UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrantþ
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Valero Energy Corporation
(Name of Registrant as Specified In Its Charter)
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VALERO ENERGY CORPORATION
NOTICE OF 20102012 ANNUAL MEETING OF STOCKHOLDERS
The Board of Directors has determined that the 20102012 Annual Meeting of Stockholders of Valero Energy Corporation will be held on Thursday, April 29, 2010,May 3, 2012, at 10:00 a.m., Central Time, at our offices located at One Valero Way, San Antonio, Texas 78249 for the following purposes:
| (1) | | Elect three Class I directors to serve until the 2013 annual meeting of stockholders or until their respective successors are elected and have been qualified; |
| 1. | elect directors; |
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| 2. | (2) | | Ratify theratify appointment of KPMG LLP as our independent registered public accounting firm for 2010;auditor; |
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| 3. | (3) | | Re-approveapprove the 2005 Omnibus Stock Incentive Plan; |
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| (4) | | Vote on an advisory resolution to ratify the 20092011 compensation of the named executive officers listed in the proxy statement’s Summary Compensation Table;officers; |
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| (5) | | Vote on a stockholder proposal entitled, “Impact of Valero’s Operations on Rainforest Sustainability”; |
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| 4. | (6) | | Votevote on a stockholder proposal entitled, “Disclosure of Political Contributions/Trade Associations”Contributions”; |
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| 5. | (7) | | Votevote on a stockholder proposal entitled, “Stock Retention by Executives”“Report on Steps Taken to Reduce Risk of Accidents”; and |
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| 6. | (8) | | Transacttransact any other business properly brought before the meeting. |
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By order of the Board of Directors,
Jay D. Browning
Senior Vice President-Corporate Law and Secretary
Valero Energy Corporation
One Valero Way
San Antonio, Texas 78249
March 23, 2012
March 19, 2010
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VALERO ENERGY CORPORATION
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
GENERAL INFORMATION
Introduction
Our Board is soliciting proxies to be voted at the 2010 Annual Meeting of Stockholders on April 29, 2010May 3, 2012 (the “Annual Meeting”). The accompanying notice describes the time, place, and purposes of the Annual Meeting. Action may be taken at the Annual Meeting or on any date to which the meeting may be adjourned. Unless otherwise indicated the terms “Valero,” “we,” “our,” and “us” are used in this proxy statement to refer to Valero Energy Corporation, to one or more of our consolidated subsidiaries, or to all of them taken as a whole. The term “Board” refers to the Boardmeans our board of Directors of Valero Energy Corporation.directors.
We are mailing the our Notice of Internet Availability of Proxy Materials (“Notice”) to stockholders on or about March 19, 2010.23, 2012. On this date, you will have the abilitybe able to access all of our proxy materials on the website referenced in the Notice.
Record Date, and Shares Outstanding, Quorum
Holders of record of our common stock, $0.01 par value (“Common Stock”), at the close of business on March 1, 20105, 2012 (the “record date”) are entitled to vote on the matters presented at the Annual Meeting. On the record date, 564,951,138552,527,435 shares of Common Stock were issued and outstanding and entitled to one vote per share.
Quorum
Stockholders representing a majority of voting power, present in person or represented by properly executed proxy, will constitute a quorum.
Voting in Person at the Meeting, Revocability of Proxies
If you attend the Annual Meeting and planwant to vote in person, we will providegive you with a ballot at the meeting. If your shares are registered directly in your name, you are considered the stockholder of record“of record” and you have the right to vote the shares in person at the meeting. If, however, your shares are held in the name of your broker or other nominee, you are considered the beneficial owner of shares held in street name. As a beneficial owner, if you wish to vote at the meeting, you will need to bring to the meeting a legal proxy from the stockholder of record (e.g., your broker or other nominee)broker) authorizing you to vote the shares.
Revocability of Proxies
You may revoke your proxy at any time before it is voted at the Annual Meeting by (i) submitting a written revocation to Valero, (ii) returning a subsequently dated proxy to Valero, or (iii) attending the Annual Meeting requesting that your proxy be revoked and voting in person at the Annual Meeting. If instructions to the contrary are not provided, shares will be voted as indicated on the proxy card.
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Broker Non-Votes
Brokers holding shares must vote according to specific instructions they receive from the beneficial owners of Common Stock.the stock. If the broker does not receive specific instructions, are not received, in some cases brokersthe broker may vote thesethe shares in theirthe broker’s discretion. However, the New York Stock Exchange (the “NYSE”) precludes brokers from exercising voting discretion on certain proposals without specific instructions from the beneficial owner. This results in a “broker non-vote” on such athe proposal. A broker non-vote is treated as “present” for purposes of determining a quorum, has the effect of a negative vote when a majority of the voting power of the issued and outstanding shares is required for approval of a particular proposal, and has no effect when a majority of the voting power of the shares present in person or by proxy and entitled to vote or a plurality or majority of the votes cast is required for approval.
The ratification of the appointment of KPMG LLP as our independent registered public accounting firm for 2010auditor (Proposal No. 2), and the say-on-pay advisory vote on 2009 named executive officer compensation (Proposal No. 4) are matters considered is deemed to be a routine matter under applicable NYSE rules. A broker or other nominee generally may vote uninstructed shares on routine matters, and therefore no broker non-votes are expected to exist in connectionoccur with Proposal No. 2. Proposals No. 21, 3, 4, and No. 4.
The election of three Class I directors (Proposal No. 1), the re-approval of the 2005 Omnibus Stock Incentive Plan (Proposal No. 3), and the three stockholder proposals (Proposals No. 5 No. 6, and No. 7) are matters considered non-routine under applicable rules. A broker or other nominee cannot vote without instructions on non-routine matters, and therefore an undetermined number of broker non-votes mayis expected to occur on Proposal No. 1, No. 3, and Nos. 5 - 7.these proposals.
Solicitation of Proxies
Valero pays for the cost of soliciting proxies and the Annual Meeting. In addition to solicitation by mail, proxies may be solicited by personal interview, telephone, and similar means by directors, officers, or employees of Valero, none of whom will be specially compensated for such activities. Valero also intends to request that brokers, banks, and other nominees solicit proxies from their principals and will pay such brokers, banks, and other nominees certain expenses incurred by them for such activities. Valero retained Georgeson Inc., a proxy soliciting firm, to assist in the solicitation of proxies, for an estimated fee of $15,000, plus reimbursement of certain out-of-pocket expenses.
For participants in our qualified 401(k) plan (“Thrift Plan”), the proxy card will represent (in addition to any shares held individually of record by the participant) the number of shares allocated to the participant’s account in the Thrift Plan. For shares held by the Thrift Plan, the proxy card will constitute an instruction to the trustee of the plan on how to vote those shares should be voted.shares. Shares for which instructions are not received may be voted by the trustee per the terms of the plan.
Our 2005 and 2004 Stock Splits
Our Common Stock split two-for-one on December 15, 2005, and on October 7, 2004. Each split was effected in the form of a Common Stock dividend. All share and per share data in this proxy statement have been adjusted to reflect the effect of these stock splits for all periods presented.
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INFORMATION REGARDING THE BOARD OF DIRECTORS
Valero’s business is managed under the direction of our Board. Our Board conducts its business through meetings of its members and its committees. Valero’s Restated Certificate of Incorporation requires the Board to be divided into Class I, Class II, and Class III directors, with each class serving a staggered three-year term. During 2009,2011, our Board held sevensix meetings and the standing Board committees held 2416 meetings in the aggregate. No member of the Board attended less than 75%75 percent of the meetings of the Board and committees of which he or she was a member. All Board members are expected to attend the Annual Meeting. All Board members attended the 20092011 annual stockholders meeting.
INDEPENDENT DIRECTORS
The Board presently has one member from our management, William R. Klesse (Chief(our Chief Executive Officer, President, and Chairman of the Board)Officer), and nine11 non-management directors. During 2009,directors, 10 non-management directorsof whom served on the Board (W.E. “Bill” Bradford retired from the Board effective January 26, 2010).during 2011. The Board determined that each of itsthe non-management directors who served at any time during 20092011 met the independence requirements of the NYSE listing standards as set forth in the NYSE Listed Company Manual. Those independent directors were W.E. “Bill” Bradford, Ronald K. Calgaard, Jerry D. Choate, Irl F. Engelhardt, Ruben M. Escobedo, Bob Marbut, Donald L. Nickles, Robert A. Profusek, Susan Kaufman Purcell, and Stephen M. Waters.Waters, Randall J. Weisenburger, and Rayford Wilkins, Jr. Philip J. Pfeiffer was elected to the Board on February 23, 2012. As a member of management, William R.Mr. Klesse is not an independent director under the NYSE’s listing standards.
The Board’s Audit Committee, Compensation Committee, and Nominating/Governance Committeesand Public Policy Committee are composed entirely of directors who meet the independence requirements of the NYSE listing standards. Each member of the Audit Committee also meets the additional independence standards for Audit Committee members set forth in regulations of the SEC.
Independence Determinations
Under the NYSE’s listing standards, no director qualifies as independent unless the Board affirmatively determines that he or she has no material relationship with Valero. Based upon information requested from and provided by each directorour directors concerning their background, employment, and affiliations, including commercial, industrial, banking, consulting, legal, accounting, charitable, and familial relationships, the Board has determined that, other than being a director and/or stockholder of Valero, each of the independent directors named above has either no relationship with Valero, either directly or as a partner, stockholder, or officer of an organization that has a relationship with Valero, or has only immaterial relationships with Valero, and is independent under the NYSE’s listing standards.
In accordance with NYSE listing standards, the Board has adopted categorical standards or guidelines to assist the Board in making its independence determinations with respect to each director.regarding its directors. These standards are published in Article I of Valero’sour Corporate Governance Guidelines and are available on our website at www.valero.com under the “Corporate Governance” tab in the “Investor Relations” section. Under the NYSENYSE’s listing standards, immaterial relationships that fall within the guidelines are not required to be disclosed in this proxy statement. An immaterial relationship falls within the guidelines if it:
| • | | is not a relationship that would preclude a determination of independence under Section 303A.02(b) of the NYSE Listed Company Manual; |
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| • | | consists of charitable contributions by Valero to an organization where a director is an executive officer and does not exceed the greater of $1 million or 2% of the organization’s gross revenue in any of the last three years; |
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| • | | consists of charitable contributions to any organization with which a director, or any member of a director’s immediate family, is affiliated as an officer, director, or trustee pursuant to a matching gift program of Valero and made on terms applicable to employees and directors; or is in amounts that do not exceed $1 million per year; and |
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| • | | is not required to be, and it is not otherwise, disclosed in this proxy statement. |
consists of charitable contributions by Valero to an organization in which a director is an executive officer and does not exceed the greater of $1 million or 2 percent of the organization’s gross revenue in any of the last three years;
consists of charitable contributions to any organization with which a director, or any member of a director’s immediate family, is affiliated as an officer, director, or trustee pursuant to a matching gift program of Valero and made on terms applicable to employees and directors; or is in amounts that do not exceed $1 million per year; and
is not required to be, and it is not otherwise, disclosed in this proxy statement.
COMMITTEES OF THE BOARD
TheValero had these standing committees of the Board has standing in 2011.
Audit Committee,
Compensation Committee,
Executive Finance,Committee, and
Nominating/Governance Committees. Each committee has a written charter. Theand Public Policy Committee.
Committee charters are available on our website at www.valero.com under the “Corporate Governance” tab in the “Investor Relations” section. The committees of the Board and the number of meetings held by each committee in 2009 are described below.
Audit Committee
The Audit Committee reviews and reports to the Board on various auditing and accounting matters, including the quality, objectivity, and performance of our internal and external accountants and auditors, the adequacy of our financial controls, and the reliability of financial information reported to the public. Members of the Audit Committee arein 2011 were Ruben M. Escobedo (Chairman), Ronald K. Calgaard, Irl F. Engelhardt, Susan Kaufman Purcell, and Stephen M. Waters.Waters, and Randall J. Weisenburger. The Audit Committee met sevensix times in 2009.2011. The “Report of the Audit Committee for Fiscal Year 2009”2011” appears belowin this proxy statement following the disclosures related to Proposal No. 2.
The Board has determined that Ruben M. Escobedo is an “audit committee financial expert” (as defined by the SEC), and that he is “independent” as independence for audit committee members is defined in the NYSE Listing Standards. For further information regarding Mr. Escobedo’s experience, see“Proposal No. 1 Election of Directors – Information Concerning Nominees and Other Directors.”
Compensation Committee
The Compensation Committee reviews and reports to the Board on matters related to compensation strategies, policies, and programs, including certain personnel policies and policy controls, management development, management succession, and benefit programs. The Compensation Committee also approves and administers our equity compensation plans and incentive bonus plan. The Compensation Committee’s duties are described more fully in the “Compensation Discussion and Analysis” section below. The Compensation Committee has, for administrative convenience, delegated authority to Valero’sour Chief Executive Officer to make non-material amendments to Valero’s benefit plans and to make limited grants of stock options and restricted stock to new hires who are not executive officers.
During 2009,2011, members of the Compensation Committee were Bob Marbut (Chairman), W.E. “Bill” Bradford, Jerry D. Choate, andDonald L. Nickles, Robert A. Profusek. TheProfusek, and Rayford Wilkins, Jr. In 2011, the Compensation Committee met sixformally seven times and held one joint meeting with the Nominating/Governance Committee in 2009. Donald L. Nickles was appointed to the Compensation Committee effective January 26, 2010, upon Mr. Bradford’s retirement from the Board.conferred on numerous other times. The “Compensation Committee Report” for fiscal year 20092011 appears below,in this proxy statement immediately preceding “Compensation Discussion and Analysis.”
Compensation Committee Interlocks and Insider Participation
There are no compensation committee interlocks. None of the members of the Compensation Committee listed above has served as an officer or employee of Valero or had any relationship requiring disclosure by Valero under Item 404 of the SEC’s Regulation S-K, which addresses related person transactions.
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Nominating/Governance and Public Policy Committee
The Nominating/Governance and Public Policy Committee evaluates policies on the size and composition of the Board and criteria and procedures for director nominations, and considers and recommends candidates for election to the Board. The committee also evaluates, recommends, and monitors corporate governance guidelines, policies, and procedures, including our codes of business conduct and ethics. The committee also (i) assists the Board in identifying, evaluating, and monitoring public policy trends and social and political issues that could impact our business activities and performance, and (ii) considers and makes recommendations for our strategies relating to corporate responsibility, contributions, and reputation management. During 2011, the members of the Nominating/Governance Committee were Jerry D. Choate (Chairman), Ronald K. Calgaard, Donald L. Nickles, Robert A. Profusek, and Rayford Wilkins, Jr. The committee met three times in 2011.
The Nominating/Governance and Public Policy Committee recommended to the Board each presently serving director of Valero as nominees for election as directors at the Annual Meeting. The committee also considered and recommended the appointment of a lead director to preside at meetings of the independent directors without management, and recommended assignments for the Board’s committees. The full Board approved the recommendations of the committee and adopted resolutions approving the slate of director nominees to stand for election at the Annual Meeting, the appointment of a lead director, and Board committee assignments.
Executive Committee
The Executive Committee exercises the power andBoard’s authority of the Board during intervals between meetings of the Board. With limited exceptions specified in Valero’sour bylaws and under Delaware law, actions taken by the Executive Committee do not require Board ratification. Members of the Executive Committee are William R. Klesse (Chairman), Jerry D. Choate, Irl F. Engelhardt, Ruben M. Escobedo, and Bob Marbut. The Executive Committee met oncecommittee did not meet in 2009.2011.
Finance Committee
The Finance Committee reviews and monitors the investment policies and performance of our Thrift Plan and pension plans, insurance and risk management policies and programs, and finance matters and policies as needed. During 2009, the members of the Finance Committee were Irl F. Engelhardt (Chairman), Ruben M. Escobedo, Bob Marbut, Donald L. Nickles, Susan Kaufman Purcell, and Stephen M. Waters. The Finance Committee met three times in 2009. Donald L. Nickles left the Finance Committee effective January 26, 2010, to join the Compensation Committee.
Nominating/Governance CommitteeSELECTION OF DIRECTOR NOMINEES
The Nominating/Governance Committee evaluates policies on the size and composition of the Board and criteria and procedures for director nominations, and considers and recommends candidates for election to the Board. The Committee also evaluates, recommends, and monitors corporate governance guidelines, policies and procedures, including our codes of business conduct and ethics. During 2009, the members of the Nominating/Governance Committee were Jerry D. Choate (Chairman), W.E. “Bill” Bradford, Ronald K. Calgaard, Donald L. Nickles, and Robert A. Profusek. Mr. Bradford left the Committee effective January 26, 2010, in connection with his retirement from the Board. The Committee met four times, and held one joint meeting with the Compensation Committee, in 2009.
The Nominating/Governance Committee recommended Ruben M. Escobedo, Bob Marbut, and Robert A. Profusek to the Board as nominees for election as Class I directors at the Annual Meeting. The Committee also considered and recommended the appointment of a lead director to preside at meetings of the independent directors without management (see “Information Regarding the Board of Directors – Lead Director and Meetings of Non-Management Directors”), and recommended assignments for the committees of the Board. The full Board approved the recommendations of the Nominating/Governance Committee and adopted resolutions approving the slate of director nominees to stand for election at the Annual Meeting, the appointment of a lead director, and assignments for the committees of the Board.
SELECTION OF DIRECTOR NOMINEES
The Nominating/GovernancePublic Policy Committee solicits recommendations for potential Board candidates from a number of sources, including members of the Board, Valero’sour directors, our officers, individuals personally known to the members of the Board, and third-party research. In addition, the Committee will consider candidates submitted by stockholders when submitted in accordance with the procedures described in this proxy statement under the caption “Miscellaneous – Stockholder Nominations and Proposals.” The Committee will consider all candidates identified through the processes described above and will evaluate each of them on the same basis. The level of consideration that the Committee will extend to a stockholder’s candidate will be commensurate with the quality and quantity of information about the candidate that the nominating stockholder makes available to the Committee.
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Evaluation of Director Candidates
The Nominating/Governance and Public Policy Committee is responsible forcharged with assessing the skills and characteristics that candidates for election to the Board should possess as well asand with determining the composition of the Board as a whole. The assessments include qualifications under applicable independence standards and other standards applicable to the Board and its committees, as well as consideration of skills and expertise in the context of the needs of the Board.
Each candidate must meet certain minimum qualifications, including:
| • | | independence of thought and judgment; |
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| • | | the ability to dedicate sufficient time, energy and attention to the performance of her or his duties, taking into consideration the candidate’s service on other public company boards; and |
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| • | | independence of thought and judgment; the ability to dedicate sufficient time, energy, and attention to the performance of her or his duties, taking into consideration the candidate’s service on other public company boards; and skills and expertise complementary to those of the existing Board members; in this regard, the Board will consider its need for operational, managerial, financial, governmental affairs, or other relevant expertise. |
The Nominating/Governance Committee also considers diversity concepts such as race, gender, and national origin, as well as the ability of a prospective candidate to work with the then-existing interpersonal dynamics of the Board and the candidate’s ability to contribute to the collaborative culture among Board members.
Based on this initial evaluation, the Committee will determine whether to interview thea proposed candidate and, if warranted, will recommend that one or more of its members, other members of the Board, or senior management, as appropriate, interview the candidate in person or by telephone.candidate. After completing this evaluation and interview process, the Committee ultimately determines its list of nominees and submits the list to the full Board for consideration and approval.
Following these procedures, the Committee identified, interviewed, and recommended to the Board that Philip J. Pfeiffer be elected as a director. Mr. Pfeiffer was elected as a director at the meeting of the Board held on February 23, 2012.
LEADERSHIP STRUCTURE OF THE BOARD
As prescribed by our bylaws, the Chairman of the Board has the power to preside at all meetings of the Board. William R. Klesse, our Chief Executive Officer, and President, serves as the Chairman of our Board of Directors. For most of Valero’s history, the same individual has served as both Chairman of the Board and Chief Executive Officer of Valero. Although the Board believes that the combination of the Chairman and Chief Executive Officer roles is appropriate in the current circumstances, Valero’sCorporate Governance Guidelinesdo not establish this approach as a policy, and in fact, the Chairman and Chief Executive Officer roles were separate from 2005-2007.2005 to 2007.
The Chief Executive Officer is appointed by the Board to manage Valero’s daily affairs and operations. We believe that Mr. Klesse’s extensive industry experience and direct involvement in Valero’s operations make him best suited to serve as Chairman in order to (i) to:
lead the Board in productive, strategic planning, (ii) planning;
determine necessary and appropriate agenda items for meetings of the Board with input from the Lead Director and Board committee chairpersons,chairpersons; and (iii)
determine and manage the amount of time and information devoted to discussion and analysis of agenda items and other matters that may come before the Board.
Our Board structure also fosters strong oversight by independent directors. Mr. Klesse is the only member of management (past or present) who serves on the Board, and all of theour other directors are fully independent. Each of the Board’s committees of the Board (except for the Executive Committee, which meets infrequently) is chaired by an independent director.
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LEAD DIRECTOR AND MEETINGS OF NON-MANAGEMENT DIRECTORS
Our Board appoints a “Lead Director,”Director” whose responsibilities include leading the meetings of theour non-management members of our Boarddirectors outside the presence of management. Our Board regularly meets in executive session outside the presence of management, generally at each Board and committee meeting. Following the recommendation of the Nominating/Governance and Public Policy Committee, the Board designatedselected Robert A. Profusek to serve as the Lead Director during 2010. Mr. W.E. “Bill” Bradford2012. He also served as Lead Director during 2009. 2010 and 2011.
The Lead Director, working with committee chairpersons, sets the agendaagendas and leads the discussion of regular meetings of the boardBoard outside the presence of management, provides feedback regarding these meetings to the Chairman, and otherwise serves as liaison between the independent directors and the Chairman. If necessary, theThe Lead Director is also responsible for receiving, reviewing, and acting upon communications from stockholders or other interested parties when those interests should be addressed by a person independent of management. The Board believes that this approach appropriately and effectively complements Valero’s combined Chief Executive Officer/Chairman structure.
RISK OVERSIGHT
The Board considers oversight of Valero’s risk management efforts to be a responsibility of the entirefull board. The Board’s role in risk oversight includes receiving regular reports from members of senior management on areas of material risk to Valero, or to the success of a particular project or endeavor under consideration, including operational, financial, legal, and regulatory, strategic, and reputational risks. The full Board (or the appropriate Committee, in the case of risks that are under the purview of a particular Committee)Board committee) receives these reports from the appropriate members of management to enable the Board (or Committee)committee) to understandassess Valero’s risk identification, risk management, and risk mitigation strategies. When a report is vetted at the Committeecommittee level, the chairperson of that Committee subsequentlycommittee thereafter reports on the matter to the full Board. This enables to the Board and its Committeescommittees to coordinate the Board’s risk oversight role. The Board also
believes that risk management is an integral part of Valero’s annual strategic planning process, which addresses, among other things, the risks and opportunities facing Valero.
Part
One of the Audit Committee’s responsibilities as set forth in its charter, is to discuss with management Valero’sour major financial risk exposures and the steps management haswe have taken to monitor and control those exposures, including Valero’sour risk assessment and risk management policies. In this regard, Valero’sour chief audit officer prepares annually a comprehensive risk assessment report and reviews that report with the Audit Committee. This report identifies the material business risks for Valero and identifies Valero’s internal controls that respond to and mitigate those risks. Valero’s management regularly evaluates these controls, and the Audit Committee is provided regular updates regarding the effectiveness of the controls. Also, the FinanceOur Nominating/Governance and Public Policy Committee shares responsibilities with respect to risk oversight. The Finance Committee regularly reviews with management Valero’s financial arrangements, capital structure,our policies and its access to capital markets. It also oversees allocation policies with respect to Valero’s pension assets, as well as the performance in areas of investments in Valero’s pensionemployee and other benefit plans. The Audit Committeecontractor safety, environmental compliance, and the Finance Committee regularly report to the full Board.legal matters generally.
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PROPOSAL NO. 1
– ELECTION OF DIRECTORS
(Item 1 on the Proxy Card)
OurAt last year’s annual meeting, the Board is divided into three classes for purposesrecommended and the stockholders approved an amendment to our Restated Certificate of election. Three Class IIncorporation to eliminate the formerly classified structure of our Board. Accordingly, all of Valero’s directors will beare subject to election each year at the annual meeting of stockholders. If elected at the Annual Meeting, toall of the nominees for director listed below will serve a three-yearone-year term expiring at the 2013 annual meeting of stockholders. Nominees for Class I directors are Ruben M. Escobedo, Bob Marbut, and Robert A. Profusek. The persons named on the proxy card intend to vote for the election of each of these nominees unless you direct otherwise on your proxy card.
The Board recommends that stockholdersa vote “FOR” all nominees.
In accordance with Valero’s
Under our bylaws, each director to be elected under this Proposal No. 1 shallwill be elected by the vote of the majority of the votes cast at the Annual Meeting if a quorum is present. For purposes of this election,purpose, a “majority of the votes cast” shall meanmeans that the number of shares voted “for” a director’s election exceeds 50 percent of the number of votes cast with respect to that director’s election. With respect to each nominee, votes “cast” shall include votes to withhold authority and shall exclude abstentions.
If any nominee is unavailable as a candidate at the time of the Annual Meeting, either the number of directors constituting the full Board will be reduced to eliminate the resulting vacancy, or the persons named as proxies will use their best judgment in voting for any available nominee. The Board has no reason to believe that any current nominee will be unable to serve.
INFORMATION CONCERNING NOMINEES AND OTHER DIRECTORS
TheOur directors are listed in the following table describes (i) eachtable. Each is a nominee for election as a director at the Annual Meeting, and (ii) the other members of the Board whose terms expire in 2011 and 2012. The information provided is based partly on data furnished by the directors and partly on Valero’s records.Meeting. There is no family relationship among any of the executive officers directors, or nominees for director. There is no arrangement or understanding between any director or any other person pursuant to which the director was or is to be selected a director or nominee.
|
| | | | |
| Nominees | | Executive Officer or Director Since 1 | | Age as of 12/31/11 |
Ronald K. Calgaard, Director | | 1996 | | 74 |
Jerry D. Choate, Director | | 1999 | | 73 |
Ruben M. Escobedo, Director | | 1994 | | 74 |
William R. Klesse, Chairman of the Board, Chief Executive Officer, and President | | 2001 | | 65 |
Bob Marbut, Director | | 2001 | | 76 |
Donald L. Nickles, Director | | 2005 | | 63 |
Philip J. Pfeiffer, Director | | 2012 | | 64 |
Robert A. Profusek, Director | | 2005 | | 61 |
Susan Kaufman Purcell, Director | | 1994 | | 69 |
Stephen M. Waters, Director | | 2008 | | 65 |
Randall J. Weisenburger, Director | | 2011 | | 53 |
Rayford Wilkins, Jr., Director | | 2011 | | 60 |
1 The reported service dates include, when applicable, service on the board of Valero’s former parent prior to Valero’s separation from that company in 1997.
Dr. Calgaard is Chairman of the Ray Ellison Grandchildren Trust in San Antonio, Texas. He was Chairman and Chief Executive Officer of Austin Calvert & Flavin Inc., an investment management firm, from 2000 to February 2006. He served as President of Trinity University, San Antonio, Texas, from 1979 until his retirement in 1999. He also served as director of Valero.
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| | | | | | | | | | | | | |
| | | Executive Officer or | | Age as of | | Director |
| | | Director Since (1) | | 12/31/09 | | Class (2) |
Nominees | | | | | | | | | | | | |
Ruben M. Escobedo,Director | | | 1994 | | | | 72 | | | | I | |
Bob Marbut,Director | | | 2001 | | | | 74 | | | | I | |
Robert A. Profusek,Director | | | 2005 | | | | 59 | | | | I | |
| | | | | | | | | | | | | |
Other Directors | | | | | | | | | | | | |
Ronald K. Calgaard,Director | | | 1996 | | | | 72 | | | II |
Irl F. Engelhardt,Director | | | 2006 | | | | 63 | | | II |
Stephen M. Waters,Director | | | 2008 | | | | 63 | | | II |
Jerry D. Choate,Director | | | 1999 | | | | 71 | | | III |
William R. Klesse,Chairman of the Board,Chief Executive Officer, and President | | | 2001 | | | | 63 | | | III |
Donald L. Nickles,Director | | | 2005 | | | | 61 | | | III |
Susan Kaufman Purcell,Director | | | 1994 | | | | 67 | | | III |
| | | |
Footnotes: |
|
| (1) | | Dates reported include service on the Board of Directors of Valero’s former parent company prior to Valero’s separation from that company in 1997. |
|
| (2) | | If elected, the terms of office of the Class I directors will expire at the 2013 Annual Meeting. The terms of office of the Class II directors will expire at the 2011 Annual Meeting, and the terms of office of the Class III directors will expire at the 2012 Annual Meeting. |
Mr. Choate retired from Allstate Corporation at the end of 1998 where he had served as Chairman of the Board and Chief Executive Officer since 1995. He previously served as a director of H&R Block, Inc. from 2006 to 2007 and as a director of Amgen, Inc. from 1998 to 2011. Mr. Choate also serves as a director of Van Kampen Mutual Funds. He has served on Valero’s Board since 1999. Mr. Choate’s pertinent experience, qualifications, attributes, and skills include financial literacy and managerial experience attained through his service as Chief Executive Officer and Chairman of Allstate Corporation, the knowledge and experience he has attained through service on the board of other public companies, and the knowledge and experience he has attained through his service on Valero’s Board since 1999. Nominees
Mr. Escobedois a Certified Public Accountant. He owned and operated his public accounting firm, Ruben Escobedo & Company, CPAs, in San Antonio, Texas since its formation in 1977 through 2007. Mr. Escobedo also serves as a director of Cullen/Frost Bankers, Inc. He has served as a director of Valero or its former parent company since 1994. Mr. Escobedo’s pertinent experience, qualifications, attributes, and skills include:include public accounting and financial reporting expertise (including extensive experience as a certified public accountant)CPA), managerial experience attained from serving as chief executive of his own accounting firm, the knowledge and experience he has attained from service on another public company board, and the knowledge and experience he has attained from his service on Valero’s Board since 1994.
Mr. Marbutis a director of and is Executive Chairman of Electronics Line 3000 Ltd., a provider of wireless security with remote management solutions. He is a director of Tupperware Brands Corporation. Mr. Marbut was previously founder, a director and Chief Executive Officer of SECTecGLOBAL, Inc. from 2002 through 2006. He was also previously a director of Hearst-Argyle Television, Inc. from 1997 until 2009 and a director and Chief Executive Officer of Argyle Security, Inc. from 2005 until January 2010. He served as a director of UDS since 1990, and has served as a director of Valero since Valero’s acquisition of Ultramar Diamond Shamrock Corporation (“UDS”) in 2001. Mr. Marbut’s pertinent experience, qualifications, attributes, and skills include: managerial experience he has attained serving as chief executive officer and chairman of other public companies, the experience he has attained from service on other public company boards, and the knowledge and experience he has attained through his service on the UDS or Valero Board since 1990.
9
Mr. Profusekis a partner, and heads the mergers and acquisitions department, of the Jones Day law firm. His law practice focuses on mergers, acquisitions, takeovers, restructurings, and corporate governance matters, including compensation. Mr. Profusek is also a director of CTS Corporation. He has served as a director of Valero since 2005. Mr. Profusek’s pertinent experience, qualifications, attributes, and skills include: legal expertise in corporate law matters, including governance and compensation; capital markets expertise attained through his extensive experience in mergers and acquisitions; managerial experience attained through his leadership roles with the Jones Day law firm; the knowledge and experience he has attained through his service on another public company board; and the knowledge and experience he has attained through his service on Valero’s Board since 2005.
Other Directors
Dr. Calgaardis Chairman of the Ray Ellison Grandchildren Trust in San Antonio, Texas. He was formerly Chairman and Chief Executive Officer of Austin Calvert & Flavin Inc., a San Antonio-based investment management firm, from 2000 to February 2006. Dr. Calgaard served as President of Trinity University, San Antonio, Texas, from 1979 until his retirement in 1999. He is also a director of The Trust Company, N.A. and served as its Chairman from June 1999 until January 2000. Dr. Calgaard has served as a director of Valero or its former parent company since 1996. Dr. Calgaard’s pertinent experience, qualifications, attributes, and skills include: a Ph.D in economics, financial literacy and expertise gained through his experience with an investment management firm, managerial experience attained through his service as Chief Executive Officer of an investment management firm and as President of Trinity University, the knowledge and experience he has attained through his service on other public company boards, and the knowledge and experience he has attained through his service on Valero’s Board since 1996.
Mr. Choateretired from Allstate Corporation, an insurance company, at the end of 1998 where he had served as Chairman of the Board and Chief Executive Officer since 1995. Mr. Choate also serves as a director of Amgen, Inc. and Van Kampen Mutual Funds. He has served as a director of Valero since 1999. Mr. Choate’s pertinent experience, qualifications, attributes, and skills include: financial literacy and managerial experience attained through his service as Chief Executive Officer and Chairman of Allstate Corporation, the knowledge and experience he has attained through service on the board of other public companies, and the knowledge and experience he has attained through his service on Valero’s Board since 1999.
Mr. Engelhardtis Chairman of the Board and Executive Advisor of Patriot Coal Corporation. Mr. Engelhardt served as Chief Executive Officer of Peabody Energy Corporation or its predecessor companies from 1990 to December 2005 and as its Chairman of the Board from 1993 to October 2007. He served as Co-Chief Executive Officer of The Energy Group (composed of Eastern Electricity in the United Kingdom, Peabody in the U.S. and Australia, and Citizens power in the U.S.) from 1997 to 1998, Chairman of Suburban Propane Company from 1995 to 1996, Chairman of Cornerstone Construction and Materials from 1994 to 1995, Director and Group Vice President of Hanson Industries from 1995 to 1996, and Chairman of the Federal Reserve Bank of St. Louis from 2007 to 2008. Mr. Engelhardt is also a director of The Williams Companies, Inc. He has served as a director of Valero since 2006. Mr. Engelhardt’s pertinent experience, qualifications, attributes, and skills include: financial literacy and managerial experience attained through his service as Chief Executive Officer and Chairman of the Board of Peabody Energy Corporation, the knowledge and experience he has attained through service on the board of other public companies, and the knowledge and experience he has attained through his service on Valero’s Board since 2006.
10
Mr. Klesseis Valero’s Chairman of the Board, Chief Executive Officer, and President. He was elected Chairman of the Board in January 2007, and was elected President in January 2008. He previously served as Valero’s Chief Executive Officer and Vice Chairman of the Board since the end of 2005. He served as Valero’s Executive Vice President and Chief Operating Officer from 2003 through 2005, and as Executive Vice President-Refining and Commercial Operations since Valero’s acquisition of UDSUltramar Diamond Shamrock Corporation (UDS) in 2001. Mr. Klesse’s pertinent experience, qualifications, attributes, and skills include:include his experience in virtually every aspect of the refining industry for over 40 years, includingduring his approximately 2343 years of service with UDS and Valero;Valero, and the knowledge and experience he has attained through his service on Valero’s Board since 2005 and(and as its Chairman since 2007).
Mr. Marbut was a director and Chairman of RISCO U.S. from 2010 until 2011 and, from 2004 through March 2010, was Executive Chairman of Electronics Line 3000 Ltd., a provider of wireless security and remote management solutions that was acquired by RISCO Ltd. in March 2010. He is a director of Tupperware Brands Corporation. Mr. Marbut was founder, a director, and Chief Executive Officer of SecTecGLOBAL, Inc. from 2002 through 2006 and co-founder, a director and Chief Executive Officer of Argyle Security, Inc. from 2005 until January 2010. He was also founder, Chairman and Co-Chief Executive Officer of Hearst-Argyle Television, Inc. from 1997 through 2000, Chairman through 2002, and a director through July 2009. He continues to be Chairman and CEO of Argyle Communications, Inc., a professional services company he founded in 1991. He served as a director of UDS from 1990 until 2001, and has served as a director of Valero since 2001. Mr. Marbut’s pertinent experience, qualifications, attributes, and skills include managerial experience from serving as chief executive officer and/or chairman of five public companies and four private companies, experience from service on numerous other public company boards, and knowledge and experience attained through his service on the BoardUDS or Valero boards since 2007.1990.
Senator Nicklesretired in January 2005 as U.S. Senator from Oklahoma in 2005 after serving in the U.S. Senate for 24 years. He had also served in the Oklahoma State Senate for two years. During his tenure as a U.S. Senator, he was Assistant Republican Leader for six years, Chairman of the Republican Senatorial Committee, and Chairman of the Republican Policy Committee. He served as Chairman of the Budget Committee and as a member of the Finance and Energy and Natural Resources Committees. In 2005, he formed and is the Chairman and Chief Executive Officer of The Nickles Group, a Washington-based consulting and business venture firm. Senator Nickles also serves on the Board of Directors of Chesapeake Energy Corporation;Corporation and Washington Mutual Investors Fund; JP Morgan Value Opportunities Fund; and American Funds Tax Exempt Series I. He is formerly a director of Fortress International Group, Inc.Fund. He has served as a director of Valero since 2005. His pertinent experience, qualifications, attributes, and skills include: theinclude extensive political, legislative and regulatory knowledge and expertise attained through his 24 years of service as a U.S. Senator; the experience attained through his service on the boards of other public companies; the knowledge and experience he has attained from serving as founder and chief executive officer of a consulting and business venture firm; and the knowledge and experience he has attained through his service on Valero’s Board since 2005.
Mr. Pfeiffer is Of Counsel in the San Antonio, Texas office of Fulbright & Jaworski L.L.P., where he was Partner-in-Charge for 25 years and led the office’s labor and employment practice. Through his 40-year career with the firm, Mr. Pfeiffer assisted employers in management-union matters, complex civil rights matters, employment discrimination cases, affirmative action compliance, employment torts, alternative dispute resolution, employment contracts, and ERISA litigation. He is a state-qualified mediator in Texas, serving as a mediator in employment and civil rights cases, including class actions. He has a long and distinguished record of community involvement serving on the boards of many non-profit organizations including the United Way of San Antonio and Bexar County, St. Mary’s University, Southwest Research Institute, San Antonio Medical Foundation, Texas Research and Technology Foundation, Christus Children’s Hospital Foundation, and the Alamo Area Council of Boy Scouts of America. Mr. Pfeiffer’s pertinent experience, qualifications, attributes, and skills include legal expertise in legal matters, including labor and employment issues, leadership and management skills attained while acting as Partner-in-Charge of a law office, and serving as chairman, director, or trustee of numerous non-profit organizations.
Mr. Profusek is a partner, and heads the mergers and acquisitions department, of the Jones Day law firm. His law practice focuses on mergers, acquisitions, takeovers, restructurings, and corporate governance matters. Mr. Profusek is also a director of CTS Corporation. He served as a director of the managing general partner of Valero L.P. (now known as “NuStar Energy L.P.”) from 2001-2005. He has served as a director of Valero since 2005. Mr. Profusek’s pertinent experience, qualifications, attributes, and skills include: legal expertise in legal matters, including corporate governance; capital markets expertise attained through his extensive experience in mergers and acquisitions and financing activities; managerial experience attained through his leadership roles with Jones Day, one of the world’s largest law firms; the knowledge and experience he has attained through his current service on another public company board and prior service as a director of two other NYSE-listed companies; and the knowledge and experience he has attained through his service on Valero’s Board since 2005.
Dr. Purcellis Director of the Center for Hemispheric Policy at the University of Miami. The Center examines political, economic, financial, trade, and security issues in Latin America, as well as U.S. - LatinU.S.-Latin America relations. Dr. Purcell previously served as Vice President of the Council of the Americas, a non-profit business organization of mainly Fortune 500 companies with investments in Latin America, and of the Americas Society, a non-profit educational institution, both in New York City. Until 2005, she served on the boards of Scudder Global High Income Fund, Scudder New Asia Fund, The Brazil Fund, and Scudder Global Commodities Stock Fund, Inc. Dr. Purcell has been a director of Valero or its former parent company since 1994. Dr. Purcell’sHer pertinent experience, qualifications, attributes, and skills include: economic, political and international relations expertise attained through her experience with the University of Miami, the Council of Americas, and the Americas Society; a Ph.D in political science;, financial literacy and experience attained through her service on the boards and audit committees of several closed-end mutual funds; and the knowledge and experience she has attained through her service on Valero’s Board since 1994.
Mr. Watershas been the managing partner of Compass Advisers LLP and its predecessor partnership since 1996 and the Chief Executive of Compass Partners European Equity Fund since 2005. From 1988 to 1996, he served in several capacities at Morgan Stanley, including Co-Head of the Mergers and Acquisitions department from 1990 to 1992, Co-Chief Executive Officer of Morgan Stanley Europe from 1992 to 1996, and as a member of the firm’s worldwide Firm Operating Committee from 1992 to 1996. From 1974 to 1988, he was with Lehman Brothers, co-founding the Mergers and Acquisitions department in 1977, becoming a partner in 1980 and serving as Co-Head of the Mergers and Acquisitions department from 1985 to 1988. Mr. Waters is also a directorChairman of Boston Private Financial Holdings,Holdings. He has served as Chairman of the Advisory Board of the Boston University School of Public Health and Chairman of the United States Naval Institute, and Co-Chairman of the Harvard College Fund.Institute. He has served asbeen a director of Valero since 2008. His pertinent experience, qualifications, attributes, and skills include: financial literacy and expertise, capital markets expertise, and managerial experience gained through his mergers
11
and acquisitions experience and leadership roles with investment banking firms, Lehman Brothers, Morgan Stanley, and Compass Advisers LLP;Advisers; and the knowledge and experience he has attained through his service on other public company boards.
Mr. Weisenburger has served as Omnicom Group Inc.’s Executive Vice President and Chief Financial Officer since joining that company in 1998. Prior to joining Omnicom, he was a founding member of Wasserstein Perella and a former member of the First Boston Corporation. While at Wasserstein Perella, Mr. Weisenburger specialized in private equity investing and leveraged acquisitions, and in 1993, he became President and CEO of the firm’s private equity subsidiary. His other corporate board service includes Carnival Corporation and Carnival PLC, and he is a member of the Board of Overseers for the Wharton School of Business at the University of Pennsylvania. Mr. Weisenburger has served on Valero’s Board since 2011. His pertinent experience, qualifications, attributes, and skills include financial literacy and expertise, capital markets expertise, managerial experience he has attained serving as an executive officer of other public companies, and the experience he has attained from service on other public company boards.
Mr. Wilkinsserves as CEO of Diversified Businesses of AT&T, where he has been responsible for international investments, AT&T Interactive, AT&T Advertising Solutions, customer information services, and the consumer wireless initiative in India. He recently announced his retirement from AT&T effective March 30, 2012. Mr. Wilkins has held several other leadership positions at AT&T and its predecessor companies, including Group President and CEO of SBC Enterprise Business Services and President and CEO of SBC Pacific Bell. He also serves on the board of América Móvil, and is on the boards of The Tiger Woods Foundation, the National Urban League, and the Advisory Council of the McCombs School of Business at the University of Texas at Austin. Mr. Wilkins has served on Valero’s Board since 2011. His pertinent experience, qualifications, attributes, and skills include managerial experience he has attained serving as an executive officer of other public companies, international business acumen he has attained from his responsibilities as executive officer and director for international business concerns, and the experience he has attained from service on other public company boards.
For information regarding the nominees’ holdings of Common Stock holdings, compensation, and other arrangements, see “Information Regarding the Board of Directors,” “Beneficial Ownership of Valero Securities,” “Compensation Discussion and Analysis,” “Executive Compensation,“Compensation of Directors,” and “Certain Relationships and Related Transactions.”Transactions” elsewhere in this proxy statement.
IDENTIFICATION OF EXECUTIVE OFFICERS
The following are Valero’s executive officers. There is no arrangement or understanding between any executive officer listed below or any other person pursuant to which the executive officer was or is to be selected as an officer.
|
| | | | |
| | | Officer Since | | Age as of 12/31/11 |
William R. Klesse, Chief Executive Officer and President | | 2001 | | 65 |
Jean Bernier, Executive Vice President-Corporate Communications, Information Services and Supply Chain Management | | 2010 | | 55 |
Kimberly S. Bowers, Executive Vice President and General Counsel | | 2003 | | 47 |
Michael S. Ciskowski, Executive Vice President and Chief Financial Officer | | 1998 | | 54 |
S. Eugene Edwards, Executive Vice President and Chief Development Officer | | 1998 | | 55 |
Joseph W. Gorder, Executive Vice President and Chief Commercial Officer | | 2003 | | 54 |
Mr. Klesse. (Mr. Klesse’s biographical information is stated above under the caption “Information Concerning Nominees and Directors”).
Mr. Bernier was elected Executive Vice President of Valero on November 3, 2010, and has remained, since 1999, as President of Ultramar Ltd., a subsidiary of Valero engaged in the refining, distribution and marketing of petroleum products in Eastern Canada. Mr. Bernier joined Ultramar Ltd. in 1996 as Director, Motorist Development, and was elected Vice President, Retail Operations in 1998. Prior to joining Ultramar Ltd., Mr. Bernier served in a variety of senior management positions at Provigo, Inc. Mr. Bernier has announced his retirement effective March 31, 2012.
Ms. Bowers was elected Executive Vice President and General Counsel in October 2008. She previously served as Senior Vice President and General Counsel of the Company since April 2006. Before that, she was Valero’s Vice President - Legal Services from 2003 to 2006. Ms. Bowers joined Valero’s legal department in 1997. Ms. Bowers was elected to the board of directors of WPX Energy, Inc. on December 30, 2011.
Mr. Ciskowski was elected Executive Vice President and Chief Financial Officer in August 2003. Before that, he served as Executive Vice President - Corporate Development since April 2003, and Senior Vice President in charge of business and corporate development since 2001.
Mr. Edwards was elected Executive Vice President and Chief Development Officer in January 2011. He previously served as Executive Vice President - Corporate Development and Strategic Planning beginning in December 2005. Starting in 2001, he served as Senior Vice President with responsibilities for product supply, trading, and wholesale marketing. He has held several positions in the company with responsibility for planning and economics, business development, risk management, and marketing.
Mr. Gorder was elected Executive Vice President and Chief Commercial Officer in January 2011. He is based in London where he heads our European operations. He previously served as Executive Vice President - Marketing and Supply beginning in December 2005. Starting in August 2003, he served as Senior Vice President - Corporate Development. Prior to that he held several positions with Valero and UDS with responsibilities for corporate development and marketing.
BENEFICIAL OWNERSHIP OF VALERO SECURITIES
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table presents information regarding each person, or group of affiliated persons, we know to be a beneficial owner of more than five percent of our Common Stock as of February 1, 2010. The information is based solely upon reports filed by such persons with the SEC.
| | | | | | | | | |
| | | Amount and Nature of | | |
| Name and Address ofBeneficial Owner | | Beneficial Ownership | | Percent of Class |
| BlackRock, Inc. | | | 33,352,582 | (1) | | | 5.91 | % |
| 40 East 52nd Street | | | | | | | | |
| New York NY 10022 | | | | | | | | |
| | | | | | | | | |
| AXA Financial, Inc. | | | 32,109,811 | (2) | | | 5.70 | % |
| 1290 Avenue of the Americas | | | | | | | | |
| New York, NY 10104 | | | | | | | | |
| | | |
|
| (1) | | BlackRock, Inc. filed with the SEC an amended Schedule 13G on January 20, 2010, reporting that it or certain of its affiliates beneficially owned in the aggregate 33,352,582 shares, and that it had sole voting power and sole dispositive power with respect to 33,352,582 shares. |
|
|
| (2) | | AXA Financial, Inc. filed with the SEC (pursuant to a joint filing agreement among AXA Financial, Inc., AXA Assurances I.A.R.D. Mutuelle, AXA Assurances Vie Mutuelle, and AXA) a Schedule 13G on February 12, 2010, reporting that it or certain of its affiliates beneficially owned in the aggregate 32,109,811 shares, that it had sole voting power with respect to 23,877,058 shares and sole dispositive power with respect to 32,109,811 shares. |
|
12
SECURITY OWNERSHIP OF MANAGEMENT AND DIRECTORS
The following table presents information as of February 1, 20102012, regarding Common Stock beneficially owned (or deemed to be owned) by each nominee for director, each current director, each executive officer named in the Summary Compensation Table, and all current directors and executive officers of Valero as a group. No executive officer, director, or nominee for director owns any class of equity securities of Valero other than Common Stock. None of the shares listed below are pledged as security. The address for each person is One Valero Way, San Antonio, Texas 78249.
| | | | | | | | | | | | | | | | | |
| | | | | | | Shares Under | | | | | | Percent |
| Name of Beneficial Owner | | Shares Held (1) | | Options (2) | | Total Shares | | of Class |
| Kimberly S. Bowers | | | 79,530 | | | | 39,125 | | | | 118,655 | | | | 0.02 | % |
| Ronald K. Calgaard | | | 32,959 | | | | 13,000 | | | | 45,959 | | | | * | |
| Jerry D. Choate | | | 51,883 | | | | 33,000 | | | | 84,883 | | | | * | |
| Michael S. Ciskowski | | | 274,153 | | | | 99,392 | | | | 373,545 | | | | 0.07 | % |
| Irl F. Engelhardt | | | 26,708 | | | | 5,000 | | | | 31,708 | | | | * | |
| Ruben M. Escobedo | | | 21,756 | | | | 0 | | | | 21,756 | | | | * | |
| Joseph W. Gorder | | | 101,352 | | | | 47,259 | | | | 148,611 | | | | 0.03 | % |
| William R. Klesse | | | 874,860 | | | | 574,741 | | | | 1,449,601 | | | | 0.26 | % |
| Bob Marbut | | | 40,926 | | | | 71,120 | | | | 112,046 | | | | * | |
| Richard J. Marcogliese | | | 237,821 | | | | 297,209 | | | | 535,030 | | | | 0.09 | % |
| Donald L. Nickles | | | 14,683 | | | | 11,000 | | | | 25,683 | | | | * | |
| Robert A. Profusek | | | 14,544 | | | | 11,000 | | | | 25,544 | | | | * | |
| Susan Kaufman Purcell | | | 13,650 | | | | 29,000 | | | | 42,650 | | | | * | |
| Stephen M. Waters | | | 11,178 | | | | 10,000 | | | | 21,178 | | | | * | |
| Directors and executive officers as a group (15 persons) | | | 1,870,124 | | | | 1,265,781 | | | | 3,135,905 | | | | * | |
|
| | | | | | | | | | | | |
| Name of Beneficial Owner | | Shares Held (1) | | Shares Under Options (2) | | Total Shares | | Percent of Class |
| Kimberly S. Bowers | | 108,829 |
| | 143,259 |
| | 252,088 |
| | 0.05 | % |
| Ronald K. Calgaard | | 40,757 |
| | 3,000 |
| | 43,757 |
| | * |
|
| Jerry D. Choate | | 69,273 |
| | 29,000 |
| | 98,273 |
| | * |
|
| Michael S. Ciskowski | | 269,469 |
| | 372,892 |
| | 642,361 |
| | 0.12 | % |
| S. Eugene Edwards | | 81,854 |
| | 116,152 |
| | 198,006 |
| | 0.04 | % |
| Ruben M. Escobedo | | 32,454 |
| | — |
| | 32,454 |
| | * |
|
| Joseph W. Gorder | | 119,946 |
| | 130,509 |
| | 250,455 |
| | 0.05 | % |
| William R. Klesse | | 908,668 |
| | 1,079,934 |
| | 1,988,602 |
| | 0.36 | % |
| Bob Marbut | | 72,423 |
| | 29,000 |
| | 101,423 |
| | * |
|
| Donald L. Nickles | | 22,481 |
| | 11,000 |
| | 33,481 |
| | * |
|
| Philip J. Pfeiffer | | 800 |
| | — |
| | 800 |
| | * |
|
| Robert A. Profusek | | 22,342 |
| | 11,000 |
| | 33,342 |
| | * |
|
| Susan Kaufman Purcell | | 21,095 |
| | 3,000 |
| | 24,095 |
| | * |
|
| Stephen M. Waters | | 21,438 |
| | 10,000 |
| | 31,438 |
| | * |
|
| Randall J. Weisenburger | | 11,919 |
| | — |
| | 11,919 |
| | * |
|
| Rayford Wilkins, Jr. | | 11,402 |
| | — |
| | 11,402 |
| | * |
|
| Directors and executive officers as a group (17 persons) | | 1,867,375 |
| | 2,033,153 |
| | 3,900,528 |
| | * |
|
| |
| |
| * | | Indicates that the percentage of beneficial ownership of the directors, nominees, and by all directors and executive officers as a group does not exceed 1% of the class. |
| | |
| (1) | | Includes shares allocated under the Thrift Plan through January 31, 2010,2012, and shares of restricted stock. Restricted stock may not be disposed ofsold or transferred until vested. This column does not include shares that could be acquired under options, which are reported in the column captioned “Shares Under Options.” |
| | |
| (2) | | Represents shares of Common Stock that may be acquired under outstanding stock options currently exercisable and that are exercisable within 60 days from February 1, 2010.2012. Shares subject to options may not be voted unless the options are exercised. Options that may become exercisable within such 60-day period only in the event of a change of control of Valero are excluded. |
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table describes each person, or group of affiliated persons, known to be a beneficial owner of more than five percent of our Common Stock as of February 1, 2012. The information is based solely upon reports filed by such persons with the SEC.
|
| | | | | | | |
| Name and Address of Beneficial Owner | | Amount and Nature of Beneficial Ownership | | Percent of Class |
BlackRock, Inc. 40 East 52nd Street New York NY 10022 | | 44,805,248 |
| | (1) | | 8.0% |
| |
| (1) | BlackRock, Inc. filed with the SEC an amended Schedule 13G on February 10, 2012, reporting that it or certain of its affiliates beneficially owned in the aggregate 44,805,248 shares, for which it had sole voting power and sole dispositive power. |
SECTION 16(a)16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), requires our executive officers, directors, and greater than 10 percent stockholders to file with the SEC certain reports of ownership and changes in ownership of our Common Stock. Based on a review of the copies of such forms received and written representations from certain reporting persons, we believe that during the year ended December 31, 2009, all Section 16(a) reports applicable to our executive officers, directors and greater than 10 percent stockholders were timely filed.filed in 2011.
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COMPENSATION CONSULTANT DISCLOSURES
In 2009, the Compensation Committee retained Towers Perrin (now doing business as Towers Watson) as an independent compensation consultant. In its role as an advisor to the Compensation Committee, Towers Perrin was retained directly by the Committee, which, in its sole discretion, has the authority to select, retain, and/or terminate its relationship with the consulting firm. In 2009, Towers Perrin provided the Committee with objective and expert analyses, independent advice, and information with respect to executive and director compensation. Towers Perrin received $589,718 in professional fees for its executive and director compensation services to the Committee during 2009. Towers Perrin did not provide other consulting services to the Committee, to Valero, or to any senior executives of Valero in 2009.
During 2009, Towers Perrin’s executive and director compensation consulting services included:
| • | | Assistance with the determination of appropriate peer and comparator companies for benchmarking executive pay and monitoring Valero’s performance; |
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| • | | Assistance with the determination of Valero’s overall executive compensation philosophy in light of Valero’s business strategy and market considerations; |
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| • | | Competitive pay assessment of target and actual total direct compensation for executives, with separate analyses of base salary, annual incentive, and long-term incentive compensation; |
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| • | | Competitive pay assessment of director compensation; |
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| • | | Assessment of, and recommendation of enhancements to, Valero’s annual incentive program with respect to both financial and operational performance metrics; |
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| • | | Recommendations for Valero’s long-term incentive program strategy, including the appropriate mix of equity incentive vehicles and determination of competitive equity grant guidelines consistent with Valero’s overall pay philosophy; |
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| • | | Independent assessment of the risk profile of Valero’s executive incentive plans to assess whether such plans encourage excessive financial risk on the part of plan participants; and |
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| • | | Updates on trends and developments in executive compensation, new regulatory issues, and best practices. |
RISK ASSESSMENT OF COMPENSATION PROGRAMS
During 2009, the Compensation Committee, assisted by Towers Perrin, conducted a risk assessment of Valero’s compensation programs. The Committee concludedWe believe that viewed holistically, Valero’sour incentive compensation programs effectively balance risk and reward. The scope of theWhen assessing risk, review included an assessment ofwe consider both the annual incentive bonus plan for management as well as long-term incentives pursuant to the 2005 Omnibus Stock Incentive Plan, and included an analysis ofthat are awarded under our stock incentive plan. We also consider the mix of award opportunities (i.e., short-vs.short- vs. long-term), performance targets and metrics, the target-setting process, and the administration and governance associated with the plans. Features of our compensation programs that we believe mitigate excessive risk taking include:
| • | | the mix between fixed and variable, annual and long-term, and cash and equity compensation, designed to encourage strategies and actions that are in Valero’s long-term best interests, |
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| • | | determination of incentive awards based on a variety of indicators of performance, thus diversifying the risk associated with a single indicator of performance, |
the mix between fixed and variable, annual and long-term, and cash and equity compensation, designed to encourage strategies and actions that are in Valero’s long-term best interests;14
determination of incentive awards based on a variety of indicators of performance, thus diversifying the risk associated with a single indicator of performance;
incorporation of relative total stockholder return into our incentive program, calibrating pay and performance relationships to companies facing the same or similar market forces as Valero;
multi-year vesting periods for equity incentive awards, which encourage focus on sustained growth and earnings; and
our compensation-related policies, including the executive compensation “clawback” policy and stock retention guidelines (discussed below under the caption “Compensation Discussion and Analysis - Compensation Related Policies”).
| • | | multi-year vesting periods for equity incentive awards, which encourage focus on sustained growth and earnings, and |
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| • | | our compensation-related policies, including the executive compensation “clawback” policy and stock retention guidelines (discussed below under the caption “Compensation Discussion and Analysis – Compensation Related Policies”). |
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COMPENSATION CONSULTANT DISCLOSURES
The Compensation Committee retained Pay Governance LLC and Exequity LLP as independent compensa-tion consultants in 2011. In their roles as advisors to the Compensation Committee, Pay Governance and Exequity were retained directly by the Committee, which, in its sole discretion, has the authority to select, retain, and terminate its relationship with the firms. In 2011, Pay Governance and Exequity provided the Committee with objective and expert analyses, independent advice, and information with respect to executive and director compensation. For 2011 executive and director compensation services rendered to the Committee, Pay Governance and Exequity earned professional fees of $414,927 and $70,186, respectively. Pay Governance and Exequity did not provide other consulting services to the Committee, to Valero, or to any senior executives of Valero in 2011.
During 2011, the consultants’ executive and director compensation consulting services included:
assistance with the determination of appropriate peer and comparator companies for bench-marking executive pay and monitoring Valero’s performance;
assistance with the determination of our overall executive compensation philosophy in light of Valero’s business strategy and market considerations;
competitive pay assessment of target and actual total direct compensation for executives, with separate analyses of base salary, annual incentive, and long-term incentive compensation;
competitive pay assessment of director compensation;
assessment of, and recommendation of enhancements to, our annual incentive bonus program with respect to both financial and operational performance metrics;
assessment of, and recommendation of enhancements to, our long-term incentive program strategy, including the appropriate mix of equity incentive vehicles, performance measures and measurement techniques, and determination of competitive equity grant guidelines consistent with our overall pay philosophy;
updates on trends and developments in executive compensation, new regulatory issues, and best practices; and
assistance with proxy statement disclosures.
The following Compensation Committee Report is not “soliciting material,” is not deemed filed with the SEC, and is not to be incorporated by reference into any of Valero’s filings under the Securities Act of 1933, as amended (the “Securities Act”), or the Exchange Act, respectively, whether made before or after the date of this proxy statement and irrespective of any general incorporation language therein. Donald L. Nickles was appointed to the Compensation Committee in 2010, and is therefore not listed below the Compensation Committee Report pertaining to the fiscal year ended December 31, 2009.
COMPENSATION COMMITTEE REPORT
The Compensation Committee has reviewed and discussed the following Compensation Discussion and Analysis with management. Based on the foregoing review and discussions and such other matters the Compensation Committee deemed relevant and appropriate, the Committee recommended to the Board that the Compensation Discussion and Analysis be included in this proxy statement.
Members of the Compensation Committee:
Bob Marbut, Chairman
Jerry D. Choate
Donald L. Nickles
Robert A. Profusek
Rayford Wilkins, Jr.
COMPENSATION DISCUSSION AND ANALYSIS
VALERO’S 2011 ACCOMPLISHMENTS
The following are highlights of Valero’s important operational and strategic achievements in 2011. OVERVIEWWe increased our earnings per share (EPS) to $3.68 in 2011 from $0.57 in 2010.
We tripled our regular quarterly cash dividend from $0.05 per share to $0.15 per share.
Our retail and ethanol business segments had record earnings in 2011.
We continued to maintain our investment-grade credit rating.
We significantly exceeded our $100 million cost savings goal.
We acquired the Pembroke refinery in Wales and its related marketing and logistics operations in the United Kingdom and Ireland.
We acquired the Meraux, Louisiana refinery.
We acquired two product terminals in Louisville and Lexington, Kentucky and a minority interest in their pipeline systems.
We significantly exceeded our overall health, safety, and environmental target.
We continued on-target for the completion of significant expansion and construction projects throughout our refining system.
TIGHT LINK BETWEEN PERFORMANCE AND EXECUTIVE PAY
The compensation opportunities of our executives are intimately tied to the performance of Valero. Our pay-for-performance philosophy for compensatingis supported by the following elements of our 2011 executive compensation program.
The majority of our named executive officers’ (as used in this proxy statement, our “named executive officers” (as defined below)are the five executives listed in the Summary Compensation Table) total targeted pay in 2011 was composed of incentives tied to company performance.
Our annual bonus goals included challenging requirements across an array of financial, strategic, and operating objectives. The 2011 objectives included EPS, return on investment (measured
on a relative basis against our peers’ performance), mechanical availability, cost management, and pre-established goals relating to health, safety, and environmental concerns. Our annual incentive bonus program is baseddiscussed below in this Compensation Discussion and Analysis under the caption “Elements of Executive Compensation - Annual Incentive Bonus.”
These annual bonus goals are primarily measured on an absolute basis, requiring performance that exceeds goals established in the belief thatfirst quarter of the year. By balancing these absolute goals with the relative total shareholder return (TSR) requirements under our performance share incentives, we motivate a significant portiondual focus on both Valero’s performance versus our operating plan and Valero’s performance compared to our peers.
In 2011, our long-term incentives represented the single largest component of our named executive compensation should be incentive-basedofficers’ targeted pay, ranging from 60 percent of total targeted pay for our EVPs to 69 percent of total targeted pay for our CEO.
All long-term incentives awarded in 2011 are aligned with stock price performance, linking executives’ pay directly with the creation of stockholder value.
Fifty percent of the total shares and determined by both company and individual performance. Our executive compensation programs are designedover fifty percent of the total targeted value of the long-term incentives granted to accomplish the following long-term objectives:
| • | | to produce long-term, positive results for our stockholders; |
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| • | | to build stockholder wealth while practicing good corporate governance; |
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| • | | to align executive incentive compensation with Valero’s short- and long-term performance results, with discrete measurements of such performance; and |
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| • | | to provide market-competitive compensation and benefits to enable us to recruit, retain, and motivate the executive talent necessary to be successful. |
Compensation for our named executive officers in 2011 was composed of performance shares. These awards require that Valero’s TSR exceed the median TSR of the peers in order to reach or exceed targeted levels. As such, our executives are accountable for exceeding the performance of the peer companies. Our performance share awards are described below in this Compensation Discussion and Analysis under the caption “Elements of Executive Compensation – Long-Term Incentive Awards – Performance Shares.”
Stock options further drive our pay-for-performance culture, since no value can be realized by an executive unless our stock price rises.
Restricted stock awards were also a component of the long-term incentive portfolio in 2011. These awards motivate both the creation of stockholder value through stock price gains and the retention of critical talent.
ADOPTION OF BEST PRACTICES
Valero takes pride in maintaining executive pay arrangements that are commonly recognized as “best practices” within the executive compensation arena. Our executive pay program includes base salary,these leading practices.
The majority of the targeted value of our named executive officers’ pay is contingent on Valero’s performance.
We employ multiple performance metrics to motivate achievements that are complementary of one another and that contribute to the long-term creation of stockholder value.
Executive incentives are balanced between absolute performance goals (rewarding the achievement of pre-established goals) and relative measures (linking the incentives to surpassing the performance of our peers).
We impose maximum payout ceilings on both our annual bonus opportunities and our performance shares.
Dividends are not paid on unvested performance shares.
We benchmark our executives’ pay against a peer group of companies within our industry that have median revenues that are similar to Valero’s.
We have adopted a policy against the implementation of new change-in-control arrangements that contain gross-ups for potential parachute excise taxes.
All long-term incentives granted in 2011 have a “double trigger” vesting provision, such that a change-in-control transaction alone will not cause immediate vesting of the awards.
Our long-term incentive program mandates that stock options cannot be re-priced without stockholder approval.
Our executives are subject to share ownership guidelines that meet or exceed median market practices.
Our directors are also subject to above-market share ownership guidelines.
We have a “clawback” policy requiring the return of incentive payments in certain restatement situations.
Our executive pay programs include design features that mitigate against the risk of inappropriate behaviors.
Our Compensation Committee is composed entirely of directors who meet the independence requirements of the SEC, as well as pertinent tax requirements for preserving the deductibility of executive pay.
Our Compensation Committee retains the services of independent executive compensation consultants who provide services directly to the Committee.
In 2011 we engaged in a comprehensive initiative to open dialogue with our stockholders with respect to our executive pay design and practices.
We adopted an annual incentive bonus opportunity,policy for say-on-pay vote as recommended by our stockholders.
We declassified our board of directors.
We adopted a political contributions disclosure policy.
We adopted a compensation consultant disclosure policy.
We cancelled our “poison pill” stockholder rights plan.
ROBUST DIALOGUE WITH STOCKHOLDERS ON EXECUTIVE PAY
Valero’s strong corporate governance principles, implemented under the guidance of the Board, are a major driving force in encouraging constructive dialogue with stockholders and long-term equity-based incentives. other stakeholders. During the past year, Valero’s senior management team actively reached out to institutional stockholders that were either one of our 10 largest stockholders or were large stockholders that did not support our say-on-pay recom-mendation during the 2011 proxy season.
Our namedstockholder outreach efforts were constructive and provided management with insight on executive officers also participate in benefit plans generally availablecompensation issues that were important to our other employees.stockholders and created an opportunity for ongoing communication. The discussions also provided management with the opportunity to review our executive compensation practices and explain the principles on which they were designed.
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Named Executive Officers. In accordance
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RECENT CHANGES TO EXECUTIVE PAY ARRANGEMENTS AND PRACTICES
We continue to evaluate the effectiveness and appropriateness of our executive pay programs. This evaluation process, together with SEC rules, the individuals serving asfeedback we have received from stockholders, has prompted a thorough review of all of our principal executive officer (i.e., William R. Klesse, Chief Executive Officer)pay arrangements.
This ongoing review process led the Compensation Committee to approve the following changes in our executive pay arrangements:
adoption of challenging share ownership guidelines for both executives and directors;
a commitment to exclude parachute excise tax gross-up protections in new executive pay arrangements;
incorporation of change-of-control “double trigger” vesting provisions for all long-term incentive awards;
incorporation in our principal financial officer (i.e., Michael S. Ciskowski, Chief Financial Officer) duringstockholder-approved long-term incentive program of a prohibition against repricing options without stockholder approval;
adoption of a clawback policy;
a comprehensive stockholder outreach program to solicit the last completed fiscal year,input of our stockholders on our executive pay programs and our three other most highly compensated executive officers who were serving as executive officers atpolicies;
elimination of a feature in the end2011 performance share awards that would have permitted the carry forward of the last completed fiscal year (i.e., Richard J. Marcogliese, Kimberly S. Bowers, and Joseph W. Gorder) are referred to collectivelyperformance shares that do not earn shares of common stock in this proxy statement as the “named executive officers.”a given performance period.
ADMINISTRATION OF EXECUTIVE COMPENSATION PROGRAMS AND OVERVIEW
Our executive compensation programs are administered by our Board’s Compensation Committee. The Compensation Committee is composed of fourcomprises five independent directors who are not participants in our executive compensation programs. Policies adopted by the Compensation Committee are implemented by our compensation and benefits staff. The duties and responsibilities of the Compensation Committee are further described in this proxy statement under the caption “Information Regarding the Board of Directors – Committees of the Board – Compensation Committee.”
In 2009,2011, the Compensation Committee retained Towers Perrin (now doing businessPay Governance LLC and Exequity LLP as Towers Watson) as an independent compensation consultant with respect toconsultants for executive and director compensation matters. The nature and scope of the consultant’s assignmentconsultants’ services are described above under the caption “Compensation Consultant Disclosures.”
Benchmarking Data
When determiningWe believe that a significant portion of the compensation paid to our named executive officers should be incentive-based and determined by both company and individual performance. Our executive compensation program is designed to accomplish the following long-term objectives:
to provide compensation that mirrors the relative results of Valero as measured by both internal and external metrics; and
to attract and retain the best executive talent in our industry.
We expect superior performance from our executives; to motivate this caliber of talent, we target above-market pay opportunities that are tied to Valero’s performance. We believe that an executive’s earn-out of his or her full compensation opportunities should be contingent on achieving performance results that exceed pre-established goals and outperform our industry peers.
Benchmarking Data
The Compensation Committee relies onuses several sources of compensation data in assessing benchmark rates of base salary, annual incentive compensation, and long-term incentive compensation. The Compensation Comparator Group and Towers PerrinWatson Compensation Data Bank and Compensation Comparator Group (further described below) are used as references in benchmarkingto benchmark compensation for our named executive officers. These references are sometimes referred to in this proxy statement as “compensation survey data” or “competitive survey data”data.”
Compensation Comparator Group
The Compensation Comparator Group comprises the following companies from the U.S. domestic oil and gas industry:
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| BP PLC | | Marathon Oil Corporation |
| Chevron Corporation | | Murphy Oil Corporation |
| ConocoPhillips | | Occidental Petroleum Corporation |
| Exxon Mobil Corporation | | Shell Oil Company (USA) |
| Hess Corporation | | Sunoco, Inc. |
| Koch Industries, Inc. | | Tesoro Corporation |
We believe that the Compensation Comparator Group is relevant to our business because each member of the group had significant downstream refining and marketing operations within its overall business. We compete with these companies for talent at every level from entry-level employees to senior executives. Understanding this group’s compensation programs and levels is vitally important in order to remain competitive in this proxy statement.market for employees. We believe that given the size and complexity of our business, Valero employees at all levels would be qualified candidates for similar jobs at any one of the companies included in this group.
Towers PerrinWatson Compensation Data Bank
The Towers PerrinWatson Compensation Data Bank (“Data Bank”) includes 700over 800 companies operating in several industries. Use of the Data Bank enables Valero to compare its executive base salary compensation to that of other companies from many industries having similar revenues and market capitalization. Valero believesWe believe that the Data Bank represents an appropriate benchmark for Valero’sour executive base salaries because Valero competeswe compete across all industry lines for executive talent. Valero believesWe believe that many of the skills required for a successful management team (e.g., business acumen, leadership, integrity) transcend the refining industry. Valero believes that to recruit and retain executive talent, Valero must compete with all companies, not just refining and marketing companies. The Data Bank provides a guide for Valero to assess how its executive base salaries compare with the salaries of a wide range of other businesses.
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Compensation Comparator Group
The Compensation Comparator Group, a subset of the Towers Perrin Compensation Data Bank, consists of compensation information and analyses of Towers Perrin that includes compensation practices and available data for the following 13 companies that significantly participate in the domestic oil and gas industry:
BP PLC
Chevron Corporation
CITGO Petroleum Corporation
ConocoPhillips
Exxon Mobil Corporation
Hess Corporation
Koch Industries, Inc.
Marathon Oil Corporation
Murphy Oil Corporation
Occidental Petroleum Corporation
Shell Oil Company (USA)
Sunoco, Inc.
Tesoro Corporation
Valero uses the Compensation Comparator Group as a reference in benchmarking base salaries, annual incentive bonus targets, and long-term incentive targets for our named executive officers. Selection of the Compensation Comparator Group reflects consideration of each company’s relative revenues, asset base, employee population and capitalization, and the scope of managerial responsibility and reporting relationships for the positions under consideration.
Peer Group
We also use a peer group (“Peer Group”) to measure Valero’s (i) return-on-investment (ROI) metric, for purposes of calculating the annual incentive bonus, and (ii) total shareholder return (TSR) metric, for the purpose of calculating the number of shares of Common Stock that may be issued upon the vesting of performance shares. The Peer Group is composed of the following 13 companies engaged in domestic refining operations:
Alon USA Energy Inc.
Chevron Corporation
ConocoPhillips
CVR Energy Inc.
Exxon Mobil Corporation
Frontier Oil Corporation
Hess Corporation
Holly Corporation
Marathon Oil Corporation
Murphy Oil Corporation
Sunoco, Inc.
Tesoro Corporation
Western Refining Inc.
The Peer Group represents the group of companies that we use for purposes of the “Performance Graph” disclosed in Part II, Item 5 of our Form 10-K for the year ended December 31, 2009. The Peer Group is not used in benchmarking base salaries, bonus targets, or long-term incentive targets.
Use of Benchmarking Data
Recommendations for base salary, bonuses, and other compensation arrangements are developed under the supervision of the Compensation Committee by our compensation and benefits staff using the foregoing information and analyses andcompensation survey data with assistance from Towers Perrin.Pay Governance. Use of the compensation survey data is consistent with our philosophy of providing executive compensation and benefits that are competitive with companies competing with us for executive talent. In addition, the use of competitive compensation survey data and analyses assists the Compensation Committee in gauging our pay levels and targets relative to companies in our the Compensation Comparator Group, the domestic oil refining and marketing industry, and general industry. See “Elements of Executive Compensation – Targets” below.
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Performance Peer Groups
We also use peer groups to measure Valero’s (i) return-on-investment (ROI) metric, a component used in calculating the annual incentive bonus, and (ii) TSR metric, used in our performance shares incentive program. The companies were selected for these peer groups because they engage in U.S. domestic refining and marketing operations.
Our use of different peer groups for compensation and performance is based on the following circumstances and reasoning. While job candidacy can transcend company size, we believe that when measuring business performance, companies with a similar business models should be included. That being said, comparing the performance of Valero’s generally non-integrated operations with those of integrated oil companies results in anomalies due to the mismatch in how similar industry-specific events impact companies with these varying business models. In addition, to benchmarking competitive pay levels to establish compensation levels and targets, we also considerthere are relatively few companies in our business against which relevant comparisons can be drawn, rendering a peer group composition more challenging than in most industries.
For ROI measurement in calculating the relative importance of a particular management position in comparison to other management positions2011 annual incentive bonus, the peer group comprised the following companies.
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| Alon USA Energy Inc. | Hess Corporation |
| Chevron Corporation | Murphy Oil Corporation |
| ConocoPhillips | Sunoco, Inc. |
| CVR Energy Inc. | Tesoro Corporation |
| Exxon Mobil Corporation | Western Refining Inc. |
The ROI peer group included only those companies that competed in the organization.refining and marketing industry in 2011 and had data for the entire designated measurement period. For the designated measurement period, comparable financial information was not available for Holly Corporation, Frontier Oil Corporation, their newly formed HollyFrontier Corporation, or Marathon Petroleum Corporation, and thus they were not included in the ROI peer group. In addition Marathon Oil Corporation, after its separation from Marathon Petroleum Corporation in July 2011, no longer competed in the refining and marketing industry, and thus was excluded from the peer group.
For TSR measurement applicable to the 2011 awards of performance shares (with TSR measurement periods ending in 2012 and thereafter), the peer group comprises the following entities.
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| Alon USA Energy Inc. | HollyFrontier Corporation |
| Chevron Corporation | Marathon Petroleum Corporation |
| CVR Energy Inc. | Tesoro Corporation |
| Exxon Mobil Corporation | Western Refining Inc. |
| Hess Corporation | |
For TSR measurement, the peer group includes only those companies that are expected to compete in the refining and marketing industry and have comparable, reportable data in the future performance periods. Thus, Marathon Petroleum Corporation is included in this regard, when settingpeer group together with the compensation levelnewly formed HollyFrontier Corporation. ConocoPhillips, Murphy Oil Corporation, and target for a particular position, we evaluate that position’s scopeSunoco, Inc. announced their exit from the refining and nature of responsibilities, size of business unit, complexity of dutiesmarketing industry and responsibilities, as well as that position’s relationship to managerial authorities throughoutwere thus excluded from the management ranks of Valero.TSR peer group.
Process and Timing of Compensation Decisions
The Compensation Committee reviews and approves all compensation targets and payments for the named executive officers. The Chief Executive Officer evaluates the performance of the other named executive officers and develops individual recommendations based upon the competitive survey data. Both the Chief Executive Officer and the Committee may make adjustments to the recommended compensation based upon an assessment of an individual’s performance and contributions to the Company. The compensation for the Chief Executive Officer is reviewed and approved by the Compensation Committee and byrecommended to the full Board for approval. This assessment is based on the competitive survey data and other factors described in this Compensation Discussion and Analysis, and adjustments may be made based upon theirthe non-employee directors’ independent evaluation of the Chief Executive Officer’s performance and contributions. In addition, the charter of the Compensation Committee requires the independent directors of the Board to review and approve all compensation for the Chief Executive Officer.
The Compensation Committee establishes the target levels of annual incentive and long-term incentive compensation for the current fiscal year based upon its review of competitive market data provided by Towers Perrin.Pay Governance. The Compensation Committee also reviews competitive market data for annual salary rates for executive officer positions for the next fiscal year and recommends new salary rates to become effective the next fiscal year. The Compensation Committee may, however, review salaries or grant long-term incentive awards at other times during the year because of new appointments or promotions during the year.
The following summarizes the approximate timing of some of our more significant compensation events in 2009:
First Quarter:
| • | | determined annual incentive bonus for preceding fiscal year |
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| • | | reviewed and certified financial performance for performance shares granted in prior years |
Third Quarter:
| • | | established financial performance objectives and operational and strategic performance objectives for annual incentive bonus |
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| • | | established target levels of annual incentive and long-term incentive compensation for executive officers for the current fiscal year |
Fourth Quarter:
| • | | considered base salaries for executive officers for next fiscal year |
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| • | | considered long-term incentive compensation awards for executive officers for current fiscal year |
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ELEMENTS OF EXECUTIVE COMPENSATION
General
Our executive compensation programs consist ofinclude the following material elements:
| • | | base salaries; |
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| • | | annual incentive bonuses; |
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| • | | long-term equity-based incentives, including: |
base salary; | - | stock options |
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| - | restricted stock; and |
annual incentive bonus;long-term equity-based incentives, including performance shares, stock options, and restricted stock;
medical and other insurance benefits, benefits; and
retirement benefits, and other perquisites.
benefits.
We chose these elements in orderto foster the potential for both current and long-term payouts and to remain competitive in attracting and retaining executive talenttalent. We believe that variable pay (i.e., annual incentive bonus and to provide strong performancelong-term equity-based incentives that providedo not become a permanent part of base salary), delivered through the potential for both current and long-term payouts. We use base salary asappropriate incentives, is ultimately the foundation forbest way to drive total compensation among our executive officers. We evaluate the total compensation program. opportunity offered to each executive officer at least once annually and have conducted compensation assessments on several occasions during the course of the year.
Our annual incentive program rewards:
Valero’s attainment of key financial performance measures;
Valero’s success in key operational and strategic measures;
safe operations;
environmental responsibility;
reliable operations; and
cost management.
Our long-term equity incentive awards are designed to tie the executive’s financial reward opportunities with rewards to stockholders as measured by:
long-term stock price performance;
payment of regular dividends; and
increased stockholders’ return-on-investment.
Base salary is designed to provide a fixed level of competitive pay that reflects the executive officer’s primary duties and responsibilities, as well asand to provide a foundationbase upon which incentive opportunities and benefit levels are established. Our annual incentive bonuses are designed to focus our executive officers on Valero’s attainment of key financial performance measures and key operational and strategic measures to generate profitable annual operations and sustaining results in conjunction with operating safely, being environmentally responsible, maintaining reliable operations, and managing costs. Our long-term equity incentive awards are designed to tie the executive officer’s financial reward opportunities with the rewards to stockholders as measured by long-term stock price performance, payment of regular dividends, and increasing our stockholders’ return-on-investment. In this proxy statement, the term “Total Direct Compensation” refers to the sum of an executive officer’sexecutive’s base salary, incentive bonus, and long-term incentive target awards.
The long-term incentive awards for a particular fiscal year.in our compensation program include performance shares, stock options, and restricted stock. We believe that incentives that drive stockholder value should also drive executive officer pay. We believe that performance shares and stock options when issued do not accrue value to the executive officer unless and until stockholder value is created through both company performance and TSR. (No payouts have been made in respect of performance share awards in the past two vesting years because the performance criteria set at the time of the awards were not satisfied.) We also believe that executive officers should hold an equity stake in the company to further motivate the creation of stockholder value, which is why we include awards of restricted stock in our long-term incentive program coupled with stock retention guidelines.
Targets
Our Compensation Committee’s general philosophy for 2009 was to targetCommittee targeted base salary compensationsalaries for our named executive officers at or near the 50th percentile of competitive survey data.data, as this benchmark level is important in recruiting and retaining superior executive talent. Base salaries are benchmarked on the 50th percentile of competitive survey data using regression analysis based on company size as measured by annual revenues. In 2009, forFor base salaries in 2011, actual compensation for each of our Chief Executive Officer and all but one other named executive officersofficer was either at or below the 50th percentile benchmark. The 50th percentile has been established as a desired target for our executives’ base salaries, and through the past several years the Company has been working toward that target. Significant changes in the structure and size of Valero from 2000 to the present, including significant mergers in 2001 and 2005, have resulted in changing landscapes of competitive compensation and benchmarks from year to year.
We established incentive target opportunities (expressed as a percentage of base salary) for each executive position based upon the 65th percentile benchmark of the Compensation Comparator Group for the annual incentive bonus, and the 65th percentile benchmark of the Compensation Comparator Group for long-term incentives.
In 2009, the Compensation Committee directed a change The performance peer groups to which Valero’s business results are compared contain companies that operate in the Company’s strategy with respect to its annual incentive bonus program and long-term incentive compensation. The change was made following a wide-ranging review in mid-2009 by the Committee of substantially all aspects of Valero’s compensation philosophy, programs, and metrics. The review included a lengthy special meetingsegments of the Compensation Committeeenergy business – primarily exploration and production – that have traditionally provided higher returns than those available to Valero’s downstream business segment. We face unique challenges in which it received extensive input fromour peer group because we are a downstream-only company. Accordingly, we believe that increasing the Committee’s compensation consultant and Valero management with respect to these matters, and the Committee modified certain aspectsopportunity for a higher level of Valero’s compensation programs. Those modifications are explained below under the caption “Annual Incentive Bonus.”
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In 2009, the long-term incentive compensation program was also modified to change the weighting applicable to the types of long-term incentive awards that could be granted. In the prior year, an executive’s total long-term incentive target was composed of 60% stock options and 40% restricted stock. In 2009, the mix of long-term incentive awards was changed to 50% of the total target in stock options and 50% of the total target in restricted stock.
For 2009, we paid annual incentive bonuses well belowpayout at the 65th percentile targetbalances the risk-reward profile for our named executive officers (our CEO received no bonus), reflecting Valero’s performancethese incentives.
In addition to benchmarking competitive pay levels to establish compensation levels and targets, we also consider the relative importance of a particular management position in 2009, which was reflective ofcomparison to other management positions in the difficultorganization. In this regard, when setting the level and volatile marketstargets for the refining industry in 2009. As described below under the caption “Annual Incentive Bonus,” Valero’s performancecompensation for 2009 resulted in a bonus payout of 50% of target. Long-term incentive grants awarded to our named executive officers in 2009 were generally at or near the 65th percentile target. Because theparticular position, we evaluate that position’s scope and nature of long-term compensation is prospectiveresponsibilities, size of business unit, complexity of duties and forward looking,responsibilities, as well as that position’s relationship to managerial authorities throughout the Committee desires to make long-term grants at the compensation benchmarkmanagement ranks of the 65th percentile such that attainment of performance above the median will result in future rewards to management that are above the market median as well.Valero.
Relative Size of Major Compensation Elements
InWhen setting executive compensation, the Compensation Committee considers the aggregate amount of compensation payable to an executive officer and the form of the compensation. The Committee seeks to achieve an appropriate balance between immediate cash rewards for the achievement of company and personal objectives and long-term incentives that align the interests of our executive officers with those of our stockholders. The size of each element is based on the assessment of competitive market practices as well as company and individual performance. The Compensation Committee analyzes total compensation from a market competitive perspective, and then evaluates each component relative to its market reference. The Committee believes that making a significant portion of an executive officer’s incentive compensation contingent on long-term stock price performance more closely aligns the executive officer’s interests with those of our stockholders.
We evaluate the total compensation opportunity offered to each executive officer at least once annually and have conducted compensation assessments on several occasions during the course of the year. In this regard, the Compensation Committee analyzes total compensation from a market competitive perspective, and then evaluates each component relative to its market reference.
Because we place such a large amount of ourthe total executive compensation opportunity at risk in the form of variable pay (annual bonus and long-term incentives), the Committee generally does not adjust current compensation based upon realized gains or losses from prior incentive awards, prior compensation, or current stock holdings. For example, we normally will not change the size of a target long-term incentive grant in a particular year solely because of the way in which Valero’s stock price performedperformance during the immediately preceding years, although wethis may take thisbe taken into account in other compensation decisions. The Compensation Committee recognizes that refining and marketing is a volatile industry and strives to maintain a measure of predictability consistent with a substantial reliance on variable compensation structures in furtherance of a fundamental pay-for-performance philosophy.
An executive officer’s total direct compensation is structured so that realizing the targeted amount is highly contingent on performance due to the executive’s level of at-risk pay. The following table summarizescharts summarize the relative size of base salary and target incentive compensation for 20092011 for each of our named executive officers:officers.
| | | | | | | | | | | | | |
| | | Percentage of Total Direct Compensation |
| | | | | | | Annual | | |
| Name | | Base Salary | | Incentive Bonus | | Long-Term Incentives |
| William R. Klesse | | | 13 | % | | | 17 | % | | | 70 | % |
| Richard J. Marcogliese | | | 16 | % | | | 20 | % | | | 64 | % |
| Michael S. Ciskowski | | | 16 | % | | | 20 | % | | | 64 | % |
| Kimberly S. Bowers | | | 24 | % | | | 20 | % | | | 56 | % |
| Joseph W. Gorder | | | 24 | % | | | 20 | % | | | 56 | % |
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Percentages of Total Target Direct Compensation
Individual Performance and Personal Objectives
The Compensation Committee evaluates the individual performance of, and performance objectives for, the Chief Executive Officer and our other named executive officers. Performance and compensation for our Chief Executive Officer are reviewed and approved by the Compensation Committee and the Board’s independent directors. For officers other than the Chief Executive Officer, individual performance and compensation are evaluated by the Compensation
Committee with the recommendations of thefrom our Chief Executive Officer. Individual performance and objectives are specific to each officer position.
Assessment of individual performance may include objective criteria, but by necessity it is largely subjective. Generally, we do not use prescribed targets or other quantitative criteria – such as an executive’s business unit achieving a certain percentage of sales or growth – to measure individual performance. We do employ quantitative metrics for the company’s performance under our annual incentive bonus program (as described below under the caption “Annual Incentive Bonus”).
The criteria used to measure an individual’s performance may include assessment of objective criteria (e.g., execution of projects within budget parameters, improving an operating unit’sunit's profitability, or timely completing an acquisition or divestiture) as well as more qualitative factors such as the executive officer’sexecutive’s ability to lead, ability to communicate, and successful adherence to Valero’s stated core values (i.e., commitment to environment and safety, acting with integrity, showing work commitment, communicating effectively, and respecting others). There are no specific weights assigned to these various elements of individual performance.
Base Salaries
Base salaries for each executive officer position are determined using data from the Towers Perrin Compensation Data Bank and the Compensation Comparator Group for positions with similar duties and levels of responsibility. Base salaries are reviewed annually and may be adjusted to reflect promotions, the assignment of additional responsibilities, individual performance or the performance of Valero. Salaries are also periodically adjusted to remain competitive with entities within the compensation survey data.
An executive’s compensation typically increases in relation to his or her responsibilities within Valero, with the level of compensation for more senior executive officers being higher than that for less senior executive officers. For example, the base salary and overall compensation for Mr. Marcogliese (Executive Vice President and Chief Operating Officer) in 2009 was higher than that of the other named executive officers (except for our Chief Executive Officer) because the Compensation Committee believed that this compensation appropriately reflected the duties and responsibilities assigned to his position as compared to the duties and responsibilities of the other officer positions. The determination of Mr. Marcogliese’s compensation in light of these duties and responsibilities was otherwise commensurate with the determination process for other named executive officers.
In 2009, the base salaries of our named executive officers were adjusted to the following levels:
| | | | | | | | | |
| Name | | Base Salary 12/31/2008 | | Base Salary 12/31/2009 |
| William R. Klesse | | $ | 1,500,000 | | | $ | 1,500,000 | |
| Richard J. Marcogliese | | $ | 855,000 | | | $ | 955,000 | |
| Michael S. Ciskowski | | $ | 700,000 | | | $ | 750,000 | |
| Kimberly S. Bowers | | $ | 475,000 | | | $ | 494,000 | |
| Joseph W. Gorder | | $ | 445,000 | | | $ | 460,000 | |
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The base salaries for our Chief Executive Officer and other executive officers are approved by the Compensation Committee after taking into consideration compensation survey data. In addition,median practices for comparable roles among the peer companies. The Compensation Committee also considers the recommendations of the Chief Executive Officer with regard to officers other than the Chief Executive Officer. The base salary and all other compensation of the Chief Executive Officer are reviewed and approved by the independent directors of the Board.
TheBase salaries are reviewed annually and may be adjusted to reflect promotions, the assignment of additional responsibilities, individual performance, or the performance of Valero. Salaries are also periodically adjusted to remain competitive with companies within the compensation survey data. An executive’s compensation typically increases in relation to his or her responsibilities within Valero, with the level of compensation for more senior executive officers being higher than that for less senior executive officers. As such, the base salary of our Chief Executive Officer has remained fixed since 2007, while the base salaries of our other named executive officers (other than the Chief Executive Officer) were increased for fiscal year 2009 to remain competitive in our market. Effective January 1, 2010, the annual base salaries of Kimberly S. Bowers and Joseph W. Gorder were increased to $515,000; and $469,000; respectively, in recognition of competitive survey data.have generally increased.
Annual Incentive Bonus
For our annual incentive bonus, the Compensation Committee sets enterprise performance measures in three segments that correspond to Valero’s business priorities. We refer to these as the Financial, Operational & Strategic, and Company measures. Each is given a proportional “weight” for measurement purposes.
Annual Incentive Bonus Plan Measures
|
| | | | | |
| Measurement Area | Weight | Company Achievement Score (range) | | Bonus Target Earned |
| I. | Financial | 40% | 0 to 225% | | 0 to 90% |
| II. | Operational & Strategic | 40% | 0 to 225% | | 0 to 90% |
| III. | Company | 20% | 0 to 100% | | 0 to 20% |
| Total | 100% | | | 0 to 200% |
Our named executive officers can earn annual incentive bonuses based on the following three factors:
| • | | Valero’s realization of quantitative financial performance goals (Financial Performance Measures) and operational and strategic performance measures (Operational & Strategic Performance Measures), and realization of qualitative goals and objectives of Valero (Company Goals & Objectives Performance Measures) for the year; the position of the named executive officer, which is used to determine a targeted percentage of annual base salary that may be awarded as incentive bonus based on the Compensation Comparator Group at the 65th percentile benchmark, with the targets ranging from a low of 80% of base salary to 135% of base salary for our Chief Executive Officer; |
|
| • | | Valero’s realization of quantitative financial performance goals and operational and strategic performance measures for the year; and |
|
| • | | a qualitative evaluation of the individual’s performance. |
The following table shows the percentages of each named executive officer’s annualofficer, which is used to determine a targeted percentage of base salary and Total Direct Compensation that represent his or her annual bonus targetmay be awarded as incentive bonus; and
a qualitative evaluation of the individual’s performance (only downward discretion is exercised for the fiscal year ended December 31, 2009:this factor).
| | | | | | | | | |
| | | | | | | Annual Incentive Bonus |
| | | Annual Incentive Bonus Target | | Target as a Percentage of |
| Name | | as a Percentage of Base Salary | | Total Direct Compensation |
| William R. Klesse | | | 135 | % | | | 17 | % |
| Richard J. Marcogliese | | | 125 | % | | | 20 | % |
| Michael S. Ciskowski | | | 125 | % | | | 20 | % |
| Kimberly S. Bowers | | | 80 | % | | | 20 | % |
| Joseph W. Gorder | | | 80 | % | | | 20 | % |
A named executive officer’s annual incentive bonus is determined by first multiplying the executive officer’s bonus target percentage by his or her base salary (e.g., for Mr. Klesse, 135% times $1,500,000 results in an annual incentive bonus target of $2,025,000). The amount of the bonus payment ultimately madepaid to a named executive officer can range from 0%0 percent of thehis or her bonus target amount to 200%200 percent of the bonus target amount, depending on Valero’s achievement of certain performance objectives.
In 2009, the annual incentive bonus program’s performance measures were modified to include two segments: “Financial Performance Measures” and “Operational and Strategic Measures,” with each segment weighted as 50% of the total bonus opportunity. The new measurement system eliminates the 25% discretionary adjustment factor that existed under the previous bonus program.
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The Financial Performance Measures are the same three measures we used in 2008 and prior years (as described below under the caption “Financial Performance Measures”). Targets for the
The Financial Performance Measures are established by the Committee during the fiscal year. After completion of the fiscal year, each of the three Financial Performance Measures is measured against Valero’s actual performance, with each measure being weighted equally as one-third of the final Financial Performance Measures score.
The other half of a named executive officer’s bonus is earned according to Valero’s achievement with respect to three Operational and Strategic Measures. This segment of performance measures is new for the program. These metrics measure Valero’s achievements in the areas of (i) health, safety, and environmental, (ii) mechanical availability, and (iii) cost management and expense control, as more fully described below under the caption “Operational and Strategic Performance Measures.” Targets for the Operational and Strategic Measures are also established by the Committee during the fiscal year. After completion of the fiscal year, each of the three Operational and Strategic Measures is measured against Valero’s actual performance in these areas.
Each performance segment is weighted equally. Thus, if Valero’s performance score under the Financial Performance Measures segment were 68%, and if Valero’s performance score under the Operational and Strategic Measures segment were 110%, then the final, total performance score of Valero for that fiscal year’s bonus program would be 89% (representing the sum of 68% times 50%, plus 110% times 50%). Continuing with the example of Mr. Klesse above, his bonus payment for the hypothetical year would be equal to $1,802,250 (representing his annual incentive bonus target of $2,025,000 times 89%).
Financial Performance Measures
The three Financial Performance Measures for Valero’sour annual incentive bonus program are the following. These are measured against theEPS and ROI. The Compensation Committee established target levels pre-established byfor these measures in the Compensation Committee.
| • | | Valero’s earnings per share, or “EPS,” compared to threshold, target, and maximum EPS performance levels approved by the Compensation Committee; |
|
| • | | Valero’s total stockholder return, or “TSR,” compared to threshold, target, and maximum TSR performance levels approved by the Compensation Committee (TSR measures the growth in the daily average closing price per share of our Common Stock during the month of November, including the reinvestment of dividends, compared with the daily average closing price of our Common Stock during the corresponding period in the prior year); and |
|
| • | | Valero’s return-on-investment, or “ROI,” percentile ranking compared to the ROI percentile of the Peer Group for the 12-month period ended September 30, 2009, as approved by the Compensation Committee. |
first quarter of 2011. We believe that these Financial Performance Measuresmeasures appropriately reflect our business planning process and corporate financial philosophy regarding financial performance measurement. We believe that annual incentivethe bonus plansprogram should measure both the quantity of earnings as well asand the quality of earnings, while maintaining an appropriate focus on increasing returns to stockholders.earnings. The quantity of earnings is typically measured by some amount of earnings performance, such as earnings per share or net income from operations. TheEPS and the quality of earnings is typically measured by some determination of return-on-investment, such as return-on-equity or return on capital employed, allowing considerationROI, providing an indication of management’s ability to generate a reasonable rate of return on the capital investment in the business. Our current incentive bonus plan considers these financial principles in its overall design.
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After completion of the fiscal year, each of the Financial Performance Measures is measured against Valero’s actual performance. For the EPS and TSR performance measures,measure, the target percentage of base salary is subject to adjustment, upward or downward, based upon whether our EPS and TSR exceedexceeds or fallfalls short of the target EPS and TSR, respectively.EPS. For the ROI financial performance measure, the target percentage of base salary is subject to adjustment, upward or downward, depending upon whether our ROI exceeds, or falls short of, the ROI 50th percentile ranking for our Peer Group.peer group.
For the 2009 annual incentive bonusour 2011 program, the Compensation Committee establishedset the following targets: EPS of $2.80, TSR stock price of $25.00,$1.40 (continuing operations), and ROI at the 50th percentile of our ROI Peer Group ranking. peer group. Valero’s 2011 EPS performance of $3.69 (continuing operations) generated an achievement score of 225 percent and, after applying the 20 percent weight for this measurement area, 45 percent of bonus target was earned. Valero’s actual ROI performance at the 50th percentile equaled an achievement score of 112.50 percent and, after applying the 20 percent weight for this measurement area, 22.50 percent of bonus target was earned.
For 2009,2011, the components of the Financial segment of our performance did not reach payout levels for any of these targets. Accordingly, the three Financial Performance Measures of this segmentbonus program generated a bonus performance scoretarget earned of 0% of the target bonus amounts.67.50 percent as shown below.
|
| | | |
| Measurement Area | Weight | Achievement Score | Bonus Target Earned |
| Financial: | | | |
a. EPS | 20% | 225.0% | 45.0% |
b. ROI vs. peer group | 20% | 112.5% | 22.5% |
| | | | 67.5% |
Operational and& Strategic Performance Measures
The three Operational and& Strategic Performance Measures for Valero’sour annual incentive bonus program are the following. These are measured against target levels pre-established by the Compensation Committee.against:
| • | | Valero’s achievements in health, safety, and environmental (“HS&E”); and |
|
| • | | Valero’s achievements in improving refining competitiveness through improved mechanical availability (“MA”); and |
|
| • | | Valero’s achievements in cost management and expense control (“CM&EC”). |
Valero’s achievements in improving refining competitiveness through improved mechanical availability (“MA”); and
Valero’s achievements in cost management and expense control (“CM&EC”).
We believe that these Operational and Strategic Measuresmeasures appropriately reflect key business elementsobjectives of Valero. We believe thatAfter completion of the annual incentive bonus plan should measure bothfiscal year, each of the Operational & Strategic Performance Measures is measured against Valero’s financialactual performance as well as management’s execution of key operational and strategic measures.in these areas.
For the 2009 annual incentive bonus program, the
The Compensation Committee established target performance levels for these measures in the first quarter of 2011. For our 2011 program, the Committee set the following performance targets: MA at 96.9%,the lower half of the second quartile based on the industry standard Solomon Associates survey, and CM&EC of $156$100.0 million. Actual MA performance did not reach any payout levelaveraged between the upper half of target. Actualthe second quartile and lower half of the first quartile and generated an achievement score of 178.13 percent and, after applying the 13.33 percent weight for this measurement area, 23.75 percent of bonus target was earned. Valero’s actual CM&EC performance achieved 184% of target. $215.9 million generated an achievement score of 225 percent and, after applying the 13.34 percent weight for this measurement area, 30.01 percent of bonus target was earned.
With respect to HS&E metrics for 2009,2011, the Compensation Committee established the targets detailed in the table below.based on key performance indicators for occupational safety, process safety, and environmental performance. Targets were set for each of our major operating groups: refining, renewable fuels, logistics, and retail. Valero’s actual HS&E performance generated an achievement score of 185.07 percent and, after applying the 13.33 percent weight for this measurement area, 24.67 percent of bonus target was 153%earned.
For 2011, the components of target.the Operational & Strategic segment generated a bonus target earned of 78.43 percent as shown below.
| | | | | | | | | | | | | | | | | |
| | | Refineries | | Renewables | | Logistics | | Retail |
| Recordable Injury Rate | | | | | | | | | | | | | | | | |
| Target | | | 0.90 | | | | 4.00 | | | | 1.40 | | | | 4.02 | |
| Actual | | | 0.82 | | | | 3.52 | | | | 1.15 | | | | 3.70 | |
| Environmental Scorecard Incidents | | | | | | | | | | | | | | | | |
| Target | | | 430 | | | | 54 | | | | n/a | | | | n/a | |
| Actual | | | 275 | | | | 39 | | | | n/a | | | | n/a | |
| Reliability Incident Rate | | | | | | | | | | | | | | | | |
| Target | | | 1.25 | | | | n/a | | | | n/a | | | | n/a | |
| Actual | | | 1.29 | | | | n/a | | | | n/a | | | | n/a | |
| API Process Safety Incidents Rate | | | | | | | | | | | | | | | | |
| Target | | | 0.20 | | | | 1.20 | | | | n/a | | | | n/a | |
| Actual | | | 0.18 | | | | 0.47 | | | | n/a | | | | n/a | |
| HSE Audit Past Due Items | | | | | | | | | | | | | | | | |
| Target | | | 4.0 | | | | n/a | | | | 3.0 | | | | n/a | |
| Actual | | | 0.0 | | | | n/a | | | | 0.0 | | | | n/a | |
| Plant Outages (>1/2 day) | | | | | | | | | | | | | | | | |
| Target | | | n/a | | | | 28 | | | | n/a | | | | n/a | |
| Actual | | | n/a | | | | 12 | | | | n/a | | | | n/a | |
| Reportable Spills | | | | | | | | | | | | | | | | |
| Target | | | n/a | | | | n/a | | | | 5.0 | | | | n/a | |
| Actual | | | n/a | | | | n/a | | | | 2.0 | | | | n/a | |
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| | | | | | | | | | | | | | | | | |
| | | | Refineries | | | Renewables | | | Logistics | | | Retail |
| Non-Reportable Spills | | | | | | | | | | | | | | | | |
| Target | | | n/a | | | | n/a | | | | 20.0 | | | | n/a | |
| Actual | | | n/a | | | | n/a | | | | 11.0 | | | | n/a | |
| Lost Time Injury Rate | | | | | | | | | | | | | | | | |
| Target | | | n/a | | | | n/a | | | | n/a | | | | 0.80 | |
| Actual | | | n/a | | | | n/a | | | | n/a | | | | 0.69 | |
| Environ’l Audits/Training Compliance | | | | | | | | | | | | | | | | |
| Target | | | n/a | | | | n/a | | | | n/a | | | | 94.2 | % |
| Actual | | | n/a | | | | n/a | | | | n/a | | | | 97.0 | % |
| Pendant Compliance | | | | | | | | | | | | | | | | |
| Target | | | n/a | | | | n/a | | | | n/a | | | | 89.0 | % |
| Actual | | | n/a | | | | n/a | | | | n/a | | | | 93.0 | % |
| Cash Handling | | | | | | | | | | | | | | | | |
| Target | | | n/a | | | | n/a | | | | n/a | | | $ | 125 | |
| Actual | | | n/a | | | | n/a | | | | n/a | | | $ | 108 | |
The |
| | | |
| Measurement Area | Weight | Achievement Score | Bonus Target Earned |
| Operational & Strategic: | | | |
a. Health, Safety & Environmental | 13.33% | 185.07% | 24.67% |
b. Mechanical Availability | 13.33% | 178.13% | 23.75% |
c. Cost Management & Expense Control | 13.34% | 225.00% | 30.01% |
| | | | 78.43% |
Company Goals & Objectives Performance Measures
Valero’s Company Goals & Objectives Performance Measures are established by the Compensation Committee weightedin consultation with the three measures equally, resultingChief Executive Officer. Valero’s success is measured in areas such as upgrading the Company’s asset portfolio and completion of projects to further improve Valero’s competitive-ness. After completion of the fiscal year, the CompanyGoals & Objectives Measures are evaluated as a 56.2% bonus score (i.e.,whole.
Based on the sumCompensation Committee’s assessment of 0%, 184%,Valero’s achievements in 2011, including the portfolio upgrading effort associated with the efficient execution of two refinery acquisitions, major progress on Valero’s capital projects, and 153%, divided by three, and multiplied by 50%), whichimproved financial performance, as well as the tripling of stockholder dividends, the Committee finally awarded as 50%determined that Valero’s Company Goals & Objectives performance generated an achievement score of 100 percent and, after applying the 20 percent weight for the Operational and Strategic Measures segment.this measurement area, 20 percent of bonus target was earned.
|
| | | |
| Measurement Area | Weight | Achievement Score | Bonus Target Earned |
| Company: | | | |
Goals & Objectives | 20% | 100% | 20% |
2011 Annual Incentive Bonus Awards for Named Executive Officers
AtIn summary, Valero’s 2011 total bonus target percentage earned was 165.93 percent (representing 67.50 percent from the requestFinancial Performance Measures segment, plus 78.43 percent from the Operational & Strategic Performance Measures segment, plus 20.00 percent from the Company Goals & Objectives Performance Measures segment). The following chart illustrates the bonus target percentages earned by each of Mr. Klesse, the performance measures.
Total Incentive Bonus Target Percent Earned
The Compensation Committee anddid not adjust the Board determined that Mr. Klesse would not be paid a2011 bonus citing, generally, difficult industry conditions and Valero’s lack of profitability.
awards above or below the amounts generated by the Company performance measures. The following table provides a summary ofsummarizes how the 2009 annual incentive bonus2011 amounts paid to our named executive officers were calculated:
| | | | | | | | | | | | | | | | | | | | | |
| | | Klesse | | Marcogliese | | Ciskowski | | Bowers | | Gorder |
| Base salary (1) | | $ | 1,500,000 | | | $ | 955,000 | | | $ | 750,000 | | | $ | 494,000 | | | $ | 460,000 | |
| Bonus target percentage (2) | | | 135 | % | | | 125 | % | | | 125 | % | | | 80 | % | | | 80 | % |
| Bonus target amount (3) | | $ | 2,025,000 | | | $ | 1,193,750 | | | $ | 937,500 | | | $ | 395,200 | | | $ | 368,000 | |
| Valero performance score (4) | | | 50 | % | | | 50 | % | | | 50 | % | | | 50 | % | | | 50 | % |
| Bonus calculation (5) | | $ | 1,012,500 | | | $ | 596,875 | | | $ | 468,750 | | | $ | 197,600 | | | $ | 184,000 | |
| Actual bonus amount paid (6) | | $ | 0 | | | $ | 450,000 | | | $ | 450,000 | | | $ | 200,000 | | | $ | 200,000 | |
|
| | | | | | | | | |
| | Klesse | Ciskowski | Bowers | Edwards | Gorder |
| Base salary | $1,500,000 | $750,000 | $535,000 | $535,000 | $535,000 |
| Bonus target percentage | 150% | 110% |
| 80% |
| 80% |
| 80% |
|
| Incentive bonus target amount (1) | $2,250,000 | $825,000 | $428,000 | $428,000 | $428,000 |
| Bonus target percentage earned (2) | 165.93% | 165.93 | % | 165.93 | % | 165.93 | % | 165.93 | % |
| Incentive bonus award (3) | $3,733,425 | $1,368,923 | $710,180 | $710,180 | $710,180 |
| Bonus amount paid (4) | $3,733,425 | $1,368,000 | $710,000 | $710,000 | $710,000 |
| | | |
Footnotes: |
|
| (1) | | As described in “Compensation Discussion and Analysis – Elements of Executive Compensation – Base Salaries.” |
|
| (2) | | As described in “Compensation Discussion and Analysis – Elements of Executive Compensation – Annual Incentive Bonus.” |
|
| (3) | | Determined by multiplying “base salary” times “bonus target percentage.” |
| |
| (2) | (4) | | Determined by adding Valero’s total bonus target percentage earned was 165.93%, representing 67.50% from the Financial Performance Measures score (times 50%) to Valero’s Operational and Strategic Measures score (times 50%). Valero’s total performance score can range from 0% to 200%. For 2009, Valero’s bonus performance score was 50% (representing 0% segment, plus 78.43% from the FinancialOperational & Strategic Performance Measures segment, plus 50%20% from the Operational and StrategicCompany Goals & Objectives Performance Measures segment). segment. |
| |
|
| (5) | (3) | Determined by multiplying “bonus“incentive bonus target amount” by “Valero performance score.“bonus target percentage earned.” |
| |
|
| (6) | (4) | As disclosed in the Summary Compensation Table.Table under the column, “Non-Equity Incentive Plan Compensation.” The “actual bonus“bonus amount paid” reflects roundingrounding-down adjustments and in certain years (such as 2009) can reflect other adjustments based upon the exercise of discretion of themade by our Chief Executive Officer and the Compensation Committee as described above in this subsection and in “Compensation Discussion and Analysis – Elements of Executive Compensation – Individual Performance and Personal Objectives.”Officer. |
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Long-Term Incentive Awards
We provide stock-based, long-term compensation forto our executive officers through our stockholder-approved equity plans. The plans provide for a variety of stock and stock-based awards, including stock options and restricted stock, each of which vestvests over a period determined by the Compensation Committee.Committee, as well as performance shares that vest (become nonforfeitable) upon Valero’s achievement of an objective performance goal. The Compensation Committee does not timepresently expects to make awards of performance shares, stock options, and restricted stock annually. We believe that these awards create a powerful link between the grantscreation of long-term incentive awards around Valero’s releasestockholder value and executive pay delivered. In addition, we believe that the balance between absolute performance alignment through stock options and restricted shares, and the relative performance objectives underscored by the relative TSR performance shares, is appropriate. In order for executives to fully realize their targeted opportunities, Valero must both perform well and beat the stock price performance of undisclosed material information.its peers.
For each eligible officer, a target amount of long-term incentives is established based on the 65th percentile of the Compensation Comparator Group and is expressed as a percentage of base salary. An executive officer’sexecutive’s targeted award may be adjusted based upon the Compensation Committee’s evaluationdetermination of the executive officer’s individual performance, which (for officers other than the Chief Executive Officer) takes into consideration the recommendation of the Chief Executive Officer. See “Compensation Discussion and Analysis – Elements of Executive Compensation – Individual Performance and Personal Objectives.” As with the annual incentive bonus, the Compensation Committee retains discretion to determine whether any award at all should be made.
The following table showschart illustrates the percentagesmix of awards included in the officers’ long-term incentive compensation for fiscal year 2011.
Mix of Long-Term Incentive Awards
Performance Shares
In 2011, performance shares represented 50 percent of each named executive officer’s base salarylong-term incentive target on a share-count basis. Performance shares are payable in shares of Common Stock on the vesting dates of the performance shares. Shares of Common Stock are earned with respect to vesting performance shares only upon Valero’s achievement of challenging total stockholder return or “TSR” objectives (measured in relation to the TSR of our peers).
The performance shares awarded in 2011 are subject to vesting in three annual increments, based upon our TSR compared to our peer group during one-year, two-year, and Total Direct Compensation that represent his or her long-term compensation targetthree-year performance periods. Performance periods measure TSR based on the average closing stock prices for the fiscal year30 days of December 2 to December 31 at the beginning and end of the performance periods, including dividends. At the end of each performance period, our TSR for the period is compared to the TSR of our peer group. Consistent with typical relative TSR design conventions, shares of Common Stock are awarded based on Valero’s TSR performance versus the peers’ TSR as follows (results are interpolated between the 25th and 75th percentiles):
|
| | |
| Percentile TSR Rank | | % of Performance Shares Earned |
| 0% to 24th% | | 0% |
| 25th% (to 49th%) | | 50% (to 99%) |
| 50th% (to 74%) | | 100% (to 199%) |
| 75th% | | 200% |
For the performance shares awarded in 2011, shares not earned in a given performance period expire and are forfeited. For performance shares awarded in 2010, shares not earned in a given performance period as a result of our ranking in the 25th percentile or below can be carried forward for one additional performance period and up to 100 percent of the carried amount can still be earned, depending upon Valero’s percentile performance ranking for the subsequent period. For the performance period ended December 31, 2009:2011, no shares of Common Stock were issued to our named executive officers because our performance criteria were not satisfied.
| | | | | | | | | |
| | | Long-Term Incentive Awards | | Long-Term Incentive Awards |
| | | Target as a Percentage of | | Target as a Percentage of Total |
| Name | | Base Salary | | Direct Compensation |
| William R. Klesse | | | 540 | % | | | 70 | % |
| Richard J. Marcogliese | | | 415 | % | | | 64 | % |
| Michael S. Ciskowski | | | 415 | % | | | 64 | % |
| Kimberly S. Bowers | | | 230 | % | | | 56 | % |
| Joseph W. Gorder | | | 230 | % | | | 56 | % |
Stock Options and Restricted Stock
Our 20092011 long-term incentive awards consisted ofincluded an allocation of stock options and restricted stock weighted 50%25 percent in the form of stock options and 50%25 percent in the form of restricted stock, and is basedeach on our determination to providea share-count basis. We believe that this mix provides an appropriate balance between the pay-for-performance attributes of long-term incentives. The Compensation Committee presently expects to make awards ofstock options and the equity alignment and retentive qualities of restricted stock annually.shares. In addition, this mix aligns with market practices, and thus supports recruitment and retention of top-quality executive talent.
Stock options granted in 2009 will2011 vest in equal annual installments over a period of three years and have ten-year terms. Grants and vesting ofexpire in ten years. We believe that stock options are not contingent upon the achievement of any specified performance targets. However, becauselink executives’ incentive opportunities tightly with stockholder returns, and thereby support our pay-for-performance design. Because the exercise price of options cannot be less than 100 percent of the fair market value of our Common Stock on the date of grant, options will provide a benefit to the executive only to the extent that there is appreciation in the market price of our Common Stock. Options and restricted stock are subject to forfeiture if an executive terminates employment prior to vesting.
In 2009, the Compensation Committee determined that awards
The shares of restricted stock willawarded in 2011 vest in equal annual installments over a period of fivethree years and contain a performance accelerator feature to provide for the potential early vesting of one-half of the restricted stock grant. The performance accelerator feature requires that the closing market price per share for our Common Stock mustto be $40.00 or higher for five consecutive trading days, whereupon the shares then eligible for accelerated vesting will vest.
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The Compensation Committee considers and grants stock options and restricted stock to our executive officers and certain other employees annually, typically during the third or fourth quarter. The Committee may also grant stock options or restricted stock to new executive officers and employees when they are hired or promoted. During periods between meetingsquarter in conjunction with the last regularly scheduled meeting of the Compensation Committee as an administrative convenience,for the Chief Executive Officer has limited authority to makeyear. The stock option and restricted stock components of our executive officers’ 2011 long-term incentive awards to employees other than executive officers when they are hired or promoted.were granted in October 2011.
As required by our equity incentive plans, the exercise price for stock options is equal to the the mean of the highest and lowest sales prices per share of our Common Stock as reported on the NYSE on the grant date. All awards of options described in the Summary Compensation Table and Grants of Plan-Based Awards Table of this proxy statement were reviewed and approved by the Compensation Committee. All of these stock options have a grant date that is equal to or after the date on which the options were approved by the Compensation Committee except for grants to our Chief Executive Officer, which have a grant date that is equal to the date on whichor our independent directors approve grants recommended by the Compensation Committee.directors.
The stock option and restricted stock components of our executive officers’ 2009 long-term incentive awards were granted in October 2009. The following table shows the percentages of each named executive officer’s base salary and Total Direct Compensation that represent his or her stock option and restricted stock targets for the fiscal year ended December 31, 2009.
| | | | | | | | | | | | | | | | | |
| | | | | | | Stock Option | | | | | | Restricted Stock |
| | | Stock Option | | Target as a | | Restricted Stock | | Target as |
| | | Target as a | | Percentage of Total | | Target as a | | Percentage of |
| | | Percentage of | | Direct | | Percentage of | | Total Direct |
| Name | | Base Salary | | Compensation | | Base Salary | | Compensation |
| William R. Klesse | | | 270 | % | | | 35 | % | | | 270 | % | | | 35 | % |
| Richard J. Marcogliese | | | 207.5 | % | | | 32 | % | | | 207.5 | % | | | 32 | % |
| Michael S. Ciskowski | | | 207.5 | % | | | 32 | % | | | 207.5 | % | | | 32 | % |
| Kimberly S. Bowers | | | 115 | % | | | 28 | % | | | 115 | % | | | 28 | % |
| Joseph W. Gorder | | | 115 | % | | | 28 | % | | | 115 | % | | | 28 | % |
Performance Shares
In prior years, performance shares comprised a portion of the executive officers’ long-term incentive targets. Although no performance shares were granted in 2009 or 2008, each of the named executive officers holds performance shares that were granted in 2006 and 2007. These shares have scheduled vesting dates through January 2011. The performance shares are earned (vest) only upon Valero’s achievement of an objective performance measure, namely total stockholder return.
Specifically, each award is subject to vesting in three annual increments, based upon our TSR during rolling three-year periods that end on December 31 of each year following the date of grant. At the end of each performance period, our TSR for the prior three years is compared to the TSR of our Peer Group and ranked by quartile. An officer then earns 0%, 50%, 100%, or 150% of that portion of the initial grant amount that is vesting, depending upon whether our TSR is in the last, 3rd, 2nd, or 1st quartile, respectively, and can earn 200% if we rank highest in the group. Amounts not earned in a given performance period can be carried forward for one additional performance period and up to 100% of the carried amount can still be earned, depending upon the quartile performance ranking for that subsequent period. For the performance period ended December 31, 2009, Valero’s TSR placed Valero in the third quartile, resulting in a 50% vesting of eligible shares.
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In 2008, the Compensation Committee determined to eliminate performance shares as a component of our long-term incentive program chose to base our long-term incentive program on stock options and restricted stock after considering that most of our peers employ these two long-term incentive vehicles. Additionally, the Committee concluded that the performance shares measure of total shareholder return was somewhat redundant to the annual bonus plan performance metric that was also based on total shareholder return.
Perquisites and Other Benefits
Perquisites
We provide certain perquisites toConsistent with our named executive officers. Thesegoal of providing total compensation and benefit opportunities that are aligned with market practices among our peers, officers are eligible to receive reimbursement for club dues, personal excess liability insurance, federal income tax preparation, life insurance policy premiums with respect to cash value life insurance, and annual health examination, andexamination. In addition, officers are sometimes provided with tickets to sporting and other entertainment events.events in a de minimus amount. We do not provide executive officers with automobiles or automobile allowances or supplemental executive medical benefits or coverage. In addition, we generally do not allow executive officers to use company aircraft for personal use, such as travel to and from vacation destinations. However, spouses (or other family members) occasionally accompany executive officers when executive officers are traveling on company aircraft for business purposes, such as attending an industrya business conference at which spouses are invited and expected to attend.
Other Benefits
We provide other benefits, including medical, life, dental, and disability insurance in line with competitive market conditions. Our named executive officers are eligible for the same benefit plans provided to our other employees, including our Thrift Plan and insurance and supplemental plans chosen and paid for by employees who desire additional coverage.
Executive
Consistent with typical practices among our peers, executive officers and other employees whose compensation exceeds certain limits are eligible to participate in non-qualified excess benefit programs whereby those individuals can choose to make larger contributions than allowed under the qualified plan rules and receive correspondingly higher benefits. These plans are described below under “Compensation Discussion and Analysis – Elements of Executive Compensation – Post-Employment Benefits.”below.
Post-Employment Benefits
Pension Plans
We have a noncontributory defined benefit Pension Plan in which most of our employees, including our named executive officers, are eligible to participate and under which contributions by individual participants are neither required nor permitted. We also have a noncontributory, non-qualified Excess Pension Plan and a non-qualified Supplemental Executive Retirement Plan, or “SERP,”SERP, which provide supplemental pension benefits to certain highly compensated employees, and under which ouremployees. Our named executive officers are participants.participants in the SERP. The SERP is offered to align with competitive practices among our peers, and to thus support recruitment and retention of critical executive talent. The Excess Pension Plan and the SERP provide eligible employees with additional retirement savings opportunities that cannot be achieved with tax-qualified plans due to Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), limits on (i) annual compensation that can be taken into account under qualified plans, or (ii) annual benefits that can be provided under qualified plans.
The Pension Plan (supplemented, as necessary, by the Excess Pension Plan) provides a monthly pension at normal retirement equal to 1.6% of the participant’s average monthly compensation (based upon the participant’s earnings during the three consecutive calendar years during the last 10 years of the participant’s credited service, including service with our former parent, affording the highest such average) times the
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participant’s years of credited service. The SERP provides an additional benefit equal to .35% times the product of the participant’s years of credited service (maximum 35 years) multiplied by the excess of the participant’s average monthly compensation over the lesser of 1.25 times the monthly average (without indexing) of the social security wage bases for the 35-year period ending with the year the participant attains social security retirement age, or the monthly average of the social security wage base in effect for the year that the participant retires. For purposes of the SERP, the participant’s most highly compensated consecutive 36 months of service are considered, including employment with our former parent and its subsidiaries. The SERP benefit payment is made in a lump sum; an annuity form of benefit payment is not available under the SERP. An executive will become a participant in the SERP as of the date he or she is selected and named in the minutes of the Compensation Committee for inclusion as a participant in the SERP. Compensation for purposes of the Pension Plan, Excess Pension Plan, and SERP includes salary and bonus. Pension benefits are not subject to any deduction for social security or other offset amounts. For more information regarding our named executive officers’ participation in our pension plans, see the table under the caption “Pension Benefits” and its related disclosures.
Nonqualified Deferred Compensation Plans
Deferred Compensation Plan. Plan. Our named executive officers are eligible to participate in our Deferred Compensation Plan (“DC Plan”). The DC Plan is offered in order to align with competitive practices among our peers, and thereby support recruitment and retention of critical executive talent. The DC Plan permits eligible employees to defer a portion of their salary and/or bonus until separation (i.e., retirement or termination of employment) or at other designated distribution times provided for in the DC Plan. The DC Plan is a non-qualified deferred compensation arrangement designed to be a “top hat” plan within the meaning of the Employee Retirement Income Security Act (“ERISA”) and is, therefore, exempt from most of ERISA’s requirements relating to pension plans. The DC Plan is not designed to constitute a qualified pension plan under Section 401(a) of the Internal Revenue Code.
Designated eligible employees are intended to constitute a select group of management or highly compensated employees within the meaning of ERISA.. Under the DC Plan, each year eligible employees are permitted to elect to defer up to 30%30 percent of their salary and/or 50%50 percent of their cash bonuses to be earned for services performed during the following year.
Pursuant to the DC Plan, Valero may from time to time make discretionary contributions to participants’ accounts in such amounts as shall be determined or determinable under a formula and announced to DC Plan participants. For the Chief Executive Officer or the President, any such discretionary contributions would be made upon recommendation by the Compensation Committee and approval of the Board. For certain other executive officers, any such discretionary contributions would be made upon recommendation of the Chief Executive Officer and approval of the Compensation Committee. For any other participant, any such discretionary contributions would be made upon recommendation of the Chief Executive Officer. 31
We have made no discretionary contributions to participants’ accounts, and currently we have no plans to make any discretionary contributions to participants’ accounts. We would likely only consider such contributions in the event of a significant, catastrophic economic event (or series of events) that materially impairs the value of participants’ accounts.
All amounts credited under the DC Plan (other than discretionary credits) are immediately 100 percent vested. Any discretionary credits will vest in accordance with the vesting schedule determined at the time of the grant of discretionary credits. Participant accounts are credited with earnings (or losses) based on investment fund choices made by the participants among available funds selected by Valero’s benefits plans administrative committee from time to time.Benefits Plans Administrative Committee.
At the time of their deferral elections, participants may also elect when and over what period of time their deferrals will be distributed. Specifically, participants may elect to have their accounts distributed in a lump
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sum on a specified date in the future, at least five years from the date of the deferral election. Even if a participant has elected a specified distribution date, the participant’s DC Plan account will be distributed upon the participant’s death, retirement, or other termination of employment. Participants may, at the time of their deferral elections, choose to have their accounts distributed as soon as reasonably practical following retirement or other termination, or on the January 1st following the date of retirement or termination.
Participants may also elect to have their accounts distributed in one lump sum payment or in five, 10 or 15 year installments upon retirement, and in a lump sum or five annual installments upon other termination. Upon a participant’s death, the participant’s beneficiary will receive the participant’s DC Plan account in one lump-sum payment within 90 days following the participant’s death. Participants may also receive a portion of their DC Plan account necessary to satisfy an unforeseeable emergency (as defined in the DC Plan). Upon a change in control (as defined in the DC Plan) of Valero, all DC Plan accounts are immediately vested in full. However, distributions are not accelerated and, instead, are made in accordance with the DC Plan’s normal distribution provisions.
As a nonqualified deferred compensation arrangement, the DC Plan is subject to Internal Revenue Code Section 409A and its regulations. We intend to administer and interpret the DC Plan in a manner consistent with such Internal Revenue Code section and regulations.
Excess Thrift Plan. Our Excess Thrift Plan provides benefits to participants in our employeesThrift Plan whose annual additions to ourthe Thrift Plan are subject to the limitations on such annual additions as provided under Section 415 of the Internal Revenue Code, and/or who are constrained from making maximum contributions under the Thrift Plan by Section 401(a)(17) of the Internal Revenue Code, which limits the amount of an employee’s annual compensation which may be taken into account under that plan. Two separate components comprise the Excess Thrift Plan: (i) an “excess benefit plan” as defined under Section 3(36) of ERISA; and (ii) a plan that is unfunded and maintained primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees. Each component of the Excess Thrift Plan consists of a separate plan for purposes of Title I of ERISA.
Information regarding
Additional information about these plans and contributions made by Valero and each of our named executive officers under our non-qualified defined contribution and other deferred compensation plans during the year ended December 31, 2008, is statedare presented in this proxy statement in the table under the caption “Executive Compensation – Nonqualified Deferred Compensation.”
Severance Arrangements
We have entered into change of control agreements with each of theour named executive officers. TheseThe agreements are intended to assure the continued objectivity and availability of these executivethe officers in the event of certain transactions culminatingany merger-acquisition activity that would likely threaten the job security of many top executives. These arrangements are also intended to maintain executive focus and productivity in a period of uncertainty. If a change of control of Valero. If a “change of control” (as defined in the agreements) occurs during the term of an agreement, then the agreement becomes operative for a fixed three-year period. The agreements provide generally that the executive officer’sofficers’ terms and conditions of employment (including position, location, compensation and benefits) will not be adversely changed during the three-year period after a change of control.
Following a change of control, particular payments under the agreements are triggered commensurate with the occurrence of any of the following: (i) termination of employment by Valero other than for “cause” (as defined in the agreement) or disability; (ii) termination by the executive for “good reason” (as defined in the agreements); (iii) termination by the executive other than for “good reason”; and (iv) termination of employment because of death or disability. These triggers were designed to ensure the continued availability of the executive officers following a change of control, and to compensate the executive officers at appropriate levels if their employment is unfairly or prematurely terminated during the applicable term following a
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change of control. For more information regarding payments that may be made under our severance arrangements,these agreements, see ourthe disclosures belowin this proxy statement under the caption “Executive Compensation – Potential Payments upon Termination or Change of Control.”
IMPACT OF ACCOUNTING AND TAX TREATMENTS
Accounting Treatment
We recognizeCompensation expense for our stock-based compensation plans is based on the fair value of the awards granted and is recognized in our financial statementsincome on a straight-line basis over the costsrequisite service period of equityeach award. For new grants that have retirement-eligibility provisions, we use the non-substantive vesting period approach, under which compensation cost is recognized immediately for awards granted to retirement-eligible employees or over the period in which an employee is required to provide service in exchange for the awards. The cost of such awards is measured at fair value on the date of grant and we use the Black-Scholes option pricing model to determinefrom the grant date present valueto the date retirement eligibility is achieved if that date is expected to occur during the nominal vesting period. Specific components of stock options.our stock-based compensation programs are discussed in Note 15 of Notes to Consolidated Financial Statements in Valero’s Annual Report on Form 10-K for the year ended December 31, 2011.
Tax Treatment
Under Section 162(m) of the Internal Revenue Code, publicly held corporations may not take a tax deduction for compensation in excess of $1 million paid to the Chief Executive Officer or the other four most highly compensated executive officers unless that compensation meets the Internal Revenue Code’s definition of “performance based” compensation. Section 162(m) allows a deduction for compensation to a specified executive that exceeds $1 million only if it is paid (i) solely upon attainment of one or more performance goals, (ii) pursuant to a qualifying performance-based compensation plan adopted by the Compensation Committee, and (iii) the material terms, including the performance goals, of such plan are approved by the stockholders before payment of the compensation.
The Compensation Committee considers deductibility under Section 162(m) with respect to compensation arrangements for executive officers. The Committee believes that it is in our best interests for the Committee to retain its flexibility and discretion to make compensation awards to foster achievement of performance goals established by the Committee and other corporate goals the Committee deems important to our success, such as encouraging employee retention, rewarding achievement of nonquantifiablenon-quantifiable goals, and achieving progress with specific projects. We believe that our outstanding stock options and performance share grants qualify as performance-based compensation and are not subject to any deductibility limitations under Section 162(m). Grants of restricted stock or other equity-based awards that are not subject to specific quantitative performance measures will likely not qualify as “performance based” compensation and, in such event, would be subject to Section 162(m) deduction restrictions.
COMPENSATION-RELATED POLICIES
Say-On-Pay Policy
In 2009, our Board considered and approved a “say-on-pay” policy. The policy provides that at each annual meeting of stockholders, starting with the 2010 meeting, stockholders will be provided the opportunity to vote on an advisory resolution to ratify the compensation of Valero’s named executive officers as set forth in the Summary Compensation Table of the proxy statement. The vote will allow stockholders to express their opinions regarding the decisions of the Compensation Committee on the prior year’s annual compensation to the named executive officers. The stockholder vote will be advisory in nature, which means that it will not affect any compensation already paid or awarded to any named executive officer and will not be binding on the Compensation Committee, but will be considered by the Compensation Committee in determining annual compensation for the named executive officers in subsequent periods. The full text of the policy is available on our website at www.valero.com under the “Corporate Governance” tab in the “Investor Relations” section.
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Executive Compensation Clawback Policy
In 2009,Under our Board considered and approved an executive compensation policy entitledPolicy on Executive Compensation in Restatement Situations, a so-called “clawback” policy. The policy, provides that in the event of a material restatement of Valero’s financial results, the Board, or the appropriate committee thereof, will review all bonuses and other incentive and equity compensation awarded to Valero’sour executive officers. If suchThe policy provides that if the bonuses and other incentive and equity compensation would have been lower had they been calculated based on such restated results, the Board or the appropriate committee thereof,(or committee), will, to the extent permitted by governing law and as appropriate under the circumstances, seek to recover for the benefit of Valero all or a portion of such bonuses and incentive and equitythe specified compensation awarded to executive officers whose fraud or misconduct caused or partially caused such restatement, as determined by the Board or the appropriate committee thereof.(or committee). In determining whether to seek recovery, the policy states that the Board or the appropriate committee thereof,(or committee) shall take into account such considerations as it deems appropriate, including governing law and whether the assertion of a claim may prejudice the interests of Valero in any related proceeding or investigation. The full text of the policy is available on our website at www.valero.com under the “Corporate Governance” tab in the “Investor Relations” section.
Compensation Consultant Disclosure Policy
In 2009,Per the terms of our Board considered and approved a compensation consultant disclosure policy. The policy, provides that beginning in 2010, weValero will make additionalcertain disclosures pertaining to compensation consultants in our proxy statements for annual meetings of stockholders. For any compensation consultant retained by the Compensation Committee to provide compensation advice with respect to the compensation disclosed in the Summary Compensation Table in the proxy statement, we will disclose (i) the total fees paid annually to the consultant for compensation-related services and non-compensation-related services, (ii) a description of any non-compensation-related services provided by the consultant, and (iii) any services that the consultant has provided to senior executives of Valero and the nature of those services. The full text of the policy is available on our website at www.valero.com under the “Corporate Governance” tab in the “Investor Relations” section.
Stock Ownership Guidelines
Our Board, the Compensation Committee, and our executive officers recognize that ownership of Common Stock is an effective means by which to align the interests of our directorsexecutive officers and executive officersdirectors with those of our stockholders. We have long emphasized the importance of stock ownership among our executive officers and directors. Our stock ownership and retention guidelines for our directors and officers, as approved by the Compensation Committee and our Board, are set forth below.
Non-Employee Director Stock Ownership Guidelines. |
| | |
| Officer Position | | Value of Shares Owned |
| Chief Executive Officer | | 5x Base Salary |
| President | | 3x Base Salary |
| Executive Vice Presidents | | 2x Base Salary |
| Senior Vice Presidents | | 1x Base Salary |
| Vice Presidents | | 1x Base Salary |
Our officers are expected to meet the applicable guideline within five years and are expected to continuously own sufficient shares to meet the guideline once attained.
Non-employee directors are expected to acquire and hold during their service shares of our Common Stock equal in value to at least three times the annual cash retainer paid to our directors. Directors have five years from their initial election to the Board to meet the target stock ownership guideline, and they are expected to continuously own sufficient shares to meet the guideline once attained.
Executive Stock Ownership Guidelines.Stock ownership guidelines for our officers are as follows:
| | |
Officer Position | | Value of Shares Owned |
Chief Executive Officer | | 5x Base Salary |
President | | 3x Base Salary |
Executive Vice Presidents | | 2x Base Salary |
Senior Vice Presidents | | 1x Base Salary |
Vice Presidents | | 1x Base Salary |
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Our officers are expected to meet the applicable guideline within five years and are expected to continuously own sufficient shares to meet the guideline once attained. The full text of our stock ownership and retention guidelines is available on our website at www.valero.com under the “Corporate Governance” tab in the “Investor Relations” section.
Insider Trading and Speculation in Valero Stock
We have established policies prohibiting ourOur officers, directors, and employees are prohibited from purchasing or selling Valero securities while in possession of material, nonpublic information, or otherwise using such information for their personal benefit or in any manner that would violate applicable laws and regulations. In addition, our policies prohibit our officers, directors, and employees from speculating in our stock, which includes short selling (profiting if the market price of our stock decreases), buying or selling publicly traded options (including writing covered calls), hedging, or any other type of derivative arrangement that has a similar economic effect. Our Compensation Committee does not time the grants of long-term incentive awards around Valero’s release of undisclosed material information.
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EQUITY COMPENSATION PLAN INFORMATION
The following table presents information regarding our equity compensation plans as of December 31, 2011.
|
| | | | | | | | | |
| | | Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights (#) | | Weighted- Average Exercise Price of Outstanding Options, Warrants and Rights ($) | | Number of Securities Remaining Avail- able for Future Issuance Under Equity Compen- sation Plans (1) |
Approved by stockholders: | | | | | | |
| 2011 Omnibus Stock Incentive Plan | | 370,025 |
| | 26.30 |
| | 18,498,630 |
|
| 2005 Omnibus Stock Incentive Plan | | 5,433,230 |
| | 19.91 |
| | — |
|
| 2001 Executive Stock Incentive Plan | | 872,420 |
| | 13.83 |
| | — |
|
| Non-employee director stock option plan | | 153,000 |
| | 23.14 |
| | — |
|
| Non-employee director restricted stock plan | | — |
| | | | 8,289 |
|
| Premcor non-qualified stock option plans (2) | | 740,608 |
| | 25.03 |
| | — |
|
Not approved by stockholders: | | | | | | |
| 1997 non-qualified stock option plans | | 1,190,781 |
| | 7.56 |
| | — |
|
| 2003 All-Employee Stock Incentive Plan (3) | | 11,146,522 |
| | 33.97 |
| | 536,141 |
|
| Total | | 19,906,586 |
| | 27.11 |
| | 19,043,060 |
|
Footnotes:
| |
| (1) | Securities available for future issuance under these plans can be issued in various forms, including without limitation restricted stock and stock options. |
| |
| (2) | This plan was assumed by Valero on September 1, 2005, upon our acquisition of Premcor Inc. |
| |
| (3) | Officers and directors of Valero are not eligible to receive grants under this plan. |
For additional information on these plans, see Note 15 of Notes to Consolidated Financial Statements for the fiscal year ended December 31, 2011, included in Valero’s Annual Report on Form 10-K.
EXECUTIVE COMPENSATION
The tables in the following sections of this proxy statement provide information required by the SEC regarding compensation paid to or earned by our named executive officers for the year ended December 31, 2009.2011. We have used captions and headings in these tables in accordance with the SEC regulations requiring these disclosures. The footnotes to these tables provide important information to explain the values presented in the tables, and are an important part of our disclosures.
SUMMARY COMPENSATION TABLE
The followingThis table provides a summary ofsummarizes the compensation paid to our named executive officers for the fiscal years endingended December 31, 2009, 2008,2011, 2010, and 2007. The table shows amounts earned by such persons for services rendered to Valero in all capacities in which they served.2009. The elements of compensation listed in the table are more fully described in the “Compensation Discussion and Analysis” section of this proxy statement and in the table’s footnotes.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | Change in
Pension Value | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | and Nonquali- | | | | | | | | | | |
| | | | | | | | | | | | | | | Stock | | Option | | fied Deferred | | All Other | | | | | | | | |
| | | | | | | | �� | | | | | | | Awards | | Awards | | Compensation | | Compensa- | | | | | | | | |
| Principal Position | | Year | | Salary ($) | | Bonus ($) | | ($)(1)(2) | | ($)(1)(3) | | Earnings($)(4) | | tion ($)(5) | | Total ($)(1) | |
William R. Klesse, | | | 2009 | | | | 1,500,000 | | | | — | | | | 4,905,200 | | | | 4,306,896 | | | | 791,410 | | | | 194,725 | | | | 11,698,231 | | | | | |
| Chief Executive Officer, | | | 2008 | | | | 1,500,000 | | | | 705,510 | | | | 2,058,846 | | | | 2,235,337 | | | | 1,181,461 | | | | 138,494 | | | | 7,819,648 | | | | | |
| President, and | | | 2007 | | | | 1,500,000 | | | | 3,720,015 | | | | 5,330,393 | | | | 2,696,100 | | | | 1,122,665 | | | | 117,110 | | | | 14,486,283 | | | | | |
| Chairman of the Board | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Michael S. Ciskowski, | | | 2009 | | | | 750,000 | | | | 450,000 | | | | 1,884,808 | | | | 1,654,928 | | | | 209,862 | | | | 60,508 | | | | 5,010,106 | | | | | |
| Executive Vice President | | | 2008 | | | | 700,000 | | | | 513,912 | | | | 739,152 | | | | 802,477 | | | | 636,887 | | | | 56,880 | | | | 3,449,308 | | | | | |
| and Chief Financial | | | 2007 | | | | 580,000 | | | | 870,000 | | | | 1,079,516 | | | | 539,220 | | | | — | | | | 47,309 | | | | 3,116,045 | | | | | |
| Officer | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Richard J. Marcogliese, | | | 2009 | | | | 955,000 | | | | 450,000 | | | | 1,884,808 | | | | 1,654,928 | | | | 920,851 | | | | 75,099 | | | | 5,940,686 | | | | | |
| Executive Vice President | | | 2008 | | | | 855,000 | | | | 627,707 | | | | 902,724 | | | | 980,081 | | | | 1,757,183 | | | | 72,049 | | | | 5,194,744 | | | | | |
| and Chief Operating | | | 2007 | | | | 555,000 | | | | 1,332,000 | | | | 2,158,201 | | | | 1,259,814 | | | | 835,994 | | | | 51,490 | | | | 6,192,499 | | | | | |
| Officer | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Kimberly S. Bowers, | | | 2009 | | | | 494,000 | | | | 200,000 | | | | 688,068 | | | | 604,208 | | | | 90,175 | | | | 39,305 | | | | 2,115,756 | | | | | |
| Executive Vice President | | | 2008 | | | | 475,000 | | | | 217,954 | | | | 278,551 | | | | 302,479 | | | | 185,353 | | | | 38,643 | | | | 1,497,980 | | | | | |
| and General Counsel (6) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Joseph W. Gorder, | | | 2009 | | | | 460,000 | | | | 200,000 | | | | 640,695 | | | | 562,496 | | | | 92,026 | | | | 43,936 | | | | 1,999,153 | | | | | |
| Executive Vice President- | | | 2008 | | | | 445,000 | | | | 204,188 | | | | 261,099 | | | | 283,441 | | | | 207,099 | | | | 43,141 | | | | 1,443,968 | | | | | |
| Marketing and Supply | | | 2007 | | | | 423,000 | | | | 634,500 | | | | 778,023 | | | | 389,709 | | | | 70,659 | | | | 44,306 | | | | 2,353,122 | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Principal Position (1) | | Year | | Salary ($) | | Stock Awards ($)(2)(3) | | Option Awards ($)(2)(4) | | Non-Equity Incentive Plan Compensation ($)(5) | | Change in Pension Value and Nonqualified Deferred Compensation Earnings($)(6) | | All Other Compensation ($)(7) | | Total ($) |
William R. Klesse, | | 2011 | | 1,500,000 |
| | 3,327,924 |
| | 1,277,472 |
| | 3,733,425 |
| | 987,033 |
| | 201,213 |
| | 11,027,067 |
|
| CEO, President, and Chairman of the Board | | 2010 | | 1,500,000 |
| | 4,405,197 |
| | 1,222,505 |
| | 2,492,000 |
| | 1,273,054 |
| | 210,629 |
| | 11,103,385 |
|
| | 2009 | | 1,500,000 |
| | 4,905,200 |
| | 4,306,896 |
| | — |
| | 791,410 |
| | 194,725 |
| | 11,698,231 |
|
| | | | | | | | | | | | | | | | | |
Michael S. Ciskowski, | | 2011 | | 750,000 |
| | 1,104,705 |
| | 424,057 |
| | 1,368,000 |
| | 1,962,944 |
| | 63,287 |
| | 5,672,993 |
|
| EVP and CFO | | 2010 | | 750,000 |
| | 882,658 |
| | 244,950 |
| | 1,038,000 |
| | 948,613 |
| | 68,542 |
| | 3,932,763 |
|
| | 2009 | | 750,000 |
| | 1,884,808 |
| | 1,654,928 |
| | 450,000 |
| | 209,862 |
| | 60,508 |
| | 5,010,106 |
|
| | | | | | | | | | | | | | | | | |
Kimberly S. Bowers, | | 2011 | | 535,000 |
| | 526,050 |
| | 201,932 |
| | 710,000 |
| | 492,536 |
| | 40,063 |
| | 2,505,581 |
|
| EVP | | 2010 | | 515,000 |
| | 588,439 |
| | 163,300 |
| | 456,000 |
| | 226,607 |
| | 41,721 |
| | 1,991,067 |
|
| | 2009 | | 494,000 |
| | 688,068 |
| | 604,208 |
| | 200,000 |
| | 90,175 |
| | 39,305 |
| | 2,115,756 |
|
| | | | | | | | | | | | | | | | | |
S. Eugene Edwards, | | 2011 | | 535,000 |
| | 526,050 |
| | 201,932 |
| | 710,000 |
| | 969,792 |
| | 47,096 |
| | 2,989,870 |
|
| EVP | | 2010 | | 450,000 |
| | 588,439 |
| | 163,300 |
| | 400,000 |
| | 448,374 |
| | 43,036 |
| | 2,093,149 |
|
| | (8) | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Joseph W. Gorder, | | 2011 | | 535,000 |
| | 657,563 |
| | 252,415 |
| | 710,000 |
| | 437,050 |
| | 59,307 |
| | 2,651,335 |
|
| EVP | | 2010 | | 469,000 |
| | 588,439 |
| | 163,300 |
| | 415,000 |
| | 223,840 |
| | 47,872 |
| | 1,907,451 |
|
| | 2009 | | 460,000 |
| | 640,695 |
| | 562,496 |
| | 200,000 |
| | 92,026 |
| | 43,936 |
| | 1,999,153 |
|
| | | | | | | | | | | | | | | | | |
| | |
Footnotes to “Summary Compensation” table: |
| (1) | | In accordance with SEC Release No. 33-9089 (December 16, 2009), which amendedrules, the mannerpersons listed in which certain stock-based awards must be disclosed, the table are referred to as our “named executive officers” in this proxy statement. |
| |
| (2) | The amounts shown represent the grant date fair value of awards for each of the fiscal years shown computed in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718, Compensation-Stock Compensation (FASB ASC Topic 718). The values for these columns no longer reflect the dollar amount recognized by Valero as expense in each fiscal year for financial statement reporting purposes. Accordingly, the compensation amounts shown in the columns above for “Stock Awards,” “Option Awards,” and “Total” for fiscal years 2008 and 2007 have been recomputed from the prior years’ proxy statement disclosures to reflect the grant date fair value of stock-based awards granted in those years. |
34
(2) | | The amounts shown represent the grant date fair value of awards of restricted stock (for 2009, 2008, and 2007) and performance shares (for 2007, performance shares were not granted in 2009 or 2008), and do not correspond to the actual value that will be recognized by the named executive officers. Performance shares are subject to market and performance conditions as described in “Compensation Discussion and Analysis — Long-Term Incentive Awards — Performance Shares.” See the Grants of Plan-Based Awards table for additional information regarding shares of restricted stock granted in 2009. |
|
| (3) | | See the Grants of Plan-Based Awards table for more information onregarding shares of restricted stock options grantedand performance shares awarded in 2009. For additional2011. Additional information about valuation assumptions for the 2009, 2008,restricted stock and 2007 stock option grants, refer toperformance shares awarded in 2011 is disclosed in Note 2215 (“Stock BasedStock-Based Compensation”) of Notes to Consolidated Financial Statements in Valero’s Annual Report on Form 10-K for the yearsyear ended December 31, 2009, 2008, and 2007, respectively.2011. |
| |
| (4) | See the Grants of Plan-Based Awards table for more information on stock options granted in 2011. For information about valuation assumptions for the 2011 stock option grants, refer to Note 15 (“Stock-Based Compensation”) of Notes to Consolidated Financial Statements in Valero’s Annual Report on Form 10-K for the year ended December 31, 2011. |
| |
| (5) | Represents amounts earned under our annual incentive bonus plan, as described in “Compensation Discussion and Analysis – Elements of Executive Compensation – Annual Incentive Bonus.” |
| |
| (6) | This column represents the sum of the change in pension value and non-qualified deferred compensation earnings in 2009, 2008, and 2007 for each of the named executive officers. See the “PensionPension Benefits Table”Table for additional information, including the present value assumptions used for these calculations. The actual change-in-value amount for Mr. Ciskowski for the year ended December 31, 2007, is a negative number, but is computed as a “zero amount” in the table above in accordance with Instruction 3 to Item 402(c)(2)(viii) of SEC’s Regulation S-K, which instructs that negative values may not be reflected in the sum reported in the table. For each of the named executive officers, the following table identifies the separate amounts attributable to (A) the aggregate change in the actuarial present value of the named executive officer’s accumulated benefit under all defined benefit and actuarial pension plans, including supplemental plans (but excluding tax-qualified defined contribution plans and nonqualified defined contribution plans), and (B) above-market or preferential earnings on non-tax-qualified deferred compensation thatincluded in the amounts presented above is deferred on a basis that is not tax-qualified.zero. |
| | | | | | | | | | | | | | | | | |
| Name | | Year | | (A) | | (B) | | Total |
| William R. Klesse | | | 2009 | | | $ | 791,410 | | | $ | 0 | | | $ | 791,410 | |
| | | | 2008 | | | | 1,181,461 | | | $ | 0 | | | | 1,181,461 | |
| | | | 2007 | | | | 1,122,665 | | | | 0 | | | | 1,122,665 | |
| | | | | | | | | | | | | | | | | |
| Michael S. Ciskowski | | | 2009 | | | $ | 209,862 | | | $ | 0 | | | $ | 209,862 | |
| | | | 2008 | | | | 636,887 | | | $ | 0 | | | | 636,887 | |
| | | | 2007 | | | | (62,988 | ) | | | 0 | | | | (62,988 | ) |
| | | | | | | | | | | | | | | | | |
| Richard J. Marcogliese | | | 2009 | | | $ | 920,851 | | | $ | 0 | | | $ | 920,851 | |
| | | | 2008 | | | | 1,757,183 | | | $ | 0 | | | | 1,757,183 | |
| | | | 2007 | | | | 835,994 | | | | 0 | | | | 835,994 | |
| | | | | | | | | | | | | | | | | |
| Kimberly S. Bowers | | | 2009 | | | $ | 90,175 | | | $ | 0 | | | $ | 90,175 | |
| | | | 2008 | | | | 185,353 | | | $ | 0 | | | | 185,353 | |
| | | | | | | | | | | | | | | | | |
| Joseph W. Gorder | | | 2009 | | | $ | 92,026 | | | $ | 0 | | | $ | 92,026 | |
| | | | 2008 | | | | 207,099 | | | $ | 0 | | | | 207,099 | |
| | | | 2007 | | | | 70,659 | | | | 0 | | | | 70,659 | |
35
(5) | |
| (7) | The amounts listed as “All Other Compensation” for the year ended December 31, 2009,2011 are composed of the followingthese items: |
| | | | | | | | | | | | | | | | | | | | | |
| Item of income (in dollars) | | Klesse | | Ciskowski | | Marcogliese | | Bowers | | Gorder |
| Valero contribution to Thrift Plan account | | | 14,700 | | | | 14,700 | | | | 14,700 | | | | 14,700 | | | | 14,700 | |
| Valero contribution to Excess Thrift Plan account | | | 75,300 | | | | 30,300 | | | | 42,600 | | | | 14,300 | | | | 12,900 | |
| Reimbursement of club membership dues * | | | — | | | | 6,747 | | | | 1,268 | | | | 3,428 | | | | 6,747 | |
| Imputed income for personal liability insurance | | | 1,554 | | | | 1,554 | | | | 1,554 | | | | 1,554 | | | | 1,554 | |
| Imputed income for tax return preparation | | | — | | | | 850 | | | | 850 | | | | — | | | | 850 | |
| Executive insurance premiums with respect to cash value life insurance | | | 91,058 | | | | — | | | | — | | | | — | | | | — | |
| Long-term disability premium imputed income | | | 4,549 | | | | 4,549 | | | | 4,549 | | | | 4,549 | | | | 4,549 | |
| Imputed income for insurance (life & survivor) over $50,000 | | | 7,564 | | | | 1,808 | | | | 9,510 | | | | 774 | | | | 2,636 | |
| Imputed income — gift award | | | — | | | | — | | | | 68 | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | |
Total | | | 194,725 | | | | 60,508 | | | | 75,099 | | | | 39,305 | | | | 43,936 | |
|
| | | | | | | | | | | | | | | |
| Item of income (in dollars) | | Klesse | | Ciskowski | | Bowers | | Edwards | | Gorder |
| Valero contribution to Thrift Plan account | | 14,700 |
| | 14,700 |
| | 14,700 |
| | 14,700 |
| | 14,700 |
|
| Valero contribution to Excess Thrift Plan account | | 75,300 |
| | 30,300 |
| | 17,400 |
| | 17,400 |
| | 17,400 |
|
| Reimbursement of club membership dues | | — |
| | 6,682 |
| | — |
| | 6,098 |
| | 7,389 |
|
| Executive insurance premiums with respect to cash value life insurance | | 88,144 |
| | — |
| | — |
| | — |
| | — |
|
| Imputed income - personal liability insurance | | 1,722 |
| | 1,722 |
| | 1,722 |
| | 1,722 |
| | 1,722 |
|
| Imputed income - individual disability insurance | | 4,373 |
| | 4,617 |
| | 2,975 |
| | 3,856 |
| | 4,617 |
|
| Imputed income - long-term disability | | 2,420 |
| | 2,420 |
| | 2,420 |
| | 2,420 |
| | 2,420 |
|
| Imputed income - insurance (life & survivor) over $50,000 | | 14,554 |
| | 1,946 |
| | 846 |
| | — |
| | 2,636 |
|
| Imputed income - foreign tax | | — |
| | — |
| | — |
| | — |
| | 3,174 |
|
| Imputed income - tax return preparation | | — |
| | 900 |
| | — |
| | 900 |
| | 900 |
|
| Imputed income - overseas stipend | | — |
| | — |
| | — |
| | — |
| | 4,349 |
|
| Total | | 201,213 |
| | 63,287 |
| | 40,063 |
| | 47,096 |
| | 59,307 |
|
| * |
| (8) | | amounts stated for Mr. Marcogliese and Ms. Bowers represent reimbursement for only part of 2009; Mr. Marcogliese and Ms. Bowers elected to discontinue participation in our reimbursement program effective March 31, 2009, and September 15, 2009, respectively. |
(6) | | Ms. BowersEdwards was not a named executive officer for the year ended December 31, 2007.2009. |
36
GRANTS OF PLAN-BASED AWARDS
FOR FISCAL YEAR ENDED DECEMBER 31, 2009
The following table provides information regarding grants ofdescribes plan-based awards (specifically, shares of restricted stock and stock options) made tofor our named executive officers in 2009.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | Exercise or | | | | |
| | | | | | | Estimated Future Payouts Under | | Base Price | | Closing | | Grant Date Fair |
| | | | | | | Equity Incentive Plan Awards | | of Option | | Market Price | | Value of Stock |
| | | | | | | Threshold | | Target | | Maximum | | Awards | | on Grant | | and Option |
| Name | | Grant Date | | (#) | | (#) | | (#) | | ($/sh.) (1) | | Date ($/sh.) | | Awards ($)(2) |
| William R. Klesse | | | 10/15/09 | (3) | | | n/a | | | | 252,650 | | | | n/a | | | | | | | | | | | | 4,905,200 | |
| | | | 10/15/09 | (4) | | | n/a | | | | 611,775 | | | | n/a | | | | 19.415 | | | | 20.15 | | | | 4,306,896 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Michael S. Ciskowski | | | 10/15/09 | (3) | | | n/a | | | | 97,080 | | | | n/a | | | | | | | | | | | | 1,884,808 | |
| | | | 10/15/09 | (4) | | | n/a | | | | 235,075 | | | | n/a | | | | 19.415 | | | | 20.15 | | | | 1,654,928 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Richard J. Marcogliese | | | 10/15/09 | (3) | | | n/a | | | | 97,080 | | | | n/a | | | | | | | | | | | | 1,884,808 | |
| | | | 10/15/09 | (4) | | | n/a | | | | 235,075 | | | | n/a | | | | 19.415 | | | | 20.15 | | | | 1,654,928 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Kimberly S. Bowers | | | 10/15/09 | (3) | | | n/a | | | | 35,440 | | | | n/a | | | | | | | | | | | | 688,068 | |
| | | | 10/15/09 | (4) | | | n/a | | | | 85,825 | | | | n/a | | | | 19.415 | | | | 20.15 | | | | 604,208 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Joseph W. Gorder | | | 10/15/09 | (3) | | | n/a | | | | 33,000 | | | | n/a | | | | | | | | | | | | 640,695 | |
| | | | 10/15/09 | (4) | | | n/a | | | | 79,900 | | | | n/a | | | | 19.415 | | | | 20.15 | | | | 562,496 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | Estimated Future Payouts Under Non-Equity Incentive Plan Awards | | Estimated Future Payouts Under Equity Incentive Plan Awards | | Exercise or Base Price of Option Awards ($/sh)(1) | | Closing Market Price on Grant Date ($/sh) | | Grant Date Fair Value of Stock and Option Awards ($) (2) |
| | | | | | | Threshold | | Target | | Maximum | | Threshold | | Target | | Maximum | | | |
| Name | | Grant Date | | | | ($) | | ($) | | ($) | | (#) | | (#) | | (#) | | | |
| William R. Klesse | | n/a | | (3) | | — |
| | 2,250,000 |
| | 4,500,000 |
| | | | | | | | | | | | |
| | | 10/28/2011 | | (4) | | | | | | | | n/a |
| | 126,525 |
| | n/a |
| | | | | | 3,327,924 |
|
| | | 10/28/2011 | | (5) | | | | | | | | — |
| | 253,050 |
| | 506,100 |
| | | | | | — |
|
| | | 10/28/2011 | | (6) | | | | | | | | n/a |
| | 126,525 |
| | n/a |
| | 26.3025 |
| | 26.70 |
| | 1,277,472 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Michael S. Ciskowski | | n/a | | (3) | | — |
| | 825,000 |
| | 1,650,000 |
| | | | | | | | | | | | |
| | | 10/28/2011 | | (4) | | | | | | | | n/a |
| | 42,000 |
| | n/a |
| | | | | | 1,104,705 |
|
| | | 10/28/2011 | | (5) | | | | | | | | — |
| | 84,000 |
| | 168,000 |
| | | | | | — |
|
| | | 10/28/2011 | | (6) | | | | | | | | n/a |
| | 42,000 |
| | n/a |
| | 26.3025 |
| | 26.70 |
| | 424,057 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Kimberly S. Bowers | | n/a | | (3) | | — |
| | 428,000 |
| | 856,000 |
| | | | | | | | | | | | |
| | | 10/28/2011 | | (4) | | | | | | | | n/a |
| | 20,000 |
| | n/a |
| | | | | | 526,050 |
|
| | | 10/28/2011 | | (5) | | | | | | | | — |
| | 40,000 |
| | 80,000 |
| | | | | | — |
|
| | | 10/28/2011 | | (6) | | | | | | | | n/a |
| | 20,000 |
| | n/a |
| | 26.3025 |
| | 26.70 |
| | 201,932 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| S. Eugene Edwards | | n/a | | (3) | | — |
| | 428,000 |
| | 856,000 |
| | | | | | | | | | | | |
| | | 10/28/2011 | | (4) | | | | | | | | n/a |
| | 20,000 |
| | n/a |
| | | | | | 526,050 |
|
| | | 10/28/2011 | | (5) | | | | | | | | — |
| | 40,000 |
| | 80,000 |
| | | | | | — |
|
| | | 10/28/2011 | | (6) | | | | | | | | n/a |
| | 20,000 |
| | n/a |
| | 26.3025 |
| | 26.70 |
| | 201,932 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Joseph W. Gorder | | n/a | | (3) | | — |
| | 428,000 |
| | 856,000 |
| | | | | | | | | | | | |
| | | 10/28/2011 | | (4) | | | | | | | | n/a |
| | 25,000 |
| | n/a |
| | | | | | 657,563 |
|
| | | 10/28/2011 | | (5) | | | | | | | | — |
| | 50,000 |
| | 100,000 |
| | | | | | — |
|
| | | 10/28/2011 | | (6) | | | | | | | | n/a |
| | 25,000 |
| | n/a |
| | 26.3025 |
| | 26.70 |
| | 252,415 |
|
Footnotes:
| (1) | | Under Valero’s 20052011 Omnibus Incentive Plan, provides that the exercise price for all options granted under the plan will bemust equal to the mean of the high and low reported sales price per share on the NYSE of our Common Stock on the date of grant. |
| |
| (2) | | The reported grant date fair value of stock and option awards was determined in compliance with FASB ASCFinancial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 718. |
Footnotes to Grants of Plan-Based Awards table (cont.):
| |
| (3) | Represents potential awards under our annual incentive bonus program. Actual amounts earned by our named executive officers for 2011 are reported in the Summary Compensation Table under the column “Non-Equity Incentive Plan Compensation.” Our annual incentive bonus program is described in “Compensation Discussion and Analysis – Elements of Executive Compensation – Annual Incentive Bonus.” Our named executive officer can earn from zero to 200% of their bonus target amounts depending on Valero’s realization of performance goals and measures established by the Compensation Committee. |
| |
| (4) | Represents a grantan award of shares of restricted stock. The shares vest (become nonforfeitable) annually in equal annual installments over a period of five yearsone-third increments beginning in 2010.2012. Fifty percent of the shares granted in 2009 are eligible (the “Eligible Shares”) for performance accelerated vesting (“Eligible Shares”). Therefore,performance-accelerated vesting. Accordingly, notwithstanding the restricted shares’ regular five-yearthree-year vesting schedule, to the extent any Eligible Shares have not yet vested per their regular vesting schedule, and to the extent the Eligible Shares have not been forfeited or otherwise canceled, all unvested Eligible Shares will vest automatically at the close of business on the last date of the period when the NYSE-reported closing price per share of Common Stock is $40.00 or higher for five consecutive trading days. Dividends on restricted stock are paid as and when dividends are declared and paid on our outstanding Common Stock. Restricted stock isawards are more fully described in “Compensation Discussion and Analysis —– Elements of Executive Compensation —– Long-Term Incentive Awards.” |
37
(4) | |
| (5) | Represents an award of performance shares. Per the awards’ terms, on a normal vesting date, officers can earn in shares of Common Stock from 0% to 200% of the number of performance shares that are vesting, based upon Valero’s achievement of objective performance measures during the performance periods prescribed by our Compensation Committee. See “Compensation Discussion and Analysis – Long-Term Incentive Awards – Performance Shares.” The amounts listed above represent an award of performance shares in three tranches. The performance shares will vest annually in one-third increments in January 2013, January 2014, and January 2015. The first tranche will vest in January 2013, with any resulting payout at that time conditioned upon Valero’s performance during the performance period ending in December 2012. Under FASB ASC Topic 718 (“Topic 718”), each tranche is deemed to be a separate grant for fair value purposes. The first tranche was deemed to be granted (under Topic 718) in 2011, and is deemed to have an expected conversion rate (probable outcome) of 0% with a fair value per share of $25.7025; thus, the reportable value of this tranche’s shares on grant date is $0 for each of the named executive officers (as reported in Note 15 “Stock-Based Compensation” of Notes to Consolidated Financial Statements in Valero’s Annual Report on Form 10-K for the year ended December 31, 2011). When assuming achievement of the highest level of possible performance conditions (per SEC Regulation S-K, Instruction 3 to Item 402(c)(2)(v)), the calculation produces assumed values for this tranche’s shares of $4,336,012; $1,439,340; $685,434; $685,434; and $856,767, for Mr. Klesse, Mr. Ciskowski, Ms. Bowers, Mr. Edwards, and Mr. Gorder, respectively. The grant date (per Topic 718) for the second tranche of these performance shares is expected to occur in either the fourth quarter of 2012 or in January 2013, depending on actions to be taken by our Compensation Committee. Similarly, the grant date for the third tranche is expected to occur in either the fourth quarter of 2013 or in January 2014, depending on actions to be taken by our Compensation Committee. The expected conversion rates and fair values of the second and third tranches will be determined on their respective Topic 718 grant dates. |
For performance shares awarded in 2010, the first tranche of the awards was deemed to be granted (per Topic 718) in 2010, and had an expected conversion rate of 83% and fair value per share of $18.79. The grant date (per Topic 718) for the second tranche occurred in the fourth quarter of 2011. The performance shares in the second tranche were deemed to have an expected conversion rate (probable outcome) of 50% and fair value per share of $25.7025, resulting in grant date fair values of $1,282,786; $257,025; $171,359; $171,359; and $171,359, for Mr. Klesse, Mr. Ciskowski, Ms. Bowers, Mr. Edwards, and Mr. Gorder, respectively. The grant date (per Topic 718) for the third tranche is expected to occur in either the fourth quarter of 2012 or in January 2013, depending on actions to be taken by our Compensation Committee. The expected conversion rate and fair value of the third tranche will be determined on its Topic 718 grant date.
Shares of Common Stock were not issued in respect of performance shares for the vesting periods ending on December 31, 2010 and December 31, 2011, because the performance thresholds established by the Compensation Committee when the performance shares were initially awarded were not satisfied.
Footnotes to Grants of Plan-Based Awards table (cont.):
| |
| (6) | Represents a grant of options to purchase our Common Stock. The options vest (become nonforfeitable) in equal annual installments over a period of three years beginning in 2010,2012, and will expire in 10 years from their date of grant. For information about valuation assumptions for the 2011 grants, refer to Note 15 (“Stock-Based Compensation”) of Notes to Consolidated Financial Statements in Valero’s Annual Report on Form 10-K for the year ended December 31, 2011. For financial reporting purposes, the fair value of stock options must be determined using an option-pricing model such as Black-Scholes or a binomial model taking into consideration the following: |
•the exercise price of the option;
| • | | the exercise price of the option; |
|
| • | | the expected life of the option; |
|
| • | | the current price of the underlying stock; |
|
| • | | the expected volatility of the underlying stock; |
|
| • | | the expected dividends on the underlying stock; and |
|
| • | | the risk-free interest rate for the expected life of the option. |
•the expected life of the option;•the current price of the underlying stock;
•the expected volatility of the underlying stock;
•the expected dividends on the underlying stock; and
•the risk-free interest rate for the expected life of the option.
| | The Black-Scholes option pricing model was used to determine grant date fair value. Options issued under our plans are not freely traded, and the exercise of such options is subject to substantial restrictions. The Black-Scholes model does not give effect to either risk of forfeiture or lack of transferability. The estimated values under the Black-Scholes model are based on assumptions as to variables such as interest rates, stock price volatility, and future dividend yield. The estimated values presented in this table were calculated using an expected average option life of 6.0 years, risk-free rate of return of 2.8%, average volatility rate of 47.8%, and a dividend yield of 3.1%, which is the expected annualized quarterly dividend rate in effect at the date of grant expressed as a percentage of the market value of our Common Stock on the date of grant. The actual value of stock options could be zero; realization of any positive value depends upon the actual future market performance of our Common Stock, the continued employment of the option holder throughout the vesting period, and the timing of the exercise of the option. Accordingly, the values set forth in this table may not be achieved. The actual value, if any, a person will realize upon exercise of an option will depend on the excess of the market value of our Common Stock over the exercise price on the date the option is exercised. The options are also described in “Compensation Discussion and Analysis — Elements of Executive Compensation — Long-Term Incentive Awards.” |
38
OUTSTANDING EQUITY AWARDS
AT DECEMBER 31, 20092011
The followingThis table provides information regarding our named executive officers’describes unexercised stock options, unvested shares of restricted stock, and unvested performance shares held by our named executive officers as of December 31, 2009.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | Stock Awards |
| | | | | | | | | | | | | | | | | | | Restricted Stock | | Performance Shares |
| | | | | | | | | | | | | | | | | | | | | Equity Incentive | | Equity Incentive |
| | | | | | | Option Awards | | | | | | | | | | | | | | Plan Awards: | | Plan Awards: |
| | | Number of | | Number of | | | | | | | | | | | | | | Market Value | | Number of | | Market or |
| | | Securities | | Securities | | | | | | | | | | Number of | | of Shares | | Unearned Shares, | | Payout Value of |
| | | Underlying | | Underlying | | | | | | | | | | Shares or | | or Units of | | Units or | | Unearned Shares, |
| | | Unexercised | | Unexercised | | Option | | Option | | Units of Stock | | Stock That | | Other Rights | | Units or Other |
| | | Options (#) | | Options (#) | | Exercise | | Expira- | | That Have | | Have Not | | That Have Not | | Rights That Have |
| Name | | Exercisable | | Unexcercisable | | Price ($)(1) | | tion Date | | Not Vested (#) | | Vested ($)(2) | | Vested (#)(2) | | Not Vested ($)(2) |
| William R. Klesse | | | 108,000 | | | | — | | | | 9.825 | | | | 10/29/13 | | | | 3,120 | (3) | | | 52,260 | | | | 9,263 | (10) | | | 155,155 | |
| | | | 102,392 | | | | — | | | | 11.5525 | | | | 02/06/11 | | | | 11,492 | (4) | | | 192,491 | | | | 15,746 | (11) | | | 263,746 | |
| | | | 40,084 | | | | — | | | | 14.755 | | | | 02/06/11 | | | | 27,000 | (5) | | | 452,250 | | | | 38,000 | (12) | | | 636,500 | |
| | | | 50,900 | | | | — | | | | 15.65 | | | | 02/06/11 | | | | 96,264 | (6) | | | 1,612,422 | | | | | | | | | |
| | | | 27,476 | | | | — | | | | 18.6125 | | | | 02/06/11 | | | | 252,650 | (7) | | | 4,231,888 | | | | | | | | | |
| | | | 26,164 | | | | — | | | | 18.0825 | | | | 02/06/11 | | | | | | | | | | | | | | | | | |
| | | | 68,000 | | | | — | | | | 21.355 | | | | 10/21/14 | | | | | | | | | | | | | | | | | |
| | | | 148,725 | | | | 297,450 | (8) | | | 17.11 | | | | 10/16/15 | | | | | | | | | | | | | | | | | |
| | | | — | | | | 611,775 | (9) | | | 19.415 | | | | 10/15/19 | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Michael S. Ciskowski | | | 46,000 | | | | — | | | | 21.355 | | | | 10/21/14 | | | | 1,648 | (3) | | | 27,604 | | | | 1,973 | (10) | | | 33,048 | |
| | | | 53,392 | | | | 106,783 | (8) | | | 17.11 | | | | 10/16/15 | | | | 2,448 | (4) | | | 41,004 | | | | 3,353 | (11) | | | 56,163 | |
| | | | — | | | | 235,075 | (9) | | | 19.415 | | | | 10/15/19 | | | | 5,400 | (5) | | | 90,450 | | | | 7,500 | (12) | | | 125,625 | |
| | | | | | | | | | | | | | | | | | | | 34,560 | (6) | | | 578,880 | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | 97,080 | (7) | | | 1,626,090 | | | | | | | | | |
| | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Richard J. Marcogliese | | | 40,000 | | | | — | | | | 7.00 | | | | 05/04/10 | | | | 800 | (3) | | | 13,400 | | | | 1,676 | (10) | | | 28,073 | |
| | | | 20,000 | | | | — | | | | 9.8625 | | | | 06/16/11 | | | | 2,184 | (4) | | | 36,582 | | | | 2,993 | (11) | | | 50,133 | |
| | | | 60,000 | | | | — | | | | 8.43625 | | | | 07/18/11 | | | | 12,720 | (5) | | | 213,060 | | | | 17,680 | (12) | | | 296,140 | |
| | | | 60,000 | | | | — | | | | 7.515 | | | | 09/18/12 | | | | 42,208 | (6) | | | 706,984 | | | | | | | | | |
39
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | Stock Awards |
| | | | | | | | | | | | | | | | | | | Restricted Stock | | Performance Shares |
| | | | | | | Option Awards | | | | | | | | | | | | | | Equity Incentive | | Equity Incentive |
| | | | | | | | | | | | | | | | | | | | | | | | | | | Plan Awards: | | Plan Awards: |
| | | Number of | | Number of | | | | | | | | | | | | | | Market Value | | Number of | | Market or |
| | | Securities | | Securities | | | | | | | | | | Number of | | of Shares | | Unearned Shares, | | Payout Value of |
| | | Underlying | | Underlying | | | | | | | | | | Shares or | | or Units of | | Units or | | Unearned Shares, |
| | | Unexercised | | Unexercised | | Option | | Option | | Units of Stock | | Stock That | | Other Rights | | Units or Other |
| | | Options (#) | | Options (#) | | Exercise | | Expira- | | That Have | | Have Not | | That Have Not | | Rights That Have |
| Name | | Exercisable | | Unexcercisable | | Price ($)(1) | | tion Date | | Not Vested (#) | | Vested ($)(2) | | Vested (#)(2) | | Not Vested ($)(2) |
| Richard J. Marcogliese (cont.) | | | 32,000 | | | | — | | | | 9.825 | | | | 10/29/13 | | | | 97,080 | (7) | | | 1,626,090 | | | | | | | | | |
| | | | 20,000 | | | | — | | | | 21.355 | | | | 10/21/14 | | | | | | | | | | | | | | | | | |
| | | | 65,209 | | | | 130,416 | (8) | | | 17.11 | | | | 10/16/15 | | | | | | | | | | | | | | | | | |
| | | | — | | | | 235,075 | (9) | | | 19.415 | | | | 10/15/19 | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Kimberly S. Bowers | | | 9,600 | | | | — | | | | 9.825 | | | | 10/29/13 | | | | 292 | (3) | | | 4,891 | | | | 346 | (10) | | | 5,796 | |
| | | | 9,400 | | | | — | | | | 21.355 | | | | 10/21/14 | | | | 824 | (4) | | | 13,802 | | | | 1,126 | (11) | | | 18,861 | |
| | | | 20,125 | | | | 40,250 | (8) | | | 17.11 | | | | 10/16/15 | | | | 2,160 | (5) | | | 36,180 | | | | 3,000 | (12) | | | 50,250 | |
| | | | — | | | | 85,825 | (9) | | | 19.415 | | | | 10/15/19 | | | | 13,024 | (6) | | | 218,152 | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | 35,440 | (7) | | | 593,620 | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Joseph W. Gorder | | | 14,400 | | | | — | | | | 9.825 | | | | 10/29/13 | | | | 640 | (3) | | | 10,720 | | | | 1,273 | (10) | | | 21,323 | |
| | | | 14,000 | | | | — | | | | 21.355 | | | | 10/21/14 | | | | 1,842 | (4) | | | 30,854 | | | | 2,523 | (11) | | | 42,260 | |
| | | | 18,859 | | | | 37,716 | (8) | | | 17.11 | | | | 10/16/15 | | | | 3,936 | (5) | | | 65,928 | | | | 5,470 | (12) | | | 91,623 | |
| | | | — | | | | 79,900 | (9) | | | 19.415 | | | | 10/15/19 | | | | 12,208 | (6) | | | 204,484 | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | 33,000 | (7) | | | 552,750 | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Option Awards | | Stock Awards |
| | | | | Restricted Stock | | Performance Shares |
| | | Number of Securities Underlying Unexercised Options (#) Exercisable | | Number of Securities Underlying Unexercised Options (#) Unexercisable | | Option Exercise Price ($)(1) | | Option Expiration Date | | Number of Shares or Units of Stock That Have Not Vested (#) | | Market Value of Shares or Units of Stock That Have Not Vested ($)(2) | | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#) (2) | | Equity Incentive Plan Awards: Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($)(2) |
| William R. Klesse | | 108,000 |
| | — |
| | | | 9.825 |
| | 10/29/2013 | | 5,719 |
| | (6 | ) | | 120,385 |
| | 12,666 |
| | (11 | ) | | — |
|
| | | 68,000 |
| | — |
| | | | 21.355 |
| | 10/21/2014 | | 30,588 |
| | (7 | ) | | 643,877 |
| | 299,450 |
| | (12 | ) | | 6,303,423 |
|
| | | 446,175 |
| | — |
| | | | 17.11 |
| | 10/16/2015 | | 96,336 |
| | (8 | ) | | 2,027,873 |
| | 253,050 |
| | (13 | ) | | 5,326,703 |
|
| | | 407,850 |
| | 203,925 |
| | (3 | ) | | 19.415 |
| | 10/15/2019 | | 63,433 |
| | (9 | ) | | 1,335,265 |
| | | | | | |
| | | 49,909 |
| | 99,816 |
| | (4 | ) | | 18.985 |
| | 11/17/2020 | | 80,406 |
| | (10 | ) | | 1,692,546 |
| | | | | | |
| | | — |
| | 126,525 |
| | (5 | ) | | 26.3025 |
| | 10/28/2021 | | | | | | | | | | | | |
| Michael S. Ciskowski | | 46,000 |
| | — |
| | | | 21.355 |
| | 10/21/2014 | | 1,800 |
| | (6 | ) | | 37,890 |
| | 2,500 |
| | (11 | ) | | — |
|
| | | 160,175 |
| | — |
| | | | 17.11 |
| | 10/16/2015 | | 17,280 |
| | (7 | ) | | 363,744 |
| | 60,000 |
| | (12 | ) | | 1,263,000 |
|
| | | 156,717 |
| | 78,358 |
| | (3 | ) | | 19.415 |
| | 10/15/2019 | | 58,248 |
| | (8 | ) | | 1,226,120 |
| | 84,000 |
| | (13 | ) | | 1,768,200 |
|
| | | 10,000 |
| | 20,000 |
| | (4 | ) | | 18.985 |
| | 11/17/2020 | | 20,000 |
| | (9 | ) | | 421,000 |
| | | | | | |
| | | — |
| | 42,000 |
| | (5 | ) | | 26.3025 |
| | 10/28/2021 | | 42,000 |
| | (10 | ) | | 884,100 |
| | | | | | |
| Kimberly S. Bowers | | 9,600 |
| | — |
| | | | 9.825 |
| | 10/29/2013 | | 720 |
| | (6 | ) | | 15,156 |
| | 1,000 |
| | (11 | ) | | — |
|
| | | 9,400 |
| | — |
| | | | 21.355 |
| | 10/21/2014 | | 6,512 |
| | (7 | ) | | 137,078 |
| | 40,000 |
| | (12 | ) | | 842,000 |
|
| | | 60,375 |
| | — |
| | | | 17.11 |
| | 10/16/2015 | | 21,264 |
| | (8 | ) | | 447,607 |
| | 40,000 |
| | (13 | ) | | 842,000 |
|
| | | 57,217 |
| | 28,608 |
| | (3 | ) | | 19.415 |
| | 10/15/2019 | | 13,333 |
| | (9 | ) | | 280,660 |
| | | | | | |
| | | 6,667 |
| | 13,333 |
| | (4 | ) | | 18.985 |
| | 11/17/2020 | | 20,000 |
| | (10 | ) | | 421,000 |
| | | | | | |
| | | — |
| | 20,000 |
| | (5 | ) | | 26.3025 |
| | 10/28/2021 | | | | | | | | | | | | |
(table with footnotes continues on the following page)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Option Awards | | Stock Awards |
| | | | | Restricted Stock | | Performance Shares |
| | | Number of Securities Underlying Unexercised Options (#) Exercisable | | Number of Securities Underlying Unexercised Options (#) Unexercisable | | Option Exercise Price ($)(1) | | Option Expiration Date | | Number of Shares or Units of Stock That Have Not Vested (#) | | Market Value of Shares or Units of Stock That Have Not Vested (#)(2) | | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested ($) (2) | | Equity Incentive Plan Awards: Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($)(2) |
| S. Eugene Edwards | | 7,560 |
| | — |
| | | | 21.355 |
| | 10/21/2014 | | 808 |
| | (6 | ) | | 17,008 |
| | 1,766 |
| | (11 | ) | | — |
|
| | | 52,125 |
| | — |
| | | | 17.11 |
| | 10/16/2015 | | 3,574 |
| | (7 | ) | | 75,233 |
| | 40,000 |
| | (12 | ) | | 842,000 |
|
| | | 49,800 |
| | 24,900 |
| | (3 | ) | | 19.415 |
| | 10/15/2019 | | 11,764 |
| | (8 | ) | | 247,632 |
| | 40,000 |
| | (13 | ) | | 842,000 |
|
| | | 6,667 |
| | 13,333 |
| | (4 | ) | | 18.985 |
| | 11/17/2020 | | 8,472 |
| | (9 | ) | | 178,336 |
| | | | | | |
| | | — |
| | 20,000 |
| | (5 | ) | | 26.3025 |
| | 10/28/2021 | | 12,710 |
| | (10 | ) | | 267,546 |
| | | | | | |
| Joseph W. Gorder | | 14,000 |
| | — |
| | | | 21.355 |
| | 10/21/2014 | | 1,312 |
| | (6 | ) | | 27,618 |
| | 1,823 |
| | (11 | ) | | — |
|
| | | 56,575 |
| | — |
| | | | 17.11 |
| | 10/16/2015 | | 6,104 |
| | (7 | ) | | 128,489 |
| | 40,000 |
| | (12 | ) | | 842,000 |
|
| | | 53,267 |
| | 26,633 |
| | (3 | ) | | 19.415 |
| | 10/15/2019 | | 19,800 |
| | (8 | ) | | 416,790 |
| | 50,000 |
| | (13 | ) | | 1,052,500 |
|
| | | 6,667 |
| | 13,333 |
| | (4 | ) | | 18.985 |
| | 11/17/2020 | | 13,333 |
| | (9 | ) | | 280,660 |
| | | | | | |
| | | — |
| | 25,000 |
| | (5 | ) | | 26.3025 |
| | 10/28/2021 | | 25,000 |
| | (10 | ) | | 526,250 |
| | | | | | |
Footnotes to Outstanding Equity Awards table:
| | |
Footnotes to “Outstanding Equity Awards” table: |
| (1) | | Valero’s 2005 Omnibus Incentive Plan providesOur equity plans provide that the exercise price for all stock options granted under the plan will bemust equal to the mean of the Common Stock’s high and low NYSE reported sales price per share on the NYSE of our Common Stock on the date of grant. |
| |
| (2) | | The assumed market values were determined using the closing market price of our Common Stock on December 31, 200930, 2011 ($16.7521.05 per share). For a further discussion of the vesting of certain performance share awards (as noted in the following footnotes), see “Compensation Discussion and Analysis —– Elements of Executive Compensation —– Long-Term Incentive Awards —– Performance Shares.” For performance shares that vested in January 2012, the payout value used for this column was zero because the actual performance share vesting percentage on 01/23/2012 was 0%. |
| |
| (3) | | The unvested portion of this award will vest on 10/20/10.15/2012. |
| |
| (4) | The unvested portion of this award will vest in equal installments on 11/17/2012 and 11/17/2013. |
| |
| (5) | The unvested portion of this award will vest in equal installments on 10/19/1028/2012, 10/28/2013, and 10/19/11.28/2014. |
40
Footnotes to Outstanding Equity Awards table (cont.):
| | |
Footnotes to “Outstanding Equity Awards” table (cont.): |
(5) | (6) | The unvested portion of this award will vest in equal installments on 10/25/10, 10/25/11, and 10/25/12.2012. |
| |
|
(6) | (7) | The unvested portion of this award will vest in equal installments on 10/16/10, 10/16/11, 10/16/12,2012 and 10/16/13;2013; 50% of the shares of restricted stock represented by this award are eligible for accelerated vesting as described in the footnotes to the “Grants of Plan Based Awards” table above (substituting “$60.00” for the “$40.00” stated therein). |
| |
(7) | (8) | The unvested portion of this award will vest in equal installments on 10/16/10,15/2012, 10/16/11, 10/16/12, 10/16/13,15/2013, and 10/16/14;15/2014; 50% of the shares of restricted stock represented by this award are eligible for accelerated vesting as described in the footnotes to the “Grants of Plan Based Awards” table above. |
| |
(8)(9) | The unvested portion of this award will vest in equal installments on 11/17/2012 and 11/17/2013; 50% of the shares of restricted stock represented by this award are eligible for accelerated vesting as described in the footnotes to the “Grants of Plan Based Awards” table above. |
| |
| (10) | The unvested portion of this award will vest in equal installments on 10/16/10,28/2012, 10/28/2013, and 10/16/11.28/2014; 50% of the shares of restricted stock represented by this award are eligible for accelerated vesting as described in the footnotes to the “Grants of Plan Based Awards” table above. |
| |
|
(9) | | The unvested portion of this award will vest in equal installments on 10/15/10, 10/15/11, and 10/15/12. |
|
(10) | (11) | These performance shares vested on 01/25/1023/2012 at 50%0%, and thus no shares of Common Stock equal to 50% of the number of vested performance shares were issued on that vesting date. The performance shares are not eligible to be carried forward for future vesting; they expired on 01/23/2012. |
| |
| (12) | One-third of these performance shares vested on 01/23/2012 at 0%; no shares of Common Stock were issued on that date, but per the terms of the award, they will be carried forward and will be eligible for vesting on the next normal vesting date. The one-third “carry forward” performance shares and another one-third (regular vesting) of the listed performance shares will vest in January 2013. The final one-third will vest in January 2014. The value shown in the column, “Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested,” represents the market value of 100% of the performance shares at the closing price of Valero’s Common Stock on 12/31/09.2011. |
| |
|
(11) | (13) | These performance shares vested on 01/25/10 at 50%,will vest in one-third increments in each of January 2013, January 2014, and shares of Common Stock equal to 50% of the number of vested performance shares were issued on that date. Per the terms of the performance share awards, 25% of the performance shares shown as unvested at 12/31/09 will be carried forward and will be eligible for vesting on the next normal vesting date of performance shares (expected to be in January 2011).2015. The value shown in the column, “Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested,” represents the market value of 100% of the performance shares at the closing price of Valero’s Common Stock on 12/31/09. |
|
(12) | | Of these performance shares disclosed as unvested at 12/31/09, two-thirds of them vested on 01/25/10 at 50%, and shares of Common Stock equal to 50% of the number of vested performance shares were issued on that date. Per the terms of the performance share awards, 16.67% of the performance shares shown as unvested at 12/31/09 will be carried forward and will be eligible for vesting — together with the final one-third of performance shares that have not yet vested — on the next normal vesting date of performance shares (expected to be in January 2011). The value shown in the column, “Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested,” represents the market value of 100% of the performance shares at the closing price of Valero’s Common Stock on 12/31/09.2011. |
41
OPTION EXERCISES AND STOCK VESTED
DURING THE FISCAL YEAR ENDED DECEMBER 31, 20092011
The following table provides information regarding (i) option exercises by our named executive officers, and (ii) the vesting of restricted stock and performance shares held by our named executive officers during 20092011 on an aggregated basis.
| | | | | | | | | | | | | | | | | |
| | | Option Awards | | Stock Awards (1) |
| | | No. of Shares | | Value | | No. of Shares | | Value |
| | | Acquired on | | Realized on | | Acquired on | | Realized on |
| Name | | Exercise (#)(2) | | Exercise ($)(3) | | Vesting (#)(2) | | Vesting ($)(4) |
| William R. Klesse | | | 200,000 | | | | 1,287,388 | | | | 47,532 | | | | 955,992 | |
| Michael S. Ciskowski | | | 27,200 | | | | 180,540 | | | | 16,912 | | | | 339,814 | |
| Richard J. Marcogliese | | | — | | | | — | | | | 18,284 | | | | 368,161 | |
| Kimberly S. Bowers | | | — | | | | — | | | | 5,440 | | | | 109,177 | |
| Joseph W. Gorder | | | — | | | | — | | | | 7,125 | | | | 143,497 | |
|
| | | | | | | | | | | | | |
| | | | Option Awards | | Stock Awards (1) |
| | Name | | No. of Shares Acquired on Exercise (#) | | Value Realized on Exercise ($) | | No. of Shares Acquired on Vesting (#)(2) | | Value Realized on Vesting ($)(3) |
| |
| | William R. Klesse | | — |
| | — |
| | 88,496 |
| | 1,800,182 |
|
| | Michael S. Ciskowski | | — |
| | — |
| | 41,080 |
| | 937,383 |
|
| | Kimberly S. Bowers | | — |
| | — |
| | 18,143 |
| | 412,343 |
|
| | S. Eugene Edwards | | — |
| | — |
| | 11,343 |
| | 318,058 |
|
| | Joseph W. Gorder | | — |
| | — |
| | 18,552 |
| | 421,060 |
|
Footnotes to Option Exercises and Stock Vested table:
| | |
Footnotes to “Option Exercises and Stock Vested” table: |
| (1) | | Represents vested shares of Common Stock from the vesting of restricted stock.shares. In 2011, no shares of Common Stock were issued with respect to vested performance shares because Valero’s performance score on 01/24/2011 was 0%. |
| |
| (2) | | RepresentsFor our “retirement eligible” officers (i.e., Mr. Klesse and Mr. Edwards), the grossnumber of shares listed represents the number of shares received by the named executive officer beforeafter deducting shares withheld (mandatory) from (i) an option’s exercise to pay the exercise price and/or tax obligation, or (ii) the vesting of restricted stock to pay the resulting tax obligation. |
|
(3) | | The reported value is determined by multiplying (i) For the other officers, the number of option shares times (ii)listed represents the difference betweengross number of shares received by the market priceofficer before deducting shares withheld (elective) from the vesting of restricted stock to pay the Common Stock on the date of exercise and the exercise price of the stock option. The value is stated before payment of applicable taxes.resulting tax obligation. |
| |
|
(4) | (3) | The reported value is determined by multiplying number of vested shares by the market value of the shares on the vesting date. The value is stated before payment of applicable taxes. |
42
POST-EMPLOYMENT COMPENSATION
PENSION BENEFITS
FOR FISCAL YEAR ENDED DECEMBER 31, 2009
The following table provides information regarding the accumulated benefits of our named executive officers under Valero’s tax-qualified defined benefit plan and supplemental retirement plans during the year ended December 31, 2009.
| | | | | | | | | | | | | | | |
| | | | | | | | | Present | | Payments |
| | | | | No. of Years | | Value of | | During |
| | | | | Credited | | Accumulated | | Last Fiscal |
| Name | | Plan Name | | Service (#) | | Benefits ($) | | Year ($) |
| William R. Klesse (1) | | Pension Plan | | | 22.92 | | | | 898,172 | | | | — | |
| | | Excess Pension Plan | | | 8.00 | | | | 3,805,764 | | | | — | |
| | | SERP | | | 8.00 | | | | 848,587 | | | | — | |
| | | | | | | | | | | | | | | |
| Michael S. Ciskowski | | Pension Plan | | | 24.25 | | | | 531,819 | | | | — | |
| | | Excess Pension Plan | | | 24.25 | | | | 2,046,685 | | | | — | |
| | | SERP | | | 24.25 | | | | 482,926 | | | | — | |
| | | | | | | | | | | | | | | |
| Richard J. Marcogliese (2) | | Pension Plan | | | 35.58 | | | | 1,034,493 | | | | — | |
| | | Excess Pension Plan | | | 35.58 | | | | 5,121,267 | | | | — | |
| | | SERP | | | 35.58 | | | | 1,174,387 | | | | — | |
| | | | | | | | | | | | | | | |
| Kimberly S. Bowers | | Pension Plan | | | 12.25 | | | | 186,222 | | | | — | |
| | | Excess Pension Plan | | | 12.25 | | | | 344,087 | | | | — | |
| | | SERP | | | 12.25 | | | | 92,809 | | | | — | |
| | | | | | | | | | | | | | | |
| Joseph W. Gorder (3) | | Pension Plan | | | 22.25 | | | | 351,208 | | | | — | |
| | | Excess Pension Plan | | | 7.67 | | | | 378,240 | | | | — | |
| | | SERP | | | 7.67 | | | | 97,524 | | | | — | |
|
| | | | | | | | | | | |
| Name | | Plan Name | | No. of Years Credited Service (#) | | Present Value of Accumulated Benefits ($) | | Payments During Last Fiscal Year ($) |
| William R. Klesse (1) | | Pension Plan | | 24.92 |
| | 3,823 |
| | 1,210,381 |
|
| | | Excess Pension Plan | | 10.00 |
| | 5,893,488 |
| | — |
|
| | | SERP | | 10.00 |
| | 1,915,299 |
| | — |
|
| Michael S. Ciskowski | | Pension Plan | | 26.25 |
| | 789,091 |
| | — |
|
| | | Excess Pension Plan | | 26.25 |
| | 3,365,046 |
| | — |
|
| | | SERP | | 26.25 |
| | 1,818,849 |
| | — |
|
| Kimberly S. Bowers | | Pension Plan | | 14.25 |
| | 310,408 |
| | — |
|
| | | Excess Pension Plan | | 14.25 |
| | 633,444 |
| | — |
|
| | | SERP | | 14.25 |
| | 398,410 |
| | — |
|
| S. Eugene Edwards | | Pension Plan | | 29.21 |
| | 949,688 |
| | — |
|
| | | Excess Pension Plan | | 29.21 |
| | 2,071,105 |
| | — |
|
| | | SERP | | 29.21 |
| | 896,360 |
| | — |
|
| Joseph W. Gorder (2) | | Pension Plan | | 24.25 |
| | 551,198 |
| | — |
|
| | | Excess Pension Plan | | 9.67 |
| | 632,698 |
| | — |
|
| | | SERP | | 9.67 |
| | 304,236 |
| | — |
|
Footnotes to Pension Benefits table:
| | |
Footnotes to “Pension Benefits” table: |
| (1) | | The 22.9224.92 years of service stated for Mr. Klesse for the Pension Plan represent the sum of Mr. Klesse’s participation in (a) the Valero Pension Plan since the date of Valero’s acquisition of UDS in 2001 (eight(10 years), and (b) the qualified pension plan of UDS prior to the date of Valero’s acquisition of UDS (14.92 years). (InIn addition, Mr. Klesse has approximately 18 years of service in a pension plan sponsored by an entity unaffiliated with Valero or UDS that was spun-off from a predecessor of UDS.) The eight10 years of service stated for Mr. Klesse for the Excess Pension Plan and SERP represent his participation in these plans since the date of Valero’s acquisition of UDS in 2001. |
| |
| (2) | | The 24.25 years of service stated for Mr. Marcogliese represent his combined years of credited service in Valero’s plans (approximately 9.7 years) and the plan of Exxon Mobil Corporation (“ExxonMobil”), his previous employer (approximately 25.8 years). Valero’s plans “wrap around” the ExxonMobil plan such that Mr. Marcogliese’s ultimate pension benefit from Valero will be calculated generally by computing his benefit under the Valero plans using the combined years of service stated in the table above, and then subtracting the amounts accruing to Mr. Marcogliese under the ExxonMobil plan. |
|
(3) | | The 22.25 years of service statedGorder for the Pension Plan represent the sum of Mr. Gorder’shis participation in (a) the Valero Pension Plan since 2002 (7.67(9.67 years), (b) the qualified pension plan of UDS (11.5 years), and (c) a pension plan sponsored by an entity unaffiliated with Valero or UDS that was spun-off from a predecessor of UDS (3.08 years). In 2001, Mr. Gorder received a lump sum settlement relating to prior years of service. The Pension Plan amount stated above reflects the effect of offsetting Mr. Gorder’s accrued benefit under the Valero Pension Plan (using 22.2524.25 years of credited service) by the value of his lump sum settlement in 2001. The 7.679.67 years of service stated for Mr. Gorder for the Excess Pension Plan and SERP represent his participation in these plans since the date of his commencement of employment with Valero. |
43
Our Pension Plan, Excess Pension Plan, and SERP are described in the “Compensation Discussion and Analysis” section under the captions “Post-Employment Benefits” and “Pension Plans.”
The presentPresent values stated in the table above were calculated using the same interest rate and mortality table we use for our financial reporting. The presentPresent values as ofat December 31, 20092011 were determined using a 5.80%5.08 percent discount rate and the plans’ earliest unreduced retirement age (i.e., age 62). The present values reflect postretirement mortality rates based on the RP2000 Combined Healthy2012 Pension Protection Act Static Annuitant Mortality Table Projected by Scale AA to 2015.Table. No decrements were included for pre-retirement termination, mortality, or disability. WhereWhen applicable, lump sums were determined based on a 6.30%5.08 percent interest rate and the mortality table prescribed by the IRS in Rev. Ruling 2007-67 and updated by IRS Notice 2008-85 for distributions in the years 2009-2013.
Under our Pension Plan, an eligible employee may elect to retire prior to the normal retirement age of 65, provided the individual is between the ages of 55 and 65 and has completed as least five years of vesting service. Under the plan’s early retirement provisions, an employee may elect to commence a benefit upon retirement or delay payments to a later date. Pension payments that begin after age 55 and before age 62 are reduced by four percent for each full year between the benefit start date and the individual’s 62nd birthday. The four-percent reduction is prorated for a partial year. The formula used to calculate the benefit and the optional forms of payment are otherwise the same as for normal retirement. Mr. Klesse and Mr. Marcogliese areEdwards is eligible for early retirement benefits. Mr. Klesse is eligible for normal retirement benefits.
For employees hired prior to January 1, 2010, the Pension Plan (supplemented, as necessary, by the Excess Pension Plan) provides a monthly pension at normal retirement equal to 1.6 percent of the participant’s average monthly compensation (based upon the participant’s earnings during the three consecutive calendar years during the last 10 years of the participant’s credited service affording the highest such average) times the participant’s years of credited service.
For employees hired on or after January 1, 2010, the Pension Plan (supplemented, as necessary, by the Excess Pension Plan) is a cash balance benefit that provides a monthly pension at normal retirement based on annual employer contributions that are based on years of service, eligible compensation and pay credits. After a one-year waiting period, pay credits are retroactive to the participant’s date of hire and are based on years of service and eligible compensation.
|
| | |
| Years of Service | | Pay Credits |
| Under 10 years | | 5% |
| 10 to 19 years | | 6% |
| 20 years and over | | 7% |
In addition to pay credits, participants will also be eligible for monthly interest credits based on the 10-Year treasury note rate with a minimum of 3 percent.
The Excess Pension Plan provides benefits to those employees whose pension benefits under the plans listeddefined benefit Pension Plan are subject to limitations under the Internal Revenue Code, or are otherwise indirectly constrained by the Code from realizing the maximum benefit available to them under the terms of Pension Plan. The Excess Pension Plan is designed as an “excess benefit plan” as defined under §3(36) of ERISA, for those benefits provided in excess of section 415 of the Code. The Excess Pension Plan is not intended to be either a qualified plan under the provisions of Section 401(a) of the Code, or a funded plan subject to the funding requirements of ERISA. Subject to other terms of the plan, the benefit payable under the Excess Pension Plan is generally an amount equal to “x” minus “y”, where “x” is equal to 1.6 percent of a participant’s final average monthly earnings (as determined under the plan) multiplied by the participant’s number of years of credited service, and “y” is equal to the participant’s benefit that is payable under the Pension Plan. A participant’s benefits under the Excess Pension Plan will vest concurrently with the vesting of the participant’s benefits under the Pension Plan.
The SERP provides an additional benefit equal to 0.35 percent times the product of the participant’s years of credited service (maximum 35 years) multiplied by the excess of the participant’s average monthly compensation over the lesser of 1.25 times the monthly average (without indexing) of the social security wage bases for the 35-year period ending with the year the participant attains social security retirement age, or the monthly average of the social security wage base in effect for the year that the participant retires. The participant’s most highly compensated consecutive 36 months of service are considered. The SERP benefit
payment is made in a lump sum. A participant in the table above.SERP will vest in the SERP benefit when he or she reaches age 55 (and has completed at least five years of credited service). An executive will become a participant in the SERP as of the date he or she is selected and named in the minutes of the Compensation Committee for inclusion as a participant in the SERP. Compensation for purposes of the Pension Plan, Excess Pension Plan, and SERP includes salary and bonus.
44
NONQUALIFIED DEFERRED COMPENSATION
FOR YEAR ENDED DECEMBER 31, 2009
The following table provides information regardingdescribes contributions by Valero and each named executive officer under our non-qualified defined contribution and other deferred compensation plans during 2009.2011. The table also presents each named executive officer’s earnings, withdrawals (if any), and year-end balances in suchthese plans.
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | Executive | | Registrant | | | | | | Aggregate | | Aggregate |
| | | | | | | Contribu- | | Contribu- | | Aggregate | | Withdraw- | | Balance |
| | | | | | | tions in | | tions in | | Earnings in | | als/Distri- | | at Last |
| Name | | Plan Name | | Last FY ($) | | FY ($)(1) | | Last FY ($) | | butions ($) | | FYE ($) |
| William R. | | Deferred Compensation Plan | | | 220,551 | | | | — | | | | 322,720 | | | | — | | | | 1,346,355 | |
| Klesse | | Excess Thrift Plan | | | — | | | | 75,300 | | | | — | | | | — | | | | 263,910 | |
| | | | | Diamond Shamrock Excess ESOP (2) | | | — | | | | — | | | | — | | | | — | | | | 389,849 | |
| | | | | UDS Non-qualified 401(k) Plan (2) | | | — | | | | — | | | | (801,961 | ) | | | — | | | | 1,152,556 | |
| | | | | Diamond Shamrock Deferred Compensation Plan (2) | | | — | | | | — | | | | 32,228 | | | | — | | | | 535,954 | |
| Michael S. | | Deferred Compensation Plan | | | — | | | | — | | | | 29,167 | | | | — | | | | 143,128 | |
| Ciskowski | | Excess Thrift Plan | | | — | | | | 30,300 | | | | — | | | | — | | | | 158,880 | |
| Richard J. | | Deferred Compensation Plan | | | 126,400 | | | | — | | | | 3,891 | | | | — | | | | 449,201 | |
| Marcogliese | | Excess Thrift Plan | | | — | | | | 42,600 | | | | — | | | | — | | | | 158,169 | |
| Kimberly S. | | Deferred Compensation Plan | | | 79,189 | | | | — | | | | 46,394 | | | | — | | | | 237,086 | |
| Bowers | | Excess Thrift Plan | | | — | | | | 14,300 | | | | — | | | | — | | | | 33,471 | |
| Joseph W. | | Deferred Compensation Plan | | | — | | | | — | | | | — | | | | — | | | | — | |
| Gorder | | Excess Thrift Plan | | | — | | | | 12,900 | | | | — | | | | — | | | | 27,243 | |
|
| | | | | | | | | | | | | | | | | |
| | | | | Executive Contribu- tions in Last FY ($) | | Registrant Contribu- tions in FY ($) (1) | | Aggregate Earnings in Last FY ($) | | Aggregate Withdraw- als/Distri- butions ($) | | Aggregate Balance at Last FYE ($) |
| William R. Klesse | | Deferred Compensation Plan | | — |
| | — |
| | (10,776 | ) | | — |
| | 1,616,284 |
|
| | Excess Thrift Plan | | — |
| | 75,300 |
| | — |
| | — |
| | 491,795 |
|
| | Diamond Shamrock Excess ESOP (2) | | — |
| | — |
| | — |
| | — |
| | 501,783 |
|
| | UDS Non-qualified 401(k) Plan (2) | | — |
| | — |
| | (283,872 | ) | | — |
| | 2,695,099 |
|
| | Diamond Shamrock Deferred Compensation Plan (2) | | — |
| | — |
| | 36,485 |
| | — |
| | 606,729 |
|
| Michael S. Ciskowski | | Deferred Compensation Plan | | — |
| | — |
| | (431 | ) | | — |
| | 164,325 |
|
| | Excess Thrift Plan | | — |
| | 30,300 |
| | — |
| | — |
| | 265,703 |
|
| Kimberly S. Bowers | | Deferred Compensation Plan | | — |
| | — |
| | 2,382 |
| | — |
| | 272,781 |
|
| | Excess Thrift Plan | | — |
| | 17,400 |
| | — |
| | — |
| | 76,850 |
|
| S. Eugene Edwards | | Deferred Compensation Plan | | — |
| | — |
| | (25,321 | ) | | — |
| | 1,047,676 |
|
| | Excess Thrift Plan | | — |
| | 17,400 |
| | — |
| | — |
| | 218,285 |
|
| Joseph W. Gorder | | Deferred Compensation Plan | | — |
| | — |
| | — |
| | — |
| | — |
|
| | Excess Thrift Plan | | — |
| | 17,400 |
| | — |
| | — |
| | 65,653 |
|
| | |
Footnotes to “Nonqualified Deferred Compensation” table: |
| (1) | | All of the amounts included in this column are included within the amounts reported as “All Other Compensation” for 20092011 in the Summary Compensation Table. |
| |
| (2) | | Valero assumed the Diamond Shamrock Excess ESOP, UDS Non-qualified 401(k) Plan, and Diamond Shamrock Deferred Compensation Plan when we acquired UDS in 2001. These plans are frozen. Only Mr. Klesse has balances in these plans. |
Our Deferred Compensation Plan and Excess Thrift Plan are described in “Compensation Discussion and Analysis – Elements of Executive Compensation – Post-Employment Benefits.” The following terms also apply to these plans.
45
Under the Deferred Compensation Plan (DC Plan), participants may elect when and over what period of time their deferrals will be distributed based on plan provisions. Participants may elect to have their accounts distributed in a lump sum on a specified date, at least five years after the year of the deferral election. Effective January 1, 2010, the five year period changed to three years after the year of the deferral election for 2010 deferrals and after. Even if a participant has elected a specified distribution date, the participant’s DC Plan account will be distributed upon the participant’s death, retirement, or other termination of employment.
Participants may, at the time of their deferral elections, choose to have their accounts distributed as soon as reasonably practical following retirement or other termination, or on the first day of January following the date of retirement or termination.
Participants may also elect to have their accounts distributed in one lump sum payment or in five, 10, or 15 year installments upon retirement, and in a lump sum or five annual installments upon other termination. Participants may also elect to have their accounts distributed in one lump-sum payment or in two- to 15-year installments upon retirement. Upon a participant’s death, the participant’s beneficiary will receive the participant’s DC Plan account in one lump-sum payment within 90 days following the participant’s death. Upon a change in control of Valero, all DC Plan accounts are immediately vested in full. However, distributions are not accelerated and, instead, are made in accordance with the DC Plan’s normal distribution provisions.
The Excess Thrift Plan provides benefits to participants of our qualified thrift plan whose accounts would not otherwise be credited with company matching contributions due to certain IRS limits on contributions and/or compensation. The Excess Thrift Plan is neither a qualified plan for federal tax purposes nor a funded plan subject to ERISA. Two separate components comprise the Excess Thrift Plan: (i) an “excess benefit plan” as defined under Section 3(36) of ERISA; and (ii) a plan that is unfunded and maintained primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees.
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE OF CONTROL
Our named executive officers have change-of-control severance agreements with Valero. The agreements seek to assure the continued availability of the executive officers in the event of a “changechange of control” (described below)control of Valero. When determining the amounts and benefits payable under the agreements, the Compensation Committee and Valero sought to secure compensation that is competitive in our market to recruit and retain executive talent. Consideration was given to the principal economic terms found in written employment and change of control agreements of other publicly traded companies.
When a change of control occurs, the agreements become operative for a fixed three-year period. The agreements provide generally that the executive officer’s terms of employment will not be changed adversely changed during the three-year period after a change of control. In addition, outstanding stock options held by the executiveofficer will automatically vest, restrictions on outstanding restricted stock will lapse, and unvested performance shares will vest and become payable at 200%200 percent of target. The executiveexisting agreements also entitle the officers are also entitled to receive a payment in an amount sufficient to make them whole for any excise tax on excess parachute payments imposed under Section 4999 of the Internal Revenue Code.Code (although Valero has adopted a policy that this benefit may not be included in any future change of control agreements with executives). Each agreement subjects the executiveofficer to obligations of confidentiality, both during the term and after termination, for secret and confidential information relating to Valero that the executiveofficer acquired during his or her employment.
For purposes of thesethe agreements, a “change of control” means any of the following (subject to additional particulars as stated in the agreements):
| • | | the acquisition by an individual, entity or group of beneficial ownership of 20 percent or more of our outstanding Common Stock; |
|
| • | | the ouster from the Board of a majority of the incumbent directors; |
|
| • | | consummation of a business combination (e.g., merger, share exchange); |
|
| • | | approval by stockholders of the liquidation or dissolution of Valero. |
the acquisition by an individual, entity or group of beneficial ownership of 20 percent or more of our outstanding Common Stock;the ouster from the Board of a majority of the incumbent directors;
consummation of a business combination (e.g., merger, share exchange); or
approval by stockholders of the liquidation or dissolution of Valero.
In the agreements, “cause” is defined to mean, generally, the willful and continued failure of the executiveofficer to perform substantially the executive officer’s duties, or illegal or gross misconduct by the officer that is materially and demonstrably injurious to Valero. “Good reason” is defined to mean, generally:
| • | | a diminution in the executive officer’s position, authority, duties and responsibilities; |
|
| • | | relocation of the executive; |
|
| • | | increased travel requirements; |
|
| • | | failure of Valero’s successor to assume and perform under the agreement. |
SEC regulations require usrelocation of the executive;
increased travel requirements; or
failure of Valero’s successor to assume and perform under the agreement.
The following tables disclose potential payments to anour named executive officers in connection with his or her termination or a change of control of Valero. We have elected to use the following tables to make the required disclosures. Except as noted, valuesThe potential payments were calculated in accordance with SEC regulations. Values in the tables assume that a change of control occurred on December 31, 2009,2011, and that the executive officer’s employment was terminated on that date.
Under the change of control agreements, if an executive officer’s employment is terminated for “cause,” the officer will not receive any benefits or compensation other than any accrued salary or vacation pay that remained unpaid through the date of termination, and, therefore, there is no presentation of termination for “cause” in the tables below.following tables.
46
PAYMENTS UNDER CHANGE OF CONTROL SEVERANCE AGREEMENTS
Termination of Employment by the Company Other Than for
“Cause” or Disability, or by the Executive for “Good Reason” (1) ($)
| | | | | | | | | | | | | | | | | | | | | |
| | | Klesse | | Ciskowski | | Marcogliese | | Bowers | | Gorder |
| Salary (2) | | | 4,500,000 | | | | 2,250,000 | | | | 2,865,000 | | | | 988,000 | | | | 1,380,000 | |
| Bonus (2) | | | 11,160,045 | | | | 2,610,000 | | | | 3,996,000 | | | | 960,000 | | | | 1,903,500 | |
| Pension, Excess Pension, and SERP | | | 6,340,509 | | | | 2,402,561 | | | | 6,658,481 | | | | 417,528 | | | | 1,007,915 | |
| Contributions under Defined Contribution Plans | | | 270,000 | | | | 135,000 | | | | 171,900 | | | | 58,000 | | | | 82,800 | |
| Health & Welfare Plan Benefits (3) | | | 51,858 | | | | 28,200 | | | | 45,774 | | | | 30,124 | | | | 45,480 | |
| Outplacement Services | | | 25,000 | | | | 25,000 | | | | 25,000 | | | | 25,000 | | | | 25,000 | |
| Accelerated Vesting of Stock Options (4) | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | |
| Accelerated Vesting of Restricted Stock (5) | | | 6,541,311 | | | | 2,364,028 | | | | 2,596,116 | | | | 866,645 | | | | 864,736 | |
| Accelerated Vesting of Performance Shares (6) | | | 2,110,802 | | | | 429,671 | | | | 748,692 | | | | 149,812 | | | | 310,411 | |
| 280G Tax Gross Up (7) | | | — | | | | — | | | | 6,203,006 | | | | — | | | | 1,703,245 | |
|
| | | | | | | | | | | | | | | |
| | | Klesse | | Ciskowski | | Bowers | | Edwards | | Gorder |
| Salary (2) | | 4,500,000 |
| | 2,250,000 |
| | 1,070,000 |
| | 1,605,000 |
| | 1,605,000 |
|
| Bonus (2) | | 11,200,275 |
| | 4,104,000 |
| | 1,420,000 |
| | 2,130,000 |
| | 2,130,000 |
|
| Pension, Excess Pension, and SERP | | 6,297,477 |
| | 5,334,750 |
| | 1,173,521 |
| | 2,775,177 |
| | 1,574,645 |
|
| Contributions under Defined Contribution Plans | | 270,000 |
| | 135,000 |
| | 64,200 |
| | 96,300 |
| | 96,300 |
|
| Health & Welfare Plan Benefits (3) | | 54,000 |
| | 30,198 |
| | 37,510 |
| | 43,329 |
| | 43,635 |
|
| Outplacement Services | | 25,000 |
| | 25,000 |
| | 25,000 |
| | 25,000 |
| | 25,000 |
|
| Accelerated Vesting of Stock Options (4) | | 539,537 |
| | 169,415 |
| | 74,307 |
| | 68,244 |
| | 71,078 |
|
| Accelerated Vesting of Restricted Stock (5) | | 5,819,946 |
| | 2,932,854 |
| | 1,301,500 |
| | 785,754 |
| | 1,379,806 |
|
| Accelerated Vesting of Performance Shares (6) | | 23,793,489 |
| | 6,167,650 |
| | 3,410,100 |
| | 3,442,349 |
| | 3,865,748 |
|
| 280G Tax Gross Up (7) | | 15,427,933 |
| | — |
| | 2,771,591 |
| | — |
| | 3,677,121 |
|
Termination of Employment by the Company because of Death or
Disability (8) and Termination by the Executive Other Than for “Good Reason” (9) ($)
| | | | | | | | | | | | | | | | | | | | | |
| | | Klesse | | Ciskowski | | Marcogliese | | Bowers | | Gorder |
| Accelerated Vesting of Stock Options (4) | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | |
| Accelerated Vesting of Restricted Stock (5) | | | 6,541,311 | | | | 2,364,028 | | | | 2,596,116 | | | | 866,645 | | | | 864,736 | |
| Accelerated Vesting of Performance Shares (6) | | | 2,110,802 | | | | 429,671 | | | | 748,692 | | | | 149,812 | | | | 310,411 | |
|
| | | | | | | | | | | | | | | |
| | | Klesse | | Ciskowski | | Bowers | | Edwards | | Gorder |
| Accelerated Vesting of Stock Options (4) | | 539,537 |
| | 169,415 |
| | 74,307 |
| | 68,244 |
| | 71,078 |
|
| Accelerated Vesting of Restricted Stock (5) | | 5,819,946 |
| | 2,932,854 |
| | 1,301,500 |
| | 785,754 |
| | 1,379,806 |
|
| Accelerated Vesting of Performance Shares (6) | | 23,793,489 |
| | 6,167,650 |
| | 3,410,100 |
| | 3,442,349 |
| | 3,865,748 |
|
Continued Employment Following Change of Control (10) ($)
| | | | | | | | | | | | | | | | | | | | | |
| | | Klesse | | Ciskowski | | Marcogliese | | Bowers | | Gorder |
| Salary | | | (10 | ) | | | (10 | ) | | | (10 | ) | | | (10 | ) | | | (10 | ) |
| Bonus | | | (10 | ) | | | (10 | ) | | | (10 | ) | | | (10 | ) | | | (10 | ) |
| Pension, Excess Pension, and SERP | | | (10 | ) | | | (10 | ) | | | (10 | ) | | | (10 | ) | | | (10 | ) |
| Contributions under Defined Contribution Plans | | | (10 | ) | | | (10 | ) | | | (10 | ) | | | (10 | ) | | | (10 | ) |
| Health & Welfare Plan Benefits | | | (10 | ) | | | (10 | ) | | | (10 | ) | | | (10 | ) | | | (10 | ) |
| Accelerated Vesting of Stock Options (4) | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | |
| Accelerated Vesting of Restricted Stock (5) | | | 6,541,311 | | | | 2,364,028 | | | | 2,596,116 | | | | 866,645 | | | | 864,736 | |
| Accelerated Vesting of Performance Shares (6) | | | 2,110,802 | | | | 429,671 | | | | 748,692 | | | | 149,812 | | | | 310,411 | |
|
| | | | | | | | | | | | | | | |
| | | Klesse | | Ciskowski | | Bowers | | Edwards | | Gorder |
| Salary | | (10 | ) | | (10 | ) | | (10 | ) | | (10 | ) | | (10 | ) |
| Bonus | | (10 | ) | | (10 | ) | | (10 | ) | | (10 | ) | | (10 | ) |
| Pension, Excess Pension, and SERP | | (10 | ) | | (10 | ) | | (10 | ) | | (10 | ) | | (10 | ) |
| Contributions under Defined Contribution Plans | | (10 | ) | | (10 | ) | | (10 | ) | | (10 | ) | | (10 | ) |
| Health & Welfare Plan Benefits | | (10 | ) | | (10 | ) | | (10 | ) | | (10 | ) | | (10 | ) |
| Accelerated Vesting of Stock Options (4) | | 539,537 |
| | 169,415 |
| | 74,307 |
| | 68,244 |
| | 71,078 |
|
| Accelerated Vesting of Restricted Stock (5) | | 5,819,946 |
| | 2,932,854 |
| | 1,301,500 |
| | 785,754 |
| | 1,379,806 |
|
| Accelerated Vesting of Performance Shares (6) | | 23,793,489 |
| | 6,167,650 |
| | 3,410,100 |
| | 3,442,349 |
| | 3,865,748 |
|
Footnotes appear on the following page.
Footnotes for Payments Under Change of Control Severance Agreements tables:
| | |
Footnotes appear on the following page. |
47
Footnotes for “Payments Under Change Of Control Severance Agreements” tables:
| (1) | | The agreements generally provide that ifIf the company terminates the executive officer’s employment (other than for “cause,” death or “disability,” as defined in the agreement) or if the executiveofficer terminates his or her employment for “good reason,” as defined in the agreement, the executiveofficer is generally entitled to receive the following: (a) a lump sum cash payment equal to the sum of (i) accrued and unpaid compensation through the date of termination, including a pro-rata annual bonus (for this table, we assumed that the executive officers’ bonuses for the year of termination were paid at year end), (ii) three times the sum of the executive officer’s annual base salary (two times for Ms. Bowers) plus the executive officer’s highest annual bonus from the past three years, (iii) the amount of the actuarial present value of the pension benefits (qualified and nonqualified) the executiveofficer would have received for an additional three years of service (two years for Ms. Bowers), and (iv) the equivalent of three years (two years for Ms. Bowers) of employer contributions under Valero’s tax-qualified and supplemental defined contribution plans; (b) continued welfare benefits for three years (two years for Ms. Bowers); and (c) up to $25,000 of outplacement services. |
| |
| (2) | | Per SEC regulation, for purposes of this analysis we assumed each executive officer’s compensation at the time of each triggering event to be as stated below. The listed salary is the executive officer’s actual rate of pay as of December 31, 2009.2011. The listed bonus amount represents the highest bonus earned by the executive in any of fiscal years 2007, 2008,2009, 2010, or 20092011 (the three years prior to the assumed change of control): |
| | | | | | | | | | | | | |
| Name | | Salary | | Bonus | | Salary | | Bonus |
| William R. Klesse | | $ | 1,500,000 | | $ | 3,720,015 | | | $1,500,000 | | $3,733,425 |
| Michael S. Ciskowski | | $ | 750,000 | | $ | 870,000 | | | $750,000 | | $1,368,000 |
| Richard J. Marcogliese | | $ | 955,000 | | $ | 1,332,000 | | |
| Kimberly S. Bowers | | $ | 494,000 | | $ | 480,000 | | | $535,000 | | $710,000 |
| Joseph W. Gorder | | $ | 460,000 | | $ | 634,500 | | | $535,000 | | $710,000 |
| S. Eugene Edwards | | | $535,000 | | $710,000 |
| |
| (3) | | The executive is entitled to coverage under welfare benefit plans (e.g., health, dental, etc.) for three years (two years for Ms. Bowers) following the date of termination. |
| |
| (4) | | The amounts stated in the table represent the assumed cash value of the accelerated options derived by multiplying (x)(a) the difference between $16.75$21.05 (the closing price of Common Stock on the NYSE on December 31, 2009)30, 2011), and the options’ exercise prices, times (y)(b) the number of option shares. (As of December 31, 2009, all exercise prices for the executives’ unvested stock options were higher than the closing price of Common Stock.) |
| |
| (5) | | The amounts stated in the table represent the product of (x)(a) the number of shares whose restrictions lapsed because of the change of control, and (y) $16.75(b) $21.05 (the closing price of Common Stock on the NYSE on December 31, 2009)30, 2011). |
| |
| (6) | | The amounts stated in the table represent the product of (x)(a) the number of performance shares whose vesting was accelerated because of the change of control, times 200%, times (y) $16.75(b) $21.05 (the closing price of Common Stock on the NYSE on December 31, 2009)30, 2011). |
| |
| (7) | | If any payment or benefit is determined to be subject to an excise tax under Section 4999 of the Internal Revenue Code, the executive is entitled to receive an additional payment to adjust for the incremental tax cost of the payment or benefit. |
| |
| (8) | | If the executive officer’s employment is terminated by reason of death or disability, then his or herthe officer’s estate or beneficiaries will be entitled to receive a lump sum cash payment equal to any accrued and unpaid salary and vacation pay plus a bonus equal to the highest bonus earned by the executiveofficer in the prior three years (prorated to the date of termination; in this example, we assumed that the executive officers’ bonuses for the year of termination were paid at year end). In addition, in the case of disability, the executiveofficer would be entitled to any disability and related benefits at least as favorable as those provided by Valero under its plans and programs during the 120-days120 days prior to the executive officer’s termination of employment. |
48
(9) | |
| (9) | If the executiveofficer voluntarily terminates employment other than for “good reason,” then he or she will be entitled to a lump sum cash payment equal to any accrued and unpaid salary and vacation pay plus a bonus equal to the highest bonus earned by the executiveofficer in the prior three years (prorated to the date of termination; in this example, we assumed that the executive officers’ bonuses for the year of termination were paid at year end). |
| |
| (10) | | The agreements provide for a three-year term of employment following a change of control. The agreementscontrol, and generally provide that the executiveofficer will continue to enjoy compensation and benefits on terms at least as favorable as in effect prior to the change of control. In addition, all outstanding equity incentive awards will automatically vest on the date of the change of control. |
49
DIRECTOR COMPENSATION
COMPENSATION OF DIRECTORS
The followingThis table provides a summary ofsummarizes compensation paid to members of our Boarddirectors during the year ended December 31, 2009.
DIRECTOR COMPENSATION
FOR THE YEAR ENDED DECEMBER 31, 2009
| | | | | | | | | | | | | | | | | | | | | |
| | | Fees Earned | | Stock | | Option | | All Other | | |
| | | or Paid | | Awards | | Awards | | Compensa- | | |
| Name | | in Cash ($) | | ($)(1) | | ($)(1) | | tion ($)(2) | | Total ($) |
| W.E. “Bill” Bradford | | | 130,000 | | | | 160,010 | | | | — | | | | — | | | | 290,010 | |
| Ronald K. Calgaard | | | 113,000 | | | | 160,010 | | | | — | | | | — | | | | 273,010 | |
| Jerry D. Choate | | | 120,000 | | | | 160,010 | | | | — | | | | — | | | | 280,010 | |
| Irl F. Engelhardt | | | 115,000 | | | | 160,010 | | | | — | | | | — | | | | 275,010 | |
| Ruben M. Escobedo | | | 131,000 | | | | 160,010 | | | | — | | | | — | | | | 291,010 | |
| William R. Klesse | | | — | | �� | | — | | | | — | | | | — | | | | (3 | ) |
| Bob Marbut | | | 128,000 | | | | 160,010 | | | | — | | | | — | | | | 288,010 | |
| Donald L. Nickles | | | 105,000 | | | | 160,010 | | | | — | | | | — | | | | 265,010 | |
| Robert A. Profusek | | | 110,000 | | | | 160,010 | | | | — | | | | — | | | | 270,010 | |
| Susan Kaufman Purcell | | | 107,000 | | | | 160,010 | | | | — | | | | 14,925 | | | | 281,935 | |
| Stephen M. Waters | | | 105,000 | | | | 160,010 | | | | — | | | | — | | | | 265,010 | |
|
| | | | | | | |
| | | Fees Earned or Paid in Cash ($) | | Stock Awards ($)(1) | | Total ($) |
| Ronald K. Calgaard | | 115,000 | | 160,021 | | 275,021 |
|
| Jerry D. Choate | | 135,000 | | 160,021 | | 295,021 |
|
| Ruben M. Escobedo | | 135,000 | | 160,021 | | 295,021 |
|
| William R. Klesse | | — | | — | | (2 | ) |
| Bob Marbut | | 135,000 | | 160,021 | | 295,021 |
|
| Donald L. Nickles | | 115,000 | | 160,021 | | 275,021 |
|
| Philip J. Pfeiffer | | — | | — | | (3 | ) |
| Robert A. Profusek | | 135,000 | | 160,021 | | 295,021 |
|
| Susan Kaufman Purcell | | 115,000 | | 160,021 | | 275,021 |
|
| Stephen M. Waters | | 115,000 | | 160,021 | | 275,021 |
|
| Randall J. Weisenburger | | 115,000 | | 310,120 | | 425,120 |
|
| Rayford Wilkins, Jr. | | 115,000 | | 310,120 | | 425,120 |
|
Footnotes to Director Compensation table:
| | |
Footnotes to “Director Compensation” table: |
| (1) | | In accordance with SEC Release No. 33-9089 (December 16, 2009), theThe amounts shown represent the grant date fair value of awards granted in 2009,2011, computed in accordance with FASB ASC Topic 718. In 2009,2011, each of our non-employee directors who was serving on the Board as of April 28, 2011, received a grant of 5,714 shares of restricted Common Stock. Mr. Weisenburger and Mr. Wilkins also received a grant of 6,205 shares of restricted Common Stock (as described below).upon joining the Board in January 2011. Valero did not grant any stock options to any non-employee director in 2009. |
| | | | | | | | | | |
| | | | | | | | Restricted |
| | | | | | | | Stock |
Name | | | Grant Date | | | (# of shares) |
W.E. “Bill” Bradford | | | 04/30/09 | | | | 7,937 | |
Ronald K. Calgaard | | | 04/30/09 | | | | 7,937 | |
Jerry D. Choate | | | 04/30/09 | | | | 7,937 | |
Irl F. Engelhardt | | | 04/30/09 | | | | 7,937 | |
Ruben M. Escobedo | | | 04/30/09 | | | | 7,937 | |
Bob Marbut | | | 04/30/09 | | | | 7,937 | |
Donald L. Nickles | | | 04/30/09 | | | | 7,937 | |
Robert A. Profusek | | | 04/30/09 | | | | 7,937 | |
Susan Kaufman Purcell | | | 04/30/09 | | | | 7,937 | |
Stephen M. Waters | | | 09/23/08 | | | | 7,937 | |
50
|
| | 2011. The following table presents for each non-employee director as of December 31, 20092011 (i) the shares of Common Stock that were subject to outstanding stock options (vested and unvested), and (ii) the number of unvested restricted shares of Common Stock held. Mr. Klesse’s balances are stated in the “Outstanding Equity Awards” table in this proxy statement. |
| | | | | | | | | |
| | | Outstanding | | Unvested |
| Name | | Stock Options | | Restricted Stock |
| W.E. “Bill” Bradford | | | 49,000 | | | | 8,308 | |
| Ronald K. Calgaard | | | 13,000 | | | | 8,308 | |
| Jerry D. Choate | | | 33,000 | | | | 8,308 | |
| Irl F. Engelhardt | | | 5,000 | | | | 8,308 | |
| Ruben M. Escobedo | | | — | | | | 8,308 | |
| Bob Marbut | | | 71,120 | | | | 8,308 | |
| Donald L. Nickles | | | 11,000 | | | | 8,308 | |
| Robert A. Profusek | | | 11,000 | | | | 8,308 | |
| Susan Kaufman Purcell | | | 29,000 | | | | 8,308 | |
| Stephen M. Waters | | | 10,000 | | | | 10,097 | |
|
| | | | | | |
| Name | | Outstanding Stock Options | | Unvested Restricted Stock |
| Ronald K. Calgaard | | 3,000 |
| | 5,714 |
|
| Jerry D. Choate | | 29,000 |
| | 5,714 |
|
| Ruben M. Escobedo | | — |
| | 5,714 |
|
| Bob Marbut | | 29,000 |
| | 5,714 |
|
| Donald L. Nickles | | 11,000 |
| | 5,714 |
|
| Robert A. Profusek | | 11,000 |
| | 5,714 |
|
| Susan Kaufman Purcell | | 3,000 |
| | 5,714 |
|
| Stephen M. Waters | | 10,000 |
| | 13,476 |
|
| Randall J. Weisenburger | | — |
| | 9,850 |
|
| Rayford Wilkins, Jr. | | — |
| | 9,850 |
|
| |
| (2) | | The amount stated for Dr. Purcell represents payment made under Valero’s former retirement plan for non-employee directors. |
|
(3) | | In 2009,2011, William R. Klesse served as Valero’s Chairman of the Board, Chief Executive Officer, and President. In 2009,2011, he did not receive any compensation for his service as a member of the Board.director. Mr. Klesse’s compensation for service as Chief Executive Officer and President is presented earlier in this proxy statement in the compensation tables for our named executive officers. |
| |
| (3) | Mr. Pfeiffer was elected to the Board in 2012, and did not receive any compensation from Valero in 2011. |
In 2009, ourOur non-employee directors received a retainer fee of $91,000 per year, plus $2,000$115,000 in 2011. The annual retainer is paid in lieu of payments for eachseparate meeting or committee meeting attended in person, and $1,000 for each committee meeting attended telephonically.fees. In addition to the retainer, directors who serve as chairpersons of the Audit, Compensation, and CompensationNominating/Governance and Public Policy Committees, receive an additional $20,000 annually, and directors who serve as chairpersons of committees other than
the Audit or Compensation Committee receive an additional $10,000 annually. The director who servesserving as the designated lead director, receivesreceive an additional retainer fee of $20,000 per year.annually. Directors are reimbursed for expenses of meeting attendance. Directors who are employees of Valero do not receive no compensation (other than reimbursement of expenses) for serving as directors.
Grants of restricted shares and stock optionsequity awards supplement the cash compensation paid to our non-employee directors and serve to increase our directors’ identification with the interests of our stockholders through ownership of Common Stock. EachOn the date of each annual stockholders meeting, each non-employee director receives an annuala grant of restricted shares of Common Stock valued at $160,000, and vesting occurs based on the number of prior grants made to the director as follows: (i) the initial grant to the director will vest (become nonforfeitable) in three equal annual installments; (ii) the second grant will vest one-third on the first anniversary of the grant date and the remaining two-thirds will fully vest 100% on the second anniversary of the grant date; and (iii) all grants thereafter will vest 100%100 percent on the first anniversary of the grant date.
Upon a non-employee director’s initial election to the Board, the director receiveswill receive a one-time grant of stock options to acquire 10,0004,000 restricted shares of Common Stock that will vest and become exercisable on the first anniversaryin three equal installments. In 2007, Valero discontinued annual grants of the date the Options were granted. The stock options have an exercise price equal to the market price of the Common Stock on the date of grant, and expire seven years following the date of grant. The options vest and remain exercisable in accordance with their original terms if a director retires from the Board.non-employee directors. In the event of a “Change of Control” as defined in our equity plans, all unvested restricted shares of Common Stock (if any) and stock options previously granted to the non-employee directors will immediately vest or become vested or exercisable.
51
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
REVIEW
We have established a conflict of interest policy to address instances in which an employee or director’s private interests may conflict with the interests of Valero. Our conflicts policy is published on our intranet website. We have established a Conflicts of Interest Committee (“COI Committee”) to help administer our conflicts policy and to render ad hoc, objective determinations regardingdetermine whether any employee or director’s private interests may interfere with the interests of Valero. The COI Committee is composed of representatives from our legal, internal audit, and Sarbanes-Oxley compliance departments. Conflicts of interest are also addressed in ourCode of Business Conduct and Ethics, which is published on our internet website.. Any waiver of any provision of this code for executive officers or directors may be made only by the Board, and will be promptly disclosed as required by law or NYSE rule.
Management also makes it a practice to inform the Board and/or its committees regarding any potential “related person” transaction (within the meaning of Item 404(a) of the SEC’s Regulation S-K) of which management is aware. We also solicit information from our directors and executive officers annually in connection with the preparation of disclosures in our proxy statement. These questionnaires specifically seek information pertaining to any “related person” transaction.
TRANSACTIONS WITH MANAGEMENT AND OTHERS
David Wiechmann, a Valero employee, is married to the daughter of Ruben M. Escobedo, a member of our Board. As the son-in-law of a director of Valero, Mr. Wiechmann is deemed to be a “related person” under Item 404(a) of the SEC’s Regulation S-K.S-K because he is married to the daughter of Ruben M. Escobedo, a director of Valero. Mr. Wiechmann is not an officer of Valero, does not attend Board or Audit Committee meetings, and does not prepare reports that are presented to the Board or to the Audit Committee. The aggregate value of salary, bonus, and other benefits paid annually by Valero to Mr. Wiechmann in 2011 was less than $200,000$250,000 (including the dollar amount recognized for his equity awards for financial statement reporting purposes). There were no material differences in the compensation paid to any other employees who held analogous positions to Mr. Wiechmann and the compensation paid to Mr. Wiechmann.
52
Randall J. Weisenburger, a Valero director, is the Executive Vice President and Chief Financial Officer of Omnicom Group Inc., an advertising, marketing, and corporate communications company. During fiscal 2011, a subsidiary of Omnicom was retained by Valero to provide commercial advertising and marketing services for the Valero Texas Open golf tournament and is expected to receive not more than $500,000 per annum from Valero for commercial services. Such fees represent less than one-tenth of one percent of the consolidated revenues of Omnicom Group Inc. The Board reviewed and approved this transaction.
PROPOSAL NO. 2
RATIFICATION –
RATIFICATION OF APPOINTMENT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMAUDITOR
(Item 2 on the Proxy Card)
The Audit Committee of the Board determined on February 24, 2010,22, 2012, to engage KPMG LLP (“KPMG”) as Valero’s independent registered public accounting firm for the fiscal year ending December 31, 2010.2012. KPMG also served as Valero’s independent registered public accounting firm for the fiscal years ended December 31, 2009, 2008, 20072004, and 2006.following.
The Board requests stockholder approval of the following resolution adopted by the Audit Committee and the Board.
“RESOLVED, that the appointment of the firm of KPMG LLP as Valero’s independent registered public accounting firm for the purpose of conducting an audit of the consolidated financial statements and the effectiveness of internal control over financial reporting of Valero and its subsidiaries for the fiscal year ending December 31, 20102012 is hereby approved and ratified.”
The Board recommends that the stockholders vote “FOR” the proposal to ratify the appointment of KPMG LLP as Valero’s independent registered public accounting firm for 2010.2012.
The affirmative vote of a majority of the voting power of the shares present in person or by proxy and entitled to vote is required for adoption of this proposal. If the appointment is not approved, the adverse vote will be considered as an indication to the Board that it should select another independent registered public accounting firm for the following year. Because of the difficulty and expense of making any substitution of public accountants so long after the beginning of the current year, it is contemplated that the appointment for 20102012 will be permitted to stand unless the Audit Committee finds other good reason for making a change.
Representatives of KPMG are expected to be present at the Annual Meeting to respond to appropriate questions raised at the Annual Meeting or submitted to them in writing prior to the Annual Meeting. The representatives may also make a statement if they desire to do so.
KPMG FEES FOR FISCAL YEAR 20092011
Audit Fees. The aggregate fees for fiscal year 2011 for professional services rendered by KPMG for the audit of the annual financial statements for the year ended December 31, 2011 included in Valero’s Form 10-K, review of Valero’s interim financial statements included in Valero’s 2011 Forms 10-Q, the audit of the effectiveness of Valero’s internal control over financial reporting, and services that are normally provided by the principal auditor (e.g., comfort letters, statutory audits, attest services, consents and assistance with and review of documents filed with the SEC) were $6,142,053.
| • | | Audit Fees.The aggregate fees for fiscal year 2009 for professional services rendered by KPMG for the audit of the annual financial statements for the year ended December 31, 2009 included in Valero’s Form 10-K, review of Valero’s interim financial statements included in Valero’s 2009 Forms 10-Q, the audit of the effectiveness of Valero’s internal control over financial reporting, and services that are normally provided by the principal auditor (e.g.,comfort letters, statutory audits, attest services, consents and assistance with and review of documents filed with the SEC) were $5,812,059. |
|
| • | | Audit-Related Fees.The aggregate fees for fiscal year 2009 for assurance and related services rendered by KPMG that are reasonably related to the performance of the audit or review of Valero’s financial statements and not reported under the preceding caption were $216,500. These fees related to the audit of Valero’s benefit plans. |
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| • | | Tax Fees.The aggregate fees for fiscal year 2009 for professional services rendered by KPMG for tax compliance, tax advice and tax planning were $70,045. These fees were for consultation services on a state sales tax matter, cost segregation services for a certain property, and attestation services related to a federal grant. |
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| • | | All Other Fees.The aggregate fees for fiscal year 2009 for services provided by KPMG, other than the services reported under the preceding captions, were $0. |
Audit-Related Fees. The aggregate fees for fiscal year 2011 for assurance and related services rendered by KPMG that are reasonably related to the performance of the audit or review of Valero’s financial statements and not reported under the preceding caption were $216,500. These fees related to the audit of Valero’s benefit plans.
Tax Fees. The aggregate fees for fiscal year 2011 for professional services rendered by KPMG for tax compliance, tax advice and tax planning were $9,263. These fees were for assistance with a subsidiary tax return ($900) and review of U.S. net operating losses ($8,363).
All Other Fees. The aggregate fees for fiscal year 2011 for services provided by KPMG, other than the services reported under the preceding captions, were $0.
KPMG FEES FOR FISCAL YEAR 20082010
Audit Fees. The aggregate fees for fiscal year 2010 for professional services rendered by KPMG for the audit of the annual financial statements for the year ended December 31, 2010 included in Valero’s Form 10-K, review of Valero’s interim financial statements included in Valero’s 2010 Forms 10-Q, the audit of the effectiveness of Valero’s internal control over financial reporting, and services that are normally provided by the principal auditor (e.g., comfort letters, statutory audits, attest services, consents and assistance with and review of documents filed with the SEC) were $6,508,619.
| • | | Audit Fees.The aggregate fees for fiscal year 2008 for professional services rendered by KPMG for the audit of the annual financial statements for the year ended December 31, 2008 included in Valero’s Form 10-K, review of Valero’s interim financial statements included in Valero’s 2008 Forms 10-Q, the audit of the effectiveness of Valero’s internal control over financial reporting, and services that are normally provided by the principal auditor (e.g.,comfort letters, statutory audits, attest services, consents and assistance with and review of documents filed with the SEC) were $7,029,541. |
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| • | | Audit-Related Fees.The aggregate fees for fiscal year 2008 for assurance and related services rendered by KPMG that are reasonably related to the performance of the audit or review of Valero’s financial statements and not reported under the preceding caption were $254,800. These fees related to the audit of Valero’s benefit plans. |
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| • | | Tax Fees.The aggregate fees for fiscal year 2008 for professional services rendered by KPMG for tax compliance, tax advice and tax planning were $0. |
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| • | | All Other Fees.The aggregate fees for fiscal year 2008 for services provided by KPMG, other than the services reported under the preceding captions, were $0. |
Audit-Related Fees. The aggregate fees for fiscal year 2010 for assurance and related services rendered by KPMG that are reasonably related to the performance of the audit or review of Valero’s financial statements and not reported under the preceding caption were $216,500. These fees related to the audit of Valero’s benefit plans.
Tax Fees. The aggregate fees for fiscal year 2010 for professional services rendered by KPMG for tax compliance, tax advice and tax planning were $97,534. These fees were for consultation services on a state and local tax matter ($15,970), assistance to our Canadian subsidiary with customs compliance matters ($35,931), and tax advice regarding prior business combinations ($45,633).
All Other Fees. The aggregate fees for fiscal year 2010 for services provided by KPMG, other than the services reported under the preceding captions, were $0.
AUDIT COMMITTEE PRE-APPROVAL POLICY
The Audit Committee adopted a pre-approval policy to address the approvalpre-approval of certain services rendered to Valero by its independent auditors.auditor. The text of that policy appears in Exhibit 99.01 to Valero’s Annual Report on Form 10-K for the fiscal year ended December 31, 2009.2011.
All of the services rendered by KPMG to Valero for 2011 were pre-approved specifically by the Audit Committee or pursuant to our pre-approval policy. None of the services provided by KPMG (as described above) were approved by the Audit Committee under the pre-approval waiver provisions of paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.
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REPORT OF THE AUDIT COMMITTEE FOR FISCAL YEAR 2009 *2011
Management is responsible for Valero’s internal controls and financial reporting process. KPMG LLP, Valero’s independent registered public accounting firm for the fiscal year ended December 31, 2009,2011, is responsible for performing an independent audit of Valero’s consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board (“PCAOB”), and an audit of the effectiveness of Valero’s internal control over financial reporting in accordance with the standards of the PCAOB, and to issue its reports thereon. The Audit Committee monitors and oversees these processes. The Audit Committee approves the selection and appointment of Valero’s independent registered public accounting firm and recommends the ratification of such selection and appointment to our Board.
The Audit Committee has reviewed and discussed Valero’s audited financial statements with management and KPMG. The committee has discussed with KPMG the matters required to be discussed by the Statementstatement on Auditing Standards No. 61, (as amended (AICPA, Professional Standards, Vol. 1. AU section 380 “Communication with Audit Committees”), as amended, and as adopted by the PCAOB in Rule 3200T. The committee has received the written disclosures and the letter from KPMG required by applicable requirements of the PCAOB regarding the independent accountant’s communications with the audit committee concerning independence, and has discussed with KPMG that firm’s independence.
Based on the foregoing review and discussions and such other matters the Audit Committee deemed relevant and appropriate, the committee recommended to the Board that the audited financial statements of Valero be included in its Annual Report on Form 10-K for the year ended December 31, 2009.2011, for filing with the SEC.
Members of the Audit Committee:
Ruben M. Escobedo, Chairman
Ronald K. Calgaard
Irl F. Engelhardt
Susan Kaufman Purcell
Stephen M. Waters
Randall J. Weisenburger
* The material in this Report of the Audit Committee is not “soliciting material,” is not deemed filed with the SEC, and is not to be incorporated by reference in any of Valero’s filings under the Securities Act or the Exchange Act, respectively, whether made before or after the date of this proxy statement and irrespective of any general incorporation language therein.
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* | | The material in this Report of the Audit Committee is not “soliciting material,” is not deemed filed with the SEC, and is not to be incorporated by reference in any of Valero’s filings under the Securities Act or the Exchange Act, respectively, whether made before or after the date of this proxy statement and irrespective of any general incorporation language therein. |
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PROPOSAL NO. 3
RE-APPROVAL –
APPROVE, BY NONBINDING VOTE,
COMPENSATION OF THE 2005 OMNIBUS STOCK INCENTIVE PLAN
NAMED EXECUTIVE OFFICERS
(Item 3 on the Proxy Card)
At our 2005 annual meeting, stockholders approvedIn 2011, the Valero Energy Corporation 2005 Omnibus Stock Incentive Plan (the “Plan”). At our 2010 annual meeting, stockholders are being askedSEC began to re-approverequire issuers to provide a stockholder advisory vote to approve the termscompensation of the Plan. Regulations under Section 162(m) of the Internal Revenue Code (“Section 162(m)”) provide that in order for us to continue to fully deduct for federal income tax purposes the compensation paid under the Plan to our five most highly compensated officers, we must seek approval of the terms of the Plan every five years (as well as whenever we increase the number of shares reserved for issuance under the Plan or make certain other material amendments to the Plan, which we are not seeking to do under this proposal). The complete text of the Plan is set forth inAppendix A to this proxy statement. Our summary of the Plan below is qualified in its entirety by reference toAppendix A.
The Board requests that stockholders approve the following resolution.
RESOLVED, that the Valero Energy Corporation 2005 Omnibus Stock Incentive Plan is hereby re-approved.
The Board recommends that stockholders vote “FOR” this proposal.
The affirmative vote of a majority of the voting power of the shares present in person or by proxy and entitled to vote is required for adoption of this proposal. Pursuant to the rules of the NYSE, brokers will not have discretion to vote on this item to be presented at the Annual Meeting.
The Plan is intended to promote our long-term growth and profitability by providing us the tools to remain competitive in attracting, rewarding, retaining, and motivating Valero employees and aligning further their interests with the interests of our stockholders through the granting of stock-based awards.
We believe that Valero has been able to attract and retain highly qualified personnel in part through the use of stock-based awards under our existing employee stock plans. Providing our employees with an opportunity to acquire a proprietary interest in the Company and additional incentive and reward opportunities based on the profitable growth of the Company serve to motivate employees and provide a strong incentive to work for the continued success of the Company.
Summary
In the following summary of the Plan, “shares” means Valero’s $0.01 par value common stock, and such other securities or property as may become the subject of awards under the plan; and “stock unit” means a unit or right with a value based on the value of a share.
Administration. The Plan will be administered by the Compensation Committee, composed of directors appointed by the Board who are non-employee directors, as defined by Rule 16b-3 of the Securities Exchange Act of 1934, and outside directors, as defined in Section 162(m). The Compensation Committee has the authority, subject to the terms of the Plan, to determine which participants will receive an award, the time or times when such awards will be made, the types of awards, the number of shares to be issued under the awards or the value or amount of the awards and the terms and conditions of awards. All decisions under or with respect to the Plan are within the sole discretion of the Compensation Committee and are final, except for certain discretion granted to the Chief Executive Officer. Certain of the Compensation Committee’s duties and authority are also subject to delegation pursuant to the terms of the Plan.
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Eligibility for Participation. Employees of Valero and its subsidiaries, as designated by the Compensation Committee, and Valero’s non-employee directors are eligible for participation under the Plan.
Shares Available Under the Plan. Subject to adjustment as described more fully below, 20,000,000 shares were initially authorized for issuance under the Plan. As of January 31, 2010, 12,075,420 shares remained available for issuance under the Plan.
Awards that are forfeited, expire, or are settled in cash do not count against plan limits. Shares surrendered or withheld to pay the exercise price or taxes on an award may also be used for future grants. Shares issued under the Plan may either be newly issued shares or treasury shares.
Limitations on Awards. The Plan is subject to the following limitations:
| • | | The option exercise price of stock options cannot be less than 100% of the fair market value of a share at the time the option is granted. |
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| • | | The grant price of a stock appreciation right (“SAR”) cannot be less than 100% of the fair market value of a share at the time the SAR is granted. |
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| • | | Repricing of stock options and SARs is not permitted. |
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| • | | Not more than 4,000,000 million shares may be in the form of time-lapse restricted stock. |
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| • | | Restricted stock or restricted stock unit awards that are not subject to a performance award will be subject to a minimum restriction period of three years from the date of grant. |
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| • | | No plan participant may receive during any calendar year awards that are to be settled in shares covering an aggregate of more than 1,000,000 shares. |
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| • | | No plan participant may receive during any calendar year awards that are to be settled in cash covering an aggregate of more than $20,000,000. |
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| • | | The term of awards will not be longer than 10 years. |
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| • | | The Plan does not contain an evergreen provision. |
Types of Awards. The Plan permits the grant of different kinds of stock-based awards. The Plan permits grants of: (i) restricted stock and restricted stock units; (ii) stock options (including incentive and non-qualified stock options); (iii) SARs; (iv) performance awards of cash, stock, or property; and (v) other stock-based awards. Awards may be granted alone, in addition to, in combination with or in substitution for, any other awards under the Plan or any other compensation plan. Awards can be granted for no cash consideration or for cash or other consideration as determined by the Compensation Committee or as required by applicable law. Awards may provide that upon the grant or exercise thereof, the holder will receive cash, shares or other securities, or property, or any combination of these.
Restricted Stock and Restricted Stock Units. Restricted stock is an award of shares subject to a restriction period specified in the award. During the restriction period, the shares may not be transferred and are subject to forfeiture. Potential events of forfeiture include early termination of employment. The holder is otherwise usually treated as a registered stockholder with the right to receive dividends and vote the shares during the restriction period. Restricted stock units are similar to restricted stock except that the award takes the form of stock units instead of shares. During the restriction period, a holder of restricted stock units may be paid cash amounts, or dividend equivalents, that are equal in timing and amount to share dividends, but does not have voting or other shareholder rights. The units may be settled in cash or shares.
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The Compensation Committee determines the employees who are to receive an award of restricted stock or restricted stock units, the number of shares or units to be granted to each participant, the duration of the restriction period, the conditions under which the restricted stock or units may be forfeited to the Company and other terms and conditions of the awards. Restricted stock may not be disposed of by the participant until the restrictions specified in the award expire. The participant will have the right to vote the shares of restricted stock and receive any cash dividends during the restriction period.
Stock Options and Stock Appreciation Rights. Stock options give the holder the right to purchase shares at the exercise price specified in the award. SARs give the holder the right to receive an amount in cash or shares equal to the spread between the exercise price specified in the award and the market price of a share at the time of exercise. SARs may be granted alone or with stock options. Stock options and SARs granted under the Plan are subject to the terms and conditions determined by the Compensation Committee, except that the exercise price cannot be less than 100% of the fair market value of a share at the time of the grant and the maximum term is 10 years. Incentive Stock Options, (“ISOs”) may be granted, provided that they meet the requirements of the Internal Revenue Code.
The Compensation Committee determines the form in which payment of the exercise price may be made, including cash, shares, other securities, or other property, or any combination thereof, having a fair market value on the exercise date equal to the relevant exercise price.
Performance Awards. Performance awards that may be granted under the Plan may consist of a right payable in cash, shares, other securities or other property upon the achievement of certain performance goals. The Compensation Committee shall determine the performance goals to be achieved during any performance period, the length of any performance period, the amount of any performance award and the amount of any payment or transfer to be made pursuant to any performance award. Performance awards may be paid in a lump sum, installments, on a deferred basis or otherwise in accordance with procedures established by the Compensation Committee.
Performance goals may be particular to a plan participant, may relate to the performance of the Company or one of its subsidiaries or divisions, or a combination thereof. Performance goals may be based on achievement of balance sheet or income statement objectives, or any other objectives established by the Committee. The extent to which such performance goals are met will determine the number and/or value of the performance award to the participant. Performance goals may include the following: (a) increased revenue; (b) net income measures; (c) stock price measures (including growth measures and total stockholder return); (d) market share; (e) earnings per share (actual or targeted growth); (f) earnings before interest, taxes, depreciation, and amortization; (g) economic value added; (h) cash flow measures; (i) return measures (including return on equity, return on assets, return on capital, return on equity); (j) operating measures (including operating income, funds from operations, cash from operations, after-tax operating income, sales volumes, production volumes, and production efficiency); (k) expense measures; (l) margins; (m) total stockholder return; (n) production volumes; (o) refinery runs or refinery utilization; (p) total market value; and (q) corporate values measures (including ethics compliance, environmental, and safety).
Performance awards granted under the Plan to “covered employees” (as defined in Section 162(m)) are intended to qualify as “performance-based compensation” within the meaning of Section 162(m). For any performance award that is intended to comply with Section 162(m), specification of the performance goal(s) must be made prior to the beginning of the performance period or not later that the date permitted under Section 162(m) and must otherwise satisfy the parameters of Section 162(m). The Compensation Committee must certify prior to payment that the previously established performance goal has been met. The Committee has discretion to decrease but not increase the value of a performance award during the performance period and prior to certification that the established performance goal has been met.
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Stock Compensation and Other Stock-Based Awards. The Compensation Committee shall have authority to pay in shares all or any portion of the amounts payable under any compensation program of the Company. The number and type of shares to be distributed in lieu of the cash compensation applicable to any award as well as the terms and conditions of any bonus awards shall be determined by the Compensation Committee. The Compensation Committee may grant other forms of awards based on, payable in, or otherwise related in whole or in part to shares under the Plan. Subject to the terms of the Plan, the Compensation Committee shall determine the terms and conditions of any such other stock-based awards.
Adjustments. The Committee may make appropriate adjustments in the number of shares available under the Plan to reflect any stock split, stock dividend, recapitalization, reorganization, consolidation, merger, combination or exchange of shares, distribution to stockholders, liquidation, dissolution or other similar event.
Change of Control. Upon a change of control as defined in the Plan, all unmatured installments of outstanding awards shall be automatically accelerated and exercisable in full and all restriction periods applicable to awards of restricted stock or restricted stock units shall automatically expire. Upon a change in control, performance cash and/or dividend equivalents previously granted and unpaid, or granted in the year during which the change of control occurs, shall be paid within 60 days of the occurrence of such change of control.
Amendment/Limitations on Amendments. The Committee, or as applicable, the Board, may terminate or amend the Plan without stockholder approval, except that stockholder approval is required for any amendment that would (i) increase the number of shares available for awards, or the limits placed on particular types of awards, (ii) permit stock options or SARs to be granted with a per share exercise price of less than the fair market value of a share on the date of grant; or (iii) otherwise constitute a material amendment requiring stockholder approval under the rules of the New York Stock Exchange. No option or SAR may be canceled and replaced with an option or SAR having a lower exercise price, except in connection with a stock dividend, stock split or similar event as specified in the Plan in order to prevent dilution or enlargement of benefits intended under the Plan.
Effective Date and Termination. The Plan became effective May 1, 2005. The Plan will terminate on April 30, 2015, after which no additional awards may be made. Additionally, the Committee or Board may terminate the Plan at any time. However, unless otherwise expressly provided in the Plan or in an applicable award agreement under the plan, any award made prior to such termination date that is outstanding on such termination date shall remain valid in accordance with its terms and conditions, and the authority of the Board or the Compensation Committee to amend, suspend or terminate any such award, or to waive any conditions or rights under any such award in accordance with the Plan, shall extend beyond such date.
Federal Tax Aspects.
Restricted Stock.When a participant receives an award of restricted stock, the participant generally will realize ordinary income in an amount equal to the fair market value of the shares less any amount paid for such shares at the time when the participant’s rights with respect to such shares are no longer subject to a substantial risk of forfeiture. Dividends paid to the participant during the restriction period will be taxable as ordinary income. Subject to Section 162(m), the Company generally will be allowed a tax deduction, subject to certain limitations, equal to the amount of ordinary income that is realized by the participant.
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Stock Options and SARs.When a non-qualified option is exercised, the difference between the option price and any higher fair market value of the underlying shares, generally on the date of exercise, will be ordinary income to the optionee, and Valero will be entitled to claim a tax deduction equal to the amount the optionee recognizes as ordinary income. Any gain or loss realized by an optionee upon disposition of the shares acquired under the option generally will represent a capital gain or loss to the optionee, subject to short-term or long-term characterization depending on the holding period. The optionee’s basis in the shares for determining gain or loss on the disposition of the shares generally will be the fair market value of the shares on the date the option is exercised.
In the case of ISOs, upon the disposition of stock received in connection with the exercise of an incentive stock option that has been held for the requisite holding period, the employee will generally recognize capital gain or loss equal to the difference between the amount received in the disposition and the exercise price paid by the employee for the stock. However, if an employee disposes of stock that has not been held for the requisite holding period, the employee will recognize ordinary income in the year of the disqualifying disposition to the extent that the fair market value of the stock at the time of exercise of the incentive stock option (or, if less, the amount realized in the case of an arm’s-length disqualifying disposition to an unrelated party) exceeds the exercise price paid by the employee for such stock. The employee would also recognize capital gain (or, depending on the holding period, additional ordinary income) to the extent the amount realized in the disqualifying disposition exceeds the fair market value of the stock on the exercise date. If the exercise price paid for the stock exceeds the amount realized in the disqualifying disposition (in the case of an arm’s-length disposition to an unrelated party), such excess would ordinarily constitute a capital loss.
Valero generally will not be entitled to any federal income tax deduction upon the grant or exercise of an incentive stock option unless the employee makes a disqualifying disposition of the stock. If an employee makes such a disqualifying disposition, Valero then will be, subject to certain tax code limitations on deductibility, entitled to a tax deduction that corresponds as to timing and amount with the compensation income recognized by the employee under the rules described above.
In the case of SARs granted either freestanding or in tandem with an option, the plan participant will not realize any compensation income at the time of grant. However, the fair market value of shares or cash delivered to the participant pursuant to the exercise of such SAR will be treated as ordinary income to the participant at the time of exercise.
Performance Awards.When a plan participant receives payment of a performance award, the participant generally will realize ordinary income in an amount equal to the fair market value of such award less any amount paid for the award. It is intended for the Plan to meet the requirements of Section 162(m) so that the Compensation Committee may, in its discretion, make awards of options, SARs and performance awards that constitute “performance-based” compensation within the meaning Section 162(m). We believe that awards intended and structured as such by the Compensation Committee will meet the requirements for “performance-based” compensation under Section 162(m), and that the amount of ordinary income to the participant with respect to such awards generally will be allowed as a deduction for federal income tax purposes to Valero. Other awards that may be subject to the attainment of performance measures but that do not meet the requirements of Section 162(m) will not qualify as “performance-based” compensation and, in such event, would be subject to Section 162(m) deduction restrictions. Section 162(m) limits the annual amount that may be deducted as a compensation expense to $1 million per “covered employee,” which is generally the chief executive officer and the top four highest paid officers (other than the chief executive officer) as of the last day of the taxable year.
Stock Compensation and Other Stock-Based Awards.Stock compensation and other stock-based compensation awards generally will result in ordinary income to the participant when paid and, subject to Section 162(m), Valero will be entitled to a corresponding tax deduction.
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Internal Revenue Code Section 409A. The Plan is intended to comply with Internal Revenue Code Section 409A (“Section 409A”). If any Plan provision or award under the Plan would result in the imposition of an applicable tax under Section 409A and related regulations and Treasury pronouncements, that Plan provision or award may be reformed to avoid imposition of the applicable tax and no action taken to comply with Section 409A shall be deemed to adversely affect the Participant’s rights to an award.
Anticipated Awards to Participants
Because awards under the Plan are granted at the discretion of the Compensation Committee, it is not possible for us to determine the amount of awards that may be granted to theissuers’ named executive officers listed inat least once every three years. At the Summary Compensation Table2011 annual meeting of this proxy statement or to any other potential Plan participants. During 2009, 1,522 participants (employees and non-employee directors) received awards under the Plan.
Market Price of Common Stock
On March 11, 2010, the closing price of our Common Stock as quoted on the NYSE was $20.41.
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PROPOSAL NO. 4
ADVISORY RESOLUTION TO RATIFY
NAMED EXECUTIVE OFFICER COMPENSATION
(Item 4 on the Proxy Card)
In 2009, we adopted a “say-on-pay” policy, which provides that each year we will submit tostockholders, our stockholders followed our Board’s recommendation to hold an advisory resolutionvote on executive compensation (“say-on-pay”) every year.
Accordingly, we are asking stockholders to ratifyvote to approve the compensation of our named executive officers set forth inas such compensation is disclosed pursuant to Item 402 of the proxy statement’s Summary Compensation Table and the accompanying narrative disclosure of material factors provided to understand the Summary Compensation Table (but excludingSEC’s Regulation S-K, including the Compensation Discussion and Analysis).Analysis, the compensation tables, and other narrative compensation disclosures required by Item 402. This policy is available on our website at www.valero.com underproxy statement contains all of these required disclosures.
We request the “Corporate Governance” tab in the “Investor Relations” section.
The policy is intended to serve as an additional tool to guide the Board in continuing to improve the alignment of Valero’s executive compensation programs with the interests of Valero and its stockholders, and is consistent with our commitment to high standards of corporate governance.
This proposal allows our stockholders to express their opinions regarding the decisions of the Compensation Committee on the prior year’s annual compensation to the named executive officers through the following resolution. The Board requests that stockholders approve the following resolution:
“RESOLVED, that the stockholders hereby ratifycompensation paid to the 2009 compensation of theCompany’s named executive officers, set forth in the Summary Compensation Table and the accompanying narrative disclosure in this proxy statementas disclosed pursuant to Item 402 of material factors provided to understand the Summary Compensation Table (but excludingRegulation S-K, including the Compensation Discussion and Analysis).Analysis, compensation tables and narrative discussion, is hereby approved.”
Because the vote on this proposal is advisory in nature, it will not affect any compensation already paid or awarded to any named executive officer and will not be binding on Valero, the Board or the Compensation Committee. However, theThe Board and Compensation Committee, however, will review the voting results and take into account the outcome in determining future annual compensation for the named executive officers.
The Board recommends that the stockholders vote “FOR” this proposal. Proxies will be voted FOR approval of the proposal unless otherwise specified.
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STOCKHOLDER PROPOSALS
We expect the following proposals to be presented by stockholders at the Annual Meeting. Following SEC rules, except for minor formatting changes, we have reprinted each proposal and its supporting statement as it was submitted by the sponsor(s) of the proposal. We assume no responsibility for the statements made by the sponsors in connection with the proposals.
After review, our management and the Board have concluded that they do not support the proposals, and the Board recommends that you voteAGAINSTthe proposals for the reasons explained below.
PROPOSAL NO. 54 – STOCKHOLDER PROPOSAL – REPORT ON IMPACT
“DISCLOSURE OF VALERO’S OPERATIONS ON RAINFOREST SUSTAINABILITYPOLITICAL CONTRIBUTIONS”
(Item 54 on the Proxy Card)
This proposal wasis sponsored by The City of New York Office of the Comptroller.Nathan Cummings Foundation. Its address and number of voting securities held will be provided to any shareholder promptlystockholder upon oral or written request.
WHEREAS,
Resolved, the shareholders of Valero Energy Corporation (“Company”) hereby request that the Company provide a report, updated semiannually, disclosing the Company’s:
Monetary and non-monetary contributions and expenditures (direct and indirect) used to participate or intervene in any political campaign on behalf of (or in opposition to) any candidate for public office, and used in any attempt to influence the general public, or segments thereof, with respect to elections or referenda. The report shall include an accounting through an itemized report that includes the identity of the recipient as well as the amount paid to each recipient of the Company’s funds that are used for political contributions or expenditures as described above.
The report shall be presented to the board of directors or relevant board oversight committee and posted on the Company’s website.
Stockholder Supporting Statement:
As long-term shareholders of Valero, we support transparency and accountability in corporate spending on political activities. These include any activities considered intervention in any political campaign under the Internal Revenue Code, such as direct and indirect political contributions to candidates, political parties, or political organizations; independent expenditures; or electioneering communications on behalf of a federal, state or local candidate. Although the Company’s policy states it does not use corporate funds for political activity, it also says it “may lawfully contribute to other political committees and political organizations.” Valero does not disclose the details of this spending.
Disclosure is consistent with public policy, in the best interest of the Company and its shareholders, and critical for compliance with federal ethics laws. Moreover, the Supreme Court’s Citizens United decision recognized the importance of political spending disclosure for shareholders when it said “[D]isclosure permits citizens and shareholders to react to the speech of corporate entities in a proper way. This transparency enables the electorate to make informed decisions and give proper weight to different speakers and messages.” Gaps in transparency and accountability may expose the Company to reputational and business risks that could threaten long-term shareholder value.
Valero contributed at least $6 million in corporate funds since the 2002 election cycle. (CQ: http://moneyline.cq.com/pml/home.do and National Institute on Money in State Politics: http://www.followthemoney.org/index.phtml.) Relying on publicly available data does not, however, provide a
complete picture of the Company’s political spending. For example, the Company’s payments to trade associations used for political activities are undisclosed and unknown. In some cases, even management does not know how trade associations use their company’s money politically. The proposal asks the Company to disclose all of its political spending, including payments to trade associations and other tax exempt organizations used for political purposes. This would bring our Company in line with a growing number of leading companies, face reputational risks if they are linked to destructive sourcing practices. Companiesincluding Exelon, Merck and Microsoft, that take action to minimize the risk of deforestationsupport political disclosure and to support sustainable sourcing are likelyaccountability and present this information on their websites.
The Company’s Board and its shareholders need comprehensive disclosure to be seen as sector leaders, demonstrating a proactive and responsible approachable to overall carbon mitigation, and
WHEREAS, it is estimated thatfully evaluate the deforestationpolitical use of temperate and tropical rainforests accountscorporate assets. We urge your support for nearly 20% of the world’s greenhouse gas emissions. Loss of the ecosystem services provided by forests is estimated to be costing the global economy $2 – $5 trillion annually, and
WHEREAS, the Forest Disclosure Project, a recent initiative sponsored by the UK government and supported by investors representing over $1 trillion in assets, has called on global corporations to report on the impact of their operations on the world’s rainforest eco-systems,
THEREFORE, be it resolved that the company prepare a report to shareholders on the impact of its global operations on rainforest sustainability. This report should be prepared at reasonable cost and omit proprietary information.this critical governance reform.
END OF SHAREHOLDERSTOCKHOLDER PROPOSAL
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BOARD RECOMMENDATION:
The Board recommends that you vote “AGAINST”this proposal for the following reasons:
AsThis proposal, in substantially the same form, was considered by Valero stockholders at last year’s annual meeting. The proposal failed to receive the support of a refiningmajority of stockholders voting on it at last year’s annual meeting.
In 2009, the Board adopted our Political Contributions Disclosures policy. Our policy, and marketing company, Valero does not believeour disclosures under that policy, are available on our website (www.valero.com) under the “Corporate Governance” tab in the “Investor Relations” section. These disclosures are updated every six months and provide detailed, itemized information regarding political contributions, categorized by state, candidate or committee, and amount. We also disclose payments to trade associations that are attributable to lobbying activities in our federal lobbying reports, which can be found on the web site of the U.S. Senate at www.senate.gov (search for “Valero Energy Corporation” as registrant name).
When adopting the Political Contributions Disclosures policy, the Board determined that it has operations that cause rainforest deforestation. Environmental stewardship is one of Valero’s core values. Consistent with its commitment to environmental stewardship, Valero has achieved significant emission reductions by installing state-of-the-art “scrubbers” at refineries on central processing units, and has implemented a low-sulfur gasoline and diesel program, which reduces sulfur emissions from cars and allows new automobile technology to reduce emissions of smog components. Valero has also made major investments in alternative-energy opportunities and “green” technologies, including being the first traditional refiner to enter ethanol production through its acquisition of seven ethanol plants in 2009, and building a wind farm outside the company’s McKee refinerywould be in the Texas Panhandle.
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Coupled with Valero’s investment in technology, Valero closely monitors the political, regulatory, and public policy issues related to greenhouse gas emissions. Valero has adopted a formal policy statement on greenhouse gas reduction, which is available on the company’s website at www.valero.com. Valero believes that its analysis, assessment, and response to environmental-related risks facing the company is a comprehensive and responsible approach that establishes clear goals, grounded in scientific, economic, and technical analysis, that will protect long-term stockholder value as the issues evolve. Of course, Valero is committed to complying with all applicable laws and regulations applicable to its facilities.
Rainforest protection is important for biodiversity and environmental sustainability; however, such protections are largely outside of the sphere of influencebest interest of Valero and essentially unrelatedits stockholders to refrain from disclosing contributions or payments to trade associations and other tax-exempt organizations. Valero’s operations. Valero believesprimary purpose in joining such groups, like the American Fuel & Petrochemical Manufacturers (formerly the National Petrochemical and Refiners Association), is not for political purposes. The Board continues to believe that our membership in trade associations that may engage in political activity is not necessarily representative of the corporate positions of Valero. We join trade associations principally for the business, technical, and industry expertise that these organizations provide, and not necessarily because we endorse some or all of their lobbying or other political activities. We monitor the appropriateness and effectiveness of the political activities that the most significant trade associations to focus on this issuewhich we belong undertake. Valero’s corporate positions do not align with all positions taken by trade associations. As a result, we believe that the additional reporting requirement sought by the proponent, over and beyond the significant initiatives that we have already put in the manner proposedplace regarding disclosure of political contributions, would divert resources and time from Valero’s broad-based and balanced approach to environmental stewardship in favor of a speculative analysis which would serve no meaningful purpose, be burdensome, andwould result in unnecessary expense.expense, could lead to misleading representations of our political positions, and would not provide any additional meaningful benefits to Valero’s stockholders.
Therefore, the Board recommends that you vote AGAINST this proposal.
The affirmative vote of a majority of the voting power of the shares present in person or by proxy and entitled to vote is required for adoption of this proposal.
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PROPOSAL NO. 65 – STOCKHOLDER PROPOSAL –DISCLOSURE
“REPORT ON STEPS TAKEN TO REDUCE RISK OF POLITICAL CONTRIBUTIONS/TRADE ASSOCIATIONS
ACCIDENTS”
(Item 65 on the Proxy Card)
This proposal wasis sponsored by The Nathan Cummings Foundation.the AFL-CIO Reserve Fund. Its address and number of voting securities held will be provided to any shareholderstockholder promptly upon oral or written request.
RESOLVED, the shareholdersRESOLVED: Shareholders of Valero Energy Corporation (“Valero”(the “Company”) hereby request thaturge the Board of Directors (the “Board”) to prepare a report, within ninety days of the 2011 annual meeting of stockholders, at reasonable cost and excluding proprietary and personal information, on the steps the Company providehas taken to reduce the risk of accidents. The report should describe the Board’s oversight of process safety management, staffing levels, inspection and maintenance of refineries and other equipment.
Stockholder Supporting Statement:
The 2010 BP Deepwater Horizon explosion and oil spill in the Gulf of Mexico resulted in the largest and most costly human and environmental catastrophe in the history of the petroleum industry. Eleven workers were killed when the BP Deepwater Horizon drilling platform exploded. This was not the first major accident for BP. In 2005, an explosion at BP’s refinery in Teas City, Texas, cost the lives of 15 workers, injured 170 others and resulted in the largest fines ever levied by the Occupational, Safety and Health Administration (“OSHA”) (“BP Faces Record Fine for ’05 Refinery Explosion,” New York Times, 10/30/2009).
BP’s accidents are not unique in the petroleum industry. For example, a 2010 explosion at the Tesoro refinery in Anacortes, Washington, killed seven workers and resulted in more than six months of downtime at the 120,000 barrels per day refinery (“Tesoro Sees Anacortes at Planned Rates by mid-Nov.,” Reuters, 11/5/2010). The director of the Washington State Department of Labor and Industry stated that “The bottom line is this incident, the explosion and these deaths were preventable,” and levied an initial penalty of $2.39 million (“State Fines Tesoro $2.4 Million in Deadly Refinery Blast,” Skagit Valley Herald, 10/4/2010).
We believe that OSHA’s national emphasis program for petroleum refineries has revealed an industry-wide pattern of non-compliance with safety regulations. In the first year of this program, inspections of 14 refineries exposed 1,517 violations, including 1,489 for process safety management, prompting OSHA’s director of enforcement to declare “The state of process safety management is frankly just horrible” (“Process Safety Violations at Refineries 'Depressingly' High, OSHA Official Says,” BNA Occupational Safety and Health Reporter 8/27/2009).
Since October, 2006, OSHA has recorded a total of 59 safety violations at our Company, including 46 Process Safety Management violations. Twenty-seven of these Process Safety Management violations were cited as “serious” and 4 violations were classified as “repeat” violations.
(http://www.osha.gov/pls/imis/establishment.inspection_details?id=314326091&id=314396938&id= 312920226&id=312920192&id=311074058&id=311072169&id=311805519&id=309909828&id=312237456&id=310264221&id=310690086 ).
In our opinion, the cumulative effect of petroleum industry accidents, safety violation citations from federal and state authorities, and the public’s heightened concern for safety and environmental hazards in the petroleum industry represents a significant threat to our Company’s stock price performance. We believe that a report updated semi-annually, disclosing Valero’s:
| 1. | | Policies and procedures for political contributions and expenditures (both direct and indirect) made with corporate funds. |
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| 2. | | Monetary and non-monetary political contributions and expenditures not deductible under section 162 (e)(1)(B) of the Internal Revenue Code, including but not limited to contributions to or expenditures on behalf of political candidates, political parties, political committees and other political entities organized and operating under 26 USC Sec. 527 of the Internal Revenue Code and any portion of any dues or similar payments made to any tax exempt organization that is used for an expenditure or contribution that if made directly by the corporation would not be deductible under section 162 (e)(1)(B) of the Internal Revenue Code. The report shall include the following: |
| a. | | An accounting of Valero’s funds that are used for political contributions or expenditures as described above; |
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| b. | | Identification of the person or persons in Valero who participated in making the decisions to make the political contribution or expenditure; and |
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| c. | | The internal guidelines or policies, if any, governing Valero’s political contributions and expenditures. |
The report shall be presented to the board of directors’ audit committee or other relevant oversight committee and postedshareholders on the company’s websitesteps our Company has taken to reduce costs to shareholders.
SUPPORTING STATEMENT
As long-term shareholdersthe risk of Valero, we supportaccidents will provide transparency and accountabilityincrease investor confidence in corporate spending on political activities. These activities include direct and indirect political contributions to candidates, political parties or political organizations; independent expenditures; or electioneering communications on behalf of a federal, state of local candidate.our Company.
Disclosure is in the best interest of the company and its shareholders and is critical for compliance with recent federal ethics legislation. Absent a system of accountability, company assets can be used for policy objectives that may be inimical to the long-term interests of the company and its shareholders.
Valero Energy Corporation contributed at least $1.6 million in corporate funds since the 2002 election cycle. (CQ’s PoliticalMoneyLine, http://moneyline.cq.com/pml/home.do and National Institute on Money in State Politics, http://www.followthemoney.org/index.phtml) Publicly available data does not, however, provide a complete picture of the Company’s political expenditures. For example, payments to trade associations used for political activities are undisclosed and unknown. In many cases, not even a corporation’s management knows how trade associations use their company’s money for political purposes.
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The proposal asks the Company to disclose all of its political contributions, including payments to trade associations and other tax exempt organizations. This would bring our Company in line with a growing number of leading companies, including Pfizer, Aetna and eBay, that support political disclosure and accountability and present this information on their websites.
We urge your support for this critical governance reform. The Company’s Board and its shareholders need complete disclosure to be able to fully evaluate the political use of corporate assets.
END OF SHAREHOLDERSTOCKHOLDER PROPOSAL
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BOARD RECOMMENDATION:
The Board recommends that you voteAGAINST “AGAINST”this proposal for the following reasons:
This proposal, in identical form, was consideredThe Board acknowledges and shares the proponent’s concern for reducing the risk of accidents. The safety of our employees, our operations, and our communities is Valero’s highest priority and is our most important measure of success. We welcome stockholders and our other constituencies to learn more about Valero’s commitment to reducing the risk of accidents by Valero stockholders at last year’s Annual Meeting. The proposal failed to receivevisiting our website, www.valero.com (under the support of a majority of stockholders voting on it at last year’s Annual Meeting. Nonetheless, in view of the evident desire of some Valero stockholders to receive additional information about“environment & safety” tab), and by accessing our participation in the political process, the Board determined to adopt a political contributions disclosure policy substantially as called for by the proposal. Valero’s Political Contributions Disclosures policy, and associated disclosures thereunder, are availableannual Social Responsibility Report (available on our website at www.valero.com under the “Corporate Governance” tabsame tab). Occupational and process safety is integrated into every facet of our operations, and protecting people and the environment is a core element of our Commitment to Excellence Management System (CTEMS), our company-wide framework for operational excellence. The Board and senior management closely oversee these matters. We have established key metrics for occupational safety and process safety performance, and results are reviewed and responded to on a daily basis by our operating facilities. Performance is also formally reviewed with senior management on at least a monthly basis. In addition, we have staff at each of our refineries, ethanol plants, and in our corporate office dedicated to maintaining effective occupational and process safety programs as well as ensuring plant reliability. In addition, our performance in the “Investor Relations” section.area of safety is a significant factor in our annual incentive bonus program.
When adopting
The depth of our commitment to occupational safety is demonstrated by the Political Contributions Disclosures policy,fact that our total recordable-injury rate (TRIR) has long been among the Board determined that it would belowest in the industry. Since 2004, Valero has reduced refinery employee injury rates by 46 percent. In 2011, we achieved our second-lowest TRIR ever for refinery employees at 0.62, and we achieved our second-lowest TRIR for refinery contractors at 0.62. In 2010, we achieved our third-lowest TRIR ever for refinery employees at 0.79, and we achieved our best interestever TRIR for refinery contractors at 0.59. The TRIR measures are based on incidents per 200,000 working hours (100 people working 2,000 hours per year), and they compare favorably with that of our industry peers.
We work closely with our contract work force to ensure that its members adopt the same high safety standards. For example, our Houston refinery operations have gone over two years without any employee or contractor injuries. Nine of our refineries are “Star Sites,” the highest safety recognition under the U.S. Occupational Safety and Health Administration's Voluntary Protection Program (Valero has the most Star Site refineries, representing about one-third of refinery Star Sites nationally), and our U.S. refineries have won numerous safety awards from the American Fuel & Petrochemical Manufacturers, formerly the National Petrochemical and Refiners Association. Six U.S. Valero facilities in 2011 won at least one award, and its stockholdersa total of twelve awards overall, from American Fuel & Petrochemical Manufacturers. These awards were based on both occupational and process safety performance.
While we are proud of our achievements, Valero is constantly working to refrain from adopting one elementimprove. All of our facilities continuously assess their existing safety programs against the proposal:expectations defined in our CTEMS framework and establish plans to close any identified gaps. These efforts are supported by 28 technical networks we
have established to organize and align resources and help our personnel share information across the enterprise to capture and manage our collective technical and organizational know-how. Network focus areas include mechanical integrity, electrical reliability, instrumentation, and rotating equipment reliability, which are all basic components of a requirementsolid process safety program. We are also deeply committed to emergency preparedness and security and have implemented comprehensive programs to help ensure effective response readiness for emergency situations, should they arise.
Because Valero already makes available pertinent information regarding the steps the company has taken to reduce the risk of accidents, we believe that the company disclose contributions or payments to trade associations and other tax exempt organizations. The Board continues toproposal’s reporting requirements are unnecessary. We believe that Valero’s membership in trade associations who may engage in political activity is not necessarily representative of the corporate positions of Valero. Valero may join trade associations principally for the business, technical, and industry expertise that these organizations provide, and not necessarily because it endorses some or all of their lobbying or other political activities. Valero monitors the appropriateness and effectiveness of the political activities that the most significant trade associations to which it belongs undertake, and Valero’s corporate positions do not align with all positions taken by trade associations. As a result, the additional reporting requirement soughtseparate report including operational detail as requested by the proponent over and beyond the significant initiatives Valero has already put in place regarding disclosure of political contributions, would serve no useful purpose, would be burdensome, could lead to misleading representations of Valero’s political positions, and would result in an unnecessary expense.expense, would duplicate information already available and would not provide any additional meaningful benefits to Valero’s stockholders.
Therefore, the Board recommends that you vote AGAINST this proposal.
The affirmative vote of a majority of the voting power of the shares present in person or by proxy and entitled to vote is required for adoption of this proposal.
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MISCELLANEOUS
PROPOSAL NO. 7STOCKHOLDER PROPOSAL – STOCK RETENTION BY EXECUTIVES
(Item 7 on the Proxy Card)
This proposal was sponsored by the American Federation of State, County and Municipal Employees, AFL-CIO. Its address and number of voting securities held will be provided to any shareholder promptly upon oral or written request.
RESOLVED, that stockholders of Valero Energy Corporation (“Valero”) urge the Compensation Committee of the Board of Directors (the “Committee”) to adopt a policy requiring that senior executives retain a significant percentage of shares acquired through equity compensation programs until two years following the termination of their employment (through retirement or otherwise), and to report to stockholders regarding the policy before Valero’s 2011 annual meeting of stockholders. The stockholders recommend that the Committee not adopt a percentage lower than 75% of net after-tax shares. The policy should address the permissibility of transactions such as hedging transactions which are not sales but reduce the risk of loss to the executive.
SUPPORTING STATEMENT
Equity-based compensation is an important component of senior executive compensation at Valero. According to Valero’s 2009 proxy statement, equity awards represented 58 to 72% of the total direct compensation value provided to named executive officers in 2008, and these awards align executive interests with those of stockholders. In the last five years, Chairman and CEO William Klesse has realized more than $41 million in reported through the exercise of 839,628 options and vesting of 204,884 shares. As of February 1, 2009, Mr. Klesse held 772,704 shares outright, less than the number of options he has exercised, and held another 687,976 options. We believe that the alignment benefits touted by Valero are not being fully realized.
We believe there is a link between stockholder wealth and executive wealth that correlates to direct stock ownership by executives. According to an analysis conducted by Watson Wyatt Worldwide, companies whose CFOs held more shares generally showed higher stock returns and better operating performance. (Alix Stuart, “Skin in the Game,”CFO Magazine (March 1, 2008))
Requiring senior executives to hold a significant portion of shares obtained through compensation plans after the termination of employment would focus them on Valero’s long-term success and would better align their interests with those of Valero stockholders. In the context of the current financial crisis, we believe it is imperative that companies reshape their compensation policies and practices to discourage excessive risk-taking and promote long-term, sustainable value creation. A 2009 report by the Conference Board Task Force on Executive Compensation stated that hold-to-retirement requirements give executives “an evergrowing incentive to focus on long-term stock price performance.”
(http://www.conference-board.org/pdf_free/ExecCompensation2009.pdf)
Valero has a minimum stock ownership guideline requiring executives to own a number of shares of Valero stock as a multiple of salary. The executives covered by the policy have five years in which to comply. We believe this policy does not go far enough to ensure that equity compensation builds executive ownership, especially given the extended time period for compliance. We also view a retention requirement approach as superior to a stock ownership guideline because a guideline loses effectiveness once it has been satisfied.
We urge stockholders to vote for this proposal.
END OF SHAREHOLDER PROPOSAL
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BOARD RECOMMENDATION:
The Board recommends that you vote “AGAINST”this proposal for the following reasons:
The Board believes that the proposed restriction on the disposition by senior executives of shares of stock obtained through equity awards until two years following the termination of their employment would significantly impair Valero’s ability to compete in the competitive marketplace for senior executive talent, which is essential for the Company’s long-term success.
Valero’s executive compensation programs are carefully designed by the Board’s Compensation Committee to align the interests of Valero’s senior executives and its stockholders. The creation of stockholder value is a core purpose of our compensation programs, and we believe that our compensation programs already appropriately incentivize our senior executive officers to focus on Valero’s long-term success. Furthermore, our Board recognizes that ownership of Common Stock is an effective means of aligning the interests of our senior executive officers with those of our stockholders. Accordingly, Valero has already adopted stock ownership and retention guidelines. See our discussion of these guidelines above in “Compensation Discussion and Analysis – Compensation-Related Policies – Stock Ownership Guidelines.” Under these guidelines, our Chief Executive Officer is required to own common stock having a value equal to five times base salary, our President is required to own common stock having a value equal to three times base salary, and each Executive Vice President is required to own common stock having a value equal to two times base salary. In addition, under these guidelines an officer desiring to sell 20 percent or more of his or her shares of Common Stock must receive the prior approval of the Chief Executive Officer (or, in the case of the Chief Executive Officer, prior approval of the Compensation Committee).
The Board believes that while it is essential that our senior executive officers have a meaningful equity stake in Valero’s future, it is also important that our senior executive officers and retirees be able to prudently manage their personal financial affairs. Our stock ownership and retention guidelines have been designed to balance these imperatives. Mandating that senior executives hold 75 percent of the shares of stock obtained through equity awards until two years following the termination of their employment would upset this equilibrium and would encourage turnover among senior executives who wish retain the ability to diversify their portfolios, to make charitable gifts, or to liquidate a portion of their holdings in order to meet expenses.
The Board believes that most of Valero’s peer companies do not impose limitations similar to those set forth in the proposal. Imposing these limitations could require Valero to substitute costly benefits, such as substantially higher executive salaries, in order to compete as effectively in attracting and retaining executive talent. The Board believes that it is in our stockholders’ best interests for the Board to retain the flexibility to formulate programs that it determines are most conducive to the cost-effective attraction and retention of the most talented executive officers. Our stockholders already considered and rejected this proposal, in identical form, at last year’s Annual Meeting.
Therefore, the Board recommends you vote AGAINST this proposal.
The affirmative vote of a majority of the voting power of the shares present in person or by proxy and entitled to vote is required for adoption of this proposal.
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EQUITY COMPENSATION PLAN INFORMATION
The following table presents certain information regarding our compensation plans as of December 31, 2009.
| | | | | | | | | | | | | |
| | | Number of | | | | | | | Number of | |
| | | Securities | | | Weighted- | | | Securities | |
| | | to be Issued | | | Average | | | Remaining Avail- | |
| | | Upon Exercise | | | Exercise Price | | | able for Future | |
| | | of Outstanding | | | of Outstanding | | | Issuance Under | |
| | | Options, Warrants | | | Options, Warrants | | | Equity Compen- | |
| | | and Rights (#) | | | and Rights ($) | | | sation Plans (1) | |
Approved by stockholders: | | | | | | | | | | | | |
| 2005 Omnibus Stock Incentive Plan | | | 5,616,224 | | | | 19.80 | | | | 12,002,043 | |
| 2001 Executive Stock Incentive Plan | | | 2,021,620 | | | | 10.82 | | | | — | |
| Non-employee director stock option plan | | | 253,000 | | | | 18.36 | | | | — | |
| Non-employee director restricted stock plan | | | — | | | | — | | | | 139,247 | |
| UDS non-qualified stock option plans (2) | | | 760,814 | | | | 10.36 | | | | — | |
| Premcor non-qualified stock option plans (2) | | | 767,315 | | | | 24.79 | | | | — | |
Not approved by stockholders: | | | | | | | | | | | | |
| 1997 non-qualified stock option plans | | | 3,732,309 | | | | 7.70 | | | | — | |
| 2003 All-Employee Stock Incentive Plan (3) | | | 13,474,594 | | | | 32.58 | | | | 148,229 | |
| | | | | | | | | | | |
| | | | | | | | | | | | | |
| Total | | | 26,625,876 | | | | 23.75 | | | | 12,289,519 | |
| | | | | | | | | | | |
Footnotes:
(1) | | Securities available for future issuance under these plans can be issued in various forms, including without limitation restricted stock and stock options. |
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(2) | | These plans were assumed by Valero, as applicable (i) on December 31, 2001, upon Valero’s acquisition of UDS, and (ii) on September 1, 2005, upon Valero’s acquisition of Premcor Inc. |
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(3) | | Officers and directors of Valero are not eligible to receive grants under this plan. |
For additional information on these plans, see Note 22 of Notes to Consolidated Financial Statements for the fiscal year ended December 31, 2009, included in Valero’s Annual Report on Form 10-K.
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MISCELLANEOUS
GOVERNANCE DOCUMENTS AND CODES OF ETHICS
We adopted aCode of Ethics for Senior Financial Officersthat applies to our principal executive officer, principal financial officer, and controller. The code charges these officers with responsibilities regarding honest and ethical conduct, the preparation and quality of the disclosures in documents and reports we file with the SEC, and compliance with applicable laws, rules, and regulations. We also adopted aCode of Business Conduct and Ethicswhich applies to all of our employees and directors.
We post the following documents on our website at www.valero.com under the “Corporate Governance” tab in the “Investor Relations” section. A printprinted copy of any of these documents is available to any stockholder upon request. Requests for documents must be in writing and directed to Valero’s Secretary at the address indicated on the cover page of this proxy statement.
Restated Certificate of Incorporation
Bylaws
Code of Business Conduct and Ethics
Code of Ethics for Senior Financial Officers
Corporate Governance Guidelines
Audit Committee Charter
Compensation Committee Charter
Executive Committee Charter
Finance
Nominating/Governance and Public Policy Committee Charter
Nominating/Governance Committee Charter
Say on Pay Policy
Compensation Consultant Disclosures Policy
Policy on Executive Compensation in Restatement Situations
Political Contributions Disclosures
STOCKHOLDER COMMUNICATIONS
STOCKHOLDER COMMUNICATIONS
Stockholders and other interested parties may communicate with the Board, its non-management directors, or the Lead Director by sending a written communication addressed to “Board of Directors,” “Non-Management Directors,” or “Lead Director” in care of Valero’s Secretary at the address indicated on the cover page of this proxy statement. Additional requirements for certain types of communications are statedunder the caption “Stockholder Nominations and Proposals” below.
STOCKHOLDER NOMINATIONS AND PROPOSALS
If you wish to submit a stockholder proposal to be included in our proxy statement for the 20112013 annual meeting of stockholders pursuant to Rule 14a-8 of the Securities Exchange Act of 1934, we must receive your written proposal on or before November 19, 2010. Please address your23, 2012. Address the proposal to Valero’s Secretary at the address shown on the cover page of this proxy statement. The proposal must comply with Rule 14a-8, of the Exchange Act, which lists the requirements for the inclusion of stockholder proposals in company-sponsored proxy materials.
If you wish to present a stockholder proposal at the 20112013 annual meeting of stockholders that is not the subject of a proposal pursuant to Rule 14a-8 of the Exchange Act, or if you wish to recommend to the Board’s Nominating/Governance and Public Policy Committee the nomination of a person for election to the Board, you must follow the procedures outlined in Article I, Section 9 (or Section 10, as applicable) of our bylaws. These procedures include the requirement that your proposal must be delivered to Valero’s Secretary at the address shown on the cover page of this proxy statement not later than the close of business on the 60th day or earlier than the close of business on the 90th day prior to the first anniversary of the preceding year’s
annual meeting. If the date of the annual meeting is more than 30 days before or more than 60 days after such anniversary date, your notice must be so delivered not earlier than the close of business on the 90th day prior to such annual meeting and not later than the close of business on the later of the
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60th day prior to such annual meeting or the 10th day following the day we publicly announce the date of the 20112013 annual meeting of stockholders.
A copy of our
Our bylaws isare available on our website at www.valero.com under the “Corporate Governance” tab in the “Investor Relations” section. Stockholders are urged to review all applicable rules and consult legal counsel before submitting a nomination or proposal to Valero.
OTHER BUSINESS
If any matters not referred to in this proxy statement properly come before the Annual Meeting or any adjournments or postponements thereof, the enclosed proxies will be deemed to confer discretionary authority on the individuals named as proxies to vote the shares represented by proxy in accordance with their best judgments. The Board is not currently aware of any other matters that may be presented for action at the Annual Meeting.
FINANCIAL STATEMENTS
Consolidated financial statements and related information for Valero, including audited financial statements for the fiscal year ended December 31, 2009,2011, are contained in Valero’s Annual Report on Form 10-K. We have filed our Annual Report on Form 10-K with the SEC. You may review this report on the internet as indicated in the Notice and through our website at www.valero.com (in(www.valero.com in the “Investor Relations” section under “Financial Reports & SEC Filings”).
HOUSEHOLDING
The SEC’s rules allow companies to send a single Notice or single copy of annual reports, proxy statements, prospectuses, and other disclosure documents to two or more stockholders sharing the same address, subject to certain conditions. These “householding” rules are intended to provide greater convenience for stockholders, and cost savings for companies, by reducing the number of duplicate documents that stockholders receive. If your shares are held by an intermediary broker, dealer, or bank in “street name,” your consent to householding may be sought, or may already have been sought, by or on behalf of the intermediary. If you wish to revoke a consent to householding obtained by a broker, dealer, or bank which holds shares for your account, you may do so by calling (800) 542-1061, or you may contact your broker.
TRANSFER AGENT
Computershare Investor Services serves as our transfer agent, registrar, and dividend paying agent with respect to our Common Stock. Correspondence relating to any stock accounts, dividends, or transfers of stock certificates should be addressed to:
Computershare Investor Services
Stockholder
Shareholder Communications
250 Royall Street
Canton, Massachusetts 02021
(888) 470-2938
(312) 360-5261
www.computershare.com
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VALERO ENERGY CORPORATION
2005 OMNIBUS STOCK INCENTIVE PLAN
Amended and Restated as of October 1, 2005
The Valero Energy Corporation 2005 Omnibus Stock Incentive Plan (hereinafter called the “Plan”) was adopted by the Board of Directors of Valero Energy Corporation, a Delaware corporation (hereinafter called the “Company”) on March 10, 2005. The Plan was approved by the Company’s stockholders on April 28, 2005, and the Plan became effective on May 1, 2005.
ARTICLE 1. PURPOSE
The purpose of the Plan is to attract and retain the services of able persons as employees and non-employee directors of the Company and its Subsidiaries, to provide such persons with a proprietary interest in the Company through the granting of incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock, or other forms of incentive awards, and to motivate such persons using performance-related incentives linked to longer-range performance goals and the interests of the Company’s stockholders, whether granted singly, or in combination, or in tandem, that will (a) increase the interest of such persons in the Company’s welfare, and (b) furnish an incentive to such persons to continue their services for the Company.
ARTICLE 2. DEFINITIONS
For the purpose of the Plan, unless the context requires otherwise, the following terms shall have the meanings indicated:
2.1 “Annual Incentive Plan” means the annual bonus program or successor plans of the Company, its subsidiaries or its successors.
2.2 “Award” means the grant of any Incentive Stock Option, Non-qualified Stock Option, SAR, Restricted Stock, Restricted Stock Unit, Stock Unit, Performance Share, Performance Unit, Performance Cash, or Dividend Equivalent whether granted singly, in combination or in tandem (each individually referred to herein as an “Incentive”). “Award” also means any Incentive to which an award under the Annual Incentive Plan is converted into an Award made pursuant to the Plan.
2.3 “Award Agreement” means a written agreement between a Participant and the Company, which sets out the terms of the grant of an Award.
2.4 “Award Period” means the period during which one or more Incentives granted under an Award may be exercised or earned.
2.5 “Board” means the Board of Directors of the Company.
2.6 “Cause” shall mean the (i) conviction of the Participant by a state or federal court of a felony involving moral turpitude, (ii) conviction of the Participant by a state or federal court of embezzlement or misappropriation of funds of the Company, (iii) the Company’s (or applicable Affiliate’s) reasonable determination that the Participant has committed an act of fraud, embezzlement, theft, or misappropriation of funds in connection with such Participant’s duties in the course of his or her employment with the Company (or applicable Affiliate), (iv) the Company’s (or its applicable Affiliate’s) reasonable determination that the Participant has engaged in gross mismanagement, negligence or misconduct which causes or could potentially cause material loss, damage or injury to the Company, any of its Affiliates or their respective employees, or (v) the Company’s (or applicable Affiliate’s) reasonable determination that (a) the Participant has violated any policy of the Company (or applicable Affiliate), including but not limited to, policies regarding sexual harassment, insider trading, confidentiality,
Appendix A – Page 1
substance abuse and/or conflicts of interest, which violation could result in the termination of the Participant’s employment or service as a non-employee Director of the Company (or applicable Affiliate), or (b) the Participant has failed to satisfactorily perform the material duties of Participant’s position with the Company or any of its Affiliates.
2.7 “Change of Control.” A Change of Control shall be deemed to occur when:
| (a) | | the stockholders of the Company approve any agreement or transaction pursuant to which: (i) the Company will merge or consolidate with any other Person (other than a wholly owned subsidiary of the Company) and will not be the surviving entity (or in which the Company survives only as the subsidiary of another entity); (ii) the Company will sell all or substantially all of its assets to any other Person (other than a wholly owned subsidiary of the Company); or (iii) the Company will be liquidated or dissolved; or |
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| (b) | | any “person” or “group” (as these terms are used in Section 13(d) and 14(d) of the Securities Exchange Act of 1934) other than the Company, any subsidiary of the Company, any employee benefit plan of the Company or its subsidiaries, or any entity holding Shares for or pursuant to the terms of such employee benefit plans, is or becomes an “Acquiring Person” as defined in the Rights Agreement (or any successor rights agreement) (or, if no Rights Agreement is then in effect, such person or group acquires or holds such number of shares as, under the terms and conditions of the most recent such rights agreement to be in force and effect, would have caused such person or group to be an “Acquiring Person” thereunder); or |
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| (c) | | any “person” or “group” shall commence a tender offer or exchange offer for 15% or more of the Shares then outstanding, or for any number or amount of Shares which, if the tender or exchange offer were to be fully subscribed and all Shares for which the tender or exchange offer is made were to be purchased or exchanged pursuant to the offer, would result in the acquiring person or group directly or indirectly beneficially owning 50% or more of the Shares then outstanding; or |
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| (d) | | individuals who, as of any date, constitute the Board (the “Incumbent Board”) thereafter cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director whose election, or nomination for election by the Company’s stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a person or group other than the Board; or |
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| (e) | | the Distribution Date (as defined in the Rights Agreement) occurs; or |
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| (f) | | any other event occurs that is or has been determined by the Board or the Committee to constitute a “Change of Control” hereunder. |
2.8 | | “Code” means the Internal Revenue Code of 1986, as amended, together with the published rulings, regulations, and interpretations duly promulgated thereunder. |
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2.9 | | “Committee” means the Compensation Committee of the Board or such other Committee appointed or designated by the Board to administer the Plan in accordance with Article 3 of this Plan. |
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2.10 | | “Common Stock” means the Company’s $0.01 par value common stock, which the Company is currently authorized to issue or may in the future be authorized to issue. |
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2.11 | | “Company” means Valero Energy Corporation, a Delaware corporation, and any successor entity and any affiliate companies or subsidiaries thereto. |
Appendix A – Page 2
2.12 “Covered Participant” means a Participant who is a “covered employee” as defined in Section 162(m)(3) of the Code, and the regulations promulgated thereunder, and any individual the Committee determines should be treated as such a covered employee.
2.13 “Date of Grant” means the effective date on which an Award is made to a Participant as set forth in the applicable Award Agreement.
2.14 “Dividend Equivalent” means an Award, designated as a Dividend Equivalent, granted to Participants pursuant to Section 6.8 hereof, or in conjunction with other Awards, the value of which is determined, in whole or in part, by the value of payments tied to or based on the payment of dividends to holders of the Company’s Common Stock and may be conditioned on the attainment of Performance Goals in a manner deemed appropriate by the Committee and described in the Agreement.
2.15 “Employee” means common law employee (as defined in accordance with the Regulations and Revenue Rulings then applicable under Section 3401(c) of the Code) of the Company or any Subsidiary of the Company, or an individual who has agreed to become an employee of the Company or any Subsidiary of the Company and actually becomes such an employee within the following six months.
2.16 “Executive Stock Incentive Plan” means the 2001 Executive Stock Incentive Plan, which is a stockholder approved stock incentive plan from which the Company has granted equity or equity-based incentive awards to its employees. Because the Plan was approved by stockholders, no future awards will be made from the Executive Stock Incentive Plan and it will be terminated.
2.17 “Fair Market Value” of a share of Common Stock is the mean of the highest and lowest prices per share on the New York Stock Exchange Consolidated Tape, or such reporting service as the Board may select, on the appropriate date, or in the absence of reported sales on such day, then on the next following day for which sales were reported.
2.18 “Incentive” means an Award under the Plan as defined by Section 2.2 of Article 2.
2.19 “Incentive Stock Option” or “ISO” means an incentive stock option within the meaning of Section 422 of the Code, granted pursuant to this Plan.
2.20 “Limited SAR” or “Limited Stock Appreciation Right” means an Award designated as an SAR as defined by Section 2.37 of Article 2, which is granted with certain limiting features as determined by the Committee and as set forth in the Award Agreement at the time of grant.
2.21 “Non-Employee Director” means a member of the Board who is not an Employee.
2.22 “Non-qualified Stock Option” or “NQSO” means a stock option, granted pursuant to this Plan that is not intended to comply with the requirements set forth in Section 422 of the Code.
2.23 “Option Price” means the price which must be paid by a Participant upon exercise of a Stock Option to purchase a share of Common Stock.
2.24 “Participant” shall mean an Employee or Non-Employee Director to whom an Award is granted under this Plan.
2.25 “Performance Award” means an Award made pursuant to this Plan to a Participant which Award is subject to the attainment of one or more Performance Goals. Performance Awards may be in the form of either Performance Shares, Performance Units, Performance Cash, or Dividend Equivalents.
2.26 “Performance Cash” means an Award, designated as Performance Cash and denominated in cash, granted to a Participant pursuant to Section 6.7 hereof, the value of which is conditioned, in whole or in part, by the attainment of Performance Goals in a manner deemed appropriate by the Committee and described in the Agreement.
Appendix A – Page 3
2.27 “Performance Criteria” or “Performance Goals” or “Performance Measures” mean the objectives established by the Committee for a Performance Period, for the purpose of determining when an Award subject to such objectives is earned.
2.28 “Performance Period” means the time period designated by the Committee during which performance goals must be met.
2.29 “Performance Share” means an Award, designated as a Performance Share in the form of shares of Common Stock or other securities of the Company, granted to a Participant pursuant to Section 6.7 hereof, the value of which is determined, in whole or in part, by the value of Common Stock and/or conditioned on the attainment of Performance Goals in a manner deemed appropriate by the Committee and described in the Agreement.
2.30 “Performance Unit” means an Award, designated as a Performance Unit, granted to a Participant pursuant to Section 6.7 hereof, the value of which is determined, in whole or in part, by the attainment of Performance Goals in a manner deemed appropriate by the Committee and described in the Agreement.
2.31 “Person” shall mean any individual, corporation, partnership, association, joint-stock company, trust, unincorporated organization, government or political subdivision thereof or other entity.
2.32 “Plan” means the Valero Energy Corporation 2005 Omnibus Stock Incentive Plan, as amended from time to time.
2.33 “Restricted Stock” means shares of Common Stock issued or transferred to a Participant pursuant to Section 6.4 of this Plan which are subject to restrictions or limitations set forth in this Plan and in the related Award Agreement.
2.34 “Restricted Stock Unit” means a fixed or variable dollar denominated right to acquire Common Stock, which may or may not be subject to restrictions, contingently awarded under Section 6.4 of the Plan.
2.35 “Retirement” means any Termination of Service solely due to retirement upon attainment of certain age and/or service requirements as specified by the Company’s qualified retirement program(s) or successor programs or as determined by the Committee in the event of early retirement.
2.36 “Rights Agreement” shall mean the Rights Agreement, dated as of June 18, 1997, between the Company and Computershare Investor Services, L.L.C., as Rights Agent (successor Rights Agent to Harris Trust and Savings Bank), as amended. [now expired]
2.37 “SAR” or “Stock Appreciation Right” means the right to receive a payment, in cash and/or Common Stock, equal to the excess of the Fair Market Value of a specified number of shares of Common Stock on the date the SAR is exercised over the SAR Price for such shares, and may be granted as a Limited SAR.
2.38 “SAR Price” means the Fair Market Value of each share of Common Stock covered by a SAR, determined by the Committee on the Date of Grant of the SAR.
2.39 “SEC” shall mean the Securities and Exchange Commission.
2.40 “Stock Option” means a Non-qualified Stock Option or an Incentive Stock Option.
2.41 “Stock Unit Award” means awards of Common Stock or other awards pursuant to Section 6.8 hereof that are valued in whole or in part by reference to, or are otherwise based on, shares of Common Stock or other securities of the Company.
2.42 “Subsidiary” means (i) any corporation in an unbroken chain of corporations beginning with the Company, if each of the corporations other than the last corporation in the unbroken chain owns stock possessing a
Appendix A – Page 4
majority of the total combined voting power of all classes of stock in one of the other corporations in the chain, (ii) any limited partnership, if the Company or any corporation described in item (i) above owns a majority of the general partnership interest and a majority of the limited partnership interests entitled to vote on the removal and replacement of the general partner, and (iii) any partnership or limited liability company, if the partners or members thereof are composed only of the Company, any corporation listed in item (i) above or any limited partnership listed in item (ii) above. “Subsidiaries” means more than one of any such corporations, limited partnerships, partnerships or limited liability companies.
ARTICLE 3. ADMINISTRATION
3.1 The Committee shall administer the Plan unless otherwise determined by the Board. If said Committee does not so serve, the Committee shall consist of not fewer than two persons; any member of the Committee may be removed at any time, with or without cause, by resolution of the Board; and any vacancy occurring in the membership of the Committee may be filled by appointment by the Board.
3.2 The Committee shall select one of its members to act as its Chairman. A majority of the Committee shall constitute a quorum, and the act of a majority of the members of the Committee present at a meeting at which a quorum is present shall be the act of the Committee.
3.3 The Committee shall determine and designate from time to time the eligible persons to whom Awards will be granted and shall set forth in each related Award Agreement the Award Period, the Date of Grant, and such other terms, provisions, limitations, and performance requirements, as are approved by the Committee, but not inconsistent with the Plan, including, but not limited to, any rights of the Committee to cancel or rescind any such Award. The Committee shall determine whether an Award shall include one type of Incentive, two or more Incentives granted in combination, or two or more Incentives granted in tandem (that is, a joint grant where exercise of one Incentive results in cancellation of all or a portion of the other Incentive).
3.4 The Committee, in its discretion, shall (i) interpret the Plan, (ii) prescribe, amend, and rescind any rules and regulations necessary or appropriate for the administration of the Plan, and (iii) make such other determinations and take such other action as it deems necessary or advisable in the administration of the Plan. Any interpretation, determination, or other action made or taken by the Committee shall be final, binding, and conclusive on all interested parties.
3.5 With respect to restrictions in the Plan that are based on the requirements of Rule 16b-3 promulgated under the 1934 Act, Section 422 of the Code, Section 162(m) of the Code, the rules of any exchange or inter-dealer quotation system upon which the Company’s securities are listed or quoted, or any other applicable law, rule or restriction (collectively, “applicable law”), to the extent that any such restrictions are no longer required by applicable law, the Committee shall have the sole discretion and authority to grant Awards that are not subject to such mandated restrictions and/or to waive any such mandated restrictions with respect to outstanding Awards.
ARTICLE 4. ELIGIBILITY
Any Employee (including an Employee who is also a director or an officer) or Non-Employee Director is eligible to participate in the Plan. The Committee, upon its own action, may grant, but shall not be required to grant, an Award to any Employee or Non-Employee Director. Awards may be granted by the Committee at any time and from time to time to new Participants, or to then Participants, or to a greater or lesser number of Participants, and may include or exclude previous Participants, as the Committee shall determine. Except as required by this Plan, different Awards need not contain similar provisions. The Committee’s determinations under the Plan (including without limitation determinations of which Employees, if any, are to receive Awards, the form, amount and timing of such Awards, the terms and provisions of such Awards and the agreements evidencing same) need not be uniform and may be made by it selectively among Employees or Non-Employee Directors who receive, or are eligible to receive, Awards under the Plan.
Appendix A – Page 5
ARTICLE 5. SHARES SUBJECT TO PLAN
5.1Total Shares Available. Subject to adjustment as provided in Articles 14 and 15, the maximum number of shares of Common Stock that may be delivered pursuant to Awards granted under the Plan is (a) 20,000,0001 shares of Common Stock, plus (b) shares of Common Stock previously subject to Awards that are forfeited, terminated, cancelled or rescinded, settled in cash in lieu of Common Stock, or exchanged for Awards that do not involve Common Stock, or expired unexercised.
5.2Source of Shares. Shares to be issued may be made available from authorized but unissued Common Stock, Common Stock held by the Company in its treasury, or Common Stock purchased by the Company on the open market or otherwise. During the term of this Plan, the Company will at all times reserve and keep available a number of shares of Common Stock that shall be sufficient to satisfy the requirements of this Plan.
5.3Restoration and Retention of Shares. If any shares of Common Stock subject to an Award shall not be issued or transferred to a Participant and shall cease to be issuable or transferable to a Participant because of the forfeiture, termination, expiration or cancellation, in whole or in part, of such Award or for any other reason, or if any such shares shall, after issuance or transfer, be reacquired by the Company because of the Participant’s failure to comply with the terms and conditions of an Award or for any other reason, the shares not so issued or transferred, or the shares so reacquired by the Company, as the case may be, shall no longer be charged against the limitation provided for in Section 5.1 and may be used thereafter for additional Awards under the Plan. To the extent an Award under the Plan is settled or paid in cash, shares subject to such Award will not be considered to have been issued and will not be applied against the maximum number of shares of Common Stock provided for in Section 5.1. If an Award may be settled in shares of Common Stock or cash, such shares shall be deemed issued only when and to the extent that settlement or payment is actually made in shares of Common Stock. To the extent an Award is settled or paid in cash, and not shares of Common Stock, any shares previously reserved for issuance or transfer pursuant to such Award will again be deemed available for issuance or transfer under the Plan, and the maximum number of shares of Common Stock that may be issued or transferred under the Plan shall be reduced only by the number of shares actually issued and transferred to the Participant. If a Participant pays the purchase price of shares subject to a Stock Option or applicable taxes by surrendering shares of Common Stock in accordance with the provisions of Article 10, the number of shares surrendered shall be added back to the number of shares available for issuance or transfer under the Plan so that the maximum number of shares that may be issued or transferred under the Plan pursuant to Section 5.1 shall have been charged only for the net number of shares issued or transferred pursuant to the Stock Option exercise. The Committee may from time to time adopt and observe such procedures concerning the counting of shares against the Plan maximum as it may deem appropriate.
5.4Uncertificated Shares. The Company’s transfer agent will deliver the shares of Common Stock each holder of Common Stock under the Plan is entitled to as a result of having received an Award under the Plan. Shares issued under the Plan will be registered in uncertificated book-entry form (unless a holder of Common Stock requests a certificate representing such holder’s shares of Common Stock). As a result, instead of receiving Common Stock certificates, holders of Common Stock will receive account statements reflecting their ownership interest in shares of Common Stock. The book-entry shares will be held with the Company’s transfer agent, which will serve as the record keeper for all shares of Common Stock being issued in connection with the Plan. Any stockholder who wants to receive a physical certificate evidencing shares of Common Stock issued under the Plan will be able to obtain a certificate at no charge by contacting the Company’s transfer agent. Computershare Investor Services, Chicago, Illinois, currently serves as transfer agent, registrar and dividend paying agent for Valero’s Common Stock. Correspondence relating to any stock accounts, dividends or transfers of stock certificates should be addressed to: Computershare Investor Services Shareholder Communications, 250 Royall Street, Canton, Massachusetts 02021, (888) 470-2938/(312) 360-5261, www.computershare.com.
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1 | | Reflects the 2-for-1 stock split of Valero’s common stock on December 15, 2005. |
Appendix A – Page 6
ARTICLE 6. GRANT OF AWARDS
6.1 In General.
| (a) | | The grant of an Award shall be authorized by the Committee and may be evidenced by an Award Agreement setting forth the Incentive or Incentives being granted, the total number of shares of Common Stock subject to the Incentive(s) or the value of the Performance Award (if applicable), the Option Price (if applicable), the Award Period, the Date of Grant, and such other terms, provisions, limitations, and performance objectives, as are approved by the Committee, but not inconsistent with the Plan. The Company may execute an Award Agreement with a Participant after the Committee approves the issuance of an Award. Any Award granted pursuant to this Plan must be granted within 10 years of the date of adoption of this Plan. The grant of an Award to a Participant shall not be deemed either to entitle the Participant to, or to disqualify the Participant from, receipt of any other Award under the Plan. |
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| (b) | | If the Committee establishes a purchase price for an Award, the Participant must accept such Award within a period of 30 days (or such shorter period as the Committee may specify) after the Date of Grant by executing the applicable Award Agreement and paying such purchase price. |
6.2Limitations on Awards.
| (a) | | The Plan is subject to the following limitations: |
| (i) | | The Option Price of Stock Options cannot be less than 100% of the Fair Market Value of a share of Common Stock on the Date of Grant of the Stock Option. |
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| (ii) | | The SAR Price of a SAR cannot be less than 100% of the Fair Market Value of a share of Common Stock on the Date of Grant of the SAR. |
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| (iii) | | Repricing of Stock Options and SARs or other downward adjustments in the Option Price or SAR Price of previously granted Stock Options or SARs, respectively, are prohibited, except in connection with certain capital adjustments as described in Article 14 or 15. |
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| (iv) | | No more than 40% (4,000,000), of the available shares pursuant to Awards under the Plan may be in the form of time-lapse Restricted Stock. |
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| (v) | | No Participant may receive during any calendar year Awards that are to be settled in Shares of Common Stock covering an aggregate of more than 1,000,000 Shares. |
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| (vi) | | No Participant may receive during any calendar year Awards that are to be settled in cash covering an aggregate of more than $20,000,000. |
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| (vii) | | The term of Awards may not exceed 10 years. |
| (b) | | Limited SARs granted in tandem with Stock Options or other Awards shall not be counted towards the maximum individual grant limitation set forth in this Section, as the Limited SAR will expire based on conditions described in Section 6.5(b), below. |
6.3Rights as Stockholder. Except as provided in Section 6.4 of this Plan, until the issuance of the Shares of Common Stock (as evidenced by the appropriate entry on the books of the Company or any authorized transfer agent of the Company), no right to vote or receive dividends or any other rights as a stockholder of the Company shall exist with respect to such Shares, notwithstanding the exercise of any Incentive or Award. No adjustment will be made for a dividend or other rights for which the record date is prior to the date Shares are issued, except as otherwise provided in this Plan.
Appendix A – Page 7
6.4Restricted Stock/Restricted Stock Units. If Restricted Stock and/or Restricted Stock Units are granted to a Participant under an Award, the Committee shall establish: (i) the number of shares of Restricted Stock and/or the number of Restricted Stock Units awarded, (ii) the price, if any, to be paid by the Participant for such Restricted Stock and/or Restricted Stock Units, (iii) the time or times within which such Award may be subject to forfeiture, (iv) specified Performance Goals of the Company, a Subsidiary, any division thereof or any group of Employees of the Company, or other criteria, if any, which the Committee determines must be met in order to remove any restrictions (including vesting) on such Award, and (v) all other terms, limitations, restrictions, and conditions of the Restricted Stock and/or Restricted Stock Units, which shall be consistent with this Plan. The provisions of Restricted Stock and/or Restricted Stock Units need not be the same with respect to each Participant.
| (a) | | Legend on Shares. Each Participant who is awarded Restricted Stock shall be issued the number of shares of Common Stock specified in the Award Agreement for such Restricted Stock, and such shares shall be recorded in the share transfer records of the Company and ownership of such shares shall be evidenced by a certificate or book entry notation in the share transfer records of the Company. Such shares shall be registered in the name of the Participant, and shall bear or be subject to an appropriate legend referring to the terms, conditions, and restrictions applicable to such Restricted Stock, substantially as provided in Section 19.18 of the Plan. The Committee may require that the stock certificates or other evidence of ownership of the shares of Restricted Stock be held in custody by the Company until the restrictions thereon shall have lapsed, and that the Participant deliver to the Committee a stock power or stock powers, endorsed in blank, relating to the shares of Restricted Stock. |
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| (b) | | Restrictions and Conditions. Shares of Restricted Stock and Restricted Stock Units shall be subject to the following restrictions and conditions: |
| (i) | | Subject to the other provisions of this Plan and the terms of the particular Award Agreements, during such period as may be determined by the Committee commencing on the Date of Grant (the “Restriction Period”), the Participant shall not be permitted to sell, transfer, pledge or assign shares of Restricted Stock and/or Restricted Stock Units. Any Restricted Stock or Restricted Stock Units not granted pursuant to a Performance Award, shall have a minimum Restriction Period of three years from the Date of Grant, provided that the Committee may provide for earlier vesting following a Change in Control or upon an Employee’s termination of employment by reason of death, disability or Retirement. Except for these limitations, the Committee may in its sole discretion, remove any or all of the restrictions on such Restricted Stock and/or Restricted Stock Units whenever it may determine that, by reason of changes in applicable laws or other changes in circumstances arising after the date of the Award, such action is appropriate. |
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| (ii) | | Except as provided in subparagraph (i) above and subject to the terms of a Participant’s Award Agreement, the Participant shall have, with respect to his or her Restricted Stock, all of the rights of a stockholder of the Company, including the right to vote the shares, and the right to receive any dividends thereon. Certificates or evidence of ownership of shares of Common Stock free of restriction under this Plan shall be delivered to the Participant promptly after, and only after, the Restriction Period shall expire without forfeiture in respect of such shares of Common Stock. Certificates for the shares of Common Stock forfeited under the provisions of the Plan shall be promptly returned to the Company by the forfeiting Participant. Each Participant, by his or her acceptance of Restricted Stock, shall irrevocably grant to the Company a power of attorney to transfer any shares so forfeited to the Company and agrees to execute any documents requested by the Company in connection with such forfeiture and transfer. |
Appendix A – Page 8
| (iii) | | The Restriction Period of Restricted Stock and/or Restricted Stock Units shall commence on the Date of Grant and, subject to Article 15 of the Plan, unless otherwise established by the Committee in the Award Agreement setting forth the terms of the Restricted Stock and/or Restricted Stock Units, shall expire upon satisfaction of the conditions set forth in the Award Agreement; such conditions may provide for vesting based on (i) length of continuous service, (ii) achievement of specific business objectives, (iii) increases in specified indices, (iv) attainment of specified growth rates, or (v) other comparable Performance Measurements, as may be determined by the Committee in its sole discretion. |
| (c) | | Forfeiture. Except as otherwise determined by the Committee or the Chief Executive Officer, the provisions of Article 9 shall apply with respect to Restricted Stock granted hereunder. |
6.5SARs and Limited SARs.
| (a) | | An SAR shall entitle the Participant at his election to surrender to the Company the SAR, or portion thereof, as the Participant shall choose, and to receive from the Company in exchange therefore cash in an amount equal to the excess (if any) of the Fair Market Value (as of the date of the exercise of the SAR) per share over the SAR Price per share specified in such SAR, multiplied by the total number of shares of the SAR being surrendered. In the discretion of the Committee, the Company may satisfy its obligation upon exercise of an SAR by the distribution of that number of shares of Common Stock having an aggregate Fair Market Value (as of the date of the exercise of the SAR) equal to the amount of cash otherwise payable to the Participant, with a cash settlement to be made for any fractional share interests, or the Company may settle such obligation in part with shares of Common Stock and in part with cash. |
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| (b) | | A Limited SAR shall allow the Participant to receive from the Company cash in an amount equal to the excess (if any) of the Fair Market Value (as of the date of the exercise of the Limited SAR) per share over the Limited SAR Price per share specified in such Limited SAR, multiplied by the total number of shares of the Limited SAR being surrendered. The Company will satisfy its obligation with a cash settlement to be made for any fractional Limited SAR. Limited SARs will expire without consideration upon the vesting, exercise, or settlement, in shares and/or in cash, of Awards for which the Limited SAR was granted in tandem. |
6.6Tandem Awards. The Committee may grant two or more Incentives in one Award in the form of a “tandem award,” so that the right of the Participant to exercise one Incentive shall be canceled if, and to the extent, the other Incentive is exercised. For example, if a Stock Option and an SAR are issued in a tandem Award, and the Participant exercises the SAR with respect to 100 shares of Common Stock, the right of the Participant to exercise the related Stock Option shall be canceled to the extent of 100 shares of Common Stock.
6.7Performance Based Awards.
| (a) | | Grant of Performance Awards.The Committee may issue Performance Awards in the form of Performance Units, Performance Shares, Performance Cash, or Dividend Equivalents to Participants subject to the Performance Goals and Performance Period as it shall determine. The terms and conditions of each Performance Award will be set forth in the related Award Agreement. The Committee shall have complete discretion in determining the number and/or value of Performance Awards granted to each Participant. Any Performance Units or Performance Shares granted under the Plan shall have a minimum Restriction Period of one year from the Date of Grant, provided that the Committee may provide for earlier vesting following a Change in Control or upon an Employee’s termination of employment by reason of death, disability or Retirement. Participants receiving Performance Awards are not required to pay the Company therefor (except for applicable tax withholding) other than the rendering of services. |
Appendix A – Page 9
| (b) | | Value of Performance Awards.The Committee shall set Performance Goals in its discretion for each Participant who is granted a Performance Award. Such Performance Goals may be particular to a Participant, may relate to the performance of the Subsidiary which employs him or her, may be based on the division which employs him or her, may be based on the performance of the Company generally, or a combination of the foregoing. The Performance Goals may be based on achievement of balance sheet or income statement objectives, or any other objectives established by the Committee. The Performance Goals may be absolute in their terms or measured against or in relationship to other companies comparably, similarly or otherwise situated. The extent to which such Performance Goals are met will determine the number and/or value of the Performance Award to the Participant. |
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| (c) | | Form of Payment.Payment of the amount to which a Participant shall be entitled upon the settlement of a Performance Award shall be made in a lump sum or installments in cash, shares of Common Stock, or a combination thereof as determined by the Committee. |
6.8Other Stock Based Awards.
| (a) | | Grant of Other Stock Based Awards. The Committee may issue to Participants, either alone or in addition to other Awards made under the Plan, Stock Unit Awards which may be in the form of Common Stock or other securities. The value of each such Award shall be based, in whole or in part, on the value of the underlying Common Stock or other securities. The Committee, in its sole and complete discretion, may determine that an Award, either in the form of a Stock Unit Award under this Section or as an Award granted pursuant to the other provisions of this Article, may provide to the Participant (i) dividends or Dividend Equivalents (payable on a current or deferred basis) and (ii) cash payments in lieu of or in addition to an Award. The Committee shall determine the terms, restrictions, conditions, vesting requirements, and payment rules (all of which are sometimes hereinafter collectively referred to as “rules”) of the Award and shall set forth those rules in the related Award Agreement. |
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| (b) | | Rules. The Committee, in its sole and complete discretion, may grant a Stock Unit Award subject to the following rules: |
| (i) | | All rights with respect to such Stock Unit Awards granted to a Participant under the Plan shall be exercisable during his or her lifetime only by such Participant or his or her guardian or legal representative. |
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| (ii) | | Stock Unit Awards may require the payment of cash consideration by the Participant in receipt of the Award or provide that the Award, and any Common Stock or other securities issued in conjunction with the Award be delivered without the payment of cash consideration. |
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| (iii) | | The Committee, in its sole and complete discretion, may establish certain Performance Criteria that may relate in whole or in part to receipt of the Stock Unit Awards. |
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| (iv) | | Stock Unit Awards may be subject to a deferred payment schedule and/or vesting over a specified employment period. |
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| (v) | | The Committee as a result of certain circumstances may waive or otherwise remove, in whole or in part, any restriction or condition imposed on a Stock Unit Award at the time of Award. |
Appendix A – Page 10
ARTICLE 7. OPTION PRICE; SAR/LIMITED SAR PRICE
7.1Option/SAR Price. The Plan limitations stated in Section 6.2(a)(i) & -(ii) shall apply.
7.2Repricing. The Plan limitations stated in Section 6.2(a)(iii) shall apply.
ARTICLE 8. AWARD PERIOD; VESTING
8.1Award Period. Subject to the other provisions of this Plan, the Committee may, in its discretion, provide that an Incentive may not be exercised in whole or in part for any period or periods of time or beyond any date specified in the Award Agreement. Except as provided in the Award Agreement, an Incentive may be exercised in whole or in part at any time during its term.
No Incentive granted under the Plan may be exercised at any time after the end of its Award Period. The Plan limitations stated in Section 6.2(a)(vii) shall apply.
8.2Vesting. The Committee, in its sole discretion, may determine that an Incentive will be immediately exercisable, in whole or in part, or that all or any portion may not be exercised until a date, or dates, subsequent to its Date of Grant, or until the occurrence of one or more specified events, subject in any case to the terms of the Plan. If the Committee imposes conditions upon exercise, then subsequent to the Date of Grant, the Committee may, in its sole discretion, accelerate the date on which all or any portion of the Incentive may be exercised.
ARTICLE 9. TERMINATION OF SERVICE
9.1Termination of Employment.
| (a) | | Vesting andExercise. Except as otherwise provided in the Plan, or otherwise determined by the Committee and included in the applicable Award Agreement, a Stock Option, SAR or other Award having an exercise provision (each, an “Exercisable Award”) vests in and may be exercised by a Participant only while the Participant is and has continually been since the date of the grant of the Exercisable Award an Employee or Non-Employee Director. |
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| (b) | | Voluntary Termination by Participant (Exercisable Awards). If a Participant’s employment or service as a Non-Employee Director with the Company is voluntarily terminated by the Participant (other than through retirement, death or disability; see Section 9.3 below), then: (i) that portion of any Exercisable Award that has not vested on or prior to such date of termination shall automatically lapse and be forfeited, and (ii) all vested but unexercised Exercisable Awards previously granted to that Participant under the Plan shall automatically lapse and be forfeited at the close of business on the 30th day following that date of such Participant’s termination, unless an Exercisable Award expires earlier according to its original terms. |
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| (c) | | Involuntary Termination for Cause (Exercisable Awards). If a Participant’s employment or service as a Non-Employee director is involuntarily terminated by the Company for Cause: (i) that portion of any Exercisable Award that has not vested on or prior to such date of termination shall automatically lapse and be forfeited, and (ii) all vested but unexercised Exercisable Awards previously granted to that Participant under the Plan shall automatically lapse and be forfeited at the close of business on the 30th day following that date of such Participant’s termination, unless an Exercisable Award expires earlier according to its original terms. |
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| (d) | | Involuntary Termination Other Than For Cause (Exercisable Awards).If a Participant’s employment or service as a Non-Employee Director is involuntarily terminated by the Company other than for Cause: (i) that portion of any Exercisable Award that has not vested on or prior to such date of termination shall automatically lapse and be forfeited, and (ii) all vested but unexercised Exercisable Awards previously granted to that Participant under the Plan shall automatically lapse and be forfeited at the close of business on the last business day of the twelfth month following the date of the Participant’s termination, unless an Exercisable Award expires earlier according to its original terms. |
9.2Awards Other Than Exercisable Awards. Except as otherwise provided in the Plan, or otherwise determined by the Committee and included in the applicable Award Agreement, if a Participant’s employment or service as a Non-Employee Director with the Company is voluntarily terminated by the Participant (other than through retirement, death or disability; see Section 9.3 below), or is terminated by the Company with or without Cause, then any Awardother thanan Exercisable Award previously granted to that Participant under the Plan which remains unvested shall automatically lapse and be forfeited at the close of business on the date of such Participant’s termination of employment or service.
9.3Retirement, Death, Disability. Except as otherwise provided in the Plan, or otherwise determined by the Committee and included in the applicable Award Agreement, if a Participant’s employment or service as a Non-Employee Director is terminated because of retirement, death or disability (with the determination of disability to be made within the sole discretion of the Committee), any Award held by the Participant shall remain outstanding and vest or become exercisable according to the Award’s original terms; provided, however, that any Restricted Stock or Restricted Stock Units held by the Participant that remain unvested as of the date of retirement, death or disability shall immediately vest and become non-forfeitable as of such date.
9.4Amendment. The Committee or the Chief Executive Officer may prescribe new or additional terms for the vesting, exercise or realization of any Award; provided, however, that no such action shall deprive a Participant or beneficiary, without his or her consent, of the right to any benefit accrued to his or her credit at the time of such action.
ARTICLE 10. EXERCISE OF INCENTIVE
10.1In General. (a) A vested Incentive may be exercised during its Award Period, subject to limitations and restrictions set forth therein and in Article 9. A vested Incentive may be exercised at such times and in such amounts as provided in this Plan and the applicable Award Agreement, subject to the terms, conditions, and restrictions of the Plan.
(b) In no event may an Incentive be exercised or shares of Common Stock be issued pursuant to an Award if a necessary listing or quotation of the shares of Common Stock on a stock exchange or inter-dealer quotation system or any registration under state or federal securities laws required under the circumstances has not been accomplished. No Incentive may be exercised for a fractional share of Common Stock.
10.2Stock Options. (a) Subject to such administrative regulations as the Committee may from time to time adopt, a Stock Option may be exercised by the delivery of written notice to the Company setting forth the number of shares of Common Stock with respect to which the Stock Option is to be exercised (the “Exercise Notice”) and the date of exercise thereof (the “Exercise Date”) in accordance with procedures established by the Company. On the Exercise Date, the Participant shall deliver to the Company consideration with a value equal to the total Option Price of the shares to be purchased, payable as follows: (a) cash, check, bank draft, or money order payable to the order of the Company, (b) Common Stock (including Restricted Stock) owned by the Participant on the Exercise Date, valued at its Fair Market Value on the Exercise Date, (c) by delivery (including by fax) to the Company or its designated agent of an executed irrevocable option exercise form together with irrevocable instructions from the Participant to a broker or dealer, reasonably acceptable to the Company, to sell certain of the shares of Common Stock purchased upon exercise of the Stock Option and promptly deliver to the Company the amount of sale proceeds necessary to pay such purchase price, and/or (d) in any other form of valid consideration that is acceptable to the Company in its sole discretion. In the event that shares of Restricted Stock are tendered as consideration for the exercise of a Stock Option, a number of shares of Common Stock issued upon the exercise of
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the Stock Option equal to the number of shares of Restricted Stock used as consideration therefor shall be subject to the same restrictions and provisions as the Restricted Stock so submitted, as well as any additional restrictions that may be imposed by the Committee.
(b) Upon payment of all amounts due from the Participant, the Company shall cause shares of the Common Stock then being purchased to be delivered as directed by the Participant (or the person exercising the Participant’s Stock Option in the event of his death) at its principal business office promptly after the Exercise Date; provided that if the Participant has exercised an Incentive Stock Option, the Company may at its option retain possession of the shares acquired upon exercise until the expiration of the holding periods described in Section 422(a)(1) of the Code. The obligation of the Company to deliver shares of Common Stock shall, however, be subject to the condition that if at any time the Committee shall determine in its discretion that the listing, registration, or qualification of the Stock Option or the Common Stock upon any securities exchange or inter-dealer quotation system or under any state or federal law, or the consent or approval of any governmental regulatory body, is necessary or desirable as a condition of, or in connection with, the Stock Option or the issuance or purchase of shares of Common Stock thereunder, the Stock Option may not be exercised in whole or in part unless such listing, registration, qualification, consent, or approval shall have been effected or obtained free of any conditions not acceptable to the Committee.
(c) If the Participant fails to pay for any of the Common Stock specified in such notice or fails to accept delivery thereof, the Participant’s right to purchase such Common Stock may be terminated by the Company.
10.3SARs. Subject to the conditions of this Section and such administrative regulations as the Committee may from time to time adopt, an SAR may be exercised by the delivery (including by fax) of written notice to the Committee setting forth the number of shares of Common Stock with respect to which the SAR is to be exercised (the “Exercise Notice”) and the date of exercise thereof (the “Exercise Date”) in accordance with procedures established by the Company. On the Exercise Date, the Participant shall receive from the Company in exchange therefore cash in an amount equal to the excess (if any) of the Fair Market Value (as of the date of the exercise of the SAR) per share of Common Stock over the SAR Price per share specified in such SAR, multiplied by the total number of shares of Common Stock of the SAR being surrendered. In the discretion of the Committee, the Company may satisfy its obligation upon exercise of an SAR by the distribution of that number of shares of Common Stock having an aggregate Fair Market Value (as of the date of the exercise of the SAR) equal to the amount of cash otherwise payable to the Participant, with a cash settlement to be made for any fractional share interests, or the Company may settle such obligation in part with shares of Common Stock and in part with cash.
10.4Tax Payment Election. Subject to the approval of the Committee, and to any rules and limitations as the Committee may adopt, a person exercising an Incentive may make the payment of the amount of any taxes required to be collected or withheld by the Company in connection with such exercise in whole or in part by electing, at or before the time of exercise, either (i) to have the Company withhold from the number of Shares otherwise deliverable a number of Shares whose value equals the amount of the applicable supplemental wage withholding required plus any required state, local or employment tax withholdings, or (ii) to deliver certificates for other Shares owned by the person exercising the Award, endorsed in blank with appropriate signature guarantee, having a value equal to the amount otherwise to be collected or withheld.
10.5Valuation. Any calculation with respect to a Participant’s income, required tax withholding or other matters required to be made by the Company upon the exercise of an Incentive shall be made using the Fair Market Value of the shares of Common Stock on the Exercise Date, whether or not the Exercise Notice is delivered to the Company before or after the close of trading on that date, unless otherwise specified by the Committee. Notwithstanding the foregoing, for Stock Option exercises using the Company’s “same-day-sale for cash method” or “broker sale for stock method,” a Participant’s taxable gain and related tax withholding on the exercise will be calculated using the actual market price at which Shares were sold in the transaction.
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ARTICLE 11. SPECIAL PROVISIONS
APPLICABLE TO COVERED PARTICIPANTS
Awards subject to Performance Criteria paid to Covered Participants under this Plan shall be governed by the conditions of this Article 11 in addition to the requirements of Article 6, above. Should conditions set forth under this Article 11 conflict with the requirements of Article 6, the conditions of this Article 11 shall prevail.
11.1Establishment of Performance Measures, Goals or Criteria. All Performance Measures, Goals, or Criteria relating to Covered Participants for a relevant Performance Period shall be established by the Committee in writing prior to the beginning of the Performance Period, or by such other later date for the Performance Period as may be permitted under Section 162(m) of the Code. The Performance Goals may be identical for all Participants or, at the discretion of the Committee, may be different to reflect more appropriate measures of individual performance.
11.2Performance Goals. The Committee shall establish the Performance Goals relating to Covered Participants for a Performance Period in writing. Performance Goals may include alternative and multiple Performance Goals and may be based on one or more business and/or financial criteria. In establishing the Performance Goals for the Performance Period, the Committee in its discretion may include one or any combination of the following criteria in either absolute or relative terms, for the Company or any Subsidiary:
| (a) | | Increased revenue; |
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| (b) | | Net income measures (including but not limited to income after capital costs and income before or after taxes); |
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| (c) | | Stock price measures (including but not limited to growth measures and total stockholder return); |
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| (d) | | Market share; |
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| (e) | | Earnings per share (actual or targeted growth); |
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| (f) | | Earnings before interest, taxes, depreciation, and amortization (“EBITDA”); |
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| (g) | | Economic value added (“EVA®”); |
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| (h) | | Cash flow measures (including but not limited to net cash flow and net cash flow before financing activities); |
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| (i) | | Return measures (including but not limited to return on equity, return on average assets, return on capital, risk-adjusted return on capital, return on investors’ capital and return on average equity); |
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| (j) | | Operating measures (including operating income, funds from operations, cash from operations, after-tax operating income, sales volumes, production volumes, and production efficiency); |
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| (k) | | Expense measures (including but not limited to cost-per-barrel, overhead cost and general and administrative expense); |
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| (l) | | Margins; |
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| (m) | | Stockholder value; |
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| (n) | | Total stockholder return; |
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| (o) | | Proceeds from dispositions; |
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| (p) | | Production volumes; |
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| (q) | | Refinery runs or refinery utilization; |
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| (r) | | Total market value; and |
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| (s) | | Corporate values measures (including ethics compliance, environmental, and safety). |
11.3Compliance with Section 162(m). The Performance Goals must be objective and must satisfy third party “objectivity” standards under Section 162(m) of the Code, and the regulations promulgated thereunder. In interpreting Plan provisions relating to Awards subject to Performance Goals paid to Covered Participants, it is the intent of the Plan to conform with the standards of Section 162(m) of the Code and Treasury Regulation §1.162-27(e)(2)(i), and the Committee in establishing such goals and interpreting the Plan shall be guided by such provisions.
11.4Adjustments. The Committee is authorized to make adjustments in the method of calculating attainment of Performance Goals in recognition of: (i) extraordinary or non-recurring items, (ii) changes in tax laws,
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(iii) changes in generally accepted accounting principles or changes in accounting principles, (iv) charges related to restructured or discontinued operations, (v) restatement of prior period financial results, and (vi) any other unusual, non-recurring gain or loss that is separately identified and quantified in the Company’s financial statements. Notwithstanding the foregoing, the Committee may, at its sole discretion, reduce the performance results upon which Awards are based under the Plan, to offset any unintended result(s) arising from events not anticipated when the Performance Goals were established, or for any other purpose, provided that such adjustment is permitted by Section 162(m) of the Code.
11.5Discretionary Adjustments. The Performance Goals shall not allow for any discretion by the Committee as to an increase in any Award, but discretion to lower an Award is permissible.
11.6Certification. The Award and payment of any Award under this Plan to a Covered Participant with respect to a relevant Performance Period shall be contingent upon the attainment of the Performance Goals that are applicable to such Covered Participant. The Committee shall certify in writing prior to payment of any such Award that such applicable Performance Goals relating to the Award are satisfied. Approved minutes of the Committee may be used for this purpose.
11.7Other Considerations. All Awards to Covered Participants under this Plan shall be further subject to such other conditions, restrictions, and requirements as the Committee may determine to be necessary to carry out the purpose of this Article 11.
ARTICLE 12. AMENDMENT OR DISCONTINUANCE
12.1In General. Subject to the limitations set forth in this Article 12, the Committee may at any time and from time to time, without the consent of the Participants, alter, amend, revise, suspend, or discontinue the Plan in whole or in part; provided, however, that no amendment which requires stockholder approval under the rules of the national exchange on which the shares of Common Stock are listed (or in order for the Plan and Incentives awarded under the Plan to continue to comply with Section 162(m) of the Code, including any successors to such Section), shall be effective unless such amendment shall be approved by the requisite vote of the stockholders of the Company entitled to vote thereon. Any such amendment shall, to the extent deemed necessary or advisable by the Committee, be applicable to any outstanding Incentives theretofore granted under the Plan, notwithstanding any contrary provisions contained in any Award Agreement. In the event of any such amendment to the Plan, the holder of any Incentive outstanding under the Plan shall, upon request of the Committee and as a condition to the exercisability thereof, execute a conforming amendment in the form prescribed by the Committee to any Award Agreement relating thereto.
12.2Amendments to Awards. The Committee may waive any conditions or rights under, amend any terms of, or alter any Award theretofore granted; provided that, unless required by law, no action contemplated or permitted by this Article 12 shall adversely affect any rights of Participants or obligations of the Company to Participants with respect to any Incentive theretofore granted under the Plan without the consent of the affected Participant.
12.3Unusual or Nonrecurring Events. The Committee is hereby authorized to make adjustments in the terms, conditions, and criteria of Awards in recognition of unusual or nonrecurring events (including the events described in Section 14 of the Plan) affecting the Company, any Affiliate, or the financial statements of the Company or any Affiliate, or in recognition of changes in applicable laws, regulations, or accounting principles, whenever the Committee determines that such adjustments are appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan.
ARTICLE 13. EFFECTIVE DATE AND TERM
The Plan shall be effective as of May 1, 2005. Subject to earlier termination pursuant to Article 12, the Plan shall have a term of 10 years from its effective date and will terminate on April 30, 2015. After termination of the Plan, no future Awards may be made. However, any Incentives granted before that date will continue to be effective in accordance with their terms and conditions.
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ARTICLE 14. CAPITAL ADJUSTMENTS
14.1In General. If at any time while the Plan is in effect, or Incentives are outstanding, there shall be any increase or decrease in the number of issued and outstanding shares of Common Stock resulting from (1) the declaration or payment of a stock dividend, (2) any recapitalization resulting in a stock split-up, combination, or exchange of shares of Common Stock, or (3) other increase or decrease in such shares of Common Stock effected without receipt of consideration by the Company, then:
| (a) | | An appropriate adjustment shall be made in the maximum number of shares of Common Stock then subject to being awarded under the Plan and in the maximum number of shares of Common Stock that may be awarded to a Participant to the end that the same proportion of the Company’s issued and outstanding shares of Common Stock shall continue to be subject to being so awarded. |
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| (b) | | Appropriate adjustments shall be made in the number of shares of Common Stock and the Option Price thereof then subject to purchase pursuant to each such Stock Option previously granted and unexercised, to the end that the same proportion of the Company’s issued and outstanding shares of Common Stock in each such instance shall remain subject to purchase at the same aggregate Option Price. |
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| (c) | | Appropriate adjustments shall be made in the number of SARs and the SAR Price thereof then subject to exercise pursuant to each such SAR previously granted and unexercised, to the end that the same proportion of the Company’s issued and outstanding shares of Common Stock in each instance shall remain subject to exercise at the same aggregate SAR Price. |
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| (d) | | Appropriate adjustments shall be made in the number of outstanding shares of Restricted Stock with respect to which restrictions have not yet lapsed prior to any such change. |
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| (e) | | Appropriate adjustments shall be made with respect to shares of Common Stock applicable to any other Incentives previously awarded under the Plan as the Committee, in its sole discretion, deems appropriate, consistent with the event. |
14.2Issuance of Stock or Other Convertible Securities. Except as otherwise expressly provided herein, the issuance by the Company of shares of its capital stock of any class, or securities convertible into shares of capital stock of any class, either in connection with direct sale or upon the exercise of rights or warrants to subscribe therefor, or upon conversion of shares or obligations of the Company convertible into such shares or other securities, shall not affect, and no adjustment by reason thereof shall be made with respect to (i) the number of or Option Price of shares of Common Stock then subject to outstanding Stock Options granted under the Plan, (ii) the number of or SAR Price or SARs then subject to outstanding SARs granted under the Plan, (iii) the number of outstanding shares of Restricted Stock, or (iv) the number of shares of Common Stock otherwise payable under any other Incentive.
14.3Notification. Upon the occurrence of each event requiring an adjustment with respect to any Incentive, the Company shall notify each affected Participant its computation of such adjustment, which shall be conclusive and shall be binding upon each such Participant.
ARTICLE 15. RECAPITALIZATION, MERGER AND CONSOLIDATION;
CHANGE OF CONTROL
15.1Adjustments, Recapitalizations, Reorganizations, or Other Adjustments. The existence of this Plan and Incentives granted hereunder shall not affect in any way the right or power of the Company or its stockholders to make or authorize any or all adjustments, recapitalizations, reorganizations, or other changes in the Company’s capital structure and its business, or any merger or consolidation of the Company, or any issue of bonds, debentures, preferred or preference stocks ranking prior to or otherwise affecting the Common Stock or the rights thereof (or any rights, options, or warrants to purchase same), or the dissolution or liquidation of the Company, or
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any sale or transfer of all or any part of its assets or business, or any other corporate act or proceeding, whether of a similar character or otherwise.
15.2Acquiring Entity. Subject to any required action by the stockholders, if the Company shall be the surviving or resulting corporation in any merger, consolidation or share exchange, any Incentive granted hereunder shall pertain to and apply to the securities or rights (including cash, property, or assets) to which a Participant would have been entitled.
15.3Acquired Entity. In the event of any merger, consolidation or share exchange pursuant to which the Company is not the surviving or resulting corporation, there shall be substituted for each share of Common Stock subject to the unexercised portions of such outstanding Incentives, that number of shares of each class of stock or other securities or that amount of cash, property, or assets of the surviving, resulting or consolidated company which were distributed or distributable to the stockholders of the Company in respect to each share of Common Stock held by them, such outstanding Incentives to be thereafter exercisable for such stock, securities, cash, or property in accordance with their terms. Notwithstanding the foregoing, however, all Stock Options and SARs may be canceled by the Company immediately prior to the effective date of any such reorganization, merger, consolidation, share exchange or any dissolution or liquidation of the Company by giving notice to each holder thereof or his personal representative of its intention to do so and by permitting the purchase during the 30 day period next preceding such effective date of all or any portion of all of the shares of Common Stock subject to such outstanding Incentives whether or not such Incentives are then vested or exercisable.
15.4Change of Control.
| (a) | | In the event of a Change of Control, notwithstanding any other provision in this Plan to the contrary all unmatured installments of Incentives outstanding and not otherwise canceled in accordance with Section 15.3 above, shall thereupon automatically be accelerated and exercisable in full and all Restriction Periods applicable to Awards of Restricted Stock and/or Restricted Stock Units shall automatically expire. The determination of the Committee that any of the foregoing conditions has been met shall be binding and conclusive on all parties. |
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| (b) | | In the event of a Change of Control, notwithstanding any other provision in this Plan and not otherwise canceled in accordance with Section 15.3 above, previously granted and unpaid Performance Cash and/or Dividend Equivalents or Performance Cash and/or Dividend Equivalents granted in the year during which the Change of Control occurs will be paid no later than 60 days from the date of the occurrence of such Change of Control. The amount of the Performance Cash and/or Dividend Equivalent payable shall be: |
| (i) | | One-half of the maximum value of Performance Cash and/or Dividend Equivalent payable pursuant to the terms and provisions of the Award (reduced by the application of the Committee’s negative discretion, if applicable) to such person if the Change of Control occurs before 50 percent of the Performance Period has elapsed; or |
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| (ii) | | The full maximum value of the Performance Cash and/or Dividend Equivalent payable pursuant to the terms and provisions of the Award (reduced by the application of the Committee’s negative discretion, if applicable) to such person if the Change of Control occurs on or after 50 percent of the Performance Period has elapsed. |
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ARTICLE 16. LIQUIDATION OR DISSOLUTION
In case the Company shall, at any time while any Incentive under this Plan shall be in force and remain unexpired, sell all or substantially all of its property, or dissolve, liquidate, or wind up its affairs (each, a “Dissolution Event”), then each Participant shall be thereafter entitled to receive, in lieu of each share of Common Stock of the Company which such Participant would have been entitled to receive under the Incentive, the same kind and amount of any securities or assets as may be issuable, distributable, or payable upon any such sale, dissolution, liquidation, or winding up with respect to each share of Common Stock of the Company. If the Company shall, at any time prior to the expiration of any Incentive, make any partial distribution of its assets, in the nature of a partial liquidation, whether payable in cash or in kind (but excluding the distribution of a cash dividend payable out of earned surplus and designated as such) then in such event the Option Prices or SAR Prices then in effect with respect to each Stock Option or SAR shall be reduced, on the payment date of such distribution, in proportion to the percentage reduction in the tangible book value of the shares of the Company’s Common Stock (determined in accordance with generally accepted accounting principles) resulting by reason of such distribution.
ARTICLE 17. ADDITIONAL AUTHORITY OF COMMITTEE
In addition to the Committee’s authority set forth elsewhere, in order to maintain a Participant’s rights in the event of any Change of Control or Dissolution Event described under Articles 15 and 16, the Committee, as constituted before the Change of Control or Dissolution Event, is hereby authorized, and has sole discretion, as to any Incentive, either at the time the Award is made hereunder or any time thereafter, to take any one or more of the following actions:
| (a) | | provide for the acceleration of any time periods relating to the vesting, exercise or realization of the Incentive so that the Incentive may be exercised or realized in full on or before a date fixed by the Committee; |
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| (b) | | provide for the purchase of any Incentive, upon the Participant’s request, for an amount of cash equal to the amount that could have been attained upon the exercise of the Incentive or realization of the Participant’s rights in the Incentive had the Incentive been currently exercisable or payable; |
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| (c) | | adjust any outstanding Incentive as the Committee deems appropriate to reflect the Change of Control or Dissolution Event; or |
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| (d) | | cause any outstanding Incentive to be assumed, or new rights substituted therefor, by the acquiring or surviving corporation after a Change of Control or successor following a Dissolution Event. |
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| (e) | | The Committee may in its discretion include other provisions and limitations in any Award Agreement as it may deem equitable and in the best interests of the Company. |
ARTICLE 18. INCENTIVES IN SUBSTITUTION FOR
INCENTIVES GRANTED BY OTHER CORPORATIONS
Incentives may be granted under the Plan from time to time in substitution for similar instruments held by employees of a corporation who become or are about to become Employees of the Company or any Subsidiary as a result of a merger or consolidation of the employing corporation with the Company or the acquisition by the Company of stock of the employing corporation. The terms and conditions of the substitute Incentives so granted may vary from the terms and conditions set forth in this Plan to such extent as the Board at the time of grant may deem appropriate to conform, in whole or in part, to the provisions of the Incentives in substitution for which they are granted.
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ARTICLE 19. MISCELLANEOUS PROVISIONS
19.1Code Section 409A. Notwithstanding anything in this Plan to the contrary, if any Plan provision or Award under the Plan would result in the imposition of an applicable tax under Code Section 409A and related regulations and Treasury pronouncements (“Section 409A”), that Plan provision or Award may be reformed to avoid imposition of the applicable tax and no action taken to comply with Section 409A shall be deemed to adversely affect the Participant’s rights to an Award.
19.2Investment Intent. The Company may require that there be presented to and filed with it by any Participant under the Plan, such evidence as it may deem necessary to establish that the Incentives granted or the shares of Common Stock to be purchased or transferred are being acquired for investment and not with a view to their distribution.
19.3No Right to Continued Employment. Neither the Plan nor any Incentive granted under the Plan shall confer upon any Participant any right with respect to continuance of employment by the Company or any Subsidiary.
19.4Delegation. Subject to the terms of the Plan and applicable law, the Committee may delegate to one or more officers or managers of the Company or any Affiliate, or to a committee of such officers or managers, the authority, subject to the terms and limitations the Committee shall determine, to grant Awards or to cancel, modify or waive rights with respect to, or to amend, suspend, or terminate Awards.
19.5Indemnification of Board and Committee. No member of the Board or the Committee, nor any officer or employee of the Company acting on behalf of the Board or the Committee, shall be personally liable for any action, determination, or interpretation taken or made in good faith with respect to the Plan, and all members of the Board or the Committee and each and any officer or employee of the Company acting on their behalf shall, to the fullest extent permitted by law, be fully indemnified and protected by the Company in respect of any such action, determination, or interpretation.
19.6Effect of the Plan. Neither the adoption of this Plan nor any action of the Board or the Committee shall be deemed to give any person any right to be granted an Award or any other rights except as may be evidenced by an Award Agreement, or any amendment thereto, duly authorized by the Committee and executed on behalf of the Company, and then only to the extent and upon the terms and conditions expressly set forth therein.
19.7Compliance with Laws and Regulations. Notwithstanding anything contained herein to the contrary, the Company shall not be required to sell or issue shares of Common Stock under any Incentive if the issuance thereof would constitute a violation by the Participant or the Company of any provisions of any law or regulation of any governmental authority or any national securities exchange or inter-dealer quotation system or other forum in which shares of Common Stock are quoted or traded (including without limitation Section 16 of the Securities Exchange Act of 1934 and 162(m) of the Code), and, as a condition of any sale or issuance of shares of Common Stock under an Incentive, the Committee may require such agreements or undertakings, if any, as the Committee may deem necessary or advisable to assure compliance with any such law or regulation. The Plan, the grant and exercise of Incentives hereunder, and the obligation of the Company to sell and deliver shares of Common Stock, shall be subject to all applicable federal and state laws, rules and regulations and to such approvals by any government or regulatory agency as may be required; and the grant or making of any Award shall be conditional and shall be granted or awarded subject to acceptance of the Shares deliverable pursuant to the Award for listing on the NYSE.
19.8Severability. If any provision of the Plan or any Award is or becomes or is deemed to be invalid, illegal, or unenforceable in any jurisdiction as to any Person or Award, or would disqualify the Plan or any Award under any law deemed applicable by the Committee, such provision shall be construed or deemed amended to conform to applicable laws, or if it cannot be construed or deemed amended without, in the determination of the Committee, materially altering the intent of the Plan or the Award, such provision shall be stricken as to such jurisdiction, Person or Award and the remainder of the Plan and any such Award shall remain in full force and effect.
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19.9Tax Requirements, Withholding. The Company or any Affiliate is hereby authorized to withhold from any Award, from any payment due or transfer made under any Award or under the Plan or from any compensation or other amount owing to a Participant the amount (in cash, Shares, other securities, other Awards or other property) of any applicable withholding taxes with respect to an Award, its exercise, the lapse of restrictions thereon, payment or transfer under an Award or under the Plan, and to take any other action necessary in the opinion of the Company to satisfy all obligations for the payment of the taxes. Notwithstanding the foregoing, in the event of an assignment of a Non-qualified Stock Option or SAR, the Participant who assigns the Non-qualified Stock Option or SAR shall remain subject to withholding taxes upon exercise of the Non-qualified Stock Option or SAR by the transferee to the extent required by the Code or the rules and regulations promulgated thereunder. Such payments shall be required to be made prior to the delivery of any shares of Common Stock. Such payment may be made in cash, by check, or through the delivery of shares of Common Stock owned by the Participant (which may be effected by the actual delivery of shares of Common Stock by the Participant or by the Company’s withholding a number of shares to be issued upon the exercise of a Stock Option, if applicable), which shares have an aggregate Fair Market Value equal to the required minimum withholding payment, or any combination thereof.
19.10Assignability. (a) Incentive Stock Options may not be transferred or assigned other than by will or the laws of descent and distribution and may be exercised during the lifetime of the Participant only by the Participant or the Participant’s legally authorized representative, and each Award Agreement in respect of an Incentive Stock Option shall so provide. The designation by a Participant of a beneficiary will not constitute a transfer of the Stock Option. The Committee may waive or modify any limitation contained in the preceding sentences of this Section 19.10 that is not required for compliance with Section 422 of the Code.
(b) The Committee may, in its discretion, authorize all or a portion of a Non-qualified Stock Option or SAR to be granted to a Participant to be on terms which permit transfer by such Participant to (i) the spouse, children or grandchildren of the Participant (“Immediate Family Members”), (ii) a trust or trusts for the exclusive benefit of such Immediate Family Members, or (iii) a partnership in which such Immediate Family Members are the only partners, (iv) an entity exempt from federal income tax pursuant to Section 501(c)(3) of the Code or any successor provision, or (v) a split interest trust or pooled income fund described in Section 2522(c)(2) of the Code or any successor provision, provided that (a) there shall be no consideration for any such transfer, (b) the Award Agreement pursuant to which such Non-qualified Stock Option or SAR is granted must be approved by the Committee and must expressly provide for transferability in a manner consistent with this Section, and (c) subsequent transfers of transferred Non-qualified Stock Options or SARs shall be prohibited except those by will or the laws of descent and distribution or pursuant to a qualified domestic relations order as defined in the Code or Title I of the Employee Retirement Income Security Act of 1974, as amended. Following transfer, any such Non-qualified Stock Option and SAR shall continue to be subject to the same terms and conditions as were applicable immediately prior to transfer, provided that for purposes of Articles 10, 12, 14, 16 and 18 hereof the term “Participant” shall be deemed to include the transferee. The events of Termination of Service shall continue to be applied with respect to the original Participant, following which the Non-qualified Stock Options and SARs shall be exercisable by the transferee only to the extent and for the periods specified in the Award Agreement. The Committee and the Company shall have no obligation to inform any transferee of a Non-qualified Stock Option or SAR of any expiration, termination, lapse or acceleration of such Option. The Company shall have no obligation to register with any federal or state securities commission or agency any Common Stock issuable or issued under a Non-qualified Stock Option or SAR that has been transferred by a Participant under this Section 19.10.
19.11No Trust or Fund Created. Neither the Plan nor any Award shall create or be construed to create a trust or separate fund of any kind or any fiduciary relationship between the Company or any Affiliate and a Participant or any other Person. To the extent that any Person acquires a right to receive payments from the Company or any Affiliate pursuant to an Award, such right shall be no greater than the right of any unsecured general creditor of the Company or any Affiliate.
19.12Use of Proceeds. Proceeds from the sale of shares of Common Stock pursuant to Incentives granted under this Plan shall constitute general funds of the Company.
19.13Governing Law. The validity, construction and effect of the Plan and any actions taken or relating to the Plan shall be determined in accordance with the laws of the State of Texas and applicable Federal law.
Appendix A – Page 20
19.14Successors and Assigns. The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company, expressly to assume and agree to perform the Company’s obligations under this Plan in the same manner and to the same extent that the Company would be required to perform them if no such succession had taken place. As used herein, the “Company” shall mean the Company as herein before defined and any aforesaid successor to its business and/or assets.
19.15No Fractional Shares. No fractional Shares shall be issued or delivered pursuant to the Plan or any Award, and the Committee shall determine whether cash, other securities, or other property shall be paid or transferred in lieu of any fractional Shares or whether fractional Shares or any rights thereto shall be canceled, terminated, or otherwise eliminated.
19.16Headings. Headings are given to the Sections and subsections of the Plan solely as a convenience to facilitate reference. The headings shall not be deemed in any way material or relevant to the construction or interpretation of the Plan or any provision thereof.
19.17Construction. Use of the term “including” in this Plan shall be construed to mean “including but not limited to.”
19.18Legend. Each certificate or evidence of ownership representing shares of Restricted Stock issued to a Participant shall bear or be subject to the following legend, or a similar legend deemed by the Company to constitute an appropriate notice of the provisions hereof (any such certificate not having such legend shall be surrendered upon demand by the Company and so endorsed):
On the face of the certificate:
“Transfer of this stock is restricted in accordance with conditions printed on the reverse of this certificate.”
On the reverse:
“The shares of stock evidenced hereby are subject to and transferable only in accordance with the 2005 Valero Energy Corporation Omnibus Stock Incentive Plan, a copy of which is on file at the principal office of the Company in San Antonio, Texas. No transfer or pledge of the shares evidenced hereby may be made except in accordance with and subject to the provisions of said Plan. By acceptance of shares represented hereby, any holder, transferee or pledge beneficiary hereof agrees to be bound by all of the provisions of said Plan.”
The following legend shall be inserted on a certificate or evidence of ownership of Common Stock issued under the Plan if the shares were not issued in a transaction registered under the applicable federal and state securities laws:
“Shares of stock represented hereby have been acquired by the holder for investment and not for resale, transfer or distribution, have been issued pursuant to exemptions from the registration requirements of applicable state and federal securities laws, and may not be offered for sale, sold or transferred other than pursuant to effective registration under such laws, or in transactions otherwise in compliance with such laws, and upon evidence satisfactory to the Company of compliance with such laws, as to which the Company may rely upon an opinion of counsel satisfactory to the Company.”
Appendix A – Page 21
VALERO ENERGY CORPORATION
ONE VALERO WAY
SAN ANTONIO, TEXASTX 78249
VOTE BY INTERNET - www.proxyvote.com
Use the Internet to transmit your voting instructions and to requestfor electronic delivery of information up until 11:59 p.m.,P.M. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when you access the web site and follow the instructions to obtain your records and to create an electronic voting instruction form.
ELECTRONIC DELIVERY OF FUTURE PROXY MATERIALS
If you would like to reduce the costs incurred by our company in mailing proxy materials, you can consent to receiving all future proxy statements, proxy cards and annual reports electronically via e-mail or the Internet. To sign up for electronic delivery, please follow the instructions above to vote using the Internet and, when prompted, indicate that you agree to receive or access proxy materials electronically in future years.
VOTE BY PHONE - 1-800-690-6903
Use any touch-tone telephone to transmit your voting instructions up until
11:59 p.m.,P.M. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when you call and then follow the instructions.
VOTE BY MAIL
Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Valero Energy CorporationVote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, New YorkNY 11717.
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TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: | | M20934-P90977-Z51971 | | KEEP THIS PORTION FOR YOUR RECORDS |
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: | | |
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
| | DETACH AND RETURN THIS PORTION ONLY |
KEEP THIS PORTION FOR YOUR RECORDSVALERO ENERGY CORPORATION- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
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Vote on Directors
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The Board of Directors recommends that you vote
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“FOR” all nominees.
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1. | | Elect three Class I directors to serve until the 2013 Annual Meeting of Stockholders or until their respective successors are elected and have been qualified: | | | | | | | | | | | | | | | | | | |
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| | Nominees: | | For | | Against | | Abstain | | “AGAINST” proposals 5, 6 and 7. | | For | | Against | | Abstain |
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| | 1a. | | Ruben M. Escobedo | | o | | o | | o | | 5. | | Vote on a stockholder proposal entitled, “Impact of Valero’s Operations on Rainforest Sustainability.” | | o | | o | | o |
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| | 1b. | | Bob Marbut | | o | | o | | o | | 6. | | Vote on a stockholder proposal entitled, “Disclosure of Political Contributions/Trade Associations.” | | o | | o | | o |
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| | 1c. | | Robert A. Profusek | | o | | o | | o | | 7. | | Vote on a stockholder proposal entitled, “Stock Retention by Executives.” | | o | | o | | o |
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Vote on Proposals
| | | | | | | | The above proposals are in addition to any other business properly brought before the meeting. | | | | | | |
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The Board of Directors recommends that you vote
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“FOR” proposals 2, 3 and 4.
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2. | | Ratify the appointment of KPMG LLP as Valero Energy’s independent registered public accounting firm for 2010. | | o | | o | | o | | | | | | | | | | | | |
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3. | | Re-approve the 2005 Omnibus Stock Incentive Plan. | | o | | o | | o | | | | | | | | | | | | |
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4. | | Vote on an advisory resolution to ratify the 2009 compensation of the named executive officers listed in the proxy statement’s Summary Compensation Table. | | o | | o | | o | | | | | | | | | | | | |
DETACH AND RETURN THIS PORTION ONLYTHIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
Please sign exactly as your name(s) appear(s) hereon. When signing as attorney, executor, administrator, or other fiduciary, please give full title as such. Joint owners should each sign personally. All holders must sign. If a corporation or partnership, please sign in full corporate or partnership name, by authorized officer.
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Signature [PLEASE SIGN WITHIN BOX] | | Date | |
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| VALERO ENERGY CORPORATION | | | | | | | | | | | |
| | VOTE ON DIRECTORS: | | | | | | | | | | | |
| | The Board of Directors recommends you vote "FOR" the following proposal: | | For | Against | Abstain | | | | | | | |
| | 1. | Elect directors to serve until the 2013 annual meeting of stockholders. | | | | | | | | | | | |
| | | Nominees: | |
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| | | 1a. Ronald K. Calgaard | | 0 | 0 | 0 | | | | | For | Against | Abstain |
| | | 1b. Jerry D. Choate | | 0 | 0 | 0 | | | 1k. Randall J. Weisenburger | | 0 | 0 | 0 |
| | | 1c. Ruben M. Escobedo | | 0 | 0 | 0 | | | 1l. Rayford Wilkins, Jr. | | 0 | 0 | 0 |
| | | 1d. William R. Klesse | | 0 | 0 | 0 | | VOTE ON PROPOSALS: | | | | |
| | | 1e. Bob Marbut | | 0 | 0 | 0 | | The Board of Directors recommends you vote "FOR" the following proposals: | | | | |
| | | 1f. Donald L. Nickles | | 0 | 0 | 0 | | 2. | Ratify the appointment of KPMG LLP as our independent registered public accounting firm for 2012. | | 0 | 0 | 0 |
| | | 1g. Philip J. Pfeiffer | | 0 | 0 | 0 | | 3. | Approve, by nonbinding vote, the 2011 compensation of our named executive officers. | | 0 | 0 | 0 |
| | | 1h. Robert A. Profusek | | 0 | 0 | 0 | | The Board of Directors recommends you vote "AGAINST" the following proposals: | | | | |
| | | 1i. Susan Kaufman Purcell | | 0 | 0 | 0 | | 4. | Vote on a stockholder proposal entitled, "Disclosure of Political Contributions." | | 0 | 0 | 0 |
| | | 1j. Stephen M. Waters | | 0 | 0 | 0 | | 5. | Vote on a stockholder proposal entitled, "Report on Steps Taken to Reduce Risk of Accidents." | | 0 | 0 | 0 |
| | Please sign exactly as your name(s) appear(s) hereon. When signing as attorney, executor, administrator, or other fiduciary, please give full title as such. Joint owners should each sign personally. All holders must sign. If a corporation or partnership, please sign in full corporate or partnership name by authorized officer. | | NOTE: Such other business as may properly come before the meeting or any adjournment thereof. | | | | |
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| | Signature [PLEASE SIGN WITHIN BOX] | | Date | | | Signature (Joint Owners) | | Date | |
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Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting:
The Notice
Combo Document (Notice and Proxy Statement and Annual Report on Form 10-K are10-K) is available at
www.proxyvote.com.
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| VALERO ENERGY CORPORATION |
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| THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS |
| ANNUAL MEETING OF STOCKHOLDERS |
| MAY 3, 2012 |
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The stockholder(s) hereby revoke(s) all previous proxies and appoint(s) William R. Klesse and Jay D. Browning, or either of them, as proxies, each with the power to appoint his substitute, and hereby authorizes them to represent and to vote, as designated on the reverse side of this ballot, all of the shares of Common Stock of Valero Energy Corporation that the stockholder(s) is/are entitled to vote at the Annual Meeting of Stockholders to be held on Thursday, May 3, 2012 at 10:00 a.m., Central Time, at the Valero Energy Corporation offices located at One Valero Way, San Antonio, TX 78249, and any adjournment or postponement thereof. |
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| THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AS SPECIFIED ON THE REVERSE SIDE. IF NO SPECIFICATION IS MADE, THIS PROXY WILL BE VOTED "FOR" ALL NOMINEES FOR DIRECTOR, "FOR" PROPOSALS 2 AND 3, AND "AGAINST" PROPOSALS 4 AND 5. IF ANY OTHER MATTERS ARE VOTED ON AT THE MEETING, THIS PROXY WILL BE VOTED BY THE NAMED PROXIES ON SUCH MATTERS IN THEIR SOLE DISCRETION. |
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| YOUR TELEPHONE OR INTERNET VOTE AUTHORIZES THE NAMED PROXIES TO VOTE THE SHARES IN THE SAME MANNER AS IF YOU MARKED, SIGNED AND RETURNED YOUR PROXY CARD. |
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VALERO ENERGY CORPORATION
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
ANNUAL MEETING OF STOCKHOLDERS
April 29, 2010
The stockholder(s) hereby revoke(s) all previous proxies and appoint(s) William R. Klesse and Jay D. Browning, or either of them, as proxies, each with the power to appoint his substitute, and hereby authorize them to represent and to vote, as designated on the reverse side of this ballot, all of the shares of Common Stock of Valero Energy Corporation that the stockholder(s) is/are entitled to vote at the Annual Meeting of Stockholders to be held on Thursday, April 29, 2010 at 10:00 a.m., Central Time, at the Valero Energy Corporation offices located at One Valero Way, San Antonio, Texas 78249, and any adjournment or postponement thereof.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AS SPECIFIED ON THE REVERSE SIDE. IF NOSPECIFICATION IS MADE, THIS PROXY WILL BE VOTED “FOR” ALL NOMINEES FOR DIRECTOR, “FOR” PROPOSALS 2, 3 AND 4, AND “AGAINST” PROPOSALS 5, 6 AND 7. IF ANY OTHER MATTERS ARE VOTED ON AT THE MEETING, THIS PROXY WILL BE VOTED BY THE NAMED PROXIES ON SUCH MATTERS IN THEIR SOLE DISCRETION.
YOUR TELEPHONE OR INTERNET VOTE AUTHORIZES THE NAMED PROXIES TO VOTE THE SHARES IN THE SAME MANNER AS IF YOU MARKED, SIGNED AND RETURNED YOUR PROXY CARD.
Continued and to be signed on reverse side
