<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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 Commission Only (as permitted by
Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12
PHILLIPS PETROLEUM COMPANY
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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.
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:
----------------------------------------------------------------------
5) Total fee paid:
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/ / 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:
___________________________________________________________________________
2) Form, Schedule or Registration Statement No.:
___________________________________________________________________________
3) Filing Party:
___________________________________________________________________________
4) Date Filed:
___________________________________________________________________________
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[LOGO] PHILLIPS PETROLEUM COMPANY
BARTLESVILLE, OKLAHOMA 74004
March 28, 1997
Dear Phillips Stockholder:
You are cordially invited to the Annual Meeting of Phillips Petroleum Company to
be held in the Adams Building, 4th Street and Keeler Avenue, Bartlesville,
Oklahoma, on Monday, May 12, 1997, commencing at 10 a.m. local time. Your
attendance will provide you with an opportunity to hear management's report on
the operations and meet the directors and representatives of the Company.
The Secretary's formal notice of the meeting and the Proxy Statement accompany
this letter and describe the matters on which action will be taken.
In addition to the election of 13 directors, you are asked to vote on one other
proposal. Proposal 1 is by the Company to approve the independent auditors
designated by the Board of Directors. Our Board of Directors unanimously
recommends that you vote For Proposal 1.
It is important that your views be represented at the meeting whether or not you
are able to attend. Accordingly, we respectfully request that you sign, date and
promptly return your proxy in the enclosed postage-paid envelope.
On behalf of the directors and employees of Phillips Petroleum Company, we
express our appreciation to you, the owners of this Company, for your continued
support and interest.
Sincerely,
/s/ W. W. Allen
W. W. Allen
Chairman and Chief Executive Officer
NOTICE OF 1997 ANNUAL MEETING
MAY 12, 1997
and PROXY STATEMENT
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PHILLIPS PETROLEUM COMPANY
BARTLESVILLE, OKLAHOMA 74004
NOTICE OF ANNUAL MEETING to be held May 12, 1997
To the Stockholders:
The Annual Meeting of Stockholders will be held at the Adams Building, 4th
Street and Keeler Avenue, Bartlesville, Oklahoma, on Monday, May 12, 1997, at
10 a.m. local time, for the purposes of considering and voting on the following
matters as described in the attached Proxy Statement:
Election of 13 directors (pages 5 through 7);
Proposal of the Company:
-----------------------
Proposal 1. To approve the designation of Ernst & Young LLP as
independent auditors for 1997 (page 19); and
Any other matters that may properly come before the meeting (page 19).
Only stockholders of record at the close of business March 14, 1997, will be
entitled to vote at this meeting.
A copy of the Company's Annual Report containing financial data and a summary of
operations for 1996 is being mailed to the Company's stockholders in advance of
or with this Proxy Statement.
By Order of the Board of Directors,
/s/ Dale J. Billam
Dale J. Billam
Secretary
Dated March 28, 1997
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IMPORTANT:
Please sign, date and promptly mail the enclosed proxy in the accompanying
postage-paid envelope. If you wish to vote in accordance with the Company's
recommendations, it is not necessary to specify your choice but your proxy must
be signed and returned. In any event, your prompt response is requested and your
cooperation will be appreciated.
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PHILLIPS PETROLEUM COMPANY
BARTLESVILLE, OKLAHOMA 74004
March 28, 1997
PROXY STATEMENT
SOLICITATION
Your proxy is solicited by the Board of Directors and all costs of solicitation
will be borne by the Company. Your proxy will be voted as you direct and may be
revoked by you at any time before it is voted by filing with the Secretary an
instrument revoking it, by executing a later-dated proxy or by voting in person
by ballot at the meeting. This Proxy Statement and Proxy Card are first being
mailed on or about March 28, 1997, to stockholders of record as of March 14,
1997.
Georgeson & Co. Inc. has been engaged by the Company to solicit proxies for this
Annual Meeting from brokers, banks and other institutional holders, and
individual holders of record. The fee for this service, payable one-half at the
commencement of solicitation and the balance at its completion, is $16,000, plus
the reimbursement of certain out-of-pocket costs. In addition to solicitation by
mail, officers, directors and employees of the Company may solicit proxies by
telephone, facsimile or personal contact.
CONFIDENTIAL VOTING
It is the policy of the Company that all proxies, ballots, and voting
tabulations that identify stockholders be kept confidential, except where
disclosure may be required by applicable law, where stockholders write comments
on their proxy cards, and where disclosure is expressly requested by a
stockholder, and in limited circumstances such as a proxy contest or other
solicitation of proxies based on an opposition proxy statement or any matter
requiring for stockholder approval the vote of more than a majority of the
shares present at any meeting. The Company has engaged ChaseMellon Shareholder
Services, L.L.C. as tabulators of all proxies and ballots, and has appointed two
persons who are employees of ChaseMellon Shareholder Services to be Inspectors
of Election.
VOTING SECURITIES AND PRINCIPAL HOLDERS
The Company's only class of voting securities is its $1.25 par value common
stock. For voting purposes, there were 292,815,408 shares outstanding at the
close of business February 28, 1997. The record date for stockholders entitled
to vote at this meeting is March 14, 1997. Each share is entitled to one vote.
Included in shares outstanding are 29,200,000 shares held by the Compensation
and Benefits Trust ("CBT") formed in December 1995. The CBT is designed to
acquire, hold and distribute shares of the Company's common stock to fund
certain future compensation and benefit obligations of the Company. The CBT does
not increase or alter the amount of benefits or compensation which will be paid
under existing plans, but offers the Company enhanced financial flexibility in
providing the funding requirements of those plans. Shares held by the CBT do not
affect earnings per share or total stockholders' equity until after they are
transferred out of the CBT. All shares are required to be transferred out of the
CBT by January 1, 2021.
The number of shares of the Company's common stock beneficially owned as of
February 28, 1997, by any person or group known to own five percent or more, and
by each of the directors and nominees, and by all directors and officers of the
Company as a group, is shown in the tables "Security Ownership of Certain
Beneficial Owners," and "Security Ownership of Management," respectively, on
pages 7 through 9 after the information on nominees for directors.
VOTE REQUIRED FOR ELECTION OF DIRECTORS AND
ADOPTION OF COMPANY AND STOCKHOLDER PROPOSALS
Under the Company's Bylaws, the holders of a majority of the issued and
outstanding shares of the common stock, present in person or represented by
proxy at the Annual Meeting, will constitute the quorum for all purposes unless
otherwise provided by law. Where a quorum is present, the affirmative vote of a
majority of the stock represented at the meeting is required for the election of
the directors, and the adoption of Proposal 1. For purposes of determining
whether the directors have been elected or a proposal has received a majority
vote, abstentions are the equivalent of a negative vote.
Information included in this Proxy Statement is as of the date of preparation,
approximately February 28, 1997, unless otherwise stated.
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NOMINEES FOR ELECTION AS DIRECTORS
The number of directors to be elected is 13. The designated proxy holders of the
Company intend, unless otherwise instructed, to vote all proxies for the
election of the following 13 nominees, to hold office for the ensuing year or
until their successors are elected. The term of each present director will
expire concurrently with the election of directors at the 1997 Annual Meeting.
If any nominee is unable or unwilling to serve, the Company, through the
designated proxy holders, reserves discretionary authority to vote for a
substitute. The Company has no reason to believe that any nominee will be unable
or unwilling to serve if elected. The following provides information about each
nominee as of February 28, 1997, including data on the nominees' business
backgrounds for the past five years, and the names of public companies and other
selected entities for which they also serve as directors.
[photo] W. W. Allen, 60, is Chairman of the Board of Directors and Chief
Executive Officer of the Company, a position he assumed in May 1994.
He previously was President and Chief Operating Officer, beginning
in December 1991; Senior Vice President responsible for worldwide
exploration and production beginning in July 1989; and Vice
President of International Exploration and Production beginning
January 1988. He is a director of the Bank of Oklahoma, N.A.
Mr. Allen became a director in December 1989.
[photo] Norman R. Augustine, 61, is Chairman of the Board of Directors and
Chief Executive Officer of Lockheed Martin Corporation, positions he
assumed in January 1997 and January 1996, respectively. He
previously served as Chairman of the Board of Directors and Chief
Executive Officer of Martin Marietta Corporation from April 1988
until March 1995. He is a director of The Procter & Gamble Company.
Mr. Augustine became a director in January 1989.
[photo] George B. Beitzel, 68, is a director of various corporations. He
previously served as Senior Vice President and Director of
International Business Machines Corporation, from July 1955 to March
1987. He is a director of Bankers Trust New York Corporation and its
subsidiary, Bankers Trust Company; Bitstream Inc.; Caliber Systems,
Inc., formerly Roadway Services, Inc.; Computer Task Group, Inc.;
Phillips Gas Company, a subsidiary of the Company with a series of
preferred stock registered under the Securities Exchange Act of 1934
and listed on the New York Stock Exchange; Rohm and Haas Company;
TIG Holdings; and Xillix Technologies Corp. Mr. Beitzel became a
director in July 1980.
[photo] David L. Boren, 55, is President of the University of Oklahoma, a
position he assumed in November 1994. He previously served as a
United States Senator from the State of Oklahoma from November 1979
until November 1994 and is a former Governor of Oklahoma. He is a
director of AMR Corporation; Texas Instruments Corporation; and
Torchmark Corporation. Mr. Boren became a director in December 1994.
[photo] C. L. Bowerman, 57, is an Executive Vice President responsible for
planning and corporate relations and services, a position he assumed
in January 1995. He previously was Executive Vice President
responsible for corporate strategic planning, corporate information
technology and research and development, beginning in April 1992;
Executive Vice President responsible for corporate engineering,
corporate strategic planning and research and development beginning
December 1991; and Senior Vice President responsible for refining,
marketing, supply and transportation beginning in October 1988.
Mr. Bowerman became a director in December 1989.
5
<PAGE>
[photo] Robert E. Chappell, Jr., 60, is self employed as an investment and
management consultant. He previously was the Senior Executive Vice
President and Chief Investment Officer of Metropolitan Life
Insurance Company, a position he held from October 1989 through
December 1992. He previously served Metropolitan Life Insurance
Company as Executive Vice President from October 1986 to October
1989. Mr. Chappell became a director in December 1990.
[photo] Lawrence S. Eagleburger, 66, is Senior Foreign Policy Advisor for
Baker, Donelson, Bearman & Caldwell, a Washington, D.C. law firm, a
position he assumed in January 1993. He previously served as
Secretary of State from December 1992 through January 1993, Acting
Secretary of State from August 1992 to December 1992, and Deputy
Secretary of State from February 1989 to August 1992. He is a
director of COMSAT Corporation; Corning Incorporated; Dresser
Industries, Inc.; Jefferson Bankshares, Inc.; Stimsonite
Corporation; and Universal Corporation. Mr. Eagleburger became a
director in February 1993.
[photo] James B. Edwards, 69, is President of the Medical University of
South Carolina, a position he has held since November 1982. He is a
former U.S. Secretary of Energy and Governor of South Carolina. He
is a director of GS Industries, Inc.; Imo Industries Inc.; National
Data Corporation; SCANA Corporation; and WMX Technologies, Inc.
Mr. Edwards became a director in January 1983.
[photo] Larry D. Horner, 62, is Chairman of Pacific USA Holdings
Corporation, a position he assumed in August 1994. He previously was
a Managing Director of Arnhold and S. Bleichroeder, Inc., from April
1991 through July 1994. He previously was a partner in KPMG Peat
Marwick, and is a former Chairman and Chief Executive of that firm
from October 1984 to December 1990. He is a director of American
General Corporation; Atlantis Plastics, Inc.; Biological & Popular
Culture, Inc.; Laidlaw Holdings, Inc.; and Asia Pacific Wire & Cable
Corp., Ltd. Mr. Horner became a director in May 1991.
[photo] J. J. Mulva, 50, is President and Chief Operating Officer of the
Company, a position he assumed in May 1994. Previously he was an
Executive Vice President of the Company and its Chief Financial
Officer from January 1994 through April 1994; Senior Vice President
and Chief Financial Officer beginning in May 1993; Vice President
and Chief Financial Officer beginning in March 1993; Vice President,
Treasurer and Chief Financial Officer beginning in March 1990; and
Vice President and Treasurer beginning in September 1988. He is
Chairman of the Board of Directors of Phillips Gas Company.
Mr. Mulva became a director in January 1994.
[photo] Randall L. Tobias, 54, is Chairman of the Board of Directors and
Chief Executive Officer of Eli Lilly and Company, a position he
assumed in June 1993. He previously was Vice Chairman of the Board
of Directors of AT&T from September 1986 to June 1993. He is a
director of Kimberly-Clark Corporation and Knight-Ridder, Inc.
Mr. Tobias became a director in July 1992.
6
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[photo] Victoria J. Tschinkel, 49, is a Senior Consultant to Landers &
Parsons, a Tallahassee, Florida, law firm, a position she assumed in
1987. She previously served as Secretary of the Florida Department
of Environmental Regulation from 1981 to 1987. Mrs. Tschinkel became
a director in July 1993.
[photo] Kathryn C. Turner, 49, is Chairperson and Chief Executive Officer of
Standard Technology, Inc., an engineering and manufacturing firm she
founded in 1985. She is a director of Carpenter Technology
Corporation. Ms. Turner became a director in January 1995.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS (1)
<TABLE>
<CAPTION>
Name and Address of Amount and Nature of Percent of
Title of Class Beneficial Owner Beneficial Ownership Class
- -------------- -------------------- -------------------------- ----------
Direct Indirect
------ --------
<S> <C> <C> <C> <C>
Common Vanguard Fiduciary Trust Company 48,665,050 (2) -- 16.62%
P. O. Box 2900
Valley Forge, Pennsylvania 19482
</TABLE>
(1) The Capital Group Companies, Inc. ("CGC") and Capital Research and
Management Company ("CRMC"), have reported to the Company that collectively
they exercise as of December 31, 1996, sole dispositive power with respect
to 14,495,530 shares. CGC exercises sole voting power and sole dispositive
power with respect to 530 shares. According to the Schedule 13G filed by CGC
and CRMC with the Securities and Exchange Commission, such shares equal 5.50
percent of the Company's outstanding shares. However, when shares held by
the Company's Compensation and Benefits Trust ("CBT") are included, shares
held by CGC equal only 4.94 percent of the Company's outstanding shares. CGC
is the parent holding company of a group of six investment managment
companies, including CRMC, which holds shares for various of its
institutional investor clients. CGC has advised that the shares are held
solely for investment purposes and not for the purpose or effect of changing
or influencing control. CGC and CRMC have specifically disclaimed any
beneficial ownership of these shares.
(2) As of February 28, 1997, Vanguard as Trustee held 48,665,050 shares under
the Company's Thrift Plan, Long-Term Stock Savings Plan ("LTSSP"), and
Retirement Savings Plan (together the "Plans") with shared voting power.
Vanguard and the Plans have disclaimed beneficial ownership of the shares
held by Vanguard as Trustee of the Plans. Vanguard votes shares held by the
Plans which represent the allocated interests of participants in the manner
directed by individual participants. Employee participants in the Thrift
Plan and LTSSP are appointed by the Company as fiduciaries entitled to
direct the Trustee as to how to vote allocated shares which are not directed
in these plans and unallocated shares held by the LTSSP. Such shares are
allocated pro rata among employee participants accepting their fiduciary
appointment and are voted by the Trustee as directed by the employee
fiduciaries. The Trustee votes non-directed shares of the Retirement Savings
Plan at its discretion. The Trustee will vote other shares held by the Plans
at its discretion only if required to do so by the Employee Retirement
Income Security Act of 1974 ("ERISA").
Vanguard is also the Trustee and record holder of the 29,200,000 shares in
the CBT, without any voting power. Vanguard has disclaimed beneficial
ownership of such shares. As Trustee of the CBT, Vanguard will vote shares
in the CBT only in accordance with the pro rata directions of eligible
domestic employees and the trustees of certain international Company stock
plans. Trust agreements for the Plans and CBT each provide that all voting
directions of individual employees received by the Trustee will be held in
confidence and not be disclosed to any person, including the Company.
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SECURITY OWNERSHIP OF MANAGEMENT
Phillips Petroleum Company
Securities
------------------
<TABLE>
<CAPTION>
Amount and Nature of
Beneficial Ownership
--------------------
Title of Class Name of Beneficial Owner Direct (1) Indirect Percent of Class
- -------------- ------------------------ ---------- -------- ----------------
Directors and Nominees (2)
--------------------------
<S> <C> <C> <C> <C>
Common W. W. Allen 309,716 -- less than 1%
Common Norman R. Augustine 9,200 -- less than 1%
Common George B. Beitzel 69,922 -- less than 1%
Common David L. Boren 3,100 -- less than 1%
Common C. L. Bowerman 182,629 654 less than 1%
Common Robert E. Chappell, Jr. 7,500 -- less than 1%
Common Lawrence S. Eagleburger 5,293 -- less than 1%
Common James B. Edwards 12,837 -- less than 1%
Common Larry D. Horner 6,500 -- less than 1%
Common J. J. Mulva 227,893 -- less than 1%
Common Randall L. Tobias 7,000 -- less than 1%
Common Victoria J. Tschinkel 5,272 -- less than 1%
Common Kathryn C. Turner 3,100 -- less than 1%
Executive Officers
------------------
Common K. Am 65,708 -- less than 1%
Common R. G. Ceconi 90,936 -- less than 1%
Common K. L. Hedrick 91,636 -- less than 1%
Common J. L. Howe 125,322 -- less than 1%
Common J. C. Mihm 147,747 656 less than 1%
Common T. C. Morris 99,495 -- less than 1%
Common M. J. Panatier 60,910 -- less than 1%
Common B. J. Price 62,614 -- less than 1%
Common J. B. Whitworth 158,423 -- less than 1%
--------- ----- ------------
All directors, nominees and executive officers
as a group (22 in group) 1,752,753 1,310 less than 1%
</TABLE>
(1) Direct ownership includes shares which may be acquired under options within
60 days of the record date.
(2) The shares stated as being beneficially owned by each nominee do not include
shares beneficially owned by the other companies on whose boards of
directors the nominees, directors or officers serve. (The list of nominees
for directors on pages 5 through 7 contains the names of the other companies
for which the nominees serve as directors.) Each nominee disclaims
beneficial ownership of all such shares.
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SECURITY OWNERSHIP OF MANAGEMENT
Phillips Gas Company
Securities (1)
--------------
<TABLE>
<CAPTION>
Amount and Nature of
Beneficial Ownership
--------------------
Title of Class Name of Beneficial Owner Direct Indirect Percent of Class
-------------- ------------------------ ------ -------- ----------------
<S> <C> <C> <C> <C>
Directors and Nominees
----------------------
Series A Preferred W. W. Allen -- 500 (2) less than 1%
Series A Preferred George B. Beitzel 1,000 -- less than 1%
Series A Preferred J. J. Mulva 475 1,070 (2) less than 1%
Executive Officers
------------------
Series A Preferred R. G. Ceconi -- 1,000 (2) less than 1%
Series A Preferred J. C. Mihm -- 19 (2) less than 1%
Series A Preferred M. J. Panatier 2,900 -- less than 1%
Series A Preferred B. J. Price 500 -- less than 1%
Series A Preferred J. B. Whitworth -- 300 (2) less than 1%
----- ----- ------------
All directors, nominees and executive officers
as a group (8 in group) 4,875 2,889 less than 1%
</TABLE>
(1) Table shows only those directors, nominees and executive officers who own
shares.
(2) Messrs. Allen, Ceconi, Mihm, Mulva and Whitworth have disclaimed beneficial
ownership of all such shares.
SECTION 16(a) BENEFICIAL OWNERSHIP
REPORTING COMPLIANCE
To the Company's knowledge, no person or entity who was a director, officer or
beneficial owner of more than 10 percent of the Company's common stock failed to
file, on a timely basis during 1996, reports required by Section 16(a) of the
Securities Exchange Act of 1934, as amended.
COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
Members of the Compensation Committee are Norman R. Augustine, George B.
Beitzel, Larry D. Horner, Randall L. Tobias and Victoria J. Tschinkel. The
Company had no interlocking relationship during the last fiscal year.
GENERAL INFORMATION
RELATING TO THE BOARD OF DIRECTORS
The Board of Directors
The business and affairs of the Company are managed under the direction of the
Board of Directors. To assist it in carrying out its duties, the Board has
delegated certain authority to five Committees. In calendar year 1996, the Board
of Directors held eight meetings and the Directors attended an average of 95
percent of all Board and Committee meetings, except for Lawrence S. Eagleburger
who attended 71 percent of such meetings. Mr. Eagleburger had back surgery in
the Fall and was unable to travel in the latter part of 1996. He participated in
seven of eight Board meetings either in person or by telephone. He was unable
to participate in certain of the Public Policy Committee meetings. It is
anticipated that he will be able to resume full participation in Board and
Committee meetings, including travel, in 1997.
Charitable Giving Program
As part of the Company's overall program to support communities and recognize
the importance of charitable giving, The Phillips Petroleum Company Charitable
Giving Program was established in December 1996. The program is funded by life
insurance policies on directors. Upon the death of an individual director, the
Company will donate the $1,000,000 proceeds from such life insurance to one or
more qualifying charitable organizations recommended by the individual director,
which will be paid in $100,000 installments over a ten-year period. Individual
directors derive no financial benefit from this program, since all charitable
deductions for Federal and State income taxes accrue solely to the Company.
During 1996, the Company paid no premiums for these policies. The Company will
pay premiums in 1997.
Committees of the Board
The Audit Committee, the Compensation Committee, the Committee on Directors'
Affairs, the Executive Committee and the Public Policy Committee are the
standing committees of the Board of Directors. Membership is as follows:
Compen- Directors' Public
Audit sation Affairs Executive Policy
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Chappell* Horner* Beitzel* Allen* Eagleburger*
Boren Augustine Augustine Beitzel Boren
Horner Beitzel Edwards Chappell Edwards
Tobias Tobias Eagleburger Tschinkel
Turner Tschinkel Horner Turner
Mulva
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* Chairman
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The Audit Committee recommends to the Board the independent auditors to be
engaged by the Company, reviews the scope of their engagement, including the
remuneration to be paid, and reviews on a continuing basis the independence of
the auditors. The Committee reviews with the independent auditors, the
Controller, the General Auditor, the General Counsel, the Chief Financial
Officer and other appropriate Company personnel: (1) the Company's general
policies and procedures with respect to audits and accounting and financial
controls; (2) the general accounting and reporting principles and practices
applied in preparing the Company's financial statements and conducting financial
audits; (3) the interim and year-end financial statements and any certification,
report or opinion which the independent auditors propose to render in connection
with such statements; (4) the extent to which the Company has implemented
changes suggested by the internal audit staff, the independent auditors or the
Committee; and (5) the adequacy of the Company's accounting practices and
internal control structure. The Committee may direct the General Counsel, the
independent auditors and the internal audit staff to inquire into and report to
it on any matter having to do with the Company's business affairs. The Committee
also monitors compliance with the Company's Code of Business Ethics, Conduct and
Responsibility and oversees the activities of the Corporate Compliance and
Ethics Committee. The Audit Committee held five meetings in 1996.
The Compensation Committee recommends for Board approval the salaries for the
Chairman of the Board of Directors and Chief Executive Officer and the
President, and approves salaries for all Executive Officers and for all
employees who earn $250,000 or above. The Committee makes recommendations to the
Board with respect to proposals for the application of new benefits, incentive
plans or programs to officers who are also directors and the application of
amendments to existing plans or programs which would significantly increase such
officers' compensation. The Committee approves awards under the Annual Incentive
Compensation Plan and the Omnibus Securities Plan. The Compensation Committee
held six meetings in 1996.
The Committee on Directors' Affairs, formerly known as the Nominating Committee,
recommends to the Board qualified candidates for election as directors and
nominates candidates to the Board committees. The Committee welcomes suggestions
from stockholders about qualified candidates. A stockholder wishing to submit a
recommendation to the Committee may do so by writing Dale J. Billam, Secretary,
Phillips Petroleum Company, Bartlesville, Oklahoma 74004. The Committee on
Directors' Affairs held one meeting in 1996.
The Executive Committee, when the Board is not in session, may exercise all
power and authority of the Board in the management and business of the Company,
subject to the limitations imposed by the Bylaws. The Committee has the
authority to review and approve proposed corporate action when the Board is not
in session and may advise the Board of any recommendations of the Committee
regarding any proposed corporate action presented to the Board. The Executive
Committee held four meetings in 1996.
The Public Policy Committee advises management and the Board of Directors (i) in
response to current and emerging public policy issues, and (ii) in the
development and review of policies and budgets in respect of contributions,
including, but not limited to, contributions to organizations whose primary
purpose is charitable, civic, cultural or educational. In order to carry out
these duties, the Committee (a) identifies, evaluates and monitors the social,
political, environmental, occupational, safety and health trends, issues and
concerns, domestic and foreign, which affect or could affect the Company's
business activities and performance; (b) reviews information from management and
approves recommendations to assist in the formulation and adoption of policies,
programs and practices concerning the matters set forth in (a) above, including,
but not limited to ecological and environmental protection, employee safety,
ethical business conduct, consumer affairs, alcohol and drug abuse, equal
opportunity matters and government relations; and (c) monitors and evaluates on
an on-going basis the Company's compliance with such policies, programs and
practices. The Committee also has the authority to authorize the use of Company
funds for political contributions on behalf of the Company, if and to the extent
permitted by law. The Public Policy Committee held five meetings in 1996.
COMPENSATION OF DIRECTORS AND NOMINEES
The annual Board retainer fee for non-employee directors consists of $11,000
plus 1,000 shares of Phillips common stock. Board members receive $1,000 for
each Board meeting attended. Committee retainer fees are $2,500 for Board
committee chairmen and $2,250 for committee members. Committee meeting fees
consist of $750 for the Board committee chairmen and $500 for the committee
members for each committee meeting attended. These directors may elect to defer
all or a part of their cash compensation. The future payment of this deferred
compensation has been pre-funded in a special trust designated for this purpose.
These directors also participate in the Non-Employee Director Retirement Plan.
This plan provides a post-Board service benefit paid monthly which is equal to
one-twelfth of the annual cash retainer fee paid for Board service (currently
$11,000) plus one-twelfth of the fair market value of the 1,000 shares of
Phillips common stock paid as the retainer for Board service. The benefit is
based on the number of years that the director was a member of the Board of
Directors. The fair market value is determined by calculating the higher of the
average of the fair market values for the twelve months preceding the director's
retirement or the average of the high three years fair market values of the last
ten years. The fair market value is calculated using a formula which includes
daily and monthly calculations. If a director who has retired from Board service
should die prior to completion of the payment period, the director's surviving
spouse will receive the remainder of the payments due under the plan. If the
surviving spouse dies during the payment period, payments shall cease.
10
<PAGE>
In lieu of monthly payments, subject to certain limitations, the director may
elect to receive or defer a form of payment which is of equivalent value. Plan
payments have been pre-funded by the Company in a special trust designated for
this purpose. Prior to retirement from Board service, the Company provides each
director with life insurance, the amount of coverage which is based on length of
Board service, begins at $200,000 and increases to a maximum of $300,000.
EXECUTIVE COMPENSATION
The following Summary Compensation Table sets forth compensation information for
services performed in 1996, 1995 and 1994 for those persons who were at December
31, 1996, the Chief Executive Officer and the four most highly compensated
officers.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term Compensation
-------------------------------------
Annual Compensation Awards Payouts
--------------------------------------- ------------------------ -------
Restricted Securities Long-Term All Other
Other Annual Stock Underlying Incentive Compen-
Name and Compensation Award(s) (1) Options/SARs Payout sation (2)
Principal Position Year Salary ($) Bonus($) ($) ($) (#) ($) ($)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
W. W. Allen 1996 850,000 1,105,000 0 0 237,359 579,469 (3) 8,053
Chairman of the 1995 824,000 414,375 0 0 185,941 343,298 (4) 7,289
Board & CEO 1994 681,333 899,766 0 0 59,706 484,102 (5) 4,770
J. J. Mulva 1996 594,667 731,340 0 0 65,105 322,656 (3) 8,053
President & 1995 481,333 221,250 0 0 44,484 184,688 (4) 7,289
COO 1994 415,750 511,710 0 0 34,300 218,925 (5) 4,770
C. L. Bowerman 1996 445,250 379,842 0 0 36,592 263,025 (3) 8,053
Executive Vice 1995 343,000 172,495 0 0 26,728 183,906 (4) 7,289
President 1994 337,000 260,354 0 0 27,069 259,965 (5) 4,770
T. C. Morris 1996 356,000 243,493 0 0 24,240 131,600 (3) 8,052
Sr. Vice President 1995 280,000 109,122 0 0 16,921 76,602 (4) 7,285
& CFO 1994 258,500 140,980 0 0 14,393 83,261 (5) 4,770
J. B. Whitworth 1996 336,750 232,984 0 0 25,760 184,100 (3) 8,053
Sr. Vice President 1995 303,000 129,857 0 0 18,311 115,090 (4) 7,289
and General Counsel 1994 297,750 159,757 0 0 18,548 163,151 (5) 4,770
</TABLE>
(1) The Company has not made any outright grants of restricted stock to any
executive during any of the periods covered by the table. The Company
settled awards under its 1985 and 1987 annual incentive plans and under all
long-term incentive plans since 1986 by distributing to award recipients
shares of restricted stock which are not transferrable prior to death,
disability or retirement, unless restrictions are earlier lapsed by the
Compensation Committee of the Board of Directors (the "Committee"). The
aggregate number of such restricted shares held at December 31, 1996, and
the market value of such shares on that date (calculated according to SEC
regulation without regard to the restrictions and the resulting inability of
the named executives to realize such values at such times) were: Mr. Allen,
0 shares, $0; Mr. Bowerman, 40,171 shares, $1,802,674; Mr. Morris, 23,964
shares, $1,075,385; Mr. Mulva, 39,775 shares, $1,784,903; Mr. Whitworth,
25,957 shares, $1,164,820.
(2) Includes Company contributions to the Thrift Plan for the benefit of
participants and the value of the shares allocated to Long-Term Stock
Savings Plan participants as of the respective valuation dates.
(3) No decision has been made on awards for performance under the Long-Term
Incentive Plan Performance Period from 1994-1996.
(4) Value of the restricted or unrestricted stock on the date of the award for
performance under the Long-Term Incentive Plan Performance Period from
1993-1995.
(5) Value of the restricted stock on the date of the award for performance under
the Strategic Incentive Plan Performance Period from 1991-1994.
11
<PAGE>
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
Stock options granted during 1996 to the Chief Executive Officer and the four
most highly compensated officers of the Company are reflected in the following
Option/SAR Grants in Last Fiscal Year table.
<TABLE>
<CAPTION>
Potential Realizable Value at
Assumed Annual Rates of Stock
Individual Grants Price Appreciation for Option Term (1)
- ------------------------------------------------------------------------------------------------------------------------------------
Number of Percent of Total
Securities Options/SARS
Underlying Granted to Exercise or
Options/SARs Employees in Base Price Expiration
Name Granted (#) Fiscal Year ($/Sh) Date 0% ($) 5% ($) 10% ($)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
W. W. Allen 112,359 8.44% 34.75 01/08/06 0 2,455,044 6,222,441
125,000 9.38% 38.69 04/08/06 0 3,041,250 7,707,500
J.J. Mulva 63,450 4.76% 34.75 01/08/06 0 1,386,383 3,513,861
1,655 0.12% 42.44 10/14/06 0 44,172 111,944
C. L. Bowerman 36,470 2.74% 34.75 01/08/06 0 796,870 2,019,709
482 0.04% 42.44 10/14/06 0 12,865 32,602
T. C. Morris 23,463 1.76% 34.75 01/08/06 0 512,667 1,299,381
777 0.06% 42.44 10/14/06 0 20,738 52,556
J. B. Whitworth 25,760 1.99% 34.75 01/08/06 0 562,856 1,426,589
- ------------------------------------------------------------------------------------------------------------------------------------
Total Stockholders (2) N/A N/A N/A N/A 0 5,727,606,050 14,516,925,540
</TABLE>
(1) "Potential realizable value" is disclosed in response to SEC rules which
require such disclosure for illustration only. The values disclosed are not
intended to be, and should not be interpreted by stockholders as
representations or projections of future value of the Company's stock or of
the stock price.
(2) To lend perspective to the illustrative "potential realizable value," if the
Company's stock price increased 5 percent or 10 percent per year for 10
years from January 1, 1996, (disregarding dividends and assuming for purpose
of the calculation a constant number of shares outstanding), the total
increase in the value of all shares outstanding at January 1, 1996, is shown
above as "potential realizable value" for Total Stockholders.
TEN-YEAR OPTION/SAR REPRICING
There have been no options or stock appreciation right repricings during the
last 10 years for the Chief Executive Officer or for any of the four most highly
compensated officers of the Company as reflected in the following Ten-Year
Option/SAR Repricing table.
<TABLE>
<CAPTION>
Number of Securities Market Price Exercise Length of Original
Underlying Of Stock at Price Option Term
Options/SARs Time of At Time of New Remaining at Date
Repriced or Repricing or Repricing or Exercise Of Repricing or
Name Date Amended (#) Amendment ($) Amendment ($) Price ($) Amendment
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
W. W. Allen -- 0 -- -- -- --
J. J. Mulva -- 0 -- -- -- --
C. L. Bowerman -- 0 -- -- -- --
T. C. Morris -- 0 -- -- -- --
J. B. Whitworth -- 0 -- -- -- --
</TABLE>
12
<PAGE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUE
The following table shows the number of shares acquired and the net value
realized from exercising stock options during 1996 and the number and value of
exercisable and unexercisable stock options granted under the 1986 Stock Plan,
the 1990 Stock Plan and the Omnibus Securities Plan at fiscal year-end 1996 for
the Chief Executive Officer and the four most highly compensated executive
officers of the Company.
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Options/SARs at Options/SARs at
Fiscal Year-End Fiscal Year-End ($) (2)
Number of Shares Acquired Net Value Exercisable/ Exercisable/
Name on Exercise Realized ($) (1) Unexercisable Unexercisable
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
95,529 1,371,559
W. W. Allen 68,348 1,037,172 420,208 4,221,302
96,112 2,004,626
J. J. Mulva 10,346 286,740 121,995 1,456,745
66,319 1,230,056
C. L. Bowerman 11,522 174,751 78,400 992,558
20,418 287,471
T. C. Morris 23,430 405,547 49,745 603,323
59,290 1,159,522
J. B. Whitworth 12,002 316,567 53,941 682,771
</TABLE>
(1) Net value realized is the market price on the date of exercise less the
option price times the number of shares exercised under the option.
(2) Based on $44.875, the fair market value of the Company's common stock on
December 31, 1996.
LONG-TERM INCENTIVE PLAN AWARDS IN LAST FISCAL YEAR
The following table shows Long-Term Incentive Plan awards established under the
Omnibus Securities Plan during 1996 for the Chief Executive Officer and the four
most highly compensated executive officers of the Company.
<TABLE>
<CAPTION>
Estimated Future Payouts Under Non-Stock Price Based Plans
----------------------------------------------------------
Performance or
Other Period Number of Shares (1)
Number of Until Maturation
Name Shares (#) Or Payout Threshold (#) (2) Target (#) Maximum (#)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
W. W. Allen 17,248 12/31/98 8,624 17,248 34,496
J. J. Mulva 9,740 12/31/98 4,870 9,740 19,480
C. L. Bowerman 5,598 12/31/98 2,799 5,598 11,196
T. C. Morris 3,601 12/31/98 1,800 3,601 7,202
J. B. Whitworth 3,954 12/31/98 1,977 3,954 7,908
</TABLE>
(1) At the end of the three-year performance period, from January 1, 1996,
through December 31, 1998, the Compensation Committee will evaluate the
Company's performance to determine the extent to which target awards have
been earned. The Company's performance will be measured by total stockholder
return, compared with the total stockholder return of the peer group of
eight integrated oil companies used in the Performance Graph.
(2) The Company's total stockholder return must be above the bottom quartile
when compared with the peer group (threshold performance) before any award
can be approved. If the threshold performance is achieved, the Committee
expects to approve awards at the threshold level which is 50 percent of the
target number of shares established for the performance period. The actual
awards earned can range from 0 percent to 200 percent of the target awards.
13
<PAGE>
COMPENSATION COMMITTEE REPORT
TO STOCKHOLDERS
ON EXECUTIVE COMPENSATION
The Company's executive compensation program is administered by the Compensation
Committee of the Board of Directors (the "Committee"). The Committee is composed
of the directors named below, all of whom are independent outside directors and
who qualify as disinterested persons for purposes of Rule 16b-3 adopted under
the Securities Exchange Act of 1934.
The executive compensation programs are designed to motivate all executives to
work as a team to maximize long-term stockholder value and achieve industry
safety leadership.
Executive compensation decisions made by the Committee are based on a
combination of quantitative and qualitative measures. During 1996, quantitative
measures employed by the Committee to evaluate Corporate performance included
the following: relative total return to stockholders; the generation of cash
flow adjusted for working capital changes and other changes in long-term
accounts from the Company's operating activities and improving safety
performance through reduction of recordable injuries. Quantitative measures
employed by the Committee to evaluate business unit and staff performance
include: controlling expenses; the generation of funds from the business unit's
operating activities; improving safety performance through reduction of
recordable injuries and major vehicle accidents along with the implementation of
a process to achieve safety excellence. In addition, staff units are measured by
the relative success of their internal customers.
The Committee also uses qualitative measures of performance such as; the
application of experience, accomplishments in developing and implementing
strategic plans, contribution to growth of business lines, leadership in the
industry and community and social responsibility.
The Committee recognizes that the Company's businesses are extremely capital
intensive, requiring large investments, in most cases over a number of years,
before tangible financial returns are achieved. In addition, in the short-term,
the Company's prospects and performance as measured by its share price can be
significantly affected upward or downward by commodity price movements and
geopolitical factors over which the Company and its management have no control.
Therefore, the Committee evaluates both quantitative and qualitative measures
and external factors and may use discretion in recognizing performance
achievements leading to value enhancement.
By design, the executive compensation can provide awards which vary with
performance and produces an opportunity for earnings through performance over a
longer term. The Company's objective in so doing is to provide a substantial
percentage of total compensation of its executives through variable or "at-risk"
compensation arrangements under the Annual Incentive Compensation Plan ("AICP"),
the granting of stock options and through awards under the Long-Term Incentive
Plan.
Internal Revenue Code Section 162(m)
- ------------------------------------
Section 162(m) of the Internal Revenue Code requires the establishments of
performance-based standards for the deduction of certain compensation to any
individual in excess of $1,000,000 per year. The stock options granted by the
Committee under prior stockholder approved plans are exempt from this provision.
No officer of the Company is expected to receive compensation in 1997 which will
result in non-deductibility of such compensation expense to the Company. In
order to retain flexibility, the Committee again elects to defer a decision to
qualify the Annual Incentive Compensation Plan, the Long-Term Incentive Plan and
stock option grants under Section 162(m) of the Internal Revenue Code.
Executive Compensation Actions for 1996
Salaries
- --------
During 1996, The Committee reviewed and approved salaries for all employees with
annual salaries of $200,000 or above except for the Chairman of the Board and
the President in which cases the Committee recommends their salaries to the
Board of Directors for consideration. In the December 9, 1996, meeting of the
Board of Directors, the Bylaws of the Company were amended to provide an
increase in the minimum level of the Committee's approval for salary actions.
Subsequent to December 8, 1996, forward, the Committee reviews and approves
salaries for all Executive Officers and all other employees whose salary is
$250,000 or greater with the exception of the Chairman of the Board and the
President in which cases the Committee recommends their salaries to the Board of
Directors for consideration.
In the April 1996 meeting, the Committee utilized competitive salary data
provided by independent third party compensation experts to determine whether
the Committee would recommend to the Board of Directors that the Board of
Directors consider a salary increase for Mr. Allen, Chairman of the Board. The
Committee compared Mr. Allen's salary to those of other Chief Executive Officers
in the petroleum industry, as well as Chief Executive Officers of companies of
similar size outside the petroleum industry. The Committee determined that
Mr. Allen's salary was competitive and therefore unanimously agreed that no
recommendation would be made to the Board of Directors to increase Mr. Allen's
salary in 1996. However, in order to recognize Mr. Allen's performance for the
past year, his leadership in directing key strategic corporate decisions, his
pivotal role in implementing both growth and cost containment strategies, and
his contribution to the industry and to national public service, the Committee
unanimously agreed to grant Mr. Allen an option for 125,000 shares of Phillips
common stock. The grant made to Mr. Allen was made at the fair market value of
the Company's stock on the date the grant was made.
14
<PAGE>
During the January 1996 meeting, the Committee reviewed a presentation from an
independent, third-party compensation consultant. On the basis of competitive
data presented by the consultant, the Committee unanimously agreed to recommend
to the Board of Directors that the salary of Mr. Mulva, the President and Chief
Operating Officer be increased from $500,000 annually to $600,000 annually
effective February 1, 1996. During the February meeting, the Committee also
reviewed the competitive nature of the salaries of all other senior officers and
unanimously approved competitive adjustments to those salaries.
In October 1996, the Committee reviewed salaries of all executives with an
annual salary of $200,000 and above. This review was conducted in conjunction
with the Company's annual merit salary evaluation. After reviewing the data, the
Committee recommended to the Board of Directors that the salary for Mr. Mulva be
adjusted from $600,000 to $612,000. The Committee also approved salary actions
consistent with market trends for certain other executive officers. The salaries
of Mr. Allen, Mr. Mulva, and other executive reporting officers are set forth in
the Summary Compensation Table.
Annual Incentive Compensation Program
- -------------------------------------
The Committee administers the Annual Incentive Compensation Plan ("AICP") which
provides an opportunity for the award of annual bonuses. Under the AICP, a
threshold of Company financial performance must be met before awards can be
approved. For 1996, the minimum amount of cash flow generation, after
adjustments for changes in working capital and other changes in long-term
accounts that was required to activate this Plan, was $1.26 billion and the
target amount for cash generation was $1.57 billion. In addition to the minimum
cash threshold, the AICP contains objectives which the Committee establishes
each year. For 1996, the Committee set three Companywide objectives: (i) total
stockholder return for 1996 should exceed the median stockholder return of the
oil industry peer companies, as listed in the Proxy Statement Performance Graph
used by the Company to compare its stockholder return performance; (ii) safety
performance should be better than pre-established targets measuring recordable
injury rate; and (iii) cash flow generation from operating activities adjusted
for working capital changes and other changes in long-term accounts should
exceed $1.57 billion.
The Committee establishes targets each year for individual AICP awards based on
a percentage of salary which varies according to the employee's job
classification established under the Company's job evaluation system. The target
awards are established using both internally generated data and data obtained
from an independent, third-party consultant and are intended to provide
competitive bonus opportunities if performance objectives are met. For 1996, the
target percentages varied from 12 percent of salary for the beginning level of
AICP eligibility to 65 percent of salary for the Chief Executive Officer. The
target percentages are prorated to recognize changes in job grades during the
year. The Committee is authorized under the terms of the AICP to approve
individual awards from 0 percent to 200 percent of target for the award year.
Mr. Allen's and Mr. Mulva's AICP awards are based on overall corporate
performance. Awards to all other AICP participants reflect the performance of
the business unit or staff group with which they are related, as well as
corporate performance. In February 1997, the Committee approved cash awards for
SBU and staff units under the 1996 AICP ranging from 139 percent of target bonus
to 198 percent of target bonus, based on a review of the Company's 1996
corporate and business unit or staff group performance.
In determining the amount of incentive compensation award to be paid to Mr.
Allen and Mr. Mulva, the Committee determined that cash flow adjusted for
working capital changes and other changes in long-term accounts exceeded the
minimum threshold by $711 million. The results for 1996 exceeded the target by
25 percent and were 32 percent better than 1995. The Company's total return to
stockholders exceeded 33 percent in 1996 and ranked second in the peer group.
The Company's rate of recordable injuries, although slightly above the
established target, made 1996 the safest year in the Company's history,
exceeding the previous record set in 1995. Taking the above into consideration,
it was the Committee's judgment to grant AICP awards to Mr. Allen and Mr. Mulva
at the plan maximum which is 100 percent greater than the target amount. The
amount of the awards for Mr. Allen and Mr. Mulva are set forth in the Summary
Compensation Table found in this Proxy Statement.
Stock Options
- -------------
It is the Committee's practice to consider the grant of stock options during
January of each year. All grants to date have been made at the fair market value
of the Company's stock on the date of the grant. The number of shares subject to
options at the date of each grant is set using internally generated information
and information from independent third party consultants to achieve option
grants which approximate those granted by peer companies to persons in
corresponding job positions. The number of shares subject to option grants
varies based on job grade classification and salary. Grants in January 1996
ranged in estimated value from 35 percent of annual salary for the lowest level
of eligibility to 200 percent of annual salary for the Chairman and Chief
Executive Officer. It is also the Committee's practice to consider supplemental
stock option grants in recognition of promotions during the year based on the
same criteria used by the Committee in grants during January of each year.
For Mr. Allen, Mr. Mulva and the other Executive Officers, the stock option
grants are set out in the Options/SAR Grants In Last Fiscal Year table.
15
<PAGE>
Long-Term Incentive Program
- ---------------------------
The Committee administers the Long-Term Incentive Plan under the Omnibus
Securities Plan approved by stockholders in 1993. Under the terms of this plan,
each year the Committee establishes a three-year performance period. The plan
contains a single performance measure which is the Company's total return to
stockholders as compared to the total return to stockholders for the industry
peer companies listed in the Proxy Statement Performance Graph. Before awards
may be granted, the Company's total stockholder return must be above the bottom
quartile of the industry peer companies.
In the January 1996 meeting, the Committee established the fourth performance
period of the plan, which extends from January 1, 1996, through December 31,
1998. Target awards for Mr. Allen and the other Executive Officers are shown in
the Long-Term Incentive Plan Awards In Last Fiscal Year table and were based on
a percentage of salary varying according to job grade classification and the
price of the Company's stock at the beginning of the performance period. The
target levels approved by the Committee for Performance Period IV were
established by the Committee using both internally generated information and
competitive data provided by an independent, third-party consultant.
Supplemental target awards, which are included in the target awards listed in
the table, were approved in recognition of promotions during the year. Actual
awards, if any, will be determined by the Committee at the end of the
performance period based on the single measurement of the Company's relative
total stockholder return as compared to the peer companies which the Company
evaluates its stockholder return performance.
In 1994, the Committee established the second performance period of the
Long-Term Incentive Plan ("LTIP II"). The Plan has a single performance measure
which is total return to stockholders, compared with the total return to
stockholders of the oil industry peer companies as listed in the Proxy Statement
Performance Graph and used by the Company to compare its shareholder return
performance. The LTIP II performance period covered three years from 1994
through 1996.
In 1994, the Committee established a target award for each individual based on a
percentage of salary varying according to job grade classification and price of
Company stock at the beginning of the performance period. Under the terms of the
Long-Term Incentive Plan, no award can be granted unless the Company's total
return to stockholders is greater than the total return to stockholders of the
bottom quartile of the eight oil industry peer companies. The Committee
determined that the Company's total return to stockholders for the three-year
period was above the total return to stockholders of the companies in the bottom
quartile of the peer group. The Committee further determined that the Company's
total return to stockholders was 68.8 percent for the three-year period, which
exceeded the total return to stockholders for each of the companies in the oil
industry peer group comprising the bottom quartile. The Committee also
determined that the Company's total return to stockholders for the three-year
period exceeded the average total return to stockholders of the peer group by
6.7 percent. The 68.8 percent total return to stockholders placed the Company in
the fifth of nine positions in the oil industry peer group including the
Company. On the basis of the above performance, the Committee granted awards
equal to 125 percent of the target amounts set in 1994 as adjusted for
promotions, if any occurred, during the three-year performance period.
The value of the awards for LTIP II, which are settled in restricted stock for
active employees, is set forth on the line for 1996 in the Summary Compensation
Table found in this Proxy Statement.
THE COMPENSATION COMMITTEE
Larry D. Horner, Chairman
Norman R. Augustine
George B. Beitzel
Randall L. Tobias
Victoria J. Tschinkel
16
<PAGE>
PERFORMANCE GRAPH
The following graph shows the Company's total return to stockholders compared
with the S&P 500 Index and a peer group of eight integrated oil companies over
the five-year period from December 31, 1991, through December 31, 1996.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL STOCKHOLDER RETURN*
Among Phillips Petroleum, S&P 500 Index, and Peer Group Index**
225|------------------------------------------------------------------|
| * Total return assumes dividend reinvestment * |
| ** Amoco, Chevron, Exxon, Mobil, Texaco |
| Amerada Hess, ARCO, Unocal |
| & |
200|------------------------------------------------------------#-----|
| |
| |
| |
| |
175|------------------------------------------------------------------|
| |
| *&# |
| |
D | * |
O 150|------------------------------------------------------------------|
L | |
L | |
A | |
R | * |
S 125|-------------------------------------#----------------------------|
| &# & |
| |
| *& |
| # |
100|---*&#------------------------------------------------------------|
| Assumes $100 invested on 12/31/91 in |
| Phillips Common Stock, S&P 500 Index |
| and Peer Group Index. |
| |
75|----|----------|---------|-----------|-----------|-----------|----|
1991 1992 1993 1994 1995 1996
*=Phillips Petroleum (1) &=S&P 500 Index (2) #=Peer Group Index** (3)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
(1) PHILLIPS PETROLEUM $ 110 131 153 166 221
- ------------------------------------------------------------------------------------------------------------------------------------
(2) S&P 500 INDEX 108 119 120 165 203
- ------------------------------------------------------------------------------------------------------------------------------------
(3) PEER GROUP INDEX 105 119 125 163 201
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
17
<PAGE>
TERMINATION OF EMPLOYMENT
AND
CHANGE-IN-CONTROL ARRANGEMENTS
The Work Force Stabilization Plan authorized on April 26, 1988, provides that
all employees of the Company, including executive officers, who are laid off (as
defined in the plan) within two years following a change of control of the
Company will be entitled to severance benefits equal to four weeks' pay for each
year of service, subject to a maximum of 104 weeks. "Pay" is determined by
adding the employee's current base salary, regularly scheduled overtime pay and
most recent Annual Incentive Compensation Plan award (or target award, if
greater).
Company-sponsored medical, dental and life insurance programs would be continued
for affected employees. The period of time which severance benefits cover would
be added to service for purposes of retirement plan calculations, and all
affected employees would be immediately vested. In addition, affected employees
would be entitled to require the Company to purchase their principal residences
under a formula-pricing arrangement intended to protect them from loss of value,
and would be entitled to reimbursement of legal expenses incurred in connection
with any claim for benefits under the plan.
A change of control would take place if there is either (i) an acquisition
(other than directly from the Company) of 20 percent or more of the beneficial
interest in the Company's voting stock by a party other than the Company, a
subsidiary or a Company-sponsored benefit plan, or (ii) a change in the Board of
Directors as a result of which the current directors (together with the
successors which they nominate or approve for nomination) cease to be a majority
of the Board.
PENSION PLAN
The Retirement Income Plan, in which all active eligible employees (including
executive officers) participate, does not require participant contributions.
Benefits are computed in accordance with several formulas. Officers, including
executive officers, generally receive benefits under a final average earnings
formula. Benefits are based on length of service, a participant's annual salary
and awards paid under the Annual Incentive Compensation Plan. Normal retirement
age is 65. A participant may retire as early as age 55 and receive a reduced
benefit. Benefits for a retiring employee are paid in the form of a
straight-life annuity or one of several other forms of equivalent actuarial
value.
The Pension Plan Table shows the maximum estimated straight-life annual benefits
payable at normal retirement age to employees in the higher salary
classifications, prior to reductions required by the plan for Social Security
benefits.
PENSION PLAN TABLE
Estimated Annual Retirement Benefits Under Final Average Earnings Formula (1)(2)
<TABLE>
<CAPTION>
Years of Credited Service
Annual Average of Highest 3 At Normal Retirement
Consecutive Calendar Years -------------------------------------------------------------------------------------------------
Salary and AICP Awards in 10
Years Preceding Retirement (3) 20 25 30 35 40 45
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 450,000 144,000 180,000 216,000 252,000 288,000 324,000
650,000 208,000 260,000 312,000 364,000 416,000 468,000
850,000 272,000 340,000 408,000 476,000 544,000 612,000
1,150,000 368,000 460,000 552,000 644,000 736,000 828,000
1,450,000 464,000 580,000 696,000 812,000 928,000 1,044,000
1,750,000 560,000 700,000 840,000 980,000 1,120,000 1,260,000
2,050,000 656,000 820,000 984,000 1,148,000 1,312,000 1,476,000
2,350,000 752,000 940,000 1,128,000 1,316,000 1,504,000 1,692,000
</TABLE>
(1) As required by the Internal Revenue Code of 1986, as amended, the retirement
plan may not provide annual benefits exceeding a maximum amount, or include
in benefit computations, compensation in excess of the amount specified in
the Internal Revenue Code. Also, participation in the Company's AICP
deferral program and voluntary salary reduction program may cause a
reduction in retirement plan benefits. Additional amounts, if required to
provide the total benefits indicated in the table, would be made by
supplemental Company payments. The Company also maintains, as a recruiting
tool, a supplemental plan under which officers and other executives who are
hired during mid-career may receive retirement income in excess of that
which their shorter Credited Service would provide under the retirement
plan. However, total benefits under this supplemental plan and the
retirement plan will not exceed benefits obtainable under the retirement
plan by a full career employee at similar salary levels. These supplemental
benefits have been partially pre-funded by the Company in a special trust
designated for this purpose.
(2) With respect to the executive officers named in the Summary Compensation
Table, their years of credited service as of February 28, 1997, for
retirement purposes are: W. W. Allen, 37 years; C. L. Bowerman, 35 years;
T. C. Morris, 31 years; J. J. Mulva, 25 years; and J. B. Whitworth,
31 years. See the Summary Compensation Table for their current
covered compensation.
(3) AICP Awards are shown under the heading "Bonus" in the Summary Compensation
Table.
18
<PAGE>
PROPOSAL 1 - BY THE COMPANY
The Board of Directors unanimously recommends a vote FOR adoption of the
following resolution, which will be presented at the meeting:
---------------------------------------------------------------------
RESOLVED, that the Board of Directors' designation of Ernst & Young LLP to serve
as the independent auditors to audit the books, records and accounts of the
Company for the 1997 fiscal year be and hereby is approved.
----------------------------------------------------------------------
Upon the recommendation of the Audit Committee, the Board of Directors has
designated Ernst & Young LLP for the purpose stated above and, in accordance
with the Bylaws of the Company, has directed that a vote of stockholders be
taken to determine their approval or disapproval.
As provided in the Company's Bylaws, in the event of stockholder disapproval,
the Board must then determine whether to replace the independent auditors before
the end of the current year and shall designate other independent auditors for
the following year.
Ernst & Young LLP, which has served as the Company's independent auditors since
1949, is familiar with the Company's operations, accounting policies and
procedures and is, in the Company's opinion, well-qualified to act in this
capacity. Representatives of Ernst & Young LLP will be present at the meeting to
make any statement they desire and to answer questions directed to them.
OTHER MATTERS
The Company knows of no matters to be presented at the meeting other than those
included in the Notice preceding this Proxy Statement. If other matters should
come before the meeting which require a stockholder vote, it is intended that
the proxy holders will use their own discretion in voting on such other matters.
DATE FOR RECEIPT OF STOCKHOLDER PROPOSALS
Stockholder proposals intended to be presented at the 1998 Annual Meeting must
be received at the Company's executive offices in Bartlesville, Oklahoma, no
later than December 1, 1997, for inclusion in the Company's Proxy Statement and
form of proxy relating to that meeting.
By Order of the Board of Directors,
/s/ Dale J. Billam
Dale J. Billam
Secretary
Bartlesville, Oklahoma 74004
March 28, 1997
- -----------------------------------------------------------------------------
Stockholders are encouraged to keep their account address up to date and
promptly deposit their dividend checks to avoid surrender of these funds and
related stock to their respective states under unclaimed property laws.
- -----------------------------------------------------------------------------
19
<PAGE>
APPENDIX - FORM OF PROXY
Definitive Copy
PHILLIPS' Shield
PROXY PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
PHILLIPS PETROLEUM COMPANY
Annual Meeting May 12, 1997
The undersigned hereby appoints W. ALLEN, G. BEITZEL and J. EDWARDS as
proxy holders with power of substitution, or, if all do not act on a
matter, those who do act, to vote all stock which the undersigned could
vote at the Company's annual stockholders' meeting to be held at the Adams
Building, 4th Street and Keeler Avenue, Bartlesville, Oklahoma, on May 12,
1997, at 10 a.m., and at any adjournment thereof, in the manner stated
herein as to the following matters and in their discretion on any other
matters that come before the meeting, all as described in the Notice and
Proxy Statement.
This Proxy is Continued on the Reverse Side
Please Sign on the Reverse Side and Return Promptly
^ FOLD AND DETACH HERE ^
<PAGE>
This Proxy will be voted or not voted as you direct below. In the absence
of such direction, it will be voted FOR Directors, and FOR Proposal 1.
Please mark
your votes as [X]
indicated in
this example
Company recommends a vote FOR: ELECTION OF DIRECTORS: Nominees: W. Allen,
N. Augustine, G. Beitzel, D. Boren, C. Bowerman, R. Chappell, Jr.,
L. Eagleburger, J. Edwards, L. Horner, J. Mulva, R. Tobias, V. Tschinkel
and K. Turner.
VOTE FOR VOTE WITHHELD *To withhold authority to vote for
all nominees for all nominees any nominee write that nominee's
listed above* listed above name on the space below.
[ ] [ ] ---------------------------------
Company recommends a vote FOR:
Proposal 1 to approve the
designation of the independent
auditors, Ernst & Young LLP.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
I PLAN TO ATTEND THE [ ]
ANNUAL MEETING
Please mark, date, sign and return this proxy card promptly. To vote in
accordance with the Company's recommendations no boxes need be checked.
Dated:______________________, 1997
__________________________________
__________________________________
Signature(s) of Stockholder(s)
Your signature(s) on this proxy form should be exactly the same as the
name(s) imprinted hereon. Persons signing as executors, administrators,
trustees, or in similar capabilities, should so indicate.
^ FOLD AND DETACH HERE ^
<PAGE>
