The Director Compensation Project: CHEVRON

This post is part of an ongoing series that examines the way stock exchange independence rules influence director compensation.  We are including companies from 2010’s Fortune 500 and using information found in their most recent proxy statements.  In addition to state standards and the requirements of SOX, the stock exchanges each have their own standards for independence. 

Under NYSE Rule 303A.01, all listed companies must have a majority of independent directors sitting on their boards.  Directors are not independent if they received over $120,000 in direct compensation, other than director’s fees, in any one year period over the last three years pursuant to Rule 303A.02(b)(ii).  This is a looser restriction than the equivalent NASDAQ Rule, 5605(a)(2), which includes "any compensation."  Rules 303A.06 and 5605 also require that, in addition to the general independence standards, audit committee members must comport with the requirements of  Rule 10A-3 (C.F.R. §240.10A-3).  See also IM-5605-4. Audit Committee Composition.

As shown on its 2011 proxy statement, the board of Chevron (NYSE:CVX) has determined that all of its non-employee directors are independent. According to the proxy statement, Chevron paid its non-employee directors the following amounts in 2010:

Name	Fees Earned or Paid in Cash ($)	Stock Awards ($)	Option Awards ($)	All Other Compensation ($)	Total ($)
Samuel H. Armacost*	126,000	184,000	0	28,541	338,541
Linnet F. Deily	116,000	184,000	0	2,331	302,331
Robert E. Denham	116,000	184,000	0	23,379	323,379
Robert J. Eaton	0	184,000	125,987	11,556	321,543
Charles T. Hagel	59,611	184,000	0	1,932	245,543
Enrique Hernandez Jr.	0	184,000	115,990	29,508	329,498
Franklyn G. Jenifer*	116,000	184,000	0	30,639	330,639
Sam Nunn*	126,000	184,000	0	17,407	327,407
Donald B. Rice	116,000	184,000	0	41,212	341,212
Kevin W. Sharer	116,000	184,000	0	961	300,961
Charles R. Shoemate	0	184,000	125,987	22,829	332,816
John G. Stumpf	59,611	184,000	0	524	244,135
Ronald D. Sugar	116,000	184,000	0	24,476	324,476
Carl Ware	116,000	184,000	0	25,410	325,410

*Mr. Armacost, Mr. Jenifer, and Mr. Nunn will retire effective as of the 2011 Annual Meeting 

Director Compensation.  During fiscal year 2010, Chevron’s board held 7 regularly scheduled meetings, 1 special meeting, and 23 committee meetings. All directors attended at least 89% of the board meetings and their respective board committee meetings.  Non-employee director compensation totaled $300,000 per director in 2010, which was unchanged from 2009. 39% of this award was given in cash and the remaining 61% was given in restricted stock units. Directors may elect to receive stock options instead of any portion of the cash compensation.  Additionally, committee chairmen received $10,000 for their services.

Director Tenure.  The longest serving member of the board, Mr. Armacost, has been a director since 1982.  When Mr. Armacost retires, effective as of the 2011 annual meeting, the longest serving board member will become Mr. Shoemate, who has been a director since 1998. Three directors were appointed in 2010: Mr. Kirkland, Mr. Stumpf, and Mr. Hagel. Several of Chevron’s directors are also on other company boards.  Mr. Hernandez concurrently serves on three other boards: McDonald’s Corporation, Nordstrom, Inc., and Wells Fargo & Company. Mr. Stumpf is a current director of Target Corporation and Chairman of the Board and CEO of Wells Fargo & Company. Mr. Hagel is a former United States Senator.

Executive Compensation.  Chevron’s executive compensation package consists of four components: base salary, annual cash incentive (“CIP”), long-term equity incentive, and benefits, retirement programs, and limited perquisites.  Mr. Watson, Chevron’s CEO, received a base salary of $1,500,000 in 2010, which was ranked as a tie for fifth among CEOs in the Oil Industry Peer Group and 13^th among CEOs in the Non-Oil Industry Peer Group.  His total 2010 compensation was $16,260,528, a 85% increase from 2009.  The 2010 base salary of Executive Vice President Kirkland was $1,200,000, a 20% increase from 2009.  In total, Mr. Kirkland received $12,362,042 in 2010 compensation, an increase of 22% from 2009.