Definitive Proxy Statement
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

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Definitive Proxy Statement

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Definitive Additional Materials

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DEVON ENERGY CORPORATION
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(Name of person(s) filing proxy statement, if other than the registrant)

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Table of Contents

LOGO

Devon Energy Notice of 2015 Annual Meeting of Stockholders and Proxy Statement Wednesday, June 3, 2015 at 8:00 a.m., local time Devon Energy Center Auditorium 333 West Sheridan Avenue, Oklahoma City, Oklahoma Commitment Runs Deep


Table of Contents

LETTER TO STOCKHOLDERS

 

LOGO

 

 

 

Dear Fellow Devon Stockholders,

You are invited to attend the 2015 Annual Meeting of Stockholders of Devon Energy Corporation to be held at 8:00 a.m. Central Time on Wednesday, June 3, 2015, in the Devon Energy Center Auditorium located at 333 W. Sheridan Avenue, Oklahoma City, Oklahoma.

The 2015 Annual Meeting will focus on the items of business listed in the Notice of Annual Meeting of Stockholders and Proxy Statement that follows. We are sending this Proxy Statement to our stockholders on or about April 21, 2015. During the Annual Meeting we will also present a report on Devon’s performance and operations during 2014.

2014 was a transformative year for the Company as we transitioned to a liquids-rich (oil and natural gas liquids), higher margin, onshore North American production base. Company performance for the year validated those efforts. In 2014, Devon closed strategic transactions that significantly increased the Company’s light-oil and overall liquids production. The Company also transformed its organizational structures and processes in order to excel in certain key drivers for the Company’s success. These successful strategic shifts were matched by excellent performance on most financial and operational goals and outstanding relative returns for stockholders.

It is important that your shares be represented and voted at the meeting. I urge you to submit your proxy using the Internet or telephone or by completing and mailing your Proxy Card in the envelope provided. If you decide to attend the Annual Meeting, you will be able to vote in person, even if you have previously submitted your proxy.

Sincerely,

 

 

LOGO

J. Larry Nichols

Executive Chairman of the Board

 

Commitment Runs Deep


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DEVON ENERGY CORPORATION

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

 

 

Time   

8:00 a.m. (local time) on Wednesday, June 3, 2015

Place   

Devon Energy Center Auditorium

333 W. Sheridan Avenue

Oklahoma City, Oklahoma

Items of Business   

•    Elect nine directors for a term of one year;

•    Approve, in an advisory vote, executive compensation;

•    Ratify the appointment of the independent auditors for 2015;

•    Consider and vote upon the 2015 Long-Term Incentive Plan;

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

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

Who Can Vote   

Stockholders of record at the close of business on April 6, 2015 are entitled to notice of and to vote at the meeting. You may examine a complete list of stockholders entitled to vote at the meeting during normal business hours for the ten days prior to the meeting at our offices and at the meeting.

Voting by Proxy   

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

 

•    Internet;

•    telephone; or

•    mail

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

 

Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting of Stockholders to be Held on June 3, 2015:

Our 2015 Proxy Materials, including the 2015 Proxy Statement and Annual Report on Form 10-K for the year ended December 31, 2014, are available at www.proxydocs.com/dvn.

BY ORDER OF THE BOARD OF DIRECTORS

 

 

LOGO

Carla D. Brockman

Vice President Corporate Governance

and Corporate Secretary

Oklahoma City, Oklahoma

April 21, 2015

 

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PROXY STATEMENT TABLE OF CONTENTS

 

PROXY STATEMENT SUMMARY

    1   

INFORMATION ABOUT THE ANNUAL MEETING

    4   

AGENDA ITEM 1. ELECTION OF DIRECTORS

    8   

CORPORATE GOVERNANCE

    18   

Board of Directors’ Information

    18   

Practices for Considering Diversity

    18   

Committees

    19   

Director Independence

    21   

Lead Director

    21   

Board Involvement in Risk Oversight

    21   

Leadership Structure

    21   

Director Communication

    22   

Compensation Committee Interlocks and Insider Participation

    22   

Related Party Transactions

    22   

Director Compensation for the Year Ended December 31, 2014

    23   

Annual Retainer and Meeting Fees

    24   

Equity Awards

    24   

Changes to Director Compensation.

    24   

GOVERNANCE COMMITTEE REPORT

    25   

AUDIT COMMITTEE REPORT

    27   

Fees to Independent Auditor

    28   

Audit Committee Pre-Approval Policies and Procedures

    28   

RESERVES COMMITTEE REPORT

    29   

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

    30   

NAMED EXECUTIVE OFFICER COMPENSATION

    31   

COMPENSATION DISCUSSION AND ANALYSIS

    31   

Executive Summary

    32   

Company Performance and Pay Alignment

    32   

Response to Stockholder Feedback

    38   

Compensation Decisions for 2014

    39   

Effect of Company Performance on President & CEO Realizable Pay

    46   

Compensation Process Background

    48   

ADDITIONAL COMPENSATION INFORMATION

    50   

Retirement Benefits

    50   

Other Benefits

    51   

Post-Termination or Change in Control Benefits

    51   

Stock Ownership Guidelines

    52   

Compensation Program and Risk Taking

    52   

Policy for Recovery of Compensation (Clawback)

    53   

Considerations of Tax Implications

    53   

Change in Pension Value

    54   

COMPENSATION COMMITTEE REPORT

    55   

2014 COMPENSATION TABLES

    55   

Summary Compensation Table

    55   

Grants of Plan-Based Awards

    57   

Outstanding Equity Awards at Fiscal Year End

    59   

Option Exercises and Stock Vested During 2014

    61   

Pension Benefits Table

    62   

BENEFIT PLANS

    63   

Defined Benefit Plan

    63   

Benefit Restoration Plan

    65   

Supplemental Retirement Income Plan

    65   

Nonqualified Deferred Compensation in 2014

    66   

401(k) Plan

    67   

Deferred Compensation Plan

    67   

Supplemental Contribution Restoration Plans

    67   

Supplemental Executive Retirement Plan

    67   

POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL

    68   

EQUITY COMPENSATION PLAN INFORMATION

    75   

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

    75   

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

    78   

INFORMATION ABOUT EXECUTIVE OFFICERS

    78   

AGENDA ITEM 3. RATIFICATION OF INDEPENDENT AUDITORS FOR 2015

    80   

AGENDA ITEM 4. ADOPTION OF THE DEVON ENERGY CORPORATION 2015 LONG-TERM INCENTIVE PLAN

    81   

AGENDA ITEM 5. STOCKHOLDER PROPOSAL FOR ADOPTION OF PROXY ACCESS BYLAW

    91   

AGENDA ITEM  6. STOCKHOLDER PROPOSAL FOR A REPORT ON LOBBYING ACTIVITIES RELATED TO ENERGY POLICY AND CLIMATE CHANGE

    95   

AGENDA ITEM 7. STOCKHOLDER PROPOSAL FOR A REPORT DISCLOSING LOBBYING POLICY AND ACTIVITY

    98   

AGENDA ITEM 8. STOCKHOLDER PROPOSAL FOR A REPORT ON PLANS TO ADDRESS CLIMATE CHANGE

    101   

SUBMISSION OF STOCKHOLDER PROPOSALS

    108   

OTHER MATTERS

    109   

APPENDIX A

    A-1   
 

 

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PROXY STATEMENT SUMMARY

 

We provide below highlights of certain information in this Proxy Statement. As it is only a summary, please refer to the complete 2015 Proxy Statement and Annual Report before you vote.

2015 ANNUAL MEETING OF SHAREHOLDERS

 

Date and Time:

June 3, 2015, 8:00 a.m. (central time)

Place:

Devon Energy Center Auditorium

333 W. Sheridan Avenue

Oklahoma City, Oklahoma

Record Date:

April 6, 2015

Voting:

   

Internet

   

telephone; or

   

mail

 

 

VOTING MATTERS AND BOARD RECOMMENDATIONS

 

  Proposals    Board’s Recommendation    Page  

  Agenda Item 1: Election of Directors

   FOR each of the nominees      8   

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

   FOR      30   

  Agenda Item 3: Ratification of Independent Auditors for 2015

   FOR      80   

  Agenda Item 4: Adoption of the Devon Energy Corporation 2015 Long-Term Incentive Plan

   FOR      81   

  Agenda Item 5: Stockholder Proposal for Adoption of Proxy Access Bylaw

   AGAINST      91   

  Agenda Item 6: Stockholder Proposal for a Report on Lobbying Activities Related to Energy Policy and Climate Change

   AGAINST      95   

  Agenda Item 7: Stockholder Proposal for a Report Disclosing Lobbying Policy and Activity

   AGAINST      98   

  Agenda Item 8: Stockholder Proposal for a Report on Plans to Address Climate Change

   AGAINST      101   

 

 

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PROXY STATEMENT SUMMARY (cont’d)

 

STOCKHOLDER ENGAGEMENT

We conduct investor outreach throughout the year to ensure that management and the Board understand and consider the issues that matter most to our stockholders. After considering feedback from our investors over the course of recent years, the Board has been responsive to that feedback.

CORPORATE GOVERNANCE

 

  Corporate Governance Highlights

 

   

Annual Election of All Directors

 

   

Majority Voting and a Director Resignation Policy in Uncontested Elections

 

   

Stockholder Right to Call a Special Meeting

 

   

Independent Lead Director

   

78% of Directors Are Independent

 

 

   

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

 

 

   

Director Stock Ownership Guidelines

 

 

   

Board Participation in Succession Planning

 
 

EXECUTIVE COMPENSATION PROGRAMS

 

  Our Executive Compensation Programs Include the Following Factors

 

   

Long-Term Incentive Stock Awards are Performance-Based

 

   

Quantitative Process Utilized for Performance Cash Bonus Awards

 

   

Realizable Pay Opportunities are Tied to Company Performance

 

   

Stock Ownership Requirements

 

 

   

Recoupment Policy

 

 

   

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

 
 

Say-on-Pay Vote and Response to Stockholder Feedback

At the Company’s 2014 Annual Meeting, 90% of the Company’s stockholders voted to approve the Company’s executive compensation for 2013. As with prior years, Company management engaged in discussions with many stockholders on a variety of topics during 2014, including executive compensation and its tie to Company performance. In response to stockholders feedback and the Compensation Committee’s independent evaluation of the Company’s compensation practices, the Committee has made changes to the Company’s executive compensation program over the past few years, which are detailed in the Compensation Discussion and Analysis section beginning on page 38 of this Proxy Statement.

 

 

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PROXY STATEMENT SUMMARY (cont’d)

 

2014 Company Performance and Pay Alignment

The Company generated top-tier performance for its stockholders with a total stockholder return (TSR) for 2014 that was in the top one-third of its peer group, and, on a two-year basis, TSR was 6th of 15 peer companies. Devon recorded a positive TSR for the year, an accomplishment matched by only four members of the peer group, in a difficult year for stock price performance in the energy industry as a whole. Devon’s stock price reached an intra-year high of $80.63, which was approximately 30% above 2013’s closing price.

Devon also made great strides in key areas that will lead to strong TSR over the long term. Acquisitions led to an 82% increase in its light-oil production as compared to the prior year, and, along with divestitures culminated during the year, shifted the Company’s overall liquids production from approximately 42% in 2013 to 52% in 2014, and growing its proved oil and bituman reserves to a record 895 million barrels as of December 31, 2014. Devon also achieved a significant lift in the value of its midstream assets, with its interest in two NYSE-traded entities (EnLink Midstream Partners, LP and EnLink Midstream, LLC) valued at approximately $7.6 billion as of year-end as compared to a valuation of approximately $4.8 billion for the assets contributed by Devon to EnLink Midstream when the transaction closed in March 2014.

Through its quantitative process for evaluating the Company’s performance on these and other factors, the Committee awarded performance cash bonuses to named executive officers within a range of 150% to 166% of target. The Committee granted long-term incentives (“LTI”) to named executive officers in order to incent the achievement of future goals. Messrs. Richels and Smette were awarded LTI at approximately the same level as the prior year while the Committee increased overall grant values for Messrs. Hager and Vaughn to recognize the continuing expansion of their respective roles during 2014. In addition the Committee awarded salary increases ranging from 3.5% to 10%, based on competitive market trends to each named executive officer other than Mr. Richels due to his retirement plans. Additional detail on compensation decisions starts on page 39.

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

 

 

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INFORMATION ABOUT THE ANNUAL MEETING

 

We are furnishing you this Proxy Statement in connection with the solicitation of proxies by our Board of Directors (Board) to be used at the Annual Meeting and any adjournment thereof. The Annual Meeting will be held on Wednesday, June 3, 2015 at 8:00 a.m. Central Time.

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

What are the Board of Directors’ voting recommendations?

 

   

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

 

   

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

 

   

For the ratification of the appointment of our independent auditors for 2015;

 

   

For the adoption of the Devon Energy Corporation 2015 Long-Term Incentive Plan; and

 

   

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

Who is entitled to vote?

Stockholders as of the close of business on April 6, 2015 (the Record Date) are eligible to vote their shares at the Annual Meeting. As of the Record Date, there were 411,041,670 shares of our common stock outstanding. Each share of common stock is entitled to one vote at the Annual Meeting.

How do I vote?

You may:

 

   

attend the Annual Meeting and vote in person; or

   

dial the toll-free number listed on the Proxy Card or Voting Instruction Form. Easy-to-follow voice prompts allow you to vote your shares and confirm that your voting instructions have been properly recorded. Telephone voting will be available 24 hours a day, and will close at 11:59 p.m. Eastern Time on June 2, 2015; or

 

   

go to the website www.proxyvote.com and follow the instructions, then confirm that your voting instructions have been properly recorded. If you vote using the website, you can request electronic delivery of future proxy materials. Internet voting will be available 24 hours a day, and will close at 11:59 p.m. Eastern Time on June 2, 2015; or

 

   

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

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

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

 

 

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INFORMATION ABOUT THE ANNUAL MEETING (cont’d)

 

Why did I receive paper copies of proxy materials?

We are providing paper copies of the proxy materials instead of a Notice to certain stockholders, including those who have previously requested to receive them. If you prefer to no longer receive printed proxy materials, you may consent to receive all future proxy materials electronically via email or the Internet. To sign up for electronic delivery, please follow the instructions provided in your proxy materials. When prompted, indicate that you agree to receive or access stockholder communications electronically in the future.

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

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

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

The 401(k) Plan Trustee will vote your shares in the 401(k) Plan account in accordance with your instructions. If instructions are not received by May 31, 2015, the shares credited to your account will not be voted.

Will each stockholder in our household receive proxy materials?

Generally, no. We try to provide only one set of proxy materials to be delivered to multiple stockholders sharing an address unless you have

given us other instructions. Any stockholder at a shared address may request delivery of single or multiple copies of proxy materials for future meetings by contacting us at Devon Energy Corporation, Attention: Corporate Secretary, 333 W. Sheridan Avenue, Oklahoma City, Oklahoma 73102, email: CorporateSecretary@dvn.com or by calling (405) 235-3611.

Who will be admitted to the Annual Meeting?

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

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

Yes.

What if I want to change my vote?

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

Who will count the votes?

Broadridge will tabulate the votes.

 

 

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INFORMATION ABOUT THE ANNUAL MEETING (cont’d)

 

What constitutes a quorum?

A majority of the shares entitled to vote, present in person or represented by proxy, constitutes a quorum. If you vote by telephone or Internet or by returning your Proxy Card, you will be considered part of the quorum. Broadridge, the Inspector of Election, will treat shares represented by a properly executed proxy as present at the meeting. Abstentions and broker non-votes will be counted for purposes of determining a quorum. A broker non-vote occurs when a nominee holding shares for a beneficial owner submits a proxy but does not vote on a particular proposal because the nominee does not have discretionary voting power for that item and has not received instructions from the beneficial owner.

How many votes will be required to approve a proposal?

For the election of Directors, in an uncontested election, the affirmative vote of a majority of the votes cast at the Annual Meeting with respect to the nominee for director is required for election. Pursuant to our Bylaws, a majority of votes are cast for the election of a nominee if the votes cast “for” such nominee exceeds the votes cast “withheld” in such nominee’s election. Any nominee for Director in a contested election shall be elected by a plurality of the votes cast.

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

With respect to other matters, the affirmative vote of a majority of the votes cast at the Annual Meeting is required to take any other action.

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

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

Under the rules of the New York Stock Exchange (the NYSE), brokers may not vote the shares held by them in street name for their customers and for which they have not received instructions, except with respect to a routine matter. The only matter to be voted on at the Annual Meeting that is considered routine for these purposes is the ratification of the appointment of the independent auditors. This means that brokers may not vote your shares on any other matter if you have not given specific instructions as to how to vote. Please be sure to give specific voting instructions to your broker so that your vote will be counted.

How will you treat abstentions and broker non-votes?

We will:

 

   

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

 

   

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

 

   

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

 

 

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INFORMATION ABOUT THE ANNUAL MEETING (cont’d)

 

   

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

Who pays the solicitation expenses?

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

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

We will announce preliminary voting results at the Annual Meeting, and we will publish final results in a Form 8-K that will be filed with the SEC within four business days after the Annual

Meeting. You may obtain a copy of this and other reports free of charge at www.devonenergy.com, or by contacting us at (405) 235-3611 or corporatesecretary@dvn.com, or by accessing the SEC’s website at www.sec.gov.

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

Yes. The Audit Committee of the Board of Directors has approved KPMG LLP to serve as our independent auditors for the year ending December 31, 2015. Representatives of KPMG LLP will be present at the Annual Meeting. They will have an opportunity to make a statement, if they desire to do so, and will be available to respond to stockholder questions.

Where can I contact the Company?

Our contact information is:

Devon Energy Corporation

333 W. Sheridan Avenue

Oklahoma City, Oklahoma 73102

(405) 235-3611

 

 

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AGENDA ITEM 1.

ELECTION OF DIRECTORS

Our Board of Directors has nominated nine directors for election at the Annual Meeting. The Directors will hold office from election until the next Annual Meeting and until their respective successors are duly elected and qualified or appointed, or until the earliest of their death, resignation or removal. All of the nominees are currently Devon directors who were elected by stockholders at the 2014 Annual Meeting.

John A. Hill will retire at the end of his term, in accordance with the director retirement provision of the Company’s Corporate Governance Guidelines. Therefore, he was not nominated for re-election.

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

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

 

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

 

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AGENDA ITEM 1.

ELECTION OF DIRECTORS (cont’d)

 

Director Nominees

 

 

LOGO

 

    

Experience and Qualifications

 

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

 

Education

 

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

 

Other Boards and Appointments

 

Ms. Baumann is a director of Buckeye Partners, L.P. where she serves on the Audit Committee. Ms. Baumann is also a member of the Board of Trustees of Putnam Investments, Inc. She is a director of privately held Cody Resources Management, LLC where she chairs the Compensation Committee and serves on the Audit Committee. She previously served on the boards of CVR Energy, SM Energy, and UNS Energy.

Barbara M. Baumann

Director since 2014

Age 59

 

Committees:

•  Audit

•  Governance

    
    
    
    
    
    
    
    
    
    
    
    
    
    
    

 

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AGENDA ITEM 1.

ELECTION OF DIRECTORS (cont’d)

 

 

LOGO

 

    

Experience and Qualifications

 

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

 

Education

 

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

 

Other Boards and Appointments

 

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

John E. Bethancourt

Director since 2014

Age 63

 

Committees:

•  Compensation

•  Governance

•  Reserves

    
    
    
    
    
    
    
    
    
    
    
    
    

 

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AGENDA ITEM 1.

ELECTION OF DIRECTORS (cont’d)

 

 

LOGO

 

    

Experience and Qualifications

 

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

 

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

 

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

 

Education

 

Mr. Henry received his bachelor’s degree and Juris Doctorate from the University of Oklahoma. He received an honorary degree of Doctor of Humane letters from the University of Tulsa and an honorary degree of Doctor of Laws from Oklahoma City University.

 

Other Boards and Appointments

 

Mr. Henry is a director of LSB Industries, Inc. and serves on the Nominating and Corporate Governance Committee. He is a life member of the National Conference of Commissioners on Uniform State Laws, and a member of the Council on Foreign Relations, the American Law Institute, and the William J. Holloway, Jr. American Inn of Court, Master of the Court. While a federal judge, Mr. Henry served as Chair of the Committee on International Relations of the Judicial Conference of the United States. He is a life and founding member of the Tenth Judicial Circuit’s Historical Society. Mr. Henry serves on the Board of Directors of the VERA Institute of Justice in New York and the Oklahoma Medical Research Foundation.

Robert H. Henry

Director since 2010

Age 62

 

Committees:

•  Audit

•  Governance

    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    

 

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AGENDA ITEM 1.

ELECTION OF DIRECTORS (cont’d)

 

 

LOGO

 

    

Experience and Qualifications

 

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

 

In 1997, Mr. Kanovsky founded Bonavista Energy Corporation, which has grown to a present day market capitalization of approximately $3 billion. In 1978, he co-founded Canadian Northstar Corporation and its successor, Northstar Energy Corporation, where he was primarily responsible for strategic development, finance and acquisitions until its acquisition by Devon Energy Corporation in 1998. Mr. Kanovsky has also held other executive positions, including chief executive officer of Arrowstar Drilling and vice president of Corporate Finance, Western Canada, for a large Canadian investment dealer.

 

Education

 

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

 

Other Boards and Appointments

 

Mr. Kanovsky is a director of Bonavista Petroleum Ltd. and serves as Lead Director, Chairman of the Governance Committee and is a member of the Reserves and Audit Committees. He is a director of Pure Technologies Ltd. and serves as Lead Director and on the Audit Committee. He is also a director of Seven Generations, Inc. and serves on the Audit Committee.

 

Mr. Kanovsky previously served on the boards of TransAlta Corporation and ARC Resources Ltd. He also served as Chairman of the Board of Taro Industries and Vice Chairman of Precision Drilling, Inc. He co-founded PowerLink Corporation, an electrical cogeneration company and former subsidiary of Northstar Energy Corporation, and served as its Senior Executive Board Chairman.

Michael M. Kanovsky

Director since 1999

Age 66

 

Committees:

•  Chair, Reserves

•  Audit

    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    

 

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AGENDA ITEM 1.

ELECTION OF DIRECTORS (cont’d)

 

 

LOGO

 

    

Experience and Qualifications

 

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

 

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

 

Education

 

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

 

Other Boards and Appointments

 

Mr. Mosbacher is a director of Calpine Corporation and currently serves on Calpine’s Nominating and Governance Committee and Compensation Committee. As noted above, he is Chairman of Mosbacher Energy Company. In addition, Mr. Mosbacher is Chairman of the Board of Global Communities and the Initiative for Global Development and serves on the Board of the Americas Society. Mr. Mosbacher previously served as a member of Devon’s Board from 1999 until 2005.

Robert A. Mosbacher, Jr.

Director since 2009

Age 63

 

Committees:

•  Chair, Governance

•  Compensation

    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    

 

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AGENDA ITEM 1.

ELECTION OF DIRECTORS (cont’d)

 

 

LOGO

 

    

Experience and Qualifications

 

J. Larry Nichols is the Executive Chairman of Devon’s Board. Mr. Nichols and his father, John Nichols, founded Devon in 1971. His leadership and commitment have been seminal factors in the Company’s development and growth and vital to the energy industry in general. Mr. Nichols brings to the Board his knowledge and experience as a founder of the Company and a proven leader for more than 40 years.

 

Mr. Nichols served as the Company’s president from 1976 until 2003 and as chief executive officer from 1980 to 2010. He has served on the Board since the Company’s inception and became board chair in 2000. At the end of 2012, Mr. Nichols retired as an employee of the Company, but he continues in the role of Executive Chairman of the Board.

 

Prior to founding Devon in 1971, Mr. Nichols served as law clerk to Chief Justice Earl Warren and Justice Tom Clark of the United States Supreme Court. He also worked in the United States Department of Justice’s Office of Legal Counsel under Assistant Attorney General William Rehnquist, who later became the Chief Justice of the United States Supreme Court.

 

Education

 

Mr. Nichols received a Bachelor’s degree in Geology from Princeton University and a Juris Doctorate degree from the University of Michigan Law School.

 

Other Boards and Appointments

 

Mr. Nichols is a director of Baker Hughes Inc. and currently serves as the Lead Director and as a member of the Governance and Audit Committees. He is also a director of Sonic Corp. where he serves as Lead Director, Chairman of the Nominating and Governance Committee and on the Audit Committee. Mr. Nichols previously served as a director of BOK Financial Corporation, a financial services company, and Smedvig ASA, an independent energy company.

 

Mr. Nichols is on the Executive Committee and the Board of Directors of the American Petroleum Institute Inc. and the National Association of Manufacturers. He is on the Executive Committee and Board of Directors of the American Natural Gas Association. He is also a member of the Independent Petroleum Association of America and the National Petroleum Council. Mr. Nichols also served on the Board of Governors of the American Stock Exchange. He has been inducted into the Oklahoma Hall of Fame.

J. Larry Nichols

Director since 1971

Age 72

 

Executive Chairman

    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    

 

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AGENDA ITEM 1.

ELECTION OF DIRECTORS (cont’d)

 

 

LOGO

 

    

Experience and Qualifications

 

Duane C. Radtke has over 40 years of experience in management, engineering and business development in the energy industry. Mr. Radtke has been President and Chief Executive Officer of Valiant Exploration LLC since 2008. Mr. Radtke brings to the Board extensive knowledge of the energy business, including experience with the Company’s assets and operations.

 

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

 

Education

 

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

 

Other Boards and Appointments

 

Mr. Radtke is a director of Sabine Oil & Gas LLC, (formerly NFR Energy LLC) and serves as the Lead Director and on the Compensation, Audit and Governance Committees. Mr. Radtke is also a director of Kris Energy Ltd. and serves on the Compensation, Audit and Governance Committees. He previously served as a director of Smith International, Inc. and also served as Chairman of the American Exploration and Production Council and as a Director of Consolidated Natural Gas Company.

Duane C. Radtke

Director since 2010

Age 66

 

Committees:

•  Compensation

•  Reserves

    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    

 

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AGENDA ITEM 1.

ELECTION OF DIRECTORS (cont’d)

 

 

LOGO

 

    

Experience and Qualifications

 

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

 

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

 

Education

 

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

 

Other Boards and Appointments

 

Ms. Ricciardello is currently a director of Noble Corporation where she is the designated financial expert, serves as the Audit Committee chairperson and is a member of the Nominating & Governance Committee. Ms. Ricciardello also serves on the boards of EnLink Midstream, LLC (ENLC) and EnLink Midstream Partners, LP (ENLK) and on their audit committees. As of April 1, 2015, Devon owned approximately 70% of ENLC and 34% of ENLK. She also serves on the Board of the National Association of Corporate Directors Houston Chapter. Ms. Ricciardello was previously a director of US Concrete and Midstates Petroleum Company. Ms. Ricciardello is also an editorial advisor for the Journal of Accountancy.

Mary P. Ricciardello

Director since 2007

Age 59

 

Committees:

• Chair, Audit

• Governance

    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    

 

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AGENDA ITEM 1.

ELECTION OF DIRECTORS (cont’d)

 

 

LOGO

 

    

Experience and Qualifications

 

John Richels is an accomplished business leader with over 35 years of experience in the oil and gas industry and legal profession. He has been the Company’s President since 2004, Chief Executive Officer since 2010 and was elected Vice Chairman in December 2014. Mr. Richels brings to the Board an extensive knowledge of the energy industry, including his experience with the Company’s assets and operations. Mr. Richels has announced that he will retire as President and Chief Executive Officer in July 2015.

 

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

 

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

 

Education

 

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

 

Other Boards and Appointments

 

Mr. Richels serves as Chairman of the Board of EnLink Midstream, LLC (ENLC) and EnLink Midstream Partners, LP (ENLK). As of April 1, 2015, Devon owned approximately 70% of ENLC and 34% of ENLK. Mr. Richels is a director of BOK Financial Corporation and serves on the Audit Committee. He is also a director of TransCanada Corporation and serves on the Human Resources and Health, Safety and Environment Committees.

 

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

John Richels

Director since 2007

Age 64

 

Vice Chairman

    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    

 

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CORPORATE GOVERNANCE

Board of Directors’ Information

Our Board of Directors met seven times in 2014. All Directors attended 93% or more of the total meetings of the Board of Directors and the respective Committees on which they served. The Board expects a majority of our Directors to be in attendance at our Annual Meetings of Stockholders. All Directors with the exception of Michael M. Kanovsky attended the 2014 Annual Meeting.

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

 

   

Certificate of Incorporation;

 

   

Bylaws;

 

   

Corporate Governance Guidelines;

 

   

Code of Business Conduct and Ethics;

 

   

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

 

   

Anti-Corruption Policy and Procedure.

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

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

Practices for Considering Diversity

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

 

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CORPORATE GOVERNANCE (cont’d)

 

Committees

The Board of Directors has four standing Committees: Audit, Compensation, Governance and Reserves. The Charters for these Committees are available on the Company’s website www.devonenergy.com. The following table shows each Committee’s current membership, function and the number of meetings each Committee held in 2014:

 

LOGO

 

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CORPORATE GOVERNANCE (cont’d)

 

LOGO

 

1 

Chairman

 

2 

Audit Committee financial expert

 

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Director Independence

The Company’s Corporate Governance Guidelines provide that an independent director is a director who meets the New York Stock Exchange (NYSE) definition of independence, as determined by the Board. In making this determination, the Board considers transactions and relationships between each Director or any member of the Director’s immediate family and the Company, our subsidiaries and affiliates. The Board has affirmatively determined that each of the current Directors and each person who served as a Director during 2014, with the exception of our Executive Chairman, J. Larry Nichols, and our President and CEO, John Richels, was or is an independent Director as defined by the standards for director independence established by applicable laws, rules, and listing standards, including, without limitation, the standards for independent directors established by the NYSE and the SEC, has or had no material relationship with us that would interfere with the exercise of independent judgment and, therefore, is or was independent under our Corporate Governance Guidelines and the standards established by the NYSE.

In evaluating the independence of Mr. Robert H. Henry, the Board has considered the charitable contributions made by Devon to Oklahoma City University (OCU) in recent years. While these charitable contributions do not affect Mr. Henry’s independence status, disclosure of the contributions are provided herein. Consistent with the Company’s practice of making contributions to other major universities in Oklahoma, in 2012, 2013 and 2014, the Company made charitable contributions to OCU of $125,000, $625,750 and $613,500, respectively.

Lead Director

The Board has a Lead Director whose primary responsibility is to preside over the executive session of the Board meetings in which Mr. Richels and other members of management do not participate. The Lead Director also performs other duties that the Board may from time to time delegate to assist the Board in the fulfillment of its responsibilities. In 2014, the Lead Director presided over four executive sessions of the Board.

John A. Hill has served as our Lead Director since June 2010 and will serve in that position until his retirement from the Board in June 2015, at which time a successor will be named by the Board.

Board Involvement in Risk Oversight

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

Leadership Structure

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

 

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J. Larry Nichols, who retired as an employee of the Company effective December 31, 2012, serves as Executive Chairman of the Board. John Richels serves as Vice Chairman, President and CEO. Mr. Richels has announced his retirement from the Company effective July 31, 2015, at which time the Board intends to elect Dave Hager, currently the Company’s Chief Operating Officer, to succeed Mr. Richels as President and CEO. Mr. Richels will continue to serve as Vice Chairman of the Board. The current structure fosters consensus building and tactical execution of a Board-approved vision and strategy at the top levels of the Company, which we believe promotes long-term stockholder value. The Board believes this structure is in the Company’s best interest at the present time, however the Board may utilize a different structure in the future should circumstances change.

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

Director Communication

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

 

   

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

 

   

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

 

   

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

A Management Director may be contacted by:

 

   

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

 

   

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

 

   

sending an email to CorporateSecretary@dvn.com.

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

Compensation Committee Interlocks and Insider Participation

During 2014, the Compensation Committee was comprised of four independent Non-Management Directors with no interlocking relationships as defined by the SEC.

Related Party Transactions

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

The Board’s Audit Committee considers information about transactions involving related persons. If the transaction at issue involves a member of the Audit Committee, or a family member of a

 

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member, then that member of the Committee would not participate in discussions. In the event the Committee concludes that a related person has a material interest in any Company transaction, the Committee then reviews the transaction to determine whether to approve or ratify it. Any transaction that meets the monetary threshold under the SEC rules and is determined to have a direct or indirect material benefit to a related party would be disclosed in accordance with SEC rules.

Mr. Nichols’ son-in-law is employed by the Company as an attorney. His total 2014 taxable compensation, including salary, bonus and stock grants was approximately $250,000, which was commensurate with the compensation provided to similarly situated employees of the Company. Mr. Nichols was not involved in the evaluation of his son-in-law’s performance and his son-in-law’s compensation was determined in accordance with the Company’s standard human resources policies and procedures.

Director Compensation for the Year Ended December 31, 2014

Under our Corporate Governance Guidelines, Non-Management Director compensation is determined annually by the Board of Directors acting upon the recommendation of the Governance Committee. Directors who are also employees receive no Director compensation. The following table shows compensation for the following Non-Management Directors for 2014:

 

Name   Fees Earned or Paid
in Cash ($)
   

Stock Awards1

($)

   

Option Awards2

($)

    All Other
Compensation3
   

Total

($)

 

Barbara M. Baumann

    97,000        345,006        0          327,001   

John E. Bethancourt

    96,000        345,006        0          326,001   

Robert H. Henry

    105,000        230,001        0        0        335,001   

John A. Hill

    129,000        230,001        0        2,856        361,857   

Michael M. Kanovsky

    108,000        230,001        0        0        338,001   

Robert A. Mosbacher, Jr.

    114,000        230,001        0        0        344,001   

J. Larry Nichols

    281,000        630,031        0        64,498        975,529   

Duane C. Radtke

    97,000        230,001        0        0        327,001   

Mary P. Ricciardello

    118,000        230,001        0        0        348,001   

 

1 

The dollar amounts reported in this column represent the grant date fair values of the stock awards made to Ms. Baumann and Mr. Bethancourt on January 31, 2014, and to all Non-Management Directors on June 4, 2014, computed in accordance with FASB ASC Topic 718. The assumptions used to value stock awards are discussed in Note 4—Share-Based Compensation of the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2014. As of December 31, 2014, our Non-Management Directors held the following unvested stock awards: Ms. Baumann—5,014; Mr. Bethancourt—5,014; Mr. Henry—4,572; Mr. Hill—4,572; Mr. Kanovsky—4,572; Mr. Mosbacher—4,572; Mr. Nichols—8,415; Mr. Radtke—4,572; and, Ms. Ricciardello—4,572.

 

2 

No option awards were made to Non-Management Directors in 2014. As of December 31, 2014, our Non-Management Directors held the following outstanding and unexercised option awards: Mr. Henry—9,000; Mr. Hill—18,000; Mr. Kanovsky—18,000; Mr. Mosbacher—12,000; Mr. Nichols—789,500; Mr. Radtke—9,000; and, Ms. Ricciardello—18,000.

 

3

The dollar amount reported represents the aggregate incremental cost to the Company for personal use of aircraft. The aggregate incremental cost to the Company for personal use of our aircraft is calculated based on our average variable operating costs. Variable operating costs include fuel, engine reserves, maintenance, weather-monitoring, on-board catering, landing/ramp fees and other miscellaneous variable costs. The total annual variable costs are divided by the annual number of hours our aircraft flew to determine an average variable cost per hour. This average variable cost per hour is then

 

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multiplied by the hours flown for personal use to determine the incremental cost. The methodology excludes fixed costs that do not change based on usage, such as pilots’ and other employees’ salaries, purchase costs of the aircraft and non-trip related hangar expenses.

Annual Retainer and Meeting Fees

The following is a schedule of annual retainers and meeting fees for Non-Management Directors in effect during 2014:

 

Type of Fee   Amount  

Annual Retainer to Executive Chairman of the Board

  $ 270,000   

Annual Board Retainer to Non-Chairman Directors

  $ 70,000   

Additional Annual Retainer to Chairman of Audit Committee

  $ 15,000   

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

  $ 10,000   

Additional Annual Retainer for Lead Director

  $ 25,000   

Additional Annual Retainer to Audit Committee Members

  $ 2,000   

Fee for each Board or Committee Meeting attended in person

  $ 2,000   

Fee for each Board or Committee Meeting attended via telephone

  $ 1,000   

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

Equity Awards

As set forth in the Total Director Compensation Table above, on June 4, 2014 our Executive Chairman was granted a restricted stock award (RSA) having a value of $630,000 and our other Non-Management Directors were granted RSAs having a value of $230,000 under our 2009 Long-Term Incentive Plan (as amended and restated, the “LTIP”). Stock awards to Non-Management Directors are granted immediately following each Annual Meeting. These RSA shares will vest 100% on the first anniversary of the date of grant subject to the Director’s continued service to the Company. Cash dividends on shares of restricted stock are paid at the same times and in the same amounts as on other shares of our common stock.

In January 2014, Ms. Barbara M. Baumann and Mr. John E. Bethancourt were appointed as new Non-Management Directors and were granted RSAs having a value of $115,000 under the LTIP, with the same vesting terms as described above.

Changes to Director Compensation

Effective January 1, 2015, the Board, on the recommendation of the Governance Committee and in consultation with the Committee’s independent compensation consultant based on a study of peers and market trends increased the annual retainer for the Committee Chair of the Compensation, Governance and Reserves Committees to $15,000 and increased the annual retainer for the Audit Committee Chair to $25,000.

 

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GOVERNANCE COMMITTEE REPORT

 

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

The Governance Committee is responsible for nominating qualified candidates to serve on the Board of Directors and reviewing their qualifications with the Board, taking into account the composition and skills of the entire Board and specifically ensuring a sufficient number of the members of the Board are financially literate. The Governance Committee considers nominees recommended by stockholders and gives appropriate consideration in the same manner as given to other nominees. Stockholders who wish to submit recommendations for director nominees for election at our 2016 Annual Meeting of Stockholders may do so by submitting such nominee’s name in writing, in compliance with the procedures required by our Bylaws, to the Governance Committee of the Board of Directors, Attention: Chairman, c/o Office of the Corporate Secretary, Devon Energy Corporation, 333 W. Sheridan Avenue, Oklahoma City, Oklahoma 73102. Such a recommendation must be received between February 3, 2016 and March 5, 2016 in order to be considered a timely notice. The stockholder’s notice must contain:

 

   

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

 

   

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

 

   

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

 

   

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

 

   

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

 

   

a representation that the stockholder intends to appear in person or by proxy at the 2016 Annual Meeting to bring such business before the meeting; and

 

   

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

The Board takes reasonable steps to ensure that a diverse group of qualified candidates are in the pool from which the nominees for the Board are chosen. The Governance Committee may, at its discretion, seek third-party resources to assist in the process and make final director candidate recommendations to the Board. The Board considered the experience, qualifications, attributes and skills of each of the nominees for Director at the 2015 Annual Meeting. As identified in our Corporate Governance Guidelines, the basic qualifications that the Governance Committee looks for in a Director include such factors as:

 

   

integrity and accountability;

 

   

informed judgment;

 

   

peer respect; and

 

   

high performance standards.

 

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GOVERNANCE COMMITTEE REPORT (cont’d)

 

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

 

   

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

 

   

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

 

   

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

 

   

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

 

   

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

 

   

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

The Governance Committee also plays a leadership role in shaping the Company’s corporate governance. It periodically undertakes a corporate governance self-assessment, consisting of a thorough review of the Company’s corporate governance practices. The Governance Committee reviews the Company’s practices and best practices followed by other companies to maintain a corporate governance framework for the Company that is effective and functional and that fully addresses the interests of the Company’s stakeholders. The Governance Committee from time to time recommends enhanced corporate governance standards to the Board. The corporate governance standards that have been approved by the Board are reflected in:

 

   

the Corporate Governance Guidelines;

 

   

the Charters for each of the Board’s Committees;

 

   

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

 

   

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

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

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

Robert A. Mosbacher, Jr., Chairman

Barbara M. Baumann

John E. Bethancourt

Robert H. Henry

Mary P. Ricciardello

 

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AUDIT COMMITTEE REPORT

 

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

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

In fulfilling its duties during 2014, the Audit Committee:

 

   

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

 

   

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

 

   

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

 

   

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

 

   

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

 

   

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

 

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AUDIT COMMITTEE REPORT (cont’d)

 

Fees to Independent Auditor

Under the terms of its Charter, the Audit Committee has the responsibility to approve the fees paid to the independent auditors. For the years ended December 31, 2014 and December 31, 2013, the following fees were paid to KPMG LLP:

 

     2014     2013  

Audit fees

  $ 3,535,000      $ 3,338,000   

Audit related fees

    446,000        1,452,000   

Tax fees

    85,000        214,000   

All other fees

           342,000   
    $ 4,066,000      $ 5,346,000   

Audit fees included services for the audits of the Company’s financial statements and the effective operation of its internal controls over financial reporting. KPMG LLP also serves as the independent auditors for EnLink Midstream, LLC and EnLink Midstream Partners, LP (collectively, “EnLink”). Fees for the audits of EnLink’s consolidated financial statements for 2014 were $1,750,000 which are not included in the table above.

Audit-related fees consisted principally of fees related to registration statements and for audits of financial statements of certain of the Company’s affiliates and subsidiaries. The audit-related fees for 2013 include fees related to the formation of EnLink, which was consummated on March 7, 2014. Audit-related fees for EnLink for 2014 were $504,000, which are not included in the table above.

Tax fees consisted of tax compliance and tax consulting fees. Other fees relate to a review of certain information technology sourcing initiatives.

Audit Committee Pre-Approval Policies and Procedures

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

All of the 2014 and 2013 audit and non-audit services provided by KPMG LLP were approved by the Audit Committee. The non-audit services that were approved by the Audit Committee were also reviewed to ensure compatibility with maintaining the auditors’ independence, and the Audit Committee determined the auditors’ independence was not impaired.

In reliance on the reviews and discussions referred to above, the Audit Committee recommended to the Board, and the Board has approved, that the audited financial statements be included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014 that has been filed with the SEC.

Mary P. Ricciardello, Chairman

Barbara M. Baumann

Robert H. Henry

Michael M. Kanovsky

 

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RESERVES COMMITTEE REPORT

The Reserves Committee is currently comprised of three independent Directors and operates under a charter approved by the Board of Directors. The Reserves Committee Charter is available at www.devonenergy.com. The Reserves Committee oversees, on behalf of the Board, the integrity of the Company’s oil, bitumen, natural gas and natural gas liquids reserves data. Management and our independent engineering consultants have the primary responsibility for the preparation of the reserves reports. In fulfilling its oversight responsibilities, the Reserves Committee reviewed with management the internal procedures relating to the disclosure of reserves in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014, having regard to industry practices and all applicable laws and regulations. In fulfilling its duties during 2014, the Reserves Committee:

 

   

approved Deloitte LLP and LaRoche Petroleum Consultants, Ltd. as the Company’s independent engineering consultants for the year ended December 31, 2014;

 

   

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

 

   

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

 

   

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

 

   

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

 

   

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

In reliance on the reviews and discussions referred to above, the Reserves Committee recommended to the Board, and the Board has approved, that the reserves information be included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014 that has been filed with the SEC.

Michael M. Kanovsky, Chairman

John E. Bethancourt

Duane C. Radtke

 

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AGENDA ITEM 2.

APPROVE, IN AN ADVISORY VOTE, EXECUTIVE COMPENSATION

In accordance with Section 14A of the Securities Exchange Act of 1934, we are asking our stockholders to vote to approve, on an advisory basis, the compensation of our named executive officers as disclosed in this Proxy Statement. At the 2011 Annual Meeting you approved our proposal to provide you with this opportunity on an annual basis. This vote is not intended to address any specific item of compensation, but rather our overall compensation policies and practices relating to our named executive officers as disclosed in our Compensation Discussion and Analysis, the Summary Compensation Table, and other related tables and narrative disclosure. Accordingly, we will ask our stockholders to vote “FOR” the following resolution at the 2015 Annual Meeting:

“RESOLVED, that the Company’s stockholders approve, on an advisory basis, the compensation of the named executive officers, as disclosed in the Company’s Proxy Statement for the 2015 Annual Meeting of Stockholders pursuant to the compensation disclosure rules of the Securities and Exchange Commission, including the Compensation Discussion and Analysis, the 2014 Summary Compensation Table and the other related tables and narrative disclosure.”

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

 

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

 

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NAMED EXECUTIVE OFFICER COMPENSATION

COMPENSATION DISCUSSION AND ANALYSIS

 

Introduction

     32   

Purpose of Compensation Discussion and Analysis

     32   

Named Executive Officers

     32   

Executive Summary

     32   

2014 Company Performance and Pay Alignment

     32   

Company Performance Scorecard

     35   

Compensation Philosophy and Objectives

     36   

What Devon Does and Doesn’t Do

     38   

Response to Stockholder Feedback

     38   

Compensation Decisions for 2014

     39   

Overview of Pay Decisions

     39   

Base Salary

     40   

Annual Performance Cash Bonus

     41   

Long-Term Incentives

     42   

Snapshot Comparison of Compensation Decisions Made for 2014 and 2013 Company Performance

     45   

Effect of Company Performance on President and CEO Realizable Pay

     46   

Pay Alignment for Devon and the Peer Group

     46   

Alignment of Realizable Pay with Performance

     47   

Compensation Process Background

     48   

Role of the Committee

     48   

Role of the Compensation Consultant

     49   

Use of Peer Groups

     49   

Tally Sheet Review

     50   

Succession Planning

     50   

Additional Compensation Information

     50   

Retirement Benefits

     50   

Other Benefits

     51   

Post-Termination or Change-in-Control Benefits

     51   

Stock Ownership Guidelines

     52   

Compensation Program and Risk-Taking

     52   

Policy for Recovery of Compensation (Clawback Policy)

     53   

Consideration of Tax Implications

     53   

Change in Pension Value

     54   
 

 

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NAMED EXECUTIVE COMPENSATION (cont’d)

 

Introduction

Purpose of Compensation Discussion and Analysis

This Compensation Discussion and Analysis (“CD&A”) outlines our compensation philosophy and describes the material components of our executive compensation practices and programs for our “named executive officers.” This CD&A also summarizes decisions the Compensation Committee of the Board of Directors (“Committee”) made under these programs and the factors considered in making those decisions. In particular, this CD&A focuses on the decisions the Committee made at its meetings in January 2015 at which the Committee evaluated Company and individual performance for 2014. Compensation for named executive officers is also set forth in the 2014 Summary Compensation Table (“SCT”) and other compensation tables that follow this CD&A.

Named Executive Officers

Our named executive officers for 2014 are the following individuals:

 

Executive   Position

John Richels

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

Thomas L. Mitchell            

 

Executive Vice President and Chief Financial Officer

David A. Hager

 

Chief Operating Officer

Darryl G. Smette

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

Tony D. Vaughn

 

Executive Vice President, Exploration and Production

Jeffrey A. Agosta

 

former Executive Vice President and Chief Financial Officer

The compensation objectives, practices, and programs discussed in this CD&A apply to the named executive officers as well as the three Executive Vice Presidents of the Company who were not named executive officers in 2014. In this CD&A, we may refer to this group as “executive officers.” Although Mr. Agosta left the Company in January 2014, SEC rules require us to include him as a named executive officer in this CD&A. The SCT and other tables that follow this CD&A reflect the severance package Mr. Agosta received pursuant to his employment agreement with the Company. Mr. Mitchell joined Devon in February 2014 as the Company’s new Chief Financial Officer.

In December 2014, the Company announced that Mr. Richels will retire as an employee of the Company in July 2015. At the same time, the Board announced Mr. Richels’ election as its Vice Chairman and its expectation that Mr. Richels will continue to serve on the Board following his retirement. The Board also indicated that it expects to appoint Mr. Hager as the Company’s President and CEO effective immediately upon Mr. Richels’ retirement. At its January 2015 meetings, the Committee awarded compensation to Messrs. Richels and Hager based on their 2014, rather than anticipated, positions with the Company.

Executive Summary

2014 Company Performance and Pay Alignment

Since 2010, the Company has transitioned to a liquids-rich (oil and natural gas liquids), higher margin, onshore North American production base. 2014 was transformative for the Company in those continuing efforts. More importantly, Company performance for the year validated those efforts. In

 

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NAMED EXECUTIVE COMPENSATION (cont’d)

 

2014, Devon closed strategic transactions that significantly increased the Company’s light-oil and overall liquids production. The Company also transformed its organizational structures and processes in order to excel in certain key drivers for the Company’s success. These successful strategic shifts were matched by excellent performance on most financial and operational goals and outstanding relative returns for stockholders. With respect to financial and operational goals, the Company met or exceeded most targets. Oil and gas production for the year beat the Company’s goal without compromising performance on environmental, health and safety measures or materially outspending capital expenditure targets.

The Company’s accomplishments in 2014 are illustrated by the following highlights:

Acquisitions and divestitures

 

   

Acquisitions and performance improvements for acquired assets led to Devon posting a 52% increase in its light-oil production from retained properties as compared to the prior year, growing its proved oil and bitumen reserves to a record 895 million barrels as of December 31, 2014, and shifting the Company’s overall liquids production from approximately 42% in 2013 to 52% in 2014 after taking into account divestitures during the year;

 

   

Devon realized cash proceeds at the top end of expectations for its significant divestitures; and

 

   

Devon achieved a significant lift in the value of its midstream assets, with its interest in two NYSE-traded entities (EnLink Midstream Partners, LP and EnLink Midstream, LLC) valued at approximately $7.6 billion as of year-end as compared to a valuation of approximately $4.8 billion for the assets contributed by Devon to EnLink Midstream when the transaction closed in March 2014.

Top-tier performance as an operator in key E&P plays

 

   

The Company’s success was due in large part to the enhancements of certain crucial organizational structures and processes;

 

   

Devon created high-caliber technological teams and strategies for the execution of optimal drilling and well performance as evidenced by significant increases in initial production and ultimate recovery rates in several plays; and

 

   

The changes allowed Devon to exceed the high-end of expected production on the newly acquired Eagle Ford acreage.

Operational and financial goals were met or exceeded

 

   

Devon’s oil production and total production exceeded the top end of the guidance range for the year and average daily oil production in the fourth quarter of 2014 increased by 48% as compared to the fourth quarter of 2013;

 

   

Devon exercised capital discipline by spending within the range projected; and

 

   

Devon’s cash margin per barrel was higher than projected.

The Company generated top-tier performance for its stockholders

 

   

Devon’s total stockholder return (TSR) for 2014 was in the top one-third of its peer group, and, on a two-year basis, Devon’s TSR was 6th of 15 peer companies;

 

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NAMED EXECUTIVE COMPENSATION (cont’d)

 

   

Devon recorded a positive TSR for the year (an accomplishment matched by only four members of the peer group) in a difficult year for stock price performance in the energy industry as a whole; and

 

   

Devon’s stock price reached an intra-year high of $80.63, which was approximately 30% above 2013’s closing price.

The table set forth below provides additional detail on the Company’s performance in 2014. The metrics in the table are not only critical to the Company’s near-term performance but also to its prospects for sustainable growth and long-term value creation for the Company and stockholders. The Committee evaluated the Company’s performance on these metrics in connection with awarding performance cash bonuses for 2014.

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

 

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NAMED EXECUTIVE COMPENSATION (cont’d)

 

Company Performance Scorecard

 

Measure   Goal   Outcome   Weight     Score    

Weighted

Score

 
Improve the Overall Value of Devon’s Asset Portfolio   Successful execution of acquisitions & divestitures (GeoSouthern, EnLink, non-core U.S. assets, and Canadian conventional assets)   Timely and exceptional execution of transactions; proceeds of divestitures exceeded Wall Street’s estimates; value of Devon’s midstream assets contributed to EnLink increased from $4.8B to $7.6B     20     200     40.0
Exploration & Production Productivity Initiatives   Transform organizational structures and processes to maximize performance   Transformation accomplished; E&P productivity improved; performance as well operator was excellent     20     175     35.0
Total Stockholder Return1   Top half of the peer group on a 1-year basis   Top one-third of peer group in TSR (5th out of 15); 4th out of 15 when measured based on stock price appreciation alone (i.e., excluding dividends)     15     150     22.5
Oil and Gas Production   237.1 million BOE   245.8 million BOE     10     125     12.5
Total Capital Expenditures   $6.1 billion   $6.2 billion     5     100     5
Pre-Tax Cash Margin per BOE, normalized2   $23.12 per BOE   $23.33 per BOE     5     125     6.3
Lease Operating Expenses per BOE   $8.95 per BOE   $9.49 per BOE     5     75     3.8
Oil and Gas Reserves Additions   166.4 million BOE added   146.0 million BOE added     5     75     3.8
Environmental, Health and Safety3   Continuous improvement on various measures   Overall performance better than prior year; performed better than industry on vehicle incident rate, spill rate, and lost spill rate     5     150     7.5
Learning and People4   Increase number of key positions filled through internal promotion; employee turnover below industry mean   Number of key positions filled internally increased by 3%; turnover was less than industry mean     5     150     7.5
Improve Business Environment   Identify and address risks to Company operations   Identified risks and engaged in successful efforts at community, regulatory and legislative levels     5     125     6.3
2014 Company Performance Score   150%

 

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NAMED EXECUTIVE COMPENSATION (cont’d)

 

1 

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

 

2 

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

 

3 

Environmental, Health and Safety measures consisted of employee recordable incident rate, contractor recordable incident rate, preventable vehicle incident rate, spill rate, and lost spill rate.

 

4 

Learning and People measures the percent of promotional opportunities filled by internal candidates and voluntary attrition rate.

The Company’s 2014 performance score is a reflection that, in spite of the headwinds posed by a challenging commodity price environment for the Company and industry in the final quarter of the year, 2014 was one of Devon’s strongest. By closing strategic acquisitions and divestitures, transforming organizational structures and processes, and executing on key operational and financial measures, the Company delivered superior performance. This success was recognized in the market through Devon’s TSR performance, which was in the top one-third of the peer group for the year.

Based on the quantitative process that includes the scorecard, the Committee awarded performance cash bonuses at 150% of target to Messrs. Mitchell, Hager, and Smette. The Committee awarded performance cash bonuses at 160% and 166% of target to Messrs. Richels and Vaughn, respectively, in recognition of their critical roles in the Company’s superior results on the two performance goals that had been ascribed the greatest weight at the beginning of the year. Mr. Richels’ leadership was instrumental in securing favorable terms for significant acquisitions and divestitures during 2014. Mr. Vaughn oversaw the implementation of the new organizational structures and processes noted in the scorecard. Those efforts resulted in the Company achieving top-quality performance as an operator in the key E&P plays that the Company continues to develop in North America and cultivating high-caliber technological teams and strategies for the execution of optimal drilling and well performance.

In its January 2015 meetings, the Committee also granted long-term incentives (“LTI”) to named executive officers in order to incent the achievement of future goals. Messrs. Richels and Smette were awarded LTI at approximately the same level as the prior year while the Committee increased overall grant values for Messrs. Hager and Vaughn to recognize the continuing expansion of their respective roles during 2014. In his first year of eligibility for an award in connection with the Committee’s performance cycle, Mr. Mitchell received an LTI grant valued at approximately $2.3 million. Finally, the Committee awarded salary increases based on competitive market trends to each named executive officer other than Mr. Richels. Salary increases ranged from 3.5% to 10%. Additional detail on compensation decisions starts on page 39.

Compensation Philosophy and Objectives

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

 

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NAMED EXECUTIVE COMPENSATION (cont’d)

 

This operating strategy requires a compensation philosophy that recognizes near-term operational and financial success as well as decision-making that supports long-term value creation. For these reasons, the Company’s executive compensation program is designed to strike a balance between the near-term and the long-term by providing executive officers annual performance cash bonuses and LTI awards tied to prospective Company performance. Properly allocating these compensation elements is critical in motivating executive officers to carry out our operating strategy. Overall, the value of an executive officer’s total compensation is weighted in favor of long-term incentives in order to focus the officer’s efforts on the long-term performance of the Company and to encourage the executive to remain at the Company.

The objectives of our compensation program are to:

 

   

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

 

   

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

 

   

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

 

   

track and respond to developments such as the tightening in the labor market or changes in competitive pay practices.

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

The Committee emphasizes TSR performance in the executive compensation programs in order to make realizable pay highly dependent on TSR performance over the short and medium-term. When Devon’s TSR underperforms, the structure of Devon’s compensation programs will result in named executive officers generally receiving below target bonuses and lower than average overall compensation compared to executives in similar positions at peer companies because TSR is an important measure for performance cash bonuses and the sole determinant of performance share unit payouts. The converse is true as well: When Devon’s TSR outperforms that of its peers, named executive officers are likely to receive above target pay and higher than average overall compensation compared to executives in similar positions at peer companies. Please see page 46 for a further discussion of realizable pay.

 

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NAMED EXECUTIVE COMPENSATION (cont’d)

 

What Devon Does and Doesn’t Do

 

Good Compensation Governance Practiced by Devon
 

•   Award Performance-Based LTI—Since December 2011, the Company has delivered LTI in the form of performance share units tied to TSR (50%) and performance restricted stock tied to a financial metric (50%). No stock options have been awarded over this period.

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

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

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

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

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

 

Controversial Compensation Governance Not Practiced by Devon
 

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

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

x  Allow Excessive Severance Benefits and/or Liberal Change-in-Control Payments—Employment agreements do not require cash payments exceeding three times base salary plus target/average/last paid bonus; no liberal change-in-control definition; no cash severance payments without job loss.

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

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

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

 

Response to Stockholder Feedback

The Committee continually evaluates the Company’s executive compensation programs and monitors stockholder sentiments. As in prior years, Company management engaged in discussions with many stockholders on a variety of topics during 2014, including executive compensation and its tie to Company performance. In each of the past few years, this process has resulted in the Committee implementing changes to the Company’s executive compensation programs. Although the Committee

 

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noted that 90% of the votes cast at Devon’s 2014 Annual Meeting were in favor of the Company’s compensation, the Committee continued to refine the executive compensation programs by implementing the following changes:

 

   

The most recent LTI granted by the Committee will not vest immediately upon a change in control of the Company. Instead, accelerated vesting of the LTI will only arise if a named executive officer is terminated without cause following a change in control (i.e., a second “trigger” for vesting).

 

   

Existing guidelines for stock ownership by executive officers were revised to increase the ownership level for the Company’s President and CEO and to add a holding requirement for executive officers who have yet to reach their minimum ownership level. More specifically,

 

   

the Company’s President and CEO will now be required to own shares of common stock with a value of at least six times his base salary; and

 

   

executive officers who have not met the minimum ownership level will now be required to hold at least one-half of the shares of Devon common stock received from awards (subject to adjustment for taxes) until minimum ownership levels are achieved.

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

 

Source for Detail   Change in Compensation Practice
2014 Proxy
Statement
 

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

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

•   Conditions for performance share units were adjusted to require superior relative TSR in order to yield payout at target level.

2013 Proxy
Statement
 

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

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

2012 Proxy
Statement
 

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

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

Compensation Decisions for 2014

Overview of Pay Decisions

We believe that the proportion of any employee’s total direct compensation that varies based on performance should increase as the scope of an employee’s ability to influence our results increases. Since executive officers have the greatest influence over our results, a significant portion of their overall compensation consists of performance cash bonuses and long-term incentive awards that vary

 

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based on performance. This practice is consistent with norms in the oil and gas industry. As illustrated below, compensation decisions made by the Committee at its January 2015 meeting resulted in awards heavily weighted in favor of components subject to performance-related variability with cash bonuses and LTI representing approximately 89% of the estimated value of total direct compensation awarded to our President and CEO and approximately 84% for all other named executive officers (excluding the Company’s former CFO).

 

LOGO

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

 

   

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

 

   

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

 

   

our compensation philosophy;

 

   

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

 

   

input from the Compensation Consultant (defined below);

 

   

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

 

   

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

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

Base Salary

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

In addition to the factors the Committee generally considers with any compensation decisions, the Committee took the following factors into account at its January 2015 meeting when evaluating whether to adjust the salaries of named executive officers:

 

   

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

 

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the relative pay for different officers within the Company.

Based on the foregoing, the Committee determined that salary increases were warranted for certain named executive officers because their salaries would fall behind the market target of the 50th percentile in the near future if no changes were made. The Committee approved the President and CEO’s recommended salaries for named executive officers (other than himself), which resulted in increases ranging from 3.5% to 10%. The Committee determined that Mr. Richels’ salary met the Committee’s objectives and made no change.

The referenced salary changes took effect on February 7, 2015. Please note that the SCT’s entries for “Salary” reflect the salaries received by the named executive officers during 2014. The footnotes that accompany the SCT provide additional information on salaries for 2014.

Annual Performance Cash Bonus

The Committee believes that performance bonuses awarded to executives should reflect the near-term financial, operating, and strategic performance and current decision-making that affects long-term stockholder value. To achieve this, the Committee utilizes a bonus determination formula that establishes a pre-determined bonus target for each executive officer based on a percentage of his base salary. For 2014, bonus targets for named executive officers ranged from 100% to 135% of base salaries depending on industry norms for the relevant officer position. Actual bonus payouts depend on the Company’s performance in relation to structured and measurable goals approved by the Board and individual contributions to these goals. Because success in the oil and gas industry requires continuous execution on multiple fronts in order to increase stockholder value, the Company’s goals cover a number of both quantitative and qualitative areas, such as delivering stockholder returns and growing our oil and gas production and reserves.

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

At its January 2015 meeting, the Committee awarded compensation commensurate with the superior overall performance of the Company reflected by results on the performance scorecard. In assessing 2014 performance, the Committee scored the Company highest on two key strategic measures: improvement of the Company’s asset base and transformation of the Company’s organizational structure and processes. The Committee noted the Company’s improved relative TSR for the year, which outperformed the goal of recording TSR in the top half of the peer group. The Company also executed on its 2014 business plan by posting results that met or exceeded most operational and financial goals. Please refer to the performance scorecard and related discussion on page 35 for additional detail on the performance assessment process.

While the bonus award process is highly structured and makes use of metrics and formulas, the Committee maintains the authority to adjust the amount of performance cash bonuses determined through the scoring process by no more than 25% in order to recognize critical performance factors that may not have been fully taken into account in calculating the Company performance score. As previously mentioned, with the exception of Messrs. Richels and Vaughn, the Committee awarded

 

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2014 annual performance bonuses equivalent to 150% of each named executive officer’s target bonus amount. For Mr. Richels, the Committee awarded a bonus of approximately 160% of target in recognition of his leadership in the Company’s strategic asset repositioning. In the case of Mr. Vaughn, the Committee awarded a bonus of approximately 166% of target due to his role in the transformation of the Company’s existing organizational structures and processes. Through the scoring process, the Committee arrived at performance cash bonuses for 2014 that were less than the level of the bonus pool provided for through the cash bonus eligibility approvals that the Committee made at the start of the year under the Company’s 2012 Incentive Compensation Plan.

The following table outlines the calculations made for the performance cash bonuses awarded for 20141:

 

Executive   2014
Salary2
          Performance
Bonus
Target
          Company
Performance
Score
          Process
Determined
Bonus
Amount
   

Actual

Award
Amount

 

John Richels

  $ 1,456          135       150     $ 2,948      $ 3,145   

Thomas L. Mitchell

  $ 550          100       150     $ 825      $ 825   

David A. Hager

  $ 900        X        100     X        150     =      $ 1,350      $ 1,350   

Darryl G. Smette

  $ 720          100       150     $ 1,080      $ 1,080   

Tony D. Vaughn

  $ 650          100       150     $ 975      $ 1,080   

 

1

All dollar amounts in thousands.

 

2 

Annualized base salary in effect as of December 31, 2014.

Please note that the SCT’s entries for “Non-Equity Incentive Plan Compensation” in 2014 reflect the annual performance cash bonuses listed under the column “Actual Award Amount” above.

Long-Term Incentives

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

In analyzing the value and type of long-term incentives to award to our named executive officers, the Committee referred to the factors it generally considers for compensation decisions and also took the following additional factors into account:

 

   

incentive awards for others in the organization; and

 

   

the impact of awards on the Company’s share dilution levels.

As with its other most recent grants of LTI, the Committee determined in its January 2015 meeting that the creation of stockholder value would be promoted by linking all long-term incentives awarded in the year to Company performance. Accordingly, the two types of long-term incentives granted to named executive officers—performance restricted stock and performance share units—only vest if certain levels of performance are achieved. The Committee again elected not to grant any stock options.

 

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The following table describes the long-term incentives granted to named executive officers in early 2015:

LTI Framework

 

Type of LTI Award        Purpose        Additional Background and Detail

Performance Restricted Stock (PRS)

   

PRS encourages executives to work toward achievement of a pre-set financial metric. For PRS awards made in early 2015, the Company must attain cash flow before balance sheet changes1 of at least $4 billion in 2015 in order to vest.

     

•  Tying PRS to a financial metric is designed to promote tax efficiency in awarding compensation to named executive officers.

 

•  Shares only vest if the Company meets the pre-set financial metric.

 

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

 

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

       
Performance Share Units (PSU)      

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

     

•  Executives may earn between 0 and 200% of the shares underlying the grant based on the Company’s TSR relative to companies in the peer group over a three-year performance period (January 1, 2015 through December 31, 2017).

 

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

 

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

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

1-3

      200%
   

4

      175%
   

5

      150%
   

6

      125%
   

7

                     100%(target)
   

                8(median)

      90%
   

9

      80%
   

10

      70%
   

11

      60%
   

12

      50%
   

13-15

      0%

 

1 

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

 

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2 

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

Our review of peer data conducted in 2014 indicated that the value of long-term incentives awarded to the named executive officers in 2014 was generally consistent with the Company’s market objective of the 50th percentile of the peer companies. For 2015 awards, the Committee also targeted the 50th percentile.

During its meeting following year end, the Committee approved the grants set forth in the table below. For the performance restricted stock award, the Committee used the same performance target as the prior year. The performance share unit awards granted in 2015 are structured substantially the same as those granted in 2014 except for the changes in the peer group noted on page 50. Named executive officers will not receive an above-target payout unless stockholders achieve positive returns over the same period. Awarding LTI conditioned upon specific performance criteria preserves the potential tax deductibility of the awards by the Company.

Long-Term Incentives Granted in 20151

 

Executive   Item2   Performance
Restricted
Stock3
    Performance
Share
Units3
 

John Richels

  Shares     70.120        70.100   
  Value   $ 4,500      $ 4,499   

Thomas L. Mitchell

  Shares     17.920        17.900   
  Value   $ 1,150      $ 1,149   

David A. Hager

  Shares     33.500        33.480   
  Value   $ 2,150      $ 2,149   

Darryl G. Smette

  Shares     17.920        17.900   
  Value   $ 1,150      $ 1,149   

Tony D. Vaughn

  Shares     19.480        19.460   
  Value   $ 1,250      $ 1,249   

 

1 

For each named executive officer, the Committee first determines the total value of long-term incentives to be awarded then divides the total value approximately equally between performance restricted stock and performance share units. The Committee used the face-value method (value divided by grant date closing price) in valuing performance restricted stock and performance share units. Based on share rounding conventions approved by the Committee, grants were in whole shares and approximately $1,000 below the maximum value authorized by the Committee for each named executive officer.

 

2 

Share and value amounts in thousands.

 

3 

In accordance with applicable accounting requirements, we use a different valuation method in the SCT (in this case, a Monte Carlo simulation) for performance share units than in this table. The Monte Carlo simulation for the performance share units, when valued for purposes of inclusion in next year’s SCT as compensation for 2015, will assign a higher per unit value than the closing price for the Company’s stock as of the grant approval date.

In making its award decisions, the Committee noted the Company’s achievement of key goals in 2014 and the leadership the executive team exhibited with the Company’s strategic repositioning during the year. Based on the foregoing, the Committee determined it would be appropriate to award LTI to the named executive officers at approximately the same value as last year with some minimal variation. With the grants for Messrs. Richels and Smette, the Committee rounded down from last year’s grant date fair value. The Committee made modest increases in the LTI grants for Messrs.

 

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Hager and Vaughn in recognition of the on-going expansion of their respective roles within the Company. The Committee determined that Mr. Mitchell merited an LTI grant at approximately the 50th percentile of executives in like positions at peer companies.

The SCT’s “Stock Awards” entries in 2014 reflect annual LTI grants approved by the Committee in January 2014. For Mr. Mitchell, the entry also includes an LTI award he received upon joining the Company. For additional information about grants for 2014, please refer to the SCT and accompanying footnotes.

Snapshot Comparison of Compensation Decisions Made for 2014 and 2013 Company Performance

Pursuant to the Committee’s compensation cycle, the Committee in January 2015 (1) set base salaries for the duration of 2015, (2) awarded a cash bonus for 2014 performance, and (3) granted long-term incentives. In accordance with SEC guidance, the base salary and long-term incentives will appear in next year’s SCT as compensation for 2015 whereas the cash bonus will be reported in this year’s SCT as compensation for 2014. As part of its deliberations each year, the Committee compares the current year’s preliminary pay calculations to the prior year’s compensation outcomes. The review identifies the elements of our named executive officers’ compensation that are awarded based on the Company’s performance for the prior year and typically de-emphasizes elements that are not tied to Company performance or that may be subject to factors outside the control of the Committee, such as actuarial estimates used in calculating pension values for purposes of the SCT and other required tables.

The table below illustrates the difference in pay awarded by the Committee in its January meetings in the past two years. The table reflects the Committee’s decision to reward the Company’s strong performance in 2014 and the Committee’s view that the named executive officers played a significant role in the success.

 

Comparison of Total Direct Executive Pay

Compensation Decisions Made in Context of 2014 Performance Compared to 2013 Performance1

Executive   Year
   

Base
Salary

Rate2

    Performance Cash
Bonus 3
    Value of
Annual LTI
Grant4
    Total Direct
Pay
    2014
Compared to
2013
      $     % of
Target6
       

John Richels

    2014      $ 1,456      $ 3,145        160   $ 8,999      $ 13,600      increase of 

7.3%

    2013      $ 1,456      $ 1,890        100   $ 9,328      $ 12,674     

Thomas L. Mitchell5

    2014      $ 610      $ 825        150   $ 2,299      $ 3,734      N/A

David A. Hager

    2014      $ 945      $ 1,350        150   $ 4,299      $ 6,594      increase of 

11.5%

    2013      $ 900      $ 870        100   $ 4,125      $ 5,915     

Darryl G. Smette

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

8.7%

    2013      $ 720      $ 689        100   $ 2,385      $ 3,794     

Tony D. Vaughn

    2014      $ 715      $ 1,080        166   $ 2,499      $ 4,294      increase of 
19.8%
    2013      $ 650      $ 550        100   $ 2,385      $ 3,585     

 

1 

All dollar amounts shown in thousands.

 

2 

The column reflects the base salary rate determined at the Committee meeting following year end.

 

3 

Bonus targets are set as a percentage of base salary in effect as of year-end. Please refer to the section titled “Performance Cash Bonuses” for additional information about the process for 2014.

 

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4 

All amounts calculated using the face-value method (value divided by the closing price of the Company stock as of the grant approval date). 2013 grants were made in February 2014; 2014 grants were made in February 2015.

 

5 

Mr. Mitchell joined the company in February 2014. Therefore, we have not provided a year-over-year comparison.

 

6 

The bonus target for Mr. Richels is 135% of his prior year’s salary. The bonus target for other named executive officers is 100%.

Effect of Company Performance on President and CEO Realizable Pay

Pay Alignment for Devon and the Peer Group

The chart set forth below illustrates the degree of alignment between CEO pay and TSR performance for the Company and the peer group. For each company, the chart plots, (a) on a vertical axis, the estimated realizable pay of its CEO by reference to the latest three reported years of awarded compensation and the estimated value of those awards as of June 30, 2014 as compared to the realizable pay of the overall group and, (b) on a horizontal axis, its TSR from December 31, 2010 to June 30, 2014 as compared to the median TSR of the overall group. Companies with pay-for-performance alignment appear in either the upper-right (“Performed Better/Higher Realizable Pay”) or lower-left (“Performed Worse/Lower Realizable Pay”) quadrants of the chart.

The Company is in the lower-left quadrant of the chart: Its cumulative TSR for the period was below the median, but the President and CEO’s compensation also fell below the median. The chart supports the conclusion that the compensation opportunities awarded by the Committee have aligned our President and CEO’s realizable compensation with the Company’s relative TSR performance over the same period of time.

Industry Alignment of CEO Pay and Stockholder Returns for Three Years

 

 

LOGO

 

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1 

Pay consists of base salary, cash bonus and long-term incentives. The chart reflects the most current pay data available as of December 31, 2014. In most cases, pay data had not been published and pay had not been awarded for all of 2014.

 

2 

TSR is for the period December 31, 2010 to June 30, 2014.

 

3 

The chart omits three members of the peer group because their respective CEO pay packages lack comparability to the other companies. In two cases, the companies are headquartered outside the United States, and the third company had two different CEOs during the period.

Alignment of Realizable Pay with Performance

The following chart demonstrates that the executive compensation programs are meeting one of their key objectives: Company TSR performance, especially relative to peer companies, significantly impacts the realizable compensation of our President and CEO. As shown below, the President and CEO’s realizable pay for the past three years ending December 31, 2014, was, in aggregate, 2% less than target. Even though Devon has achieved TSR superior to most peers since 2012, the Company’s underperformance in 2012 brought the three-year aggregate President and CEO pay below target. This underscores that the Committee’s emphasis on relative TSR as a key metric for performance cash bonuses and performance share units over the past three years has made target level pay unachievable for the President and CEO without consistently superior TSR performance by the Company relative to peers. The Committee believes this analysis serves as the best measure of the alignment between pay-for-performance and the creation of stockholder value rather than a theoretical analysis based on targets or less tangible measures.

 

 

LOGO

Notes:

All dollar amounts shown in thousands.

 

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NAMED EXECUTIVE COMPENSATION (cont’d)

 

Amounts shown for each “Target” column reflect the compensation decisions made by the Committee at its annual meetings in December 2011 (labeled “2012 Pay”), November 2012 (labeled “2013 Pay”), and January 2014 (labeled “2014 Pay”), the results of which are disclosed by the Company in the proxy statements for the Company’s 2012, 2013 and 2014 annual meetings. For each column, the amounts reflect the aggregate grant date fair values of LTI awarded by the Committee at the meeting plus the base salary and targets for performance cash bonuses set for the following year.

Amounts shown in the “Realizable” column aggregate actual payouts and/or value achieved based on the targets. For any LTI, the column (i) reflects the vesting date value of any LTI that has already vested, and (ii) values any outstanding or unvested LTI as of December 31, 2014. For (ii), values are only a projection of a payout based on performance to date; until the relevant performance period has ended, the actual payout will not be set. Stock options granted in 2011 reflect no realizable value since none of the options have been exercised, and the strike price for the options is higher than the December 31, 2014 closing price of the Company’s stock.

“% TSR Change” covers, (a) for the first column, the period from December 31, 2011 to December 31, 2014, (b) for the second column, the period from December 31, 2012 to December 31, 2014, and (c) for the third column, the period from December 31, 2013 to December 31, 2014.

“% Difference between Realizable and Target Pay” reflects the difference, expressed as a percentage of “Target,” between “Target” and “Realizable” pay as of December 31, 2014 for each respective column.

Compensation Process Background

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

Role of the Committee

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

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

The Committee considers the various factors described in this CD&A, including its interviews with executive officers and the President and CEO’s evaluations of each executive officer’s performance

 

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and, in a closed session without the President and CEO present, the Committee sets the President and CEO’s compensation. The Committee then determines whether to approve the compensation recommendations provided by the President and CEO for the other executive officers.

Role of the Compensation Consultant

For the 2014 compensation process, the Committee retained Meridian Compensation Partners, LLC (the “Compensation Consultant”) as its external compensation consultant. The Compensation Consultant evaluated the competitiveness of our programs and assisted with executive compensation program design. The Committee has the final authority to hire and terminate the Compensation Consultant, and the Committee annually evaluates the performance of the Compensation Consultant.

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

Use of Peer Groups

To successfully compete for executive talent, the Committee, working with the Compensation Consultant, annually compares the compensation of our executive officers to the compensation of similarly situated executives at peer companies with business operations focused on exploration and production of oil and gas. In establishing a peer group, the Committee primarily seeks companies with asset and market values similar to the Company. The Committee also considers enterprise values, calculated as market value plus net long-term debt and preferred stock, of the companies. The Committee believes these metrics are appropriate for determining peers because they provide a reasonable point of reference for comparing executives with similar positions and responsibilities. At the time the Committee approved the peer group for 2014, the Company was positioned between the 50th and 75th percentiles of the peer group on each of these metrics, which indicates that Devon is in general larger than most of its peers.

The approved peer group for 2014 consisted of the 14 companies listed below.

Anadarko Petroleum Corporation

Apache Corporation

Chesapeake Energy Corporation

ConocoPhillips

EnCana Corporation

EOG Resources, Inc.

Hess Corporation

Marathon Oil Corporation

Murphy Oil Corporation

Newfield Exploration Company

 

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Noble Energy, Inc.

Occidental Petroleum Corporation

Pioneer Natural Resources Company

Talisman Energy Inc.

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

For the 2015 peer group, the Committee has replaced Newfield Exploration Company and Talisman Energy Inc. with Continental Resources, Inc. and Concho Resources Inc. in order to better align the peer group with the objectives outlined above.

Tally Sheet Review

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

Succession Planning

The Company has a robust succession planning process to ensure the development of executive talent for the near and long term. The process and progress are reviewed with the Committee and the Board on an annual basis. The recent announcement that the Board expects to name Mr. Hager as the Company’s President and CEO upon Mr. Richels’ retirement reflects the efforts in this area.

Additional Compensation Information

Retirement Benefits

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

 

   

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

 

   

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

 

   

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

 

   

a nonqualified defined benefit plan (the Supplemental Retirement Income Plan or SRIP) that, among other things, provides retirement benefits calculated without certain limitations applicable to the Defined Benefit Plan, accrues over 20 years of service (rather than the 25

 

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NAMED EXECUTIVE COMPENSATION (cont’d)

 

 

years applicable to the Defined Benefit Plan), includes a five-year vesting schedule, and allows for payments in a lump sum upon a change in control of the Company.

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

For additional information on the Defined Benefit Plan, the SRIP, and the defined contribution plans as well as the present values of the accumulated benefits of our named executive officers under each plan, please refer to the Pension Benefits for the Year Ended December  31, 2014 section on page 62 and the Nonqualified Deferred Compensation Plan in 2014 section on page 66.

Other Benefits

The limited perquisites made available to our executives are listed in detail in the “All Other Compensation” table on page 56. Personal use of aircraft by executives on a limited basis is allowed as approved by the President and CEO. The Committee reviews the personal use of aircraft on an annual basis and has noted that the use has been minimal and less than that of other companies in our peer group.

Post-Termination or Change-in-Control Benefits

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

If a named executive officer is terminated within two years of a change in control, the executive is also entitled to an additional three years of service credit and age in determining entitlement to retiree medical benefits and SRIP benefits (or with respect to the nonqualified defined contribution plan in which Messrs. Mitchell and Hager participate, an additional three years of contributions by the Company). The employment agreements do not include “gross-up” provisions that obligate the Company to pay an additional amount to the named executive officer if his benefits under the employment agreement or any other Company arrangement are subject to the tax imposed on excess parachute payments by Section 4999 of the Internal Revenue Code.

Employment agreements with post-termination and change-in-control benefits are typical in the oil and gas industry and necessary in order to compete for executive talent. Please refer to the Potential Payments Upon Termination or Change-in-Control section on page 68 for more information.

 

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NAMED EXECUTIVE COMPENSATION (cont’d)

 

Stock Ownership Guidelines

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

 

Officer Title   Share Ownership Expectation as Multiple of Base Salary

President and CEO

  Six times base salary

Chief Operating Officer

  Four times base salary

Executive Vice Presidents

  Three times base salary

The guidelines require an executive officer to maintain ownership of at least one-half of the shares of Devon common stock received through equity-based awards from the Company (net of taxes) until the officer meets his or her ownership requirement.

As of March 31, 2015, the named executive officers employed by the Company held stock in excess of the levels required in the guidelines. Mr. Mitchell, who joined the Company in February 2014, has met the required ownership level by continuing to hold at least one-half of the shares of Devon common stock he has received through equity-based awards from the Company. Our executives have historically maintained share ownership levels well above our guidelines. For purposes of calculating share ownership levels, the Board includes (i) shares owned directly by the officer and his immediate family members who share the same household, (ii) shares owned beneficially by the officer and his immediate family members residing in the same household, and (iii) unvested restricted stock for which any performance conditions have been met.

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

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

Compensation Program and Risk-Taking

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

 

   

the Company’s operating strategy and related compensation philosophy;

 

   

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

 

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

 

   

significant executive stock ownership pursuant to our stock ownership guidelines.

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

Policy for Recovery of Compensation (Clawback Policy)

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

Consideration of Tax Implications

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

As part of the Company’s 2012 Annual Meeting, the Company’s stockholders approved (a) the Company’s 2012 Incentive Compensation Plan and (b) the amendment and restatement of the Company’s 2009 Long Term Incentive Plan. In each case, the plans adopted and approvals obtained were designed, in part, to assure that certain bonuses paid and equity awarded under the respective plans would qualify as performance-based compensation. Accordingly, the Company expects that recent cash performance bonuses and any shares that vest pursuant to LTI awards with performance criteria will qualify as performance based and thereby preserve the Company’s ability to treat the awards as compensation expense for tax purposes. Notwithstanding, the Committee believes that stockholder interests are best served by allowing the Committee to retain the discretion to structure, determine, and approve the payments and awards under our compensation program even if those decisions could result in non-deductible compensation under certain circumstances or in future years.

Due to the precipitous drop in energy prices in the fourth quarter of 2014 and early 2015, Devon expects that many energy companies will decrease performance targets under compensation plans. Devon, on the other hand, has maintained the same measures and targets for LTI awarded in 2015 as the prior year and the same tax qualification performance measures for cash bonuses for 2015 as the prior year.

 

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NAMED EXECUTIVE COMPENSATION (cont’d)

 

Change in Pension Value

By SEC rule, the Company’s SCT must attribute a value to the “Change in Pension Value and Nonqualified Deferred Compensation Earnings” for each named executive officer. This value is included in the calculation of the “Total” compensation listed for each named executive officer. For 2014, the values reported for the “Change in Pension Value and Nonqualified Deferred Compensation Earnings” are significant.

The calculation of “Change in Pension Value and Nonqualified Deferred Compensation Earnings” includes various components. In the table below and accompanying footnotes, we itemize the values attributable to each component and explain the factors that materially impacted the calculations for 2014. For 2014, the components that contributed the most to the changes were the components over which the Company and Committee have no control. As reflected in the table below, a decrease in the rate applied to convert the future payments under the pension to a present value—i.e., the “discount rate”—had the single greatest effect on “value” (over $3,000,000 in Mr. Richels’ case), yet the Company and the Committee have no control over the prevailing U.S. interest rates that are utilized in the calculation. Similarly, the Company has no control over the change in mortality assumptions that produced the significant increases in values illustrated in the “Mortality Table” column below. Conversely, named executive officer pay—a component that the Committee clearly influences—did not produce any change in values.

 

Change in Pension Value by Component1  
Name  

2014

Compensation

($)

 

Company
Service

and Age

($)2

   

Mortality
Table

($)3

   

Discount
Rate

($)4

    Total  

John Richels

  -   $ 2,661      $ 974      $ 3,093      $ 6,728   

Thomas L. Mitchell5

  -     -        -        -        -   

David A. Hager5

  -     -        -        -        -   

Darryl G. Smette

  -   ($ 289 )6    $ 388      $ 951      $ 1,050   

Tony D. Vaughn

  -   $ 431      $ 159      $ 665      $ 1,255   

 

1 

All dollar amounts shown in thousands.

 

2 

The column reflects the change in the actuarial present value attributable solely to a named executive officer gaining a year of age and service during 2014.

 

3 

The column reflects the change in the actuarial present value due to a change in mortality assumptions. Previously, the actuarial present value was calculated using mortality tables based on the Society of Actuaries’ RP-2000 mortality table with projected mortality improvement to the applicable year. In October 2014, the Society of Actuaries released new RP-2014 mortality tables that significantly increase life expectancy assumptions. With guidance from the Company’s auditor and retirement actuary, the Company selected a new mortality table based on the RP-2014 mortality table.

 

4 

The column reflects the change in the actuarial present value that occurred due to a decrease in the discount rate from 4.80% to 3.90%.

 

5

Devon closed its defined benefit pension plan to new participants prior to Messrs. Mitchell and Hager joining the Company.

 

6

Mr. Smette has attained the maximum years of credited service and is more than 65 years of age. Once an employee reaches the maximum years of credited service and 65 years of age, the present value of pension benefits tied to service and age components will decrease for each year that the employee delays the commencement of benefits.

 

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NAMED EXECUTIVE COMPENSATION (cont’d)

 

COMPENSATION COMMITTEE REPORT

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

John A. Hill, Chairperson

John. E. Bethancourt

Robert A. Mosbacher, Jr.

Duane C. Radtke

SUMMARY COMPENSATION TABLE

The following table and accompanying footnotes summarize the compensation earned, awarded, paid, or attributed to our named executive officers for the years indicated below. The named executive officers are our President and Chief Executive Officer, our Chief Financial Officer as of the end of 2014, the three other most highly compensated executive officers of the Company serving as of December 31, 2014, and our former Chief Financial Officer, who left the company in January 2014. This table should be read together with our Compensation Discussion and Analysis (see page 31), which includes information about Company performance for 2014, our compensation philosophy and objectives, the programs and plans that underlie executive officer compensation opportunities, and the Compensation Committee’s process for awarding compensation.

 

Name and

Principal Position

  Year     Salary
($)1
    Bonus
($)2
    Stock
Awards
($)3
    Non-Equity
Incentive
Plan
Compensation
($)
   

Change in
Pension Value
and
Nonqualified
Deferred

Compensation
Earnings

($)4

    All Other
Compensation
($)5
   

Total

($)

 

John Richels

    2014        1,447,385        0        10,047,382        3,144,960        6,727,598        243,705        21,611,030   

Vice Chairman, President

    2013        1,400,000        600        0        1,890,000        3,244,355        424,928        6,959,883   

and Chief Executive Officer

    2012        1,400,000        1,225,600        9,930,535        0        5,914,149        280,629        18,750,913   

Thomas L. Mitchell

    2014        454,808        363,330 6      3,295,083        825,000        0        132,752        5,070,973   

Executive Vice President

               

and Chief Financial Officer

               

David A. Hager

    2014        895,385        0        4,465,014        1,350,000        0        587,479        7,297,878   

Chief Operating Officer

    2013        829,885        600        0        870,000        0        832,002        2,532,487   
    2012        775,000        505,600        3,309,332        0        0        512,491        5,102,423   

Darryl G. Smette

    2014        715,231        0        2,568,424        1,080,000        1,049,924        102,104        5,515,683   

Executive Vice President

    2013        688,462        600        0        689,000        0        153,026        1,531,088   

Marketing, Facilities,

    2012        675,000        440,600        2,538,561        0        1,144,188        103,128        4,901,477   

Pipelines and Supply Chain

               

Tony D. Vaughn

    2014        634,615        0        2,568,424        1,080,000        1,255,414        75,979        5,614,432   

Executive Vice President

    2013        589,182        600        0        550,000        28,007        72,528        1,240,317   

Exploration and Production

               

Jeffrey A. Agosta7

    2014        51,785        0        0        0        1,212,115        6,683,224        7,947,124   

former Executive Vice

    2013        560,577        600        0        600,000        305,604        98,319        1,565,100   

President and Chief

    2012        549,039        360,600        2,206,572        0        1,190,505        68,727        4,375,443   

Financial Officer

                                                               

 

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NAMED EXECUTIVE COMPENSATION (cont’d)

 

1 

The annual 2014 base salary rates for Mr. Richels, $1,456,000; Mr. Hager, $900,000; Mr. Smette, $720,000; and Mr. Vaughn, $650,000 were set at the Compensation Committee’s January 2014 meeting and took effect on February 8, 2014. Mr. Mitchell’s 2014 annual salary rate, $550,000, took effect at the beginning of his employment with the Company, February 17, 2014.

 

2 

Based on the bonus determination process in place for 2012 performance, annual performance bonuses for 2012 for named executive officers were reported in the Summary Compensation Table’s “Bonus” column. Annual performance bonuses awarded for 2013 and 2014 performance are reported in the “Non-Equity Incentive Plan Compensation” column as a result the changes the Company made with stockholder approval to the compensation plan that is utilized for bonus awards and the quantitative structure and process the Compensation Committee employs in determining bonuses.

 

3 

The dollar amounts reported in this column represent the aggregate grant date fair values of the stock awards. The assumptions used to value stock awards are discussed in Note 4 – Share-Based Compensation of the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2014. As disclosed in our 2014 Proxy Statement, after 2012 the Company modified its annual performance assessment and award timeline for all employees, including the named executive officers, so that all compensation rewards may be considered and awarded at one time shortly after the end of the year. Because of the changes, no stock awards appear for 2013 performance. Stock awards for 2014 were made in February 2014 on this new timeline. Upon the commencement of his employment with the Company in February 2014, Mr. Mitchell received a stock award comprised of restricted stock subject to time-based vesting (1/3) and performance restricted stock subject to the same performance metric as the performance restricted stock awarded to the named executive officers in January 2014 (2/3). Additional information on stock awards may be found in the Grants of Plan-Based Award Table on page 57. Please also see page 44 for a description of stock awards granted in early 2015. No option awards have been granted to named executive officers since 2011.

 

4 

The dollar amounts reported in this column reflect the aggregate change in the actuarial present value of each named executive officer’s accumulated benefits under our Defined Benefit Plan and the Supplemental Retirement Income Plan (SRIP) during the applicable year. The amounts shown for each year do not reflect payments made to the executives during the applicable year. None of our named executive officers received above market or preferential earnings on deferred compensation in any of the reported years. Further, no compensation decision made by the Committee in or for 2014 contributed to the increase in these amounts. Rather they were primarily driven by year-over-year changes in the required discount rate and mortality table. Mr. Hager and Mr. Mitchell joined the Company after our Defined Benefit Plan was closed to new participants. Please refer to “Change in Pension Value” on page 54 for more information.

 

5 

Details for the amounts shown in this column for 2014 are reflected in the supplemental table that follows.

 

6

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

 

7

The salary reported for Mr. Agosta in 2014 represents the base salary paid in the year. No bonuses or stock awards are reportable for Mr. Agosta for 2014. Please refer to the supplemental table below for detail on the amount reflected in the “All Other Compensation” column of the Summary Compensation Table, nearly all of which consists of the payments and benefits Mr. Agosta received in connection with his severance from the Company.

The following supplemental table shows the components of “All Other Compensation” for 2014 in the previous table.

 

Name  

Group Term

Life

Insurance

Premiums

($)

   

401(k) Plan

Employer

Match and
Retirement
Contribution

($)

   

Deferred

Compensation

Plan Employer

Match

($)

   

Defined
Contribution
Restoration
Plan
Employer
Contribution

($)

   

Defined
Contribution
Supplemental
Executive
Retirement
Plan
Employer
Contribution

($)

    Severance
Benefits1
   

Personal

Air
Travel

($)2

   

Total

($)

 

John Richels

    7,524        15,600        184,643        -        -        -        35,938        243,705   

Thomas L. Mitchell

    2,154        28,600        -        15,585 3      86,413        -        -        132,752   

David A. Hager

    4,902        34,500        90,323        122,331 3      335,423        -        -        587,479   

Darryl G. Smette

    14,478        15,600        68,654        -        -        -        3,372        102,104   

Tony D. Vaughn

    4.902        15,600        55,477        -        -        -        -        75,979   

Jeffrey A. Agosta

    160        15,600        -        -        -        6,667,464        -        6,683,224   

 

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NAMED EXECUTIVE COMPENSATION (cont’d)

 

1 

Mr. Agosta’s employment was terminated effective January 16, 2014. All of the amounts reflected in the column were paid pursuant to Mr. Agosta’s employment agreement with the Company and agreements applicable to outstanding long-term incentive awards. The amount is comprised of the following elements: lump-sum payment equivalent to three times his annual salary plus highest bonus paid during three years prior to employment termination, $3,483,000; accelerated vesting of restricted stock, the value of which was $1,670,197 on Mr. Agosta’s employment termination date; continuation of performance share units, the target value of which was $1,432,004 on Mr. Agosta’s employment termination date; lump-sum payment of Mr. Agosta’s pro-rated bonus for 2014, $23,375; lump-sum payment equivalent to 18 months of the Company portion of COBRA insurance coverage, $28,362; the value of Company-provided post-termination health and life insurance, $11,601; and, the value of outplacement services, $18,925.

 

2 

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

 

3 

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

GRANTS OF PLAN-BASED AWARDS

The Grants of Plan-Based Awards table sets forth information concerning performance cash bonuses, performance restricted stock, performance share units, and restricted stock granted during 2014 for the named executive officers as described below.

 

         

 

Estimated Future Payouts Under
Non-Equity Incentive Plan Awards1

   

 

Estimated Future Payouts Under
Equity Incentive Plan Awards

   

All Other
Stock
Awards:
Number of
Shares of
Stock or
Units

(#)

   

Grant Date
Fair Value
of Stock
Awards

($)

 
Name   Grant Date     Threshold
($)
   

Target

($)

    Maximum
($)
    Threshold
($)
    Target
($)
    Maximum
($)
     

John Richels

   

 

 

1/29/2014

2/10/2014

2/10/2014

  

2 

3 

   

 

 

0

-

-

  

  

  

   

 

 

1,965,600

-

-

  

  

  

   

 

 

3,931,200

-

-

  

  

  

   

 

 

-

0

0

  

  

  

   

 

 

-

76,720

76,700

  

  

  

   

 

 

-

76,720

153,400

  

  

  

   

 

 

-

-

-

  

  

  

   

 

 

-

4,664,576

5,382,806

  

  

  

Thomas L. Mitchell

   

 

 

1/29/2014

2/28/2014

2/28/2014

  

2 

4 

   

 

 

0

-

-

  

  

  

   

 

 

550,000

-

-

  

  

  

   

 

 

1,100,000

-

-

  

  

  

   

 

-

0

  

  

   

 

 

-

34,100

-

  

  

  

   

 

 

-

34,100

-

  

  

  

   

 

-

17,050

  

  

   

 

 

-

2,196,722

1,098,361

  

  

  

David A. Hager

   

 

 

1/29/2014

2/10/2014

2/10/2014

  

2 

3 

   

 

 

0

-

-

  

  

  

   

 

 

900,000

-

-

  

  

  

   

 

 

1,800,000

-

-

  

  

  

   

 

 

-

0

0

  

  

  

   

 

 

-

34,100

34,080

  

  

  

   

 

 

-

34,100

68,160

  

  

  

   

 

 

-

-

-

  

  

  

   

 

 

-

2,073,280

2,391,734

  

  

  

Darryl G. Smette

   

 

 

1/29/2014

2/10/2014

2/10/2014

  

2 

3 

   

 

 

0

-

-

  

  

  

   

 

 

720,000

-

-

  

  

  

   

 

 

1,440,000

-

-

  

  

  

   

 

 

-

0

0

  

  

  

   

 

 

-

19,620

19,600

  

  

  

   

 

 

-

19,620

39,200

  

  

  

   

 

 

-

-

-

  

  

  

   

 

 

-

1,192,896

1,375,528

  

  

  

Tony D. Vaughn

   

 

 

1/29/2014

2/10/2014

2/10/2014

  

2 

3 

   

 

 

0

-

-

  

  

  

   

 

 

650,000

-

-

  

  

  

   

 

 

1,300,000

-

-

  

  

  

   

 

 

-

0

0

  

  

  

   

 

 

-

19,620

19,600

  

  

  

   

 

 

-

19,620

39,200

  

  

  

   

 

 

-

-

-

  

  

  

   

 

 

-

1,192,896

1,375,528

  

  

  

Jeffrey A. Agosta

    No awards were granted to Mr. Agosta for 2014   

 

1 

The amounts shown in the column reflect a range of possible payouts for the performance cash bonus awards made on the dates indicated. Performance related to these awards was certified by the Committee following the end of the year and amounts were paid shortly thereafter. The awards were earned and paid at 150% to 166% of target levels; actual payouts under these awards are shown in the “Non-Equity Incentive Plan Compensation” column of the Summary Compensation Table. Please refer to “Annual Performance Cash Bonus” on page 41 for more information about our 2014 performance cash bonuses, including how the Committee establishes bonus targets and performance goals and engages in a scoring process to determine actual payouts.

 

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NAMED EXECUTIVE COMPENSATION (cont’d)

 

2 

The amounts shown in the rows reflect the possible payout for the performance restricted stock awards made on the dates indicated. For more information, please see the discussion of “Long-Term Incentives” starting on page 42. While that discussion specifically covers grants made in January 2015, the terms and conditions of those awards and the awards reflected in this table are substantially the same, including that the shares underlying the award will only vest if the Company achieves a financial metric for the year.

 

3 

The amounts shown in the rows reflect the range of possible payouts for the performance share unit awards made on the dates indicated. For more information, please see the discussion of “Long-Term Incentives” starting on page 42. While that discussion specifically covers grants made in January 2015, the terms and conditions of those awards and the awards reflected in this table are substantially the same.

 

4 

Mr. Mitchell received a restricted stock award following the commencement of his employment with the Company. The restricted stock vests at the rate of 25% on each of the first four anniversary dates of the original grant.

 

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NAMED EXECUTIVE COMPENSATION (cont’d)

 

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END

The following table shows the number of shares covered by exercisable and unexercisable options and unvested restricted stock, performance restricted stock and performance share awards owned by our named executive officers on December 31, 2014.

 

    Option Awards     Stock Awards  
                                        Equity Incentive Plan Awards:  
Name   Number of
Securities
Underlying
Unexercised
Options
(#)
Exercisable1
    Number of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable
   

Option
Exercise
Price

($)

    Option
Expiration
Date
   

Number of
Shares or
Units of
Stock

That
Have Not
Vested

(#)2

   

Market
Value of
Shares or
Units of
Stock
That

Have Not
Vested
($)3

    Number of
Unearned
Shares, Units
or Other
Rights
That
Have Not
Vested
(#)
   

Market or
Payout Value
of Unearned
Shares, Units
or Other
Rights
That Have

Not Vested
($)3

 

John Richels

    76,800               89.15        12/09/2015           
    126,600               65.32        12/07/2016           
    119,600               63.80        12/07/2017           
    187,100               73.43        12/01/2018           
    116,140        29,035        65.10        11/30/2019           
                12,805 4      783,794   
                25,600 5      1,566,976   
                42,780 6      2,618,564   
                85,540 7      5,235,903   
                76,720 8      4,696,031   
                76,700 9      4,694,807   

Thomas L. Mitchell

            17,050        1,043,631       
                34,100 8      2,087,261   
               
               
               
               
               
               
               
               
               
               

David A. Hager

    45,000               44.69        03/30/2017           
    56,800               63.80        12/07/2017           
    56,150               73.43        12/01/2018           
    34,840        8,710        65.10        11/30/2019           
                3,845 4      235,352   
                7,680 5      470,093   
                14,260 6      872,855   
                28,500 7      1,744,485   
                34,100 8      2,087,261   
                                                      34,080 9      2,086,037   

 

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NAMED EXECUTIVE COMPENSATION (cont’d)

 

    Option Awards     Stock Awards  
                                        Equity Incentive Plan Awards:  
Name   Number of
Securities
Underlying
Unexercised
Options
(#)
Exercisable1
    Number of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable
   

Option
Exercise
Price

($)

    Option
Expiration
Date
   

Number of
Shares or
Units of
Stock

That
Have Not
Vested

(#)2

   

Market
Value
of
Shares
or
Units
of
Stock
That

Have
Not
Vested
($)3

    Number of
Unearned
Shares, Units
or Other
Rights
That
Have Not
Vested
(#)
   

Market or
Payout Value
of Unearned
Shares, Units
or Other
Rights
That Have

Not Vested
($)3

 

Darryl G. Smette

    30,200               89.15        12/09/2015           
    45,000               65.32        12/07/2016           
    41,000               63.80        12/07/2017           
    43,050               73.43        12/01/2018           
    26,720        6,680        65.10        11/30/2019           
                2,945 4      180,263   
                5,880 5      359,915   
                10,940 6      669,637   
                21,860 7      1,338,051   
                19,620 8      1,200,940   
                19,600 9      1,199,716   

Tony D. Vaughn

    19,200               89.15        12/09/2015           
    31,000               65.32        12/07/2016           
    27,300               63.80        12/07/2017           
    25,500               73.43        12/01/2018           
    19,240        4,810        65.10        11/30/2019           
            2,050        125,481       
            7,610        465,808       
                4,090 5      250,349   
                15,200 7      930,392   
                19,620 8      1,200,940   
                19,600 9      1,199,716   

Jeffrey A. Agosta

    16,100               89.15        12/09/2015           
    1,000               88.91        12/30/2015           
    31,000               65.32        12/07/2016           
    27,300               63.80        01/16/2017           
    5,900               64.43        01/16/2017           
    37,450               73.43        01/16/2017           
    29,050               65.10        01/16/2017           
                5,120 5      313,395   
                                                      19,000 7      1,162,990   

 

1 

The column reflects options granted, December 10, 2007, December 31, 2007, December 8, 2008, March 31, 2009, December 8, 2009, March 31, 2010, December 2, 2010 and December 1, 2011. With each grant reflected in the column, 20% of the options vest on the date of grant and on each anniversary date of the grant.

 

2 

The amount shown for Mr. Mitchell represents a restricted stock award that was made on February 28, 2014. The amount shown for Mr. Vaughn represents restricted stock awards that were made on December 1, 2011, and November 29, 2012, respectively. In each case, the restricted stock vests at the rate of 25% on each of the first four anniversary dates of the original grant.

 

3 

Based on a stock price of $61.21, the closing price of our common stock on December 31, 2014.

 

4 

In January 2013, the Committee determined that the Company achieved the performance goal set as a condition to the vesting of performance restricted stock granted in 2011. Accordingly, 25% of the shares underlying the grant immediately vested and 25% will vest on each of the 2nd, 3rd and 4th anniversaries of the grant date (December 1) in accordance with the applicable award agreements.

 

5 

For performance share units granted in 2011 that are subject to a three-year performance period, the number of shares listed is based on target level of performance for the period from January 1, 2012 to December 31, 2014. The actual number of shares paid

 

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NAMED EXECUTIVE COMPENSATION (cont’d)

 

 

out was based on the Company’s relative total stockholder return (TSR), as determined by the Committee following the period pursuant to the grid set forth on page 38 of our 2012 proxy statement. At its January 2015 meeting, the Committee determined that the Company’s TSR for the period ranked 10th in the 15 member peer group. Pursuant to terms of the grant, 70% of each executive’s target shares were determined by the Committee to be earned and the shares were subsequently released to each executive.

 

6 

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

 

7 

For performance share units granted in 2012, the number of shares listed is based on target level of performance for the three-year period from January 1, 2013 to December 31, 2015. The actual number of shares paid out will be based on the Company’s relative total stockholder return, as determined by the Committee following the period pursuant to the grid set forth on page 42 of our 2013 proxy statement.

 

8 

As established at the time of grant, performance restricted stock for 2014 was only earned if the Company achieved a pre-set cash flow goal for 2014 (see page 42 of our 2014 proxy statement for additional information on the goal). In January 2015, the Committee determined that the goal had been achieved and 25% of the shares granted immediately vested and 25% will now vest on each of the 2nd, 3rd and 4th anniversaries of the grant date. Because the table reflects outstanding equity award as of December 31, 2014, which precedes the Committee’s determination that the goal had been met, the entire amount of the grant is included.

 

9 

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

OPTION EXERCISES AND STOCK VESTED DURING 2014

The table below shows the number of shares of our common stock acquired during 2014 upon the vesting of stock awards previously granted to the named executive officers. There were no reportable transactions for option awards during 2014.

 

    Option Awards   Stock Awards  
Name  

Number of
Shares

Acquired on

Exercise
(#)

 

Value Realized
on

Exercise

 

Number of

Shares

Acquired on
Vesting
(#)

   

Value
Realized on

Vesting
($)1

 

John Richels

  -   -     72,610        4,345,831   

Thomas L. Mitchell

  -   -     -        -   

David A. Hager

  -   -     23,212        1,389,218   

Darryl G. Smette

  -   -     17,804        1,065,554   

Tony D. Vaughn

  -   -     8,008        479,892   

Jeffrey A. Agosta

  -   -     28,132        1,721,116   

 

1 

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

 

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NAMED EXECUTIVE COMPENSATION (cont’d)

 

Pension Benefits

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

 

   

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

 

   

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

 

  -  

limitations imposed by the Code, and

 

  -  

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

 

   

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

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

 

Name   Plan Name  

Number of Years

Credited Service

(#)

   

Present Value of

Accumulated Benefit

($)1

   

Payments During
Last Fiscal Year

($)

John Richels2,3,4

  Defined Benefit Plan     11        2,612,093      -
  SRIP     19        28,814,177      -

Thomas L. Mitchell5

  Defined Benefit Plan     -        -      -
  SRIP     -        -      -

David A. Hager5

  Defined Benefit Plan     -        -      -
  SRIP     -        -      -

Darryl G. Smette

  Defined Benefit Plan     28        2,542,633      -
  SRIP     28        10,066,632      -

Tony D. Vaughn2

  Defined Benefit Plan     17        2,042,755      -
  SRIP     17        2,968,451      -

Jeffrey A. Agosta

  Defined Benefit Plan     17        1,427,876      -
    SRIP     17        2,767,528      -

 

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NAMED EXECUTIVE COMPENSATION (cont’d)

 

1 

We calculated the present value of each named executive officer’s accumulated benefits as of December 31, 2014 under the Defined Benefit Plan plans assuming 10% of participants would elect a single life annuity, 50% of participants would elect a lump sum and 40% would elect a 100% joint and survivor annuity. For the SRIP, we assumed 25% of participants would elect a single life annuity and 75% would elect a 100% joint and survivor annuity. We assumed that each named executive officer would begin receiving payments at normal retirement age (age 65) and would be vested in those payments. The present value is calculated using the MRP 2007/MSS2007 mortality table, which is based on the RP-2014 mortality table, and a discount rate of 3.90%. No pre-retirement decrements were used in this calculation.

 

2 

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

 

3 

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

 

4 

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

 

5 

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

BENEFIT PLANS

Defined Benefit Plan

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

Normal Retirement

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

 

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NAMED EXECUTIVE COMPENSATION (cont’d)

 

Early Retirement

Employees, including the named executive officers, are eligible for early retirement benefits under the Defined Benefit Plan after (i) attaining age 55, and (ii) earning at least 10 years of credited service. Early retirement benefits are equal to a percentage of the normal retirement income the participant would otherwise be entitled to if he or she had commenced benefits at age 65 depending on the participant’s age when he or she elects to begin receiving benefits. If an eligible participant commences benefits at age 55, he or she will receive 60% of the benefits he or she would have received had benefits commenced at age 65. The percentage increases by 5% for each year above age 55 (up to age 60) and 3% above age 60 (up to age 65) that an eligible participant delays the commencement of benefits.

Deferred Vested Pension

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

 

Age at Election to

Receive Deferred

Vested Pension

 

Percentage of
Normal Retirement

Income

65

  100.00%

64

  90.35%

63

  81.88%

62

  74.40%

61

  67.79%

60

  61.91%

59

  56.68%

58

  52.00%

57

  47.80%

56

  44.03%

55

  40.63%

If a participant is:

 

   

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

 

   

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

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

 

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NAMED EXECUTIVE COMPENSATION (cont’d)

 

Benefit Restoration Plan

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

Supplemental Retirement Income Plan

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

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

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

 

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NAMED EXECUTIVE COMPENSATION (cont’d)

 

annuity option selected by the executive. Additionally, the SRIP provides that if the executive is terminated “without cause” or terminates his or her employment for “good reason” within 24 months of a change in control event, the executive will be entitled to an additional three years of service credit and age in determining benefits. The SRIP may be informally funded through a rabbi trust arrangement.

NONQUALIFIED DEFERRED COMPENSATION IN 2014

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

 

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

Aggregate
Earnings in Last
Fiscal Year

($)3

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

John Richels

Deferred Compensation Plan

    200,243        184,643        35,828        0        3,291,611   

Thomas L. Mitchell

Deferred Compensation Plan

 

   

 

0

 

  

 

   

 

0

 

  

 

   

 

0

 

  

 

   

 

0

 

  

 

   

 

0

 

  

 

Supplemental Contribution
Restoration Plans (SCRPs)

 

   

 

0

 

  

 

   

 

15,585

 

  

 

   

 

(72

 

 

   

 

0

 

  

 

   

 

15,513

 

  

 

Supplemental Executive
Retirement Plan (DC SERP)
    0        86,413        (399     0        86,014   

David A. Hager

Deferred Compensation Plan

    614,077        90,323        (41,646     0        1,479,608   

Supplemental Contribution
Restoration Plans (SCRPs)

 

    0        122,331        (16,333     0        522,465   
Supplemental Executive
Retirement Plan (DC SERP)
    0        335,423        (44,783     0        1,500,126   

Darryl G. Smette

Deferred Compensation Plan

    215,164        68,654        32,102        (107,058     2,078,792   

Tony D. Vaughn

Deferred Compensation Plan

    68,077        55,477        2,863        (42,861     893,722   

Jeffrey A. Agosta

Deferred Compensation Plan

    130,357        0        101,972        (1,916,925     39,433   

 

1 

The amounts in this column are already included in, and are not in addition to, the amounts in the “Salary” or “Bonus” columns in the Summary Compensation Table on page 55.

 

2 

The amounts in this column are already included in, and are not in addition to, the amounts in the in the “All Other Compensation” column of the Summary Compensation Table on page 55. Company contributions are made in arrears during the first month following the fiscal quarter during which the contributions were earned. Company contributions earned by the name executive officers during 2014 were deposited in April, July and October 2014 and January 2015.

 

3 

Earnings reflect the returns produced by the investments selected by the applicable named executive officer. The investment options available to the named executive offices are a sub-set of the investment options available under the Company’s 401(k) Plan. As of December 31, 2014, investment options consisted of the following (returns for 2014 noted in parentheses): PIMCO Stable Income—Class 1 (0.46%); Neuberger Berman High Income Bond—Institutional Class (1.51%); Vanguard Prime Money Market—Institutional Shares (0.05%); PIMCO Total Return—Institutional Class (4.69%); Large Cap Value Fund (8.50%); Large Cap Growth Fund (6.39%); Small/Mid Cap Value Fund (7.88%); Small/Mid Cap Growth Fund (-5.16%); US Equity Index Fund (12.50%); International Equity Index Fund (-4.42%); PIMCO All Asset All Authority (-2.35%); American Funds EuroPacific Growth—R6 Shares (-2.29%). The Company does not guarantee a level of investment return.

 

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NAMED EXECUTIVE COMPENSATION (cont’d)

 

4 

In-service distributions are made in accordance with the elections made by the named executive officer at the time of enrollment in the plan. Mr. Agosta elected a specific event—employment termination—for the distribution he received from the plan in 2014. Messrs. Smette and Vaughn elected specific dates for the distributions they received from the plan in 2014.

 

5 

For the referenced plans, the Aggregate Balance reflects the changes in the plan balance for the named executive officers due to contributions (executive and Company), earnings, and distributions. The amounts currently or previously reported in the Summary Compensation Table as compensation to the named executive officers are as follows: Mr. Richels—$712,867; Mr. Mitchell—$67,729; Mr. Hager—$1,726,118; Mr. Vaughn—$98,942; and Mr.  Agosta—$133,326.

401(k) Plan

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

Deferred Compensation Plan

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

Supplemental Contribution Restoration Plans

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

Supplemental Executive Retirement Plan

The Supplemental Executive Retirement Plan (DC SERP) is a nonqualified supplemental executive retirement plan that provides benefits in lieu of the SRIP to a small group of key executives who are not eligible to participate in the Defined Benefit Plan or the SRIP. Under the DC SERP, an executive is eligible to receive an annual contribution of a specified percentage of compensation. This contribution will be offset by supplemental contributions to the 401(k) Plan and contributions to the SCRPs. An employee must be selected by the Compensation Committee in order to be eligible for participation in the DC SERP. A participant in the DC SERP becomes 50% vested after five years of service and vests at the rate of 10% for each of the following five years. At age 62, a participant will be 100% vested with five years of participation. In the event of a change in control or a named executive officer is terminated “without cause” or terminates his or her employment for “good reason,” as those terms are defined in our employment agreements with our named executive officers, then the executive will be 100% vested in his or her DC SERP account. Additionally, the DC SERP provides that if the executive is terminated “without cause” or terminates his or her employment for “good reason” within 24 months of a change in control event, the executive will be entitled to an additional three years of contributions. For those additional three years of

 

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NAMED EXECUTIVE COMPENSATION (cont’d)

 

contribution, no contributions under the 401(k) plan or the SCRPs will exist to apply as an offset because the executive will have terminated employment. A participant will be 100% vested in the event of death or disability. Payment of DC SERP accounts will be in the form of a lump sum payment. The DC SERP may be informally funded through a rabbi trust arrangement.

POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL

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

 

   

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

 

   

the Defined Benefit Plan;

 

   

the 401(k) Plan;

 

   

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

 

   

the 2005 Long-Term Incentive Plan; and

 

   

the 2009 Long-Term Incentive Plan, as amended and restated.

 

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NAMED EXECUTIVE COMPENSATION (cont’d)

 

The following tables provide the estimated compensation and present value of benefits potentially payable to each named executive officer upon a change in control of the Company or a termination of employment of the named executive officer. The benefit values shown do not include benefits that are broadly available to substantially all salaried employees. The amounts shown assume that a termination or change in control occurred on December 31, 2014. The actual amounts to be paid can only be determined at the time of an executive’s actual separation from the Company.

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

John Richels

 

Benefits and Payments

($)

 

Retirement/

Voluntary

Termination

($)

   

Termination

Without
Cause

($)

   

Termination

With Cause

($)

   

Change in

Control

($)

   

Disability

($)

   

Death

($)

 

Base Salary/Bonus1

    -        14,412,960        -        14,412,960        -        -   

SRIP2,3,4,5

    30,145,000        30,145,000        -        30,660,000        30,145,000        27,707,000   

BRP2,3

    -        -        -        -        -        -   

Accelerated Vesting of Stock Options6

    -        -        -        -        -        -   

Accelerated Vesting of Restricted Stock7

    -        8,098,389        -        8,098,389        -        8,098,389   

Performance Share Units8

    -        11,497,686        -        11,497,686        -        11,497,686   

Other Benefits9

    -        101,557        -        101,557        -        -   

Total12

    30,145,000        64,255,592        -        64,770,592        30,145,000        47,303,075  &n