SCHEDULE 14A
(Rule14a-101)
Information Required in Proxy Statement
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant ☒ Filed by a Party other than the Registrant ☐
Check the appropriate box:
☐ | Preliminary Proxy Statement |
☐ | Confidential, for Use of the Commission Only (as permitted by Rule14a-6(e)(2)) |
☒ | Definitive Proxy Statement |
☐ | Definitive Additional Materials |
☐ | Soliciting Material Pursuant to §240.14a-12 |
Hess Corporation
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
☒ | No fee required. |
☐ | Fee computed on table below per Exchange Act Rules14a-6(i)(1) and0-11. |
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2) | Aggregate number of securities to which transaction applies: |
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HESS CORPORATION
April 28, 201725, 2019
Dear Stockholder:
You are cordially invited to attend theour annual meeting of stockholders, which will be held at Hess Corporation, 1501 McKinney Street, Houston, Texas 77010, on Wednesday, June 7, 2017,5, 2019 at 9:00 a.m., local time. The formal notice
We ended 2018 with significant momentum following strong strategic execution and operational performance. As a result, we are uniquely positioned to deliver increasing financial returns, visible and low risk production growth and accelerating free cash flow well into the next decade.
We have built a balanced portfolio of annual meetinggrowth and proxy statement, which are containedcash flow assets. In 2018, we focused investments onhigh return, low cost opportunities primarily at our growth assets – offshore Guyana, where Hess has a 30 percent interest in the following pages, outline the actionStabroek Block, home to be taken by the stockholders at the meeting.
We are pleased to furnish our proxy materials to our stockholders over the internet, as permitted by Securities and Exchange Commission rules. We believe this process will enable us to provide you with a convenient way to access our proxy materials, while reducing the costs and environmental impact of our annual meeting. A paper copy of our proxy materials may be requested through one of the methods describedindustry’s largest oil discoveries in a decade with significant additional exploration potential, and the Bakken, our largest operated asset where net production is expected to grow approximately 20 percent per year to 200,000 barrels of oil equivalent per day by 2021.
We will continue toensure that we have the financial capacity to fund our world class investment opportunities and maintain an investment grade credit rating. We ended 2018 with $2.7 billion of cash on the balance sheet and the spending flexibility to reduce our capital program by up to $1 billion should oil prices move lower in the Notice of Internet Availability of Proxy Materials.future.
ItWeremain focused on growing free cash flow in a disciplined and reliable manner. Our company is important that your shares be represented at an exciting inflection point as we transition from an investment phase to a free cash flow generation phase beginning in 2020 with the meeting whether or not you are personally able to attend. Accordingly, after reading the attached Notice of Annual Meeting of Stockholders and Proxy Statement, please promptly submit your proxy by telephone, internet or mail as described in your proxy card or Notice of Internet Availability of Proxy Materials. If you submit your proxy over the internet, you will have the opportunity to agree to receive future stockholder documents electronically via email, and we encourage you to do so. If you have received a paper copystartup of the proxy materialsLiza Phase 1 development offshore Guyana. The growing resource base on the Stabroek Block underpins the potential for at least five floating production, storage and chooseoffloading vessels producing more than 750,000 gross barrels of oil per day by 2025. As our portfolio generates increasing free cash flow, we will prioritize return of capital to submitstockholders through dividends and opportunistic share repurchases. In 2018, we completed our previously announced $1.5 billion share repurchase program.
Our purpose is to bethe world’s most trusted energy partner andsustainability is fundamental to our long-term strategy. We are proud to have been recognized once again in 2018 by several third-party organizations for the quality of our environmental, social and governance performance and disclosure. Our board is actively engaged in overseeing Hess’ sustainability practices, and considers sustainability risks and global scenarios when making strategic decisions.
Our board values the dialogue we have with our stockholders, and the variety of perspectives and feedback we receive from ourongoing stockholder engagement is an important input in our decision-making process. In 2018, we proactively engaged with stockholders representing approximately 70% of shares outstanding on matters around our business strategy, corporate governance, executive compensation and sustainability efforts. More than 450 participants experienced our investor day event, where we shared details about our exciting future.
We will continue to execute our strategy that has positioned our companyto deliver long-term value and increasing returns to stockholders. On behalf of the board of directors, we thank you for your vote by traditional proxy or voting instruction card, please sign, date and mail the cardinvestment in the pre-addressed reply envelope providedHess Corporation. We look forward to you. Your cooperation will be appreciated.sharing more about our company at our annual meeting on June 5.
Sincerely, yours,
Independent Chairman of the Board of Directors | Chief Executive Officer |
Chief Executive Officer
The attached proxy statement is dated April 28, 2017 and is first being mailed to stockholders on or about April 28, 2017.
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PROPOSAL 2: ADVISORY VOTE TO APPROVE THE COMPENSATION OF THE NAMED EXECUTIVE OFFICERS | ||||
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This document contains “forward-looking” statements, as defined under the Private Securities Litigation Reform Act of 1995. Generally, the words “anticipate,” “estimate,” “expect,” “forecast,” “guidance,” “could,” “may,” “should,” “would,” “believe,” “intend,” “project,” “plan,” “predict,” “will”“will,” “target,” and similar expressions identify forward-looking statements, which generally are not historical in nature. Forward-looking statements related to our operations are based on our current understanding, assessments, estimates and projections.projections of relevant factors and reasonable assumptions about the future. Forward-looking statements are subject to certain known and unknown risks and uncertainties that could cause actual results to differ materially from our historical experience and our current projections or expectations.expectations of future results expressed or implied by these forward-looking statements. As and when made, we believe that these forward-looking statements are reasonable. However, given these uncertainties, caution should be taken not to place undue reliance on any such forward-looking statements since such statements speak only as of the date when made and there can be no assurance that such forward-looking statements will occur. We are not obligatedoccur and actual results may differ materially from those contained in any forward-looking statement we make. Except as required by law, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Risk factors that could materially impact future actual results are discussed in our Annual Report onForm 10-K, Quarterly Reports on Form10-Q, and other filings with the Securities and Exchange Commission.
HESS CORPORATION
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
Wednesday, June 7, 2017,5, 2019, at 9:00 a.m.
To the Stockholders:
The annual meeting of stockholders of Hess Corporation will be held at Hess Corporation,our offices, 1501 McKinney Street, Houston, Texas 77010, on Wednesday, June 7, 2017,5, 2019, at 9:00 a.m., local time, for the following purposes:
1. | To elect |
2. | To conduct anon-binding advisory vote to approve the compensation of our named executive officers (page |
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To act upon the ratification of the selection by the audit committee of Ernst & Young LLP as our independent |
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To transact any other business which properly may be brought before the meeting. |
All stockholders are cordially invited to attend, although only stockholders of record at the close of business on April 19, 2017,15, 2019, the record date for the annual meeting, will be entitled to vote at the meeting.
By order of the board of directors,
Timothy B. Goodell
Secretary
April 28, 201725, 2019
YOUR VOTE IS IMPORTANT
You are urged to date, sign and promptly return the proxy card in the envelope provided to you, or to use the telephone or internet method of voting described in your proxy card, so that if you are unable to attend the meeting your shares can be voted.
Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting of Stockholders to be held on June 7, 2017:5, 2019:
Hess Corporation’s notice of meeting, proxy statement and 20162018 annual report are available athttp://www.envisionreports.com/HES.HES.
The attached proxy statement is dated April 25, 2019 and is first being mailed to stockholders on or about April 25, 2019.
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The following section is only a summary of key elements of the proxy statement. ItThis summary is intended to assist you in reviewing the proxy statement in advance of the annual meeting of stockholders. This summaryIt does not contain all of the information you should consider, and we encourage you to read this entire proxy statement before submitting your votes.vote.
2019 Annual Meeting Information
Date & Time Wednesday, June 5, 2019 at 9:00 a.m. Central Time | Place Hess Tower 1501 McKinney Street Houston, Texas 77010 | Record Date April 15, 2019 |
Proposals | Board Vote Recommendation | Page Reference | ||||||
1. | Election of eleven director nominees forone-year term expiring in 2020 | FOR each nominee | 2 | |||||
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Advisory approval of the compensation of our named executive officers |
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3. | Ratification of the selection of Ernst & Young LLP as our independent registered public accountants for the year ending December 31, 2019
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Your vote is important to us. Please exercise your right to vote.
Voting Matters and Board RecommendationHow to Vote
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Nominees for Director
Directors are elected annually by a majority of votes cast, for a one-year term expiring in 2018.
Age | Director Since | Committee Memberships | Independent | |||||||||||
Rodney F. Chase | 73 | 2013 | Audit, EHS, Governance | YES | ||||||||||
Former Deputy Group Chief Executive BP | ||||||||||||||
Terrence J. Checki | 71 | 2014 | Compensation, Governance | YES | ||||||||||
Former EVP Federal Reserve Bank of NY | ||||||||||||||
Leonard S. Coleman, Jr. | 67 | 2016 | YES | |||||||||||
Former President of the National League of Major League Baseball and Former Commissioner of the New Jersey Department of Energy | ||||||||||||||
John B. Hess | 62 | 1978 | NO | |||||||||||
Chief Executive Officer | ||||||||||||||
Edith E. Holiday | 64 | 1993 | Governance (Chair) | YES | ||||||||||
Corporate Director and Trustee | ||||||||||||||
Risa Lavizzo-Mourey | 62 | 2004 | Compensation (Chair) | YES | ||||||||||
President and CEO, Robert Wood Johnson Foundation | ||||||||||||||
Marc S. Lipschultz | 48 | 2016 | YES | |||||||||||
Co-founder and President of Owl Rock Capital Partners and Co-Chief Investment Officer of Owl Rock Capital Advisors | ||||||||||||||
David McManus | 63 | 2013 | Compensation, EHS | YES | ||||||||||
Former EVP, Pioneer Natural Resources | ||||||||||||||
Kevin O. Meyers | 63 | 2013 | EHS (Chair), Audit | YES | ||||||||||
Former SVP of Americas E&P, ConocoPhillips | ||||||||||||||
James H. Quigley | 64 | 2013 | Compensation | YES | ||||||||||
Chairman of the Board | ||||||||||||||
Fredric G. Reynolds | 66 | 2013 | Audit (Chair), EHS, Governance | YES | ||||||||||
Former EVP & CFO, CBS Corporation | ||||||||||||||
William G. Schrader | 59 | 2013 | Audit, EHS | YES | ||||||||||
Former COO, TNK-BP Russia |
Board Refreshment and Tenure
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Executive Compensation
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Supplemental Disclosure of CEO Total Direct Compensation(1)
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Year | Salary | Annual Incentive Award | LTI Award | Total Direct Compensation | ||||
2016 | $1,500,000 | $2,103,800 | $8,079,986 | $11,683,786 | ||||
2015 | $1,500,000 | $1,912,500 | $9,500,036 | $12,912,536 | ||||
2014 | $1,500,000 | $3,037,500 | $9,774,979 | $14,312,479 |
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HESS CORPORATION
The enclosed proxy is solicited by the board of directors of Hess Corporation for use at the annual meeting of stockholders to be held on Wednesday, June 7, 2017, at 9:00 a.m., local time, in our office at 1501 McKinney Street, Houston, Texas 77010.
On or about April 28, 2017, we commenced mailing this proxy statement, the notice of annual meeting and the proxy card to stockholders. Holders of record of common stock of the company at the close of business on April 19, 2017 will be entitled to vote at the annual meeting. Each share of common stock will be entitled to one vote. As of April 19, there were 317,906,584 shares of common stock outstanding and entitled to vote at the annual meeting. There are no other voting securities of the company outstanding. A majority of the outstanding shares of common stock, present in person or represented by proxy, will constitute a quorum at the annual meeting. Abstentions and broker non-votes will be counted as shares present for purposes of determining the presence of a quorum for the transaction of business.
In accordance with Securities and Exchange Commission (“SEC”) rules, we are making our proxy materials available to stockholders over the internet. On or about April 28, 2017, we mailed a Notice of Internet Availability of Proxy Materials to our stockholders (the “Notice”). The Notice contains instructions on how to access this proxy statement and our annual report and submit a proxy over the internet. If you received a Notice by mail, you will not receive a paper copy of the proxy materials unless you request such materials by following the instructions contained in the Notice.
If at the close of business on April 19, 2017 your shares were held in an account at a brokerage firm, bank, dealer, or other similar organization, then you are the beneficial owner of shares held in “street name” and the proxy materials, as applicable, are being forwarded to you by that organization. The organization holding your account is considered the stockholder of record for purposes of voting at the annual meeting. As a beneficial owner, you have the right to direct that organization on how to vote the shares in your account. If that organization is not given specific direction, shares held in the name of that organization may not be voted and will not be considered as present and entitled to vote on any matter to be considered at the annual meeting, except with respect to the ratification of the company’s independent auditors.Brokers are not permitted to vote your shares for the election of directors, for the advisory vote on executive compensation, for the advisory vote on frequency of the vote on executive compensation, for the approval of the 2017 long term incentive plan or for or against the stockholder proposal without your instructions as to how to vote. Please instruct your broker how to vote your shares using the voting instruction form provided by your broker so that your vote can be counted.
If you are a registered stockholder, you can simplify your voting by using the internet or calling a toll-free telephone number. Internet and telephone voting information is provided on the proxy card or Notice. A control number, located on the instruction sheet attached to the proxy card or Notice, is designated to verify your identity and allow you to vote your shares and confirm that your voting instructions have been recorded properly. If you vote via the internet or by telephone, there is no need to return a signed proxy card. However, you may still vote by proxy by using the proxy card.
Proxies will be voted at the annual meeting in accordance with the specifications you make on the proxy. If you sign the proxy card or submit a proxy by telephone or over the internet and do not specify how your shares are to be voted, your shares will be voted in accordance with the recommendations of the board of directors (See “Questions and Answers about the Annual Meeting and Voting”).
ABOUT THE ANNUAL MEETING AND VOTING
Why did I receive these proxy materials?
You have received these proxy materials because you are a Hess Corporation stockholder, and our board of directors is soliciting your authority, or proxy, to vote your shares at the 2017 annual meeting of stockholders. The proxy materials include our notice of annual meeting of stockholders, proxy statement and 2016 annual report. If you requested printed versions of these materials by mail, these materials also include the proxy card or voting instruction form for the annual meeting. Proxy cards are being solicited on behalf of our board of directors. The proxy materials include detailed information about the matters that will be discussed and voted on at the meeting, and provide updated information about our company that you should consider in order to make an informed decision when voting your shares. The proxy materials are first being furnished to stockholders on or about April 28, 2017.
The following proposals are scheduled to be voted on at the annual meeting:
Proposal 1: Election of twelve director nominees;
Proposal 2: Advisory approval of the compensation of our named executive officers;
Proposal 3: Advisory vote on the frequency of voting on executive compensation;
Proposal 4: Ratification of the selection of Ernst & Young LLP as independent auditors for the fiscal year ending December 31, 2017;
Proposal 5: Approval of the 2017 long term incentive plan; and
Proposal 6: Stockholder proposal recommending that the company provide a scenario analysis report regarding carbon asset risk.
Can I access the proxy materials on the internet?
Yes. The company’s notice of annual meeting, proxy statement and 2016 annual report are available athttp://www.envisionreports.com/HES.
In accordance with SEC rules, we are making our proxy materials available to stockholders over the internet. On or about April 28, 2017, we mailed a Notice of Internet Availability of Proxy Materials to our stockholders. The Notice contains instructions on how to access this proxy statement and our 2016 annual report and submit a proxy over the internet. If you received a Notice by mail, you will not receive a paper copy of the proxy materials unless you request such materials by following the instructions contained in the Notice.
The Notice also includes instructions about how to request delivery of future proxy materials electronically by e-mail, and we encourage you to do so. Choosing to receive future proxy materials by e-mail will save us the cost of printing and mailing the materials to you and will reduce the impact of our annual meeting on the environment. If you choose to receive future proxy materials by e-mail, you will receive an e-mail prior to the next stockholder meeting containing links to the proxy materials and the proxy voting website. Your election to receive proxy materials by e-mail will remain in effect until you change it.
How do I attend the annual meeting?
The annual meeting will be held at Hess Corporation, 1501 McKinney Street, Houston, Texas 77010 on Wednesday, June 7, 2017 at 9:00 a.m., local time. When you arrive, signs will direct you to the appropriate room. Please note that the doors to the meeting room will not be open until 8:00 a.m. You should be prepared to present valid government-issued photo identification, such as a driver’s license or passport, for admittance. In addition, if you are a stockholder of record, your name will be verified against the list of stockholders of record prior to admittance to the annual meeting. If you are a beneficial owner, you must provide proof of beneficial ownership, such as your account statement showing that you own our stock, a copy of the voting instruction form provided by your broker, trustee or nominee, or other similar evidence of ownership. If you do not provide valid government-issued photo identification and comply with the other procedures outlined above, you will not be admitted to the annual meeting. Directions to attend the annual meeting can be found atwww.hess.com/company/hess-offices. You do not need to attend the annual meeting to vote. Even if you plan to attend the annual meeting, please submit your vote in advance as instructed herein.
What is the quorum requirement for holding the 2017 annual meeting?
A majority of the outstanding shares of common stock, present in person or represented by proxy, will constitute a quorum at the annual meeting. Abstentions and broker non-votes will be counted as shares present for purposes of determining the presence of a quorum for the transaction of business.
Who can vote?
Holders of record of common stock at the close of business on April 19, 2017 will be entitled to vote at the annual meeting. Each share of common stock will be entitled to one vote on all matters properly brought before the meeting. As of April 19, 2017, there were 317,906,584 shares of common stock outstanding and entitled to vote at the annual meeting. There are no other voting securities of the company outstanding.
What is the difference between holding shares as a holder of record and as a beneficial owner?
If at the close of business on April 19, 2017, the record date for the annual meeting, your shares were held in an account at a brokerage firm, bank, dealer, or other similar organization or other nominee, then you are the beneficial owner of shares held in “street name” and the proxy materials, as applicable, are being forwarded to you by that organization. The organization holding your account is considered the stockholder of record for purposes of voting at the annual meeting. As a beneficial owner, you have the right to direct that organization on how to vote the shares in your account. If that organization is not given specific direction, shares held in the name of that organization may not be voted and will not be considered as present and entitled to vote on any matter to be considered at the annual meeting, except with respect to the ratification of the company’s independent auditors.Brokers are not permitted to vote your shares for the election of directors, for the advisory vote on executive compensation, for the advisory vote on frequency of the vote on executive compensation, for the approval of the 2017 long term
incentive plan or for or against the stockholder proposal without your instructions as tohow to vote. Please instruct your broker how to vote your shares using the voting instruction form provided by your broker. The voting instruction forms provided by your bank, broker or other nominee will also include information about how to vote your shares over the internet or telephonically, if such options are available. Please return your completed voting instruction form to your broker and contact the person responsible for your account or vote by internet or telephone so that your vote can be counted.
How do I vote my shares?
You may vote your shares using one of the following methods (please also see the information provided above concerning the difference between holding shares as a holder of record or registered holder and holding shares beneficially through a bank, broker or other nominee—beneficial holders should follow the voting instructions provided by such nominee):
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Follow the instructions | ||||||||||
Stockholders are invited to attend the annual meeting and vote in If you are a beneficial owner of shares you must obtain a legal proxy from the |
A control number, located on the instruction sheet attached to the proxy card or Notice, is designated to verify your identity and allow you to vote your shares and confirm that your voting instructions have been recorded properly. If you vote via the internet or by telephone, there is no need to return a signed proxy card. However, you may still vote by proxy by using the proxy card.
As noted above, if you hold shares beneficially in street name through a bank, broker or other nominee, you may vote by submitting the enclosed voting instruction form. Telephone and internet voting may be also available—please refer to the voting instruction form provided by your bank, broker or other nominee See page 52 for more information.
Can I change my vote?
Yes. You may revoke the proxy at any time prior to its use by:
delivering a written notice to the secretary of the company, mailed to Hess Corporation, 1185 Avenue of the Americas, New York, New York 10036;
executing and submitting a later-dated proxy;
re-voting your shares by telephone or on the internet; or
attending the annual meeting and voting in person.
What vote is required to approve each of the proposals?
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What are the recommendations of the board of directors?
The board of directors recommends that you vote your shares on your proxy card:Proxy Summary
FOR the election of directors nominated herein;
FOR the advisory approval of the compensation of our named executive officers;
FOR anANNUAL advisory vote of the frequency of voting on executive compensation;
FOR the proposal to ratify the selection of Ernst & Young LLP as independent auditors for the fiscal year ending December 31, 2017;
FOR the approval of the 2017 long term incentive plan; and
AGAINST the stockholder proposal recommending a scenario analysis report regarding carbon asset risk.
What does it mean if I receive more than one proxy card on or about the same time?
It generally means you hold shares registered in more than one account. In order to vote all of your shares, please sign and return each proxy card or, if you vote via the internet or telephone, vote once for each proxy card you receive.
What if I do not specify how I want my shares to be voted?
If you are the record holder of your shares and do not specify on your proxy card (or when giving your proxy by telephone or the internet) how you want to vote your shares, your shares will be voted:
FOR the election of directors nominated herein;
FOR the advisory approval of the compensation of our named executive officers;
FOR anANNUAL advisory vote of the frequency of voting on executive compensation;
FOR the proposal to ratify the selection of Ernst & Young LLP as independent auditors for the fiscal year ending December 31, 2017;
FOR the approval of the 2017 long term incentive plan; and
AGAINST the stockholder proposal recommending a scenario analysis report regarding carbon asset risk.
If you are a beneficial owner of shares and do not specify how you want to vote, your shares may not be voted by the record holder and will not be considered as present and entitled to vote on any matter to be considered at the annual meeting, except with respect to the ratification of the company’s independent auditors. If your shares are held of record by a bank, broker, or other nominee, we urge you to give instructions to your bank, broker, or other nominee as to how you wish your shares to be voted so you may participate in the stockholder voting on these important matters.
What is the effect of an “ABSTAIN” vote?
Abstentions are considered to be present and entitled to vote with respect to each relevant proposal, but will not be considered a vote cast with respect to that proposal. Therefore, an abstention will effectively be a vote against each of the proposals, except for the election of directors.
What is a “broker non-vote”?
A “broker non-vote” occurs when a beneficial owner of shares held by a broker, bank or other nominee fails to provide the record holder with voting instructions on any “non-routine” matters brought to a vote at a stockholder meeting.
Under the rules of the New York Stock Exchange (“NYSE”), “non-routine” matters include the election of directors, the advisory vote to approve the compensation of named executive officers, the advisory vote on the frequency of the vote on executive compensation, approval of the 2017 long term incentive plan and the stockholder proposal described in this proxy statement. As such, a broker may not vote your shares with respect to such matters without your instructions.
If your shares are held of record by a bank, broker, or other nominee, we urge you to give instructions to your bank, broker, or other nominee as to how you wish your shares to be voted so you may participate in the stockholder voting on these important matters.
What should I do if I have other questions?
If you have any questions or require any assistance with voting your shares, please contact our proxy solicitor, MacKenzie Partners Inc., toll free at (800) 322-2885 or directlyat (212) 929-5500.
ADDITIONAL INFORMATIONOur Purpose: To Be The World’s Most Trusted Energy Partner
Availability of additional materials
The company will provide to any person whose proxy is solicited by this proxy statement, without charge, upon written request to the company’s corporate secretary at our principal executive offices at Hess Corporation 1185 Avenue of the Americas, New York, New York 10036,is a copy of the company’s annual report on Form 10-K for the fiscal year ended December 31, 2016, or the company’s proxy statement. The company’s proxy statementglobal Exploration and annual report are also available on our website atwww.hess.com.
The information provided on the company’s website (www.hess.comProduction (“E&P”) is referenced in this proxy statement for information purposes only. Neither the information on the company’s website, nor the informationcompany engaged in the company’s sustainability report, shall be deemedexploration, development, production, transportation, purchase and sale of crude oil, natural gas liquids, and natural gas.
As a leading independent energy company, our purpose is to be the world’s most trusted energy partner through our strong company values and focus on long-term strategy. We are committed to developing oil and gas resources in an environmentally responsible and sustainable manner. We are focused on building a part of or incorporated by reference into this proxy statement or any other filings we make with the SEC.
Proxy solicitation expenses
The cost of preparing and mailing the Notice of Internet Availability of Proxy Materials, this proxy statementcompany that makes a positive impact for all stakeholders: our investors, employees, partners and the accompanying proxycommunities in which we do business and the cost of solicitation of proxies on behalf of the board of directors will be borne by the company. Solicitation will be made by mail and internet. Some personal solicitation may be made by directors, officers and employees without special compensation, other than reimbursement for expenses. In addition, we have retained MacKenzie Partners Inc. to aid in the solicitation. Its fees for this solicitation are not expected to exceed $25,000, exclusive of expenses.society at large.
Brokers and other nominees will be requested to solicit proxies or authorizations from beneficial owners and will be reimbursed for their reasonable and documented expenses in connection therewith.
Submission of stockholder proposals and nominations for the 2018 annual meeting
Proposals and Director Nominees for Inclusion in Proxy Materials
Proposals which stockholders wish to include in the company’s proxy materials relating to the 2018 annual meeting of stockholders must be received by the corporate secretary at the address below no later than December 29, 2017 (120 days prior to the one-year anniversary of this proxy statement). Such proposals must meet the requirements of the SEC to be eligible for inclusion in the company’s proxy materials. Proposals must be addressed to:
Hess Corporation
1185 Avenue of the Americas
New York, N.Y. 10036
Attn: Corporate Secretary
Stockholder nominations for candidates for election at the 2018 annual meeting of stockholders which the stockholders wish to include in the company’s proxy materials relating to the 2018 annual meeting of stockholders must be received by the company at the above address on or prior to March 9, 2018 (90 days prior to the one-year anniversary of the 2017 annual meeting) together with the information required by the proxy access provision in the company’s by-laws.
Proposals and Director Nominees for Presentation at the Annual Meeting
Any stockholder proposal for, or nominations for candidates for election at, the 2018 annual meeting of stockholders which the proponent does not wish to include in the company’s proxy materials for that meeting must be received on or prior to March 9, 2018 (90 days prior to the one-year anniversary of the 2017 annual meeting) together with the information required by the company’s by-laws. If the notice of such proposal or nomination is received by the company at the above address after March 9, 2018, the proposal or nomination will be considered untimely, and if voted at the annual meeting, will be subject to the discretionary authority of proxies solicited by the board of directors.
PROPOSAL 1: ELECTION OF DIRECTORSValues
Our company values set the framework and establish the ethical standards by which we conduct our business.
All of the directors on the board are elected annually. It is intended that proxies will be voted for the nominees set forth herein. The company’s by-laws provide for majority voting in uncontested elections of directors, which is the case for the election of directors at the 2017 annual meeting. Accordingly, to be elected as a director of the company at the 2017 annual meeting, nominees must receive a majority of the votes cast. A majority of votes cast means that the number of shares voted “for” a director’s election exceeds 50% of the number of votes cast with respect to that director’s election. Abstentions and broker non-votes are not counted as votes cast.
If a director is not elected at the 2017 annual meeting and no successor has been elected at the annual meeting, the director is required to promptly tender his or her resignation to the board of directors. The corporate governance and nominating committee is then required to make a recommendation to the board of directors as to whether to accept or reject the tendered resignation, or whether other action should be taken. The board of directors will act on the tendered resignation and will publicly disclose its decision and rationale within 90 days following certification of the election results. These procedures are described in full in our by-laws, which may be found on the company’s website atwww.hess.com.
It is expected that all candidates will be able to serve. However, if one or more are unable to do so, the proxy holders will vote the proxies for the remaining nominees and for substitute nominees chosen by the board of directors unless the board reduces the number of directors to be elected at the annual meeting.
The following table presents information as of February 1, 2017 about the nominees for election as directors of the company, including the specific experience, qualifications, attributes or skills that led the board to conclude that such person should serve as a director.
Nominees for Director
For a one-year term expiring in 2018:
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| • INTEGRITY: We are committed to the highest level of • PEOPLE: We are committed to attracting, retaining and energizing the best people by investing in their professional development and providing them with challenging and rewarding opportunities for personal growth. • PERFORMANCE: We are committed to a culture of performance that demands and rewards outstanding results throughout our business. • VALUE CREATION: We are committed to creating stockholder value based on sustained financial performance and long-term profitable growth. • SOCIAL RESPONSIBILITY: We are committed to meeting the highest standards of corporate citizenship by protecting the health and safety of our employees, safeguarding the environment and creating a long-lasting, positive impact on the communities where we do business. • INDEPENDENT SPIRIT: We are committed to preserving the special qualities and unique personality that have made us a successful independent enterprise. |
We are committed to having an engaged, diverse and inclusive workplace that fosters learning, development and innovation. Our leadership team conducts a robust program of employee engagement and we have invested in the personal and professional development of our employees through programs that focus on leadership, early career and diversity, as well as mentorship programs and employee resource groups. Through the compensation and management development committee, the board oversees and monitors company culture and its alignment with our values and long-term business strategy. Directors also have opportunities throughout the year to meet with employees and visit our assets and offices.
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Proxy Summary
Strategy of Value Creation
Our strategy is to deliver capital efficient growth in our resources and production – investing in the highest return projects to move down the cost curve and be profitable in a lower price environment with increasing cash generation and returns to stockholders. Consistent with this strategy, we divested higher-cost, mature assets over the last several years to build a balanced portfolio, and we will continue to maintain financial strength to fund our world class investment opportunities. We are at a transformative inflection point and expect to transition from an investment phase to a free cash generation phase beginning in 2020 with the startup of production offshore Guyana and continued production growth in the Bakken.
Focused and Balanced Portfolio
Our focused, balanced portfolio complements our strategy and benefits from low-cost, cash generating assets primarily in the Gulf of Mexico and Malaysia/Thailand that provide a stable base of support to fund our long-term growth investments in Guyana and the Bakken. At the world class Stabroek Block offshore Guyana, startup of the Liza Phase 1 development project is expected in early 2020, followed by startup of Liza Phase 2 expected inmid-2022, with the potential for at least five floating, production, storage and offloading vessels (“FPSOs”) producing more than 750,000 gross barrels of oil per day by 2025. In the Bakken, we are a top-tier operator and expect net production to grow at a compound annual rate of 20%, to approximately 200,000 barrels of oil equivalent per day, by 2021. As a result, we expect to reduce our portfolio breakeven to less than $40 per barrel Brent by 2025. We will continue to evaluate our portfolio as we execute our strategy and deliver long-term value and increasing returns for our stockholders.
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Proxy Summary
Sustainability is an integral part of our company’s strategy and operations. We are committed to helping meet the world’s growing energy needs in a safe, environmentally responsible, socially sensitive and profitable way. We believe our focus on sustainability creates value for our stockholders and helps position us to continuously improve business performance. Our strategy focuses our efforts on the areas most significant to our business, including health and safety, climate change, community and stakeholder engagement, human rights, and transparency.
Board Oversight of Sustainability Practices
As part of our commitment, the board is actively engaged in overseeing Hess’ sustainability practices and works alongside senior management to ensure focus on these topics. The environmental, health and safety subcommittee of the board’s audit committee provides oversight and makes recommendations to the full board of directors with respect to Hess’ policies, positions and systems for environmental, health, safety and social responsibility, compliance and risk management. Our board is climate change literate, and these and other environmental risks are discussed at the board level and taken into account in strategic decisions. Furthermore, the board’s compensation and management development committee has tied executive compensation to advancing the environmental, health and safety goals of the company.
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continuous improvement to ensure “everyone, everywhere, every day, home safe” | Board evaluates sustainability risks and | |||||||||||||||
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üReduced absolute Scope 1 and Scope 2 emissions by 63%, on an equity basis, over the past 10 years ü On track to meet our 2020 targets to reduce flaring intensity by 50% andgreenhouse gas (GHG) emissions intensity by 25% compared to 2014 levels ü Conduct portfolio-specificcarbon asset risk scenario planning | ||||||||||||||||
ü Guided bycommitments to international voluntary initiatives including the U.N. Global Compact ü Continued our ongoing commitment to supportquality education through our social investment program ü Integrate social responsibility into enterprise business processes | ||||||||||||||||
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Disclosure and Transparency
Hess is committed to transparency and our strategy is closely aligned with the recommendations of the Financial Stability Board’s Task Force on Climate-related Financial Disclosures. Hess is recognized as a leader in environmental, social and governance transparency and disclosure:
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v | 2019 PROXY STATEMENT |
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Proxy Summary
Corporate Performance Highlights
In 2018, we had exceptional operational performance and exploration success. We are well positioned to deliver increasing financial returns, visible and low risk production growth and accelerating free cash flow while maintaining financial strength.
Strategy & Operations | ||||||||||||||||||
> 10% Increase in pro-forma production compared to 2017, with no increase in capital expenditures | Liza Phase 1 start-up expected early 2020, progressing on schedule and under budget | $725 Million announced sales of non-core assets in 2018 | ||||||||||||||||
Finance | ||||||||||||||||||
$7.0 Billion total liquidity at 12/31/2018, excluding midstream and including committed facilities | > 100% Increase in net cash provided by operating activities in 2018 compared to 2017 | 95,000 bopd hedged in 2019 with $60 per barrel West Texas Intermediate (WTI) put options | ||||||||||||||||
Exploration and Reserves | ||||||||||||||||
5 new discoveries in Guyana in 2018 | > 50% Increase Guyana gross discovered recoverable resource estimate since year-end 2017 | 166% organic reserve replacement ratio | ||||||||||||||
Stockholder Returns | ||||||||||||||||||
$1.5 Billion completed share repurchase program in 2018 | $345 Million returns to stockholders | Ranked #2 relative performance of 2018 PSUs based on total shareholder return | ||||||||||||||||
Corporate Governance Highlights
ü | Independent chairman | |||
ü | 10 out of 11 director nominees are independent | |||
ü | Refreshed board (over 70% of | |||
ü | Annual election of | |||
ü | Majority vote standard for director elections | |||
ü | Independent audit, compensation and governance committees | |||
ü | Female leadership of |
ü | Engagement with stockholders representing approximately 70% of our outstanding shares | |||
ü | Anti-hedging and anti-pledging policies | |||
ü | Annual board and committee evaluations | |||
ü | Annual CEO performance evaluation led by the board | |||
ü | Stockholder proxy access | |||
ü | Compensation clawback policy | |||
ü | Stock ownership policy for executives and directors | |||
ü | No poison pill |
All of the nominees and directors named above have held substantially the positions or former positions indicated for the past five years, except as described below. Mr. Checki retired as Executive Vice President and Head, Emerging Markets and International Affairs at the Federal Reserve Bank of New York in March 2014. Mr. Schrader retired as chief operating officer of TNK-BP in 2011 after serving in senior executive roles at BP for many years. Mr. Quigley has over 35 years of experience in audit, tax, consulting and financial services, and retired in 2012 from Deloitte Touche Tohmatsu Limited, where he last served as chief executive officer from 2007 to 2011. Mr. McManus has over 35 years of experience in the oil and gas industry and retired in 2011 from Pioneer Natural Resources Co., where he last served as Executive Vice President and Head of International Operations since 2008. Mr. Lipschultz served as Global Head of Energy at Infrastructure at KKR & Co. LP, from 1995 to 2016 prior to founding Owl Rock.
2019 PROXY STATEMENT | vi |
Mr. Hess may be deemed to be a control person of the company by virtue of his beneficial ownership of common stock as described under “Ownership of Voting Securities by Certain Beneficial Owners.”
The board of directors met eight times in 2016. Each director attended at least 75% of the aggregate of all board of directors meetings and all meetings of the committees of the board of directors on which he or she served during 2016.
Non-management directors meet without members of management present generally after each regularly scheduled board meeting. The chairman of the board of directors presides at these meetings.
All of the current directors who were serving as a director at the time of last year’s annual meeting attended that meeting.
Director and Nominee Independence
The board of directors has affirmatively determined that twelve of the thirteen current directors on the board, namely, Mr. Chase, Mr. Checki, Mr. Coleman, Ms. Holiday, Dr. Lavizzo-Mourey, Mr. Lipschultz, Dr. Meyers, Mr. McManus, Mr. Mullin, Mr. Quigley, Mr. Reynolds, and Mr. Schrader, are independent within the meaning of the rules and standards of the NYSE. The board of directors has also affirmatively determined that eleven of the twelve nominees for election at the 2017 annual meeting, namely, Mr. Chase, Mr. Checki, Mr. Coleman, Ms. Holiday, Dr. Lavizzo-Mourey, Mr. Lipschultz, Dr. Meyers, Mr. McManus, Mr. Quigley, Mr. Reynolds and Mr. Schrader are independent within the meaning of the rules and standards of the NYSE. The board determined that these directors and nominees not only met all “bright-line” criteria under these rules, but also that, based on all known relevant facts and circumstances, there did not exist any relationship that would compromise the independence of these directors.
Corporate Governance Guidelines
The board has approved a set of corporate governance guidelines in accordance with rules of the NYSE. These guidelines set forth the key policies relating to corporate governance, including director qualification standards, director responsibilities and director compensation. The board has also approved a code of business conduct and ethics in accordance with rules of the NYSE and the SEC applicable to all directors, officers and employees, including the chief executive officer, the principal financial and accounting officer and other senior financial officers. The code is intended to provide guidance to directors and management to assure compliance with law and promote ethical behavior. Copies of the company’s corporate governance guidelines and its code of business conduct and ethics may be found on the company’s website atwww.hess.com and are also available without charge upon request to the company’s corporate secretary at the address set forth on page 9.
Stockholder and Interested Party Communications
Any stockholder or interested party who wishes to communicate or request a meeting with members of the board of directors or with only non-management directors or any specified individual director may do so by writing to them in care of the chairman of the board of directors, Hess Corporation, at the address set forth on page 9. The stockholders may also communicate directly to the chairman by e-mail toBoardChairman@hess.com. Communications sent by mail or e-mail will be reviewed by the chairman and will be referred for resolution and response as deemed appropriate by the chairman. If a stockholder requests a meeting, the corporate governance and nominating committee will decide whether the subject matter is a proper one to be addressed by the board and, if so, whether a meeting is warranted. The corporate governance and nominating committee will meet periodically to review all stockholder communications received.
Board Diversity and Consideration of Stockholder Recommended Candidates
The corporate governance and nominating committee recommends for election as directors qualified candidates identified through a variety of sources, including stockholder suggestions. Stockholders may suggest candidates by writing to the committee, in care of the corporate secretary of the company at the address set forth on page 9. Stockholder suggestions should include a summary of the candidate’s qualifications, the information required by SEC rules for director nominees and contact information for the candidate. In accordance with the company’s corporate governance guidelines approved by the board of directors, nominees are reviewed and recommended based on a variety of criteria including:Proxy Summary
personal qualities and characteristics, education, background, accomplishments and reputation in the business community;
current knowledge of the energy industry or industries relevant to the company’s business and relationships with individuals or organizations affecting the domestic and international areas in which the company does business;Director Nominees
ability and willingness to commit adequate time to board and committee matters;
the fit of the individual’s skills and personality with those of other directors and potential directors in building a board that is effective, collegial and responsive to the needs of the company;
diversity of viewpoints, background and experience; and
compatibility with independence and other qualifications established by applicable law and rules.
As noted above, among the criteria used to evaluate nominees for the board is diversity of viewpoints, background and experience. The board believes that such diversity provides varied perspectives which promote active and constructive dialogue among board members and between the board and management, resulting in more effective oversight. The board believes this diversity is amply demonstrated in the varied experience, qualifications and skills of the current and proposed members of the board. In the board’s executive sessions and in annual performance evaluations conducted by the board and its committees, the board from time to time considers whether the members of the board reflect such diversity and whether such diversity contributes to a constructive and collegial environment. In addition, the company has adopted a director retirement policy, which provides that no person may be nominated to stand for election or re-election to the board of directors as a non-management director if the election would take place after such person has attained the age of 75. Mr. Mullin will not stand for re-election at the annual meeting because he reached the mandatory retirement age established pursuant to the director retirement policy.
In advance of the annual meeting, the committee meets to recommend nominees for election at each annual meeting. From time to time throughout the year, members of the committee are furnished appropriate materials regarding any new nominees and may from time to time meet with new potential candidates. Stockholder suggestions should be submitted no later than December 1 for consideration as nominees for election at the next annual meeting and otherwise
in accordance with the company’s policy and by-laws. The committee follows the same process of identifying and evaluating nominees recommended by stockholders as that for candidates recommended by any other source.
In addition, our by-laws permit a stockholder, or group of up to 20 stockholders, owning at least 3% of our outstanding common stock continuously for at least three years to nominate and include in our proxy materials up to the greater of two directors or 20% of our board of directors. Stockholders and nominees must satisfy the requirements set forth in the by-laws in connection with such nominations.
The corporate governance and nominating committee has retained Russell Reynolds Associates, a director and executive search and recruiting firm, to identify and review potential independent director candidates and assist the committee and the board in assessing the qualifications of candidates. The committee has not paid fees to any other third parties to assist in identifying or evaluating potential nominees. Each of the nominees for election at the 2017 annual meeting were recommended by the non-management directors of the corporate governance and nominating committee, with the input of senior management, the committee’s consultants and our financial and legal advisors.
Board Leadership Structure
The by-laws of the company provide for a non-executive chairman of the board and a separate position of chief executive officer. Mr. Quigley serves as the independent chairman of the board and Mr. Hess serves as chief executive officer and a director of the board.
The board currently believes that separating the roles of chairman and chief executive officer allows for better alignment of corporate governance with stockholder interests and aids in the board’s oversight of management and the board’s ability to carry out its roles and responsibilities on behalf of the stockholders. The board also believes that the separation of the roles of chairman and chief executive officer allows the chief executive officer to focus more of his time and energy on operating and managing the company and leverages the chairman’s leadership and financial, governance and regulatory experience.
Age Director Committee Memberships Audit** Compensation Governance EHS*** Rodney F. Chase* Former Deputy Group Chief Executive, BP 75 2013 ● ● ● Terrence J. Checki* Former EVP, Federal Reserve Bank of NY 73 2014 ● ● Leonard S. Coleman, Jr.* Former President of the National League of Major League Baseball; Former Commissioner 69 2016 ● ● John B. Hess Chief Executive Officer 64 1978 Edith E. Holiday* Corporate Director and Trustee 66 1993 Chair Risa Lavizzo-Mourey* Penn Integrates Knowledge Professor, 64 2004 Chair Marc S. Lipschultz* Co-founder and President of Owl Rock Capital Partners andCo-Chief Investment Officer of Owl Rock Capital Advisors 50 2016 ● David McManus* Former EVP, Pioneer Natural Resources 65 2013 ● ● Kevin O. Meyers* Former SVP of Americas E&P, ConocoPhillips 65 2013 ● Chair James H. Quigley* Independent Chairman of the Board 66 2013 ● William G. Schrader* Former COO, TNK-BP Russia 61 2013 ● ● Independent Director ** Fredric G. Reynolds, the current chair of the Audit Committee, will not stand for election at the 2019 Annual Meeting Subcommittee of Audit Committee Independent Director Nominee Characteristics When evaluating nominees for our board of directors, the corporate governance and nominating committee considers diversity of viewpoints, backgrounds and experience, including diversity of race, gender, ethnicity, age and cultural background to ensure effective oversight of our strategy and culture and effective representation of the interests of all stockholders.
Since
of the New Jersey Department of Energy
University of Pennsylvania; Former President and CEO, Robert Wood Johnson Foundation * *** vii 2019 PROXY STATEMENT
Proxy Summary
Executive Compensation Tied to Company Performance
Compensation Objective
We strive to attract and retain talented executives and motivate them to achieve our business goals through a combination of cash and stock-based compensation, which includes a base salary, annual incentive, and long-term incentives. The board oversees our compensation program and ensures that we implement our objectives by setting short-term targets that lead to long-term success and long-term targets based on total shareholder return, which has proven to be the most effective measure of long-term value creation. In 2018, we had an extraordinary year operationally and our performance on cost, capital discipline and safety metrics exceeded expectations, resulting in an above-target payout on our annual bonus. Our stock price continues to recover from lower oil prices and the execution of our long-term strategy, which resulted in our Performance Share Unit (“PSU”) program providing a below-target payout.
Key 2018 Compensation Actions
• | We reduced the CEO long-term incentive (“LTI”) target by 21% from $9.5 million to $7.5 million to appropriately reflect a company of our size with a focused portfolio. |
• | We added a new cash flow metric to our Annual Incentive Plan (“AIP”), EBITDAX (Earnings Before Interest, Taxes, Depreciation, Amortization and Exploration Expenses), in response to stockholder feedback and to stress the importance of profitability and cash flow. |
Other 2018 Compensation Actions
Component | Action | Rationale | ||||||
Salary | Named Executive Officer (“NEO”) salaries held flat | Reviewed annually and considers: external market, internal equity, compensation philosophy, job responsibilities, experience level, and individual performance | ||||||
AIP Targets | NEO AIP targets held flat | |||||||
2018 LTI Grants | CEO LTI target was reduced by 21%; NEO LTI targets held flat | |||||||
2018 AIP Enterprise Payout | 157.8% | Exceptional year operationally resulted in high final enterprise performance results of annual goals | ||||||
2016-18 PSU
| 75% | Final 3 year relative Total Shareholder Return (“TSR”) versus peers |
Compensation Program Key Practices Promote Alignment with Stockholder Interests
What We Do
ü | Directly link pay to performance and stockholder returns | |||
ü | Target total direct compensation within range of market median | |||
ü | Impose cap on CEO incentive compensation payments | |||
ü | Design compensation plans to mitigate undue risk | |||
ü | Double-trigger change-in-control severance benefits | |||
ü | Maintain a compensation clawback policy | |||
ü | Providede minimis perquisites for executives | |||
ü | Retain an independent compensation consultant |
What We Don’t Do
NO hedging or pledging by executives | ||||
NO employment contracts for NEOs | ||||
NO dividends or equivalents on unearned LTI awards | ||||
NO excise tax gross-ups in new change-in-control agreements | ||||
NO re-pricing of stock options without stockholder approval | ||||
NO excessive severance or change-in-control benefits |
2019 PROXY STATEMENT | viii |
Proxy Summary
Pay vs. Performance Alignment - Realizable Compensation
A comparison of realizable pay to target pay, based on the grant date opportunity, and TSR illustrates how performance outcomes have impacted pay over time. The graph below shows the average realizable pay of the CEO for each of the three-year periods ending December 31, 2016, 2017 and 2018 and the correlation with the indexed TSR of Hess common stock. As shown below, realizable CEO compensation is sensitive to TSR, thereby illustrating meaningful alignment with stockholder interests. The slight increase in realizable pay for 2016-2018 despite the drop in stock price is due primarily to the strong relative performance of the 2018 PSUs at year-end 2018 (second among all our peers) and the above target 2018 annual incentive payment due to exceptional operational performance.
(1) | Grant date opportunity reflects the average of salary, target cash bonus, and grant date fair market value of equity awards, as reported in the Grants of Plan-Based Awards table on page 38, for each respective year. Mr. Hess has not received restricted stock since 2015. |
(2) | Realizable pay reflects the average of salary, actual cash bonus, and the intrinsic value of stock options, the market value of restricted stock, and the market value of PSUs (tracking actual performance), in each case awarded in each of these three-year periods. Stock options, restricted stock, and PSUs are valued at year end 2016, 2017 and 2018 closing prices of common stock. |
(3) | For more information on total compensation as calculated under SEC rules, see the notes accompanying the Summary Compensation Table on page 37. The amounts reported as realizable compensation differs substantially from the amounts reported as total compensation in the Summary Compensation Table and is not a substitute for those amounts. |
ix | 2019 PROXY STATEMENT |
The enclosed proxy is solicited by the board of directors of Hess Corporation for use at the annual meeting of stockholders to be held on Wednesday, June 5, 2019, at 9:00 a.m., local time, in our office at 1501 McKinney Street, Houston, Texas 77010.
On or about April 25, 2019, we commenced mailing this proxy statement, the notice of annual meeting and the proxy card to stockholders. Holders of record of common stock of the company at the close of business on April 15, 2019 will be entitled to vote at the annual meeting. Each share of common stock will be entitled to one vote. As of April 15, 2019, there were 303,438,673 shares of common stock outstanding and entitled to vote at the annual meeting. There are no other voting securities of the company outstanding. A majority of the outstanding shares of common stock, present in person or represented by proxy, will constitute a quorum at the annual meeting. Abstentions and brokernon-votes will be counted as shares present for purposes of determining the presence of a quorum for the transaction of business.
In accordance with Securities and Exchange Commission (“SEC”) rules, we are making our proxy materials available to stockholders over the internet. On or about April 25, 2019, we mailed the Notice of Internet Availability of Proxy Materials to our stockholders (the “Notice”). The Notice contains instructions on how to access this proxy statement and our annual report and submit a proxy over the internet. If you received the Notice by mail, you will not receive a paper copy of the proxy materials unless you request such materials by following the instructions contained in the Notice.
If at the close of business on April 15, 2019 your shares were held in an account at a brokerage firm, bank, dealer, or other similar organization, then you are the beneficial owner of shares held in “street name” and the proxy materials, as applicable, are being forwarded to you by that organization. The organization holding your account is considered the stockholder of record for purposes of voting at the annual meeting. As a beneficial owner, you have the right to direct that organization on how to vote the shares in your account. If that organization is not given specific direction, shares held in the name of that organization may not be voted and will not be considered as present and entitled to vote on any matter to be considered at the annual meeting, except with respect to the ratification of the company’s independent auditors.Brokers are not permitted to vote your shares with respect to Proposal 1, the election of directors, or Proposal 2, the advisory vote on executive compensation, without your instructions as to how to vote. Please instruct your broker how to vote your shares using the voting instruction form provided by your broker so that your vote can be counted.
If you are a stockholder of record, you can vote by using the internet or by calling a toll-free telephone number. Internet and telephone voting information is provided on the proxy card or the Notice. A control number, located on the instruction sheet attached to the proxy card or the Notice, is designated to verify your identity and allow you to vote your shares and confirm that your voting instructions have been recorded properly. If you vote via the internet or by telephone, there is no need to return a signed proxy card. However, you may still vote by proxy by using the proxy card.
Proxies will be voted at the annual meeting in accordance with the specifications you make on the proxy. If you sign the proxy card or submit a proxy by telephone or over the internet and do not specify how your shares are to be voted, your shares will be voted in accordance with the recommendations of the board of directors. For more information, see “Questions and Answers About the Annual Meeting and Voting,” beginning on page 51.
2019 PROXY STATEMENT | 1 |
PROPOSAL 1: ELECTION OF DIRECTORS
It is intended that proxies will be voted for the nominees set forth herein. The company’sby-laws provide for majority voting in uncontested elections of directors, which is the case for the election of directors at the 2019 annual meeting. Accordingly, to be elected as a director of the company at the 2019 annual meeting, nominees must receive a majority of the votes cast. A majority of votes cast means that the number of shares voted “for” a director’s election exceeds 50% of the number of votes cast with respect to that director’s election. Abstentions and brokernon-votes are not counted as votes cast.
If a director is not elected at the 2019 annual meeting and no successor has been elected at the annual meeting, the director is required to promptly tender his or her resignation to the board. The corporate governance and nominating committee is then required to make a recommendation to the board as to whether to accept or reject the tendered resignation, or whether other action should be taken. The board will act on the tendered resignation and will publicly disclose its decision and rationale within 90 days following certification of the election results. These procedures are described in full in ourby-laws, which may be found on the company’s website atwww.hess.com.
It is expected that all candidates will be able to serve. However, if before the annual meeting any nominee in this proxy statement is unable to serve, or for good cause will not serve as a director, the proxy holders will vote the proxies for the remaining nominees and for substitute nominees chosen by the board of directors to fill the vacancy unless the board reduces the number of directors to be elected at the annual meeting.
The following table presents information as of February 4, 2019 about the nominees for election as directors of the company, including the specific experience, qualifications, attributes and skills that led the board to conclude that such person should serve as a director. All of the directors on the board are elected for aone-year term expiring in 2020.
| Rodney F. Chase | |
Independent Director Age:75 Director Since:2013 Committees Served:Audit, Governance, EHS Principal Occupation:Former Deputy Group Chief Executive of BP plc. | ||
Other Directorships:Former Director, Andeavor, Genel Energy, plc (Chairman), Computer Sciences Corporation (Chairman). Skills and Experience Mr. Chase’s experience in the oil and gas industry, corporate management and finance, international operations, public company governance and board practices provides the Hess board with valuable industry knowledge and strategic planning experience. |
| Terrence J. Checki | |
Independent Director Age:73 Director Since:2014 Committees Served:Compensation, Governance Principal Occupation: Former Executive Vice President and Head, Emerging Markets and International Affairs, Federal Reserve Bank of New York. Mr. Checki retired from the Federal Reserve Bank of New York in March 2014. | ||
Other Directorships: Director or trustee of various Franklin Templeton funds. Skills and Experience Mr. Checki brings decades of experience in management, international relations, government and public policy to the Hess board. He has had key roles in the resolution of numerous economic and financial challenges in the U.S. and abroad during his tenure at the Federal Reserve Bank of New York. |
2 | 2019 PROXY STATEMENT |
Proposal 1: Election of Directors + Nominees for Director
| Leonard S. Coleman, Jr. | |
Independent Director Age:69 Director Since:2016 Committees Served:Governance, EHS Principal Occupation: Former President of the National League of Major League Baseball and Former Commissioner of the New Jersey Department of Energy. | ||
Other Directorships: Avis Budget Group, Inc., Electronic Arts Inc., and Omnicom Group Inc. Former Director, Aramark, H.J. Heinz Company, Churchill Downs, Inc. Skills and Experience Mr. Coleman has acquired diverse business experience over his career, including more than a decade of senior management experience in Major League Baseball, significant financial experience through his years of working as a municipal finance banker at Kidder Peabody and extensive government experience, including serving as Commissioner of the New Jersey Department of Energy. |
| John B. Hess | |
Age:64 Director Since:1978 Principal Occupation:Chief Executive Officer of Hess Corporation and Hess Midstream Partners GP LLC, the General Partner of Hess Midstream Partners, LP. | ||
Other Directorships: Hess Midstream Partners GP LLC and KKR & Co. Inc.Former Director, Dow Chemical Company. Skills and Experience Mr. Hess has over 40 years of experience with the company. During his career, Mr. Hess has acquiredin-depth knowledge of the company’s strategy and operations and the history of the company’s development, and he and his family have had a long-standing commitment to the company. |
| Edith E. Holiday | |
Independent Director Age:66 Director Since:1993 Committees Served:Governance(Chair) Principal Occupation:Corporate Director and Trustee. Former Assistant to the President of the United States and Secretary of the Cabinet and Former General Counsel, United States Department of the Treasury. | ||
Other Directorships:Canadian National Railway Company, White Mountains Insurance Group Ltd., Santander Consumer USA and director or trustee of various Franklin Templeton mutual funds.Former Director, RTI International, H.J. Heinz Company. Skills and Experience Ms. Holiday brings deep public policy and governance expertise to the Hess board. The first woman to serve as General Counsel of the Treasury Department, Ms. Holiday possesses strong corporate governance and regulatory expertise, as well as legal and managerial experience in both the private and public sectors. She has also served in a directorship capacity across a diverse range of industries throughout her career. Ms. Holiday currently chairs our corporate governance and nominating committee. |
2019 PROXY STATEMENT | 3 |
Proposal 1: Election of Directors + Nominees for Director
| RisaLavizzo-Mourey, MD | |
Independent Director Age:64 Director Since:2004 Committees Served:Compensation (Chair) Principal Occupation: Penn Integrates Knowledge Professor, University of Pennsylvania; FormerPresident and Chief Executive Officer, The Robert Wood Johnson Foundation. | ||
Other Directorships: General Electric Company and Intel Corporation. Skills and Experience Dr. Lavizzo-Mourey has decades of leadership and technical experience and has significant experience in the government, nonprofit and health care sectors. She also has significant experience as a director for several large public companies, including service on various committees.Dr. Lavizzo-Mourey currently chairs our compensation and management development committee. |
| Marc S. Lipschultz | |
Independent Director Age:50 Director Since:2016 Committees Served: Compensation Principal Occupation:Co-founder and President of Owl Rock Capital Partners andCo-Chief Investment Officer of Owl Rock Capital Advisors. Mr. Lipschultz served as Global Head of Energy and Infrastructure at KKR & Co. LP, from 1995 to 2016 prior to founding Owl Rock. | ||
Skills and Experience Mr. Lipschultz brings significant energy, infrastructure, investment, finance and management experience to the Hess board after two decades at KKR & Co. LP, including as the Global Head of Energy and Infrastructure, as well as his current leadership position at Owl Rock, the investment firm that heco-founded. |
| David McManus | |
Independent Director Age:65 Director Since:2013 Committees Served: Compensation, EHS Principal Occupation: Former Executive Vice President and Head of International Operations, Pioneer Natural Resources Co. | ||
Other Directorships: FLEX LNG Limited, Rockhopper Exploration plc and Costain Group plc.Former Director, Caza Oil & Gas Inc. Skills and Experience Mr. McManus is an experienced international business leader in the energy industry and provides the Hess board with oil and gas project management and commercial expertise. |
4 | 2019 PROXY STATEMENT |
Proposal 1: Election of Directors + Nominees for Director
| Kevin O. Meyers, Ph.D. | |
Independent Director Age:65 Director Since:2013 Committees Served: EHS (Chair), Audit Principal Occupation: Independent Energy Consultant. Former Senior Vice President of E&P for the Americas, ConocoPhillips. | ||
Other Directorships: Denbury Resources Inc., Hornbeck Offshore Services, Inc. and Precision Drilling Corporation,Former Director, Bill Barrett Corporation. Skills and Experience Dr. Meyers has over 30 years of experience in exploration and production, both domestic and international. Based on this experience, Dr. Meyers brings to the Hess board decades of managing E&P operations in geographies directly relevant to Hess’ focused E&P portfolio. Dr. Meyers currently chairs the environmental, health and safety subcommittee of the audit committee. |
| James H. Quigley | |
Independent Chair Age:66 Director Since:2013 Committees Served: Compensation Principal Occupation: Chairman of the Board of Hess Corporation; Former Chief Executive Officer, Deloitte, Touche Tohmatsu Limited. | ||
Other Directorships: Merrimack Pharmaceuticals Inc. and Wells Fargo & Company. Skills and Experience Mr. Quigley led Deloitte, Touche Tohmatsu Limited, one of the world’s largest accounting and consulting firms. During his 38 years at Deloitte, he was a trusted consultant on strategic leadership and operating matters to senior management teams of multinational companies across multiple industries. He brings to the Hess board significant leadership and governance experience, on a global scale, and knowledge of financial, tax and regulatory matters that are relevant to Hess’ operations. |
| William G. Schrader | |
Independent Director Age:61 Director Since:2013 Committees Served: Audit, EHS Principal Occupation: Former Chief Operating Officer,TNK-BP Russia. | ||
Other Directorships: Ophir Energy plc (African oil and gas exploration company) (Chairman), Bahamas Petroleum Company Ltd. (Chairman).Former Director, CHC Group Ltd. Skills and Experience Mr. Schrader is an experienced international E&P executive responsible for transforming BP’s significant E&P assets, and brings to the Hess board his experience as a disciplined E&P operator with expertise in production sharing structures, government relations and delivering returns. |
The board of directors unanimously recommends that stockholders vote |
2019 PROXY STATEMENT | 5 |
Proposal 1: Election of Directors + Director Nominations
The corporate governance and nominating committee is responsible for recommending to the board qualified candidates for election as directors. In advance of each annual meeting, the committee meets to recommend nominees for election at the annual meeting. From time to time throughout the year, the committee reviews the mix of skills, qualifications and experience of the directors currently on the board and seeks to identify individuals whose skills, qualifications and experience will supplement and contribute to the effectiveness of the board. Members of the committee may from time to time meet with potential candidates.
The corporate governance and nominating committee and the board believe that the board collectively should encompass a broad range of skills, expertise, general industry knowledge and diversity of opinion. New perspectives and ideas are essential to the proper functioning of the board as is the experience and institutional knowledge of longer-tenured directors. The board has undergone significant refreshment over the last several years, replacing over 70% of the board since 2013. The average tenure of our independent director nominees is approximately eight years. The corporate governance and nominating committee seeks to ensure that board nominees reflect an appropriate balance of tenure, experience, skills and diversity.
In accordance with the company’s corporate governance guidelines approved by the board of directors, nominees are reviewed and recommended based on a variety of criteria including:
• | the fit of the individual’s skills and personality with those of other directors and potential directors in building a board that is effective, collegial and responsive to the needs of the company; |
• | diversity of viewpoints, background and experience; and |
• | compatibility with independence and other qualifications established by applicable law and rules. |
As noted above, among the criteria used to evaluate nominees for the board is diversity of viewpoints, background and experience, including diversity of race, gender, ethnicity, age and cultural background. The board believes that such diversity provides varied perspectives which promote active and constructive dialogue among board members and between the board and management, resulting in more effective oversight. The board believes this diversity is amply demonstrated in the varied backgrounds, experience, qualifications and skills of the current and proposed members of the board, including board leadership positions. In the board’s executive sessions and in annual performance evaluations conducted by the board and its committees, the board from time to time considers whether the members of the board reflect such diversity and whether such diversity contributes to a constructive and collegial environment.
The corporate governance and nominating committee has retained Russell Reynolds Associates, a director and executive search and recruiting firm, to identify and review potential independent director candidates and assist the committee and the board in assessing the qualifications of candidates. The committee has not paid fees to any other third parties to assist in identifying or evaluating potential nominees. Each of the nominees for election at the 2019 annual meeting were recommended by thenon-management directors of the corporate governance and nominating committee, with the input of senior management, the committee’s consultants and advisors.
In addition, the company has adopted a director retirement policy, which provides that no person may be nominated to stand for election orre-election to the board of directors as anon-management director if the election would take place after such person has attained the age of 75, unless otherwise approved by the board. Upon the recommendation of the corporate governance and nominating committee, the board determined to nominate Mr. Chase to standfor re-election at the 2019 annual meeting based on his extensive experience in senior management roles in the oil and gas industry and his significant contributions to the board’s collective knowledge and capabilities.
6 | 2019 PROXY STATEMENT |
Proposal 1: Election of Directors + Board Evaluation
Stockholder Recommendations and Proxy Access
Stockholders may suggest candidates by writing to the corporate governance and nominating committee, in care of the corporate secretary of the company at the address set forth on page 55. Stockholder suggestions should include a summary of the candidate’s qualifications, the information required by SEC rules for director nominees and contact information for the candidate. Stockholder suggestions should be submitted no later than December 1 for consideration as nominees for election at the next annual meeting and otherwise in accordance with the company’s policy andby-laws. The committee follows the same process of identifying and evaluating nominees recommended by stockholders as that for candidates recommended by any other source.
In 2015, our board adopted a proxy accessby-law that permits a stockholder, or group of up to 20 stockholders, owning at least 3% of our outstanding common stock continuously for at least three years to nominate and include in our proxy materials up to the greater of two directors or 20% of our board of directors. Stockholders and nominees must satisfy the requirements set forth in theby-laws in connection with such nominations. We believe that thisby-law provision provides meaningful and effective proxy access rights to our stockholders, and balances those benefits against the risk of misuse by stockholders with interests that are not shared by a significant percentage of our stockholders.
Our board is committed to continuous improvement and recognizes the importance of a rigorous evaluation process to enhance board performance and effectiveness. Our corporate governance and nominating committee oversees the annual performance evaluation of the board and ensures that each of the board’s committees conducts an annual self-evaluation. The chair of the corporate governance and nominating committee also oversees the evaluation of our board chairman.
Governance Committee Reviews Process Board and Committees Complete Evaluation Governance Committee Reviews Results Board and committee Discussion Feedback Implemented Corporate governance and nominating committee reviews the design and format of the evaluation process. Directors complete written questionnaire. Corporate Secretary summarizes director responses to board and chairman evaluation. Corporate governance and nominating committee chair reviews the results of the board and chairman evaluation with the full board. Feedback informs changes to policies, practices and procedures, as appropriate. Option to request One -on-one calls with the board chairman or the committee chair to provide further feedback. Responses are not attributed to individual directors. Results requiring further consideration are addressed at subsequent board Of committee meetings. Ensure directors have opportunity to provide constructive feedback about board and director performance. Each committee chairperson reviews the results of the committee evaluation with the full board. Each committee conducts annual self evaluation. Summary is shared with the committee.
Our board evaluations are designed to solicit input and perspective on various topics, including:
• | access to management and internal and external experts, resources and support; |
• | key areas of focus for the board, including strategy, sustainability, crisis management and stockholder engagement; |
• | committee structure and process, member and chair performance, duties and functions and management support; and |
• | performance of the board
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acting as chair of executive sessions or other meetings of the independent directors and leading such executive sessions and meetings;
determining if special meetings of the board should be called (but without prejudice to any rights of others to call special board meetings);
acting as a liaison between the chief executive officer and the board and facilitating communication between meetings, including discussing action items with the chief executive officer following executive sessions;
2019 PROXY STATEMENT | 7 |
Proposal 1: Election of Directors + Board Leadership Structure / Independent Chairman
Board Leadership Structure / Independent Chairman
Ourby-laws provide separate positions for the chairman of the board and chief executive officer. Mr. Quigley serves as the independent chairman of the board and Mr. Hess serves as chief executive officer and a director of the board.
The board currently believes that having a separate chairman and chief executive officer allows for better alignment of corporate governance with stockholder interests and aids in the board’s oversight of management and the board’s ability to carry out its roles and responsibilities on behalf of the stockholders. The board also believes that the separation of the roles of chairman and chief executive officer allows the chief executive officer to focus more of his time and energy on operating and managing the company and leverages the chairman’s leadership and financial, governance and regulatory experience.
The chairman, an independent member of the board who has not previously served as an executive officer of the company, is appointed by the board annually.
As set forth in the company’s corporate governance guidelines, the responsibilities of the chairman include:
• | consulting with the chief executive officer regarding agenda items and appropriate materials for board meetings, and the allocation of time to each discussion topic on the agenda and coordinating with committee chairpersons to facilitate their meetings; |
• | presiding over the annual stockholders meeting; |
• | being available to participate in or facilitating appropriate meetings with stockholders; and |
• | partnering with the
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Director and Nominee Independence
The board of directors has affirmatively determined that all of the current directors on the board other than Mr. Hess and 10 of the 11 nominees for election at the 2019 meeting, namely, Mr. Chase, Mr. Checki, Mr. Coleman, Ms. Holiday,Dr. Lavizzo-Mourey, Mr. Lipschultz, Mr. McManus, Dr. Meyers, Mr. Quigley, and Mr. Schrader, are independent within the meaning of the rules and standards of the New York Stock Exchange (the “NYSE”). The board determined that these directors and nominees not only met all “bright-line” criteria under these rules, but also that, based on all known relevant facts and circumstances, there did not exist any relationship that if any company representative, including a director or officer, considers conducting any transaction that reasonably would be expected to give rise to a conflict of interest between the representative and the company, such representative must disclose such transaction in advance to the company’s legal department for review. In addition, the company annually sends each director and executive officer a questionnaire requiring such person to describe any transaction contemplated under Item 404 or in the case of independent directors, any transaction that might compromise their independence. The company also annually conducts a review of its accounting records to determine whether any such related party transaction occurred in the prior fiscal year. If any proposed or existing related party transaction is identified, the transaction is brought to the general counsel for review. If the general counsel determines the transaction poses a conflict of interest, or would compromise the independence of these directors.
The board of directors met 10 times in 2018, including two special meetings. Each director attended at least 75% of the aggregate of all board of directors meetings and all meetings of the committees of the board of directors on which he or she served during 2018.
Non-management directors meet without members of management present after each regularly scheduled board meeting. The chairman of the board of directors presides at these meetings.
All of the current directors who were serving as a director at the time of last year’s annual meeting attended that meeting.
8 | 2019 PROXY STATEMENT |
Proposal 1: Election of Directors + Corporate Governance Guidelines
Corporate Governance Guidelines
The board has approved a set of corporate governance guidelines in accordance with the rules of the NYSE. These guidelines set forth the key policies relating to corporate governance, including director qualification standards, director responsibilities and director compensation. The board has also approved a code of business conduct and ethics in accordance with rules of the NYSE and the SEC applicable to all directors, officers and employees, including the chief executive officer, the principal financial and accounting officer and other senior financial officers. The code is intended to provide guidance to directors and management to assure compliance with law and promote ethical behavior. Copies of the company’s corporate governance guidelines and its code of business conduct and ethics may be found on the company’s website atwww.hess.com and are also available without charge upon request to the company’s corporate secretary at the address set forth on page 55.
Stockholder and Interested Party Communications
Any stockholder or interested party who wishes to communicate or request a meeting with members of the board of directors or with onlynon-management directors or any specified individual director may do so by writing to them in care of the chairman of the board of directors, Hess Corporation, at the address set forth on page 55. Stockholders may also communicate directly to the chairman bye-mail toBoardChairman@hess.com. Communications sent by mail ore-mail will be reviewed by the chairman and will be referred for resolution and response as deemed appropriate by the chairman. If a stockholder requests a meeting, the corporate governance and nominating committee will decide whether the subject matter is a proper one to be addressed by the board and, if so, whether a meeting is warranted. The corporate governance and nominating committee will meet periodically to review all stockholder communications received.
The company expects all directors and executive officers to bring to the company’s attention any related party transactions, including transactions which may be required to be disclosed under Item 404 ofRegulation S-K promulgated by the SEC. The company’s policies provide that if any company representative, including a director or officer, considers conducting any transaction that reasonably would be expected to give rise to a conflict of interest between the representative and the company, such representative must disclose such transaction in advance to the company’s legal department for review. In addition, the company annually sends each director and executive officer a questionnaire requiring such person to describe any transaction contemplated under Item 404 or in the case of independent directors, any transaction that might compromise their independence. The company also annually conducts a review of its accounting records to determine whether any such related party transaction occurred in the prior fiscal year. If any proposed or existing related party transaction is identified, the transaction is brought to the general counsel for review. If the general counsel determines the transaction poses a conflict of interest, or would compromise the independence of anon-management director, the general counsel will advise the audit committee of the transaction and the disinterested members of the audit committee will determine whether the transaction serves the best interest of the company and its stockholders and whether if proposed, it may proceed and if existing, it may continue to exist. The general counsel and the disinterested members of the audit committee will determine the appropriate scope of, and process for, the review of any such transaction based on the then existing facts and circumstances of the transaction in view of applicable listing standards of the NYSE.
Committees of the Board
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Proposal 1: Election of Directors + Committees of the Board The board has three standing committees: the compensation and management development committee, the corporate governance and nominating committee and the audit committee. Each committee’s written charter is available on our website atwww.hess.comand also available without charge upon request to the company’s corporate secretary at the address set forth on page 55. The board receives regular reports from each committee and discusses matters of particular concern or importance.
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• review and approve the company’s overall compensation philosophy; • establish performance goals and objectives for the company’s chief executive officer and reviews the goals set by the company’s chief executive officer for the other named executive officers; • review the performance and approve the compensation of the • provide oversight and monitor the company’s compensation and benefit programs, including the company’s pension, savings, bonus, medical, health and wellness plans; • administer and make awards of stock-based compensation under the company’s long-term incentive plans; • review management development and succession programs; • oversee the assessment of potential risks to the company from its compensation programs and policies; • approve the retention and review the performance and independence of compensation consultants to the committee; and • prepare an annual report on executive compensation for the company’s proxy statement. Executive Compensation. The committee’s processes for determining executive compensation are described in “Compensation Discussion and Analysis” on page 20. |
Corporate Governance and Nominating Committee | ||
Ms. Holiday (Chair) Mr. Chase Mr. Checki Mr. Coleman Mr. Reynolds All committee members are independent | 5 meetings in 2018 | |
The • develop and recommend to the board the criteria for board membership; • identify and recommend individuals to the board for nomination as members of the board and its committees consistent with criteria approved by the board; • review and make recommendations to the board regarding the size and composition of the board of directors • oversee board, committee and chair performance evaluations; • identify and recommend to the board potential continuing education opportunities for directors; • periodically review and, if appropriate, make recommendations to the board relating to board practices and corporate governance; and • develop, recommend to the board and periodically review a set of corporate governance principles applicable to the company. Director Candidates. This committee recommends for election as directors qualified, diverse candidates identified through a variety of sources, as described on page 6. |
10 | 2019 PROXY STATEMENT |
Proposal 1: Election of Directors + Committees of the Board
Audit Committee | ||||||
Mr. Reynolds* (Chair) Mr. Chase* Dr. Meyers Mr. Schrader *Audit committee financial All committee members are independent and financially literate. | 6 meetings in | |||||
The audit
• review and discuss with management, internal audit and the independent registered public • meet with
• review and discuss with management, internal audit and the independent registered public accountants the
• review the scope and results of the internal audit program and the performance of the internal audit function; • review and discuss with management the company’s
• discuss policies with respect to environment, health, safety and | ||||||
No member of the audit committee | ||||||
Environmental, Health and Safety Subcommittee | ||||||
Dr. Meyers (Chair) Mr. Chase Mr. Coleman Mr. McManus Mr. Reynolds Mr. Schrader | 4 meetings in 2018 | |||||
In 2013, the audit committee established a subcommittee to focus the committee’s oversight of environmental, health and safety (“EHS”) matters. This subcommittee’s principal responsibilities are to: • develop recommendations to the audit committee and the board for the formulation and adoption of policies, programs and practices to address EHS issues and risks including climate change; • periodically review and make recommendations to the board
• periodically review EHS legislative and regulatory
• review emergency response planning procedures for EHS areas. |
2019 PROXY STATEMENT | 11 |
Proposal 1: Election of Directors + Report of the Audit Committee
The audit committee of the board of directors oversees the company’s financial reporting on behalf of the board. Management is responsible for the system of internal controls and for preparing financial statements. Ernst & Young LLP, the company’s independent registered public accountants, are responsible for expressing an opinion on the effectiveness of internal controls over financial reporting and the fair presentation of the financial statements in conformity with generally accepted accounting principles. The audit committee operates in accordance with a charter approved by the board of directors, which is available atwww.hess.com. The charter sets forth the audit committee’s responsibilities, which are summarized under “Committees of the Board” on page 11. The committee reviews its charter annually and, when appropriate, makes recommendations for changes to the board.
2018 Actions of the Audit Committee
The audit committee met 6 times during 2018 and met in executive session after each of those meetings. Additionally, the audit committee met 4 times to review quarterly financial results.
During 2018, the audit committee met with management, Ernst & Young LLP and internal auditors and among other things:
reviewed and discussed with management and Ernst & Young LLP our audited financial statements included in our annual report on Form10-K and quarterly unaudited financial statements included in quarterly reports onForm 10-Q prior to filing with the SEC;
discussed with management and Ernst & Young LLP accounting policies and management’s application of those policies as they relate to the company’s financial results, significant judgments inherent in the financial statements, disclosures and other matters required by generally accepted auditing standards;
discussed with Ernst & Young LLP all matters and communications required to be discussed by applicable Public Company Accounting Oversight Board (“PCAOB”) standards, including matters related to independence, and received the written disclosures and the letter from Ernst & Young LLP required by the PCAOB regarding their independence;
reviewed and discussed with management the processes undertaken to evaluate the accuracy and fair presentation of our consolidated financial statements and the effectiveness of our systems of disclosure controls and procedures and internal control over financial reporting;
reviewed and discussed with management, the internal auditor, and Ernst & Young LLP, management’s assessment of the effectiveness of our internal control over financial reporting and Ernst & Young LLP’s opinion about the effectiveness of our internal control over financial reporting;
reviewed and discussed matters related to risk, risk controls and compliance and inquired about significant financial risk exposures, assessed the steps management is taking to mitigate these risks, and reviewed our policies for risk assessment and risk management, including the company’s overall insurance coverage;
met with management regarding our technology systems and cyber-security incident detection, defense and response;
reviewed and assessed the overall adequacy and effectiveness of our legal, regulatory and ethical compliance programs and discussed issues raised on the company’s whistleblower reporting system for financial reporting and other compliance concerns;
reviewed our tax strategies and the implications of tax law changes; and
reviewed with the general counsel legal and regulatory matters that may have a material impact on the consolidated financial statements or internal control over financial reporting.
The audit committee also met separately with Ernst & Young LLP and the internal auditors without management present.
12 | 2019 PROXY STATEMENT |
Proposal 1: Election of Directors + Report of the Audit Committee
Assessment of Independent Registered Public Accountants
The audit committee reviews the scope of and overall plans for the annual audit and negotiates fees and approves the other terms of Ernst & Young LLP’s engagement letter. The audit committee also oversees the periodic required rotation of the lead audit partner, as required by SEC rules, and is directly involved in the selection of such partner.
The audit committee discussed with Ernst & Young LLP their independence from management and the company and considered the compatibility of allnon-audit services with the auditors’ independence. The audit committee also assessed the qualifications and performance of Ernst & Young LLP in determining whether to retain them. In conducting this assessment, the audit committee considered, among other things: information relating to audit effectiveness, including the results of PCAOB inspection reports; the depth and expertise of the audit team, including their demonstrated understanding of the company’s businesses, significant accounting practices, and system of internal control over financial reporting; the quality and candor of Ernst & Young LLP’s communications with the audit committee and management; the accessibility, responsiveness, technical competence, and professionalism of the lead audit partner and other members of the audit team assigned to our account; the impact to the company of changing auditors; the appropriateness of Ernst & Young LLP’s fees; and Ernst & Young LLP’s ability to employ professional skepticism, objectivity, integrity, and trustworthiness.
The audit committee reviewed the audited December 31, 2018 financial statements of the company with management and the independent registered public accountants. Management represented to the committee that the financial statements were prepared in accordance with generally accepted accounting principles. In reliance on the reviews and discussions with management and the independent registered public accountants, the audit committee recommended to the board of directors, and the board approved, the inclusion of the audited financial statements in the annual report onForm 10-K for the year ended December 31, 2018 filed with the SEC. Based on its assessment and review as described in this report, the audit committee has determined that selecting Ernst & Young LLP as independent registered public accountants for 2019 is in the best interest of the company and its stockholders. The board has unanimously proposed that the stockholders ratify this selection at the annual meeting.
Committee Members:
Fredric G. Reynolds, Chair
Rodney F. Chase
Kevin O. Meyers
William G. Schrader
The Report of the Audit Committee does not constitute soliciting material, and shall not be deemed to be filed or incorporated by reference into any other company filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (the “Exchange Act”), except to the extent that the company specifically incorporates the Report of the Audit Committee by reference therein.
2019 PROXY STATEMENT | 13 |
Proposal 1: Election of Directors + Stockholder Engagement
We engage with our stockholders on a regular basis to ensure we fully understand the factors they consider to be most important when evaluating our company. During 2018, our CEO and other members of senior management, at times accompanied by our independent chairman, conducted a broad outreach effort to investors representing, in the aggregate, approximately 70% of our outstanding shares, including an investor day presentation.
Robust stockholder engagement program throughout the CEO and management participation | Investor Day 2018 | |||||||||||||
Board chairman participated with senior management | ||||||||||||||
2018 Highlights • Participated in • Presented at CERAWeek, a premier energy conference attended by institutional investors, industry leaders and policymakers • Participated in conferences hosted by Council of Institutional Investors • Held investor meetings with almost 300 institutional investors in 21 cities in the | • Held a successful investor day in December 2018 that was attended by over 450 participants, in person or via live webcast |
Topics Covered | ||||||
Strategy | Environment and Sustainability | Governance | Executive Compensation | |||
Management and the chairman provide feedback from these meetings to the full board on a regular basis. |
The board of directors has oversight of the company’s risk management policies with an emphasis on understanding the key enterprise risks affecting the company’s business and the ways in which the company attempts to prudently mitigate such risks, to the extent reasonably practicable and consistent with the company’s long-term strategies. Additionally, each of the board’s committees is assigned with overseeing risk management specific to their scope of responsibilities, as illustrated below. Management applies a comprehensive, standardized approach to identifying and managing risks of all types across our operations. Our enterprise risk management (“ERM”) process is used to develop a holistic risk profile for each asset and major project, drawing input from subject matter experts, performance data, incident investigations, lessons learned and recent internal audits. In these risk assessments, we identify each risk and assess its likelihood and potential impact to people, the environment, our reputation and our business, as well as other risks as appropriate.
Periodically, the chief risk officer presents a comprehensive review of the company’s enterprise levels risks, the status of the enterprise risk program and risk management strategies utilized by the company under its corporate risk policy to the audit committee, which has been delegated primary responsibility for oversight of the company’s risk management practices. The audit committee and the board will also receive updates at meetings during the year on any particular matters relating to specific risks that management believes needs to be brought to the attention of the committee or the board. In addition, the company conducts an annual risk assessment to determine the extent, if any, to which the company’s compensation programs and practices may create incentives for excessive risk-taking. For a discussion of this assessment, see “Compensation and Risk” on page 46.
14 | 2019 PROXY STATEMENT |
Proposal 1: Election of Directors + Risk Oversight
Cyber-security is an integral part of risk management at Hess. The board appreciates the rapidly evolving nature of threats presented by cyber-security incidents and is committed to the prevention, timely detection, and mitigation of the effects of any such incidents on the company. The audit committee receives regular updates from management regarding cyber-security, including the nature of threats, defense and detection capabilities, incident response plans and employee training activities.
Full Board |
Enterprise-level strategic, financial and execution risks and exposures associated with Hess’ business strategy including commodity price exposure, project risk, reserve estimation, political risk and catastrophic events. |
Audit Committee | EHS Subcommittee | Compensation and | Corporate Governance | |||||||||
Policy and process related to Hess’ ERM program as well as risks related to financial statements, cyber-security and compliance matters. | Risks related to environmental, safety and social matters including catastrophic, process safety events, regulatory risks and environmental impacts. | Risks related to employee compensation policies and practices including the risk that our compensation program encourages excessive risk taking. | Risks related to our governance structures, including board succession planning, director qualifications and skills, stockholder proposals and activism and overall corporate governance. |
Board Oversight of Values and Culture
The board is actively engaged in overseeing our values and its connection to our long-term strategy. Directors have the opportunity to participate in our culture first-hand through interactions with employees and visits to our assets and offices. Through the compensation and management development committee, the board meets with management to understand and monitor company culture and its alignment with our values and long-term business strategy. The entire board attends the compensation and management development committee meetings that involve reviews and discussions of CEO performance objectives, evaluations, management succession and compensation.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires the company’s directors, certain of its officers and persons who beneficially own more than 10% of the company’s common stock to file initial reports of ownership and reports of changes in ownership with the SEC. Based solely on the company’s review of copies of such reports, and on written representations from such reporting persons, the company believes that in 2018 all such reporting persons filed the required reports on a timely basis in accordance with Section 16(a).
2019 PROXY STATEMENT | 15 |
Proposal 1: Election of Directors + Ownership of Voting Securities by Certain Beneficial Owners
Ownership of Voting Securities by Certain Beneficial Owners
The following table sets forth, as of March 8, 2019 for Messrs. Hess, Brady, Kean and Goodwillie, as of April 9, 2019 for FMR LLC, and as of December 31, 2018 for the other beneficial owners identified in the table, information as to the ownership of more than 5% of any class of the company’s voting securities by beneficial owners known by the company to hold more than 5% of any such class:
(a) | The individual amounts and percentages shown for Messrs. Hess, Brady, Kean and Goodwillie should not be added because they reflect shared beneficial ownership. Information with respect to FMR LLC was obtained from a Schedule 13G/A filed by such person with the SEC on April 10, 2019. Information with respect to T. Rowe Price Associates, Inc. and
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(e) |
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1,704,124 shares owned directly by Mr. Hess, as to which he has sole voting and dispositive power;
28,753 shares held by a family liability company controlled by Mr. Hess, as to which Mr. Hess has sole voting power and dispositive power;
929,022 shares underlying options to purchase common stock, as to which Mr. Hess has no voting or dispositive power until they are acquired upon exercise of the options;
16 | 2019 PROXY STATEMENT |
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Proposal 1: Election of Directors + Ownership of Voting Securities by Certain Beneficial Owners
64,577 shares vested in the name of Mr. Hess under the employees’ savings plan as to which he has sole voting and dispositive power;
1,008,401 shares held by a trust for the benefit of Mr. Hess, of which he and Mr. Goodwillie areco-trustees, as to which Mr. Hess has sole voting power and shares dispositive power with Mr. Goodwillie;
146,582 shares held by four trusts of which Mr. Hess is co-trustee. 80,922 of these shares as to which Mr. Hess has sole voting power and shares dispositive power with Mr. Goodwillie, and the remaining 65,660 shares as to which Mr. Hess shares voting and dispositive power;
2,371,878 shares held by Mr. Hess’ siblings or their children, or by trusts for the benefit of Mr. Hess’ siblings or their children, as to which Mr. Hess has sole voting power pursuant to shareholders agreements among Mr. Hess and his siblings or their children and as to 728,471 shares of which he shares dispositive power pursuant to a shareholder’s agreement among Mr. Hess and a sibling and others. 315,000 of these shares (representing approximately 0.1% of Hess common stock outstanding) have been pledged by certain of the trusts. Mr. Hess is not a trustee of these trusts and has no financial or economic interest in the shares pledged by the trusts;
1,008,402 shares held by a trust for the benefit of Mr. Hess’ sibling, of which Mr. Hess has sole voting and shared dispositive power; and
2,785,946 shares held by trusts as to which Mr. Hess has sole voting power and as to which Mr. Goodwillie has shared dispositive power. 2,279,758 of these shares (representing approximately 0.7% of Hess common stock outstanding) have been pledged by certain of the trusts. Mr. Hess is not a trustee of these trusts and has no financial or economic interest in the shares pledged by the trusts.
(f) | This amount includes 112,248 shares held directly by Mr. Brady, as to which he has sole voting and dispositive
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(g) | This amount includes 39,458 shares held directly by Mr. Kean, as to which he has sole voting and dispositive power. |
(h) | This amount includes (y) 5,567,479 shares over which FMR LLC has sole voting power and (z) 31,017,187 shares over which FMR LLC has sole dispositive power. |
(i) | This amount includes (w) 295,467 shares over which The Vanguard Group has sole voting power, (x) 29,713,000 shares over which The Vanguard Group has sole dispositive power, |
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Proposal 1: Election of Directors + Ownership of Equity Securities by Management
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2014 PSU Award Payout. As described below under “LTI Program Structure,” long-term incentive compensation is an important tool to support execution of our long-term business strategy, which is particularly important in capital-intensive industries such as ours, and represents the largest portion of each executive officer’s target total direct compensation package. In 2014, 60% to 70% of LTI awarded to our NEOs was in the form of PSUs, for which the potential payout ranges from 0% to 200% and thresholds are predetermined at the time of grant, depending upon the company’s TSR compared with that of our peer companies over a three year period. The committee certified performance results with respect to the 2014 to 2016 performance period in February 2017 and determined that 67% of PSUs were earned with respect to the 2014 award to be paid out in 2017, illustrating close alignment with the company’s stock performance.
Pay Mix. The majority of NEO compensation is variable. For our CEO and other NEOs, approximately 90% and 80%, respectively, on average, of 2016 target total direct compensation was variable. Variable pay directly ties each NEO’s pay to company performance outcomes, including financial results, operational results, strategic initiatives, and stock price performance. In early 2016, the committee approved certain changes to the long-term incentive mix for Mr. Hess to eliminate the restricted stock component from his long-term incentive compensation and to increase the PSU component and the stock option component of his long-term incentive compensation to 70% and 30%, respectively. As a result, 100% of Mr. Hess’ long term incentive compensation is performance-contingent, further aligning Mr. Hess’ total compensation with the company’s long-term performance. For 2016, the committee reduced grant date value oflong-term incentive awards for each of our NEOs, including Mr. Hess, by 15% compared to 2015 levels. For 2017, the committee reduced the grant date value of long-term incentive awards for Mr. Hess by 10% from his target.
Pay vs. Performance Alignment (Realizable Compensation). A comparison of realizable pay to target pay, based on the grant date opportunity, and TSR illustrates how performance outcomes have impacted pay over time. The graph below shows the average realizable pay of the CEO for each of the three-year periods ending December 31, 2014, 2015 and 2016 and the correlation with the indexed TSR of Hess common stock. As shown below, realizable CEO compensation is sensitive to TSR, thereby illustrating meaningful alignment with stockholder interests.
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2016 Say on Pay Vote Result and Ongoing Stockholder Engagement
At our 2016 annual meeting of stockholders, over 96% of votes present and entitled to vote supported Hess’ executive compensation program. While we view this as an affirmation of our current pay practices, we regularly engage stockholders to discuss a variety of aspects of our business and welcome ongoing stockholder input and feedback. The “say on pay” vote serves as an additional tool to guide the board and the committee in ensuring alignment of our executive compensation programs with stockholder interests.
Specifically, we engage with our stockholders in order to ensure we fully understand the factors they consider to be the most important when evaluating our executive compensation program. During 2016, our CEO and other members of senior management conducted a broad outreach effort which included over 300 meetings with institutional investors representing—in the aggregate—over 65% of our outstanding shares. The purpose of this outreach was to discuss and solicit stockholder views on our strategy, business plan, corporate governance and other matters of concern, including executive compensation.
Total Compensation – Objectives, Philosophy and Key Practices
Objectives. The objective of our executive compensation program is to attract and retain talented executives and motivate them to achieve our business goals through a combination of cash and stock-based compensation. The principal elements of an executive’s total compensation consist of:
base salary,
annual incentive, and
long-term incentives.
We also review other elements of compensation, including retirement benefits, health and welfare plans and other benefits offered to employees generally in order to evaluate the entire compensation package offered to executives.
Compensation Philosophy. Generally, we target total direct compensation (salary, annual incentive and long-term incentives) within a competitive range of market median. Sustained performance may be recognized in individual pay components, and pay will vary above or below target based primarily on actual enterprise performance and, to a lesser degree, individual performance. Variations in total direct compensation among the NEOs reflect differences in competitive pay for their respective positions as well as the size and complexity of the groups or functions they oversee, the performance of those groups or functions, and individual performance. The committee also considers market conditions in our industry when making compensation decisions.
Key Compensation Practices. Key executive compensation practices are summarized below. We believe these practices promote alignment with the interests of our stockholders.
The table below sets forth as to each director, nominee and named executive officer, and all directors, nominees and executive officers as a group, information regarding their ownership of equity securities of the company on March 8, 2019. The persons listed below have sole voting and investment power as to all shares indicated except as set forth in the footnotes to the table. Where no information appears in the column “Percent of outstanding shares of common stock owned,” the securities held represent less than 1% of the common stock outstanding.
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2016 Total Direct Compensation
We structure NEO total direct compensation so that the majority is delivered in the form of long-term incentive awards, in order to provide incentives to work toward growth of long-term profitability that will enhance stockholder returns. We also structure NEOs’ cash compensation so that a significant portion is at risk under the company’s annual incentive plan, payable primarily based on enterprise results, and to a lesser degree individual performance. We further detail each component of total direct compensation below.
Base Salary. We review base salaries annually, but we do not necessarily make adjustments to NEO salaries each year. In determining base salary levels for executive officers, the committee considers the following qualitative and quantitative factors: job level and responsibilities, relevant experience, individual performance, recent corporate and business unit performance, internal equity and our objective of paying competitive total direct compensation if performance is met.
From time to time base salaries may be adjusted other than as a result of an annual review in order to address competitive pressures or in connection with a promotion. Given the lower oil price environment, we have held salaries flat for our NEOs and other senior executives since 2014.
Name | Salary | |||||||||||
2016 | 2015 | % Increase 2015-2016 | ||||||||||
Hess, John B. CEO | $1,500,000 | $1,500,000 | 0.0 | % | ||||||||
Hill, Gregory P. COO & President of E&P | $1,100,000 | $1,100,000 | 0.0 | % | ||||||||
Goodell, Timothy B. SVP, General Counsel & Corporate Secretary | $ 750,000 | $ 750,000 | 0.0 | % | ||||||||
Rielly, John P SVP & Chief Financial Officer | $ 775,000 | $ 775,000 | 0.0 | % | ||||||||
Turner, Michael R. SVP, Global Production | $ 575,000 | $ 575,000 | 0.0 | % |
Annual Incentive Plan (“AIP”). We establish an annual incentive target for each executive officer based upon his or her position within the company, corresponding responsibilities and competitive annual incentive opportunity for similar positions in other companies. Payouts are in cash and may range from 0% to 200% of the target annual incentive opportunity based on actual enterprise and individual performance outcomes. Annual incentive targets for our NEOs and other senior executives were held flat for the last three years, except for Mr. Turner, whose annual incentive target for 2016 was increased from 50% to 60% of salary due to a significant increase in his job responsibilities.
Name | 2016 Annual Incentive Plan Opportunity ($) | |||||||
Minimum (0% of target) | Target (100% of target) | Maximum (200% of target) | ||||||
Hess, John B. CEO | $0 | $2,250,000 (150% of salary) | $4,500,000 | |||||
Hill, Gregory P. COO & President of E&P | $0 | $1,430,000 (130% of salary) | $2,860,000 | |||||
Goodell, Timothy B. SVP, General Counsel & Corporate Secretary | $0 | $700,000 (93% of salary) | $1,400,000 | |||||
Rielly, John P. SVP & Chief Financial Officer | $0 | $700,000 (90% of salary) | $1,400,000 | |||||
Turner, Michael R. SVP, Global Production | $0 | $345,000 (60% of salary) | $690,000 |
2016 AIP Design. The AIP payout for executive officers is primarily determined based on enterprise performance results that align with the company’s business strategy.
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The enterprise metrics are selected each year to reflect the core operating functions of our management team through the business cycle, and approved by the committee. Payouts under the AIP depend on enterprise performance results, and payouts can range from 0% to 175% of target. An individual performance multiplier can reduce the annual incentive payout down to zero or increase it by up to 25% of target based on actual individual performance results measured against pre-defined individual performance goals. There will be no payout associated with an enterprise metric if the threshold level for the metric is not achieved. The payout is capped at 200% of the target award.
Illustration of 2016 AIP Design
Actual Cash Incentive Awards. The following table shows actual performance as a percent of target based on the 2016 results for each component of the AIP, and the actual cash incentive award for each NEO. The following discussion explains how the payouts for each component were determined.
Name | 2016 Target Cash Incentive Opportunity | X 2016 Enterprise | X 2016 Individual | = Combined | 2016 Actual Incentive | |||||
Hess, John B. CEO | $2,250,000 | 93.5% | No adjustment | $2,103,800 | ||||||
Hill, Gregory P. COO & President of E&P | $1,430,000 | 93.5% | No adjustment | $1,337,100 | ||||||
Goodell, Timothy B. SVP, General Counsel & Corporate Secretary | $700,000 | 93.5% | No adjustment | $654,500 | ||||||
Rielly, John P. SVP & Chief Financial Officer | $700,000 | 93.5% | No adjustment | $654,500 | ||||||
Turner, Michael R. SVP, Global Production | $345,000 | 93.5% | No adjustment | $322,600 |
2016 Enterprise Performance Metrics. The following table details our 2016 goals for enterprise performance metrics and actual results.
2016 Metric | Rationale for Use | 2016 Threshold /Target/ | 2016 Result | Metric Payout | ||||||
Production | • Aligned to growth • Primary output of E&P investments | 330/340/350 (MBOEPD) | 321 | 0 | % | |||||
Environment, Health & Safety (4 measures) | • Protects employees, contractors, communities, reputation and ensures safe operations | Varies by measure(1) | 147 | % | ||||||
Capital and Exploratory Spend | • Aligned to sustainability and profitability | $2,740/$2,600/$2,465 ($MM) | $2,154 | 175 | % | |||||
Controllable Operated Cash Costs | • Management of expenses to maximize cash margin • Controllable component of cash margin | $1,625/$1,545/$1,465 ($MM) | $1,620 | 29 | % | |||||
Cash Return on Capital Employed | • Measure company’s use of capital | 2/5/8 (%) | 3.6% | 58 | % | |||||
Exploration Resource Additions | • Aligned to sustainability • Aligned to growth | 50%/Budget/200%(2) | Maximum | 175 | % | |||||
(1) Includes 4 metrics (equally weighted): Integrity Critical Equipment (ICE) performance standard implementation, high potential incident rate for safety and environmental and asset integrity assessments. (2) Accounting for a target weighting of 10% of the overall enterprise metrics, target performance goal reflects risked, net entitlement volumes for wells drilled in 2016. Performance above target required exceptional results and caused a payout above target. | Total: | 93.5 | % |
Assessment of Individual Performance. We assess individual performance based on goals set at the beginning of each year, specific to each NEO. Following year end, achievement of these pre-defined individual goals is assessed. The CEO conducts performance reviews for the other NEOs and makes compensation recommendations to the committee based on these reviews, with the committee making the final determination. The committee reviews the CEO’s attainment of his individual performance objectives. This individual performance assessment for each NEO determines the modifier used (if any) to influence the final payout of their annual incentive award. This review can also influence the grant date value of LTI compensation and base salary adjustments for the subsequent year. The target LTI value for any NEO can be adjusted down to zero or increased by up to +25%, given the result of each individual performance assessment.
In March 2016, the committee approved the individual objectives for our CEO and for other NEOs. None of the objectives had any specific weighting and are intended to be used together with other information the committee determines relevant to develop a holistic evaluation of individual performance.
In the first quarter of 2017, the committee evaluated 2016 performance for each NEO against, among other factors, the approved individual objectives. For Mr. Hess, the committee reviewed and considered his 2016 performance self-assessment. For each of the other NEOs, the
committee reviewed their respective 2016 performance self-assessments, and considered Mr. Hess’ recommendation and summary of each other NEO’s performance.
Specific items considered by the committee in its assessment of individual performance of our CEO are outlined below. After evaluating Mr. Hess’ performance against these criteria, the committee concluded that his 2016 performance met or exceeded expectations.
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Messrs. Hill, Goodell, Rielly and Turner contributed to the positive outcomes listed above. In addition, specific to each individual, the committee considered, among other things, the items listed below for each individual, as well as input from the CEO and other members of the board of directors.
Mr. Hill delivered key business targets and major milestones set forth in his performance goals. He oversaw the changes to our portfolio strategy given the low price environment, stewarded the recent organizational restructuring, achieved significant cost reductions across multiple areas, and championed improvements in safety. Mr. Hill was also instrumental in achieving our reported exploration successes in Guyana and represented the company at various investor and industry conferences.
Mr. Goodell delivered key business targets as set forth in his performance goals. He oversaw the legal function’s preparation for the successful equity and debt refinancing transaction, assisted with the cost reduction efforts and organizational restructuring and oversaw the company’s legal, compliance, governance, government relations, communications and community relations activities. Mr. Goodell is a key advisor on the initial public offering of the MLP and is responsible for our legal strategy regarding compliance, governance and litigation matters.
Mr. Rielly delivered key business targets as set forth in his performance goals. He played a key role in our successful equity issuance and debt refinancing transactions which enhanced our balance sheet strength and reduced refinancing risk. He continued to advance the MLP’s organizational capability and business structure in preparation for its initial public offering. He worked extensively on our cost reduction efforts, strengthened our talent capability and participated in our investor marketing efforts.
Mr. Turner delivered key business targets as set forth in his performance goals. He assumed the role of Senior Vice President, Global Production with responsibility for all onshore and offshore operations globally. He restructured his organization to achieve synergies across the assets and achieved milestone performance in the areas of safety, environment and key operational measures.
After reviewing the 2016 pre-defined individual performance goals and considering the current low oil and gas price environment, the committee determined to make no individual adjustment to annual incentive payments for any of the NEOs. The committee determined this action was appropriate despite the company having a strong performance year and each individual meeting individual performance expectations.
LTI Program Structure. Long-term Incentive (“LTI”) compensation is an important tool to drive behavior that supports our long-term business strategy goals. LTI compensation is also an important retention tool and aligns employees with stockholder interests. As a result, LTI compensation represents the largest portion of each executive officer’s target total direct compensation package. For 2016, the committee considered stockholder feedback, the typical time horizons of investment decisions for Hess’ business and industry, the current commodity price environment, the current performance metric for PSUs and market practice and determined that an emphasis on performance-based LTI is preferred. As a result, the committee approved changes to the long term incentive mix for Mr. Hess to eliminate restricted stock and link 100% of Mr. Hess’ target LTI compensation to performance.
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For 2016, 70% of Mr. Hess’ target LTI award was in the form of PSUs and 30% in the form of stock options. The committee determined to maintain the long-term incentive mix for the company’s other NEOs for 2016. For such NEOs, 80% of the target LTI compensation will be performance-contingent, with 60% in the form of PSUs, 20% in the form of stock options and the remaining 20% in the form of restricted stock. Payout of PSUs is contingent upon the company’s TSR compared with that of our peer companies, identified below, over a three-year period. In addition, our TSR must be positive during the three-year performance period for payout to exceed target, even if the company outperforms peers. Use of stock options, which remain exercisable for ten years, is supported by the company’s capital intensive industry, where the
time horizon for investment decisions often extends over many years. Stock options, which only provide value upon absolute stock price appreciation, also reinforce a balance between relative and absolute stock price performance goals, given PSU payout is primarily based on relative TSR. Restricted stock promotes retention and aligns long-term interests of employees and stockholders.
2016 Grant Levels.In light of the commodity price environment, the committee reduced grant date values of long term incentive awards to NEOs by 15% compared to 2015.
Timing of LTI Awards. In general, awards of restricted stock, stock options and performance share units to the NEOs are made in early March after our financial statements have been audited by our independent public accountants. However, the committee retains discretion to vary the timing of awards as it deems appropriate.
Terms of LTI Awards. Restricted stock awards vest three years from the date of grant. Stock options vest ratably over a three-year period and remain exercisable until ten years after the date of grant. PSUs, if earned, vest after the three-year performance period. We believe these vesting periods are appropriate and are generally consistent with market practice. Generally, all our awards are subject to continued employment.
Shares of restricted stock are entitled to dividend equivalents if and when paid on shares of common stock. Dividends accrued on shares of restricted stock are paid upon vesting. To the extent earned, performance share units will be paid in shares of common stock which will vest and be issued following the end of the performance period. Dividend equivalents for PSUs will only be paid out on earned PSUs, after the performance period.
Value of LTI Awards. We aim to provide long-term awards such that together with total cash compensation, target total direct compensation is within a competitive range of market median. Compensation is intended to vary based on company and individual performance outcomes. The committee bases individual award levels on comparative market data for the executive’s position, award levels of comparably-situated executives, and an assessment of individual potential and performance. In making awards to any individual, the committee does not consider his or her gains made, or failure to achieve gains, on prior restricted stock, stock option or performance share unit awards.
The chart below reflects the payout matrix for the 2016 PSU awards. In defining the PSU payout schedule, the following guiding principles were used: for maximum payout, performance must be approximately top 15% versus our peers; for target payout, performance must exceed median; for threshold payout, approximately 25th percentile must be achieved and no payout is earned for performance below 25th percentile. In addition, as described above, payout can only exceed target if our TSR during the performance measurement period is positive.
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The committee reviews compensation data from a comparative group of oil and gas companies to ensure our compensation and benefit programs are competitive within our industry. For 2016, our peer group remained the same and consisted of 12 companies, considering Hess’ relative size and business strategy.
As discussed above, we generally target total direct compensation (salary, annual incentive and long-term incentives) within a competitive range of market median. Overall, our review found that target total direct compensation of our NEOs was aligned with our executive compensation philosophy.
Process for Determining Compensation and Role of Compensation Consultants
The committee has exclusive authority for approving the compensation of the CEO and the other NEOs. Human resources management, acting under the supervision of the CEO, develops compensation recommendations for all officers and employees, including the NEOs, in accordance with the compensation philosophy and policies more fully described elsewhere in this CD&A.
To assist in its review of the compensation recommendations, in 2016 the committee directly engaged the firm Semler Brossy Consulting Group LLC (“Semler Brossy”) as its independent compensation consultant. Semler Brossy reported exclusively to the committee, which has sole authority to engage, dismiss and approve the terms of engagement of its consultant. During 2016, Semler Brossy did not provide any additional services to the company. The committee assessed the independence of Semler Brossy pursuant to SEC and NYSE rules, and concluded that no conflict of interest concerns exist.
The compensation consultant’s principal responsibility is to advise the committee on compensation recommendations for the NEOs, as well as on general matters relating to executive
compensation strategy and programs. The CEO meets with the committee and the compensation consultant to discuss performance objectives and review compensation recommendations for executive officers directly reporting to him, including the other NEOs. Thereafter, the committee meets privately with the independent compensation consultant to review the compensation recommendations. Final decisions on compensation for the NEOs are made solely by the committee.
Other Benefits. We have adopted certain broad-based employee benefit plans in which executive officers are permitted to participate on the same terms as other eligible employees of the company, subject to applicable limits imposed on contributions and benefits under applicable law. Our objective is that the value of these benefits be competitive with what is offered by companies in our peer group. In addition to group life insurance and health and welfare plans, we have a savings plan under which participants can elect to invest (subject to contribution limits imposed by law) up to 25% of pre-tax salary in a variety of funds, one of which invests in our common stock, and the company provides matching contributions up to approximately 8% of pre-tax salary for each participant, which are invested at the discretion of the participant.
Pension Benefits. As explained elsewhere in this proxy statement, all of our employees hired prior to January 1, 2017 are eligible for both a qualified defined benefit pension plan and a non-qualified supplemental plan (the restoration plan referred to in the Pension Benefits table) that provides only the benefits that would otherwise be paid to participants under the qualified pension plan but for limitations imposed by the Internal Revenue Code (the “Code”). The pension program closed to new hires as of January 1, 2017. While benefits from the qualified pension plan are payable as monthly annuities beginning at retirement, benefits from the restoration plan are payable in a single lump sum at first retirement eligibility, but no earlier than six months following termination of employment. The value of the lump sum payment is determined by the benefit formula and various assumptions, including the interest rate which is used to determine the equivalent present value of the amount that would be payable monthly if the restoration plan paid annuities.
Prior to 2010, the committee granted additional years of credited service under our pension restoration plan to Messrs. Hill and Rielly as part of the compensation packages necessary to recruit them. In 2009, the committee gave Mr. Hill credit for ten years of service with his prior employer, upon completion of five years of service with the company. Mr. Hill worked for over 25 years with Royal Dutch Shell plc and its affiliates, most recently in senior executive positions. This agreement was intended to compensate Mr. Hill for the difference between the pension benefits he would have received from his prior employer had he retired from his prior employment at age 60 and the pension benefits he would have received, absent such credited service, under the company’s pension plans for his retirement at the same age. The additional years of service for Mr. Rielly are equal to his service with his prior employer, and his supplemental benefits are offset by his pension benefits from his prior employer. Mr. Rielly had more than 16 years of experience with Ernst & Young LLP. He had a successful career at his prior employer and would have continued to accrue years of service under the pension plan of his prior employer. Again, the committee believed that an award of credited service was necessary to
compensate this executive for the loss of pension benefits and to induce him to join the company. In addition, Mr. Turner was granted an additional $1,850,000 lump sum in the pension restoration plan conditional on his reaching age 60 at retirement. This agreement was intended to compensate Mr. Turner for the difference in pension benefits at retirement under the plans of his prior employer, Royal Dutch Shell, and the company’s plans. In the event that the company initiates a termination of employment (other than for cause) prior to that time, a prorated portion of the payment would be due.
Perquisites. The company did not provide perquisites or personal benefits valued at $10,000 or more to any of our NEOs in 2016. While we offer a very limited amount of perquisites and other personal benefits to our NEOs, perquisites are not a material part of our compensation program. The committee periodically reviews the levels of perquisites and other personal benefits provided to our NEOs.
Management Stock Ownership Guidelines. In order to further align the interests of senior management and stockholders, we maintain stock ownership guidelines for corporate officers. The guidelines provide that each corporate officer should attain a specified level of ownership of shares of the company’s common stock equal in value to a multiple of the their base salary within five years of the later of the date of adoption of the guidelines and the officer’s first election to his or her role.
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Our NEOs maintain significant ownership in Hess stock. Mr. Hess, our CEO, beneficially owns approximately 11.31% of our outstanding shares, and among the other NEOs, on average, ownership exceeds seven times base salary. This reflects significant alignment of interests between our NEOs and our stockholders. Currently, shares owned outright by an executive, restricted stock and stock held in an executive’s savings plan account are counted for purposes of determining stock ownership levels. Stock options and unvested performance share units are not counted.
Anti-hedging and Anti-pledging Policies. We do not permit directors or executive officers to trade in equity derivative instruments in order to hedge the economic risks of holding the company’s stock. The purpose of these guidelines is to align the interests, including the economic risk of ownership, of directors, management and stockholders. In addition, we do not permit our executives to pledge shares of company stock in which they have a financial interest.
Recoupment (“Clawback”) Policy. In the event that the company is required to prepare an accounting restatement due to the material noncompliance of the company with any financial reporting requirement under U.S. securities laws, the company has the right to recover from any current or former executive officer (not only NEOs) of the company who received incentive-based compensation (including stock options awarded as compensation) during the three-year
period preceding the date on which the company is required to prepare an accounting restatement, based on the erroneous data, in excess of what would have been paid to the executive officer under the accounting restatement. The committee has full authority and discretion to administer this policy and all determinations of the committee are final and binding. This policy operates in addition to any compensation recoupment provided for by law or by the company’s Amended and Restated 2008 Long-Term Incentive Plan, or the proposed 2017 Long-Term Incentive Plan, which will replace the existing plan subject to stockholder approval. The material terms of the 2017 plan are described under “Proposal 5: Approval of the 2017 Long-Term Incentive Plan” on page 61. Once final rules are effective regarding clawback requirements under the Dodd-Frank Act, the company intends to review its compensation recoupment policy and, if necessary, amend such policy to comply with the new mandates.
In addition, in the event of misconduct by an employee that results in material noncompliance with financial reporting requirements, we reserve the right to take all appropriate action to remedy the misconduct, discipline such officer or employee and prevent its recurrence, including (i) termination of employment of such officer or employee and forfeiture of outstanding equity awards, (ii) commencing an action for breach of fiduciary duty and/or (iii) seeking reimbursement of any compensation paid in excess of that which would have been paid in the absence of such noncompliance, either by legal action or by offsetting other amounts owed by the company to such officer or employee to the extent permissible.
Change in Control Agreements. As explained in greater detail elsewhere in this proxy statement, we have change in control agreements with certain executives, including our NEOs, that provide for a lump sum cash payment equal to a multiple of the executive’s compensation, as well as other benefits, if (1) there is a change in control, as defined in the agreements, and (2) the executive is actually or constructively terminated within 24 months following a change in control (“double-trigger”). In view of continuing consolidation within the oil and gas industry, we believe these agreements are necessary to remain competitive with the overall compensation packages afforded by companies in our peer group. We also believe these agreements work to provide security to our executives, many of whom would have key roles in negotiating and implementing a potential change in control transaction, and further align their interests with the best long-term interests of stockholders. In 2010, the committee decided to eliminate “golden parachute” excise tax gross-up provisions from any such agreements entered into in the future. As a result, our change in control agreement with Mr. Turner, which was entered into during 2015, does not contain a tax gross up provision.
Tax Deductibility of Compensation.Tax rules under Section 162(m) of the Code generally limit the deductibility of compensation paid to our NEOs (excluding the CFO) to $1 million during any fiscal year unless such compensation is “performance-based.” In general, the company intends to structure its incentive compensation arrangements in a manner that would comply with these tax rules. The committee reserves the right to pay compensation that may exceed the limits on tax deductibility or not satisfy the performance-based award exception, and therefore would not be deductible, if it determines it is in our and our stockholders’ best interests. Not all amounts paid under our compensation programs necessarily qualify for deductibility. Cash salary in excess of $1 million is not exempt from the limitation, and therefore is not deductible. The tax deductibility of other components of compensation, including the taxable
value of executive benefits and perquisites, is potentially limited under current tax rules. In addition, despite the committee’s efforts to structure incentive compensation arrangements in a manner intended to be exempt from Section 162(m) and therefore not subject to its deduction limits, no assurance can be given that the requirements of Section 162(m) will in fact be satisfied.
In 2016, stockholders approved a performance incentive plan for senior officers designed to permit the company to award cash incentive compensation and restricted or deferred stock awards. The plan was designed with the intention that cash incentive compensation and restricted or deferred stock awarded pursuant to the plan will be qualified performance-based compensation and deductible without regard to the limitations otherwise imposed by Section 162(m). The plan is intended to condition and limit participants’ actual awards based on the performance of the company, not to increase awards above the levels that the committee would otherwise approve. Pursuant to current tax rules, the material terms, including the performance goals under the plan, must be approved by stockholders every five years to preserve the deductibility of such compensation under Section 162(m).
Accounting Implications. In designing our compensation and benefit programs, the committee reviews and considers the accounting implications of its decisions, including the accounting treatment of amounts awarded or paid to our executives.
The compensation and management development committee of the board of directors of the company has reviewed and discussed the Compensation Discussion and Analysis section with management, and based on this review and discussion, the compensation and management development committee recommended to the board of directors that the Compensation Discussion and Analysis section be included in this proxy statement and incorporated by reference into the 2016 annual report on Form 10-K.
Compensation Committee Members:
Risa Lavizzo-Mourey, Chair
Terrence Checki
Name | Total number of shares beneficially owned and nature of beneficial ownership(a) | Percent of outstanding shares of common stock owned | Of total number of shares beneficially owned, number of option shares | ||||||||||||
Rodney F. Chase |
| 55,186 |
| — |
| — | |||||||||
Terrence J. Checki |
| 17,724 |
| — |
| — | |||||||||
Leonard S. Coleman |
| 11,181 |
| — |
| — | |||||||||
Timothy B. Goodell |
| 289,346 |
| — |
| 179,804 | |||||||||
John B. Hess |
| 35,381,405 | (b) |
| 11.64 |
| 929,022 | ||||||||
Gregory P. Hill |
| 416,461 |
| — |
| 322,801 | |||||||||
Edith E. Holiday |
| 53,279 |
| — |
| — | |||||||||
RisaLavizzo-Mourey |
| 42,888 |
| — |
| — | |||||||||
Marc S. Lipschultz |
| 10,332 |
| — |
| — | |||||||||
David McManus |
| 29,678 | — | — | |||||||||||
Kevin O. Meyers | 26,809 | — | — | ||||||||||||
James H. Quigley | 21,139 | — | — | ||||||||||||
Fredric G. Reynolds | 33,420 | — | — | ||||||||||||
John P. Rielly | 406,693 | — | 179,804 | ||||||||||||
William G. Schrader | 22,186 | — | — | ||||||||||||
Michael R. Turner | 230,134 | — | 145,712 | ||||||||||||
All directors and executive officers as a group (19 persons) | 37,281,056 | 12.22 | 1,891,030 |
(a) | These figures include 64,577 shares vested in the name of Mr. Hess, 4,610 shares vested in the name of Mr. Rielly and 69,187 shares vested for all executive officers and directors as a group under the employees’ savings plan as to which these individuals and the group have voting and dispositive power. These amounts also include 15,164 shares held in escrow under Hess Corporation’s long-term incentive plans for Mr. Goodell, 35,824 shares held in escrow under these plans for Mr. Hill, 15,164 shares held in escrow under these plans for Mr. Rielly, 30,315 shares held in escrow under these plans for Mr. Turner, and 151,022 shares held in escrow under these plans for all executive officers and directors as a group. As to these shares, these individuals and the group have voting power but not dispositive power. Holders of stock options do not have the right to vote or any other right of a stockholder with respect to shares of common stock underlying such options until they are exercised. |
(b) | See footnotes (b), (c), (d) and (e) to the table under the caption “Ownership of Voting Securities by Certain Beneficial Owners.” |
18 | 2019 PROXY STATEMENT |
Proposal 1: Election of Directors + Director Compensation
The following table shows compensation for services rendered by ournon-employee directors during 2018.
Name | Fees Earned or Paid in Cash ($) | Stock Awards(1) ($) | All other ($) | Total ($) | ||||||||||||||||
Chase, Rodney F. |
| 150,000 |
| 175,013 |
| 14,775 |
| 339,787 | ||||||||||||
Checki, Terrence J. |
| 130,000 |
| 175,013 |
| 132 |
| 305,145 | ||||||||||||
Coleman, Leonard S. |
| 125,000 |
| 175,013 |
| 642 |
| 300,655 | ||||||||||||
Holiday, Edith E. |
| 130,000 |
| 175,013 |
| 132 |
| 305,145 | ||||||||||||
Lavizzo-Mourey, Risa |
| 130,000 |
| 175,013 |
| 132 |
| 305,145 | ||||||||||||
Lipschultz, Marc S. |
| 120,000 |
| 175,013 |
| 2,984 |
| 297,997 | ||||||||||||
McManus, David |
| 125,000 |
| 175,013 |
| 132 |
| 300,145 | ||||||||||||
Meyers, Kevin O. |
| 145,000 |
| 175,013 |
| 22,948 |
| 342,961 | ||||||||||||
Quigley, James H. |
| 310,000 |
| 175,013 |
| 22,948 |
| 507,961 | ||||||||||||
Reynolds, Fredric G. |
| 160,000 |
| 175,013 |
| 1,152 |
| 336,165 | ||||||||||||
Schrader, William G. |
| 140,000 |
| 175,013 |
| 1,152 |
| 316,165 |
(1) | Stock awards consist of 3,610 common shares granted tonon-employee directors on March 6, 2018, which were fully vested on the grant date. The aggregate grant date value for 2018 stock awards was computed in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718 (“ASC 718”). |
(2) | Amounts in this column consist of (i) annual life insurance premiums for each director, (ii) medical and dental benefits of $2,852 for Mr. Lipschultz, $14,643 for Mr. Chase and $22,816 for Dr. Meyers and Mr. Quigley and, (iii) dental benefits of $1,020 for Messrs. Reynolds and Schrader and $510 for Mr. Coleman. |
Each director who was not an employee of the company or any of its subsidiaries receives an annual cash retainer of $110,000 for membership on the board of directors and the independent chairman of the board receives an additional annual cash retainer of $185,000. Directors receive an additional annual cash fee of $25,000 for service on the audit committee and $10,000 for service on each of the other committees of the board of directors on which such director serves. The chairperson of the audit committee receives an annual cash fee of $30,000 and the chairperson of each of the other board committees receives an annual cash fee of $15,000. Directors serving on the EHS subcommittee receive an additional annual cash fee of $5,000 and the chairperson of the EHS subcommittee receives an annual cash fee of $10,000. In addition, eachnon-employee director receives shares of fully vested common stock constituting approximately $175,000 in value on the date of award. These awards are made from shares purchased by the company in the open market.
2019 PROXY STATEMENT | 19 |
Compensation Discussion and Analysis
This Compensation Discussion and Analysis (“CD&A”) explains the key elements of our executive compensation program and 2018 compensation decisions for our named executive officers (“NEOs”). The compensation and management development committee of our board of directors (the “compensation committee” or the “committee”), with input from its independent compensation consultant, oversees these programs and determines compensation for our NEOs.
For fiscal year 2018, our NEOs were:
John B. Hess, Chief Executive Officer (“CEO”)
Gregory P. Hill, Chief Operating Officer and President of Exploration and Production (“COO”)
Timothy B. Goodell, Senior Vice President, General Counsel and Corporate Secretary
John P. Rielly, Senior Vice President and Chief Financial Officer (“CFO”)
Michael R. Turner, Senior Vice President, Global Production
CD&A Table of Contents
20 | ||||
21 | ||||
21 | ||||
22 | ||||
23 | ||||
23 | ||||
24 | ||||
25 | ||||
Compensation Program Key Practices Promote Alignment with Stockholder Interests | 25 | |||
26 | ||||
26 | ||||
33 | ||||
Process for Determining Compensation and Role of Compensation Consultants | 34 | |||
34 | ||||
36 | ||||
36 |
Our compensation program is focused on building long-term value in an industry where oil and gas reserves are depleted annually and investments require significant capital and generally take several years before showing returns. It is critical we maintain and grow our resource base in a capital disciplined manner while ensuring our cost of production is low enough to generate returns for our stockholders in a low oil price environment. The board believes that our compensation program should set short-term targets that lead to long-term success and long-term targets based on shareholder returns, which we believe is the most effective measure of long-term value creation currently available. As a result, our annual incentive plan is designed to maintain an annual focus on management’sday-to-day efforts on outcomes largely within its control, with a strong emphasis on formulaic, metrics-driven enterprise results. Our long-term incentive plan focuses on longer term objectives, including stockholder value creation and alignment of management with stockholder interests.
20 | 2019 PROXY STATEMENT |
Executive Compensation + Compensation Discussion and Analysis
Compensation Actions in 2018. The compensation and management development committee took the following compensation actions in 2018:
• | We reduced the CEO long-term incentive (“LTI”) target by 21% from $9.5 million to $7.5 million to appropriately reflect a company of our size with a focused portfolio. |
• | We added a new cash flow metric to our Annual Incentive Plan (“AIP”), EBITDAX (Earnings Before Interest, Taxes, Depreciation, Amortization and Exploration Expenses), in response to stockholder feedback and to stress the importance of profitability and cash flow. |
Other Compensation Actions | Rationale | |||||||
Salary |
NEO salaries held flat | Reviewed annually and consider: external market, internal equity, compensation philosophy, job responsibilities, experience level, and individual performance | ||||||
AIP Targets | NEO AIP targets held flat | |||||||
2018 LTI Grants | CEO LTI target was reduced by 21%; NEO LTI targets held flat | |||||||
2018 AIP Enterprise Payout | 157.8% | Exceptional year operationally resulted in high final enterprise performance results of annual goals | ||||||
2016-18 PSU Payout | 75% | Final 3 year relative Total Shareholder Return (“TSR”) versus peers |
The committee follows a rigorous target setting process each year to ensure the enterprise performance metrics of our AIP include challenging, yet attainable, targets for executives. The committee also considers a number of factors when determining appropriate individual AIP target percentages, including the executive’s position within the company, his or her corresponding responsibilities, and the competitive annual incentive opportunity for similar positions in other companies in our industry. The committee will also assess the outcomes of the prior year in making its decision on the targets for the current year.
Summary of Business and Strategy.Hess Corporation is a global Exploration and Production (“E&P”) company engaged in the exploration, development, production, transportation, purchase and sale of crude oil, natural gas liquids, and natural gas. Our strategy is to deliver capital efficient growth in our resources and production – investing in the highest return projects to move down the cost curve and be profitable in a lower price environment with increasing cash generation and returns to stockholders. Consistent with this strategy, we divested higher-cost, mature assets over the last several years to build a balanced portfolio, and we will continue to maintain financial strength to fund our world class investment opportunities. We are at a transformative inflection point and expect to transition from an investment phase to a free cash generation phase beginning in 2020 with the startup of production offshore Guyana and continued production growth in the Bakken.
2019 PROXY STATEMENT | 21 |
Executive Compensation + Compensation Discussion and Analysis
Corporate Performance. In 2018, we had exceptional operational performance and exploration success at our key growth assets in Guyana and the Bakken. At the Stabroek Block offshore Guyana, we had five successful exploration wells in 2018, bringing the total number of discoveries to 10 at year-end 2018. We also continued to progress development in Guyana with the Liza Phase 1 development project on track for startup in early 2020, followed by startup of Liza Phase 2 by mid-2022, with the potential for at least five FPSOs producing more than 750,000 gross bopd by 2025. In the Bakken, net production increased approximately 10% compared to 2017 and is expected to grow to approximately 200,000 barrels of oil equivalent per day by 2021. We also increased our resource base while keeping our capital and exploratory spend within budget. Although our financial results continued to be impacted by volatile commodity prices, cash flow from operations improved which resulted in a smaller net loss in 2018 compared to 2017.
The enterprise performance metrics of our annual incentive program are designed to reward management for progress made against measurable goals that align with our overall company strategy. In 2018, the committee considered the progress made against each of these metrics in determining executive compensation payouts:
Our Strategy Our strategy is to: " Grow our resource base in a capital disciplined manner " Move down the cost curve so we are resilient in a low oil price environment u" Be cash generative at a $50 per barrel Brent oil price post-2020 Product1on Brought North Malay Basin online safely, on time and under budget; maintained strong production in Bakken Capital and Exploratory Spend Managed down capital while still delivering key milestone projects and achieving exploration success Cash Return on Capital Employed Net cash provided by operating activities increased 19% compared to 2016 Environment, Health & Safety Bolstered asset integrity, reduced Severe Environment Incident Rate by 38% and achieved lowest Total Recordable Incident Rate in a decade Exploration Resource Addition s 5 successful wells on the Stabroek Block in Guyana nearly tripled gross recoverable resources compared to year-end 2016 Controllable Operated Cash Costs Reduced cash operating costs by approximately $1.30 per barrel
Environment, Health and Safety | Production | Exploration Resource Additions | Capital and Exploratory Spend | Controllable Operated Cash Costs | Returns + Cash Flow | |||||||
Invest in high return, low cost opportunities | We believe that EHS practices create value for our stockholders and help position us to continuously improve business performance | |||||||||||
Build focused and balanced portfolio – robust at low prices | ||||||||||||
Maintain financial strength and manage for risk | ||||||||||||
Grow free cash flow in disciplined, reliable manner | ||||||||||||
Prioritize return of capital to stockholders |
22 | 2019 PROXY STATEMENT |
Executive Compensation + Compensation Discussion and Analysis
Summary of Hess’ 2018 Executive Compensation Program
(2) |
|
(3) | For more information on total compensation as calculated under SEC rules, see the notes accompanying the Summary Compensation Table on page 37. The amounts reported as realizable compensation differs substantially from the amounts reported as total compensation in the Summary Compensation Table and is not a substitute for those amounts. |
24 | 2019 PROXY STATEMENT |
Executive Compensation + Compensation Discussion and Analysis
Proactive Stockholder Engagement
At our 2018 annual meeting of stockholders, over 95% of shares present and entitled to vote supported Hess’ executive compensation program, consistent with stockholder support since 2014. In addition, we regularly engage with stockholders to ensure we fully understand the factors they consider to be the most important when evaluating our executive compensation program. During 2018, our CEO and other members of senior management, at times accompanied by our independent chairman, conducted a broad outreach effort to investors representing, in the aggregate, approximately 70% of our outstanding shares and held a successful investor day with over 450 participants, attending in person or via live webcast. The purpose of our stockholder engagement program is to discuss and solicit stockholder views on our strategy, business plan, corporate governance and other matters of concern, including executive compensation.
Over the last several years, the committee implemented a number of changes to our compensation program based on feedback we received and to align with the low oil price environment, our portfolio changes and our stockholders’ interests:
2014 • Increased performance- • Added cash return on | 2015 • Eliminated restricted | 2016 • Applied negative • Reduced grant date | 2017 • Reduced the size of | 2018 • Reduced CEO LTI • Added EBITDAX as |
Compensation Program Key Practices Promote Alignment with Stockholder Interests
Key executive compensation practices are summarized below. We believe these practices promote close alignment with the interests of our stockholders.
What We Do |
ü | Directly link pay to performance outcomes, operational results and stockholder returns | |
ü | Engage in ongoing dialogue with stockholders to incorporate feedback into our compensation programs | |
ü | Target total direct compensation (base salary / annual incentive / long-term incentives) within a competitive range of market median | |
ü | Use a structured approach to CEO performance evaluation and related compensation decisions | |
ü | Maintain a cap on CEO incentive compensation payments | |
ü | Emphasize a culture of safety (a weighted metric in the bonus program for all employees) | |
ü | Maintain stock ownership guidelines for senior executives | |
ü | Annual CEO performance evaluation led by the board |
ü | Design compensation plans with provisions to mitigate undue risk | |||
ü | Double-triggerchange-in-control severance benefits | |||
ü | Maintain a compensation clawback policy, which includes recoupment and forfeiture provisions | |||
ü | Have an anti-hedging policy and an anti-pledging policy for all executives | |||
ü | Employ best-practice share counting and review share utilization annually | |||
ü | Provide de minimis perquisites for executives | |||
ü | Offer executives the same health and welfare benefit and savings plans as other salaried employees | |||
ü | Devote significant time to management succession and leadership development efforts | |||
ü | Retain an independent compensation consultant to advise the committee |
What We Don’t Do |
| No employment contracts for NEOs | |||
| No payment of dividends or dividend equivalents on unearned restricted stock or PSUs | |||
| No excise taxgross-ups in newchange-in-control agreements since 2010 |
Nore-pricing of underwater stock options | ||||
No excessive severance orchange-in-control benefits |
2019 PROXY STATEMENT | 25 |
Executive Compensation + Compensation Discussion and Analysis
Compensation Objective and Philosophy
Compensation Objective. The objective of our executive compensation program is to attract and retain talented executives and motivate them to achieve our business goals through a combination of cash and stock-based compensation. The principal elements of an executive’s total compensation consist of base salary, annual incentive, and long-term incentives.
We are focused on building long-term value in an industry where investments require significant capital and generally take several years before showing returns. The board believes that the compensation program should set short-term targets that lead to long-term success and long-term targets based on total shareholder returns, which we believe to be the most effective measure of long-term value creation currently available.
We also review other elements of compensation, including retirement benefits, health and welfare plans and other benefits offered to employees generally in order to evaluate the entire compensation package offered to executives.
Compensation Philosophy. Our compensation program is designed to provide competitive pay to executives, reward for individual and company performance, and maintain a long-term orientation that aligns with stockholder interests. The annual incentive plan emphasizes formulaic, metrics-driven enterprise results with a focus on measures largely within management’s control that reflect the core operating functions throughout the business cycle. The long-term incentives balance absolute stock price performance and stock price performance relative to peers, and is designed to support our long-term business strategy, serve as a retention tool and align employees with stockholder interests.
Generally, we target total direct compensation (salary, annual incentive and long-term incentives) within a competitive range of market median. Sustained performance may be recognized in individual pay components, and pay will vary above or below target based primarily on actual enterprise performance and, to a lesser degree, individual performance. Variations in total direct compensation among the NEOs reflect differences in competitive pay for their respective positions as well as the size and complexity of the groups or functions they oversee, the performance of those groups or functions, and individual performance. The committee also considers market conditions in our industry when making compensation decisions.
2018 Total Direct Compensation
We structure NEO total direct compensation so that the majority is delivered in the form of long-term incentive awards in order to provide incentives to work toward growth of long-term profitability that will enhance stockholder returns. We also structure NEOs’ cash compensation so that a significant portion is at risk under the company’s annual incentive plan, payable primarily based on enterprise results, and to a lesser degree individual performance. We further detail each component of total direct compensation below.
Base Salary. We review base salaries annually, but we do not necessarily make adjustments to NEO salaries each year. In determining base salary levels for NEOs, the committee considers the following qualitative and quantitative factors: job level and responsibilities, relevant experience, individual performance, recent corporate and business unit performance, internal equity and our objective of paying competitive total direct compensation if performance is met.
From time to time base salaries may be adjusted other than as a result of an annual review in order to address competitive pressures or in connection with a promotion. We have held salaries flat for our NEOs in 2018.
Estimated Future Payouts Under Non-Equity Incentive Plan Awards(1) | Estimated Future Payouts Under Awards(2) | All Other (j) | All Other (k) | Exercise (l) | Grant Date (m) | |||||||||||||||||||||||||||||||||||||||
Name (a) | Award Type (b) | Grant (c) | Threshold (d) | Target (e) | Maximum (f) | Threshold (g) | Target (h) | Maximum (i) | ||||||||||||||||||||||||||||||||||||
Hess, John B. | Performance Shares | 01-Mar-16 | 55,945 | 111,889 | 223,778 | 5,655,989 | ||||||||||||||||||||||||||||||||||||||
Stock Options | 01-Mar-16 | 213,945 | �� | 44.31 | 2,423,997 | |||||||||||||||||||||||||||||||||||||||
AIP | 1,125,000 | 2,250,000 | 3,937,500 | |||||||||||||||||||||||||||||||||||||||||
Hill, Gregory P. | Performance Shares | 01-Mar-16 | 23,836 | 47,671 | 95,342 | 2,409,769 | ||||||||||||||||||||||||||||||||||||||
Restricted Stock | 01-Mar-16 | 18,128 | 803,252 | |||||||||||||||||||||||||||||||||||||||||
Stock Options | 01-Mar-16 | 70,896 | 44.31 | 803,252 | ||||||||||||||||||||||||||||||||||||||||
AIP | 715,000 | 1,430,000 | 2,502,500 | |||||||||||||||||||||||||||||||||||||||||
Goodell, Timothy B. | Performance Shares | 01-Mar-16 | 10,089 | 20,178 | 40,356 | 1,019,998 | ||||||||||||||||||||||||||||||||||||||
Restricted Stock | 01-Mar-16 | 7,673 | 339,991 | |||||||||||||||||||||||||||||||||||||||||
Stock Options | 01-Mar-16 | 30,009 | 44.31 | 340,002 | ||||||||||||||||||||||||||||||||||||||||
AIP | 350,000 | 700,000 | 1,225,000 | |||||||||||||||||||||||||||||||||||||||||
Rielly, John P. | Performance Shares | 01-Mar-16 | 10,089 | 20,178 | 40,356 | 1,019,998 | ||||||||||||||||||||||||||||||||||||||
Restricted Stock | 01-Mar-16 | 7,673 | 339,991 | |||||||||||||||||||||||||||||||||||||||||
Stock Options | 01-Mar-16 | 30,009 | 44.31 | 340,002 | ||||||||||||||||||||||||||||||||||||||||
AIP | 350,000 | 700,000 | 1,225,000 | |||||||||||||||||||||||||||||||||||||||||
Turner, Michael R. | Performance Shares | 01-Mar-16 | 6,306 | 12,611 | 25,222 | 637,486 | ||||||||||||||||||||||||||||||||||||||
Restricted Stock | 01-Mar-16 | 4,796 | 212,511 | |||||||||||||||||||||||||||||||||||||||||
Restricted Stock | 04-Aug-16 | 18,563 | 999,989 | |||||||||||||||||||||||||||||||||||||||||
Stock Options | 01-Mar-16 | 18,756 | 44.31 | 212,505 | ||||||||||||||||||||||||||||||||||||||||
AIP | 172,500 | 345,000 | 603,750 |
Executive Compensation + Compensation Discussion and Analysis
Annual Incentive Plan. We establish an annual incentive target for each executive officer based upon his or her position within the company, corresponding responsibilities and competitive annual incentive opportunity for similar positions in other companies in our industry. Payouts are in cash and may range from 0% to 200% of the target annual incentive opportunity based on actual enterprise and individual performance outcomes. Annual incentive target percentages for our NEOs and other senior executives have generally been held flat over the last two years.
2018 AIP Design. Our annual incentive program is designed to motivate and reward executives for achieving the key business objectives that drive Hess’ long-term value creation. In our industry, the macroeconomic environment and oil prices have a significant impact on our financial results and stock price performance. As a result, our AIP is designed to focus management’sday-to-day efforts on outcomes largely within its control. The AIP payout for executive officers is primarily determined based on enterprise performance results that align with the company’s business strategy. In 2018, we added EBITDAX (Earnings Before Interest, Taxes, Depreciation, Amortization and Exploration Expenses) as an additional metric to help drive the company’s financial performance and to improve profitability. The Board listened to stockholder input and determined that this metric helps emphasize the importance of making sound strategic decisions to become profitable, even in a volatile market.
As discussed above, we generally target total direct compensation (salary, annual incentive and long-term incentives) within a competitive range of market median. Overall, our review found that target total direct compensation of our NEOs was aligned with our executive compensation philosophy.
Executive Compensation + Compensation Discussion and Analysis Process for Determining Compensation and Role of Compensation Consultants The committee has exclusive authority for approving the compensation of the CEO and the other NEOs. Human resources management, acting under the supervision of the CEO, develops compensation recommendations for all officers and employees, including the NEOs, in accordance with the compensation philosophy and policies more fully described elsewhere in this CD&A. To assist in its review of the compensation recommendations, the committee directly engaged the firm Semler Brossy Consulting Group LLC (“Semler Brossy”) as its independent compensation consultant. Semler Brossy reported exclusively to the committee, which has sole authority to engage, dismiss and approve the terms of engagement of its consultant. During 2018, Semler Brossy did not provide any additional services to the company. The committee assessed the independence of Semler Brossy pursuant to SEC and NYSE rules, and concluded that no conflict of interest concerns exist. The compensation consultant’s principal responsibility is to advise the committee on compensation recommendations for the NEOs, as well as on general matters relating to executive compensation strategy and programs. The CEO meets with the committee and the compensation consultant to discuss performance objectives and review compensation recommendations for executive officers directly reporting to him, including the other NEOs. Thereafter, the committee meets privately with the independent compensation consultant to review the compensation recommendations. Final decisions on compensation for the NEOs are made solely by the committee. Other Benefits. We have adopted certain broad-based employee benefit plans in which executive officers are permitted to participate on the same terms as other eligible employees of the company, subject to applicable limits imposed on contributions and benefits under applicable law. Our objective is that the value of these benefits be competitive with what is offered by companies in our peer group. In addition to group life insurance and health and welfare plans, we have a savings plan under which participants can elect to invest (subject to contribution limits imposed by law) up to 50% ofpre-tax orafter-tax salary in a variety of funds, one of which invests in our common stock, and the company provides matching contributions up to approximately 6% ofpre-tax salary for each participant, which are invested at the discretion of the participant. Pension Benefits. As explained elsewhere in this proxy statement, all of our employees hired prior to January 1, 2017 are eligible for both a qualified defined benefit pension plan and anon-qualified supplemental plan (the restoration plan referred to in the Pension Benefits table) that provides only the benefits that would otherwise be paid to participants under the qualified pension plan but for limitations imposed by the Internal Revenue Code (the “Code”). On January 1, 2017, we closed the existing final average pay formula pension plan to new employees, and introduced a cash balance pension plan for new hires which has a restoration component. Employees are eligible to participate in our pension plans after one year of service and vest in the final average pay retirement benefit after five years of service. The vesting requirement for the cash balance plan is three years. All of our NEOs are participants in the final average pay formula pension plan. While benefits from the qualified final average pay formula pension plan are payable as monthly annuities beginning at retirement, benefits from the restoration plan are payable in a single lump sum at first retirement eligibility, but no earlier than six months following termination of employment. The value of the lump sum payment is determined by the benefit formula and various assumptions, including the interest rate which is used to determine the equivalent present value of the amount that would be payable monthly if the restoration plan paid annuities. Benefits from the cash balance pension plan are payable as a lump sum or annuity, per the employee’s election. Prior to 2010, the committee granted additional years of credited service under our pension restoration plan to Messrs. Hill and Rielly as part of the compensation packages necessary to recruit them. In 2009, the committee gave Mr. Hill credit for ten years of service with his prior employer, upon completion of five years of service with the company. Mr. Hill worked for over 25 years with Royal Dutch Shell plc and its affiliates, most recently in senior executive positions. This agreement was intended to compensate Mr. Hill for the difference between the pension benefits he would have received from his prior employer had he retired from his prior employment at age 60 and the pension benefits he would have received, absent such credited service, under the company’s pension plans for his retirement at the same age. The additional years of service for Mr. Rielly are equal to his service with his prior employer, and his supplemental benefits are offset by his pension benefits from his prior employer. Mr. Rielly had more than 16 years of experience with Ernst & Young LLP. He had a successful career at his prior employer and would have continued to accrue years of service under the pension plan of his prior employer. Again, the committee
Executive Compensation + Compensation Discussion and Analysis believed that an award of credited service was necessary to compensate this executive for the loss of pension benefits and to induce him to join the company. In addition, Mr. Turner was granted an additional $1,850,000 lump sum in the pension restoration plan conditional on his reaching age 60 at retirement. This agreement was intended to compensate Mr. Turner for the difference in pension benefits at retirement under the plans of his prior employer, Royal Dutch Shell, and the company’s plans. In the event that the company initiates a termination of employment (other than for cause) prior to that time, a prorated portion of the payment would be due. Perquisites. The company did not provide perquisites or personal benefits valued at $10,000 or more to any of our NEOs in 2018. While we offer a very limited amount of perquisites and other personal benefits to our NEOs, perquisites are not a material part of our compensation program. The committee periodically reviews the levels of perquisites and other personal benefits provided to our NEOs. Management Stock Ownership Guidelines. In order to further align the interests of senior management and stockholders, we maintain stock ownership guidelines for corporate officers. The guidelines provide that each corporate officer should attain a specified level of ownership of shares of the company’s common stock equal in value to a multiple of the their base salary within five years of the later of the date of adoption of the guidelines and the officer’s first election to his or her role.
Our NEOs maintain significant ownership in Hess stock. Mr. Hess, our CEO, beneficially owns approximately 11.6% of our outstanding shares, and among the other NEOs, on average, ownership exceeds eight times base salary. This reflects significant alignment of interests between our NEOs and our stockholders. Currently, shares owned outright by an executive, restricted stock and stock held in an executive’s savings plan account are counted for purposes of determining stock ownership levels. Stock options and unvested performance share units are not counted. Anti-hedging and Anti-pledging Policies. We do not permit directors or executive officers to trade in equity derivative instruments in order to hedge the economic risks of holding the company’s stock. The purpose of these policies is to align the interests, including the economic risk of ownership, of directors, management and stockholders. In addition, we do not permit our executives to pledge shares of company stock in which they have a financial interest. Recoupment (“Clawback”) Policy. In the event that the company is required to prepare an accounting restatement due to the material noncompliance of the company with any financial reporting requirement under U.S. securities laws, the company has the right to recover from any current or former executive officer (not only NEOs) of the company who received incentive-based compensation (including stock options awarded as compensation) during the three-year period preceding the date on which the company is required to prepare an accounting restatement, based on the erroneous data, in excess of what would have been paid to the executive officer under the accounting restatement. The committee has full authority and discretion to administer this policy and all determinations of the committee are final and binding. This policy operates in addition to any compensation recoupment provided for by law or by the company’s long-term incentive plans. Once final rules are effective regarding clawback requirements under the Dodd-Frank Act, the company intends to review its compensation recoupment policy and, if necessary, amend such policy to comply with the new mandates. In addition, in the event of misconduct by an employee that results in material noncompliance with financial reporting requirements, we reserve the right to take all appropriate action to remedy the misconduct, discipline such officer or employee and prevent its recurrence, including (i) termination of employment of such officer or employee and forfeiture of outstanding equity awards, (ii) commencing an action for breach of fiduciary duty and/or (iii) seeking reimbursement of any compensation paid in excess of that which would have been paid in the absence of such noncompliance, either by legal action or by offsetting other amounts owed by the company to such officer or employee to the extent permissible.
Executive Compensation + Compensation Discussion and Analysis Change-in-Control Agreements. As explained in greater detail elsewhere in this proxy statement, we havechange-in-control agreements with certain executives, including our NEOs, that provide for a lump sum cash payment equal to a multiple of the executive’s compensation, as well as other benefits, if (1) there is a change in control, as defined in the agreements, and (2) the executive is actually or constructively terminated within 24 months following a change in control (“double-trigger”). We believe these agreements are necessary to remain competitive with the overall compensation packages afforded by companies in our peer group. We also believe these agreements work to provide security to our executives, many of whom would have key roles in negotiating and implementing a potentialchange-in-control transaction, and further align their interests with the best long-term interests of stockholders. In 2010, the committee decided to eliminate “golden parachute” excise taxgross-up provisions from any such agreements entered into in the future. As a result, ourchange-in-control agreement with Mr. Turner, which was entered into during 2015, does not contain a tax gross up provision. Tax Deductibility of Compensation.Section 162(m) of the Internal Revenue Code places a limit of $1 million per year on the amount of compensation paid to certain of our executive officers that the company may deduct from our federal income tax return for any single taxable year. There was an exception to the $1 million limitation for performance-based compensation meeting certain requirements. The material terms of our incentive plans that were previously approved by stockholders allowed us to grant certain cash incentive compensation and LTI awards that were designed to meet the definition of performance-based compensation which qualified for the exception to the $1 million deduction limit. The Tax Cuts and Jobs Act of 2017 repealed the performance-based compensation exception described in this paragraph. Following enactment of the Tax Cuts and Jobs Act of 2017, we generally expect that compensation paid to our CEO, CFO and other applicable Covered Employees in excess of $1 million will not be deductible, subject to a transition rule for compensation provided pursuant to a binding written contract in effect as of November 2, 2017 that is not materially modified after such date. To the extent applicable to our existing plans and previously granted awards, the company may avail itself of this transition rule. However, because of uncertainties as to the application and interpretation of the transition rule, no assurances can be given at this time that our existing plans and previously granted awards, even if in place on November 2, 2017, will meet the requirements of the transition rule. To maintain flexibility in compensating executive officers in a manner designed to promote varying corporate goals in the best interest of the company, the Committee does not limit its actions with respect to executive compensation to preserve deductibility under Section 162(m) if the Committee determines that doing so is in the best interests of the company. Accounting Implications. In designing our compensation and benefit programs, the committee reviews and considers the accounting implications of its decisions, including the accounting treatment of amounts awarded or paid to our executives. The compensation and management development committee of the board of directors of the company has reviewed and discussed the Compensation Discussion and Analysis section with management, and based on this review and discussion, the compensation and management development committee recommended to the board of directors that the Compensation Discussion and Analysis section be included in this proxy statement and incorporated by reference into the 2018 annual report onForm 10-K. Compensation Committee Members: RisaLavizzo-Mourey, Chair Terrence J. Checki Marc S. Lipschultz David McManus James H. Quigley Compensation Committee Interlocks and Insider Participation None of the current members of the compensation and management committee (whose names appear under “Compensation Committee Report”) is, or has ever been, an officer or employee of the company or any of its subsidiaries. In addition, during the last fiscal year, no executive officer of the company served as a member of the board of directors or the compensation committee of any other entity that has one or more executive officers serving on our board of directors or our compensation and management committee.
Executive Compensation + Summary Compensation Table The following table sets forth information regarding compensation paid to or accrued for the last three fiscal years to the CEO, the chief financial officer and the three other most highly compensated executive officers, for services in all capacities to the company and its subsidiaries.
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