Anadarko Petroleum

Annual meeting:              May 12, 2015 Total compensation for CEO Walker increased from $16.9 million to $20.7 million in 2014. Key concerns:

  • The package includes large option awards, with a grant date value of $2.8 million. In 2014, Walker also exercised 245,100 previously granted options, realizing over $16 million in value (in addition to the $20 million noted above.)
  • The increase in pay included a $5.2 million increase in pension value. A significant portion of that (over $2.5 million) was due to the fact that Walker’s 36 month average compensation had gone up significantly since the last calculation. Such pensions, with benefits based on recent pay, are increasingly rare for employees but more common for executives who need them least, and they guarantee that high pay begets high pension.
  • The baseline Annual Incentive Performance hurdle for 2014 for the NEOs of $3.1 billion of Cash Flow from Operating Activities (Net cash provided by (used in) operating activities) was unchanged from 2013.
  • With the fall in oil prices shareholders should pay special attention to operational metrics. Reserve additions continue to serve as one of the metrics for annual incentive compensation at Anadarko Petroleum. This metric rewards increased production of carbon intensive products and exacerbates the risk of stranded assets (Assets that will never be able to be used based on latest climate change science. To learn more about this issue see:
  • The target for FY2014 performance on reserve additions was set below last year’s actual performance. Board lowered target in May 2014 when it became clear that “due principally to circumstances beyond the Company’s control” a project in Mozambique could not be booked in 2014 “making the original targeted performance level no longer relevant.”
  • Reserve replacement is particularly problematic as a short-term metric. As the Wall Street Journal notes: “Oil demand doesn’t have to disappear altogether to leave a producer with stranded assets; they can just be sitting on uncompetitive ones.”