Devon recognizes that strong corporate governance practices are necessary to maintain our social license to operate. We strive to establish a foundation for effective decision-making and risk management as we conduct our business in keeping with our corporate values and ESG responsibilities, serving the interests of our stakeholders.
We’ve developed an effective corporate governance framework that evolves with our business. Forward-looking principles and practices guide our board of directors, executive management and workforce in making a positive and sustainable impact.
Our Corporate Governance Guidelines support the long-term interests of the company and our stakeholders by focusing on certain core principles for effective governance of the company. The guidelines cover board composition, policies, procedures and committees. They also provide direction for the recruitment, selection, responsibilities, compensation and evaluation of individual directors. The guidelines are updated from time-to-time to reflect the evolving needs of our company.
High-quality corporate governance requires that our board include members with an appropriate mix of skills and experience to oversee our business. In addition, a high number of our directors should not have material relationships with Devon that could impede their independent view of the company and company management. As of June 2023, 10 of 11 (91%) Devon board members qualified as independent, based on New York Stock Exchange (NYSE) listing standards and Securities and Exchange Commission (SEC) regulations.
Our board has a practice of maintaining independent leadership in the boardroom. If our board chair is not independent, our board appoints a lead director who has duties, responsibilities and rights to assure high-quality corporate governance. With the retirement of our executive chair in January 2023, our board appointed a board chair who is independent and vacated the position of lead director. Regardless of whether our board is led by an independent chair or has appointed a lead director, the board seeks to optimize board performance through open, substantive communications among directors and between directors and management. Providing regular feedback, encouraging different viewpoints to be expressed, and setting an expectation of constructive candor are hallmarks of our desire for frank and thoughtful board discussions.
The full board has primary responsibility for risk oversight of the company, which includes reviewing whether Devon’s risk management is appropriate in relation to Devon’s material risks. Specific areas of risk oversight have been delegated to four standing committees: Audit, Compensation, Reserves, and Governance, Environmental and Public Policy (GEPP). All members of the GEPP, Audit and Compensation committees are independent, as required in our Corporate Governance Guidelines, and the members of the Reserves Committee are independent as well. The GEPP, Audit and Compensation committees review various aspects of Devon’s ESG activities, metrics and reporting, and the full board is involved in assessing our overall ESG program.
Deep dives into Devon’s business, operations, EHS, ESG and other relevant matters are part of each board meeting. The board often invites external speakers, stockholders and thought leaders to board meetings and has incorporated into the board’s calendar a regular cadence for seeking information and insights from people outside the company. With respect to ESG, the board in 2022 continued to focus on ESG targets and performance, specifically focusing on the key drivers for attaining continuous improvement and measuring ESG-related data.
The GEPP Committee has primary oversight responsibility for corporate governance which includes identifying, reviewing and recommending the nomination of qualified candidates to Devon’s board. The committee’s scope also includes reviewing EHS performance and efforts to integrate sustainability into Devon’s business and activities. GEPP Committee members regularly hear from Devon leaders and subject matter experts on corporate governance issues and practices; emissions, targets and other environmental matters; ESG-related stakeholder engagements; public policy developments; and our social responsibility programs. The GEPP Committee’s endorsement of ESG matters helps inform the company’s strategy, plans and priorities, and secure internal alignment.
In 2022, the GEPP Committee’s activities included:
- Reviewing Devon’s performance on key environmental metrics, including Scope 1 and Scope 2 greenhouse gas (GHG) emissions
- Reviewing progress on the company’s environmental targets announced in June 2021 and tactics for meeting the targets, including their implications for technology, operations, facility design and capital costs
- Receiving in-depth reports on key stakeholder initiatives such as our OGMP 2.0 membership, as well as on current and emerging regulatory requirements for emissions reporting and other aspects of ESG
- Discussing the contents of Devon’s 2022 Sustainability Report with management before publication
- Reviewing and discussing Devon’s diversity, equity and inclusion (DEI) metrics, and actions and strategy for improving our workforce DEI. This included two meetings with the Compensation Committee and management, reflecting the board’s increased emphasis on DEI
As ESG and EHS performance have become more intertwined with operational and financial accounting matters, ESG and EHS oversight has evolved to include other board committees as appropriate and additional discussions with the full board. For example, aspects of various recently proposed federal regulations, including the proposed climate-related disclosure rule and the more stringent methane regulations, have been discussed at different committees of the board as well as the full board.
Our decisions and actions have benefited from informed input of board members with a wide range of experiences, skills and backgrounds. Diversity characteristics such as gender and racial/ethnic diversity are critical components of a high-functioning board. Our board’s emphasis on diversity characteristics is reflected in our Corporate Governance Guidelines, which provides that the GEPP Committee seeks to include women and minorities in the pool of candidates for director nominations and requires any search firm it engages to do the same.
The GEPP Committee nominates qualified candidates to be Devon directors, seeking qualities such as integrity and accountability, ability to provide informed judgment, respect from peers and high performance standards.
As of June 2023, our board included four women (36%) and one racially diverse (9%) director, including the chair of Devon’s Audit Committee. Current board tenure of approximately 1-14 years provides a balance of fresh viewpoints and continuity. Our directors range in age from 46 to 71. Our board retirement age is 74 for non-management directors.
In January 2023, Barbara Baumann became the chair of Devon’s board of directors. It is unique in the oil and gas industry and with public companies in general to have a female board chair. This is a testament to Baumann’s strategic insight, financial acumen and operational knowledge. Since joining the company’s board in 2014, she has been a leading voice in our ESG-related initiatives, and chaired and guided the GEPP Committee in its first year. Baumann has taken a personal interest in DEI and in mentoring women in Devon management.
Shareholders elect Devon directors at our annual meeting for one-year terms. Our bylaws require a director who does not receive a plurality of votes in an uncontested election to offer to resign, which has not happened in Devon’s 51-year history. At our 2023 annual meeting, our directors received an average voting support of 96%.
Executive and board compensation
Devon focuses on generating positive operating returns by managing a premier asset portfolio, delivering superior execution and exercising disciplined capital allocation. Our executive compensation program seeks to create a strong tie between company performance on these key objectives and executive pay. This pay-for-performance philosophy is intended to motivate near-term operational and financial success as well as to create long-term stockholder value. Total compensation is weighted in favor of long-term incentives to emphasize value creation and stockholder alignment.
Executive compensation is determined annually by the Compensation Committee, which evaluates the performance of the company and of individual executives and the business unit or organization they manage. At the start of each year, the Compensation Committee establishes company-wide goals for the year that are used in awarding bonuses following the end of the year. The executive leadership team keeps the Compensation Committee apprised of performance on the goals throughout the course of the year.
In determining executive compensation in 2022, the Compensation Committee considered the company’s operational and financial achievements and performance relative to our corporate goals. Devon set ambitious goals for financial results, capital expenditures, oil and gas production, ESG/EHS performance and strategic initiatives for the year. Our goals included a standalone emissions reduction goal that accounted for 15% of the overall corporate goals scorecard and directly tied compensation for the entire company to environmental performance.
The company outperformed targets for the majority of goals on our 2022 company performance scorecard, including our standalone emissions reduction goal. Based on our results, the Compensation Committee assigned a company performance score of 165%, which led to above-target bonuses for our employees (including executives).
The board determines non-management director compensation annually based on the Compensation Committee’s recommendations. As part of its annual diligence of board compensation, the Compensation Committee obtains a report on the director compensation policies and practices of Devon’s principal competitors and other comparable companies. The Compensation Committee also considers the form and amount of director compensation. A meaningful portion of director compensation is conferred in the form of equity, which reflects the expectation that directors should have a significant stake in the performance of the company and thereby align their interests with that of our stockholders. In 2022, the Compensation Committee approved non-management directors’ participation in Devon’s matching gift program that allows for qualifying charitable contributions of up to $10,000 annually. The matching gift program has been a successful new benefit offered at Devon with broad participation across the company.
To help ensure that management and our board understand the compensation issues that matter to our stockholders, Devon conducts investor outreach throughout the year. During 2022, the company contacted the majority of our top 100 stockholders, interacted with many other stockholders and met with stewardship representatives of approximately 50 investors. The Compensation Committee and GEPP Committee review the feedback resulting from this outreach, as well as the most recent advisory vote by stockholders on executive compensation. At our most recent annual meeting of stockholders (2023), our executive compensation for the prior year received the support of 93% shares voted.
Additional information about our executive compensation program is available in the Compensation Discussion and Analysis (CD&A) section of our 2023 proxy statement.