SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, For Use of the
[X] Definitive Proxy Statement Commission Only (as permitted
[ ] Definitive Additional Materials by Rule 14a-6(e)(2))
[ ] Soliciting Material Pursuant to
Rule 14a-11(c) or Rule 14a-12
PHELPS DODGE CORPORATION
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
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1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined):
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
[ ] Fee paid previously with preliminary materials:
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
1) Amount previously paid:
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2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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<PAGE>
NOTICE OF
ANNUAL MEETING
OF SHAREHOLDERS
AND PROXY STATEMENT
May 5, 1999
<PAGE>
PHELPS
DODGE CORPORATION
2600 North Central Avenue, Phoenix, Arizona 85004-3014
- --------------------------------------------------------------------------------
Douglas C. Yearley
Chairman of the Board
and Chief Executive Officer
April 1, 1999
Dear Shareholder:
You are cordially invited to attend our annual meeting of shareholders to
be held at 11:30 a.m. (MST) on Wednesday, May 5, 1999, at the Arizona Biltmore
Hotel, 24th Street and Missouri Avenue, Phoenix, Arizona. Enclosed with this
proxy statement are your proxy card and the 1998 annual report.
Your vote is important. Whether you plan to attend or not, please sign,
date, and return the enclosed proxy card in the envelope provided, or you may
access the automated telephone voting feature which is described on your proxy
card. If you plan to attend the meeting you may vote in person.
Registration and seating will begin at 10:30 a.m. Each shareholder will be
asked to sign an admittance card and may be asked to present a valid picture
identification. Shareholders holding stock in brokerage accounts ("street name"
holders) will need to bring a copy of a brokerage statement reflecting stock
ownership as of the March 17 record date. Cameras, recording devices and other
electronic devices will not be permitted at the meeting.
Last year, 83% of our outstanding shares were represented in person or by
proxy, and we hope to increase our shareholder participation this year.
Sincerely,
/s/ D C Yearly
<PAGE>
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO THE SHAREHOLDERS OF PHELPS DODGE CORPORATION:
The annual meeting of shareholders of Phelps Dodge Corporation will be held
at the Arizona Biltmore Hotel, 24th Street and Missouri Avenue, Phoenix,
Arizona, on Wednesday, May 5, 1999, at 11:30 a.m., to consider and take action
on the following:
1. Elect four directors;
2. Ratify the appointment of PricewaterhouseCoopers LLP as
independent accountants for the Corporation for the year 1999;
and
3. Transact any other business that may properly be brought before
the annual meeting.
Only holders of record of the Corporation's common shares at the close of
business on March 17, 1999, will be entitled to vote at the meeting or at any
adjournments of our annual meeting. On March 17, 1999 we had 57,932,634 common
shares outstanding.
If you participate in the ChaseMellon Shareholder Services Investor
Services Program for Phelps Dodge Shareholders, administered by The Chase
Manhattan Bank, all common shares held for your account under that service will
be voted in accordance with your proxy.
Proxies are solicited by the Board of Directors. You may revoke your proxy
before it is voted at the annual meeting by delivering a signed revocation
letter or new proxy, dated later than your first proxy, to Robert C. Swan, Vice
President and Secretary.
Shareholders who do not expect to attend the meeting in person are asked to
access the automated telephone voting feature described on the proxy card or
date, sign and complete the enclosed proxy and return it without delay in the
enclosed envelope, which requires no postage stamp if mailed in the United
States. If you are attending in person and if you have mailed your proxy card,
you may revoke your proxy and vote in person at the meeting.
This proxy statement and accompanying materials are being first sent to
shareholders on April 1, 1999.
By order of the Board of Directors,
Robert C. Swan
Vice President and Secretary
Phoenix, Arizona
April 1, 1999
<PAGE>
1. ELECTION OF DIRECTORS
BOARD STRUCTURE
The Corporation currently has twelve directors. Eleven directors are divided
into three classes: four in Class I, four in Class II, and three in Class III.
Mr. Dunham's election to the Board became effective on November 4, 1998 and he
is a nominee for Class II. The terms of office of the Class II directors expire
at the 1999 annual meeting of shareholders. Mr. Paul W. Douglas, a Class II
director, will retire on May 5, 1999 in accordance with the Corporation's policy
on retirement of directors.
ELECTION OF DIRECTORS
The four nominees for election as Class II directors are listed below. If
elected, the nominees will serve for a term of three years and until their
successors are elected and qualify. Unless you direct us on the proxy card to
vote differently, we will vote signed, returned proxies FOR the election of such
nominees. If for any reason any nominee cannot or will not serve as a director,
we may vote such proxies for the election of a substitute nominee designated by
the Board of Directors.
NOMINEES
A nominee must receive a plurality of the votes cast at the annual meeting to be
elected. Abstentions and broker non-votes therefore have no effect on the
election of directors.
AGE, PRINCIPAL OCCUPATION,
BUSINESS EXPERIENCE DIRECTOR
NOMINEE AND OTHER DIRECTORSHIPS HELD SINCE
------- ---------------------------- -----
Archie W. Dunham Mr. Dunham has been President and Chief 1998
(Class II) Executive Officer of Conoco, Inc. (integrated
energy company) since January 1996. He was
an Executive Vice President of E.I. duPont de
Nemours and Company (chemical materials and
energy company), Conoco's parent, from 1995 to
October 1998. He was a Senior Vice President
-- DuPont Polymers and DuPont Chemicals and
Pigments from 1987 to 1992, and an Executive
Vice President -- Exploration Production of
Conoco from 1992 to 1995. Mr. Dunham is a
director of E.I. duPont de Nemours and
Company, Conoco, Inc. and Louisiana Pacific
Corporation. Age 60.
William A. Franke Mr. Franke has been Chairman and Chief Executive 1980
(Class II) Officer of America West Holdings Corporation
since February 1997 and Chairman of the Board of
its principal subsidiary, America West Airlines,
Inc. (airline carrier) since 1992. He was the
subsidiary's Chief Executive Officer from
December 1993 until February 1997, and its
President from May 1996 until February 1997. He
has been President of Franke & Company, Inc.,
Phoenix, Arizona, an investment firm, since
1987. He is a director of America West Holdings
Corporation, America West Airlines, Inc.,
Central Newspapers, Inc., Beringer Wine Estates,
Mtel Latin America, Inc., AerFi Group Plc, and
the Air Transport Association of America. Age 62.
1
<PAGE>
AGE, PRINCIPAL OCCUPATION,
BUSINESS EXPERIENCE DIRECTOR
NOMINEE AND OTHER DIRECTORSHIPS HELD SINCE
------- ---------------------------- -----
Southwood J. Mr. Morcott has been Chairman of the Board of 1991
Morcott Dana Corporation (manufacturer and distributor
(Class II) of automotive and vehicular parts) since 1990.
From 1987 to 1995, he served as Chairman of
Hayes-Dana Inc. He was Chief Executive Officer
of Dana Corporation from 1989 until February
1999, and Chief Operating Officer from 1986
until January 1997. He was President of Dana
Corporation from 1986 to 1995. Mr. Morcott is a
director of Dana Corporation, CSX Corporation
and Johnson Controls, Inc. Age 61.
J. Steven Whisler Mr. Whisler has been President and Chief 1995
(Class II) Operating Officer of the Corporation since
December 1997, and President of Phelps Dodge
Mining Company, a division of the Corporation,
from 1991 to October 1998. He was a Senior Vice
President of the Corporation from 1988 to
December 1997 and Vice President of the
Corporation from 1987 until 1988. He was General
Counsel of the Corporation from 1987 until 1991.
He is a director of Burlington Northern Santa Fe
Corporation and Southern Peru Copper
Corporation. Age 44.
CONTINUING DIRECTORS
The seven directors whose terms will continue after the annual meeting and will
expire at the 2000 annual meeting (Class III) or the 2001 annual meeting (Class
I) are listed below.
AGE, PRINCIPAL OCCUPATION,
BUSINESS EXPERIENCE DIRECTOR
NOMINEE AND OTHER DIRECTORSHIPS HELD SINCE
------- ---------------------------- -----
Robert N. Burt Mr. Burt has been Chairman of the Board and 1993
(Class III) Chief Executive Officer of FMC Corporation
(chemicals and machinery for industry,
agriculture and government) since 1991. He was
President from 1990 to 1993 and Executive Vice
President from 1988 to 1990. From 1989 to 1991
he was Chairman and Chief Executive Officer of
FMC Gold Company. He is a director of FMC
Corporation and Warner-Lambert Company. Age 61.
2
<PAGE>
AGE, PRINCIPAL OCCUPATION,
BUSINESS EXPERIENCE DIRECTOR
NOMINEE AND OTHER DIRECTORSHIPS HELD SINCE
------- ---------------------------- -----
Robert D. Krebs Mr. Krebs has been Chairman, President and 1987
(Class III) Chief Executive Officer of Burlington Northern
Santa Fe Corporation (transportation) since April
1997. From September 1995 to April 1997 he
was President and Chief Executive Officer of
Burlington Northern Santa Fe Corporation. From
June 1988 to January 1998, he was Chairman,
President and CEO of Santa Fe Pacific
Corporation. He is a director of Burlington
Northern Santa Fe Corporation. Age 56.
Douglas C. Yearley Mr. Yearley has been Chairman of the Board and 1986
(Class III) Chief Executive Officer of the Corporation since
1989 and was President of the Corporation from 1991
until December 1997. He was President of Phelps
Dodge Industries, a division of the Corporation,
from 1988 until 1990, Executive Vice President
of the Corporation from 1987 until 1989 and
Senior Vice President of the Corporation from
1982 through 1986. He is a director of J. P.
Morgan & Co., Incorporated and its principal
banking subsidiary, Morgan Guaranty Trust
Company of New York, Lockheed Martin
Corporation, USX Corporation and Southern Peru
Copper Corporation. Age 63.
Paul Hazen Mr. Hazen has been Chairman of Wells Fargo & 1988
(Class I) Co. since November 1998. He was Chairman
and Chief Executive Officer of Wells Fargo &
Co., San Francisco (bank holding company) and
of Wells Fargo Bank, N.A. (national banking
association) from January 1995 until November
1998. He was President of Wells Fargo & Co.
and of Wells Fargo Bank, N.A. from 1984 to
1994. He is a director of Wells Fargo & Co.,
AirTouch Communications, Inc. and Safeway,
Inc. Age 57.
Manuel J. Iraola Mr. Iraola has been President of Phelps Dodge 1997
(Class I) Industries, a division of the Corporation, since
1995, and a Senior Vice President of the
Corporation since 1995. From 1992 until 1995 he
was President of Phelps Dodge International
Corporation, and he was Senior Vice President
and Chief Financial Officer of Columbian
Chemicals Company, a subsidiary of the
Corporation, from 1986 until 1992. Age 51.
3
<PAGE>
AGE, PRINCIPAL OCCUPATION,
BUSINESS EXPERIENCE DIRECTOR
NOMINEE AND OTHER DIRECTORSHIPS HELD SINCE
------- ---------------------------- -----
Marie L. Knowles Mrs. Knowles has been Executive Vice President 1994
(Class I) and Chief Financial Officer of Atlantic
Richfield Company (diversified energy company)
since 1996. From 1993 until 1996 she was Senior
Vice President of Atlantic Richfield Company,
and President of ARCO Transportation Company, a
former subsidiary of Atlantic Richfield Company.
From 1990 to 1993 she was Vice President and
Controller of Atlantic Richfield Company. Mrs.
Knowles is a director of Vastar Resources, Inc.
Age 52.
Gordon R. Parker Mr. Parker was Chairman of Newmont Mining 1995
(Class I) Corporation from 1986 until his retirement in
1994. He was Chief Executive Officer from 1985
until 1993. Mr. Parker is a director of
Caterpillar, Inc., Gold Fields of South Africa,
Gold Fields Limited and The Williams Companies,
Inc. Age 63.
BOARD MEETINGS
The Board of Directors met nine times during 1998. Various committees of the
Board also met during the year. Average attendance at all Board and committee
meetings was 91%.
BOARD COMMITTEES
THE AUDIT COMMITTEE is comprised of Messrs. Douglas, Dunham (appointed February
3, 1999), Franke, Hazen (Chairman), (Mrs.) Knowles, and Krebs. The Committee,
which met four times during 1998, generally performs the following functions:
* Recommends the appointment of the Corporation's independent
accountants and reviews the scope and timing of their audit plans and
the appropriateness of their fees;
* Reviews the scope and results of internal audit activity;
* Reviews internal audit policies and procedures and financial and
accounting controls;
* Reviews reports, recommendations, and opinions prepared or given by
the independent accountants concerning the Corporation's financial
statements, financial and accounting personnel, and internal controls,
and implements such recommendations as appropriate; and
* Reviews the Corporation's code of business ethics and policies.
THE COMPENSATION AND MANAGEMENT DEVELOPMENT COMMITTEE, comprised of Messrs.
Burt, Douglas, Dunham (appointed February 3, 1999), Hazen and Morcott
(Chairman), met five times during 1998. The Committee performs the following
functions:
* Reviews and approves the compensation for the Corporation's senior
officers;
* Reviews management recommendations concerning the compensation of
other officers and key personnel;
* Reviews the Corporation's program for management development; and
* Reviews and approves incentive compensation awards, stock option
grants and awards of restricted stock.
4
<PAGE>
THE COMMITTEE ON DIRECTORS is comprised of Messrs. Franke, Krebs (Chairman),
Morcott, and Parker. The Committee, which met twice during 1998, performs the
following functions:
* Makes recommendations concerning the composition of the Board and its
committees, and reviews director compensation; and
* Reviews the qualifications of potential director candidates and
recommends to the Board nominees for election as directors.
The Committee on Directors will consider potential nominees recommended by
shareholders. Recommendations should be sent to the Secretary of the Corporation
and should include the address and a brief description of the qualifications of
the individual recommended.
THE ENVIRONMENTAL, HEALTH AND SAFETY COMMITTEE, comprised of Messrs. Burt
(Chairman), Douglas, (Mrs.) Knowles and Morcott, met three times in 1998. The
Committee generally performs the following functions:
* Reviews the Corporation's environmental, health, and safety policies;
* Reviews management's implementation of these policies; and
* Makes reports and recommendations to the Board concerning the results
of its reviews.
THE FINANCE COMMITTEE is comprised of Messrs. Franke, (Chairman), Hazen, Parker
and Yearley. The Committee, which met four times during 1998, is responsible
for:
* Reviewing the financial affairs of the Corporation and its
subsidiaries;
* Recommending to the Board financial policies and actions to
accommodate the Corporation's goals and operating strategies while
maintaining a sound financial condition; and
* Reviewing the funding and management of assets for retirement income
plans of the Corporation and its subsidiaries.
DIRECTORS STOCK OWNERSHIP POLICY
The Board of Directors has adopted a policy that each director, within three
years of his or her election, shall own a total of not less than 2,000 common
shares of the Corporation. Stock units granted to a director under the
Corporation's Directors Stock Unit Plan or the Deferred Compensation Plan apply
toward attainment of the requirement.
BOARD COMPENSATION
RETAINER AND FEES
Directors who are not salaried employees of the Corporation ("non-employee
directors") receive the following annual compensation for their Board service:
ANNUAL RETAINER: $25,000
ATTENDANCE FEES: $1,000 for each Board meeting
$1,000 for each Board Committee meeting
Expenses related to attendance
ANNUAL COMMITTEE
CHAIR STIPEND: $3,000
5
<PAGE>
SHARES OF STOCK:
The foregoing retainer and fees, at the election of the director, may be
received in common shares in lieu of cash.
STOCK UNITS: 450 units
DIRECTORS STOCK UNIT PLAN
In order to encourage increased stock ownership, the Board of Directors adopted
the Directors Stock Unit Plan. Pursuant to that Plan each non-employee director
receives an annual grant of 450 stock units having a value equal to 450 of the
Corporation's common shares. While stock units do not confer on a director the
right to vote, each stock unit is credited on each dividend payment date with
stock units equal to the applicable dividend payable on the Corporation's common
shares. Upon termination of service as a director, the director is entitled to
payment of his or her accumulated stock units in an equivalent number of the
Corporation's common shares or in cash.
DIRECTORS DEFERRED COMPENSATION PLAN
Directors may defer payment of retainer and/or meeting fees to future years and
may elect to have such deferred compensation
* receive interest at prevailing market rates
* invested in the Corporation's common shares, or
* invested in one of several mutual funds designated for that purpose.
EXPENSES AND BENEFITS
All directors are reimbursed for travel and other related expenses incurred in
attending shareholder, Board and committee meetings. The Corporation also
provides non-employee directors with life insurance benefits and allows them to
participate in its Matching Gifts Program by matching gifts from directors to
qualified organizations up to a total of $10,000 per year.
DIRECTORS AND OFFICERS LIABILITY INSURANCE
On June 1, 1997, the Corporation extended its directors' and officers' liability
insurance policies and its pension trust liability policies (placed on three
year terms) issued by National Union Fire Insurance Company of Pittsburgh, Pa.,
Executive Risk Indemnity Inc., Continental Casualty Company, Federal Insurance
Company and XL Insurance Company, each for an additional annual term ending June
1, 2000, at additional premiums of $619,000, $132,000, $115,000, $49,000 and
$66,000, respectively. The policies insure (i) directors, officers, division
presidents and vice presidents of the Corporation and its subsidiaries, and
employees who are fiduciaries of employee benefit plans of the Corporation and
its subsidiaries, against certain liabilities they may incur in the performance
of their duties and (ii) the Corporation against any obligation to indemnify
such persons against such liabilities, and (iii) the Corporation for allegations
related to securities claims. On November 1, 1998, the Corporation extended
those policies to expire on June 1, 2001 at additional premiums of $456,666,
$132,000, $115,000, $49,000 and $66,000, respectively.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The following directors served on the Compensation and Management Development
Committee during all of 1998: Messrs. Burt, Douglas, Hazen and Morcott
(Chairman). None of these directors is or has been an officer or employee of the
Corporation or any of its subsidiaries or has had any other relationship with
the Corporation or any of its subsidiaries requiring disclosure under the
applicable rules of the Securities and Exchange Commission.
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<PAGE>
SHARE OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
The following table lists the common share ownership as of February 1, 1999 for
our directors and the five named executive officers. "Beneficial Ownership"
includes shares a director or officer has the power to vote or transfer, and
stock options that were exercisable on February 1, 1999 or within 60 days
thereafter. On February 1, 1999, the directors and the five named executive
officers of the Corporation owned, in the aggregate, 1,259,453 shares of the
Corporation's common stock (approximately 2.2 percent of the shares
outstanding). The Corporation's directors also have interests in stock-based
units under Corporation plans. While these units may not be voted or
transferred, they are listed in the table below because they represent a
component of the total economic interest of our directors in the Corporation's
stock.
OPTIONS
SHARES EXERCISABLE
NAME OF BENEFICIALLY WITHIN STOCK
BENEFICIAL OWNER OWNED 60 DAYS UNITS(1) TOTAL
- ---------------- ----- ------- -------- -----
Robert N. Burt 2,218 3,061 1,674 6,953
Archie W. Dunham 1,000 0 450 1,450
William A. Franke 2,000 8,801 2,330 13,131
Paul Hazen 3,000 8,801 5,071(2) 16,872
Manuel J. Iraola 44,801(3) 114,580 0 159,381
Marie L. Knowles 1,000 1,913 1,445 4,358
Robert D. Krebs 1,962 7,653 1,974 11,589
Southwood J. Morcott 1,866 5,357 4,640(2) 11,863
Gordon R. Parker 1,000 1,913 1,572 4,485
Thomas M. St. Clair 20,606 122,051 0 142,657
Timothy R. Snider 8,107 32,047 0 40,154
J. Steven Whisler 83,994(3) 199,325 0 283,319
Douglas C. Yearley 113,078 450,163 0 563,241
Directors and named executive
officers as a group 284,632 955,665 19,156 1,259,453
- ----------
(1) Represents stock units awarded under the Directors Stock Unit Plan.
(2) Includes stock units awarded under the Directors Deferred Compensation
Plan.
(3) Includes the following shares of restricted stock awarded under the 1993
Stock Option and Restricted Stock Plan: Mr. Iraola, 25,000 shares, and Mr.
Whisler, 25,000 shares.
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<PAGE>
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based on a review of reports filed by our directors, executive officers and
beneficial holders of 10% or more of our outstanding shares, and upon
representations from those persons, all reports required to be filed by our
reporting persons during 1998 were filed on time.
To the knowledge of the Corporation, the following entities beneficially owned
in excess of five percent of the Corporation's common shares as of December 31,
1998:
NUMBER OF PERCENT OF
NAME AND ADDRESS SHARES OUTSTANDING
---------------- ------ -----------
Capital Research and Management Company(a) 5,966,300 10.3 %
333 South Hope Street
Los Angeles, CA 90071
Wellington Management Company, LLP(b) and 4,004,000 6.91%
Vanguard Wellington Fund, Inc.
75 State Street
Boston, MA 02109
AMVESCAP PLC; AVZ, Inc.; AIM Management Group, Inc.; 5,225,278 8.91%
AMVESCAP Group Services, Inc.; INVESCO, Inc.;
INVESCO North American Holdings, Inc.; and
INVESCO Capital Management, Inc.(c)
11 Devonshire Square
London, EC2M 4YR England
- ----------
(a) A report on Schedule 13G, dated December 9, 1998, disclosed that this
entity, as a registered investment advisor, had sole dispositive power over
5,966,300 shares which represented 10.3% of the outstanding common shares
at December 31, 1998.
(b) Wellington Management Company LLP filed a report on Schedule 13G, dated
December 31, 1998, which disclosed that, as a registered investment advisor
and a parent holding company, it had shared voting power over 84,800 shares
and shared dispositive power over 4,004,000 shares (including the 3,804,900
shares held by Vanguard Wellington Fund described below) which represented
6.91% of the outstanding common shares at December 31, 1998. On a separate
Schedule 13G, dated February 10, 1999, the Vanguard Wellington Fund
disclosed that it had sole voting power and shared dispositive power over
3,804,900 shares which represented 6.57% of the outstanding common shares
at December 31, 1998. Wellington Management is the investment advisor for
the Vanguard Wellington Fund and shares dispositive power over the shares
held by the Fund. The address of the Vanguard Wellington Fund is 100
Vanguard Boulevard, Malvern, PA 19355.
(c) A report on Schedule 13G, dated February 10, 1999, disclosed that these
entities, filing jointly as parent holding companies and as a registered
investment advisor (INVESCO Capital Management, Inc.), had shared voting
power over 5,225,278 shares and shared dispositive power over 5,225,278
shares which represented 8.91% of the outstanding common shares at December
31, 1998.
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<PAGE>
EXECUTIVE COMPENSATION AND OTHER INFORMATION
The following table summarizes the compensation we paid our Chairman and Chief
Executive Officer and each of the four other most highly compensated executive
officers in 1998, 1997 and 1996.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
-------------------------- ---------------------
Other All
Name Annual Restricted Other
and Base Compen- Stock Options Compen-
Principal Salary Bonus sation Awards Granted sation(4)
Position Year ($) ($)(1) ($)(2) ($) (#) ($)
---------- ---- ------- ------- ------- ---------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Douglas C. Yearley 1998 800,000 440,000 136,262 -0- 100,000 151,246
Chairman of the Board, 1997 750,000 860,300 152,248 -0- 242,660(3) 125,765
Chief Executive 1996 675,000 675,000 56,172 -0- 103,601(3) 109,465
Officer and Director
J. Steven Whisler 1998 480,000 240,000 13,240 -0- 80,000 50,110
President and Chief 1997 400,000 309,900 18,349 -0- 121,960(3) 43,602
Operating Officer; 1996 355,000 300,000 14,793 -0- 44,499(3) 38,489
and Director
Manuel J. Iraola 1998 390,000 340,000 64,057 -0- 52,414(3) 48,031
Senior Vice President; 1997 360,000 247,800 22,064 -0- 36,933(3) 41,604
President, PDI 1996 320,000 280,000 17,216 -0- 30,000 36,650
and Director
Thomas M. St. Clair 1998 310,000 118,000 7,475 -0- -0- 68,163
Senior Vice 1997 300,000 239,400 7,993 -0- 39,516(3) 53,968
President and 1996 290,000 188,900 12,589 -0- 53,572(3) 50,915
Chief Financial Officer
Timothy R. Snider(5) 1998 285,000 100,000 7,138 -0- 55,000 28,888
Senior Vice President;
President, PDMC
</TABLE>
9
<PAGE>
(1) Amounts shown under "Bonus" were paid under the Annual Incentive
Compensation Plan. Amounts shown under "Base Salary" and "Bonus" include
any salary or bonus deferred by the executive under the Phelps Dodge
Employee Savings Plan (the "Savings Plan") and the Phelps Dodge Corporation
Supplemental Savings Plan (the "Supplemental Savings Plan").
(2) Amounts shown under "Other Annual Compensation" include tax payment
reimbursements for all reported executives, and spousal travel expenses of
$24,543 for one executive officer and $55,324 for another executive
officer.
(3) The option grants denoted by "(3)" include reload options, as well as
normal compensatory options. See Stock Options below.
(4) Amounts shown include the following contributions and accruals by the
Corporation for 1998 to the Savings Plan and 1998 accruals under the
Supplemental Savings Plan, and for premium payments for life insurance
policies issued through the Executive Life Insurance Plan for the reported
executives:
Executive
Employee Supplemental Life
Savings Savings Insurance
Name Plan Plan Plan
---- ---- ---- ----
Douglas C. Yearley 20,500 59,000 71,746
J. Steven Whisler 20,500 24,000 5,402
Manuel J. Iraola 20,500 20,000 7,531
Thomas M. St. Clair 20,500 14,000 33,628
Timothy R. Snider 19,333 4,910 4,645
Amounts listed for Messrs. Whisler and St. Clair also include $208 and $35,
respectively, which is imputed income to each such officer on life
insurance policies for which the Corporation has the sole right to receive
any amounts payable with respect to the cash surrender value.
(5) Effective October 1, 1998, Mr. Snider was elected a Senior Vice President
of the Corporation, and President of Phelps Dodge Mining Company.
STOCK OPTIONS
Each of the executives listed in the Summary Compensation Table was eligible to
receive two types of option grants during 1998: normal option grants and reload
option grants. The first type of grant is a compensatory award normally made on
an annual basis which is intended to reward each named executive based on the
Corporation's future performance. Normal option grants customarily include the
right to receive reload options.
A reload option is granted to an employee who exercises an option with
already-owned shares. It replaces the opportunity for future appreciation that
the employee would otherwise lose by exercising the original option, while
encouraging the employee to increase his share ownership. Reload options provide
only limited incremental value to the employee as compared to the options they
replace. Reload option grants customarily include the right to receive
additional reload options.
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<PAGE>
The following table contains information with respect to the normal compensatory
option grants and reload option grants made to each named executive during 1998
and the hypothetical value at the time of grant based on a variation of the
Black-Scholes model (see footnote (3) on page 12). The Corporation is not aware
of any option pricing model which can provide a true assessment of the value of
the options. Over their lives, the options could have a greater or a lesser
value than that shown in the table, and under some circumstances they could have
zero value.
Option Grants in 1998
<TABLE>
<CAPTION>
Normal % of Total
and Reload Options Granted
Options to Employees Exercise Expiration Grant Date
Name Granted(1) In 1998(2) Price Date Present Value(3)
---- ---------- ---------- ----- ---- ----------------
<S> <C> <C> <C> <C> <C> <C>
Douglas C. Yearley Normal 100,000 9.30 $55.2500 12/2/08 $1,096,000
J. Steven Whisler Normal 80,000 7.43 55.2500 12/2/08 876,800
Manuel J. Iraola Reload 4,204 66.5000 12/2/02 27,536
Reload 3,210 66.5000 12/1/03 21,026
Normal 45,000 4.87 55.2500 12/2/08 493,200
Thomas M. St. Clair -0- -0-(4)
Timothy R. Snider Normal 15,000 46.5313 9/2/08 128,250
Normal 40,000 5.11 55.2500 12/2/08 438,400
</TABLE>
- ----------
(1) Normal options expire no later than the tenth anniversary of the date of
grant, plus one day. If an employee retires on his normal retirement date,
or retires early under any pension or retirement plan maintained by the
Corporation or any subsidiary, or dies, his exercisable options terminate
no later than the fifth anniversary of his retirement or death. If an
optionee's employment terminates for any reason other than retirement or
death, his exercisable options terminate no later than 30 days following
the termination of his employment.
Normal options generally become exercisable in three or four substantially
equal annual installments beginning on the first anniversary of the date of
grant or earlier as the Committee in its discretion may determine. The
Committee may also approve provisions making installments exercisable (a)
upon the employee's retirement, (b) six months from the date an option is
granted if it is the result of a previous exercise in which pre-owned
shares were used in payment of the exercise, and (c) as the Committee deems
appropriate in a change of control of the Corporation but not later than
two years after the employee ceases employment.
11
<PAGE>
Options include the right to receive reload options in the event the
optionee exercises an option with already-owned shares. Reload options
contain the same expiration dates and other terms as the options they
replace except that they have an exercise price per share equal to the fair
market value of a common share on the date the reload option is granted and
become exercisable in full six months after they are granted. Reload
options customarily include the right to receive additional reload options.
(2) Illustrates the total number of normal and reload options granted as a
percent of the aggregate number of 1998 normal options (1,053,800 shares)
and 1998 reload options (21,984 shares) granted to all employees.
(3) The hypothetical present value of the options at the date of grant was
determined using a variation of the Black-Scholes option pricing model. The
Black-Scholes model is a complicated mathematical formula which is widely
used to value options traded on the stock exchanges. However, executive
stock options differ from exchange-traded options in several key respects.
Executive options are long-term, non-transferable and subject to vesting
restrictions, whereas exchange-traded options are short-term and can be
exercised or sold immediately in a liquid market. The model used here is
adapted to estimate the present value of an executive option and considers
a number of factors, including the grant price of the option, the
volatility of the Corporation's common shares, the dividend rate, the term
of the option, the time it is expected to be outstanding and interest
rates. The Black-Scholes values were derived using as assumptions the
following financial factors which existed at or about the time that the
options were granted: volatility of .2894, dividend yield of 2.98%, and
interest rates of 4.368% for normal options and 5.420% for reload options.
In view of the Corporation's historic exercise experience and the inherent
motivation to exercise options early in their terms because of the reload
option feature, normal options were assumed to be outstanding for three
years at time of exercise and reload options for one year. No downward
adjustments were made to the resulting grant-date option values to account
for potential forfeiture or non-transferability of the options in question.
Because the Black-Scholes model was not developed for executive options and
requires the use of assumptions primarily based on conditions in effect at
the time of grant (and not over the term of the option), it provides only a
theoretical estimate of the value of these options.
(4) Mr. St. Clair has announced his retirement effective June 1, 1999.
Reload option grants are part of the Corporation's overall program to increase
the number of common shares owned by its executive officers and other key
employees. Traditional option programs generally do not encourage optionees to
exercise options prior to the end of their term or to hold the shares received
upon such exercise. The Compensation and Management Development Committee
adopted the reload option program, with shareholder approval, to encourage
option exercises and stock retention by permitting an optionee to exercise an
option with already-owned common shares and to be restored to the same economic
opportunity available immediately prior to such exercise.
12
<PAGE>
Under the reload program, an employee who exercises an option (the "Original
Option") with already-owned shares prior to the end of the option term will
receive an additional option (the "Reload Option") covering a number of shares
equal to the number used to exercise the Original Option. The Reload Option will
be exercisable, beginning six months after grant and continuing for the
remaining term of the Original Option, at a price equal to the fair market value
of the shares on the date the Original Option is exercised. As a result of the
exercise of the Original Option with already-owned shares, the net number of
common shares held by the employee will increase by the number of shares that
has an aggregate market value equal to the "spread" on the option (the "spread"
equals the aggregate market price of the option shares on the day of exercise
less the aggregate exercise price). Thus, the number of shares covered by the
Reload Option plus the number of additional shares received on the exercise of
the Original Option will equal the number of shares covered by the Original
Option. The program thereby serves to replace the opportunity for future
appreciation that an optionee would otherwise lose by exercising an option using
already-owned shares. In addition, by inducing option exercises and stock
retention, the reload feature offers optionees the opportunity to receive
dividends on a greater number of shares than would be the case without such a
feature.
An employee will also benefit from the use of the reload feature if the market
price of the underlying shares declines between the date he exercises the
Original Option and the expiration date of that option. By encouraging an
employee to exercise options with shares, the reload feature enables an employee
to protect against a decline in the market price of the common shares without
losing the potential benefit of a price increase.
13
<PAGE>
AGGREGATED OPTION EXERCISES IN 1998 AND DECEMBER 31, 1998 OPTION VALUES
The following table provides information concerning options exercised in 1998 by
the named executives and the options held by them at the end of 1998:
Value of
Number of Unexercised
Unexercised In-the-Money
Shares Options at Options at
Acquired 12/31/98 12/31/98
on $ Value (Exercisable/ (Exercisable/
Name Exercise(1) Realized Unexercisable) Unexercisable)(2)
---- ----------- -------- -------------- -----------------
Douglas C. Yearley 0 0 450,163/176,668 $ 0/ 0
J. Steven Whisler 0 0 199,325/127,001 0/ 0
Manuel J. Iraola 10,764 222,744 114,580/ 76,334 23,600/ 0
Thomas M. St. Clair 0 0 122,051/ 20,667 0/ 0
Timothy R. Snider 0 0 32,047/ 66,468 0/62,813
- ----------
(1) Options for 10,764 were exercised by Mr. Iraola using shares already owned
to pay the exercise price of the options exercised in 1998. The number of
shares acquired upon exercise of these options in excess of the shares used
to pay the exercise price and associated taxes was 1,842. He acquired
reload options to purchase 7,414 shares.
(2) Value is based on the mean of the high and low prices of the common shares
on the Consolidated Trading Tape on December 31, 1998 ($50.7188).
PENSION AND OTHER RETIREMENT BENEFITS
RETIREMENT PLANS
The following pension table shows the estimated aggregate annual benefits
payable in the form of a straight life annuity commencing at age 65 under the
Phelps Dodge Retirement Plan for Salaried Employees (the "Retirement Plan") as
supplemented by the Phelps Dodge Corporation Supplemental Retirement Plan (the
"Supplemental Retirement Plan") that make up amounts limited by the Internal
Revenue Code (the "Code").
14
<PAGE>
PENSION PLAN TABLE
<TABLE>
<CAPTION>
FINAL AVERAGE ESTIMATED ANNUAL BENEFITS FOR YEARS OF SERVICE INDICATED(c)
COMPENSATION -----------------------------------------------------------------------------------------
(a)(b) 10 15 20 25 30 35 40 45
------------ -------- -------- -------- -------- -------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 200,000 $ 29,965 $ 44,947 $ 59,929 $ 74,911 $ 89,894 $104,876 $ 119,858 $ 134,840
$ 300,000 $ 45,965 $ 68,947 $ 91,929 $114,911 $137,894 $160,876 $ 183,858 $ 206,840
$ 400,000 $ 61,965 $ 92,947 $123,929 $154,911 $185,894 $216,876 $ 247,895 $ 278,840
$ 500,000 $ 77,965 $116,947 $155,929 $194,911 $233,894 $272,876 $ 311,858 $ 350,840
$ 600,000 $ 93,965 $140,947 $187,929 $234,911 $281,894 $328,876 $ 375,858 $ 422,840
$ 700,000 $109,965 $164,947 $219,929 $274,911 $329,894 $384,876 $ 439,858 $ 494,840
$ 800,000 $125,965 $188,947 $251,929 $314,911 $377,894 $440,876 $ 503,858 $ 566,840
$ 900,000 $141,965 $212,947 $283,929 $354,911 $425,894 $496,876 $ 567,858 $ 638,840
$1,000,000 $157,965 $236,947 $315,929 $394,911 $473,894 $552,876 $ 631,858 $ 710,840
$1,100,000 $173,965 $260,947 $347,929 $434,911 $521,894 $608,876 $ 695,858 $ 782,840
$1,200,000 $189,965 $284,947 $379,929 $474,911 $569,894 $664,876 $ 759,858 $ 854,840
$1,300,000 $205,965 $308,947 $411,929 $514,911 $617,894 $720,876 $ 823,858 $ 926,840
$1,400,000 $221,965 $332,947 $443,929 $554,911 $665,894 $776,876 $ 887,858 $ 998,840
$1,500,000 $237,965 $356,947 $475,929 $594,911 $713,894 $832,876 $ 951,858 $1,070,840
$1,600,000 $253,965 $380,947 $507,929 $634,911 $761,894 $888,876 $1,015,858 $1,142,840
$1,700,000 $269,965 $404,947 $539,929 $674,911 $809,894 $944,876 $1,079,858 $1,214,840
</TABLE>
- ----------
(a) The Retirement Plan provides a member upon retirement at age 65 with a
pension for life in a defined amount based upon final average salary and
length of benefit service. Under the Retirement Plan, final average salary
("Final Average Salary") is the highest average annual base salary for any
consecutive 36-month period plus the highest average annual incentive
compensation for any consecutive 60-month period during a member's last 120
months of employment. Benefit service includes all periods of employment
with the Corporation or its participating subsidiaries. Benefits under the
Retirement Plan are subject to certain limitations under the Code, and to
the extent the result of such limitations would be a benefit less than
would otherwise be paid under such Plan, the difference is provided under
the supplementary retirement provisions of the Supplemental Retirement
Plan. The formula for determining benefits payable under the Retirement
Plan takes into account estimated social security benefits payable. The
amounts set forth in the table assume maximum social security benefits
payable in 1998.
(b) Amounts of annual incentive compensation have been estimated based on the
five-year average annual incentive compensation awarded to participating
employees for 1994 through 1998. The actual amount of incentive
compensation for an individual at any level of Final Average Salary could
vary.
(c) The expected credited years of benefit service at normal retirement for the
Corporation's five current named executive officers as of December 31, 1998
are as follows: Mr. Yearley, 41 years; Mr. Whisler, 43 years; Mr. Iraola,
30 years; Mr. St. Clair, 11 years; and Mr. Snider, 45 years. The years of
service are based on normal retirement for all executive officers under the
Retirement Plan and the applicable provisions of the Supplemental
Retirement Plan.
15
<PAGE>
SEVERANCE AND CHANGE OF CONTROL ARRANGEMENTS
SEVERANCE AGREEMENTS WITH OUR EXECUTIVES
The Corporation has severance agreements with each of its five named executive
officers under which the executive would receive a lump sum payment equal to his
annual base salary in the event the Corporation terminates his employment, other
than for cause or mandatory retirement, or the executive voluntarily terminates
his employment because of material reductions in his salary or his position,
duties and responsibilities. The terminated executive would also receive (i)
outplacement services at a cost up to 15% of his base salary and (ii) the cost
of continued coverage for a limited period under the Corporation's group health,
life insurance and disability plans.
CHANGE OF CONTROL AGREEMENTS WITH OUR EXECUTIVES
The Corporation also has agreements with such executives under which each
executive would receive, in the event he ceases to be employed by the
Corporation within two years following a change of control of the Corporation
(for a reason other than death, disability, willful misconduct, normal
retirement or under certain circumstances a voluntary termination of employment
by the executive), a lump sum equal to (i) three times the executive's highest
base salary during that year and the prior two years plus (ii) three times the
executive's average bonus paid under the Annual Incentive Compensation Plan for
the two calendar years preceding the year in which the change of control occurs,
less (iii) any severance payable under his Severance Agreement. The amount of
such payments, when combined with any other payments that are contingent upon a
change of control, may be capped at the maximum amount that can be paid without
triggering an excise tax under the Internal Revenue Code. This "Cap" on payments
does not apply if the amount of such payments, calculated without the Cap, is at
least 20% more than the amount of such payments calculated with the Cap. If the
payments are not subject to the Cap, the Corporation will provide the executive
with a tax gross-up payment to reimburse the executive for any excise taxes as
well as the presumed income taxes on the gross-up. The terminated executive
would also receive the cost of continued coverage for a limited period under the
Corporation's group health, life insurance and disability plans. Except under
certain circumstances, these change of control agreements expire on December 31,
2002.
OTHER CHANGE OF CONTROL PROVISIONS
Although normal compensatory options granted by the Corporation generally become
exercisable in three or four substantially equal annual installments beginning
on the first anniversary of the date of grant, they also become exercisable in
certain change of control situations. Specifically, such options are exercisable
(but not earlier than six months from the date of grant) for a period of 30 days
beginning on the date the Corporation's common shares are purchased pursuant to
a third party tender offer or the Corporation's shareholders approve a merger or
similar transaction which the Corporation will not survive as a publicly held
corporation or, in the case of the five named executive officers and certain
other employees, the date the employee ceases to be employed if he/she ceases to
be employed within two years following a change of control.
The Supplemental Retirement Plan provides for the payment of unreduced benefits
to employees who meet liberalized age and length of service requirements and
whose employment is terminated by the Corporation or any of its subsidiaries
within two years following a change of control of the Corporation. The
Supplemental Retirement Plan also provides an additional 36 months of service
credit to an executive who, due to his termination of employment within two
years following a change of control of the Corporation, becomes entitled to
receive payments under
16
<PAGE>
his change of control agreement with the Corporation. The Supplemental Savings
Plan obligates the Corporation to transfer an amount equal to the deficiency in
the assets of the Plan's trust fund, if any, prior to the day on which a change
of control occurs.
17
<PAGE>
COMPENSATION AND MANAGEMENT DEVELOPMENT COMMITTEE
REPORT ON EXECUTIVE COMPENSATION
THE COMMITTEE
The Committee is composed solely of directors who are not employees of the
Corporation. It has periodically retained respected independent compensation
consultants to advise and assist it in connection with various compensation
matters.
CORPORATE GOALS
The Corporation's goal is to be the leader in each of the domestic and
international mining and manufacturing activities in which it competes. It also
seeks to achieve and sustain progressive increases in value for its
shareholders, while balancing appropriately the short and long-term
opportunities for the Corporation.
To meet these goals, the Corporation employs high caliber, dedicated senior
managers who are well trained and results oriented. The Board of Directors
established the Compensation and Management Development Committee to oversee the
Corporation's compensation and management development programs and to ensure
that these programs maximize the Corporation's ability to attract, retain and
motivate employees to meet these stated objectives.
The Committee believes it can motivate senior managers participating in these
programs by:
* Emphasizing the relationship between pay and performance by rewarding
managers who bring about solid achievement with regard to key business
strategies and specific operational objectives and by increasing the
relative amount of compensation at risk as management responsibilities
increase.
* Assuring that the elements of variable compensation are linked as
directly as practicable to measurable financial, operational and other
forms of performance.
* Encouraging stock ownership by executives.
* Tying pay for performance as closely as possible to success in
maximizing the value of the Corporation's stock over the long term.
ELEMENTS OF EXECUTIVE COMPENSATION
The executive officers are compensated by salaries, annual incentive awards and
long-term incentive compensation, with the greatest emphasis on long term
incentives in the form of stock options. Each element focuses on performance in
a different but complementary way. Salaries focus on individual performance,
competence and the Corporation's performance during the officer's tenure. Annual
incentives relate to corporate, division and, where appropriate, unit and
individual performance. Long-term incentive awards, which are paid in the form
of stock options, and, from time to time, in restricted stock, create a
long-term identity of interest with the shareholders based on the Corporation's
performance and related growth of shareholder value.
The Committee believes that the Corporation competes for its executive talent
primarily with similarly sized industrial companies located in the United
States. Accordingly, where possible, the Committee compares the compensation for
the top five executives, at least annually, to the compensation paid to
executives holding similar positions at sixteen publicly held industrial
corporations of an average size,
18
<PAGE>
measured by revenues and market capital, similar to that of the Corporation
(referred to below as the "comparison group"). For other executives, comparisons
to similar positions are based on a much larger group of companies of similar
size to the Corporation measured by revenues. The Committee believes that the
competitive data used is generally representative of the competitive level of
compensation paid to executive officers in companies the size of Phelps Dodge.
Thus, the companies used for comparison purposes in connection with the
compensation paid to the Corporation's executive officers are different from the
companies included in the peer group used in the performance graphs on pages 22
and 23 to compare shareholder returns.
EXECUTIVE SALARIES
Individual salaries for executive officers are established by the Committee to
reflect the officer's performance and competence, existing general economic and
industry conditions and the Corporation's performance during the executive
officer's tenure. Generally, salary adjustments are targeted to move salaries to
median levels over time for sustained and expected performance and competence.
The salaries of executive officers who have performed exceptionally well over
sustained periods of time may be adjusted to exceed median levels. Based on
available information, the Committee believes salaries in 1998 for the executive
officers were at or near the median when compared to employees in similar
positions in the comparison group. The Committee determined that, although over
the last decade Phelps Dodge stock has significantly outperformed the S&P Metals
Mining index and the individual executives named in the Summary Compensation
Table have sustained excellent individual performance, due to our current and
projected low copper price environment, salaries for three of these executives
should not be adjusted in 1999. However, salaries for the other two executives
will be adjusted upward in 1999 to bring their salaries closer to the median.
ANNUAL INCENTIVES
The Annual Incentive Compensation Plan provides the executive officers and
certain other officers and managers with compensation based on success in
achieving annual corporate, division and, where appropriate, unit and individual
goals. For each executive officer, a target award is determined approximating
the 60th percentile of the annual incentive compensation paid by the comparison
group to individuals holding comparable positions. Lower threshold awards and
higher maximum awards are also established. Corporate goals are set using return
on equity and net operating cash flow return on invested capital, both of which
are fundamental indicators of the Corporation's performance. The goals are
equally weighted and determine 70% of the CEO's and COO's total annual incentive
compensation, and 60% and 15% of the corporate executives' and operation
executives' awards, respectively. In 1998, the Corporation's performance with
respect to return on equity was below the threshold goal. The Corporation's 1998
performance with respect to net operating cash flow return on invested capital
was approximately midway between threshold and target goals. Based on these
results and the Committee's evaluation of performance relative to individual
and, where appropriate, division and unit goals, the Committee approved Annual
Incentive Compensation awards for 1998 below the targeted amounts for four of
the listed executives, and above the targeted amount for one of the listed
executives, due to the above target performance of the PDI division.
19
<PAGE>
LONG-TERM INCENTIVE COMPENSATION
The Committee uses stock options as the principal method of providing long-term
incentive compensation primarily because employees benefit from options, if at
all, only to the extent of increases in the value of the Corporation's common
shares. To further the identity of interest with the shareholders, the executive
officers are expected to acquire and own significant numbers of the
Corporation's shares.
The Committee has determined that to focus the executives' attention to an
appropriate extent on the long-term growth of shareholder value, the targeted
compensation levels with respect to the present value of stock options should be
approximately midway between the fiftieth and seventy-fifth percentiles of the
long-term incentive awards made to executives holding similar positions in the
comparison group. Adjustments are made from these levels based on the
performance, career potential, critical skills and prior grant history of the
executive officer. Of the stock options granted to executive officers in 1998,
three approximated targeted levels and one was below the targeted level. All of
the option grants for 1998 were approved by the Committee.
GRANTS OF RESTRICTED STOCK
The Committee also made grants of restricted stock to a limited number of other
employees under the Corporation's Stock Option and Restricted Stock Plan. No
grants were made to the executives named in the Summary Compensation Table. The
principal purpose of these grants was to retain the services of key executive
and skilled personnel through a means that also provides a meaningful economic
incentive to increase the value of the Corporation's common shares. The size of
each award was determined based on the Committee's subjective determination of
the recipient's expected contribution to the Corporation over the stated vesting
period, the significance of the recipient's position with the Corporation and
the importance of maintaining continuity of management and critical skills in
the recipient's function.
STOCK OWNERSHIP GUIDELINES
To underscore the connection between the interests of management and
stockholders, the Corporation, several years ago, established informal stock
ownership guidelines for its executive officers. In 1996, the Corporation
formalized this program and established stock ownership targets for officers of
the Corporation who hold the position of Vice President and above and certain
senior executives within the Phelps Dodge Mining Company and Phelps Dodge
Industries divisions. The targets are expressed in terms of the value of the
Corporation's common shares held by the executive as a multiple of salary grade
midpoint. The targets range from one and one-half times salary midpoint up to
five times salary midpoint for the CEO. Many Vice Presidents and other
executives already hold a substantial amount of common shares, but those who do
not hold sufficient shares have five years from the date they became subject to
the ownership requirements to reach their personal ownership targets.
TAX CODE ISSUES
Section 162(m) of the Internal Revenue Code generally places a one million
dollar per person limit on the deduction a publicly-held corporation may take
for compensation paid to its chief executive officer and its four other highest
compensated "covered employees," excluding for this purpose deferred
compensation and, in general, compensation constituting "performance-based"
compensation. In 1998, the Corporation obtained shareholder approval for the
1998 Stock Option and Restricted Stock Plan which continues to exclude
compensation from stock options from the $1 million deductibility limit. Other
elements of the compensation payable to executive officers, such as salary,
annual incentive compensation and restricted stock, are not excludable from such
limit. Mr. Yearley deferred $240,000 of his salary in 1998.
20
<PAGE>
However, as a result of the Corporation's strong performance in 1997 and the
related above target incentive compensation award received by Mr. Yearley in
1998, his compensation subject to Section 162(m) exceeded one million dollars.
This resulted in the loss of a Federal income tax deduction with respect to
approximately $624,845 of his compensation. In 1998, Mr. Iraola became vested in
5,000 shares of restricted stock awarded to him in 1993, which resulted in an
additional $283,437 in taxable income. Therefore, his compensation subject to
Section 162(m) also exceeded one million dollars. This resulted in the loss of a
Federal income tax deduction with respect to approximately $41,132 of his
compensation.
CEO COMPENSATION
Douglas C. Yearley, the Chief Executive Officer of the Corporation, received a
base salary of $800,000 in 1998, an Annual Incentive Compensation Plan award of
$440,000 for 1998 performance compared to stated corporate and individual
performance goals, and a compensatory option grant in 1998 to purchase 100,000
common shares.
The first 70% of Mr. Yearley's Annual Incentive Compensation Plan award was
equally determined on the basis of the Corporation's actual return on equity and
net operating cash flow return on invested capital as compared to goals set at
the beginning of the year. The Corporation's performance was below threshold
goal for return on equity and approximately midway between threshold and target
for net operating cash flow return on invested capital. The remaining 30% of Mr.
Yearley's award was based on the Committee's subjective evaluation of his
performance with regard to individual goals pertaining to managing through the
downturn in the copper market, strategic initiatives, and completing the next
steps in the organization transition. Based on its judgment as to Mr. Yearley's
performance in these respects, the Committee made an above target award to him
as to this part of his incentive compensation. Mr. Yearley's compensatory stock
option grant, which was below the targeted level but larger than his 1997 grant,
was based on the policy discussed above.
The Committee believes that Mr. Yearley's 1998 salary was at or near the 1998
median paid by comparable companies to their CEOs.
CONCLUSION
The Committee will continue to evaluate the Corporation's compensation programs
to best enable the Corporation to employ and motivate high caliber, dedicated
people. Such employees, properly motivated, are believed to be key to
achievement of the Corporation's goal to be the international leader in the
mining and manufacturing activities in which it competes and the related
enhancement of shareholder value over the long term.
THE COMPENSATION AND MANAGEMENT
DEVELOPMENT COMMITTEE
Southwood J. Morcott, Chairman
Robert N. Burt
Paul W. Douglas
Paul Hazen
21
<PAGE>
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*
AMONG PHELPS DODGE CORPORATION, THE S & P 500 INDEX
AND THE S & P METALS MINING INDEX
Cumulative Total Return
----------------------------------------------------------
12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
Phelps Dodge Corp. 100 131 136 151 143 121
S & P 500 100 101 139 171 229 294
S & P METALS MINING 100 117 129 132 89 64
* The chart above reflects $100 invested at 12/31/93 in Phelps Dodge common
stock, the S&P 500, and in a peer group represented by the S&P Metals
Mining index, comprised of Phelps Dodge, ASARCO Incorporated, Cyprus Amax
Minerals Co., Freeport-McMoRan Copper & Gold Inc., and Inco Ltd.
22
<PAGE>
COMPARISON OF TEN YEAR CUMULATIVE TOTAL RETURN*
AMONG PHELPS DODGE CORPORATION, THE S & P 500 INDEX
AND THE S & P METALS MINING INDEX
Cumulative Total Return
------------------------------------------------
12/31/88 12/31/89 12/31/90 12/31/91 12/31/92
Phelps Dodge Corp. 100 136 137 170 255
S & P 500 100 132 128 166 179
S & P METALS MINING 100 115 109 123 132
----------------------------------------------------------
12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
Phelps Dodge Corp. 265 347 360 402 381 322
S & P 500 197 200 275 338 451 580
S & P METALS MINING 147 172 190 194 131 94
* The chart above reflects $100 invested at 12/31/88 in Phelps Dodge common
stock, the S&P 500, and in a peer group represented by the S&P Metals
Mining index, comprised of Phelps Dodge, ASARCO Incorporated, Cyprus Amax
Minerals Co., Freeport-McMoRan Copper & Gold Inc., and Inco Ltd. This
10-year graph illustrates the relative stock performances over a period
that more closely represents the longer business cycle generally associated
with the industry of the Corporation and is especially meaningful because
the business focus and growth strategies of the Corporation have been and
continue to be long term.
23
<PAGE>
2. RATIFICATION OF APPOINTMENT OF ACCOUNTANTS
On the recommendation of the Audit Committee, the Board of Directors has
appointed PricewaterhouseCoopers LLP as independent accountants for the
Corporation for the year 1999.
PricewaterhouseCoopers LLP or a predecessor firm has been the independent
accountants for the Corporation since 1915. A representative of
PricewaterhouseCoopers LLP will be present at the annual meeting with the
opportunity to make a statement if he so desires and to respond to appropriate
questions.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR RATIFICATION OF THE APPOINTMENT OF
PRICEWATERHOUSECOOPERS LLP AS INDEPENDENT ACCOUNTANTS.
OTHER BUSINESS
The Board of Directors is not aware of any other matters to be presented at the
annual meeting. If any other matter proper for action at the meeting should be
presented, the holders of the accompanying proxy will vote the shares
represented by the proxy on such matter in accordance with their best judgment.
If any matter not proper for action at the meeting should be presented, the
holders of the proxy will vote against consideration of the matter or the
proposed action.
VOTING PROCEDURES
All shares represented by the accompanying proxy, if the proxy is duly executed
and received by the Corporation at or prior to the annual meeting, will be voted
at the meeting in accordance with any instructions specified on such proxy.
Where no instruction is specified, the shares may be voted according to the
printed instructions on the proxy.
It is the policy of the Corporation that, except under limited circumstances,
each shareholder proxy card, ballot and voting tabulation that identifies any
shareholder will be kept confidential and that the receipt and tabulation of
such votes will be conducted by independent third parties, including the
Corporation's transfer agent and its proxy solicitation firm, and not by
employees of the Corporation.
The cost of soliciting proxies for the meeting will be borne by the Corporation.
The Corporation has retained Morrow & Co., Inc., 445 Park Avenue, New York, NY
10022 to assist in soliciting proxies for a fee estimated at $12,500 plus
reasonable expenses. Morrow & Co., Inc. and some officers and other employees of
the Corporation may solicit proxies in person and by telephone or otherwise. The
Corporation may also reimburse brokers and others who are record holders of the
Corporation's shares for their reasonable expenses incurred in obtaining voting
instructions from beneficial owners of such shares.
PROPOSALS FOR 2000
The Corporation will review for inclusion in next year's proxy statement
shareholder proposals received by December 3, 1999. Proposals should be sent to
the Secretary of the Corporation, 2600 North Central Avenue, Phoenix, Arizona
85004-3014.
24
<PAGE>
Shareholder proposals not included in next year's proxy statement may be brought
before the May 3, 2000 annual meeting of shareholders by a shareholder of the
Corporation who is entitled to vote at the meeting, who has given a written
notice to the Secretary of the Corporation containing certain information
specified in the by-laws and who was a shareholder of record at the time such
notice was given. Such notice must be delivered or mailed and received at the
address in the preceding paragraph no earlier than February 3, 2000 and no later
than March 3, 2000.
If a shareholder notifies the Corporation after February 15, 2000 of an
intention to present a proposal at the Corporation's May 3, 2000 annual meeting
(and for any reason the proposal is voted on at such meeting), the Corporation's
proxy holders will have the right to exercise discretionary voting authority
with respect to such proposal.
ANNUAL REPORT FOR 1998
The annual report of the Corporation for the year 1998, including financial
statements, is being furnished concurrently with this proxy statement to persons
who were shareholders of record as of March 17, 1999, the record date for the
annual meeting. The annual report does not form part of the material for the
solicitation of proxies.
By order of the Board of Directors,
Robert C. Swan
Vice President and Secretary
Phoenix, Arizona
April 1, 1999
25
<PAGE>
PROXY
PHELPS DODGE CORPORATION
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF PHELPS DODGE CORPORATION
The undersigned shareholder of PHELPS DODGE CORPORATION hereby appoints
MANUEL J. IRAOLA, MARIE L. KNOWLES and DOUGLAS C. YEARLEY, or any of them,
proxies of the undersigned, each with power of substitution, at the annual
meeting of shareholders of the Corporation to be held at the Arizona Biltmore
Hotel, 24th Street and Missouri Avenue, Phoenix, Arizona, on Wednesday, May 5,
1999 at 11:30 a.m., and at any adjournments thereof, to vote all Common Shares
of the Corporation held or owned by the undersigned, including any which may be
held for the undersigned's account under the Phelps Dodge Corporation Common
Stock Investor Services Program administered by The Chase Manhattan Bank.
For those participants who hold accounts with Common Shares through the
Phelps Dodge Employee Savings Plan and/or The Phelps Dodge Corporation
Supplemental Savings Plan: The undersigned instructs the UMB Bank, N.A. as
Trustee for the Plans, to vote all shares or fractions of shares credited to the
undersigned's account as of the latest available processing date on or before
May 5, 1999, as directed on the reverse side of this proxy. Those shares for
which no directions are received will be voted by the Trustee in its sole
discretion.
THIS PROXY IS CONTINUED ON THE REVERSE SIDE
PLEASE SIGN ON THE REVERSE SIDE AND RETURN PROMPTLY
- --------------------------------------------------------------------------------
<PAGE>
<TABLE>
<S> <C>
Please mark
your votes as [X]
indicated in
this example
FOR WITHHELD
ALL FOR ALL FOR AGAINST ABSTAIN
PROPOSAL 1: Election of [ ] [ ] PROPOSAL 3: Ratification [ ] [ ] [ ] The Board of Directors
Directors for the term of Independent Public recommends you vote
specified in the proxy Accountants FOR MANAGEMENT
Statement: PROPOSALS 1 AND 2
01 A. Dunham The proxies are
02 W. Franke instructed to vote as
03 S. Morcott directed above, and in
04 J. Whisler their discretion on all
other matters. Where no
WITHHELD FOR: (Write direction is specified,
name(s) of nominee(s) this proxy will be
below). voted FOR Management
________________________ Proposals 1 and 2
________________________ as recommended by the
Board of Directors
Signature(s)______________________________________________________ Date_________________________
NOTE: Please sign name exactly as it appears hereon. Joint owners should each sign. When signing
as attorney, executor, administrator, trustee or guardian, please give full title as such.
</TABLE>
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
^ FOLD AND DETACH HERE ^
PLEASE FOLD AND DETACH HERE AND READ THE REVERSE SIDE
HELP US SAVE MONEY - VOTE BY TELEPHONE
IF YOU WISH TO VOTE BY TELEPHONE, PLEASE READ THE INSTRUCTIONS BELOW
Have your proxy in hand. Decide how you wish to vote.
* On a Touch Tone Telephone call Toll Free 1-800-840-1208 24 hours per day - 7
days a week.
* You will be asked to enter a Personal Identification number
OPTION #1 To vote as the Board of Directors recommends on ALL proposals: Press 1
now. If you wish to vote on each proposal separately, press 0 now.
When you Press 1, your vote will be confirmed and cast as you directed. END OF
CALL
OPTION #2 If you selected to vote on each proposal separately, you will hear
these instructions
Proposal 1: To vote FOR ALL nominees, press 1; to WITHHOLD FOR ALL nominees,
press 9; To WITHHOLD FOR AN INDIVIDUAL nominee, press 0. Please make your
selection now.
To withhold for individual nominees please enter the two digit number that
appears next to the nominee you DO NOT wish to vote for. Once you have completed
voting for Directors, press 0.
Proposal 2: You may make your selection any time: To vote for, press 1; Against
press 9; Abstain press 0.
Your vote selection will be repeated and you will have an
opportunity to confirm it.
Please do not return the above proxy card if you voted by phone.
Thank you for voting.
<PAGE>
PHELPS DODGE CORPORATION
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF PHELPS DODGE CORPORATION
The undersigned shareholder of PHELPS DODGE CORPORATION hereby appoints
MANUEL J. IRAOLA, MARIE L. KNOWLES and DOUGLAS C. YEARLEY, or any of them,
proxies of the undersigned, each with power of substitution, at the annual
meeting of shareholders of the Corporation to be held at the Arizona Biltmore
Hotel, 24th Street and Missouri Avenue, Phoenix, Arizona, on Wednesday, May 5,
1999 at 11:30 a.m., and at any adjournments thereof, to vote all Common Shares
of the Corporation held or owned by the undersigned, including any which may be
held for the undersigned's account under the Chase Mellon Shareholder Services
Investor Services Program for Phelps Dodge Common Shares administered by The
Chase Manhattan Bank.
THE PROXIES ARE INSTRUCTED TO VOTE AS DIRECTED BELOW, AND IN THEIR DISCRETION ON
ALL OTHER MATTERS. WHERE NO DIRECTION IS SPECIFIED, THIS PROXY WILL BE VOTED FOR
MANAGEMENT PROPOSALS 1 AND 2 AS RECOMMENDED BY THE BOARD OF DIRECTORS.
MANAGEMENT PROPOSALS:
THE BOARD OF DIRECTORS RECOMMENDS YOU VOTE FOR MANAGEMENT PROPOSALS 1 AND 2
Proposal 1: Election of Directors for the respective terms specified in the
Proxy Statement; Messrs. Dunham, Franke, Morcott and Whisler.
FOR all WITHHELD WITHHELD for the following only
nominees for all nominees (write name(s) of nominee(s) below)
[ ] [ ] ___________________________________
PLEASE SIGN ON REVERSE SIDE
AND RETURN PROMPTLY
<PAGE>
PROXY
Proposal 2: Ratification of Independent Public Accountants
FOR [ ] AGAINST [ ] ABSTAIN [ ]
Dated: _______________________________
Signature ____________________________
Signature ____________________________
Please sign exactly as name appears above. When shares are held by joint
tenants, both should sign. When signing as attorney, executor, administrator,
trustee or guardian, please give full title as such. If a corporation, please
sign in full corporate name by President or other authorized officer. If a
partnership, please sign in partnership name by authorized person.
