DEF 14A of Conocophillips

Filed Apr 2, 2018 · FY20170001206774-18-001045

Open on EDGAR

2017 COMPENSATION PROGRAM STRUCTURE
| 2017 Element of Pay | Overview | Key Benchmarks/Performance Metrics | | Annual | | | | Salary | Fixed cash compensation to attract and retain executives and balance at-risk compensation Limit: Salary grade minimum / maximum | ●Benchmarked to compensation peer group average of the integrated and independent medians and to Fortune 100 Industrials; adjusted for experience, responsibility, performance and potential | | Variable Cash Incentive Program (“VCIP”) | Variable annual cash compensation to motivate and reward executives for achieving annual goals and strategic milestones that are critical to our strategic priorities Limit: 0% - 200% of target for corporate performance, plus/minus individual adjustments | ●Health, Safety & Environmental (20%) ●Financial - Relative Adjusted ROCE/CROCE (20%) ●Operational (20%) ●Strategic Milestones (20%) ●Relative TSR (20%) ●Measured over a one-year performance period and aligned with our strategic priorities | | Long-Term Incentive Program (“LTIP”) | | | | | Variable long-term equity-based compensation to motivate and reward executives for achieving multi-year strategic priorities Granted at beginning of performance period with final cash payout based on HRCC assessment of progress toward pre-established corporate performance metrics and stock price on the settlement date Limit: 0% - 200% of target, inclusive of corporate performance and individual adjustments | ●Relative TSR (50%) ●Financial – Relative Adjusted ROCE/CROCE (30%) ●Strategic Objectives (20%) ●Measured over a three-year performance period and aligned with our strategic priorities | | | | | | | Variable long-term equity-based compensation to encourage absolute performance and long-term value creation over a performance period of up to ten years Limit: 0% - 100% of target | ●Long-term stock price appreciation |
2017 COMPENSATION PROGRAM STRUCTURE
| Effective with equity grants in 2018, the HRCC approved replacing stock options with three-year, time-vested restricted stock units at a weight of 35% and increasing the weighting of performance shares to 65%. For more information, see “Changes to Our Long-Term Incentive Programs for 2018” beginning on page 72.* |
COMPENSATION AND GOVERNANCE PRACTICES
| | Pay for Performance: We align executive compensation with corporate and individual performance on both a short-term and long-term basis. The majority of our target total direct compensation for Senior Officers is variable incentive compensation. Actual total direct compensation varies based on the extent of achievement of, among other things, safety, operational, financial performance and strategic goals and stock performance. | | | Stock Ownership Guidelines: Our Stock Ownership Guidelines require executives to own stock and/or have an interest in restricted stock units valued at a multiple of base salary, ranging from 1.8 times salary for lower level executives to 6 times salary for the CEO. Directors are expected to own stock in the amount of the aggregate annual equity grants during their first five years on the Board. All of our Named Executive Officers and current directors meet or exceed these requirements. | | | Mitigation of Risk: Our compensation plans have provisions designed to mitigate undue risk, including caps on the maximum level of payouts, clawback provisions, varied performance measurement periods, and multiple performance metrics. In addition, the Board, the HRCC, and management perform an annual risk assessment to identify potential undue risk created by our incentive plans. |
COMPENSATION AND GOVERNANCE PRACTICES
| | Clawback Policy: Executives’ incentive compensation is subject to a clawback that applies in the event of certain financial restatements. This is in addition to provisions contained in our award documents pursuant to which we can suspend the right to exercise, refuse to honor the exercise of awards already requested, or cancel awards granted if an executive engages in any activity we determine is detrimental to ConocoPhillips. | | | Independent Compensation Consultant: The HRCC retained Frederic W. Cook & Co., Inc. (FW Cook) to serve as its independent executive compensation consultant. During 2017, FW Cook provided no other services to ConocoPhillips. | | | Double Trigger: Beginning with option awards granted in 2014 and performance share programs beginning in 2014, equity awards do not vest in the event of a change in control unless there is also a qualifying termination of employment. | | | Limited Payouts: In 2014, the HRCC formalized our existing practice of capping annual and long-term incentive payouts at 250% and 200% of target, respectively. In 2015, the HRCC formalized our existing practice of making no upward individual performance adjustments for stock options, capping the payout at 100% of target for programs beginning in 2016. |
COMPENSATION AND GOVERNANCE PRACTICES
| | No Excise Tax Gross Ups for Future Change in Control Plan Participants: In 2012, we eliminated excise tax gross ups for future participants in our Change in Control Severance Plan. | | | No Current Payment of Dividend Equivalents on Unvested Long-Term Incentives: Dividend equivalents on unvested restricted stock units awarded under the PSP are only paid out to the extent that the underlying award is ultimately earned. | | | No Repricing of Underwater Stock Options: Our plans do not permit us to reprice, exchange, or buy out underwater options without stockholder approval. | | | No Pledging, Hedging, Short Sales, or Derivative Transactions: Company policies prohibit our directors and executives from pledging, hedging, or trading in derivatives of ConocoPhillips stock. | | | No Employment Agreements for Our Named Executive Officers: All compensation for these officers is established by the HRCC. |
BOARD RESPONSIVENESS
| Increased transparency around targets and results for our annual and long-term incentive programs Disclosed a payout matrix for relative financial metrics | Reduced the complexity of our annual incentive program Adjusted the 2018 long-term incentive program pay mix | Improved peer selection and CEO target pay benchmarking disclosures See pages 48-49 for a more detailed discussion of feedback received and the changes made in response. |
BOARD RESPONSIVENESS
| Improved Board refreshment and diversity disclosure | Strengthened Board and Committee evaluation and nominating process disclosure | Enhanced qualifications and skills matrix disclosure |
BOARD RESPONSIVENESS
| Returned to an in-person annual meeting | Implemented improved Internet availability through a live video webcast of the meeting and the capability to submit questions online in advance of the meeting | Committed to publish all questions and answers on our website after the meeting |
BOARD RESPONSIVENESS
| Revised our policies to reflect that the Vice President, Government Affairs and the Board will oversee trade association memberships Posted disclosures on our website to provide the total lobbying expenditures for the previous calendar year and the aggregate percentage of trade association dues that relate to lobbying expenses as calculated by the trade associations |
BOARD RESPONSIVENESS
| 18 | ConocoPhillips | 2018 PROXY STATEMENT | Corporate Governance Matters — | Engagement |
BOARD RESPONSIVENESS
Board Leadership Structure
BOARD RESPONSIVENESS
| Board Overview | | | >Chairman of the Board and Chief Executive Officer: Ryan M. Lance >Lead Director: Richard H. Auchinleck* >Active engagement by all directors | >Nine of our 10 director nominees are independent >All members of the Audit and Finance Committee, Human Resources and Compensation Committee, Committee on Directors’ Affairs and Public Policy Committee are independent | | Our Board believes that continuing to combine the position of Chairman and CEO is in the best interests of ConocoPhillips and its stockholders and provides an effective balance between strong company leadership and oversight by engaged independent directors. | |
BOARD RESPONSIVENESS
| Mr. Auchinleck is scheduled to retire at the Annual Meeting on May 15, 2018. The non-employee directors have selected Harald J. Norvik to serve as Lead Director effective May 14, 2018.* |
OBJECTIVES AND PRINCIPLES
OBJECTIVES AND PRINCIPLES The Board’s goal in designing director compensation is to provide a competitive package that will enable us to attract and retain highly-skilled individuals with relevant experience. Our compensation program also reflects the time and talent required to serve on the board of a complex, multinational corporation. The Board seeks to provide sufficient flexibility in the form of compensation to meet directors’ varying needs while ensuring that a substantial portion of compensation is linked to the long-term success of ConocoPhillips. Compensation for non-employee directors is reviewed annually by the Committee on Directors’ Affairs and set upon approval by the Board. Compensation for non-employee directors has remained unchanged since 2013. At that time, the Board approved the current levels of compensation after a recommendation from the Committee on Directors’ Affairs, which had undertaken a review with an independent compensation consultant. In both 2016 and 2017, the Committee on Directors’ Affairs met with a second independent compensation consultant to review the non-employee director compensation program and to determine whether to recommend any changes to that program. These reviews included comparisons of director compensation levels with, and examined trends in director compensation at, the compensation peer group and the Fortune 50 – 150 companies. See “Peers and Benchmarking” on page 58. In connection with these reviews, the consultant noted that our director compensation program was within the limits set out in the stockholder-approved 2014 Omnibus Share and Performance Incentive Plan under which director awards are made. In both years the Board agreed with the recommendation of the Committee on Directors’ Affairs that no change in director compensation was warranted.
EQUITY COMPENSATION
EQUITY COMPENSATION Non-employee directors receive an annual grant of restricted stock units with an aggregate value of $220,000 on the date of grant. The restricted stock units are fully vested at grant, and are credited with dividend equivalents in the form of additional restricted stock units, but they cannot be sold or otherwise transferred. Prior to each annual grant, a director may elect the schedule on which the restrictions will lapse. When restrictions lapse, directors will receive unrestricted shares of ConocoPhillips stock in exchange for their restricted stock units. Regardless of the schedule a director elects, all restrictions on a director’s restricted stock units will lapse in the event of the director’s retirement, disability, or death, or upon a change of control of ConocoPhillips, unless the director has elected to defer receipt of the shares until a later date. Directors forfeit the units if, before restrictions lapse (and prior to any change of control), the Board finds sufficient cause for forfeiture. Restricted stock units granted to directors who are not residents of the United States may have modified terms to comply with applicable laws and tax rules. Thus, the restricted stock units granted to Messrs. Auchinleck and Norvik have slightly different terms responsive to the tax laws of their home countries (Canada and Norway, respectively)—the most important difference being that the restrictions lapse only in the event of retirement, death, or loss of position, including upon a change in control.
CASH COMPENSATION
| 26 | ConocoPhillips | 2018 PROXY STATEMENT | Corporate Governance Matters — | Non-Employee Director Compensation |
CASH COMPENSATION
This cash compensation is payable in monthly installments. Directors may elect, on an annual basis, to receive all or part of their cash compensation in unrestricted stock or in restricted stock units, or to have the amount credited to a deferred compensation account. Any such unrestricted stock or restricted stock units will be issued on the last business day of each month, valued using the average of the high and the low market prices of ConocoPhillips common stock on such date. The restricted stock units issued in lieu of cash compensation are subject to the same restrictions as the annual restricted stock units described under “Equity Compensation.” The Board has approved modifications of the compensation for directors who are taxed under the laws of other countries. Canadian directors (currently, Mr. Auchinleck) may elect to receive cash compensation either in cash or in restricted stock units; Norwegian directors (currently, Mr. Norvik) receive compensation that would otherwise have been received as cash only as restricted stock units. Restricted stock units issued to Canadian and Norwegian directors are subject to the same restrictions as the annual restricted stock unit grants described under “Equity Compensation.”
STOCK OWNERSHIP
| Corporate Governance Matters — | Non-Employee Director Compensation | ConocoPhillips | 2018 PROXY STATEMENT | 27 |
NON-EMPLOYEE DIRECTOR COMPENSATION TABLE
NON-EMPLOYEE DIRECTOR COMPENSATION TABLE
NON-EMPLOYEE DIRECTOR COMPENSATION TABLE
| Name | Fees Earned or Paid in Cash(1) | Stock Awards(2)(3) | Option Awards | Non-Equity Incentive Plan Compensation | Change in Pension Value and Nonqualified Deferred Compensation on Earnings | All Other Compensation(4)(5) | Total | | R.L. Armitage | 125,000 | $220,001 | $— | $— | $— | $3,000 | $348,001 | | R.H. Auchinleck | 167,732 | 220,001 | — | — | — | — | 387,733 | | C.E. Bunch | 127,917 | 220,001 | — | — | — | 10,000 | 357,918 | | J.E. Copeland, Jr. (retired)(6) | 52,083 | 220,001 | — | — | — | 14,178 | 286,262 | | C. M. Devine | 32,500 | — | — | — | — | — | 32,500 | | J.V. Faraci | 144,639 | 220,001 | — | — | — | 10,000 | 374,640 | | J. Freeman | 127,083 | 220,001 | — | — | — | 6,000 | 353,084 | | G. Huey Evans | 128,958 | 220,001 | — | — | — | 10,000 | 358,959 | | S. Mulligan | 65,000 | — | — | — | — | — | 65,000 | | A.N. Murti | 128,263 | 220,001 | — | — | — | — | 348,264 | | R.A. Niblock | 140,329 | 220,001 | — | — | — | 10,000 | 370,330 | | H.J. Norvik | 132,799 | 220,001 | — | — | — | — | 352,800 |
NON-EMPLOYEE DIRECTOR COMPENSATION TABLE
| Reflects 2017 annual cash compensation of $115,000 payable to each non-employee director. In 2017, non-employee directors serving in specified committee positions also received the following additional cash compensation:(1) | | ●Lead Director—$35,000 ●Chair of the Audit and Finance Committee—$25,000 ●Chair of the Human Resources and Compensation Committee—$20,000 ●Chair of any other committee—$10,000 ●All other Audit and Finance Committee members—$10,000 ●All other Human Resources and Compensation Committee members—$7,500 ●All other committee members—$5,000 | | Amounts shown include prorated amounts attributable to committee reassignments, which may occur during the year. Amounts shown in the Fees Earned or Paid in Cash column include any amounts that were voluntarily deferred to the Director Deferral Plan, received in ConocoPhillips common stock, or received in restricted stock units. Messrs. Auchinleck, Faraci, Murti, Niblock and Norvik received 100% of their cash compensation in restricted stock units in 2017, with an aggregate grant date fair value as shown in the table. All other directors received their cash compensation in cash or deferred such amounts into the Director Deferral Plan. |
NON-EMPLOYEE DIRECTOR COMPENSATION TABLE
| Amounts represent the aggregate grant date fair value of stock awards granted under our non-employee director compensation program. On January 15, 2017, each non-employee director received a 2017 annual grant of restricted stock units with an aggregate value of $220,000 based on the average of the high and low price for our common stock, as reported on the NYSE, on the grant date. These grants are made in whole shares, with fractional share amounts rounded up, resulting in a grant of shares with a value of $220,001 to each person who was a director on January 15, 2017.(2) | | The following table reflects, for each director, the aggregate number of stock awards outstanding as of December 31, 2017:(3) |
NON-EMPLOYEE DIRECTOR COMPENSATION TABLE
| Name | Number of Deferred Shares or Units of Stock | | R.L. Armitage | 39,679 | | R.H. Auchinleck | 119,449 | | C.E. Bunch | 14,195 | | J.E. Copeland, Jr. (retired) | — | | C.M. Devine | — | | J.V. Faraci | 17,236 | | J. Freeman | 21,358 | | G. Huey Evans | 17,893 | | S. Mulligan | — | | A.N. Murti | 22,143 | | R.A. Niblock | 43,518 | | H.J. Norvik | 69,991 |
NON-EMPLOYEE DIRECTOR COMPENSATION TABLE
| 28 | ConocoPhillips | 2018 PROXY STATEMENT | Corporate Governance Matters — | Non-Employee Director Compensation |
NON-EMPLOYEE DIRECTOR COMPENSATION TABLE
The following table lists delivery of director stock awards in 2017:
NON-EMPLOYEE DIRECTOR COMPENSATION TABLE
| Name | Number of Shares Acquired on Award Delivery | Value Realized Upon Award Delivery | | R.L. Armitage | — | $— | | R.H. Auchinleck | — | — | | C.E. Bunch | — | — | | J.E. Copeland, Jr. (retired) | 59,590 | 2,961,127 | | C. M. Devine | — | — | | J.V. Faraci | — | — | | J. Freeman | — | — | | G. Huey Evans | — | — | | S. Mulligan | — | — | | A.N. Murti | — | — | | R.A. Niblock | — | — | | H.J. Norvik | — | — |
NON-EMPLOYEE DIRECTOR COMPENSATION TABLE
| The amounts shown in this column include a tax gross-up payment of $4,178 to Mr. Copeland; all other amounts reflect matching gifts.(4) | | ConocoPhillips has a practice of making gift presentations to its retiring directors, especially those of long service. The fair value of the retirement presentation to Mr. Copeland was $4,463, and this amount was imputed to Mr. Copeland’s income. In such circumstances, if a director is imputed income in accordance with applicable tax laws, ConocoPhillips generally will reimburse the director for the resulting increased tax costs. All such tax reimbursement has been included above, regardless of whether the corresponding perquisite or personal benefit is required to be reported pursuant to SEC rules and regulations. | | ConocoPhillips maintains a Matching Gift Program under which we match certain gifts by directors to charities and educational institutions, excluding religious, political, fraternal, or athletic organizations, that are tax-exempt under Section 501(c)(3) of the Internal Revenue Code of the United States or meet similar requirements under the applicable law of other countries. For directors, the program matches up to $10,000 in each program year. Administration of the program can cause us to pay more than $10,000 in a single fiscal year due to a lag in processing claims. The amounts shown are for the actual payments by ConocoPhillips in 2017. Mr. Lance is eligible for the program as an executive rather than as a director. Information on the value of matching gifts for Mr. Lance is provided in the Summary Compensation Table on page 78 and the notes to that table. | | None of the directors had aggregate personal benefits or perquisites of $10,000 or more in value.(5) | | Mr. Copeland retired from the Board effective May 16, 2017. The amounts in the table above include his prorated compensation reflecting the portion of 2017 in which he served as a director.(6) |
NON-EMPLOYEE DIRECTOR COMPENSATION TABLE
| Corporate Governance Matters — | Non-Employee Director Compensation | ConocoPhillips | 2018 PROXY STATEMENT | 29 |
NON-EMPLOYEE DIRECTOR COMPENSATION TABLE
| WHAT AM I VOTING ON? You are voting on a proposal to elect the 10 nominees named in this Proxy Statement to one-year terms as ConocoPhillips directors. |
WHAT IF A DIRECTOR NOMINEE DOES NOT RECEIVE A MAJORITY OF THE VOTES CAST?
WHAT IF A DIRECTOR NOMINEE DOES NOT RECEIVE A MAJORITY OF THE VOTES CAST? If a nominee who is serving as a director is not elected at the Annual Meeting and no one else is elected in place of that director, then, under Delaware law, the director continues to serve on the Board as a “holdover director.” However, under our By-Laws, a holdover director is required to tender a resignation to the Board. The Committee on Directors’ Affairs then would consider the resignation and recommend to the Board whether to accept or reject it, or whether some other action should be taken. The Board would then make a decision, without participation by the holdover director. The Board is required to disclose publicly (by a news release, filing with the SEC, or other broadly disseminated means of communication) its decision regarding the tendered resignation and the rationale behind that decision within 90 days from the date the election results are certified.
WHAT IF A DIRECTOR NOMINEE DOES NOT RECEIVE A MAJORITY OF THE VOTES CAST?
| Item 1: Election of Directors | ConocoPhillips | 2018 PROXY STATEMENT | 33 |
WHO ARE THIS YEAR’S NOMINEES?
WHO ARE THIS YEAR’S NOMINEES? The following 10 directors are standing for election to hold office until the 2019 Annual Meeting of Stockholders. Each of the director nominees is a current director. Committee membership is effective as of May 14, 2018.
WHO ARE THIS YEAR’S NOMINEES?
| | Charles E. Bunch Former Chairman and Chief Executive Officer of PPG Industries, Inc. Mr. Bunch served as Chairman and Chief Executive Officer of PPG Industries, Inc. from July 2005 to August 2015 and Executive Chairman from September 2015 to September 2016. He was President and Chief Operating Officer of PPG from July 2002 until he was elected President and Chief Executive Officer in March 2005 and Chairman and Chief Executive Officer in July 2005. Before becoming President and Chief Operating Officer, he was Executive Vice President of PPG from 2000 to 2002 and Senior Vice President, Strategic Planning and Corporate Services, of PPG from 1997 to 2000. Mr. Bunch was with PPG for more than 35 years prior to his retirement, holding positions in finance and planning, marketing, and general management in the United States and Europe. He currently serves on the boards of PNC Financial Services Group, Marathon Petroleum Corporation and Mondelẽz International, Inc. He previously served as a director of H.J. Heinz Company; as chairman of the Federal Reserve Bank of Cleveland, the National Association of Manufacturers, and the American Coatings Association; and as a member of the University of Pittsburgh’s board of trustees. Skills and Qualifications: The Board values Mr. Bunch’s experience as a director and CEO in a highly-regulated industry, as well as his management and finance experience. Additionally, Mr. Bunch has a strong background in management development and compensation. His international business experience with global issues facing a large, multinational public company enables him to provide the Board with valuable operational and financial expertise. | | | | | Age: 68 Director Since: May 2014 ConocoPhillips Committees: Audit and Finance Committee Committee on Directors’ Affairs Other current U.S. public company directorships: PNC Financial Services Group; Marathon Petroleum Corporation; Mondelēz International, Inc. | |
WHO ARE THIS YEAR’S NOMINEES?
| | Caroline Maury Devine Former President and Managing Director of a Norwegian affiliate of ExxonMobil Ms. Devine served as President and Managing Director of a Norwegian affiliate of ExxonMobil from 1996 to 2000, and since 1988 held various corporate positions responsible for shareholder relations and governance issues, as well as international government relations with an emphasis on Vietnam, Indonesia, Nigeria and Russia. Ms. Devine previously served the U.S. government for 15 years in positions on the White House Domestic Policy Staff, in the U.S. Embassy in Paris, and in the Drug Enforcement Administration. She is currently a member of the Council on Foreign Relations. In addition to current positions on the boards of JBT Corporation and Valeo and as a member of the Nominating Committee of Petroleum Geo-Services ASA, Ms. Devine previously served on the boards of Det Norske Veritas, FMC Technologies, Inc., and Technip. She is a former Fellow at Harvard University’s Belfer Center for Science and International Affairs. Skills and Qualifications: Ms. Devine’s broad range of expertise in international affairs within the industry, as well as her government experience and service on other public company boards, are very valuable. Her senior officer experience demonstrates an understanding of organizations and the ability to deliver results. | | | | | Age: 67 Director Since: October 2017 ConocoPhillips Committees: Audit and Finance Committee Public Policy Committee Other current U.S. public company directorships: John Bean Technologies Corporation; Valeo | |
WHO ARE THIS YEAR’S NOMINEES?
| 34 | ConocoPhillips | 2018 PROXY STATEMENT | Item 1: Election of Directors |
WHO ARE THIS YEAR’S NOMINEES?
| | John V. Faraci Former Chairman and Chief Executive Officer of International Paper Co. Mr. Faraci served as Chairman and Chief Executive Officer of International Paper Co. from 2003 until his retirement in 2014. He spent his career of more than 40 years at International Paper, also serving as the company’s Chief Financial Officer and in various other financial, planning and management positions. Mr. Faraci serves on the board of directors for PPG Industries, Inc. and United Technologies Corporation. He is a trustee of the American Enterprise Institute, Denison University, and the National Fish and Wildlife Foundation. Skills and Qualifications: The Board values Mr. Faraci’s experience as a director and CEO. His international business experience at a large public company enables him to provide the Board with valuable operational and financial expertise and an informed management perspective on global business issues. | | | | | Age: 68 Director Since: January 2015 ConocoPhillips Committees: Audit and Finance Committee (Chair) Human Resources and Compensation Committee Executive Committee Other current U.S. public company directorships: PPG Industries, Inc.; United Technologies Corporation | |
WHO ARE THIS YEAR’S NOMINEES?
| | Jody Freeman Archibald Cox Professor of Law at Harvard Law School Ms. Freeman is the Archibald Cox Professor of Law at Harvard Law School and founding director of the Harvard Law School Environmental Law and Policy Program. Ms. Freeman formerly served as Counselor for Energy and Climate Change in the White House from 2009 to 2010 and as an independent consultant to the National Commission on the Deepwater Horizon Oil Spill and Offshore Drilling in 2010. Ms. Freeman has served as a member of the Administrative Conference of the United States and is a Fellow of the American College of Environmental Lawyers. Before joining the Harvard faculty in 2005, she was a professor of Law at UCLA Law School from 1995 to 2005. Skills and Qualifications: Ms. Freeman’s expertise in environmental law and policy, and her unique experiences in shaping federal environmental and energy policy, especially in matters critical to ConocoPhillips’ operations, enable her to provide valuable insight into our policies and practices. | | | | | Age: 54 Director Since: July 2012 ConocoPhillips Committees: Committee on Directors’ Affairs Public Policy Committee (Chair) Executive Committee | |
WHO ARE THIS YEAR’S NOMINEES?
| Item 1: Election of Directors | ConocoPhillips | 2018 PROXY STATEMENT | 35 |
WHO ARE THIS YEAR’S NOMINEES?
| | Gay Huey Evans, OBE Deputy Chairman, Financial Reporting Council Ms. Huey Evans currently serves as a non-executive director of Standard Chartered PLC and Itau BBA International Limited. She also currently serves as Deputy Chairman of The Financial Reporting Council, where she is a member of the Nomination Committee; Chair of the Beacon Awards, which celebrate British philanthropy; and a Trustee of Wellbeing of Women, where she is Chair of the Investment Committee. She was formerly Vice Chairman of the Board and Non-Executive Chairman, Europe, of the International Swaps and Derivatives Association, Inc. from 2011 to 2012. She was Vice Chairman, Investment Banking and Investment Management at Barclays Capital from 2008 to 2010. She was previously head of governance of Citi Alternative Investments (EMEA) from 2007 to 2008; and President of Tribeca Global Management (Europe) Ltd. from 2005 to 2007, both part of Citigroup. From 1998 to 2005, she was director of the markets division and head of the capital markets sector at the U.K. Financial Services Authority. She previously held various senior management positions with Bankers Trust Company in New York and London. Ms. Huey Evans previously served on the boards of Aviva plc, The London Stock Exchange Group plc. and Falcon Private Wealth Ltd. Skills and Qualifications: Ms. Huey Evans’ in-depth knowledge of, and insight into, global capital markets from her extensive experience in the financial services industry brings valuable expertise to ConocoPhillips’ businesses. | | | | | Age: 63 Director Since: March 2013 ConocoPhillips Committees: Audit and Finance Committee Public Policy Committee | |
WHO ARE THIS YEAR’S NOMINEES?
| | Ryan M. Lance Chairman and Chief Executive Officer of ConocoPhillips Mr. Lance was appointed Chairman and Chief Executive Officer in May 2012, having previously served as Senior Vice President, Exploration and Production—International, from May 2009. Prior to that he served as President, Exploration and Production—Asia, Africa, Middle East and Russia/Caspian since April 2009, having previously served as President, Exploration and Production—Europe, Asia, Africa and the Middle East, since September 2007. Prior thereto, he served as Senior Vice President, Technology beginning in February 2007, and prior to that served as Senior Vice President, Technology and Major Projects beginning in 2006. He served as President, Downstream Strategy, Integration and Specialty Businesses from 2005 to 2006. Skills and Qualifications: Mr. Lance’s service as Chairman and Chief Executive Officer of ConocoPhillips makes him well qualified to serve both as a director and Chairman of the Board. Mr. Lance’s extensive experience in the industry as an executive in our exploration and production businesses, and as the global representative of ConocoPhillips, make his service as a director invaluable. | | | | | Age: 55 Director Since: April 2012 ConocoPhillips Committees: Executive Committee (Chair) | |
WHO ARE THIS YEAR’S NOMINEES?
| 36 | ConocoPhillips | 2018 PROXY STATEMENT | Item 1: Election of Directors |
WHO ARE THIS YEAR’S NOMINEES?
| | Sharmila Mulligan Founder and Chief Executive Officer of ClearStory Data Inc. Ms. Mulligan is the Founder and Chief Executive Officer of ClearStory Data Inc., a modern data analytics company enabling business-oriented insights from disparate data. Ms. Mulligan has served as ClearStory’s Chief Executive Officer since inception in September 2011. From 2009 to 2011, Ms. Mulligan served as Executive Vice President for Aster Data Systems, Inc. until its acquisition by Teradata Corporation. Prior to Aster Data, Ms. Mulligan was a Vice President of Software Solutions for HP Inc. Prior to HP, Ms. Mulligan was Executive Vice President of Products and Marketing at Opsware Inc. from 2002 until its eventual acquisition by HP in 2007. Prior to Opsware Inc., Ms. Mulligan led Product Management and held Vice President positions at Netscape Communications, Microsoft, and General Magic. Ms. Mulligan is on the board of Lattice Engines, Inc. and an advisor to and investor in numerous enterprise software and consumer technology companies. Skills and Qualifications: Ms. Mulligan’s experience in cloud computing, scalable data analytics and a broad range of big data technologies plus Internet of Things and Artificial Intelligence innovation adds exceptional value to the Board. Her experience as a CEO enables her to provide the Board with beneficial strategic leadership qualities. | | | | | Age: 52 Director Since: July 2017 ConocoPhillips Committees: Audit and Finance Committee Human Resources and Compensation Committee | |
WHO ARE THIS YEAR’S NOMINEES?
| | Arjun N. Murti Senior Advisor at Warburg Pincus Mr. Murti is Senior Advisor at Warburg Pincus. He previously served as a Partner at Goldman Sachs from 2006 to 2014. Prior to becoming Partner, he served as Managing Director from 2003 to 2006 and as Vice President from 1999 to 2003. During his time at Goldman Sachs, Mr. Murti worked as a sell-side equity research analyst covering the energy sector. He was co-director of equity research for the Americas from 2011 to 2014. Previously, Mr. Murti held equity analyst positions at JP Morgan Investment Management from 1995 to 1999 and at Petrie Parkman from 1992 to 1995. Skills and Qualifications: Mr. Murti brings to the Board a deep understanding of financial oversight and accountability with his experience as a Partner at Goldman Sachs, one of the largest banking institutions. He has spent more than 25 years in the financial services industry with an extensive focus, both domestic and global, on the energy industry. This experience provides the Board valuable insight into financial management and analysis. | | | | | Age: 49 Director Since: January 2015 ConocoPhillips Committees: Audit and Finance Committee Public Policy Committee | |
WHO ARE THIS YEAR’S NOMINEES?
| Item 1: Election of Directors | ConocoPhillips | 2018 PROXY STATEMENT | 37 |
WHO ARE THIS YEAR’S NOMINEES?
| | Robert A. Niblock Chairman, President and Chief Executive Officer of Lowe’s Companies, Inc. Mr. Niblock is Chairman, President and Chief Executive Officer of Lowe’s Companies, Inc. He has served as Chairman and CEO of Lowe’s Companies, Inc. since January 2005 and he reassumed the title of President in 2011, after having served in that role from 2003 to 2006. Mr. Niblock became a member of the board of directors of Lowe’s when he was named Chairman- and CEO-elect in 2004. Mr. Niblock joined Lowe’s in 1993 and, during his career with the company, has served as Vice President and Treasurer, Senior Vice President, and Executive Vice President and CFO. Before joining Lowe’s, Mr. Niblock had a nine-year career with accounting firm Ernst & Young. Mr. Niblock has been a member of the board of directors of the Retail Industry Leaders Association since 2003, and has served as its Secretary since 2012. He previously served as its chairman in 2008 and 2009 and as vice chairman in 2006 and 2007. Skills and Qualifications: The Board values his experience as a CEO and in financial reporting matters. Mr. Niblock’s experience as an actively-serving CEO of a large public company allows him to provide the Board with valuable operational and financial expertise. | | | | | Age: 55 Director Since: February 2010 ConocoPhillips Committees: Human Resources and Compensation Committee (Chair) Committee on Directors’ Affairs Executive Committee Other current U.S. public company directorships: Lowe’s Companies, Inc. | |
WHO ARE THIS YEAR’S NOMINEES?
| | Harald J. Norvik, Lead Director (Effective as of May 14, 2018) Former Chairman, President and Chief Executive Officer of Statoil Mr. Norvik currently serves on the board of Umoe ASA and as a member of the Nominating Committee of Petroleum Geo-Services ASA. He previously served on the board of Petroleum Geo-Services ASA from 2004 to 2016, serving as Vice Chairperson from 2009 to 2016, and served on the board of Deep Ocean Group from 2011 to 2017, the last year as Chairman. He was Chairman and a partner at Econ Management AS from 2002 to 2008 and was a strategic advisor there from 2008 to 2010. He served as Chairman of Aschehoug ASA from 2003 to 2014; as Chairman of the Board of Telenor ASA from 2007 to 2012; and as Chairman, President & CEO of Statoil from 1988 to 1999. Skills and Qualifications: As a former CEO of an international energy corporation, Mr. Norvik brings valuable experience and expertise in industry and operational matters. In addition, Mr. Norvik provides valuable international perspective as a person conducting business in Norway, a country in which ConocoPhillips has significant operations. | | | | | Age: 71 Director Since: July 2005 ConocoPhillips Committees: Human Resources and Compensation Committee Committee on Directors’ Affairs (Chair) Executive Committee | |
WHO ARE THIS YEAR’S NOMINEES?
| FOR | The Board recommends you vote FOR each nominee standing for election as director. |
WHO ARE THIS YEAR’S NOMINEES?
| 38 | ConocoPhillips | 2018 PROXY STATEMENT | Item 1: Election of Directors |
WHO ARE THIS YEAR’S NOMINEES?
The Audit and Finance Committee (the “Audit Committee”) assists the Board in fulfilling its responsibility to provide independent, objective oversight for ConocoPhillips’ financial reporting functions and internal control systems. The Audit Committee currently consists of six non-employee directors. The Board has determined that each member of the Audit Committee satisfies the requirements of the NYSE as to independence and financial literacy. The Board has determined that at least one member, John V. Faraci, 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 and last amended on December 8, 2017. The charter is available on our website at www.conocophillips.com under “Investors Corporate Governance.”
WHO ARE THIS YEAR’S NOMINEES?
| The Audit Committee’s responsibilities include: | | | > | Discussing with management, the independent auditors, and the internal auditor the integrity of ConocoPhillips’ accounting policies, internal controls, financial statements, financial reporting practices, and select financial matters, including capital structure, financial risk management, retirement plans, and tax planning; | | > | Reviewing significant corporate risk exposures and steps management has taken to monitor, control, and report such exposures; | | > | Reviewing the qualifications, independence, and performance of the independent auditors and the qualifications and performance of ConocoPhillips’ internal auditors; | | > | Reviewing ConocoPhillips’ overall direction and compliance with legal and regulatory requirements and internal policies; and | | > | Maintaining open and direct lines of communication with the Board and management, our Compliance and Ethics Office, the internal auditors, and the independent auditors. |
WHO ARE THIS YEAR’S NOMINEES?
Management is responsible for preparing ConocoPhillips’ financial statements in accordance with generally accepted accounting principles, or GAAP, and for developing, maintaining and evaluating our internal controls over financial reporting and other control systems. The independent registered public accountant is responsible for auditing the annual financial statements prepared by management, assessing the internal control over financial reporting, and expressing an opinion with respect to each. One of the Audit Committee’s primary responsibilities is to assist the Board in its oversight of the integrity of ConocoPhillips’ financial statements. The following report summarizes certain of the Audit Committee’s activities in this regard for 2017. Review with Management. The Audit Committee reviewed and discussed with management the audited consolidated financial statements included in ConocoPhillips’ Annual Report on Form 10-K for the year ended December 31, 2017, which included a discussion of the quality—not just the acceptability—of the accounting principles, the reasonableness of significant judgments, and the clarity of the disclosures. The Audit Committee also discussed management’s assessment of the effectiveness of our internal control over financial reporting as of December 31, 2017, included in the financial statements. Discussions with Internal Audit. The Audit Committee reviewed ConocoPhillips’ internal audit plan and discussed the results of internal audit activity throughout the year. ConocoPhillips’ General Auditor met with the Audit Committee at every in-person meeting in 2017 and was available to meet without management present at each of these meetings.
WHO ARE THIS YEAR’S NOMINEES?
| Audit and Finance Committee Report | ConocoPhillips | 2018 PROXY STATEMENT | 39 |
WHO ARE THIS YEAR’S NOMINEES?
Discussions with the Independent Registered Public Accounting Firm. The Audit Committee met throughout the year with Ernst & Young LLP (“EY”), ConocoPhillips’ independent registered public accounting firm, including meeting with EY at each in-person meeting without management present. The Audit Committee has discussed with EY the matters required to be discussed by standards of the Public Company Accounting Oversight Board, or PCAOB. The Audit Committee has received the written disclosures and the letter from EY required by PCAOB rules, and has discussed with that firm its independence from ConocoPhillips. In addition, the Audit Committee considered the non-audit services EY provides to ConocoPhillips, and concluded that the auditor’s independence has been maintained. Recommendation to the ConocoPhillips Board of Directors. Based on its review and discussions noted above, the Audit Committee recommended to the Board of Directors that the audited financial statements be included in ConocoPhillips’ Annual Report on Form 10-K for the year ended December 31, 2017.
CONTINUOUS IMPROVEMENT
| > | Increased transparency around targets, results and payouts for the annual and long-term incentive programs; See pages 66-70 | | > | Disclosed payout matrix used to assess performance for relative metrics; See pages 65, 67 and 70 | | > | Reduced the complexity in the annual incentive program; See pages 61-64 |
CONTINUOUS IMPROVEMENT
| — | reevaluated the performance metrics for the NEOs and reduced them to five key focus areas (Health, Safety, and Environmental (“HSE”), Operations, Financial, Strategic Milestones and Total Shareholder Return) which better reflect overall corporate performance and incentivize successful execution of our strategy |
CONTINUOUS IMPROVEMENT
| > | Increased the weighting of 2018 performance-based long-term incentives and adjusted mix; See page 72 |
CONTINUOUS IMPROVEMENT
| — | increased the weighting of performance shares from 60% to 65% | | — | replaced stock options in 2018 with time-vested restricted stock units weighted at 35% |
CONTINUOUS IMPROVEMENT
| — | explained the link between compensation program metrics and ConocoPhillips’ strategy; See pages 50-52 and 61-64 | | — | enhanced disclosure on rationale for peer group selection; See pages 58-61 | | — | increased disclosure on CEO target compensation benchmarking; See pages 58-60 |
The ConocoPhillips Human Resources and Compensation Committee
| 2017 Element of Pay | Overview | Key Benchmarks/Performance Metrics | | Annual | | | | Salary | Fixed cash compensation to attract and retain executives and balance at-risk compensation Limit: Salary grade minimum / maximum | ●Benchmarked to compensation peer group average of the integrated and independent median and to Fortune 100 Industrials; adjusted for experience, responsibility, performance and potential | | Variable Cash Incentive Program (“VCIP”) | Variable annual cash compensation to motivate and reward executives for achieving annual goals and strategic milestones that are critical to our strategic priorities Limit: 0% - 200% of target for corporate performance, plus/minus individual adjustments | ●Health, Safety & Environmental (20%) ●Financial - Relative Adjusted ROCE/CROCE (20%) ●Operational (20%) ●Strategic Milestones (20%) ●Relative TSR (20%) ●Measured over a one-year performance period and aligned with our strategic priorities | | Long-Term Incentive Program (“LTIP”) | | | | | Variable long-term equity-based compensation to motivate and reward executives for achieving multi-year strategic priorities Granted at beginning of performance period with final cash payout based on HRCC assessment of progress toward pre-established corporate performance metrics and stock price on the settlement date Limit: 0% - 200% of target, inclusive of corporate performance and individual adjustments | ●Relative TSR (50%) ●Financial – Relative Adjusted ROCE/CROCE (30%) ●Strategic Objectives (20%) ●Measured over a three-year performance period and aligned with our strategic priorities | | | | | | | Variable long-term equity-based compensation to encourage absolute performance and long-term value creation over a performance period of up to ten years Limit: 0% - 100% of target | ●Long-term stock price appreciation |
The ConocoPhillips Human Resources and Compensation Committee
| Effective with equity grants in 2018, the HRCC approved replacing stock options with three-year, time-vested restricted stock units at a weight of 35% and increasing the weighting of performance shares to 65%. For more information, see “Changes to Our Long-Term Incentive Programs for 2018” beginning on page 72.* |
STOCKHOLDER ENGAGEMENT IN RESPONSE TO 2017 SAY ON PAY OUTCOME
| WHAT WE HEARD | | WHAT WE DID | | Variable Cash Incentive Program | | | | Increase transparency around targets and payouts | | ●Disclosed targets and results (pages 66-68) | | | | ●Disclosed payout matrix for relative financial metrics (pages 65 and 67) | | Simplify VCIP complexity | | ●Reduced complexity by aligning NEO VCIP metrics to focus on five key areas to better reflect overall corporate performance (pages 61-64) | | Long-term Incentive Program | | | | Increase transparency around targets and payouts | | ●Disclosed payout matrix for relative financial metrics (pages 65 and 70) | | | | ●Disclosed strategic plan objectives (pages 64 and 69-70) | | Consider adjusting LTI pay mix | | ●For LTI grants in 2018, increased performance shares from 60% to 65% of LTI mix; replaced stock options with time-vested restricted stock units weighted at 35% of LTI mix (page 72) | | Other/Disclosure | | | | Improve CD&A disclosure | | ●Increased disclosure around targets, results and payouts, as outlined above (pages 66-70) | | | | ●Explained the link between compensation program metrics and ConocoPhillips strategy (pages 50-52 and 61-64) | | | | ●Increased disclosure on rationale for peer group selection (pages 58-61) | | | | ●Increased disclosure on CEO target compensation benchmarking (pages 58-60) | | Vague reasons for use of discretion | | ●Will provide clear rationale if discretion is exercised |
STOCKHOLDER ENGAGEMENT IN RESPONSE TO 2017 SAY ON PAY OUTCOME
| Salary | + | VCIP | + | Performance Shares | + | Stock Options | = | Target Value | | | | Annual Incentive | | Long-term Incentives | | | | |
BASE SALARY
BASE SALARY Base salary is a central component of compensation for all of our salaried employees. Management, with the assistance of its outside compensation consultant, thoroughly examines the scope and complexity of jobs throughout ConocoPhillips and benchmarks the competitive compensation practices for such jobs. As a result of this work, management has developed a compensation scale under which all positions are assigned specific salary grades. For our executives, the base salary midpoint increases as the salary grade increases, but at a lesser rate than increases in overall target incentive compensation percentages. The result is a higher percentage of at-risk compensation as an executive’s salary grade rises. Base salary is important to give employees financial stability for personal planning purposes. There are also motivational and reward aspects to base salary, as base salary can be changed to account for considerations such as assigned roles, responsibilities and duties, experience, individual performance and time in position. We set base salaries to be competitive within our compensation peer group and Fortune 100 Industrials. See “Process for Determining Executive Compensation—Peers and Benchmarking” beginning on page 58 for a discussion of our position benchmarking exercise.
Annual Incentive
Annual Incentive All of our employees throughout the world—not only our executives—participate in our annual incentive program, called the Variable Cash Incentive Program (“VCIP”). It is our primary vehicle for recognizing company, business unit, and individual performance for the prior year. We believe that having an annual “at risk” compensation element gives all employees a financial stake in the achievement of our business objectives and motivates them to use their best efforts to ensure the achievement of those objectives. We also believe that one year is a time period over which all participating employees can have the opportunity to establish and achieve their specified goals. The base VCIP award is weighted equally for corporate and business unit performance for most employees, but the Executive Leadership Team, which includes the Named Executive Officers, only participates in the corporate performance component. See “Process for Determining Executive Compensation—Performance Criteria” beginning on page 61 for details regarding performance criteria. The HRCC has discretion to adjust base awards up or down depending on individual performance. This decision is based on the input of the CEO for all Named Executive Officers other than the CEO, and on the HRCC’s evaluation of the CEO, conducted jointly with the Lead Director, for the CEO.
Long-Term Incentives
Long-Term Incentives Historically, our primary long-term incentive compensation programs for executives are the Performance Share Program (“PSP”) and the Stock Option Program. Fewer than 60 of our current employees participate in these programs. Prior to 2016, we targeted approximately 50 percent of each long-term incentive award in the form of restricted stock units awarded under the PSP and 50 percent in the form of stock options. In December 2015, the HRCC changed this mix so that beginning in 2016, approximately 60 percent of the long-term incentive award would be in the form of performance-based restricted stock units and 40 percent would be in the form of stock options. The compensation tables that begin on page 78 reflect the new allocation for the awards granted since 2016 and the prior allocation for awards granted before 2016. In December 2017, in response to stockholder feedback, the HRCC approved an additional change to the mix. Beginning in 2018, approximately 65 percent of the long-term incentive award will be in the form of performance-based restricted stock units and 35 percent will be in the form of time-vested restricted stock units. See “Changes to Our Long-Term Incentive Programs for 2018” on page 72 for a more detailed discussion of the changes.
Long-Term Incentives
| Compensation Discussion & Analysis — | Components of Executive Compensation | ConocoPhillips | 2018 PROXY STATEMENT | 55 |
Performance Share Program
Performance Share Program The Performance Share Program rewards executives based on ConocoPhillips’ performance and individual performance over a three-year period. Each year the HRCC establishes performance metrics and targets for a new three-year performance period. Thus, performance results in any given year are considered in three overlapping performance periods. Use of a multi-year performance period helps to focus management on longer-term results. PSP award targets are set in shares at the beginning of the performance period and actual payouts based on the HRCC’s evaluation of performance are calculated using our stock price after the conclusion of the three-year program. Thus, the value of the performance shares is tied to stock price performance throughout the performance period. Targets for participants whose salary grades are changed during a performance period are prorated. Changes in salary not accompanied by a change in salary grade do not affect the existing targets. Each executive’s final award under the PSP is subject to a potential positive or negative performance adjustment, up to a maximum PSP payout of 200 percent of target. The adjustment is determined by the HRCC following several detailed reviews of company performance. Final awards are based on the HRCC’s evaluation of ConocoPhillips’ performance relative to the pre-established performance targets (discussed under “Process for Determining Executive Compensation—Performance Criteria”) and of each executive’s individual performance. The HRCC reviews and determines compensation for the CEO and considers input from the CEO with respect to the other Named Executive Officers.
Stock Option Program
Stock Option Program The Stock Option Program is designed to maximize medium- and long-term stockholder value. The practice under this program is to set option exercise prices no lower than the fair market value of ConocoPhillips stock at the time of the grant. Because an option’s value is derived solely from an increase in our stock price, options only reward recipients if our stock appreciates. Options granted in 2017 have three-year vesting provisions and are exercisable for a period of ten years in order to incentivize our executives to increase ConocoPhillips’ share price over the long term. Stock options have been replaced with time-vested restricted stock units beginning with 2018 grants. The combination of the PSP and the Stock Option Program (or time-vested restricted stock units going forward), along with our Stock Ownership Guidelines described under “Executive Compensation Governance—Alignment of Interests—Stock Ownership and Holding Requirements” on page 74, provides a comprehensive package of medium- and long-term compensation incentives for our executives that align their interests with those of our long-term stockholders.
Off-Cycle Awards
Off-Cycle Awards ConocoPhillips may make awards outside the PSP or the Stock Option Program. No off-cycle awards were made to any of our Named Executive Officers in 2015, 2016 or 2017. Currently, off-cycle awards are generally granted to certain incoming executives for one or more of the following reasons: (1) to induce an executive to join ConocoPhillips (occasionally replacing compensation the executive will lose by leaving the prior employer); (2) to induce an executive of an acquired company to remain with ConocoPhillips for a certain period of time following the acquisition; or (3) to provide a pro rata equity award to an executive who joins ConocoPhillips during an ongoing performance period for which the executive is ineligible under the standard PSP or Stock Option Program provisions. In these cases, the HRCC has sometimes approved a shorter period for restrictions on transfers of restricted stock units than those issued under the PSP or Stock Option Program. Any off-cycle awards to Senior Officers must be approved by the HRCC. Process for Determining Executive Compensation Our executive compensation programs take into account market-based compensation for executive talent; internal pay equity among our employees; ConocoPhillips’ past practices; corporate, business unit and individual results; and the talents, skills and experience that each individual executive brings to ConocoPhillips. Our Named Executive Officers each serve without an employment agreement. All compensation for these officers is set by the HRCC as described below.
HUMAN RESOURCES AND COMPENSATION COMMITTEE
| | | | | | | | | | | July | | October | | December | | February/March | | May | | ●First Performance Review ●Independent third party benchmarks CEO pay and reviews market trends | | ●Compensation program risk analysis ●Review market best practices and initial program design concept ●Initial stockholder outreach | | ●Stockholder feedback shared with HRCC/Board ●Program design approved ●Second performance review | | ●Third and fourth performance reviews ●Independent third party review of peer target compensation and payouts ●Approve incentive payouts ●Approve performance targets and target compensation | | ●Stockholder outreach; feedback shared with the HRCC/Board ●Annual stockholder vote | | | | | | | | | | |
COMPENSATION CONSULTANTS
COMPENSATION CONSULTANTS The HRCC has the sole authority to retain and terminate any compensation consultant to assist in the evaluation of the compensation of the CEO and the Senior Officers, and has sole authority to approve such consultant’s fees and other retention terms. Similarly, the HRCC has authority to retain, terminate and obtain advice and assistance from external legal, accounting or other advisors and consultants. The HRCC retained FW Cook to serve as its independent executive compensation consultant in 2017. The HRCC has adopted specific guidelines for outside compensation consultants, which (1) require that work done by such consultants other than at the direction of the HRCC be approved in advance by the HRCC; (2) require the HRCC to conduct a review to determine if it is advisable to replace the independent consultant after a period of five years; and (3) prohibit ConocoPhillips from employing any individual who worked on our account for a period of one year after that individual leaves the employ of the independent consultant. FW Cook has provided an annual attestation of its compliance with our guidelines. Separately, management retained Mercer to, among other things, assist it in compiling compensation data, conducting analyses, providing consulting services, and supplementing internal resources for market analysis. The HRCC considered whether any conflict of interest exists with either FW Cook or Mercer in light of SEC rules. The HRCC assessed the following factors relating to each consultant in its evaluation: (1) other services provided to us by the consultant; (2) fees paid by us as a percentage of the consulting firm’s total revenue; (3) policies or procedures maintained by the consulting firm that are designed to prevent a conflict of interest; (4) any business or personal relationships between the individual consultants involved in the engagement and a member of the HRCC; (5) any ConocoPhillips stock owned by the individual consultants involved in the engagement; and (6) any business or personal relationships between our executive officers and the consulting firm or the individual consultants involved in the engagement. Both FW Cook and Mercer provided the HRCC with appropriate assurances addressing such factors. Based on this information, the HRCC concluded that the work of the consultants did not raise any conflict of interest. The HRCC also took into consideration all factors relevant to FW Cook’s independence from management, including those specified in Section 303A.05(c) of the NYSE Listing Manual, and determined that FW Cook is independent, and performs no other services for ConocoPhillips.
PEERS AND BENCHMARKING
PEERS AND BENCHMARKING With the assistance of our outside compensation consultants, we set our compensation structure and targets by referring to multiple relevant compensation surveys that include large energy companies and other complex organizations. We then compare that information to our salary grade targets (both for base salary and for incentive compensation) and make any changes needed to bring the cumulative target for each salary grade to approximately the 50th percentile for similar positions as indicated by the survey data. For our Named Executive Officers, we conduct benchmarking, using available data, for each individual position. For example, although we determine compensation targets by benchmarking against other large, publicly-held energy companies, in setting targets for our executives, we also consider broader categories, such as mid-sized, publicly-held energy companies and other large, publicly-held companies outside the energy industry. This position benchmarking exercise relies on peer market data from Mercer. The HRCC’s independent consultant, FW Cook, reviews and independently advises on the conclusions reached as a result of this benchmarking. The HRCC uses two separate categories of primary peer groups in designing our compensation programs: the compensation peer group and the performance peer group. There is considerable overlap between the two peer groups. The companies in the compensation peer group broadly reflect the industry in which we compete for business opportunities and executive talent, and we believe these peers provide a good indicator of the current range of executive compensation. Performance peers are those companies in our industry in relation to which we believe we can best measure performance by comparing financial and business objectives and opportunities. The companies chosen as compensation and performance peers have several characteristics in common. Specifically, they: are complex organizations; are publicly traded (and not directed by a government or governmental entity); have very large market capitalization; have very large production and reserves; and are competitors for exploration prospects and for the same talent pool of potential employees. See “Company Overview” on page 5 for a discussion of ConocoPhillips’ size, scope and complexity.
PEERS AND BENCHMARKING
| 58 | ConocoPhillips | 2018 PROXY STATEMENT | Compensation Discussion & Analysis — | Process for Determining Executive Compensation |
Setting Compensation Targets—Compensation Peer Group
Setting Compensation Targets—Compensation Peer Group At the February 2017 HRCC meeting, the HRCC reviewed the compensation within the compensation peer group to benchmark the target compensation of ConocoPhillips’ Named Executive Officers. In addition, for the CEO and staff executive positions, the HRCC considers the Fortune 100 Industrials (non-financial companies) when setting target compensation. Staff executive positions include executives who have duties not solely or primarily related to our operations, such as finance, legal, accounting and human resources. As the world’s largest independent E&P company, we are uniquely positioned between the larger integrated companies and independent E&P companies in terms of production and proved reserves. This makes it challenging to benchmark target compensation that adequately considers ConocoPhillips’ size, scope and scale relative to other independent E&P companies. We are often compared, for compensation purposes, against a set of publicly-traded independent E&P companies, many of which are much smaller and less complex than we are. We include the integrated companies in our compensation peer group given that we compete with them for talent, and they are more similar from a size and complexity perspective than the smallest publicly-traded E&P companies.
Setting Compensation Targets—Compensation Peer Group
| Compensation Discussion & Analysis — | Process for Determining Executive Compensation | ConocoPhillips | 2018 PROXY STATEMENT | 59 |
Setting Compensation Targets—Compensation Peer Group
The bubble chart below represents the positioning of ConocoPhillips relative to its selected compensation peer group using 2016 production, market cap as of December 31, 2016, and year-end 2016 proved reserves. The HRCC considered the relative positioning in the process of setting 2017 target compensation for the CEO. The HRCC’s approach to setting target compensation since the spinoff in 2012 is to consider the average of the median target compensation of the integrated companies and the independent companies. Averaging the medians recognizes ConocoPhillips’ relative positioning between the integrateds and independents. The HRCC also validated the outcome with the Fortune 100 Industrials median. Mr. Lance has had the same target compensation since 2013. The chart below shows how the HRCC arrived at the CEO’s target compensation for that year reflecting the average of the medians methodology.
Setting Compensation Targets—Compensation Peer Group
| COMPENSATION PEER GROUP | | Bubble size represents market cap (as of 12/31/16) | | |
Setting Compensation Targets—Compensation Peer Group
| Note: | ConocoPhillips’ 2016 production and proved reserves have not been restated to reflect asset dispositions. |
Setting Compensation Targets—Compensation Peer Group
| AVERAGE OF THE MEDIANS |
Setting Compensation Targets—Compensation Peer Group
| | Estimated 2013* Targets ($ in thousands) | | | | | Base | STI Target | Total Compensation | | Integrated Peers: Median | | | | | BP Chevron ExxonMobil Shell | $1,907 | 150% | $16,600 | | Independent Peers: Median | | | | | Anadarko Apache Devon Occidental | $1,471 | 168% | $14,850 | | Average of Integrated & Independent Peers Median | $1,689 | 159% | $15,725 | | ConocoPhillips 2013 | $1,700 | 160% | $16,000 |
Setting Compensation Targets—Compensation Peer Group
| The HRCC included Marathon Oil Corporation with regard to performance periods that include the years 2016 and later.* |
Setting Compensation Targets—Compensation Peer Group
In reviewing 2017 target compensation for the CEO, the HRCC noted that, since 2013, a number of CEOs within the compensation peer group have retired, and target compensation for the new incumbent was set below the retired CEO’s compensation, reducing the peer medians. The HRCC also considered the median target compensation of the Fortune 100 Industrials, which was approximately $16 million for 2017. Based on these factors, the HRCC made no changes to the CEO’s 2017 target compensation.
Setting Compensation Targets—Compensation Peer Group
| 60 | ConocoPhillips | 2018 PROXY STATEMENT | Compensation Discussion & Analysis — | Process for Determining Executive Compensation |
Measuring Performance—Performance Peer Group
Measuring Performance—Performance Peer Group The HRCC believes our performance is best measured against both large independent E&P companies and the largest publicly-held, international, integrated oil and gas companies against which we compete in our business operations. Therefore, for our performance-based programs, the HRCC assessed our actual performance for a given period in comparison to the performance peer group.
DEVELOPING PERFORMANCE MEASURES
DEVELOPING PERFORMANCE MEASURES We believe our performance metrics appropriately reflect the performance of ConocoPhillips consistent with our strategy as an independent E&P company. Specifically, the HRCC has approved a balance of metrics, some of which measure performance relative to our peer group and some of which measure progress in executing our strategic milestones and objectives. We have selected multiple metrics, as described herein, because we believe no single metric is sufficient to capture the performance we are seeking to drive. Moreover, reliance on any metric in isolation is unlikely to promote the well-rounded executive performance necessary to enable us to achieve long-term success. The HRCC reassesses performance metrics periodically to confirm that they remain appropriate.
Relative Total Shareholder Return (“TSR”) (VCIP and PSP)
Relative Total Shareholder Return (“TSR”) (VCIP and PSP) We believe our operational, financial and strategic milestones and objectives have a strong, positive correlation to TSR in our sector. Thus, as we pursue these metrics, we expect to achieve superior returns to stockholders; TSR is the best overall indicator of our success. By integrating compensation metrics with strategic priorities, we believe we are strongly aligned with stockholder interests across time periods and through cycles. We believe it is important to include TSR in both VCIP and PSP because it is the most tangible, visible measure of the value we have created for stockholders during the relevant period. However, TSR has a stronger weighting in the PSP program to more closely align with stockholder performance benchmarks and to discourage short-term actions over long-term value creation. TSR represents the percentage change in stock price from the beginning to the end of a stated period, plus the percentage impact from common stock dividends paid during the stated period assuming dividends are reinvested into the stock. Consistent with market practice, we calculate TSR based on a 20-trading day simple average prior to the beginning of a period and a 20-trading day simple average prior to the end of the stated period. We measure TSR relative to our performance peer group to mitigate the influence of sector-wide factors, such as commodity price volatility, on our stock price.
PERFORMANCE-BASED PROGRAMS
PERFORMANCE-BASED PROGRAMS In determining performance-based compensation awards for our Named Executive Officers for performance periods concluding at the end of 2017, the HRCC began by assessing overall company performance. To that end, the HRCC considered the performance reviews throughout and after the performance period ended to assess the degree of difficulty in achieving performance targets. The HRCC applied the approved payout matrix to the relative financial metric results, and then considered any adjustments to the awards under our three performance-based compensation programs (VCIP, PSP and Stock Option Program) in accordance with their terms and pre-established criteria. The HRCC retains the discretion to make a positive or negative adjustment to awards (other than stock option awards, for which no upward adjustment is allowed) to ensure pay and performance are appropriately aligned. The HRCC followed the matrix below in making its determination of payouts for the relative financial metrics (adjusted ROCE/CROCE) and TSR in the VCIP and PSP programs:
PERFORMANCE-BASED PROGRAMS
| Relative Ranking | 1st - 2nd | 3rd | 4th | 5th | 6th | 7th | 8th | 9th | 10th - 11th | | Payout | 200% | 175% | 150% | 125% | 100% | 75% | 50% | 25% | 0% |
Annual Incentive—Variable Cash Incentive Program (VCIP)
Annual Incentive—Variable Cash Incentive Program (VCIP) All of our employees are eligible for VCIP. The VCIP payout for our Executive Leadership Team, including the NEOs, is calculated using the following formula. This formula was simplified in response to stockholder feedback to focus solely on five key areas of corporate performance, rather than corporate and business unit performance, and is subject to HRCC approval and discretion to set the award:
Annual Incentive—Variable Cash Incentive Program (VCIP)
| Eligible EarningsX | Target Percentage for the Salary GradeX | Corporate Performance Adjustment | ± | Any Individual Performance Adjustment |
Annual Incentive—Variable Cash Incentive Program (VCIP)
| Note: | VCIP awards for all other employees are based on a combination of corporate performance and business unit performance. |
VCIP Performance
| Metric Category | Category Weighting | Metric | VCIP Target | VCIP Results & Performance Summary | Payout | Weighted Payout | | HSE | 20% | Total Recordable Rate (“TRR”) (relative) | Top-quartile performance and industry leader | Achieved lowest workforce TRR on record; achieved top-quartile safety performance and recognized as HSE industry leader | 175% | 35% | | | | Process Safety Events (“PSE”) | Continuous Improvement | Serious incident and Tier 1 PSE rates improved year-over-year 53% and 58%, respectively | | | | Operational | 20% | Production (MBOED) | 1,535 | Exceptional operating performance producing 1,579 MBOED; exceeded target by ~3% while spending less capital and achieving Operating and Overhead targets | 155% | 31% | | | | Capital ($B) | $5.3 | Capital managed to $4.7B, ~11% below target; driven by scope optimization and cost reductions; overall, delivered capital milestones for less capital | | | | | | Operating and Overhead ($B) | $6.0 | Managed operating and overhead costs to target of $6.0B; a reduction of ~8% from 2016 despite the additional cost associated with increased production | | | | | | Operational Milestones | See operational milestones discussed on page 63. | Strong project performance with 100% of milestones for operated properties achieved | | | | Financial | 20% | Adjusted ROCE (absolute improvement relative to peers) | | 3rd in peer group (175% per matrix) | 187.5% | 37.5% | | | | Adjusted CROCE (absolute improvement relative to peers) | | 2nd in peer group (200% per matrix) | | | | Strategic Milestones The strategic milestones are aligned with the strategic priorities set out at the November 2016 Analyst & Investor Meeting. | 20% | Optimize portfolio through strategic dispositions | | Strategic disposition transactions ~$16B in 2017; three-year plan target was $5-$8B; this transformational change improved margins and accelerated achievement of other strategic milestones described below | 200% | 40% | | | | Provide distinctive stockholder distributions with annual dividend growth and share repurchase program | | Stockholder distributions exceeded target by tripling 2017 repurchases to $3B; dividend increased by 6% in 2017; overall, returned 61% of cash flow from operating activities, excluding working capital, through a combination of dividend ($1.3B) and share buybacks ($3.0B) | | | | | | Maintain a strong balance sheet, reduce debt and focus on improving absolute financial returns | | Debt reduction of $7.6B in 2017 accelerated debt levels to under the three-year target of $20B; strengthened our position to deliver improved cash and financial returns at lower crude prices | | | | TSR | 20% | Total shareholder return (relative to peers) | | 5th in peer group (125% per matrix) with absolute TSR of +6.5% based on 20-day average methodology; outperformed all independent E&Ps and total peer average. | 125% | 25% | | | | | | Total Payout | | 169% |
Individual Performance Adjustments
| | 2017 Eligible Earnings | Target VCIP | Corporate Payout | Individual Performance Adjustment* | Total Payout | | R. M. Lance | $1,700,000 | 160% | 169% | – | $4,596,800 | | D.E. Wallette, Jr. | 961,400 | 100% | 169% | 10% | 1,720,906 | | M.J. Fox | 1,241,000 | 115% | 169% | 15% | 2,625,956 | | A.J. Hirshberg | 1,205,600 | 115% | 169% | 10% | 2,481,728 | | J.L. Carrig | 760,032 | 89% | 169% | – | 1,143,164 |
Long-Term Incentive: Performance Share Program (PSP)
Long-Term Incentive: Performance Share Program (PSP) In 2015, the HRCC approved performance metrics for the PSP performance period running from January 2015 through December 2017. The PSP program is designed to motivate senior leadership worldwide to execute their duties in a way that not only achieves ConocoPhillips’ approved strategy, but also closely aligns senior leadership with stockholder interests. Less than 60 of our current employees participate in this program.
PSP Performance
| Metric Category | Category Weighting | Metric | PSP Results & Performance Summary | Payout | Weighted Payout | | TSR | 50% | Total shareholder return (relative to peers) | 7th in peer group (75% per matrix) for 2015-2017 based on 20-day average methodology; outperformed independent E&P three-year peer average. | 75% | 37.5% | | Financial | 30% | Adjusted ROCE (absolute improvement relative to peers) | 9th in peer group (25% per matrix) | 12.5% | 3.75% | | | | Adjusted CROCE (absolute improvement relative to peers) | 10th in peer group (no payout per matrix) | | | | Strategic Objectives | 20% | Maintain financial strength and flexibility and optimize portfolio | Transformed the company and its portfolio by developing and executing a returns-focused strategy to achieve a sustaining price of <$40/bbl through strategic asset sales of $18 billion, reducing debt by almost 30% to <$20B and improving our credit rating | 120% | 24% | | | | Achieve $1B controllable cost reduction from 2014 actuals and deliver overall controllable cost per BOE reduction | Exceeded $1B target, reducing controllable costs by $4B since 2014; reduced cost of supply across the portfolio; <$35/bbl average cost of supply | | | | | | Improve three-year HSE performance | Maintained our focus on sustainability resulting in climate change scenario planning and strategy, inclusion of development risks into business planning and decision-making, and setting a long-term greenhouse gas emissions intensity reduction target. Improved safety and environmental performance over the three-year period. | | | | | | | | Total Payout | 65% |
PSP Performance
| | Reported Value* ($) | Target Units (#) | Corporate Payout Percentage (%) | Final Units Awarded (#) | Realized Value** ($) | | R.M. Lance | $6,630,693 | 95,757 | 65% | 62,242 | $3,401,214 | | D.E. Wallette, Jr. | 1,951,740 | 28,186 | 65% | 18,321 | 1,001,151 | | M.J. Fox | 3,126,619 | 45,153 | 65% | 29,349 | 1,603,776 | | A.J. Hirshberg | 2,761,283 | 39,877 | 65% | 25,920 | 1,416,398 | | J. L. Carrig | 1,436,141 | 20,740 | 65% | 13,481 | 736,669 |
Long-Term Incentive: Stock Option Program
Long-Term Incentive: Stock Option Program All 2017 awards under the Stock Option Program were made at target. Less than 60 of our current employees participate in this program. In December 2017, the HRCC approved replacing stock options with time-vested RSUs effective with equity grants made in 2018.
Long-Term Incentive: Stock Option Program
| 70 | ConocoPhillips | 2018 PROXY STATEMENT | Compensation Discussion & Analysis — 2017 Executive Compensation Analysis and Results |
Long-Term Incentive: Stock Option Program
Demonstrating Pay and Performance Alignment The charts below illustrate the strong alignment between our executives’ pay and ConocoPhillips’ performance by comparing the corporate payout levels of our annual and long-term incentive programs to our stock performance. Additionally, the compensation reported in the Summary Compensation Table reflects the accounting value of long-term equity awards at grant and not the value actually realized from these awards. Since a significant portion of the reported compensation represents potential pay, we believe it is useful to supplement that information with realized pay.
Long-Term Incentive: Stock Option Program
| VCIP CORPORATE PERFORMANCE* | | | | Through 2016, the annual incentive program consisted of 50% corporate performance metrics and 50% business unit performance metrics.* |
Long-Term Incentive: Stock Option Program
| PSP CORPORATE PERFORMANCE | | | | The ‘payout adjusted for stock price’ in the graph above considers, on a percentage of target basis, both the HRCC’s approved performance payout and the final settlement value based on the fair market value of COP stock on the settlement date following the conclusion of the three-year performance period.* |
CEO – REALIZED PAY ANALYSIS
CEO – REALIZED PAY ANALYSIS As required by SEC rules, the compensation reported in the Summary Compensation Table reflects the accounting value of long-term equity awards at grant and not the value realized from these awards. Since a significant portion of the reported compensation represents potential pay, we believe it is useful to also disclose realized pay. Realized long-term incentive pay may be significantly different from the pay reported in the Summary Compensation Table due to performance share program payouts, stock price and stock option exercises. For Stock Awards granted in 2013, 2014 and 2015 and whose performance periods ended in 2015, 2016 and 2017, respectively, the total realized value is approximately 59 percent of the value reported for these grants in the Summary Compensation Table. No value has been realized from Option Awards granted and reported between 2013 and 2017.
CEO – REALIZED PAY ANALYSIS
To illustrate CEO reported and realized pay for PSP, the chart below summarizes the reported grant date fair value of PSP XI (2013-2015), XII (2014-2016) and XIII (2015-2017) and the value realized from each program. PSP award targets are set in shares at the beginning of the performance period. Actual payouts are based on the HRCC’s evaluation of corporate performance during the period against approved metrics, after which the number of target shares initially granted is adjusted accordingly. The performance-adjusted number of shares is then multiplied by our stock price on the settlement date after the conclusion of the three-year program, resulting in the final cash payout. The difference in value between reported and realized pay demonstrates alignment with stockholders. Thousands Changes to our Long-Term Incentive Programs for 2018 Effective with equity grants awarded in 2018, the HRCC approved replacing stock options with three-year, time-vested restricted stock units. In making this decision, the HRCC considered:
CEO – REALIZED PAY ANALYSIS
| > | the overall need to balance risk, retention, and dilution; | | > | the potential increased volatility in performance share payouts, considering that 80% of the corporate payout is based on relative financial and TSR performance; and | | > | the fact that including time-vested restricted stock units in the pay mix is consistent with peer market practice |
CEO – REALIZED PAY ANALYSIS
During our outreach, stockholders indicated support for this change, with some suggesting we reduce the weighting of time-vested restricted stock units from the current 40 percent weighting of stock options. In response to this feedback, the HRCC increased the weighting of performance shares from 60 percent to 65 percent and assigned a weight of 35 percent to the time-vested restricted stock units. 2018 Target Compensation In addition to determining the 2017 compensation payouts, the HRCC established the targets for 2018 compensation for our Named Executive Officers. No adjustments were made relative to 2017 target total compensation. With the exception of salary, the targeted amounts shown below are performance-based and, therefore, actual amounts received, if any, may differ from these targets. Mr. Lance’s total target compensation has remained unchanged since March 1, 2013.
CEO – REALIZED PAY ANALYSIS
| Name | Salary | 2018 VCIP Target Value | 2018 Executive RSU Target Value | PSP 18 (2018-2020) Target Value | Total 2018 Target Compensation | | R.M. Lance | $1,700,000 | $2,720,000 | $4,053,000 | $7,527,000 | $16,000,000 | | D.E. Wallette, Jr. | 961,400 | 961,400 | 1,312,311 | 2,437,149 | 5,672,260 | | M.J. Fox | 1,241,000 | 1,427,150 | 1,911,140 | 3,549,260 | 8,128,550 | | A.J. Hirshberg | 1,205,600 | 1,386,440 | 1,856,624 | 3,448,016 | 7,896,680 | | J.L. Carrig | 760,032 | 676,428 | 877,837 | 1,630,268 | 3,944,565 |
CEO – REALIZED PAY ANALYSIS
| 72 | ConocoPhillips | 2018 PROXY STATEMENT | Compensation Discussion & Analysis — Changes to our Long-Term Incentive Programs for 2018 |
OTHER COMPENSATION AND PERSONAL BENEFITS
| > | Voluntary Deferred Compensation Plans—The purpose of our voluntary nonqualified deferred compensation plans is to allow executives to defer a portion of their salary and incentive compensation so that such amounts are not immediately taxable. | | > | Make-Up Plans—The purpose of our nonqualified defined contribution make-up plans is to provide benefits that an executive would otherwise lose due to limitations imposed by the Internal Revenue Code on high-income participants in qualified plans. |
SEVERANCE PLANS AND CHANGES IN CONTROL
SEVERANCE PLANS AND CHANGES IN CONTROL We maintain plans to address severance of our executives in certain circumstances as described under Executive Severance and Changes in Control beginning on page 89. Plans of this nature are common within the industry; our plans are designed to aid ConocoPhillips in attracting and retaining executives. Under each of our severance and change-in-control severance plans, the executive must terminate from service with ConocoPhillips in order to receive severance pay.
SEVERANCE PLANS AND CHANGES IN CONTROL
| Compensation Discussion & Analysis — Other Executive Compensation and Benefits | ConocoPhillips | 2018 PROXY STATEMENT | 73 |
SEVERANCE PLANS AND CHANGES IN CONTROL
Executives who began participation in the change-in-control severance plan after the spinoff are not eligible for excise tax gross-ups under the plan. Executives who had been participants in the plan prior to the spinoff may receive excise tax gross-ups. The HRCC chose to grandfather the gross-up provision for certain participants because, in the event of a change in control, the provisions of our performance share program prior to the spinoff left those participants with the potential of a large excise tax. The HRCC determined it would be unfair should this burden suddenly be shifted to the participants. The post-spinoff design of the PSP reduced the potential tax impact to participants. In 2013, the HRCC amended the change-in-control severance plan to limit single trigger vesting of equity awards to awards not assumed by an acquirer and for program periods that began prior to 2014. Awards assumed by an acquirer made with regard to later program periods under the PSP or the Stock Option Program will only vest upon the occurrence of both a change-in-control event and termination of employment of the employee (usually called a “double trigger”).
EQUITY GRANT PRACTICES
EQUITY GRANT PRACTICES When the HRCC awards Performance Share Units, options, or other equity grants to the Named Executive Officers, the value of the units or the exercise price of the options or other equity is determined based on an average of the stock’s high and low prices on the date of grant (or the preceding business day, if the markets are closed on the date of grant). Since 2016, to determine the target number of awards, we use an average of the closing prices on the 10 trading days preceding the date of grant. Grants of Performance Share Units and option grants are generally made at the HRCC’s February meeting (the date of which is determined at least a year in advance) or, in the case of new hires, on the date of commencement of employment or the date of HRCC approval, whichever is later.
Tax-Based Program Criteria
Tax-Based Program Criteria Our incentive programs were designed to conform to the requirements of Section 162(m) of the Internal Revenue Code, as in effect prior to the 2017 Tax Act, which allowed for deductible compensation in excess of $1 million if certain conditions, including the attainment of pre-established performance criteria, are met. We have designed the PSP and the VCIP, both of which involve pre-determined performance measures, to meet requirements for deductibility of these items of compensation. Maximum payments for the performance period under PSP and VCIP are set, but they are subject to downward adjustment through the application of the generally applicable methodology for PSP and VCIP awards previously discussed, effectively establishing a ceiling for PSP and VCIP payments to each Named Executive Officer. Threshold performance criteria for PSP and VCIP differed, due primarily to the different lengths in the threshold performance periods. For the PSP, the criteria for the 2015-2017 performance period required that ConocoPhillips meet one of the following measures before any award could be made to a Named Executive Officer: (1) Among the top seven of eleven specified companies in total shareholder return; (2) Reserve additions of at least 750 MMBOE; or (3) Cash from operations of at least $7.5 billion. For the 2017 VCIP, the criteria required that ConocoPhillips meet one of the following measures before any award could be made to a Named Executive Officer: (1) Among the top seven of eleven specified companies in total shareholder return; (2) Reserve additions of at least 200 MMBOE; (3) Cash from operations (excluding changes in working capital and adjusted for material dispositions) of at least $4.5 billion; or (4) Controllable operating and overhead costs (adjusted for special items) of $7 billion or less.
THE CONOCOPHILLIPS HUMAN RESOURCES AND COMPENSATION COMMITTEE
| Name and Principal Position | Year | Salary(1) | Bonus(2) | Stock Awards(3) | Option Awards(4) | Non-Equity Incentive Plan Compensation(5) | Change in Pension Value and Nonqualified Deferred Compensation Earnings(6) | All Other Compensation(7) | Total | | R.M. Lance | 2017 | $1,700,000 | $— | $6,993,660 | $4,652,424 | $4,596,800 | $3,578,653 | $327,393 | $21,848,930 | | Chairman and CEO | 2016 | 1,700,000 | — | 6,607,217 | 4,419,261 | 2,638,400 | 3,601,723 | 245,437 | 19,212,038 | | | 2015 | 1,700,000 | — | 6,630,693 | 5,790,780 | 2,524,160 | 4,392,300 | 301,786 | 21,339,719 | | D.E. Wallette, Jr. | 2017 | 961,400 | — | 2,264,449 | 1,506,438 | 1,720,906 | 2,935,282 | 109,606 | 9,498,081 | | Executive Vice President, Finance, | 2016 | 939,550 | — | 1,944,837 | 1,301,146 | 911,364 | 2,248,397 | 61,530 | 7,406,824 | | Commercial, and CFO | 2015 | 874,000 | — | 1,951,740 | 1,704,798 | 811,072 | 1,091,611 | 85,414 | 6,518,635 | | M.J. Fox | 2017 | 1,241,000 | — | 3,297,776 | 2,194,020 | 2,625,956 | 438,163 | 149,519 | 9,946,434 | | Executive Vice President, | 2016 | 1,241,000 | — | 3,115,552 | 2,083,774 | 1,384,336 | 414,358 | 91,371 | 8,330,391 | | Strategy, Exploration & Technology | 2015 | 1,241,000 | — | 3,126,619 | 2,730,348 | 1,324,395 | 125,684 | 159,327 | 8,707,373 | | A.J. Hirshberg | 2017 | 1,205,600 | — | 3,203,706 | 2,131,596 | 2,481,728 | 439,221 | 170,957 | 9,632,808 | | Executive Vice President, Production, | 2016 | 1,178,200 | — | 2,751,504 | 1,840,685 | 1,314,282 | 2,262,525 | 121,457 | 9,468,653 | | Drilling & Projects | 2015 | 1,096,000 | — | 2,761,283 | 2,411,712 | 1,169,651 | 1,190,020 | 159,072 | 8,787,738 | | J.L. Carrig | 2017 | 760,032 | — | 1,514,732 | 1,007,964 | 1,143,164 | 163,710 | 96,278 | 4,685,880 | | Senior Vice President, Legal, General | 2016 | 760,032 | — | 1,431,038 | 957,264 | 656,136 | 165,708 | 70,372 | 4,040,550 | | Counsel & Corporate Secretary | 2015 | 760,032 | — | 1,436,141 | 1,254,510 | 627,726 | 154,017 | 92,484 | 4,324,910 |
THE CONOCOPHILLIPS HUMAN RESOURCES AND COMPENSATION COMMITTEE
| Includes any amounts that were voluntarily deferred under the Key Employee Deferred Compensation Plan.(1) | | Because our primary short-term incentive compensation arrangement for salaried employees (the Variable Cash Incentive Program or “VCIP”) has mandatory performance measures that must be achieved before there is any payout to Named Executive Officers, amounts paid under the VCIP are shown in the Non-Equity Incentive Plan Compensation column of the table, rather than the Bonus column.(2) | | Amounts shown represent the aggregate grant date fair value of awards made under the Performance Share Program (“PSP”) during each of the years indicated, as determined in accordance with FASB ASC Topic 718. See the “Employee Benefit Plans” section of Note 17 in the Notes to Consolidated Financial Statements in ConocoPhillips’ 2017 Annual Report on Form 10-K for a discussion of the relevant assumptions used in this determination.(3) | | The amounts shown for stock awards are from our PSP awards. No off-cycle awards were granted to any of the Named Executive Officers during 2015, 2016, and 2017. The amounts shown for awards from the PSP relate to the respective three-year performance periods that began in each of the years presented. Performance periods under the PSP generally are three years. As a new performance period has begun each year since the program commenced, there are three overlapping performance periods ongoing at any time. |
THE CONOCOPHILLIPS HUMAN RESOURCES AND COMPENSATION COMMITTEE
| 78 | ConocoPhillips | 2018 PROXY STATEMENT | Executive Compensation Tables — | Summary Compensation Table |
THE CONOCOPHILLIPS HUMAN RESOURCES AND COMPENSATION COMMITTEE
| The amounts shown for 2015 include the full initial target for PSP XIII for the January 2015—December 2017 performance period, as well as any incremental targets set during 2015 with regard to any ongoing performance period as a result of promotions. The amounts shown for 2016 include the full target for PSP XIV for the January 2016—December 2018 performance period, as well as any incremental targets set during 2016 with regard to any ongoing performance period as a result of promotions. The amounts shown for 2017 include the full initial target for PSP 17 for the January 2017— December 2019 performance period, as well as any incremental targets set during 2017 with regard to any ongoing performance period as a result of promotions. | | Amounts shown represent the grant date fair value at target level under the PSP as determined pursuant to FASB ASC Topic 718. Amounts are shown at target for each year since it is most probable at the setting of the target for the applicable performance periods that targets will be achieved. If payout was made at maximum levels for company performance and excluding any individual adjustments, the amounts shown would double from the targets shown, although the value of the actual payout would be dependent upon the stock price at the time of the payout. If payout was made at minimum levels, the amounts would be reduced to zero. No adjustment is made to the target shown for prior years based upon any change in probability after the target is set. Changes to targets resulting from promotion or demotion of a Named Executive Officer are shown as awards in the year of the promotion or demotion, even though the awards may relate to a program period that began in an earlier year. | | The grant date fair values of the target awards for PSP XIII (January 2015-December 2017) appear in the table in 2015. Actual payouts with regard to the targets for PSP XIII were approved by the HRCC at its February 2018 meeting. Pursuant to that approval, payouts were made in February 2018 (with values shown at fair market value on the date of settlement) to the Named Executive Officers as follows: Mr. Lance, 62,242 units valued at $3,401,214; Mr. Wallette, 18,321 units valued at $1,001,151; Mr. Fox, 29,349 units valued at $1,603,776; Mr. Hirshberg, 25,920 units valued at $1,416,398; and Ms. Carrig, 13,481 units valued at $736,669. These amounts do not appear in the table. Under the terms and conditions of the awards, participants were able to make elections prior to the beginning of the performance period to defer all or a portion of the award value into the Key Employee Deferred Compensation Plan. Mr. Wallette deferred 100% of the value, equal to $971,745 (net of taxes withheld), and Ms. Carrig deferred 100% of the value, equal to $714,404 (net of taxes withheld). See also the section on Nonqualified Deferred Compensation beginning on page 87 for further information. | | For target awards for program periods beginning in 2013 and later, the escrow period ends shortly after the end of the performance period, except that in the cases of termination due to death, layoff, or retirement, or after disability or a change in control, the escrow period ends at the exceptional termination event. In the event of termination due to layoff or early retirement after age 55 with five years of service, restrictions lapse unless the employee has elected to defer receipt of the payout until a later time. For programs beginning in 2012 and later, settlement will be made in cash rather than unrestricted shares, although the employee may elect, prior to the beginning of the performance period, to have some or all of the settlement deferred into the Key Employee Deferred Compensation Plan. | | Amounts represent the dollar amount recognized as the aggregate grant date fair value, as determined in accordance with FASB ASC Topic 718. See the “Employee Benefit Plans” section of Note 17 in the Notes to Consolidated Financial Statements in ConocoPhillips’ 2017 Annual Report on Form 10-K for a discussion of the relevant assumptions used in this determination. All such options were awarded under the Stock Option Program. Options awarded to Named Executive Officers under that program generally vest in three equal annual installments beginning on the first anniversary of the date of grant, and expire ten years after the date of grant. However, if a Named Executive Officer has attained the early retirement age of 55 with five years of service, the value of the options granted is expensed in the year of grant or over the number of months until the executive attains age 55 with five years of service. Option awards are made in February of each year at a regularly-scheduled meeting of the HRCC. Occasionally, option awards are made at other times, such as when an individual commences employment. In determining the number of shares to be subject to these option grants, the HRCC uses a Black-Scholes-Merton-based methodology to value the options.(4) | | Includes amounts paid under the VCIP and VCIP amounts that were voluntarily deferred to the Key Employee Deferred Compensation Plan. See the section on Nonqualified Deferred Compensation beginning on page 87 for further information. See also note 2 above.(5) | | Amounts represent the actuarial increase in the present value of the Named Executive Officer’s benefits under all pension plans maintained by ConocoPhillips determined using interest rate, discount rate, and mortality rate assumptions consistent with those used in ConocoPhillips’ financial statements. Interest rate assumption changes have a significant impact on the pension values, with periods of lower interest rates having the effect of increasing the actuarial values reported and vice versa. The discount rate assumptions and discount periods from the assumed retirement age to current age used in determining the present value may also have a significant impact on the pension values, with lower discount rates having the effect of increased actuarial values reported and vice versa, and shorter discount periods having the effect of increased actuarial values reported and vice versa. The years of service credited is also a factor in the benefit accrual. Each additional year of service credit will generally result in an increase in the actuarial values reported. Furthermore, with the increase in pensionable earnings that occurred with the promotions of the Named Executive Officers as a result of increased responsibilities upon the spinoff in 2012 and, for Messrs. Wallette and Hirshberg, as a result of the new allocation of responsibilities with the retirement of our former Chief Financial Officer in 2016, the three-year final average earnings used as a factor in the benefit accrual has increased, resulting in an increase in the actuarial values reported each year until the three-year period has passed. This applies to each of the Named Executive Officers other than Mr. Fox and Ms. Carrig, who are not in a final average earnings title of ConocoPhillips’ U.S. pension plans. The increase in Mr. Lance’s lump sum value of pension for 2017 reflects lower interest rate and discount rate assumptions, an additional year of age (which increases his pension value to a shorter discount period from the assumed retirement age to current age), an additional year of credited service, and an increase in final average earnings. See Pension Benefits beginning on page 84 of this Proxy Statement for further information.(6) |
THE CONOCOPHILLIPS HUMAN RESOURCES AND COMPENSATION COMMITTEE
| Executive Compensation Tables — | Summary Compensation Table | ConocoPhillips | 2018 PROXY STATEMENT | 79 |
THE CONOCOPHILLIPS HUMAN RESOURCES AND COMPENSATION COMMITTEE
| As discussed in “Compensation Discussion and Analysis” beginning on page 45 of this Proxy Statement, ConocoPhillips provides its executives with a number of compensation and benefit arrangements. The tables below reflect amounts earned in 2017 under those arrangements. We have excluded the cost of benefits that are generally available to our U.S.-based salaried employees, such as our medical, dental, life and accident insurance, disability, and health savings and flexible spending account arrangements. All of our Named Executive Officers are U.S.-based salaried employees. Certain of the amounts reflected below were paid in local currencies for Named Executive Officers with foreign compensation, which we value in this table in U.S. dollars using a monthly currency valuation for the month in which costs were incurred. All Other Compensation includes the following amounts, which were determined using actual cost paid by ConocoPhillips unless otherwise noted:(7) |
THE CONOCOPHILLIPS HUMAN RESOURCES AND COMPENSATION COMMITTEE
| Name | Personal Use of Company Aircraft(a) | Home Security and Other Security Related Costs(b) | Executive Group Life Insurance Premiums(c) | Tax Reimbursement Gross-Up(d) | Meeting Presentations & Meeting Travel Reimbursement(e) | Matching Gift Program(f) | Matching Contributions Under the Tax-Qualified Savings Plans(g) | Company Contributions to Non-Qualified Defined Contribution Plans(h) | | R.M. Lance | $123,976 | $1,990 | $12,689 | $32,537 | $3,201 | $— | $24,300 | $128,700 | | D.E. Wallette, Jr. | — | 890 | 7,176 | 13,658 | 1,356 | — | 24,300 | 62,226 | | M.J. Fox | — | — | 9,263 | 17,252 | 1,564 | 9,750 | 24,300 | 87,390 | | A.J. Hirshberg | 2,231 | 940 | 8,999 | 38,838 | 1,445 | 10,000 | 24,300 | 84,204 | | J.L. Carrig | — | — | 5,673 | 11,753 | 449 | 10,000 | 24,300 | 44,103 |
THE CONOCOPHILLIPS HUMAN RESOURCES AND COMPENSATION COMMITTEE
| Amounts in this column represent the approximate incremental cost to ConocoPhillips for personal use of the aircraft, including travel for any family member or guest. 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. However, where there were identifiable costs related to a particular trip—such as airport landing fees or food and lodging for aircraft personnel who remained at the location of the personal trip—those amounts are separately determined and included in the table above. The amounts shown include incremental costs associated with flights to the hangar or other locations without passengers (commonly referred to as “deadhead” flights) arising from the non-business use of the aircraft by a Named Executive Officer. ConocoPhillips’ Comprehensive Security Program requires that the CEO, Mr. Lance, fly on company aircraft unless the Global Security Department determines that other arrangements represent an acceptable risk.(a) | | The use of a home security system is required as part of ConocoPhillips’ Comprehensive Security Program for certain executives and employees, including the Named Executive Officers, based on risk assessments made by our Global Security Department. Amounts shown represent the approximate incremental cost to ConocoPhillips for the installation and maintenance of the home security systems with features required by our security program in excess of the cost of a “standard” system typical for homes in the neighborhoods where the Named Executive Officers reside. Each Named Executive Officer pays the cost of the “standard” system personally. In addition, amounts shown reflect other security costs, primarily related to transportation and protection services provided under our Comprehensive Security Program if a risk assessment indicated that enhanced procedures were warranted when an executive attended certain public events.(b) | | The amounts shown are for premiums paid for executive group life insurance provided by ConocoPhillips with a value equal to the employee’s annual salary. In addition, certain employees, including the Named Executive Officers, are eligible to purchase group variable universal life insurance policies at no incremental cost to ConocoPhillips.(c) | | The amounts shown are for payments by ConocoPhillips relating to certain taxes incurred by the employee. These taxes arise primarily when ConocoPhillips requests family members or other guests to accompany the employee to a function and, as a result, the employee is deemed to make a personal use of company assets (for example, when a spouse accompanies an employee on a company aircraft), or when a retirement presentation is made to an employee. ConocoPhillips believes such expenses are appropriately characterized as a business expense and, if the employee has imputed income in accordance with the applicable tax laws, ConocoPhillips will generally reimburse any increased tax costs.(d) | | The amounts in this column represent the cost of presentations made to employees and their spouses at company meetings and reimbursements for the cost of spousal attendance at such meetings.(e) | | ConocoPhillips maintains a Matching Gift Program under which certain gifts by employees to qualified educational or charitable institutions are matched. For executives, the program matches up to $10,000 with regard to each program year. Administration of the program can cause us to pay more than the limit in a single fiscal year due to a lag in processing claims. The amounts shown are for the actual payments by ConocoPhillips during the year.(f) | | Under the terms of its tax-qualified defined contribution plans, ConocoPhillips makes matching contributions and allocations to the accounts of its eligible employees, including the Named Executive Officers.(g) | | Under the terms of its nonqualified defined contribution plans, ConocoPhillips makes contributions to the accounts of its eligible employees, including the Named Executive Officers. See the narrative, table, and notes to the Nonqualified Deferred Compensation section beginning on page 87 for further information.(h) |
THE CONOCOPHILLIPS HUMAN RESOURCES AND COMPENSATION COMMITTEE
| 80 | ConocoPhillips | 2018 PROXY STATEMENT | Executive Compensation Tables — | Summary Compensation Table |
THE CONOCOPHILLIPS HUMAN RESOURCES AND COMPENSATION COMMITTEE
Grants of Plan-Based Awards Table The Grants of Plan-Based Awards Table is used to show participation by the Named Executive Officers in the incentive compensation arrangements described below. The columns under the heading Estimated Future Payouts Under Non-Equity Incentive Plan Awards show information regarding VCIP. The amounts shown in the table are those applicable to the 2017 program year using a minimum of zero and a maximum of 250 percent of VCIP target for each participant; the amounts shown do not represent actual payouts for that program year. Actual payouts for the 2017 program year were made in February 2018 and are shown in the Summary Compensation Table under the Non-Equity Incentive Plan Compensation column. The columns under the heading Estimated Future Payouts Under Equity Incentive Plan Awards show information regarding PSP. The amounts shown in the table are those set for 2017 compensation tied to the 2017 through 2019 program period and do not represent actual payouts for that program year. The All Other Option Awards column reflects option awards granted under the Stock Option Program. The option awards shown were granted on the same day the target was approved, and vest ratably over a three-year period. For the 2017 program year under the Stock Option Program, targets were set and awards granted at the regularly scheduled February 2017 meeting of the HRCC.
THE CONOCOPHILLIPS HUMAN RESOURCES AND COMPENSATION COMMITTEE
| | | Estimated Future Payouts Under -Equity Incentive Plan Awards(2) | | | Estimated Future Payouts Under Equity Incentive Plan Awards(3) | | | All Other Stock Awards: Number of Shares of Stock or Units (#) | All Other Option Awards: Number of Securities Underlying Options (#) | Exercise or Base Price Of Options Awards Average Price ($Sh)(4) | Exercise or Base Price Of Options Awards Closing Price ($Sh)(5) | Grant Date Fair Value of Stock and Options Awards(6) | | Name | Grant Date(1) | Threshold ($) | Target ($) | Maximum ($) | Threshold (#) | Target (#) | Maximum (#) | | | | | | | R.M. Lance | | $— | $2,720,000 | $6,800,000 | — | — | — | — | — | — | — | — | | | 2/14/2017 | — | — | — | — | — | — | — | 506,800 | $49.755 | $50.14 | $4,652,424 | | | 2/14/2017 | — | — | — | — | 149,954 | 299,908 | — | — | — | — | 6,993,660 | | D.E. Wallette, Jr. | | — | 961,400 | 2,403,500 | — | — | — | — | — | — | — | — | | | 2/14/2017 | — | — | — | — | — | — | — | 164,100 | 49.755 | 50.14 | 1,506,438 | | | 2/14/2017 | — | — | — | — | 48,553 | 97,106 | — | — | — | — | 2,264,449 | | M.J. Fox | | — | 1,427,150 | 3,567,875 | — | — | — | — | — | — | — | — | | | 2/14/2017 | — | — | — | — | — | — | — | 239,000 | 49.755 | 50.14 | 2,194,020 | | | 2/14/2017 | — | — | — | — | 70,709 | 141,418 | — | — | — | — | 3,297,776 | | A.J. Hirshberg | | — | 1,386,440 | 3,466,100 | — | — | — | — | — | — | — | — | | | 2/14/2017 | — | — | — | — | — | — | — | 232,200 | 49.755 | 50.14 | 2,131,596 | | | 2/14/2017 | — | — | — | — | 68,692 | 137,384 | — | — | — | — | 3,203,706 | | J.L. Carrig | | — | 676,428 | 1,691,070 | — | — | — | — | — | — | — | — | | | 2/14/2017 | — | — | — | — | — | — | — | 109,800 | 49.755 | 50.14 | 1,007,964 | | | 2/14/2017 | — | — | — | — | 32,478 | 64,956 | — | — | — | — | 1,514,732 |
THE CONOCOPHILLIPS HUMAN RESOURCES AND COMPENSATION COMMITTEE
| The grant date shown is the date on which the HRCC approved the target awards or, in the case of prorated promotional awards under the PSP program, the effective date of the promotion. There were no promotional awards in 2017.(1) | | Threshold and maximum awards are based on the program provisions under VCIP. Actual awards earned can range from zero to 200 percent of the target awards for corporate performance, with a further possible adjustment of up to 50 percent of the target awards for individual performance. Amounts reflect estimated cash payouts under VCIP after the close of the performance period. The estimated amounts are calculated based on the applicable annual target and base salary for each Named Executive Officer in effect for the 2017 performance period, including any salary increases during the year. While the program terms would also automatically adjust for salary decreases, these are not reflected in the table above. If threshold levels of performance are not met, then the payout can be zero. The HRCC also retains the authority to make awards under the program at its discretion. Actual payouts under VCIP for 2017 are based on actual base salaries earned in 2017 and are reflected in the Non-Equity Incentive Plan Compensation column of the Summary Compensation Table on page 78.(2) | | Threshold and maximum awards are based on the program provisions under the PSP. Actual awards earned can range from zero to 200 percent of the target awards.(3) | | The exercise price is the average of the high and low prices of ConocoPhillips common stock, as reported on the NYSE, on the date of the grant (or on the last preceding date for which there was a reported sale in the absence of any reported sales on the grant date). Accordingly, the option has no immediately realizable value on the grant date, and any potential payout reflects an increase in share price after the grant date. The stockholder-approved 2014 Omnibus Stock and Performance Incentive Plan provides for the use of such an average price in setting the exercise price on options unless the HRCC directs otherwise. The predecessor plans—the stockholder-approved 2004, 2009, and 2011 Omnibus Stock and Performance Incentive Plans—had the same provision. Grants made before May 13, 2009, were made under the 2004 Plan. Grants made between May 13, 2009, and May 11, 2011, were made under the 2009 Plan. Grants made between May 12, 2011, and May 13, 2014, were made under the 2011 Plan.(4) | | The closing price is the closing price of ConocoPhillips common stock, as reported on the NYSE, on the date of the grant.(5) | | For equity incentive plan awards, these amounts represent the grant date fair value at target level under PSP as determined pursuant to FASB ASC Topic 718 and reflected in the Stock Awards column in the Summary Compensation Table on page 78. For option awards, these amounts represent the grant date fair value of the option awards determined under FASB ASC Topic 718 using a Black-Scholes-Merton-based methodology. Actual value realized upon vesting of the PSP award or option exercise depends on market prices at the time of settlement for PSP awards or exercise for stock option awards. See the “Employee Benefit Plans” section of Note 17 in the Notes to Consolidated Financial Statements in ConocoPhillips’ 2017 Annual Report on Form 10-K for a discussion of the relevant assumptions used in this determination.(6) |
THE CONOCOPHILLIPS HUMAN RESOURCES AND COMPENSATION COMMITTEE
| Executive Compensation Tables — | Grants of Plan-Based Awards Table | ConocoPhillips | 2018 PROXY STATEMENT | 81 |
THE CONOCOPHILLIPS HUMAN RESOURCES AND COMPENSATION COMMITTEE
| 82 | ConocoPhillips | 2018 PROXY STATEMENT | Executive Compensation Tables — Outstanding Equity Awards at Fiscal Year End |
THE CONOCOPHILLIPS HUMAN RESOURCES AND COMPENSATION COMMITTEE
| Executive Compensation Tables — | Outstanding Equity Awards at Fiscal Year End | ConocoPhillips | 2018 PROXY STATEMENT | 83 |
THE CONOCOPHILLIPS HUMAN RESOURCES AND COMPENSATION COMMITTEE
| 84 | ConocoPhillips | 2018 PROXY STATEMENT | Executive Compensation Tables — Option Exercises and Stock Vested |
THE CONOCOPHILLIPS HUMAN RESOURCES AND COMPENSATION COMMITTEE
Under Title I, employees become vested in the benefits after five years of service. Messrs. Lance and Wallette are vested in their benefits. Under Title II, employees become vested in their benefits after three years of service. Messrs. Fox and Hirshberg and Ms. Carrig are vested in their benefits. Titles I and II allow the employee to elect the form of benefit payment from among several annuity types or a single sum payment option, but all of the options are actuarially equivalent. Title I provides a final average earnings type of pension benefit for eligible employees payable at normal or early retirement. Under Title I, normal retirement occurs upon termination on or after age 65; early retirement can occur at age 55 with five years of service (or if laid off during or after the year in which the participant reaches age 50). Under Title I, early retirement benefits are reduced by five percent per year for each year before age 60 that benefits are paid, but for benefits that commence at or after age 60, the benefit is unreduced. Messrs. Lance and Wallette were eligible for early retirement at the end of 2017 under the terms of Title I. Retirement benefits under Title I are calculated as the product of 1.6% times years of credited service multiplied by the final annual eligible average compensation. Final annual eligible average compensation is calculated using the three highest consecutive years in the last 10 calendar years before retirement plus the year of retirement. Such benefits are reduced by the product of 1.5 percent of the annual primary Social Security benefit multiplied by years of credited service, although a maximum reduction limit of 50 percent may apply in certain cases. The formula below illustrates how the retirement benefits are calculated. For purposes of the formula, “pension compensation” denotes the final annual eligible average compensation described above.
THE CONOCOPHILLIPS HUMAN RESOURCES AND COMPENSATION COMMITTEE
| [ | 1.6%X | Pension CompensationX | Years of Credited Service | ] | – | [ | 1.5%X | Annual Primary SS BenefitX | Years of Credited Service | ] |
THE CONOCOPHILLIPS HUMAN RESOURCES AND COMPENSATION COMMITTEE
Eligible pension compensation generally includes salary and annual incentive compensation. However, under Title I, if an eligible employee receives layoff benefits from ConocoPhillips, eligible pension compensation includes the annualized salary for the year of layoff, rather than actual salary, and years of credited service are increased by any period for which layoff benefits are calculated. Furthermore, foreign service as an employee of Phillips Petroleum Company through 1991 is counted as time and a quarter when determining the service element in the benefit formula under Title I. Among the Named Executive Officers, only Mr. Wallette had any time credited for such foreign service. (The notes to the table on page 87 provide further detail on that credited service.) Benefits under Title II are based on monthly pay and interest credits to a cash balance account created on the first day of the month after a participant’s hire date. Pay credits are equal to a percentage of total salary and annual incentive compensation. Participants whose combined years of age and service total less than 44 receive a 6 percent pay credit, those whose combined years of age and service total 44 through 65 receive a 7 percent pay credit, and those whose combined years of age and service total 66 or more receive a 9 percent pay credit. Normal retirement age is 65, but participants may receive their vested benefit upon termination of employment at any age. Mr. Fox and Ms. Carrig are eligible for the 9 percent pay credit, while Mr. Hirshberg is eligible for the 7 percent pay credit. Eligible pension compensation under Titles I and II is limited in accordance with the Internal Revenue Code. In 2017, that limit was $270,000. The Internal Revenue Code also limits the annual benefit (expressed as an annuity) available under Titles I and II. In 2017, that limit was $215,000 (reduced actuarially for ages below 62). In addition to participation in the U.S.-based plans as described above, Mr. Fox is a participant in the ConocoPhillips UK Pension Plan (the UK Plan), a defined benefit pension plan that is funded through a trust, with regard to the time he was on the U.K. payroll. The UK Plan is a U.K. registered plan with Her Majesty’s Revenue and Customs. The UK Plan consists of two sections: the ConocoPhillips section and the Heritage Conoco section. The ConocoPhillips section is contributory. The Heritage Conoco section is non-contributory. Mr. Fox is vested in and will be eligible for a benefit as a deferred vested participant in the Heritage Conoco section. Mr. Fox is retirement eligible, having reached age 55. The UK Plan provides a final average earnings type of pension benefit for eligible employees payable at normal pension age or early retirement upon approval by the Pension Board of Trustee Directors. Under the provisions of the UK Plan, a member is entitled to receive their full benefits upon attainment of normal pension age (60 in the case of a Heritage Conoco member) subsequent to termination. Early retirement may occur after termination after reaching age 55, but results in reduced benefits for each year prior to age 60 that benefits are paid. In general, retirement benefits are calculated as the product of 1.75% times years of credited service times final pensionable salary. Final pensionable salary is generally basic annual salary plus pensionable allowances earned in the 12 months before active membership in the UK Plan ceased. The UK Plan allows participants to choose between taking a full annuity or a tax-free cash lump sum of up to 25% of the value of the benefit and a reduced annuity. Both choices are actuarially equivalent and the lump sum is capped at 25% of the lifetime allowance.
THE CONOCOPHILLIPS HUMAN RESOURCES AND COMPENSATION COMMITTEE
| Executive Compensation Tables — | Pension Benefits | ConocoPhillips | 2018 PROXY STATEMENT | 85 |
THE CONOCOPHILLIPS HUMAN RESOURCES AND COMPENSATION COMMITTEE
| 86 | ConocoPhillips | 2018 PROXY STATEMENT | Executive Compensation Tables — | Pension Benefits |
THE CONOCOPHILLIPS HUMAN RESOURCES AND COMPENSATION COMMITTEE
| Executive Compensation Tables — | Nonqualified Deferred Compensation | ConocoPhillips | 2018 PROXY STATEMENT | 87 |
THE CONOCOPHILLIPS HUMAN RESOURCES AND COMPENSATION COMMITTEE
For amounts deferred prior to January 1, 2005, a one-time revision of the ten annual installment payments schedule is allowed from 365 days to no later than 90 days prior to retirement at age 55 or above or within 30 days after being notified of layoff in the calendar year in which the employee is age 50 or above. Participants may receive distributions in 1 to 15 annual installments, 2 to 30 semi-annual installments, or 4 to 60 quarterly installments. The Defined Contribution Make-Up Plan of ConocoPhillips (“DCMP”) is a nonqualified restoration plan under which ConocoPhillips makes employer contributions that cannot be made in the qualified ConocoPhillips Savings Plan—a defined contribution plan of the type often referred to as a 401(k) plan—due to certain voluntary reductions of salary under the KEDCP or due to limitations imposed by the Internal Revenue Code. For 2017, the Internal Revenue Code limited the amount of compensation that could be taken into account in determining a benefit under the ConocoPhillips Savings Plan to $270,000. Employees make no contributions to the DCMP. Each of the Named Executive Officers is eligible to participate in, and is fully vested in, the DCMP. Under the DCMP, amounts vested after December 31, 2004, will be distributed as a lump sum six months after separation from service, or, at a participant’s election, in 1 to 15 annual installments, 2 to 30 semi-annual installments, or 4 to 60 quarterly installments, beginning no earlier than one year after separation from service. For amounts vested prior to January 1, 2005, participants may, from 365 days to no later than 90 days prior to termination or within 30 days after being notified of layoff in the calendar year in which the employee is age 50 or above, indicate a preference to defer the value into an account under the KEDCP. Each participant directs investments of the individual accounts set up for that participant under either the KEDCP or the DCMP. Participants may make changes in the investments as often as daily. All ConocoPhillips defined contribution nonqualified deferred compensation plans allow investment of deferred amounts in a broad range of mutual funds or other market-based investments, including ConocoPhillips stock. As market-based investments, none of these provide above-market return. Since each executive participating in each plan chooses the investment vehicle or vehicles and may change allocations, the return on the investment will depend on how well the underlying investment fund performs during the period the executive chose it as an investment vehicle. The aggregate performance of each such investment is reflected in the Nonqualified Deferred Compensation Table under the column Aggregate Earnings in Last Fiscal Year. Benefits due under each of the plans discussed above are paid from ConocoPhillips’ general assets, although we also maintain trusts of the type generally known as “rabbi trusts” that may be used to pay benefits under the plans. The trusts and the funds held in them are assets of ConocoPhillips. In the event of bankruptcy, participants would be unsecured general creditors.
THE CONOCOPHILLIPS HUMAN RESOURCES AND COMPENSATION COMMITTEE
| Name | Applicable Plan(1) | Beginning Balance | Executive Contributions in Last FY(2) | Registrant Contributions in Last FY(3) | Aggregate Earnings in Last FY(4) | Aggregate Withdrawals/ Distributions | Aggregate Balance at Last FYE(5) | | R.M. Lance | Defined Contribution Make-Up Plan of ConocoPhillips | $1,310,450 | $— | $128,700 | $108,622 | $— | $1,547,772 | | | Key Employee Deferred Compensation Plan of ConocoPhillips | 3,126,261 | 1,311,623 | — | 342,770 | — | 4,780,654 | | D.E. Wallette, Jr. | Defined Contribution Make-Up Plan of ConocoPhillips | 457,600 | — | 62,226 | 49,026 | — | 568,852 | | | Key Employee Deferred Compensation Plan of ConocoPhillips | 7,349,946 | 1,590,389 | — | 1,130,229 | — | 10,070,564 | | M.J. Fox | Defined Contribution Make-Up Plan of ConocoPhillips | 448,342 | — | 87,390 | 11,002 | — | 546,734 | | | Key Employee Deferred Compensation Plan of ConocoPhillips | — | — | — | — | — | — | | A.J. Hirshberg | Defined Contribution Make-Up Plan of ConocoPhillips | 470,854 | — | 84,204 | 39,139 | — | 594,197 | | | Key Employee Deferred Compensation Plan of ConocoPhillips | — | — | — | — | — | — | | J.L. Carrig | Defined Contribution Make-Up Plan of ConocoPhillips | 490,934 | — | 44,103 | 93,071 | — | 628,108 | | | Key Employee Deferred Compensation Plan of ConocoPhillips | 2,395,329 | 729,411 | — | 671,479 | — | 3,796,219 |
THE CONOCOPHILLIPS HUMAN RESOURCES AND COMPENSATION COMMITTEE
| Our primary defined contribution deferred compensation programs for executives (KEDCP and DCMP) make a variety of investments available to participants. As of December 31, 2017, there were a total of 95 investment options, 35 of which were the same as those available in ConocoPhillips’ primary tax-qualified defined contribution plan for employees (the 401(k) plan, the ConocoPhillips Savings Plan) and 60 of which were other mutual fund options approved by an administrator designated by the relevant plan.(1) | | Reflects deferrals by the Named Executive Officer under the KEDCP in 2017. For Mr. Lance, this column reflects $527,680 in 2016 VCIP deferred (included in the 2016 Non-Equity Incentive Plan Compensation column of the Summary Compensation Table), and $783,943 in a deferred PSP XII payout covering performance period 2014 through 2016. For Mr. Wallette, this column reflects $480,700 in 2017 salary deferred (included in the 2017 Salary column of the Summary Compensation Table), and $1,109,689 in a deferred PSP XII payout covering performance period 2014 through 2016. For Ms. Carrig, this column reflects $98,804 in 2017 salary deferred (included in the 2017 Salary column of the Summary Compensation Table), and $630,607 in 2016 VCIP deferred (included in the 2016 Non-Equity Incentive Plan Compensation column of the Summary Compensation Table).(2) |
THE CONOCOPHILLIPS HUMAN RESOURCES AND COMPENSATION COMMITTEE
| 88 | ConocoPhillips | 2018 PROXY STATEMENT | Executive Compensation Tables — | Nonqualified Deferred Compensation |
QUANTIFICATION OF SEVERANCE PAYMENTS
| Executive Benefits and Payments Upon Termination | Involuntary Not-for-Cause Termination (Not CIC) | Involuntary or Good Reason Termination (CIC) | Death | Disability | | R.M. Lance* | | | | | | Base Salary | $3,400,000 | $5,100,000 | $— | $— | | Short-term Incentive | 5,440,000 | 8,160,000 | — | — | | Variable Cash Incentive Program | — | — | — | — | | January 2015 - December 2017 (performance period) | — | 1,839,638 | — | — | | January 2016 - December 2018 (performance period) | — | 4,008,123 | — | — | | January 2017 - December 2019 (performance period) | — | 5,487,298 | — | — | | Restricted Stock/Units from prior periods | — | — | — | — | | Stock Options/SARs: | | | | | | Unvested and Accelerated | — | — | — | — | | Incremental Pension | 7,495,444 | 11,435,577 | — | — | | Post-employment Health & Welfare | 84,915 | 127,373 | — | — | | Life Insurance | — | — | 3,400,000 | — | | 280G Tax Gross-up | — | 16,896,554 | — | — | | | $16,420,359 | $53,054,563 | $3,400,000 | $— |
QUANTIFICATION OF SEVERANCE PAYMENTS
| Executive Benefits and Payments Upon Termination | Involuntary Not-for-Cause Termination (Not CIC) | Involuntary or Good Reason Termination (CIC) | Death | Disability | | D.E. Wallette, Jr.* | | | | | | Base Salary | $1,922,800 | $2,884,200 | $— | $— | | Short-term Incentive | 1,922,800 | 2,884,200 | — | — | | Variable Cash Incentive Program | — | — | — | — | | January 2015 - December 2017 (performance period) | — | 541,490 | — | — | | January 2016 - December 2018 (performance period) | — | 1,179,806 | — | — | | January 2017 - December 2019 (performance period) | — | 1,776,734 | — | — | | Restricted Stock/Units from prior periods | — | — | — | — | | Stock Options/SARs: | | | | | | Unvested and Accelerated | — | — | — | — | | Incremental Pension | 1,964,111 | 2,484,347 | — | — | | Post-employment Health & Welfare | 62,871 | 98,717 | — | — | | Life Insurance | — | — | 1,922,800 | — | | 280G Tax Gross-up | — | 5,481,495 | — | — | | | $5,872,582 | $17,330,989 | $1,922,800 | $— | | Executive Benefits and Payments Upon Termination | Involuntary Not-for-Cause Termination (Not CIC) | Involuntary or Good Reason Termination (CIC) | Death | Disability | | M.J. Fox* | | | | | | Base Salary | $2,482,000 | $3,723,000 | $— | $— | | Short-term Incentive | 2,854,300 | 4,281,450 | — | — | | Variable Cash Incentive Program | — | — | — | — | | January 2015 - December 2017 (performance period) | — | 867,482 | — | — | | January 2016 - December 2018 (performance period) | — | 1,889,972 | — | — | | January 2017 - December 2019 (performance period) | — | 2,587,460 | — | — | | Restricted Stock/Units from prior periods | — | — | — | — | | Stock Options/SARs: | | | | | | Unvested and Accelerated | — | — | — | — | | Incremental Pension | 590,279 | 897,782 | — | — | | Post-employment Health & Welfare | 58,958 | 88,437 | — | — | | Life Insurance | — | — | 2,482,000 | — | | 280G Tax Gross-up | — | 6,172,449 | — | — | | | $5,985,537 | $20,508,032 | $2,482,000 | $— |
QUANTIFICATION OF SEVERANCE PAYMENTS
| Executive Benefits and Payments Upon Termination | Involuntary Not-for-Cause Termination (Not CIC) | Involuntary or Good Reason Termination (CIC) | Death | Disability | | A.J. Hirshberg* | | | | | | Base Salary | $2,411,200 | $3,616,800 | $— | $— | | Short-term Incentive | 2,772,880 | 4,159,320 | — | — | | Variable Cash Incentive Program | — | — | — | — | | January 2015 - December 2017 (performance period) | — | 766,100 | — | — | | January 2016 - December 2018 (performance period) | — | 1,669,150 | — | — | | January 2017 - December 2019 (performance period) | — | 2,513,688 | — | — | | Restricted Stock/Units from prior periods | — | — | — | — | | Stock Options/SARs: | | | | | | Unvested and Accelerated | — | — | — | — | | Incremental Pension | 2,300,665 | 4,098,749 | — | — | | Post-employment Health & Welfare | 269,844 | 404,766 | — | — | | Life Insurance | — | — | 2,411,200 | — | | 280G Tax Gross-up | — | 7,538,072 | — | — | | | $7,754,589 | $24,766,645 | $2,411,200 | $— | | Executive Benefits and Payments Upon Termination | Involuntary Not-for-Cause Termination (Not CIC) | Involuntary or Good Reason Termination (CIC) | Death | Disability | | J.L. Carrig* | | | | | | Base Salary | $1,520,064 | $2,280,096 | $— | $— | | Short-term Incentive | 1,352,856 | 2,029,284 | — | — | | Variable Cash Incentive Program | — | — | — | — | | January 2015 - December 2017 (performance period) | — | 398,447 | — | — | | January 2016 - December 2018 (performance period) | — | 868,085 | — | — | | January 2017 - December 2019 (performance period) | — | 1,188,478 | — | — | | Restricted Stock/Units from prior periods | — | — | — | — | | Stock Options/SARs: | | | | | | Unvested and Accelerated | — | — | — | — | | Incremental Pension | 333,629 | 507,432 | — | — | | Post-employment Health & Welfare | 75,493 | 113,239 | — | — | | Life Insurance | — | — | 1,520,064 | — | | 280G Tax Gross-up | — | 3,169,874 | — | — | | | $3,282,042 | $10,554,935 | $1,520,064 | $— |
QUANTIFICATION OF SEVERANCE PAYMENTS
| CEO Pay Ratio | ConocoPhillips | 2018 PROXY STATEMENT | 95 |

DEF 14A of Conocophillips

2017 COMPENSATION PROGRAM STRUCTURE

2017 COMPENSATION PROGRAM STRUCTURE

COMPENSATION AND GOVERNANCE PRACTICES

COMPENSATION AND GOVERNANCE PRACTICES

COMPENSATION AND GOVERNANCE PRACTICES

BOARD RESPONSIVENESS

BOARD RESPONSIVENESS

BOARD RESPONSIVENESS

BOARD RESPONSIVENESS

BOARD RESPONSIVENESS

BOARD RESPONSIVENESS

BOARD RESPONSIVENESS

BOARD RESPONSIVENESS

OBJECTIVES AND PRINCIPLES

EQUITY COMPENSATION

CASH COMPENSATION

CASH COMPENSATION

STOCK OWNERSHIP

NON-EMPLOYEE DIRECTOR COMPENSATION TABLE

NON-EMPLOYEE DIRECTOR COMPENSATION TABLE

NON-EMPLOYEE DIRECTOR COMPENSATION TABLE

NON-EMPLOYEE DIRECTOR COMPENSATION TABLE

NON-EMPLOYEE DIRECTOR COMPENSATION TABLE

NON-EMPLOYEE DIRECTOR COMPENSATION TABLE

NON-EMPLOYEE DIRECTOR COMPENSATION TABLE

NON-EMPLOYEE DIRECTOR COMPENSATION TABLE

NON-EMPLOYEE DIRECTOR COMPENSATION TABLE

NON-EMPLOYEE DIRECTOR COMPENSATION TABLE

NON-EMPLOYEE DIRECTOR COMPENSATION TABLE

WHAT IF A DIRECTOR NOMINEE DOES NOT RECEIVE A MAJORITY OF THE VOTES CAST?

WHAT IF A DIRECTOR NOMINEE DOES NOT RECEIVE A MAJORITY OF THE VOTES CAST?

WHO ARE THIS YEAR’S NOMINEES?

WHO ARE THIS YEAR’S NOMINEES?

WHO ARE THIS YEAR’S NOMINEES?

WHO ARE THIS YEAR’S NOMINEES?

WHO ARE THIS YEAR’S NOMINEES?

WHO ARE THIS YEAR’S NOMINEES?

WHO ARE THIS YEAR’S NOMINEES?

WHO ARE THIS YEAR’S NOMINEES?

WHO ARE THIS YEAR’S NOMINEES?

WHO ARE THIS YEAR’S NOMINEES?

WHO ARE THIS YEAR’S NOMINEES?

WHO ARE THIS YEAR’S NOMINEES?

WHO ARE THIS YEAR’S NOMINEES?

WHO ARE THIS YEAR’S NOMINEES?

WHO ARE THIS YEAR’S NOMINEES?

WHO ARE THIS YEAR’S NOMINEES?

WHO ARE THIS YEAR’S NOMINEES?

WHO ARE THIS YEAR’S NOMINEES?

WHO ARE THIS YEAR’S NOMINEES?

WHO ARE THIS YEAR’S NOMINEES?

WHO ARE THIS YEAR’S NOMINEES?

WHO ARE THIS YEAR’S NOMINEES?

CONTINUOUS IMPROVEMENT

CONTINUOUS IMPROVEMENT

CONTINUOUS IMPROVEMENT

CONTINUOUS IMPROVEMENT

CONTINUOUS IMPROVEMENT

The ConocoPhillips Human Resources and Compensation Committee

The ConocoPhillips Human Resources and Compensation Committee

STOCKHOLDER ENGAGEMENT IN RESPONSE TO 2017 SAY ON PAY OUTCOME

STOCKHOLDER ENGAGEMENT IN RESPONSE TO 2017 SAY ON PAY OUTCOME

BASE SALARY

Annual Incentive

Long-Term Incentives

Long-Term Incentives

Performance Share Program

Stock Option Program

Off-Cycle Awards

HUMAN RESOURCES AND COMPENSATION COMMITTEE

COMPENSATION CONSULTANTS

PEERS AND BENCHMARKING

PEERS AND BENCHMARKING

Setting Compensation Targets—Compensation Peer Group

Setting Compensation Targets—Compensation Peer Group

Setting Compensation Targets—Compensation Peer Group

Setting Compensation Targets—Compensation Peer Group

Setting Compensation Targets—Compensation Peer Group

Setting Compensation Targets—Compensation Peer Group