Dear El Paso Stockholder:

 

We cordially invite you to attend our 2010 Annual Meeting of Stockholders. The Annual Meeting will be held on Wednesday, May 19, 2010, beginning at 9:00 a.m. (local/Central time) at the Four Seasons Hotel Houston, 1300 Lamar Street, Houston, Texas 77010.

 

At this year’s Annual Meeting, you will be asked to vote on the election of 12 directors, an amendment and restatement of our 2005 Omnibus Incentive Compensation Plan and the ratification of Ernst & Young LLP’s appointment as our independent registered public accounting firm for 2010.

 

Board member James L. Dunlap will be retiring from our Board of Directors at this Annual Meeting pursuant to our mandatory retirement age policy. We thank him for his dedicated service to El Paso and wish him well. In addition, we are pleased to welcome David W. Crane and Timothy J. Probert as members of our Board of Directors. Messrs. Crane and Probert joined our Board of Directors in December 2009 and will be standing for re-election, along with all other director nominees, at this Annual Meeting.

 

Pursuant to rules promulgated by the U.S. Securities and Exchange Commission, we are providing access to our proxy materials over the Internet. As a result, we are mailing to most of our stockholders an Important Notice Regarding the Availability of Proxy Materials (“Notice”) instead of a paper copy of this proxy statement, our 2009 Annual Report on Form 10-K and our 2009 Summary Report. The Notice contains instructions on how to access those documents over the Internet. The Notice also contains instructions on how to request a paper copy of our proxy materials, including this proxy statement and a form of proxy card, our 2009 Annual Report on Form 10-K and our 2009 Summary Report. All stockholders who do not receive a Notice will receive a paper copy of the proxy materials by mail. We believe that this process allows us to provide our stockholders with the information they need in an efficient, cost-effective manner, while reducing the environmental impact of printing and distributing proxy materials.

 

Your vote is very important. I hope you will be able to attend the Annual Meeting, but if you cannot, please vote your proxy as soon as you can.

 

Sincerely,

 

Douglas L. Foshee

Chairman, President and Chief Executive Officer

 

Houston, Texas

April 9, 2010

EL PASO CORPORATION

1001 Louisiana Street

Houston, Texas 77002

 

NOTICE OF 2010 ANNUAL MEETING OF STOCKHOLDERS

May 19, 2010

 

On May 19, 2010, El Paso Corporation will hold its 2010 Annual Meeting of Stockholders at the Four Seasons Hotel Houston, 1300 Lamar Street, Houston, Texas 77010. The Annual Meeting will begin at 9:00 a.m. (local/Central time).

 

Only El Paso stockholders who owned shares of our common stock at the close of business on March 24, 2010, are entitled to notice of, and can vote at, this Annual Meeting or any adjournments or postponements that may take place. At the Annual Meeting, you will be asked to:

 

 

These proposals are described in the attached proxy statement. We will also attend to any other business properly presented at the Annual Meeting.

 

By Order of the Board of Directors

 

Marguerite N. Woung-Chapman

Corporate Secretary

 

Houston, Texas

April 9, 2010

 

 

 

 

ATTENDING THE MEETING

 

If you plan to attend the Annual Meeting in person and are a stockholder of record, bring with you a form of government-issued personal identification to the Annual Meeting. If you own stock through a bank, broker or other nominee, you will need proof of ownership as of the record date to attend the Annual Meeting. If you are an authorized proxy holder, you must present the proper documentation. Please see page 4 for more information on what documents you will need for admission to the Annual Meeting. Registration will begin at 8:00 a.m. (local/Central time), and seating will be on a “first come, first served” basis. No cameras, recording equipment or other electronic devices will be allowed in the meeting room. If you do not provide photo identification or comply with the other procedures outlined above upon request, you may not be admitted to the Annual Meeting. In addition, please note parking is not provided for the Annual Meeting. There is parking generally available at the Four Seasons Hotel Houston and at other public parking garages around the Four Seasons Hotel Houston.

 

MEETING LOCATION AND DIRECTIONS

 

Four Seasons Hotel Houston

1300 Lamar Street

Houston, TX 77010

 

From Bush Intercontinental Airport (IAH)

 

Heading out of the airport, merge on to Beltway 8 West following the signs to I-45 South to the McKinney Street left exit. Continue on McKinney for about ten blocks and turn right onto La Branch Street. Go one block and turn right onto Lamar Street. Continue on Lamar Street for two blocks. The Hotel is on the left.

 

From William P. Hobby Airport (HOU)

 

Take 1-45 North to the downtown/Scott Street split. Exit onto Pease Street. Follow Pease Street to Austin Street. Turn right onto Austin Street. Turn left onto Lamar Street. The Hotel is on the left.

 

From Highway 59 South

 

Take Highway 59 North into Houston. Exit onto the Polk Street/Downtown Destinations exit. Turn left at the light and go under the freeway on Polk Street. Turn right at Austin. Go two blocks to Lamar Street and turn left. The Hotel is on the left.

 

From I-10 East

 

Take I-10 to 59 South. Exit Downtown Destinations/Hamilton Street. Follow the exit ramp to the stadium and turn right on Congress Street. Follow Congress Street three blocks and turn left on La Branch Street. Go eight blocks on La Branch Street and turn right on Lamar Street. The Hotel is on the left.

 

From I-10 West

 

Take I-10 East into Houston. Exit onto Smith Street toward downtown. Follow Smith Street nine blocks to Dallas Street. Turn left onto Dallas Street. Go eight blocks and turn left onto Austin Street. Go one block and turn left on Lamar Street. The Hotel is on the left.

 

EL PASO CORPORATION

 

PROXY STATEMENT

 

TABLE OF CONTENTS

 

EL PASO CORPORATION
1001 Louisiana Street
Houston, Texas 77002

PROXY STATEMENT

2010 ANNUAL MEETING OF STOCKHOLDERS — May 19, 2010

 

Our Board of Directors is furnishing you with this proxy statement to solicit proxies on its behalf to be voted at the 2010 Annual Meeting of Stockholders of El Paso Corporation. The Annual Meeting will be held at the Four Seasons Hotel Houston, 1300 Lamar Street, Houston, Texas 77010, on Wednesday, May 19, 2010, at 9:00 a.m. (local/Central time). The proxies also may be voted at any adjournments or postponements of the Annual Meeting.

 

In accordance with the “Notice and Access” rules adopted by the U.S. Securities and Exchange Commission (“SEC”), we have elected to provide access to our proxy materials to our stockholders by providing access to such documents on the Internet. Accordingly, on or about April 9, 2010, an Important Notice Regarding the Availability of Proxy Materials (“Notice”) will be mailed to our stockholders of record. Stockholders will have the ability to access the proxy materials on a website referred to in the Notice or request a printed set of the proxy materials be sent to them, by following the instructions on the Notice.

 

Unless stated otherwise or the context otherwise requires, all references in this proxy statement to “us,” “we,” “our,” “company” or “El Paso” are to El Paso Corporation.

 

 

Stockholders holding shares of El Paso’s common stock, par value $3.00 per share, as of the close of business on the record date, March 24, 2010, and present in person or represented by a properly executed proxy are entitled to vote at the Annual Meeting, or any adjournments or postponements of the Annual Meeting. You have one vote for each share of common stock held as of the record date, which may be voted on each proposal presented at the Annual Meeting.

 

 

The record date for the Annual Meeting is March 24, 2010. The record date was established by the Board of Directors as required by our By-laws and Delaware law. Owners of record of El Paso’s common stock at the close of business on the record date are entitled to:

 

 

 

There were 702,590,535 shares of common stock outstanding and entitled to vote at the Annual Meeting at the close of business on the record date. Common stock is the only class of stock entitled to vote.

 

 

This year, in connection with SEC rules that allow companies to furnish their proxy materials over the Internet, we have sent to most of our stockholders an Important Notice Regarding the Availability of Proxy Materials instead of a paper copy of the proxy materials. Instructions on how to access the proxy materials over the Internet or to request a paper copy may be found in the Notice. In addition, stockholders may request to receive proxy materials in printed form by mail or electronically by e-mail on an ongoing basis. A stockholder’s election to receive proxy materials by mail or e-mail will remain in effect until the stockholder terminates the election.

 

We are providing stockholders who have previously requested to receive paper copies of the proxy materials with paper copies of the proxy materials instead of a Notice. If you would like to reduce the costs incurred by us in mailing proxy materials, you can consent to receiving all future proxy statements, proxy cards and annual reports electronically via e-mail or the Internet. To sign up for electronic delivery, please follow the instructions provided in your Notice, or if you received a printed version of the proxy materials by mail, by following the instructions provided with your proxy materials and on your proxy card or voting instruction card to vote using the Internet. When prompted, indicate that you agree to receive or access stockholder communications electronically in the future.

 

 

No. The Notice will, however, provide instructions on how to vote by Internet, by requesting and returning a paper proxy card, or by submitting a ballot in person at the Annual Meeting.

 

 

You can view the proxy materials for the Annual Meeting on the Internet at www.proxyvote.com. Please have your 12 digit control number available. Your 12 digit control number can be found on your Notice. If you received a paper copy of your proxy materials, your 12 digit control number can be found on your proxy card or voting instruction form.

 

Our proxy materials are also available on our website at www.elpaso.com.

 

 

You are voting on the following:

 

 

 

The Board recommends that you vote:

 

 

 

Your vote is very important regardless of the number of shares you hold. The Board strongly encourages you to exercise your right to vote as a stockholder of the company. Please note that the rules that determine how your broker can vote your shares have changed. Brokers may no longer vote your shares on the election of directors in the absence of your specific instructions as to how to vote. Please provide your broker with voting instructions so that your vote can be counted. See question, 14, “What happens if I do not specify a choice for a proposal when returning a proxy?” below for additional information.

 

You may vote by any of the following methods:

 

 

 

No.

 

 

If you are a stockholder of record, you may revoke your proxy at any time before the voting polls are closed at the Annual Meeting, by the following methods:

 

 

If you are a street name stockholder and you vote by proxy, you may later revoke your proxy by informing the holder of record in accordance with that entity’s procedures.

 

 

You should specify your choice for each proposal on your proxy card or voting instruction form. Shares represented by proxies will be voted in accordance with the instructions given by the stockholders. If you are a registered stockholder and your proxy card is signed and returned without voting instructions, it will be voted according to the recommendation of the Board of Directors. If you are a beneficial stockholder and fail to provide voting instructions, your broker, bank or other holder of record is permitted to vote your shares on the ratification of Ernst & Young LLP as our independent registered public accounting firm. However, absent instructions from you, the record holder may not vote on the election of directors or the approval of our amended and restated 2005 Omnibus Incentive Compensation Plan. Without your voting instructions on these proposals, a “broker non-vote” will occur, which means your vote will not be counted.

 

 

The matters described in the notice of Annual Meeting are the only matters we know of which will be voted on at the Annual Meeting. If other matters are properly presented at the Annual Meeting, the persons named in the enclosed proxy card or voting instruction form will vote your shares according to their best judgment.

 

A representative of Broadridge, an independent tabulator appointed by the Board of Directors, will count the votes and act as the Inspector of Election. The Inspector of Election shall have the authority to receive, inspect, electronically tally and determine the validity of the proxies received.

 

 

To transact any business at the Annual Meeting, a “quorum” must be present. A “quorum” is a majority of the aggregate voting power of our outstanding shares of common stock that are entitled to vote and are present in person at the Annual Meeting or represented by proxy. If you submit a properly executed proxy, you will be considered part of the quorum even if you abstain from voting. Broker non-votes are treated as present for the purpose of determining a quorum.

 

 

Admission to the Annual Meeting is limited to stockholders of El Paso, persons holding validly executed proxies from stockholders who held El Paso common stock on March 24, 2010, and invited guests of El Paso.

 

If you are a stockholder of El Paso, you must bring certain documents with you in order to be admitted to the Annual Meeting. The purpose of this requirement is to help us verify that you are actually a stockholder of El Paso. Please read the following rules carefully because they specify the documents that you must bring with you to the Annual Meeting in order to be admitted. The items that you must bring with you differ depending upon whether you are a record holder or hold your stock in “street name” through your broker or other nominee.

 

Proof of ownership of El Paso stock must be shown at the door. Failure to provide adequate proof that you were a stockholder on the record date may prevent you from being admitted to the Annual Meeting.

 

If you were a record holder of El Paso common stock on March 24, 2010, then you must bring a valid government-issued personal identification (such as a driver’s license or passport).

 

If a broker, bank, trustee or other nominee was the record holder of your shares of El Paso common stock on March 24, 2010, then you must bring:

 

 

Examples of proof of ownership include the following: (1) a letter from your bank or broker stating that you owned El Paso common stock on March 24, 2010; (2) a brokerage account statement indicating that you owned El Paso common stock on March 24, 2010; or (3) the voting instruction form provided by your broker indicating that you owned El Paso common stock on March 24, 2010.

 

If you are a proxy holder for a stockholder of El Paso, then you must bring:

 

 

You may not use cameras, recording equipment or other electronic devices during the Annual Meeting.

 

 

 

 

 

Votes are counted in accordance with our By-laws and Delaware law. Shares will not be voted at the Annual Meeting if a properly executed proxy card covering those shares has not been returned and the holder does not cast votes in respect of those shares in person at the Annual Meeting.

 

 

A complete list of the registered stockholders entitled to vote at the Annual Meeting will be available to view during the Annual Meeting. You may access this list at El Paso’s offices at 1001 Louisiana Street, Houston, Texas 77002 during ordinary business hours for a period of ten days before the Annual Meeting.

 

 

We do. In addition to sending you or making available to you these materials, some of our directors and officers as well as management and non-management employees may contact you by telephone, mail, e-mail or in person. You may also be solicited by means of press releases issued by El Paso, postings on our website, www.elpaso.com, and advertisements in periodicals. None of our officers or employees will receive any extra compensation for soliciting you. We have retained Georgeson Inc. to assist us in soliciting your proxy for an estimated fee of $17,500, plus reasonable out-of-pocket expenses. Georgeson will ask brokers and other custodians and nominees whether other persons are beneficial owners of El Paso common stock. If so, we will supply them with the Notice or proxy materials for distribution to the beneficial owners. We will also reimburse banks, nominees, fiduciaries, brokers and other custodians for their costs of sending the Notice or proxy materials to the beneficial owners of El Paso common stock.

 

 

If you want to submit a proposal for possible inclusion in next year’s proxy statement, you must submit it in writing to the Corporate Secretary, El Paso Corporation, P.O. Box 2511, Houston, Texas 77252-2511, telephone (713) 420-4018 and facsimile (713) 420-4099. El Paso must receive your proposal on or before December 10, 2010. El Paso will consider only proposals meeting the requirements of the applicable rules of the SEC.

 

Additionally, under our By-laws, for a stockholder to bring any matter before the 2011 Annual Meeting that is not included in the 2011 Proxy Statement, the stockholder’s written notice must be received not less than 90 days nor more than 120 days prior to the first anniversary of the 2010 Annual Meeting. Under this criterion, stockholders must provide us with a notice of a matter to be brought before the 2011 Annual Meeting during the period from January 19, 2011 to February 18, 2011.

If the 2011 Annual Meeting is held more than 30 days before or 60 days after May 19, 2011, for a stockholder seeking to bring any matter before the 2011 Annual Meeting, the stockholder’s written notice must be received not less than 90 days nor more than 120 days before the date of the 2011 Annual Meeting or by the tenth day after we publicly announce the date of the 2011 Annual Meeting, if that would result in a later deadline.

 

 

As set forth on the Notice, you may receive a hard copy of proxy materials, including the Annual Report on Form 10-K, by following the directions set forth on the Notice. The Annual Report on Form 10-K is also available on our website at www.elpaso.com.

 

We are committed to maintaining the highest standards of corporate governance. We believe that strong corporate governance is critical to achieving our performance goals, and to maintaining the trust and confidence of investors, employees, suppliers, business partners, customers, communities in which we operate, regulatory agencies and other stakeholders.

 

Corporate Governance Guidelines.  Our Corporate Governance Guidelines, together with the Board committee charters, provide the framework for the effective governance of El Paso. The Board of Directors has adopted our Corporate Governance Guidelines to address matters including qualifications for directors, standards for independence of directors, election of directors, responsibilities of directors, mandatory retirement for directors, limitation on serving on other boards/committees, the composition and responsibility of committees, conduct and minimum frequency of Board and committee meetings, management succession, director access to management and outside advisors, director compensation, stock ownership requirements, prohibition on hedging company stock, director orientation and continuing education, annual self-evaluation of the Board, its committees and directors and our policy on poison pills. The Board of Directors recognizes that effective corporate governance is an on-going process, and the Board, either directly or through the Governance & Nominating Committee, will review and revise as necessary our Corporate Governance Guidelines annually, or more frequently if deemed necessary. Our Corporate Governance Guidelines may be found on our website at www.elpaso.com.

 

Independence of Board Members.  Our Corporate Governance Guidelines require that a majority of our Board of Directors meet the “independence” requirements of the NYSE listing requirements and at least 75 percent of our Board of Directors must not be from current management. The Board of Directors observes and complies with all criteria for independence established by the NYSE listing requirements and other governing laws and regulations. The Board of Directors makes its determination of the independence of its members based on categorical standards it has adopted to assist in its assessment of the independence of each director. The categorical standards adopted by the Board of Directors are consistent with the NYSE listing requirements and provide that a director, in order to be considered independent, must not have a direct or indirect material relationship with us or our management other than as a director. The standards of independence adopted by the Board are contained in our Corporate Governance Guidelines, which may be found on our website at www.elpaso.com.

 

The Board has affirmatively determined that each of our directors, with the exception of our Chairman, President and Chief Executive Officer (“CEO”) Douglas L. Foshee, meet the standards of independence adopted by the Board and are “independent.” In reaching this determination, the Board reviewed each director’s commercial and charitable relationships and determined that none of these relationships affect the independence of the individual directors. Thus, 12 of our 13 current directors, and 11 of our 12 director nominees, are independent. Further, our Audit, Compensation, Governance & Nominating, Finance and Health, Safety & Environmental Committees are composed entirely of independent directors.

 

Audit Committee Financial Expert.  The Audit Committee plays an important role in promoting effective accounting, financial reporting, risk management and compliance procedures and controls. All members of our Audit Committee meet the financial literacy standard required by the NYSE rules and at least one member qualifies as having accounting or related financial management expertise under the NYSE rules. In addition, the Board of

Directors has affirmatively determined that Messrs. Hix (chairman of our Audit Committee), Goldman and Shapiro are “audit committee financial experts.”

 

Board Leadership Structure.  Douglas Foshee serves as both Chairman of the Board and our President and CEO. Mr. Foshee has served as our President and CEO since September 2003 and was subsequently named Chairman in May 2009, when the Board elected to combine the positions of Chairman and CEO. The Board believes this is the most effective Board leadership structure at the present time and believes that Mr. Foshee, in his role as Chairman/CEO, has the ability to execute on both the company’s short-term and long-term strategies necessary for the challenging marketplace in which the company competes.

 

The Board believes that El Paso has in place sound counter-balancing mechanisms to ensure that the company maintains the highest standards of corporate governance and continued accountability of the CEO to the Board. These counter-balancing mechanisms include:

 

 

As stated in our Corporate Governance Guidelines, the Board does not have a policy as to whether the role of the CEO and the Chairman should be separate, or whether the Chairman should be a management or non-management director. Thus, while the Board has determined that Mr. Foshee should serve in the combined role of Chairman and CEO, the Board has the right to separate those roles if in the future it determines that such a separation would be in the best interests of the company and its stockholders.

Below is a summary of the respective responsibilities of the Chairman/CEO and the Lead Director.

 

 

 

Board’s Role in Risk Oversight.  The Board has oversight responsibility with regard to assessment of the major risks inherent in the business of the company and measures to address and mitigate such risks. The Board is actively involved in overseeing risk management and reviews, at least annually, the company’s system of enterprise risk management.

 

While the Board is ultimately responsible for risk oversight at our company, the committees of the Board assist the Board in fulfilling its oversight responsibilities by considering the risks within their respective areas of expertise. For example, the Audit Committee assists the Board in fulfilling its risk oversight responsibilities relating to the company’s risk management policies and procedures. As part of this process, the Audit Committee meets periodically with management to review, discuss and provide oversight with respect to the processes and controls established by the company to assess, monitor, manage and mitigate the company’s significant risk exposures (whether financial, operating or otherwise). In providing such oversight, the Audit Committee may also discuss such processes and controls with the company’s internal and independent auditors. The Finance Committee assists the Board in fulfilling its risk oversight responsibilities relating to financial risks by reviewing with management on an annual basis the financial risk management policies, strategies and positions of the company. The Compensation Committee likewise assists the Board in fulfilling its risk oversight responsibilities with respect to the management of risks associated with compensation-program design by reviewing whether there are risks arising from our compensation programs and practices that are reasonably likely to have a material adverse effect on the company. The Governance & Nominating Committee assists the Board in fulfilling its risk oversight responsibilities relating to the management of risks associated with corporate governance, board organization and membership, and policies governing conflicts of interest. Finally, the Health, Safety & Environmental Committee assists the Board in fulfilling its risk oversight responsibilities relating to health, safety and environmental-related matters, including environmental regulations, health and safety initiatives and accountabilities, and crisis response.

 

As mentioned above, the Board’s role in risk management is one of oversight. Company management is responsible for day-to-day management of risks the company faces. The company has established a comprehensive enterprise risk management program overseen by a Risk Oversight Committee (“ROC”). The ROC is not a committee of the Board and is comprised of senior management, including our SVP, Strategy and Enterprise Business Development, our CFO, our General Counsel, our Controller, as well as the head of each of the following functions: Pipeline Controller, Corporate Treasury, Business Excellence, Internal Audit and Financial Controls, Strategy and Market Analysis, and Enterprise Risk Management and Portfolio Analysis. The ROC ensures that the company identifies all potential material risks and implements appropriate mitigation measures. The ROC has direct access to company leadership, coordinates with internal audit and financial controls and presents an annual risk assessment to the Audit Committee and the full Board.

 

Communications with Lead Director.  Interested parties may communicate directly with Mr. Talbert by writing to Lead Director of the Board, c/o Corporate Secretary, El Paso Corporation, P.O. Box 2511, Houston, Texas 77252-2511, facsimile (713) 420-4099.

Executive Sessions of the Board of Directors.  The Board of Directors holds regular executive sessions in which non-management Board members meet without any members of management present. Currently, Mr. Talbert presides over the executive sessions of the Board. During 2009, non-management members of the Board met in executive session five times and several Committees of the Board met in executive session without members of management present. The purpose of these executive sessions is to promote open and candid discussion among the non-management directors.

 

Committees of the Board of Directors.  The Board of Directors has adopted charters for the Audit Committee, the Compensation Committee and the Governance & Nominating Committee that comply with the corporate governance rules adopted by the SEC pursuant to the Sarbanes-Oxley Act of 2002 and the NYSE listing standards. The Audit Committee, the Compensation Committee, the Governance & Nominating Committee, the Finance Committee and the Health, Safety & Environmental Committee charters may be found on our website at www.elpaso.com.

 

Board/Committee/Director Evaluations.  Each year the Board of Directors and each Board committee participates in a self-assessment or evaluation of the effectiveness of the Board and its committees. At least once every three years, the Board conducts an evaluation of each individual director. During 2009, each director participated in a self-assessment of the Board and its committees and each director was asked to evaluate each of the other directors. The Board, the respective committees, and individual directors as the case may be, discussed the results of these assessments and, as necessary, any action resulting from these assessments.

 

Management Succession.  The Board periodically reviews with the CEO the management succession and development plan which includes the succession of the CEO in the event of an emergency or retirement, as well as the succession of other employees critical to our company’s continued operations and success.

 

Director Education.  We encourage and facilitate director participation in seminars and conferences and other opportunities for continuing director education. All of our directors are required to attend, at least once every two years, a continuing educational program, seminar or conference designed for board members. In addition, each of our directors is a member of the National Association of Corporate Directors. Each of our directors has met the continuing director education requirements specified above.

 

Stock Ownership Requirements.  Our Board of Directors is committed to director and senior management stock ownership. Directors are required to own shares of our common stock with a value of five times the annual cash retainer paid to non-employee directors within a five-year time period following initial election to the Board. The Board also requires that our CEO own shares of our common stock with a value of at least five times his or her annual base salary, and that other executive officers own shares of our common stock with a value of at least two times their base salary within a five-year time period following initial election to that position. Each share of common stock owned by a director or executive officer is deemed to have a value equal to the greater of (i) the trading price of our common stock as of the date the applicable share was acquired by the director or executive officer or (ii) the trading price of the share of common stock as of the measurement date. Shares of restricted stock, deferred shares and shares in our retirement savings plan or other similar plans are counted towards meeting these requirements. Additionally, a director or executive officer is deemed to own shares of common stock with a value equal to the in-the-money value, if any, of any vested or unvested stock option, stock appreciation right, or similar equity-linked grant that is held by the director or executive officer on any given measurement date. Each of our executive officers and non-employee directors, with the exceptions of Messrs. Crane and Probert who joined the Board in December 2009, met the stock ownership requirements as of December 31, 2009. Messrs. Crane and Probert will be expected to be in compliance with the stock ownership requirements within five years from their appointment.

 

Voting Standard to Elect Directors.  Our By-laws provide for the election of directors by the majority vote of stockholders in uncontested elections. This means the number of votes cast for a nominee’s election must exceed the number of votes cast against such nominee’s election in order for him or her to be elected to the Board of Directors. Our By-laws provide for the election of directors by the plurality of votes cast in contested elections. This means that in elections where the number of nominees exceeds the number of directors to be elected, the nominees who receive the highest number of votes will be elected to the Board of Directors. In addition, our Corporate Governance Guidelines provide that the Board will nominate for election or appoint to Board vacancies only candidates who

irrevocably agree to resign if they fail to receive the required majority vote in uncontested elections. In the event a director fails to receive a majority of votes cast and the Board accepts the resignation tendered, then that director would cease to be a director of El Paso. In accordance with our Corporate Governance Guidelines, our By-laws require as a part of a stockholder’s written notice in connection with the nomination of a director, a statement whether the nominated individual intends to tender an irrevocable resignation effective upon such person’s failure to receive the required vote for re-election at the next meeting at which such person would face re-election. Each of our directors has submitted an irrevocable letter of resignation that becomes effective in the event he or she does not receive a majority of votes cast for his or her election.

 

Policy on Poison Pill Plans.  Our Corporate Governance Guidelines include a policy on poison pills, or stockholder rights plans. We do not currently have in place a stockholders rights plan, and the Board currently has no plans to adopt such a plan. However, if the Board is presented with a set of facts and circumstances which leads it to conclude that adopting a stockholder rights plan would be in the best interests of stockholders, the Board will seek prior stockholder approval unless the Board, in exercising its fiduciary responsibilities under the circumstances, determines by vote of a majority of the independent directors that such submission would not be in the best interests of our stockholders in the circumstances. If the Board were ever to adopt a stockholder rights plan without prior stockholder approval, the Board would present such plan to the stockholders for ratification within one year or cause it to expire within one year, without being renewed or replaced. Further, if the Board adopts a stockholder rights plan and our stockholders do not approve such plan, it will terminate.

 

Code of Ethics.  We have adopted a code of ethics, referred to as our “Code of Business Conduct,” that applies to all of our directors and employees, including our CEO, Chief Financial Officer (“CFO”) and senior financial and accounting officers. Our Code of Business Conduct is a value-based code that is built on our five core values: stewardship, integrity, safety, accountability and excellence. In addition to other matters, our Code of Business Conduct establishes policies to deter wrongdoing and to promote honest and ethical conduct, including ethical handling of actual or apparent conflicts of interest, compliance with applicable laws, rules and regulations, full, fair, accurate, timely and understandable disclosure in public communications and prompt internal reporting of violations of our Code of Business Conduct. We also have an Ethics & Compliance Office and Ethics & Compliance Committee, which is composed of members of senior management, that administers our ethics and compliance program and reports to the Audit Committee of our Board of Directors. A copy of our Code of Business Conduct is available on our website at www.elpaso.com. We will post on our internet website all waivers to or amendments of our Code of Business Conduct, which are required to be disclosed by applicable law and the NYSE listing standards. Currently, we do not have nor do we anticipate any waivers of or amendments to our Code of Business Conduct. We believe our Code of Business Conduct exceeds the requirements set forth in the applicable SEC regulations and the corporate governance rules of the NYSE.

 

Transactions with Related Persons.  Our Board has adopted a written related person transactions policy. The policy defines a related person transaction as one in which El Paso is a participant, the amount involved equals or exceeds $120,000, and a related person has a direct or indirect material interest. The policy defines a related person as any executive officer, director or director nominee, person known to be the beneficial owner of 5 percent or more of El Paso’s voting securities, immediate family member of any of the foregoing persons, or firm or corporation in which any of the foregoing persons is employed as an officer, a partner or greater than 10 percent owner.

 

The policy includes procedures to review and approve, as necessary, any related person transactions prior to the transaction being entered into, or ratify any related person transactions that have not been previously approved. Other than certain pre-approved transactions specifically set forth in the policy, any related person transaction involving executive officers or their immediate family members other than the CEO or the general counsel are referred to the CEO and general counsel for approval. If the CEO and the general counsel cannot agree on the approval or non-approval of the related person transaction, the transaction will be referred to the Governance & Nominating Committee for approval. Any related person transaction involving the general counsel and his or her immediate family members will be referred to the CEO for approval. Any related person transaction involving 5 percent stockholders, directors, director nominees or the CEO and their immediate family members will be referred to the Governance & Nominating Committee for approval. All determinations made by the CEO and the general counsel are reported to the Governance & Nominating Committee at its next regularly scheduled meeting.

In determining whether to approve a related person transaction, the CEO, general counsel or Governance & Nominating Committee will consider whether:

 

 

The policy for approval of related person transactions can be found on our website at www.elpaso.com.

 

During 2009, our pipeline business unit made payments to certain subsidiaries of NRG Energy, Inc. in the amount of $263,217. Our director David W. Crane, who joined El Paso’s Board of Directors in December 2009, currently serves as President and Chief Executive Officer of NRG Energy. Due to the relatively small amounts involved, the purchases were not done on a competitive bid basis and primarily relate to services provided prior to Mr. Crane’s appointment as a member of El Paso’s Board.

 

Also during 2009, our exploration and production and pipeline business units made payments to certain subsidiaries of Halliburton Company in the amount of $110,001,281. Our director Timothy J. Probert, who likewise joined El Paso’s Board of Directors in December 2009, currently serves as President of Halliburton’s Global Business Lines. The majority of these payments were made by our exploration and production business unit on a competitive bid basis prior to Mr. Probert’s appointment as a member of El Paso’s Board and relate to services and supplies provided by Halliburton in relation to our drilling operations.

 

Special Stockholder Meetings.  Our By-laws permit stockholders who own at least 25 percent of our outstanding shares to call a special meeting of stockholders.

 

Web Access.  We provide access through our website to current information relating to corporate governance, including a copy of each of the Board’s standing committee charters, our Corporate Governance Guidelines, our Code of Business Conduct, our Restated Certificate of Incorporation and By-laws, our policy for approval of related person transactions, biographical information concerning each director, and other matters regarding our corporate governance principles. We also provide access through our website to all filings submitted by El Paso to the SEC. Our website is www.elpaso.com, and access to this information is free of any charge to the user (except for any internet provider or telephone charges). Information contained on our website is not part of this proxy statement.

 

Process for Communication with the Board.  Our Board has established a process for interested parties to communicate with the Board. Such communications should be in writing, addressed to the Board or an individual director, c/o Ms. Marguerite N. Woung-Chapman, Corporate Secretary, El Paso Corporation, P.O. Box 2511, Houston, Texas 77252-2511. The Corporate Secretary will forward all communications to the addressee.

 

Director Attendance at Annual Meeting.  The Board encourages all director nominees standing for election to attend the Annual Meeting in accordance with our Corporate Governance Guidelines. All incumbent directors who were elected at our 2009 Annual Meeting attended our 2009 Annual Meeting of Stockholders, with the exceptions of Messrs. Braniff and Goldman. Mr. Braniff was unable to attend due to travel restriction advisories put in place for travel in and out of Mexico City in light of the H1N1 influenza outbreak at that time, and Mr. Goldman was unable to attend due to a long-standing prior commitment.

 

The Board of Directors held nine meetings during 2009. Each director attended at least 75 percent of his or her board and committee meetings.

 

The Board of Directors has established five standing committees to assist the Board in carrying out its duties: the Audit Committee, the Compensation Committee, the Governance & Nominating Committee, the Finance Committee and the Health, Safety & Environmental Committee. We describe the committees, their membership during 2009 and their principal responsibilities below.

 

 

Audit Committee

 

The Audit Committee held nine meetings during 2009. The Audit Committee currently consists of four non-employee directors, each of whom the Board has determined is “independent” as such term is defined in Section 10A of the Exchange Act, the SEC rules thereunder, the NYSE listing standards and our Corporate Governance Guidelines. The Board of Directors has determined that each member of the Audit Committee possesses the necessary level of financial literacy required to enable him or her to serve effectively as an Audit Committee member. No Audit Committee member serves on more than three audit committees of public companies, including our Audit Committee. We maintain an Internal Audit Department to provide management and the Audit Committee with ongoing assessments of our risk management processes and system of internal controls. In addition, we maintain a Financial Controls Group to manage our internal control over financial reporting compliance activities. The Audit Committee’s duties, which are discussed in detail in its charter, include, among other duties:

 

 

 

 

 

Our principal independent auditor, Ernst & Young LLP, reports directly to the Audit Committee. In addition, the Audit Committee provides an open avenue of communication between the internal auditors, the independent auditor and the Board. Interested parties may contact the Audit Committee members by following the process outlined in the Corporate Governance section of this proxy statement.

 

The Audit Committee Charter can be found on our website at www.elpaso.com.

 

Policy for Approval of Audit and Non-Audit Services

 

During 2009, the Audit Committee approved all the types of audit and permitted non-audit services which our independent auditors were to perform during the year, as required under applicable law, and the cap on fees for each of these categories. The Audit Committee’s current practice is to consider for pre-approval annually all categories of audit and permitted non-audit services proposed to be provided by our independent auditors for a fiscal year. Pre-approval of tax services requires that the principal independent auditor provide the Audit Committee with written documentation of the scope and fee structure of the proposed tax services and discuss with the Audit Committee the potential effects, if any, of providing such services on the independent auditor’s independence. The Audit Committee will also consider for pre-approval annually the maximum amount of fees and the manner in which the fees are determined for each type of pre-approved audit and non-audit services proposed to be provided by our independent auditors for the fiscal year. The Audit Committee must separately pre-approve any service that is not included in the approved list of services or any proposed services exceeding pre-approved cost levels. The Audit Committee has delegated pre-approval authority to the Chairman of the Audit Committee for services that need to be addressed between Audit Committee meetings. The Audit Committee is then informed of these pre-approval decisions, if any, at the next meeting of the Audit Committee. See “Principal Accountant Fees and Services” on page 87 of this proxy statement for the aggregate fees paid to Ernst & Young LLP for the years ended December 31, 2009 and 2008.

 

Compensation Committee

 

The Compensation Committee held four meetings during 2009. The Compensation Committee currently consists of four non-employee directors, each of whom the Board has determined is “independent” under (a) the NYSE listing standards, (b) the non-employee director standards of Rule 16b-3 of the Exchange Act, (c) the outside director requirements of Section 162(m) of the Internal Revenue Code (the “Code”) and (d) our Corporate Governance Guidelines.

 

The Compensation Committee’s functions, which are discussed in detail in its charter, include, among other functions, responsibility to:

 

 

 

The Compensation Committee Charter can be found on our website at www.elpaso.com.

 

At the beginning of each calendar year, the Compensation Committee approves our corporate and business unit financial and non-financial performance goals for our annual incentive compensation arrangements. The Compensation Committee also establishes the annual base salaries and minimum, target, and maximum annual cash incentive bonus levels for each of the executive officers. After the financial and non-financial results are available for the year, the Compensation Committee determines the appropriate achievement level of the performance goals for purposes of determining annual cash incentive bonuses and long-term incentive award grants. The Compensation Committee also takes into account the executives’ individual performances to determine the amount of each executive’s annual cash incentive bonus and the value of his or her long-term incentive awards. The Compensation Committee also considers recommendations from our CEO regarding the compensation levels for those executives reporting directly to him. During the year, the Compensation Committee generally meets at least four times and reviews, among other things, our compensation programs and recommended changes, our peer group, proxy and survey benchmarking data, internal pay disparity trends, wealth accumulation, total compensation profiles for our CEO and other executive officers, CEO accountabilities and the general compensation landscape.

 

See the Compensation Discussion and Analysis beginning on page 36 of this proxy statement for a further discussion of our procedures for determining and establishing executive compensation.

 

Compensation Consultant Payments

 

The Compensation Committee has retained Deloitte Consulting LLP (“Deloitte”) as its independent compensation consultant. The compensation consultant is directly accountable to the Compensation Committee and the committee reviews all fees paid to the consultant for executive compensation advice. In addition, the Compensation Committee reviews, on an annual basis, the performance of the compensation consultant and provides the consultant with direct feedback. During 2009, we paid Deloitte $254,161 in fees for compensation consulting services provided to the Committee.

 

Certain Deloitte affiliates are also engaged by El Paso to provide certain non-executive compensation related services. These affiliates were retained by management in the normal course of business. During 2009, we paid Deloitte affiliates $5,180,946 in fees for such non-executive compensation related services, which primarily related to system integration and process optimization consulting and implementation, as well as limited tax and tax-related services. The Compensation Committee reviews on an annual basis the payments made to the Deloitte affiliates for non-executive compensation related services, as well as the specific services the Deloitte affiliates performed for El Paso. During 2009, the Compensation Committee discussed the payments and services with its independent compensation consultant and confirmed that the consultant’s compensation is not tied to the level of other services provided by Deloitte to El Paso. Based on its review, the Compensation Committee believes that each of these relationships is separate and independent and does not impair Deloitte’s ability to provide independent compensation advice to the Committee.

Compensation Committee Interlocks and Insider Participation

 

During 2009, the following independent directors served on our Compensation Committee: Messrs. Shapiro, Vagt, Whitmire and Ms. McClean. The Compensation Committee has neither interlocks nor insider participation.

 

Governance & Nominating Committee

 

The Governance & Nominating Committee met five times during 2009. The Governance & Nominating Committee currently consists of five non-employee directors, each of whom the Board has determined is “independent” as such term is defined in the NYSE listing standards and our Corporate Governance Guidelines. The Board has delegated to the Governance & Nominating Committee its oversight responsibilities relating to corporate governance and the establishment of criteria for Board selection (including an initial determination regarding director independence).

 

The Governance & Nominating Committee’s functions, which are discussed in detail in its charter, include, among other functions, responsibility to:

 

 

The Governance & Nominating Committee Charter can be found on our website at www.elpaso.com.

 

Director Nomination Process and Board Diversity Considerations

 

The Governance & Nominating Committee will review any nominations from stockholders, other Board members, third party search firms, executives and other such persons. At a minimum, we believe our directors, whether nominated by stockholders or by the Board, should possess the education, experience and skills necessary to assist and provide oversight to our management in the operation of our businesses, as set forth in our Corporate Governance Guidelines. Among other matters, the Board considers education; business, governmental and civic experience; leadership; diversity; communication, interpersonal and other required skills; independence; and other matters relevant to the Board’s objectives. We have a comprehensive process in place to identify and evaluate candidates to be nominated for director. The Governance & Nominating Committee identifies the needs of the Board by asking each director to identify particular skills that will strengthen the Board, and that are in conformity with the goals identified in our Corporate Governance Guidelines. A third party search firm is then retained to help identify, assess qualifications and screen specific candidates. The Governance & Nominating Committee reviews

the qualifications of the candidates presented and interviews the most qualified. The Governance & Nominating Committee recommends potential nominees to the full Board, which interviews the candidates and then makes nominations for election at the Annual Meeting. All of the nominees for director other than Messrs. Crane and Probert were elected by our stockholders last year. Messrs. Crane and Probert were each reviewed as a potential director nominee by our third party search firm, recommended for appointment by the Governance & Nominating Committee and appointed by the Board during 2009. Each director nominee who appears on the ballot has been recommended by the Governance & Nominating Committee to the full Board.

 

On February 24, 2010, the Board, upon the recommendation of the Governance & Nominating Committee, amended our Corporate Governance Guidelines to document our commitment to diversity as a consideration in identifying director nominees. In addition to the criteria set forth above, the Board will seek to achieve a mix of directors that represents a diversity of background and experience, including with respect to age, gender and race. In conducting searches for new directors, the Governance & Nominating Committee will take every reasonable step to ensure that diverse candidates are in the pool from which nominees are chosen. The Governance & Nominating Committee will review this policy annually in connection with its review and recommendation to the Board of director nominees for the next annual meeting. The Board’s current composition reflects diversity in business and professional experience, skills, race and gender.

 

Stockholders seeking to nominate persons for election as directors at the 2011 Annual Meeting must submit, in writing, a timely notice complying with our By-laws to Ms. Marguerite N. Woung-Chapman, Corporate Secretary, El Paso Corporation, P.O. Box 2511, Houston, Texas 77252-2511, telephone (713) 420-4018 and facsimile (713) 420-4099. To be timely for a stockholder seeking to bring any matter before the 2011 Annual Meeting, the stockholder’s written notice must be received not less than 90 days nor more than 120 days prior to the first anniversary of the 2010 Annual Meeting. Under these criteria, stockholders must provide us with notice of nominations sought to be made at the 2011 Annual Meeting during the period from January 19, 2011 to February 18, 2011.

 

If the 2011 Annual Meeting is held more than 30 days before or 60 days after May 19, 2011, for a stockholder seeking to bring any matter before the 2011 Annual Meeting, the stockholder’s written notice must be received not less than 90 days nor more than 120 days before the date of the 2011 Annual Meeting or by the tenth day after we publicly announce the date of the 2011 Annual Meeting, if that would result in a later deadline.

 

Finance Committee

 

The Finance Committee met seven times during 2009. The Finance Committee currently consists of four non-employee directors, each of whom the Board has determined is “independent” under the NYSE listing standards and in accordance with our Corporate Governance Guidelines. The Finance Committee assists the Board in fulfilling its oversight responsibilities by reviewing and recommending appropriate action with respect to our capital structure, source of funds, payment of dividends, liquidity and financial position.

 

The Finance Committee’s functions, which are discussed in detail in its charter, include, among other functions, responsibility to:

 

 

The Finance Committee Charter can be found on our website at www.elpaso.com.

 

Health, Safety & Environmental Committee

 

The Health, Safety & Environmental Committee met four times during 2009. The Health, Safety & Environmental Committee currently consists of five non-employee directors, each of whom the Board has determined is “independent” under the NYSE listing standards and our Corporate Governance Guidelines. The Health, Safety & Environmental Committee assists the Board in fulfilling its oversight responsibilities with respect to the Board’s and our continuing commitment to improving the environment, ensuring the safety of our employees and ensuring that our businesses and facilities are operated and maintained in a safe and environmentally sound manner.

 

The Health, Safety & Environmental Committee’s functions, which are discussed in detail in its charter, include, among other functions, responsibility to:

 

 

The Health, Safety & Environmental Committee Charter can be found on our website at www.elpaso.com.

 

 

Each member of the Audit Committee is “independent,” as that term is defined under Section 10A of the Exchange Act, the SEC rules, the NYSE listing standards and our Corporate Governance Guidelines. Each member of the Audit Committee is also financially literate, as that qualification is interpreted by our Board of Directors in its business judgment. Further, each of Messrs. Goldman, Hix and Shapiro qualifies and is designated as an “audit committee financial expert,” serving on the Audit Committee as such term is defined in rules adopted by the SEC and interpreted by our Board. The Audit Committee currently consists of four members: Messrs. Braniff, Goldman, Hix and Shapiro. During 2009, the Audit Committee met nine times and discussed, among other things, the financial information contained in each quarterly earnings announcement and the Form 10-K and Forms 10-Q with management, our internal auditors and our independent auditor prior to release. In compliance with the requirements of the New York Stock Exchange, we have adopted a charter which may be found on El Paso’s website at www.elpaso.com.

 

Audit Committee Statement

 

El Paso’s management is responsible for El Paso’s financial reporting process, internal audit process, the effectiveness of disclosure controls and procedures and internal control over financial reporting, and the preparation of El Paso’s financial statements. El Paso’s independent registered public accounting firm is responsible for auditing those financial statements and the effectiveness of internal control over financial reporting. We monitor and review these processes but do not conduct auditing or accounting reviews or procedures. We meet with management and the independent registered public accounting firm to discuss the financial statements, and rely on El Paso’s management’s representation that the financial statements have been prepared in conformity with U.S. generally accepted accounting principles, and on the representations of El Paso’s independent registered public accounting firm included in their report on El Paso’s financial statements.

 

In carrying out our responsibilities as set forth in our charter, we:

 

 

 

Based on the review and discussions described above, we have recommended to the Board of Directors that the audited financial statements be included in El Paso’s Annual Report on Form 10-K for the 2009 fiscal year for filing with the SEC.

 

Current Members of the Audit Committee of the Board of Directors

 

 

The Board.  You will have the opportunity to elect our entire Board of Directors, consisting of 12 members, at the Annual Meeting. Mr. Dunlap will not stand for re-election and will be retiring from the Board as of the close of the Annual Meeting pursuant to our mandatory retirement age policy. All of our other incumbent directors are standing for re-election. All directors are elected annually and serve a one-year term or until his or her successor has been duly elected and shall qualify.

 

Nominations.  At the Annual Meeting, we will nominate the 12 persons named in this proxy statement as directors.

 

OUR BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THE ELECTION OF EACH OF THE NOMINEES NAMED BELOW.

 

General Information about the Nominees for Election, as of March 30, 2010.  The biographies of each of the nominees below contain information regarding the person’s service as a director, business experience, director positions held currently or at any time during the last five years, information regarding involvement in certain legal or administrative proceedings, if applicable, and the experiences, qualifications, attributes or skills that caused the Governance & Nominating Committee and the Board to determine that the person should serve as a director for the company. Each of the nominees has agreed to be named in this proxy statement and to serve as a director if elected.

 

 

Mr. Braniff has served as a director since 1997. Mr. Braniff has been Chairman of Capital I Ltd. Partners and a partner in Alpha Patrimonial S.A. de C.V. in Mexico City since August 2005. Mr. Braniff was a business consultant from January 2004 to August 2005. Mr. Braniff served Grupo Financíero BBVA Bancomer as Vice Chairman from October 1999 to January 2004, as Deputy Chief Executive Officer of Retail Banking from September 1994 to October 1999 and as Executive Vice President of Capital Investments, Mortgage Banking and Tourism from December 1991 to September 1994. Mr. Braniff is currently a member of the board of directors of Ixe Grupo Financiero S.A. de C.V. Mr. Braniff previously served as a director of Fomento Economico Mexicano (FEMSA, NYSE: FMX) from 1988 to 2003, as a director of Coca-Cola FEMSA (NYSE: KOF) from 1991 to 2003 and as a director of Grupo Financiero BBVA Bancomer from 1991 to 2003. He also served as an alternate director of Grupo Industrial Maseca, S.A.B. de C.V. from 2007 to 2009, and as an alternate director of Gruma, S.A.B. de C.V. from 2007 to 2009.

 

Mr. Braniff brings many years of global business experience to our Board. As highlighted by his various roles at Grupo Financiero BBVA Bancomer, Mr. Braniff has substantial knowledge and experience with complex financial transactions, capital management, credit and financial risk management. As our sole Hispanic board member, Mr. Braniff also provides a diversity of perspective that is welcomed by our Board.

 

 

Mr. Crane has served as a director since December 2009. Mr. Crane has been President, Chief Executive Officer and a director of NRG Energy, Inc. since December 2003. Prior to joining NRG, Mr. Crane served as Chief Executive Officer of International Power plc, a UK-domiciled wholesale power generation company, from January 2003 to November 2003, and as Chief Operating Officer from March 2000 through December 2002. Mr. Crane was Senior Vice President — Global Power New York at Lehman Brothers Inc. from January 1999 to February 2000, and was Senior Vice President — Global Power Group, Asia (Hong Kong) at Lehman Brothers from June 1996 to January 1999.

 

Mr. Crane’s proven success as the sitting chief executive officer of a Fortune 500 company demonstrates his leadership capability and extensive knowledge of the complex financial and operational issues that public companies face. Mr. Crane’s executive management experience provides the Board with valuable insight on public company governance practices, as well as insight from a customer perspective. In addition, Mr. Crane’s background provides risk management experience that is important to our Board.

 

 

Mr. Foshee has been Chairman of the Board of Directors of El Paso Corporation since May 2009 and President, Chief Executive Officer and a director of El Paso since September 2003. Prior to joining El Paso, Mr. Foshee served as Executive Vice President and Chief Operating Officer of Halliburton Company having joined that company in 2001 as Executive Vice President and Chief Financial Officer. Several subsidiaries of Halliburton, including DII Industries and Kellogg Brown & Root, commenced prepackaged Chapter 11 proceedings to discharge current and future asbestos and silica personal injury claims in December 2003 and an order confirming a plan of reorganization became final effective December 31, 2004. Prior to assuming his position at Halliburton, Mr. Foshee served as President, Chief Executive Officer and Chairman of the Board of Nuevo Energy Company and Chief Executive Officer and Chief Operating Officer of Torch Energy Advisors Inc. Mr. Foshee presently serves as a director of Cameron International Corporation, and from January 2009 until February 2010 served as a trustee of AIG Credit Facility Trust. Mr. Foshee serves as Chairman of the Federal Reserve Bank of Dallas, Houston Branch. Mr. Foshee also serves on the Board of Trustees of Rice University and serves as a member of the Council of Overseers for the Jesse H. Jones Graduate School of Management. He is a member of various other civic and community organizations. Mr. Foshee also serves on the board of directors of El Paso Pipeline GP Company, L.L.C.

 

As President and Chief Executive Officer of El Paso Corporation, Mr. Foshee is the only officer of the company to sit on our Board. With over 27 years of energy industry experience, Mr. Foshee has a comprehensive knowledge and understanding of our business, provides superb leadership to our management team, and provides the Board with essential insight and guidance from an inside perspective on the day-to-day operations of our company.

 

 

Mr. Goldman has served as a director since 2003. Mr. Goldman’s primary occupation has been as a financial consultant since October 2002. Prior to that time, Mr. Goldman served as Senior Vice President, Finance and Chief Financial Officer of Conoco, Inc. from 1998 to 2002 and Vice President, Finance from 1991 to 1998. For more than five years prior to that date, Mr. Goldman held various executive positions with Conoco, Inc. and E.I. Du Pont de Nemours & Co., Inc. From 2002 until July 2008, Mr. Goldman served as the elected Vice President, Finance of the World Petroleum Council. He is a member of the Financial Executives Institute and the Outside Advisory Council of Global Infrastructure Partners. Mr. Goldman serves on the board of trustees of Kenyon College, Gambier, Ohio. Mr. Goldman currently serves on the board of directors of McDermott International, Inc., Parker Drilling Company and Tesoro Corporation.

 

As former chief financial officer of a large, publicly-traded energy company, Mr. Goldman brings significant financial and operations experience to our Board. Mr. Goldman has extensive knowledge of the energy industry, financial risk management and an understanding of capital markets. His experience on the board of directors of other publicly-traded energy companies further augments his knowledge and experience.

 

 

Mr. Hall has served as a director since 2001. Mr. Hall has been engaged in the private practice of law since February 2010. He previously served as Chief Administrative Officer of the City of Houston from January 2004 to February 2010. Mr. Hall served as the City Attorney for the City of Houston from March 1998 to January 2004. Prior to March 1998, Mr. Hall was a partner in the Houston law firm of Jackson Walker, LLP. Mr. Hall is Chairman of the Houston Endowment Inc. and Chairman of the Boulé Foundation.

 

Mr. Hall’s extensive experience in both the public and private sectors, and his affiliations with many different business and philanthropic organizations provides our Board with important insight from many perspectives. As evidenced by his years of service on our Governance & Nominating Committee, including as its former chairman, Mr. Hall’s 29 years of legal experience provides the Board with valuable guidance on governance issues and initiatives. As an African American, Mr. Hall also brings a diversity of experience and perspective that is welcomed by our Board.

 

 

Mr. Hix has served as a director since 2004. Mr. Hix has been a business consultant since January 2003. He served as Senior Vice President of Finance and Chief Financial Officer of Cooper Cameron Corporation from January 1995 to January 2003. From September 1993 to April 1995, Mr. Hix served as Senior Vice President of Finance, Treasurer and Chief Financial Officer of The Western Company of North America. Mr. Hix serves on the board of directors of Health Care Service Corporation and Rowan Companies, Inc. Mr. Hix previously served as a member of the board of directors of The Offshore Drilling Company from May 2004 to July 2007.

 

Mr. Hix brings many years of financial business experience to our Board. As a former chief financial officer of a large, publicly-traded energy company, Mr. Hix has significant expertise in finance and accounting, as well as experience in mergers and acquisitions. Mr. Hix also provides the Board with valuable public company operating and management experience.

 

 

Ms. McClean has served as a director since 2006. Ms. McClean has been a business consultant since 2002. Ms. McClean served as Managing Director and Senior Advisor of J.P. Morgan Chase & Co.’s energy/power investment banking group from 2000 to 2002. From 1991 until 2000, Ms. McClean served as Managing Director and headed the investment banking and global energy group at J.P.Morgan & Co. Prior to 1991, Ms. McClean held various positions with J.P. Morgan & Co. Ms. McClean served as a member of the board of directors of Unocal Corporation until 2005 and is currently on the board of directors of GrafTech International Ltd. (formerly UCAR International, Inc.).

 

Ms. McClean brings to the Board extensive experience in investment banking and capital markets, as highlighted by her years of service at J.P. Morgan Chase & Co. Her current and prior service on the boards of other publicly-traded companies further augments her range of knowledge, providing valuable experience from which she can draw while serving on our Board. As our only female director, Ms. McClean also provides a diversity of perspective that is important to our Board.

 

 

Mr. Probert has served as a director since December 2009. Mr. Probert has been President of Halliburton Company’s Global Business Lines and Corporate Development since January 2010. Mr. Probert previously served as President of Halliburton Company’s Drilling and Evaluation Division and Corporate Development from March 2009 to December 2009. Mr. Probert served as Executive Vice President of Strategy and Corporate Development for Halliburton from January 2008 to March 2009, as Senior Vice President, Drilling and Evaluation from July 2007 to December 2007, and as Senior Vice President, Drilling and Evaluation and Digital Solutions from May 2006 to July 2007. He also served as Vice President, Drilling and Formation Evaluation for Halliburton from January 2003 to May 2006. Mr. Probert is a member of Halliburton’s Executive Committee and is also the company’s Chief Health, Safety and Environment Officer. Before joining Halliburton in 2003, Mr. Probert was President and Chief Executive Officer of Input/Output Inc. He also served as President of Baker Hughes INTEQ, Eastman Teleco and Milpark Drilling Fluids and was Vice President of Marketing for Baker Sand Control.

 

With his years of experience as an officer at Halliburton, Mr. Probert brings substantial management and operations expertise to our Board. Mr. Probert has a comprehensive background in oilfield service and equipment, as well as technical expertise in the upstream oil sector. In addition, Mr. Probert’s background in geology and experience as the Chief Health, Safety and Environment Officer for Halliburton provides our Board with valuable experience in health, safety and environmental-related issues.

 

 

Mr. Shapiro has served as a director since 2006. Mr. Shapiro served as Executive Vice President and Chief Financial Officer of Burlington Resources Inc. from October 2000 to April 2006. During his five-year tenure at Burlington Resources, Inc., Mr. Shapiro served as a member of the Board of Directors and the office of the Chairman. Prior to that time, he served as Senior Vice President, Chief Financial Officer and Director at Vastar Resources, Inc. and spent 16 years in various roles of increasing responsibility with Atlantic Richfield Company. Mr. Shapiro recently served as Chairman of the Executive Committee of the American Petroleum Institute’s General Committee on Finance and is a trustee of the Houston Museum of Natural Science. Mr. Shapiro is a member of the board of directors of Barrick Gold Corporation.

 

Mr. Shapiro brings extensive industry experience to our Board. As the former chief financial officer of Burlington Resources, Mr. Shapiro has significant operating experience and knowledge of the complex financial issues companies face. He has extensive knowledge of the energy industry and an understanding of capital markets. Mr. Shapiro also provides our Board with valuable strategic insight. His experience on the board of directors of other publicly-traded companies further augments his knowledge and experience.

 

 

Mr. Talbert has been Lead Director of the Board of Directors of El Paso since May 2009 and a director since 2003. Mr. Talbert served as Executive Chairman of the Board of Transocean Inc. from October 2002 to October 2004 and as non-executive Chairman from October 2004 to November 2007. Previously, Mr. Talbert served as Chief Executive Officer of Transocean, Inc. and its predecessor companies from August 1994 until October 2002, Chairman of the Board from August 1994 to September 1999, and as President from December 1999 to December 2001. Mr. Talbert served as Chairman of the Board of The Offshore Drilling Company from February 2004 to October 2005. He served as President and Chief Executive Officer of Lone Star Gas Company from 1990 to 1994. Mr. Talbert served as President of Texas Oil & Gas Company from 1987 to 1990, and served in various positions at Shell Oil Company from 1970 to 1982. Mr. Talbert is a past Chairman of the National Ocean Industries Association and a member of the University of Akron’s College of Engineering Advancement Council. Mr. Talbert is a member of the board of directors of Transocean Inc.

 

Mr. Talbert is an experienced business leader with the skills necessary to be our Lead Director. As a former chief executive officer of a large, publicly-traded energy company, Mr. Talbert has extensive industry expertise, as well as knowledge of the complex operational and governance issues that public companies face. Since joining the Board in 2003, he has played an integral role in promoting robustness and confidence in the Board’s execution of its responsibilities. In addition, his service on the board of Transocean Inc., including as its past chairman, provides valuable experience from which he can draw as a member of our Board.

 

 

Mr. Vagt has served as a director since 2005. Mr. Vagt has served as President of The Heinz Endowments since January 2008. Prior to that time, he served as President of Davidson College from July 1997 to August 2007. Mr. Vagt served as President and Chief Operating Officer of Seagull Energy Corporation from 1996 to 1997. From 1992 to 1996, he served as President, Chairman and Chief Executive Officer of Global Natural Resources. Mr. Vagt served as President and Chief Operating Officer of Adobe Resources Corporation from 1989 to 1992. Prior to 1989, he served in various positions with Adobe Resources Corporation and its predecessor entities. Mr Vagt previously served as a member of the board of directors of Cornell Companies until 2005.

 

Mr. Vagt’s professional background in both the public and private sectors make him an important advisor and member of our Board. Mr. Vagt brings to the Board operations and management expertise in both the public and private sectors. In addition, Mr. Vagt provides the Board with a welcomed diversity of perspective gained from service as President of the Heinz Endowments, as well as from service as the president of an independent liberal arts college.

 

 

Mr. Whitmire has served as a director since 2003. Mr. Whitmire has been Chairman of CONSOL Energy, Inc. since 1999. He served as Chairman and Chief Executive Officer of Union Texas Petroleum Holdings, Inc. from 1996 to 1998, and spent over 30 years serving Phillips Petroleum Company in various positions including Executive Vice President of Worldwide Exploration and Production from 1992 to 1996 and Vice President of North American Exploration and Production from 1988 to 1992. Mr. Whitmire is currently a member of the board of directors of Transocean Inc. Mr. Whitmire previously served as a member of the board of directors of GlobalSantaFe Corporation from March 1998 to November 2007.

 

Mr. Whitmire brings many years of industry experience to our Board. As former chief executive officer of a large, publicly-traded energy company, Mr. Whitmire has extensive operating and management experience, as well as industry knowledge and experience with competitive energy sources. In addition, his current and prior service on the boards of other publicly-traded companies in our industry provides valuable experience and insight.

 

The following table sets forth information as of March 12, 2010 regarding beneficial ownership of our common stock by each director, our CEO, our CFO and our other named executive officers in the last fiscal year, our directors and executive officers as a group and each person or entity known by us to own beneficially more than 5 percent of our outstanding shares of common stock. No family relationship exists between any of our directors or executive officers.

 

 

 

 

The following table sets forth, as of March 12, 2010, the number of common units of our master limited partnership, El Paso Pipeline Partners, L.P., owned by each of our executive officers and directors and all of our executive officers and directors as a group.

 

 

 

 

The following are individual executive profiles that summarize the compensation earned or paid in 2009 to our CEO and our other named executive officers. The individual executive profiles provide biographical information and summarize the compensation disclosures that are provided in the Compensation Discussion and Analysis and executive compensation tables in this proxy statement. These profiles are supplemental and are being provided in addition to the detailed compensation tables required by the SEC that follow the Compensation Discussion and Analysis. We believe these profiles provide stockholders with a concise and easy to understand summary of 2009 compensation. The compensation information presented in the following executive profiles is calculated in accordance with the SEC regulations and is derived from the more detailed compensation tables that begin on page 55 of this proxy statement. Please consult those tables and the accompanying footnotes for an explanation of how the compensation information is calculated.

Douglas L. Foshee: Individual Executive Profile

 

Salary
Base Salary		$	1,050,000
Performance-Based Cash Bonus		$	1,800,000
Perquisites and Personal Benefits		$	1,258
Annual Long-Term Incentive Award
(Grant Date Fair Value)
Restricted Stock		$	1,441,998
Stock Options		$	1,748,180
Restricted Stock Dividends		$	70,215
Retirement Benefits
Pension Plan
Annual increase in accumulated pension benefit		$	182,648
Retirement Savings Plan (RSP)
Company matching contribution to RSP		$	11,025
Supplemental RSP benefit		$	62,920
Annual earnings on supplemental RSP benefit		$	32,235

Voluntary Termination		$	5,065,095
Involuntary Termination without Cause		$	2,427,241	2
Retirement		$	0	2
Death		$	8,550,254	2
Disability		$	3,791,759	2
Termination with Cause		$	0	2
Change in Control of El Paso		$	14,150,651	2

1	Please note total 2009 Compensation does not tie directly to the Summary Compensation Table.
2	Reflects incremental value of enhanced benefits above amounts Mr. Foshee is entitled to as a result of voluntary termination. Value of equity reflects $9.83, the closing price of our common stock on December 31, 2009.

 

 

John R. Sult: Individual Executive Profile

 

Salary
Base Salary		$	345,675
Performance-Based Cash Bonus		$	300,000
Perquisites and Personal Benefits		$	0
Annual Long-Term Incentive Award
(Grant Date Fair Value)
Restricted Stock		$	158,508
Stock Options		$	162,762
Restricted Stock Dividends		$	7,993
Retirement Benefits
Pension Plan
Annual increase in accumulated pension benefit		$	45,919
Retirement Savings Plan (RSP)
Company matching contribution to RSP		$	11,025
Supplemental RSP benefit		$	15,245
Annual earnings on supplemental RSP benefit		$	3,036

Voluntary Termination		$	328,449
Involuntary Termination without Cause		$	568,098	2
Retirement		$	0	2
Death		$	1,652,628	2
Disability		$	558,267	2
Termination with Cause		$	0	2
Change in Control of El Paso		$	2,083,628	2

1	Please note total 2009 Compensation does not tie directly to the Summary Compensation Table.
2	Reflects incremental value of enhanced benefits above amounts Mr. Sult is entitled to as a result of voluntary termination. Value of equity reflects $9.83, the closing price of our common stock on December 31, 2009.

 

D. Mark Leland: Individual Executive Profile

 

Salary
Base Salary		$	519,756
Performance-Based Cash Bonus		$	500,000
Perquisites and Personal Benefits		$	1,150
Annual Long-Term Incentive Award
(Grant Date Fair Value)
Restricted Stock		$	405,877
Stock Options		$	502,351
Restricted Stock Dividends		$	22,738
Retirement Benefits
Pension Plan
Annual increase in accumulated pension benefit		$	131,891
Retirement Savings Plan (RSP)
Company matching contribution to RSP		$	11,025
Supplemental RSP benefit		$	19,654
Annual earnings on supplemental RSP benefit		$	9,651

Voluntary Termination		$	1,271,341
Involuntary Termination without Cause		$	974,791	2
Retirement		$	0	2
Death		$	3,083,265	2
Disability		$	1,320,402	2
Termination with Cause		$	0	2
Change in Control of El Paso		$	3,782,296	2

1	Please note total 2009 Compensation does not tie directly to the Summary Compensation Table.
2	Reflects incremental value of enhanced benefits above amounts Mr. Leland is entitled to as a result of voluntary termination. Value of equity reflects $9.83, the closing price of our common stock on December 31, 2009.

Brent J. Smolik: Individual Executive Profile

 

Salary
Base Salary		$	566,520
Performance-Based Cash Bonus		$	1,000,000
Perquisites and Personal Benefits		$	1,468
Annual Long-Term Incentive Award
(Grant Date Fair Value)
Restricted Stock		$	385,023
Stock Options		$	502,351
Restricted Stock Dividends		$	18,014
Retirement Benefits
Pension Plan
Annual increase in accumulated pension benefit		$	56,619
Retirement Savings Plan (RSP)
Company matching contribution to RSP		$	11,025
Supplemental RSP benefit		$	22,231
Annual earnings on supplemental RSP benefit		$	1,878

Voluntary Termination		$	349,151
Involuntary Termination without Cause		$	941,077	2
Retirement		$	0	2
Death		$	3,057,681	2
Disability		$	1,280,046	2
Termination with Cause		$	0	2
Change in Control of El Paso		$	4,327,283	2

1	Please note total 2009 Compensation does not tie directly to the Summary Compensation Table.
2	Reflects incremental value of enhanced benefits above amounts Mr. Smolik is entitled to as a result of voluntary termination. Value of equity reflects $9.83, the closing price of our common stock on December 31, 2009.

 

 

James C. Yardley: Individual Executive Profile

 

Salary
Base Salary		$	515,016
Performance-Based Cash Bonus		$	500,000
Perquisites and Personal Benefits		$	2,328
Annual Long-Term Incentive Award
(Grant Date Fair Value)
Restricted Stock		$	490,443
Stock Options		$	502,351
Restricted Stock Dividends		$	21,836
Retirement Benefits
Pension Plan
Annual increase in accumulated pension benefit		$	485,323
Retirement Savings Plan (RSP)
Company matching contribution to RSP		$	11,025
Supplemental RSP benefit		$	20,926
Annual earnings on supplemental RSP benefit		$	8,611

Voluntary Termination		$	4,578,257
Involuntary Termination without Cause		$	515,016	2
Retirement		$	0	2,3
Death		$	2,681,240	2
Disability		$	865,970	2
Termination with Cause		$	0	2
Change in Control of El Paso		$	3,596,038	2

1	Please note total 2009 Compensation does not tie directly to the Summary Compensation Table.
2	Reflects incremental value of enhanced benefits above amounts Mr. Yardley is entitled to as a result of voluntary termination. Value of equity reflects $9.83, the closing price of our common stock on December 31, 2009.
3	Mr. Yardley is eligible for early retirement. The value of his retirement benefits are reflected under Voluntary Termination.

 

 

Robert W. Baker: Individual Executive Profile

 

Salary
Base Salary		$	456,696
Performance-Based Cash Bonus		$	350,000
Perquisites and Personal Benefits		$	1,183
Annual Long-Term Incentive Award
(Grant Date Fair Value)
Restricted Stock		$	314,159
Stock Options		$	502,351
Restricted Stock Dividends		$	19,321
Retirement Benefits
Pension Plan
Annual increase in accumulated pension benefit		$	99,290
Retirement Savings Plan (RSP)
Company matching contribution to RSP		$	11,025
Supplemental RSP benefit		$	14,926
Annual earnings on supplemental RSP benefit		$	9,465

Voluntary Termination		$	1,850,481
Involuntary Termination without Cause		$	846,218	2
Retirement		$	0	2
Death		$	2,718,029	2
Disability		$	1,223,404	2
Termination with Cause		$	0	2
Change in Control of El Paso		$	3,335,072	2

1	Please note total 2009 Compensation does not tie directly to the Summary Compensation Table.
2	Reflects incremental value of enhanced benefits above amounts Mr. Baker is entitled to as a result of voluntary termination. Value of equity reflects $9.83, the closing price of our common stock on December 31, 2009.

EXECUTIVE COMPENSATION

 

The compensation discussion and analysis set forth below provides an explanation of our compensation programs, including the objectives of such programs and the rationale for each element of compensation, for our named executive officers. They include our Chief Executive Officer, Mr. Douglas L. Foshee, our Chief Financial Officer, Mr. John R. Sult, our former Chief Financial Officer and current President of El Paso’s Midstream business unit, D. Mark Leland, and our other three most highly compensated executive officers, Mr. Brent J. Smolik, Mr. James C. Yardley, and Mr. Robert W. Baker. This section also describes the actions and decisions of the Compensation Committee of our Board of Directors as it relates to 2009 compensation decisions. The discussion is divided into the following sections:

 

I. Executive Summary

 

II. Compensation Objectives

 

III. Role of Compensation Committee, Compensation Consultant and Management

 

IV. Elements of Total Compensation

 

V. Factors Considered When Determining Total Compensation

 

VI. 2009 Compensation Decisions

 

VII. Other Compensation and Tax Matters

 

 

The objectives and major elements of our executive compensation program did not materially change from 2008 to 2009. While we regularly review and fine-tune our compensation programs, we believe consistency in our compensation program and philosophy is important to effectively motivate and reward top-level management performance and for the creation of stockholder value. We continue to provide our named executive officers with total annual compensation that includes three principal elements: base salary, performance-based annual cash incentive awards, and long-term equity-based incentive awards. We also provide our executives with retirement, severance, and health and welfare benefits. Our compensation program continues to be performance-based, and a significant portion of each executive’s total annual compensation is at risk and dependent upon our company’s achievement of specific, measurable performance goals. Our performance-based pay is designed to align our executive officers’ interests with those of our stockholders and to promote the creation of stockholder value, without encouraging excessive risk-taking. In addition, our equity program, combined with our executive share ownership requirements, reward long-term stock performance.

 

Our named executive officers did not receive base salary increases during 2009, with the exception of Mr. Sult, who received a base salary increase in December 2009 in connection with his appointment as our new Chief Financial Officer. In early 2009, the Compensation Committee decided to freeze base salaries at 2008 levels for all employees, including our named executive officers. The Compensation Committee felt this action was appropriate to reflect the company’s ongoing efforts to contain costs in light of the financial crisis and the weakened global economy and to better position the company for long-term success.

 

Payments under our annual incentive award program for 2009 reflect our company’s performance and the achievement of our 2009 performance goals. As discussed further under the heading “Annual Cash Incentive Awards for 2009 Performance” beginning on page 44 of this proxy statement, we achieved our corporate financial goals for 2009, including our goals relating to earnings per share, EBITDA, return on total capital, and debt (net of cash). Specifically, after applying certain pre-approved adjustments described later in this discussion, earnings per share were $1.20, which was above the target goal of $1.08; EBITDA was $3,479 million, which was above the target goal of $3,350 million; return on total capital was 8.57%, which was above the target goal of 7.9%; and our outstanding debt was $13,328 million, which was approximately $600 million lower than the maximum target (with maximum target representing the lowest amount in the range of 2009 debt goals).

In evaluating company performance, the Compensation Committee also considered several actions critical to the company’s success in 2009. Specifically, the Compensation Committee noted that the company had successfully secured a partner for our Ruby Pipeline Project and had successfully executed our 2009 financing plan which provided sufficient financial flexibility throughout 2009. The Compensation Committee also considered the success of our commodity risk management activities which provided valuable support in the low commodity price environment generating more than $1 billion in excess cash. In addition, the Compensation Committee considered steps the company took in 2009 to reduce operating and administrative costs and to become a more efficient and execution-focused enterprise. Finally, the Compensation Committee considered the continued strong performance of our master limited partnership, El Paso Pipeline Partners, L.P. After considering the results of our corporate financial goals, together with the specific accomplishments noted above, the Compensation Committee approved above-target cash bonuses for our named executive officers for 2009.

 

Although we achieved our corporate financial goals for 2009, El Paso’s total shareholder return (“TSR”) relative to our peer group of companies was in the 3rd quartile (27th percentile). As discussed further under the heading “Long-Term Incentive Awards” on page 49 of this proxy statement, our annual restricted stock grants are performance-based as the amount of restricted shares granted to our named executive officers is contingent upon the collective achievement of our annual overall corporate financial goals and El Paso’s one-year relative TSR. Despite above-target achievement of our corporate financial goals, our below-median TSR performance resulted in restricted share grants to our named executive officers for 2009 performance that were generally below target levels. Options were granted at target levels in accordance with our program design.

 

 

At El Paso, stewardship and accountability are two of our core values. As active stewards, we strive to serve our stockholders by consistently building long-term value. In addition, accountability measures are a component of the metrics we use to judge the performance of our company and the performance of our executive officers. These principles of stewardship and accountability play an integral role in our compensation programs.

 

Our compensation programs, which reflect our core values of stewardship and accountability, have two primary and straight-forward objectives:

 

 

We believe these objectives are accomplished by providing our executives with a competitive mix of short-term and long-term compensation, by rewarding superior performance, and by linking a significant portion of each officer’s pay to specific, measurable performance goals.

 

III. Role of Compensation Committee, Compensation Consultant and Management

 

Compensation Committee

 

The Compensation Committee of the Board of Directors has primary responsibility for determining and approving, on an annual basis, the total compensation level of our CEO and other senior officers who are subject to Section 16(a) of the Exchange Act. The Compensation Committee receives information and advice from its compensation consultant as well as from our human resources department and management to assist in compensation determinations.

 

Compensation Consultant

 

The Compensation Committee has retained Deloitte as its independent compensation consultant. Deloitte advises the Compensation Committee on an ongoing basis with regard to the general competitive landscape and trends in compensation and executive and director compensation matters, including (i) competitive benchmarking, (ii) incentive plan design, (iii) performance metrics testing, (iv) peer group selection, and (v) updates on best-practices and trends in executive and director compensation. Deloitte attends meetings of the Compensation

Committee and participates in the Committee’s executive sessions, as well. Deloitte is directly accountable to the Compensation Committee and the Committee reviews all fees paid to Deloitte for such compensation advice. In addition, the Compensation Committee reviews, on an annual basis, Deloitte’s performance and provides Deloitte with direct feedback on its performance.

 

See “Compensation Consultant Payments” on page 15 of this proxy statement for additional information regarding the Compensation Committee’s engagement of Deloitte as its compensation consultant, as well as amounts paid to Deloitte and its affiliates during 2009 for executive compensation and non-executive compensation consulting services.

 

Role of Management and CEO in Determining Executive Compensation

 

While the Compensation Committee has the responsibility to approve and monitor all compensation for our named executive officers, we, as management, play an important role in determining executive compensation. At the Compensation Committee’s request, we recommend appropriate company-wide and business unit financial and non-financial performance goals. Under the direction of the Compensation Committee, we work with the compensation consultant to analyze competitive market data and to recommend base salary levels, annual incentive awards and long-term incentive awards for our executive officers. We also work with the Compensation Committee to establish the agenda and prepare meeting information for each Compensation Committee meeting. Our CEO likewise assists the Compensation Committee by providing his evaluation of the performance of the executive officers who report directly to him, and recommends compensation levels for such officers. The Compensation Committee also has a process for soliciting from the CEO a candid and critical self-assessment of his own performance, which, in addition to the assessment by Board members, is used to assist the Compensation Committee and the Board in their evaluation of the CEO’s performance.

 

The table below summarizes the elements of our total compensation program.

 

 

At the request of the Compensation Committee, Deloitte performed a risk assessment of our company’s incentive compensation arrangements. Based on the analysis performed, we have concluded that our compensation programs represent an appropriate balance of short-term and long-term compensation and that our incentive compensation programs do not encourage management to take unnecessary or excessive risks. See “Compensation Policies and Practices as they Relate to Risk Management” on page 73 of this proxy statement for additional detail regarding our compensation programs and risk.

 

Employment Agreements

 

We do not have employment agreements with our named executive officers.

 

 

Competitive Benchmark Data — the Starting Point.  When making compensation decisions, we review the compensation paid to our CEO and other named executive officers relative to the compensation paid to similarly-situated executives at our peer companies. This practice is often referred to as “benchmarking.” We also utilize survey data representing the market of companies in which we compete for executive talent as an additional means of benchmarking. We believe benchmarks are helpful and provide an initial point of reference. Therefore, although

we also use the other factors set forth below in reviewing compensation, competitive benchmarking is a starting point in our evaluation of total executive compensation.

 

The Compensation Committee is provided benchmarking market data compiled by its independent compensation consultant and our human resources department. This comparative information provides a basis for the evaluation of the compensation paid to our named executive officers. The Compensation Committee then reviews the benchmarking data together with each officer’s job responsibilities and individual performance, internal pay equity, and performance against pre-established targets in making compensation decisions. The Compensation Committee also reviews tally sheets and an analysis of wealth accumulation as part of its compensation decision-making process, as described below.

 

The Compensation Committee generally sets total compensation targets for our executives, including base salary, performance-based annual incentives, and long-term equity awards, near the market median of our peer comparables. However, because comparative data is just one of several analytic tools that are used in determining executive officer compensation, pay may vary from the median of comparative compensation based on various factors, including:

 

 

For example, the 2008 total annual compensation (base salary, annual cash incentive, and long-term incentive awards) for our named executive officers, excluding Mr. Sult who did not become a named executive officer until November 2009, fell at the 40th percentile when compared to peer group proxy data. Our peer group is described below. In addition, the 2009 total annual compensation targets for our named executive officers, excluding Mr. Sult, fell at the 47th percentile when compared to peer group proxy data (based on the most recently available information disclosed in the peer companies’ 2009 proxy statements).

 

El Paso’s Peer Group.  Each year, the Compensation Committee reviews El Paso’s peer group to ensure that the companies selected are appropriate. The peer group is used to review executive officer compensation and to compare TSR relative to our performance. The table below presents the peer group used by the Compensation Committee for pay comparisons and for evaluating El Paso’s relative TSR for the calendar year 2009. The peer group consisted of 22 companies, comprising a proportional mix of pipeline/distribution companies, exploration and production companies, and diversified energy companies.

 

 

See “2010 Peer Group Changes” on page 53 of this proxy statement for an explanation of certain changes the Compensation Committee elected to make to the peer group for purposes benchmarking and evaluating El Paso’s relative TSR for the calendar year 2010.

 

Internal Pay Equity.  We also believe that our executive compensation program must be internally consistent in order to motivate our employees as a whole to create stockholder value. We are committed to internal pay equity

and our Compensation Committee monitors, on an annual basis, the relationship between the compensation of our named executive officers and the compensation of our non-managerial employees.

 

In May 2009, the Compensation Committee reviewed a comparison of CEO and other named executive officer pay (salary, bonus and total compensation) to non-management employee pay for the period 1999 to 2008. The results showed a shrinking disparity in pay between our named executive officers and non-management employees on all elements of pay, including total compensation, from 1999 to 2008. The Compensation Committee also reviewed trends in pay equity from 2007 to 2008 and noted a 20% reduction in the disparity between average NEO to non-management total compensation during such time period. The review noted that a contributing factor to the shrinking disparity between 2007 and 2008 was base salary increases in 2008 that, as a percentage of salary, were greater at the non-management level than at the executive officer level. In addition, 2008 equity grants and cash incentive awards were lower at the NEO level when compared to 2007 grant levels (due, in part, to our lower TSR performance relative to our peer group in 2008). The Compensation Committee will continue to periodically conduct these analyses to monitor and avoid any unjustified widening of compensation differentials.

 

Tally Sheets.  Annually, and prior to making compensation decisions, the Compensation Committee reviews tally sheets prepared for each of our named executive officers. The tally sheets quantify the elements of each named executive’s total compensation, including base salary, annual incentive bonus, and long-term equity grants, including both vested and unvested equity awards. The tally sheets also summarize the benefits we are required to provide under various termination scenarios. These termination scenarios include voluntary termination, involuntary termination without cause, termination with cause, retirement, death, disability and termination within two years following a change in control. Based upon certain assumptions related to the timing of these events, the tally sheets provide the total remuneration that would be payable to the named executive officers, including all aspects of each named executive officer’s compensation and benefits under our plans, and are used to ensure that there are no surprises or questions about compensation items in the event of the various termination events. The Compensation Committee does not assign a weighting to tally sheets in the overall decision making process, but rather uses the tally sheets as a tool to view the overall impact of each element of compensation and to ensure our program design is not resulting in unintended outcomes.

 

In its most recent review of tally sheets in December 2009, which included year-end 2009 compensation information, the Compensation Committee discovered no unintended consequences of the compensation program design. Consequently, no material changes were made or deemed necessary to the executive compensation program or the individual elements of our executive officers’ compensation as a result of this review.

 

See the section entitled “Potential Payments upon Termination or Change in Control” beginning on page 67 of this proxy statement for the total amount of compensation and benefits each named executive officer could receive as a result of the various termination events.

 

Wealth Accumulation.  The Compensation Committee reviews annually all of the elements of total compensation paid to each named executive officer during the prior five-year period, including base salaries, annual cash incentive bonuses, the value of long-term incentive awards and any special payments made to an individual executive. The Compensation Committee also reviews the projected value of each named executive officer’s accumulated equity grants over the subsequent five-year period based upon various stock appreciation scenarios. This is done to more effectively analyze not only the amount of compensation each named executive officer has accumulated to date, but also to better understand how current equity grants may affect the amount of wealth the named executive officers accumulate in the future. In addition, due to the continued volatility in the stock market, the Compensation Committee reviewed an analysis of the change in total equity values for outstanding equity awards held by our named executive officers from 12/31/07 to 12/31/09. At the CEO level, this analysis reflected a loss of approximately 50% of the equity value of his awards currently outstanding. While the Compensation Committee reviews a wealth accumulation analysis each year, to date, the amount of the named executive officers’ past compensation has generally not been a significant factor in the Compensation Committee’s determinations.

 

2009 Annual Base Salaries and 2009 Target Bonus Opportunities

 

At its February 2009 meeting, the Compensation Committee determined it would be appropriate to freeze base salaries at 2008 levels for our named executive officers. The Compensation Committee felt this action would be appropriate to reflect the company’s ongoing efforts to contain costs due to the financial crisis and the weakened global economy and to better position the company for long-term success. As such, our named executive officers did not receive annual base salary increases in 2009, with the exception of Mr. Sult, who received a base salary increase in December 2009 following his appointment as our CFO. In addition, no adjustments were made to the named executive officers’ 2009 target bonus opportunities, with the exception of the change noted below for Mr. Sult, which the Compensation Committee believes continue to be appropriate and commensurate with the responsibilities of the respective executives. These target bonus opportunities were derived in part from peer group and competitive survey benchmarking data and in part by the Compensation Committee’s judgment on the internal equity of the positions, scope of job responsibilities and the executives’ industry experience and tenure. The following table sets forth the base salaries and annual target bonus opportunities for the named executive officers.

 

Annual Base Salaries and
Target Bonus Opportunities

 

 

 

 

Annual Cash Incentive Awards for 2009 Performance

 

In February 2010, the Compensation Committee approved the amount of the named executive officers’ annual cash incentive awards for 2009 performance. The following discussion sets forth the process the Compensation Committee followed in determining the amount of each named executive officer’s annual cash incentive award for 2009 performance. The annual cash incentive awards for 2009 performance were paid in March 2010.

 

Performance Goals.  At the beginning of 2009, the Compensation Committee established a threshold, target and maximum annual cash incentive bonus level for each of the named executive officers (see the range of cash incentive bonuses as a percentage of base salary on page 47). The Compensation Committee also approved corporate and business unit financial and non-financial performance goals.

Our 2009 corporate financial goals, which are the primary goals used in determining the annual incentive bonuses for our named executive officers, were as follows:

 

 

 

In addition, the Compensation Committee approved additional performance goals for our corporate shared services group and our pipeline and exploration and production business units. For our corporate shared services group, the 2009 financial goals included the corporate goals listed above, plus additional goals relating to corporate and legacy costs. For our pipeline business unit, the 2009 financial goals were based on value creation, which is a measure of the cash value created in excess of the cost of invested capital. For our exploration and production (“E&P”) business unit, the 2009 financial goals included EBITDA, cash costs, average daily production rates measured in million cubic feet of natural gas equivalent per day (“MMcfe/d”), capital savings, present value ratio, reserve replacement cost and net risked year-to-year inventory growth.

 

Our corporate financial goals were set in alignment with our 2009 strategic plan. Thresholds, targets and maximums were set at somewhat wider ranges than in previous years to reflect the economic uncertainly in early 2009 and the need for our organization to be flexible to effectively react to changes in the business environment. For example, the threshold 2009 EPS goal was $.17 lower than in 2008, but the 2009 target and maximum EPS goals were $.05 and $.12 higher than in 2008. In making the determination of the threshold, target and maximum levels, the Compensation Committee considered the specific circumstances expected to be faced by our company and its business units in 2009. The threshold levels represent reasonably achievable goals, whereas the maximum levels represent a significant stretch and would require exceptional performance.

 

The Compensation Committee also approved certain non-financial goals for our corporate shared services group and business units, including certification of compliance with our Code of Business Conduct by 100 percent of our employees, no material weakness in our internal controls over financial reporting, and safety goals relating to recordable injuries and days away. The 2009 non-financial goals also included a goal relating to the successful in-line inspection of our pipelines as part of our pipeline integrity program. While the Compensation Committee reviews these non-financial goals, they do not materially impact the incentive awards payable to our named executive officers, which awards are primarily weighted towards the achievement of our corporate financial goals, set forth above.

 

Weighting of Corporate and Business Unit Goals.  The annual cash incentive awards for our named executive officers are primarily weighted towards the achievement of our corporate financial goals. Below is a chart summarizing the weighting of the corporate and business-unit goals for purposes of determining each officer’s annual incentive award.

 

Performance Weights for Named Executive Officers
Annual Incentive Awards

 

Annual Incentive Awards — Negative Discretion.  The Compensation Committee uses “negative discretion” in setting payouts under our annual incentive award program. For purpose of Section 162(m) of the Code, the annual incentives are payable at maximum to the extent any of the corporate or business unit financial or non-financial goals are achieved at threshold performance. The Compensation Committee then exercises its negative discretion to reduce the payout of incentive awards to reflect actual corporate, business unit and individual performance. By setting a high amount which can then be reduced, we believe our annual incentive payments qualify for full deductibility under Section 162(m) of the Code. This reduction is not a negative reflection on the performance of our company or our named executive officers, but rather is done to ensure maximum flexibility with respect to the payment of performance-based bonuses. If the Compensation Committee were to have instead funded incentive awards at a minimum threshold and used discretion to increase the amounts to reflect company and individual performance, actual payouts would not qualify for the Section 162(m) tax deduction. The Compensation Committee uses a similar “negative discretion” approach in determining the number of shares of restricted stock to be granted to our Section 162(m) covered executives, which grants are described later in this discussion. For further information on Section 162(m), see the description of “Regulatory Considerations” beginning on page 52 of this proxy statement.

 

After the 2009 financial results became available, the Compensation Committee determined the appropriate funding of the 2009 annual incentive bonus pool based on the achievement of the pre-established financial and non-financial performance goals for the year. The following table sets forth the percentage that the annual incentive bonus pool is funded based on the level of performance relative to the performance goals that were established for the year.

 

Funding of the
Annual Incentive Pool

 

Performance		Pool Funding
Maximum Goals Met			150%(1)
Target Goals Met			100%(2)
Threshold Goals Met			50%(3)
Threshold Not Met			0%

 

 

 

Individual Performance Adjustment.  As mentioned above, accountability plays an important role in our compensation programs, and individual performance is an important factor in determining annual incentives. In addition, individual performance goals support our vision of being the place to work, the neighbor to have, and the company to own. Each year, our named executive officers receive an individual performance rating based on an evaluation of the executive officer’s individual contribution and performance against his or her individual performance goals for the year and determined through our performance management program. Individual performance goals for 2009 included living our core values of stewardship, integrity, safety, accountability, and excellence, strengthening the company’s liquidity position, maintaining the investment grade ratings of our pipelines, continuing to execute on the construction of our backlog of pipeline projects and placing pipeline growth projects in service on time and on budget, improving our exploration and production cost structure and delivering significant reserve growth, increasing our inventory of low-risk, repeatable drilling operations, reducing costs, improving our execution capability and consolidating and standardizing shared service functions, continuing to grow our master limited partnership, leadership training and development initiatives and supporting volunteer efforts in the communities in which we work. Based on the individual performance rating, an individual performance factor ranging between 0% and 150%, as approved by the Compensation Committee, is assigned

to each executive. The Compensation Committee then uses the individual performance factor (ranging from 0%-150%) to apply discretion and adjust the executive’s actual annual cash incentive award.

 

Under this formula, the maximum bonus opportunity is 225% of the target bonus, which is calculated by taking 150% of the maximum annual incentive bonus pool times 150% of the maximum individual performance adjustment factor. The range of annual cash incentive bonuses, based on the level of company performance (and, where appropriate, the performance of our business units) and the individual executive, is illustrated as a percentage of base salary for each named executive officer in the following table. The actual percentage of cash incentive bonuses could be at any level between the minimum and maximum percentages (0%-225%) based on company and individual performance.

 

Range of Cash Incentive Awards as a Percentage of Base Salary for 2009

 

 

The potential range of values of the annual cash incentive awards for 2009 performance for each of the named executive officers is reflected in the Grants of Plan-Based Awards table in the “Estimated Possible Payouts under Non-Equity Incentive Plan Awards” column on page 58 of this proxy statement.

 

El Paso Performance.  In February 2010, the Compensation Committee reviewed the actual performance of our company and its business units relative to the corporate and business unit performance goals that were established for the year. In reviewing our actual performance relative to the corporate financial goals, the Compensation Committee excluded the impacts of certain items under pre-approved adjustment categories, including: changes in commodity prices in the oil and gas industry (which are likewise excluded in years in which commodity prices materially increase), which resulted in ceiling test charges during the year, an unbudgeted loss on the sale of our Porto Velho power assets in Brazil, actions taken to resolve legacy issues, and certain unbudgeted or strategic items, including a tax benefit associated with the liquidation of certain foreign entities, severance costs associated with reorganizations, an impairment of certain E&P inventory and other assets and an adjustment for the reduction in E&P capital in response to lower commodity prices coupled with high service costs. The Compensation Committee determined that these items were not related to the ongoing operation of El Paso in a manner consistent with the way the performance goals and ranges were set. Based on these adjustments, the Compensation Committee determined that El Paso achieved the following adjusted results:

 

 

The Compensation Committee also considered certain qualitative factors critical to the company’s success in 2009. Specifically, the Compensation Committee noted that the company had successfully secured a partner for our Ruby Pipeline Project and had successfully executed our 2009 financing plan which provided sufficient financial flexibility throughout 2009. In addition, our commodity risk management activities provided valuable support in

the low commodity price environment generating more than $1 billion in excess cash. In addition, the Compensation Committee considered steps the company took in 2009 to reduce operating and administrative costs and to become a more efficient and execution-focused enterprise. Finally, the Compensation Committee considered the continued strong performance of our master limited partnership, El Paso Pipeline Partners, L.P. Based on the achievement levels noted above and after considering these qualitative factors, the Compensation Committee approved a corporate funding level of 140% for cash incentive awards.

 

The Compensation Committee reached this determination by assigning each corporate financial goal an achievement percentage (from 0-150%), in accordance with the Funding of the Annual Incentive Pool chart set forth on page 46 of this proxy statement. The Compensation Committee then combined the achievement of each of the corporate financial goals into a single weighted average corporate achievement level based on the weightings of the designated goals, as set forth on page 45 of this proxy statement. The Compensation Committee then considered the qualitative factors noted above. This collectively resulted in the approval by the Compensation Committee of a corporate funding level which, while above target, was slightly less than the funding level that would have resulted if the Committee had followed a strictly formulaic approach.

 

In addition, the Compensation Committee determined that our corporate shared services group, pipeline business unit, and E&P business unit each achieved their respective financial goals and many of the non-financial performance goals (with funding levels of 125%, 124% and 150%, respectively).

 

Individual Performance.  In February 2010, the Compensation Committee also reviewed the individual performance of each of our named executive officers, as noted below, and based on such review, assigned each executive an individual performance factor.

 

Chief Executive Officer

 

Douglas L. Foshee.  As Chairman, President and CEO, Mr. Foshee’s leadership over the past year was critical in guiding the company through an extraordinarily difficult economic environment. Despite a global economic recession, low commodity prices and tight credit markets, Mr. Foshee led El Paso to one of the best operating years in our company’s history. Mr. Foshee’s leadership was instrumental in implementing and executing a comprehensive strategy designed to help our company improve its credit profile, raise funds to expand our natural gas pipeline business and take advantage of unconventional natural gas drilling opportunities. In addition, his communication skills and motivational efforts were particularly evident throughout our organizational realignment.

 

Other Named Executive Officers

 

John R. Sult.  As our Controller for most of 2009, Mr. Sult successfully led a cross-functional, cross-company team to re-implement and upgrade our PeopleSoft Financial system and to consolidate and streamline our chart of accounts. In addition, Mr. Sult played a critical role in the continued strong performance of our master limited partnership, El Paso Pipeline Partners, L.P. (“EPB”), including spearheading the acquisition by EPB of an additional 18% interest in Colorado Interstate Gas Company and raising additional capital for EPB through a successful equity offering.

 

D. Mark Leland.  In a challenging economic environment, Mr. Leland’s leadership as CFO was critical in significantly strengthening the company’s liquidity position in 2009 and maintaining the investment grade ratings of our pipelines. In addition, following his appointment as President of our midstream business unit in late 2009, Mr. Leland has led strategic efforts to pursue midstream opportunities compatible with our business units.

 

Brent J. Smolik.  Mr. Smolik led our exploration and production business to an exceptionally strong performance in 2009. Under his leadership, our exploration and production unit reduced its cost structure, delivered excellent reserve growth and reserve replacement metrics, generated significant cash flow, and substantially increased our inventory of low-risk, repeatable drilling opportunities.

 

James C. Yardley.  Under Mr. Yardley’s leadership, our pipeline business unit had another strong year in 2009, delivering double-digit earnings growth, while continuing to execute on the construction of our backlog of pipeline

and LNG projects. Mr. Yardley also showed strong execution on capital spending, placing four growth projects in service on time and on budget.

 

Robert W. Baker.  Mr. Baker made significant progress in addressing regulatory and litigation matters and provided excellent guidance and solutions. His effective management of our legal costs and liabilities resulted in significant improvement to our cost structure. He was instrumental in executing on our organization realignment efforts, particularly in the areas of consolidation and standardization of shared service functions.

 

2009 Annual Incentives.  Based on the policies described above, the Compensation Committee approved annual incentive bonuses for our named executive officers. The amount was calculated by starting with the maximum bonus amount payable for Code Section 162(m) purposes, which was then reduced to reflect the following formula:

 

target bonus X corporate/business unit funding percentage X individual performance factor = annual incentive award

 

The following table sets forth each named executive officer’s annual cash incentive for 2009 performance.

 

Annual Incentive Awards
Paid for 2009 Performance

 

		Actual
		Incentive Award (1)
Douglas L. Foshee		$	1,800,000
John R. Sult		$	300,000
D. Mark Leland		$	500,000
Brent J. Smolik		$	1,000,000
James C. Yardley		$	500,000
Robert W. Baker		$	350,000

 

 

 

Long-Term Incentive Awards

 

We use our stockholder approved 2005 Omnibus Incentive Compensation Plan, or omnibus plan, for long-term incentive awards. Under the omnibus plan, the Compensation Committee is the plan administrator with respect to employees subject to Section 162(m) and Section 16 of the Exchange Act, which includes our named executive officers. The Compensation Committee determines the timing of when the annual grants of restricted stock and stock options to such executives will occur as well as the terms and restrictions applicable to such grants.

 

The Compensation Committee approves the annual grant to our executive officers after the financial results are available for the prior fiscal year and selects a future grant date (usually several weeks subsequent to the Compensation Committee’s action) when the awards will be granted. The Compensation Committee’s standard practice is to select the first trading day of the quarter following the filing of the Annual Report on Form 10-K as the grant date for long-term incentive awards, which historically has been the first trading day of April. Stock options are granted with an exercise price based upon the average between the high and low selling prices at which our common stock traded on the grant date.

 

As described earlier, annual long-term incentives are comprised of an approximate 50/50 combination of stock options and restricted stock. Options are granted at target levels and are not adjusted for company or individual performance. This practice is in place to mitigate the effect of short term performance on a long-term incentive. Restricted stock awards are performance-based and are adjusted at the time of grant for both company and individual performance, as described below. The target equity opportunities for the 2008 performance year and for the 2009 performance year, including both the option and restricted stock components are included below. These

target long-term equity opportunities were derived from peer group and competitive survey benchmarking data and from the Compensation Committee’s judgment on the internal equity of the positions and scope of job responsibilities. As noted below, following his appointment as our CFO in November 2009, the Compensation Committee elected to increase Mr. Sult’s 2009 target equity opportunity to reflect his increased responsibilities and bring his target equity opportunity more closely in line with benchmarking data and internal positions. Mr. Sult did not, however, receive a special or out-of-cycle equity grant in connection with his appointment as CFO.

 

Target Long-Term Equity Opportunities

 

 

 

 

As mentioned above, our restricted stock awards are performance-based and will only be granted to the extent we satisfy specific performance goals. Once granted, the shares time vest in three equal annual installments. The amount of equity available to fund the equity pool for annual restricted stock grants is based 50% on achievement of the annual overall corporate financial goals and 50% on El Paso’s one-year relative TSR compared to our peer group of companies. The Committee believes these performance goals are appropriate for purposes of determining the amount of restricted stock granted to our named executive officers because they strike an appropriate balance of internal (corporate financial goals) and external (TSR) performance.

 

The portion of the equity pool used for restricted stock grants that is funded based on El Paso’s TSR compared to its peer group of companies is determined as follows:

 

Funding of Portion of Equity Pool
Based on Total Shareholder Return
for Restricted Stock Grants

 

 

 

 

The portion of the equity pool used for restricted stock grants that is funded based on achievement of the annual overall corporate financial goals is determined using the same corporate funding percentage approved by the Compensation Committee for purposes of cash incentive awards.

 

Following the determination of the funding percentage for the equity pool, the Compensation Committee applies the individual performance factors described on page 46 as an adjustment performance factor to determine the executive officer’s actual restricted stock award.

 

Annual Grant based on 2008 Performance

 

In February 2009, the Compensation Committee approved the 2009 annual grant of long-term incentive awards in the form of restricted stock and stock options based on 2008 performance. These long-term incentive awards were granted to the named executive officers on April 1, 2009. During 2008, we achieved target performance of our overall corporate financial performance goals, resulting in the funding of one-half of the restricted stock portion of the equity pool at 100%. However, during 2008, El Paso’s TSR relative to our peer group of companies was in the fourth quartile (18th percentile), and due to this lower quartile performance, the Compensation Committee determined that the funding of one-half of the restricted stock pool based on TSR results should be at 0%. Accordingly, the restricted stock grants that were granted to the named executive officers in April 2009 were funded at 50% of overall target (50% × [100% based on corporate financial performance + 0% based on TSR performance] = 50%) and were adjusted for individual performance. Stock options were granted at target and were not adjusted for corporate or individual performance. The restricted stock and stock options vest in three equal annual installments beginning one year from the date of grant.

 

Furthermore, as described in last year’s proxy statement, in February 2009, the Compensation Committee determined that one-half of each named executive officer’s approved 2008 performance-based cash bonus would be paid in the form of restricted stock, rather than being paid entirely in cash. This was a change from prior years and was done for two reasons: (i) to continue to motivate the named executive officers to focus on building long-term shareholder value over short-term results, and (ii) to put a significant portion of the bonus at risk and encourage retention and focus. The restricted stock payable as part of the approved 2008 bonuses was granted on April 1, 2009 at the same time our annual equity grants were made; however, unlike our annual restricted stock grants that vest in three equal installments, the shares awarded as part of the 2008 bonus cliff-vest three years from the date of grant.

 

The number of shares and grant date fair value of the restricted stock and stock options awarded in April 2009 to each named executive officer, including the restricted stock that was awarded as part of the 2008 performance-based bonus, is reflected in the Grants of Plan-Based Awards table on pages 58 and 59 of this proxy statement.

 

Annual Grant based on 2009 Performance

 

In February 2010, the Compensation Committee approved the 2010 annual grant of long-term incentive awards in the form of restricted stock and stock options based on 2009 performance. These long-term incentive awards are expected to be granted to the named executive officers on April 1, 2010. During 2009, we achieved above-target performance of our overall corporate financial performance goals, resulting in the funding of one-half of the restricted stock portion of the equity pool at 140%. However, during 2009 El Paso’s TSR relative to our peer group of companies was in the 3rd quartile (27th percentile), and due to this 3^rd quartile performance, the Compensation Committee determined that the funding of one-half of the restricted stock pool based on TSR results should only be at 27%. The Compensation Committee believed this action was appropriate to reflect our lower quartile TSR performance. Accordingly, restricted stock grants that will occur in April 2010 based upon 2009 performance will be funded at 83.5% of overall target (50% × [140% based on corporate financial performance + 27% based on TSR performance] = 83.5%), with the value of each named executive officer’s individual grant adjusted for individual performance, as described above. Stock options will be granted at target and will not be adjusted for corporate or individual performance. The restricted stock and stock options will vest in three equal annual installments beginning one year from the date of grant. The number of shares of restricted stock and stock options that will be awarded in April 2010 to each named executive officer based on 2009 performance are set forth in the table below and will be reported in next year’s Grants of Plan-Based Awards table in accordance with SEC reporting requirements.

Annual Grant of
Long-Term Incentive Awards
Based on 2009 Performance

 

 

 

 

VII.  Other Compensation and Tax Matters

 

Regulatory Considerations

 

Section 162(m) imposes a limit of $1,000,000 on the amount that we may deduct for federal income tax purposes in any one year for compensation paid to our CEO and any of our three other highest-paid named executive officers, other than our CFO, who are employed as of the end of the year. However, to the extent compensation is “performance-based” within the meaning of Section 162(m), the Section’s limitations will not apply. Our executive compensation plans, including our omnibus plan, are structured so that awards such as cash incentive awards, stock options and restricted stock qualify as deductible performance-based compensation. While the Compensation Committee strives to make awards under our plans that are intended to qualify as performance-based compensation under Section 162(m), it is possible under certain circumstances that some portion of the compensation paid to our executive officers will not meet the standards of deductibility under Section 162(m). The Compensation Committee reserves the right to award compensation which does not qualify as performance-based under Section 162(m) if it determines that such awards are necessary to provide a competitive compensation package to attract and retain qualified executive talent. The annual cash incentive awards, stock options and performance-based restricted stock that were granted to the named executive officers during 2009 were intended to be performance-based within the meaning of Section 162(m).

 

Stock Ownership

 

Our Corporate Governance Guidelines impose stock ownership requirements on our executive officers. These stock ownership requirements are designed to emphasize stock ownership by our executive officers and to further align their interests with our stockholders — through increases and decreases in stock prices. These requirements are as follows:

 

Position		Minimum Aggregate Value
Chief Executive Officer			5 X base salary
Other Executive Officers			2 X base salary

 

Each executive officer is required to meet the ownership threshold within five years of election as an executive officer. As of December 31, 2009, each of our named executive officers’ ownership in our common stock exceeded the required ownership thresholds and did so in the requisite time frames. See page 10 of this proxy statement for further information regarding the stock ownership requirements for our executive officers.

 

Margin Trading Prohibition

 

We have a policy prohibiting executives from hedging their ownership of company stock. Under the policy, executive officers are prohibited from holding El Paso securities in a margin account or otherwise entering into any pledge arrangement that would permit a third party to sell the El Paso securities without the executive’s consent or knowledge. This prohibition also applies to our non-employee directors.

 

Compensation Recovery

 

Under our omnibus plan, which provides for grants of annual cash incentive awards and long-term incentive awards, if it is determined that an executive officer in the plan knowingly engaged in, or was grossly negligent with respect to, misconduct that causes us to prepare an accounting restatement due to material noncompliance with any financial reporting requirement under the securities laws, the executive is required to reimburse us the amount of any payment in settlement of an award earned or accrued during the 12-month period following the first public issuance or filing, whichever first occurred, of the financial document that is required to be restated.

 

2010 Peer Group Changes

 

In late 2009, the Compensation Committee, in consultation with Deloitte, reevaluated our peer group in terms of market competitors, organization size, and industry. The Compensation Committee then reviewed the following financial measures to determine an appropriate peer group fit: market capitalization, enterprise value, total revenues for FY 2008, projected total revenues for FY 2009, and operating income. Based on this analysis, the Compensation Committee elected to make the following revisions to the peer group for use starting with the 2010 performance year to more closely align our peer group with companies that have comparable overall financial metrics as our company: the removal of Apache Corporation, Chesapeake Energy Corporation, Devon Energy Corp., and EOG Resources, Inc., and the addition of Energen Corp. No other changes were made. The tables below include the peer group the committee will use starting with the 2010 performance cycle, as well as the relevant comparison metrics of the new peer group as of October 2009 when the peer group was selected.

 

2010 Peer Group

 

 

2010 Peer Group Comparison Metrics