UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
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Phillips 66
(Name of Registrant as Specified In Its Charter)
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Phillips 66 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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► As a company in a critical infrastructure sector, we continued providing energy to our communities where we live and work. We implemented procedures and put measures in place to keep our employees safe and our facilities on-line. We reconfigured work areas, provided protective equipment and put policies in place to support employees with underlying conditions or children at home, among others. We did this while achieving our best ever rate for personal safety at the Company. ► We took swift action to secure liquidity and maintain our dividend. We suspended our share repurchases, identified projects that could be deferred while still meeting our commitment to personal and process safety, and implemented measures to reduce our controllable costs.
► We ► We added two new directors to our Board. We continued our Board refreshment, adding two new directors in 2020 who bring diverse experience to our Board. The addition of
Thank you for your continued support and investment in Phillips 66. In safety, honor and commitment, Greg C. Garland
We Work Together, We Get It Done
The 2021 Annual Meeting
The Company will provide the Notice of Internet Availability, electronic delivery of the proxy materials or mailing of
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PROXY SUMMARY
This summary highlights information contained elsewhere in this proxy statement. This summaryProxy Statement, but does not contain all of the information that you should consider, and youconsider. You should read the entire proxy statementProxy Statement before voting.you vote.
Voting Matters
YOUR COMPANY
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Your Company
Phillips 66 is a diversified energy manufacturing and logistics company. With a unique portfolio of assets and investments in the midstream, chemicals, refining, and marketing and specialties businesses, we process, transport, store and market fuels and products globally. At Phillips 66, we provide energy that improves lives and contributes to meeting the world’s growing energy needs. Affordable, reliable and abundant energy is essential to sustaining human health and well-being and improving the global standard of living. We believe climate change is a global issue that requires long-term commitment, action by every segment of society, technology and free-market solutions. We accept the climate challenge and are making investments that advance a lower carbon future. We are advancing climate solutions through our operating excellence and environmental stewardship.
Governance and Board Highlights
We recognize that strong corporate governance contributes to long-term shareholder value. We are committed to sound governance practices, including those described below.VOTING MATTERS
Proposals | Board Recommendation | |||||
| Election of | two director nominees |
(each nominee) | |||
Item 2 | Management proposal regarding annual election of directors | FOR | ||||
Item 3 | Ratification of the appointment of our independent registered public accounting firm | FOR | ||||
Item 4 | Approval, on an advisory basis, of compensation paid to our named executive officers | FOR | ||||
Items 5-6 | Two shareholder proposals, if properly presented | AGAINST |
CORPORATE GOVERNANCE HIGHLIGHTS
✔ Majority voting for directors ✔ Demonstrated commitment to Board refreshment ✔ Director retirement age policy of 75 ✔ Meaningful director and executive stock ownership guidelines ✔ Annual evaluation of the Board and committees ✔ Board level oversight of corporate culture and human capital management | ||||||
| ✔ Robust Lead Director duties ✔Clawback policy for | |||||
| ✔Commitment to diverse candidate pools | |||||
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| ✔Annual evaluation of CEO by independent directors |
SHAREHOLDER ENGAGEMENT
Ongoing engagement with our shareholders is important to us. We communicate with our shareholders through a variety of means, including meetings, investor presentations, our website, and publications we issue. As part of our engagement program, we reach out to shareholders for dialogue concerning their priorities – which in 2020 generally included environmental, human capital and Board governance matters. During 2020, we solicited feedback from investors representing approximately 48% of our outstanding shares and engaged with nearly 20 global institutional investors, representing over 39% of our outstanding shares. Our directors exhibit an effective mixLead Director and the Chair of diversity, experience and perspective:
2020 PROXY STATEMENT 1
PROXY SUMMARY
Snapshot of 2020 Director Nominees
The following table provides summary information about each director nominee. For more information about our directors, seePROPOSAL 1: ELECTION OF DIRECTORS.
Name | Director Since | Independent | Committee Memberships | Other Current Public Boards | ||||||||||||
AFC | HRCC | NGC | PPC | EC | ||||||||||||
Charles M. Holley
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Glenn F. Tilton
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Marna C. Whittington
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AFC = Audit and Finance Committee HRCC = Human Resources and Compensation Committee NGC = Nominating and Governance Committee PPC = Public Policy Committee EC = Executive Committee |
● = Member |
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2019 Performance Highlights
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Executive Compensation Highlights
PROXY SUMMARY |
our Public Policy and Sustainability Committee also have participated in our engagements with shareholders. More information about our engagement process can be found under CORPORATE RESPONSIBILITY.
BOARD HIGHLIGHTS
We currently have a classified Board, meaning our Board is divided into three classes of directors, with each class elected for a three-year term. This year, as we did in 2015, 2016 and 2018, we are submitting a proposal to shareholders to amend our organizational documents to declassify the Board over the next three years. If shareholders approve the proposal, beginning with the annual meeting in 2024, all directors will be elected annually. For more information, see PROPOSAL 2: MANAGEMENT PROPOSAL REGARDING THE ANNUAL ELECTION OF DIRECTORS.
Summarized information about our continuing directors and the nominees for election at this Annual Meeting is shown below. Earlier this year, Harold W. McGraw III and Victoria J. Tschinkel, each of whom had served on our Board since 2012, decided to retire in March and not stand for reelection at the Annual Meeting. As a result, Lisa A. Davis, who originally was appointed to the class of directors whose terms expire in 2023, will stand for election at this meeting in order to have the classes of directors as nearly equal as possible.
Current Nominees | Director Since | Independent | Committee Memberships | Other Public Boards | |||||
AFC | HRCC | NGC | PPSC | EC | |||||
Julie L. Bushman | 2020 | ✔ | l | l | 2 | ||||
Lisa A. Davis | 2020 | ✔ | l | l | 3 | ||||
Directors whose terms expire in 2022 | |||||||||
Greg C. Garland | 2012 | ![]() | 2 | ||||||
Gary K. Adams | 2016 | ✔ | l | l | 1 | ||||
John E. Lowe | 2012 | ✔ | ![]() | l | l | l | 2 | ||
Denise L. Ramos | 2016 | ✔ | l | l | ![]() | l | 2 | ||
Directors whose terms expire in 2023 | |||||||||
Charles M. Holley | 2019 | ✔ | l | l | 2 | ||||
Glenn F. Tilton | 2012 | ✔ | l | ![]() | l | l | 2 | ||
Marna C. Whittington | 2012 | ✔ | ![]() | l | l | l | 2 | ||
AFC = Audit and Finance Compensation HRCC = Human Resources and NGC = Nominating and Governance PPSC = Public Policy and Sustainability EC = Executive | l = Member | ![]() | |||||||
Our Board seeks to achieve a diverse and broadly inclusive membership. Our directors bring varying perspectives to the Board by virtue of their backgrounds and experiences. The Board views diversity in terms of skills, as well as gender, age, race, ethnicity, background, tenures, professional experience and perspectives. In late 2019, Charles Holley was appointed to the Board and in 2020, Julie Bushman and Lisa Davis were both appointed. We believe these new directors add to the breadth of experience and perspective of our Board. Our Nominating and Governance Committee is focused on Board refreshment and evaluates directors’ skills in the context of our Company’s evolving business and prioritizes diversity to ensure effective Board oversight. To more completely convey our Board’s composition, we have included a skills matrix under the INFORMATION REGARDING THE BOARD OF DIRECTORS section of this Proxy Statement that our Nominating and Governance Committee uses to review and identify the competencies of directors and composition of the Board as a whole.
2 PHILLIPS 66 PROXY STATEMENT 2021 |
PROXY SUMMARY |
8 of 9 directors are independent | Average tenure of 4 years | 45% gender diversity | Average age of 65 |
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2020 PERFORMANCE HIGHLIGHTS
Operating Excellence | Growth | Returns | Distributions | High-Performing Organization |
Company best and industry leading safety and environmental performance Advanced digital innovation across business segments | Gray Oak Pipeline and Sweeny Hub Phase 2 expansion completed Established Emerging Energy organization and announced Rodeo Renewed project | Generated over $2 billion of operating cash flow On target to achieve AdvantEdge 66 program value targets Expanded retail presence through West Coast joint venture | Maintained competitive dividend, distributing $1.6 billion in 2020 Preserved liquidity through cost reductions and suspension of share repurchases | Accelerated efforts to advance inclusion and diversity Supported our people and communities through volunteerism and financial assistance |
EXECUTIVE COMPENSATION HIGHLIGHTS
Our executive compensation programs are designed to pay for performance. We link compensation to Company performance and use metrics that we believe will providedrive long-term shareholder value. Additionally, wevalue and that are aligned with Company strategy. We also align the interests of our executives with our shareholders through our equity compensation program. Below is a summary of some of the compensation best practices we follow:compensation.
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2 2020 PROXY STATEMENT
PROXY SUMMARY
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Key Elements of Compensation Programs
We provide our named executive officers with short- and long-term compensation opportunities that encourage performance to increase stockholder value while avoiding excessive risk-taking. Our compensation plans tie a substantial portion of our named executive officers’ overall target compensation to the achievement of performance goals and include equity-based compensation that aligns our executives’ interests with our shareholders.
Compensation Mix
Our executives’ compensation includes base salary, an annual bonus opportunity under our Variable Compensation Incentive PlanProgram (“VCIP”), and equity-based compensation, comprised ofincluding stock options, restricted stock units (“RSUs”) and awards under our Performance Share Program (“PSP”). The illustrations below show the percentage each pay element comprises of our CEO and other named executive officers’ (“NEOs’”) target total direct compensation for 2020.
PHILLIPS 66 PROXY STATEMENT 2021 3 |
PROXY SUMMARY |
CEO Target Mix | Other NEOs Target Mix |
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Variable Compensation Incentive Plan
The VCIP program is designed to align annual bonus awards with shareholder interests and execution of our corporate strategy. Performance under the VCIP is based on both operational and financial metrics. In 2019,2020, 45% of VCIP iswas weighted to operational metrics (high-performing− operating excellence and high-performing organization and operating excellence)− and 55% iswas weighted to financial metrics (adjusted– adjusted EBITDA and adjusted controllable costs).costs. For 2021, the weighting has changed, and two new metrics were added – Low Carbon Priorities and Greenhouse Gas Priorities. These changes were made to reinforce our commitment to the energy transition and further align our compensation program with shareholder interests. More information can be found in the COMPENSATION DISCLOSURE AND ANALYSIS section of this Proxy Statement.
CORPORATE RESPONSIBILITY AND SUSTAINABILITY
2020 PROXY STATEMENT 3
PROXY SUMMARY
Long-Term Incentive Programs
Our long-term incentives include PSP awards, stock options and RSUs. We believe these equity-based awards, and the mix of awards, promote retention, drive behaviors and actions consistent with shareholder interests and are appropriate for the cyclical nature of our business.
Corporate Responsibility and Sustainability
Our vision is to provide energy in ways that improve lives, which we reinforce through our core companyCompany values of safety, honor and commitment. Operational, economic, social and environmental sustainability is at the heart of how we deliver on our vision. By maintaining strong operating excellence, we are committed to safety, reliability and environmental stewardship while protectingdelivering shareholder value.
We also are committed to achieving a high-performing organization that is focused on culture, inclusion and diversity, as well as building community through volunteerism, financial support, and engagement, including community awareness and education.
More information can be found in theCORPORATE RESPONSIBILITY AND SUSTAINABILITYsection of this proxy statement.Proxy Statement.
4 PHILLIPS 66 PROXY STATEMENT 2021 |
INFORMATION REGARDING THE BOARD OF DIRECTORS
4 2020 PROXY STATEMENT
Our Corporate Governance Guidelines contain director independence standards, which are consistent with the listing standards of the NYSE. These standards assist the Board in determining the independence of the Company's directors. The Board of Directors has affirmatively determined that each director, other than Mr. Garland, meets our independence standards. Mr. Garland is not considered independent because he is an executive officer of the Company.
In making independence determinations, the Board specifically considered the fact that many of our directors are directors of companies with which we may conduct business. Additionally, some of our directors may purchase products, such as gasoline from our retail sites, from the Company. In all cases, it was determined that there are no relationships or transactions that are material to the Company or the director and accordingly, there are no relationships that would affect the independence of any director other than Mr. Garland.
Executive Sessions of Independent Directors
The independent directors hold regularly scheduled executive sessions of the Board and its committees without Company management present. These executive sessions are chaired by the Lead Director at Board meetings or by the committee chairs at committee meetings.
PROPOSAL 1: ELECTION OF DIRECTORSBOARD LEADERSHIP STRUCTURE
Chairman and CEO Roles
The Board of Directors believes that currently, it is in the best interests of the Company and shareholders to combine the roles of Chairman and CEO. However, there is no Company policy regarding whether the roles should be combined or separated, and our Corporate Governance Guidelines state that the Board will retain flexibility and periodically consider whether the roles should be separated and, if so, the Chairman should be an independent director or an employee. The Board believes that Mr. Garland’s extensive industry experience and direct, day-to-day involvement in managing the Company as the CEO makes him best suited to also serve as Chairman and guide the Board in setting Company priorities and addressing Company risks and challenges.
Independent Director Leadership
Our governing documentsCorporate Governance Guidelines state that when the Chairman of the Board is an employee of the Company, the non-employee directors will name a Lead Director. Glenn Tilton was appointed to serve as our Lead Director in 2016. As Lead Director, Mr. Tilton chairs executive sessions, coordinates the activities of the non-employee directors and performs other duties and responsibilities as determined by the Board, including:
PHILLIPS 66 PROXY STATEMENT 2021 5 |
INFORMATION REGARDING THE BOARD OF DIRECTORS |
The Board of Directors believes that its current structure and processes encourage its non-employee directors to be actively involved in guiding its work. The chairs of the Board's committees review their respective agendas and committee materials in advance of each meeting, communicating directly with other directors and members of management as each deems appropriate. Moreover, each director may suggest agenda items and raise matters that are not on the agenda at Board and committee meetings.
BOARD MEETINGS, COMMITTEES AND MEMBERSHIP
The Board of Directors met six times in 2020. In addition to the regularly scheduled meetings of the Board, in October of each year, the Board holds a two-day strategy session with members of management to provide deep dives into the Company’s operating segments and corporate functions. All of our directors attended at least 75% of the meetings of the Board and committees on which they served. Recognizing that director attendance at the Company's annual meeting can provide the Company's shareholders with an opportunity to communicate with the directors about issues affecting the Company, the Company actively encourages directors to attend the annual meetings of shareholders. All of our directors who were serving as such as of the date of our 2020 Annual Meeting attended virtually.
BOARD COMMITTEES AND MEMBERSHIP
The Board has five standing committees, as described below. The charters for each of the committees may be found in the “Investors” section on the Phillips 66 website (www.phillips66.com) under the “Corporate Governance” caption. Shareholders may also request printed copies of these charters by following the instructions located under ADDITIONAL INFORMATION. Other than our Executive Committee, all members of our Board’s committees meet the independence standards under our Corporate Governance Guidelines, the NYSE listing standards, and SEC rules or regulations, as applicable. The tables below show the composition of the committees as of March 15, 2021; as disclosed elsewhere in this Proxy Statement, Mr. McGraw and Ms. Tschinkel retired from the Board at the end of March 2021 and will not continue to serve as members of the committees.
6 PHILLIPS 66 PROXY STATEMENT 2021 |
INFORMATION REGARDING THE BOARD OF DIRECTORS |
Audit and Finance Committee (the “Audit Committee”) | ||
Members: John E. Lowe (Chair), Julie L. Bushman, Charles M. Holley, Denise L. Ramos, Victoria J. Tschinkel Met 11 times in 2020 | ||
Primary Responsibilities: · Oversee the integrity of the Company's accounting policies, internal controls, financial statements, and financial reporting practices, and certain financial matters covering the Company's capital structure, complex financial transactions, financial risk management, retirement plans and tax planning. · Review significant risk exposures and management’s monitoring, control and reporting of such exposures. · Monitor our compliance with legal and regulatory requirements, including our Code of Business Ethics and Conduct; the qualifications and independence our independent auditors; and the performance of our internal audit function and independent auditors. Financial Expertise and Financial Literacy of Audit Committee Members The Board has determined that each of Mr. Lowe, Mr. Holley and Ms. Ramos satisfies the SEC's criteria for “audit committee financial experts.” Additionally, the Board has determined that each member is financially literate within the meaning of the NYSE listing standards. |
Human Resources and Compensation Committee (the “Compensation Committee”) | ||
Members: Marna C. Whittington (Chair), Gary K. Adams, Lisa A. Davis, Harold W. McGraw III, Glenn F. Tilton Met 6 times in 2020 | ||
Primary Responsibilities: · Oversee our executive compensation programs, policies and strategies and approve metrics, goals and objectives under incentive compensation programs, including those relevant to executive officers. · Approve goals and objectives relevant to CEO compensation, evaluate CEO performance in light of those goals and objectives, and determinate the CEO’s overall compensation. · Oversee initiatives and strategies in the areas of inclusion and diversity, management succession planning, talent management and human capital. Additional information about the Compensation Committee can be found in the COMPENSATION DISCUSSION AND ANALYSIS. | ||
Compensation Committee Interlocks and Insider Participation None of the members of the Compensation Committee during fiscal year 2020 or as of the date of this Proxy Statement is or has been an officer or employee of Phillips 66 and no executive officer of Phillips 66 served on the compensation committee or board of any company that employed any member of Phillips 66’s Compensation Committee or Board. |
PHILLIPS 66 PROXY STATEMENT 2021 7 |
INFORMATION REGARDING THE BOARD OF DIRECTORS |
Nominating and Governance Committee | ||
Members: Glenn F. Tilton (Chair), John E. Lowe, Denise L. Ramos, Marna C. Whittington Met 4 times in 2020 | ||
Primary Responsibilities: · Identify individuals to become Board members, recommend nominees for election and Board committee assignments. · Review and recommend compensation and benefits policies for our non-employee directors. · Recommend appropriate corporate governance policies and procedures for our Company. · Oversee Board’s annual self-evaluation of performance and monitor Board composition. · Jointly with Compensation Committee evaluate potential successors for the CEO. |
Public Policy and Sustainability Committee | ||
Members: Denise L. Ramos (Chair), Gary K. Adams, Julie L. Bushman, Lisa A. Davis, Charles M. Holley, John E. Lowe, Harold W. McGraw III, Glenn F. Tilton, Victoria J. Tschinkel, Marna C. Whittington Met 4 times in 2020 | ||
Primary Responsibilities: · Review policies, programs and practices regarding health, safety and environmental protection; social impact and corporate responsibility matters. · Review the Company’s sustainability program and oversee progress of sustainability initiatives. · Review and approve budget for charitable contributions and for political contributions and independent expenditures, and oversee all such expenditures and the administration of any political action committees. |
Executive Committee | ||
Members: Greg C. Garland (Chair), John E. Lowe, Denise L. Ramos, Glenn F. Tilton, Marna C. Whittington Met 1 time in 2020 | ||
Primary Responsibilities: ·Exercise the authority of the full Board, if needed, in intervals between regularly scheduled Board meetings, other than (1) those matters expressly delegated to another committee of the Board, (2) the adoption, amendment or repeal of any of our By-Laws, and (3) those matters that cannot be delegated to a committee under statute, our Certificate of Incorporation, or our Bylaws. |
To ensure continued Board effectiveness, the Nominating and Governance Committee periodically considers committee rotations, including in the event of a change in the composition of the Board. In 2020, J. Brian Ferguson, who previously had served as Chair of the Audit Committee, retired and the Nominating and Governance Committee recommended, and the Board approved, the appointment of Mr. Lowe as Chair of the Audit Committee and Ms. Ramos as Chair of the Public Policy and Sustainability Committee.
Additionally, in 2020 the Public Policy Committee changed its name to the Public Policy and Sustainability Committee. This name change was in connection with revisions to the committee’s charter that broadened the scope of its responsibilities to specifically include oversight of the Company’s sustainability program and initiatives.
8 PHILLIPS 66 PROXY STATEMENT 2021 |
INFORMATION REGARDING THE BOARD OF DIRECTORS |
BOARD'S ACTIVE ROLE IN RISK OVERSIGHT
The Company's management is responsible for the day-to-day conduct of our businesses and operations, including management of risks the Company faces. To fulfill this responsibility, our management has established an enterprise risk management (“ERM”) program. The program is designed to identify and facilitate the management of significant risks facing the Company as well as the approaches to addressing risks.
The Board of Directors has broad oversight responsibility over the Company's ERM program and receives management updates on its development and implementation. In this oversight role, the Board is responsible for satisfying itself that the risk management processes designed and implemented by the Company's management are functioning as intended, and that necessary steps are taken to foster a culture of risk-adjusted decision making throughout the organization.
The Board exercises its oversight responsibility for risk assessment and risk management directly and through its committees. However, the full Board maintains responsibility for oversight of strategic risks. Setting the strategic course of the Company and providing oversight of strategic risks involves a high level of constructive engagement between management and the Board. The Board regularly discusses the strategic priorities of the Company and the risks to the Company's successful execution of its strategy, including global economic and other significant trends, as well as changes in the energy industry and regulatory initiatives.
The Board of Directors receives regular updates from its committees on individual areas of risk falling within each committee's area of oversight and expertise, as outlined below.
Committee Risk Oversight Responsibilities
Audit Committee
The Audit Committee has primary responsibility for overseeing Phillips 66’s ERM program. The Audit Committee discusses the guidelines and policies to govern the process by which ERM is handled, and has been delegated responsibility to facilitate coordination among the Board's committees with respect to the Company's risk management programs. The Audit Committee’s meeting agendas throughout the year include discussions of individual risk areas, as well as an annual summary of the ERM process. The Audit Committee also oversees the Company’s information security (including cybersecurity) and technology risk management programs, which are fully integrated into the overall ERM program.
Public Policy and Sustainability Committee
The Public Policy and Sustainability Committee assists the Board in identifying, evaluating and reviewing social, political and environmental trends and related risks. It also reviews management's proposed actions to anticipate and adjust to such trends and manage risks to achieve the Company's long-term business goals. The Public Policy and Sustainability Committee considers risks relating to: (i) the health, safety and environmental matters; (ii) the Company’s lobbying priorities and activities; (iii) Company issues related to public policy, including political spending policies and practices; (iv) Company issues related to corporate social responsibility and sustainability; and (v) emerging issues potentially affecting the reputation of the energy industry and the Company.
Other Board Committees
The Board’s other committees oversee risks associated with their respective areas of responsibility. For example:
• The Compensation Committee considers the risks associated with our compensation policies and practices for both executive compensation and compensation generally, as well as corporate culture and human capital risks generally.
• The Nominating and Governance Committee reviews policies and practices in the areas of corporate governance and is responsible for overseeing Board composition and director qualifications through the nomination process. Additionally, the Nominating and Governance Committee is responsible for CEO succession planning.
PHILLIPS 66 PROXY STATEMENT 2021 9 |
INFORMATION REGARDING THE BOARD OF DIRECTORS |
Our Code of Business Ethics and Conduct requires all directors and executive officers to promptly report any transactions or relationships that reasonably could be expected to constitute a related party transaction. The transaction or relationship is reviewed by the Company's management and the appropriate committee of the Board to ensure that it does not constitute a conflict of interest and is appropriately disclosed.
Additionally, the Nominating and Governance Committee conducts an annual review of related party transactions between each director and the Company and its subsidiaries in making recommendations to the Board regarding the continued independence of each director. Since January 1, 2020, there have been no related party transactions in which the Company or a subsidiary was a participant and in which any director, executive officer, or any of their immediate family members had a direct or indirect material interest.
The Nominating and Governance Committee also considered relationships that, while not constituting related party transactions where a director had a direct or indirect material interest, nonetheless involved transactions between the Company and an organization with which a director is affiliated, either directly or as a partner, shareholder or officer. The Nominating and Governance Committee determined that there were no transactions impairing the independence of any member of the Board.
DIRECTOR QUALIFICATIONS AND NOMINATION PROCESS
Director Skills and Qualifications Aligned with Company Strategy
In evaluating potential candidates for nomination to the Board, as well as evaluating the Board's overall composition, the Nominating and Governance Committee and the Board consider several factors. First, all directors are expected to possess the highest personal and professional ethics, integrity and values and be committed to representing the long-term interests of the Company's shareholders. Additionally, directors are expected to devote sufficient time and effort to their duties as a director.
The Nominating and Governance Committee believes that the Board should reflect a range of talents, ages, skills, experiences, diversity, and expertise sufficient to provide sound and prudent guidance with respect to the Company's strategic and operational objectives. The Board has committed to seeking women and minority candidates, as well as candidates with diverse backgrounds, skills and experiences, as part of the search process for new directors.
The core skills and qualifications considered in evaluating director nominees and Board composition as a whole are described below.
C-Suite experience Executive management experience provides valuable insights and practical understanding of companies, and the methods to drive change and growth within an organization | Industry experience Energy experience brings pertinent background and knowledge to provide perspective on issues specific to the Company’s industry, business, operations and strategy | Risk management experience Experience in managing risk ensures capabilities necessary for risk oversight responsibilities, bringing background and experience that increase directors’ effectiveness | ||
Financial experience Finance and financial reporting experience provide knowledge necessary to evaluate our performance by reference to financial targets and to oversee financial reporting | Global experience Global business or international experience provides valuable perspectives on our operations and enables the oversight of our strategic initiatives | Environmental experience Experience in environmental regulation helps in effective evaluation and oversight of our strategy to provide energy and improve lives while securing a healthy environment |
10 PHILLIPS 66 PROXY STATEMENT 2021 |
INFORMATION REGARDING THE BOARD OF DIRECTORS |
Board Refreshment
The Board strives to maintain an appropriate balance of tenure, turnover, diversity, skills and experience. Our average director tenure is five years, representing an appropriate balance of tenures. The Board does not maintain term limits, as the Board believes that continuity of service can provide stability and valuable insight. Our Corporate Governance Guidelines include a mandatory retirement that provides that no director may serve past the annual meeting immediately following his or her 75th birthday. The average age of our continuing directors is 65.
The Board ensures refreshment and continued effectiveness through evaluation, nomination, and other policies, processes and practices. For example:
Recent Board Refreshment
In 2020, the Board appointed Julie L. Bushman and Lisa A. Davis. These directors’ skills and perspectives further enhance our diversity and expertise in the boardroom. Their appointments were informed by the Board’s continued focus on its composition, as well as insights provided through the Board’s annual self-evaluation process. In March of this year, Harold W. McGraw III and Victoria J. Tschinkel, who have served on our Board since 2012, informed us that they would be retiring from the Board and not standing for reelection at this Annual Meeting.
How We Select Our Director Nominees
The Board is responsible for nominating directors are divided into three classes, with one class being elected each year for a three-year term. Based onand filling vacancies that may occur between annual meetings, based upon the recommendation of the Nominating and Governance Committee. The Nominating and Governance Committee considers the Board has nominated each ofCompany’s current needs and long-term and strategic plans to determine the skills, experience and characteristics needed by our Board. The Nominating and Governance Committee identifies, considers and recommends director nominees set forth belowcandidates to stand for election at the Annual Meeting. The term for the directors to be elected this year will expire at the annual meeting of shareholders held in 2023. Each nominee requires the affirmative vote of a majority of the votes cast in person or by proxy at the meeting.
THE BOARD RECOMMENDS THAT YOU VOTE “FOR” EACH OF CHARLES M. HOLLEY, GLENN F. TILTON AND MARNA C. WHITTINGTON.
Our Board of Directors
Each of our directors is elected to serve until his or her successor is duly elected and qualified. If a nominee is unavailable for election, proxy holders may vote for another nominee proposed by the Board of Directors with the goal of creating a balance of knowledge, experience and diversity. Generally, the Nominating and Governance Committee identifies candidates through the use of a search firm or as an alternative,the business and organizational contacts of directors and management. In 2018, the Board amended our Corporate Governance Guidelines to formalize its commitment to ensuring that the pool of Directors may reducecandidates in any search process for new directors includes diverse candidates.
Shareholder Recommendation of Candidates
The Nominating and Governance Committee will consider director candidates recommended by shareholders. A shareholder wishing to recommend a candidate for nomination by the number of directors to be elected atNominating and Governance Committee should follow the Annual Meeting.
Any director vacancies created between annualprocedures described under SUBMISSION OF FUTURE SHAREHOLDER PROPOSALS AND DIRECTOR NOMINATIONS. In addition, the shareholder meetings (such as by a current director’s death, resignation or removal for cause or an increase in the number of directors) may be filled by a majority vote of the remaining directors then in office. Any director appointed in this manner would hold office for a term expiring at the annual meeting of shareholders at which the term of office of the class to which he or she has been appointed expires. If a vacancy results from an action of our shareholders, only our shareholders would be entitled to elect a successor.
Director Biographies
Set forth below isshould provide such other information as of March 11, 2020, regarding the nominees for election. We have provided the most significant experiences and qualifications that leddeemed relevant to the conclusion that each director or director nominee should serve as one of our directors. No family relationship exists among any of our directors, director nominees or executive officers. There is no arrangement between any director or director nomineeNominating and any other person pursuant to which he or she was, or is to be, selected as a director or director nominee.
Director Nominees
The following three directors will seek election at this year’s Annual Meeting for a term expiring in 2023.Governance Committee's evaluation. Candidates recommended by the Company's
PHILLIPS 66 PROXY STATEMENT 2021 11 |
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shareholders are evaluated on the same basis as candidates recommended by the Company's directors, management, third-party search firms or other sources.
Throughout the year, the Board continued its proactive assessment of board succession planning and refreshment. The Nominating and Governance Committee and full Board works to ensure we maintain a Board that embodies a broad and diverse set of experiences, qualifications, attributes and skills to provide effective oversight of management and the Company. When seeking new candidates, the Board considers a diverse pool of qualified candidates who could potentially serve as Board members. We view diversity in terms of skills, as well as gender, age, race, ethnicity, background, professional experience and perspectives.
As the needs of the Company change, the Board revisits the skills and experiences it seeks. Included in the matrix below are the core skills and experiences of C-suite, environmental, risk management, international/global and industry experience, as well as additional skills and experiences the Board currently considers, for our continuing directors.
*As of March 15, 2021
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PROPOSAL 1: ELECTION OF DIRECTORS
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Directors Whose Terms Expire at the 2021 Annual Meeting
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PROPOSAL 1: ELECTION OF DIRECTORS
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Directors Whose Terms Expire at the 2022 Annual MeetingBoard Refreshment
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PROPOSAL 1: ELECTION OF DIRECTORS
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CORPORATE GOVERNANCE AT PHILLIPS 66
Phillips 66 is committed to effective corporate governance and high ethical standards. We believe that corporate governance, including our values of safety, honor and commitment, is the foundation for financial integrity, investor confidence and sustainable performance. Our values guide how our 14,500 employees conduct business every day and how the Board believes that continuity of Directors overseesservice can provide stability and counsels management in the long-term interest of the Company, our shareholders and other stakeholders. We continuously strive to meet our vision of providing energy and improving lives, guided by our four pillars of sustainability:
Operational Excellence
Environmental Commitment
Social Responsibility
Economic Performance
valuable insight. Our Board of Directors has adopted Corporate Governance Guidelines include a mandatory retirement that establishprovides that no director may serve past the annual meeting immediately following his or her 75th birthday. The average age of our continuing directors is 65.
The Board ensures refreshment and continued effectiveness through evaluation, nomination, and other policies, processes and practices. For example:
DIRECTOR QUALIFICATIONS AND NOMINATION PROCESS
Skills and Qualifications We Seek in Directors
In evaluating potential candidates for nominationany director whose principal outside responsibilities have changed since election to the Board as well as evaluatingshould volunteer to resign to give the Board’s overall composition,Board the opportunity to review the appropriateness of continued Board membership under the circumstances.
Recent Board Refreshment
In 2020, the Board appointed Julie L. Bushman and Lisa A. Davis. These directors’ skills and perspectives further enhance our diversity and expertise in the boardroom. Their appointments were informed by the Board’s continued focus on its composition, as well as insights provided through the Board’s annual self-evaluation process. In March of this year, Harold W. McGraw III and Victoria J. Tschinkel, who have served on our Board since 2012, informed us that they would be retiring from the Board and not standing for reelection at this Annual Meeting.
How We Select Our Director Nominees
The Board is responsible for nominating directors are expected to possessand filling vacancies that may occur between annual meetings, based upon the highest personal and professional ethics, integrity and values and be committed to representing the long-term interestsrecommendation of the Nominating and Governance Committee. The Nominating and Governance Committee considers the Company’s shareholders.current needs and long-term and strategic plans to determine the skills, experience and characteristics needed by our Board. The Nominating and Governance Committee identifies, considers and recommends director candidates to the Board of Directors also are expectedwith the goal of creating a balance of knowledge, experience and diversity. Generally, the Nominating and Governance Committee identifies candidates through the use of a search firm or the business and organizational contacts of directors and management. In 2018, the Board amended our Corporate Governance Guidelines to devote sufficient time and effortformalize its commitment to their duties as a director.ensuring that the pool of candidates in any search process for new directors includes diverse candidates.
Shareholder Recommendation of Candidates
The Nominating and Governance Committee believes thatwill consider director candidates recommended by shareholders. A shareholder wishing to recommend a candidate for nomination by the Nominating and Governance Committee should follow the procedures described under SUBMISSION OF FUTURE SHAREHOLDER PROPOSALS AND DIRECTOR NOMINATIONS. In addition, the shareholder should provide such other information deemed relevant to the Nominating and Governance Committee's evaluation. Candidates recommended by the Company's
PHILLIPS 66 PROXY STATEMENT 2021 11 |
INFORMATION REGARDING THE BOARD OF DIRECTORS |
shareholders are evaluated on the same basis as candidates recommended by the Company's directors, management, third-party search firms or other sources.
Throughout the year, the Board should reflectcontinued its proactive assessment of board succession planning and refreshment. The Nominating and Governance Committee and full Board works to ensure we maintain a rangeBoard that embodies a broad and diverse set of talents, ages,experiences, qualifications, attributes and skills experiences, diversity, and expertise sufficient to provide soundeffective oversight of management and prudent guidance with respect to the Company’s strategic and operational objectives. TheCompany. When seeking new candidates, the Board has committed to seeking women and minorityconsiders a diverse pool of qualified candidates who could potentially serve as Board members. We view diversity in terms of skills, as well as candidates with diverse backgrounds,gender, age, race, ethnicity, background, professional experience and perspectives.
As the needs of the Company change, the Board revisits the skills and experiences as part ofit seeks. Included in the search process for new directors.
The followingmatrix below are keythe core skills and qualifications considered in evaluating director nomineesexperiences of C-suite, environmental, risk management, international/global and Board compositionindustry experience, as a whole. The Board determined that a mix of thesewell as additional skills and qualifications providesexperiences the composition necessary to effectively oversee the Company’s execution of its strategy.Board currently considers, for our continuing directors.
2020 PROXY STATEMENT 9*As of March 15, 2021
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CORPORATE GOVERNANCE AT PHILLIPS 66
INFORMATION REGARDING THE BOARD OF DIRECTORS |
Board RefreshmentCommittee Risk Oversight Responsibilities
Audit Committee
The Board strivesAudit Committee has primary responsibility for overseeing Phillips 66’s ERM program. The Audit Committee discusses the guidelines and policies to maintaingovern the process by which ERM is handled, and has been delegated responsibility to facilitate coordination among the Board's committees with respect to the Company's risk management programs. The Audit Committee’s meeting agendas throughout the year include discussions of individual risk areas, as well as an appropriate balanceannual summary of tenure, turnover, diversity, skillsthe ERM process. The Audit Committee also oversees the Company’s information security (including cybersecurity) and experience.technology risk management programs, which are fully integrated into the overall ERM program.
Public Policy and Sustainability Committee
The Public Policy and Sustainability Committee assists the Board does not maintain term limits, but our Governance Guidelines include a mandatory director retirement age of 75.in identifying, evaluating and reviewing social, political and environmental trends and related risks. It also reviews management's proposed actions to anticipate and adjust to such trends and manage risks to achieve the Company's long-term business goals. The Board believes that continuity of service can provide stabilityPublic Policy and valuable insight, based on experienceSustainability Committee considers risks relating to: (i) the health, safety and understandingenvironmental matters; (ii) the Company’s lobbying priorities and activities; (iii) Company issues related to public policy, including political spending policies and practices; (iv) Company issues related to corporate social responsibility and sustainability; and (v) emerging issues potentially affecting the reputation of the Company. The average tenure of all of our directors is 6.2 yearsenergy industry and the average age of all of our directors is 66.9 years.Company.
Other Board Committees
The Board ensures refreshment and continued effectiveness through evaluation, nomination, andBoard’s other policies, processes and practices.committees oversee risks associated with their respective areas of responsibility. For example:
• The Compensation Committee considers the risks associated with our compensation policies and practices for both executive compensation and compensation generally, as well as corporate culture and human capital risks generally.
• The Nominating and Governance Committee reviews policies and practices in the areas of corporate governance and is responsible for overseeing Board composition and director qualifications through the nomination process. Additionally, the Nominating and Governance Committee is responsible for CEO succession planning.
PHILLIPS 66 PROXY STATEMENT 2021 9 |
INFORMATION REGARDING THE BOARD OF DIRECTORS |
Our Code of Business Ethics and Conduct requires all directors and executive officers to promptly report any transactions or relationships that reasonably could be expected to constitute a related party transaction. The transaction or relationship is reviewed by the Company's management and the appropriate committee of the Board to ensure that it does not constitute a conflict of interest and is appropriately disclosed.
Additionally, the Nominating and Governance Committee conducts an annual review of related party transactions between each director and the Company and its subsidiaries in making recommendations to the Board regarding the continued independence of each director. Since January 1, 2020, there have been no related party transactions in which the Company or a subsidiary was a participant and in which any director, executive officer, or any of their immediate family members had a direct or indirect material interest.
The Nominating and Governance Committee annually reviewsalso considered relationships that, while not constituting related party transactions where a director had a direct or indirect material interest, nonetheless involved transactions between the Company and an organization with the Board the qualifications for Board members and the composition of the Boardwhich a director is affiliated, either directly or as a whole.
partner, shareholder or officer. The Nominating and Governance Committee annually reviews each director nominee’s continuation ondetermined that there were no transactions impairing the Boardindependence of any member of the Board.
DIRECTOR QUALIFICATIONS AND NOMINATION PROCESS
Director Skills and makes recommendations to the full Board.Qualifications Aligned with Company Strategy
The Company’s Corporate Governance Guidelines provide that any director whose principal outside responsibilities have changed since electionIn evaluating potential candidates for nomination to the Board, should volunteer to resign to giveas well as evaluating the Board the opportunity to review the appropriateness of continued Board membership under the circumstances.
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Additionally, each committee of the Board performs an annual self-assessment, andBoard's overall composition, the Nominating and Governance Committee and Lead Director oversee an annual self-assessmentthe Board consider several factors. First, all directors are expected to possess the highest personal and professional ethics, integrity and values and be committed to representing the long-term interests of the full Board. The self-assessment includes an evaluation surveyCompany's shareholders. Additionally, directors are expected to devote sufficient time and individual discussions between the Lead Director and each othereffort to their duties as a director. A summary of the results of each committee’s self-assessment is presented to the committee and discussed in executive session. The Lead Director presents a summary of the results of the Board evaluation to the Board in executive session. Any matters requiring further action are identified and action plans developed to address the matter.
To further ensure continued Board effectiveness, the Nominating and Governance Committee periodically considers Board committee rotations, including in the event of a change in the composition of the Board. Additionally, the Nominating and Governance Committee’s charter provides that in all cases, committee rotations will be considered every three years for all committees other than Audit and Finance, the rotation of which will be considered every three to six years.
How We Select Our Director Nominees
The Board is responsible for nominating directors and filling vacancies that may occur between annual meetings, based upon the recommendation of the Nominating and Governance Committee. The Nominating and Governance Committee considersbelieves that the Company’s current needsBoard should reflect a range of talents, ages, skills, experiences, diversity, and long-termexpertise sufficient to provide sound and strategic plans to determine the skills, experience and characteristics needed by our Board. The Nominating and Governance Committee identifies, considers and recommends director candidatesprudent guidance with respect to the Company's strategic and operational objectives. The Board of Directors with the goal of creating a balance of knowledge, experience and diversity. Generally, the Nominating and Governance Committee identifies candidates through the use of a search firm or the business and organizational contacts of directors and management. In 2018, the Board formalized its commitmenthas committed to seeking women and minority candidates, as well as candidates with diverse backgrounds, skills and experiences, as part of the search process for new directors.
When evaluating candidates, the Nominating and Governance Committee takes into consideration the key qualifications and skills described above. The Nominating and Governance Committee also considers whether potential candidates will likely satisfy independence standards for service on the Board and its committees.
Shareholder Recommendation of Candidates and Nomination of Candidates
The Nominatingcore skills and Governance Committee will considerqualifications considered in evaluating director candidates recommended by shareholders. A shareholder wishing to recommend a candidate for nomination by the Nominatingnominees and Governance Committee should follow the same procedures referred to below for nominations to be made directly by a shareholder. In addition, the shareholder should provide such other information deemed relevant to the Nominating and Governance Committee’s evaluation. Candidates recommended by the Company’s shareholders are evaluated on the same basis as candidates recommended by the Company’s directors, management, third-party search firms or other sources.
OurBy-Laws permit proxy access for shareholders. Shareholders who wish to nominate directors for inclusion in our proxy statement or directly at an annual meeting in accordance with ourBy-Laws should follow the procedures described underSUBMISSION OF FUTURE SHAREHOLDER PROPOSALS AND DIRECTOR NOMINATIONS.
Majority Voting
To be elected, a director must receive a majority of the votes cast with respect to that director at the meeting. OurBy-Laws provide that if the number of shares voted “for” a nominee who is servingBoard composition as a director (an incumbent) does not exceed 50% of the votes cast with respect to that director, he or she will tender his or her resignation to the Board of Directors. The Nominating and Governance Committee will then make a recommendation to the Board on whether to accept or reject the resignation, or whether other action should be taken. Within 90 days of the certification of the shareholder vote, the Board is required to decide whether to accept the resignation and publicly disclose its decision-making process.
In a contested election, where the number of nominees exceeds the number of directors to be elected, the required vote would be a plurality of votes cast.
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CORPORATE GOVERNANCE AT PHILLIPS 66
Director Independence
Our Corporate Governance Guidelines contain director independence standards, whichwhole are consistent with the standards set forth in the NYSE listing standards. These standards assist the Board of Directors in determining the independence of the Company’s directors. The Board of Directors has affirmatively determined that each director, except Mr. Garland, meets our independence standards. Mr. Garland is not considered independent because he is an executive officer of the Company.
In making independence determinations, the Board specifically considered the fact that many of our directors are directors or otherwise affiliated with companies with which we conduct business. Additionally, some of our directors may purchase products, such as gasoline from our retail sites, from the Company. In all cases, it was determined that the nature of the business conducted and the interest of the director by virtue of such position were immaterial both to the Company and to the director.
Executive Sessions of Independent Directors
The independent directors hold regularly scheduled executive sessions of the Board and its committees without Company management present. These executive sessions are chaired by the Lead Director at Board meetings or by the Committee Chairs at Committee meetings.
Chairman and CEO Roles
The Board of Directors believes that no single organizational model is the most effective in all circumstances. As a consequence, the Board periodically considers whether the offices of Chairman and CEO should continue to be combined and who should serve in such capacities.
Although the Board of Directors has the authority to separate the positions of Chairman and CEO if it deems appropriate, the Board believes it is in the best interest of the Company’s shareholders to combine them. Doing so enables one person to guide the Board in setting priorities for the Company and in addressing the risks and challenges the Company faces. The Board of Directors believes that, while itsnon-employee directors bring a diversity of skills and perspectives to the Board, the Company’s CEO, by virtue of hisday-to-day involvement in managing the Company, currently is best suited to serve as Chairman and perform this unified role.
Independent Director Leadership
Glenn Tilton has served as our Lead Director since February 2016. In appointing a Lead Director, the Board of Directors considered it useful and appropriate to designate an independent director to serve in a lead capacity to coordinate the activities of thenon-employee directors and to perform such other duties and responsibilities as the Board of Directors may determine. In his role as Lead Director, Mr. Tilton:
advises the Chairman on an appropriate schedule of Board meetings, seeking to ensure that thenon-employee directors can perform their duties responsibly without interfering with operations;
provides the Chairman with input on the preparation of the agenda for each Board meeting and assures that there is sufficient time for discussion of all agenda items;
advises the Chairman on the quality, quantity and timeliness of the flow of information from management to thenon-employee directors in order that they may perform their duties effectively and responsibly, including specifically requesting certain materials be provided to the Board;
recommends to the Chairman the retention of consultants who report directly to the Board of Directors;
interviews all Board candidates and makes nomination recommendations to the Nominating and Governance Committee and the Board of Directors;
assists the Board of Directors and Company officers in assuring compliance with and implementation of the Corporate Governance Guidelines;
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ensures that he, or another appropriate director, is available for engagement with shareholders when warranted;
calls meetings of thenon-employee directors as needed, develops the agenda for and moderates any such meetings and executive sessions of thenon-employee directors;
acts as principal liaison between thenon-employee directors and the Chairman on sensitive issues;
participates with the Human Resources and Compensation Committee (“Compensation Committee”) in the periodic discussion of CEO performance;
ensures the Board of Directors conducts an annual self-assessment and meeting with the CEO to discuss the results of the annual self-assessment; and
works with the Nominating and Governance Committee to recommend the membership of the various Board committees, as well as selection of the committee chairs.
The Board of Directors believes that its current structure and processes encourage itsnon-employee directors to be actively involved in guiding its work. The chairs of the Board’s committees review their respective agendas and committee materials in advance of each meeting, communicating directly with other directors and members of management as each deems appropriate. Moreover, each director may suggest agenda items and raise matters that are not on the agenda at Board and committee meetings.
BOARD MEETINGS, COMMITTEES, AND MEMBERSHIP
The Board of Directors met six times in 2019. All of our directors attended at least 75% of the meetings of the Board and committees on which they served.
Recognizing that director attendance at the Company’s annual meeting can provide the Company’s shareholders with an opportunity to communicate with the directors about issues affecting the Company, the Company actively encourages directors to attend the annual meetings of Shareholders. All of our directors, other than Mr. Holley, who was not yet serving on the Board, attended the 2019 Annual Meeting of Shareholders.
BOARD COMMITTEE MEMBERSHIP
The table below shows the membership of each of the Board’s committees, as well as information about each committee’s primary responsibilities.described below.
Executive management experience provides valuable insights and
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| Risk management experience Experience in managing risk ensures capabilities necessary for risk oversight responsibilities, bringing background and experience that increase directors’ effectiveness | ||
Financial experience Finance and financial reporting | Global experience Global business or international experience provides valuable perspectives on our operations and enables the
| Environmental experience Experience in environmental regulation helps in effective evaluation and |
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CORPORATE GOVERNANCE AT PHILLIPS 66
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CORPORATE GOVERNANCE AT PHILLIPS 66
The charters for our Audit and Finance Committee (the “Audit Committee”), Human Resources and Compensation Committee (the “Compensation Committee”), Nominating and Governance Committee, Public Policy Committee and Executive Committee can be found in the “Investors” section on the Phillips 66 website (www.phillips66.com) under the “CorporateGovernance” caption. Shareholders may also request printed copies of these charters by following the instructions located underAVAILABLE INFORMATION.
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BOARD’S ROLE IN RISK OVERSIGHT
The Company’s management is responsible for theday-to-day conduct of our businesses and operations, including management of risks the Company faces. To fulfill this responsibility, our management has established an enterprise risk management (“ERM”) program. The program is designed to identify and facilitate the management of significant risks facing the Company as well as the approaches to addressing risks.
The Board of Directors has broad oversight responsibility over the Company’s ERM program and receives management updates on its development and implementation. In this oversight role, the Board of Directors is responsible for satisfying itself that the risk management processes designed and implemented by the Company’s management are functioning as intended, and that necessary steps are taken to foster a culture of risk-adjusted decision making throughout the organization.
The Board of Directors exercises its oversight responsibility for risk assessment and risk management directly and through its committees. However, the full Board maintains responsibility for oversight of strategic risks. Setting the strategic course of the Company and providing oversight of strategic risks involves a high level of constructive engagement between management and the Board. The Board regularly discusses the strategic priorities of the Company and the risks to the Company’s successful execution of its strategy, including global economic and other significant trends, as well as changes in the energy industry and regulatory initiatives.
The Board of Directors receives regular updates from its committees on individual areas of risk falling within each committee’s area of oversight and expertise, as outlined below.
Committee Risk Oversight Responsibilities
Audit and Finance Committee
The Audit Committee has primary responsibility for overseeing Phillips 66’s ERM program. The Audit Committee discusses the guidelines and policies to govern the process by which ERM is handled, and has been delegated responsibility to facilitate coordination among the Board’sBoard's committees with respect to the Company’sCompany's risk management programs.
The Audit Committee is responsible for overseeingCommittee’s meeting agendas throughout the integrityyear include discussions of individual risk areas, as well as an annual summary of the Company’s financial statements; the independent auditors’ qualifications and independence; the performance of the Company’s internal audit function; and its system of internal control over financial reporting.ERM process. The Audit Committee also reviewsoversees the Company’s information security (including cybersecurity) and receives briefings concerning information technology (including cybersecurity), compliance with laws and regulatory requirements, and major financial exposures.risk management programs, which are fully integrated into the overall ERM program.
Human ResourcesPublic Policy and CompensationSustainability Committee
The Public Policy and Sustainability Committee assists the Board in identifying, evaluating and reviewing social, political and environmental trends and related risks. It also reviews management's proposed actions to anticipate and adjust to such trends and manage risks to achieve the Company's long-term business goals. The Public Policy and Sustainability Committee considers risks relating to: (i) the health, safety and environmental matters; (ii) the Company’s lobbying priorities and activities; (iii) Company issues related to public policy, including political spending policies and practices; (iv) Company issues related to corporate social responsibility and sustainability; and (v) emerging issues potentially affecting the reputation of the energy industry and the Company.
Other Board Committees
The Board’s other committees oversee risks associated with their respective areas of responsibility. For example:
• The Compensation Committee overseesconsiders the Company’srisks associated with our compensation policies and practices for both executive compensation and talent management programs. The Compensation Committee evaluates whether our compensation programsgenerally, as well as corporate culture and practices create excessivehuman capital risks and determines whether any changes to those programs and practices are warranted. The Compensation Committee also ensures that our compensation programs align with long-term interests of shareholders and are effective in retaining top talent. Finally, the Compensation Committee ensures the development of a diverse talent pool with respect to CEO and senior management succession planning.generally.
Nominating and Governance Committee
• The Nominating and Governance Committee reviews policies and practices in the areas of corporate governance and is responsible for overseeing Board composition and director qualifications through the nomination process. Additionally, the Nominating and Governance Committee is responsible for CEO succession planning.
PHILLIPS 66 PROXY STATEMENT 2021 9 |
Public Policy Committee
The Public Policy Committee assists the Board in identifying, evaluating and reviewing social, political and environmental trends and related risks. It also reviews management’s proposed actions to anticipate and adjust to such trends and manage risks to achieve the Company’s long-term business goals. The Public Policy Committee reviews and makes recommendations to the full Board on the Company’s policies, programs and practices relating to health, safety and environmental protection, government relations and political contributions, corporate philanthropy, and corporate responsibility.
INFORMATION REGARDING THE BOARD OF DIRECTORS |
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Our Code of Business Ethics and Conduct requires all directors and executive officers to promptly report any transactions or relationships that reasonably could be expected to constitute a related party transaction. The transaction or relationship is reviewed by the Company’sCompany's management and the appropriate committee of the Board to ensure that it does not constitute a conflict of interest and is appropriately disclosed.
Additionally, the Nominating and Governance Committee conducts an annual review of related party transactions between each director and the Company and its subsidiaries in making recommendations to the Board regarding the continued independence of each director. Since January 1, 2019,2020, there have been no related party transactions in which the Company or a subsidiary was a participant and in which any director, executive officer, or any of their immediate family members had a direct or indirect material interest.
The Nominating and Governance Committee also considered relationships that, while not constituting related party transactions where a director had a direct or indirect material interest, nonetheless involved transactions between the Company and an organization with which a director is affiliated, either directly or as a partner, shareholder or officer. The Nominating and Governance Committee determined that there were no transactions impairing the independence of any member of the Board.
COMPENSATION COMMITTEE INTERLOCKSDIRECTOR QUALIFICATIONS AND INSIDER PARTICIPATIONNOMINATION PROCESS
Director Skills and Qualifications Aligned with Company Strategy
In evaluating potential candidates for nomination to the Board, as well as evaluating the Board's overall composition, the Nominating and Governance Committee and the Board consider several factors. First, all directors are expected to possess the highest personal and professional ethics, integrity and values and be committed to representing the long-term interests of the Company's shareholders. Additionally, directors are expected to devote sufficient time and effort to their duties as a director.
The CompensationNominating and Governance Committee consistsbelieves that the Board should reflect a range of Marna C. Whittington, Gary K. Adams,talents, ages, skills, experiences, diversity, and expertise sufficient to provide sound and prudent guidance with respect to the Company's strategic and operational objectives. The Board has committed to seeking women and minority candidates, as well as candidates with diverse backgrounds, skills and experiences, as part of the search process for new directors.
The core skills and qualifications considered in evaluating director nominees and Board composition as a whole are described below.
C-Suite experience Executive management experience provides valuable insights and practical understanding of companies, and the methods to drive change and growth within an organization | Industry experience Energy experience brings pertinent background and knowledge to provide perspective on issues specific to the Company’s industry, business, operations and strategy | Risk management experience Experience in managing risk ensures capabilities necessary for risk oversight responsibilities, bringing background and experience that increase directors’ effectiveness | ||
Financial experience Finance and financial reporting experience provide knowledge necessary to evaluate our performance by reference to financial targets and to oversee financial reporting | Global experience Global business or international experience provides valuable perspectives on our operations and enables the oversight of our strategic initiatives | Environmental experience Experience in environmental regulation helps in effective evaluation and oversight of our strategy to provide energy and improve lives while securing a healthy environment |
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INFORMATION REGARDING THE BOARD OF DIRECTORS |
Board Refreshment
The Board strives to maintain an appropriate balance of tenure, turnover, diversity, skills and experience. Our average director tenure is five years, representing an appropriate balance of tenures. The Board does not maintain term limits, as the Board believes that continuity of service can provide stability and valuable insight. Our Corporate Governance Guidelines include a mandatory retirement that provides that no director may serve past the annual meeting immediately following his or her 75th birthday. The average age of our continuing directors is 65.
The Board ensures refreshment and continued effectiveness through evaluation, nomination, and other policies, processes and practices. For example:
Recent Board Refreshment
In 2020, the Board appointed Julie L. Bushman and Lisa A. Davis. These directors’ skills and perspectives further enhance our diversity and expertise in the boardroom. Their appointments were informed by the Board’s continued focus on its composition, as well as insights provided through the Board’s annual self-evaluation process. In March of this year, Harold W. McGraw III and Glenn F. Tilton, each of whomVictoria J. Tschinkel, who have served on our Board since 2012, informed us that they would be retiring from the Board and not standing for reelection at this Annual Meeting.
How We Select Our Director Nominees
The Board is an independent director. Noneresponsible for nominating directors and filling vacancies that may occur between annual meetings, based upon the recommendation of the Nominating and Governance Committee. The Nominating and Governance Committee considers the Company’s current needs and long-term and strategic plans to determine the skills, experience and characteristics needed by our Board. The Nominating and Governance Committee identifies, considers and recommends director candidates to the Board of Directors with the goal of creating a balance of knowledge, experience and diversity. Generally, the Nominating and Governance Committee identifies candidates through the use of a search firm or the business and organizational contacts of directors and management. In 2018, the Board amended our Corporate Governance Guidelines to formalize its commitment to ensuring that the pool of candidates in any search process for new directors includes diverse candidates.
Shareholder Recommendation of Candidates
The Nominating and Governance Committee will consider director candidates recommended by shareholders. A shareholder wishing to recommend a candidate for nomination by the Nominating and Governance Committee should follow the procedures described under SUBMISSION OF FUTURE SHAREHOLDER PROPOSALS AND DIRECTOR NOMINATIONS. In addition, the shareholder should provide such other information deemed relevant to the Nominating and Governance Committee's evaluation. Candidates recommended by the Company's
PHILLIPS 66 PROXY STATEMENT 2021 11 |
INFORMATION REGARDING THE BOARD OF DIRECTORS |
shareholders are evaluated on the same basis as candidates recommended by the Company's directors, management, third-party search firms or other sources.
Throughout the year, the Board continued its proactive assessment of board succession planning and refreshment. The Nominating and Governance Committee and full Board works to ensure we maintain a Board that embodies a broad and diverse set of experiences, qualifications, attributes and skills to provide effective oversight of management and the Company. When seeking new candidates, the Board considers a diverse pool of qualified candidates who could potentially serve as Board members. We view diversity in terms of skills, as well as gender, age, race, ethnicity, background, professional experience and perspectives.
As the needs of the Company change, the Board revisits the skills and experiences it seeks. Included in the matrix below are the core skills and experiences of C-suite, environmental, risk management, international/global and industry experience, as well as additional skills and experiences the Board currently considers, for our continuing directors.
*As of March 15, 2021
12 PHILLIPS 66 PROXY STATEMENT 2021 |
INFORMATION REGARDING THE BOARD OF DIRECTORS |
Directors Whose Terms Expire at the 2022 Annual Meeting
![]() | Greg C. Garland, 63 – Director since 2012 Chairman and CEO of Phillips 66 (2012 to present) Experience: Mr. Garland brings extensive knowledge of all aspects of our business and industry, having served in executive positions at ConocoPhillips, as president and chief executive officer of Chevron Phillips Chemical Company, and currently as the chairman and chief executive officer of Phillips 66 Partners. Through his more than 35 years of service and experience in the energy industry, Mr. Garland brings to the Board each of the key skills we seek in a director. | ||
Committees: Executive (Chair) | Key Skills: C-Suite, Finance, Global Business, Risk Management, Environmental, Industry | Other current directorships: Amgen and Phillips 66 Partners |
![]() | Gary K. Adams, 70 – Director since 2016 Former Chief Advisor - Chemicals for IHS Markit (2011 to 2017), Director of Westlake Chemical Partners LP (2014 to 2016) and Director of Phillips 66 Partners LP (2013 to 2016) Experience: Mr. Adams has over 40 years of experience in the petrochemicals and plastics industries, including 15 years at Union Carbide, where he began his career. Through various management positions, including as president, chief executive officer and chairman of Chemical Markets Associates Inc. (“CMAI”) before its acquisition by IHS, Mr. Adams also has leadership experience with operating responsibilities, and financial and risk oversight for a global business. | ||
Committees: Compensation and Public Policy and Sustainability | Key Skills: Industry, Finance, Global Business, Risk Management | Other current directorships: Trecora Resources | |
![]() | John E. Lowe, 62 – Director since 2012 Senior Executive Advisor to Tudor, Pickering, Holt & Co. (2012 to present) and Director of Agrium Inc. (2010 to 2015) Experience: Mr. Lowe had a 30-year career with ConocoPhillips and Phillips Petroleum Company, including several executive positions with ConocoPhillips, providing him extensive industry experience. Mr. Lowe also has financial and risk oversight, international and environmental experience through the series of executive positions he has held and his service on the boards of publicly traded oil and gas and energy companies. | ||
Committees: Audit (Chair), Nominating and Governance, Public Policy and Sustainability, and Executive | Key Skills: C-Suite, Finance, Global Business, Risk Management, Environmental, Industry | Other current directorships: TC Energy, Apache (Non-Executive Chairman) | |
PHILLIPS 66 PROXY STATEMENT 2021 13 |
INFORMATION REGARDING THE BOARD OF DIRECTORS |
![]() | Denise L. Ramos, 64 – Director since 2016 Former Chief Executive Officer, President and director of ITT Inc. (2011 to 2018) and Director of Praxair, Inc. (2014 to 2016) Experience: Ms. Ramos has experience in the oil and gas industry, including more than 20 years in various finance positions at Atlantic Richfield Company. Having also served as CEO of ITT and chief financial officer at ITT as well as Furniture Brands International and Yum! Brands, Ms. Ramos brings extensive senior leadership, risk management and global business expertise to the Board. | ||
Committees: Audit, Nominating and Governance, Public Policy and Sustainability (Chair) and Executive | Key Skills: C-Suite, Finance, Global Business, Risk Management, Environmental | Other current directorships: Bank of America and Raytheon Technologies | |
Directors Whose Terms Expire at the 2023 Annual Meeting
![]() | Charles M. Holley, 64 – Director since 2019 Former Executive Vice President and Chief Financial Officer of Walmart Inc. (2010 to 2015) Experience: Mr. Holley served as chief financial officer at one of the largest U.S. corporations, providing him with expertise in finance, senior management, risk and asset management, strategic planning and capital markets. He also has extensive experience in international operations and technology platforms. | ||
Committees: Audit and Public Policy and Sustainability | Key Skills: C-Suite, Finance, Global Business, Risk Management | Other current directorships: Amgen and Carrier Global | |
![]() | Glenn F. Tilton, 72 – Director since 2012 Experience: Mr. Tilton previously served as chairman and chief executive officer of UAL Corporation, the parent company of United Air Lines as well as chairman of the Midwest of JPMorgan Chase & Co. Mr. Tilton’s career has provided him with strong management experience overseeing complex multinational businesses operating in highly regulated industries as well as expertise in finance and capital markets matters. He also has extensive experience in the energy industry through his more than 30 years in increasingly senior roles with Texaco Inc., including chairman and chief executive officer. | ||
Committees: Compensation, Nominating and Governance (Chair), Public Policy and Sustainability, Executive | Key Skills: C-Suite, Finance, Global Business, Risk Management, Environmental, Industry | Other current directorships: Abbot Laboratories and AbbVie Inc. (Lead Director) | |
14 PHILLIPS 66 PROXY STATEMENT 2021 |
INFORMATION REGARDING THE BOARD OF DIRECTORS |
![]() | Marna C. Whittington, 73 – Director since 2012 Experience: Dr. Whittington has many years of leadership experience and expertise as a former senior executive in the investment management industry, including as chief executive officer of Allianz Global Investors Capital. She has extensive knowledge of and substantial experience in management, and in financial, investment and banking matters and provides valuable insight from her previous experience serving as a public company board member. | ||
Committees: Compensation (Chair), Nominating and Governance, Public Policy and Sustainability, Executive | Key Skills C-Suite, Finance, Global Business, Risk Management | Other current directorships: Macy’s, Inc and Oaktree Capital Group LLC | |
PHILLIPS 66 PROXY STATEMENT 2021 15 |
PROPOSAL 1: ELECTION OF DIRECTORS
The Board has nominated Julie L. Bushman and Lisa A. Davis to stand for election for a term that expires at the annual meeting of shareholders in 2024. Mr. McGraw and Ms. Tschinkel previously served in this class of directors, but both decided to retire in March of this year and not stand for reelection. Although Ms. Davis originally was appointed to the Board to serve in the class whose term ends at the annual meeting in 2023, the Board determined that Ms. Davis should stand for election at this meeting to make the classes of directors as nearly equal as possible.
Each nominee requires the affirmative vote of a majority of the votes cast in person or by proxy at the meeting. Directors are elected to serve until their successor is duly elected and qualified. If a nominee is unavailable for election, proxy holders may vote for another nominee proposed by the Board or the Board may reduce the number of directors to be elected at the Annual Meeting. No family relationship exists among any of our directors, director nominees or executive officers. There is no arrangement between any director or director nominee and any other person pursuant to which he or she was, or is to be, selected as a director or director nominee.
THE BOARD RECOMMENDS THAT YOU VOTE “FOR” THE FOLLOWING DIRECTOR | ||||
![]() | Julie L. Bushman, 60 – Director since 2020 Former Executive Vice President of International Operations of 3M (2017 to 2020) and Senior Vice President of Business Transformation and Information Technology of 3M (2013 to 2017); Director of Johnson Controls (2012 to 2016) Experience: As a former executive of 3M, Ms. Bushman brings executive management experience, as well as experience in international business, risk management and financial oversight. Ms. Bushman also brings environmental experience through her roles leading occupational health and environmental safety divisions at 3M. | |||
Committees: Audit and Public Policy and Sustainability | Key Skills: C-Suite, Finance, Global Business, Risk Management, Environmental | Other current directorships: Adient plc and Bio-Techne Corporation | ||
![]() | Lisa A. Davis, 57 – Director since 2020 Former member of Managing Board of Siemens AG and CEO for Siemens Gas and Power (2014 to 2020) Experience: Ms. Davis brings significant industry experience to the Board through her roles at Siemens, as well as over 25 years in engineering and management roles at large integrated oil companies including ExxonMobil, Texaco and Shell, including executive vice president strategy and portfolio at Shell. Ms. Davis’s career has provided her with each of the skills sought by the Board. | ||
Committees:Compensation and Public Policy and Sustainability | Key Skills: C-Suite, Finance, Global Business, Risk Management, Industry | Other current directorships: Air Products and Chemicals, Kosmos Energy and Penske Automotive Group | |
16 PHILLIPS 66 PROXY STATEMENT 2021 |
PROPOSAL 2: MANAGEMENT PROPOSAL REGARDING ANNUAL ELECTION OF DIRECTORS |
PROPOSAL 2: MANAGEMENT PROPOSAL REGARDING ANNUAL ELECTION OF DIRECTORS
Currently, the Amended and Restated Certificate of Incorporation (the “Certificate of Incorporation”) of the Company provides for a staggered Board, divided into three classes of directors, with each class elected for a three-year term.
After considering the advantages and disadvantages of declassification, including the opinion of our shareholders, the Board has determined it is in the best interests of the Company and its shareholders to amend the Certificate of Incorporation and the By-Laws of the Company to declassify the Board over the next three years. This will result in a fully declassified Board by the 2024 Annual Meeting of Shareholders.
THE BOARD RECOMMENDS THAT YOU VOTE “FOR” THE PROPOSAL TO AMEND THE |
The affirmative vote of the holders of 80% of the outstanding shares of stock entitled to vote is required to approve this proposal. We submitted this proposal in 2015, 2016 and 2018 and, while it received significant support, it did not receive the 80% vote required for adoption. Because brokers may not cast a vote on this proposal without your instruction, it is very important that you vote your shares.
The proposed amendment to the Certificate of Incorporation would eliminate the classification of the Board over a three-year period and provide for the annual election of all directors beginning at the 2024 Annual Meeting of Shareholders. The proposed amendment to the Certificate of Incorporation would become effective upon the filing of a Certificate of Amendment with the Secretary of State of the State of Delaware, which the Company would file promptly following the Annual Meeting if our shareholders approve the amendment. Board declassification would be phased-in over a three-year period, beginning at the 2022 Annual Meeting of Shareholders, as follows:
· | Nominees at this Annual Meeting will be elected to serve a three-year period ending at the 2024 Annual Meeting. |
· | Directors whose terms end at the 2022 Annual Meeting will continue to serve until that meeting. At the 2022 Annual Meeting, they will be elected for one-year terms ending at the 2023 Annual Meeting. |
· | Directors whose terms end at the 2023 Annual Meeting will be elected for one-year terms ending at the 2024 Annual Meeting. |
· | At the 2024 Annual Meeting, all nominees presented for election to the Board at the 2024 Annual Meeting will be elected to one-year terms. |
Beginning with the 2024 Annual Meeting of Shareholders, all directors will stand for election at each annual meeting of shareholders for a one-year term expiring at the subsequent annual meeting of shareholders. The proposed amendment does not change the number of directors or the Board's authority to change that number and to fill any vacancies or newly created directorships.
Delaware law provides, unless otherwise addressed in the certificate of incorporation, that members of a board that is classified may be removed only for cause. The proposed amendment provides that, once the Compensation Committee during fiscal year 2019 orBoard is fully declassified as of the date2024 Annual Meeting of Shareholders, directors may be removed with or without cause. Before that time, directors serving in a class elected at any annual meeting between 2019 through 2021 may be removed only for cause. Directors elected for a one-year term at each annual meeting between 2022 through 2023 may be removed with or without cause.
The proposed Certificate of Amendment to the Certificate of Incorporation is attached to this proxy statementProxy Statement as Appendix A. If our shareholders approve the proposed amendment to the Certificate of Incorporation, the Board will make certain conforming changes to the Company’s By-Laws.
PHILLIPS 66 PROXY STATEMENT 2021 17 |
BENEFICIAL OWNERSHIP OF PHILLIPS 66 SECURITIES |
BENEFICIAL OWNERSHIP OF PHILLIPS 66 SECURITIES
SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth information regarding persons who we know to be the beneficial owners of more than five percent of our issued and outstanding common stock as of December 31, 2020. The information is or has been an officer or employeebased on reports filed by such person with the SEC:
NAME AND ADDRESS | NUMBER OF SHARES | PERCENT OF CLASS | ||
The Vanguard Group(1) 100 Vanguard Blvd. Malvern, PA 19335 | 42,759,263 | 9.79 | % | |
BlackRock, Inc.(2) 55 East 52nd Street New York, NY 10055 | 32,908,454 | 7.5 | % | |
State Street Corporation(3) One Lincoln Street Boston, MA 02111 | 26,710,734
| 6.12 | % | |
(1) | Based solely on an Amendment to Schedule 13G filed with the SEC on February 10, 2021, by The Vanguard Group on behalf of itself, Vanguard Asset Management, Limited, Vanguard Fiduciary Trust Company, Vanguard Global Advisors, LLC, Vanguard Group (Ireland) Limited, Vanguard Investments Australia Ltd, Vanguard Investments Canada Inc., Vanguard Investments Hong Kong Limited and Vanguard Investments UK, Limited. The Amendment to Schedule 13G reports sole voting power for no shares of common stock, shared voting power for 694,259 shares of common stock, sole dispositive power for 40,851,991 shares of common stock and shared dispositive power for 1,907,272 shares of common stock. |
(2) | Based solely on an Amendment to Schedule 13G filed with the SEC on January 29, 2021, by BlackRock, Inc. on behalf of itself, BlackRock Life Limited, BlackRock International Limited, BlackRock Advisors, LLC, BlackRock (Netherlands) B.V., BlackRock Institutional Trust Company, National Association, BlackRock Asset Management Ireland Limited, BlackRock Financial Management, Inc., BlackRock Japan Co., Ltd., BlackRock Asset Management Schweiz AG, BlackRock Investment Management, LLC, FutureAdvisor, Inc., BlackRock Investment Management (UK) Limited, BlackRock Asset Management Canada Limited, BlackRock (Luxembourg) S.A., BlackRock Investment Management (Australia) Limited, BlackRock Advisors (UK) Limited, BlackRock Fund Advisors, BlackRock Asset Management North Asia Limited, BlackRock (Singapore) Limited and BlackRock Fund Managers Ltd. The Amendment to Schedule 13G reports sole voting power for 27,404,629 shares of common stock, no shared voting power for shares of common stock, sole dispositive power for 32,908,454 shares of common stock and no shared dispositive power for shares of common stock. |
(3) | Based solely on a Schedule 13G filed with the SEC on February 9, 2021, by State Street Corporation on behalf of itself, State Street Bank And Trust Company, SSGA Funds Management, Inc, State Street Global Advisors Limited (UK), State Street Global Advisors Ltd (Canada), State Street Global Advisors, Australia Limited, State Street Global Advisors (Japan) Co., Ltd, State Street Global Advisors Asia Ltd, State Street Global Advisors Singapore Ltd, State Street Global Advisors GmbH, State Street Global Advisors Ireland Limited, and State Street Global Advisors Trust Company. The Schedule 13G reports sole voting power for no shares of common stock, shared voting power for 24,362,349 shares of common stock, sole dispositive power for no shares of common stock and shared dispositive power for 26,680,953 shares of common stock. |
SECURITIES OWNERSHIP OF OFFICERS AND DIRECTORS
This table lists the beneficial ownership of Phillips 66our common stock as of February 15, 2021, by all directors and nonominees, the executive officerofficers named in the Summary Compensation Table, and by all of Phillips 66 served on the compensation committee or boardour directors and executive officers as a group. Together these individuals beneficially own less than one percent of any company that employed any member of Phillips 66’s Compensation Committee or Board.our common stock.
18 PHILLIPS 66 PROXY STATEMENT 2021 |
BENEFICIAL OWNERSHIP OF PHILLIPS 66 SECURITIES |
NUMBER OF SHARES OR UNITS | |||
NAME OF BENEFICIAL OWNER | SHARES | RESTRICTED OR | OPTIONS |
Mr. Garland | 532,974 | 109,885 | 1,111,733 |
Mr. Herman | 39,760 | 75,762 | 169,866 |
Ms. Johnson | 77,416 | 26,787 | 193,333 |
Mr. Mitchell | 49,047 | 39,777 | 172,599 |
Mr. Roberts | 11,367 | 29,491 | 122,166 |
Mr. Adams | 12,984 | -- | -- |
Ms. Bushman | -- | 4,305 | -- |
Ms. Davis | 3,646 | -- | -- |
Mr. Holley | 77 | 5,775 | -- |
Mr. Lowe | 40,000 | 30,403 | -- |
Mr. McGraw(3) | 873 | 52,122 | -- |
Ms. Ramos | -- | 12,773 | -- |
Mr. Tilton | 5,900 | 30,403 | -- |
Ms. Tschinkel | 51,757 | 9,303 | -- |
Dr. Whittington | 2,500 | 30,403 | -- |
Directors and Executive Officers as a Group (17 Persons) | 858,259 | 488,437 | 1,882,529 |
(1) | Includes RSUs or deferred stock units that may be voted or sold only upon passage of time. |
(2) | Includes beneficial ownership of shares of common stock which may be acquired within 60 days of February 15, 2021, through stock options awarded under compensation plans. |
(3) | Includes 373 shares for which Mr. McGraw disclaims beneficial ownership. These shares are held in a foundation and in various trusts for which Mr. McGraw serves on the board or as trustee, as applicable. |
PHILLIPS 66 PROXY STATEMENT 2021 19 |
CORPORATE RESPONSIBILITY |
SHAREHOLDER AND COMMUNITY ENGAGEMENTCORPORATE RESPONSIBILITY
At Phillips 66, we believe that we succeed together as a team, leveraging our diverse experiences and thoughts in an environment that thrives on collaboration. We embrace engagement as an important tenet of good governance, and value the views of our shareholders and other stakeholders. We believe that positive dialogue builds informed relationships that promote transparency and accountability. Although theour Lead Director or other members of the Board are available to participate in meetings with shareholders as appropriate, management has the principal responsibility for shareholder communication.
For several years, Phillips 66 has conducted a formal shareholder outreach program to listen to investor perspectives on our business strategy; corporate governance; executive compensation programs; environmental, social and governance (“ESG”); and other matters that are important to our investors. Information and feedback received through our engagement activities are shared with our executive leadership team and the Board of Directors, which help inform their decisions and oversight, respectively. In 2020, we engaged with representatives of many of our top institutional shareholders and discussed the energy transition and our sustainability efforts; board composition, refreshment and tenure; inclusion and diversity; our response to COVID-19; and executive compensation. Our year-round focus on investor engagement is described below:
April to June Meet with shareholders about annual meeting matters, including any management and shareholder proposals | ![]() | July to September Plan engagements, topics for discussion and any changes for upcoming year; assess feedback and share with Board |
Complete meetings, review feedback and share with management, discuss any proposals with proponents |
Meet with shareholders, modify meeting content based on early feedback, and identify areas of interest or concern |
This year, we heard that our investors are interested in, and supportive of, our Board refreshment efforts, as well as our work towards setting targets for greenhouse gas emissions reductions. We also heard that investors are interested in additional disclosures on human capital management and our efforts to declassify our Board. We are committed to continued shareholder engagement. Highlights of some of the actions we have taken in response to our engagements over the last several years are shown below:
2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 |
Adopted proxy access bylaw Sought shareholder approval of declassification Refreshed sustainability information on website | Added two new independent directors Sought shareholder approval of declassification
| Expanded sustainability disclosures from website to report
| Committed to diverse director candidate pools Sought shareholder approval of declassification Initial TCFD*-informed sustainability report | Added new independent director
| Incorporated TCFD* and SASB* into sustainability report Added two new independent directors Enhanced lobbying disclosures | Seeking shareholder approval of declassification Published Human Capital Management Report
|
*TCFD is the Task Force on Climate-Related Financial Disclosures and SASB is the Sustainability Accounting Standards Board.
20 PHILLIPS 66 PROXY STATEMENT 2021 |
CORPORATE RESPONSIBILITY |
Our Board recognizes the importance of our human capital practices in creating value and supporting our vision. Our ability to attract, retain and develop talented employees, and create a workplace where they can innovate and thrive, is an integral part of our competitive strategy to drive long-term value and mitigate risk.
To that end, our Board routinely engages with senior leadership on matters such as talent pipeline, turnover, workplace culture, and inclusion and diversity. Results of employee surveys and metrics on talent and diversity initiatives are reviewed by the Board on a regular basis. This oversight responsibility sits with the full Board. In addition, certain human capital metrics have been and continue to be measured, reviewed and managed as part of our compensation program and are discussed by the Compensation Committee in its regular meetings. The table below provides an overview of certain of our human capital practices. More information regarding our human capital practices can be found in our Human Capital Management Report on our website at www.phillips66.com.
Corporate Culture and Employee Engagement | Inclusion and Diversity | |
Our culture is built on our values of safety, honor and commitment. After learning how our employees experience our culture, we developed a set of behaviors called “Our Energy in Action.” | We value inclusion and diversity (I&D) — concepts that are interdependent and equally important. They are essential to who we are, what we believe and how we do business. | |
·Work for the Greater Good: We embrace our values as a common bond. Living our values earns us the confidence of our business partners, communities and co-workers. ·Create an Environment of Trust: We depend on each other to do our jobs. Trusting each other makes us more productive and agile. ·Seek Different Perspectives: We create space for possibilities. Championing inclusion enables us to innovate and thrive. ·Achieve Excellence: We challenge ourselves and never settle. Continuing to improve ensures we deliver extraordinary performance. ·Employee Engagement Survey: We conduct biennial confidential employee engagement surveys to gather employee perspectives on their experience working at Phillips 66. Results are available to all employees and are made available to our Board. Management analyzes findings to identify progress on previous recommendations and areas of continued opportunity. | ·Commitment to Diversity: We foster a culture of inclusion because in its absence, diversity cannot thrive. We enhance representation through attraction and retention, and promote environments free of biases where all employees feel valued, respected and belonging. ·Executive Inclusion and Diversity Council (I&D Council): an advisory group committed to building an inclusive and diverse workplace. Established in 2019, the I&D Council sets the strategic vision from the top and throughout our organization for I&D efforts that drive innovation and enhance business outcomes. ·Employee Resource Groups (ERGs): Designed to be forums for sharing ideas and raising awareness around identity and belonging, our nine ERGs have over 50 chapters throughout the Company. ·Inclusive Benefits: We offer various benefits to eligible employees and their families including parental leave; adoption assistance; flex time; family, personal, military & disability leave; gender transition support; and natural disaster financial support. | |
Health, Safety and Wellness | Talent Retention and Development | |
We are proud to be one of the energy industry’s safest and most reliable companies. We also inspire life-long healthy choices, educating and supporting employees through fitness programs and services. | We regularly provide opportunities for employees to deepen expertise and further enhance foundational skills like communication and team building. We are also building our pipeline of talent through recruiting diverse internship classes. | |
·Safety Performance: Our safety culture, comprehensive HSE policies, management systems and the commitment of employees and contractors who | ·Attracting and Retaining the Best People: We recognize that executing our corporate strategy depends on the talents of our high-performing |
PHILLIPS 66 PROXY STATEMENT 2021 21 |
CORPORATE RESPONSIBILITY |
work for us resulted in a total recordable incident rate (TRR) of 0.11 in 2020, which is 30 times lower than the overall U.S. manufacturing average in 2019. ·Technology to Create Community: We are using technology, including apps that allow employees to share information such as safety learnings and report near misses in real time. Our cloud-based solutions promote collaboration and teamwork, including a Parent’s Hub for our working parents and a Pandemic Prevention Control Team hub to keep our employees informed about COVID-19 safe practices. ·Employee Wellness: Our fitness centers offer a variety of services, including group classes, personal training, and fitness assessments, where members can focus on becoming healthier. We also provide on-site medical and dental at some of our locations, as well as an Employee Assistance Program to all employees. | organization. We are committed to attracting and retaining the best talent for our business. ·Investing in our People: We offer employees various opportunities for career growth, including on-demand professional development for employees through digital learning platforms; specialized training for employees in operator roles, engineering, sales and finance; “Lunch and Learn” sessions on a variety of topics and more. ·Leadership Development Programs: “Leading the Vision” and “Leading for Success” programs advance continuous coaching skills for our people leaders. ·Internships: We provide paid internships at every major U.S. job location, offering students opportunities to learn and play a role in our organization’s success. In 2020, we honored our intern commitments by pivoting to a virtual experience. |
COMMUNITY INVOLVEMENT AND ENGAGEMENT
We are committed to creating value for our communities through economic development, philanthropy, volunteerism and advocacy, and by operating our business in a socially and environmentally responsible way. In 2020, much of our focus was on helping those impacted by COVID-19, as well as by hurricanes in the Gulf Coast and wildfires on the West Coast. We contributed $6 million to COVID-19 and natural disaster relief efforts across the U.S. and the U.K. Through our matching gift program, we contributed over $5 million to over 2,000 organizations supported by employees. Additionally, we awarded over $1.5 million in volunteer grants to over 600 organizations where our employees and their families volunteer.
The communities in which our assets are located and in which we operatewhere our employees live are critical stakeholders. We consistently and regularly engage with our local communities and seek their feedback. Our refining operations have community advisory councils or panels that include both Company representatives and community members. Many panels include adjacent operations from our midstream and lubricants businesses. These panels meet at least quarterly with refinery management to provide feedback, discuss topics of local concern and share insights on plans and activities. Our pipeline business units have year-round community awareness, education and listening panels to stay connected with those involved with and affected byliving near our extensive pipeline network.
POLITICAL ACTIVITIES AND LOBBYING ACTIVITIES
We also believe that engagement and good governance involveinvolves participating in political or public policy activities that advance the Company’sCompany's goals, are consistent with Company values, and improve the communities where we work and live. A number of federal, state and local laws govern corporate involvement in such activities, and we maintain policies, procedures and programs to comply with these laws. Additional informationOur policy, contributions and disclosures about our involvement in political or public policy activities isare available on our website.
Shareholder Engagement
For several years, Phillips 66 has conducted a formal shareholder outreach program to listen to investor perspectives on our business strategy, corporate governance, executive compensation program, ESG, and other matters that are important to our investors. We solicit feedback from a range of investors, including institutional investors, asset managers, public and labor union pension funds, and socially responsible investors.SUSTAINABILITY AND TRANSITION TO LOWER-CARBON FUTURE
2020 PROXY STATEMENT 17
CORPORATE GOVERNANCE AT PHILLIPS 66
Information and feedback received through our engagement activities are shared with our executive leadership team and the Board of Directors, which help inform their decisions. In 2019, we engaged with representatives of many of our top institutional shareholders to discuss strategy, ESG, board composition, refreshment and tenure, risk management, climate change and sustainability efforts, governance practices, and executive compensation.
We are committed to continued engagement. Over the last few years, we have made changes and taken action in response to shareholder feedback as well as our commitment to ongoing improvement. Examples of these improvements include:
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CORPORATE RESPONSIBILITY AND SUSTAINABILITY
Phillips 66 is dedicated to meeting the world’s energy needs responsibly, efficiently and sustainably. For us, sustainability means manufacturing and delivering affordable, clean products in a safe and environmentally sound manner. Our sustainability efforts are built on four pillars: operational excellence, environmental commitment, social responsibility and economic performance. Our Board of Directors oversees these efforts, including through the work of its committees. For more information, seeBOARD’S ROLE IN RISK OVERSIGHT.
We recognize the climate challenge and are making investments that advance a lower carbon future. We are focused on implementingbest-in-class sustainability practices today and into the future and are seeking solutions for tomorrow’s energy needs. We formed a new organization, Emerging Energy, within the Company to focus on a lower-carbon business platform. We are conducting research on energyenergies of the future, including renewable fuels, organic photovoltaics, current and next generation batteries, and solid oxide fuel cells. In addition, we have a portfolio of renewable fuel projects in development that comply withlow-carbon fuel standards. We are leveraging our existing infrastructure, supply network and capabilities. Below are some of the things we are doing today, as well as some of the projects we are pursuingcapabilities to position Phillips 66 to be competitive long-term.
Producing renewable diesel from used cooking oil at our Humber Refinery
Supplying the feedstock to make anodes and lithium ion batteries for electric vehicles and electronic devices
Testing alternative fuels at our franchise marketing sitesparticipate in lower carbon businesses. More information on the U.S. West Coast
Installed our first hydrogen pump station in Switzerland, with plans to add two to three more per year
Manufacturing the next generation of low viscosity heavy duty engine oil to improve fuel economy by 1% to 2%
Providing supplyCompany sustainability strategy and offtake for two third-party renewable diesel facilities under construction in Nevada
18 2020 PROXY STATEMENT
CORPORATE GOVERNANCE AT PHILLIPS 66
Developing a renewable diesel project at our San Francisco Refinery
Evaluating solar energy to power our pipelines and refineries
Progressing an industrial scale renewable hydrogen project at our Humber Refinery
Corporate Culture
We believe that our success depends on our employees and that our people and our culture provide a significant strategic advantage in helping us achieve our objectives for our stakeholders. In 2019, we launchedOur Energy in Action, a set of behavioral expectations that preserve what make us great and challenge us to evolve in ways that make us better and keep us competitive.Our Energy in Actionprograms is how we treat each other, our customers and our communities.
We also believe that we must protect, nurture and celebrate our differences as a competitive advantage that positions us for successavailable in our industry. The talented people who make up our Company are widely divergent in their visible and invisible differences: in gender, race, ethnicity, age, national origin, disability, sexual orientation, gender identity, veteran status, education and religion. Because of this diversity, it is critical that we have an environment where the experiences and perspectives of all employees are valued and respected. While both sides of the diversity and inclusion equation hold equal importance, it is our belief that in the absence of inclusion, diversity cannot thrive. For this reason, we lead withinclusion in our Inclusion & Diversity (I&D) efforts. In 2019 we established an Executive Inclusion and Diversity Council, chaired by our Chairman and CEO, to focus on advancing our strategic vision, evaluating progress and monitoring emerging topics that could influence where we prioritize our efforts. To further demonstrate leaderships’ commitment, we transitioned to an enterprise leadership structure for our Employee Resource Groups (“ERGs”), networks that focus on professional development, networking, raising cultural awareness and community involvement. Each of our ERGs now has an Executive Champion from our Executive Leadership Team.
Community Involvement
We are committed to creating value for our communities through economic development, philanthropy, volunteerism and advocacy, and by operating our business in a socially and environmentally responsible way. Phillips 66 provided $28 million in financial support to organizations promoting education, environmental sustainability and community safety and preparedness. We value volunteerism, and to promote and support community service, we provide eligible employees two paid days for volunteering in the community. In 2019, our employees volunteered a record-breaking 88,000 hours to organizations in their local communities. We also support our employees’ causes through matching gift and volunteer grants, and provided $7.2 million in matching gifts, volunteer grants and dependent scholarships in 2019.
2020 PROXY STATEMENT 19
CORPORATE GOVERNANCE AT PHILLIPS 66
CODE OF BUSINESS ETHICS AND CONDUCT
Our values are our foundation—our guiding principles for how we conduct our business day in and day out. We also recognize that questions arise in today’s increasingly complex global business environment. We have adopted a Code of Business Ethics and Conduct designed to provide guidance on how to act legally and ethically while performing work for Phillips 66. Our Code of Business Ethics and Conduct covers topics including, but not limited to, conflicts of interest, insider trading, competition and fair dealing, discrimination and harassment, confidentiality, payments to government personnel, anti-boycott laws, U.S. embargoes and sanctions, compliance procedures and employee complaint procedures. All of our directors and employees are required to comply with the Code of Business Ethics and Conduct. We also have adopted an additional Code of Ethics that applies to senior financial officers. Both Codes can be found on our website and are available in print to any shareholder upon request. We intend to disclose any amendment to, or waiver from, either of the Codes by posting such informationreport on our website.
22 PHILLIPS 66 PROXY STATEMENT 2021 |
To support shareholder engagement, the Company maintains a process for shareholders and interested parties to communicate with the Board of Directors. Shareholders and interested parties may communicate with thenon-employee directors or with the entire Board of Directors, as indicated by such shareholder or interested party, by contacting our Corporate Secretary, Paula A. Johnson, as provided below:
| ||
Communications to thenon-employee directors should be addressed to “Board of Directors (independent members)” in care of our Corporate Secretary as provided above.
Relevant communications are distributed to the Board of Directors or to any individual director or directors, as appropriate, depending on the facts and circumstances outlined in the communication. In that regard, the Board has requested that certain items unrelated to its duties and responsibilities not be distributed, such as: business solicitations or advertisements; junk mail and mass mailings; new product suggestions; product complaints; product inquiries; résumés and other forms of job inquiries; spam; and surveys. In addition, material that is considered hostile, threatening, illegal or similarly unsuitable will be excluded.
20 2020 PROXY STATEMENT
PROPOSAL 2: 3: RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG LLP
The Audit Committee is directly responsible for the appointment, compensation, retention and oversight of the independent registered public accounting firm retained to audit the Company’sCompany's financial statements. The Audit Committee has appointed Ernst & Young LLP to serve as the Company’sCompany's independent registered public accounting firm for fiscal year 2020.2021. Ernst & Young has acted as the Company’sCompany's independent registered public accounting firm continuously since 2011.
The Audit Committee annually considers the independence of the Company’s independent auditors prior to the firm’s engagement, and periodically considers whether a regular rotation of the independent auditors is necessary to assure continuing independence. The Audit Committee and its ChairmanChair are directly involved in the selection of Ernst & Young’s lead engagement partner.
The Audit Committee and the Board of Directors believe that the continued retention of Ernst & Young is in the best interests of the Company and its shareholders. We are asking you to vote on a proposal to ratify the appointment of Ernst & Young.
THE BOARD RECOMMENDS THAT YOU VOTE “FOR” THE PROPOSAL TO RATIFY THE APPOINTMENT OF ERNST & YOUNG LLP.
THE BOARD RECOMMENDS THAT YOU VOTE “FOR” THE PROPOSAL TO RATIFY THE |
The submission of this matter for approval by shareholders is not legally required, but the Board and the Audit Committee believe it provides an opportunity for shareholders to vote on an important aspect of corporate governance. If the shareholders do not ratify the selection of Ernst & Young, the Audit Committee will reconsider the selection of that firm as the Company’s independent registered public accounting firm. Even if the selection is ratified, the Audit Committee in its discretion may select a different independent registered public accounting firm at any time during the year if it determines that such a change would be in the best interests of the Company and its shareholders.
Services Provided by the Independent Registered Public Accounting Firm
Audit services of Ernst & Young for fiscal year 20192020 included an audit of our consolidated financial statements, an audit of the effectiveness of the Company’sCompany's internal control over financial reporting, and services related to periodic filings made with the SEC. Additionally, Ernst & Young provided certain other services as described below. In connection with the audit of the 20192020 consolidated financial statements, we entered into an engagement agreement with Ernst & Young that set forth the terms by which Ernst & Young performed audit services for us.
The Audit Committee is responsible for negotiating the audit fee associated with its retention of Ernst & Young. Ernst & Young’sYoung's fees for professional services totaled $12.7 million for 2020 and $14.5 million for 2019, and $13.2 million for 2018, which consisted of the following:
Fees (in millions) | 2019 | 2018 | 2020 | 2019 | ||||||
Audit Fees(1) | $13.0 | $12.1 | $11.4 | $13.0 | ||||||
Audit-Related Fees(2) | 1.2 | 0.8 | 1.0 | 1.2 | ||||||
Tax Fees(3) | 0.1 | 0.1 | 0.1 | |||||||
All Other Fees | 0.2 | 0.2 | 0.2 | |||||||
Total | $14.5 | $13.2 | $12.7 | $14.5 |
(1) | Fees for audit services related to the fiscal year consolidated audit, the audit of the effectiveness of internal controls over financial reporting, quarterly reviews, registration statements, comfort letters, statutory and regulatory audits and accounting consultations. Includes audit fees of Phillips 66 Partners LP of $0.9 million for 2020 and $1.3 million for |
PHILLIPS 66 PROXY STATEMENT 2021 23 |
PROPOSAL 3: RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG |
(2) | Fees for audit-related services related to audits in connection with proposed or consummated dispositions, benefit plan audits, other subsidiary audits, special reports, and accounting consultations. |
(3) | Fees for tax services related to tax compliance services and tax planning and advisory services. |
The Audit Committee has considered whether thenon-audit services provided to Phillips 66 by Ernst & Young impaired the independence of Ernst & Young and concluded they did not.
The Audit Committee has adopted apre-approval policy that provides guidelines for the audit, audit-related, tax and othernon-audit services that Ernst & Young may provide to the Company. All of the fees in the table above were approved in accordance with this policy. The policy (a) identifies the guiding principles that the Audit Committee must consider in approving services to ensure that Ernst & Young’sYoung's independence is not impaired; (b) describes the audit, audit-related, tax and other services that may be provided and thenon-audit services that are prohibited; and (c) sets forthpre-approval requirements for all permitted services. Under the policy, the Audit Committee mustpre-approve all services to be provided by Ernst & Young. The
2020 PROXY STATEMENT 21
PROPOSAL 2: RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG LLP
Audit Committee has delegated authority to approve permitted services to its Chair. Such approval must be reported to the entire Audit Committee at its next scheduled meeting.
One or more representatives of Ernst & Young are expected to be present at the Annual Meeting. The representatives will have an opportunity to make a statement if they desire and will be available to respond to appropriate questions from shareholders.
24 PHILLIPS 66 PROXY STATEMENT 2021 |
PROPOSAL 3: RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG |
AUDIT AND FINANCE COMMITTEE REPORT
The Audit Committee assists the Board of Directors in fulfilling its responsibility to provide independent, objective oversight of the financial reporting functions and internal control systems of Phillips 66. The Audit Committee currently consists of fivenon-employee directors. The Board has determined that each member of the Audit Committee satisfies the requirements of the NYSE as to independence, financial literacy and expertise. The Board has further determined that each of J. Brian Ferguson, Charles M. Holley, John E. Lowe, and Denise L. Ramos is an audit committee financial expert as defined by the SEC. The responsibilities of the Audit Committee are set forth in the written charter adopted by the Board of Directors, which is available in the “Investors” section of the Company’sCompany's website under the caption “Corporate“Corporate Governance.” One of the Audit Committee’sCommittee's primary responsibilities is to assist the Board in its oversight of the integrity of the Company’sCompany's financial statements. The following report summarizes certain of the Audit Committee’sCommittee's activities in this regard for 2019.2020.
Review with Management.The Audit Committee has reviewed and discussed with management the audited consolidated financial statements of Phillips 66 included in the Company’sCompany's Annual Report onForm 10-K for the year ended December 31, 2019,2020, and management’smanagement's assessment of the effectiveness of the Company’sCompany's internal control over financial reporting as of December 31, 2019,2020, included therein.
Discussions with Independent Registered Public Accounting Firm.The Audit Committee has discussed with Ernst & Young LLP, independent registered public accounting firm for Phillips 66, the matters required to be discussed by the applicable requirements of the Public Company Accounting Oversight Board and the SEC. The Audit Committee has received the written disclosures and the letter from Ernst & Young required by applicable requirements of the Public Company Accounting Oversight Board regarding the independent accountant’saccountant's communications with the Audit Committee concerning independence, and has discussed with that firm its independence from Phillips 66.
Recommendation to the Phillips 66 Board of Directors.Based on its review and discussions noted above, the Audit Committee recommended to the Board of Directors that the audited consolidated financial statements of Phillips 66 be included in the Company’sCompany's Annual Report onForm 10-K for the year ended December 31, 2019.2020.
AUDIT AND FINANCE COMMITTEE
J. Brian Ferguson,
John E. Lowe, Chairman
Julie L. Bushman
Charles M. Holley
John E. Lowe
Denise L. Ramos
Victoria J. Tschinkel
22 2020
PHILLIPS 66 PROXY STATEMENT 2021 25 |
COMPENSATION DISCUSSION AND ANALYSIS |
PROPOSAL 3: 4: ADVISORY APPROVAL OF EXECUTIVE COMPENSATION
In accordance with Section 14A of the Securities Exchange Act of 1934, as amended, shareholders are being asked to vote on the following advisory(non-binding) resolution:
RESOLVED, that the shareholders approve the compensation of Phillips 66’s66's Named Executive Officers (NEOs) as described in this proxy statementProxy Statement in theCOMPENSATION DISCUSSION AND ANALYSIS section and in theEXECUTIVE COMPENSATION TABLES (together with the accompanying narrative disclosures).
THE BOARD RECOMMENDS THAT YOU VOTE “FOR” THE ADVISORY APPROVAL OF THE COMPENSATION OF THE COMPANY’S NAMED EXECUTIVE OFFICERS.
THE BOARD RECOMMENDS THAT YOU VOTE “FOR” THE ADVISORY APPROVAL OF THE |
Approval of this proposal requires the affirmative vote of a majority of the shares present in person or represented by proxy at the meeting and entitled to vote on the proposal.
As required by SEC rules, Phillips 66 is providing shareholders with the opportunity to vote on an advisory resolution, commonly known as“Say-on-Pay, “Say-on-Pay,” considering approval of the compensation of its NEOs.
The Compensation Committee, which is responsible for the compensation of our CEO and Senior Officers (as defined inROLE OF THE HUMAN RESOURCES AND COMPENSATION COMMITTEE), has overseen the development of compensation programs designed to attract, retain and motivate executives who enable us to achieve our strategic and financial goals. TheCOMPENSATION DISCUSSION AND ANALYSIS and theEXECUTIVE COMPENSATION TABLES, together with the accompanying narrative disclosures, allow you to view the trends in compensation and application of our compensation philosophies and practices for the years presented.
The Board of Directors believes that the Phillips 66 executive compensation programs align the interests of our executives with those of our shareholders. Our compensation programs are guided by the philosophy that the Company’sCompany's ability to provide sustainable value is driven by superior individual performance. The Board believes that a company must offer competitive compensation to attract and retain experienced, talented and motivated employees. In addition, the Board believes employees in leadership roles within the organization are motivated to perform at their highest levels when performance-based pay represents a significant portion of their compensation. The Board believes that our philosophy and practices have resulted in executive compensation decisions that are aligned with Company and individual performance, are appropriate in value, and have benefited the Company and its shareholders.
Because your vote is advisory, it will not be binding upon the Board of Directors. Nevertheless, the Compensation Committee and the Board will consider the outcome of the vote when evaluating future executive compensation arrangements. However, votes for or against our compensation programs will not necessarily inform the Compensation Committee and the Board about which elements of those programs shareholders approve or disapprove. For this reason, the Board encourages shareholders to engage with us to allow the Compensation Committee to understand shareholders’shareholders' views and consider that feedback when making decisions.
26 PHILLIPS 66 PROXY STATEMENT 2021 |
2020 PROXY STATEMENT 23
PROPOSAL 4: ADVISORY APPROVAL OF EXECUTIVE COMPENSATION |
COMPENSATION DISCUSSION AND ANALYSIS
This Compensation Discussion and Analysis details our executive compensation programs and describes the decisions the Compensation Committee made regarding our named executive officers’ compensation for 2019.
Our performance results and strategic highlights are presented below. The compensation decisions reflected in this Compensation Discussion and Analysis (“CD&A”) demonstrate the Compensation Committee’s disciplined and rigorous application of the Phillips 66 compensation philosophy, program structure and performance standards relative to the 2020 performance of Phillips 66 and the named executive officers. Some of these results are not measures of financial performance under U.S. generally accepted accounting principles (GAAP), for which more information is available inAppendix AB.
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| Top Performance | ||
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Digital Innovation |
| |||
![]() Production | Produced record ethylene and polyethylene volumes through our joint venture, Chevron Phillips Chemical Company. | |||
Growth | +900,000
|
| ||
+300,000 | ||||
Emerging Energy | Established Emerging Energy organization dedicated to commercializing renewable, lower-carbon technologies for a sustainable future. | |||
+50,000 | Announced plans for Rodeo Renewed – projected production of 50,000 BPD of | |||
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| |||
Returns | $2.1 B | |||
![]() $1.2 | ||||
Product Placement | Expanded retail presence through addition of 95 sites to our West Coast joint venture; upgraded 1,257 sites globally. | |||
| Preserved Liquidity | |||
$1.6 B | Maintained competitive dividend – distributions to shareholders through dividends | |||
(-33%) | ||||
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| Inclusion & Diversity | ||
Community Response | ||||
|
PHILLIPS 66 PROXY STATEMENT 2021 27 |
COMPENSATION DISCUSSION AND ANALYSIS |
COVID-19 Response
COVID-19 has had significant, far-reaching impacts on the global economy and its citizens. Our top priority has been the health and safety of our Company, our employees and their families, and the communities in which we live and work. Highlights of our efforts are presented below:
Our People | üNo Company-wide reductions in workforce, furloughs, or salary or benefit reductions üProvide personal protective equipment (e.g., masks, sanitizer, etc.) üRequire temperature checks, face coverings in common areas and pre-screening questionnaire for employees working onsite üReconfigured site and work areas to ensure social distancing üIn-house medical services provide guidance and lead contact tracing protocols |
Our | üContinued to provide energy as an essential business to our communities üContributed $6 million to COVID-19 and natural disaster relief efforts across the U.S. and U.K. üDelivered 18,000 pieces of personal protective equipment to front-line workers üHonored our commitment to host virtual internship program and provide university and dependent scholarships |
Our Business | üExceeded $500 million in cost reductions and cut capital spending by more than $700 million üSuspended share repurchases in March 2020 üAdded debt with repayment flexibility, positioning us to navigate uncertain environment üOperated safely and reliably, providing critical energy products to our customers |
No Change to Compensation Programs Related to COVID-19
This year tested the resilience and effectiveness of our compensation program design and targets, particularly in a challenging economic environment. As the year progressed, the Compensation Committee monitored the Company’s performance relative to the originally approved targets and determined that the programs were functioning as intended and no adjustments were warranted. Specifically, we are pleased to highlight that we did not:
х | Make any one-time special awards |
х | Change or modify the targets or metrics for the 2020 Variable Cash Incentive Program |
х | Change or modify the terms, conditions, targets or metrics for any in-process long-term incentive compensation programs |
The payouts for our 2020 VCIP and Performance Share Program 2018 – 2020 described in this CD&A were based on the Company’s performance relative to the originally approved metrics with no adjustments.
EXECUTIVE COMPENSATION PROGRAM SUMMARY
Although we operate in a volatile industry, our diversified portfolio enables us to be resilient through industry cycles. Through our disciplined capital allocation model, we increase our enterprise value by strategically investing capital in our higher-valued businesses while returning a significant portion of capital to shareholders through dividends and share repurchases.
Since our inception in 2012, our strategy is unchanged and we have operated with clear objectives—objectives − enable our high-performing workforce to execute our corporate strategy efficiently and effectively, while remaining vigilant and focused on safety and operating excellence, in order to deliver profitable growth, enhance returns, and provide a secure, competitive and growing dividend.
We operate in a volatile industry and the events of 2020, including the COVID-19 pandemic, social unrest and natural disasters, challenged the resiliency of our diversified portfolio, our strategy and our employees. Through our
24 2020
28 PHILLIPS 66 PROXY STATEMENT 2021 |
COMPENSATION DISCUSSION AND ANALYSIS |
disciplined approach to capital management, we took measures to secure additional liquidity and reduce our controllable costs.
Our NEOsNamed Executive Officers (“NEOs”) for 20192020 were:
Name | ||
| Title | |
Greg Garland | Chairman and Chief Executive Officer | |
Kevin Mitchell | Executive Vice President, Finance and Chief Financial Officer | |
Robert Herman | Executive Vice President, Refining | |
Paula Johnson | Executive Vice President, Legal and Government Affairs, General Counsel and Corporate Secretary | |
Tim Roberts | Executive Vice President, Midstream |
Compensation and Benefits Philosophy and OverridingGuiding Principles
Our Compensation and Benefits Philosophy and Guiding Principles form the foundation upon which our compensation philosophy remains unchanged and supportsbenefits programs are developed in alignment with our corporate vision, of providing energystrategy and improving lives.
Ensure executive compensation drives behaviorsvalues. The Compensation Committee regularly reviews our Compensation Philosophy and actions consistent with shareholder interests, prudent risk-taking and a long-term perspective.
Ensure executive compensation allows usGuiding Principles. Our programs are designed to attract, retain, motivate,develop and reward a high-performing executiveworkforce to successfully execute our corporate strategy. Embedded in our talent as well as support succession planning. Wemanagement strategy is the longstanding commitment to equal opportunity in all aspects of employment.
ü | Our programs drive the actions and behaviors of our employees, consistent with shareholder value creation, prudent risk-taking and a long-term perspective. |
ü | Our programs form a critical part of the Company’s employment relationship, which also includes challenging and rewarding work, growth and career development opportunities and being part of a leading company with a unique, inclusive culture and diverse workforce. |
ü | Our programs have a pay for performance focus – payouts are differentiated based on performance relative to targets and peers. |
ü | Our programs target reasonable, affordable and competitive compensation and benefits, aligned with market median levels. |
ü | Our programs are fair and equitable, irrespective of gender, race or other personal characteristics. |
Executive Compensation Best Practices
ü | Our executive compensation structure delivers a significant portion of compensation tied to the achievement of annual and long-term goals that promote shareholder value creation. |
ü | We emphasize Phillips 66 stock ownership by requiring stock ownership levels for our executives. |
ü | We limit executive perquisites to items that serve a reasonable business purpose and are common among our peer group. |
ü | We regularly engage with shareholders on executive compensation. |
ü | We provide executives the same group benefit programs as we provide other employees, on substantially the same terms. |
PHILLIPS 66 PROXY STATEMENT 2021 29 |
COMPENSATION DISCUSSION AND ANALYSIS |
Differentiate based on performance relative to targets, peers and market conditions. Executives have a significant portion of compensation tied to the achievement of annual and long-term goals that promote shareholder value creation.
New Executive Compensation Developments For 2021
Emphasize Phillips 66 stock ownership by requiring stock ownership levels for our executives.
ü | We have enhanced our annual incentive program to increase the weighting of our Environment metric from 5% to 15% to include two new metrics: Low Carbon Priorities and Greenhouse Gas Priorities. |
Limit executive perquisites to items that serve a reasonable business purpose and are common in our peer group.
ü | We reduced 2021 total target pay for our Chairman and CEO by approximately 5%. |
Regularly engage with shareholders on corporate governance topics, including executive compensation.
Additionally, we provide executives the same group benefit programs as we provide other employees, on substantially the same terms.
Compensation Programs
The following table summarizes the principal elements of our executive compensation program and the performance drivers of each element.
KEY ELEMENTS OF PAY | DELIVERED VIA | TARGET AMOUNT |
|
| PERFORMANCE DRIVERS
| ||
Base Salary | Cash | Benchmarked to compensation peer group median; adjusted for experience, responsibility, performance and potential | Annual fixed cash compensation to attract and retain NEOs | ||||
Annual Incentive | Variable Cash Incentive Program (VCIP) | Percentage of base salary benchmarked to peer group | Adjusted EBITDA (40%) Operating Excellence (35%) Individual Modifier (+/- 50% of target) | ||||
Long-Term Incentives (LTI) | Performance Share Program (PSP)(1) (3-year performance period) 50% of LTI Target | Percentage of base salary benchmarked to peer group | Absolute ROCE (25%) Relative ROCE (25%) | ||||
Stock Option Program 25% of LTI Target | Long-term stock price appreciation | ||||||
Restricted Stock Unit (RSU) Program 25% of LTI Target | Long-term stock price appreciation |
(1) | Beginning with the PSP 2020-2022, the performance drivers and weightings are Absolute ROCE (50%) and Relative TSR (50%). |
(2) | The Compensation Committee believes that stock options are inherently performance-based, as options have no initial value and grantees only realize benefits if the value of our stock increases |
2020 PROXY STATEMENT 25
COMPENSATION DISCUSSION AND ANALYSIS
Compensation Mix Puts Significant Pay at Risk
Consistent with our philosophy that executive compensation should be linked to Company performance and directly aligned with shareholder value creation, a significant portion of NEO compensation is at risk and based on performance metrics tied to our corporate strategy. “At risk”"At risk" means there is no guarantee that the target value of the awards will be realized. Based on its evaluation of performance, the Compensation Committee has authority to reduce, and even award nothing for, the performance-based payouts and individual performance adjustments under each of the VCIP and PSP. Stock options can expire with zero value if the Company stock price does not appreciate above the grant date price over the10-year term of the options. RSUs may lose value depending on stock price performance. Therefore, for NEOs to earn and sustain competitive compensation, the Company must meet its strategic objectives, perform well relative to peers, and deliver market-competitive returns to shareholders. Further detail on the alignment of compensation and shareholder outcomes is described in CEO PAY ALIGNED WITH COMPANY PERFORMANCE.
CEO target compensation mix is 91% at risk and 74% performance-based. The average target mix for the other NEOs is 84% at risk and 69% performance-based. Further, LTI awards make up 76% of the CEO and 69% of other NEOs target compensation mix. For both the CEO and other NEOs, target mix percentages are commensurate with their levels of responsibility. Further detail on all of these programs is provided inEXECUTIVE COMPENSATION PROGRAM DETAILS.
30 PHILLIPS 66 PROXY STATEMENT 2021 |
COMPENSATION DISCUSSION AND ANALYSIS |
The target mix of the compensation program elements for the CEO and other NEOs is shown below. The charts outline the relative size, in percentage terms, of each element of target compensation.
| Other NEOs Target Mix |
|
Aligned with Best Practices
The following best practices are reflected in our executive compensation programs:
WE DO ... | ||
| ||
| ||
| Link NEO compensation to shareholder value creation by having a significant portion of compensation at risk | |
| Apply multiple performance metrics aligned with our corporate strategy to measure our performance | |
| Cap maximum payouts under our VCIP and PSP | |
| Employ a | |
| Include absolute and relative metrics in our LTI programs | |
| Maintain stock ownership guidelines for | |
| Balance, monitor and manage compensation risk through regular assessments and robust clawback provisions | |
| Have extended vesting periods on stock awards, with a minimumone-year vesting period required for stock and stock option awards | |
| Maintain a fully independent Compensation Committee | |
| Retain an independent compensation consultant | |
| Hold aSay-on-Pay vote annually |
26 2020 PROXY STATEMENT
COMPENSATION DISCUSSION AND ANALYSIS
and consider shareholder feedback in the design of our compensation programs | ||
WE DO NOT | ||
| Provide excise taxgross-ups to our NEOs under our CICSP | |
| Reprice stock options without shareholder approval | |
| Price stock options below grant date fair market value | |
| Allow share recycling for stock options | |
| Include evergreen provisions in our active equity plans | |
| Allow hedging or pledging of Phillips 66 stock | |
| Pay dividends during the performance period on unearned PSPs | |
| Allow transfer of equity awards (except in the case of death) | |
| Provide separate supplemental executive retirement benefits for individual NEOs |
PHILLIPS 66 PROXY STATEMENT 2021 31 |
COMPENSATION DISCUSSION AND ANALYSIS |
û | Maintain individual change-in-control agreements |
| |
| |
| Provide excessive perquisites |
EXECUTIVE COMPENSATION PROGRAM DETAILS
Base Salary
Base salary is designed to provide a competitive and fixed rate of pay recognizing employees’employees' different levels of responsibility and performance. As the majority of our NEO compensation is performance-based and tied to long-term programs, base salary represents a less significant component of total compensation. In setting each NEO’sNEO's base salary, the Compensation Committee considers factors including, but not limited to, the responsibility level for the position held, market data from the compensation peer group for comparable roles, experience and expertise, individual performance and business results.
Below is a summary of the annualized base salary for each NEO for 2019.2020. Because these amounts reflect each NEO’sNEO's annualized salary as of the dates indicated, this information may vary from the information provided in theSUMMARY COMPENSATION TABLE, which reflects actual base salary earnings in 2019,2020, including the effect of salary changes during the year.
Name | Salary as of 1/1/2019 | Salary as of 12/31/2019 | Salary as of 1/1/2020 ($) | Salary as of 12/31/2020 ($) | ||||||||
Greg Garland | 1,675,008 | 1,675,008 | 1,675,008 | 1,675,008 | (1) | |||||||
Kevin Mitchell | 832,032 | 867,000 | 867,000 | 903,432 | ||||||||
Robert Herman(1) | 714,288 | 850,008 | ||||||||||
Robert Herman | 850,008 | 870,432 | ||||||||||
Paula Johnson | 775,920 | 805,416 | 805,416 | 836,040 | ||||||||
Tim Roberts(1) | 714,288 | 850,008 | ||||||||||
Tim Roberts | 850,008 | 887,424 |
(1) | Mr. |
Annual base salary increases were effective March 1, 2019,2020, as part of the annual merit cycle for all employees. Base salary increases realign the NEO with the respective compensation peer group levels and reflect each NEO’sNEO's achievement of established performance objectives corresponding to his or her role. The Compensation Committee determined the adjustments that were made were appropriate to maintain our competitiveness in the market.
Variable Cash Incentive Program (VCIP)
The VCIP, which is our annual incentive program, is designed to provide variability and differentiation based on corporate and individual performance. Through our operational and financial metrics, we designed our VCIP program to align annual awards with shareholder interests and execution of our corporate strategy. We do not tie NEO VCIP awards to the performance of any individual business unit. We believe this structure serves the best interests of shareholders as it promotes collaboration across the organization.
2020 PROXY STATEMENT 27
COMPENSATION DISCUSSION AND ANALYSIS
Eligible earnings, which is base salary earned during the year, are multiplied by a VCIP target percentage that is based on each NEO’sNEO's salary grade level to derive the NEO’sNEO's target VCIP award. At the end of the performance period, the Compensation Committee reviews the Company’sCompany's performance to determine the Corporate Payout Percentage. This percentage is based on a mix of operational and financial metrics, the details and weighting of which are described below. The Compensation Committee can award a Corporate Payout Percentage of zero up to the maximum of 200%.
The target award is multiplied by the Corporate Payout Percentage, after which the Compensation Committee takes into account the individual accomplishments of each NEO when determining applicable Individual Performance Adjustments. Individual Performance Adjustments can range from +/–50% of the target award. Adjustments are based on measurable performance of the individual NEO that drives shareholder value.
32 PHILLIPS 66 PROXY STATEMENT 2021 |
COMPENSATION DISCUSSION AND ANALYSIS |
$ | × | % | × | % | + | +/- | = | $ |
Eligible Earnings | Target Percentage | Corporate Payout Percentage | Individual Adjustments | Total VCIP Payout |
The Compensation Committee reviews metric selection annually to ensure continued alignment with our strategy. For 2020, the Committee used the same metrics as it has in prior years as they believe these metrics arewere the most appropriate to align compensation with our corporate strategy.strategy at this time. This mix of financial and operational metrics, wasand the rigorous goals set annually by the Compensation Committee, is designed to ensure a balanced view of the Company performance and drive results and continued improvement over the near term.
|
Adjusted EBITDA
We believe Adjusted EBITDA is effective in evaluating our annual core operating performance and is how we determine enterprise value. Our threshold represents the Adjusted EBITDA required to cover our sustaining capital and shareholder dividend commitments. To ensure we continue to deliver on our growth strategy, the target and maximum for Adjusted EBITDA represent returns that are 1.5% and 3.0% above our Weighted Average Cost of Capital (WACC), respectively.
Based on actual Company performance being 16% above68% below target and 4% above maximum,below threshold, the Compensation Committee determined that ano payout of 200% of target was earned for this metric. Adjusted EBITDA, as used for VCIP, is anon-GAAP financial measure. SeeAppendix AB for additional information.
28 2020 PROXY STATEMENT
COMPENSATION DISCUSSION AND ANALYSIS
Operating Excellence
Operating excellence, including personal and process safety, environmental stewardship and asset availability, is foundational in meeting our corporate strategy of growth, returns and distributions. Strong operating excellence is essential in demonstrating our focus on Environment, Social and Governance matters, which we view as driving shareholder value creation. We measure ourselves against othersother companies in our industry for personal and process safety metrics and target sustained performance in environmental stewardship and effective management of unplanned downtime.downtime for asset availability.
For metrics for which comparative data was available, like Total Recordable Rate (TRR), Lost Workday Case Rate (LWCR), and Process Safety Event (PSE) Rate, we benchmarked ourselves against companies with the strongest
PHILLIPS 66 PROXY STATEMENT 2021 33 |
COMPENSATION DISCUSSION AND ANALYSIS |
safety records in our industry. Generally, these companies fall within the top two quartiles of all companies reported. We then established our threshold, target, and maximum goals based on the 25th, 50th, and 75th percentiles of this group of companies.
For metrics for which
Where comparative data was not available, like for asset availability and environmental events, we established our threshold, target, and maximum goals based on our own historical performance, with athe goal of continuous improvement. For asset availability, we incorporate all of the lines of our business and then weight them by EBITDA.
In 2019,2020, we exceeded or tied our previously best performance for TRR, LWCR, PSE Rate, and Environmental Events. For Asset Availability, we exceeded our maximumtarget level of performance for TRR and LWCR. We exceeded our target for PSE Rate, environmental events, and asset availability. Taking these factors into consideration,performance. As a result, the Compensation Committee approved an overall payout for Operating Excellence of 161%194% of target.
Combined TRR and LWCR: While 200% of targetOur industry-leading performance for TRR was earned for Combined TRR, the Compensation Committee reduced the payout by 15% due to impairment relative to last year, resulting in a payout of 185% of target. Our performance in LWCR was 40% improved versus target,31% better than our maximum goal, achieving a payout of 200%.
PSE Rate:Our industry-leading PSE Rate was 14% improved versus our target. The Compensation Committee determined that50% better than maximum, achieving a payout of 133%200% of target was earned.
Environmental Events: The Compensation Committee considered that in the industries in which we operate there is increasingly stringent regulation and scrutiny on environmental performance. While the 200% of targetOur performance was earned for Environmental Events, the Compensation Committee reduced the payout by 15% due to impairment relative to last year, resulting in31% better than maximum, achieving a payout of 185%200% of target.
Asset Availability:Our availability of 96.3%96.8% across all of our lines of business was 0.71.5 percentage points above target, which resulted in a payout of 141%188% of target.
Payout Levels Based on Performance | 2019 Results | Payout % | Payout Levels Based on Performance | 2020 Results | Payout % | |||||||||||||||||||||||||
0% | 50% | 100% | 200% | 0% | 50% | 100% | 200% | |||||||||||||||||||||||
Combined TRR | > 0.31 | 0.31 | 0.26 | 0.19 | 0.15 | 185% | > 0.37 | 0.37 | 0.21 | 0.16 | 0.11 | 200% | ||||||||||||||||||
Combined LWCR | > 0.10 | 0.10 | 0.05 | 0.04 | 0.03 | 200% | > 0.13 | 0.13 | 0.06 | 0.05 | 0.02 | 200% | ||||||||||||||||||
Process Safety Event Rate | > 0.11 | 0.11 | 0.07 | 0.04 | 0.06 | 133% | > 0.09 | 0.09 | 0.07 | 0.04 | 0.02 | 200% | ||||||||||||||||||
Environmental Events | > 157 | 157 | 123 | < 116 | 115 | 185% | > 122 | 122 | 115 | < 109 | 75 | 200% | ||||||||||||||||||
Asset Availability | < 93.9% | 93.9% | 95.6% | 97.3% | 96.3% | 141% | < 93.6% | 93.6% | 95.3% | 97.0% | 96.8% | 188% | ||||||||||||||||||
Combined Operating Excellence | 161% | 194% |
Adjusted Controllable Costs
Adjusted Controllable Costs focuses on maintaining or reducing costs. We operate in an industry where a substantial portion of operating excellencecosts are market driven and our ability to deliver differentiated returns to shareholders.this metric drives a culture of cost discipline. Our targets for threshold, target, and maximum are based on our budget for the current year. For threshold performance, Adjusted Controllable Costs could not exceed budget by more than 3%, target performance was based on achieving budget, and maximum performance required being at leastAdjusted Controllable Costs to be 3% under budget.
34 PHILLIPS 66 PROXY STATEMENT 2021 |
2020 PROXY STATEMENT 29
COMPENSATION DISCUSSION AND ANALYSIS
COMPENSATION DISCUSSION AND ANALYSIS |
In 2019,
Given the economic environment during 2020, we were 2% improvedquickly adapted to the market conditions and reduced our adjusted controllable costs by 6% versus our approved budget, resulting in a payout of 164%200%. The primary drivers to our lower costs relative to budget were related to lower environmental and staff expenses. Adjusted Controllable Costs is anon-GAAP financial measure. SeeAppendix AB for additional information.
High-Performing Organization (HPO)
We believe maintaining and enhancing a high-performing organization is critical to our success.success and is part of our human capital management strategy. Our employees promote our culture and are integral to achieving our strategic goals and maximizing long-term shareholder value. We measure our High-Performing Organization performance relative to the following:
Culture foster behaviors that promote our unique culture | Capability build depth and breadth in our skills |
Performance sustainable results | ||
a Best Place to Work for Vets by Military Times |
recruiting programs and leveraged national diversity partnerships to expand recruiting reach |
top talent, and recruitment and promotions for diverse groups
ü Deployed “Your Personal Priorities” survey to inform our global Total Rewards strategy ü Enhanced 2021 VCIP design to incorporate metrics that demonstrate our commitment to a lower-carbon economy | ||
üSignificant progress made on AdvantEdge66 initiatives ü Responded to COVID-19 with measured protocols to ensure a safe workplace for employees and support for our communities |
We strive for continuous improvement of our high-performing organization, as we believe it is our employees that differentiate us in the market place.market. Based on our superior performance, the Compensation Committee determined that 175%180% of target was earned for High-Performing Organization.
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COMPENSATION DISCUSSION AND ANALYSIS |
Total Corporate Payout
The formulaic result of our individual metrics was a Total Corporate Payout of 180%115%, as summarized in the following table.
Metric | Payout Percentage | Weight | Corporate Amount | |||||||||
Adjusted EBITDA | 200% | 40% | 80% | |||||||||
Operating Excellence | 161% | 35% | 57% | |||||||||
Adjusted Controllable Costs | 164% | 15% | 25% | |||||||||
High-Performing Organization | 175% | 10% | 18% | |||||||||
Total Corporate Payout | 180% |
30 2020 PROXY STATEMENT
COMPENSATION DISCUSSION AND ANALYSIS
Metric | Payout Percentage | Weight | Corporate Amount | |||
Adjusted EBITDA | 0% | 40% | 0% | |||
Operating Excellence | 194% | 35% | 67% | |||
Adjusted Controllable Costs | 200% | 15% | 30% | |||
High-Performing Organization | 180% | 10% | 18% | |||
Total Corporate Payout | 115% |
Individual Performance Highlights
The Compensation Committee has the authority to adjust our NEOs’NEOs' individual VCIP payouts by +/–50% of the formula-based target payout. The Compensation Committee may apply an individual performance adjustment to reflect project-based accomplishments that drove or detracted from shareholder value or for market-based considerations to more closely align the payout with shareholder returns. This flexibility allows us to reflect our unique business strategy and portfolio of assets as well as differentiate individual executive performance. The Compensation Committee made adjustments toadjusted the individual VCIP payouts for NEOs based on their responsibility for the success of projects and initiatives that leadled to the successful execution of our strategy. These projects and initiatives, as shown in the following table, significantly contributed to the execution of our overall successstrategy and produced the results as shown in ourCompany Performance Summary.
The Compensation Committee considered the magnitude and impact of these initiatives on company results and approved total
36 PHILLIPS 66 PROXY STATEMENT 2021 |
COMPENSATION DISCUSSION AND ANALYSIS |
Total VCIP payouts for each of our NEOs asare shown in the table below.
2019 Eligible | Target VCIP | Corporate Payout | Individual | Total Payout | 2020 Eligible Earnings ($) | Target VCIP Percentage (%) | Corporate Payout Percentage (%) | Individual Performance Adjustment (%) | Total Payout ($) | |||||||||||||||||||||
Greg Garland | 1,675,008 | 160% | 180% | 15% | 5,226,025 | 1,675,008 | 160 | % | 115 | % | 0 | % | 3,082,015 | |||||||||||||||||
Kevin Mitchell | 861,172 | 100% | 180% | 20% | 1,722,344 | 897,360 | 100 | % | 115 | % | 25 | % | 1,256,304 | |||||||||||||||||
Robert Herman | 781,558 | 87% | 180% | 10% | 1,293,153 | 867,028 | 90 | % | 115 | % | 25 | % | 1,092,455 | |||||||||||||||||
Paula Johnson | 800,500 | 90% | 180% | 20% | 1,440,900 | 830,936 | 90 | % | 115 | % | 15 | % | 972,195 | |||||||||||||||||
Tim Roberts | 781,558 | 87% | 180% | 25% | 1,395,244 | 881,188 | 90 | % | 115 | % | 25 | % | 1,110,297 |
The Compensation Committee concluded that, due to the challenging economic environment and our TSR performance, it was not appropriate to make a positive individual performance adjustment on Mr. Garland’s 2020 VCIP award despite significant achievements during the year.
Variable Cash Incentive Program – Increased Focus on Sustainable Performance in 2021
At Phillips 66, we provide energy that improves lives and meets the world’s growing needs. At the same time, we know that climate change is a complex, global issue that requires long-term commitment, action by every segment of society, technology development and free-markets solutions.
Our commitment to providing energy and improving lives includes advancing the global effort to transition to a lower-carbon economy. To demonstrate this commitment, we have enhanced our 2021 VCIP design to increase the weighting of our Environment metric from 5% to 15% to include two new metrics, each weighted 5%:
These enhancements deliver a VCIP design that equally weights our Operational Sustainability and Financial Sustainability performance – both essential as we execute our corporate strategy and maximize shareholder value.
Long-Term Incentive Programs Link Pay Outcomes to Company Performance
We deliver 50% of long-term target value as awards from our Performance Share Program, 25% in the form of stock options, and 25% in the form of RSUs.
2020 PROXY STATEMENT 31
COMPENSATION DISCUSSION AND ANALYSIS
We believe this mix of awards is aligned with our compensation philosophy, reflects the cyclical nature of our
PHILLIPS 66 PROXY STATEMENT 2021 37 |
COMPENSATION DISCUSSION AND ANALYSIS |
business, promotes retention of our high-performing talent, supports succession planning and is consistent with market practice.
|
Performance Share Program (PSP)
Each PSP has a three-year performance period, and therefore three PSPs are in progress at any time. Programs in effect during 2020 were PSP 2018-2020, PSP 2019-2021, and PSP 2020-2022. By delivering 50% of LTI through the PSP, a significant portion of NEO compensation is tied to long-term Company performance, incentivizing continued outperformance relative to peers and individual performance.aligning management interests with those of shareholders.
Target Shares at Beginning of Performance Period.The Compensation Committee uses the Compensation Peer Group to benchmark LTI and establish base salary multiples for similar roles at peer organizations. The number of target shares is determined by dividing the multiple by the average of the stock’sstock's fair market value for the 20 days prior to the start of the performance period, less anticipated dividends during the performance period.
The Compensation Committee assesses the individual performance of each NEO and, based on that assessment, may adjust an award by up to +/–30% of the target amount at grant. The CEO provides input regarding awards made to all NEOs (other than himself). The and the Compensation Committee evaluates the individual performance of the CEO. The Compensation Committee believes in applying performance adjustments to the number of target shares at the beginning of the performance period, rather than the end, so that performance-adjusted compensation is subject to Company performance and market volatility throughout the performance period, aligning executive compensation with shareholder interests.
Target shares may be adjusted during the performance period for significant changes in responsibilitypromotions that occur during the performance period.
NEOs hired after the start of the performance period may receive prorated target shares in ongoing PSP cycles, at the discretion of the Compensation Committee, so that their interests are immediately aligned with the Company long-term goals and shareholder interests.
Performance Metrics.The performance metrics used for all three current PSP programs areafter-tax return on capital employed (ROCE) and total shareholder return (TSR) that is based on a 20-day average closing prices.price. After-tax ROCE accounts for 50% and is equally weighted between absolute and relative performance.performance (for the PSP 2020-2022, only absolute ROCE is used). The remaining 50% is our TSR performance relative to peers.
The Compensation Committee considers ROCE an important measure of Company growth and overall performance. TheWhen establishing the Absolute ROCE performance metrics, the Compensation Committee evaluates ourreviews the corporate strategy, operating targets, and past performance to set metrics that are expected to be rigorous, demand strong performance, and reward for delivering results relative to our Performance Peer Group as well as absolute targets based on ourabove the Company’s WACC.
38 PHILLIPS 66 PROXY STATEMENT 2021 |
COMPENSATION DISCUSSION AND ANALYSIS |
The absolute ROCE target delivers 1.5%1.5 percentage points above our WACC over the performance period.
The absolute ROCE maximum delivers 3.0%3.0 percentage points above WACC over the performance period.
32 2020 PROXY STATEMENT
COMPENSATION DISCUSSION AND ANALYSIS
The Compensation Committee also recognizes that relative TSR is the most common standard for relative comparisons to peers. Our performance is evaluated as compared to our Performance Peer Group and the S&P 100 Index. Further information regarding our Performance Peer Group is provided inPeer Group Comparisons.
These metrics translate into the following goals:
Performance Share Program | ||||||||
Metric | Weight |
| Threshold(1) | Target(2) | Maximum(3) | |||
Absolute ROCE | 25% |
average of 2018 (2.4%), 2019 (2.8%), and
delivers sustaining capital and shareholder dividend commitments over3-year period |
9.1% 2018 (9.4%), 2019 (9.2%), and
delivers WACC +1.5% over3-year period |
10.6% 2018 (10.9%), 2019 (10.7%), and
delivers WACC +3.0% over3-year period | ||||
Relative ROCE | 25% | above 10th percentile of Performance Peers | median of Performance Peers | above 90th percentile of Performance Peers | ||||
Relative TSR | 50% | above 10th percentile of Performance Peers | median of Performance Peers | above 90th percentile of Performance Peers |
| Threshold for PSP 2019-2021 will be an average of 2019 (2.8%), 2020 (3.6%), and 2021 (3.2%). Threshold for PSP 2020-2022 will be an average of 2020 (3.6%), 2021 (3.2%), and the ROCE necessary to deliver sustaining capital and dividend commitments in |
| Target for PSP 2019-2021 will be an average of 2019 (9.2%), 2020 (8.8%), and 2021 (7.7%). Target for PSP 2020-2022 will be an average of 2020 (8.8%), 2021 (7.7%), and the ROCE necessary to deliver WACC plus 1.5% in |
| Maximum for PSP 2019-2021 will be an average of 2019 (10.7%), 2020 (10.3%), and 2021 (9.2%). Maximum for PSP 2020-2022 will be an average of 2020 (10.3%), 2021 (9.2%), and the ROCE necessary to deliver WACC plus 3.0% in |
Settlement.Awards under all of the current PSP programs are denominated in shares but are paid in cash at the end of their respective performance periods. Performance can range from0-200% of target.
Active PSP Programs.The programs in effect during 2019 were the PSP 2017-2019, PSP 2018-2020 and PSP 2019-2021.
Payout.After the close of the PSP 2017-2019,2018-2020, the Compensation Committee considered the following results when approving the payout of 155%125% of target.
Absolute ROCE: Absolute ROCE performance for the three-year performance period was 12.4%10.0%, or 2.90.9 percentage points above target, and 1.4 percentage points above maximum, resulting in a payout of 200%160% of target, weighted at 25%. ROCE, as used in our PSP program, is anon-GAAP financial measure. SeeAppendix AB for additional information.
• | Relative ROCE: Relative ROCE performance for the three-year performance period was 4th of 14 peers, including 13 peer companies and Phillips 66. This resulted in a payout of 160% of target for relative ROCE performance, weighted at 25%. |
PHILLIPS 66 PROXY STATEMENT 2021 39 |
COMPENSATION DISCUSSION AND ANALYSIS |
• | Relative TSR: Relative TSR performance for the three-year performance period was -14.7% and 9th of 15 peers, including 13 peer companies, the S&P 100 Index and Phillips 66. This resulted in a payout of 85% of target for relative TSR performance, weighted at 50%. |
Relative ROCE: Relative ROCE performance for the three-year performance period was 3rd out of 14, including 13 peer companies and Phillips 66. This performance resulted in a payout of 180% for relative ROCE, weighted at 25%.
2020 PROXY STATEMENT 33
COMPENSATION DISCUSSION AND ANALYSIS
Relative TSR: TSR for the three-year performance period was 42.9%, which placed 7th out of 15 on a relative basis, made up of 13 peer companies, the S&P 100 Index, and Phillips 66. This performance resulted in a payout of 117% of target for relative TSR, weighted at 50%.
Accordingly, theThe Compensation Committee approved payouts for all of our NEOs for PSP 2017-2019.2018-2020. The payment was made in February 20202021 and is described further below and in the footnotes of theSUMMARY COMPENSATION TABLE.
Stock Option Program
In 2019,2020, 25% of the LTI target value was delivered to executives in the form of stock options. These awards are inherently performance-based, as the stock price must increase before the executive can realize any value. We believe stock options drive behaviors and actions that enhance long-term shareholder value.
Stock options are typically granted in February each year. The number of options awarded is calculated based on the Black-Scholes-Merton model. The exercise price of stock options is set at 100% of the fair market value of our common stock on the date of grant. Stock options granted to our NEOs in February 20192020 vest ratably over a three-year period and have aten-year term. Stock options do not have voting rights and are not entitled to receive dividends.
Restricted Stock Units (RSUs)
In 2019,2020, 25% of the LTI target value was delivered to executives in the form of RSUs. The Compensation Committee believes maintaining RSUs in our LTI program complements the overall compensation mix for our executives by:
40 PHILLIPS 66 PROXY STATEMENT 2021 |
COMPENSATION DISCUSSION AND ANALYSIS |
providing diversification of compensation in recognition of the cyclical nature of our industry;
resulting in actual share ownership aligned with our stock ownership guidelines; and
supporting executive retention.
RSUs are typically granted in February each year. The number of RSUs is determined based on the fair market value of Company stock on the date of grant. RSUs awarded to our NEOs in February 2019 cliff vest at the end of the three-year holding period and will be delivered to the NEOs in the form of Company stock. These RSUs do not carry voting rights but do earn dividend equivalents during the vesting period. The Compensation Committee assesses the individual performance of each NEO and based on that assessment, may adjust an award by up to +/–30% of the target amount at grant. The CEO provides input regarding awards made to all NEOs (other than himself). The Compensation Committee evaluates the individual performance of the CEO. The number of RSUs is determined based on the fair market value of Company stock on the date of grant. RSUs awarded to our NEOs in February 2020 cliff vest after three years. RSUs do not carry voting rights but do earn dividend equivalents during the vesting period.
20192020 LTI Compensation
The Compensation Committee approved the following LTI for the NEOs for 2019.2020. The Compensation Committee considered the individual performance of each NEO as outlined above when determining the target values. These values may not match the accounting values presented in theGRANTS OF PLAN-BASED AWARDS table.
NAME | PSP 2019-2021 (1) ($) | STOCK OPTIONS (2) ($) | RSUs(3) ($) | TOTAL TARGET ($) | PSP 2020-2022 ($) | STOCK OPTIONS ($) | RSUs ($) | TOTAL TARGET (1) ($) | ||||||||||||||||
Greg Garland | 6,281,280 | 3,140,640 | 3,140,640 | 12,562,560 | 6,700,032 | 3,350,016 | 3,350,016 | 13,400,064 | ||||||||||||||||
Kevin Mitchell | 2,059,279 | 936,036 | 1,029,640 | 4,024,955 | 2,193,510 | 997,050 | 1,096,755 | 4,287,315 | ||||||||||||||||
Robert Herman | 1,328,576 | 553,573 | 664,288 | 2,546,437 | 1,683,016 | 765,007 | 841,508 | 3,289,531 | ||||||||||||||||
Paula Johnson | 1,408,295 | 640,134 | 704,147 | 2,752,576 | 1,594,724 | 724,874 | 797,362 | 3,116,960 | ||||||||||||||||
Tim Roberts | 1,217,861 | 553,573 | 608,931 | 2,380,365 | 1,836,017 | 765,007 | 918,009 | 3,519,033 |
(1) | PSP |
The Compensation Committee did not approve any |
|
34 2020 PROXY STATEMENT
COMPENSATION DISCUSSION AND ANALYSISCEO Pay Aligned with Company Performance
A significant portion of CEO pay is delivered in long-term incentives, which are designed to tie share price performance and achievement of our long-term financial goals. Mr. Garland’s pay as reported in the SUMMARY COMPENSATION TABLE (“SCT”) reflects the accounting value of long-term incentives at the time of grant and not the actual value received from these grants. When evaluating the compensation program each year, the Compensation Committee reviews outstanding awards and the value earned under the long-term incentive program in prior periods to confirm that the payouts are aligned with performance and intended incentives. As such, we believe it is useful to compare Mr. Garland’s “Adjusted SCT Pay” in the context of his “Realized Pay” to provide a clear picture of the value being delivered to Mr. Garland and how it relates to Company performance.
For purposes of the information in this section, we define:
· | “Adjusted SCT Pay” as the compensation disclosed in the SUMMARY COMPENSATION TABLE, adjusted to exclude “Changes in Pension Value and Nonqualified Deferred Compensation Earnings.” |
· | “Realized Pay” as the sum of (a) base salary and VCIP paid; (b) the amount reported as W-2 taxable earnings for the vesting of RSUs, exercise of any stock options, and vesting of PSPs with performance periods that ended in the applicable year (i.e., PSP 2016-2018 for 2018, PSP 2017-2019 for 2019, and PSP 2018-2020 for 2020). |
As demonstrated in the chart below, Adjusted SCT Pay and Realized Pay differ meaningfully and demonstrate the intended link between our compensation program and outcomes for shareholders. During periods of strong stock price performance, our equity-linked long-term incentives may deliver more value to executives than is rendered in
PHILLIPS 66 PROXY STATEMENT 2021 41 |
COMPENSATION DISCUSSION AND ANALYSIS |
the Summary Compensation Table. When stock price declines, the value of our executive’s equity-linked long-term compensation declines and realized compensation may lag the value rendered in the Summary Compensation Table, consistent with the intended alignment between investor outcomes and compensation outcomes.
The charts and information included below are not substitutes for the information included in the SUMMARY COMPENSATION TABLE, but are meant to provide additional insight into our CEO pay:
(1) We have not included the Performance Share Programs that had a 5-year restriction period after the performance period for Realized Pay purposes. Specifically, we did not include the lapsing of restrictions of PSP 2010-2012 in 2018, PSP 2011-2013 in 2019, and PSP 2012-2014 in 2020.
2021 Chairman and Chief Executive Officer Compensation
At its February 4, 2021 meeting, the Compensation Committee approved a reduction to the 2021 target compensation for Greg Garland, Chairman and Chief Executive Officer to better align with our compensation peer group and the changing market conditions. The Compensation Committee also decided not to increase Mr. Garland’s base salary, which has remained unchanged since March 1, 2017.
YEAR | BASE SALARY ($) | VCIP ($) | PSP ($) | STOCK OPTIONS ($) | RSUs ($) | TOTAL TARGET ($) |
2020 | 1,675,008 | 2,680,013 | 6,700,032 | 3,350,016 | 3,350,016 | 17,755,085 |
2021 | 1,675,008 | 2,680,013 | 6,281,280 | 3,140,640 | 3,140,640 | 16,917,581 |
The reduction in total target compensation is approximately $800,000 or 5%.
Peer Group Comparisons
We utilize both a compensation peer group and a performance peer group due to the size of our Company and diversification of assets. The Compensation Committee reviews these peer groups annually and adjusts as necessary. We benchmark against large companies, as measured by asset value and market capitalization, to set target compensation using the compensation peer group. We assess our relative performance against peers in the industries in which we operate using the performance peer group. While our unique portfolio of assets provides an advantage to investors, it does necessitate using two peer groups to appropriately align compensation and assess performance.
42 PHILLIPS 66 PROXY STATEMENT 2021 |
COMPENSATION DISCUSSION AND ANALYSIS |
Compensation Peer Group
Relative analysis.We use the compensation peer group to evaluate and determine compensation levels for our NEOs, including base salary adjustments and targets for our annual bonus and LTI programs.
Criteria for selection.Our compensation peer group consists of companies that have similar jobs and job scope as our NEOs. The compensation peer group primarily consists of large companies with significant capital investments and complex international operations.
Our compensation peer group includes companies that are comparable to Phillips 66 based on three primary criteria —– assets, market capitalization, and business operations. Revenue is a secondary criterion due to the nature of our operations. The Compensation Committee believes each of these criteria is necessary to fully reflect the complex nature of our business and determine the optimal group of companies with which to compare Phillips 66.
Companies included.The table below shows the companies in our 20192020 compensation peer group. At the time the compensation peer group was determined, we were at the 43rd percentile in assets, 44th63rd percentile in market value, and 73rd65th percentile in revenue.
| ||||||
| ||||||
Archer-Daniels-Midland Company | ||||||
| Ford Motor Company | Marathon Petroleum Corporation | ||||
| Chevron Corporation | General Motors Company | ||||
|
Changes for 2020. As part of its annual review of peer group composition, the Compensation Committee approved the following changes to better align the peer group with our portfolio of assets, beginning in 2020:
replace DowDuPont with Dow Inc. and add Occidental Petroleum Corporation and The Williams Companies, Inc.
remove Anadarko Petroleum and Enterprise Products Partners L.P.
The table below shows the compensation peer group that will be used beginning in 2020. At the time of the review and approval of the changes to the compensation peer group, we were, in comparison to the new group, at the 47th percentile in assets, 47th percentile in market value, and 73rd percentile in revenue.
| ||||
| ||||
| Occidental Petroleum Corporation | |||
ConocoPhillips | Halliburton Company | Schlumberger Limited | ||
Dow Inc. | Honeywell International Inc. | |||
| The Williams Companies, Inc. | |||
Exxon Mobil Corporation | LyondellBasell Industries N.V. | Valero Energy Corporation |
2020 PROXY STATEMENT 35
COMPENSATION DISCUSSION AND ANALYSIS
Performance Peer Group
Relative analysis.The performance peer group is used to evaluate relative business results in our Performance Share Program. This includes both relative TSR and relative ROCE. We also evaluate our relative TSR performance against the S&P 100 Index, which the Compensation Committee believes is an appropriate comparison for performance purposes because the index reflects the companies with which we compete for capital in the broader market.
Criteria for selection.Phillips 66 is uniquely positioned in the energy industry, with a large refining and marketing base, a growing midstream NGL business and significant petrochemical exposure. To reflect our unique portfolio of assets, we include companies operating in each of our three major businesses. We believe that our performance peer group is representative of the companies that investors use for relative performance comparisons.
Companies included.The table below shows the performance peer group that was established for evaluating both relative TSR and relative ROCE for the three-year performance period ended December 31, 2019.2020.
Refining and Marketing | Midstream | Chemicals | ||
| ||||
| Enterprise Products Partners L.P. | |||
| ONEOK, Inc. | Eastman Chemical Company | ||
| Targa Resources Corp. | LyondellBasell Industries N.V. | ||
Marathon Petroleum Corporation | Huntsman Corporation | |||
| Westlake Chemical Corporation | |||
Valero Energy Corporation | ||||
|
During the performance period, the following mergers and acquisitions occurred which impacted our peer group:
In June 2017, Tesoro Corporation acquired Western Refining Inc. and the combined company changed its name to Andeavor. In October 2018, Marathon Petroleum Corporation acquired Andeavor.Andeavor during the performance period. Each of Tesoro, Western Refining,Marathon Petroleum Corporation and Marathon wereAndeavor was previously in our performance peer group; after the acquisition we included the combined company.
In August 2017, The Dow Chemical Company and E. I. du Pont de Nemours and Company completed their merger, forming DowDuPont. In April 2019, DowDuPont separated its Material Science Division, creating Dow Inc. In June 2019, plans were announced to separate its Agricultural and Specialty Products Divisions, creating Corteva Agriscience. The Dow Chemical Company was previously in our performance peer group; following these corporate changes, we removed the company from the performance peer group.
Changes for 2020. For performance periods beginning in 2020, the Compensation Committee reviewed the current performance peers and approved the following changes:
replace Celanese, Eastman, and Huntsman with Dow Inc.
PHILLIPS 66 PROXY STATEMENT 2021 43 |
COMPENSATION DISCUSSION AND ANALYSIS |
replace Enterprise Products Partners L.P. with Magellan Midstream Partners, MPLX LP, and The Williams Companies, Inc.
OTHER BENEFITS AND PERQUISITES
Below is a summary of other compensation elements available to our NEOs:
Broad-Based Employee Benefit Programs
NEOs participate in the same basic benefits package available to our other U.S. salaried employees. This package includes qualified pension; 401(k) plan; medical, dental, vision, life, and accident insurance plans, as well as flexible spending arrangements for health care and dependent care expenses; and our matching gift program.
36 2020 PROXY STATEMENT
COMPENSATION DISCUSSION AND ANALYSIS
Additional Executive Perquisites
Consistent with our compensation philosophy to provide compensation and benefits aligned with market practice, we provide our NEOs financial planning and executive health benefits. These benefits were imputed to the executives and included in All Other Compensation in theSUMMARY COMPENSATION TABLE. We did not provide agross-up for these benefits.
Comprehensive Security Program
The Board has adopted a comprehensive security program to address the increased security risks for certain senior executives. Mr. Garland was the only NEO in 20192020 designated by the Board as requiring increased security under this program. The program allows for certain additional security measures in specific situations when the senior executive is traveling by car or airplane. An additional security review of the NEO’sNEO's personal residences is also included. Any additional costs to the Company for these activities are reported as All Other Compensation and included in theSUMMARY COMPENSATION TABLE.
Executive Retirement Plans
We maintain the following supplemental retirement plans for our NEOs.
Phillips 66 Key Employee Deferred Compensation Plan (KEDCP) — This voluntary deferred compensation plan providestax-efficient retirement savings by allowing executives to voluntarily defer both the receipt and taxation of a portion of their base salary and annual bonus until a specified date or when they leave the Company. Further information is provided in theNONQUALIFIED DEFERRED COMPENSATION table.
Phillips 66 Defined ContributionMake-Up Plan (DCMP) — This defined contribution restoration plan restores benefits capped under our qualified defined contribution plan due to Internal Revenue Code (IRC) limits. Further information is provided in theNONQUALIFIED DEFERRED COMPENSATION table.
Phillips 66 Key Employee Supplemental Retirement Plan (KESRP) — This defined benefit restoration plan restores Company-sponsored benefits capped under the qualified defined benefit pension plan due to IRC limits. Further information is provided in thePENSION BENEFITS AS OF DECEMBER 31, 20192020 table.
Executive Life Insurance
We provide life insurance policies to all U.S.-based employees with a face value approximately equal to their annual base salary. For our NEOs, the face value of this coverage is approximately two times their annual base salary.
Executive Severance and Change in Control Plans
We do not maintain individual severance or change in control (CIC) agreements with our executives. However, we maintain the Phillips 66 Executive Severance Plan (ESP) and the Phillips 66 CICSP to accomplish several specific objectives, including:
44 PHILLIPS 66 PROXY STATEMENT 2021 |
COMPENSATION DISCUSSION AND ANALYSIS |
providing and preserving an economic motivation for participating executives to consider a business combination that might result in an executive’sexecutive's job loss; and
competing effectively in attracting and retaining executives in an industry that features frequent acquisitions and divestitures.
Executives may not participate in both plans as a result of the same severance event. Among other benefits, the ESP provides a payment equal to one andone-half or two times the executive’sexecutive's base salary, depending on salary grade level, and the executive’sexecutive's current target annual bonus if he or she is involuntarily terminated without cause. The CICSP provides a payment equal to two or three times the sum of the executive’sexecutive's base salary and the greater of his or her target bonus or average of the last two bonus payments, depending on salary grade level. The executive must be involuntarily terminated without cause in connection with a change in control or terminate employment for good reason within two years after the change in control to be
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COMPENSATION DISCUSSION AND ANALYSIS
eligible for a CICSP payment. We believe this “double trigger”"double trigger" requirement is in the best interest of shareholders and is considered a best practice.
Details of potential payments under these plans are outlined in thePOTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL section. These plans do not provide any excise taxgross-up protections.
Personal Use of Company Aircraft
The primary purpose of our corporate aircraft is to facilitate Company business. In the course of conducting Company business, executives may occasionally invite a family member or other personal guest to travel with them to attend a meeting or function. When such travel is deemed taxable to the executive, we provide further payments to reimburse the costs of the inclusion of this item in his or her taxable income.
EXECUTIVE COMPENSATION GOVERNANCE
Clawback Provisions
Short- and long-term compensation, deferred compensation and nonqualified retirement benefits received by any executive are subject to clawback provisions if financial or other data is materially misstated due to negligence or misconduct on the part of the executive, as determined by the Compensation and Audit Committees.
Stock Ownership
The Compensation Committee believes requiring executives to retain shares of Phillips 66 common stock helps align executive performance with shareholder value creation and mitigates compensation risk. Our stock ownership guidelines require executives to own Phillips 66 common stock, valued as a multiple of the executive’sexecutive's base salary, within five years from the date the executive becomes subject to the guidelines, as shown below:
EXECUTIVE LEVEL | SALARY MULTIPLE | |||
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Chairman and CEO | 6 | |||
Executive Vice President | 3-5 |
Shares of Phillips 66 common stock owned and RSUs are included when determining whether an executive has met the required ownership levels. Compliance with the stock ownership guidelines is reviewed annually. All NEOs currently comply with these stock ownership guidelines or are on track to comply within the applicable five-year period.
Tax Considerations—Internal Revenue Code Section 162(m)
IRC Section 162(m) places a $1 million limit on compensation that we may deduct for federal income tax purposes in any one year with respect to certain “covered employees.” Prior to the passage of the Tax Cuts and Jobs Act in
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COMPENSATION DISCUSSION AND ANALYSIS |
December 2017, such covered employees included our chief executive officer and our three other most highly compensated executive officers (excluding our chief financial officer). The $1 million deduction limitation was subject to an exemption for performance-based compensation.
With the enactment of the Tax Cuts and Jobs Act, the Section 162(m) performance-based compensation exemption has been repealed and the $1 million deduction limit now applies to our chief financial officer, as well as our chief executive officer and our three other most highly compensated executive officers. Further, once an executive officer becomes a “covered employee” the $1 million deduction limit continues to apply to compensation paid to such executive officer at any time, including any future roles within the company,Company, any termination or retirement payments, and payments occurring after their death. The Tax Cuts and Jobs Act rules generally applied to us starting with our taxable year that commenced January 1, 2018, but do not apply to compensation provided pursuant to written binding contracts in effect on November 2, 2017, that are not materially modified after that date.
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COMPENSATION DISCUSSION AND ANALYSIS
We monitor the application of Section 162(m) and the associated Treasury regulations on an ongoing basis and the advisability of qualifying executive compensation for deductibility. Notwithstanding the repeal of the exemption for “performance-based"performance-based compensation,”" the Compensation Committee intends to maintain its commitment to structuring the Company’sCompany's executive compensation programs in a manner designed to align pay with performance.
Trading Policies
Our insider trading policy prohibits all employees and directors from trading Company stock while in possession of material,non-public information. This policy requires executives and directors, as well as employees with regular access to insider information, to follow specificpre-clearance procedures before entering into transactions in our stock.
Hedging or Pledging of Company Stock
Our insider trading policy also prohibits hedging transactions and pledging of our stock. These prohibitions apply to all employees and directors of the Company, and cover any transactions in our stock, whether acquired pursuant to our compensation plans, owned directly, or otherwise. The prohibitions on hedging transactions include purchasing any financial instruments, or otherwise engaging in any transactions, that hedge or offset any decrease in the market value of our stock or limit an employee or director’s ability to profit from an increase in the market value of our stock. The prohibition on pledging includes holding Phillips 66 stock in a margin account or pledging our stock as collateral for a loan.
Independent Compensation Consultant
The primary role of the independent executive compensation consultant retained by the Compensation Committee is to advise the Compensation Committee on:
our compensation programs and processes relative to external corporate governance standards;
the appropriateness of our executive compensation programs in comparison to those of our peers; and
the effectiveness of the compensation programs in accomplishing the objectives set by the Compensation Committee with respect to executives.
In 2019,2020, the Compensation Committee retained Mercer as its independent executive compensation consultant. The Compensation Committee evaluated whether Mercer’sMercer's work raised any conflict of interest and determined that no such conflict existed. During 2019,2020, fees paid to Mercer in its role as the independent compensation consultant for the Compensation Committee totaled $245,519.$222,528. In addition, the Company paid fees to Mercer totaling $1,468,486$1,890,075 during 20192020 for all other services performed for the Company. These services can be broken down as 14%32% related to administration of pension liabilities in international locations that have been sold, 32%18% related to administration of ongoing international benefit plans, 13%11% related to Human Resources consulting engagements, and 41%39% related to insurance and surety bonds.
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COMPENSATION DISCUSSION AND ANALYSIS
Compensation Risk Assessment
The Compensation Committee oversees management’smanagement's risk assessment of all elements of our compensation programs, policies and practices for all employees. Management has concluded that our compensation programs, policies and practices are not reasonably likely to have a material adverse effect on the Company. Relevant provisions of our programs include, but are not limited to:
VCIP and LTI metrics are aligned with our corporate strategy to ensure continued focus on actions that drive shareholder value.
VCIP and LTI compensation targets increase with each pay grade, further emphasizing long-term value creation and alignment with shareholder interests.
Maximum payouts under VCIP and PSP programs are appropriately limited to balance risk-taking with long-term strategic goals.
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COMPENSATION DISCUSSION AND ANALYSIS
Maintaining a level of discretion in the performance-based programs, which enables the Compensation Committee to award zero payouts to executives who perform poorly or when warranted by Company performance.
Clawback provisions that allow for reduction in awards for executives who expose the Company to undue risk.
LTI design that provides incentives for executive retention and Company and individual performance.
Stock ownership guidelines, anti-pledging policies, and anti-hedging policies that align executive interests with those of shareholders.
The Compensation Committee considers senior management succession planning a core part of the Company’s risk management program. The Compensation Committee regularly reviews with the CEO succession planning for senior leadership positions (other than the CEO position itself, for which succession planning is reviewed by the Nominating and Governance Committee), and the timing and development required to ensure continuity of leadership over the short- and long-terms, to manage risk in this area.
ROLE OF THE HUMAN RESOURCES AND COMPENSATION COMMITTEE
Authority and Responsibilities
The Compensation Committee is responsible for providing independent, objective oversight of our executive compensation programs and determining the compensation for our CEO and anyone who meets our definition of a Senior Officer. Currently, our internal guidelines define a Senior Officer as an officer of the Company who reports directly to the CEO or any other officer of the Company who is either a Senior Vice President or above or a reporting officer under Section 16(b) of the Exchange Act. As of December 31, 2019,2020, we had 10 Senior Officers. In addition, the Compensation Committee acts as plan administrator of the compensation programs and benefit plans for our CEO and Senior Officers and as an avenue of appeal for current and former Senior Officers regarding disputes over compensation and benefits.
The Compensation Committee oversees the Company’sCompany's executive compensation philosophy, policies, plans and programs for our CEO and Senior Officers to ensure:
alignment of our executive compensation programs with the long-term economic interests of shareholders;
competitiveness of compensation within the markets in which Phillips 66 competes for talent;
retention of top talent; and,
development of a diverse talent pool with respect to CEO and Senior Officer succession planning.
PHILLIPS 66 PROXY STATEMENT 2021 47 |
COMPENSATION DISCUSSION AND ANALYSIS
One of the Compensation Committee’sCommittee's responsibilities is to assist the Board in its oversight of the integrity of the Company’sCompany's COMPENSATION DISCUSSION AND ANALYSIS. TheHUMAN RESOURCES AND COMPENSATION COMMITTEE REPORT summarizes certain Compensation Committee activities concerning compensation earned during 20192020 by our NEOs.
A complete listing of the authority and responsibilities of the Compensation Committee is set forth in its written charter adopted by the Board of Directors, which is available in the “"Investors”" section of our website under the caption “"Corporate Governance.”"
Members
The Compensation Committee consists of fourfive members who meet all requirements for“non-employee,” “independent” "non-employee," "independent" and “outside”"outside" director status under the Exchange Act, NYSE listing standards, and the IRC, respectively. The members of the Compensation Committee and the member to be designated as Chair, like the members and Chairs of all the Board committees, are reviewed periodically by the Nominating and Governance Committee, which recommends committee appointments to the full Board. The Board of Directors has final approval of the committee structure of the Board.
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COMPENSATION DISCUSSION AND ANALYSIS
Meetings
The Compensation Committee holds regularly scheduled meetings in association with regular Board meetings and meets by teleconference between such meetings as necessary to discharge its duties. The Compensation Committee reserves time at each regularly scheduled meeting to review matters in executive session without management present except as specifically requested by the Compensation Committee. In 2019,2020, the Compensation Committee had five regularly scheduled meetings and one additional telephonic meeting. More information regarding the Compensation Committee’sCommittee's activities at such meetings can be found in theCOMPENSATION DISCUSSION AND ANALYSIS.
Continuous Improvement
The Compensation Committee is committed to a process of continuous improvement in exercising its responsibilities. To that end, the Compensation Committee:
receives ongoing training regarding best practices for executive compensation;
regularly reviews its responsibilities and governance practices in light of ongoing changes in the legal and regulatory arena and trends in corporate governance;
annually reviews its charter and proposes any desired changes to the Board of Directors;
annually conducts a self-assessment of its performance that evaluates the effectiveness and seeks ideas to improve its processes and oversight;
regularly reviews and assesses whether the Company’sCompany's executive compensation programs are having the desired effects without encouraging an inappropriate level of risk; and
regularly reviews all its activities, including its self-assessment and a compensation risk assessment, with the full Board of Directors.
HUMAN RESOURCES AND COMPENSATION COMMITTEE REPORT
Review with Management.The Human Resources and Compensation Committee has reviewed and discussed with management theCOMPENSATION DISCUSSION AND ANALYSIS presented in this proxy statement.
Discussions with Independent Executive Compensation Consultant.The Human Resources and Compensation Committee has discussed with Mercer, an independent executive compensation consulting firm, the executive compensation programs of the Company, as well as specific compensation decisions made by the Human Resources and Compensation Committee for 2019.2020. Mercer was retained directly by the Human Resources and
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COMPENSATION DISCUSSION AND ANALYSIS
Compensation Committee, independent of the management of the Company. The Human Resources and Compensation Committee has received written disclosure from Mercer confirming the consultant’sconsultant's independence, has discussed with Mercer its independence from Phillips 66, and believes Mercer to be independent of management.
Recommendation to the Phillips 66 Board of Directors.Based on its review and discussions noted above, the Human Resources and Compensation Committee recommended to the Board of Directors that theCOMPENSATION DISCUSSION AND ANALYSISbe included in the Phillips 66 proxy statement on Schedule 14A and the Phillips 66 Annual Report onForm 10-K for the year ended December 31, 2019.2020.
HUMAN RESOURCES AND COMPENSATION COMMITTEE
Dr. Marna C. Whittington, Chair
Gary K. Adams
Lisa A. Davis
Harold W. McGraw III
Glenn F. Tilton
PHILLIPS 66 PROXY STATEMENT 2021 49 |
2020 PROXY STATEMENT 41
EXECUTIVE COMPENSATION TABLES
The following tables and accompanying narrative disclosures provide information concerning total compensation earned by our CEO and other NEOs as of December 31, 2019,2020, for services to Phillips 66 or any of our subsidiaries during 2020, 2019 2018 and 2017.2018.
The following table summarizes the compensation for our NEOs for fiscal years 2020, 2019 and 2018.
NAME, POSITION, YEAR | SALARY (1) ($) | STOCK (2) ($) | OPTION AWARDS (3) ($) | NON-EQUITY INCENTIVE PLAN COMPENSATION (4) ($) | CHANGE IN (5) ($) | ALL OTHER COMPENSATION (6) ($) | TOTAL ($) | TOTAL (7) ($) | |||||||
Greg Garland Chairman and Chief Executive Officer | |||||||||||||||
2020 | 1,675,008 | 9,237,623 | 3,351,180 | 3,082,015 | 6,851,884 | 791,664 | 24,989,374 | 18,137,490 | |||||||
2019 | 1,675,008 | 10,806,257 | 3,141,546 | 5,226,025 | 9,936,893 | 1,115,149 | 31,900,878 | 21,963,985 | |||||||
2018 | 1,675,008 | 9,353,917 | 3,041,430 | 4,958,024 | — | 249,956 | 19,278,335 | 19,278,335 | |||||||
Kevin Mitchell Executive Vice President, Finance and Chief Financial Officer | |||||||||||||||
2020 | 897,360 | 3,024,331 | 998,560 | 1,256,304 | 258,546 | 245,367 | 6,680,468 | 6,421,922 | |||||||
2019 | 861,172 | 3,542,763 | 937,014 | 1,722,344 | 264,245 | 354,754 | 7,682,292 | 7,418,047 | |||||||
2018 | 826,696 | 3,046,107 | 902,084 | 1,777,396 | 138,280 | 116,580 | 6,807,143 | 6,668,863 | |||||||
Robert Herman Executive Vice President, Refining | |||||||||||||||
2020 | 867,028 | 2,320,490 | 766,300 | 1,092,455 | 318,450 | 214,446 | 5,579,169 | 5,260,719 | |||||||
2019 | 781,558 | 2,575,994 | 553,770 | 1,293,153 | 340,714 | 441,201 | 5,986,390 | 5,645,676 | |||||||
2018 | 710,820 | 1,819,033 | 537,940 | 1,299,024 | 124,871 | 652,145 | 5,143,833 | 5,018,962 | |||||||
Paula Johnson Executive Vice President, Legal and Government Affairs, General Counsel and Corporate Secretary | |||||||||||||||
2020 | 830,936 | 2,198,675 | 725,220 | 972,195 | 2,185,352 | 200,680 | 7,113,058 | 4,927,706 | |||||||
2019 | 800,500 | 2,422,811 | 641,670 | 1,440,900 | 2,108,413 | 272,165 | 7,686,459 | 5,578,046 | |||||||
2018 | 771,544 | 2,093,245 | 618,631 | 1,388,779 | 368,541 | 81,585 | 5,322,325 | 4,953,784 | |||||||
Tim Roberts Executive Vice President, Midstream | |||||||||||||||
2020 | 881,188 | 2,531,427 | 766,300 | 1,110,297 | 297,744 | 204,254 | 5,791,210 | 5,493,466 | |||||||
2019 | 781,558 | 2,385,489 | 553,770 | 1,395,244 | 29,621 | 275,030 | 5,420,712 | 5,391,091 | |||||||
2018 | 710,260 | 1,810,213 | 535,871 | 1,298,000 | 107,410 | 75,521 | 4,537,275 | 4,429,865 |
(1) Includes any amounts that were voluntarily deferred under our KEDCP.
(2) Amounts shown represent the aggregate grant date fair value of RSU and PSP awards determined in accordance with U.S. GAAP. Assumptions used in calculating these amounts are included in Note 20—Share-Based Compensation Plans in the Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2020 (our "2020 Form 10-K").
The PSP target award included in 2018 and 2017.has a performance period that ended on December 31, 2020. The PSP target award included in 2019 has a performance period that ends in 2021. The PSP target award included in 2020 has a performance period that ends in 2022.
NAME AND POSITION | YEAR | SALARY(1) ($) | BONUS(2) ($) | STOCK AWARDS(3) ($) | OPTION AWARDS(4) ($) | NON-EQUITY INCENTIVE PLAN COMPENSATION(5) ($) | CHANGE IN ($) | ALL OTHER COMPENSATION(7) ($) | TOTAL ($) | TOTAL ($) | ||||||||||||||||||||||||||||||
Greg Garland Chairman and Chief Executive Officer | 2019 | 1,675,008 | — | 10,806,257 | 3,141,546 | 5,226,025 | 9,936,893 | 1,115,149 | 31,900,878 | 21,963,985 | ||||||||||||||||||||||||||||||
2018 | 1,675,008 | — | 9,353,917 | 3,041,430 | 4,958,024 | — | 249,956 | 19,278,335 | 19,278,335 | |||||||||||||||||||||||||||||||
2017 | 1,666,676 | — | 8,785,668 | 2,951,040 | 3,733,354 | 6,270,030 | 244,128 | 23,650,896 | 17,380,866 | |||||||||||||||||||||||||||||||
Kevin Mitchell Executive Vice President, Finance and Chief Financial Officer | 2019 | 861,172 | — | 3,542,763 | 937,014 | 1,722,344 | 264,245 | 354,754 | 7,682,292 | 7,418,047 | ||||||||||||||||||||||||||||||
2018 | 826,696 | — | 3,046,107 | 902,084 | 1,777,396 | 138,280 | 116,580 | 6,807,143 | 6,668,863 | |||||||||||||||||||||||||||||||
2017 | 709,456 | — | 1,597,830 | 537,632 | 934,708 | 124,156 | 93,540 | 3,997,322 | 3,873,166 | |||||||||||||||||||||||||||||||
Robert Herman Executive Vice President, Refining | 2019 | 781,558 | — | 2,575,994 | 553,770 | 1,293,153 | 340,714 | 441,201 | 5,986,390 | 5,645,676 | ||||||||||||||||||||||||||||||
2018 | 710,820 | — | 1,819,033 | 537,940 | 1,299,024 | 124,871 | 652,145 | 5,143,833 | 5,018,962 | |||||||||||||||||||||||||||||||
2017 | 689,568 | — | 1,701,495 | 520,672 | 820,586 | 208,340 | 1,572,730 | 5,513,391 | 5,305,051 | |||||||||||||||||||||||||||||||
Paula Johnson Executive Vice President, Legal and Government Affairs, General Counsel and Corporate Secretary | 2019 | 800,500 | — | 2,422,811 | 641,670 | 1,440,900 | 2,108,413 | 272,165 | 7,686,459 | 5,578,046 | ||||||||||||||||||||||||||||||
2018 | 771,544 | — | 2,093,245 | 618,631 | 1,388,779 | 368,541 | 81,585 | 5,322,325 | 4,953,784 | |||||||||||||||||||||||||||||||
2017 | 742,148 | — | 1,904,666 | 581,728 | 1,035,296 | 1,125,884 | 82,714 | 5,472,436 | 4,346,552 | |||||||||||||||||||||||||||||||
Tim Roberts Executive Vice President, Midstream | 2019 | 781,558 | — | 2,385,489 | 553,770 | 1,395,244 | 29,621 | 275,030 | 5,420,712 | 5,391,091 | ||||||||||||||||||||||||||||||
2018 | 710,260 | — | 1,810,213 | 535,871 | 1,298,000 | 107,410 | �� | 75,521 | 4,537,275 | 4,429,865 | ||||||||||||||||||||||||||||||
2017 | — | — | — | — | — | — | — | — | — |
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50 PHILLIPS 66 PROXY STATEMENT 2021 |
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EXECUTIVE COMPENSATION TABLES
Amounts shown relating to PSP are targets because target is the probable outcome for the applicable performance period, consistent with the accounting treatment under GAAP. If the maximum payout were used for the PSP awards, the amounts shown relating to PSP would double, although the value of the actual payout would depend on the stock price at the time of the payout. If the minimum payout were used, the amounts for PSP awards would be reduced to zero. Actual payouts with regard to the targets set for the performance period that ended in 2020 were approved by the Compensation Committee at its February 2021 meeting. Those payouts were as follows (with values shown at fair market value on the date of payout): Mr. Garland, $5,672,888; Mr. Mitchell, $1,847,329; Mr. Herman, $1,247,575; Ms. Johnson, $1,269,459; and Mr. Roberts, $1,244,507.
Earned payouts under the PSP 2018-2020 have been, and under the PSP 2019-2021 and PSP 2020-2022 are expected to be, made in cash at the end of the applicable performance period and will be forfeited if the NEO is terminated prior to the end of the performance period (other than for death or following disability or after a change in control). If the NEO retires after age 55 and with five years of service, the NEO is entitled to a prorated award for any ongoing program in which he or she participated for at least 12 months.
(3) Amounts shown represent the aggregate grant date fair value of awards determined in accordance with GAAP. Assumptions used in calculating these amounts are included in Note 20—Share-Based Compensation Plans in the Notes to Consolidated Financial Statements in our 2020 Form 10-K.
(4) These are amounts paid under our annual bonus program (VCIP), including bonus amounts that were voluntarily deferred under our KEDCP. These amounts were paid in February 2021, following the performance year.
(5) Reflects the actuarial increase in the present value of the benefits under our pension plans determined using interest rate and mortality rate assumptions consistent with those used in our financial statements. There are no deferred compensation earnings reported in this column, as our nonqualified deferred compensation plans do not provide above-market or preferential earnings.
(6) We offer limited perquisites to our NEOs, which, together with Company contributions to our qualified savings and nonqualified defined contribution plans, are reflected in the All Other Compensation column as summarized below:
NAME | COMPANY CONTRIBUTIONS TO NONQUALIFIED DEFINED CONTRIBUTION PLANS (a)($) | EXECUTIVE GROUP LIFE INSURANCE PREMIUMS (b)($) | WELLNESS PROGRAMS AND EXECUTIVE HEALTH PHYSICAL (c)($) | FINANCIAL COUNSELING (d)($) | MATCHING CONTRIBUTIONS UNDER THE TAX- QUALIFIED SAVINGS PLAN (e)($) | MATCHING GIFT PROGRAM (f)($) | MISCELLANEOUS PERQUISITES AND TAX PROTECTION (g)($) | PERSONAL USE OF COMPANY AIRCRAFT (h)($) | ||||||||
Greg Garland | 534,983 | 13,266 | — | 16,270 | 14,250 | 15,000 | 22,017 | 175,878 | ||||||||
Kevin Mitchell | 192,294 | 2,477 | 732 | 16,270 | 17,100 | 15,000 | 1,494 | — | ||||||||
Robert Herman | 155,612 | 6,867 | 787 | 16,270 | 17,100 | 15,000 | 2,810 | — | ||||||||
Paula Johnson | 164,494 | 4,288 | — | — | 17,100 | 10,000 | 4,798 | — | ||||||||
Tim Roberts | 164,827 | 4,547 | — | — | 17,100 | 15,000 | 2,780 | — |
(a) Under the terms of our nonqualified defined contribution plans, we make contributions to the accounts of all eligible employees, including the NEOs. See the NONQUALIFIED DEFERRED COMPENSATION table and accompanying narrative and notes for more information.
(b) We maintain life insurance policies and/or death benefits for all our U.S.-based salaried employees (at no cost to the employee) with a face value approximately equal to the employee's annual salary. We maintain group life insurance policies on each of our NEOs equal to approximately two times his or her annual salary. The amounts shown are for premiums paid by us to provide the additional group life insurance above what is provided to the broad-based employees.
(c) Costs associated with executive physicals.
(d) Costs associated with financial counseling and estate planning services with approved provider.
(e) Under the terms of our tax-qualified defined contribution plans, we make contributions to the accounts of all eligible employees, including the NEOs.
(f) We maintain a Matching Gift Program under which certain gifts by employees to qualified educational or charitable institutions are matched by the Company. The program matches up to $15,000 annually. The amounts shown reflect the actual payments made by us in 2020, which due to processing delays can include contributions in 2019 that were matched by the Company in 2020 and are therefore reported in this proxy statement.
(g) The amounts shown primarily reflect payments by us relating to certain taxes incurred by the NEOs. Mr. Herman received tax assistance after he exercised stock options that he had been granted while an expatriate employee prior
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42 2020 PROXY STATEMENT
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NAME | COMPANY CONTRIBUTIONS TO NONQUALIFIED DEFINED CONTRIBUTION PLANS(a) ($) | EXECUTIVE ($) | WELLNESS ($) | FINANCIAL ($) | MATCHING ($) | MATCHING ($) | MISCELLANEOUS PERQUISITES AND TAX PROTECTION(g) ($) | PERSONAL USE OF COMPANY AIRCRAFT(h) ($) | ||||||||||||||||||||||||
Greg Garland | 758,198 | 13,266 | 787 | 16,401 | 14,000 | 30,000 | 156,701 | 125,796 | ||||||||||||||||||||||||
Kevin Mitchell | 295,365 | 2,377 | 1,187 | 16,475 | 16,800 | 15,000 | 7,550 | — | ||||||||||||||||||||||||
Robert Herman | 229,034 | 6,190 | 1,282 | 16,270 | 16,800 | 15,000 | 156,625 | — | ||||||||||||||||||||||||
Paula Johnson | 244,519 | 4,131 | — | — | 16,800 | 5,100 | 1,615 | — | ||||||||||||||||||||||||
Tim Roberts | 228,922 | 4,033 | — | — | 16,800 | 15,000 | 10,275 | — |
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2020 PROXY STATEMENT 43
EXECUTIVE COMPENSATION TABLES
to becoming an NEO ($1,237). All expatriate employees receive this tax assistance. We also provide tax assistance when we request family members or other guests to accompany an NEO to a Company function and, as a result, the NEO is deemed to make personal use of Company assets such as Company aircraft and thereby incurs imputed income. We believe this type of expense is appropriately characterized as a business expense and, if the NEO incurs imputed income in accordance with applicable tax laws, we will generally reimburse the NEO for any increased tax costs (Mr. Garland $5,131; Mr. Mitchell $1,494; Mr. Herman $1,494; Ms. Johnson $4,798; and Mr. Roberts $2,701). We also occasionally provide small gifts with tax assistance (such as duffel bags, jackets, and ornaments received as a member of the Board or the Executive Leadership Team) and companion travel expenses. The total cost of these benefits and their tax assistance are as follows: Mr. Garland $79; Mr. Herman $79; and Mr. Roberts $79.
Also included are benefits required for employees covered under our Comprehensive Security Program, which currently includes only Mr. Garland. Under the Comprehensive Security Program, Mr. Garland is provided with the use of a car and driver when security deems it required and home security fees that are in excess of the cost of a system typical for homes in his neighborhood ($16,807).
(h) The Phillips 66 Comprehensive Security Program requires in certain circumstances that Mr. Garland fly on Company aircraft. The amount presented above represents the approximate incremental cost to Phillips 66 for personal use of the aircraft. Approximate incremental cost has been determined by calculating the variable costs for each aircraft during the year, dividing that amount by the total number of miles flown by that aircraft, and multiplying the result by the miles flown for personal use during the year. Incremental costs for flights to the hangar or other locations without passengers, commonly referred to as "deadhead" flights, are included in the calculation.
(7)To show how year-over-year changes in pension value impact total compensation, as determined under SEC rules, we included this column to show total compensation without pension value changes. The amounts reported in this column are calculated by subtracting the change in pension value, as described in footnote 6 to this table, from the amounts reported in the Total column. The amounts reported in this column differ substantially from, and are not a substitute for, the amounts reported in the Total column.
52 PHILLIPS 66 PROXY STATEMENT 2021 |
EXECUTIVE COMPENSATION TABLES
The following table provides additional information about plan-based compensation disclosed in theSUMMARY COMPENSATION TABLE. This table includes both equity andnon-equity awards.
ESTIMATED FUTURE PAYOUTS UNDER NON-EQUITY INCENTIVE PLAN AWARDS (2) | ESTIMATED FUTURE PAOUTS UNDER EQUITY INCENTIVE PLAN AWARDS (3) | ALL OTHER STOCK AWARDS: NUMBER OF SHARES OF STOCK OR UNITS (4) (#) | ALL OTHER OPTION AWARDS: NUMBER OF SECURITIES | EXERCISE OR BASE PRICE OF | GRANT DATE FAIR VALUE OF STOCK AND OPTION AWARDS (5) ($) | ||||||
NAME | GRANT DATE (1) | THRESHOLD ($) | TARGET ($) | MAXIMUM ($) | THRESHOLD (#) | TARGET (#) | MAXIMUM (#) | ||||
Greg Garland | — | 2,680,013 | 6,700,033 | — | — | — | — | — | — | — | |
2/4/2020 | — | — | — | — | — | — | 37,401 | — | — | 3,350,008 | |
2/4/2020 | — | — | — | — | 65,732 | 131,464 | — | — | — | 5,887,615 | |
2/4/2020 | — | — | — | — | — | — | — | 212,100 | 89.57 | 3,351,180 | |
Kevin Mitchell | — | 897,360 | 2,243,400 | — | — | — | — | — | — | — | |
2/4/2020 | — | — | — | — | — | — | 12,245 | — | — | 1,096,785 | |
2/4/2020 | — | — | — | — | 21,520 | 43,040 | — | — | — | 1,927,546 | |
2/4/2020 | — | — | — | — | — | — | — | 63,200 | 89.57 | 998,560 | |
Robert Herman | — | 780,325 | 1,950,813 | — | — | — | — | — | — | — | |
2/4/2020 | — | — | — | — | — | — | 9,395 | — | — | 841,510 | |
2/4/2020 | — | — | — | — | 16,512 | 33,024 | — | — | — | 1,478,980 | |
2/4/2020 | — | — | — | — | — | — | — | 48,500 | 89.57 | 766,300 | |
Paula Johnson | — | 747,842 | 1,869,605 | — | — | — | — | — | — | — | |
2/4/2020 | — | — | — | — | — | — | 8,902 | — | — | 797,352 | |
2/4/2020 | — | — | — | — | 15,645 | 31,290 | — | — | — | 1,401,323 | |
2/4/2020 | — | — | — | — | — | — | — | 45,900 | 89.57 | 725,220 | |
Tim Roberts | — | 793,069 | 1,982,673 | — | — | — | — | — | — | — | |
2/4/2020 | — | — | — | — | — | — | 10,249 | — | — | 918,003 | |
2/4/2020 | — | — | — | — | 18,013 | 36,026 | — | — | — | 1,613,424 | |
2/4/2020 | — | — | — | — | — | — | — | 48,500 | 89.57 | 766,300 |
ESTIMATED FUTURE PAYOUTS UNDER PLAN AWARDS(2) | ESTIMATED FUTURE PAYOUTS UNDER EQUITY INCENTIVE PLAN AWARDS(3) | ALL OTHER STOCK AWARDS: NUMBER OF SHARES OF STOCK OR UNITS(4) (#) | ALL OTHER OPTION AWARDS: NUMBER OF SECURITIES UNDERLYING OPTIONS (#) | EXERCISE OR BASE PRICE OF OPTION AWARDS ($/SH) | GRANT DATE FAIR VALUE OF STOCK AND OPTION AWARDS(5) ($) | |||||||||||||||||||||||||||||||||||||||
NAME | GRANT DATE(1) | THRESHOLD ($) | TARGET ($) | MAXIMUM ($) | THRESHOLD (#) | TARGET (#) | MAXIMUM (#) | |||||||||||||||||||||||||||||||||||||
Greg Garland | — | 2,680,013 | 6,700,033 | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||
2/5/2019 | — | — | — | — | — | — | 33,071 | — | — | 3,140,670 | ||||||||||||||||||||||||||||||||||
2/5/2019 | — | — | — | — | 80,718 | 161,436 | — | — | — | 7,665,587 | ||||||||||||||||||||||||||||||||||
2/5/2019 | — | — | — | — | — | — | — | 178,700 | 94.9675 | 3,141,546 | ||||||||||||||||||||||||||||||||||
Kevin Mitchell | — | 861,172 | 2,152,930 | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||
2/5/2019 | — | — | — | — | — | — | 10,842 | — | — | 1,029,638 | ||||||||||||||||||||||||||||||||||
2/5/2019 | — | — | — | — | 26,463 | 52,926 | — | — | — | 2,513,125 | ||||||||||||||||||||||||||||||||||
2/5/2019 | — | — | — | — | — | — | — | 53,300 | 94.9675 | 937,014 | ||||||||||||||||||||||||||||||||||
Robert Herman | — | 680,607 | 1,701,518 | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||
2/5/2019 | — | — | — | — | — | — | 6,995 | — | — | 664,298 | ||||||||||||||||||||||||||||||||||
2/5/2019 | — | — | — | — | 20,130 | 40,260 | — | — | — | 1,911,696 | ||||||||||||||||||||||||||||||||||
2/5/2019 | — | — | — | — | — | — | — | 31,500 | 94.9675 | 553,770 | ||||||||||||||||||||||||||||||||||
Paula Johnson | — | 720,450 | 1,801,125 | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||
2/5/2019 | — | — | — | — | — | — | 7,415 | — | — | 704,184 | ||||||||||||||||||||||||||||||||||
2/5/2019 | — | — | — | — | 18,097 | 36,194 | — | — | — | 1,718,627 | ||||||||||||||||||||||||||||||||||
2/5/2019 | — | — | — | — | — | — | — | 36,500 | 94.9675 | 641,670 | ||||||||||||||||||||||||||||||||||
Tim Roberts | — | 680,607 | 1,701,518 | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||
2/5/2019 | — | — | — | — | — | — | 6,412 | — | — | 608,932 | ||||||||||||||||||||||||||||||||||
2/5/2019 | — | — | — | — | 18,707 | 37,414 | — | — | — | 1,776,557 | ||||||||||||||||||||||||||||||||||
2/5/2019 | — | — | — | — | — | — | — | 31,500 | 94.9675 | 553,770 |