheld” in such nominee’s election. Any nominee for Director in a contested election shall be elected by a plurality of the votes cast.

Our Corporate Governance Guidelines and Bylaws contain a director resignation policy which provides that any nominee for Director in an uncontested election who fails to receive a greater number of votes cast “for” such nominee’s election than the votes cast “withheld” in such nominee’s election shall tender his or her written offer of resignation to the Governance Committee of the Board of Directors within 90 days from the date of the election. The Governance Committee will consider all of the relevant facts and circumstances and recommend to the Board the action to be taken with respect to such offer of resignation.

With respect to other matters, the affirmative vote of the holders of a majority of the total number of votes represented at the Annual Meeting is required to take the action.

Shares cannot be voted at the Annual Meeting unless the holder of record is present in person or by proxy.

Can brokers who hold shares in street name vote those shares if they have received no instructions?

Under the rules of the New York Stock Exchange (the NYSE), brokers may not vote the shares held by them in street name for their customers

and for which they have not received instructions, except with respect to a routine matter. The only matter to be voted on at the Annual Meeting that is considered routine for these purposes is the ratification of the appointment of the independent auditors. This means that brokers may not vote your shares on any other matter if you have not given instructions as to how to vote. Please be sure to give voting instructions to your broker so that your vote will be counted.

How will you treat abstentions and broker non-votes?

We will:

 

   

count abstentions and broker non-votes for purposes of determining the presence of a quorum at the Annual Meeting;

 

   

treat abstentions as votes not cast but as shares represented at the Annual Meeting for determining results on actions requiring a majority of shares present and entitled to vote at the Annual Meeting;

 

   

not consider broker non-votes for determining actions requiring a majority of shares present and entitled to vote at the Annual Meeting; and

 

   

consider neither abstentions nor broker non-votes in determining results of plurality votes.

Who pays the solicitation expenses?

We will bear the cost of solicitation of proxies. Proxies may be solicited by mail or personally by our Directors, officers or employees, none of whom will receive additional compensation for such solicitation. We have retained D.F. King & Co. to assist in the solicitation of proxies at an estimated cost of $10,500 plus reasonable expenses. Those holding shares of common stock of record for the benefit of others, or nominee holders, are being asked to distribute proxy soliciting materials to, and request voting

 

 

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INFORMATION ABOUT THE ANNUAL MEETING (cont’d)

 

instructions from, the beneficial owners of such shares. We will reimburse nominee holders for their reasonable out-of-pocket expenses.

Where can I find the voting results of the Annual Meeting?

We will announce preliminary voting results at the Annual Meeting, and we will publish final results in a Form 8-K that will be filed with the SEC within four business days after the Annual Meeting. You may obtain a copy of this and other reports free of charge at www.devonenergy.com, or by contacting us at (405) 235-3611 or corporatesecretary@dvn.com, or by accessing the SEC’s website at www.sec.gov.

Will the Company’s independent auditors be available at the Annual Meeting to respond to questions?

Yes. The Audit Committee of the Board of Directors has approved KPMG LLP to serve as our independent auditors for the year ending December 31, 2016. Representatives of KPMG LLP will be present at the Annual Meeting. They will have an opportunity to make a statement, if they desire to do so, and will be available to respond to stockholder questions.

Where can I contact the Company?

Our contact information is:

Corporate Secretary

Devon Energy Corporation

333 W. Sheridan Avenue

Oklahoma City, Oklahoma 73102

(405) 235-3611

 

 

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AGENDA ITEM 1.

ELECTION OF DIRECTORS

Our Board of Directors has nominated nine directors for election at the Annual Meeting. Each Director will serve for a term ending at the next Annual Meeting, and until his or her successor is duly elected and qualified, subject to such Director’s earlier death, disqualification, resignation or removal. Eight of the nominees are currently Devon directors who were elected by stockholders at the 2015 Annual Meeting. David A. Hager, President and Chief Executive Officer, who does not currently serve as a director of the Company, has also been nominated for election at the Annual Meeting.

J. Larry Nichols, Executive Chairman, will retire at the end of his term following the Annual Meeting, in accordance with the director retirement provision of the Company’s Corporate Governance Guidelines. Therefore, he was not nominated for re-election.

Within each nominee’s biography below, we have highlighted certain notable skills and qualifications that contributed to his or her selection as a member of our Board of Directors.

We have no reason to believe that any of the nominees for director will be unable to serve if elected. However, if any of these nominees becomes unavailable, the persons named in the proxy intend to vote for any alternate designated by the current Board. Proxies cannot be voted for a greater number of persons than the nominees named.

 

Our Board of Directors recommends that stockholders vote “FOR” the election of the following directors.

 

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AGENDA ITEM 1.

ELECTION OF DIRECTORS (cont’d)

 

Director Nominees

 

 

LOGO

 

    

Experience and Qualifications

 

Barbara M. Baumann is a former BP Amoco executive who currently serves as president and owner of Cross Creek Energy Corporation, an energy advisory firm with investments in the domestic oil and gas business. Prior to founding her own firm in 2003, Baumann was executive vice president of Associated Energy Managers, a private equity firm investing in small energy companies. Ms. Baumann began her 18-year career with Amoco (later BP Amoco) in 1981. She served in various areas of finance and operations, including chief financial officer of Ecova Corporation, Amoco’s wholly-owned environmental remediation business, and vice president of Amoco’s San Juan Basin business unit. She brings to the Board her extensive knowledge of the energy industry and her experience as an accomplished leader and business professional.

 

Education

 

Ms. Baumann earned a bachelor’s degree from Mount Holyoke College and a master’s in business administration from the Wharton School of the University of Pennsylvania.

 

Other Boards and Appointments

 

Ms. Baumann is a director of Buckeye Partners, L.P. where she serves on the audit committee and the nominating and governance committee. Ms. Baumann is also a member of the Board of Trustees of Putnam Investments, Inc. She is a director of privately held Hat Creek Energy Corporation where she chairs the compensation committee and serves on the audit committee. She previously served on the boards of Cody Resources Management, LLC, CVR Energy, SM Energy, and UNS Energy.

Barbara M. Baumann

Director since 2014

Age 60

 

Committees:

•  Audit

•  Governance

    
    
    
    
    
    
    
    
    
    
    
    
    
    
    

 

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AGENDA ITEM 1.

ELECTION OF DIRECTORS (cont’d)

 

 

LOGO

 

    

Experience and Qualifications

 

John E. Bethancourt is a retired Chevron executive. He most recently served as executive vice president for technology and services where he was responsible for overseeing Chevron’s environmental, health and safety efforts, major project management, procurement and mining operations. Mr. Bethancourt began his career in 1974 with Getty Oil Company and joined Texaco Inc. in 1984 when the two companies merged. During his career with Texaco and later Chevron, Mr. Bethancourt served in various executive leadership roles overseeing business development, worldwide production operations and human resources. He brings to the Board his extensive knowledge of the energy industry and his experience as an accomplished leader and business professional.

 

Education

 

Mr. Bethancourt earned a bachelor’s degree in petroleum engineering from Texas A&M University.

 

Other Boards and Appointments

 

Mr. Bethancourt previously served on the board of trustees of the Texas A&M Foundation and is a past director of both the Society of Petroleum Engineers and the National Action Council for Minorities in Engineering, Inc.

John E. Bethancourt

Director since 2014

Age 64

 

Committees:

•  Compensation

•  Governance

•  Reserves

    
    
    
    
    
    
    
    
    
    
    
    
    

 

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AGENDA ITEM 1.

ELECTION OF DIRECTORS (cont’d)

 

 

LOGO

 

    

Experience and Qualifications

 

David A. Hager was elected by the Board of Directors to the position of President and Chief Executive Officer on August 1, 2015. He joined the Company in March 2009 and held the position of Executive Vice President Exploration and Production from 2009 until 2013 and Chief Operating Officer from 2013 to 2015. Mr. Hager started in the oil and gas business as a geophysicist with Mobil Corp. He joined Sun Oil in 1981 and continued with Oryx Energy following its spin off from Sun Oil. During his tenure at Oryx, he managed new ventures and deepwater projects around the world. Oryx merged with Kerr-McGee in 1999 and, while at Kerr-McGee, Mr. Hager managed the company’s worldwide deepwater exploration and production operations and assumed responsibility for all exploration and production activities in 2003. He later served as Kerr-McGee’s chief operating officer until it was acquired by Anadarko Corp. in 2006.

 

Education

 

Mr. Hager has a bachelor’s degree in geophysics from Purdue University and a master’s degree in business administration from Southern Methodist University.

 

Other Boards and Appointments

 

From 2007 until joining the Company as an executive officer, Mr. Hager served as a member of Devon’s Board of Directors. Mr. Hager currently serves on the boards of the managing member and general partner of EnLink Midstream, LLC (ENLC) and EnLink Midstream Partners, LP (ENLK), respectively, and on their compensation committees. As of April 1, 2016, Devon owned approximately 64 percent of ENLC and 25 percent of ENLK.

David A. Hager

Director Nominee

Age 59

    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    

 

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AGENDA ITEM 1.

ELECTION OF DIRECTORS (cont’d)

 

 

LOGO

 

    

Experience and Qualifications

 

Robert H. Henry is a legal and foreign relations scholar, public servant and leader. He has served as the President and Chief Executive Officer of Oklahoma City University since 2010. Mr. Henry brings to the Board his experience and knowledge of the law, which enable him to provide valuable insights in the areas of governance and public policy.

 

Mr. Henry has had a distinguished career in public service. In 1994, President Bill Clinton appointed Mr. Henry to the United States Court of Appeals for the Tenth Circuit, where he served until June 2010, most recently as Chief Judge. Mr. Henry was elected and re-elected Attorney General of the State of Oklahoma from 1986 to 1991. He served in the Oklahoma House of Representatives from 1976 to 1986 where he was principal author of the 1986 Oklahoma General Corporation Act that moved Oklahoma law to the Delaware corporate law model.

 

Mr. Henry was Dean and Professor of Law at Oklahoma City University School of Law from 1991 to 1994. Mr. Henry also taught at the University of Oklahoma Honors College (Oxford Program), the University of Oklahoma College of Law, and Oklahoma Baptist University (Business Law) and served as Distinguished Judge in Residence at the University of Tulsa College of Law.

 

Education

 

Mr. Henry received his bachelor’s degree and juris doctorate from the University of Oklahoma. He received an honorary degree of doctor of humane letters from the University of Tulsa and an honorary degree of doctor of laws from Oklahoma City University.

 

Other Boards and Appointments

 

Mr. Henry is a life member of the National Conference of Commissioners on Uniform State Laws, and a member of the Council on Foreign Relations, the American Law Institute, and the William J. Holloway, Jr. American Inn of Court, Master of the Court. While a federal judge,
Mr. Henry served as chair of the committee on International Relations of the Judicial Conference of the United States. He is a life and founding member of the Tenth Judicial Circuit’s Historical Society. Mr. Henry serves on the board of directors of iCivics, Allied Arts and the Oklahoma Medical Research Foundation. He previously served on the board of LSB Industries, Inc.

Robert H. Henry

Director since 2010

Age 63

 

Committees:

•  Audit

•  Governance

    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    

 

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AGENDA ITEM 1.

ELECTION OF DIRECTORS (cont’d)

 

 

LOGO

 

    

Experience and Qualifications

 

Michael Kanovsky is a Professional Engineer and has been involved with investment banking and oil and gas businesses for over 40 years. He has been President of Sky Energy Corporation since 1993. Mr. Kanovsky brings to the Board an extensive knowledge of the energy industry and finance, with a wealth of experience with Canadian assets and areas of operation.

 

In 1978, Mr. Kanovsky co-founded Canadian Northstar Corporation and its successor, Northstar Energy Corporation, where he was primarily responsible for strategic development, finance and acquisitions until its acquisition by Devon Energy Corporation in 1998. In 1997, Mr. Kanovsky founded Bonavista Petroleum Ltd. Mr. Kanovsky has also held other executive positions, including chief executive officer of Arrowstar Drilling and vice president of Corporate Finance, Western Canada, for a large Canadian investment dealer.

 

Education

 

Mr. Kanovsky received a bachelor’s degree in mechanical engineering from Queen’s University as well as a master’s degree in business administration from the Richard Ivey School of Business at Western University.

 

Other Boards and Appointments

 

Mr. Kanovsky is a director of Bonavista Energy Corporation and serves as lead director, chairman of the governance and nominating committee and is a member of the reserves, audit and compensation committees. He is a director of Pure Technologies Ltd. and serves as lead director and on the corporate governance and nominating committee. He is also a director of Seven Generations Energy Ltd. and serves on the audit and finance committee and reserves and risk management committee.

 

Mr. Kanovsky previously served on the boards of TransAlta Corporation, ARC Resources Ltd. and Argosy Energy, Inc. He also served as chairman of the Board of Taro Industries and vice chairman of Precision Drilling, Inc. He co-founded PowerLink Corporation, an electrical cogeneration company and former subsidiary of Northstar Energy Corporation, and served as its senior executive board chairman.

Michael M. Kanovsky

Director since 1999

Age 67

 

Committees:

•  Chair, Reserves

•  Audit

    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    

 

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AGENDA ITEM 1.

ELECTION OF DIRECTORS (cont’d)

 

 

LOGO

 

    

Experience and Qualifications

 

Robert A. Mosbacher, Jr. is an accomplished business leader with more than 30 years in the energy industry. He is Chairman of Mosbacher Energy Company, an independent oil and gas exploration and production company. Mr. Mosbacher brings to the Board his extensive background in the energy industry and his leadership skills, which contributed to the development of the global marketplace.

 

In 2005, Mr. Mosbacher was appointed by President George W. Bush to the position of president and chief executive officer of the Overseas Private Investment Corporation, an independent agency of the U.S. government that supports private capital investment in emerging markets around the world. He served in that capacity until 2009. From 1986 to 2005, he served as president and chief executive officer of Mosbacher Energy Company. He was also vice chairman of Mosbacher Power Group, an independent electric power developer, from 1995 to 2003. Mr. Mosbacher had a distinguished public service career that included serving as chairman of the board of the Texas Department of Human Services and as a staff member in the office of Senator Howard Baker of Tennessee.

 

Education

 

Mr. Mosbacher received a bachelor’s degree in political science from Georgetown University and a juris doctorate degree from Southern Methodist University.

 

Other Boards and Appointments

 

Mr. Mosbacher is a director of Calpine Corporation and currently serves on Calpine’s nominating and governance committee and compensation committee. In addition, Mr. Mosbacher is chairman of the Board of Global Communities and the Initiative for Global Development and serves on the Board of the Americas Society. Mr. Mosbacher previously served as a member of Devon’s Board from 1999 until 2005.

Robert A. Mosbacher, Jr.

Director since 2009

Age 64

 

Committees:

• Chair, Governance

• Compensation

    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    

 

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AGENDA ITEM 1.

ELECTION OF DIRECTORS (cont’d)

 

 

LOGO

 

    

Experience and Qualifications

 

Duane C. Radtke has over 45 years of experience in management, engineering and business development in the energy industry. Mr. Radtke has been President and Chief Executive Officer of Valiant Exploration LLC since 2008. Mr. Radtke brings to the Board extensive knowledge of the energy business, including experience with the Company’s assets and operations.

 

Mr. Radtke served as the chief executive officer and president of Dominion Exploration and Production, a subsidiary of Dominion Resources, Inc., from 2001 to 2007. During that period, he also served as executive vice president of Consolidated Natural Gas Company, a subsidiary of Dominion Resources Inc. Prior to his tenure with Dominion Resources, Inc., Mr. Radtke was an executive with Santa Fe Snyder where he served in various capacities, including executive vice president of production. Following Devon’s acquisition of Santa Fe Snyder in 2000, Mr. Radtke served as President of the Company’s international division until joining Dominion.

 

Education

 

Mr. Radtke holds a bachelor’s degree in mining engineering from the University of Wisconsin.

 

Other Boards and Appointments

 

Mr. Radtke is a director of Sabine Oil & Gas Corporation and serves as the lead director and on the compensation, audit and governance committees. Mr. Radtke is also a director of Kris Energy Ltd. and serves on the compensation, governance and investment committees. He previously served as chairman of the American Exploration and Production Council, as a director of Smith International, Inc. and as a director of Consolidated Natural Gas Company. Mr. Radtke is also non-executive chairman of Bazean Corporation, a private investment company.

Duane C. Radtke

Director since 2010

Age 67

 

Committees:

• Compensation

• Reserves

    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    

 

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AGENDA ITEM 1.

ELECTION OF DIRECTORS (cont’d)

 

 

LOGO

 

    

Experience and Qualifications

 

Mary P. Ricciardello is a licensed Certified Public Accountant and a financial executive with over 30 years of experience in the energy industry. She brings to the Board her qualifications as a financial expert and her extensive experience in the energy industry, corporate finance and tax matters.

 

In 2002, Ms. Ricciardello retired after a 20-year career with Reliant Energy Inc., a leading independent power producer and marketer. She served in various financial management positions with the company, including comptroller, vice president and most recently senior vice president and chief accounting officer.

 

Education

 

Ms. Ricciardello holds a bachelor’s degree in business administration from the University of South Dakota and a master’s degree in business administration with an emphasis in finance from the University of Houston.

 

Other Boards and Appointments

 

Ms. Ricciardello is currently a director of Noble Corporation where she is the designated financial expert, serves as the Audit Committee chairperson and is a member of the Nominating & Governance Committee. Ms. Ricciardello serves on the boards of the managing member and general partner of ENLC and ENLK, respectively, and on their audit committees. As of April 1, 2016, Devon owned approximately 64 percent of ENLC and 25 percent of ENLK. She also serves on the board of the National Association of Corporate Directors (NACD) Houston Chapter and recently received the NACD designation “Board Leadership Fellow”. Ms. Ricciardello was previously a director of US Concrete and Midstates Petroleum Company. Ms. Ricciardello is also an editorial advisor for the Journal of Accountancy.

Mary P. Ricciardello

Director since 2007

Age 60

 

Committees:

• Chair, Audit

• Governance

    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    

 

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AGENDA ITEM 1.

ELECTION OF DIRECTORS (cont’d)

 

 

LOGO

 

    

Experience and Qualifications

 

John Richels is an accomplished business leader with 35 years of experience in the oil and gas industry and legal profession. He served as the Company’s President from 2004 through 2010 and President and Chief Executive Officer from 2010 until his retirement in 2015. He was elected Vice Chairman in December 2014 and will be elected as Chairman of the Board upon the retirement of J. Larry Nichols in June 2016. Mr. Richels brings to the Board an extensive knowledge of the energy industry, including his experience with the Company’s assets and operations.

 

Mr. Richels joined Devon in 1998 when the Company acquired Northstar Energy Corporation, where he held the office of executive vice president and chief financial officer. After the acquisition, he served as senior vice president of Devon and president and chief executive officer of Devon’s Canadian subsidiary.

 

Prior to joining Northstar, Mr. Richels was managing partner, chief operating partner and a member of the executive committee of the Canadian-based national law firm Bennett Jones. He joined Bennett Jones in 1978 practicing in the mergers and acquisitions, securities and corporate law areas, primarily in the oil and gas sector. During his legal career, Mr. Richels also served, on loan from Bennett Jones, as an officer of the XV Olympic Winter Games Organizing Committee in Calgary.

 

Education

 

Mr. Richels received a bachelor’s degree in economics from York University. He also received a law degree from the University of Windsor.

 

Other Boards and Appointments

 

Mr. Richels serves as chairman of the boards of the managing member and general partner of ENLC and ENLK, respectively. As of April 1, 2016, Devon owned approximately 64 percent of ENLC and 25 percent of ENLK. Mr. Richels is a director of BOK Financial Corporation and serves on the audit committee. He is also a director of TransCanada Corporation and serves on the compensation committee and the health, safety and environmental committee.

 

Mr. Richels is a member of the executive committee and board of directors of the Greater Oklahoma City Chamber of Commerce and serves on the board of trustees of Oklahoma City University. He is also a director of the Independent Petroleum Association of America and is a member of the University of Oklahoma’s International Programs Center’s Board of Visitors.

John Richels

Director since 2007

Age 65

 

Vice Chairman

    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    

 

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CORPORATE GOVERNANCE

Board of Directors’ Information

Our Board of Directors met seven times in 2015. All Directors attended 100% of the total meetings of the Board of Directors and the respective Committees on which they served with the exception of John A. Hill, who attended 75% of the total meetings of the Board of Directors and the Committee on which he served prior to his retirement in June 2015.

The Board expects our Directors to be in attendance at our Annual Meetings of Stockholders. All Directors attended the 2015 Annual Meeting.

Copies of the following governance documents are available at www.devonenergy.com and in print to any stockholder upon request:

 

   

Certificate of Incorporation;

 

   

Bylaws;

 

   

Corporate Governance Guidelines;

 

   

Code of Business Conduct and Ethics;

 

   

Code of Ethics for Chief Executive Officer (CEO), Chief Financial Officer (CFO) and Chief Accounting Officer (CAO); and

 

   

Anti-Corruption Policy and Procedure.

Amendments to and waivers from any provision of the Code of Ethics for the CEO, CFO, and CAO will be posted on our website.

Our website also includes our Corporate Social Responsibility Report and information on our environmental and safety initiatives.

Practices for Considering Diversity

The Charter of the Governance Committee provides that the Committee shall periodically review the appropriate skills and characteristics of members of the Board of Directors in the context of the then-current composition of the Board. This assessment includes the following factors: diversity (including diversity of skills, background and experience); business and professional background; financial literacy and expertise; availability and commitment; independence; and other criteria that the Governance Committee or the full Board finds relevant. It is the practice of the Governance Committee to consider these factors when screening and evaluating candidates for nomination to the Board of Directors.

 

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CORPORATE GOVERNANCE (cont’d)

 

Committees

The Board of Directors has four standing Committees: Audit, Compensation, Governance and Reserves. The Charters for these Committees are available on the Company’s website www.devonenergy.com. The following table shows each Committee’s current membership, function and the number of meetings each Committee held in 2015:

LOGO

 

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CORPORATE GOVERNANCE (cont’d)

 

LOGO

 

1 

Chairman

 

2 

Audit Committee financial expert

 

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CORPORATE GOVERNANCE (cont’d)

 

Director Independence

The Company’s Corporate Governance Guidelines provide that an independent director is a director who meets the NYSE definition of independence, as determined by the Board. In making this determination, the Board considers transactions and relationships between each Director or any member of the Director’s immediate family and the Company, our subsidiaries and affiliates. The Board has affirmatively determined that each of the current Directors and each person who served as a Director during 2015, with the exception of our Executive Chairman, J. Larry Nichols, and Vice Chairman, John Richels, was or is an independent Director as defined by the standards for director independence established by applicable laws, rules, and listing standards, including, without limitation, the standards for independent directors established by the NYSE and the SEC, has or had no material relationship with us that would interfere with the exercise of independent judgment and, therefore, is or was independent under our Corporate Governance Guidelines and the standards established by the NYSE.

In evaluating the independence of Mr. Robert H. Henry, the Board has considered the charitable contributions made by Devon to Oklahoma City University (OCU) in recent years. While these charitable contributions do not affect Mr. Henry’s independence status, disclosure of the contributions are provided herein. Consistent with the Company’s practice of making contributions to other major universities in Oklahoma, in 2013, 2014 and 2015, the Company made charitable contributions to OCU of $625,750, $613,500 and $508,500, respectively.

Lead Director

The Board has a Lead Director whose primary responsibility is to preside over the executive session of the Board meetings in which members of management do not participate. The Lead Director also performs other duties that the Board may from time to time delegate to assist the Board in the fulfillment of its responsibilities. In 2015, the Lead Director presided over four executive sessions of the Board.

John A. Hill served as Lead Director until his retirement from the Board in June 2015. Robert A. Mosbacher, Jr. has served as Lead Director since June 2015.

Board Involvement in Risk Oversight

The full Board has primary responsibility for risk oversight, with the Board’s standing committees supporting the Board by addressing the risks inherent in their respective areas of oversight. The Audit, Governance, Compensation and Reserves Committees have been delegated certain risk oversight responsibilities.

Leadership Structure

As stated in the Company’s Corporate Governance Guidelines, the Board reserves the right to determine, from time to time, how to configure the leadership of the Board and the Company in the way that best serves the Company. The Board specifically reserves the right to vest the responsibilities of Chairman of the Board and CEO in the same or in different individuals. The Board currently has no fixed policy with respect to combining or separating the positions of Chairman of the Board and CEO.

 

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CORPORATE GOVERNANCE (cont’d)

 

J. Larry Nichols, Executive Chairman of the Board, will retire from the Board following the 2016 Annual Meeting, at which time John Richels will be appointed Chairman of the Board. David Hager, serves as President and CEO. The current structure fosters consensus building and tactical execution of a Board-approved vision and strategy at the top levels of the Company, which we believe promotes long-term stockholder value. The Board believes this structure is in the Company’s best interest at the present time; however, the Board may utilize a different structure in the future should circumstances change.

The Company’s Corporate Governance Guidelines provide that, at any time the CEO holds the position of Chairman of the Board, the Board shall appoint an independent Director to serve as the Lead Director. These positions are currently held by different individuals; however, the Chairman is not independent and, as mentioned above, Robert A. Mosbacher, Jr. currently serves as Lead Director.

Stockholder Engagement

We conduct ongoing governance reviews and investor outreach throughout the year to ensure that management and the Board understand the issues that matter most to our stockholders and address them effectively. At the Company’s 2015 Annual Meeting, stockholders voted to approve a proposal to allow stockholders the right to nominate directors on the Company’s proxy materials, known as proxy access. During 2015 we reached out to holders of approximately 43 percent of Devon’s outstanding shares, including the proponent of the proxy access proposal, and discussed implementation of the proposal as well as some of the detailed provisions that were not contemplated by the proposal, to determine what type of provisions would be in the best interest of the Company and its stockholders. After considering the feedback we received from stockholders on these provisions, and after discussions with the proponent of the proxy access proposal about being responsive to the intent of the proposal, the Board amended and restated the Company’s Bylaws in January 2016 to implement proxy access rights which allow a group of up to 20 stockholders holding three percent or more of the Company’s outstanding common stock continuously for at least three years to nominate and include in the Company’s proxy materials director candidates constituting up to the greater of two individuals or 20% of the Board.

In addition to discussions with our stockholders about proxy access during 2015, we also engaged in discussions with stockholders about executive compensation and important environmental, social and governance issues.

Director Contact Information

Any stockholder or other interested party may contact any of our Non-Management Directors, including the Lead Director or Non-Management Directors as a group, by:

 

   

U.S. mail to the Lead Director or to Non-Management Directors, c/o Office of the Corporate Secretary, Devon Energy Corporation, 333 W. Sheridan Avenue, Oklahoma City, Oklahoma 73102;

 

   

calling our Non-Management Directors access line at (866) 888-6179; or

 

   

sending an email to nonmanagement.directors@dvn.com.

A Management Director may be contacted by:

 

   

U.S. mail to Management Directors, c/o Office of the Corporate Secretary, Devon Energy Corporation, 333 W. Sheridan Avenue, Oklahoma City, Oklahoma 73102;

 

   

contacting the Office of the Corporate Secretary at (405) 235-3611; or

 

   

sending an email to CorporateSecretary@dvn.com.

All calls or correspondence are anonymous and kept confidential to the extent possible. All such communications, other than advertisements or commercial solicitations, will be forwarded to the appropriate Director(s) for review.

 

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CORPORATE GOVERNANCE (cont’d)

 

Compensation Committee Interlocks and Insider Participation

During 2015, the Compensation Committee was comprised of three independent Directors with no interlocking relationships as defined by the SEC.

Related Party Transactions

The Company maintains a policy concerning “related person transactions” as defined by the SEC. Related persons include the Company’s directors and executive officers and their immediate family members and beneficial owners of more than five percent of the Company’s common stock.

The Board’s Audit Committee considers information about transactions involving related persons. If the transaction at issue involves a member of the Audit Committee, or a family member of a member, then that member of the Committee would not participate in discussions. In the event the Committee concludes that a related person has a material interest in any Company transaction, the Committee then reviews the transaction to determine whether to approve or ratify it. Any transaction that meets the monetary threshold under the SEC rules and is determined to have a direct or indirect material benefit to a related party would be disclosed in accordance with SEC rules.

Mr. Nichols’ son-in-law is employed by the Company as an attorney. His total 2015 taxable compensation, including salary, bonus and stock grants was approximately $348,000, which was commensurate with the compensation provided to similarly situated employees of the Company. Mr. Nichols was not involved in the evaluation of his son-in-law’s performance and his son-in-law’s compensation was determined in accordance with the Company’s standard human resources policies and procedures.

The son of Tony D. Vaughn, Chief Operating Officer, is employed by the Company as a manager in supply chain. His total 2015 taxable compensation, including salary, bonus and stock grants was approximately $148,000, which was commensurate with the compensation provided to similarly situated employees of the Company. Mr. Vaughn was not involved in the evaluation of his son’s performance and his son’s compensation was determined in accordance with the Company’s standard human resources policies and procedures.

Director Compensation for the Year Ended December 31, 2015

Under our Corporate Governance Guidelines, Non-Management Director compensation is determined annually by the Board of Directors acting upon the recommendation of the Governance Committee. Devon employees receive no additional compensation for serving as directors. Mr. Richels retired as President and Chief Executive Officer of the Company on July 31, 2015, and as such he is included as a Named Executive Officer for the year ended December 31, 2015, as described on page 32. He continues to serve as Vice Chairman of the Board of Directors, and his compensation in relation to this role is reflected in the Summary Compensation Table on page 54. The following table shows compensation for the following Non-Management Directors for 2015:

 

Name   Fees Earned or Paid
in Cash ($)
   

Stock Awards1

($)

   

Option Awards2

($)

    All Other
Compensation3
   

Total

($)

 

Barbara M. Baumann

    106,000        230,063                 336,063   

John E. Bethancourt

    107,000        230,063                      337,063   

Robert H. Henry

    105,000        230,063                      335,063   

John A. Hill

    66,000        0                      66,000   

Michael M. Kanovsky

    115,000        230,063                      345,063   

Robert A. Mosbacher, Jr.

    131,500        230,063                      361,563   

J. Larry Nichols

    281,000        630,025               37,319        948,344   

Duane C. Radtke

    105,500        230,063                      335,563   

Mary P. Ricciardello

    129,000        230,063                      359,063   

 

1 

The dollar amounts reported in this column represent the grant date fair values of the stock awards made to all Non-Management Directors on June 5, 2015, computed in accordance with FASB ASC Topic 718. The assumptions used to value

 

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CORPORATE GOVERNANCE (cont’d)

 

 

stock awards are discussed in Note 4—Share-Based Compensation of the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2015. As of December 31, 2015, our Non-Management Directors held the following unvested stock awards: Ms. Baumann—3,606; Mr. Bethancourt—3,606; Mr. Henry—4,106; Mr. Hill—0; Mr. Kanovsky—4,106; Mr. Mosbacher—4,106; Mr. Nichols—9,875; Mr. Radtke—4,106; and Ms. Ricciardello—4,106. Mr. Richels did not receive stock awards as part of his director compensation in 2015.

 

2 

No option awards were made to Non-Management Directors in 2015. As of December 31, 2015, our Non-Management Directors held the following outstanding and unexercised option awards: Mr. Henry—9,000; Mr. Kanovsky—15,000; Mr. Mosbacher—12,000; Mr. Nichols—636,100; Mr. Radtke—9,000; Ms. Ricciardello—15,000; and Mr. Richels—578,475.

 

3

The dollar amount reported represents the aggregate incremental cost to the Company for personal use of aircraft. The aggregate incremental cost to the Company for personal use of our aircraft is calculated based on our average variable operating costs. Variable operating costs include fuel, engine reserves, maintenance, weather-monitoring, on-board catering, landing/ramp fees and other miscellaneous variable costs. The total annual variable costs are divided by the annual number of hours our aircraft flew to determine an average variable cost per hour. This average variable cost per hour is then multiplied by the hours flown for personal use to determine the incremental cost. The methodology excludes fixed costs that do not change based on usage, such as pilots’ and other employees’ salaries, purchase costs of the aircraft and non-trip related hangar expenses.

Annual Retainer and Meeting Fees

The following is a schedule of annual retainers and meeting fees for Non-Management Directors in effect during 2015:

 

Type of Fee   Amount  

Annual Retainer to Executive Chairman of the Board

  $ 270,000   

Annual Board Retainer to Non-Chairman Directors

  $ 70,000   

Additional Annual Retainer to Chairman of Audit Committee

  $ 25,000   

Additional Annual Retainer to the Chairmen of Compensation, Governance and Reserves Committees

  $ 15,000   

Additional Annual Retainer for Lead Director

  $ 25,000   

Additional Annual Retainer to Audit Committee Members

  $ 2,000   

Fee for each Board or Committee Meeting attended in person

  $ 2,000   

Fee for each Board or Committee Meeting attended via telephone

  $ 1,000   

Each Non-Management Director is reimbursed for out-of-pocket expenses incurred while serving as a Director.

Equity Awards to Directors

The Board elects to compensate Directors through restricted stock awards (RSAs) in order to align the Directors’ and stockholders’ interests in the long-term performance of the Company. As reflected in the Director Compensation table above, on June 5, 2015 our Executive Chairman was granted a RSA valued at approximately $630,000, and our other Non-Management Directors as of that date were granted RSAs valued at approximately $230,000. Stock awards to Non-Management Directors are generally granted immediately following each Annual Meeting; in 2015, grants were made under the Company’s 2015 Long-Term Incentive Plan (“2015 LTIP”) that was approved at the 2015 annual meeting. Shares under each RSA will fully vest on the first anniversary of the grant date subject to the Director’s continued service to the Company. Unvested shares are entitled to cash dividends at the same times and in the same amounts as other shares of our outstanding common stock.

Changes to Director Compensation

At its meeting in March 2016, the Board of Directors discussed the prospective director equity awards for 2016 in light of the downturn in the oil and gas industry, the decrease in the Company’s stock price in 2015 and early 2016, and the reduced level of Long-Term Incentive Awards granted to management in March 2016. Based on those discussions, the Board of Directors voted to reduce the director equity awards to be awarded in June 2016 to an amount that is 33% lower than the prior year’s grant. In addition to furthering an alignment between director pay and management compensation, the Board noted that lowering the value of awards will preserve a greater number of shares available under the 2015 LTIP.

 

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GOVERNANCE COMMITTEE REPORT

The Governance Committee is currently comprised of five independent Directors and operates under a written Charter approved by the Board of Directors. The Governance Committee Charter may be viewed at www.devonenergy.com.

The Governance Committee is responsible for nominating qualified candidates to serve on the Board of Directors and reviewing their qualifications with the Board, taking into account the composition and skills of the entire Board and specifically ensuring a sufficient number of the members of the Board are financially literate. The Governance Committee considers nominees recommended by stockholders and gives appropriate consideration in the same manner as given to other nominees. Stockholders who wish to submit recommendations for director nominees for election at our 2017 Annual Meeting of Stockholders may do so by submitting such nominee’s name in writing, in compliance with the procedures required by our Bylaws, to the Governance Committee of the Board of Directors, Attention: Chairman, c/o Office of the Corporate Secretary, Devon Energy Corporation, 333 W. Sheridan Avenue, Oklahoma City, Oklahoma 73102. Such a recommendation must be received between February 8, 2017 and March 10, 2017 in order to be considered a timely notice. The stockholder’s notice must contain:

 

   

all information that is required to be disclosed with respect to such person being nominated pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended, including such person’s written consent to being named in the Proxy Statement as a nominee and to serving as a Director, if elected;

 

   

the name and address of the stockholder giving the notice and the beneficial owner;

 

   

the class and number of shares of our stock that are owned beneficially and of record by the stockholder giving the notice and the beneficial owner;

 

   

whether and the extent to which any hedging or other transaction or series of transactions has been entered into by or on behalf of the stockholder or beneficial owner;

 

   

a description of all arrangements or understandings between the stockholder giving the notice and any other person or persons (including their names) in connection with the nomination;

 

   

a representation that the stockholder intends to appear in person or by proxy at the 2017 Annual Meeting to bring such business before the meeting; and

 

   

an undertaking by the stockholder giving the notice to update the information required to be included in the notice.

The Board takes reasonable steps to ensure that a diverse group of qualified candidates are in the pool from which the nominees for the Board are chosen. The Governance Committee may, at its discretion, seek third-party resources to assist in the process and make final director candidate recommendations to the Board. The Board considered the experience, qualifications, attributes and skills of each of the nominees for Director at the 2016 Annual Meeting. As identified in our Corporate Governance Guidelines, the basic qualifications that the Governance Committee looks for in a Director include such factors as:

 

   

integrity and accountability;

 

   

informed judgment;

 

   

peer respect; and

 

   

high performance standards.

 

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GOVERNANCE COMMITTEE REPORT (cont’d)

 

Following a Director’s election to the Board, the Corporate Governance Guidelines provide for:

 

   

mandatory retirement at the Annual Meeting immediately following the 73rd birthday of a Director;

 

   

ownership of Devon common stock equal to five times the Director’s annual retainer to be reached by the end of a five year period after their election along with a holding requirement for those who have yet to meet the ownership requirement;

 

   

a recommendation that a Director not serve on more than five public company boards in addition to serving on the Company’s Board;

 

   

“majority voting,” which requires a nominee for Director in an uncontested election to submit an offer of resignation to the Governance Committee within 90 days of the date of the election if the nominee receives a greater number of “withheld” votes than “for” votes. The Governance Committee will then consider all of the relevant facts and circumstances and recommend to the full Board the action to be taken with respect to the offer to resign;

 

   

approval of the Governance Committee to serve as a director, officer or employee of a competitor of the Company; and

 

   

notification to the Chairman of the Board and Chairman of the Governance Committee upon the acceptance of a directorship of any other public, private or non-profit company or any assignment to the audit or compensation committees of the board of any public, private or non-profit company.

The Governance Committee also plays a leadership role in shaping the Company’s corporate governance. It periodically reviews the Company’s corporate governance practices along with best practices followed by other companies to maintain a corporate governance framework for the Company that is effective and functional and that addresses the interests of the Company’s stakeholders. The corporate governance standards that have been approved by the Board are reflected in:

 

   

the Corporate Governance Guidelines;

 

   

the Charters for each of the Board’s Committees;

 

   

the Code of Business Conduct and Ethics for all Directors, officers and employees; and

 

   

the Code of Ethics for the CEO, CFO and CAO.

The standards reflected in these documents implement and strengthen the Company’s corporate governance practices. These documents, and others related to corporate governance, are available at www.devonenergy.com.

With the Company’s fundamental corporate governance practices firmly in place and regularly evaluated, the Governance Committee is prepared to respond quickly to new regulatory requirements and emerging best practices. The Governance Committee intends to continue to require an annual evaluation of the effectiveness of the Board and its Committees to enable the Company to maintain corporate governance best practices.

Robert A. Mosbacher, Jr., Chairman

Barbara M. Baumann

John E. Bethancourt

Robert H. Henry

Mary P. Ricciardello

 

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AUDIT COMMITTEE REPORT

The Audit Committee is currently comprised of four independent Directors. The Board and the Audit Committee believe that the Audit Committee’s current membership satisfies the rules of the NYSE and the SEC that govern audit committee composition, including the requirement that audit committee members all be independent directors, as that term is defined under the listing standards of the NYSE, and the requirement that at least one member of the Audit Committee is a financial expert. Mary P. Ricciardello currently serves on the audit committees of more than three public companies. However, Devon owns an interest in two of those companies, ENLC and ENLK. For purposes of complying with the listing standards of the NYSE, the Board has determined that Ms. Ricciardello’s simultaneous service on the audit committees of more than three public companies does not impair her ability to effectively serve on the Company’s Audit Committee. The Audit Committee operates under a written charter approved by the Board of Directors. The Audit Committee Charter is available at www.devonenergy.com.

The Audit Committee oversees the Company’s financial reporting process on behalf of the Board of Directors. Management has the primary responsibility for the preparation of the financial statements and the establishment and maintenance of the system of internal controls. This system is designed to provide reasonable assurance regarding the achievement of objectives in the areas of reliability of financial reporting, effectiveness and efficiency of operations and compliance with applicable laws and regulations. In fulfilling its oversight responsibilities, the Audit Committee reviewed with management its internal controls over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board and the audited financial statements in the Annual Report. This review included a discussion of the quality and the acceptability of the accounting principles, the reasonableness of significant judgments, and the clarity of disclosures in the financial statements.

In fulfilling its duties during 2015, the Audit Committee:

 

   

reviewed with the independent auditors their opinion on the conformity of the Company’s audited financial statements with U.S. generally accepted accounting principles and the effective operation of the Company’s internal controls over financial reporting;

 

   

reviewed with the independent auditors their judgment as to the quality and the acceptability of the Company’s accounting principles and other matters;

 

   

discussed with the independent auditors other matters under generally accepted auditing standards, including Statement on Auditing Standards No. 114, the Auditor’s Communication with those charged with governance;

 

   

discussed with the independent auditors the auditors’ independence, including the matters in the written disclosures and the letter received from the independent auditors required by applicable requirements of the Public Company Accounting Oversight Board regarding the independent auditors’ communications with the Audit Committee concerning independence;

 

   

discussed with the independent auditors the overall scope and plans for their audit; and

 

   

met with the independent auditors, with and without management present, to discuss the results of their audit and the overall quality of the Company’s financial reporting.

 

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AUDIT COMMITTEE REPORT (cont’d)

 

Fees to Independent Auditor

Under the terms of its Charter, the Audit Committee has the responsibility to approve the fees paid to the independent auditors. For the years ended December 31, 2015 and December 31, 2014, the following fees were paid to KPMG LLP:

 

     2015     2014  

Audit fees

  $ 3,351,000      $ 3,535,000   

Audit related fees

    556,000        446,000   

Tax fees

    68,000        85,000   

All other fees

             
    $ 3,975,000      $ 4,066,000   

Audit fees included services for the audits of the Company’s financial statements and the effective operation of its internal controls over financial reporting. KPMG LLP also serves as the independent auditors for EnLink Midstream, LLC and EnLink Midstream Partners, LP (collectively, “EnLink”). Fees for the audits of EnLink’s consolidated financial statements for 2015 were $2,340,000 which are not included in the table above.

Audit-related fees consisted principally of fees for audits of financial statements of certain of the Company’s affiliates and subsidiaries. Audit-related fees for EnLink for 2015 were zero.

Tax fees consisted of tax compliance and tax consulting fees.

Audit Committee Pre-Approval Policies and Procedures

The Audit Committee has pre-approval policies and procedures related to the provision of audit and non-audit services. Under these procedures, the Audit Committee pre-approves both the type of services to be provided by KPMG LLP and the estimated fees related to these services. During the approval process, the Audit Committee considers the impact of the types of services and the related fees on the independence of the auditors. The services and fees must be deemed compatible with the maintenance of the auditors’ independence, including compliance with SEC rules and regulations.

All of the 2015 and 2014 audit and non-audit services provided by KPMG LLP were approved by the Audit Committee. The non-audit services that were approved by the Audit Committee were also reviewed to ensure compatibility with maintaining the auditors’ independence, and the Audit Committee determined the auditors’ independence was not impaired.

In reliance on the reviews and discussions referred to above, the Audit Committee recommended to the Board, and the Board has approved, that the audited financial statements be included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015 that has been filed with the SEC.

Mary P. Ricciardello, Chairperson

Barbara M. Baumann

Robert H. Henry

Michael M. Kanovsky

 

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RESERVES COMMITTEE REPORT

The Reserves Committee is currently comprised of three independent Directors and operates under a charter approved by the Board of Directors. The Reserves Committee Charter is available at www.devonenergy.com. The Reserves Committee oversees, on behalf of the Board, the integrity of the Company’s oil, bitumen, natural gas and natural gas liquids reserves data. Management and our independent engineering consultants have the primary responsibility for the preparation of the reserves reports. In fulfilling its oversight responsibilities, the Reserves Committee reviewed with management the internal procedures relating to the disclosure of reserves in the Company’s Annual Report on
Form 10-K for the year ended December 31, 2015, having regard to industry practices and all applicable laws and regulations. In fulfilling its duties during 2015, the Reserves Committee:

 

   

approved Deloitte LLP and LaRoche Petroleum Consultants, Ltd. as the Company’s independent engineering consultants for the year ended December 31, 2015;

 

   

reviewed with the independent engineering consultants the scope of the annual review of the Company’s reserves;

 

   

met with the independent engineering consultants, with and without management, to review and consider the evaluation of the reserves and any other matters of concern with respect to the evaluation of the reserves;

 

   

reviewed and approved any statement of reserves data or similar reserves information, and any report of the independent engineering consultants regarding such reserves to be filed with any securities regulatory authorities or to be disseminated to the public;

 

   

reviewed the internal procedures relating to the disclosure of reserves; and

 

   

reviewed the qualifications and independence of the independent engineering consultants prior to their appointment and throughout their engagement.

In reliance on the reviews and discussions referred to above, the Reserves Committee recommended to the Board, and the Board has approved, that the reserves information be included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015 that has been filed with the SEC.

Michael M. Kanovsky, Chairman

John E. Bethancourt

Duane C. Radtke

 

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AGENDA ITEM 2.

APPROVE, IN AN ADVISORY VOTE, EXECUTIVE COMPENSATION

In accordance with Section 14A of the Securities Exchange Act of 1934, we are asking our stockholders to vote to approve, on an advisory basis, the compensation of our named executive officers as disclosed in this Proxy Statement. At the 2011 Annual Meeting, you approved our proposal to provide you with this opportunity on an annual basis. This vote is not intended to address any specific item of compensation, but rather our overall compensation policies and practices relating to our named executive officers as disclosed in our Compensation Discussion and Analysis, the Summary Compensation Table, and other related tables and narrative disclosure. Accordingly, we will ask our stockholders to vote “FOR” the following resolution at the 2016 Annual Meeting:

“RESOLVED, that the Company’s stockholders approve, on an advisory basis, the compensation of the named executive officers, as disclosed in the Company’s Proxy Statement for the 2016 Annual Meeting of Stockholders pursuant to the compensation disclosure rules of the Securities and Exchange Commission, including the Compensation Discussion and Analysis, the 2015 Summary Compensation Table and the other related tables and narrative disclosure.”

This vote, normally called a “say-on-pay” vote, is advisory, and therefore not binding on the Company, the Compensation Committee, or the Board. The Board will, however, as it has in prior years, take into account the outcome of the vote when considering future compensation arrangements.

 

Our Board of Directors recommends that stockholders vote “FOR” the approval, on an advisory basis, of the compensation of our named executive officers.

 

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NAMED EXECUTIVE OFFICER COMPENSATION

COMPENSATION DISCUSSION AND ANALYSIS

 

 

 

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NAMED EXECUTIVE COMPENSATION (cont’d)

 

Introduction

Purpose of Compensation Discussion and Analysis

This Compensation Discussion and Analysis (“CD&A”) outlines our compensation philosophy and describes the material components of our executive compensation practices and programs for our “named executive officers.” This CD&A also summarizes decisions the Compensation Committee of the Board of Directors (the “Committee”) made under these programs and the factors considered in making those decisions. In particular, this CD&A focuses on the decisions the Committee made at its meetings in January and March 2016 at which the Committee evaluated the Company’s performance as well as each executive officer’s performance in 2015, including the performance of the business or organizational unit for which the officer was responsible. Additional information about the compensation of our named executive officers is provided in the 2015 Summary Compensation Table (“SCT”) and other compensation tables that follow this CD&A.

Named Executive Officers

Our named executive officers for 2015 are the following individuals:

 

Executive   Position

David A. Hager

  President and Chief Executive Officer

Thomas L. Mitchell

  Executive Vice President and Chief Financial Officer

Tony D. Vaughn

  Chief Operating Officer

Darryl G. Smette

  Executive Vice President, Marketing, Facilities, Pipelines and Supply Chain

Lyndon C. Taylor

  Executive Vice President and General Counsel

John Richels

  Vice Chairman of the Board of Directors, former President and Chief Executive Officer

The compensation objectives, practices and programs discussed in this CD&A apply to the named executive officers as well as the two Executive Vice Presidents of the Company who were not named executive officers in 2015. In this CD&A, we may refer to this group as “executive officers.” In July 2015 Mr. Richels retired as an employee of the Company pursuant to the Company’s succession plan. He continues to serve as non-employee Vice Chairman of the Board of Directors, and they have announced their intent to elect him Chairman upon the board retirement of J. Larry Nichols in June 2016. Although Mr. Richels was not an employee of the Company at the end of 2015, SEC rules require us to include him as a named executive officer in this CD&A.

Executive Summary

2015 Company Performance and Pay Alignment

Since 2010, the Company has successfully transitioned to a liquids-rich (oil and natural gas liquids), higher-margin, onshore North American production base. During this period, the Company also transformed its organizational structures and processes in order to reinforce certain key drivers for the Company’s success. This transformation has generally allowed the Company to post strong operational results over the past two years. However, the prolonged weakness in commodity prices experienced during 2015 presented extraordinary challenges for many metrics utilized in assessing Company performance. Beginning in 2015 and accelerating into 2016, the Company took significant steps to reduce capital investments, curtail other non-core operations and re-align its overall cost structure.

 

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NAMED EXECUTIVE COMPENSATION (cont’d)

 

For 2015, the Company met or exceeded most targets for financial and operational goals. As reflected in the Company scorecard below, however, Devon’s full year total stockholder return (TSR) underperformed that of many peer companies in 2015. The following performance highlights provide context for the Committee’s considerations with respect to executive compensation:

Operational and financial achievements

 

   

Devon’s oil and overall production in 2015 exceeded the top end of the guidance range issued by the Company on February 17, 2015, with production reaching approximately 275,000 bbls per day of oil and 680,000 barrels of oil equivalent (BOE) per day, 7.8% and 4.6%, respectively, above the mid-range of the Company’s guidance;

 

   

Oil production in the fourth quarter of 2015 increased by 16% as compared to the same quarter in 2014;

 

   

Devon’s oil and natural gas hedging program allowed the Company to lock in advantageous prices for the Company’s production in 2015 that led to approximately $2.4 billion in revenues attributable to cash settlements on hedges;

 

   

the Company continued to maintain a strong liquidity position, with approximately $2.3 billion in cash and $2.4 billion in capacity on its senior credit facility at year end;

 

   

Devon was able to successfully maintain capital expenditures below the goal established at the beginning of the year; and

 

   

the Company dramatically reduced lease operating and general and administrative expenses, which resulted in greater operational efficiency for the year.

Asset portfolio enhancements

 

   

Devon acquired significant acreage positions in two of the most promising oil plays in North America with purchases in Oklahoma’s Anadarko Basin STACK play and Wyoming’s Powder River Basin; and

 

   

Devon announced plans to monetize certain assets, including its interest in the Access Pipeline in Canada and various non-core upstream assets.

Total Stockholder Return

 

   

During 2015, Devon’s stock price reached an intra-year high price of $70.48, which was approximately 15% above 2014’s closing price; and

 

   

Devon’s relative TSR was consistently in the top quarter of the peer group for the first half of the year before finishing the full year in 11th position in the Company’s 15 member peer group.

The table set forth below provides additional detail on the Company’s performance in 2015. The metrics in the table are not only critical to the Company’s near-term performance but also to its prospects for sustainable growth and long-term value creation for the Company and its stockholders. The Committee evaluated the Company’s performance on these metrics in connection with awarding performance cash bonuses for 2015.

 

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NAMED EXECUTIVE COMPENSATION (cont’d)

 

As reflected in the table, the Committee assigns a separate weighting to each performance measure in order to reflect the relative importance of those areas for the year in light of our philosophy for performance cash bonuses. During its meeting in January 2015, the Committee assigned a performance score of between 0% to 200% for each performance measure, with a score of 100% indicating performance that meets expectations or goals. The Committee aggregates the weighted performance score for each of the measures to arrive at an overall Company performance score. For operational and financial goals, the Committee generally views a 30% or greater shortfall from a goal as the threshold at which a score of no more than 25% may be assigned for the goal, and a 30% or greater outperformance on a goal as maximizing performance such that a score of 200% would likely be assigned for the goal.

 

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NAMED EXECUTIVE COMPENSATION (cont’d)

 

Company Performance Scorecard

 

Measure   Goal   Outcome   Weight     Score    

Weighted

Score

 
Oil and Gas Production   236.4 million BOE   248.2 million BOE     15     150     22.50
Total Stockholder Return1   Top half of the peer group on a 1-year basis   1-year TSR ranked 11th out of 15 member peer group     15     50     7.50
Pre-Tax Cash Margin per BOE, normalized2   $14.09 per BOE   $15.70 per BOE     15     150     22.50
Oil and Gas Reserves Additions   140.4 million BOE added   No additions3     15     0     0
Improve the Overall Value of Devon’s Risked Resource Portfolio   Achieve successes in acquisitions and divestitures, exploration, appraisal of prospects and technical areas   Progressed to commerciality a portion of the risked resource equal to 75% of 2015 production; evaluated 93% of overall amount of sub-commercial resource; evaluated material additions equivalent to 25% of total Devon risked resource     10     125     12.50
Environmental, Health and Safety4   Continuous improvement on various measures   Improved SIF rate, recordable incident rate, SIF vehicle rate, compliance to protocols     10     100     10.00
Total Capital Expenditures   $4.746 billion   $4.465 billion     5     125     6.25
Lease Operating Expenses per BOE   $9.80 per BOE   $8.48 per BOE     5     150     7.50
Learning and People   Hold health care cost inflation below the national average; hold voluntary employee turnover below industry average   Held both measures below the designated benchmarks in 2015     5     125     6.25
Improve Business Environment   Increase stakeholder alignment to improve public policy and business operating environment for Devon   Engaged legislators and associations on such items as local ordinances, intangible drilling tax credits, and the United States’ crude oil export ban     5     100     5.0

2015 Company Performance Score

  100%

 

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NAMED EXECUTIVE COMPENSATION (cont’d)

 

1 

For TSR, the Company is ranked with the 14 peer companies listed under “Use of Peer Groups” on page 49.

 

2 

Normalized to control for the effect of currency exchange rates and commodity price fluctuations so that the measure provides an accurate picture of the Company’s operational efficiency.

 

3

Under the SEC’s five-year rule, Devon and other E&P companies must remove booked reserves that are not expected to be developed in the next five years. Compliance with this rule and refinements in the Company’s reserves methodology which instituted a reduced recovery factor for certain assets combined to cause a downward revision in reserves. A higher commodity pricing environment in the future may allow reserves removed in 2015 to be added back to the Company’s reported reserves.

 

4

Environmental, Health and Safety measures consisted of employee recordable incident rate, contractor recordable incident rate, preventable vehicle incident rate, spill rate, and lost spill rate. The “SIF” rate records serious incidents or fatalities.

The Company’s 2015 performance score is a reflection that the Company performed well on many operational measures but also recorded disappointing results on important measures such as TSR and reserves additions. In the process of evaluating Company performance through the Scorecard, the Committee determined that the weightings assigned to certain measures, in particular the weighting of TSR, resulted in an overall score that failed to reflect the totality of performance for the year. For this reason, the Committee adjusted bonuses downward from 100% to 90% of target.

At its March 2016 meeting, the Committee granted long-term incentives (“LTI”) to named executive officers in the form of performance restricted stock and performance share units. In determining the value of LTI to grant, the Committee considered factors such as Company performance, competitive market data provided by its compensation consultant, the number shares available for grant under the Company’s stockholder-approved LTI plan and the grant value of previous awards. The Committee also took into account a recommendation made by the Company’s executive officers that the value of their grants be decreased as compared to prior years in light of the Company’s negative TSR in 2015 and the challenges facing the oil and gas industry. While the Committee believed the LTI values granted in the prior year were competitive with the awards of similarly situated executives at peer companies, the Committee decided to accept the recommendation and grant LTI at lower values. Executive officers in the same position as the prior year received LTI valued at 33% less than the prior year, and executive officers with increased job duties and responsibilities as compared to the prior year received LTI valued at 33% less than benchmarks. The Committee determined that this outcome would appropriately reflect the factors cited by the executive officers in their recommendation, including a greater alignment between executive officers and stockholders.

Compensation Philosophy and Objectives

Our goal is to be the premier independent oil and natural gas company in North America and to provide our stockholders with top-tier returns over the long-term. To achieve this, we strive to optimize our capital investments to maximize growth in cash flow, earnings, production and reserves. Performance on these measures, particularly cash flow, has a high correlation to changes in share price over the medium and long-term. To excel on these measures, the Company must exercise capital discipline, maintain a strong balance sheet, invest in oil and gas properties with strong full-cycle returns, balance our production and resource mix between oil, natural gas liquids and natural gas, maintain a low overall cost structure and establish an appropriate balance between resource capture and resource development.

This operating strategy requires a compensation philosophy that recognizes near-term operational and financial success as well as decision-making that supports long-term value creation. For these reasons, the Company’s executive compensation program is designed to strike a balance between

 

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NAMED EXECUTIVE COMPENSATION (cont’d)

 

the near-term and the long-term by providing executive officers annual performance cash bonuses and LTI awards tied to prospective Company performance. Properly allocating these compensation elements is critical in motivating executive officers to carry out our operating strategy. Overall, the value of an executive officer’s total compensation is weighted in favor of long-term incentives in order to focus the officer’s efforts on the long-term performance of the Company and to encourage the executive to remain at the Company.

The objectives of our compensation program are to:

 

   

attract and retain highly trained, experienced, and committed executives who have the skills, education, business acumen, and background to lead a large and diversified oil and gas business;

 

   

motivate and reward executives to drive and achieve our goal of increasing stockholder value;

 

   

provide balanced incentives for the achievement of near-term and long-term objectives, without motivating executives to take excessive risk; and

 

   

track and respond to developments, such as changes in competitive pay practices.

The primary components of our executive compensation program consist of base salary, an annual performance cash bonus and long-term equity incentive awards. We generally target each component, as well as the aggregate of the components, at approximately the 50th percentile of comparables within a group of peer companies in our industry. Individual compensation levels may vary from these targets based on performance, expertise, experience or other factors unique to the individual or the Company. We also provide retirement and other benefits typical for our peer group.

The Committee emphasizes TSR performance in the executive compensation programs in order to make realizable pay highly dependent on TSR performance over the short and medium-term periods. When Devon’s TSR underperforms, the structure of Devon’s compensation programs will result in named executive officers generally receiving below-target bonuses and lower-than-average overall compensation compared to executives in similar positions at peer companies because TSR is an important measure for performance cash bonuses and the sole determinant of performance share unit payouts. The converse is true as well: When Devon’s TSR outperforms that of its peers, named executive officers are likely to receive above-target pay and higher-than-average overall compensation compared to executives in similar positions at peer companies. Please see page 47 for a further discussion of realizable pay.

 

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NAMED EXECUTIVE COMPENSATION (cont’d)

 

What Devon Does and Doesn’t Do

 

Good Compensation Governance Practiced by Devon
 

•    Award Performance-Based LTI—Since December 2011, the Company has delivered LTI in the form of performance share units tied to TSR (50%) and performance restricted stock tied to financial and operating metrics (50%). No stock options have been awarded over this period. Goals for LTI are transparent, including disclosure in this CD&A of the metrics used. Target performance on performance share units requires TSR that is above the peer group median.

•    Utilize a Quantitative Process for Performance Cash Bonuses—In determining bonuses, the Committee assigns a score to the Company’s performance on goals set at the beginning of the year. The Committee then calculates a weighted score that determines the amount of any bonuses.

•    Tie Realizable Pay Opportunities to Company Performance—The Committee regularly reviews the realizable pay of the President and CEO and other executive officers in light of Company performance. This has resulted in pay that tracks Company performance.

•    Require Executives to Hold Devon Stock—Board-adopted guidelines establish robust minimum stock ownership levels for our executive officers.

•    Provide for Clawback of Compensation—Pursuant to a Board-adopted policy, the Committee may clawback performance cash bonuses and LTI if the Company is required to restate its financial statements.

•    Interview Executives—On an annual basis, the Committee conducts in-depth, confidential, one-on-one interviews with each executive officer, which is a unique and highly effective tool in the Committee’s oversight of executive compensation programs.

 

Controversial Compensation Governance Not Practiced by Devon
 

x  Enter into Egregious Employment Agreements—The Company does not enter into contracts containing multi-year guarantees for salary increases or non-performance based bonuses or equity compensation.

x  Provide Tax Gross-Ups—Employment agreements do not obligate the Company to make tax gross-up payments in the event of a change in control of the Company.

x  Allow Excessive Severance Benefits and/or Liberal Change-in-Control Payments—Employment agreements do not require cash payments exceeding three times base salary plus target/average/last paid bonus; do not contain liberal change-in-control definitions; do not provide severance payments without job loss (i.e., no “single trigger” cash severance or equity vesting with a change in control).

x  Allow Speculation on Our Company’s Stock—Company policy prohibits our executives from engaging in short-term or speculative transactions involving our common stock.

x  Reprice or Replace Underwater Options—The Company does not reprice or replace underwater stock options.

x  Permit Abusive Perquisites Practices—Perquisites made available to our executives are limited.

 

Response to Stockholder Feedback

We conduct investor outreach throughout the year to ensure that management and the Board understand the issues that matter most to our stockholders. The Committee continually evaluates the Company’s executive compensation programs and monitors stockholder sentiments. As in prior

 

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NAMED EXECUTIVE COMPENSATION (cont’d)

 

years, Company management engaged in discussions with many stockholders on a variety of topics during 2015, including executive compensation and its tie to Company performance. Those discussions did not reveal any current compensation practices that warranted action by the Committee. However, as evidenced by the changes the Committee has adopted over the previous four years, the Committee will continue to monitor feedback and take action when appropriate.

Highlights of executive compensation program changes over the past few years include the following:

 

Source for Detail   Change in Compensation Practice
2015 Proxy Statement  

•  LTI grants after 2014 will not vest in the case of a change in control unless a job loss follows or the acquiring company is not listed on a national securities exchange (i.e., no “single trigger” equity vesting with a change in control). The Committee expects to continue this practice in future years.

•  Stock ownership guidelines for the Company’s President and CEO were increased from five to six times salary.

•  Stock ownership guidelines oblige executive officers to hold at least one-half of shares received from awards until minimum ownership levels are achieved.

2014 Proxy Statement  

•  The Board, at the Committee’s recommendation, adopted a clawback policy.

•  The cumulative effect of a series of modifications to the annual performance cash bonus process resulted in the CD&A providing additional details on the specific goals and weightings assigned to performance measures and the bonus process overall.

•  Performance share units required Devon to achieve superior TSR relative to most peers in order to pay out at target.

2013 Proxy Statement  

•  Pre-set Company performance measures used in determining annual cash bonuses were assigned specific weightings.

•  All LTI awarded was performance-based and delivered in the form of performance share units tied to TSR (50%) and performance restricted stock tied to a financial metric (50%). No stock options were awarded in 2012 or any following year.

2012 Proxy Statement  

•  Annual cash bonuses and LTI were re-designed to be performance-based compensation and eligible for tax deduction under IRS Section 162(m) (subject to certain approvals that have now been obtained).

•  Employment agreements were amended to eliminate tax gross-up payment obligations.

Transition of Company’s President and CEO; Promotion of Mr. Vaughn Following Year-End

Effective August 1, 2015, Mr. Hager was appointed President and CEO following the retirement of Mr. Richels from the same position. In connection with his appointment, Mr. Hager’s salary was increased from $945,000 to $1,275,000. He was also granted an LTI award in the form of performance restricted stock with a grant date fair value of approximately $1,500,000. These compensation decisions were made as a result of the additional responsibilities Mr. Hager assumed as President and CEO of the Company.

 

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In connection with Mr. Richels’ retirement in July 2015, the Committee amended the LTI award granted to Mr. Richels in February 2015 by a prorated amount to reflect the seven months during 2015 that Mr. Richels served as President and CEO. This amendment reduced his LTI award by approximately 40%. Also, because the Company’s current incentive compensation plan does not allow the payment of incentive cash bonuses to executive officers whose service ends before the end of a performance year, Mr. Richels did not receive a performance cash bonus for 2015. With Mr. Richels’ retirement as an employee, the Committee no longer makes compensation decisions for him. Accordingly, none of the discussion in this CD&A of decisions made by the Committee at its 2016 meetings involved any specific evaluation of Mr. Richels or his compensation.

In February 2016, the Company announced the promotion of Mr. Vaughn from Executive Vice President, Exploration and Production to Chief Operating Officer (COO). In connection with the promotion, Mr. Vaughn’s annual salary was increased from $715,000 to $740,000.

Compensation Decisions for 2015

Overview of Pay Decisions

We believe that the proportion of any employee’s total direct compensation that varies based on performance should increase as the scope of an employee’s ability to influence our results increases. Because executive officers have the greatest influence over our results, a significant portion of their overall compensation consists of performance cash bonuses and long-term incentive awards that vary based on performance. This practice is consistent with norms in the oil and gas industry. As illustrated below, compensation decisions made by the Committee at its January and March 2016 meetings resulted in awards heavily weighted in favor of components subject to performance-related variability, with cash bonuses and LTI representing approximately 85% of the estimated value of total direct compensation awarded to our President and CEO and approximately 75% for all other named executive officers. Further, approximately 75% of the compensation awarded to the CEO and 63% of the compensation awarded to the other NEOs was contingent on metrics typically used in the measurement of return. These percentages are based on 100% of the LTI being contingent on the performance measures of cash flow and TSR and 45% of the cash performance bonus weighting being contingent on the measures of TSR, reserves additions, risked resource portfolio improvement and capital expenditures.

LOGO

Each year, the Committee refers to the following factors in considering any compensation decisions for the named executive officers:

 

   

Company performance in relation to goals pre-approved by the Committee and the Board of Directors, including the Company’s TSR performance as compared to peers;

 

   

each named executive officer’s individual performance during the year, including the performance of the business or organizational unit for which the officer is responsible;

 

   

our compensation philosophy;

 

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NAMED EXECUTIVE COMPENSATION (cont’d)

 

   

confidential interviews individually conducted by the Committee with each executive officer;

 

   

input from the Compensation Consultant (defined below);

 

   

the Committee’s own review of competitive market data; and

 

   

the President and CEO’s recommendations (as applicable).

With specific compensation elements, the Committee may supplement its analysis with reference to other factors.

Base Salary

A competitive base salary is vital to ensure that we employ executives who have a combination of business acumen, significant industry experience and longevity with the Company. In order to attract and retain such executives, their base salaries must be competitive with the base salaries of executive officers in similar positions at peer companies. Competitive base salaries coupled with a weighting of the overall compensation package toward pay that varies based on performance allows the Company to compete effectively.

In addition to the factors the Committee generally considers with any compensation decisions, the Committee took the following factors into account at its March 2016 meeting when evaluating whether to adjust the salaries of named executive officers:

 

   

the scope of responsibility, experience and tenure of each named executive officer, and the development plans for the officer, and the potential of the officer to take on greater or different responsibilities; and

 

   

the cost controls put in place by the Company for general and administrative expenses.

Based on the foregoing, the Committee determined that no salary increases were warranted in 2016 for the named executive officers other than Mr. Vaughn, who received a 3.5% increase in his base salary to reflect the increase in his responsibilities associated with his promotion to COO. Please note that the SCT’s entries for “Salary” reflect the salaries received by the named executive officers during 2015, including a salary increase approved for Mr. Hager in connection with his appointment as the Company’s President and CEO as of August 1, 2015. The footnotes that accompany the SCT provide additional information on salaries for 2015.

Annual Performance Cash Bonus

The Committee believes that performance bonuses awarded to executives should reflect the near-term financial, operating and strategic performance and current decision-making that affects long-term stockholder value. To achieve this, the Committee utilizes a bonus determination formula that establishes a pre-determined bonus target for each executive officer based on a percentage of his base salary. For 2015, bonus targets for named executive officers ranged from 80% to 135% of base salaries depending on industry norms for the relevant officer position. Actual bonus payouts depend on the Company’s performance in relation to structured and measurable goals approved by the Board and individual contributions to these goals. Because success in the oil and gas industry requires continuous execution on multiple fronts in order to increase stockholder value, the Company’s goals cover a number of both quantitative and qualitative areas, such as delivering stockholder returns and growing our oil and gas production and reserves.

 

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This process supplements the cash bonus eligibility approvals that the Committee makes at the start of each year for purposes of establishing a bonus pool from which actual bonus payouts are made. The Committee’s practice is to establish a bonus pool that may provide bonuses between zero and 200% of the aggregate target bonus amount for executive officers. Unless the Company achieves extraordinary performance on all goals, the Committee will not award bonuses that approach the top of this range.

At its January 2016 meeting, the Committee awarded compensation commensurate with performance reflected by the results on the performance scorecard. With respect to operational and financial metrics, the Company executed on its 2015 business plan by posting results that met or exceeded most goals. The Committee scored the Company highest on three key operational measures in that area: oil and gas production, cash margin per barrel and lease operating costs. However, the Committee also recognized the underperformance of the Company’s TSR for the year on a relative and overall basis. Please refer to the performance scorecard and related discussion on page 35 for additional detail on the performance assessment process.

Although the structure of the performance bonus award process relies on Company performance metrics and the application of set formulas to arrive at bonus amounts, the Committee maintains the authority to decrease or increase the amount of performance cash bonuses determined through the scoring process by up to 25%. For 2015, the Committee determined that the weightings assigned to the performance metrics in the Company Performance Scorecard, in particular the shortfall of TSR from goal, resulted in an overall performance score that failed to reflect the totality of performance for the year. For this reason, the Committee adjusted bonuses downward from 100% to 90% of target.

The following table outlines the calculations made for the performance cash bonuses awarded for 20151:

 

Executive   2015
Salary2
          Performance
Bonus
Target
          Company
Performance
Score
          Process
Determined
Bonus
Amount
   

Actual

Award
Amount

 

David A. Hager

  $ 1,275          135       100     $ 1,721      $ 1,549   

Thomas L. Mitchell

  $ 610          100       100     $ 610      $ 549   

Tony D. Vaughn

  $ 715                    100                 100               $ 715      $ 644   

Darryl G. Smette

  $ 745          100       100     $ 745      $ 671   

Lyndon C. Taylor

  $ 625          80       100     $ 500      $ 450   

 

1 

All dollar amounts in thousands.

 

2 

Annualized base salary in effect as of December 31, 2015.

Please note that the SCT’s entries for “Non-Equity Incentive Plan Compensation” in 2015 reflect the annual performance cash bonuses listed under the column above titled “Actual Award Amount.”

Long-Term Incentives

A key element of our compensation program is to reward executive officers for long-term strategic accomplishments and enhancement of long-term stockholder value through equity-based incentives that vest over an extended period of time. Long-term incentive compensation plays an essential role in attracting and retaining executive officers and aligns their interests with the long-term interests of our stockholders.

 

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NAMED EXECUTIVE COMPENSATION (cont’d)

 

In analyzing the value and type of long-term incentives to award to our named executive officers, the Committee referred to the factors it generally considers for compensation decisions and also took into account incentive awards for others in the organization.

Consistent with the grants of LTI awards in recent years, the Committee determined in its March 2016 meeting that the creation of stockholder value would be promoted by linking all long-term incentives awarded in the year to Company performance. Accordingly, the two types of long-term incentives granted to named executive officers – performance restricted stock and performance share units—only vest if certain levels of performance are achieved. The Committee again elected not to grant any stock options.

 

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NAMED EXECUTIVE COMPENSATION (cont’d)

 

The following table describes the long-term incentives granted to named executive officers at the Committee’s meeting in March 2016:

LTI Framework

 

Type of LTI Award        Purpose        Additional Background and Detail

Performance Restricted Stock (PRS)

   

Awards of PRS encourage executives to work toward achievement of pre-set financial and operating metrics.

     

• Tying PRS to financial and operating metrics is designed to promote tax efficiency in awarding compensation to named executive officers.

 

• Shares only vest if the Company meets the pre-set financial or operating metric. For PRS awards made in early 2016, the Company must attain in 2016 either cash flow before balance sheet changes1 of at least $500 million or production of at least $175 million BOE in order to vest.

 

• If the metric is achieved, shares will vest 25% per year over four years. If the metric is not achieved, the grant will be forfeited.

 

• The use of relatively short-term financial and operating metrics coupled with a long-term vesting schedule incentivizes Company performance for the year while promoting the long-term retention of the executive officer.

       
Performance Share Units (PSU)      

Awards of PSU encourage executives to make decisions and take actions that promote mid-term stockholder return.

     

• Executives may earn between 0% and 200% of the shares underlying the grant based on the Company’s TSR relative to companies in the peer group over a three-year performance period (January 1, 2016 through December 31, 2018).

 

• Payout will be determined as of the end of the performance period based on actual TSR performance over the period. The grid below further details the relationship between relative performance and payout levels.

 

• If the Company’s TSR outperforms that of its peers, executives may earn the targeted number of shares (100%) or more. If the Company’s TSR is at or below median as compared to peers, executives earn fewer shares than targeted with the potential for no payout.

     
        The Company’s TSR against its peers2        Payout percent of shares underlying  grant
   

1-3

      200%
   

4

      175%
   

5

      150%
   

6

      125%
   

               7 (target)

      100%
   

                8 (median)

      90%
   

9

      80%
   

10

      70%
   

11

      60%
   

12

      50%
   

13-15

      0%

 

1 

Cash flow before balance sheet changes is calculated as cash generated from operating activities over the applicable period absent the effect of changes in working capital and long-term assets and liabilities over the same period.

 

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NAMED EXECUTIVE COMPENSATION (cont’d)

 

2 

The Company and the 14 peer companies listed under “Use of Peer Groups” on page 49 constitute the 15 companies whose TSR will be ranked from highest to lowest to determine share payout under PSU grants.

Our review of peer data conducted in 2015 indicated that the value of long-term incentives awarded to the named executive officers in early 2015 was generally consistent with the Company’s market objective of the 50th percentile of the peer companies.

The Committee approved the grants set forth in the table below at the March 2016 meeting. For the performance restricted stock awards, the Committee selected two metrics—one financial, the other operational as set forth in detail on page 44. The Committee structured performance share unit awards in 2016 substantially the same as those granted in 2015. Named executive officers will not receive an above-target payout unless stockholders experience positive returns over the same period. Awarding LTI conditioned upon specific performance criteria preserves the potential tax deductibility of the awards by the Company.

Long-Term Incentives Granted in 20161

 

Executive   Item2    

Performance

Restricted

Stock3

   

Performance

Share

Units3

 

David A. Hager

    Shares        147,146        147,146   
    Value      $ 2,828      $ 2,828   

Thomas L. Mitchell

    Shares        39,890        39,890   
    Value      $ 767      $ 767   

Tony D. Vaughn

    Shares        52,030        52,030   
    Value      $ 1,000      $ 1,000   

Darryl G. Smette

    Shares        19,945        19,945   
    Value      $ 383      $ 383   

Lyndon C. Taylor

    Shares        39,890        39,890   
    Value      $ 767      $ 767   

 

1 

For each named executive officer, the Committee first determines the total value of long-term incentives to be awarded then divides the total value approximately equally between performance restricted stock and performance share units.

 

2 

Dollar values in thousands.

 

3 

In accordance with applicable accounting requirements, we use a different valuation method in the SCT (in this case, a Monte Carlo simulation) for performance share units than in this table. The Monte Carlo simulation for the performance share units, when valued for purposes of inclusion in next year’s SCT as compensation for 2016, will assign a lower per-unit value than the closing price for the Company’s stock as of the grant approval date.

In making its award decisions, the Committee noted the Company’s achievement of certain key goals in 2015 and the leadership the executive team exhibited in a challenging commodity pricing environment. The Committee also recognized the decrease in the Company’s TSR in 2015, the importance of preserving shares available for issuance under Devon’s long-term incentive plan and the executive officers’ recommendation of LTI values lower than prior years. Based on the foregoing, the Committee arrived at LTI awards approximately 33% lower than applicable competitive benchmarks for the two named executive officers who had been promoted since the prior annual award decisions (i.e., Messrs. Hager and Vaughn). For Messrs. Mitchell and Taylor, the Committee determined that awards valued 33% lower than the prior year would be appropriate. Mr. Smette’s

 

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NAMED EXECUTIVE COMPENSATION (cont’d)

 

awards are less than other named executive officers because Mr. Smette will retire during 2016. The Committee arrived at his award value by reducing his prior year’s grant value by one-half then applying a 33% decrease to the amount as occurred with Messrs. Mitchell and Taylor. The SCT’s “Stock Awards” entries in 2015 reflect annual LTI grants approved by the Committee in January 2015. For Mr. Hager, the entry also includes an LTI award he received upon his promotion to President and CEO. For additional information about grants for 2015, please refer to the SCT and accompanying footnotes and the discussion in the CD&A for this year and 2015.

Snapshot Comparison of Compensation Decisions Made Following 2015 and 2014 Company Performance

Pursuant to the Committee’s compensation cycle, the Committee awarded a cash bonus for 2015 performance at its January 2016 meeting. The Committee deferred action on salaries and LTI until its March 2016 meeting when it (1) determined base salaries would not change for the duration of 2016 and (2) granted long-term incentives. In accordance with SEC guidance, the base salary and long-term incentives will appear in next year’s SCT as compensation for 2016 whereas the cash bonus will be reported in this year’s SCT as compensation for 2015. As part of its deliberations each year, the Committee compares the current year’s preliminary pay calculations to the prior year’s compensation outcomes. The review identifies the elements of our named executive officers’ compensation that are awarded based on the Company’s performance for the prior year and typically de-emphasizes elements that are not tied to Company performance or that may be subject to factors outside the control of the Committee, such as actuarial estimates used in calculating pension values for purposes of the SCT and other required tables.

The table below illustrates the difference in compensation awarded by the Committee to the named executive officers in the first quarters of 2016 and 2015 related to 2015 and 2014 performance, respectively. The compensation awarded to Messrs. Mitchell, Vaughn, Smette and Taylor fell between 21% and 41% from the prior year. Mr. Hager’s awarded compensation increased marginally over the prior year due to his promotion to President and CEO.

 

Comparison of Total Direct Pay1
Executive   Year2    

Base
Salary

Rate3

    Performance  Cash
Bonus4
    Value of
Annual LTI
Grant6
    Total Direct
Pay
    2015
Compared to
2014
      $     % of
Target5
       

David A. Hager

    2015      $ 1,275      $ 1,549        90   $ 5,667      $ 8,491      increase of
0.8%
    2014      $ 1,275      $ 1,350        150   $ 5,799      $ 8,424     

Thomas L. Mitchell

    2015      $ 610      $ 549        90   $ 1,533      $ 2,692      decrease of

27.9%

    2014      $ 610      $ 825        150   $ 2,299      $ 3,734     

Tony D. Vaughn

    2015      $ 740      $ 644        90   $ 2,000      $ 3,384      decrease of
21.2%
    2014      $ 715      $ 1,080        166   $ 2,499      $ 4,294     

Darryl G. Smette

    2015      $ 745      $ 671        90   $ 767      $ 2,183      decrease of

41.7%

    2014      $ 745      $ 1,080        150   $ 2,299      $ 4,124     

Lyndon C. Taylor

    2015      $ 625      $ 450        90   $ 1,533      $ 2,608      decrease of

28.4%

    2014      $ 625      $ 720        150   $ 2,299      $ 3,644     

 

1 

All dollar amounts shown in thousands.

 

2 

References to “Year” are to the pay decisions made by the Committee following the applicable year and may not align to the amounts shown in the SCT for the respective years due to SEC reporting rules.

 

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NAMED EXECUTIVE COMPENSATION (cont’d)

 

3 

Other than the salary reflected for Mr. Hager in 2014, the column reflects the base salary rate determined at the Committee meeting following year end. Mr. Hager’s salary was increased in the third quarter of 2015 following his appointment as President and CEO. The salary shown for him in 2014 takes into account the mid-year salary adjustment since the Committee made the change based on similar factors to those it considered when making compensation decisions in January 2015.

 

4 

Bonus targets are set as a percentage of base salary in effect as of year-end. Please refer to the section titled “Performance Cash Bonuses” for additional information about the process for 2015.

 

5 

The bonus target for Mr. Hager is 135% of his prior year’s annualized salary rate. The bonus target for each of Messrs. Mitchell, Vaughn and Smette is 100%. The bonus target for Mr. Taylor is 80%.

 

6 

All amounts calculated using the face-value method (value divided by the closing price of the Company stock as of the grant approval date). Other than the grant made to Mr. Hager in August 2015 in connection with his appointment as President and CEO, all grants reflected for 2014 were made in February 2015. Because Mr. Hager’s grant in August 2015 was subject to the same performance metric as the grants made in February 2015 and based on similar factors to those the Committee considered at that time, the August 2015 grant is shown under 2014. Grants reflected for 2015 were made in March 2016.

Effect of Company Performance on President and CEO Realizable Pay

The following chart demonstrates that the executive compensation programs are meeting one of their key objectives: Company TSR performance, especially relative to peer companies, significantly impacts the realizable compensation of our executives. As shown below, Mr. Hager’s realizable pay for the past three years ending December 31, 2015, was, in aggregate, 33.3% less than target. This underscores that the Committee’s emphasis on relative TSR as a key metric for performance cash bonuses and performance share units over the past three years has made target level pay unachievable without consistently superior TSR performance by the Company relative to peers. The Committee believes this analysis serves as the best measure of the alignment between pay-for-performance and the creation of stockholder value rather than a theoretical analysis based on targets or less tangible measures.

CEO Realizable Pay

LOGO

Notes:

All dollar amounts shown in thousands.

 

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NAMED EXECUTIVE COMPENSATION (cont’d)

 

On June 3, 2013, Mr. Hager was promoted from Executive Vice President to COO. He served as COO until his appointment as President and CEO on August 1, 2015. The increase in his pay targets over the period covered by the chart corresponds with his increasing responsibilities with the Company.

Amounts shown for each “Target” column reflect the compensation decisions made by the Committee at its annual meetings in November 2012 (labeled “2013 Pay”), January 2014 (labeled “2014 Pay”), and January 2015 (labeled “2015 Pay”) the results of which are disclosed by the Company in the proxy statements for the Company’s 2013, 2014 and 2015 annual meetings. For each column, the amounts reflect the aggregate grant date fair values of LTI awarded by the Committee at the meeting plus the base salary and targets for performance cash bonuses set for the following year.

“% TSR Change” covers, (a) for the first column, the period from December 31, 2012 to December 31, 2015, (b) for the second column, the period from December 31, 2013 to December 31, 2015, and (c) for the third column, the period from December 31, 2014 to December 31, 2015.

“% Difference between Realizable and Target Pay” reflects the difference, expressed as a percentage of “Target,” between “Target” and “Realizable” pay as of December 31, 2015 for each respective column.

Compensation Process Background

The Committee is responsible for and directs the process of reviewing and determining compensation for named executive officers. The Committee retains an external compensation consultant to provide assistance with the process. The role of the Committee and the compensation consultant, which include the development of a peer group to which we compare our executive officers’ compensation, are further described in the following sections.

Role of the Committee

The Committee establishes our executive compensation philosophy and administers the overall executive compensation program. The Committee operates under a written charter approved by the Board of Directors, a copy of which is available at www.devonenergy.com.

Each year, the Committee conducts an individual, in-depth, confidential interview with each executive officer to discuss the officer’s analysis of the Company’s overall performance for the year, performance within the officer’s area of responsibility, and any issues or concerns the officer may have regarding the Company’s operations. We believe this is a unique and highly effective tool in the Committee’s oversight of the executive compensation process. In addition, the President and CEO discusses with the Committee his evaluation of each executive officer’s performance, development and potential to take on greater or different responsibilities. The President and CEO also provides compensation recommendations to the Committee for all executive officers (other than himself).

The Committee considers the various factors described in this CD&A, including its interviews with executive officers and the President and CEO’s evaluations of each executive officer’s performance and, in a closed session without the President and CEO present, the Committee sets the President and CEO’s compensation. The Committee then determines whether to approve the compensation recommendations provided by the President and CEO for the other executive officers.

 

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NAMED EXECUTIVE COMPENSATION (cont’d)

 

Role of the Compensation Consultant

For 2015, the Committee retained Meridian Compensation Partners, LLC (the “Compensation Consultant”) as its external compensation consultant. The Compensation Consultant evaluated the competitiveness of our programs and assisted with executive compensation program design. The Committee has the final authority to hire and terminate the Compensation Consultant, and the Committee annually evaluates the performance of the Compensation Consultant.

In selecting its consultant, the Committee considers factors that could affect the consultant’s independence, including whether the consultant provides services to the Company other than under its engagement by the Committee and the other factors set forth in the Committee’s charter. Based on this review, the Committee determined that no conflicts of interest influence the work of the Compensation Consultant in its review of executive compensation.

Use of Peer Groups

To successfully compete for executive talent, the Committee, working with the Compensation Consultant, annually compares the compensation of our executive officers to the compensation of similarly situated executives at peer companies with business operations focused on the exploration and production of oil and gas. In establishing a peer group, the Committee primarily seeks companies with asset and market values similar to the Company. The Committee also considers enterprise values, calculated as market value plus net long-term debt and preferred stock, of the companies. The Committee believes these metrics are appropriate for determining peers because they provide a reasonable point of reference for comparing executives with similar positions and responsibilities. At the time the Committee approved the peer group for 2015, the Company was generally positioned between the 50th and 75th percentiles of the peer group on each of these metrics, which indicates that Devon was larger than most of its peers.

The approved peer group for 2015 consisted of the 14 companies listed below.

Anadarko Petroleum Corporation

Apache Corporation

Chesapeake Energy Corporation

Concho Resources Inc.

ConocoPhillips

Continental Resources, Inc.

EnCana Corporation

EOG Resources, Inc.

Hess Corporation

Marathon Oil Corporation

Murphy Oil Corporation

Noble Energy, Inc.

Occidental Petroleum Corporation

Pioneer Natural Resources Company

 

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NAMED EXECUTIVE COMPENSATION (cont’d)

 

The Committee’s peer group analysis consists of all components of total direct compensation, including base salary, annual bonus, and long-term incentives. The Compensation Consultant collected and summarized compensation data from the proxy statements of the peer group companies and the Compensation Consultant’s proprietary databases.

In January 2015, the Committee replaced Newfield Exploration Company and Talisman Energy Inc. with Continental Resources, Inc. and Concho Resources Inc. as members of the peer group in order to better align the peer group with the objectives outlined above. No changes to the peer group were made in the Committee’s meetings in early 2016.

Tally Sheet Review

The Committee annually reviews tally sheets for executive officers that include all elements of compensation, including potential payments under various termination scenarios. Tally sheets allow the Committee to evaluate compensation elements individually and collectively. Please refer to the tables that follow this CD&A for additional information.

Succession Planning

The Company has a robust succession-planning process to ensure the development of executive talent for the near- and long-term. The process and progress are reviewed with the Committee and the Board on an annual basis. In 2015, Mr. Richels retired as the Company’s President and CEO and, pursuant to such succession-planning process, Mr. Hager assumed executive leadership of the Company.

Additional Compensation Information

Retirement Benefits

Our named executive officers are entitled to participate in the following retirement benefits:

 

   

a qualified 401(k) Plan with a Company match of up to 6%;

 

   

a nonqualified Deferred Compensation Plan that allows eligible employees to defer cash compensation beyond the limits placed on the 401(k) Plan by the Internal Revenue Code and permits the Company to contribute a match to the extent that the match available under the qualified 401(k) Plan is limited;

 

   

a qualified Defined Benefit Plan that provides annual retirement income of 65% of final average compensation (i.e., the average of the highest three consecutive years’ compensation from salary and cash bonuses out of the last 10 years), less any benefits due to the participant under Social Security, times a fraction, the numerator of which is credited years of service up to a maximum of 25 and the denominator of which is 25; and

 

   

a nonqualified defined benefit plan (the Supplemental Retirement Income Plan or SRIP) that, among other things, provides retirement benefits calculated without certain limitations applicable to the Defined Benefit Plan, accrues over 20 years of service (rather than the 25 years applicable to the Defined Benefit Plan), includes a five-year vesting schedule, and allows for payments in a lump sum upon a change in control of the Company.

 

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NAMED EXECUTIVE COMPENSATION (cont’d)

 

Messrs. Mitchell and Hager joined the Company after our Defined Benefit Plan was closed to new participants. In lieu of participating in the Defined Benefit Plan and the SRIP, they are eligible to participate in the enhanced defined contribution structure of the 401(k) Plan and receive a Company retirement contribution to their 401(k) accounts equal to 8% of compensation. They are also eligible to participate in additional nonqualified defined contribution plans in lieu of participating in the SRIP.

For additional information on the Defined Benefit Plan, the SRIP, and the defined contribution plans as well as the present values of the accumulated benefits of our named executive officers under each plan, please refer to the Pension Benefits for the Year Ended December 31, 2015 section on page 60 and the Nonqualified Deferred Compensation Plan in 2015 section on page 65.

Other Benefits

The limited perquisites made available to our executives are listed in detail in the “All Other Compensation” table on page 55. Personal use of aircraft by executives on a limited basis is allowed as approved by the President and CEO. The Committee reviews the personal use of aircraft on an annual basis and has noted that the use has been minimal.

Post-Termination or Change-in-Control Benefits

We maintain employment agreements with each of our named executive officers. These agreements provide each named executive officer certain additional compensation if his employment is involuntarily terminated other than for cause or if the executive voluntarily terminates his employment for “good reason,” as those terms are defined in the relevant agreements. Also, in these situations, the applicable named executive officer fully vests in any unvested long-term incentive awards.

If a named executive officer is terminated within the two-year period following a change in control, the executive is also entitled to an additional three years of service credit and age in determining entitlement to retiree medical benefits and SRIP benefits (or with respect to the nonqualified defined contribution plan in which Messrs. Mitchell and Hager participate, an additional three years of contributions by the Company). The employment agreements do not include “gross-up” provisions that obligate the Company to pay an additional amount to the named executive officer if his benefits under the employment agreement or any other Company arrangement are subject to the tax imposed on excess parachute payments by Section 4999 of the Internal Revenue Code. Employment agreements with post-termination and change-in-control benefits such as these are typical in the oil and gas industry and necessary in order to compete for executive talent. Please refer to the Potential Payments Upon Termination or Change-in-Control section on page 67 for more information.

Our award agreements for long-term incentives granted to our named executive officers provide that officers who meet certain years-of-service and age criteria are eligible to continue to vest in the outstanding awards as scheduled under the agreements subject to certain covenants and agreements.

 

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NAMED EXECUTIVE COMPENSATION (cont’d)

 

Stock Ownership Guidelines

Ownership of our stock by our executives aligns their interests with the interests of our stockholders. Accordingly, the Board of Directors maintains stock ownership guidelines that require each executive officer who has served in such capacity for at least five years to own shares of common stock at least equal in value to a multiple of his base salary. The guidelines establish the following minimum ownership levels:

 

Officer Title   Share Ownership Expectation as Multiple of Base Salary

President and CEO

  Six times base salary

Chief Operating Officer

  Four times base salary

Executive Vice Presidents

  Three times base salary

The guidelines require an executive officer who has served in such capacity less than five years to maintain ownership of at least one-half of the shares of Devon common stock received through equity-based awards from the Company (net of taxes) until the officer meets his or her ownership requirement.

As of March 31, 2016, the named executive officers employed by the Company held stock in excess of the levels required in the guidelines. Our executives have historically maintained share ownership levels well above our guidelines. For purposes of calculating share ownership levels, the Board includes (i) shares owned directly by the officer and his immediate family members who share the same household, (ii) shares owned beneficially by the officer and his immediate family members residing in the same household, and (iii) unvested restricted stock for which any performance conditions have been met.

The Company also has a policy that prohibits our personnel from engaging in short-term or speculative transactions involving our common stock. This policy prohibits trading in our stock on a short-term basis, engaging in short sales, buying and selling puts and calls, and discourages the practice of purchasing the Company’s stock on margin.

For additional detail on the stock owned by our named executive officers, please refer to the Security Ownership of Management table on page 75.

Compensation Program and Risk-Taking

Our executive compensation program is designed to provide executive officers incentives for the achievement of near-term and long-term objectives, without motivating them to take unnecessary risk. As part of its review of the impact of the Company’s compensation programs, including its executive compensation program, on the Company’s risk profile and risk management, the Committee noted the following factors that discourage the Company’s executives from taking unnecessary or excessive risk:

 

   

the Company’s operating strategy and related compensation philosophy;

 

   

the effective balance of our compensation program between cash and equity, near-term and long-term focus, corporate and individual performance, and financial and non-financial performance;

 

   

a multi-faceted approach to performance evaluation and compensation that does not reward an executive for engaging in risky behavior to achieve one objective to the detriment of other objectives; and

 

   

significant executive stock ownership pursuant to our stock ownership guidelines.

 

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NAMED EXECUTIVE COMPENSATION (cont’d)

 

Based on this review, the Committee believes that the compensation programs, including the executive compensation program, do not encourage employees to take unnecessary or excessive risk.

Policy for Recovery of Compensation (Clawback Policy)

The Board has a policy that provides for the recovery of bonuses, incentives and equity-based compensation awarded to executive officers under certain circumstances (the “Clawback Policy”). In the event of a restatement of the Company’s financial statements that leads to a revision of one or more performance measures on which was based a performance cash bonus or other incentive compensation, the Committee may require reimbursement or forfeiture of all or a portion of any bonus or incentive compensation subject to the Clawback Policy.

Consideration of Tax Implications

Section 162(m) of the Internal Revenue Code disallows, with certain exceptions, a federal income tax deduction for compensation over $1,000,000 paid to the Chief Executive Officer or any other named executive officer except the Chief Financial Officer. One exception applies to “performance-based compensation” paid pursuant to stockholder approved employee benefit plans (essentially, compensation that is paid only if the individual’s performance meets pre-established objective performance goals using performance measures approved by our stockholders).

In recent years, the Company’s stockholders have approved an incentive compensation plan and long-term incentive plan that were designed, in part, to assure that certain bonuses paid and equity awarded under the respective plans would qualify as performance-based compensation. Accordingly, the Company expects that recent cash performance bonuses and any shares that vest pursuant to LTI awards with performance criteria will qualify as performance based and thereby preserve the Company’s ability to treat the awards as compensation expense for tax purposes. Notwithstanding, the Committee believes that stockholder interests are best served by allowing the Committee to retain the discretion to structure, determine, and approve the payments and awards under our compensation program even if those decisions could result in non-deductible compensation under certain circumstances or in future years.

Change in Pension Value

By SEC rule, the Company’s SCT must attribute a value to the “Change in Pension Value and Nonqualified Deferred Compensation Earnings” for each named executive officer. This value is included in the calculation of the SCT’s “Total” compensation for each named executive officer. For some NEOs in 2015, “Change in Pension Value and Nonqualified Deferred Compensation Earnings” is a significant number.

None of the values expressed in the “Change in Pension Value and Nonqualified Deferred Compensation Earnings” column arise from the payment of above market or preferential earnings on deferred compensation as no such payments have been made by the Company. The values do not reflect payments made to the named executive officers during 2015 and do not arise from compensation decisions made by the Committee in or for 2015. Instead, the values are limited to the “Change in Pension Value” for the year resulting from changes in the actuarial estimate of the value of future annuity payments arising from year-over-year changes to the relevant executive officer’s age, service years with the Company and earnings as well as prescribed mortality and interest rate assumptions.

 

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NAMED EXECUTIVE COMPENSATION (cont’d)

 

COMPENSATION COMMITTEE REPORT

The Compensation Committee of the Company has reviewed and discussed the preceding Compensation Discussion and Analysis section with management and, based on such review and discussions, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in the Proxy Statement.

Duane C. Radtke, Chairperson

John. E. Bethancourt

Robert A. Mosbacher, Jr.

SUMMARY COMPENSATION TABLE

The following table and accompanying footnotes summarize the compensation earned, awarded, paid, or attributed to our named executive officers for the years indicated below. The named executive officers are our President and Chief Executive Officer, our Chief Financial Officer, the three other most highly compensated executive officers of the Company serving as of December 31, 2015, and our Vice Chairman, who retired as the President and Chief Executive Officer of the Company on July 31, 2015. This table should be read together with our Compensation Discussion and Analysis (see page 31), which includes information about Company performance for 2015, our compensation philosophy and objectives, the programs and plans that underlie executive officer compensation opportunities, and the Committee’s process for awarding compensation.

 

Name and
Principal Position
   Year    

Salary

($)1

   

Bonus

($)

   

Stock

Awards

($)2

   

Non-Equity
Incentive
Plan
Compensation

($)3

   

Change in
Pension Value
and

Nonqualified
Deferred
Compensation
Earnings

($)4

   

All Other
Compensation

($)5

   

Total

($)

 

David A. Hager

     2015        1,107,692        -        6,402,788        1,549,000        -        817,414        9,876,894   

President and Chief

     2014        895,385        -        4,465,014        1,350,000        -        587,479        7,297,878   

Executive Officer

     2013        829,885        600        -        870,000        -        832,002        2,532,487   

Thomas L. Mitchell

     2015        624,231        -        2,621,844        549,000        -        439,860        4,234,935   

Executive Vice President

and Chief Financial Officer

     2014        454,808        363,330 6      3,295,083        825,000        -        132,752        5,070,973   
                

Darryl G. Smette

     2015        769,808        -        2,621,844        671,000        -        133,748        4,196,400   

Executive Vice President

     2014        715,231        -        2,568,424        1,080,000        1,049,924        102,104        5,515,683   

Marketing, Facilities,

Pipelines and Supply

Chain

     2013        688,462        600        -        689,000        -        153,026        1,531,088   

Tony D. Vaughn

     2015        732,500        -        2,850,228        644,000        372,345        113,841        4,712,914   

Chief Operating Officer

     2014        634,615        -        2,568,424        1,080,000        1,255,414        75,979        5,614,432   
     2013        589,182        600        -        550,000        28,007        72,528        1,240,317   

Lyndon C. Taylor

     2015        645,192        -        2,621,844        450,000        332,909        87,003        4,136,948   

Executive President and

                

General Counsel

                

John Richels

     2015        924,000        -        6,002,400 7      -        2,222,379        294,792        9,443,571   

Vice Chairman, former

President and Chief

Executive Officer

     2014        1,447,385        -        10,047,382        3,144,960        6,727,598        243,705        21,611,030   
     2013        1,400,000        600        -        1,890,000        3,244,355        424,928        6,959,883   

 

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NAMED EXECUTIVE COMPENSATION (cont’d)

 

1 

The annual 2015 base salary rates for Mr. Hager, $945,000; Mr. Mitchell, $610,000; Mr. Smette, $745,000; Mr. Vaughn, $715,000; Mr. Taylor, $625,000; and Mr. Richels, $1,456,000 were set at the Compensation Committee’s January 2015 meeting and took effect on February 7, 2015. Mr. Hager’s base salary rate increased to $1,275,000 on August 1, 2015 when he assumed the position of President and Chief Executive Officer. The actual salary numbers reflected for 2015 exceed the annual rates approved by the Committee because 2015 included an extra pay period under the Company’s bi-weekly pay schedule.

 

2 

The dollar amounts reported in this column represent the aggregate grant date fair values of the stock awards. The assumptions used to value stock awards are discussed in Note 4 – Share-Based Compensation of the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2015. As disclosed in our 2014 Proxy Statement, after 2012 the Company modified its annual performance assessment and award timeline for all employees, including the named executive officers, so that all compensation awards may be considered and awarded at one time shortly after the end of the year. Because of the changes, no stock awards appear for 2013 performance. Stock awards for 2014 and 2015 were made in February 2014 and February 2015 on this new timeline. Additional information on stock awards may be found in the Grants of Plan-Based Award Table on page 56. Please also see page 45 for a description of stock awards granted in early 2016. No option awards have been granted to named executive officers since 2011.

 

3 

This column reflects performance cash bonuses awarded to our named executive officers.

 

4 

The dollar amounts reported in this column reflect the aggregate change in the actuarial present value of each named executive officer’s accumulated benefits under our Defined Benefit Plan and the Supplemental Retirement Income Plan (SRIP) during the applicable year. The amounts shown for each year do not reflect payments made to the executives during the applicable year. None of our named executive officers received above market or preferential earnings on deferred compensation in any of the reported years. For Mr. Smette, the actuarial present value of his pension benefit decreased by $278,144 in 2015 due to a change in the discount rate required to be used in the calculation of his benefit once he reached the maximum plan age credit of 65. Messrs. Hager and Mitchell joined the Company after our Defined Benefit Plan was closed to new participants.

 

5 

Details for the amounts shown in this column for 2015 are reflected in the supplemental table that follows.

 

6

In 2014, Mr. Mitchell received a cash bonus upon the commencement of his employment with the Company. The amount was intended to replace a portion of the compensation he forfeited by resigning from his prior employer.

 

7 

In connection with Mr. Richels’ retirement as President and Chief Executive Officer, the long-term incentive awards granted to Mr. Richels on February 10, 2015 were prorated to reflect the seven months during 2015 that Mr. Richels served as President and Chief Executive Officer of the Company. These amendments reduce the amount of (i) the 2015 award of shares of performance restricted stock from 70,120 shares to 41,000 shares and (ii) the 2015 award of performance share units from 70,100 units to 41,000 units, in each case effective as of September 16, 2015. In the aggregate, the original value of the grant was approximately $10,263,924. The amount shown in “Stock Awards” corresponds to the value of the prorated number of shares and units covered by his award.

The following supplemental table shows the components of “All Other Compensation” for 2015 in the previous table.

 

Name  

Group
Term

Life

Insurance

Premiums

($)

   

401(k)
Plan

Employer

Match
and
Retirement
Contribution

($)

   

Deferred

Compensation

Plan Employer

Match

($)

   

Defined
Contribution
Restoration
Plan
Employer
Contribution

($)

   

Defined
Contribution
Supplemental
Executive
Retirement
Plan
Employer
Contribution

($)

   

Personal

Air
Travel

($)1

   

Director
Compensation

($)2

   

Total

($)

 

David A. Hager

    5,091        35,000        131,562        177,515 3      466,962        1,284        -        817,414   

Thomas L. Mitchell

    5,091        29,150        35,527        94,738 3      275,354        -        -        439,860   

Darryl G. Smette

    15,035        15,900        95,088        -        -        7,725        -        133,748   

Tony D. Vaughn

    5,091        15,900        92,850        -        -        -        -        113,841   

Lyndon C. Taylor

    5,091        15,900        66,012        -        -        -        -        87,003   

John Richels

    4,775        15,900        216,478        -        -        16,639        41,000        294,792   

 

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NAMED EXECUTIVE COMPENSATION (cont’d)

 

1 

The aggregate incremental cost to the Company for personal use of our aircraft is calculated based on our average variable operating costs. Variable operating costs include fuel, engine reserves, maintenance, weather-monitoring, on-board catering, landing/ramp fees and other miscellaneous variable costs. The total annual variable costs are divided by the annual number of hours our aircraft flew to determine an average variable cost per hour. This average variable cost per hour is then multiplied by the hours flown for personal use to determine the incremental cost. The methodology excludes fixed costs that do not change based on usage, such as pilots’ and other employees’ salaries, purchase costs of the aircraft and non-trip related hangar expenses. The Company does not reimburse executives for the personal tax liability attributable to personal air travel.

 

2 

Mr. Richels retired as President and CEO on July 31, 2015. Prior to his retirement, he did not receive compensation for his service on Devon’s Board. The amounts shown in this column reflect his compensation as a Director following his retirement.

 

3 

Messrs. Hager and Mitchell joined the Company after the Defined Benefit Plan was closed to new participants. Instead, they are eligible for and receive enhanced employer retirement contributions to the 401(k) plan and certain non-qualified defined contribution arrangements.

GRANTS OF PLAN-BASED AWARDS

The Grants of Plan-Based Awards table sets forth information concerning performance cash bonuses, performance restricted stock, performance share units, and restricted stock granted during 2015 for the named executive officers as described below.

 

         

Estimated Future Payouts Under

Non-Equity Incentive Plan Awards1

   

Estimated Future Payouts Under

Equity Incentive Plan Awards

   

Grant Date

Fair Value

of Stock

Awards

($)

 
Name   Grant Date    

Threshold

($)

 

Target

($)

   

Maximum

($)

   

Threshold

($)

 

Target

($)

   

Maximum

($)

   

David A. Hager

   

 

 

 

1/26/2015

2/10/2015

2/10/2015

8/10/2015

  

2 

3 

4 

  -

-

-

-

   

 

 

 

1,721,250

-

-

-

  

  

  

  

   

 

 

 

3,442,500

-

-

-

  

  

  

  

  -

-

-

-

   

 

 

 

-

33,500

33,480

31,329

  

  

  

  

   

 

 

 

-

33,500

66,960

31,329

  

  

  

  

   

 

 

 

-

2,150,030

2,752,726

1,500,033

  

  

  

  

Thomas L. Mitchell

   

 

 

1/26/2015

2/10/2015

2/10/2015

  

2 

3 

  -

-

-

   

 

 

610,000

-

-

  

  

  

   

 

 

1,220,000

-

-

  

  

  

  -

-

-

   

 

 

-

17,920

17,900

  

  

  

   

 

 

-

17,920

35,800

  

  

  

   

 

 

-

1,150,106

1,471,738

  

  

  

Darryl G. Smette

   

 

 

1/26/2015

2/10/2015

2/10/2015

  

2 

3 

  -

-

-

   

 

 

745,000

-

-

  

  

  

   

 

 

1,490,000

-

-

  

  

  

  -

-

-

   

 

 

-

17,920

17,900

  

  

  

   

 

 

-

17,920

35,800

  

  

  

   

 

 

-

1,150,106

1,471,738

  

  

  

Tony D. Vaughn

   

 

 

1/26/2015

2/10/2015

2/10/2015

  

2 

3 

  -

-

-

   

 

 

715,000

-

-

  

  

  

   

 

 

1,430,000

-

-

  

  

  

  -

-

-

   

 

 

-

19,480

19,460

  

  

  

   

 

 

-

19,480

38,920

  

  

  

   

 

 

-

1,250,226

1,600,001

  

  

  

Lyndon C. Taylor

    1/26/2015          500,000        1,000,000      -     -        -        -   
    2/10/2015 2    -     -        -      -     17,920        17,920        1,150,106   
    2/10/2015 3    -     -        -      -     17,900        35,800        1,471,738   

John Richels

   

 

 

1/26/2015

2/10/2015

2/10/2015

  

2,5 

3,5 

  -

-

-

   

 

 

-

-

-

  

  

  

   

 

 

-

-

-

  

  

  

  -

-

-

   

 

 

-

41,000

41,000

  

  

  

   

 

 

-

41,000

82,000

  

  

  

   

 

 

-

2,631,380

3,371,020

  

  

  

 

1 

The amounts shown in the column reflect a range of possible payouts for the performance cash bonus awards made on the dates indicated. Performance related to these awards was certified by the Committee following the end of the year and amounts were paid shortly thereafter. The awards were earned and paid at 90% of target levels; actual payouts under these awards are shown in the “Non-Equity Incentive Plan Compensation” column of the Summary Compensation Table. Please refer to “Annual Performance Cash Bonus” on page 41 for more information about our 2015 performance cash bonuses, including how the Committee establishes bonus targets and performance goals and engages in a scoring process to determine actual payouts.

 

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NAMED EXECUTIVE COMPENSATION (cont’d)

 

2 

The amounts shown in the rows reflect the possible payout for the performance restricted stock awards made on the dates indicated. All awards were made under Devon’s 2009 Long-Term Incentive Plan (as amended and restated, the “2009 LTIP”). For more information, please see the discussion of “Long-Term Incentives” starting on page 42 of this Proxy Statement. While that discussion specifically covers grants made in March 2016, the terms and conditions of those awards and the awards reflected in this table are similar. However, unlike the March 2016 grants which are tied to an operating metric and a financial metric, vesting of the 2015 grants are tied to achievement of a single financial metric for the year, cash flow before balance sheet changes.

 

3 

The amounts shown in the rows reflect the range of possible payouts for the performance share unit awards made on the dates indicated. All awards were made under the 2009 LTIP. For more information, please see the discussion of “Long-Term Incentives” starting on page 42 of this Proxy Statement. While that discussion specifically covers grants made in March 2016, the terms and conditions of those awards and the awards reflected in this table are substantially the same.

 

4 

Upon Mr. Hager’s appointment as President and Chief Executive Officer, he was granted performance restricted stock under the 2015 LTIP covering 31,329 shares, the vesting of which was subject to the achievement of a financial metric for the performance period of January 1, 2015 to December 31, 2015. Following year end, the Committee certified achievement of the metric, cash flow before balance sheet changes of at least $4 billion. The award will vest 25% on each anniversary of the grant date.

 

5 

See footnote 7 to the SCT for details on the prorated reduction of the long-term incentives granted to Mr. Richels in 2015. The amounts shown correspond to the prorated number of shares and units underlying his award.

 

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NAMED EXECUTIVE COMPENSATION (cont’d)

 

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END

The following table shows the number of shares covered by exercisable and unexercisable options and unvested restricted stock, performance restricted stock and performance share awards owned by our named executive officers on December 31, 2015.

 

    Option Awards     Stock Awards  
                                      Equity Incentive Plan Awards:  
Name  

Number of

Securities

Underlying

Unexercised

Options

(#)

Exercisable1

   

Number of

Securities

Underlying

Unexercised

Options

(#)

Unexercisable

 

Option

Exercise

Price

($)

   

Option

Expiration

Date

   

Number of

Shares or

Units of

Stock

That

Have Not

Vested

(#)2

   

Market

Value of

Shares or

Units of

Stock

That

Have Not

Vested

($)3

   

Number of

Unearned

Shares, Units

or Other

Rights

That

Have Not

Vested

(#)

   

Market or

Payout Value

of Unearned

Shares, Units

or Other

Rights

That Have

Not Vested

($)3

 

David A. Hager

    45,000          44.69        03/30/2017           
    56,800          63.80        12/07/2017           
    56,150          73.43        12/01/2018           
    43,550          65.10        11/30/2019           
                7,130 4      228,160   
                28,500 5      912,000   
                25,575 6      818,400   
                34,080 7      1,090,560   
                33,500 8      1,072,000   
                33,480 9      1,071,360   
                31,329 10      1,002,528   

Thomas L. Mitchell

            12,788        409,216       
                25,575 6      818,400   
                17,920 7      573,440   
                17,900 8      572,800   

Darryl G. Smette

    45,000          65.32        12/07/2016           
    41,000          63.80        12/07/2017           
    43,050          73.43        12/01/2018           
    33,400          65.10        11/30/2019           
                5,470 4      175,040   
                21,860 5      699,520   
                14,715 6      470,880   
                19,600 7      627,200   
                17,920 8      573,440   
                17,900 9      572,800   

Tony D. Vaughn

    31,000          65.32        12/07/2016           
    27,300          63.80        12/07/2017           
    25,500          73.43        12/01/2018           
    24,050          65.10        11/30/2019           
            3,805        121,760       
                15,200 5      486,400   
                14,715 6      470,880   
                19,600 7      627,200   
                19,480 8      623,360   
                                                  19,460 9      622,720   

 

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NAMED EXECUTIVE COMPENSATION (cont’d)

 

    Option Awards     Stock Awards  
                                  Equity Incentive Plan Awards:  
Name  

Number of

Securities

Underlying

Unexercised

Options

(#)

Exercisable1

   

Number of

Securities

Underlying

Unexercised

Options

(#)

Unexercisable

 

Option

Exercise

Price

($)

   

Option

Expiration

Date

   

Number of

Shares or

Units of

Stock

That

Have Not

Vested

(#)2

 

Market

Value of

Shares or

Units of

Stock

That

Have Not

Vested

($)3

 

Number of

Unearned

Shares, Units

or Other

Rights

That

Have Not

Vested

(#)

   

Market or

Payout Value

of Unearned

Shares, Units

or Other

Rights

That Have

Not Vested

($)3

 

Lyndon C. Taylor

    40,300          65.32        12/07/2016           
    36,700          63.80        12/07/2017           
    33,700          73.43        12/01/2018           
    26,150          65.10        11/30/2019           
                5,470 4      175,040   
                21,860 5      699,520   
                14,715 6      470,880   
                19,600 7      627,200   
                17,920 8      573,440   
                17,900 9      572,800   

John Richels

    126,600          65.32        12/07/2016           
    119,600          63.80        12/07/2017           
    187,100          73.43        12/01/2018           
    145,175          65.10        11/30/2019           
                21,390 4      684,480   
                85,540 5      2,737,280   
                57,540 6      1,841,280   
                76,700 7      2,454,400   
                41,000 8,11      1,312,000   
                                          41,000 9,11      1,312,000   

 

1 

The column reflects options granted on December 8, 2008, March 31, 2009, December 8, 2009, December 2, 2010 and December 1, 2011. With each grant reflected in the column, 20% of the options vest on the date of grant and on each anniversary date of the grant date.

 

2 

The amount shown for Mr. Mitchell represents a restricted stock award that was made on February 28, 2014. The amount shown for Mr. Vaughn represents a restricted stock award that was made on November 29, 2012. In each case, the restricted stock vests at the rate of 25% on each of the first four anniversary dates of the original grant date.

 

3 

Based on a stock price of $32.00, the closing price of our common stock on December 31, 2015.

 

4

As established at the time of grant, performance restricted stock for 2012 was only earned if the Company achieved a pre-set cash flow goal for 2013 (see page 42 of our 2013 proxy statement for additional information on the goal). In January 2014, the Committee determined that the goal had been achieved and 25% of the shares granted immediately vested and 25% will vest on each of the 2nd, 3rd and 4th anniversaries of the grant date (November 29) in accordance with the applicable award agreements.

 

5 

For performance share units granted in 2012, the number of shares listed is based on target level of performance for the three-year period from January 1, 2013 to December 31, 2015. The actual number of shares paid out was based on the Company’s relative TSR, as determined by the Committee following the period pursuant to the grid set forth on page 42 of our 2013 proxy statement. At its January 2016 meeting, the Committee determined that the Company’s TSR for the period ranked 7th in the 15 member peer group. Pursuant to terms of the grant, 120% of each executive’s target shares were determined by the Committee to be earned and the shares were subsequently released to each executive.

 

6 

As established at the time of grant, performance restricted stock for 2014 was only earned if the Company achieved a pre-set cash flow goal for 2014 (see page 42 of our 2014 proxy statement for additional information on the goal). In January 2015, the Committee determined that the goal had been achieved and 25% of the shares granted immediately vested and 25% will vest on each of the 2nd, 3rd and 4th anniversaries of the grant date.

 

7 

For performance share units granted in 2014, the number of shares listed is based on target level of performance for the three-year period from January 1, 2014 to December 31, 2016. The actual number of shares paid out will be based on the Company’s relative TSR, as determined by the Committee following the period pursuant to the grid set forth on page 42 of our 2014 proxy statement.

 

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NAMED EXECUTIVE COMPENSATION (cont’d)

 

8 

As established at the time of grant, performance restricted stock for 2015 was only earned if the Company achieved a pre-set cash flow goal for 2015 (see page 43 of our 2015 proxy statement for additional information on the goal). In January 2016, the Committee determined that the goal had been achieved and 25% of the shares granted immediately vested and 25% will now vest on each of the 2nd, 3rd and 4th anniversaries of the grant date.

 

9 

For performance share units granted in 2015, the number of shares listed is based on target level of performance for the three-year period from January 1, 2015 to December 31, 2017. The actual number of shares paid out will be based on the Company’s relative TSR, as determined by the Committee following the period pursuant to the grid set forth on page 43 of our 2015 proxy statement.

 

10 

Mr. Hager was granted a performance restricted stock award upon his appointment as President and Chief Executive Officer of the Company. This grant was only earned if the Company achieved the pre-set cash flow goal described in footnote 8 above. Because the goal was achieved, 25% of the shares will vest on each anniversary of the grant date.

 

11 

See footnote 7 to the SCT for details on the prorated reduction of the long-term incentives granted to Mr. Richels in 2015. The amounts shown correspond to the prorated number of shares and units underlying this award.

OPTION EXERCISES AND STOCK VESTED DURING 2015

The table below shows the number of shares of our common stock acquired during 2015 upon the vesting of stock awards granted to the named executive officers in previous years. During 2015, there were no transactions for stock option exercises.

 

    Stock Awards  
Name  

Number of

Shares

Acquired on
Vesting (#)

   

Value
Realized on

Vesting
($)1

 

David A. Hager

    24,876        1,398,972   

Thomas L. Mitchell

    12,787        806,520   

Darryl G. Smette

    17,436        967,556   

Tony D. Vaughn

    13,623        768,923   

Lyndon C. Taylor

    15,900        880,297   

John Richels

    71,295        3,960,536   

 

1 

The dollar amounts shown in this column are determined by multiplying the number of shares of common stock acquired upon vesting by the per share market price of our common stock on the vesting date.

Pension Benefits

We maintain three defined benefit retirement plans in which certain of our named executive officers may participate. Messrs. Mitchell and Hager joined the Company after the defined benefit retirement plans were closed to new participants and therefore do not participate in the plans.

 

   

A tax qualified defined benefit retirement plan and related trust for certain employees (Defined Benefit Plan);

 

   

A nonqualified Benefit Restoration Plan (BRP) that provides benefits that would be provided under the Defined Benefit Plan except for:

 

   

limitations imposed by the Internal Revenue Code, and

 

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NAMED EXECUTIVE COMPENSATION (cont’d)

 

   

the exclusion of nonqualified deferred compensation in the definition of compensation; and

 

   

A nonqualified Supplemental Retirement Income Plan (SRIP) for a small group of executives that provides benefits similar to those provided by the BRP plus certain additional benefits.

The following table shows the estimated present value of accumulated retirement benefits as provided under the Defined Benefit Plan and the SRIP to the named executive officers. All named executive officers, excluding Messrs. Mitchell and Hager, are participants in the SRIP in lieu of the BRP; therefore, BRP benefits are not included in the following table. SRIP benefits vest after five years of service. Participants who are terminated for cause lose their SRIP benefits and are instead paid under the BRP. Amounts payable under the SRIP or the BRP are reduced by the amounts payable under the Defined Benefit Plan so there is no duplication of benefits. Retirement benefits are calculated based upon years of service and “final average compensation.” Final average compensation consists of the average of the highest three consecutive years’ compensation from salary and cash bonuses out of the last 10 years. The definition of compensation under the Defined Benefit Plan is the same as the definition under the SRIP and BRP except that under the Defined Benefit Plan, nonqualified deferred compensation is excluded and the amount of compensation and pension benefits are limited by the Internal Revenue Code.

 

Name   Plan Name  

Number of Years

Credited Service

(#)

 

Present Value of

Accumulated Benefit

($)1

 

Payments During
Last Fiscal Year

($)

David A. Hager2

 

Defined Benefit Plan

  -   -   -
 

SRIP

  -   -   -

Thomas L. Mitchell2

 

Defined Benefit Plan

  -   -   -
 

SRIP

  -   -   -

Darryl G. Smette

 

Defined Benefit Plan

  29   2,428,028
  -
  SRIP   29   9,560,936   -

Tony D. Vaughn3

 

Defined Benefit Plan

  18   2,030,575
  -
  SRIP   18   3,352,976   -

Lyndon C. Taylor3,4

 

Defined Benefit Plan

  10   1,969,104
  -
  SRIP   15   3,847,900   -

John Richels3,5,6

 

Defined Benefit Plan

  12
  2,913,837
  -
    SRIP   20   30,734,812   -

 

1 

The present value of each named executive officer’s accumulated benefits as of December 31, 2015 under the Defined Benefit Plan plans is calculated assuming 10% of participants would elect a single life annuity, 50% of participants would elect a lump sum and 40% would elect a 100% joint and survivor annuity. For the SRIP, we assumed 25% of participants would elect a single life annuity and 75% would elect a 100% joint and survivor annuity. We assumed that each named executive officer would begin receiving payments at normal retirement age (age 65) and would be vested in those payments. The present value is calculated using the MRP 2007/MSS2007 mortality table, which is based on the RP-2014 mortality table, and a discount rate of 4.27% for the Defined Benefit Plan and 4.15% for the SRIP. No pre-retirement decrements were used in this calculation.

 

2 

Messrs. Mitchell and Hager joined the Company after the Defined Benefit Plan was closed to new participants. As a result, they will not receive a benefit under the plans described in this table.

 

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NAMED EXECUTIVE COMPENSATION (cont’d)

 

3 

Messrs. Vaughn, Taylor, and Richels are eligible for early retirement under the Defined Benefit Plan and the SRIP. See the following “Defined Benefit Plan – Early Retirement” for a description of the eligibility requirements and benefits payable under our Defined Benefit Plan.

 

4

The value of Mr. Taylor’s SRIP benefit includes the effect of an additional service credit. The additional credited years of service increase the value of Mr. Taylor’s SRIP benefit by $1,607,396. The Committee granted the service credit in 2012 in recognition that Mr. Taylor joined the Company mid-career, and that he would likely remain at the Company for the duration of his career. The service credit recognizes the value of his prior experience to the Company.

 

5 

Years of credited service for Mr. Richels for the Defined Benefit Plan are determined based on time worked in the U.S. For the SRIP, Mr. Richels’ service is based on time worked in the U.S. and Canada while with the Company. Mr. Richels’ Canadian service is included for benefit eligibility purposes (vesting and early retirement) in both plans.

 

6 

Benefits payable to Mr. Richels under the SRIP are reduced by benefits under our Pension Plan for Employees of Devon Canada Corporation, a subsidiary of the Company. Mr. Richels’ benefit under the Pension Plan for Employees of Devon Canada Corporation is frozen and Mr. Richels’ future pension benefits are accruing under the Defined Benefit Plan and the SRIP.

BENEFIT PLANS

Defined Benefit Plan

The Defined Benefit Plan is a qualified defined benefit retirement plan which provides benefits based upon employment service with us. Employees hired before October 1, 2007, became eligible to participate in the Defined Benefit Plan when they earned one year of service and attained the age of 21 years. Employees who were hired after September 30, 2007, are not eligible to participate in the Defined Benefit Plan. Each eligible employee who retires is entitled to receive monthly retirement income based upon their final average compensation and years of credited service, and the retirement income is reduced by Social Security benefits payable to the employee. Alternately, an eligible employee may elect a lump-sum payment at the time of retirement equivalent in amount to the present value of the calculated annuity stream. Contributions by employees are neither required nor permitted under the Defined Benefit Plan. Benefits are computed based on straight-life annuity amounts. Benefits under the Defined Benefit Plan are limited for certain highly compensated employees, including our named executive officers, in order to comply with certain requirements of ERISA and the Internal Revenue Code.

Normal Retirement

Employees, including the named executive officers, are eligible for normal retirement benefits under the Defined Benefit Plan upon reaching age 65. Normal retirement benefits for the employees participating in the Defined Benefit Plan are equal to 65% of the participant’s final average compensation less any benefits due to the participant under Social Security, multiplied by a fraction, the numerator of which is his or her credited years of service (up to a maximum of 25 years) and the denominator of which is 25.

Early Retirement

Employees, including the named executive officers, are eligible for early retirement benefits under the Defined Benefit Plan after (i) attaining age 55, and (ii) earning at least 10 years of credited service. Early retirement benefits are equal to a percentage of the normal retirement income the participant would otherwise be entitled to if he or she had commenced benefits at age 65 depending on the participant’s age when he or she elects to begin receiving benefits. If an eligible participant

 

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NAMED EXECUTIVE COMPENSATION (cont’d)

 

commences benefits at age 55, he or she will receive 60% of the benefits he or she would have received had benefits commenced at age 65. The percentage increases by 5% for each year above age 55 (up to age 60) and 3% above age 60 (up to age 65) that an eligible participant delays the commencement of benefits.

Deferred Vested Pension

Participants in the Defined Benefit Plan are fully vested in their accrued benefits after five years of service. If the participant’s employment is terminated after attaining five years of service but before eligibility for early retirement, the participant is entitled to a deferred vested pension based on his or her accrued benefit on the date of termination. An unreduced deferred vested pension is payable at age 65. Alternatively, the participant may elect to receive a reduced benefit as early as age 55. The benefit payable prior to age 65 is a percentage of his or her normal retirement benefit based on his or her age at the time the benefit begins, as shown in the table below:

 

Age at Election to

Receive Deferred

Vested Pension

 

Percentage of

Normal Retirement

Income

65

  100.00%

64

  90.35%

63

  81.88%

62

  74.40%

61

  67.79%

60

  61.91%

59

  56.68%

58

  52.00%

57

  47.80%

56

  44.03%

55

  40.63%

If a participant is:

 

   

involuntarily terminated for any reason other than death or “cause,” is between the ages of 50 and 55 and has at least 10 years of credited service, or

 

   

involuntarily terminated for any reason other than “cause” within two years following a change in control and has at least 10 years of credited service regardless of the participant’s age,

then the participant may elect to have his or her benefits under the Defined Benefit Plan paid at any time on or after the age of 55 subject to the same percentage reduction in benefits as discussed in “Early Retirement” above.

Benefit Restoration Plan

The BRP is a nonqualified defined benefit retirement plan, the purpose of which is to restore retirement benefits for certain selected key management and highly compensated employees because their benefits under the Defined Benefit Plan are limited in order to comply with certain

 

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NAMED EXECUTIVE COMPENSATION (cont’d)

 

requirements of ERISA and the Internal Revenue Code or because their final average compensation is reduced as a result of contributions into our Deferred Compensation Plan. Benefits under the BRP are equal to 65% of the executive’s final average compensation less any benefits due to the executive under Social Security, multiplied by a fraction, the numerator of which is his or her years of credited service (not to exceed 25) and the denominator of which is 25. The BRP benefit is reduced by the benefit that is otherwise payable under the Defined Benefit Plan. An employee must be selected by the Compensation Committee in order to be eligible for participation in the BRP. The same early retirement reduction factors that apply under the Defined Benefit Plan are applicable under the BRP. Participants become vested in retirement benefits under the BRP at the same time as the participant becomes vested for retirement benefits under the Defined Benefit Plan.

Supplemental Retirement Income Plan

The SRIP is another nonqualified defined benefit retirement plan for a small group of our key executives, the purpose of which is to provide additional retirement benefits for these executives. An employee must be selected by the Committee in order to be eligible for participation in the SRIP. Participants in the SRIP become vested in the SRIP benefits after five years of service. If the executive is terminated for “cause” as that term is defined in the executive’s employment agreement, then all benefits under the SRIP are forfeited and the executive would receive benefits under the BRP. If the executive is receiving benefits under the SRIP, the executive is not eligible for benefits under the BRP.

The SRIP provides for retirement income equal to 65% of the executive’s final average compensation less any benefits due to the participant under Social Security, multiplied by a fraction, the numerator of which is the executive’s credited years of service (not to exceed 20) and the denominator of which is 20. For those participating in the plan as of January 24, 2002 (“Grandfathered Participants”), the SRIP benefit is reduced by a fraction of the benefits otherwise accrued under the Defined Benefit Plan, the numerator of which is years of credited service (not greater than 20) and the denominator of which is 20. For those who become participants after January 24, 2002, the SRIP benefit is reduced by the full benefits otherwise accrued under the Defined Benefit Plan. Of the named executive officers who participate in the SRIP, Mr. Taylor is not a Grandfathered Participant. In the case of Mr. Richels, his SRIP benefit is also reduced by amounts payable to him under the defined contribution provisions of our Canadian Pension Plan.

The same early retirement reduction factors that apply under the Defined Benefit Plan are applicable under the SRIP. Early retirement benefits are payable under the SRIP after attaining age 55 and earning at least 10 years of service or, if earlier, 20 years of service regardless of age. The early retirement benefit prior to age 55 is the actuarial equivalent to the age 55 early retirement benefit. In the event that a named executive officer is terminated “without cause” or terminates his or her employment for “good reason” as those terms are defined in our employment agreements with our named executive officers, then the executive will be 100% vested in his accrued SRIP benefit. If a change in control event occurs, the executive will be 100% vested and his benefit will be an amount equal to the normal retirement annuity payable immediately, unreduced for early commencement, paid in a lump sum. Otherwise, the benefit will be paid monthly, pursuant to the annuity option selected by the executive. Additionally, the SRIP provides that if the executive is terminated “without cause” or terminates his or her employment for “good reason” within 24 months of a change in control event, the executive will be entitled to an additional three years of service credit and age in determining benefits. The SRIP may be informally funded through a rabbi trust arrangement.

 

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NAMED EXECUTIVE COMPENSATION (cont’d)

 

NONQUALIFIED DEFERRED COMPENSATION IN 2015

The following table shows information about our nonqualified deferred compensation plans, which are further described below.

 

Name   Executive
Contributions in
Last Fiscal Year
($)1
    Company
Contributions for
Last Fiscal Year
($)2
   

Aggregate
Earnings in Last
Fiscal Year

($)3

    Aggregate
Distributions in
Last Fiscal Year
($)4
    Aggregate
Balance at Last
Fiscal Year End
($)5
 

David A. Hager

Deferred Compensation Plan

 

 

 

896,538

  

 

 

131,562

  

 

 

(179,248

 

 

-

  

 

 

2,334,483

  

Supplemental Contribution
Restoration Plans (SCRPs)

 

 

 

-

  

 

 

177,515

  

 

 

(39,859

 

 

-

  

 

 

779,623

  

Supplemental Executive Retirement Plan (DC SERP)  

 

-

  

 

 

466,962

  

 

 

(104,850

 

 

-

  

 

 

1,796,943

  

Thomas L. Mitchell

Deferred Compensation Plan

 

 

 

37,235

  

 

 

35,527

  

 

 

(812

 

 

-

  

 

 

71,949

  

Supplemental Contribution Restoration Plans (SCRPs)

 

 

 

-

  

 

 

94,738

  

 

 

(6,542

 

 

-

  

 

 

103,799

  

Supplemental Executive Retirement Plan (DC SERP)  

 

-

  

 

 

275,354

  

 

 

(19,015

 

 

-

  

 

 

342,263

  

Darryl G. Smette

Deferred Compensation Plan

    208,188        95,088        (61,651     (85,808     2,220,760   

Tony D. Vaughn

Deferred Compensation Plan

    108,750        92,850        (10,498     -        963,944   

Lyndon C. Taylor

Deferred Compensation Plan

    81,912        66,012        (5,757     -        1,863,561   

John Richels

Deferred Compensation Plan

    244,138        216,478        31,592        -        3,803,203   

 

1 

The amounts in this column are already included in, and are not in addition to, the amounts in the “Salary” or “Bonus” columns in the Summary Compensation Table on page 54.

 

2 

The amounts in this column are already included in, and are not in addition to, the amounts in the in the “All Other Compensation” column of the Summary Compensation Table on page 54. Company contributions are made in arrears during the first month following the fiscal quarter during which the contributions were earned. Company contributions earned by the named executive officers during 2015 were deposited in April, July and October 2015 and January 2016.

 

3 

Earnings reflect the returns produced by the investments selected by the applicable named executive officer. The investment options available to the named executive offices are a sub-set of the investment options available under the Company’s 401(k) Plan. As of December 31, 2015, investment options consisted of the following (returns for 2015 noted in parentheses): PIMCO Stable Income – Class 1 (0.77%); Neuberger Berman High Income Bond – Institutional Class (-4.77%); Vanguard Prime Money Market (0.11%); Global Low Volatility Fund (5.19%); Large Cap Value Fund (-0.42%); Large Cap Growth Fund (8.78%); Small/Mid Cap Value Fund (-1.57%); Small/Mid Cap Growth Fund (-6.94%); US Equity Index Fund (0.46%); International Equity Index Fund (-4.54%); PIMCO All Asset All Authority (-11.73%); American Funds EuroPacific Growth – R6 Shares (-0.48%); JP Morgan Core Plus Bond Fund (0.35%). The Company does not guarantee a level of investment return.

 

4 

In-service distributions are made in accordance with the elections made by the named executive officer at the time of enrollment in the plan. Mr. Smette elected a specific date for the distribution he received from the plan in 2015.

 

5 

For the referenced plans, the Aggregate Balance reflects the changes in the plan balance for the named executive officers due to contributions (executive and Company), earnings, and distributions. The amounts previously reported in the Summary Compensation Table as compensation to the named executive officers are as follows: Mr. Hager-$2,298,693; Mr. Mitchell-$101,998; Mr. Smette-$687,672 (amount since 2006); Mr. Vaughn-$107,942; Mr. Taylor-$110,860; and Mr. Richels-$1,548,114 (amount since 2006).

 

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NAMED EXECUTIVE COMPENSATION (cont’d)

 

401(k) Plan

The 401(k) Plan is a qualified defined contribution plan that provides for a Company matching contribution of up to 6% of compensation. For employees who are not accruing benefits in the Defined Benefit Plan, supplemental contributions are made by the Company based on years of benefit service as a percentage of compensation.

Deferred Compensation Plan

The Deferred Compensation Plan is designed to allow participating employees, including the named executive officers, to contribute up to 50% of his or her base salary and up to 100% of his or her bonus and receive a Company match beyond the contribution limits prescribed by the IRS with regard to our 401(k) Plan. The Deferred Compensation Plan provides executives a tax effective means to defer a portion of their cash compensation at a minimal cost to the Company.

Supplemental Contribution Restoration Plans

The Supplemental Contribution Restoration Plans (SCRPs) are two nonqualified supplemental defined contribution plans. The purpose of the SCRPs is to ensure that participants in the 401(k) Plan, who are eligible to receive the supplemental contribution, receive the full supplemental contribution despite the limitations imposed by the Internal Revenue Code. A contribution will be made by the Company in an amount equal to the difference between the supplemental contribution that the Company would have contributed under the 401(k) Plan in the absence of the Internal Revenue Code limitations and the actual amount contributed.

Supplemental Executive Retirement Plan

The Supplemental Executive Retirement Plan (DC SERP) is a nonqualified supplemental executive retirement plan that provides benefits in lieu of the SRIP to a small group of key executives who are not eligible to participate in the Defined Benefit Plan or the SRIP. Under the DC SERP, an executive is eligible to receive an annual contribution of a specified percentage of compensation. This contribution will be offset by supplemental contributions to the 401(k) Plan and contributions to the SCRPs. An employee must be selected by the Committee in order to be eligible for participation in the DC SERP. A participant in the DC SERP becomes 50% vested after five years of service and vests at the rate of 10% for each of the following five years. At age 62, a participant will be 100% vested with five years of participation. In the event of a change in control or a named executive officer is terminated “without cause” or terminates his or her employment for “good reason,” as those terms are defined in our employment agreements with our named executive officers, then the executive will be 100% vested in his or her DC SERP account. Additionally, the DC SERP provides that if the executive is terminated “without cause” or terminates his or her employment for “good reason” within 24 months of a change-in-control event, the executive will be entitled to an additional three years of contributions. For those additional three years of contribution, no contributions under the 401(k) plan or the SCRPs will exist to apply as an offset because the executive will have terminated employment. A participant will be 100% vested in the event of death or disability. Payment of DC SERP accounts will be in the form of a lump sum payment. The DC SERP may be informally funded through a rabbi trust arrangement.

 

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NAMED EXECUTIVE COMPENSATION (cont’d)

 

POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE-IN-CONTROL

We will be obligated to make certain payments to our named executive officers or potentially accelerate the vesting of their equity awards and retirement benefits upon termination of their employment or upon a change in control of the Company pursuant to the following plans or agreements:

 

   

employment agreements entered into with each of our named executive officers;

 

   

the Defined Benefit Plan;

 

   

the 401(k) Plan;

 

   

the BRP, the SRIP, the SCRPs or the DC SERP, depending on the circumstances of the executive officer’s termination;

 

   

the 2005 LTIP;

 

   

the 2009 LTIP; and

 

   

the 2015 LTIP.

The following tables provide the estimated compensation and present value of benefits potentially payable to each named executive officer upon a change in control of the Company or a termination of employment of the named executive officer. The benefit values shown do not include benefits that are broadly available to substantially all salaried employees. The amounts shown assume that a termination or change in control occurred on December 31, 2015. The actual amounts to be paid can only be determined at the time of an executive’s actual separation from the Company.

Please see the narrative for the following tables for a discussion of the methods of calculating the payments required upon termination of our named executive officers in the manners set forth in each column. The footnotes for each of the following tables are presented after the final table. Employment agreements between the Company and each of the named executive officers do not include tax gross-up payment obligations.

 

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NAMED EXECUTIVE COMPENSATION (cont’d)

 

POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE-IN-CONTROL1

David A. Hager

 

Benefits and
Payments

($)

 

Retirement/

Voluntary

Termination

($)

   

Termination

Without Cause

($)

   

Termination

With Cause

($)

 

Disability

($)

   

Death

($)

   

Change in

Control - No
Job Loss

($)

   

Change in

Control - Job
Loss

($)13

 

Base Salary/Bonus2

    -        7,875      -     -        -        -        7,875   

DC SERP10

    1,862        1,862      -     1,862        1,862        -        3,928   

SCRPs11

    807        807      -     807        807        807        807   

Accelerated Vesting of Restricted Stock7

    -        3,121      -     -        3,121        1,047        3,121   

Performance Share Units8

    -        3,074      -     -        3,074        2,003        3,073   

Other Benefits9

    -        81      -     -        -        87        87   

Total12

    2,669        16,821      -     2,669        8,864        3,944        18,891   

Thomas L. Mitchell

 

Benefits and
Payments

($)

 

Retirement/

Voluntary

Termination

($)

   

Termination

Without Cause

($)

   

Termination

With Cause

($)

   

Disability

($)

   

Death

($)

   

Change in

Control – No
Job Loss

($)

   

Change in

Control – Job
Loss

($)13

 

Base Salary/Bonus2

    -        4,305        -        -        -        -        4,305   

DC SERP10

    373        373        -        373        373        -        1,362   

SCRPs11

    117        117        117        117        117        117        117   

Accelerated Vesting of Restricted Stock7

    -        1,801        -        -        1,801        1,228        1,801   

Performance Share Units8

    -        573        -        -        573        -        573   

Other Benefits9

    -        81        -        -        -        87        87   

Total12

    490        7,251        117        490        2,864        1,432        8,245   

 

  68   Commitment Runs Deep


Table of Contents

NAMED EXECUTIVE COMPENSATION (cont’d)

 

Tony D. Vaughn

 

Benefits and Payments

($)

 

Retirement/

Voluntary

Termination

($)

   

Termination

Without
Cause

($)

   

Termination

With Cause

($)

   

Disability

($)

   

Death

($)

   

Change in

Control - No
Job Loss

($)

   

Change in

Control - Job
Loss

($)13

 

Base Salary/Bonus2

    -        5,385        -        -        -        -        5,385   

SRIP3,4,5,6

    3,910        3,910        -        3,910        3,543        -        11,804   

BRP3,4

    -        -        2,539        -        -        -        -   

Accelerated Vesting of Restricted Stock7

    -        1,216        -        -        1,216        593        1,216   

Performance Share Units8

    -        1,736        -        -        1,736        1,114        1,736   

Other Benefits9

    -        69        -