UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

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

Filed by the Registrant þ
Filed by a Party other than the Registrant o

Check the appropriate box:

o		Preliminary Proxy Statement
o		Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
þ		Definitive Proxy Statement
o		Definitive Additional Materials
o		Soliciting Material Pursuant to §240.14a-12

 

Freeport-McMoRan Copper & Gold Inc.

(Name of Registrant as Specified In Its Charter)

 

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

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Notice of Annual Meeting of Stockholders

 

June 5, 2008

 

 

April 25, 2008

 

 

Your vote is important. Whether or not you plan to attend the meeting, please promptly submit your vote online or complete, sign and date the enclosed proxy card and return it promptly in the enclosed envelope. Your cooperation will be appreciated.

 

By Order of the Board of Directors.

 

 

DOUGLAS N. CURRAULT II
Secretary

 

Information about Attending the Annual Meeting

 

If you plan to attend the meeting, please bring the following:

 

1. Proper identification.

 

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

 

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

 

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

 

Only stockholders of record on the record date may attend or vote at the annual meeting.

 

Post-Meeting Report of the Annual Meeting

 

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

 

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE
SHAREHOLDER MEETING TO BE HELD ON JUNE 5, 2008.

 

This proxy statement and the 2007 annual report are available at
www.proxymaterial.com/fcx.  

FREEPORT-McMoRan COPPER & GOLD INC.

 

One North Central Avenue

Phoenix, Arizona 85004

 

The 2007 Annual Report to Stockholders, including financial statements, is being mailed to stockholders together with these proxy materials on or about April 25, 2008.

 

This proxy statement is furnished in connection with the solicitation of proxies by the board of directors of Freeport-McMoRan Copper & Gold Inc. for use at our Annual Meeting of Stockholders to be held on June 5, 2008, and at any adjournments (the meeting).

 

Who Can Vote

 

Each share of our common stock that you held on the record date entitles you to one vote at the meeting. On the record date, there were 383,153,166 shares of our common stock outstanding.

 

Voting Rights

 

The inspector of election will count votes cast at the meeting. In uncontested elections our directors are elected by the affirmative vote of the holders of a majority of the shares voted. In contested elections (where the number of nominees exceeds the number of directors to be elected), the directors will be elected by a plurality of shares voted. Under our by-laws, all other matters require the affirmative vote of the holders of a majority of our common stock present in person or by proxy and entitled to vote at the meeting, except as otherwise provided by statute, our certificate of incorporation or our by-laws. Abstentions as to all such matters to come before the meeting will be counted as votes against those matters.

 

Brokers holding shares of record for customers generally are not entitled to vote on certain matters unless they receive voting instructions from their customers. When brokers do not receive voting instructions from their customers, they notify the company on the proxy form that they lack voting authority. The votes that could have been cast on the matter in question by brokers who did not receive voting instructions are called “broker non-votes.” Broker non-votes will not be counted as votes for or against and will not be included in calculating the number of votes necessary for approval of those matters.

 

Quorum

 

A quorum at the meeting is a majority of our common stock entitled to vote present in person or represented by proxy. The inspector of election will determine whether a quorum exists. Shares of our common stock represented by properly executed and returned proxies will be treated as present. Shares of our common stock present at the meeting that abstain from voting or that are the subject of broker non-votes will be counted as present for purposes of determining a quorum.

 

How Your Proxy Will Be Voted

 

The board of directors is soliciting a proxy in the enclosed form to provide you with an opportunity to vote on all matters scheduled to come before the meeting, whether or not you attend in person.

 

How to Vote By Proxy.  If your shares are registered in your name (and not held through a broker, bank or other institution), there are two ways to vote your proxy: by internet or by mail. Your internet vote authorizes James R. Moffett, Richard C. Adkerson or Kathleen L. Quirk and any of them, as proxies, each with the power to appoint his or her substitute, to represent and vote your shares in the same manner as if you marked, signed and returned your proxy form by mail.

 

 

 

 

 

 

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

 

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

 

How Proxies Will Be Voted.  If you properly return a proxy as specified above, your stock will be voted as you specify. If you make no specifications, your proxy will follow the board of directors’ recommendations and will be voted:

 

 

 

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

 

Revoking Your Proxy.  If you submit a proxy, you may subsequently revoke it or submit a revised proxy at any time before it is voted. You may also attend the meeting in person and vote by ballot, which would cancel any proxy that you previously submitted. If you wish to vote in person at the meeting but hold your stock in street name (that is, in the name of a broker, bank or other institution), then you must have a proxy from the broker, bank or institution in order to vote at the meeting.

 

Proxy Solicitation

 

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

 

Stockholder Proposals

 

If you want us to consider including a proposal in next year’s proxy statement, you must deliver it in writing to our Corporate Secretary, Freeport-McMoRan Copper & Gold Inc., One North Central Avenue, Phoenix, Arizona 85004 by December 26, 2008.

 

If you want to present a proposal at next year’s annual meeting but do not wish to have it included in our proxy statement, you must submit it in writing to our Corporate Secretary, at the above address, by February 5, 2009, in accordance with the specific procedural requirements in our by-laws. If you would like a copy of these procedures, please contact our Corporate Secretary, or access our by-laws on our web site at www.fcx.com under Investment Center — Corporate Governance. Failure to comply with our by-law procedures and deadlines may preclude presentation of the matter at the meeting.

 

Corporate Governance

 

Corporate Governance Guidelines; Principles of Business Conduct

 

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

 

Board Structure and Committee Composition

 

As of the date of this proxy statement, our board consists of sixteen members. We also have one director emeritus. The director emeritus does not vote. Our board held seven meetings during 2007, consisting of six regularly scheduled meetings and one special meeting. In accordance with our corporate governance guidelines, non-management directors met in executive session at the end of each regularly scheduled board meeting. The chair of executive session meetings rotates among the chairpersons of the four standing committees (discussed below), except as the non-management directors may otherwise determine for a specific meeting.

 

Our board has four standing committees: an audit committee, a corporate personnel committee, a nominating and corporate governance committee and a public policy committee. Each committee operates under a written charter adopted by the board. All of the committee charters are available on our web site at www.fcx.com under Investment Center — Corporate Governance and are available in print upon request. During 2007, each of our directors attended at least 75% of the aggregate number of board and applicable committee meetings, with the exception of Mr. McCoy. Directors are invited, but not required to attend, annual meetings of our stockholders. Mr. Adkerson attended the last annual meeting of stockholders.

 

 

 

 

 

Corporate Personnel Committee Procedures

 

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

 

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

 

The terms of our stock incentive plans permit the committee to delegate to appropriate personnel its authority to make awards to employees other than those subject to Section 16 of the Securities Exchange Act of 1934, as amended. Our current equity grant policy provides that each of the chairman of the board and the chief executive officer of the company has authority to make or modify grants to such employees, subject to the following conditions:

 

 

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

Compensation Committee Interlocks and Insider Participation

 

The current members of our corporate personnel committee are Messrs. Allison, Graham and Lackey. In 2007, none of our executive officers served as a director or member of the compensation committee of another entity, where an executive officer of the entity served as our director or on our corporate personnel committee.

 

Board and Committee Independence and Audit Committee Financial Experts

 

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

 

Further, the board has determined that each of the members of the audit, corporate personnel, and nominating and corporate governance committees has no material relationship with the company and is independent within the meaning of our corporate governance guidelines, which adopt the statutory and NYSE independence standards applicable to audit committee members. The board has also determined that the simultaneous service of Mr. Madonna on our audit committee and the three other public company audit committees on which he now serves would not impair his ability to effectively serve on our audit committee.

 

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

 

Director Stock Ownership Guidelines

 

In January 2006, the corporate personnel committee adopted stock ownership guidelines applicable to our directors. Under the guidelines, each non-management director is encouraged to maintain ownership of company stock valued at five times his or her annual retainer. For purposes of the guidelines, the stock value is calculated annually based on the one-year and five-year trailing average monthly stock price. Shares of common stock currently owned by the directors are counted for purposes of the stock ownership guidelines, as are shares held in individual retirement accounts, shares issuable upon the vesting of outstanding restricted stock units and shares held in certain trusts. As of February 1, 2008, all of our non-management directors had reached or exceeded their target ownership levels.

 

Consideration of Director Nominees

 

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

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

 

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

 

In addition, our by-laws permit stockholders to nominate candidates directly for consideration at next year’s annual stockholder meeting. Any nomination must be in writing and received by our corporate secretary at our principal executive office no later than February 5, 2009. If the date of next year’s annual meeting is moved to a date more than 90 days after or 30 days before the anniversary of this year’s annual meeting, the nomination must be received no later than 90 days prior to the date of the 2009 annual meeting or 10 days following the public announcement of the date of the 2009 annual meeting. Any stockholder submitting a nomination under our by-law procedures must include (a) all information relating to the nominee that is required to be disclosed in solicitations of proxies for election of directors pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (including such nominee’s written consent to being named in the proxy statement as a nominee and to serving as a director if elected), and (b) the name and address (as they appear on the company’s books) of the nominating stockholder and the class and number of shares beneficially owned by such stockholder. Nominations should be addressed to: Corporate Secretary, Freeport-McMoRan Copper & Gold Inc., One North Central Avenue, Phoenix, Arizona 85004.

 

Communications with the Board

 

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

 

Director Compensation

 

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

 

Cash Compensation

 

Each non-management director receives an annual fee of $40,000. Committee chairs receive an additional annual fee as follows: audit committee, $15,000; corporate personnel committee and public policy committee, $10,000; and nominating and corporate governance committee, $5,000. Each non-management director receives a fee of $1,500 for attending each board and committee meeting (for which he or she is a member) and is reimbursed for reasonable out-of-pocket expenses incurred in attending such meetings. Each management director also receives a fee of $1,500 for attending each board meeting. The compensation of each of Messrs. Moffett and Adkerson is reflected in the “Summary Compensation Table” below.

Equity-Based Compensation

 

Non-management directors also receive equity-based compensation under the 2004 Director Compensation Plan (the 2004 Plan). Pursuant to the 2004 Plan, on June 1st of each year, each non-management director receives a grant of options to acquire 10,000 shares of our common stock and 2,000 restricted stock units. The options are granted at fair market value on the grant date, vest ratably over the first four anniversaries of the grant date and expire on the tenth anniversary of the grant date. The restricted stock units also vest ratably over the first four anniversaries of the grant date. The 2004 Plan also provides for a pro rata grant of options and restricted stock units to a director upon his initial election to the board other than at an annual meeting. In accordance with the 2004 Plan, each of Messrs. Graham, Johnston, Roy and Wharton elected to defer 100% of his 2007 grant of restricted stock units to be paid out in installments after separation from service.

 

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

 

On June 1, 2007, each non-management director was granted an option to purchase 10,000 shares of our common stock at a grant price of $79.50, and 2,000 restricted stock units under the 2004 Plan. On March 19, 2007, the date of their initial election to the board, each of Messrs. Krulak, Madonna and McCoy was granted an option to purchase 5,000 shares of our common stock at a grant price of $62.44, and 1,000 restricted stock units under the 2004 Plan.

 

Retirement Plan for Non-Management Directors

 

We have a retirement plan for the benefit of our non-management directors who reach age 65. We believe that a retirement plan for directors who have served our company is a valuable and appropriate element of our total director compensation program. It encourages long-term service on our board, which helps us to retain experienced directors. Under the retirement plan, an eligible director will be entitled to an annual benefit equal to a percentage of the standard portion of our annual directors’ fee at the time of his or her retirement. The percentage, which is at least 50% but not greater than 100%, will depend on the number of years the retiree served as a non-management director for us or our predecessors. The benefit is payable from the date of retirement until the retiree’s death. Each eligible director who was also a director of Freeport-McMoRan Inc., our former parent, and who did not retire from that board of directors, will receive upon retirement from our board an additional annual benefit of $20,000, which is also payable from the date of retirement until the retiree’s death.

 

The chart below identifies the current non-management directors who would have been eligible to participate in the retirement plan as of December 31, 2007, and summarizes the projected benefit to each assuming the director had retired from our board of directors on such date:

 

 

 

Matching Gifts Program

 

Our foundation (the Foundation) administers a matching gifts program, which is available to our directors, officers, employees, full-time consultants and certain retirees. Under the program, the Foundation will match a participant’s gifts to eligible institutions, including educational institutions, educational associations, educational funds, cultural institutions, social service community organizations, hospital organizations and environmental organizations. The Foundation provides the gifts directly to the institution. For directors, the Foundation double matches the first $1,000 of donations per year per eligible institution. Donations above $1,000 are single matched. The annual amount of our matching gifts for any director may not exceed $40,000.

 

2007 Director Compensation

 

The table below summarizes the total compensation paid to or earned by our non-management directors during 2007. The amounts represented in the “Stock Awards” and “Option Awards” columns reflect the expense recorded by the company pursuant to FAS 123(R), and do not necessarily reflect the income that will ultimately be realized by the director for these awards.

 

Director Compensation

 

 

 

 

Name of Director		RSUs				Options				SARs(†)
Robert J. Allison, Jr.			7,500				49,400				—
Robert A. Day			5,000				100,000				39,336
Gerald J. Ford			5,000				80,000				26,224
H. Devon Graham, Jr.			6,500				52,500				—
J. Bennett Johnston			8,000				25,000				—
Charles C. Krulak			3,000				15,000				—
Bobby Lee Lackey			5,000				27,500				1,639
Jon C. Madonna			3,000				15,000				—
Dustan E. McCoy			3,000				15,000				—
Gabrielle K. McDonald			5,000				32,500				4,917
B. M. Rankin, Jr.			5,000				45,000				4,917
J. Stapleton Roy			8,000				45,000				4,917
Stephen H. Siegele			3,500				20,000				—
J. Taylor Wharton			6,500				52,500				8,195

 

 

		Matching				Consulting				Dividend
Name of Director		Gifts				Fees				Equivalents on RSUs
Robert J. Allison, Jr.		$	40,000				—			$	11,785
Robert A. Day			40,000				—				7,820
Gerald J. Ford			40,000				—				7,820
H. Devon Graham, Jr.			2,000				—				9,660
J. Bennett Johnston			—			$	265,000				12,208
Charles C. Krulak			—				—				7,820
Bobby Lee Lackey			8,100				—				7,820
Jon C. Madonna			3,500				—				2,247
Dustan E. McCoy			—				—				2,247
Gabrielle K. McDonald			17,500				265,000				7,820
B. M. Rankin, Jr.			39,670				646,934				7,820
J. Stapleton Roy			23,000				—				12,208
Stephen H. Siegele			40,000				—				4,098
J. Taylor Wharton			5,500				—				9,660

 

 

Election of Directors

 

Our board of directors has fixed the number of directors at sixteen. The terms of all of our directors expire at the 2008 annual meeting of stockholders. Our board has nominated each of Messrs. Adkerson, Allison, Day, Ford, Graham, Johnston, Krulak, Lackey, Madonna, McCoy, Moffett, Rankin, Roy, Siegele and Wharton and Ms. McDonald to serve a one-year term. The persons named as proxies in the enclosed form of proxy intend to vote your proxy for the election of each such director, unless otherwise directed. If, contrary to our expectations, a nominee should become unavailable for any reason, your proxy will be voted for a substitute nominee designated by our board, unless otherwise directed.

 

Under our by-laws, the vote standard for the election of directors is a majority of the votes cast in uncontested elections. In contested elections where the number of nominees exceeds the number of directors to be elected, the vote standard is a plurality vote.

 

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

 

In addition, if each member of the nominating and corporate governance committee fails to be elected at the same election, the independent directors who were elected will appoint a committee to consider the tendered resignations and recommend to the board whether to accept or reject them. Any vacancies in the board may be filled

by a majority of the directors then in office. Each director elected in this manner will hold office until his or her successor is elected and duly qualified.

 

Information About Director Nominees

 

The table below provides certain information as of April 15, 2008, with respect to each director nominee. Unless otherwise indicated, each person has been engaged in the principal occupation shown for the past five years.

 

 

Stock Ownership of Directors and Executive Officers

 

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

 

Except as otherwise indicated below, the table below shows the amount of our common stock each of our directors and named executive officers owned as of April 15, 2008. Unless otherwise indicated, (a) the persons shown below do not beneficially own any of our preferred stock, and (b) all shares shown are held with sole voting and investment power and include, if applicable, shares held in our Employee Capital Accumulation Program (ECAP).

 

 

 

 

 

Name of
Beneficial Owner		Number of RSUs
Richard C. Adkerson			1,088,233	(†)
Robert J. Allison, Jr.			7,500
Michael J. Arnold			43,636
Robert A. Day			5,000
Gerald J. Ford			5,000
H. Devon Graham, Jr.			6,500
J. Bennett Johnston			8,000
Charles C. Krulak			2,750
Bobby Lee Lackey			5,000
Jon C. Madonna			2,750
Dustan E. McCoy			2,750
Gabrielle K. McDonald			5,000
James R. Moffett			173,505
Kathleen L. Quirk			123,919
B. M. Rankin, Jr.			5,000
J. Stapleton Roy			8,000
Stephen H. Siegele			3,500
Timothy R. Snider			10,000
J. Taylor Wharton			6,500

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

 

 

 

 

Section 16(a) Beneficial Ownership Reporting Compliance

 

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our directors and executive officers and persons who own more than 10% of our common stock to file reports of ownership and changes in ownership with the SEC. Based solely upon our review of the Forms 3, 4 and 5 filed during 2007, and written representations from certain reporting persons that no Forms 5 were required, we believe that all required reports were timely filed.

 

 

 

 

Stock Ownership of Certain Beneficial Owners

 

This table shows the owners of more than 5% of our outstanding common stock as of December 31, 2007 based on filings with the SEC. Unless otherwise indicated, all information is presented as of December 31, 2007, and all shares beneficially owned are held with sole voting and investment power.

 

 

 

 

 

Executive Officer Compensation

 

Compensation Discussion and Analysis

 

Overview

 

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

 

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

 

 

One of the committee’s primary objectives is to position us to attract and retain the highest level of executive talent. To accomplish this goal, the committee had historically targeted our total executive compensation levels in the top quartile of comparable companies, including companies in other industries whose operational, corporate financing, and other activities are considered comparable to ours, and has emphasized incentive compensation payable in cash. This “target,” however, was not a rigid requirement. In recent years, the committee has not targeted our total executive compensation or any element of compensation to specific percentiles.

 

Key Corporate Accomplishments in 2007

 

Fiscal year 2007 was an extraordinary year for us and our stockholders, and consistent with our “pay for performance” philosophy, the compensation paid to our executive officers reflected these achievements,

particularly with respect to awards under our annual incentive plan discussed further below. In particular, we accomplished the following:

 

 

 

 

The committee also recognized the 83% price appreciation of our common stock during 2007.

 

Role of Compensation Consultants and Management

 

In 2004, the committee determined that it would be in our best interest for the committee and the company’s management to engage separate compensation advisors. As a result, beginning in 2004, the company retained a separate compensation advisor to assist the company’s management with compensation matters other than executive compensation, and the committee continued to engage Mercer Human Resource Consulting, its consultant at the time. In December 2006, the individual consultant who had been providing services to the committee left Mercer. The committee decided to undertake the search for a new consultant, which process did not begin until after the company completed its acquisition of Phelps Dodge in March 2007. After interviewing several compensation consulting firms, the committee retained Towers Perrin as its executive compensation consultant in August 2007, and Towers Perrin agreed that it would not provide any services to the company’s management.

 

Since its initial engagement in August 2007, Towers Perrin has performed two significant projects at the request of the committee. First, Towers Perrin provided information and advice to the committee in connection with the preparation and execution of new employment agreements with Mr. Adkerson and Ms. Quirk. These agreements were executed in January 2008, and are described below. Second, Towers Perrin provided information and advice in connection with the committee’s determination of the award pool under our annual incentive plan for 2007 to account for the impact of the Phelps Dodge acquisition (this process is discussed in more detail below).

 

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

 

Evaluation of Compensation Program

 

2007 Compensation Review.  For 2007, the committee quantified and reviewed all components of the compensation of our executive officers, including base salary, annual incentive compensation, equity and long-term incentive compensation, accumulated realized and unrealized stock option gains, and the incremental cost to the company of all perquisites and other benefits. The committee also quantified and reviewed the projected payouts to our executive chairman and our chief executive officer under the company’s supplemental executive retirement plan, and under their employment and change of control arrangements, as well as the projected payouts to our other executive officers resulting from a change of control. The committee reviewed all of this information to ensure that it had a complete understanding of each element of the compensation arrangements in effect for the executive officers, including an understanding of the “total picture” of current executive compensation and commitments of future executive compensation. The committee did not use this information in connection with granting specific awards or setting individual compensation levels for 2007. The committee believes that the total compensation packages of our executive officers, including our executive chairman and our chief executive officer, are appropriate

in light of the company’s extraordinary performance during 2007 and the value each executive officer brings to our company.

 

As noted above, the committee does not factor into its decisions regarding executive compensation the gains received by our executive officers in connection with the vesting of restricted stock units or the exercise of stock options. The committee believes that to do so would be “double counting” compensation (i.e., when issued and when vested or exercised). For example, Mr. Adkerson has elected to participate in our elective restricted stock unit program (described below) since its inception in 1999. As a result, each year he receives restricted stock units in lieu of his annual cash incentive payment, and he has three separate vesting events in which one-third of his then outstanding restricted stock units vest. Because the restricted stock units are granted in lieu of cash compensation previously earned and the executive undertakes a certain degree of risk when agreeing to participate in the program, we believe it would be inappropriate to allow the value of the award at vesting to impact future compensation decisions. With respect to the stock option grants, the committee’s position has been similar. The value of the stock options upon exercise is directly related to the appreciation in value of our common stock, which in turn is directly impacted by the efforts of our executive officers in managing our company. Further, the committee believes that one of the purposes behind granting stock options to executives is to provide an incentive for them to increase stockholder value over time. Accordingly, the committee has not taken realized option gains into account when making decisions regarding future compensation, nor did it revise its compensation or grant practices during years when our executives did not exercise any stock options (1997 — 2001).

 

2006 Compensation Review.  At the committee’s request, Mercer (our former consultant) conducted an extensive review of our executive compensation practices during 2006, comparing our company’s compensation programs and competitive performance with those of a peer group consisting of the following 12 publicly traded natural resource companies similar in size to our company in 2006: Anadarko Petroleum Corp., Apache Corp., Barrick Gold Corp., Devon Energy Corp., EOG Resources Inc., Kerr-McGee Corp., Murphy Oil Corp., Newmont Mining Corp., Noble Energy Inc., Peabody Energy Corp., Phelps Dodge Corp. and XTO Energy Inc.

 

Although the committee did not dictate to Mercer how this review should be conducted, Mercer discussed its review processes with the chairman of the committee and reported to the full committee the steps it had taken in conducting the review, which included the following:

 

 

Mercer’s 2006 review also included a review of the company’s performance relative to the peer group based on a variety of financial measures: total shareholder return, revenue and earnings growth, operating cash flow, EBITDA, net income, return on investment and return on gross assets. Over the previous three- and five-year periods reviewed, Mercer reported that the company performed near or at the top of the peer group relative to cash flow and exceeded the median performance on all metrics reviewed. Moreover, Mercer reported that the company’s long-term (five-year) shareholder return significantly outperformed all of its peers. Mercer reported that the total compensation of our executive officers was either near or above the 75th percentile, except for our executive chairman, whose total compensation was at the top of the range.

Compensation Philosophy

 

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

 

Executive Chairman and Chief Executive Officer.  The compensation levels of our chairman and our chief executive officer reflect our view that the leadership of these two officers is primarily responsible for the company’s success and reflect the premium we are willing to pay for their qualifications and capabilities in implementing our company’s business strategy. In addition, the levels of compensation paid to Messrs. Moffett and Adkerson as compared to our other executive officers has some basis in seniority and the fact that we have not typically had a large senior management group.

 

Each of Messrs. Moffett and Adkerson brings extraordinary skills and value to our company, and we believe their respective compensation arrangements recognize those skills and their contributions to our continued growth and development. During 2007, their combined leadership positioned us to take advantage of the opportunity to acquire Phelps Dodge, resulting in the largest acquisition in the history of the mining and metals industry at the time. They continue to lead our company together, each bringing to their “partnership” a unique set of skills that complement the other’s.

 

Through his leadership and skill as a geologist, Mr. Moffett, who has been at the helm of our company since its formation, has guided our growth through significant discoveries of metal reserves and the development of our mines, milling facilities and infrastructure. As executive chairman, Mr. Moffett continues to further our business strategy by applying his exceptional talents and experience as a geologist. He directs our exploration programs and has led the exploration efforts with respect to the Phelps Dodge properties. Mr. Moffett also has been, and continues to be, instrumental in fostering our relationship with the government of Indonesia, the location of our Grasberg mine.

 

Mr. Adkerson, as president and chief executive officer, is responsible for the executive management of our company. Mr. Adkerson has demonstrated exceptional leadership abilities in developing and executing a financial strategy that has benefited our stockholders, and in building an operational, financial and administrative organization that efficiently supports our business. With the advice and counsel of Mr. Moffett and the full board, Mr. Adkerson initiated and negotiated the Phelps Dodge acquisition and coordinated the $17.5 billion in debt financing and $5.76 in equity financing.

 

The annual compensation paid to Messrs. Moffett and Adkerson is weighted towards current compensation. The committee believes this is appropriate because our emphasis on annual cash compensation supports our business strategy of maximizing annual operating performance, which leads to the creation of shareholder value. In addition, each of Messrs. Moffett and Adkerson currently holds a significant ownership stake in the company, which provides an incentive to maximize the value of our stock over the long term. For more information regarding the current stock holdings of Messrs. Moffett and Adkerson, please see “Stock Ownership of Directors and Executive Officers.”

 

Our Executive Compensation Program

 

Employment Agreements — Messrs. Moffett and Adkerson and Ms. Quirk.  Our current compensation arrangements with Messrs. Moffett and Adkerson and Ms. Quirk are set forth in their employment agreements. In April 2001, we entered into employment agreements and change of control agreements with Messrs. Moffett and Adkerson, which were amended in December 2003. The committee, advised by its consultant and independent legal counsel, established the terms of these agreements and the amendments thereto, which were then approved by our board. In January 2008, we entered into a new employment agreement with Mr. Adkerson, which replaced his prior employment and change of control agreements, and entered into an employment agreement with Ms. Quirk, which

replaced her change of control agreement. The committee, advised by Towers Perrin, established the terms of these new agreements.

 

Mr. Moffett.  The employment agreement with Mr. Moffett provides for a base salary of $2,500,000 per year and eligibility to participate in our annual incentive plan. Mr. Moffett continues to be eligible for all other benefits and compensation, including stock options and long-term performance units, generally provided to our most senior executives. The amended term of the agreement will continue through December 31, 2008, with automatic one-year extensions unless a change of control occurs or the committee notifies Mr. Moffett of its intent not to extend the agreement by April 1st of the prior year. Thus, as of April 1, 2008, this agreement automatically extended through December 31, 2009. In the event of a change of control during the employment term, Mr. Moffett’s employment will continue for an additional three years following the change of control pursuant to his change of control agreement. Mr. Moffett’s agreement also contains non-competition, nondisclosure and other provisions intended to protect our interests in the event that he ceases to be employed.

 

Mr. Adkerson and Ms. Quirk.  As stated above, effective January 29, 2008, we entered into a new employment agreement with Mr. Adkerson, which replaced his prior employment and change of control agreements, and entered into an employment agreement with Ms. Quirk, which replaced her change of control agreement. These agreements reflect the current base salary for each executive officer, $2,500,000 for Mr. Adkerson and $650,000 for Ms. Quirk, and provide that each executive officer is eligible to participate in our annual incentive plan. Mr. Adkerson and Ms. Quirk continue to be eligible for all other benefits and compensation, including stock options and long-term performance units, generally provided to our most senior executives. The original term of each agreement expires January 1, 2012, but will automatically extend for additional one-year terms unless prior written notice is given by the committee that it does not wish to extend the agreement. In the event of a change of control, the agreements will expire on the later of January 1, 2012 or three years following the change of control. These agreements also contain non-competition, nondisclosure and other provisions intended to protect our interests in the event that the executive officer ceases to be employed.

 

Mr. Adkerson and Ms. Quirk also received a grant of restricted stock units on the effective date of the new employment agreements. Mr. Adkerson received 200,000 restricted stock units and Ms. Quirk received 75,000 restricted stock units. One-fifth of the units vested immediately upon grant, and the remainder will vest in equal annual increments beginning January 1, 2009, to correspond with the term of the employment agreement. The restricted stock units will also vest upon a change of control, or upon the executive’s termination of employment as a result of death or disability only.

 

Employment Arrangement — Mr. Snider.  Mr. Snider, a former executive officer of Phelps Dodge, became an executive officer of our company following our acquisition of Phelps Dodge in March 2007. In April 2007, we entered into a letter agreement with Mr. Snider, confirming the terms of his employment as our president and chief operating officer. Pursuant to the letter agreement, and in consideration of Mr. Snider agreeing to remain employed by us for a transition period following the acquisition, we agreed to pay Mr. Snider an annual base salary of $750,000, paid him a lump sum special payment of approximately $3 million and deposited approximately $2.4 million into the nonqualified savings plan for his benefit. Effective December 31, 2007, Mr. Snider resigned his position as president and chief operating officer, and retired from the company on April 1, 2008. The benefits available to Mr. Snider upon his retirement are described further under “Retirement Benefit Programs.”

Components of Executive Compensation.  Executive officer compensation for 2007 included base salaries, annual incentive awards (paid in cash and restricted stock units), stock options, long-term incentive awards, and personal benefits and perquisites. The following chart summarizes our reasons for paying each element of compensation:

 

 

Base Salaries

 

In March 2007, we completed the acquisition of Phelps Dodge. As a result of this acquisition, we are now the world’s largest publicly traded copper company with a current market capitalization of over $40 billion (compared to a market capitalization of approximately $12 billion prior to the acquisition). In May 2007, the committee increased the base salaries of three of our five executive officers (Mr. Adkerson, Mr. Arnold and Ms. Quirk), considering the following factors:

 

 

The base salary increases are described below:

 

		Base Salary				Base Salary
		Prior to				as of
Named Executive Officer		May 1, 2007				May 1, 2007
Mr. Moffett		$	2,500,000				No change
Mr. Adkerson			1,250,000			$	2,500,000
Ms. Quirk			400,000				650,000
Mr. Arnold			400,000				550,000
Mr. Snider			750,000				*

 

 

 

In addition to the considerations noted above, the increase in Mr. Adkerson’s base salary to equal Mr. Moffett’s also reflects the committee’s view that Messrs. Moffett and Adkerson serve as partners in the leadership of our company. The committee did not set the new salaries based on any benchmarked data, but set the base salaries at levels it deemed appropriate after consideration of the factors outlined above.

 

Annual Incentive Awards

 

Our annual incentive plan, or AIP, is designed to provide performance-based awards to our executive officers whose performance can have a significant impact on our profitability and future growth. Our named executive officers, other than Mr. Snider, participated in the AIP for 2007. Generally, under the AIP, if our five-year return on investment is 6% or greater, our executive officers share in a plan funding amount equal to 2.5% of our operating cash flow, subject to adjustment based on our safety performance. In recent years, the committee has awarded the full plan funding amount. For 2007, the level of operating cash flow was significantly increased as a result of our acquisition of Phelps Dodge, resulting in a plan funding amount under the AIP that was more than three times the 2006 amount. The terms of the AIP permit the committee to exercise discretion to determine the award pool, provided that the aggregate awards do not exceed the plan funding amount. The committee exercised its discretion in establishing the award pool for 2007, considering the operational and strategic accomplishments of the company including those set forth on page 17, which process is described below.

 

General Structure of the Annual Incentive Plan.  The primary features of the AIP, which was approved by our stockholders in 2005, and the committee’s initial determinations regarding the structure of the plan for 2007 are set forth below:

 

 

 

 

		Percent of Safety Pool that
		could be Paid (Subject to
2007 Reportable Rate as Compared to the Average Rate:		Qualitative Assessment):
Exceeds 168% of average rate			0%
10% improvement in average rate			100%
18% improvement in average rate			150%

 

Evaluation of the Annual Incentive Plan in 2007.  As we have noted, 2007 was an extraordinary year for our company and our stockholders. Following the Phelps Dodge acquisition, which resulted in additional operating cash flow for our company, the committee re-evaluated the design of the AIP considering that we are now a substantially larger organization. The committee continues to believe that the current design of the AIP is appropriate for the following reasons:

 

 

The committee also notes that our stockholders approved the AIP in 2005. The committee recognizes, however, that this design may generate large funding pools and corresponding large payouts to our executives considering the company’s increased production capabilities, especially during years when commodity prices are high as was the case in 2007. The AIP was designed to meet the requirements of Section 162(m) of the Internal Revenue Code by setting an objective performance target and a maximum funding amount. Under the AIP, once the performance target has been achieved, the committee retains the discretion to reduce or eliminate the award pool and the awards to specific officers. Accordingly, this plan design preserves the company’s tax treatment of these awards as “performance-based” under Section 162(m), but gives the committee flexibility in operating the plan. The committee intends to exercise its discretion to lower the award pool if it determines that awarding the entire plan funding amount would not be appropriate in a given year, as it did in 2007.

 

Establishment of Award Pool for 2007 Awards.  In late 2007, the committee began its review of the potential payments under the AIP for 2007. At the time, estimates of the company’s operating cash flow exceeded $6 billion, resulting in an estimated plan funding amount in excess of $150 million. Believing that payment of the

full plan funding amount was not appropriate, the committee engaged Towers Perrin to assist in its adjustment of the AIP award pool for 2007 to account for the impact of the Phelps Dodge acquisition.

 

Alternatives.  After numerous discussions with members of the committee and management, Towers Perrin presented a report outlining various approaches the committee could use to set the award pool under the AIP for 2007. The committee focused on the following two methodologies:

 

 

Towers Perrin also noted that as a result of the structure of the plan, the company delivers a significant portion of total compensation through the AIP in the form of cash. Towers Perrin recommended that to the extent the program continues to be a significant element of total compensation for the company’s senior executives, the committee should consider settling a portion of the award in the form of company stock, without the corresponding premium associated with the elective restricted stock unit program (which is discussed below). These stock awards would serve to further strengthen our executives’ longer-term alignment with investor interests.

 

The Committee’s Considerations.  During January 2008, the committee met to discuss the alternative scenarios prepared by Towers Perrin and its other recommendations. As part of its deliberations, the committee considered the alternative mechanisms and the potential award pools under different scenarios. The committee also considered the company’s financial performance during 2007, as well as during 2006 and the prior three-year period.

 

Towers Perrin, with input from the committee chairman and management, also compiled a group of comparable companies (the Comparator Group), with which it compared our performance based on the following financial measures (which measures were not adjusted to account for the Phelps Dodge acquisition): revenue growth, earnings per share growth, operating cash flow growth, net income growth, return on investments and return on equity. The Comparator Group includes the following publicly traded U.S. companies that compete in the broader natural resource sector:

• Alcoa Inc. • Chesapeake Energy Corp. • Murphy Oil Corp. • Southern Copper Corp.		• Anadarko Petroleum Corp. • Devon Energy Corp. • Newmont Mining Corp.		• Apache Corp. • Hess Corp. • Occidental Petroleum Corp.

The committee also compared the company’s stock price relative to the Comparator Group and the S&P 500 Stock Index. As shown below, our total stockholder returns far exceeded that of the Comparator Group and the S&P 500 in 2007:

 

 

Finally, Towers Perrin also presented the committee with data ranking the company’s executive compensation program. In particular, Towers Perrin presented a report comparing the company’s 2006 total named executive officer compensation amount with that of the companies in the Comparator Group, noting that we ranked among the highest. Towers Perrin also presented the 20 SEC reporting companies that ranked highest for total named executive officer compensation in 2006, which list included our company. Towers Perrin further noted that each of the alternative mechanisms being considered would yield pay at the top of the market.

 

The 2007 Awards.  After considering various alternatives, the committee determined that incorporating a minimum rate of return threshold was the most appropriate mechanism to use to establish the 2007 AIP award pool. The committee established the 2007 award pool based on 2% of our operating cash flow, adjusted upward for interest expense, but only to the extent that the adjusted operating cash flow exceeded 10% of our total investment of capital. Total investment of capital is a measure used in the AIP to calculate our return on investment, and is based on the weighted average of our stockholders’ equity, minority interests and long-term debt.

 

For 2007, this formula produced an award pool of $84 million for our four named executive officers. After evaluating the applicable safety performance measures in connection with the proposed 2007 awards, the committee determined that no adjustment was warranted. The committee further determined that a significant portion of the amount determined for each executive officer would be paid in the form of restricted stock units granted under our stock incentive plan, with the number of units determined by reference to the closing price of our common stock ($85.30 per share) on the date the committee approved the award amounts, which was January 28, 2008. Similar to the restricted stock units received at the election of our executives (described below), these units vest ratably over a three-year period and are subject to the same performance measure (the average return on investment for the five calendar years preceding the year of vesting must be at least 6%). Unlike the elective restricted stock units discussed below, however, these units were not granted at a premium.

 

The table below details the following:

 

 

 

 

 

 

 

 

						Percentage of
		RSUs				AIP Cash				Grant Date
		Received on				Payment taken				Market
Name		01/28/08				in RSUs				Value of RSUs
Mr. Adkerson			404,454				100	%		$	34,499,926
Ms. Quirk			21,981				50	%			1,874,979
Mr. Arnold			10,990				25	%			937,447

 

 

 

Mr. Snider’s Annual Cash Incentive Award.  As noted above, Mr. Snider became an executive officer of our company following our acquisition of Phelps Dodge in March 2007. As the committee had previously made the allocations under the AIP, Mr. Snider did not become a participant in that plan. His annual incentive compensation for 2007 was paid out of our performance incentive awards program, which provides discretionary performance-based annual awards, payable in a combination of cash and equity, to officers and employees who do not participate in the AIP. For 2007, Mr. Snider was awarded $750,000 in cash and 10,000 RSUs. In determining the amount of Mr. Snider’s annual award, the committee considered Mr. Snider’s role in the successful integration of our company and Phelps Dodge following the acquisition, and the cash payments and equity awards previously made to Mr. Snider during 2007, including the lump sum special payment of approximately $3 million he received in April 2007 (which amounts are reflected in the “Summary Compensation Table”).

 

Elective Restricted Stock Unit Program.  In 1999, as part of our efforts to further align the interests of the executives with those of the stockholders, the committee approved a program that gave executive officers and certain other officers the ability to elect to receive a grant of restricted stock units with respect to shares of our common stock in lieu of all or part of their cash incentive bonus for a given year. The restricted stock units vest ratably over a three-year period, and are paid in an equivalent number of shares of common stock upon vesting. For the restricted stock units granted to our executive officers, the units will not vest and are forfeited unless the average return on investment for the five calendar years preceding the year of vesting is at least 6%. Neither the annual

incentive plan nor the restricted stock unit agreements permit the vesting of these RSUs if the performance measure is not met.

 

To encourage participation, since the inception of the program these elective restricted stock units have been granted at a 50% premium to the market value on the grant date. We believe that the 50% premium is appropriate because the restricted stock units delivered in lieu of the annual cash incentive award are subject to the risk of forfeiture during the three-year vesting period, and an executive’s election to participate in this program transforms current cash compensation into an equity-based vehicle that carries with it risks inherent in any equity instrument.

 

The program is not intended to increase the overall compensation of the executives. Our former compensation consultant previously reviewed the program and concluded that its design was appropriate and in line with the company’s compensation philosophy. We will continue to evaluate the usefulness of this program. The restricted stock units received in January 2008 by our executive officers in lieu of all or a portion of their annual cash incentive awards for 2007, as applicable, are reflected in footnote 2 to the table above. In accordance with FAS 123(R), the full grant date market value of these elective restricted stock units was recorded as a compensation cost for 2007, and are thus reflected in the “Stock Awards” column of the Summary Compensation Table.

 

Long-Term Incentives Awards

 

The long-term incentive awards we grant to our executive officers consist of stock options, which the executives generally receive every three years, and performance units, each of which are described below.

 

Stock Options.  Stock options are intended to reinforce the importance of creating stockholder value. These awards, together with the opportunity to receive restricted stock units in lieu of all or part of their annual cash incentive bonus, and beginning in 2008, the outright grant of restricted stock units, have provided the opportunity for our executive officers to accumulate significant equity ownership in our company. See “Stock Ownership Guidelines” below.

 

The committee believes that larger, multi-year stock option awards rather than smaller, annual awards provide a more powerful incentive to the company’s most senior executive officers to achieve sustained growth in stockholder value over the long term. As a result, since 1996 the committee has granted Messrs. Moffett and Adkerson stock option awards every three years. In keeping with the committee’s philosophy, the committee granted stock options to each of them in 2005. In addition, in 2005, the committee expanded its three-year option grant policy to include all executive officers. Although the next executive officer stock option grants were scheduled to occur in 2008, the committee granted options to the company’s executive officers in May 2007, electing to accelerate the grants by approximately nine months in view of the Phelps Dodge acquisition. These grants are reflected in the “Grants of Plan-Based Awards” table.

 

The number of options awarded to each of our executive officers in May 2007 was determined based on historic grant levels with adjustments to reflect the increased duties and responsibilities following the acquisition of Phelps Dodge. The fact that Messrs. Moffett and Adkerson received identical stock option grants reflects the significant increase in Mr. Adkerson’s responsibilities following the acquisition and our committee’s view that Messrs. Moffett and Adkerson serve as partners in the leadership of our company. The committee does not seek to grant awards with a specific dollar value, although the committee is advised of the Black-Scholes-Merton value of the options awarded.

 

Timing of Equity Grants.  In January 2007, the committee formally approved a written policy stating that it will approve all regular equity awards at its first or second meeting of the fiscal year in which an award is to be made. At this meeting, the committee finalizes its compensation decisions for the year, including setting the annual salary for the executive officers, determining long-term incentive awards for the year, and confirming payouts under the company’s annual incentive programs. Each August, the board establishes a meeting schedule for itself and its committees for the next calendar year. Thus, this meeting is scheduled approximately five months in advance, and is scheduled to fall within the window period following the release of the company’s earnings for the fourth quarter of the previous year. Under the committee’s policy, to the extent the committee approves any awards at other times during the year, such awards will be made during an open window period during which our executive officers and directors are permitted to trade company securities.

Determination of Option Exercise Price.  Under our incentive plans, the exercise price of each stock option cannot be less than the fair market value of a share of our common stock on the grant date. In the past we have used the average of the high and low sale price on the grant date to determine fair market value, however, in January 2007, the committee prospectively revised its policies to provide that for purposes of our stock incentive plans, the fair market value of our common stock will be determined by reference to the closing sale price on the grant date.

 

Long-Term Performance Incentive Plan.  The committee also compensates officers for long-term performance with annual grants of performance units granted under our long-term performance incentive plan (the LTPIP). Performance units are designed to link a portion of executive compensation to cumulative earnings per share over a four-year performance period because we believe that sustained profit performance will help support increases in stockholder value.

 

The LTPIP was approved by our stockholders in 1999, and provides that no more than 4,000,000 performance units may be outstanding at a given time. Each year, we grant our executive officers a certain number of performance units based on historical grant levels for his or her level of responsibility. There has been little variation in the number of units granted in recent years to our executives. The performance units are valued over a four-year performance period based on the cumulative earnings (or loss) per share, and that value is paid in cash after the end of the four-year period. The payout value is determined by multiplying the cumulative “earnings per share” or “net loss per share” (as those terms are defined in the plan) for the period by the number of performance units granted for that period. The table below provides an example of the payment that would have been received under the LTPIP in January 2008, assuming a grant of 10,000 performance units in 2004:

 

		Credit for
		2004				2005				2006				2007				2008
2004 Units		$ 1.34				$6.22				$8.52				$11.08				Payment
10,000		$	13,400			$	62,200			$	85,200			$	110,800			$	271,600

 

As described above, the actual payout determinations under the LTPIP are formulaic and only require the committee to certify the annual earnings (or loss) per share. The committee may, however, in the exercise of its discretion under the LTPIP, reduce or eliminate the amount of the annual earnings per share that otherwise would be credited to any performance award account for a given year. Since the plan’s adoption in 1999, the committee has not exercised such discretion.

 

Personal Benefits and Perquisites

 

We provide certain personal benefits and perquisites to our executive officers, which have historically been provided and are reflected in the “Summary Compensation Table” below. Our reasons for offering these benefits are summarized below:

 

 

 

The amounts reflected in the “Summary Compensation Table” represent our incremental cost of providing the benefit, and not the value of the benefit to the recipient. With respect to personal use of fractionally owned company aircraft, the aggregate incremental cost includes fuel costs, excise taxes, the lost tax deductions for expenses that exceed the amounts reported as income for our executive officers and additional charges. With respect to personal use of vehicles and the provision of security services, the aggregate cost of providing a car and driver is determined on an annual basis and includes annual driver compensation and annual car lease and insurance costs. Although the cars and drivers are available for both business and personal use, the amounts reflected in the “Summary Compensation Table” reflect the aggregate cost to us without deducting costs attributable to business use.

 

Post-Termination Compensation

 

In addition to the compensation received by the executive officers during 2007 and benefits under the company’s 401(k) plan, which we provide to all qualified employees, we also provide certain post-employment benefits to our executive officers, including a nonqualified defined contribution plan, a supplemental executive retirement plan, a defined benefit program (although this program has been discontinued), as well as certain severance and change of control benefits. In addition, Mr. Snider participates in a nonqualified defined contribution plan, a pension plan and a supplemental pension plan sponsored by our subsidiary, Phelps Dodge, which plans are described in more detail below under the heading “Retirement Benefit Programs.”

 

Nonqualified Defined Contribution Plan — This plan was put in place in 1996 and provides those employees considered “highly compensated” under applicable IRS rules, including our executive officers (except Mr. Snider), the ability to elect to defer up to 20% of their basic compensation in excess of the qualified plan limits. Pursuant to the terms of the plan, the company will make a contribution on behalf of a participant equal to 5% of the participant’s basic compensation in excess of the qualified plan limits, and an additional contribution as described below. We do not take into account income associated with option exercises or the vesting of restricted stock units when determining the company’s contributions. The 5% company contribution to the nonqualified plan noted above is based on the company’s contributions to its 401(k) plan (the qualified plan), which provides that participants will receive a company contribution equal to 100% of the participant’s contributions to the plan not to exceed 5% of the participant’s basic compensation. The purpose of the 5% company contribution in our nonqualified plan is to continue the 5% contribution found in the 401(k) plan on a participant’s basic compensation in excess of the qualified plan limits. The nonqualified defined contribution plan is unfunded.

 

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

 

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

of credited service up to 25 years, or a maximum of 50%. Income associated with option exercises or the vesting of restricted stock units is not a factor in determining the benefits payable under the SERP.

 

The SERP benefit will be reduced by the value of all benefits received under the cash-balance program and all other retirement plans (qualified and nonqualified), sponsored by the company, by FM Services Company, one of our wholly owned subsidiaries (the Services Company), or by any predecessor employer (including our former parent company, Freeport-McMoRan Inc.), except for benefits produced by accounts funded exclusively by deductions from the participant’s pay. In addition, the SERP benefit will be reduced by 3% per year if retirement precedes age 65. Messrs. Moffett and Adkerson are both 100% vested under the SERP.

 

Change of Control and Severance Benefits — All of our named executive officers, except Mr. Snider, are entitled to certain benefits in the event of a change of control of the company and Messrs. Moffett and Adkerson, as well as Ms. Quirk effective January 2008, are also entitled to certain severance benefits pursuant to their employment agreements. We believe that severance protections, particularly in the context of a change of control transaction, can play a valuable role in attracting and retaining key executive officers by providing protections commonly provided in the market. In addition, we believe these benefits also serve the company’s interest by promoting a continuity of management in the context of an actual or threatened change of control transaction. The existence of these arrangements does not impact our decisions regarding other components of our executive compensation program, although we consider these severance protections an important part of our executives’ compensation packages.

 

We also believe that the occurrence, or potential occurrence, of a change of control transaction will create uncertainty regarding the continued employment of our executive officers. This uncertainty results from the fact that many change of control transactions result in significant organizational changes, particularly at the senior executive level. In order to encourage certain of our executive officers to remain employed with the company during an important time when their prospects for continued employment following the transaction are often uncertain, we provide our executive officers with enhanced severance benefits if their employment is terminated by the company without cause or, in certain cases, by the executive in connection with a change of control. Because we believe that a termination by the executive for good reason may be conceptually the same as a termination by the company without cause, and because we believe that in the context of a change of control, potential acquirors would otherwise have an incentive to constructively terminate the executive’s employment to avoid paying severance, we believe it is appropriate to provide severance benefits in these circumstances.

 

We do not believe that our executive officers should be entitled to receive cash severance benefits merely because a change of control transaction occurs. The payment of cash severance benefits is only triggered by an actual or constructive termination of employment following a change of control. Under their respective incentive agreements, however, our executive officers would be entitled to accelerated vesting of their outstanding equity awards automatically upon a change of control of the company.

 

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

 

Stock Ownership Guidelines

 

We believe that it is important for our executive officers to align their interests with the long-term interests of our stockholders. Although we have encouraged stock accumulation through the grant of equity incentives to our executive officers, we did not mandate that our executive officers maintain a specified level of stock ownership in our company until 2006. In January 2006, the committee adopted stock ownership guidelines applicable to our executive officers.

 

For purposes of the guidelines, the stock value is calculated annually based on the one-year and five-year trailing average monthly stock price. Shares of common stock currently owned by the executive officers are counted for purposes of the stock ownership guidelines, as are shares held in employee benefit plans, individual retirement

accounts, shares issuable upon the vesting of outstanding restricted stock units and shares held in certain trusts. Under the guidelines, each of Messrs. Moffett and Adkerson are required to maintain ownership of company stock valued at five times his base salary, and our other executive officers are required to maintain ownership of company stock valued at three times their base salaries. As of December 31, 2007, each of our executive officers had reached their target ownership level, except Mr. Snider (who retired from the company in April 2008). Moreover, each of Messrs. Moffett and Adkerson own more than 10 times their target ownership levels.

 

Tax Considerations

 

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

 

The committee believes that the stock options and performance-based restricted stock units, annual incentive awards under our annual incentive plan, and performance units qualify for the exclusion from the deduction limitation under Section 162(m). With the exception of a portion of the salary paid to our executive chairman and our chief executive officer, and a portion of the compensation paid to Mr. Snider in 2007, the committee anticipates that the remaining components of individual executive compensation that do not qualify for an exclusion from Section 162(m) should not exceed $1 million in any given year and therefore will qualify for deductibility.

 

Sections 280G and 4999.  In connection with a termination of employment following a change of control, we provide our executive officers with a gross-up payment to reimburse the executive for the excise tax under Code Section 4999 as well as any additional income and excise taxes resulting from such reimbursement. Code Section 4999 imposes a 20% excise tax on the recipient of an “excess parachute payment” and Code Section 280G disallows the tax deduction to the payor of any amount of an excess parachute payment that is contingent on a change of control. In order to be subject to the excise tax, payments as a result of a change of control must exceed three times the executive’s base amount as determined under Section 280G, but once this threshold is achieved the excise tax is imposed on the payments that exceed one time the executive’s base amount. Pursuant to the new employment agreements with Mr. Adkerson and Ms. Quirk, the gross-up benefit provided to each will only be triggered if their change of control benefits exceed 110% of the Section 280G limit. The intent of the tax gross-up is to provide a benefit without a tax penalty to those executives who are displaced in the event of a change of control. We believe the provision of tax protection for excess parachute payments for these executive officers is consistent with market practice, is a valuable executive retention tool, and is consistent with the objectives of our overall executive compensation program.

 

Section 409A.  We operate our plans and arrangements in good faith compliance with Section 409A of the Code and the regulations issued by the Internal Revenue Service. We are in the process of revising our plans to comply with the requirements of Section 409A.

 

Corporate Personnel Committee Report

 

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

 

Submitted by the Corporate Personnel Committee as of April 10, 2008:

 

H. Devon Graham, Jr., Chairman

Robert J. Allison, Jr.

Bobby Lee Lackey

 

Summary Compensation Table

 

The table below summarizes the total compensation paid to or earned by our chief executive officer, our chief financial officer, and each of our three most highly compensated executive officers other than the chief executive officer and chief financial officer (collectively, the named executive officers). Mr. Snider became an executive officer effective March 19, 2007, in connection with our acquisition of Phelps Dodge Corporation. The amounts reported for Mr. Snider in the table below reflect compensation from March 19, 2007 through December 31, 2007. Mr. Snider retired from the company effective April 1, 2008. In connection with Mr. Snider’s retirement, Mr. Snider resigned as President & Chief Operating Officer effective December 31, 2007.

 

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

 

2007 Summary Compensation Table

 

 

 

 

 

										Long-Term
						Annual				Performance
						Incentive Plan				Incentive Plan
Name		Year				Cash Payment				Payout
Mr. Moffett			2007			$	23,000,000			$	6,790,000
			2006				23,325,000				4,415,000
			2005				19,406,000				2,637,500
Mr. Adkerson			2007				—				5,432,000
			2006				—				3,532,000
			2005				—				2,110,000
Ms. Quirk			2007				1,250,000				1,629,600
			2006				1,050,000				618,100
			2005				1,310,250				369,250
Mr. Arnold			2007				1,875,000				1,629,600
			2006				1,575,000				971,300
			2005				1,310,250				580,250

 

 

						Cash				Supplemental				Above-Market
Name		Year				Balance Plan				Retirement Plan				Earnings
Mr. Moffett			2007				—			$	968,722			$	297,795
			2006				—				860,661				234,864
			2005				—				702,382				186,769
Mr. Adkerson			2007				—				2,498,160				125,229
			2006			$	4,712				226,761				91,423
			2005				4,365				1,082,379				67,143
Ms. Quirk			2007				3,514				—				4,543
			2006				3,137				—				2,705
			2005				2,907				—				1,409
Mr. Snider			2007				—				2,261,735				—
			2006				—				—				—
			2005				—				—				—
Mr. Arnold			2007				7,719				—				19,662
			2006				6,892				—				16,385
			2005				6,386				—				13,811