U.S. 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
- - -----------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
-----------------------------------------------------------------------------
(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:
----------------------------------------------------------------------
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):
----------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
----------------------------------------------------------------------
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:
___________________________________________________________________________
2) Form, Schedule or Registration Statement No.:
___________________________________________________________________________
3) Filing Party:
___________________________________________________________________________
4) Date Filed:
___________________________________________________________________________
<PAGE>
NOTICE OF 1999 ANNUAL MEETING
MAY 3, 1999
and PROXY STATEMENT
- - --------------------------------------------------------------------------------
[LOGO] PHILLIPS PETROLEUM COMPANY
BARTLESVILLE, OKLAHOMA 74004
April 5, 1999
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 3, 1999, starting at 10 a.m. local time. Your
attendance will provide you with an opportunity to hear the chairman's and the
president's reports on the Company and its operations. Directors and other
representatives of the Company will also be in attendance.
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 11 directors, you are asked to vote on one
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
- - --------------------------------------------------------------------------------
<PAGE>
Table of Contents
Page
3 Notice of Annual Meeting
4 Solicitation
4 Confidential Voting
4 Voting Securities and Principal Holders
4 Vote Required for Election of Directors and
Adoption of Company and Stockholder Proposals
5-7 Nominees for Election as Directors
7 Security Ownership of Certain Beneficial Owners
8 Security Ownership of Management
8 Section 16(a) Beneficial Ownership Reporting Compliance
8 Compensation Committee Interlocks and Insider Participation
9-10 General Information Relating to the Board of Directors
10 Compensation of Directors and Nominees
11 Executive Compensation
12 Options/SAR Grants in Last Fiscal Year
12 Ten-Year Option/SAR Repricing
13 Aggregated Option/SAR Exercises in Last Fiscal Year
And Fiscal Year-End Option/SAR Value
13 Long-Term Incentive Plan Awards in Last Fiscal Year
14-16 Compensation Committee Report to Stockholders on
Executive Compensation
17 Performance Graph
18 Pension Plan
19 Termination of Employment and Change-in-Control Arrangements
19 Proposal 1
19 Date for Receipt of Stockholder Proposals
- - --------------------------------------------------------------------------------
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.
- - --------------------------------------------------------------------------------
2
<PAGE>
- - --------------------------------------------------------------------------------
PHILLIPS PETROLEUM COMPANY
BARTLESVILLE, OKLAHOMA 74004
NOTICE OF ANNUAL MEETING to be held May 3, 1999
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 3, 1999, 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 11 directors (pages 5 through 7);
Proposal of the Company:
-----------------------
Proposal 1. To approve the designation of Ernst & Young LLP as independent
auditors for 1999 (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 12, 1999, 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 1998 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 April 5, 1999
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
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.
- - --------------------------------------------------------------------------------
3
<PAGE>
PHILLIPS PETROLEUM COMPANY
BARTLESVILLE, OKLAHOMA 74004
April 5, 1999
PROXY STATEMENT
SOLICITATION
Your proxy is solicited by the Board of Directors and all costs of solicitation
will be paid by the Company. Your proxy will be voted as you direct. It may be
revoked by you at any time before it is voted by:
(1) filing with the Secretary an instrument revoking the earlier proxy;
(2) executing a later-dated proxy; or
(3) voting in person by ballot at the meeting.
This Proxy Statement and Proxy Card are first being mailed on or about April 5,
1999, to stockholders of record as of March 12, 1999.
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
beginning 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:
(1) disclosure may be required by applicable law;
(2) stockholders write comments on their proxy cards;
(3) disclosure is expressly requested by a stockholder;
(4) in limited circumstances such as a proxy contest or other solicitation of
proxies based on an opposition proxy statement; or
(5) any matter for stockholder approval requiring the vote of more than a
majority of the shares present at any meeting.
The Company has engaged ChaseMellon Shareholder Services, L.L.C. to count the
votes represented by 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 281,272,366 shares outstanding at the
close of business February 26, 1999. The record date for stockholders entitled
to vote at this meeting is March 12, 1999. Each share is entitled to one vote.
Included in shares outstanding are 29,125,863 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 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 26, 1999, by any person or group known to own 5 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 and 8 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 a 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 26, 1999, unless otherwise stated.
4
<PAGE>
NOMINEES FOR ELECTION AS DIRECTORS
The number of directors to be elected is 11. The designated proxy holders of the
Company intend, unless otherwise instructed, to vote all proxies for the
election of the following 11 nominees. If elected, they will hold office until
the next Annual Meeting or until their successors are elected. The term of each
present director will expire with the election of directors at the 1999 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 26, 1999, 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 serve as directors.
- - --------------------------------------------------------------------------------
W. W. Allen
Director since 1989 [photo]
Age 62
W. W. Allen 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. He is a director of the
Bank of Oklahoma, N.A.
- - --------------------------------------------------------------------------------
Norman R. Augustine
Director since 1989 [photo]
Age 63
Norman R. Augustine is a lecturer in Aeronautical Engineering with the rank of
Professor at Princeton University, a position he assumed in August 1997. He is
also Chairman of the Executive Committee of the Board of Directors of Lockheed
Martin Corporation. Prior to that, he was Chairman of the Board of Directors of
Lockheed Martin Corporation from August 1997 through March 1998; Chief Executive
Officer from January 1996 through July 1997; and President from March 1995
through June 1996. He served as Chairman of the Board of Directors and Chief
Executive Officer of Martin Marietta Corporation from April 1988 until its
merger with Lockheed Corporation in March 1995. He is a director of The Procter
& Gamble Company and The Black & Decker Corporation.
- - --------------------------------------------------------------------------------
David L. Boren
Director since 1994 [photo]
Age 57
David L. Boren 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;
Torchmark Corporation; and Waddell & Reed Financial, Inc.
- - --------------------------------------------------------------------------------
C. L. Bowerman
Director since 1989 [photo]
Age 59
C. L. Bowerman is an Executive Vice President of the Company responsible for
human resources, capital budgeting and services, a position he assumed in
January 1999. He previously was Executive Vice President responsible for
planning and corporate relations and services beginning in January 1995, and
Executive Vice President responsible for corporate strategic planning, corporate
information technology and research and development beginning in April 1992.
- - --------------------------------------------------------------------------------
5
<PAGE>
Robert E. Chappell, Jr.
Director since 1990 [photo]
Age 62
Robert E. Chappell, Jr., 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.
- - --------------------------------------------------------------------------------
Lawrence S. Eagleburger
Director since 1993 [photo]
Age 68
Lawrence S. Eagleburger 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; Halliburton Company; Stimsonite Corporation; and
Universal Corporation.
- - --------------------------------------------------------------------------------
Larry D. Horner
Director since 1991 [photo]
Age 64
Larry D. Horner 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 served as Chairman and
Chief Executive Officer of KPMG Peat Marwick from October 1984 to December 1990.
He is a director of American General Corporation; Asia Pacific Wire & Cable
Corporation Limited; Atlantis Plastics, Inc.; Biological & Popular Culture,
Inc.; Laidlaw Holdings, Inc.; and Newmark Homes Corp.
- - --------------------------------------------------------------------------------
J. J. Mulva
Director since 1994 [photo]
Age 52
J. J. Mulva 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; and
Vice President and Chief Financial Officer beginning in March 1993.
- - --------------------------------------------------------------------------------
Randall L. Tobias
Director since 1992 [photo]
Age 56
Randall L. Tobias is Chairman Emeritus of Eli Lilly and Company, a position he
assumed in January 1999. He retired as Chairman of the Board of Directors and
Chief Executive Officer of Eli Lilly and Company in December 1998. 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.
- - --------------------------------------------------------------------------------
6
<PAGE>
Victoria J. Tschinkel
Director since 1993 [photo]
Age 51
Victoria J. Tschinkel 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.
- - --------------------------------------------------------------------------------
Kathryn C. Turner
Director since 1995 [photo]
Age 51
Kathryn C. Turner 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 and COMSAT Corporation.
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------------------------------------------------------------
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
- - -----------------------------------------------------------------------------------------------------------------------------
Name and Address of Amount and Nature of Beneficial
Title of Class Beneficial Owner Ownership Percent of Class
- - -----------------------------------------------------------------------------------------------------------------------------
Direct Indirect
-------------------------------
<S> <C> <C> <C>
Common Vanguard Fiduciary Trust Company 46,289,594 (1) -- 16.46%
P. O. Box 2900
Valley Forge, Pennsylvania 19482
Common Capital Research and Management Company 26,703,500 (2) -- 9.50%
333 South Hope Street
Los Angeles, California 90071
- - -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) As of February 26, 1999, Vanguard as Trustee held 46,289,594 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 29,125,863 shares in
the Compensation and Benefits Trust ("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.
(2) Capital Research and Management Company ("CRMC"), as investment adviser
registered under Section 230 of the Investment Advisers Act of 1940, has
reported that it exercises as of January 31, 1999, sole dispositive power
with respect to 26,703,500 shares. According to the Schedule 13G filed by
CRMC with the Securities and Exchange Commission, such shares equal 10.50
percent of the Company's outstanding shares. However, when shares held by
the CBT are included, shares held by CRMC equal only 9.50 percent of the
Company's outstanding shares. CRMC has disclaimed beneficial ownership of
these shares.
7
<PAGE>
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------------------------------------------------------------
SECURITY OWNERSHIP OF MANAGEMENT
Phillips Petroleum Company
Securities
- - -----------------------------------------------------------------------------------------------------------------------------
Amount and Nature of
Beneficial Ownership
- - -----------------------------------------------------------------------------------------------------------------------------
Title of Class Name of Beneficial Owner Direct(1) Indirect Percent of Class
- - -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Directors and Nominees (2)
Common W. W. Allen 579,678 -- less than 1%
Common Norman R. Augustine 21,884 -- less than 1%
Common George B. Beitzel (3) 88,791 -- less than 1%
Common David L. Boren 10,868 -- less than 1%
Common C. L. Bowerman 162,880 654 less than 1%
Common Robert E. Chappell, Jr. 19,300 -- less than 1%
Common Lawrence S. Eagleburger 8,175 6,000 less than 1%
Common Larry D. Horner 17,631 -- less than 1%
Common J. J. Mulva 343,994 -- less than 1%
Common Randall L. Tobias 16,906 -- less than 1%
Common Victoria J. Tschinkel 14,628 -- less than 1%
Common Kathryn C. Turner 9,699 -- less than 1%
Executive Officers
Common R. G. Ceconi 104,404 -- less than 1%
Common E. K. Grigsby 75,765 -- less than 1%
Common R. K. Gupta 54,908 3,926 less than 1%
Common K. L. Hedrick 146,219 -- less than 1%
Common J. L. Howe 148,132 -- less than 1%
Common J. C. Mihm 159,218 696 less than 1%
Common T. C. Morris 97,865 -- less than 1%
Common M. J. Panatier 95,054 -- less than 1%
Common B. Z. Parker 103,960 -- less than 1%
Common B. J. Price 69,396 -- less than 1%
Common J. B. Whitworth 78,809 -- less than 1%
- - -----------------------------------------------------------------------------------------------------------------------------
All directors, nominees and executive officers
as a group (23 in group) 2,428,164 11,276 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.
(3) Mr. George B. Beitzel, a current director, is retiring as director having
reached mandatory retirement age.
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 1998, 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, Lawrence S. Eagleburger, Randall L. Tobias and Kathryn C. Turner. The
Company had no interlocking relationship during the last fiscal year.
8
<PAGE>
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 1998, the Board
of Directors held nine meetings and the directors attended an average of 99
percent of all Board and Committee meetings.
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
Horner* Beitzel* Augustine* Allen* Tschinkel*
Boren Augustine Chappell Augustine Boren
Chappell Eagleburger Horner Beitzel Tobias
Tschinkel Tobias Horner Turner
Turner Mulva
Tschinkel
* Chairman
- - --------------------------------------------------------------------------------
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 counsel, the
independent auditors, the internal audit staff or others 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 Conduct
and Ethics and oversees the activities of the Corporate Compliance and Ethics
Committee. The Audit Committee held five meetings in 1998.
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 1998.
The Committee on Directors' Affairs 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 two meetings in 1998.
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 two meetings in 1998.
The Public Policy Committee advises management and the Board of Directors:
(1) in response to current and emerging public policy issues, and
(2) 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
9
<PAGE>
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 three meetings in 1998.
COMPENSATION OF DIRECTORS AND NOMINEES
During 1998, the annual Board retainer fee for non-employee directors consisted
of $11,000 plus 1,000 shares of Phillips common stock. Board members received
$1,000 for each Board meeting attended. Committee retainer fees were $2,500 for
Board committee chairmen and $2,250 for committee members. Committee meeting
fees consisted of $750 for the Board committee chairmen and $500 for the
committee members for each committee meeting attended. The directors could elect
to defer all or a part of their cash compensation.
Effective January 1, 1998, the Board of Directors unanimously agreed to
terminate the Non-Employee Director Retirement Plan for all non-employee
directors whose normal retirement date is after 1998. Commensurate with this
action and to further align the interests of the non-employee directors with
those of stockholders, the Board of Directors unanimously approved the Phillips
Petroleum Company Stock Plan for Non-Employee Directors ("Non-Employee Director
Stock Plan"). The Non-Employee Director Stock Plan became effective January 1,
1998, and provides for the issuance of restricted or unrestricted Company common
stock.
The Non-Employee Director Stock Plan provided for an initial grant of restricted
stock in satisfaction of the non-employee directors' December 31, 1997, accrued
retirement benefits in the Non-Employee Director Retirement Plan. The
Non-Employee Director Stock Plan also provided for annual grants of restricted
stock which are targeted to render competitive the directors' total compensation
from the Company when compared to the total compensation of other non-employee
directors within the Company's peer group. The grant for 1998 was 400 shares of
the Company's common stock which is restricted, non-transferable and
forfeitable. Both the initial grant and the grant of the 400 shares of
restricted stock were made in March 1998. For 1998, a dividend-equivalent
amount was paid to each non-employee director who received shares equal to
the dividend which would have been payable on such shares if they had been
granted to and retained by the directors on the effective date of the Plan.
All dividends payable on restricted stock, and such dividend-equivalent, are
reinvested in restricted stock.
Effective January 1, 1999, the Board compensation is $106,500 per calendar year
for each director who chairs a committee of the Board and $105,000 per calendar
year for each director who does not chair a committee. One-half of this annual
compensation amount is paid in either restricted or unrestricted stock. The
other half is paid as cash, but may be deferred or taken as additional
restricted or unrestricted stock. The future payment of any deferred cash
compensation is funded in a grantor trust designed for this purpose.
All shares of restricted stock issued on behalf of each non-employee director
are restricted until retirement. However, the Non-Employee Director Stock Plan
provides for annual lapsing of the restrictions on a percentage of the shares
held in the account on behalf of the non-employee director beginning five years
before normal retirement from the Board of Directors, and all restrictions will
lapse in the year the director reaches age 70. A director may elect to delay the
lapsing of the restriction until retirement from the Board of Directors. Based
on the director's election, which is made in the year the director reaches age
65 or the year prior to retirement if the director elects to delay the lapsing
until retirement, the director may have the value of lapsed shares credited to
the director's account in the Deferred Compensation Plan for Non-Employee
Directors or may take possession of the lapsed shares.
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.
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.
The proceeds will be paid in $100,000 installments over a 10-year period.
Individual directors derive no financial benefit from this program, because all
charitable deductions for Federal and State income taxes accrue solely to the
Company. The Company paid premiums of $336,274 in 1998.
10
<PAGE>
EXECUTIVE COMPENSATION
The following Summary Compensation Table sets forth compensation information
for services performed in 1998, 1997 and 1996 for those persons who were at
December 31, 1998, the Chief Executive Officer and the four most highly
compensated officers.
<TABLE>
<CAPTION>
Summary Compensation Table
Long-Term Compensation
--------------------------------------
Annual Compensation Awards Payouts
---------------------------------------- ------------------------- ------------
Restricted Securities All Other
Other Annual Stock Underlying Long-Term Compen-
Name and Compensation Award(s)(1) Option/ Incentive sation(2)
Principal Position Year Salary ($) Bonus($) ($) ($) SARs(#) Payout($) ($)
- - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
W. W. Allen 1998 945,000 570,901 0 0 228,800 520,270(3) 9,211
Chairman of the 1997 870,000 1,105,328 0 0 210,400 568,289(4) 9,217
Board & CEO 1996 850,000 1,105,000 0 0 237,359 579,469(5) 8,053
J. J. Mulva 1998 684,501 398,300 0 0 124,500 316,361(3) 9,211
President & 1997 625,500 738,787 0 0 66,600 293,552(4) 9,217
COO 1996 594,667 731,340 0 0 65,105 322,656(5) 8,053
C. L. Bowerman 1998 478,752 214,461 0 0 72,800 175,434(3) 9,211
Executive Vice 1997 453,501 473,567 0 0 29,600 182,005(4) 9,217
President 1996 445,250 379,842 0 0 36,592 263,025(5) 8,053
K. L. Hedrick 1998 431,499 171,010 0 0 74,700 176,721(3) 9,211
Executive Vice 1997 366,750 321,538 0 0 21,200 97,357(4) 9,217
President 1996 345,750 232,476 0 0 22,802 124,294(5) 7,335
T. C. Morris 1998 382,252 178,182 0 0 53,300 119,208(3) 9,211
Sr. Vice President 1997 363,751 334,348 0 0 21,000 116,442(4) 9,217
& CFO 1996 356,000 243,493 0 0 24,240 131,600(5) 8,052
- - -----------------------------------------------------------------------------------------------------------------------------------
</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 that are not transferable prior to death,
disability or retirement, unless restrictions are earlier lapsed by the
Compensation Committee of the Board of Directors (the "Committee") or after
a change of control. The aggregate number of such restricted shares held at
December 31, 1998, 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, 25,993 shares,
$1,110,390; Mr. Hedrick, 15,901 shares, $679,272; Mr. Morris, 21,720 shares,
$927,852; Mr. Mulva, 60,331 shares, $2,577,268.
(2) Includes Company contributions to the Thrift Plan for the benefit of
participants and the value of the shares allocated to Long-Term Stock
Savings Plan participants as of the respective valuation dates.
(3) Value of the restricted stock on the date of the award for performance under
the Long-Term Incentive Plan Performance Period from 1996-1998.
(4) Value of the restricted stock on the date of the award for performance under
the Long-Term Incentive Plan Performance Period from 1995-1997.
(5) Value of the restricted stock on the date of the award for performance under
the Long-Term Incentive Plan Performance Period from 1994-1996.
11
<PAGE>
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
Stock options granted during 1998 to the Chief Executive Officer and the four
most highly compensated officers of the Company are reflected in the following
Option/SAR Grants in Last Fiscal Year table.
<TABLE>
<CAPTION>
Potential Realizable Value at
Assumed Annual Rates of Stock
Individual Grants Price Appreciation for Option Term(1)
-------------------------------------------------------- -------------------------------------------
Number of Percent of Total
Securities Options/SARS
Underlying Granted to Exercise or
Options/SARs Employees in Base Price Expiration
Name Granted(#) Fiscal Year ($/Share) Date 0%($) 5%($) 10%($)
- - -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
W. W. Allen 95,900 10.86% 43.35 01/12/08 0 2,614,234 6,625,731
132,900 15.05% 46.29 10/12/08 0 3,868,719 9,804,033
J. J. Mulva 50,000 5.66% 43.35 01/12/08 0 1,363,000 3,454,500
74,500 8.43% 46.29 10/12/08 0 2,168,695 5,495,865
C. L. Bowerman 31,300 3.54% 43.35 01/12/08 0 853,238 2,162,517
41,500 4.70% 46.29 10/12/08 0 1,208,065 3,061,455
K. L. Hedrick 27,800 3.15% 43.35 01/12/08 0 757,828 1,920,702
46,900 5.31% 46.29 10/12/08 0 1,365,259 3,459,813
T. C. Morris 21,300 2.41% 43.35 01/12/08 0 580,638 1,471,617
32,000 3.62% 46.29 10/12/08 0 931,520 2,360,640
- - --------------------------------------------------------------------------------------------------------------------------------
Total Stockholders (2) N/A N/A N/A N/A 0 7,173,386,648 18,180,824,779
- - --------------------------------------------------------------------------------------------------------------------------------
</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, 1998, (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, 1998, is shown
above as "potential realizable value" for Total Stockholders.
TEN-YEAR OPTION/SAR REPRICING
There have been no option 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 -- -- -- --
K. L. Hedrick -- 0 -- -- -- --
T. C. Morris -- 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 1998, 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 1998 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>
395,971 3,328,208
W. W. Allen 7,200 150,039 551,766 1,583,431
158,779 1,768,552
J. J. Mulva 8,125 180,995 218,124 378,473
55,301 587,156
C. L. Bowerman 3,850 120,173 120,158 220,743
72,305 810,567
K. L. Hedrick 0 0 105,869 134,479
12,499 69,678
T. C. Morris 26,699 476,901 85,402 141,319
- - ------------------------------------------------------------------------------------------------------------------
</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 $42.7188, the fair market value of the Company's common stock on
December 31, 1998.
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 1998 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 33,347 12/31/00 16,674 33,347 66,694
J. J. Mulva 19,104 12/31/00 9,552 19,104 38,208
C. L. Bowerman 10,241 12/31/00 5,121 10,241 20,482
K. L. Hedrick 9,100 12/31/00 4,550 9,100 18,200
T. C. Morris 7,590 12/31/00 3,795 7,590 15,180
- - ------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) At the end of the three-year performance period, from January 1, 1998,
through December 31, 2000, 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 and return on capital employed, compared with the total stockholder
return and return on capital employed of the 1998 oil industry peer
companies used in the Performance Graph on page 17.
(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, to achieve a high level
of return on the capital employed by the Company and to achieve industry safety
leadership.
Executive compensation decisions made by the Committee are based on a
combination of quantitative and qualitative measures. During 1998, quantitative
measures employed by the Committee to evaluate corporate performance were:
relative total return to stockholders; relative return on capital employed by
the corporation; and improving safety performance through reduction of
recordable injuries. Quantitative measures employed by the Committee to evaluate
business unit and staff performance were: the achievement of pre-established
targets set for organizations engaged in the development of projects designed to
result in profitable growth and the addition of value to the Company; the return
on capital employed by the business unit; controlling costs on a per unit of
sales/production basis; improving safety performance through reduction of
recordable injuries; and the implementation of a process to achieve safety
excellence. In addition, staff units are measured by the relative success of
their internal customers and by controlling expenses.
The Committee also uses the following qualitative measures of performance: 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 the creation of economic value enhancement.
By design, executive compensation provides awards that vary with performance and
produce an opportunity for earnings through performance over a longer term. The
Company's objective in so doing is to provide a substantial percentage of the
total compensation of its executives through variable or "at-risk" compensation
arrangements under the Annual Incentive Compensation Plan, the granting of stock
options and through awards under the Long-Term Incentive Plan.
Internal Revenue Code Section 162(m)
- - ------------------------------------
The Compensation Committee has carefully considered the implications of Section
162(m) of the Internal Revenue Code. The Committee's policy is, where possible
and considered appropriate, to preserve corporate tax deductions, including the
deductibility of compensation to the executive officers named in the Summary
Compensation Table pursuant to Section 162(m) of the Internal Revenue Code. The
Committee's policy is also to maintain the flexibility to approve compensation
arrangements which it deems to be in the best interest of the Company and its
stockholders, but which may not always qualify for full tax deductibility. The
Committee believes that it is in the best interest of the Company and its
stockholders to preserve the flexibility to reward executives consistent with
the Company's pay philosophy for each element of compensation. The Committee
will continue to review the executive compensation practices of the Company to
determine if elements of executive compensation administered by the Committee
are appropriate for qualification as "performance-based compensation" under the
provisions of Section 162(m) of the Internal Revenue Code.
Executive Compensation Actions for 1998
Salaries
- - --------
During 1998, the Committee reviewed and approved salaries for all executive
officers and employees with annual salaries of $250,000 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 October 1998, as
part of the Company's annual salary program, the Committee reviewed competitive
salary data for the Chairman of the Board and for the President to determine if
the Committee would recommend to the Board of Directors that the salaries of
these two officers be changed. Competitive salary data provided by an
independent, third-party consultant was utilized for this purpose. Also
considered was Mr. Allen's individual performance during the year. On the basis
of the information provided, the Committee unanimously approved a resolution
recommending to the Board of Directors that Mr. Allen's annual salary be
increased from $930,000 to $990,000. In addition, after considering competitive
salary data, the Committee unanimously agreed to recommend to the Board of
Directors that the annual salary of Mr. Mulva, the President and Chief Operating
14
<PAGE>
Officer, be increased from $666,000 to $740,000. The changes to Mr. Allen's and
Mr. Mulva's salaries were approved by the Board effective October 1, 1998.
In addition to the recommendations stated above, in October 1998 the
Compensation Committee used competitive salary data to approve changes to the
annual salaries of other executive officers and all other employees whose annual
salary was $250,000 or greater. The changes to the annual salaries of executive
officers and other employees whose salary was $250,000 or greater were effective
October 1, 1998.
Annual Incentive Compensation Program
- - -------------------------------------
The Committee administers the Annual Incentive Compensation Plan ("AICP") which
provides an opportunity for the award of annual bonuses. The AICP contains
objectives which the Committee establishes each year. For 1998, the Committee
set three Companywide objectives: (i) total stockholder return for 1998 should
warrant award based on performance relative to the shareholder return of the
1998 oil industry peer companies, as listed in the Proxy Statement Performance
Graph used by the Company to compare its stockholder return performance;
(ii) return on capital employed by the corporation should warrant award based on
performance relative to the return on capital employed of the 1998 oil industry
peer companies, as listed on the Proxy Statement Performance Graph; and
(iii) safety performance should be better than pre-established targets
measuring recordable injury rate.
The Committee establishes targets each year for individual AICP awards based on
a percentage of salary. 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 1998, the target percentages varied from 22.5 percent of
salary for the beginning level of AICP eligibility to 75 percent of salary for
the Chief Executive Officer. The target percentages are prorated to recognize
changes in salary bands during the year. The Committee is authorized under the
terms of the AICP to approve individual awards from 0 percent of the target
amount to 200 percent of the target amount 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 the participant is related, as well
as corporate performance.
In February 1999, the Committee approved cash awards for strategic business
units and staff units under the 1998 AICP ranging from 32 percent of the target
bonus to 98 percent of the target bonus based on a review of the Company's 1998
corporate and business or staff group performance.
In determining the amount of incentive compensation award to be paid to
Mr. Allen and Mr. Mulva, the Committee focused on the three measures in the plan
that are determined by corporate performance. These three are relative
shareholder return, return on capital employed, and safety as measured by the
rate of recordable injuries incurred during the year.
It was determined that total shareholder return for Phillips in 1998 was
negative 9.7 percent. This placed the Company seventh in the peer group of eight
companies, including Phillips. The announcement of corporate combinations
involving three of the peer companies influenced these results.
It was further determined that return on capital employed by the corporation in
1998 was 4.6 percent which placed the Company fifth in the peer group. The
Company's rate of recordable injuries was 7.6 percent better than the prior year
and was the best year ever in the Company's history, exceeding the record set in
1997. Taking the above into consideration and considering the performance of the
strategic business units and staff units, it was the Committee's judgment to
grant an AICP award to Mr. Allen and Mr. Mulva which is 23 percent less than the
target amount.
The amount of the awards to 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. If the date of the grant is not
a day in which the Company's stock is traded on the New York Stock Exchange, the
fair market value is determined on the first trading day immediately preceding
the date on which the Committee grants the option. 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. In addition, individual performance is considered
when making each stock option grant. The size of each grant is a function of
total compensation targets and individual performance.
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.
In 1998, the Committee made two grants of stock options to eligible employees.
In January 1998, a partial grant approximating nine-twelfths of a normal grant
was made to eligible executives. It was the intent of the Committee to begin
annual grants in October of each year. The January
15
<PAGE>
grant was made for the purpose of bridging the grant date from January to
October. In October 1998, the Committee approved a normal grant of stock options
to eligible employees. It is anticipated that in the future, stock option grants
will be made in October with the exception of supplemental stock option grants
to recognize promotions during the 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.
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.
In the January 1998 meeting, the Committee established the sixth performance
period of the plan, which extends from January 1, 1998, through December 31,
2000. 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 salary band 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 VI 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 two
measurements: the Company's relative total stockholder return compared with the
peer companies against which the Company evaluates its stockholder return
performance, and the Company's return on capital employed compared with the peer
companies against which the Company evaluates its stockholder return
performance.
In 1996, the Committee established the fourth performance period of the
Long-Term Incentive Plan ("LTIP IV"). The Plan has a single performance measure
which is total return to stockholders, compared with the total return to
stockholders of the 1998 oil industry peer companies as listed in the Proxy
Statement Performance Graph and used by the Company to compare its shareholder
return performance. For LTIP IV, the peer group included one additional company,
Unocal, which was a member of the peer group when LTIP IV commenced. The LTIP IV
performance period covered the three years from 1996 through 1998.
In 1996, the Committee established a target award for each individual based on a
percentage of salary varying by 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 1998 oil industry peer companies and Unocal.
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 37 percent for the three-year
performance period which placed the Company in the third quartile of the peer
group. The Company placed sixth of the nine positions in the oil industry peer
group including the Company.
On the basis of the above performance, the Committee granted awards equaling 25
percent less than the target amount set in 1996 adjusted for promotions, if any,
during the three-year performance period.
The value of the awards for LTIP IV, which are settled in restricted stock for
the five most highly compensated executive officers, is set forth on the line
for 1998 in the Summary Compensation Table found in this Proxy Statement.
THE COMPENSATION COMMITTEE
George B. Beitzel, Chairman
Norman R. Augustine
Lawrence S. Eagleburger
Randall L. Tobias
Kathryn C. Turner
16
<PAGE>
PERFORMANCE GRAPH
The following graph shows the Company's total return to stockholders compared
with the S&P 500 Index and the two peer groups of seven integrated oil companies
over the five-year period from December 31, 1993, through December 31, 1998.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL STOCKHOLDER RETURN(1)
Among Phillips Petroleum, S&P 500 Index, and Peer Group Indexes(2)(3)
Assumes $100 invested on 12/31/93 in
Phillips Common Stock, S&P 500 Index
and Peer Group Indexes.
[ Line Graph Appears Here ]
- - -----------------------------------------------------------------------------
1994 1995 1996 1997 1998
Phillips Petroleum $117 $126 $169 $191 $173
S&P 500 Index 101 139 171 229 294
Peer Group Index(2) 105 138 170 207 246
Peer Group Index(3) 102 124 157 186 163
- - -----------------------------------------------------------------------------
(1) Total return assumes dividend reinvestment
(2) Amerada Hess, Amoco, ARCO, Chevron, Exxon, Mobil, Texaco, the "1998 oil
industry peer companies."
(3) In December 1998, the Compensation Committee, as part of its normal routine,
reviewed the appropriateness of the peer group used for compensation
comparison purposes. After review, the Committee unanimously agreed to
change the peer group by dropping Exxon Corporation, Mobil Corporation,
Chevron Corporation and Amoco Corporation and adding USX-Marathon Group,
Conoco Inc., Occidental Petroleum Corporation and Unocal Corporation. The
rationale for the change was that recently announced corporate combinations
render Exxon, Mobil and Amoco no longer appropriate for purposes of
comparison. Chevron was dropped from the peer group due to the difference in
the relative size of the two companies.
It was the Committee's opinion that the new peer group provides a better
alignment for compensation comparisons and for purposes of comparing
relative performance for measures used in the executive compensation
programs. Future performance periods in the Annual Incentive Compensation
Plan and the Long-Term Incentive Plan will utilize the peer group approved
in the December 1998 Compensation Committee meeting.
17
<PAGE>
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>
Annual Average of Highest 3 Years of Credited Service
Consecutive Calendar Years' At Normal Retirement
Salary and AICP Awards in 10
Years Preceding Retirement(3) 20 25 30 35 40 45
<S> <C> <C> <C> <C> <C> <C>
$ 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
2,650,000 848,000 1,060,000 1,272,000 1,484,000 1,696,000 1,908,000
</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 funded by the Company in a grantor 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, 1999, for
retirement purposes are: W. W. Allen, 39 years; C. L. Bowerman, 37 years;
K. L. Hedrick, 27 years; T. C. Morris, 33 years; and J. J. Mulva, 27 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>
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 (as defined below) 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 or Performance
Incentive Programs 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 certain claims for benefits under the plan.
A change of control would take place if there is:
(1) 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;
(2) 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;
(3) approval of a complete liquidation or dissolution of the Company by
shareholders; or
(4) approval by shareholders of a reorganization, merger, consolidation, sale or
other disposition of all or substantially all of the assets of the Company,
or the acquisition of the assets of another entity, unless following such
transaction:
(a) shareholders of the Company prior to the transaction continue to
beneficially own at least 60 percent of the resulting corporation's stock
and voting securities;
(b) no person (other than employee benefit plans of the Company or the
resulting corporation) beneficially owns more than 20 percent of such
corporation's stock and voting securities; and
(c) a majority of the Board of Directors of the resulting corporation were
directors of the Company immediately prior to the transaction.
Other Change-in-Control Arrangements
Upon a change of control, benefits to officers and other employees would be
accelerated under the Omnibus Securities Plan, the 1986 Stock Plan, the 1990
Stock Plan, and the Annual Incentive Compensation Plan.
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 1999 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 2000 Annual Meeting must
be received at the Company's executive offices in Bartlesville, Oklahoma, no
later than December 7, 1999, 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
April 5, 1999
19
<PAGE>
[Logo]
Printed on recycled paper
<PAGE>
[LOGO]
PROXY PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
PHILLIPS PETROLEUM COMPANY
Annual Meeting May 3, 1999
The undersigned hereby appoints W. ALLEN, L. EAGLEBURGER and L. HORNER 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 3, 1999, 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 Please mark your
direct below. In the absence of direction, votes as indicated [X]
it will be voted FOR Directors, and FOR Proposal 1. in this example
- - --------------------------------------------------------------------------------
Company recommends a vote FOR: ELECTION OF DIRECTORS: Nominees: W. Allen,
N. Augustine, D. Boren, C. Bowerman, R. Chappell, Jr., L. Eagleburger,
L. Horner, J. Mulva, R. Tobias, V. Tschinkel and K. Turner.
VOTE FOR VOTE WITHHELD *To withhold authority to vote for any
all nominees for all nominees nominee write that nominee's name on
listed above* listed above the space below.
[ ] [ ] ________________________________________
- - --------------------------------------------------------------------------------
Company recommends a vote FOR:
Proposal 1 to approve the
designation of the independent
auditors, Ernst & Young LLP.
I PLAN TO ATTEND THE
FOR AGAINST ABSTAIN 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:__________________, 1999
______________________________
______________________________
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>
