DEF 14A 1 d290523ddef14a.htm DEFINITIVE PROXY STATEMENT Definitive Proxy Statement
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

(Amendment No.    )

Filed by the Registrant  þ

Filed by a Party other than the Registrant  ¨

Check the appropriate box:

 

¨   Preliminary Proxy Statement
¨   Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
þ   Definitive Proxy Statement
¨   Definitive Additional Materials
¨   Soliciting Material under Rule 14a-12
Anadarko Petroleum Corporation
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
þ   No fee required.
¨   Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
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Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):

 

 

   

 

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¨   Fee paid previously with preliminary materials.
¨   Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
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LOGO

P.O. Box 1330

Houston, Texas 77251-1330

March 23, 2012

TO OUR STOCKHOLDERS:

The 2012 Annual Meeting of Stockholders of Anadarko Petroleum Corporation will be held at The Woodlands Waterway Marriott Hotel and Convention Center, 1601 Lake Robbins Drive, The Woodlands, Texas, 77380 on Tuesday, May 15, 2012, at 8:00 a.m. (Central Daylight Time).

The attached Notice of Annual Meeting of Stockholders and proxy statement provide information concerning the matters to be considered at the Annual Meeting. The Annual Meeting will cover only the business contained in the proxy statement and will not include a management presentation.

Pursuant to rules promulgated by the U.S. Securities and Exchange Commission, we are also providing access to our proxy materials over the Internet. As a result, we are mailing to most of our stockholders a Notice of Internet Availability of Proxy Materials (Notice) instead of a paper copy of this proxy statement, a proxy card and our 2011 annual report. The Notice contains instructions on how to access those documents over the Internet, as well as instructions on how to request a paper copy of our proxy materials. All stockholders who do not receive a Notice should receive a paper copy of the proxy materials by mail. We believe that the Notice process will allow us to provide you with the information you need in a timelier manner, will save us the cost of printing and mailing documents to you, and will conserve natural resources.

Your vote is important and we encourage you to vote even if you are unable to attend the Annual Meeting. You may vote by Internet or by telephone using the instructions on the Notice, or, if you received a paper copy of the proxy card, by signing and returning it in the envelope provided. You may also attend and vote at the Annual Meeting.

 

Very truly yours,
  LOGO
 

JAMES T. HACKETT

Chairman of the Board and

Chief Executive Officer

 

 


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LOGO

P.O. Box 1330

Houston, Texas 77251-1330

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

The Annual Meeting of Stockholders of Anadarko Petroleum Corporation will be held at The Woodlands Waterway Marriott Hotel and Convention Center, 1601 Lake Robbins Drive, The Woodlands, Texas, 77380 on Tuesday, May 15, 2012, at 8:00 a.m. (Central Daylight Time) to consider the following proposals:

(1) elect twelve directors;

(2) ratify the appointment of KPMG LLP as the Company’s independent auditor for 2012;

(3) approve the Anadarko Petroleum Corporation 2012 Omnibus Incentive Compensation Plan;

(4) an advisory vote to approve the Company’s named executive officer compensation;

(5) if presented, vote on stockholder proposals set forth on pages 84 through 91 in the accompanying proxy statement; and

(6) transact such other business as may properly come before the Annual Meeting and any adjournments or postponements thereof.

If you are a record holder of common stock at the close of business on March 20, 2012, the record date, then you are entitled to receive notice of and to vote at the Annual Meeting.

Please take the time to vote by following the Internet or telephone voting instructions provided. If you received a paper copy of the proxy card, you may also vote by completing and mailing the proxy card in the postage-prepaid envelope provided for your convenience. You may also attend and vote at the Annual Meeting. You may revoke your proxy at any time before the vote is taken by following the instructions in this proxy statement.

As a stockholder, your vote is very important and the Company’s Board of Directors strongly encourages you to exercise your right to vote.

 

BY ORDER OF THE BOARD OF DIRECTORS
  LOGO
 

David L. Siddall

Vice President, Deputy General Counsel,

Chief Compliance Officer and

Corporate Secretary

 

March 23, 2012

The Woodlands, Texas

Important Notice Regarding the Availability of Proxy Materials

for the Stockholder Meeting to be Held on May 15, 2012:

The Proxy Statement and Annual Report for 2011 are available at

http://bnymellon.mobular.net/bnymellon/apc


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TABLE OF CONTENTS

 

GENERAL INFORMATION

     1   

QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING

     1   

ANADARKO BOARD OF DIRECTORS

     7   

ITEM 1 — ELECTION OF DIRECTORS

     7   

CORPORATE GOVERNANCE

     14   

Director Compensation Table for 2011

     24   

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     25   

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

     26   

AUDIT COMMITTEE REPORT

     27   

COMPENSATION AND BENEFITS COMMITTEE REPORT ON 2011 EXECUTIVE COMPENSATION

     28   

COMPENSATION DISCUSSION AND ANALYSIS

     29   

EXECUTIVE COMPENSATION

     55   

Summary Compensation Table

     55   

All Other Compensation Table for 2011

     56   

Grants of Plan-Based Awards in 2011

     57   

Outstanding Equity Awards at Fiscal Year-End 2011

     59   

Option Exercises and Stock Vested in 2011

     61   

Pension Benefits for 2011

     61   

Non-Qualified Deferred Compensation for 2011

     65   

Potential Payments Upon Termination or Change of Control

     67   

TRANSACTIONS WITH RELATED PERSONS

     72   

ITEM 2 — RATIFICATION OF THE APPOINTMENT OF THE INDEPENDENT AUDITOR

     72   

INDEPENDENT AUDITOR

     73   

ITEM 3 — APPROVAL OF THE 2012 OMNIBUS INCENTIVE COMPENSATION PLAN

     73   

ITEM 4 — ADVISORY VOTE TO APPROVE THE COMPANY’S NAMED EXECUTIVE OFFICER COMPENSATION

     83   

ITEM 5  — IF PRESENTED, CONSIDER AND VOTE UPON A STOCKHOLDER PROPOSAL RECOMMENDING ADOPTION OF A POLICY PROVIDING THAT THE CHAIRMAN OF THE BOARD BE AN INDEPENDENT DIRECTOR

     84   

ITEM 6  — IF PRESENTED, CONSIDER AND VOTE UPON A STOCKHOLDER PROPOSAL REGARDING AN AMENDMENT TO THE COMPANY’S NON-DISCRIMINATION POLICY TO INCLUDE GENDER IDENTITY

     85   

ITEM 7  — IF PRESENTED, CONSIDER AND VOTE UPON A STOCKHOLDER PROPOSAL RECOMMENDING ADOPTION OF A POLICY RELATING TO ACCELERATED VESTING OF EXECUTIVE OFFICER EQUITY AWARDS UPON A TERMINATION OR A CHANGE OF CONTROL

     87   

ITEM 8  — IF PRESENTED, CONSIDER AND VOTE UPON A STOCKHOLDER PROPOSAL RELATING TO POLITICAL CONTRIBUTIONS

     90   

Appendix A — 2012 Omnibus Incentive Compensation Plan

     A-1   


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LOGO

P. O. Box 1330

Houston, Texas 77251-1330

PROXY STATEMENT

ANNUAL MEETING OF STOCKHOLDERS

May 15, 2012

GENERAL INFORMATION

We are furnishing you this proxy statement in connection with the solicitation of proxies by our Board of Directors (Board) to be voted at the 2012 Annual Meeting of Stockholders of Anadarko Petroleum Corporation (Annual Meeting), a Delaware corporation, sometimes referred to as the Company, Anadarko, us, we or like terms. The Annual Meeting will be held on Tuesday, May 15, 2012 at 8:00 a.m. (Central Daylight Time). The proxy materials, including this proxy statement, proxy card or voting instructions and our 2011 annual report are being distributed and made available on or about March 30, 2012.

In accordance with rules and regulations adopted by the U.S. Securities and Exchange Commission (SEC), we are providing our stockholders access to our proxy materials on the Internet. Accordingly, a Notice of Internet Availability of Proxy Materials (Notice) will be mailed to most of our stockholders on or about March 30, 2012. Stockholders will have the ability to access the proxy materials on a web site referred to in the Notice or request a printed set of the proxy materials to be sent to them by following the instructions in the Notice.

The Notice also provides instructions on how to inform us to send future proxy materials to you electronically by e-mail or in printed form by mail. If you choose to receive future proxy materials by e-mail, you will receive an e-mail next year with instructions containing a link to those materials and a link to the proxy voting site. Your election to receive proxy materials by e-mail or printed form will remain in effect until you terminate it.

Choosing to receive future proxy materials by e-mail will allow us to provide you with the information you need in a timelier manner, save us the cost of printing and mailing documents to you, and conserve natural resources.

QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING

Where and when is the Annual Meeting?

The Annual Meeting will be held at The Woodlands Waterway Marriott Hotel and Convention Center, 1601 Lake Robbins Drive, The Woodlands, Texas, 77380, on Tuesday, May 15, 2012, at 8:00 a.m. (Central Daylight Time).

Who may vote?

You may vote if you were the record holder of Anadarko common stock as of the close of business on March 20, 2012, the record date for the Annual Meeting. Each share of Anadarko common stock is entitled to one vote at the Annual Meeting. On the record date, there were 505,592,701 shares of common stock outstanding and entitled to vote at the Annual Meeting.

May I attend the Annual Meeting?

Yes. Attendance is limited to stockholders of record as of the record date for the Annual Meeting. Admission will be on a first-come, first-served basis. You may be asked to present valid picture identification, such as a driver’s license or passport. If your stock is held in the name of a bank, broker, or other holder of record and you plan to attend the Annual Meeting, you must present proof of your ownership of Company stock, such as a current bank or brokerage account statement reflecting ownership as of the record date for the Annual Meeting, to be admitted. Cameras, recording devices, cell phones and other electronic devices cannot be used during the Annual Meeting.


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Why did I receive a Notice in the mail regarding the Internet availability of proxy materials this year instead of a full set of proxy materials?

In accordance with SEC rules, we are providing access to our proxy materials over the Internet. As a result, we have sent to most of our stockholders a Notice instead of a paper copy of the proxy materials. The Notice contains instructions on how to access the proxy materials over the Internet and how to request a paper copy. In addition, stockholders may request to receive future proxy materials in printed form by mail or electronically by e-mail. A stockholder’s election to receive proxy materials by mail or e-mail will remain in effect until the stockholder terminates it.

Why didn’t I receive a Notice in the mail regarding the Internet availability of proxy materials?

We are providing certain stockholders, including those who have previously requested to receive paper copies of the proxy materials, with paper copies of the proxy materials instead of a Notice. If you would like to reduce the costs incurred by Anadarko in mailing proxy materials, you can consent to receive all future proxy statements, proxy cards and annual reports electronically via e-mail or the Internet. To sign up for electronic delivery, please follow the instructions provided with your proxy materials and on your proxy card or voting instruction card to vote using the Internet. When prompted, indicate that you agree to receive or access stockholder communications electronically in the future.

Can I vote my stock by filling out and returning the Notice?

No. The Notice will, however, provide instructions on how to vote by Internet, by telephone, by requesting and returning a paper proxy card, or by submitting a ballot in person at the Annual Meeting.

How can I access the proxy materials over the Internet?

Your Notice or proxy card will contain instructions on how to view our proxy materials for the Annual Meeting on the Internet. Our proxy materials are also available at http://bnymellon.mobular.net/bnymellon/apc.

What am I voting on and how does the Board recommend that I vote?

 

Proposal

    

Board Vote Recommendation

Election of Directors

     FOR EACH DIRECTOR NOMINEE

 

Management Proposals

    

 

Ratification of KPMG LLP as Independent Auditor for 2012

     FOR

 

Approve 2012 Omnibus Incentive Compensation Plan

     FOR

 

Advisory Vote to Approve the Company’s Named Executive Officer Compensation

     FOR

 

Stockholder Proposals

    

 

Adoption of a Policy Providing that the Chairman of the Board be an Independent Director

     AGAINST

 

Amendment to the Company’s Non-Discrimination Policy to Include Gender Identity

     AGAINST

 

Adoption of a Policy Relating to Accelerated Vesting of Executive Officer Equity Awards Upon a Termination or Change of Control

     AGAINST

 

Provide a Report Regarding Political Contributions

     AGAINST

 

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What is the effect of an “advisory” vote?

Because your vote with respect to approval of our named executive officer (NEO) compensation is advisory, it will not be binding upon the Board. However, our Compensation and Benefits Committee (Compensation Committee) and the Board will take the outcomes of the votes into account when considering future executive compensation arrangements of our NEOs.

Why should I vote?

Your vote is very important regardless of the amount of stock you hold. The Board strongly encourages you to exercise your right to vote as a stockholder of the Company.

How do I vote?

You may vote by any of the following four methods:

 

  (i) Internet. Vote on the Internet at http://www.proxyvote.com. This web site also allows electronic proxy voting using smartphones, tablets and other web-connected mobile devices (additional charges may apply pursuant to your service provider plan). Simply follow the instructions on the Notice, or if you received a proxy card by mail, follow the instructions on the proxy card and you can confirm that your vote has been properly recorded. If you vote on the Internet, you can request electronic delivery of future proxy materials. Internet voting facilities for stockholders of record will be available 24 hours a day and will close at 11:59 p.m. (Eastern Daylight Time) on May 14, 2012.

 

  (ii) Telephone. Vote by telephone by following the instructions on the Notice, or if you received a proxy card, by following the instructions on the proxy card. Easy-to-follow voice prompts allow you to vote your stock and confirm that your vote has been properly recorded. Telephone voting facilities for stockholders of record will be available 24 hours a day and will close at 11:59 p.m. (Eastern Daylight Time) on May 14, 2012.

 

  (iii) Mail. If you received a proxy card by mail, vote by mail by completing, signing, dating and returning your proxy card in the pre-addressed, postage-paid envelope provided. If you vote by mail and your proxy card is returned unsigned, then your vote cannot be counted. If you vote by mail and the returned proxy card is signed without indicating how you want to vote, then your proxy will be voted as recommended by the Board. If mailed, your completed and signed proxy card must be received by May 14, 2012.

 

  (iv) Meeting. You may attend and vote at the Annual Meeting.

The Board recommends that you vote using one of the first three methods discussed above, as it is not practical for most stockholders to attend and vote at the Annual Meeting. Using one of the first three methods discussed above to vote will not limit your right to vote at the Annual Meeting if you later decide to attend in person. If your stock is held in street name (for example, held in the name of a bank, broker, or other holder of record), you must obtain a proxy, executed in your favor from your bank, broker or other holder of record to be able to vote at the Annual Meeting.

If I vote by telephone or Internet and received a proxy card in the mail, do I need to return my proxy card?

No.

If I vote by mail, telephone or Internet, may I still attend the Annual Meeting?

Yes.

 

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Can I change my vote?

Yes. You may revoke your proxy at any time before the voting polls are closed at the Annual Meeting, by the following methods:

 

   

voting at a later time by Internet or telephone;

 

   

voting in person at the Annual Meeting;

 

   

delivering to the Corporate Secretary of Anadarko a proxy with a later date or a written revocation of your prior proxy; or

 

   

giving notice to the inspector of elections at the Annual Meeting.

If you are a street name stockholder and you vote by proxy, you may later revoke your proxy by informing the holder of record in accordance with that entity’s procedures.

How many votes must be present to hold the Annual Meeting?

Your stock is counted as present at the Annual Meeting if you attend the Annual Meeting and vote in person or if you properly return a proxy by Internet, telephone or mail. In order for us to hold our Annual Meeting, holders of a majority of our common stock entitled to vote must be present in person or by proxy at the Annual Meeting. This is referred to as a quorum. Abstentions and broker non-votes will be counted as present for purposes of determining a quorum.

What is a broker non-vote?

The New York Stock Exchange (NYSE) permits brokers to vote their customers’ stock held in street name on routine matters when the brokers have not received voting instructions from their customers. The NYSE does not, however, allow brokers to vote their customers’ stock held in street name on non-routine matters unless they have received voting instructions from their customers. In such cases, the uninstructed shares for which the broker is unable to vote are called broker non-votes.

What routine matters will be voted on at the Annual Meeting?

The ratification of the independent auditor is the only routine matter on which brokers may vote in their discretion on behalf of customers who have not provided voting instructions.

What non-routine matters will be voted on at the Annual Meeting?

The election of directors, a vote to approve the Anadarko Petroleum Corporation 2012 Omnibus Incentive Compensation Plan (2012 Omnibus Plan), an advisory vote to approve our NEO compensation and the stockholder proposals, if presented, are non-routine matters on which brokers are not allowed to vote unless they have received voting instructions from their customers.

How many votes are needed to approve each of the proposals or, with respect to the advisory vote, to be considered the recommendation of the stockholders?

The election of each director requires the affirmative vote of a majority of the votes cast for such director. Under our By-Laws, a majority of votes are cast for the election of a director if the number of votes cast “for” the director exceeds the number of votes cast “against” the director. For this purpose, abstentions and broker non-votes are not counted as a vote cast either “for” or “against” the director.

The ratification of the independent auditor and the approval of the stockholder proposals require the affirmative vote of a majority of the stock entitled to vote and present in person or by proxy at the Annual Meeting. Abstentions and broker non-votes will have the same effect as votes cast “against” the proposals.

Our NEO compensation will be considered approved by our stockholders in an advisory manner upon the affirmative vote of a majority of the stock entitled to vote and present in person or by proxy at the Annual

 

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Meeting. Abstentions will have the same effect as votes cast “against” the proposal. For this purpose, broker non-votes are not counted.

The approval of Anadarko Petroleum Corporation 2012 Omnibus Plan requires the affirmative vote of the majority of votes cast for such proposal, provided that the total votes cast represent a majority of all shares entitled to vote. An affirmative vote of the majority of votes cast for such proposal will be achieved if votes “for” represent a majority of the aggregate number of votes for “for,” “against” and “abstain.” Total votes cast will represent a majority of all shares entitled to vote if the aggregate number of votes for “for,” “against” and “abstain” represent a majority of our outstanding shares of common stock.

Could other matters be decided at the Annual Meeting?

We are not aware of any matters that will be considered at the Annual Meeting other than those set forth in this proxy statement. However, if any other matters arise at the Annual Meeting, the persons named in your proxy will vote in accordance with their best judgment.

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

We will announce the preliminary voting results at the Annual Meeting and disclose the final voting results in a current report on Form 8-K filed with the SEC within four business days of the date of the Annual Meeting unless only preliminary voting results are available at that time. To the extent necessary, we will file an amended report on Form 8-K to disclose the final voting results within four business days after the final voting results are known. You may access or obtain a copy of these and other reports free of charge on the Company’s web site at http://www.anadarko.com, or by contacting our investor relations department at investor@anadarko.com. Also, the referenced Form 8-K, any amendments thereto and other reports filed by the Company with the SEC are available to you over the Internet at the SEC’s web site at http://www.sec.gov.

How can I view the stockholder list?

A complete list of stockholders of record entitled to vote at the Annual Meeting will be available for viewing during ordinary business hours for a period of ten days before the Annual Meeting at our offices at 1201 Lake Robbins Drive, The Woodlands, Texas 77380-1046.

Who pays for the proxy solicitation related to the Annual Meeting?

We do. In addition to sending you these materials or otherwise providing you access to these materials, some of our directors and officers as well as management and non-management employees may contact you by telephone, mail, e-mail or in person. You may also be solicited by means of press releases issued by Anadarko, postings on our web site at http://www.anadarko.com, advertisements in periodicals, or other media forms. None of our officers or employees will receive any extra compensation for soliciting you. We have retained Morrow & Co., LLC, 470 West Ave., Stamford, CT 06902, to assist us in soliciting your proxy for an estimated fee of $12,500, plus reasonable out-of-pocket expenses. Morrow ensures that brokers, custodians and nominees will supply additional copies of the proxy materials for distribution to the beneficial owners. We will also reimburse banks, nominees, fiduciaries, brokers and other custodians for their costs of sending the proxy materials to the beneficial owners of Anadarko common stock.

Who will tabulate and certify the vote?

Broadridge Financial Solutions, Inc., an independent third party, will tabulate and certify the vote, and will have a representative to act as the independent inspector of elections for the Annual Meeting.

 

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If I want to submit a stockholder proposal or nominate a director for the 2013 Annual Meeting, when is that proposal or nomination due?

If you are an eligible stockholder and want to submit a proposal for possible inclusion in the proxy statement relating to the 2013 Annual Meeting, your proposal must be delivered to the attention of our Corporate Secretary and must be received at our 1201 Lake Robbins Drive, The Woodlands, Texas 77380-1046 offices no later than November 30, 2012. We will only consider proposals that meet the requirements of the applicable rules of the SEC and our By-Laws. Similarly, if you wish to nominate an individual for election to our Board, our By-Laws provide that you must provide your nomination in writing to our Corporate Secretary no later than the close of business on February 14, 2013 and no earlier than the close of business on January 15, 2013.

How can I obtain a copy of the Annual Report on Form 10-K?

Stockholders may request a free copy of our Annual Report on Form 10-K by submitting such request to Investor Relations, Anadarko Petroleum Corporation, 1201 Lake Robbins Drive, The Woodlands, Texas 77380-1046 or via e-mail at investor@anadarko.com. Alternatively, stockholders can access our Annual Report on Form 10-K on Anadarko’s web site at http://www.anadarko.com. Also, our Annual Report on Form 10-K and other reports filed by the Company with the SEC are available to you over the Internet at the SEC’s web site at http://www.sec.gov.

Will I get more than one copy of the proxy statement, annual report or Notice if there are multiple stockholders at my address?

In some cases, only one copy of this proxy statement, annual report or Notice is being delivered to multiple stockholders sharing an address unless we have received contrary instructions from one or more of the stockholders. We will deliver promptly, upon a written or oral request, a separate copy of this proxy statement, annual report or Notice to a stockholder at a shared address to which a single copy of the document was delivered. Stockholders sharing an address may also submit requests for delivery of a single copy of the proxy statement, annual report or Notice, but in such event will still receive separate proxies for each account. To request separate or single delivery of these materials now or in the future, a stockholder may submit a written request to the Corporate Secretary, Anadarko Petroleum Corporation, 1201 Lake Robbins Drive, The Woodlands, Texas 77380-1046 or a stockholder may make a request by calling the Corporate Secretary at (832) 636-1000, or by contacting our transfer agent, Computershare, P.O. Box 358015, Pittsburgh, PA 15252-8015.

 

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ANADARKO BOARD OF DIRECTORS

 

ITEM 1 — ELECTION OF DIRECTORS

Our Restated Certificate of Incorporation provides that all directors are to be elected annually and that any director (or the entire Board) may be removed with or without cause at and after the Annual Meeting at which he or she is elected.

Accordingly, at the 2012 Annual Meeting, the terms of our nine incumbent directors will expire. Those nine incumbent directors have been nominated and, if elected at this Annual Meeting, will hold office until the expiration of each of their one-year terms in 2013. In addition, Messrs. George, Mullins and Walker have been nominated for election at this Annual Meeting and, if elected, will hold office until the expiration of their one-year term in 2013. If Messrs. George, Mullins and Walker are elected, the number of directors shall be increased from nine to twelve.

If a nominee is unavailable for election, then the proxies will be voted for the election of another nominee proposed by the Board or, as an alternative, the Board may reduce the number of directors to be elected at the Annual Meeting. The Board is not aware of any reason why the director nominees would not be able to serve as directors of the Company.

Our By-Laws provide for the election of directors by the majority vote of stockholders in uncontested elections. This means the number of votes cast “for” a nominee’s election must exceed the number of votes cast “against” such nominee’s election in order for him or her to be elected to the Board. In addition, each incumbent nominee is required to provide an irrevocable letter of resignation that states that he or she will resign if that director does not receive the required majority vote. If a director were to fail to receive a majority of votes cast and the Board were to accept the resignation tendered, then that director would cease to be a director of Anadarko. Each of the nine incumbent director nominees named below has submitted an irrevocable letter of resignation that becomes effective if he or she does not receive a majority of the votes cast for his or her election and the Board decides to accept such resignation. If Messrs. George, Mullins and Walker do not receive a majority of the votes cast for their election, they will not be elected to the Board.

As discussed in more detail on page 19 of this proxy statement, the Board considers several qualifications, characteristics and other factors when evaluating individual directors, as well as the composition of the Board as a whole. As part of this process, the Board and its Nominating and Corporate Governance Committee review the particular experiences, qualifications, attributes and/or skills that caused the Nominating and Corporate Governance Committee and the Board to determine that the person should serve as a director of the Company. The biographies of each of the nominees below contain information regarding the person’s experience and director positions held currently or at any time during the last five years, and information regarding involvement in certain legal or administrative proceedings, to the extent applicable. They also highlight the particular experiences, qualifications, attributes or skills that caused the Nominating and Corporate Governance Committee and the Board to conclude that the person should serve as a director of the Company.

 

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THE BOARD RECOMMENDS THAT YOU VOTE “FOR” EACH OF THE NOMINEES LISTED BELOW.

Nominees for Director Nominated by the Board of Directors for Terms Expiring in 2013

 

Kevin P. Chilton      
   

LOGO

Age: 57

Colorado Springs,

Colorado

Independent

  

Biography/Qualifications

 

General Chilton retired as Commander of the United States Strategic Command, Offutt Air Force Base, Nebraska, in February 2011, where he was responsible for the plans and operations for all U.S. forces conducting strategic deterrence and Department of Defense space and cyberspace operations. General Chilton served in the Air Force for more than 34 years in a wide variety of assignments including pilot, test pilot, instructor and astronaut, while earning numerous major awards and decorations. General Chilton has been a director of the Company since May 2011.

 

General Chilton’s service as Deputy Program Manager of Operations, International Space Program and Director of Politico-Military Affairs, Asia-Pacific and Middle East, Joint Staff, the Pentagon, provides him with an invaluable blend of political, legislative, international and regulatory knowledge and experience. He also gained valuable managerial, financial and executive experience with his involvement in preparing the Air Force five-year budget/program for several years.

    
    
     

 

Other public company directorships in the past five years

   
      •     Orbital Sciences Corporation (January 2012 – present)
Luke R. Corbett      
   

LOGO

Age: 65

Edmond, Oklahoma

Independent

  

Biography/Qualifications

 

Mr. Corbett has been a retired business executive since Kerr-McGee Corporation’s (Kerr-McGee) merger with Anadarko in August 2006. He served as Chairman and Chief Executive Officer of Kerr-McGee from 1999 until August 2006. Mr. Corbett had been with Kerr-McGee since 1985 when he joined its Exploration and Production Division as vice president of geophysics. In subsequent years, he held a wide array of senior executive positions with Kerr-McGee. Mr. Corbett also serves on the board of OGE Energy Corp. Mr. Corbett has been a director of the Company since August 2006.

 

Mr. Corbett brings invaluable perspective and industry-specific business acumen and managerial experience to the Board as the former Chairman and Chief Executive Officer of Kerr-McGee and as an industry veteran with decades of technical experience in the exploration and production (E&P) industry. The knowledge and experience he has attained through his service on other public company boards also enables Mr. Corbett to provide a keen understanding of various corporate governance matters.

    
  

 

Other public company directorships in the past five years

   
    

•     OGE Energy Corp. (1996 – present)

•     Noble Corporation (2001 – 2009)

 

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H. Paulett Eberhart      
   

LOGO

Age: 58

Philadelphia, Pennsylvania

Independent

  

Biography/Qualifications

 

Ms. Eberhart has been the President and Chief Executive Officer of CDI Corp. (CDI), a provider of engineering and information technology outsourcing and professional staffing services, since January 2011. From 2009 until January 2011, Ms. Eberhart was Chairman and Chief Executive Officer of HMS Ventures, a privately held business involved with technology services and the acquisition and management of real estate. She served as President and Chief Executive Officer of Invensys Process Systems, Inc. (Invensys), a process automation company, from January 2007 to January 2009. From 2003 until March 2004, Ms. Eberhart was President of Americas of Electronic Data Systems Corporation (EDS), an information technology and business process outsourcing company. From 2002 to 2003, she was Senior Vice President of EDS and President of Solutions Consulting. She was also a member of the Executive Operations Team and Investment Committee of EDS. Ms. Eberhart was an employee of EDS from 1978 to 2004. Ms. Eberhart is a Certified Public Accountant. Ms. Eberhart has been a director of the Company since August 2004.

  
    

 

Ms. Eberhart brings a wealth of accounting and financial experience to the Board, as well as managerial, manufacturing and global experience, through her numerous years of service as an executive officer for EDS, Invensys and CDI. She also held various other operating and financial positions during her 26 years at EDS. In addition, she gained significant experience through her service on the boards of other public companies and her involvement with various civic and charitable organizations.

    

 

Other public company directorships in the past five years

   
    

•     Advanced Micro Devices, Inc. (2004 – present)

•     CDI Corp. (2011 – present)

•     Solectron Corporation (2005 – 2007)

•     Fluor Corporation (2010 – 2011)

Peter J. Fluor      
   

LOGO

Age: 64

  

Biography/Qualifications

 

Mr. Fluor has been Chairman and Chief Executive Officer of Texas Crude Energy, Inc., a private, independent oil and gas exploration company located in Houston, Texas, since 1990. He has been employed by Texas Crude Energy, Inc. since 1972 and took over the responsibilities of President in 1980. Mr. Fluor serves as lead director of Fluor Corporation. Mr. Fluor has been a director of the Company since August 2007.

 

Mr. Fluor brings 40 years of E&P operations, E&P service, finance, banking and managerial experience to the Board as a result of his experience at Texas Crude Energy, Inc. (most recently as Chairman and Chief Executive Officer), as well as his service as a director of other public companies and involvement with various civic and charitable organizations.

Houston, Texas

Independent

  
  

 

Other public company directorships in the past five years

   
    

•     Fluor Corporation (1984 – present)

•     Cameron International Corporation (2005 – present)

•     Devon Energy Corporation (2003 – 2007)

 

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Richard L. George      
   

LOGO

Age: 61

  

Biography/Qualifications

 

Mr. George was appointed President and Chief Executive Officer of Suncor Energy Inc., an integrated energy company, in 1991 and will continue to serve as Chief Executive Officer of that company until his retirement in May 2012. In 2011, he was named Canadian Energy Person of the Year by the Energy Council of Canada and was also elected to the Board of Canadian Pacific Railway. He has also served on the board of directors of the Canadian Council of Chief Executives since 2003. In 2008, he was inducted into the Canadian Petroleum Hall of Fame. Mr. George was named a member of the Order of Canada in 2007 for his leadership in the development of Canada’s natural resources sector, for his efforts to provide economic opportunities to Aboriginal communities and for his commitment to sustainable development.

 

Mr. George’s extensive leadership roles and career experiences in the global energy industry field will bring invaluable insight to the Board and will strategically assist Anadarko as it pursues its ever expanding business opportunities.

Calgary, Alberta

Canada

Independent

  
    

 

Other public company directorships in the past five years

   
    

•     Canadian Pacific Railway (2011 – present)

•     Royal Bank of Canada (March 2012 – present)

•     Suncor Energy Inc. (1991 – present)

•     Global Santa Fe Corporation (2001 – 2007)

•     Transocean (2007 – 2011)

Preston M. Geren III      
   

LOGO

Age: 60

Ft. Worth, Texas

Independent

  

Biography/Qualifications

 

Mr. Geren has served as President and Chief Executive Officer of the Sid W. Richardson Foundation since July 2011. From April 2010 through June 2011, he served as Senior Advisor to the Board of Directors of the Sid W. Richardson Foundation. Mr. Geren retired as Secretary of the Army in September 2009, a position in which he had served since July 2007. Prior to that appointment, Mr. Geren served as Under Secretary of the Army from February 2006 until he was named Acting Secretary of the Army in March 2007. Mr. Geren served as Acting Secretary of the Air Force from July 2005 to November 2005. He joined the Department of Defense in September 2001 to serve as Special Assistant to the Secretary of Defense with responsibilities in the areas of inter-agency initiatives, legislative affairs and special projects. Prior to joining the Department of Defense, he was an attorney and businessman in Ft. Worth, Texas. From 1989 until his retirement in 1997, Mr. Geren was a member of the U.S. Congress, representing the 12th Congressional District of Texas for four terms. In 1997, he was appointed to the Board of Directors of Union Pacific Resources Group, Inc. (UPR), where he served until UPR was acquired by Anadarko in 2000. He then served as a director of the Company from July 2000 until his resignation in July 2005 to accept the appointment as Acting Secretary of the Air Force. Mr. Geren’s recent service as a director of the Company began in October 2009.

  
   
     Mr. Geren’s several years of service as a member of the U.S. Congress and various positions within the Department of Defense, such as Secretary of the Army, have enabled Mr. Geren to bring to the Board a unique mix of executive, political, legislative, international and regulatory knowledge and experience. He also brings to the Board leadership experience attained through his previous service on the boards of other public companies and involvement with various civic and charitable organizations.

 

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Charles W.  Goodyear      
   

LOGO

Age: 54

Slidell, Louisiana

Independent

  

Biography/Qualifications

 

Mr. Goodyear was the former Chief Executive designate of Temasek Holdings (PTE) LTD, an Asian investment company wholly owned by the Singapore’s Ministry of Finance, from February 2009 to August 2009. From 1999 to January 2008, Mr. Goodyear served in numerous leadership roles at BHP Billiton, the world’s largest diversified natural resource company, including as its Chief Executive Officer from 2003 to 2007 after having served as its Chief Development Officer and Chief Financial Officer beginning in 1999. Mr. Goodyear has been a director of the Company since March 2012.

 

Mr. Goodyear has a lengthy record of public company executive leadership roles in the natural resource industry on a worldwide level as well as significant finance, investment banking and merger and acquisition experience. Mr. Goodyear’s career experiences position him to provide invaluable insight to the Board and will enhance its ability to direct a sustainable and growing enterprise.

    

 

Other public company directorships in the past five years

   
     •     BHP Billiton Group (2001 – 2007)
John R. Gordon      
   

LOGO

Age: 63

  

Biography/Qualifications

 

Mr. Gordon is Senior Managing Director of Deltec Asset Management LLC, an investment firm located in New York, New York. He was President of Deltec Securities Corporation from 1988 until it was converted into Deltec Asset Management LLC. Prior to joining Deltec Asset Management LLC, Mr. Gordon was a managing director of Kidder, Peabody & Co., where he spent 12 years in the firm’s corporate finance department. Mr. Gordon has been a director of the Company since April 1988.

 

Mr. Gordon’s role as Senior Managing Director of Deltec Asset Management LLC (a registered investment company) since 1988 provides him with significant finance and banking experience (including in the energy industry) as well as considerable managerial expertise. He also has significant involvement in various civic and charitable organizations.

New York, New York

Independent

  

 

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James T. Hackett      
   

LOGO

Age: 58

Houston, Texas

Not Independent – Management

  

Biography/Qualifications

 

On February 21, 2012, the Company announced the transition of Mr. Hackett from Chairman and Chief Executive Officer to Executive Chairman effective following the Annual Meeting. Mr. Hackett was named Chief Executive Officer and a director of the Company in December 2003 and Chairman of the Board of the Company in January 2006. He also served as President of the Company from December 2003 to February 2010. Prior to joining the Company, Mr. Hackett was the Chief Operating Officer of Devon Energy Corporation (Devon) from April 2003 to December 2003, following Devon’s merger with Ocean Energy, Inc. (Ocean). Mr. Hackett was President and Chief Executive Officer of Ocean from March 1999 to April 2003 and was Chairman of the Board from January 2000 to April 2003. He is a director of The Welch Foundation and previously served as Chairman of the Board of the Federal Reserve Bank of Dallas. In addition to the above experience, Mr. Hackett has held positions with Duke Energy, Pan Energy, NGC Corp., Burlington Resources and Amoco Oil Co.

  
  

 

In addition to his extensive experience as a senior energy industry executive, Mr. Hackett has over 35 years of financial, marketing and exploration and engineering experience in the industry. Additionally, as past Chairman of the Board of the Federal Reserve Bank of Dallas he gained unique insights into global fiscal markets, monetary policy and banking operations. His service on the boards of directors of several other public companies provides him with a broad perspective on various corporate governance and other matters. He has served as Chairman of America’s Natural Gas Alliance and is a leading industry spokesperson on domestic energy policy matters. He also has significant involvement in various civic and charitable organizations.

    

 

Other public company directorships in the past five years

   
    

•     Fluor Corporation (2001 – present)

•     Bunge Limited (2011 – present)

•     Temple-Inland, Inc. (2000 – 2008)

•     Halliburton Company (2008 – 2011)

Eric D. Mullins      
   

LOGO

Age: 49

Houston, Texas

Independent

  

Biography/Qualifications

 

Mr. Mullins has served as the Co-Chief Executive Officer and Chairman of the Board of Directors of LRE GP, LLC, the general partner of LRR Energy, L.P., a company which operates, acquires, exploits and develops producing oil and natural gas properties, since May 2011. He also serves as the Managing Director and Co-Chief Executive Officer of Lime Rock Resources, a company that he co-founded in 2005 which acquires, operates and improves lower-risk oil and natural gas properties. Prior to co-founding Lime Rock Resources, Mr. Mullins served as a Managing Director in the Investment Banking Division of Goldman Sachs where he led numerous financing, structuring and strategic advisory transactions in the division’s Natural Resources Group.

 

Mr. Mullins’ career experiences and knowledge in financing and strategic mergers and acquisitions for E&P companies will greatly assist and enhance the Board’s ability to direct a sustainable and growing enterprise.

  

 

Other public company directorships in the past five years

   
     •     LRE GP, LLC (2011 – present)
      

 

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Paula Rosput  Reynolds      
   

LOGO

Age: 55

Seattle, Washington

Independent

  

Biography/Qualifications

 

Ms. Reynolds has served as President and Chief Executive Officer of Preferwest, LLC, a business advisory group, since October 2009. She served as Vice Chairman and Chief Restructuring Officer of American International Group Inc. (AIG), an insurance and financial services company located in New York, New York from October 2008 to September 2009. Prior to her appointment to that position, she served as President and Chief Executive Officer of Safeco Corporation (Safeco), a property and casualty insurance company located in Seattle, Washington, until its acquisition by Liberty Mutual Group in September 2008. Prior to joining Safeco in January 2006, she served as Chairman, President and Chief Executive Officer of AGL Resources Inc., a regional energy services company from August 2002 to December 2005. Ms. Reynolds also previously served as President and Chief Executive Officer of Houston-based Duke Energy North America, a subsidiary of Duke Energy, which operated power-generating facilities across the United States, and as Senior Vice President of Pacific Gas Transmission Company, which owned and operated a major natural gas pipeline in the Pacific Northwest. Ms. Reynolds has been a director of the Company since August 2007.

  
   
     Ms. Reynolds has significant finance, banking, government relations and managerial experience, most recently attained through her experience as Vice Chairman and Chief Restructuring Officer of AIG, as well as through her Chief Executive Officer and other senior executive officer roles at companies in both the insurance and energy sectors. In addition to her extensive energy and insurance experience, she has served as a director of several other public companies across a variety of industries, which brings to the Board a broad perspective on various business and corporate governance matters.
    

 

Other public company directorships in the past five years

   
    

•     Delta Air Lines, Inc. (2004 – present)

•     BAE Systems plc (2011 – present)

•     TransCanada Corporation (2011 – present)

•     Coca-Cola Enterprises Inc. (2001 – 2007)

•     Safeco Corporation (2006 – 2008)

R. A. Walker      
   

LOGO

Age: 55

Houston, Texas

Not Independent –Management

  

Biography/Qualifications

 

On February 21, 2012, Anadarko announced the appointment of Mr. Walker as Chief Executive Officer of Anadarko effective following the Annual Meeting. He will also continue as President. Mr. Walker was named Chief Operating Officer in March 2009 and assumed the additional role of President in February 2010. He will continue as Chief Operating Officer until the Annual Meeting. He previously served as Senior Vice President, Finance and Chief Financial Officer from September 2005 until his appointment as Chief Operating Officer. Mr. Walker serves on the Board of Directors of Western Gas Holdings, LLC and served as Chairman from 2007 to 2009. He also serves on the Board of Trustees for the Houston Museum of Natural Science.

 

Mr. Walker has more than 30 years of experience in the energy industry, with a focus on exploration and production, including finance, institutional investing, and mergers and acquisitions. His service on the boards of directors of several other public companies provides him with a broad perspective on various corporate governance and other matters. He also has significant involvement in various civic and charitable organizations.

  

 

Other public company directorships in the past five years

   
    

•     CenterPoint Energy, Inc. (2010 – present)

•     Western Gas Holdings, LLC (2007 – present)

•     Temple-Inland, Inc. (2008 – 2012)

 

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Retired Directors

On November 9, 2011, Robert J. Allison, Jr. and John R. Butler, Jr. announced their retirement from the Board, effective December 31, 2011. Messrs. Allison’s and Butler’s retirements are a result of each of them reaching the Company’s mandatory retirement age for directors as provided in the Company’s Corporate Governance Guidelines. Mr. Allison, who also previously served as the Company’s Chairman and Chief Executive Officer, served as a member of the Board for 26 years and was the Chairman Emeritus of the Board until his retirement. He also served as a member of the Board’s Executive Committee. Mr. Butler served as a director of the Company for 15 years and served as a member of the Board’s Audit Committee and Nominating and Corporate Governance Committee.

CORPORATE GOVERNANCE

Our Board recognizes that excellence in corporate governance is essential in carrying out our responsibilities to our stakeholders, including our stockholders, employees, customers, communities, and creditors, as well as to the environment. Our Corporate Governance Guidelines, By-Laws, Code of Business Conduct and Ethics, Code of Ethics for Senior Financial Officers, and written charters for the Audit Committee, the Compensation Committee, and the Nominating and Corporate Governance Committee, all as amended from time to time, can be found on the Company’s web site at http://www.anadarko.com/About/Pages/Governance.aspx. These documents provide the framework for our corporate governance. Any of these documents will be furnished in print free of charge to any stockholder who requests one or more of them. You can submit such a request to the Corporate Secretary.

Under the Company’s Corporate Governance Guidelines, directors are expected to attend regularly scheduled Board of Director meetings and meetings of committees on which they serve, as well as the Annual Meeting of Stockholders. Each director that served on our Board during 2011 attended at least 75% of the meetings of the Board and of each committee on which he or she served. There were six Board meetings and 22 Board committee meetings in 2011. In addition, all of the incumbent directors except for one attended the 2011 Annual Meeting of Stockholders.

Board Leadership Structure

The Company’s Board structure is currently designed to ensure open communication between the Board and executive management and to provide consistent and effective leadership of both the Board and executive management. As part of this approach, our current Chief Executive Officer (CEO) also serves as Chairman of the Board (Chairman), and works in concert with the rest of our majority-independent Board and the independent Lead Director, Mr. Gordon, to oversee the execution of the Company’s strategy. On February 21, 2012, the Company announced the transition of Mr. Hackett from Chairman and CEO to Executive Chairman and the appointment of Mr. Walker as President and CEO of the Company effective at the Company’s Annual Meeting of Stockholders in 2012. Mr. Hackett will serve as Executive Chairman through the Company’s Annual Meeting of Stockholders in 2013, and will retire from the Company in June 2013.

The Board believes that the separation of the positions of Chairman and CEO is part of the succession transition process and that it is in the best interest of the Company for the Board to make a determination regarding this issue each time it elects a new CEO. The Board also believes that the Company will continue to benefit from Mr. Hackett’s experience and expertise in the energy industry while expanding Mr. Walker’s role in creating and implementing the Company’s strategic vision for the future through his leadership as CEO. At this time, we believe that Mr. Hackett’s continuation in the role of Chairman is the most desirable approach for promoting long-term stockholder value. Such a structure promotes a unified approach on corporate strategy development and allows for consistency and a smooth transition as our new CEO assumes his responsibilities. The Executive Chairman acts as a bridge between management and the Board, helping both to act with a common purpose. This also fosters consensus building and tactical execution of a Board-approved vision and strategy at the top levels within the Company.

 

 

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As Executive Chairman, Mr. Hackett will continue to play an important role in the Company’s strategic direction, while being a spokesperson for the Company and industry. As Executive Chairman, Mr. Hackett will chair all regular sessions of the Board and, in consultation with the Lead Director and with input from the CEO, set the agenda for Board meetings.

Role of Lead Director. Our independent Lead Director’s duties are already closely aligned with the role of an independent, non-executive chairman. As Lead Director designated by the Board based upon a recommendation from the Nominating and Corporate Governance Committee, Mr. Gordon’s role is to assist the Chairman and the remainder of the Board in assuring effective corporate governance in managing the affairs of the Board and the Company. Mr. Gordon works with our Chairman to approve all meeting agendas, and presides at (i) executive sessions of the non-employee directors, which are held in conjunction with each regularly scheduled quarterly meeting of the Board, (ii) executive sessions of the independent directors, which are held at least once a year, and (iii) any other meetings as determined by the Lead Director. As Lead Director, Mr. Gordon is also a member of the Board’s Executive Committee, providing additional representation for the independent directors in any actions considered by the Executive Committee between Board meetings.

The Board’s Role in Risk Oversight

The Board’s role in the identification, assessment, oversight and management of potential risks that could affect the Company’s ability to achieve its strategic, operational and financial objectives consists of (i) reviewing and discussing the Company’s risk framework and risk management policies, (ii) facilitating appropriate coordination among the Board’s committees with respect to oversight of risk management by delegating oversight of significant financial and compensation risks to the Audit Committee and Compensation Committee, respectively, and (iii) periodically meeting with members of management, including the Company’s internal standing Risk Council, to identify, review and assess the major risk exposures and steps taken to monitor, mitigate, report and respond to such exposures.

Board Committees. The Audit Committee is responsible for oversight of the Company’s significant financial risk exposures and periodically reviews and discusses with members of management those financial risk exposures and the steps being taken to identify, monitor and mitigate such exposures. With the assistance of the Compensation Committee’s independent executive compensation consultant, the Compensation Committee is responsible for the oversight of the annual risk assessment of the Company’s compensation programs.

Internal Risk Council. In order to facilitate oversight of potential risk exposures to the Company that have not been specifically delegated to any Board committee, the Board periodically meets with members of the Company’s internal Risk Council to review and assess the Company’s risk-management processes and to discuss significant risk exposures. Members of management comprise the Company’s Risk Council and provide periodic reports to the CEO, the Audit Committee and the full Board regarding the Company’s risk profile and risk management strategies. In addition, the Company’s internal audit function provides additional perspective and insight regarding potential risks facing the Company.

Compensation Committee Risk Assessment

The Compensation Committee reviewed a comprehensive compensation risk assessment conducted independently by Frederic W. Cook & Co., Inc., the Compensation Committee’s executive compensation consultant. The assessment focused on the design and application of the Company’s executive and non-executive compensation programs and whether such programs encourage excessive risk taking by executives and other employees. Based on the outcomes of this assessment and the Compensation Committee’s review, the Compensation Committee believes that the Company’s compensation programs (i) do not motivate our executives or our non-executive employees to take excessive risks, (ii) are well designed to encourage behaviors aligned with the long-term interests of stockholders and (iii) are not reasonably likely to have a material adverse

 

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effect on the Company. Anadarko’s compensation programs are designed to support and reward appropriate risk taking and include the following:

 

   

an appropriate balance of fixed versus variable pay, cash and equity pay components, operating and financial performance measures, short-term and long-term performance periods, extended vesting schedules, and established formulas and discretion;

 

   

established policies to mitigate compensation risk including significant stock ownership guidelines for executives, insider-trading prohibitions, clawback provisions, and specified caps on incentive awards; and

 

   

independent Compensation Committee oversight, which also extends to incentive plans below the executive level.

 

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Committees of the Board

The Board has four standing committees: (i) the Audit Committee, (ii) the Compensation Committee, (iii) the Nominating and Corporate Governance Committee, and (iv) the Executive Committee. For each of the current committees of the Board, the table below shows the current membership, the principal functions and the number of meetings held in 2011:

 

Committees and

Membership

   Principal Functions   

Meetings

Held in

2011

 
AUDIT†

H. Paulett Eberhart††*

Kevin P. Chilton

Charles W. Goodyear

Paula Rosput Reynolds

  

•      Discusses the integrity of the Company’s accounting policies, internal controls, financial reporting practices and the financial statements with management, the independent auditor and internal audit.

     8   
  

•      Reviews and discusses with management significant financial risk exposures, and the steps management has taken to identify, monitor and mitigate such exposures.

    
     
    

•      Monitors the qualifications, independence and performance of the Company’s internal audit function and independent auditor, and meets periodically with management, internal audit and the independent auditor in separate executive sessions.

    
     
    

•      Establishes and maintains procedures for the submission, receipt, retention and treatment of complaints and concerns received by the Company regarding accounting, internal controls or auditing matters, including those complaints and concerns received through the confidential anonymous Anadarko Hotline.

    
     
    

•      Monitors compliance with legal and regulatory requirements and the business practices and ethical standards of the Company.

    
     
    

•      Approves the appointment, compensation, retention and oversight of the work of the Company’s independent auditor and establishes guidelines for the retention of the independent auditor for any permissible services.

    
     
    

•      Oversees the work of the Company’s independent reserve engineering consultant, including meeting with the Company’s internal reserve engineers and the independent reserve engineering consultant, and meets with the independent reserve engineering consultant in executive session.

    
     
    

•      Prepares the Audit Committee report, which is on page 27.

 

        

 

None of these committee members serve on the audit committee of more than two other public companies.
†† The Board has determined that Ms. Eberhart qualifies as an “audit committee financial expert” under the rules of the SEC based upon her education and employment experience as more fully detailed in Ms. Eberhart’s biography set forth above.
* Committee Chairperson.

 

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Committees and

Membership

   Principal Functions    Meetings
Held in
2011
 
COMPENSATION AND
BENEFITS

Peter J. Fluor*

Preston M. Geren III

John R. Gordon

  

•      Ensures that our compensation objectives and philosophy are implemented through a compensation strategy that strategically aligns the interests of our executives with those of our stockholders.

     9   
  

•      Approves and evaluates the Company’s director and officer compensation plans, policies and programs.

    
     
    

•      Retains compensation or other consultants to assist in the evaluation of director or executive compensation and otherwise to aid the Compensation Committee in meeting its responsibilities. For additional information on the role of compensation consultants, please see Compensation Discussion and Analysis beginning on page 29.

    
     
    

•      Annually reviews our compensation-related risk profile to confirm that compensation-related risks are not reasonably likely to have a material adverse effect on the Company.

    
     
    

•      Periodically reviews and discusses with its independent compensation consultants and senior management its policy on executive severance arrangements, and recommends any proposed changes to the Board to the extent required by the Compensation Committee charter.

    
     
    

•      Reviews the Compensation Discussion and Analysis, disclosures for advisory votes by stockholders on executive compensation, including frequency of such votes, and other relevant disclosures made in the proxy statement.

    
     
    

•      Produces an annual Compensation Committee report, which is on page 28.

 

        
NOMINATING AND
CORPORATE

GOVERNANCE

Preston M. Geren III*

Kevin P. Chilton

Luke R. Corbett

H. Paulett Eberhart

Peter J. Fluor

Charles W. Goodyear

John R. Gordon

Paula Rosput Reynolds

  

•      Recommends nominees for director to the full Board and ensures such nominees possess the director qualifications set forth in the Company’s Corporate Governance Guidelines.

 

     4   
  

•      Reviews the qualifications of existing Board members before they are nominated for re-election to the Board.

 

    
  

•      Recommends members of the Board for committee membership.

 

    
  

•      Proposes Corporate Governance Guidelines for the Company and reviews them annually.

 

    
  

•      Oversees the Company’s compliance structure and programs.

 

    
  

•      Develops and oversees an evaluation process for the Board and its committees.

 

    
  

•      Oversees the emergency and expected CEO succession plans.

 

    
  

•      Reviews and approves related-person transactions in accordance with the Board’s procedures.

 

    
  

•      Reviews and investigates any reports to the confidential anonymous Anadarko Hotline regarding significant non-financial matters.

        

 

* Committee Chairperson.

 

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Committees and

Membership

   Principal Functions    Meetings
Held in
2011
 
     
EXECUTIVE

James T. Hackett*

H. Paulett Eberhart

Peter J. Fluor

Preston M. Geren III

John R. Gordon**

 

  

•      Acts with the power and authority of the Board, in accordance with the Company’s By-Laws, in the management of the business and affairs of the Company while the Board is not in session.

 

     1   
  

•      Approves specific terms of financing or other transactions that have previously been approved by the Board.

 

        

 

* Committee Chairperson.
** Serving in his capacity as Lead Director.

Board of Directors

Director Independence

In accordance with NYSE rules, the Sarbanes-Oxley Act of 2002, the Securities Exchange Act of 1934, as amended (Exchange Act), and the rules and regulations adopted thereunder, and the Company’s Corporate Governance Guidelines, the Board must affirmatively determine the independence of each director and director nominee in accordance with the Company’s director independence standards, which are contained in the Company’s Corporate Governance Guidelines found on the Company’s web site at http://www.anadarko.com/About/Pages/Governance.aspx.

Based on the standards contained in our Corporate Governance Guidelines, and the recommendation by the Nominating and Corporate Governance Committee, the Board has determined that each of the following non-employee director nominees are independent and have no material relationship with the Company that could impair such nominee’s independence:

 

• Kevin P. Chilton

  

• Preston M. Geren III

• Luke R. Corbett

  

• Charles W. Goodyear

• H. Paulett Eberhart

  

• John R. Gordon

• Peter J. Fluor

  

• Eric D. Mullins

• Richard L. George

  

• Paula Rosput Reynolds

In addition, the Board has affirmatively determined that (a) Mr. Hackett is not independent because he is the CEO of the Company and will be the Executive Chairman of the Board following the Annual Meeting; and (b) Mr. Walker is not independent because he is the President and Chief Operating Officer of the Company and will be the President and CEO following the Annual Meeting.

For information regarding our policy on Transactions with Related Persons, please see page 72 of this proxy statement.

Selection of Directors

The Company’s Corporate Governance Guidelines require that with respect to Board vacancies, the Nominating and Corporate Governance Committee (or a subcommittee thereof): (a) identify the personal characteristics needed in a director nominee so that the Board as a whole will possess such qualifications as more fully identified below; (b) compile, through such means as the Nominating and Corporate Governance Committee considers appropriate, a list of potential director nominees thought to possess the individual qualifications identified in the Corporate Governance Guidelines, as well as any additional specific qualifications the Board deems appropriate at the time; (c) engage an outside consultant, as necessary, to assist in the search for qualified nominees; (d) review the background, character, experience and temperament of each potential

 

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nominee; (e) conduct interviews, and, if appropriate recommend that other members of the Board and/or management interview such potential nominee; and (f) evaluate each potential nominee in relation to the culture of the Company and the Board, which emphasizes independent thinking and teamwork.

As stated in our Corporate Governance Guidelines, one of the core competencies our Board has identified in assessing the qualifications of the Board as a whole is a diversity of experience, professional expertise, perspective and age. The Board recognizes that such diversity is an important factor in board composition and the Nominating and Corporate Governance Committee ensures that such diversity considerations are discussed in connection with each candidate for director. For the past several years, our Board has reviewed on at least an annual basis a director skillset chart set forth below that identifies characteristics that the Board believes contribute to an effective and well-functioning board and that the Board as a whole should possess the following:

 

•  other Board service (both prior and current)

 

•  current or former experience as CEO of a public company

 

•  public company executive service (both prior and current)

 

•  financial expertise

 

•  banking/finance expertise

 

•  exploration and production operations expertise

  

•  oil and gas service company expertise

 

•  international business experience

 

•  government relations experience

 

•  marketing/commodity risk management experience

 

•  manufacturing/operations experience

 

•  civic/charitable experience

  
  
  
  
  

The Nominating and Corporate Governance Committee considers these and other factors and the extent to which such skillsets can be represented when evaluating potential candidates for the Board. Together, this diversity of skillsets, experiences and personal backgrounds allows our directors to provide the diversity of thought that is critical to the Board’s decision-making and oversight process. The Nominating and Corporate Governance Committee considered one or more of the foregoing factors in its (and the Board’s) consideration and nominations of Messrs. George, Mullins and Walker. The Nominating and Corporate Governance Committee retained a third-party director search firm to assist the committee and full Board in identifying potential qualified directors. That third-party search firm provided a candidate profile on several candidates, including Messrs. Goodyear, George and Mullins. In addition, Mr. Walker’s nomination is the culmination of a multi-year phased CEO succession planning process and it is the Board’s view that in his future role as CEO of the Company he will provide the Board with valuable insight and serve as an effective bridge to management.

Annual Evaluations

The Board and each of the independent committees have conducted self-evaluations related to their performance in 2011. The performance evaluations were supervised by the Nominating and Corporate Governance Committee and the results were discussed by the applicable committee and the Board. The Board and each committee have implemented any necessary changes as a result of these evaluations.

Communication with the Directors of the Company

The Board welcomes questions or comments about the Company and its operations. Interested parties may contact the Board, including the Lead Director, the non-employee or independent directors, or any individual director, at nominating_governance@apcdirector.com or at Anadarko Petroleum Corporation, Attn: Corporate Secretary, 1201 Lake Robbins Drive, The Woodlands, Texas, 77380-1046. Any questions or comments will be kept confidential to the extent reasonably possible, if requested. These procedures may change from time to time, and you are encouraged to visit our web site for the most current means of contacting our directors. If you wish to request copies of any of our governance documents, please see page 14 of this proxy statement for instructions on how to obtain them.

Stockholder Participation in the Selection of Director Nominees

The Nominating and Corporate Governance Committee did not receive any names of individuals suggested for nomination to the Company’s Board by stockholders during the past year. However, the Board will consider

 

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individuals identified by stockholders on the same basis as nominees identified from other sources. To nominate a director, a stockholder must follow the procedures described in the Company’s By-Laws, which require that the stockholder give written notice to the Company’s Corporate Secretary at the Company’s principal executive offices. The notice to the Corporate Secretary must include the following:

 

  the name and address of the stockholder and beneficial owner, if any, as they appear on the Company’s books;

 

  the class or series and number of shares of the Company which are, directly or indirectly owned (including through a partnership) beneficially and of record by the stockholder and such beneficial owner and any derivative instrument directly or indirectly owned beneficially by such stockholder;

 

  any proxy, contract, arrangement, understanding, or relationship pursuant to which such stockholder has a right to vote any shares of any security of the Company;

 

  any economic interest in any security of the Company, including any short interest, and any rights to dividends on the shares of the Company owned beneficially by such stockholder that are separated or separable from the underlying shares of the Company;

 

  any performance-related fees (other than an asset-based fee) that such stockholder (including such stockholder’s immediate family) is entitled to based on any increase or decrease in the value of shares of the Company or derivative instruments, if any, as of the date of such notice;

 

  a representation whether the stockholder or the beneficial owner, if any, intends or is part of a group which intends to deliver a proxy statement and/or form of proxy to holders of at least the percentage of the Company’s outstanding capital stock required to elect the nominee and/or otherwise to solicit proxies from stockholders in support of such nomination;

 

  all information relating to such stockholder and beneficial owner, if any, that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors in a contested election pursuant to Section 14 of the Exchange Act and the rules and regulations promulgated thereunder (including such person’s written consent to being named in the proxy statement as a nominee and to serving as a director if elected);

 

  a description of all direct and indirect compensation and other material monetary agreements, arrangements and understandings during the past three years, and any other material relationships, between or among such stockholder and beneficial owner, if any, and their respective affiliates and associates and each proposed nominee, and his or her respective affiliates and associates;

 

  with respect to each nominee for election or reelection to the Board a completed and signed questionnaire, representation and agreement that the nominee is not and will not become a party to the following:

 

  any agreement, arrangement or understanding as to how such person, if elected as a director of the Company, will act or vote on any issue or question that has not been disclosed to the Company;

 

  any voting commitment that could limit or interfere with such person’s ability to comply, if elected as a director of the Company, with such person’s fiduciary duties under applicable law; and

 

  any agreement, arrangement or understanding with any person or entity other than the Company with respect to any direct or indirect compensation, reimbursement or indemnification in connection with service or action as a director that has not been disclosed.

 

  In addition, the nominee must be in compliance, if elected as a director of the Company, and agree to continue to comply with all applicable publicly disclosed corporate governance, conflict of interest, confidentiality and stock ownership and trading policies and guidelines of the Company; and

 

  Any such other information as may reasonably be required by the Company to determine the eligibility of such proposed nominee to serve as an independent director of the Company or that could be material to a reasonable stockholder’s understanding of the independence, or lack thereof, of such nominee.

 

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Generally, nominations must be received no earlier than the close of business on the 120th day prior to, and no later than the close of business on the 90th day prior to, the first anniversary of our last annual meeting of stockholders, or, if the nomination is with respect to a special meeting of stockholders, not earlier than the close of business on the 120th day prior to, and no later than the close of business on the 90th day prior to, such special meeting. For more information on stockholder participation in the selection of director nominees, please refer to that section in our Corporate Governance Guidelines and our By-Laws, which are posted on the Company’s web site at http://www.anadarko.com/About/Pages/Governance.aspx.

Directors’ Continuing Education

The Company’s Director Education Policy encourages all members of the Board to attend director education programs appropriate to their individual backgrounds to stay abreast of developments in corporate governance and best practices relevant to their contribution to the Board as well as their responsibilities in their specific committee assignments. The Director Education Policy provides that the Company will reimburse directors for all costs associated with attending any director education program.

Compensation and Benefits Committee Interlocks and Insider Participation

The Compensation Committee is made up of three independent directors, Messrs. Fluor, Geren and Gordon. None of our executive officers currently serve, or in the past year have served, as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving on our Board or our Compensation Committee.

Director Compensation

Non-employee directors receive a combination of cash and stock-based compensation designed to attract and retain qualified candidates to serve on the Board. Mr. Hackett does not receive any compensation for his service as a director. If elected, Mr. Walker will not receive any compensation for his service as a director. In setting director compensation, the Board considers the significant amount of time that directors spend in fulfilling their duties to the Company and its stockholders as well as the skill level required by the Company’s Board members. The Compensation Committee is responsible for determining the type and amount of compensation for non-employee directors. The Compensation Committee directly retained Meridian Compensation Partners, LLC, or Meridian, as its outside independent compensation consultant during the first part of 2011 to assist in the 2011 annual review of director compensation by providing benchmark compensation data and recommendations for compensation program design.

Retainer and Meeting Fees. The following is a schedule of current annual retainers and meeting fees for non-employee directors in effect during 2011 and payable on a quarterly basis:

 

Type of Fee

   Amount ($)  

Annual Board Retainer(1)

     70,000   

Additional Annual Retainer to Chairperson of Audit Committee and of Compensation Committee(2)

     25,000   

Additional Annual Retainer to Chairperson of Nominating and Corporate Governance Committee

     15,000   

Additional Annual Retainer for Board Member Serving as Lead Director

     25,000   

Additional Annual Retainer to Audit Committee and Compensation Committee Members(3)

     6,000   

Additional Annual Retainer for Other Committee Members

     3,000   

Fee for each Board Meeting Attended (plus expenses related to attendance)

     2,000   

Fee for each Board Committee Meeting Attended (plus expenses related to attendance)

     2,000   

 

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(1) Effective July 1, 2011, the Annual Board Retainer was increased from $50,000 to $70,000.
(2) Effective July 1, 2011, the Annual Retainer to the Chairperson of the Compensation Committee was increased from $15,000 to $25,000.
(3) Effective July 1, 2011, the Annual Retainer to Compensation Committee Members was increased from $3,000 to $6,000.

Stock Plan for Non-employee Directors. Stock-based awards made to non-employee directors are made pursuant to the Anadarko Petroleum Corporation 2008 Director Compensation Plan (Director Compensation Plan). In addition to the retainer and meeting fee compensation, non-employee directors receive annual equity grants. Equity grants to non-employee directors are automatically awarded each year on the date of the Company’s Annual Meeting. For 2011, each non-employee director received an annual equity grant with a value targeted at approximately $250,000, with 100% of the value delivered in deferred shares. Directors may elect to receive these shares on a specific date, but not earlier than one year from the date of grant, or when they leave the Board. Directors who are foreign residents may receive other forms of equity grants, such as restricted stock units.

Non-employee directors may elect to receive their retainer and meeting fees in cash, common stock, or deferred cash under the Anadarko Deferred Compensation Plan described below, or any combination of the foregoing. Receipt of compensation in the form of common stock provides non-employee directors the opportunity to increase their personal ownership in the Company and comply with the established director stock ownership guidelines that require directors to hold stock equivalent to seven times the annual Board retainer. Directors have three years from the date of their initial election to the Board to comply with the guidelines. All non-employee directors, except for Gen. Chilton and Mr. Goodyear, who joined the Board in 2011 and 2012, respectively, currently exceed the Company’s stock ownership guidelines. This election option also provides the directors a method to invest in the Company as a stockholder and aligns their interests with the interests of the Company’s stockholders. The amount of stock issued to directors for payment in lieu of their cash fees is determined at the end of the quarter for which compensation is earned, and is calculated by dividing the closing stock price of the Company’s common stock on the date of grant into the applicable fee for that period.

Deferred Compensation Plan for Non-employee Directors. Non-employee directors are eligible to participate in the Company’s Deferred Compensation Plan. The Deferred Compensation Plan allows non-employee directors to defer receipt of up to 100% of their retainers and meeting fees, and to allocate the deferred amounts among a group of notional accounts that mirror the gains and/or losses of various investment funds, including common stock of the Company. The interest rate earned on the deferred amounts is not above-market or preferential. In general, deferred amounts are distributed to the participant upon leaving the Board or at a specific date as elected by the participant. Messrs. Fluor and Geren and Ms. Reynolds elected to defer compensation during 2011.

Other Compensation. Non-employee directors are covered under the Company’s Accidental Death & Dismemberment Plan and the Company pays the annual premium for such coverage on behalf of each director. The Company also provides each non-employee director with Personal Excess Liability coverage and pays the annual premium on their behalf. The Company maintains an Aid to Education Program under which certain gifts by employees, officers, directors and retired employees to qualified institutions of learning are matched on a two-to-one basis. The maximum contribution matched per donor, per calendar year is $2,500, resulting in a maximum Company yearly match of $5,000.

 

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Director Compensation Table for 2011

The following table sets forth information concerning total director compensation earned during the 2011 fiscal year by each incumbent director who served on the Board in 2011, other than Mr. Hackett, who does not receive any compensation for his service as a director:

 

Name

  Fees Earned or
Paid in Cash
($)
    Stock
Awards
($)(1)
    Option
Awards
($)(2)
    Non-Equity
Incentive Plan
Compensation
($)
    Change in
Pension Value
and Non-qualified
Deferred
Compensation
Earnings
($)
    All Other
Compensation
($)(3)
    Total
($)
 

Robert J. Allison, Jr.(4)(5)

    74,000        250,007        0        0        0        54,044        378,051   

John R. Butler, Jr.(5)(6)

    105,000        250,007        0        0        0        54,044        409,051   

Kevin P. Chilton

    64,787        250,007        0        0        0        3,476        318,270   

Luke R. Corbett

    80,625        250,007        0        0        0        4,044        334,676   

H. Paulett Eberhart

    130,000        250,007        0        0        0        4,044        384,051   

Peter J. Fluor(7)

    127,500        250,007        0        0        0        4,044        381,551   

Preston M. Geren III(7)

    122,500        250,007        0        0        0        4,044        376,551   

John R. Gordon

    132,500        250,007        0        0        0        4,044        386,551   

Paula Rosput Reynolds(8)

    105,000        250,007        0        0        0        4,044        359,051   

 

(1) The amounts included in this column represent the aggregate grant date fair value of the grant of 3,446 deferred shares granted to each of our non-employee directors on May 17, 2011, computed in accordance with FASB ASC Topic 718. The value ultimately realized by the director may or may not be equal to this determined value. For a discussion of valuation assumptions, see Note 14 — Share-Based Compensation of the Notes to Consolidated Financial Statements included in our annual report under Item 8 of the Form 10-K for the year ended December 31, 2011. As of December 31, 2011, each of the non-employee directors had aggregate outstanding deferred shares as follows: Mr. Allison — 0; Mr. Butler — 0; Gen. Chilton — 3,446; Mr. Corbett — 15,123; Ms. Eberhart — 19,123; Mr. Fluor — 16,794; Mr. Geren — 8,573; Mr. Gordon — 31,899; and Ms. Reynolds — 14,845.
(2) The non-employee directors did not receive any stock option awards in 2011; however, as of December 31, 2011, each of the non-employee directors had aggregate outstanding vested and exercisable stock options as follows: Mr. Allison — 32,100; Mr. Butler — 24,600; Gen. Chilton — 0; Mr. Corbett — 27,100; Ms. Eberhart — 24,600; Mr. Fluor — 5,650; Mr. Geren — 13,900; Mr. Gordon — 52,100; and Ms. Reynolds — 5,650. There were no unvested options as of December 31, 2011.
(3) For all non-employee directors, except for Gen. Chilton, the amounts in this column include annual premiums paid by the Company for each director’s benefit in the amount of $144 and $1,400 for Accidental Death & Dismemberment coverage and Personal Excess Liability coverage, respectively, and a $2,500 donation made on their behalf to a charity of their choice. For Messrs. Allison and Butler, the amounts also include a $50,000 charitable contribution made on their behalf by the Company in consideration of their 27 and 16 years of service, respectively, to the Company’s Board. For Gen. Chilton, the amount includes $90 for Accidental Death & Dismemberment coverage, $886 for Personal Excess Liability coverage and a $2,500 charitable donation made on his behalf to a charity of his choice.
(4) Certain ongoing benefits provided to Mr. Allison, which are not part of his compensation for service as a director of the Company, are discussed on page 72.
(5) Messrs. Allison and Butler retired from the Company’s Board effective December 31, 2011.
(6) Mr. Butler elected to receive half of his retainer and meeting fees in cash and half in common stock.
(7) Messrs. Fluor and Geren each deferred all of their retainer and meeting fees into the Company’s Deferred Compensation Plan.
(8) Ms. Reynolds deferred half of her retainer and meeting fees into the Company’s Deferred Compensation Plan.

 

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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information provided below summarizes the beneficial ownership of our NEOs, each of our directors and director nominees, all of our directors, director nominees and executive officers as a group, and owners of more than five percent of our outstanding common stock. “Beneficial ownership” generally includes those shares of common stock held by someone who has investment and/or voting authority of such shares or has the right to acquire such common stock within 60 days. The ownership includes common stock that is held directly and also stock held indirectly through a relationship, a position as a trustee, or under a contract or understanding.

Directors, Director Nominees and Executive Officers

The following table sets forth the number and percentage of Anadarko common stock beneficially owned by our NEOs, each of our directors and director nominees, and all of our executive officers, directors and director nominees as a group as of March 5, 2012:

 

     Amount and Nature of Beneficial Ownership  

Name of Beneficial Owner

   Number of Shares
of Common Stock
Beneficially
Owned(1)(2)
     Stock
Acquirable
Within
60 Days
     Total
Beneficial
Ownership(3)
     Percent
of Class
 

James T. Hackett

     357,547         825,881         1,183,428         *   

Robert G. Gwin

     30,777         325,453         356,230         *   

R. A. Walker

     107,944         482,164         590,108         *   

Charles A. Meloy

     66,817         98,963         165,780         *   

Robert K. Reeves

     106,950         296,124         403,074         *   

Kevin P. Chilton

     3,446         0         3,446         *   

Luke R. Corbett

     15,123         27,100         42,223         *   

H. Paulett Eberhart

     19,123         24,600         43,723         *   

Peter J. Fluor

     21,685         5,650         27,335         *   

Richard L. George

     3,000         0         3,000         *   

Preston M. Geren III

     15,099         13,900         28,999         *   

Charles W. Goodyear

     729         0         729         *   

John R. Gordon

     157,959         52,100         210,059         *   

Eric D. Mullins

     0         0         0         *   

Paula Rosput Reynolds

     23,142         5,650         28,792         *   

All directors, director nominees and executive officers as a group (17 persons)

     1,000,300         2,316,791         3,317,091         *   

 

* Less than one percent.
(1) Does not include shares of common stock that the directors or executive officers of the Company have the right to acquire within 60 days of March 5, 2012. This column does include shares of common stock held in the Company’s Benefits Trust as a result of the director compensation and deferral elections made in accordance with our benefit plans described elsewhere in this proxy statement. Those shares are subject to shared voting power with the trustee under that Trust and receive dividend equivalents on such shares, but the individuals do not have the power to dispose of, or direct the disposition of, such shares until such shares are distributed to them. In addition, some shares of common stock reflected in this column for certain individuals are subject to restrictions.
(2) Does not include the following number of restricted stock units, which do not have voting rights but do receive dividend equivalents and are payable (after taxes are withheld) in the form of Company common stock: Mr. Hackett, 141,183; Mr. Gwin, 38,684; Mr. Walker, 62,099; Mr. Meloy, 65,023; and Mr. Reeves, 43,575.
(3) As of December 31, 2011, the directors and executive officers beneficially owned common units of Western Gas Partners, LP (WES) as follows: Mr. Hackett, 30,100; Mr. Gwin, 10,000; Mr. Walker, 6,000; Mr. Reeves, 9,000; Mr. Meloy, 3,000; Ms. Eberhart, 1,000; Mr. Fluor, 60,200; and Ms. Reynolds, 20,723. The Company owns a majority interest in WES indirectly through its wholly-owned subsidiaries. As of December 31, 2011, there were 90,140,999 common units of WES outstanding.

 

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Certain Beneficial Owners

The following table shows the beneficial owners of more than five percent of the Company’s common stock as of December 31, 2011 based on information available as of February 14, 2012:

 

Title of Class

  

Name and Address of Beneficial
Owner

   Amount and
Nature

of Beneficial
Ownership
     Percent
of

Class
 

Common Stock

   BlackRock Inc.      33,628,487(1)         6.75
  

40 East 52nd Street

New York, NY 10022

     

Common Stock

   FMR LLC      30,152,228(2)         6.055
  

82 Devonshire Street

Boston, MA 02109

     

Common Stock

   Wellington Management Company, LLP      27,216,660(3)         5.47
  

280 Congress Street

Boston, MA 02210

     

 

(1) Based upon its Schedule 13G/A filed February 13, 2012, with the SEC with respect to Company securities held as of December 31, 2011, BlackRock Inc. has sole voting power as to 33,628,487 shares of common stock and sole dispositive power as to 33,628,487 shares of common stock.
(2) Based upon its Schedule 13G/A filed February 14, 2012, with the SEC with respect to Company securities held as of December 31, 2011, FMR LLC has sole voting power as to 2,975,309 shares of common stock and sole dispositive power as to 30,152,228 shares of common stock.
(3) Based upon its Schedule 13G filed February 14, 2012, with the SEC with respect to Company securities held as of December 31, 2011, Wellington Management Company, LLP has shared voting power as to 11,902,144 shares of common stock and shared dispositive power as to 27,216,660 shares of common stock.

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Exchange Act requires the Company’s directors and executive officers, and persons who own more than 10% of a registered class of the Company’s equity securities, to file with the SEC and any exchange or other system on which such securities are traded or quoted, initial reports of ownership and reports of changes in ownership of the Company’s common stock and other equity securities. Officers, directors and more than 10% stockholders are required by the SEC’s regulations to furnish the Company and any exchange or other system on which such securities are traded or quoted with copies of all Section 16(a) forms they filed with the SEC.

To the Company’s knowledge, based solely on a review of the copies of such reports furnished to the Company and written representations that no other reports were required, the Company believes that all reporting obligations of the Company’s officers, directors and more than 10% stockholders under Section 16(a) were satisfied during the year ended December 31, 2011.

 

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AUDIT COMMITTEE REPORT

The following report of the Audit Committee of the Company, dated February 20, 2012, shall not be deemed to be “soliciting material” or to be “filed” with the Securities and Exchange Commission, nor shall this report be incorporated by reference into any filing made by the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.

The Audit Committee of the Board is responsible for independent, objective oversight of the Company’s accounting functions and internal controls over financial reporting. The Audit Committee is composed of three directors, each of whom is independent as defined by the NYSE listing standards. The Audit Committee operates under a written charter approved by the Board of Directors, which is available on the Company’s web site at http://www.anadarko.com/About/Pages/Governance.aspx.

Management is responsible for the Company’s internal controls over financial reporting. The independent auditor is responsible for performing an independent audit of the Company’s consolidated financial statements in accordance with generally accepted auditing standards in the United States of America and issuing a report thereon. The independent auditor is also responsible for performing independent audits of the Company’s internal controls over financial reporting. The Audit Committee’s responsibility is to monitor and oversee these processes.

KPMG LLP served as the Company’s independent auditor during 2011 and was appointed by the Audit Committee to serve in that capacity for 2012 (and we are seeking ratification by the Company’s stockholders at this Annual Meeting of such appointment). KPMG LLP has served as the Company’s independent auditor since its initial public offering in 1986.

In connection with these responsibilities, the Audit Committee met with management and the independent auditor to review and discuss the December 31, 2011 audited consolidated financial statements and matters related to Section 404 of the Sarbanes-Oxley Act of 2002. The Audit Committee also discussed with the independent auditor the matters required by Statement on Auditing Standards No. 61 (Communication with Audit Committees), as amended.

The Audit Committee also received written disclosures and the letter from the independent auditor required by Public Company Accounting Oversight Board Rule 3526 regarding the independent auditor’s communications with the Audit Committee concerning independence, and the Audit Committee discussed with the independent auditor that firm’s independence.

Based upon the Audit Committee’s review and discussions with management and the independent auditor referred to above, the Audit Committee recommended that the Board of Directors include the audited consolidated financial statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011 filed with the SEC.

THE AUDIT COMMITTEE

H. Paulett Eberhart, Chairperson

Kevin P. Chilton

Paula Rosput Reynolds

 

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COMPENSATION AND BENEFITS COMMITTEE REPORT

ON 2011 EXECUTIVE COMPENSATION

The Compensation Committee, the members of which are listed below, is responsible for establishing and administering the executive compensation programs of the Company. The Compensation Committee of the Company has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K 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 this proxy statement.

THE COMPENSATION AND BENEFITS COMMITTEE

Peter J. Fluor, Chairman

Preston M. Geren III

John R. Gordon

 

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COMPENSATION DISCUSSION AND ANALYSIS

This Compensation Discussion and Analysis focuses on the following:

 

  overview and executive summary (including our response to the 2011 say-on-pay advisory vote);

 

  our executive compensation philosophy and guiding principles;

 

  paying for performance;

 

  how we make compensation decisions;

 

  elements of our compensation program; and

 

  analysis of 2011 compensation actions.

Overview and Executive Summary

2011 Performance Highlights

During 2011, Anadarko continued to demonstrate the depth and strength of its capital-efficient portfolio with another year of record operating performance. Significant highlights for the year include:

 

  achieved record sales volumes of 248 million barrels of oil equivalent (BOE), which included a 10% increase in liquids as compared to 2010, with capital spending at the low end of the guidance range;

 

  added 392 million BOE of proved reserves, which equates to replacing 159% of production;

 

  delivered industry-leading offshore exploration and appraisal drilling success of approximately 80%, which provides the Company with significant opportunities globally;

 

  achieved record safety performance with a total recordable incident rate equal to half the industry average based on the current industry data available;

 

  realized operational efficiency gains through reduced drilling and completion cycle times that have helped to offset inflationary costs in the U.S. onshore resource development plays;

 

  generated $2.5 billion of cash flows from operations, notwithstanding the payment of $4.0 billion related to the settlement with BP Exploration & Production Inc. (BP) relating to the Deepwater Horizon events, and ended the year with $2.7 billion of cash on hand;

 

  limited the substantial uncertainty surrounding Deepwater Horizon events by entering into a settlement with BP; and

 

  maintained 3-year total stockholder return (TSR) performance in the top quartile of our specified industry peer group.

The Company achieved these results in the midst of several challenges impacting the Company and the energy industry, including the continuing repercussions of the Deepwater Horizon events, continued global and domestic economic uncertainty, low natural gas prices and uncertain political and regulatory environments. The Compensation Committee believes that the compensation programs that were in place during 2011 operated as intended and reflect these performance results with respect to the incentive compensation received by our executives. Specifically:

 

  A performance score of 152% was achieved under the Annual Incentive Program for 2011 as a result of the Company’s record sales volumes, substantial reserve growth, prudent capital spending, continued cost-containment efforts and focused commitment to the safety of our employees. Our named executive officers (NEOs) were each awarded bonuses equivalent to the 152% performance score reflecting their contributions and leadership in the achievement of these results.

 

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  Under our long-term incentive program, relative TSR performance for the three-year period ended 2011 was in the top quartile of our specified industry peers and our executive officers earned a 182% payout of their target performance units for this period. Our relative TSR performance for the two-year period ended 2011 was just below the median of our specified industry peers and, accordingly, our executive officers earned 92% of their target performance units for this period.

Committee Consideration of 2011 Stockholder Advisory Vote to Approve Executive Compensation

The Board recognizes the importance of our stockholders’ advisory say-on-pay vote as a means of expressing views regarding the compensation practices and programs for our NEOs, and based upon the outcome of our 2011 say-on-pay frequency vote, has adopted an annual advisory say-on-pay vote. At our 2011 Annual Meeting, our stockholders voted in support of our 2010 executive compensation program. Since say-on-pay is very broad in the elements subject to the vote, it is difficult to pinpoint the exact reasons why stockholders might vote against our program. While the Compensation Committee and management were generally pleased with the significant amount of support for our say-on-pay proposal, they also wanted to gain a better understanding of the concerns of the stockholders who did not support the say-on-pay proposal. To accomplish this objective, we have: (1) engaged stockholders in a dialogue regarding our compensation program and other governance matters; (2) in consultation with the Compensation Committee’s executive compensation consultant, continued to review our policies and programs against evolving governance practices; (3) considered the comments provided by proxy advisory firms regarding their vote recommendations during 2011; and (4) in light of the foregoing, implemented the key actions discussed below.

Actions Taken in 2011 and 2012 to Further Strengthen Governance Practices

The Compensation Committee is committed to continuing a high standard of Board governance, including updating compensation practices as considered appropriate, for the benefit of the Company and its stockholders. In 2011 and 2012, the Compensation Committee took the following key actions:

 

  In conjunction with Mr. Walker’s appointment to President and CEO, effective following the Annual Meeting, he:

 

  will continue to be employed on an at-will basis and will not be provided an individual employment agreement;

 

  will no longer be covered under the Officer Severance Plan and will waive his current key employee change-of-control contract; and

 

  has entered into a Severance Agreement, to be effective following the Annual Meeting, that includes the following provisions which reduce the level of change-of-control severance benefits that he is currently eligible to receive under his key employee change-of-control contract:

 

  o a severance multiple of 2.5 times salary plus the higher of target bonus or the average bonus for the last two years, which is a reduction from the current 2.9 times salary plus the highest bonus paid in the past three years;

 

  o

a double-trigger provision for the payment of benefits, which eliminates the current modified single-trigger provision by removing the walk-away right during the 13th month following a change of control from the definition of good reason;

 

  o a best-of-net tax provision (as described on page 49), which eliminates the excise tax gross-up obligation; and

 

  o no post-termination financial planning benefits.

 

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  Approved the proposed 2012 Omnibus Plan that we are presenting to stockholders for approval (see Item 3 – Approval of the 2012 Omnibus Incentive Compensation Plan on page 73), which:

 

  implements a double-trigger provision that provides for accelerated vesting of awards in the event of both a change of control of the Company and the termination of the participant’s employment without cause or for good reason during the applicable protection period;

 

  strengthens our current no repricing provision to expressly prohibit the cancellation of stock option and stock appreciation right awards in exchange for cash or another award or any other action that would be treated as a repricing; and

 

  updates our current clawback provision in anticipation of the upcoming issuance of Dodd-Frank regulations.

 

  Determined that under the proposed 2012 Omnibus Plan, dividends and dividend equivalents on executive officer restricted stock and restricted stock unit awards will be reinvested in shares of the Company’s common stock and paid upon the applicable vesting of the underlying award (rather than paid in cash on a current basis).

 

  Reduced the level of executive severance benefits provided in the event of an involuntary not for cause termination, outside of a change of control, by eliminating: (1) the special retirement benefit enhancement, except for special cases as approved by the Compensation Committee; and (2) the post-termination financial planning benefits.

 

  Reduced the level of post-change-of-control severance benefits for prospective senior executives by: (1) eliminating the modified single-trigger provision and replacing it with a double-trigger provision; (2) reducing the protection period from three years to two years; (3) eliminating the excise tax gross-up provision and replacing it with a best-of-net approach; and (4) eliminating post-termination financial planning benefits.

 

  Increased the stock ownership requirements for our CEO from five times base salary to six times base salary.

See Continuous Improvement in Compensation Practices on page 52 for a full description of our long-standing practices that contribute to good governance in executive compensation.

Our Executive Compensation Philosophy and Guiding Principles

The Compensation Committee believes that maintaining a consistent compensation philosophy, which reflects a significant focus on long-term compensation, will provide our stockholders the most value through the alignment of their interests with those of a talented executive team. At the same time, the Compensation Committee recognizes that it is important to have a program that may be adjusted, as appropriate, to address industry trends and developments as well as evolving executive compensation practices. Our compensation philosophy is reviewed and confirmed by the Compensation Committee each year to ensure that it provides the appropriate foundation and principles for governing our executive compensation programs. The Compensation Committee believes that:

 

  executive interests should be aligned with long-term stockholder interests;

 

  executive compensation should be structured to provide appropriate incentive and reasonable reward for the contributions made and performance achieved; and

 

  a competitive compensation package must be provided to attract and retain experienced, talented executives to ensure Anadarko’s success.

 

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In support of this philosophy, our executive compensation programs are designed to adhere to the following principles:

 

  a majority of total executive compensation should be in the form of equity-based compensation;

 

  a meaningful portion of total executive compensation should be tied directly to the achievement of goals and objectives related to Anadarko’s targeted financial and operating performance;

 

  a significant component of performance-based compensation should be tied to long-term relative performance measures that emphasize an increase in stockholder value over time;

 

  performance-based compensation opportunities should not encourage excessive risk taking that may compromise the Company’s value;

 

  executives should maintain significant levels of equity ownership;

 

  to encourage retention, a substantial portion of compensation should be forfeitable by the executive upon voluntary termination;

 

  total compensation opportunities should be reflective of each executive officer’s role, skills, experience level and individual contribution to the organization; and

 

  our executives should be motivated to contribute as team members to Anadarko’s overall success, as opposed to merely achieving specific individual objectives.

Paying for Performance

Emphasis on Long-Term Performance

We believe that long-term performance is the most important measure of our success and we manage our operations and business for the long-term benefit of our stockholders. Accordingly, our executive compensation program is heavily weighted toward variable (meaning at-risk) pay components which include (1) annual target bonus opportunity and (2) annual long-term incentive awards. A smaller portion is represented by base salary, or fixed, compensation.

As illustrated in the charts below, more than 75% of each NEO’s annual total direct compensation is provided through equity-based incentives that are dependent upon long-term corporate performance and stock price appreciation. These long-term incentives include stock options, restricted stock units and performance units. Any value ultimately realized for these long-term equity-based awards is directly tied to Anadarko’s absolute and relative stock price performance.

 

LOGO    LOGO

 

Percent of total direct compensation:

At-Risk 90%

Long-Term 78%

  

Percent of total direct compensation:

At-Risk 88%

Long-Term 76%

  

 

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These charts above are based on the following: base salaries that became effective November 2011, as discussed on page 37; target bonus opportunities effective for 2012, as discussed on page 39; and the estimated grant date value for the 2011 annual equity awards (excluding the value of any one-time awards), as discussed on page 42. They do not reflect the compensation changes for Mr. Walker’s transition to President and CEO to be effective following the Annual Meeting.

Realizable Total Direct Compensation Alignment with Total Stockholder Return

To demonstrate the pay-for-performance relationship inherent in our executive compensation program, Frederic W. Cook & Co. (FWC), the Compensation Committee’s executive compensation consultant, performed a look-back analysis to consider the degree to which realizable compensation for the CEO over a three-year period (2008, 2009 and 2010) is aligned with TSR for that same period. For purposes of this analysis, three-year realizable total direct compensation (TDC), includes the following:

 

   

sum of three years of base salary;

 

   

sum of three years of actual bonus payouts;

 

   

sum of any non-equity based cash long-term incentive payouts made throughout the three-year period;

 

   

in-the-money value of stock options granted during the three-year period valued as of December 31, 2010; and

 

   

fair market value of all full-value shares granted (i.e., restricted shares/units; performance shares/units) during the three-year period valued as of December 31, 2010. Performance shares/units are valued using the target number of shares/units awarded.

This analysis compares our CEO’s three-year realizable TDC and the Company’s TSR against the three-year realizable TDC of the CEOs in our industry peer group (listed on page 35) and each peer company’s corresponding three-year TSR. In order to provide consistency in comparison, the analysis includes those industry peer CEOs who were in the CEO role throughout the entire three-year period and, as a result, Chevron and Devon were excluded from the analysis. The comparison is based on the three years ended December 31, 2010, which captures the most recently reported compensation awarded as disclosed in filed proxy statements. Additionally, all equity granted during this three-year period is assumed to have been held through the end of the three-year period. As reflected in the chart below, Mr. Hackett’s realizable TDC and the Company’s TSR exhibited strong alignment as both were in the top quartile of this group.

 

LOGO

 

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The pay-for-performance alignment of our executive compensation program is further illustrated by the graph below which compares the most recent three-year cumulative total return to our stockholders relative to the cumulative total return of our industry peer group (listed on page 35) that we use for executive compensation benchmarking as well as the S&P 500 Index. We benchmark our executive compensation against the 50th and 75th percentiles of our industry peer group. As reflected in the graph below, our performance over the last three years exceeded the 75th percentile.

COMPARISON OF THREE-YEAR CUMULATIVE TOTAL RETURN

Among Anadarko Petroleum Corporation, the S&P 500 Index

and Our Industry Peer Group

 

LOGO

Copyright© 2012 S&P, a division of The McGraw-Hill Companies Inc. All rights reserved.

An investment of $100 (with reinvestment of all dividends) is assumed to have been made in the Company’s common stock, in the S&P 500 Index and in the industry peer group on December 31, 2008 and its relative performance is tracked through December 31, 2011.

 

Fiscal Year Ended December 31

   2008      2009      2010      2011  

Anadarko Petroleum Corporation

   $ 100.00       $ 163.18       $ 200.35       $ 201.75   

S&P 500 Index

     100.00         126.46         145.51         148.59   

Industry Peer 50th Percentile

     100.00         128.67         144.39         158.22   

Industry Peer 75th Percentile

     100.00         146.68         165.86         171.91   

The information contained in the graph above is furnished and not filed, and is not incorporated by reference into any document that incorporates this proxy statement by reference.

How We Make Compensation Decisions

The Compensation Committee utilizes several different tools and resources in reviewing elements of executive compensation and making compensation decisions. These decisions, however, are not purely formulaic and the Compensation Committee exercises judgment and discretion in making them.

Compensation Consultants. The Compensation Committee utilizes an independent executive compensation consultant to review executive compensation and benefit programs. Through May 2011, the Compensation

 

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Committee directly retained Meridian as its outside independent compensation consultant. In May 2011, the Compensation Committee then retained FWC (thereby replacing Meridian) as its independent executive compensation consultant. In these engagements, the consultants reported directly and exclusively to the Compensation Committee; however, at the Compensation Committee’s direction, the consultants worked directly with management to review or prepare materials for the Compensation Committee’s consideration. Eight of the nine Compensation Committee meetings in 2011 were attended by the Compensation Committee’s executive compensation consultant. The Compensation Committee did not engage any consultant other than Meridian or FWC during 2011 to provide executive compensation consulting services. The Compensation Committee’s engagement of its compensation consultants included the following services:

 

  providing and/or reviewing relevant market data (including benchmarking, surveys, trends, good governance and best practices information) and updating the Compensation Committee on regulatory developments as a background against which the Compensation Committee could consider total executive officer compensation elements and awards;

 

  advising the Compensation Committee on the design and structure of our compensation programs and the degree to which they are aligned with our pay philosophy, our stockholders interests and our business strategy; and

 

  attending and participating in Compensation Committee meetings throughout the year as the Compensation Committee deemed appropriate.

While engaged as the Compensation Committee’s consultant, neither Meridian nor FWC performed any services for us outside the scope of their engagement with the Compensation Committee.

Benchmarking. In 2011, FWC conducted an independent review of the Company’s industry peer group to use as a reference point for assessing competitive executive compensation data. This review included an assessment of peers of Anadarko as designated by Institutional Shareholder Services (ISS), peers of direct peers, and companies included in Anadarko’s broad Global Industry Classification Standard Industry Group to determine if there were companies that should be added to or deleted from Anadarko’s existing peer group based on relevant size range and business operations. The Compensation Committee’s consultant determined that, within the current peer group, the Company’s revenues are at the median, its total assets are at the 75th percentile, and its market capitalization is between the median and 75th percentile. Following this review, the Compensation Committee determined that the current group of 12 industry peer companies, as listed below, remains appropriate comparators.

 

• Apache Corporation

 

• Devon Energy Corporation

 

• Noble Energy, Inc.

• Chesapeake Energy Corporation

 

• EOG Resources, Inc.

 

• Occidental Petroleum Corporation

• Chevron Corporation

 

• Hess Corporation

 

• Pioneer Natural Resources Company

• ConocoPhillips

 

• Marathon Oil Corporation

 

• Plains Exploration & Production Company

Within the oil and gas industry, there are a very limited number of companies that closely resemble us in size, scope and nature of business operations. Our industry peer group contains companies in our industry that are both larger and smaller in size and scope and that may operate in related business segments in the industry in which we have no operations, such as refining. We compete with these companies for talent and believe the selected companies are currently the most appropriate with respect to executive compensation benchmarking. The differences and similarities between us and the companies in our industry peer group are taken into consideration when referencing benchmarks for executive compensation decisions.

Role of CEO and/or Other Executive Officers in Determining Executive Compensation. Our CEO, Mr. Hackett, provides recommendations to the Compensation Committee for each element of compensation for each of the NEOs other than himself. In forming his recommendations, he seeks input from other senior officers about the employees

 

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who report to each of them. The Compensation Committee, with input from its consultant, determines each element of compensation for Mr. Hackett and, with input from both its consultant and Mr. Hackett, determines each element of compensation for the other NEOs. At the Compensation Committee’s request, our executive officers assess the design of, and make recommendations related to, our compensation and benefit programs, including recommendations related to the appropriate financial and non-financial performance measures used in our incentive programs. The Compensation Committee is under no obligation to utilize these recommendations. Executive officers and others may also attend Compensation Committee meetings when invited to do so.

Tally Sheets. To enhance the analytical data used by the Compensation Committee to evaluate our NEO compensation and to provide the Compensation Committee a consolidated source for viewing the aggregate value of all material elements of executive compensation, we have incorporated tally sheets into the Compensation Committee’s annual executive compensation review. The tally sheets provide a snapshot of:

 

  current total annual compensation, including base salary, annual cash incentives, equity compensation, benefits and perquisites;

 

  accumulated unvested equity award values and total stock ownership levels; and

 

  estimated termination benefits for a variety of voluntary and involuntary termination events, including change of control.

The Compensation Committee does not assign a specific weighting to the tally sheets in their overall decision-making process, but rather uses the information provided in the tally sheets to gain additional perspective and as a reference in the decision-making process.

Other Considerations. In addition to the above resources, the Compensation Committee considers other factors when making compensation decisions, such as individual experience, individual performance, internal pay equity, development and/or succession status, and other individual or organizational circumstances. With respect to equity-based awards, the Compensation Committee also considers the expense of such awards, the impact on dilution, and the relative value of each element comprising total target executive compensation.

Elements of Our Compensation Program

Our executive compensation program includes direct and indirect compensation elements. We believe that a majority of executive compensation should be performance-based; however, we do not have a specific formula that dictates the overall weighting of each element as a part of total compensation. The Compensation Committee determines total compensation based on a review of competitive compensation data, consistency with our overall compensation philosophy and its judgment as a committee, taking into account the specific circumstances of the Company and the key executive officers the Compensation Committee is trying to incentivize. The direct compensation elements are outlined in the table below. The indirect compensation elements are outlined in a table on page 44.

 

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Direct Compensation Elements

The level of each element of direct compensation (both fixed and variable) is generally benchmarked against the 50th and 75th percentiles of our industry peer group. When making decisions on each of these elements, the Compensation Committee takes into consideration the multiple factors as previously discussed in the How We Make Compensation Decisions section on page 34.

 

  Base Salary

  Fixed Pay

 

•     Provides a fixed level of income to compensate executives for their level of responsibility, relative expertise and experience, and in some cases their potential for advancement

  Annual Incentive Program

  Variable Pay (At-Risk)

 

•     Motivates and rewards executives for achieving annual Company objectives aligned with value creation

 

•     Recognizes individual contributions to Company performance

  Restricted Stock Units

  Variable Pay (At-Risk)

 

•     Aligns the interests of executives with stockholders by emphasizing long-term share ownership and stock appreciation

 

•     Provides a forfeitable ownership stake to encourage executive retention

  Stock Options

  Variable Pay (At-Risk)

 

•     Aligns the interests of executives with stockholders by rewarding long-term growth in our stock value

 

•     Provides a forfeitable ownership stake to encourage executive retention

  Performance Units

  Variable Pay (At-Risk)

 

•     Recognizes how the Company performs relative to its industry peers under common external market conditions

 

•     Motivates and rewards the achievement of long-term strategic Company objectives

 

•     Provides a forfeitable long-term incentive to encourage executive retention

Analysis of 2011 Compensation Actions

The following is a discussion of the specific actions taken by the Compensation Committee in 2011 related to each of our direct compensation elements. Each of these elements is reviewed on an annual basis, and may be reviewed at the time of a promotion, other change in responsibilities, other significant corporate events or a material change in market conditions. The same design principles and factors are applied in a consistent manner to all NEOs. Material differences in the amount of compensation awarded to each of the NEOs generally reflect the differences in the individual responsibility and experience of each officer and the differences in the amounts of compensation paid to officers in comparable positions in our industry peer group. For example, our CEO’s compensation is higher than the compensation of the other NEOs. This difference in compensation reflects that our industry peer group benchmark data is substantially higher for the CEO role than for the other NEO positions, reflecting the higher degree of responsibility and scrutiny the CEO position entails for the strategic direction, financial condition, operating results and image of the Company.

Base Salary

The table below reflects the base salaries that were approved by the Compensation Committee in 2011:

 

Name

   Salary as of
January 1, 2011($)
     Salary Effective
November  13, 2011($)
     Increase%  

Mr. Hackett

     1,567,500         1,700,000         8.5%   

Mr. Gwin

     715,000         715,000         0.0%   

Mr. Walker

     735,000         800,000         8.8%   

Mr. Meloy

     575,000         600,000         4.3%   

Mr. Reeves

     618,200         650,000         5.1%   

 

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Mr. Hackett’s base salary is in the top quartile of the benchmark data to reflect his significant industry experience and extraordinary leadership. Based on the adjustment made in November 2010, Mr. Gwin’s base salary is competitively positioned at the 75th percentile of the benchmark data and as a result he received no additional increase in 2011. Mr. Walker’s increase in 2011 reflects his continued development in his role and aligns his base salary with the median of the benchmark data. Mr. Meloy’s base salary is positioned in the top quartile of the benchmark data. Each of our industry peer companies structures its operations group differently (some by geography, some by function), which results in varying levels of leadership responsibility. While we consider the available industry peer group benchmark data for Mr. Meloy’s functional position, we place a greater emphasis on internal pay equity within our executive team in determining his compensation level. We believe that positioning Mr. Meloy’s salary in the top quartile appropriately reflects his more than 25 years of experience in the oil and gas industry and the value we place on his technical knowledge and leadership within the Company. The increase for Mr. Reeves positions his base salary between the 50th and 75th percentiles of benchmark data, which is based solely on his responsibilities as the general counsel and does not reflect his additional responsibilities as chief administrative officer, including oversight of the human resources, information technology, government relations, aviation, and corporate security functions. The base salary increases for Messrs. Hackett and Meloy represent their first increases since November 2008.

As announced in February 2012, coincident with Mr. Walker’s appointment to President and CEO, his base salary will be increased to $1,300,000 and will be positioned below the median based upon the most recent benchmark data.

Performance-Based Annual Cash Incentives (Bonuses)

Our executive officers participate in the Annual Incentive Program (AIP), which is part of our 2008 Omnibus Incentive Compensation Plan (2008 Omnibus Plan) that was approved by our stockholders in May 2008. In February 2011, the Compensation Committee established a baseline AIP performance hurdle for the NEOs of $2.2 billion of Cash Flow from Operating Activities (Net cash provided by (used in) operating activities) as calculated in the Consolidated Statements of Cash Flows for the fiscal year as published in the Company’s Annual Report on Form 10-K for the period ended 2011. If this performance hurdle is not achieved, the NEOs subject to Section 162(m) of the Internal Revenue Code earn no AIP bonuses for the year under the 2008 Omnibus Plan. If the performance hurdle is met, the bonus pool is funded at the maximum bonus opportunity level for each NEO. The Compensation Committee may apply negative discretion in determining actual awards, taking into consideration our actual performance against corporate annual performance goals (as discussed below), each individual officer’s performance and contributions, and other factors as deemed appropriate by the Compensation Committee, but the Compensation Committee does not have the discretion to increase bonuses above funded amounts. The AIP bonus pool was fully funded for the 2011 performance year based on our exceeding the established performance hurdle.

If the initial performance hurdle is met, the Compensation Committee uses the following formula as a guideline for determining individual bonus payments:

 

Individual base salary earnings

for the year

  X   Individual target bonus opportunity (equal to a % of base salary)   X   AIP performance score %   +/-   Individual performance adjustments
(if any)
  =   Actual bonus earned

 

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Individual Target Bonus Opportunities. Individual target bonus opportunities, set as a percentage of base salary, are generally established to provide bonus opportunities between the 50th and 75th percentile levels of our industry peer group. Mr. Meloy’s target bonus was established based on internal equity factors as previously discussed under the Base Salary section, which positions his target opportunity in the top quartile of the benchmark data. Executive officers may earn from 0% up to 200% of their individual bonus target. The bonus targets for 2011 are shown in the table below. As part of its annual review of executive compensation in 2011, the Compensation Committee made no changes to the NEOs’ bonus targets for 2012.

 

Name

   Minimum
Payout as  a
% of Salary
     Target
Payout as  a
% of Salary
     Maximum
Payout as  a
% of Salary
 

Mr. Hackett

     0%         130%         260%   

Mr. Gwin

     0%         95%         190%   

Mr. Walker

     0%         100%         200%   

Mr. Meloy

     0%         95%         190%   

Mr. Reeves

     0%         90%         180%   

As announced in February 2012, coincident with Mr. Walker’s appointment to President and CEO, his target bonus opportunity will be increased to 130%.

AIP Performance Score. In determining the performance score under the Company’s AIP for 2011, the Compensation Committee approved the following internal operational, financial and safety measures:

 

  Operational Measures (Reserve Additions and Sales Volumes) — The primary business objectives for an exploration and production company are to find reserves at a competitive cost while generating economic value for its stockholders and assuring that these reserves are prudently converted into production and cash flow. Including specific operational goals on reserve additions (before price revisions and divestitures) and sales volumes provides a direct line of sight for our personnel and gives them a direct stake in our operational successes.

 

  Financial Measures (Capital Expenditures and EBITDAX/BOE) — These financial measures focus on financial discipline and encourage employees to manage costs relative to gross margins and the commodity price environment. For AIP purposes, Capital Expenditures excludes the capital expenditures of Western Gas Partners, LP and expenditures for acquisitions. EBITDAX/BOE is calculated as earnings before interest, taxes, depreciation, depletion, amortization, impairments and exploration expenses divided by sales volumes for the year. It excludes results from financial instruments, gains/losses on sales of assets and other income/expense items.

 

  Safety — The health and safety of our employees is very important to us and critical to our success. Accordingly, we include among our performance metrics a target total recordable incident rate per 100 employees so that employees are focused on maintaining a safe work environment.

 

  Cash Cost Management Factor — This factor acts as a potential multiplier on the AIP performance results for 2011 (as calculated below) and is intended to encourage employees to focus on efficiencies that impact controllable cash costs. The cash cost management factor is calculated as oil and gas lease operating expense plus general and administrative expense divided by total sales volumes.

 

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As part of the Company’s long-term business strategy, the Compensation Committee establishes increasingly aggressive annual performance goals under our AIP which are necessary to generate competitive returns and advance our longer-term growth objectives, without compromising the safety of our employees (as illustrated on the charts below).

 

LOGO

  LOGO   LOGO

The table below reflects the relative weighting, the 2011 target and the 2011 performance results against the target for each measure under the AIP. Each of the performance goals is capped at 275% and the total AIP score cannot exceed 200%.

 

2011 AIP Performance Goals

   Relative
Weighting
Factor
   AIP Target
Performance
     AIP
Performance
Results(1)
     AIP
Performance
Score
 

Reserve Additions (before price revisions and divestitures), MMBOE

   25%      375         384         33%   

Sales Volumes, MMBOE

   25%      246         248         32%   

Capital Expenditures, $MM

   20%    $ 5,800       $ 5,816         20%   

EBITDAX/BOE, $

   20%    $ 25.90       $ 35.28         33%   

Total Recordable Incident Rate (Safety)

   10%      0.66         0.33         28%   
  

 

        

 

 

 

Sub-total

   100%            146%   

Cash Cost Management Factor(2)

   £ 10% Multiplier    $ 8.78       $ 8.39         x1.04   
           

 

 

 

Total

              152%   

 

(1) The Compensation Committee did not make any adjustments to any of the measured 2011 AIP performance results or overall calculated 2011 AIP performance score.
(2) This factor is capped at a 10% multiplier and cannot cause the total AIP performance score to exceed 200%.

Individual Performance Adjustments. In determining an NEO’s bonus payment, the Compensation Committee may make an adjustment based on individual performance to recognize an individual’s significant contributions that may not be reflected in the overall AIP performance score. In recognition of the team effort exhibited by our senior management in driving the Company’s success, the Compensation Committee did not make any individual adjustments for the NEOs’ bonus payments for 2011.

 

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Actual Bonuses Earned for 2011. The AIP awards earned for 2011 and paid to each of the NEOs are shown in the table below and are reflected in the “Non-Equity Incentive Plan Compensation” column of the Summary Compensation Table.

 

Name

   Base Salary
Earnings  for
2011 ($)
            Target Bonus
as % of Base
Salary
           AIP
Performance
Score
           Individual
Performance
Adjustments
            Actual Bonus
Award ($)
 

Mr. Hackett

     1,582,789         X         130     X         152     +         0         =         3,127,590   

Mr. Gwin

     715,000         X         95     X         152     +         0         =         1,032,460   

Mr. Walker

     742,500         X         100     X         152     +         0         =         1,128,600   

Mr. Meloy

     577,885         X         95     X         152     +         0         =         834,465   

Mr. Reeves

     621,869         X         90     X         152     +         0         =         850,717   

Equity Compensation

In 2011, at the request of the Compensation Committee, FWC conducted an independent assessment of the design features of the Company’s long-term incentive equity program. This assessment focused on the application of good governance practices, the business purposes related to the design features of the program and the competitiveness of the program for attracting and retaining executive talent within the industry. As part of this review, and in conjunction with the proposed 2012 Omnibus Plan, the Compensation Committee determined that awards made under the 2012 Omnibus Plan (pending approval of such plan by stockholders) should be subject to double-trigger vesting acceleration following a change of control. Additionally, award agreements applicable to any restricted stock and restricted stock unit grants made to executive officers should provide for the reinvestment of dividends and dividend equivalents in additional shares of the Company’s common stock, to be paid upon the vesting of such underlying awards (rather than paid in cash on a current basis).

Annual equity-based awards for NEOs are typically made at the regularly scheduled meeting of the Compensation Committee each November. Equity awards for newly hired NEOs are made on the executive officer’s first day of employment with us. Equity awards for NEOs made in connection with promotions are approved by the Compensation Committee and the grant date is generally effective the date of appointment.

Our annual awards are determined based on a targeted dollar value. The 2011 targeted equity award value was allocated 40% in non-qualified stock options, 35% in restricted stock units, and 25% in performance units. This allocation provides a combination of equity-based awards that is performance-based in absolute and relative terms, while also encouraging retention. In addition, the use of restricted stock units and performance unit awards enables us to better manage our potential stock dilution.

With respect to the restricted stock units, the Compensation Committee establishes objective performance criteria for each calendar year that must be achieved before the restricted stock units are awarded to executives the following year. All of the restricted stock unit awards made in November 2011, including any special awards, were based on the Company’s achievement of the 2010 performance criteria ($2.0 billion Cash Flow from Operating Activities (Net cash provided by (used in) operating activities) as calculated in the Consolidated Statements of Cash Flows for the fiscal year as published in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010).

With respect to our performance unit program, the Compensation Committee has established TSR as the performance criteria because it provides a relative comparison of our performance against an industry peer group. The industry peer group for our awards granted in 2011 is listed below:

 

• Apache Corporation

 

• EOG Resources, Inc.

 

• Occidental Petroleum Corporation

• Chevron Corporation

 

• Hess Corporation

 

• Pioneer Natural Resources Company

• ConocoPhillips

 

• Marathon Oil Corporation

 

• Plains Exploration & Production Company

• Devon Energy Corporation

 

• Noble Energy, Inc.

 

 

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If any of these peer companies undergoes a change in corporate capitalization or a corporate transaction (including, but not limited to, a going-private transaction, bankruptcy, liquidation, merger, consolidation, etc.) during the performance period, the Compensation Committee shall undertake an evaluation to determine whether such peer company will be replaced. The Compensation Committee has pre-approved Murphy Oil Corporation, Nexen, Inc., and Chesapeake Energy Corporation as replacement companies (in that order).

The following table reflects the payout scale for the current annual performance unit program:

 

Final TSR Ranking   1   2   3   4   5   6   7   8   9   10   11   12

Payout as % of Target

  200%   182%   164%   146%   128%   110%     92%     72%     54%       0%       0%       0%

Below is an example of how the performance unit payout scale works, assuming an executive officer received a target award of 20,000 performance units.

 

Total Target

Award

         

Performance

Period

  Target
Performance
Units for Each
Performance
Period
  Relative TSR
Ranking for
the
Performance
Period
  Payout
%
  Number of
Performance
Units
Earned(1)
 

Timing of

Payout

20,000 performance

units

      50% tied to a two-year performance period   10,000
(20,000 x 50%)
  3rd   164%   16,400 units
(10,000 x 164%)
  Paid after end of two-year performance period
      50% tied to a three-year performance period   10,000

(20,000 x 50%)

  10th   0%   0 units

(10,000 x 0%)

  No payout after end of three-year performance period

 

(1) Each performance unit earned is a right to receive a cash payment equal to the closing price of one share of our common stock on the date the Compensation Committee certifies the performance results for the respective performance period.

Equity Awards Made During 2011

On November 8, 2011, the Compensation Committee approved the following annual long-term incentive awards under our 2008 Omnibus Plan. These awards are included in the Grants of Plan-Based Awards Table on page 57.

 

Name

   Number of
Stock  Options
     Number of
Restricted  Stock
Units
     Target Number
of Performance
Units
 

Mr. Hackett

     187,548         58,369         35,228   

Mr. Gwin

     52,196         16,245         9,805   

Mr. Walker

     87,076         27,100         16,356   

Mr. Meloy

     53,585         16,677         10,065   

Mr. Reeves

     40,856         12,716         7,675   

In determining these annual awards, the Compensation Committee considered the following factors: each executive’s contribution, individually and collectively as an executive team, to the successful execution of the Company’s strategic goals for the year; the importance of retaining and motivating this executive team for the execution of the Company’s long-term strategy; and the applicable benchmarking data.

The equity values for Messrs. Hackett, Gwin, Meloy, and Reeves are positioned in the top quartile of the benchmark data to recognize their extensive industry experience and their respective leadership positions in the Company. Mr. Walker’s equity award value is positioned between the 50th and 75th percentiles of the benchmark data and reflects his continuing development in his role. In addition to Mr. Reeves’ annual award discussed above, the Compensation Committee awarded him a special grant of restricted stock units, valued at approximately $1,000,000, to recognize his significant oversight and leadership in defending and protecting

 

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the Company in several federal, state and local administrative proceedings, investigations and litigation matters (including the consolidated multidistrict litigation in New Orleans) as a result of the BP oil spill, and his significant role in negotiating a resolution with BP which now limits the Company’s potential exposure in this matter. This award is subject to pro-rata vesting over the next three years, beginning one year from the date of grant.

As announced in February 2012, coincident with his appointment to President and CEO, Mr. Walker will receive a promotional equity award equivalent to $3,250,000 of value to be delivered 40% in stock options, 35% in restricted stock units and 25% in performance units and granted under the 2012 Omnibus Plan (if such plan is approved by the Company’s stockholders). The number of awards will be based on the Company’s closing stock price on May 15, 2012. The terms and conditions of these awards will be substantially the same as the terms and conditions of the November 2011 awards, except that these awards will be subject to double-trigger vesting acceleration for a covered termination following a change of control and dividend equivalents applicable to the restricted stock units will be subject to dividend reinvestment. Mr. Hackett will not be granted any new equity-based awards either prior to, or after, his retirement in 2013.

Performance Units — Results for Performance Periods Ended in 2011

In January 2012, the Compensation Committee certified the performance results for the 2008 and 2009 annual performance unit awards with three-year and two-year performance periods that ended December 31, 2011. Under the provisions of these awards, the targeted performance units were subject to our relative TSR performance against the defined TSR peer group discussed under Equity Compensation section on page 41. TSR performance is based on the difference between (1) the average closing stock price for the 30 trading days preceding the beginning of the performance period, and (2) the average closing stock price for the last 30 trading days of the performance period, plus dividends paid for the performance period, and further adjusted for any other distributions or stock splits, where applicable.

For the performance periods ended December 31, 2011, the performance results and Anadarko’s ranking, as highlighted, were as follows:

 

2008 Annual Award — Three-Year Performance Period (January 1, 2009 to December 31, 2011)
        APC                                        

Final TSR Ranking

  1   2   3   4   5   6   7   8   9   10   11   12

TSR

  408.5%   111.2%   101.1%   95.5%   86.4%   64.2%   53.8%   48.9%   39.4%   32.0%   23.1%   -3.6%

Payout as % of Target

  200%   182%   164%   146%   128%   110%   92%   72%   54%   0%   0%   0%
2009 Annual Award —Two-Year Performance Period (January 1, 2010 to December 31, 2011)
                            APC                    

Final TSR Ranking

  1   2   3   4   5   6   7   8   9   10   11   12

TSR

  103.1%   47.9%   46.5%   38.8%   38.4%   26.4%   26.0%   19.7%   9.4%   -0.3%   -5.0%   -6.6%

Payout as % of Target

  200%   182%   164%   146%   128%   110%   92%   72%   54%   0%   0%   0%

 

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The following table lists the number of performance units awarded at minimum, target, and maximum levels and the actual number of performance units earned by the NEOs under the provisions of these awards for the three-year and two-year performance periods that ended December 31, 2011:

 

     2008 Annual Performance Unit Award      2009 Annual Performance Unit Award  

Name

   Minimum
# Units
     Target
# Units
     Maximum
# Units
     Actual #
Units
Earned
     Minimum
# Units
     Target
# Units
     Maximum
# Units
     Actual #
Units
Earned
 

Mr. Hackett

     0         70,300         140,600         127,946         0         44,400         88,800         40,848   

Mr. Gwin

     0         9,650         19,300         17,563         0         10,600         21,200         9,752   

Mr. Walker

     0         22,500         45,000         40,950         0         16,350         32,700         15,042   

Mr. Meloy

     0         9,800         19,600         17,836         0         14,200         28,400         13,064   

Mr. Reeves

     0         14,200         28,400         25,844         0         8,250         16,500         7,590   

Indirect Compensation Elements

The Company also provides certain benefits and perquisites (considered indirect compensation elements) that are considered typical within our industry and necessary to attract and retain executive talent. The table below identifies each element of indirect compensation and the primary purpose for using each element. The value of each element of indirect compensation is generally structured to be competitive within our industry.

 

  Retirement Benefits

  

•    Attracts talented executives and rewards them for extended service

 

•    Offers secure and tax-advantaged vehicles for executives to save effectively for retirement

  Other Benefits (for

  example, health care, paid

  time off, disability and life

  insurance) and Perquisites

  

•    Enhances executive welfare and financial security

 

•    Provides a competitive package to attract and retain executive officers, but does not constitute a significant part of an executive’s compensation

  

  Severance Benefits

  

•    Attracts and helps retain executive officers in a volatile and consolidating industry

 

•    Provides transitional income following an executive officer’s involuntary termination of employment

Retirement Benefits

Our executive officers participate in the following retirement and related plans:

Anadarko Employee Savings Plans. The Anadarko Employee Savings Plan (401(k) Plan) is a tax-qualified retirement savings plan that allows participating U.S. employees to contribute up to 30% of eligible compensation, on a before-tax basis or on an after-tax basis (via a Roth or traditional after-tax contribution), into their 401(k) Plan accounts. Eligible compensation for NEOs includes base salary and AIP bonus payments. Under the 401(k) Plan, we match an amount equal to one dollar for each dollar contributed by participants up to six percent of their total eligible compensation. This plan is subject to applicable Internal Revenue Code of 1986, as amended (IRC), limitations regarding contributions under this plan. Due to IRC limitations that restrict the amount of benefits payable under tax-qualified plans, we also sponsor a non-qualified Savings Restoration Plan. The Savings Restoration Plan accrues a benefit substantially equal to the amount that, in the absence of any IRC limitations, would have been allocated to an employee’s account as a matching contribution under the 401(k) Plan. The Savings Restoration Plan permits participants to allocate the matching contributions among a group of notional accounts that mirror the gains and/or losses of various investment funds provided in the 401(k) Plan (but excluding the Company stock fund). Notional earnings are credited to their account based on the market rate of return provided by the investment funds.

 

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Amounts deferred, if any, under the 401(k) Plan and the Savings Restoration Plan (collectively, the Savings Plans) by the NEOs are included, respectively, in the “Salary” and “Non-Equity Incentive Plan Compensation” columns of the Summary Compensation Table. Our matching contributions allocated to the NEOs under the Savings Plans are included in the “All Other Compensation” column of the Summary Compensation Table.

Pension Plans. Anadarko provides funded, tax-qualified retirement benefits for all U.S. employees. Due to IRC limitations that restrict the amount of benefits payable under tax-qualified plans, we also sponsor non-qualified restoration plans that cover the NEOs and certain other employees. The pension plans do not require contributions by employees and an employee becomes vested in his or her benefit at the completion of three years of service as defined in the pension plans. Compensation covered by the pension plans for the participants includes base salary and AIP bonus payments.

In 2011, recognizing the high percentage of employees eligible to retire and based upon a recommendation from the Compensation Committee, the Board provided participants in our pension plans, excluding Mr. Hackett as CEO, a one-time election to either (1) continue accruing benefits under their applicable pension plans, or (2) accrue future benefits under a cash balance plan, the Personal Wealth Account (PWA), which went into effect for employees hired on or after January 1, 2007. This one-time election was designed to increase employee retention by minimizing the impact of interest rate fluctuations on early retirement decisions and to accelerate the migration of employees into the PWA. Messrs. Gwin, Walker, and Reeves chose to continue receiving benefits under their legacy pension plans and Mr. Meloy chose to accrue benefits under the PWA beginning in 2012. The details of each of these pension plans are discussed beginning on page 61.

Mr. Hackett, upon meeting certain employment conditions, is provided supplemental pension benefits under his amended and restated employment agreement, which was entered into in November 2009 (2009 Employment Agreement). He is also provided a special service credit under our non-qualified Retirement Restoration Plan to be applied towards his eligibility for our retiree medical and dental benefit programs. This benefit will accrue in a manner similar to the special pension crediting in Mr. Hackett’s employment agreement, which was provided to account for certain retirement benefits from his prior employer that were foregone when he was hired by Anadarko in 2003. Messrs. Walker and Reeves each have supplemental retirement benefits under our non-qualified Retirement Restoration Plan that provide for special service credits of eight years and five years, respectively, if they each remain employed by us until the age of 55. Mr. Walker vested in this benefit in February 2012 and Mr. Reeves will vest in December 2012. The service credits will be considered applicable service towards our retirement benefit programs, including pension and retiree medical and dental benefits. These supplemental retirement benefits were provided to Messrs. Walker and Reeves in 2007 to recognize that they were mid-career hires that we would like to retain for the remainder of their careers. Providing them additional service credits recognizes a portion of their prior industry experience and service years which directly benefit us and our stockholders. Mr. Meloy is eligible to receive supplemental pension benefits upon meeting certain employment conditions under the terms of his retention agreement, which was entered into in August 2006 in connection with the closing of the Kerr-McGee acquisition (2006 Retention Agreement). Mr. Meloy vested in these benefits in August 2009.

Details of Mr. Hackett’s 2009 Employment Agreement are discussed further in the Agreements with Executive Officers section beginning on page 50. The accrued benefits related to the special service credits under the non-qualified Retirement Restoration Plan for Messrs. Hackett, Walker and Reeves are discussed in the Pension Benefits Table on page 65. The details of Mr. Meloy’s 2006 Retention Agreement, as well as the accrued benefits for each of the NEOs, are discussed further in the Pension Benefits Table on page 65. The Compensation Committee does not intend to grant any additional pension credits to our executive officers at this time and has not done so since 2007.

Other Benefits

We provide other benefits such as medical, dental, and vision insurance, flexible spending accounts, paid time off, payments for certain relocation costs, disability coverage and life insurance to each NEO. These

 

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benefits are also provided to all other eligible U.S. based employees. Certain employees, including the NEOs, are eligible for participation in the Company’s Management Life Insurance Plan, which provides an additional life insurance benefit of two times base salary.

We also maintain a Deferred Compensation Plan for certain employees, including the NEOs. This Plan allows employees to voluntarily defer receipt of up to 75% of their salary and/or up to 100% of their AIP bonus payments and allocate the deferred amounts among a group of notional accounts that mirror the gains and/or losses of various investment funds provided in the 401(k) Plan (but excluding the Company stock fund). In general, deferred amounts are distributed to the participant upon termination or at a specific date as elected by the participant. We do not subsidize or match these deferred amounts. Details regarding participation in the plan by the NEOs can be found in the Non-Qualified Deferred Compensation Table on page 66.

Perquisites

We provide a limited number of perquisites to the NEOs. These perquisites are assessed annually by the Compensation Committee as part of the total competitive review and include the following:

 

  Financial Counseling, Tax Preparation and Estate Planning — Executive officers are eligible to receive reimbursement for eligible expenses up to a specified annual maximum. For 2011, financial counseling and tax preparation benefits were reimbursed up to a maximum of $22,040 in the first year of use and up to a maximum of $13,195 for each following year. The estate planning services are made available to executive officers on an as-needed basis and the services have typically been utilized once every three years. All expenses related to financial counseling, tax preparation and estate planning are considered taxable income to the executive officer. Mr. Hackett has voluntarily declined to utilize the financial planning, tax preparation and estate planning perquisites offered by us.

 

  Executive Physical Program — Executive officers are eligible to receive reimbursement for an annual physical exam.

 

  Personal Excess Liability Insurance — We pay an annual premium to maintain excess liability coverage on behalf of each officer. The annual premium is imputed and considered taxable income to the officer.

 

  Personal Use of Company Aircraft — We maintain aircraft for business travel purposes. Officers may, from time to time, utilize such aircraft for personal travel. When so utilized, the compensation related to such personal use is imputed and considered taxable income to the executive officer as required by applicable statutes and regulations.

 

   

Club Memberships — We reimburse certain executive officers for monthly dues and any additional business expenses related to club memberships.

 

  Entertainment Events and Other — We purchase tickets to various sporting and entertainment events for business purposes. We have also leased recreational facilities for business purposes. If not used for business purposes, we may make these tickets and facilities available to our employees, including our executive officers, as a form of recognition and reward for their efforts.

 

  CNG Vehicle — To promote our business interests and the use of natural gas as a clean alternative fuel, we have provided Mr. Hackett the use of a Compressed Natural Gas (CNG) vehicle. Mr. Hackett’s personal use, including commuting to work, is imputed and considered taxable income.

As required by the Board, we provide secondary monitoring of Mr. Hackett’s existing home security system. Pursuant to our security policy, we also require Mr. Hackett to use our aircraft for personal use as well as business travel. Any time Mr. Hackett uses our aircraft for personal use, although it is understood that he may engage in business activities while in flight, compensation is imputed to Mr. Hackett for that use and for any passengers that accompany Mr. Hackett in accordance with the IRC. Personal use includes his participation on outside boards, which directly and indirectly benefits Anadarko.

 

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Effective with the transition of Mr. Hackett from Chairman and CEO to Executive Chairman and the appointment of Mr. Walker as President and CEO of the Company following the Annual Meeting, Mr. Hackett will no longer be required to use our aircraft for personal use under the Company’s security policy. In addition, we do not anticipate requiring that Mr. Walker use our aircraft for personal use. Messrs. Hackett and Walker may continue to use the aircraft for a limited amount of personal travel (for which they will have imputed income) and, to the extent their usage exceeds such amount, they will be required to reimburse the Company. Mr. Hackett will serve as Executive Chairman through the Company’s Annual Meeting of Stockholders in 2013. After such time, he will no longer use our aircraft for personal travel.

The incremental costs of the various perquisites provided are included in the “All Other Compensation” column of the Summary Compensation Table on page 55 and in the All Other Compensation Table and supporting footnotes following the Summary Compensation Table on page 56. We do not provide any tax gross-ups on these perquisites.

Severance Benefits

Post-termination and change-of-control severance benefits are typical within our industry. The Company currently provides the severance benefits described below to its NEOs. We believe these plans are necessary to attract and retain executive talent, provide continuity of management in the event of an actual or threatened change of control and provide executive officers with the security to make decisions that are in the best long-term interest of the stockholders. On a periodic basis, the Compensation Committee, in consultation with its executive compensation consultant, will review, consider and adjust, as the Compensation Committee deems necessary and appropriate, the provisions of post-termination and change-of-control severance benefits provided to executives. In connection with any such review, the Compensation Committee will determine whether and to what extent severance benefits should be promised and the appropriate level of compensation payable in a severance or change-of-control event. The Compensation Committee will take into consideration other arrangements that may exist for an executive so as to ensure that the entire compensation package is consistent with the Compensation Committee’s executive compensation philosophy.

Officer Severance Plan. Our NEOs are eligible for benefits under the Officer Severance Plan. Benefits provided under this plan may vary depending upon the executive officer’s level within the organization and years of service with us and are made at the discretion of the Compensation Committee. Executive officers receiving benefits under the Officer Severance Plan are required to execute an agreement releasing us from any and all claims from any and all kinds of actions arising from the executive officer’s employment with us or the termination of such employment. Mr. Hackett has never been a participant under this plan and, upon his appointment to President and CEO, Mr. Walker will no longer be a participant. See additional details about Mr. Walker’s Severance Agreement on page 51.

In February 2011, the Compensation Committee, following a comprehensive review of executive severance benefits and in consultation with its executive compensation consultant, reduced the level of executive severance benefits following an involuntary not for cause termination (as defined on page 67) by eliminating: (1) the special retirement benefit enhancement, except for in special cases as may be approved by the Compensation Committee; and (2) the post-termination financial planning benefits. As a result, the typical severance benefits that may be provided for our executive officers following the occurrence of such an involuntary termination event include:

 

  a payment equal to two times the officer’s annual base salary plus one year’s target bonus under our AIP;

 

  if provided, a pro-rata bonus under our AIP for the year of termination, which will be payable at the end of the performance period, based on actual Company performance as certified by the Compensation Committee;

 

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  if applicable, the present value of retiree life insurance;

 

  the option to continue existing medical and dental coverage levels at current active employee rates for up to six months. After six months, we will pay the cost of COBRA until the first to occur of (a) 18 months or (b) the officer obtaining comparable coverage as a result of employment with another employer;

 

  the vesting of some or all unvested restricted stock, unvested restricted stock units and stock options; and

 

  a payout, if any, of outstanding performance units, which will be made at the end of the performance period based on actual Company performance results.

Key Employee Change-of-Control Contracts. We have entered into key employee change-of-control contracts with all of our executive officers, including the NEOs, with the exception of Mr. Hackett whose change-of-control severance benefits are included in his 2009 Employment Agreement, which is described on page 50. Upon his appointment to President and CEO, Mr. Walker will no longer be covered under a key employee change-of-control contract and his change-of-control severance benefits will be those set forth in his Severance Agreement, which is described on page 51. The key employee change-of-control contracts have an initial three-year term that is automatically extended for one year upon each anniversary, unless either party provides notice not to extend. If we experience a change of control (as defined on page 67) during the term of the executive officer’s contract, then the contract becomes operative for a fixed three-year period. These contracts generally provide that the executive officer’s terms of employment (including position, work location, compensation and benefits) will not be adversely changed during the three-year period after a change of control. If we (or any successor in interest) terminate the executive officer’s employment (other than for cause (as defined on page 67), death or disability), the executive officer terminates for good reason (as defined on page 68) during such three-year period, or upon certain terminations prior to a change of control or in connection with or in anticipation of a change of control, the NEO is generally entitled to receive the following payment and benefits:

 

  earned but unpaid compensation;

 

  2.9 times the executive officer’s base salary plus AIP bonus (based on highest AIP bonuses paid over the last three years);

 

  the present value of the investments credited to the executive officer under the Savings Restoration Plan and the additional matching contributions that would have been made had the executive officer continued to participate in the Savings Plans for up to an additional three years; and

 

  the present value of the accrued retirement benefit under the Company’s retirement and pension plans and the additional retirement benefits, including retiree medical, which the executive would have received had the executive officer continued service for up to an additional three years.

In addition, the change-of-control contracts provide for a continuation of various medical, dental, disability and life insurance benefits and financial counseling for a period of up to three years. The contracts also provide for outplacement services and the payment of all legal fees and expenses incurred by the executive officer in enforcing any right or benefit provided by the change-of-control contract. The executive will also be entitled to receive a payment in an amount sufficient to make the executive whole for any excise tax on excess parachute payments imposed under IRC Section 4999. The Company does not pay the executive’s normal income taxes.

As a condition to receipt of change-of-control severance benefits, the executive officer must remain employed by us and provide services commensurate with his or her position until the executive is terminated pursuant to the provisions of the contract. The executive officer must also agree to retain in confidence any and all confidential information known to him or her concerning us and our business so long as the information is not otherwise publicly disclosed. In 2011, no amounts were paid under the change-of-control contracts.

 

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In February 2011, following a comprehensive review of executive severance benefits, and in consultation with its executive compensation consultant, the Compensation Committee confirmed that it was appropriate to honor and preserve the existing provisions of the key employee change-of-control contracts that have been executed with the Company’s current executive officers, including the applicable NEOs. The Compensation Committee approved the following changes to the change-of-control contracts, on a prospective basis, for newly appointed and/or newly hired executives who are not otherwise subject to an existing agreement:

 

  eliminated as a definition of good reason the modified single-trigger provision that allowed an executive to terminate for any reason during the 30-day period immediately following the first anniversary of a change of control and receive severance benefits and replaced it with a double-trigger provision;

 

  reduced the severance protection period from three years to two years following the effective date of a change of control;

 

  eliminated post-termination financial planning benefits; and

 

  eliminated the excise tax gross-up provision that obligates the Company to pay an additional amount to an executive if his or her benefits are subject to the tax imposed on excess parachute payments by IRC Section 4999 and replaced it with a provision that requires the Company to either (1) reduce the amount of certain severance benefits otherwise payable so that such severance benefits will not be subject to the tax imposed by IRC Section 4999, or alternatively (2) pay the full amount of severance benefits to the executive (but with no tax gross-up), whichever produces the better after-tax result for the executive (often referred to as the best-of-net approach).

Change of Control — Treatment of Outstanding Unvested Equity Awards. The treatment of unvested outstanding equity awards upon a change of control of Anadarko is prescribed by the applicable plan document under which the awards were granted. Under the 2008 Omnibus Plan, the following treatment is automatically prescribed:

 

  outstanding stock options and stock appreciation rights that are not vested and exercisable become fully vested and exercisable;

 

  the restrictions on any outstanding restricted stock and restricted stock units lapse; and

 

  if any performance unit awards or performance-based restricted stock or restricted stock unit awards are outstanding, they become fully vested and the performance goals are deemed to be earned at target.

As discussed on page 75, the single-trigger provision for the accelerated vesting of equity awards upon a change of control has been eliminated in the proposed 2012 Omnibus Plan and replaced with a double-trigger provision. The double-trigger vesting provision will apply to all awards made to eligible participants under the proposed 2012 Omnibus Plan, which is subject to the approval of the Company’s stockholders.

Director and Officer Indemnification Agreements

We have entered into indemnification agreements with our directors and certain executive officers, in part to enable us to attract and retain qualified directors and executive officers. These agreements require us, among other things, to indemnify such persons against certain liabilities that may arise by reason of their status or service as directors or officers, to advance their expenses for proceedings for which they may be indemnified, and to cover such person under any directors’ and officers’ liability insurance policy that we may maintain from time to time. These agreements are intended to provide indemnification rights to the fullest extent permitted under applicable Delaware law and are in addition to any other rights our directors and executive officers may have under our Restated Certificate of Incorporation, By-Laws and applicable law.

 

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Agreements with Executive Officers

Mr. Hackett

Employment Agreement

At the request of the Company, Mr. Hackett entered into the 2009 Employment Agreement, which replaced in its entirety Mr. Hackett’s previous Employment Agreement dated December 11, 2006, as amended (2006 Employment Agreement). The primary purpose of the amendments to the 2006 Employment Agreement was to ensure that performance-based compensation elements (annual bonus and performance units) related to certain termination events complied with IRC Section 162(m), including Revenue Ruling 2008-13, which first applied to compensation tied to performance periods beginning January 1, 2010. The amendment is intended to provide meaningful cost savings for the Company by preserving the deductibility of performance-based compensation. Under the terms of the 2009 Employment Agreement, Mr. Hackett receives a minimum annual base salary (currently $1,700,000), and is eligible for an annual incentive cash bonus at a target of not less than 130% of annual base salary with a maximum annual incentive cash bonus of 260% of base salary. This agreement also outlines certain payments and benefits to be paid to Mr. Hackett in the event of his termination of employment under various termination scenarios. The scenarios are discussed in more detail beginning on page 67. We will provide a gross-up payment to Mr. Hackett to the extent any of the above payments become subject to the federal excise tax relating to excess parachute payments. Pre-change-of-control severance benefits are conditioned upon the execution of a mutual release between us and Mr. Hackett.

The 2009 Employment Agreement also provides that since Mr. Hackett remained employed by us through December 3, 2008, he received a special pension benefit, computed so that his total pension benefits from us will equal those to which he would have been entitled if his actual years of employment with us were doubled. This service-crediting provision was implemented when Mr. Hackett was hired in 2003 in order to compensate for projected retirement benefits forgone in leaving his former employer.

Letter Agreement

In conjunction with the Board’s announcement that Mr. Hackett will transition to Executive Chairman following the Annual Meeting, the Company entered into a letter agreement with him on February 16, 2012, which provides for the transition of his relationship with the Company. Pursuant to the letter agreement, Mr. Hackett has agreed that his retirement from the Company on June 4, 2013 will be treated for all purposes as a voluntary termination of his employment that does not constitute a good reason termination (as defined in the 2009 Employment Agreement). Mr. Hackett has also agreed that the Company will not grant him any additional equity awards or equity-based awards from and after the date of the letter agreement and that these changes in his employment relationship and compensation arrangements and other matters will not trigger any rights under the 2009 Employment Agreement.

In consideration for these concessions, the letter agreement prescribes that, in addition to the vested benefits to which he is entitled in connection with a voluntary termination under the 2009 Employment Agreement or any Company plan or arrangement, the Company will provide him with the following benefits upon his retirement from the Company on June 4, 2013:

 

   

he will receive a prorated bonus for calendar year 2013 to be paid at the same time as annual bonuses are paid to other executives who remain employed by the Company and to be based on actual achievement of performance targets as determined by the Compensation Committee following such calendar year, subject to adjustment at the discretion of the Compensation Committee as permitted under the terms of the annual bonus plan;

 

   

all of his unvested stock options outstanding on such date will fully vest and remain exercisable under the terms that apply to retirement as provided under the applicable plan and award agreement;

 

   

all of his unvested restricted stock units outstanding on such date will fully vest; and

 

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all of his unvested performance units outstanding on such date will fully vest and become payable (without proration and as if he had remained employed by the Company until the end of the applicable performance period) at the same time as payments are made to other executives who remain employed and hold similar awards, based on actual achievement of performance targets as determined by the Compensation Committee.

The benefits described above will not be provided in the event of any termination of Mr. Hackett’s employment with the Company that occurs prior to June 4, 2013. Any termination of Mr. Hackett’s employment with the Company prior to June 4, 2013 will be subject to all of the terms and conditions of the 2009 Employment Agreement, and the applicable Company plans or programs impacted by such termination event.

Mr. Walker — Severance Agreement

In conjunction with the Board’s announcement that Mr. Walker would be appointed President and CEO, effective following the Annual Meeting, the Compensation Committee determined that Mr. Walker’s employment should be continued on an at-will basis. The Committee further determined that it was appropriate to execute a Severance Agreement with Mr. Walker to combine and generally replicate certain severance benefits currently provided to him under the Officer Severance Plan and through his key employee change-of-control contract. The Company entered into a Severance Agreement with Mr. Walker on February 16, 2012. Upon the effective date of this Severance Agreement, May 15, 2012, Mr. Walker will no longer be covered under the Officer Severance Plan and will waive his current severance benefits under his key employee change-of-control contract. The Severance Agreement incorporates the following updated provisions that reduce the benefits that Mr. Walker would have otherwise been eligible to receive under his key employee change-of-control contract:

 

   

severance benefits equal to 2.5 times salary plus the higher of target bonus for the year in which the termination occurs or the average bonus for the last two years (reduced from 2.9 times salary plus highest bonus paid in past three years);

 

   

a double-trigger provision that subjects the payment of severance benefits to both the occurrence of a change of control and Mr. Walker’s termination without cause or for good reason (and eliminated the modified single-trigger termination provision by removing the walk-away right during the 13th month following a change of control for the good reason definition);

 

   

a best-of-net provision in which Mr. Walker will either pay the excise tax without assistance from the Company or will have the severance payments reduced if such reduction is more favorable to him on an after-tax basis (eliminated the excise tax gross-up provision); and

 

   

no post-termination financial planning benefits.

Additionally, the Severance Agreement provides the following severance benefits that would be payable to Mr. Walker in the event of an involuntary termination without cause that is not in anticipation of, or within three years after, a change of control:

 

   

a prorated annual bonus based on actual performance for the fiscal year in which the date of termination occurs;

 

   

a severance payment equal to the product of two (or, if less, the number of years remaining until Mr. Walker attains age 65), and the sum of his annual base salary and target annual bonus for the year in which the date of termination occurs;

 

   

up to six months continued participation in the Company’s medical and dental care benefit plans at active employee levels and rates and reimbursement for the cost of up to 18 additional months of COBRA continuation coverage elected by Mr. Walker; and

 

   

any other unpaid amounts or benefits required to be paid or provided to Mr. Walker under any other Company plan, program or agreement.

 

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Mr. Meloy — Retention Agreement

In August 2010, the Company entered into a retention agreement (2010 Retention Agreement) with Mr. Meloy to retain his continued services and leadership to the Company for the following two years. The Compensation Committee determined that retaining him was necessary to ensure that the Company would be able to successfully execute on its business strategy in light of events in the Gulf of Mexico. Under the terms of the agreement, Mr. Meloy received a one-time cash retention payment of $5,000,000, less applicable taxes, and must remain with the Company through August 2, 2012, in order to realize the full value of the retention payment. If Mr. Meloy resigns (including retirement) from the Company without good reason (as defined in the 2010 Retention Agreement) or is determined by the Board of Directors to be terminable by the Company for cause (as defined in the 2010 Retention Agreement) at any time prior to August 2, 2012, he is required to repay to the Company a portion of the cash retention payment, as set forth in terms of the 2010 Retention Agreement. In the event of Mr. Meloy’s death, permanent and total disability, or involuntary termination by the Company without cause, he will not be required to return any portion of the retention payment. However, if he is entitled to receive any severance payment during the retention period, there will be a direct offset of any severance payment by the remaining retention payment subject to being repaid during the retention period, as set forth in the 2010 Retention Agreement. Mr. Meloy will continue to be subject to confidentiality and non-solicitation provisions following a termination of employment, as provided in the 2010 Retention Agreement.

The above descriptions of Mr. Hackett’s 2009 Employment Agreement and letter agreement, Mr. Walker’s Severance Agreement and Mr. Meloy’s 2010 Retention Agreement are not a full summary of all of the terms and conditions of these agreements and are qualified in their entirety by the full text of the agreements, which are on file with the SEC.

Continuous Improvement in Compensation Practices

Over the years, we have implemented new as well as maintained long-standing practices that we believe contribute to good governance. These practices include:

Limitation on Accelerated Vesting of Equity Awards. Under the proposed 2012 Omnibus Plan, which is subject to approval by the Company’s stockholders, we replaced the single-trigger provision for the accelerated vesting of equity awards upon a change of control, as provided in the Company’s 2008 Omnibus Plan, with a double-trigger provision. (For additional information on the proposed 2012 Omnibus Plan, please see “Item 3 – Approval of the 2012 Omnibus Incentive Compensation Plan” beginning on page 73).

Limitation on Good Reason Termination. In February 2011, the Compensation Committee eliminated on a prospective basis the good reason provision allowing an executive to terminate for any reason during the 30-day period immediately following the first anniversary of a change of control. This change applies to key employee change-of-control contracts executed with newly appointed and/or newly hired senior executive who are not otherwise subject to an existing agreement. The new Severance Agreement for Mr. Walker excludes the modified single-trigger provision.

Elimination of Excise Tax Gross-ups. Beginning in February 2011, we eliminated the excise tax gross-up provision in key employee change-of-control contracts executed with newly appointed and/or newly hired senior executives who are not otherwise subject to any existing agreements and replaced it with a best-of-net provision. The new Severance Agreement for Mr. Walker also includes a best-of-net provision.

Compensation Risk Assessment Process. We have a formalized process used to evaluate risks associated with our compensation programs. As described under the Compensation Committee Risk Assessment section on page 15, the Compensation Committee completed a formal review of the assessment conducted by its independent executive compensation consultant relating to compensation risk. The Compensation Committee believes that our compensation policies and practices for 2011 do not create risks that are reasonably likely to have a material adverse effect on the Company.

 

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Stock Ownership Guidelines. We have maintained stock ownership guidelines for executive officers since 1993 with the goal of promoting equity ownership and aligning our executive officers’ interests with our stockholders. Generally, these guidelines must be met within three years after becoming subject to them. Currently, all of our executive officers either meet or exceed their specified guidelines. The ownership guidelines are currently established at the following minimum levels:

 

Position

  

Guideline

   Ownership Status
as of 12/31/2011

Chief Executive Officer

   6 x base salary    Exceeds

Chief Operating Officer

   3 x base salary    Exceeds

Senior Vice Presidents

   2.5 x base salary    Exceeds

Vice Presidents

   2 x base salary    Exceeds

The Compensation Committee reviews the stock ownership levels annually. In determining stock ownership levels, we include shares of common stock held directly by the executive, shares of common stock held indirectly through the Anadarko Employee Savings Plan; unvested restricted stock, and unvested restricted stock units. For those executives of Anadarko who are also officers of Western Gas Partners LP (WES), any WES equity they own is also included in the calculation to determine their compliance. Outstanding unexercised stock options are not included. Because of our robust ownership levels, we do not maintain separate holding requirements for our equity awards.

Prohibited Equity Transactions. We maintain a policy that prohibits all non-employee directors and employees of the Company, including NEOs, from engaging in any short-term, speculative securities transactions, including engaging in short sales, buying or selling put or call options, and trading in options. Additionally, any equity awards granted to such individuals may not be transferred, sold, assigned, pledged, exchanged, hypothecated or otherwise transferred or disposed of, to the extent that such awards are then subject to restrictions. In addition, all employees of the Company, including the NEOs, and directors of the Company are subject to the Company’s Insider Trading Policy.

Clawback Provision. Our 2008 Omnibus Plan includes a recoupment or clawback provision. Under the 2008 Omnibus Plan, if the Company is required to prepare an accounting restatement as a result of material noncompliance with applicable rules, the plan administrator may determine that a Participant (as defined in the plan) who is deemed to have knowingly engaged in or failed to prevent misconduct giving rise to such a restatement will be required to reimburse the Company an amount equal to any Award (as defined in the plan) earned or accrued during the 12-month period following the first public issuance or filing with the SEC of financial statements containing such misstatement. Please see page 79 for a description of the clawback provision of the proposed 2012 Omnibus Plan.

No Tax Gross-ups on Perquisites. We do not provide tax gross-ups on executive perquisites, except where such gross-ups are considered a normal benefit under the Company’s standard relocation program available to all employees.

Reinvestment of Dividends and Dividend Equivalents on Executive Restricted Stock and Restricted Stock Unit Awards. Beginning with awards made under the proposed 2012 Omnibus Plan, dividend and dividend equivalents will be reinvested in shares of the Company’s common stock and paid to an executive upon the applicable vesting of the award (rather than paid in cash on a current basis).

Regulatory Requirements. Together with the Compensation Committee, the Company carefully reviews and takes into account current tax, accounting and securities regulations as they relate to the design of our compensation programs and related decisions.

 

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IRC Section 162(m) limits a company’s ability to deduct compensation paid in excess of $1 million during any fiscal year to each of certain NEOs, unless the compensation is performance-based as defined under federal tax laws. Stock options, performance units and cash awards granted under our 2008 Omnibus Plan and our 1999 Stock Incentive Plan are intended to satisfy the performance-based requirements and, as such, are designed to be fully deductible. In 2008, the Compensation Committee approved a program intended to qualify our restricted stock awards (including restricted shares and restricted stock units), beginning with the 2009 grants, as performance-based compensation under IRC Section 162(m). The Compensation Committee reviews and considers the deductibility of our executive compensation programs; however, the Compensation Committee believes it is important to provide compensation that is not fully deductible when necessary to retain and motivate certain executive officers and when it is in the best interest of the Company and our stockholders. For these reasons, Mr. Hackett receives a base salary above $1 million, and therefore the portion of base salary in excess of $1 million is not deductible.

IRC Section 409A provides that all amounts deferred under a non-qualified deferred compensation plan are currently included in gross income, to the extent not subject to a substantial risk of forfeiture and not previously included in gross income, unless certain requirements are met. We have designed or amended our plans and programs to be in compliance with all applicable statutory and regulatory requirements to properly allow deferral.

Awards of stock options, performance units, restricted shares and restricted stock units under our 2008 Omnibus Plan and 1999 Stock Incentive Plan are accounted for under FASB ASC Topic 718.

The benefits payable under non-qualified plans for our officers and directors are unsecured obligations to pay. Assets to pay these benefits may be held under the Company’s Benefits Trust, which is subject to the claims of the general creditors of the Company.

Conclusion

We believe the design of our total executive compensation program aligns the interests of our executive officers with those of our stockholders and provides executive officers with the necessary motivation to maximize the long-term operational and financial performance of the Company, while using sound financial controls and high standards of integrity. We also believe that total compensation for each executive officer should be, and is, commensurate with the execution of specified short- and long-term operational, financial and strategic objectives. The programs currently offered have been critical elements in the successful hiring of several executives and have been equally effective in retaining executive officers during a period of strong competitive demand and a shortage of talented executives within the oil and gas exploration and production industry. We believe that the quality of our executive compensation program will continue to be reflected in positive operational, financial and stock price performance.

 

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EXECUTIVE COMPENSATION

Summary Compensation Table

The following table summarizes the compensation for the fiscal years ended December 31, 2011, 2010, and 2009 for our CEO, Chief Financial Officer (CFO) and our three highest paid executive officers other than our CEO and CFO:

 

Name and Principal

Position                    

  Year     Salary
($)
    Bonus
($)
    Stock
Awards

($)(1)
    Option
Awards

($)(1)
    Non-Equity
Incentive Plan
Compensation

($)(2)
    Change in
Pension Value
and
Non-Qualified
Deferred
Compensation
Earnings

($)(3)
    All Other
Compensation

($)(4)
    Total
($)
 

James T. Hackett

    2011        1,582,789        0        8,384,127        5,702,228        3,127,590        3,680,756        692,551        23,170,041   

Chairman and Chief

    2010        1,567,500        0        9,246,818        4,257,091        2,975,115        5,530,662        751,524        24,328,710   

Executive Officer

    2009        1,567,500        0        12,158,360        5,293,585        3,749,460        3,956,376        741,496        27,466,777   

Robert G. Gwin

    2011        715,000        0        2,333,484        1,586,972        1,032,460        637,703        146,829        6,452,448   

Senior Vice President,

    2010        657,500        0        2,667,995        1,228,291        1,093,094        468,084        156,650        6,271,614   

Finance and Chief Financial Officer

    2009        569,231        0        3,952,953        2,168,884        995,015        232,669        132,190        8,050,942   

R. A. Walker

    2011        742,500        0        3,892,653        2,647,467        1,128,600        1,105,184        290,270        9,806,674   

President and Chief

    2010        704,039        0        4,189,092        1,928,577        1,027,896        1,541,374        253,540        9,644,518   

Operating Officer

    2009        685,192        0        4,478,274        1,947,589        1,260,754        1,305,419        200,287        9,877,515   

Charles A. Meloy

    2011        577,885        0        2,395,464        1,629,204        834,465        2,253,427        148,653        7,839,098   

Senior Vice President,

    2010        575,000        5,000,000 (5)      2,389,254        1,099,929        955,937        3,307,281        129,251        13,456,652   

Worldwide Operations

    2009        575,000        0        4,853,076        870,656        1,005,100        5,455,686        134,802        12,894,320   

Robert K. Reeves(6)

    2011        621,869        0        2,826,579        1,242,190        850,717        872,784        121,759        6,535,898   

Senior Vice President,

                 

General Counsel and Chief Administrative Officer

                                                                       

 

(1) The amounts included in these columns represent the aggregate grant date fair value of the awards made to NEOs in 2011 computed in accordance with FASB ASC Topic 718, disregarding estimated forfeitures. The value ultimately realized by the executive upon the actual vesting of the award(s) or the exercise of the stock option(s) may or may not be equal to this determined value. For a discussion of valuation assumptions, see Note 14 — Share-Based Compensation of the Notes to Consolidated Financial Statements included under Item 8 in our Annual Report on Form 10-K for the year ended December 31, 2011. The values in the “Stock Awards” column represent the grant date fair values for both restricted stock unit and performance unit awards. The performance unit awards are subject to market conditions and have been valued based on the probable outcome of the market conditions as of the grant date.
(2) The amounts in this column reflect the incentive cash bonus awards for 2011 that were determined by the Compensation Committee and paid out in February 2012 pursuant to the Company’s AIP. These awards are discussed in further detail beginning on page 38.
(3) The amounts in this column reflect the actuarial increase in the present value of the NEO’s benefits under the Company’s Retirement Plan and Retirement Restoration Plan determined by using interest rate and mortality rate assumptions consistent with those used in the Company’s financial statements and includes amounts that the NEO may not currently be entitled to receive because such amounts are not vested. The Company’s Deferred Compensation Plan does not provide for above-market or preferential earnings so no such amounts are included.
(4) The amounts shown in this column for each NEO are described further in the All Other Compensation Table below.
(5) The $5,000,000 reflected in the “Bonus” column for Mr. Meloy in 2010 is a cash retention bonus paid to him as part of his 2010 Retention Agreement entered into on August 2, 2010. The details of this agreement are discussed beginning on page 52.
(6) Compensation information for 2009 and 2010 is not reflected for Mr. Reeves because he was not an NEO for those years.

 

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All Other Compensation Table for 2011

The following table describes each component of the “All Other Compensation” column for the fiscal year ended December 31, 2011 in the Summary Compensation Table:

 

Name

   Personal
Use of
Aircraft
($)(1)
     Payments by
the Company  to
Employee
401(k) Plan
and Savings
Restoration
Plan
($)
     Club
Membership
Dues
($)(2)
     Financial/
Tax/Estate
Planning
($)
     Excess
Liability
Insurance
($)
     Tax
Benefit
($)
     Other
($)(3)
     Total
($)
 

James T. Hackett(4)

     408,675         273,474         0         0         1,400         0         9,002         692,551   

Robert G. Gwin

     9,874         108,486         13,874         13,195         1,400         0         0         146,829   

R. A. Walker

     166,867         106,224         13,606         2,173         1,400         0         0         290,270   

Charles A. Meloy

     26,481         92,029         15,548         13,195         1,400         0         0         148,653   

Robert K. Reeves

     21,022         91,034         8,303         0         1,400         0         0         121,759   

 

(1) The value of personal aircraft use is based on the Company’s aggregate incremental direct operating costs, including cost of fuel, maintenance, landing and ramp fees, and other miscellaneous trip-related variable costs. Because the Company’s aircraft are used predominantly for business purposes, fixed costs, which do not change based on use of the aircraft, are excluded.
(2) The amounts disclosed represent the payment of club membership fees on behalf of Messrs. Gwin, Walker, Meloy and Reeves. For those clubs not used exclusively for business, the entire amount has been included, although we believe that only a portion of this cost represents a perquisite.
(3) The amount reflected in this column for Mr. Hackett represents his use of a Company-provided CNG vehicle. The CNG vehicle is being used by Mr. Hackett to promote the Company’s business interests and the use of natural gas as a clean alternative fuel. He is imputed income for any personal use of the car, including expenses for commuting to work. The value of personal use of the CNG vehicle is based on the aggregate incremental cost including cost of fuel provided by the Company, lease payments and maintenance expenses.
(4) The Company’s current security policy requires the CEO to use Company aircraft for personal use as well as business travel. The Company expects to discontinue this policy effective as of the Annual Meeting. The value of travel to board meetings for companies other than Anadarko, which directly and indirectly benefits Anadarko, and civic organizations for which Mr. Hackett serves as a director is considered personal use and is included in the amount reported above. Any time Mr. Hackett uses our aircraft for personal use, although it is understood that he may engage in business activities while in flight, compensation is imputed to Mr. Hackett for that use and for any passengers who accompany Mr. Hackett. Following the Annual Meeting, Messrs. Hackett and Walker may continue to use the aircraft for a limited amount of personal travel (for which they will have imputed income) and, to the extent they exceed such amount, they will be required to reimburse the Company.

 

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Grants of Plan-Based Awards in 2011

The following table sets forth information concerning annual incentive awards, stock options, restricted stock units and performance units granted during 2011 to each of the NEOs:

 

          Estimated Future Payouts Under Non-
Equity Incentive Plan Awards(1)
    Estimated Future Payouts Under
Equity Incentive Plan Awards(2)
                         
              All  Other
Stock
Awards:
Number  of
Shares of
Stock or
Units (#)(3)
    All Other
Option
Awards:
Number of
Securities
Underlying
Options
(#)(4)
    Exercise or
Base Price
of Option
Awards
($/Sh)
    Grant Date
Fair Value
of Stock
and  Option
Awards
($)(5)
 
Name   Grant
Date
    Threshold
($)
    Target
($)
    Maximum
($)
    Threshold
(#)
    Target
(#)
    Maximum
(#)
         

James T. Hackett

      0        2,057,625        4,115,250        —          —          —          —          —          —          —     
    11/8/2011        —          —          —          —          —          —          —          187,548        83.95        5,702,228   
    11/8/2011        —          —          —          —          —          —          58,369        —          —          4,900,078   
      11/8/2011        —          —          —          9,512        35,228        70,456        —          —          —          3,484,049   

Robert G. Gwin

      0        679,250        1,358,500        —          —          —          —          —          —          —     
    11/8/2011        —          —          —          —          —          —          —          52,196        83.95        1,586,972   
    11/8/2011        —          —          —          —          —          —          16,245        —          —          1,363,768   
      11/8/2011        —          —          —          2,647        9,805        19,610        —          —          —          969,716   

R. A. Walker

      0        742,500        1,485,000        —          —          —          —          —          —          —     
    11/8/2011        —          —          —          —          —          —          —          87,076        83.95        2,647,467   
    11/8/2011        —          —          —          —          —          —          27,100        —          —          2,275,045   
      11/8/2011        —          —          —          4,416        16,356        32,712        —          —          —          1,617,608   

Charles A. Meloy

      0        548,990        1,097,980        —          —          —          —          —          —          —     
    11/8/2011        —          —          —          —          —          —          —          53,585        83.95        1,629,204   
    11/8/2011        —          —          —          —          —          —          16,677        —          —          1,400,034   
      11/8/2011        —          —          —          2,718        10,065        20,130        —          —          —          995,430   

Robert K. Reeves

      0        559,682        1,119,364        —          —          —          —          —          —          —     
    11/8/2011        —          —          —          —          —          —          —          40,856        83.95        1,242,190   
    11/8/2011        —          —          —          —          —          —          12,716        —          —          1,067,508   
    11/8/2011        —          —          —          2,072        7,675        15,350        —          —          —          759,059   
      11/8/2011        —          —          —          —          —          —          11,912        —          —          1,000,012   

 

(1) The amounts included in these columns reflect estimated future cash payouts under the Company’s AIP based on actual base salaries earned in 2011. If threshold levels of performance are not met, then the payout can be zero. Actual bonus payouts under the AIP for 2011 are reflected in the “Non-Equity Incentive Plan Compensation” column of the Summary Compensation Table.
(2) The amounts included in these columns reflect the estimated future payout under the Company’s performance unit awards, which are subject to market conditions as defined in FASB ASC Topic 718. Each performance unit is denominated as an equivalent of one share of our stock. Executives may earn from 0% to 200% of the targeted award based on the Company’s relative TSR performance against a specified peer group over a specified performance period. Fifty percent of this award is tied to a two-year performance period and the remaining fifty percent is tied to a three-year performance period. If earned, the awards are to be paid in cash. Executive officers do not have voting rights with respect to, and no dividend equivalents are paid on, these awards. Generally, an executive officer will forfeit any unvested performance units if the executive terminates voluntarily or is terminated for cause prior to the end of the performance period. The threshold value represents the lowest earned amount based on the payout scale described on page 42, although the minimum payout is zero.
(3) The amounts included in this column reflect the number of restricted stock units awarded in 2011. These awards vest pro-rata annually over three years, beginning with the first anniversary of the grant date. Executive officers receive dividend equivalents on the units, but do not have voting rights. Generally, an executive officer will forfeit any unvested restricted stock units if the executive terminates voluntarily or is terminated for cause prior to the vesting date. Executive officers have the ability to defer restricted stock unit awards. As described on page 42, Mr. Reeves was awarded a special grant of 11,912 restricted stock units by the Compensation Committee.

 

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(4) The amounts included in this column reflect the number of stock options awarded in 2011. These stock options vest pro-rata annually over three years, beginning with the first anniversary of the date of grant and have a term of seven years. The exercise price is not less than the market price on the date of grant and repricing of stock options to a lower exercise price is prohibited, unless approved by stockholders. Generally, an executive officer will forfeit any unvested stock options if the executive terminates voluntarily or is terminated for cause prior to the vesting date.
(5) The amounts included in this column represent the aggregate grant date fair value of the awards made to NEOs in 2011 computed in accordance with FASB ASC Topic 718, disregarding estimated forfeitures. The value ultimately realized by the executive upon the actual vesting of the award(s) or the exercise of the stock option(s) may or may not be equal to this determined value. For a discussion of valuation assumptions, see Note 14 — Share-Based Compensation of the Notes to Consolidated Financial Statements included under Item 8 in our Annual Report on Form 10-K for the year ended December 31, 2011.

 

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Outstanding Equity Awards at Fiscal Year-End 2011

The following table reflects outstanding stock option awards classified as exercisable and unexercisable as of December 31, 2011 for each of the NEOs. The table also reflects unvested and unearned stock awards (both time-based and performance-contingent) assuming a market value of $76.33 a share (the closing stock price of the Company’s stock on December 31, 2011).

 

     Option Awards(1)      Stock Awards(2)(3)  
                      Equity Incentive Plan Awards  
        Restricted Stock/Units      Performance Units  
        Number of
Shares or
Units of
Stock That
Have Not
Vested (#)
     Market
Value of
Shares or
Units of
Stock
That Have
Not Vested
($)
     Number of
Unearned
Shares,
Units or
Other Rights
That Have
Not Vested (#)
     Market or
Payout
Value of
Unearned
Shares,
Units or
Other Rights
That Have
Not Vested ($
 
     Number of Securities
Underlying Unexercised Options
     Option
Exercise
Price ($)
     Option
Expiration
Date
             

Name

   Exercisable (#)     Unexercisable (#)                    

James T. Hackett

     250,000        0         59.8700         11/6/2014         29,767         2,272,115         127,946         9,766,118   
     381,466        0         35.1800         11/4/2015         53,047         4,049,078         81,696         6,235,856   
     131,733        65,867         65.4400         11/10/2016         58,369         4,455,306         82,982         6,334,016   
     62,682        125,362         63.3400         11/9/2017               35,228         2,688,953   
     0        187,548         83.9500         11/8/2018               
   

Robert G. Gwin

     27,000        0         50.6900         1/16/2013         9,967         760,781         17,563         1,340,584   
     19,100        0         48.6900         12/4/2013         7,133         544,462         19,504         1,488,740   
     41,000        0         40.5100         1/10/2014         15,306         1,168,307         23,943         1,827,569   
     21,700        0         59.8700         11/6/2014         16,245         1,239,981         9,805         748,416   
     22,300        0         64.6900         3/12/2015               
     78,600        0         35.1800         11/4/2015               
     44,133        22,067         34.9500         3/1/2016               
     31,467        15,733         65.4400         11/10/2016               
     18,086        36,170         63.3400         11/9/2017               
     0        52,196         83.9500         11/8/2018               
     20,000 (4)      0         50.0000         4/2/2018               
   

R. A. Walker

     50,000        0         45.8000         9/6/2012         10,967         837,111         40,950         3,125,714   
     22,800        0         43.5550         11/15/2012         24,032         1,834,363         30,084         2,296,312   
     46,400        0         48.6900         12/4/2013         27,100         2,068,543         37,594         2,869,550   
     41,000        0         48.9000         1/10/2014               16,356         1,248,453   
     62,200        0         59.8700         11/6/2014               
     182,900        0         35.1800         11/4/2015               
     48,467        24,233         65.4400         11/10/2016               
     28,397        56,792         63.3400         11/9/2017               
     0        87,076         83.9500         11/8/2018               
   

Charles A. Meloy

     34,600        0         59.8700         11/6/2014         34,640         2,644,071         17,836         1,361,422   
     26,500        0         35.1800         11/4/2015         13,706         1,046,179         26,128         1,994,350   
     21,667        10,833         65.4400         11/10/2016         16,677         1,272,955         21,442         1,636,668   
     16,196        32,390         63.3400         11/9/2017               10,065         768,261   
     0        53,585         83.9500         11/8/2018               
   

Robert K. Reeves

     14,800        0         43.5550         11/15/2012         6,967         531,791         25,844         1,972,673   
     35,500        0         48.6900         12/4/2013         11,980         914,433         15,180         1,158,689   
     41,000        0         48.9000         1/10/2014         12,716         970,612         18,741         1,430,501   
     50,900        0         59.8700         11/6/2014         11,912         909,243         7,675         585,833   
     115,300        0         35.1800         11/4/2015               
     24,467        12,233         65.4400         11/10/2016               
     14,157        28,312         63.3400         11/9/2017               
     0        40,856         83.9500         11/8/2018               
   

 

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(1) The table below shows the vesting dates for the respective unexercisable stock options listed in the above Outstanding Equity Awards Table:

 

Vesting Date

   Mr. Hackett      Mr. Gwin      Mr. Walker      Mr. Meloy      Mr. Reeves  

3/1/2012

     —           22,067         —           —           —     

11/8/2012

     62,516         17,399         29,026         17,862         13,619   

11/9/2012

     62,681         18,085         28,396         16,195         14,156   

11/10/2012

     65,867         15,733         24,233         10,833         12,233   

11/8/2013

     62,516         17,398         29,025         17,861         13,618   

11/9/2013

     62,681         18,085         28,396         16,195         14,156   

11/8/2014

     62,516         17,399         29,025         17,862         13,619   

 

(2) The table below shows the vesting dates for the respective restricted stock units listed in the above Outstanding Equity Awards Table:

 

Vesting Date

   Mr. Hackett      Mr. Gwin      Mr. Walker      Mr. Meloy      Mr. Reeves  

3/1/2012

     —           9,967         —           —           —     

11/8/2012

     19,457         5,415         9,034         5,559         8,210   

11/9/2012

     26,523         7,653         12,016         6,853         5,990   

11/10/2012

     29,767         7,133         10,967         34,640         6,967   

11/8/2013

     19,456         5,415         9,033         5,559         8,208   

11/9/2013

     26,524         7,653         12,016         6,853         5,990   

11/8/2014

     19,456         5,415         9,033         5,559         8,210   

 

(3) The table below shows the performance periods for the respective performance units listed in the above Outstanding Equity Awards Table. The number of outstanding units disclosed is calculated based on our performance as of December 31, 2011 for each award. The estimated payout percentages reflect our relative performance ranking as of December 31, 2011 and are not necessarily indicative of what the payout percent earned will be at the end of the performance period. For awards that were granted in 2011with performance periods beginning in 2012, target payout has been assumed.

 

Performance Period

     Performance to
   Date Payout %
    Mr. Hackett      Mr. Gwin      Mr. Walker      Mr. Meloy      Mr. Reeves  

1/1/2009 to 12/31/2011

     182     127,946         17,563         40,950         17,836         25,844   

1/1/2010 to 12/31/2011

     92     40,848         9,752         15,042         13,064         7,590   

1/1/2010 to 12/31/2012

     92     40,848         9,752         15,042         13,064         7,590   

1/1/2011 to 12/31/2012

     146     41,490         11,971         18,796         10,721         9,370   

1/1/2011 to 12/31/2013

     146     41,492         11,972         18,798         10,721         9,371   

1/1/2012 to 12/31/2013

     100     17,614         4,902         8,178         5,032         3,837   

1/1/2012 to 12/31/2014

     100     17,614         4,903         8,178         5,033         3,838   

 

(4) This award represents a grant of unit appreciation rights under the Western Gas Holdings, LLC Amended and Restated Equity Incentive Plan for Mr. Gwin’s service to our subsidiary. For additional discussion of the unit appreciation rights, please see Western Gas Holdings, LLC Amended and Restated Equity Incentive Plan under Item 11 of Western Gas Partners, LP’s Form 10-K for the year ended December 31, 2011, which shall not be incorporated by reference into this proxy statement. The intrinsic per-unit value as of December 31, 2011, was $634.00 less the applicable exercise price.

 

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Option Exercises and Stock Vested in 2011

The following table provides information about the value realized by the NEOs on option award exercises, vesting of restricted stock units and performance unit award payouts during 2011.

 

     Option Awards      Stock Awards  

Name

   Number of Shares
Acquired  on
Exercise (#)
     Value Realized on
Exercise ($)(1)
     Number of Shares
Acquired  on
Vesting (#)(2)
     Value Realized on
Vesting ($)(1)(3)
 

James T. Hackett

     0         0         263,361         20,514,393   
   

Robert G. Gwin(4)

     0         0         57,428         4,314,672   
   

R. A. Walker

     0         0         85,855         6,692,035   
   

Charles A. Meloy

     91,200         3,814,600         40,063         3,120,739   
   

Robert K. Reeves(5)

     16,600         737,787         54,857         4,274,493   
   

 

(1) The value realized reflects the taxable value to the NEO as of the date of the option exercise, vesting of restricted stock units, or payment of performance unit awards. The actual value ultimately realized by the NEO may be more or less than the value realized calculated in the above table depending on whether and when the NEO held or sold the stock associated with the exercise or vesting occurrence.
(2) The numbers disclosed include restricted stock units and performance unit awards paid in shares and cash for which restrictions lapsed during 2011.
(3) Mr. Hackett’s value includes 48,125 shares earned and deferred under his 2007 annual performance share award for the performance period ended December 31, 2010. Mr. Hackett elected in 2007 to defer receipt of any shares earned under this award until the earlier of November 28, 2013 or separation from service. The value of these shares on the date of deferral (January 21, 2011, the date the Compensation Committee certified the results of the performance period) was $3,715,250 based on the closing stock price of $77.20.
(4) Mr. Gwin’s value includes 6,667 unit value rights under the Western Gas Holdings, LLC Amended and Restated Equity Incentive Plan that vested on April 2, 2011. The realized value on vesting of this award was $333,350 which was calculated based on the maximum per unit value specified under the award agreement of $50.00. For additional discussion of the unit value rights, please see Western Gas Holdings, LLC Amended and Restated Equity Incentive Plan under Item 11 of Western Gas Partners, LP’s Form 10-K for the year ended December 31, 2011, which shall not be incorporated by reference into this proxy statement.
(5) Mr. Reeves’ value includes the exercise of expiring stock options purchased with shares of Company common stock previously held by Mr. Reeves. On November 9, 2011, Mr. Reeves transferred 10,574 shares of Company common stock to the Company (based on the closing stock price of $77.81) as consideration for the exercise price and applicable withholding tax.

Pension Benefits for 2011

The Company maintains the Anadarko Retirement Plan, or the APC Retirement Plan, and the Kerr-McGee Corporation Retirement Plan, or the KMG Retirement Plan, both of which are funded tax-qualified defined benefit pension plans. In addition, the Company maintains the Anadarko Retirement Restoration Plan, or the APC Retirement Restoration Plan, and the Kerr-McGee Benefits Restoration Plan, or the KMG Restoration Plan, both of which are unfunded, non-qualified pension benefit plans that are designed to provide for supplementary pension benefits due to limitations imposed by the IRC that restrict the amount of benefits payable under tax-qualified plans.

APC Retirement Plan and APC Retirement Restoration Plan, collectively the APC Retirement Plans

The APC Retirement Plan covers all U.S.-based Anadarko employees, except for legacy Kerr-McGee employees. The APC Retirement Restoration Plan covers certain U.S.-based Anadarko employees, except for legacy Kerr-McGee employees, who are affected by certain IRC limitations. For those employees hired prior to

 

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January 1, 2007, which includes all of the NEOs except Mr. Meloy (who is a participant in the KMG Retirement Plan), benefits under these plans are based upon the employee’s years of service and the average monthly earnings during the 36 highest paid consecutive months of the last 120 months of employment with the Company.

The APC Retirement Plans do not require contributions by employees. An employee becomes vested in his or her benefit at the completion of three years of service. Compensation covered by the APC Retirement Plans includes base salary and payments under the AIP. The maximum amount of compensation for 2011 that may be considered in calculating benefits under the APC Retirement Plan was $245,000 due to the annual IRC limitation. Compensation in excess of $245,000 was recognized in determining benefits payable under the APC Retirement Restoration Plan.

For employees hired prior to January 1, 2007, benefits under the APC Retirement Plans are calculated as a life-only annuity (meaning that benefits end upon the participant’s death) and are equal to the sum of the following:

 

   

1.4% x average compensation x years of service with the Company; plus

 

   

0.4% x (average compensation - covered compensation) x years of service with the Company (limited to 35 years).

Covered compensation is the average (without indexing) of the Social Security taxable wage base during the 35-year period ending with the last day of the year in which an individual reaches Social Security retirement age. Benefits are calculated based on a normal retirement age of 65; however, employees may receive a reduced early retirement benefit as early as age 55. Employees may choose to receive their benefits under several different forms provided under the APC Retirement Plan. Employees receive their benefits from the APC Retirement Restoration Plan in the form of a lump-sum payment.

As of December 31, 2011, Mr. Hackett was the only NEO eligible for early retirement under the APC Retirement Plans. Early retirement benefits are calculated using the formula described above; however, the value is multiplied by an early retirement reduction factor as follows:

 

Age

   Early Retirement Factor  

62 and older

     100

61

     97

60

     94

59

     91

58

     88

57

     85

56

     82

55

     79

KMG Retirement Plan and KMG Restoration Plan, collectively the KMG Retirement Plans

The KMG Retirement Plan covers all U.S.-based, legacy Kerr-McGee employees who have not incurred a break in service of greater than one year since the date Kerr-McGee was acquired by Anadarko. The KMG Restoration Plan covers certain legacy Kerr-McGee U.S.-based employees that are affected by the IRC limitations. Benefits under these plans are based upon the employee’s years of service and the average monthly earnings during the 36 highest paid consecutive months of the last 120 months of employment.

The KMG Retirement Plans do not require contributions by employees. An employee becomes vested in his or her benefit at the completion of three years of service. Compensation covered by the KMG Retirement Plans includes base salary and payments under the AIP. The maximum amount of compensation for 2011 that may be considered in calculating benefits under the KMG Retirement Plan was $245,000 due to the annual IRC limitation. Compensation in excess of $245,000 was recognized in determining benefits payable under the KMG Restoration Plan.

 

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Benefits under the KMG Retirement Plans are calculated as a life-only annuity for single participants, and a joint and 50% contingent annuity for married participants who are eligible for retirement. Benefits under this plan are equal to the sum of Part A and Part B:

Part A:

 

   

1.1% x average compensation x years of service prior to March 1, 1999; plus

 

   

0.5% x (average compensation - covered compensation) x years of service prior to March 1, 1999 (limited to 35 years).

Part B:

 

   

1.667% x average compensation x years of service on or after March 1, 1999 (limited to 30 years); plus

 

   

0.75% x average compensation x years of service on or after March 1, 1999 in excess of 30 years; less

 

   

1% x primary Social Security benefit x years of service on or after March 1, 1999 as of age 65 (limited to 30 years) x (years of service on or after March 1, 1999 divided by years of service on or after March 1, 1999 at age 65).

Covered compensation is the average (without indexing) of the Social Security taxable wage base during the 35-year period ending with the last day of the year in which an individual reaches Social Security retirement age. Benefits are calculated based on a normal retirement age of 65; however, employees may receive a reduced early retirement benefit as early as age 52. Employees may choose to receive their benefits under several different forms provided under the KMG Retirement Plan. Employees receive their benefits from the KMG Restoration Plan in the form of a lump-sum payment.

Currently, Mr. Meloy is eligible for early retirement under the KMG Restoration Plan because of the additional years of age and service credited to him under his 2006 Retention Agreement. Early retirement benefits under the KMG Retirement Plans are calculated using the formula described above, however, the value is multiplied by an early retirement reduction factor as follows:

 

     First Formula
Percentage of Normal
Retirement Age Benefit  Payable
(Age Reductions for Benefits Earned
Before March 1, 1999)
    Second  Formula
Percentage of Normal
Retirement Age Benefit