UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

SCHEDULE 14A

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No.           )

Filed by the Registrant þ

Filed by a Party other than the Registrant o

Check the appropriate box:

o       Preliminary Proxy Statement.

o       Confidential, for Use of the Commission only (as permitted by Rule 14a-6(e)(2)).

þ       Definitive Proxy Statement.

o       Definitive Additional Materials.

o       Soliciting Material under § 240.14a-12.

ENERGEN CORPORATION

(Name of Registrant as Specified In Its Charter)

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

þ       No fee required.

o       Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

(1)

Title of each class of securities to which transaction applies:

(2)

Aggregate number of securities to which transaction applies:

(3)

Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):

(4)

Proposed maximum aggregate value of transaction:

(5)

Total fee paid:

o       Fee paid previously with preliminary materials.

o       Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

(1)

Amount Previously Paid:

(2)

Form, Schedule or Registration Statement No.:

(3)

Filing Party:

(4)

Date Filed:

 

 

March 30, 2009

To Our Shareholders:

 

It is our pleasure to extend to you a cordial invitation to attend the Annual Meeting of Shareholders of Energen Corporation. The Annual Meeting will be held at the principal office of the Company in Birmingham, Alabama on Wednesday, April 22, 2009, at 9:30 a.m., Central Daylight Time.

 

Details of the matters to be presented at this meeting are given in the Notice of the Annual Meeting and in the proxy statement that follow.

 

We hope that you will be able to attend this meeting so that we may have the opportunity of meeting with you and discussing the affairs of the Company. However, if you cannot attend, we would appreciate your submitting your proxy by telephone or by Internet, or by completing, signing and returning the enclosed proxy card as soon as convenient so that your stock may be voted.

 

We have enclosed a copy of the Company’s 2008 Annual Report.

 

Yours very truly,

 

 

Chairman of the Board

 

ENERGEN CORPORATION

 

Notice of Annual Meeting of Shareholders and

Internet Availability of Proxy Materials

 

To Be Held April 22, 2009

 

 

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY

MATERIALS FOR THE SHAREHOLDER MEETING TO BE HELD APRIL 22, 2009:

 

The Company’s proxy statement on Schedule 14A, form of proxy card, 2008 annual report on Form 10-K and 2008 summary annual report are available at: www.energen.com under the heading “Investor Relations” and subheading “SEC Filings.”

 

J. David Woodruff

Secretary

 

Birmingham, Alabama

March 30, 2009

 

 

 

PROXY STATEMENT

 

TABLE OF CONTENTS

 

PROXY STATEMENT

ANNUAL MEETING OF SHAREHOLDERS
OF ENERGEN CORPORATION

April 22, 2009

 

 

We are providing this proxy statement in connection with the solicitation by the Board of Directors of Energen Corporation, an Alabama corporation (the “Company,” “we,” or “us”), of proxies for use at the 2009 Annual Meeting of Shareholders of the Company and at any adjournment thereof (the “Annual Meeting”).

 

You are invited to attend our Annual Meeting on April 22, 2009, beginning at 9:30 a.m., CDT. The Annual Meeting will be held at our principal office, 605 Richard Arrington Jr. Blvd. North, Birmingham, Alabama 35203-2707.

 

This proxy statement and form of proxy are being mailed on or about March 30, 2009.

 

Three Directors are to be elected. Our Board of Directors is divided into three classes serving staggered three-year terms. The terms of three of the present Directors expire at this Annual Meeting: Judy M. Merritt, Stephen A. Snider and Gary C. Youngblood. They have been nominated for re-election as Directors for terms expiring in 2012.

 

Your Board of Directors recommends that Judy M. Merritt, Stephen A. Snider, and Gary C. Youngblood be elected to serve in the class with terms expiring in 2012.  Each nominee has agreed to be named in this proxy statement and to serve if elected. We expect each nominee for election as a Director to be able to serve if elected. Biographical data on these nominees and the other members of the Board of Directors is presented beginning on page 3 of this proxy statement under the caption “Governance of the Company.”

 

Unless you otherwise direct on the proxy form, the proxy holders intend to vote your shares in favor of the above listed nominees. To be elected, a nominee must receive a majority of the votes cast at the Annual Meeting in person or by proxy. If one or more of the nominees becomes unavailable for election or service as a Director, the proxy holders may vote your shares for one or more substitutes designated by the Board of Directors; alternatively, we may reduce the size of the Board of Directors.

 

The Audit Committee has appointed PricewaterhouseCoopers LLP as the independent registered public accounting firm (the independent auditors) of the Company with respect to its operations for the year 2009. While ratification is not required, the Audit Committee determined to seek shareholder ratification of the appointment. Your Board of Directors recommends ratification of the appointment of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm.

 

We know of no other business that will be considered for action at the Annual Meeting. If any other business calling for a vote of shareholders is properly presented at the meeting, the proxy holders will vote your shares in accordance with their best judgment.

 

Holders of Company common stock of record at the close of business on February 27, 2009, are entitled to receive this notice of Annual Meeting and proxy statement and to vote their shares at the Annual Meeting. As of that date, a total of 71,693,728 shares of common stock were outstanding and entitled to vote. Each share of common stock is entitled to one vote on each matter properly brought before the Annual Meeting.

 

Your vote is important. You can save us the expense of a second mailing by voting promptly. Because many shareholders cannot attend the Annual Meeting in person, it is necessary that a large number be represented by proxy. Please submit your instructions by telephone or by Internet, or by completing, signing, dating and returning your proxy in the postage-paid envelope provided. The proxy holders will vote shares represented by valid proxies received by telephone, by Internet or by mail in accordance with the instructions appearing on such proxies.

 

You can revoke your proxy at any time before it is exercised by:

 

 

Submitting your proxy by telephone, by Internet or by mail will in no way limit your right to vote at the Annual Meeting if you later decide to attend in person. If your shares are held in the name of a bank, broker or other holder of record, you must obtain a proxy, executed in your favor, from the holder of record to be able to vote at the Annual Meeting.

 

All shares for which a proxy has been received and not revoked will be voted at the Annual Meeting. If you submit your proxy by telephone, by Internet or by mail but do not give voting instructions, the shares represented by that proxy will be voted as recommended by the Board of Directors.

 

The presence of the holders of a majority of the outstanding shares of common stock entitled to vote at the Annual Meeting, present in person or represented by proxy, is necessary to constitute a quorum. Abstentions and broker “non-votes” are counted as present and entitled to vote for purposes of determining a quorum. A broker “non-vote” occurs when a broker holding shares for a beneficial owner does not vote on a particular proposal because the broker does not have discretionary voting power for that particular item and has not received voting instructions from the beneficial owner.

 

Each of the nominees for Director must receive the affirmative vote of a majority of the votes cast by shareholders represented at the Annual Meeting as part of the quorum. Only votes “for” or “withhold authority” affect the outcome. Abstentions and broker “non-votes” are not counted for purposes of the election of Directors.

The affirmative vote of a majority of the votes cast at the Annual Meeting in person or by proxy by shareholders entitled to vote on the matter is required to ratify the appointment of PricewaterhouseCoopers LLP as the independent public accounting firm. Abstentions and broker non-votes are not counted for purposes of the vote on this matter.

 

Under New York Stock Exchange Rules, if you are a beneficial owner and your broker holds your shares in its name, your broker is permitted to vote your shares on the election of Directors and ratification of independent accountants, even if the broker does not receive voting instructions from you if the broker has complied with rules concerning the delivery of proxy materials to beneficial owners.

 

At the date this proxy statement went to press, we did not know of any other matters to be raised at the Annual Meeting.

 

This proxy statement, the form of proxy card, the 2008 Form 10-K and the 2008 Annual Report are available on our website www.energen.com under the heading “Investor Relations” and subheading “SEC Filings”. New Securities and Exchange Commission rules permit the Company to provide shareholders with proxy materials electronically instead of in paper form, even if they have not made an election to receive the material electronically. If we decide to take advantage of this electronic delivery alternative in the future, shareholders will receive a Notice of Internet Availability of Proxy Materials with instructions on how to access the material on the Internet.

 

The members of our Board of Directors, including the three nominees for election, are identified below.

 

 

 

 

Each of our Directors also serves as a Director of Alabama Gas Corporation and Energen Resources Corporation, our principal subsidiaries.

 

During 2008, the Board of Directors of the Company met seven times. All Directors of the Company attended at least 75% of the meetings of the Board of Directors and at least 75% of the meetings of committees of the Board during the time periods such Directors were serving as members of such committees, except Mr. Goodrich who missed one of two Governance and Nominations Committee meetings. We encourage and expect our Board members to attend our Annual Meeting absent extenuating circumstances, but we do not have a formal policy requiring attendance. All of our Board members attended our Annual Meeting held in 2008.

 

Our Board of Directors has standing Governance and Nominations, Audit, Officers Review and Finance Committees. The current members of these Committees are as follows:

 

 

Governance and Nominations Committee.  The duties of the Governance and Nominations Committee are to review and advise the Board of Directors on general governance and structure issues and to review and recommend to the Board the term and tenure of Directors, consider future Board members and recommend nominations to the Board. The charter of the Governance and Nominations Committee describes the duties of the Governance and Nominations Committee in detail. The charter and the Company’s Corporate Governance Guidelines are available on our website under the heading “Governance” (www.energen.com). During 2008, the Governance and Nominations Committee held two meetings. The Board of Directors has determined that each member of the Governance and Nominations Committee is “independent” as defined by the listing standards of the New York Stock Exchange.

 

Audit Committee.  The Audit Committee assists the Board of Directors in fulfilling its oversight responsibilities with respect to the integrity of our financial statements, our legal and regulatory compliance and the performance of our internal and independent auditors. As part of its responsibilities, the Audit Committee is solely responsible for the appointment, compensation, retention, discharge or replacement of our independent auditors. Our Audit Committee charter describes the functions of our Audit Committee in detail, and is available on our website under the heading “Governance” (www.energen.com). During 2008, the Audit Committee held five meetings. The Audit Committee Report is presented at page 13 of this proxy statement under the caption “2008 Audit Committee Report.”

 

The Board of Directors has determined that each member of the Audit Committee is “independent” within the meaning of applicable SEC regulations and the listing standards of the New York Stock Exchange and each member meets the financial literacy and accounting or financial management requirements of the New York Stock Exchange listing standards. The Board has also determined that Mr. Wilson is an audit committee financial expert under the rules and regulations of the Securities and Exchange Commission.

 

Officers Review Committee.  Our Officers Review Committee (“ORC”) considers and makes recommendations to the Board of Directors with respect to executive succession and compensation paid to officers of the Company and its subsidiaries. The ORC also administers the Company’s executive compensation plans. The charter of the ORC describes the duties and functions of the ORC in detail, and is available on our website under the heading “Governance” (www.energen.com). During 2008, the ORC held four meetings. The Report of the ORC is presented on page 22 of the proxy statement under the caption “Compensation Committee Report.” The Board of Directors has determined that each member of the ORC is “independent” as defined by the listing standards of the New York Stock Exchange.

 

The ORC is responsible for overseeing and administering the Company’s executive compensation program. The ORC establishes the salaries and other compensation of the executive officers of the Company, including the Chairman and CEO, the CFO, and other executive officers named in the Summary Compensation Table. In setting salaries and granting other forms of compensation, the ORC receives and considers information and recommendations from the CEO and the Vice President of Human Resources. The ORC also reviews and considers reports and analysis provided by its executive compensation consultant, Towers Perrin. Towers Perrin is engaged by the Company at the direction of the ORC. Management meets

with Towers Perrin representatives and participates in most meetings between Towers Perrin and the ORC. Towers Perrin provides a range of services to the ORC, including competitive assessments of the Company’s executive compensation levels and practices relative to relevant executive labor markets and other assignments as requested by the ORC. For a more detailed description of the ORC’s authority and interaction with management and Towers Perrin, see “Compensation Discussion & Analysis” beginning on page 16.

 

Finance Committee.  Our Finance Committee reviews and makes recommendations to the Board with respect to significant financing and acquisition activities. The Finance Committee charter describes the duties of the Finance Committee in detail, and is available on our website under the heading “Governance” (www.energen.com). The Finance Committee met once during 2008.

 

Availability of Corporate Governance Documents.  Shareholders may obtain copies of our Committee charters, Code of Ethics and Corporate Governance Guidelines from us without charge by requesting such documents in writing or by telephone at the following address or telephone number:

 

J. David Woodruff

Energen Corporation

605 Richard Arrington Jr. Blvd. North

Birmingham, Alabama 35203-2707

Phone: (205) 326-2700

 

Each of these documents is also available on our website under the heading “Governance” (www.energen.com).

 

Our Board of Directors has adopted independence standards consistent with the listing standards adopted by the New York Stock Exchange. A Director will be considered “independent” and found to have no material relationship with the Company if:

 

(1)  During the prior three years:

 

 

 

 

In January 2009, the Board reviewed the independence of its members. Based on this review and the independence standards set forth above, the Board of Directors determined that none of the Director nominees and none of the current Directors, with the exception of Messrs. McManus and Warren, have a material relationship with the Company other than in their capacities as members of the Board of Directors. Mr. McManus is considered an inside Director due to his current employment as Chief Executive Officer of the Company. Mr. Warren is considered an inside Director due to his prior employment as the Company’s Chairman of the Board and Chief Executive Officer.

 

In evaluating the independence of the Directors, the Board considered the following relationships and found them to not be material to an assessment of Director independence.

 

(1) Alabama Gas Corporation provides natural gas utility and related services to several Directors, including businesses for which Company Directors, or the spouses of Company Directors, serve as executive officers. These customers participate in the various gas service, transportation and marketing incentive programs available to their respective customer classes.

 

(2) During 2008, the Company requested a $5,000 donor advised fund grant to Jefferson State Community College of which Dr. Merritt is President.

 

(3) Mr. Snider is CEO of Exterran Holdings, Inc. which provides services to the Company’s subsidiary, Energen Resources Corporation. The following chart shows payments made during 2008. The payments include amounts paid by Energen Resources Corporation as operator on behalf of other working interest owners.

 

 

(4) During 2008, Energen contributed $10,775 to Children’s Health System of which Mr. Warren is Chief Executive Officer.

 

Although the Company does not have specific policies and procedures for the review, approval or ratification of Company transactions in which any director, executive officer or other related person will have a direct or indirect material interest, the Company does have the following provisions in its Code of Conduct and Corporate Governance Guidelines:

 

Members of the board of directors, officers, and employees should not have any position with or a substantial interest in any business that might affect their independent judgment on behalf of Energen, unless the interest is fully disclosed to and approved by Energen. (Code of Conduct)

 

Directors are expected to disclose to other Directors any potential conflicts of interest they may have with respect to any matters under discussion, and, if appropriate, refrain from voting on a matter in which they may have a conflict. (Corporate Governance Guidelines)

 

None of the Directors serving on the ORC has served as an officer or employee of the Company. Of our Directors serving on the ORC, only Mr. Snider had a relationship (other than a utility customer relationship) with the Company which required consideration by our Board of Directors in connection with their review of independence. Mr. Snider’s position as CEO of Exterran Holdings, Inc. is discussed above under “Corporate Governance — Independence Determinations.”

 

Our Governance and Nominations Committee identifies and evaluates Board candidates using one or more informal processes deemed appropriate for the circumstances. Our Chief Executive Officer plays a significant role in bringing potential candidates to the attention of the Committee. A determination of whether to pursue discussions with a particular individual is made after discussion by the Committee and may be preceded by formal or informal discussions involving one or all of the other Board members. Information considered by the Committee may include information provided by the candidate, the Chief Executive Officer and one or more Committee or Board members. The Committee seeks candidates whose qualifications, experience and independence complement those of existing Board members. Board candidates are expected to possess high personal and professional ethics, integrity and values, and be committed to representing the long-term interests of the shareholders. They are also expected to have an inquisitive and objective perspective, practical wisdom and good judgment.

 

Once appropriate candidates have been identified, the Committee recommends nominations to our Board and to the boards of our subsidiaries. Our Governance and Nominations Committee has not adopted a policy or procedure for the consideration of director candidates recommended by shareholders. Our Board does not recall an instance in which a shareholder (other than a shareholder serving as an officer or director) has recommended a director candidate; however, as stated in prior years, the Governance and Nominations Committee will consider timely shareholder recommendations. The Governance and Nominations Committee did not receive any director candidate recommendations from shareholders holding at least 5% of our common stock for our 2009 Annual Meeting.

 

Based on past experience, we expect to receive and respond to shareholder communications in a variety of ways. Our Board does not want to limit this flexibility and has not implemented a defined process for shareholders to send communications to the Board. Any shareholder or other interested person wishing to communicate with a member of the Board may send correspondence to his or her attention at Energen Corporation, 605 Richard Arrington Jr. Blvd. North, Birmingham, Alabama 35203-2707. The names, titles and committee assignments of our officers and Directors, together with our mailing address and telephone number, can be found on our website under the heading “Governance” (www.energen.com). Also under that heading is a copy of the procedure adopted by our Audit Committee for the handling of inquiries and correspondence relating to errors, deficiencies and misrepresentations in accounting, internal control and audit related matters. Such inquiries and correspondence are forwarded by our General Counsel to the Chairman of our Audit Committee.

 

Under our Corporate Governance Guidelines, our Board may designate a presiding director for purposes of convening and chairing meetings of our non-management directors. Mr. French currently serves in that role.

 

2008 Director Compensation

 

 

 

 

The Governance and Nominations Committee charter provides that:

 

At such times as it determines appropriate or as requested by the Board, the Committee will review and make recommendations with respect to Director compensation. Such compensation is intended to be sufficient to attract and retain qualified candidates and may include a combination of cash and stock based compensation.

 

Management discusses Director compensation with the Governance and Nominations Committee, and makes recommendations on Director compensation which the Governance and Nominations Committee considers as part of its process in reviewing Director compensation. The 2008 Director compensation levels were recommended by the Governance and Nominations Committee and approved by the Board in December 2007.

 

Monthly Cash Retainer Fees and Meeting Fees.  During 2008, non-employee Directors were paid a retainer of $51,000 per year. Non-employee Directors also received a fee of $1,500 for each Board meeting attended, and $1,500 for each committee meeting attended. The Governance and Nominations and Finance Committee Chairs received a retainer supplement of $3,000 per year, while the Chair of the Audit Committee received a supplement of $15,000 per year and the Chair of the Officers Review Committee received a supplement of $10,000 per year. Members of the Audit Committee other than the Chair received a retainer supplement of $3,000 per year. Our Presiding Director received a retainer supplement of $3,000 per year. No Director who is an employee of the Company is compensated for service as a member of the Board of Directors or any committee of the Board of Directors.

Share Awards and Deferred Compensation.  Under the Energen Corporation 1992 Directors Stock Plan, each non-employee Director receives an annual grant of twelve hundred shares of common stock. Annual awards are made following the last day of each fiscal year, and only non-employee Directors who are members of our Board on such date and who have been members of the Board for at least six months are eligible. The size of this annual grant is subject to adjustment in the event of a stock dividend, stock split or similar transaction. The plan also allows each non-employee Director to elect to have any part or all of the fees payable for services as a Director of the Company and its subsidiaries paid in shares of common stock. Awards under the Directors Stock Plan are in addition to the payment of monthly cash retainers and meeting fees.

 

Our Board of Directors administers the Directors Stock Plan. Although the plan has no fixed duration, the Board of Directors or our shareholders may terminate the plan. Our Board of Directors also may amend the plan from time to time, but any amendment that materially increases the benefits accruing to participants, increases the number of shares of common stock which may be issued or materially modifies eligibility requirements would require the approval of our shareholders.

 

Under the Company’s 1997 Deferred Compensation Plan, members of the Board of Directors may elect to defer part or all of their director compensation. The 1997 Deferred Compensation Plan is discussed below in greater detail under the caption “Compensation Discussion and Analysis-1997 Deferred Compensation Plan.”

 

Other.  Directors have family coverage under the Company’s membership in a medical emergency travel assistance program. The Company also reimburses directors for travel, lodging, and related expenses incurred in attending Board and Committee meetings. These reimbursements include the expenses incurred by the directors’ spouses in accompanying the directors at the invitation of the Company, along with taxes related to such payments. In addition, two directors use Company provided PDAs.

 

The Company has a Code of Ethics which is applicable to all of the Company’s employees, including the principal executive officer, the principal financial officer and the principal accounting officer. The Code of Ethics is also applicable to all of the Directors of the Company. The Code of Ethics is available on our website under the heading “Governance” (www.energen.com). We intend to post amendments to or waivers from the Code of Ethics which are applicable to the Company’s directors, principal executive officer, principal financial officer and principal accounting officer at this location on our website.

 

The Audit Committee of the Board of Directors of the Company has selected the accounting firm of PricewaterhouseCoopers LLP to serve as the independent registered public accounting firm of the Company with respect to its operations for the year 2009. While shareholder ratification of the appointment is not required, the Audit Committee has determined to seek input from the shareholders as part of the selection process. PricewaterhouseCoopers LLP has served as the Company’s independent registered public accounting firm for a number of years. If the appointment of PricewaterhouseCoopers LLP is not ratified by the shareholders, the matter of the appointment of an independent registered public accounting firm will be considered by the Audit Committee.

 

The firm of PricewaterhouseCoopers LLP audited our financial statements for the fiscal year ended December 31, 2008, and the Audit Committee plans to continue the services of this firm for the fiscal year ending December 31, 2009. A representative of PricewaterhouseCoopers LLP will be present at the Annual Meeting, will have an opportunity to make a statement if he or she desires to do so and will be available to respond to appropriate questions.

 

The following table presents fees billed or expected to be billed for professional audit services rendered by PricewaterhouseCoopers LLP for the audit of the Company’s annual financial statements for the years ended December 31, 2008 and December 31, 2007, and fees billed for other services rendered by PricewaterhouseCoopers LLP during those periods.

 

 

 

 

Our Audit Committee approved, directly or through our pre-approval process, one hundred percent (100%) of the services provided by PricewaterhouseCoopers LLP during 2008, and concluded that the provision of such services by PricewaterhouseCoopers LLP was compatible with the maintenance of that firm’s independence in the conduct of its auditing functions.

 

In April 2008 our Audit Committee pre-approved the engagement through June 30, 2009 of the independent auditors with respect to the following services: (i) services necessary to perform the audit or review of the Company’s financial statements; (ii) audit-related services such as employee benefit plan audits, due diligence related to mergers and acquisitions, accounting assistance and internal control reviews; and (iii) tax services including preparation and/or review of, and consultation and advice with respect to tax returns and reports; claims for tax refund; tax payment planning services; tax implications of changes in accounting methods and applications for approval of such changes; tax basis studies; tax implications of mergers and acquisitions; tax issues relating to payroll; tax issues relating to employee benefit plans; requests for technical advice from tax authorities and tax audits and appeals (not including representation before a tax court, district court or federal court of claims or a comparable state or local court). In addition, the Chairman of the Audit Committee has been delegated the authority by the Audit Committee to pre-approve the engagement of the independent auditors for services not covered by the above authority. All such pre-approvals must be reported to the Audit Committee at the next committee meeting.

 

The affirmative vote of a majority of the votes cast at the Annual Meeting in person or by proxy by shareholders entitled to vote on the matter is required to ratify the appointment of PricewaterhouseCoopers LLP as independent registered public accounting firm of the Company.

 

THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE “FOR” THE RATIFICATION OF THE APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP AS INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM.

 

In compliance with the requirements of the New York Stock Exchange (NYSE), the Audit Committee has a formal written charter approved by the Board of Directors, a copy of which is available on our website under the heading “Governance” (www.energen.com). In connection with the performance of its responsibility under its charter, the Audit Committee has:

 

 

The Audit Committee has also considered whether the independent public accountants’ provision of non-audit services to the Company is compatible with maintaining their independence.

 

Audit Committee
David W. Wilson, Chair
Julian W. Banton
Kenneth W. Dewey
James S. M. French
Judy M. Merritt

 

The only persons known by the Company to be beneficial owners of more than five percent (5%) of the Company’s common stock are the following:

 

 

 

 

As of February 27, 2009, our Directors and executive officers beneficially owned shares of our common stock as described in the table below. Except as we have noted below, each individual listed below has sole voting power and sole investment power with respect to shares they beneficially own. The final column indicates common stock share equivalents held under the Energen Corporation Deferred Compensation Plan as of February 27, 2009.

 

 

 

 

The Officers Review Committee (“ORC”) of the Board of Directors oversees and administers the Company’s executive compensation program. The ORC establishes the salaries and other compensation of the executive officers of the Company, including the Chairman and CEO, the CFO, and other executive officers named in the Summary Compensation Table (sometimes referred to as the “named executive officers”). Each member of the ORC is an independent director.

 

The Company’s executive compensation program is designed to serve the Company and its shareholders by aligning executive compensation with shareholder interests and by encouraging and rewarding management initiatives that will benefit the Company and its shareholders, customers, and employees over the long term. Specifically, the executive compensation program seeks to:

 

 

The Company’s executive compensation program includes salary, annual cash incentive awards, long-term equity based incentive opportunities, retirement benefits and change in control related severance compensation. Each of these components is a factor in attraction and retention. The annual cash and long-term equity incentives link compensation to corporate performance, with the annual cash incentives keyed to short-term financial and operational objectives and the long-term equity incentives providing alignment with shareholder returns.

 

The combination of salary, short-term cash and long-term equity incentives is intended to compensate Company executives at approximately the 50th percentile of the market when the Company performs at a target level, to provide additional compensation for superior Company performance, and less compensation for below target Company performance. The allocation between the various elements of the compensation package is intended to emphasize incentive compensation while remaining in line with market allocations for similar positions in comparable companies. At target performance levels, a majority of the compensation package is represented by incentive compensation and a majority of the incentive compensation is represented by long-term equity incentive compensation. The allocation to incentive compensation increases with position seniority.

 

In evaluating compensation, the ORC receives and considers information and recommendations from the CEO and the Vice President of Human Resources. The ORC also reviews and considers reports and analysis provided by its executive compensation consultant, Towers Perrin. Towers Perrin is engaged by the Company at the direction of the ORC. Management meets with Towers Perrin representatives and participates in most meetings between Towers Perrin and the ORC.

 

Towers Perrin provides a range of services to the ORC, including competitive assessments of the Company’s executive compensation levels and practices relative to relevant executive labor markets and other assignments as requested by the ORC. Specifically, with respect to 2008 executive compensation, Towers Perrin assisted the ORC and the Company in the following areas:

 

 

Towers Perrin does not make specific recommendations on individual pay levels, but rather provides competitive data for review and use by the ORC and Company. The Company’s CEO and Vice President — Human Resources play a significant role in providing input and recommendations to the ORC in evaluating and discussing data and analysis prepared by Towers Perrin.

The Committee uses the Towers Perrin provided data and analysis for general reference purposes. The Towers Perrin energy services data base includes approximately 100 companies and its general industry data base includes over 800 companies. During fall 2008 in preparation for the Committee’s 2009 compensation review, Towers Perrin provided compensation data and analysis from four data bases: (1) Utility Industry - 54 utility focused companies from Towers Perrin’s 2008 energy services data base; (2) Custom Peer Group - 29 companies representing a mix of oil and gas, diversified companies with regulated gas operations, and pure-play gas utility companies selected to reflect Energen’s current business mix; (3) Oil and Gas and Utility Industry Blend - blended market data having a 75 percent weight on data from the 2007 ECI Oil and Gas Survey (provided by the Company to Towers Perrin for use on the Company’s behalf) and a 25 percent weight on the Utility Industry data, intended to reflect Energen’s current business mix; and (4) Broader General Industry - general industry data from the 2008 Towers Perrin executive compensation data base. Companies included in the Utility Industry data base, Custom Peer Group data base and 2007 ECI Oil and Gas Survey are listed on Appendix A. The ORC has not requested a listing of the companies in the Towers Perrin energy services data base or executive compensation data base.

 

The Company has the following non-binding suggested stock ownership guidelines for officers: CEO and Chairman - 5 times base salary; CFO, COOs and General Counsel - 3 times base salary, VP-HR and CIO - 2 times base salary, and other officers - 1 times base salary. For purposes of the guidelines, stock ownership includes (1) shares owned directly by the executive and immediate family members, (2) share holdings in the Company’s 401(k) plan, (3) deferred compensation shares and (4) unvested restricted stock. As of December 31, 2008, each of our named executive officers, except for Mr. Porter, maintained ownership exceeding these suggested levels. Mr. Porter’s ownership met the guideline during most of 2008 but fell by year end as a result of the market price decline. The guidelines were not a factor in the ORC’s 2008 compensation decisions.

 

On an annual basis the ORC meets with the CEO to discuss his performance. The CEO provides the ORC with his evaluation of the performance of the other executive officers in connection with the annual compensation review of those officers. The incentive plans during recent years have been formula-driven based on Company performance, not individual performance. Individual performance is considered in setting future compensation. The Annual Incentive Compensation Plan provides the ORC with the discretion to decrease, but not increase, an earned incentive by up to 25%. This allows the ORC to reduce an individual payout for any reason including poor individual performance. The ORC’s negative discretion does not apply to plans other than the Annual Incentive Compensation Plan.

 

Key Recent Performance Indicators.  The Company’s continued strong financial and operational results generated above target payouts under the Company’s Annual Incentive Compensation Plan and was a significant factor in the ORC’s evaluation and review of the Company’s leadership and compensation program. During 2008 the Company generated its seventh consecutive year of record earnings with net income of $322 million, earnings per diluted share of $4.47 (a 4.4% increase over the prior year and 7.2% over budget) and twenty-six years of consecutive annual dividend increases. Dividends paid during 2008 reflected a 4.3% increase over the prior year. The January 2009 payouts of cash bonuses earned during 2008 under the Annual Incentive Compensation Plan reflect the Company’s earnings per share results and the performance of its subsidiaries as described below. In spite of strong financial and operational performance, the Company’s stock price declined substantially during 2008 resulting in a four year total shareholder return performance of 1%. As a result, the Company failed to meet the performance conditions for payout of the Performance Share Awards for the four year award period ended December 31, 2008.

 

Salary.  As discussed above, the ORC attempts to provide competitive salaries. With respect to 2009 salaries, the ORC reviewed competitive salary data for each position. Competitive salary data was intended to approximate the median salary of similar positions with comparable companies. In approving salary adjustments, the ORC considered the competitive salary data, recommendations from the CEO and the Vice President of Human Resources, the performance of each executive officer over the prior compensation period, individual contributions to overall Company performance, internal comparability considerations, as appropriate, and the executive’s years of experience.

The differences in amounts of compensation awarded to the named executive officers reflect differences in the competitive market data for the positions held by the executives as well as internal comparability. Individual performances and contributions were uniformly good over the prior compensation period and thus were not distinguishing factors in setting compensation for the named executive officers. From an internal comparability perspective, Mr. McManus holds the position with the greatest corporate responsibility, thus resulting in greater compensation as compared to the other named officers. Each of the named officers has many years of service with the Company. Mr. McManus and Mr. Porter are relatively new to their positions, resulting in lower 2008 salaries than would likely have been paid if they had been in their respective positions for several years.

 

Mr. McManus has served as the Company’s President and Chief Executive Officer since July 2007. Effective January 1, 2009, Mr. McManus’s salary was increased to $630,000 reflecting a market adjustment consistent with the policies discussed above.

 

Annual Incentive Compensation.  Executive officers are eligible each year for cash incentive awards under the Annual Incentive Compensation Plan. Awards are based upon attaining performance objectives approved by the ORC. Assuming the performance objectives are met, the incentive award is based upon a percentage of the salary earned by the participant during the performance year. The ORC authorizes target awards and performance objectives for each performance period. The Annual Incentive Compensation Plan is designed so that all annual incentive compensation paid to executive officers will be deductible by us for federal income tax purposes. The Board of Directors may, in its discretion, award individual cash bonuses in addition to those paid under the Annual Incentive Compensation Plan. The deductibility of individual bonuses paid outside of the Annual Incentive Compensation Plan will depend on the specific circumstances.

 

For 2008, determination of earned annual cash incentives was calculated by applying company performance factors to target incentive opportunities. The target incentive opportunities are set each year as a percentage of base salaries. For 2008, Mr. McManus had an incentive opportunity at target of 75% of base salary; Mr. Richardson 50%; Mr. Porter, Mr. Reynolds and Mr. Woodruff 45%.

 

The applicable portions of target incentive opportunities subject to the various performance factors were as follows:

 

 

The Energen, Energen Resources and Alabama Gas performance factors as well as actual 2008 results were as follows:

 

 

If Energen had failed to meet threshold performance, no incentives would have been paid. If Energen Resources or Alabama Gas had failed to meet net income threshold performance, then no incentive would have been paid for that portion of the incentive opportunity applicable to its respective performance.

The performance criteria were as follows:

 

 

 

 

Long-Term Incentive Compensation.  The 1997 Stock Incentive Plan provides for the grant of stock options, restricted stock and performance shares. Prior to 2007, the policy of the ORC was to use performance shares as the primary vehicle to deliver long-term incentives supplemented in certain circumstances by stock options and restricted stock. Performance shares reward performance relative to the performance of a peer group. This incents and rewards superior performance independent of market or industry conditions. Since it is based on relative performance, however, a payout could occur during a period of less than satisfactory shareholder return. It also requires frequent maintenance and adjustment of the peer group as a result of merger and acquisition activity and business mix changes. There is currently outstanding one remaining set of performance shares. They were granted in 2006 for a four-year performance award period ending December 31, 2009.

 

In 2007, the ORC began using stock options as the primary vehicle for delivering long-term incentives. This more directly aligns executive officer long-term incentive compensation with increases in shareholder value and is subject to market and industry condition influences. The ORC has not placed performance conditions, other than employment vesting periods, on grants of stock options. The ORC reserves the right to make future restricted stock and performance share awards but has no current plans to do so. The ORC routinely makes awards in January, although it retains the authority to make awards at other times of the year.

 

Stock Options.  The stock option provisions of the plan provide for the grant of non-qualified stock options and stock appreciation rights or a combination thereof to officers and key employees, all as determined by the ORC. If an option includes stock appreciation rights, then the optionee may elect to cancel all or any portion of the option then subject to exercise, in which event our obligation in respect of such option may be discharged by payment of an amount in cash equal to the excess, if any, of the fair market value of the shares of common stock subject to such cancellation over the option exercise price for such shares.

 

Restricted Stock.  The plan also provides for the grant of restricted stock. No shares of restricted stock may be sold or pledged until the restrictions on such shares have lapsed or have been removed. The ORC establishes as to each award of restricted stock the terms and conditions upon which the restrictions shall lapse, which terms and conditions may include a required period of service or individual or corporate performance conditions.

 

Performance Shares.  A performance share is the value equivalent of one share of our common stock. An award of performance shares becomes payable if the ORC determines that all conditions of payment have

been satisfied at the end of the applicable award period. Except as otherwise determined by the ORC at the time of grant, an award period will be the four-year period that commences on the first day of the fiscal year in which an award is granted. According to the performance condition guidelines previously adopted by the ORC and currently in effect under the plan, payment of an award will be based on the Company’s percentile ranking with respect to total shareholder return among a comparison group of companies (listed on Appendix A to this proxy statement) as measured for the applicable award or interim period.

 

For purposes of calculating “total shareholder return,” the stock prices for the Company and the peer group are based on the average of the daily closing prices for a share of stock for 20 trading days. The beginning price is determined based on the 20 trading days ending on the last trading day prior to commencement of the applicable award period. The ending price is determined based on the 20 trading days ending on the last day of the applicable award period.

 

The following schedule indicates threshold, target and maximum performance objectives and payouts for performance share award periods.

 

Four Year Award Periods ending December 31, 2008 and 2009
(Actual Result for the December 31, 2008 Award Period was 18.8 percentile with no payout)

 

 

Under the 1997 Stock Incentive plan, the ORC has the discretion to accelerate the vesting of stock options and restricted stock and may also exercise discretion to allow a terminating employee to remain eligible for payout of previously granted performance shares.

 

1997 Deferred Compensation Plan.  The Company also provides a program which allows our directors and officers to defer receipt of compensation. Amounts deferred by a participant under the Deferred Compensation Plan are credited to one of two separate accounts maintained for a participant, a Company stock account or an investment account. The value of a participant’s Company stock account tracks the performance of our common stock, including reinvestment of dividends. At distribution, the participant’s Company stock account is payable in the form of shares of Company common stock. The value of a participant’s investment account tracks the performance of selected mutual funds offered by The Vanguard Group, Inc. At distribution, the participant’s investment account is payable in cash. The Deferred Compensation Plan is primarily designed as a financial planning and savings tool for participants. It does, however, include a Company contribution provision for officers which mirrors the Company’s match and ESOP contribution provisions of the Company’s generally available Employee Savings Plan. The Company has established trusts and has funded the trusts, and presently plans to continue funding the trusts, in a manner that generally tracks participants’ accounts under the Deferred Compensation Plan. Although there is generally no requirement that the trusts be so funded or invested, if a change in control of the Company occurs, the trusts must be funded in an amount equal to the aggregate value of the participants’ accounts at the time of the change of control. While intended for payment of benefits under the Deferred Compensation Plan, the trusts’ assets remain subject to the claims of our creditors.

 

Retirement Income Plan and Retirement Supplement Agreements.  The Energen Corporation Retirement Income Plan, a defined benefit plan, covers our officers along with substantially all of our salaried employees and members of two of our three bargaining units. Our officers receive benefits under the plan based on years of service at retirement and on “Final Earnings,” the average base compensation for the highest sixty consecutive months out of the final 120 months of employment. (Average base compensation includes base salary only, and does not include bonus payments, payments in the form of contributions to other benefit plans or any other form of payment such as annual or long-term incentives.) Normal or delayed retirement

benefits are payable upon retirement on the first day of any month following attainment of age 65 and continuing for life, subject to an annual cost-of-living increase of up to three percent. Section 415 of the Internal Revenue Code imposes limits on benefits payable to an employee under the plan.

 

We have entered into Executive Retirement Supplement Agreements (“Supplemental Agreements”) with certain officers, including each of the named executive officers. Each Supplemental Agreement provides that the employee will receive a supplemental retirement benefit equal to the difference between 60% of the employee’s monthly compensation and the employee’s monthly retirement benefit under the Retirement Income Plan (including social security benefit). Generally, an employee’s compensation will be determined based on a formula taking into account the average of the highest 36 consecutive months of base salary during the five years prior to retirement plus the average of the three highest annual incentive awards for the ten full fiscal years prior to the earlier of (1) retirement or (2) the officer’s 61st birthday.

 

Each of our named executive officers has sufficient service with the Company to have earned vested benefits under the Retirement Income Plan and the Supplemental Agreements, and the benefits do not increase or accelerate upon termination or a change in control. Both the Retirement Income Plan and the Supplemental Agreements provide annuity and lump sum payment options.

 

Severance Compensation Agreements and Change in Control.  We have entered into Severance Compensation Agreements with certain officers and key employees including Messrs. McManus, Porter, Reynolds, Richardson and Woodruff. We designed the agreements to retain the executives and provide continuity of management in the event of any actual or threatened change in control of the Company. Each such agreement provides that if, during a base period following the first to occur of a change in control of the Company (as defined in the agreements) or shareholder approval of a transaction that will constitute a change in control, the employee’s employment is terminated in a qualified termination, then we will pay the employee an amount equal to a percentage of the employee’s (a) annual base salary in effect immediately prior to the change in control, plus (b) the employee’s highest annual cash bonus compensation for the three fiscal years immediately prior to the fiscal year during which the change in control occurs.

 

Continuity of management and retention during transition periods is encouraged by providing severance benefits in the event of loss of employment following a change in control. The percentage payable and base period varies by executive and ranges from 100% with a one year base period to 300% with a three year base period. The 100%, 200% and 300% multiples reflect consideration of the executive’s level of corporate responsibility, specialized skills, and availability of other job opportunities. A higher multiple reflects a higher importance of retention. Thus, officers with higher levels of corporate responsibility or specialized skill or knowledge have higher multiples. Officers who, due to senior responsibilities or specialized skills, may have fewer alternative employment opportunities also have higher multiples to provide compensation during a longer job search. All named officers have a 300% multiple. The severance compensation agreements cover a three-year base period and also provide (1) the continuance of certain insurance and other employee benefits for a period of twenty-four months following any such termination of employment and (2) that if the executive receives compensation that would be subject to the tax imposed by Section 4999 of the Internal Revenue Code, the executive shall be entitled to receive an additional payment in an amount necessary to put the executive in the same after-tax position as if such tax had not been imposed unless the tax would not apply if the payments under the severance compensation agreement were reduced by up to 10% of the amount subject to the tax, in which case such a reduction is made. For purposes of the agreements, (1) the term “qualified termination” means a termination (a) by the Company other than for cause, (b) by the employee for good reason or (c) by written agreement to such effect between the employee and the Company, (2) the term “cause” generally means failure to substantially perform duties, misconduct injurious to the Company or conviction of a felony, and (3) the term “good reason” generally means a material reduction in the position, duties, responsibilities, status or benefits of the employee’s job.

 

The Company’s 1997 Stock Incentive Plan also includes change in control provisions. In most instances of a change in control, unvested stock options vest, restrictions on restricted shares lapse and performance measurement and payment of performance shares are accelerated.

 

The Officers Review Committee has reviewed and discussed the Compensation Discussion and Analysis with management and based on that review and discussion, the Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this proxy statement.

 

Officers Review Committee:
Julian W. Banton, Chair
James S. M. French
T. Michael Goodrich
Stephen A. Snider

 

The following table sets forth the information required by Item 402 of Regulation S-K promulgated by the Securities and Exchange Commission. The amounts shown represent the compensation paid to our named executive officers for each fiscal year noted in the table, for services rendered to us. For a more complete discussion of the elements of compensation included in this table, please refer to the discussion reflected in “Compensation Discussion and Analysis” beginning on page 16 of this proxy statement.

 

 

 

 

		Defined				Spousal Travel Tax
		Contributions				Reimbursement
McManus		$	38,930			$	4,723
Porter		$	16,083			$	1,391
Richardson		$	20,389			$	943
Reynolds		$	27,094			$	1,593
Woodruff		$	19,155			$	1,666

 

 

 

The following table sets forth information with respect to plan-based stock option grants under the 1997 Stock Incentive Plan and incentive compensation awards under the Annual Incentive Compensation Plan, in each case to our named executive officers. For a more complete discussion of the awards under the 1997 Stock Incentive Plan and the Annual Incentive Compensation Plan, please refer to the discussion of these plans contained in “Compensation Discussion and Analysis,” beginning on page 16 of this proxy statement.

 

 

 

 

The following table sets forth information with respect to outstanding equity awards held by our named executive officers as of December 31, 2008. This table includes unexercised and unvested option awards, unvested restricted stock awards and performance shares with performance conditions that have not yet been satisfied. Each equity grant is shown separately for each named executive officer. The vesting schedule for each grant is shown following this table. The market value of the stock awards is based on the closing market price of Company common stock as of December 31, 2008, which was $29.33 per share. For additional information about the outstanding equity awards, see the description of long-term incentive compensation in “Compensation Discussion & Analysis” beginning on page 16.