Board and Committee Independence
| The principal committee structure of the Board includes the audit and finance, compensation, corporate governance and nominating, and health, environmental, safety and corporate responsibility committees. These committees are comprised entirely of independent directors.
In determining independence, the Board affirmatively determines whether directors have no material relationship with the Company. When assessing materiality, the Board considers all relevant facts and circumstances including, without limitation, transactions between the Company and the director directly, immediate family members of the director, or organizations with which the director is affiliated, and the frequency and dollar amounts associated with these transactions. The Board further considers whether the transactions were at arm’s length in the ordinary course of business and whether the transactions were consummated on terms and conditions similar to those of unrelated parties. In 2012, the Board considered royalty payments totaling $6,550,631 received by the Company from a wholly-owned subsidiary of a companyeach director and director nominee. The Corporate Governance and Nominating Committee considers all relevant facts and circumstances including, without limitation, transactions during the previous year between the Company and the director directly, immediate family members of the director, organizations with which the director is affiliated, and the frequency and dollar amounts associated with these transactions. The Corporate Governance and Nominating Committee further considers whether the transactions were at arm’s length in the ordinary course of business and whether the transactions were consummated on terms and conditions similar to those of unrelated parties. The Committee then makes a recommendation to the Board with respect to the independence of each director and director nominee.
In assessing the independence of each director who served on the Board during 2015, the Corporate Governance and Nominating Committee considered: royalty payments received by a subsidiary of the Company from a subsidiary of Peabody Energy Corporation, at which Mr. Boyce served as chairman and chief executive officer; contributions to the University of Wyoming Foundation, of which Mr. Deaton is a board member, made pursuant to a commitment entered into before Mr. Deaton joined the Board; contributions to Rensselaer Polytechnic Institute, of which Ms. Jackson is president; royalty interests paid to family members and/or trusts affiliated with Mr. Deaton; and contributions to non-profit organizations of which Messrs. Deaton and Lader or their immediate family members are affiliates. Based on these considerations, the standards in our Corporate Governance Principles and the recommendation of the Corporate Governance and Nominating Committee, the Board determined that the following directors are independent: | | | | | Gaurdie E. Banister, Jr. | Chadwick C. Deaton | Michael E.J. Phelps | Gregory H. Boyce is chairman and chief executive officer, contributions by the Company totaling $14,000 to Rensselaer Polytechnic Institute, a university which | Marcela E. Donadio | Dennis H. Reilley | | Pierre Brondeau (former director) | Philip Lader | Shirley Ann Jackson is the President, and contributions to universities and other not-for-profit organizations of which Pierre Brondeau, Linda Z. Cook, and Philip Lader or their immediate family members are directors, trustees or affiliates, with no contribution exceeding $50,000. These transactions did not exceed the thresholds set forth in the categorical standards discussed below.The Board uses the following categorical standards to determine director independence: (1) not being a present or former employee, or having an immediate family member as an executive officer, of the Company within the past three years; (2) not personally receiving, or having an immediate family member receive, any direct compensation from the Company in excess of $120,000 during any twelve-month period within the last three years, other than compensation for board or committee service, pension or other forms of deferred compensation for prior service, or compensation paid to an immediate family member who is a non-executive employee of the Company; (3) with respect to the Company’s external auditor, (a) not being engaged, or having an immediate family member engaged, as a current partner by the Company’s external auditor, (b) not being a current employee of the Company’s external auditor, (c) not having an immediate family member who is a current employee of the Company’s external auditor and who participates in such firm’s audit, assurance or tax compliance (but not tax planning) practice, or (d) not being engaged or employed or having an immediate family member engaged or employed, within the past three years (but is no longer) a partner or employee of such firm and personally worked on the Company’s audit within that time; (4) not being employed, or having an immediate family member employed, within the past three years as an executive officer of another company where now or at any time during the past three years any of the Company’s present executive officers serve or served on the other company’s compensation committee; (5) not being a current employee, or having an immediate family member who is a current executive officer, of a company that makes or made payments to, or receives or received payments from, the Company for property or services in an amount which, in any of the three preceding fiscal years, exceeded the greater of $1 million, or 2% of the other company’s consolidated gross revenues; and (6) not being an executive officer of a tax-exempt organization of which the Company has within the three preceding fiscal years made any contributions to that organization in any single fiscal year that exceeded the greater of $1 million, or 2% of the tax-exempt organization’s consolidated gross revenues.
Applying these categorical standards, the Board determined that the following directors qualify as independent: Gregory H. Boyce; Pierre Brondeau; Linda Z. Cook; Shirley Ann Jackson; Philip Lader; Michael E. J. Phelps; and Dennis H. Reilley.
(former director) |
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As CEO of the Company, Mr. Tillman is not independent. DIRECTOR DIVERSITY The Corporate Governance and Nominating Committee is responsible for reviewing with the Board the appropriate skills and characteristics required of Board members in the context of the Board’s current make-up. When we have an opening on the Board, we will always look at a diverse pool of candidates, considering each candidate’s business or professional experience, demonstrated leadership ability, integrity and judgment, record of public service, diversity, financial and technological acumen and international experience. We view and define diversity in its broadest sense, which includes gender, ethnicity, age, education, experience and leadership qualities. Of the eight director nominees, one is an officer of Marathon Oil, five have top executive experience with a wide variety of businesses, one has extensive audit and public accounting experience, and one has a distinguished career as an international business leader and diplomat. Each nominee’s background and qualifications are discussed further on the following pages.
MARATHON OIL | 2016 PROXY STATEMENT 5
NOMINEES FOR DIRECTOR | TERMS EXPIRE 2017 YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE FOR EACH NOMINEE
Audit and Finance Committee
| The Audit and Finance Committee has a written charter adopted by the Board, which is available on the Company’s website at http://www.marathonoil.com/Audit_Committee_Charter/. The charter requires the committee to reassess and report to the Board on the adequacy of the charter on an annual basis, which the committee did in 2012. All the members of the Audit and Finance Committee are independent (as independence is defined in Exchange Act Rule 10A-3, as well as the general independence requirements of New York Stock Exchange (“NYSE”) Rule 303A.02).
This committee is, among other things, responsible for:
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| appointing, replacing, compensating and overseeing the work of the independent auditor;
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| reviewing the fees proposed by the independent auditor for the coming year and approving in advance all audit, audit-related, tax and permissible non-audit services to be performed by the independent auditor;
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| separately meeting with the independent auditor, the internal auditors and management with respect to the status and results of their activities;
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| reviewing and assuring the rotation of the lead audit partner
Mr. Banister, 58, retired as required by law and considering whether rotation of the independent auditor firm is necessary; |
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| reviewing with the chief executive officer, the chief financial officer, and the general counsel the Company’s disclosure controls and procedures and management’s conclusions about the efficacy of such disclosure controls and procedures;
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| reviewing, approving and discussing with management and the independent auditor the annual and quarterly financial statements, reports of internal control over financial reporting, the annual report to stockholders, and the Form 10-K;
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| reviewing earnings press releases;
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| discussing with management guidelines and policies to govern the process by which risk assessment and management is undertaken by the Company;
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| reviewing and recommending dividends;
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| approving and recommending financings, including the recommendations of action to subsidiaries, partnerships and joint ventures;
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| reviewing and reporting on the Company’s compliance with financial covenants and other terms of loans and other agreements;
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| reviewing year-end hydrocarbon reserve estimates and tax estimates;
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| reviewing legal and regulatory compliance regarding the Company’s financial statements, accounting or auditing matters or compliance with the Code of Business Conduct or Policy for Whistleblowing Procedures; and
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| completing an annual performance evaluation of this committee.
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| The Audit and Finance Committee has the authority to investigate any matter brought to its attention with full access to all books, records, facilities and personnel of the Company, and to retain outside legal, accounting or other consultants.
Audit and Finance Committee Policy For Pre-Approval of Audit, Audit-Related, Tax and Permissible Non-Audit Services
The Audit and Finance Committee Policy For Pre-Approval of Audit, Audit-Related, Tax and Permissible Non-Audit Services is attached as Appendix I to this proxy statement and is also available on the Company’s website at http://www.marathonoil.com/Policy_PreAppAudit_Tax_NonAudit/. Among other things, this
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| policy sets forth the procedure for the committee to pre-approve all audit, audit-related, tax and permissible non-audit services, other than as provided under the de minimus exception. Notwithstanding the de minimus exception, it is the intent of the committee that standard practice will be to pre-approve all permissible non-audit services. The committee delegated pre-approval authority of up to $500,000 to the Audit and Finance Committee Chair for unbudgeted items.
Audit Committee Financial Expert
Based on the attributes, education and experience requirements set forth in Section 407 of the Sarbanes-Oxley Act of 2002 and associated regulations, the Board has determined that Michael E. J. Phelps and Dennis H. Reilley each qualify as an “Audit Committee Financial Expert.”
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| Mr. Phelps held a number of senior executive positions, including chief executive officer and chief financial officer for Westcoast Energy, Inc. In addition to his master’s of Law degree, he holds a bachelor of arts degree in economics and history.
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| Mr. Reilley is a former non-executive chairman of Covidien Ltd. He also served as chairman and chief executive officer of Praxair, Inc. In addition to certifying the effectiveness of internal controls and procedures required by his position as CEO, Mr. Reilley’s experience included serving as former chair of Entergy Corporation’s audit committee. He holds a bachelor of science degree in finance from Oklahoma State University.
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Hiring of Employees or Former Employees of the Independent Auditor
This policy provides that the Company shall not hire any employee or former employee of its independent auditor for a position in a financial reporting oversight role if such employee or former employee was the lead or concurring partner, or any other member of the audit engagement team who provided more than ten hours of audit, review or attest services during the one-year period preceding the date of the initiation of the audit. The complete policy statement is available on the Company’s website at http://www.marathonoil.com/Guide_Hire_Employees_Indep_Auditor/.
Policy for Whistleblowing Procedures
The policy for Whistleblowing Procedures establishes procedures for the receipt, retention and treatment of concerns received by the Company regarding accounting, internal accounting controls, or auditing matters, and the confidential, anonymous submission by employees to the Company of concerns regarding questionable accounting or auditing matters. The policy for Whistleblowing Procedures is available on the Company’s website at http://www.marathonoil.com/Policy_Whistleblowing_Procedures/.
| | | | | Compensation Committee
| The Compensation Committee is composed solely of directors who satisfy all criteria for independence under applicable law and the rules of the NYSE and who, in the opinion of the Board, are free of any relationship that would interfere with their exercise of independent judgment as members of the committee.
The Compensation Committee has a written charter adopted by the Board, which is available on the Company’s website at http://www.marathonoil.com/Charter_Comp_Committee/. The charter requires the committee to reassess and report to the Board on the adequacy of the charter on an annual basis, which the committee did in 2012.
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| | The committee is, among other things, responsible for:
·making recommendations to the Board and to the boards of subsidiaries on all matters of policy and procedures relating to executive compensation;
·reviewing and approving corporate goals and objectives relevant to the chief executive officer’s compensation, and determining and approving the chief executive officer’s compensation level based on the Board’s performance evaluation of the chief executive officer;
·reviewing and approving the frequency with which to submit to stockholders an advisory vote to approve named executive officer compensation, taking into account any prior stockholder advisory vote regarding such frequency;
·reviewing and considering the results of any stockholder advisory votes to approve named executive officer compensation;
·determining and approving the compensation of the other executive officers, and reviewing the succession plan relating to positions held by the other executive officers;
·recommending to the Board and administering the incentive compensation plans and equity-based plans of the Company;
·confirming the achievement of performance levels under the Company’s incentive compensation plans;
·reviewing, recommending, and discussing with management the Compensation Discussion and Analysis section included in the Company’s annual proxy statement; and
·evaluating its performance on an annual basis.
The committee used Meridian Compensation Partners LLC (“Meridian”) to provide consulting services and advice to the committee on executive compensation matters. The consultant reports directly to the committee and provides information on industry trends, market practices and updates on regulatory requirements. Meridian provides no other services to the Company or its executives.
The committee seeks input from the CEO on compensation decisions and performance appraisals for all other executive officers. However, all final executive officer compensation decisions are made by the committee.
The committee meets at least four times a year and is given the opportunity to meet in executive session at each of its meetings. With input from the independent compensation consultant, the CEO, and the Vice President of Human Resources, the chairman of the committee approves the agendas for committee meetings. When possible, the committee previews and discusses significant compensation decisions at one meeting before giving formal approval at a subsequent meeting.
Compensation Committee Interlocks and Insider Participation
The members of the Compensation Committee are Gregory H. Boyce, (Chairman), Pierre Brondeau, Linda Z. Cook, Shirley Ann Jackson, and Dennis H. Reilley. Each person qualifies as an independent non-employee director, and no member has served as an officer or employee of the Company. During 2012, none of the Company’s executive officers served as a member of a compensation committee or board of directors of any other entity, which has an executive officer serving as a member of our Compensation Committee or Board of Directors.
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| | | Corporate Governance and Nominating Committee
| | The Corporate Governance and Nominating Committee is composed solely of independent directors in accordance with the rules of the NYSE. The committee’s primary purpose is to discharge the Board’s responsibility related to the development and implementation of a set of corporate governance principles, the identification of individuals qualified to become Board members, and the review of the qualifications and make-up of the Board membership.
The committee is, among other things, responsible for:
·reviewing and making recommendations to the Board concerning the appropriate size and composition of the Board, including candidates for election or re-election as directors, the criteria to be used for the selection of candidates for election as directors, the appropriate skills and characteristics required of Board members in the context of the current make-up of the Board, the composition and functions of the Board committees, and all matters relating to the development and effective functioning of the Board;
·considering and recruiting candidates to fill positions on the Board;
·considering nominees recommended by stockholders for election as directors;
·considering and recommending non-employee director compensation;
·reviewing and making recommendations to the Board of each Board committee’s membership and committee chairpersons including, without limitation, a determination of whether one or more Audit and Finance Committee members qualifies as an “audit committee financial expert” in accordance with applicable law;
·assessing and recommending overall corporate governance practices;
·establishing the process and overseeing the evaluation of the Board;
·reviewing and, if appropriate, approving any related person transactions;
·reviewing and approving codes of conduct applicable to directors, officers and employees;
·reviewing the Company’s policy statement on stockholders’ rights plans and reporting any recommendations to the Board; and
·evaluating its performance on an annual basis.
A current copy of the Corporate Governance and Nominating Committee’s charter is available on the Company’s website at http://www.marathonoil.com/Charter_CorpGovNom_Committee/.
| | | | | | Director Identification and Selection
The process for director selection and director qualifications is set forth in Article III, Section (a) of the Company’s Corporate Governance Principles which are available on the Company’s website at http://www.marathonoil.com/Corporate_Governance_Principles/. In summary, the chairman of the Corporate Governance and Nominating Committee, the chairman of the Board and chief executive officer, and the secretaries of the Compensation and Corporate Governance and Nominating Committees should work with a third-party professional search firm to review director candidates and their credentials. At least one member of the committee and the chairman of the Board and chief executive officer should meet with the director candidate. This screening process applies to Corporate Governance and Nominating Committee recommended nominees, as well as nominees recommended by the stockholders in accordance with the Company’s by-laws or applicable law. The criteria for selecting new directors include their independence, as defined by applicable law, stock exchange listing standards and the
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| | categorical standards listed in the Company’s Corporate Governance Principles, their business or professional experience, their integrity and judgment, their record of public service, their ability to devote sufficient time to the affairs of the Company, the diversity of backgrounds and experience they will bring to the Board, and the needs of the Company from time to time. Directors should also be individuals of substantial accomplishment with demonstrated leadership capabilities, and they should represent all stockholders and not any special interest group or constituency. The committee’s charter also gives the committee the sole authority to retain and terminate any search firm to be used to identify director candidates, including sole authority to approve the search firm’s fees and other retention terms.
| | | | | | | Health, Environmental, Safety, and Corporate Responsibility Committee
| | The Health, Environmental, Safety, and Corporate Responsibility Committee assists the Board in identifying and monitoring health, environmental, safety, social and political trends, issues, and concerns which affect the Company. Additionally, the committee analyzes the Company’s global reputation and develops recommendations to strategically position the Company to support its business objectives. A copy of the committee charter is available on the Company’s website at http://www.marathonoil.com/HESCR_Committee_Charter/.
The committee is, among other things, responsible for:
·reviewing and recommending Company policies, programs, and practices concerning broad health, environmental, safety, social, public policy and political issues;
·identifying, evaluating and monitoring the health, environmental, safety, social, public policy and potential trends, issues and concerns, which affect or could affect the Company’s business activities;
·reviewing legislative and regulatory issues affecting the Company’s businesses and operations; and
·reviewing the Company’s political, charitable and educational contributions.
| | | | | | | Board’s Role in Risk Oversight
| | Responsibility for risk oversight rests with the Board and committees of the Board in accordance with the focus areas of each committee:
The Audit and Finance Committee annually reviews the process by which Enterprise Risk Management is undertaken by the Company and the latest assessment of risks and key mitigation strategies. It regularly reviews risks associated with financial and accounting matters and reporting. They monitor compliance with legal and regulatory requirements and internal control systems. They also review risks associated with financial strategies and capital structure of the Company.
The Compensation Committee reviews the executive compensation program to help ensure that it does not encourage excessive risk. It also reviews executive compensation, incentive compensation and succession plans to ensure the Company has appropriate practices in place to support the retention and development of the talent necessary to achieve the Company’s business goals and objectives.
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| | The Health, Environmental, Safety and Corporate Responsibility Committee regularly reviews and oversees operational risks including those relating to health, environment, safety and security. It reviews risks associated with social, political and environmental trends, issues and concerns, domestic and international, which affect or could affect the Company’s business activities, performance and reputation.
The Board receives regular updates from the committees about their activities in this regard and also reviews risks not specifically within the purview of any particular committee and risks of a more strategic nature. Key risks associated with the strategic plan are reviewed annually at the strategy meeting of the Board and periodically throughout the year.
While the Board and committees of the Board oversee risk management, Company management is responsible for managing risk. The Company has a strong enterprise risk management process for identifying, assessing and managing risk, and monitoring risk mitigation strategies. The governance of this process is effectuated through the executive sponsorship of the CEO and CFO and a committee of executive officers and senior managers responsible for working across the business to manage each enterprise level risk and to identify emerging risks.
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| | | Corporate Governance Principles
| | Our Corporate Governance Principles are available on the Company’s website at http://www.marathonoil.com/Corporate_Governance_Principles/. In summary, the Corporate Governance Principles address the general functioning of the Board, including its responsibilities, the Board size, director elections and limits on the number of Board memberships. These principles also address Board independence, committee composition, the lead director position, the process for director selection and director qualifications, the Board’s performance review, the Board’s planning and oversight functions, director compensation and director retirement and resignation.
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| | | Leadership Structure of the Board
| | As provided in our Corporate Governance Principles, the Board does not have a policy, one way or the other, on whether or not the roles of the chairman and CEO should be separate and, if they are to be separate, whether the chairman should be selected from the non-employee directors or be an employee. The Board is to make this choice on the basis of what is best for our Company at a given point in time. Following the spin-off of our downstream business Marathon Petroleum Corporation (“MPC”) on June 30, 2011 (the “Spin-off”), Clarence P. Cazalot, Jr. became chairman, president and CEO of our Company. AtAera Energy LLC (an oil and gas exploration and production company jointly owned by Shell Oil Company and ExxonMobil) in July 2015, having served in that time,position since 2007. Prior to Aera Energy, he served in executive level positions at Shell Oil, as technical vice president, Upstream Asia Pacific from 2005 until 2007 overseeing drilling and development activities in Southeast Asia, Australia and New Zealand. From 2003 to 2005 Mr. Banister was technical vice president, Upstream Americas, where he championed innovative capital cost approaches to major projects and from 2001 to 2003 served as vice president of Business Development and Technology. He was president USA and executive vice president of Shell Services EP Gas and Power from 1998 to 2001. Mr. Banister joined Shell Oil in 1980 as an offshore facilities engineer. Mr. Banister is lead independent director of the Board determined that Mr. Cazalot’s knowledgeof Directors of Tyson Foods, Inc. He also serves as trustee of the South Dakota School of Mines and experience gained as our president and CEO since 2002, along with his membershipTechnology Foundation. He previously served on the Board since 2000, providedexecutive committee of the California Chamber of Commerce, the advisory board of the Chancellor of the California State University System, the board of the Western States Petroleum Association and is past chair of the board of the United Way of Kern County. Mr. Cazalot withBanister holds a B.S. in metallurgical engineering from the right levelSouth Dakota School of experienceMines and skill sets to lead the BoardTechnology and our Company. His knowledge of our Companyreceived an honorary doctorate degree in arts and our industry has been and continues to be invaluable to the Board. At the same time, Dennis H. Reilley was appointed lead director. As a former non-executive chairman of Covidien Ltd. and a former chairman,sciences from Fort Valley State University.
Through his position as president and CEO of Praxair, Inc., alongan oil and gas exploration and production company and his 35 years working in the oil and gas industry with service on three other publicly-traded company boards,experience in onshore and offshore operations, global shared services, strategic planning, engineering and technology, Mr. ReilleyBanister has gained invaluable insightvaluable knowledge, experience and exposure tomanagement leadership regarding many of the majorsame issues that we face as a publicly-traded company. As lead director, Mr. Reilley’s duties include presiding at executive sessions of the non-employee directors and reviewing the Board and committee agendas with Mr. Cazalot. Mr. Reilly was re-elected as lead director in 2012. We believe the Board leadership structure is appropriate for us at this time. |
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| | | Diversity
| | The Corporate Governance and Nominating Committee is responsible for reviewing with the Board the appropriate skills and characteristics required of Board memberscompany in the context of the current make-up of the Board. When we have an opening on the Board, we will always look at a diverse pool of candidates. In accordance with our Corporate Governance Principles, the assessment of the Board’s characteristics includes diversity, skills, such as an understanding of financial statements and financial reporting systems, technology and international experience. We view and define diversity in its broadest sense, which includes gender, ethnicity, education, experience and leadership qualities. Linda Z. Cook is the most recently appointed member of our board. She has valuable domestic and international oil and gas experience and serves on the boards of three other companies.
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| | | Communications from Interested Parties
| | All interested parties, including security holders, may send communications to the Board through the Secretary of the Company. You may communicate with the Chair of our Audit and Finance, Compensation, Corporate Governance and Nominating, and Health, Environmental, Safety and Corporate Responsibility Committees by sending an e-mail to auditandfinancechair@marathonoil.com, compchair@marathonoil.com, corpgovchair@marathonoil.com, or hescrchair@marathonoil.com, respectively. You may communicate with our outside directors, individually or as a group, by sending an e-mail to non-managedirectors@marathonoil.com.
The Secretary will forward to the directors all communications that, in her judgment, are appropriate for consideration by the directors. Examples of communications that would not be considered appropriate for consideration by the directors include commercial solicitations and matters not relevant to the affairs of the Company.
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| | | Code of Business Conduct
| | Our Code of Business Conduct is available on our website at http://www.marathonoil.com/Code_of_Business_Conduct/. The Code of Business Conduct applies to our directors, officers and employees.
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| | | Code of Ethics for Senior Financial Officers
| | Our Code of Ethics for Senior Financial Officers is available on the Company’s website at http://www.marathonoil.com/Code_Ethics_Sr_Finan_Off/. This code applies to the Company’s principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, and mandates that these officers, among other things:
·act with honesty and integrity, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships;
·provide full, fair, accurate, timely, and understandable disclosure in reports and documents that the Company files with, or submits to, the Securities and Exchange Commission and in other public communications made by the Company;
·comply with applicable governmental laws, rules and regulations; and
·promote the prompt internal reporting of violations of this Code of Ethics to the chair of the Audit and Finance Committee and to the appropriate person or persons identified in the Company’s Code of Business Conduct.
The code further provides that any violation will be subject to appropriate discipline, up to and including dismissal from the Company and prosecution under the law.
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| | Compensation of Directors
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| | In 2012, a total of 7 independent, non-employee directors served on our Board for the entire year (Mr. Boyce, Mr. Brondeau, Ms. Cook, Dr. Jackson, Mr. Lader, Mr. Phelps and Mr. Reilley). The Board determines annual retainers and other compensation for non-employee directors. Mr. Cazalot is the only director who is also an employee of Marathon Oil. Directors who are employees of Marathon Oil receive no additional compensation for their service on the Board.
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2012 Director Compensation Table
Name(1) | | Fees Earned
or Paid
in Cash(1)
($) | | Stock
Awards(2)
($) | | Option
Awards
($) | | Non-Equity
Incentive
Plan
Compensation
($) | | Change in
Pension Value
and Nonqualified
Deferred
Compensation
Earnings
($) | | All Other
Compensation(3)
($) | | Total
($) | | | | | | | | | | | | | | | | | | Gregory H. Boyce(4) | | 162,000 | | 150,000 | | 0 | | 0 | | 0 | | 0 | | 312,000 | | Pierre Brondeau(4) | | 150,000 | | 150,000 | | 0 | | 0 | | 0 | | 0 | | 300,000 | | Linda Z. Cook(4) | | 150,000 | | 150,000 | | 0 | | 0 | | 0 | | 10,000 | | 310,000 | | Shirley Ann Jackson(4) | | 165,000 | | 150,000 | | 0 | | 0 | | 0 | | 0 | | 315,000 | | Philip Lader(4) | | 160,000 | | 150,000 | | 0 | | 0 | | 0 | | 0 | | 310,000 | | Michael E. J. Phelps(4) | | 150,000 | | 150,000 | | 0 | | 0 | | 0 | | 0 | | 300,000 | | Dennis H. Reilley(4) | | 175,000 | | 150,000 | | 0 | | 0 | | 0 | | 0 | | 325,000 | |
(1)The amounts shown reflect annual cash retainers, lead director fees, and committee chair retainers for 2012. Directors are eligible to defer up to 100% of their $150,000 annual cash retainer fees.
(2)The amounts shown reflect the dollar amount recognized for financial statement reporting purposes for the fiscal year ended December 31, 2012, in accordance with generally accepted accounting principles in the United States regarding stock compensation, for the annual non-retainer common stock award. These amounts are also equal to the grant date fair value of the awards.
(3)The amounts shown represent contributions made on behalf of the directors under our matching gifts program.
(4)The aggregate number of stock unit awards outstanding as of December 31, 2012 for each director is as follows: Mr. Boyce, 30,249; Mr. Brondeau, 10,873; Ms. Cook, 8,043; Dr. Jackson, 78,197; Mr. Lader, 71,302; Mr. Phelps, 26,583; and Mr. Reilley, 74,704.
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| In 2012, we paid our non-employee directors as follows:
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| Annual Cash Retainer
| $150,000
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| Annual Common Stock Unit Award
| $150,000
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| Committee Chair Retainer
| $ 15,000 Audit and Finance Committee
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| | $ 12,000 Compensation Committee
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| | $ 10,000 All other committees
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| Lead Director Retainer
| $ 15,000
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| Directors do not receive meeting fees for attendance at Board or committee meetings.
Non-employee directors received an annual common stock unit award valued at $150,000. During 2012, these awards were credited to an unfunded account on an annual basis on the first business day of the calendar year, based on the closing stock price on the grant date. When dividends are paid on our common stock, directors receive dividend equivalents in the form of common stock units. The awards vest and are payable in shares upon the earlier of (a) the third anniversary of the grant date, or (b) the director’s departure from the Board.
Directors have the opportunity to defer 100 percent of their annual retainer into an unfunded account. This deferred account may be invested in certain phantom investment options offered under the Marathon Oil Corporation Deferred Compensation Plan for Non-Employee Directors, which mirror the investment options offered to employees under our Thrift Plan with the exception of Marathon Oil common stock. When a director leaves the Board, he or she receives cash in a lump sum.
Under our matching gifts program, each year Marathon Oil will match up to $10,000 in contributions made by non-employee directors to certain tax-exempt educational institutions. The annual limit is applied based on the date of the director’s gift to the institution. Due to processing delays, the actual amount paid out on behalf of a director may exceed $10,000 in a given year.
We also have stock ownership guidelines in place for non-employee directors. All non-employee directors are expected to hold three times the value of the annual retainer in Marathon Oil stock. Directors have five years from the commencement of their service on the board to achieve this level of stock ownership.
The Board has approved the following director compensation program, effective in 2013:
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| Annual Cash Retainer
| $150,000
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| Annual Common Stock Unit Award
| $175,000
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| Committee Chair Retainer
| $ 15,000 Audit and Finance Committee
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| | $ 15,000 Compensation Committee
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| | $ 12,500 All other committees
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Table of Contents
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| Proposals of the Board
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| The Board will present the following proposals at the meeting:
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| Proposal No. 1
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| Election of Directors
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| Our Restated Certificate of Incorporation provides that directors shall be elected for terms expiring at the next succeeding annual meeting of stockholders. Accordingly, we have eight nominees for director whose terms expire in 2013.
Our by-laws require the Board to fix the number of directors, and under our Corporate Governance Principles, the Board is charged with endeavoring to maintain between six and eleven members. The director nominees for election are for a one-year term expiring at the 2014 annual meeting of stockholders. Of the eight current directors, one is an officer of Marathon Oil, six have top executive experience with a wide variety of businesses, one has a distinguished career in academia, business and government, and one has a distinguished career as an international business leader and diplomat. A brief statement about the background and qualifications of each nominee is given on the following pages. If any nominee for whom you have voted becomes unable to serve, your proxy may be voted for another person designated by the Board.
Our by-laws describe the procedures that must be used in order for someone nominated by a stockholder of record to be eligible for election as a director. They require that notice be received by the Secretary at least 90 days, but not more than 120 days, before the first anniversary of the date on which we first mailed our proxy materials for the preceding year’s annual meeting of stockholders. The notice must contain certain information about the nominee, including his or her age, address, occupation and share ownership,industry, as well as the name, address and share ownership of the stockholder giving the notice.
As explained earlier in the question and answer section of this proxy statement, directors are electedinsight into key issues faced by a majority of votes cast. For a director to be elected, this means that the number of shares voted “for” a director must exceed the number of votes cast “against” that director. Abstentions will not be taken into account in director elections. Under our by-laws, if an incumbent director who is nominated for re-election to the Board does not receive sufficient votes to be elected, the director is required to promptly tender his or her resignation to the Board. Our Corporate Governance and Nominating Committee will make a recommendation to the Board as to whether to accept or reject the tendered resignation, or whether other action should be taken. The Board will act on the tendered resignation, taking into account the Corporate Governance and Nominating Committee’s recommendation, and publicly disclose its decision regarding the tendered resignation within 90 days from the date of the certification of the election results. In the event of a vacancy, the Board may fill the position or decrease the size of the Board.
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international operations.
Table of Contents
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| Nominees for Director
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Gaurdie E. Banister, Jr. Director since 2015 Independent
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| Terms Expire 2014
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| Gregory H. Boyce
| Director since 2008
| Age 58
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Chairman and Chief Executive Officer of Peabody Energy Corporation
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| Mr. Boyce, received a bachelor of science degree from the University of Arizona in mining engineering and completed the Advance Management Program from the Graduate School of Business at Harvard University. Mr. Boyce is61, retired as Executive Chairman and Chief Executive Officer of Peabody Energy Corporation. He has been a director of Peabody Energy Corporation since March 2005, and was appointed Chairman on October 10, 2007. Mr. Boyce(a private-sector coal company) in December 2015. He was named Chief Executive Officer Elect in March 2005, and assumed the position ofserved as Chief Executive Officer in January 2006. He also served asfrom 2006 until 2015. Mr. Boyce was President of Peabody from October 2003 until January 6, 2008. Mr. Boyceto 2008 and was Chief Operating Officer from October 2003 to December 2005. He was a director of Peabody since 2005, was appointed Chairman in 2007 and Executive Chairman in 2015. From 2000 to 2003, heMr. Boyce served as Chief Executive Officer - Energy forOfficer-Energy of Rio Tinto plc an(an international natural resource company. Mr. Boyce wascompany). He served as President and Chief Executive Officer of Kennecott Energy Company from 1994 to 1999 and as President of Kennecott Minerals Company from 1993 to 1994. Prior to serving as President1994, having served in positions of increasing responsibility with Kennecott Minerals, he had extensive engineering and operating experience with Kennecott.since 1984. Mr. Boyce also served as Executive Assistant toserves on the Vice Chairmanboard of Standard Oil from 1983 to 1984.directors of Monsanto Company (a multinational agrochemical and agricultural biotechnology company) and Newmont Mining Corporation (a world-leading gold producer). He is past chairman of the National Mining Association, served on the board of directors of the U.S.-China Business Council, and is a member of the Business Round Table and Business Council. Mr. Boyce is a memberpast Chairman of the Coal Industry Advisory Board of the International Energy Agency, and a member of the National Coal Council. He is also a memberserves on the board of the Board of Trusteestrustees of Washington University of St. Louis. Mr. Boyce is a member of Civic Progress in St. Louis, and is a member of the Advisory Council of the University of Arizona’s DepartmentLowell Institute of Mining and Geological EngineeringMineral Resources, and the School of Engineering and Applied Science National Council at Washington University. As Mr. Boyce holds a B.S. in mining engineering from the University of Arizona and completed the Advanced Management Program from the Graduate School of Business at Harvard University.
Mr. Boyce’s former role as a chief executive officer Mr. Boyce’s current position provideshas provided him with experience running a major corporation with international operations. This includesoperations, including developing strategic insight and direction for his company. Global operations require a thorough understanding of different culturescompany, and political regimes. His position as chief executive officer also exposesexposed him to many of the same issues we face in our business, including markets, competitors, operational, regulatory, technology and financial.financial matters. |
Gregory H. Boyce Director since 2008 Independent
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6 MARATHON OIL | 2016 PROXY STATEMENT
NOMINEES FOR DIRECTOR | TERMS EXPIRE 2017 YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE FOR EACH NOMINEE
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| Pierre Brondeau
| DirectorMr. Deaton, 63, retired as Executive Chairman of the Board of Baker Hughes Incorporated (an oilfield services company) in April 2013, having served in that position since 2012 and as Chairman of the Board from 2004 to 2012. He served as Chief Executive Officer of Baker Hughes from 2004 through 2011,
| Age 55
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Chairman, and as President from 2008 through 2010. Prior to joining Baker Hughes, Mr. Deaton was President and Chief Executive Officer of FMC Corporation
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| Mr. Brondeau earned both a bachelor of science degree and a Ph.DHanover Compressor Company from Institut National des Sciences Appliquées of Toulouse in biochemical engineering and received a master’s degree from the University of Montpellier, France in food sciences. He joined FMC Corporation on January 1, 2010, as President and Chief Executive Officer and became Chairman of the Board on October 1, 2010. Mr. Brondeau served as President and Chief Executive Officer of Dow Advanced Materials Division of Dow Chemical Company until September 2009.2002 through 2004. He was Presidenta Senior Advisor to Schlumberger Oilfield Services from 1999 to September 2001 and Chief Operating Officer of Rohm and Haas Company from May 2008, which was acquired by Dow Chemical in April 2009. From 2006 through May 2008, Mr. Brondeau served asan Executive Vice President of electronics and specialty materials of Rohm and Haas Company. He held numerous executive positions during his tenure at Rohm and Haas Company from 1989 through May 2008, in Europe and the United States with global responsibilities for marketing, sales, research and development, engineering, technology and operations.1998 to 1999. Mr. Brondeau alsoDeaton serves on the Boardboards of Directorsdirectors of TE Connectivity Ltd. He is Vice Chairman of the Board of the American Chemistry Council.
Mr. Brondeau’s years of senior executive experienceAriel Corporation (a privately held gas compressor equipment manufacturer), Air Products and executive leadership at large multi-national companiesChemicals, Inc. (an industrial gas and his knowledge of developing technology, finance, acquisitions and mergers, strategic planning and regulatory issues impacting publicly-traded companies provides a valuable resource for our Board. He also has leadership experience serving as chairman of the board and also as a member of the board of an electronics manufacturer with service on its audit committee.
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Table of Contents
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| Nominees for Director (continued)
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| Clarence P. Cazalot, Jr.
| Director since 2000
| Age 62
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Chairman, President and Chief Executive Officer of Marathon Oil Corporation
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| Mr. Cazalot graduated from Louisiana State University in 1972 with a bachelor of science degree in geology and joined Texacochemical supplier), CARBO Ceramics Inc. that same year as a geophysicist. After holding a number of increasingly responsible management positions, Mr. Cazalot was elected a Vice President of Texaco Inc. and President of Texaco’s Latin America/West Africa Division in 1992. In 1994, he was named President of Texaco Exploration and Production Inc. Mr. Cazalot was appointed President of Texaco International Marketing and Manufacturing in 1997, and in 1998 he was named President - International Production and Chairman of London-based Texaco Ltd. He was elected President of Texaco’s worldwide production operations in 1999. Mr. Cazalot joined USX Corporation as Vice Chairman and Marathon Oil Company as President in March 2000. Effective upon the separation of USX’s steel and energy businesses on January 1, 2002, Mr. Cazalot was named President and Chief Executive Officer of Marathon Oil Corporation. On July 1, 2011, Mr. Cazalot also was named as Chairman of the Board. In May 2007, he was awarded an Honorary Doctorate of Humane Letters from Louisiana State University. He serves on the Boards of Directors of Baker Hughes Incorporated, the American Petroleum Institute and the Greater Houston Partnership. He is a member of The Business Roundtable and serves on the Advisory Board of the World Affairs Council of Houston and the James A. Baker III Institute for Public Policy.
As our Chairman, President and Chief Executive Officer, Mr. Cazalot sets the strategic direction of our Company under the guidance of the Board. He has extensive knowledge and experience in the(an oil and gas industry gained through the executiveproduction enhancement company) and management positions with our Company and Texaco. His knowledge and handling of the day-to-day issues affecting our business provide the Board with invaluable information necessary to direct the business and affairs of our Company.
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| Linda Z. Cook
| Director since 2011
| Age 54
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Retired Executive Director of Royal Dutch Shell plc
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| Ms. Cook earned a bachelor of science degree from University of Kansas in petroleum engineering. She served as Executive Director of Royal Dutch Shell plc from August 2004 to December 2009 with responsibilities for global natural gas, trading and technology. Previously, Ms. Cook served as Director, President and Chief Executive Officer of Shell Canada Limited from August 2003 to August of 2004. From January 2000 to July of 2003, she served as Chief Executive Officer for Shell Gas & Power. Ms. Cook also serves on the Boards of Directors of The Boeing Company, KBR, Inc. and Cargill, Inc., a privately held company. She is a member of the Board of Trustees for the University of Kansas Endowment Association. Ms. CookTransocean Ltd. (an offshore drilling contractor). Mr. Deaton is a member of the Society of Petroleum Engineers. Within the past five years, she previously servedHe also serves on the Boardboard of Directorsthe University of Royal Dutch Shell plc.
Ms. Cook has extensiveWyoming Foundation and on the Wyoming Governor’s Engineering Task Force. Mr. Deaton earned a Bachelor of Science in Geology from the University of Wyoming.
Mr. Deaton’s over 30 years of executive and management experience in the energy business, including over 15 years of senior executive experience in the oilfield services industry, provides him valuable knowledge, experience and experiencemanagement leadership regarding many of the same issues that we face as a publicly-traded company in the oil and gas industry gained through her position as executive director of Royal Dutch Shell plc and various other executive and management positions with Shell. As a result of these positions, she has valuable experience in the domestic and international oil and gas business. She also gained valuable experience in managing many of the major issues, such as strategic, operational, technology, compensation, management development, acquisitions, dispositions, capital allocation, government and stockholder relations, that we deal with today. Ms. Cook’sindustry. His service on the boards of two other publicly-traded companies and one privately-held company has provided herhim exposure to different industries and approaches to governance and other key issues. |
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governance.
Table of Contents
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| Nominees for Director (continued)
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Chadwick C. Deaton Director since 2014 Independent |
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| Shirley Ann Jackson
| Director since 2000
| Age 66
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PresidentMs. Donadio, 61, retired as a partner of Rensselaer Polytechnic Institute
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| Dr. Jackson received a bachelorErnst & Young LLP (a multinational professional services firm) in 2014. Prior to her retirement, Ms. Donadio was Americas Oil & Gas Sector Leader for Ernst & Young LLP from 2007, with responsibility for one of science degreeErnst & Young’s significant industry groups helping set firm strategy for oil and gas industry clients in physicsthe United States and throughout the Americas. Ms. Donadio joined Ernst & Young LLP in 1968 and a doctorate in theoretical elementary particle physics in 1973 from the Massachusetts Institute of Technology. She was a research associate at the Fermi National Accelerator Laboratory, a visiting scientist at the European Center for Nuclear Research1976, and from 1976 to 1991,1989 served as an audit partner for multiple companies in the oil and gas industry. During her tenure as a theoretical physicist at the former AT&T Bell Laboratories. Dr. Jackson waspartner with Ernst & Young LLP, Ms. Donadio held various energy industry leadership positions. She has audit and public accounting experience with a professor of theoretical physics at Rutgers University from 1991 to 1995. She was Chairmanspecialization in domestic and international operations in all segments of the U.S. Nuclear Regulatory Commission from 1995 to 1999. Dr. Jackson was named President of Rensselaer Polytechnic Institute in 1999. Dr. Jackson holds 51 honorary degrees, was awarded the New Jersey Governor’s Award in Science in 1993, was inducted into the National Women’s Hall of Fame in 1998 and was named a fellow of the Association for Women in Science in 2004. In 2005, she chaired the American Association for the Advancement of Science, was President in 2004, and currently is a fellow. Dr. Jackson is a member of the National Academy of Engineering, and the American Philosophical Society, and is a fellow of the Royal Academy of Engineering (U.K.), the American Academy of Arts and Science and of the American Physical Society. In 2009 she was appointed to serve on the President’s Council of Advisors on Science and Technology (PCAST). In 2011, Dr. Jackson was appointed to the International Security Advisory Board (ISAB) at the U.S. Department of State, advising the Secretary of State and the Undersecretary for Arms Control and International Security. She serves on the Boards of Directors of FedEx Corporation, International Business Machines Corporation, Medtronic, Inc. and Public Service Enterprise Group Incorporated. She is former Chairman of NYSE Regulation, Inc. Within the past five years, Dr. Jackson also previously served as a director of NYSE Euronext. Sheenergy industry. Ms. Donadio is a member of the Board of the Council on Foreign Relations,Directors of National Oilwell Varco, Inc. (an oilfield products and services company). She is also a member of the Board of RegentsDirectors of Theatre Under the Stars, a trustee for the Great Commission Foundation of the Smithsonian Institution, andEpiscopal Diocese of Texas, a life member of the M.I.T. Corporation. Dr. JacksonCorporation Development Committee of the Massachusetts Institute of Technology, and a member of the Dean's Advisory Council for the E. J. Ourso College of Business at Louisiana State University. Ms. Donadio holds a B.S. in accounting from Louisiana State University and is a licensed certified public accountant in the State of Texas.
Ms. Donadio’s comprehensive knowledge of public company financial reporting regulations and compliance requirements contributes valuable expertise to our Board. She also has a deep understanding of the strategic issues affecting companies in the oil and gas industry. In addition, her extensive audit and public accounting experience in the energy industry, both domestic and international, uniquely qualifies her to serve as a member of our Audit and Finance Committee. | Marcela E. Donadio Director since 2014 Independent |
MARATHON OIL | 2016 PROXY STATEMENT 7
NOMINEES FOR DIRECTOR | TERMS EXPIRE 2017 YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE FOR EACH NOMINEE
| | | | Ambassador Lader, 70, served from 2001 to June 2015 as non-executive Chairman of WPP plc, a global advertising and communications services company, which includes J. Walter Thompson, Ogilvy & Mather, Young & Rubicam, Hill & Knowlton, Grey Global and Burson-Marsteller, among other international marketing and media services companies. He also serves as a senior advisor to Morgan Stanley (a financial services company) and Palantir Technologies (a private analytic data technology company), and is a partner in the University Vice Chairmanlaw firm of the U.S. Council on Competitiveness, and co-chaired its Energy Security, Sustainability and Innovation initiative.Through her current position as President of Rensselaer Polytechnic Institute, former position as Chairman of the U.S. Nuclear Regulatory Commission and other appointments and positions, Dr. Jackson has managed many of the major issues, such as financial, strategic, technology, regulatory, compensation, personnel development, capital allocation and public relations, that we deal with today. She has particular experience with energy policy, technology and management of large projects. Also, her previous and current board positions on other publicly-traded companies have provided over 30 years of audit committee experience, including as chair, compensation committee experience and governance and nominating committee experience, including as chair. This experience has given her exposure to different industries and approaches to governance and other key issues.
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| Philip Lader
| Director since 2002
| Age 66
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Non-executive Chairman of WPP plc
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| Nelson, Mullins, Riley & Scarborough. Ambassador Lader received a bachelor’s degree from Duke University (Phi Beta Kappa), a master’s degree from the University of Michigan and a Juris Doctor degree from Harvard Law School, and completed graduate studies in law at Oxford University. Awarded honorary doctorates by 14 universities and colleges, he served as U.S. Ambassador to the Court of St. James’sJames from 1997 through 2001, and was Assistant to the President and White House Deputy Chief of Staff, Deputy Director of the Office of Management and Budget, and Administrator of the U.S. Small Business Administration. FormerlyHis former service includes as President of Sea Pines Company, Executive Vice President of Sir James Goldsmith’s U.S. holding company, and president of universities in Australia and South Carolina. He currently is non-executive Chairman of WPP plc, the global advertising/communications services company, which includes J. Walter Thompson, Ogilvy & Mather, Young & Rubicam, Hill & Knowlton, Grey Global and Burson-Marsteller, among other international marketing/media services companies. Ambassador Lader is a senior advisor to Morgan Stanley and a partner in the law firm of Nelson, Mullins, Riley & Scarborough. He also serves on the Boardsboards of Directorsdirectors of AES Corporation (a global power company) and United Company RusAl Plc.RUSAL Plc (a global aluminum producer). Ambassador Lader was Vice Chairman of RAND Corporation and is a member of the BoardsBoard of Trustees of RAND Corporation, previously serving as Vice Chairman, and is also a member of the Smithsonian MuseumBoard of American History andTrustees of The Atlantic Council, as well as a member of the Council on Foreign Relations. Within the past five years, Ambassador Lader also served ason the board of directors of Lloyd’s of London. He holds a director for Songbird Estates plc (Canary Wharf)B.A. from Duke University (Phi Beta Kappa), an M.A. from the University of Michigan and Lloyd’s (of London). a J.D. from Harvard Law School, completed graduate studies in law at Oxford University and has been awarded honorary doctorates by 14 universities and colleges.Through his positionsservice as chairman of the world’s largest marketing and media services company,senior-level U.S. government appointments, partner at a major law firm and other appointments and positions, Ambassador Lader has valuable experienceknowledge and knowledgeexperience managing many of the majorkey issues we face as a publicly-traded company. He has extensive experience with public policy matters, which uniquely qualify him to serve as Chairman of our Health, Environmental, Safety and Corporate Responsibility Committee. Ambassador Lader’s other board positions have given him exposure to different industries and approaches to governance and other key issues. |
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| Nominees for Director (continued)
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Philip Lader Director since 2002 Independent
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| Michael E. J. Phelps
| Director since 2009
| Age 65
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Chairman and Founder of Dornoch Capital, Inc.
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| Mr. Phelps, received a bachelor’s degree from the University of Manitoba, Winnipeg, Canada, in 1967. He earned a bachelor’s degree in Law in 1970 from the University of Manitoba. In 1971, he attended the London School of Economics and Political Science in London and received a master’s of law degree. Mr. Phelps was awarded honorary doctorates by three universities. Mr. Phelps68, is chairman and founder of Dornoch Capital, Inc., a private investment company based in Vancouver, British Columbia.company. Prior to forming Dornoch, in 2002, he worked forserved as chairman and CEO of Westcoast Energy, Inc. , a (a natural gas company with operations across North Americacompany) from 1992 to 2002, as chief financial officer from 1987 to 1989, and interests in international energy companies in Mexico, Indonesia, China and Australia. Mr. Phelps joined Westcoast in 1982 as a corporate development executive. In 1987, he was promotedexecutive from 1982 to chief financial officer and 18 months later, was named president and CEO. In 1992, he was named chairman and CEO, a position he held until1987. Mr. Phelps serves on the company was sold to Dukeboard of directors of Spectra Energy Corporation in 2002. Mr. Phelps(a pipeline and midstream company). He also serves as a director of Spectra Energy Corporation.Vancouver General Hospital Foundation, having previously served as Chair from 2010 to 2012. Within the past five years, he also served as a directoron the boards of Canfor Corporation,directors of Canadian Pacific Railway Company and Prodigy Gold Incorporated (formerly Kodiak Exploration Ltd.). Mr. Phelps also serves as a director of Vancouver Hospital Foundation and previously served as Chair from 2010 to 2012. He is a member of the North American Advisory Board of the London School of Economics and is a Special Advisor to Nomura Canada, Inc. Mr. Phelps holds a B.A. in economics and history and an LL.B. from the University of Manitoba, an LL.M. from the London School of Economics and Political Science in London, and has been awarded honorary doctorates by three universities. Through his positionpositions as chairman and founder of a private investment company, chairman and CEO of a natural gas company with international operations, and other executive and management positions, Mr. Phelps has valuable experience dealing with operations in Canada and other international locations. This is extremely beneficial due to our Canadian oil sands and otherkey issues faced by international operations. His previous and current positionsexperience on the boards of sixseveral other publicly-traded companies havehas given him exposure to differenta variety of industries and approaches to governance and other key issues.governance. |
Michael E. J. Phelps Director since 2009 Independent |
8 MARATHON OIL | 2016 PROXY STATEMENT
NOMINEES FOR DIRECTOR | TERMS EXPIRE 2017 YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE FOR EACH NOMINEE
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| Dennis H.Mr. Reilley,
| Director since 2002
| Age 59
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Former Non-executive 63, is non-executive Chairman of Covidien Ltd.
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| the Board of Marathon Oil Corporation. He served as chairman of Praxair, Inc. (a provider of gases and coatings) from 2006 to 2007, as chairman and chief executive officer in 2006, and as chairman, president and chief executive officer from 2000 to 2006. Prior to joining Praxair, Mr. Reilley graduated from Oklahoma State University with a bachelor’s degree in finance in 1975. He began working at Conoco, Inc. in 1975served as a pipeline engineerexecutive vice president and in 1979 was promoted to executive assistant to the Chairman. Mr. Reilley held many key positions atchief operating officer of E. I. Du Pont de Nemours & Company which purchasedsince 1999, having served in positions of increasing responsibility with DuPont and Conoco, Inc. (which was acquired by DuPont in 1981) since joining Conoco in 1981. He held senior management positions in DuPont’s Chemicals and Specialties business including vice president and general manager of Specialty Chemicals. In May 1999, he was appointed executive vice president and chief operating officer of DuPont with responsibility for pigments and chemicals, specialty polymers, nylon and polyester.1975 as a pipeline engineer. Mr. Reilley became chairman, presidentis a founding member and chief executive officerpartner of Praxair, Inc. in 2000. From March 1, 2006 through December 2006, he heldTrian Advisory Partners (an advisory group for Trian Fund Management, L.P.). He also serves on the positionsboard of chairman and chief executive officer and through April 2007directors of Dow Chemical Company (a provider of specialty chemicals). Within the past five years, Mr. Reilley also served as chairman. Mr. Reilleyon the boards of directors of Covidien Ltd., having served as non-executive chairman of Covidien Ltd. from June 29, 2007 through September 30, 2008. Mr. Reilley serves on the Boards of Directors of2008 and H. J. Heinz Co., Dow Chemical Company and Covidien Ltd. Mr. Reilley He is a former Chairman of the American Chemistry Council. Mr. Reilley holds a B.S. in finance from Oklahoma State University. Mr. Reilley has over 3435 years of executive and management experience in the oil, petrochemical and chemical industries. As a result of his positionsHis service as chairman, president and CEO of Praxair and other executive and management positions, Mr. Reilley has provided valuable experience in managing many of the major issues that we face as a publicly-traded company in the oil and gas industry. His service on three other publicly-traded company boards has given him valuable insight and exposure to differenta variety of industries and approaches to governance and other key issues. Mr. Reilley also has a valuable financial background from his education and work experiences. |
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governance.
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| Proposals of the Board (continued)
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Dennis H. Reilley Director since 2002 Independent |
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| Proposal No. 2
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| Ratification of Independent Auditor for 2013
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| The Audit
Mr. Tillman, 54, became a director, President and Finance Committee has selected PricewaterhouseCoopers LLP (“PwC”) an independent registered public accounting firm, as our independent auditor to audit the Company’s books and accounts for the year ending December 31, 2013. PwC served as our independent auditor in 2012 and for many years prior thereto. While the Audit and Finance Committee is responsible for appointing, replacing, compensating and overseeing the work of the independent auditor, we are requesting, as a matter of good corporate governance, that the stockholders ratify the appointment of PwC as our independent auditor for 2013. We believe the appointment of PwC as our independent auditor is in the Company’s best interests and in the best interests of our stockholders. If the stockholders fail to ratify this appointment, the Audit and Finance Committee will reconsider whether to retain PwC and may retain that firm or another firm without resubmitting the matter to our stockholders. Even if the appointment is ratified, the Audit and Finance Committee may, in its discretion, direct the appointment of a different independent auditor at any time during the year if it determines that such change would be in the Company’s best interests and in the best interests of our stockholders.We expect representatives of PwC to be present at the meeting with an opportunity to make a statement if they desire to do so and to be available to respond to appropriate questions from our stockholders.
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| Your Board of Directors recommends that you vote FOR the
ratification of the selection of PricewaterhouseCoopers LLP as the
Company’s Independent Auditor for 2013.
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| Proposals of the Board (continued)
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| Proposal No. 3
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| Say onChief Executive Pay
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| Advisory Vote to Approve the Compensation of our Named Executive Officers
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| In accordance with Section 14A of the Exchange Act, and as a matter of good corporate governance, we seek your advisory vote to approve the compensation of our named executive officers and ask that you support the compensation of our named executive officers as disclosed in this proxy statement. Currently, we seek the advisory vote of our stockholders to approve the compensation of our named executive officers annually and expect that the next such advisory vote will be held at our annual meeting in 2014.
Although this vote is non-binding, the Compensation Committee values your opinion and will consider the voting results when making future decisions about executive compensation.
Additionally, we think that constructive dialogue with our stockholders provides meaningful feedback about specific executive compensation practices and programs and encourage stockholders to communicate directly with both management and the Committee about executive compensation. Stockholders may contact the Chairman of the Committee to provide input on executive compensation matters at any time by email: compchair@marathonoil.com.
Stockholders may also contact management to provide input on executive compensation matters at any time by contacting Howard J. Thill, Vice President, Investor Relations and Public Affairs by email: hjthill@marathonoil.com.
As described in the Compensation Discussion and Analysis, the Compensation Committee, comprised entirely of independent directors, has effectively established executive compensation programs that reflect both company and individual performance. Executive compensation decisions are made in order to attract, retain and motivate talented executives to deliver business results and value to our stockholders.
Our Compensation Committee consistently exercises great care and discipline in determining executive compensation. We therefore ask that stockholders approve the compensation of our named executive officers as disclosed pursuant to Item 402 of Regulation S-K, including the Compensation Discussion and Analysis and the accompanying tables.
Your Board of Directors recommends that you vote FOR Proposal No. 3 approving these executive compensation matters.
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| Proposal of Stockholders
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| Proposal No. 4
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| Lobbying Report
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| The New York State Common Retirement Fund, 633 Third Avenue, 31st Floor, New York, New York, owner of 2,656,938 shares of common stock, has given notice that it intends to present the following proposal at the annual meeting of stockholders. In accordance with applicable proxy regulations, the proposal and supporting statement, for which the Company accepts no responsibility, are set forth below.
Whereas, corporate lobbying exposes our company to risks that could affect the company’s stated goals, objectives, and ultimately shareholder value and
Whereas, we rely on the information provided by our company to evaluate goals and objectives, and we, therefore, have a strong interest in full disclosure of our company’s lobbying to assess whether our company’s lobbying is consistent with its expressed goals and in the best interests of shareholders and long-term value.
Resolved, the shareholdersOfficer of Marathon Oil on August 1, 2013. Prior to joining Marathon Oil, he served as vice president of engineering for ExxonMobil Development Company (a project design and execution company), where he was responsible for all global engineering staff engaged in major project concept selection, frontend design and engineering. He served as North Sea production manager and lead country manager for subsidiaries of ExxonMobil in Stavanger, Norway, from 2007 and 2010, and as acting vice president, ExxonMobil Upstream Research Company from 2006 to 2007. Mr. Tillman began his career in the oil and gas industry at Exxon Corporation (“Marathon”) request the Board authorize the preparation ofin 1989 as a report, updated annually, disclosing:
1.Company policyresearch engineer and procedures governing lobbying, both direct and indirect, and grassroots lobbying communications.
2.Payments by Marathon used for (a) direct or indirect lobbying or (b) grassroots lobbying communications, in each case including the amount of the payment and the recipient.
3.Marathon’s membership in and payments to any tax-exempt organization that writes and endorses model legislation.
4.Description of the decision making process and oversight byhas extensive operations management and the Board for making payments describedleadership experience that has included assignments in section 2 above.
For purpose of this proposal, a “grassroots lobbying communication”Jakarta, Indonesia; Aberdeen, Scotland; Stavanger, Norway; Malabo, Equatorial Guinea; Dallas and New Orleans. He is a communication directed to the general public that (a) refers to specific legislation or regulation, (b) reflects a view on the legislation or regulation and (c) encourages the recipient of the communication to take action with respect to the legislation or regulation. “Indirect lobbying” is lobbying engaged in by a trade association or other organization of which MRO is a member.
Both “direct and indirect lobbying” and “grassroots lobbying communications” include efforts at the local, state and federal levels.
The report shall be presented to the Audit Committee or other relevant oversight committees of the Board and posted on the company’s website.
Supporting Statement
As shareholders, we encourage transparency and accountability in the use of staff time and corporate funds to influence legislation and regulation both directly and indirectly. We believe such disclosure is in shareholders’ best interests. Marathon is aboard member of the American Petroleum Institute, (“API”), which spent more than $12 million on lobbyingAmerican Exploration & Production Council and the Greater Houston Partnership, a member of the University of Houston Energy Advisory Board and the Chemical and Engineering Advisory Councils of Texas A&M University. He is also a member of the National Petroleum Council, the Business Roundtable and the Society of Petroleum Engineers. Mr. Tillman serves as a member of the Celebration of Reading Committee within the Barbara Bush Houston Literacy Foundation. He also is a member of the advisory board and currently president of Spindletop Charities. Mr. Tillman holds a B.S. in 2010-2011.
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Table of Contents
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| Proposalchemical engineering from Texas A&M University and a Ph.D. in chemical engineering from Auburn University.As our President and Chief Executive Officer, Mr. Tillman sets our Company’s strategic direction under the Board’s guidance. He has extensive knowledge and experience in global operations, project execution and leading edge technology in the oil and gas industry gained through his executive and management positions with our Company and ExxonMobil. His knowledge and hands-on experience with the day-to-day issues affecting our business provide the Board with invaluable information necessary to direct the business and affairs of Stockholders (continued)our Company.
|
Lee M. Tillman Director since 2013 Management/Non-Independent |
MARATHON OIL | 2016 PROXY STATEMENT 9
CORPORATE GOVERNANCE BOARD OF DIRECTORS Our business and affairs are managed under the direction of the Board, currently comprised of eight directors. The Board met eight times in 2015. Attendance for Board and committee meetings was 97% for the full year. Under our Corporate Governance Principles, directors are expected to attend the Annual Meeting of Stockholders. All of our then-current directors attended the 2015 annual meeting. Our Corporate Governance Principles require our non-employee directors to meet at regularly scheduled executive sessions. An offer of an executive session is extended to non-employee directors at each regularly scheduled Board meeting. In 2015, the non-employee directors held eight executive sessions. COMMITTEES OF THE BOARD The Board has four standing committees: (i) the Audit and Finance Committee, (ii) the Compensation Committee, (iii) the Corporate Governance and Nominating Committee, and (iv) the Health, Environmental, Safety and Corporate Responsibility Committee. Each committee is comprised solely of independent directors as defined under the rules of the New York Stock Exchange (“NYSE”). Each committee’s written charter, adopted by the Board, is available on our website at http://www.marathonoil.com/Investor_Center/Corporate_Governance/. The following tables show each committee’s membership, principal functions and number of meetings in 2015. | |
| Audit and Finance Committee(1) | Michael E.J. Phelps, Chair Members: Gaurdie E. Banister, Jr.(2) Gregory H. Boyce Pierre Brondeau(3) Marcela E. Donadio Shirley Ann Jackson(4)
Meetings in 2015: 6 | Marathon also participates
• Appoints, compensates and oversees the work of the independent auditor. • Reviews and approves in advance all audit, audit-related, tax and permissible non-audit services to be performed by the National Associationindependent auditor. • Meets separately with the independent auditor, the internal auditors and management with respect to the status and results of Manufacturers,their activities annually reviewing and approving the audit plans. • Reviews, evaluates and assures the rotation of the lead audit partner. • Reviews with management, and if appropriate the internal auditors, our disclosure controls and procedures and management’s conclusions about their efficacy. • Reviews, approves and discusses with management, the independent auditor and if appropriate the internal auditors, the annual and quarterly financial statements, earnings press releases, reports of internal control over financial reporting, and the controversial US-Libya Business Association (http://www.businessweek.com/news/2011-06-14/qaddafi-coddled-by-u-s-oil-whose-hearts-are-where-the-money-is.html). Marathon does not disclose its trade association paymentsannual report. • Discusses with management guidelines and policies for risk assessment and management. • Reviews and recommends dividends, certain financings, loans, guarantees and other uses of credit. |
10 MARATHON OIL | 2016 PROXY STATEMENT
| | | | Compensation Committee | Gregory H. Boyce, Chair Members: Pierre Brondeau(3) Chadwick C. Deaton Marcela E. Donadio Shirley Ann Jackson(4) Philip Lader
Meetings in 2015: 5 | • Recommends to the Board all matters of policy and procedures relating to executive compensation. • Reviews and approves corporate goals and objectives relevant to the CEO’s compensation, and determines and approves the CEO’s compensation level based on the Board’s performance evaluation. ��� Determines and approves the compensation of the other executive officers, and reviews the executive officer succession plan. • Administers our incentive compensation plans and equity‑based plans, and certifies the achievement of performance levels under our incentive compensation plans. • Reviews with management and recommends for inclusion in our annual Proxy Statement our Compensation Discussion and Analysis. |
| | | | Corporate Governance and Nominating Committee | Pierre Brondeau, Chair(3) Members: Gaurdie E. Banister, Jr. (2) Chadwick C. Deaton Philip Lader Michael E.J. Phelps
Meetings in 2015: 4 | • Reviews and recommends to the Board the appropriate size and composition of the Board, including candidates for election or re-election as directors, the portions used for lobbying or its website. Absent a system of accountability, company assets couldcriteria to be used for objectives contrary to Marathon’s long-term interests.Marathon spent approximately $8.28 million in 2010the selection of director candidates, the composition and 2011 on direct federal lobbying activities (opensecrets.org) and hired lobbyists in 16 states (followthemoney.org). These figures may not include grassroots lobbying to directly influence legislation by mobilizing public support or opposition and do not include lobbying in states that do not require disclosure. Marathon does not disclose membership in or contributions to tax-exempt organizations that write and endorse model legislation, such as serving on a task forcefunctions of the American Legislative Exchange Council.
We encourage our Board to require comprehensive disclosure related to direct, indirectcommittees, and grassroots lobbying.
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30
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| YOUR BOARD RECOMMENDS A VOTE AGAINST THE
STOCKHOLDER PROPOSAL SEEKING A COMPANY REPORT ON
CORPORATE LOBBYING EXPENDITURES, POLICIES AND
PROCEDURES.
We believe that the adoption of this proposal is unnecessary and should be evaluated in the context of our current disclosures regarding lobbying policies, practices and procedures. We are committed to adheringall matters relating to the highest ethical standards when engaging in lobbying activitiesdevelopment and complying witheffective functioning of the letterBoard.
• Reviews and spiritrecommends to the Board each committee’s membership and chairperson, including a determination of all lawswhether one or more Audit and regulations governing those activities. We do not believe a special report beyondFinance Committee members qualifies as an “audit committee financial expert” under applicable law. • Assesses and recommends corporate governance practices, including reviewing and approving codes of conduct and policies applicable to our current voluntarydirectors, officers and mandatory disclosures is either necessary or an efficient useemployees. • Oversees the evaluation of Company resources.Information regarding our politicalthe Board.
• Reviews and, lobbying policies, practices and procedures is available in various forms on our website at www.marathonoil.com. The if appropriate, approves related person transactions. |
| | | Health, Environmental, Safety and Corporate Responsibility Committee of | Philip Lader, Chair Members: Gaurdie E. Banister, Jr. (2) Gregory H. Boyce Marcela E. Donadio Shirley Ann Jackson(4) Michael E.J. Phelps
Meetings in 2015: 2 | • Reviews and recommends Company policies, programs, and practices concerning broad health, environmental, safety, social, public policy and political issues. • Identifies, evaluates and monitors the Board of Directors is responsible for maintaining an oversight function regarding political contributions. This oversight function includes lobbying expenditures,health, environmental, safety, social, public policy and potential trends, issues and concerns, which are periodically reported to the committee. The Code of Business Conduct (“Code”) lays the foundation foraffect or could affect our business practicesactivities. • Reviews legislative and decisions. As disclosed in the Code, no Company funds, property or services may be used to help nominate or elect any candidate to public office or support any referendum or other issue-related campaign or to support anyregulatory issues affecting our businesses and operations. • Reviews our political, party without the approval of our CEO or Vice President, Public Policy. Our Government Affairs Organization arranges all lobbying contact with U.S. federal legislators, federal executive branch officials or their staff members or state or local government officials. As stated in the 2011 Living Our Values Corporate Social Responsibility Report, our objectives include ensuring compliance with relevant laws, regulationscharitable and policies. We believe this satisfies the essential objectives of the stockholder proposal.Our federal lobbying expenditures are publicly disclosed to Congress. These quarterly, semi-annual, and annual filings report the Company’s federal lobbying expenditures on an aggregate basis, and include consulting services, federal grassroots lobbying, direct contact lobbying, and trade association dues attributable to federal lobbying. These reports are publicly available and can be found on the websites of the Office of the Secretary of the U.S. Senate and the Office of the Clerk of the U.S. House of Representatives.
As previously stated, our policy is to comply with all federal, state and local lobbying and ethics laws where we operate. Our registered lobbyists are also required to comply with all federal, state and local lobbying and ethics laws and related reporting obligations in accordance with our agreements with them. Currently, the Company or its registered lobbyists provide disclosures on lobbying activities in the states where we do business. In some states where we have lobbying activities, no report is required to be filed by the Company, but the Company’s registered lobbyists are required to report certain lobbying expenditures and activities made on our behalf. These reports can be found in the public domain on the states’ websites.
As illustrated above, we are committed to providing transparency and accountability regarding our lobbying activities and complying with the letter and spirit of all laws and regulations governing these activities. Therefore, we believe that the adoption of this proposal is unnecessary and not in the best interests of our Company or stockholders. We urge you to vote against the proposal.
For the reasons stated above, your Board of Directors recommends a vote AGAINST Proposal No. 4.
educational contributions. |
31
(1) All the members of the Audit and Finance Committee meet the additional independence standards under Exchange Act Rule 10A-3. Based on the recommendation of the Corporate Governance and Nominating Committee, the Board has determined that each of Ms. Donadio and Mr. Phelps qualifies as an “Audit Committee Financial Expert” under the Securities and Exchange Commission’s (“SEC”) rules based upon the attributes, education and experience discussed in their respective biographies above.(2) Mr. Banister was elected to the Board effective October 1, 2015, and was appointed to serve on the Audit and Finance Committee, the Corporate Governance and Nominating Committee and the Health, Environmental, Safety and Corporate Responsibility Committee, effective October 28, 2015. (3) Mr. Brondeau’s service on the Board concluded on March 28, 2016. (4) Dr. Jackson’s service on the Board concluded on April 29, 2015.
MARATHON OIL | 2016 PROXY STATEMENT 11
Table
BOARD LEADERSHIP STRUCTURE The Board does not have a policy regarding whether the roles of Contentsthe Chairman and CEO should be separate, but rather makes this determination on the basis of what is best for our Company at a given point in time. Our current Chairman, Mr. Reilley, was appointed as non-executive chairman on January 1, 2014. As non-executive Chairman, Mr. Reilley presides at all meetings of stockholders and the Board, as well as at all executive sessions of the non-employee directors. We believe the Board leadership structure is appropriate for us at this time. THE BOARD’S ROLE IN RISK OVERSIGHT Responsibility for risk oversight rests with the Board and its committees: The Audit and Finance Committee annually reviews our enterprise risk management process and the latest assessment of risks and key mitigation strategies. It regularly reviews risks associated with financial and accounting matters and reporting. It monitors compliance with legal and regulatory requirements and internal control systems, and reviews risks associated with financial strategies and the Company’s capital structure. The Compensation Committee reviews the executive compensation program to ensure it does not encourage excessive risk-taking. It also reviews our executive compensation, incentive compensation and succession plans to ensure we have appropriate practices in place to support the retention and development of the talent necessary to achieve our business goals and objectives. The Health, Environmental, Safety and Corporate Responsibility Committee regularly reviews and oversees operational risks, including those relating to health, environment, safety and security. It reviews risks associated with social, political and environmental trends, issues and concerns, domestic and international, which affect or could affect our business activities, performance and reputation. The Board receives regular updates from the committees about these activities, and reviews additional risks not specifically within the purview of any particular committee and risks of a more strategic nature. Key risks associated with the strategic plan are reviewed annually at the Board’s strategy meeting and periodically throughout the year. While the Board and its committees oversee risk management, Company management is responsible for managing risk. We have a robust enterprise risk management process for identifying, assessing and managing risk, and monitoring risk mitigation strategies. Our CEO and CFO and a committee of executive officers and senior managers work across the business to manage each enterprise level risk and to identify emerging risks. RISK ASSESSMENT RELATED TO OUR COMPENSATION STRUCTURE The Compensation Committee regularly evaluates and considers the role of executive compensation programs in ensuring that our executive officers take only appropriate and prudent risks, and that compensation opportunities do not motivate excessive risk-taking. The practices we employ include: All executive officer compensation decisions are made by the Compensation Committee, which is comprised solely of independent directors. The Compensation Committee is advised by an independent compensation consultant that performs no other work for executive management or our Company.
12 MARATHON OIL | 2016 PROXY STATEMENT
Our executives do not have employment agreements. The Compensation Committee manages our compensation programs to be competitive with those of peer companies and monitors our programs against trends in executive compensation on an annual basis. Our compensation programs are intended to balance short-term and long-term incentives. Our annual cash bonus program is based on a balanced set of objective metrics that are not significantly influenced by commodity prices. In addition, the Compensation Committee considers the achievement of individual performance commitments and overall corporate performance. Annual cash bonuses are determined and paid to executive officers only after the Audit and Finance Committee has reviewed audited financial statements for the performance year. The Compensation Committee regularly evaluates share utilization in our 2012 Incentive Compensation Plan by reviewing overhang levels (dilutive impact of equity compensation on our stockholders) and annual run rates (the aggregate shares awarded as a percentage of total outstanding shares). Our clawback policy applies to annual cash bonuses and long-term incentives and generally would be triggered with respect to an executive officer in the event of a material accounting restatement due to noncompliance with financial reporting requirements or an act of fraud by that executive officer. CORPORATE GOVERNANCE PRINCIPLES Our Corporate Governance Principles address the Board’s general function, including its responsibilities, Board size, director elections and limits on the number of Board memberships. These principles also address Board independence, committee composition, the process for director selection and director qualifications, the Board’s performance review, the Board’s planning and oversight functions, director compensation and director retirement and resignation. The Corporate Governance Principles are available on our website at http://www.marathonoil.com/Investor_Center/Corporate_Governance/. CODE OF BUSINESS CONDUCT Our Code of Business Conduct, which applies to our directors, officers and employees, is available on our website athttp://www.marathonoil.com/Investor_Center/Corporate_Governance/. CODE OF ETHICS FOR SENIOR FINANCIAL OFFICERS Our Code of Ethics for Senior Financial Officers, which applies to the Company’s principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, is available on our website at http://www.marathonoil.com/Investor_Center/Corporate_Governance/. Under this code these officers must: act with honesty and integrity, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships; provide full, fair, accurate, timely, and understandable disclosure in reports and documents that the Company files with, or submits to, the SEC and in other public communications made by the Company;
MARATHON OIL | 2016 PROXY STATEMENT 13
comply with applicable governmental laws, rules and regulations; and promote the prompt internal reporting of violations of this Code of Ethics to the chair of the Audit and Finance Committee and to the appropriate person or persons identified in the Company’s Code of Business Conduct. The code further provides that any violation will be subject to appropriate discipline, up to and including dismissal from the Company and prosecution under the law. POLICY FOR REPORTING BUSINESS ETHICS CONCERNS Our Policy for Reporting Business Ethics Concerns establishes procedures for the receipt and treatment of business ethics concerns received by the Company, including those regarding accounting, internal accounting controls, or auditing matters. The Policy for Reporting Business Ethics Concerns is available on our website at http://www.marathonoil.com/About_Us/Our_Values/Ethics_and_Integrity/. COMMUNICATIONS FROM INTERESTED PARTIES All interested parties, including security holders, may send communications to the Board through the Secretary of the Company. You may communicate with our outside directors, individually or as a group, by emailing non-managedirectors@marathonoil.com.You may communicate with the Chairs of each of our Board’s committees by email as follows: | |
| | Committee Chair | Email Address | Audit and Finance Committee Report | auditandfinancechair@marathonoil.com |
Compensation Committee |
| compchair@marathonoil.com |
Corporate Governance and Nominating Committee |
| corpgovchair@marathonoil.com |
Health, Environmental, Safety and Corporate Responsibility Committee |
hescrchair@marathonoil.com |
The corporate Secretary will forward to the directors all communications that, in her judgment, are appropriate for consideration by the directors. Examples of communications that would not be considered appropriate for consideration by the directors include commercial solicitations and matters not relevant to the Company’s affairs. |
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| |
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| Our committee has reviewed and discussed Marathon Oil’s audited financial statements and its report on internal control over financial reporting for 2012 with Marathon Oil’s management. We have discussed with the independent auditors, PricewaterhouseCoopers LLP (“PwC”), the matters required to be discussed by Public Company Accounting Oversight Board’s AU Section 380 (Communication with Audit Committees). We have received the written disclosures and the letter from PwC required by the applicable requirements of the Public Company Accounting Oversight Board for independent auditor communications with Audit Committees concerning independence. Based on the review and discussions referred to above, we recommended to the Board that the audited financial statements and the report on internal control over financial reporting for Marathon Oil be included in the Company’s Annual Report on Form 10-K for 2012 for filing with the Securities and Exchange Commission.
Shirley Ann Jackson, Chair
Gregory H. Boyce
Linda Z. Cook
Michael E. J. Phelps
Dennis H. Reilley
|
32
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATIONMessrs. Boyce, Brondeau, Deaton and Lader and Ms. Donadio served on the Compensation Committee for all of 2015. Dr. Jackson served on the Compensation Committee until her departure from the Board on April 29, 2015. There are no matters relating to interlocks or insider participation that we are required to report.
Table of Contents14 | | Information Regarding the Independent Registered Public Accounting Firm’s Fees, Services and Independence | | | | | | | | | Independent Auditor Fees and Services | | | | | | Aggregate fees for professional services rendered for the Company by PricewaterhouseCoopers for the years ended December 31, 2012 and 2011 were: | | | | | | | | 2012
(in 000’s) | | 2011
(in 000’s) | | | | Audit | | $ | 6,990 | | $ | 6,130 | | | | Audit-Related | | 890 | | 59 | | | | Tax | | | | | | | | Tax Compliance | | 265 | | 396 | | | | Other Tax | | 620 | | - | | | | All Other | | 7 | | 18 | | | | | | | | | | | | Total(1) | | $ | 8,772 | | $ | 6,603 | | | | | | | | | | (1) The Audit and Finance Committee adopted the Audit and Finance Committee Policy for Pre-Approval of Audit, Audit-Related, Tax and Permissible Non-Audit Services. This policy is attached as Appendix I to this proxy statement. The Audit and Finance Committee has pre-approved all the fees and services for 2012 and 2011. The Audit and Finance Committee did not utilize the de minimus exception in either year. | | | | | | The Audit fees for the years ended December 31, 2012 and 2011 were for professional services rendered for the audit of the consolidated financial statements and audit of internal control over financial reporting of the Company, statutory and regulatory audits, issuance of comfort letters, consents, and assistance with and review of documents filed with the SEC. The Audit-Related fees for the years ended December 31, 2012 and 2011 were for assurance and related services related to employee benefit plan audits, attest services that are not required by statute or regulation, and consultations concerning financial accounting and reporting standards. The Tax fees for the years ended December 31, 2012 and 2011 were for services related to tax compliance, including the preparation of tax returns and claims for refund, and tax planning and tax advice, including assistance with and representation in tax audits and appeals, and requests for rulings or technical advice from tax authorities. The All Other fees for the years ended December 31, 2012 and 2011 were for services rendered for accounting research, internal audit software licenses and other projects. Compatibility of PricewaterhouseCoopers’ Services with its Independence The Audit and Finance Committee has considered whether PricewaterhouseCoopers is independent for purposes of providing external audit services to the Company, and the committee has determined that it is. |
33MARATHON OIL | 2016 PROXY STATEMENT
The Board determines annual retainers and other compensation for non-employee directors. Mr. Tillman, the only director who is also an employee, receives no additional compensation for his service on the Board. Table of Contents
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| | | | | | | | |
|
| Security Ownership of
Certain Beneficial Owners
|
|
| |
CASH COMPENSATION Following are the annual cash retainers we paid our non-employee directors for 2015:
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| The following table furnishes information concerning all persons known to Marathon Oil to beneficially own five percent or more of the common stock of Marathon Oil:
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| |
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| |
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| |
|
| Name and Address
of
Beneficial Owner
| Amount and Nature
of
Beneficial Ownership
| Percent
of
Outstanding Shares
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| Blackrock, Inc.(1)
40 East 52nd Street
New York, NY 10022
| 67,223,180(1)
| 9.52%(1)
|
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| (1)Based on the Schedule 13G/A dated February 4, 2013 (filed: January 31, 2013) which indicates that it was filed by Blackrock, Inc. According to such Schedule 13G/A, Blackrock, Inc., through itself and being the parent holding company or control person over each of the following subsidiaries: Blackrock Advisors, LLC, Blackrock Capital Management, Inc., Blackrock Financial Management, Inc., Blackrock Investment Management, LLC, Blackrock Investment Management (Australia) Limited, Blackrock Investment Management (Korea) Ltd., Blackrock (Luxembourg) S.A., Blackrock (Netherlands) B.V., Blackrock Fund Managers Limited, Blackrock Life Limited, Blackrock Asset Management Australia Limited, Blackrock Asset Management Canada Limited, Blackrock Asset Management Ireland Limited, Blackrock (Singapore) Limited, Blackrock Advisors (UK) Limited, Blackrock Fund Advisors, Blackrock International Limited, Blackrock Institutional Trust Company, N.A., Blackrock Japan Co. Ltd., and Blackrock Investment Management (UK) Limited, each individually owning less than 5% is deemed to beneficially own 67,223,180 shares, and has sole voting power over 67,223,180 shares, shared voting power over no shares, sole dispositive power over 67,223,180 shares, and shared dispositive power over no shares.
| | | | | Type of Fee | | | | | | | | |
34
Table of Contents
|
| | | | | | | | Amount ($) |
Annual Board Retainer |
150,000 | Security Ownership of Directors
and Executive Officers
|
Additional Retainer for Chairman of the Board |
125,000 | |
Additional Retainer for Audit and Finance Committee Chair |
25,000 | |
Additional Retainer for Compensation Committee Chair |
25,000 | The following table sets forth the number of shares of Marathon Oil common stock beneficially owned as of January 31, 2013, except as otherwise noted, by each director, by each executive officer named in the Summary Compensation Table and by all directors and executive officers as a group. In calculating the percentage of outstanding stock, each listed person’s stock options or stock-settled stock appreciation rights that are or may be exercisable within sixty days have been added to the total outstanding shares.
|
Additional Retainer for Corporate Governance and Nominating Committee Chair |
12,500 | | | Additional Retainer for Health, Environmental, Safety and Corporate Responsibility Chair | 12,500 | |
Name | | Shares | Restricted
Stock(4) | | Stock Options/
Stock Settled SARs
Exercisable Prior to
4/1/13(5)(6) | | Total
Shares(7) | % of Total
Outstanding(8) | | | | | | | | | | Gregory H. Boyce | | 45,778 | (2) | | | | | 45,778 | | * | Pierre Brondeau | | 16,402 | (2) | | | | | 16,402 | | * | Clarence P. Cazalot, Jr. | | 969,349 | | | | 3,079,871 | | 4,049,220 | | * | Linda Z. Cook | | 13,573 | (2) | | | | | 13,573 | | * | Shirley Ann Jackson | | 86,101 | (2)(3) | | | | | 86,101 | | * | Philip Lader | | 81,851 | (2)(3) | | | | | 81,851 | | * | Michael E.J. Phelps | | 32,112 | (2) | | | | | 32,112 | | * | Dennis H. Reilley | | 84,433 | (2)(3) | | | | | 84,433 | | * | Eileen M. Campbell | | 76,504 | (3) | 17,170 | | 153,251 | | 246,925 | | * | Janet F. Clark | | 185,843 | | 53,641 | | 642,108 | | 881,592 | | * | Sylvia J. Kerrigan | | 19,255 | (3) | 29,239 | | 153,210 | | 201,704 | | * | David E. Roberts, Jr. (1) | | 63,856 | (3) | | | 405,193 | | 469,049 | | * | Michael K. Stewart | | 12,936 | (3) | 26,398 | | 118,636 | | 157,970 | | * | All Directors and Executive
Officers as a group (19 persons) (2)(3)(4)(5)(6) | | | | | 6,967,077 | (6) | * |
(1)David E. Roberts, Jr. resigned
Directors do not receive meeting fees for attendance at Board or committee meetings. Non-employee directors may defer up to 100% of their annual retainer into an unfunded account under the Marathon Oil Corporation Deferred Compensation Plan for Non-Employee Directors. These deferred amounts may be invested in certain investment options, which generally mirror the investment options offered to employees under our Thrift Plan with the exception of Marathon Oil common stock. EQUITY-BASED COMPENSATION AND STOCK OWNERSHIP REQUIREMENTS For 2015, non-employee directors received an annual common stock unit award valued at $175,000. These awards were credited to an unfunded account on the first business day of the calendar year, based on the closing stock price on the grant date. When dividends are paid on our common stock, directors receive dividend equivalents in the form of common stock units. The awards vest and are payable in shares upon the earlier of (a) the third anniversary of the grant date, or (b) the director’s departure from the Board. Under our stock ownership guidelines, each non-employee director is expected to hold three times (four times in the case of the Chairman) the value of the annual retainer in Marathon Oil stock. Directors have five years from their initial election to the Board to meet this requirement. Directors who do not hold the required level of stock ownership due to fluctuations in the price of our common stock are expected to hold the awards they receive until they have met their requirement. Other than Ms. Donadio and Messrs. Banister and Deaton, who each joined the Board fewer than five years ago, and Mr. Phelps, who previously attained the required ownership level but has fallen below due to the recent significant decrease in our share price, the remaining non-employee directors meet or exceed this ownership requirement.
MARATHON OIL | 2016 PROXY STATEMENT 15
MATCHING GIFTS PROGRAMS Under our matching gifts programs, we will annually match up to $10,000 in contributions made by non-employee directors to certain tax-exempt educational institutions. This annual limit is based on the date of the director’s gift to the institution. We will also make a donation to a charity of the director’s choice equal to the amount of his or her contribution to the Marathon Oil Company Employees Political Action Committee (“MEPAC”) for contributions above $200. MEPAC contributions are subject to a $5,000 annual limit. 2015 DIRECTOR COMPENSATION TABLE | | | | | | | Name(1) | Fees Earned
or Paid in
Cash
($) | | Stock Awards(1)
($) | All Other
Compensation(2)
($) | Total
($) | Gaurdie E. Banister, Jr.(3) | 37,500 | (5) | 0 | 10,000 | 47,500 | | Gregory H. Boyce | 175,024 | | 175,000 | 5,000 | 355,024 | Pierre Brondeau(4) | 162,524 | | 175,000 | 0 | 337,524 | | Chadwick C. Deaton | 150,000 | | 175,000 | 0 | 325,000 | | Marcela E. Donadio | 150,000 | | 175,000 | 8,750 | 333,750 | Shirley Ann Jackson(5) | 50,000 | (6) | 175,000 | 10,000 | 235,000 | | Philip Lader | 162,524 | (6) | 175,000 | 15,000 | 352,524 | | Michael E. J. Phelps | 175,024 | | 175,000 | 0 | 350,024 | | Dennis H. Reilley | 275,024 | | 175,000 | 0 | 450,024 |
(1) Represents the amount recognized for financial statement reporting purposes for the fiscal year ended December 14, 2012. Mr. Roberts’ information is31, 2015, in accordance with generally accepted accounting principles in the United States regarding stock compensation, for the annual common stock unit award. These amounts are also equal to the grant date fair value of the awards. The aggregate number of stock unit awards outstanding as of December 14,31, 2015 for each director is as follows: Mr. Banister, 2,867; Mr. Boyce, 44,923; Mr. Brondeau, 23,991; Mr. Deaton, 11,631; Ms. Donadio, 6,325; Dr. Jackson, 0; Mr. Lader, 89,273; Mr. Phelps, 40,963; and Mr. Reilley, 92,948. (2) Represents contributions made under our matching gifts programs. (3) Mr. Banister joined the Board effective October 1, 2015. (4) Mr. Brondeau’s service on the Board concluded on March 28, 2016. (5) Dr. Jackson’s service on the Board concluded on April 29, 2015. (6) Deferred under the Marathon Oil Corporation Deferred Compensation Plan for Non-Employee Directors. (7) Mr. Lader deferred payment of his annual retainer under the Marathon Oil Corporation Deferred Compensation Plan for Non-Employee Directors, but received his additional retainer for serving as the Chair of the Health, Environmental, Safety and Corporate Responsibility Committee in cash.
16 MARATHON OIL | 2016 PROXY STATEMENT
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Section 16(a) of the Exchange Act requires that our directors and executive officers, and persons who own more than ten percent of a registered class of our equity securities, file reports of beneficial ownership on Form 3 and changes in beneficial ownership on Form 4 or Form 5 with the SEC. Based solely on our review of the reporting forms and written representations provided by the individuals required to file reports, we have concluded that each of our directors and executive officers complied with the applicable reporting requirements for transactions in Company securities during 2015, except that a Form 4 for Patrick J. Wagner was filed late due to an administrative error, and a Form 4/A was filed for Sylvia J. Kerrigan to correct an administrative error on a previously-filed Form 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS The following table shows the beneficial owners of five percent or more of the Company’s common stock, based on information available as of February 16, 2016: | | | | | | Name and Address
of Beneficial Owner | Amount and Nature of Beneficial Ownership | Percent of Outstanding Shares | Blackrock, Inc.
55 East 52nd Street
New York, NY 10022 | 72,136,674 | (1) | 10.7% | | The Vanguard Group, Inc.
100 Vanguard Blvd.
Malvern, PA 19355 | 60,551,171 | (2) | 8.94% | | Wellington Management Group LLP c/o Wellington Management Company LLP 280 Congress Street Boston, MA 02210 | 41,958,339 | (3) | 6.20% | | Hotchkis and Wiley Capital Management, LLC 725 S. Figueroa Street, 39th Floor Los Angeles, CA 90017 | 38,466,164 | (4) | 5.68% | | State Street Corporation State Street Financial Center One Lincoln Street Boston, MA 02111 | 35,258,712 | (5) | 5.20% | |
(1) Based on its Schedule 13G/A filed with the SEC on January 8, 2016, Blackrock, Inc., through itself and as the parent holding company or control person over certain subsidiaries, beneficially owns 72,136,674 shares, has sole voting power over 65,625,249 shares, shared voting power over no shares, sole dispositive power over 72,136,674 shares, and shared dispositive power over no shares. (2) Based on its Schedule 13G/A filed with the SEC on February 10, 2016, the Vanguard Group, Inc., as an investment adviser, beneficially owns 60,551,171 shares, has sole voting power over 1,241,382 shares, shared voting power over 65,100 shares, sole dispositive power over 59,243,648 shares, and shared dispositive power over 1,307,523 shares. Vanguard Fiduciary Trust Company, a wholly-owned subsidiary of Vanguard, is the beneficial owner of 1,049,393 shares as a result of its serving as investment manager of collective trust accounts. Vanguard Investments Australia, Ltd., a wholly-owned subsidiary of Vanguard, is the beneficial owner of 450,119 shares as a result of its serving as investment manager of Australian investment offerings. (3) Based on its Schedule 13G filed with the SEC on February 11, 2016, Wellington Management Group LLP, together with certain affiliates, beneficially owns 41,958,339 shares, has sole voting power over no shares, shared voting power over 18,815,159 shares, sole dispositive power over no shares, and shared dispositive power over 41,958,339 shares. Wellington Management Company, LLP is deemed to beneficially hold 39,406,195 shares, has sole voting power over no shares, shared voting power over 17,276,156 shares, sole dispositive power over no shares, and shared dispositive power over 39,406,195 shares. (4) Based on its Schedule 13G filed with the SEC on February 12, 2016, 38,466,164 shares are owned of record by clients of Hotchkis and Wiley Capital Management, LLC (“HWCM”) in its capacity as investment advisor. HWCM disclaims beneficial ownership of such shares. HWCM has sole voting power over 23,373,122 shares, shared voting power over no shares, sole dispositive power over 38,466,164 shares, and shared dispositive over no shares. The securities as to which the Schedule 13G was filed are owned of record by clients of HWCM. Those clients have the right to receive, or the power to direct the receipt of, dividends from, or the proceeds from the sale of, such securities. No such client is known to have such right or power with respect to more than five percent of this class of securities. (5) Based on its Schedule 13G filed with the SEC on February 16, 2016, State Street Corporation, together with certain of its direct or indirect subsidiaries, has sole voting power over no shares, shared voting power over 35,258,712 shares, sole dispositive power over no shares and shared dispositive power over 35,258,712 shares.
MARATHON OIL | 2016 PROXY STATEMENT 17
SECURITY OWNERSHIP OF MANAGEMENT The following table shows the number of shares of Marathon Oil common stock beneficially owned as of March 1, 2016, by each director, by each executive officer named in the Summary Compensation Table and by all directors and executive officers as a group. | | | | | | | | | | | | | Name | Shares | | Restricted
Stock(1) | Stock Options
Exercisable Prior to April 29, 2016(2) | Total Shares(3) | % of Total
Outstanding | | Gaurdie E. Banister, Jr. | 24,118 |
| (4)(5) | 0 | | 0 | | 24,118 |
| * | | Gregory H. Boyce | 73,756 |
| (4) | 0 | | 0 | | 73,756 |
| * | | Chadwick C. Deaton | 25,281 |
| (4) | 0 | | 0 | | 25,281 |
| * | | Marcela E. Donadio | 19,976 |
| (4)(5)
| 0 | | 0 | | 19,976 |
| * | | Philip Lader | 113,702 |
| (4)(5)
| 0 | | 0 | | 113,702 |
| * | | Michael E. J. Phelps | 59,797 |
| (4) | 0 | | 0 | | 59,797 |
| * | | Dennis H. Reilley | 115,981 |
| (4)(5)
| 0 | | 0 | | 115,981 |
| * | | Lee M. Tillman | 64,733 |
| | 412,768 | | 508,976 | | 986,477 |
| * | | John R. Sult | 12,750 |
| | 107,220 | | 147,319 | | 267,289 |
| * | | Sylvia J. Kerrigan | 45,575 |
| (5) | 85,373 | | 364,955 | | 495,903 |
| * | | T. Mitchell Little | 21,286 |
| | 112,229 | | 134,703 | | 268,218 |
| * | | Lance W. Robertson | 30,720 |
| (5) | 112,229 | | 112,936 | | 255,885 |
| * | | All Directors and Executive Officers as a group (15 persons) | (1)(2)(4)(5) |
| 2,949,105 |
| * |
| | | * | Does not exceed 1% of the common shares outstanding. |
(1) Reflects shares of restricted stock granted under the 2012 Incentive Compensation Plan, which are subject to limits on sale and includes vested stocktransfer and can be forfeited under certain conditions. (2) Includes options exercisable within sixty days of February 29, 2016, including the following number of options that were eligible for exercise within ninety days fromare not in-the-money based on the dateclosing price of his resignation.our common stock on February 29, 2016 ($8.21): Mr. Tillman: 508,976; Mr. Sult: 147,319; Ms. Kerrigan: 364,955; Mr. Little: 134,703; and Mr. Robertson: 112,936. (3) None of the shares are pledged as security. (2)(4) Includes deferrals of annual retainers into common stock units under the Deferred Compensation Plan for Non-Employee Directors and the 2003 Incentive Compensation Plan prior to January 1, 2006, and non-retainer annual director stock awards in common stock units including the 2013 award of common stock units, under the 2007 Incentive Compensation Plan and the 2012 Incentive Compensation Plan, including their respective dividend equivalent rights allocated in common stock units, as follows:Name | | Annual Retainer
Deferred Into
Common Stock Units | | Non-Retainer
Annual
Common Stock Units | | | | | | Gregory H. Boyce | | 0 | | | 35,777 | Pierre Brondeau | | 0 | | | 16,402 | Linda Z. Cook | | 0 | | | 13,573 | Shirley Ann Jackson | | 24,446 | | | 59,281 | Philip Lader | | 17,551 | | | 59,281 | Michael E.J. Phelps | | 0 | | | 32,112 | Dennis H. Reilley | | 20,952 | | | 59,281 |
(3)
| | | | | | | Name | Annual Retainer Deferred Into
Common Stock Units | Annual Common Stock Unit Awards | | Gaurdie E. Banister, Jr. | 0 | | 16,518 | | | Gregory H. Boyce | 0 | | 52,600 | | | Chadwick C. Deaton | 0 | | 25,281 | | | Marcela E. Donadio | 0 | | 19,976 | | | Philip Lader | 18,960 | | 77,991 | | | Michael E.J. Phelps | 0 | | 48,641 | | | Dennis H. Reilley | 22,634 | | 77,991 | |
(5) Includes all shares held, if any, under the Marathon Oil Thrift Plan, thea Dividend Reinvestment and Direct Stock Purchase Plan, and the Non-Employee Director Stock Plan.Plan and in brokerage accounts.
18 (4)MARATHON OIL | 2016Reflects shares PROXY STATEMENT
AUDIT AND FINANCE COMMITTEE REPORT The Audit and Finance Committee’s purpose is to assist the Board in fulfilling its oversight responsibilities relating to, among other things: the integrity of restricted stock grantedthe Company’s financial statements and financial reporting process and the Company’s systems of internal accounting and financial controls; the engagement of the independent auditor and the evaluation of the independent auditor’s qualifications, independence and performance; the performance of the internal audit function; the Company’s compliance with legal and regulatory requirements; and the Company’s risk management process. The Audit and Finance Committee is comprised of five directors, each of whom has been determined by the Board to be independent and financially literate under the 2007 Incentive Compensation PlanNYSE’s requirements. See the director biographies under “Proposal 1: Election of Directors” for more information about the qualifications, education and experience of each Committee member. Based on these qualifications, the Board has determined that each of Marcela E. Donadio and Michael E.J. Phelps qualifies as an “Audit Committee Financial Expert” under the SEC’s rules. The Audit and Finance Committee’s responsibilities are set forth in its charter, available on our website at www.marathonoil.com/Investor_Center/Corporate_Governance/Board_Committees_and_Charters/. The Audit and Finance Committee met a total of six times in 2015, including four in-person meetings at which the Committee met with the Company’s internal audit organization and the 2012 Incentive Compensation Plan, which are subject to limitsindependent auditor, with and without management present. Management has primary responsibility for preparing our financial statements and establishing and maintaining our internal control over financial reporting. The Company’s independent auditor is responsible for auditing our financial statements and the effectiveness of our internal control over financial reporting in accordance with standards of the Public Company Accounting Oversight Board (“PCAOB”), and issuing its reports based on salethose audits. The Audit and transferFinance Committee oversees these processes. In connection with the evaluation, appointment and can be forfeited under certain conditions.retention of the independent registered public accountants, the Audit and Finance Committee annually reviews the qualifications, performance and independence of the independent auditor and lead engagement partner, (5)and assures the regular rotation of the lead engagement partner as requiredThe. In doing so, the Audit and Finance Committee considers a number of shares shown includesfactors including, but not limited to: quality of services provided; technical expertise and knowledge of the sharesindustry; effective communication; objectivity; and independence. Based on this evaluation, the Audit and Finance Committee has selected PricewaterhouseCoopers LLP (“PwC”), an independent registered public accounting firm, to audit the Company’s financial statements and the effectiveness of internal control over financial reporting for 2016. In conjunction with the mandated rotation of the lead audit partner, the Audit and Finance Committee and its chairperson are directly involved in the selection of PwC’s lead engagement partner. The current lead engagement partner was appointed in 2012.
We are seeking our stockholders’ ratification of the appointment of PwC to audit the Company’s financial statements and the effectiveness of internal control over financial reporting for 2016 at the Annual Meeting. The Audit and Finance Committee and the Board believe the appointment of PwC as our independent auditor for 2016 is in the Company’s best interests and in the best interests of our stockholders. The Audit and Finance Committee reviews and pre-approves the fees and expenses of the independent auditor for audit, audit-related, tax and permissible non-audit services. See “Proposal 2: Ratification of Independent Auditor for 2016” for more information on our pre-approval policy.
MARATHON OIL | 2016 PROXY STATEMENT 19
In connection with the preparation of the Company’s audited financial statements for the year ended December 31, 2015 and the report on internal control over financial reporting for 2015: The Audit and Finance Committee reviewed and discussed with management the Company’s audited financial statements and its report on internal control over financial reporting for 2015. The Audit and Finance Committee met throughout the year with management and PwC, and met with PwC each person would havequarter without the presence of management. The Committee discussed with PwC the matters required to be discussed by the auditing standards of the PCAOB. The Audit and Finance Committee received had they exercised their stock-settled SARs basedthe written disclosures and the letter from PwC required by the applicable requirements of the PCAOB for independent auditor communications with audit committees concerning independence, and has considered whether PwC’s provision of non-audit services to the Company was compatible with maintaining such independence. Based on this review and discussion, the fair market value (i.e., closing price)Audit and Finance Committee recommended to the Board that the Company’s audited financial statements for the year ended December 31, 2015 and the report on internal control over financial reporting be included in the Company’s Annual Report on Form 10-K for 2015 filed with the SEC. AUDIT AND FINANCE COMMITTEE Michael E. J. Phelps, Chair Gaurdie E. Banister, Jr. Gregory H. Boyce Marcela E. Donadio COMPENSATION COMMITTEE REPORT The Compensation Committee has reviewed with management the Company’s Compensation Discussion and Analysis for 2015. Based on that review, the Compensation Committee has recommended to the Board of Marathon Oil’s common stock on January 31, 2013.(6)Includes vested options exercisable within sixty days of January 31, 2013, includingDirectors that the Compensation Discussion and Analysis be included in this Proxy Statement.
COMPENSATION COMMITTEE Gregory H. Boyce, Chair Chadwick C. Deaton Marcela E. Donadio Philip Lader
20 MARATHON OIL | 2016 PROXY STATEMENT
COMPENSATION DISCUSSION AND ANALYSIS The following number of options that are not-in-the-money as of January 31, 2013: C. P. Cazalot, Jr.: 652,130; E. M. Campbell: 38,449; J. F. Clark: 109,579; S. J. Kerrigan: 30,334; D. E. Roberts, Jr.: 90,788; M. K. Stewart: 19,291Compensation Discussion and all otherAnalysis describes the compensation paid to the named executive officers as a group: 77,121.(7)None(“NEOs”) listed in the Summary Compensation Table. It discusses the Company’s 2015 highlights, our compensation philosophy, the Compensation Committee’s (the “Committee”) processes and procedures for establishing an executive compensation program consistent with that philosophy, the individual elements of the shares are pledged as security.
* (8)The percentage of shares beneficially owned by each director or nominee, or each executive officer does not exceed one percent of the common shares outstanding,our compensation program and the percentage of shares beneficially owned by all directors and executive officers of the Company, as a group, does not exceed one percent of the common shares outstanding.
35
Committee’s 2015 compensation decisions for each NEO.
For 2015, our NEOs were:
Table of Contents
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| Section 16(a) Beneficial Ownership
Reporting Compliance
|
Name |
| Title |
Lee M. Tillman |
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| Section 16(a) of the Exchange Act requires that the Company’s directors and executive officers, and persons who own more than ten percent of a registered class of the Company’s equity securities, file reports of beneficial ownership on Form 3 and changes in beneficial ownership on Form 4 or Form 5 with the Securities and Exchange Commission. Based solely on the Company’s review of the reporting forms and written representations provided to the Company from the individuals required to file reports, the Company believes that each of its directors and executive officers has complied with the applicable reporting requirements for transactions in the Company’s securities during the fiscal year ended December 31, 2012.
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Table of Contents
| | | | | | Compensation Committee Report
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| | | Our committee has reviewed and discussed Marathon Oil’s Compensation Discussion and Analysis report for 2012 with Marathon Oil’s management. Based on the review and discussions, the Compensation Committee has recommended to the Board of Directors that the Compensation Discussion and Analysis report be included in the Company’s 2013 Proxy Statement.
Gregory H. Boyce, Chair
Pierre Brondeau
Linda Z. Cook
Shirley Ann Jackson
Philip Lader
Dennis H. Reilley
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Table of Contents
| | | | | | Compensation Discussion and Analysis
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| | |
| Introduction
| | This Compensation Discussion and Analysis (“CD&A”) describes the compensation paid to the named executive officers (also referred to as “NEOs”) listed below and in the Summary Compensation Table on page 58:
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| Name
| Title
|
| | | Mr. C. P. Cazalot, Jr.
| Chairman, President and Chief Executive Officer
|
John R. Sult | | | | |
| | | Ms. J. F. Clark
| Executive Vice President and Chief Financial Officer |
Sylvia J. Kerrigan | | | | |
| | | Ms. S. J. Kerrigan*
| Executive Vice President, General Counsel and Secretary |
Lance W. Robertson | | | | Vice President, Resource Plays |
T. Mitchell Little | | | Mr. M. K. Stewart
| Vice President, Accounting & Finance, Controller & Treasurer Conventional |
EXECUTIVE SUMMARY In 2015, the commodity price environment presented significant challenges to the industry. We focused on the aspects of our business within our control—disciplined capital allocation, cost reduction, efficient production, and portfolio management—to protect our strong balance sheet. Total company net production averaged 431,000 net barrel of oil equivalent per day (“boed”), up 8% over 2014 and above our stated target of 5-7%. We achieved year-over-year production growth of 21% from U.S. resource plays with average net production of 219,000 boed. We achieved organic reserve replacement of 157%, excluding revisions and dispositions, at a competitive drillbit finding and development cost of $12 per barrel of oil equivalent. We are focused on long-term shareholder value, and believe we are well positioned for a low price environment. Our year-end liquidity of $4.2 billion was comprised of $1.2 billion in cash and an undrawn $3 billion revolving credit facility. Demonstrating our commitment to maintaining a strong balance sheet, we reduced our full year 2015 capital program to $3 billion, which was $500 million below our original target, and we lowered production expenses by approximately 24% year-over-year. Fourth quarter North America Exploration and Production (“E&P”) production costs were $6.91 per boe, down 28% from the year-ago period, with full-year North America E&P unit production costs of $7.38 per boe. We closed or announced non-core asset sales of more than $300 million in 2015, excluding closing adjustments, in the Gulf of Mexico, East Texas, North Louisiana and Wilburton, Oklahoma, as well as our East Africa exploration acreage. In the fourth quarter of 2015, we announced a quarterly dividend reduction of more than 75% to $0.05 per share to address the uncertain commodity price environment and prioritize balance sheet protection. Despite these financial, strategic and operating achievements, the Company generated a negative return for shareholders in 2015 of 47%, driven by the decline in commodity prices. The actions we took in 2015 and the strategies we have implemented for 2016 aim to preserve and restore shareholder value in the ongoing difficult commodity environment. In 2015 and early 2016, the Committee demonstrated its continued commitment to corporate governance and sound compensation practices, further aligning the interests of executive officers with the long-term interests of our stockholders: Consistent with and in recognition of the difficult commodity price environment, the Committee decided to keep NEO base pay flat in 2015.
MARATHON OIL | 2016 PROXY STATEMENT 21
Early in 2015, the Committee implemented a limitation to the annual cash bonus program, providing that the quantitative portion of the company performance score would be capped at no greater than target (100%) if the Company’s earnings or total shareholder return (“TSR”) for 2015 were negative. At the end of the 2015 performance period, the quantitative portion of the company performance score was 169% prior to application of the 100% cap under this new program feature. Further, the Committee also exercised downward discretion because of the meaningful impact low commodity prices have had on our stock price, resulting in the final aggregate quantitative and qualitative funding being reduced by 10%, to 90% of target. As a result of this program design change and the Committee’s further downward discretion, 2015 NEO bonus payments averaged 29% lower than 2014 NEO bonus payments. The Committee reevaluated the long-term incentive mix for officers to further emphasize performance-based compensation and alignment with our stockholders, while also remaining competitive in our peer group. In 2014, our long term incentive (“LTI”) mix was 40% performance units, 40% stock options, and 20% restricted stock. Beginning in 2015, our LTI mix is 50% performance units, 20% stock options, and 30% restricted stock. The Committee approved a payment from the 2013-2015 performance unit awards at 54% of target (within an original opportunity range of 0% to 200% of target). This below-target outcome was determined by the Company’s relative TSR, which ranked 9th out of 12 over the three-year performance period. The Committee determined that in the event of a change in control, future performance unit awards will vest at the applicable performance percentage based on the Company’s TSR ending on the day immediately prior to the date of the change of control as assessed by the Committee. | | Ms. E. M. Campbell
| Vice President, Public Policy
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COMPENSATION PHILOSOPHY Our success is based on financial performance and operational results, and we believe our executive compensation program is an important driver of that success. The primary objectives of our program are to: Pay competitively. We provide market-competitive pay levels to attract and retain the best talent, and regularly benchmark each component of our pay program, including our benefit programs, to ensure we remain competitive. Pay for performance. Our program is designed to reward executives for their performance and motivate them to continue to perform at a high level. Cash bonuses based on annual performance combined with equity awards that vest over several years balance short-term and long-term business objectives. Encourage creation of long-term stockholder value. Equity awards and robust stock ownership requirements align our executives’ interests with those of our stockholders. A substantial portion of our NEOs’ long-term incentive awards is comprised of stock options and performance units tied to relative stockholder returns. | | Mr. D. E. Roberts, Jr.**
| Executive Vice President and Chief Operating Officer
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COMPENSATION BEST PRACTICES The Committee periodically evaluates market best practices in executive compensation and modifies our compensation program as necessary to ensure it continues to provide balanced incentives, while managing compensation risks appropriately in the context of our business objectives. Our compensation program incorporates the following best practices, which we believe are in the best interests of our stockholders: Emphasis on at-risk compensation designed to link pay to performance.
22 MARATHON OIL | 2016 PROXY STATEMENT
Emphasis on long-term incentive compensation designed to align executives’ interests with those of our stockholders. Engagement of an independent compensation consultant to advise the Committee. Stock ownership requirements for officers and directors. Elimination of all excise tax gross-ups for executive officers. Limited use of perquisites, and no tax gross-ups for perquisites. “Double-trigger” change in control cash payments. Clawback policy that applies to both annual cash bonuses and long-term incentive awards. Prohibition on margin, derivative or speculative transactions, such as hedges, pledges and margin accounts, by executive officers. | | |
| | *In October 2012, Ms. Kerrigan was elected Executive Vice President, General Counsel, and Secretary.
**Effective December 14, 2012, Mr. Roberts resigned from the Company.
When we refer to “named executive officers” throughout this disclosure, we are referring to all six executive officers listed above.
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PAY FOR PERFORMANCE Our executive compensation programs deliver payments aligned with performance achieved. The largest component of executive compensation is our LTI award program, which is described in more detail in “Long-Term Incentive Awards.” These awards strongly align the amounts an NEO eventually earns from the awarded opportunities with the Company’s stock performance. To demonstrate this performance philosophy, the charts below track a notional $1,000 award made in each of the past three long-term incentive cycles as of December 31, 2015. In aggregate, LTI values tracked at 77% below their original target opportunity. The year-end value of these outstanding awards fairly reflects the Company’s performance, demonstrating that our LTI programs effectively align pay with performance. CEO COMPENSATION The following chart compares our CEO’s targeted compensation opportunities awarded in early 2015 to how the opportunities were tracking at year-end based on Company performance. Target compensation represents the Committee’s decisions for annual base salary, target bonus opportunity, and intended long term incentive opportunity granted in February 2015. The value shown as of December 31, 2015 represents the annual base salary, the actual bonus paid for 2015 performance, the year-end value of restricted stock, an updated Black-Scholes valuation of stock options, and an
MARATHON OIL | 2016 PROXY STATEMENT 23
estimated prevailing value of performance awards. The ultimate value of these performance awards will depend on our stock price and our total shareholder return relative to industry peers. In combination, the realizable compensation from these awarded opportunities reflects both the Company’s near-term financial and operating successes and the Company’s long-term stock performance. CEO Total Compensation 2015 Target vs. Value as of 12/31/2015 (In thousands)
Values for the “Pay for Performance” and “CEO Total Compensation” illustrations were determined with the following inputs: Our closing stock price of $12.59 as of December 31, 2015. An updated Black-Scholes valuation of outstanding stock options as of December 31, 2015. Our rank in our TSR peer group as of December 31, 2015 and the corresponding payout percentage as measured under our performance unit programs: 54% for 2013, 54% for 2014, and 50% for 2015. | |
| | | Executive Summary and 2012 Company Highlights
| | The purpose of our executive compensation program is to motivate long-term organizational and individual performance that is aligned with our corporate goals and in the long-term best interests of our stockholders. We use traditional compensation elements of base salary, annual incentives, long-term incentives, and employee benefits to deliver competitive and performance-based compensation. In evaluating the appropriateness of pay, we benchmark compensation against our industry peers. All of our pay decisions for named executive officers are made by our Compensation Committee (the “Committee”), with input from its independent consultant. When setting compensation levels, we generally reference the market median, with higher or lower amounts determined based on experience and performance in the role. The Committee did not make any significant adjustments to our compensation programs in 2012.
Business Highlights
From a business perspective, 2012 was a year of successful transition for Marathon Oil. We completed our first full year as an independent exploration and production (“E&P”), or upstream, company after 87 years as an integrated oil and gas company. Production available for sale increased by 8% to 427,000 barrels of oil equivalent per day (“boed”) (excluding Libya). We replaced 226% of our 2012 total production from our E&P and Oil Sands Mining segments, increasing our total proved reserves to 2.0 billion barrels of oil equivalent (boe), up from 1.8 billion boe at year end 2011, and representing our highest level of proved reserves in 40 years.
Our 2012 performance was supported by our base assets in North America, Africa, and Europe that are characterized by safe and reliable operations and continue to generate substantial free cash flow for investment in future growth opportunities. Our strong position in three of the highest-value resource plays – the Eagle Ford shale in south Texas, the Bakken shale in North Dakota, and the Oklahoma Resource Basins – has established a 10-year plus drilling inventory across these plays at current rig levels. During the last fiscal year, we significantly
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HOW WE DETERMINE EXECUTIVE COMPENSATION
COMPENSATION COMMITTEEThe Committee is responsible for establishing and overseeing executive compensation programs and policies that are consistent with our overall compensation philosophy. In making compensation decisions, the Committee considers a variety of factors, including each executive’s current compensation, information provided by its independent compensation consultant, our CEO’s input, Peer Group (as defined below) data, each executive’s experience in the role, relative scope of responsibility and potential, Company and individual performance, internal pay equity considerations, and any other information the Committee deems relevant in its discretion. The Committee also considers the outcome of the Company’s advisory stockholder vote on our executive compensation program. At our 2015 Annual Meeting of Stockholders, our stockholders approved our executive compensation by over 90% of the votes cast. The Committee believes that this strong stockholder vote indicates support for our executive compensation program. Based on this voting result and its ongoing review of our compensation policies and important governance processes, the Committee concluded that our compensation program effectively aligns the interests of our NEOs with the Company’s long-term goals.
24 MARATHON OIL | 2016 PROXY STATEMENT
Table
COMPENSATION CONSULTANT For 2015, the Committee directly engaged Meridian Compensation Partners LLC (“Meridian”) as its independent compensation consultant to advise the Committee on executive compensation matters. Meridian provides the Committee with information on industry trends, market practices and legislative issues. Meridian provides no other services to us or our executive officers, and the Committee has the right to terminate the services of ContentsMeridian and appoint a new compensation consultant at any time. Meridian interacts with several of our officers and employees as necessary. In addition, Meridian may seek input and feedback from members of our management regarding its work product prior to presentation to the Committee to confirm that information is accurate or address other issues. We believe that Meridian provides an independent perspective to the Committee. THE CEO’S ROLE The Committee seeks significant input from the CEO on compensation decisions and performance appraisals for all executive officers other than himself. However, all final compensation decisions for our executive officers are made by the Committee. The CEO does not provide recommendations or participate in Committee discussions concerning his own compensation. PEER GROUP Peer group benchmarking is one of several factors the Committee considers in setting pay. The table below shows our “Peer Group,” comprised of the industry companies the Committee believes provide the best external benchmarks for executive compensation. In selecting the Peer Group, the Committee considered pertinent financial measures for each company, including assets, revenue, market capitalization and enterprise value. Our Peer Group reflects the companies against which we compete for executive talent as an independent exploration and production company. The Committee reviews the Peer Group annually for continued appropriateness. In January 2015, the Committee determined to adjust the Peer Group to remove Talisman Energy Inc., due to its expected acquisition, and add ConocoPhillips and Pioneer Natural Resources Company. However, for purposes of February 2015 compensation decisions, the Committee referenced the benchmarking outcomes completed in October 2014.
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| | improved net production in each region, with Eagle Ford net production increasing more than four-fold from approximately 15,000 boed in December 2011 to more than 65,000 boed in December 2012.
Building upon our substantial investment in 2011, we completed targeted acquisitions in the Eagle Ford of approximately $1 billion in 2012 which added additional acreage in this premier U.S. liquids play. In August, we acquired over 17,100 net acres from Paloma Partners II LLC and we recently closed another acquisition of 4,300 net acres. To support production growth in the Eagle Ford operating area, we expanded midstream infrastructure, installing approximately 370 miles of gathering lines.
In 2012, we spud 392 gross operated wells in U.S. resource plays, compared to 123 in 2011. Similarly, we recorded more than 95% average operational availability for all major company-operated E&P assets and experienced strong safety performance during a period of organizational transformation and increasing external pressures.
Key activities related to our global exploration program included our re-entry into Gabon, a farmout agreement with Total S.A. in Kurdistan, and our recent exploration investments in Ethiopia and Kenya where we see significant resource potential.
Overall, we achieved strong operational results while remaining disciplined financially and making continued progress toward the previously stated goal of divesting $1.5-$3 billion of non-core assets through 2013. Finally, in early 2013, the Board increased our quarterly dividend 13% to $0.17 per share.
As evidence of these business and operational successes, three-year annual total shareholder return of 83.5% ranked 1st among our Peer Group of twelve oil and gas E&P companies (including Marathon Oil).
Compensation Highlights
Key performance-related compensation outcomes for 2012 included the following:
·Annual cash bonus payments above target based on overall performance achievement exceeding 2012 target objectives, and
·Performance unit payouts at target based on our third place rank among our Peer Group for the performance period associated with these awards.
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| | Pay For Performance
Overall, the Committee believes that our programs benefit our stockholders through stringent pay-for-performance requirements, while also competing effectively for highly sought executive talent. To further demonstrate this performance philosophy, the following chart tracks our Chief Executive Officer’s (“CEO’s”) Total Annual Compensation with changes in our stock price over the last four years. Since 2006, our CEO’s long-term incentive compensation has consisted only of stock options and performance units, the latter of which will require the Company to meet relative shareholder return criteria to earn any payout. Total Annual Compensation includes all cash compensation received from salary, bonuses, and performance unit payouts each year, as well as the value of the equity awards that vested in each year.
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Table of Contents
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| | For purposes of this graph, CEO Total Annual Compensation is comprised of the components described below:
·“Base” means base salary paid during each calendar year.
·“Bonus” means the annual cash bonus paid for each calendar year, typically paid in the first quarter of the following year.
·“Equity Vested” means the value of the equity that vested each year as of the vesting date. For stock options, the value shown is based on the amount, if any, that the stock option price on an option’s vesting date exceeds the option’s exercise price; for options where the exercise price exceeds the stock price on the vesting date, the value shown is $0. (This number differs from the grant date fair value of stock and stock option awards granted in each year which appears in the Summary Compensation Table.)
·“Performance Units” means the value of the performance earned as of the last date of each grant’s performance period. Performance Units generated zero payout for the 2007-2009 and 2008-2010 performance periods.
·“Accelerated Units” means the value of the prorated performance unit payout made in 2011 upon the Spin-off of MPC. The original performance periods of these units were 2010-2012 and 2011-2013. This acceleration reduced total compensation opportunities payable for performance periods ending in 2012 and 2013.
|
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Table of Contents
| | | |
| | ·“Stock Price per Share” means for 2012, the closing price of the Company’s common stock on December 31, 2012. For the years preceding 2012, it is the closing price for December 31 of that year, adjusted for a stock split and dividend distributions. For purposes of this calculation, the Spin-off of MPC was treated as a dividend equal to one-half of MPC’s closing “when issued” share price on June 30, 2011. Cash dividend adjustments were calculated based on the dividend as a percentage of the Company’s closing stock price immediately preceding the ex-dividend date.
|
| | |
| | | Governance and Risk Management Highlights
| | The Committee regularly evaluates and considers the role that executive compensation programs play in ensuring that our officers take only appropriate and prudent risks, and that compensation opportunities do not motivate excessive risk-taking. Below are some of the practices we employ.
·All executive officer compensation decisions are made by the Committee, which is comprised of six independent directors.
·Our Committee is advised by an independent compensation consultant that performs no other work for executive management or our Company.
·Our executives do not have employment agreements.
·The Committee manages our compensation programs to be competitive with those of peer companies and monitors our programs against trends in executive compensation on an annual basis.
·Our compensation programs appropriately balance short-term and long-term incentives.
·Our annual cash bonus program is based on a balanced set of metrics, which are objective and not significantly influenced by commodity prices. In addition, the Committee considers the achievement of individual performance commitments and overall corporate performance.
·Annual cash bonuses are paid only after the Audit and Finance Committee of our Board has reviewed our audited financial statements for the performance year.
·Our clawback policy applies to both annual cash bonuses and long-term incentives and would generally be triggered with respect to an executive officer in the event of a material accounting restatement due to noncompliance with financial reporting requirements, or the commission of fraud by such executive officer.
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Table of Contents
| | | Our Compensation Objectives
| | Our executive compensation program is designed to further our corporate goal of delivering long-term value through focused execution. It enables us to retain leaders who possess a high level of technical expertise and a long-term focus, both of which are critical to success in our industry. Specific compensation objectives and related plan features include:
|
| | Objective
| How We Meet Our Objectives
|
| | Attract and retain talented and experienced leadership who directly impact our current and future success
| ·We offer a market-competitive total pay opportunity that provides incentives for executive leaders to accept the responsibilities and risks associated with their positions
·We regularly benchmark each component of our pay program against the competitive market, and then consider the results of this analysis in making any adjustments
·We administer plans to provide competitive benefit programs, including retirement, health, and welfare
|
| | Motivate and reward for achievement of specific financial goals and operational successes
| ·We emphasize achievement of specific goals by providing variable, performance-based compensation
·Our annual incentive program includes specific financial and operational performance measures
|
| | Create strong financial incentive to build long-term stockholder value
| ·We link a significant part of total target compensation to financial and stock price performance – over 90% of CEO compensation mix is variable and performance-based
·We deliver 100% of CEO long-term incentives in the form of stock options and performance units tied to relative stockholder returns
|
| | Align executive and stockholder interests
| ·Emphasizing long-term shareowner returns, we encourage significant stock ownership among executives:
·The realized value of all of our annual long-term incentive grants is driven by stock price performance
·We maintain stock ownership requirements for our executive officers
|
| | All named executive officers are covered by the same compensation plans, policies, and practices, except that Mr. Cazalot, our Chairman, President and CEO, does not receive restricted stock.
|
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Table of Contents
| | | Peer Group
| | Peer group benchmarking is one of several factors considered in our pay setting processes. The table below lists the industry companies the Committee believes provide the best external benchmarks for executive compensation, referred to as our “Peer Group.” In selecting the Peer Group, the Committee considered pertinent financial measures for each company including assets, revenue, market capitalization and enterprise value.
In 2011, the Committee approved our Peer Group which reflected the companies against which we compete as an independent E&P company. The Committee did not make any changes to the Peer Group in 2012 and will review the Peer Group on an annual basis for continued appropriateness.
|
| | 2015 Peer Group Companies | |
| | Anadarko Petroleum Corp.
| EncanaEOG Resources Inc.
| | Apache Corp. | Hess Corp. | | Chesapeake Energy Corp. | Murphy Oil Corp. | | ConocoPhillips | Noble Energy Inc. |
Devon Energy Corp. | | Apache Corp.
| EOG Resources Inc.
| Occidental Petroleum Corp. |
Encana Corp. | Pioneer Natural Resources Company |
MARATHON OIL | 2016 PROXY STATEMENT 25
COMPENSATION BENCHMARKING PROCESS The Committee conducts an annual comparison of the compensation of our NEOs to the compensation of executives with similar job responsibilities among companies in our Peer Group, based upon information Meridian gathers and provides to the Committee. The Committee references this competitive market analysis in making compensation decisions for the coming year. The Committee generally targets executive total direct compensation opportunities at the 50th percentile of the Peer Group for average performance and adjusts total direct compensation opportunities higher or lower based on the Committee’s assessment of each executive’s experience, relative scope of responsibility and potential, internal pay equity considerations and any other information the Committee deems relevant in its discretion. We define total direct compensation as the sum of base salary, annual cash bonus and the intended value of long-term incentive awards. In October 2014, Meridian provided the Committee a market analysis that included information regarding Peer Group executives’ base salaries, annual bonus levels and the mix and level of long-term incentives. According to this analysis, NEO compensation levels varied by individual, but were fairly positioned relative to 50th percentile benchmarks, averaging 103% of the market 50th percentile. The compensation of our CEO was 86% of the market 50th percentile. Chesapeake Energy Corp.
| Hess Corp.
| Talisman Energy
|
| | Devon Energy Corp.
| Murphy Oil Corp.
| |
| | | Competitive Positioning
| | Due to the technical requirements and long-term capital commitments inherent in our business, we operate in a highly competitive environment for talented executive leadership. Annually, the Committee compares the competitiveness of our executive compensation to the Peer Group and examines the overall effectiveness of our compensation programs.
Compensation Philosophy
Our compensation philosophy is to provide market-based, competitive compensation that supports our business strategy, delivers pay that aligns with results achieved, and aligns executive leadership with stockholder interests. We generally target a total direct compensation opportunity at the 50th percentile of the Peer Group (the “50th percentile”) for average performance with higher or lower targeted compensation determined based on individual experience, internal parity with other executives, and performance in the role. We define total direct compensation as the sum of base salary, annual bonus, and long-term incentives.
Compensation Benchmarking Process
The Committee makes an annual comparison of the compensation of our named executive officers to the compensation of executives with similar job responsibilities among our Peer Group. The Committee’s independent compensation consultant, Meridian Compensation Partners LLC (“Meridian”), gathers and reports this information for the Committee. The Committee references this competitive market analysis in making compensation decisions for the coming year.
In late 2011, Meridian provided the Committee a market analysis that included information regarding Peer Group base salaries, annual bonus levels and the mix and level of long-term incentives. The Committee used this analysis as one tool in evaluating our compensation practices and competitive pay levels for our named executive officers and making appropriate compensation decisions for 2012.
|
43
PAY MIXOur executive compensation program includes base salary, annual cash bonuses, long-term incentive awards and other benefits and perquisites. By design, a significant portion of our executive officers’ overall compensation, including annual cash bonuses and long-term incentive awards, is “performance-based,” meaning that the opportunity to earn value is largely dependent on both Company and individual performance. The Committee determines a total compensation opportunity for each executive officer based on a review of competitive market data, a review of our compensation philosophy, and the Committee’s subjective judgment. The Committee does not set fixed percentages for each element of compensation, so the mix may change over time as the competitive market moves, governance standards evolve, or our business needs change. The following table shows the 2015 pay mix of total target direct compensation components for our NEOs. The allocation of our compensation components, with a significant emphasis on long-term incentive awards, aligns with the practices of our Peer Group.  
Table of Contents26 | | A comparison of 2012 target total direct compensation to the Peer Group 50th percentile for our named executive officers is shown in the table below. For purposes of this CD&A, we use the term “Market” to refer to the 50th percentile of similar positions within the Peer Group. | | | | | | | Name | Total Target
Compensation | % of Market | | | | | Mr. Cazalot | $14,290,000 | 108% | | | | | Ms. Clark | $3,426,000 | 115% | | | | | Ms. Kerrigan | $2,902,500 | 100% | | | | | Mr. Stewart | $1,748,000 | 123% | | | | | Ms. Campbell | $1,456,500 | 95% | | | | | Mr. Roberts | $5,255,000 | 98% | | | | | | | Decisions regarding base salaries, target bonus opportunities and long-term incentive awards were made in February 2012; and decisions regarding the payment of 2012 annual cash bonus awards were made in February 2013, after 2012 business results were completed and measured. In connection with her position change to Executive Vice President in October 2012, Ms. Kerrigan’s bonus target was adjusted from 70% to 85%. | | | | | | Pay Mix The table below provides the 2012 target mix of total direct compensation components of our named executive officers as compared to the median mix of our Peer Group. The allocation of our compensation components, with a significant emphasis on long-term incentives, aligns with the practices of our Peer Group. | | | | | | | | CEO | Other NEOs | | | | | | Marathon
Oil | Peer
Group | Marathon
Oil | Peer
Group | | | | | Base Salary | 10% | 10% | 19% | 17% | | | | | Short-Term Incentives | 13% | 12% | 16% | 13% | | | | | Long-Term Incentives | 77% | 78% | 65% | 70% | | | | | | | Similarly, the graphs below illustrate the components of compensation for our named executive officers. | | | | | | 
| | | | | | Variable compensation, which includes annual cash bonus and long-term incentives, represents 90% of total target compensation for Mr. Cazalot, and 81% of total target compensation for our other named executive officers. We do not set fixed percentages for each element of compensation, so the mix may change over time as the competitive market moves, governance standards evolve, or market conditions change. | | | | | | | | | | | | |
44MARATHON OIL | 2016 PROXY STATEMENT
| |
| Processes and Procedures for Determining Executive Compensation
| | Compensation Committee of Our Board of Directors
The Committee is charged with overseeing and approving all compensation for our executive officers. The Committee is comprised only of independent, non-employee directors. The directors who currently serve on the Committee are Mr. Boyce, who is the Chairman, Mr. Brondeau, Ms. Cook, Dr. Jackson, Mr. Lader and Mr. Reilley.
The Committee’s charter requires that it meet at least four times each year, and during 2012, the Committee met four times. At each of its meetings, the Committee has the opportunity to meet in executive session. When practicable, the Committee previews and discusses significant compensation decisions at one meeting before giving formal approval at a subsequent meeting.
|
|
2015 TOTAL DIRECT COMPENSATION OVERVIEW The Committee determined 2015 base salaries, target annual cash bonus opportunities and long-term incentive awards in February 2015. The Committee determined the payment of 2015 annual cash bonuses in February 2016, after 2015 business results were known and audited. The following table summarizes the elements of total direct compensation the Committee awarded to our NEOs for 2015 as part of our regular compensation program. The amounts shown differ from the amounts shown in the Summary Compensation Table because this table provides the intended value for LTI compensation. Intended value reflects established compensation valuation methodologies that are similar to, but can differ from, the methodologies used for accounting purposes as reflected in the Summary Compensation Table and the Grants of Plan-Based Awards Table. Additionally, this table excludes changes in pension value. | | | | | | | | | | | | | | | Name | 2015 Year
End Base
Salary | 2015 Bonus Payment
(paid in 2016) (1) | 2015 LTI Award Intended Value | 2015 Total
Direct
Compensation | | Mr. Tillman | 1,050,000 |
| | 1,181,250 |
| | 7,300,000 |
| | 9,531,250 |
| | | Mr. Sult | 600,000 |
| | 459,000 |
| | 2,300,000 |
| | 3,359,000 |
| | | Ms. Kerrigan | 575,000 |
| | 439,880 |
| | 2,000,000 |
| | 3,014,880 |
| | | Mr. Robertson | 510,000 |
| | 390,150 |
| | 2,000,000 |
| | 2,900,150 |
| | | Mr. Little | 500,000 |
| | 425,000 |
| | 2,000,000 |
| | 2,925,000 |
| |
(1) Excludes $500,000 paid to Mr. Tillman in 2015 as the final installment of the cash sign-on bonus he received in connection with the commencement of his employment in August 2013. |
|
| | The Role of the Chief Executive Officer
The Committee seeks significant input from the CEO on compensation decisions and performance appraisals for all other executive officers. However, all final compensation decisions for our executive officers are made by the Committee. The CEO does not provide recommendations or participate in Committee discussions concerning his own compensation.
The Committee’s Independent Consultant
In 2012, the Committee engaged the services of Meridian to provide consulting services and advice to the Committee on executive and director compensation matters. Meridian provides the Committee with information on industry trends, market practices and legislative issues. The terms of this relationship are set forth in an agreement between the Committee and Meridian. Meridian provides no other services to Marathon Oil or its executives and the Committee has the right to terminate the services of Meridian and appoint a new compensation consultant at any time.
While the Committee retains Meridian directly, Meridian interacts with several of our officers and employees as necessary. In addition, Meridian may seek input and feedback from members of our management regarding its work product prior to presentation to the Committee in order to confirm that information is accurate or address other issues. We believe that Meridian provides an independent perspective to the Committee.
|
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Table of Contents
| | | Components of Compensation | | Our executive compensation program includes base salary, annual cash incentive compensation, long-term incentives, and benefits. By design, the majority of compensation value available to our executives is “performance-based,” meaning that the opportunity to earn value is largely dependent on both Company and executive performance. | | | | | | | Base Salary | | Purpose: The primary purpose of this compensation component is to recognize and reward overall responsibilities, established skills, experience and expertise. Competitive Positioning: The Committee considers each named executive officer’s current salary as compared to the 50th percentile, along with individual performance. While we do not utilize internal pay ratios, the Committee evaluates the relative value of each position to Marathon Oil and ensures that compensation levels are both internally equitable and consistent with the value assigned to each position. The Committee does not use a formula to calculate base salary increases for named executive officers. Changes for Fiscal 2012: At its February 2012 meeting, the Committee reviewed our positioning against the Peer Group, employed the above methodology, and awarded a base salary increase to one of our six named executive officers. Effective in April 2012, Ms. Kerrigan received a base salary increase to align her salary more closely with the market and reflect the scope of her position. | | | | | | | Name | Base Salary
Amount as of
January 1, 2012 | Base Salary
Amount as of
January 1, 2013 | Percent Change | | | | | Mr. Cazalot | $1,400,000 | $1,400,000 | 0% | | | | | Ms. Clark | $680,000 | $680,000 | 0% | | | | | Ms. Kerrigan | $500,000 | $575,000 | 15% | | | | | Mr. Stewart | $440,000 | $440,000 | 0% | | | | | Ms. Campbell | $445,000 | $445,000 | 0% | | | | | Mr. Roberts | $900,000 | $900,000 | 0% | | | | | | | | Annual Cash Bonus | | Purpose: The primary purpose of this compensation component is to focus performance on key business executives, rewarding executives both for achievement of short-term financial, operational, and strategic goals that drive stockholder value and individual performance during the year. Competitive Positioning: The Company’s strategy is to consider the Peer Group 50th percentile for annual incentives for performance at expected levels. Our performance targets are established to challenge our named executive officers to perform at a high level. Below-target performance may result in low or no incentive payout, while exceptional performance may result in payouts significantly above the target award level. |
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Table of Contents
| | Annual Cash Bonus Overview
The Committee determines the annual cash bonus for each named executive officer based primarily on the following criteria:
·Competitive bonus targets established by the Committee based on the independent consultant’s comprehensive benchmarking study of our executive positions;
·Quantitative company performance metrics, established by the Committee during the first quarter of the year;
·Organizational and strategic performance, evaluated by the Committee based on the achievements of the Company and its leadership considering business and market conditions; and
·Individual performance, including achievement of pre-established goals, leadership and ethics, and overall value that the officer created for the Company, which can modify the calculated bonus award.
|
|
BASE SALARY The primary purpose of base salary is to recognize and reward overall responsibilities, established skills, experience and expertise. In setting base salary, the Committee compares each NEO’s current salary to the market 50th percentile, and also considers each individual’s experience and expertise, the value and responsibility associated with the role and internal pay equity. The Committee does not use a formula to calculate base salary increases for NEOs. In February 2015, the Committee reviewed base salaries and the considerations noted above. However, given the current market conditions in the oil and gas industry, the Committee determined to make no base salary increases for the NEOs. | | | | | | | | | | | Name | Base Salary as of
January 1, 2015 | Base Salary as of
January 1, 2016 | | Mr. Tillman |
| $1,050,000 |
| |
| $1,050,000 |
| | | Mr. Sult |
| $600,000 |
| |
| $600,000 |
| | | Ms. Kerrigan |
| $575,000 |
| |
| $575,000 |
| | | Mr. Robertson |
| $510,000 |
| |
| $510,000 |
| | | Mr. Little |
| $500,000 |
| |
| $500,000 |
| |
MARATHON OIL | 2016 PROXY STATEMENT 27
|
|
| | At the end of the year, the Committee evaluates the overall performance of the Company. Quantitative performance metrics can receive a total score between 0% and 100%, with target performance approximating 50% of the total bonus award. Organizational and strategic performance can receive a score between 0% and 100%, with target performance approximating 50% of the total bonus award. In determining the final award for each named executive officer, the sum of these two components may be adjusted based on the Committee’s discretionary assessment of the named executive officer’s individual performance.
Note that for evaluating 2013 performance, the Committee has assigned a 60% weighting to the quantitative performance metrics and a 40% weighting to the organizational and strategic performance metrics. The Committee will maintain discretion to modify the final bonus awards based on individual performance factors.
2012 Bonus Targets
For 2012, the Committee held targets at 2011 levels except for Ms. Kerrigan whose target was increased from 70% to 85% to align her potential bonus opportunity more closely with the market and reflect the scope of her position. 2012 bonus targets for the named executive officers were as follows:
|
|
ANNUAL CASH BONUS The annual cash bonus rewards executives for achieving short-term financial, operational, and strategic goals that drive stockholder value, as well as for individual performance during the year. When determining target bonus opportunities for our executives, the Committee considers the market 50th percentile, as well as each executive’s experience, relative scope of responsibility and potential, internal pay equity considerations and any other information the Committee deems relevant in its discretion. Our targeted performance goals are established to challenge our NEOs to perform at a high level. Payout results may be above or below target based on actual Company and individual performance. The Committee determined the 2015 annual cash bonus payout for each NEO based on its assessment of the following: Quantitative Company performance goals, established by the Committee during the first quarter of the year, weighted at 70%; Qualitative organizational and strategic performance, evaluated by the Committee and weighted at 30%; and Individual performance, including achievement of pre-established goals, leadership and ethics, and overall value that the officer created for the Company. The illustration below summarizes the framework the Committee uses to determine individual officer bonus payouts: |
|
| |
| Name
| Officer Level
|
| | | | | | | | | [ | Base Salary | x | Bonus Target
(as % of Base
Salary) |
= | Target Bonus Opportunity | ] | x | Company Performance Score 70% Quantitative Performance 30% Organizational / Strategic Performance | +/- | Individual Performance Adjustment | = | Annual Bonus Payout |
Beginning in 2015, the Committee established that quantitative Company performance is capped at no greater than target (100%) when the Company experiences either negative earnings or negative TSR. With the 70% weighting applied to the quantitative performance in a year with negative earnings or TSR, the quantitative performance portion of the Company performance score would be limited to no greater than 70%. The quantitative and qualitative scores can be between 0% and 200% (target is 100%). The final payout for each NEO may be adjusted based on the Committee’s discretionary assessment of the NEO’s individual performance. 2015 QUANTITATIVE PERFORMANCE METRICS During the first quarter of 2015, the Committee established the performance goals for the bonus program, taking into consideration key financial, safety and operational performance measures that are important indicators of success in our industry and are not excessively influenced by commodity price fluctuations. The Committee determined the target level of performance for each metric by evaluating factors such as performance achieved in the immediately preceding year, anticipated challenges for 2015, the business plan and Company strategy. The Committee further recognized that the quantitative metric results should not reward the NEOs above target in a year when shareholder experience was negative. Therefore, the Committee implemented a design feature that would cap the quantitative performance at target (100%) if the Company experienced either negative earnings or negative TSR.
28 MARATHON OIL | 2016 PROXY STATEMENT
The following table shows the targets and weightings established by the Committee and the performance achieved during 2015. | | | | | | | Strategic Imperative | Weight (%) | Performance Measure | Target | Performance
Achieved | | Living Our Values | 17 | TRIR(1) | 0.67 | 0.39 | Spills to the Environment(2) ≥ 1 bbl | 58 | 47 | Process Safety Incidents(3) | 2 | 1 | Serious Event Rate(4) | 0.45 | 0.37 | | Profitable & Sustainable Growth | 33 | Production, MBOEPD(5) | 383 | 386 | SCO Production, MBPD(6) | 40 | 44 | | Operating & Capital Efficiency | 50 | Cash Costs, $/BOE(7) | 12.60 | 10.18 | F & D Cost, $/BOE Reserve(8) | 38 | 17.04 | | Quality & Material Resource Capture | Resource Additions, MMBOE(9) | 600 | 503 |
(1) Calculated according to the same formula as the Occupational Safety and Health Administration (“OSHA”) Recordable Incident Rate by dividing (a) the total number of OSHA recordable incidents multiplied by 200,000 by (b) the total number of hours worked. This metric includes both Company employees and contractors, and applies to Company-operated properties only. (2) Includes the number of all produced and chemically-treated fluid spills with a volume greater than or equal to one barrel outside of secondary containment on Company-operated properties. This metric applies to Company-operated properties only. (3) Includes incidents at Company-designated facilities that constitute a Process Safety Event Tier 1 as defined by American Petroleum Institute Recommended Practice 754 (Process Safety Performance Indicators for the Refining and Petrochemical Industries). (4) Comprised of the total number of significant and critical severity events (as defined in the Company’s Event Reporting and Management Standard) and exposure hours, calculated by dividing (a) the number of events multiplied by 200,000 by (b) total exposure hours. This metric applies to Company-operated properties only. (5) Represents our North America E&P and International E&P segments available for sale, adjusted for pricing effects of production sharing contracts, catastrophic events, changes in business climate, acquisitions, and divestitures. This metric excludes Libya. (6) Calculated as net synthetic crude oil production (bitumen after royalties and upgrading, excluding blend-stocks), adjusted for price, business climate, acquisitions and divestitures. (7) Calculated by dividing (a) production expense (direct and indirect expense) and unallocated corporate general and administrative expense, adjusted for foreign exchange rates, legal settlements, acquisitions and divestitures, bonus accruals, and certain special items by (b) recorded sales adjusted for pricing effects of production sharing contracts and acquisitions and divestitures. This metric excludes Libya and Oil Sands Mining. (8) Calculated by dividing (a) capital expenditures and cash exploration expenditures adjusted for foreign exchange rate, capitalized interest and capitalized asset retirement obligations from our North America E&P, International E&P and Oil Sands Mining segments by (b) reserves excluding dispositions and price related changes. This metric excludes Libya. (9) Proved, Probable and Contingent resource additions, including acquisitions, excluding dispositions. This metric excludes Libya. Upon review of the quantitative outcomes relative to targeted performance and the Company’s negative earnings and TSR, the Committee capped the quantitative portion of the program, representing 70% of the total bonus award opportunity, at target. Prior to application of the cap, the quantitative metrics would have funded at 169%.
MARATHON OIL | 2016 PROXY STATEMENT 29
2015 ORGANIZATIONAL AND STRATEGIC PERFORMANCE After assessing the Company’s financial and operational performance, as detailed in “Compensation Discussion and Analysis—Executive Summary,” the Committee evaluated the organizational and strategic performance achievements, representing 30% of the total bonus award opportunity. The Committee also considered the Company’s absolute and relative shareholder return performance, within the context of the difficult commodity price environment. Upon review of these qualitative outcomes, the Committee concluded that the Company had achieved overall performance at target expectations. 2015 INDIVIDUAL PERFORMANCE Although our annual bonus program applies a framework and uses goals and formulas, the Committee maintains discretion to adjust individual cash bonuses to recognize critical performance factors and accomplishments that may not have been fully considered in the performance score calculation. In evaluating our NEOs’ contributions during 2015, the Committee considered each NEO’s specific contribution to our Company’s key achievements, including those discussed under “Compensation Discussion and Analysis—Executive Summary.” Following this consideration, the Committee determined to make no individual adjustments to the NEOs’ 2015 bonuses, except with respect to Mr. Little. In recognition of Mr. Little’s leadership through a period of significant change, including the Company’s scale back of conventional exploration and the sale of certain non-core assets, the Committee determined that Mr. Little’s payout would not be subject to the discretionary reduction discussed below. ANNUAL CASH BONUS PAYOUTS EARNED FOR 2015 Taking into consideration the Company’s quantitative performance, the Company’s qualitative financial and operational performance and individual performance, the Committee initially determined to assess overall performance under the 2015 bonus program at 100% of target. However, the Committee also recognized the meaningful impact low commodity prices have had on our stock price. Accordingly, the Committee exercised its discretion to lower the final aggregate quantitative and qualitative results under the 2015 bonus program by 10%, to 90% of target, to align the bonus payouts with the stockholder impact in 2015. For the reasons discussed above, Mr. Little’s payout remained at 100% of target. | | | | | | | | | | | | | | | | Base Salary as of
December 31, 2015 | Bonus Target | Target Bonus Opportunity | Percent of Target Achieved | Actual Bonus Payout | | Mr. Tillman |
| $1,050,000 |
| | 125% |
| $1,312,500 |
| | 90% | $1,181,250 | | | Mr. Sult |
| $600,000 |
| | 85% |
| $510,000 |
| | 90% | $459,000 | | | Ms. Kerrigan |
| $575,000 |
| | 85% |
| $488,750 |
| | 90% | $439,880 | | | Mr. Robertson |
| $510,000 |
| | 85% |
| $433,500 |
| | 90% | $390,150 | | | Mr. Little |
| $500,000 |
| | 85% |
| $425,000 |
| | 100% | $425,000 | |
30 MARATHON OIL | 2016 PROXY STATEMENT
LONG-TERM INCENTIVE AWARDS Long-term incentive, or LTI, awards align the interests of NEOs and stockholders over the long term. These awards assist NEOs in establishing and maintaining significant equity ownership and place a meaningful portion of compensation at risk based on our common stock price performance. Long-term incentives also encourage retention through continued service requirements and are intended to represent the largest portion of the NEOs’ total direct compensation. The Committee awards LTIs based on an intended award value that reflects competitive market data, each NEO’s performance and each NEO’s intended target total compensation. The 2015 intended award value for NEOs was allocated 50% to performance units, 20% to stock options and 30% to restricted stock. ANNUAL GRANT PROCESS Each year, the Committee grants LTI awards at its regularly scheduled February meeting, the date of which is generally set at least one year in advance. The grant date for such awards is generally the meeting date; however, for awards approved after market close, the grant date is the next trading day. The actual LTI value realized by each NEO depends on the price of the underlying shares of common stock at the time of vesting or exercise, and, in the case of performance units, our TSR relative to that of the companies in our Peer Group. 2015 LONG-TERM INCENTIVE AWARDS After considering competitive market data, the demand for talent, cost considerations, and the performance of the Company and the NEOs, the Committee awarded LTIs to each NEO on February 25, 2015 consistent with our normal grant timeline. The Committee awards LTIs based on intended value, which reflects established compensation valuation methodologies that are similar to, but can differ from, the methodologies used for accounting purposes as reflected in the Summary Compensation Table and Grants of Plan-Based Awards Table. See the Grants of Plan-Based Awards Table for additional detail about each LTI award. |
| Ms. Clark
| EVP
| 95%
|
|
| |
| Ms. Kerrigan
| EVP
| 85%
|
|
| |
| Mr. Stewart
| VP
| 70%
|
Total 2015 LTI Awards Intended Value |
Name | |
| Ms. Campbell
| VP
| 70%
|
Annual Grants |
Mr. Tillman | |
| Mr. Roberts
| EVP
| 95%
|
|
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Table of Contents
| | 2012 Quantitative Performance Metrics
During the first quarter of 2012, the Committee established the performance metrics outlined in the table below. As part of this process, the Committee considers key financial and operational performance measures, all of which are important indicators of success in our industry and are not excessively influenced by commodity price fluctuations. The Committee determined the target level of performance for each metric by evaluating factors such as performance achieved in the immediately preceding year, anticipated challenges for 2012, business plan and Company strategy. The table and footnotes below describe the targets set by the Committee and our performance achieved during 2012.
|
| | Focus | Performance Metric | Description | Target
Performance | Performance
Achieved | | | | Production, MBOED(a) | Measures the rate of crude oil production of our E&P segment | 368 | 382 | | | Performance | SCO Production, MBBL(b) | Measures the rate of synthetic oil production of our Oil Sands Mining segment | 45 | 41 | | | | Cash Costs, $/BOE (c) | Measures the cash operating costs associated with our E&P segment and corporate G&A costs | 12.25 | 12.74 | | | Sustainability | F&D Cost, $/BOE (d) | Measures the cost of finding and developing resource | 20 | 18 | | | People, Process & Environment | TRIR(e) | Measures the number of safety incidents; safety is a core value and a crucial business practice | .55 | .66 (90 injuries) | | | Spills to the Environment > 1 [bbl](f) | Measures the volume of spills produced and chemically treated fluids that enter the environment | 100 | 84 | | | Process Safety Incidents(g) | Measures the most serious process safety incidents that occur at designated facilities | 1 | 1 | | | Category 3 & 4 Consequence Event Rate(h) | Measures the number of Category 3 & 4 events in the E&P segment. This is a monitored item only in 2012 | 3.4 | 1.4 |
| | (a)Production is our E&P segment available for sale (excluding Libya) and is adjusted for pricing effects as a result of production sharing contracts, catastrophic events, and acquisitions and divestitures; also adjusted for project deferrals associated with capital constraints. This number differs from the reported level of average E&P production available for sale of 386 MBOED excluding Libya, and is from continuing operations and does not include the aforementioned adjustments. Production available for sale during the year can differ from production sold primarily as a result of the timing of international crude oil liftings and natural gas sales.
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| | (b)SCO Production is calculated as net synthetic crude oil (“SCO”) production (bitumen after royalties and upgrading, excluding blend-stocks) and then adjusted for price, acquisitions and divestitures; also adjusted for project deferrals associated with capital constraints.
(c)Cash Costs include lease operating expense, above field expense, and unallocated corporate G&A, adjusted for foreign exchange rates, legal settlements, and acquisitions and divestitures. The boe used in the denominator are recorded sales adjusted for pricing effects as a result of production sharing contracts, catastrophic events, and acquisitions and divestitures; also adjusted for project deferrals associated with capital constraints. This metric excludes Libya and Oil Sands Mining.
(d)Finding & Development (“F&D”) Cost includes capital expenditures and cash exploration expenditures from our E&P (excluding Libya), Integrated Gas and Oil Sands Mining segments adjusted for foreign exchange rate, capitalized interest, and capitalized asset retirement obligations. Reserves exclude dispositions, price related changes and Libya.
(e)The Total Recordable Incident Rate (“TRIR”) is calculated according to the same formula as the Occupational Safety and Health Administration (“OSHA”) Recordable Incident Rate by taking the total number of OSHA recordable incidents and dividing by the ratio of total number of hours worked over 200,000.
(f)Spills to the Environment include the number of all produced and chemically-treated fluid spills with a volume greater than or equal to one barrel outside of secondary containment on Marathon Oil operated properties.
(g)Process Safety Incidents include those incidents that occurred at Marathon Oil designated facilities which meet the definition of a Process Safety Event Tier 1 as defined by American Petroleum Institute (“API”) Recommended Practice 754 (Process Safety Performance Indicators for the Refining and Petrochemical Industries).
(h)All potential and actual Category 3 & 4 consequence events are based on the consequence categories table in Marathon Oil’s Event Reporting and Management Standard divided by exposure hours. This is a monitor-only metric in 2012.
$7,300,000 |
Mr. Sult | | $2,300,000 |
Ms. Kerrigan | | Upon review of these quantitative outcomes relative to targeted performance against internal metrics and to industry peers, and considering prevailing business conditions in 2012, the Committee concluded that the Company had achieved overall performance exceeding targeted expectations.
$2,000,000 |
Mr. Robertson | | $2,000,000 |
Mr. Little | $2,000,000 |
PERFORMANCE UNITS The Committee believes that a performance unit program based on TSR relative to peer companies aligns pay and Company performance. The industry peers selected for each performance cycle generally match the industry peers comprising the prevailing Peer Group used for compensation benchmarking. TSR is determined by adding the sum of stock price appreciation or reduction per share, plus cumulative dividends per share for the performance period, and dividing that total by the beginning stock price per share. For purposes of this calculation, the beginning and ending stock prices are the averages of the closing stock prices for the month immediately preceding the beginning and ending dates of the performance period. If the TSR at the end of the performance period is negative, the payout percentage is capped at 100% regardless of ranking. The Committee has discretion to reduce the final payment associated with any performance unit award. Performance units, when earned, are paid in cash.
MARATHON OIL | 2016 PROXY STATEMENT 31
2015 PERFORMANCE UNITS In February 2015, the Committee awarded the NEOs performance units that will vest based on relative TSR for the three-year performance period ending December 31, 2017. The value of each underlying unit tracks the price of a share of our common stock. The percentage of units earned ranges from 0% to 200% of the units granted. When the award is settled, NEOs will receive dividend equivalents paid in cash for a number of shares equal to the number of units granted multiplied by the payout percentage. Dividend equivalents accrue and are paid based on performance at the end of the performance period. Earned awards are paid in cash shortly after the completion of the performance period with the final cash value impacted both by relative TSR rank and our common stock price. In the event that any companies in our Peer Group undergo a change in corporate capitalization or a corporate transaction during the performance period, the Committee may evaluate whether such company will be replaced in the Peer Group. The Committee has designated Southwestern Energy, Continental Resources, and Concho Resources as replacement companies (in that order). The payout percentages for each ranking are: | | | | | | | | | | | | | | | | MRO TSR Ranking | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | 11 | 12 | 13 | | Payout (% of Target) | 200% | 183% | 167% | 150% | 133% | 117% | 100% | 83% | 67% | 50% | 0% | 0% | 0% |
2014 PERFORMANCE UNITS The performance units granted in February 2014 have a performance period end date of December 31, 2016. See the Outstanding Equity Awards at 2015 Fiscal Year-End Table for information about the estimated payouts of the 2014 performance units. | | | | | | | | | | | | | | | MRO TSR Ranking | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | 11 | 12 | | Payout (% of Target) | 200% | 182% | 164% | 145% | 127% | 109% | 91% | 73% | 54% | 0% | 0% | 0% |
2013 PERFORMANCE UNITS The performance units granted in February 2013 had a performance period end date of December 31, 2015. The payout percentages for each ranking are: | | | | | | | | | | | | | | | MRO TSR Ranking | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | 11 | 12 | | Payout (% of Target) | 200% | 182% | 164% | 145% | 127% | 109% | 91% | 73% | 54% | 0% | 0% | 0% |
For the performance period we ranked ninth out of twelve companies. In January 2016, the Committee determined final payout values for Sylvia J. Kerrigan, Lance W. Robertson, and T. Mitch Little, who were the only NEOs employed as officers when the 2013 performance units were granted. The payout, which was made in January 2016, is included in the Summary Compensation Table in the Non-Equity Incentive Plan Compensation column. STOCK OPTIONS Stock options provide a direct link between officer compensation and the value delivered to stockholders. The Committee believes that stock options are inherently performance-based, as option holders only realize compensation if the value of our stock increases following the grant date. Stock options granted according to our normal annual grant timeline generally have a three-year pro-rata vesting period and a maximum term of ten years. Additional information on these awards, including the number of shares subject to each award, is shown in the Grants of Plan-Based Awards Table.
32 MARATHON OIL | 2016 PROXY STATEMENT
RESTRICTED STOCK The Committee awards restricted stock for diversification of the LTI award mix, for consistent alignment between executives and stockholders, and for retention purposes. Restricted stock provides recipients with the opportunity for capital accumulation and a more predictable long-term incentive value than is provided by performance units or stock options. Restricted stock awarded according to our normal annual grant schedule typically vests in full on the third anniversary of the grant date. Prior to vesting, restricted stock recipients have the right to vote and receive dividends on the restricted shares. 2012 Organizational and Strategic Performance
After assessing the Company’s financial and operational performance, the Committee evaluated organizational and strategic performance achievements. Select strategic achievements during a transformational year where we demonstrated our ability to execute across all of our resource plays are described below.
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| | ·In 2012, we completed targeted acquisitions in the Eagle Ford of approximately $1 billion, increasing the Company’s acreage position and working interest in the core of the play and adding production and drilling locations.
·We enhanced our global exploration program. In June, we re-entered Gabon through a farmout agreement with Total Gabon S.A. and expect to spud the first exploration well in early 2013. We also entered Ethiopia and Kenya, two countries with significant resource potential.
·With portfolio optimization as a key element of our business strategy, we proactively monetize assets to fund other areas of our business. As of December 2012, $1.3 billion of our non-core assets were divested or under contract, representing progress against our previously stated goal of divesting between $1.5 billion and $3 billion of non-core assets between 2011 and 2013.
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OTHER BENEFITS
PERQUISITESWe offer limited perquisites to our NEOs. We believe these perquisites are reasonable, particularly because the cost of these benefits constitutes a small percentage of each NEO’s total compensation. The Committee assesses these perquisites at least annually as part of its total competitive review. We do not provide any tax gross-ups on these perquisites. The perquisites provided to our NEOs include reimbursement for certain tax, estate, and financial planning services up to $15,000 per year, an enhanced annual physical examination, limited personal use of Company aircraft, and a Company provided car and driver for our CEO. Our NEOs also participate in the health, retirement, and other benefit plans generally available to our U.S. employees. See the “All Other Compensation” column of the Summary Compensation Table and the footnotes following the Summary Compensation Table for additional details concerning the perquisites provided to our NEOs in 2015. RETIREMENT BENEFITS We offer our NEOs the opportunity to provide for retirement through four plans: Marathon Oil Company Thrift Plan (“Thrift Plan”) – A tax-qualified 401(k) plan. Retirement Plan of Marathon Oil Company (“Retirement Plan”) – A tax-qualified defined benefit pension plan. Excess Benefit Plan (“Excess Plan”) – A nonqualified plan allowing employees to accrue benefits above the tax limits, with components attributable to both the Retirement Plan and the Thrift Plan. Marathon Oil Company Deferred Compensation Plan (“Deferred Compensation Plan”) – A nonqualified plan that grows when an NEO accrues benefits above the tax limits in the Thrift Plan or when an NEO defers a portion of their compensation. Benefits payable under our qualified and nonqualified plans are described in more detail in “Post-Employment Benefits” and “Nonqualified Deferred Compensation.” We also sponsor retiree medical plans for a broad-based group of employees, including the NEOs. The Committee has determined that providing these arrangements plays a meaningful role in attracting and retaining qualified employees and executives. SEVERANCE BENEFITS Our NEOs do not have employment agreements entitling them to any special executive severance payments, other than the change in control termination benefits described below. The Board may exercise discretion to make executive severance payments to executives on a case-by-case basis. We have a policy requiring that our Board seek stockholder approval or ratification of certain severance agreements, including agreements providing change
in control benefits, for senior executive officers that would require payment of Contentscash severance benefits exceeding 2.99 times the officer’s salary plus bonus for the prior calendar year. We believe change in control benefits are necessary to attract and retain talent within our industry, ensure continuity of management in the event of a change in control and provide our NEOs with the security to make decisions that are in the best interests of our stockholders. Our change in control benefits are described in more detail under “Potential Payments upon Termination or Change in Control.”
| | ·Overall, the Company experienced strong safety performance during a period of significant organizational transformation and increasing external pressures. However, despite top quartile Peer Group performance, the 2012 personal safety target was not met. The Company had established an ambitious target, while operating new assets requiring a significant number of less-experienced workers and contractors. Initiatives under way to improve safety performance include renewed emphasis on pre-job planning, clear and enforced expectations, and instilling our culture into new acquisitions and people.
·In 2012, we began Project Mustang, an internal initiative to improve the efficiency of our contract management processes and systems while also delivering increased transparency around our businesses. Transparent and granular financial reporting and improved financial/procurement processes are critical to our ability to successfully compete as a top tier E&P company. We anticipate completing this initiative in 2013.
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STOCK OWNERSHIP REQUIREMENTS AND ANTI-HEDGING & ANTI-PLEDGING POLICIES All of our officers who are “executive officers” for purposes of Section 16 of the Exchange Act are subject to our stock ownership requirements, which are intended to reinforce the alignment of interests between our officers and stockholders. The stock ownership requirements are as follows: CEO – six times base salary; Executive Vice Presidents – four times base salary; and Vice Presidents – two times base salary. Executive officers have five years from their respective appointment dates to achieve the designated stock ownership level. The Committee reviews each executive officer’s progress toward the requirements on at least an annual basis to determine whether the market value of shares, including the value of unvested shares not subject to performance conditions, satisfies our requirements. Executive officers who do not hold the required level of stock ownership, including Ms. Kerrigan, who previously attained the required ownership level but has fallen below due to the recent significant decrease in our share price, are expected to hold the shares they receive upon vesting of restricted stock or exercise of stock options (after payment of exercise prices and after taxes) until they have met their requirement. Each NEO other than Ms. Kerrigan is currently within the five year window. To ensure that they bear the full risks of stock ownership, officers are prohibited from engaging in hedging transactions related to our stock. Officers are also prohibited from pledging or creating a security interest in any shares of our common stock they hold, including shares in excess of the applicable ownership requirement. | The Committee also places significant emphasis on the named executive officers’ adherence to Marathon Oil’s core values which emphasize health and safety, environmental stewardship, honesty and integrity, corporate citizenship, high performance, and diversity. These values are essential to our culture and drive how we accomplish our business objectives. Additional information about our values and our commitment to social responsibility may be found in the annual Living Our Values Corporate Social Responsibility Report available on our web site.
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TAX CONSIDERATIONS The Committee considers the tax effects to the Company and the NEOs when making executive compensation decisions to deliver compensation in a tax-efficient manner. However, the Committee’s priority is to provide performance-based and competitive compensation. Therefore, some compensation paid to NEOs is not deductible due to the limitations of Section 162(m) of the Internal Revenue Code. As required under Section 162(m), our stockholders approved the material terms of performance goals for awards to NEOs, which are contained in our 2012 Incentive Compensation Plan. These performance goals include both financial and operational measures. For purposes of qualifying annual cash bonus payments to our NEOs as “performance-based compensation” under Section 162(m) in 2015, we used both financial and operational goals to establish maximum potential payment amounts. The determination of actual annual cash bonus payments for NEOs is described above under “Annual Cash Bonus.” Performance units and stock options are also performance-based compensation for purposes of Section 162(m).
34 MARATHON OIL | 2016 PROXY STATEMENT
EXECUTIVE COMPENSATION The following table summarizes the total compensation for each NEO for the years shown. | 2012 Individual Performance
At the beginning of the year, each named executive officer develops performance goals relative to his or her organizational responsibilities, which are directly related to our business objectives. All performance goals are discussed with and approved by the CEO (and in the case of the CEO, the Board). Examples of named executive officers’ performance goals for 2012 include: rate of production, reserve replacement, income per barrel, cost management, improved safety and environmental performance, fiscal discipline, development of governmental and community relationships, provision of financial services and systems, and continued evaluation of management and risk.
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| | In evaluating the individual performance of each named executive officer, the most significant factor is achievement of business objectives within his or her organization. At the end of each year, each named executive officer’s performance is measured against his or her previously established performance goals. The Committee reviews this information with the CEO and determines the bonus award for each named executive officer. The Committee evaluates the CEO’s performance and determines his bonus in an executive session. No formal weightings of individual performance commitments or formulas are used to calculate the annual bonus, but the Committee uses its discretion to adjust the final bonus payment based on its assessment of a named executive officer’s individual performance.
In evaluating the specific contributions made by our named executive officers during 2012, the Committee considered each named executive officer’s pre-established performance goals as well as the contribution of the respective named executive officer to the Company’s key achievements in the last year including those discussed under “Executive Summary” and “2012 Organizational and Strategic Performance.” These specific individual achievements, or areas in which individual performance fell short of objectives, were considered in determining the final bonus payment.
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SUMMARY COMPENSATION TABLE
Table | | | | | | | | | | | Name and
Principal Position | Year | Salary
($) | Bonus(1)
($) | Stock
Awards(2)
($) | Option
Awards(2)
($) | Non‑
Equity
Incentive
Plan
Compensation(3)
($) | Change in
Pension
Value and
Nonqualified
Deferred
Compensation
Earnings(4)
($) | All
Other
Compensation(5)
($) | Total
($) | | Lee M. Tillman | 2015 | 1,050,000 | 500,000 | 6,299,598 | 1,755,082 | 1,181,250 | 234,292 | 256,619 | 11,276,841 | | President and Chief Executive Officer | 2014 | 1,036,346 | 500,000 | 4,301,154 | 3,466,985 | 1,706,250 | 249,489 | 237,843 | 11,498,067 | | 2013 | 392,307 | 3,875,000 | 3,813,995 | 2,609,206 | 0 | 35,246 | 42,153 | 10,767,907 | | John R. Sult | 2015 | 600,000 | 0 | 1,984,827 | 552,973 | 459,000 | 107,638 | 104,720 | 3,809,158 | | Executive Vice President and Chief Financial Officer | 2014 | 600,000 | 0 | 1,290,384 | 1,040,099 | 663,000 | 117,093 | 136,800 | 3,847,376 | | 2013 | 182,308 | 765,000 | 1,045,584 | 996,745 | 0 | 16,781 | 20,092 | 3,026,510 | | Sylvia J. Kerrigan | 2015 | 575,000 | 0 | 1,725,931 | 480,845 | 439,880 | 78,002 | 113,647 | 3,413,305 | | Executive Vice President, General Counsel and Secretary | 2014 | 575,000 | 0 | 1,167,467 | 941,042 | 1,918,739 | 879,494 | 112,435 | 5,594,177 | | 2013 | 575,000 | 733,000 | 1,113,954 | 673,050 | 788,487 | 205,407 | 108,569 | 4,197,467 | | Lance W. Robertson | 2015 | 510,000 | 0 | 1,725,931 | 480,845 | 390,150 | 60,154 | 107,754 | 3,274,834 | | Vice President, Resource Plays | 2014 | 458,019 | 0 | 1,239,418 | 594,342 | 563,550 | 70,054 | 78,735 | 3,004,118 | | 2013 | 392,211 | 526,000 | 1,371,882 | 353,850 | 0 | 51,322 | 65,141 | 2,760,406 | | T. Mitchell Little | 2015 | 500,000 | 0 | 1,725,931 | 480,845 | 425,000 | 706,766 | 79,275 | 3,917,817 | | Vice President, Conventional | 2014 | 423,558 | 0 | 1,239,418 | 594,342 | 552,500 | 1,101,270 | 64,064 | 3,975,152 | | 2013 | 344,904 | 422,000 | 1,371,882 | 353,850 | 0 | 213,815 | 52,278 | 2,758,729 |
(1) This column reflects payouts made under the Annual Cash Bonus Plan for years prior to 2014. For Mr. Tillman, this column also includes installments of Contents
| | 2012 Annual Bonus Payments
For 2012 performance, the Committee rewarded our named executive officers with annual cash bonus payments above target, averaging 152% of target, for their contributions to our operating and financial results.
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| Long-Term Incentive Awards
| | Purpose: The primary purpose of this compensation component is to align the interests of executives and stockholders over the long term. These awards assist named executive officers in establishing and maintaining significant equity ownership and place a meaningful portion of compensation at risk based on the Company’s stock price performance relative to industry peers. Long-term incentives also encourage retention through continued service requirements and are intended to represent the largest portion of named executive officers’ total direct compensation.
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| | Competitive Positioning: Our annual long-term incentive awards are determined based on an intended award value that considers market data, the named executive’s performance, and the named executive’s intended total compensation. The 2012 intended award value for named executive officers was allocated per the following mix:
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| | ·CEO: 50% performance units, 50% stock options
·Other Named Executive Officers: 40% performance units, 40% stock options, 20% restricted stock
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| | The Committee believes this mix of long-term incentive awards generally provides an appropriate balance between the dual objectives of tying compensation to stock price appreciation and fostering executive retention. The Committee believes that Mr. Cazalot’s ability to realize compensation from his long-term incentives should depend fully on the performance of our stock; thus, he receives only performance units and stock options.
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| | Target Award Levels
After considering competitive market data, the demand for talent, cost considerations, and the performance of the Company and the named executive officers, the Committee granted long-term incentive awards to each named executive officer on February 28, 2012 according to our normal grant timeline.
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| | | Name
| Total LTI Intended Value
($)*
| |
| | | Mr. Cazalot
| $11,000,000
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| | | Ms. Clark
| $2,100,000
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| | | Ms. Kerrigan
| $1,925,000
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| | | Mr. Stewart
| $1,000,000
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| | | Ms. Campbell
| $700,000
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| | | Mr. Roberts
| $3,500,000
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| | *The Committee makes its compensation decisions based on intended value. Intended value reflects established compensation valuation methodologies that differ from the methodologies used for accounting purposes under U.S. generally accepted accounting principles and applied in the Summary Compensation and Grants of Plan-based Awards tables.
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Tablethe cash sign-on bonus he received in connection with the commencement of Contents
| | Annual Grant Process
Each year, the Committee grants annual awards of long-term incentives in the form of performance units, stock options and restricted stock. The Committee grants annual long-term incentive awards at its regularly-scheduled February meeting, the date of which is generally set at least one year in advance. The effective date for grants of awards to named executive officers is the date the Committee meets; however, if the Committee grants awards after the market has closed, the grant date is the next trading day.
Due to the nature of long-term incentive awards, the actual long-term incentive value realized by each named executive officer depends on the price of the underlying stock at the time of vesting or exercise, or how the Company has performed against stated objectives. Each of our long-term incentive award types is discussed in more detail below.
Performance Units
The Committee believes that a performance unit program based on Total Shareholder Return (“TSR”) relative to peer companies establishes alignment between pay and company performance.
TSR is determined by taking the sum of stock price appreciation or reduction per share, plus cumulative dividends per share for the performance period, and dividing that total by the beginning stock price per share. For purposes of this calculation, the beginning and ending stock prices are the averages of the closing stock prices for the month immediately preceding the beginning and ending dates of the performance period.
The industry peers selected for each performance cycle typically match the industry peers used in the prevailing peer group used for compensation benchmarking. The table below describes what can be earned based on Marathon Oil’s relative TSR performance based on Marathon Oil’s rank among the Peer Group.
The target value of each performance unit is $1, with the actual payout varying from $0 to $2 (0% to 200% of target) based on Marathon Oil’s relative TSR ranking for the measurement period. For example, a 100% payout percentage pays out at $1 per unit which is paid in cash. Note, if Marathon Oil’s absolute TSR for the performance period is negative, the payout will be capped at target (100%), regardless of the Company’s relative TSR ranking.
Performance Units Granted in February 2012
At the Committee’s February 2012 meeting, named executive officers were granted performance units measuring relative TSR for the three-year performance period ending in 2014. At the end of the performance period, Marathon Oil’s performance will be measured against the performance of our Peer Group and the performance unit award value will be determined. These awards are included in the Grants of Plan-Based Awards Table on page 60.
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| | Performance Units with Performance Period Ended December 31, 2012 Each named executive officer vested in performance units for the period July 1, 2011 to December 31, 2012. As described in our 2012 proxy statement, these awards were granted in July 2011 after the completion of the Spin-off of our downstream business creating two independent energy companies, Marathon Oil and MPC, and included an 18-month performance period to reflect the remaining period of the original 2010 grants as illustrated below: | | | | | | | Grant Name | Performance
Period | Original
Performance
Period | Months Remaining in
Original Performance
Period | | | | | Transition Award | July 2011 – December 2012 | 2010 – 2012 | 18 (of 36 months) | | | | | | | Under the provisions of these awards, the targeted performance units were subject to our relative TSR performance against the Peer Group applying the payout matrix below: | | | | | | MRO
TSR
Ranking | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | 11 | 12 | | | MRO TSR
Percentile
(%) | 100.00 | 91.67 | 83.33 | 75.00 | 66.67 | 58.33 | 50.00 | 41.67 | 33.33 | 25.00 | 16.67 | 8.33 | | | Payout
Value
($/unit) | 2.00 | 1.83 | 1.67 | 1.50 | 1.33 | 1.17 | 1.00 | 0.83 | 0.67 | 0.00 | 0.00 | 0.00 | | | | | | For the 18-month performance period ending on December 31, 2012, we ranked third out of twelve companies, resulting in a total maximum unit per unit value of $1.67 earned during 2012 with respect to the performance units that were paid in January 2013. However, because the Company’s absolute TSR for the performance period was negative (at -1%), the total maximum unit value was capped at $1.00. The Committee determined a final unit payout value of $1.00. The individual payouts earned for the performance units vested in December 2012 are provided in the Summary Compensation Table on page 58. Performance Units with Performance Period Ended December 31, 2012 In February 2013 the Committee modified the form of performance units awarded for the 2013 – 2015 performance period to more closely align the value of compensation paid with actual stockholder returns. The value of the underlying units awarded in 2013 will track the Marathon Oil stock price, adjusted for dividends. The percentage of these “share-denominated” units earned will continue to be contingent on the Company’s relative TSR performance against the Peer Group. Earned awards will continue to be paid in cash shortly after the completion of the performance period. | | | | | | | | | | | | | | | | | | | | | |
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| | Stock Options
Stock options provide a direct link between officer compensation and the value delivered to stockholders. The Committee believes that stock options are inherently performance-based, as option holders only realize compensation if the value of our stock increases following the date of grant.
The grant price of our stock options is equal to the closing sales price per share of our common stock on the grant date, which was February 28, 2012 for the options granted to named executive officers during 2012. Stock options have a three-year pro-rata vesting period and a maximum term of ten years. Additional information on these grants, including the number of shares subject to each grant, is shown in the Grants of Plan-Based Awards Table.
Restricted Stock
The Committee granted restricted stock to the named executive officers, other than Mr. Cazalot, for diversification of the mix of long-term incentive awards, for consistent alignment between executives and stockholders, and for retention purposes. Restricted stock provides recipients with the opportunity for capital accumulation and a more predictable long-term incentive value than is provided by performance units or stock options.
Restricted stock awards vest in full on the third anniversary of the date of grant. Prior to vesting, restricted stock recipients have the right to vote and receive dividends on the restricted shares.
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| Other Benefits and Perquisites
| | We offer limited perquisites to our named executive officers. Our named executive officers may seek reimbursement for certain tax, estate, and financial planning services up to a specified annual maximum each year, including the year following death or retirement. Our named executive officers are also offered an enhanced annual physical examination, and they also participate in the health, welfare, and retirement benefit plans generally available to all of our employees.
Unless otherwise authorized by the CEO (or in the case of the CEO, the Lead Director), our named executive officers may not use corporate aircraft for personal use. Occasionally spouses or other guests will accompany our named executive officers on our aircraft when space is available on business-related flights.
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| | | Post-Employment Benefits
| | Retirement
We sponsor and contribute to both tax-qualified defined benefit and defined contribution retirement plans for a broad-based group of employees. Eligible employees can contribute to our defined contribution retirement plan. We also sponsor retiree medical plans for a broad-based group of employees. Our named executive officers are eligible to participate in these defined benefit and defined contribution retirement plans, as well as the retiree medical plans. In addition, our named executive officers participate in unfunded, nonqualified defined benefit and defined contribution retirement plans. Our Committee has determined that providing these arrangements plays a meaningful role in attracting and retaining qualified executives.
Each named executive officer is also eligible to participate in our elective nonqualified deferred compensation plan. Under this plan, our named executive officers are eligible to defer up to 20 percent of their salary and annual cash bonus each year.
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| | Distributions from our nonqualified plans are made following separation from service in the form of a lump sum and are compliant with Section 409A of the Internal Revenue Code to the extent required.
Benefits payable under our qualified and non-qualified plans are described in detail on pages 65-68.
In addition, named executive officers’ stock options immediately vest and become exercisable upon retirement, which is a common practice in our industry. Unvested restricted stock awards are forfeited upon retirement, except in the case of mandatory retirement. For performance units, in the case of retirement where a named executive officer has worked more than half of the performance period, awards may be vested on a prorated basis at the discretion of the Committee.
Mandatory Retirement
Under our mandatory retirement policy, a named executive officer must retire on the first day of the month following the officer’s 65th birthday. In addition to receiving the vested benefits he or she has accrued under our benefit programs, outstanding restricted stock awards vest in full. Stock options and performance units follow the vesting treatment described above for retirement.
Death or Disability
In the event of death or disability, our named executive officers would be entitled to the vested benefits they have accrued under our standard benefits programs. Long-term incentive awards would immediately vest in full upon the death of a named executive officer, with performance units vesting at the target level. In the event of disability, long-term incentive awards would continue to vest as if the named executive officer remained employed during the period of disability.
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| | Other Termination or Resignation
Our named executive officers do not have employment agreements and are not entitled to any special executive severance payments, other than the change in control termination benefits described below. The Board may exercise discretion to make executive severance payments to executives on a case-by-case basis. Marathon Oil has a policy requiring that our Board seek stockholder approval or ratification of certain severance agreements for senior executive officers that would require payment of cash severance benefits exceeding 2.99 times the officer’s salary plus bonus for the prior calendar year.
Mr. Roberts resigned as Chief Operating Officer effective December 14, 2012. In connection with Mr. Roberts’ resignation, Marathon Oil and Mr. Roberts entered into a Severance Letter Agreement (the “Severance Agreement”), pursuant to which Mr. Roberts received a severance payment in the amount of $4,608,000. This payment did not exceed 2.99 times the sum of Mr. Roberts’ current annual salary plus bonus for the prior calendar year.
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55
Table of Contents
| | Change in Control Termination
We believe that our named executive officers should be encouraged to act in the best interests of our stockholders if a change in control transaction is under consideration. For this reason, in 2001 we adopted our executive change in control severance benefits plan, which provides certain benefits upon a change in control of Marathon Oil and is designed to ensure continuity of management through a change in control transaction.
For officers who are newly hired or first promoted to officer positions on or after October 26, 2011, the Committee adopted a new change in control plan. This plan provides a more limited severance benefit than our existing arrangement for officers employed prior to this date, yet still encourages officers to engage in transactions that would be advantageous to stockholders. The new program includes no provisions to reimburse or “gross-up” tax obligations following a change in control. No changes have been made to our executive change in control severance benefits policy that covers executive officers in their positions prior to October 26, 2011.
Under both our change in control plans, all of our named executive officers’ long-term incentive awards would become fully vested and exercisable upon a change in control. Outstanding performance units would vest at the target value upon a change in control. The benefits payable to named executive officers in the event they are terminated following a change in control or in connection with a “potential change in control” are outlined on pages 69-72, where our executive change in control policy is described in more detail.
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| | |
| | | Other Compensation Items
| | Stock Ownership Requirements and Anti-Hedging Policy
All of our officers who are “executive officers” for purposes of Section 16 of the Exchange Act are subject to our stock ownership requirements, which are intended to reinforce the alignment of interests between our officers and stockholders. The stock ownership requirements are as follows:
· CEO – multiple of six times base salary;
· Executive Vice Presidents – multiple of four times base salary; and
· Vice Presidents – multiple of two times base salary.
Executive officers have five years from their respective appointment dates to achieve the designated stock ownership level. The Committee reviews each executive officer’s progress towards the requirements on at least an annual basis. Executive officers who have not reached the required level of stock ownership are expected to hold the shares they receive upon exercise of stock options (after payment of exercise prices and after taxes) so that they meet their requirement in a timely manner. Our named executive officers currently either meet or exceed the stock ownership requirements, or are still within five years from their appointment dates.
In order to ensure that officers bear the full risks of stock ownership, our corporate policies prohibit officers from engaging in hedging transactions related to our stock. Officers are also prohibited from pledging or creating a security interest in any Marathon Oil shares they hold, including shares in excess of the applicable ownership requirement.
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56
Table of Contents
| | Tax Considerations
The Committee considers the tax effects to both Marathon Oil and the named executive officers when making executive compensation decisions and has a practice of delivering compensation in a tax-efficient manner whenever reasonable. However, the priority of the Committee is to provide performance-based and competitive compensation. Therefore, some compensation paid to named executive officers is not deductible by Marathon Oil due to the limitations of Section 162(m) of the Internal Revenue Code.
Section 162(m) provides that the amount of compensation that we may deduct each year for our CEO and each of the three most highly paid officers (other than our Chief Financial Officer) is $1,000,000. Elements of compensation which qualify as “performance-based compensation” are deductible even if in excess of this $1,000,000 limit. The Committee approved a base salary for Mr. Cazalot that exceeds the Section 162(m) limitation of $1,000,000, and therefore his base salary is not deductible in full.
As required under Section 162(m), our stockholders approved the material terms of performance goals for awards to named executive officers, which are contained in our 2012 Incentive Compensation Plan. These performance goals include both financial and operational measures. For Section 162(m) tax purposes in 2012, we used both financial and operational goals to establish performance-based payments for named executive officers. However, the determination of actual annual cash bonus payments for named executive officers is described in the Annual Cash Bonus section beginning on page 46.
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| | |
| | Other than time-based restricted stock, long-term incentives awarded to our named executive officers in 2012 were designed to be performance-based compensation and, therefore, fully deductible. To the extent that non-performance-based compensation exceeds $1,000,000, time-based restricted stock awards would not be deductible.
We believe our nonqualified deferred compensation plans and other benefits comply with Section 409A of the Internal Revenue Code. In general, Section 409A imposes additional income taxes, as well as premium interest, unless the form and timing of deferred compensation payments have been fixed in order to eliminate both officer and Company discretion.
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| | |
| | | Influence of SOP Results on Executive Compensation Decisions
| | At our 2012 Annual Meeting of Stockholders, over 90% of the votes cast in favor of the non-binding advisory proposal to approve the compensation of our named executive officers. The Committee concluded that a large majority of our stockholders are satisfied with our existing compensation programs and did not change any practices or programs. Based on this result and our ongoing review of our compensation policies and important governance processes, we believe that our existing compensation programs effectively align the interests of our named executive officers with the long-term goals of Marathon Oil.
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57
Table of Contents
| | Executive Compensation Tables and Other Information
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| |
|
| |
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| |
|
| | The following table summarizes the total compensation earned by, or paid to, each named executive officer for the fiscal year ending December 31, 2012.
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| |
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| |
| Summary Compensation Table
|
Name
and Principal
Position | | Year | | Salary
($) | | Bonus
($) | | Stock
Awards(2)
($) | | Option
Awards(3)
($) | | Non-Equity
Incentive
Plan
Compensation(4)
($) | | Change in
Pension Value
and
Nonqualified
Deferred
Compensation
Earnings(5)
($) | | All Other
Compensation(6)
($) | | Total
($) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | C. P. Cazalot, Jr. | | 2012 | | 1,400,000 | | 3,000,000 | | 0 | | 5,509,365 | | 2,807,550 | | 2,587,700 | | 316,770 | | 15,621,385 | Chairman, President and Chief | | 2011 | | 1,400,000 | | 3,000,000 | | 0 | | 6,414,055 | | 18,821,400 | | 1,617,757 | | 276,207 | | 31,529,419 | Executive Officer | | 2010 | | 1,400,000 | | 2,500,000 | | 0 | | 4,656,517 | | 0 | | 1,397,592 | | 256,394 | | 10,210,503 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | J. F. Clark | | 2012 | | 680,000 | | 1,000,000 | | 459,286 | | 840,872 | | 516,350 | | 686,341 | | 124,770 | | 4,307,619 | Executive Vice President and | | 2011 | | 680,000 | | 1,000,000 | | 531,144 | | 1,197,162 | | 4,099,000 | | 406,341 | | 105,057 | | 8,018,704 | Chief Financial Officer | | 2010 | | 672,500 | | 775,000 | | 425,882 | | 856,813 | | 0 | | 355,795 | | 103,609 | | 3,189,599 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | S. J. Kerrigan | | 2012 | | 556,250 | | 755,000 | | 420,720 | | 771,193 | | 180,700 | | 1,040,385 | | 96,407 | | 3,820,655 | Executive Vice President, General Counsel & Secretary | | 2011 | | 478,750 | | 600,000 | | 280,326 | | 627,238 | | 550,633 | | 516,760 | | 64,628 | | 3,118,335 | | 2010 | | 405,000 | | 400,000 | | 148,767 | | 299,842 | | 0 | | 304,974 | | 52,676 | | 1,611,259 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | M. K. Stewart | | 2012 | | 440,000 | | 510,000 | | 217,372 | | 400,359 | | 174,225 | | 1,569,254 | | 75,230 | | 3,386,440 | VP Accounting & Finance, | | | | | | | | | | | | | | | | | | | Controller & Treasurer | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | E. M. Campbell | | 2012 | | 445,000 | | 390,000 | | 154,264 | | 279,897 | | 167,800 | | 776,716 | | 85,980 | | 2,299,657 | Vice President, | | 2011 | | 445,000 | | 390,000 | | 157,376 | | 356,604 | | 1,091,133 | | 492,516 | | 67,207 | | 2,999,836 | Public Policy | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | D. E. Roberts, Jr. (1) | | 2012 | | 860,714 | | 0 | | 764,308 | | 1,401,847 | | 0 | | 598,849 | | 4,763,458 | | 8,389,176 | Executive Vice President and | | 2011 | | 900,000 | | 1,200,000 | | 713,111 | | 1,596,752 | | 4,857,833 | | 466,309 | | 136,207 | | 9,870,212 | Chief Operating Officer | | 2010 | | 875,000 | | 1,000,000 | | 1,195,970 | | 599,684 | | 0 | | 412,145 | | 135,227 | | 4,218,026 | | | | | | | | | | | | | | | | | | | |
(1)Mr. Roberts resigned as Executive Vice Presidenthis employment with us in August 2013: $2,000,000 in 2013, $500,000 in 2014, and Chief Operating Officer on December 14, 2012.
$500,000 in 2015. (2) This column reflects the aggregate grant date fair valuevalues calculated in accordance with generally accepted accounting principles in the United States regarding stock compensation. Assumptions used in the calculation of this amountthese amounts are included in footnote 21 to the Company’sour consolidated financial statementstatements in our annual reports on Form 10-K for the fiscal year ended December 31, 2012,2015 and footnote 2120 to the Company’sour consolidated financial statementstatements in our annual reports on Form 10-K for the fiscal yearyears ended December 31, 2011,2014, and footnote 23 to the Company’s financial statement for the fiscal year ended December 31, 2010.2013, respectively. For 2014 and 2015, the Stock Awards column also includes the grant date fair value of the share-denominated performance units granted in February 2014 and February 2015 respectively, which ultimately will be settled in cash. The value ultimately realized by the officers upon the actual vesting of the awards may or may not be equal to this determined value, as these awards are subject to market conditions and have been valued based on an assessment of the market conditions as of the grant date. See the “Grants of Plan-Based Awards Table” and “Long-Term Incentive Awards” for further detail on our performance unit program. (3) This column reflects the aggregate grant date fair value2015 and 2014 annual cash bonus payments, determined by the Compensation Committee and paid in accordance with generally accepted accounting principles in the United States regarding stock compensation. Assumptions used in the calculation of this amount are included in footnote 21February 2016 and February 2015 respectively, pursuant to the Company’s financial statement for the fiscal year ended December 31, 2012, footnote 21 to the Company’s financial statement for the fiscal year ended December 31, 2011, and footnote 23 to the Company’s financial statement for the fiscal year ended December 31, 2010.(4)Annual Cash Bonus Plan. These awards are discussed in further detail under “Annual Cash Bonus.” The amounts shown in this column also reflect the vested value of performance units earned by our named executive officersNEOs during the performance periodsperiod that ended on December 31, 2012, June 30, 2011,2014 and December 31, 2010,2013 respectively. See pages 52-53 for an explanationIn 2013, we changed the design of our performance units which resulted in reporting performance unit values in the Stock Awards column as of the Company’sdate granted instead of Non-Equity Incentive column as of the date earned. This means an NEO could show performance unit program.
(5)values in both columns during the overlapping 3 year vesting period. For 2014, the only NEO whose performance unit value appears in both columns is Ms. Kerrigan.
(4) This column reflects the annual change in accumulated benefits under Marathon’sour retirement plans. See pages 65-67“Post-Employment Benefits” for more information about the Company’sour defined benefit plans and the assumptions used in the calculation ofcalculating these amounts. There are no No
MARATHON OIL | 2016 PROXY STATEMENT 35
deferred compensation earnings are reported in this column because the Company’sour non-qualified deferred compensation plans do not provide above-market or preferential earnings. 58
Table of Contents
(6)(5) The following table describes each component of the All Other Compensation column for the fiscal year ending December 31, 20122015 in the Summary Compensation Table.
Name | | Personal
Use of
Company
Aircraft(a)
($) | | Company
Physicals(b)
($) | | Tax &
Financial
Planning(c)
($) | | Miscellaneous
Perks &
Related Tax
Gross Ups
($) | | Company
Contributions
to Defined
Contribution
Plans(d)
($) | | Severance
Payments(e)
($) | | Matching
Contributions(f)
($) | | Total All
Other
Compensation
($) | | | | | | | | | | | | | | | | | | C. P. Cazalot, Jr. | | 1,600 | | 2,170 | | 0 | | 0 | | 308,000 | | 0 | | 5,000 | | 316,770 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | J. F. Clark | | 0 | | 2,170 | | 0 | | 0 | | 117,600 | | 0 | | 5,000 | | 124,770 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | S. J. Kerrigan | | 0 | | 2,170 | | 8,000 | | 0 | | 80,837 | | 0 | | 5,000 | | 96,407 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | M. K. Stewart | | 0 | | 2,170 | | 1,060 | | 0 | | 70,000 | | 0 | | 2,000 | | 75,230 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | E. M. Campbell | | 8,360 | | 2,170 | | 12,000 | | 0 | | 58,450 | | 0 | | 5,000 | | 85,980 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | D. E. Roberts, Jr. | | 0 | | 2,170 | | 0 | | 0 | | 145,788 | | 4,608,000 | | 7,500 | | 4,763,458 | | | | | | | | | | | | | | | | | |
| | | | | | | | | | Name | Personal
Use of
Company
Aircraft(a)
($) | Company
Physicals(b)
($) | Tax &
Financial
Planning(c)
($) | Miscellaneous
Perks(d)
($) | Company Contributions to Defined
Contribution
Plans(e)
($) | Matching
Contributions(f)
($) | Total All
Other
Compensation
($) | | Lee M. Tillman | 0 | 1,310 | 15,000 | 31,372 | 192,937 | 16,000 | 256,619 | | John R. Sult | 0 | 1,310 | 0 | 0 | 88,410 | 15,000 | 104,720 | | Sylvia J. Kerrigan | 0 | 1,310 | 12,610 | 0 | 84,727 | 15,000 | 113,647 | | Lance W. Robertson | 0 | 1,310 | 16,829 | 0 | 75,149 | 14,466 | 107,754 | | T. Mitchell Little | 0 | 1,310 | 3,250 | 0 | 73,675 | 1,040 | 79,275 |
(a)The amounts shown in this column reflect the aggregate incremental cost of While limited personal use of Marathon Oilthe company aircraft by our named executive officersis permitted for NEOs, no NEO used the period from January 1, 2012 through December 31, 2012. Spouses and invited guests of executives occasionally fly on the corporate airplane as additional passengers on business flights. In those cases, the aggregate incremental cost to Marathon Oil is a de minimis amount, and as a result, no amount is reflectedaircraft for this purpose in 2015. (b) All regular employees in the table.(b)All employees,United States, including our named executive officers,NEOs, are eligible to receive an annual physical and wellness incentives. However, officers may receive an enhanced physical under the executive physical program. This column reflects the average incremental cost of the executive physical program over the employee physical program plus taxable wellness incentives paid under our wellness plan.program. Due to Health Insurance Portability and Accountability Act (“HIPAA”) confidentiality requirements, the Company cannotwe do not disclose actual usageuse of this program by individual officers.
(c)This column reflects reimbursement for professional advice related to tax, estate, and financial planning upplanning. The maximum annual benefit is $15,000, and reimbursements are attributed to the calendar year in which services are performed. Due to processing delays, the actual amount reimbursed to an officer may exceed $15,000 in a given year. (d) This column reflects access to a specified maximum, notCompany provided car and driver for Mr. Tillman as business needs dictate. This benefit is offered to exceed $15,000 for a calendar year.(d)Mr. Tillman to allow the efficient use of his time and to provide safe transportation given the demands of his role, including travel, after hours/weekend obligations and extended work hours. We provide access to this benefit because we believe that the cost is outweighed by the convenience, increased safety and efficiency that it offers.
(e) This column reflects amounts contributed by the Companyus under the tax-qualified Marathon Oil Company Thrift Plan and related non-qualified deferred compensation plans. See pages 67-68“Post-Employment Benefits” and “Nonqualified Deferred Compensation” for more information about the non-qualified plans. (e)This column represents the cash severance paid by Marathon Oil per Mr. Roberts’ Severance Letter Agreement.
(f) The amounts shown represent contributions made on behalf of the named executive officersNEOs under our matching gifts programs for approved not-for-profit charities. The annual limit on matching contributions is $10,000.59
36 MARATHON OIL | 2016 PROXY STATEMENT
Table
GRANTS OF PLAN‑BASED AWARDS IN 2015 The following table provides information about all plan-based long-term incentive awards (stock options, restricted stock, and performance units) granted to each named executive officer during 2015. The awards listed in the table were granted under the 2012 Incentive Compensation Plan (the “2012 Plan”) and are described in more detail in “Compensation Discussion and Analysis.” | | | | | | | | | | | | | | | | | | Estimated Future Payouts
Under Non‑Equity
Incentive Plan Awards | Estimated Future Payouts
Under Equity
Incentive Plan Awards | All Other
Stock Awards:
Number of
Shares of
Stock or Units
(#) | All Other
Option
Awards:
Number of
Securities
Underlying Options
(#) | Exercise
or Base
Price of
Option Awards
($) | Grant Date
Fair Value
of Stock
and Option Awards(2)
($) | | Name | Type of Award | Grant
Date | Threshold
($) | Target
($) | Maximum
($) | Threshold
(#) | Target
(#) | Maximum
(#) | | Lee M. Tillman | Annual Cash Bonus | | 0 | 1,312,500 | 2,625,000 | | | | | | | 0 | | | Performance Units(1) | 2/25/2015 | | | | 67,744 | 135,487 | 270,974 | | | | 3,937,252 | | | Stock Options | 2/25/2015 | | | | | | | | 256,591 | 29.06 | 1,755,082 | | | Restricted Stock | 2/25/2015 | | | | | | | 81,292 | | | 2,362,346 | | John R. Sult | Annual Cash Bonus | | 0 | 510,000 | 1,020,000 | | | | | | | 0 | | | Performance Units(1) | 2/25/2015 | | | | 21,344 | 42,688 | 85,376 | | | | 1,240,513 | | | Stock Options | 2/25/2015 | | | | | | | | 80,844 | 29.06 | 552,973 | | | Restricted Stock | 2/25/2015 | | | | | | | 25,613 | | | 744,314 | | Sylvia J. Kerrigan | Annual Cash Bonus | | 0 | 488,750 | 977,500 | | | | | | | 0 | | | Performance Units(1) | 2/25/2015 | | | | 18,560 | 37,120 | 74,240 | | | | 1,078,707 | | | Stock Options | 2/25/2015 | | | | | | | | 70,299 | 29.06 | 480,845 | | | Restricted Stock | 2/25/2015 | | | | | | | 22,272 | | | 647,224 | | Lance W. Robertson | Annual Cash Bonus | | 0 | 433,500 | 867,000 | | | | | | | 0 | | | Performance Units(1) | 2/25/2015 | | | | 18,560 | 37,120 | 74,240 | | | | 1,078,707 | | | Stock Options | 2/25/2015 | | | | | | | | 70,299 | 29.06 | 480,845 | | | Restricted Stock | 2/25/2015 | | | | | | | 22,272 | | | 647,224 | | T. Mitchell Little | Annual Cash Bonus | | 0 | 425,000 | 850,000 | | | | | | | 0 | | | Performance Units(1) | 2/25/2015 | | | | 18,560 | 37,120 | 74,240 | | | | 1,078,707 | | | Stock Options | 2/25/2015 | | | | | | | | 70,299 | 29.06 | 480,845 | | | Restricted Stock | 2/25/2015 | | | | | | | 22,272 | | | 647,224 |
(1) Performance units, discussed under “Long-Term Incentive Awards,” are denominated as an equivalent of ContentsGrantsone share of Plan-Based Awardsour common stock and, if earned, are paid in 2012
| | The following table provides information about all non-equity incentive plan awards (performance units) and equity awards (stock options and restricted stock) granted to each named executive officer during 2012. The awards listed in the table were granted under the 2007 Incentive Compensation Plan (the “2007 Plan”) and are described in more detail in the Compensation Discussion and Analysis beginning on page 38.
|
| | | | | | Estimated Future Payouts Under
Non-Equity Incentive Plan Awards | | All Other
Stock Awards: | | All Other
Option Awards:
Number of | | Exercise or | | Grant Date
Fair Value | Name | | Type of Award | | Grant
Date | | Unit
Price(1)
($) | | Threshold
($) | | Target
($) | | Maximum
($) | | Number of
Shares of Stock or Units
(#) | | Securities
Underlying Options
(#) | | Base Price
of Option Awards ($) | | of Stock and
Option
Awards(2)
($) | | | | | | | | | | | | | | | | | | | | | | C. P. Cazalot, Jr. | | Performance Units | | 2/28/2012 | | 1 | | 2,750,000 | | 5,500,000 | | 11,000,000 | | | | | | | | | | | Stock Options | | 2/28/2012 | | | | | | | | | | | | 466,500 | | 35.06 | | 5,509,365 | | | | | | | | | | | | | | | | | | | | | | J. F. Clark | | Performance Units | | 2/28/2012 | | 1 | | 420,000 | | 840,000 | | 1,680,000 | | | | | | | | | | | Stock Options | | 2/28/2012 | | | | | | | | | | | | 71,200 | | 35.06 | | 840,872 | | | Restricted Stock | | 2/28/2012 | | | | | | | | | | 13,100 | | | | | | 459,286 | | | | | | | | | | | | | | | | | | | | | | S. J. Kerrigan | | Performance Units | | 2/28/2012 | | 1 | | 385,000 | | 770,000 | | 1,540,000 | | | | | | | | | | | Stock Options | | 2/28/2012 | | | | | | | | | | | | 65,300 | | 35.06 | | 771,193 | | | Restricted Stock | | 2/28/2012 | | | | | | | | | | 12,000 | | | | | | 420,720 | | | | | | | | | | | | | | | | | | | | | | M. K. Stewart | | Performance Units | | 2/28/2012 | | 1 | | 200,000 | | 400,000 | | 800,000 | | | | | | | | | | | Stock Options | | 2/28/2012 | | | | | | | | | | | | 33,900 | | 35.06 | | 400,359 | | | Restricted Stock | | 2/28/2012 | | | | | | | | | | 6,200 | | | | | | 217,372 | | | | | | | | | | | | | | | | | | | | | | E. M. Campbell | | Performance Units | | 2/28/2012 | | 1 | | 140,000 | | 280,000 | | 560,000 | | | | | | | | | | | Stock Options | | 2/28/2012 | | | | | | | | | | | | 23,700 | | 35.06 | | 279,897 | | | Restricted Stock | | 2/28/2012 | | | | | | | | | | 4,400 | | | | | | 154,264 | | | | | | | | | | | | | | | | | | | | | | D. E. Roberts, Jr. | | Performance Units | | 2/28/2012 | | 1 | | 700,000 | | 1,400,000 | | 2,800,000 | | | | | | | | | | | Stock Options | | 2/28/2012 | | | | | | | | | | | | 118,700 | | 35.06 | | 1,401,847 | | | Restricted Stock | | 2/28/2012 | | | | | | | | | | 21,800 | | | | | | 764,308 |
(1)This column reflects the target dollar value of each performance unit.
cash. (2) The amounts shown in this column reflect the total grant date fair valuevalues of stock options, and restricted stock, granted in 2012and performance units calculated in accordance with generally accepted accounting principles in the United States regarding stock compensation. The Black-Scholes value used for the stock options granted on February 28, 201225, 2015 was $11.81 and$6.837. The value ultimately realized by each NEO upon the fair market value used for restrictedactual vesting of the award(s) or exercise of the stock awards granted on February 28, 2012 was $35.06. Assumptionsoption(s) may or may not be equal to this determined value. Valuation assumptions used in the calculation of these amounts are included in footnote 21 to the Company’sour consolidated financial statementstatements in our annual report on Form 10-K for the fiscal year ended December 31, 2012.2015. See page 54“Long-Term Incentive Awards” for more information about restricted stock, stock options, and stock optionstock-based performance unit awards.60
MARATHON OIL | 2016 PROXY STATEMENT 37
Table
OUTSTANDING EQUITY AWARDS AT 2015 FISCAL YEAR-END The following table provides information about the unexercised stock options (vested and unvested) and unvested restricted stock held by each NEO as of ContentsDecember 31, 2015.
Outstanding Equity Awards at 2012 Fiscal Year-End
| | The following table provides information about the unexercised stock options (vested and unvested), vested stock appreciation rights “SARs”, and unvested restricted stock held by each named executive officer as of December 31, 2012.
As a result of the Spin-off of MPC, our named executive officers may also continue to hold MPC equity awards granted to them before June 30, 2011. Because Marathon Oil was not affiliated with MPC for any portion of 2012 and neither Marathon Oil’s performance nor our named executive officers’ holdings affect the value of those MPC awards, they have not been included in the tables relating to outstanding equity, option exercises and stock vesting.
|
| | | | Stock Option Awards | | Stock Awards | | Name | | Grant Date | | Number of
Securities
Underlying
Unexercised
Options/SARs
Exercisable (#) | | Number of
Securities
Underlying
Unexercised
Options/SARs
Unexercisable
(#) | | Option
Exercise
Price ($) | | Option
Expiration
Date | | Number of Shares
or Units of Stock
That Have Not
Vested(5) (#) | | Market Value of
Shares or Units of
Stock That Have
Not Vested(6) ($) | | | | | | | | | | | | | | | | | | C. P. Cazalot, Jr. | | | | | | | | | | | | | | | | MRO | | 5/25/2005 | | 336,696 | | 0 | | | 14.930 | | 5/25/2015 | | | | | | | | 6/01/2006 | | 361,322 | | 0 | | | 23.690 | | 6/01/2016 | | | | | | | | 5/30/2007 | | 284,289 | | 0 | | | 38.250 | | 5/30/2017 | | | | | | | | 2/27/2008 | | 212,341 | | 0 | | | 34.060 | | 2/27/2018 | | | | | | | | 2/25/2009 | | 548,485 | | 0 | | | 14.920 | | 2/25/2019 | | | | | | | | 2/24/2010 | | 463,114 | | 290,088 | (1) | | 18.280 | | 2/24/2020 | | | | | | | | 2/23/2011 | | 214,018 | | 428,036 | (2) | | 30.810 | | 2/23/2021 | | | | | | | | 2/28/2012 | | 0 | | 466,500 | (3) | | 35.060 | | 2/28/2022 | | | | | | | | | | 2,237,334 | | 1,184,624 | | | | | | | | | | | | | | | | | | | | | | | | | | | | J. F. Clark | | | | | | | | | | | | | | | | | MRO | | 1/16/2004 | | 12,694 | | 0 | | | 10.470 | | 1/16/2014 | | | | | | | | 5/25/2005 | | 112,168 | | 0 | | | 14.930 | | 5/25/2015 | | | | | | | | 6/01/2006 | | 57,491 | | 0 | | | 23.690 | | 6/01/2016 | | | | | | | | 5/30/2007 | | 45,509 | | 0 | | | 38.250 | | 5/30/2017 | | | | | | | | 2/27/2008 | | 40,337 | | 0 | | | 34.060 | | 2/27/2018 | | | | | | | | 2/25/2009 | | 131,697 | | 0 | | | 14.920 | | 2/25/2019 | | | | | | | | 2/24/2010 | | 85,212 | | 53,377 | (1) | | 18.280 | | 2/24/2020 | | | | | | | | 2/23/2011 | | 39,944 | | 79,892 | (2) | | 30.810 | | 2/23/2021 | | | | | | | | 2/28/2012 | | 0 | | 71,200 | (3) | | 35.060 | | 2/28/2022 | | | | | | | | | | 371,679 | | 286,642 | | | | | | | | | | | | | | | | | | | | | | | | 53,641 | | 1,644,633 | | S. J. Kerrigan | | | | | | | | | | | | | | | | | MRO | | 6/01/2006 | | 10,851 | | 0 | | | 23.690 | | 6/01/2016 | | | | | | | | 5/30/2007 | | 8,568 | | 0 | | | 38.250 | | 5/30/2017 | | | | | | | | 5/28/2008 | | 6,679 | | 0 | | | 32.060 | | 5/27/2018 | | | | | | | | 5/27/2009 | | 14,991 | | 0 | | | 18.320 | | 5/27/2019 | | | | | | | | 2/24/2010 | | 29,820 | | 18,679 | (1) | | 18.280 | | 2/24/2020 | | | | | | | | 2/23/2011 | | 20,928 | | 41,858 | (2) | | 30.810 | | 2/23/2021 | | | | | | | | 2/28/2012 | | 0 | | 65,300 | (3) | | 35.060 | | 2/28/2022 | | | | | | | | | | 91,837 | | 125,837 | | | | | | | | | | | | | | | | | | | | | | | 29,239 | | 896,468 | |
61
| | | | | | | | | | | | Option Awards | Stock Awards |
| Number of Securities
Underlying
Unexercised
Options | | | Restricted Stock/Units | Equity Incentive Plan Awards
(Performance Units) | Name and
Grant Date | Exercisable
(#) | Unexercisable(1)
(#) | Option
Exercise
Price
($) | Option
Expiration
Date | Number of
Shares or
Units of
Stock
That Have
Not Vested(2)
(#) | Market
Value of
Shares or
Units of
Stock That
Have Not
Vested(3)
($) | Number of
Unearned
Shares, Units
or Other Rights
that Have Not
Vested(4)
(#) | Market or
Payout Value of
Unearned
Shares, Units or
Other Rights
that Have Not
Vested(5)
($) | | Lee M. Tillman | | | | | | | | | | 8/15/2013 | 153,257 | 76,629 | 34.65 | 8/15/2023 | | | | | | 2/25/2014 | 110,063 | 220,126 | 34.03 | 2/25/2024 | | | | | | 2/25/2015 | 0 | 256,591 | 29.06 | 2/25/2025 | | | | | | | 263,320 | 553,346 | | | | | | | | | | | | | 215,150 | 6,252,259 | | | | 2014 | | | | | | | 84,262 | 2,448,654 | | 2015 | | | | | | | 135,487 | 1,968,626 | | John R. Sult | | | | | | | | | | 9/11/2013 | 54,333 | 27,167 | 36.49 | 9/11/2023 | | | | | | 2/25/2014 | 33,019 | 66,038 | 34.03 | 2/25/2014 | | | | | | 2/25/2015 | 0 | 80,844 | 29.06 | 2/25/2025 | | | | | | | 87,352 | 174,049 | | | | | | | | | | | | | 47,805 | 1,389,213 | | | | 2014 | | | | | | | 25,279 | 734,608 | | 2015 | | | | | | | 42,688 | 620,257 | | Sylvia J. Kerrigan | | | | | | | | | | 6/01/2006 | 10,851 | 0 | 23.69 | 6/1/2016 | | | | | | 5/30/2007 | 8,568 | 0 | 38.25 | 5/30/2017 | | | | | | 5/28/2008 | 6,679 | 0 | 32.06 | 5/28/2018 | | | | | | 5/27/2009 | 14,991 | 0 | 18.32 | 5/27/2019 | | | | | | 2/24/2010 | 48,499 | 0 | 18.28 | 2/24/2020 | | | | | | 2/23/2011 | 62,786 | 0 | 30.81 | 2/23/2021 | | | | | | 2/28/2012 | 65,300 | 0 | 35.06 | 2/28/2022 | | | | | | 2/26/2013 | 42,733 | 21,367 | 32.86 | 2/26/2023 | | | | | | 2/25/2014 | 29,874 | 59,749 | 34.03 | 2/25/2024 | | | | | | 2/25/2015 | 0 | 70,299 | 29.06 | 2/25/2025 | | | | | | | 290,281 | 151,415 | | | | | | | | | | | | | 45,008 | 1,307,932 | | | | 2013 | | | | | | | 22,600 | 106,785 | | 2014 | | | | | | | 22,871 | 664,631 | | 2015 | | | | | | | 37,120 | 539,354 | | Lance W. Robertson | | | | | | | | | | 2/28/2012 | 9,542 | 0 | 35.06 | 2/28/2022 | | | | | | 8/31/2012 | 8,525 | 0 | 27.82 | 8/31/2022 | | | | | | 2/26/2013 | 22,466 | 11,234 | 32.86 | 2/26/2023 | | | | | | 2/25/2014 | 18,868 | 37,736 | 34.03 | 2/25/2024 | | | | | | 2/25/2015 | 0 | 70,299 | 29.06 | 2/25/2025 | | | | | | | 59,401 | 119,269 | | | | | | | | | | | | | 61,397 | 1,784,197 | | | | 2013 | | | | | | | 11,900 | 56,228 |
38 MARATHON OIL | 2016 PROXY STATEMENT
Table of ContentsOutstanding Equity Awards at 2012 Fiscal Year-End (continued)
| | | | Stock Option Awards | | Stock Awards | | Name | | Grant Date | | Number of
Securities
Underlying
Unexercised
Options/SARs
Exercisable (#) | | Number of
Securities
Underlying
Unexercised
Options/SARs
Unexercisable
(#) | | Option
Exercise
Price ($) | | Option
Expiration
Date | | Number of Shares
or Units of Stock
That Have Not
Vested(4) (#) | | Market Value of
Shares or Units of
Stock That Have
Not Vested(5) ($) | | | | | | | | | | | | | | | | | | M. K. Stewart | | | | | | | | | | | | | | | | MRO | | 5/28/2003 | | 2,221 | | 0 | | | 7.990 | | 5/28/2013 | | | | | | | | 5/26/2004 | | 6,855 | | 0 | | | 10.530 | | 5/26/2014 | | | | | | | | 6/10/2005 | | 22,280 | | 0 | | | 16.190 | | 6/10/2015 | | | | | | | | 6/01/2006 | | 13,135 | | 0 | | | 23.690 | | 6/01/2016 | | | | | | | | 2/27/2008 | | 7,991 | | 0 | | | 34.060 | | 2/27/2018 | | | | | | | | 2/25/2009 | | 23,329 | | 0 | | | 14.920 | | 2/25/2019 | | | | | | | | 2/24/2010 | | 9,600 | | 6,014 | (1) | | 18.280 | | 2/24/2020 | | | | | | | | 2/23/2011 | | 9,029 | | 18,060 | (2) | | 30.810 | | 2/23/2021 | | | | | | | | 2/28/2012 | | 0 | | 33,900 | (3) | | 35.060 | | 2/28/2022 | | | | | | | | | | 94,440 | | 57,974 | | | | | | | | | | | | | | | | | | | | | | | | 26,398 | | 809,363 | | E. M. Campbell | | | | | | | | | | | | | | | | | MRO | | 6/01/2006 | | 14,468 | | 0 | | | 23.690 | | 6/01/2016 | | | | | | | | 5/30/2007 | | 14,852 | | 0 | | | 38.250 | | 5/30/2017 | | | | | | | | 2/27/2008 | | 15,697 | | 0 | | | 34.060 | | 2/27/2018 | | | | | | | | 2/25/2009 | | 31,493 | | 0 | | | 14.920 | | 2/25/2019 | | | | | | | | 2/24/2010 | | 27,696 | | 17,349 | (1) | | 18.280 | | 2/24/2020 | | | | | | | | 2/23/2011 | | 11,897 | | 23,798 | (2) | | 30.810 | | 2/23/2021 | | | | | | | | 2/28/2012 | | 0 | | 23,700 | (3) | | 35.060 | | 2/28/2022 | | | | | | | | | | 116,103 | | 64,847 | | | | | | | | | | | | | | | | | | | | | | | | 17,170 | | 526,432 | | D. E. Roberts, Jr. | | | | | | | | | | | | | | | | | MRO | | 6/01/2006 | | 5,979 | | 0 | | | 23.690 | | 6/01/2016 | | | | | | | | 6/28/2006 | | 12,847 | | 0 | | | 25.380 | | 6/28/2016 | | | | | | | | 5/30/2007 | | 39,796 | | 0 | | | 38.250 | | 5/30/2017 | | | | | | | | 2/27/2008 | | 50,992 | | 0 | | | 34.060 | | 2/27/2018 | | | | | | | | 2/25/2009 | | 45,661 | | 0 | | | 14.920 | | 2/25/2019 | | | | | | | | 2/24/2010 | | 14,640 | | 0 | (1) | | 18.280 | | 2/24/2020 | | | | | | | | 2/23/2011 | | 53,278 | | 0 | (2) | | 30.810 | | 2/23/2021 | | | | | | | | 2/28/2012 | | 0 | | 0 | (3) | | 35.060 | | 2/28/2022 | | | | | | | | | | 223,193 | | 0 | | | | | | | | | | | | | | | | | | | | | | | 110,384 | | 3,384,373 | |
| | | | | | | | | | | 2014 | | | | | | | 14,445 | 419,772 | | 2015 | | | | | | | 37,120 | 539,354 | | T. Mitchell Little | | | | | | | | | | 5/30/2007 | 7,661 | 0 | 38.25 | 5/30/2017 | | | | | | 5/28/2008 | 5,908 | 0 | 32.06 | 5/28/2018 | | | | | | 5/25/2011 | 18,947 | 0 | 33.06 | 5/25/2021 | | | | | | 8/31/2011 | 2,309 | 0 | 26.92 | 8/31/2021 |
|
|
|
| | 2/28/2012 | 5,009 | 0 | 35.06 | 2/28/2022 |
|
|
|
| | 2/26/2013 | 22,466 | 11,234 | 32.86 | 2/26/2023 |
|
|
|
| | 2/25/2014 | 18,868 | 37,736 | 34.03 | 2/25/2024 |
|
|
|
| | 2/25/2015 | 0 | 70,299 | 29.06 | 2/25/2025 |
|
|
|
|
| 81,168 | 119,269 |
|
|
|
|
|
|
|
|
|
|
| 61,397 | 1,784,197 |
|
| | 2013 |
|
|
|
|
|
| 11,900 | 56,228 | | 2014 |
|
|
|
|
|
| 14,445 | 419,772 | | 2015 |
|
|
|
|
|
| 37,120 | 539,354 |
(1) This All stock option grant is scheduled to become exercisableoptions listed in one thirdthis column vest in one-third increments over a three-year period. The remaining unvested portionon each anniversary of the grant will become exercisable on February 24, 2013.date. (2) This stock option grant is scheduled to become exercisable in one third increments over a three-year period. The remaining unvested portion of the grant will become exercisable in one half increments on February 23, 2013 and February 23, 2014.(3)This stock option grant is scheduled to become exercisable in one third increments over a three-year period. The unvested portion of the grant will become exercisable in one third increments on February 28, 2013, February 28, 2014, and February 28, 2015.
(4)This column reflects the number of shares of unvested restricted stock held by our named executive officersNEOs on December 31, 2011. All restricted stock grants are generally scheduled to vest on the third anniversary of the date of grant.
62
2015.
Table of Contents
(5) | | | | | | | Name | Grant Date | | # of Unvested Shares | Vesting Date | | Lee M. Tillman | 8/15/2013 | | 91,727 | 8/15/2016 | | 2/25/2014 | | 42,131 | 2/25/2017 | | 2/25/2015 | | 81,292 | 2/25/2018 | | | Total: | 215,150 | | | John R. Sult | 9/11/2013 | | 9,552 | 9/11/2016 | | 2/25/2014 | | 12,640 | 2/25/2017 | | 2/25/2015 | | 25,613 | 2/25/2018 | | | Total: | 47,805 | | | Sylvia J. Kerrigan | 2/26/2013 | | 11,300 | 2/26/2016 | | 2/25/2014 | | 11,436 | 2/25/2017 | | 2/25/2015 | | 22,272 | 2/25/2018 | | | Total: | 45,008 | | | Lance W. Robertson | 2/26/2013 | | 6,000 | 2/26/2016 | | 5/10/2013 | | 4,647 | 5/10/2016 | | 9/25/2013 | | 8,596 | 9/25/2016 | | 2/25/2014 | | 7,223 | 2/25/2017 | | 7/30/2014 | | 12,659 | 7/30/2017 | | 2/25/2015 | | 22,272 | 2/25/2018 | | | Total: | 61,397 | | | T. Mitchell Little | 2/26/2013 | | 6,000 | 2/26/2016 | | 5/10/2013 | | 4,647 | 5/10/2016 | | 9/25/2013 | | 8,596 | 9/25/2016 | | 2/25/2014 | | 7,223 | 2/25/2017 | | 7/30/2014 | | 12,659 | 7/30/2017 | | 2/25/2015 | | 22,272 | 2/25/2018 | | | Total: | 61,397 | |
(3) This column reflects the aggregate value of all shares of unvested restricted stock held by our named executive officerseach NEO on December 31, 2012,2015, using the year-endDecember 31, 2015 closing stock price of $30.66.$12.59. Upon normal retirement, unvested shares are forfeited.
MARATHON OIL | 2016 PROXY STATEMENT 39
(4) This column represents the number of outstanding share-based performance units. The awards granted in 2013 have a performance period of January 1, 2013 to December 31, 2015. The awards granted in 2014 have a performance period of January 1, 2014 to December 31, 2016. The awards granted in 2015 have a performance period of January 1, 2015 to December 31, 2017. (5) The 2013 payouts are shown as actual amounts and reflect a 54% payout based on a completed performance period and a closing share price of $8.75 on January 27, 2016, the date the Committee approved the 2013 performance unit payout. The 2014 estimated payouts are currently tracking at a 54% payout based on performance as of December 31, 2015. Market Value shown reflects a payout at target (100%) and uses the December 31, 2015 closing stock price of $12.59. The 2015 estimated payouts are currently tracking at a 50% payout based on performance as of December 31, 2015. Market Value shown reflects a payout at threshold (50%) and uses the December 31, 2015 closing stock price of $12.59. These estimated payouts are not necessarily indicative of the actual payout at the end of the performance period.
|
| Grant
|
| # of Unvested
|
| Vesting
| Name
|
| Date
|
| Shares
|
| Date
| J. F. Clark
|
OPTION EXERCISES AND STOCK VESTED IN 2015 The following table provides information about the value realized by the NEOs on option award exercises and restricted stock vesting during 2015. | | | | | | | | Option Awards | Stock Awards | | Name | Number of Shares
Acquired on
Exercise
(#) | Value Realized on
Exercise(1)
($) | Number of Shares
Acquired on
Vesting
(#) | Value Realized on
Vesting(2)
($) | | Lee M. Tillman | 0 | 0 | 9,173 | 157,317 | | John R. Sult | 0 | 0 | 9,551 | 142,023 | | Sylvia J. Kerrigan | 0 | 0 | 12,000 | 330,240 | | Lance W. Robertson | 0 | 0 | 11,795 | 272,882 | | T. Mitchell Little | 0 | 0 | 10,675 | 233,078 |
(1) This column reflects the actual pre-tax income realized by NEOs upon exercise of stock options, which, in each case, is the fair market value of the shares on the exercise date less the grant price. (2) This column reflects the actual pre-tax income realized by NEOs upon vesting of restricted stock, which, in each case, is the fair market value of the shares on the vesting date. | 2/24/2010
| | 23,303
| | 2/24/2013
|
| | 2/23/2011
| | 17,238
| | 2/23/2014
|
|
POST-EMPLOYMENT BENEFITS Marathon Oil offers NEOs the opportunity to save for retirement as follows: Marathon Oil Company Thrift Plan (“Thrift Plan”): A tax-qualified 401(k) plan that currently provides for company matching contributions of up to 7% of eligible earnings. Retirement Plan of Marathon Oil Company (“Retirement Plan”): A tax qualified defined benefit pension plan. Excess Benefit Plan (“Excess Plan”): A nonqualified plan. The defined benefit portion allows participants to accrue benefits above the defined benefit tax limits, and the defined contribution portion allows participants to accrue benefits above the defined contribution tax limits. Marathon Oil Company Deferred Compensation Plan (“Deferred Compensation Plan”): A nonqualified plan allowing participants to defer a portion of their compensation and accrue benefits above the Thrift Plan tax limits.
40 MARATHON OIL | 2016 PROXY STATEMENT
All plans have a three-year vesting requirement for company contributions. All NEOs have met the vesting requirement. See “Nonqualified Deferred Compensation” below for additional information on the Deferred Compensation Plan and the defined contribution portion of the Excess Plan. RETIREMENT PLAN In general, all regular full-time and part-time employees in the United States are eligible to participate in the Retirement Plan as of their date of hire. Benefit accruals are determined under a cash-balance formula, under which plan participants receive pay credits each year equal to a percentage of eligible compensation based on their plan points. Plan points equal the sum of a participant’s age and cash-balance service. Participants with fewer than 50 points receive a 7% pay credit percentage; participants with 50 to 69 points receive a 9% pay credit percentage; and participants with 70 or more points receive an 11% pay credit percentage. Participants are also credited with interest at a rate based on the 30-year Treasury rate, which in 2015 was 3.17%. For 2015, Mr. Little and Ms. Kerrigan received a pay credit equal to 11% of compensation, Messrs. Tillman and Sult received pay credits equal to 9% of compensation and Mr. Robertson received a pay credit equal to 7% of compensation. Participants who began employment prior to January 1, 2010 also have a portion of their benefit calculated under a legacy final average pay formula, which is referred to as the Legacy formula. Ms. Kerrigan and Mr. Little are the only NEOs with a Legacy benefit. Up to 37.5 years of participation may be recognized under the formula, and only service earned prior to January 1, 2010 is recognized. Eligible earnings under the Retirement Plan primarily include base salary and annual cash bonuses (including Thrift Plan deferrals but excluding amounts deferred under our nonqualified Deferred Compensation Plan). Long-term incentive compensation is not included. Final average pay was frozen as of July 6, 2015, but vesting service and age continue to be updated under the Legacy formula. The monthly benefit under the Legacy formula is calculated as follows: | | | | | | | | | | | | | | | | | [ | 1.6% | x | Final Average Pay | x | Years of Participation | ] | - | [ | 1.33% | x | Estimated Primary SS Benefit | x | Years of Participation | ] |
Normal retirement age under the Retirement Plan is age 65. However, retirement‑eligible participants are able to retire and receive an unreduced benefit under the Legacy formula upon reaching age 62. Retirement Plan benefits include various annuity options and a lump sum distribution option. Participants are eligible for early retirement subsidies under the Legacy formula upon reaching age 50 and completing ten years of vesting service. Both Mr. Little and Ms. Kerrigan are eligible for early retirement subsidies. We have not granted years of service in addition to the service recognized under the terms of our qualified retirement plans (applicable to a broad-based group of employees) to any NEO for purposes of retirement benefit accruals. EXCESS PLAN – DEFINED BENEFIT PORTION The Excess Plan for certain highly compensated employees, including our NEOs, provides benefits that participants would have received under our tax-qualified Retirement Plan but for certain Internal Revenue Code limitations. Eligible compensation under the Excess Plan includes deferred compensation contributions made by NEOs. The Excess Plan also provides an enhancement for officers based on the three highest bonuses earned
MARATHON OIL | 2016 PROXY STATEMENT 41
during their last ten years of employment, instead of the consecutive bonus formula in place for non-officers. Distributions under the Excess Plan are paid in a lump sum following separation from service. PENSION BENEFITS TABLE The following table shows the actuarial present value of accumulated benefits payable to each NEO under the Retirement Plan and the defined benefit portion of the Excess Plan as of December 31, 2015. These values have been determined using actuarial assumptions consistent with those used in our financial statements. | | | | | | | Name | Plan Name | Number of Years of Credited Service (1)
(#) | Present Value of Accumulated Benefit (2)
($) | Payments During Last Fiscal Year
($) | | Lee M. Tillman | Retirement Plan | 2.42 | 67,425 | 0 | | | Marathon Oil Company Excess Benefit Plan | 2.42 | 451,602 | 0 | | John R. Sult | Retirement Plan | 2.33 | 62,833 | 0 | | | Marathon Oil Company Excess Benefit Plan | 2.33 | 178,679 | 0 | | Sylvia J. Kerrigan | Retirement Plan | 18.67 | 618,912 | 0 | | | Marathon Oil Company Excess Benefit Plan | 18.67 | 2,825,676 | 0 | | Lance W. Robertson | Retirement Plan | 4.25 | 68,624 | 0 | | | Marathon Oil Company Excess Benefit Plan | 4.25 | 149,927 | 0 | | T. Mitchell Little | Retirement Plan | 28.58 | 1,086,388 | 0 | | | Marathon Oil Company Excess Benefit Plan | 28.58 | 2,848,031 | 0 |
(1) Represents the number of years the NEO has participated in the plan. However, Plan Participation Service, used to calculate each participant’s benefit under the Legacy formula, was frozen as of December 31, 2009. (2) Assuming a discount rate of 4.04%, a lump sum interest rate of 1.54%, the RP2000 combined healthy mortality table weighted 75% male and 25% female, a lump sum election rate of 100% for the non‑qualified plan and 90% for the qualified plan, and retirement at age 62 or the age at measurement date, if older.
42 MARATHON OIL | 2016 PROXY STATEMENT
| 2/28/2012
| | 13,100
| | 2/28/2015
|
| | | | 53,641
| | | S. J. Kerrigan
|
NONQUALIFIED DEFERRED COMPENSATION We offer certain employees, including our NEOs, the opportunity to accrue benefits equal to the Company matching contributions they would have received under the Thrift Plan but for certain Internal Revenue Code limitations. Officers generally accrue these benefits in the Deferred Compensation Plan, while other employees accrue such benefits in the defined contribution portion of the Excess Plan. Both plans have a three year vesting requirement for Company contributions. All NEOs have met the vesting requirement. Distributions from the Deferred Compensation Plan and the Excess Plan are paid as a lump sum following separation from service. DEFERRED COMPENSATION PLAN The Deferred Compensation Plan is an unfunded, nonqualified plan into which a participant may elect to defer up to 20% of his or her salary and bonus each year. One NEO elected to defer compensation for 2015, Mr. Robertson. Participants are fully vested in their own deferrals under the plan. Additionally, participants can receive company contributions into the plan equal to the maximum potential matching contribution under the Thrift Plan after they have reached defined contribution accruals under the Thrift Plan in excess of tax limits. The investment options available under the Deferred Compensation Plan generally mirror the core investment options available under the Thrift Plan, except for Marathon Oil common stock, which is not available under the Deferred Compensation Plan. EXCESS PLAN – DEFINED CONTRIBUTION PORTION Prior to becoming eligible for participation in the Deferred Compensation Plan, NEOs may have received defined contribution accruals under the Excess Plan. These contributions were available after a participant’s Thrift Plan contributions were limited due to tax requirements and equaled the matching contribution that participants would have received under the Thrift Plan but for limits imposed by tax law. Defined contribution accruals in the Excess Plan are credited with interest equal to that paid in the “Marathon Oil Stable Value Fund” option of the Marathon Oil Company Thrift Plan. The annual rate of return on this option for 2015 was 1.90%. NONQUALIFIED DEFERRED COMPENSATION TABLE The following table shows each NEO’s accumulated benefits under our nonqualified savings and deferred compensation plans for 2015. | | | | | | | | | Name | Plan Name | Executive
Contributions
in Last Fiscal
Year(1)
($) | Registrant
Contributions
in Last Fiscal
Year(1)
($) | Aggregate
Earnings
in Last
Fiscal Year
($) | Aggregate
Withdrawals/
Distributions
($) | Aggregate
Balance at
Last Fiscal
Year End(2)
($) | | Lee M. Tillman | Deferred Compensation | 0 | 174,387 | (3,039) | 0 | 374,573 | | John R. Sult | Deferred Compensation | 0 | 69,860 | 8,322 | 0 | 161,225 | | Sylvia J. Kerrigan | Excess Benefit Plan | 0 | 0 | 801 | 0 | 43,401 | | | Deferred Compensation | 0 | 66,177 | 9,661 | 0 | 548,968 | | Lance W. Robertson | Excess Benefit Plan | 0 | 0 | 375 | 0 | 20,340 | | | Deferred Compensation | 75,149 | 56,599 | (4,317) | 0 | 239,745 | | T. Mitchell Little | Excess Benefit Plan | 0 | 0 | 1,223 | 0 | 66,265 | | | Deferred Compensation | 0 | 55,125 | 139 | 0 | 134,815 |
(1) The amounts shown in this column are also included in the All Other Compensation column of the Summary Compensation Table. (2) Certain portions shown for each NEO were also reported in the Summary Compensation Tables of our proxy statements in prior years.
MARATHON OIL | 2016 PROXY STATEMENT 43
| 2/24/2010
| | 8,141
| | 2/24/2013
|
| | 2/23/2011
| | 9,098
| | 2/23/2014
|
| | 2/28/2012
| | 12,000
| | 2/28/2015
|
| | | | 29,239
| | | M. K. Stewart
| | 2/24/2010
| | 10,535
| | 2/24/2013
|
| | 2/23/2011
| | 3,991
| | 2/23/2014
|
| | 12/19/2011
| | 5,672
| | 12/19/2014
|
| | 2/28/2012
| | 6,200
| | 2/28/2015
|
| | | | 26,398
| | | E. M. Campbell
| | 2/24/2010
| | 7,662
| | 2/24/2013
|
| | 2/23/2011
| | 5,108
| | 2/23/2014
|
| | 2/28/2012
| | 4,400
| | 2/28/2015
|
| | | | 17,170
| | | D. E. Roberts, Jr.
| | 2/24/2010
| | 0
| | 2/24/2013
| | | 2/23/2011
| | 0
| | 2/23/2014
| | | 2/28/2012
| | 0
| | 2/28/2015
| | | | | 0
| | | | | | | | | |
63
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL
TableAs a matter of Contents
Option Exercises and Stock Vestedpolicy, we do not enter into employment, severance, or change in 2012
| | The following table provides information about the value realized by the named executive officers on option award exercises and vesting for restricted stock during 2012.
|
| | Option Awards | | Stock Awards | | | | | | | | | | | | Name | | Number of Shares
Acquired on Exercise
(#) | | Value Realized
on Exercise(1)
($) | | Number of Shares
Acquired on Vesting
(#) | | Value Realized
on Vesting(2)
($) | | | | | | | | | | | | C. P. Cazalot, Jr. | | 571,278 | | 11,219,328 | | 0 | | 0 | | | | | | | | | | | | J. F. Clark | | 0 | | 0 | | 35,593 | | 1,242,908 | | | | | | | | | | | | S. J. Kerrigan | | 0 | | 0 | | 14,036 | | 385,709 | | | | | | | | | | | | M. K. Stewart | | 0 | | 0 | | 6,225 | | 217,377 | | | | | | | | | | | | E. M. Campbell | | 0 | | 0 | | 8,460 | | 295,423 | | | | | | | | | | | | D. E. Roberts, Jr. | | 182,000 | | 2,353,921 | | 38,626 | | 1,348,820 | | | | | | | | | | | |
(1)
| This column reflects the actual pre-tax gain realized by our named executive officers upon exercise of an option, which is the fair market value of the shares on the date of exercise less the grant price.
| | | (2)
| This column reflects the actual pre-tax gain realized by the named executive officers upon vesting of restricted stock, which is the fair market value of the shares on the date of vesting.
|
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Table of Contents
Pension Benefits
| | We provide tax-qualified retirement benefits to our employees, including the named executive officers, under the Retirement Plan of Marathon Oil Company (the “Retirement Plan”). In addition, we sponsor the Marathon Oil Company Excess Benefit Plan (the “Excess Plan”) for the benefit of a select group of management and highly compensated employees.
The pension table below shows the actuarial present value of accumulated benefits payable to each of the named executive officers under the Retirement Plan and the defined benefit portion of the Excess Plan as of December 31, 2012. These values have been determined using actuarial assumptions consistent with those used in our financial statements.
|
Name | | Plan Name | | Number of
Years of Credited
Service(1)
(#) | | Present Value of
Accumulated
Benefit(2)
($) | | Payments
During Last
Fiscal Year
($) | | C. P. Cazalot, Jr. | | Retirement Plan of Marathon Oil Company | | 12.75 | | 682,781 | | 0 | | | | Marathon Oil Company Excess Benefit Plan | | 12.75 | | 13,169,389 | | 0 | | J. F. Clark | | Retirement Plan of Marathon Oil Company | | 8.92 | | 391,468 | | 0 | | | | Marathon Oil Company Excess Benefit Plan | | 8.92 | | 2,348,230 | | 0 | | S. J. Kerrigan | | Retirement Plan of Marathon Oil Company | | 15.67 | | 559,504 | | 0 | | | | Marathon Oil Company Excess Benefit Plan | | 15.67 | | 1,722,181 | | 0 | | M. K. Stewart | | Retirement Plan of Marathon Oil Company | | 28.42 | | 1,219,022 | | 0 | | | | Marathon Oil Company Excess Benefit Plan | | 28.42 | | 3,876,133 | | 0 | | E. M. Campbell | | Retirement Plan of Marathon Oil Company | | 21.33 | | 899,054 | | 0 | | | | Marathon Oil Company Excess Benefit Plan | | 21.33 | | 2,783,152 | | 0 | | D. E. Roberts, Jr. | | Retirement Plan of Marathon Oil Company | | 6.58 | | 228,661 | | 0 | | | | Marathon Oil Company Excess Benefit Plan | | 6.58 | | 1,769,340 | | 0 | |
(1)
| The number of years of credited service shown in the table represents the number of years the named executive officer has participated in the plan. However, Plan Participation Service, used for the purpose of calculating each participant’s benefit under the legacy final average pay formula was frozen as of December 31, 2009.
| | | (2)
| The present value of accumulated benefits was calculated assuming a discount rate of 3.44 percent, a lump sum interest rate of 0.94 percent, the RP2000 combined healthy mortality table weighted 75 percent male and 25 percent female, a 96 percent lump sum election rate, and retirement at age 62 or the age at measurement date, if older.
|
65
Table of Contents
| | Marathon Oil Retirement Plan
In general, in 2012, all regular full-time and part-time employees were eligible to participate in the Retirement Plan effective as of their date of hire. The monthly benefit under the Retirement Plan was determined under the following formula until December 31, 2009:
| | |
| | | 
| | |
| | | No more than 37.5 years of participation may be recognized under the formula. Effective January 1, 2010, the Retirement Plan was amended so that participants do not accrue additional years of participation. Final average pay is equal to the highest average eligible earnings for three consecutive years in the last ten years before retirement. Eligible earnings under the Retirement Plan primarily include base salary and annual cash bonuses (including 401(k) plan deferrals but excluding amounts deferred under our non-qualified Deferred Compensation Plan). Long-term incentive compensation is not included. Final average pay, vesting service and age will continue to be updated under the legacy formula.
Benefit accruals for years beginning in 2010 are determined under a cash-balance formula. Under the cash-balance formula, each year plan participants receive pay credits equal to a percentage of compensation based on their plan points. Plan points equal the sum of a participant’s age and cash-balance service. Participants with less than 50 points receive a 7 percent pay credit percentage; participants with 50 to 69 points receive a 9 percent pay credit percentage; and participants with 70 or more points receive an 11 percent pay credit percentage.
For 2012, Mr. Cazalot, Ms. Campbell and Mr. Stewart received pay credits equal to 11 percent of compensation as determined under the plans; Ms. Clark, Mr. Roberts and Ms. Kerrigan received pay credits equal to 9 percent of compensation as determined under the plans.
Participants in the Retirement Plan become fully vested upon the completion of three years of vesting service. Normal retirement age for both the cash-balance and final-average-pay benefit formulas is age 65. However, retirement-eligible participants are able to retire and receive an unreduced benefit under the final-average-pay formula after reaching age 62. The forms of benefit available under the Retirement Plan include various annuity options and lump sum distributions.
Participants are eligible for early retirement upon reaching age 50 and completing ten years of vesting service. If an employee retires between the ages of 50 and 62, the amount of benefit under the final average pay formula is reduced such that if the employee retires at age 50, he or she will be entitled to 55 percent of the accrued benefits based on the single-life annuity form of benefit. There are no early retirement subsidies under the cash balance formula. Of the named executive officers, Mr. Cazalot, Ms. Campbell and Mr. Stewart are currently eligible for early retirement benefits under the Retirement Plan.
|
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Table of Contents
| | Marathon Oil Excess Plan
Marathon Oil also sponsors the unfunded, nonqualified Excess Plan for the benefit of a select group of management and highly compensated employees. This plan provides benefits that participants, including our named executive officers, would have otherwise received under our tax-qualified retirement plans but which they did not receive because of Internal Revenue Code limitations. Eligible earnings under the Excess Plan include the items listed above for the Retirement Plan, as well as deferred compensation contributions. The Excess Plan also provides an enhancement for officers based on the three highest bonuses earned during their last ten years of employment, instead of the consecutive bonus formula in place for non-officers. The benefit formula used for non-officers is based on the highest consecutive three-year compensation, including bonuses, earned during the last ten years of employment, which may or may not include the participant’s three highest bonuses. We believe this enhancement is appropriate in light of the greater volatility of officer bonuses. Distributions under the Excess Plan are made following retirement or other separation from service in the form of a lump sum and are consistent with Section 409A of the Internal Revenue Code to the extent required.
We have not granted years of service in addition to the service recognized under the terms of our qualified retirement plans (applicable to a broad-based group of employees) to any named executive officer for purposes of retirement benefit accruals.
|
Nonqualified Deferred Compensation
| | The Nonqualified Deferred Compensation table below shows information about the Company’s nonqualified savings and deferred compensation plans.
|
Name | | Plan Name | | Executive
Contributions in
Last Fiscal
Year(1)
($) | | Registrant
Contributions in
Last Fiscal Year(2)
($) | | Aggregate
Earnings in
Last Fiscal Year
($) | | Aggregate
Withdrawals/
Distributions
($) | | Aggregate Balance
at Last Fiscal Year
End(3)
($) | | | | | | | | | | | | | | | | C. P. Cazalot, Jr. | | Marathon Oil Company Excess Benefit Plan | | 0 | | 0 | | 22,851 | | 0 | | 1,096,871 | | | | | | | | | | | | | | | | | | Marathon Oil Company Deferred Compensation Plan | | 0 | | 292,923 | | 280,716 | | 0 | | 2,026,659 | | | | | | | | | | | | | | | | J. F. Clark | | Marathon Oil Company Deferred Compensation Plan | | 0 | | 100,100 | | 129,574 | | 0 | | 1,526,713 | | | | | | | | | | | | | | | | S. J. Kerrigan | | Marathon Oil Company Excess Benefit Plan | | 0 | | 0 | | 859 | | 0 | | 41,247 | | | | | | | | | | | | | | | | | | Marathon Oil Company Deferred Compensation Plan | | 0 | | 63,337 | | 5,923 | | 0 | | 311,597 | | | | | | | | | | | | | | | | M. K. Stewart | | Marathon Oil Company Excess Benefit Plan | | 0 | | 0 | | 547 | | 0 | | 26,253 | | | | | | | | | | | | | | | | | | Marathon Oil Company Deferred Compensation Plan | | 0 | | 52,500 | | 45,614 | | 0 | | 395,028 | | | | | | | | | | | | | | | | E. M. Campbell | | Marathon Oil Company Excess Benefit Plan | | 0 | | 0 | | 1,865 | | 0 | | 89,542 | | | | | | | | | | | | | | | | | | Marathon Oil Company Deferred Compensation Plan | | 0 | | 52,460 | | 62,264 | | 0 | | 477,862 | | | | | | | | | | | | | | | | D. E. Roberts, Jr. | | Marathon Oil Company Deferred Compensation Plan | | 0 | | 133,673 | | 62,628 | | 0 | | 835,338 | | | | | | | | | | | | | | | |
(1)
| The amounts shown in this column are also included in the salary and bonus columns for 2011 of the Summary Compensation Table on page 58.
| | | (2)
| The amounts shown in this column are also included in the all other compensation column for 2012 of the Summary Compensation Table on page 58.
| | | (3)
| Certain portions of the total for each officer were also reported in the Summary Compensation Tables of our proxy statements in prior years.
|
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Table of Contents
| | We sponsor the Marathon Oil Company Deferred Compensation Plan (the “Deferred Compensation Plan”). The Deferred Compensation Plan is an unfunded, nonqualified plan in which named executive officers may participate. Participants may defer up to 20 percent of their salary and bonus each year. Deferral elections are made in December of each year for amounts to be earned in the following year and are irrevocable. Deferral elections for bonus payments are applied based on the year the bonus is attributed to and not the year the bonus is paid. Participants are fully vested in their deferrals under the plan.
In addition, the Deferred Compensation Plan provides benefits for participants equal to the company matching contributions they would have otherwise received under the tax-qualified Marathon Oil Company Thrift Plan but which they did not receive because of Internal Revenue Code limitations. The Marathon Oil Company Thrift Plan currently provides for company matching contributions of up to 7 percent of eligible earnings. Participants in both the Marathon Oil Company Thrift Plan and the Deferred Compensation Plan are vested in their company matching contributions upon the completion of three years of vesting service.
The investment options available under the Deferred Compensation Plan generally mirror the investment options offered to participants under the Marathon Oil Company Thrift Plan, with the exception of Marathon Oil common stock, which is not an investment option for named executive officers under the Deferred Compensation Plan. All participants in the Deferred Compensation Plan will receive their benefits as a lump sum following separation from service with Marathon Oil.
Prior to January 1, 2006, executive officers who elected not to participate in the Deferred Compensation Plan were eligible to receive defined contribution accruals under the Excess Plan. The defined contribution formula in the Excess Plan is designed to allow eligible employees to receive company matching contributions equal to the amount they would have otherwise received under the tax-qualified Marathon Oil Company Thrift Plan but which they did not receive because of Internal Revenue Code limitations. Participants are vested in these contributions upon the completion of three years of vesting service.
Defined contribution accruals in the Excess Plan are credited with interest equal to that paid in the “Marathon Oil Stable Value Fund” option of the Marathon Oil Company Thrift Plan. The annual rate of return on this option for the year ended December 31, 2012 was 2.13 percent. Distributions from the Excess Plan are paid in the form of a lump sum following the participant’s separation from service with Marathon Oil.
Distributions from all nonqualified deferred compensation plans in which our named executive officers participate are consistent with Section 409A of the Internal Revenue Code to the extent required. As a result, distribution of amounts subject to Section 409A of the Internal Revenue Code will be delayed for six months following retirement or other separation from service where the participant is considered a “specified employee” for purposes of Section 409A.
|
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Table of Contents
Potential Payments upon Termination orcontrol agreements with our NEOs. Rather, we provide an Executive Change in Control Severance Benefits Plan, which is described in more detail below.
RETIREMENT OR SEPARATION Upon retirement or separation, our NEOs are entitled to receive their vested benefits that have accrued under our broad-based and executive benefit programs. For more information see “Post-Employment Benefits” and “Nonqualified Deferred Compensation.” If an NEO retires, meaning the NEO separates employment after attaining age 50 with at least ten years of vesting service, unvested stock options granted prior to July 30, 2014 become immediately vested while unvested stock options granted July 30, 2014 and later are forfeited. Unvested restricted stock awards are forfeited upon retirement (except in the case of mandatory retirement at age 65). Unvested performance units are forfeited upon retirement unless the NEO has worked more than half of the performance period, in which case awards may be vested on a prorated basis at the Committee’s discretion. Of the NEOs, only Mr. Little and Ms. Kerrigan are currently retirement eligible. DEATH OR DISABILITY In the event of death or disability, our NEOs (or the beneficiary or estate, as defined by the plan terms) would be entitled to vested benefits accrued under our broad-based and executive benefits programs. Long-term incentive awards would immediately vest in full upon the death of an NEO, with performance units vesting at the target level. In the event of disability, long-term incentive awards would continue to vest as if the NEO remained actively employed for up to 24 months during the period of disability. CHANGE IN CONTROL To encourage our NEOs to continue their dedication to their assigned duties where a change in control of the Company is under consideration, our Executive Change in Control Severance Benefits Plan (the “Change in Control Plan”) provides certain severance benefits if employment is terminated under certain circumstances following a change in control or during a potential change in control. Under the Change in Control Plan, a change in control will have occurred if: any person not affiliated with Marathon Oil acquires 20% or more of the voting power of our outstanding securities; our Board no longer has a majority comprised of (1) individuals who were directors on the effective date of the plan and (2) new directors (other than directors who join our Board in connection with an election contest) approved by two-thirds of the directors then in office who (a) were directors on the effective date of the plan or (b) were themselves previously approved by our Board in this manner; we merge with another company and, as a result, our stockholders hold less than 50% of the surviving entity’s voting power immediately after the transaction; our stockholders approve a plan of complete liquidation of Marathon Oil; or we sell all or substantially all of our assets.
44 MARATHON OIL | 2016 PROXY STATEMENT
In addition, a potential change in control could occur if any person takes certain actions that could result in a change in control. The definition of a potential change in control for purposes of the Change in Control Plan is complex but, in general, would occur if: Marathon Oil enters into an agreement which could result in a change in control; any person becomes the owner of 15% or more of our common stock; any person or entity publicly announces an intention to take over Marathon Oil; or our Board determines that a potential change in control has occurred. If an NEO is terminated without cause or resigns for good reason following a change in control or during a potential change in control, he or she will be entitled to the following: a cash payment of up to three times the sum of the NEO’s current salary on the termination date plus the average bonus awarded to the NEO in the three years before the termination or change in control (or during the period of employment if less than three years); life and health insurance benefits for up to 36 months after termination, at the lesser of the current cost or the active employee cost; an additional three years of service credit and three years of age credit for purposes of retiree health and life insurance benefits; a cash payment equal to the difference between the amount receivable under our defined contribution plan and the amount which would have been received if the NEO’s savings had been fully vested; a cash payment equal to the actuarial equivalent of the difference between the amounts receivable by the NEO under the final average pay formula in our pension plans and the amounts which would be payable if (a) the NEO had an additional three years of participation service credit, (b) the NEO’s final average pay would be the higher of salary at the time of the change in control event or termination plus his or her highest annual bonus from the preceding three years, (c) for purposes of determining early retirement commencement factors, the NEO had three additional years of vesting service credit and three additional years of age, and (d) the NEO’s pension had been fully vested; and a cash payment equal to the difference between the amount receivable under our defined benefit plan and the amount which would have been received if the NEO’s savings had been fully vested. These benefits are not payable if the termination is for cause or due to mandatory retirement, death, disability or resignation (other than for good reason) by the NEO. The program includes no provisions to reimburse or “gross up” tax obligations following a change in control. Immediately upon a change in control or upon an NEO’s termination of employment during a potential change in control, unvested stock options and restricted stock vest in full. If a change in control occurs prior to the end of a performance period, unvested performance units vest in full as follows: performance units granted prior to 2015 vest at the target level; and performance units granted after 2014 will vest at the applicable performance percentage based on Marathon Oil’s actual relative TSR ending on the day immediately prior to the date of the change of control. The Change in Control Plan will continue in effect during a potential change in control period and for two years after a change in control. We have a policy that our Board will seek stockholder approval or ratification of any severance agreement for a senior executive officer (other than agreements consistent with our 2001 change in control policy, which is
MARATHON OIL | 2016 PROXY STATEMENT 45
reflected in the Change in Control Plan) that generally requires payment of cash severance benefits exceeding 2.99 times a senior executive officer’s salary plus bonus for the prior calendar year. The following tables assume a termination date or change in control date of December 31, 2015, the last business day of 2015. The value of the equity awards (accelerated vesting of restricted stock awards, stock options and performance unit awards) was calculated using the December 31, 2015 closing market price for our common stock ($12.59). The value of performance unit awards assumes that the 2014 and 2015 Performance Units would vest and be paid out at target. Payments upon a Change in Control without Termination of Employment | | | | Name | We have not entered into any employment agreements with our named executive officers that provide for severance or change in control benefits, nor do we have separate severance or change in control agreements with our named executive officers.
Retirement
Our employees are eligible for retirement once they reach age 50 and have ten or more years of vesting service with Marathon Oil. The named executive officers who are currently retirement eligible are Mr. Cazalot, Ms. Campbell and Mr. Stewart.
Upon retirement, our named executive officers are entitled to receive their vested benefits that have accrued under Marathon Oil’s broad-based and executive benefit programs. For more information about the retirement and deferred compensation programs, see pages 65-68.
In addition, upon retirement, unvested stock options for named executive officers would become immediately exercisable according to the grant terms. All outstanding stock appreciation rights were fully vested. Unvested restricted stock awards are forfeited upon retirement (except in the case of mandatory retirement at age 65). For performance units, in the case of retirement where a named executive officer has worked more than half of the performance period, awards may be vested on a prorated basis at the discretion of the Committee.
Death or Disability
In the event of death or disability, our named executive officers would be entitled to the vested benefits they have accrued under Marathon Oil’s broad-based and executive benefits programs. Long-term incentive awards would immediately vest in full upon the death of a named executive officer, with performance units vesting at the target level. In the event of disability, long-term incentive awards would continue to vest as if the named executive officer remained employed for up to 24 months during the period of disability.
Other Termination
No special employment or severance agreements are in place for our named executive officers, except for our Executive Change in Control Severance Benefits Plan, which is described in more detail below. Effective February 1, 2005, we adopted a policy stating that our Board should seek stockholder approval or ratification of severance agreements for senior executive officers (other than agreements consistent with Marathon Oil’s change in control policy adopted in 2001, which is reflected in the Executive Change in Control Severance Benefits Plan) that generally requires payment of cash severance benefits exceeding 2.99 times a senior executive officer’s salary plus bonus for the prior calendar year.
|
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Table of Contents
| | Change in Control
We believe that if a change in control of Marathon Oil is under consideration, our named executive officers should be encouraged to continue their dedication to their assigned duties. For this reason, we have a plan that provides the following severance benefits if a named executive officer’s employment is terminated under certain circumstances following a change in control. Our Executive Change in Control Severance Benefits Plan provides:
·a cash payment of up to three times the sum of the named executive officer’s current salary plus the highest bonus paid in the three years before the termination or change in control;
·life and health insurance benefits for up to 36 months after termination, at the lesser of the current cost or the active employee cost;
·an additional three years of service credit and three years of age credit for purposes of retiree health and life insurance benefits;
·a cash payment equal to the actuarial equivalent of the difference between amounts receivable by the named executive officer under the final average pay formula in our pension plans and those which would be payable if (a) the named executive officer had an additional three years of participation service credit, (b) the named executive officer’s final average pay would be the higher of salary at the time of the change in control event or termination plus his or her highest annual bonus from the preceding three years, (c) for purposes of determining early retirement commencement factors, the named executive officer had three additional years of vesting service credit and three additional years of age, and (d) the named executive officer’s pension had been fully vested;
·a cash payment equal to the difference between amounts receivable under our defined contribution plans and amounts which would have been received if the named executive officer’s savings had been fully vested; and
·a cash payment of the amount necessary to ensure that the payments listed above are not subject to net reduction due to the imposition of federal excise taxes. For officers who are newly hired or first promoted to officer positions on or after October 26, 2011, the program includes no provisions to reimburse or “gross up” tax obligations following a change in control. (Note: None of our named executive officers were hired or first promoted to officer positions as of this date.)
The severance benefits are payable if a named executive officer is terminated or resigns for good reason. However, benefits are not payable if the termination is for cause or due to mandatory retirement, death, disability, or resignation (other than for good reason) by the named executive officer.
|
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Table of Contents
| | In addition, immediately upon a change in control or upon a named executive officer’s termination of employment during a potential change in control, outstanding stock options, stock appreciation rights, and restricted stock would become fully vested. If a change in control occurs prior to the end of a performance period, then outstanding performance units would be fully vested at the target level.
The Executive Change in Control Severance Benefits Plan continues during a potential change in control period and for two years after a change in control.
The definition of a change in control for purposes of the Executive Change in Control Severance Benefits Plan is complex but is summarized as follows. It includes any change in control required to be reported in response to Item 6(e) of Schedule 14A under the Securities Exchange Act of 1934 and provides that a change in control will have occurred if:
·any person not affiliated with Marathon Oil acquires 20 percent or more of the voting power of our outstanding securities;
·our Board no longer has a majority made up of (1) individuals who were directors on the date of the agreements and (2) new directors (other than directors who join our Board in connection with an election contest) approved by two-thirds of the directors then in office who (a) were directors on the date of the agreements or (b) were themselves previously approved by our Board in this manner;
·we merge with another company and, as a result, our stockholders hold less than 50 percent of the voting power of the surviving entity immediately after the transaction;
·our stockholders approve a plan of complete liquidation of Marathon Oil; or
·we sell all or substantially all of our assets.
In addition, if any person takes certain actions that could result in a change in control, a potential change in control will have occurred. The definition of a potential change in control for purposes of the Executive Change in Control Severance Benefits Plan is complex but, in general, a potential change-in-control would occur upon:
·Marathon Oil entering into an agreement which could result in a change in control;
·any person becoming the owner of 15 percent or more of our common stock;
·a public announcement by any person or entity stating an intention to take over Marathon Oil;
·or a determination by our Board that a potential change in control has occurred.
|
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Table of Contents
| | The tables below assume a termination date or change in control date of December 31, 2012, the last business day of the fiscal year. The value of the equity compensation awards (accelerated vesting of restricted stock awards and performance unit awards) were calculated using the 2012 year-end closing market price for our common stock of $30.66. The value of performance unit awards assume that performance units awarded in July 2011 would vest and would be paid out at the target level of $1 per unit.
|
| | Payments upon a Change in Control without Termination of Employment
|
Name
|
| Accelerated Vesting of Long-LTI
Term Incentives |
($) | Mr. Cazalot
Lee M. Tillman | | $13,930,039
| 9,094,645 | Ms. Clark
John R. Sult | | $4,048,690
| 2,576,986 | Ms. Kerrigan
| | $2,370,797
| | Mr. Stewart
| | $1,488,149
| | Ms. Campbell
| | $1,290,046
| |
| | Payments upon a Change in Control and Termination of Employment with Good Reason or by the Company without Cause
|
Change in Control | | | Accelerated
Vesting of LTI
($) | | | Severance
Payment
($) | | | Health &
Welfare
Benefits(1)
($) | | | Retirement
Enhancement(2)
($) | | | Excise Tax
Gross Ups(3)
($) | | | Total
Payments
($) | | | | | | | | | | | | | | | | | | | | | | Mr. Cazalot | | | 13,930,039 | | | 13,200,000 | | | 52,080 | | | 4,168,847 | | | 0 | | | 31,350,966 | | | | | | | | | | | | | | | | | | | | | | Ms. Clark | | | 4,048,690 | | | 5,040,000 | | | 195,975 | | | 3,271,085 | | | 0 | | | 12,555,750 | | | | | | | | | | | | | | | | | | | | | | Ms. Kerrigan | | | 2,370,797 | | | 3,525,000 | | | 347,930 | | | 849,838 | | | 2,407,653 | | | 9,501,218 | | | | | | | | | | | | | | | | | | | | | | Mr. Stewart | | | 1,488,149 | | | 3,000,000 | | | 32,680 | | | 3,293,625 | | | 2,716,777 | | | 10,531,231 | | | | | | | | | | | | | | | | | | | | | | Ms. Campbell | | | 1,290,046 | | | 2,505,000 | | | 60,810 | | | 1,478,567 | | | 0 | | | 5,334,423 | | | | | | | | | | | | | | | | | | | | | |
(1)
| Health and welfare benefits reflect the incremental value of continued coverage and enhanced subsidy for retiree medical coverage assuming an election of employee plus spouse coverage and using the assumptions used for financial reporting purposes under ASC 715.
| | | (2)
| Retirement benefits included in these amounts were calculated using the following assumptions: individual life expectancies using the RP2000 Combined Healthy Table weighted 75 percent male and 25 percent female; a discount rate of 0.75 percent for named executive officers who are retirement eligible (taking into account the additional three years of age and service credit) and 0.75 percent for named executive officers who are not retirement eligible; the current lump sum interest rate for the relevant plans; and a lump sum form of benefit.
| | | (3)
| These amounts include an excise tax gross-up for Mr. Stewart and Ms. Kerrigan for tax imposed under Sections 280G and 4999 of the Internal Revenue Code. This gross-up was calculated using the highest marginal federal individual income tax rate and assuming no state or local income tax because our named executive officers are residents of Texas.
|
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Table of Contents
| | Certain Relationships and Related Person Transactions
| Officers, Directors and Immediate Family
| | During 2012, Marathon Petroleum Timor Gap West Ltd., an indirect wholly-owned subsidiary of Marathon Oil Corporation, received from Peabody (Wilkie Creek) Pty. Ltd., an indirect wholly-owned subsidiary of Peabody Energy Corporation, royalty payments for coal mined in Australia in the amount of $6,550,631. Gregory H. Boyce, a director of our Board, is chairman and chief executive officer of Peabody Energy Corporation.
|
| | |
| | | Policy and Procedures with Respect to Related Person Transactions
| | Our policy with respect to related person transactions contains procedures for monitoring, reviewing, approving or ratifying related person transactions. As stated in the policy, it is the Company’s intent to enter into or ratify related person transactions only when the Board of Directors, acting through the Corporate Governance and Nominating Committee, determines that the related person transaction is in the best interests of the Company and its stockholders.
The material features of the policy and procedures for monitoring, reviewing, approving or ratifying related person transactions are as follows.
· Each director and executive officer is required to submit the following information: (a) a list of his or her immediate family members; (b) for each person listed and, in the case of a director, the person’s employer and job title or brief job description; (c) for each person listed and for the director or executive officer, each firm, corporation or other entity in which such person is a partner or principal or in a similar position or in which such person has a five percent or greater beneficial ownership interest; and (d) for each person listed and for the director or executive officer, each charitable or non-profit organization for which the person is actively involved in fundraising or otherwise serves as a director, trustee or in a similar capacity.
· With respect to five percent owners, the Company is required to create a list, to the extent the information is publicly available, of (a) if the person is an individual, the same information as is requested of directors and executive officers under this policy, and (b) if the person is a firm, corporation or other entity, a list of principals or executive officers of the firm, corporation or entity.
· Prior to entering into a related person transaction (a) the related person, (b) the director, executive officer, nominee or beneficial owner of more than five percent of any class of the Company’s voting securities who is an immediate family member of the related person, or (c) the business unit or department leader responsible for the potential related person transaction, is required to provide the requisite notice containing the facts and circumstances of the proposed related person transaction.
· In the event a related person transaction is pending or ongoing, it is required to be submitted to the committee or Chair, and the committee or Chair is required to consider all of the relevant facts and circumstances available. Based on the conclusions reached, the committee or the Chair is further required to evaluate all options, including ratification, amendment or termination of the related person transaction. If the transaction has been completed, the committee or Chair is required to evaluate the transaction to determine if rescission of the transaction is appropriate.
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| | · At a committee’s meeting in each fiscal year, the committee is required to review any previously approved or ratified related person transactions that remain ongoing and have a remaining term of more than six months or remaining amounts payable to or receivable from the Company of more than $120,000. Based on all relevant facts and circumstances, taking into consideration the Company’s contractual obligations, the committee shall determine if it is in the best interests of the Company and its stockholders to continue, modify or terminate the related person transaction
· No immediate family member of a director or executive officer is permitted to be hired as an employee of the Company unless the employment arrangement is approved by the committee. In the event a person becomes a director or executive officer of the Company and an immediate family member of such person is already an employee of the Company, no material change in the terms of employment, including compensation, may be made without the prior approval of the committee, except if the immediate family member is an executive officer of the Company.
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| | Compensation Policies and Practices for Employees
We offer our employees a competitive pay package that includes base pay, annual cash bonuses and long-term incentives for qualifying employees. We do not believe that our compensation policies or practices for any employees are reasonably likely to have a material adverse effect on Marathon Oil.
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| | Statement Regarding the Delivery of a Single Set of Proxy Materials to Households With Multiple Marathon Oil Stockholders
If you have consented to the delivery of only one set of proxy materials to multiple Marathon Oil stockholders who share your address, then only one proxy statement is being delivered to your household unless we have received contrary instructions from one or more of the stockholders sharing your address. We will deliver promptly upon oral or written request a separate copy of the proxy statement to any stockholder at your address. If you wish to receive a separate copy of the proxy statement, you may call us at (713) 629-6600 (please ask for Investor Relations) or write to us at Marathon Oil Corporation, Investor Relations Office, 5555 San Felipe Street, Houston, Texas, 77056-2701. Stockholders sharing an address who now receive multiple copies of the proxy statement may request delivery of a single copy by calling us at the above number or writing to us at the above address.
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| | Solicitation Statement
We will bear the cost of this solicitation of proxies. In addition to soliciting proxies by mail, our directors, officers and employees may solicit proxies by telephone, in person or by other means. They will not receive any extra compensation for this work. The Company has retained Alliance Advisors to assist with the solicitation of proxies for a fee not to exceed $5,000, plus reimbursement for out-of-pocket expenses. We will also make arrangements with brokerage firms and other custodians, nominees and fiduciaries to forward proxy solicitation material to the beneficial owners of common stock, and we will reimburse them for reasonable out-of-pocket expenses that they incur in connection with forwarding the material.
By order of the Board of Directors,
Sylvia J. Kerrigan Secretary
March 6, 2013
| 2,309,989 | | Lance W. Robertson | 2,271,467 | | T. Mitchell Little | 2,271,467 |
75
Payments upon a Change in Control or Potential Change of Control Followed by Termination of Employment with Good Reason or by the Company without Cause | | | | | | | | | | | Name | Accelerated
Vesting of LTI
($) | Severance
Payment(1)
($) | Health and Welfare Benefits(2)
($) | Retirement
Enhancement(3)
($) | Total
Payments
($) | | Lee M. Tillman | 9,094,645 | 8,521,875 | | 84,400 | 0 | | 17,700,920 | | | John R. Sult | 2,576,986 | 3,942,000 | | 74,619 | 0 | | 6,593,605 | | | Sylvia J. Kerrigan | 2,309,989 | 3,848,379 | | 151,175 | 1,965,321 | | 8,274,864 | | | Lance W. Robertson | 2,271,467 | 3,094,551 | | 81,628 | 0 | | 5,447,646 | | | T. Mitchell Little | 2,271,467 | 2,824,500 | | 142,982 | 1,681,306 | | 6,920,255 | |
(1) Messrs. Tillman and Sult and Ms. Kerrigan are subject to the policy concerning Severance Agreements with Senior Executive Officers that requires payment of cash severance benefits in an amount exceeding 2.99 times the sum of base salary plus previous year’s bonus to be subject to stockholder approval. The amounts shown are maximum amounts, assuming that stockholder approval is obtained. (2) Reflects the incremental value of continued coverage and enhanced subsidy for retiree medical coverage assuming an election based on the officer’s current elections regarding plan participation and coverage level. (3) Retirement benefits included in these amounts were calculated using the following assumptions: individual life expectancies using the RP2000 Combined Healthy Table weighted 75% male and 25% female; a discount rate of 1.00% for NEOs who are retirement eligible (taking into account the additional three years of age and service credit); and a lump sum form of benefit.
46 MARATHON OIL | 2016 PROXY STATEMENT
Table
TRANSACTIONS WITH RELATED PERSONS We have written procedures for monitoring, reviewing, approving or ratifying related person transactions. We will enter into or ratify related person transactions only when the Board, acting through the Corporate Governance and Nominating Committee, determines that the related person transaction is in the best interests of Contentsthe Company and its stockholders. The primary features of these procedures are: Each director and executive officer must submit a list of his or her immediate family members, each listed individual’s employer and job title, each firm, corporation or other entity in which such individual is a partner or principal or in a similar position or in which such person has a five percent or greater beneficial ownership interest, and any charitable or non-profit organization for which such individual is actively involved in fundraising or otherwise serves as a director, trustee or in a similar capacity. The Company maintains a list, to the extent the information is publicly available, of five percent beneficial owners, including (a) if the owner is an individual, the same information requested of directors and executive officers as noted above, and (b) if the owner is a firm, corporation or other entity, a list of principals or executive officers of the firm, corporation or entity. The Corporate Governance and Nominating Committee considers the facts and circumstances of each related person transaction and determines whether to approve it. Any pending or ongoing related person transaction is submitted to the Corporate Governance and Nominating Committee or Committee Chair, which will consider all of the relevant facts and circumstances. Based on the conclusions reached, the Corporate Governance and Nominating Committee or the Committee Chair evaluates all options, including ratification, amendment or termination of the related person transaction. The Corporate Governance and Nominating Committee annually reviews any previously approved or ratified related person transaction with a remaining term of more than six months or remaining amounts payable to or receivable from the Company of more than $120,000. Based on all relevant facts and circumstances, taking into consideration the Company’s contractual obligations, the Committee determines whether it is in the best interests of the Company and its stockholders to continue, modify or terminate the transaction. During 2015, there were no transactions in excess of $120,000 between the Company and a related person in which the related person had a direct or indirect material interest.
MARATHON OIL | 2016APPENDIX I PROXY STATEMENT 47
PROPOSAL 2: RATIFICATION OF INDEPENDENT AUDITOR FOR 2016 Marathon Oil CorporationThe Audit and Finance Committee has selected PricewaterhouseCoopers LLP (“PwC”), an independent registered public accounting firm, to audit the Company’s financial statements and the effectiveness of internal control over financial reporting for 2016. While the Audit and Finance Committee is responsible for appointing, compensating and overseeing the independent auditor’s work, we are requesting, as a matter of good corporate governance, that our stockholders ratify the appointment of PwC as our independent auditor for 2016. PwC served as the Company’s independent auditor during 2015. We believe the appointment of PwC as our independent auditor for 2016 is in the best interests of the Company and our stockholders. We expect representatives of PwC to be present at the Annual Meeting with an opportunity to make a statement if they would like to do so and to be available to respond to appropriate questions from our stockholders. YOUR BOARD RECOMMENDS A VOTE FOR PROPOSAL 2
RATIFYING THE SELECTION OF PRICEWATERHOUSECOOPERS LLP
AS THE COMPANY’S INDEPENDENT AUDITOR FOR 2016. If our stockholders do not ratify this appointment, the Audit and Finance Committee will reconsider whether to retain PwC and may retain that firm or another firm without resubmitting the matter to our stockholders. Even if the appointment is ratified, the Audit and Finance Committee may, in its discretion, direct the appointment of a different independent auditor at any time during the year if it determines that such change would be in the best interests of the Company and our stockholders. Aggregate fees for professional services rendered for the Company by PwC for the years ended December 31, 2015 and 2014 were (in thousands): | | | | | | | | | | 2015 | 2014 | | Audit Fees | $7,036 | |
| $8,513 |
| | | Audit‑Related Fees | 16 | | 17 |
| | | Tax Fees | 365 | | 500 |
| | | All Other Fees | 5 | | 5 |
| | | Total | $7,422 | |
| $9,035 |
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Audit Fees were for professional services rendered for the audit of the consolidated financial statements and audit of internal control over financial reporting of the Company, statutory and regulatory audits, issuance of comfort letters, consents, and assistance with and review of documents filed with the SEC. Audit-Related Fees were for assurance and related services related to employee benefit plan audits, attest services that are not required by statute or regulation, and consultations concerning financial accounting and reporting standards. Tax Fees were for services related to tax compliance, including the preparation of tax returns and claims for refund, and tax planning and tax advice, including assistance with and representation in tax audits and appeals, and requests for rulings or technical advice from tax authorities. All Other Fees were for services rendered for accounting research, internal audit software licenses and other projects. The Audit and Finance Committee reviews and approves the fees and expenses of the independent auditor for audit, audit-related, tax and permissible non-audit services. To assure continuing auditor independence, the Audit and Finance Committee annually reviews the independence of the independent auditors, in addition to assuring
48 MARATHON OIL | 2016 PROXY STATEMENT
the regular rotation of the lead audit partner as required and considering whether there should be a rotation of the independent audit firm itself. In conjunction with the mandated rotation of the lead audit partner, the Audit and Finance Committee and its chairperson are directly involved in the selection of PwC’s lead engagement partner. The Audit and Finance Committee’s PolicyFor
for Pre-Approval of Audit, Audit-Related, Tax and Permissible Non-Audit Services is available at General Purposehttp://www.marathonoil.com/Investor_Center/Corporate_Governance/
To establish. Among other things, this policy sets forth the proceduresprocedure for pre-approval ofthe Audit and Finance Committee to pre-approve all audit, audit-related, tax and permissible non-audit services, other than as provided by Marathon Oil Corporation’s (the “Corporation”) independent auditor.
Policy Statement
In accordance with Section 202 ofunder the Sarbanes-Oxley Act of 2002,de minimus exception. Notwithstanding the de minimus exception, the Committee’s standard practice is to pre-approve all audit, audit-related, tax and permissible non-audit services, to be provided to the Corporation by its independent auditor, require prior approval by theservices. The Audit and Finance Committee (the “Committee”) of the Board before the commencement of such services. Appendices to this policy describe the audit (Appendix A), audit-related (Appendix B), tax (Appendix C) and permissible non-audit (Appendix D) services that shall require prior approval by the Committee.
The Committee may pre-approve any audit, audit-related, tax and permissible non-audit services up to twelve months in advance for the following year.
The Committee may pre-approve services by specific categories pursuant to a forecasted budget.
The Chief Financial Officer (“CFO”) shall present a forecast of audit, audit-related, tax and permissible non-audit services for the following year to the Committee for approval. Throughout said year, on an “as needed” basis, the CFO shall, in coordination with the independent auditor, provide an updated budget of audit, audit-related, tax and permissible non-audit services to the Committee.
The annual audit services engagement terms and fees will be subject to the specific pre-approval of the Committee. The Committee will pre-approve, if necessary, any changes in terms, conditions and fees resulting from changes in audit scope, Corporation structure or other matters. The Committee will also consider and approve as a whole the audit services listed in Appendix A. All audit services not listed on Appendix A must be separately pre-approved by the Committee.
The performance of audit-related services, defined as services reasonably related to the performance of the audit or review of the Corporation’s financial statements and that are traditionally performed by the independent auditor, will not be considered an impairment of the independence of the auditor. The audit-related services listed in Appendix B are expressly pre-approved by the Committee. All other audit-related services not listed on Appendix B must be separately pre-approved by the Committee.
Tax services include services such as tax compliance, tax planning and tax advice. The performance of tax services does not impair the independence of the auditor, and the Committee expressly pre-approves the tax services listed in Appendix C. All tax services not listed on Appendix C must be separately pre-approved by the Committee.
Permissible non-audit services are the services set forth in Appendix D hereto. The performance of permissible non-audit services does not impair the independence of the auditor, and the Committee expressly pre-approves the services listed in Appendix D. All permissible non-audit services not listed on Appendix D must be separately pre-approved by the Committee.
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The Committee may delegate to one or more independent members of the Committee the authority to grant approvals required herein. The decisions of any member to whom authority is delegated to pre-approve an activity hereunder shall be presented to the full Committee at its next regularly scheduled meeting. Pursuant to the above authority, the Committee has delegated pre-approval authority of up to $500,000 to the Audit and Finance Committee Chair of the Committee for unbudgeted items.
The Chair shall report the items pre-approved under this delegation of authority at the next scheduled Committee meeting.The Committee has not delegated to the Corporation’s management any of its responsibilities to approve services performed by the independent auditor.
When requested by the Committee, the independent auditor shall provide detailed supporting documentation for each service provided hereunder.
Policy Application
This policy applies to Marathon Oil Corporation and its wholly or majority owned subsidiaries.
Policy Implementation
The CFO shall coordinate the implementation of this policy.
Policy Exceptions
The requirement for prior approval of permissible non-audit services provided above is waived, provided the following criteria are satisfied:
i.the aggregate amount of all such services provided to the Corporation constitutes not more than 5% of the total amount of revenues paid by the Corporation to the independent auditor during the fiscal year in which the permissible non-audit services are provided;
ii.at the time of engagement with the independent auditor such services were not recognized by the Corporation to be non-audit services; and
iii.such services are promptly brought to the attention of the Committee and approved by the Committee prior to the completion of the audit or by one or more designated members of the Committee to whom authority to grant such approvals has been delegated by the Committee.
Notwithstanding these exceptions, it is the intent of the Committee that standard practice will be to pre-approve all permissible non-audit services.
References
None
Appendix A
Audit Services
The following audit services are subject to pre-approval by the Audit and Finance Committee.
Financial Statement Audit – Statutory audits or financial audits forCommittee pre-approved all the Corporation,fees and subsidiaries and affiliates thereof.
Regulatory Financial Filings – Services related to the Securities Act of 1933 and the Securities Exchange Act of 1934 filings (e.g., registration statements, and current and periodic reports), including issuance of comfort letters, review of documents, consents, and assistance in responding to Securities and Exchange Commission (“SEC”) comment letters.
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Attest Services Required by Statute or Regulation – Attestation services required by statute or regulation including, without limitation, the report on the Corporation’s internal controls as specified in Section 404 of the Sarbanes-Oxley Act of 2002.
Appendix B
Audit-Related Services
The following audit-related services are subject to pre-approval by the Audit and Finance Committee.
Employee Benefit Plan Audits – Audit of pension and other employee benefit plans.
Financial Due Diligence – Assistance in financial due diligence with respect to pre- and post-business combinations or acquisitions, including review of financial statements, financial data and records, and discussions with Corporation or counter-party finance and accounting personnel regarding, among other things, purchase accounting issues.
Application and General Control Reviews – Review of information technology and general controls related to specific applications, including overall general computer controls, excluding those that are a part of the financial statement audit.
Consultations Regarding GAAP – Consultations by the Corporation’s management as to the accounting or disclosure treatment of transactions or events and/or the actual impact of final or proposed rules, standards or interpretations by the SEC, PCAOB, FASB, or other regulatory or standard setting bodies.
Attestation – Attestation and agreed-upon procedures engagements.
Other Audits – Subsidiary, equity investee or other related entity audits or audits of pools of assets not required by statute or regulation that are incremental to the audit of the consolidated financial statements.
Appendix C
Tax Services
The following tax services are subject to pre-approval by the Audit and Finance Committee.
Federal and State Tax Compliance – Preparation and/or review of tax returns, including sales and use tax, excise tax, income tax, and property tax. Consultation regarding applicable handling of items for tax returns, required disclosures, elections, and filing positions available to the Corporation.
International Tax Compliance – Preparation and review of income and local, tax returns. Consultation regarding appropriate handling of items on the returns, required disclosures, elections and filing positions available to the Corporation. Preparation or review of U.S. filing requirements for foreign corporations.
Federal and State Tax Consulting – Assistance with tax audits. Responding to requests from the Corporation’s Tax Organization regarding technical interpretations, applicable laws and regulations, and tax accounting. Tax advice on mergers, acquisitions, and restructurings.
International Tax Consulting – Assistance with tax examinations. Advice on various matters including foreign tax credit, foreign income tax, tax accounting, foreign earnings and profits, U.S. treatment of foreign subsidiary income, excise tax or equivalent taxes in each applicable jurisdiction. Tax advice on restructurings, mergers and acquisitions.
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Transfer Pricing – Advice and assistance with respect to transfer pricing matters, including preparation of reports used by the Corporation to comply with taxing authority documentation requirements regarding inter-company pricing and assistance with tax exemptions.
Customs and Duties – Compliance reviews and advice on compliance in the areas of tariffs and classification, origin, pricing, and documentation. Assistance with customs audits.
Expatriate Tax Services – Preparation of individual income tax returns, advice on impact of changes in local tax laws and consequences of changes in compensation programs or practices.
Appendix D
Permissible Non-Audit Services
The following permissible non-audit services are subject to pre-approval by the Audit and Finance Committee.
· Assistance with preparation of statutory financial statements
· Assistance with filing of statistical information with governmental agencies
· Accounting research software license
Appendix E
Prohibited Services
The independent auditor shall be prohibited from performing the following services for 2015 and 2014, and did not utilize the Corporation:
· Bookkeeping or other services related to the accounting records or financial statements of the Corporation;
· Financial information systems design and implementation;
· Appraisal or valuation services, fairness opinions, or contribution-in-kind reports;
· Actuarial services;
· Internal audit outsourcing services;
· Management functions or human resources function;
· Broker or dealer, investment adviser, or investment banking services;
· Legal services and expert services unrelated to the audit; and
· Any other service that is prohibited by applicable law or regulation or that the Committee determines is impermissible.
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| | Marathon Oil Corporation
5555 San Felipe Street
Houston, TX 77056
| | Proposal 2 | | |
| Signature [PLEASE SIGN WITHIN BOX] Date Signature (Joint Owners) Date THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. KEEP THIS PORTIONFor the reasons stated above, your Board of Directors recommends a vote FOR YOUR RECORDS DETACH AND RETURN THIS PORTION ONLY TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: M53055-P34773-Z59733 For Against Abstain Yes No For Against Abstain Yes No C/O SHAREHOLDER SERVICES P.O. BOX 4813 HOUSTON, TX 77210-4813 VOTE BY INTERNET - www.proxyvote.com Use the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 p.m. EDT on April 23, 2013 for shares held by registered holders directly and 11:59 p.m. EDT on April 21, 2013 for shares held in the Marathon Oil Company Thrift 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. VOTE BY PHONE - 1-800-690-6903 Use any touch-tone telephone to transmit your voting instructions up until 11:59 p.m. EDT on April 23, 2013 for shares held by registered holders directly and 11:59 p.m. EDT on April 21, 2013 for shares held in the Marathon Oil Company Thrift 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 Marathon Oil Corporation, c/o Broadridge Financial Solutions, Inc., 51 Mercedes Way, Edgewood, NY 11717. The Internet and telephone voting facilities will close at 11:59 p.m. EDT on April 23, 2013, for shares held by registered holders directly and at 11:59 p.m. EDT on April 21, 2013, for shares held in the Marathon Oil Company Thrift Plan. MARATHON OIL CORPORATION Please indicate if you plan to attend this meeting. 2. RatificationProposal 2 ratifying of the selection of PricewaterhouseCoopers LLP as our independent auditorthe Company’s Independent Auditor for 2013. 4. Stockholder proposal seeking a report regarding2016.
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MARATHON OIL | 2016 PROXY STATEMENT 49
PROPOSAL 3: ADVISORY VOTE TO APPROVE THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS In accordance with Section 14A of the Exchange Act, and as a matter of good corporate governance, we seek your advisory vote to approve the compensation of our named executive officers as disclosed in this Proxy Statement under “Compensation Discussion and Analysis” and “Executive Compensation.” YOUR BOARD RECOMMENDS A VOTE FOR PROPOSAL 3
APPROVING THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS. Although this vote is non-binding, the Compensation Committee values your opinion and will consider the voting results when making future decisions about executive compensation. Additionally, we believe that constructive dialogue with our stockholders provides meaningful feedback about specific executive compensation practices and programs, and we encourage our stockholders to communicate directly with both management and the Committee about executive compensation. Stockholders may contact the Committee Chair to provide input on executive compensation matters at any time by emailing compchair@marathonoil.com. As described under “Compensation Discussion and Analysis,” the Compensation Committee, comprised entirely of independent directors, has established executive compensation programs that reward both company and individual performance. Our Compensation Committee consistently exercises great care and discipline in determining executive compensation. Executive compensation decisions are made in order to attract, retain and motivate talented executives to deliver business results and long-term value to our stockholders. We currently seek the advisory vote of our stockholders to approve the compensation of our named executive officers on an annual basis and expect that the next such advisory vote will be held at our 2017 Annual Meeting. | | | | Proposal 3 | For the Company's lobbying activities, policies and procedures. 3. Board proposal for a non-binding advisory vote to approve our named executive officer compensation. 1. Election of directors for a one-year term expiring in 2014 Yourreasons stated above, your Board of Directors recommends youa vote “FOR” Items 1a. through 1h. 1g. Michael E.J. Phelps 1f. Philip Lader 1h. Dennis H. Reilley 1a. Gregory H. Boyce 1c. Clarence P. Cazalot, Jr. 1d. Linda Z. Cook 1e. Shirley Ann Jackson 1b. Pierre Brondeau YourFOR Proposal 3 approving the compensation of our Named Executive Officers.
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50 MARATHON OIL | 2016 PROXY STATEMENT
PROPOSAL 4: APPROVAL OF 2016 INCENTIVE COMPENSATION PLAN On February 24, 2016, our Board approved the 2016 Incentive Compensation Plan (the “2016 Plan”) and its submission to the stockholders for their approval. Although a significant number of shares remain available for grant under the 2012 Incentive Compensation Plan (the “2012 Plan”), our Board believes it is appropriate to propose a replacement plan at this time in order to ensure that sufficient shares are available for grants in 2017. In addition, our Board wants to ensure that certain amounts paid to “covered employees” under Section 162(m) of the Internal Revenue Code (the “Code”) are deductible, which requires periodic stockholder approval of incentive compensation plans. If the new 2016 Plan is approved by our stockholders, all granting authority under the 2012 Plan will be revoked and no new grants will be made from the 2012 Plan following the date of stockholder approval. However, outstanding awards under the 2012 Plan would continue to be settled from shares available under that plan. YOUR BOARD RECOMMENDS A VOTE FOR PROPOSAL 4
APPROVING THE 2016 INCENTIVE COMPENSATION PLAN. The following summary of the 2016 Plan is qualified by reference to the full text of the 2016 Plan, which is attached as Appendix A to this Proxy Statement and incorporated by reference into this proposal. The 2016 Plan is not tax-qualified under Section 401(a) of the Code and is not subject to the provisions of the Employee Retirement Income Security Act of 1974, as amended. PURPOSES OF THE 2016 PLAN The primary purposes of the 2016 Plan are to attract and retain employees and non-employee directors with valuable training, experience and ability and to promote the active interests of such persons in the development and financial success of the Company and its subsidiaries. In accordance with these goals, the 2016 Plan is designed to enable employees and non-employee directors to acquire or increase their ownership of our common stock and to compensate employees and non-employee directors for creation of stockholder value. The 2016 Plan enables us to provide variable long-term compensation to our employees and non-employee directors, and our Board believes this further aligns the interests of our employees and non-employee directors with those of our stockholders. AWARD TYPES UNDER THE 2016 PLAN The 2016 Plan authorizes the granting of awards, including shares of our common stock, in any combination of the following: stock options, including incentive stock options and nonqualified stock options; stock appreciation rights (“SARs”); stock awards, restricted stock awards and other awards denominated or paid in common stock; restricted stock units (which may include dividend equivalents); cash awards; and performance awards. MARATHON OIL | 2016 PROXY STATEMENT 51
ELIGIBILITY All employees and non-employee directors of Marathon Oil and its subsidiaries are eligible to receive awards under the 2016 Plan. We expect that awards under the 2016 Plan will generally be granted to our officers, managers and technical and professional employees, as well as to non-employee directors. Given the technical demands of our industry, a broad group of our employees is eligible for, and likely to receive, awards under the 2016 Plan. We anticipate that each non-employee director will receive an annual non-retainer grant of common stock units under the 2016 Plan. All other awards under the 2016 Plan will be granted at the discretion of the committee appointed by our Board to administer the Plan, or by the delegate of such committee pursuant to the terms of the 2016 Plan. Therefore, the total benefits that will be received by any particular person or group under the 2016 Plan are not determinable at this time.
AUTHORIZED SHARES AND LIMITS Subject to stockholder approval, we have reserved a total of 55,000,000 shares of our common stock for issuance in connection with the 2016 Plan. In connection with the granting of a stock award that is not a stock option or SAR, the number of shares of our common stock available for issuance under the 2016 Plan shall be reduced by 2.41 shares of common stock in respect of each share of common stock with respect to which the stock award is granted. As a result, no more than 22,821,576 shares may be used for stock awards other than stock options or SARs. The number of shares authorized to be issued under the 2016 Plan, as well as individual limits and exercise prices, is subject to adjustment for stock dividends, stock splits, recapitalizations, mergers, or similar corporate events. The following limitations apply to any awards made under the 2016 Plan: During any calendar year, no employee may be granted, stock options or SARs that are exercisable for or relate to more than 5,000,000 shares of common stock; During any calendar year, no employee may be granted stock awards or restricted stock unit awards covering or relating to more than 4,000,000 shares of common stock; and For any calendar year, no employee may be granted performance awards consisting of cash having a maximum value determined on the grant date in excess of $30,000,000. HISTORICAL BURN RATES Our burn rate represents the total number of shares of our common stock subject to equity awards (stock options, stock appreciation rights, restricted stock and restricted stock units) granted in a given year divided by the weighted average number of outstanding shares for such year. Our burn rates for 2015, 2014 and 2013 were 0.55%, 0.59% and 0.61%, respectively. Our three-year average burn rate was 0.58%. POTENTIAL DILUTION The maximum number of shares of our common stock that may be issued under the 2016 Plan is 55,000,000, which represents approximately 6.5% of the total number of shares of our common stock outstanding on March 4, 52 MARATHON OIL | 2016 PROXY STATEMENT
2016, excluding treasury shares. This level of dilution is comparable to that of companies in our peer group. The closing price per share of our common stock on March 4, 2016 as reported on the NYSE was $11.00. ADMINISTRATION OF THE 2016 PLAN Our Board will designate one or more committees of directors to determine the types of awards made under the 2016 Plan and to designate the employees and non-employee directors who will receive the awards. Consistent with past practice, we anticipate that the Compensation Committee will oversee administration of the 2016 Plan with respect to awards made to employees, and the Corporate Governance and Nominating Committee will oversee administration of the 2016 with respect to awards made to non-employee directors. The applicable committee has full and exclusive power to administer and interpret the 2016 Plan and may adopt guidelines for administering the 2016 Plan as it deems necessary or proper. The committee also may correct any defect, supply any omission or reconcile any inconsistency in the 2016 Plan or in any award. Any committee decision about the interpretation and administration of the 2016 Plan is within its sole and absolute discretion and is final, conclusive, and binding on all parties concerned. While awards will generally vest over three years, the committee may, in its discretion, extend or accelerate the exercisability of, accelerate the vesting of, or eliminate or make less restrictive any restrictions contained in any award, waive any restriction or other provision of the 2016 Plan or in any award, or otherwise amend or modify any award in a manner that either is not adverse to the participant or is consented to by the participant if the committee determines that such a change is appropriate and in the best interests of the Company. The committee and our Board may delegate to our CEO and other senior officers their authority under the 2016 Plan, as permitted by applicable law. Either may engage third-party administrators to carry out administrative functions under the 2016 Plan. Awards that are stock options or SARs may not be repriced, replaced, or regranted through cancellation or modified without stockholder approval (except if in connection with a change in our capitalization) if the effect would be to reduce the underlying grant price. EMPLOYEE AWARD TERMS All awards to employees under the 2016 Plan are subject to the terms, conditions, and limitations as determined by the committee. Subject to the terms of the 2016 Plan, awards may, in the discretion of the committee, be made in combination with, in replacement of, or as alternatives to, grants under the 2016 Plan or other plans of our Company or subsidiaries, including plans of an acquired entity. A stock option granted to an employee under the 2016 Plan may consist of either an incentive stock option that complies with the requirements of Section 422 of the Code or a nonqualified stock option that does not comply with those requirements. A stock appreciation right, or SAR, may be granted under the 2016 Plan with respect to all or a portion of the shares of common stock subject to a stock option or may be granted separately. All stock options and SARs must have an exercise price per share that is not less than the fair market value of the common stock on the grant date and, subject to certain adjustment provisions of the 2016 Plan that apply upon the occurrence of significant corporate events reflecting a change in our capitalization, the exercise price of an option or SAR may not be decreased. The term of a stock option or SAR cannot be more than ten years after the grant date. MARATHON OIL | 2016 PROXY STATEMENT 53
Stock awards consist of restricted common stock and restricted stock unit awards. Rights to dividends or dividend equivalents, as applicable, may be extended to and made part of any stock award at the committee’s discretion. Stock awards settled in stock that are not performance-based will have a minimum vesting period of three years, but awards may vest incrementally on each anniversary of the grant date over the three-year period. The committee may also determine when and if all, or any portion, of an award may be deferred and may also establish procedures for crediting of interest on deferred awards or dividend equivalents. Consistent with past practice, we anticipate that restricted stock and restricted stock unit awards will generally vest either incrementally on each of the first three anniversaries of the grant date or in full on the third anniversary of grant. Cash awards, which consist of grants denominated in cash, may also be granted to employees under the 2016 Plan. The committee may also establish rules and procedures for the crediting of interest or other earnings on deferred cash payments. Performance awards consist of grants made subject to the attainment of one or more performance goals and may be intended to meet the requirements of qualified performance-based compensation under Section 162(m) of the Code. The goals intended to satisfy Section 162(m) of the Code must be established by the committee prior to the earlier of: (a) 90 days after the commencement of the period of service to which the performance goals relate and (b) the lapse of 25% of the period of service. A performance goal intended to meet the requirements of Section 162(m) of the Code may be based upon one or more business criteria that apply to the employee, one or more business units of the Company, or the Company as a whole, and may include any of the following: revenue and income measures, including revenue, gross margin, income from operations, net income, net sales, earnings per share, earnings before interest, taxes, depreciation and amortization, and economic value added; expense measures, including costs of goods sold, selling, finding and development costs, general and administrative expenses and overhead costs; operating measures,including productivity, operating income, funds from operations, cash from operations, after-tax operating income, market share, margin and sales volumes; cash flow measures, including net cash flow from operating activities and net cash flow before financing activities; liquidity measures, including earnings before or after the effect of certain items such as interest, taxes, depreciation and amortization, and free cash flow; leverage measures, including debt-to-equity ratio and net debt; market measures, including market share, stock price, growth measure, total stockholder return and market capitalization measures; return measures, including return on equity, return on assets and return on invested capital, and which may be risk-adjusted; reserve additions, including reserve replacement ratios; objectively determinable corporate value and sustainability measures, including compliance, safety, environmental and personnel matters; and other measures such as those relating to acquisitions or dispositions, including proceeds from dispositions. Prior to the payment of any performance award based on the achievement of performance goals pursuant to Section 162(m) of the Code, the committee must certify in writing that the applicable performance goals and any material terms were, in fact, satisfied. 54 MARATHON OIL | 2016 PROXY STATEMENT
Under the terms of the 2016 Plan, awards do not automatically vest upon a Change in Control. However, if an employee is terminated during the 24-month period following a Change in Control, his or her awards under the 2016 Plan shall vest. Further, the committee retains discretion to accelerate vesting of awards upon a Change in Control. The committee may also provide for vesting upon death, disability, involuntary termination of employment (e.g., layoff) and retirement. NON-EMPLOYEE DIRECTOR AWARD TERMS All awards to our non-employee directors under the 2016 Plan are subject to the terms, conditions, and limitations as determined by our Board or the committee. Subject to the terms of the 2016 Plan, awards may, in the discretion of the committee, be made in combination or in tandem with, in replacement of, or as alternatives to, grants under the 2016 Plan or other plans of Marathon Oil Corporation or its subsidiaries, including plans of an acquired entity. A stock option granted to a non-employee director under the 2016 Plan may consist of a nonqualified stock option that does not comply with the requirements of Section 422 of the Code. Nonqualified stock options must have an exercise price per share that is not less than the fair market value of the common stock on the grant date and, subject to certain adjustment provisions of the 2016 Plan that apply upon the occurrence of significant corporate events reflecting a change in our capitalization, the exercise price of an option granted under the 2016 Plan may not be decreased. The term of a stock option cannot be more than ten years after the grant date. A stock appreciation right, or SAR, may be granted under the 2016 Plan with respect to all or a portion of the shares of common stock subject to a stock option or may be granted separately. The exercise price of an SAR may not be less than the fair market value of the common stock on the grant date and its term cannot be more than ten years from the grant date. Stock awards consist of restricted common stock and restricted stock unit awards. Restricted stock unit awards consist of awards of units denominated in common stock. Rights to dividends may be extended to and made part of any stock award at the discretion of the committee. Cash awards, which consist of grants denominated in cash, may also be granted to directors under the 2016 Plan. The committee may also establish rules and procedures for the crediting of interest or other earnings on deferred cash payments. Performance awards consist of grants made subject to the attainment of one or more performance goals. Performance awards to non-employee directors are not required to meet the requirements of qualified performance-based compensation under Section 162(m) of the Code. The committee shall determine the terms, conditions, limitations and performance goals with respect to performance awards to our non-employee directors. AMENDMENT OF THE 2016 PLAN The committee or our Board may amend or terminate the 2016 Plan in response to any legal requirements or for any other purpose permitted by law; provided, however, no amendment that would adversely affect the rights of a participant may be made without the participant’s consent, and no amendment may be effective prior to its approval by our stockholders if such approval is required by applicable law. We intend to make awards under the 2016 Plan that comply with, or are exempt from, the requirements of Section 409A of the Code. The 2016 Plan will not be amended in a manner that would cause the 2016 Plan or any amounts payable under the 2016 Plan to fail to comply with the requirements of Section 409A of the Code, to the extent applicable. The provisions of any purported amendment that may reasonably be expected to result in such non-compliance shall be of no force or effect with respect to the 2016 Plan. MARATHON OIL | 2016 PROXY STATEMENT 55
FEDERAL INCOME TAX CONSEQUENCES The following discussion of material U.S. federal income tax consequences to participants in the 2016 Plan who are U.S. citizens or residents is based on U.S. tax law as in effect as of the date of this proxy statement. This discussion is limited, and does not cover state, local, or foreign tax treatment. Differences in participants’ situations may cause tax consequences to vary. Participants will not realize taxable income upon the grant of a nonqualified stock option or SAR. Upon the exercise of a nonqualified stock option, the participant will generally recognize ordinary income in an amount equal to the excess of (a) the fair market value of the common stock over (b) the exercise price paid by the participant for the stock. Upon the exercise of a SAR, the participant will generally recognize ordinary income in an amount equal to the excess of (x) the fair market value of the common stock underlying the SAR over (y) the grant price of the SAR. In the case of our employees, we are required to withhold federal income tax on ordinary income. The participant will generally have a tax basis in any shares of common stock received pursuant to the exercise of a SAR, or pursuant to the exercise of a nonqualified stock option, that equals the fair market value of the shares on the date of exercise. Generally, we will be entitled to a deduction for U.S. federal income tax purposes that corresponds as to timing and amount with the compensation income recognized by the participant. Upon a subsequent sale of the shares received upon exercise of a nonqualified stock option, any difference between the net proceeds on the sale and the fair market value of the shares on the date of exercise will be taxed as capital gain or loss (long- or short-term, depending on the holding period). Incentive stock options can only be granted to employees. An employee will not have taxable income upon the grant of an incentive stock option. To satisfy the employment requirement, a participant must exercise the incentive stock option not later than three months after he or she ceases to be an employee (one year if he or she is disabled). Upon the exercise of an incentive stock option, the employee will not have taxable income, although the excess of the fair market value of the shares of common stock received upon exercise of the incentive stock option over the exercise price will increase the alternative minimum taxable income of the employee, which may cause the employee to incur alternative minimum tax. The payment of any alternative minimum tax due to the exercise of an incentive stock option may be allowed as a credit against the employee’s regular tax liability in a later year. Upon the disposition of stock received upon exercise of an incentive stock option that has been held for the requisite holding period (generally one year from the date of exercise and two years from the grant date), the employee will generally recognize capital gain or loss equal to the difference between the amount received in the disposition and the exercise price paid. However, if an employee disposes of stock that has not been held for the requisite holding period, the employee will recognize ordinary income in the year of such a “disqualifying disposition” to the extent that the fair market value of the stock at the time of exercise of the incentive stock option, or, if less, the amount realized in the case of an arm’s-length disqualifying disposition to an unrelated party, exceeds the exercise price paid by the employee for the stock. The employee will also recognize capital gain, or, depending on the holding period, additional ordinary income, to the extent the amount realized in the disqualifying disposition exceeds the fair market value of the stock on the exercise date. If the exercise price paid for the stock exceeds the amount realized in the disqualifying disposition, in the case of an arm’s-length disposition to an unrelated party, the excess would ordinarily be a capital loss. Stock options otherwise qualifying as incentive stock options will be treated as nonqualified stock options to the extent that the aggregate fair market value of the shares with respect to which incentive stock options are exercisable for the first time by a participant during any calendar year (under all of our plans and any of our subsidiaries’ plans) exceeds $100,000. This rule is applied by taking the stock options into account in the order granted. 56 MARATHON OIL | 2016 PROXY STATEMENT
We are generally not entitled to any federal income tax deduction upon the grant or exercise of an incentive stock option, unless the employee makes a disqualifying disposition of the stock. If an employee makes a disqualifying disposition, we will generally be entitled to a tax deduction that corresponds as to timing and amount with the compensation income recognized by the employee. An employee will recognize ordinary income upon receipt of cash pursuant to a cash award or performance award or, if earlier, at the time the cash is otherwise made available for the employee to draw upon it. A participant will not have taxable income upon the grant of a stock award in the form of units denominated in common stock, but rather will generally recognize ordinary income at the time the participant receives common stock or cash in satisfaction of a stock unit award in an amount equal to the fair market value of the common stock or cash received. In general, a participant will recognize ordinary income as a result of the receipt of common stock pursuant to a stock award or performance award in an amount equal to the fair market value of the common stock when the stock is received; provided, however, that if the stock is not transferable and is subject to a substantial risk of forfeiture when received, the participant will recognize ordinary income in an amount equal to the fair market value of the common stock when it first becomes transferable or is no longer subject to a substantial risk of forfeiture, unless the participant makes an election to be taxed on the fair market value of the common stock when the stock is received. An employee will be subject to tax withholding for federal, and generally for state and local, taxes at the time the employee recognizes income with respect to common stock or cash received pursuant to a cash award, performance award, stock award or stock unit award. Dividends that are received by a participant prior to the time that the common stock is taxed to the participant are taxed as additional compensation, not as dividend income. A participant’s tax basis in the common stock received will equal the amount recognized by the participant as income, and the participant’s holding period in the shares will commence on the date income is recognized. To the extent that a participant recognizes ordinary income in the circumstances described above, the participant’s employer will be entitled to a corresponding deduction provided, among other things, that such deduction meets the test of reasonableness, is an ordinary and necessary business expense, is not disallowed by the $1 million limitation on certain executive compensation and is not an “excess parachute payment” within the meaning of Section 280G of the Code. Section 162(m) of the Code provides that certain compensation received in any year by a “covered employee” in excess of $1 million is non-deductible by the Company for federal income tax purposes. Section 162(m) provides an exception, however, for “performance-based compensation.” The 2016 Plan permits the committee to structure grants and awards made under the 2016 Plan to covered employees as performance-based compensation that is exempt from the limitations of Section 162(m). However, the committee may award compensation that is or may become non-deductible, and expects to consider whether it believes the grants are in the best interest of the Company, balancing tax efficiency with long-term strategic objectives. We intend to make awards under the 2016 Plan that are either not subject to Section 409A of the Code or that comply with the requirements of Section 409A of the Code. Failure to comply with Section 409A of the Code may subject participants to potentially significant tax liabilities, including current taxation at vesting and a 20% additional income tax. MARATHON OIL | 2016 PROXY STATEMENT 57
NEW PLAN BENEFITS All awards under the 2016 Plan will be granted at the discretion of the committee appointed by our Board to administer the Plan, or by the delegate of such committee pursuant to the terms of the 2016 Plan. Therefore, the total benefits that will be received by any particular person or group under the 2016 Plan are not determinable at this time. Therefore, the New Plan Benefits Table is not provided. EQUITY COMPENSATION PLANS TABLE The following table provides information as of December 31, 2015 with respect to shares of Marathon Oil common stock that may be issued under our existing equity compensation plans: 2012 Plan Marathon Oil Corporation 2007 Incentive Compensation Plan (the “2007 Plan”) Marathon Oil Corporation 2003 Incentive Compensation Plan (the “2003 Plan”) Deferred Compensation Plan for Non-Employee Directors | | | | | | | | | Plan category | Number of securities to be issued upon exercise of outstanding options, warrants and rights | | Weighted-average exercise price of outstanding options, warrants and rights (c) | Number of securities remaining available for future issuance under equity compensation plans | | | Equity compensation plans approved by stockholders | 13,721,692 |
| (a) | $29.97 | 30,434,538 | (d) | | Equity compensation plans not approved by stockholders | 12,291 |
| (b) | N/A | 0 | | | Total | 13,733,983 |
| | N/A | 30,434,538 | |
(a) Includes the following: 3,513,104 stock options outstanding under the 2012 Plan; 8,479,140 stock options outstanding under the 2007 Plan; 673,175 stock options outstanding under the 2003 Plan; 300,631 common stock units that have been credited to non-employee directors pursuant to the non-employee director deferred compensation program and the annual director stock award program established under the 2012 Plan, 2007 Plan and 2003 Plan; common stock units credited under the 2012 Plan, 2007 Plan and 2003 Plan were 103,123, 163,513 and 33,995, respectively; 755,642 restricted stock units granted to non-officers under the 2012 Plan and 2007 Plan and outstanding as of December 31, 2015. (b) Reflects awards of common stock units made to non-employee directors under the Deferred Compensation Plan for Non-Employee Directors prior to April 30, 2003. (c) The weighted-average exercise prices do not take the restricted stock units or common stock units into account as these awards have no exercise price. 58 MARATHON OIL | 2016 PROXY STATEMENT
(d) Reflects the shares available for issuance under the 2012 Plan. No more than 12,628,439 of these shares may be issued for awards other than stock options or stock appreciation rights. In addition, shares related to grants that are forfeited, terminated, canceled or expire unexercised shall again immediately become available for issuance. The Deferred Compensation Plan for Non-Employee Directors is our only equity compensation plan that has not been approved by our stockholders. Our authority to make additional equity grants under this plan was terminated effective April 30, 2003; however, new grants to directors under other plans continue to be administered and record-kept under this plan. The ongoing value of each common stock unit equals the market price of a share of our common stock. When the non-employee director leaves the Board, he or she is issued actual shares of our common stock equal to the number of common stock units in his or her account on the distribution date specified under the terms of the plan. EFFECTIVE DATE OF THE 2016 PLAN Subject to stockholder approval, the 2016 Plan will be effective as of the date of the annual meeting on May 25, 2016, and no grants have been, or will be, made under the Plan prior to that date. | | | | Proposal 4 | For the reasons stated above, your Board of Directors recommends youa vote “FOR” Item 2 Your Board of Directors recommends you vote “FOR” Item 3 Your Board of Directors recommends you vote “AGAINST” ItemFOR Proposal 4 Please indicate if you wish to view meeting materials electronically viaapproving the Internet rather than receiving a hard copy; please note that you will continue to receive a proxy card for voting purposes only. NOMINEES:2016 Incentive Compensation Plan. | | þ |
By order of the Board of Directors, Sylvia J. Kerrigan Executive Vice President, General Counsel and Secretary April 7, 2016 Houston, Texas Your vote is very important – please vote promptly. 
| M53056-P34773-Z59733 Important Notice Regarding Internet Availability of Proxy Materials for the Annual Meeting: The 2013 Notice of Annual Meeting of Stockholders and Proxy Statement, and the Letter to Stockholders and 2012 Annual Report on Form 10-K are available at www.proxyvote.com. 2013 ANNUAL MEETING OF STOCKHOLDERS ATTENDANCE CARD You are cordially invited to attend the Annual Meeting of Stockholders on Wednesday, April 24, 2013. The Meeting will be held in the Conference Center AuditoriumMARATHON OIL | 2016 PROXY STATEMENT 59
APPENDIX A — MARATHON OIL CORPORATION 2016 INCENTIVE COMPENSATION PLAN
A - 1 MARATHON OIL | 2016 PROXY STATEMENT
MARATHON OIL CORPORATION 2016 INCENTIVE COMPENSATION PLAN Effective May 25, 2016, upon stockholder approval, Marathon Oil Corporation, a Delaware corporation (the “Corporation”), hereby establishes the Marathon Oil Corporation 2016 Incentive Compensation Plan (the “Plan”). 1. Purpose. This Plan was adopted by the Corporation to provide certain Employees and Non-Employee Directors with cash benefits and to enable them to acquire shares of Common Stock. The purpose of the Plan is to further the interests of the Corporation, its Subsidiaries and its stockholders by providing incentives in the form of Awards to Employees and Non-Employee Directors who can contribute to the profitability and success of the Corporation and its Subsidiaries. Such Awards will recognize and reward performance and individual contributions of Participants in the Plan and give such Participants an interest in the Corporation that enhances their proprietary and personal interest in the continued success and progress of the Corporation. The Plan will also enable the Corporation and its Subsidiaries to attract and retain such Employees and Non-Employee Directors. 2. Definitions. As used herein, the terms set forth below shall have the following respective meanings: “Award” means an Employee Award or a Director Award. “Award Agreement” means an Employee Award Agreement or a Director Award Agreement. The Committee may, in its discretion, require that the Participant execute or otherwise assent to such Award Agreement (including by electronic means), or may provide for procedures through which Award Agreements are made available but not executed. Unless otherwise provided in the Award Agreement, any Participant who is granted an Award and who does not affirmatively reject the applicable Award Agreement shall be deemed to have accepted the terms of Award as stated in the Award Agreement. “Board” means the board of directors of the Corporation. “Cash Award” means an Award denominated in cash. “Code” means the Internal Revenue Code of 1986, as amended from time to time. “Change in Control” means a change in control of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended, whether or not the Corporation is then subject to such reporting requirement; provided, that, without limitation, such a change in control shall be deemed to have occurred if: (i) any person (as defined in Sections 13(d) and 14(d) of the Exchange Act) (a “Person”) is or becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Corporation (not including in the amount of the securities beneficially owned by such person any such securities acquired directly from the Corporation or its affiliates) representing twenty percent (20%) or more of the combined voting power of the Corporation’s then outstanding voting securities; provided, however, that for purposes of this Plan the term “Person” shall not include (A) the Corporation or any of its Subsidiaries, (B) a trustee or other fiduciary holding securities under an employee benefit plan of the Corporation or any of its Subsidiaries, (C) an underwriter temporarily holding securities pursuant to an offering of such securities, or (D) a corporation owned, directly or indirectly, by the stockholders of the Corporation in substantially the same proportions as their ownership of stock of the Corporation; and provided, further, however, that for purposes of this paragraph (i), there shall be excluded any Person who becomes such a beneficial owner in connection with an Excluded Transaction (as defined in paragraph (iii) below);
MARATHON OIL | 2016 PROXY STATEMENT A - 2
(ii) the following individuals cease for any reason to constitute a majority of the number of Directors then serving: individuals who, on the date hereof, constitute the Board and any new Director (other than a Director whose initial assumption of office is in connection with an actual or threatened election contest including but not limited to a consent solicitation, relating to the election of Directors of the Corporation) whose appointment or election by the Board or nomination for election by the Corporation’s stockholders was approved or recommended by a vote of at least two-thirds (2/3) of the Directors then still in office who either were Directors on the date this Plan became effective or whose appointment, election or nomination for election was previously so approved; or (iii) there is consummated a merger or consolidation of the Corporation or any direct or indirect subsidiary thereof with any other corporation, other than a merger or consolidation (an “Excluded Transaction”) which would result in the holders of the voting securities of the Corporation outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving corporation or any parent thereof) at least 50% of the combined voting power of the voting securities of the entity surviving the merger or consolidation (or the parent of such surviving entity) immediately after such merger or consolidation, or the stockholders of the Corporation approve a plan of complete liquidation of the Corporation, or there is consummated the sale or other disposition of all or substantially all of the Corporation’s assets. Notwithstanding any other provision to the contrary, in no event shall the transfer of ownership interests in the Corporation in and of itself constitute a Change in Control under this Award Agreement. “Committee” means (i) with respect to awards to Employees, the Compensation Committee of the Board, and any successor committee to the Compensation Committee of the Board and (ii) with respect to awards to Non-Employee Directors, the Corporate Governance & Nominating Committee of the Board and any successor to the Corporate Governance & Nominating Committee of the Board, or (iii) such other committee of the Board, including but not limited to the full Board, as may be designated by the Board to administer this Plan in whole or in part. “Common Stock” means the common stock, par value $1.00 per share, of the Corporation. “Corporation” has the meaning set forth in the Recitals. “Covered Officer” means a “covered employee” within the meaning of Section 162(m)(3) or any other executive officer designated by the Committee for purposes of exempting compensation payable under this Plan from the deduction limitations of Section 162(m). “Director” means an individual serving as a member of the Board. “Director Award” means any Option, SAR, Stock Award, Cash Award or Performance Award granted, whether singly, in combination, or in tandem, to a Participant who is a Non-Employee Director pursuant to such applicable terms, conditions and limitations as the Committee may establish in order to fulfill the objectives of this Plan. “Director Award Agreement” means one or more documents (in written or electronic form) setting forth the terms, conditions and limitations applicable to a Director Award. “Disability” means, with respect to a Participant, that such Participant either (i) has been determined to be disabled under any long term disability plan that the Corporation or a Subsidiary sponsors or maintains or to which the Corporation or a Subsidiary contributes, or (ii) can provide proof of a Social Security determination of disability or a determination of disability by an analogous non-U.S. governmental agency, if applicable.
A - 3 MARATHON OIL | 2016 PROXY STATEMENT
“Dividend Equivalents” means, with respect to Restricted Stock Units or shares of Restricted Stock that are to be issued at the end of the Restriction Period, an amount equal to all dividends and other distributions (or the economic equivalent thereof) that are payable to stockholders of record during the Restriction Period on a like number of shares of Common Stock. “Employee” means an employee of the Corporation or any of the Corporation’s Subsidiaries or an individual who has agreed to become an employee of the Corporation or any of the Corporation’s Subsidiariesand actually becomes or is expected to become such an employee within the following six months. “Employee Award” means any Option, SAR, Stock Award, Cash Award or Performance Award granted, whether singly, in combination, or in tandem, to a Participant who is an Employee pursuant to such applicable terms, conditions and limitations as may be established in order to fulfill the objectives of this Plan. “Employee Award Agreement” means one or more documents (in written or electronic form) setting forth the terms, conditions and limitations applicable to an Employee Award. “Exchange Act” means the Securities Exchange Act of 1934, as amended from time to time. “Fair Market Value” of a share of Common Stock means, as of a particular date: (i) if shares of Common Stock are listed on a national securities exchange, the closing price per share of the Common Stock, as reported on theconsolidated transaction reporting system for the principal national securities exchange on which shares of Common Stock are listed, or, if there shall have been no such reported prices for that date, the reported closing price on the last preceding date on which a closing price for shares of Common Stock was reported; or (ii) if shares of Common Stock are no longer so listed but are publicly traded, the mean between the closing bid and asked prices on such date (or the last preceding date for which bid and asked prices are reported by Pink OTC Markets Inc.); or (iii) if the shares of Common Stock cease to be readily tradable on an established securities market, Fair Market Value shall be determined by reasonable application of a reasonable valuation method selected by the Committee, which valuation method shall take into account the requirements of Section 409A. “Grant Date” means the later of (i) the date on which an Award is granted to a Participant or (ii) the effective date of the Award, in the case of a Committee action or other granting action that specifies that an Award shall be granted as of a future effective date. “Grant Price” means the price at which a Participant may exercise an Option, SAR or other right to receive cash or Common Stock, as applicable, under the terms of an Award. “Incentive Stock Option” means an Option that is intended to comply with the requirements set forth in Section 422 of the Code. “Non-Employee Director” means an individual serving as a member of the Board who is not an Employee. “Non-Qualified Option” means an Option that is not intended to comply with the requirements set forth in Section 422 of the Code. “Option” means a right to purchase a specified number of shares of Common Stock at a specified Grant Price. “Participant” means an Employee or a Non-Employee Director to whom an Award has been granted under this Plan. “Performance Award” means an award made pursuant to this Plan to a Participant, which Award is subject to the attainment of one or more Performance Goals.
MARATHON OIL | 2016 PROXY STATEMENT A - 4
“Performance Goal” means a standard established by the Committee, to determine in whole or in part whether a Performance Award shall be earned. “Plan” has the meaning set forth in the Recitals. “Restricted Stock” means any Common Stock that is restricted or subject to forfeiture provisions. “Restricted Stock Unit” means a Stock Unit that is restricted or subject to forfeiture provisions. “Restriction Period” means a period of time beginning as of the Grant Date of an Award of Restricted Stock or Restricted Stock Units and ending as of the date upon which the Common Stock subject to such Award is issued (if not previously issued) and no longer restricted or subject to forfeiture provisions. “Retirement” means termination of employment with the Corporation or its Subsidiaries after a Participant is (i) eligible for retirement under the Retirement Plan of Marathon Oil Company or (ii) has attained age 50 and completed ten consecutive years of employment with the Corporation and its Subsidiaries; provided, however, that for Participants who work outside of the U.S. and who are not on a U.S. payroll at the time of Retirement that Retirement may be determined in accordance with the established practice of the Subsidiary that employs the Participant. “Section 162(m)” means Section 162(m) of the Code and any Treasury Regulations and guidance promulgated thereunder. “Section 409A” means Section 409A of the Code and any Treasury Regulations and guidance promulgated thereunder. “Separation from Service,” unless otherwise defined by the Committee in an Award Agreement, shall have the same meaning as set forth under Section 409A with respect to the Corporation and each related company or business which is part of the same controlled group under Sections 414(b) or 414(c) of the Code; provided that in applying Section 1563(a)(1) – (a)(3) of the Code for purposes of determining a controlled group of corporations under Section 414(b) of the Code and in applying Treasury Regulation Section 1.414(c)-2 for purposes of determining whether trades or businesses are under common control under Section 414(c) of the Code, the phrase “at least 50 percent” is used instead of “at least 80 percent.” “Stock Appreciation Right” or “SAR” means a right to receive a payment, in cash or Common Stock, equal to the excess of the Fair Market Value or other specified valuation of a specified number of shares of Common Stock on the date the right is exercised over a specified Grant Price, in each case, as determined by the Committee. “Stock Award” means an Award in the form of shares of Common Stock or Stock Units, including an award of Restricted Stock or Restricted Stock Units. “Stock Unit” means a unit evidencing the right to receive in specified circumstances one share of Common Stock or equivalent value (as determined by the Committee). “Subsidiary” means (i) in the case of a corporation, any corporation of which the Corporation directly or indirectly owns shares representing 50% or more of the combined voting power of the shares of all classes or series of capital stock of such corporation which have the right to vote generally on matters submitted to a vote of the stockholders of such corporation, (ii) in the case of a partnership or other business entity not organized as a corporation, any such business entity of which the Corporation directly or indirectly owns 50% or more of the voting, capital, or profits interests (whether in the form of partnership interests, membership interests or otherwise), and (iii) any other corporation, partnership or other entity that is a “subsidiary” of the Corporation
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within the meaning of Rule 405 promulgated by the Securities and Exchange Commission under the Securities Act of 1933, as amended. 3. Eligibility. All Employees and Non-Employee Directors are eligible for the grant of Awards under this Plan in the sole discretion of the Committee; provided, however, that no Employee or Non-Employee Director who owns directly or indirectly stock possessing more than five percent (5%) of the total combined voting power or value of all classes of stock of the Corporation or any Subsidiary is eligible for the grant of Awards under this Plan. 4. Common Stock Available for Awards. Subject to the provisions of Section 13 hereof, there shall be available for Awards under this Plan granted wholly or partly in Common Stock (including Options or SARs that may be exercised for or settled in Common Stock) an aggregate of 55,000,000 shares of Common Stock. (a) In connection with the granting of an Option or SAR, the number of shares of Common Stock available for issuance under this Plan shall be reduced by the number of shares of Common Stock in respect of which the Option or SAR is granted or denominated. For example, upon the grant of stock-settled SARs, the number of shares of Common Stock available for issuance under this Plan shall be reduced by the full number of SARs granted, and the number of shares of Common Stock available for issuance under this Plan shall not thereafter be increased upon the exercise of the SARs and settlement in shares of Common Stock, even if the actual number of shares of Common Stock delivered in settlement of the SARs is less than the full number of SARs exercised. In connection with the granting of a Stock Award that is not an Option or SAR, the number of shares of Common Stock available for issuance under this Plan shall be reduced by a number of shares of Common Stock equal to the product of (i) the number of shares of Common Stock in respect of which the Stock Award is granted and (ii) 2.41. However, Awards that by their terms do not permit settlement in shares of Common Stock shall not reduce the number of shares of Common Stock available for issuance under this Plan. (b) Any shares of Common Stock that are tendered by a Participant or withheld as full or partial payment of withholding or other taxes or as payment for the exercise or conversion price of an Award under this Plan shall not be added back to the number of shares of Common Stock available for issuance under this Plan. Similarly, shares repurchased by the Corporation using the proceeds from exercise of Options or SARs shall not be added back to the number of shares of Common Stock available for issuance under this Plan. (c) Whenever any outstanding Option or other Award (or portion thereof) expires, is cancelled or forfeited or is otherwise terminated for any reason without having been exercised or payment having been made in the form of shares of Common Stock, the number of shares of Common Stock available for issuance under this Plan shall be increased by the number of shares of Common Stock allocable to the expired, forfeited, cancelled or otherwise terminated Option or other Award (or portion thereof), which amount shall reflect any adjustment made in the second to last sentence of paragraph (a) of this Section 4. To the extent that any Award is forfeited, or any Option or SAR terminates, expires or lapses without being exercised, the shares of Common Stock subject to such Awards will not be counted as shares delivered under this Plan. (d) Shares of Common Stock delivered under the Plan in settlement of an Award issued or made (i) upon the assumption, substitution, conversion or replacement of outstanding awards under a plan or arrangement of an acquired entity or (ii) as a post-transaction grant under such a plan or arrangement of an acquired entity shall not reduce or be counted against the maximum number of shares of Common Stock available for delivery under the Plan, to the extent that an exemption from the stockholder approval requirements for equity compensation plans applies under the rules or listing standards of the principal national securities exchange on which the Common Stock is listed. (e) Awards valued by reference to Common Stock that may be settled in equivalent cash value will count as shares of Common Stock delivered to the same extent as if the Award were settled in shares of Common Stock.
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Consistent with the requirements specified above in this Section 4, the Committee may, from time, to time adopt and observe such procedures concerning the counting of shares against this Plan maximum as it may deem appropriate, including rules more restrictive than those set forth above to the extent necessary to satisfy the requirements of any national securities exchange on which the Common Stock is listed or any applicable regulatory requirement. The Committee and the appropriate officers of the Corporation shall be authorized to, from time to time, take all such actions as any of them may determine are necessary or appropriate to file any documents with governmental authorities, stock exchanges and transaction reporting systems as may be required to ensure that shares of Common Stock are available for issuance pursuant to Awards. 5. Administration. (a) Authority of the Committee. This Plan shall be administered by the Committee, which shall have the powers vested in it by the terms of this Plan. Subject to the provisions of this Plan, the Committee shall have full and exclusive power and authority to interpret and administer this Plan and to take all actions that are specifically contemplated hereby or are necessary or appropriate in connection with the administration hereof; such powers to include the authority (within the limitations described in this Plan): to select the Participants to be granted Awards under this Plan; to determine the terms of Awards to be made to each Participant; to determine the time when Awards are to be granted and any conditions that must be satisfied before an Award is granted; to establish objectives and conditions for earning Awards; to determine the terms and conditions of Award Agreements (which shall not be inconsistent with this Plan) and which parties must sign each Award Agreement; to determine whether the conditions for earning an Award have been met and whether a Performance Award will be paid at the end of an applicable performance period; except as otherwise provided in Sections 7(a) and 11, to modify the terms of Awards made under this Plan; to determine if, when and under what conditions payment of all or any part of an Award may be deferred; to determine whether the amount or payment of an Award should be reduced or eliminated; and to determine the guidelines and/or procedures for the payment or exercise of Awards. The Committee may correct any defect or supply any omission or reconcile any inconsistency in this Plan or in any Award in the manner and to the extent the Committee deems necessary or desirable to further the objectives of this Plan. Any decision of the Committee in the interpretation and administration of this Plan shall lie within its sole discretion and shall be final, conclusive and binding on all parties concerned. All decisions and selections made by the Committee pursuant to the provisions of the Plan shall be made by a majority of its members unless subject to the Committee’s delegation of authority pursuant to Section 6. (b) Limitation of Liability. No member of the Committee or officer of the Corporation to whom the Committee has delegated authority in accordance with the provisions of Section 6 of this Plan shall be liable for any act or omission to be done by him or her, by any member of the Committee or by any officer of the
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Corporation in connection with the performance of any duties under this Plan, except for his or her own willful misconduct or as expressly provided by statute. (c) Prohibition on Repricing of Awards. No Option or SAR may be repriced, replaced, regranted through cancellation or modified without stockholder approval (except as contemplated in Section 13 hereof), if the effect would be to reduce the exercise price for the shares underlying such Option or SAR. If an Option or SAR is cancelled in exchange for a payment (whether of cash or property), then such payment shall not exceed the fair market value of such Award, which in the case of an Option or SAR shall be the excess, if any, of the Fair Market Value of Common Stock (determined as of the effective date of the cancellation) over the Grant Price of such Award. 6. Delegation of Authority. Except with respect to matters related to Awards to Covered Officers or other Awards intended to qualify as qualified performance-based compensation under Section 162(m), the Committee may delegate to the Chief Executive Officer and to other senior officers of the Corporation or to such other committee of the Board its duties under this Plan pursuant to such conditions or limitations as the Committee may establish. The Committee hereby delegates responsibility and authority for orderly administration of the Plan, including but not limited to, engaging third party administrators or other service providers as necessary or appropriate, maintenance of Award Agreements and other relevant files or records related to Awards or taxation of Awards, and all such actions as may be required under Section 10 to satisfy tax withholding or other legal or regulatory requirements, to the to the Chief Executive Officer and to other senior officers of the Corporation. 7. Awards. (a) The Committee shall determine the type or types of Awards to be made under this Plan and shall designate the Participants who are to be the recipients of such Awards. Each Award shall be embodied in an Award Agreement, which shall contain such terms, conditions and limitations as shall be determined by the Committee in its sole discretion. Awards may consist of those listed in this Section 7(a). Subject to Section 5(c) hereof, Awards may also be made in combination or in tandem with, in replacement of, or as alternatives to, grants or rights under this Plan or any other plan of the Corporation or any of its Subsidiaries, including the plan of any acquired entity. No Option may include provisions that “reload” the option upon exercise or that extend the term of an Option beyond what is the maximum periodis specified in the Plan or Award Agreement. All or part of an Award may be subject to conditions established by the Committee, which may include, but are not limited to, continuous service with the Corporation and its Subsidiaries or achievement of specific Performance Goals. Upon the termination of employment or service as a Non-Employee Director by a Participant, any unexercised, deferred, unvested or unpaid Awards shall be treated as set forth in the applicable Award Agreement. Subject to the provisions below applicable to each type of Award, the terms, conditions and limitations applicable to any Awards shall be determined by the Committee. (i) Option. An Award may be in the form of an Option. An Option awarded pursuant to this Plan may be an Incentive Option or a Non-Qualified Option and will be designated accordingly at the time of grant. The Grant Price of an Option shall be not less than the Fair Market Value of the Common Stock on the date of grant. The term of an Option shall not exceed ten years from the date of grant. (ii) Stock Appreciation Right. An Award may be in the form of a Stock Appreciation Right. The Grant Price for a Stock Appreciation Right shall not be less than the Fair Market Value of the Common Stock on the Grant Date. The term of a Stock Appreciation Right shall not exceed ten years from the date of grant. (iii) Stock Award. An Award may be in the form of a Stock Award. Any Stock Award which is not a Performance Award shall have a minimum Restriction Period of three years from the Grant Date, provided that (i) the Committee may provide for earlier vesting as permitted under Section 13 hereof, (ii) vesting of a Stock Award may occur incrementally on each anniversary of the grant date over the three-year minimum Restricted Period,
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and (iii) a one-year minimum Restriction Period shall apply to a Stock Award that is granted in lieu of any salary, bonus or other cash compensation. (iv) Cash Awards. An Award may be in the form of a Cash Award. (v) Performance Award. Without limiting the type or number of Awards that may be made under the other provisions of this Plan, an Award may be in the form of a Performance Award. Any Stock Award which is a Performance Award shall have a minimum Restriction Period of one year from the date of grant, provided that the Committee may provide for earlier vesting as permitted under Section 13 hereof. The Committee shall set Performance Goals in its sole discretion which, depending on the extent to which they are met, will determine the value and/or amount of Performance Awards that will be paid out to the Participant or the portion of an Award that may be exercised. A.Non-Qualified Performance Awards. Performance Awards granted to Employees that are not intended to qualify as qualified performance-based compensation under Section 162(m) , or that are Options or SARs, shall be based on achievement of such Performance Goals and be subject to such terms, conditions and restrictions as the Committee or its delegate shall determine. B.Qualified Performance Awards. Performance Awards other than Options or SARs that are intended to qualify as qualified performance-based compensation under Section 162(m) shall be paid, vested or otherwise deliverable solely on account of the attainment of one or more pre-established, objective Performance Goals established and administered by the Committee in accordance with Section 162(m) prior to the earlier to occur of (x) 90 days after the commencement of the period of service to which the Performance Goal relates and (y) the lapse of 25% of the period of service (as scheduled in good faith at the time the goal is established), and in any event while the outcome is substantially uncertain. Such a Performance Goal may be based on one or more business criteria that apply to a Participant, one or more business units, divisions or sectors of the Corporation, or the Corporation as a whole, and if so desired by the Committee, by comparison with a peer group of companies. A Performance Goal may include one or more of the following and need not be the same for each Participant: revenue and income measures (which include revenue, gross margin, income from operations, net income, net sales, earnings per share, earnings before interest, taxes, depreciation and amortization (“EBIDTA”), and economic value added (“EVA”); expense measures (which include costs of goods sold, selling, finding and development costs, general and administrative expenses and overhead costs); operating measures (which include productivity, operating income, funds from operations, cash from operations, after-tax operating income, market share, margin and sales volumes); cash flow measures (which include net cash flow from operating activities and net cash flow before financing activities); liquidity measures (which include earnings before or after the effect of certain items such as interest, taxes, depreciation and amortization, and free cash flow); leverage measures (which include debt-to-equity ratio and net debt); market measures (which include market share, stock price, growth measure, total stockholder return and market capitalization measures); return measures (which include return on equity, return on assets and return on invested capital, and which may be risk-adjusted);
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reserve additions (which include reserve replacement ratios); corporate value and sustainability measures which may be objectively determined (which include compliance, safety, environmental and personnel matters); and other measures such as those relating to acquisitions or dispositions (which include proceeds from dispositions). Unless otherwise stated, such a Performance Goal need not be based upon an increase or positive result under a particular business criterion and could include, for example, maintaining the status quo, performance relative to a peer group determined by the Committee or limiting economic losses (measured, in each case, by reference to specific business criteria). In interpreting Plan provisions applicable to Performance Goals and qualified Performance Awards, it is the intent of this Plan to conform with Section 162(m), including, without limitation, Treasury Regulation §1.162-27(e)(2)(i), as to grants pursuant to this subsection and the Committee in establishing such goals and interpreting the Plan shall be guided by such provisions. (b) Notwithstanding anything to the contrary contained in this Plan, no Participant may be granted, during any one-year period, Awards collectively consisting of (i) Options or Stock Appreciation Rights that are exercisable for more than 5,000,000 shares of Common Stock, or (ii) Stock Awards covering or relating to, more than 4,000,000 shares of Common Stock (these limitations referred to as the “Stock Based Awards Limitations”). No Plan Participant who is an employee may be granted Awards consisting of cash (including Cash Awards that are granted as Performance Awards) in respect of any calendar year having a value determined on the Grant Date in excess of $30,000,000. 8. Award Payment; Dividends; Substitution; Fractional Shares. (a) General. Payment of Awards may be made in the form of cash or Common Stock, or a combination thereof, and may include such restrictions as the Committee shall determine, including, in the case of Common Stock, restrictions on transfer and forfeiture provisions. If payment of an Award is made in the form of Restricted Stock, the applicable Award Agreement relating to such shares shall specify whether they are to be issued at the beginning or end of the Restriction Period. In the event that shares of Restricted Stock are to be issued at the beginning of the Restriction Period, the certificates evidencing such shares (to the extent that such shares are so evidenced) shall contain appropriate legends and restrictions that describe the terms and conditions of the restrictions applicable thereto. (b) Dividends and Interest. Rights to dividends or Dividend Equivalents may be extended to and made part of any Award, subject to such terms, conditions and restrictions as the Committee may establish. No rights to dividends or Dividend Equivalents shall be extended to Options or SARs, and no dividends or Dividend Equivalents shall be payable with respect to Performance Awards prior to attainment of the Performance Goal or Performance Goals applicable to such Performance Awards; however, an Award may provide for dividends or Dividend Equivalents to accrue or be reinvested in additional Performance Awards and to be paid or settled at the time the underlying Performance Award is paid or settled. The Committee may also establish rules and procedures for the crediting of interest on deferred cash payments and on dividends and Dividend Equivalents for Stock Awards. (c) Fractional Shares. No fractional shares shall be issued or delivered pursuant to any Award under this Plan. The Committee shall determine whether cash, Awards or other property shall be issued or paid in lieu of fractional shares, or whether fractional shares or any rights thereto shall be forfeited or otherwise eliminated. 9. Option Exercise. The Grant Price shall be paid in full at the time of exercise in cash or, if elected by the Participant, the Participant may purchase such shares by means of tendering Common Stock valued at Fair Market Value on the date of exercise of an Option, or any combination thereof. The Committee, in its sole
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discretion, shall determine acceptable methods for Participants to tender Common Stock or other Awards. The Committee may provide for procedures to permit the exercise or purchase of such Awards by use of the proceeds to be received from the sale of Common Stock issuable pursuant to an Award. Unless otherwise provided in the applicable Award Agreement, in the event the Committee allows shares of Restricted Stock to be tendered as consideration for the exercise of an Option, a number of the shares issued upon the exercise of the Option, equal to the number of shares of Restricted Stock used as consideration therefor, shall be subject to the same restrictions as the Restricted Stock so submitted as well as any additional restrictions that may be imposed by the Committee. The Committee may also provide that the option may be exercised by a “net-share settlement” method for exercising outstanding nonqualified stock options, whereby the exercise price thereof and/or any minimum required tax withholding thereon are satisfied by withholding from the delivery of the shares as to which such Option is exercised a number of shares having a Fair Market Value equal to the applicable Grant Price and/or the amount of any minimum required tax withholding, canceling such withheld number, and delivering the remainder. The Committee may adopt additional rules and procedures regarding the exercise of Options from time to time, provided that such rules and procedures are not inconsistent with the provisions of this Section 9. 10. Taxes and Regulatory Compliance. The Corporation shall have the right to deduct applicable taxes from any Award payment and withhold, at the time of delivery or vesting of cash or shares of Common Stock under this Plan, an appropriate amount of cash or number of shares of Common Stock or a combination thereof for payment of taxes required by law or to take such other action as may be necessary in the opinion of the Corporation to satisfy all obligations for withholding of such taxes or compliance with applicable laws or regulations. The Committee shall have the right to sell or to permit the sale of shares of Common Stock to pay such tax withholding or satisfy other applicable laws or regulations. The Committee may also permit withholding to be satisfied by the transfer to the Corporation of shares of Common Stock previously owned by the holder of the Award with respect to which withholding is required. If shares of Common Stock are used to satisfy tax withholding, such shares shall be valued based on the Fair Market Value when the tax withholding is required to be made. 11. Amendment, Modification, Suspension or Termination. The Board may amend, modify, suspend or terminate this Plan for the purpose of meeting or addressing any changes in legal requirements or for any other purpose permitted by law, except that (i) no amendment or alteration that would materially adversely affect the rights of any Participant under any Award previously granted to such Participant shall be made without the consent of such Participant and (ii) no amendment or alteration shall be effective prior to its approval by the stockholders of the Corporation to the extent stockholder approval is otherwise required by applicable legal requirements or the requirements of any exchange on which the Common Stock is listed. Notwithstanding anything herein to the contrary but subject to the adjustment provisions of Section 13, no amendment may cause an Option or SAR to be repriced, replaced, regranted through cancellation or modified without stockholder approval, if the effect of such amendment would be to reduce the Grant Price of such Option or SAR. 12. Assignability. Unless otherwise determined by the Committee in the Award Agreement, no Award or any other benefit under this Plan shall be assignable or otherwise transferable. Any attempted assignment of an Award or any other benefit under this Plan in violation of this Section 12 shall be null and void. 13. Adjustments. (a) The existence of this Plan and Awards granted pursuant to this Plan shall not affect in any way the right or power of the Corporation or its stockholders to make or authorize any or all adjustments, recapitalizations, reorganizations or other changes in the Corporation’s capital structure or its business, or any merger or consolidation of the Corporation, or any issue of bonds, debentures, preferred or prior preference stocks ahead of or affecting the shares of Common Stock or the rights thereof, or the dissolution or liquidation of the Corporation, or any sale or transfer of all or any part of its assets or business, or any other corporate act or proceeding, whether or not of a similar character to the acts or proceedings enumerated above.
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(b) Except as provided in this Section 13, the issue by the Corporation of shares of stock of any class, or securities convertible into shares of stock of any class, for cash or property, or for labor or services, either upon direct sale or upon exercise of rights or warrants to subscribe for such shares or securities, or upon conversion of shares or obligations of the Corporation convertible into such shares or other securities, shall not affect, and no adjustment by reason thereof shall be made with respect to, the number of shares of Common Stock subject to Awards granted hereunder. (c) In the event of any subdivision or consolidation of outstanding shares of Common Stock, declaration of a dividend payable in shares of Common Stock or other stock split, then (i) the number and kind of shares of Common Stock or other securities reserved under this Plan and the number of shares of Common Stock available for issuance pursuant to specific types of Awards as described in Section 4, (ii) the number and kind of shares of Common Stock or other securities covered by outstanding Awards, (iii) the Grant Price or other price in respect of such Awards, (iv) the appropriate Fair Market Value and other price determinations for such Awards, and (v) to the extent consistent with the requirements of Section 162(m), the Stock Based Awards Limitations shall each be proportionately adjusted by the Board as the Board deems appropriate, in its sole discretion, to reflect such transaction. In the event of any other recapitalization or capital reorganization of the Corporation, any consolidation or merger of the Corporation with another corporation or entity, the adoption by the Corporation of any plan of exchange affecting Common Stock or any distribution to holders of Common Stock of securities or property (including cash dividends that the Board determines are not in the ordinary course of business but excluding normal cash dividends or dividends payable in Common Stock), the Board shall make such adjustments as it determines, in its sole discretion, appropriate to (x) the number and kind of shares of Common Stock or other securities reserved under this Plan and the number of shares of Common Stock available for issuance pursuant to specific types of Awards as described in Section 7 and (y)(i) the number and kind of shares of Common Stock or other securities covered by Awards, (ii) the Grant Price or other price in respect of such Awards, (iii) the appropriate Fair Market Value and other price determinations for such Awards, and (iv) to the extent consistent with the requirements of Section 162(m), the Stock Based Awards Limitations to reflect such transaction. In the event of a corporate merger, consolidation, acquisition of assets or stock, separation, reorganization, or liquidation, the Board shall be authorized (x) to assume under the Plan previously issued compensatory awards, or to substitute new Awards for previously issued compensatory awards, including Awards, as part of such adjustment; (y) to cancel Awards that are Options or SARs and give the Participants who are the holders of such Awards notice and opportunity to exercise for 15 days prior to such cancellation; or (z) to cancel Awards and to deliver to the Participants cash in an amount that the Board shall determine in its sole discretion is equal to the fair market value of such Awards on the effective date of such event, which in the case of Options or SARs shall be the excess, if any, of the Fair Market Value of Common Stock on such date over the Grant Price of such Award. Any adjustment under this Section 13(c) need not be the same for all Participants. (d) The Board or the Committee shall have the authority to adjust Performance Goals applicable to Performance Awards under this Plan (either up or down) and the level of the Performance Award that a Participant may earn, if it determines that the occurrence of external changes or other unanticipated business conditions have materially affected the fairness of the goals and have unduly influenced the Corporation’s ability to meet them, including without limitation, events such as material acquisitions, changes in the capital structure of the Corporation, and extraordinary accounting changes. Performance Goals and Performance Awards shall be calculated without regard to any changes in accounting standards that may be required by the Financial Accounting Standards Board after such Performance Goals are established. In addition, the Committee shall have the right to adjust the vesting schedule of an award or otherwise to provide that an award shall vest upon a Non-Employee Director’s ceasing to serve on the Board or upon an Employee’s termination of employment, including by reason of death, Disability, layoff or other involuntary termination of employment (where an Award may be used to offset severance amounts otherwise payable or to provide additional severance, as the Board or Committee determines is appropriate). (e) Notwithstanding the foregoing: (i) any adjustments made pursuant to this Section 13 to Awards that are considered “deferred compensation” within the meaning of Section 409A shall be made in a manner that
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is not intended to result in accelerated or additional tax to a Participant pursuant to Section 409A; (ii) any adjustments made pursuant to this Section 13 to Awards that are not considered “deferred compensation” subject to Section 409A shall be made in such a manner intended to ensure that after such adjustment, the Awards either (A) continue not to be subject to Section 409A or (B) do not result in accelerated or additional tax to a Participant pursuant to Section 409A; and (iii) in any event, neither the Committee nor the Board shall have the authority to make any adjustments pursuant to this Section 13 to the extent the existence of such authority would cause an Award that is not intended to be subject to Section 409A of the Code at its Grant Date to be subject thereto as of the Grant Date. 14. Change in Control. Notwithstanding any other provisions of the Plan, and unless otherwise expressly provided in the applicable Award Agreement or in any deferral election agreement, in the event of a Participant’s involuntary termination of employment (if the Participant is an Employee) or service as a director (if the Participant is a Non-Employee Director) that occurs either prior to and in connection with or within 24 months following the effective date of a Change in Control, then immediately prior to such termination (i) each Award granted under this Plan to the Participant shall become vested and fully exercisable and any restrictions applicable to the Award shall lapse and (ii) if the Award is an Option or SAR, the Award shall remain exercisable until the expiration of the maximum term of the Award; provided, however, that with respect to any Stock Unit or Restricted Stock Unit or other Award that constitutes a “nonqualified deferred compensation plan” within the meaning of Section 409A, the timing of settlement of such Award shall be in accordance with Section 17 hereof. 15. Restrictions. No Common Stock or other form of payment shall be issued with respect to any Award unless the Corporation shall be satisfied based on the advice of its counsel that such issuance will be in compliance with applicable federal and state securities laws. The Participant shall not exercise or settle any Award granted hereunder, and the Corporation or any Subsidiary shall not be obligated to issue any shares of Common Stock or make any payments under any such Award if the exercise of an Award or if the issuance of such shares of Common Stock or if the payment made will constitute a violation by the recipient or the Corporation or any Subsidiary of any provision of any applicable law or regulation of any governmental authority or any securities exchange on which the Common Stock is listed. Certificates evidencing shares of Common Stock delivered under this Plan (to the extent that such shares are so evidenced) may be subject to such stop transfer orders and other restrictions as the Committee may deem advisable under the rules, regulations and other requirements of the Securities and Exchange Commission, any securities exchange or transaction reporting system upon which the Common Stock is then listed or to which it is admitted for quotation and any applicable federal or state securities law. The Committee may cause a legend or legends to be placed upon such certificates (if any) to make appropriate reference to such restrictions. 16. Unfunded Plan. This Plan shall be unfunded. Although bookkeeping accounts may be established with respect to Participants who are entitled to cash, Common Stock or rights to cash or Common Stock under this Plan, any such accounts shall be used merely as a bookkeeping convenience. The Corporation shall not be required to segregate any assets that may at any time be represented by cash, Common Stock or rights to cash or Common Stock, nor shall this Plan be construed as providing for such segregation, nor shall the Corporation, the Board or the Committee be deemed to be a trustee of any cash, Common Stock or rights to cash or Common Stock to be granted under this Plan. Any liability or obligation of the Corporation to any Participant with respect to an Award of cash, Common Stock or rights to cash or Common Stock under this Plan shall be based solely upon any contractual obligations that may be created by this Plan and any Award Agreement, and no such liability or obligation of the Corporation shall be deemed to be secured by any pledge or other encumbrance on any property of the Corporation. Neither the Corporation nor the Board nor the Committee shall be required to give any security or bond for the performance of any obligation that may be created by this Plan. 17. Section 409A. It is the intention of the Corporation that Awards granted under the Plan either (i) shall not be “nonqualified deferred compensation” subject to Section 409A or (ii) shall meet the requirements of Section 409A such that no Participant shall be subject to accelerated or additional tax pursuant to Section 409A in respect thereof, and the Plan and the terms and conditions of all Awards shall be interpreted accordingly.
A - 13 MARATHON OIL | 2016 PROXY STATEMENT
Notwithstanding any other provision of the Plan to the contrary, if at the time of a Participant’s Separation from Service, the Participant is a “specified employee,” within the meaning of Section 409A (as determined by the Corporation in accordance with its uniform policy with respect to all arrangements subject to Section 409A), then any payments (whether in cash, shares of Common Stock, or other property) with respect to any Award that constitutes “nonqualified deferred compensation” subject to Section 409A that would otherwise be made upon a Participant’s termination or employment or Separation from Service shall be made no earlier than (A) the first business day that is more than six months following the Participant’s Separation from Service and (B) the Participant’s death. Further, any payments (whether in cash, shares of Common Stock, or other property) with respect to any Award that constitutes “nonqualified deferred compensation” subject to Section 409A that would otherwise be made upon a Change in Control (as defined herein) shall be delayed if such Change in Control fails to constitute a “change in the ownership of the corporation,” a “change in effective control of the corporation” or a “change in the ownership of a substantial portion of the assets of the corporation,” within the meaning of Section 409A(a)(2)(A)(v) of the Code and shall be made upon the earliest of (A) the original payment or settlement date specified in the applicable Award Agreement, (B) the Participant’s Separation from Service and (C) the Participant’s death. 18. Governing Law. This Plan and all determinations made and actions taken pursuant to this Plan, to the extent not otherwise governed by mandatory provisions of the Code or the securities laws of the United States, shall be governed by and construed in accordance with the laws of the State of Texas. 19. No Right to Employment. Nothing in this Plan or an Award Agreement shall interfere with or limit in any way the right of the Corporation or a Subsidiary to terminate any Participant’s employment or other service relationship at any time, nor confer upon any Participant any right to continue in the capacity in which he or she is employed or otherwise serves the Corporation or any Subsidiary. 20. Successors. All obligations of the Corporation under this Plan with respect to Awards granted under this Plan shall be binding on any successor to the Corporation, whether the existence of such successor is the result of a direct or indirect purchase, merger, consolidation, or otherwise, of all or substantially all of the business or assets of the Corporation. 21. Tax Consequences. Nothing in this Plan or an Award Agreement shall constitute a representation by the Corporation to a Participant regarding the tax consequences of any Award received by a Participant under this Plan. Although the Corporation may endeavor to (i) qualify a Performance Award for favorable U.S. or foreign tax treatment or (ii) avoid adverse tax treatment (e.g. under Section 409A), the Corporation makes no representation to that effect and expressly disavows any covenant to maintain favorable or unavoidable tax treatment. The Corporation shall be unconstrained in its corporate activities without regard to the potential negative tax impact on holders of Awards under this Plan. 22. Non-United States Participants. The Committee may grant awards to persons outside the United States under such terms and conditions as may, in the judgment of the Committee, be necessary or advisable to comply with the laws of the applicable foreign jurisdictions and, to that end, may establish sub-plans, modified vesting, exercise or settlement procedures and other terms and procedures. Notwithstanding the above, the Committee may not take any actions hereunder, and no Awards shall be granted, that would violate the Securities Exchange Act of 1934, the Code, any securities law, any governing statute, or any other applicable law. 23. Effectiveness and Term. The Plan will be submitted to the stockholders of the Corporation for approval at the 2016 annual meeting of the stockholders shall be effective as of the date of such meeting; provided, however that the effectiveness of the Plan is subject to stockholder approval. No Award shall be made under the Plan ten years or more after such approval.
MARATHON OIL | 2016 PROXY STATEMENT A - 14
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Marathon Oil Tower, Corporation
5555 San Felipe Street
Houston, TexasTX 77056 at 10:00 A.M. Central Time. (Please detach this card from your proxy card and bring it with you as identification. A map to the meeting site is inscribed on this card for your convenience. The use of an attendance card is for our mutual convenience, however your right to attend without an attendance card, upon proper identification, is not affected.) Sylvia J. Kerrigan Secretary (FOR THE PERSONAL USE OF THE NAMED STOCKHOLDER(S) ON THE BACK - NOT TRANSFERABLE.) (Proxy must be signed and dated on the reverse side. Please fold and detach card at perforation before mailing.) Proxy and Voting Instruction Form This Proxy and Voting Instruction is solicited on behalf of the Board of Directors for the Annual Meeting of Stockholders on April 24, 2013 For shares held by registered holders The undersigned hereby appoints Clarence P. Cazalot, Jr., Dennis H. Reilley and Janet F. Clark, or any of them, proxies to vote as herein directed on behalf of the undersigned at the Annual Meeting of Stockholders of Marathon Oil Corporation on Wednesday, April 24, 2013 and at any meeting resulting from any adjournment(s) or postponement(s) thereof and upon all other matters properly coming before the Meeting, including the proposals set forth in the 2013 Notice of Annual Meeting and Proxy Statement for such Meeting with respect to which the proxies are instructed to vote as directed on reverse side. You are encouraged to specify your choice by marking the appropriate boxes on the reverse side, but you need not mark any boxes if you wish to vote in accordance with the Board of Directors' recommendations. The proxies cannot vote the shares unless you sign and return the proxy card. For shares held in Marathon Oil Company Thrift Plan These confidential voting instructions will only be shared with Fidelity Management Trust Company, as Trustee for the Marathon Oil Company Thrift Plan (the "Marathon Oil Plan"). The undersigned, as a participant in the Marathon Oil Plan, hereby directs the Trustee to vote the number of shares of Marathon Oil Corporation common stock credited to the undersigned's account under the Marathon Oil Plan at the Annual Meeting of Stockholders, and at any meeting resulting from any adjournment(s) or postponement(s) thereof, upon all subjects that may properly come before the meeting, including the matters described in the 2013 Notice of Annual Meeting and Proxy Statement. In the Trustee's discretion, it may vote upon such other matters as may properly come before the Meeting. Your vote is confidential. The shares credited to the account will be voted as directed on the reverse side. If no direction is made, if the card is not signed, or if the card is not received by April 21, 2013, the shares credited to the account will not be voted. You cannot vote the shares in person at the Annual Meeting; the Trustee is the only one who can vote the shares. PROXY TO BE SIGNED AND DATED ON THE REVERSE SIDE
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