Devon Energy
Annual Meeting: June 3, 2020
Total disclosed compensation for Devon Energy CEO David Hager for 2019 was $13,795,899. At the annual meeting yesterday the company announced that a preliminary count showed that only 61% of shareholders supported the proposal. This is a very low level of support for pay at an S&P 500 company. Many shareholders voted against the package based on particular practices rather than simply the amount of pay.
Notably, in 2019, the company awarded two departing executives with additional age credits that would increase their pension payments.
According to the company, in a special SEC filing it issued on May 22, “Tony Vaughn, Devon’s former Chief Operating Officer (“COO”), was granted three years of age credits in September 2019 in order to effectuate (1) the announcement of his pending retirement and (2) Devon’s strategic succession planning.” Is the company implying that the COO would not have left if he had not been granted the additional age credits? That in itself would be troubling. Vaughn’s retirement was also sweetened by an early retirement subsidy, a 2019 plan amendment, and a change in applicable discount rate.
David Harris was promoted and took on the majority of “Vaughn’s duties and responsibilities.” Harris, formerly Executive Vice President of Exploration and Production, has been with the company since 2007. The company contends that the difference in compensation for that position and COO somehow justifies Vaughn’s age credits. “For a single year, the target total direct compensation (salary + target bonus + long-term incentives) for the COO position exceeds that of the EVP E&P by $1.441 million, which is greater than the one-time expense associated with Mr. Vaughn’s additional pension age credit.” This comparison makes no sense as a justification. Is the contention that Harris’s pay will not increase and since he is doing the job of two people an extra payment to the departing COO is acceptable?
This sort of number play is frowned upon by most shareholders, who rightly view it as accounting gamesmanship.
Devon Energy is another company that is arguing the one good year following several bad years should be viewed as a triumph. As the company notes, “Devon’s TSR in 2018 ranked 13th in the same 15-member peer group, which, as noted above, occurred in a year when Devon did not meet four of the six quantitative goals.” Despite the failure to meet four of the quantitative goals Devon’s executives targets were paid at 90%. However, “Devon’s TSR in 2019 ranked 4th in our 15-member peer group,” it is important to interpret 2019’s rank in context: the stock’s underperformance in 2018 gave it a lower starting point.
Finally, it is worth noting that the company has resisted the entreaties of shareholders to partner with Climate Action 100+, a 5-year, investor-led initiative that seeks to move the largest CO2-emitting companies to adopt a climate transition plan that benefits the company, the world, and shareholders. The Climate Action 100+ includes over 450 investors with $40 trillion in assets under management that support the initiative. These investors view climate change as one of the largest systemic risks the world faces. Shareholders, led by As You Sow, submitted a shareholder proposal asking the company if and how it plans to align with the Paris Agreement’s well below 2 degree climate goal. The company successfully persuaded the SEC that the proposal could be omitted on the ungrounded claim of substantial implementation.