DEF 14A 1 d853414ddef14a.htm DEFINITIVE PROXY STATEMENT Definitive Proxy Statement
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A INFORMATION

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Securities Exchange Act of 1934

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Definitive Proxy Statement

 

Definitive Additional Materials

 

Soliciting Material under Rule 14a-12


DEVON ENERGY CORPORATION
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LOGO

  Commitment Runs Deep

2020

Notice of Annual Meeting

and Proxy Statement

LOGO

 


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LETTER TO STOCKHOLDERS

FROM THE CHAIR OF THE BOARD

 

 

LOGO

Dear Fellow Stockholders:

Our proxy statements typically focus on actions and events in the prior year. This proxy statement does so as well, but we would be remiss if we didn’t acknowledge the extraordinary events that have transpired in early 2020. The COVID-19 pandemic and the oil supply standoff involving OPEC and Russia have resulted in steep declines in energy prices and the stock market that are putting our sector to the test. As always, the safety and health of our employees are of paramount concern. We have prudently positioned Devon to weather these challenging times.

The impact of the extraordinary events in early 2020 on Devon’s business and the energy industry in general will be reflected in our 2021 proxy statement, including the pay decisions that we report. We ask that when you read the material in this 2020 proxy statement that you do so remembering the 2019 context for the performance, governance, and compensation information in it—a year in which our stock price increased, and we reduced our long-term debt, high-graded our asset portfolio through strategic divestments, and re-aligned our overall cost structure.

We also call your attention to our progressive governance profile that we rely on as a foundation for our long-term performance. We have, among other things, majority voting, proxy access, and special meeting rights and have none of the unpopular anti-takeover provisions such as a standing poison pill, a supermajority voting standard, a classified board, or a dual-class voting structure. We have a steadily refreshed board that includes members who have been through industry lows in the past. We continue to underscore the importance of safety through the goals we set for executive compensation. We are also committed to peer-leading performance on environmental, social and governance (ESG) issues, which is illustrated by our embrace of ESG principles such as putting more ESG-relevant information in the hands of our stakeholders, setting company-wide ESG performance goals that are linked to executive compensation, and meaningfully engaging with our stakeholders.

The world will continue to need energy, including the energy that we provide. Our employees are resilient and up to the challenge, and we will push through this difficult period. We ask for your voting support.

Sincerely

 

 

LOGO

Duane C. Radtke

Chair 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 3, 2020

Place   

Devon Energy Center Auditorium

333 W. Sheridan Avenue

Oklahoma City, Oklahoma 73102

 

We intend to hold our annual meeting in person. However, we are actively monitoring the coronavirus (COVID-19); we are sensitive to the public health and travel concerns our stockholders may have and the protocols that federal, state, and local governments may impose. In the event it is not possible or advisable to hold our annual meeting in person, we will announce alternative arrangements for the meeting as promptly as practicable, which may include holding the meeting solely by means of remote communication. Any alternative arrangements for the meeting will be publicly announced on the Company’s “Investors” webpage at www.devonenergy.com and filed with the SEC. If you are planning to attend our meeting, please check the webpage one week prior to the meeting date. As always, we encourage you to vote your shares prior to the annual meeting.

Items of Business   

•   Elect eleven directors for a term of one year;

•   Ratify the appointment of the independent auditors for 2020;

•   Approve, in an advisory vote, executive compensation; 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 6, 2020, 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 “Frequently Asked Questions About the Annual Meeting” beginning on page 86.

 

 

Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting of Stockholders to be Held on June 3, 2020:

Our 2020 Proxy Materials, including the 2020 Proxy Statement and Annual Report on

Form 10-K for the year ended December 31, 2019, are available at

www.proxydocs.com/dvn.

BY ORDER OF THE BOARD OF DIRECTORS

 

LOGO

Christopher J. Kirt

Vice President Corporate Governance

and Secretary

Oklahoma City, Oklahoma

April 22, 2020

 

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PROXY STATEMENT TABLE OF CONTENTS

 

 

DEVON AT A GLANCE

     1  

OUR BOARD

  

WHO WE ARE (Our Nominees for Election)

     5  

Biographies

     5  

Director Skills and Experience

     16  

AGENDA ITEM 1. ELECTION OF DIRECTORS

     17  

HOW WE ARE SELECTED, COMPRISED, AND EVALUATED

     18  

GOVERNANCE COMMITTEE REPORT

     18  

HOW WE ARE GOVERNED AND GOVERN

     21  

Committees

     22  

Director Independence

     24  

Related Person Transactions

     24  

Leadership Structure

     25  

Lead Director

     25  

Board Involvement in Risk Oversight

     25  

HOW TO COMMUNICATE WITH US

     27  

HOW WE ARE PAID

     29  

Director Compensation for the Year Ended December 31, 2019

     29  

Annual Retainers and Meeting Fees

     29  

Equity Awards to Directors

     29  

Total Compensation for Non-Management Directors for 2019

     30  

Changes in Director Compensation Structure and Amounts for 2020

     30  

Compensation Committee Interlocks and Insider Participation

     30  

OUR CONTROLS AND COMPLIANCE

  

AUDIT COMMITTEE REPORT

     31  

Fees to Independent Auditor

     32  

Audit Committee Pre-Approval Policies and Procedures

     32  

AGENDA ITEM 2. RATIFICATION OF INDEPENDENT AUDITORS FOR 2020

     33  

RESERVES COMMITTEE REPORT

     34  

OUR COMPANY

  

WHO WE ARE (Our Officers)

     35  

AGENDA ITEM 3. APPROVE, IN AN ADVISORY VOTE, EXECUTIVE COMPENSATION

     37  

EXECUTIVE COMPENSATION

     38  

COMPENSATION DISCUSSION AND ANALYSIS

     38  

Introduction

     39  

Executive Summary

     40  

Compensation Decisions for 2019

     45  

Comparison of Year-Over-Year Total Direct Pay Awarded

     52  

Effect of Company Performance on President and CEO Realizable Pay

     52  

Compensation Process Background

     54  

Additional Benefits and Compensation Information

     56  

COMPENSATION COMMITTEE REPORT

     59  

SUMMARY COMPENSATION TABLE

     60  

GRANTS OF PLAN-BASED AWARDS

     63  

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END

     64  

OPTION EXERCISES AND STOCK VESTED DURING 2019

     65  

PENSION BENEFITS

     66  

BENEFIT PLANS

     67  

Defined Benefit Plan

     67  

Benefit Restoration Plan

     69  

Supplemental Retirement Income Plan

     69  

Defined Contribution Plan – 401(k) Plan

     70  

Nonqualified Deferred Compensation Plan

     70  

Supplemental Contribution Restoration Plans

     72  

Supplemental Executive Retirement Plan

     72  

POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL

     72  

Accrued Payments Upon Termination of Employment

     73  

Rights Upon Termination for Death or Disability

     73  

Rights Upon Termination Without Cause and Constructive Discharge

     73  

Termination Following a Change in Control

     74  

Payment Conditions

     74  

Long-Term Incentive Awards

     75  

Potential Payments Upon Termination or Change in Control Tables

     76  

CEO PAY RATIO

     80  

EQUITY COMPENSATION PLAN INFORMATION

     81  

OUR STOCKHOLDERS

  

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     82  

Security Ownership of Certain Beneficial Owners

     82  

Security Ownership of Management

     83  

SUBMISSION OF STOCKHOLDER PROPOSALS AND NOMINATIONS

     85  

FREQUENTLY ASKED QUESTIONS ABOUT THE ANNUAL MEETING

     86  

OTHER MATTERS

     90  

APPENDIX A. EXPLANATION AND RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

     A-1  
 

 

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DEVON AT A GLANCE

 

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 3, 2020, at 8:00 a.m. (Central time).

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

The Gravity of the Moment

It is not business as usual at Devon. A health crisis is gripping many communities, and the global economy has been shuttered. We are concerned about the health of our employees and contractors, as well as our global citizens.

Devon prides itself on a work atmosphere built on optimism, teamwork, creativity, and resourcefulness. At a time of crisis, those fundamental values animate an organization that is working extraordinarily hard through unprecedented challenges. We are supporting our employees. We have an incident management team that is focused on health and safety, and our management team frequently communicates with our employees on developments and advice related to COVID-19. We are also taking swift actions to manage our business. We are committed to drilling fewer wells and protecting our balance sheet in response to historically low oil prices.

We will bounce back from this crisis. Our values give us the vitality to do so. We also know that the U.S. and global economies are resilient and need the affordable energy resource that we produce in order to recover.

Overview

Devon explores for, develops, and produces oil, natural gas, and natural gas liquids in areas where the oil and gas industry has long been active onshore in the United States. We have a substantial portfolio of exploration and production assets and operations that provide stable, environmentally responsible production and a platform for future growth.

As part of a focused development program, our drilling activity is concentrated in the Delaware Basin of southeast New Mexico, the Eagle Ford play in south Texas, the Powder River Basin in the Rockies, and the STACK play in west-central Oklahoma.

 

 

Devon has built a world-class

U.S. oil portfolio

 

Devon has a disciplined

returns-driven strategy

   

 Premier acreage position in top basins

  Plan designed to compete with top S&P 500 sectors
 

 Achieving best-in-class operating results

  Focused on higher-margin oil production
   

 Deep inventory of opportunities

 

Aggressively improving cost structure and maintaining a strong balance sheet

Financial and Operating Performance

During 2019, we furthered our transition to a U.S. oil-focused company. We sold our Canadian business, generating $2.6 billion in proceeds, and entered into an agreement to sell our largest natural gas asset, the Barnett Shale. Through this transition, we positioned the Company for oil production growth and improved price realizations and field-level margins. As we streamline our

 

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DEVON AT A GLANCE (cont’d)

 

portfolio of U.S. oil assets, we are aggressively pursuing an improved cost structure to further expand margins. We have realized annualized cost savings by reducing well costs, production expenses, financing costs, and G&A expenses.

Commodity prices are uncertain and volatile, so we strive to maintain a strong balance sheet, as well as adequate liquidity and financial flexibility, in order to operate competitively in all commodity price cycles. Our capital allocation decisions are made with attention to these financial stewardship principles, as well as the priorities of funding our core operations, protecting our credit ratings, and paying and growing our stockholder dividend.

Sustainability Performance

Devon is committed to delivering results to our stakeholders in the right way. As a leading independent oil and natural gas company, that means producing energy to help meet global demand, while generating strong financial returns and long-term value for our stockholders. For Devon, it also means operating a safe, environmentally responsible, and ethical business in the field and in the office.

Based in Oklahoma City, we employ approximately 1,700 men and women in the U.S., operating under the motto: Commitment Runs Deep. We take this to heart and apply it to everyone who has a stake in our success – investors, employees, and neighbors alike.

 

LOGO

Our employees’ knowledge, expertise, skills, and creativity are the keys to Devon’s success. We look to our core values to build the workforce we need: we seek to hire the best people and expect them to do the right thing, deliver results, be a team player, and be a good neighbor. In return, we provide competitive compensation and benefits, including:

 

   

medical, dental, and vision health care coverage for all employees and their families;

 

   

health savings and dependent-care flexible spending accounts;

 

   

a 401(k) savings plan with a generous Devon match for contributions by U.S. employees;

 

   

education, training, health, and wellness programs;

 

   

maternity and parental leave for the birth or adoption of a child and an adoption assistance program; and

 

   

alternate work schedules, flexible work hours, part-time work options, and telecommuting support.

 

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DEVON AT A GLANCE (cont’d)

 

LOGO

At Devon, we encourage everyone to take the time and steps necessary to perform work safely. Our top priority is to maintain the health and safety of our employees, contractors, and the public.

 

   

We set challenging corporate goals each year to drive safety performance improvements.

 

   

We have an Environmental Health and Safety (EHS) Council with responsibility for setting strategy and ensuring implementation to continuously improve our safety systems.

 

   

In 2019, we further expanded our “Hearts and Minds” training, a leadership-focused, safety workshop designed to sharpen our focus on safety culture, stop work-for-safety authority, strong communication and commitment to continuous improvement, integrity, positive attitude, and situational awareness.

 

   

We only work with approved contractors and vendors who complete our supplier qualification process and agree to meet policy, insurance, and health and safety requirements.

 

   

Our operational spending is overwhelmingly weighted to contractors earning our highest safety ratings.

 

   

To identify and reduce safety risks, employee-led teams perform audits of our operations. Our business units then develop and implement specific actions to address the audit findings, which are recorded and tracked in an ongoing effort to improve safety performance.

 

LOGO

Being a good neighbor is a core value that drives Devon’s commitment to environmental stewardship. As a responsible oil and gas business, we share a fundamental respect for the environment and constantly strive to improve the overall quality of life in the communities where we live and work.

 

   

In June 2019, Devon took a significant step in its ESG efforts by establishing a target to reduce methane emissions for its oil and natural gas production. Devon has committed to achieve a methane-intensity rate of 0.28% or lower by 2025.

 

   

We reduced methane emissions by 20% over the 2016-2018 timeframe, the most recent period for which data is available.

 

   

In late 2018, we published a climate change assessment report that shows Devon’s assets are likely to be well-positioned to remain profitable, even in an aggressive low-carbon scenario.

 

   

For our operations in the Delaware Basin, we have increased our volume of reused water tenfold since 2015.

 

   

We are keenly focused on preventing spills. In 2018, the most recent year for which data is available, we lost 0.0011% of barrels produced, continuing a multi-year trend.

 

   

In 2019, we ramped up our evaluations of new emissions-detection technologies, including optical gas imaging cameras, sensor-based continuous monitoring, facility flyovers, and even remote detection via satellite.

 

   

We have reported our greenhouse gas (GHG) emission reductions efforts to the CDP Climate Change Report for the past 15 years. Our 2019 score affirmed our industry leadership in this vital area.

 

   

Our score on the 2019 CDP Water Report, detailing our water conservation and protection investments and activities, also illuminates our industry leadership.

 

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DEVON AT A GLANCE (cont’d)

 

LOGO

We engage with our stakeholders daily to build relationships founded in trust and cooperation. We place a high priority on our commitment to work together to find solutions benefitting people and communities where we operate. Our culture of integrity and accountability extends to all our stakeholders, including our employees and their families, stockholders, neighbors, landowners, mineral-rights holders, policymakers, lawmakers, suppliers, vendors, and service companies.

 

   

In collaboration with expert local stakeholders, we integrate land use and biodiversity considerations into early planning and all operating phases for our wells.

 

   

We have formal processes to receive complaints in person, by phone or online, and to respond with the appropriate level of urgency.

 

   

As we seek to operate in a socially responsible way, part of that is supporting and strengthening safe and educated communities in areas where we operate. Our social investments ($6.2 million in 2019) target STEM (science, technology, engineering, and math) education, public safety, social services, and community vibrancy.

 

   

We have published a comprehensive Political Activity and Lobbying Report in each of the past three years in direct response to stockholder feedback. We expect to annually publish a report to make it easy for all stakeholders to see our expenditures for corporate political contributions.

 

   

We have published our Statement on Human Rights, which spells out our strong commitment to human rights principles and social progress.

 

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OUR BOARD

 

 

WHO WE ARE

Our Nominees for Election

 

         

LOGO

 

BARBARA M. BAUMANN

 

   

 

Committees

 

•  Chair, Governance

 

•  Audit

 

Certain other directorships

 

•  Ms. Baumann is on the board of National Fuel Gas Company and serves on the audit and financing committees. She is also a member of the independent board of trustees of Putnam Mutual Funds where she chairs the audit, compliance and distributions committee. In addition, she is a senior advisor for First Reserve Corporation, a private equity firm focused on energy. She previously served on the boards of Buckeye Partners, L.P.; Hat Creek Energy Corporation; Cody Resources Management, LLC; CVR Energy; SM Energy; and UNS Energy.

 

Principal occupation or employment

 

•  President and Owner, Cross Creek Energy Corporation

 

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.

       

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, Ms. 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.

 

Ms. Baumann brings to the Board her extensive knowledge of the energy industry and her experience as an accomplished leader and business professional.

 

 

Age: 64

 

Director Since: 2014

 

 

    

    

    

    

    

    

    

    

    

    

    

    

 

 

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WHO WE ARE (cont’d)

 

         

LOGO

 

JOHN E. BETHANCOURT

 

   

Committees

 

•  Compensation

 

•  Reserves

 

Certain other directorships

 

•  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.

 

Principal occupation or employment

 

•  Former Executive Vice President for Technology and Services, Chevron

 

Education

 

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

    

 

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.

 

Mr. Bethancourt brings to the Board his extensive knowledge of the energy industry and his experience as an accomplished leader and business professional.

 

 

 

Age: 68

 

Director Since: 2014

 

 

    

    

    

    

    

    

    

    

    

 

 

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WHO WE ARE (cont’d)

 

         

LOGO

 

ANN G.
FOX

 

   

 

Certain other directorships

 

•  Ms. Fox is on Nine Energy Service, Inc.’s board of directors. She also serves on the board of the Groton School and is a member of the HBS Alumni Board (Harvard Business School).

 

Principal occupation or employment

 

•  President and Chief Executive Officer, Nine Energy Service, Inc.

 

Education

 

•  Ms. Fox received a bachelor’s of science in diplomacy and security in world affairs from Georgetown University’s Walsh School of Foreign Service. She also earned a master’s of business administration from Harvard Business School.

    

 

Ms. Fox is President and Chief Executive Officer of Nine Energy Service, Inc. (Nine), a Houston-based oilfield services company with operations throughout the U.S. and Canada. She joined Nine in 2013 and served as Chief Financial Officer and Vice President of Strategic Development before she was named President and Chief Executive Officer in 2015. Prior to joining Nine, she worked for SCF Partners, a private-equity firm supporting the oilfield services and equipment industries. Her responsibilities at SCF Partners included evaluating and executing new investment opportunities and supporting ongoing portfolio initiatives. She also participated in the firm’s investor committee and held the position of managing director. Upon graduation from college, Ms. Fox joined the private sector as an investment banking analyst in New York then joined the Marines, where she served several tours of duty in Iraq on a team that reported directly to General David Petraeus.

 

Ms. Fox brings to the Board her significant and unique career experiences, knowledge of the energy industry and capital markets, and perspective as a leader.

 

 

 

Age: 43

 

Director Since: 2019

 

 

    

    

    

    

    

    

    

    

    

    

    

    

    

    

    

    

   

 

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WHO WE ARE (cont’d)

 

         

LOGO

 

DAVID A.

HAGER

 

   

 

Certain other directorships

 

•  Mr. Hager currently serves on the Board of the American Petroleum Institute. Mr. Hager previously served on the boards of the managing member and general partner of EnLink Midstream, LLC and EnLink Midstream Partners, LP, respectively, and on their compensation committees.

 

Principal occupation or employment

 

•  President and Chief Executive Officer, Devon Energy Corporation

 

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.

    

 

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. After Oryx merged with Kerr-McGee in 1999, 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.

 

 

Age: 63

 

Director Since: 2016

 

 

    

    

    

    

    

    

    

    

    

    

    

    

   

 

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WHO WE ARE (cont’d)

 

         

LOGO

 

ROBERT H. HENRY

 

   

 

Committees

 

•  Audit

 

•  Governance

 

Certain other directorships

 

•  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 previously served on the board of LSB Industries, Inc.

 

Principal occupation or employment

 

•  Attorney

 

Education

 

•  Mr. Henry received his bachelor’s degree and juris doctorate from the University of Oklahoma. He has received honorary doctorate degrees from the University of Oklahoma, Oklahoma State University, the University of Tulsa, and Oklahoma City University.

    

 

Robert H. Henry is a legal and foreign relations scholar, public servant, and leader. He served as the President and Chief Executive Officer of Oklahoma City University from 2010 to 2018. Following his retirement from Oklahoma City University, Mr. Henry returned to the practice of law and serves as a mediator and arbitrator through FedArb and Phillips ADR Enterprises, P.C., leading alternative dispute resolution firms. 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.

 

 

 

Age: 67

 

Director Since: 2010

 

 

    

    

    

    

    

    

    

    

    

    

    

    

    

    

    

    

    

    

    

    

    

    

    

    

    

    

    

    

   

 

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WHO WE ARE (cont’d)

 

         

LOGO

 

MICHAEL M. KANOVSKY

 

   

Committees

 

•  Chair, Reserves

 

•  Audit

 

Certain other directorships

 

•  Mr. Kanovsky previously served on the boards of Seven Generations Energy Ltd., Pure Technologies Ltd., TransAlta Corporation, ARC Resources Ltd., and Bonavista Energy Corporation. 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.

 

Principal occupation or employment

 

•  Professional Engineer

 

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.

    

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.

 

 

 

Age: 71

 

Director Since: 1999

 

   

 

    

    

    

    

    

    

    

    

 

   

 

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WHO WE ARE (cont’d)

 

         

LOGO

 

JOHN

KRENICKI JR.

 

   

Committees

 

•  Compensation

 

•  Governance

 

Certain other directorships

 

•  Mr. Krenicki serves as chairman of Brand Industrial Holdings, Inc., PowerTeam Services, and Wilsonart International Holdings LLC., which are privately held entities controlled by Clayton, Dubilier & Rice, LLC. He also is lead director on the board of Cornerstone Building Brands, Inc. and serves as chairman of the nominating and corporate governance committee and executive committee and as a member of the compensation committee. He previously served as chairman of the board of ServiceMaster Global Holdings and CHC Group.

 

Principal occupation or employment

 

•  Senior Operating Partner at Clayton, Dubilier & Rice, LLC

 

Education

 

•  Mr. Krenicki earned a bachelor’s degree in mechanical engineering from the University of Connecticut and a master’s degree in management from Purdue University.

 

    

John Krenicki Jr. is a Senior Operating Partner at Clayton, Dubilier & Rice, LLC, a private investment firm. Mr. Krenicki is a former General Electric Company Vice Chairman and former President and CEO of GE Energy, GE Plastics, and GE Transportation. His most recent responsibilities included oversight of GE’s oil and gas, power and water, and energy management businesses.

 

Mr. Krenicki brings to the Board his extensive industrial and energy experience and his track record as an accomplished leader and strategic thinker.

 

 

Age: 57

 

Director Since: 2018

 

   

 

 

 

 

 

 

 

 

 

    

    

    

    

    

   

 

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WHO WE ARE (cont’d)

 

         

LOGO

 

ROBERT A.

MOSBACHER, JR.

 

   

Committees

 

•  Chair, Compensation

 

•  Reserves

 

Certain other directorships

 

•  Mr. Mosbacher serves on the board of the Center for Global Development. Mr. Mosbacher served as a director of Calpine Corporation from 2009 until the company was acquired in 2018. Mr. Mosbacher previously served as a member of Devon’s Board from 1999 until 2005.

 

Principal occupation or employment

 

•  Chairman of Mosbacher Energy Company and Founder and Chairman of BizCorps.

 

Education

 

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

    

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, his leadership skills, and his economic development experience in global markets.

 

Mr. Mosbacher is founder and chairman of BizCorps, a Washington based non-profit organization that places graduates of top business schools with entrepreneurs in emerging markets. 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. 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.

 

 

 

Age: 68

 

Director Since: 2009

 

   

 

    

    

    

    

    

    

    

    

    

    

    

    

    

    

    

    

   

 

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WHO WE ARE (cont’d)

 

         

LOGO

 

DUANE C.

RADTKE

 

   

Committees

 

•  Reserves

 

Certain other directorships

 

•  Mr. Radtke previously served as a director of Kris Energy Ltd. and was a member of the company’s compensation and nominating committees. He also previously served as lead director of Sabine Oil & Gas Corporation, 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.

 

Principal occupation or employment

 

•  President and Chief Executive Officer, Valiant Exploration LLC

 

Education

 

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

    

Duane C. Radtke has over 45 years of experience in management, engineering, and business development in the energy industry. Mr. Radtke was named Vice Chair of Devon’s Board in late 2018 and became Chair in June 2019. He 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.

 

 

 

Chair of the Board

 

Age: 71

 

Director Since: 2010

 

   

 

    

    

    

    

    

    

    

    

    

    

    

    

    

    

   

 

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WHO WE ARE (cont’d)

 

         

LOGO

 

KEITH O.

RATTIE

 

   

Committees

 

•  Audit

 

•  Reserves

 

Certain other directorships

 

•  Mr. Rattie is a director of Valaris plc (f/k/a Ensco plc) and serves as chairman of the audit committee. He is also a director of Select Energy Services, Inc. and serves on the audit committee and as chairman of the nominating and governance committee. Mr. Rattie served on the board of Rockwater Energy Solutions, Inc. from 2011 until the company merged with Select Energy Services, Inc. in 2017.

 

Principal occupation or employment

 

•  Former Chairman, President, and CEO, Questar Corporation

 

Education

 

•  Mr. Rattie earned a bachelor’s of science degree in electrical engineering from the University of Washington and a master’s in business administration from St. Mary’s College.

    

Keith O. Rattie has more than 40 years of experience in the oil and gas industry. Mr. Rattie was President of Questar Corporation from 2001 until 2010 and Chief Executive Officer from 2002 until 2010. He also served on Questar Corporation’s board from 2001 until 2014, including as Chairman from 2003 until 2010 and Non-Executive Chairman from 2010 to 2012. Prior to his time with Questar Corporation, Mr. Rattie served as Vice President and Senior Vice President of Coastal Corporation, a diversified energy company. He also spent 19 years with Chevron Corporation in various engineering and management positions, including as General Manager of Chevron’s international gas unit.

 

Mr. Rattie brings to the Board his extensive experience in leadership positions in the energy industry and his ability to provide candid perspectives based on his knowledge of the oil and gas business.

 

 

 

Age: 66

 

Director Since: 2019

 

   

 

    

    

    

    

    

    

    

    

    

 

   

 

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WHO WE ARE (cont’d)

 

         

LOGO

 

MARY P.

RICCIARDELLO

 

   

Committees

 

•  Chair, Audit

 

•  Governance

 

Certain other directorships

 

•  Ms. Ricciardello recently became a member of the board of Eagle Materials Inc. where she serves on the audit committee. As of the date of this Proxy Statement, Ms. Ricciardello is also a member of the board of Noble Corporation plc where she serves as chairperson of the audit committee and as a member of the nominating and governance committee. However, she is not standing for re-election to Noble Corporation plc’s board this year, and her term as a director will expire at the company’s annual meeting, which is scheduled for May 21, 2020. Ms. Ricciardello also serves on the executive council of the National Association of Corporate Directors (NACD) Tri-Cities Chapter and received the NACD designation “Board Leadership Fellow”. She previously served on the boards of the managing member and general partner of EnLink Midstream, LLC and EnLink Midstream Partners, LP, respectively, and on their audit committees. Ms. Ricciardello was also previously a director of US Concrete and Midstates Petroleum Company. Ms. Ricciardello is an editorial advisor for the Journal of Accountancy.

 

Principal occupation or employment

 

•  Former Senior Vice President and Chief Accounting Officer, Reliant Energy Inc.

 

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.

 

•  In 2017, Ms. Ricciardello completed the NACD Cyber-Risk Oversight Program and earned the CERT* Certificate in Cybersecurity from Carnegie Mellon University.

 

    

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 and with respect to 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.

 

 

Age: 64

 

Director Since: 2007

 

   

 

    

    

    

    

    

    

    

    

    

    

    

    

    

    

    

    

    

    

    

    

    

    

    

    

    

    

    

    

    

    

   

 

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WHO WE ARE (cont’d)

 

Director Skills and Experience

The Board is committed to maintaining a diverse and inclusive membership with varying experience, characteristics, and expertise that complement our business strategy. The matrix below provides a summary of certain key skills and experience of our Director nominees. Our Director nominees, individually and as a group, possess numerous skills and experience that are highly relevant for an upstream energy company like Devon. Our Director nominees are strategic thinkers with high expectations for Devon’s performance and are attuned to the demands of proper Board oversight and good governance practices.

 

 

LOGO

Additional Skills and Experience

 

   

Six of our nominees have an educational background or work experience in petroleum engineering or other engineering professions.

 

   

Five of our nominees have experience with technology or cybersecurity.

 

   

Eight of our nominees have experience in regulatory and policy matters.

 

   

Three of our nominees have an educational background or work experience with environmental matters.

 

   

All of our nominees have experience in corporate governance and risk management.

 

 

TENURE

 

 

DIVERSITY

 

 

INDEPENDENCE

 

The tenure of our Director nominees reflects a balance of experience and fresh perspectives.

 

 

We approached our Director nominees to voluntarily self-disclose their race, ethnicity and gender. Of the responses we received, three of our 11 Director nominees are considered diverse.

 

 

Nine of Devon’s 11 Director nominees qualify as independent under NYSE standards and SEC regulations.

LOGO

 

LOGO

 

LOGO

 

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AGENDA ITEM 1.

ELECTION OF DIRECTORS

Our Board has nominated eleven 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. All of the nominees are currently Devon Directors and were elected by stockholders at the 2019 Annual Meeting.

Within each nominee’s biography and the matrix above, we have highlighted the notable skills and qualifications that contributed to his or her selection as a nominee to our Board.

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 director nominees listed above.

 

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HOW WE ARE SELECTED, COMPRISED AND EVALUATED

 

GOVERNANCE COMMITTEE REPORT

The Governance Committee is currently comprised of four 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.

Corporate Governance

The Governance Committee 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. Highlights of our corporate governance framework are:

 

   

Annual Election of all Directors;

 

   

Majority Voting in Uncontested Elections;

 

   

Independent Lead Director in the Event the Chair of the Board is not Independent;

 

   

Executive Sessions of Independent Directors;

 

   

Stockholder Right to Call a Special Meeting;

 

   

Proxy Access Right; and

 

   

Board Participation in Succession Planning.

Additional corporate governance standards that have been approved by the Board are reflected in the:

 

   

Corporate Governance Guidelines;

 

   

Charters for each of the Board’s Committees;

 

   

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

 

   

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.

Board of Director Nominations

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 Board takes reasonable steps to ensure that a diverse group of qualified candidates is 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

 

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HOW WE ARE SELECTED, COMPRISED AND EVALUATED (cont’d)

 

skills of each of the nominees for Director at the 2020 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.

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 four public company boards in addition to serving on the Company’s Board;

 

   

a requirement that a nominee for Director in an uncontested election submit an offer of resignation to the Governance Committee within 90 days of the date of the election if the nominee fails to receive a greater number of votes cast “for” such nominee’s election than the votes cast “withheld” in such nominee’s election. 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 Chair of the Board and the Chair 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 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 2021 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: Chair of the Board of Directors, 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 3, 2021, and March 5, 2021, in order to be considered a timely notice. The stockholder’s notice must contain, among other things:

 

   

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;

 

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HOW WE ARE SELECTED, COMPRISED AND EVALUATED (cont’d)

 

   

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 similar transaction 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 2021 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.

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.

Barbara M. Baumann, Chair

Robert H. Henry

John Krenicki Jr.

Mary P. Ricciardello

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 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 Committee or the full Board finds relevant. When searching for new director nominees, the Committee, as well as any third-party search firm that it engages, is committed to considering qualified candidates with a diversity of experience and perspective, including diversity with respect to areas of expertise, gender, race, ethnicity, experience, and geography.

 

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HOW WE ARE GOVERNED AND GOVERN

 

Our Board of Directors met thirteen times in 2019. All Directors attended at least 86% of the total meetings of the Board of Directors and the respective Committees on which they served.

All of our Directors, with the exception of one of our newly elected Directors who had a scheduling conflict that predated his nomination, attended our 2019 Annual Meeting of Stockholders.

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 Procedures.

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

 

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HOW WE ARE GOVERNED AND GOVERN (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 and function and the number of meetings each Committee held in 2019:

 

LOGO

 

1 

Chair

 

2 

Audit Committee financial expert

 

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HOW WE ARE GOVERNED AND GOVERN (cont’d)

 

LOGO

 

1 

Chair

 

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HOW WE ARE GOVERNED AND GOVERN (cont’d)

 

Director Independence

The Company’s Corporate Governance Guidelines provide that an independent director is a director who, as determined by the Board, meets the NYSE definition of independence. 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 our affiliates. The Board has affirmatively determined that each of the current Directors, with the exception of David A. Hager and Ann G. Fox, (i) 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, and (ii) has no material relationship with us that would interfere with the exercise of independent judgment.

In evaluating whether Ms. Fox is independent, the Board considered that Ms. Fox serves as Chief Executive Officer, President, and Secretary, and as a Director of Nine Energy Service, Inc. (Nine), which provides services to Devon. Devon purchases services from Nine in the ordinary course of business, and Ms. Fox is not personally involved in such transactions. For 2019, Devon’s payments to Nine amounted to approximately 2.3% of Nine’s consolidated gross revenues. Accordingly, pursuant to NYSE standards, the Board did not determine that Ms. Fox is independent. Devon’s payments to Nine represented less than 2% of Nine’s consolidated gross revenues in 2018 and 2017.

The Board’s consideration of Mr. Rattie’s independence included the review of Mr. Rattie’s position as a Director of Select Energy Services, Inc. (Select), a third-party service provider for Devon. Select’s services were provided in the ordinary course of business without any personal involvement by Mr. Rattie. Additionally, Devon’s payments to Select amounted to less than 2% of Select’s consolidated gross revenues during each of the last three fiscal years. Based on these factors, the Board determined that the services do not impair Mr. Rattie’s independence.

Related Person 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 Committee 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.

The son of Tony D. Vaughn, Devon’s Chief Operating Officer until September 2019, is employed by the Company as a Manager in Supply Chain. His total 2019 taxable compensation, including salary, bonus, and stock grants, was approximately $187,000. The compensation for Mr. Vaughn’s son was commensurate with the compensation provided to similarly situated employees of the Company and was determined in accordance with the Company’s standard human resources policies and procedures. Mr. Vaughn was not involved in the evaluation of his son’s performance or decision-making associated with his compensation.

 

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HOW WE ARE GOVERNED AND GOVERN (cont’d)

 

The son of David A. Hager, Devon’s President and Chief Executive Officer, was employed by the Company as a Professional in Evaluation and Planning for a portion of 2019. His total 2019 taxable compensation, including salary, bonus, and stock grants, was approximately $170,000. The compensation for Mr. Hager’s son was commensurate with the compensation provided to similarly situated employees of the Company and was determined in accordance with the Company’s standard human resources policies and procedures. Mr. Hager was not involved in the evaluation of his son’s performance or decision-making associated with his compensation.

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 Chair 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 Chair of the Board and CEO.

From June 2016 until his retirement from the Board at Devon’s 2019 Annual Meeting, John Richels, Devon’s former President and CEO, served as Chair of the Board. Following the 2019 Annual Meeting, the Board appointed Duane C. Radtke, an independent director, to serve as Chair of the Board. Mr. Radtke, like his predecessor, believes in open, substantive communication among members of the Board and between the Board and Management, with a view toward consensus-building and alignment.

Lead Director

Until Mr. Radtke’s appointment as Chair of the Board, the Board had an independent Lead Director whose primary responsibility was to preside over the executive session of the Board meetings in which members of management do not participate. Robert A. Mosbacher, Jr. served as Lead Director from June 2015 to June 2019. In 2019, Mr. Mosbacher presided over one executive session of the Board. In the event the Board appoints a non-independent Chair of the Board in the future, the Board would expect to select a Lead Director in accordance with Devon’s Corporate Governance Guidelines.

Board Involvement in Risk Oversight

The full Board has primary responsibility for risk oversight, which includes, among other things, determining whether the Company’s risk-management programs are appropriately designed and implemented in light of the Company’s material risks. To assist it in this role, the Board has delegated to the four standing Board Committees certain matters relating to the risks inherent in the Committees’ respective areas of oversight, with each Committee regularly reporting to the full Board. Our management team is, in turn, responsible for executing the directives of the Board and its Committees with respect to the Company’s risk management programs, including by overseeing and reporting on Devon’s day-to-day efforts to manage risk.

Devon employs a variety of governance and analytical measures to identify and evaluate the risks to our business. We use an enterprise-wide risk management framework that includes an annual analysis of the top risks to the Company. This analysis asks the Board, management, and certain

 

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HOW WE ARE GOVERNED AND GOVERN (cont’d)

 

internal subject matter experts to consider the likelihood that certain risks could result in an impact to the Company and to identify, among other things, the Company’s level of preparedness for those risks. The Board and management then use the results from this analysis and other exercises to determine and prioritize the material risks to our business. In addition to this annual review process, the Board also considers significant developments as they arise to assess the risk they pose to the Company. For example, the Board and management have been closely monitoring the COVID-19 pandemic and its ongoing and potential impacts to the Company, including its effect on commodity prices and supply chains. For a more detailed discussion of the material risks of the Company, please see our Annual Report on Form 10-K for the year ended December 31, 2019 and our other filings with the SEC.

Cybersecurity risk is an area of increasing focus for our Board, particularly as more and more of our operations rely on digital technologies. To mitigate this risk, Devon has adopted an information security program, which uses sophisticated technology and processes and is aligned with the National Institute of Standards and Technology Cybersecurity Framework for risk management. Our management team provides the Audit Committee and the full Board with regular updates regarding this program, as well as on trends in cyberattack activities and other developments impacting our digital security.

 

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HOW TO COMMUNICATE WITH US

 

The Board believes it is important to cast a wide net for input to inform its decision making and considers input from stockholders to be critical. Accordingly, the Board maintains a number of ways to receive feedback from stockholders and other stakeholders.

 

   

Our Directors attend our Annual Meeting of Stockholders.

 

   

Our Directors participate in director education programs that include investors and investor commentary.

 

   

Our Directors listen to Devon’s quarterly conference calls with investors and receive reports with analyst commentary on the Company’s performance.

 

   

Our Board receives updates on the communication received from the Company’s reporting helplines.

 

   

Our Board values direct stockholder engagement with the Company, which is detailed below.

Devon has a long-standing practice of engagement with our stockholders throughout the year with respect to corporate governance topics and our executive compensation program. Over the past year, Devon has continued to emphasize engagement with our stockholders, especially with respect to ESG matters. The Company has participated in numerous one-on-one meetings and telephone calls with investors who have a wide range of perspectives. Our Board receives frequent updates on these engagements and has been keen to hear specific input. We value the dialogue and feedback received from this engagement and, as a result, have been responsive by making meaningful changes to our programs and practices.

High-Level Oversight and Coordination of ESG Efforts

The Company recognizes that ESG matters are important for Devon and Devon’s stakeholders. In order to provide support for the Company’s ongoing efforts in this area, the Company formed an Environmental, Social, and Governance Steering Committee (the ESG Committee) in the fall of 2017. The ESG Committee is comprised of leaders for several key functions at the Company, including EHS, operations, legal, investor relations, government affairs, corporate governance, finance, human resources, and communications. The ESG Committee meets on a quarterly basis and more frequently as necessary. In addition, the ESG Committee frequently tasks internal subject matter experts and working groups with addressing discrete ESG matters. A copy of the ESG Committee’s charter is available on our web-site. Devon’s Executive Committee, Board Governance Committee, and the full Board receive regular updates on our ESG efforts and expect high performance in this area.

Affirmation of Our ESG Practices and Performance

Devon’s work on ESG matters has resulted in greater disclosure about the Company’s existing practices and prompted new and renewed actions by Devon. We make ESG-oriented materials available on our website, including the following: Devon’s 2019 Sustainability Report, Climate Change Assessment Report, Political Activity and Lobbying Report, and CDP Questionnaires.

Devon also regularly participates in many surveys and questionnaires, which has resulted in more transparency about Devon’s operations and improved the accuracy of Devon’s information included in those materials. Major third-party surveys on ESG matters validate our performance in this area: as of March 31, 2020, Sustainalytics and ISS each rank Devon’s ESG scores at the top of Devon’s peer group.

 

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HOW TO COMMUNICATE WITH US (cont’d)

 

In June 2019, Devon announced a significant step in its ESG efforts by disclosing a target to reduce methane emissions for its oil and natural gas production. Setting this target signals Devon’s continuing proactive pursuit to reduce greenhouse gas emissions and reaffirms Devon’s commitment to protecting the environment. The importance of this target has been underscored by linking executive compensation to the Company’s progress toward achieving the target.

Contact Information for Communicating with Board Members

Any stockholder or other stakeholder may contact any of our Non-Management Directors or Non-Management Directors as a group, by:

 

   

U.S. mail 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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HOW WE ARE PAID

 

Director Compensation for the Year Ended December 31, 2019

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. The standard arrangement for compensating our Directors consists of cash and equity awards.

Annual Retainers and Meeting Fees

For 2019 the cash component of compensation for our Directors included retainers and meeting fees. The annual retainers and meeting fees in effect for 2019 were the same as those in effect at year-end 2018. The following table reflects those amounts:

 

Type of Fee   Amount  

 Annual Retainer for the Chair of the Board

  $ 100,000  

 Annual Board Retainer

  $ 70,000  

 Additional Annual Retainer to the Chair of Audit Committee

  $ 25,000  

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

  $ 15,000  

 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 also elects to compensate Directors in part through restricted stock awards (RSAs) in order to align the Directors’ and stockholders’ interests in the long-term performance of the Company. During 2019, Directors were granted RSAs under our 2017 Long-Term Incentive Plan having a value of $230,000. Stock awards to Non-Management Directors are granted immediately following each Annual Meeting. These RSA shares will fully vest on the first anniversary of the date of grant subject to the Director’s continued service to the Company. Cash dividends will accrue on these shares of restricted stock until the shares vest, at which time the dividends will be paid.

 

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HOW WE ARE PAID (cont’d)

 

Total Compensation for Non-Management Directors for 2019

The following table reflects the fees earned or paid to our Directors for Board service in 2019 and the stock awards granted to our Directors in 2019.

 

  Name   Fees Earned or Paid
in Cash ($)
   

Stock Awards1

($)

   

Total

($)

 

  Barbara M. Baumann

    112,571       230,008       342,579  

  John E. Bethancourt

    104,000       230,008       334,008  

  Ann G. Fox2

    53,883 3      230,008       283,891  

  Robert H. Henry

    103,000       230,008       333,008  

  Michael M. Kanovsky

    121,000       230,008       351,008  

  John Krenicki Jr.

    105,000       230,008       335,008  

  Robert A. Mosbacher, Jr.

    129,714       230,008       359,722  

  Duane C. Radtke

    162,572       230,008       392,580  

  Keith O. Rattie2

    60,976 3      230,008       290,984  

  Mary P. Ricciardello

    131,000       230,008       361,008  

  John Richels4

    64,524             64,524  

 

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, 2019, computed in accordance with FASB ASC Topic 718. 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, 2019. As of December 31, 2019, (i) each of our Non-Management Directors held an unvested stock award for 9,027 shares of Devon common stock and (ii) Mr. Henry, Mr. Kanovsky, Mr. Mosbacher, Mr. Radtke, and Ms. Ricciardello each held unexercised stock option awards for 3,000 shares of Devon common stock. No option awards have been made to Non-Management Directors since 2012.

 

2

Ms. Fox and Mr. Rattie were elected to Devon’s Board at Devon’s 2019 Annual Meeting of Stockholders on June 5, 2019.

 

3

Includes $5,000 for attendance at a new Director orientation program at the Company’s offices.

 

4

Mr. Richels retired from the Board at Devon’s 2019 Annual Meeting of Stockholders.

Changes in Director Compensation Structure and Amounts for 2020

At its fourth-quarter 2019 meeting, the Board, acting upon the recommendation of the Governance Committee, approved the following changes in Director compensation effective January 1, 2020: (1) the elimination of all meeting fees, (2) an increase in the annual Board retainer from $70,000 to $100,000, and (3) an increase in the annual retainer for the Chair of the Board from $100,000 to $150,000. On an annual basis, the Governance Committee obtains a report on the director compensation for Devon’s principal competitors and other comparable companies. This year’s report reflected that the overall compensation of Devon’s directors is near the median of Devon’s peer group for 2020. The report was considered as the Board reviewed director compensation at its fourth-quarter 2019 meeting and supported the changes approved by the Board.

Compensation Committee Interlocks and Insider Participation

Throughout 2019, the Compensation Committee was solely comprised of independent Directors with no interlocking relationships as defined by the SEC.

 

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OUR CONTROLS AND COMPLIANCE

 

 

 

AUDIT COMMITTEE REPORT

The Audit Committee is currently comprised of five 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 all audit committee members be independent, 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. 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 2019, 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 Auditing Standards No. 1301, Communications with Audit Committees;

 

   

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, 2018 and December 31, 2019, the following fees were paid to KPMG LLP:

 

     2019     2018  

  Audit fees1

  $ 3,185,000     $ 3,353,000  

  Audit-related fees2

    721,600       284,500  

  Tax fees3

    27,600       60,000  

  All other fees

           

  Total

  $ 3,934,200     $ 3,697,500  

 

1 

Audit fees included services for the audits of the Company’s financial statements and the effective operation of its internal controls over financial reporting.

 

2 

Audit-related fees consisted principally of fees for audits of financial statements of certain of the Company’s affiliates and subsidiaries, including procedures related to the Company’s sale of its Barnett Shale assets.

 

3 

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 2019 and 2018 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 approved, that the audited financial statements be included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 that has been filed with the SEC.

Mary P. Ricciardello, Chair

Barbara M. Baumann

Robert H. Henry

Michael M. Kanovsky

Keith O. Rattie

 

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AGENDA ITEM 2.

RATIFICATION OF INDEPENDENT AUDITORS FOR 2020

The Audit Committee is directly responsible for the appointment, compensation, retention, and oversight of the independent auditing firm retained to audit the Company’s financial statements. To carry out this responsibility, the Audit Committee engages in a comprehensive annual evaluation of the independent auditor’s qualifications, performance, and independence; considers whether the auditing firm should be rotated, including the advisability and potential impact of selecting a different independent registered public accounting firm and adopting a policy of regular rotation; and negotiates the audit fees associated with the Company’s retention of the independent auditing firm. The Audit Committee has appointed KPMG LLP (KPMG) to serve as our independent auditing firm for 2020.

In accordance with SEC rules and KPMG policies, audit partners are subject to rotation requirements to limit the number of consecutive years an individual partner may provide service to our Company. For lead and concurring audit partners, the maximum number of consecutive years of service in that capacity is five years. The selection of the Company’s lead audit partner pursuant to this rotation policy involves a rigorous process, including interviews of potential audit partner candidates with the Audit Committee, which occurred in 2019 as Devon’s lead audit partner rotated off Devon’s audit team at the completion of Devon’s audit for the year-ended December 31, 2019.

The Audit Committee and the Board believe that the continued retention of KPMG as our independent registered public accounting firm is in the best interest of the Company and our stockholders. In furtherance of its commitment to corporate governance practices, the Board is asking our stockholders to ratify the selection of KPMG as our independent registered public accounting firm for 2020. In the event that our stockholders fail to ratify the appointment of KPMG, the Audit Committee will consider the selection of a different independent auditing firm for 2021.

Representatives of KPMG will be present at the Annual Meeting to answer questions. They also will have the opportunity to make a statement if they desire to do so.

 

Our Board of Directors recommends that stockholders vote “FOR” the ratification of KPMG LLP as our independent auditors for 2020.

 

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RESERVES COMMITTEE REPORT

The Reserves Committee is currently comprised of five independent Directors and operates under a written 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, 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 connection with 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, 2019, having regard to industry practices and all applicable laws and regulations.

In fulfilling its duties for the year, the Reserves Committee:

 

   

approved LaRoche Petroleum Consultants, Ltd. as the Company’s independent engineering consultant for the year ended December 31, 2019;

 

   

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

 

   

met with the independent engineering consultant, 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 consultant 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 approved, that the reserves information be included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 that has been filed with the SEC.

Michael M. Kanovsky, Chair

John E. Bethancourt

Robert Mosbacher Jr.

Duane C. Radtke

Keith O. Rattie

 

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OUR COMPANY

 

 

 

WHO WE ARE

Our Officers

Information concerning our executive officers is set forth below. Information concerning David A. Hager, our President and Chief Executive Officer, is set forth under the caption “Our Nominees for Election.”

Tana K. Cashion, Senior Vice President Human Resources

Ms. Tana K. Cashion, 48, began her career with Devon in 2005 and was appointed as Senior Vice President, Human Resources in March 2016. In her current role, Ms. Cashion oversees the Company’s human resources and corporate communications groups and is a member of the Company’s Executive Committee. Prior to her appointment as a Senior Vice President, Ms. Cashion held positions of increasing responsibility within the Company’s human resources group, including most recently as Vice President, Human Resources. During her career in human resources, Ms. Cashion has worked in the oil and gas, retail, wholesale, and tourism industries. She has a bachelor’s degree in political science from Pepperdine University and a master’s degree in business administration from the University of Oklahoma.

David G. Harris, Executive Vice President Exploration & Production

Mr. David G. Harris, 47, has been with Devon since 2007 and was appointed Executive Vice President, Exploration and Production in 2019. In his current position, he is responsible for all of Devon’s business units, as well as the land, technology, subsurface, and environmental, health and safety groups. He is also a member of the Company’s Executive Committee. Prior to his current position, Mr. Harris served in positions of increasing responsibility, including as Senior Vice President, Exploration and Production; Senior Vice President of Business Development; Vice President, Corporate Finance and Treasurer; and, Associate General Counsel. Prior to joining the Company, Mr. Harris was a partner in the Dallas office of Thompson & Knight LLP, specializing in corporate and securities matters. Mr. Harris holds a bachelor’s degree from the University of Tulsa and a law degree from the University of Oklahoma.

Jeffrey L. Ritenour, Executive Vice President and Chief Financial Officer

Mr. Ritenour, 46, was elected to the position of Executive Vice President and Chief Financial Officer in 2017. In his current position, Mr. Ritenour is responsible for Devon’ business development, strategic planning, marketing, supply chain, investor relations, accounting, tax, and corporate finance functions. He is also a member of the Company’s Executive Committee. Mr. Ritenour joined the Company in 2001 and has served in various other positions at Devon, including most recently as Senior Vice President Corporate Finance, Investor Relations and Treasurer. Prior to joining Devon, Mr. Ritenour was an auditor with the firm of Ernst and Young. He earned both a bachelor’s degree in accounting and a master’s degree in business administration from the University of Oklahoma. Mr. Ritenour previously served on the boards of the managing member and general partner of EnLink Midstream, LLC and EnLink Midstream Partners, LP, respectively.

 

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WHO WE ARE (cont’d)

 

Lyndon C. Taylor, Executive Vice President and Chief Legal & Administrative Officer

Mr. Taylor, 61, has been with Devon since 2005 and currently serves as Executive Vice President and Chief Legal & Administrative Officer. In his current position Mr. Taylor oversees Devon’s legal functions, as well as the public and government affairs, corporate services, facilities, and community relations groups. He is also a member of Devon’s Executive Committee. Prior to his current position, Mr. Taylor served as Executive Vice President and General Counsel from 2007 to 2019 and as Deputy General Counsel from 2005 until 2007. Prior to joining Devon, Mr. Taylor was with Skadden, Arps, Slate, Meagher & Flom LLP for 20 years, most recently as managing partner of the energy practice in Houston. He is admitted to practice law in Oklahoma and Texas. Mr. Taylor earned a bachelor’s degree in industrial engineering from Oklahoma State University and a law degree from the University of Oklahoma. Mr. Taylor previously served on the boards of the managing member and general partner of EnLink Midstream, LLC and EnLink Midstream Partners, LP, respectively.

 

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AGENDA ITEM 3.

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 2017 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 2020 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 2020 Annual Meeting of Stockholders pursuant to the compensation disclosure rules of the Securities and Exchange Commission, including the Compensation Discussion and Analysis, the 2019 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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EXECUTIVE COMPENSATION

COMPENSATION DISCUSSION AND ANALYSIS

 

 

 

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EXECUTIVE COMPENSATION (cont’d)

 

Introduction

Purpose of Compensation Discussion and Analysis

This Compensation Discussion and Analysis (CD&A) outlines Devon’s compensation philosophy and describes the material components of the Company’s executive compensation program for its named executive officers (NEOs). This CD&A also summarizes decisions the Compensation Committee of the Board of Directors (the Committee) made under the program and the processes utilized and factors considered in making those decisions. In particular, this CD&A focuses on the decisions the Committee made during its January 2020 meetings at which the Committee evaluated the Company’s performance in 2019 as well as each executive officer’s performance for the year, including the performance of the business or organizational unit for which the officer was responsible in 2019. At its January 2020 meetings, the Committee considered Devon’s stock price performance on an absolute and relative basis through the end of 2019, as well as the Company’s financial, operational, environmental, and strategic achievements against its 2019 plan objectives. This review was performed in order to determine salary adjustments, cash bonuses, and long-term equity incentive (LTI) awards.

After the Committee’s January 2020 meetings, stock prices declined across the oil and gas industry due to concerns over the potential economic impact of the COVID-19 pandemic and the oil supply standoff between the Organization of the Petroleum Exporting Countries (OPEC) and Russia. Devon recognizes that these unprecedented impacts may continue to affect Devon’s stock price and the average stock price of its peer group throughout 2020. As described herein, Devon’s executive compensation program consistently aligns realized compensation outcomes with the Company’s performance during the reviewed year. Next year’s CD&A will describe and discuss the steps taken to address the challenges facing the industry in 2020 and the impact on both awarded and realized compensation.

Throughout this 2020 Proxy Statement, the following points should be considered:

 

   

The executive pay described herein is aligned with the Company’s 2019 performance and total stockholder return.

 

   

The pay decisions described in this document were made at the Committee’s January 2020 meetings, before stock prices declined across the oil and gas industry due to concerns over the potential economic impact of the COVID-19 pandemic and the standoff between OPEC and Russia.

 

   

Devon’s executive compensation is highly aligned with stock price performance. Should the oil and gas industry continue to be challenged, it is likely to have a large impact on pay awarded for 2020 and pay realizable from prior awards.

Additional information about the compensation of the named executive officers is provided in the 2019 Summary Compensation Table (the SCT) and other compensation tables that follow this CD&A. Pursuant to SEC rules, the outcome of the Committee’s January 2020 decisions on base salaries for 2020 and LTI will appear in next year’s SCT while the performance bonus is shown in the “Non-Equity Incentive Plan Compensation” column of this year’s SCT.

 

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EXECUTIVE COMPENSATION (cont’d)

 

Named Executive Officers

The named executive officers for 2019 are the following individuals:

 

Executive   Position

David A. Hager

  President and Chief Executive Officer

Jeffrey L. Ritenour

  Executive Vice President and Chief Financial Officer

Lyndon C. Taylor

  Executive Vice President and Chief Legal & Administrative Officer

David G. Harris

  Executive Vice President – Exploration & Production

Tana K. Cashion

  Senior Vice President – Human Resources

Tony D. Vaughn

  Former Chief Operating Officer

Mr. David Harris was appointed Executive Vice President – Exploration & Production in September 2019. Ms. Tana Cashion was appointed as an executive officer in September 2019. Although prior to the end of 2019, Mr. Vaughn changed roles from an executive officer to a senior advisor, which is a non-executive officer position, SEC rules require Devon to include him as a named executive officer in this CD&A. The SCT and other tables that follow this CD&A reflect Mr. Vaughn’s compensation for 2019. Mr. Vaughn was not part of the Committee’s 2020 year-end performance and pay decision-making processes. Therefore, minimal references are made to Mr. Vaughn’s compensation in the CD&A. Mr. Vaughn has announced his retirement as a senior advisor of the Company effective in the second quarter of 2020.

Executive Summary

Company Performance and Pay Alignment

Devon was formed in 1971 and has been publicly held since 1988. Since 2010, the Company has successfully transitioned to a liquids-rich (oil and natural gas liquids), higher-margin, onshore North American production base and continues to transform its organizational structures and processes to allocate capital investments to the Company’s most promising assets. In 2019, the Company took significant steps to complete its transformation to “New Devon” and focus exclusively on its resource-rich U.S. oil portfolio. These steps included a reduction in long-term debt, the strategic divestment of various assets, and the reduction and re-alignment of the Company’s workforce and overall cost structure. In June 2019, the Company completed the sale of substantially all of its oil and gas assets and operations in Canada for $2.6 billion. Thereafter, Devon entered into an agreement to sell its largest natural gas asset, the Barnett Shale. Devon’s strategic shift accelerated the Company’s ongoing transformation and resulted in above-target overall results for 2019, including a total stockholder return (TSR) placing Devon within the top third of performance within its 2019 peer group.

The Committee determined that “cash return on capital employed” and “all-in rate of return” will continue to be among the featured metrics used to determine cash bonuses for performance. The Company believes that returns measures, in particular cash return on capital employed, correlate with total stockholder returns over the medium to long-term. All-in rate of return provides the Company data on its capital allocation decisions and subsequent value creation. It is an asset-driven measure that focuses on the multi-year well-head rate of return (inclusive of the overhead costs associated with the business) of Devon’s drilling program. Since their inception as scorecard metrics, the Committee believes that the return measures have further aligned our employees with the goals of the Company and enhanced the focus of the entire organization.

 

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EXECUTIVE COMPENSATION (cont’d)

 

The structure of the Company’s compensation program coupled with the Committee’s processes and decision-making ensure a strong tie between Company performance and executive pay. This is especially illustrated by the compensation outcomes for Devon’s executives over the last three years. The chart below, “Summary of President and CEO Pay,” highlights the relationship between TSR (which is measured by stock price changes and dividend payment value) and the realizable pay of Devon’s CEO based on the target-pay opportunity the Committee has awarded to him at the grant date. Additional comparative detail about the tie between Company performance and NEO pay may be found below in the sections titled “Snapshot Comparison of Compensation Decisions Made Following 2019 and 2018” and “Effect of Company Performance on President and CEO Realizable Pay” found on page 52.

 

Summary of President and CEO Realizable Pay1
Year   Total
Stockholder
Return for
the Year
  Salary Increase
Awarded Following
Year End
 

Performance Bonus
Awarded,

% of Target,
Following Year End

 

Long-Term
Incentives
Awarded,

% of Target,
Following Year End

  Realizable Pay Relative
to Target Measured at
Year  End2

2019

      +16.8 %       No salary increase       150 %       100 %       27.9 %

2018

      -45.1 %       No salary increase       90 %       100 %       -52.1 %

2017

      -8.8 %       No salary increase       115 %       100 %       -14.4 %

 

1 

For a discussion of what constitutes “realizable pay” for this purpose, see the explanatory notes to the “President and CEO Realizable Pay” chart on page 53.

 

2

For additional detail on the percentages reflected in this column, see page 53 of this proxy statement for 2019, page 49 of the 2019 proxy statement for 2018, and page 49 of the 2018 proxy statement for 2017, in each case in the section titled “Effect of Company Performance on President and CEO Realizable Pay.”

2019 Company Performance Highlights

Devon believes setting challenging annual performance goals is key to continuous improvement in the returns it achieves on its assets and capital investments. Although the commodity pricing challenges that impacted the industry in 2018 continued in 2019, the actions taken during the year led the Company to exceed its 2019 goals on many of its target metrics as a result of improved well performance and cost-reduction efforts. The Company took significant steps to monetize certain assets, reduce long-term debt, and re-align its overall cost structure. The following performance highlights provide further context for the Committee’s considerations with respect to executive compensation for 2019:

Operational and financial achievements

 

   

The Company successfully completed the sale of its Canadian business for $2.6 billion in June 2019 and entered into an agreement to sell its largest natural gas asset, the Barnett Shale;

 

   

Devon achieved more than 90% of the Company’s three-year $780 million cost reduction goal;

 

   

The Company successfully increased oil and gas production while using less resources by exceeding the 2019 oil and gas production goal of 139 million BOE by 5.8% while reducing capital expenditures by approximately 10% and drilling 10% more wells compared to 2018;

 

   

the Company further developed its reporting on ESG matters and proactively engaged with its internal and external stakeholders to improve ESG performance;

 

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the Company retired $1.7 billion of senior notes, reducing annualized financing costs by $60 million;

 

   

Devon repurchased $4.8 billion of stock as part of its $5.8 billion share repurchase program, representing a reduction of nearly 30% in the total amount of outstanding stock since the program’s inception;

 

   

Devon successfully increased the combined Delaware Basin and Powder River Basin production over 60% in 2019 compared to 2018; and

 

   

the Company exited 2019 with $1.8 billion of cash, inclusive of $380 million restricted for discontinued operations, and $3.0 billion of available credit under its Senior Credit Facility, with no debt maturities until 2025.

Total stockholder return

 

   

Devon increased its quarterly common stock dividend 12.5% to $0.09 per share beginning in the second quarter of 2019; and

 

   

Devon had the 4th highest TSR when compared to its 14 peer companies.

Compensation Philosophy and Objectives

Devon is committed to delivering strong returns on its investments through a highly engaged culture focused on innovation, safety, operational excellence, environmental stewardship, and social responsibility. The Company focuses its business on generating operating returns by managing a premier asset portfolio, delivering superior execution, and exercising discipline in Devon’s capital allocation. Devon also maintains a strong commitment to financial strength and flexibility through all commodity price cycles, as reflected in the Company’s investment grade credit ratings.

This 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 Committee utilizes a range of measures in its compensation program and, when appropriate, adds new goals year-over-year to motivate and reward executives for improved performance over the contemplated time horizon. 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 Devon’s compensation program are to:

 

   

motivate and reward executives to drive and achieve the Company’s goal of increasing stockholder value;

 

   

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

 

   

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.

The primary components of Devon’s executive compensation program consist of base salary, a performance bonus, and LTI. The Committee generally targets each component, as well as the aggregate of the components, at approximately the 50th percentile of the Company’s peer group.

 

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EXECUTIVE COMPENSATION (cont’d)

 

Individual compensation levels may vary from these targets based on performance, expertise, experience, or other factors unique to the individual’s role within the Company. The Committee also provides retirement and other benefits typical for Devon’s peer group.

What Devon Does and Doesn’t Do

 

 
Good Compensation  Governance Practiced by Devon
 

•  Award Performance-Based LTI—The Company awards half of named executive officer LTI in the form of performance share units tied to TSR. A 100% of target payout on performance share units requires TSR that exceeds the peer group median.

•  Utilize a Quantitative Process for Performance Bonuses—In determining performance 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 performance bonuses. Each year, the Committee recalibrates the goals to align with performance outcomes that the Committee desires for the year.

•  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 aligns with Company performance.

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

•  Provide for Clawback of Compensation—Pursuant to a Board-adopted policy, the Committee may claw back performance bonuses and LTI if the Company restates 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 highly effective tool in the Committee’s oversight of the executive compensation program.

 

 
Controversial Compensation Governance Not Practiced by Devon
 

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

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.

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

Allow Risky Transactions in the Company’s Stock—Company policy prohibits the executives from engaging in short-term or speculative transactions or hedging or pledging Devon’s common stock.

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

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

 

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EXECUTIVE COMPENSATION (cont’d)

 

Response to Stockholder Feedback

Devon conducts investor outreach throughout the year to ensure that management and the Board understand the compensation issues that matter to Devon’s stockholders. During 2019, the Company contacted a majority of its 50 largest stockholders and had productive interactions with many stockholders, both inside and outside of that group, including several in-person meetings. The Committee reviews the feedback resulting from these outreach efforts. Devon also considers the results of the most recent advisory vote on executive compensation by Devon’s stockholders (say-on-pay vote), which for 2019 reflected that approximately 94% of voting stockholders voted “for” Devon’s executive compensation in 2018.

The chart set forth below highlights compensation program changes made over the past few years. The Committee generally utilizes compensation metrics that the investor community considers most important in valuing the Company, which traditionally have included measures like relative TSR and production growth. In addition to traditional measures, the Company reviews existing metrics in light of developments in pay practices and has been responsive to investor input regarding the addition and deletion of various measures, as seen in the chart below.

 

   
Source for Detail   Change in Compensation Practice
   
2020 Proxy Statement  

•  Devon strengthened the link between executive compensation and environmental stewardship by adopting a goal for improving Devon’s fugitive emissions performance and including that goal in the scorecard used to determine performance bonuses for 2019 performance.

•  In light of the Company’s strategic transformation in 2019, the Committee selected a recalibrated peer group for 2020 that better aligns with Devon’s go-forward size and operations. This recalibration resulted in (i) the removal of several larger and operationally dissimilar oil and gas companies from the peer group and (ii) the addition of two companies of similar size and operations within the oil and gas exploration and production industry.

   
2019 Proxy Statement  

•  No significant changes made.

   
2018 Proxy Statement  

•  The scorecard used to determine bonuses for 2018 performance includes operational and financial measures that reflect the return on Devon’s investments.

•  For 2018, “cash return on capital employed” and “all-in return on capital” metrics were added to the scorecard, oil and gas reserves additions were removed, and certain other measures were removed or de-emphasized.

   
2017 Proxy Statement  

•  The long-term incentive plan approved by stockholders at the Company’s 2017 annual meeting (the 2017 LTIP) does not permit the payment of any dividends on restricted stock awards until the underlying shares vest.

•  The 2017 LTIP provides that shares will not vest in the case of a change in control unless a job loss follows or the acquiring company fails to assume outstanding grants (i.e., no “single trigger” equity vesting with a change in control).

 

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EXECUTIVE COMPENSATION (cont’d)

 

Compensation Decisions for 2019

Overview of Pay Decisions

Devon’s executive compensation practices consistently result in a pay-for-performance tie that is among the strongest in the Company’s peer group. An overwhelming majority of overall compensation is delivered through performance bonuses and LTI awards, each of which correlate with Company performance.

As illustrated below, compensation decisions made by the Committee during its January 2020 meetings resulted in awards heavily weighted toward TSR and achievement of other 2019 Company performance measures. Approximately 90% of the value of total direct compensation awarded to the President and CEO and an average of approximately 84% of total direct compensation for the other named executive officers was delivered through performance bonuses and LTI.

 

 

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;

 

   

Devon’s compensation philosophy;

 

   

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

 

   

input from the Compensation Consultant (see section titled “Role of Compensation Consultant” on page 55 for additional information);

 

   

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

 

   

the President and CEO’s recommendations with respect to the compensation of the other named executive officers.

The Committee regularly reviews the above-listed factors when considering compensation decisions and from time to time changes or supplements its analysis with other factors.

 

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EXECUTIVE COMPENSATION (cont’d)

 

Base Salary

Base salary typically represents a smaller portion of executive pay than compensation elements that vary year-to-year based on performance. Competitive salaries, however, are vital to ensuring that the Company attracts and retains executives who have a combination of business acumen, significant industry experience, and longevity with the Company. In evaluating salary levels each year, the Committee generally considers the following factors:

 

   

the competitive position of the executive’s base salary compared to similarly situated executives at peer companies;

 

   

the scope of responsibility, experience, and tenure of the executive and the executive’s potential to take on greater or different responsibilities; and

 

   

the Company’s cost structure.

Based on the foregoing considerations, with special consideration for competitive position, and taking into account that no increases were approved at the January 2019 meeting, the Committee determined in its January 2020 meetings that salary increases were appropriate in three cases. Please note that the SCT’s entries for “Salary” reflect the salaries received by the named executive officers during 2019. The footnotes that accompany this year’s SCT and the discussion of salaries in last year’s CD&A provide additional information on salaries in effect for 2019.

 

Executive   Annual
Salary in
Effect on
12/31/20191
   

2020
Annual

Salary
Rate1

    %
Change
 

David A. Hager

  $ 1,275     $ 1,275       0

Jeffrey L. Ritenour

  $ 600     $ 620       3.3

Lyndon C. Taylor

  $ 650     $ 650       0

David G. Harris

  $ 550     $ 610       10.9

Tana K. Cashion

  $ 345     $ 375       8.7

1 Dollar amounts shown in thousands.

Annual Performance Cash Bonus

In awarding performance bonuses, the Committee utilizes a formula that establishes a performance-bonus target for each named executive officer based on a percentage of his or her base salary. In establishing performance-bonus targets, the Committee considers industry benchmarks for the relevant officer position as well as the scope of responsibility associated with the position. For 2019, performance-bonus targets for named executive officers ranged from 50% to 135% of base salaries.

Performance-bonus payouts depend on the Company’s performance in relation to the structured and measurable goals approved by the Board at the beginning of the year and the individual executive’s contributions to achievement of those goals. The goals were selected because they are critical to the Company’s near-term performance, its prospects for sustainable growth in returns, and the creation of long-term value for the Company and its stockholders.

The table below provides detail on the Company’s performance on the goals set for 2019. As reflected in the table, the Committee assigns a separate weighting to each performance measure in

 

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EXECUTIVE COMPENSATION (cont’d)

 

order to reflect the relative importance of those areas for the year. The Committee aggregates the weighted performance score for each measure to arrive at an overall Company performance score.

For operational and financial goals, the Committee generally views (i) 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 (ii) a 30% or greater outperformance on a goal as maximizing performance such that a score of up to 200% could be assigned for the goal. Although the structure of the performance-bonus process relies on Company performance measures and the application of set formulas to arrive at performance-bonus amounts, the Committee maintains the authority to adjust the amount of an executive’s performance bonus within the range of the bonus pool (0% to 200% of target) based on individual contributions. The Committee made no such adjustments for 2019.

 

Measure   Goal   Outcome   Weight     Score    

Weighted

Score

 
Cash Return on Capital Employed1   20%   22%     15     125     18.75
All-In Return on Capital1   15%   24%     15     200     30.00
Expenditures (millions) 2  

Capital: $1,976;

LOE+GPT: $830;

Net G&A: $528

 

Capital: $1,935;

LOE+GPT: $894;

Net G&A: $475

    15     125     18.75
Oil and Gas Production2   302,000 BOE per day   323,000 BOE per day     15     150     22.50
Improve the Overall Value of Devon’s Risked Resource
Portfolio (million BOE)
 

Test and move contingent resources: 150

Evaluate portfolio high grading opportunities: 1,000

 

Test and move contingent resources: 321

Evaluate portfolio high grading opportunities: >1,000

    10     200     20.00
Total Stockholder Return3   Top half of the peer group on a 1-year basis   1-year TSR ranked 4th out of 15 in relation to the peer group; 1 of only seven with positive TSR     10     175     17.50
Environmental, Health, and Safety4   Continuously improve in environmental, health, and safety performance   Met targets on Lost Spill Rate, fugitive emissions performance, Utilization of SIF Learnings, Implementation of Roadmap; missed target for Combined Recordable SIF rate     10     75     7.50

 

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EXECUTIVE COMPENSATION (cont’d)

 

Measure   Goal   Outcome   Weight     Score    

Weighted

Score

 
Internal and External Stakeholder Alignment   Increase stakeholder engagement, alignment, and support to maintain or improve the public policy and business environment in which Devon operates   Further developed Devon’s reporting on ESG matters and proactively engaged with the Company’s internal and external stakeholders to improve ESG performance     5     150     7.50
Learning & People   Improve Devon’s ability to perform by advancing a culture of innovation, inclusion, technology, automation, and continuous improvement   Refocused innovation culture efforts to promote successful company transformation; enhanced employee’s ability to contribute through inclusion and diversity efforts     5     150     7.50

2019 Company Performance Total Weighted Score

   150%

 

1

Please refer to Appendix A for additional information about Cash Return on Capital Employed and All-In Return on Capital, which are non-GAAP financial measures.

 

2

Dollar amounts and production volumes reflect Devon’s total operations, including amounts presented in both continuing and discontinued operations.

 

3 

For relative 2019 TSR measurement, the Company is ranked in relation to the following 14 peer companies: Anadarko Petroleum Corporation, Apache Corporation, Chesapeake Energy Corporation, Concho Resources Inc., ConocoPhillips, Continental Resources, Inc., Ovintiv, Inc. (f/k/a EnCana Corporation), EOG Resources, Inc., Hess Corporation, Marathon Oil Corporation, Murphy Oil Corporation, Noble Energy, Inc., Occidental Petroleum Corporation, and Pioneer Natural Resources Company. See page 55 for a discussion of the recalibrated 2020 peer group.

 

4

The Company’s “Environmental, Health and Safety” goals consisted of (i) combined recordable SIF rate, (ii) utilization of SIF learnings, (iii) fugitive emissions performance, (iv) lost spill rate, and (v) implementation of multi-year roadmap to improve EHS performance. The SIF rate records serious incidents or fatalities.

The performance scorecard reflects that the Company posted positive results in the challenging commodity price environment of 2019. In particular, the Committee commended the Company’s performance on the implementation of its strategy to monetize various assets, reduce long-term debt, and re-align its overall cost structure. Devon’s strategic shift accelerated the Company’s ongoing transformation and resulted in strong overall results for 2019, including placing Devon within the top third of its 2019 peer group with respect to TSR performance. Additionally, the scorecard reflects that Devon took significant steps towards its transition to a U.S. oil company in 2019. The Committee also noted that the Company achieved four of its five performance goals on environmental, health, and safety measures, but did not meet its target goal reduction for recordable SIF events.

 

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EXECUTIVE COMPENSATION (cont’d)

 

The following table outlines the calculations made for the bonuses awarded for 20191:

 

Executive   2019
Salary2
          Performance
Bonus
Target
          Company
Performance
Score
          Process
Determined
Performance
Bonus
Amount
 
         

David A. Hager

  $ 1,275       X       135%            X       150%            =     $ 2,582  

Jeffrey L. Ritenour

  $ 600       90%          $ 810  

Lyndon C. Taylor

  $ 650       90%          $ 878  
         

David G. Harris

  $ 550         90%                  $ 743  
         

Tana K. Cashion

  $ 345    

 

 

 

    50%         

 

 

 

   

 

 

 

 

 

 

 

 

 

  $ 259  

 

1

All dollar amounts in thousands.

 

2 

Annual base salary rate in effect as of December 31, 2019.

Please note that the SCT’s entries for Non-Equity Incentive Plan Compensation in 2019 reflect the annual performance bonuses listed under the column above titled “Process Determined Performance Bonus Amount.”

The Committee did not make any individual adjustments for the 2019 NEO performance bonus amounts. However, upon further consideration of the duties associated with Ms. Cashion’s role, the Committee increased her bonus target to 60% applicable for any performance bonus paid for 2020.

Long-Term Incentives

A key element of Devon’s 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. LTI compensation plays an essential role in attracting and retaining executive officers and aligns their interests with the long-term interests of Devon’s stockholders.

At its January 2020 meetings, the Committee determined that the 2020 awards of LTI should generally continue the past practice of tracking a target at the 50th percentile compared to peers. In making this decision, the Committee considered the factors it generally references for compensation decisions and took into account the Company’s strong operational performance for the year and the Company’s progress on, and each executive’s leadership with respect to, the Company’s strategic objectives.

 

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EXECUTIVE COMPENSATION (cont’d)

 

The table below details the awards made to named executive officers. The SCT in next year’s proxy statement will reflect the value of these grants as Stock Awards for 2020.

LTI Granted in 20201

 

Executive

 

 

Item2

 

   

Restricted
Stock

 

   

Target

Performance Share
Units3

 

   

Total

 

 

David A. Hager

    Shares       188,554       188,554              377,108  
    Value     $ 4,250       $    4,250          $ 8,500  

Jeffrey L. Ritenour

    Shares       55,457       55,457              110,914  
    Value     $ 1,250       $    1,250          $ 2,500  

Lyndon C. Taylor

    Shares       55,457       55,457              110,914  
    Value     $ 1,250       $    1,250          $ 2,500  

David G. Harris

    Shares       55,457       55,457              110,914  
    Value     $ 1,250       $    1,250          $ 2,500  

Tana K. Cashion

    Shares       24,402       24,402              48,804  
    Value     $ 550       $       550            $ 1,100  

1 Dollar amounts shown in thousands.

 

2

For each named executive officer, the Committee first determines the total value of LTI to be awarded then divides the total value equally between restricted stock and performance share units (based on the closing price of the Company stock as of the grant effective date), rounding up to the next whole share if needed.

 

3

In accordance with applicable accounting requirements, Devon uses 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 performance share units, when valued for purposes of inclusion in next year’s SCT as compensation for 2020, may require Devon to assign a higher or lower value per unit than the closing price of the Company’s stock as of the grant approval date.

At its January 2020 meetings, the Committee made LTI grants for 2020. The Committee determined that the pursuit of strategic Company goals and creation of stockholder value would best be promoted by linking half the LTI awarded for the year to Company performance and half to long-term stock ownership thereby strengthening the alignment of interests of executives and stockholders. Accordingly, the two types of LTI granted to named executive officers were PSU and time-based restricted stock awards (RSA), respectively.

 

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EXECUTIVE COMPENSATION (cont’d)

 

The following table describes the purpose and structure of the LTI granted to the named executive officers at the Committee’s meetings in January 2020:

 

         
Type of LTI Award        Purpose        Additional Background and Detail
Performance Share Units (PSU)    

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

   

•  Executives may earn between 0% and 200% of the shares underlying the grant based on the Company’s TSR relative to peer companies1 over a three-year performance period (January 1, 2020 through December 31, 2022).

 

•  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 below median as compared to peers, executives earn fewer shares than targeted with the potential for no payout.

     
Restricted Stock Awards (RSA)      

Awards of RSA foster long-term stock ownership and strengthen alignment with shareholders.

     

•  Ownership and alignment is promoted by a four-year vesting schedule that provides for only 25% of the shares underlying the RSA to vest on each anniversary of the grant date.

   
        The Company’s TSR against its peers1        Payout percent of shares underlying grant
   
   

1-2

   

200%

   
   

3

   

175%

   
   

4

   

150%

   
   

5

   

125%

   
   

6

   

100%

   
   

7

   

88%

   
   

8

   

75%

   
   

9

   

63%

   
   

10

   

50%

   
   

11-12

     

0%

 

1 

The peer companies used for comparison for the PSU grants are those in the recalibrated peer group for 2020, consisting of Apache Corporation, Chesapeake Energy Corporation, Cimarex Energy Co., Concho Resources Inc., Continental Resources, Inc., Ovintiv, Inc. (f/k/a EnCana Corporation), EOG Resources, Inc., Marathon Oil Corporation, Noble Energy, Inc., Pioneer Natural Resources Company, and WPX Energy, Inc.

Additionally, at its January 2020 meetings, the Committee certified that the Company achieved the 11th highest TSR for the three-year period associated with the performance share units granted in the first quarter of 2017. Pursuant to the grant’s terms and conditions, 60% of the grants’ target number of shares vested for each named executive officer. Further information about this grant is provided in the “Outstanding Equity Awards at Fiscal Year End” table below and corresponding footnotes.

 

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EXECUTIVE COMPENSATION (cont’d)

 

Snapshot Comparison of Compensation Decisions Made Following 2019 and 2018

Pursuant to the Company’s 2019 performance and pay cycle, the Committee, at its January 2020 meetings, considered salary adjustments, performance-bonus awards for 2019, and LTI grants. In accordance with SEC guidance, the base salary and LTI grants approved at the meetings will appear in next year’s SCT as compensation for 2020, while the performance bonuses are reported in this year’s SCT as compensation for 2019.

The table below illustrates the total direct compensation awarded by the Committee to the named executive officers in its January 2020 and 2019 meetings, respectively.

Comparison of Year-Over-Year Total Direct Pay Awarded1

Individual NEO Total Direct Pay Awarded

 

Executive  

Meeting

Year2

   

Base
Salary

Rate

   

Performance Cash

Bonus3

    Value of
Annual LTI
Grant5
   

Total Direct
Pay

Awarded

    Change
from Prior
Year6
 
  $     % of
Target4
 
               

David A. Hager

    2020     $ 1,275     $ 2,582       150   $ 8,500     $ 12,357       +9.1
    2019     $ 1,275     $ 1,549       90   $ 8,500     $ 11,324       -3.7

Jeffrey L. Ritenour

    2020     $ 620     $ 810       150   $ 2,500     $ 3,930       +9.6
    2019     $ 600     $ 486       90   $ 2,500     $ 3,586       +5.6

Lyndon C. Taylor

    2020     $ 650     $ 878       150   $ 2,500     $ 4,028       +9.5
    2019     $ 650     $ 527       90   $ 2,500     $ 3,677       -3.2

David G. Harris

    2020     $ 610     $ 743       150   $ 2,500     $ 3,853       N/A  

Tana K. Cashion

    2020     $ 375     $ 259       150   $ 1,100     $ 1,734       N/A  

 

1

All dollar amounts shown in thousands.

 

2

“Meeting Year” refers to the timing of the Committee’s decision to award or affirm the compensation component in the context of the prior year’s company performance and other factors. The applicable year may not align with the amounts shown in the SCT for the respective years due to SEC rules for presentation of data in the SCT as described above the table.

 

3

Performance-bonus targets are set as a percentage of base salary in effect as of year-end. Please refer to the section above titled “Annual Performance Cash Bonus” for additional information about the process for 2019.

 

4

Performance-bonus targets for the NEOs are as follows (expressed as a percentage of year-end base salary): Mr. Hager—135%; Mr. Ritenour—90%; Mr. Taylor—90%, Mr. Harris – 90%, Ms. Cashion – 50%

 

5

All amounts calculated using the face-value method (value divided by the closing price of the Company stock as of the grant effective date).

 

6

Mr. Harris and Ms. Cashion were not executive officers during the Committee’s January meeting decision-making process prior to 2020, so prior amounts and percent change are not applicable.

Effect of Company Performance on President and CEO Realizable Pay

Changes in stock price and performance over the vesting or performance period of LTI cause the value ultimately received by the executive to differ from the target grant value. The measurement of realizable pay includes such changes when comparing pay received, or projected to be received, to the target pay granted. The chart illustrates the strong correlation between TSR performance and

 

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EXECUTIVE COMPENSATION (cont’d)

 

President and CEO realizable pay. By design, strong relative and overall TSR performance results in higher realizable pay and weak relative and overall TSR performance results in lower realizable pay. Because shareholders may be interested in the actual compensation received by the CEO, Mr. Hager has elected to provide additional transparency by voluntarily disclosing the income reported on his W-2 for each of the years listed.

President and CEO Realizable Pay1

LOGO

 

1 

All dollar amounts shown in thousands.

 

2 

W-2 Box 5 income is Medicare Wages reported in accordance with IRS requirements. For Mr. Hager these amounts include salary and bonus paid to him during the year before the subtraction of his elective deferrals into the Company’s defined contribution plans, contributions made into those plans by the Company, income achieved from the vesting of restricted stock and performance share units during the year, and other reportable compensation such as imputed income for Company-provided life insurance.

Explanatory notes to “President and CEO Realizable Pay” chart

Amounts shown for each Target column reflect (i) base salary paid during the year, (ii) performance-bonus target for the year, and (iii) face value (shares multiplied by grant effective date closing price) of the restricted stock awards and performance share units granted at the beginning of the year.

Amounts shown for each Realizable column reflect (i) base salary paid during the year, (ii) the performance bonus awarded for the year through the Committee’s performance bonus determination

 

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EXECUTIVE COMPENSATION (cont’d)

 

process, and (iii) the value of (a) the restricted stock awards based on the closing price of Devon’s common stock as of 2019 year end without respect to interim vesting and (b) the performance share units based on a payout percentage for Devon’s position within the peer group for the relevant performance period up to December 31, 2019. Following year end, the performance share units granted in 2016 paid out at 0% of target, the Performance Share Units granted in 2017 paid out at 60% of target, and the performance share units granted in 2018 and 2019, respectively, were trending to pay out at 80% and 150% of target, respectively.

“% TSR Change” covers, (i) for the first column, the period from December 31, 2015 to December 31, 2019, (ii) for the second column, the period from December 31, 2016 to December 31, 2019, (iii) for the third column, the period from December 31, 2017 to December 31, 2019 and (iv) for the fourth column, the period from December 31, 2018 to December 31, 2019.

“% Difference between Realizable and Target Pay” reflects the difference, expressed as a percentage of Target, between Target and Realizable pay as of December 31, 2019 for each respective column.

“% Difference between W-2 and Target Pay” reflects the difference, expressed as a percentage of Target, between Target and W-2 pay as of December 31, 2019 for each respective column.

The chart above shows CEO realizable pay at 18.3% below target based upon Devon’s December 31, 2019 closing stock price of $25.97. As of March  31, 2020, Devon’s closing stock price was $6.91, which would result in CEO realizable pay at 58.7% below target.

Compensation Process Background

The Committee is responsible for and directs the process of reviewing and determining compensation for the 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 includes the development of a peer group the Committee uses for benchmarking and comparing the executive officers’ compensation, is further described in the following sections.

Role of the Committee

The Committee establishes the Company’s 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 the Company’s website, www.devonenergy.com.

Every 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 and results. The Committee believes this is a 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

 

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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.

Role of the Compensation Consultant

For 2019, the Committee retained Meridian Compensation Partners, LLC (Compensation Consultant) as its external compensation consultant. The Compensation Consultant evaluated the competitiveness of the Company’s program and reviewed the 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. When reviewing the Compensation Consultant’s independence, the Company also considered the fact that Devon’s business represents only a very small portion of the Compensation Consultant’s overall revenue. Based on this review, the Committee determined that the Compensation Consultant had no conflicts of interest.

Use of Peer Groups

To successfully compete for executive talent, the Committee, working with the Compensation Consultant, annually compares the compensation of the 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 common equity 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.

In light of the Company’s strategic transformation in 2019, the Committee selected a recalibrated peer group for 2020 that better aligns with Devon’s current size and scope of operations. This recalibration resulted in (i) the removal of several larger and operationally dissimilar oil and gas companies from the peer group and (ii) the addition of two companies of similar size and operations within the oil and gas exploration and production industry. The approved peer group used in the Committee’s January 2020 compensation decision-making process consisted of the 12 companies listed below:

 

Apache Corporation

Chesapeake Energy Corporation

Cimarex Energy Corporation

Concho Resources Inc.

Continental Resources, Inc.

Ovintiv, Inc (f/k/a EnCana Corporation)

EOG Resources, Inc.

Hess Corporation

Marathon Oil Corporation

Noble Energy, Inc.

Pioneer Natural Resources Company

WPX Energy, Inc

 

 

The Committee’s peer group analysis consists of all components of total direct compensation, including base salary, annual performance bonus, and long-term equity 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.

 

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Tally Sheet Review

Prior to making compensation decisions at its January meetings, 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.

Additional Benefits and Compensation Information

Retirement Benefits

Defined Benefit Plans

Based on their hire date with the Company, named executive officers may be eligible to participate in three defined benefit plans maintained by the Company. Devon’s qualified Defined Benefit Plan provides annual retirement income based on a formula that considers the executive’s final average compensation, Social Security benefits, and years of credited service with the Company. Additionally, the same group of named executive officers may participate in either of two nonqualified defined benefit plans, the Supplemental Retirement Income Plan (SRIP) or Benefit Restoration Plan (BRP), which are not subject to certain limitations imposed by the IRS. Such nonqualified plans are typical in the oil and gas industry.

Defined Contribution Plans

Named executive officers hired after Devon’s Defined Benefit Plan was closed to new participants in 2007 are eligible to participate in a qualified 401(k) Plan that provides for a Company match of up to 6% and a Company contribution of up to 16% of their compensation. In lieu of participating in the SRIP or BRP, named executive officers who are not eligible for the Defined Benefit Plan may participate in additional nonqualified defined contribution plans. Under the Supplemental Contribution Restoration Plans (SCRPs) and the Supplemental Executive Retirement Plan (DC SERP), the Company may make supplemental contributions that would otherwise be subject to limitations in the Internal Revenue Code based on the compensation of the executives.

Nonqualified Deferred Compensation Plans

Devon maintains 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.

For additional information on the plans and the value of accumulated benefits for the named executive officers under the various plans described in this “Retirement Benefits” section, please refer to the “Pension Benefits” section beginning on page 66 and the “Nonqualified Deferred Compensation Plan” section beginning on page 71.

Other Benefits

The limited perquisites made available to Devon’s executives are listed in detail in the “All Other Compensation” table on page 61. Personal use of aircraft by executives on a limited basis is allowed as approved by the President and CEO. The Committee reviews and ratifies the personal use of aircraft on an annual basis. Such use has historically been minimal and there was no usage in 2019.

 

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Post-Termination or Change-in-Control Benefits

Devon maintains employment agreements with each of the named executive officers. These agreements provide each named executive officer certain additional compensation if employment is involuntarily terminated other than for “cause” or if the named executive officer voluntarily terminates 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 LTI awards subject to certain covenants and agreements and pro ration as described below. The agreements also provide certain benefits in the event of a termination within a two-year period following a change in control.

The employment agreements do not include “gross-up” provisions that obligate the Company to pay an additional amount to the named executive officer if 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. The Company’s award agreements for LTI granted to the named executive officers provide that officers who meet certain years-of-service and age criteria are eligible to continue to vest as scheduled in outstanding awards following retirement subject to certain covenants and agreements.

The unvested shares underlying LTI awards granted prior to 2018 are eligible for continued or accelerated vesting post termination in the case of a severance-related employment termination or a retirement. For grants made in 2018 and after, such terminations occurring prior to the first anniversary of the grant date result in a pro-rata reduction in the number of shares eligible for continued or accelerated vesting post termination.

Employment agreements and other arrangements with post-termination and change-in-control benefits 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 beginning on page 72 for detail on amounts that could be payable under certain scenarios and additional information on the Company’s employment agreements.

Stock Ownership Guidelines

Ownership of Devon’s stock by the executives aligns their interests with the interests of Devon’s 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 or her base salary. The guidelines establish the following minimum ownership levels:

 

Officer Title   Share Ownership Requirement as Multiple of Base Salary

President and CEO

  Six times base salary

Other Named Executive Officers

  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.

Compliance with the ownership guidelines is determined as of December 31 each year. As of December 31, 2019, the named executive officers then subject to the guidelines held stock in excess

 

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of the levels required in the guidelines. The executives have historically maintained share ownership levels well above the Company’s guidelines. For purposes of calculating share ownership levels, the Board includes (i) shares owned directly by the officer and his or her immediate family members who share the same household, (ii) shares owned beneficially by the officer and his or her immediate family members who share the same household, and (iii) unvested restricted stock for which any performance conditions have been met.

Hedging Guidelines

The Company also has a policy that prohibits Devon employees, officers, and directors from trading in Devon securities on a short-term basis, entering short sales, and buying or selling puts, calls, or similar instruments. The policy also discourages Devon employees, officers, and directors from placing standing or limit orders and prohibits executive officers and directors from pledging or hedging Devon stock, buying Devon stock on margin, or holding Devon stock in a margin account. The hedging prohibition covers any transaction that is designed to hedge or offset any decrease in the market value of Devon stock, including, but not limited to, prepaid variable forward contracts, equity swaps, collars, and exchange funds.

For additional detail on the stock owned by the named executive officers, please refer to the Security Ownership of Management table on page 83.

Compensation Program and Risk-Taking

The Company’s 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 executive compensation programs 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 Devon’s 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;

 

   

significant executive stock ownership pursuant to Devon’s stock ownership guidelines; and

 

   

the Board’s annual risk assessment process.

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

Policy for Recovery of Compensation (Clawback Policy)

The Company has a policy concerning 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 a bonus or other incentive compensation was based, the Committee may require reimbursement or forfeiture of all or a portion of any bonus or incentive compensation subject to the Clawback Policy.

 

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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.

Robert A. Mosbacher Jr., Chair

John. E. Bethancourt

John Krenicki Jr.

 

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SUMMARY COMPENSATION TABLE

The following table and accompanying footnotes summarize the compensation earned, awarded, paid, or attributed to the named executive officers for the years indicated below. The named executive officers are the President and Chief Executive Officer, the Chief Financial Officer, the three other executive officers of the Company serving as of December 31, 2019, and the former Chief Operating Officer. This table should be read together with the Compensation Discussion and Analysis (starting on page 38 of this Proxy Statement), which includes information about Company performance for 2019, the Company’s compensation philosophy and objectives, the programs and plans that underlie executive officer compensation opportunities, and the Compensation Committee’s process for awarding compensation.

 

Name and
Principal Position
   Year     Salary
($)1
    Stock
Awards
($)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

     2019       1,275,000       8,999,522       2,581,900       0       939,477       13,795,899  

President and Chief

     2018       1,275,000       8,553,492       1,549,100       0       1,081,476       12,459,068  

Executive Officer

     2017       1,275,000       9,027,885       1,979,400       0       1,166,691       13,448,976  

Jeffrey L. Ritenour

     2019       600,000       2,646,956       810,000       89,832       240,630       4,387,418  

Executive Vice President

     2018       597,115       2,213,875       486,000       0       263,998       3,560,988  

and Chief Financial Officer

     2017       552,610       2,001,879       595,100       42,356       164,161       3,356,106  

Lyndon C. Taylor

     2019       650,000       2,646,956       877,500       3,986,246       78,114       8,238,816  

Executive Vice President and

     2018       647,115       2,515,741       526,500       551,466       85,165       4,325,987  
Chief Legal & Admin. Officer      2017       625,000       2,442,849       646,900       1,248,770       84,382       5,047,901  

David G Harris

     2019       435,154       1,296,467       742,500       0       132,405       2,606,526  

Executive Vice President

              

Exploration & Production

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tana K. Cashion

     2019       345,000       1,188,452       258,800       617,536       32,652       2,442,440  

Senior Vice President

              

Human Resources

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tony D. Vaughn

     2019       800,000       3,705,718       1,200,000       5,048,097       98,724       10,852,539  

Former Chief Operating

     2018       800,000       3,522,082       720,000       2,508,995       110,724       7,661,801  

Officer

     2017       793,077       3,717,376       920,000       3,719,208       143,909       9,293,570  

 

1

Mr. Hager’s annual base salary rate of $1,275,000 became effective upon his appointment as President and CEO in August 2015 and has not been subsequently changed. The Compensation Committee increased Mr. Ritenour’s annual base salary rate to $620,000 at its January 2020 meetings. The Compensation Committee increased Mr. Taylor’s annual base salary rate from $625,000 to $650,000 at its January 2019 meetings. Mr. Harris’s annual base salary rate increased from $400,000 to $550,000 upon his appointment as Executive Vice President in September 2019. The Compensation Committee increased Mr. Harris’s annual base salary rate to $610,000 at its January 2020 meetings. The Compensation Committee increased Ms. Cashion’s annual base salary rate to $375,000 at its January 2020 meetings. Mr. Vaughn’s annual base salary rate of $800,000 was set at the Compensation Committee’s January 2017 meetings and has not been subsequently changed.

 

2

The dollar amounts reported in this column represent the aggregate grant date fair values of the stock awards made in 2019, as determined pursuant to FASB ASC Topic 718, excluding the effect of estimated forfeitures. The assumptions used to value stock awards are discussed in Note 4 – Share-Based Compensation of the Notes to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019. For restricted stock and performance restricted stock, values are based on the closing price of the Company’s common stock on the grant date. In valuing the performance share unit awards, the Company used a Monte Carlo simulation. The grant date fair value of the performance share unit awards was determined based on the vesting at target of the units awarded, which is the performance the

 

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Company believed was probable on the grant date. If a maximum, rather than target, number of shares is used to determine the maximum award opportunity for the named executive officers for the 2019 performance share unit awards, the grant date value of the awards is as follows: Mr. Hager, $9,499,032; Mr. Ritenour, $2,793,873; Mr. Taylor, $2,793,873; Mr. Harris, $1,392,930; Ms. Cashion, $1,276,877; and Mr. Vaughn, $3,911,399.

 

3 

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

 

4

The dollar amounts reported in this column reflect the aggregate change in the actuarial present value of each participating named executive officer’s accumulated benefits under the Company’s Defined Benefit Plan, Benefits Restoration Plan (BRP) 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 the named executive officers received above market or preferential earnings on deferred compensation in any of the reported years. Messrs. Hager and Harris joined the Company after Devon’s Defined Benefit Plan was closed to new participants in 2007. At the time the plans closed to new participants, Mr. Ritenour elected to freeze his participation in these plans and instead participate in the Company’s enhanced defined contribution plan. Under the Defined Benefit Plan, Mr. Ritenour continues to earn years of credited service only. During 2019 the Compensation Committee awarded Messrs. Taylor and Vaughn three extra years of age credit under the SRIP in recognition of their respective long service to the Company and to promote components of the Company’s executive succession plan in the short-term and longer-term (the 2019 Plan Amendment). The supplemental table immediately below provides further attribution to the components that changed each participant’s pension value in 2019, each component being responsible for the applicable percentage of the total Change in Pension Value shown in the Summary Compensation Table.

 

     Jeffrey L.
Ritenour
($)
    Lyndon C.
Taylor
($)
    Tana K.
Cashion
($)
    Tony D.
Vaughn
($)
 

“Early Retirement” Subsidy (described on page 68)

    N/A       18.0     N/A       22.8

Change in Age, Service, Eligible Pay

    10.2     20.5     36.6     11.5

Change in Mortality and other Assumptions

    0.3     0.4     0.2     -2.4

2019 Plan Amendment

    N/A       25.4     N/A       27.1

Change in Applicable Discount Rate

    89.5     35.7     63.2     40.9

Total

    100.0     100.0     100.0     100.0

 

5

Details for the amounts shown in this column for 2019 are reflected in the supplemental table immediately below.

The following supplemental table shows the components of “All Other Compensation” for 2019 in the SCT.

 

Name   Group
Term Life
Insurance
Premiums
($)
 

401(k) Plan
Employer
Match and
Retirement
Contribution

($)

  Deferred
Compensation
Plan
Employer
Match
($)
  Defined
Contribution
Restoration
Plan and
Supplemental
Contribution
Plan
Employer
Contribution
($)
  Defined
Contribution
Supplemental
Executive
Plan
Employer
Contribution
($)
  Other
Perquisites
($)2
  Total
($)
 

David A. Hager

  7,524   37,000   152,646   242,9971   499,310       939,477  

Jeffrey L. Ritenour

  1,710   37,000   48,360   153,5601   N/A       240,630  

Lyndon C. Taylor

  7,524   16,800   53,790   N/A   N/A       78,114  

David G. Harris

  1,428   37,000   26,859   67,1181   N/A       132,405  

Tana K. Cashion

  1,152   16,800   14,700   N/A   N/A       32,652  

Tony D. Vaughn

  7,524   16,800   74,400   N/A   N/A       98,724  

 

  

“N/A” indicates the executive is not eligible for this program and no amount was paid, contributed, or accrued by the Company.

 

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1

Mr. Hager and Mr. Harris 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. In 2007, Mr. Ritenour elected to freeze future pension benefit accruals and instead receive enhanced employer retirement contributions to the 401(k) plan and certain non-qualified defined contribution arrangements.

 

2

Executives are eligible for limited, pre-approved personal use of Company aircraft, but none utilized it in 2019.

 

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GRANTS OF PLAN-BASED AWARDS

The following 2019 Grants of Plan-Based Awards table sets forth information concerning performance cash bonuses, restricted stock, and performance share units granted during 2019 for the named executive officers as described below. The long-term incentive awards reflected below are the only equity-based incentives granted to the named executive officers in the year.

 

         

 

Estimated Future Payouts

Under Non-Equity Incentive

Plan Awards1

   

 

Estimated Future Payouts
Under Equity Incentive Plan
Awards

   

All Other
Stock
Awards:
Number of
Shares of
Stock or

Units
(# shares)

 

   

Grant

Date Fair
Value of
Stock

Awards

($)

 

 

Name

 

 

Grant Date

 

   

Threshold
($)

 

 

Target ($)

 

   

Maximum
($)

 

   

Threshold
(# shares)

 

 

Target
(# shares)

 

   

Maximum
(# shares)

 

 

 David A. Hager

    1/29/2019     0     1,721,250       3,442,500     -     -       -       -       -  
    2/10/2019 2    -     -       -     -     -       -       167,060       4,250,006  
    2/10/2019 3    -     -       -     0     167,060       334,120       -       4,749,516  

 Jeffrey L. Ritenour

    1/29/2019     0     540,000       1,080,000     -     -       -       -       -  
    2/10/2019 2    -     -       -     -     -       -       49,136       1,250,020  
    2/10/2019 3    -     -       -     0     49,136       98,272       -       1,396,936  

 Lyndon C. Taylor

    1/29/2019     0     585,000       1,170,000     -     -       -       -       -  
    2/10/2019 2    -     -       -     -     -       -       49,136       1,250,020  
    2/10/2019 3    -     -       -     0     49,136       98,272       -       1,396,936  

 David G. Harris

    1/29/2019     0     495,000       990,000     -     -       -       -       -  
    2/10/2019 2    -     -       -     -     -       -       23,585       600,002  
    2/10/2019 3    -     -       -     0     23,585       47,170       -       696,465  

 Tana K. Cashion

    1/29/2019     0     172,500       345,000     -     -       -       -       -  
    2/10/2019 2    -     -       -     -     -       -       21,620       550,013  
    2/10/2019 3    -     -       -     0     21,620       43,240       -       638,439  

 Tony D. Vaughn

    1/29/2019     0     800,000       1,600,000     -     -       -       -       -  
    2/10/2019 2    -     -       -     -     -       -       68,790       1,750,018  
      2/10/2019 3    -     -       -     0     68,790       137,580       -       1,955,700  

 

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 determined by the Compensation Committee following the end of the year and amounts were paid shortly thereafter. The awards were earned and paid at 150% 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 the section titled “Annual Performance Cash Bonus” starting on page 46 for more information about 2019 performance cash bonuses, including how the Compensation Committee establishes performance bonus targets and performance goals and engages in a scoring process to determine actual payouts.

 

2

The amounts reported in the table’s rightmost column reflect the value of the restricted stock award made on the date indicated. The value is calculated using the face-value method (the closing price of the Company stock as of the grant date multiplied by the number of shares granted). The award was made under the 2017 LTIP. 25% of the shares granted vest on the anniversary of the grant date and 25% will vest on each of the 2nd, 3rd and 4th anniversaries of the grant date.

 

3 

The amounts in the Threshold, Target, and Maximum columns reflect the range and midpoint of possible payouts for the performance share unit awards made on the dates indicated. All awards were made under the 2017 LTIP. The amounts reported for the table’s rightmost column represent the aggregate grant date fair values of the performance share unit awards determined pursuant to FASB ASC Topic 718, excluding the effect of estimated forfeitures. The grant date fair value of the performance share unit awards was determined based on the vesting at target of the units awarded, which is the performance the Company believed was probable on the grant date. For more information, please see the discussion titled “Long-Term Incentives” starting on page 49 of this Proxy Statement. While that discussion specifically covers grants made in February 2020, the terms and conditions of those awards and the awards reflected in this table are substantially the same. Dividends on the awards are not paid until shares vest. As of December 31, 2019, the awards reflected in this table were trending at 150% of target payout.

 

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EXECUTIVE COMPENSATION (cont’d)

 

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END

The following table shows the number of shares covered by exercisable options and unvested restricted stock, performance restricted stock, and performance share awards held by the named executive officers as of December 31, 2019.

 

   

Stock Awards

 

Name

 

 

Number of
Shares or
Units of
Stock
That
Have Not
Vested

(#)

 

 

Market
Value of
Shares or
Units of
Stock

That

Have Not
Vested

($)1

 

 

Equity Incentive Plan Awards:

 

 

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
($)1

 

 David A. Hager

  36,8542   957,098    
  46,7963   1,215,292   93,5924   2,430,584
  89,0877   2,313,589   118,7826   3,084,769
  167,0609   4,338,548   167,0608   4,338,548

 Jeffrey L. Ritenour

  5,6375   146,393    
  6,6075   171,584   13,2134   343,142
  9,0823   235,860    
  23,0587   598,816   30,7446   798,422
  49,1369   1,276,062   49,1368   1,276,062

 Lyndon C. Taylor

  9,9732   258,999    
  12,6633   328,858   25,3254   657,690
  26,2027   680,466   34,9366   907,288
  49,1369   1,276,062   49,1368   1,276,062

 David G. Harris

  5,2035   135,122    
  6,6075   171,584   13,2134   343,142
  12,5787   326,651   16,7706   435,517
  23,5859   612,502   23,5858   612,502

 Tana K. Cashion

  3,4695   90,090    
  5,5065   142,991   11,0114   285,956
  11,5297   299,408   15,3726   399,211
  21,6209   561,471   21,6208   561,471

 Tony D. Vaughn

  13,0082   337,818    
  19,2693   500,416   38,5384   1,000,832
  36,6847   952,683   48,9116   1,270,218
    68,7909   1,786,476   68,7908   1,786,476

 

1

Based on a stock price of $25.97, the closing price of Devon’s common stock on December 31, 2019, which was the last trading day of the year.

 

2

As established at the time of grant, performance restricted stock for 2016 was only earned if the Company achieved in 2016 either cash flow before balance sheet changes of at least $500 million or production of at least 175 million BOE. In January 2017, the Committee determined that each goal had been achieved. As a result, 25% of the shares granted vested on the first anniversary of the grant date, and 25% vested (or, with respect to tranches that have not vested, will vest in the future) on each of the 2nd, 3rd and 4th anniversaries of the grant date.

 

3

As established at the time of grant, performance restricted stock for 2017 was only earned if the Company achieved cash flow before balance sheet changes of at least $700 million in 2017. In January 2018, the Committee determined that the

 

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goal had been achieved. As a result, 25% of the shares vested on the first anniversary of the grant date, and 25% vested (or, with respect to tranches that have not vested, will vest in the future) on each of the 2nd, 3rd, and 4th anniversaries of the grant date.

 

4

For performance share units granted in 2017, the number of shares listed is based on the target level of performance as compared to a peer group for the three-year period from January 1, 2017 to December 31, 2019. In January 2020, the Compensation Committee determined that the Company’s TSR for the period ranked 11th out of 15 when compared to the relevant peer group. Pursuant to the terms of the grant, which are further detailed on the grid set forth on page 47 of Devon’s 2017 proxy statement, the grant paid out at 60% of target.

 

5

The rows reflect restricted stock awards granted in 2016 and 2017 to Mr. Ritenour, Mr. Harris, and Ms. Cashion. With each grant, 25% of the shares vest on each anniversary of the grant date. Accordingly, portions of each grant have already vested prior to 2019. With respect to the remaining unvested shares reflected in the table, (i) the remaining 25% of the shares underlying the 2016 grant vested on March 1, 2020 and (ii) 25% of the shares underlying the 2017 grant vested on February 10, 2020 (i.e., the 3rd tranche of the grant), and the remaining shares will vest on February 10, 2021 (i.e., the 4th tranche of the grant).

 

6

For performance share units granted in 2018, the number of shares listed is based on the target level of performance for the three-year period from January 1, 2018 to December 31, 2020. 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 47 of Devon’s 2018 proxy statement.

 

7 

The rows reflect restricted stock awards granted in 2018. With each grant, 25% of the shares vest (or vested) on each anniversary of the grant date (i.e., on February 10, 2019, February 10, 2020, February 10, 2021 and February 10, 2022).

 

8

For performance share units granted in 2019, the number of shares listed is based on target level of performance for the three-year period from January 1, 2019 to December 31, 2021. 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 47 of Devon’s 2019 proxy statement.

 

9

The rows reflect restricted stock awards granted in 2019. With each grant, 25% of the shares vest (or vested) on each anniversary of the grant date (i.e., on February 10, 2020, February 10, 2021, February 10, 2022 and February 10, 2023).

OPTION EXERCISES AND STOCK VESTED DURING 2019

The table below shows the number of shares of Devon’s common stock acquired during 2019 upon the vesting of stock awards granted to the named executive officers in previous years. During 2019, no stock options were exercised by named executive officers.

 

    Stock Awards  
  Name   Number of
Shares
Acquired
on Vesting (#)
   

Value
Realized on
Vesting

($)1

 

 David A. Hager

 

 

106,155    

 

 

 

2,859,048

 

 Jeffrey L. Ritenour

 

 

23,506    

 

 

 

651,194

 

 Lyndon C. Taylor

 

 

29,517    

 

 

 

797,881

 

 David G. Harris

 

 

14,843    

 

 

 

402,112

 

 Tana K. Cashion

 

 

10,922    

 

 

 

294,195

 

 Tony D. Vaughn

 

 

39,739    

 

 

 

1,072,223

 

 

1

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

 

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EXECUTIVE COMPENSATION (cont’d)

 

PENSION BENEFITS

Devon maintains the following defined benefit retirement 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

 

   

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, as of December 31, 2019, of accumulated retirement benefits as provided under the Defined Benefit Plan and the SRIP to the named executive officers. Please refer to the discussion titled “Benefit Plans” below for additional details on Devon’s defined benefit plans.

 

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

 

  

 

N/A
N/A

 

  

 

 

 

 

N/A

N/A

 

 

 

 

 

  

 

0
0

 

 

 Jeffrey L. Ritenour3

 

  

 

Defined Benefit Plan SRIP

 

  

 

7
7

 

  

 

 

 

 

245,629    
68,527    

 

 

 
 

 

  

 

0
0

 

 

 

 Lyndon C. Taylor4,5,6

  

 

Defined Benefit Plan SRIP

 

  

 

14
19

 

  

 

 

 

 

3,047,794    
9,364,861    

 

 

 
 

 

  

 

0
0

 

 

 David G. Harris2

 

  

 

Defined Benefit Plan SRIP

 

  

 

N/A

N/A

 

  

 

 

 

 

N/A

N/A

 

 

 

 

 

  

 

0
0

 

 

 Tana K. Cashion7

 

  

 

Defined Benefit Plan BRP

 

  

 

15
15

 

  

 

 

 

 

1,028,433    
626,166    

 

 

 
 

 

  

 

0
0

 

 

 Tony D. Vaughn4,6

 

  

 

Defined Benefit Plan SRIP

 

  

 

22
22

 

  

 

 

 

 

3,117,824    
15,849,013    

 

 

 
 

 

  

 

0
0

 

 

“N/A”

indicates the executive is not eligible for this program and no amount was paid, contributed, or accrued by the Company.

 

1 

The present value of each named executive officer’s accumulated benefits as of December 31, 2019 under the Defined Benefit Plan 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 BRP and SRIP, the calculations assume that 25% of participants would elect a single life annuity and 75% would elect a 100% joint and survivor annuity. With each plan, the calculations assume 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 RP-2014 mortality table with MP-2019 improvement scale, and a discount rate of 3.23% for the Defined Benefit Plan, 3.25% for the BRP, and 3.11% for the SRIP. No pre-retirement decrements were used in this calculation.

 

2

Messrs. Hager and Harris joined the Company after the Defined Benefit Plan was closed to new participants. As a result, they are not eligible for a benefit under any of Devon’s defined retirement benefit plans.

 

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3

As of December 31, 2007, Mr. Ritenour voluntarily elected to freeze participation in the plans described in this table and instead participate in the Company’s enhanced defined contribution plan. Under these plans, Mr. Ritenour continues to earn credited years of service only.

 

4

Messrs. Taylor and Vaughn 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 Devon’s Defined Benefit Plan. See the following “Supplemental Retirement Income Plan” for a description of the eligibility requirements and benefits payable under Devon’s SRIP.

 

5

The value of Mr. Taylor’s SRIP benefits includes the effect of an additional service credit. As of December 31, 2019, the additional credited years of service increased the value of Mr. Taylor’s SRIP benefit by $2,813,642. On an infrequent basis, the Committee grants additional service and age credits under specific circumstances. The Committee granted the service credit in 2012 in recognition that Mr. Taylor joined Devon mid-career and would likely remain at the Company for the duration of his career. The service credit recognizes the value to the Company of his prior experience.

 

6 

During 2019, the Compensation Committee awarded Messrs. Taylor and Vaughn three extra years of age credit under the SRIP in recognition of their respective long service to the Company and to promote components of the Company’s executive succession plan in the short-term and longer-term.

 

7 

Ms. Cashion was a BRP participant during 2019. In 2020, the Compensation Committee authorized her participation in the SRIP.

BENEFIT PLANS

Defined Benefit Plan

The Defined Benefit Plan is a qualified defined benefit retirement plan that provides benefits based upon employment service with Devon. 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. Alternatively, 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. Final average compensation consists of the average of the highest three consecutive years’ compensation from salary and cash performance 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 the BRP, except that under the Defined Benefit Plan, nonqualified deferred compensation is excluded and the amount of compensation and pension benefits is limited by the Internal Revenue Code.

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 the named executive officers, in order to comply with certain requirements of the Employee Retirement Income Security Act of 1974 (ERISA) and the Internal Revenue Code.

Normal Retirement

Employees, including certain of the named executive officers as described above, 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

 

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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 certain of the named executive officers as described above, 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 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,

 

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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 (i) their benefits under the Defined Benefit Plan are limited because of certain requirements of ERISA and the Internal Revenue Code or (ii) their final average compensation is reduced as a result of contributions into Devon’s 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. As noted below in the discussion of the SRIP, an executive will only receive benefits under the BRP if his or her benefits under the SRIP have been forfeited due to a termination for “cause” or the executive has not been selected to participate in the SRIP. 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 key executives, the purpose of which is to provide additional retirement benefits for those executives. An employee must be selected by the Compensation 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 receives 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. The SRIP benefit is also reduced by the full benefits otherwise accrued under the Defined Benefit 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 of the age 55 early retirement benefit. In the event that a named executive officer is terminated without “cause” or terminates employment for “good reason,” as those terms are defined in Devon’s employment agreements with the named executive officers, then the executive will be 100% vested in the accrued SRIP benefit. If a change-in-control event occurs, the executive will be 100% vested and the benefit will be an amount equal to the normal-retirement annuity payable immediately, unreduced for early

 

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commencement, 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 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.

Defined Contribution Plan – 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.

Nonqualified Deferred Compensation Plan

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

 

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EXECUTIVE COMPENSATION (cont’d)

 

NONQUALIFIED DEFERRED COMPENSATION

The following table shows the contributions, earnings, distributions, and balances for 2019 under Devon’s nonqualified deferred compensation plan, supplemental contribution restoration plans, and supplemental executive retirement plans, to the extent the respective named executive officer participates in such plans. Additional information about the supplemental contribution restoration plans and supplemental executive retirement plan is provided following the table.

 

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

    642,275             152,646             1,478,719           0              7,695,557      

Supplemental Contribution

Restoration Plans (SCRPs)

    N/A             242,997             478,810           0              2,322,882      

Supplemental Executive

Retirement Plan (DC SERP)

    N/A             499,310             983,857           0              5,377,826      

Jeffrey L. Ritenour

Deferred Compensation Plan

    121,500             48,360             101,458           (87,894 )            548,788      

Supplemental Contribution

Restoration Plans (SCRPs)

    N/A             153,560             165,904           0              1,045,649      

Lyndon C. Taylor

Deferred Compensation Plan

    117,650             53,790             721,981           0              3,597,600      

David G. Harris

Deferred Compensation Plan

    43,659             26,859             57,723           0              486,592      

Supplemental Contribution

Restoration Plans (SCRPs)

    N/A             67,118             53,179           0              381,797      

Tana K. Cashion

Deferred Compensation Plan

    15,750             14,700             42,897           0              225,799      

Tony D. Vaughn

Deferred Compensation Plan

    91,200             74,400             515,372           0              2,196,686      

“N/A” indicates the plan does not permit the participant to make contributions.

 

1 

The amounts in this column are already included in, and are not in addition to, the amounts in the Salary or Non-Equity Incentive Plan Compensation columns in the Summary Compensation Table on page 60.

 

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 60. 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 2019 were deposited in April, July, and October 2019 and January 2020.

 

3

Earnings reflect the returns produced by the investments selected by the applicable named executive officer. The investment options available to the named executive officers are the same options available under the Company’s 401(k) Plan, except for the Devon stock fund. As of December 31, 2019, investment options consisted of the following (returns for 2019 noted in parentheses): PIMCO Stable Income – Class 1 (2.24%); Global Low Volatility Fund (21.48%); US Equity Index Fund (31.01%); International Equity Index Fund (21.79%); TCW Core Fixed Income – (8.75%); Fidelity Inflation Bond Index—(8.31); Vanguard Total Bond Market—(8.71); and Vanguard Prime Money Market (2.14). Blackrock LifePath Target-Date Funds (nine funds ranging from 15.64% to 26.66%). The Company does not guarantee a level of investment return.

 

4 

In-service distributions (if any) are made in accordance with the elections made by the named executive officer at the time of enrollment in the plan.

 

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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 – $6,131,570; Mr. Ritenour – $352,903; Mr. Taylor – $346,913; and Mr.  Vaughn – $474,528.

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 Compensation 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 Devon’s employment agreements with the 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 following 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.

POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL

Devon will be obligated to make certain payments to the 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:

 

   

an “Employment Agreement” is applicable to the President and CEO and each of the Executive Vice Presidents, and a “Severance Agreement” is applicable to the Senior Vice President;

 

   

the Defined Benefit Plan;

 

   

the 401(k) Plan;

 

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EXECUTIVE COMPENSATION (cont’d)

 

   

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

 

   

the 2015 Long-Term Incentive Plan (the 2015 LTIP); and

 

   

the 2017 LTIP (the 2015 LTIP and 2017 LTIP may be referred to collectively as the LTIPs).

Please refer to the discussion in the sections immediately above for information about Devon’s Defined Benefit Plan, 401(k) Plan, Nonqualified Deferred Compensation Plan, the BRP, the SRIP, the SCRPs, and the DC SERP.

As specified below, the Employment Agreement and Severance Agreement with Devon’s named executive officers provide the following rights to compensation in the event of employment termination:

Accrued Payments Upon Termination of Employment

Upon termination under the agreements, the named executive officer is entitled to receive the accrued amounts earned during his or her term of employment, including: (i) any earned but unpaid salary through the date of termination, (ii) any accrued but unused vacation pay, (iii) the annual performance bonus amount only if the named executive officer has been employed the entire year upon which such annual performance bonus is based, and (iv) amounts he or she is otherwise entitled to under Devon’s employee benefit plans (together, the “Accrued Amounts”).

Rights Upon Termination for Death or Disability

In addition to the Accrued Amounts, if the named executive officer’s employment terminates by reason of death or disability, the named executive officer is entitled to receive a pro rata share of any performance bonus for the performance period in which the day of termination occurs (based on the number of days worked in the performance period), payable at the same time it is payable to other participants in the performance bonus plan.

Rights Upon Termination Without Cause and Constructive Discharge

If the named executive officer’s employment is involuntarily terminated other than for “cause” or the named executive officer terminates for “good reason,” as those terms are defined in the employment agreements, then in addition to the Accrued Amounts, the named executive officer is entitled to the following:

 

   

(i) under the Employment Agreement, a lump sum cash payment equal to three times the aggregate annual compensation of the named executive officer, and (ii) under the Severance Agreement, a lump sum cash payment equal to two times the aggregate annual compensation of the named executive officer. “Aggregate annual compensation” is equal to the sum of:

 

   

the named executive officer’s annual base salary, and

 

   

an amount equal to the largest annual performance bonus paid or payable to the named executive officer for the three consecutive calendar years prior to the date the named executive officer’s termination occurs;

 

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EXECUTIVE COMPENSATION (cont’d)

 

   

payment of a pro rata share of any bonus for the performance period in which the day of termination occurs (based on the number of days worked in the performance period);

 

   

the same basic health and welfare benefits that the executive would otherwise be entitled to receive if the named executive officer were a Devon employee for 18 months following termination (Employment Agreement only);

 

   

payment of an amount equal to 18 times the monthly COBRA premium (Employment Agreement only); and

 

   

payment of a reasonable amount for outplacement services commensurate with the named executive officer’s title and position with the Company and other executives similarly situated in other companies in Devon’s peer group.

Termination Following a Change in Control

Under the agreements, if within 24 months following a change in control of the Company, the named executive officer:

 

   

is terminated without “cause” by Devon; or

 

   

terminates his or her employment with Devon for “good reason,” as each of those terms are defined in the agreements;

then, in addition to the Accrued Amounts and the rights set forth above in the section titled “Rights Upon Termination Without Cause and Constructive Discharge,” (i) under the Employment Agreement, three years of service and age shall be added to the named executive officer’s actual years of service and actual age when determining the named executive officer’s entitlement under our Retiree Medical Benefit Coverage, and (ii) under the Severance Agreement, two years of service and age are added. The credit of additional years of age should not be construed to reduce or eliminate the executive’s right to coverage under the medical plan.

“Change in control” is defined as the date on which one of the following occurs:

 

   

an entity or group acquires 30% or more of Devon’s outstanding voting securities;

 

   

the incumbent Board ceases to constitute at least a majority of Devon’s Board; or

 

   

a merger, reorganization or consolidation is consummated, after stockholder approval, unless

 

   

substantially all of the stockholders prior to the transaction continue to own more than 50% of the voting power after the transaction;

 

   

no person owns 30% or more of the combined voting securities; and

 

   

the incumbent Board constitutes at least a majority of the Board after the transaction.

Payment Conditions

The agreements require a named executive officer to execute a waiver agreement as a condition to receipt of the payments described in the sections “Rights Upon Termination Without Cause and Constructive Discharge” and “Termination Following a Change in Control” above. By executing the waiver, the named executive officer effectively releases Devon from any waivable claims. The agreements also include a non-disparagement provision and a non-solicitation provision covering employees of Devon and Devon’s affiliates that applies for (i) 36 months following a named executive officer’s termination date under the Employment Agreement and (ii) 24 months following a named executive officer’s termination date under the Severance Agreement.

 

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EXECUTIVE COMPENSATION (cont’d)

 

Long-Term Incentive Awards

Subject to the terms of the applicable LTIP under which an award is made, unvested portions of outstanding awards may be accelerated upon the retirement, disability, or termination of the named executive officer for an approved reason. Award agreements provide for automatic vesting upon the death of the named executive officer. Award agreements entered into under the 2015 LTIP do not provide for the automatic acceleration of unvested portions of outstanding awards in the event of a change in control unless a job loss occurs or the acquiring company is not listed on a national securities exchange. This treatment of acceleration was incorporated in the 2017 LTIP. Award agreements provide that named executive officers who meet certain years-of-service and age criteria are eligible to continue to vest as scheduled in outstanding awards following retirement subject to, among other things, annual execution of a confidentiality agreement that includes non-solicitation and non-competition covenants. Under the 2017 LTIP, employment terminations occurring prior to the first anniversary of the grant date may result in a pro-rata reduction in the number of shares underlying the award depending on the circumstances of the termination pursuant to a formula that considers the number of days from the grant date to the termination date. Performance share units that vest on an accelerated basis as a result of a change in control or death will vest at the target award level.

The following tables provide the estimated compensation and present value of benefits potentially payable to each named executive officer upon 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, 2019. The actual amounts to be paid can only be determined at the time of an executive’s actual separation from the Company. The footnotes for each of the following tables are presented after the final table. The Employment Agreements and Severance Agreements, as applicable, between the Company and each of the named executive officers do not include tax gross-up payment obligations in the event of a change in control of the Company.

 

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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

($)

Base Salary/Performance Bonus2

      0       13,120       0       2,582       2,582       0       13,120

DC SERP10

      5,378       5,378       0       5,378       5,378       5,378       7,805

SCRPs11

      2,323       2,323       0       2,323       2,323       2,323       2,323

Accelerated Vesting of Restricted Stock7,13

      0       8,349       0       0       8,825       0       8,825

Performance Share Units8,13

      0       9,378       0       0       9,854       0       9,854

Other Benefits9

      0       97       0       0       0       0       100

Total12

      7,701       38,645       0       10,283       28,962       7,701       42,027

Jeffrey L. Ritenour

 

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

($)

 

Base Salary/Performance Bonus2

    0       4,395       0       810       810       0       4,395  

SCRPs11

    1,046       1,046       0       1,046       1,046       1,046       1,046  

SRIP3,4,5,6

    46       46       0       46       64       156       156  

BRP3,4

    0       0       1       0       0     0       0  

Accelerated Vesting of Restricted Stock7,13

    0       2,289       0       0       2,429       0       2,429  

Performance Share Units8,13

    0       2,278       0       0       2,418       0       2,418  

Other Benefits9

    0       78       0       0       0     0       78  

Total12

    1,092       10,132       1       1,902       6,767       1,202       10,522  

 

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EXECUTIVE COMPENSATION (cont’d)

 

Lyndon C. Taylor

 

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

($)

 

Base Salary/Performance Bonus2

    0       4,778       0       878       878       0       4,778  

SRIP3,4,5,6

    9,701       9,701       0       9,701       8,914       8,795       9,093  

BRP3,4

    0       0       3,565       0       0       0       0  

Accelerated Vesting of Restricted Stock7,13

    0       2,405       0       0       2,544       0       2,544  

Performance Share Units8,13

    0       2,701       0       0       2,841       0       2,841  

Other Benefits9

    0       97       0       0       0       0       103  

Total12

    9,701       19,682       3,565       10,579       15,177       8,795       19,359  

David G. Harris

 

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

($)

 

Base Salary/Performance Bonus2

    0       3,479       0       743       743       0       3,479  

SCRPs11

    382       382       0       382       382       382       382  

SRIP3,4,5,6

    0       0       0       0       0       0       0  

BRP3,4

    0       0       0       0       0       0       0  

Accelerated Vesting of Restricted Stock7,13

    0       1,179       0       0       1,246       0       1,246  

Performance Share Units8,13

    0       1,324       0       0       1,391       0       1,391  

Other Benefits9

    0       78       0       0       0     0       78  

Total12

    382       6,442       0       1,125       3,762       382       6,576  

 

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EXECUTIVE COMPENSATION (cont’d)

 

Tana K. Cashion

 

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

($)

 

Base Salary/Performance Bonus2

    0       1,399       0       259       259       0       1,399  

BRP3,4

    436       436       436       436       593       0       0  

Accelerated Vesting of Restricted Stock7,13

    0       1,032       0       0       1,094       0       1,094  

Performance Share Units8,13

    0       1,185       0       0       1,247       0       1,247  

Other Benefits9

    0       20       0       0       0       0       56  

Total12

    436       4,072       436       695       3,193       0       3,796  

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

($)

 

Base Salary/Performance Bonus2

    0       8,040       0       1,200       1,200       0       8,040  

SRIP3,4,5,6

    16,209       16,209       0       16,209       14,422       14,909       15,077  

BRP3,4

    0       0       12,233       0       0       0       0  

Accelerated Vesting of Restricted Stock7,13

    0       3,382       0       0       3,577       0       3,577  

Performance Share Units8,13

    0       3,862