Granting the 2019 Age Credits Benefitted Stockholders Interests
The Age Credits Granted to Mr. Vaughn Not Only Produced Short-Term Savings and Supported a Successful Executive Transition,
But Will Also Create Long-Term Savings
Mr. Tony Vaughn, Devons 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) Devons strategic succession planning. Upon the announcement of Mr. Vaughns retirement,
Mr. David Harris was named Executive Vice President Exploration & Production (EVP E&P) and assumed a majority of Mr. Vaughns duties and responsibilities. The difference in compensation for their positions
COO versus EVP E&P is significant. 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. Vaughns additional pension age credit.
Devon Has Yet to Incur Any Expense for the Age Credits Granted to Mr. Taylor (and May Never Incur Any Expense)
Mr. Lyndon Taylor, Devons Executive Vice President and General Counsel since 2007, was promoted to the position of Chief Legal
and Administrative Officer in September 2019 and granted age credits. Granting the age credits alone generated no immediate cash cost to Devon. Moreover, the potential cost of his age credits diminishes with each day after turning age 62 that
Mr. Taylor (who will turn 62 next month) continues to work at Devon. If he continues his employment until age 65, the actual incremental cost of his pension age credit will be zero as the benefits under Devons pension
are capped once a participant reaches 65.
Devon Has Never Made a Practice of Granting Pension Credits to Our Executives
Based on a review of Devons pension plan going back more than 15 years, Devon has not awarded pension credits (age or service) to
executives other than those granted to Mr. Vaughn and Mr. Taylor. ISS has characterized Devons granting of the age credits to be a problematic practice. Devon has not, and has no intent in the future, to make granting age
credits a practice. Devon believes that companies should not routinely credit pension benefits beyond what has been earned and is mindful of the decisions we make for succession purposes, as well as the costs that would be incurred.
Setting Rigorous Target Goals Is Customary at Devon
Devons 2019 Quantitative Goals Were Set at Higher Levels Than Devons 2018 Quantitative Goals
For 2018,
the performance cash bonus paid to Devons executives was 90% of the target award, in large part due to Devon not meeting four of the six quantitative goals that had been set for the year. For 2019, the same six quantitative measures were used
in establishing goals for the year. Goals on four of the measures were the same in 2019 as 2018: Cash Return on Capital Employed (CROCE), All-In Return on Capital, Improve the Overall Value of Devons
Risked Resource Portfolio, and TSR. A fifth quantitative goal expenditures was more rigorous in 2019 versus 2018. The remaining quantitative goal for 2019 production volume superficially appears to be
less than the prior year but only if the effect of Devons divestitures in 2019 are not taken into account. In early 2019, Devon announced the marketing of our Canadian and Barnett Shale assets, which represented over 45% of Devons
overall production volume in 2018. Devon did not include those assets in the production volume goal for 2019. If those assets are excluded from both the 2018 and 2019 production volume goal, which is necessary to make a year-over-year comparison,
Devons production volume goal actually increased by 8%. Following 2018, Devon did not adjust the two goals that had been met to increase them to the achieved results in 2018 (as the ISS Recommendation suggests should have
occurred), but Devon also did not adjust the four goals that had not been met to reduce them to the achieved results. Importantly, neither of the two returns-based quantitative measures were adjusted in 2019, even though goals
were only achieved on one of the two measures in 2018.
Devon Achieved Superior Performance on 2019 Quantitative Goals, Which
Has Been Recognized by the Market
For 2019, Devon exceeded goals on all six of the quantitative performance measures, which, in part,
resulted in the payment of an above-target bonus (150%). The market validated this outstanding performance: Devons TSR in 2019 ranked 4th in our 15-member peer group. By contrast, Devons 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.
Devon believes that the foregoing supports a vote FOR the approval of the
compensation of Devons named executive officers