UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

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 Pursuant to §240.14a-12

 

Freeport-McMoRan Copper & Gold Inc.

(Name of Registrant as Specified In Its Charter)

 

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

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Notice of Annual Meeting of Stockholders

 

June 11, 2009

 

 

April 24, 2009

 

Your vote is important. Whether or not you plan to attend the meeting, please promptly submit your vote online or complete, sign and date a proxy or voting instruction card and return it promptly. Your cooperation is appreciated.

 

By Order of the Board of Directors.

 

 

DOUGLAS N. CURRAULT II
Secretary

 

Information about Attending the Annual Meeting

 

Only stockholders of record on the record date are entitled to notice of and to vote at our annual meeting. If you plan to attend the meeting in person, please bring the following:

 

1. Proper identification.

 

2. Acceptable Proof of Ownership if your shares are held in “Street Name.”

 

Street Name means your shares are held of record by brokers, banks or other institutions.

 

Acceptable Proof of Ownership is (a) a letter from your broker stating that you beneficially owned Freeport-McMoRan Copper & Gold Inc. stock on the record date or (b) an account statement showing that you beneficially owned Freeport-McMoRan Copper & Gold Inc. stock on the record date.

 

Post-Meeting Report of the Annual Meeting

 

A post-meeting report summarizing the proceedings of the meeting will be available on our web site at www.fcx.com within 10 days following the meeting. A copy of the report will be mailed at no charge to any stockholder requesting it.

 

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE
SHAREHOLDER MEETING TO BE HELD ON JUNE 11, 2009.

 

This proxy statement and the 2008 annual report are available at
www.proxymaterial.com/fcx.

FREEPORT-McMoRan COPPER & GOLD INC.

 

One North Central Avenue
Phoenix, Arizona 85004

 

The 2008 Annual Report to Stockholders, including financial statements, is being made available to stockholders together with these proxy materials on or about April 24, 2009.

 

 

 

 

Questions and Answers about the Proxy Materials, Annual Meeting and Voting

 

Why am I receiving these proxy materials?

 

Our board of directors is soliciting your proxy to vote at our 2009 annual meeting of stockholders because you owned shares of our common stock at the close of business on April 14, 2009, the record date for the annual meeting, which entitles you to vote at the meeting. The proxy statement, along with a proxy card or a voting instruction card, is being made available to stockholders beginning April 24, 2009. We have made these materials available to you on the internet, and in some cases, have delivered printed proxy materials to you. This proxy statement summarizes the information that you need to know in order to cast your vote at the annual meeting. You do not need to attend the annual meeting in person to vote your shares.

 

Why did I receive a notice of internet availability of proxy materials instead of a full set of proxy materials?

 

In accordance with rules recently adopted by the Securities and Exchange Commission, we may furnish proxy materials, including this proxy statement and our 2008 Annual Report, to stockholders by providing access to these documents on the internet instead of mailing printed copies. Most stockholders will not receive printed copies of the proxy materials unless requested. Instead, the notice will instruct you as to how you may access and review the proxy materials on the internet. The notice also instructs you as to how you may submit your vote via the internet. If you would like to receive a paper or email copy of our proxy materials, you should follow the instructions for requesting the materials in the notice.

 

When and where will the annual meeting be held?

 

The annual meeting will be held at 10:00 a.m. Eastern time on Thursday, June 11, 2009, at the Hotel du Pont, 11th and Market Streets, Wilmington, Delaware 19801.

 

Who is soliciting my proxy?

 

Our board of directors is soliciting your proxy to vote on all matters scheduled to come before the 2009 annual meeting of stockholders, whether or not you attend in person. By completing and returning the proxy card or voting instruction card, or by casting your vote via the internet, you are authorizing the proxy holders to vote your shares at our annual meeting as you have instructed.

 

On what will I be voting? How does the board of directors recommend that I cast my vote?

 

At the annual meeting, our stockholders will be asked to elect our director nominees, ratify the appointment of our independent auditor, adopt the 2009 Annual Incentive Plan, consider a stockholder proposal, if presented at the meeting, and consider any other matter that properly comes before the meeting.

 

The board of directors unanimously recommends that you vote:

 

 

We do not expect any matters to be presented for action at the meeting other than the items described in this proxy statement. By signing and returning the enclosed proxy, however, you will give to the persons named as proxies discretionary voting authority with respect to any other matter that may properly come before the annual meeting, and they intend to vote on any such other matter in accordance with their best judgment.

 

How many votes may I cast?

 

You have one vote for every share of our common stock that you owned on April 14, 2009, the record date.

 

How many votes can be cast by all stockholders?

 

As of the record date, we had 411,751,897 shares of common stock outstanding, each of which is entitled to one vote.

 

How many shares must be present to hold the annual meeting?

 

Our by-laws provide that a majority of our outstanding shares of common stock entitled to vote, whether in person or represented by proxy, constitutes a quorum necessary to properly convene a meeting of our stockholders. The inspector of election will determine whether a quorum exists. Shares of our common stock present at the annual meeting that abstain from voting, that are the subject of broker non-votes, or for which voting authority is withheld will be counted as present for purposes of determining the existence of a quorum.

 

What is the difference between holding shares as a stockholder of record and as a beneficial owner?

 

If your shares are registered directly in your name with BNY Mellon Shareowner Services, our transfer agent, you are considered, with respect to those shares, the “stockholder of record.” The proxy materials have been made available to you by us.

 

If your shares are held in a stock brokerage account or by a bank or other nominee, you are considered the “beneficial owner” of shares held in “street name.” The proxy materials have been made available to you by your broker, bank or nominee who is considered, with respect to those shares, the stockholder of record. As the beneficial owner, you have the right to direct your broker, bank or nominee how to vote your shares by using the voting instruction card included in the mailing or by following their instructions for voting by telephone or internet.

 

If my shares are held in street name, what happens if I do not vote? How are broker non-votes counted?

 

If you hold shares in street name and you do not provide voting instructions to your broker, bank or nominee, your shares will not be voted with respect to any proposal for which your broker does not have discretionary authority to vote.

 

Rules of the New York Stock Exchange (NYSE) determine whether proposals presented at the stockholder meetings are “discretionary” or “non-discretionary.” If a proposal is determined to be discretionary, the NYSE provides brokerage firms with authority to vote on the proposal without receiving voting instructions from their clients. “Broker non-votes” occur when your shares are represented at the meeting by a broker, bank or other nominee, but with respect to which you have not instructed your broker, bank or nominee on how to vote on a non-discretionary proposal.

 

Under NYSE rules, brokers generally have discretionary authority to vote without instructions from beneficial owners on the election of directors, the ratification of the appointment of the independent auditor and certain incentive plans, including the 2009 Annual Incentive Plan. Brokers generally do not have discretionary authority to vote without instructions from beneficial owners on stockholder proposals. Broker non-votes will not be counted as votes for or against and will not be included in calculating the number of votes necessary for approval of the matters to be presented at the meeting. Broker non-votes will be considered present at the annual meeting for purposes of determining the existence of a quorum.

What vote is required to approve each item?

 

In uncontested elections, our directors are elected by the affirmative vote of the holders of a majority of the shares voted. In contested elections (where the number of nominees exceeds the number of directors to be elected), the directors will be elected by a plurality of shares voted. Under our by-laws, all other matters require the affirmative vote of the holders of a majority of our common stock present in person or by proxy and entitled to vote on such matters, except as otherwise provided by statute, our certificate of incorporation or our by-laws.

 

Abstentions as to all such matters to come before the annual meeting will be counted as votes against those matters. Broker non-votes will have no effect on the voting calculations for the election of directors, the ratification of our independent auditor, the adoption of our 2009 Annual Incentive Plan or the stockholder proposal, if presented at the meeting.

 

How do I vote?

 

If your shares are registered in your name (and not held through a broker, bank or other institution), there are two ways to vote: by internet or by mail. Your vote authorizes each of James R. Moffett, Richard C. Adkerson and Kathleen L. Quirk, as proxies, each with the power to appoint his or her substitute, to represent and vote your shares as you directed.

 

 

 

 

 

Only the latest dated proxy received from you, whether by internet or mail, will be voted at the annual meeting. If you vote by internet, please do not mail your proxy card.

 

If your shares are held in street name (through a broker, bank or other institution), you may receive a separate voting instruction form, or you may need to contact your broker, bank or other institution to determine whether you will be able to vote electronically using the internet or the telephone.

 

If you hold shares of our common stock through our Employee Capital Accumulation Program (ECAP), you may only vote your shares by mail. Mark, sign and date your proxy card and return it in the postage-paid envelope provided to you.

 

Can I change my vote?

 

Yes. Your proxy can be revoked or changed at any time before it is voted by notice in writing to our corporate secretary, by our timely receipt of another proxy with a later date or by voting in person at the annual meeting.

 

What if I don’t vote for a proposal?

 

If you properly execute and return a proxy or voting instruction card, your stock will be voted as you specify. If your shares are registered in your name (and not held through a broker, bank or other institution) and you make no specifications on your proxy card, your shares will be voted in accordance with the recommendations of our board of directors, as provided above. If your shares are held in street name (through a broker, bank or other institution), and you do not give voting instructions to your broker, bank or nominee, they will be entitled to vote your shares in the manner they choose with respect to the election of directors, the ratification of our independent auditor and the adoption of the 2009 Annual Incentive Plan.

Who pays for soliciting proxies?

 

We pay all expenses of soliciting proxies for the annual meeting. In addition to solicitations by mail, arrangements have been made for brokers and nominees to send proxy materials to their principals, and we will reimburse them for their reasonable expenses. We have retained Georgeson Inc., 199 Water Street, 26th Floor, New York, New York, to assist with the solicitation of proxies from brokers and nominees. It is estimated that the fees for Georgeson’s services will be $10,000 plus its reasonable out-of-pocket expenses. We may have our employees or other representatives (who will receive no additional compensation for their services) solicit proxies by telephone, e-mail, personal interview or other means.

 

Could other matters be considered and voted upon at the annual meeting?

 

Our board does not expect to bring any other matter before the annual meeting, and it is not aware of any other matter that may be considered at the meeting. In addition, pursuant to our by-laws, the time has elapsed for any stockholder to properly bring a matter before the meeting. However, if any other matter does properly come before the meeting, the proxy holders will vote the proxies in his or her discretion.

 

What happens if the annual meeting is postponed or adjourned?

 

Unless a new record date is fixed, your proxy will still be valid and may be voted at the postponed or adjourned meeting. You will still be able to change or revoke your proxy until it is voted.

 

Stockholder Proposals

 

If you want us to consider including a proposal in next year’s proxy statement, you must deliver it in writing to: Corporate Secretary, Freeport-McMoRan Copper & Gold Inc., One North Central Avenue, Phoenix, Arizona 85004 by December 24, 2009.

 

If you want to present a proposal at next year’s annual meeting but do not wish to have it included in our proxy statement, you must submit it in writing to our corporate secretary, at the above address, by February 11, 2010, in accordance with the specific procedural requirements in our by-laws. If you would like a copy of these procedures, please contact our corporate secretary, or access our by-laws on our web site at www.fcx.com under Investor Center — Corporate Governance. Failure to comply with our by-law procedures and deadlines may preclude presentation of the matter at the meeting.

 

Corporate Governance

 

Corporate Governance Guidelines; Principles of Business Conduct

 

Our corporate governance guidelines and our principles of business conduct are available at www.fcx.com under Investor Center — Corporate Governance. Both are available in print upon request. We intend to post promptly on our web site amendments to or waivers, if any, from our principles of business conduct made with respect to any of our directors and executive officers.

 

Board Structure and Committee Composition

 

As of the date of this proxy statement, our board consists of sixteen members. We also have one director emeritus. The director emeritus does not vote. Our board held seven meetings during 2008, consisting of six regularly scheduled meetings and one special meeting. In accordance with our corporate governance guidelines, non-management directors met in executive session at the end of each regularly scheduled board meeting. The chair of executive session meetings rotates among the chairpersons of the four standing committees (discussed below), except as the non-management directors may otherwise determine for a specific meeting.

 

Our board has four standing committees: an audit committee, a corporate personnel committee, a nominating and corporate governance committee and a public policy committee. Each committee operates under a written charter adopted by the board. All of the committee charters are available on our web site at

www.fcx.com under Investor Center — Corporate Governance and are available in print upon request. During 2008, each of our directors attended at least 75% of the aggregate number of board and applicable committee meetings. Directors are invited, but not required to attend, annual meetings of our stockholders. Mr. Adkerson attended the last annual meeting of stockholders.

 

 

 

 

 

Corporate Personnel Committee Procedures

 

The corporate personnel committee has the sole authority to set annual compensation amounts and annual and long-term incentive plan criteria for executive officers, evaluate the performance of the executive officers, and make awards to executive officers under our stock incentive plans. The committee also reviews, approves and recommends to our board of directors any proposed plan or arrangement providing for incentive, retirement or other compensation to our executive officers, as well as any proposed contract under which compensation is awarded to an executive officer. The committee annually recommends to the board the slate of officers for the company, periodically reviews the functions of our executive officers and makes recommendations to the board concerning those functions. The committee also periodically evaluates the performance of our executive officers.

 

To the extent stock options or other equity awards are granted in a given year, the committee’s historical practice has been to grant such awards at its first meeting of that year, which is usually held in

January or February. Each August, the board establishes a meeting schedule for itself and its committees for the next calendar year. Thus, the first meeting of each year is scheduled approximately five months in advance and is scheduled to fall within the window period following the release of the company’s earnings for the fourth quarter of the previous year. The committee has a written policy stating that it will approve all regular annual equity awards at its first or second meeting of each fiscal year, and that to the extent the committee approves any out-of-cycle awards at other times during the year, such awards will be made during an open window period during which our executive officers and directors are permitted to trade.

 

The terms of our stock incentive plans provide that the exercise price of each stock option cannot be less than the fair market value of a share of our common stock on the grant date. Pursuant to the committee’s policies, for purposes of our stock incentive plans the fair market value of our common stock will be determined by reference to the closing sale price on the grant date. In addition, our stock incentive plans permit the committee to delegate to appropriate personnel its authority to make awards to employees other than those subject to Section 16 of the Securities Exchange Act of 1934, as amended. Our current equity grant policy provides that each of the chairman of the board and the chief executive officer of the company has authority to make or modify grants to such employees, subject to the following conditions:

 

 

Since 2007, the committee engaged an independent executive compensation consultant, Towers Perrin, to advise the committee on matters related to executive compensation. Please refer to “Compensation Discussion and Analysis” for more information. In addition, the board has its own independent legal counsel, with whom the committee consults on an as needed basis.

 

Compensation Committee Interlocks and Insider Participation

 

The current members of our corporate personnel committee are Messrs. Allison, Graham, Krulak and Lackey. In 2008, none of our executive officers served as a director or member of the compensation committee of another entity, where an executive officer of the entity served as our director or on our corporate personnel committee.

 

Board and Committee Independence and Audit Committee Financial Experts

 

On the basis of information solicited from each director, and upon the advice and recommendation of the nominating and corporate governance committee, the board has affirmatively determined that each of Messrs. Allison, Day, Ford, Graham, Krulak, Lackey, Madonna, McCoy and Siegele has no material relationship with the company and is independent within the meaning of our corporate governance guidelines, which comply with the NYSE director independence standards as currently in effect. In making this determination, the nominating and corporate governance committee, with assistance from the company’s legal counsel, evaluated responses to a questionnaire completed annually by each director regarding relationships and possible conflicts of interest between each director, the company and management. In its review of director independence, the committee considered the commercial, industrial, banking, consulting, legal, accounting, charitable, and familial relationships any director may have with the company or management. The nominating and corporate governance committee made a recommendation to the board that nine directors be considered independent, which the board approved.

 

Further, the board has determined that each of the members of the audit, corporate personnel, and nominating and corporate governance committees has no material relationship with the company and is

independent within the meaning of our corporate governance guidelines, which adopt the statutory and NYSE independence standards applicable to audit committee members.

 

In addition, the board has determined that each of the following members of the audit committee — Messrs. Day, Ford, Graham and Madonna — qualifies as an “audit committee financial expert,” as such term is defined by the rules of the Securities and Exchange Commission (the SEC).

 

Director Stock Ownership Guidelines

 

In January 2006, the nominating and corporate governance committee adopted stock ownership guidelines applicable to our directors. Under the guidelines, each non-management director is encouraged to maintain ownership of company stock valued at five times his or her annual retainer, determined by reference to either the one-year or five-year trailing average monthly stock price. Shares of common stock currently owned by the directors are counted for purposes of the stock ownership guidelines, as are shares held in individual retirement accounts, shares issuable upon the vesting of outstanding restricted stock units, shares issuable upon conversion of mandatory convertible preferred stock and shares held in certain trusts. As of January 1, 2009, all of our non-management directors had reached or exceeded their target ownership levels.

 

Consideration of Director Nominees

 

In evaluating nominees for membership on the board, the nominating and corporate governance committee applies the board membership criteria set forth in our corporate governance guidelines. Under these criteria, the committee will take into account many factors, including personal and professional integrity, general understanding of our industry, corporate finance and other matters relevant to the successful management of a large publicly traded company in today’s business environment, educational and professional background, independence, and the ability and willingness to work cooperatively with other members of the board and with senior management. The committee evaluates each individual in the context of the board as a whole, with the objective of recommending nominees who can best perpetuate the success of the business, be an effective director in conjunction with the full board, and represent stockholder interests through the exercise of sound judgment using their diversity of experience in these various areas.

 

Our nominating and corporate governance committee regularly assesses the appropriate size of the board, and whether any vacancies on the board are expected due to retirement or otherwise. In the event that vacancies are anticipated, or otherwise arise, the committee will consider various potential candidates who may come to the attention of the committee through current board members, professional search firms, stockholders or other persons. Each candidate brought to the attention of the committee, regardless of who recommended such candidate, is considered on the basis of the criteria set forth in our corporate governance guidelines.

 

As stated above, the nominating and corporate governance committee will consider candidates proposed for nomination by our stockholders. Stockholders may propose candidates by submitting the names and supporting information to: Corporate Secretary, Freeport-McMoRan Copper & Gold Inc., One North Central Avenue, Phoenix, Arizona 85004. Supporting information should include (a) the name and address of the candidate and the proposing stockholder, (b) a comprehensive biography of the candidate and an explanation of why the candidate is qualified to serve as a director taking into account the criteria identified in our corporate governance guidelines, (c) proof of ownership, the class and number of shares, and the length of time that the shares of our voting securities have been beneficially owned by each of the candidate and the proposing stockholder, and (d) a letter signed by the candidate stating his or her willingness to serve, if elected.

 

In addition, our by-laws permit stockholders to nominate candidates directly for consideration at next year’s annual stockholder meeting. Any nomination must be in writing and received by our corporate secretary at our principal executive office no later than February 11, 2010. If the date of next year’s annual meeting is moved to a date more than 90 days after or 30 days before the anniversary of this year’s annual meeting, the nomination must be received no later than 90 days prior to the date of the 2010 annual meeting or 10 days following the public announcement of the date of the 2010 annual meeting. Any stockholder submitting a nomination under our by-law procedures must include (a) all information relating to the nominee that is

required to be disclosed in solicitations of proxies for election of directors pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (including such nominee’s written consent to being named in the proxy statement as a nominee and to serving as a director if elected), and (b) the name and address (as they appear on the company’s books) of the nominating stockholder and the class and number of shares beneficially owned by such stockholder. Nominations should be addressed to: Corporate Secretary, Freeport-McMoRan Copper & Gold Inc., One North Central Avenue, Phoenix, Arizona 85004.

 

Communications with the Board

 

Stockholders or other interested parties may communicate directly with one or more members of our board, or the non-management directors as a group, by writing to the director or directors at the following address: Freeport-McMoRan Copper & Gold Inc., Attn: Board of Directors or the name of the individual director or directors, One North Central Avenue, Phoenix, Arizona 85004. The company will forward the communication to the appropriate directors.

 

Director Compensation

 

We use a combination of cash and equity-based incentive compensation to attract and retain qualified candidates to serve on the board. In setting director compensation, we consider the significant amount of time directors expend in fulfilling their duties to the company as well as the skill-level required by the company to be an effective member of the board. The form and amount of director compensation is reviewed by the nominating and corporate governance committee, which makes recommendations to the full board.

 

During 2008, the nominating and corporate governance committee retained an independent consultant to review non-management director compensation. In April 2008, based on the independent consultant’s findings, the nominating and corporate governance committee recommended, and the board of directors approved, changes to non-management director compensation, including the directors’ retirement plan, as reflected in “Cash Compensation” and “Revised Retirement Plan for Current Non-Management Directors” below.

 

Cash Compensation

 

Effective May 1, 2008, each non-management director receives an annual fee of $70,000. Committee chairs receive an additional annual fee as follows: audit committee, $20,000; corporate personnel committee, $15,000; and public policy committee and nominating and corporate governance committee, $10,000. Committee members, excluding the committee chairman, receive an additional annual fee as follows: audit committee, $10,000; corporate personnel committee, $7,500; and public policy committee and nominating and corporate governance committee, $5,000. Each non-management director receives a fee of $1,500 for attending each board and committee meeting (for which he or she is a member) and is reimbursed for reasonable out-of-pocket expenses incurred in attending such meetings. In addition, until May 2009, each management director also received a fee of $1,500 for attending each board meeting. The compensation of each of Messrs. Moffett and Adkerson is reflected in the “Summary Compensation Table” below.

 

Equity-Based Compensation

 

Non-management directors also receive equity-based compensation under the 2004 Director Compensation Plan (the 2004 Plan). Pursuant to the 2004 Plan, on June 1st of each year, each non-management director receives a grant of options to acquire 10,000 shares of our common stock and 2,000 restricted stock units. The options are granted at fair market value on the grant date, vest ratably over the first four anniversaries of the grant date and expire on the tenth anniversary of the grant date. The restricted stock units also vest ratably over the first four anniversaries of the grant date. Each restricted stock unit entitles the director to receive one share of our common stock upon vesting. Dividend equivalents are accrued on the restricted stock units on the same basis as dividends are paid on our common stock and include market rate interest. The dividend equivalents are only paid upon vesting of the shares of our common stock. The 2004 Plan also provides for a pro rata grant of options and restricted stock units to a director upon his initial election to the board other than at an annual meeting. In accordance with the 2004 Plan, each of

Messrs. Graham, Johnston, Krulak, Lackey, Madonna, McCoy and Roy elected to defer 100% of his 2008 grant of restricted stock units to be paid out in one or more installments after separation from service on our board.

 

The 2004 Plan provides that participants may elect to exchange all or a portion of their annual fee for an equivalent number of shares of our common stock on the payment date, based on the fair market value of our common stock on the date preceding the payment date. The 2004 Plan further provides that participants may elect to defer all or a portion of their annual fee and meeting fees, and that such deferred amounts will accrue interest at a rate equal to the prime commercial lending rate announced from time to time by JPMorgan Chase (compounded quarterly), and shall be paid out at such time or times as directed by the participant. See footnote (1) to the “Director Compensation” table for details regarding participation in this program by our directors.

 

On June 1, 2008, each non-management director was granted an option to purchase 10,000 shares of our common stock at a grant price of $115.71, and 2,000 restricted stock units under the 2004 Plan.

 

Revised Retirement Plan for Current Non-Management Directors

 

In April 2008, as part of our review of director compensation, we revised our retirement plan for non-management directors who reach age 65 and are entitled to a retirement benefit based on the annual director fees. We froze the benefit under this plan for our existing directors and terminated the plan for any future directors. Under the plan, as revised, an eligible current director is entitled to an annual benefit up to a maximum of $40,000 (the prior level of annual director fees), depending on the number of years the retiree served as a non-management director for us or our predecessors. The percentage of the maximum annual benefit, which is at least 50% but not greater than 100%, will depend on the number of years the retiree served as a non-management director for us or our predecessors. The benefit is payable from the date of retirement until the retiree’s death. Each eligible director who was also a director of Freeport-McMoRan Inc., our former parent, and who did not retire from that board of directors, will receive upon retirement from our board an additional annual benefit of $20,000, which is also payable from the date of retirement until the retiree’s death.

 

The chart below identifies the current non-management directors who would have been eligible to participate in the retirement plan as of December 31, 2008, and summarizes the projected benefit to each assuming the director had retired from our board of directors on such date:

 

 

 

 

Matching Gifts Program

 

Our foundation (the Foundation) administers a matching gifts program, which is available to our directors, officers, employees, full-time consultants and certain retirees. Under the program, the Foundation

will match a participant’s gifts to eligible institutions, including educational institutions, educational associations, educational funds, cultural institutions, social service community organizations, hospital organizations and environmental organizations. The Foundation provides the gifts directly to the institution. For directors, the Foundation double matches the first $1,000 of donations per year per eligible institution. Donations above $1,000 are single matched. The annual amount of our matching gifts for any director may not exceed $40,000.

 

2008 Director Compensation

 

The table below summarizes the total compensation paid to or earned by our non-management directors during 2008. The amounts represented in the “Stock Awards” and “Option Awards” columns reflect the expense recorded by the company pursuant to FAS 123(R), and do not necessarily reflect the income that will ultimately be realized by the director for these awards.

 

Director Compensation

 

 

 

 

Name of Director		RSUs				Options				SARs(†)
Robert J. Allison, Jr.			8,500				59,400				—
Robert A. Day			5,000				100,000				32,780
Gerald J. Ford			5,000				90,000				26,224
H. Devon Graham, Jr.			8,000				37,500				—
J. Bennett Johnston			10,000				35,000				—
Charles C. Krulak			4,250				25,000				—
Bobby Lee Lackey			5,000				25,000				—
Jon C. Madonna			4,250				25,000				—
Dustan E. McCoy			4,250				25,000				—
Gabrielle K. McDonald			5,000				42,500				4,917
B. M. Rankin, Jr.			5,000				47,500				—
J. Stapleton Roy			10,000				42,500				417
Stephen H. Siegele			4,500				30,000				—
J. Taylor Wharton			8,000				62,500				8,195

 

 

For Messrs. Johnston and Roy, amounts also include above-market or preferential nonqualified deferred compensation earnings accrued during 2008 on retainer and meeting fee deferrals as follows: Mr. Johnston $242 and Mr. Roy $543. For more information about the deferrals see footnote (1) to the “Director Compensation” table.

 

 

										Interest
										Credited on				Life Insurance
		Matching				Consulting				Dividend				Premium and
Name of Director		Gifts				Fees				Equivalents				Tax Paid
Robert J. Allison, Jr.		$	40,000			$	—			$	2,677			$	—
Robert A. Day			40,000				—				1,018				—
Gerald J. Ford			40,000				—				1,018				—
H. Devon Graham, Jr.			2,000				—				1,908				—
J. Bennett Johnston			—				288,333				3,063				—
Charles C. Krulak			13,000				—				229				813
Bobby Lee Lackey			7,300				—				1,018				—
Jon C. Madonna			2,000				—				229				870
Dustan E. McCoy			—				—				229				260
Gabrielle K. McDonald			—				288,333				1,018				—
B. M. Rankin, Jr.			26,670				891,001				1,018				—
J. Stapleton Roy			37,000				—				2,954				—
Stephen H. Siegele			10,000				—				486				—
J. Taylor Wharton			2,000				400,000				1,908				—

 

 

Election of Directors

 

Our board of directors has fixed the number of directors at sixteen. The terms of all of our directors expire at the 2009 annual meeting of stockholders. Our board has nominated each of Messrs. Adkerson, Allison, Day, Ford, Graham, Johnston, Krulak, Lackey, Madonna, McCoy, Moffett, Rankin, Roy, Siegele and Wharton and Ms. McDonald to serve a one-year term. The persons named as proxies on the proxy card intend to vote your proxy for the election of each such director, unless otherwise directed. If, contrary to our expectations, a nominee should become unavailable for any reason, your proxy will be voted for a substitute nominee designated by our board, unless otherwise directed.

 

Under our by-laws, in uncontested elections, directors are elected by a majority of the votes cast. In contested elections where the number of nominees exceeds the number of directors to be elected, directors are elected by a plurality vote, with the sixteen director nominees who receive the most votes being elected.

 

In an uncontested election, any nominee for director who has a majority of votes cast “withheld” from his or her election will be required to promptly tender his or her resignation to the board. The nominating and corporate governance committee will recommend to the board whether to accept or reject the tendered resignation. The board will act on the committee’s recommendation and publicly disclose its decision within 90 days from the date of the annual meeting of stockholders. Any director who tenders his or her resignation will not participate in the committee’s recommendation or the board action regarding whether to accept or reject the tendered resignation.

In addition, if each member of the nominating and corporate governance committee fails to be elected at the same election, the independent directors who were elected will appoint a committee to consider the tendered resignations and recommend to the board whether to accept or reject them. Any vacancies in the board may be filled by a majority of the directors then in office. Each director elected in this manner will hold office until his or her successor is elected and duly qualified.

 

Information About Director Nominees

 

The table below provides certain information as of April 14, 2009, with respect to each director nominee. Unless otherwise indicated, each person has been engaged in the principal occupation shown for the past five years.

 

 

Stock Ownership of Directors and Executive Officers

 

The company believes that it is important for its directors and executive officers to align their interests with the long-term interests of stockholders. We encourage stock accumulation through the grant of equity incentives to our directors and executive officers and through our stock ownership guidelines applicable to our directors and executive officers.

 

Except as otherwise indicated below, the table below shows the amount of our common stock each of our directors and named executive officers owned as of April 14, 2009. Unless otherwise indicated, (a) the persons shown below do not beneficially own any of our preferred stock, and (b) all shares shown are held with sole voting and investment power and include, if applicable, shares held in our Employee Capital Accumulation Program (ECAP).

 

 

 

 

 

Name of Beneficial Owner		Number of RSUs
Richard C. Adkerson			633,270	(†)
Robert J. Allison, Jr.			8,500
Michael J. Arnold			25,258
Robert A. Day			5,000
Gerald J. Ford			5,000
H. Devon Graham, Jr.			8,000
J. Bennett Johnston			10,000
Charles C. Krulak			4,000
Bobby Lee Lackey			5,000
Jon C. Madonna			4,000
Dustan E. McCoy			4,000
Gabrielle K. McDonald			5,000
James R. Moffett			115,670
Kathleen L. Quirk			82,232
B. M. Rankin, Jr.			5,000
J. Stapleton Roy			10,000
Stephen H. Siegele			4,500
J. Taylor Wharton			8,000

 

 

(†) Mr. Adkerson previously transferred to his former spouse the right to receive the underlying shares due upon vesting of 47,173 of these RSUs, net of shares used to pay any taxes due. Mr. Adkerson disclaims beneficial ownership of such RSUs.

 

 

Section 16(a) Beneficial Ownership Reporting Compliance

 

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our directors and executive officers and persons who own more than 10% of our common stock to file reports of ownership and changes in ownership with the SEC. Based solely upon our review of the Forms 3, 4 and 5 filed during 2008, and written representations from certain reporting persons that no Forms 5 were required, we believe that all required reports were timely filed.

 

 

 

 

Stock Ownership of Certain Beneficial Owners

 

This table shows the owner of more than 5% of our outstanding common stock as of December 31, 2008 based on filings with the SEC. Unless otherwise indicated, all information is presented as of December 31, 2008, and all shares beneficially owned are held with sole voting and investment power.

 

 

 

 

Executive Officer Compensation

 

Compensation Discussion and Analysis

 

Overview

 

This Compensation Discussion and Analysis is designed to provide our stockholders with an understanding of our compensation philosophy and objectives, as well as the analysis that we performed in setting executive compensation. It discusses the corporate personnel committee’s (the committee’s) determination of how and why, in addition to what, compensation actions were taken for the executive officers who are identified in the “Summary Compensation Table” below (the named executive officers).

 

The committee determines the compensation of our executive officers and administers our annual incentive, long-term incentive and stock incentive plans. Our company’s executive compensation philosophy is to:

 

 

Since August 2007, the committee has retained Towers Perrin as its executive compensation consultant. As a condition of its engagement, Towers Perrin agreed that it will not provide any services to the company’s management. Since its initial engagement, Towers Perrin has performed three significant projects at the request of the committee. First, Towers Perrin provided information and advice to the committee in connection with the preparation and execution of new employment agreements with Mr. Adkerson and Ms. Quirk executed in January 2008. Second, Towers Perrin provided information and advice in connection with the committee’s determination of the award pool under our annual incentive plan for 2007 to account for the impact of the Phelps Dodge acquisition. Third, during 2008 and continuing into 2009, Towers Perrin has provided information and advice regarding the restructuring of the company’s executive compensation program as discussed below.

 

The committee also consults with the executive chairman and our chief executive officer regarding compensation decisions affecting our other executive officers.

 

Overview of 2008 Compensation

 

The total compensation for our executive officers for 2008 decreased significantly compared to compensation attributable to 2007 as a result of the global economic downturn and the drastic fall of commodity prices. As discussed in more detail below, this reduction in compensation is primarily because (1) our executive chairman and our chief executive officer declined to receive any payments under our annual incentive plan (AIP) for 2008, (2) there were no payouts on performance units granted under our long-term performance incentive plan (LTPIP) for 2008, and (3) our other executive officers received lower payments under the AIP for 2008. The committee did not grant the executive officers any stock options or other stock-based incentives in 2008, other than (a) the restricted stock units, or RSUs, granted in connection with the awards under the AIP for 2007, and (b) the special grants of RSUs to two of our executives in connection with their execution of employment agreements in January 2008. These awards are reflected in the “Grants of Plan-Based Awards” table. As part of our restructured executive compensation program, the committee granted stock options to our executive officers in February 2009, which are discussed below.

The committee believes that our senior management performed well in executing the company’s strategy into the third quarter of 2008, increasing production volumes and pursuing expansion opportunities. Subsequently, our executives responded quickly and effectively to the economic downturn that occurred in the fourth quarter of 2008, positioning our company to weather the adverse economic environment and to preserve our mineral resources and growth opportunities for what we expect to be a long-term positive market for commodities. In light of these efforts, the committee believes that the total compensation packages for 2008 of our executive officers are appropriate.

 

For 2008, the components of our executive officer compensation program were base salary, the AIP, the LTPIP and various perquisites and post-employment benefits. As noted above, the committee also made a special grant of RSUs to Mr. Adkerson and Ms. Quirk in January 2008 in connection with the execution of their employment agreements. The committee views “total direct compensation” for a given year as the sum of the executive’s base salary, payments under the AIP, payouts under the LTPIP, and the value of long-term incentives granted. Our executive officers also receive additional compensation in the form of certain perquisites and personal benefits, as well as commitments for post-employment compensation, which the committee considers separately from total direct compensation. Accordingly, the committee views our executive officer total direct compensation for 2008 as follows:

 

2008 Total Direct Compensation(1)

 

 

 

 

The values of base salary and non-equity incentive plan compensation for 2008 in the Summary Compensation Table are equivalent to the amounts reflected above for base salary and the AIP payments. However, whereas the table above does not include any value for long-term incentives granted in 2008, the Summary Compensation Table includes significant values for stock and option awards during 2008 to each officer. This is primarily because the Summary Compensation Table, prepared in accordance with SEC regulations, includes equity awarded in prior years and values those equity awards for 2008 based on the amount of the related compensation expense in the company’s 2008 income statement in accordance with FAS 123(R).

Redesign of Executive Compensation Program

 

Throughout 2008 and continuing into 2009, the committee worked extensively with Towers Perrin to evaluate our executive compensation program in light of internal and external developments. Our acquisition of Phelps Dodge in March 2007 expanded our company in scope and size and transformed our company into a global leader in the copper industry. The committee recognized that the company’s increased production capabilities following the transaction could result in significantly larger funding pools under our AIP. As a result, the committee decided to revise the AIP as part of the company’s restructured executive compensation program. In addition to these internal changes, the weak global economic conditions and the sharp decline in commodity prices during the second half of 2008 have caused our company to undertake a series of actions designed to be responsive to the weak economic environment while preserving resources and growth opportunities for the longer term. These actions included the following:

 

 

In response to these internal and external developments, during 2008 and early 2009, the committee took the following actions in restructuring the company’s executive compensation program:

 

 

 

 

Compensation Philosophy

 

Although objective criteria are reviewed, the committee does not apply “hard metrics” to decisions regarding executive compensation. We have a small group of executive officers, and the committee’s decisions regarding salary levels and grant amounts (in the form of stock options and percentage allocations under the annual incentive plan) reflect the committee’s views as to the broad scope of responsibilities of our executive officers and the committee’s subjective assessment of their individual impact on the company’s overall success.

 

Executive Chairman and Chief Executive Officer.  We recognize that the level of compensation paid to our chairman and our chief executive officer is significantly greater than that paid to our other executive officers. The compensation levels of Messrs. Moffett and Adkerson reflect our view that their management of the organization provides the basis for the company to achieve success and reflects the value that we place on the quality of their leadership and capabilities. This disparity also has some basis in seniority. Messrs. Moffett and Adkerson each impart extraordinary value to our company, each bringing to their “partnership” a set of complementary skills. We believe their respective compensation arrangements recognize those skills and their contributions to the success of our company.

 

Mr. Moffett has been at the helm of our company since its formation and has guided our growth through significant discoveries of metal reserves using his skill as a geologist. He also led the development of our Grasberg mine, milling facilities and infrastructure. As executive chairman, Mr. Moffett continues to further our business strategy by applying his exceptional talents, which has created substantial value for our company. He directs our exploration programs and also continues to be instrumental in fostering our relationship with the government of Indonesia, the location of our Grasberg mine.

 

Mr. Adkerson, as president and chief executive officer, is responsible for the executive management of our company. Mr. Adkerson has demonstrated considerable leadership abilities in developing and executing a business and financial strategy that is positive for our stockholders, and in building an operational, financial and administrative organization that efficiently supports our business through various economic cycles. Mr. Adkerson has provided strong leadership and sound judgment in our efforts to respond aggressively to the economic downturn.

 

Stock Ownership.  We believe that it is important for our executive officers to align their interests with the long-term interests of our stockholders. With that philosophy in mind, we have structured our current and past compensation programs to ensure that a portion of our executive officers’ compensation is delivered in a form of equity, such as stock options and restricted stock units. In January 2008, all of our executive officers received restricted stock units in connection with their 2007 annual incentive awards, and our chief executive officer elected to receive all of his annual incentive award in restricted stock units, which he has done for the last five years. By the end of the year, these awards had lost over 70% of their value, which mirrored the decline in our stock price over the year. As reflected in “Stock Ownership of Directors and Executive Officers,” each of Messrs. Moffett and Adkerson currently holds a significant ownership stake in the company, which provides an incentive to maximize the value of our stock over the long term.

 

In 2006, the committee adopted stock ownership guidelines applicable to our executive officers. For purposes of the guidelines, the stock value is calculated annually, determined by reference to either the one-year or five-year trailing average monthly stock price. Shares of common stock currently owned by the executive officers are counted for purposes of the stock ownership guidelines, as are shares held in employee benefit plans, individual retirement accounts, shares issuable upon the vesting of outstanding restricted stock units, shares issuable upon conversion of mandatory convertible preferred stock and shares held in certain trusts. Under the guidelines, each of Messrs. Moffett and Adkerson is required to maintain ownership of company stock valued at five times his base salary, and our other executive officers are required to maintain ownership of company stock valued at three times their base salaries. As of December 31, 2008, all of our executive officers had exceeded their target ownership level. In particular, Messrs. Moffett and Adkerson each owned shares valued at more than 35 times his base salary, or more than seven times his target ownership level, reflecting their individual commitments to aligning their interests with those of the stockholders. For

more information regarding the current stock holdings of our executive officers, please see “Stock Ownership of Directors and Executive Officers.”

 

Consideration of Stock Option Exercises and RSU Vestings.  The committee does not factor into its decisions regarding executive compensation the gains received by our executive officers in connection with the vesting of restricted stock units or the exercise of stock options. The committee believes that to do so would be “double counting” compensation (i.e., first, when issued and second, when vested or exercised). For example, many of Mr. Adkerson’s outstanding restricted stock units were voluntarily received in lieu of cash compensation previously earned in connection with our former elective restricted stock program. Because he undertook a risk when electing to participate in the program, we believe it would be inappropriate to allow the value of the award at vesting to impact future compensation decisions. With respect to the stock option grants, the committee’s position has been similar. The value of the stock options upon exercise is directly related to the appreciation in value of our common stock, which in turn is directly impacted by the efforts of our executive officers in managing our company. Further, a key purpose behind granting stock options to executives is to provide an incentive for them to increase stockholder value over time. Accordingly, the committee has not taken realized option gains into account when making decisions regarding future compensation, nor did it revise its compensation or grant practices during years when our executives did not exercise any stock options.

 

Overview of Components of Executive Compensation

 

Executive officer compensation for 2008 included base salaries, annual incentive awards, long-term incentive awards, and personal benefits and perquisites. The following chart summarizes our reasons for paying each element of compensation:

 

 

Executive Compensation Program

 

Set forth below is an explanation of each component of our executive compensation program. The discussion includes both a description of the committee’s compensation decisions for 2008 and a description of changes under our redesigned executive compensation program.

 

Base Salaries

 

Our philosophy is that base salaries should meet the objective of attracting and retaining the executive officers needed to manage our business successfully. Actual individual salary amounts reflect the committee’s judgment with respect to each executive officer’s responsibility, performance, work experience and the individual’s historical salary level. Our goal is to allocate more compensation to the performance-dependent elements of the total compensation package, and we do not routinely provide base salary increases. Consequently, we have not increased the base salaries of our executive officers since May 2007, when increases to the base salaries of certain executive officers were approved to address the increased responsibilities of these executives following our acquisition of Phelps Dodge. The base salaries of Messrs. Moffett and Adkerson and Ms. Quirk are contractually set pursuant to their employment agreements.

 

Annual Incentive Awards

 

Our annual incentive plan, or AIP, is designed to provide performance-based awards to our executive officers, each of whose performance has a significant impact on our financial stability, profitability and future growth. All of our named executive officers were eligible to receive awards under the AIP for 2008. As discussed further below, Mr. Moffett and Mr. Adkerson recommended that they not receive any award under the AIP for 2008.

 

2008 Awards under Current AIP.  Under the current AIP, if our five-year return on investment is 6% or greater, our executive officers share in a plan funding amount equal to 2.5% of our operating cash flow, subject to adjustment based on our safety performance. The terms of the AIP permit the committee to exercise discretion to determine the award pool, provided that the aggregate awards do not exceed the plan funding

amount. The committee exercised this discretion in establishing the award pool for 2007, and also exercised this discretion in awarding payments for 2008, as described below.

 

In January 2008, we assigned 45% of the aggregate plan funding amount to each of Messrs. Moffett and Adkerson, and 5% to each of Ms. Quirk and Mr. Arnold. During the five-year period ending in 2008, the average return on investment was 16.2%. For 2008, the level of operating cash flow produced a maximum plan funding amount of $84.3 million based on the formula above. After evaluating the applicable safety performance measures in connection with the proposed 2008 awards, the committee determined that no adjustment to this amount was warranted. The company achieved a number of important objectives during 2008, including record copper production and significant reserve additions. The stock price reached an all time high of over $125 in May 2008. However, because of the significant downturn in economic conditions that occurred in late 2008 and the impact on the company’s cash flows and share price, Messrs. Moffett and Adkerson recommended that the committee not grant them any award under the AIP for 2008, and the committee accepted that recommendation. With respect to Ms. Quirk and Mr. Arnold, the committee considered the significant efforts of these officers throughout 2008, and the recommendation of Messrs. Moffett and Adkerson. The committee concluded that these officers deserved recognition and approved a payment of $1 million for each of Ms. Quirk and Mr. Arnold, an amount significantly lower than the maximum each could have received under the plan formula.

 

Elective Restricted Stock Unit Program.  In 1999, as part of our efforts to align the interests of the executives with those of the stockholders, the committee approved a program that gave executive officers and certain other officers the ability to elect to receive a grant of restricted stock units (RSUs) with respect to shares of our common stock in lieu of all or part of their cash incentive bonus for a given year. To encourage participation, given the additional risk of forfeiture of the award, these elective RSUs were granted at a 50% premium to the market value on the grant date. The RSUs granted under this program vest ratably over a three-year period, and are paid in an equivalent number of shares of common stock upon vesting. For the RSUs granted to our executive officers, the units will not vest and are forfeited unless the average return on investment for the five calendar years prior to the year of vesting is at least 6%.

 

As part of our review of our executive compensation program, we reviewed this program with the committee’s executive compensation consultant. Although the program has historically been received positively by employees and investors, the committee believed the premium should be re-evaluated based in part on advice from the committee’s compensation consultant. The committee considered modifying the program but concluded that a reduced premium would not be attractive to participants. Accordingly, in December 2008, the committee terminated this program, and all elections applicable to the incentive awards payable for 2008 incentive payouts were rendered null. The RSUs granted to our executives under this program in January 2008 in connection with the 2007 annual incentive plan payments, however, are reflected in the “Grants of Plan-Based Awards” table.

 

Proposed 2009 Annual Incentive Plan.  Our stockholders approved the current AIP in 2005. We acquired Phelps Dodge in 2007, which resulted in additional operating cash flow for our company. Following the acquisition, the committee re-evaluated the design of the AIP in light of our substantial growth, and concluded that the overall design of the AIP is appropriate for the following reasons:

 

 

The committee recognized, however, that the current design could generate large funding pools and corresponding large payouts to our executives because of the company’s increased production capabilities, especially during years when commodity prices are high, as was the case in 2007. To address these concerns,

the committee, working with its compensation consultant, proposed a new annual incentive plan, which is being presented to our stockholders for approval at this meeting.

 

A key objective of restructuring the executive compensation program, including revising the AIP, was to establish compensation opportunities that reflect the performance of the business, which may vary significantly from year to year, and that are consistent with observed market pay levels. In developing the proposed AIP, the committee retained the use of operating cash flow as the financial measure used to fund the AIP pool. This decision reflects our belief that operating cash flow is a meaningful indicator of overall company performance. In establishing the funding level for the restructured AIP, the committee considered the reported 25th and 90th percentile statistics from Towers Perrin’s general industry compensation survey as indicative of the observed range of market pay levels for total direct compensation (salary + target annual incentives + grant value of long-term incentives). This information was a consideration in determining the proposed AIP funding level but was not the sole factor used to determine that level. Instead, the committee applied its judgment in evaluating the proposed AIP funding level by considering various operating cash flow scenarios and comparing potential payouts to the observed range of market practice. In conjunction with evaluating the proposed AIP funding level, the committee also considered the level and forms of long-term incentives that would be used in our restructured executive compensation program, and established a new philosophy regarding stock option grants. See “Long-Term Incentive Awards — Stock Options” below.

 

The new AIP is similar in design to the current AIP, but contains the following provisions designed to limit potential payments under the plan in order to ensure that the compensation opportunities are consistent with observed market practice:

 

 

As with the current plan, the new plan is designed to meet the requirements of Section 162(m) of the Internal Revenue Code by setting an objective performance target and a maximum funding amount. Under the AIP, once the performance target has been achieved, the committee retains the discretion to reduce or eliminate the award pool and the awards to specific officers. Accordingly, this plan design preserves the company’s tax treatment of these awards as “performance-based” under Section 162(m), but gives the committee flexibility in operating the plan.

 

Unlike the current plan, however, the new plan specifically enumerates qualitative factors that the committee may consider in exercising this discretion, including total shareholder return and safety performance. The committee intends to continue to exercise its discretion under the new plan to reduce awards paid under the plan if it determines that awarding the entire plan funding amount would not be appropriate in a given year, as it did in 2007 and 2008. See “Proposal to Adopt the 2009 Annual Incentive Plan” for more information regarding the proposed plan.

 

Long-Term Incentive Awards

 

Through 2008, long-term incentives granted by the company included performance units under our long-term performance incentive plan (the LTPIP) and stock options (which were granted to executives every three years). In 2008, the committee also awarded special grants of restricted stock units described below. In early 2009, as part of the redesign of our executive compensation program, we substantially revised our long-term incentive programs as described below.

 

Long-Term Performance Incentive Plan.  In the past, the committee also compensated officers for long-term performance with annual grants of performance units under the LTPIP. Performance units were designed to link a portion of executive compensation to cumulative adjusted earnings per share over a four-

year performance period. The LTPIP was approved by our stockholders in 1999. In January 2008, each of our executive officers received a grant of performance units under the LTPIP, the amount of which was based on historical grant levels for his or her level of responsibility. These grants are reflected in the “Grants of Plan-Based Awards” table.

 

Under the LTPIP, the performance units were valued over a four-year performance period based on the cumulative earnings (or loss) per share, and that value was paid in cash after the end of the four-year period. The payout value was determined by multiplying the cumulative “earnings per share” or “net loss per share” (as those terms were defined in the plan) for the period by the number of performance units granted for that period. After the end of each year, the committee certified the adjusted annual earnings (or loss) per share for that year and the payout amount was determined for performance units vesting at the end of that year.

 

In the fourth quarter of 2008, we were required to record significant impairment charges in connection with certain long-lived assets, including goodwill. As a result of these impairment charges, we had a net loss per share for 2008, which eliminated all earnings (approximately $50 million) that had accumulated on outstanding performance units through 2007 and would have been paid out over the next four years. Of this $50 million, approximately $32 million represented amounts accumulated on outstanding units held by our executive officers. The committee considered adjusting or otherwise modifying the LTPIP to exclude or reduce the effect of the impairment charges, but decided against any modification. After confirming that the performance units vesting on December 31, 2008 had no value and concluding that the outstanding performance units would likely have no value in future years, the committee recommended, and the board of directors approved, termination of the plan in February 2009.

 

Stock Options.  Stock options are intended to reinforce the importance of creating stockholder value. Beginning in 1996 for Messrs. Moffett and Adkerson, and in 2005 for our other executive officers, the committee’s practice was to grant larger, multi-year stock option awards rather than smaller, annual awards. The recent economic crisis and significant drop in commodity prices have resulted in a significant decrease in our company’s stock price, which went from an all-time high of over $125 in May 2008 to $24.44 at year-end. As a result of this decline, all of the outstanding stock options held by our executives at the end of 2008 were out-of-the-money, some significantly so. We have a longstanding commitment not to reprice stock options and do not intend to amend or exchange any of our outstanding options. In light of the termination of the LTPIP, the lack of current value in the outstanding option awards has substantially reduced the value of the long-term incentives currently held by our executives.

 

The committee continues to believe that stock options are an effective and appropriate long-term incentive for our executives in that their value is dependent on an increase in our share price and aligns the executives’ interests with those of our stockholders. In an effort to lessen the impact of significant price variations from year to year, the committee determined that going forward it would grant annual, smaller equity-based awards to the executives in the form of stock options, but may also grant RSUs. These annual awards will have grant date Black-Scholes values targeted between one and three times (as determined by the committee) the executive’s base salary, with a long-term average grant level targeted at two times each executive’s base salary. This approach regarding equity-based incentives is one component of total direct compensation, which includes base salary, the annual incentive plan and long-term incentives (stock options or RSUs), in our restructured executive compensation program. See “Annual Incentive Awards — Proposed 2009 Annual Incentive Plan.”

 

Pursuant to this new philosophy regarding annual equity-based grants, the committee granted the executive officers stock options in February 2009. The number of options awarded to each of our executive officers is set forth below and was determined based on grant date Black-Scholes values of approximately three times the executive’s base salary. These stock options have an exercise price of $24.59.

 

 

Special Grant of Restricted Stock Units.  In January 2008, in connection with the execution of new employment agreements, the committee made a special grant of restricted stock units to each of Mr. Adkerson (200,000 RSUs) and Ms. Quirk (75,000 RSUs), which units are paid in an equivalent number of shares of common stock upon vesting. One-fifth of the units vested immediately upon grant, and the remainder will vest in equal annual increments beginning January 1, 2009, to correspond with the term of each executive’s employment agreement. These units will not vest, however, and are forfeited unless the average return on investment for the five calendar years prior to the year of vesting is at least 6%. In addition, any unvested restricted stock units will be forfeited in the event of the executive’s retirement.

 

Personal Benefits and Perquisites

 

We provide certain personal benefits and perquisites to our executive officers. In early 2009, as part of the restructuring of our executive compensation program, the committee evaluated the personal benefits and perquisites that we provide to our executives, and revised this program. Accordingly, for fiscal year 2009 and beyond, we will provide the following benefits for the reasons noted below:

 

 

Certain benefits will no longer be provided to our executive officers, although these benefits were provided during 2008 and are reflected in the “Summary Compensation Table” below. These include dues for certain club memberships, tax gross-up payments on perquisites, and the payment of meeting fees to management members of our board of directors.

 

The amounts reflected in the “Summary Compensation Table” represent our incremental cost of providing the benefit, and not the value of the benefit to the recipient. With respect to personal use of fractionally owned company aircraft, the aggregate incremental cost includes the hourly operating rate, fuel costs, and excise taxes. With respect to personal use of vehicles and the provision of security services, the

aggregate cost of providing a car and driver is determined on an annual basis and includes annual driver compensation and annual car lease and insurance costs. Although the cars and drivers are available for both business and personal use, the amounts reflected in the “Summary Compensation Table” reflect the aggregate cost to us without deducting costs attributable to business use.

 

Post-Termination Compensation

 

In addition to the compensation received by the executive officers during 2008 and benefits under the company’s 401(k) plan, which we provide to all qualified employees, we also provide certain post-employment benefits to our executive officers, including a nonqualified defined contribution plan, a supplemental executive retirement plan, a defined benefit program (although this program has been discontinued), as well as certain severance and change of control benefits.

 

Nonqualified Defined Contribution Plan — This plan was put in place in 1996 and permits those employees who are considered “highly compensated” under applicable IRS rules, including our executive officers, to defer up to 20% of their base salary. A participant may only defer under this plan after the participant defers the maximum amount permitted under the qualified plan in accordance with Internal Revenue Code limits. The company makes a contribution equal to 5% of the participant’s base salary above the qualified plan limit, and an additional contribution as described below. We do not take into account income associated with option exercises or the vesting of restricted stock units when determining the company’s contributions. The 5% company contribution to the nonqualified plan noted above is based on the company’s contributions to its 401(k) plan (the qualified plan), which provides that participants will receive a company contribution equal to 100% of the participant’s contributions to the plan not to exceed 5% of the participant’s basic compensation. The purpose of the 5% company contribution in our nonqualified plan is to continue the 5% contribution found in the 401(k) plan on a participant’s basic compensation in excess of the qualified plan limits. The nonqualified defined contribution plan is unfunded.

 

We had a defined benefit program in place until June 30, 2000. To compensate for the discontinuance of benefit accruals under the defined benefit plan, we decided that we prospectively would make an additional company contribution to our 401(k) plan participants equal to 4% of each participant’s pensionable compensation up to the applicable IRS limits, and also an additional company contribution of 4% of compensation in excess of such limits to participants in our nonqualified plan. Further, because participants in a pension plan accrue most of their benefits in the last 10 years of service, we decided that employees who met certain age and service requirements as of June 30, 2000, would receive an additional 6% company contribution, for a total of 10%, to both the qualified and nonqualified plans. As of June 30, 2000, the only two named executive officers who met the applicable age and service requirements were Messrs. Moffett and Adkerson, thus resulting in the 10% contribution for each. The purpose of the nonqualified plan is to make total retirement benefits for our employees who earn over the qualified plan limits commensurate with those available to other employees as a percentage of pay.

 

Supplemental Executive Retirement Plan — We established an unfunded supplemental executive retirement plan (SERP) for Messrs. Moffett and Adkerson in February 2004. The committee, advised by Mercer, its independent compensation consultant at the time, approved the SERP, which was then recommended to and approved by our board. The SERP provides for benefits payable in the form of a 100% joint and survivor annuity or an equivalent lump sum. The annuity will equal a percentage of the executive’s highest base pay for any three of the five years immediately preceding the executive’s retirement, plus his average bonus for those years, provided that the average bonus cannot exceed 200% of average base pay. The percentage used in this calculation is equal to 2% for each year of credited service up to 25 years, or a maximum of 50%. Income associated with option exercises or the vesting of restricted stock units is not a factor in determining the benefits payable under the SERP.

 

The SERP benefit will be reduced by the value of all benefits received under the cash-balance program and all other retirement plans (qualified and nonqualified), sponsored by the company, by FM Services Company, one of our wholly owned subsidiaries, or by any predecessor employer (including our former parent company, Freeport-McMoRan Inc.), except for benefits produced by accounts funded exclusively by

deductions from the participant’s pay. In addition, the SERP benefit will be reduced by 3% per year if retirement precedes age 65. Messrs. Moffett and Adkerson are both 100% vested under the SERP.

 

Change of Control and Severance Benefits — In January 2008, we entered into a new employment agreement with Mr. Adkerson, which replaced his prior employment and change of control agreements, and entered into an employment agreement with Ms. Quirk, which replaced her change of control agreement. In December 2008, we amended and restated these agreements as well as Mr. Moffett’s employment and change of control agreements and entered into a new change of control agreement with Mr. Arnold. The committee, advised by Towers Perrin, established the terms of these new agreements and the amendments thereto, which were then approved by our board. Under these agreements, all of our named executive officers are entitled to certain benefits in the event of a change of control of the company and Messrs. Moffett and Adkerson and Ms. Quirk are also entitled to certain severance benefits under their employment agreements. We believe that severance protections, particularly in the context of a change of control transaction, can play a valuable role in attracting and retaining key executive officers by providing protections commonly provided in the market. In addition, we believe these benefits also serve the company’s interest by promoting a continuity of management in the context of an actual or threatened change of control transaction. The existence of these arrangements does not impact our decisions regarding other components of our executive compensation program, although we consider these severance protections an important part of our executives’ compensation packages.

 

We also believe that the occurrence, or potential occurrence, of a change of control transaction will create uncertainty regarding the continued employment of our executive officers. This uncertainty results from the fact that many change of control transactions result in significant organizational changes, particularly at the senior executive level. In order to encourage certain of our executive officers to remain employed with the company during an important time when their prospects for continued employment following the transaction are often uncertain, we provide our executive officers with enhanced severance benefits if their employment is terminated by the company without cause or, in certain cases, by the executive in connection with a change of control. Because we believe that a termination by the executive for good reason may be conceptually the same as a termination by the company without cause, and because we believe that in the context of a change of control, potential acquirors would otherwise have an incentive to constructively terminate the executive’s employment to avoid paying severance, we believe it is appropriate to provide severance benefits in these circumstances. In December 2008, the committee adopted a policy whereby the company will no longer provide excise tax gross-up protections in change of control arrangements adopted, renewed or extended after December 2, 2008. This policy does not affect the excise tax gross-up protections currently included in the employment agreements with Mr. Adkerson and Ms. Quirk; however, in accordance with this policy, the agreements with Mr. Adkerson and Ms. Quirk will not be extended, renewed or continued beyond January 1, 2012, with these gross-up protections in place.

 

We do not believe that our executive officers should be entitled to receive cash severance benefits merely because a change of control transaction occurs. The payment of cash severance benefits is only triggered by an actual or constructive termination of employment following a change of control (i.e. a “double trigger”). Under their respective incentive agreements, however, our executive officers would be entitled to accelerated vesting of their outstanding equity awards automatically upon a change of control of the company, whether or not the officer’s employment is terminated. This treatment of the equity awards in connection with a change of control applies to all award recipients.

 

As described in more detail below under “Potential Payments Upon Termination or Change in Control,” Messrs. Moffett and Adkerson and Ms. Quirk would also be entitled under their employment agreements to severance benefits in the event of a termination of employment by the company without cause or by the executive for good reason. The committee has determined that it is appropriate to provide these executives with severance benefits under these circumstances in light of their positions with the company and as part of their overall compensation package.

Tax Considerations

 

Section 162(m).  Section 162(m) of the Internal Revenue Code (the Code) limits to $1 million a public company’s annual tax deduction for compensation paid to each of its most highly compensated executive officers. Qualified performance-based compensation is excluded from this deduction limitation if certain requirements are met. The committee’s policy is to structure compensation awards that will be deductible where doing so will further the purposes of our executive compensation programs. The committee also considers it important to retain flexibility to design compensation programs that recognize a full range of criteria important to our success, even where compensation payable under the programs may not be fully deductible. As such, the committee may implement revised or additional compensation programs in the future as it deems appropriate or necessary to adequately compensate our executive team.

 

The committee believes that the stock options, a portion of the performance-based restricted stock units, and awards under our AIP qualify for the exclusion from the deduction limitation under Section 162(m). With the exception of a portion of the salary paid to our executive chairman and our chief executive officer, the committee anticipates that the remaining components of individual executive compensation that do not qualify for an exclusion from Section 162(m) should not exceed $1 million in any given year and therefore will qualify for deductibility.

 

Sections 280G and 4999.  Code Section 4999 imposes a 20% excise tax on the recipient of an “excess parachute payment” and Code Section 280G disallows the tax deduction to the payor of any amount of an excess parachute payment that is contingent on a change of control. In order to be subject to the excise tax, payments as a result of a change of control must exceed three times the executive’s base amount as determined under Section 280G, but once this threshold is achieved the excise tax is imposed on the payments that exceed one time the executive’s base amount. Pursuant to the employment agreements with Mr. Adkerson and Ms. Quirk, we have agreed to provide each of them with a gross-up payment to reimburse the executive for the excise tax under Code Section 4999 as well as any additional income and excise taxes resulting from such reimbursement, but such payment will only be triggered if their change of control benefits exceed 110% of the Section 280G limit. The intent of the tax gross-up is to provide a benefit without a tax penalty to those executives who are displaced in the event of a change of control, and to avoid disparate treatment of individuals as a result of imposition of the tax, which can have arbitrary results in application. As noted above, in December 2008, the committee adopted a policy whereby the company will no longer provide excise tax gross-up protections in change of control arrangements adopted, renewed or extended after December 2, 2008. This policy does not affect the excise tax gross-up protections currently included in the employment agreements with Mr. Adkerson and Ms. Quirk; however, in accordance with this policy, the agreements with Mr. Adkerson and Ms. Quirk will not be extended, renewed or continued beyond January 1, 2012, with these gross-up protections in place.

 

Corporate Personnel Committee Report

 

The corporate personnel committee of our board of directors has reviewed and discussed with management the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K, and based on such review and discussion, the corporate personnel committee recommended to the board that the Compensation Discussion and Analysis be included in this proxy statement.

 

Submitted by the Corporate Personnel Committee as of April 20, 2009:

 

H. Devon Graham, Jr., Chairman

Robert J. Allison, Jr.

Charles C. Krulak

Bobby Lee Lackey

 

Executive Compensation Tables

 

The table below summarizes the total compensation paid to or earned by our chief executive officer, our chief financial officer, and our executive officers other than the chief executive officer and chief financial

officer (collectively, the named executive officers). The amounts represented in the “Stock Awards” and “Option Awards” columns reflect the expense recorded by the company pursuant to FAS 123(R), and do not necessarily reflect the income that will ultimately be realized by the named executive officers for these awards. For a description of the employment agreements between the company and each of Messrs. Moffett and Adkerson and Ms. Quirk, see “Compensation Discussion and Analysis” above and “Potential Payments upon Termination or Change of Control” below.

 

2008 Summary Compensation Table

 

 

 

 

										Long-Term
						Annual				Performance
						Incentive Plan				Incentive Plan
Name		Year				Cash Payment				Payout
Mr. Moffett			2008			$	—			$	—
			2007				23,000,000				6,790,000
			2006				23,325,000				4,415,000
Mr. Adkerson			2008				—				—
			2007				—				5,432,000
			2006				—				3,532,000
Ms. Quirk			2008				1,000,000				—
			2007				1,250,000				1,629,600
			2006				1,050,000				618,100
Mr. Arnold			2008				1,000,000				—
			2007				1,875,000				1,629,600
			2006				1,575,000				971,300

 

 

 

 

 

 

Grants of Plan-Based Awards
in Fiscal Year 2008

 

 

 

 

Outstanding Equity Awards at December 31, 2008