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.  )

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El Paso Corporation

(Name of Registrant as Specified In Its Charter)

 

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

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Dear El Paso Stockholder:

 

We cordially invite you to attend our 2009 Annual Meeting of Stockholders. The Annual Meeting will be held on Wednesday, May 6, 2009, beginning at 9:00 a.m. (local/Central time) at the Doubletree Hotel Houston Downtown, 400 Dallas Street, Houston, Texas 77002.

 

At this year’s Annual Meeting, you will be asked to vote on the election of 11 directors, an amendment and restatement of our 2005 Omnibus Incentive Compensation Plan, an amendment and restatement of our Employee Stock Purchase Plan, and the ratification of Ernst & Young LLP’s appointment as our independent registered public accounting firm for 2009.

 

Our Chairman Ronald L. Kuehn, Jr., and board members William H. Joyce and Joe B. Wyatt will be retiring from our Board of Directors at this Annual Meeting pursuant to our mandatory retirement age policy. We thank them for their dedicated service to El Paso and wish them well.

 

We remain committed to providing transparent and fulsome compensation disclosures in our proxy statement. To that end, in addition to required disclosures, we have included in the accompanying proxy statement individual executive profiles that summarize the compensation earned or paid during 2008 to our CEO, our CFO and our three other most highly compensated executive officers. We believe these individual executive profiles, which begin on page 25 of the proxy statement, provide a clear and concise summary that is easy to understand.

 

In addition, we are pleased this year to take advantage of SEC rules that allow companies to furnish their proxy materials over the Internet. As a result, we are mailing to most of our stockholders an Important Notice Regarding the Availability of Proxy Materials (“Notice”) instead of a paper copy of this proxy statement and our 2008 Annual Report on Form 10-K. The Notice contains instructions on how to access those documents over the Internet. The Notice also contains instructions on how to request a paper copy of our proxy materials, including this proxy statement, our 2008 Annual Report on Form 10-K and a form of proxy card. All stockholders who do not receive a Notice will receive a paper copy of the proxy materials by mail. We believe that this new process will allow us to provide our stockholders with the information they need in an efficient, cost-effective manner, while reducing the environmental impact of printing and distributing proxy materials.

 

I urge you to vote for your Board’s nominees, the two plan restatements and the ratification of Ernst & Young LLP. Your vote is important. I hope you will be able to attend the annual meeting, but if you cannot, please vote your proxy as soon as you can.

 

Sincerely,

 

Douglas L. Foshee

President and Chief Executive Officer

 

Houston, Texas

March 26, 2009

EL PASO CORPORATION
1001 Louisiana Street
Houston, Texas 77002

 

NOTICE OF 2009 ANNUAL MEETING OF STOCKHOLDERS

May 6, 2009

 

On May 6, 2009, El Paso Corporation will hold its 2009 Annual Meeting of Stockholders at the Doubletree Hotel Houston Downtown, 400 Dallas Street, Houston, Texas 77002. The Annual Meeting will begin at 9:00 a.m. (local/Central time).

 

Only El Paso stockholders who owned shares of our common stock at the close of business on March 11, 2009, are entitled to notice of, and can vote at, this Annual Meeting or any adjournments or postponements that may take place. At the Annual Meeting, you will be asked to take action and consider proposals to:

 

 

These proposals are described in the attached proxy statement. We will also attend to any other business properly presented at the Annual Meeting. The Board of Directors is not aware of any other matters to be presented at the Annual Meeting.

 

By Order of the Board of Directors

 

Marguerite N. Woung-Chapman
Corporate Secretary

 

Houston, Texas

March 26, 2009

 

 

 

ATTENDING THE MEETING

 

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

 

EL PASO CORPORATION

 

PROXY STATEMENT

 

TABLE OF CONTENTS

 

EL PASO CORPORATION
1001 Louisiana Street
Houston, Texas 77002

 

PROXY STATEMENT

 

2009 ANNUAL MEETING OF STOCKHOLDERS — May 6, 2009

 

Our Board of Directors is furnishing you with this proxy statement to solicit proxies on its behalf to be voted at the 2009 Annual Meeting of Stockholders of El Paso Corporation. The Annual Meeting will be held at the Doubletree Hotel Houston Downtown, 400 Dallas Street, Houston, Texas 77002, on Wednesday, May 6, 2009, at 9:00 a.m. (local/Central time). The proxies also may be voted at any adjournments or postponements of the Annual Meeting.

 

In accordance with the “Notice and Access” rules adopted by the U.S. Securities and Exchange Commission (“SEC”), we have elected to provide access to our proxy materials to our stockholders by providing access to such documents on the Internet. Accordingly, on or about March 26, 2009, an Important Notice Regarding the Availability of Proxy Materials (“Notice”) will be mailed to our stockholders of record. Stockholders will have the ability to access the proxy materials on a website referred to in the Notice or request a printed set of the proxy materials be sent to them, by following the instructions on the Notice.

 

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

 

 

Stockholders holding shares of El Paso’s common stock, par value $3.00 per share, as of the close of business on the record date, March 11, 2009, and present in person or represented by a properly executed proxy are entitled to vote at the Annual Meeting, or any adjournments or postponements of the Annual Meeting. You have one vote for each share of common stock held as of the record date, which may be voted on each proposal presented at the Annual Meeting.

 

 

The record date for the Annual Meeting is March 11, 2009. The record date was established by the Board of Directors as required by our By-laws and Delaware law. Owners of record of El Paso’s common stock at the close of business on the record date are entitled to:

 

 

 

There were 698,634,520 shares of common stock outstanding and entitled to vote at the Annual Meeting at the close of business on the record date. Common stock is the only class of stock entitled to vote.

 

 

This year, in connection with SEC rules that allow companies to furnish their proxy materials over the Internet, we have sent to most of our stockholders an Important Notice Regarding the Availability of Proxy Materials instead of a paper copy of the proxy materials. Instructions on how to access the proxy materials over the Internet or to request a paper copy may be found in the Notice. In addition, stockholders may request to receive proxy materials in

printed form by mail or electronically by e-mail on an ongoing basis. A stockholder’s election to receive proxy materials by mail or e-mail will remain in effect until the stockholder terminates the election.

 

 

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

 

 

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

 

 

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

 

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

 

 

You are voting on the following:

 

 

 

The Board recommends that you vote:

 

 

 

Your vote is very important regardless of the number of shares you hold. The Board strongly encourages you to exercise your right to vote as a stockholder of the company.

 

You may vote by any of the following methods:

 

 

 

No.

 

 

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

 

 

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

 

 

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

 

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

 

 

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

 

 

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

 

 

Admission to the Annual Meeting is limited to stockholders of El Paso, persons holding validly executed proxies from stockholders who held El Paso common stock on March 11, 2009, and invited guests of El Paso.

 

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

 

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

 

If you were a record holder of El Paso common stock on March 11, 2009, then you must bring a valid government-issued personal identification (such as a driver’s license or passport).

 

If a broker, bank, trustee or other nominee was the record holder of your shares of El Paso common stock on March 11, 2009, then you must bring:

 

 

Examples of proof of ownership include the following: (1) a letter from your bank or broker stating that you owned El Paso common stock on March 11, 2009; (2) a brokerage account statement indicating that you owned El Paso common stock on March 11, 2009; or (3) the voting instruction form provided by your broker indicating that you owned El Paso common stock on March 11, 2009.

 

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

 

 

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

 

 

 

Votes are counted in accordance with our By-laws and Delaware law. A broker non-vote or abstention will not be counted in determining the election of directors. A broker non-vote or abstention will be counted towards a quorum and as represented at the meeting. Accordingly, a broker non-vote or abstention will have the same effect as a vote against each of the proposals other than the election of directors. Shares will not be voted at the Annual Meeting if a properly executed proxy card covering those shares has not been returned and the holder does not cast votes in respect of those shares in person at the Annual Meeting.

 

 

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

 

 

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

 

 

If you want to submit a proposal for possible inclusion in next year’s proxy statement, you must submit it in writing to the Corporate Secretary, El Paso Corporation, P.O. Box 2511, Houston, Texas 77252-2511, telephone (713) 420-4018 and facsimile (713) 420-4099. El Paso must receive your proposal on or before November 26, 2009. El Paso will consider only proposals meeting the requirements of the applicable rules of the SEC.

Additionally, under our By-laws, for a stockholder to bring any matter before the 2010 Annual Meeting that is not included in the 2010 Proxy Statement, the stockholder’s written notice must be received not less than 90 days nor more than 120 days prior to the first anniversary of the 2009 Annual Meeting. Under this criterion, stockholders must provide us with a notice of a matter to be brought before the 2010 Annual Meeting during the period from January 6, 2010 to February 5, 2010.

 

If the 2010 Annual Meeting is held more than 30 days before or 60 days after May 6, 2010, for a stockholder seeking to bring any matter before the 2010 Annual Meeting, the stockholder’s written notice must be received not less than 90 days nor more than 120 days before the date of the 2010 Annual Meeting or by the tenth day after we publicly announce the date of the 2010 Annual Meeting, if that would result in a later deadline.

 

 

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

 

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

 

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

 

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

 

The Board has affirmatively determined that each of our directors, with the exception of our President and Chief Executive Officer (“CEO”) Douglas L. Foshee, meet the standards of independence adopted by the Board and are “independent.” Among other things, the Board has reviewed all of the payments received by Mr. Kuehn during 2008 (as reflected in the Director Compensation table on page 66 of this proxy statement) and has determined that none of these payments affects his independence on the Board because the payments received by him related to either his service on the Board, or other benefits Mr. Kuehn is entitled to pursuant to his termination and consulting agreement that was entered into as part of the merger with Sonat Inc. in 1999 and which are not dependent upon his

continued service on the Board. The Board also reviewed each director’s commercial and charitable relationships and determined that, with the exception of Mr. Foshee’s service as our President and CEO, none of these relationships affect the independence of the individual directors. Thus, 13 of our 14 current directors, and 10 of our 11 director nominees, are independent. Further, our Audit, Compensation, Governance & Nominating, Finance and Health, Safety & Environmental Committees are composed entirely of independent directors.

 

Audit Committee Financial Expert.  The Audit Committee plays an important role in promoting effective accounting, financial reporting, risk management and compliance procedures and controls. All members of our Audit Committee meet the financial literacy standard required by the NYSE rules and at least one member qualifies as having accounting or related financial management expertise under the NYSE rules. In addition, the Board of Directors has affirmatively determined that Messrs. Hix (chairman of our Audit Committee), Goldman and Shapiro are “audit committee financial experts.”

 

Chairman/Lead Director.  Mr. Kuehn currently serves as the Chairman of our Board of Directors in a non-executive capacity. As the Chairman of the Board of Directors, Mr. Kuehn has a number of responsibilities, which include setting board meeting agendas in collaboration with the CEO, presiding at Board meetings, executive sessions and the annual stockholders’ meeting, assigning tasks to the appropriate committees, and ensuring that information flows openly between management and the Board. However, on May 6, 2009, Mr. Kuehn will be retiring from our Board of Directors.

 

Mr. Kuehn served as the Lead Director of the Board from September 2002 to March 2003. In March 2003, Mr. Kuehn assumed the role of Chairman and interim CEO until Douglas L. Foshee joined El Paso as President, CEO and a director in September 2003. Mr. Foshee arrived at a seminal time in El Paso’s history. An acrimonious proxy battle had only recently ended and Mr. Foshee was charged with leading an aggressive turnaround plan to reorganize the company around its two key businesses — pipelines and exploration and production — and return the company to growth and profitability. During that period of time to the present, Mr. Kuehn continued to serve as Chairman and Mr. Foshee was able to devote 100 percent of his time to achieving the turnaround.

 

Following our Annual Meeting on May 6, 2009, the Board intends to elect Mr. Foshee to succeed Mr. Kuehn as Chairman. Mr. Foshee will also continue to serve as our President and CEO. In determining that Mr. Foshee was the appropriate person to serve in the combined role of Chairman and CEO, the Board relied on several important measures. First, Mr. Foshee’s leadership, integrity and vision have been instrumental in the successful execution of El Paso’s turnaround and its continued strong performance, despite challenging economic conditions. Second, Mr. Foshee has the confidence of the Board, the company and its stockholders. Third, the Board’s performance and El Paso’s corporate governance have flourished since Mr. Foshee’s arrival. Fourth and most importantly, the Board believes that Mr. Foshee has the ability to execute on both the company’s short-term and long-term strategies necessary for the challenging marketplace in which the company competes.

 

While these measures were important, the Board would not have considered combining the roles of Chairman and CEO if it did not firmly believe that El Paso has in place sound counter-balancing mechanisms to ensure that the company maintains the highest standards of corporate governance and continued accountability of the CEO to the Board. These counter-balancing mechanisms include:

 

 

 

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

 

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

 

 

 

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

 

Executive Sessions of the Board of Directors.  The Board of Directors holds regular executive sessions in which non-management Board members meet without any members of management present. Currently, Mr. Kuehn presides over the executive sessions of the Board. Upon Mr. Kuehn’s retirement in May 2009, the Lead Director will preside over the executive sessions. During 2008, non-management members of the Board met in executive session five times and several Committees of the Board met in executive session without members of management present. The purpose of these executive sessions is to promote open and candid discussion among the non-management directors.

 

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

 

Board/Committee/Director Evaluations.  Each year the Board of Directors and each Board committee participates in a self-assessment or evaluation of the effectiveness of the Board and its committees. At least once every three years, the Board conducts an evaluation of each individual director. During 2008, each director participated in a self-assessment of the Board and its committees. The results of these assessments were compiled and presented to the Board and the respective committees for discussion and, if necessary, action.

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

 

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

 

Stock Ownership Requirements.  Our Board of Directors is committed to director and senior management stock ownership. Directors are required to own shares of our common stock with a value of five times the annual cash retainer paid to non-employee directors within a five-year time period following initial election to the Board. The Board also requires that our CEO own shares of our common stock with a value of at least five times his or her annual base salary, and that other executive officers own shares of our common stock with a value of at least two times their base salary within a five-year time period following initial election to that position. Each share of common stock owned by a director or executive officer is deemed to have a value equal to the greater of (i) the trading price of our common stock as of the date the applicable share was acquired by the director or executive officer or (ii) the trading price of the share of common stock as of the measurement date. Shares of restricted stock, deferred shares and shares in our retirement savings plan or other similar plans are counted towards meeting these requirements. Additionally, a director or executive officer is deemed to own shares of common stock with a value equal to the in-the-money value, if any, of any vested or unvested stock option, stock appreciation right, or similar equity-linked grant that is held by the director or executive officer on any given measurement date. Each of our executive officers and non-employee directors met the stock ownership requirements as of December 31, 2008.

 

Voting Standard to Elect Directors.  Our By-laws provide for the election of directors by the majority vote of stockholders in uncontested elections. This means the number of votes cast for a nominee’s election must exceed the number of votes cast against such nominee’s election in order for him or her to be elected to the Board of Directors. Our By-laws provide for the election of directors by the plurality of votes cast in contested elections. This means that in elections where the number of nominees exceeds the number of directors to be elected, the nominees who receive the highest number of votes will be elected to the Board of Directors. In addition, our Corporate Governance Guidelines provide that the Board will nominate for election or appoint to Board vacancies only candidates who irrevocably agree to resign if they fail to receive the required majority vote in uncontested elections. In the event a director fails to receive a majority of votes cast and the Board accepts the resignation tendered, then that director would cease to be a director of El Paso. In accordance with our Corporate Governance Guidelines, our By-laws require as a part of a stockholder’s written notice in connection with the nomination of a director, a statement whether the nominated individual intends to tender an irrevocable resignation effective upon such person’s failure to receive the required vote for re-election at the next meeting at which such person would face re-election. Each of our directors has submitted an irrevocable letter of resignation that becomes effective in the event he or she does not receive a majority of votes cast for his or her election.

 

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

 

Code of Ethics.  We have adopted a code of ethics, referred to as our “Code of Business Conduct,” that applies to all of our directors and employees, including our CEO, Chief Financial Officer (“CFO”) and senior financial and accounting officers. Our Code of Business Conduct is a value-based code that is built on our five core values:

stewardship, integrity, safety, accountability and excellence. In addition to other matters, our Code of Business Conduct establishes policies to deter wrongdoing and to promote honest and ethical conduct, including ethical handling of actual or apparent conflicts of interest, compliance with applicable laws, rules and regulations, full, fair, accurate, timely and understandable disclosure in public communications and prompt internal reporting of violations of our Code of Business Conduct. We also have an Ethics & Compliance Office and Ethics & Compliance Committee, which is composed of members of senior management, that administers our ethics and compliance program and reports to the Audit Committee of our Board of Directors. A copy of our Code of Business Conduct is available on our website at www.elpaso.com. We will post on our internet website all waivers to or amendments of our Code of Business Conduct, which are required to be disclosed by applicable law and the NYSE listing standards. Currently, we do not have nor do we anticipate any waivers of or amendments to our Code of Business Conduct. We believe our Code of Business Conduct exceeds the requirements set forth in the applicable SEC regulations and the corporate governance rules of the NYSE.

 

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

 

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

 

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

 

 

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

 

During 2008, we did not enter into, and we do not currently propose entering into, any transactions with related persons required to be disclosed under SEC regulations.

 

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

 

Web Access.  We provide access through our website to current information relating to corporate governance, including a copy of each of the Board’s standing committee charters, our Corporate Governance Guidelines, our Code of Business Conduct, our Restated Certificate of Incorporation and By-laws, our policy for approval of related person transactions, biographical information concerning each director, and other matters regarding our corporate governance principles. We also provide access through our website to all filings submitted by El Paso to the SEC.

Our website is www.elpaso.com, and access to this information is free of any charge to the user (except for any internet provider or telephone charges). Copies will also be provided to any person upon request. Such requests should be in writing, addressed to El Paso Corporation, c/o Ms. Marguerite Woung-Chapman, Corporate Secretary, P.O. Box 2511, Houston, TX 77252. Information contained on our website is not part of this proxy statement.

 

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

 

Director Attendance at Annual Meeting.  The Board encourages all director nominees standing for election to attend the Annual Meeting in accordance with our Corporate Governance Guidelines. All incumbent directors who were elected at our 2008 Annual Meeting attended our 2008 Annual Meeting of Stockholders.

 

The Board of Directors held nine meetings during 2008. Each director, with the exception of Mr. Vagt, attended at least 75 percent of his or her board and committee meetings. Mr. Vagt was unable to attend certain board and committee meetings due to scheduling conflicts associated with his appointment as President of The Heinz Endowments in January 2008, which appointment occurred after our 2008 board meeting dates had been selected. Prior to 2008, Mr. Vagt attended 52 of 54 of his board and committee meetings since his appointment to our Board in 2005. Scheduling conflicts with respect to his responsibilities as President of The Heinz Endowments are not expected to occur in 2009.

 

The Board of Directors has established five standing committees to assist the Board in carrying out its duties: the Audit Committee, the Compensation Committee, the Governance & Nominating Committee, the Finance Committee and the Health, Safety & Environmental Committee. We describe the committees, their membership during 2008 and their principal responsibilities below.

 

 

Audit Committee

 

The Audit Committee held nine meetings during 2008. The Audit Committee currently consists of five non-employee directors, each of whom the Board has determined is “independent” as such term is defined in Section 10A of the Exchange Act, the SEC rules thereunder, the NYSE listing standards and our Corporate Governance Guidelines. The Board of Directors has determined that each member of the Audit Committee possesses the necessary level of financial literacy required to enable him or her to serve effectively as an Audit Committee member. No Audit Committee member serves on more than three audit committees of public companies, including our Audit Committee. We maintain an Internal Audit Department to provide management and the Audit Committee with ongoing assessments of our risk management processes and system of internal controls. In addition, we maintain a Financial Controls Group to manage our internal control over financial reporting compliance activities. The Audit Committee’s duties, which are discussed in detail in its charter, include, among other duties:

 

 

 

 

 

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

 

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

 

Policy for Approval of Audit and Non-Audit Fees

 

During 2008, the Audit Committee approved all the types of audit and permitted non-audit services which our independent auditors were to perform during the year, as required under applicable law, and the cap on fees for each of these categories. The Audit Committee’s current practice is to consider for pre-approval annually all categories of audit and permitted non-audit services proposed to be provided by our independent auditors for a fiscal year. Pre-approval of tax services requires that the principal independent auditor provide the Audit Committee with written documentation of the scope and fee structure of the proposed tax services and discuss with the Audit Committee the potential effects, if any, of providing such services on the independent auditor’s independence. The Audit Committee will also consider for pre-approval annually the maximum amount of fees and the manner in which the fees are determined for each type of pre-approved audit and non-audit services proposed to be provided by our independent auditors for the fiscal year. The Audit Committee must separately pre-approve any service that is not included in the approved list of services or any proposed services exceeding pre-approved cost levels. The Audit Committee has delegated pre-approval authority to the Chairman of the Audit Committee for services that need to be addressed between Audit Committee meetings. The Audit Committee is then informed of these pre-approval decisions, if any, at the next meeting of the Audit Committee. See “Principal Accountant Fees and Services” on page 80 of this proxy statement for the aggregate fees paid to Ernst & Young LLP for the years ended December 31, 2008 and 2007.

 

Compensation Committee

 

The Compensation Committee held four meetings during 2008. The Compensation Committee currently consists of six non-employee directors, each of whom the Board has determined is “independent” under (a) the NYSE listing standards, (b) the non-employee director standards of Rule 16b-3 of the Exchange Act, (c) the outside

director requirements of Section 162(m) of the Internal Revenue Code (the “Code”) and (d) our Corporate Governance Guidelines.

 

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

 

 

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

 

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

 

See the Compensation Discussion and Analysis beginning on page 31 of this proxy statement for a further discussion of our procedures for determining and establishing executive compensation, including the Compensation Committee’s engagement of an independent executive compensation consultant, and the role of management in determining executive compensation.

 

Compensation Committee Interlocks and Insider Participation

 

During 2008, the following independent directors served on our Compensation Committee: Messrs. Dunlap, Joyce, Shapiro, Talbert and Wyatt and Ms. McClean. The Compensation Committee has neither interlocks nor insider participation.

Governance & Nominating Committee

 

The Governance & Nominating Committee met five times during 2008. The Governance & Nominating Committee currently consists of four non-employee directors, each of whom the Board has determined is “independent” as such term is defined in the NYSE listing standards and our Corporate Governance Guidelines. The Board has delegated to the Governance & Nominating Committee its oversight responsibilities relating to corporate governance and the establishment of criteria for Board selection (including an initial determination regarding director independence).

 

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

 

 

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

 

Director Nomination Process

 

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

Stockholders seeking to nominate persons for election as directors at the 2010 Annual Meeting must submit, in writing, a timely notice complying with our By-laws to Ms. Marguerite N. Woung-Chapman, Corporate Secretary, El Paso Corporation, P.O. Box 2511, Houston, Texas 77252-2511, telephone (713) 420-4018 and facsimile (713) 420-4099. To be timely for a stockholder seeking to bring any matter before the 2010 Annual Meeting, the stockholder’s written notice must be received not less than 90 days nor more than 120 days prior to the first anniversary of the 2009 Annual Meeting. Under these criteria, stockholders must provide us with notice of nominations sought to be made at the 2010 Annual Meeting during the period from January 6, 2010 to February 5, 2010.

 

If the 2010 Annual Meeting is held more than 30 days before or 60 days after May 6, 2010, for a stockholder seeking to bring any matter before the 2010 Annual Meeting, the stockholder’s written notice must be received not less than 90 days nor more than 120 days before the date of the 2010 Annual Meeting or by the tenth day after we publicly announce the date of the 2010 Annual Meeting, if that would result in a later deadline.

 

Finance Committee

 

The Finance Committee met five times during 2008. The Finance Committee currently consists of five non-employee directors, each of whom the Board has determined is “independent” under the NYSE listing standards and in accordance with our Corporate Governance Guidelines. The Finance Committee assists the Board in fulfilling its oversight responsibilities by reviewing and recommending appropriate action with respect to our capital structure, source of funds, payment of dividends, liquidity and financial position.

 

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

 

 

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

 

Health, Safety & Environmental Committee

 

The Health, Safety & Environmental Committee met four times during 2008. The Health, Safety & Environmental Committee currently consists of four non-employee directors, each of whom the Board has determined is “independent” under the NYSE listing standards and our Corporate Governance Guidelines. The Health, Safety & Environmental Committee assists the Board in fulfilling its oversight responsibilities with respect to the Board’s and our continuing commitment to improving the environment, ensuring the safety of our employees and ensuring that our businesses and facilities are operated and maintained in a safe and environmentally sound manner.

 

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

 

 

 

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

 

Each member of the Audit Committee is “independent,” as that term is defined under Section 10A of the Exchange Act, the SEC rules, the NYSE listing standards and our Corporate Governance Guidelines. Each member of the Audit Committee is also financially literate, as that qualification is interpreted by our Board of Directors in its business judgment. Further, each of Messrs. Goldman, Hix and Shapiro qualifies and is designated as an “audit committee financial expert,” serving on the Audit Committee as such term is defined in rules adopted by the SEC and interpreted by our Board. The Audit Committee currently consists of five members: Messrs. Braniff, Goldman, Hix, Shapiro and Whitmire. During 2008, the Audit Committee met nine times and discussed, among other things, the financial information contained in each quarterly earnings announcement and the Form 10-K and Forms 10-Q with management, our internal auditors and our independent auditor prior to release.

 

Policies and Mission

 

As a Committee, our primary purpose is to assist the Board of Directors in fulfilling its oversight responsibilities with respect to:

 

 

We have prepared this audit committee report as required by the SEC. As part of completing this report, we conduct a number of activities. We engage in an annual self evaluation to determine our effectiveness as a Committee. We review annually with the head of El Paso’s internal audit function the scope of internal audit activities, the results of audits that have been performed, the adequacy of internal audit staffing, its annual budget and the internal audit department charter. We are directly responsible for the appointment, compensation, retention, oversight and dismissal of independent auditors engaged by El Paso for the purpose of preparing or issuing an audit report or related work, and the independent auditors report directly to us. We obtain and review annually a report by our principal independent auditor describing, among other matters, the independent auditor’s internal quality control procedures and all relationships between the independent auditor and El Paso. We review with El Paso’s Controller and the independent auditor all critical accounting policies and practices, significant changes in El Paso’s selection and application of accounting principles, judgments made in connection with the preparation of the financial statements and other significant financial reporting issues. We meet at least on a quarterly basis with the head of El Paso’s internal audit function, the independent auditor and management to discuss the effectiveness of disclosure controls and procedures, and any changes in El Paso’s internal control over financial reporting that occurred during its most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, internal control over financial reporting. We also discuss the effectiveness of internal control over financial reporting and management’s assessment of its effectiveness. We review the procedures for the receipt, retention and treatment of complaints received by El Paso regarding any accounting, internal controls or auditing matters. We review El Paso’s risk assessment and risk management guidelines and policies, including El Paso’s significant risk exposures and steps taken by management to monitor and control these exposures. All audit services and permitted

non-audit services provided to El Paso by its independent auditors are pre-approved by us in accordance with our pre-approval policy and applicable law. These responsibilities do not preclude us from obtaining the input of management, but these responsibilities may not be delegated to management.

 

Consistent with our policies and mission stated above, we have adopted a charter which may be found on El Paso’s website at www.elpaso.com.

 

Audit Committee Statement

 

We have reviewed and discussed the audited financial statements with El Paso management; discussed the effectiveness of disclosure controls and procedures and internal control over financial reporting with El Paso management; discussed with our independent registered public accounting firm the matters required to be discussed by Statement on Auditing Standards No. 61 (Communication with Audit Committees), as modified or supplemented; received written disclosures and the letter from El Paso’s independent registered public accounting firm as required by applicable requirements of the Public Company Accounting Oversight Board regarding the independent registered public accounting firm’s communications with us concerning independence, and have discussed with our independent registered public accounting firm their independence, as well as their internal quality control procedures; and based on the review and discussions described in this paragraph, recommended to the Board of Directors that the audited financial statements be included in El Paso’s Annual Report on Form 10-K for the 2008 fiscal year for filing with the SEC.

 

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

 

Current Members of the Audit Committee of the Board of Directors

 

 

The Board.  You will have the opportunity to elect our entire Board of Directors, consisting of 11 members, at the Annual Meeting. Messrs. Joyce, Kuehn and Wyatt are not standing for re-election and will be retiring from the Board as of the close of the Annual Meeting. All of our other incumbent directors are standing for re-election. All directors are elected annually and serve a one-year term or until his or her successor has been duly elected and shall qualify.

 

Nominations.  At the Annual Meeting, we will nominate the 11 persons named in this proxy statement as directors.

 

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

 

General Information about the Nominees for Election, as of March 11, 2009.  Each of the following nominees has agreed to be named in this proxy statement and to serve as a director if elected.

 

 

Mr. Braniff has served as a director since 1997. Mr. Braniff has been Chairman of Capital I Ltd. Partners and a partner in Alpha Patrimonial S.A. de C.V. in Mexico City since August 2005. Mr. Braniff was a business consultant from January 2004 to August 2005. Mr. Braniff served Grupo Financíero BBVA Bancomer as Vice Chairman from October 1999 to January 2004, as Deputy Chief Executive Officer of Retail Banking from September 1994 to October 1999 and as Executive Vice President of Capital Investments, Mortgage Banking and Tourism from December 1991 to September 1994. Mr. Braniff is currently a member of the board of directors of Ixe Grupo Financiero S.A. de C.V.

 

 

Mr. Dunlap has served as a director since 2003. Mr. Dunlap has primarily been engaged in business consulting since 1999. Mr. Dunlap previously served as Vice Chairman, President and Chief Operating Officer of Ocean Energy/United Meridian Corporation from 1996 to 1999. For 33 years prior to that date, Mr. Dunlap served Texaco, Inc. in various positions, including Senior Vice President, President of Texaco USA, President and Chief Executive Officer of Texaco Canada Inc. and Vice Chairman of Texaco Ltd., London. Mr. Dunlap is currently a member of the Advisory Council of the Nantucket Conservation Foundation, a trustee of the Culver Educational Foundation and a trustee of the Woods Hole Oceanographic Institution.

 

 

Mr. Foshee has been President, Chief Executive Officer and a director of El Paso since September 2003. Prior to joining El Paso, Mr. Foshee served as Executive Vice President and Chief Operating Officer of Halliburton Company having joined that company in 2001 as Executive Vice President and Chief Financial Officer. Prior to assuming his position at Halliburton, Mr. Foshee served as President, Chief Executive Officer and Chairman of the Board of Nuevo Energy Company and Chief Executive Officer and Chief Operating Officer of Torch Energy Advisors, Inc. Mr. Foshee presently serves as a director of Cameron International Corporation and is a trustee of AIG Credit Facility Trust. Mr. Foshee serves as Chairman of the Federal Reserve Bank of Dallas, Houston Branch. Mr. Foshee also serves on the Board of Trustees of Rice University and serves as a member of the Council of Overseers for the Jesse H. Jones Graduate School of Management. He is a member of the Greater Houston Partnership Board and Executive Committee and other civic and community organizations. Mr. Foshee also serves on the board of directors of El Paso Pipeline GP Company, L.L.C.

 

 

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

 

 

Mr. Hall has served as a director since 2001. Mr. Hall has been Chief Administrative Officer of the City of Houston since January 2004. Mr. Hall served as the City Attorney for the City of Houston from March 1998 to January 2004. Mr. Hall served as a director of The Coastal Corporation from August 1999 to January 2001. Prior to March 1998, Mr. Hall was a partner in the Houston law firm of Jackson Walker, LLP. Mr. Hall is a director of Houston Endowment Inc. and Chairman of the Boulé Foundation.

 

 

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

 

 

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

 

 

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

 

 

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

 

 

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

 

 

Mr. Whitmire has served as a director since 2003. Mr. Whitmire has been Chairman of CONSOL Energy, Inc. since 1999. He served as Chairman and Chief Executive Officer of Union Texas Petroleum Holdings, Inc. from 1996 to 1998, and spent over 30 years serving Phillips Petroleum Company in various positions including Executive Vice President of Worldwide Exploration and Production from 1992 to 1996 and Vice President of North American Exploration and Production from 1988 to 1992. Mr. Whitmire also served as a member of the Phillips Petroleum Company Board of Directors from 1994 to 1996. Mr. Whitmire is a member of the board of directors of Transocean Inc.

 

The following table sets forth information as of February 27, 2009 regarding beneficial ownership of our common stock by each director, our CEO, our CFO and the other three most highly compensated executive officers in the last fiscal year, our directors and executive officers as a group and each person or entity known by us to own beneficially more than 5 percent of our outstanding shares of common stock. No family relationship exists between any of our directors or executive officers.

 

 

 

 

The following table sets forth, as of February 27, 2009, the number of common units of our master limited partnership, El Paso Pipeline Partners, L.P., owned by each of our executive officers and directors and all of our executive officers and directors as a group.

 

 

 

 

The following are individual executive profiles that summarize the compensation earned or paid in 2008 to our CEO, our CFO and our three other most highly compensated executive officers, whom we refer to as our “named executive officers.” The individual executive profiles provide biographical information and summarize the compensation disclosures that are provided in the Compensation Discussion and Analysis and executive compensation tables in this proxy statement. These profiles are supplemental and are being provided in addition to the detailed compensation tables required by the SEC that follow the Compensation Discussion and Analysis. We believe these profiles provide stockholders with a concise and easy to understand summary of 2008 compensation. The compensation information presented in the following executive profiles is calculated in accordance with the SEC regulations and is derived from the more detailed compensation tables that begin on page 48 of this proxy statement. Please consult those tables and the accompanying footnotes for an explanation of how the compensation information is calculated.

Douglas L. Foshee: Individual Executive Profile

 

Salary
Base Salary		$	1,037,502
Performance-Based Cash Bonus		$	593,220
Perquisites and Personal Benefits		$	3,214
Annual Long-Term Incentive Award
(Grant Date Fair Value)
Restricted Stock		$	2,323,916
Stock Options		$	2,164,560
Restricted Stock Dividends		$	59,659
Retirement Benefits
Pension Plan
Annual increase in accumulated pension benefit		$	133,632
Retirement Savings Plan (RSP)
Company matching contribution to RSP		$	10,350
Supplemental RSP benefit		$	104,648
Annual earnings on supplemental RSP benefit		$	29,646

Voluntary Termination		$	2,021,102
Involuntary Termination without Cause		$	1,963,344	2
Retirement		$	0	2
Death		$	5,089,727	2
Disability		$	1,210,410	2
Termination with Cause		$	0	2
Change in Control of El Paso		$	10,690,196	2

1	Please note total 2008 Compensation does not tie directly to the Summary Compensation Table.
2	Reflects incremental value of enhanced benefits above amounts Mr. Foshee is entitled to as a result of voluntary termination. Value of equity reflects $7.83, the closing price of our common stock on December 31, 2008.

 

 

 

D. Mark Leland: Individual Executive Profile

 

Salary
Base Salary		$	519,756
Performance-Based Cash Bonus		$	162,000
Perquisites and Personal Benefits		$	1,150
Annual Long-Term Incentive Award
(Grant Date Fair Value)
Restricted Stock		$	728,505
Stock Options		$	622,000
Restricted Stock Dividends		$	19,510
Retirement Benefits
Pension Plan
Annual increase in accumulated pension benefit		$	11,269
Retirement Savings Plan (RSP)
Company matching contribution to RSP		$	10,350
Supplemental RSP benefit		$	32,405
Annual earnings on supplemental RSP benefit		$	8,753

Voluntary Termination		$	950,368
Involuntary Termination without Cause		$	830,597	2
Retirement		$	0	2
Death		$	2,143,996	2
Disability		$	567,785	2
Termination with Cause		$	0	2
Change in Control of El Paso		$	2,843,325	2

1	Please note total 2008 Compensation does not tie directly to the Summary Compensation Table.
2	Reflects incremental value of enhanced benefits above amounts Mr. Leland is entitled to as a result of voluntary termination. Value of equity reflects $7.83, the closing price of our common stock on December 31, 2008.

Brent J. Smolik: Individual Executive Profile

 

Salary
Base Salary		$	562,392
Performance-Based Cash Bonus		$	172,500
Perquisites and Personal Benefits		$	1,642
Annual Long-Term Incentive Award
(Grant Date Fair Value)
Restricted Stock		$	667,799
Stock Options		$	622,000
Restricted Stock Dividends		$	23,399
Retirement Benefits
Pension Plan
Annual increase in accumulated pension benefit		$	45,747
Retirement Savings Plan (RSP)
Company matching contribution to RSP		$	10,350
Supplemental RSP benefit		$	14,958
Annual earnings on supplemental RSP benefit		$	1,179

Voluntary Termination		$	91,720
Involuntary Termination without Cause		$	750,835	2
Retirement		$	0	2
Death		$	2,108,907	2
Disability		$	481,672	2
Termination with Cause		$	0	2
Change in Control of El Paso		$	3,349,944	2

1	Please note total 2008 Compensation does not tie directly to the Summary Compensation Table.
2	Reflects incremental value of enhanced benefits above amounts Mr. Smolik is entitled to as a result of voluntary termination. Value of equity reflects $7.83, the closing price of our common stock on December 31, 2008.

 

 

James C. Yardley: Individual Executive Profile

 

Salary
Base Salary		$	511,263
Performance-Based Cash Bonus		$	195,000
Perquisites and Personal Benefits		$	5,939
Annual Long-Term Incentive Award
(Grant Date Fair Value)
Restricted Stock		$	607,076
Stock Options		$	622,000
Restricted Stock Dividends		$	15,833
Retirement Benefits
Pension Plan
Annual increase in accumulated pension benefit		$	56,258
Retirement Savings Plan (RSP)
Company matching contribution to RSP		$	10,350
Supplemental RSP benefit		$	32,106
Annual earnings on supplemental RSP benefit		$	7,605

Voluntary Termination		$	3,709,409
Involuntary Termination without Cause		$	515,016	2
Retirement		$	0	2,3
Death		$	1,757,504	2
Disability		$	257,508	2
Termination with Cause		$	0	2
Change in Control of El Paso		$	2,672,864	2

1	Please note total 2008 Compensation does not tie directly to the Summary Compensation Table.
2	Reflects incremental value of enhanced benefits above amounts Mr. Yardley is entitled to as a result of voluntary termination. Value of equity reflects $7.83, the closing price of our common stock on December 31, 2008.
3	Mr. Yardley is eligible for early retirement. The value of his retirement benefits are reflected under Voluntary Termination.

 

 

Robert W. Baker: Individual Executive Profile

 

Salary
Base Salary		$	456,696
Performance-Based Cash Bonus		$	120,000
Perquisites and Personal Benefits		$	1,150
Annual Long-Term Incentive Award
(Grant Date Fair Value)
Restricted Stock		$	607,076
Stock Options		$	622,000
Restricted Stock Dividends		$	17,466
Retirement Benefits
Pension Plan
Annual increase in accumulated pension benefit		$	64,354
Retirement Savings Plan (RSP)
Company matching contribution to RSP		$	10,350
Supplemental RSP benefit		$	24,382
Annual earnings on supplemental RSP benefit		$	8,605

Voluntary Termination		$	1,278,475
Involuntary Termination without Cause		$	729,439	2
Retirement		$	0	2
Death		$	1,883,867	2
Disability		$	498,193	2
Termination with Cause		$	0	2
Change in Control of El Paso		$	2,500,930	2

1	Please note total 2008 Compensation does not tie directly to the Summary Compensation Table.
2	Reflects incremental value of enhanced benefits above amounts Mr. Baker is entitled to as a result of voluntary termination. Value of equity reflects $7.83, the closing price of our common stock on December 31, 2008.

 

The compensation discussion and analysis set forth below provides an explanation of our compensation programs, including the objectives of such programs and the rationale for each element of compensation, for our named executive officers. They include our Chief Executive Officer, Mr. Douglas L. Foshee, our Executive Vice President and Chief Financial Officer, Mr. D. Mark Leland, and our other three most highly compensated executive officers, Mr. Brent J. Smolik, Mr. James C. Yardley, and Mr. Robert W. Baker. This section also describes the actions and decisions of the Compensation Committee of our Board of Directors during 2008 through February 2009, which is the committee that oversees our compensation programs and sets executive officer compensation. The discussion is divided into the following six parts:

 

I.        Compensation Objectives

 

II.       Role of Compensation Committee, Independent Consultant and Management

 

III.      Elements of Total Compensation

 

IV.      Factors Considered When Determining Total Compensation

 

V.       2008 Compensation Decisions

 

VI.      Other Compensation Policies

 

 

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

 

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

 

 

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

 

 

Compensation Committee

 

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

 

Compensation Consultant

 

The Compensation Committee has retained Deloitte Consulting LLP (“Deloitte”) as its independent compensation consultant. Deloitte advises the Compensation Committee on an ongoing basis with regard to the general competitive landscape and trends in compensation and executive and director compensation matters, including (i) competitive benchmarking, (ii) incentive plan design, (iii) performance metrics testing, (iv) peer group

selection, (v) updates on trends in executive and director compensation, (vi) review of the compensation discussion and analysis and related tables included in our proxy statement, and (vii) handling other matters requested by the Compensation Committee. The compensation consultant attends meetings of the Compensation Committee and participates in the committee’s executive sessions, as well. The compensation consultant is directly accountable to the Compensation Committee and the committee reviews all fees paid to the consultant for such compensation advice. In addition, the Compensation Committee reviews, on an annual basis, the performance of the compensation consultant and provides the consultant with direct feedback.

 

Certain Deloitte affiliates are also engaged by El Paso to provide the following services: tax and tax-related services, financial advisory services and system integration and process optimization consulting. The Compensation Committee reviewed the payments made to the Deloitte affiliates during 2008, as well as the services the Deloitte affiliates performed for El Paso. In addition, the Compensation Committee discussed the payments and services with its independent compensation consultant and confirmed that the consultant’s compensation is not tied to the level of other services provided by Deloitte to El Paso. Based on its review, the Compensation Committee believes that each of these relationships is separate and independent and does not impair Deloitte’s ability to provide independent compensation advice to the committee.

 

Role of Management and CEO in Determining Executive Compensation

 

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

 

III. Elements of Total Compensation

 

Total Compensation

 

Our named executive officers’ total annual compensation includes three principal elements:

 

 

We also provide our executives with retirement, severance, and health and welfare benefits.

 

We seek to provide each executive officer with a level of cash compensation commensurate with the executive’s professional status in the form of base salary. We also focus on at-risk, performance-based pay. Such performance-based pay is designed to reward stewardship and accountability, to align our executive officers’ interests with those of our stockholders and to promote the creation of stockholder value.

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

 

 

Employment Agreements

 

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

 

 

Competitive Benchmark Data — the Starting Point.  When making compensation decisions, we review the compensation paid to our CEO and other named executive officers relative to the compensation paid to
similarly-situated executives at our peer companies. This practice is often referred to as “benchmarking.” We also utilize survey data representing the market of companies in which we compete for executive talent as an additional means of benchmarking. While we believe benchmarks are helpful and provide a point of reference, they are not determinative. Rather, competitive benchmarking is a starting point in our evaluation of total executive compensation.

 

The Compensation Committee is provided benchmarking market data compiled by its independent compensation consultant and our human resources department. This comparative information provides a basis for the evaluation of the compensation paid to our named executive officers. The Compensation Committee then

reviews the benchmarking data together with each officer’s job responsibilities and individual performance, internal pay equity, and performance against pre-established targets, each as described below, in making compensation decisions. The Compensation Committee also reviews an analysis of wealth accumulation and potential payments upon various termination scenarios as part of its competitive compensation decisions, also as described below.

 

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

 

 

For example, the 2007 total annual compensation (base salary, annual cash incentive, and long-term incentive opportunity) for our named executive officers fell at the 51st percentile when compared to peer group proxy data. Our peer group is described below. In addition, the 2008 total annual compensation targets for our named executive officers fell at the 49th percentile when compared to peer group proxy data (based on the most recently available information disclosed in the peer companies’ 2008 proxy statements).

 

El Paso’s Peer Group.  The Compensation Committee selects an appropriate peer group of companies to review executive officer compensation and to compare TSR relative to our performance. TSR is utilized as a metric in funding a portion of the long-term equity pool, described later in this compensation discussion and analysis. The Compensation Committee established our peer group for 2008 in October 2007. The Compensation Committee reviewed the peer group once again in October 2008, and after such review and discussions with its independent compensation consultant, determined that no changes were warranted. The peer group consists of 22 companies, and is made up of a proportional mix of pipeline/utility companies, exploration and production companies, and diversified energy companies. Our peer group for 2008 consisted of the following companies:

 

 

External Market Conditions and Individual Factors.  As discussed above, while benchmarking data is helpful in assessing the overall competitiveness of our compensation program, we believe our executive compensation program must take into account external market conditions and individual factors. Some of these factors include the executive’s level of experience, the executive’s tenure and responsibilities within our company, the executive’s position and the appropriate competitive pressures for that position within the industry, and of course, performance. In addition, the Compensation Committee asks its compensation consultant to provide it with an objective opinion regarding total executive compensation levels relative to each individual executive’s responsibilities.

 

Internal Pay Equity.  We also believe that our executive compensation program must be internally consistent and equitable in order to motivate our employees to create stockholder value. We are committed to internal pay equity and our Compensation Committee closely monitors, on an annual basis, the relationship between the compensation of our named executive officers and the compensation of our non-managerial employees. In 2008, the Compensation Committee reviewed a comparison of CEO and other named executive officer pay (base salary,

target and actual bonus, and target and actual total compensation) to non-management employee pay for the period 2004 to 2007. The Compensation Committee also reviewed trends in pay equity from 2006 to 2007. The results showed a flat trend in base salary, a slightly decreasing trend in target bonus and actual bonus, a slightly decreasing trend in target total compensation and a slightly increasing trend in actual total compensation in comparison to non-management employees. Overall, it was noted that the reason actual total compensation between all of our named executive officers and non-management employees increased from 2006 to 2007 related to the difference in equity grants made from 2006 to 2007, with 2007 grants made at a higher level reflecting our higher TSR performance relative to our peer group in 2007. The Compensation Committee will continue to periodically conduct these analyses to monitor and avoid any unjustified widening of compensation differentials.

 

Tally Sheets and Payments upon Termination Events.  When making compensation decisions, the Compensation Committee reviews tally sheets prepared for each of our named executive officers. These tally sheets are prepared by the compensation group of our human resources department and are reviewed by the compensation consultant. The tally sheets quantify the elements of each named executive’s total compensation, including base salary, annual incentive bonus, and long-term equity grants. The Compensation Committee does not assign a weighting to tally sheets in the overall decision making process, but rather uses the tally sheets as a tool to view the overall impact of each element of compensation.

 

The Compensation Committee also reviews tally sheets reflecting the potential payments upon various termination scenarios. These termination scenarios include voluntary termination, involuntary termination without cause, termination with cause, retirement, death, disability and termination within two years following a change in control. Based upon certain assumptions related to the timing of these events, the tally sheets provide the total remuneration that would be payable to the named executive officers, including all aspects of each named executive officer’s compensation and benefits under our plans, and are used to ensure that there are no surprises or questions about compensation items in the event of the various termination events.

 

In its most recent review of tally sheets, which included year-end 2008 compensation information, the Compensation Committee discovered no unintended consequences of the compensation program design, and consequently no material changes were made or deemed necessary to the executive compensation program or the individual elements of our executive officers’ compensation as a result of this review.

 

See the section entitled Potential Payments upon Termination or Change in Control beginning on page 59 of this proxy statement for the total amount of compensation and benefits each named executive officer could receive as a result of the various termination events.

 

Wealth Accumulation.  The Compensation Committee also reviews annually all of the elements of total compensation paid to each named executive officer during the prior 5-year period, including base salaries, annual cash incentive bonuses, the value of long-term incentive awards and any special payments made to an individual executive. The Compensation Committee also reviews the projected value of each named executive officer’s accumulated equity grants over the subsequent five-year period based upon various stock appreciation scenarios. This is done to more effectively analyze not only the amount of compensation each named executive officer has accumulated to date, but also to better understand how current equity grants may affect the amount of wealth the named executive officers accumulate in the future. In addition, due to the volatility in the stock market during 2008, the Compensation Committee reviewed an analysis of the change in total equity values for outstanding equity awards held by our named executive officers from 12/31/07 to 12/31/08. The analysis reflected a cumulative loss of between 54% to 79% of the equity value of the awards, which is indicative of the linkage that exists between the interests of our named executive officers and our stockholders. While the Compensation Committee reviews a wealth accumulation analysis each year, to date, the amount of the named executive officers’ past compensation has generally not been a significant factor in the Compensation Committee’s determinations.

 

 

2008 Annual Base Salary Adjustments and 2008 Target Bonus Opportunities

 

At the beginning of 2008, the Compensation Committee considered whether adjustments would be made to the annual base salaries and target bonus opportunities for our named executive officers. On February 6, 2008, the

Compensation Committee made modest adjustments to Messrs. Foshee’s, Smolik’s and Yardley’s base salaries based on 2008 market conditions and comparative benchmarking data. The Compensation Committee decided not to adjust the base salaries of Messrs. Leland and Baker because the committee felt their existing salaries were reasonably positioned relative to peer group and survey benchmarking data. No adjustments were made to the named executive officers’ 2008 target bonus opportunities, which the Compensation Committee believes continue to be appropriate and commensurate with the responsibilities of the respective executives. These target bonus opportunities were derived in part from peer group and competitive survey benchmarking data and in part by the Compensation Committee’s judgment on the internal equity of the positions, scope of job responsibilities and the executives’ industry experience and tenure. The following tables set forth the base salaries and annual target bonus opportunities for the named executive officers. The base salary adjustments for 2008 were effective April 1, 2008.

 

Annual Base Salaries

 

 

Target Bonus Opportunities

 

 

Annual Cash Incentive Awards for 2008 Performance

 

In February 2009, the Compensation Committee approved the amount of the named executive officers’ annual cash incentive awards for 2008 performance. The following discussion sets forth the process the Compensation Committee followed in determining the amount of each named executive officer’s annual cash incentive award for 2008 performance. The annual cash incentive bonuses for 2008 performance are scheduled to be paid in March, 2009.

 

Performance Goals.  At the beginning of 2008, the Compensation Committee established a threshold, target and maximum annual cash incentive bonus level for each of the named executive officers (see the ranges of cash incentive bonuses as a percentage of base salary on page 41). The Compensation Committee also approved corporate and business unit financial and non-financial performance goals.

Our 2008 corporate financial goals, which are the primary goals used in determining the annual incentive bonuses for our named executive officers, were as follows:

 

 

 

 

In addition, the Compensation Committee approved additional performance goals for our corporate shared services group and our pipeline and exploration and production business units. For our corporate shared services group, the 2008 financial goals included the corporate goals listed above, plus additional goals relating to corporate and legacy costs. For our pipeline business unit, the 2008 financial goals were based on value creation, which is a measure of the cash value created in excess of the cost of invested capital. For our exploration and production (“E&P”) business unit, the 2008 financial goals included EBITDA, cash costs, average daily production rates measured in million cubic feet of natural gas equivalent per day (MMcfe/d), present value ratio, and reserve replacement cost.

 

Our corporate financial goals were set in alignment with our strategic plan and objectives for the year and in each case were more aggressive than the goals established for 2007. For example, the threshold 2008 EPS goal is $.23 higher than in 2007, and the threshold 2008 EBITDA goal is $404 million higher than in 2007. In making the determination of the threshold, target and maximum levels, the Compensation Committee considered the specific circumstances expected to be faced by our company and its business units in 2008. The threshold levels represent reasonably achievable goals and acceptable growth from 2007 targets, whereas the maximum levels would require exceptional performance and would result in top or near top quartile performance versus our peer group.

 

The Compensation Committee also approved certain non-financial goals for our corporate shared services group and business units, including certification of compliance with our Code of Business Conduct by 100 percent of our employees, no material weakness in our internal controls over financial reporting, and safety goals relating to (i) recordable injuries, (ii) preventable vehicle incident rates, and (iii) the number of spills outside of secondary containment. The 2008 non-financial goals also included a goal relating to the successful in-line inspection of our pipelines as part of our pipeline integrity program. While the Compensation Committee reviews these non-financial goals, they do not materially impact the incentive awards payable to our named executive officers, which awards are primarily weighted towards the achievement of our corporate financial goals, as described below.

 

Weighting of Corporate and Business Unit Goals. The annual cash incentive awards for our named executive officers, including our business unit heads Messrs. Smolik and Yardley, are primarily weighted towards the achievement of our corporate financial goals. With respect to our business unit heads, the Compensation Committee determined it would be appropriate to weight their annual bonuses primarily on corporate performance to ensure the business unit heads are aligning the performance of their business units with corporate performance. Below is a chart summarizing the weighting of the corporate and business-unit goals for purposes of determining each officer’s annual incentive award.

Performance Weights for Named Executive Officers
Annual Incentive Awards

 

 

Annual Incentive Awards — Negative Discretion.  The Compensation Committee uses “negative discretion” in setting payouts under our annual incentive award program. For purpose of Section 162(m) of the Code, the annual incentives are payable at maximum to the extent any of the corporate or business unit financial or non-financial goals are achieved at threshold performance. The Compensation Committee then exercises its negative discretion to reduce the payout of incentive awards to reflect actual corporate, business unit and individual performance. By setting a high amount which can then be reduced, we believe our annual incentive payments qualify for full deductibility under Section 162(m) of the Code. This reduction is not a negative reflection on the performance of our company or our named executive officers, but rather is done to ensure maximum flexibility with respect to the payment of performance-based bonuses. If the Compensation Committee were to have instead funded incentive awards at a minimum threshold and used discretion to increase the amounts to reflect company and individual performance, actual payouts would not qualify for the Section 162(m) tax deduction. The Compensation Committee uses a similar “negative discretion” approach in determining the number of shares of restricted stock to be granted to our Section 162(m) covered executives, which grants are described later in this discussion. For further information on Section 162(m), see the description of Regulatory Considerations beginning on page 45 of this proxy statement.

 

After the 2008 financial results became available, the Compensation Committee determined the appropriate funding of the 2008 annual incentive bonus pool based on the achievement of the pre-established financial and non-financial performance goals for the year. The following table sets forth the percentage that the annual incentive bonus pool is funded based on the level of performance relative to the performance goals that were established for the year.

 

Funding of the
Annual Incentive Bonus Pool

 

 

 

 

Individual Performance Adjustment.  As mentioned above, accountability plays an important role in our compensation programs, and individual performance is an important factor in determining annual incentives. In addition, individual performance goals support our vision of being the place to work, the neighbor to have, and the company to own. Each year, our named executive officers receive an individual performance rating based on an

evaluation of the executive officer’s individual contribution and performance against his or her individual performance goals for the year and determined through our performance management program. Individual performance goals for 2008 included leadership training and development initiatives, recruiting top talent for key management positions, controlling costs and supporting volunteer efforts in the communities in which we work. Based on such individual performance rating, an individual performance factor ranging between 0% and 150%, as approved by the Compensation Committee, is assigned to each executive. The Compensation Committee then uses the individual performance factor (ranging from 0%-150%) to apply discretion and adjust the executive’s actual annual cash incentive award.

 

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

 

Range of Cash Incentive Bonuses as a Percentage of Base Salary for 2008

 

 

The potential range of values of the annual cash incentive awards for 2008 performance for each of the named executive officers is reflected in the Grants of Plan-Based Awards table in the “Estimated Possible Payouts under Non-Equity Incentive Plan Awards” column on page 51 of this proxy statement.

 

El Paso Performance.  In February 2009, the Compensation Committee reviewed the actual performance of our company and its business units relative to the corporate and business unit performance goals that were established for the year. In reviewing our actual performance relative to the corporate financial goals, the Compensation Committee excluded the impacts of certain items under pre-approved adjustment categories, including: items attributable to hurricanes Ike and Gustav and tropical storm Dolly such as repair costs and lower production, volatile commodity prices in the oil and gas industry, including a ceiling test impairment to our domestic and Brazilian full cost pools, unbudgeted delays or gains and losses on asset sales activity in Brazil, actions taken to resolve legacy issues, and certain unbudgeted or strategic items, including early spending on the Ruby Pipeline project approved by the Board of Directors in 2008. The Compensation Committee determined that these items were not related to the ongoing operation of El Paso in a manner consistent with the way the performance goals and ranges were set. Based on these adjustments, the Compensation Committee determined that El Paso achieved the following adjusted results:

 

 

which collectively resulted in a determination of a corporate achievement level of 100%. In addition, the Compensation Committee determined that our corporate shared services group and our pipeline business unit

achieved their respective financial goals and substantially all of the non-financial performance goals (with achievement levels of 105% and 115%, respectively), and our E&P business unit achieved many of its financial and non-financial performance goals (with an achievement level of 67%).

 

Reduction and Modification of Bonus Amounts.  Although the company achieved its corporate financial performance goals, the Compensation Committee decided it would be appropriate to reduce and modify the cash incentive awards payable to our named executive officers for 2008 performance. Upon the recommendation of our CEO, the Compensation Committee elected to use its negative discretion to reduce the cash bonuses otherwise earned by our named executive officers, including our CEO, primarily due to the market downturn and weakening global economy. On average, the reduction resulted in approval of cash incentive awards at approximately 90% of target, despite higher weighted corporate and business unit achievement levels. Furthermore, the Compensation Committee determined that one-half of each named executive officer’s approved bonus should be paid in the form of restricted stock, rather than being paid entirely in cash. This is a change from prior years and was done for two reasons: (i) to continue to motivate the named executive officers to focus on building long-term shareholder value over short-term results, and (ii) to put a significant portion of the bonus at risk and encourage retention and focus. The restricted stock payable as part of the approved bonuses will be granted on April 1, 2009 at the same time as our annual equity grants are made, as described in the “Long Term Incentive Awards” section below, and the shares will cliff vest three years from the date of grant.

 

2008 Annual Incentives.  Based on the policies described earlier in this compensation discussion and analysis, the Compensation Committee reviewed all elements of the named executive officers’ total compensation for 2008, as well as company and individual performance. Based on the Compensation Committee’s review of these and external factors, the committee approved annual incentive bonuses for our named executive officers, as set forth in the chart below. The amount was calculated by starting with the maximum bonus amount payable for Code Section 162(m) purposes, which was then reduced to reflect the following formula:

 

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

 

The amount was then further adjusted by the Compensation Committee per the CEO’s recommendation, as described above.

 

The following table compares each named executive’s target annual cash incentive for 2008 performance versus the actual incentive earned, as well as the portion of the incentive payable in cash and the portion payable in the form of restricted stock, as determined by the Compensation Committee.

 

Target vs. Actual
Annual Incentive Bonuses
Paid for 2008 Performance

 

 

 

 

The cash portion of the amount awarded to our named executive officers for their annual incentive bonuses for 2008 performance is included in the Summary Compensation Table under the column “Non-Equity Incentive Plan Compensation” on page 48 of this proxy statement. The portion of the incentive bonuses payable in the form of restricted stock will be reflected in next year’s Summary Compensation Table and Grants of Plan-Based Awards Table in accordance with SEC requirements regarding equity grant reporting.

Long-Term Incentive Awards

 

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

 

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

 

As described earlier, annual long-term incentives are comprised of an approximate 50/50 combination of stock options and restricted stock. Options are granted at target levels and are not adjusted for company or individual performance. This practice is in place to mitigate the effect of short term performance on a long-term incentive. Restricted stock awards are performance-based and are adjusted for both company and individual performance, as described below. The target equity opportunities for the 2007 performance year and for the 2008 performance year, including both the option and restricted stock components are included below. These target long-term equity opportunities were derived from peer group and competitive survey benchmarking data and from the Compensation Committee’s judgment on the internal equity of the positions and scope of job responsibilities.

 

Target Long-Term Equity Opportunities

 

 

The amount of equity available to fund the equity pool for annual restricted stock grants is based 50% on achievement of the annual overall corporate financial goals and 50% on El Paso’s one-year relative TSR compared to our peer group of companies.

 

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

 

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

 

 

 

 

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

 

Following the determination of the funding percentage for the equity pool, the Compensation Committee applies the individual performance factors described on pages 40 and 41 as an adjustment performance factor to determine the executive officer’s actual restricted stock award.

 

Annual Grant based on 2007 Performance

 

On February 6, 2008, the Compensation Committee approved the 2008 annual grant of long-term incentive awards in the form of restricted stock and stock options based on 2007 performance. These long-term awards were granted to the named executive officers on April 1, 2008. During 2007, we achieved above target performance of our overall corporate financial performance goals, resulting in the funding of one-half of the restricted stock portion of the equity pool at 115%. In addition, during 2007, El Paso’s TSR relative to its peer group was in the third quartile (41st percentile), resulting in the funding of one-half of the restricted stock portion of the equity pool at 82%. Accordingly, the restricted stock grants that were granted to the named executive officers on April 1, 2008 were funded at 98.5% of overall target (50% × (115% based on corporate financial performance + 82% based on TSR performance) = 98.5%) and were adjusted for individual performance. Stock options were granted at target and were not adjusted for corporate or individual performance. The restricted stock and stock options vest in three equal annual installments beginning one year from the date of grant. The number of shares and grant date fair market value of the restricted stock and stock options awarded in April 2008 to each named executive officer is reflected in the Grants of Plan-Based Awards table on page 51 of this proxy statement.

 

Annual Grant based on 2008 Performance

 

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

Target vs. Actual
Long-Term Incentive Awards
Based on 2008 Performance

 

 

 

 

The number of shares and grant date fair market value of the restricted stock and stock options awarded in April 2009 to each named executive officer will be reflected in next year’s Grants of Plan-Based Awards table in accordance with SEC reporting requirements.

 

2009 Base Salary Freeze

 

At its February 2009 meeting, the Compensation Committee determined it would be appropriate to freeze base salaries at 2008 levels for all employees, including our named executive officers. The Compensation Committee felt this action would be appropriate to reflect the company’s ongoing efforts to reduce costs due to the ongoing financial crisis and the weakening economy and to better position the company for long-term success. As such, our named executive officers will not receive base salary increases in 2009. However, for the general employee population we will continue to assess the feasibility of providing base salary adjustments at some point during the year.

 

2009 Annual Cash Incentive Plan Changes

 

Also at its February 2009 meeting, the Compensation Committee determined that the corporate financial measures that will be used for our 2009 annual cash incentive program will include earnings per share, EBITDA, debt net of cash, and return on total capital (“ROTC”), and will not include cash flow from operations. Cash flow from operations was eliminated since it is primarily driven by EBITDA, which is already a performance measure, and ROTC was added in its place. ROTC is a measure of the company’s ability to earn a satisfactory return on its investments, and the Compensation Committee and management believe this is an important metric given the capital intensive nature of our company.

 

 

Regulatory Considerations

 

Section 162(m) imposes a limit of $1,000,000 on the amount that we may deduct for federal income tax purposes in any one year for compensation paid to our CEO and any of the our other named executive officers, other than our CFO, who are employed as of the end of the year. However, to the extent compensation is “performance-based” within the meaning of Section 162(m), the Section’s limitations will not apply. Our executive compensation plans, including our omnibus plan, are structured so that awards such as cash incentive awards, stock options and restricted stock qualify as deductible performance-based compensation. While the Compensation Committee strives to make awards under our plans that are intended to qualify as performance-based compensation under Section 162(m), it is possible under certain circumstances that some portion of the compensation paid to our executive officers will not meet the standards of deductibility under

Section 162(m). The Compensation Committee reserves the right to award compensation which does not qualify as performance-based under Section 162(m) if it determines that such awards are necessary to provide a competitive compensation package to attract and retain qualified executive talent. The annual cash incentive awards, stock options and performance-based restricted stock that were granted to the named executive officers during 2008 were intended to be performance-based within the meaning of Section 162(m).

 

Stock Ownership

 

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

 

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

 

Each executive officer is required to meet the ownership threshold within five years of election as an executive officer. As of December 31, 2008, each of our named executive officers’ ownership in our common stock exceeded the required ownership thresholds and did so in the requisite time frames. See page 10 of this proxy statement for further information regarding the stock ownership requirements for our executive officers.

 

Margin Trading Prohibition

 

In 2008, we adopted a policy prohibiting executives from hedging their ownership of company stock. Under the policy, executive officers are prohibited from holding El Paso securities in a margin account or otherwise entering into any pledge arrangement that would permit a third party to sell the El Paso securities without the executive’s consent or knowledge. This prohibition also applies to our non-employee directors.

 

Compensation Recovery

 

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

 

Each member of the Compensation Committee is “independent,” as that term is defined under (a) the NYSE listing standards, (b) the non-employee director standards of Rule 16b-3 of the Exchange Act, as amended, (c) the outside director requirements of Section 162(m) of the Code and (d) El Paso’s Corporate Governance Guidelines. The Compensation Committee currently consists of Messrs. Dunlap, Joyce, Shapiro, Talbert and Wyatt and Ms. McClean.

 

As a Committee, our primary function is to ensure El Paso’s executive compensation program is competitive so that El Paso can attract and retain executive personnel and performance-based so that the interests of El Paso’s management are aligned with both the short-term and long-term interests of El Paso’s stockholders. We engage an independent executive compensation consulting firm to assist us in our review of El Paso’s executive and director compensation programs to ensure these programs are competitive and consistent with our stated objectives. The compensation consultant is retained by and is directly accountable to us and we review all related fees paid to the compensation consultant. We have no interlocks or insider participation and we engage in annual self evaluations to determine our effectiveness as a Committee. We have adopted a charter which may be found on El Paso’s website at www.elpaso.com.

 

Compensation Committee Statement

 

We have prepared this Compensation Committee Report as required by the Securities and Exchange Commission. We have reviewed and discussed with El Paso’s management the Compensation Discussion and Analysis included in this proxy statement, and based on that review and discussion, we recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this proxy statement.

 

Current Members of the Compensation Committee of the Board of Directors

 

 

The following table and the narrative text that follows it provide a summary of the compensation earned or paid in 2008, 2007 and 2006 to our CEO, our CFO and our three other most highly compensated executive officers according to applicable SEC regulations. The compensation reflected for each individual was for their services provided in all capacities to us and our subsidiaries. This table also identifies the principal capacity in which each of the named executive officers served us at the end of 2008.

 

Summary Compensation Table