On executive pay questions, Devon fights back
A proxy advisor recommends Devon Energy shareholders vote against a non-binding question at this year’s annual meeting that would, if approved, endorse performance-related stock awards the company made to its top executives for the company’s 2019 results.
The recommendation was made by Institutional Shareholder Services (ISS), and it was revealed by a filing Devon submitted May 22 to the U.S. Securities and Exchange Commission.
The ISS recommendation, Devon stated in its filing, appears to hinge on two issues. First, ISS cites concern with age credits that were granted under Devon’s pension plan to two named executive officers.
Second, ISS said its evaluation indicates targeted goals created as part of Devon’s short-term incentive program for 2019 were less rigorous than what the company had used in 2018.
Company officials stated as part of its response that Devon’s executive compensation program features a “pay-for-performance” tie that is among the strongest used by its energy industry peers.
By design, it links strong relative total stockholder return (TSR) performance results to higher realizable pay through stock awards that vest over time.
The same system revokes parts or all of those awards when relative results aren’t good.
ISS’ issue with age-related credits involves awards made in September to two members of Devon’s executive team.
Tony Vaughn, the company’s former chief operating officer, was granted three years of age credits when it announced he would soon retire.
David Harris, named at the same time as the company’s new executive vice president of exploration and production, assumed a majority of Vaughn’s duties and responsibilities.
Devon’s response notes that if Vaughn were to have stayed on, his salary, targeted bonus and long-term incentives would have cost the company about $1.44 million more (annually) than what Harris qualifies for.
It adds that would have cost more than the value of age credits it awarded to Vaughn.
ISS also took issue with age credits granted in September to Lyndon Taylor, an executive vice president who serves as Devon’s general counsel, when he was promoted to be Devon’s chief legal and administrative officer.
However, Devon’s filing states the company won’t be required to compensate Taylor for those credits until he leaves the company’s employ.
Plus, after he turns 62 in June, the value of those credits will gradually decline until he reaches the age of 65, when they will become valueless.
In its filing, Devon notes ISS describes Devon’s granting of age credits to Vauhgn and Taylor as a “problematic practice.”
But Devon states in the filing its granting of such credits, while appropriate for those two men, is highly unusual.
“Devon has not, and has no intent in the future, to make granting age credits a ‘practice,’ ” its filing states.
ISS also expressed concerns about Devon’s performance-based compensation program, generally.
The company bases the amounts of performance-based compensation top executives receive by measuring how the company fares in six specific areas: cash return on capital employed, all-in return on capital, the overall value of Devon’s risked resource portfolio, the company’s expenditures, total stockholder return (the increase or decrease in per-share value) and production volumes.
Devon’s filing notes top executives only earned 90% of what they could have for 2018, given that the company failed to meet goals it had set in four out of those six categories.
For 2019, the filing notes Devon strengthened its targeted goals in two of the categories — expenditures and production volume — and that it met or exceeded all of its performance-based goals for the year.
While it agreed it may look as if Devon failed to deliver on production, the company asserts it actually grew its production by 8%, year over year, after backing out assets it either sold (its Canadian operations) or is working to sell now (its Barnett Shale field assets).
Resulting performance bonuses were 150% of target, its filing states.
“The market validated this outstanding performance: Devon’s total shareholder return in 2019 ranked 4th in our 15-member peer group,” it stated as part of its filing.
Devon’s filing also notes the non-binding item is endorsed for approval by Glass Lewis, another leading proxy advisor.
Investors with questions about the ISS recommendation are encouraged to contact the company’s investor relations representatives.
Because of continued concerns about the COVID-19 pandemic, Devon’s annual meeting will be 1 p.m. June 3, solely by remote communication in a virtual-only format.