UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the

Securities

Exchange Act of 1934

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Valero Energy Corporation

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Notice of 2019 Annual Meeting of Stockholders



valerologoa2015a02a03.jpg
VALERO ENERGY CORPORATION

NOTICE OF 2017
ANNUAL MEETING OF STOCKHOLDERS

The 20172019 annual meeting of stockholders of Valero Energy Corporation is scheduled to be held as follows:

When:    Wednesday, May 3, 2017
10 a.m., Central Time
Where:    Valero Energy Corporation
One Valero Way
San Antonio, Texas 78249

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MEETING DATE & TIME:

MEETING PLACE:

RECORD DATE:

Tuesday, April 30, 2019

10 a.m., Central Time

Valero Energy Corporation

One Valero Way

San Antonio, Texas 78249

March 5, 2019

The purpose of the annual meeting is to consider and vote on the following items:


following:

1.  Voting MattersElection ofBoard
Recommendation		Proxy
Statement
Disclosure

1.  Elect directors;

FOR

each director nominee

p. 11

2.

Ratify KPMG LLP as independent auditors;auditor;

FOR

p. 63

3.

Advisory vote to approve executive compensation; and

FOR

p. 66

4.

Advisory vote to recommend the frequency of stockholder votes on executive compensation; and
5.Other matters, if any, properly brought before the meeting.

Valero Energy Corporation

One Valero Way

San Antonio, Texas 78249

March 20, 2019

By order of the Board of Directors,

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J. Stephen Gilbert

Secretary

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Table of Contents

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By order of the Board of Directors,
gilbert.jpg
J. Stephen Gilbert
Secretary

Valero Energy Corporation
One Valero Way
San Antonio, Texas 78249
March 23, 2017




Annual Meeting of Stockholders1
Information Regarding the Board of Directors            ��  3

Independent Directors

3

Committees of the Board

4

Selection of Director Nominees

5

Board Evaluation Process

6

Leadership Structure of the Board

7

Lead Director and Meetings ofNon-Management Directors

7

Risk Oversight

8
Stockholder Engagement9
Climate Change Disclosure10
Proposal No. 1—Election of Directors11

Information Concerning Nominees and Directors

11

Summary of Board Skills and Attributes

12

Nominees

13
Identification of Executive Officers18
Beneficial Ownership of Valero Securities19

Section 16(a) Beneficial Ownership Reporting Compliance

20
Risk Assessment of Compensation Programs21
Compensation Committee Report22
Compensation Discussion and Analysis22

Company Overview

22

Company Performance

23

Alignment of Executive Pay to Company Performance

26

Adoption of Compensation Governance Best Practices

29

Dialogue With Stockholders

30

Administration of Executive Compensation Programs

31

Benchmarking Data

31

Process and Timing of Compensation Decisions

32

Elements of Executive Compensation

32

Benchmarking Competitive Pay Levels

33

Relative Size of Major Compensation Elements

33

Individual Performance and Personal Objectives

34

Base Salaries

35
TABLE OF CONTENTS
ANNUAL MEETING OF STOCKHOLDERS

1

INFORMATION REGARDING THE BOARD OF DIRECTORS
3
INDEPENDENT DIRECTORS
3
COMMITTEES OF THE BOARD
4
SELECTION OF DIRECTOR NOMINEES
5
LEADERSHIP STRUCTURE OF THE BOARD
7
LEAD DIRECTOR AND MEETINGS OF NON-MANAGEMENT DIRECTORS
7
RISK OVERSIGHT
8
PROPOSAL NO. 1—ELECTION OF DIRECTORS
9
INFORMATION CONCERNING NOMINEES AND DIRECTORS
9
IDENTIFICATION OF EXECUTIVE OFFICERS
14
BENEFICIAL OWNERSHIP OF VALERO SECURITIES
15
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
16
RISK ASSESSMENT OF COMPENSATION PROGRAMS
17
COMPENSATION CONSULTANT DISCLOSURES
18
COMPENSATION COMMITTEE REPORT
19
COMPENSATION DISCUSSION AND ANALYSIS
19
VALERO’S 2016 ACCOMPLISHMENTS
19
TIGHT LINK BETWEEN PERFORMANCE AND EXECUTIVE PAY
20
ADOPTION OF BEST PRACTICES
21
DIALOGUE WITH STOCKHOLDERS
22
ADMINISTRATION OF EXECUTIVE COMPENSATION PROGRAMS
22
Benchmarking Data
22
Process and Timing of Compensation Decisions
23
ELEMENTS OF EXECUTIVE COMPENSATION
24
Benchmarking Competitive Pay Levels
25
Relative Size of Major Compensation Elements
25
Individual Performance and Personal Objectives
27
Base Salaries
27
Annual Incentive Bonus

27
Long-Term Incentive Awards
30
Perquisites and Other Benefits
32
Post-Employment Benefits
32
ACCOUNTING AND TAX TREATMENT
33
COMPENSATION-RELATED POLICIES
34
EQUITY COMPENSATION PLAN INFORMATION
36
  
35


TABLE OF CONTENTS

Long-Term Incentive Awards

38

Perquisites and Other Benefits

39

Post-Employment Benefits

40

Accounting and Tax Treatment

40 
EXECUTIVE COMPENSATION
37

SUMMARY COMPENSATION TABLECompensation-Related Policies

37
41
GRANTS OF PLAN-BASED AWARDS
39
OUTSTANDING EQUITY AWARDSCompensation Consultant Disclosures
43
OPTION EXERCISES AND STOCK VESTED
46
POST-EMPLOYMENT COMPENSATIONEquity Compensation Plan Information
47
44
PENSION BENEFITS
47
NONQUALIFIED DEFERRED COMPENSATIONExecutive Compensation
50
45
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE OF CONTROL
52

DIRECTOR COMPENSATIONSummary Compensation Table

56
45
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
57

PROPOSAL NO. 2Grants of Plan-Based Awards—RATIFY APPOINTMENT OF INDEPENDENT AUDITORS

60
47

Outstanding Equity Awards

50

Option Exercises and Stock Vested

52

Post-Employment Compensation

53

Pension Benefits

53

Nonqualified Deferred Compensation

55

Potential Payments Upon Termination or Change of Control

56
Director Compensation59
Pay Ratio Disclosure61
Certain Relationships and Related Transactions62
Proposal No. 2—Ratify Appointment of Independent Auditors63
KPMG LLP FEESFees
61
64
REPORT OF THE AUDIT COMMITTEE FOR FISCAL YEAR 2016
62
PROPOSAL NO. 3—Report of the Audit CommitteeADVISORY VOTE TO APPROVE COMPENSATION OF NAMED EXECUTIVE OFFICERS
63
65
PROPOSAL NO. 4—ADVISORY VOTE TO RECOMMEND THE FREQUENCY OF STOCKHOLDER VOTES ON EXECUTIVE COMPENSATION
64
MISCELLANEOUSProposal No. 3—Advisory Vote to Approve Compensation of Named Executive Officers
65
66
GOVERNANCE DOCUMENTS AND CODES OF ETHICS
65
STOCKHOLDER COMMUNICATIONSMiscellaneous, NOMINATIONS, AND PROPOSALS
65
67
FINANCIAL STATEMENTS
66

HOUSEHOLDINGGovernance Documents and Codes of Ethics

66
67
TRANSFER AGENT

Stockholder Communications, Nominations, and Proposals

67

Financial Statements

68

Householding

68

Transfer Agent

68





VALERO ENERGY CORPORATION
PROXY STATEMENT
2017   2019 ANNUAL MEETING OF STOCKHOLDERS

Our Board is soliciting proxies to be voted at the Annual Meeting of Stockholders on May 3, 2017April 30, 2019 (the “Annual Meeting”). The accompanying notice describes the time, place, and purposes of the Annual Meeting. Action may be taken at the Annual Meeting or on any date to which the meeting may be adjourned. Unless otherwise indicated the terms “Valero,” “we,” “our,” and “us” in this proxy statement refer to Valero Energy Corporation, to one or more of our consolidated subsidiaries, or to all of them taken as a whole. “Board” means our board of directors.


We are mailing ourNotice of Internet Availability of Proxy Materials (“Notice”) to stockholders on or about March 23, 2017.20, 2019. On this date, you will be able to access all of our proxy materials on the website referenced in the Notice.


Record Date, Shares Outstanding, Quorum

RECORD DATE, SHARES OUTSTANDING, QUORUM

Holders of record of our common stock, $0.01 par value (“Common Stock”), at the close of business on March 7, 20175, 2019 (the “record date”) are entitled to vote on the matters presented at the Annual Meeting. On the record date, 448,730,800417,613,362 shares of Common Stock were issued and outstanding and entitled to one vote per share. Stockholders representing a majority of voting power, present in person or represented by properly executed proxy, will constitute a quorum.


Voting in Person, Revocability of Proxies

VOTING IN PERSON, REVOCABILITY OF PROXIES

If you attend the Annual Meeting and want to vote in person, we will give you a ballot at the meeting.

If your shares are registered in your name, you are considered the stockholder “of record” and you have the right to vote the shares at the meeting.

If, however, your shares are held in the name of your broker or other nominee, you are considered the beneficial owner of shares held in “street name.” As a beneficial owner, if you wish to vote at the meeting, you will need to bring to the meeting a legal proxy from the stockholder of record (e.g.(e.g., your broker) authorizing you to vote the shares.

You may revoke your proxy at any time before it is voted at the Annual Meeting by (i) submitting a written revocation to Valero, (ii) returning a subsequently dated proxy to Valero, or (iii) attending the Annual Meeting, requestingrequest that your proxy be revoked, and votingvote in person at the Annual Meeting. If instructions to the contrary are not provided, shares will be voted as indicated on the proxy card.


Required Votes

REQUIRED VOTES

For Proposal 1, as required by Valero’s bylaws, each director is to be elected by a majority of votes cast with respect to that director’s election.

Proposals 2 and 3 require approval by the affirmative vote of a majority of the voting power of the shares present in person or by proxy at the Annual Meeting and entitled to vote. The stockholders’ recommendation under Proposal 4 will be determined from the voting power of the shares present in person or by proxy at the Annual Meeting and entitled to vote.




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Effect of Abstentions

EFFECT OF ABSTENTIONS

Shares voted to abstain are treated as “present” for purposes of determining a quorum. In the election of directors (Proposal 1), pursuant to our bylaws, shares voted to abstain are not deemed to be “votes cast,” and are accordingly disregarded. When approval for a proposal requires (i) the affirmative vote of a majority of the voting power of the shares present in person or by proxy and entitled to vote (Proposals 2 and 3), or (ii) the affirmative vote of a majority of the voting power of the issued and outstanding Common Stock, then shares voted to “abstain” have the effect of a negative vote (a vote “against”). For Proposal 4, shares voted to “abstain” have no effect.

2019 PROXY STATEMENT1


Broker Non-Votes

2019 ANNUAL MEETING OF STOCKHOLDERS

BROKERNON-VOTES

Brokers holding shares must vote according to the specific instructions they receive from the beneficial owners of the stock. If your broker does not receive specific voting instructions from you, in some cases the broker may vote the shares in the broker’s discretion. However, the

The New York Stock Exchange (the “NYSE”), however, precludes brokers from exercising voting discretion on certain proposals without specific instructions from the beneficial owner. This results in a “brokernon-vote” on the proposal. A brokernon-vote (i) is treated as “present” for purposes of determining a quorum, (ii) has the effect of a negative vote when a majority of the voting power of the issued and outstanding shares is required for approval of a particular proposal, and (iii) has no effect when a majority of the voting power of the shares present in person or by proxy and entitled to vote or a plurality or majority of the votes cast is required for approval.


Proposal 2 is deemed to be a routine matter under NYSE rules. A broker or other nominee generally may vote uninstructed shares on routine matters, and therefore no brokernon-votes are expected to occur for Proposal 2. Proposals 1 3, and 43 are considerednon-routine under applicable rules. Because a broker or other nominee cannot vote without instructions onnon-routine matters, we expect an undetermined number of brokernon-votes to occur on these proposals.


Solicitation of Proxies

SOLICITATION OF PROXIES

Valero pays the cost for soliciting proxies and the Annual Meeting. In addition to solicitation by mail, proxies may be solicited by personal interview, telephone, and similar means by directors, officers, or employees of Valero, none of whom will be specially compensated for such activities. Valero also intends to request that brokers, banks, and other nominees solicit proxies from their principals and will pay such brokers, banks, and other nominees certain expenses incurred by them for such activities. Valero retained Georgeson LLC, a proxy soliciting firm, to assist in the solicitation of proxies for a fee of $16,000,$17,500, plus reimbursement of certainout-of-pocket expenses.

For participants in our qualified 401(k) plan (“Thrift Plan”), the proxy card will represent (in addition to any shares held individually of record by the participant) the number of shares allocated to the participant’s account in the Thrift Plan. For shares held by the Thrift Plan, the proxy card will constitute an instruction to the trustee of the plan on how to vote those shares. Shares for which instructions are not received may be voted by the trustee per the terms of the plan.

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INFORMATION REGARDING THE BOARD OF DIRECTORS

Valero’s business is managed under the directionoversight of our Board. Our Board conducts its business through meetings of its members and its committees. During 2016,2018, our Board held seven meetings and the standing Board committees held 1613 meetings. No incumbent member

None of theour Board members attended less than 75 percent of the meetings of the Board and committees of which he or she was a member. All Board members are expected to attend the Annual Meeting; nineMeeting, and all of our ten Board members attended the 20162018 annual meeting (illness prevented one Board member from attending).


meeting.

INDEPENDENT DIRECTORS
Independent Directors

Independent Directors.OurCorporate Governance Guidelines require a majority of the Board to be composed of independent directors.independent. The Board presently has 10 ninenon-management directors and one member from management: Joseph W. Gorder (our Chief Executive Officer). As a member of management, Mr. Gorder is not an independent director under NYSE listing standards. The Board determined that all of ournon-management directors who served on the Board at any time in 20162018 met the Board’s applicable independence requirements. Those independent directors were.

were:

Jerry D. Choate (retired)
 Donald L. NicklesStephen M. Waters
H. Paulett Eberhart  Philip J. Pfeiffer  
Randall J. Weisenburger

Kimberly S. Greene  Robert A. Profusek  
Rayford Wilkins, Jr.

Deborah P. Majoras  Stephen M. WatersSusan Kaufman Purcell (retired)
 Donald L. Nickles

Independent Committees.The Board’s Audit Committee, Compensation Committee, and Nominating/Governance and Public Policy Committee are composed entirely of directors who meet the independence requirements of the NYSE. Each member of the Audit Committee also meets the additional independence standards for Audit Committee members required by the SEC.


Independence Standards and Determination.The Board determines independence on the basis of the standards specified by the NYSE, the standards listed in ourCorporate Governance Guidelines, and other facts and circumstances the Board may consider relevant. In general, ourCorporate Governance Guidelines require that an independent director must have no material relationship with Valero. A relationship is not material under the guidelines if it:

is not a relationship that would preclude a determination of independence under Section 303A.02(b) of the NYSE Listed Company Manual;

consists of charitable contributions by Valero to an organization in which a director is an executive officer that do not exceed the greater of $1 million or two percent of the organization’s gross revenue in any of the last three years;

consists of charitable contributions to any organization with which a director, or any member of a director’s immediate family, is affiliated as an officer, director, or trustee pursuant to a matching gift program of Valero and made on terms applicable to employees and directors, or is in amounts that do not exceed $1 million per year; and

is not a relationship required to be disclosed by Valero under Item 404 of RegulationS-K (regarding related person transactions).


Under the NYSE’s listing standards, a director is not deemed independent unless the Board affirmatively determines that the director has no material relationship with Valero. The Board has reviewed pertinent information concerning the background, employment, and affiliations (including commercial, banking, consulting, legal, accounting, charitable, and familial relationships) of our directors, and the Board has



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determined that each of ournon-management directors and each member of the Audit, Compensation, and Nominating/Governance and Public Policy Committees has no material relationship with Valero, and is therefore independent.

2019 PROXY STATEMENT3


COMMITTEES OF

INFORMATION REGARDING THE BOARD

Our OF DIRECTORS

Committees of the Board has three standing committees:

Audit Committee,
Compensation Committee, and
Nominating/Governance and Public Policy Committee.
The committees’ charters are available on our website at www.valero.com > Investors > Corporate Governance > Governance Documents.

Audit Committee

Our Board has three standing committees:

The committees’ charters are
available on our website at:

www.valero.com u Investors u

Corporate Governance u Governance Documents u  Charters.

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Audit Committee,

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Compensation Committee, and

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Nominating/Governance and Public Policy Committee.

AUDIT COMMITTEE

The Audit Committee assists the Board in oversight of the integrity of Valero’s financial statements and public financial information, Valero’s compliance with legal and regulatory requirements, the qualifications and independence of Valero’s independent auditor, and the performance of Valero’s internal audit function and independent auditors. The Audit Committee met sixfive times in 2016. 2018.

We make additional disclosures about the Audit Committee in this proxy statement under the caption “Risk Oversight” and in connection with “Proposal No. 2—Ratify Appointment of KPMG LLP as Independent Auditors” below.


Members of the Audit Committee are:

Randall J. Weisenburger (Chair),
H. Paulett Eberhart,
Susan Kaufman Purcell, and
Stephen M. Waters.

Notes:

Audit Committee Financial Experts. The Board has determined that Randall J. Weisenburgereach of the following directors is an “audit committee financial expert” (as defined by the SEC) and that heeach is “independent” as independence for audit committee members is defined in the NYSE listing standards.under applicable regulations/standards: (1) Mr. Weisenburger, (2) Ms. Eberhart, and (3) Mr. Waters. For more information regarding Mr. Weisenburger’stheir experience, see “Proposal“Proposal No. 1—Election of Directors—Information Concerning Nominees and Directors.Nominees.”


Compensation Committee

COMPENSATION COMMITTEE

The Compensation Committee reviews and reports to the Board on matters related to compensation strategies,programs, policies, and programs.strategies. The Compensation Committee’s duties are further described in “Compensation Discussion and Analysis” below and in the committee’s charter. The Compensation Committee met sixfive times in 2016.2018. The Compensation Committee has, for administrative convenience, delegated authority to our Chief Executive Officer to makenon-material amendments to Valero’s benefit plans and to make limited grants of stock options and restricted stock to new hires who are not executive officers.


Members of the Compensation Committee are:

Rayford Wilkins, Jr. (Chair),
Philip J. Pfeiffer, and
Robert A. Profusek.



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In the past year, Jerry D. Choate also served as a member of the committee (through the date of his retirement from the Board on May 12, 2016).

Notes:

TheCompensation Committee Report for fiscal year 20162018 appears in this proxy statement immediately preceding “Compensation Discussion and Analysis.”


Compensation Committee Interlocks and Insider Participation

Participation:There are no compensation committee interlocks. None of the members of the Compensation Committee has served as an officer or employee of Valero or had any relationship requiring disclosure by Valero under Item 404 of the SEC’sRegulation S-K, which addresses related-person transactions.

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Nominating/Governance and Public Policy Committee

INFORMATION REGARDING THE BOARD OF DIRECTORS

NOMINATING/GOVERNANCE AND PUBLIC POLICY COMMITTEE

The Nominating/Governance and Public Policy Committee assists the Board in its oversight responsibilities with respect to corporate governance, Board membership, and public policy matters. The committee’s specific purposes are:

are to:

to

identify individuals qualified to become Board members, consistent with criteria approved by the Board;

to select, or to

recommend thatto the Board select, director nominees;nominees to stand for election at the annual meetings of stockholders;

to

develop and recommend a set of corporate governance principles applicable to Valero;

assist the Board in identifying, evaluating, and monitoring public policy trends and social and political issues that could impact our business activities and performance;

assist the Board in oversight of Valero’s climate-related risks and opportunities;

consider and make recommendations for our strategies relating to corporate responsibility, contributions, and reputation management.management; and


The committee met four times in 2016. Members of the committee are:
Deborah P. Majoras (Chair),
Kimberly S. Greene,

oversee and

Donald L. Nickles.

In the past year, Mr. Pfeiffer also served as a member of the committee (through July 28, 2016).

The Nominating/Governance and Public Policy Committee recommended to the Board each director listed in this proxy statement under “Proposal No. 1—Election of Directors—Information Concerning Nominees and Directors—Nominees” as nominees for election as directors at the Annual Meeting. The committee also considered and recommended the appointment of a Lead Director to preside at meetings of the independent directors without management, and recommended assignments for lead the Board’s committees. The full Board approvedand the recommendationscommittees’ annual self-evaluation of performance.

Members of the committee are:

•  Deborah P. Majoras (Chair),

•  Kimberly S. Greene, and

•  Donald L. Nickles.

Notes:

The committee met three times in 2018. The committee recommended to the Board the directors listed in this proxy statement in Proposal No. 1 as nominees for election as directors at the Annual Meeting. The committee also considered and recommended the appointment of a Lead Director to preside at meetings of the independent directors without management, and recommended assignments for the Board’s committees. The full Board approved the recommendations of the committee and adopted resolutions approving the slate of director nominees to stand for election at the Annual Meeting, the appointment of a Lead Director, and Board committee assignments.

Selection of director nominees to stand for election at the Annual Meeting, the appointment of a Lead Director and Board committee assignments.


SELECTION OF DIRECTOR NOMINEES
Nominees

The Nominating/Governance and Public Policy Committee solicits recommendations for Board candidates from a number of sources, including our directors, our officers, individuals personally known to our Board members, and third-party research. In addition, the Committee will consider candidates submitted by stockholders when submitted in accordance with the procedures described in this proxy statement under the caption “Miscellaneous—Stockholder Communications, Nominations, and Proposals.”



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The Committee will consider all candidates identified through the processes described above and will evaluate each of them on the same basis. The level of consideration the Committee will extend to a stockholder’s candidate will be commensurate with the quality and quantity of information about the candidate that the nominating stockholder makes available to the Committee.

In 2016, the Board

Proxy Access. Our amended ourand restated bylaws to permit a stockholder, or a group of up to 20 stockholders, that has owned at least three percent of our outstanding Common Stock for at least three years to nominate and include in our proxy statement candidates for our Board, subject to certain requirements. Each stockholder, or group of stockholders, may nominate candidates for director, up to a limit of the greater of two or 20 percent of the number of directors on the Board. Any nominee must meet the qualification standards listed in our bylaws. The procedures for nominating a candidate pursuant to our proxy access provisions are described in this proxy statement under the caption “Miscellaneous—Stockholder Communications, Nominations, and Proposals.”


Evaluation of Director Candidates
The

EVALUATION OF DIRECTOR CANDIDATES

OurCorporate Governance Guidelines state that the Nominating/Governance and Public Policy Committee is charged with (i) assessing the skills and characteristics that candidatesresponsible for election to the Board should possess and (ii) determiningreviewing the composition of the Board as a whole. Thewell as the qualifications of the individual members of the Board and its various committees. This review includes consideration of the Board members’ independence, character, judgment, integrity, diversity, age, skills (including financial literacy) and experience in the context of the overall needs of the Board. Thus, the Committee’s assessments include consideration of:

applicable independence standards;

skills and experience necessary for service on the Board’s committees; and

skills and expertise to serve the needs of the Board as a whole.

2019 PROXY STATEMENT5

INFORMATION REGARDING THE BOARD OF DIRECTORS

Each candidate must meet certain minimum qualifications, including:

strong ethical principles and integrity;

independence of thought and judgment;

the ability to dedicate sufficient time, energy, and attention to the performance of duties, taking into consideration the candidate’s service on other public company boards; and

skills and expertise complementary to those of the existing Board members; in this regard, the Board will consider its need for operational, managerial, financial, governmental affairs, technology, human resources, or other expertise.

The Committee also considers:

diversity concepts such as race, gender, national origin, age, and national origin;geography;

the ability of a prospective candidate to work with the then-existing interpersonal dynamics of the Board;Board and

the candidate’s ability to contribute to the Board’s collaborative culture among Board members.culture.


Based on this initial evaluation, the Committee will determine whether to interview a proposed candidate and, if warranted, will recommend that one or more of its members, other members of the Board, and/or senior officers, as appropriate, interview the candidate. Following this process, the Committee ultimately determines its list of nominees and recommends the list to the full Board for consideration and approval.




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Diversity. Although the Board does not establish specific goals with respect to diversity, the Board’s overall diversity is a significant consideration in the director nomination process. For this year’s election, the Board has nominated 10 individuals who bring valuable diversity to the Board in terms of gender, ethnicity, industries represented, experience, age, and tenure. The nominees range in age from 52 to 72. Four of this year’s nominees represent diversity of ethnicity or gender. Three of the nominees have served on the Board for five years or less.

Refreshment. We do not set term limits for our directors. As stated in Article I of ourCorporate Governance Guidelines, the Board believes that directors who have served on the Board for an extended period of time are able to provide valuable insight into the operations and future of Valero based on their experience with and understanding of Valero’s history, policy, and objectives. As an alternative to term limits, the Board believes that its evaluation and nomination processes serve as an appropriate check on each Board member’s continued effectiveness.

Retirement Policy. Our directors are subject to a retirement policy (set forth in Article I of ourCorporate Governance Guidelines). Under that policy, a director may serve on our Board until he or she reaches the age of 75. A director who turns 75 may serve the remainder of his or her term of office, which shall be deemed to end at the next annual meeting of stockholders at which directors are elected.

Board Evaluation Process

OurCorporate Governance Guidelines and the charters of each of the Board’s committees require the Board and the committees to conduct an annual performance evaluation. The Nominating/Governance and Public Policy Committee oversees the Board and committee self-evaluation process.

At the end of each year, the directors complete detailed surveys designed to evaluate the performance of the Board and each of its standing committees. The surveys seek feedback on, among other things, Board and committee composition, the frequency and content of Board and committee meetings, the quality of management’s presentations to the Board and the committees, the adequacy of the committees’ charters, and the performance of the Board and the committees in light of the responsibilities of each as established in theCorporate Governance Guidelines and the committees’ charters. Summary reports of the evaluation results are compiled and provided to each director. The summary reports are discussed at Board and/or committee meetings in executive session, led by the Chair of the Nominating/Governance and Public Policy Committee, the Lead Director, and/or the Chairman of the Board, all of whom ensure that the Board or senior management, as appropriate, follow up on any identified areas for improvement.

In addition to the annual self-evaluation process, the Chair of the Nominating/Governance and Public Policy Committee, the Lead Director, and/or the Chairman of the Board will meet from time to time with each director individually, eitherin-person or via teleconference, in order to obtain feedback on the performance of the Board, a committee, or an individual director. The Board believes that all of these evaluation tools provide effective measures and forums for discussing the Board’s effectiveness and potential areas for improvement.

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LEADERSHIP STRUCTURE OF

INFORMATION REGARDING THE BOARD

OF DIRECTORS

Leadership Structure of the Board

Our bylaws providestate that the Chairman of the Board has the power to preside at all meetings of the Board. Joseph W. Gorder, our Chief Executive Officer, serves as the Chairman of the Board. Although the Board believes that the combination of the Chairman and Chief Executive Officer roles is appropriate in current circumstances, Valero’sCorporate Governance Guidelines do not establish this approach as a policy, and in fact, the Chairman and Chief Executive Officer roles were separate from 2005–2007 and from May 1–May–December 30, 2014.


The Chief Executive Officer is appointed by the Board to manage Valero’s daily affairs and operations. We believe that Mr. Gorder’s extensive industry experience and direct involvement in Valero’s operations make him best suited to serve as Chairman in order to:

lead the Board in productive, strategic planning;

determine necessary and appropriate agenda items for meetings of the Board with input from the Lead Director and independent Board committee chairs;Chairs; and

determine and manage the amount of time and information devoted to discussion of agenda items and other matters that may come before the Board.

Oversight by Independent Directors.Our Board structure includes strong oversight by independent directors. Mr. Gorder is the only member from our management (past or present) who serves on the Board; all of our other directors are independent. Each of the Board’s committees is chaired by an independent director, all committee members are independent, and our Board has named aan independent Lead Director whose duties are described in the following section.


LEAD DIRECTOR AND MEETINGS OF NON-MANAGEMENT DIRECTORS
Lead Director and Meetings ofNon-Management Directors

Our Board appointsindependent directors appoint a Lead Director whose responsibilities include leading the meetings of ournon-management directors outside the presence of management. Following the recommendation of the Nominating/Governance and Public Policy Committee, the Board’s independent directors selected Robert A. Profusek to serve as Lead Director during 2019. He also served as Lead Director in 2018. Our Board regularly meets in executive session outside the presence of management, generally at each Board and committee meeting. Following the recommendation of the Nominating/Governance and Public Policy Committee, the Board selected Robert A. Profusek to serve as Lead Director during 2017. He also served as Lead Director in 2016.


The Lead Director, working with the committee chairs,Chairs, sets agendas and leads the discussion of regular meetings of the Board outside the presence of management, provides feedback regarding these meetings to the Chairman, and otherwise serves as liaison between the independent directors and the Chairman. The Lead Director isregularly communicates with the Chairman between meetings of the Board to discuss policy issues, strategies, governance, and other matters that arise throughout the year. The Chairs of the Board’s committees also responsiblecommunicate regularly with the Lead Director to discuss policy issues facing Valero and the Board and to recommend agenda items for receiving, reviewing, and acting upon communications from stock-holders or other interested parties when those interests should be addressed by a person independent of management.consideration at future Board meetings. The Board believes that this approach appropriately and effectively complements Valero’s combined Chief Executive Officer/Chairman structure.

OurCorporate Governance Guidelines enumerate the duties and responsibilities of the Lead Director, which include:

(a)

serving as a liaison between the Chairman and the independent directors,

(b)

consulting with the Chairman on agendas for board meetings,

(c)

reviewing and approving information sent to the Board as and when appropriate,

(d)

the authority to call meetings of the independent directors,

(e)

setting agendas and leading the discussion of regular executive session meetings of the Board outside the presence of management and providing feedback regarding these meetings to the Chairman, and

(f)

receiving, reviewing, and acting upon communications from stockholders or other interested parties when those interests should be addressed by a person independent of management.

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7

INFORMATION REGARDING THE BOARD OF DIRECTORS



RISK OVERSIGHT
Risk Oversight

The Board considers oversight of Valero’s risk management efforts to be a responsibility of the full board.Board. The Board’s role in risk oversight includes receiving regular reports from its committees and from members of senior management on areas of material risk to Valero, or to the success of a particular project or endeavor under consideration, including operational, financial, legal, regulatory, strategic, political, reputational, environmental, cybersecurity, and reputationalclimate-related risks. For example, in 2018 the Board completed a review with management of Valero’s policies and procedures concerning issues of workplace diversity, sexual harassment and discrimination, and ensuring a safe workplace.

The full Board (or the appropriate Board committee) regularly receives reports from management to enable the Board (or committee) to assess Valero’s risk identification, risk management, and risk mitigation strategies. When a report is vetted at the committee level, the chairChair of that committee thereafter reports on the matter to the full Board. This enables to the Board and its committees to coordinate the Board’s risk oversight role. The Board also believes that risk management is an integral part of Valero’s annual strategic planning process, which addresses, among other things, the risks and opportunities facing Valero.


Valero in the long term.

One of the Audit Committee’s responsibilities is to discuss with management ourValero’s major financial risk exposures and the steps we haveValero has taken to monitor and control those exposures, including our risk assessment and risk management policies. In this regard, our chief audit officer prepares a comprehensive risk assessment report and reviews that report with the Audit Committee. This report identifies material business risks for Valero and identifies Valero’s internal controls that respond to and mitigate those risks. Valero’s management regularly evaluates these controls, and the Audit Committee is provided regular updates regarding the effectiveness of the controls. The Audit Committee also has oversight responsibility regarding management’s annual assessment of, and report on, Valero’s internal control over financial reporting.


In addition, Valero’s Chief Information Officer reports regularly to the Audit Committee regarding Valero’s initiatives and strategies respecting cybersecurity and information technology risks.

Our Nominating/Governance and Public Policy Committee reviews our policies and performance in areas of employee and contractor safety, environmental compliance, governmental affairs, reputation management, climate-related risks and opportunities, contributions, and policy matters generally. Valero’s EVP & General Counsel and EVP & COO attend all meetings of the Committee. In addition, members from senior management report, at least annually, to the Committee regarding Valero’s safety and environmental risks, strategies, and assessments. The Committee also assists the Board in oversight of Valero’s disclosure of climate-related risks and opportunities (as described further in “Climate Change Disclosure” below).

Our Compensation Committee assesses the risk of our compensation programs. Our compensation consultant regularly attends meetings of the Committee to provide updates on compensation related risks and trends. See also, “Risk Assessment of Compensation Programs” elsewhere in this proxy statement.

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8

   STOCKHOLDER ENGAGEMENT

Engagement Process

Ongoing engagement with our stockholders is important to us. We communicate with our stockholders through a variety of means, including direct interface, investor presentations, our website, and publications we issue. As part of our engagement program, our senior management team reaches out to our stockholders for dialogue concerning their priorities – which may include our strategy, company culture, environmental initiatives, financial performance, capital allocation, executive compensation, and/or corporate governance. We value our stockholders’ views and their input is important. Our Investor Relations team is dedicated to leading our engagement efforts and collaborating with Valero’s management teams and subject matter experts (SMEs) in order to provide appropriate resources for engagement with our stockholders.

Our engagements with stockholders have been constructive and have provided management and the Board with insights on issues and initiatives that are important to our stockholders and other stakeholders. We initiate formal outreach efforts in the months prior to our annual meeting of stockholders. Through that process, we contact stockholders and invite them to engage in discussions with our management team and SMEs on a variety of topics, including the stockholders’ priorities and interests, our proxy statement disclosures, stockholder proposals, and corporate governance matters. Following our annual meeting, our engagement efforts continue so that we may follow up on matters brought to our attention and/or discuss new issues of interest. Procedures for communicating with us are stated in “Stockholder Communications, Nominations, and Proposals” elsewhere in this proxy statement.

The following graphic depicts the ongoing elements of our engagement process.

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As part of our engagement process in 2018, we contacted our 25 largest stockholders—representing over 45% of our outstanding common shares—offering to discuss our proxy statement disclosures and proposals as well as a wide range of matters of interest to our stockholders (e.g., climate-related risks and opportunities). We also respond routinely to individual stockholders and other stakeholders who inquire about our business.

Input from our stockholders helps us formulate an appropriate action plan for addressing certain issues. The publication of our climate report (“Climate-Related Risks and Opportunities”) in 2018 was strongly influenced by our previous engagements with stockholders and stakeholders. Also, in 2018, after receiving input from our stockholders, the Nominating/Governance and Public Policy Committee amended its charter specifically to address oversight of climate-related risks and opportunities.

2019 PROXY STATEMENT9


   CLIMATE CHANGE DISCLOSURE

In 2017 the Financial Stability Board’s Task Force on Climate-related Financial Disclosure (TCFD) issued its recommendations on reporting climate-related financial information. In September 2018, Valero published its climate report—under Board oversight led by the Nominating/Governance and Public Policy Committee—that is aligned with the main principles outlined in the recommendations of the TCFD. The report is published on our website at www.valero.com > About Valero > Corporate Responsibility > Climate-Related Risks and Opportunities.

Per the Board’s Nominating/Governance and Public Policy Committee charter, the committee reviews and discusses with management, at least annually, Valero’s strategy and performance in assessing and responding to climate-related risks and opportunities.

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PROPOSAL NO. 1—ELECTION OF DIRECTORS

(Item

      (ITEM 1 on the proxy card)

We do not have a classified board. Each of our directors stands for election every year at the annual meeting of stockholders. If elected at the 2017 Annual Meeting, all of the nominees listed below will serve as director for a one-year term expiring at the 2018 annual meeting of stockholders. The persons named on the proxy card intend to vote for the election of each of these nominees unless you direct otherwise on your proxy card.

The Board recommends a vote “FOR” all nominees.

ON THE PROXY CARD)

We do not have a classified board. Each of our directors stands for election every year at the annual meeting of stockholders. If elected at the 2019 Annual Meeting, all of the nominees listed below will serve as director for a one-year term expiring at the 2020 annual meeting of stockholders. The persons named on the proxy card intend to vote for the election of each of these nominees unless you direct otherwise on your proxy card.

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The Board recommends a
vote “FOR” all nominees.

Majority Voting.Under our bylaws, each director is to be elected under this proposal will be elected by the vote of the majority of the votes cast at the Annual Meeting if a quorum is present. For this purpose, a “majority of the votes cast” means that the number of shares voted “for” a director’s election exceeds 50 percent of the number of votes cast with respect to that director’s election. Votes “cast” exclude abstentions. If any nominee is unavailable as a candidate at the time of the Annual Meeting, either the number of directors constituting the full Board will be reduced to eliminate the resulting vacancy, or the persons named as proxies will use their best judgment in voting for any available nominee.


INFORMATION CONCERNING NOMINEES AND DIRECTORS
Our directors are listed inInformation Concerning Nominees and Directors

Each of the following table. Each is a nominee for election as a director at the Annual Meeting. There is no family relationship among any of the executive officers or nominees for director. There is no arrangement or understanding between any director or any other person pursuant to which the director was or is to be selected a director or nominee.

  Directors  

Director

Since

  

Age

as of

12/31/2018

Joseph W. Gorder,

Chairman of the Board,

President, and Chief Executive Officer

    2014    61

H. Paulett Eberhart

    2016    65

Kimberly S. Greene

    2016    52

Deborah P. Majoras

    2012    55

Donald L. Nickles

    2005    70

Philip J. Pfeiffer

    2012    71

Robert A. Profusek

    2005    68

Stephen M. Waters

    2008    72

Randall J. Weisenburger

    2011    60

Rayford Wilkins, Jr.

    2011    67

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Directors Director Since Age as of 12/31/2016
Joseph W. Gorder, Chairman of the Board, President, and Chief Executive Officer
 2014 59
H. Paulett Eberhart 2016 63
Kimberly S. Greene 2016 50
Deborah P. Majoras 2012 53
Donald L. Nickles 2005 68
Philip J. Pfeiffer 2012 69
Robert A. Profusek 2005 66
Susan Kaufman Purcell 1997 74
Stephen M. Waters 2008 70
Randall J. Weisenburger 2011 58
Rayford Wilkins, Jr. 2011 65



9


Nominees.
Joseph W. Gorder

2019 PROXY STATEMENT11

PROPOSAL NO. 1—ELECTION OF DIRECTORS

Summary of Board Skills and Attributes

Our directors have an effective mix of backgrounds, knowledge, and skills. The table below provides a summary of certain collective competencies and attributes of the Board nominees. The lack of an indicator for a particular item does not mean that the director does not possess that skill or experience. We look to each director to be knowledgeable in all of these areas. Rather, the indicator represents that the item is a core competency that the director brings to the Board.

 
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LOGOLOGOLOGOLOGOLOGOLOGOLOGOLOGOLOGO
skills and experience

Mr. GorderCEO/LEADERSHIP EXPERIENCE

contributes to the Board’s understanding of operations and strategy and demonstrates leadership ability

🌑🌑🌑🌑🌑🌑🌑🌑🌑🌑
FINANCE/ACCOUNTING EXPERIENCE is valuable in evaluating Valero’s financial statements, capital structure, and financial strategy

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GLOBAL EXPERIENCE

provides the company with valuable business knowledge and perspective on our international operations and global commodity trade

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GOVERNMENT/LEGAL

REGULATORY EXPERIENCE

contributes to the Board’s ability to guide Valero through government regulations, complex legal matters, and public policy issues

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RISK MANAGEMENT EXPERIENCE contributes to the identification, assessment, and prioritization of risks facing Valero

🌑

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🌑

🌑

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attributes

DIVERSITY/GENDER

represents diversity of race, ethnicity, and/or gender

🌑

🌑

🌑

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INDEPENDENT

represents directors who are independent under NYSE and SEC standards

🌑

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Our directors have a wide range of additional skills and experience not mentioned above, which they bring to their role as directors to Valero’s benefit, including experience in the energy industry, and the technology/cybersecurity, consumer goods, human capital, corporate governance, and nonprofit leadership areas. Our directors’ skills and experience are further described in the directors’ biographies on the following pages.

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PROPOSAL NO. 1—ELECTION OF DIRECTORS

Nominees

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Age:61

Director Since:2014

Chairman

JOSEPH W. GORDER

Featured experience, qualifications, and attributes:

•Global energy business leadership at Valero Energy Corporation as Chairman of the Board (since Dec. 31, 2014), President (since 2012) and Chief Executive Officer. He was first elected to the Board in February 2014. He became Valero’s Chief Executive Officer on(since May 1, 2014,2014).

•Refining and Chairman of the Board on December 31, 2014. Previously he servedmarketing operations experience as Valero’s President and Chief Operating Officer since Novemberbeginning in 2012. Prior to that, Mr. Gorder was Executive Vice President and Chief Commercial Officer beginning(beginning in January 2011,2011), and led Valero’s European operations from its London office. Beginning in December 2005,Before that, he was Executive Vice President–Marketing and Supply. Mr. Gorder has held several positions with Valero and Ultramar Diamond Shamrock Corporation (UDS) with responsibilities forincluding marketing & supply and corporate development and marketing. Mr. Gorder is also Chief Executive Officer and Chairman of the Board of Valero Energy Partners GP LLC, the general partner ofdevelopment.

Other public company boards(current): Anadarko Petroleum Corporation (NYSE: APC)

Prior public company boards (in last five years): Valero Energy Partners LP (NYSE: VLP), a midstream logistics master limited partnership formed by Valero in 2013. He also serves on the board of directors of Anadarko Petroleum Corporation (NYSE: APC). Mr. Gorder’s pertinent experience, qualifications, attributes, and skills include his multiple years of experience in the refining industry during his years of service with UDS and Valero.


H. Paulett Eberhart

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Age:65

Director Since:2016

Committee: Audit

Independent

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H. PAULETT EBERHART

Featured experience, qualifications, and attributes:

Ms. Eberhart• isBusiness leadership as Chairman and Chief Executive OfficerCEO of HMS Ventures (since 2014), a privately held business involved with technology services and the acquisition and management of real estate. From January 2011 through March 2014, she served as President and Chief Executive OfficerCEO of CDI Corp. (NYSE: CDI), a provider of engineering and information technology outsourcing and professional staffing services. She served as a consultant to CDI from April 2014 through December 2014. Ms. Eberhart also served as Chairman and Chief Executive OfficerCEO of HMS Ventures from January 2009 until January 2011. She served as President

•Information technology, management, accounting, and Chief Executive Officer offinance expertise at Invensys Process Systems, Inc. (Invensys), a process automation company (President and CEO from January 2007 to January 2009. From 1978 to 2004, she was an employee of2009), and Electronic Data Systems Corporation (EDS) (1978 to 2004), an information technology and business process outsourcing company, and held roles of increasing responsibility, including senior level financial and operating roles. From 2003 until March 2004, Ms. Eberhartcompany. She was President of Americas of EDS and from 2002(2003 to 2003 sheMarch 2004), and served as President of Solutions Consulting at EDS.EDS (2002 to 2003). Ms. Eberhart is a Certified Public Accountant and servesAccountant.

•Public company governance expertise through her service as a director ofLead Director for another public company.

Other public company boards(current): Anadarko Petroleum Corporation (NYSE: APC), Ciber, Inc. (NYSE: CBR); and LPL Financial Holdings Inc. (NASDAQ: LPLA). In addition to her current public-company directorships, in the past

Prior public company boards (in last five years she also served on the boards ofyears): CDI Corp. (NYSE: CDI), Cameron International Corporation (NYSE: CAM) Fluor Corporation, Ciber, Inc. (NYSE: FLR) andCBR), Advanced Micro Devices, Inc. (NASDAQ: AMD). Ms. Eberhart’s pertinent experience, qualifications, attributes, and skills include executive management and leadership skills attained as a CEO of public and private companies, and financial literacy and expertise attained in her service as a financial executive and Certified Public Accountant.




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Kimberly S. Greene

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2019 PROXY STATEMENT
Ms. Greene13

PROPOSAL NO. 1—ELECTION OF DIRECTORS

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Age:52

Director Since:2016

Committee:

Nom/Gov

Independent

KIMBERLY S. GREENE

Featured experience, qualifications, and attributes:

 is•Energy business leadership at Southern Company Gas as Chief Executive Officer and President (since June 2018). She served as Executive Vice President and Chief Operating Officer of the Southern Company (NYSE: SO), a position she has held since March 2014. from 2014 to May 2018. Prior to that, she was President and Chief Executive OfficerCEO of Southern Company Services, Inc. Prior to rejoining Southern Company in April 2013, she was Executive Vice President and Chief Generation Officer of Tennessee Valley Authority (TVA). While at TVA, she served as Chief Financial Officer, Executive Vice President of financial services and Chief Risk Officer, as well as Group President for strategy and external relations. Ms. Greene began her career at Southern Company in 1991 and held positions of increasing responsibility in the areas of engineering, strategy, finance, and wholesale marketing, including Senior Vice President and Treasurer of Southern Company Services, Inc. from 2004 to 2007. Ms. Greene also serves onShe rejoined Southern Company in 2013.

•Finance expertise and regulatory business management experience as Executive Vice President and Chief Generation Officer of Tennessee Valley Authority (TVA). While at TVA (2007 to 2013), she served as Chief Financial Officer, Executive Vice President of financial services and Chief Risk Officer, as well as Group President for strategy and external relations.

•Organizational leadership experience through service with the boardAmerican Gas Association, Metro Atlanta Chamber of directorsCommerce, College of Engineering Board of Advisors for the Electric Power Research Institute. Ms. Greene’s pertinent experience, qualifications, attributes, and skills include executive managerial experience she has attained serving as an executive officerUniv. of otherTennessee, Alliance Theatre Atlanta.

Other public and private companies, regulatory knowledge and expertise attained through her positions of responsibility in highly regulated industries, and financial literacy and expertise attained in her service as a financial executive.

company boards(current): none

Prior public company boards (in last five years): none

Deborah P. Majoras

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Age:55

Director Since:2012

Committee:

Nom/Gov (Chair)

Independent

deborahmajoras.jpg

DEBORAH P. MAJORAS

Featured experience, qualifications, and attributes:

Ms. Majoras• has beenPublic company leadershipand governance experience as Chief Legal Officer and Secretary of The Procter & Gamble Company (P&G) (NYSE: PG) since 2010. She joined P&G in 2008 as Senior Vice President and General Counsel. Previously she served

•Government, regulatory, and legal experience as Chair of the U.S. Federal Trade Commission from 2004 until 2008. From 2001 to 2004, Ms. Majoras was Deputy Assistant Attorney General in the U.S. Department of Justice, Antitrust Division. Ms. Majoras joined the law firm of Jones Day in 1991, where sheand became a partner in 1999. Ms. Majoras serves

•Organizational leadership experience through service on the boards of The Christ Hospital Health Network, the Cincinnati Legal Aid Society the Association of General Counsel,Greater Cincinnati, Westminster College, and the Leadership Council on Legal Diversity. Ms. Majoras’s pertinent experience, qualifications, attributes, and skills include regulatory knowledge and expertise attained through her positions with the federal government; expertise in legal matters, leadership, and management skills attained while acting as an officer of a major U.S. publicly traded corporation and a partner with Jones Day; and leadership and management skills attained while serving as director or trustee of numerous non-profit organizations and a member of Valero’s Board since 2012.

Diversity, United States Golf Association.

Other public company boards(current): none

Prior public company boards (in last five years): none

Donald L. Nickles
14
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PROPOSAL NO. 1—ELECTION OF DIRECTORS

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Age:70

Director Since:2005

Committee:

Nom/Gov

Independent

DONALD L. NICKLES

Featured experience, qualifications, and attributes:

Senator Nickles• retiredGovernment affairs leadership and experience as U.S. Senator from Oklahoma in 2005 after serving in the U.S. Senate for 24 years.years (retired 2005). He had also served in the Oklahoma State Senate for two years. During his tenure as a U.S. Senator, he was Assistant Republican Leader for six years, Chairman of the Republican Senatorial Committee, and Chairman of the Republican Policy Committee. He served as Chairman of the Budget Committee and as a member of the Finance and Energy and Natural Resources Committees. In 2005, he formed and is the

•Business leadership as current Chairman and Chief Executive Officer of The Nickles Group, a Washington-based consulting and business venture firm. Senator Nickles also servesfirm formed in 2005.

•Organizational leadership experience through service on the Oklahoma Medical Research Foundation Advisory Board.

Other public company boards(current): Board of Trustees of Washington Mutual Investors Fund

(AWSHX). He has served as a director of Valero since 2005. His pertinent experience, qualifications, attributes, and skills include extensive political, legislative and regulatory knowledge and expertise attained through his years of service as a U.S. Senator; the experience attained through his service on the boards of other

Prior public companies; the knowledge and experience he has attained from serving as founder and chief executive officer of a consulting and business venture firm; and the knowledge and experience he has attained through his service on Valero’s Board.

company boards (in last five years): none



11


Philip J. Pfeiffer

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Age:71

Director Since:2012

Committee:

Compensation

Independent

philippfeiffer.jpg

PHILIP J. PFEIFFER

Featured experience, qualifications, and attributes:

Mr. Pfeiffer• is Of CounselBusiness leadership, legal and human capitalexpertise in the San Antonio office of Norton Rose Fulbright LLP, where he wasPartner-in-Charge for 25 years and led the office’s labor and employment practice.practice (he presently serves Of Counsel). Through his 47-year career47 years with the firm, Mr. Pfeiffer assisted employers in traditional management–union matters, complex civil rights matters, employment discrimination cases, affirmative action compliance, employment torts, alternative dispute resolution, employment contracts, and ERISA litigation. He is a director

•Organizational leadership through board service and past Chair of the Board ofaffiliations with Southwest Research Institute, a non-profit contract research corporation based in San Antonio, Texas. He serves or has served on the boards of many other non-profit organizations including the United Way of San Antonio and Bexar County, St. Mary’s University, San Antonio Medical Foundation, Texas Research and Technology Foundation, The Children’s Hospital of San Antonio Foundation, Alamo Area Council of Boy Scouts, and the UT Health San Antonio MD Anderson Cancer Therapy and Research Center. Mr. Pfeiffer’s pertinent experience, qualifications, attributes, and skills include expertise in legal matters, including labor and employment issues, leadership and management skills attained while acting as Partner-in-Charge of a law office, and serving as chairman, director, or trustee of numerous non-profit organizations and his service on Valero’s Board.

Other public company boards(current): none

Prior public company boards (in last five years): none

Robert A. Profusek
robertprofusek.jpg
2019 PROXY STATEMENT
Mr. Profusek15

PROPOSAL NO. 1—ELECTION OF DIRECTORS

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Age:68

Director Since:2005

Lead Director

Committee:

Compensation

Independent

ROBERT A. PROFUSEK

Featured experience, qualifications, and attributes:

 is•Business leadership and capital markets expertise as a partner of the Jones Day law firm where heMr. Profusek chairs the firm’s global mergers and acquisitions practice. His law practice focuses on mergers, acquisitions, takeovers, restructurings, and corporate governance matters. Mr. Profusek

•Public company governance experience and expertise through service as Valero’s Lead Director and the Lead Director of two other public companies. He is alsoa frequent speaker regarding corporate takeovers and corporate governance, has authored orco-authored numerous articles, has testified before Congress and the lead independent director of CTS Corporation (NYSE: CTS). He served asSEC about takeover and compensation-related matters, and is a director of the managing general partner of Valero L.P. (now known as NuStar Energy L.P.) from 2001–2005. He has served as a director of Valero since 2005. Mr. Profusek’s pertinent experience, qualifications, attributes,frequent guest commentator on CNBC, CNN, and skills include: legal expertise in legal matters, including corporate governance; capital markets expertise attained through his extensive experience in mergers and acquisitions and financing activities; managerial experience attained through his leadership roles with Jones Day; the knowledge and experience he has attained through his current service on anotherBloomberg TV.

Other public company board and prior service as a director of other NYSE-listed companies; and the knowledge and experience he has attained through his service on Valero’s Board.

boards(current): Kodiak Sciences Inc. (NASDAQ: KOD), CTS Corporation

(NYSE: CTS)

Prior public company boards (in last five years): none

Susan Kaufman Purcell

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Age:72

Director Since:2008

Committee:

Audit

Independent

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Dr. Purcell recently retired as Director of the Center for Hemispheric Policy at the University of Miami, a position she held since 2005. The Center examines political, economic, financial, trade, and security issues in Latin America, as well as U.S.-Latin America relations. She previously served as Vice President of the Council of the Americas, a non-profit business organization of mainly Fortune 500 companies with investments in Latin America, and of the Americas Society, a non-profit educational institution, both in New York City. She also was a member of the U.S. Department of State’s Policy Planning Staff. Dr. Purcell has been a director of Valero since 1997, and served as a director of its former parent company from 1994–1997. Dr. Purcell’s pertinent

STEPHEN M. WATERS

Featured experience, qualifications, attributes, and skills include: economic, political and international relations expertise attained through her experience withattributes:

•Financial business leadership as the Universitymanaging partner of Miami, the Council of Americas, the Americas Society, and the U.S. Dept. of State; a Ph.D in political science; financial literacy and experience attained through her service on the boards and audit committees of several closed-end mutual funds; and the knowledge and experience she has attained through her service on Valero’s Board.




12


Stephen M. Waters
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Mr. Waters has beenCompass Partners Capital since 2018, the managing partner of Compass Partners Advisers LLP (Compass Partners) and its predecessor partnerships since 1996(since 1996) and was the Chief Executive of Compass Partners European Equity Fund from 2005 to 2013. From 1988 to 1996, he served

•Finance and globalexperience from his service in several capacities at Morgan Stanley, includingCo-Head of the Mergers and Acquisitions department from 1990 to 1992,Co-Chief Executive Officer of Morgan Stanley Europe from 1992 to 1996, and as a member of its worldwide Firm Operating Committee from 1992 to 1996. From 1974 to 1988, he was with Lehman Brothers,co-founding the Mergers and Acquisitions department in 1977, becoming a partner in 1980, and serving asCo-Head of the Mergers and Acquisitions department from 1985 to 1988. Mr. Waters is also Chairman of

Other public company boards(current): Boston Private Financial Holdings. His pertinent experience, qualifications, attributes, and skills include: financial literacy and expertise, capital markets expertise, and managerial experience gained through his mergers and acquisitions experience and leadership roles with investment banking firms, Lehman Brothers, Morgan Stanley, and Compass Partners; and the knowledge and experience he has attained through his service on Valero’s Board since 2008 and on otherHoldings, Inc. (NASDAQ: BPFH)

Prior public company boards.

boards (in last five years): none

Randall J. Weisenburger
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PROPOSAL NO. 1—ELECTION OF DIRECTORS

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Age:60

Director Since:2011

Committee:

Audit (Chair)

Independent

RANDALL J. WEISENBURGER

Featured experience, qualifications, and attributes:

Mr. Weisenburger• isGlobal business leadership and capital markets and financeexpertise as the managing member of Mile26Mile 26 Capital, LLC, a hedge fund based in Greenwich, Connecticut. He servedConnecticut (since 2014), and service as Executive Vice President and Chief Financial Officer of Omnicom Group Inc. (NYSE: OMC) from 1998 until Septemberthrough 2014. Prior to joining Omnicom, he was a founding member of Wasserstein Perella and a former member of First Boston Corporation. At Wasserstein Perella, Mr. Weisenburger specialized in private equity investing and leveraged acquisitions, and in 1993, he became President and CEO of the firm’s private equity subsidiary. His other corporate

•Organizational leadership through service on the board service includes Carnival Corporation and Carnival plc (NYSE: CCL) andof directors of Acosta Sales and Marketing, (privately held). He is a member ofCorsair Components, Inc.; and the Board of Overseers for theof Wharton School of Business at the University of Pennsylvania. His pertinent experience, qualifications, attributes, and skills include financial literacy and expertise, capital markets expertise, managerial experience he has attained serving as an executive officer of other public companies, and the experience he has attained from service on Valero’s Board since 2011 and on other

Other public company boards.

boards(current): Carnival Corporation and Carnival plc (NYSE: CCL)

Prior public company boards (in last five years): none

Rayford Wilkins, Jr.

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Age:67

Director Since:2011

Committee:

Compensation

(Chair)

Independent

rayfordwilkins.jpg

RAYFORD WILKINS, JR.

Featured experience, qualifications, and attributes:

Mr. Wilkins• previously servedGlobal business leadership and technology and finance expertise as CEO of Diversified Businesses of AT&T Inc. (NYSE: T), where he was responsible for international investments, AT&T Interactive, AT&T Advertising Solutions, customer information services, and the consumer wireless initiative in India. He retired from AT&T at the end of March 2012. Mr. Wilkins held several other leadership positions at AT&T and its predecessor companies, including Group President and CEO of SBC Enterprise Business Services and President and CEO of SBC Pacific Bell. He also serves

•Organizational leadership through service on the board of Morgan Stanley (NYSE: MS) and the Advisory Council of the McCombs School of Business at the University of Texas at Austin. His pertinent experience, qualifications, attributes, and skills include managerial experience he has attained serving as an executive officer of other public companies, international business acumen he has attained from his responsibilities as executive officer and director for international business concerns, and the experience he has attained from service on Valero’s Board since 2011 and on other

Other public company boards.

boards(current): Morgan Stanley (NYSE: MS), Caterpillar Inc. (NYSE: CAT)

Prior public company boards (in last five years): none




13


For information regarding the nominees’ Common Stock holdings, compensation, and other arrangements, see “Information Regarding the Board of Directors,” “Beneficial Ownership of Valero Securities,” “Compensation Discussion and Analysis,” and “Compensation of Directors” elsewhere in this proxy statement.

2019 PROXY STATEMENT17



IDENTIFICATION OF EXECUTIVE OFFICERS

The following aretable lists Valero’s executive officers (for purposes of Rule3b-7 under the Securities Exchange Act of 1934). as of December 31, 2018. As used in this proxy statement, our “named executive officers” are the five persons listed in the Summary Compensation Table.Table; our “named executive officers” include Mr. Ciskowski, who retired in May 2018, in compliance with Rule 402(a)(3)(ii) under RegulationS-K. There is no arrangement or understanding between any executive officer listed below or any other person under which the executive officer was or is to be selected as an officer.

  Officer Since 
Age as of
12/31/2016
Joseph W. Gorder, President and Chief Executive Officer
 2003 59
Jay D. Browning, Executive Vice President and General Counsel
 1997 58
Michael S. Ciskowski, Executive Vice President and Chief Financial Officer
 1998 59
R. Lane Riggs, Executive Vice President–Refining Operations and Engineering
 2011 51
Gary K. Simmons, Senior Vice President–Supply, International Operations and Systems Optimization
 2011 52

    

Officer

Since

  

Age as of

12/31/2018

Joseph W. Gorder,President and Chief Executive Officer

  

2003

  

61

Jay D. Browning, Executive Vice President and General Counsel

  

1997

  

60

R. Lane Riggs, Executive Vice President and Chief Operating Officer

  

2011

  

53

Donna M. Titzman,Executive Vice President and Chief Financial Officer

  

2001

  

55

 

Gary K. Simmons, Senior Vice President–Supply, International Operations andSystems Optimization

 

  

 

2011

 

  

 

54

 

Mr. Gorder.  Gorder.Mr. Gorder’s biographical information is stated above under the captioncaptions “Information Concerning Nominees and Directors—Nominees.Directors” and “Nominees.”

Mr. Browning was elected served as Executive Vice President and General Counsel effectivefrom May 1, 2014.2014 until his retirement on January 1, 2019. He was electedserved as Senior Vice President and General Counsel in November 2012.from 2012 to 2014. He previously served as Senior Vice President–Corporate Law and Secretary from 2006 to 2012. Mr. Browning was elected Vice President of Valero in 2002, and was first elected as Secretary in 1997. He also serves as Executive Vice President and General Counsel of Valero Energy Partners GP LLC, the general partner of Valero Energy Partners LP.

Mr. Ciskowski has served as Riggswas elected Executive Vice President and Chief FinancialOperating Officer of Valero since August 2003. Beforeeffective January 1, 2018. Prior to that, he served as Executive Vice President–Corporate Development since April 2003, and Senior Vice President in charge of business and corporate development since 2001.

Mr. Riggs was elected Executive Vice President–Refining Operations and Engineering effective May 1, 2014. Prior to that, he served assince 2014, and Senior Vice President–Refining Operations since 2011. His previous positions included Senior Vice President–Crude, Feedstock Supply & Trading and Vice President–Refinery Planning & Economics for Valero’s refining division. Mr. Riggs also servesserved on the board of directors of Valero Energy Partners GP LLC.
LLC (the general partner of Valero Energy Partners LP (NYSE: VLP, no longer public)).

Ms. Titzman has served as Executive Vice President and Chief Financial Officer since May 3, 2018. From 2013 to May 2018, she served as Senior Vice President and Treasurer having responsibility for banking, cash management, customer credit, investment management, and risk management. She has also served as Chief Financial Officer and director of Valero Energy Partners GP LLC (the general partner of Valero Energy Partners LP (NYSE: VLP, no longer public)) since 2013. She joined Valero in 1986 and held various leadership positions before being elected Valero’s Treasurer in 1998, and Vice President and Treasurer in 2001. Ms. Titzman is a Certified Public Accountant.

Mr. Simmonswas elected Senior Vice President–Supply, International Operations and Systems Optimization effective May 1, 2014. He previously served as Vice President–Crude and Feedstock Supply and Trading from 2012 to 2014, and Vice President–Supply Chain Optimization from 2011 to 2012. Mr. Simmons joined Valero in 1987 as a process engineer and has since held many leadership positions including Vice President and General Manager of Valero’s Ardmore and St. Charles refineries.

Michael S. Ciskowski served as Executive Vice President and Chief Financial Officer of Valero from August 2003 until his retirement effective May 3, 2018. Before that, he served as Executive Vice President–Corporate Development since April 2003, and Senior Vice President in charge of business and corporate development since 2001.

Jason W. Fraser (age 50) was elected Executive Vice President and General Counsel effective January 1, 2019 (succeeding Mr. Browning). From May 2018 to January 1, 2019, Mr. Fraser served as Senior Vice President of Valero overseeing Valero’s Public Policy & Strategic Planning, Governmental Affairs, Investor Relations, and External Communications functions. From November 2016 to May 2018, he served as Vice President-Public Policy��& Strategic Planning of Valero. From May 2015 to November 2016, Mr. Fraser served in London as Valero’s Vice President-Europe, overseeing Valero’s European commercial businesses. Prior to his service in London, he served in Valero’s San Antonio headquarters as Senior Vice President & Deputy General Counsel of Valero Services, Inc. from 2013 to 2015. Prior to that, he held various roles including Senior Vice President-Specialty Products of Valero Marketing and Supply Company, and as a member of Valero’s integration team in London tasked with integrating the European businesses acquired by Valero in 2011.

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14



BENEFICIAL OWNERSHIP OF VALERO SECURITIES

SECURITY OWNERSHIP OF MANAGEMENT AND DIRECTORS

The following

This table presents informationlists the beneficial ownership of our Common Stock as of February 1, 2017, regarding Common Stock beneficially owned20, 2019, by each nominee for director, each current director, eachall directors and nominees, the executive officerofficers named in the Summary Compensation Table, and all currentthe directors and executive officers of Valero as a group. No executive officer, director, or nominee for director owns any class of equity securities of Valero other than Common Stock. None of the shares listed below are pledged as security. The address for each person is One Valero Way, San Antonio, Texas 78249.

Name of Beneficial Owner Shares Held (1) Shares Under Options (2) Total Shares Percent of Class
Jay D. Browning 202,282
 32,219
 234,501
 *
Michael S. Ciskowski 297,662
 396,016
 693,678
 *
H. Paulett Eberhart 2,404
 —
 2,404
 *
Joseph W. Gorder 396,049
 232,186
 628,235
 *
Kimberly S. Greene 2,404
 —
 2,404
 *
Deborah P. Majoras 18,821
 —
 18,821
 *
Donald L. Nickles 24,876
 —
 24,876
 *
Philip J. Pfeiffer 21,164
 —
 21,164
 *
Robert A. Profusek 37,137
 —
 37,137
 *
Susan Kaufman Purcell 13,474
 —
 13,474
 *
R. Lane Riggs 132,253
 31,522
 163,775
 *
Gary K. Simmons 111,698
 —
 111,698
 *
Stephen M. Waters 12,511
 —
 12,511
 *
Randall J. Weisenburger 27,826
 —
 27,826
 *
Rayford Wilkins, Jr. 28,700
 —
 28,700
 *
Directors and current executive officers as a group (15 persons) 1,329,261
 691,943
 2,021,204
 *

  Name of Beneficial Owner  

Shares

Held (1)

   

Shares Under

Options (2)

   

Total

Shares

   

Percent of

Class

Jay D. Browning

  

 

223,107

 

  

 

34,766

 

  

 

257,873

 

  

*

H. Paulett Eberhart

  

 

4,223

 

  

 

—

 

  

 

4,223

 

  

*

Joseph W. Gorder

  

 

467,602

 

  

 

161,297

 

  

 

628,899

 

  

*

Kimberly S. Greene

  

 

4,163

 

  

 

—

 

  

 

4,163

 

  

*

Deborah P. Majoras

  

 

19,282

 

  

 

—

 

  

 

19,282

 

  

*

Donald L. Nickles

  

 

25,767

 

  

 

—

 

  

 

25,767

 

  

*

Philip J. Pfeiffer

  

 

20,125

 

  

 

—

 

  

 

20,125

 

  

*

Robert A. Profusek

  

 

37,598

 

  

 

—

 

  

 

37,598

 

  

*

R. Lane Riggs

  

 

150,767

 

  

 

2,667

 

  

 

153,434

 

  

*

Gary K. Simmons

  

 

123,720

 

  

 

1,750

 

  

 

125,470

 

  

*

Donna M. Titzman

  

 

189,975

 

  

 

16,623

 

  

 

206,598

 

  

*

Stephen M. Waters

  

 

7,964

 

  

 

—

 

  

 

7,964

 

  

*

Randall J. Weisenburger

  

 

53,717

 

  

 

—

 

  

 

53,717

 

  

*

Rayford Wilkins, Jr.

  

 

31,409

 

  

 

—

 

  

 

31,409

 

  

*

Directors and current executive officers as a group (14 persons)

 

   

 

1,359,419

 

 

 

   

 

217,103

 

 

 

   

 

1,576,522

 

 

 

  *

 

*

Indicates that the percentage of beneficial ownership does not exceed 1% of the class.

(1)

Includes shares allocated under the Thrift Plan and shares of restricted stock. Restricted stock may not be sold or transferred until vested. ForThe balance for Mr. Browning the balanceis shown alsoas of January 1, 2019, and includes shares held by his spouse. For Mr. Ciskowski, theThe balance shown alsofor Mr. Waters includes 500 shares held by an entity that he controls.in a trust for which Mr. Waters is a beneficiary. The balance shown for Mr. Waters does not include 2,940 shares held in a trust for which his spouse serves as trustee (Mr. Waters disclaims beneficial ownership of those shares). This column does not include shares that could be acquired under options, which are reported in the column captioned “Shares Under Options.”

(2)

Represents shares of Common Stock that may be acquired under outstanding stock options currently exercisable and that are exercisable within 60 days from February 1, 2017.20, 2019. Shares subject to options may not be voted unless the options are exercised. Options that may become exercisable within such 60-day period only in the event of a change of control of Valero are excluded.

2019 PROXY STATEMENT19




15


BENEFICIAL OWNERSHIP OF VALERO SECURITIES

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS

The following

This table describes each person or group of affiliated persons known to be a beneficial owner of more than five percent of our Common Stock as of December 31, 2016.2018. The information is based on reports filed by such persons with the SEC.

Name and Address of Beneficial Owner Amount and Nature of Beneficial Ownership Percent of Class
BlackRock, Inc.
   55 East 52nd Street
   New York NY 10055
 33,350,640
 (1) 7.4%
The Vanguard Group
   100 Vanguard Blvd
   Malvern PA 19355
 32,577,618
 (2) 7.2%
State Street Corporation
   State Street Financial Center
   One Lincoln Street
   Boston MA 02111
 26,631,472
 (3) 5.9%

Name and Address of Beneficial Owner

Amount and Nature of

Beneficial Ownership

Percent of

Class

BlackRock, Inc.

    55 East 52nd Street

    New York NY 10055

33,855,840 (1)

8.0%

The Vanguard Group

    100 Vanguard Blvd

    Malvern PA 19355

33,828,468 (2)

8.0%

State Street Corporation

    State Street Financial Center

    One Lincoln Street

    Boston MA 02111

22,372,500 (3)

5.3%

(1)

BlackRock, Inc. filed with the SEC an amended Schedule 13G on January 27, 2017,February 6, 2019, reporting that it or certain of its affiliates beneficially owned in the aggregate 33,350,64033,855,840 shares, for which it had sole voting power for 28,498,55428,303,026 shares and sole dispositive power for 33,350,64033,855,840 shares.

(2)

The Vanguard Group filed with the SEC a Schedule 13G on February 13, 2017,11, 2019, reporting that it or certain of its affiliates beneficially owned in the aggregate 32,577,61833,828,468 shares, for which it had sole voting power for 720,510493,029 shares, shared voting power for 91,037101,047 shares, sole dispositive power for 31,769,48533,245,871 shares, and shared dispositive power for 808,133582,597 shares.

(3)

State Street Corporation filed with the SEC a Schedule 13G on February 10, 2017,14, 2019, reporting that it or certain of its affiliates beneficially owned in the aggregate 26,631,47222,372,500 shares, for which it had shared voting power for 20,262,884 shares, and shared dispositive power.power for 22,367,091 shares.


SECTIONSection 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our executive officers, directors, and greater than 10 percent stockholders to file with the SEC certain reports of ownership and changes in ownership of our Common Stock. We believe that all Section 16(a) reports applicable to our executive officers, directors, and greater than 10 percent stockholders for 20162018 were filed timely.on time, with the exception of one Form 4 filed on behalf of our director Paulett Eberhart, which was inadvertently filed late in 2018.

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16



RISK ASSESSMENT OF COMPENSATION PROGRAMS

We believe that our incentive compensation programs effectively balance risk and reward. When assessing risk, we consider both cash compensation payable under our annual incentive bonus plan as well as long-term incentives that are awarded under our stock incentive plan. We also consider the mix of award opportunities (i.e.(i.e., short- versus long-term), performance targets and metrics, the target-setting process, and the administration and governance associated with our plans. We do not believe that our compensation policies and practices are reasonably likely to have an adverse effect on Valero. Features of our compensation programs that we believe mitigate excessive risk taking include:

the mix between fixed and variable, annual and long-term, and cash and equity compensation, designed to encourage strategies and actions that are in Valero’s long-term best interests;

determination of incentive awards based on a variety of indicators of performance, thus diversifying the risk associated with a single indicator of performance;

incorporation of relative total stockholder return into our incentive program, calibrating pay and performance relationships to companies facing the same or similar market forces as Valero;

multi-year vesting periods for equity incentive awards, which encourage focus on sustained growth and earnings;

maximum payout ceilings under our annual bonus program and performance share awards;

restricted stock awards that help contain volatility of incentive awards and further align executives’ interests with long-term stockholder value creation; and

our compensation-related policies, including our executive compensation “clawback” policy and stock ownership guidelines (discussed below under the caption “Compensation Discussion and Analysis—Compensation Related Policies”).

2019 PROXY STATEMENT21

   COMPENSATION DISCUSSION AND ANALYSIS

TABLE OF CONTENTS

Company Overview22
Company Performance23
Alignment of Executive Pay to Company Performance26
Adoption of Compensation Governance Best Practices29
Dialogue With Stockholders30
Administration of Executive Compensation Programs31

Benchmarking Data

31

Process and Timing of Compensation Decisions

32

Elements of Executive Compensation32

Benchmarking Competitive Pay Levels

33

Relative Size of Major Compensation Elements

33

Individual Performance and Personal Objectives

34

Base Salaries

35

Annual Incentive Bonus

35

Long-Term Incentive Awards

38

Perquisites and Other Benefits

39

Post-Employment Benefits

40
Accounting and Tax Treatment40
Compensation-Related Policies41


17


COMPENSATION CONSULTANT DISCLOSURES
Our Compensation Committee may, in its sole discretion, retain or obtain the advice of a compensation consultant, independent legal counsel, or other adviser, and is directly responsible for the appointment, compensation, and oversight of the work of any compensation consultant, independent legal counsel, or other adviser retained by the Committee. Valero is obligated to provide appropriate funding for the Committee’s retention of a consultant, counsel, or adviser.
In 2016, the Committee retained Exequity LLP as an independent compensation consultant. Exequity provided to the Committee objective expert analysis and independent advice regarding executive and director compensation. For the 2016 executive and director compensation services rendered to the Committee, Exequity earned professional fees of $261,117. Exequity did not provide other consulting services to the Committee, to Valero, or to any senior executives of Valero. Exequity is an independent adviser as determined under the SEC’s rules and the NYSE’s listing standards.

During 2016, Exequity’s executive and director compensation consulting services included:
assistance with selecting peer and comparator companies for benchmarking executive pay and monitoring Valero’s performance;
assistance with establishing our overall executive compensation philosophy in light of our business strategies;
assessment of competitive pay for our executives, with separate analyses of base salary, annual incentive, and long-term incentive compensation;
assessment of competitive pay for our directors;
assessment of, and recommendations for, our annual incentive bonus program;
assessment of, and recommendation of enhancements to, our long-term incentive program strategy, including (i) the design of an appropriate mix of equity incentive vehicles, (ii) determination of performance measures and measurement techniques, and (iii) determination of competitive equity grant guidelines consistent with our overall pay philosophy;
updates on trends and developments in executive compensation, new regulatory issues, and best practices; and
assistance with proxy statement disclosures.



18


The following Compensation Committee Report is not “soliciting material,” is not deemed filed with the SEC, and is not to be incorporated by reference into any of Valero’s filings under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this proxy statement and irrespective of any general incorporation language therein.


COMPENSATION COMMITTEE REPORT

The Compensation Committee has reviewed and discussed the following Compensation Discussion and Analysis with management. Based on the foregoing review and discussions and such other matters the Compensation Committee deemed relevant and appropriate, the Committee recommended to the Board that the Compensation Discussion and Analysis be included in this proxy statement.


Members of the Compensation Committee:

Rayford Wilkins, Jr., Chair

Philip J. Pfeiffer

Robert A. Profusek

Compensation Discussion and Analysis—Overview

Company Overview

Valero strives to be the premier operator within the refining industry with a focus on creating value for its stockholders while serving the needs of all stakeholders. Sustained profitability within the fuels manufacturing and marketing business, in which operating margins are primarily influenced by volatile commodity prices, requires a sound business strategy, organizational discipline, and a committed workforce.

VALERO’S STRATEGY FOR VALUE CREATION

Maintain manufacturing excellence through safe, reliable, environmentally responsible operations.

Utilize a disciplined capital allocation that delivers distinctive financial results and peer-leading returns to stockholders.

Grow earnings through market expansion, margin improvement and operating cost control.

22LOGO

COMPENSATION DISCUSSION AND ANALYSIS

VALERO’S 2016 ACCOMPLISHMENTS
Company Performance

While 2018 ended in a challenging environment for the refining and fuels marketing industry, Valero’s 2018 achievements and operational performance demonstrated sustained excellence in several key areas. This performance reflects Valero’s continuing commitment to being the premier operator within the industry.

OPERATIONAL AND SAFETY PERFORMANCE DRIVES PROFITABILITY

Operating safely and reliably is Valero’s highest priority and is critically important to maximizing profitability. Ongoing improvement and excellent performance in key operational and safety measures have enabled Valero to improve its earnings capabilities and realize industry-leading returns. The following highlightscharts demonstrate Valero’s multi-year improvement in performance resulting from strategic investments and a disciplined focus on operational improvement, maintenance and safety programs.

LOGO

MECHANICAL AVAILABILITY Valero's 97.2% mechanical availability for 20~ 8 represents highly reliable and industry-leading operations and near record performance. Excellent performance in this metric reflects our ability to avoid unplanned downtime and successfully execute planned and unplanned refinery maintenance.

LOGO

PERSONNEL SAFETY Personnel safety continues to improve and to outperform the industry average.

2019 PROXY STATEMENT23

COMPENSATION DISCUSSION AND ANALYSIS

LOGO

TIER 1 PROCESS SAFETY (Process Safety Event Rate, Three- Year Rolling Averages) Valero has experienced significant and continuous improvement in process safety since 2010. A Tier 1 Process Safety Event represents the loss of primary containment of a fuel, feedstock, or hazardous chemical from equipment associated with a refinery processing unit or storage tank and typically results in a safety and/or environmental incident.

Valero seeks to be the leader among its peers in stockholder returns and makes operational and strategic achievementscapital allocation decisions in 2016.

Returnssupport of this objective. Through targeted share buybacks and sustainable dividend growth, Valero has prioritized the delivery of cash returns to Stockholdersstockholders.

LOGO

ANNUAL DIVIDEND PER SHARE AND WEIGHTED AVERAGE SHARES OUTSTANDING AS PERCENTAGE RELATIVE TO 2011

*

2019 dividends per share annualized based on most recent quarterly dividend.

24LOGO

We returned $2.4

COMPENSATION DISCUSSION AND ANALYSIS

As a result of Valero’s performance and capital allocation decisions implemented under the current leadership team, Valero’s Total Stockholder Return1 (TSR) leads all companies within the XLE2 energy index constituency over the past four years.

LOGO

Footnotes:

1

TSR from Dec 31, 2014, through Dec 31, 2018. TSR includes stock price appreciation and dividends paid.

2

XLE includes refining peers PSX, MPC, HFC and 27 other energy companies such as XOM, CVX, SLB, COP, EOG, OXY, and KMI.

2019 PROXY STATEMENT25

COMPENSATION DISCUSSION AND ANALYSIS

Company Performance Highlights—2018

LOGO

Returned $3.08 billion to our stockholders through dividends and share repurchases FINANCIAL " Achieved $3. 12 billion in net income ACHIEVEMENTS " Increased quarterly dividend payments ($1.1 billion) and common stock repurchases ($1.3 billion).

We increased our regular quarterly cash dividend 20 percent from $0.50by 14% (from $0 .70 to $0 .80 per share to $0.60 per share.
We continued to maintainshare) " Maintained our investment-grade credit rating.
Operational Excellence
We achievedratings " Maintained one of the lowest debt to capitalization ratios within peer group " Recorded second best-ever overall health, safety, and environmental performance.
We achieved best-ever mechanical availability performancerefinery Mechanical Availability results (97.2%) allowing us to maximize margin capture when market conditions are favorableOPERATIONAL " Continued cost-savings efforts to increase our cumulative savings since initiation of the program in 2007 to $ 1.87 billion ACHIEVEMENTS " Achieved best-ever or second best-ever in four of our critical safety and be recognized as the premier operatorenvironmental metrics " Completed a 16 ,500 barrel/day expansion of our Diamond Green Diesel renewable diesel plant STRATEGIC " Acquired three ethanol plants from Green Plains Renewable Energy, adding 280 million gallons per year of ethanol production capacity & OTHER ACHIEVEMENTS " Expanded our international logistics and distribution capabilities through strategic acquisitions of storage facilities in Wales and of a fuels distribution business in Peru " Recognized by Institutional Investor magazine for "Best CEO'' and "Best Investor Relations Department" in our industry.
We significantly exceeded our cost savings goal, supporting our objectiveindustry for the third year in a row " Simplified corporate structure through the buy-in of being the industry’s lowest-cost operator with focus on continuous improvement in reducing secondary costs. We have realized over $1.6 billion in savings since the cost savings program was initiated in 2007.
Disciplined Capital Strategy
We successfully completed and commissioned a new crude distillation unit at our Houston refinery.
We successfully completed $565 million in drop-down sales of midstream assets to our master limited partnership, Valero Energy Partners LP consistent with our strategy(VLP)-transaction closed on January 10, 2019

Alignment of Executive Pay to unlock value in our pipelines, terminals,Company Performance

Valero’s executive pay program is designed to reward executives for superior company performance. The program design emphasizes variable incentive pay (delivered through annual and other transportationlong-term incentives) such that an executive’s ultimate realizable pay is significantly dependent upon the achievement of both absolute and logistics assets.

relative performance measures.

VALERO’S COMPENSATION PHILOSOPHY

We employed rigorous selection reviews for capital projects and potential mergers and acquisitions.


LOGO

Tightly link company performance and executive pay

LOGO

Align the interests of executives and stockholders

LOGO

Manage risk and adopt best practices in executive pay


19


LOGO

Balance compensation over short- and long-term

LOGO

Facilitate retention of top executive talent

Investment Community Recognition

26LOGO

Institutional Investor magazine named Valero among its “Most Honored Companies” based on results in COMPENSATION DISCUSSION AND ANALYSISBest CEO, CFO, IR Professional, IR Program and Website categories. The honors are earned as a result of the magazine’s “2017 All-America

Executive Team” rankings, which are based on investment community surveys. Mr. Gorder earned overall Best CEO for the integrated oil sector.


TIGHT LINK BETWEEN PERFORMANCE AND EXECUTIVE PAY
The compensation opportunities of our executives are tied intimatelyTransition

On May 3, 2018, Ms. Donna Titzman was promoted to the performancerole of Valero. Executive Vice President and Chief Financial Officer (CFO), replacing Mr. Michael Ciskowski who retired. Unless noted otherwise, the elements and values of Valero’s 2018 executive pay program as described in this document reflect the CFO pay for Ms. Titzman.

ELEMENTS OF EXECUTIVE COMPENSATION—SUMMARY

The followingprimary elements of our 20162018 executive compensation program support our pay-for-performance philosophy.

In 2016, long-term incentives representedare summarized in the largest component of targeted pay for our named executive officers, ranging from 51 percent of total targeted pay for our senior vice presidents to 71 percent of total targeted pay for our CEO.
All long-term incentives awarded in 2016 are aligned with stock price performance, linking executives’ pay directly with the creation of stockholder value.
Fifty percent of the total shares targeted for our named executive officers in 2016 were performance shares.
table below.

◦ElementTheFormKey Characteristics
Base SalaryCash•Takes into consideration scope and complexity of the role, peer market data, experience of the incumbent, and individual performance share awards require Valero’s
•

Aligned with competitive practices in order to support recruitment and retention of top talent

Annual Bonus PlanPerformance-Based Cash•

Variable component of annual pay focused on achievement of short-term annual financial, operational and strategic objectives that are critical drivers for safe and reliable operations, returns to stockholders, and the disciplined use of capital

Long-term

Incentive Program

Performance Shares

(50%)

•Measures relative Total Shareholder Return (TSR) against eight-company Performance Peer group across a three-year period
•Incentivizes stockholder returns
•

Value delivered is driven by performance relative to meet or exceed the median TSR of ourrelevant peers in order to reach or exceed targeted payout levels. As such, our executives are motivated to cause Valero’s results to exceed thatindustry

Restricted Stock

(50%)

•Vests 1/3 per year over three years
•Value delivered is driven by absolute performance of our peers.company stock
•Aids in retention of critical talent

⬛ Fixed    ⬛ Variable

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2018 TARGET PAY MIX FOR EXECUTIVES Variable pay tied to company performance represents the majority of total target pay for our executives as shown for the various executive levels below.

*

Represents the target pay mix for Ms. Titzman as EVP & CFO, who assumed the role on May 3, 2018 upon the retirement of Mr. Ciskowski.

◦Our performance shares are described below in this Compensation Discussion and Analysis under the caption “Elements of Executive Compensation—Long-Term Incentive Awards—Performance Shares.”2019 PROXY STATEMENT27

Shares

COMPENSATION DISCUSSION AND ANALYSIS

LOGO

EXECUTIVE PAY IN SUMMARY The following charts summarize year over year changes to TargetTotal Pay1 from 2016 through 2018 for our CEO and our four other Named Executive Officers2 (shown in average). CEO Pay ($ mill) Avg of restricted stock granted to ourother NEOs ($ mill)

Footnotes:

(1)

Base salary plus target bonus plus target long-term incentives value.

(2)

Includes Ms. Titzman as EVP & CFO, but excludes Mr. Ciskowski who retired on May 3, 2018.

While Target Total Pay for the CEO increased slightly from 2017, the average Target Total Pay for the four other Named Executive Officers (NEOs) decreased from 2017. This decrease primarily reflects the difference in Target Total Pay between Mr. Ciskowski, Valero’s former Executive Vice President & CFO, and Ms. Titzman, his successor.

PAY FOR PERFORMANCE ALIGNMENT RELATIVE TO PEERS

The table below shows relative performance and pay versus peers over the three- and five-year periods ending 2017 (results through 2018 cannot be determined until 2018 executive officers motivatepay for all comparator companies is disclosed in 2019 proxy statements). Valero’s pay results are generally aligned with TSR performance results, but realizable compensation values for Valero’s executives are at a lower percentile versus peers than Valero’s TSR performance.

Valero’s Percentile Ranking vs. Peers1
TimeframeRoleRelative
Performance
vs. Peers		Relative Pay2
vs. Peers

3 Years

CEO

100th percentile

55th percentile

Top-5 Executives100th percentile67th percentile

5 Years

CEO

100th percentile

64th percentile

Top-5 Executives100th percentile67th percentile

Footnotes:

(1)

Compensation Comparator Group of 11 peers as described in the“Benchmarking Data” section of this document. Pay comparisons are drawn against the“Top-5” group of executives at Valero and the peers, inclusive of the CEO, the CFO, and the three highest-paid other executive officers.

(2)

Represents “realizable” pay as reported in company annual proxy statements and includes: salaries; annual bonuses earned; long-term incentive awards that have vested or been exercised; the increase/decrease in long-term incentive awards that are still outstanding; andone-off payments like severance to outgoing executives andsign-on awards for incoming executives.

28LOGO

COMPENSATION DISCUSSION AND ANALYSIS

The chart below illustrates the creation of stockholder valueCEO three-year relationship between relative pay and relative performance versus the peers through stock price gains and promote the retention of critical talent.

The annual incentive bonus pool for named executive officers is funded using quantitative company performance measures that correspond to our business priorities: (i) Adjusted Net Cash Provided by Operating Activities; and (ii) EBITDA. Our annual incentive bonus program is discussed below under the caption “Elements of Executive Compensation—Annual Incentive Bonus.”
Our annual performance goals include challenging requirements across an array of financial, operating, and strategic objectives. The 2016 objectives included earnings per share (EPS), mechanical availability, cost management, and pre-established goals relating to health, safety, and environmental performance.
These annual performance goals are measured primarily on an absolute basis, requiring performance that exceeds goals established2017 (referenced in the first quarterpreceding table).

LOGO

3-YEAR CUMULATIVE REAL COMPENSATION PERCENTILE VS. CUMULATIVE TOTAL SHAREHOLDER RETURN PERCENTILE (1 /1/15-12/31/17)

1

Three-year pay history reflects Mr. Gorder’s realizable pay during this period.

Compensation Discussion and Analysis—Detail

Adoption of the year. By balancing these absolute goals with the relative TSR requirements under our performance share incentives, we motivate a dual focus on both Valero’s performance versus our operating plan and Valero’s performance compared to our peers.




20


ADOPTION OF BEST PRACTICES
Compensation Governance Best Practices

We use executive pay arrangements that are commonly recognized as best practices. Our executive pay program includes these leading practices.

PAY FOR PERFORMANCE

Incentive compensation (annual bonus and long-term incentives) represents the majority (ranging from 70 percent to 88 percent) of the targeted direct compensation of our named executive officers.

We use multiple performance metrics to motivate achievements that complement one another and that contribute to the long-term creation of stockholder value.
Incentives are balanced between absolute performance goals (rewarding the achievement of pre-established goals) and relative measures (linking the incentives to surpassing the performance of our peers).

We target 50 percent of the long-term incentive value granted to our named executive officers to be awarded in the form of performance shares tied to relative TSR performance.

STOCKHOLDER ALIGNMENT

We use multiple performance metrics to motivate achievements that complement one another and that contribute to the long-term creation of stockholder value.

Our executive officers and directors are subject to meaningful stock ownership guidelines.

We engage in stockholder outreach to solicit the input of stockholders to our pay programs.

2019 PROXY STATEMENT29

COMPENSATION DISCUSSION AND ANALYSIS

PROGRAM DESIGN

Incentives are balanced between absolute performance goals (rewarding the achievement ofpre-established goals) and relative measures (linking the incentives to surpassing the performance of our peers).

We have maximum payout ceilings on both our annual bonus opportunities and our performance shares.

Our executive pay programs include design features that mitigate against the risk of inappropriate behaviors.

PAY BENCHMARKING

Valero’s revenues and market capitalization are within a reasonable range of the median revenues and market capitalization of the peer group of companies within our industry against which we benchmark our executives’ pay, reflecting that we make pay comparisons in asize-appropriate fashion.

We benchmark against the median pay levels of the peer group for each of base pay, annual bonus, and long-term incentives.

AVOID PROBLEMATIC PAY PRACTICES

We have eliminated allchange-in-control gross upsgross-ups for potential parachute excise taxes and maintain a policy against the implementation ofchange-in-control arrangements that containgross-ups.

We have a policy stipulating that grants of performance shares contain “double trigger” terms and conditions for vesting in achange-of-control context such that performance shares will vest on a partial, pro rata basis following termination of employment (rather than vesting automatically in full upon the change of control).

Our long-term incentive program mandates that stock options cannot bere-priced without stockholder approval.

Our executive officers and directors are subject to meaningful stock ownership guidelines.

Our executive officers and directors are prohibited from pledging shares of Common Stock as collateral or security for indebtedness, and may not purchase, sell, or write calls, puts, or other options or derivative instruments on sharesthat are designed to hedge or offset any decrease in the market value of our Common Stock.

We have a “clawback” policy requiring the return of incentive payments in certain restatement situations.

GOOD GOVERNANCE

We engage in stockholder outreach to solicit the input of stockholders to our pay programs.
Our executive pay programs include design features that mitigate against the risk of inappropriate behaviors.

Our Compensation Committee is composed entirely of directors who meet the independence requirements of the SEC and NYSE as well as pertinent tax requirements for preserving the deductibility of executive pay.

Our Compensation Committee retains the services of an independent executive compensation consultant that provides services directly to the Committee.



21


We conduct an annualsay-on-pay vote as recommended by our stockholders.

We have a declassified board of directors.directors; all of our directors stand forre-election each year.

Our Board has approved a limitation on the amount of equity compensation that may be paid to ournon-employee directors in any year.

In 2016 we

We have engaged a third-party to conduct a review of our governance documents and committee charters, and we adopted revisions thereto, to ensure compliance with regulatory requirements and alignment with best practices.

In 2016, we adopted amendments to our

Our Bylaws grantinggrant proxy access to our stockholders.


Our Bylaws permit stockholders to call special meetings of stockholders.

DIALOGUE WITH STOCKHOLDERS
Dialogue With Stockholders

Valero’s strong corporate governance principles, implemented under the guidance of the Board, are a major driving force in encouraging constructive dialogue with stockholders and other stakeholders. Valero’s senior management team reaches out to stockholders for dialogue concerning our compensation programs and other matters of concern to our stockholders. We believe that ourOur stockholder outreach efforts have been constructive and have provided management with insight on executive compensation issues and other matters that are important to our stockholders. These discussions alsoWe carefully consider the results of the most recent stockholder advisory vote on executive compensation(say-on-pay). As part of our dialogue with stockholders, we determine how the stockholders have voted on oursay-on-pay proposals, and we discuss any issues of concern. Our engagements with stockholders have provided management with the opportunity to review our executive compensation practices and explain the principles on which they were designed. Our engagement process is more fully described in the “Stockholder Engagement” section of this proxy statement.

30LOGO


COMPENSATION DISCUSSION AND ANALYSIS

ADMINISTRATION OF EXECUTIVE COMPENSATION PROGRAMS
Administration of Executive Compensation Programs

Our executive compensation programs are administered by our Board’s Compensation Committee. The Committee is composed of three independent directors from our Board. They do not participate in our executive compensation programs. Policies adopted by the Committee are implemented by our compensation and benefits staff. In 2016,2018, the Committee retained Exequity LLP as an independent compensation consultant for executive and director compensation matters. The nature and scope of the consultant’s services are described abovebelow under the caption, “Compensation Consultant Disclosures.”

Benchmarking Data
BENCHMARKING DATA

The Compensation Committee uses peer group compensation data to assess benchmarks of base salary, annual incentive compensation, and long-term incentive compensation. The Committee uses the Compensation Comparator Group (further described below) to benchmark compensation for our named executive officers. This reference is sometimes referred to in this proxy statement as “compensation survey data” or “competitive survey data.”


Compensation Comparator Group

TheCompensation Comparator Group comprises the following companies that engage in U.S. domestic oil and gas operations:

BP p.l.c.

Andeavor1

  Marathon Oil Corporation

BP p.l.c.

Marathon Petroleum Corporation

Chevron Corporation

  Murphy Oil Corporation

Exxon Mobil Corporation

  Phillips 66

Hess Corporation

  Royal Dutch Shell plc

HollyFrontier Corporation

  Tesoro Corporation

1 Acquired by Marathon OilPetroleum Corporation

 in October 2018.

We believe that the

TheCompensation Comparator Group is relevant to our business because we compete with the member companies for talent at every level from entry-level employees to senior executives. We believe



22


that our pay comparisons aresize-appropriate because the median revenues and market capitalization of theCompensation ComparatorGroup are both within a reasonable range of Valero’s revenues and market capitalization for the period covered in the pay study. Both were below Valero’s revenues and in 2016, both were below.market capitalization. Our understanding of this group’s compensation programs and levels is vitally important in order to remain competitive in the market for employee talent. We believe that givenGiven Valero’s size and complexity, our employees at all levels would be qualified candidates for similar jobs at any of the companies included in this group.

Our compensation and benefits staff, under supervision of the Compensation Committee, develops recommendations for base salary, bonuses, and other compensation arrangements using the compensation survey data with assistance from Exequity. Our use of the data is consistent with our philosophy of providing executive compensation and benefits that are competitive with companies that we compete with for executive talent. In addition, the competitive compensation survey data and analyses assist the Compensation Committee in assessing our pay levels and targets relative to companies in theCompensation Comparator Group. See as described under the caption “Elements of Executive Compensation—Benchmarking Competitive Pay Levels” below.


Levels.”

Performance Peer Group

We also use a peer group to measurefor purposes of determining the relative performance of Valero’s total stockholder return (TSR). We use this relative TSR metric which we use in our performance shares incentive program. For the 20162018 performance peer group, companies were selected based on their engagement in U.S. domestic refining and marketing operations.


Our use of different peer groups for compensation and performance is based on the following. While job candidacy can transcend company size, weWe believe that when measuring business performance, companies with a similar business model should be included. But we also recognize that comparing the performance of Valero’s generallynon-integrated operations with those of upstream and integrated oil companies can result in anomalies due to the mismatch in how similar industry-specific events can impact companies with these varying business models. In addition, there are relatively few companies in our business against which clear comparisons can be drawn, rendering a peer group composition more challenging than in most industries.

2019 PROXY STATEMENT31


COMPENSATION DISCUSSION AND ANALYSIS

In November 2016,October 2018, the Compensation Committee established a peer group for TSR measurement applicable to the 20162018 awards of performance shares (with(which have TSR measurement periods ending in 2017)2019, 2020, and 2021). Removed from the peer group for 2018 was Andeavor, which was acquired in 2018 by Marathon Petroleum Corporation. Valero is included in this peer group when results are calculated. TheIn addition to Valero, the peer group for the 2018 awards is composed of the following entities.

Alon USA

BP p.l.c.

Marathon Petroleum Corporation

CVR Energy Inc.

PBF Energy Inc.
BP p.l.c.

Delek US Holdings

Phillips 66
CVR Energy Inc.

HollyFrontier Corporation

Royal Dutch Shell plc
Delek US HoldingsTesoro Corporation
HollyFrontier CorporationWestern Refining Inc.
Marathon Petroleum Corporation

Process and Timing of Compensation Decisions
PROCESS AND TIMING OF COMPENSATION DECISIONS

The Compensation Committee reviews and approves all compensation targets and payments for the named executive officers.officers each year in conjunction with Valero’s annual strategic planning meeting (October or November). The Chief Executive Officer evaluates the performance of the other executive officers and develops individual recommendations based upon the competitive survey data. The Chief Executive Officer and the Committee may make adjustments to the recommended compensation based upon an assessment of an individual’s performance and contributions to the Company.Valero. The compensation for the Chief Executive Officer is reviewed by the Compensation Committee and recommended to the Board’s independent directors for approval. This assessment is based on the competitive survey data and other factors



23


described in this Compensation Discussion and Analysis, and adjustments may be made based upon the independent directors’ evaluation of the Chief Executive Officer’s performance and contributions.

We evaluate the total compensation opportunity offered to each executive officer at least once annually. The Compensation Committee establishes the target levels of annual incentive and long-term incentive compensation for the current fiscal year based upon its review of competitive market data provided by Exequity. The Compensation Committee also reviews competitive market data for annual salary rates for executive officer positions for the next fiscal year and recommends new salary rates to become effective the next fiscal year. The Compensation Committee may, however, review salaries or grant long-term incentive awards at other times during the year because of new appointments or promotions. Our Compensation Committee does not time the grants of long-term incentive awards around Valero’s release of undisclosed material information.


ELEMENTS OF EXECUTIVE COMPENSATION
Elements of Executive Compensation

Our executive compensation programs include the following material elements:

base salary;
annual incentive bonus;
long-term equity-based incentives;
medical and other insurance benefits; and
retirement benefits.

LOGO

We chose these elements to foster the potential for both current and long-term payoutscompensation opportunities and to attract and retain executive talent. We believe that variable pay (i.e.(i.e., annual incentive bonus and long-term equity-based incentives that do not become a permanent part of base salary)—when delivered through appropriate incentives—is ultimately the best way to drive total compensation among our executive officers.


We believe that a significant portion of the compensation paid to our named executive officers should be incentive-based and determined by both company and individual performance. Our executive compensation program is designed to accomplish the following long-term objectives:

to provide compensation payouts that are tied to the performance of internal and external metrics both on a relative and absolute basis;

to align executives’ pay opportunities with stockholder value creation; and

to attract, motivate, and retain the best executive talent in our industry.


We believe that superior performance is motivated when an executive’searn-out of his or her full compensation opportunities is contingent on achieving performance results that exceedpre-established goals and/or outperforming our industry peers.

32LOGO


COMPENSATION DISCUSSION AND ANALYSIS

Our annual incentive program rewards are tied to:

Valero’s attainment of key financial performance measures;

Valero’s success in key operational and strategic measures;

safe operations;

environmental responsibility;

reliable operations; and

cost management.




24


Our long-term equity incentive awards are designed to tie the executive’sexecutives’ financial reward opportunities with increased stockholders’ return on investmentstockholder value creation as measured by:

long-term stock price performance;performance (both absolute and relative to our peer group); and

payment of regular dividends.


Base salary is designed to provide a fixed level of competitive pay that reflects the executive officer’s primary duties and responsibilities, and to provide a base upon which incentive opportunities and benefit levels are established.


The long-term incentive awards in our compensation program include performance shares and restricted stock. We believe that incentives that drive stockholder value should also drive executive officer pay. We note that performance shares, when issued, do not assure a payout to the executive officer unless and until stockholder value is created through both company performance and TSR relative to our peers. We also believe that executive officers should hold an equity stake in the company to further motivate the creation of stockholder value, which is why we include awards of restricted stock in our long-term incentive program coupled with stock ownership guidelines.


Benchmarking Competitive Pay Levels
BENCHMARKING COMPETITIVE PAY LEVELS

Our Compensation Committee benchmarks base salaries for our named executive officers against the 50th percentile (median) of competitive survey data and may make decisions to pay above or below this target based on individual circumstances (e.g.(e.g., performance of the executive, internal parity, and management succession planning).


We also benchmark annual bonus, long-term incentive targets (expressed as a percentage of base salary), and total targeted pay for each executive position by reference to the 50th percentile (median) benchmark of the Compensation Comparator Group, and may make decisions to award above or below these targets based on individual circumstances (e.g.(e.g., performance of the executive, internal parity, and management succession planning). We believe that preservingPreserving flexibility to award incentive opportunities above or below the median peer levels helps tailor the incentives to the executive and the role, resulting in a more customized match of competitive pay opportunities andpay-for-performance design attributes.


In addition to benchmarking competitive pay levels to establish compensation levels and targets, we also consider the relative importance of a particular management position in comparison to other management positions in the organization. In this regard, when setting the level and targets for compensation for a particular position, we evaluate that position’s scope and nature of responsibilities, size of business unit, complexity of duties and responsibilities, as well as that position’s relationship to managerial authorities throughout the management ranks of Valero.


Relative Size of Major Compensation Elements
RELATIVE SIZE OF MAJOR COMPENSATION ELEMENTS

An executive officer’s total direct compensation is structured so that realizing the targeted amount is highly contingent on Valero’s performance due to the executive’s level ofat-risk pay. We use the term “total direct compensation” to refer to the sum of an executive’s base salary, targeted incentive bonus, and the grant-datetarget values of long-term incentive target awards.

2019 PROXY STATEMENT33



25


COMPENSATION DISCUSSION AND ANALYSIS

The following chartsgraphics summarize the relative sizetarget pay mix of base salary and target incentive compensation for 20162018 for our named executive officers.

piecharts.jpg
a2016legend4piesa01.jpg

LOGO

*

Represents the target pay mix for Ms. Titzman as EVP & CFO, who assumed the role on May 3, 2018 upon the retirement of Mr. Ciskowski.

When setting executive compensation, the Compensation Committee considers the amount and form of compensation payable to an executive officer. The Committee seeks to achieve an appropriate balance between immediate cash rewards for the achievement of company and personal objectives and long-term incentives that align the interests of our officers with those of our stockholders. The size of each element is based on the assessment of competitive market practices as well as company and individual performance.


The Compensation Committee analyzes total direct compensation from a market competitive perspective, and then evaluates each component relative to its market reference. The Committee believes that making a significant portion of an executive officer’s incentive compensation contingent on long-term stock price performance more closely aligns the executive officer’s interests with those of our stockholders.


Because we place a large amount of total direct compensation at risk in the form of variable pay (annual bonus and long-term incentives), the Committee generally does not adjust current compensation based upon realized gains or losses from prior incentive awards prior compensation, or current stock holdings. For example, we normally will not change the size of a target long-term incentive grant in a particular year solely because of Valero’s stock price performance during the immediately preceding years. The Compensation Committee recognizes that the refining and marketing industry is volatile and strives to maintain a measure of predictability consistent with a substantial reliance on variable compensation structures in furtherance of a fundamentalpay-for-performance philosophy.




26



Individual Performance and Personal Objectives
INDIVIDUAL PERFORMANCE AND PERSONAL OBJECTIVES

The Compensation Committee evaluates the individual performance of, and performance objectives for, our named executive officers. Performance and compensation for our Chief Executive Officer are reviewed and approved by the Board’s independent directors with recommendations from the Compensation Committee. For officers other than the Chief Executive Officer, individual performance and compensation are evaluated by the Compensation Committee with recommendations from our Chief Executive Officer. Individual performance and objectives are specific to each officer position.


Criteria used to measure an individual’s performance may include assessment of objective criteria (e.g.(e.g., execution of projects within budget parameters, improving an operating unit’s profitability, or timely completing an acquisition or divestiture) as well as qualitative factors such as the executive’s ability to lead, ability to communicate, and successful adherence to Valero’s stated values (i.e.(i.e., commitment to safety, commitment to the environment, commitment to our communities, commitment to our employees, and commitment to our stakeholders). There are no specific weights assigned to these various elements of performance.

34LOGO

COMPENSATION DISCUSSION AND ANALYSIS


Base Salaries
BASE SALARIES

Base salaries for our named executive officers are approved by the Compensation Committee after taking into consideration median practices for comparable roles among the peer companies. The Compensation Committee also considers the recommendations of the Chief Executive Officer for officers other than the Chief Executive Officer. The base salary and all other compensation of the Chief Executive Officer are reviewed and approved by the independent directors of the Board.


Base salaries are reviewed annually and may be adjusted to reflect promotions, the assignment of additional responsibilities, individual performance, or the performance of Valero. Salaries are also periodically adjusted to remain competitive with companies within the compensation survey data. An executive’s compensation typically increases in relation to his or her responsibilities within Valero.


Annual Incentive Bonus
ANNUAL INCENTIVE BONUS

We believe that the achievement of short-term financial and operational performance objectives is critical to creating long-term stockholder value. The annual incentive bonus for our named executive officers has two primary components. First, a maximum bonus pool is fundeddesigned to incentivize executives to achieve industry-leading results as reflected through determination of Valero’s achievement of quantitative financial performance measures. Second, a target bonus is determined for each executive based on the results of additionalbusiness-critical financial, operational, and strategic performance measures. The performance measures associated with these two components, along with considerationWe continue as the premier operator in the refining industry through disciplined execution of the named executive officer’s individual performance, are used to determine theour strategic plan and daily focus on operational excellence by our employees and management team. The annual incentive bonus payout for each of the named executive officers.

To fund the annual incentive bonus pool for our named executive officers, the Compensation Committee sets quantitative company performance measures during the first quarter of the year. Valero’s performance is measured against these metrics to establish the maximum bonus amounts that can be paid under our program. In 2016, the Committee established measures that correspond to twodesign guides and incentivizes this daily focus with particular emphasis on ensuring safety and protection of our business priorities: Adjusted Net Cash Provided by Operating Activities (“ANC”)employees, contractors and Earnings Before Interest, Taxes, Depreciation, and Amortization (“EBITDA”). These measures establishcommunities. Our additional focus on operating our plants reliably at the maximum level of funding for the bonus program. The program is funded at an amount equallowest cost allows us to the greater of (i) ANC multiplied by 0.80 percent, or (ii) EBITDA multiplied by 0.65 percent.



27


maximize profitability in all margin environments.

The maximum bonus that can be paid to a named executive officer is based on the funding results of ANC or EBITDA—subject to an absolute maximum of $20 million for any individual officer. Once the maximum pool is calculated, the funded pool is allocated to each executive officer using the following percentages: 50 percent for the Chief Executive Officer (the highest paid officer), 20 percent for the second highest paid officer, and 10 percent each for the third, fourth, and fifth highest paid officers.


After these maximum funded amounts are calculated, the Compensation Committee considers the following to determine bonuses for each officer (at amounts that may not exceed the funded levels):
officer:

the position of the named executive officer, which is used to determine a targeted percentage of base salary that may be awarded as incentive bonus;

pre-established performance objectives that include a quantitative financial performance goal (Financial(Financial Performance Goal), operational performance goals (Operational(Operational Performance Goals), and qualitative goals and objectives including the effective use of capital (Strategic(Strategic Company Performance Goals)Goals) for the completed fiscal year; and

a qualitative evaluation of the individual’s performance.


Thus, the amount of the bonus ultimately paid to a named executive officer takes into consideration (i) Valero’s achievement of the performance objectives established and approved by the Compensation Committee in the first quarter of the performance year (i.e., ANC and EBITDA) in order to fund the bonus program, and (ii) the Compensation Committee’s assessment of Valero’s and each executive’s performance in relation to thepre-established performance goals more fully described below (which provides for potential application of downward discretion by the Compensation Committee to reduce payouts below the funded pool amounts).


below.

Financial Performance Goal

TheFinancial Performance Goal considered for our annual incentive bonus targets is EPS, adjusted for special items and impairments.impairments that are non-recurring and/or not indicative of our core performance (i.e., adjusted earnings per common share – assuming dilution). The Compensation Committee establishes minimum, target, and maximum levels for EPS in the first quarter of the performance year. We believe that this measure appropriately reflects our business planning process and corporate philosophy regarding financial performance measurement. Valero’s performance in 20162018 was $3.80$7.37 per share (versus a target of $5.82$4.96 per share).


See Annex A for the list of items that were excluded from earnings per common share – assuming dilution to determine adjusted earnings per common share – assuming dilution.

Operational Performance Goals

TheOperational Performance Goals considered for our annual incentive bonuses, as established and approved by the Compensation Committee in the first quarter of the performance year, are measured against:

Valero’s achievements in the areas of health, safety, and environmental;

Valero’s achievements in improving refining competitiveness through improved mechanical availability; and

Valero’s achievements in cost management and expense control.management.


We believe that these measures appropriately reflect key business objectives of Valero. After completion of the fiscal year, each of theOperational Performance Goals is measured against Valero’s actual performance in these areas and the minimum, target, and maximum levels established by the Compensation Committee. Valero’s performance score for 20162018 for this category was 84.8286.44 percent (versus a target score of 40.00 percent) and reflects best-ever performance in the health, safety, and environmental, and the mechanical availability measures.. For additional details on Valero’s 20162018 performance versus targeted amounts for ourOperational Performance Goals, see the “Annual Incentive Bonus Performance Goals” table that follows in this section.

2019 PROXY STATEMENT35

COMPENSATION DISCUSSION AND ANALYSIS



28



Strategic Company Performance Goals

Valero’sStrategic Company Performance Goals were established in the first quarter of the 20162018 performance year by the Chief Executive Officer.Officer and approved by the Compensation Committee. Included in these goals for 20162018 was a qualitative capital-based performance measure assessed by the Compensation Committee through return on capital employed.employed and a qualitative assessment by the Compensation Committee of cost control initiatives. After completion of the fiscal year, theStrategic Company Performance Goals were evaluated as a whole. Significant achievements in this area for 20162018 included: (i) the creation of long-term stockholder value and the return of cash to stockholders through a quarterly cash dividend increase from $0.50$0.70 per share to $0.60$0.80 per share and $1.3$1.7 billion of common stock repurchases; (ii) the return of 142%54% of adjusted net incomecash provided by operating activities to stockholders through dividends and stock buybacks, exceeding management’s 75% payout goal; (iii) the successful saleexpansion of $585 millionour ethanol business through the acquisition of midstream assets to Valero Energy Partners LP;three ethanol plants; (iv) the global expansion of fuel distribution capabilities in Latin America and (iv)Europe; (v) the successful execution of Valero’s capital expenditures plan.plan which totaled $2.7 billion for 2018; and (vi) identified cost savings and expense management totaling $168 million. Valero’s performance score for 20162018 for this category was 20.00 percent (versus a target score of 20.00 percent).

36LOGO

COMPENSATION DISCUSSION AND ANALYSIS


Valero’s Achievement of Performance Goals for 2016

2018

The following table details the performance targets and final results of Valero’s achievements in 20162018 for each of thesub-components of the bonus program’sFinancial Performance Goal, Operational Performance Goals,and Strategic Goals.

Annual Incentive Bonus Performance Goals
ComponentWeighting MinimumTargetMaximum Achieved in 2016Bonus Percent Earned (1)
         
Financial Performance Goal        
 I.
EPS, adjusted ($/share)
40.00% $1.45$5.82$11.64 $3.8029.41%
Operational        
 II.Health, Safety, and Environmental (2)13.33%  29.81%
 III.Mechanical Availability (3)13.33% 95.696.2 to 96.497.6 96.9025.00%
 IV.
Cost Management and Expense Control ($ in millions)
13.34% $15.0$60.0$120.0 $127.930.01%
  subtotal40.00%     subtotal84.82%
           
Strategic        
 V.Company Goals and Objectives (4)20.00%  20.00%
Total 100.00%      134.23%
           
 Footnotes:        
 (1) Represents performance achieved in 2016 and component percent weighting.
 (2) Consists of 16 separately weighted health, safety, and environmental metrics across three business units. Performance “achieved” was at 99.4% of maximum.
 (3) Using the Mechanical Availability scoring from the industry-standard Solomon Associates survey in which “Target” represents performance between the 50th and 62nd percentiles.
 (4) As established by the Compensation Committee in consultation with the CEO, and includes a qualitative assessment of use of capital. Performance “achieved” was at maximum.



29


As a result of Valero’s 2016 EBITDA performance, the maximum bonus pool was funded at $35.89 million.

Annual Incentive Bonus Performance Goals & Achievement 
      Component Weighting  Minimum  Target  Maximum  

Achieved

in 2018

  

Bonus

Percent

Earned (1)

 

Financial Performance Goal

      
 I.   

EPS,adjusted($/share)

  40.00%   $1.24   $4.96   $9.92   $7.37   66.87% 
   

 

 

      

 

 

 

Operational

      
 II.   

Health,Safety, and Environmental (2)

  13.33%   0.00%   112.50%   225.00%   219.76%   29.30% 
 III.   

MechanicalAvailability (3)

  13.33%   95.6   96.2   97.6   97.2   27.14% 
 IV.   

RefiningCash Operating Expense Management (4)
($/EDC)

  

 

13.34

 

% 

 

  

 

$145

 

 

 

  

 

$120

 

 

 

  

 

$111

 

 

 

  

 

$110

 

 

 

  

 

30.00

 

% 

 

   

 

 

      

 

 

 
  subtotal  40.00%      subtotal   86.44% 
   

 

 

      

 

 

 

Strategic

      
 V.   

CompanyGoals and Objectives (4)

  20.00%       20.00% 
   

 

 

      

 

 

 
Total  100.00%                   173.31% 

Footnotes:

(1)

Represents performance achieved in 2018 and component percent weighting.

(2)

Consists of 14 separately weighted health, safety, and environmental metrics across Valero’s three operations business units with an aggregated performance score opportunity ranging from 0% to 225%. Performance “achieved” was at 97.7% of maximum.

(3)

Using the Mechanical Availability scoring from the industry-standard Solomon Associates survey in which “Target” represents median performance.

(4)

Using the Cash Operating Expense per EDC (Equivalent Distillation Capacity) metric as reported in the industry-standard Solomon Associates survey in which “Target” represents median performance (lower is better).

(5)

As established by the Compensation Committee in consultation with the CEO, and includes a qualitative assessment of progress against strategic objectives, use of capital and cost control initiatives. Performance “achieved” was at maximum.

The final 20162018 bonus amounts paid to our named executive officers were determined as a function of: (i) Valero’s performance and maximum bonus pool funding based on EBITDA performance, (ii) Valero’s performance as measured against the financial, operational, and strategic performance goals, and (iii)(ii) the Committee’s assessment of the named executive officers’ individual performance in 2016.


2018.

The following table summarizes the 20162018 bonus amounts paid to our named executive officers:

 GorderCiskowskiRiggsBrowningSimmons
Base salary (1)$1,450,000$890,000$640,000$595,000$565,000
Bonus target percentage (2)150%
110%
80%
80%
65%
Bonus target amount (3)$2,175,000$979,000$512,000$476,000$367,250
Bonus percentage achieved (4)134.23%134.23%134.23%134.23%134.23%
Earned target incentive bonus (5)$2,919,503$1,314,112$687,258$638,935$492,960
Maximum possible bonus (6)$17,945,000$7,178,000$3,589,000$3,589,000$3,589,000
Bonus amount paid (7)$2,925,000$1,320,000$725,000$640,000$500,000
Footnotes:

    Gorder   Titzman   Riggs   Browning   Simmons 

Base Salary(1)

  

$

1,660,000

 

  

$

641,667

 

  

$

800,000

 

  

$

650,000

 

  

$

625,000

 

Bonus Target Percentage(2)(8)

  

 

160%

 

  

 

65%/80%

 

  

 

80%

 

  

 

80%

 

  

 

65%

 

Bonus Target Amount(3)(8)

  

$

2,656,000

 

  

$

484,583

 

  

$

640,000

 

  

$

520,000

 

  

$

406,250

 

Bonus Percentage Achieved(4)

  

 

173.31%

 

  

 

173.31%

 

  

 

173.31%

 

  

 

173.31%

 

  

 

173.31%

 

Earned Target Incentive Bonus(5)

  

$

4,603,114

 

  

$

839,831

 

  

$

1,109,184

 

  

$

901,212

 

  

$

704,072

 

Bonus Amount Paid(6)(7)

  

$

4,625,000

 

  

$

840,000

 

  

$

1,110,000

 

  

$

900,000

 

  

$

705,000

 

Footnotes:

(1)

Base salary is the officer’s base salary at December 31, 2016.for 2018.

(2)

Bonus target as a percentage of base salary. See footnote 8 for an explanation of the percentages applicable to Ms. Titzman.

(3)

Determined by multiplying “Bonus target percentage” times “Base salary.”

2019 PROXY STATEMENT37

COMPENSATION DISCUSSION AND ANALYSIS

Footnotes (cont.):

(4)

Valero’s performance score for “Bonus percentage achieved” was 134.23%173.31% based on results of the Annual Incentive Bonus Performance Goals detailed in the previous table.

(5)

Determined by multiplying “Bonus target amount” times “Bonus percentage achieved.”

(6)Represents allocation of maximum bonus pool funded from the 2016 EBITDA results apportioned as follows: 50% for CEO, 20% for second highest paid officer, and 10% for next three highest paid officers.
(7)

As disclosed in the Summary Compensation Table. The actual amount paid was determined based on: (i) Valero’s performance and maximum bonus pool funding using EBITDA, (ii) Valero’s performance as measured against financial, operational, and strategic goals, and (iii)(ii) the Committee’s assessment of the named executive officers’ individual performance in 2016. (Based2018.

(7)

Mr. Ciskowski retired on superior EBITDA results,May 3, 2018, and was not eligible to receive a bonus for 2018.

(8)

Based on her promotion to EVP and CFO effective May 3, 2018, the maximum“Bonus target amount” for Ms. Titzman represents four months of herpre-promotion salary ($575,000) times herpre-promotion bonus funding is significantly greater than the final earned amounts, so the finaltarget percentage of 65% PLUS eight months of her post-promotion salary ($675,000) times her post-promotion target bonus awards represent the applicationpercentage of the Compensation Committee’s downward discretion from the maximum bonus funding.)80%.


Long-Term Incentive Awards
LONG-TERM INCENTIVE AWARDS

We provide stock-based, long-term compensation to our executive officers through our stockholder-approved equity plan. The plan provides for a variety of stock and stock-based awards, including restricted stock which vests over a period (at least three years) determined by the Compensation Committee, and performance shares that vest (becomenon-forfeitable) contingent upon Valero’s achievement of an objective performance goal.

The Compensation Committee presently expects to make awards of performance shares and restricted stock annually.

For 2016,2018, the mix of long-term incentives awarded to our named executive officers was split evenly, on a share value basis, between grants of restricted stock and awards of performance shares. We believe that these awards create a powerful link between the creation of stockholder value and executive pay delivered. In addition, we believe that the balance between absolute performance alignment through restricted shares, and the relative performance objectives underscored by the relative TSR performance shares, is appropriate. In order for executives to fully realize their targeted opportunities, Valero must both perform well and beat



30


the stock price performance of companies in the Performance Peer Group listed abovepreviously under the caption “Administration of Executive Compensation Programs—Benchmarking Data—Performance Peer Group.”

For each officer, a target amount of long-term incentives is established and is expressed as a percentage of base salary. In establishing award sizes, the Compensation Committee makes primary reference to median peer company grant levels and makes individualized determinations of award sizes based on additional factors such as: each executive’s experience and contribution to company success, internal parity, and management succession. In addition, an executive’s targeted award may be adjusted based upon the Compensation Committee’s determination of the officer’s individual performance, which (for officers other than the Chief Executive Officer) takes into consideration the recommendation of the Chief Executive Officer.


Performance Shares

For 2016,2018, performance share targets represent 50 percent of each executive officer’s long-term incentive target on a share value basis. Performance shares are payable in shares of Common Stock on the vesting dates of the performance shares. Shares of Common Stock are earned with respect to vesting performance shares only upon Valero’s achievement of TSR objectives (measured in relation to the TSR of our peers). Shares not earned in a given performance period expire and are forfeited. Performance shares are also subject to potential forfeiture if an executive terminates his or her employment prior to vesting.


The performance shares awarded in 20162018 are subject to vesting in three annual increments, based upon our TSR compared to our peer group duringone-year,two-year, and three-year performance periods. Performance periods measure TSR based on the average closing stock prices for the 30final 15 trading days of December 2 to December 31 at the beginning and end of the performance periods, including dividends. At the end of each performance period, our TSR for the period is compared to the TSR of our peer group. Consistent with typical relative TSR design conventions, sharesShares of Common Stock are awarded based on Valero’s TSR performance versus the peers’ TSR as shown in the table below.

Percentile TSR Rank (1)  

% of Target
Performance Shares

Awarded

as Common Shares

below 25th%

      1st or 2nd Position

   0%

200%

25th% (1)

           50th Percentile

  25%

100%

Last or50th% 2nd-to-Last(1)

Position

  

    0%

(1)

TSR performance ranking between the 2nd and2nd-to-last positions generate payouts determined by straight-line interpolation unless ranking of 50th percentile is achieved, which pays out at 100%.

75th% or above38  200%LOGO

(1) TSR performances between the 25th and 50th percentiles, and the 50th and 75th percentiles, generate payouts determined by straight-line interpolation.

COMPENSATION DISCUSSION AND ANALYSIS

Additional shares of Common Stock may be earned based on the accumulated value of dividends paid on Valero’s Common Stock during the pertinent performance period. The amount of accumulated dividends is multiplied by the earned percentage payout (if any) for the performance shares, and the product is divided by the fair market value of the Common Stock on the performance shares’ vesting date. The resulting amount is paid in a whole number of shares of Common Stock. The value of the dividends credited to the outstanding performance shares is paid to participants only to the extent that the underlying performance shares earn shares of Common Stock, based on Valero’s TSR performance, and is paid (in shares of Common Stock) only when the underlying performance shares vest.


Upon vesting, officers can designate up to 50% of theafter-tax vested shares of Common Stock to be delivered in cash. If a cash payment is elected, the total number ofafter-tax shares to be delivered is multiplied by the fair market value of the Common Stock on the performance shares’ vesting date, and the product is multiplied by the cash payment election percentage designated by the award recipient. The resulting amount is paid in cash, with the remainder paid in shares of Common Stock.

As shown in the following table, the vesting outcomes for Valero’s previously granted and outstanding Performance Shares which had performance periods ending on December 31, 2018 effectively demonstrates the alignment of Valero’s long-term incentive program to the interests of Valero’s stockholders. While Valero’s 2018 operational and financial results were excellent, Valero’s total shareholder return performance versus the peer group over the one, two, and three-year periods ending in 2018 resulted in delivery of performance shares to executives at levels below target.

  Performance Shares Grant

  (Year & Segment)

Final Percentile TSR Ranking
versus Peers

Vesting Percentage of Target

(Target = 100%)

(Range of 0% to 200%)

2015 (final of 3 segments)

6th of 9

62.5%

2016 (2nd of 3 segments)

8th of 9

    0%

2017 (1st of 3 segments)

9th of 9

    0%

Restricted Stock

Restricted stock targets represent the remaining 50 percent of each executive officer’s long-term incentive target on a share value basis. Restricted stock is subject to forfeiture if an executive terminates his or her employment prior to vesting (other than upon retirement and other than following a permitted voluntary



31


termination following a change in control). Dividends are paid on shares of restricted stock as and when dividends are declared and paid on Valero’s outstanding common stock.
We believe that our

Our mix of long-term incentives provides an appropriate balance between thepay-for-performance attributes of performance shares and the equity alignment and retentive qualities of restricted shares. This mix also generally aligns with market practices, and thus supports recruitment and retention oftop-quality executive talent.

The Compensation Committee considers and grants long-term incentive awards to our officers and certain other employees annually, typically during the fourth quarter in conjunction with the last regularly scheduled meeting of the Compensation Committee for the year. The performance shares and restricted stock components of our executive officers’ 20162018 long-term incentive awards were granted in November 2016.


October 2018.

Perquisites and Other Benefits
PERQUISITES AND OTHER BENEFITS

Consistent with our goal of providing compensation and benefits that are aligned with market practices among our peers, officers are eligible to receive reimbursement for club dues, personal excess liability insurance, federal income tax preparation, home security protection, and an annual health examination. We do not provide executive officers with automobiles or automobile allowances or supplemental executive medical coverage.


We provide other benefits, including medical, life, dental, and disability insurance in line with competitive market conditions. Our named executive officers are eligible for the same benefit plans provided to our other employees, including our Thrift Plan and insurance and supplemental plans chosen and paid for by employees who desire additional coverage.


Consistent with typical practices among our peers, executive officers and other employees whose compensation exceeds certain limits are eligible to participate innon-qualified excess benefit programs whereby those individuals can choose to make larger contributions than allowed under the qualified plan rules and receive correspondingly higher benefits. These plans are described below.

2019 PROXY STATEMENT39


COMPENSATION DISCUSSION AND ANALYSIS

Post-Employment Benefits
POST-EMPLOYMENT BENEFITS

Pension Plans

We have a noncontributory defined benefit Pension Plan in which most of our employees, including our named executive officers, are eligible to participate and under which contributions by individual participants are neither required nor permitted. We also have a noncontributory,non-qualified Excess Pension Plan and anon-qualified Supplemental Executive Retirement Plan (SERP), which provide supplemental pension benefits to certain highly compensated employees. Our named executive officers are participants in the SERP. The SERP is offered to align with competitive practices among our peers, and to thus support recruitment and retention of critical executive talent. The Excess Pension Plan and the SERP provide eligible employees with additional retirement savings opportunities that cannot be achieved withtax-qualified plans due to Internal Revenue Code limits on (i) annual compensation that can be taken into account under qualified plans, or (ii) annual benefits that can be provided under qualified plans.


Nonqualified Deferred Compensation Plans

Deferred Compensation Plan.Our named executive officers are eligible to participate in our Deferred Compensation Plan (“DC Plan”). The DC Plan is offered to align with competitive practices among our peers, and thereby support recruitment and retention of executive talent. The DC Plan permits eligible employees to defer a portion of their salary and/or bonus until separation (i.e.(i.e., retirement or termination of employment). Under the DC Plan, each year eligible employees are permitted to elect to defer up to 30 percent



32


of their salary and/or 50 percent of their cash bonuses to be earned for services performed during the following year. We have not made discretionary contributions to participants’ accounts, and currently we have no plans to do so.

All amounts credited under the DC Plan (other than discretionary credits) are immediately 100 percent vested. Any discretionary credits, if ever granted, will vest in accordance with the vesting schedule determined at the time of the grant of discretionary credits. Participant accounts are credited with earnings (or losses) based on investment fund choices made by the participants among available funds selected by Valero’s Benefits Plans Administrative Committee.


Excess Thrift Plan. Our Excess Thrift Plan provides benefits to participants in our Thrift Plan whose annual additions to the Thrift Plan are subject to the limitations on annual additions as provided under Section 415 of the Internal Revenue Code, and/or who are constrained from making maximum contributions under the Thrift Plan by Section 401(a)(17) of the Internal Revenue Code, which limits the amount of an employee’s annual compensation which may be taken into account under that plan. Two separate components comprise the Excess Thrift Plan: (i) an “excess benefit plan” as defined under Section 3(36) of ERISA; and (ii) a plan that is unfunded and maintained primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees.


Additional information about these plans and contributions made by Valero and each of our named executive officers undernon-qualified defined contribution and other deferred compensation plans are presented in this proxy statement under the caption “Executive Compensation—Nonqualified Deferred Compensation.”


Change of Control Severance Arrangements

We have change of control severance agreements with each of our named executive officers.officers (except for Mr. Ciskowski and Mr. Browning who have retired). The agreements are intended to assure the continued objectivity and availability of the officers in the event of any merger or acquisition that would likely threaten the job security of many top executives. These arrangements are also intended to maintain executive focus and productivity in a period of uncertainty. If a change of control occurs during the term of an agreement, the agreement becomes operative for a fixed three-year period. The agreements provide generally that the officers’ terms and conditions of employment will not be adversely changed during the three-year period after a change of control. For information regarding payments that may be made under these agreements, see the disclosures in this proxy statement under the caption “Executive Compensation—Potential Payments upon Termination or Change of Control.”


Accounting and Tax Treatment

ACCOUNTING AND TAX TREATMENT

Accounting Treatment

Compensation expense for our share-based compensation plans is based on the fair value of the awards granted and is recognized in income on a straight-line basis over the shorter of (a) the requisite service period of each award, or (b) the period from the grant date to the date retirement eligibility is achieved if that date is expected to occur during the nominal vesting period. Specific components of our stock-based compensation programs are discussed in Note 1314 of Notes to Consolidated Financial Statements in Valero’s Annual Report onForm 10-K for the year ended December 31, 2016.2018.

40LOGO


Tax Treatment
Under

COMPENSATION DISCUSSION AND ANALYSIS

TAX TREATMENT

Section 162(m) of the Internal Revenue Code publicly held corporations may not take a taxof 1986 limits the deductibility of compensation paid to certain top executives to $1 million. In previous years, there was an exemption from this $1 million deduction limit for compensation in excesspayments that qualified as “performance-based” under applicable regulations. However, the enactment of $1 million paid to the Chief Executive Officer orTax Cuts and Jobs Act of 2017 eliminated the other four most highly compensated executive officers unless that compensation meets the Internal Revenue Code’s definition of “performance based” compensation. Section 162(m) allows a deduction for compensation that exceeds



33


$1 million if it is paid (i) solely upon attainment of one or more performance goals, (ii) pursuant to a qualifying performance-based compensation plan adopted by the Compensation Committee, and (iii) the material terms, including the performance goals, of such plan are approved by the stockholders before payment of the compensation.

The Compensation Committee considers deductibility under Section 162(m) when designing compensation arrangements for executive officers, but is not requiredexemption, except with respect to grant only “performance based” compensation that is deductible under Section 162(m). The Committee believes that it is in our best interests for the Committee to retain its flexibility and discretion to make compensation awards to foster achievement of performance goals established by the Committee and other goals the Committee deems important to our success, such as encouraging employee retention, rewarding achievement of non-quantifiable goals, and achieving progress with specific projects. certain grandfathered arrangements.

We believe that the 2016 annual incentive bonus payments,outstanding stock options, as well as our performance share grantsshares granted in 2017, continue to qualify as performance-based compensation under the grandfather rules provided under the Tax Cuts and are not subject to any deductibility limitations under Section 162(m).Jobs Act of 2017. Grants of restricted stock or other equity-based awards that are not subject to specific quantitative performance measures, and that were awarded in 2017 and earlier years, will likely not qualify as performance basedperformance-based compensation under the Section 162(m) grandfather rules, and in such event, would be subject to Section 162(m) deduction restrictions.


Prospectively, for pay vehicles granted and earned in 2018 and beyond, the Tax Cuts and Jobs Acts of 2017 eliminated the deductibility of most components of pay to certain top executives to the extent that such pay exceeds $1 million in a year. Consistent with Valero’s historic approach to deductibility under former Section 162(m), the Compensation Committee will continue to exercise flexibility and discretion in determining whether any given form of pay should be designed and administered to qualify for full deductibility.

COMPENSATION-RELATED POLICIES
Policy on Vesting of Performance Shares upon Change of Control of Valero
In 2014, ourCompensation-Related Policies

POLICY ON VESTING OF PERFORMANCE SHARES UPON CHANGE OF CONTROL OF VALERO

Our Board has adopted a policy regarding the vesting of performance shares upon a change of control of Valero. The policy applies to grants of performance shares made in 2014 and thereafter. The policy provides that performance shares granted to participants in Valero’s equity incentive plans will not vest automatically upon the date of a change of control (as defined in the applicable plan) of Valero. The policy further provides that in making awards of performance shares to participants, the Compensation Committee may provide in the award agreement with the participant that if a participant’s employment with Valero is terminated following a change of control, any unvested performance shares held by the participant will vest on a partial,pro rata basis on the date of the participant’s termination of employment, with such qualifications for an award as the Committee may determine. The policy is available on our website at www.valero.com > InvestorsInvestor Relations > Corporate Governance > Governance Documents.


Executive Compensation Clawback Policy
Policies.

EXECUTIVE COMPENSATION CLAWBACK POLICY

Under our executive compensation clawback policy, in the event of a material restatement of Valero’s financial results, the Board, or the appropriate committee thereof, will review all bonuses and other incentive and equity compensation awarded to our executive officers. The policy provides that if the bonuses and other incentive and equity compensation would have been lower had they been calculated based on such restated results, the Board (or committee), will, to the extent permitted by governing law and as appropriate under the circumstances, seek to recover for the benefit of Valero all or a portion of the specified compensation awarded to executive officers whose fraud or misconduct caused or partially caused such restatement, as determined by the Board (or committee). In determining whether to seek recovery, the policy states that the Board (or committee) shall take into account such considerations as it deems appropriate, including governing law and whether the assertion of a claim may prejudice the interests of Valero in any related proceeding or investigation. The policy is available on our website at www.valero.com > InvestorsInvestor Relations > Corporate Governance > Governance Documents.




34


Compensation Consultant Disclosure Policy
Policies.

COMPENSATION CONSULTANT DISCLOSURE POLICY

Per the terms of our compensation consultant disclosure policy, Valero will make certain disclosures pertaining to compensation consultants in our proxy statements for annual meetings of stockholders. For any compensation consultant retained by the Compensation Committee to provide compensation advice with respect to the compensation disclosed in the Summary Compensation Table in the proxy statement, we will disclose (i) the total fees paid annually to the consultant for compensation-related services andnon-compensation-related services, (ii) a description of anynon-compensation-related services provided by the consultant, and (iii) any services that the consultant has provided to senior executives of Valero and the nature of those services. The policy is available on our website at www.valero.com > InvestorsInvestor Relations > Corporate Governance > Governance Documents.Policies.

2019 PROXY STATEMENT41


Stock Ownership Guidelines and Prohibition Against Hedging and Pledging

COMPENSATION DISCUSSION AND ANALYSIS

STOCK OWNERSHIP GUIDELINES

We have adopted stock ownership guidelines applicable to our officers andnon-employee directors. The guidelines require thatnon-employee directors acquire and hold during their service shares of Common Stock equal in value to at least five times their annual cash retainer.

Our officers are required to meet the applicable guidelines stated below.

Officer Position  Value of Shares Owned

Chief Executive Officer

  

5x Base Salary

President

  

3x Base Salary

Executive Vice Presidents

  

2x Base Salary

Senior Vice Presidents

  

1x Base Salary

Vice Presidents

  

1x Base Salary

Officers andnon-employee directors have five years after becoming subject to the guidelines to meet the requisite ownership threshold and, once attained, are expected to continuously own sufficient shares to meet that threshold.

PROHIBITION AGAINST HEDGING AND PLEDGING

Our policies prohibit our directors, officers, and employees may not purchase, sell, or write calls, puts, or other options or derivative instruments on shares of Common Stock, and our directors and officers are prohibited from pledging shares of Common Stock as collateral or security for indebtedness. Compliance with the guidelines is monitored by the Compensation Committee. The full text of our guidelines is included in our Corporate Governance Guidelines (as Article IX), available on our website at www.valero.com > Investors > Corporate Governance > Governance Documents.


Insider Trading and Speculation in Valero Stock
Our officers, directors, and employees are prohibited from purchasing or selling Valero securities while in possession of material, nonpublic information, or otherwise using such information for their personal benefit or in any manner that would violate applicable laws and regulations. In addition, our policies prohibit our employees from speculating in our stock, which includes short selling (profiting if the market price of our stock decreases), buying or selling publicly traded options (including writing covered calls), hedging, or any other type of derivative arrangement that has a similar economic effect. In addition, our directors and officers are prohibited from pledging shares of Common Stock as collateral or security for indebtedness. Compliance with the guidelines is monitored by the Compensation Committee. The full text of our guidelines is included in our Corporate Governance Guidelines (asArticle IX), available on our website at www.valero.com > Investor Relations > Corporate Governance > Governance Documents.

INSIDER TRADING POLICY

Our Securities Trading Policy prohibits our officers, directors, and employees from purchasing or selling Valero securities while in possession of material, nonpublic information, or otherwise using such information for their personal benefit or in any manner that would violate applicable laws and regulations.

42LOGO

   COMPENSATION CONSULTANT DISCLOSURES

Our Compensation Committee may, in its sole discretion, retain or obtain the advice of a compensation consultant, independent legal counsel, or other adviser, and is directly responsible for the appointment, compensation, and oversight of the work of any compensation consultant, independent legal counsel, or other adviser retained by the Committee. Valero is obligated to provide appropriate funding for the Committee’s retention of a consultant, counsel, or adviser.

In 2018, the Committee retained Exequity LLP as an independent compensation consultant. Exequity provided to the Committee objective expert analysis and independent advice regarding executive and director compensation. For the 2018 executive and director compensation services rendered to the Committee, Exequity earned professional fees of $275,624. Exequity did not provide other consulting services to the Committee, to Valero, or to any senior executives of Valero. Exequity is an independent adviser as determined under the SEC’s rules and the NYSE’s listing standards.

During 2018, Exequity’s executive and director compensation consulting services included:

assistance with establishing our overall executive compensation philosophy in light of our business strategies;


assistance with selecting peer and comparator companies for benchmarking executive pay and monitoring Valero’s performance;


assessment of competitive pay for our executives, with separate analyses of base salary, annual incentive, and long-term incentive compensation;


assessment of, and recommendations for, our annual incentive bonus program;

35

assessment of, and recommendation of enhancements to, our long-term incentive program strategy, including (i) the design of an appropriate mix of equity incentive vehicles, (ii) determination of performance measures and measurement techniques, and (iii) determination of competitive equity grant guidelines consistent with our overall pay philosophy;

updates on trends and developments in executive compensation, new regulatory issues, and best practices;

assessment of competitive pay for our directors; and

assistance with proxy statement disclosures.

2019 PROXY STATEMENT43



EQUITY COMPENSATION PLAN INFORMATION

The following table presents information regarding our equity compensation plans as of December 31, 2016.

  
Number of
Securities
to be Issued
Upon Exercise
of Outstanding
Options, Warrants
and Rights (#)
 
Weighted-
Average
Exercise Price
of Outstanding
Options, Warrants
and Rights ($)
 
Number of
Securities
Remaining Avail-
able for Future
Issuance Under
Equity Compen-
sation Plans (1)
Approved by stockholders:
      
2011 Omnibus Stock Incentive Plan 872,458
 $31.71
 10,581,274
2005 Omnibus Stock Incentive Plan 1,070,715
 17.86
 —
Not approved by stockholders:
      
2003 All-Employee Stock Incentive Plan (2)
 77,872
 17.68
 —
Total 2,021,045
 23.83
 10,581,274
Footnotes:
2018.

    

Number of

Securities

to be Issued

Upon Exercise

of Outstanding

Options, Warrants

and Rights (#)

  

Weighted-

Average

Exercise Price

of Outstanding

Options, Warrants

and Rights ($)

  

Number of

Securities

Remaining Available

for Future

Issuance Under

Equity Compensation

Plans (1)

Approved by stockholders:

         

2011 Omnibus Stock Incentive Plan

   

 

359,462

   

 

$34.66

   

 

8,532,542

2005 Omnibus Stock Incentive Plan

   

 

223,831

   

 

17.70

   

 

—

Not approved by stockholders:

         

2003All-Employee Stock Incentive Plan (2)

   

 

27,169

   

 

17.68

   

 

—

Total

   

 

610,462

   

 

27.68

   

 

8,532,542

Footnotes:

(1)

Securities available for future issuance under these plans can be issued in various forms, including restricted stock and stock options.

(2)

Officers and directors of Valero were not eligible to receive grants under this plan.


Our equity plans are described further in Note 1314 of Notes to Consolidated Financial Statements for the fiscal year ended December 31, 2016,2018, included in Valero’s Annual Report on Form10-K.

44LOGO



36



EXECUTIVE COMPENSATION

The following tables that follow provide information required by the SEC regardingdisclose compensation paid to or earned by our named executive officers for 2016.2018. We use captions and headings in these tables that correspond to the SEC regulations requiring these disclosures. The footnotes to these tables provide important information to explain the values presented in the tables.


SUMMARY COMPENSATION TABLE
Summary Compensation Table

This table summarizes the compensation paid to our named executive officers for the fiscal years ended December 31, 2016, 2015,2018, 2017, and 2014.2016. The elements of compensation listed in the table are described in the Compensation Discussion and Analysis section of this proxy statement and in the table’s footnotes.

Principal Position (1) Year Salary ($) 
Stock Awards
($)(2)(3)
 
Option Awards
($)(2)(4)
 Non-Equity Incentive Plan Compensa-tion ($)(5) Change in Pension Value and Non-qualified Deferred Compensation Earnings ($) (6) All Other Compensa-tion ($)(7) Total ($)
Joseph W. Gorder,
 2016 1,450,000
 10,610,898
 —
 2,925,000
 3,334,310
 132,410
 18,452,618
Chairman of the Board, President, and CEO 2015 1,300,000
 8,870,341
 —
 3,900,000
 3,252,393
 212,411
 17,535,145
 2014 1,150,000
 7,989,851
 758,205
 3,525,000
 3,838,763
 111,619
 17,373,438
                 
Michael S. Ciskowski,
 2016 890,000
 4,057,373
 —
 1,320,000
 1,855,463
 91,783
 8,214,619
EVP and CFO 2015 845,000
 3,809,824
 —
 1,859,000
 1,551,671
 83,683
 8,149,178
 2014 810,000
 2,912,035
 299,752
 1,670,000
 2,923,019
 82,337
 8,697,143
                 
R. Lane Riggs,
 2016 640,000
 2,191,016
 —
 725,000
 1,206,237
 73,248
 4,835,501
EVP–Refining Operations and Engineering 2015 600,000
 1,661,614
 —
 960,000
 1,046,542
 69,005
 4,337,161
 2014 558,333
 1,464,417
 138,453
 862,000
 1,473,045
 61,935
 4,558,183
                 
Jay D. Browning, 2016 595,000
 1,773,224
 —
 640,000
 973,148
 71,101
 4,052,473
EVP and General Counsel 2015 575,000
 1,591,603
 —
 920,000
 1,012,273
 66,816
 4,165,692
 2014 541,667
 1,361,956
 132,223
 825,000
 1,384,309
 70,765
 4,315,920
                 
Gary K. Simmons,
 2016 565,000
 1,203,887
 —
 500,000
 876,063
 57,980
 3,202,930
SVP–Supply, Int’l Ops. & Systems Optimization (8)             

 (8)              
                 

Principal Position (1) Year  

Salary

($)

  

Stock

Awards

($)(2)(3)

  

Option

Awards

($)(4)

  

Non-Equity

Incentive Plan

Compensation

($)(5)

  

Change in

Pension Value

and Non-

qualified

Deferred

Compensation

Earnings ($)(6)

  

All Other

Compensation

($)(7)

  Total ($) 

Joseph W. Gorder,

Chairman of the Board, President & CEO

 

 

2018

 

 

 

1,660,000

 

 

 

10,931,251

 

 

 

—

 

 

 

4,625,000

 

 

 

1,353,779

 

 

 

189,126

 

 

 

18,759,156

 

 

 

2017

 

 

 

1,585,000

 

 

 

12,734,060

 

 

 

—

 

 

 

3,800,000

 

 

 

4,269,202

 

 

 

143,998

 

 

 

22,532,260

 

 

 

2016

 

 

 

1,450,000

 

 

 

10,610,898

 

 

 

—

 

 

 

2,925,000

 

 

 

3,334,310

 

 

 

132,410

 

 

 

18,452,618

 

Donna M. Titzman,

EVP and CFO

 

 

2018

 

 

 

641,667

 

 

 

1,508,905

 

 

 

—

 

 

 

840,000

 

 

 

382,570

 

 

 

70,593

 

 

 

3,443,735

 

 

 

(8

) 

         

 

—

 

                
 

 

(8

) 

         

 

—

 

                

R. Lane Riggs,

EVP and COO

 

 

2018

 

 

 

800,000

 

 

 

2,200,997

 

 

 

—

 

 

 

1,110,000

 

 

 

—

 

 

 

103,172

 

 

 

4,214,169

 

 

 

2017

 

 

 

700,000

 

 

 

2,710,576

 

 

 

—

 

 

 

925,000

 

 

 

1,743,387

 

 

 

96,683

 

 

 

6,175,646

 

 

 

2016

 

 

 

640,000

 

 

 

2,191,016

 

 

 

—

 

 

 

725,000

 

 

 

1,206,237

 

 

 

73,248

 

 

 

4,835,501

 

Jay D. Browning,

EVP and General Counsel

 

 

2018

 

 

 

650,000

 

 

 

1,713,993

 

 

 

—

 

 

 

900,000

 

 

 

—

 

 

 

96,783

 

 

 

3,360,776

 

 

 

2017

 

 

 

620,000

 

 

 

2,039,272

 

 

 

—

 

 

 

790,000

 

 

 

1,436,316

 

 

 

86,737

 

 

 

4,972,325

 

 

 

2016

 

 

 

595,000

 

 

 

1,773,224

 

 

 

—

 

 

 

640,000

 

 

 

973,148

 

 

 

71,101

 

 

 

4,052,473

 

Gary K. Simmons,

SVP-Supply, Int’l Ops. & Systems Optimization

 

 

2018

 

 

 

625,000

 

 

 

1,174,051

 

 

 

—

 

 

 

705,000

 

 

 

—

 

 

 

81,590

 

 

 

2,585,641

 

 

 

2017

 

 

 

600,000

 

 

 

1,398,749

 

 

 

—

 

 

 

620,000

 

 

 

1,345,120

 

 

 

88,961

 

 

 

4,052,830

 

 

 

2016

 

 

 

565,000

 

 

 

1,203,887

 

 

 

—

 

 

 

500,000

 

 

 

876,063

 

 

 

57,980

 

 

 

3,202,930

 

Michael S. Ciskowski,

EVP and CFO (retired) (9)

 

 

2018

 

 

 

336,706

 

 

 

1,257,034

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

40,349

 

 

 

1,634,089

 

 

 

2017

 

 

 

930,000

 

 

 

4,687,459

 

 

 

—

 

 

 

1,625,000

 

 

 

3,118,093

 

 

 

87,568

 

 

 

10,448,120

 

 

 

2016

 

 

 

890,000

 

 

 

4,057,373

 

 

 

—

 

 

 

1,320,000

 

 

 

1,855,463

 

 

 

91,783

 

 

 

8,214,619

 

Footnotes to Summary Compensation Table:

(1)

The persons listed in this table are referred to in this proxy statement as our “named executive officers.”

(2)

The amountsamount shown representis the grant“grant date fair valuevalue” of stock awards (restricted stock and performance shares) computed under Financial Accounting Standards Board Accounting Standards Codification Topic 718, Compensation–Stock Compensation (FASB ASC Topic 718). Under FASB ASC Topic 718, the grant date fair values that we must disclose for our performance share awards include the values of certain tranches of unvested performance shares that were awarded in years prior to the fiscal year shown in the table. The computations of grant date fair values for performance shares are more fully described in footnote (5) to the Grants of Plan-Based Awards table in this proxy statement.

(footnote (2) continues on the following page)

2019 PROXY STATEMENT45



37



EXECUTIVE COMPENSATION

Footnotes to Summary Compensation Table (cont.):

footnote (2) continued

The dollar values included in the “Stock Awards” column include the following components:
  Gorder Ciskowski Riggs Browning Simmons
restricted stock 4,857,423
 1,819,323
 1,057,883
 790,318
 535,719
performance shares 5,753,475
 2,238,050
 1,133,133
 982,906
 668,168
total (in dollars) 10,610,898
 4,057,373
 2,191,016
 1,773,224
 1,203,887

The dollar values included in the “Stock Awards” column include the following components:

    Gorder   Titzman   Riggs   Browning   Simmons   Ciskowski 

Restricted Stock

  

 

4,992,528

 

  

 

804,978

 

  

 

953,774

 

  

 

774,480

 

  

 

531,415

 

  

 

—

 

Performance Shares

  

 

5,938,723

 

  

 

703,927

 

  

 

1,247,223

 

  

 

939,513

 

  

 

642,636

 

  

 

1,257,034

 

Total(in dollars)

  

 

10,931,251

 

  

 

1,508,905

 

  

 

2,200,997

 

  

 

1,713,993

 

  

 

1,174,051

 

  

 

1,257,034

 

(3)For more

Additional information regardingabout the shares of restricted stock and performance shares granted in 2016, see2018 is disclosed in the Grants of Plan-Based Awards table in this proxy statement and our disclosuresstatement. Additional information about the restricted stock awards is disclosed in Note 1314 (“Stock-Based Compensation”) of Notes to Consolidated Financial Statements in Valero’s Annual Report on Form10-K for the year ended December 31, 2016.2018.

(4)

Stock options were not granted to our named executive officers in 20162018, 2017, or 2015.2016.

(5)

Represents amounts earned under our annual incentive bonus plan, as described in “Compensation Discussion and Analysis—Analysis—Elements of Executive Compensation—Compensation—Annual Incentive Bonus.”

(6)

This column represents the sum of the change in pension value andnon-qualified deferred compensation earnings for each of the named executive officers. See the Pension Benefits table for the present value assumptions used for these calculations.

Disclosures in the table above show a zero value for Mr. Riggs, Mr. Browning, and Mr. Simmons, as required by Instruction 3 to Item 402(c)(2)(viii) of RegulationS-K. The amountactual aggregate changes in the actuarial present value of these officers’ accumulated benefits under their defined benefit and actuarial pension plans (including supplemental plans) are negative values. These negative values are: Mr. Riggs (-$35,467),Mr. Browning (-$118,825), Mr. Simmons (-$317,781).

The disclosure for Mr. Ciskowski is a zero value. Following his retirement, Mr. Ciskowski received a lump sum payment of his nonqualified benefits in 2018 and began receiving monthly payments during 2018 attributable to his qualified benefit. These amounts are disclosed in the Pension Benefits table.

There are no above-market or preferential earnings onnon-tax-qualified deferred compensation amounts included in the amountstable presented above is zero.above.

(7)The amounts

Amounts listed as “All Other Compensation” for 20162018 are composed of these items:the following items. Any amount in excess of $10,000 (whether or not such amount may be deemed to be a perquisite or other personal benefit) is separately quantified.

Items of income (in dollars) Gorder Ciskowski Riggs Browning Simmons
Valero contribution to Thrift Plan account 18,550
 18,550
 18,550
 18,550
 18,550
Valero contribution to Excess Thrift Plan account 82,950
 43,750
 26,250
 23,000
 21,000
Reimbursement of club membership dues 7,937
 6,682
 7,937
 5,070
 8,327
Unused benefit dollars —
 628
 —
 —
 —
Imputed income—personal liability insurance (Group Excess Policy)
 3,648
 3,648
 3,648
 3,648
 2,158
Imputed income—individual disability insurance
 4,617
 4,617
 2,877
 3,587
 3,029
Imputed income—long-term disability premium
 2,280
 2,280
 2,280
 2,280
 2,280
Imputed income—insurance (life & survivor) over $50,000
 4,928
 4,128
 6,739
 9,416
 2,636
Imputed income—tax return preparation fees
 7,500
 7,500
 4,967
 5,550
 —
total 132,410
 91,783
 73,248
 71,101
 57,980

ForMr. Gorder: Valero contributions to the officer’s Thrift Plan account ($19,250), Valero contributions to the officer’s Excess Thrift Plan account ($96,950), home security ($35,136), an executive physical exam, reimbursement of club membership dues, Valero provided dollars for the purchase of health and welfare benefits ($25,020), imputed income for tax return preparation fees.

ForMs. Titzman: Valero contributions to the officer’s Thrift Plan account ($19,250), Valero contributions to the officer’s Excess Thrift Plan account ($25,667), an executive physical exam, Valero provided dollars for the purchase of health and welfare benefits ($21,096), imputed income for tax return preparation fees.

ForMr. Riggs: Valero contributions to the officer’s Thrift Plan account ($19,250), Valero contributions to the officer’s Excess Thrift Plan account ($36,750), home security, reimbursement of club membership dues, Valero provided dollars for the purchase of health and welfare benefits ($27,656), imputed income for tax return preparation fees.

ForMr. Browning: Valero contributions to the officer’s Thrift Plan account ($19,250), Valero contributions to the officer’s Excess Thrift Plan account ($26,250), home security, an executive physical exam, reimbursement of club membership dues, Valero provided dollars for the purchase of health and welfare benefits ($23,136), imputed income for tax return preparation fees ($10,916).

ForMr. Simmons: Valero contributions to the officer’s Thrift Plan account ($19,250), Valero contributions to the officer’s Excess Thrift Plan account ($24,500), reimbursement of club membership dues ($10,184), Valero provided dollars for the purchase of health and welfare benefits ($27,656).

ForMr. Ciskowski: Valero contributions to the officer’s Thrift Plan account, Valero contributions to the officer’s Excess Thrift Plan account ($16,351), home security, an executive physical exam, Valero provided dollars for the purchase of health and welfare benefits, imputed income for tax return preparation fees.

(8)Mr. Simmons

Ms. Titzman became Executive Vice President and Chief Financial Officer on May 3, 2018. Ms. Titzman was not a named executive officer for 20152017 or 2014.2016.

(9)

Mr. Ciskowski retired effective May 3, 2018.

46LOGO





38

EXECUTIVE COMPENSATION



GRANTS OF PLAN-BASED AWARDS
Grants of Plan-Based Awards

The following table describes plan-based awards for our named executive officers in 2016.2018.

      

Estimated Future Payouts Under

Non-Equity Incentive Plan

Awards

 

 

Estimated Future Payouts Under

Equity Incentive Plan Awards

 

 

Grant Date

Fair Value

of Stock

and Option

Awards

($) (1)

 

  Name

 

 

 

Grant

Date

 

    

 

Threshold

($)

 

 

 

Target

($)

 

 

 

Maximum

($)

 

 

 

Threshold

(#)

 

 

 

Target

(#)

 

 

 

Maximum

(#)

 

Joseph W. Gorder

   n/a   (2)   —   2,656,000   5,312,000                    
   10/31/2018   (3)                  n/a   54,020   n/a   4,992,528
   n/a   (4)                       54,020          
   10/31/2018   (5)                       18,007   36,014   1,823,929
   10/31/2018   (5)                       23,767   47,534   1,715,027
    10/31/2018   (5)                       27,473   54,946   2,399,767

Donna M. Titzman

   n/a   (2)   —   484,583   969,166                    
   10/31/2018   (3)                  n/a   8,710   n/a   804,978
   n/a   (4)                       8,710          
   10/31/2018   (5)                       2,904   5,808   294,146
   10/31/2018   (5)                       2,500   5,000   180,400
    10/31/2018   (5)                       2,626   5,252   229,381

R. Lane Riggs

   n/a   (2)   —   640,000   1,280,000                    
   10/31/2018   (3)                  n/a   10,320   n/a   953,774
   n/a   (4)                       10,320          
   10/31/2018   (5)                       3,440   6,880   348,438
   10/31/2018   (5)                       5,213   10,426   376,170
    10/31/2018   (5)                       5,983   11,966   522,615

Jay D. Browning

   n/a   (2)   —   520,000   1,040,000                    
   10/31/2018   (3)                  n/a   8,380   n/a   774,480
   n/a   (4)                       8,380          
   10/31/2018   (5)                       2,794   5,588   283,004
   10/31/2018   (5)                       3,687   7,374   266,054
    10/31/2018   (5)                       4,470   8,940   390,455

Gary K. Simmons

   n/a   (2)   —   406,250   812,500                    
   10/31/2018   (3)                  n/a   5,750   n/a   531,415
   n/a   (4)                       5,750          
   10/31/2018   (5)                       1,917   3,834   194,173
   10/31/2018   (5)                       2,547   5,094   183,792
    10/31/2018   (5)                       3,030   6,060   264,671

Michael S. Ciskowski

   n/a   (2)   —   —   —        —   —   —
   10/31/2018   (3)                  n/a   —   —   —
   n/a   (4)                       —   —   —
   10/31/2018   (5)                       —   —   —
   10/31/2018   (5)                       4,964   9,928   358,202
    10/31/2018   (5)                       10,290   20,580   898,832

2019 PROXY STATEMENT47

      
Estimated Future Payouts Under
Non-Equity Incentive Plan Awards
 
Estimated Future Payouts Under
Equity Incentive Plan Awards
 Grant Date Fair Value of Stock and Option Awards ($) (1)
      Threshold Target Maximum Threshold Target Maximum 
Name Grant Date   ($) ($) ($) (#) (#) (#) 
Joseph W. Gorder n/a (2) —
 2,175,000
 17,945,000
        
  11/02/2016 (3)       n/a 82,420
 n/a
 4,857,423
  n/a (4)         82,420
 

  
                   
  11/02/2016 (5)         27,474
 54,948
 1,881,420
  11/02/2016 (5)         19,590
 39,180
 1,798,558
  11/02/2016 (5)         17,523
 35,046
 2,073,497
                   
                   
Michael S. Ciskowski n/a (2) —
 979,000
 7,178,000
   ��    
  11/02/2016 (3)       n/a 30,870
 n/a
 1,819,323
  n/a (4)         30,870
 
  
                   
  11/02/2016 (5)         10,290
 20,580
 704,659
  11/02/2016 (5)         7,770
 15,540
 713,364
  11/02/2016 (5)         6,930
 13,860
 820,027
                   
R. Lane Riggs n/a (2) —
 512,000
 3,589,000
        
  11/02/2016 (3)       n/a 17,950
 n/a
 1,057,883
  n/a (4)         17,950
 

  
                   
  11/02/2016 (5)         5,984
 11,968
 409,784
  11/02/2016 (5)         3,583
 7,166
 328,955
  11/02/2016 (5)         3,333
 6,666
 394,394
                   
                   
Jay D. Browning n/a (2) —
 476,000
 3,589,000
        
  11/02/2016 (3)       n/a 13,410
 n/a
 790,318
  n/a (4)         13,410
 

  
                   
  11/02/2016 (5)         4,470
 8,940
 306,106
  11/02/2016 (5)         3,433
 6,866
 315,184
  11/02/2016 (5)         3,056
 6,112
 361,616
                   
Gary K. Simmons n/a (2) —
 367,250
 3,589,000
        
  11/02/2016 (3)       n/a 9,090
 n/a
 535,719
  n/a (4)         9,090
 

  
                   
  11/02/2016 (5)         3,030
 6,060
 207,494
  11/02/2016 (5)         2,333
 4,666
 214,193
  11/02/2016 (5)         2,083
 4,166
 246,481
                   


EXECUTIVE COMPENSATION

Footnotes to Grants of Plan-Based Awards table:

(1)

The reported grant date fair value of stock awards was determined in compliance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 718. Stock options were not granted to our named executive officers in 2016.2018.



39


Footnotes to Grants of Plan-Based Awards table (cont.):

(2)

Represents potential awards under our annual incentive bonus program for named executive officers (NEOs). Actual amounts earned by our NEOs for 20162018 are reported in the Summary Compensation Table under the column “Non-Equity“Non-Equity Incentive Plan Compensation.” The “target” amounts listed in the Grants of Plan-Based Awards table are computed by multiplying base salary by 150%, 110%160%, 80%, 80%, and 65%, for Mr. Gorder, Mr. Ciskowski, Mr. Riggs, Mr. Browning, and Mr. Simmons, respectively. The target amount for Ms. Titzman is determined using 65% for four months of 2018 and 80% for eight months of 2018 (as described in Compensation Discussion and Analysis).

The amounts listed as “maximum” are determined by multiplying the maximum funded bonus pool amount under the program (as a result of Valero’s ANC or EBITDA performance for the year, i.e., $35.89 million for 2016) by 50%, 20%, 10%, 10%, and 10% for Mr. Gorder, Mr. Ciskowski, Mr. Riggs, Mr. Browning, and Mr. Simmons, respectively, subject to a maximum of $20 million for any officer. Our annual incentive bonus program for named executive officers is described in “Compensation Discussion and Analysis—Elements of Executive Compensation—Annual Incentive Bonus.”

Mr. Ciskowski did not receive a payment for this award with respect to fiscal year 2018. Our annual incentive bonus program for named executive officers is described in “Compensation Discussion and Analysis—Elements of Executive Compensation—Annual Incentive Bonus.”

(3)

Represents an award of restricted stock granted November 2, 2016.Oct. 31, 2018. The shares are scheduled to vest (become nonforfeitable) annually in equalone-third increments. Dividends on the restricted shares are paid as and when dividends are declared and paid on our Common Stock. Restricted stock awards are more fully described in “Compensation Discussion and Analysis—Elements of Executive Compensation—Long-Term Incentive Awards—Restricted Stock.” For each NEO, the dollar amount stated in the column “Grant Date Fair Value of Stock and Option Awards” is included within the amount listed in the “Stock Awards” column of the Summary Compensation Table and in footnote (2) to the Summary Compensation Table.

(4)

Represents the number of performance shares awarded under our 2011 Omnibus Stock Incentive Plan to our NEOs on November 2, 2016Oct. 31, 2018 under our long-term incentive awards program described in “Compensation Discussion and Analysis—Elements of Executive Compensation—Long-Term Incentive Awards—Performance Shares.” Per the awards’ terms, on a normal vesting date officers can earn, in shares of Common Stock, from 0% to 200% of the number of performance shares that are vesting, based upon Valero’s achievement of objective performance measures during the performance periods prescribed by our Compensation Committee. The performance shares are scheduled to vest annually inone-third increments (tranches) in January 2018,2020, January 2019,2021, and January 2020,2022, with any resulting payout at those times conditioned upon Valero’s performance during the pertinent performance periods. Only the first tranche of these performance shares is deemed to have a “grant date” in 2016,2018, as explained in footnote (5) below. Our disclosures referenced by footnote (4) are for information purposes only, and tie to the disclosures made by our NEOs in 20162018 on Forms 4 in compliance with Section 16 of the Exchange Act. Our disclosures in footnote (5) below are intended to comply with the requirements of Item 402 of RegulationS-K with respect to “grants” of performance shares.

(5)We are required by

Item 402(d)(2)(viii) of RegulationS-K to make the disclosures referenced by footnote (5). This Item requires us to disclose the “grant date fair value” of equity awards “computed in accordance with FASB ASC Topic 718” (Topic 718). Our performance shares are awarded in three tranches, with the tranches having measurement periods (the performance period) of differing lengths. The first tranche of an award has a performance period of 12 months, the second tranche of an award has a performance period of 24 months, and the third tranche of an award has a performance period of 36 months.

The amounts referenced by footnote (5) in the Grants of Plan-Based Awards table represent three tranches from three separate award years—namely, the first tranche of performance shares awarded in 2016 (awarded on Nov. 2, 2016), the second tranche of performance shares awarded in 2015 (awarded on Nov. 4, 2015), and the third tranche of performance shares awarded in 2014 (awarded on Oct. 23, 2014). Under Topic 718, each of these tranches is deemed to be a separate “grant” for fair value purposes, and each is deemed to have a “grant date” in 2016, that is, November 2, 2016, the date when the Compensation Committee established the peer group of companies for these tranches. The dollar amounts included in the table represent the grant date fair values from the three tranches that are deemed to have a grant date in 2016.

The amounts referenced by footnote (5) in the Grants of Plan-Based Awards table represent three tranches from three separate award years—namely, thefirst tranche of performance shares awarded in 2018 (awarded on Oct. 31, 2018), thesecond tranche of performance shares awarded in 2017 (awarded on Nov. 1, 2017), and thethird tranche of performance shares awarded in 2016 (awarded on Nov. 2, 2016). Under Topic 718, each of these tranches is deemed to be a separate “grant” for fair value purposes, and each is deemed to have a “grant date” in 2018, that is, Oct. 31, 2018, the date when the Compensation Committee established the peer group of companies for these tranches. The dollar amounts included in the table represent the grant date fair values from the three tranches that are deemed to have a grant date in 2018.

(footnote (5) continues on the following page)

48LOGO



40


EXECUTIVE COMPENSATION

Footnotes to Grants of Plan-Based Awards table (cont.):

footnote (5) continued

For each NEO, the sum of the dollar amounts stated in the Grants of Plan-Based Awards table’s column entitled “Grant Date Fair Value of Stock and Option Awards” is also included in the Summary Compensation Table, first, within the amount listed in the “Stock Awards” column of the Summary Compensation Table, and second, in footnote (2) to the Summary Compensation Table. The grant date fair values for the performance shares included in the Grants of Plan-Based Awards table are summarized in the table that follows.

    

performance shares deemed (under Topic 718) to

have a grant date in 2018

 

   

grant date

fair value ($)

 

   

highest possible

performance ($)

 

 

 

Gorder

  

 

1st tranche of 2018 award

 

  

 

 

 

 

18,007

 

 

 

 

  

 

 

 

 

1,823,929

 

 

 

 

  

 

 

 

 

3,647,858

 

 

 

 

  

 

2nd tranche of 2017 award

 

  

 

 

 

 

23,767

 

 

 

 

  

 

 

 

 

1,715,027

 

 

 

 

  

 

 

 

 

3,430,054

 

 

 

 

  

 

3rd tranche of 2016 award

 

  

 

 

 

 

27,473

 

 

 

 

  

 

 

 

 

2,399,767

 

 

 

 

  

 

 

 

 

4,799,534

 

 

 

 

  

 

total 2018 grant date fair value

 

    

 

 

 

 

5,938,723

 

 

 

 

  

 

 

 

 

11,877,446

 

 

 

 

 

Titzman

  

 

1st tranche of 2018 award

 

  

 

 

 

 

2,904

 

 

 

 

  

 

 

 

 

294,146

 

 

 

 

  

 

 

 

 

588,292

 

 

 

 

  

 

2nd tranche of 2017 award

 

  

 

 

 

 

2,500

 

 

 

 

  

 

 

 

 

180,400

 

 

 

 

  

 

 

 

 

360,800

 

 

 

 

  

 

3rd tranche of 2016 award

 

  

 

 

 

 

2,626

 

 

 

 

  

 

 

 

 

229,381

 

 

 

 

  

 

 

 

 

458,762

 

 

 

 

  

 

total 2018 grant date fair value

 

    

 

 

 

 

703,927

 

 

 

 

  

 

 

 

 

1,407,854

 

 

 

 

 

Riggs

  

 

1st tranche of 2018 award

 

  

 

 

 

 

3,440

 

 

 

 

  

 

 

 

 

348,438

 

 

 

 

  

 

 

 

 

696,876

 

 

 

 

  

 

2nd tranche of 2017 award

 

  

 

 

 

 

5,213

 

 

 

 

  

 

 

 

 

376,170

 

 

 

 

  

 

 

 

 

752,340

 

 

 

 

  

 

3rd tranche of 2016 award

 

  

 

 

 

 

5,983

 

 

 

 

  

 

 

 

 

522,615

 

 

 

 

  

 

 

 

 

1,045,230

 

 

 

 

  

 

total 2018 grant date fair value

 

    

 

 

 

 

1,247,223

 

 

 

 

  

 

 

 

 

2,494,446

 

 

 

 

 

Browning

  

 

1st tranche of 2018 award

 

  

 

 

 

 

2,794

 

 

 

 

  

 

 

 

 

283,004

 

 

 

 

  

 

 

 

 

566,008

 

 

 

 

  

 

2nd tranche of 2017 award

 

  

 

 

 

 

3,687

 

 

 

 

  

 

 

 

 

266,054

 

 

 

 

  

 

 

 

 

532,108

 

 

 

 

  

 

3rd tranche of 2016 award

 

  

 

 

 

 

4,470

 

 

 

 

  

 

 

 

 

390,455

 

 

 

 

  

 

 

 

 

780,910

 

 

 

 

  

 

total 2018 grant date fair value

 

    

 

 

 

 

939,513

 

 

 

 

  

 

 

 

 

1,879,026

 

 

 

 

 

Simmons

  

 

1st tranche of 2018 award

 

  

 

 

 

 

1,917

 

 

 

 

  

 

 

 

 

194,173

 

 

 

 

  

 

 

 

 

388,346

 

 

 

 

  

 

2nd tranche of 2017 award

 

  

 

 

 

 

2,547

 

 

 

 

  

 

 

 

 

183,792

 

 

 

 

  

 

 

 

 

367,584

 

 

 

 

  

 

3rd tranche of 2016 award

 

  

 

 

 

 

3,030

 

 

 

 

  

 

 

 

 

264,671

 

 

 

 

  

 

 

 

 

529,342

 

 

 

 

  

 

total 2018 grant date fair value

 

    

 

 

 

 

642,636

 

 

 

 

  

 

 

 

 

1,285,272

 

 

 

 

 

Ciskowski

  

 

2nd tranche of 2017 award

 

  

 

 

 

 

4,964

 

 

 

 

  

 

 

 

 

358,202

 

 

 

 

  

 

 

 

 

716,404

 

 

 

 

  

 

3rd tranche of 2016 award

 

  

 

 

 

 

10,290

 

 

 

 

  

 

 

 

 

898,832

 

 

 

 

  

 

 

 

 

1,797,664

 

 

 

 

  

 

total 2018 grant date fair value

 

       

 

 

 

 

1,257,034

 

 

 

 

  

 

 

 

 

2,514,068

 

 

 

 

2018 Award. For performance shares awarded on Oct. 31, 2018, the grant date (per Topic 718) for thefirst tranche is deemed to have occurred in 2018. The performance shares in this tranche were deemed to have an expected conversion rate (probable outcome) of 111.20% with a fair value per share of $101.29. The grant date (per Topic 718) for the second tranche of the performance shares awarded in 2018 is expected to occur in the fourth quarter of 2019, depending on actions to be taken by our Compensation Committee. Similarly, the grant date for the third tranche is expected to occur in the fourth quarter of 2020, depending on actions to be taken by our Compensation Committee. The fair values of the second and third tranches will be determined on their respective Topic 718 grant dates.

2017 Award. For performance shares awarded on Nov. 1, 2017, the grant date (per Topic 718) for thesecond tranche is deemed to have occurred in 2018. The performance shares in this tranche were deemed to have an expected conversion rate (probable outcome) of 79.22% and fair value per share of $72.16. The grant date (per Topic 718) for the third tranche of performance shares awarded in 2017 is expected to occur in the fourth quarter of 2019, depending on actions to be taken by our Compensation Committee. The fair value of the third tranche will be determined on its Topic 718 grant date.

2016 Award. For performance shares awarded on Nov. 2, 2016, the grant date (per Topic 718) for thethird tranche is deemed to have occurred in 2018. The performance shares in this tranche were deemed to have an expected conversion rate (probable outcome) of 95.89% and fair value per share of $87.35.

All Awards.For all awards, the “highest possible performance” values assume achievement of the highest level of possible performance conditions (vesting at 200% of target) per SEC RegulationS-K, Instruction 3 to Item 402(c)(2)(v).

2019 PROXY STATEMENT49

EXECUTIVE COMPENSATION

Outstanding Equity Awards table’s column entitled “Grant Date Fair Value of Stock and Option Awards” is also included in the Summary Compensation Table, first, within the amount listed in the “Stock Awards” column of the Summary Compensation Table, and second, in footnote (2) to the Summary Compensation Table. The grant date fair values for the performance shares included in the Grants of Plan-Based Awards table are summarized in the table that follows.

 performance shares deemed (under Topic 718) to have a grant date in 2016 grant date fair value ($)
      
Gorder1st tranche of 2016 award 27,474
 1,881,420
 2nd tranche of 2015 award 19,590
 1,798,558
 3rd tranche of 2014 award 17,523
 2,073,497
 total 2016 grant date fair value   5,753,475
      
Ciskowski1st tranche of 2016 award 10,290
 704,659
 2nd tranche of 2015 award 7,770
 713,364
 3rd tranche of 2014 award 6,930
 820,027
 total 2016 grant date fair value   2,238,050
      
Riggs1st tranche of 2016 award 5,984
 409,784
 2nd tranche of 2015 award 3,583
 328,955
 3rd tranche of 2014 award 3,333
 394,394
 total 2016 grant date fair value   1,133,133
      
Browning1st tranche of 2016 award 4,470
 306,106
 2nd tranche of 2015 award 3,433
 315,184
 3rd tranche of 2014 award 3,056
 361,616
 total 2016 grant date fair value   982,906
      
Simmons1st tranche of 2016 award 3,030
 207,494
 2nd tranche of 2015 award 2,333
 214,193
 3rd tranche of 2014 award 2,083
 246,481
 total 2016 grant date fair value   668,168
2016 Award. For performance shares awarded on November 2, 2016, the grant date (per Topic 718) for the first tranche is deemed to have occurred in 2016. The performance shares in this tranche were deemed to have an expected conversion rate (probable outcome) of 117.20% with a fair value per share of $68.48, resulting in the grant date fair values stated in the table below. The “highest possible performance” values listed in the table assume achievement of the highest level of possible performance conditions per SEC Regulation S-K, Instruction 3 to Item 402(c)(2)(v).
  1st tranche of 2016 award (shares) grant date fair value ($) highest possible performance ($)
Gorder 27,474
 1,881,420
 3,762,839
Ciskowski 10,290
 704,659
 1,409,318
Riggs 5,984
 409,784
 819,569
Browning 4,470
 306,106
 612,211
Simmons 3,030
 207,494
 414,989
(footnote (5) continues on the following page)


41


Footnotes to Grants of Plan-Based Awards table (cont.):
footnote (5) continued
The grant date (per Topic 718) for the second tranche of the performance shares awarded in 2016 is expected to occur in the fourth quarter of 2017, depending on actions to be taken by our Compensation Committee. Similarly, the grant date for the third tranche is expected to occur in the fourth quarter of 2018, depending on actions to be taken by our Compensation Committee. The fair values of the second and third tranches will be determined on their respective Topic 718 grant dates.
2015 Award. For performance shares awarded on November 4, 2015, the grant date (per Topic 718) for the second tranche is deemed to have occurred in 2016. The performance shares in this tranche were deemed to have an expected conversion rate (probable outcome) of 157.13% and fair value per share of $91.81, resulting in the grant date fair values stated in the table below. The “highest possible performance” values listed in the table assume achievement of the highest level of possible performance conditions per SEC Regulation S-K, Instruction 3 to Item 402(c)(2)(v).
  2nd tranche of 2015 award (shares) grant date fair value ($) highest possible performance ($)
Gorder 19,590
 1,798,558
 3,597,116
Ciskowski 7,770
 713,364
 1,426,727
Riggs 3,583
 328,955
 657,910
Browning 3,433
 315,184
 630,367
Simmons 2,333
 214,193
 428,385
The grant date (per Topic 718) for the third tranche of performance shares awarded in 2015 is expected to occur in the fourth quarter of 2017, depending on actions to be taken by our Compensation Committee. The fair value of the third tranche will be determined on its Topic 718 grant date.
2014 Award. For performance shares awarded on October 23, 2014, the grant date (per Topic 718) for the third tranche is deemed to have occurred in 2016. The performance shares in this tranche were deemed to have an expected conversion rate (probable outcome) of 202.52% and fair value per share of $118.33, resulting in the grant date fair values stated in the table below. The “highest possible performance” values listed in the table assume achievement of the highest level of possible performance conditions per SEC Regulation S-K, Instruction 3 to Item 402(c)(2)(v).
  3rd tranche of 2014 award (shares) grant date fair value ($) highest possible performance ($)
Gorder 17,523
 2,073,497
 4,146,993
Ciskowski 6,930
 820,027
 1,640,054
Riggs 3,333
 394,394
 788,788
Browning 3,056
 361,616
 723,233
Simmons 2,083
 246,481
 492,963




42


OUTSTANDING EQUITY AWARDS
AT DECEMBERat December 31, 2016
2018

This table describes unexercised stock options, unvested shares of restricted stock, and unvested performance shares held by our named executive officers as of DecemberDec. 31, 2016.2018.

   

Option Awards

 

  

Stock Awards

 

      

Restricted Stock

 

  

Performance Shares

 

    

Number of

Securities

Underlying

Unexercised

Options (#)

Exercisable

 

  

Number of

Securities

Underlying

Unexercised

Options (#)

Unexercisable

 

  

Option

Exercise

Price

($)(1)

 

  

Option

Expiration

Date

 

  

Number of

Shares or

Units of

Stock

That Have

Not

Vested (#)

 

 

Market

Value of

Shares or

Units of

Stock

That Have

Not

Vested

($)(2)

 

  

Equity Incentive

Plan Awards:

Number of

Unearned

Shares, Units

or Other Rights

That Have Not

Vested (#)(2)

 

 

Equity Incentive

Plan Awards:

Market or

Payout Value of

Unearned

Shares, Units

or Other Rights

That Have Not

Vested ($)(2)

 

Joseph W. Gorder

    21,400    —    17.743    11/17/2020    15,949 (3)   1,195,697    19,590 (7)   1,468,662
    26,750    —    24.582    10/28/2021    27,594 (4)   2,068,722    54,946 (8)   4,119,302
    37,567    —    27.318    11/09/2022    32,763 (5)   2,456,242    71,300 (9)   5,345,361
    31,770    —    39.665    11/08/2023               54,020 (10)   4,049,879
     43,810    —    48.565    10/23/2024                      

Donna M. Titzman

    6,398    —    27.318    11/09/2022    1,594 (3)   119,502    2,000 (7)   149,940
    5,860    —    39.665    11/08/2023    3,033 (4)   227,384    5,253 (8)   393,817
    4,365    —    48.565    10/23/2024    2,272 (6)   170,332    7,500 (9)   562,275
           —                5,282 (5)   395,992    8,710 (10)   652,989

R. Lane Riggs

    2,667    —    48.565    10/23/2024    5,984 (3)   448,620    3,583 (7)   268,618
                            10,427 (4)   781,712    11,966 (8)   897,091
                            10,320 (5)   773,690    15,640 (9)   1,172,531
                                        10,320 (10)   773,690

Jay D. Browning

    3,922    —    17.743    11/17/2020    2,595 (3)   194,547    3,433 (7)   257,372
    7,846    —    24.582    10/28/2021    4,281 (4)   320,947    8,940 (8)   670,232
    8,378    —    27.318    11/09/2022    5,082 (5)   380,998    11,060 (9)   829,168
    6,980    —    39.665    11/08/2023               8,380 (10)   628,249
     7,640    —    48.565    10/23/2024                      

Gary K. Simmons

    1,750    —    48.565    10/23/2024    3,030 (3)   227,159    2,333 (7)   174,905
                            5,094 (4)   381,897    6,060 (8)   454,318
                            5,750 (5)   431,078    7,640 (9)   572,771
                                        5,750 (10)   431,078

Michael S. Ciskowski

    32,100    —    17.743    11/17/2020               7,770 (7)   582,517
    44,940    —    24.582    10/28/2021               20,580 (8)   1,542,883
    32,570    —    27.318    11/09/2022               14,893 (9)   1,116,528
    23,330    —    39.665    11/08/2023                      
     17,320    —    48.565    10/23/2024                      

50LOGO

  Option Awards Stock Awards
    Restricted Stock Performance Shares
  Number of Securities Underlying Unexercised Options (#) Exercisable Number of Securities Underlying Unexercised Options (#) Unexercisable Option Exercise Price ($)(1) Option Expiration Date Number of Shares or Units of Stock That Have Not Vested (#) Market Value of Shares or Units of Stock That Have Not Vested ($)(2) Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#) (2) Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($)(2)
Joseph W. Gorder 85,493
 —
   18.145
 10/15/2019 6,698
 (4) 457,607
 12,710
 (8) 1,736,694
  21,400
 —
   17.743
 11/17/2020 15,258
 (5) 1,042,427
 35,046
 (9) 3,591,514
  26,750
 —
   24.582
 10/28/2021 22,744
 (6) 1,553,870
 58,770
 (10) 4,684,361
  37,567
 —
   27.318
 11/09/2022 47,844
 (7) 3,268,702
 82,420
 (11) 5,630,934
  31,770
 —
   39.665
 11/08/2023     
      
  29,206
 14,604
 (3) 48.565
 10/23/2024            
                       
Michael S. Ciskowski 251,530
 —
   18.145
 10/15/2019 6,034
 (5) 412,243
 9,333
 (8) 1,275,261
  32,100
 —
   17.743
 11/17/2020 9,021
 (6) 616,315
 13,860
 (9) 1,420,373
  44,940
 —
   24.582
 10/28/2021 17,920
 (7) 1,224,294
 23,310
 (10) 1,857,962
  32,570
 —
   27.318
 11/09/2022     
 30,870
 (11) 2,109,038
  23,330
 —
   39.665
 11/08/2023     
      
  11,546
 5,774
 (3) 48.565
 10/23/2024            
                       
R. Lane Riggs 11,770
 —
   24.582
 10/28/2021 1,878
 (4) 128,305
 2,653
 (8) 362,506
  7,789
 —
   27.318
 11/09/2022 4,834
 (5) 330,259
 6,666
 (9) 683,132
  6,630
 —
   39.665
 11/08/2023 7,167
 (6) 489,649
 10,750
 (10) 856,869
  5,333
 2,667
 (3) 48.565
 10/23/2024 17,950
 (7) 1,226,344
 17,950
 (11) 1,226,344
                
      
(table with footnotes continues on the following page)


43



  Option Awards Stock Awards
    Restricted Stock Performance Shares
  Number of Securities Underlying Unexercised Options (#) Exercisable Number of Securities Underlying Unexercised Options (#) Unexercisable Option Exercise Price ($)(1) Option Expiration Date Number of Shares or Units of Stock That Have Not Vested (#) Market Value of Shares or Units of Stock That Have Not Vested (#)(2) Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested ($) (2) Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($)(2)
Jay D. Browning 3,922
 —
   17.743
 11/17/2020 854
 (4) 58,345
 2,793
 (8) 381,636
  7,846
 —
   24.582
 10/28/2021 2,661
 (5) 181,800
 6,113
 (9) 626,494
  8,378
 —
   27.318
 11/09/2022 3,987
 (6) 272,392
 10,300
 (10) 821,001
  6,980
 —
   39.665
 11/08/2023 7,784
 (7) 531,803
 13,410
 (11) 916,171
  5,093
 2,547
 (3) 48.565
 10/23/2024            
                       
Gary K. Simmons —
 1,750
 (3) 48.565
 10/23/2024 845
 (4) 57,730
 2,043
 (8) 279,156
            3,134
 (5) 214,115
 4,166
 (9) 426,932
            4,667
 (6) 318,849
 7,000
 (10) 557,969
            9,090
 (7) 621,029
 9,090
 (11) 621,029
                       

EXECUTIVE COMPENSATION

Footnotes to Outstanding Equity Awards table:

(1)

Our equity plans provide that the exercise price for all stock options must not be less than the mean of our Common Stock’s high and low NYSE reported sales price per share on the date of grant.

(2)

The assumed market values were determined using the closing market price of our Common Stock on 12/30/2016Dec. 31, 2018 ($68.3274.97 per share). For a further discussion of the vesting of performance share awards (as noted in the following footnotes), see “Compensation Discussion and Analysis—Elements of Executive Compensation—Long-Term Incentive Awards—Performance Shares.” For performance shares that vested in January 2017, the payout value used for this column was their actual performance share vesting percentage on 01/26/2017 (i.e., 200% for the tranche of performance shares awarded in 2013, 200% for the tranche of performance shares awarded in 2014, and 150% for the tranche of performance shares awarded in 2015).

(3)

The unvested portion of this award is scheduled to vest on 10/23/2017.Nov. 2, 2019. All of Mr. Browning’s restricted shares vested in January 2019 on the date of his retirement.

(4)The unvested portion of this award is scheduled to vest on 05/01/2017.
(5)The unvested portion of this award is scheduled to vest on 10/23/2017.
(6)

The unvested portion of this award is scheduled to vest in equal installments on 11/04/2017Nov. 1, 2019 and 11/04/2018.Nov. 1, 2020. All of Mr. Browning’s restricted shares vested in January 2019 on the date of his retirement.


(footnotes continue on the following page)



44


Footnotes to Outstanding Equity Awards table (cont.):

(5)
(7)

The unvested portion of this award is scheduled to vest in equal installments on 11/02/2017, 11/02/2018,Oct. 31, 2019; Oct. 31, 2020; and 11/02/2019.

(8)These performanceOct. 31, 2021. All of Mr. Browning’s restricted shares vested in January 2019 on 01/26/2017 at 200%the date of target. The value shown in the column, “Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested,” represents the market value of 200% (the actual payout amount) of the performance shares at the closing price of our Common Stock on 12/30/2016.his retirement.

(6)
(9)One-half

The unvested portion of these performance shares vested on 01/26/2017 at 200% of target; the other one-halfthis award is scheduled to vest in January 2018. The value shown in the column, “Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested,” represents, for the performance shares that vested in January 2017, the market value of 200% (the actual payout amount) of the closing price of our Common Stockequal installments on 12/30/2016,May 3, 2019; May 3, 2020; and for the remaining one-half, the market value of 100% (assumed) of the closing price of our Common Stock on 12/30/2016.May 3, 2021.

(7)
(10)One-third of these performance shares vested on 01/26/2017 at 150% of target; an additional one-third is scheduled to vest in January 2018, and the final one-third is scheduled to vest in January 2019. The value shown in the column, “Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested,” represents, for the performance shares that vested in January 2017, the market value of 150% (the actual payout amount) of the closing price of our Common Stock on 12/30/2016, and for the remaining two-thirds, the market value of 100% (assumed) of the closing price of our Common Stock on 12/30/2016.
(11)These performance shares are scheduled to vest in one-third increments in each of January 2018, January 2019, and January 2020.

The value shown in the column, “Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested,” represents the market value of 100% (assumed) of the performance shares at the closing price of our Common Stock on 12/30/2016.Dec. 31, 2018 ($74.97 per share). The actual payout amount upon the vesting of these performance shares on Jan. 24, 2019 was 62.5% of target.

(8)

The value shown in the column, “Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested,” represents the market value of 100% of the performance shares at the closing price of our Common Stock on Dec. 31, 2018 ($74.97 per share).One-half of these performance shares vested on Jan. 24, 2019; the otherone-half is scheduled to vest in January 2020. The actual payout amount for theone-half of these performance shares that vested on Jan. 24, 2019 was 0% of target.

(9)

The value shown in the column, “Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested,” represents the market value of 100% of the performance shares at the closing price of our Common Stock on Dec. 31, 2018 ($74.97 per share).One-third of these performance shares vested on Jan. 24, 2019; an additionalone-third is scheduled to vest in January 2020, and the finalone-third is scheduled to vest in January 2021. The actual payout amount for theone-third of these performance shares that vested on Jan. 24, 2019 was 0% of target.

(10)

These performance shares are scheduled to vest inone-third increments in each of January 2020, January 2021, and January 2022. The value shown in the column, “Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested,” represents the market value of 100% of the performance shares at the closing price of our Common Stock on Dec. 31, 2018.

2019 PROXY STATEMENT51




45

EXECUTIVE COMPENSATION



OPTION EXERCISES AND STOCK VESTED
DURING THE FISCAL YEAR ENDED DECEMBER 31, 2016
Option Exercises and Stock Vested

The following table provides information regarding (i) stock option exercises by our named executive officers, and (ii) the vesting of restricted stock and performance shares held by our named executive officers during 20162018 on an aggregated basis.

   Option Awards Stock Awards (1)
 Name No. of Shares Acquired on Exercise (#)(2) Value Realized on Exercise ($)(3) No. of Shares Acquired on Vesting (#)(2) Value Realized on Vesting ($)(4)
 
 Joseph W. Gorder —
 —
    
 (5)     44,392
 2,555,406
 (6)     91,450
 5,863,317
 Michael S. Ciskowski —
 —
    
 (5)     18,670
 1,072,649
 (6)     58,944
 3,779,195
 R. Lane Riggs 8,560
 362,276
    
 (5)     14,271
 821,367
 (6)     18,385
 1,178,754
 Jay D. Browning —
 —
    
 (5)     7,937
 456,679
 (6)     18,561
 1,190,039
 Gary K. Simmons 16,432
 539,316
    
 (5)     9,375
 539,269
 (6)     13,487
 864,719

   Option Awards   Stock Awards (1) 
  

 

 

 

Name

 

  

No. of

Shares

Acquired on

Exercise

(#)(2)

 

   

Value

Realized on

Exercise

($)(3)

 

   

No. of

Shares

Acquired

on Vesting

(#)(2)

 

   

Value

Realized

on Vesting

($)(4)

 

 

Joseph W. Gorder

   85,493    8,813,331           

(5)

             41,115    3,788,979 

(6)

             115,700    11,417,855 

Donna M. Titzman

   —    —           

(5)

             4,321    398,118 

(6)

             11,423    1,127,279 

R. Lane Riggs

   —    —           

(5)

             14,780    1,362,410 

(6)

             23,016    2,271,334 

Jay D. Browning

   —    —           

(5)

             6,728    619,982 

(6)

             19,678    1,941,923 

Gary K. Simmons

   —    —           

(5)

             7,910    728,884 

(6)

             13,374    1,319,813 

Michael S. Ciskowski

   251,530    18,900,870           

(5)

             31,278    3,516,429 

(6)

             44,850    4,426,022 

Footnotes to Option Exercises and Stock Vested table:

(1)

Represents shares of Common Stock from the vesting of restricted stock and performance shares in 2016.2018.

(2)

Represents the gross number of shares received by the named executive officer before deducting any shares withheld from (i) an option’s exercise to pay the exercise price and/or tax obligation, or (ii) the vesting of restricted stock or performance shares to pay the resulting tax obligation.

(3)

The reported value is determined by multiplying (i) the number of option shares, times (ii) the difference between the market price of the Common Stock on the date of exercise and the exercise price of the stock option. The value is stated before payment of applicable taxes.

(4)

The reported value is determined by multiplying number of vested shares by the market value of the shares on the vesting date. The value is stated before payment of applicable taxes.

(5)

Represents number of shares of Common Stock and value related to vesting of restricted stock.

(6)

Represents number of shares of Common Stock and value related to vesting of performance shares.

52LOGO




46

EXECUTIVE COMPENSATION



POST-EMPLOYMENT COMPENSATION

Post-Employment Compensation

PENSION BENEFITS

The following table provides information regardingdescribes the accumulated benefits of our named executive officers under Valero’stax-qualified defined benefit plan and supplemental retirement plans during the year ended December 31, 2016.

Name Plan Name No. of Years Credited Service (#) (1) Present Value of Accumulated Benefits ($) Payments During Last Fiscal Year ($)
Joseph W. Gorder (2) Pension Plan 26.17
 889,923
 —
  Excess Pension Plan 14.67
 5,201,525
 —
  SERP 14.67
 8,152,212
 —
Michael S. Ciskowski Pension Plan 31.25
 1,376,382
 —
  Excess Pension Plan 31.25
 9,639,862
 —
  SERP 31.25
 4,550,952
 —
R. Lane Riggs Pension Plan 27.92
 898,951
 —
  Excess Pension Plan 27.92
 2,328,724
 —
  SERP 27.92
 2,692,537
 —
Jay D. Browning Pension Plan 23.29
 992,240
 —
  Excess Pension Plan 23.29
 2,638,439
 —
  SERP 23.29
 2,493,841
 —
Gary K. Simmons Pension Plan 29.52
 1,004,841
 —
  Excess Pension Plan 29.52
 2,190,504
 —
  SERP 29.52
 2,012,526
 —
2018.

Name

 

  

Plan Name

 

  

No. of Years

Credited

Service (#) (1)

 

   

Present Value of

Accumulated

Benefits ($)

 

   

Payments During

Last Fiscal

Year ($)

 

 

Joseph W. Gorder (2)

  Pension Plan   28.17    1,031,288    — 
   Excess Pension Plan   16.67    6,809,435    — 
   SERP   16.67    12,025,918    — 

Donna M. Titzman

  Pension Plan   32.29    1,238,556    — 
   Excess Pension Plan   32.29    2,585,419    — 
   SERP   32.29    2,562,130    — 

R. Lane Riggs

  Pension Plan   29.92    1,030,435    — 
   Excess Pension Plan   29.92    2,803,920    — 
   SERP   29.92    3,793,777    — 

Jay D. Browning

  Pension Plan   25.29    1,140,912    — 
   Excess Pension Plan   25.29    3,137,400    — 
   SERP   25.29    3,163,698    — 

Gary K. Simmons

  Pension Plan   31.52    1,145,869    — 
   Excess Pension Plan   31.52    2,567,211    — 
   SERP   31.52    2,522,130    — 

Michael S. Ciskowski

  Pension Plan   32.63    1,750,153    72,315 
   Excess Pension Plan   32.63    —    11,418,259 
   SERP   32.63    —    5,523,088 

Footnotes to Pension Benefits table:

(1)

The years of credited service for each of our NEOs include twofour years of service in our plans’ “Cash Balance Provision,” which commenced on JanuaryJan. 1, 2015. The remainder of the NEOs’ years of service is in the “Formula Provision” of our plans. The Formula Provision and the Cash Balance Provision are described in the narrative disclosures that follow this table.

(2)

The 26.1728.17 years of service stated for Mr. Gorder for the Pension Plan represent the sum of his participation in (a) the Valero Pension Plan since 2002 (14.67(16.67 years), and (b) the qualified pension plan of UDS (11.5 years). In 2001, Mr. Gorder received a lump sum settlement relating to prior years of service. The Pension Plan amount stated above reflects the effect of offsetting Mr. Gorder’s accrued benefit under the Valero Pension Plan by the value of his lump sum settlement in 2001. In addition, Mr. Gorder has approximately three years of service in a pension plan sponsored by an entity unaffiliated with Valero or UDS that wasspun-off from a predecessor of UDS. The 14.6716.67 years of service stated for Mr. Gorder for the Excess Pension Plan and SERP represent his participation since the date of his commencement of employment with Valero.


The present values stated above were calculated using the same interest raterates and mortality tabletables we use for our financial reporting. Present values at DecemberDec. 31, 20162018 were determined using plan-specificplan specific discount rates (4.26%(4.40 percent for Pension Plan, 3.76%4.07 percent for Excess Pension Plan, 3.67%4.02 percent for SERP) and the plans’ earliest unreduced retirement age (i.e.(i.e., age 62). The present values reflect postretirement mortality rates based on the RP2006 generational mortality table projected using scale MP2016.MP2018. No decrements were included forpre-retirement termination, mortality, or disability. When applicable, lump sums were determined based on a 4.264.40 percent interest rate and the mortality table prescribed by the IRS in Notice 2016-502018-02 for distributions in 2017.




47


2019.

Pension Plan.Plan. Under our Pension Plan, an eligible employee who is at least 55 years old may elect to retire prior to the normal retirement age of 65, provided the employee has completed as least five years of vesting service. Under the plan’s early retirement provisions, an employee may elect to commence a benefit upon retirement or delay payments to a later date. Pension payments from the Formula Provision (defined below) that begin after age 55 and before age 62 are reduced by four percent for each full year between the benefit start date and the employee’s 62nd birthday. The four-percent reduction is prorated for a partial year. The formula used to calculate the benefit and the optional forms of payment are otherwise the same as for normal retirement. Messrs.Mr. Gorder, Ciskowski,Ms. Titzman, and Mr. Browning arewere eligible for early retirement benefits.

2019 PROXY STATEMENT53

EXECUTIVE COMPENSATION


For employees hired prior to JanuaryJan. 1, 2010, the Pension Plan (supplemented, as necessary, by the Excess Pension Plan) provides a monthly pension at normal retirement equal to 1.6 percent of the participant’s average monthly compensation (based upon earnings during the three consecutive calendar years during the last 10 years of the participant’s credited service affording the highest such average) times the participant’s years of credited service. This is known as the “Formula Provision.” Each of our named executive officers was hired prior to JanuaryJan. 1, 2010.


For employees hired on or after JanuaryJan. 1, 2010, the Pension Plan (supplemented, as necessary, by the Excess Pension Plan) is a cash balance benefit that provides a monthly pension at normal retirement based on annual employer contributions that are based on years of service, eligible compensation, and pay credits. This is known as the “Cash Balance Provision.” After aone-year waiting period, pay credits are retroactive to the participant’s date of hire and are based on years of service and eligible compensation.

years of service

points (age and vesting service)

  

annual pay creditscredit percentage

under 10 years35

  5%6.0% of eligible pay
10 to 19 years

35–49

  6%7.5% of eligible pay
20 years and over

50–64

  7%9.0% of eligible pay

65–79

10.5% of eligible pay

80+

12.0% of eligible pay

In addition to pay credits, participants will also be eligible for monthly interest credits based on the10-Year U.S. treasury note rate with a minimum of 3 percent.


In 2013, we began to implement changes to certain of our U.S. qualified pension plans that cover the majority of our U.S. employees. Benefits under our primary pension plan changed from a final average pay formula (the Formula Provision) to the Cash Balance Provision with staged effective dates from July 1, 2013 through JanuaryJan. 1, 2015, depending on the age and service of the affected employees. All final average pay benefits under the Formula Provision were frozen as of DecemberDec. 31, 2014. On JanuaryJan. 1, 2015, participants formerly under the Formula Provision in the Pension Plan transitioned to the Cash Balance Provision, with all future Pension Plan benefits to be earned under the new cash balance formula.


Excess Pension Plan.Plan. Our Excess Pension Plan provides benefits to those employees whose pension benefits under our defined benefit Pension Plan are subject to limitations under the Internal Revenue Code, or are otherwise indirectly constrained by the Code from realizing the maximum benefit available to them under the terms of Pension Plan. The Excess Pension Plan is designed as an “excess benefit plan” as defined under §3(36) of ERISA, for those benefits provided in excess of section 415 of the Code. The Excess Pension Plan is not intended to be either a qualified plan under the provisions of Section 401(a) of the Code, or a funded plan subject to the funding requirements of ERISA.




48


Subject to other terms of the Excess Pension Plan, the benefit payable under the plan in the Formula Provision is generally an amount equal to “x” minus “y”, where “x” is equal to 1.6 percent of a participant’s final average monthly earnings (as determined under the Excess Pension Plan) multiplied by the participant’s number of years of credited service, and “y” is equal to the participant’s benefit that is payable under the Pension Plan. The benefit payable under the Excess Pension Plan in the Cash Balance Provision is generally an amount equal to “x” minus “y”, where “x” is equal to the accumulated account balance that the participant would be entitled to receive without regard to the limitations, and “y” is equal to the participant’s accumulated account balance that is payable under the Pension Plan. The Excess Pension Plan benefit is made in a lump sum. A participant’s benefits under the Excess Pension Plan will vest concurrently with the vesting of the participant’s benefits under the Pension Plan.


SERP.

SERP. Our Supplemental Executive Retirement Plan (SERP) provides an additional benefit equal to 0.35 percent times the product of the participant’s years of credited service (maximum 35 years) multiplied by the excess of the participant’s average monthly compensation over the lesser of 1.25 times the monthly average (without indexing) of the social security wage bases for the35-year period ending with the year the participant attains social security retirement age, or the monthly average of the social security wage base in effect for the year that the participant retires. The participant’s most highly compensated consecutive 36 months of service are considered. The SERP benefit payment is made in a lump sum. A participant in the SERP will vest in the SERP benefit when he or she reaches age 55 (and has completed at least five years of credited service). An executive will become a participant in the SERP as of the date he or she is selected and named in the minutes of the Compensation Committee for inclusion as a participant in the SERP.

Generally, an employee participates in either the Excess Pension Plan or the SERP.

Compensation for purposes of the Pension Plan, Excess Pension Plan, and SERP includes salary and bonus. No extra years of credited service have been granted to any of our named executive officers.

54LOGO




49

EXECUTIVE COMPENSATION



NONQUALIFIED DEFERRED COMPENSATION
Nonqualified Deferred Compensation

The following table describes contributions by Valero and each named executive officer under ournon-qualified defined contribution and other deferred compensation plans during 2016.2018. The table also presents each named executive officer’s earnings, withdrawals (if any), andyear-end balances in these plans.

    
Executive
Contribu-
tions in
Last FY ($)
 
Registrant
Contribu-
tions in Last
FY ($) (1)
 
Aggregate
Earnings in
 Last FY ($)
 
Aggregate
Withdraw-
als/Distri-
butions ($)
 
Aggregate
Balance
at Last
FYE ($)
Joseph W. Gorder Deferred Compensation Plan —
 —
 —
 —
 —
 Excess Thrift Plan —
 82,950
 —
 —
 702,072
Michael S. Ciskowski Deferred Compensation Plan —
 —
 53,577
 —
 345,495
 Excess Thrift Plan —
 43,750
 —
 —
 1,373,070
R. Lane Riggs Deferred Compensation Plan —
 —
 —
 —
 —
 Excess Thrift Plan —
 26,250
 —
 —
 185,118
  
UDS Non-qualified 401(k) Plan (2)
 —
 —
 1,809
 —
 42,197
Jay D. Browning Deferred Compensation Plan —
 —
 —
 —
 —
 Excess Thrift Plan —
 23,000
 —
 —
 348,862
Gary K. Simmons Deferred Compensation Plan —
 —
 —
 —
 —
 Excess Thrift Plan —
 21,000
 —
 —
 146,241
  
UDS Non-qualified 401(k) Plan (2)
 —
 —
 10,749
 —
 90,677

      

Executive

Contributions

in Last FY ($)

 

 

Registrant

Contributions

in Last

FY ($) (1)

 

 

Aggregate

Earnings in

Last FY ($)

 

 

Aggregate

Withdrawals/

Distributions ($)

 

 

  Aggregate  

Balance

at Last

FYE ($)

 

 

Joseph W. Gorder

 

 

Excess Thrift Plan

  

 

 

 

—

 

  

 

 

 

96,950

 

  

 

 

 

—

 

  

 

 

 

—

 

  

 

 

 

1,029,655

 

Donna M. Titzman

 Excess Thrift Plan   —   25,667   —   —   577,436

R. Lane Riggs

 Excess Thrift Plan   —   36,750   —   —   289,367
  

UDSNon-qualified

401(k) Plan (2)

   —   —   (234)   —   43,816

Jay D. Browning

 Excess Thrift Plan   —   26,250   —   —   463,659

Gary K. Simmons

 Excess Thrift Plan   —   24,500   —   —   223,270
  

UDSNon-qualified

401(k) Plan (2)

   —   —   (7,128)   —   97,028

Michael S. Ciskowski

 

Deferred

Compensation Plan

   —   —   (53,285)   —   365,259
  Excess Thrift Plan   —   16,351   —   1,941,259   —

Footnotes to Nonqualified Deferred Compensation table:

(1)

All of the amounts included in this column are also included within the amounts reported as “All Other Compensation” for 20162018 in the Summary Compensation Table.

(2)

Valero assumed the UDSNon-qualified 401(k) Plan when Valero acquired UDS in 2001. This plan is frozen.


Our Deferred Compensation Plan and Excess Thrift Plan are described in “Compensation Discussion and Analysis—Elements of Executive Compensation—Post-Employment Benefits.” The following terms also apply to these plans.


Under the Deferred Compensation Plan (DC Plan), participants may elect when and over what period of time their deferrals will be distributed based on plan provisions. Participants may elect to have their accounts distributed in a lump sum on a specified date, at leastthree-to-five years after the year of the deferral election. Even if a participant has elected a specified distribution date, the participant’s DC Plan account will be distributed upon the participant’s death, retirement, or other termination of employment. Participants may, at the time of their deferral elections, choose to have their accounts distributed as soon as reasonably practical following retirement or other termination, or on the first day of January following the date of retirement or termination.


Participants may also elect to have their accounts distributed in one lump sumlump-sum payment or in 5, 10, or 15 year installments upon retirement, and in a lump sum or five annual installments upon other termination. For the period beginning in 2010, participants may also electtwo- to have their accounts distributed in one lump-sum payment or in two- to 15-year installments upon retirement. Upon a participant’s death, the participant’s beneficiary will receive the participant’s DC Plan balance in onelump-sum payment within 90 days following the participant’s death. Upon a change in control of Valero, all DC Plan accounts are immediately vested in full; however,full, and distributions are not accelerated and, instead, arethereafter made in accordance with the DC Plan’splan’s normal distribution provisions.


50



The Excess Thrift Plan provides benefits to participants of our qualified thrift plan whose accounts would not otherwise be credited with company matching contributions due to certain IRS limits on contributions and/or compensation. The Excess Thrift Plan is neither a qualified plan for federal tax purposes nor a funded plan subject to ERISA. Two separate components comprise the Excess Thrift Plan: (i) an “excess benefit plan” as defined under Section 3(36) of ERISA; and (ii) a plan that is unfunded and maintained primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees.

2019 PROXY STATEMENT55




51

EXECUTIVE COMPENSATION



POTENTIAL PAYMENTS UPON TERMINATION OR Potential Payments Upon Termination or Change of Control

CHANGE OF CONTROL

Generally
We SEVERANCE AGREEMENTS

Our current executive officers have entered into a change-of-controlchange of control severance agreementagreements with each of our named executive officers.Valero. The agreements seek to assure the continued availability of the officers in the event of a change of control of Valero. When a change of control occurs, the agreements become operative for a fixed three-year period. The agreements provide generally that the officers’ terms of employment will not be changed materially during the three-year period afterthree years following a change of control. Each agreement subjects the officer to certain obligations of confidentiality, both during the term and after termination, for information relating to Valero that the officer acquired during his employment. The footnotes to the tables that accompany these disclosures further describe the terms and conditions of our executives’ change-of-control severancethe agreements.

When determining the amounts and benefits payable under the agreements, the Compensation Committee and Valero sought to secure compensation that is competitive in our market to recruit and retain executive talent. Consideration was given to the principal economic terms found in change-of-controlchange of control severance agreements of other publicly traded companies at the time the agreements were executed.

Recent Changes
In 2014, ourcompanies.

POLICY FEATURES

Our Board has adopted a policy regarding the vesting of performance shares in achange-of-control context. The policy provides that performance shares granted in 2014 and thereafter willnot vest automatically upon the date of a change of control of Valero. The Compensation Committee may provide inInstead, the participant’s award agreementperformance share agreements contain a double trigger feature, so that if a participant’saccelerated vesting of performance shares will not occur until the officer’s employment with Valero is terminated following a change of control,control. At that time, any unvested performance shares held by the participantofficer will vest on a partial,pro rata basis, oncommensurate with the dateofficer’s months of service during the participant’s terminationapplicable performance period.

Our change of employment, with such qualifications for an award as the Committee may determine.

Our change-of-controlcontrol severance agreements do not contain taxgross-up benefits. TheAll agreements for all of our officers were amended in January 2013 to eliminate thegross-up benefit that formerly entitled the officers to receive a payment to make them whole for any excise tax on excess parachute payments imposed under Section 4999 of the Internal Revenue Code. Valero has adopted a policy that this benefit may not be included in any future change of control agreements.
Terms and Conditions

TERMS AND CONDITIONS

For purposes of the agreements, “change of control” means any of the following (subject to additional particulars as stated in the agreements):

the acquisition by an individual, entity, or group of beneficial ownership of 20 percent or more of our outstanding Common Stock;

the ouster from the Board of a majority of the incumbent directors;

consummation of a business combination (e.g.(e.g., merger, share exchange); or.

approval by stockholders of the liquidation or dissolution of Valero.

In the agreements, “cause” is defined to mean, generally, the willful and continued failure of the officer to perform substantially the officer’s duties, or illegal or gross misconduct by the officer that is materially and demonstrably injurious to Valero. “Good reason” is defined to mean, generally:

a diminution in the executive officer’s position, authority, duties and responsibilities;

relocation of the executive (or increased travel requirements); or

failure of Valero’s successor to assume and perform under the agreement.



52


The following tables disclose potential payments (calculated per SEC regulations) to our named executive officers in connection with a change of control of Valero. If an officer’s employment is terminated for “cause,” the officer will not receive any benefits or compensation other than accrued salary or vacation pay that was unpaid as of the date of termination; therefore, there is no presentation of termination for “cause” in the following tables. Values in the tables assume that a change of control occurred on DecemberDec. 31, 2016,2018, and that the officer’s employment was terminated on that date.

56LOGO


POTENTIAL PAYMENTS UNDER CHANGE OF CONTROL SEVERANCE AGREEMENTS
A.    Termination of Employment by the Company other than for “Cause,”

Disability or Death, or by the Executive for “Good Reason” (1) ($)EXECUTIVE COMPENSATION

Component of Payment Gorder Ciskowski Riggs Browning Simmons
Salary (2) 4,350,000
 2,670,000
 1,280,000
 1,190,000
 1,130,000
Bonus (2) 11,700,000
 5,577,000
 1,024,000
 1,840,000
 734,500
Pension, Excess Pension, and SERP 7,670,177
 5,557,322
 —
 1,396,301
 —
Contributions under Defined Contribution Plans 304,500
 186,900
 —
 83,100
 —
Health & Welfare Plan Benefits (3) 61,641
 41,448
 49,820
 53,108
 49,820
Outplacement Services 25,000
 25,000
 25,000
 25,000
 25,000
Accelerated Vesting of Stock Options (4) 288,502
 114,065
 52,687
 50,316
 34,571
Accelerated Vesting of Restricted Stock (4) 6,322,606
 2,252,852
 2,174,557
 1,044,340
 1,211,724
Accelerated Vesting of Performance Shares (5) 9,906,878
 4,510,965
 1,888,296
 1,810,138
 1,251,486


B.    Termination of Employment by the Company because of Death or

Disability (6) and Termination by the Executive other than for “Good Reason” (7) ($)

Component of Payment Gorder Ciskowski 
Riggs (7)
 Browning 
Simmons (7)
Accelerated Vesting of Stock Options (4)
 288,502
 114,065
 52,687
 50,316
 34,571
Accelerated Vesting of Restricted Stock (4)
 6,322,606
 2,252,852
 2,174,557
 1,044,340
 1,211,724
Accelerated Vesting of Performance Shares (5)
 9,906,878
 4,510,965
 1,888,296
 1,810,138
 1,251,486


C.    Continued Employment FollowingPotential Payments Under Change of Control (8) ($)Severance Agreements
Component of Payment Gorder Ciskowski Riggs Browning Simmons
Salary, Bonus, Pension, Excess Pension, SERP, Contributions under Defined Contribution Plans, Health & Welfare Benefits (8) (8) (8) (8) (8)
Accelerated Vesting of Stock Options (4) 288,502
 114,065
 —
 50,316
 —
Accelerated Vesting of Restricted Stock (4) 6,322,606
 2,252,852
 —
 1,044,340
 —
Vesting of Performance Shares (8) 1,736,694
 1,275,261
 —
 381,636
 —

(footnotes for these tables begin on the following page)



53


A.

Termination of Employment (i) by the Company other than for “Cause”

or (ii) by the Executive for “Good Reason” (1) ($)

  Component of Payment  Gorder   Titzman   Riggs   Simmons 

Salary (2)

   4,980,000    1,350,000    1,600,000    1,250,000 

Bonus (2)

   13,875,000    1,680,000    1,280,000    812,500 

Pension, Excess Pension, and SERP

   11,869,671    3,079,393    —    — 

Contributions under Defined Contribution Plans

   348,600    89,834    —    — 

Health & Welfare Plan Benefits (3)

   75,060    42,192    55,312    55,312 

Outplacement Services

   25,000    25,000    25,000    25,000 

Accelerated Vesting of Restricted Stock (4)

   5,720,661    913,210    2,004,023    1,040,134 

Accelerated Vesting of Performance Shares (5)

 

   

 

3,174,980

 

 

 

   

 

319,372

 

 

 

   

 

694,147

 

 

 

   

 

345,162

 

 

 

B.

Continued Employment Following Change of Control (6) ($)

  Component of Payment  Gorder   Titzman   Riggs   Simmons 

Salary, Bonus, Pension, Excess Pension, SERP, Contributions under Defined Contribution Plans, Health & Welfare Benefits

               (6)            (6)            (6)              (6) 

Accelerated Vesting of Restricted Stock (4)

 

   

 

5,720,661

 

 

 

   

 

913,210

 

 

 

   

 

—

 

 

 

   

 

—

 

 

 

Footnotes for Potential Payments Under Change of Control Severance Agreements tables:

(1)

If the officer’s employment is terminated by the company other than for “cause” or death or disability,“cause,” or if the officer terminates his or her employment for “good reason,” the officer is generally entitled to receive the following:

(a) a lump sum cash payment equal to the sum of (i) accrued and unpaid compensation through the date of termination, including a pro-rata annual bonus (for this table, we assumed that the officer’s bonus for the year of termination was paid at year-end), (ii) two times (three times for Messrs. Gorder and Ciskowski) the sum of the officer’s annual base salary plus the officer’s eligible bonus amount, (iii) for Messrs. Gorder, Ciskowski, and Browning, the actuarial present value of the pension benefits (qualified and nonqualified) the officer would have received for an additional three years of service (two years for Mr. Browning), and (iv) for Messrs. Gorder, Ciskowski, and Browning, the equivalent of three years (two years for Mr. Browning) of employer contributions under Valero’s tax-qualified and supplemental defined contribution plans;
(b) continued welfare benefits for two years (three years for Messrs. Gorder and Ciskowski); and
(c) up to $25,000 of outplacement services.

(a)

a lump sum cash payment equal to the sum of:

(i)

accrued and unpaid compensation through the date of termination, including apro-rata annual bonus (for this table, we assumed that the officer’s bonus for the year of termination was paid atyear-end);

(ii)

two times (three times for Mr. Gorder) the sum of (A) the officer’s annual base salary plus (B) the officer’s eligible bonus amount;

(iii)

the actuarial present value of the pension benefits (qualified and nonqualified) Mr. Gorder would have received for an additional three years of service (two years of service for Ms. Titzman) (Messrs. Riggs and Simmons do not participate in this element of compensation); and

(iv)

for Mr. Gorder, the equivalent of three years (two years for Ms. Titzman) of employer contributions under Valero’stax-qualified and supplemental defined contribution plans (Messrs. Riggs and Simmons do not participate in this element of compensation);

(b)

continued welfare benefits for two years (three years for Mr. Gorder); and

(c)

up to $25,000 of outplacement services.

If employment is terminated by reason of death or disability, the officer’s estate will be entitled to receive a lump sum cash payment equal to any accrued and unpaid salary and vacation pay plus a prorated bonus amount earned per the terms of the agreement. In the case of disability, the officer would be entitled to disability and related benefits at least as favorable as those provided by Valero under its programs during the 120 days prior to the officer’s termination of employment.

If the officer voluntarily terminates employment other than for “good reason,” he or she will be entitled to a lump sum cash payment equal to any accrued and unpaid salary and vacation pay plus a prorated bonus amount earned per the terms of the agreement.

Data for Mr. Browning and Mr. Ciskowski are not included in the tables because theirchange-of-control severance agreements expired upon their termination of employment with Valero. Therefore, there are no amounts payable to Mr. Browning or Mr. Ciskowski upon a change of control of Valero.

2019 PROXY STATEMENT57

EXECUTIVE COMPENSATION

Footnotes for Potential Payments Under Change of Control Severance Agreements tables (cont.):

(2)

We assumed each officer’s compensation at the time of eachthe triggering event to be as stated below. The listed salary is the executive officer’s rate of pay as of DecemberDec. 31, 2016.2018. The listed bonus amounts for Messrs.Mr. Gorder Ciskowski, and BrowningMs. Titzman represent the highest bonus earned by the executive in any of fiscal years 2014, 2015,2016, 2017, or 20162018 (the three years prior to the assumed change of control). The listed bonus amounts for Messrs. Riggs and Simmons represent the target bonus in effect prior to the assumed change of control.

Name Salary Bonus
Joseph W. Gorder $1,450,000 $3,900,000
Michael S. Ciskowski $890,000 $1,859,000
R. Lane Riggs $640,000 $512,000
Jay D. Browning $595,000 $920,000
Gary K. Simmons $565,000 $367,250

  Name  Salary   Bonus 

Joseph W. Gorder

  $1,660,000   $4,625,000 

Donna M. Titzman

  $675,000   $840,000 

R. Lane Riggs

  $800,000   $640,000 

Gary K. Simmons

  $625,000   $406,250 

(3)

The executive is entitled to coverage under health and welfare benefit plans (e.g.(e.g., health, dental, etc.) for two years (threeyearsfor Messrs. Gorder and Ciskowski)Mr. Gorder) following the date of termination.

(4)

For Messrs.Mr. Gorder Ciskowski, and Browning,Ms. Titzman, upon a change of control of Valero, the vesting periods on outstanding stock options and shares of restricted stock are automatically accelerated to the date of the change of control. For Messrs. Riggs and Simmons, the vesting periods on outstanding stock options and shares of restricted stock are accelerated following a change of control upon the executive’s termination of employment other than(double trigger) so long as the termination is (i) for cause, or (ii) voluntary termination by the executive other than for cause, in the case of involuntary termination, or (ii) for “good reason” or retirement. Forreason,” in the case of voluntary termination. There are no values presented in the foregoing tables for accelerated vesting of stock options the amounts stated in the table represent the assumed cash valuebecause all of the acceleratedstock options derivedheld by multiplying (a) the difference between $68.32 (the closing price of Common Stock on the NYSE on December 30, 2016), and the options’ exercise prices, times (b) the number of option shares.our NEOs are fully vested. For shares of restricted stock, the amounts stated in the table represent the product of (a) the number of shares whose restrictions lapsed,for which vesting is accelerated, and (b) $68.32$74.97 (the closing price of Common Stock on the NYSE on December 30, 2016)Dec. 31, 2018).

(5)
Performance

Outstanding performance shares granted in 2014 and thereafter do not vest automatically upon the date of a change of control of Valero. Instead, for theseaccelerated vesting of performance shares if anoccurs when the executive’s employment with Valero is terminated following a change of control (double trigger). In that event, the unvested performance shares held by the executiveofficer will vest on a partial,pro rata basis on the date of histhe officer’s termination of employment. Automatic acceleration of

The amounts disclosed in the vesting of performance shares upontable assume that a change of control of Valero was possible only for the final tranche of theoccurred Dec. 31, 2018. For outstanding performance shares awarded in 2013. (This final tranche2016, the amount included in the table represents apro rata payout of common shares based upon the 2013officer’s 24 months of service during the shortened performance period ending Dec. 31, 2018 (pro rata shares times $74.97, the closing price of Common Stock on the NYSE on Dec. 31, 2018), assuming a payout at 100%.

For outstanding performance shares vested on January 26,awarded in 2017, the amount included in the table represents apro rata payout of common shares based upon the officer’s 12 months of service during the shortened performance periods ending Dec. 31, 2018 (pro rata shares times $74.97), assuming a payout at 100%.

For outstanding performance shares awarded in 2018, the amount included in the table is zero because the first measurable performance period for the shares would begin Jan. 1, 2019, and the officer will have zero months of service during any measurable performance period; therefore zero shares are no longer outstanding.)of Common Stock would be earned.


(footnote (5) continues on the following page)


54


Footnotes for Potential Payments Under Change of Control Severance Agreements table (cont.):
footnote (5) continued
The amounts disclosed in the table assume that a change of control occurred December 31, 2016. For the final tranche of performance shares awarded in 2013 (which was outstanding on December 31, 2016), the amounts included in the table represent the product of (a) the number of performance shares subject to accelerated vesting because of the assumed change of control, times 200%, times (b) $68.32 (the closing price of Common Stock on the NYSE on December 30, 2016).
For outstanding performance shares awarded in 2014, the amount included in the table represents a pro rata payout of common shares based upon the officer’s 24 months of service during the shortened performance periods ending December 31, 2016 (pro rata shares times $68.32).
For outstanding performance shares awarded in 2015, the amount included in the table represents a pro rata payout of common shares based upon the officer’s 12 months of service during the shortened performance periods ending December 31, 2016 (pro rata shares times $68.32).
For outstanding performance shares awarded in 2016, the amount included in the table is zero because the first measurable performance period for the shares would begin January 1, 2017, and the officer will have zero months of service during any measurable performance period; therefore zero shares of Common Stock would be earned.

(6)If employment is terminated by reason of death or disability, the officer’s estate will be entitled to receive a lump sum cash payment equal to any accrued and unpaid salary and vacation pay plus a bonus amount earned per the terms of the agreement. In the case of disability, the officer would be entitled to disability and related benefits at least as favorable as those provided by Valero under its programs during the 120 days prior to the officer’s termination of employment.
(7)If the officer voluntarily terminates employment other than for “good reason,” he will be entitled to a lump sum cash payment equal to any accrued and unpaid salary and vacation pay plus a bonus amount earned per the terms of the agreement (prorated to the date of termination; in this example, we assumed that the officers’ bonuses for the year of termination were paid at year-end). In such an event for Mr. Riggs and Mr. Simmons, the restriction periods on their outstanding equity awards will not be accelerated, and they will not be entitled to the amounts stated in the table.
(8)

The agreements provide for a three-year term of employment following a change of control, and generally provide that the officer will continue to enjoy compensation and benefits per the terms in effect prior to the change of control. In addition, for Messrs.Mr. Gorder Ciskowski, and Browning,Ms. Titzman, all outstanding (i) stock options (ii)and shares of restricted stock and (iii) performance shares awarded before 2014 will vest on the date of the change of control (see footnotesfootnote (4) & (5) above).


58LOGO


55



DIRECTOR COMPENSATION

This table summarizes compensation earned by our directors for the year ended December 31, 2016.

  Fees Earned or Paid in Cash ($) Stock Awards ($)(1) Total ($)
Jerry D. Choate (retired May 12, 2016)
 60,000
 —
 60,000
H. Paulett Eberhart 60,000
 141,680
 201,680
Joseph W. Gorder —
 —
 (2)
Kimberly S. Greene 60,000
 141,680
 201,680
Deborah P. Majoras 140,000
 170,038
 310,038
Donald L. Nickles 120,000
 170,038
 290,038
Philip J. Pfeiffer 120,000
 170,038
 290,038
Robert A. Profusek 145,000
 170,038
 315,038
Susan Kaufman Purcell 120,000
 170,038
 290,038
Stephen M. Waters 120,000
 170,038
 290,038
Randall J. Weisenburger 140,000
 170,038
 310,038
Rayford Wilkins, Jr. 140,000
 170,038
 310,038
in 2018.

    

Fees Earned or Paid

in Cash ($)

  Stock Awards ($) (1)  Total ($)

H. Paulett Eberhart

   

 

130,000

   

 

175,046

   

 

305,046

Joseph W. Gorder

   

 

—

   

 

—

   

 

(2

)

Kimberly S. Greene

   

 

130,000

   

 

175,046

   

 

305,046

Deborah P. Majoras

   

 

150,000

   

 

175,046

   

 

325,046

Donald L. Nickles

   

 

130,000

   

 

175,046

   

 

305,046

Philip J. Pfeiffer

   

 

130,000

   

 

175,046

   

 

305,046

Robert A. Profusek

   

 

160,000

   

 

175,046

   

 

335,046

Susan Kaufman Purcell(retired May 3, 2018)

   

 

65,000

   

 

—

   

 

65,000

Stephen M. Waters

   

 

130,000

   

 

175,046

   

 

305,046

Randall J. Weisenburger

   

 

150,000

   

 

175,046

   

 

325,046

Rayford Wilkins, Jr.

   

 

150,000

   

 

175,046

   

 

325,046

Footnotes to Director Compensation table:

table:

(1)

The amounts shown represent the grant date fair value of awards granted in 2016,2018, computed in compliance with FASB ASC Topic 718. In 2016, eachEach of ournon-employee directors who wasre-elected to the Board on May 12, 20163, 2018 (the date of our 20162018 annual stockholders meeting), received a grant of 3,0691,557 stock units, representing the right to receive 1,557 shares of restricted Common Stock. Ms. Eberhart and Ms. Greene received a pro rata grant of 2,404 restricted sharesStock, which are described more fully in connection with their appointmentthe narrative following the footnotes to the Board as new directors in 2016.this table. Valero did not grant stock options to any director in 2016.2018. The following table presents for eachnon-employee director nominee the number of unvested restricted shares of Common Stock and stock units held as of DecemberDec. 31, 2016.2018. There are no outstanding stock options (vested or unvested) held by any of ournon-employee directors.

  Name  

Unvested

Restricted Stock

  

Stock

Units

H. Paulett Eberhart

    2,607    1,557

Kimberly S. Greene

    2,607    1,557

Deborah P. Majoras

    2,829    1,557

Donald L. Nickles

    2,829    1,557

Philip J. Pfeiffer

    2,829    1,557

Robert A. Profusek

    2,829    1,557

Stephen M. Waters

    2,829    1,557

Randall J. Weisenburger

    2,829    1,557

Rayford Wilkins, Jr.

    2,829    1,557

NameUnvested Restricted Stock
H. Paulett Eberhart2,404
Kimberly S. Greene2,404
Deborah P. Majoras5,979
Donald L. Nickles5,979
Philip J. Pfeiffer5,979
Robert A. Profusek5,979
Susan Kaufman Purcell5,979
Stephen M. Waters5,979
Randall J. Weisenburger5,979
Rayford Wilkins, Jr.5,979
(2)

Mr. Gorder did not receive any compensation as director of Valero in 2016.2018. His compensation for service as an executive officer in 20162018 is presented earlier in this proxy statement in the compensation tables for our named executive officers.


In 2016 our

Ournon-employee directors earnedearn an annual cash retainer of $120,000.$130,000. Valero pays an annual retainer in lieu of separate meeting or committee fees. In addition to the retainer, directors who chair the Audit, Compensation, and Nominating/Governance and Public Policy Committees earnedearn an additional



56


$20,000 $20,000 cash payment for their service as chair,Chair, and the director who servedserves as the designated Lead Director earnedearns an additional $25,000$30,000 cash payment for service in this role. Directors are reimbursed for expenses of meeting attendance. Directors who are employees of Valero do not receive compensation for serving as directors.

In addition to the annual cash payments, beginning in 2018, eachnon-employee director who is wasre-elected on the date of our annual stockholders meeting receives areceived an equity grant in the form of restricted shares of Common Stockstock units (described below) valued at $170,000, with vesting scheduled to occur over three years.$175,000. Grants of equity awards supplement the cash compensation paid to ournon-employee directors and serve to increase our directors’ identification with the interests of our stockholders through ownership of Common Stock.

2019 PROXY STATEMENT59


DIRECTOR COMPENSATION

Our Compensation Committee reviews our director compensation program at least annually with assistance and input from our compensation consultant. The annual review includes an assessment of the director compensation programs of our peers and of industry trends and developments. On September 20, 2016,Nov. 1, 2017, following our Compensation Committee’s review of ournon-employee directors director compensation program and the programs of our peers, the Board approved an increaseadopted a change in the equity portion of ournon-employee director compensation program by approving a grant of stock units to bedirectors in lieu of shares of restricted stock.

Each stock unit represents the right to receive one share of Valero Common Stock, and is scheduled to vest (become nonforfeitable) in full on the date of Valero’s next annual meeting of stockholders for the election of directors. The stock unit award also includes a dividend equivalent award, representing the right to receive, on the vesting date of the stock unit award, a payment in cash in an amount equal to the cumulative amount of dividends paid to our non-employee directors.holders of Common Stock during the period when the stock unit remained outstanding prior to vesting—calculated as if each stock unit held by the director was an outstanding share of Common Stock. The increasechange was approved to more closely alignsalign our program with that of our peers.peers and with general industry practice. The Board approved an increase inchange was effective on May 3, 2018, the directors’date of our 2018 annual cash retainer from $120,000 to $130,000, an increase in the valuemeeting of the annual equity grant from $170,000 to $175,000, and an increase in the Lead Director’s annual cash retainer from $25,000 to $30,000. The increases were effective January 1, 2017.


On February 25,stockholders.

In 2016, the Board approved a limitation on the amount of equity compensation that may be paid to ournon-employee directors in any year. The limitation was implemented via an amendment to our 2011 Omnibus Stock Incentive Plan. The limitation provides that anon-employee director may not receive in any calendar year awards payable in shares of Common Stock that have a fair market value greater than $500,000 in the aggregate. We selected $500,000 as the amount of the limitation because we believe that it places a meaningful limit on awards to ournon-employee directors. While the amount of equity compensation awarded to ournon-employee directors in recent years has been considerably lower than this limit, we believe that setting a limitation at this level provides us with a reasonable degree of flexibility to make adjustments that we may in the future deem appropriate or necessary for our compensation program to remain competitive in the market.

60LOGO


   PAY RATIO DISCLOSURE

The median of the annual total compensation of all employees of Valero, except our CEO, for 2018 was $153,981, and the annual total compensation of our CEO, Mr. Gorder, for 2018 was $18,759,156 (as disclosed in the Summary Compensation Table). As a result, our CEO’s 2018 annual total compensation was 122 times that of the median annual total compensation of all employees of Valero.

To determine the median of the annual total compensation of all employees as of Dec. 31, 2018, we first identified the median employee using the sum of base pay, annual bonus, and the grant date fair value of long-term incentive awards. Once the median employee was identified, we then determined that median employee’s annual total compensation using the Summary Compensation Table methodology set out in Item 402(c)(2)(x) of SEC RegulationS-K.

Our total employee population (U.S. andnon-U.S.) as of Dec. 31, 2018, was approximately 10,250 employees. To determine the median employee for purposes of this disclosure, following thede minimis exemption under Item 402(u)(4)(ii) ofRegulation S-K, we excluded all of our employees in Peru (124 employees) and all of our employees in Mexico (8 employees); the excluded employees represent less than five percent of our total employees. We did not exclude any employees under the data privacy exemption of Item 402(u)(4)(i).

    

Median Employee to CEO

Pay Ratio

    

Median

Employee ($)

  CEO ($)

Salary

   

 

110,456

   

 

1,660,000

Stock Awards

   

 

—

   

 

10,931,251

Non-Equity Incentive Plan Compensation

   

 

16,272

   

 

4,625,000

Change in Pension Value and Nonqualified Deferred Compensation Earnings

   

 

—

   

 

1,353,779

All Other Compensation

   

 

27,253

   

 

189,126

Total Compensation

   

 

153,981

   

 

18,759,156

Median Employee to CEO Pay Ratio

    1:122

2019 PROXY STATEMENT61

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

REVIEW

Review

Our Board has adopted a Related Party Transaction Policy to establish procedures for the notification, review, approval, ratification, and disclosure of related party transactions. Under the policy, a related party transaction is a transaction, arrangement, or relationship in which (i) Valero (including any of its subsidiaries) was, is or will be a participant, (ii) the amount involved exceeds $120,000, and (iii) any “related person” had, has or will have a direct or indirect material interest. Under the policy, a related person means, generally, any person who would be deemed to be a “related person” as defined in Item 404 of SEC’s RegulationS-K. Under the policy, a related party transaction must be submitted to the Board’s Nominating/Governance and Public Policy Committee for review and approval. The policy is available on our website at www.valero.com > Investors > Corporate Governance > Governance Documents.

We also have a conflictConflict of interest policyInterest Policy to address instances in which an employee or director’s private interests may conflict with the interests of Valero. The policy is published on our intranet website. We have a Conflicts of Interest Committee (composed of Valero employees) to help administer our conflicts policy and to determine whether any employee or director’s private interests may interfere with the interests of Valero. Conflicts of interest are also addressed in ourCode of Business Conduct and Ethics. Any waiver of any provision of this code for executive officers or directors may be made only by the Board, and will be promptly disclosed as required by law or NYSE rule.

62LOGO


57


TRANSACTIONS WITH VALERO ENERGY PARTNERS LP
Relationship with VLP
Valero, through its subsidiaries, owns more than five percent of the common units Valero Energy Partners LP (VLP). Valero also owns, through its wholly owned subsidiary, the 2.0 percent general partner interest in VLP (the “General Partner”). The common units representing limited partner interests of VLP are listed for trading on the NYSE under the symbol “VLP.” References in this section of our proxy statement to “VLP” means Valero Energy Partners LP, one or more of its subsidiaries, or all of them taken as a whole. Our transactions with VLP are deemed to be related party transactions for purposes of these disclosures.
Mr. Gorder is Chairman of the Board and Chief Executive Officer of the General Partner. Mr. Riggs is a member of the board of directors of the General Partner. Mr. Browning is as an executive officer of the General Partner.
Distributions to Us and Other Payments from VLP
In 2016, we received $79.0 million in distributions from VLP with respect to our ownership of limited partner and general partner interests of VLP. On February 10, 2017, we received $26.0 million of distributions from VLP with respect to our limited partner and general partner interests.
Under VLP’s partnership agreement, VLP reimburses the General Partner and its affiliates, including Valero, for costs and expenses they incur and payments they make on behalf of VLP.
Agreements with VLP
2016 Contribution Agreements
Effective April 1, 2016, we entered into a contribution agreement with VLP under which we contributed to VLP a subsidiary that owns and operates a crude oil, intermediates, and refined petroleum products terminal supporting our McKee Refinery for total consideration of $240.0 million, which consisted of (i) a cash distribution to us of $204.0 million and (ii) the issuance to us of 728,775 common units of VLP and 14,873 general partner units of VLP; the common units and the general partner units had an aggregate value of $36.0 million.
Effective September 1, 2016, we entered into a contribution agreement with VLP under which we contributed to VLP our Meraux Terminal and Three Rivers Terminal for total consideration of $325.0 million, which consisted of (i) a cash distribution to us of $276.0 million and (ii) the issuance to us of 1,149,905 common units of VLP and 23,467 general partner units of VLP; the common units and the general partner units had an aggregate value of $49.0 million.
Omnibus Agreement
We have an amended and restated omnibus agreement with VLP, which addresses the following key matters:
the payment to us by VLP of an annual administrative fee of $12.5 million for our provision of certain services to VLP;
VLP’s obligation to reimburse us for certain direct or allocated costs and expenses that we may incur on behalf of VLP;
VLP’s right of first offer through December 16, 2018, to acquire certain of our transportation and logistics assets;


58


our right of first refusal to acquire certain of VLP’s assets; and
the parties’ indemnification obligations to one another.
So long as we control the General Partner, the omnibus agreement will remain in effect. If we cease to control the General Partner, either party may terminate the omnibus agreement, provided that the indemnification obligations will remain in effect in accordance with their terms.
Services and Secondment Agreement
Under our services and secondment agreement with the General Partner, as amended, certain of our employees are seconded to the General Partner to provide operational and maintenance services for certain pipelines and terminals of VLP, including routine operational and maintenance activities. During their period of secondment to the General Partner, the seconded employees are under the management and supervision of the General Partner.
The General Partner is required to reimburse us for the cost of the seconded employees, including their wages and benefits. If a seconded employee does not devote 100 percent of his or her time to providing services to the General Partner, the General Partner is required to reimburse us for only a prorated portion of such employee’s overall wages and benefits, based on the percentage of the employee’s time spent working for the General Partner. The services and secondment agreement will continue for an initial term of 10 years from the Service Date (as described in the agreement) with respect to each asset, and will extend automatically for successive renewal terms of one year each, unless terminated by either party per the terms of the agreement.
Tax Sharing Agreement
Under our tax sharing agreement with VLP, VLP is required to reimburse us for VLP’s share of state and local income and other taxes that we incur as a result of VLP’s tax items and attributes being included in a combined or consolidated state tax return filed by Valero. The amount of any such reimbursement is limited to any entity-level tax that VLP would have paid directly had VLP not been included in a combined group with Valero.
Lease Agreements
We have lease agreements with VLP with respect to the land on which certain VLP terminals are located. Generally, each lease agreement has an initial term of ten years with four automatic successive renewal periods of five years each. Either party may terminate each lease agreement after the initial term by providing written notice. We also have a ground lease agreement with VLP with an initial term of 20 years and no renewal periods. Initial base rents under these lease agreements are subject to annual inflation escalators, and VLP is required to pay us a customary expense reimbursement for taxes, utilities, and similar costs we incur related to the leased premises.
Commercial Agreements
We have entered into commercial agreements with VLP with respect to certain assets owned by VLP. Under these commercial agreements, VLP provides transportation and terminaling services to us. We have committed to pay VLP for minimum quarterly throughput volumes of crude oil and refined petroleum products, regardless of whether we physically deliver such volumes in any given quarter. These agreements have initial five-year terms, and under most of the agreements, we will have the option to renew the agreement with respect to each asset for one additional five-year term.
For the year ended December 31, 2016, we accounted for all of VLP’s revenues. VLP’s gross operating revenues for the year ended December 31, 2016, were $362.6 million.



59



PROPOSAL NO. 2—
RATIFY APPOINTMENT OF KPMG LLP

AS INDEPENDENT AUDITORS

(Item

      (ITEM 2 on the proxy card)

ON THE PROXY CARD)

The Audit Committee of the Board determined on February 23, 2017,Feb. 28, 2019, to engage KPMG LLP (“KPMG”) as Valero’s independent registered public accounting firm for the fiscal year ending DecemberDec. 31, 2017.2019. KPMG has served as Valero’s independent registered public accounting firm for fiscal years ended December 31, 2004 and following.

since 2004.

The Audit Committee is directly responsible for the appointment, compensation determination, retention, and oversight of the independent auditors retained to audit Valero’s financial statements. The Audit Committee is responsible for the audit fee negotiations and fee approval associated with Valero’s retention of the independent auditing firm.

The Audit Committee annually reviews and evaluates the qualifications, performance, and independence of Valero’s independent auditing firm, and reviews and evaluates the lead partner of the independent auditor team. In conjunction with the mandated rotation of the audit firm’s lead engagement partner, the Audit Committee is involved in the selection of the audit firm’s new lead engagement partner. To monitor auditor independence, the Audit Committee periodically considers whether there should be a rotation of the independent auditing firm.

The members of the Audit Committee and the Board believe that the continued retention of KPMG to serve as Valero’s independent registered public accounting firm for the fiscal year ending DecemberDec. 31, 20172019, is in the best interests of Valero and its investors. Accordingly, the Board requests stockholder approval of the following resolution.

“RESOLVED, that the appointment of the firm of KPMG LLP as Valero’s independent registered public accounting firm for the purpose of conducting an audit of the consolidated financial statements and the effectiveness of internal control over financial reporting of Valero and its subsidiaries for the fiscal year ending DecemberDec. 31, 20172019, is hereby approved and ratified.”


The Board recommends that the stockholders vote “FOR” this proposal. Representatives of KPMG are expected to be present at the Annual Meeting to respond to appropriate questions raised at the Annual Meeting or make appropriate statements at the Annual Meeting.

Representatives of KPMG are expected to be present at the Annual Meeting to respond to appropriate questions raised at the Annual Meeting or make appropriate statements at the Annual Meeting.

LOGO

The Board recommends that the stockholders vote “FOR” this proposal.

The affirmative vote of a majority of the voting power of the shares present in person or by proxy and entitled to vote is required for adoption of this proposal. If the appointment is not approved, the adverse vote will be considered as an indication to the Audit Committee that it should select another independent registered public accounting firm for the following year. Because of the difficulty and expense of making any substitution of public accountants so long after the beginning of the current year, it is contemplated that the appointment for 20172019 will be permitted to stand unless the Audit Committee finds other good reason for making a change.

2019 PROXY STATEMENT63



60



KPMG LLP FEES

The following table presents fees for services provided to us by KPMG for the years shown (in millions).

  2016 2015
Audit Fees (1)
 $7.5
 $7.2
Audit-Related Fees (2)
 0.3
 0.3
Tax Fees (3) —
 0.2
All Other Fees (4)
 0.3
 0.1
total $8.1
 $7.8

    2018   2017 

Audit Fees (1)

  

 

9.0

 

  

$

7.6

 

Audit-Related Fees (2)

  

 

0.4

 

  

 

0.3

 

Tax Fees (3)

  

 

0.5

 

  

 

0.3

 

All Other Fees

  

 

—

 

  

 

—

 

total

  

$

9.9

 

  

$

8.2

 

(1)

Represents fees for professional services rendered for the audit of the annual financial statements included in Valero’s annual reports on Form10-K, review of Valero’s interim financial statements included in Valero’s Forms10-Q, the audit of the effectiveness of Valero’s internal control over financial reporting, and services that are normally provided by the principal auditor (e.g.(e.g., comfort letters, statutory audits, attest services, consents, and assistance with and review of documents filed with the SEC). In addition to the services listed above, KPMG served as the independent auditor of the financial statements included in the annual reports on Form10-K of Valero Energy Partners LP (VLP) for the years ended DecemberDec. 31, 20162018 and 2015,2017, and the audit of the effectiveness of VLP’s internal control over financial reporting as of DecemberDec. 31, 20162018 and DecemberDec. 31, 2015.2017. KPMG’s fees relating to VLP audits for 20162018 and 20152017 were $2.075$1.47 million and $1.325$1.50 million, respectively.

The amounts stated in the table above do not include the amounts for the foregoing VLP audits.

(2)

Represents fees for assurance and related services that are reasonably related to the performance of the audit or review of Valero’s financial statements and not reported under the caption for Audit Fees. The fees listed above are related to the audit of Valero’s benefit plans.plans and one assurance service (Canada Renewable Fuels regulation audit).

(3)

Represents fees for professional services rendered by KPMG for tax compliance tax advice, and tax planningconsulting services.

(4)Represents For 2018, the fees for for professional services other thanprimarily relate to property tax consulting and compliance services. For 2017, the services reportedmajority of the disclosed fees relate to technical review and assistance on the assessment of potential elections under the preceding captions. The fees shown were for advisory services.IRS’s inventory price index computation LIFO rules.


AUDIT COMMITTEE PRE-APPROVAL POLICY

Audit CommitteePre-Approval Policy

The Audit Committee adopted apre-approval policy to address thepre-approval of certain services rendered to Valero by its independent auditor. The text of that policy appears in Exhibit 99.01 to Valero’s Annual Report on Form10-K for the year ended DecemberDec. 31, 2014.

2017.

All of the services rendered by KPMG to Valero for 20162018 werepre-approved specifically by the Audit Committee or pursuant to ourpre-approval policy. None of the services provided by KPMG were approved by the Audit Committee under thepre-approval waiver provisions of paragraph (c)(7)(i)(C) ofRule 2-01 ofRegulation S-X.

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61



REPORT OF THE AUDIT COMMITTEE FOR FISCAL YEAR 20162018

Management is responsible for Valero’s internal controls and financial reporting process. KPMG LLP (KPMG), Valero’s independent registered public accounting firm for the fiscal year ended DecemberDec. 31, 2016,2018, is responsible for performing an independent audit of Valero’s consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board (“PCAOB”), and an audit of the effectiveness of Valero’s internal control over financial reporting in accordance with the standards of the PCAOB, and to issue KPMG’s reports thereon. The Audit Committee monitors and oversees these processes. The Audit Committee approves the selection and appointment of Valero’s independent registered public accounting firm and recommends the ratification of its selection and appointment to our Board.


The Audit Committee has reviewed and discussed Valero’s audited financial statements with management and KPMG. The committee has discussed with KPMG the matters required to be discussed by the statement on Auditing Standards No. 61, as amended (AICPA,Professional Standards, Vol. 1. AU section 380 “Communication with Audit Committees”), as adopted by the PCAOB in Rule 3200T. The committee has received the written disclosures and the letter from KPMG required by applicable requirements of the PCAOB regarding the independent accountant’s communications with the audit committee concerning independence, and has discussed with KPMG that firm’s independence.


Based on the foregoing review, discussions, and other matters the Audit Committee deemed relevant and appropriate, the committee recommended to the Board that the audited financial statements of Valero be included in its Annual Report on Form10-K for the year ended DecemberDec. 31, 2016,2018, for filing with the SEC.


Members of the Audit Committee:

Randall J. Weisenburger, Chairman

Chair

H. Paulett Eberhart

Susan Kaufman Purcell

Stephen M. Waters


The material in this Report of the Audit Committee is not “soliciting material,” is not deemed filed with the SEC, and is not to be incorporated by reference in any of Valero’s filings under the Securities Act or the Exchange Act, respectively, whether made before or after the date of this proxy statement and irrespective of any general incorporation language therein.

2019 PROXY STATEMENT65



62



PROPOSAL NO. 3—
ADVISORY VOTE TO APPROVE

COMPENSATION OF NAMED EXECUTIVE OFFICERS

(Item

      (ITEM 3 on the proxy card)

ON THE PROXY CARD)

Our Board and our stockholders have determined to hold an advisory vote on executive compensation(“say-on-pay”) every year. Accordingly, we are asking stockholders to vote to approve the 20162018 compensation of our named executive officers as such compensation is disclosed pursuant to Item 402 of the SEC’sRegulation S-K, including the Compensation Discussion and Analysis, the compensation tables, and other narrative compensation disclosures required by Item 402. This proxy statement contains all of these required disclosures.


We request the stockholders to approve the following resolution:

“RESOLVED, that the compensation paid to Valero’s named executive officers, as disclosed pursuant to Item 402 of RegulationS-K, including the Compensation Discussion and Analysis, compensation tables, and narrative discussion, is hereby approved.”

Because the vote on this proposal is advisory, it will not affect compensation already paid or awarded to any named executive officer and will not be binding on Valero, the Board, or the Compensation Committee. The Board and Compensation Committee, however, will review the voting results and take into account the outcome in determining future annual compensation for the named executive officers.


The Board recommends that the stockholders vote “FOR” this proposal.

Proxies will be voted for approval of the proposal unless otherwise specified. Approval of this proposal requires the affirmative vote of a majority of the shares present in person or represented by proxy at the meeting and entitled to vote on the proposal.

LOGO

The Board recommends that the stockholders vote “FOR” this proposal.

66LOGO

   MISCELLANEOUS

Governance Documents and Codes of the proposal unless otherwise specified. Approval of this proposal requires the affirmative vote of a majority of the shares present in person or represented by proxy at the meeting and entitled to vote on the proposal.Ethics




63


PROPOSAL NO. 4—
ADVISORY VOTE TO RECOMMEND THE FREQUENCY
OF STOCKHOLDER VOTES ON EXECUTIVE COMPENSATION
(Item 4 on the proxy card)
The SEC requires issuers, not less frequently than once every six calendar years, to provide a separate stockholder advisory vote to determine whether the advisory stockholder vote on compensation (as described in Proposal 3 above) will occur every one, two, or three years. We presented our first proposal for this recommendation at the annual meeting of stockholders held in 2011. We are therefore re-presenting this proposal at this year’s Annual Meeting to give stockholders the opportunity to express their preferred frequency for an advisory vote on compensation.

When voting on this proposal, you may make your choice among one year, two years, three years, or abstain, by marking the box on your proxy card that corresponds to your choice.

The Board recommends that stockholders have an annual vote (“every year”) on executive compensation and requests that the stockholders approve the following resolution.

“RESOLVED, that the stockholders recommend that Valero include, pursuant to Section 14A of the Securities Exchange Act of 1934, an advisory vote on the compensation of Valero’s named executive officers every:
ýyear
¨two years
¨three years
¨abstain

The Board recommends that the stockholders vote for the stockholder advisory vote on executive compensation to occur every year. Any uninstructed proxy cards will be voted for approval of the proposal as marked above (i.e., for an “every-year” frequency) unless otherwise specified.

You are not voting to approve or disapprove the Board’s recommendation, but you are being asked to recommend to the Board your preference from among the choices stated above on the frequency of stockholder votes on executive compensation.

Because the vote on this proposal is advisory in nature, it will not be binding on Valero, the Board or the Compensation Committee. However, the Board and Compensation Committee will review the voting results and take into account the outcome in determining the frequency of future advisory votes on executive compensation.




64


MISCELLANEOUS

GOVERNANCE DOCUMENTS AND CODES OF ETHICS

OurCode of Ethics for Senior Financial Officers applies to our principal executive officer, principal financial officer, and controller. The code charges these officers with responsibilities regarding honest and ethical conduct, the preparation and quality of the disclosures in documents and reports we file with the SEC, and compliance with applicable laws, rules, and regulations. We have also adopted aCode of Business Conduct and Ethics which applies to all of our employees and directors.


We post the following documents on our website at www.valero.com > Investors > Corporate Governance > Governance Documents. A printed copy of any of these documents is available to any stockholder upon request. Requests for documents must be in writing and directed to Valero’s Secretary at the address indicated on the cover page of this proxy statement.

Restated Certificate of Incorporation

Bylaws

Code of Business Conduct and Ethics

Code of Ethics for Senior Financial Officers

Corporate Governance Guidelines

Audit Committee Charter

Compensation Committee Charter

Nominating/Governance and Public Policy Committee Charter

Related Party Transactions Policy

Compensation Consultant Disclosures Policy

Policy on Executive Compensation in Restatement Situations

Policy on Political Contributions, Lobbying, and Trade Associations

Policy on Vesting of Performance Shares


STOCKHOLDER COMMUNICATIONS, NOMINATIONS, AND PROPOSALS
Stockholder Communications, Nominations, and Proposals

Stockholders and other interested parties may communicate with the Board, itsnon-management directors, or the Lead Director by sending a written communication addressed to “Board of Directors,” “Non-Management“Non-Management Directors,” or “Lead Director” in care of Valero’s Secretary at the address indicated on the cover page of this proxy statement.


If you wish

In order to submit a stockholder proposal to be includedfor inclusion in our proxy statement for the 20182020 annual meeting of stockholders pursuant toRule 14a-8 of the Exchange Act, we must receive your written proposal on or before November 22, 2017.Nov. 21, 2019. The proposal must comply withRule 14a-8, which lists the requirements for the inclusion of stockholder proposals in company-sponsored proxy materials.


If you wish to

To present a stockholder proposal at the 20182020 annual meeting of stockholders that is not the subject of a proposal pursuant toRule 14a-8 of the Exchange Act, or if you wish to recommend to the Board’s Nominating/Governance and Public Policy Committee the nomination of a person for election to the Board, you must follow the procedures stated in Article I, Section 9 of our bylaws. These procedures include the requirement that your proposal must be delivered to Valero’s Secretary not later than the close of business on the 90th day or earlier than the close of business on the 120th day prior to the first anniversary of the preceding year’s annual meeting. If the date of the annual meeting is more than 30 days before or more than 60 days after such anniversary date, your notice must be delivered not earlier than the close of business on the 120th day prior to such annual meeting and not later than the close of business on the later of the 90th day



65


prior to such annual meeting or the 10th day following the day we publicly announce the date of the 20182020 annual meeting of stockholders.

An eligible stockholder, or eligible group of stockholders, that wisheswants to nominate a candidate for election to the Board pursuant to the proxy access provisions of our bylaws must follow the procedures stated in Article I, Section 9A of our bylaws. These procedures include the requirement that your nomination must be delivered to Valero’s Secretary not later than the close of business on the 120th day or earlier than the close of business on the 150th day prior to the first anniversary of the preceding year’s annual meeting. If the date of the annual meeting is more than 30 days before or more than 60 days after such anniversary date, your notice must be delivered not later than the 120th day prior to such annual meeting or, if later, the 10th day following the day we publicly announce the date of the 20182020 annual meeting of stockholders.


Our bylaws are available on our website at www.valero.com > Investors > Corporate Governance > Governance Documents. Stockholders are urged to review all applicable rules and consult legal counsel before submitting a nomination or proposal to Valero.

2019 PROXY STATEMENT67


OTHER BUSINESS

MISCELLANEOUS

Other Business

If any matters not referred to in this proxy statement properly come before the Annual Meeting or any adjournments or postponements thereof, the enclosed proxies will be deemed to confer discretionary authority on the individuals named as proxies to vote the shares represented by proxy in accordance with their best judgments. The Board is not currently aware of any other matters that may be presented for action at the Annual Meeting.


FINANCIAL STATEMENTS
Financial Statements

Consolidated financial statements and related information for Valero, including audited financial statements for the fiscal year ended DecemberDec. 31, 2016,2018, are contained in Valero’s Annual Report on Form10-K. We have filed our Annual Report on Form10-K with the SEC. You may review this report on the internet as indicated in the Notice and through our website (www.valero.com > Investors > Financial Information > SEC Filings).


HOUSEHOLDING
Householding

The SEC’s rules allow companies to send a single Notice or single copy of annual reports, proxy statements, prospectuses, and other disclosure documents to two or more stockholders sharing the same address, subject to certain conditions. These “householding” rules are intended to provide greater convenience for stockholders, and cost savings for companies, by reducing the number of duplicate documents that stockholders receive. If your shares are held by an intermediary broker, dealer, or bank in “street name,” your consent to householding may be sought, or may already have been sought, by or on behalf of the intermediary. If you prefer to receive your own set of proxy materials now or in future years, you may request a duplicate set by phone at800-579-1639, or you may contact your broker.




66



TRANSFER AGENT
Transfer Agent

Computershare Investor Services serves as our transfer agent, registrar, and dividend paying agent with respect to our Common Stock. Correspondence relating to any stock accounts, dividends, or transfers of stock certificates should be addressed to:

Computershare Investor Services

Shareholder Communications

250 Royall

by regular mail:

P.O. Box 505000

Louisville, KY 40233-5000

by overnight delivery:

462 South 4th Street

Canton, Massachusetts 02021

Suite 1600

Louisville, KY 40202

(888) 470-2938

(312) 360-5261

www.computershare.com

68LOGO

www.computershare.com

Annex A

Adjusted earnings per common share—assuming dilution

for the year ended December 31, 2018

Earnings per common share—assuming dilution (GAAP)

  $7.29 

Exclude adjustments:

  

Blender’s tax credit attributable to Valero Energy Corporation stockholders (a)

   0.18 

Texas City Refinery fire expenses (b)

   (0.02) 

Environmental reserve adjustments (c)

   (0.20) 

Loss on early redemption of debt (d)

   (0.07) 

Income tax benefit from tax reform (e)

   0.03 

Total adjustments

   (0.08) 

Adjusted earnings per common share—assuming dilution

 

  $

 

7.37

 

 

 

(a)

The biodiesel blender’s tax credit is attributable to volumes blended during 2017 and is not related to 2018 activities.

(b)

The costs incurred to respond to and assess the damage caused by the fire that occurred at our Texas City Refinery on April 19, 2018, are specific to that event and are not ongoing costs incurred in our operations.

(c)

The environmental reserve adjustments are attributable to sites that were shut down by prior owners and subsequently acquired by us (referred to by us asnon-operating sites).

(d)

The penalty and other expenses incurred in connection with the early redemption of our 9.375% senior notes due March 15, 2019 are not associated with the ongoing costs of our borrowing and financing activities.

(e)

Income tax benefit from enactment of the Tax Cut and Jobs Act of 2017 is associated with changes in U.S. tax legislation and is not indicative of our core performance.

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A-1


67



valerologopcarda2015a02a03.jpg

LOGO

VALERO ENERGY CORPORATION

ONE VALERO WAY
SAN ANTONIO, TXTEXAS 78249
Investor Address Line Investor Address Line Investor Address Line Investor Address Line Investor Address Line John Sample 1234 ANYWHERE STREET ANY CITY, ON A1A 1A1 1 2 3 4 5 1 1 1 OF 2 VOTE BY INTERNET - INTERNET—www.proxyvote.com
Use the Internet to transmit your voting instructions and for electronic delivery of information up untilinformation. Vote by 11:59 P.M. Eastern Time the day before the cut-off date or meeting date.ET on 04/29/2019 for shares held directly and by 11:59 P.M. ET on 04/25/2019 for shares held in a Plan. Have your proxy card in hand when you access the web site and follow the instructions to obtain your records and to create an electronic voting instruction form.

ELECTRONIC DELIVERY OF FUTURE PROXY MATERIALS
If you would like to reduce the costs incurred by our company in mailing proxy materials, you can consent to receiving all future proxy statements, proxy cards and annual reports electronically viae-mail or the Internet. To sign up for electronic delivery, please follow the instructions above to vote using the Internet and, when prompted, indicate that you agree to receive or access proxy materials electronically in future years.

VOTE BY PHONE - PHONE—1-800-690-6903
Use any touch-tone telephone to transmit your voting instructions up untilinstructions. Vote by 11:59 P.M. Eastern Time the day before the cut-off date or meeting date.ET on 04/29/2019 for shares held directly and by 11:59 P.M. ET on 04/25/2019 for shares held in a Plan. Have your proxy card in hand when you call and then follow the instructions.

VOTE BY MAIL
Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717.





NAME THE COMPANY NAME INC.—COMMON THE COMPANY NAME INC.—CLASS A THE COMPANY THE COMPANY THE COMPANY THE COMPANY THE COMPANY NAME INC.—CLASS F THE COMPANY NAME INC.—401 K NAME INC.—CLASS B NAME INC.—CLASS C NAME INC.—CLASS D NAME INC.—CLASS E CONTROL# SHARES PAGE → 1 OF 123,456,789,012.12345 123,456,789,012.12345 123,456,789,012.12345 123,456,789,012.12345 123,456,789,012.12345 123,456,789,012.12345 123,456,789,012.12345 123,456,789,012.12345 2 x TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS:
KEEP THIS PORTION FOR YOUR RECORDS
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
DETACH AND RETURN THIS PORTION ONLY
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.

Valero Energy Corporation            
 Vote on Directors            
 
The Board of Directors recommends a vote “FOR” the following action:
     Vote on Proposals     
 1.Elect directors to serve until the 2018 annual meeting of stockholders. ForAgainstAbstain The Board of Directors recommends a vote FOR proposals 2 and 3.     
  Nominees:           
  1a. H. Paulett Eberhart 000   ForAgainstAbstain 
  1b. Joseph W. Gorder 000 2.Ratify the appointment of KPMG LLP as Valero Energy’s independent registered public accounting firm for 2017. 000 
  1c. Kimberly S. Greene 000        
  1d. Deborah P. Majoras 000 3.Approve, by nonbinding vote, the 2016 compensation of our named executive officers. 000 
  1e. Donald L. Nickles 000        
  1f. Philip J. Pfeiffer 000 
The Board of Directors recommends a vote for “1 YEAR” on the following proposal.
     
  1g. Robert A. Profusek 000    1 Year2 Years3 YearsAbstain
  1h. Susan Kaufman Purcell 000 4.Advisory vote to recommend the frequency of stockholder votes on executive compesnation. 0000
  
1i. Stephen M. Waters

 000        
  
1j. Randall J. Weisenburger

            
  
1k. Rayford Wilkins, Jr.

            
        
NOTE: Such other business as may properly come before the meeting or any adjournment thereof.
     
               
 Please sign exactly as your name(s) appear(s) hereon. When signing as attorney, executor, administrator, or other fiduciary, please give full title as such. Joint owners should each sign personally. All holders must sign. If a corporation or partnership, please sign in full corporate or partnership name by authorized officer.      
               
           
 Signature [PLEASE SIGN WITHIN BOX] Date  Signature (Joint Owners) Date  







The Board of Directors recommends you vote “FOR” the following action: 1. Elect directors to serve until the 2020 Annual Meeting of Stockholders. Nominees 1A H. Paulett Eberhart 1B Joseph W. Gorder 1C Kimberly S. Greene 1D Deborah P. Majoras 1E Donald L. Nickles 1F Philip J. Pfeiffer 1G Robert A. Profusek 1H Stephen M. Waters 18 . 1 . 0 . 1I Randall J. Weisenburger R1 1 1J Rayford Wilkins, Jr. Please sign exactly as your name(s) appear(s) hereon. When signing as attorney, executor, administrator, or other fiduciary, please give full title as such. Joint owners should each sign personally. All holders must sign. If a corporation or partnership, please sign in full corporate or partnership name by authorized officer. 0000398231 Signature [PLEASE SIGN WITHIN BOX] For 0 0 0 0 0 0 0 0 0 0 JOB# Date Against Abstain 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 The Board of Directors recommends you vote “FOR” proposals 2 and 3. 2. 3. NOTE: Such other business as may properly come before the meeting or any adjournment thereof. Signature (Joint Owners) Ratify the appointment of KPMG LLP as Valero’s independent registered public accounting firm for 2019. Approve, bynon-binding vote, the 2018 compensation of our named executive officers. Date For 0 0 SEQUENCE# Against Abstain 0 0 SHARES CUSIP# 0 0

LOGO

Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting:

Combo Document (Notice The Notice and Proxy Statement and Annual Report on Form 10-K) is10-K is/are available at www.proxyvote.com.


- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
VALERO ENERGY CORPORATION
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
ANNUAL MEETING OF STOCKHOLDERS
MAY 3, 2017
The stockholder(s) hereby revoke(s) all previous proxies and appoint(s) Joseph W. Gorder, Jay D. Browning and J. Stephen Gilbert, or any of them, as proxies, each with the power to appoint his substitute, and hereby authorizes them to represent and to vote, as designated on the reverse side of this ballot, all of the shares of Common Stock of Valero Energy Corporation that the stockholder(s) is/are entitled to vote at the Annual Meeting of Stockholders to be held on Wednesday, May 3, 2017 at 10:00 a.m., Central Time, at the Valero Energy Corporation offices located at One Valero Way, San Antonio, TX 78249, and any adjournment or postponement thereof.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AS SPECIFIED ON THE REVERSE SIDE. IF NO SPECIFICATION IS MADE, THIS PROXY WILL BE VOTED “FOR” ALL NOMINEES FOR DIRECTOR, “FOR” PROPOSALS 2 AND 3, AND FOR “1 YEAR” ON PROPOSAL 4. IF ANY OTHER MATTERS ARE VOTED ON AT THE MEETING, THIS PROXY WILL BE VOTED BY THE NAMED PROXIES ON SUCH MATTERS IN THEIR SOLE DISCRETION.
YOUR TELEPHONE OR INTERNET VOTE AUTHORIZES THE NAMED PROXIES TO VOTE THE SHARES IN THE SAME MANNER AS IF YOU MARKED, SIGNED AND RETURNED YOUR PROXY CARD.
Continued and to be signed on reverse side



www.proxyvote.com VALERO ENERGY CORPORATION ANNUAL MEETING OF STOCKHOLDERS April 30, 2019 THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS The stockholder(s) hereby revoke(s) all previous proxies and appoint(s) Joseph W. Gorder, Jason W. Fraser and J. Stephen Gilbert, or any of them, as proxies, each with the power to appoint his substitute, and hereby authorizes them to represent and to vote, as designated on the reverse side of this ballot, all of the shares of Common Stock of Valero Energy Corporation that the stockholder(s) is/are entitled to vote at the Annual Meeting of Stockholders to be held on Tuesday, April 30, 2019 at 10:00 a.m., Central Time, at the Valero Energy Corporation offices located at One Valero Way, San Antonio, TX 78249, and any adjournment or postponement thereof. THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AS SPECIFIED ON THE REVERSE SIDE. IF NO SPECIFICATION IS MADE, THIS PROXY WILL BE VOTED “FOR” ALL NOMINEES FOR DIRECTOR, AND “FOR” PROPOSALS 2 AND 3. IF ANY OTHER MATTERS ARE VOTED ON AT THE MEETING, THIS PROXY WILL BE VOTED BY THE NAMED PROXIES ON SUCH MATTERS IN THEIR SOLE DISCRETION. YOUR TELEPHONE OR INTERNET VOTE AUTHORIZES THE NAMED PROXIES TO VOTE THE SHARES IN THE SAME MANNER AS IF YOU MARKED, SIGNED AND RETURNED YOUR PROXY CARD. Continued and to be signed on reverse side