UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
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
TESORO CORPORATIONANDEAVOR
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
þ No fee required.
o Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
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(2) | Aggregate number of securities to which transaction applies: |
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(3) | Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): |
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(4) | Proposed maximum aggregate value of transaction: |
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(1) | Amount Previously Paid: |
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(2) | Form, Schedule or Registration Statement No.: |
Dear Andeavor Stockholders:
It is my pleasure to invite you to attend the 2017Andeavor’s 2018 Annual Meeting of Stockholders of Tesoro Corporation on Thursday,Friday, May 4, 20172018, in San Antonio, Texas. This meeting gives me thewill provide an opportunity to highlight the Company’s performance for 2016 and emphasize our ongoing commitment to our stakeholders.in 2017. We will also haveconduct a question and answerQ&A session, during which we can discussanswer your questions related to the business. If you are unable to attend the Annual Meeting in person, I encourage you to review the enclosed information and vote your shares.
We made excellent progress in 2016 executing our growth and productivity improvement strategies. This included achieving very strong safety performancehave been on a journey to create a premier integrated marketing, logistics and refining availability, delivering annual improvements to operating income and making strategic acquisitions that position the Company for further growth. We returned approximately $500 million to shareholders in the form of share repurchases and dividends and invested in high-return capital projects.company. In 2017, we made great progress. We achieved these results despite a challenging market environment characterized by lower refining margins and weaker crude oil differentials. Tesoro’s employees delivered exceptional personal safety and process safety performance, reflecting our lowest OSHA recordable rate in Andeavor’s history, demonstrating our unyielding commitment to operational excellence andsafety as a Core Value at the safety of our workers. Further, in November 2016,Company. In June 2017, we announced our plannedcompleted the successful acquisition of Western Refining, Inc., and in November 2017, we completed the successful acquisition of Western Refining Logistics, LP. The integration of both businesses is progressing well, and the Company has been delivering the synergies identified as part of the acquisitions.
Andeavor entered Mexico and introduced the ARCO brand to customers in the northwest part of the country. Entry into Mexico allows us to offer the highly attractive ARCO brand to customers and directly supply gasoline and diesel fuel from our west coast refining system. As part of the Western Refining acquisition and the acquisition of a convenience store chain in northern California, total retail and branded stations increased 31% year-over-year to 3,255 stations.
We executed on our logistics Permian Basin strategy to provide high quality gathering and marketing services to customers in the Delaware Basin. Significant milestones include the successful open season and ongoing construction of the Conan gathering system, the recently announced gathering projects awarded to Andeavor Logistics that expand the Conan system, and our acquisition of the RIO Pipeline and Storage Assets from Rangeland Energy, which allow customers to ship their crude oil production to the Permian Basin from the Conan system. These actions demonstrate the creation of a highly valuable distribution system that meets the needs of Andeavor Logistics’ customers.
At Andeavor, we expectstrive to close duringgrow the first half of 2017. This acquisition is expectedbusiness while creating ever greater shared value for our stakeholders: our people, the communities where we operate, our customers and business partners, the government, the environment, and our stockholders. To do this, we focus on business and productivity improvements – small changes that collectively make a positive impact – and our steadfast commitment to create a premier, highly integratedsafety and geographically diversified refining, marketingenvironmental responsibility.
Our continued transformation requires strategic vision, and logistics company and provide a strong platform for earnings growth and cash flow generation.
I am grateful to our Board of Directors for their guidance leadership and oversight.leadership. Our Board is comprised of individuals with broad leadership experience, and substantialdeep operating
knowledge in the energy industry.industry and diverse backgrounds. I encourage you to review the qualifications, skills and experience that we have identified as importantcritical for our Directors to possess (beginning on page 7),under “Director Qualifications and howNominations” in this proxy statement. I believe our Board members of the Board exemplify these attributes, as shown inand you can review their biographical information (beginningunder “Proposal No. 1, Election of Directors.”
I am confident and excited about the plans we’ve shared to continue creating superior value on page 56).our journey to 2020, and look forward to updating you on our progress throughout the year.
Thank you for your investment in Tesoro.Andeavor. I look forwardhope to seeingsee you in San Antonio.
Sincerely,
Gregory J. Goff, Chairman, President and CEO
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Sincerely, |
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Gregory J. Goff |
Chairman, President and CEO |
Notice of 2018 Annual Meeting of Stockholders
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When | NOTICE OF 2017 ANNUAL
MEETING OF STOCKHOLDERS
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WHEN | Thursday,Friday, May 4, 2017,2018, 8:00 AM Central Time |
WHERE | |
Where | 19100 Ridgewood Parkway, San Antonio, Texas 78259 |
PURPOSE OF MEETING AND AGENDA | |
Purpose of Meeting and Agenda | At the 20172018 Annual Meeting, stockholders will vote: |
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1.to elect the tentwelve directors named in the Proxy Statement; |
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2.to approve our named executive officers’ compensation in an advisory vote; |
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| 3. to ratify the appointment of our independent registered public accounting firm for 2017;2018; and |
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| 4.to conduct an advisory vote onapprove the frequency of future advisory votes on executive compensation.Andeavor 2018 Long-Term Incentive Plan. |
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| Stockholders also will transact any other business that may properly come before the meeting or any adjournment or postponement thereof. |
WHO CAN VOTE | |
Who Can Vote | Stockholders of record at the close of business on Monday, March 16, 2017.5, 2018 are entitled to receive notice of and the right to vote at the Annual Meeting. |
VOTING | |
Voting | Your vote is very important. Please submit your proxy or voting instructions as soon as possible, whether or not you plan to attend the Annual Meeting. Please refer to the enclosed proxy materials or the information forwarded by your bank, broker or other holder of record to see the voting methods that are available to you. |
ADMISSION TO THE ANNUAL MEETING | |
Admission to the Annual Meeting | All of our stockholders are invited to attend the Annual Meeting. If you attend, you will need to bring valid, government-issued photo identification. If you are a beneficial owner of our common stock, you will also needidentification, as well as proof of stock ownership to be admitted. A recent brokerage statement or a letter from a bank or broker are examples of proof of ownership. Failure to bring such document or letter may delay your entry into or prevent you from attending our Annual Meeting. The doors to the meeting room will be closed promptly at the start of the meeting and stockholders will not be permitted to enter after that time. |
Sincerely,
Secretary
March 22, 2017 |
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| Sincerely, Kim K.W. Rucker Executive Vice President, General Counsel and Secretary | March 15, 2018 San Antonio, Texas |
TABLE OF CONTENTS
Table of Contents
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Tesoro Corporation 2017 Proxy Statement ii |
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Tesoro Corporation 2017 |
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| | 2018 Proxy Statement| iii |
TESORO CORPORATION
2017 PROXY STATEMENT
2018 Proxy Statement Summary This summary highlights information contained elsewhere in this Proxy Statement. This is only a summary, doesand may not contain all of the information that you should consider, and you should read the entire Proxy Statement carefully before voting.is important to you. For more complete information, please review this proxy statement as well as our 2017 Annual Report on Form 10-K.
2018 Meeting Information and Mailing of Proxy Materials (See pages 1 through 6)
This Proxy Statement is furnished in connection with the solicitation by the Board of Directors of Tesoro CorporationAndeavor of proxies to be voted at the 20172018 Annual Meeting of Stockholders (the “Annual Meeting”) described below,, and at any adjournment or postponement of such meeting.
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Meeting Information |
Date and Time | Thursday, May 4, 2017, 8:00 AM Central Time |
Location | 19100 Ridgewood Parkway, San Antonio, Texas 78259 |
Record Date | March 16, 2017 |
Voting | At the close of business on the record date, there were 117,379,880 shares of our common stock outstanding and entitled to vote. The holders of our common stock are entitled to one vote for each share held by them for each director nominee and for each other matter to be voted on. We have no other voting securities outstanding. |
Availability of Proxy Materials | This Proxy Statement and accompanying form of proxy are first being made available to stockholders on or about March 22, 2017. |
Voting Matters and Board Recommendations (See pages 56 through 63)
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ProposalFriday, May 4, 2018, 8:00 AM Central Time | Board Voting Recommendation | Page Reference for More Information |
Election of directors | FOR each nominee
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Advisory vote to approve our named executive officers’ compensation19100 Ridgewood Parkway | FOR
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San Antonio, Texas 78259 | | |
Matters to Be Voted Upon
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Proposals | Board Recommendation | Page Reference |
Proposal 1. Election of Directors | FOR each nominee | 19 |
Proposal 2. Advisory Vote on Executive Compensation | FOR | 56 |
Proposal 3. Ratify the appointmentAppointment of Ernst & Young LLP as our independent registered public accounting firm for 2017Auditors | FOR þ
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Advisory vote on the frequency of future advisory votes on executive compensationProposal 4. Approve 2018 Long-Term Incentive Plan | ONE YEAR
þ FOR | 6373 |
Each proxy will be voted as specified by the stockholder. Any duly executed proxy not specifying the contrary will be voted in accordance with the Board’s recommendations.
Governance Highlights (See pages 7 through 16)
Our Board believes that our commitment to high ethical standards and strong corporate governance benefits all our stakeholders, including our stockholders, employees, customers, communities and the environment. We also believe good governance is critical to achieving long-term stockholder value. The following table summarizes certain highlights of our corporate governance practices and policies: |
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ü | Annual election of directors | | ü | Ongoing investor engagement |
ü | Majority voting for all directors | | ü | Independent directors meet without management |
ü | Proxy access | | ü | Annual Board and committee evaluations |
ü | 11 of our 12 directors are independent | | ü | Board oversight of risk management |
ü | Independent Lead Director | | ü | Age limits for directors |
ü | Experienced Board, diverse in terms of gender, experience, skills and tenure | | ü | Stock ownership requirements for all directors and executive officers |
ü | Board takes active role in succession planning and Board composition
| | ü | Policy on political contributions |
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Tesoro Corporation 2017 Proxy Statement iv |
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BoardSnapshot of 2018 Director Nominees (See pages 5619 through 61)26)
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Name | Age | Director Since | Occupation and Experience | Committee Memberships |
Rodney F. Chase | 73 | 2006 | Former Energy Industry Executive Boards: Hess Corporation, HudsonField | Audit, Governance |
Edward G. Galante | 66 | 2016 | Former Senior Vice President and Member of the Management Committee of ExxonMobil Corporation Boards: Celanese Corporation, Clean Harbors, Inc., Praxair, Inc. | Compensation, EHS&S |
Gregory J. Goff, Chairman(a) | 60 | 2010 | Chairman, President and CEO of Tesoro Corporation Boards: Polyone Corporation, Tesoro Logistics GP, LLC (the general partner of Tesoro Logistics LP) | |
David Lilley | 70 | 2011 | Former Chairman, President and CEO of Cytec Industries Inc. Boards: Rockwell Collins, Inc., Public Service Enterprise Group Incorporated | Compensation (Chair), EHS&S |
Mary Pat McCarthy | 61 | 2012 | Former Vice Chair of KPMG LLP Boards: Palo Alto Networks, Inc., Mutual of Omaha | Audit (Chair), Governance |
J.W. Nokes | 70 | 2007 | Former EVP of Worldwide Refining, Marketing, Supply and Transportation of ConocoPhillips; Non-Executive Chairman of Albemarle Corporation Boards: Albemarle Corporation, Post Oak Bank, N.A. | Compensation, EHS&S (Chair) |
William H. Schumann, III | 66 | 2016 | Former Executive Vice President and Chief Financial Officer of FMC Technologies Boards: Avnet, Inc., McDermott International | Audit, Governance |
Susan Tomasky, Lead Director | 63 | 2011 | Former President of AEP Transmission Boards: Public Service Enterprise Group Incorporated, Summit Midstream Partners GP, LLC (the general partner of Summit Midstream Partners, LP) | Governance (Chair)(b) |
Michael E. Wiley | 66 | 2005 | Former Chairman of the Board, President and CEO of Baker Hughes Incorporated Boards: Bill Barrett Corporation, Post Oak Bank, N.A., Tesoro Logistics GP, LLC (the general partner of Tesoro Logistics LP) | Compensation, EHS&S |
Patrick Y. Yang | 69 | 2010 | Former Head of Global Technical Operations of F. Hoffmann-La Roche, Ltd. Boards: Codexis, Inc., Amyris, Inc, PharmaEssentia Corporation | Audit, Governance |
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(a) | As our CEO and President, Mr. Goff is our only non-independent director. |
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(b) | As independent Lead Director, Ms. Tomasky attends by invitation (as scheduling permits) and participates ex officio, but does not vote, in the meetings of the committees on which she does not serve. |
All 12 Director nominees exhibit:
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A high level of INTEGRITY | Strong LEADERSHIP skills | Knowledge of CORPORATE GOVERNANCE requirements and practice | A proven record of SUCCESS | INNOVATIVE approaches to challenging issues |
| Snapshot of 2017 Director Nominees | | | | | | | | |
Our 12 Director nominees bring a balance of relevant skills to the boardroom:
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Senior Leadership Experience | | | | | | | | | |
| All Director nominees exhibit:12 Directors |
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Risk Management Experience | | | | | | | | | |
| 11 Directors |
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Strategic Planning Experience | | | | | | | | | |
| 10 Directors |
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Extensive Industry Experience | | | | | | | | | |
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| • A high level of integrity | | • Strong leadership skills | | • Knowledge of corporate governance requirements and practices |
| • A proven record of success | | • Innovative approaches to challenging issues | |
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| Our Director nominees bring a balance of relevant
skills to our boardroom:
| Our Director nominees exhibit an effective mix of diversity, experience and fresh perspective: |
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| Senior Leadership Experience: 10 directors | Average Tenure: 6 years |
| Risk Management Experience: 9 directors | Average Age: 66 years |
| International Experience: 9 directors | Gender Diversity: 20% women |
| Strategic Planning Experience: 8 directors | |
| Extensive Industry Experience: 5 directors | | | |
| High Level of Financial Expertise: 6 directors | Directors | | |
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High Level of Financial Expertise | | | | | | | | |
| | 6 Directors | | |
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Our 12 Director nominees exhibit an effective mix of diversity, experience and fresh perspective: |
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Average Tenure | | Average Age | | Gender Diversity |
6 | | 66 | | 17% |
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Years | | Years | | Women |
Tesoro Corporation 2017 Proxy Statement v
Governance2017 Company Performance Highlights(See pages 7 through 16)
As part of Tesoro’s commitment to high ethical standards, our Board follows sound governance practices.
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Director Independence | • 9 out of our 10 director nominees are independent
• Our CEO is the only management director
• All of the Board Committees are composed exclusively of independent directors
• The independent directors regularly hold executive sessions, led by the independent Lead Director
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Independent Lead Director | • The independent directors have selected Susan Tomasky to serve as independent Lead Director
• Among other responsibilities, the independent Lead Director:
o Serves as liaison, and coordinates communications and activities, between the other independent directors and management
o Works with the Chairman in setting the Board agenda by taking into consideration the objectives of management as well as the needs of the Board and its individual committees
o Works with the independent directors to establish and approve appropriate annual goals and objectives for the Chairman, and communicates to the Chairman the results of the formal evaluation conducted by the independent directors of the Chairman’s performance pertaining to established goals and objectives
o Attends by invitation (as scheduling permits) and participates ex officio, but does not vote, in the meetings of the committees on which she does not serve
o Leads the recruitment and selection of new Board members with the Chairman
o Serves as an additional point of contact for stockholders, and communicates with stockholders in those circumstances where the Board determines that direct communication between the Board and stockholders is appropriate
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Board Oversight of Risk Management | • The Board oversees risk management, focusing on our most significant risks |
Stock Ownership Requirements | • Stock ownership requirement for CEO of 6x annual base salary
• Stock ownership requirements for all directors and members of our executive management team
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Board Practices | • Our Board and each of its Committees annually conduct an evaluation of their performance
o Periodically enlist a third party to facilitate assessment and identify opportunities for improved individual and Board performance
• The Governance Committee reviews criteria for Board membership with the Board and considers changes as needed so that the Board as a whole continues to reflect the appropriate mix of skills and experience
• Directors who turn 75 must tender a resignation for consideration by the Board and, unless specifically waived by the Board, such resignation will become effective at the next annual meeting after reaching age 75
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Accountability | • All directors stand for election annually
• In uncontested elections, directors must be elected by a majority of votes cast
• Through our "proxy access" Bylaw provision, eligible stockholders have the ability to include their own nominees for director in our proxy materials along with the Board-nominated candidates
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Stockholder Engagement and Investor Outreach | • In the spring of 2016, Ms. Tomasky, as independent Lead Director, wrote a letter to each of our institutional stockholders known to hold at least 0.5% of our outstanding stock (which constituted slightly over 55% of our outstanding shares), inviting them to participate in one-on-one meetings with her to foster the Company’s efforts at stockholder engagement
• We conduct investor outreach throughout the year to ensure that management and the Board understand and consider the issues that matter most to our stockholders and enable us to address them effectively
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Tesoro Corporation 2017 Proxy Statement vi
For Tesoro, 2016Andeavor, 2017 marked an excellent progress in executing our growth and productivity improvement strategies to position the Company for further growth.year. We achieved strong financial and operating performance, in 2016, despite a challenging market environment characterized by lower refining marginsas shown below, closed the acquisitions of Western Refining, Inc. and weaker crude oil differentials.Western Refining Logistics, LP, expanded into Mexico and achieved investment grade credit ratings at both Andeavor and Andeavor Logistics LP. |
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Revenue:
$24.6
billion Revenue |
Earnings Per Diluted Share from Continuing Operations:
$6.04
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Improvements to Operating Income | | Dividends to Stockholders:$2.10 per share
a 14% increase over 2015 Stockholders |
| Return of Earnings to Stockholders:Stockholders |
$35 billion | | $499505 million | | $2.28 per share | | Over $1 millionbillion
through
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An increase of 42% over 2016 | | | | | | Through stock repurchases and dividends
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For more detail on 2017 performance, please see our 2017 Annual Report on Form 10-K
filed with the Securities and Exchange Commission (the “SEC”).Commission.
20162017 Executive Compensation Highlights (See pages 1927 through 46)55)
Named Executive Officers for 2017
Gregory J. Goff, Chairman, President and Chief Executive Officer
Steven M. Sterin, Executive Vice President and Chief Financial Officer
Keith M. Casey, Executive Vice President, Commercial and Value Chain
Kim K.W. Rucker, Executive Vice President, General Counsel and Secretary
Cynthia J. Warner, Executive Vice President, Operations
CEO Compensation
CEO:Gregory J. Goff (CEO since May 2010; Chairman of the Board since December 2014)
CEO 20162017 Total Direct Compensation:
Base Salary: $1.6 million$1,600,000
Annual Incentive: $3.6 million$2,969,600
Long-Term Incentives: $10.5 million (target value)$11,250,000 (Target Value)
Sound Executive Compensation Practices
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What We Do | What We Don’t Do |
ü | Align Executive Pay with Company Performance | û | Guarantee Payouts on Performance-Based Awards |
ü | Use Rigorous Performance Goals | û | Provide Employment Agreements |
ü | Grant Performance-Based Long-Term Incentives | û | Pay Dividend Equivalents on Unvested Long-Term Incentives |
ü | Cap Incentive Awards | û | Pay Tax Gross Ups |
ü | Maintain Stock Ownership Guidelines | û | Provide Executive Perquisites |
ü | Analyze Executive Compensation Risk | û | Allow Pledging or Hedging of Company Stock |
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What We Doü | What We Don’t Doû |
•Align Executive Pay with Company Performance
•Use Rigorous Performance Goals
•Grant Performance-Based Long-Term Incentives
•Cap Incentive Awards
•Maintain Stock Ownership Guidelines
•Analyze Executive Compensation Risk
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| Retain an Independent Compensation Consultant •
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ü | Impose a Clawback Policy •
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ü | Mitigate Potential Dilution from Equity Awards | | |
ü | • Double Trigger Equity Acceleration Upon Change-in-Control
| •Guarantee Payouts on Performance-Based Awards
•Provide Employment Agreements
•Pay Dividend Equivalents on Unvested Long-Term Incentives
•Pay Tax Gross Ups
•Provide Executive Perquisites
•Allow Pledging or Hedging of Company Stock
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Say-on-Pay:Say-on-Pay
At our 20162017 Annual Meeting of Stockholders, our stockholders providedapproved, on an advisory vote to approvebasis, the compensation program for our named executive officers (“NEOs”) disclosed in our 20162017 proxy statement. Stockholders expressed substantial support for the compensation program for our NEOs,named executive officers, with approximately 95%96% of the votes cast voting in favor of the proposal.
Tesoro Corporation 2017 |
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| | 2018 Proxy Statement| vii |
General Information About the 2018 Annual Meeting |
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GENERAL INFORMATION ABOUT THE
2017 ANNUAL MEETING AND PROXY MATERIALS
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and Proxy Materials
We are providing this Proxy Statement and related materials because our Board of Directors is soliciting your proxy to vote shares at the 20172018 Annual Meeting of Stockholders (the “Annual Meeting”) to be held on Thursday,Friday, May 4, 2017,2018, beginning at 8:00 AM Central Time at our principal executive offices, 19100 Ridgewood Parkway, San Antonio, Texas 78259, and at any adjournment or postponement of the meeting. This proxy statement and the enclosed proxy card are being first made available to stockholders on or about March 15, 2018. All stockholders are invited to attend the Annual Meeting.
1. Important Notice Regarding the Availability of Proxy Materials for the Stockholders Meeting to be held on Friday, May 4, 2018: This Proxy Statement and our 2017 Annual Report are also available at www.proxydocs.com/andv.
What is a proxy statement and what is a proxy?
A proxy statement is a document that the SECUnited States Securities and Exchange Commission (the “SEC”) requires us to give you when we solicit your proxy to vote your shares on your behalf. A proxy is your legal designation of another person to vote the stock you own. When you vote by Internet or telephone or by signing, dating and returning your proxy card, you designate two of our officers as your proxies at the Annual Meeting. These two officers are Carrie P. RyanDathan C. Voelter and Elisa D. Watts, each with full power to act without the other and with full power of substitution.
Who is entitled to vote?
Stockholders of record at the close of business on March 5, 2018 are entitled to receive notice of and to vote at the Annual Meeting. As of the close of business on March 5, 2018, there were 153,002,812 shares of common stock outstanding and entitled to be voted at the Annual Meeting. Each outstanding share of common stock is entitled to one vote.
What am I voting on and how does the Board recommend that I vote?
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2.Proposals | Board Recommendation | Page Reference |
Proposal 1. Election of Directors | FOR each nominee | |
Proposal 2. Advisory Vote on Executive Compensation | FOR | |
Proposal 3. Ratify the Appointment of Auditors | FOR | |
Proposal 4. Approve 2018 Long-Term Incentive Plan | FOR | |
Why did I receive a one-page notice (sometimes referred to as an “E-Proxy Notice”) regarding the Internet availability of proxy materials instead of printed proxy materials?
We are furnishing proxy materials to our stockholders primarily via the Internet, instead of mailing printed copies of those materials to each stockholder. Unless you have previously signed up to receive your materials in paper form, you will receive a Notice of Internet Availability of Proxy Materials and will not receive a printed copy of the proxy materials or the annual report to stockholders unless you specifically request them. Instead, the Notice of Internet Availability contains instructions on how to access our proxy materials, including our Proxy Statement and our Annual Report, and how to submit your proxy on the Internet. Instructions for requesting printed proxy materials are also included in the Notice of Internet Availability. This process is designed to expedite stockholders’ receipt of proxy materials, help conserve natural resources and lower the cost of the meeting.
Stockholders who previously signed up to receive proxy materials electronically:If you previously signed up to receive our proxy materials electronically, we will send the Notice of Internet Availability to you via e-mail, to the last e-mail address you have supplied, on or about March 24, 2017.15, 2018. You will continue to receive these materials via e-mail until you elect otherwise.
Stockholders who previously signed up to receive future proxy materials in printed format by mail: If you previously submitted a valid election to receive all proxy materials in printed format, then we will mail you a full set of proxy materials, including our Annual Report. We will begin mailing these materials on or about March 24, 2017.15, 2018.
All other stockholders: If you have not submitted any elections, we will mail you a printed Notice of Internet Availability. We will begin mailing Notices of Internet Availability on or about March 24, 2017.15, 2018.
Tesoro Corporation 2017 Proxy Statement 1
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3. | What is the difference between holding shares as a stockholder of record and as a beneficial owner? |
These terms describe how your shares are held:
If your shares are registered directly in your name with our transfer agent, American Stock Transfer & Trust Company, you are considered the stockholder of record with respect to those shares, and access to proxy materials is being provided directly to you.
If your shares are held in a stock brokerage account or by a bank or other nominee, then you are considered the beneficial owner of those shares, which are considered to be held in street name. Access to our proxy materials is being provided to you by your broker, bank or other nominee who is considered the stockholder of record with respect to those shares.
4. How do I attend the meeting in person? What do I need to bring?
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IMPORTANT NOTE: If you plan to attend the Annual Meeting, you must follow these instructions to gain admission. |
All of our stockholders are invited to attend the Annual Meeting. If you attend our Annual Meeting, you will need to bring valid, government-issued photo identification. If you are a beneficial owner of our common stock, you will also needidentification, as well as proof of stock ownership to be admitted to the Annual Meeting. A recent brokerage statement or a letter from a bank or broker are examples of proof of ownership. Failure to bring such documentation may delay your entry into or prevent you from attending our Annual Meeting. The doors to the meeting room will be closed promptly at the start of the meeting, and stockholders will not be permitted to enter after that time.
Each stockholder may appoint only one proxy holder or representative to attend the meeting on his or her behalf. A large number of stockholders may wish to speak at our Annual Meeting. Our Board and management appreciate the opportunity to hear the views of stockholders and participants, and in the interest of an orderly and constructive meeting, rules of conduct will be enforced. Copies of these rules will be available and only stockholders or their valid proxy holders may speak at our Annual Meeting.
5. How do I vote?
If you are a stockholder of record you may use any of these methods to vote:
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![a2016proxystatementv2_image3.jpg](https://files.docoh.com/DEF 14A/0000050104-17-000065/a2016proxystatementv2_image3.jpg) :
| Vote by Internet,, by going to the web address www.proxypush.com/tsoandv and following the instructions for Internet voting or, if you have received a paper copy of the proxy card by mail, by following the instructions on the proxy card. Your vote by Internet must be received by 11:59 PM Eastern Time on May 3, 2017.2018. If your shares are held in the Tesoro Corporation ThriftAndeavor 401(k) Plan, your vote must be received by 11:59 PM Eastern Time on May 1, 2017. 2018. |
![a2016proxystatementv2_image4.jpg](https://files.docoh.com/DEF 14A/0000050104-17-000065/a2016proxystatementv2_image4.jpg) )
| Vote by Telephone,, by dialing 1-866-390-99711-866-892-1741 and following the instructions for telephone voting or, if you have received a paper copy of the proxy card by mail, by following the instructions on the proxy card. Your vote by telephone must be received by 11:59 PM Eastern Time on May 3, 2017.2018. If your shares are held in the Tesoro Corporation ThriftAndeavor 401(k) Plan, your vote must be received by 11:59 PM Eastern Time on May 1, 2017. 2018. |
Tesoro Corporation 2017 Proxy Statement 2
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![a2016proxystatementv2_image5.jpg](https://files.docoh.com/DEF 14A/0000050104-17-000065/a2016proxystatementv2_image5.jpg) +
| Vote by Mail,, by completing, signing, dating and mailing the proxy card mailed to you in the envelope provided. If you received a Notice of Internet Availability and would like to vote by mail, follow the instructions on the Notice of Internet Availability to request a paper copy of the proxy materials. Your vote by mail must be received by 11:59 PM Eastern Time on May 3, 2017.2018. If your shares are held in the Tesoro Corporation ThriftAndeavor 401(k) Plan, your vote must be received by 11:59 PM Eastern Time on May 1, 2017.2018. If you vote by Internet or telephone, please do not mail your proxy card. |
| Vote in Person,,by attending the Annual Meeting. Please refer to the instructions provided on the proxy card or Notice of Internet Availability. Please note that if your shares are held in the Tesoro Corporation ThriftAndeavor 401(k) Plan, you may not vote in person at the Annual Meeting; instead you will need to submit your vote through one of the ways described above. |
If you are a beneficial holder, you will receive separate voting instructions from your broker, bank or other nominee explaining how to vote your shares.Please note that if your shares are held of record by a broker, bank or other nominee and you wish to vote at the Annual Meeting, you will not be permitted to vote in person unless you first obtain a legal proxy issued in your name from the record owner.
Can I revoke or change my vote?
If you are a stockholder of record, whether you vote by telephone, Internet or mail, you can change or revoke your proxy before it is voted at the meeting in one of the following ways:
Submit a new proxy card bearing a later date;
Vote again by telephone or the Internet at a later time;
Give written notice before the meeting to our Corporate Secretary at the address set forth on the cover of this Proxy Statement stating that you are revoking your proxy; or
Attend the Annual Meeting and vote your shares in person. Please note that your attendance at the meeting will not alone serve to revoke your proxy.
Any change or revocation of your proxy must be received by the deadlines set forth in the question above or, for notice to our Corporate Secretary, before the meeting.
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6.3 | | What if my shares are held in the Tesoro Corporation Thrift Plan? | |
Participants inIf you are a beneficial owner, you must follow the Tesoro Corporation Thrift Plan may instruct Fidelity Management Trust Company, as trustee for such plan, howinstructions of your broker, bank or other nominee to vote all shares of our common stock allocated to their accounts. If a participant in the Tesoro Corporation Thrift Plan does not instruct Fidelity Management Trust Company how to vote, the shares of our common stock allocated to such participant’s accounts will not be voted.revoke or change your voting instructions.
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7. | What if I am a stockholder of record and do not specify a choice for a matter when returning a proxy? |
Stockholders should specify their choices for each matter on the proxy card. The proxies identified on the back of the proxy will vote your shares in accordance with your instructions. Except as noted above with respect to shares held in the Tesoro Corporation ThriftAndeavor 401(k) Plan, if your properly executed proxy does not contain voting instructions, the proxies will vote your shares in accordance with the voting recommendations of the Board as follows:
FOR the election of each of the tentwelve nominees for director;
FOR the approval of the advisory vote to approve our named executive officers’ compensation;
FOR the ratification of the appointment of Ernst & Young LLP as our independent registered public accounting firm for 2017;2018; and
To conduct an advisory vote onFOR the frequencyapproval of future advisory votes on executive compensation every ONE YEAR.the Andeavor 2018 Long-Term Incentive Plan.
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8. | What if I am a beneficial owner and do not give voting instructions to my broker, bank or other nominee? |
A “broker non-vote” occurs when a broker submits a proxy that states that the broker does not vote for some or all of the proposals because the broker has not received instructions from the beneficial owners on how to vote on the proposals and does not have discretionary authority to vote in the absence of instructions. Under NYSENew York Stock Exchange (“NYSE”) rules, brokers are not permitted to vote on any of the matters to be considered at the Annual Meeting (other than the ratification of the appointment of the independent registered public accounting firm) without instructions from the beneficial owner. As a result, your shares will not be voted on any matter other than the ratification of the appointment of the independent registered public accounting firm unless you affirmatively vote your shares in one of the ways indicated by your broker, bank or other nominee.
9. Can I revoke or changeWhat if my vote?shares are held in the Andeavor 401(k) Plan?
Participants in the Andeavor 401(k) Plan may instruct Fidelity Management Trust Company, as trustee for such plan, how to vote all shares of our common stock allocated to their accounts. If you are a stockholderparticipant in the Andeavor 401(k) Plan does not instruct Fidelity Management Trust Company how to vote, the shares of record, whether you vote by telephone, Internet or mail, you can change or revoke your proxy before it is voted at the meeting in one of the following ways:
Submit a new proxy card bearing a later date;
Vote again by telephone or the Internet at a later time;
Give written notice before the meetingour common stock allocated to our Secretary at the address set forth on the cover of this Proxy Statement stating that you are revoking your proxy; or
Attend the Annual Meeting and vote your shares in person. Please note that your attendance at the meetingsuch participant’s accounts will not alone serve to revoke your proxy.be voted.
Any change or revocation of your proxy must be received by the deadlines set forth in Question 5 above or, for notice to our Secretary, before the meeting.
If you are a beneficial owner, you must follow the instructions of your broker, bank or other nominee to revoke or change your voting instructions.
10. Is there a quorum requirement?
A quorum is necessary to hold a valid meeting. A quorum will exist if the holders of a majority of shares outstanding on the record date are present in person or by proxy. All shares voted by proxy are counted as present for purposes of establishing a quorum, including abstentions (shares of our stock for which proxies have been received but for which the stockholders have abstained from voting) and broker non-votes (described above).
11. What votes are necessary for action to be taken at the meeting?
Our Bylaws include a majority vote standard for uncontested director elections. Since the number of nominees does not exceed the number of directors to be elected at the Annual Meeting, the election of each director nominee is uncontested and thus requires a majority of the votes cast at the Annual Meeting. A “majority of the votes cast” means that the number of votes cast “FOR” a nominee must
exceed the number of votes cast “AGAINST” such nominee’s election. Abstentions and broker non-votes will have no effect on the outcome of the director vote.
Approval of each of the other proposals that will be voted on at the Annual Meeting requires the affirmative vote of a majority of the shares present in person or represented by proxy at the meeting and entitled to vote on the mattermatter. . For each proposal other than the election of directors, abstentions will have the same effect as “AGAINST” votes, and broker non-votes will have no effect on the outcome of the votes.
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12. Who will count votes?
We will appoint one or more Inspectors of Election who will determine the number of shares outstanding, the voting power of each, the number of shares represented at the Annual Meeting, the existence of a quorum and whether or not the proxies and ballots are valid and effective.
The Inspectors of Election will determine, and retain for a reasonable period a record of the disposition of, any challenges or questions arising in connection with the right to vote, and will count all votes and ballots cast and any abstentions and broker non-votes with respect to all proposals, and will determine the results of each vote.
13. How are proxies solicited, and what are the costs of proxy solicitation?
We pay all of the costs of the solicitation of proxies, including preparing, printing and mailing this Proxy Statement and the Notice of Internet Availability. Solicitation may be made personally or by mail, telephonic or electronic data transfer by officers, directors and employees of the company (who will not receive any additional compensation for any solicitation of proxies).
We have retained a professional proxy soliciting organization, Innisfree M&A Incorporated, to aid in the solicitation of proxies from brokers, bank nominees and other institutional owners, and possibly individual holders of record of 1,000 shares or more, by personal interview, telephone or similar means. We will pay Innisfree its customary fees, estimated not to exceed $13,500, and will reimburse Innisfree for certain expenses. We will also authorize banks, brokerage houses and other custodians, nominees and fiduciaries to forward copies of our proxy materials and will reimburse them for their costs in sending the materials.
14. Will any other matters be presented at the Annual Meeting?
As of the date of this Proxy Statement, we are not aware of any matter to be presented at the Annual Meeting other than the election of directors and the other proposals set forth in this Proxy Statement. However, if any other business is properly presented at the meeting, the persons named in the accompanying form of proxy intend to vote such proxy in accordance with their best judgment.
15. Where can I access the Annual Report?
We will provide without charge a copy of our Annual Report on Form 10-K, including financial statements and schedules, for the fiscal year ended December 31, 2016,2017, upon the written request of any stockholder to Tesoro Corporation,Andeavor, 19100 Ridgewood Parkway, San Antonio, Texas 78259, Attention: Investor Relations.
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Important Notice Regarding the Availability of Proxy Materials for the Stockholders Meeting to be held on May 4, 2017: This Proxy Statement and our 2016 Annual Report are also available at 5 |www.proxydocs.com/tso. | | |
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16. | What is householding? If I have multiple stockholders at my address, how can I get additional copies of proxy materials? |
To reduce the expense of delivering duplicate proxy materials to stockholders who may have more than one account holding our stock but who share the same address, we have adopted a procedure approved by the SEC called “householding.” Under this procedure, certain stockholders of record who have the same address and last name will receive only one copy of the proxy materials until one or more of these stockholders notifies us that they want to receive separate copies. In addition, the broker, bank or other nominee for any stockholder who is a beneficial owner of our stock may deliver only one copy of the proxy materials to multiple stockholders who share the same address, unless that broker, bank or other nominee has received contrary instructions from one or more of the stockholders. This procedure reduces duplicate mailings and saves printing costs and postage fees, as well as natural resources. Stockholders who participate in householding will continue to have access to and utilize separate proxy voting instructions.
If, now or in the future, you no longer wish to participate in householding and would prefer to receive a separate set of proxy materials, please notify us by calling our Investor Relations Department at 1-800-837-6768 or by sending a written request to our Corporate Secretary at the address listed on page 64.72. Record owners who are receiving multiple copies and wish to receive only one, please call our Investor Relations Department or send a written request to our Corporate Secretary. Beneficial owners who are receiving multiple copies and wish to receive only one, should notify their broker, bank or other nominee.
17. Will the companyCompany announce the voting results?
The preliminary voting results will be announced at the Annual Meeting. The final results will be published in a Quarterly Report on Form 10-Q or a Current Report on Form 8-K that we will file with the SEC within four business days after the Annual Meeting. In addition, we will announce our decision on the frequency of the advisory vote of executive compensation on a Current Report on Form 8-K that we will file with the SEC within 150 days after the Annual Meeting.
Overview
Our Board recognizesbelieves that excellence inour commitment to high ethical standards and strong corporate governance benefits all our stakeholders, including our stockholders, employees, customers, communities and the environment. We also believe good governance is critical to achieving long-term stockholder value. Our Corporate Governance Guidelines, along with the charters of our Board committees, implement the governance principles we believe are best for our stakeholders and provide the framework for our governance processes.
We approach governance in a strategic and thoughtful manner, taking into consideration multiple perspectives, including those of our Board, our Governance Committee, management, experts and stakeholders, to align on what makes the most sense for our Company. We continuously look for ways to improveenhance our corporate governance and increase value to our stockholders. As one input into these considerations, we may benchmark our corporate governance practices against studies and whitepapers from respected thought leaders. For example, in 2016, we compared our practices against the Commonsense Principles of Corporate Governance, which was published in July 2016 by a group of leading investors and executives, as well as the Business Roundtable’s Principles of Corporate Governance issued in August 2016. In 2017, we compared our practices against the Investor Stewardship Group Principles of Corporate Governance, which were issued in January 2017 by an organization of institutional investors. In each case, we found our practices were generally consistent with the principles recommended by these groups. In addition, we regularly participate in conferences and roundtables with governance thought leaders to explore new ways to create value for our stakeholders.
In November 2016, our Board proactively adopted “proxy access,” allowing a stockholder, or group of twenty or fewer stockholders, owning at least 3% of Tesoro’sAndeavor’s outstanding common stock continuously for at least three years, to nominate and include in our proxy materials director nominees constituting up to the greater of two directors or 20% of the number of directors serving on the Board, provided that the stockholder(s) and the nominee(s) satisfy the requirements specified in the Bylaws. The Board’s decision followed a careful evaluation over several meetings of shareholder views, evolving practices, relevant academic research, the potential impact on the Company and proxy access frameworks adopted by other companies.
In our effort to continue to be a leader in corporate governance, we routinely benchmark our corporate governance practices against studies and whitepapers from respected thought leaders. In 2016, we compared our practices against the Commonsense Principles of Corporate Governance, which was published in July 2016 by a group of leading investors and executives, as well as the Business Roundtable’s Principles of Corporate Governance issued in August 2016. In each case, we found our practices aligned closely with the principles recommended by these groups. In addition we regularly participate in conferences and roundtables with governance thought leaders to explore new ways to create value for our stakeholders.
We have adopted a Code of Business Conduct and Ethics for Senior Financial Executives that is specifically applicable to the CEO, the CFO, the Controller and persons performing similar functions. In addition, we have a Code of Business Conduct that applies to all of our directors, officers and employees.
Copies of the Corporate Governance Guidelines, our Bylaws, the Code of Business Conduct and the Code of Business Conduct and Ethics for Senior Financial Executives are posted on our website at www.tsocorp.comwww.andeavor.com under the heading “Investors” and the subheading “Corporate Governance.“Governance.” Printed copies of these documents are also available upon request to our Corporate Secretary. We will post on our website any amendments to, or waivers from, either of our Codes requiring disclosure under applicable rules within four business days following the amendment or waiver.
The Board of Directors
The current members of our Board of Directors are Rodney F. Chase, Paul L. Foster, Edward G. Galante, Gregory J. Goff, Robert W. Goldman, David Lilley, Mary Pat McCarthy, J.W. Nokes, William H. Schumann, III, Jeff A. Stevens, Susan Tomasky, Michael E. Wiley and Patrick Y. Yang. Specific information about the experience and qualifications of each director nominated for election at the Annual Meeting can be found beginning on page 5619 under “Items to Be Voted On – Proposal“Proposal No. 1 – Election of Directors.”
Because he has reached retirement age under the director retirement policy set forth in our Corporate Governance Guidelines, Mr. Goldman is not standing for re-election at the 2017 Annual Meeting. His retirement from the Board will be effective as of the date of the Annual Meeting.
On November 17, 2016, we announced that we had entered into a merger agreement to acquire Western Refining, Inc. Under the terms of the merger agreement, at closing, we are required to increase the size of the Board by two members and cause the appointment of two new directors designated by Western Refining. Following the closing of the proposed transaction, which we expect will occur during the first half of 2017, Paul L. Foster and Jeff A. Stevens are expected to join the Board.
Director Qualifications and Nominations
The Board believes that it, as a whole, should possess a combination of skills, professional experience, and diversity of backgrounds and perspectives necessary to oversee our business. Accordingly, the Board and the Governance Committee consider the qualifications of directors and director candidates individually and in the broader context of the Board’s overall composition and our current and future needs. The Governance Committee also develops and maintains a long-term plan for
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Board composition that takes into consideration the current strengths, skills and experience on the Board; the Company’s director retirement policy; and the strategic direction of the Company.
The Governance Committee is responsible for reviewing with the Board on an annual basis the criteria for Board membership in the context of the current makeup of the Board. These criteria include diversity, education, skills, integrity, leadership and judgment all in the context of an assessment of the perceived needs of the Board at that point in time. In addition, Board members generally should have knowledge of our industry and should have a background that demonstrates an understanding of the financial and operational aspects, including the associated risks, of a large and complex company. The Governance Committee assesses the effectiveness of its criteria when evaluating new director candidates and when recommending director nominees to the Board.
In evaluating director candidates, and considering incumbent directors for renomination, the Board and the Governance Committee consider a variety of factors, including each nominee’s independence, financial literacy, personal and professional accomplishments, and experience in light of our needs. For incumbent directors, the factors include preparedness and past performance on the Board. Among other things, the Board believes it is beneficial to include individuals with the following skills and experiences on the Board:
LeadershipSenior leadership experience, as directors with experience in significant leadership positions possess strong abilities to motivate and manage others and to identify and develop leadership qualities in others.
Risk management experience, which is critical to the Board’s oversight of our risk assessment and risk management programs.
Strategic planning experience, which is relevant to the Board’s review of our strategies and monitoring their implementation and results.
Knowledge of our industry, particularly oil refining, logistics operations and retail sales, which is integral to understanding our business and strategy.
Operations experience, as it gives directors a practical understanding of developing, implementing and assessing our business strategy and operating plan.
Legal experience, for oversight of our legal and compliance matters.
Risk management experience, which is critical to the Board’s oversight of our risk assessment and risk management programs.
Financial/accounting experience, particularly knowledge of finance and financial reporting processes, which is relevant to understanding and evaluating our capital structure and overseeing the preparation of our financial statements, and internal controls over financial reporting.
Operations experience, as it gives directors a practical understanding of developing, implementing and assessing our business strategy and operating plan.
Legal experience, for oversight of our legal and compliance matters.
Government/regulatory experience, as we operate in a heavily regulated industry that is directly affected by governmental requirements.
Strategic planning experience, which is relevant to the Board’s review of our strategies and monitoring their implementation and results.
Talent managementmanagement/compensation experience, which is valuable in helping us attract, motivate and retain top candidates for management positions.
Public company board service, as directors who have served on other public company boards have experience overseeing and providing insight and guidance to management.
Highlights of the key qualifications and experience of the individual director nominees are set forth under “Items to Be Voted On – Proposal“Proposal No. 1 – Election of Directors” beginning on page 56.19.
The Governance Committee periodically considers from time to time suitable candidates for membership on the Board, including candidates recommended by stockholders. Stockholder candidates will be evaluated in accordance with the criteria for director selection described above. With respect to the 20182019 Annual Meeting of Stockholders, stockholders wishing to recommend a potential Board candidate for the Governance Committee’s consideration must deliver such recommendation in writing to the Corporate Secretary at the address set forth on page 6472 of this Proxy Statement during the period beginning on January 4, 2018,2019, and ending on February 5, 2018,4, 2019, and include the name and contact information of the candidate. Candidates recommended to the Governance Committee in accordance with these procedures also will need to complete a Director and Officer Questionnaire in the form we provide. Stockholders who wish to nominate a director at an annual meeting in accordance with our Bylaws should follow the instructions described under “2018“2019 Stockholder Proposals.”
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Director Independence
The Board of Directors currently consists of eleventwelve directors, teneleven of whom are independent. Mr. Goff, who serves as our President and CEO, is not considered to be independent.
The Board undertook its annual review of director independence in March 20172018 and reviewed all relevant relationships of each director nominee, including any transactions and relationships between each director or any member of his or her immediate family and us, to determine whether any director has relationships or transactions that are inconsistent with a determination that the director is independent. In assessing director independence under the New York Stock Exchange (“NYSE”)NYSE standards and our Corporate Governance Guidelines, the Board considered and found to be immaterial, Mr. Chase’s service as a non-executive director of Hess Corporation, which serves as one of our suppliers of crude oil. After reviewing such information, the Board affirmatively determined that each of the following directors has no material relationship with us and has satisfied the independence requirements of the NYSE and our Corporate Governance Guidelines: |
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Rodney F. Chase | Robert W. Goldman | J.W. Nokes | Michael E. Wiley |
Edward G. Galante | David Lilley | William H. Schumann, III | Michael E. Wiley |
Paul L. Foster | Mary Pat McCarthy | Jeff A. Stevens | Patrick Y. Yang |
Edward G. Galante | Mary Pat McCarthyJ.W. Nokes | Susan Tomasky | |
Board Leadership and Committees
Our governance framework permits the roles of Chairman and CEO to be filled by the same or different individuals. This allows the Board flexibility to select the appropriate leadership for the Company based on a number of factors, including the specific needs of the business and what is in the best interest of our stockholders at a given time. Since December 31, 2014, Mr. Goff has served as Chairman of our Board. The Governance Committee and independent directors believe that combining the roles of Chairman and CEO is the best way to reflect the critical nature of strategic and operational issuesmatters in the Board structure and to continue the Company’s increased strength and growth by providing greater clarity and focus regarding our operations, outlook and future strategy for investors, other stakeholders and interested parties. Correspondingly, Ms. Tomasky has served as independent Lead Director since December 31, 2014. The Board believes that this structure, combined with strong, active independent directors, at this time provides an effective balance between strong Company leadership and appropriate safeguards and oversight by independent directors. The independent directors will continue to periodically evaluate what is the Board’s most effective leadership structure.
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Role of the Independent Lead Director |
The independent Board members elect the independent Lead Director annually. The Lead Director’s responsibilities include the following: • Chairs meetings of the Board at which the Chairman is not present, including executive sessions of the independent directors, and briefs the Chairman on any substantive concerns, issues or requests arising out of executive sessions and meetings of the independent directors • Works with the Chairman in setting the Board agenda by taking into consideration the objectives of management as well as the needs of the Board and its individual committees • Works with the Chairman and the General Counsel and Secretary to prepare Board and annual meeting schedules • Works with the independent directors to establish and approve appropriate annual goals and objectives for the Chairman, and communicates to the Chairman the results of the formal evaluation conducted by the independent directors of the Chairman’s performance pertaining to established goals and objectives • Acts as a liaison between the independent directors and the Chairman and other members of management, and facilitates proper flow of information to the Board • Attends by invitation (as scheduling permits) and participates ex officio, but does not vote, in the meetings of the committees on which she does not serve • Leads the recruitment and selection of new Board members with the Chairman • Maintains a close relationship of trust and mentorship with the Chairman, providing advice and support while respecting executive responsibility • Serves as an additional point of contact for stockholders, and communicates with stockholders in those circumstances where the Board determines that direct communication between the Board and stockholders is appropriate
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The Board of Directors met 12 times during 2016.2017. At 1110 of such meetings, the independent directors met in executive session, chaired by Ms. Tomasky, who served as the independent Lead Director of the Board during 2016.2017. The Board generally meets in executive session, led by the independent Lead Director without Mr. Goff or any other members of management present, at each regularly scheduled meeting of the Board.
The Board has four standing committees: Audit Committee, Compensation Committee, Environmental, Health, Safety & Security Committee, and Governance Committee. Each committee'scommittee’s written charter is available on our website at www.tsocorp.comwww.andeavor.com under the heading “Investors” and the subheading “Corporate Governance.“Governance.” Each director attended more than 75% of the meetings of the Board and committees on which he or heshe served during 2016.2017. The following table shows each committee'scommittee’s current membership, primary responsibilities and number of meetings held in 2016.2017. Although primary responsibilities may be assigned to a committee, the Board receives regular, detailed reports from each committee and engages in additional discussion and oversight regarding matters of particular concern or importance.
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AUDIT COMMITTEE (a)(b)(c)(d) Audit Committee |
Ms. McCarthy (Chair) Mr. Chase Mr. GoldmanFoster Mr. Schumann Mr. Yang
1112 meetings in 20162017
| • Appoints and oversees the independent registered public accounting firm, including its qualifications, independence and performance • Reviews the scope and results of the audit to be conducted by the independent registered public accounting firm
• Oversees our corporate accounting and financial reporting practices, including the quality and integrity of our financial statements • Oversees the organization, scope and performance of our internal audit function, including the annual internal audit plan • Oversees the adequacy and effectiveness of our internal controls over financial reporting • Assists the Board in fulfilling its oversight of management’s assessment and management of risk, including computerized information system controls and security, and any instances of fraud that involve management or other employees who have a significant role in the Company’s internal controls; as part of this responsibility, the Audit Committee meets regularly with the chiefmajor financial officer, chief information officer and controller regarding our technology systems and cyber-security detection and defense measuresrisks • Oversees compliance with legal and regulatory requirements, including the Company's Code of Business Conduct, and discusses with the General Counsel legal matters that could have a material impact on the Company • Reviews our tax strategies and the implications of tax law changes
• Reviews our policies that govern the processes by which risk assessment and risk management are addressed, as well as our major financial risk exposures and steps undertaken to monitor control these exposures, including mitigations and controls designed to limit our exposure to commercial and commodities risks
• Considers and recommends to the Board specific financing, dividends and stock repurchase actions, as well as major unbudgeted capital investments
• Oversees procedures for the receipt, retention and treatment of complaints received by the Company regarding accounting, internal controls, auditing or federal securities law matters, as well as procedures for the confidential and anonymous submission by employees of concerns regarding fraud, questionable accounting or auditing matters and federal securities law matters; meets regularly with the business compliance officer to discuss allegations regarding such matters, as well as claims regarding potential violation of our Code of Business Conduct
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COMPENSATION COMMITTEE (a)(b)(d) Compensation Committee |
Mr. Lilley (Chair) Mr. Galante Mr. Nokes Mr. Wiley
57 meetings in 20162017
| • Oversees our overall compensation philosophy and reviews industry pay practices, including governmental and regulatory developments • Together with the other independent directors, led by the independent Lead Director, annually reviews and approves goals and objectives relevant to the compensation of the CEO • Determines and approves all aspects of direct and indirect compensation for our CEO and other members of our senior management • Reviews and approves the selection of peer group companies for comparative purposes for benchmarking compensation, equity and benefit decisions • Reviews and approves employment and severance arrangements and change-in-control plans affecting compensation and benefits of the CEO and senior management • ApprovesAdministers the Company’s executive incentive and oversees the Company's annual incentive compensation program, all equity-based incentive programs and any other incentive compensation programs in which any senior officer is eligible to participate • Oversees tax-qualified and non-qualified retirement plans and post-retirement health and welfare benefit plans • Oversees the assessment of risk associated with our compensation programs (such as the Incentive Compensation Program discussed in “Compensation Discussion and Analysis – Elements of Executive Compensation / Pay for Performance” and our commercial trader compensation program) |
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ENVIRONMENTAL, HEALTH, SAFETY
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Environmental, Health, Safety & SECURITY COMMITTEE (a)(d)Security Committee |
Mr. Nokes (Chair) Mr. Galante Mr. Lilley Mr. Stevens Mr. Wiley
5 meetings in 20162017 | • Reviews and approves at least annually our environmental, health, safety and security (“EHS&S”) policies • Reviews management’s programs for compliance with our environmental, health, safety and securityEHS&S policies, applicable laws and regulations • Reviews periodically with management its environmental, health, safety and securityEHS&S activities with respect to significant legal matters, and emerging or proposed laws or regulations that may have a material effect on our financial results or operations • Reviews and assesses periodically our significant environmental, health, safety and securityEHS&S liabilities reported in the financial statements • Reviews periodically significant capital expenditures that may have a material environmental, health, safety or securityEHS&S impact or risk exposure |
GOVERNANCE COMMITTEE(a)(d)
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Governance Committee |
Ms. Tomasky (Chair) Mr. Chase Mr. GoldmanFoster Ms. McCarthy Mr. Schumann Mr. Yang
65 meetings in 20162017
| • Recommends candidates for election to the Board • DevelopsBoard; develops and recommends to the Board the criteria for identifying and evaluating director candidates
• Oversees the annual evaluation of the Board and the committees of the Board • Reviews and makes recommendations to the Board regarding the size, leadership structure, organization, composition and functioning of the Board, and the committees of the Board • Reviews and recommends to the Board compensation for non-employee directors compensation • Makes recommendations to the Board and Company management regarding new director orientation and continuing education for directors • Reviews succession plans for our CEO
• Reviews our charitable and direct and indirect political contributions • Reviews and approves our related party transaction policies and procedures |
The Board has determined that each member of each committee meets the independence requirements of the NYSE, and that each member of the Audit Committee and the Compensation Committee meets the additional independence requirements of the NYSE and the SEC, as applicable. The Board has determined that each member of the Audit Committee is financially literate. In addition, the Board has determined that each of Messrs. Chase, Foster and Schumann and Ms. McCarthy qualifies as an “audit
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a.11 | | The Board has determined that all members of this Committee meet the independence requirements of the NYSE. | |
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b. | The Board has determined that all members of the Audit Committee and the Compensation Committee meet the additional independence requirements of the NYSE and SEC, as applicable. |
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c. | The Board has determined that each member of the Audit Committee is financially literate. In addition, the Board has determined that each of Messrs. Chase, Goldman, Schumann and Ms. McCarthy qualifies as an “audit committee financial expert,” as defined by SEC rules. No member of the Audit Committee serves on the audit committees of more than three public companies, including ours. |
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d. | In connection with his election to the Board, Mr. Galante was appointed to serve on the Compensation Committee and the Environmental, Health, Safety & Security Committee effective March 1, 2016. Effective March 14, 2016, Mr. Yang ceased service on the Environmental, Health, Safety & Security Committee and began serving on the Audit Committee. Effective March 30, 2016, Ms. McCarthy ceased service on the Compensation Committee and began serving on the Governance Committee. In connection with his election to the Board, Mr. Schumann was appointed to serve on the Audit Committee and the Governance Committee effective November 11, 2016. |
committee financial expert,” as defined by the SEC rules. No member of the Audit Committee serves on the audit committees of more than three public companies, including ours. As independent Lead Director, Ms. Tomasky attends by invitation (as scheduling permits) and participates ex officio, but does not vote, in the meetings of the committees on which she does not serve.
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Director Orientation and Continuing Education
Our Board believes that robust director orientation and continuing director education programs are an important part of effective corporate governance and enhance both Board and committee performance. We provide new directors with comprehensive orientation, including materials and meetings with management, which familiarizes them with our business, operations and philosophy, industry trends and corporate governance practices. The orientation also addresses Board procedures, our corporate governance principles and our Board committee charters.
Continuing education is provided for all directors through board materials and presentations, discussions with management, visits to our facilities and other sources. In addition, directors are encouraged to participate in outside continuing education programs from time to time to increase their knowledge and understanding of the duties and responsibilities of directors and the Company, regulatory developments and best practices. Periodically, management or the Governance Committee may inform directors about opportunities for continuing education. We reimburse all reasonable expenses for directors’ participation in non-Company continuing education programs.
Board and Committee Performance Self-Evaluations
Assessments
Each year, our directors evaluate the performance of the Board and each committee on which they serve. As part of the Board self-evaluationassessment process, the directors are asked to provide feedback on the Board’s role and effectiveness, structure, composition, culture, accountability, relations with management, composition and meetings. Each committee is also asked to consider its role and responsibilities articulated in the committee charter, culture and effectiveness of the committee, composition of the committee and the committee meetings. The self-evaluationassessment responses and comments are compiled by the Corporate Secretary and presented to the Governance Committee for initial review. The responses and comments are also presented to each committee and the full Board for discussion. In addition, our Governance Committee charter and Corporate Governance Guidelines provide that periodically, but not less than once every three years, the Governance Committee will retain a third party to conduct the performance evaluation of the Board. A third-party performance evaluation of the Board was conducted in 2016.
Board of Directors’ Role in Succession Planning
The Board of Directors is responsible for succession planning for the Board as well asand CEO, and also has oversight of succession planning for senior management. In addition to routine succession planning efforts by the Board and Governance Committee throughout the year, the full Board engages in a comprehensive management succession planning exercise at least once each year in which it analyzes potential succession candidates across all senior management positions. Although the Board focuses on the senior management team and CEO succession, directors also discuss the talent pipeline for other key roles in the Company. As part of this exercise, the Board reviews skills, competencies and readiness levels of succession candidates and reviews development plans presented by management to ensure that management succession candidates are adequately prepared for planned transitions.
The Board endeavors to regularly refresh its membership through a combination of adding or replacing directors to achieve the appropriate balance of longer-term directors with deep institutional knowledge of the refining, marketing and logistics business and adding directors who bring a diversity of perspectives and experience. For example, because we have several long-tenured directors who are reachingin May 2017, a director retired, and in June 2017, in connection with the retirement age discussed above,closing of our acquisition of Western Refining, Inc., the Board increased its size to tentwelve directors effective March 1, 2016and
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| | 2018 Proxy Statement | 12 |
elected Messrs. Foster and elected Mr. Galante to the Board. The Board further increased its size to eleven directors effective November 11, 2016 and elected Mr. SchumannStevens to the Board. The experience and expertise Messrs. GalanteFoster and SchumannStevens bring to our Board is further described in their biographies beginning on page 56.19.
Board Risk Oversight
The Board oversees risk management, focusing on our most significant risks, and the processes that management has established for assessing and managing risk. The Board delegates oversight of certain categories of risk to designated Board committees, which are composed entirely of independent directors. The committees report to the Board regularly on matters relating to the specific areas of risk the committees oversee and, for our most significant risks, the Board may engage in additional discussion and oversight.
Board of Directors
Oversees and reviews our processes for assessing and managing risk, including guidelines and policies that govern the processes to ensure consistency with our risk assessment and risk management policies
Annually discusses with management, including members of our Executive Committee (consisting of our President and CEO; Executive Vice President and CFO; Executive Vice President, Operations; Executive Vice President, Commercial and Value Chain; Executive Vice President, General Counsel and Secretary; and other senior officers in key areas of our organization), our policies and practices with respect to risk assessment and risk management
Reviews regular reports from management throughout the year regarding major risks facing us and the steps management has taken to monitor and manage such risks
At least annually, receives an update from management concerning the status and effectiveness of our risk prevention and mitigation activities, emerging risks and risk assessment and management practices
Reviews periodic reports from executive management on our strategic risks
Audit Committee
Assists the Board in fulfilling its oversight of enterprise risk management, particularly with regard to market-based risks, financial reporting, effectiveness of our compliance programs, information systems, cybersecurity and commercial trading
Oversees, and coordinates the oversight by other committees of, significant corporate risk exposures and steps management has taken to monitor, control and report such exposures
Discusses with management, the independent auditors, and the internal auditors the integrity of our accounting policies, internal controls, financial statements, financial reporting practices, and select financial matters
Reviews annual reports from management on the results of the annual review and assessments conducted by management, and discussed below, to identify our annual priority risk profile
Reviews regular reports from our Chief Audit Officer regarding our audit activities throughout the year
Monitors the qualifications, independence and performance of our independent auditors and the qualifications and performance of our internal auditors
Reviews quarterly updates from management on our legal, ethics and compliance risks
Oversees compliance with legal and regulatory requirements, including our Code of Business Conduct
Approves an annual internal audit plan, which incorporates our priority risk management activities
Tesoro Corporation 2017 Proxy Statement 12
Environmental, Health, Safety & Security Committee |
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Audit Committee |
• Oversees and reviews our processes for assessing and managing risk, including guidelines and policies that govern the processes to ensure consistency with our risk assessment and risk management policies
• Oversees and reviews our major financial risk exposures and the steps management has undertaken to monitor and manage them, as well as financial reporting and internal controls
• Reviews annual reports from management on the results of the annual review and assessments conducted by management, and discussed below, to identify our annual priority risk profile
• Reviews regular reports from our Vice President of Internal Audit regarding our audit activities throughout the year
• Reviews quarterly updates from management on our legal and compliance risks
• Approves an annual internal audit plan, which incorporates our priority risk management activities
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Environmental, Health, Safety & Security (“EHS&S”) Committee |
• Oversees environmental, health, safety and security risks and reviews our policies, performance and practices relating to these risks to our employees and assets, and the communities and environment in which we operate
• Approves an annual environmental, health, safety and security plan that also incorporates priority risks and receives regular reports throughout the year from management and operating personnel of our activities managing those risks
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Audit Committee and EHS&S Committee |
• Annually discusses with management, including members of our Executive Committee, our policies and practices with respect to risk assessment and risk management
• Reviews regular reports from management throughout the year regarding major risks facing us and the steps management has taken to monitor and manage such risks
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Board of Directors |
• Annually discusses with management, including members of our Executive Committee, our policies and practices with respect to risk assessment and risk management
• Reviews regular reports from management throughout the year regarding major risks facing us and the steps management has taken to monitor and manage such risks
• At least annually, receives an update from management concerning the status and effectiveness of our risk prevention and mitigation activities, emerging risks and risk assessment and management practices
• Reviews periodic reports from executive management on our strategic risks
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Management Risk Committee |
Our management risk committee is comprised of senior level business management leadership from our financial, strategic, governance, administrative and operational functions. This group is chaired by the head of our Enterprise Risk Group and reports to the Company’s Executive Committee (consisting of our President and CEO; Executive Vice President, Operations; Executive Vice President, General Counsel and Secretary; Executive Vice President and CFO; and other senior officers in key areas of our organization). Its functions include the following:
• Facilitates an annual review by our management and subject matter experts to assess and prioritize the risks facing us
• Continually interacts with the Enterprise Risk Group, which interacts with various levels of our organization to assess the status and effectiveness of risk prevention and mitigation activities, identify emerging risks and facilitate management’s enhancement of our risk assessment and management practices
• Meets periodically throughout the year to review priority risks, risk prevention and mitigation activities and emerging risks and to facilitate management’s continual improvement of monitoring and managing risks
• Chair of this committee meets periodically with the Executive Committee to report on its activities
• At least annually, management provides the Board of Directors an update, based on the work of the management risk committee, concerning the status and effectiveness of our risk prevention and mitigation activities, emerging risks and risk assessment and management practices
• Subcommittees assess and manage specific risks facing us
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Oversees environmental, health, safety and security risks and reviews our policies, performance and practices relating to these risks to our employees and assets, and the communities and environment in which we operateApproves an annual environmental, health, safety and security plan that also incorporates priority risks and receives regular reports throughout the year from management and operating personnel of our activities managing those risks
Management Risk Committee
Our management risk committee is comprised of senior level business management leadership from our financial, strategic, governance, administrative and operational functions. This group is chaired by the head of our Enterprise Risk Group and reports to our Executive Committee. Its functions include:
Facilitates an annual review by our management and subject matter experts to assess and prioritize the risks facing us
Continually interacts with the Enterprise Risk Group, which interacts with various levels of our organization to assess the status and effectiveness of risk prevention and mitigation activities, identify emerging risks and facilitate management’s enhancement of our risk assessment and management practices
Meets periodically throughout the year to review priority risks, risk prevention and mitigation activities and emerging risks and to facilitate management’s continual improvement of monitoring and managing risks
Committee chair meets periodically with the Executive Committee to report on its activities
At least annually, management provides the Board of Directors an update, based on the work of this committee, concerning the status and effectiveness of our risk prevention and mitigation activities, emerging risks and risk assessment and management practices
Subcommittees assess and manage specific risks facing Andeavor
Risk Considerations in Our Compensation Programs
In August 2016,2017, our management, in consultation with the Compensation Committee’s independent consultant, performed an annual assessment of the risks associated with our current compensation programs. The Compensation Committee reviewed management’s assessment of the compensation programs which cover our employees, including executives and commercial trading personnel, and discussed the concept of risk as it relates to our compensation programs. The assessment and discussions concluded the following:
Tesoro’sOur compensation programs are designed to reward business results while enabling future success and do not present a material risk to the Company.
Tesoro Corporation 2017 Proxy Statement 13
Appropriate pay philosophy and market comparisons support business objectives.
Programs appropriately balance fixed compensation with short-term and long-term variable compensation such that no single pay element would motivate employees to engage in excessive risk taking.
The characteristics of our annual incentive program design do not encourage behaviors that would create material risk for our company because we cap annual incentive awards at 200% of target and we base these awards on:
Corporate, business unit and individual performance goals, with a variety of pre-established performance conditions in each category, thus diversifying the risk associated with any single indicator of performance; and
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o | Corporate, business unit and individual performance goals, with a variety of pre-established performance conditions in each category, thus diversifying the risk associated with any single indicator of performance; and | 2018 Proxy Statement | 14 |
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o | Financial and non-financial performance targets that are objectively determined by measurable and verifiable results. | |
Financial and non-financial performance targets that are objectively determined by measurable and verifiable results.
Our long-term incentive program encourages employees to focus on our long-term success by providing a mix of performance shares and market stock units, each of which rewards employees if we meet specified performance goals or our stock price increases. These awards also incorporate pre-established caps to prevent excessive compensation.
Our executive stock ownership guidelines ensure our senior executives maintain a substantial stake in our long-term success, strengthening the alignment between the interests of our executives and our stockholders.
We have established a “clawback” policy that allows the Board to recoup annual and long-term incentive compensation received by a senior executive for misconduct resulting in a material financial restatement. The “clawback” policy is discussed in more detail under the heading “Compensation“Executive Compensation — Compensation Discussion and Analysis — Clawback Policy” in this Proxy Statement.below.
Social Responsibility
Tesoro, including itsWe, our Board of Directors and our management team, isare dedicated to operating in a socially responsible manner, and our actions are guided by our Core Values and Code of Business of Conduct. Our Social Responsibility Report, which is available on our website at www.tsocorp.comwww.andeavor.com/responsibility under the heading “Responsibility – Social Responsibility Reports,”, outlines our commitments to our people and communities, and to operating in a manner that is safe and environmentally responsible.
TransactionsOur People
Our employees come first. We recognize the tremendous value of our people, and are dedicated to making Andeavor a great place to work—one that welcomes new ideas, encourages diverse perspectives and fosters a collaborative team environment.
Community
We strive to be a valued member of the communities where we live and work. Our community investments harness employee passions and align with Related Partiesour business goals and objectives to create Shared Value for us and our communities. We listen to and collaborate with our neighbors, local stakeholders and nonprofit organizations to help create cleaner, safer and well-educated communities.
Except for transactions relatingHealth and Safety
Safety is and always will be a Core Value at Andeavor. We are committed to Tesoro Logistics LPoperating our refineries, pipelines, retail stations and its subsidiaries,other facilities in a manner that promotes the health and safety of our employees, our customers and the communities where we did not have any transactions with any related party (as described below) requiring disclosure since the beginningdo business. We will continue to strive to achieve our ultimate goal of 2016. Our Board has a written related-party transaction policy and procedures that apply to any “interested transaction,” which is any transaction, arrangement or relationship or series of similar transactions, arrangements or relationships in whichan incident-free workplace.
Environment
At Andeavor, we are a participant, the aggregate amount involved since the beginningcommitted to being stewards of the last completed fiscal year is or is expectedenvironment. We strive to exceed $100,000, andoperate in which a related party has a direct or indirect material interest. For purposes of the policy, a “related party” includes (1) any person who is or was (since the beginning of the last completed fiscal year), an executive officer, director or nominee for director, (2) any holder of more than 5% ofway that limits our common stock, and (3) any immediate family member of any of the foregoing.
Our Governance Committee reviews the material facts of all “interested transactions,” and may approve or ratify such transactions, as appropriate. In determining whether to approve or ratify any such transaction, the Governance Committee may consider whether the transaction isenvironmental impact on terms no less favorable than terms generally available to an unaffiliated third party under the same or similar circumstances, whether there are valid business reasons to enter into the transaction, whether the transaction would impair the independence of a director or present an improper conflict of interest for any director or executive officer, and any other factors it deems relevant.
The Chair of our Governance Committee has the authority to pre-approve or ratify any related-party transaction in which the aggregate amount involved is expected to be less than $1 million. Any such action by the Chair of our Governance Committee must be reported to our Governance Committee at its next regularly scheduled meeting.
Tesoro Corporation 2017 Proxy Statement 14
The Governance Committee has reviewed and pre-approved certain categories of transactions under the terms of the policy. Information on transactions subject to pre-approval is maintained by the office of the General Counsel and provided to the Governance Committee for its review at least annually. The types of transactions deemed pre-approved include:
employment of executive officers if the compensation is reported in the annual proxy statement or was approved by the Compensation Committee,
director compensation,
transactions with other companies at which a related party’s only relationship is as an employee (other than an executive officer) if the aggregate amount involved does not exceed the greater of $1 million or 2% of that company’s total annual revenues,
charitable contributions to an organization, foundation or university at which a related party’s only relationship is as an employee (other than an executive officer) if the aggregate amount involved does not exceed the lesser of $1 million or 2% of that organization’s total annual receipts,
certain transactions with Tesoro Logistics GP, LLC (the “general partner” or “TLGP"), Tesoro Logistics LP (“TLLP”)communities and their subsidiaries (collectively, the “Tesoro Logistics entities”),surrounding ecosystems. We work to continually improve our procedures, programs, tools and systems to mitigate risks and advance our environmental performance. We also engage stakeholders to garner feedback and hold ourselves to a high standard as described below,
transactions where all shareholders receive proportional benefits,
transactions involving another public company with a common institutional shareholder,
transactions involving competitive bids,
regulated transactions, and
certain banking-related services.
Pre-approved transactions with the Tesoro Logistics entities include:
cash distributions by TLLP to its unitholders,
sales of logistics assets by us to the Tesoro Logistics entities if approved by the Board or in certain situations the CEO,
pipeline transportation, trucking, terminal distribution, storage and similar services provided by the Tesoro Logistics entities pursuant to long-term, fee-based commercial agreements with us,
ongoing performance of the Omnibus Agreement,
ongoing performance of the Secondment and Logistics Services Agreement or similar agreements under which we provide the Tesoro Logistics entities with certain operational services, and
any other transaction between us and the Tesoro Logistics entities for which the annual aggregate amount involved does not exceed $10 million.responsible corporate citizen.
Relationship with TLLP
We own (directly and through our affiliates) approximately 34% of the interests in TLLP, including the 2% general partner interest held by TLGP, our wholly-owned, indirect subsidiary. The general partner manages TLLP’s operations and activities through its officers and directors. Mr. Goff, Steven M. Sterin and Kim K.W. Rucker serve as executive officers of both Tesoro Corporation and TLGP.
Further information about transactions between us, TLLP, and our respective subsidiaries can be found under “Relationship with TLLP” beginning on page 50. Each of those transactions was approved or ratified consistent with our related-party transaction policy.
Tesoro Corporation 2017 Proxy Statement 15
Engaging with ourOur Board
We value our stockholders'stockholders’ input and insights, and we seek an open dialogue to understand your concerns and priorities. Effective Board-stockholder communication strengthens our role as an active, informed and engaged Board. While we believe that in most circumstances the CEO and members of senior management are best positioned to speak for the Company, the Board is ultimately responsible for supervising management’s
oversight of our communication and engagement with stockholders. Management reports to the Board on material stockholder comments and the feedback it receives.
There are several ways to communicate with our Board. Our Corporate Governance Guidelines require the entire Board to attend the annual meeting, absent exceptional circumstances, and for the chairs of each of our committees to be available to respond to stockholder questions regarding our corporate governance practices and views on executive compensation and stockholder proposals. AllNine of the ten directors then serving on the Board attended the 20162017 Annual Meeting of Stockholders.
Stockholders may also request a meeting with our independent Lead Director or with other Board members as appropriate. We evaluate meeting requests on a case-by-case basis, considering several factors, including the utility of the proposed discussion topic, whether the matter is of general concern to stockholders, how the matter may affect our performance, and whether discussions would likely comply with our duties, regulations and our guidelines. Directors may also participate in investor meetings with management from time to time to elicit stockholder views.
You may communicate with Mr. Goff as Chairman of the Board or with our full Board of Directors by writing to:
c/o Chairman of the Board of Directors
Tesoro CorporationAndeavor
19100 Ridgewood Parkway
San Antonio, Texas 78259
You may communicate with Ms. Tomasky as Lead Director or with the independent members of the Board by writing to:
c/o General Counsel and Corporate Secretary
Tesoro CorporationAndeavor
19100 Ridgewood Parkway
San Antonio, Texas 78259
In addition, the Audit Committee has established procedures for the receipt, retention, and treatment of complaints received by us regarding accounting, internal controls, or auditing matters and the confidential, anonymous submission by our employees of concerns regarding questionable accounting or auditing matters. Persons wishing to communicate with our Audit Committee may do so by writing to:
c/o Chairman of the Audit Committee
Tesoro CorporationAndeavor
19100 Ridgewood Parkway
San Antonio, Texas 78259
Tesoro Corporation 2017 |
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| | 2018 Proxy Statement | 16 |
Director Compensation Program
During 2016,2017, the compensation program for our non-employee directors included an annual cash retainer, an annual equity grant of restricted stock units representing the right to receive shares of common stock with dividend equivalent rights (“RSUs”) and the Boardindependent Lead Director and Committee Chair retainers, as set forth below. The RSUs vest one year from the date of grant, which is typically the date of our annual meeting of stockholders. We do not pay management directors for Board service in addition to their regular employee compensation.
2017 Non-Employee Director Annual Retainers and Fees
|
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2016 Non-Employee Director Annual
Retainers and Fees (a)
| | (a)In addition to the retainers set forth in the table, | | | | | | | | | Annual Retainers | Committee Chair Retainers | Cash Retainer |
| $120,000 |
| Audit Committee Chair Retainer |
| $20,000 |
| Equity Retainer |
| $160,000 |
| Compensation Committee Chair |
| $20,000 |
| Independent Lead Director Retainer |
| $75,000 |
| Environmental, Health, Safety & Security Committee Chair |
| $15,000 |
| Governance Committee Chair |
| $15,000 |
|
In addition to the retainers shown, we reimburse our directors for travel and lodging expenses that they incur in connection with their attendance at meetings of the Board, meetings of our Board committees and our annual meeting of stockholders. |
Cash Retainer |
| $120,000 |
| |
Equity Retainer |
| $160,000 |
| |
Independent Lead Director Retainer |
| $75,000 |
| |
Audit Committee Chair Retainer |
| $20,000 |
| |
Compensation Committee Chair Retainer |
| $20,000 |
| |
Environmental, Health, Safety & Security Committee Chair Retainer |
| $15,000 |
| |
Governance Committee Chair Retainer |
| $15,000 |
| |
Directors may elect to defer all or a portion of their cash compensationretainers under the Tesoro CorporationAndeavor Board of Directors Deferred Compensation Plan. Amounts deferred under such plan accrue interest at the prime rate published in the Wall Street Journal on the last business day of the quarter plus two percentage points.
20162017 Director Compensation Table
| | Name | Fees Earned or Paid in Cash ($)(a) | Stock Awards ($)(b) | Change in Pension Value and Nonqualified Deferred Compensation Earnings ($)(c) | All Other Compensation ($) | Total ($) | Fees Earned or Paid in Cash ($) | Stock Awards ($)(a) | Change in Pension Value and Nonqualified Deferred Compensation Earnings ($)(b) | All Other Compensation ($)(c) | Total ($) |
Rodney F. Chase | 124,946 | 160,053 | — | — | 284,999 | 120,000 | 160,050 | — |
| — |
| 280,050 |
Edward G. Galante (d) | 100,000 | 187,982 | — | — | 287,982 | |
Robert W. Goldman | 120,000 | 160,053 | 3,235 | 105,000 (f) | 388,288 | |
Paul L. Foster (d) | | 70,000 | 147,769 | — |
| — |
| 217,769 |
Edward G. Galante | | 120,000 | 160,050 | — |
| — |
| 280,050 |
Robert W. Goldman (e) | | 41,290 | — | 2,229 |
| 114,271 |
| 157,790 |
David Lilley | 140,000 | 160,053 | 4,326 | — | 304,379 | 140,000 | 160,050 | 4,754 |
| — |
| 304,804 |
Mary Pat McCarthy | 135,054 | 160,053 | 3,774 | — | 298,881 | 140,000 | 160,050 | 4,147 |
| — |
| 304,197 |
J.W. Nokes | 135,000 | 160,053 | — | — | 295,053 | 135,000 | 160,050 | — |
| — |
| 295,050 |
William H. Schumann, III (e) | 16,667 | 75,903 | — | — | 92,570 | |
William H. Schumann, III | | 120,000 | 160,050 | 525 |
| — |
| 280,575 |
Jeff A. Stevens (d) | | 70,000 | 147,769 | — |
| 97,664 |
| 315,433 |
Susan Tomasky | 210,000 | 160,053 | — | — | 370,053 | 210,000 | 160,050 | — |
| — |
| 370,050 |
Michael E. Wiley | 120,000 | 160,053 | — | 102,000 (f) | 382,053 | 120,000 | 160,050 | — |
| 161,782 |
| 441,832 |
Patrick Y. Yang | 120,000 | 160,053 | 16,553 | — | 296,606 | 120,000 | 160,050 | 17,157 |
| — |
| 297,207 |
| |
(a) | Of the fees earned, the following amounts were elected by the director to be deferred pursuant to the Deferred Compensation Plan into the deferred cash account: Mr. Schumann, $16,667, and Mr. Yang, $120,000. |
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(b) | The amounts in the tableAmounts reflect the aggregate grant date fair value of RSUs granted during the fiscal year, calculated in accordance with financial accounting standards. Each non-employee director, other than Mr. Schumann,Messrs. Foster and Stevens, received an annual grant of 2,0352,028 RSUs on May 3, 2016.4, 2017. Each of Messrs. GalanteFoster and SchumannStevens received a prorated annual grant of 1,775 RSUs upon his respective election to the Board (Mr. Galante, 334 RSUs; Mr. Schumann, 889 RSUs).effective June 1, 2017. The table below reflects the total options, phantom stock units and RSUs outstanding as of December 31, 20162017 for each non-employee director. |
Tesoro Corporation 2017 Proxy Statement 17
| | Director | Total Options Outstanding | Total Phantom Stock Units Outstanding | Total Restricted Stock Units Outstanding | Total Options Outstanding | Total Phantom Stock Units Outstanding | Total Restricted Stock Units Outstanding |
Rodney F. Chase | — | 958 | 2,035 | — |
| 980 |
| 2,028 |
|
Paul L. Foster | | — |
| — |
| 1,775 |
|
Edward G. Galante | — | 2,369 | — |
| — |
| 4,063 |
|
Robert W. Goldman | 9,000 | 1,717 | 6,567 | 3,000 |
| — |
| — |
|
David Lilley | — | 3,874 | 3,724 | — |
| 3,966 |
| 3,717 |
|
Mary Pat McCarthy | — | 9,024 | — |
| — |
| 11,052 |
|
J.W. Nokes | 9,000 | 761 | 6,181 | — |
| 779 |
| 6,174 |
|
William H. Schumann, III | — | 889 | — |
| — |
| 2,028 |
|
Jeff A. Stevens | | — |
| — |
| 1,775 |
|
Susan Tomasky | — | 4,695 | — |
| — |
| 6,723 |
|
Michael E. Wiley | 9,000 | 1,258 | 2,035 | — |
| 1,288 |
| 2,028 |
|
Patrick Y. Yang | — | 8,821 | — |
| — |
| 8,814 |
|
| |
(c)(b) | The amounts shown represent interest credited under the Deferred Compensation Plan exceeding 120% of the applicable federal rate. |
| |
(d) | Mr. Galante was elected to the Board on March 1, 2016. |
| |
(e) | Mr. Schumann was elected to the Board on November 11, 2016. |
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(f)(c) | Messrs. Goldman (prior to his retirement), Stevens and Wiley serve on the Board of Directors of Tesoro Logistics GP, LLC, (“TLGP”), the general partner of TesoroAndeavor Logistics LP. The amounts reflected representshown reflect the portionannual cash retainer and grant date fair value of the annual retainer earnedequity units each received in 2016 and2017, along with meeting fees paid in 20162017 for such service; such retainer is composed solely of cashservice. |
| |
(d) | Messrs. Foster and neither Stevens were elected to the Board effective June 1, 2017 and received prorated retainers for 2017. |
| |
(e) | Mr. Goldman nor Mr. Wiley received TLLP equity units as compensation for their service as directors of TLGP during 2016.retired from the Board effective May 4, 2017. |
Director Stock Ownership Guidelines
Our Director Stock Ownership Guidelines require each director to hold a number of shares of our common stock (either directly or as restricted stock units including deferred restricted stock units) equal to the number he or she receives in annual equity awards during the first five years of such director'sdirector’s service on the Board. The individual ownership requirements currently range from 8891,775 to 9,8638,260 shares. Directors who have not reached their individual ownership requirement are required to hold all restricted stock units that vest and distribute into common stock. All current directors either meet these guidelines or are on track to do so within the required time period.
Tesoro Corporation 2017 |
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| | 2018 Proxy Statement | 18 |
Proposal No. 1
Election of Directors
At the Annual Meeting, stockholders are requested to elect twelve directors to hold office until the 2019 Annual Meeting of Stockholders or until their successors are elected and qualified. Each of the nominees has indicated his or her willingness to serve as a director, if elected, and we have no reason to believe that any nominee will be unable to serve. The persons designated as proxies, however, reserve full discretion to cast votes for other persons in the event that any one or more of the nominees are unable to serve. Each of the director nominees, except for Messrs. Foster and Stevens, who joined the Board upon our acquisition of Western Refining, Inc. effective June 1, 2017, is currently serving as a director after being elected at the 2017 Annual Meeting of Stockholders.
Our Board of Directors recommends that you vote FOR the election to the Board of each of the following nominees.
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| Rodney F. ChaseAge 74 Director since 2006 Former Energy Industry Executive |
Mr. Chase served as Non-Executive Chairman of Genel Energy plc, an international oil and gas exploration and production company, from 2011 until 2015, and Non-Executive Chairman of Computer Sciences Corporation, an information technology and professional services company, from 2012 until 2015. He previously served as Non-Executive Chairman for Petrofac Ltd. in the United Kingdom, an international oil and gas services company, from 2005 until May 2011. He served as an Independent Director of Tesco plc in the United Kingdom, an international retailing company, and of Diageo plc, an international beverage company. Mr. Chase spent 39 years with BP plc, a large, international oil and gas company, including as CEO of BP Finance, and CEO of BP’s upstream and downstream businesses. He was appointed to the Board of BP as Deputy Group CEO and Chairman/CEO of BP America. From 2003 to 2008, Mr. Chase served as Senior Advisor for the U.S. and Europe for Lehman Brothers, formerly an investment bank, in London, England.
Key Qualifications, Attributes, Skills and Experience:
Board Leadership, Industry and Strategic Planning Experience – 50 years of experience in the energy industry, including service as the former Non-Executive Chairman of an international oil and gas services company (Petrofac) and a former executive of a large, international oil and gas company (BP)
Financial/Accounting Expertise – former Chief Executive Officer of BP Finance International and Group Treasurer and former senior advisor for Lehman Brothers
Talent Management and Public Company Board Experience – Computer Sciences Corporation, Tesco, Petrofac
Other Current Directorships: Hess Corporation (since 2013)
Former Public Company Directorships: Computer Sciences Corporation (from 2012 until 2015); Genel Energy, plc (from 2011 until 2015); Nalco Holding Co. (from 2005 until 2011); Petrofac Ltd. (from 2005 until 2011); Tesco plc (from 2002 until 2010); Diageo plc (from 1999 to 2004)
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Executive Compensation – Compensation Discussion and Analysis | Paul L. FosterAge 60 Director since 2017 Former Chairman of the Board of Western Refining, Inc. |
Mr. Foster was the founder of Western Refining, Inc. and served as Chairman of Western Refining’s Board of Directors from 2005 until its acquisition by Andeavor in 2017. Mr. Foster served as Western Refining’s Chief Executive Officer from September 2005 until January 2010, when he was appointed Executive Chairman. Mr. Foster served as President of Western Refining from September 2005 to February 2009. Previously, Mr. Foster was the President and Chief Executive Officer of one of Western Refining’s affiliates. Mr. Foster has served on the board of directors of the University of Texas System Board of Regents since 2007, served as Chairman from 2013 to 2017, and he is currently Vice Chairman of that board. He also serves on the board of directors of WestStar Bank, an El Paso-based bank; as Chairman of the board of directors of Vomaris Innovations, Inc., a privately held medical device company; on the board of directors of the Federal Reserve Bank of Dallas - El Paso Branch; and on various other civic and professional organizations.
Key Qualifications, Attributes, Skills and Experience:
Board Leadership, Strategic Planning Experience – WestStar Bank; Vomaris Innovations, Inc.; Federal Reserve Bank of Dallas; University of Texas System Board of Regents
Industry and Operations, Risk Management, Leadership, Strategic Planning and Talent Management Experience – former Chief Executive Officer of Western Refining
Other Current Directorships: WestStar Bank (since 2004); Vomaris Innovations, Inc. (since 2011)
Former Public Company Directorships: Western Refining, Inc. (from 2005 until 2017); Western Refining Logistics GP, LLC, the general partner of Western Refining Logistics, LP (from 2013 until 2017); Northern Tier Energy GP LLC, the general partner of Northern Tier Energy LP (from 2013 until 2016)
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| Edward G. GalanteAge 67 Director since 2016 Former Senior Vice President and Member of the Management Committee of ExxonMobil Corporation |
Mr. Galante served as Senior Vice President and a member of the Management Committee of ExxonMobil Corporation from 2001 until his retirement in 2006. Prior to that, he held various management positions of increasing responsibility during his more than 30 years with ExxonMobil Corporation, including serving as Executive Vice President of ExxonMobil Chemical Company from 1999 to 2001. Mr. Galante serves on the Board of the United Way Foundation of Metropolitan Dallas and is a Vice Chairman of the Board of Trustees of Northeastern University.
Key Qualifications, Attributes, Skills and Experience:
Industry, Operations, Management, Leadership, Strategic Planning and Talent Management Experience – over 30 years of experience in the oil, gas, refining and chemical sectors of the energy industry, including service as a senior operating executive of ExxonMobil, one of the largest global energy companies; service as Chair of the Compensation and Management Committee of Praxair, Inc.
Risk Management Experience – service on the Environmental, Health, Safety and Public Policy Committee of Celanese Corporation and the Technology, Safety, Sustainability Committee and the Governance and Nominating Committee of Praxair, Inc.
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Financial/Accounting Expertise – service on the Audit Committees of Celanese Corporation and Foster Wheeler AG
Other Current Directorships: Celanese Corporation (since 2013); Clean Harbors, Inc. (since 2010); Praxair, Inc. (since 2007)
Former Public Company Directorships: Foster Wheeler AG (from 2008 until 2014) |
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| Gregory J. GoffAge 61 Director since 2010 Chairman of the Board since December 31, 2014 Our Chairman, President and Chief Executive Officer |
Mr. Goff has served as our President and Chief Executive Officer since May 2010 and as our Chairman since December 31, 2014. Since December 2011, Mr. Goff has also served as Chairman of the Board of Directors and Chief Executive Officer of Tesoro Logistics GP, LLC, the general partner of Andeavor Logistics LP. Prior to joining us, Mr. Goff served as Senior Vice President, Commercial for ConocoPhillips Corporation, an international, integrated energy company, from 2008 to 2010. Mr. Goff also held various other positions at ConocoPhillips from 1981 to 2008, including Managing Director and CEO of Conoco JET Nordic from 1998 to 2000; Chairman and Managing Director of Conoco Limited, a UK-based refining and marketing affiliate, from 2000 to 2002; President of ConocoPhillips Europe and Asia Pacific downstream operations from 2002 to 2004; President of ConocoPhillips U.S. Lower 48 and Latin America exploration and production business from 2004 to 2006; and President of ConocoPhillips specialty businesses and business development from 2006 to 2008. Mr. Goff serves as Chairman of the Board of the American Fuel and Petrochemical Manufacturers trade association and on the National Advisory Board of the University of Utah Business School. Previously, Mr. Goff served on the board of Chevron Phillips Chemical Company and was a member of the upstream and downstream committees of the American Petroleum Institute. In addition, Mr. Goff has public company experience from his prior service on the board of directors of DCP Midstream GP, LLC.
Key Qualifications, Attributes, Skills and Experience:
President and CEO/Company Knowledge – as our Chairman, President and CEO, Mr. Goff brings to the Board a deep understanding of and unique perspective on our business and operations and the environment in which we operate
Senior Leadership, Industry and Strategic Planning Experience – current CEO of a large independent refining and petroleum products marketing company (Andeavor); current Chairman of a national trade association representing refiners and petrochemical manufacturers (American Fuel and Petrochemical Manufacturers); former senior executive of an international energy company (ConocoPhillips); former member of the upstream and downstream committees of a national oil and natural gas industry trade association (American Petroleum Institute)
Operations Experience – 29 years of service in various positions with ConocoPhillips
Other Current Directorships: Polyone Corporation (since 2011); Tesoro Logistics GP, LLC, the general partner of Andeavor Logistics LP (a master limited partnership of which Andeavor and its subsidiaries own approximately 59%; since 2010)
Former Public Company Directorships: DCP Midstream GP, LLC (from 2008 until 2010); QEP Midstream Partners, LP (from 2014 until 2015)
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| David LilleyAge 71 Director since 2011 Former Chairman, President and Chief Executive Officer of Cytec Industries Inc. |
Mr. Lilley is a retired Chairman, President and Chief Executive Officer of Cytec Industries Inc., a multi-billion dollar manufacturer of specialty chemicals and materials. He served as its Chairman from January 1999 through 2008 and as its President and Chief Executive Officer from May 1998 through 2008, having previously served as its President and Chief Operating Officer from January 1997. From 1994 until January 1997, he was a vice president of American Home Products Corporation. Prior to that he was a vice president and a member of the Executive Committee of American Cyanamid Company.
Key Qualifications, Attributes, Skills and Experience:
Chemicals Industry, Management and Leadership Experience, Global Business Perspective, Operations Knowledge and Strategy Experience – over 29 years of experience in the chemicals industry, including service as past Chairman and CEO of Cytec Industries
Risk Management Experience – Mr. Lilley’s leadership experience in a chemicals and manufacturing company and as a member of the Responsible Care Committee of the American Chemistry Council is also important in light of the Board’s oversight of our operations and adherence to safety and environmental requirements
Other Current Directorships: Rockwell Collins, Inc. (since 2008); Public Service Enterprise Group Incorporated (since 2009)
Former Public Company Directorships: Arch Chemicals, Inc. (from 2007 until 2011); Cytec Industries Inc. (from 1997 until 2009) |
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| Mary Pat McCarthyAge 62 Director since 2012 Former Vice Chairman of KPMG LLP |
Mary Pat McCarthy retired from her position as Vice Chair of KPMG LLP, the U.S. member firm of the global audit, tax and advisory services firm, in 2011 after attaining such position in 1998. She joined KPMG LLP in 1977 and became a partner in 1987. She held numerous senior leadership positions in the firm, including Executive Director of the KPMG Audit Committee Institute from 2008 to 2011, Leader of the KPMG Client Care Program from 2007 to 2008, U.S. Leader, Industries and Markets from 2005 to 2006, and Global Leader, Information, Communication and Entertainment Practice from 1998 to 2004. Ms. McCarthy also served on the firm’s Management and Operations Committees. Ms. McCarthy is a member of the Risk Advisory Committee of the National Association of Corporate Directors and also serves as a director of Palo Alto Networks, Inc.
Key Qualifications, Attributes, Skills and Experience:
Financial/Accounting Experience – over 34 years of experience with KPMG, including service as the audit and executive partner to national and international clients
Leadership and Talent Management Experience – service as Vice Chairman and in other leadership positions at KPMG; she also co-chaired the National Association of Corporate Directors’ Blue Ribbon Commission on Talent Development – A Boardroom Imperative
Strategy, Business Transformation, Audit Committee Effectiveness and Corporate Governance Experience – author of multiple books on risk, strategy and business transformation and a frequent
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speaker on audit committee effectiveness and corporate governance at conferences, seminars and forums
Other Current Directorships: Palo Alto Networks, Inc. (since 2016)
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| J. W. NokesAge 71 Director since 2007 Former Executive Vice President of Worldwide Refining, Marketing, Supply and Transportation of ConocoPhillips |
Mr. Nokes spent his 36-year career with ConocoPhillips, an international, integrated energy company, and retired in 2006 as Executive Vice President of Worldwide Refining, Marketing, Supply and Transportation. His background primarily includes refining, marketing, crude and products trading, commercial natural gas operations and transportation. He also had assignments in exploration and production, as well as strategic planning. In 1991, he was appointed Vice President of U.S. Marketing and Product Trading. From 1994 to 1999, he was Vice President of U.S. Downstream Business. For eight years beginning in 1999, he was Executive Vice President of Refining, Marketing, Supply and Transportation for the company’s global business. Mr. Nokes was a member of the World Business Council for Sustainable Development and sat on the Board of Directors of the American Petroleum Institute, as well as the American Petroleum Institute Transportation, Marketing and Downstream Committees. Mr. Nokes is also a director of Post Oak Bank, N.A., a Houston-based community bank, and is Lead Director of Albemarle Corporation.
Key Qualifications, Attributes, Skills and Experience:
Industry, Operations and Strategic Planning Experience – 37 years of experience in the energy industry, including service as a former executive of an international, integrated energy company (ConocoPhillips), former director of a national oil and natural gas industry trade association (American Petroleum Institute) and a former member of a global association of business leaders that promotes sustainable development (World Business Council for Sustainable Development)
Other Current Directorships: Albemarle Corporation (Lead Director) (since 2009); Post Oak Bank, N.A. (since 2004) |
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| William H. Schumann IIIAge 67 Director since 2016 Former Executive Vice President and Chief Financial Officer of FMC Technologies |
Mr. Schumann served as Executive Vice President of FMC Technologies, a global provider of technology solutions for the energy industry, from 2007 until his retirement in 2012. From 2001 until 2011, he served as Chief Financial Officer of FMC Technologies. During his 30-year career at FMC and its predecessor, FMC Corporation, he served in a variety of roles, including Vice President, Corporate Development; Vice President and General Manager, Agricultural Products Group; Regional Director, North America Operations; Director of Investor Relations; and Treasurer. He served on the board of Great Lakes Advisors, a registered investment advisor, from 1992 to 2011. Mr. Schumann currently serves on the board of the Lake Forest Lake Bluff Historical Society.
Key Qualifications, Attributes, Skills and Experience:
Board Leadership, Strategic Planning Experience – Avnet, Inc. (Chairman); McDermott International; AMCOL International; URS Corporation; UAP Holding Corp
Financial/Accounting Expertise, Risk Management, Leadership, Strategic Planning and Talent Management Experience – former Chief Financial Officer of FMC Technologies
Industry and Operations Experience – over 30 years of experience providing technology solutions to energy sector clients at FMC Technologies
Other Current Directorships: Avnet, Inc. (since 2010); McDermott International (since 2012)
Former Public Company Directorships: AMCOL International (from 2012 until 2014); URS Corporation (2014); UAP Holding Corp (from 2005 until 2008)
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| Jeff A. StevensAge 54 Director since 2017 Former Chief Executive Officer of Western Refining, Inc. |
Mr. Stevens served in various capacities at Western Refining, Inc. until its acquisition by Andeavor in 2017, including as a Director since 2005, as President since 2009 and as Chief Executive Officer since 2010. His prior roles at Western Refining include service as Chief Operating Officer from 2008 to 2010, as Executive Vice President from 2005 to 2008, and as Executive Vice President of a Western Refining affiliate from 2000 to 2005. Mr. Stevens also served as the President and Chief Executive Officer of Western Refining Logistics GP, LLC, the general partner of Western Refining Logistics, LP. Mr. Stevens also served on the Board of Directors of Northern Tier Energy GP LLC, the general partner of Northern Tier Energy LP from 2013 to 2017. Mr. Stevens also serves on the board of directors of Vomaris Innovations, Inc., a privately held medical device company. Mr. Stevens has spent his entire career in the refined product production and marketing industry.
Specific Qualifications, Attributes, Skills and Experience:
Board Leadership, Strategic Planning Experience – Western Refining; Northern Tier Energy GP LLC; Vomaris Innovations, Inc.
Senior Leadership, Industry and Operations, Risk Management, Strategic Planning and Talent Management Experience – former Chief Executive Officer of Western Refining; former Chief Executive Officer of Western Refining Logistics GP, LLC, the general partner of Western Refining Logistics, LP
Other Current Directorships: Vomaris Innovations, Inc. (since 2011); Tesoro Logistics GP, LLC, the general partner of Andeavor Logistics LP (a master limited partnership of which Andeavor and its subsidiaries own approximately 59%; since 2017)
Former Public Company Directorships: Western Refining, Inc. (from 2005 until 2017); Western Refining Logistics GP, LLC, the general partner of Western Refining Logistics, LP (from 2013 until 2017); Northern Tier Energy GP LLC, the general partner of Northern Tier Energy LP (from 2013 until 2017)
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| Susan TomaskyAge 64 Director since2011 Lead Director since December 31, 2014 Former President of AEP Transmission, a business division of American Electric Power Co. |
Ms. Tomasky served as President of AEP Transmission, a business division of American Electric Power Co., Inc., an owner and operator of utility operating companies that produce, transmit and distribute electricity to over 5 million customers at retail in 11 states, from 2008 until July 2011. Ms. Tomasky
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previously served in other executive officer positions at American Electric Power Co., including Executive Vice President and General Counsel from 1998 to 2001, Executive Vice President of Finance and Chief Financial Officer from 2001 to 2006 and Executive Vice President of Shared Services from 2006 to 2008. Prior to joining American Electric Power Co., Ms. Tomasky served as a partner at the law firm of Hogan & Hartson (now Hogan Lovells), where she was a member of the firm’s energy group, and as General Counsel of the Federal Energy Regulatory Commission. Ms. Tomasky is a director of several private and non-profit organizations. She previously served as a director of the Federal Reserve Bank of Cleveland, a member bank in the Federal Reserve System.
Key Qualifications, Attributes, Skills and Experience:
Leadership and Strategic Planning Experience – former President of a division of a large, public utility company (American Electric Power Co.)
Financial and Accounting Experience – Chair of the Audit Committee of Public Services Enterprise Group; member of the Audit Committee of Summit Midstream Partners, LP; Chair of the Audit Committee of the Federal Reserve Bank of Cleveland; former Executive Vice President and Chief Financial Officer of a large public energy company (American Electric Power Co.)
Government and Regulatory Experience and Legal Experience – former roles as a partner in the energy group of an international law firm (Hogan & Hartson) and as General Counsel of a federal government agency that regulates the energy industry (Federal Energy Regulatory Commission)
Other Current Directorships: Public Service Enterprise Group Incorporated (since 2012); Summit Midstream Partners GP, LLC (the general partner of Summit Midstream Partners, LP; since 2012) |
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| Michael E. Wiley Age 67 Director since 2005 Former Chairman of the Board, President and Chief Executive Officer of Baker Hughes Incorporated |
Mr. Wiley has over 40 years of experience in the energy industry. Most recently he served as Chairman of the Board, President and Chief Executive Officer of Baker Hughes Incorporated, an oilfield services company, from August 2000 until his retirement in October 2004. He was President and Chief Operating Officer of Atlantic Richfield Company, an integrated energy company, from 1998 through May 2000. Prior to 1998, he served as Chairman, President and Chief Executive Officer of Vastar Resources, Inc., an independent oil and gas company. Mr. Wiley is a director of Bill Barrett Corporation, an independent oil and gas company, and Post Oak Bank, N.A., a Houston-based community bank. He also serves as Chairman of Independent Trustees of Fidelity Sector Portfolios.
Key Qualifications, Attributes, Skills and Experience:
Board Leadership, Industry, Operations, Strategic Planning, Risk Management and Talent Management Experience – former Chairman, President and Chief Executive Officer of an oilfield services company (Baker Hughes Incorporated); former executive of an integrated energy company (Atlantic Richfield Company) and an independent exploration and production company (Vastar Resources, Inc.); former director of a privately held oil and gas company (Asia Pacific Exploration Consolidated)
Other Current Directorships: Bill Barrett Corporation (since 2005); Post Oak Bank, N.A. (since 2004); Tesoro Logistics GP, LLC, the general partner of Andeavor Logistics LP (a master limited partnership of which Andeavor and its subsidiaries own approximately 59%; since 2015)
Former Public Company Directorships: Baker Hughes Incorporated (from 2000 until 2004); Spinnaker Exploration Company (from 2001 until 2005)
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| Patrick Y. YangAge 70 Director since 2010 Executive Vice President and Senior Adviser to the CEO for Juno Therapeutics, Inc. |
Mr. Yang has nearly 40 years of experience in manufacturing and technology. He has served as Executive Vice President and Senior Adviser to the CEO for Juno Therapeutics, Inc., a biotechnology company, since November 2017. Prior to that, he served as a scientific and business consultant for the biopharmaceutical industry since 2013. From 2010 until 2013, Mr. Yang served as Executive Vice President and Head of Global Technical Operations for F. Hoffmann-La Roche Ltd., which operates in the pharmaceutical industry and sells products in more than 150 countries. Mr. Yang joined Roche in 2009, upon Roche’s acquisition of Genentech, Inc., and was responsible for the company’s pharmaceutical manufacturing, process development, engineering, quality, regulatory, supply chain and procurement functions. Before joining Roche, Mr. Yang served as Executive Vice President, Product Operations of Genentech, a biotechnology company, from 2005 to 2009 and in various other executive-level positions with Genentech from 2003 to 2005. Prior to joining Genentech, Mr. Yang worked for Merck & Co. from 1992 to 2003 as Vice President in manufacturing and for General Electric from 1980 to 1992 in manufacturing and technology.
Key Qualifications, Attributes, Skills and Experience:
Leadership, Operations, Strategic Planning, International and Talent Management Experience – former senior operations executive of a large, global pharmaceutical company (F. Hoffmann-La Roche) and a former senior operations executive of a biotechnology company (Genentech)
Operations Experience – over 20 years spent working in manufacturing (Merck and General Electric)
Financial/Accounting and Risk Management Experience – service on Genentech’s executive committee from 2004 until 2009
Other Current Directorships: Codexis, Inc. (since 2014); Amyris, Inc. (since 2014); and PharmaEssentia Corporation (since 2014)
Former Public Company Directorships: Celladon Corporation (from 2014 until 2015)
Our Board of Directors recommends that you vote FOR the election to the Board of each of the foregoing nominees.
Our Bylaws prescribe the voting standard for director elections as a majority of the votes cast in an uncontested election, such as this one, where the number of nominees does not exceed the number of directors to be elected. Under this standard, a nominee must receive more “FOR” votes than “AGAINST” votes to be elected as a director. Under our Corporate Governance Guidelines, each nominee who already serves as a director submits an advance, contingent, irrevocable resignation that the Board may accept if stockholders do not re-elect the director. In that event, the Governance Committee would promptly consider the resignation offer and make a recommendation to the Board. The Board would act on the Governance Committee’s recommendation and publicly disclose its decision regarding whether to accept the director’s resignation offer, or, if applicable, the reason(s) for rejecting the resignation offer, within 90 days from the date of the stockholder vote.
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Executive Compensation – Compensation Discussion and Analysis
This Compensation Discussion and Analysis (“CD&A”) discusses the principles underlying our executive compensation programs and the key executive compensation decisions that were made for 2016.2017. It also explains the most important factors relevant to those decisions. This CD&A provides additional context and background for the compensation earned by and awarded to our named executive officers (“NEOs”), as reflected in the compensation tables that follow the CD&A. Our NEOs for 2016 include the following individuals:2017 include:
Gregory J. Goff, Chairman, President and Chief Executive Officer;Officer
Steven M. Sterin, Executive Vice President and Chief Financial Officer;Officer
Keith M. Casey, Executive Vice President, Operations;Commercial and Value Chain
Kim K.W. Rucker, Executive Vice President, General Counsel and Secretary; andSecretary
Cynthia J. Warner, Executive Vice President, Strategy and Business Development.Operations
20162017 Advisory Vote on Executive Compensation
At our 20162017 Annual Meeting of Stockholders, our stockholders provided an advisory vote to approve the compensation program for our NEOs disclosed in our 20162017 proxy statement the (“Say-on-Pay Proposal”).statement. Stockholders expressed substantial support for the compensation program for our NEOs, with approximately 95%96% of the votes cast voting in favor of the proposal. Our Compensation Committee, Board of Directors and executive management team took into consideration this high level of support for our executive compensation programs and determined to continue our existing compensation strategy.
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In 2016, our Say-on-Pay Proposal garnered 95% stockholder support |
In 2017, our Say-on-Pay Proposal garnered 96% stockholder support.Executive Summary
Our Compensation Committee believes in pay-for-performancepaying for performance and approves programs that are aligned with corporate and stockholder goals. To attract and retain top talent, total target direct compensation is determined based upon each executive’s experiences, market factors (including the median of the competitive market) and internal comparisons. Payments under our annual incentive and long-term incentive programs are performance-based and dependent on the achievement of annual and long-term goals approved by the Committee or absolute or relative appreciation in the price of our common stock.
Andeavor’s 2017 Performance
For Andeavor, 2017 marked a year with strong financial and operating performance and many significant achievements, as shown below. Our compensation outcomes and decisions reflect this performance.
2017 Financial Highlights
Full year earnings of $1.5 billion, or $10.81 per diluted share, and consolidated net earnings from continuing operations of $1.7 billion
Achieved investment grade credit ratings at both Andeavor and Andeavor Logistics LP
Returned over $1 billion to stockholders in dividends and share repurchases
Paid dividends per share of $2.28, a 9% increase over 2016
Delivered approximately $505 million of annual improvements to operating income
Grew full year Logistics segment operating income 37% over 2016
2017 Business Highlights
Achieved lowest OSHA recordable rate in Andeavor’s history
Completed the acquisitions of Western Refining, Inc. and Western Refining Logistics, LP
Expanded Marketing footprint by successfully entering into Mexico
Increased total retail and branded stations 31% year-over-year to 3,255 stations
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| Tesoro's 2016 Performance![andvlogoprimarycolorrgba21.jpg](https://files.docoh.com/DEF 14A/0000050104-18-000066/andvlogoprimarycolorrgba21.jpg) We achieved strong financial and operating performance in 2016, despite a challenging market environment characterized by lower refining margins and weaker crude oil differentials. Our compensation outcomes and decisions reflect this performance.
2016 Financial Results
• Earnings per share from continuing operations of $6.04
• Dividends per share of $2.10, an increase of 14% over 2015 dividends
• TLLP's operating income grew 24% from 2015 to $487 million
• Cash distributions received from TLLP increased by 66% from 2015 amounts to $245 million
• Returned $499 million to stockholders in 2016 through stock repurchases and dividends
• Our year-end cash balance was $3.3 billion
2016 Business Results (Highlights)
• Top Tier personal safety and process safety performance
• Achieved 93% refining utilization
• Continued to drive business improvements across the company, including capital and non-capital improvement initiatives, margin improvement initiatives, synergies related to asset acquisitions and similar projects and initiatives
• Announced our planned acquisition of Western Refining, Inc. on November 17, 2016
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Tesoro Corporation 2017 Proxy Statement 19
Executed on Permian strategy through high-return organic growth investments
Key Compensation Decisions
In light of our business results described above and other considerations, the Compensation Committee’s key decisions in 20162017 and early 20172018 included:
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Pay Element | 2016 Actions |
Base Salaries | Approved base salary increases ranging from 4.0% to 5.4% in February 2016 for each of our named executive officers, excluding Mr. Goff, as a result of the Compensation Committee’s review of competitive market data and individual performance. Mr. Goff did not receive an increase to his base salary in 2016. |
Annual Incentives | Paid 2016 annual incentive program awards in March 2017 to all of our NEOs. Our operating performance and the Compensation Committee’s decisions resulted in payouts for our NEOs between 122% and 132% of target (excluding individual performance adjustments). |
Long-Term Incentive Awards | Granted awards in early 2016, which included the following types of awards, each with a three-year performance period:
• performance shares based on relative total shareholder return;
• market stock unit (“MSU”) awards that will become eligible for vesting based on our stock price performance over the performance period; and
• for those NEOs serving as directors, executive officers or in another leadership capacity for TLGP (Messrs. Goff, Sterin and Casey and Ms. Rucker), awards also included performance-based phantom unit awards under the TesoroBase Salaries
The Compensation Committee approved base salary increases ranging from 0% to 5% in February 2017 for each of our NEOs, as a result of the Compensation Committee’s review of competitive market data and individual performance. Annual Incentives We paid 2017 annual incentive program awards in March 2018 to each of our NEOs. Our operating performance and the Compensation Committee’s decisions resulted in payouts for our NEOs at 101% of target (excluding individual performance adjustments). Long-Term Incentive Awards We granted long-term incentive awards in early 2017, which included the following types of awards, each with a three-year performance period: Performance shares based on relative total shareholder return; Market stock unit (“MSU”) awards that will become eligible for vesting based on our stock price performance over the performance period; and For those NEOs serving as directors, executive officers or in another leadership capacity for Andeavor Logistics (Messrs. Goff and Sterin and Mmes. Rucker and Warner), performance-based phantom unit awards under the Andeavor Logistics LP 2011 Long Term Incentive Plan. Ms. Rucker's TLGP award was granted upon her commencement of employment on March 14, 2016. |
The Compensation Committee believes thethese actions described above clearly demonstrate our commitment to implementing and executing results-oriented compensation programs that are market-competitive and reflect good corporate governance practices.
Summary of Sound Executive Compensation Practices
In conjunction with our strategic priorities and compensation philosophy, our executive compensation programs effectively align the interests of our NEOs with our stockholders.
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What We Do | What We Don’t Do
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ü | Align Executive Pay with Company Performance We reward our executives for delivering value to stockholders while reducing or eliminating overall compensation levels if we do not achieve our goals or consistently underperform our peers. | û | Guarantee Payouts on Performance-Based Awards We do not provide performance-based cash or equity awards for unmet performance goals and have no minimum guaranteed payout. |
ü | Use Rigorous Performance Goals We use objective performance-based goals in our annual incentive plan that are rigorous and designed to motivate executive performance. As an example, one of the key metrics under our annual incentive compensation program is EBITDA performance on a margin neutral basis. This excludes the impact on our refining margins of fluctuations in commodity prices, over which management has little influence and avoids over-rewarding executives in periods when margins are high relative to those assumed in our annual business plan.
| û | Provide Employment Agreements We do not have individual employment contracts with our executive officers. |
| û | Pay Dividend Equivalents on Unvested Long-Term Incentives We do not pay dividend equivalents on unvested or unearned performance share awards. |
| û | Pay Tax Gross Ups We do not provide tax reimbursements to our executive officers. |
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What We Do | What We Don’t Do
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ü | Grant Performance-Based Long-Term Incentives Executives are granted equity incentives tied to stock price performance measured on both an absolute and relative basis. | û | Pay Tax Gross UpsProvide Executive Perquisites
We doOur executive officers are generally not provide tax reimbursementsentitled to our executive officers.any special perquisites, with the exception of relocation benefits.
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ü | Cap Incentive Awards Awards under both our annual and long-term incentive plans are capped at 200% of target. | û | Provide Executive Perquisites
Our executive officers are generally not entitled to any special perquisites, with the exception of relocation benefits.
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Tesoro Corporation 2017 Proxy Statement 20
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What We Do
| What We Don’t Do
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ü | Double Trigger Equity Acceleration Upon Change in Control Beginning with 2016 grants, equity awards only vest upon certain termination events following a change in control. | û | Allow Pledging or Hedging of Company Stock
We prohibit our directors, officers and employees from pledging or hedging company securities.
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ü | Maintain Stock Ownership Guidelines Our executive stock ownership guidelines ensure our senior executives maintain a substantial stake in our long-term success, strengthening the alignment between the interests of our executives and our stockholders. | | |
ü | Analyze Executive Compensation Risk Our Compensation Committee, together with management and our independent consultant, annually review our compensation programs to see that they do not encourage imprudent risk. | | |
ü | Retain an Independent Compensation Consultant Our Compensation Committee has engaged Frederic W. Cook & Co., which it has determined is independent, to review our compensation practices, compare our executive compensation to that of our peers and advise us of good practices regarding compensation matters. | | |
ü | Impose a Clawback Policy Our compensation recoupment or “clawback” policy provides that in the event of a material restatement of financial results due to misconduct, our Board will seek to recoup such compensation to any SVP or above whose misconduct caused or significantly contributed to the material restatement. | | |
How We Determine Executive Compensation
Compensation Philosophy
Our compensation philosophy is to offer competitive compensation and benefit programs that will attract and retain the talented executives and employees who are critical to executing our strategic priorities and who exemplify our core values.
Our executive compensation programs are comprised of a mix of fixed and variable cash and equity-based pay with a significant portion of actual total compensation dependent on meeting financial and operational objectives, as well as the performance of our stock.
Our executive compensation programs are designed to:
Reward leaders for delivery of outstanding business results and driving a performance-oriented culture;
Promote and sustain exceptional performance over time to generate long-term growth in stockholder value; and
Promote our guiding principles, which are core values, exceptional people, shared purpose, powerful collaboration and superior execution.
Our approach allows us to reward our executives for delivering value to stockholders while reducing or eliminating overall compensation levels if we do not achieve our goals or consistently underperform our peers.
Our Compensation Committee and Compensation Decision-Making Process
All compensation actions for our CEO and other NEOs are approved by our Compensation Committee. The CEO, members of management from Human Resources, and either the General Counsel or one of our Assistant Secretaries attend regular Committee meetings and provide information, analysis, additional perspective, and proposals for changes, as requested.
The Committee meets, together with the Committee’s compensation consultant, outside the presence of the NEOs and all other executive officers to consider appropriate compensation for our CEO, taking into consideration an annual review of the CEO’s performance by the independent members of the Board. The Board and our CEO mutually agree upon a list of individual goals during the first quarter of each year, and the CEO formally reviews his performance against the goals with the Board during and following the year close. The independent Board members, led by Ms. Tomasky as independent Lead
Tesoro Corporation 2017 Proxy Statement 21
Director, evaluate the CEO’s performance. The Committee uses this performance evaluation, market data and input from its compensation consultant to make key decisions regarding the CEO’s base salary, annual cash incentive award payout and long-term equity incentive awards.
Overall target compensation and grants of long-term equity incentive awards for other members of senior management, including the other NEOs, are generally based on market data as described below under “Comparative Analysis,” and internal equity considerations. Each year, the CEO completes an evaluation of each NEO’s performance, taking into consideration factors such as leadership in accordance with our guiding principles, financial and operational results, individual contributions in obtaining those results and achievement of individual goals. Our CEO then makes recommendations to the Committee regarding compensation for members of senior management, including the other NEOs. The Committee considers the CEO’s recommendations, our financial and operational results for the prior fiscal year, and the comparative analysis described below under “Comparative Analysis”, when making decisions on base salaries, annual cash incentive targets, any discretionary adjustments under our annual cash incentive program, and long-term equity incentives.
Compensation Consultants
Role of the Compensation Consultant
The Compensation Committee engaged Frederic W. Cook & Co. (“FW Cook”) as its independent compensation consultant for 2016.2017. FW Cook reviews our compensation practices and advises the Compensation Committee on regulatory developments and market trends related to executive compensation practices. In particular, FW Cook provided research, data analyses, survey information and design expertise in developing our compensation programs. This advice assisted the Compensation Committee in creating incentives for short-term and long-term performance and mitigating risk to the Company. FW Cook also assisted in the preparation of our peer group analysis, as discussed in further detail below under “Comparative Analysis.” The Compensation Committee gives serious consideration to FW Cook’s counsel as part of its decision-making process, but FW Cook does not determine the exact form or amount of executive compensation for any of our executive officers.
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Selection and Independence
The Compensation Committee ensures that its compensation consultant meets the independence standards of the New York Stock Exchange. During 2016,2017, FW Cook provided no services to us other than its executive compensation advice to the Compensation Committee.
In February of 20162018 and 2017, the Compensation Committee considered:
FW Cook'sCook’s provision of other services to us;
the amount FW Cook billed us, as a percentage of FW Cook'sCook’s total revenue;
FW Cook'sCook’s policies and procedures that are designed to prevent conflicts of interest;
any business or personal relationship of the FW Cook consultants with members of the Compensation Committee ;Committee;
any of our stock owned by the FW Cook consultants; and
any business or personal relationship of the FW Cook consultants with any of our executive officers.
After considering the foregoing factors, the Compensation Committee determined that FW Cook is independent and that FW Cook'sCook’s work with the Compensation Committee during 20162017 has not raised any conflicts of interest.
Comparative Analysis
For determining pay decisions during 2016,2017, we used an enhanceda compensation peer group developed in coordination with FW Cook. The new peer group reflects our recent growthsize and complexity of our business. Elements of the prior peer group's selection criteria resulted in a peer group that was heavily-weighted with utilities companies.
The compensation peer group was developed based upon the guiding principles that the compensation peer group should include a sufficient number of companies to minimize year-over-year volatility in compensation data; selection criteria should be objective where possible and include similar scale, industry, and business characteristics that reflect our current circumstances as well as our business direction; and companies should be US-basedU.S.-based to facilitate compensation comparisons.
Tesoro Corporation 2017 Proxy Statement 22
Based on the principles outlined above, the following selection criteria were used to develop the compensation peer group:
Asset/Capital intensive nature;
Primarily manufacturers in industries such as oil and gas, chemicals, forest products and utilities in which commodity prices heavily influence profitability;
Environmentally and safety focused;
Highly regulated business or core operations that are likely to be significantly impacted by proposed regulations;
Operate a number of fixed manufacturing sites or plants; and
Companies should generally be no less than one-third and no greater than three times our size as measured by revenue, total assets, and market capitalization.
The members of our compensation peer group, which was used by FW Cook during the annual assessment of total compensation for senior executives presented to the Compensation Committee in October 2015,November 2016, are included in the tablelisted below. For purposes of measuring performance to determine payouts associated with the performance shares granted during fiscal 2016,2017, we used a separate performance peer group, as discussed in more detail below under “Long-Term Incentives.”
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Alcoa Inc. | Honeywell International Inc. | Plains All American Pipeline, L.P.LP |
Celanese Corporation | International Paper Company | PPG Industries Inc. |
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The Dow Chemical Company | Kimberly-Clark Corporation | The Goodyear Tire & Rubber Company |
DuPontE. I. du Pont de Nemours and Company | LyondellBasell Industries NV | United States Steel Corp.Corporation |
Eastman Chemical Co. | Marathon Petroleum Corporation | Valero Energy Corporation |
Eaton Corporation plc | The Mosaic Company | Western Refining, Inc. |
Hess Corporation | Nucor Corporation | Williams Companies, Inc. |
HollyFrontier Corporation | Phillips 66 | |
Comparative information for the compensation peer group is as follows:
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| Revenue (Calendar Year 2014)2015) | Total Assets (as of 12/31/14)15) | Market Capitalization (as of 7/31/15)19/16) |
Peer Group Median | $21.118.6 billion | $24.322.8 billion | $20.118.5 billion |
Peer Group Range | $6.8 billion to $164.1 billion | $5.7 billion to $68.8$87.8 billion | $2.95.8 billion to $82.4$68.0 billion | $1.9 billion to $91.8 billion |
TesoroAndeavor | $40.628.7 billion | $16.616.3 billion | $12.19.2 billion |
In addition to data from the compensation peer group, FW Cook also provided data to the Compensation Committee from the following resources to confirm and enhance the compensation peer group market study:
Supplemental general industry benchmarking data for key functional positions (such as Chief Financial Officer and General Counsel) since, as the skills associated with these positions can more easily be applied to companies outside our compensation peer group; and
Industry specific data from the Towers Watson Oil Industry Group (OIG) survey.
Tesoro Corporation 2017 Proxy Statement 23
Elements of Executive Compensation / Pay for Performance
This section highlights how and why we believe the Company’s compensation programs are designed to create a pay for performance culture. Our executive compensation programs are comprised of a mix of fixed and variable, cash and equity-based pay with a significant portion of actual total compensation dependent on meeting financial, operational, environmental and safety objectives. Our executive officers receive their maximum reward opportunity only if the Company performs exceptionally well, and our stockholders benefit from that performance.
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Compensation Element | Objective | Key Features | Performance-Based / At Risk? |
Base Salary | ReflectsCompensates for executive responsibilities, job characteristics, seniority, experience and skill set; designed to be competitive with those of comparable companies with which we compete for talent | Reviewed annually and subject to adjustment based on market factors, individual performance, experience and leadership | û |
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| | 2018 Proxy Statement | 32 |
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Compensation Element | Objective | Key Features | Performance-Based / At Risk? |
Annual Cash Incentive | Rewards executives’ contributions to the achievement of predetermined corporate, business unit and individual goals | Compensation Committee establishes performance measures to best align performance relative to meeting financial, operational, environmental and safety goals ultimately driving stockholder value | ü Pays out only based on achievement of established measurable goals; does not pay out if established threshold goals are not achieved |
Long-Term Equity Awards: Performance Shares (Long-Term
Equity Awards) | Correlates executives’ pay with increases in shareholder value measured over a three-year period | Following periods of low relative shareholder return, executives realize little or no value. Following periods of high relative shareholder return, executives may realize substantial value | ü Pays out only based on increased relative shareholder value;return as compared to the LTI Comparator Group; may not vest depending upon shareholder return |
Long-Term Equity Awards: Market Stock Units (Long-Term
Equity Awards) | Incentivizes managementRewards for contributions to long-term increases in shareholder value; retains executives in the competitive energy market | A portion of executive compensation is paid in stock units with the number of shares earned based on our stock price performance over a three-year period | ü Awards are not paid if the average closing stock price prior to the end of the three-year period decreased by more than 50% from the average closing stock price when awards were granted |
Our emphasis on variable or “at risk” components of incentive pay results in actual compensation ranging above or below targeted amounts based on the achievement of the objectives established in our annual and long-term incentive plans and changes in the value of our stock. While the Compensation Committee assesses each compensation component separately, the aggregate total direct compensation is considered in the context of the overall pay determination. Our strategy also includes ongoing evaluation and adaptation, as necessary, of our compensation programs to ensure continued alignment between company performance and pay.
The following graph shows the 2017 pay mix of total target direct compensation elements for our CEO and our other NEOs. These compensation elements are based on our CEO’s and other NEOs’ targeted compensation opportunities on an annualized basis, which may differ from the amounts shown in the Summary Compensation table and Grants of Plan-Based Awards table below. We consider target annual incentive and long-term incentive compensation “at-risk” because it is based upon achieving specific performance measures.
Tesoro Corporation 2017 Proxy Statement 24
Elements of 20162017 Target Compensation
as a Percent of Total Direct Compensation(a)
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(a) | These compensation elements are based on our CEO’s and other NEOs’ targeted compensation opportunities on an annualized basis, which may differ from the amounts shown in the Summary Compensation table and Grants of Plan-Based Awards table below. 89% of Mr. Goff’s 2016 target compensation and 77% of the other NEOs’ 2016 target compensation was considered “at-risk” because it was based upon achieving specific performance measures. |
Base Salaries
Base salaries for our NEOs are reviewed each year relative to market competitive data as well asand taking into account other relevant considerations described above. OnIn January 28, 2016,2017, the Compensation Committee approved an increase in the base salaries for certain NEOs, each effective February 7, 2016,19, 2017, as part of the annual compensation review process which includes analysis of market competitive data for total direct compensation and the NEOs’ respective performance, roles and responsibilities. These decisions resulted in the base salaries shown below for each of the NEOs shown below.NEO. Mr. Goff'sGoff’s base salary was not increased in 2016.2017.
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Name | Before 2/7/2016 | Effective 2/7/2016 |
Gregory J. Goff |
| $1,600,000 |
|
| $1,600,000 |
|
Steven M. Sterin | 726,000 |
| 765,000 |
|
Keith M. Casey | 675,000 |
| 710,000 |
|
Kim K.W. Rucker (a) | — |
| 775,000 |
|
Cynthia J. Warner | 625,000 |
| 650,000 |
|
(a) Ms. Rucker's base salary was effective upon her commencement of employment on March 14, 2016. |
| | | | | | |
Name | Prior to February 19, 2017 | Effective February 19, 2017 |
Goff |
| $1,600,000 |
|
| $1,600,000 |
|
Sterin | 765,000 |
| 800,000 |
|
Casey | 710,000 |
| 735,000 |
|
Rucker | 775,000 |
| 775,000 |
|
Warner | 650,000 |
| 682,500 |
|
Annual Performance Incentives
We believe that annual cash based incentives promote management’s efforts to drive the achievement of annual performance goals and objectives, which in turn help to create additional stockholder value.
2017 ICP Structure
In January 2016,February 2017, the Compensation Committee approved the 20162017 incentive compensation program (the “2016“2017 ICP”) based on management’s recommendation. The 20162017 ICP structure approved for our senior executives was similarly used for our salaried and hourly incentive-eligible employees and provides all employees under the program, including our NEOs, with the same upward and downward bonus opportunity (0% below threshold; 50% at threshold; 100% at target; 200% at maximum). The, subject to adjustment based on individual performance. Under the 2017, the calculation offor determining total 2016 ICP bonus payoutpayouts to an employee is determinedour NEOs was as follows, with each element further described below.follows:
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Total ICP Bonus Payout | = | [ | Bonus Eligible Earnings | x | Target Bonus % | x | % Overall Corporate Performance Achieved(a) | ] | +/- | Individual Performance Adjustment(b)(a) |
Tesoro Corporation 2017 Proxy Statement 25
(a) For Mr. Goff, this is a weighted average blended rate composed of corporate performance objectives. For all other NEOs, this is a weighted average blended rate composed of corporate performance rate and business unit rate.
(b) Calculated as a percentage of the individual target bonus opportunity (bonus eligible earnings multiplied by target bonus percentage).
Bonus Eligible Earningsis based on salary earned during the 2016 calendar year.
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| | 2018 Proxy Statement | 34 |
Target Bonus Opportunities (%) bonus opportunities for our NEOs are approved by the Compensation Committee based on analysis of market-competitive data of our compensation peer group, while also taking into consideration our compensation philosophy and other factors, such as internal equity and individual contributions. Our NEOs’ 20162017 target bonus opportunities, as a percentage of base salary earnings for the year, were as follows: Mr. Goff – 160%, Mr. Sterin – 100%, Mr. Casey – 100%, Ms. Rucker – 95%, and Ms. Warner – 90%.were:
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Name | Bonus Eligible Earnings ($) (a) | Target Bonus % | Target Bonus $ |
Goff | 1,600,000 | 160 | % | 2,560,000 |
|
Sterin | 794,615 | 110 | % | 874,077 |
|
Casey | 731,154 | 110 | % | 804,269 |
|
Rucker | 775,000 | 100 | % | 775,000 |
|
Warner | 677,500 | 100 | % | 677,500 |
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(a) Bonus eligible earningsis based on salary earned during the 2017 calendar year.
Performance Objectives for Determining
Overall Corporate Performance Achieved (%)
The 2017 ICP structure uses a mix of objectives designed to focus management on key areas of performance. For Mr. Goff, 2016our NEOs, 2017 ICP payouts were determined by measuring our overall corporate performance, as assessed by our Compensation Committee, against pre-established performance levels formeasures. The Compensation Committee may adjust our overall corporate performance. For the other NEOs, 2016 ICP payouts were determined by performance against pre-established performance levels for two components (corporate performance and business unit performance), as detailed below. Business unit performance was added for the NEOs, other than Mr. Goff, because each of them has responsibility for a specific business unit or several business units. The majority of the weightings between corporate and business unit performance is 50% corporate and 50% business unit. For certain administrative functions, a heavier weighting is applied to corporate performance to create strong alignment to corporate goals and ensure harmonization of efforts across administrative and operating functions. |
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Name | Weighting of Corporate Performance | Weighting of Business Unit Performance | Business Unit (a) |
Goff | 100 | % | N/A |
| N/A |
Sterin | 70 | % | 30 | % | Accounting, Corporate Development, Finance and Information Technology |
Casey | 50 | % | 50 | % | Commercial, Marine, Marketing and Supply Chain |
Rucker | 70 | % | 30 | % | Legal and Corporate Affairs |
Warner | 50 | % | 50 | % | Refining, Logistics and EHS&S |
(a) Prior to August 2016, Mr. Casey had responsibility for the Refining, Logistics and EHS&S business units and Ms. Warner had responsibility for Corporate Development business unit. The performance of each applicable business units was incorporated into each of their 2016 ICP payouts.
Our corporate performance results and results of the individual business units may be adjusted to take into account unplanned or unanticipated business decisions or events that are outside of management’s control, unusual or non-recurring items, and other factors, as approved by the Compensation Committee, to determine the total amount, if any, available under the 20162017 ICP. For 2017, our pre-established performance measures were:
Component 1 – Corporate Performance
The first component of the ICP was our corporate performance, including theU.S. GAAP-based net earnings before interest, income taxes, and depreciation and amortization (EBITDA), cost management, business improvement, and safety and environmental measures described below (ranked in order of weighting).
EBITDA, at 50%,expenses (“EBITDA”) was the most heavily weighted metric of this component because we believe that significant improvements in EBITDA drive cash flow, provide financial strength, and increase stockholder value. Targets for this component are based on our annual business plan. We measure EBITDA performanceis measured on a margin neutral basis, rather than a reported basis, by excluding the impact on our refining margins of fluctuations in commodity prices (and thereby fluctuations in margins) over which management has little influence. We take this approach
Cost management metric measures operating expenditures and administrative expenses less certain adjustments. The cost metric excludes refining energy costs, annual incentive compensation costs, stock-based compensation expense, non-controllable expenses for post-retirement employee benefits (pension, medical, life insurance) and insurance costs (property, casualty and liability).
Growth & productivity improvements include growth from income-generating capital improvements, margin improvement initiatives, organic growth initiatives and other smaller projects.
Process safety and environmental safety are critical to avoid over-rewarding executivesAndeavor’s success and reflect its ability to operate its assets in periods when margins are high relativea safe and reliable manner. Because Andeavor believes in continuous improvement, each of the safety metrics is measured by improvement compared to those assumed in our annual business plan or, conversely, to under-reward executives when they optimize profitability in less favorable market conditions. the average incident rate for the prior three year period.
To ensure results achieved do not reflect positive or negative impactimpacts of market factors, we adjust reported EBITDA performance for ICP purposes is adjusted by the amount of the difference between actual and budgeted results for the Andeavor refining margins multiplied bymargin index times budgeted throughput. We recognize that the useIn 2017, this resulted in margin neutral EBITDA used for purposes of calculating ICP awards (as discussed below) being adjusted upward to $2.25 billion from our EBITDA of $2.10 billion. While this measure of EBITDA on a margin neutral basis to assess our performance is different from our reported results, but we believe that it more accurately reflects the efforts and results of management and our employees to meet and exceed performance objectives and goals without the influence of fluctuating prices and margins on compensation or goal setting. Similarly, we made
Tesoro Corporation 2017 Proxy Statement 26
adjustments for the 2016 ICP to exclude the impact of inventory valuation adjustments related to changes in commodity prices.
Controllable cost management is weighted at 17.5% of this component because it is clearly within the control of our employees and key to our performance. Targets are based on our annual business plan that is reviewed by the Board. This metric is measured as total cash costs excluding annual incentive compensation program, stock-based compensation expense, non-controllable expenses for post-retirement employee benefits (pension, medical, life insurance) and insurance (property, casualty and liability), spill prevention costs and environmental accruals and benefits. It includes allocations of refining maintenance and labor to capital projects. Refining energy variable costs and internally produced fuel consumption are market adjusted to budget-assumed prices.
Business Improvement is weighted at 17.5% of this component and includes capital and non-capital improvement initiatives, margin improvement initiatives, synergies related to asset acquisitions and similar projects and initiatives. For purposes of our incentive compensation program, we only count as Business Improvement actual annual improvements, recognized and verifiable for the first full 12 months after an improvement has been established. We exclude projects or initiatives that, although beneficial to stockholders, are targeted to avoiding increased costs or result in lower tax or interest expense.
Personal safety, process safety and environmental safety, each weighted at 5%, are critical to the success of our Company and reflect our ability to operate our assets in a safe and reliable manner. Because we believe in continuous improvement, each of our safety metrics is measured by improvement compared to the average incident rate for the prior three year period.
Tesoro Corporation 2017 Proxy Statement 27
See discussion above for explanation of metrics.
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These components resulted in a weighted average overall performance on the corporate
component of 127%.
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Calculation and Adjustment of Corporate Performance:
To ensure results achieved do not reflect positive or negative impacts of market factors, EBITDA performance for ICP purposes is adjusted by the amount of the difference between actual and budgeted results for the Tesoro refining margin index times budgeted throughput. In priorsome years, the effect of adjusting EBITDA to a margin neutral basis has generally resulted in ICP EBITDA being below reported EBITDA, thereby reducing ICP payouts. In 2016, the margin neutral EBITDA used for purposes of calculating ICP awards (as discussed below) was adjusted upward to $3.025 billion from our reported EBITDA of $2.4 billion to eliminate the estimated impact of the challenging market environment. We recognize that the use of EBITDA on a margin neutral basis to assess our performance is different from our reported results, but we believe that it more accurately reflects the efforts and results of management and our employees to meet and exceed performance objectives and goals without the influence of fluctuating prices and margins on compensation or goal setting. We believe this margin neutralization feature will likely continue having varying impacts in future years. Additionally, for the 2016 ICP we made an adjustment to exclude the impact of a $359 million benefit for a non-cash lower-of-cost-or-market (LCM) inventory adjustment that we recognized in our 2016 financial statements due to increases in 2016 in the prices for crude oil and refined products compared to historical amounts.
Tesoro Corporation 2017 Proxy Statement 28
For the calculation of both the EBITDA and cost management components,metrics, the Compensation Committee has the discretion to take into consideration special items, including decisions that have a material impact on our results compared to budget, unusual items and non-recurring items. ForIn calculating the 20162017 ICP EBITDA metric results, shownthe Committee made adjustments to account for costs and synergies related to the Western Refining acquisition, marketing-related adjustments, benefit-related adjustments and asset impairment charges. In calculating the 2017 ICP cost management metric results, the Committee made adjustments to account for costs and synergies related to the Western Refining acquisition, and costs related to the acquisition of North Dakota gathering and processing assets.
For 2017, taking into consideration the factors described above, the Compensation Committee considered an accounting adjustment associated with the deconsolidation of Rendezvous Gas Services, L.L.C. and proceeds from insurance and legal settlements, which generally offset each other except for a $2 million positive impact.
Theassessed Andeavor’s corporate performance component of the ICP also determines the overall funding of the program for all of the Company’s employees. While individual business unit results vary, the total payout for all business units is equal to the 127% funded value reflecting corporate performance.against these pre-established performance measures as follows:
Component 2 – Business Unit Results |
| | | |
Performance Measure (a) | Weighting (%) | | % Achieved (a) |
Margin-neutral EBITDA of $2.78 billion | 50 | | 52% |
Management of costs to no more than $2.75 billion | 15 | | 193% |
Growth & Productivity improvements of $420 million | 20 | | 200% |
Process Safety Management improvement | 7.5 | | 75% |
Environmental Safety improvement | 7.5 | | — |
Overall Andeavor Performance Achieved | | | 101% |
The second 2016 ICP component was more specifically tailored to the performance of the individual’s business unit. Our business unit goals are directly aligned with our corporate objectives and are measured using common criteria to promote consistency throughout the organization. Business unit criteria include safety and environmental, cost management, improvements in EBITDA, value creation initiatives and business improvement initiatives. Like the overall structure of the 2016 ICP, the business unit targets were set at stretch levels that were challenging and would generate significant value for our stockholders. Business unit targets are not disclosed because such information is confidential and disclosure of such information would cause competitive harm to us.
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(a) | Performance measures and achievement do not include results attributable to Western Refining, Inc. |
Individual Performance Adjustments
The Committee also has discretion to adjust individual awards based on their assessment of an individual executive’s performance relative to successful achievement of goals, business plan execution, and other leadership attributes. Adjustments are calculated as a percentage of an individual target bonus opportunity (bonus eligible earnings multiplied by target bonus percentage).
The Committee approved a 15% upward adjustment for Mr. Goff in recognition of his leadership as evidenced by the Company'sCompany’s strong financialresults for 2017 and successfully building a platform for future growth and significant value creation. The Committee also approved a 10% upward adjustment for Messrs. Sterin and Casey and Ms. Warner in recognition of their contributions to the Company’s performance and marked excellent progressgrowth, including among other things, their leadership in executing our growththe acquisitions of Western Refining and productivity improvement strategies.Western Refining Logistics. In recognition of the strong leadership and contributions made in positioning the Company for further growth, the Committee approved upward adjustments for both Mr. Sterin andaddition, Ms. Rucker (25%received a 25% upward adjustment for contributions to the Company’s performance and 20%, respectively).
Actual Performancegrowth, including among other things, her leadership in the acquisitions of Western Refining and PayoutsWestern Refining Logistics, as well as her leadership as the Company’s Interim Chief Human Resources Officer.
The table below providesICP Payouts for 2017
Taking into consideration our overall corporate performance, as assessed by the specific bonus targets, level of achievement (includingCompensation Committee, adjusted by the adjustments described above),Committee in its discretion based on each executive’s individual performance, adjustment, andthe 2017 annual bonus paymentpayouts for each NEO for 2016:our NEOs under the 2017 ICP were:
| | Name | Bonus Eligible Earnings ($) | Target Bonus % | Overall Performance Achieved (rounded to the nearest whole percentage) | Calculated Bonus Payout ($) | Individual Performance Adjustments (% Increase/ Decrease) (a) | Total Bonus Payout ($) | Bonus Eligible Earnings ($) (a) | Target Bonus % | Company Performance Achieved | Calculated Bonus Payout ($) | Individual Performance Adjustments (% Increase/ Decrease) (b) | Total Bonus Payout ($) |
Goff | 1,600,000 | 160 | % | 127 | % | 3,251,200 | 15 | % | 3,635,200 | 1,600,000 | 160 | % | 101 | % | 2,585,600 | 15 | % | 2,969,600 |
Sterin | 760,500 | 100 | % | 123 | % | 935,415 | 25 | % | 1,125,540 | 794,615 | 110 | % | 101 | % | 882,818 | 10 | % | 970,226 |
Casey | 705,961 | 100 | % | 131 | % | 924,810 | — |
| 924,810 | 731,154 | 110 | % | 101 | % | 812,312 | 10 | % | 892,739 |
Rucker | 611,058 | 95 | % | 122 | % | 708,216 | 20 | % | 824,317 | 775,000 | 100 | % | 101 | % | 782,750 | 25 | % | 976,500 |
Warner | 647,115 | 90 | % | 132 | % | 768,773 | — |
| 768,773 | 677,500 | 100 | % | 101 | % | 684,275 | 10 | % | 752,025 |
(a) Calculated as a percentage of the individual target bonus opportunity (bonus eligible earnings multiplied by target bonus percentage).
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(a) | Bonus eligible earningsis based on salary earned during the 2017 calendar year. |
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(b) | Calculated as a percentage of the individual target bonus opportunity (bonus eligible earnings multiplied by target bonus percentage). |
Long-Term Incentives
We believe that our senior executives, including our NEOs, should have an ongoing stake in our success and their interests should be aligned with those of our stockholders. Accordingly, we believe that these executives should have a considerable portion of their total compensation tied to stock price performance in the form of equity incentives. For our NEOs, the Compensation Committee approves a target award value for long-term incentives based on analysis of market-competitive data of our compensation peer group. In addition, other factors such as internal equity and individual contributions are considered. These decisions resulted in the long-term incentive target values granted in 2016 to each
Types and Allocation of the NEOs shown below.
Tesoro Corporation 2017 Proxy Statement 29
Our long-term incentive awards for existing employees recognize the importance of pay for performance while addressing employee retention through the grants of performance shares. For most of our senior officers, including Ms. Warner, 50% of the total award value is in the form of performance shares and 50% is in the form of market stock units (“MSUs”). However, for those NEOs who also served as directors or in leadership roles of TLGP at the time of grant, we awarded 25% of their total award value in the form of TLLP phantom units to align a portion of the NEO’s incentives with TLLP’s unitholders, with the remainder evenly split between performance shares and MSUs. The mix of equity awards is intended to align long-term incentive compensation with specific performance measures, including stock price performance. The allocation of awards between performance shares and MSUs is designed to provide a balance between the retentive value of MSUs (tied to absolute shareholder return) with the belief that pay should also be closely aligned with relative performance. In order to determine the exact number of performance shares or MSUs granted to an individual, we divide the targeted value by the average stock price for the 30-trading day period preceding the grant date. To derive a grant date fair value for equity based awards, we then apply a valuation factor (provided by Aon Hewitt) that is determined using the Monte Carlo simulation valuation method and takes into account a number of assumptions, including the estimated stock price volatility, the assumed risk free rate of return, dividend yields and the possibility that the market conditions may not be satisfied.Awards
The components of the long-term incentives granted to our NEOs in late January and early February 20162017 were as follows:
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| Performance Shares | Market Stock Units | TesoroAndeavor Logistics LP Phantom Units |
Performance Drivers | • Total Shareholder Return (TSR) relative to the TesoroAndeavor performance peer group | • Stock Price Performance including dividends | • Relative Total Unitholder Return (TUR) compared to the TLLPAndeavor Logistics performance peer group |
Objectives | • Use of a relative performance metric to drive successful execution of strategy | • Combine retentive value of restricted stock with the ability to reward for stock price appreciation | • Use of a relative performance metric to drive successful execution of strategy |
Program Design | • Typically awarded each February • At the conclusion of the three-year performance cycle, payouts can range from 0% to 200% of the target grant based on the relative performance of TSR | • Typically awarded each February • Also awarded to certain new management hires • At the conclusion of the three-year performance cycle, the number of shares issued range from 50% to 200% of the target units based on stock price performance for the 30 days prior to vesting compared to the 30 days prior to grant | • Typically awarded by the TLLP BoardAndeavor Logistics’ general partner each February to management directorscertain NEOs • Grants are coordinated with Tesoro’sAndeavor’s Compensation Committee • At the conclusion of the three-year performance cycle, payouts can range from 0% to 200% of the target grant based on the relative performance of TUR |
Our long-term incentive awards recognize the importance of pay for performance as well as retention of key talent. For most of our senior officers, the total award value is composed of 50% performance shares and 50% MSUs. The mix of equity awards is intended to align long-term incentive compensation with specific performance measures, including stock price performance. The allocation of awards between performance shares and MSUs is designed to provide a balance between the retentive value of MSUs (tied to absolute shareholder return) and alignment with relative performance.
To determine the exact number of performance shares or MSUs granted to an individual, the targeted value is divided by the grant date fair value for equity-based awards that is determined using the Monte Carlo simulation valuation method. This method takes into account a number of assumptions, including the estimated stock price volatility, the assumed risk free rate of return, dividend yields and the possibility that the market conditions may not be satisfied.
Tesoro Corporation 2017 Proxy Statement 30
Based on the considerations discussed above, the Compensation Committee awarded the following long-term incentives (shown at target value) to our NEOs in 2017: |
| | | | | |
| Component (as a percentage of Total Target Value) | |
| Performance Shares | MSUs | Andeavor Logistics Phantom Units | Total Target Value ($) |
Goff (a) | 37.5% | 37.5% | 25% | 11,250,000 |
|
Sterin (a) | 37.5% | 37.5% | 25% | 2,300,000 |
|
Casey | 50% | 50% | — | 2,130,000 |
|
Rucker (a) | 37.5% | 37.5% | 25% | 1,750,000 |
|
Warner (a) | 37.5% | 37.5% | 25% | 1,600,000 |
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(a) | Messrs. Goff and Sterin and Mmes. Rucker and Warner devoted some of their professional time to Andeavor Logistics in 2017; thus, 25% of their total award value was composed of Andeavor Logistics phantom units, with the remaining 75% evenly split between performance shares and MSUs. This aligns a portion of their incentive awards with Andeavor Logistics’ unitholders. |
In determining the number of shares or units granted and paid out at the end of the performance period, we use an average stock price of the 30-trading days leading up to the date of grant orand end of the performance period. This approach lessens the impact of daily stock price volatility on the number of awards granted and value of the ultimate payout. The components
2017 Grant of the long-term incentives granted to Messrs. Goff, Sterin and Casey and Mmes. Warner and Rucker in 2016 were as follows:
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Components of 2016 Target Value of Long-Term Incentive Awards |
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Total Target Grant Value(a):
Mr. Goff(b): $10,500,000
Mr. Sterin(c): $2,130,000
Mr. Casey (d): $2,130,000
Ms. Rucker (e): $1,600,000
| Total Target Grant Value(a):
Ms. Warner: $1,400,000
Ms. Warner did not serve in a leadership role for TLGP and, therefore, received a different LTI allocation than the other NEOs
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(a) | Due to rounding in the grant of equity units, changes in our stock price between the date on which the awards were determined and the date the awards were granted, and accounting assumptions utilized in valuing equity awards, the target grant value may differ from the actual value granted. |
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(b) | Mr. Goff served as Chief Executive Officer for TLGP and Chairman of the TLGP Board of Directors. |
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(c) | Mr. Sterin served as Vice President, Chief Financial Officer for TLGP and as a member of the TLGP Board of Directors. |
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(d) | Although Mr. Casey does not serve as a director or officer of TLGP, at the time of the grant he did serve in a leadership capacity over the Logistics function of Tesoro. |
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(e) | Ms. Rucker served as Vice President and General Counsel for TLGP. |
Performance Share Awards (“PSAs”)
PSA Grants.Performance share awards (“PSAs”) granted in 20162017 pay out between 0% and 200% of target based on achievement with respect to the applicable performance goal.
The performance peer group is comprised of HollyFrontier Corporation, Marathon Petroleum Corporation, Phillips 66, Valero Energy Corporation, and PBF Energy, Inc. (together, the “LTI Performance Peer Group”), and the Energy Select Sector SPDR® (the “XLE Energy Index”) and the Standard & Poor’s 500 Index (the “S&P 500”). The LTI Performance Peer Group includes refining and marketing companies that have common characteristics with us. These common characteristics are not necessarily shared by other companies in our compensation peer group, or by some of our larger competitors within the oil and gas industry. We think it is appropriate to measure our performance against the LTI Performance Peer Group for relative TSR purposes because we believe investors view our businesses in a similar manner. Use of the XLE Energy Index will reflect our performance against a broader index of our industry, and use of the S&P 500 will reflect our performance against a broader index of large-cap common stock companies. We refer to the LTI Performance Peer Group, the XLE Energy Index and the S&P 500, collectively, as the “LTI Comparator Group”.Group.”
Performance sharesPSAs earned are based on our relative Total Shareholder Return (“TSR”) from January 1, 2016February 14, 2017 through December 31, 2018February 14, 2020 measured against the LTI Comparator Group. For purposes of the 20162017 awards, TSR is defined as the appreciation in our stock price during the performance period (in dollars). Normal dividends are assumed to be reinvested in stock on the date the dividend is paid, and special dividends are not included in the calculation. Beginning with the 2016 grant, TSR will beis measured using a full 3-year period to align with the most prevalent practice. Prior to the 2016 grant, TSR was measured using the average of three discrete one-year TSR calculations during the performance period. For the TSR metric, our performance share award payout is determined in accordance with the following table. Payouts between points shown below will be adjusted accordingly.
Tesoro Corporation 2017 Proxy Statement 31
The actual number of performance share awardsPSAs earned at the end of the performance period will be equal to the target number of performance share awards granted multiplied by our performance share payout percentage with respect to the following table.
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Tesoro CorporationAndeavor TSR v. LTI Comparator Group TSR | Payout % |
33.33% or more below LTI Comparator Group Median | 0% of Target (Threshold) |
30% below | 10% of Target |
20% below | 40% of Target |
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10% below | 70% of Target |
0% of LTI Comparator Group Median | 100% (Target) |
10% above | 130% of Target |
20% above | 160% of Target |
30% above | 190% of Target |
33.33% or more above LTI Comparator Group Median | 200% of Target (Maximum) |
The executive officers that received performance share awardsPSAs in 20162017 have the right to receive dividend equivalents with respect to such performance share awardsPSAs based on the actual level of payout. The accrued dividend equivalents are paid in cash at the time the underlying performance share awardsPSAs are distributed, but only to the extent the underlying performance share awardsPSAs vest.
PSA Payouts. Tesoro’s grants2017 Grant of performance share awards to executive officers made in 2012 and 2013 were benchmarked against the Company’s TSR and against Returns on Capital Employed (“ROCE”), which differs from the TSR-only awards described above. Tesoro’s grants of performance share awards to executive officers made in 2012 and 2013 were paid subsequent to the proxy statement for our 2015 annual meeting of stockholders as follows:
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Grant Date | Certification Date | Performance Period | PSA Performance Measure | Actual Performance | Vesting Percentage |
February 2013 | April 2016 | 1/1/2013 – 12/31/2015 | ROCE element | Tesoro’s average ROCE was 17.79% compared against the average ROCE of 19.21% for the peer group assigned at the time of grant | 93% |
February 2014 | January 2017 | 1/1/2014 – 12/31/2016 | TSR element | Comparatively against the relative peer group assigned at the time of grant, Tesoro’s average TSR of 21.44% ranked first among six comparators and outperformed the median index TSR of 7.75% by 13.69% | 141.08% |
These payouts are reported in “Executive Compensation – Compensation Tables and Narratives – Option Exercises and Stock Vested in 2016.”
Market Stock Units
MSU Grants.As described above, MSUs were also granted in 2016. A MSUMarket Stock Unit (“MSU”) award is a grant of stock units in which the number of shares earned at vesting is based on our stock price performance over the performance period. MSUs replace traditional time-vested awards in order to directly align long-term incentive pay with stock price performance. The MSUs granted in 20162017 will become eligible for vesting, based on stock price performance and continued employment, at the end of a 36-month performance period beginning on January 28, 2016February 14, 2017 and ending on January 28, 2019.February 14, 2020. Upon vesting, the number of shares earned will be determined as follows:
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Shares Earned at Vesting | = | # of Targeted MSUs at Grant | x | [ | Average closing stock price for the 30 trading days* prior to the Vesting Date | ] |
Average closing stock price for the 30 trading days* prior to the Grant Date |
*Normal dividends are assumed to have been reinvested on the date paid in order to calculate the average 30-trading day stock price.
However, there is no payout if the average closing stock price for the 30 trading days prior to the vesting date has decreased by 50% or more from the average closing stock price for the 30 trading days prior to the grant date. In addition, the number of units that may be issued upon payout is capped at 200% of target.
2017 Grant of Andeavor Logistics Phantom Units
Tesoro Corporation 2017 Proxy Statement 32
MSU Payouts.Tesoro’s grants of MSUs to executive officers made in 2014 were paid during early 2017As noted above, as follows:
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Grant Date | Certification Date | Performance Period | Average closing stock price for the 30 trading days* prior to the Grant Date | Average closing stock price for the 30 trading days* prior to the Vesting Date | Vesting Percentage (to be multiplied by Target Units for # of Shares to be Issued) |
February 2014 | February 2017 | 2/4/2014 – 2/4/2017 |
| $54.87 |
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| $89.43 |
| 162.98 | % |
* Normal dividends are assumed to have been reinvested on the date they are paid in order to calculate the average 30-trading day stock price.
These payouts are reported in “Executive Compensation – Compensation Tables and Narratives – Option Exercises and Stock Vested in 2016.”
TLLP Equity Awards
Messrs. Goff and Sterin and CaseyMmes. Rucker and Ms. Rucker are executive officers of Tesoro, and in addition to rendering services to Tesoro, theyWarner devoted some of their professional time to TLLPAndeavor Logistics during 2016. For Messrs. Goff, Sterin and Casey and Ms. Rucker,2017, 25% of value of their total 20162017 long-term incentive value, approved by the Compensation Committee,award was delivered in the formcomposed of Andeavor Logistics performance phantom units of TLLP.units. The TLLPAndeavor Logistics performance phantom units will vest based on the achievement of relative total unitholder return over a performance period from January 1, 2016February 16, 2017 through December 31, 2018February 16, 2020 as compared to a peer group of companies.companies listed below and the Alerian MLP ETF. The peer companies are listed below. These companies werecomparator group was selected based on the TLGP Board’s view of the Andeavor Logistics board that key stakeholders compare TLLP’sAndeavor Logistics’ business results and relative performance with these companies.this group.
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Boardwalk Pipeline Partners, L.P. | EQT Midstream Partners LP | Sunoco Logistics Partners L.P. |
Buckeye Partners, L.P. | EnLink Midstream Partners, LP
| NuStar Energy L.P.
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DCP Midstream Partners LP
| Genesis Energy LP
| ONEOK Partners, L.P. |
DCP MidstreamEnbridge Energy Partners, LPL.P.
| Holly Energy Partners L.P.
| Western Gas Partners LP |
Enbridge Energy Partners, L.P. | Magellan Midstream Partners LP | |
EnLink Midstream Partners, LP | NuStar Energy L.P.
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The payout will range from none of the units vesting to vesting of 200% of the units as shown below. Vesting between the percentile performance levels is determined by straight-line interpolation.
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Relative Total Unitholder Return | Payout as a % of Target |
90th percentile and above | 200% |
75th percentile | 150% |
50th percentile | 100% |
30th percentile | 50% |
Below 30th percentile | — |
The TLLPAndeavor Logistics performance units granted to executives in February 20142015 represented the right to receive common units at the end of the January 1, 20142015 to December 31, 20162017 performance period depending upon TLLP’sAndeavor Logistics’ achievement of relative total unitholder return against a defined performance peer group. TLLP’sAndeavor Logistics’ total unitholder return of 5.43%-0.19% ranked in the 33rd73rd percentile, which resulted in a payout of 58.33%145.45% of the target amount. SuchPayout of these units were paidoccurred in February 20172018 and are reportedis reflected in under “Executive Compensation – Compensation Tables and Narratives –the Option Exercises and Stock Vested in 2016.”2017 table below.
Equity Award Payouts for 2017
Andeavor’s grants of performance shares to executive officers made in 2015 were paid during early 2018 as follows:
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Grant Date | Certification Date | Performance Period | Performance Measure | Actual Performance | Vesting Percentage |
February 2015 | January 2018 | 1/1/2015– 12/31/2017 | TSR element | Comparatively against the relative peer group assigned at the time of grant, Andeavor’s average TSR of 19% outperformed the median index TSR of 15.82% by 3.18% (difference in percentage points) | 109.54% |
Andeavor’s grants of MSUs to executive officers made in 2014 were paid during early 2017 as follows:
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Grant Date | Certification Date | Performance Period | Average closing stock price for the 30 trading days* prior to the Grant Date | Average closing stock price for the 30 trading days* prior to the Vesting Date | Vesting Percentage (to be multiplied by Target Units for # of Shares to be Issued) |
February 2014 | February 2017 | 2/4/2014– 2/4/2017 |
| $54.87 |
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| $89.43 |
| 162.98 | % |
* Normal dividends are assumed to have been reinvested on the date they are paid in order to calculate the average 30-trading day stock price.
These payouts are reflected in the Option Exercises and Stock Vested in 2017 table below.
Executive Benefits
To promote consistency with overall competitive practices and our compensation philosophy, our executive officers are generally not entitled to any perquisites. However, in order to remain competitive and attract quality executives, we continue to allow executives to participate in our relocation program, which is generally available to all management. Our executive officers do not receive a tax gross-up associated with any relocation benefits. This program also includes a recoupment provision in the event employment is terminated within a one-yeartwo-year period.
We provide health and welfare benefits and maintain non-contributory qualified and non-qualified retirement plans that cover officers and other eligible employees. Retirement and health and welfare benefits provided to our NEOs are designed to be consistent in value and aligned with benefits offered by
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companies with whomwhich we compete for talent. See the discussion under the heading “Retirement/Pension Benefits in 2016”2017” for a description of the retirement plans.
Tesoro Corporation 2017 Proxy Statement 33
Change-in-Control and Termination Arrangements
On January 12, 2011, the Board approved anOur Executive Severance and Change-in-Control Plan (the “Plan”). The Plan reduces uncertainty for certain executives in the event of a change-in-control or other events affecting our Company’s existence and provides a benefit in the event of the termination of employment of certain executives, including each of our NEOs, under certain conditions that are beyond the executive’s control. The Plan,plan, which does not provide for excise tax gross-ups for retirement benefits, is market competitive with amounts payable to executives terminated involuntarily or upon a change-in-control event, is consistent with stockholder-friendly pay practices and eliminates the need to offer new individualsexecutives employment agreements. Our severance and change-in-control provisions for our NEOs are summarized under the heading “Potential Payments Upon Termination or Change-In-Control” in this Proxy Statement.Change-In-Control.”
Omnibus Agreement with TLLPAndeavor Logistics
Under the terms of an omnibus agreement with TLLP, TLLPAndeavor Logistics, Andeavor Logistics pays an administrative fee to reimburse Tesorous for the provision ofproviding general and administrative services for TLLP’sAndeavor Logistics’ benefit. Messrs. Goff, Sterin and Casey and Ms. Rucker provided services to both TesoroAndeavor and TLLPAndeavor Logistics during 2016;2017; however, no specific portion of the administrative fee was allocated to their services.
Stock Ownership Guidelines
Our Board has established stock ownership guidelines under which each of the executivesexecutive in the positionsa position named below is required to retain 50% of the net shares obtained from performance awards (including PSAs and MSUs) settled in stock, vesting of a restricted stock grant or an option exercise until he or she satisfies the ownership guidelines based on a multiple of salary as set forth in the following table. Each executive is also required to retain that level of ownership for as long as the individual is aremains part of our senior management team. Each of our NEOsNEO has either met the ownership guidelines or is on track to meet the ownership guidelines and is continuing to retain 50% of the net shares obtained from performance awards settled in stock, vesting of a restricted stock grant or an option exercise.
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Position | Stock Ownership Guideline |
Chief Executive Officer | 6x annual base salary |
Executive Vice PresidentsPresident | 3x annual base salary |
Senior Vice PresidentsPresident | 2x annual base salary |
Equity Grant/Grant and Trading Policies
The Compensation Committee has adopted an equity award governance policy under which all long-term equity incentives are granted. We generally grant equity awards at the Compensation Committee’s meeting in late January or early February of each year. We have chosen this time because it is a time each calendar year at which our results of operations from the previous year are available to the Compensation Committee. The equity award governance policy prohibits the issuance of stock options at a price less than the closing sale price of our common stock on the date of grant. We do not purposely accelerate or delay the public release of material information, or otherwise time equity grants in coordination with the public release of material information, in consideration of a pending equity grant in order to allow the grantee to benefit from a more favorable stock price.
We also maintain a securities trading policy which prohibits, among other things, employees and directors from entering into transactions when in possession of material non-public information and from participating in short-term trading or hedging activities involving our securities. The policy requires
directors, senior executives and informational insiders to follow preclearance procedures for all transactions involving our securities. It also prohibits them from trading in derivative securities (other than equity-settled awards granted by the Compensation Committee or Board of Directors) or holding our securities in a margin account or otherwise pledging them as collateral for a loan.
Tesoro Corporation 2017 Proxy Statement 34
Deductibility of Executive Compensation
Section 162(m) of the Internal Revenue Code (the “Code”) limits the tax deductibility by a publicly held corporation of compensation in excess of $1 million per year paid by a public company to certain executives, unless that compensation isits “covered employees.” Prior to federal tax reform enacted in December 2017, Section 162(m) included an exception to this limitation on deductibility for qualifying “performance-based compensation” as(as defined by the Code.under applicable tax regulations). In establishing the total compensation for the NEOs, the Compensation Committee considers the effect of Section 162(m),deductibility as one factor, but also desires to retain flexibility and discretion to make compensation awards, whether or not deductible, in order to foster achievement of performance goals established by the Compensation Committee andor other corporate goals that are important to our success.
Payouts of annualAnnual cash-based incentives under the 20162017 ICP are paid based on achievement of performance measures under the stockholder-approved 2011 Long-Term Incentive Plan.Plan and structured in a manner intended to constitute qualifying “performance-based compensation” under Section 162(m). For purposes of deductibility under Section 162(m), the Compensation Committee established (a) minimum performance criteria required for the payment of any award to the NEOs as positive net income (as reported in our Annual Report on Form 10-K) for the performance period and (b) the maximum annual incentive award at $7.0$8.0 million for Mr. Goff and $2.0$3.0 million for each other NEO. Because we had positive net income for 2016,2017, the criteria for the maximum possible award for each NEO was satisfied. The Compensation Committee then exercised its negative discretion in determining the amount of the actual 20162017 ICP payouts based on our performance measures, business unit performance measures and individual performance as described under "Elements“Elements of Executive Compensation—AnnualCompensation-Annual Performance Incentives"Incentives” above. The actual 20162017 ICP payouts are presented in the 20162017 Summary Compensation Table.
Under the new tax legislation, for taxable years beginning after December 31, 2017, there is no longer an exception to the deductibility limit for qualifying “performance-based compensation” unless the compensation qualifies for transition relief applicable to certain arrangements in place as of November 2, 2017 (the scope of which is currently uncertain). Also under the new legislation, the definition of “covered employees” has been expanded to include a company’s chief financial officer, in addition to the chief executive officer and three other most highly paid executive officers, plus any individual who has been a “covered employee” in any taxable year beginning after December 31, 2016.
The Compensation Committee continues to evaluate the changes to Section 162(m) and retains the ability to provide compensation that exceeds deductibility limits as it determines appropriate, including to recognize performance, meet market demands and retain key executives.
Clawback Policy
In February 2010, we adopted a compensation recoupment, or “clawback” policy that provides that in the event of a material restatement of financial results due to misconduct, our Board will review all annual incentive payments and long-term incentive compensation awards that were made to any then existing senior vice president or above including our controller on the basis of having met or exceeded specific performance targets in grants or awards made after February 2, 2010 which occur during the 24-month period prior to restatement. If such compensation would have been lower had it been calculated based on such restated results, the Board will, to the extent permitted by governing law, seek to recoup for our benefit such compensation to any then existing senior vice president or above including our company controller whose misconduct caused or significantly contributed to the material restatement, as determined by the Board.
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CEO Pay Ratio
The pay ratio reported below is a reasonable estimate calculated in a manner consistent with SEC rules based on our internal records and the methodology described below. The SEC rules for identifying the median compensated employee and calculating the pay ratio based on that employee’s annual total compensation permit companies to use a variety of methodologies, apply certain exclusions, and make reasonable estimates and assumptions that reflect their employee populations and compensation practices. Accordingly, the pay ratio reported by other companies may not be comparable to the pay ratio reported below.
Ratio and Methodology
The 2017 compensation disclosure ratio of the median annual total compensation of all Company employees to the annual total compensation of the Company’s CEO is as follows:
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Annual total compensation of median employee (excluding our Chief Executive Officer and the employees referenced under “Excluded Employees” below): | $ 151,793 |
Annual total compensation of our Chief Executive Officer, as reported in the “2017 Summary Compensation Table” below: | $19,924,675 |
CEO Pay Ratio: | 131:1 |
To determine the median employee, we prepared a list of all active employees of the Company as of November 15, 2017 (other than the excluded employees referenced below), and for that population, calculated 2017 accumulated gross wages from the first 2017 pay date through November 17, 2017. We did not make any assumptions, adjustment or estimates with respect to the total gross wages and we did not annualize the compensation for any full-time employees not employed by us for the full year. We selected gross wages to represent year-to-date earnings because it includes overtime pay and pre-tax deferral amounts but excludes one-time payments such as moving expenses and stock award payouts. Once the median employee was identified, we calculated annual total compensation for such median employee using the same methodology we use for our NEOs as set forth in the “2017 Summary Compensation Table” below.
Excluded Employees
The rule requiring disclosure of our CEO pay ratio permits us to omit certain employees from our pay ratio calculation; accordingly, we excluded the following groups of employees from our calculation for 2017:
Under the de minimus exemption, we are permitted to exclude non-U.S. employees where these employees account for 5% or less of our total U.S. and non-U.S. employees, with certain limitations. Accordingly, we excluded employees in our foreign jurisdictions of Singapore and Canada, resulting in the exclusion of 15 employees, or 0.23% of employees, out of total of 6,512 employees.
We acquired Western Refining, Inc. effective June 1, 2017. The rule permits us to omit the employees of a newly-acquired entity from our pay ratio calculation for the fiscal year in which the acquisition occurrs. Accordingly, we have excluded the employees who became our employees as part of the Western Refining acquisition, estimated at approximately 7,857 as of December 31, 2017.
Compensation Committee ReportInterlocks and Insider Participation
There are no compensation committee interlocks. None of the members of the Compensation Committee serves or has served as an officer or employee of Andeavor or had any relationship requiring disclosure under Item 404 of the SEC’s Regulation S-K, which addresses related-person transactions.
Compensation Committee Report
Our Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S−K with management and, based on such review and discussions, the Committee recommended to the Board that the Compensation Discussion and Analysis be included in this Proxy Statement.
The undersigned members of the Compensation Committee have submitted this Report to the Board of Directors as of March 6, 2017.2, 2018.
David Lilley, Chair
Edward G. Galante
J.W. Nokes
Michael E. Wiley
Tesoro Corporation 2017 Proxy Statement 35 |
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Executive Compensation – Compensation Tables and Narrative |
Executive Compensation – Compensation Tables and Narrative20162017 Summary Compensation Table
The following table sets forth information regarding the compensation of our CEO, our CFO, and our three highest paid executive officers (other than2017 NEOs for the CEO and CFO).time periods shown.
| | Name and Principal Position | Year | Salary ($) (a) | Bonus ($) (b) | Stock Awards ($) (c) | Non-Equity Incentive Plan Compensation ($) (d) | Change in Pension Value ($) (e) | All Other Compensation ($) (f) | Total ($) | Year | Salary ($) (a) | Stock Awards ($) (b) | Non-Equity Incentive Plan Compensation ($) (c) | Change in Pension Value ($) (d) | All Other Compensation ($) (e) | Total ($) |
Gregory J. Goff Chairman, President and Chief Executive Officer | 2016 | 1,600,000 |
| — | 8,221,092 |
| 3,635,200 |
| 4,708,628 |
| 14,769 |
| 18,179,689 | 2017 | 1,600,000 | 11,250,112 |
| 2,969,600 |
| 4,074,194 |
| 30,769 |
| 19,924,675 |
2015 | 1,590,000 |
| — | 11,336,348 |
| 4,074,232 |
| 6,173,359 |
| 80,615 |
| 23,254,554 | 2016 | 1,600,000 | 8,221,092 |
| 3,635,200 |
| 4,708,628 |
| 14,769 |
| 18,179,689 |
2014 | 1,495,000 |
| — | 8,370,769 |
| 4,854,692 |
| 6,083,588 |
| 51,500 |
| 20,855,549 | 2015 | 1,590,000 | 11,336,348 |
| 4,074,232 |
| 6,173,359 |
| 80,615 |
| 23,254,554 |
Steven M. Sterin Executive Vice President and Chief Financial Officer | 2016 | 761,250 |
| — | 1,667,835 |
| 1,125,540 |
| 234,770 |
| 54,048 |
| 3,843,443 | 2017 | 795,288 | 2,300,105 |
| 970,226 |
| 304,068 |
| 24,146 |
| 4,393,833 |
2015 | 723,400 |
| — | 1,983,996 |
| 1,049,893 |
| 139,744 |
| 45,897 |
| 3,942,930 | 2016 | 761,250 | 1,667,835 |
| 1,125,540 |
| 234,770 |
| 54,048 |
| 3,843,443 |
2014 | 263,846 |
| — | 1,566,401 |
| 362,492 |
| 27,870 |
| 15,413 |
| 2,236,022 | 2015 | 723,400 | 1,983,996 |
| 1,049,893 |
| 139,744 |
| 45,897 |
| 3,942,930 |
Keith M. Casey Executive Vice President, Marketing & Commercial | 2016 | 706,635 |
| — | 1,667,835 |
| 924,810 |
| 246,779 |
| 51,946 |
| 3,598,005 | |
2015 | 667,500 |
| — | 1,983,996 |
| 1,048,612 |
| 211,504 |
| 77,841 |
| 3,989,453 | |
2014 | 549,415 |
| — | 1,117,499 |
| 874,919 |
| 100,857 |
| 29,116 |
| 2,671,806 | |
Kim K.W. Rucker (g) Executive Vice President, General Counsel and Secretary | 2016 | 640,865 |
| — | 1,252,848 |
| 824,317 |
| 34,594 |
| 305,180 |
| 3,057,804 | |
Keith M. Casey Executive Vice President, Commercial and Value Chain | | 2017 | 731,635 | 2,130,115 |
| 892,739 |
| 285,329 |
| 60,828 |
| 4,100,646 |
| 2016 | 706,635 | 1,667,835 |
| 924,810 |
| 246,779 |
| 51,946 |
| 3,598,005 |
| 2015 | 667,500 | 1,983,996 |
| 1,048,612 |
| 211,504 |
| 77,841 |
| 3,989,453 |
Kim K.W. Rucker (f) Executive Vice President, General Counsel and Secretary | | 2017 | 775,000 | 1,750,181 |
| 976,500 |
| 114,805 |
| 63,296 |
| 3,679,782 |
| 2016 | 640,865 | 1,252,848 |
| 824,317 |
| 34,594 |
| 305,180 |
| 3,057,804 |
Cynthia J. Warner Executive Vice President, Operations | 2016 | 647,596 |
| — | 1,083,110 |
| 768,773 |
| 218,539 |
| 15,900 |
| 2,733,918 | 2017 | 678,125 | 1,600,120 |
| 752,025 |
| 234,007 |
| 22,975 |
| 3,287,252 |
2015 | 620,000 |
| — | 1,498,580 |
| 846,577 |
| 114,494 |
| 97,731 |
| 3,177,382 | 2016 | 647,596 | 1,083,110 |
| 768,773 |
| 218,539 |
| 15,900 |
| 2,733,918 |
2014 | 139,327 |
| 340,000 | 2,442,672 |
| 166,308 |
| 15,230 |
| 24,131 |
| 3,127,665 | 2015 | 620,000 | 1,498,580 |
| 846,577 |
| 114,494 |
| 97,731 |
| 3,177,382 |
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(a) | The amountsAmounts shown include amounts deferred by Messrs. Sterin andMr. Casey and Ms. Rucker pursuant to the Tesoro CorporationAndeavor Executive Deferred Compensation Plan. |
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(b) | The annual cash incentive award that is paid to the executive officers is reflected under the Non-Equity Incentive Plan Compensation column. The bonus amount for Ms. Warner in 2014 represents a sign-on bonus. |
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(c) | The amounts shownAmounts in this column reflect the aggregate grant date fair value of restricted stock, performance shares, market stock units and TLLPAndeavor Logistics performance phantom units granted during the applicable fiscal year, calculated in accordance with financial accounting standards. The aggregate grant date fair value of suchthe performance shares, market stock units and TLLPAndeavor Logistics phantom performance units at the highest level of performance (resulting in 200% payout) granted in 2016 would be as follows:2017 are: Mr. Goff – $16,442,183;$22,500,225; Mr. Sterin – $3,335,670;$4,600,209; Mr. Casey – $3,335,670;$4,260,229; Ms. Rucker – $2,505,697;$3,500,363; and Ms. Warner– $2,166,220.$3,200,240. See Note 1817 “Stock-Based Compensation” in the Notes to our Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 20162017 for the valuation assumptions used in accordance with FASB ASC Topic 718 in determining the fair market value of equity grants.awards. |
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(c) | Amounts in this column represent payouts under our annual cash incentive program for the years shown. |
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(d) | The amounts shown in this column represent the annual cash incentive awards earned under the 2016, 2015 and 2014 Annual Incentive Compensation Programs. |
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(e) | The amounts shownAmounts in this column reflect the change in pension value during 2017. See the fiscal year.discussion under “Retirement/Pension Benefits in 2017“ for a description of our retirement and pension benefits plans. |
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(f)(e) | The amounts shownAmounts in this column for 20162017 reflect the following: |
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(1) | Thrift Plan Company Contributions: We provide matching contributions dollar-for-dollar up to 6% of eligible earnings for all employees who participate in the Thrift Plan. The matching contributions for 2016 were $14,769 for Mr. Goff, $15,210 for Mr. Sterin, $15,900 for Mr. Casey, $15,900 for Ms. Rucker, and $15,900 for Ms. Warner. In addition, we provide a profit-sharing contribution to the Thrift Plan. This discretionary contribution, calculated as a percentage of employee’s base pay based on a pre-determined target for the calendar year, can range from 0% to 4% based on actual performance. There were no profit-sharing contributions for 2016. |
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(2) | Executive Deferred Compensation Company Contribution: We will match the participant’s base salary contributions dollar-for-dollar up to 4% eligible earnings above the IRS salary limitation (i.e., $265,000 for 2016). The matching contribution for 2016 was $38,838 for Mr. Sterin, $36,046 for Mr. Casey, and $20,763 for Ms. Rucker. |
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(3) | Relocation Benefits: The Company provided benefits in 2016 under its relocation program for Ms. Rucker in connection with arrangements made as part of her initial employment offer in the amount of $268,517. |
(g)401(k) Plan Company Contributions: We provide matching contributions dollar-for-dollar up to 6% of eligible earnings for all employees who participate in the 401(k) Plan. The matching contributions for 2017 were $14,769 for Mr. Goff, $16,200 for Mr. Sterin, $16,200 for Mr. Casey, $16,200 for Ms. Rucker, and $16,200 for Ms. Warner. In addition, we provide a profit-sharing contribution to the 401(k) Plan. This discretionary contribution, calculated as a percentage of employee’s base pay based on a pre-determined target for the calendar year, can range from 0% to 4% based on actual performance. The profit-sharing contributions for 2017 were $16,000 for Mr. Goff, $7,946 for Mr. Sterin, $7,312 for Mr. Casey, $7,750 for Ms. Rucker and $6,775 for Ms. Warner.
Executive Deferred Compensation Company Contribution: We will match the participant’s base salary contributions dollar-for-dollar up to 4% eligible earnings above the IRS salary limitation (i.e., $270,000 for 2017). The matching contribution for 2017 was $37,315 for Mr. Casey, and $39,346 for Ms. Rucker.
(f) Ms. Rucker commenced her employment with us effective March 14,16, 2016.
Tesoro Corporation 2017 Proxy Statement 36
Grants of Plan-Based Awards in 2016
2017The following table sets forth information regarding the grants of annual cash incentive compensation and long-term equity compensation to our NEOs.
| | Name | Award Type | Grant Date | Estimated Future Payouts Under Non-Equity Incentive Plan Awards (a) | Estimated Future Payouts Under Equity Incentive Plan Awards (b) | Grant date fair value of stock and option awards ($) (c) | Award Type | Grant Date | Estimated Future Payouts Under Non-Equity Incentive Plan Awards (a) | Estimated Future Payouts Under Equity Incentive Plan Awards (b) | Grant date fair value of stock and option awards ($) (c) |
Threshold ($) | Target ($) | Maximum ($) | Threshold (#) | Target (#) | Maximum (#) | Threshold ($) | Target ($) | Maximum ($) | Threshold (#) | Target (#) | Maximum (#) |
Goff | Annual Incentive | n/a | 1,280,000 | 2,560,000 | 5,120,001 | | | Annual Incentive | n/a | td,280,000 | td,560,000 | $5,120,001 | |
Market Stock Units (d) | 1/28/2016 | | 18,098 | 36,195 | 72,390 | 3,064,269 | Market Stock Units (d) | 2/14/2017 | | 19,635 | 39,270 | 78,540 | 4,218,776 |
Performance Shares (e) | 1/28/2016 | | — | 34,409 | 68,818 | 3,027,648 | Performance Shares (e) | 2/14/2017 | | — | 35,725 | 71,450 | 4,218,765 |
TLLP Performance Phantom Units (f) | 2/9/2016 | | 22,119 | 44,238 | 88,476 | 2,129,175 | Andeavor Logistics Performance Phantom Units (f) | 2/16/2017 | | 19,027 | 38,054 | 76,108 | 2,812,571 |
Sterin | Annual Incentive | n/a | 380,250 | 760,500 | 1,521,000 | | | Annual Incentive | n/a | 437,038 | 874,077 | 1,748,154 | |
Market Stock Units (d) | 1/28/2016 | | 3,672 | 7,343 | 14,686 | 621,658 | Market Stock Units (d) | 2/14/2017 | | 4,015 | 8,029 | 16,058 | 862,555 |
Performance Shares (e) | 1/28/2016 | | — | 6,981 | 13,962 | 614,258 | Performance Shares (e) | 2/14/2017 | | — | 7,304 | 14,608 | 862,529 |
TLLP Performance Phantom Units (f) | 2/9/2016 | | 4,487 | 8,974 | 17,948 | 431,919 | Andeavor Logistics Performance Phantom Units (f) | 2/16/2017 | | 3,890 | 7,780 | 15,560 | 575,020 |
Casey | Annual Incentive | n/a | 352,981 | 705,961 | 1,411,923 | | | Annual Incentive | n/a | 402,135 | 804,269 | 1,608,538 | |
Market Stock Units (d) | 1/28/2016 | | 3,672 | 7,343 | 14,686 | 621,658 | Market Stock Units (d) | 2/14/2017 | | 4,957 | 9,914 | 19,828 | 1,065,061 |
Performance Shares (e) | 1/28/2016 | | — | 6,981 | 13,962 | 614,258 | Performance Shares (e) | 2/14/2017 | | — | 9,019 | 18,038 | 1,065,054 |
TLLP Performance Phantom Units (f) | 2/9/2016 | | 4,487 | 8,974 | 17,948 | 431,919 | |
Rucker | Annual Incentive | n/a | 290,252 | 580,505 | 1,161,010 | | | Annual Incentive | n/a | 387,500 | 775,000 | 1,550,000 | |
Market Stock Units (d) | 3/14/2016 | | 2,758 | 5,516 | 11,032 | 466,985 | Market Stock Units (d) | 2/14/2017 | | 3,055 | 6,109 | 12,218 | 656,290 |
Performance Shares (e) | 3/14/2016 | | — | 5,244 | 10,488 | 461,420 | Performance Shares (e) | 2/14/2017 | | — | 5,558 | 11,116 | 656,344 |
TLLP Performance Phantom Units (f) | 3/14/2016 | | 3,371 | 6,741 | 13,482 | 324,444 | Andeavor Logistics Performance Phantom Units (f) | 2/16/2017 | | 2,960 | 5,920 | 11,840 | 437,547 |
Warner | Annual Incentive | n/a | 291,202 | 582,404 | 1,164,808 | | | Annual Incentive | n/a | 338,750 | 677,500 | 1,355,000 | |
Market Stock Units (d) | 1/28/2016 | | 3,218 | 6,435 | 12,870 | 544,787 | Market Stock Units (d) | 2/14/2017 | | 2,793 | 5,586 | 11,172 | 600,104 |
Performance Shares (e) | 1/28/2016 | | — | 6,118 | 12,236 | 538,323 | Performance Shares (e) | 2/14/2017 | | — | 5,081 | 10,162 | 600,015 |
Warner | | Andeavor Logistics Performance Phantom Units (f) | 2/16/2017 | | 2,706 | 5,412 | 10,824 | 400,001 |
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(a) | TheseAmounts in these columns showreflect the range of awards under our 20162017 Annual Incentive Compensation Program, or ICP, which is described in the section “Annual Performance Incentives” in the Compensation Discussion and Analysis. The “threshold” columnCD&A. “Threshold” represents the minimum payout for the performance metrics under the ICP assuming that the minimum level of performance is attained. The “target” column“Target” represents the amount payable if the target performance metrics are reached. The “maximum” column“Maximum” represents the maximum payout for the performance metrics under the ICP assuming that the maximum level of performance is attained. |
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(b) | The amounts shownAmounts in these columns represent the threshold, target and maximum number of shares to be issued upon vesting and settlement of performance shares and market stock units granted during 20162017 under the Andeavor Amended and Restated 2011 Long-Term Incentive Plan and the vesting and settlement of the TLLPAndeavor Logistics Performance Phantom Units granted during 20162017 under the TesoroAndeavor Logistics LP 2011 Long-Term Incentive Plan as described in the sectionunder “Long-Term Incentives” in the Compensation Discussion and Analysis.CD&A. |
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(c) | The amounts shownAmounts in this column represent the grant date fair value of the awards computed in accordance with financial accounting standards. |
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(d) | TheseThe market stock unit awards are contingent on our stock price performance with a performance period of thirty-six months from the date of grant, of January 28, 2016February 14, 2017 through January 28, 2019 for Messrs. Goff, Sterin and Casey and Ms. Warner and a performance period of MarchFebruary 14, 2016 through March 14, 2019 for Ms. Rucker.2020. Actual payouts will vary based on stock price performance, from none of the units vesting, to a threshold vesting of 50% of the units, to a target vesting of 100% of the units, to a maximum vesting of 200% of the units. |
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(e) | ThisThe performance share award isawards are contingent on our achievement of relative TSR against a defined performance peer group, XLE Energy Index and the S&P 500 at the end of a thirty-six month performance period (January 1, 2016from February 14, 2017 through December 31, 2018).February 14, 2020. Actual payouts will vary based on relative TSR, from a threshold vesting of none of the units, to a target vesting of 100% of the units, to a maximum vesting of 200% of the units. |
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(f) | This TLLPThe Andeavor Logistics performance phantom unit award isawards are contingent upon TLLP’sAndeavor Logistics’ achievement of relative total unitholder return at the end of the performance period from January 1, 2016February 16, 2017 through December 31, 2018.February 16, 2020. Actual payouts will vary based on relative total unitholder return from none of the units vesting to a threshold vesting of 50% of the units to a target vesting of 100% of the units to a maximum vesting of 200% of the units. |
Tesoro Corporation 2017 Proxy Statement 37 |
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| | 2018 Proxy Statement | 46 |
Outstanding Equity Awards at 20162017 Fiscal Year End
The following table sets forth the outstanding equity awards of our NEOs at the endas of 2016.December 31, 2017.
| | Name | Grant Date | Option Awards (a) | Stock Awards | Grant Date | Option Awards (a) | Stock Awards |
Number of Securities Underlying Unexercised Options (#) Exercisable | Option Exercise Price ($) | Option Expiration Date | Number of Shares or Units of Stock That Have Not Vested (#)(b) | Market Value of Shares or Units of Stock That Have Not Vested ($)(c) | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Rights That Have Not Vested (#) | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($)(c) | Number of Securities Underlying Unexercised Options (#) Exercisable | Option Exercise Price ($) | Option Expiration Date | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Rights That Have Not Vested (#) | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($)(b) |
Goff | 2/9/2016 | | 44,238 (d) | 2,359,522 (d) | |
1/28/2016 | | 36,195 (e) | 3,165,253 (e) | 2/16/2017 | | 38,054 (c) | 1,867,926 (c) |
1/28/2016 | | 34,409 (g) | 3,081,326 (g) | 2/14/2017 | | 78,540 (d) | 8,980,264 (d) |
2/12/2015 | | 35,122 (d) | 1,976,824 (d) | 2/14/2017 | | 71,450 (e) | 8,332,499 (e) |
2/10/2015 | | 78,436 (e) | 6,859,228 (e) | 2/9/2016 | | 44,238 (c) | 2,323,521 (c) |
2/10/2015 | | 76,252 (g) | 6,969,433 (g) | 1/28/2016 | | 72,390 (d) | 8,277,073 (d) |
2/4/2014 | | 109,344 (e) | 9,562,133 (e) | 1/28/2016 | | 34,409 (e) | 4,085,036 (e) |
2/4/2014 | | 64,230 (f) | 5,941,275 (f) | 2/10/2015 | | 78,436 (d) | 8,968,372 (d) |
5/5/2010 | 118,000 | 12.93 | 5/5/2020 | | | 5/5/2010 | 118,000 | 12.93 | 5/5/2020 | |
5/3/2010 | 33,513 | 13.66 | 5/3/2020 | | | 5/3/2010 | 33,513 | 13.66 | 5/3/2020 | |
Sterin | 2/9/2016 | | 8,974 (d) | 478,646 (d) | 2/16/2017 | | 7,780 (c) | 381,891 (c) |
1/28/2016 | | 7,343 (e) | 642,145 (e) | 2/14/2017 | | 16,058 (d) | 1,836,072 (d) |
1/28/2016 | | 6,981 (g) | 625,149 (g) | 2/14/2017 | | 14,608 (e) | 1,703,585 (e) |
2/12/2015 | | 6,147 (d) | 345,981 (d) | 2/9/2016 | | 8,974 (c) | 471,343 (c) |
2/10/2015 | | 13,728 (e) | 1,200,514 (e) | 1/28/2016 | | 14,686 (d) | 1,679,197 (d) |
2/10/2015 | | 13,344 (g) | 1,219,642 (g) | 1/28/2016 | | 6,981 (e) | 828,784 (e) |
8/18/2014 | | 28,968 (h) | 2,533,252 (h) | 2/10/2015 | | 13,728 (d) | 1,569,660 (d) |
Casey | 2/9/2016 | | 8,974 (d) | 478,646 (d) | 2/14/2017 | | 19,828 (d) | 2,267,134 (d) |
1/28/2016 | | 7,343 (e) | 642,145 (e) | 2/14/2017 | | 18,038 (e) | 2,103,592 (e) |
1/28/2016 | | 6,981 (g) | 625,149 (g) | 2/9/2016 | | 8,974 (c) | 471,343 (c) |
2/12/2015 | | 6,147 (d) | 345,981 (d) | 1/28/2016 | | 14,686 (d) | 1,679,197 (d) |
2/10/2015 | | 13,728 (e) | 1,200,514 (e) | 1/28/2016 | | 6,981 (e) | 828,784 (e) |
2/10/2015 | | 13,344 (g) | 1,219,642 (g) | 2/10/2015 | | 13,728 (d) | 1,569,860 (d) |
5/27/2014 | | 11,272 (h) | 985,736 (h) | |
2/4/2014 | | 12,530 (e) | 1,095,749 (e) | |
2/4/2014 | | 7,360 (f) | 680,800 (f) | |
Rucker | | 2/16/2017 | | 5,920 (c) | 290,590 (c) |
| 2/14/2017 | | 12,218 (d) | 1,397,006 (d) |
| 2/14/2017 | | 11,116 (e) | 1,296,348 (e) |
3/14/2016 | | 6,741 (d) | 359,544 (d) | 3/14/2016 | | 6,741 (c) | 354,059 (c) |
3/14/2016 | | 11,032 (h) | 964,748 (h) | 3/14/2016 | | 11,032 (d) | 1,261,399 (d) |
3/14/2016 | | 5,244 (g) | 469,600 (g) | 3/14/2016 | | 5,244 (e) | 619,946 (e) |
Warner | 1/28/2016 | | 6,435 (e) | 562,741 (e) | 2/16/2017 | | 5,412 (c) | 265,655 (c) |
1/28/2016 | | 6,118 (g) | 547,867 (g) | 2/14/2017 | | 11,172 (d) | 1,277,406 (d) |
2/10/2015 | | 13,074 (e) | 1,143,321 (e) | 2/14/2017 | | 10,162 (e) | 1,185,092 (e) |
2/10/2015 | | 12,710 (g) | 1,161,694 (g) | 1/28/2016 | | 12,870 (d) | 1,471,556 (d) |
10/6/2014 | | 20,338 (h) | 1,778,558 (h) | 1/28/2016 | | 6,118 (e) | 726,329 (e) |
10/6/2014 | | 27,411 (i) | 2,513,589 (i) | | | 2/10/2015 | | 13,074 (d) | 1,494,881 (d) |
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(a) | Stock options are fully vested. |
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(b) | The restrictedmarket value of the unvested stock awardawards was grantedcalculated on October 6, 2014 and vests in full on October 6, 2017. |
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(c) | Thethe basis of the closing stock price of our common stock on 12/30/16December 29, 2017 of $87.45$114.34 as reported on the NYSE was used to calculate theNYSE. The market value of the unvested stock awards. TheAndeavor Logistics unit awards was calculated on the basis of the closing unit price of TLLP’sAndeavor Logistics’s common units on 12/30/16December 29, 2017 of $50.81$46.19 as reported on the NYSE was used to calculate the market value of the unvested TLLP unit awards.NYSE. |
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(d)(c) | These awards represent TLLPAndeavor Logistics performance phantom units, which are the right to receive a number of common units at the end of the performance period depending on our achievement of relative total unitholder return against a defined performance peer group. Each award will vest at the end of the relevant performance period, subject to performance. For each award, the number of unvested units and the payout values shown assume a payout at target; for all such awards, the payout value also includes any outstanding distribution equivalent rights that will be paid to the executive once both the award has vested and the payout results have been certified by Andeavor Logistics’ general partner. The following table |
Tesoro Corporation 2017 Proxy Statement 38
equivalent rights that will be paid toshows the executive once both the award has vested and the payout results have been certified by the TLGP Board of Directors. The performance period for each award, as well as the amount of outstanding distribution equivalent rights included in the payout value is shown for eachas of the NEOs below:December 31, 2017:
| | Name |
Dividend Equivalent Rights Accrued as of 12/31/2016 ($) | |
| Performance Phantom Units (Performance Period: 2/16/2017–2/16/2020) | Performance Phantom Units (Performance Period: 1/1/2016–12/31/2018) |
Name | TLLP Performance Phantom Units Granted February 2016 for all NEOs below except Rucker (Granted March 2016) (Performance Period of 1/1/2016–12/31/2018) | TLLP Performance Phantom Units Granted February 2015 (Performance Period of 1/1/2015–12/31/2017) | DERs ($) | Grant Date | DERs ($) | Grant Date |
111,789 | 192,275 | 110,212 | 2/16/2017 | 280,168 | 2/9/2016 |
Sterin | 22,677 | 33,652 | 22,532 | 2/16/2017 | 56,834 | 2/9/2016 |
Casey | 22,677 | 33,652 | — | 56,834 | 2/9/2016 |
Rucker | 17,035 | — | 17,146 | 2/16/2017 | 42,692 | 3/14/2016 |
Warner | | 15,674 | 2/16/2017 | — |
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(e)(d) | These awards represent MSUs, which are the right to receive a number of shares of common stock earned at vesting based on the stock price performance. The performance period is thirty-six months from the date of grant and the payout value shown assumes a payout at target for the award granted 1/28/2016 and at maximum for the awards granted 2/10/201514/2017, 1/28/2016, 3/14/2016 and 2/4/2014.10/2015. |
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(f) | This award represents performance shares, which are the right to receive a number of shares of common stock at the end of the performance period depending on our achievement of relative ROCE against a defined performance peer group. This award will vest at the end of a thirty-six month performance period (detailed below). The amount of the awards earned will not be certified, and the awards will not be settled, until after this proxy statement is filed. For this award, the payout value shown assumes a payout at maximum; and also includes any outstanding dividend equivalents that will be paid to the executive once both the award has vested and the payout results have been certified by the Compensation Committee. The performance period for this award is January 1, 2014 through December 31, 2016. The outstanding distribution equivalent rights included in the payout value is 324,362 for Mr. Goff and 37,168 for Mr. Casey. |
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(g)(e) | These awards represent performance shares, which are the right to receive a number of shares of common stock at the end of the performance period depending on our achievement of relative TSR against a defined performance peer group, the XLE Energy Index (beginning with the 20152016 grant) and the S&P 500. Each award will vest at the end of a thirty-six month performance period (detailed below).period. For each award, the payout value shown assumes a payout at maximum for the awards granted 2/17/2017 and payout at target for the awards granted 1/28/2016 and 3/14/2016 and at maximum for the award granted 2/10/2015;2016; for all such awards, the payout value also includes any outstanding dividend equivalents that will be paid to the executive once both the award has vested and the payout results have been certified by the Compensation Committee. The following table shows the performance period for each award, as well as the amount of outstanding distribution equivalent rights included in the payout value is shown for eachas of the NEOs below:December 31, 2017: |
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Name | Dividend Equivalent Rights Accrued as of 12/31/2016 ($) |
TSR-Based Performance Shares Granted February 2016 for all NEOs below except Rucker (Granted March 2016) (Performance Period of 1/1/2016–12/31/2018) | TSR-Based Performance Shares Granted February 2015 (Performance Period of 1/1/2015–12/31/2017) |
Goff | 72,259 | 301,195 |
Sterin | 14,660 | 52,709 |
Casey | 14,660 | 52,709 |
Rucker | 11,012 | — |
Warner | 12,849 | 50,205 |
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(h) | These awards represent MSUs, which are the right to receive a number of shares of common stock earned at vesting based on the stock price performance, which were granted in connection with an offer of employment or a promotion. The performance period is thirty-six months from the date of grant and the payout value shown assumes a payout at maximum for each award. |
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(i) | These awards represent restricted stock granted in connection with an offer of employment. The market value also includes any outstanding dividends that will be paid to the executive at time of vesting of such award. The amount of outstanding dividends included with the market value for Ms. Warner is $116,497.
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| TSR-Based Performance Shares (Performance Period: 2/14/2017-2/14/2020) | TSR-Based Performance Shares (Performance Period: 1/1/2016–12/31/2018) |
Name | DERs ($) | Grant Date | DERs ($) | Grant Date |
Goff | 162,906 | 2/14/2017 | 150,711 | 1/28/2016 |
Sterin | 33,306 | 2/14/2017 | 30,577 | 1/28/2016 |
Casey | 41,127 | 2/14/2017 | 30,577 | 1/28/2016 |
Rucker | 25,344 | 2/14/2017 | 20,347 | 3/14/2016 |
Warner | 23,169 | 2/14/2017 | 26,797 | 1/28/2016 |
Tesoro Corporation 2017 Proxy Statement 39
Option Exercises and Stock Vested in 2016
2017The following table reflectsshows the aggregate value realized by the NEOs for option exercises, as well as restricted stock, performance shares, with total shareholder return metric (TSR) and return on capital employed metric (ROCE), market stock units and TLLPAndeavor Logistics performance phantom units that vested in 2016.2017.
| | | Option Awards | Stock Awards | Option Awards | Stock Awards |
Name | Number of Shares Acquired on Exercise (#) | Value Realized on Exercise ($) | Number of Shares Acquired on Vesting (#) | Value Realized on Vesting ($)(a) | Number of Shares Acquired on Exercise (#) | Value Realized on Exercise ($) | Number of Shares Acquired on Vesting (#) | Value Realized on Vesting ($)(a) |
Goff | — | — | 190,241 | 14,745,369 | — | 241,046 |
| 20,325,683 |
|
Sterin | — | — | 41,086 |
| 3,632,051 |
|
Casey | — | 16,300 | 1,338,751 | — | 42,233 |
| 3,531,213 |
|
Rucker | — | — | — |
| — |
|
Warner | — | — | 52,088 |
| 5,675,797 |
|
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(a) | The value of the performance shares with total shareholder return metric, performance shares with return on capital employed metric and the market stock units areis calculated based on the number of shares granted multiplied by the performance payout factor approved by the Compensation Committee and then multiplied by the closing price of the stock on suchthe date noted in the table below. Of the amounts realized for the performance shares with return on capital employed metric payout, the amounts paid in dividend equivalents to the NEOs were: Mr. Goff – $133,502$330,915 and Mr. Casey – $12,736.$37,923. Of the amounts realized for the performance shares with total shareholder return metric payout, the amounts paid in dividend equivalents to the NEOs were:were Mr. Goff – $197,415 and$260,190, Mr. Sterin – $45,535, Mr. Casey – $22,624. In addition,$45,535 and Ms. Warner – $43,373. Of the amounts realized for Mr. Goff, these realized amounts include the payouts ofrestricted stock vested, the TLLP performance phantom units.amount paid in dividends to Ms. Warner was $162,821. The value realized on the payout of the performance phantom units is calculated based on the number of units granted multiplied by the performance payout factor approved by the TLGP Board of Directors noted below and then multiplied by the closing price of the common units on such date. Of the amounts realized for the TLLP performance phantom units’ payout, the amounts paid in distribution equivalent rights to the NEOs were: Mr. Goff – $131,499. |
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| | 2018 Proxy Statement | 48 |
multiplied by the performance payout factor approved by the Andeavor Logistics board noted below and then multiplied by the closing price of the common units on such date. Of the amounts realized for the Andeavor Logistics performance phantom units’ payout, the amounts paid in distribution equivalent rights to the NEOs were: Mr. Goff – $474,105, Mr. Sterin – $82,979 and Mr. Casey – $82,979.
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Type of Award | Grant Date | Approval Date | Performance Payout Factor |
Market Stock Units | 2/4/20132014 | February 10, 201614, 2017 | 200%163% |
Performance Shares with ROCE | 2/4/20132014 | April 3, 20165, 2017 | 93% |
Performance Shares with ROCE | 4/15/2013 | April 3, 2016 | 93%184% |
Market Stock Units | 4/15/20138/18/2014 | August 22, 2017 | 171% |
Market Stock Units | 10/6/2014 | October 10, 2017 | 174% |
Market Stock Units | 5/27/2014 | May 3, 201631, 2017 | 162%160% |
TLLPAndeavor Logistics Performance Phantom Units | 2/7/201412/2015 | January 17, 201718, 2018 | 58%145% |
Performance Shares with TSR | 2/4/201410/2015 | January 20, 2017February 13, 2018 | 141%110% |
Retirement/Pension Benefits in 2016
2017The estimated present value as of December 31, 20162017 of the accumulated pension benefits provided under the Tesoro Corporation RetirementAndeavor Pension Plan (the “Pension Plan”), the Andeavor Executive Security Plan and(the “Security Plan”), the Andeavor Supplemental Executive Retirement Plan (the “Supplemental Plan”) and the Andeavor Restoration Retirement Plan (the “Restoration Plan”) for each NEO was:
| | Name | Plan Name | Years of Credited Service (a) | Present Value of Accumulated Benefit ($) (b) | Payments during last fiscal year ($) | Plan Name | Years of Credited Service (a) | Present Value of Accumulated Benefit ($) (b) | Payments during last fiscal year ($) |
Goff | Tesoro Corporation Retirement Plan | 0.7 | 159,032 |
| — |
| Pension Plan | 0.7 | 192,711 |
| — |
Executive Security Plan | 6 | 22,266,944 |
| — |
| Security Plan | 7 | 26,307,459 |
| — |
Sterin | Tesoro Corporation Retirement Plan | N/A | 42,603 |
| — |
| Pension Plan | N/A | 63,168 |
| — |
Supplemental Executive Retirement Plan | N/A | 359,781 |
| — |
| Supplemental Plan | N/A | 643,284 |
| — |
Casey | Tesoro Corporation Retirement Plan | N/A | 63,123 |
| — |
| Pension Plan | N/A | 87,752 |
| — |
Supplemental Executive Retirement Plan | N/A | 535,592 |
| — |
| Supplemental Plan | N/A | 796,292 |
| — |
Rucker | Tesoro Corporation Retirement Plan | N/A | 15,090 |
| — |
| Pension Plan | N/A | 35,418 |
| — |
Restoration Retirement Plan | N/A | 19,504 |
| — |
| Restoration Plan | N/A | 113,981 |
| — |
Warner | Tesoro Corporation Retirement Plan | N/A | 46,868 |
| — |
| Pension Plan | N/A | 69,696 |
| — |
Supplemental Executive Retirement Plan | N/A | 301,395 |
| — |
| Supplemental Plan | N/A | 512,574 |
| — |
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(a) | Due to a freeze of credited service as of December 31, 2010, credited service values for the Tesoro Corporation RetirementPension Plan and the Supplemental Executive Retirement Plan are less than actual service values. Credited service is used to calculate the Final Average Pay portion of the Tesoro Corporation RetirementPension Plan benefit pertaining tofor Mr. Goff. The Cash Balance portion of the Tesoro Corporation RetirementPension Plan and the Supplemental Executive Retirement Plan that went into effect on January 1, 2011 does not use credited service. As Messrs. Sterin and Casey, and Mmes. Rucker and Warner were hired after January 1, 2011, years of credited service is not applicable to them. |
Tesoro Corporation 2017 Proxy Statement 40
service. As Messrs. Sterin and Casey, and Mmes. Rucker and Warner were hired after January 1, 2011, years of credited service is not applicable to them.
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(b) | The present values of the accumulated plan benefits are equal to the value of the retirement benefits at the earliest unreduced age for each plan utilizing the same assumptions used as of December 31, 20162017 for financial reporting purposes. These assumptions include a discount rate of 4.12%3.65%, a cash balance interest crediting rate of 3.12%3.00%, the use of the RP-2016RP-2017 Mortality Table with generational mortality improvements in accordance with Scale MP-2016MP-2017 and for the Tesoro Corporation RetirementPension Plan, that each employee will elect a lump sum payment at retirement using an interest rate of 4.12%3.65% and the PPA 2017 Mortality Table. |
The following describes the retirement or pension benefit plans in which our NEOs participate.
Andeavor Pension Plan (“Pension Plan”)
This plan is a tax-qualified pension plan with a monthly retirement benefit made up of two components: (i) a Final Average Pay (“FAP”) benefit for service through December 31, 2010, and (ii) a Cash Balance account based benefit for service after December 31, 2010. The final benefit payable under the Retirement Plan is equal to the value of the sum of both the FAP and the Cash Balance components on the participant’s benefit commencement date.
For service prior to December 31, 2010, the FAP benefit is 1.1% of final average compensation for each year of service through December 31, 2010, plus 0.5% of average compensation in excess of the Social Security Covered Compensation limit for each year of service through December 31, 2010, up to 35 years. Final average compensation is the monthly average of compensation (including base pay plus bonus, but limited to the maximum compensation and benefit limits allowable for qualified plans under the Internal Revenue Code) over the consecutive 36-month period in the last 120 months preceding retirement that produces the highest average.
For service after 2010, participants earn pay and interest credits under the Cash Balance component. Pay credits are determined based on a percentage of eligible pay at the end of each quarter, ranging from 4.5% to 8.5% of pay based on a participant’s age at the end of each quarter. Interest is credited quarterly on account balances based on a minimum of 3%, the 10-Year Treasury Bonds or the 30-Year Treasury Bonds, whichever is higher. The Cash Balance benefit component for service after 2010 is always based on the actual balance of the cash balance account as of the payment date and is not subject to any reduction for payment prior to normal retirement.
Benefits are generally payable the first day of the month following the attainment of age 65 and the completion of at least 3 years of service. If a participant qualifies for early retirement (age 50 with service plus age greater than or equal to 80, which is referred to as “80-point early retirement,” or age 55 with 5 years of service, which is referred to as “regular early retirement”), the FAP benefit component will be reduced by a subsidized early retirement factor prior to age 65. Under the 80-point early retirement definition, the FAP benefit component may be paid at age 60 without reduction or earlier than age 60 with a reduction of 5% per year for each year the age at retirement is less than 60. Under the regular early retirement definition, the FAP benefit component may be paid at age 62 without reduction or earlier than age 62 with a reduction of approximately 7.14% per year for each year prior to age 62. If an employee does not qualify for early retirement upon separation from service, they will be eligible for an actuarially equivalent FAP benefit based on their age at the date the benefit is paid without an early retirement subsidy.
As of December 31, 2017, Mr. Goff meets the regular early retirement criteria, Messrs. Sterin and Casey and Ms. Warner are eligible to receive a payment under the Pension Plan without an early retirement subsidy for the FAP portion of the benefit, and Ms. Rucker is not yet vested under the Pension Plan.
Executive Security Plan (“Security Plan”)
This is a non-qualified pension plan that was closed to new participants in 2010. Final average compensation under this plan is calculated by averaging the three highest annual compensation amounts over the last seven calendar years. For this purpose, compensation includes base pay plus bonus (counted in the year earned not paid). The gross monthly retirement benefit is equal to:
4% of final average compensation for each of the first 10 years of service, plus
2% of final average compensation for each of the next 10 years of service, plus
1% of final average compensation for each of the last 10 years of service,
for a maximum gross monthly retirement benefit of 70% of final average compensation for up to 30 years of service.
The gross monthly retirement benefit is reduced by any benefits paid from the qualified Pension Plan, and, after age 62, estimated Social Security benefits. To qualify to receive payments under the plan, a participant must separate from the company after attaining age 50 with 80 points or age 55 and with at least 5 years of service. Payments prior to attaining age 60 will be reduced by 7% per year for each year less than 60 (pro-rated for partial years). As of December 31, 2017, Mr. Goff is eligible to receive retirement payments under this plan.
The Security Plan also provides for certain death and disability benefits. The death benefits are equal to the greater of (1) the executive’s benefit under the plan determined at date of death, (2) the actuarial
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Tesoro Corporation Retirement Plan (the “Retirement Plan”) |
Short Description | A tax-qualified pension plan with a monthly retirement benefit made up of two components:
•a Final Average Pay (FAP) benefit for service through December 31, 2010, and
•a Cash Balance account based benefit for service after December 31, 2010
The final benefit payable under the Retirement Plan is equal to the value of the sum of both the FAP and the Cash Balance components on the participant’s benefit commencement date.
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FAP Benefit (through 12/31/2010) | •1.1% of final average compensation for each year of service through December 31, 2010, plus 0.5% of final average compensation in excess of the Social Security Covered Compensation limit for each year of service through December 31, 2010, up to 35 years
•Final average compensation is the monthly average of compensation (including base pay plus bonus but limited to the maximum compensation and benefit limits allowable for qualified plans under the Internal Revenue Code) over the consecutive 36-month period in the last 120 months preceding retirement that produces the highest average
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Cash Balance Benefit (after 12/31/2010) | •For service after 2010, participants earn pay and interest credits:
oPay credits are determined based on a percentage of eligible pay at the end of each quarter ranging from 4.5% to 8.5% of pay based on a participant’s age at the end of each quarter
oInterest is credited quarterly on account balances based on a minimum of 3%, the 10-Year Treasury Bonds or the 30-Year Treasury Bonds, whichever is higher
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Timing of Benefit Payments | •Generally payable the first day of the month following the attainment of age 65 and the completion of at least 3 years of service
•Early Retirement:
oIf a participant qualifies for early retirement (age 50 with service plus age greater than or equal to 80, which is referred to as “80-point early retirement,” or age 55 with 5 years of service, which is referred to as “regular early retirement”), the FAP benefit component will be reduced by a subsidized early retirement factor prior to age 65. Under the 80-point early retirement definition, the FAP benefit component may be paid at age 60 without reduction or earlier than age 60 with a reduction of 5% per year for each year the age at retirement is less than 60. Under the regular early retirement definition, the FAP benefit component may be paid at age 62 without reduction or earlier than age 62 with a reduction of approximately 7.14% per year for each year prior to age 62. If an employee does not qualify for early retirement upon separation from service, they will be eligible for an actuarially equivalent FAP benefit based on their age at the date the benefit is paid without an early retirement subsidy
oThe Cash Balance benefit component for service after 2010 is always based on the actual balance of the cash balance account as of the payment date and is not subject to any reduction for payment prior to normal retirement
•As of the end of fiscal 2016:
oMr. Goff meets the regular early retirement criteria
oMr. Casey is vested under the Retirement Plan
oMr. Sterin and Mmes. Rucker and Warner are not yet vested under the Retirement Plan
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Tesoro Corporation 2017 Proxy Statement 41
equivalent of 400% of the executive’s base pay, prior to the date of death, and (3) the benefit determined as if the executive had remained an active employee through age 65 and was paid a benefit at age 65. The monthly payment would be payable for the life of the beneficiary, reduced by the amount of the applicable Social Security benefits.
If the executive becomes disabled, he is entitled to the monthly retirement benefit for which he would be eligible at his normal retirement date, but based upon the service the participant would have accrued had he remained in active employment until his retirement date and continued at the same rate of earnings until that date. Monthly payments would be payable on the first day of the month following the date on which the executive has both attained age 65 and has a minimum of five years of service.
Following are the amounts to which Mr. Goff would be entitled under the plan under certain death and disability scenarios, in each case assuming the event occurred as of December 31, 2017:
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Name | Monthly Death Benefit to Executive’s Beneficiary Before Age 62 ($) | Monthly Death Benefit to Executive’s Beneficiary After Age 62 ($) | Monthly Disability Benefit ($) |
Goff | 189,899 | 187,764 | 200,246 |
Supplemental Executive Retirement Plan (“Supplemental Plan”)
This is a non-qualified cash balance account based pension plan that provides eligible senior level executives who are hired on or after January 1, 2011 with a supplemental cash balance pension benefit in excess of those earned under the qualified Pension Plan. This plan was closed to new participants in 2015.
Pay credits under the plan are equal to 15% of eligible pay offset by the value of the pay credits allocated to the qualified Pension Plan. Interest is credited quarterly on account balances based on the greater of 3%, the 10-Year Treasury Bonds and the 30-Year Treasury Bonds. To be eligible to receive a payment under the plan, the executive must separate from the company after attaining age 50 with 80 points, or after attaining age 55 with at least 5 years of service.
As of December 31, 2017, Messrs. Sterin and Casey and Ms. Warner, who participate in the plan, had not yet met the eligibility requirements to receive a payment under the plan. Mr. Goff, who joined the Company prior to 2011, does not participate in the plan, nor does Ms. Rucker, who joined the Company after the plan was closed to new participants.
The plan also provides certain death and disability benefits. The death benefit is equal to the value of the vested account balance as of the date of death. The disability benefit provides continued pay and interest credits during the period of disability up to age 65.
Following are the present values, as of December 31, 2017, of these death and disability benefits for each participating NEO:
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Name | Present Value of Death Benefit ($) | Present Value of Disability Benefit ($) |
Sterin | 724,198 | 4,126,179 |
Casey | 866,873 | 3,156,848 |
Warner | 531,734 | 1,550,124 |
Andeavor Restoration Pension Plan (“Restoration Plan”)
This plan is a non-qualified plan designed to restore the benefit which is not provided under the qualified Pension Plan due to compensation and benefit limitations imposed under the Internal Revenue Code. Any NEO terminating employment prior to becoming eligible for a benefit under either the Security Plan
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Executive Security Plan (“ESP”) |
Short Description51 | | •A non-qualified pension plan that was closed to new participants in 2010.![andvlogoprimarycolorrgba21.jpg](https://files.docoh.com/DEF 14A/0000050104-18-000066/andvlogoprimarycolorrgba21.jpg) |
Benefit Formula | •Final average compensation in the ESP is the highest three years of compensation out of the last seven calendar years that produces the highest average. Compensation includes base pay plus bonus (counted in the year earned not paid).
•Gross monthly retirement benefit is equal to:
o4% of final average compensation for each of the first 10 years of service, plus
o2% of final average compensation for each of the next 10 years of service, plus
o1% of final average compensation for each of the last 10 years of service,
ofor a maximum gross monthly retirement benefit of 70% of final average compensation for up to 30 years of service.
•Gross monthly retirement benefit is reduced by any benefits paid from the qualified Retirement Plan, and, after age 62, estimated Social Security benefits.
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Vesting and Timing of Benefit Payments | •To qualify, a participant must separate from the company after attaining age 50 with 80 points or age 55 and with at least 5 years of service.
•Payment is equal to:
othe gross monthly retirement benefit may be paid on or after age 60 without a reduction, or
oearlier than age 60 with a reduction of 7% per year for each year less than 60 (pro-rated for partial years).
•As of the end of fiscal 2016, Mr. Goff is eligible to receive a payment.
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Death and Disability Benefits | •The ESP provides for certain death and disability benefits. The death benefits in the ESP are equal to the greater of (1) the executive’s ESP benefit determined at date of death, (2) the actuarial equivalent of 400% of the executive’s base pay, prior to the date of death, or (3) the benefit determined as if the executive had remained an active employee through age 65 and was paid a benefit at age 65. Assuming that the following executives died on December 31, 2016, their monthly payment under the ESP, payable for the life of the beneficiary, would be the following, offset by the estimated Social Security benefit.
•If the executive becomes disabled, the executive is entitled to the monthly retirement benefit for which he is eligible at his normal retirement date, but based upon the service the participant would have accrued had he remained in active employment until his retirement date and continued at the same rate of earnings until that date. Assuming that the following executives became disabled on December 31, 2016, their monthly payments under the ESP are payable on the first day of the month following the date on which the executive has attained both age 65 and has a minimum of five years of service.
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Name | Monthly Death Benefit to Executive’s Beneficiary Before Age 62 ($) | Monthly Death Benefit to Executive’s Beneficiary After Age 62 ($) | Monthly Disability Benefit ($) |
Goff | 190,563 | 188,503 | 199,444 |
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Supplemental Executive Retirement Plan (“SERP”) |
Short Description | A non-qualified cash balance account based pension plan that provides eligible senior level executives who are hired on or after January 1, 2011 with a supplemental cash balance pension benefit in excess of those earned under the qualified Retirement Plan. This plan was closed to new participants in 2015. |
Benefit Formula | Pay credits are equal to 15% of eligible pay offset by the value of the pay credits allocated to the qualified Retirement Plan. Interest is credited quarterly on account balances based on a minimum of 3%, the 10-Year Treasury Bonds or the 30-Year Treasury Bonds, whichever is higher. |
Vesting and Timing of Benefit Payments | In order to receive a payment under the SERP, a participant must separate from the company after attaining age 50 with 80 points or age 55 and with at least 5 years of service. As of the end of fiscal 2016, Mr. Sterin, Mr. Casey, and Ms. Warner had not met the eligibility requirements to receive a payment under the plan. |
Death and Disability Benefits | The SERP provides for certain death and disability benefits. The death benefit is equal to the value of the vested account balance as of the date of death. The disability benefit provides continued pay and interest credits during the period of disability up to age 65. |
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Name | Present Value of Death Benefit ($) | Present Value of Disability Benefit ($) |
Sterin | 435,677 | 3,440,532 |
Casey | 616,037 | 3,008,856 |
Warner | 321,941 | 1,494,356 |
Tesoro Corporation 2017 Proxy Statement 42
or the Supplemental Plan, as applicable, and after attaining three years of service credit, will receive a supplemental pension benefit under this plan.
The plan provides a benefit equal to the difference between the actual qualified Pension Plan benefit paid to the participant, and the benefit that would have otherwise been paid to the participant under the Pension Plan, without regard to certain Internal Revenue Code limits. |
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Tesoro Corporation Restoration Retirement Plan |
Short Description | A non-qualified plan designed to restore the benefit which is not provided under the qualified Retirement Plan due to compensation and benefit limitations imposed under the Internal Revenue Code.
If any of the NEOs terminate employment prior to becoming eligible for a benefit under either the ESP or SERP, as applicable, and after attaining three years of service credit, they will receive a supplemental pension benefit under this plan.
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Benefit Formula | Provides a benefit equal to the difference between the actual qualified Retirement Plan benefit paid to the participant, and the benefit that would have otherwise been paid to the participant under the Retirement Plan, without regard to certain Internal Revenue Code limits. |
Death and Disability Benefits | Provides for certain death and disability benefits in the same manner as provided in the qualified Retirement Plan. Generally, the death benefit provides an equivalent FAP benefit and full Cash Balance account value as of the date of death. The disability benefit provides continued benefit accruals during the period of disability up to age 65.
As of December 31, 2016, the present value of these death and disability benefits were as follows: Ms. Rucker - $22,560 for death and $440,819
The plan also provides for certain death and disability benefits in the same manner as provided in the qualified Pension Plan. Generally, the death benefit provides an equivalent FAP benefit and full Cash Balance account value as of the date of death. The disability benefit provides continued benefit accruals during the period of disability up to age 65.
As of December 31, 2017, the present value of these death and disability benefits for Ms. Rucker was $124,540 for death and $1,243,411 for disability. |
Non-qualified Deferred Compensation in 2016
2017
The following table sets forth information regarding the contributions to and year-end balances under our non-qualified deferred compensation plan for the NEOs in 2016.2017.
| | Name | Executive Contributions in Last Fiscal Year ($) (a) | Registrant Contributions in Last Fiscal Year ($) (b) | Aggregate Earnings in Last Fiscal Year ($) (c) | Aggregate Withdrawals/ Distributions ($) | Aggregate Balance at Last Fiscal Year-End ($) (d) | Executive Contributions in Last Fiscal Year ($) (a) | Registrant Contributions in Last Fiscal Year ($) (b) | Aggregate Earnings in Last Fiscal Year ($) (c) | Aggregate Withdrawals/ Distributions ($) | Aggregate Balance at Last Fiscal Year-End ($) (d) |
Goff | – | – | 2,855 |
| – | 99,985 | — |
| 13,300 |
| 5,332 |
| — |
| 118,617 |
Sterin | 38,838 | 1,991 |
| – | 99,064 | — |
| 5,246 |
| 13,533 |
| — |
| 117,844 |
Casey | 42,358 | 36,046 | 18,022 |
| – | 196,495 | 51,181 |
| 41,927 |
| 39,898 |
| — |
| 329,502 |
Rucker | 20,763 | 871 |
| – | 42,397 | 39,346 |
| 44,396 |
| 8,725 |
| — |
| 134,865 |
Warner | – | 42 |
| – | 15,096 | — |
| 4,075 |
| 119 |
| — |
| 19,290 |
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(a) | The amountAmounts shown includesinclude amounts reflected in the base salary column of the Summary Compensation Table for Messrs. Sterin andMr. Casey and Ms. Rucker. |
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(b) | The amountsAmounts shown include amounts reflected in the All Other Compensation column of the Summary Compensation Table for Messrs. Sterin and Casey and Ms. Rucker.each NEO. |
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(c) | The amountAmounts shown reflectsreflect the change in the market value pertaining to the investment funds in which the NEO has chosen to invest his or her contributions and our contribution under the Tesoro CorporationAndeavor Executive Deferred Compensation Plan. |
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(d) | A portion of the amounts disclosedshown in this column for Mr. Goff, Mr. Casey, Mr. Sterin and Ms. Warnereach NEO has previously been reported in Summary Compensation Tables for previous years. |
Andeavor Executive Deferred Compensation Plan
This plan provides executives and key management personnel (including our NEOs) the opportunity to make additional pre-tax deferrals that cannot be made under our qualified 401(k) plan, due to salary and limitations imposed under the Internal Revenue Code.
Participants may elect to defer up to 50% of their base salary and/or up to 100% of their annual bonus compensation after FICA tax deductions. We match the participant’s base salary contributions dollar-for-dollar up to 6% of eligible earnings above the IRS salary limitation (i.e., $270,000 for 2017). The plan also permits us to make discretionary contributions to participants’ accounts from time to time in amounts and on such terms as we may determine. Participants who are eligible for supplemental retirement benefits under the Executive Security Plan described above are eligible to defer compensation under this plan, but are not eligible for the matching provisions of the plan. Participants vest in our matching contributions upon completing three years of service.
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Tesoro Corporation Executive Deferred Compensation Plan (“EDCP”) |
Short Description | •Provides executives and key management personnel (including our NEOs) the opportunity to make additional pre-tax deferrals that cannot be made under our qualified 401(k) plan (“Thrift Plan”), due to salary and limitations imposed under the Internal Revenue Code.
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Participant Contributions | •Participants may elect to defer up to 50% of their base salary and/or up to 100% of their annual bonus compensation after FICA tax deductions.
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Company Contributions | •We will match the participant’s base salary contributions dollar-for-dollar up to 6% of eligible earnings above the IRS salary limitation (i.e., $265,000 for 2016).
•Participants that are eligible for supplemental retirement benefits under the ESP are eligible to defer compensation under the EDCP, but are not eligible for the matching provisions of the EDCP.
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Vesting | •A participant will vest in our matching contributions upon the completion of three years of service.
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Tesoro Corporation 2017 Proxy Statement 43
20162017 Potential Payments Upon Termination or Change-in-Control
The following table reflects the estimated amount of compensation for each of the NEOsNEO upon certain termination events. Such compensation is in addition to the pension benefits, including certain termination-related pension benefits, described above under the heading “Pension Benefits in 2016,2017.” included in this Proxy Statement. The amounts shown below assume that the applicable termination event occurred as of December 31, 201629, 2017 and are based on the agreements and arrangements in place on suchthat date. Amounts shown for accelerated equity vesting are calculated based on the closing stock price of our common stock on December 30, 201629, 2017 of $87.45.$114.34. The actual payments an executive would be entitled to may only be determined based upon the actual occurrence and circumstances surrounding the termination. The assumptions used in determining the estimated payments upon various termination scenarios are described below the table.
Our NEOs are eligible for certain benefits under our Executive Severance and Change-in-Control Plan (the “Severance Plan”) in the event of a termination without “Cause”“Cause”, a resignation with “Good“Good Reason,,” or a“Termination “Termination following a Change-in-Control”in the event of a termination without cause or by the NEO with good reason within two years following a change-in-control (with such terms as defined in such plan).
| | Name | Scenario | Severance ($) | Accelerated Equity Vesting ($) | Retirement Benefits ($) | Health Benefits ($) | Outplacement Services ($) | Total ($) | Scenario | Severance ($) | Accelerated Equity Vesting ($) | Retirement Benefits ($) | Health Benefits ($) | Outplacement Services ($) | Total ($) |
Goff | w/o Cause or w/ Good Reason | 12,909,384 | 16,618,510 | — | 52,032 | 35,000 | 29,614,926 | w/o Cause or w/ Good Reason | 12,909,384 | 14,203,127 | — | 48,795 | 38,700 | 27,200,006 |
Term. after Change-in-Control | 12,480,000 | 23,687,596 | — | 42,043 | — | 36,209,639 | Term. after Change-in-Control | 12,480,000 | 29,977,320 | — | 42,860 | — | 42,500,180 |
Retirement or Voluntary Term. | 3,635,200 | 16,618,510 | — | 20,253,710 | Retirement or Voluntary Term. | 2,969,600 | 14,203,127 | — | 17,172,727 |
Death | 1,600,000 | 14,248,402 | — | 15,848,402 | Death | 1,600,000 | 14,203,127 | — | 15,803,127 |
Disability | 1,480,000 | 14,248,402 | — | 15,728,402 | Disability | 1,480,000 | 14,203,127 | — | 15,683,127 |
w/Cause | — | w/Cause | — |
Sterin | w/o Cause or w/ Good Reason | 2,574,588 | 827,771 | — | 24,398 | 35,000 | 3,461,757 | w/o Cause or w/ Good Reason | 2,880,456 | 2,036,536 | — | 24,761 | 38,700 | 4,980,453 |
Term. after Change-in-Control | 3,825,000 | 2,199,895 | — | 40,663 | — | 6,065,558 | Term. after Change-in-Control | 4,200,000 | 5,911,526 | — | 41,269 | — | 10,152,795 |
Retirement or Voluntary Term. | — | Retirement or Voluntary Term. | — |
Death | — | 1,120,495 | — | 1,120,495 | Death | — | 2,742,358 | — | 2,742,358 |
Disability | — | 1,120,495 | — | 1,120,495 | Disability | — | 2,742,358 | — | 2,742,358 |
w/Cause | — | w/Cause | — |
Casey | w/o Cause or w/ Good Reason | 2,493,514 | 2,201,011 | — | 24,398 | 35,000 | 6,954,934 | w/o Cause or w/ Good Reason | 2,947,782 | 2,036,536 | — | 24,761 | 38,700 | 5,047,779 |
Term. after Change-in-Control | 3,550,000 | 3,573,135 | — | 40,663 | — | 7,163,798 | Term. after Change-in-Control | 3,858,750 | 6,017,345 | — | 41,269 | — | 9,917,364 |
Retirement or Voluntary Term. | — | Retirement or Voluntary Term. | — |
Death | — | 1,978,337 | — | 1,978,337 | Death | — | 2,751,661 | — | 2,751,661 |
Disability | — | 1,978,337 | — | 1,978,337 | Disability | — | 2,751,661 | — | 2,751,661 |
w/Cause | — | w/Cause | — |
Rucker | w/o Cause or w/ Good Reason | 1,356,250 | 90,087 | — | 19,178 | 35,000 | 1,500,515 | w/o Cause or w/ Good Reason | 2,798,805 | 751,675 | — | 24,761 | 38,700 | 3,613,941 |
Term. after Change-in-Control | 3,778,125 | 829,145 | — | 31,963 | — | 4,639,233 | Term. after Change-in-Control | 3,875,000 | 3,751,214 | — | 41,269 | — | 7,667,483 |
Retirement or Voluntary Term. | — | Retirement or Voluntary Term. | — |
Death | — | 276,382 | — | 276,382 | Death | — | 1,472,126 | — | 1,472,126 |
Disability | — | 276,382 | — | 276,382 | Disability | — | 1,472,126 | — | 1,472,126 |
w/Cause | — | w/Cause | — |
Warner | w/o Cause or w/ Good Reason | 2,023,775 | 581,509 | — | 25,226 | 35,000 | 2,665,510 | w/o Cause or w/ Good Reason | 2,233,676 | 1,870,300 | — | 25,716 | 38,700 | 4,168,392 |
Term. after Change-in-Control | 3,087,500 | 3,775,929 | — | 42,043 | — | 6,905,472 | Term. after Change-in-Control | 3,412,500 | 4,413,838 | — | 42,860 | — | 7,869,198 |
Retirement or Voluntary Term. | — | Retirement or Voluntary Term. | — |
Death | — | 3,083,533 | — | 3,083,533 | Death | — | 2,076,309 | — | 2,076,309 |
Disability | — | 3,083,533 | — | 3,083,533 | Disability | — | 2,076,309 | — | 2,076,309 |
w/Cause | — | w/Cause | — |
Accrued Benefits.
In each termination scenario, each NEO would be entitled to the following accrued benefits:to: any accrued but unpaid base salary to the date of termination; any accrued but unpaid expenses; any unused vacation pay; any unpaid bonuses for a prior period to which the NEO is entitled per the incentive compensation program; and any other benefits to which the NEO is entitled.
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o53 | | Involuntary Termination Without Cause or Voluntary Termination with Good Reason. Pursuant to the Executive Severance and Change-in-Control Plan, Mr. Goff will receive an amount equal to two times the sum of his base salary and the greater of his highest annual bonus earned under the applicable annual incentive compensation plan during the preceding three years or $450,000. For the other NEOs, their![andvlogoprimarycolorrgba21.jpg](https://files.docoh.com/DEF 14A/0000050104-18-000066/andvlogoprimarycolorrgba21.jpg) | |
Tesoro Corporation 2017 Proxy Statement 44
Severance
Involuntary Termination Without Cause or Voluntary Termination with Good Reason
Pursuant to the Severance Plan, Mr. Goff would receive an amount equal to two times the sum of his base salary and the greater of his highest annual bonus earned under the applicable annual incentive compensation plan during the preceding three years or $450,000. The severance amount for each other NEO is based on a one-and-three-fourths multiple of theirhis or her base salary and the average bonuses paid during the preceding three years, as applicable (for each of Messrs. Sterin and Casey, and Mmes. Rucker and Warner – one and three-fourths times).applicable. Severance willwould be paid in a lump sum following the end of the six months after termination.
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o | Involuntary Termination Following a Change-in-Control. Pursuant to the Executive Severance and Change-in-Control Plan, each NEO will receive an amount equal to a multiple of base salary and target annual bonus (Mr. Goff – three times; Messrs. Sterin and Casey, and Mmes. Rucker and Warner – two and one-half times). Severance amount will be paid in a lump sum six months after termination.
Involuntary Termination Following a Change-in-Control Pursuant to the Severance Plan, each NEO would receive an amount equal to a multiple of base salary and target annual bonus (Mr. Goff – three times; Messrs. Sterin and Casey, and Mmes. Rucker and Warner – two and one-half times). The severance amount would be paid in a lump sum six months after termination.
Retirement or Voluntary Termination Pursuant to the terms of Andeavor’s annual incentive program, upon retirement for any reason on or after July 1 of the applicable year, Mr. Goff would receive a pro-rated bonus for the year of termination, as he is retirement eligible. The other NEOs would not receive a pro-rated bonus as they are not retirement eligible.
Death Pursuant to the Severance Plan, Mr. Goff would receive one additional year of base salary.
Disability Pursuant to the Severance Plan, Mr. Goff would receive additional base salary for one year, offset by any payments that he would receive under our long-term disability plan for the period specified.
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o | Retirement or Voluntary Termination. Pursuant to the terms of Tesoro’s annual incentive program, upon retirement for any reason on or after July 1 of the applicable year, Mr. Goff will receive a pro-rated bonus for the year of termination since he is retirement eligible. The other NEOs will not receive a pro-rated bonus since they are not retirement eligible.
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o | Death. Pursuant to the Executive Severance and Change-in-Control Plan, Mr. Goff will receive one additional year of base salary.
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o | Disability. Pursuant to the Executive Security and Change-in-Control Plan, Mr. Goff will receive additional base salary for one year, offset by any payments that he would receive under our long-term disability plan for the period specified.
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Accelerated Equity Vesting
Involuntary Termination Without Cause or Voluntary Termination with Good Reason
As Mr. Goff is retirement eligible, he would receive a pro-rated payout of his performance shares along with accrued cash dividend equivalents, his market stock units and his Andeavor Logistics performance phantom units along with accumulated distribution equivalent rights based on actual performance at the end of the performance period.
Messrs. Sterin and Casey, and Mmes. Rucker and Warner would receive (i) a pro-rated payout of their performance share awards granted in 2016 along with accrued cash dividend equivalents and (ii) market stock units granted in 2016 and 2015, in each case based on actual performance at the end of the performance period.
Messrs. Sterin and Casey and Ms. Rucker would receive a pro-rated payout of their Andeavor Logistics performance phantom units granted in 2016 along with accumulated distribution equivalent rights based on actual performance at the end of the performance period.
.Involuntary Termination Following a Change-in-Control
Each NEO would be 100% vested in all equity awards.
Performance share awards would be paid out at the greater of the target amount or the actual performance through a date determined by the Compensation Committee (or in the absence of the Compensation Committee, the Board of Directors) prior to the change-in-control along with the accrued cash dividend equivalents.
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o | | Involuntary Termination Without Cause or Voluntary Termination with Good Reason2018 Proxy Statement | . 54
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▪ | As Mr. Goff is retirement eligible, he will receive a pro-rated payout of his performance shares along with accrued cash dividend equivalents, his market stock units and his TLLP performance phantom units along with accumulated distribution equivalent rights based on actual performance at the end of the performance period. | |
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▪ | Messrs. Sterin and Casey, and Mmes. Rucker and Warner will receive (i) a pro-rated payout of their performance share awards along with accrued cash dividend equivalents and (ii) (other than Ms. Rucker) market stock units granted in 2015 and 2014, in each case based on actual performance at the end of the performance period. |
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▪ | Messrs. Sterin and Casey and Ms. Rucker will receive a pro-rated payout of their TLLP performance phantom units along with accumulated distribution equivalent rights based on actual performance at the end of the performance period. |
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▪ | Ms. Warner, the only NEO with unvested restricted stock, will forfeit any unvested restricted stock. |
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o | Involuntary Termination Following a Change-in-Control.
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▪ | Each NEO will be 100% vested in all equity awards. |
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▪ | For the performance share awards, the NEOs will be paid out at the greater of the target amount or the actual performance through a date determined by the Compensation Committee of the Board of Directors (or in the absence of the Compensation Committee, the Board itself) prior to the change-in-control along with the accrued cash dividend equivalents. |
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▪ | For the market stock units granted in 2015 and 2014, the NEOs will earn the number of shares based on actual performance at the time of the change-in-control. For the market stock units granted in 2016, the NEOs will earn the number of shares based on the greater of target or actual performance. |
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▪ | For the TLLP performance phantom units granted in 2015, Messrs. Goff, Sterin and Casey will vest in their TLLP performance phantom units at target and will be paid the accumulated distribution equivalent rights accumulated on those units at the time of the change-in-control. Beginning with the 2016 awards, Messrs. Goff, Sterin and Casey and Ms. Rucker will vest in their performance phantom units at the greater of actual performance or target and will be paid the accumulated distribution equivalent rights accumulated on those units. |
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▪ | The value of accelerated unvested restricted stock granted to Ms. Warner represents the fair market value of such awards as of December 31, 2016 along with cash accrued dividends. |
Tesoro Corporation 2017 Proxy Statement 45
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o | For the market stock units granted in 2015, the NEOs would earn the number of shares based on actual performance at the time of the change-in-control. For the market stock units granted in 2016 and 2017, the NEOs would earn the number of shares based on the greater of target or actual performance.
Andeavor Logistics performance phantom units would vest at the greater of actual performance or target and the accumulated distribution equivalent rights accumulated on those units would be paid.
Retirement or Voluntary Termination. As Mr. Goff is retirement eligible, he would receive a pro-rated payout of his performance share awards along with accrued cash dividends and his market stock units based on actual performance at the end of the performance period. In addition, Mr. Goff would receive a pro-rated payout of his Andeavor Logistics performance phantom units along with accumulated distribution equivalent rights on those units based on actual performance at the end of the performance period. All the other NEOs would forfeit all their unvested performance shares and market stock units.
Death and Disability As Mr. Goff is retirement eligible, his beneficiaries or estate would receive a pro-rated payout of his performance shares along with accrued cash dividend equivalents and his market stock units based on actual performance at the end of the performance period. In addition, Mr. Goff’s beneficiaries or estate would receive a pro-rated payout of his Andeavor Logistics performance phantom units along with accumulated distribution equivalent rights on those units based on actual performance at the end of the performance period.
The beneficiaries or the estate for each of Messrs. Sterin and Casey, and Mmes. Rucker and Warner would receive a pro-rated payout of their performance shares along with accrued cash dividend equivalents and their market stock units based on target performance. In addition, the beneficiaries or the estate for each of Messrs. Sterin and Casey, and Mmes. Rucker and Warner would receive a pro-rated payout of their Andeavor Logistics performance phantom units along with accumulated distribution equivalent rights on those units based on target performance.
Termination with Cause Each NEO would forfeit all unvested equity awards upon termination.
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▪ | As Mr. Goff is retirement eligible, he will receive a pro-rated payout of his performance share awards along with accrued cash dividends and his market stock units based on actual performance at the end of the performance period. In addition, Mr. Goff will receive a pro-rated payout of his TLLP performance phantom units along with accumulated distribution equivalent rights on those units based on actual performance at the end of the performance period. All the other NEOs will forfeit all their unvested performance shares and market stock units. |
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▪ | Ms. Warner, the only NEO with unvested restricted stock, will forfeit any unvested restricted stock. |
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▪ | As Mr. Goff is retirement eligible, his beneficiaries or estate would receive a pro-rated payout of his performance shares along with accrued cash dividend equivalents and his market stock units based on actual performance at the end of the performance period. |
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▪ | The beneficiaries or the estate for Messrs. Sterin and Casey, and Mmes. Rucker and Warner would receive a pro-rated payout of their performance shares along with accrued cash dividend equivalents and their market stock units based on target performance as of December 31, 2016. |
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▪ | The TLLP performance phantom units granted in 2015 to Messrs. Goff, Sterin and Casey would vest at target and their beneficiaries or estates would be paid the accumulated distribution equivalent rights on those units as of December 31, 2016. As Mr. Goff is retirement eligible, he will receive a pro-rated award of his performance phantom units, granted in 2016, based on the actual performance at the end of the performance period along with the accumulated distribution equivalent rights. Each of the NEOS (other than Mr. Goff) will receive a pro-rated award of their performance phantom units, granted in 2016, based on the target performance with the accumulated distribution equivalent rights. |
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▪ | The value of accelerated unvested restricted stock granted to Ms. Warner represents the fair market value of such awards as of December 31, 2016 along with cash accrued dividends. |
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o | Termination with Cause.Each NEO will forfeit all unvested equity awards upon termination due to a termination with Cause.
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Health Coverage.
For each NEO, the amount represents the estimated health and welfare benefits provided to the executive.
Involuntary Termination Without Cause or Voluntary Termination with Good Reason
Pursuant to the Executive Severance and Change-in-Control Plan, Mr. Goff would receive health benefits to the extent that group health coverage was being provided by us and would continue until the earliest of the following to occur: two and one-half years after the date of his termination, his death, or he becomes covered by a comparable benefit by a subsequent employer. Messrs. Sterin and Casey, and Mmes. Rucker and Warner would receive medical benefits for a period of eighteen months from their date of termination.
Involuntary Termination Following a Change-in-Control
Pursuant to the Executive Severance and Change-in-Control Plan, Messrs. Goff, Sterin and Casey, and Mmes. Rucker and Warner would each receive thirty additional months coverage under our group medical plan.
Outplacement Services
Involuntary Termination Without Cause or Voluntary Termination with Good Reason
Pursuant to the Executive Severance and Change-in-Control Plan, each NEO would receive outplacement services for up to twelve months commencing after the date of his or her termination.
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o55 | | Involuntary Termination Without Cause or Voluntary Termination with Good Reason.Pursuant to the Executive Severance and Change-in-Control Plan, Mr. Goff will receive health benefits to the extent that group health coverage is being provided by us and will continue until the earliest of the following to occur: two and one-half years after the date of the executive’s termination, the executive’s death, or if the executive becomes covered by a comparable benefit by a subsequent employer. Messrs. Sterin and Casey, and Mmes. Rucker and Warner will receive medical benefits for a period of eighteen months from their date of termination.![andvlogoprimarycolorrgba21.jpg](https://files.docoh.com/DEF 14A/0000050104-18-000066/andvlogoprimarycolorrgba21.jpg) | |
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o | Involuntary Termination Following a Change-in-Control.Pursuant to the Executive Severance and Change-in-Control Plan, Messrs. Goff, Sterin and Casey, and Mmes. Rucker and Warner will each receive thirty additional months of our group medical plan.
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o | Involuntary Termination Without Cause or Voluntary Termination with Good Reason,Pursuant to the Executive Severance and Change-in-Control Plan, Messrs. Goff, Sterin and Casey, and Mmes. Rucker and Warner will receive outplacement services for up to twelve months commencing after the date of the executive’s termination.
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Tesoro Corporation 2017 Proxy Statement 46
Proposal No. 2
Advisory Vote to Approve Executive Compensation
Pursuant to Section 14A of the Exchange Act, we are asking stockholders to approve, on an advisory basis, the compensation of our named executive officers disclosed in the Compensation Discussion and Analysis, the Summary Compensation Table and the related compensation tables, notes and narrative in this Proxy Statement.
As described under “Compensation Discussion and Analysis,” the Compensation Committee, comprised entirely of independent directors, has established executive compensation programs that reward both Company and individual performance. Our Compensation Committee consistently exercises great care and discipline in determining executive compensation and has structured our executive compensation programs to achieve the following key objectives:
Reward leaders for delivery of outstanding business results and driving a performance-oriented culture;
Promote and sustain exceptional performance over time to generate long-term growth in stockholder value; and
Lead in accordance with our guiding principles, which are core values, exceptional people, shared purpose, powerful collaboration and superior execution.
Please read the Compensation Discussion and Analysis beginning on page 27 of this Proxy Statement, which describes in more detail how our executive compensation programs operate and are designed to achieve our compensation objectives, as well as the Summary Compensation Table and other related compensation tables and narrative beginning on page 45, which provide detailed information on the compensation of our named executive officers. The Compensation Committee and the Board of Directors believe that our compensation programs are effective in achieving our goals and that the compensation of our named executive officers will contribute to our long-term success.
Although this advisory Say-on-Pay Vote is non-binding, the Board and the Compensation Committee will review and consider the voting results when making future decisions regarding our executive compensation programs.
Our Board of Directors recommends that you vote FOR the approval of the compensation paid to our named executive officers in 2017.
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Audit-Related Matters
Audit Committee Report
Structure and Responsibilities of the Audit Committee
The Board of Directors has the ultimate authority for effective corporate governance, including oversight of our management. The Audit Committee assists the Board in fulfilling its responsibilities by overseeing the accounting and financial reporting processes, the audits of our consolidated financial statements and internal control over financial reporting, the qualifications and performance of our independent registered public accounting firm, and the performance of our internal audit function.
The Audit Committee currently consists of five directors, each of whom our Board has determined to meet the NYSE’s requirements of independence and financial literacy. The Board has also determined that each of Messrs. Chase, GoldmanFoster and Schumann and Ms. McCarthy qualifies as an “audit committee financial expert,” as defined by the SEC.
The Audit Committee operates under a written charter adopted by the Board of Directors, which is available on our website at www.tsocorp.comwww.andeavor.com under the heading “Investors” and the subheading “Corporate Governance.” The charter sets forth the Audit Committee’s responsibilities, which are summarized under “Corporate Governance and Board Matters - Board Leadership and Committees” beginning on page 9. The Committee reviews its charter annually and, when appropriate, makes recommendations for changes to the Board.
The Audit Committee met 1112 times during 20162017 and met in executive session at 10 of such meetings. Specifically, the Audit Committee:
On a quarterly basis, reviewed and discussed with management and the independent registered public accounting firm our earnings releases and quarterly and annual reports on Form 10-Q and Form 10-K prior to filing with the SEC;
Reviewed and discussed with management, the internal auditor, and the independent registered public accounting firm management’s assessment of, and the independent registered public accounting firm’s opinion about, the effectiveness of our internal control over financial reporting;
Reviewed and discussed with management, the internal auditor, and the independent registered public accounting firm, as appropriate, the audit scopes and plans of both the internal audit function and independent registered public accounting firm;
Inquired about significant financial risk exposures, assessed the steps management is taking to control these risks, and reviewed our policies for risk assessment and risk management, including mitigations and controls designed to limit our exposure to commercial and commodities risks;
Met in periodic executive sessions with each of management, the internal auditor, and the independent registered public accounting firm, to discuss the results of their examinations, their evaluations of internal controls, and the overall quality of our financial reporting;
Met with the chief financial officer and controller to discuss the processes they have undertaken to evaluate the accuracy and fair presentation of our consolidated financial statements and the effectiveness of our systems of disclosure controls and procedures and internal control over financial reporting;
Met with the chief financial officer, chief information officer and controller regarding our technology systems and cyber-security detection and defense measures;
Reviewed and assessed the overall adequacy and effectiveness of our legal, regulatory and ethical compliance programs;
Reviewed our tax strategies and the implications of tax law changes;
Considered and recommended to the Board specific financing, dividend and stock repurchase actions;actions recommended by management prior to their presentation to the Board for approval;
Received reports about the receipt, retention, and treatment of financial reporting and other compliance concerns;
Reviewed with the general counselGeneral Counsel legal and regulatory matters that may have a material impact on the consolidated financial statements or internal control over financial reporting; and
Reviewed the performance of our chief financial officer, controller and head of internal audit.
Tesoro Corporation 2017 Proxy Statement 47
Oversight of Independent Registered Public Accounting Firm
Our management is primarily responsible for our internal control and financial reporting process. Our independent registered public accounting firm, Ernst & Young LLP (“EY”), is responsible for performing an independent audit of our consolidated financial statements and issuing opinions on the conformity of those audited financial statements with United States generally accepted accounting principles and the effectiveness of our internal control over financial reporting. The Audit Committee monitors our financial reporting process and reports to the Board on its findings.
The Audit Committee is responsible for the appointment, compensation and oversight of our independent registered public accounting firm. EY has served as our independent registered public accounting firm since 2008 and reports directly to the Audit Committee. Representatives of EY regularly meet with the Audit Committee without management present. Matters discussed between EY and the Audit Committee include significant accounting policies applied in our financial statements, alternative accounting treatments, and the overall quality of our financial reporting. The Audit Committee has the authority and receives appropriate funding, to obtain advice and assistance from outside legal, accounting or other advisers as it deems appropriate.
The Audit Committee annually reviews the independence, performance, quality control procedures and fees of EY prior to or in connection with the Audit Committee’s determination of whether to retain EY or engage another firm as our independent auditor. The Audit Committee also reviews the scope of and overall plans for the annual audit and approves the terms of EY’s engagement letter. Among other things, our annual evaluation of EY addresses EY’s independence; EY’s historical and recent performance as our independent auditor; the quality, effectiveness and candor of EY’s discussions with the Company and the Audit Committee; the quality, timeliness and clarity of materials presented by EY to the Audit Committee; the accessibility, responsiveness, technical competence, objectivity, efficiency and professionalism of the lead audit partner and other members of the audit team assigned to our account; the familiarity of EY with our operations and industry; external data relating to audit quality and performance, including PCAOB reports on EY and its peer firms; EY’s tenure as our independent auditor; the impact to the Company of changing auditors; and the appropriateness of EY’s fees.
Oversight of Internal Audit and Risk Management
The Audit Committee reviews the plan, scope and results of our internal audit, and evaluates the performance of our chief financial officer, head of internal audit and controller. The Audit Committee meets with our head of internal audit both with and without management to evaluate internal audit findings and performance. The Audit Committee also reviews ourmanagement’s assessment and management of risk, management policies,including major financial risks, as well as our major financial risk exposures and our plans and progress to control these risks.
20162017 Actions of the Audit Committee
During 2016,2017, the Audit Committee fulfilled its duties and responsibilities as outlined in its charter. Among other things, the Audit Committee:
Reviewed and discussed with management and EY our quarterly unaudited consolidated financial statements and annual audited financial statements for the year ended December 31, 2016;2017;
Discussed with EY the matters required to be discussed by Auditing Standard No. 1301, Communications with Audit Committees, as adopted by the Public Company Accounting Oversight Board (“PCAOB”);
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Discussed with EY matters related to its independence, and received the written disclosures and the letter from EY required by the PCAOB regarding the independent registered public accounting firm’s communications with the Audit Committee concerning the firm’s independence;
Discussed with management the processes undertaken to evaluate the accuracy and fair presentation of our consolidated financial statements and the effectiveness of our systems of disclosure controls and procedures and internal control over financial reporting; and
Reviewed and discussed with management, the internal auditor, and EY management’s assessment of the effectiveness of our internal control over financial reporting and EY’s opinion about the effectiveness of our internal control over financial reporting.
Based on the reports and discussions described above, the Audit Committee recommended to the Board, and the Board has approved, that the audited financial statements be included in our Annual Report on Form 10-K for the year ended December 31, 2016,2017, for filing with the SEC.
Tesoro Corporation 2017 Proxy Statement 48
The undersigned members of the Audit Committee have submitted this Report to the Board of Directors as of March 6, 2017.2, 2018.
Mary Pat McCarthy, Chair
Rodney F. Chase
Robert W. GoldmanPaul L. Foster
William H. Schumann, III
Patrick Y. Yang
Auditor Fees and Services
EY has served as our independent auditor since 2008. Pursuant to the five-year partner rotation requirement mandated by the Sarbanes-Oxley Act of 2002, EY’s lead engagement partner rotated after completion of the audit for the year ended December 31, 2014, and will rotate again no later than after completion of the audit for the year ended December 31, 2019. The process for selecting the new lead audit partner involved an assessment of many factors, including the candidates’ industry experience, broad-based business judgment, robust dialogue with the Audit Committee, ability to leverage the resources of EY, commitment to continuous improvement, objectivity and independence. The selection process also involved discussions with management regarding each of the candidates and a meeting between the Audit Committee and the final candidate for the role before his appointment. The following table presents fees billed for the years ended December 31, 20162017 and 2015,2016, for professional services performed by EY. Note that this does not include fees paid directly by TLLPAndeavor Logistics for professional services performed by EY.
| | | 2016 | 2015 | 2017 | 2016 |
Audit Fees (a) |
| $4,100,239 |
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| $3,985,154 |
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| $6,846,610 |
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| $4,100,239 |
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Audit-Related Fees (b) | — |
| 5,000 |
| — |
| — |
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Tax Fees (c) | 27,000 |
| — |
| — |
| 27,000 |
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All Other Fees (d) | 3,821 |
| 3,990 |
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| $2,160 |
| 3,821 |
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Total |
| $4,131,060 |
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| $3,994,144 |
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| $6,848,770 |
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| $4,131,060 |
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(a) | Audit Fees represent the aggregate fees for professional services rendered by EY in connection with its audits of Tesoro Corporation’sAndeavor’s consolidated financial statements, including the audits of internal control over financial reporting, reviews of the condensed consolidated financial statements included in our Quarterly Reports on Form 10-Q, statutory audits, regulatory filings, registration statements, comfort letters and accounting consultations. The increase in fees over 20152016 was primarily related to additional services performed in connection with our completionacquisitions of more dropdown transactions with TLLP in 2016 than in 2015.Western Refining, Inc. and Western Refining Logistics, LP. |
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(b) | Audit-Related Fees represent the aggregate fees for professional services rendered by EY in connection with its audits and related services performed in connection with business dispositions and special reports. |
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(c) | Tax Fees represent the aggregate fees for tax services rendered by EY for matters such as consultation on income, sales, use and excise tax matters. |
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(d) | All Other Fees represent the aggregate fees billed by EY for information technology advisory services and a subscription to its web-based accounting and auditing research tool. |
In accordance with the Audit Committee charter, all audit and permitted non-audit services performed by EY in 20162017 and 20152016 were pre-approved by the Audit Committee. The Audit Committee’s pre-approval procedures provide for pre-approval of specifically described audit, audit-related and tax services by the Audit Committee on an annual basis as long as the Audit Committee is informed of each service and the services do not exceed certain pre-established thresholds. The procedures also authorize the Audit Committee to delegate to the Chairman of the Audit Committee pre-approval authorization with respect to audit and permitted non-audit services; any such services that are approved by the Audit Committee Chairman must be ratifiedpresented at the next regularly scheduled meeting of the Audit Committee. The Audit Committee has determined that the relatively small amount of non-audit services rendered by EY (compared to both the overall amount of services rendered by EY to the Company and by EY to all of its customers) is compatible with maintaining EY’s independence.
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Tesoro Corporation 2017 Proxy Statement 49
Proposal No. 3
Ratification of Appointment of Accounting Firm
The Audit Committee has selected Ernst & Young LLP to serve as our independent registered public accounting firm for the fiscal year ending December 31, 2018. See “Audit-Related Matters – Audit Committee Report” for additional detail regarding the process for this selection. As a matter of good corporate governance, the Board has directed that this appointment be submitted to our stockholders for ratification at the Annual Meeting. If the stockholders do not ratify the selection, the Audit Committee will reconsider whether to retain Ernst & Young LLP. Even if the selection is ratified, the Audit Committee in its discretion may select a different independent registered public accounting firm at any time during the year if it determines that such a change would be in the best interests of us and our stockholders. Representatives of Ernst & Young LLP are expected to be present at the Annual Meeting, will have an opportunity to make a statement if they desire to do so, and are expected to be available to respond to appropriate questions.
Our Board of Directors recommends that you vote FOR the ratification of the selection of Ernst & Young LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2018.
Transactions with Related Parties
Except for transactions relating to Andeavor Logistics LP and its subsidiaries (described below under “Relationship with Andeavor Logistics”), we did not have any transactions with any related party requiring disclosure during 2017. Our Board has a written related-party transaction policy and procedures that apply to any “interested transaction,” which is any transaction, arrangement or relationship or series of similar transactions, arrangements or relationships in which we are a participant, the aggregate amount involved since the beginning of the last completed fiscal year is or is expected to exceed $100,000, and in which a related party has a direct or indirect material interest. For purposes of the policy, a “related party” includes (1) any person who is or was (since the beginning of the last completed fiscal year), an executive officer, director or nominee for director, (2) any holder of more than 5% of our common stock, and (3) any immediate family member of any of the foregoing.
Our Governance Committee reviews the material facts of all “interested transactions,” and may approve or ratify such transactions, as appropriate. In determining whether to approve or ratify any such transaction, the Governance Committee may consider whether the transaction is on terms no less favorable than terms generally available to an unaffiliated third party under the same or similar circumstances, whether there are valid business reasons to enter into the transaction, whether the transaction would impair the independence of a director or present an improper conflict of interest for any director or executive officer, and any other factors it deems relevant.
The Chair of our Governance Committee has the authority to pre-approve or ratify any related-party transaction in which the aggregate amount involved is expected to be less than $1 million. Any such action by the Chair of our Governance Committee must be reported to our Governance Committee at its next regularly scheduled meeting.
The Governance Committee has reviewed and pre-approved certain categories of transactions under the terms of the policy. Information on transactions subject to pre-approval is maintained by the office of the General Counsel and provided to the Governance Committee for its review at least annually. The types of transactions deemed pre-approved include:
employment of executive officers if the compensation is reported in the annual proxy statement or was approved by the Compensation Committee;
director compensation;
transactions with other companies at which a related party’s only relationship is as an employee (other than an executive officer) if the aggregate amount involved does not exceed the greater of $1 million or 2% of that company’s total annual revenues;
charitable contributions to an organization, foundation or university at which a related party’s only relationship is as an employee (other than an executive officer) if the aggregate amount involved does not exceed the lesser of $1 million or 2% of that organization’s total annual receipts;
certain transactions with Tesoro Logistics GP, LLC (the “general partner”), Andeavor Logistics LP (“Andeavor Logistics”) and their subsidiaries (collectively, the “Andeavor Logistics entities”), as described below;
transactions where all stockholders receive proportional benefits;
transactions involving another public company with a common institutional shareholder;
transactions involving competitive bids;
regulated transactions; and
certain banking-related services.
Pre-approved transactions with the Andeavor Logistics entities include:
cash distributions by Andeavor Logistics to its unitholders;
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sales of logistics assets by us to the Andeavor Logistics entities if approved by the Board or in certain situations the CEO;
pipeline transportation, trucking, terminal distribution, storage and similar services provided by the Andeavor Logistics entities pursuant to long-term, fee-based commercial agreements with us;
ongoing performance of the Fourth Amended and Restated Omnibus Agreement, as amended;
ongoing performance of the First Amended and Restated Secondment and Logistics Services Agreement or similar agreements under which we provide the Andeavor Logistics entities with certain operational services; and
any other transaction between us and the Andeavor Logistics entities for which the annual aggregate amount involved does not exceed $25 million.
Relationship with Andeavor Logistics
We own (directly and through our affiliates) approximately 34%59% of the interests in TesoroAndeavor Logistics LP (“TLLP”Andeavor Logistics”), including the 2% general partner interest held by our wholly owned indirect subsidiary Tesoro Logistics GP, LLC (the “general partner” or “TLGP”). The general partner manages TLLP’sAndeavor Logistics’ operations and activities through its officers and directors. Messrs. Goff and Sterin and Ms. Rucker serve as executive officers of both Tesoro CorporationAndeavor and TLGP.the general partner. In addition, Messrs. Goff, Goldman, Sterin, Stevens and Wiley serve as directors of TLGP.the general partner.
Merger, Purchase and Sale Transactions
Effective October 30, 2017, Andeavor Logistics acquired Western Refining Logistics, LP (“WNRL”) at a purchase price of approximately $1.7 billion (the “WNRL Merger”). WNRL public unitholders received 0.5233 units of Andeavor Logistics for each WNRL unit held while we effectively received 0.4639 units as certain units held by our subsidiaries were canceled in the transaction. The combined effective exchange ratio for the WNRL Merger was 0.4921 units of Andeavor Logistics for every unit of WNRL.
Simultaneously with the closing of the WNRL Merger: (i) the IDRs held by the general partner were canceled, (ii) the general partner interests in Andeavor Logistics held by the general partner were converted into a non-economic general partner interest in Andeavor Logistics, and (iii) we and our affiliates, including the general partner, agreed to increase and extend existing waivers on distributions to us and our affiliates by $60 million to an aggregate of $160 million between 2017 and 2019. As consideration for this transaction, Andeavor Logistics issued the general partner, our wholly owned subsidiary, 78.0 million common units.
On November 8, 2017, Andeavor Logistics acquired logistics assets located in Anacortes, Washington from our subsidiary for total consideration of $445 million.
Distributions
TLLPAndeavor Logistics makes cash distributions to its unitholders, including to us as the direct and indirect holder of an aggregate 34,055,042127,889,386 common units, as well as a 2% general partner interest. If distributions exceed the minimum quarterly distribution and other higher target distribution levels, the general partner is entitled to increasing percentages of the distributions, up to 50% of the distributions above the highest target distribution level.units. During 2016, TLLP2017, Andeavor Logistics distributed approximately $108.3$208.6 million to us with respect to common units and approximately $137.1$127.0 million with respect to the general partner interest (including incentive distribution rights). TesoroWe waived itsour right to $10$50 million of distributions related to incentive distribution rights paid in 2016. 2017.
In connection with TLLP's November 2016 acquisition of crude oil, natural gasthe WNRL Merger, we and produced water gathering systems and natural gas processing facilities, TLGPour affiliates, including the general partner, agreed to ratably reduceincrease and extend existing waivers on distributions to us and our affiliates by $60 million to an aggregate of $160 million between 2017 and 2019.
Prior to the WNRL Merger, WNRL made cash distributions to its quarterly distributionsunitholders, including to Western Refining, Inc. (“Western Refining”), as the direct and indirect holder of approximately 32,018,847 common units. On August 18, 2017, WNRL distributed to Western Refining, our subsidiary following our acquisition
of it on June 1, 2017, approximately $15 million with respect to common units and $4 million with respect to incentive distribution rights by $100 million for distributions during 2017 and 2018.rights.
Purchase and Sale Transactions
Effective July 1, 2016, we entered into an agreement to sell certain terminalling and storage assets located in Alaska to TLLP in two phases. We completed the first phase on July 1, 2016 for consideration of approximately $240 million in cash and $26 million in equity from TLLP. We completed the second phase on September 16, 2016 for consideration of approximately $160 million in cash and $18 million in equity from TLLP. In connection with this transaction, in July 2016, we reimbursed TLLP for $4.0 million interest incurred in connection with borrowings under TLLP's secured dropdown credit facility.
Effective November 21, 2016, we sold certain terminalling and storage assets located in Martinez, California to TLLP for consideration of $400 million, comprised of $360 million in cash and approximately $40 million in equity from TLLP.
In December 2016, we sold additional assets in Kenai, Alaska, including an asphalt loading facility, asphalt and propane loading racks and a related truck scale, to TLLP for consideration of $5 million in cash.
Omnibus Agreement
We are party to ana Fourth Amended and Restated Amended Omnibus Agreement (the(as amended, the “Omnibus Agreement”) with TLLP, TLGP,Andeavor Logistics, the general partner, and various of our subsidiaries that addresses, among other things, the following matters:
TLLP’sAndeavor Logistics’s obligation to pay us an annual corporate services fee, currently in the amount of $11approximately $13 million, for the provision by us of certain centralized corporate services, as well as its obligation to reimburse us for all other direct or allocated costs and expenses incurred by us or our affiliates on TLLP’sAndeavor Logistics’s behalf;
an agreement from us and our subsidiaries TRMC and Tesoro Alaska Company not to compete with TLLPAndeavor Logistics under certain circumstances;
TLLP’sAndeavor Logistics’s right of first offer to acquire certain logistics assets from us, and our subsidiaries TRMC and Tesoro Alaska Company LLC;
the indemnification obligations of the parties for certain claims, losses and expenses attributable to certain environmental, title, tax and other liabilities relating to assets contributed by us and our subsidiaries to TLLP;Andeavor Logistics; and
the granting of a license from us to TLLPAndeavor Logistics with respect to use of the TesoroAndeavor name and trademark.
So long as we control TLGP,the general partner, the Omnibus Agreement will remain in full force and effect unless mutually terminated by the parties. If we cease to control the general partner, either we or the general partner may terminate the Omnibus Agreement, provided that the indemnification obligations of the parties made under the agreement will remain in full force and effect in accordance with their terms.
We charged TLLPAndeavor Logistics approximately $174.7$203.6 million pursuant to this agreement in 2016.
Tesoro Corporation 2017 Proxy Statement 50
2017. In addition, we reimburse TLLPAndeavor Logistics for certain expenses, capital expenditures and deferred charges identified in the Omnibus Agreement related to assets included in acquisitions from us. During 2016, TLLP2017 Andeavor Logistics charged us $16.9 million, $22.1 million and $5.9$63.2 million related to expenses, capital expenditures and deferred tank reimbursement charges respectively, pursuant to the Omnibus Agreement.
Secondment and Logistics Services Agreement
Our subsidiaries are party to a First Amended and Restated Secondment Agreement among TLGP,the general partner, our subsidiaries, Tesoro Alaska Company LLC, TRMC and Tesoro Companies, Inc. (Tesoro Alaska Company LLC, TRMC and Tesoro Companies, Inc. collectively the “Tesoro“Andeavor Group”) under which the TesoroAndeavor Group provides TLLPAndeavor Logistics with certain operational services, such as communications, electricity, software services, security, fire and safety, maintenance and certain environmental services. TLLPAndeavor Logistics and its subsidiaries pay the TesoroAndeavor Group an annual service fee for services performed by certain of the TesoroAndeavor Group’s field-level employees. Additionally, employees of TLGPthe general partner may be seconded to TesoroAndeavor to provide operational and maintenance services related to certain assets, for which TesoroAndeavor reimburses TLGPthe general partner for the associated costs. We charged TLLPAndeavor Logistics approximately $17.8$28.7 million pursuant to this agreement during 2016,2017, and TLLPAndeavor Logistics charged us approximately $4.6$7.7 million.
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Western Refining Omnibus and Services Agreements
We acquired Western Refining effective June 1, 2017; thus, the following reflects transactions between Western Refining and its subsidiaries, and WNRL and its subsidiaries, from June 1, 2017 through December 31, 2017.
Western Refining Omnibus Agreement – WNRL and Western Refining, and certain of their subsidiaries, were party to an Omnibus Agreement under which Western Refining provided, and WNRL reimbursed Western Refining for, certain general and administrative services, as well as certain other direct or allocated costs and expenses incurred by Western Refining on WNRL’s behalf. Western Refining also agreed to indemnify WNRL for certain environmental and other liabilities, and WNRL agreed to indemnify Western Refining for events and conditions associated with WNRL’s operations and for environmental liabilities related to WNRL’s assets. This agreement was terminated effective November 8, 2017, upon incorporation of the legacy Western Refining entities into the Fourth Amended and Restated Omnibus Agreement between Andeavor and Andeavor Logistics. From June 1, 2017 through December 31, 2017, Western Refining charged WNRL approximately $6.3 million pursuant to this agreement.
Operational Services Agreement – WNRL and Western Refining, and certain of their subsidiaries, were party to an Operational Services Agreement under which WNRL reimbursed Western Refining for Western Refining’s provision of certain personnel to provide operational services to WNRL and under WNRL’s supervision in support of its pipelines and gathering assets and terminalling and storage facilities, including routine and emergency maintenance and repair services, routine operational activities, routine administrative services, construction and related services and such other services as WNRL and Western Refining may mutually agree upon from time to time. This agreement was terminated effective as of January 1, 2018, pursuant to a Service Order under the First Amended and Restated Secondment and Logistics Service Agreement between Andeavor and Andeavor Logistics. From June 1, 2017 through December 31, 2017, Western Refining charged WNRL approximately $41.3 million pursuant to this agreement.
Shared Services Agreement – On October 30, 2014, Western Refining and its subsidiary, Northern Tier Energy LP, entered into a Shared Services Agreement pursuant to which Western Refining and Northern Tier would provide certain services to each other in support of their operations. On May 4, 2015, Western Refining entered into a Joinder Agreement with WNRL and Northern Tier that joined WNRL as a party to the agreement. Under the Joinder Agreement, WNRL provides certain scheduling and other services in support of Northern Tier’s operations and Northern Tier reimburses WNRL for the costs associated with providing such services. From June 1, 2017 through December 31, 2017, Northern Tier reimbursed WNRL approximately $0.4 million pursuant to this agreement.
Commercial Agreements
We have entered into various long-term, fee-based commercial agreements with TLLPAndeavor Logistics under which TLLPAndeavor Logistics provides various pipeline transportation, trucking, terminal distribution and storage services to us, and we commit to provide TLLPAndeavor Logistics with minimum monthly throughput volumes of crude oil and refined products. Except for our trucking transportation services agreements, the commercial agreements generally have ten year initial terms. We believe the terms and conditions under these agreements, as well as our other agreements with TLLPAndeavor Logistics described below, are generally no less favorable to either party than those that could have been negotiated with unaffiliated parties with respect to similar services. Descriptions of the services TLLPAndeavor Logistics provides us under these commercial agreements and the approximate costs owed to TLLPAndeavor Logistics under these categories of agreements in 20162017 are:
High Plains Pipeline Gathering and Trucking ($79.1 million, including $3.6 million of imbalance settlements paid to TLLP)86.0 million) – aA pipeline transportation services agreement for the gathering and transporting andof crude oil on TLLP’sAndeavor Logistics’ High Plains system,
as well as a crude oil trucking transportation services agreement for trucking related services and storage at the Bakken Area Storage Hub;Hub.
Belfield Crude Oil Gathering Agreement ($17.1 million) – An agreement under which Andeavor Logistics performs crude oil gathering services for us in the Belfield Area related to the North Dakota and Processing Assets.
Terminalling Use, Services and Throughput ($450.7565.6 million) – agreementsAgreements for berth access, terminal use and services, storage and throughput at TLLP’sAndeavor Logistics’ marine terminals, storage and marketing terminals and similar facilities, includingthe Master Terminalling Services Agreement, the Martinez Terminalling Services Agreement, the NikiskiAlaska Terminalling Services Agreement, the Southern California Terminalling Services Agreement and the Anacortes Terminalling Services Agreement, the Anacortes Storage ServiceServices Agreement, the Carson Storage Services Agreement, the Kenai Storage Services Agreement, the Martinez Storage Services Agreement, the Anacortes Rail Facility track use and throughput agreement, the Carson Coke LeaseLong Beach Berth Access Use and Handling agreements,Throughput Agreement, and numerous other agreements;agreements.
Pipeline Transportation Services ($79.694.1 million) – pipelinePipeline transportation services agreements for transporting crude oil, refined products and other commodities on TLLP’sAndeavor Logistics’ short-haul pipeline systems in Salt Lake City and Los Angeles, as well as TLLP’sAndeavor Logistics’ pipeline system in the Los Angeles area and a regulated common carrier refined products pipeline system connecting our Kenai refinery to Anchorage;Anchorage.
Keep-Whole Commodity Agreement ($97.388.9 million) – TLLPAndeavor Logistics processes gas for certain producers under “keep-whole” processing agreements. Under a keep-whole agreement, a producer transfers title to the natural gas liquids (“NGLs”) produced during gas processing, and the processor, in exchange, delivers to the producer natural gas with a BTU content equivalent to the NGLs removed. The operating margin for these contracts is determined by the spread between NGL sales prices and the price paid to purchase the replacement natural gas (“Shrink Gas”). TLLPAndeavor Logistics entered into a five-year agreement with us, which transfers the commodity risk exposure associated with these “keep-whole” processing agreements from TLLPAndeavor Logistics to Tesoro (the “Keep-Whole Commodity Agreement”).us. Under the Keep-Whole Commodity Agreement, we pay TLLPAndeavor Logistics a processing fee for NGLs related to “keep-whole” agreements and deliver Shrink Gas to the producers on TLLP’sAndeavor Logistics’ behalf. TLLPAndeavor Logistics pays us a marketing fee in exchange for assuming the commodity risk. Terms and pricing under this agreement are revised each year. The Keep-Whole Commodity Agreement minimizes the impact on TLLPAndeavor Logistics of commodity price movement during the annual period subsequent to renegotiation of terms and pricing each year. However, the annual fee TLLPAndeavor Logistics charges us could be impacted as a result of any changes in the spread between the natural gas liquids sales prices and the price of natural gas.
Tesoro Corporation 2017 Proxy Statement 51
TLLP’sPipeline Transportation Tariffs – Andeavor Logistics’ Northwest Products System is a FERC-regulated system and we do not have any contractual agreements with TLLPAndeavor Logistics related to the use of the system. However, TLLPAndeavor Logistics charged us approximately $10.7$11.6 million in pipeline transportation tariffs with respect to the use of such system in 2016.
Other Agreements
2017.
Anacortes Truck Rack ConstructionWestern Refining Commercial Agreements
Following are descriptions of the commercial agreements between Western Refining and WNRL. We acquired Western Refining effective June 1, 2017; thus, amounts shown reflect the approximate revenue recognized by WNRL and its subsidiaries from June 1, 2017 through December 31, 2017.
WNRL Pipeline and Gathering Services Agreement - TLLP constructed a new gasoline($57.0 million) – An agreement to transport crude oil on Andeavor Logistics’ Permian Basin system to our El Paso refinery and dieselon Andeavor Logistics’ Four Corners system to our Gallup refinery. Andeavor Logistics charges us fees for pipeline movements, truck rackoffloading and product storage.
WNRL Terminalling, Transportation and Storage Services Agreement (Southwest) ($52.0 million) – A terminalling, transportation and storage services agreement under which Andeavor Logistics, among
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other things, distributes products produced at our refineries, connects our refineries to third-party pipelines and systems and provides fee-based asphalt terminalling and processing services. At Andeavor Logistics’ network of crude oil and refined products terminals and related assets and storage facilities, Andeavor Logistics charges us fees for crude oil, blendstock and refined product storage, shipments into and out of storage and additive and blending services. At Andeavor Logistics’ asphalt plant and terminal in El Paso and its three stand-alone asphalt terminals, Andeavor Logistics charges us fees for asphalt storage, shipments into and out of asphalt storage and asphalt processing and blending.
WNRL Terminalling, Transportation and Storage Services Agreement (St. Paul Park) ($28.2 million) – An agreement under which Andeavor Logistics provides product storage services, product throughput services and product additive and blending services at the siteterminal facilities located at or near our refinery in St. Paul Park, Minnesota.
WNRL Wholesale Product Supply Agreement – A product supply agreement, as amended, under which we will supply and Andeavor Logistics will purchase approximately 79,000 bpd of refined products. The price per barrel will be based upon OPIS or Platts indices on the day of delivery. Pricing is subject to annual revision based on mutual agreement between us and Andeavor Logistics. The agreement provides for make-up payments to Andeavor Logistics in any month that Andeavor Logistics’ average margin on non-delivered rack sales is less than a certain amount. During 2017, Andeavor Logistics recorded $0.8 million in revenues related to make-up payments from Western Refining under this agreement.
WNRL Fuel Distribution and Supply Agreement ($10.1 million) – A fuel distribution and supply agreement under which we agreed to purchase all of our retail requirements for branded and unbranded motor fuels for its retail and unmanned fleet fueling sites at a price per gallon that is $0.03 above Andeavor Logistics’ cost. We have agreed to purchase a minimum of 21 Mbpd of branded and unbranded motor fuels for our retail and unmanned fleet fueling sites. In any month that we don’t purchase the minimum volume, we will pay Andeavor Logistics $0.03 per gallon shortfall. In any month in which we purchase volumes in excess of the Anacortes terminal it acquired as part of its 2014 acquisition of west coast logistics assets from TRMC. TLLP contracted with TRMC to act as general contractor forminimum, Andeavor Logistics will pay us $0.03 per gallon over the project. During 2016, we incurred an additional $0.9 million of capital expenditures related tominimum until the project which are accounted for as a capital contribution to TLLP due to the related party naturebalance of the asset acquisition.trailing twelve month shortfall payments is reduced to $0.
WNRL Crude Oil Trucking Transportation Services Agreement ($28.4 million) – A ten-year crude oil trucking transportation services agreement, as amended, under which we have agreed to pay a flat rate per mile per barrel plus monthly fuel adjustments and customary applicable surcharges. The rates are subject to adjustment annually based on mutual agreement between us and Andeavor Logistics. We have agreed to contract a minimum of 1.525 million barrels of crude oil to Andeavor Logistics for hauling each month.
Asphalt Trucking Transportation Services Agreement ($6.1 million) – An asphalt trucking transportation services agreement under which we have agreed to pay a flat rate per mile per ton, with market adjustments, based on the distance between the applicable pick-up and delivery points, plus monthly fuel adjustments and customary applicable surcharges. The rates are subject to adjustment annually based on mutual agreement between us and Andeavor Logistics. Volumes of asphalt transported pursuant to this agreement will be credited, on a barrel per barrel basis, towards our contract minimum under the crude oil trucking transportation services agreement described above. Under this agreement, we have given Andeavor Logistics the first option to transport all asphalt volumes we transport by truck.
Other Agreements
Carson Assets Indemnity Agreement - TLLP– Andeavor Logistics and TRMC entered into the Carson Assets Indemnity Agreement in connection with the December 2013 acquisition by TLLPAndeavor Logistics of
certain Los Angeles logistics assets. The Carson Assets Indemnity Agreement established indemnification for certain matters including known and unknown environmental liabilities arising out of the use or operation of the Los Angeles Terminal Assets and the Los Angeles Logistics Assets prior to the respective acquisition dates. The agreement also provides for reimbursement from TRMC to TLLPAndeavor Logistics for repair and maintenance of the Los Angeles Terminal Assets and the Los Angeles Logistics Assets that are required to comply with current minimum standards under certain regulations. In December 2016, the parties agreed to extend the reimbursement period. During 2016,2017 we incurred approximately $1.6$6.4 million related to expenses that were reimbursable to TLLP.
Andeavor Logistics.Carson Renewable Diesel Project - – Pursuant to an agreement effective December 31, 2016, TLLPAndeavor Logistics will install certain renewable diesel equipment at the Carson products terminals, and we will reimburse TLLPAndeavor Logistics for the estimated $2.7 million cost of the project. During 2016, TLLP recorded a receivable and deferred revenue balance of $1.9 million under this agreement.
Asphalt Rack Agreement - On December 31, 2016, we entered into2017, Andeavor Logistics incurred an agreement with TLLP to sell an asphalt loading facility to TLLP, resulting in a contribution to TLLP of $0.2 million.
Also, we conveyed to TLLP the Tank 33 assets, and TLLP reimbursed us for $3 million of related capital expenditures. TLLP will continue to reimburse us for future costs related to the Tank 33 assets.
Avon Marine Terminal Capital Expenditures - Subsequent to TLLP's acquisition of the Avon marine terminal in connection with the terminalling and storage assets located in Martinez, California, we incurred approximately $13.4additional $0.8 million of capital expenditures related to the renovation of the Avon marine terminal, which are accounted for as capital contributions to TLLP as prescribed by the Amended Omnibus Agreement.
Lease of Specified Capacity - Effective December 1, 2016, TLLP entered into a pipeline capacity lease agreement for a minimum of 5 Mbpd on a segment of the BakkenLink pipeline system purchased byproject and charged us in early 2016. The initial agreement has a term of six months, but can be extended on a month-to-month basis. For December 2016, TLLP paid BakkenLink $0.7 million.$2.7 million under this agreement.
Alaska Railroad Lease Assignment and Assumption Agreement - Effective October 27, 2016, we assigned TLLP the ground lease at the Anchorage 1 terminal between Alaska Railroad Corporation and Tesoro Alaska Petroleum Company, our wholly-owned subsidiary.
TRMC Crude Oil Purchase -– On February 2, 2016, Green River Processing, LLC (GRP), TLLP'sAndeavor Logistics’ wholly owned subsidiary, entered into a master netting arrangement with Ultra Resources, Inc., whereby GRP purchases crude oil on our behalf and nets the amount due to Ultra for the purchase with the receivable due from Ultra for the gathering services provided by GRP. During 2016,2017, GRP sold $32.3$26.6 million of crude oil to us at the same price and on the same terms under which GRP purchased it.
Belfield Crude Oil Purchase – In connection with Andeavor Logistics’ acquisition of the North Dakota and Processing Assets on January 1, 2017, we entered into an agreement with Andeavor Logistics under which we agreed to purchase the crude oil volumes acquired during the closing of the acquisition. In 2017, we paid $1.2 million to Andeavor Logistics pursuant to this agreement.
Butane Sale at Belfield – Effective April 1, 2017, we and Andeavor Logistics entered into a butane sale agreement in the Belfield Area related to the North Dakota and Processing Assets. In 2017, we paid $9.0 million to Andeavor Logistics pursuant to this agreement.
Fuel Sales – An arrangement whereby a subsidiary of WNRL sells fuel at the rack to us. For the period from June 1, 2017, the date we acquired Western Refining, through December 31, 2017, we paid WNRL cash for these purchases aggregating $28.2 million.
Purchase of Natural Gas - In November 2015, we and QEP Field Services, LLC (QEPFS), TLLP's wholly owned subsidiary, entered into an– An agreement whereby weTRMC, our subsidiary, may purchase a certain volume of natural gas each month based on ourTRMC’s needs and market conditions. In 2016, the total amount2017, we purchased was 916,000 MMBTU for consideration of $1.8 million.paid $1.5 million to Andeavor Logistics pursuant to this agreement.
Tesoro Corporation 2017 Proxy Statement 52 |
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Stock Ownership Information |
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Stock Ownership Information |
Security Ownership by Management
The following table shows the beneficial ownershipnumber of shares of our common stock reported to usbeneficially owned as of March 16, 2017, including shares as to which a vested right to acquire ownership exists within the meaning of Rule 13d-3(d)(1) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and shares credited to accounts under our Thrift Plan, for5, 2018, by each director and nominee, the NEOs and our current directors and executive officers as a group.
Includes shares of unvested restricted stock.
The ownership shown below Includes shares that the listed persons had the right to acquire through the exercise of stock options on March 16, 2017, or within 60 days thereafter, as well as restricted stock units granted to non-employee directors that will vest or be distributed within 60 days of March 16, 2017.
Units of phantom stock, payable in cash, which have been credited to the directors under the Board of Directors Deferred Compensation Plan and the Phantom Stock Plan are not included in the shares shown. Performance shares and market stock unit awards granted to executive officers for performance periods ending December 31, 2016 and later are not included in the shares shown.
Unless otherwise indicated, each person or member of the group listed has sole voting and investment power with respect to the shares of our common stock listed.
listed and none of the shares of common stock shown are pledged as security. As of March 16, 2017,5, 2018, there were 117,379,880153,002,812 shares outstanding.
No director, NEO or executive officer beneficially owns more |
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| Aggregate Number of Shares Beneficially Owned | | Percent of Total Outstanding Common Stock |
Rodney F. Chase | 12,323 | (a) | * |
Paul L. Foster | 8,204,859 | | 5.4% |
Edward G. Galante | 3,872 | (a) | * |
Gregory J. Goff | 764,170 | (b) | * |
David Lilley | 16,823 | (c) | * |
Mary Pat McCarthy | 11,891 | (d) | * |
J.W. Nokes | 34,345 | (e) | * |
William H. Schumann, III | 2,917 | (a) | * |
Jeff A. Stevens | 1,445,999 | | * |
Susan Tomasky | 9,663 | (f) | * |
Michael E. Wiley | 41,150 | (a) | * |
Patrick Y. Yang | 5,537 | (a) | * |
Keith M. Casey | 90,070 | | * |
Kim K.W. Rucker | –
| | * |
Steven M. Sterin | 36,126 | | * |
Cynthia J. Warner | 38,484 | | * |
All Current Directors and Executive Officers as a Group (19 individuals) | 10,729,789 | (g) | 7.0% |
* Less than 1% of ourthe shares of common stock.stock outstanding.
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(a) | Includes 2,028 restricted stock units that vest within 60 days of March 5, 2018. |
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(b) | Includes 151,513 exercisable options to acquire common stock and 620 shares held under the Andeavor 401(k) Plan. |
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(c) | Includes 3,717 restricted stock units that vest either within 60 days of March 5, 2018 or upon the director’s retirement from service on the board of directors. |
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(d) | Includes 11,052 restricted stock units that vest either within 60 days of March 5, 2018 or upon the director’s retirement from service on the board of directors. |
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(e) | Includes 6,174 restricted stock units that vest either within 60 days of March 5, 2018 or upon the director’s retirement from service on the board of directors. |
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(f) | Includes 4,063 restricted stock units that vest either within 60 days of March 5, 2018 or upon the director’s retirement from service on the board of directors. |
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(g) | In addition to the 151,513 options referenced above, includes an aggregate of 1,025 shares held under the Andeavor 401(k) Plan. |
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69 | | Aggregate Number of Shares Beneficially Owned | Additional Information |
Rodney F. Chase | 10,295 | Includes 2,035 shares underlying restricted stock units |
Edward G. Galante | 1,844 | |
Gregory J. Goff | 769,633 | Includes 151,513 shares underlying stock options, 609 shares credited under the Tesoro Corporation Thrift Plan and 32,115 ROCE performance shares at target |
Robert W. Goldman | 49,697 | Includes 9,000 shares underlying stock options and 6,567 shares underlying restricted stock units |
David Lilley | 14,295 | Includes 3,724 shares underlying restricted stock units |
Mary Pat McCarthy | 9,863 | Includes 9,024 shares underlying restricted stock units |
J.W. Nokes | 32,317 | Includes 6,181 shares underlying restricted stock units |
William H. Schumann, III | — | |
Susan Tomasky | 7,635 | Includes 2,035 shares underlying restricted stock units |
Michael E. Wiley | 39,822 | Includes 9,000 shares underlying stock options and 2,035 shares underlying restricted stock units |
Patrick Y. Yang | 3,509 | Includes 2,035 shares underlying restricted stock units |
Keith M. Casey | 30,596 | Includes 3,680 ROCE performance shares at target |
Kim K.W. Rucker | — | |
Steven M. Sterin | 8,892 | |
Cynthia J. Warner | 27,411 | Restricted stock that remains subject to vesting requirements |
All Current Directors and Executive Officers as a Group
(17 individuals) | 1,010,716 | Represents less than 1% of the shares outstanding |
Tesoro Corporation 2017 Proxy Statement 53
Ownership of TLLPAndeavor Logistics Common Units
The following table shows the beneficial ownershipnumber of ourcommon units of TLLP reported to us as of March 16, 2017, including units as to which a vested right to acquire ownership exists within the meaning of Rule 13d−3(d)(1) under the Exchange Act, forAndeavor Logistics beneficially owned by each director and nominee, the NEOs and our current directors and officers as a group.group, as reported to us as of March 5, 2018. Unless otherwise indicated, each person or member of the group listed has sole voting and investment power with respect to the units listed. As of March 16, 2017,5, 2018, there were 107,996,246217,170,024 common units outstanding (including 34,055,042127,889,386 common units held by Tesoro CorporationAndeavor and its affiliates). This table does not include (1) the 2,202,880 general partner units held by Tesoro Logistics GP, LLC or (2) phantom units held by certain of our executive officers that do not vest within 60 days of March 16, 2017. None of our executive officers or directors hold general partner units. No director, NEO or executive officer beneficially owns more than 1% of TLLP’s common units. Furthermore, the current directors and executive officers as a group do not own more than 1% of TLLP’s common units.
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| Aggregate Number of TLLPAndeavor Logistics Common Units Beneficially Owned | Percent of Total Outstanding Common Units |
Rodney F. Chase | —– | | |
Paul L. Foster | 421,599 | | * |
Edward G. Galante | 1,180 | | * |
Gregory J. Goff | 97,690 |
Robert W. Goldman131,480 | 5,500 | * |
David Lilley | —– | | |
Mary Pat McCarthy | —– | | |
J.W. Nokes | —– | | |
William H. Schumann, III | 1,475 | | * |
Jeff A. Stevens | 317,226 | | * |
Susan Tomasky | —– | | |
Michael E. Wiley | 1,400 | | * |
Patrick Y. Yang | —– | | |
Steven M. Sterin | 3,81416,391 | | * |
Keith M. Casey | —6,674 | | * |
Kim K.W. Rucker | —– | | |
Cynthia J. Warner | —– | | |
All Current Directors and Executive Officers as a Group (1719 individuals) | 111,059897,425 | | * |
* Less than 1% of the common units outstanding.
Tesoro Corporation 2017 Proxy Statement 54 |
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Security Ownership by Certain Beneficial Owners
The following table sets forth information from filings made with the SEC as to each person or group who as of March 16, 20175, 2018 beneficially owned more than 5% of the outstanding shares of our common stock.
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| Amount and Nature of Beneficial Ownership |
Name and Address of Beneficial Owner | Number of Shares | Percent of Class (a) |
The Vanguard Group, Inc. (b) 100 Vanguard Blvd. Malvern, PA 19355 | 11,364,512
| 9.7% |
State Street Corporation (c) State Street Financial Center One Lincoln Street Boston, MA 02111 | 9,592,847 | 8.2% |
BlackRock, Inc. (d) 55 East 52nd Street New York, NY 10055 | 8,849,154
| 7.5% |
Stephen A. Cohen et al. (e) 72 Cummings Point Road Stamford, CT 06902 | 6,598,110 | 5.6% |
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| Amount and Nature of Beneficial Ownership |
Name and Address of Beneficial Owner | Number of Shares | Percent of Class (a) |
The Vanguard Group, Inc. (b) 100 Vanguard Blvd. Malvern, PA 19355 | 15,802,223
| 10.3% |
BlackRock, Inc. (c) 55 East 52nd Street New York, NY 10055 | 10,790,398
| 7.1% |
Boston Partners (d) One Beacon Street 30th FL Boston, MA 02108 | 9,597,764 | 6.3% |
Paul L. Foster (e) 123 W. Mills Avenue, Suite 600 El Paso, Texas 79901 | 8,206,634 | 5.4% |
State Street Corporation (f) State Street Financial Center One Lincoln Street Boston, MA 02111 | 8,066,083 | 5.3% |
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(a) | Based on 117,379,880153,002,812 shares outstanding as of March 16, 2017.5, 2018. |
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(b) | According to Schedule 13G/A filed with the SEC on February 10, 2017,12, 2018, The Vanguard Group, Inc. has sole voting power with regard to 184,706207,157 shares of our common stock, shared voting power with regard to 21,68428,137 shares of our common stock, sole investmentdispositive power with regard to 11,156,14015,570,945 shares of our common stock and shared investmentdispositive power with regard to 208,372231,278 shares of our common stock. |
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(c) | According to Schedule 13G filed with the SEC on January 29, 2018, BlackRock, Inc. has sole voting power with regard to 9,254,305 shares of our common stock and sole dispositive power with regard to 10,790,398 shares of our common stock. |
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(d) | According to Schedule 13G filed with the SEC on February 9, 2017,13, 2018, Boston Partners has sole voting power with regard to 7,875,240 shares of our common stock and sole dispositive power with regard to 9,597,764 shares of our common stock. |
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(e) | Mr. Foster has sole voting power with regard to 1,406,447 shares of our common stock, shared voting power with regard to 6,800,187 shares of our common stock, sole dispositive power with regard to 1,406,447 shares of our common stock and shared dispositive power with regard to 6,800,187 shares of our common stock. |
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(f) | According to Schedule 13G filed with the SEC on February 13, 2018, State Street Corporation and certain of its direct and indirect subsidiaries have shared voting power and shared investmentdispositive power with regardrespect to 9,592,8478,066,083 shares of our common stock. |
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(d) | According to Schedule 13G/A filed with the SEC on January 27, 2017, BlackRock, Inc. has sole voting power with regard to 7,396,403 shares of our common stock and sole investment power with regard to 8,849,154 shares of our common stock. |
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(e) | According to Schedule 13G filed with the SEC on January 20, 2017, (i) Point72 Asset Management and Point72 Capital Advisors Inc., both of which are controlled by Steven A. Cohen, each have shared voting power with respect to 6,596,547 of such 6,598,110 shares and shared dispositive power with respect to 6,596,547 of such 6,598,110 shares, (ii) Cubist Systematic Strategies, LLC, which is controlled by Steven A. Cohen, has shared voting power with respect to 1,563 of such 6,598,110 shares and shared dispositive power with respect to 1,563 of such 6,598,110 shares and (iii) Steven A. Cohen has shared voting power and shared dispositive power over all such 6,598,110 shares. |
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires our directors, executive officers and holders of more than 10% of our voting stock to file with the SEC initial reports of ownership and reports of changes in ownership of our common stock or other equity securities. Based on a review of those forms provided to us and any written representations, we believe that during the year ended December 31, 2016,2017, our directors, executive officers and holders of more than 10% of our voting stock filed the required reports on a timely basis under Section 16(a)., except for a Form 3 for Michael J. Morrison, which underreported Mr. Morrison’s holdings due to an administrative error.
Tesoro Corporation 2017 Proxy Statement 55
Proposal No. 1 – Election of Directors
At the Annual Meeting, stockholders are requested to elect ten directors to hold office until the 2018 Annual Meeting of Stockholders or until their successors are elected and qualified. Each of the nominees has indicated his or her willingness to serve as a director, if elected, and we have no reason to believe that any nominee will be unable to serve. The persons designated as proxies, however, reserve full discretion to cast votes for other persons in the event that any one or more of the nominees are unable to serve. Each of the director nominees, except for Mr. Schumann, who joined the Board in November 2016, is currently serving as a director after being elected at the 2016 Annual Meeting of Stockholders. Mr. Schumann was recommended to the Governance Committee by a third party search firm engaged by the Board.
Our Bylaws prescribe the voting standard for director elections as a majority of the votes cast in an uncontested election, such as this one, where the number of nominees does not exceed the number of directors to be elected. Under this standard, a nominee must receive more “FOR” votes than “AGAINST” votes to be elected as a director. Under our Corporate Governance Guidelines, each nominee who already serves as a director submits an advance, contingent, irrevocable resignation that the Board may accept if stockholders do not re-elect the director. In that event, the Governance Committee would promptly consider the resignation offer and make a recommendation to the Board. The Board would act on the Governance Committee’s recommendation and publicly disclose its decision regarding whether to accept the director’s resignation offer, or, if applicable, the reason(s) for rejecting the resignation offer, within 90 days from the date of the stockholder vote.
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þ | Our Board of Directors recommends that you vote “FOR” the election to the Board of each of the following nominees.
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![chasea04.jpg](https://files.docoh.com/DEF 14A/0000050104-17-000065/chasea04.jpg) 71 | | Rodney F. ChaseAge 73 Director since 2006![andvlogoprimarycolorrgba21.jpg](https://files.docoh.com/DEF 14A/0000050104-18-000066/andvlogoprimarycolorrgba21.jpg) Former Energy Industry Executive
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Mr. Chase served as the Non-Executive Chairman of Genel Energy plc, an international oil and gas exploration and production company, from 2011 until 2015, and Non-Executive Chairman of Computer Sciences Corporation, an information technology and professional services company, from 2012 until 2015. He previously served as Non-Executive Chairman for Petrofac Ltd. in the United Kingdom, an international oil and gas services company, from 2005 until May 2011, and as Deputy Chairman of Tesco plc in the United Kingdom, an international retailing company, until July 2010. Mr. Chase spent 39 years with BP plc, a large, international oil and gas company, holding positions within the upstream and downstream segments of the industry in Australia, Europe and North America. His background includes positions in shipping, refining, marketing, distribution, oil trading and gas as well as finance and strategic planning at the corporate executive level. From 2003 to 2008, Mr. Chase served as Senior Advisor for the U.S. and Europe for Lehman Brothers, Ltd., formerly an investment bank, in London, England.
Key Qualifications, Attributes, Skills and Experience:
Board Leadership, Industry and Strategic Planning Experience – 50 years of experience in the energy industry, including service as the former Non-Executive Chairman of an international oil and gas services company (Petrofac) and a former executive of a large, international oil and gas company (BP)
Financial/Accounting Expertise – Former Chief Executive Officer of BP Finance International and Group Treasurer and former senior advisor for Lehman Brothers
Talent Management and Public Company Board Experience – Computer Sciences Corporation, Tesco, Petrofac
Other Current Directorships: Hess Corporation and HudsonField
Former Public Company Directorships: Computer Sciences Corporation (from 2012 until 2015), Genel Energy, plc (from 2011 until 2015), Nalco Holding Co. (from 2005 until 2011), Petrofac Ltd. (from 2005 until 2011) and Tesco plc (from 2002 until 2010)
Tesoro Corporation 2017 Proxy Statement 56
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| Edward G. GalanteAge 66 Director since 2016
Former Senior Vice President and Member of the Management Committee of ExxonMobil Corporation
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Mr. Galante served as Senior Vice President and a member of the Management Committee of ExxonMobil Corporation from 2001 until his retirement in 2006. Prior to that, he held various management positions of increasing responsibility during his more than 30 years with ExxonMobil Corporation, including serving as Executive Vice President of ExxonMobil Chemical Company from 1999 to 2001. Mr. Galante serves on the Board of the United Way Foundation of Metropolitan Dallas and is a Vice Chairman of the Board of Trustees of Northeastern University.
Key Qualifications, Attributes, Skills and Experience:
Industry, Operations, Management, Leadership, Strategic Planning and Talent Management Experience – over 30 years of experience in the oil, gas, refining and chemical sectors of the energy industry, including service as a senior operating executive of ExxonMobil, one of the largest global energy companies, and as Chair of the Compensation and Management Committee of Praxair, Inc.
Risk Management Experience – service on the Environmental, Health, Safety and Public Policy Committee of Celanese Corporation and the Technology, Safety, Sustainability Committee and the Governance and Nominating Committee of Praxair, Inc.
Public Company Board Experience – Celanese Corporation, Clean Harbors, Inc., Praxair, Inc. and Foster Wheeler AG
Financial/Accounting Expertise – service on the Audit Committees of Celanese Corporation and Foster Wheeler AG
Other Current Directorships: Celanese Corporation, Clean Harbors, Inc., Praxair, Inc.
Former Public Company Directorships: Foster Wheeler AG (from 2008 until 2014) |
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| Gregory J. GoffAge 60 Director since 2010
Chairman of the Board since December 31, 2014
Our Chairman, President and Chief Executive Officer
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Mr. Goff has served as our President and Chief Executive Officer since May 2010 and as our Chairman since December 31, 2014. Since December 2011, Mr. Goff has also served as Chairman of the Board of Directors and Chief Executive Officer of Tesoro Logistics GP, LLC, the general partner of Tesoro Logistics LP. Prior to joining us, Mr. Goff served as Senior Vice President, Commercial for ConocoPhillips Corporation, an international, integrated energy company, from 2008 to 2010. Mr. Goff also held various other positions at ConocoPhillips from 1981 to 2008, including Managing Director and CEO of Conoco JET Nordic from 1998 to 2000; Chairman and Managing Director of Conoco Limited, a UK-based refining and marketing affiliate, from 2000 to 2002; President of ConocoPhillips Europe and Asia Pacific downstream operations from 2002 to 2004; President of ConocoPhillips U.S. Lower 48 and Latin America exploration and production business from 2004 to 2006; and President of ConocoPhillips specialty businesses and business development from 2006 to 2008. Mr. Goff serves as Chairman of the Board of the American Fuel and Petrochemical Manufacturers trade association and on the National Advisory Board of the University of Utah Business School. Previously, Mr. Goff served on the board of Chevron Phillips Chemical Company and was a member of the upstream and downstream committees of the American Petroleum Institute. In addition, Mr. Goff has public company experience from his prior service on the board of directors of DCP Midstream GP, LLC.
Key Qualifications, Attributes, Skills and Experience:
President and CEO/Company Knowledge – As our Chairman, President and CEO, Mr. Goff brings to the Board a deep understanding of and unique perspective on our business and operations and the environment in which we operate.
Leadership, Industry and Strategic Planning Experience – Current CEO of a large independent refining and petroleum products marketing company (Tesoro), current Chairman of a national trade association representing refiners and petrochemical manufacturers (American Fuel and Petrochemical Manufacturers) and as a former senior executive of an international energy company (ConocoPhillips) and former member of the upstream and downstream committees of a national oil and natural gas industry trade association (American Petroleum Institute)
Operations Experience – 29 years of service in various positions with ConocoPhillips
Public Company Board Experience – DCP Midstream and Polyone Corporation
Tesoro Corporation 2017 Proxy Statement 57
Other Current Directorships: Polyone Corporation, Tesoro Logistics GP, LLC, the general partner of Tesoro Logistics LP (a master limited partnership of which Tesoro and its subsidiaries own approximately 32%)
Former Public Company Directorships: DCP Midstream GP, LLC (from 2008 until 2010), QEP Midstream Partners, LP (from 2014 until 2015)
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| David Lilley Age 70 Director since 2011
Former Chairman, President and Chief Executive Officer of Cytec Industries Inc.
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Mr. Lilley is a retired Chairman, President and Chief Executive Officer of Cytec Industries Inc., a multi-billion dollar manufacturer of specialty chemicals and materials. He served as its Chairman from January 1999 through 2008 and as its President and Chief Executive Officer from May 1998 through 2008, having previously served as its President and Chief Operating Officer from January 1997. From 1994 until January 1997, he was a vice president of American Home Products Corporation. Prior to that he was a vice president and a member of the Executive Committee of American Cyanamid Company.
Key Qualifications, Attributes, Skills and Experience:
Chemicals Industry, Management and Leadership Experience, Global Business Perspective, Operations Knowledge and Strategy Experience – Over 29 years of experience in the chemicals industry, including services as past Chairman and CEO of Cytec Industries
Risk Management Experience – Mr. Lilley’s leadership experience in a chemicals and manufacturing company and as a member of the Responsible Care Committee of the American Chemistry Council is also important in light of the Board’s oversight of our operations and adherence to safety and environmental requirements
Public Company Board Experience – Rockwell Collins, Inc., Public Service Enterprise Group Incorporated, Arch Chemicals, Inc. and Cytec Industries Inc.
Other Current Directorships:Rockwell Collins, Inc. and Public Service Enterprise Group Incorporated
Former Public Company Directorships:Arch Chemicals, Inc. (from 2007 until October 2011) |
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| Mary Pat McCarthy Age 61 Director since 2012
Former Vice Chairman of KPMG LLP
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Mary Pat McCarthy retired from her position as Vice Chair of KPMG LLP, the U.S. member firm of the global audit, tax and advisory services firm, in 2011 after attaining such position in 1998. She joined KPMG LLP in 1977 and became a partner in 1987. She held numerous senior leadership positions in the firm, including Executive Director of the KPMG Audit Committee Institute from 2008 to 2011, Leader of the KPMG Client Care Program from 2007 to 2008, U.S. Leader, Industries and Markets from 2005 to 2006, and Global Leader, Information, Communication and Entertainment Practice from 1998 to 2004. Ms. McCarthy also served on the firm’s Management and Operations Committees. Ms. McCarthy is a member of the Risk Advisory Committee of the National Association of Corporate Directors and also serves as a director of Palo Alto Networks, Inc. and Mutual of Omaha, a mutual insurance company.
Key Qualifications, Attributes, Skills and Experience:
Financial/Accounting Experience – Over 34 years of experience with KPMG, including services as the audit and executive partner to national and international clients
Leadership and Talent Management Experience – Service as Vice Chairman and in other leadership positions at KPMG; she also co-chaired the National Association of Corporate Directors’ Blue Ribbon Commission on Talent Development – A Boardroom Imperative
Tesoro Corporation 2017 Proxy Statement 58
Strategy, Business Transformation, Audit Committee Effectiveness and Corporate Governance – Author of multiple books on risk, strategy and business transformation, and a frequent speaker on audit committee effectiveness and corporate governance at conferences, seminars and forums
Other Current Directorships:Palo Alto Networks, Inc. and Mutual of Omaha
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| J. W. Nokes Age 70 Director since 2007
Former Executive Vice President of Worldwide Refining, Marketing, Supply and Transportation of ConocoPhillips
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Mr. Nokes spent his 36-year career with ConocoPhillips, an international, integrated energy company, and retired in 2006 as Executive Vice President of Worldwide Refining, Marketing, Supply and Transportation. His background primarily includes refining, marketing, crude and products trading, commercial natural gas operations and transportation. He also had assignments in exploration and production, as well as strategic planning. In 1991, he was appointed Vice President of U.S. Marketing and Product Trading. From 1994 to 1999, he was Vice President of U.S. Downstream Business. For eight years beginning in 1999, he was Executive Vice President of Refining, Marketing, Supply and Transportation for the company’s global business. Mr. Nokes was a member of the World Business Council for Sustainable Development and sat on the Board of Directors of the American Petroleum Institute, as well as the American Petroleum Institute Transportation, Marketing and Downstream Committee. Mr. Nokes is also a director of Post Oak Bank, N.A., a Houston-based community bank, and is Lead Director of Albemarle Corporation.
Key Qualifications, Attributes, Skills and Experience:
Industry, Operations, International and Strategic Planning Experience – 37 years of experience in the energy industry, including services as a former executive of an international, integrated energy company (ConocoPhillips), former director of a national oil and natural gas industry trade association (American Petroleum Institute) and former member of a global association of business leaders that promotes sustainable development (World Business Council for Sustainable Development)
Public Company Board Experience – Albemarle Corporation
Other Current Directorships: Albemarle Corporation (Non-Executive Chairman) and Post Oak Bank, N.A. |
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| William H. Schumann III Age 66 Director since 2016
Former Executive Vice President and Chief Financial Officer of FMC Technologies
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Mr. Schumann served as Executive Vice President of FMC Technologies, a global provider of technology solutions for the energy industry, from 2007 until his retirement in 2012. From 2001 until 2011, he served as Chief Financial Officer of FMC Technologies. During his 30-year career at FMC and its predecessor, FMC Corporation, he served in a variety of roles, including Vice President, Corporate Development; Vice President and General Manager, Agricultural Products Group; Regional Director, North America Operations; Director of Investor Relations; and Treasurer. He served on the board of Great Lakes Advisors, a registered investment advisor, from 1992 to 2011. Mr. Schumann currently serves on the board of the Lake Forest Lake Bluff Historical Society.
Key Qualifications, Attributes, Skills and Experience:
• Board Leadership, Strategic Planning Experience – Avnet, Inc. (Chairman); McDermott International; AMCOL International; URS Corporation; UAP Holding Corp
• Financial/Accounting Expertise, Risk Management, Leadership, Strategic Planning and Talent Management Experience – Former Chief Financial Officer of FMC Technologies
• Industry and Operations Experience – Over 30 years of experience providing technology solutions to energy sector clients at FMC Technologies
Other Current Directorships: Avnet, Inc., McDermott International
Tesoro Corporation 2017 Proxy Statement 59
Former Public Company Directorships: AMCOL International (from 2012 until 2014); URS Corporation (2014); UAP Holding Corp (from 2005 until 2008) |
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| Susan Tomasky Age 63 Director since 2011
Lead Director since December 31, 2014
Former President of AEP Transmission, a business division of American Electric Power Co.
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Ms. Tomasky served as President of AEP Transmission, a business division of American Electric Power Co., Inc., an owner and operator of utility operating companies that produce, transmit and distribute electricity to over 5 million customers at retail in 11 states, from 2008 until July 2011. Ms. Tomasky previously served in other executive officer positions at American Electric Power Co., including Executive Vice President and General Counsel from 1998 to 2001, Executive Vice President of Finance and Chief Financial Officer from 2001 to 2006 and Executive Vice President of Shared Services from 2006 to 2008. Prior to joining American Electric Power Co., Ms. Tomasky served as a partner at the law firm of Hogan & Hartson (now Hogan Lovells), where she was a member of the firm’s energy group, and as General Counsel of the Federal Energy Regulatory Commission. Ms. Tomasky is a director of several private and non-profit organizations. She previously served as a director of the Federal Reserve Bank of Cleveland, a member bank in the Federal Reserve System.
Key Qualifications, Attributes, Skills and Experience:
Leadership and Strategic Planning Experience – Former President of a division of a large, public utility company (American Electric Power Co.)
Financial and Accounting Experience – Chair of the Audit Committee of Public Services Enterprise Group, member of the Audit Committee of Summit Midstream Partners, LP, Chair of the Audit Committee of the Federal Reserve Bank of Cleveland and former Executive Vice President and Chief Financial Officer of a large, public energy company (American Electric Power Co.)
Government and Regulatory Experience and Legal Experience – Former roles as a partner in the energy group of an international law firm (Hogan & Hartson) and as General Counsel of a federal government agency that regulates the energy industry (Federal Energy Regulatory Commission)
Other Current Directorships: Public Service Enterprise Group Incorporated and Summit Midstream Partners GP, LLC (the general partner of Summit Midstream Partners, LP) |
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| Michael E. Wiley Age 66 Director since 2005
Former Chairman of the Board, President and Chief Executive Officer of Baker Hughes Incorporated
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Mr. Wiley has over 40 years of experience in the energy industry. Most recently he served as Chairman of the Board, President and Chief Executive Officer of Baker Hughes Incorporated, an oilfield services company, from August 2000 until his retirement in October 2004. He was President and Chief Operating Officer of Atlantic Richfield Company, an integrated energy company, from 1998 through May 2000. Prior to 1998, he served as Chairman, President and Chief Executive Officer of Vastar Resources, Inc., an independent oil and gas company. Mr. Wiley is a director of Bill Barrett Corporation, an independent oil and gas company, and Post Oak Bank, N.A., a Houston-based community bank. He also serves as Chairman of Independent Trustees of Fidelity Sector Portfolios.
Key Qualifications, Attributes, Skills and Experience:
Board leadership, Industry, Operations, Strategic Planning, Risk Management, and Talent Management Experience –Former Chairman, President and Chief Executive Officer of an oilfield services company (Baker Hughes Incorporated), former executive of an integrated energy company (Atlantic Richfield Company) and an independent exploration and production company (Vastar Resources, Inc.) and director of a privately held oil and gas company (Asia Pacific Exploration Consolidated)
Public Company Board Experience – Baker Hughes Incorporated, Bill Barrett Corporation and Spinnaker Exploration Company
Tesoro Corporation 2017 Proxy Statement 60
Other Current Directorships: Bill Barrett Corporation, Post Oak Bank, N.A., Tesoro Logistics GP, LLC, the general partner of Tesoro Logistics LP (a master limited partnership of which Tesoro and its subsidiaries own approximately 32%) |
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| Patrick Y. Yang Age 69 Director since 2010
Former Head of Global Technical Operations of F. Hoffmann-La Roche, Ltd.
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Mr. Yang has over 30 years of experience in manufacturing and technology. From 2010 to 2013, Mr. Yang served as Executive Vice President and Head of Global Technical Operations for F. Hoffmann-La Roche Ltd., which operates in the pharmaceutical industry and sells products in more than 150 countries. Mr. Yang joined Roche in 2009, upon Roche’s acquisition of Genentech, Inc., and was responsible for the company’s pharmaceutical manufacturing, process development, engineering, quality, regulatory, supply chain and procurement functions. Before joining Roche, Mr. Yang served as Executive Vice President, Product Operations of Genentech, a biotechnology company, from 2005 to 2009 and in various other executive-level positions with Genentech from 2003 to 2005. Prior to joining Genentech, Mr. Yang worked for Merck & Co. from 1992 to 2003 as Vice President in manufacturing and for General Electric from 1980 to 1992 in manufacturing and technology. Since 2013, Mr. Yang has served as a biopharmaceutical industry scientific and business consultant.
Key Qualifications, Attributes, Skills and Experience:
Leadership, Operations, Strategic Planning, International, and Talent Management Experience – Former senior operations executive of a large, global pharmaceutical company (F. Hoffmann-La Roche) and a former senior operations executive of a biotechnology company (Genentech)
Operations Experience – Over 20 years spent working in manufacturing (Merck and General Electric)
Financial/Accounting and Risk Management Experience – Service on Genentech’s executive committee from 2004 until 2009
Other Current Directorships: Codexis, Inc., Amyris, Inc. and PharmaEssentia Corporation
Former Public Company Directorships: Celladon Corporation (from 2014 until 2015)
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þ | Our Board of Directors recommends that you vote “FOR” the election to the Board of each of the foregoing nominees.
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Tesoro Corporation 2017 Proxy Statement 61
Proposal No. 2 – Advisory Vote to Approve Our Named Executive Officers’ Compensation
Pursuant to Section 14A of the Exchange Act, we are asking stockholders to approve, on an advisory basis, the compensation of our named executive officers disclosed in the Compensation Discussion and Analysis, the Summary Compensation Table and the related compensation tables, notes and narrative in this 2016 Proxy Statement.
As described under “Compensation Discussion and Analysis,” the Compensation Committee, comprised entirely of independent directors, has established executive compensation programs that reward both Company and individual performance. Our Compensation Committee consistently exercises great care and discipline in determining executive compensation and has structured our executive compensation programs to achieve the following key objectives:
Reward leaders for delivery of outstanding business results and driving a performance-oriented culture;
Promote and sustain exceptional performance over time to generate long-term growth in stockholder value; and
Lead in accordance with our guiding principles, which are core values, exceptional people, shared purpose, powerful collaboration and superior execution.
Please read the Compensation Discussion and Analysis beginning on page 19 of this Proxy Statement, which describes in more detail how our executive compensation programs operate and are designed to achieve our compensation objectives, as well as the Summary Compensation Table and other related compensation tables and narrative beginning on page 36, which provide detailed information on the compensation of our named executive officers. The Compensation Committee and the Board of Directors believe that our compensation programs are effective in achieving our goals and that the compensation of our named executive officers will contribute to our long-term success.
Although this advisory Say-on-Pay Vote is non-binding, the Board and the Compensation Committee will review and consider the voting results when making future decisions regarding our executive compensation programs.
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þ | Our Board of Directors recommends that you vote “FOR” the approval of the compensation paid to our named executive officers in 2016.
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Proposal No. 3 – Ratification of the Appointment of Ernst & Young LLP as Independent Registered Public Accounting Firm
The Audit Committee has selected Ernst & Young LLP to serve as our independent registered public accounting firm for the fiscal year ending December 31, 2017. See “Audit-Related Matters – Audit Committee Report” for additional detail regarding the process for this selection. As a matter of good corporate governance, the Board has directed that such appointment be submitted to our stockholders for ratification at the Annual Meeting. If the stockholders do not ratify the selection, the Audit Committee will reconsider whether to retain Ernst & Young LLP. Even if the selection is ratified, the Audit Committee in its discretion may select a different independent registered public accounting firm at any time during the year if it determines that such a change would be in the best interests of us and our stockholders. Representatives of Ernst & Young LLP are expected to be present at the Annual Meeting and will have an opportunity to make a statement if they desire to do so and are expected to be available to respond to appropriate questions.
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þ | Our Board of Directors recommends that you vote “FOR” the ratification of the selection of Ernst & Young LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2017.
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Tesoro Corporation 2017 Proxy Statement 62
Proposal No. 4 – Advisory Vote on the Frequency of Future Advisory Votes on Executive Compensation
Pursuant to Section 14A of the Exchange Act, we are asking stockholders to vote on whether future advisory votes on executive compensation of the nature reflected in Proposal No. 2 above should occur every year, every two years or every three years.
The Board of Directors has determined that holding an advisory vote on executive compensation every year is the most appropriate policy for us at this time, and recommends that stockholders vote for future advisory votes on executive compensation to occur every year. While our executive compensation program is designed to promote a long-term connection between pay and performance, executive compensation disclosures are made annually. Holding an annual advisory vote on executive compensation provides us with more direct and immediate feedback on our compensation disclosures. An annual advisory vote on executive compensation also is consistent with our practice of having all directors elected annually and annually providing stockholders the opportunity to ratify the Board of Directors’ selection of independent auditors.
We understand our stockholders may have different views as to the appropriate frequency for advisory votes on executive compensation, and we will carefully review the voting results on this proposal. Stockholders may specify one of four choices on the proxy card: one year, two years, three years, or abstain. Stockholders are not voting to approve or disapprove the Board’s recommendation. This advisory vote on the frequency of future advisory votes on executive compensation is non-binding on the Board of Directors. Notwithstanding the Board’s recommendation and the outcome of the stockholder vote, the Board may in the future decide to conduct advisory votes on a more or less frequent basis and may vary its practice based on factors such as discussions with stockholders and the adoption of material changes to our compensation program.
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þ | Our Board of Directors recommends that you vote to conduct future advisory votes on executive compensation every “ONE YEAR.”
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Tesoro Corporation 2017 Proxy Statement 63
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20182019 Stockholder Proposals |
Director Nominations and Stockholder Proposals Submitted for Inclusion in our 20182019 Proxy Statement:
For a stockholder proposal to be considered for inclusion in our proxy statement for the 20182019 Annual Meeting of Stockholders pursuant to SEC Rule 14a-8, the Corporate Secretary must receive the written proposal at our principal executive offices no later than the close of business on November 22, 2017.15, 2018. Such proposals also must comply with the requirements of Rule 14a-8.
Eligible stockholders may nominate a candidate for election to the Board for inclusion in our proxy statement for the 20182019 Annual Meeting of Stockholders in accordance with the “proxy access” provisions of our Bylaws. Stockholder nominations for director submitted for inclusion in our 20182019 Proxy Statement must be received in writing by our Corporate Secretary no earlier than October 23, 2017,16, 2018, and not later than the close of business on November 22, 2017,15, 2018, and must otherwise comply with all of the requirements of the Bylaws.
Proposals and "proxy access"“proxy access” director nominations should be addressed to:
Corporate Secretary
Andeavor
Tesoro Corporation
19100 Ridgewood Parkway
San Antonio, Texas 78259
Director Nominations and Stockholder Proposals Not Submitted for Inclusion in our 20182019 Proxy Statement:
Our Bylaws also establish an advance notice procedure with regard to director nominations and stockholder proposals that are not submitted for inclusion in the proxy statement but that a stockholder instead wishes to present directly at an annual meeting. Under our Bylaws, notice of such nomination or stockholder proposal for the 20182019 Annual Meeting of Stockholders must be delivered to the Corporate Secretary at the above address not earlier than January 4, 2018,2019, and not later than the close of business on February 5, 2018.4, 2019.
If the date of the annual meeting is more than 30 days before or more than 60 days after the anniversary of our annual meeting for the prior year, then the notice of a nomination or stockholder proposal must be delivered no earlier than the close of business on the 120th day prior to the meeting and not later than the close of business on the later of the 90th day prior to the meeting or, if the first public announcement of the date of such annual meeting is less than 100 days prior to the date of such meeting, the 10th day after the first public announcement of the meeting date.
All nominations and stockholder proposals submitted under our Bylaws must comply with the requirements of the Bylaws. The presiding officer of the Annual Meeting may refuse to acknowledge or introduce any such matter if notice of the matter is not received within the applicable deadlines or does not comply with our Bylaws.
Tesoro Corporation 2017 Proxy Statement 64 |
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| | 2018 Proxy Statement | 72 |
Proposal No. 4
Approve the Andeavor 2018 Long-Term Incentive Plan
Overview
On March 2, 2018, the Board unanimously adopted and approved the adoption of our new Andeavor 2018 Long-Term Incentive Plan (the “2018 Plan”), and is submitting the 2018 Plan to stockholders for their adoption and approval at the 2018 Annual Meeting. The Board believes our interests are best advanced by stimulating the efforts of employees, officers and nonemployee directors, in each case who are selected to be participants, by heightening the desire of such persons to continue working toward and contributing to our success and progress. The 2018 Plan allows grants of incentive and nonqualified stock options, stock appreciation rights, restricted stock and restricted stock units, any of which may be performance-based, and for incentive bonuses. The Board has adopted and approved the 2018 Plan to permit us to continue to use stock-based compensation to align stockholder and participant interests and to motivate participants providing services to us.
Our stock-based compensation program is currently operated under the Andeavor Amended and Restated 2011 Long-Term Incentive Plan (the “Amended 2011 Plan”), as approved by our stockholders at our 2013 Annual Meeting. Upon approval of the 2018 Plan by stockholders, the Amended 2011 Plan will be frozen with respect to new awards effective as of the date of our 2018 Annual Meeting. As such, if the 2018 Plan is approved by stockholders, no further awards will be made under the Amended 2011 Plan after the date of the 2018 Annual Meeting.
Why You Should Vote For the 2018 Plan
The Board recommends that our stockholders approve the 2018 Plan because it believes our ability to grant equity-based awards continues to be crucial in allowing us to effectively compete for and appropriately motivate and reward key talent. It is in our and our stockholders’ long-term interest to provide additional incentive for eligible participants to improve financial performance, increase profits and strengthen the mutuality of interest between those persons and our stockholders through equity based awards and other incentives.
Our Board of Directors recommends that you vote FOR the Andeavor 2018 Long-Term Incentive Plan.
Promotion of Good Corporate Governance Practices
The Board believes the use of stock-based incentive awards promotes best practices in corporate governance by aligning participant’s interests with maximizing stockholder value. Specific features of the 2018 Plan that are consistent with good corporate governance practices include, but are not limited to:
options and stock appreciation rights may not be granted with exercise prices lower than the fair market value of the underlying shares on the grant date;
there can be no repricing of options or stock appreciation rights without stockholder approval, either by canceling the award in exchange for cash or a replacement award at a lower price or by reducing the exercise price of the award, other than in connection with a change in our capitalization;
minimum one (1) year vesting period for all awards, subject to a carve out for 5% of the shares available under the 2018 Plan that may be granted without regard to the one-year minimum vesting period;
in no event will dividends or dividend equivalents be currently payable with respect to unvested or unearned performance awards;
awards generally may not be transferred except by will or the laws of descent and distribution or, if approved by the administrator, to certain family members, family trusts, or family partnerships pursuant to a gift or domestic relations order; and
we have the authority under the 2018 Plan to cancel outstanding awards (vested or unvested) in the event the applicable plan participant engages in certain “acts of misconduct,” which is defined in the 2018 Plan to include engaging in any type of disloyalty to us and materially breaching confidentiality and noncompetition covenants with us.
Key Data
The following table includes information regarding all of our outstanding equity awards and shares available for future awards under our equity plans and equity award agreements as of March 5, 2018 (and without giving effect to this Proposal No. 4):
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Total shares underlying all outstanding options | 179,613 |
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Weighted average exercise price of outstanding options | 13.65 |
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Weighted average remaining contractual life of outstanding options | 2.20 years |
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Total shares underlying all outstanding and unvested time-based restricted stock and restricted stock unit awards | 129,417 |
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Total shares underlying outstanding unearned performance-based restricted stock and restricted stock unit awards (assuming a maximum payout) (a) | 2,954,494 |
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Total shares currently available for grant (assuming a maximum payout for performance-based awards) (a) | 1,990,226 |
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(a) | Includes performance-based MSUs and PSAs and reflects the number of MSUs and PSAs that would vest assuming maximum achievement of all performance goals. |
2018 Plan Summary
The following summary of the material terms of the 2018 Plan are qualified in their entirety by reference to the complete statement of the 2018 Plan, which is set forth in Appendix A to this Proxy Statement.
Administration
The 2018 Plan will be administered by the Compensation Committee of the Board. Subject to the express provisions of the 2018 Plan, the administrator is authorized and empowered to do all things that it determines to be necessary or appropriate in connection with the administration of the 2018 Plan. In addition, the Compensation Committee may delegate any or all aspects of the day-to-day administration of the 2018 Plan to one or more of our officers or employees, and/or to one or more agents.
Participants
Any person who is an officer or employee of the Company or of any subsidiary will be eligible for selection by the administrator for the grant of awards under the 2018 Plan. In addition, nonemployee directors will be eligible for the grant of awards under the 2018 Plan as determined by the administrator. Options intending to qualify as “incentive stock options” (“ISOs”) within the meaning of Section 422 of the Code may only be granted to employees of the Company or any subsidiary. Approximately 14,300 employees and eleven non-employee directors currently qualify to participate in the 2018 Plan.
Shares Subject to the Plan and to Awards
The aggregate number of shares of our common stock issuable pursuant to the 2018 Plan shall not exceed 1,850,000, plus (i) any shares that, as of the date of the 2018 Annual Meeting, remain available for issuance pursuant to future awards under the Amended 2011 Plan, and (ii) any shares subject to outstanding awards under the Amended and Restated 2006 Long-Term Incentive Plan and the Amended 2011 Plan as of the date of the 2018 Annual Meeting that on or after such date cease for any reason to be subject to such awards (other than by reason of exercise or settlement of the awards to the extent
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they are exercised for or settled in vested and nonforfeitable shares). The aggregate number of shares available for grant under the 2018 Plan and the number of shares subject to outstanding awards shall be subject to adjustment upon a change in our capitalization. The shares issued pursuant to awards granted under the 2018 Plan may be shares that are authorized and unissued or shares that were reacquired by us, including shares purchased in the open market.
As of March 5, 2018, there were 3,464,094 shares remained available for grant under future awards that could be granted under the Amended 2011 Plan (assuming that performance-based awards are paid out at target amounts). If the 2018 Plan is approved by stockholders, these 3,464,094 shares will cease to be available for issuance under the Amended 2011 Plan upon stockholder approval of the 2018 Plan and will become available for issuance under the 2018 Plan. As such, if the 2018 Plan is approved by stockholders, approximately 5,314,094 shares will initially be available for awards under the 2018 Plan.
The aggregate number of shares issued under the 2018 Plan at any time will equal only the number of shares actually issued upon exercise or settlement of an award. The aggregate number of shares available for awards under the 2018 Plan will not be reduced by (i) shares subject to awards that have been terminated, expired unexercised, forfeited or settled in cash, (ii) shares subject to awards that have been retained or withheld in payment or satisfaction of the exercise price, purchase price or tax withholding obligation of an award, or (iii) shares subject to awards that otherwise do not result in the issuance of shares in connection with payment or settlement thereof. In addition, shares that are delivered (either actually or by attestation) to the Company in payment or satisfaction of the exercise price, purchase price or tax withholding obligation of an award will be available for awards under the 2018 Plan.
The aggregate number of shares subject to awards granted under the 2018 Plan during any calendar year to any one participant will not exceed 500,000, which number will be subject in each case to possible adjustment upon a change in our capitalization. The aggregate number of shares that may be issued pursuant to the exercise of ISOs granted under the 2018 Plan will not exceed 1,850,000 which number shall be subject in each case to possible adjustment upon a change in our capitalization. The maximum cash amount payable pursuant to an incentive bonus earned for any twelve-month period to any participant under the 2018 Plan will not exceed $10,000,000.
The aggregate dollar value of equity-based awards (based on the grant date fair value of such awards) that may be granted under the 2018 Plan during any calendar year to any one nonemployee director will not exceed $250,000; provided, however, that in any calendar year in which a nonemployee director first joins the Board or is designated as Chairman of the Board or Lead Director, the maximum number of shares subject to awards granted to the participant may be up to $500,000 and the foregoing limits will not count any tandem stock appreciation rights.
Substitute awards (awards granted in assumption of, or in substitution or exchange for, awards previously granted, or the right or obligation to make future awards, by a company acquired by us or with which we combine) will not reduce the shares authorized for issuance under the 2018 Plan or authorized for grant to a participant in any calendar year. Additionally, in the event that a company acquired by us, or with which we combine, has shares available under a pre-existing plan approved by stockholders and not adopted in contemplation of such acquisition or combination, the shares available for grant pursuant to the terms of such pre-existing plan may be used for awards under the 2018 Plan and will not reduce the shares authorized for issuance under the 2018 Plan.
Option Awards
The administrator will establish the exercise price per share under each option, which, other than in the event of options granted in connection with a merger or other acquisition, will not be less than the fair market value of a share on the date the option is granted. The administrator will establish the term of each option, which in no case may exceed a period of ten (10) years from the date of grant ; provided, however, the term of an option (other than an ISO) will be automatically extended if, at the time of its
scheduled expiration, the applicable participant is prohibited by law or the Company’s insider trading policy from exercising the option, which extension shall expire on the thirtieth (30th) day following the date such prohibition no longer applies. Options granted under the 2018 Plan may either be ISOs or options which are not intended to qualify as ISOs, or nonqualified stock options (“NQSOs”). Other than in connection with a change in our capitalization, at any time when the exercise price of an option is above the fair market value of a share, we will not, without stockholder approval, cancel and re-grant such option, exchange such option for cash or a new award or otherwise reprice such option.
Stock Appreciation Rights
A stock appreciation right provides the right to the monetary equivalent of the increase in value of a specified number of the shares over a specified period of time after the right is granted. Stock appreciation rights may be granted to participants either in tandem with or as a component of other awards granted under the 2018 Plan (“tandem SARs”) or not in conjunction with other awards (“freestanding SARs”). All freestanding SARs will be granted subject to the same terms and conditions applicable to options as set forth above and in the 2018 Plan and all tandem SARs will have the same exercise price, vesting, exercisability, forfeiture and termination provisions as the award to which they relate. Other than in connection with a change in our capitalization, at any time when the exercise price of a stock appreciation right is above the fair market value of a share, we will not, without stockholder approval, cancel and re-grant such stock appreciation right, exchange such stock appreciation right for cash or a new award or otherwise reprice such stock appreciation right.
Restricted Stock and Restricted Stock Units
Restricted stock is an award or issuance of shares the grant, issuance, retention, vesting and/or transferability of which is subject during specified periods of time to conditions (including continued employment or performance conditions) and terms as the administrator deems appropriate. Restricted stock units are awards denominated in units of shares under which the issuance of shares is subject to conditions (including continued employment or performance conditions) and terms as the administrator deems appropriate.
Participants holding shares of restricted stock granted under the 2018 Plan may exercise full voting rights with respect to those shares during the period of restriction, unless determined otherwise by the administrator. Participants will have no voting rights with respect to shares underlying restricted stock units unless and until such shares are reflected as issued and outstanding shares on our stock ledger. Participants in whose name an award of restricted stock and/or restricted stock units is granted will be entitled to receive all dividends and other distributions paid with respect to the shares underlying such award, unless determined otherwise by the administrator. The administrator will determine whether any such dividends or distributions will be automatically reinvested in additional shares or will be payable in cash; provided that such additional shares and/or cash will be subject to the same restrictions and vesting conditions as the award with respect to which they were distributed. Notwithstanding anything herein to the contrary, in no event will dividends or dividend equivalents be currently payable with respect to unvested or unearned restricted stock or restricted stock units.
Incentive Bonuses
Each incentive bonus will confer upon the participant the opportunity to earn a future payment tied to the level of achievement with respect to one or more performance criteria established for a performance period of not less than one year. The administrator will establish the performance criteria and level of achievement versus these criteria that will determine the threshold, target and maximum amount payable under an incentive bonus, which criteria may be based on financial performance and/or personal performance evaluations.
Deferral of Gains
The administrator may, in an award agreement or otherwise, provide for the deferred delivery of shares upon settlement, vesting or other events with respect to restricted stock or restricted stock units, or in payment or satisfaction of an incentive bonus.
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Qualifying Performance Criteria
The administrator may establish performance criteria and level of achievement versus such criteria that will determine the number of shares, units or cash to be granted, retained, vested, issued or issuable under or in settlement of or the amount payable pursuant to an award, which criteria may be based on one or more of the following performance criteria, or derivations of such performance criteria or other standards of financial performance and/or personal performance evaluations, either individually, alternatively or in any combination, applied to either the Company as a whole or to a business unit or subsidiary, either individually, alternatively or in any combination, and measured either annually or cumulatively over a period of years, on an absolute basis or relative to a pre-established target, to previous years’ results or to a designated comparison group, in each case as specified by the Administrator: (i) cash flow (before or after dividends), (ii) earning (including earnings before interest and taxes, which is referred to as EBIT, and earnings before interest, taxes, depreciation and amortization, which is referred to as EBITDA) or earnings per share, (iii) stock price, (iv) return on equity, (v) total stockholder return, (vi) return on capital or investment (including return on total capital, return on invested capital, or return on investment), (vii) return on assets or net assets, (viii) market capitalization, (ix) economic value added, (x) debt leverage (debt to capital), (xi) revenue, (xii) income or net income, (xiii) operating income, (xiv) operating profit or net operating profit, (xv) operating margin or profit margin, (xvi) return on operating revenue, (xvii) cash from operations, (xviii) operating ratio, (xix) operating revenue, (xx) NSR and/or total backlog, (xxi) days sales outstanding, (xxii) customer service, (xxiii) operational safety, reliability and/or efficiency; (xxiv) environmental incidents; (xxv) personal safety; (xxvi) cost management; (xxvii) growth and productivity metrics; or (xxviii) synergies related to acquisitions or major capital projects or (xxix) such other performance criteria as may be determined by the administrator from time to time.
Settlement of Awards
Awards may be settled in shares, cash or a combination thereof, as determined by the administrator.
Minimum Vesting Provisions
Awards granted under the 2018 Plan may not become exercisable, vest or be settled, in whole or in part, prior to the one-year anniversary of the date of grant, except that the administrator may provide that awards become exercisable, vest or settle prior to such date in the event of the participant’s death or disability or in connection with a change in control. Notwithstanding the foregoing, up to 5% of the maximum aggregate number of shares authorized for issuance under the 2018 Plan may be issued pursuant to awards subject to any, or no, vesting conditions, as the administrator determines appropriate.
Agreement to Repayment of Incentive Compensation When Required Under Federal Law
To the extent any policy adopted by the New York Stock Exchange (or any other exchange on which the securities of the Company are listed) pursuant to Section 10D of the Securities Exchange Act of 1934 requires the repayment of incentive-based compensation received by a participant, whether paid pursuant to an award granted under the 2018 Plan or any other plan of incentive-based compensation maintained in the past or adopted in the future by the Company, by accepting an award under the 2018 Plan, the participant agrees to the repayment of such amounts to the extent required by such policy and applicable law.
Amendment and Termination
The Board may amend, alter or discontinue the 2018 Plan, and the administrator may amend or alter any agreement or other document evidencing an award made under the 2018 Plan, except no such amendment may, without the approval of our stockholders (other than in respect of a change in our capitalization), amend the 2018 Plan in any manner requiring stockholder approval by law or under the New York Stock Exchange listing requirements.
No amendment or alteration to the 2018 Plan or an award or award agreement may be made which would impair the rights of the holder of an award, without such holder’s consent, provided that no such consent will be required if the administrator determines in its sole discretion and prior to the date of any
change-in-control that such amendment or alteration either is required or advisable in order for the Company, the 2018 Plan or the award to satisfy any law or regulation or to meet the requirements of or avoid adverse financial accounting consequences under any accounting standard.
Change-in-Control
Unless otherwise expressly provided in the award agreement or another contract, including an employment agreement, or under the terms of a transaction constituting a change-in-control, the administrator may provide that any or all of the following will occur upon a participant’s termination of employment within 24 months following a change-in-control: (i) in the case of an option or stock appreciation right, the participant will have the ability to exercise any portion of the option or stock appreciation right not previously exercisable, (ii) in the case of a performance award or incentive bonus, the participant will have the right to receive a payment equal to the target amount payable or, if greater, a payment based on performance through a date determined by the administrator prior to the change-in-control, and (iii) in the case of shares issued in payment of an incentive bonus, and/or in the case of outstanding restricted stock and/or restricted stock units, all conditions to the grant, issuance, retention, vesting or transferability of, or any other restrictions applicable to, such award will immediately lapse. Notwithstanding anything else in the 2018 Plan to the contrary, in the event of a change-in-control in which the acquiring or surviving company in the transaction does not assume or continue outstanding awards upon the change-in-control, immediately prior to the change-in-control, all awards that are not assumed or continued will be treated as follows effective immediately prior to the change-in-control: (a) in the case of an option or stock appreciation right, the participant will have the ability to exercise such option or stock appreciation right, including any portion of the option or stock appreciation right not previously exercisable, (b) in the case of a performance award or incentive bonus, the participant will have the right to receive a payment equal to the target amount payable or, if greater, a payment based on performance through a date determined by the administrator prior to the change-in-control, and (c) in the case of shares issued in payment of an incentive bonus, and/or in the case of outstanding restricted stock and/or restricted stock units, all conditions to the grant, issuance, retention, vesting or transferability of, or any other restrictions applicable to, such award will immediately lapse.
Adjustments
The number and kind of shares available for issuance under the 2018 Plan (including under any awards then outstanding), and the number and kind of shares subject to the individual limits set forth in the 2018 Plan, will be equitably adjusted by the administrator as it determines appropriate to reflect any reorganization, reclassification, combination of shares, stock split, reverse stock split, spin-off, dividend or distribution of securities, property or cash (other than regular, quarterly cash dividends), or any other event or transaction that affects the number or kind of shares of the Company outstanding. Such adjustment will be designed to comply with Sections 409A and 424 of the Code or, except as otherwise expressly provided in the 2018 Plan, may be designed to treat the shares available under the 2018 Plan and subject to awards as if they were all outstanding on the record date for such event or transaction or to increase the number of such shares to reflect a deemed reinvestment in shares of the amount distributed to our stockholders. The terms of any outstanding award will also be equitably adjusted by the administrator as to price, number or kind of shares subject to such award, vesting, and other terms to reflect the foregoing events, which adjustments need not be uniform as between different awards or different types of awards.
Transferability
Awards may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated by a participant other than by will or the laws of descent and distribution, and each option or stock appreciation right may be exercisable only by the participant during his or her lifetime. Notwithstanding the foregoing, to the extent permitted by the administrator, the person to whom an award is initially granted may make certain limited transfers to certain family members, family trusts, or family partnerships.
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No Right to Company Employment
Nothing in the 2018 Plan or an award agreement will interfere with or limit in any way our right, our subsidiaries and/or our affiliates’ right to terminate any participant’s employment, service on the Board or service for us at any time or for any reason not prohibited by law, nor will the 2018 Plan or an award itself confer upon any participant any right to continue his or her employment or service for any specified period of time. Neither an award nor any benefits arising under the 2018 Plan will constitute an employment contract with us, any subsidiary and/or any affiliates.
Compliance with Law
The 2018 Plan, the grant, issuance, vesting, exercise and settlement of awards thereunder, and our obligation to sell, issue or deliver shares under such awards, will be subject to all applicable foreign, federal, state and local laws, rules and regulations, stock exchange rules and regulations, and to such approvals by any governmental or regulatory agency as may be required. We will not be required to issue or deliver any certificates for shares prior to the completion of any registration or qualification of such shares under any federal or state law or issuance of any ruling or regulation of any government body which we will, in our sole discretion, determine to be necessary or advisable.
Effective Date and Termination of the 2018 Plan
The 2018 Plan was adopted by the Board on March 2, 2018. The 2018 Plan will become effective upon approval by our stockholders. The 2018 Plan will remain available for the grant of awards until March 1, 2028.
Federal Income Tax Treatment
The following discussion of the federal income tax consequences of the 2018 Plan is intended to be a summary of applicable federal law as currently in effect. It should not be taken as tax advice by 2018 Plan participants, who are urged to consult their individual tax advisors.
Stock Options
ISOs and NQSOs are treated differently for federal income tax purposes. ISOs are intended to comply with the requirements of Section 422 of the Code. NQSOs do not comply with such requirements.
An optionee is not taxed on the grant or exercise of an ISO. The difference between the exercise price and the fair market value of the shares on the exercise date will, however, be a preference item for purposes of the alternative minimum tax. If an optionee holds the shares acquired upon exercise of an ISO for at least two years following the option grant date and at least one year following exercise, the optionee’s gain, if any, upon a subsequent disposition of such shares is long term capital gain. The measure of the gain is the difference between the proceeds received on disposition and the optionee’s basis in the shares (which generally equals the exercise price). If an optionee disposes of stock acquired pursuant to exercise of an ISO before satisfying these holding periods, the optionee will recognize both ordinary income and capital gain in the year of disposition. We are not entitled to an income tax deduction on the grant or exercise of an ISO or on the optionee’s disposition of the shares after satisfying the holding period requirement described above. If the holding periods are not satisfied, we will be entitled to a deduction in the year the optionee disposes of the shares in an amount equal to the ordinary income recognized by the optionee.
In order for an option to qualify for ISO tax treatment, the grant of the option must satisfy various other conditions more fully described in the Code. We do not guarantee that any option will qualify for ISO tax treatment even if the option is intended to qualify for such treatment. In the event an option intended to be an ISO fails to so qualify, it will be taxed as an NQSO described below.
An optionee is not taxed on the grant of an NQSO. On exercise, the optionee recognizes ordinary income equal to the difference between the exercise price and the fair market value of the shares acquired on the date of exercise. We are entitled to an income tax deduction in the year of exercise in the amount recognized by the optionee as ordinary income. The optionee’s gain (or loss) on subsequent disposition
of the shares is long term capital gain (or loss) if the shares are held for at least one year following exercise. We do not receive a deduction for this gain.
Stock Appreciation Rights
An optionee is not taxed on the grant of a stock appreciation right. On exercise, the optionee recognizes ordinary income equal to the cash or the fair market value of any shares received. We are entitled to an income tax deduction in the year of exercise in the amount recognized by the optionee as ordinary income.
Restricted Stock and Restricted Stock Units
Grantees of restricted stock or restricted stock units do not recognize income at the time of the grant. When the award vests or is paid, grantees generally recognize ordinary income in an amount equal to the fair market value of the stock or units at such time, and we will receive a corresponding deduction. However, no later than 30 days after a participant receives an award of restricted stock, the participant may elect to recognize taxable ordinary income in an amount equal to the fair market value of the shares at the time of receipt. Provided that the election is made in a timely manner, when the restrictions on the shares lapse, the participant will not recognize any additional income. If the participant forfeits the shares to us (e.g., upon the participant’s termination prior to vesting), the participant may not claim a deduction with respect to the income recognized as a result of the election. Dividends paid with respect to unvested shares of restricted stock generally will be taxable as ordinary income to the participant at the time the dividends are received.
Incentive Bonuses
A participant will have taxable income at the time an incentive bonus award becomes payable, and, if the participant has timely elected deferral to a later date, such later date. At that time, the participant will recognize ordinary income equal to the value of the amount then payable.
Company Deduction and Code Section 162(m)
The Amended 2011 LTIP was originally designed to allow us to provide “performance-based compensation” that was tax deductible without regard to the limits of Section 162(m) of the Internal Revenue Code and the regulations thereunder (Section 162(m)). However, the performance-based compensation exception under Section 162(m) was eliminated by the Tax Cuts and Jobs Act of 2017. As such, beginning in 2018, compensation payable, including under the 2018 Plan, to any covered employee as defined under Section 162(m) as amended (which generally include all of named executive officers, including the chief financial officer) in excess of $1,000,000 in any calendar year will not be deductible by us and our subsidiaries. The Compensation Committee may nonetheless grant compensation that is not deductible to the extent it determines appropriate.
New Plan Benefits
The benefits that will be awarded or paid under the 2018 Plan are not currently determinable. Such awards are within the discretion of the Compensation Committee, and the Compensation Committee has not determined future awards or who might receive them. Information about awards granted in fiscal year 2017 under the Amended 2011 Plan to our NEOs can be found in the table under the heading “Grants of Plan-Based Awards in 2017” on page 46 of this Proxy Statement. As of March 5, 2018, the closing price of a share of our common stock was $94.45.
Our Board of Directors recommends that you vote FOR the Andeavor 2018 Long-Term Incentive Plan.
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Appendix A
Andeavor 2018 Long-Term Incentive Plan
The purpose of the Andeavor 2018 Long-Term Incentive Plan (the “Plan”) is to advance the interests of Andeavor (the “Company”) by stimulating the efforts of employees, officers, non-employee directors and other service providers, in each case who are selected to be participants, by heightening the desire of such persons to continue working toward and contributing to the success and progress of the Company. The Plan supersedes the Company’s existing Amended and Restated 2011 Long-Term Incentive Plan with respect to future awards, and provides for the grant of Incentive and Nonqualified Stock Options, Stock Appreciation Rights, Restricted Stock and Restricted Stock Units, any of which may be performance-based, and for Incentive Bonuses, which may be paid in cash or stock or a combination thereof, as determined by the Administrator.
As used in the Plan, the following terms shall have the meanings set forth below:
(a)“2006 LTIP” means the Company’s Amended and Restated 2006 Long-Term Incentive Plan.
(b)“2011 LTIP” means the Company’s Amended and Restated 2011 Long-Term Incentive Plan.
(c) “Administrator” means the Administrator of the Plan in accordance with Section 18.
(d)“Award” means an Incentive Stock Option, Nonqualified Stock Option, Stock Appreciation Right, Restricted Stock, Restricted Stock Unit or Incentive Bonus granted to a Participant pursuant to the provisions of the Plan, any of which the Administrator may structure to qualify in whole or in part as a Performance Award.
(e)“Award Agreement” means a written or electronic agreement or other instrument as may be approved from time to time by the Administrator implementing the grant of each Award. An Award Agreement may be in the form of an agreement to be executed by both the Participant and the Company (or an authorized representative of the Company) or certificates, notices, memoranda or similar instruments as approved by the Administrator.
(f)“Board” means the board of directors of the Company.
(g)“Cause” means, unless otherwise set forth in an Award Agreement or other written agreement between the Company and the applicable Participant, a finding by the Administrator that a Participant, before or after his or her Termination of Employment (i) committed fraud, embezzlement, theft, felony or an act of dishonesty in the course of his employment by the Company or an affiliate which conduct damaged the Company or an affiliate or (ii) disclosed trade secrets of the Company or an affiliate. The findings and decision of the Administrator with respect to such matter, including those regarding the acts of the Participant and the damage done to the Company, will be final for all purposes. No decision of the Administrator, however, will affect the finality of the discharge of the individual by the Company or an affiliate.
(h)“Change in Control” means (i) there shall be consummated (A) any consolidation or merger of Company in which Company is not the continuing or surviving corporation or pursuant to which
shares of Company’s common stock would be converted into cash, securities or other property, other than a merger of Company where a majority of the board of directors of the surviving corporation are, and for a one-year period after the merger continue to be, persons who were directors of Company immediately prior to the merger or were elected as directors, or nominated for election as director, by a vote of at least two-thirds of the directors then still in office who were directors of Company immediately prior to the merger, or (B) any sale, lease, exchange or transfer (in one transaction or a series of related transactions) of all or substantially all of the assets of Company, or (ii) the shareholders of Company shall approve any plan or proposal for the liquidation or dissolution of Company, or (iii) (A) any “person” (as such term is used in Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934), other than Company or a Subsidiary thereof or any employee benefit plan sponsored by Company or a Subsidiary thereof, shall become the beneficial owner (within the meaning of Rule 13c-3 under the Securities Exchange Act of 1934) of securities of Company representing thirty-five percent (35%) or more of the combined voting power of Company’s then outstanding securities ordinarily (and apart from rights accruing in special circumstances) having the right to vote in the election of directors, as a result of a tender or exchange offer, open market purchases, privately negotiated purchases or otherwise, and (B) at any time during a period of one-year thereafter, individuals who immediately prior to the beginning of such period constituted the Board shall cease for any reason to constitute at least a majority thereof, unless election or the nomination by the Board for election by Company’s shareholders of each new director during such period was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of such period.
(i)“Code” means the Internal Revenue Code of 1986, as amended from time to time, and the rulings and regulations issued thereunder.
(j)“Company” means Andeavor, a Delaware corporation.
(k)“Disability” means, as determined by the Administrator in its discretion exercised in good faith, a physical or mental condition of a Participant that would entitle him or her to payment of disability income payments under the Company’s long-term disability insurance policy or plan for employees as then in effect; or in the event that a Participant is not covered, for whatever reason under the Company’s long-term disability insurance policy or plan for employees or in the event the Company does not maintain such a long-term disability insurance policy, “Disability” means a permanent and total disability as defined in section 22(e)(3) of the Code. A determination of Disability may be made by a physician selected or approved by the Administrator and, in this respect, Participants shall submit to an examination by such physician upon request by the Administrator.
(l)“Exchange Act” means the Securities Exchange Act of 1934, as amended from time to time, or any successor Act thereto.
(m)“Fair Market Value” means, as of any given date, the closing sales price on such date during normal trading hours (or, if there are no reported sales on such date, on the last date prior to such date on which there were sales) of the Shares on the New York Stock Exchange or, if not listed on such exchange, on any other national securities exchange on which the Shares are listed or on an inter-dealer quotation system, in any case, as reported in such source as the Administrator shall select. If there is no regular public trading market for the Shares, the Fair Market Value of the Shares shall be determined by the Administrator in good faith and in compliance with Section 409A of the Code.
(n)“Incentive Bonus” means a bonus opportunity awarded under Section 9 pursuant to which a Participant may become entitled to receive an amount based on satisfaction of enumerated performance criteria.
(o)“Incentive Stock Option” means a stock option that is intended to qualify as an “incentive stock option” within the meaning of Section 422 of the Code.
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(p)“Nonemployee Director” means each person who is, or is elected to be, a member of the Board and who is not an employee of the Company or any Subsidiary.
(q)“Nonqualified Stock Option” means a stock option that is not intended to qualify as an “incentive stock option” within the meaning of Section 422 of the Code.
(r)“Option” means an Incentive Stock Option and/or a Nonqualified Stock Option granted pursuant to Section 6 of the Plan.
(s)“Participant” means any individual described in Section 3 to whom Awards have been granted from time to time by the Administrator and any authorized transferee of such individual.
(t)“Performance Award” means an Award, the grant, issuance, retention, vesting or settlement of which is subject to satisfaction of one or more performance criteria pursuant to Section 13.
(u)“Person” shall have the meaning ascribed to such term in Section 3(a)(9) of the Exchange Act and used in Sections 13(d) and 14(d) thereof, including a “group” as defined in Section 13(d).
(v)“Plan” means the Andeavor 2018 Long-Term Incentive Plan as set forth herein and as amended from time to time.
(w)“Restricted Stock” means Shares granted pursuant to Section 8 of the Plan.
(x)“Restricted Stock Unit” means an Award granted to a Participant pursuant to Section 8 pursuant to which Shares or cash in lieu thereof may be issued in the future.
(y)“Retirement” means, unless otherwise set forth in an Award Agreement or other written agreement between the Company and the applicable Participant, (i) for employees: retirement from active employment with the Company and its Subsidiaries: (A) at or after age 55 with 5 years of service recognized by the Company or (B) at or after age 50 with 80 points (with points meaning the sum of the Participant’s age and years of service recognized by the Company at the time of retirement), and (ii) for Nonemployee Directors: retirement from active service with the Company after having served as a Nonemployee Director for at least an aggregate of three full years (excluding any service while a full-time employee of the Company). The determination of the Administrator as to an individual’s Retirement shall be conclusive on all parties.
(z)“Share” means a share of the Company’s common stock, $0.162/3 par value per share (or such other par value as may be designated by act of the Company’s stockholders), subject to adjustment as provided in Section 12.
(aa)“Stock Appreciation Right” means a right granted pursuant to Section 7 of the Plan that entitles the Participant to receive, in cash or Shares or a combination thereof, as determined by the Administrator, value equal to or otherwise based on the excess of (i) the Fair Market Value of a specified number of Shares at the time of exercise over (ii) the exercise price of the right, as established by the Administrator on the date of grant.
(ab)“Subsidiary” means any corporation (other than the Company) in an unbroken chain of corporations beginning with the Company where each of the corporations in the unbroken chain other than the last corporation owns stock possessing at least 50 percent or more of the total combined voting power of all classes of stock in one of the other corporations in the chain, and if specifically determined by the Administrator in the context other than with respect to Incentive Stock Options, may include an entity in which the Company has a significant ownership interest or that is directly or indirectly controlled by the Company.
(ac)“Substitute Awards” means Awards granted or Shares issued by the Company in assumption of, or in substitution or exchange for, awards previously granted, or the right or obligation to make future awards, by a company acquired by the Company or any Subsidiary or with which the Company or any Subsidiary combines.
(ad)“Termination of Employment” means ceasing to serve as an employee of the Company and its Subsidiaries or, with respect to a Nonemployee Director or other service provider, ceasing to serve as such for the Company, except that with respect to all or any Awards held by a Participant (i) the Administrator may determine that a leave of absence or employment on a less than full-time basis is considered a “Termination of Employment,” (ii) the Administrator may determine that a transition of employment to service with a partnership, joint venture or corporation not meeting the requirements of a Subsidiary in which the Company or a Subsidiary is a party is not considered a “Termination of Employment,” (iii) service as a member of the Board shall constitute continued employment with respect to Awards granted to a Participant while he or she served as an employee and (iv) service as an employee of the Company or a Subsidiary shall constitute continued employment with respect to Awards granted to a Participant while he or she served as a member of the Board or other service provider. The Administrator shall determine whether any corporate transaction, such as a sale or spin-off of a division or subsidiary that employs a Participant, shall be deemed to result in a Termination of Employment with the Company and its Subsidiaries for purposes of any affected Participant’s Awards, and the Administrator’s decision shall be final and binding.
Any person who is an officer or employee (including any director who is also an employee, in his or her capacity as such) of the Company or of any Subsidiary shall be eligible for selection by the Administrator for the grant of Awards hereunder. To the extent provided by Section 5(d), any Nonemployee Director shall be eligible for the grant of Awards hereunder as determined by the Administrator. Options intending to qualify as Incentive Stock Options may only be granted to employees of the Company or any Subsidiary within the meaning of the Code, as selected by the Administrator.
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4. | Effective Date and Termination of Plan |
This Plan was originally adopted by the Board on March 2, 2018 (the “Effective Date”), subject to approval by the Company’s stockholders. The Plan shall remain available for the grant of Awards until March 2, 2028. Notwithstanding the foregoing, the Plan may be terminated at such earlier time as the Board may determine. Termination of the Plan will not affect the rights and obligations of the Participants and the Company arising under Awards theretofore granted and then in effect.
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5. | Shares Subject to the Plan and to Awards |
(a)Aggregate Limits. The aggregate number of Shares issuable pursuant to all Awards under this Plan shall not exceed 1,850,000, plus (i) any Shares that, as of the date of shareholder approval the Plan, remain available for issuance pursuant to future awards under the 2011 LTIP, and (ii) any Shares subject to outstanding awards under the 2006 LTIP or 2011 LTIP that on or after the date of shareholder approval the Plan cease for any reason to be subject to such awards (other than by reason of exercise or settlement of the awards to the extent they are exercised for or settled in vested and nonforfeitable shares). The aggregate number of Shares available for grant under this Plan and the number of Shares subject to outstanding Awards shall be subject to adjustment as provided in Section 12. The Shares issued pursuant to Awards granted under this Plan may be shares that are authorized and unissued or shares that were reacquired by the Company, including shares purchased in the open market.
(b)Issuance of Shares. For purposes of Section 5(a), the aggregate number of Shares issued under this Plan at any time shall equal only the number of Shares actually issued upon exercise or settlement of an Award under this Plan. The aggregate number of Shares available for Awards under this
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Plan at any time shall not be reduced by (i) Shares subject to Awards that have been terminated, expired unexercised, forfeited or settled in cash, (ii) Shares subject to Awards that have been retained or withheld by the Company in payment or satisfaction of the exercise price, purchase price or tax withholding obligation of an Award, or (iii) Shares subject to Awards that otherwise do not result in the issuance of Shares in connection with payment or settlement thereof. In addition, Shares that have been delivered (either actually or by attestation) to the Company in payment or satisfaction of the exercise price, purchase price or tax withholding obligation of an Award shall be available for Awards under this Plan.
(c)Tax Code Limits. The aggregate number of Shares subject to Awards granted under this Plan during any calendar year to any one Participant shall not exceed 500,000, which number shall be calculated and adjusted pursuant to Section 12, but which number shall not count any tandem SARs (as defined in Section 7). The aggregate number of Shares that may be issued pursuant to the exercise of Incentive Stock Options granted under this Plan shall not exceed 1,850,000, which number shall be calculated and adjusted pursuant to Section 12 only to the extent that such calculation or adjustment will not affect the status of any option intended to qualify as an Incentive Stock Option under Section 422 of the Code. The maximum cash amount payable pursuant to an Incentive Bonus earned for any 12-month period to any Participant under this Plan shall not exceed $10,000,000.
(d)Director Awards. The aggregate dollar value of equity-based Awards (based on the grant date fair value of such Awards) granted under this Plan during any calendar year to any one Nonemployee Director shall not exceed $250,000; provided, however, that in any calendar year in which a Nonemployee Director first joins the Board of Directors or is designated as Chairman of the Board of Directors or Lead Director, the maximum number of shares subject to Awards granted to the Participant may be up to $500,000 and the foregoing limits shall not count any tandem SARs (as defined in Section 7).
(e)Substitute Awards. Substitute Awards shall not reduce the Shares authorized for issuance under the Plan or authorized for grant to a Participant in any calendar year. Additionally, in the event that a company acquired by the Company or any Subsidiary, or with which the Company or any Subsidiary combines, has shares available under a pre-existing plan approved by stockholders and not adopted in contemplation of such acquisition or combination, the shares available for grant pursuant to the terms of such pre-existing plan (as adjusted, to the extent appropriate, using the exchange ratio or other adjustment or valuation ratio or formula used in such acquisition or combination to determine the consideration payable to the holders of common stock of the entities party to such acquisition or combination) may be used for Awards under the Plan and shall not reduce the Shares authorized for issuance under the Plan; provided that Awards using such available shares shall not be made after the date awards or grants could have been made under the terms of the pre-existing plan, absent the acquisition or combination, and shall only be made to individuals who were employees, directors or other service providers of such acquired or combined company before such acquisition or combination.
(a)Option Awards. Options may be granted at any time and from time to time prior to the termination of the Plan to Participants as determined by the Administrator. No Participant shall have any rights as a stockholder with respect to any Shares subject to Option hereunder until said Shares have been issued. Each Option shall be evidenced by an Award Agreement. Options granted pursuant to the Plan need not be identical but each Option must contain and be subject to the terms and conditions set forth below.
(b)Price. The Administrator will establish the exercise price per Share under each Option, which, in no event will be less than the Fair Market Value of the Shares on the date of grant; provided, however, that the exercise price per Share with respect to an Option that is granted in connection with a merger or other acquisition as a substitute or replacement award for options held by optionees of the acquired entity may be less than 100% of the market price of the Shares on the date such Option is
granted if such exercise price is based on a formula set forth in the terms of the options held by such optionees or in the terms of the agreement providing for such merger or other acquisition that satisfies the requirements of (i) Section 409A of the Code, if such options held by such optionees are not intended to qualify as “incentive stock options” within the meaning of Section 422 of the Code, and (ii) Section 424(a) of the Code, if such options held by such optionees are intended to qualify as “incentive stock options” within the meaning of Section 422 of the Code. The exercise price of any Option may be paid in Shares, cash or a combination thereof, as determined by the Administrator, including an irrevocable commitment by a broker to pay over such amount from a sale of the Shares issuable under an Option, the delivery of previously owned Shares and withholding of Shares otherwise deliverable upon exercise.
(c)No Repricing without Stockholder Approval. Other than in connection with a change in the Company’s capitalization (as described in Section 12), the Company shall not, without stockholder approval, reduce the exercise price of an Option and, at any time when the exercise price of an Option is above the Fair Market Value of a Share, the Company shall not, without stockholder approval (except in the case of a change in control), cancel and re grant such Option, exchange such Option for cash or a new Award or otherwise reprice such Option.
(d)Provisions Applicable to Options. The date on which Options become exercisable shall be determined at the sole discretion of the Administrator and set forth in an Award Agreement. The Administrator shall establish the term of each Option, which in no case shall exceed a period of ten (10) years from the date of grant; provided, however, the term of an Option (other than an Incentive Stock Option) shall be automatically extended if, at the time of its scheduled expiration, the Participant holding such Option is prohibited by law or the Company’s insider trading policy from exercising the Option, which extension shall expire on the thirtieth (30th) day following the date such prohibition no longer applies. All Options granted shall be subject to Section 18(e).
(e)Termination of Employment: Unless an Option earlier expires upon the expiration date established pursuant to Section 6(d), upon the Participant’s Termination of Employment, his or her rights to exercise an Option then held shall be only as follows, unless the Administrator specifies otherwise (either in an Award Agreement or otherwise):
(i)General. In general, any portion of any Option that is not vested as of the date of a Participant’s Termination of Employment shall be forfeited and returned to the Company; provided, however, that, subject to the limits imposed by Section 18 hereof, the Administrator may, in its sole discretion, in the event of a Participant’s retirement or involuntary Termination of Employment as the result of a reduction in force program (as approved by the Administrator in its sole discretion), provide for accelerated vesting of unvested Options upon such terms and the Administrator deems advisable (either in an Award Agreement or otherwise).
(ii)Death. Upon the death of a Participant while in the employ of the Company or any Subsidiary or while serving as a member of the Board, the Participant’s Options then held shall be exercisable by his or her estate, heir or beneficiary at any time during the period ending on the earlier of the date that is one (1) year after the date of the Participant’s death or the date the Option would otherwise terminate, but only to the extent that the Options are exercisable as of the date of the Participant’s death. Any and all Options that are not exercised during such period shall terminate as of the end of such period.
If a Participant should die following his or her Termination of Employment, any Options that remain outstanding on the date of the Participant’s death shall be exercisable by his or her estate, heir or beneficiary at any time during the period ending on the earlier of the date that is one (1) year after the date of the Participant’s death or the date the Option would otherwise terminate, but only to the extent that the Option was exercisable as of the Participant’s death. Any and all of the deceased Participant’s Options that are not exercised during the such period shall terminate as of the end of such period. A Participant’s estate shall mean his or her legal representative or
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other person who so acquires the right to exercise the Option by bequest or inheritance or by reason of the death of the Participant.
(iii) Disability. Upon Termination of Employment as a result of the Participant’s Disability, the Participant’s Options then held shall be exercisable during the period ending on the earlier of the date that is one (1) year after the date of Participant’s Termination of Employment or the date the Option would otherwise terminate, but only to the extent that the Options are exercisable as of the Participant’s Termination of Employment. Any and all Options that are not exercised during such period shall terminate as of the end of such period.
(iv) Retirement. Upon the Participant’s Termination of Employment by reason of his or her Retirement, the Participant’s Options then held shall be exercisable during the period ending on the earlier of the date that is three (3) years after the date of the Participant’s Termination of Employment or the expiration date of such Option, but only to the extent that the Options are exercisable as of the date of the Participant’s Termination of Employment. Any and all Options that are not exercised during such period shall terminate as of the end of such period.
(v)Cause. Upon the date of a Participant’s Termination of Employment for Cause, any Option that is unexercised prior to the date of the Participant’s Termination of Employment shall terminate as of such date.
(vi) Other Reasons. Upon the date of a Participant’s Termination of Employment for any reason other than those stated above in Sections 6(e)(i), (e)(ii), (e)(iii), (e)(iv) and (e)(v) or as described in Section 15, the Participant’s Options then held shall be exercisable during the period ending on the earlier of the date that is three (3) months after the date of the Participant’s Termination of Employment or the expiration date of such Option, but only to the extent that the Options are exercisable as of the date of the Participant’s Termination of Employment. Any and all Options that are not exercised during such period shall terminate as of the end of such period.
(f)Incentive Stock Options. Notwithstanding anything to the contrary in this Section 6, in the case of the grant of an Option intending to qualify as an Incentive Stock Option: (i) if the Participant owns stock possessing more than 10 percent of the combined voting power of all classes of stock of the Company (a “10% Shareholder”), the exercise price of such Option must be at least 110 percent of the Fair Market Value of the Shares on the date of grant and the Option must expire within a period of not more than five (5) years from the date of grant, and (ii) Termination of Employment will occur when the person to whom an Award was granted ceases to be an employee (as determined in accordance with Section 3401(c) of the Code and the regulations promulgated thereunder) of the Company and its Subsidiaries. Notwithstanding anything in this Section 6 to the contrary, options designated as Incentive Stock Options shall not be eligible for treatment under the Code as Incentive Stock Options (and will be deemed to be Nonqualified Stock Options) to the extent that either (a) the aggregate Fair Market Value of Shares (determined as of the time of grant) with respect to which such Options are exercisable for the first time by the Participant during any calendar year (under all plans of the Company and any Subsidiary) exceeds $100,000, taking Options into account in the order in which they were granted, or (b) such Options otherwise remain exercisable but are not exercised within three (3) months of Termination of Employment (or such other period of time provided in Section 422 of the Code).
(g)No Stockholder Rights. Participants shall have no voting rights and will have no rights to receive dividends or dividend equivalents in respect of an Option or any Shares subject to an Option until the Participant has become the holder of record of such Shares.
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7. | Stock Appreciation Rights |
Stock Appreciation Rights may be granted to Participants from time to time either in tandem with or as a component of other Awards granted under the Plan (“tandem SARs”) or not in conjunction with
other Awards (“freestanding SARs”) and may, but need not, relate to a specific Option granted under Section 6. The provisions of Stock Appreciation Rights need not be the same with respect to each grant or each recipient. Any Stock Appreciation Right granted in tandem with an Award may be granted at the same time such Award is granted or at any time thereafter before exercise or expiration of such Award. All freestanding SARs shall be granted subject to the same terms and conditions applicable to Options as set forth in Section 6 and all tandem SARs shall have the same exercise price, vesting, exercisability, forfeiture and termination provisions as the Award to which they relate. Subject to the provisions of Section 6 and the immediately preceding sentence, the Administrator may impose such other conditions or restrictions on any Stock Appreciation Right as it shall deem appropriate. Stock Appreciation Rights may be settled in Shares, cash or a combination thereof, as determined by the Administrator and set forth in the applicable Award Agreement. Other than in connection with a change in the Company’s capitalization (as described in Section 12), the Company shall not, without stockholder approval, reduce the exercise price of a Stock Appreciation Right and, at any time when the exercise price of a Stock Appreciation Right is above the Fair Market Value of a Share, the Company shall not, without stockholder approval (except in the case of a change in control), cancel and re grant such Stock Appreciation Right , exchange such Stock Appreciation Right for cash or a new Award or otherwise reprice such Stock Appreciation Right.
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8. | Restricted Stock and Restricted Stock Units |
(a)Restricted Stock and Restricted Stock Unit Awards. Restricted Stock and Restricted Stock Units may be granted at any time and from time to time prior to the termination of the Plan to Participants as determined by the Administrator. Restricted Stock is an award of Shares, the grant, issuance, retention, vesting and/or transferability of which is subject during specified periods of time to such conditions (including continued employment or performance conditions) and terms as the Administrator deems appropriate. Restricted Stock Units are Awards denominated in units of Shares under which the issuance of Shares is subject to such conditions (including continued employment or performance conditions) and terms as the Administrator deems appropriate. Each grant of Restricted Stock and Restricted Stock Units shall be evidenced by an Award Agreement. Unless determined otherwise by the Administrator, each Restricted Stock Unit will be equal to one Share and will entitle a Participant to the issuance of one Share. However, to the extent determined by the Administrator, Restricted Stock and Restricted Stock Units may be satisfied or settled in Shares, cash or a combination thereof. Restricted Stock and Restricted Stock Units granted pursuant to the Plan need not be identical but each grant of Restricted Stock and Restricted Stock Units must contain and be subject to the terms and conditions set forth below.
(b)Contents of Agreement. Each Award Agreement shall contain provisions regarding (i) the number of Shares or Restricted Stock Units subject to such Award or a formula for determining such number, (ii) the purchase price of the Shares, if any, and the means of payment, (iii) the performance criteria, if any, and level of achievement versus these criteria that shall determine the number of Shares or Restricted Stock Units granted, issued, retainable and/or vested, (iv) such terms and conditions on the grant, issuance, vesting and/or forfeiture of the Shares or Restricted Stock Units as may be determined from time to time by the Administrator, (v) the term of the performance period, if any, as to which performance will be measured for determining the number of such Shares or Restricted Stock Units, and (vi) restrictions on the transferability of the Shares or Restricted Stock Units. Shares issued under a Restricted Stock Award may be issued in the name of the Participant and held by the Participant or held by the Company, in each case as the Administrator may provide.
(c)Vesting and Performance Criteria. The grant, issuance, retention, vesting and/or settlement of shares of Restricted Stock and Restricted Stock Units will occur when and in such installments as the Administrator determines or under criteria the Administrator establishes, which may include performance criteria as set forth in Section 13. All grants of Restricted Stock and Restricted Stock Units shall be subject to Section 18(e).
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(d)Termination of Employment: Upon the Participant’s Termination of Employment, his or her rights to unvested Restricted Stock or Restricted Stock Units then held shall be only as follows, unless the Administrator specifies otherwise (either in an Award Agreement or otherwise):
(i)Death, Disability, Retirement. In the event of a Participant’s Termination of Employment by reason of his or her death, Disability, or Retirement, any portion of any Award of Restricted Stock and/or Restricted Stock Units that is not vested as of the date of a Participant’s Termination of Employment shall immediately be forfeited by the Participant; provided, however, that, subject to the limits imposed by Section 18 hereof, the Administrator may, in its sole discretion, provide for accelerated vesting of unvested Restricted Stock and/or Restricted Stock Units upon such terms and the Administrator deems advisable (either in an Award Agreement or otherwise).
(ii)Other Reasons. In the event of a Participant’s Termination of Employment for any reason other than those stated above in Section 8(d)(i), any portion of any Award of Restricted Stock and/or Restricted Stock Units that is not vested as of the date of a Participant’s Termination of Employment shall immediately be forfeited by the Participant; provided, however, that the Administrator may, in its sole discretion, other than in the event of a Termination of Employment for Cause and in a manner consistent with the requirements of Section 8(c), provide for accelerated vesting of unvested Restricted Stock and/or Restricted Stock Units upon such terms and the Administrator deems advisable (either in an Award Agreement or otherwise).
(iii) Performance Awards. Notwithstanding anything in this Section 8(d) to the contrary, with respect to any Performance Award granted pursuant to this Section 8, in the event a Participant’s Termination of Employment by reason of his or her death, Disability, Retirement, or involuntary Termination of Employment by the Company without Cause during a performance period (and, unless otherwise determined by the Administrator, in the case of a termination by the Company without Cause, at least twelve (12) months after the beginning of the performance), the Participant shall receive a prorated payout of the Performance Award. The prorated payout shall be determined by the Administrator, in its sole discretion, and shall be based upon the length of time that the Participant held the Performance Award during the performance period and the Company’s actual results during the performance period as compared to the performance criteria to which the Performance Award is subject.
(e)Voting Rights. Unless otherwise determined by the Administrator, Participants holding shares of Restricted Stock granted hereunder may exercise full voting rights with respect to those shares during the period of restriction. Participants shall have no voting rights with respect to Shares underlying Restricted Stock Units unless and until such Shares are reflected as issued and outstanding shares on the Company’s stock ledger.
(f)Dividends and Distributions. Participants in whose name an Award of Restricted Stock and/or Restricted Stock Units is granted shall be entitled to receive all dividends and other distributions paid with respect to the Shares underlying such Award, unless determined otherwise by the Administrator. The Administrator will determine whether any such dividends or distributions will be automatically reinvested in additional Shares or will be payable in cash; provided that such additional Shares and/or cash shall subject to the same restrictions and vesting conditions as the Award with respect to which they were distributed. Notwithstanding anything herein to the contrary, in no event shall dividends or dividend equivalents be currently payable with respect to unvested or unearned Restricted Stock or Restricted Stock Units.
(a)General. Each Incentive Bonus Award will confer upon the Participant the opportunity to earn a future payment tied to the level of achievement with respect to one or more performance criteria established for a performance period.
(b)Incentive Bonus Document. The terms of any Incentive Bonus will be set forth in an Award Agreement or other written document establishing the terms and conditions of the Award. Each such Award Agreement or other written document shall contain, as applicable, provisions regarding (i) the threshold, target and maximum amount payable to the Participant as an Incentive Bonus, (ii) the performance criteria and level of achievement versus these criteria that shall determine the amount of such payment, (iii) the term of the performance period as to which performance shall be measured for determining the amount of any payment, (iv) the timing of any payment earned by virtue of performance, (v) restrictions on the alienation or transfer of the Incentive Bonus prior to actual payment, (vi) forfeiture provisions and (vii) such further terms and conditions, in each case not inconsistent with this Plan as may be determined from time to time by the Administrator.
(c)Performance Criteria. The Administrator shall establish the performance criteria (as specified in Section 13) and level of achievement versus these criteria that shall determine the threshold, target and maximum amount payable under an Incentive Bonus, which criteria may be based on financial performance and/or personal performance evaluations.
(d)Timing and Form of Payment. The Administrator shall determine the timing of payment of any Incentive Bonus. Payment of the amount due under an Incentive Bonus may be made in cash or in Shares, as determined by the Administrator. The Administrator may provide for or, subject to such terms and conditions as the Administrator may specify, may permit a Participant to elect for the payment of any Incentive Bonus to be deferred to a specified date or event. Notwithstanding anything herein to the contrary, in no event shall dividends or dividend equivalents be payable with respect to unvested or unearned Incentive Bonus Awards paid in Shares.
(e)Discretionary Adjustments. Notwithstanding satisfaction of any performance goals the amount paid under an Incentive Bonus on account of either financial performance or personal performance evaluations may, to the extent specified in the Award Agreement or other written document establishing the terms and conditions of the Award, be reduced or increased by the Administrator on the basis of such further considerations as the Administrator shall determine.
The Administrator may, in an Award Agreement or otherwise, provide for the deferred delivery of Shares upon settlement, vesting or other events with respect to Restricted Stock or Restricted Stock Units, or in payment or satisfaction of an Incentive Bonus. Notwithstanding anything herein to the contrary, in no event will any deferral of the delivery of Shares or any other payment with respect to any Award be allowed if the Administrator determines, in its sole discretion, that the deferral would result in the imposition of the additional tax under Section 409A(a)(1)(B) of the Code. No Award shall provide for deferral of compensation that does not comply with Section 409A of the Code, unless the Board, at the time of grant, specifically provides that the Award is not intended to comply with Section 409A of the Code. The Company, the Board and the Administrator shall have no liability to a Participant, or any other party, if an Award that is intended to be exempt from, or compliant with, Section 409A of the Code is not so exempt or compliant or for any action taken by the Board or Administrator.
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11. | Conditions and Restrictions Upon Securities Subject to Awards |
The Administrator may provide that the Shares issued upon exercise of an Option or Stock Appreciation Right or otherwise subject to or issued under an Award shall be subject to such further
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agreements, restrictions, conditions or limitations as the Administrator in its discretion may specify prior to the exercise of such Option or Stock Appreciation Right or the grant, vesting or settlement of such Award, including without limitation, conditions on vesting or transferability, forfeiture or repurchase provisions and method of payment for the Shares issued upon exercise, vesting or settlement of such Award (including the actual or constructive surrender of Shares already owned by the Participant) or payment of taxes arising in connection with an Award. Without limiting the foregoing, such restrictions may address the timing and manner of any resales by the Participant or other subsequent transfers by the Participant of any Shares issued under an Award, including without limitation (i) restrictions under an insider trading policy or pursuant to applicable law, (ii) restrictions designed to delay and/or coordinate the timing and manner of sales by Participant and holders of other Company equity compensation arrangements, (iii) restrictions in connection with any underwritten public offering by the Company of the Company’s securities pursuant to an effective registration statement filed under the Securities Act of 1933, (iv) restrictions as to the use of a specified brokerage firm for such resales or other transfers, and (v) provisions requiring Shares to be sold on the open market or to the Company in order to satisfy tax withholding or other obligations.
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12. | Adjustment of and Changes in the Stock |
The number and kind of Shares available for issuance under this Plan (including under any Awards then outstanding), and the number and kind of Shares subject to the individual limits set forth in Section 5 of this Plan, shall be equitably adjusted by the Administrator as it determines appropriate to reflect any reorganization, reclassification, combination of shares, stock split, reverse stock split, spin-off, dividend or distribution of securities, property or cash (other than regular, quarterly cash dividends), or any other event or transaction that affects the number or kind of Shares of the Company outstanding. Such adjustment shall be designed to comply with Sections 409A and 424 of the Code or, except as otherwise expressly provided in Section 5(c) of this Plan, may be designed to treat the Shares available under the Plan and subject to Awards as if they were all outstanding on the record date for such event or transaction or to increase the number of such Shares to reflect a deemed reinvestment in Shares of the amount distributed to the Company’s securityholders. The terms of any outstanding Award shall also be equitably adjusted by the Administrator as to price, number or kind of Shares subject to such Award, vesting, and other terms to reflect the foregoing events, which adjustments need not be uniform as between different Awards or different types of Awards.
In the event there shall be any other change in the number or kind of outstanding Shares, or any stock or other securities into which such Shares shall have been changed, or for which it shall have been exchanged, by reason of a Change in Control, other merger, consolidation or otherwise, then the Administrator shall, in its sole discretion, determine the appropriate and equitable adjustment, if any, to be effected.
No right to purchase fractional shares shall result from any adjustment in Awards pursuant to this Section 12. In case of any such adjustment, the Shares subject to the Award shall be rounded down to the nearest whole share. The Company shall notify Participants holding Awards subject to any adjustments pursuant to this Section 12 of such adjustment, but (whether or not notice is given) such adjustment shall be effective and binding for all purposes of the Plan.
Unless otherwise expressly provided in the Award Agreement or another contract, including an employment agreement, or under the terms of a transaction constituting a Change in Control, the Administrator may provide that any or all of the following shall occur upon a Participant’s Termination of Employment within twenty-four (24) months following a Change in Control: (a) in the case of an Option or Stock Appreciation Right, the Participant shall have the ability to exercise any portion of the Option or Stock Appreciation Right not previously exercisable, (b) in the case of a Performance Award or Incentive Bonus, the Participant shall have the right to receive a payment equal to the target amount payable or, if greater, a payment based on performance through a date determined by the Administrator prior to the Change in Control, and (c) in the case of Shares issued in payment of an Incentive Bonus, and/or in the
case of outstanding Restricted Stock and/or Restricted Stock Units, all conditions to the grant, issuance, retention, vesting or transferability of, or any other restrictions applicable to, such Award shall immediately lapse. Notwithstanding anything herein to the contrary, in the event of a Change in Control in which the acquiring or surviving company in the transaction does not assume, substitute or continue outstanding Awards upon the Change in Control, immediately prior to the Change in Control, all Awards that are not assumed, substituted or continued shall be treated as follows effective immediately prior to the Change in Control: (a) in the case of an Option or Stock Appreciation Right, the Participant shall have the ability to exercise such Option or Stock Appreciation Right, including any portion of the Option or Stock Appreciation Right not previously exercisable, (b) in the case of a Performance Award or Incentive Bonus, the Participant shall have the right to receive a payment equal to the target amount payable or, if greater, a payment based on performance through a date determined by the Administrator prior to the Change in Control, and (c) in the case of Shares issued in payment of an Incentive Bonus, and/or in the case of outstanding Restricted Stock and/or Restricted Stock Units, all conditions to the grant, issuance, retention, vesting or transferability of, or any other restrictions applicable to, such Award shall immediately lapse.
A Performance Award may be identified as “Performance Share”, “Performance Equity”, “Performance Unit” or other such term as chosen by the Administrator. The Administrator may establish performance criteria and level of achievement versus such criteria that shall determine the number of Shares, units, or cash to be granted, retained, vested, issued or issuable under or in settlement of or the amount payable pursuant to an Award, which criteria may be based on one or more of the following performance criteria, or derivations of such performance criteria or other standards of financial performance and/or personal performance evaluations, either individually, alternatively or in any combination, applied to either the Company as a whole or to a business unit or subsidiary, either individually, alternatively or in any combination, and measured either annually or cumulatively over a period of years, on an absolute basis or relative to a pre-established target, to previous years’ results or to a designated comparison group, in each case as specified by the Administrator: (i) cash flow (before or after dividends), (ii) earning (including earnings before interest and taxes, which is referred to as EBIT, and earnings before interest, taxes, depreciation and amortization, which is referred to as EBITDA) or earnings per share, (iii) stock price, (iv) return on equity, (v) total stockholder return, (vi) return on capital or investment (including return on total capital, return on invested capital, or return on investment), (vii) return on assets or net assets, (viii) market capitalization, (ix) economic value added, (x) debt leverage (debt to capital), (xi) revenue, (xii) income or net income, (xiii) operating income, (xiv) operating profit or net operating profit, (xv) operating margin or profit margin, (xvi) return on operating revenue, (xvii) cash from operations, (xviii) operating ratio, (xix) operating revenue, (xx) NSR and/or total backlog, (xxi) days sales outstanding, (xxii) customer service, (xxiii) operational safety, reliability and/or efficiency; (xxiv) environmental incidents; (xxv) personal safety; (xxvi) cost management; (xxvii) growth and productivity metrics; (xxviii) synergies related to acquisitions or major capital projects or (xxix) such other performance criteria as may be determined by the Administrator from time to time.
Each Award may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated by a Participant other than by will or the laws of descent and distribution, and each Option or Stock Appreciation Right shall be exercisable only by the Participant during his or her lifetime. Notwithstanding the foregoing, outstanding Options may be exercised following the Participant’s death by the Participant’s beneficiaries or as permitted by the Administrator. Further and notwithstanding the foregoing, to the extent permitted by the Administrator, the person to whom an Award is initially granted (the “Grantee”) may transfer an Award to any “family member” of the Grantee (as such term is defined in Section A.1(a)(5) of the General Instructions to Form S-8 under the Securities Act of 1933, as amended (“Form S-8”)), to trusts solely for the benefit of such family members and to partnerships in which such family members and/or trusts are the only partners; provided that, (i) as a condition thereof, the transferor
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and the transferee must execute a written agreement containing such terms as specified by the Administrator, and (ii) the transfer is pursuant to a gift or a domestic relations order to the extent permitted under the General Instructions to Form S-8. Except to the extent specified otherwise in the agreement the Administrator provides for the Grantee and transferee to execute, all vesting, exercisability and forfeiture provisions that are conditioned on the Grantee’s continued employment or service shall continue to be determined with reference to the Grantee’s employment or service (and not to the status of the transferee) after any transfer of an Award pursuant to this Section 14, and the responsibility to pay any taxes in connection with an Award shall remain with the Grantee notwithstanding any transfer other than by will or intestate succession.
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15. | Suspension or Termination of Awards |
Except as otherwise provided by the Administrator, if at any time (including after a notice of exercise has been delivered or an award has vested) the Chief Executive Officer or any other person designated by the Administrator (each such person, an “Authorized Officer”) reasonably believes that a Participant may have committed an Act of Misconduct as described in this Section 15, the Authorized Officer, Administrator or the Board may suspend the Participant’s rights to exercise any Option, to vest in an Award, and/or to receive payment for or receive Shares in settlement of an Award pending a determination of whether an Act of Misconduct has been committed.
If the Administrator or an Authorized Officer determines a Participant has committed an act of embezzlement, fraud, dishonesty, nonpayment of any obligation owed to the Company or any Subsidiary, breach of fiduciary duty, violation of Company ethics policy or code of conduct, or deliberate disregard of the Company or Subsidiary rules resulting in loss, damage or injury to the Company or any Subsidiary, or if a Participant makes an unauthorized disclosure of any Company or Subsidiary trade secret or confidential information, solicits any employee or service provider to leave the employ or cease providing services to the Company or any Subsidiary, breaches any intellectual property or assignment of inventions covenant, engages in any conduct constituting unfair competition, breaches any non-competition agreement, induces any Company or Subsidiary customer to breach a contract with the Company or any Subsidiary or to cease doing business with the Company or any Subsidiary, or induces any principal for whom the Company or any Subsidiary acts as agent to terminate such agency relationship (any of the foregoing acts, an “Act of Misconduct”), then except as otherwise provided by the Administrator, (i) neither the Participant nor his or her estate nor transferee shall be entitled to exercise any Option or Stock Appreciation Right whatsoever, vest in or have the restrictions on an Award lapse, or otherwise receive payment of an Award, (ii) the Participant will forfeit all outstanding Awards and (iii) the Participant may be required, at the Administrator’s sole discretion, to return and/or repay to the Company any then unvested Shares previously issued under the Plan. In making such determination, the Administrator or an Authorized Officer shall give the Participant an opportunity to appear and present evidence on his or her behalf at a hearing before the Administrator or its designee or an opportunity to submit written comments, documents, information and arguments to be considered by the Administrator.
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16. | Compliance with Laws and Regulations |
This Plan, the grant, issuance, vesting, exercise and settlement of Awards thereunder, and the obligation of the Company to sell, issue or deliver Shares under such Awards, shall be subject to all applicable foreign, federal, state and local laws, rules and regulations, stock exchange rules and regulations, and to such approvals by any governmental or regulatory agency as may be required. The Company shall not be required to register in a Participant’s name or deliver any Shares prior to the completion of any registration or qualification of such shares under any foreign, federal, state or local law or any ruling or regulation of any government body which the Administrator shall determine to be necessary or advisable. To the extent the Company is unable to or the Administrator deems it infeasible to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company’s counsel to be necessary to the lawful issuance and sale of any Shares hereunder, the Company and its Subsidiaries shall be relieved of any liability with respect to the failure to issue or sell
such Shares as to which such requisite authority shall not have been obtained. No Option shall be exercisable and no Shares shall be issued and/or transferable under any other Award unless a registration statement with respect to the Shares underlying such Option is effective and current or the Company has determined that such registration is unnecessary.
In the event an Award is granted to or held by a Participant who is employed or providing services outside the United States, the Administrator may, in its sole discretion, modify the provisions of the Plan or of such Award as they pertain to such individual to comply with applicable foreign law or to recognize differences in local law, currency or tax policy. The Administrator may also impose conditions on the grant, issuance, exercise, vesting, settlement or retention of Awards in order to comply with such foreign law and/or to minimize the Company’s obligations with respect to tax equalization for Participants employed outside their home country.
To the extent required by applicable federal, state, local or foreign law, a Participant shall be required to satisfy, in a manner satisfactory to the Company, any withholding tax obligations that arise by reason of an Option exercise, disposition of Shares issued under an Incentive Stock Option, the vesting of or settlement of an Award, an election pursuant to Section 83(b) of the Code or otherwise with respect to an Award. To the extent a Participant makes an election under Section 83(b) of the Code, within ten days of filing such election with the Internal Revenue Service, the Participant must notify the Company in writing of such election. The Company and its Subsidiaries shall not be required to issue Shares, make any payment or to recognize the transfer or disposition of Shares until all withholding tax obligations are satisfied. The Administrator may provide for or permit these obligations to be satisfied through the mandatory or elective sale of Shares and/or by having the Company withhold a portion of the Shares that otherwise would be issued to him or her upon exercise of the Option or the vesting or settlement of an Award, or by tendering Shares previously acquired. In addition, the Company shall be entitled to deduct from other compensation payable to each Participant any withholding tax obligations that arise in connection with an Award or require the Participant to pay such sums directly to the Company in cash or by check.
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18. | Administration of the Plan |
(a)Administrator of the Plan. The Plan shall be administered by the Administrator who shall be the Compensation Committee of the Board or, in the absence of a Compensation Committee, the Board itself. Any power of the Administrator may also be exercised by the Board, except to the extent that the grant or exercise of such authority would cause any Award or transaction to become subject to (or lose an exemption under) the short-swing profit recovery provisions of Section 16 of the Securities Exchange Act of 1934. To the extent that any permitted action taken by the Board conflicts with action taken by the Administrator, the Board action shall control. The Compensation Committee may by resolution authorize one or more officers of the Company to perform any or all things that the Administrator is authorized and empowered to do or perform under the Plan, and for all purposes under this Plan, such officer or officers shall be treated as the Administrator; provided, however, that the resolution so authorizing such officer or officers shall specify the total number of Awards (if any) such officer or officers may award pursuant to such delegated authority. No such officer shall designate himself or herself as a recipient of any Awards granted under authority delegated to such officer. In addition, the Compensation Committee may delegate any or all aspects of the day-to-day administration of the Plan to one or more officers or employees of the Company or any Subsidiary, and/or to one or more agents.
(b)Powers of Administrator. Subject to the express provisions of this Plan, the Administrator shall be authorized and empowered to do all things that it determines to be necessary or appropriate in connection with the administration of this Plan, including, without limitation: (i) to prescribe, amend and rescind rules and regulations relating to this Plan and to define terms not otherwise defined herein; (ii) to determine which persons are Participants, to which of such Participants, if any, Awards shall be granted
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hereunder and the timing of any such Awards; (iii) to grant Awards to Participants and determine the terms and conditions thereof, including the number of Shares subject to Awards and the exercise or purchase price of such Shares and the circumstances under which Awards become exercisable or vested or are forfeited or expire, which terms may but need not be conditioned upon the passage of time, continued employment, the satisfaction of performance criteria, the occurrence of certain events, or other factors; (iv) to establish and verify the extent of satisfaction of any performance goals or other conditions applicable to the grant, issuance, exercisability, vesting and/or ability to retain any Award; (v) to prescribe and amend the terms of the agreements or other documents evidencing Awards made under this Plan (which need not be identical) and the terms of or form of any document or notice required to be delivered to the Company by Participants under this Plan; (vi) to approve such further actions as it determines necessary or appropriate to the administration of the Plan and Awards, such as correcting a defect or supplying any omission, or reconciling any inconsistency so that the Plan or any agreement or other documents evidencing Awards made under this Plan complies with applicable law, regulations and listing requirements and so as to avoid unanticipated consequences or address unanticipated events (including any temporary closure of the New York Stock Exchange, disruption of communications or natural catastrophe) deemed by the Administrator to be inconsistent with the purposes of the Plan or any agreement or other documents evidencing Awards made under this Plan, provided that no such action shall be taken absent stockholder approval to the extent required under Section 19; (vii) to determine whether, and the extent to which, adjustments are required pursuant to Section 12; (viii) to interpret and construe this Plan, any rules and regulations under this Plan and the terms and conditions of any Award granted hereunder, and to make exceptions to any such provisions if the Administrator, in good faith, determines that it is necessary to do so in light of extraordinary circumstances and for the benefit of the Company; (ix) to approve corrections in the documentation or administration of any Award; and (x) to make all other determinations deemed necessary or advisable for the administration of this Plan. The Administrator may, in its sole and absolute discretion, without amendment to the Plan, waive or amend the operation of Plan provisions respecting exercise after Termination of Employment or service to the Company or an affiliate and, except as otherwise provided herein, adjust any of the terms of any Award.
(c)Determinations by the Administrator. All decisions, determinations and interpretations by the Administrator regarding the Plan, any rules and regulations under the Plan and the terms and conditions of or operation of any Award granted hereunder, shall be final and binding on all Participants, beneficiaries, heirs, assigns or other persons holding or claiming rights under the Plan or any Award. The Administrator shall consider such factors as it deems relevant, in its sole and absolute discretion, to making such decisions, determinations and interpretations including, without limitation, the recommendations or advice of any officer or other employee of the Company and such attorneys, consultants and accountants as it may select.
(d)Subsidiary Awards. In the case of a grant of an Award to any Participant employed by a Subsidiary, such grant may, if the Administrator so directs, be implemented by the Company issuing Shares to the Subsidiary, for such lawful consideration as the Administrator may determine, upon the condition or understanding that the Subsidiary will transfer the Shares to the Participant in accordance with the terms of the Award specified by the Administrator pursuant to the provisions of the Plan. Notwithstanding any other provision hereof, such Award may be issued by and in the name of the Subsidiary and shall be deemed granted on such date as the Administrator shall determine.
(e)Minimum Vesting Provisions. Notwithstanding anything herein to the contrary, Awards granted under the Plan may not become exercisable, vest or be settled, in whole or in part, prior to the one-year anniversary of the date of grant, except that the Administrator may provide that Awards become exercisable, vest or settle prior to such date in the event of the Participant’s death or disability or in connection with a Change in Control. Notwithstanding the foregoing, up to 5% of the maximum aggregate number of Shares authorized for issuance under the Plan (as set forth in Section 5(a)) may be issued pursuant to Awards subject to any, or no, vesting conditions, as the Administrator determines appropriate.
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19. | Amendment of the Plan or Awards |
The Board may amend, alter or discontinue this Plan and the Administrator may amend, or alter any agreement or other document evidencing an Award made under this Plan but, except as provided pursuant to the provisions of Section 12, no such amendment shall, without the approval of the stockholders of the Company amend the Plan in any manner requiring stockholder approval by law or under the New York Stock Exchange listing requirements.
No amendment or alteration to the Plan or an Award or Award Agreement shall be made which would impair the rights of the holder of an Award, without such holder’s consent, provided that no such consent shall be required if the Administrator determines in its sole discretion and prior to the date of any Change in Control that such amendment or alteration either (i) is required or advisable in order for the Company, the Plan or the Award to satisfy any law or regulation or to meet the requirements of or avoid adverse financial accounting consequences under any accounting standard, or (ii) is not reasonably likely to significantly diminish the benefits provided under such Award, or that any such diminishment has been adequately compensated.
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20. | No Liability of Company |
The Company and any Subsidiary or affiliate which is in existence or hereafter comes into existence, the Board, the Compensation Committee and the Administrator shall not be liable to a Participant or any other person as to: (i) the non-issuance or sale of Shares as to which the Company has been unable to obtain from any regulatory body having jurisdiction the authority deemed by the Company’s counsel to be necessary to the lawful issuance and sale of any Shares hereunder; and (ii) any tax consequence expected, but not realized, by any Participant or other person due to the receipt, exercise or settlement of any Award granted hereunder.
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21. | Non-Exclusivity of Plan |
Neither the adoption of this Plan by the Board nor the submission of this Plan to the stockholders of the Company for approval shall be construed as creating any limitations on the power of the Board or the Administrator to adopt such other incentive arrangements as either may deem desirable, and such arrangements may be either generally applicable or applicable only in specific cases.
This Plan and any agreements or other documents hereunder shall be interpreted and construed in accordance with the laws of the Texas to the extent not preempted by federal law. Any reference in this Plan or in the agreement or other document evidencing any Awards to a provision of law or to a rule or regulation shall be deemed to include any successor law, rule or regulation of similar effect or applicability.
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23. | No Right to Employment, Reelection or Continued Service |
Nothing in this Plan or an Award Agreement shall interfere with or limit in any way the right of the Company, its Subsidiaries and/or its affiliates to terminate any Participant’s employment, service on the Board or service for the Company at any time or for any reason not prohibited by law, nor shall this Plan or an Award itself confer upon any Participant any right to continue his or her employment or service for any specified period of time. Neither an Award nor any benefits arising under this Plan shall constitute an employment contract with the Company, any Subsidiary and/or its affiliates. Subject to Sections 4 and 19, this Plan and the benefits hereunder may be terminated at any time in the sole and exclusive discretion of the Board without giving rise to any liability on the part of the Company, its Subsidiaries and/or its affiliates.
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The Plan is intended to be an unfunded plan. Participants are and shall at all times be general creditors of the Company with respect to their Awards. If the Administrator or the Company chooses to set aside funds in a trust or otherwise for the payment of Awards under the Plan, such funds shall at all times be subject to the claims of the creditors of the Company in the event of its bankruptcy or insolvency.
It is intended that any Options, Stock Appreciation Rights, and Restricted Stock issued pursuant to this Plan and any Award Agreement shall not constitute “deferrals of compensation” within the meaning of Section 409A of the Code and, as a result, shall not be subject to the requirements of Section 409A of the Code. It is further intended that any Restricted Stock Units and Incentive Bonuses issued pursuant to this Plan and any Award Agreement or other written document establishing the terms and conditions of the Award (which may or may not constitute “deferrals of compensation,” depending on the terms of each Award) shall avoid any “plan failures” within the meaning of Section 409A(a)(1) of the Code. The Plan and each Award Agreement or other written document establishing the terms and conditions of an Award is to be interpreted and administered in a manner consistent with these intentions. However, no guarantee or commitment is made that the Plan, any Award Agreement or any other written document establishing the terms and conditions of an Award shall be administered in accordance with the requirements of Section 409A of the Code, with respect to amounts that are subject to such requirements, or that the Plan, any Award Agreement or any other written document establishing the terms and conditions of an Award shall be administered in a manner that avoids the application of Section 409A of the Code, with respect to amounts that are not subject to such requirements.
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26. | Required Delay in Payment on Account of a Separation from Service |
Notwithstanding any other provision in this Plan, any Award Agreement or any other written document establishing the terms and conditions of an Award, if any Award recipient is a “specified employee,” as defined in Treasury Regulations Section 1.409A-1(i), as of the date of his or her “Separation from Service” (as defined in authoritative IRS guidance under Section 409A of the Code), then, to the extent required by Treasury Regulations Section 1.409A-3(i)(2), any payment made to the Award recipient on account of his or her Separation from Service shall not be made before a date that is six months after the date of his or her Separation from Service. The Administrator may elect any of the methods of applying this rule that are permitted under Treasury Regulations section 1.409A-3(i)(2)(ii).
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27. | Agreement to Repayments of Incentive Compensation When Repayments Are Required Under Federal Law |
This provision applies to any policy adopted by the New York Stock Exchange (or any other exchange on which the securities of the Company are listed) pursuant to Section 10D of the Securities Exchange Act of 1934. To the extent any such policy requires the repayment of incentive-based compensation received by a Participant, whether paid pursuant to an Award granted under this Plan or any other plan of incentive-based compensation maintained in the past or adopted in the future by the Company, by accepting an Award under this Plan, the Participant agrees to the repayment of such amounts to the extent required by such policy and applicable law.
ANDEAVOR
ANNUAL MEETING OF TESORO CORPORATIONANDEAVOR
Date: May 4, 20172018
Time: 8:00 A.M. (Central Time)
Place: Tesoro Corporation,Andeavor, 19100 Ridgewood Parkway,
San Antonio, Texas 78259
Please make your marks like this:
Use dark black pencil or pen only The Board of Directors Recommends a Vote FOR proposals 1, 2, and 3 and 1 YEAR on proposal 4. |
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1: | Election of 1012 directors (all nominated as directors to serve for the term indicated in the Proxy Statement): | |
| | | | For | Against | Abstain | | Directors Recommend ê |
| 01 | Rodney F. Chase | | o | o | o | | For |
| 02 | Paul L. Foster | | o | o | o | | |
| 03 | Edward G. Galante | | o | o | o | | For |
| 0304 | Gregory J. Goff | | o | o | o | | For |
| 0405 | David Lilley | | o | o | o | | For |
| 0506 | Mary Pat McCarthy | | o | o | o | | For |
| 0607 | J.W. Nokes | | o | o | o | | For |
| 0708 | William H. Schumann, III | | o | o | o | | For |
| 0809 | Jeff A. Stevens | | o | o | o | | |
| 10 | Susan Tomasky | | o | o | o | | For |
| 0911 | Michael E. Wiley | | o | o | o | | For |
| 1012 | Patrick Y. Yang | | o | o | o | | For |
| | | | For | Against | Abstain | | |
2: | To approve our named executive officers'officers’ compensation in an advisory vote; | o | o | o | | For |
3: | To ratify the appointment of Ernst & Young LLP as our independent registered public accounting firm for fiscal year 2017;2018; | o | o | o | | For |
| | | | 1 Year | 2 Years | 3 Years | Abstain | |
4: | Advisory vote onTo approve the frequency of future advisory votes on executive compensation.Andeavor 2018 Long-Term Incentive Plan. | o | o | o | o | 1 YearFor |
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To attend the meeting and vote your shares in person, please mark this box. | | o |
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Authorized Signatures - This section must be completed for your Instructions to be executed. | | |
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Please Sign Here | | Please Date Above |
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Please Sign Here | | Please Date Above |
Please sign exactly as your name(s) appears on your stock certificate. If held in joint tenancy, all persons should sign. Trustees, administrators, etc., should include title and authority. Corporations should provide full name of corporation and title of authorized officer signing the proxy. |
ANDEAVOR
Annual Meeting of Andeavor
to be held on Friday, May 4, 2018
for Holders as of March 5, 2018
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INTERNET | VOTE BY: | TELEPHONE |
Go To www.proxypush.com/andv =Cast your vote online. =View Meeting Documents. | OR | 866-892-1741 =Use any touch-tone telephone. =Have your Proxy Card/Voting Instruction Form ready. =Follow the simple recorded instructions. |
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OR=Mark, sign and date your Proxy Card/Voting Instruction Form. =Detach your Proxy Card/Voting Instruction Form. =Return your Proxy Card/Voting Instruction Form in the postage-paid envelope provided. |
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED IN THE MANNER DIRECTED BY THE UNDERSIGNED STOCKHOLDER OR, IF NO DIRECTION IS GIVEN, SHARES WILL BE VOTED FOR THE ELECTION OF THE DIRECTORS IN ITEM 1, AND FOR THE PROPOSALS IN ITEMS 2, 3 AND 4. |
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All votes must be received by 11:59 P.M., Eastern Time, May 3, 2018. |
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| | PROXY TABULATOR FOR |
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| | ANDEAVOR |
| | P.O. BOX 8016 |
| | CARY, NC 27512-9903 |
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Revocable Proxy - Andeavor
Annual Meeting of Stockholders
May 4, 2018, 8:00 A.M. (Central Time)
This Proxy is Solicited on Behalf of the Board of Directors
The undersigned hereby appoints DATHAN C. VOELTER and ELISA D. WATTS, and each of them, as proxies of the undersigned, each with full power to act without the other and with full power of substitution, to vote all the shares of Common Stock of Andeavor which the undersigned is entitled to vote at the Annual Meeting of Stockholders to be held at Andeavor, 19100 Ridgewood Parkway, San Antonio, Texas 78259 on Friday, May 4, 2018, @ 8:00 A.M. Central time, and at any adjournment or postponement thereof, with all the powers the undersigned would have if personally present, upon the matters set forth in the Notice of such meeting and in their discretion upon such other matters as may properly come before the meeting.
(TO BE SIGNED ON REVERSE SIDE)
ANDEAVOR
Andeavor 401(k) Plan
Date: May 4, 2018
Time: 8:00 A.M. (Central Time)
Place: Andeavor, 19100 Ridgewood Parkway,
San Antonio, Texas 78259
Please make your marks like this:
Use dark black pencil or pen only The Board of Directors Recommends a Vote FOR proposals 1, 2, 3 and 4. |
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1: | Election of 12 directors (all nominated as directors to serve for the term indicated in the Proxy Statement): | |
| | | | For | Against | Abstain | | Directors Recommend ê |
| 01 | Rodney F. Chase | | o | o | o | | For |
| 02 | Paul L. Foster | | o | o | o | | |
| 03 | Edward G. Galante | | o | o | o | | For |
| 04 | Gregory J. Goff | | o | o | o | | For |
| 05 | David Lilley | | o | o | o | | For |
| 06 | Mary Pat McCarthy | | o | o | o | | For |
| 07 | J.W. Nokes | | o | o | o | | For |
| 08 | William H. Schumann, III | | o | o | o | | For |
| 09 | Jeff A. Stevens | | o | o | o | | |
| 10 | Susan Tomasky | | o | o | o | | For |
| 11 | Michael E. Wiley | | o | o | o | | For |
| 12 | Patrick Y. Yang | | o | o | o | | For |
| | | | For | Against | Abstain | | |
2: | To approve our named executive officers’ compensation in an advisory vote; | o | o | o | | For |
3: | To ratify the appointment of Ernst & Young LLP as our independent registered public accounting firm for fiscal year 2018; | o | o | o | | For |
4: | To approve the Andeavor 2018 Long-Term Incentive Plan. | o | o | o | | For |
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Authorized Signatures - This section must be completed for your Instructions to be executed. | | |
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Please Sign Here | | Please Date Above |
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Please Sign Here | | Please Date Above |
Please sign exactly as your name(s) appears on your stock certificate. If held in joint tenancy, all persons should sign. Trustees, administrators, etc., should include title and authority. Corporations should provide full name of corporation and title of authorized officer signing the proxy. |
ANDEAVOR
TESORO CORPORATION
Andeavor 401(k) Plan
Annual Meeting of Tesoro CorporationAndeavor
to be held on Thursday,Friday, May 4, 20172018
for Holders as of Monday, March 16, 20175, 2018
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INTERNET | VOTE BY: | TELEPHONE |
Go To www.proxypush.com/tsoandv = Cast your vote online. = View Meeting Documents. | OR | 866-390-9971
=Use any touch-tone telephone.
=Have your Proxy Card/Voting Instruction Form ready.
=Follow the simple recorded instructions.
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| ![mailinimage.jpg](https://files.docoh.com/DEF 14A/0000050104-17-000065/mailinimage.jpg) MAIL | |
OR=Mark, sign and date your Proxy Card/Voting Instruction Form.
=Detach your Proxy Card/Voting Instruction Form.
=Return your Proxy Card/Voting Instruction Form in the postage-paid envelope provided.
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THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED IN THE MANNER DIRECTED BY THE UNDERSIGNED STOCKHOLDER OR, IF NO DIRECTION IS GIVEN, SHARES WILL BE VOTED FOR THE ELECTION OF THE DIRECTORS IN ITEM 1, FOR THE PROPOSALS IN ITEMS 2 AND 3, AND 1 YEAR ON PROPOSAL 4. |
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All votes must be received by 11:59 P.M., Eastern Time, May 3, 2017. |
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| | PROXY TABULATOR FOR |
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| | TESORO CORPORATION |
| | P.O. BOX 8016 |
| | CARY, NC 27512-9903 |
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Revocable Proxy - Tesoro Corporation
Annual Meeting of Stockholders
May 4, 2017, 8:00 A.M. (Central Time)
This Proxy is Solicited on Behalf of the Board of Directors
The undersigned hereby appoints CARRIE P. RYAN and ELISA D. WATTS, and each of them, as proxies of the undersigned, each with full power to act without the other and with full power of substitution, to vote all the shares of Common Stock of Tesoro Corporation (the "Company") which the undersigned is entitled to vote at the Annual Meeting of Stockholders to be held at Tesoro Corporation, 19100 Ridgewood Parkway, San Antonio, Texas 78259 on Thursday, May 4, 2017, @ 8:00 A.M. Central time, and at any adjournment or postponement thereof, with all the powers the undersigned would have if personally present, upon the matters set forth in the Notice of such meeting and in their discretion upon such other matters as may properly come before the meeting.
(TO BE SIGNED ON REVERSE SIDE)
TESORO CORPORATION
Tesoro Corporation Thrift Plan
Date: May 4, 2017
Time: 8:00 A.M. (Central Time)
Place: Tesoro Corporation, 19100 Ridgewood Parkway,
San Antonio, Texas 78259
Please make your marks like this: ![xforproxycarda01.jpg](https://files.docoh.com/DEF 14A/0000050104-17-000065/xforproxycarda01.jpg)
Use dark black pencil or pen onlyThe Board of Directors Recommends a Vote FOR proposals 1, 2 and 3, and 1 YEAR on proposal 4. |
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1:
| Election of 10 directors (all nominated as directors to serve for the term indicated in the Proxy Statement): | |
| | | | For | Against | Abstain | | Directors Recommend
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| 01 | Rodney F. Chase | | o | o | o | | For |
| 02 | Edward G. Galante | | o | o | o | | For |
| 03 | Gregory J. Goff | | o | o | o | | For |
| 04 | David Lilley | | o | o | o | | For |
| 05 | Mary Pat McCarthy | | o | o | o | | For |
| 06 | J.W. Nokes | | o | o | o | | For |
| 07 | William H. Schumann, III | | o | o | o | | For |
| 08 | Susan Tomasky | | o | o | o | | For |
| 09 | Michael E. Wiley | | o | o | o | | For |
| 10 | Patrick Y. Yang | | o | o | o | | For |
| | | | For | Against | Abstain | | |
2: | To approve our named executive officers' compensation in an advisory vote; | o | o | o | | For |
3: | To ratify the appointment of Ernst & Young LLP as our independent registered public accounting firm for fiscal year 2017; | o | o | o | | For |
| | | | 1 Year | 2 Years | 3 Years | Abstain | |
4: | Advisory vote on the frequency of future advisory votes on executive compensation. | o | o | o | o | 1 Year |
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Authorized Signatures - This section must be completed for your Instructions to be executed. | | |
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Please Sign Here | | Please Date Above |
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Please Sign Here | | Please Date Above |
Please sign exactly as your name(s) appears on your stock certificate. If held in joint tenancy, all persons should sign. Trustees, administrators, etc., should include title and authority. Corporations should provide full name of corporation and title of authorized officer signing the proxy. |
TESORO CORPORATION
Tesoro Corporation Thrift Plan
Annual Meeting of Tesoro Corporation
to be held on Thursday, May 4, 2017
for Holders as of March 16, 2017
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![computerimage.jpg](https://files.docoh.com/DEF 14A/0000050104-17-000065/computerimage.jpg) INTERNET | VOTE BY: | TELEPHONE |
Go To
www.proxypush.com/tso
=Cast your vote online.
=View Meeting Documents.
| OR | 866-390-9971866-892-1741
= Use any touch-tone telephone. = Have your Proxy Card/Voting Instruction Form ready. = Follow the simple recorded instructions. |
| MAIL | |
OR = Mark, sign, and date your Proxy Card/Voting Instruction Form. = Detach your Proxy Card/Voting Instruction Form. = Return your Proxy Card/Voting Instruction Form in the postage-paid envelope provided. |
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED IN THE MANNER DIRECTED BY THE UNDERSIGNED STOCKHOLDER OR, IF NO DIRECTION IS GIVEN, SHARES WILL NOT BE VOTED. |
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All votes must be received by 11:59 P.M., Eastern Time, May 1, 2017.2018. |
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| | PROXY TABULATOR FOR |
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| | TESORO CORPORATIONANDEAVOR |
| | P.O. BOX 8016 |
| | CARY, NC 27512-9903 |
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Revocable Proxy - Tesoro CorporationAndeavor
Annual Meeting of Stockholders
May 4, 2017,2018, 8:00 A.M. (Central Time)
This Proxy is Solicited on Behalf of the Board of Directors
The undersigned participant in the TESORO CORPORATION THRIFTANDEAVOR 401(k) PLAN (the "Plan"“Plan”) hereby acknowledges receipt of the Notice of 20172018 Annual Stockholders Meeting to be held at Tesoro Corporation,Andeavor, 19100 Ridgewood Parkway, San Antonio, Texas 78259, on Thursday,Friday, May 4, 20172018 @ 8:00 A.M. Central time, and directs Fidelity Management Trust Company Trustee, to vote (or cause to be voted) all shares of Common Stock (or share equivalents) of Tesoro Corporation (the "Company")Andeavor allocated to the undersigned'sundersigned’s account under the Plan(s) and held in the Trustee'sTrustee’s name at the close of business on Monday, March 16, 2017,5, 2018, at said meeting and at any adjournment or postponement thereof. Said Trustee is authorized to vote in accordance with the instructions given herein and in its discretion upon such other matters as may properly come before the meeting.
(TO BE SIGNED ON REVERSE SIDE)