36 Phillips 66 2022 Proxy Statement | | | | | |
| Corporate Governance | 33 |
Director Compensation
OBJECTIVES AND
PRINCIPLES | | |
|
Compensation for non-employee directors is reviewed annually by the Nominating and Governance Committee with the assistance of such third-party consultants as the Nominating and Governance Committee deems advisable, and set by action of the BoardBoard. The Nominating and Governance Committee may from time to time receive the assistance of Directors.a third-party consultant in reviewing director compensation, as it deems advisable. |
|
The
Board’s goal in designing suchdirector compensation
is to provideprogram provides a competitive package that
will enable itenables the Board to attract and retain highly skilled individuals
with relevant experiencethat possess the talent and
reflects the time and talentskills required to
serve on the board ofoversee a complex, multinational corporation. The Board seeks to provide sufficient flexibility in the form of payment to meet individual needs while ensuring that a substantial portion of director compensation is linked to the long-term success of the Company. In furtherance of our commitment to be a socially responsible member of the communities in which we
participate,operate, the Board
believes that it is appropriate to extendalso extends the Phillips 66 matching gift program to charitable contributions made by
individualour directors.
The primary elements of our non-employee director compensation program are equity compensation and cash compensation.
| | | | | | | | |
| NON-EMPLOYEE DIRECTOR COMPENSATION | | ADDITIONAL ANNUAL CASH COMPENSATION |
| | |
| | |
In
2021,2022, each non-employee director received a grant of RSUs with an aggregate value of $200,000 on the date of grant. Restrictions on the units issued to a non-employee director will lapse in the event of retirement, disability, death, or a change of control, unless the director has elected to receive the underlying shares after
aan earlier stated period of time. Directors forfeit the units if, prior to the lapse of restrictions, the Board finds sufficient cause for forfeiture (although no such finding can be made after a change in control). Before the restrictions lapse, directors cannot sell or otherwise transfer the units, but the units are credited with dividend equivalents in the form of additional RSUs. When restrictions lapse, directors will receive unrestricted shares of Company stock as settlement of the RSUs.
In
2021,2022, each non-employee director received $125,000 in cash compensation for service as a director. Non-employee directors serving in specified committee or leadership positions also received additional cash compensation as indicated in the chart above.
37
| | | | | |
| 34 | Phillips 66 2023 Proxy Statement |
The total annual cash compensation is payable in monthly cash installments. Directors may elect, on an annual basis, to receive all or part of their cash compensation in unrestricted stock or in RSUs (such unrestricted stock or RSUs are issued on the first business day of the month
and valued using the average of the high and low prices of Phillips 66 common stock as reported on the NYSE on such date), or to have the amount credited to the director’s deferred compensation account as described below. The RSUs issued in lieu of cash compensation are subject to the same restrictions as the annual RSUs described
above.
Non-employee directors can elect to defer their cash compensation under the Phillips 66 Deferred Compensation Program for
non-EmployeeNon-Employee Directors (the “Director Deferral Plan”). Deferred amounts are deemed to be invested in various mutual funds and similar investment choices (including Phillips 66 common stock) selected by the director from a list of
available investment
choices availablechoices. Amounts deferred under the Director Deferral
Plan.The future payment of any compensation deferred by non-employee directors of Phillips 66Plan may be funded inthrough a grantor trust designed for this purpose.
Directors’ Matching Gift
ProgramAll active and retired non-employee directors are eligible to participate in the Directors’ Annual Matching Gift Program. This program provides a dollar-for-dollar match of gifts of cash or securities, up to aan annual maximum during any one calendar year of $15,000 per donor for active directors and $7,500 per donor for retired directors, to charities and educational institutions (excluding certain religious, political, fraternal, or collegiate athletic organizations) that are tax-exempt under Section 501(c)(3) of the IRCInternal Revenue Code ("IRC") or meet similar requirements under the applicable law of other countries. Amounts representing theseThese matching contributions are containedreflected in the “All Other Compensation” column of the Director Compensation Table.
The Board believes that it is important for significant others of directors and executives to attend certain meetings to enhance the collegiality of the Board. The cost of such attendance is treated by the Internal Revenue Service as income and is taxable to the recipient. The Company reimburses directors for the cost of resulting income taxes. Amounts representing this reimbursementThese reimbursements are containedreflected in the “All Other Compensation” column of the Director Compensation Table.
Each director is expected to own an amount of Company stock
with a value equal to at least the aggregate value of the annual equity grants during their first five years on the Board. Directors are expected to reach this level of target ownership within five years of joining the Board.
Actual sharesShares of stock
owned outright, Restricted Stock
orand RSUs, including deferred stock units, may be counted in satisfying the stock ownership guidelines.
| | |
|
All current directors are in compliance, or are on track to comply, with the stock ownership guidelines. |
|
38 Phillips 66 2022 Proxy Statement | | | | | |
| Director Compensation | 35 |
DIRECTOR COMPENSATION
TABLEPhillips 66
The Nominating and Governance Committee benchmarks
its non-employee director compensation design and pay levels against
a group ofPhillips 66's compensation peer companies. The
CompanyNominating and Governance Committee targets the median of this peer group for all elements of non-employee director compensation.
The following table summarizes the compensation for our non-employee directors for 2021in 2022 (for compensation paid to our sole employee director, Mr.directors, Messrs. Garland and Lashier, please see Executive Compensation Tables).| | Fees Earned or Paid in Cash(1) | Stock Awards(2) | All Other Compensation(3) | Total |
| Name | ($) | ($) | ($) | ($) |
| Gary K. Adams | 135,000 | 200,045 | 20,742 | 355,787 |
| Julie L. Bushman | 135,000 | 200,045 | 15,036 | 350,081 |
| Lisa A. Davis | 135,000 | 200,045 | 494 | 335,539 |
| Charles M. Holley | 135,000 | 200,045 | 2,951 | 337,996 |
| John E. Lowe | 150,000 | 200,045 | — | 350,045 |
| Harold W. McGraw III(5) | 33,750 | 200,045 | — | 233,795 |
| Denise L. Ramos | 155,000 | 200,045 | 30 | 355,075 |
| Denise R. Singleton(4) | 62,782 | 93,028 | 16,339 | 172,149 |
| Douglas T. Terreson(4) | 62,782 | 93,028 | 15,169 | 170,979 |
| Glenn F. Tilton | 205,000 | 200,045 | 28,484 | 433,529 |
| Victoria J. Tschinkel(5) | 33,750 | 200,045 | 28,168 | 261,963 |
| Marna C. Whittington | 150,000 | 200,045 | 16,990 | 367,035 |
| | | | | | | | | | | | | | |
| Name | Fees Earned or Paid in Cash(1) ($) | Stock Awards(2) ($) | All Other Compensation(3) ($) | Total ($) |
| Gary K. Adams | 135,000 | | 200,010 | 49,954 | | 384,964 | |
| Julie L. Bushman | 135,000 | | 200,010 | — | | 335,010 | |
| Lisa A. Davis | 135,000 | | 200,010 | 16,172 | | 351,182 | |
| Gregory J. Hayes | 63,508 | | 94,091 | — | | 157,599 | |
| Charles M. Holley | 135,000 | | 200,010 | — | | 335,010 | |
| John E. Lowe | 150,000 | | 200,010 | 78 | | 350,088 | |
| Denise L. Ramos | 155,000 | | 200,010 | — | | 355,010 | |
| Denise R. Singleton | 135,000 | | 200,010 | 39,089 | | 374,099 | |
| Douglas T. Terreson | 135,000 | | 200,010 | 16,999 | | 352,009 | |
| Glenn F. Tilton | 205,000 | | 200,010 | 15,250 | | 420,260 | |
| Marna C. Whittington | 150,000 | | 200,010 | 24,220 | | 374,230 | |
(1)Reflects base cash compensation of $125,000 payable to each non-employee director and additional cash compensation payable to directors serving in specified committee positions as described on page 34. Amounts shown include any amounts that were voluntarily deferred to the Director Deferral Plan or received in Phillips 66 common stock or RSUs in lieu of cash. Mr. Hayes was elected to the Board on July 12, 2022 and his compensation was prorated for the year.
(2)Amounts represent the grant date fair market value of RSUs. Pursuant to our non-employee director compensation program, non-employee directors received a 2022 grant of RSUs with an aggregate value of $200,000 on the date of grant, based on the average of the high and low prices for Phillips 66 common stock as reported on the NYSE on the grant date. These grants are made in whole shares with fractional share amounts rounded up, resulting in shares with a value of $200,010 being granted on January 14, 2022 for our non-employee directors other than Mr. Hayes. Mr. Hayes joined the Board on July 12, 2012 and received a prorated award of RSUs with a grant date fair market value of $94,091, based on the average of the high and low prices for Phillips 66 common stock as reported on the NYSE on the grant date.
(3)All Other Compensation is made up primarily of certain gifts by directors to charities and educational institutions under our Matching Gifts Program (Mr. Adams $15,000; Ms. Davis $15,000; Ms. Singleton $15,000; Mr. Terreson $15,000; Mr. Tilton $15,000; and Dr. Whittington $15,000). For active directors, the program matches up to $15,000 with regard to each program year. The amounts shown reflect the actual payments made by us in 2022. All Other Compensation also includes the aggregate incremental cost to the Company for flights from Board meetings when a director requests to be dropped off at a different location for personal reasons, and tax assistance when we request family members or other guests to accompany a director to a Company function (and, as a result, the director incurs imputed income).
(1) | | Reflects 2021 base cash compensation of $125,000 payable to each non-employee director. In 2021, non-employee directors serving in specified committee positions also received the additional cash compensation described previously. Compensation amounts reflect adjustments related to various changes in committee assignments by Board members throughout the year, if any. Amounts shown include any amounts that were voluntarily deferred to the Director Deferral Plan, received in Phillips 66 common stock, or received in RSUs. |
(2) | | Amounts represent | |
| 36 | Phillips 66 2023 Proxy Statement |
| | | | | |
PROPOSAL 2 | Management Proposal to Approve the grant date fair market value of RSUs. Under our non-employee director compensation program, non- employee directors received a 2021 grant of RSUs with an aggregate value of $200,000 on the date of grant, based on the averageDeclassification of the high and low prices for Phillips 66 common stock, as reported on the NYSE, on such date. These grants are made in whole shares with fractional share amounts rounded up, resulting in shares with a value of $200,045 being granted on January 15, 2021 ($93,028 granted on July 14, 2021 for Ms. Singleton’s and for Mr. Terreson’s prorated grant). |
(3) | | All Other Compensation is made up primarily of certain gifts by directors to charities and educational institutions (excluding certain religious, political, fraternal, or collegiate athletic organizations) that are tax-exempt under Section 501(c)(3) of the IRC or meet similar requirements under the applicable law of other countries that we match under our Matching Gifts Program (Mr. Adams $12,500; Ms. Bushman $15,000; Ms. Singleton $15,000; Mr. Terreson $14,500; Mr. Tilton $15,000; and Dr. Whittington $15,000). For active directors, the program matches up to $15,000 with regard to each program year. The amounts shown reflect the actual payments made by us in 2021. All Other Compensation also includes any personal flights, automobile transportation expenses, smaller gifts (such as books, ornaments, and jackets) as well as associated tax protection, and tax assistance when we request family members or other guests to accompany a director to a Company function and, as a result, the director is deemed to make personal use of Company assets such as Company aircraft and thereby incurs imputed income. |
(4) | | Amounts shown represent compensation paid to Ms. Singleton and Mr. Terreson following election to the Board in July 2021. |
(5) | | Amounts shown represent compensation paid to Mr. McGraw and Ms. Tschinkel prior to retiring from the Board in March 2021. |
 | Advisory Approval of Executive Compensation
The Board recommends that you vote “FOR” the proposal to declassify the Board of Directors.
|
Currently, the Amended and Restated Certificate of Incorporation (the “Certificate of Incorporation”) of the Company provides for a staggered Board, divided into three classes of directors, with each class elected for a three-year term.
After considering the advantages and disadvantages of declassification, including input from our shareholders, the Board continues to believe that it is in the best interests of the Company and its shareholders to amend the Certificate of Incorporation and the By-Laws of the Company to declassify the Board over the next three years. This will result in a fully declassified Board by the 2026 Annual Meeting of Shareholders.
The Board recommends that you vote FOR the proposal to amend the certificate of incorporation to declassify the Board of Directors.
The affirmative vote of the holders of 80% of the outstanding shares of stock entitled to vote is required to approve this proposal. We submitted this proposal in 2015, 2016, 2018 and 2021, and, while it received significant support, it did not receive the 80% vote required for adoption. Because brokers may not cast a vote on this proposal without your instruction, it is very important that you vote your shares.
The proposed amendment to the Certificate of Incorporation would eliminate the classification of the Board over a three-year period and provide for the annual election of all directors beginning at the 2026 Annual Meeting of Shareholders. The proposed amendment to the Certificate of Incorporation would become effective upon the filing of a Certificate of Amendment with the Secretary of State of the State of Delaware, which the Company would file promptly following the Annual Meeting if our shareholders approve the amendment. Board declassification would be phased-in over a three-year period, beginning at the 2024 Annual Meeting of Shareholders, as follows:
•Nominees at this Annual Meeting will be elected to serve a three-year term ending at the 2026 Annual Meeting.
•Directors whose terms end at the 2024 Annual Meeting will continue to serve until that meeting. At the 2024 Annual Meeting, they will be elected for one-year terms ending at the 2025 Annual Meeting.
•Directors whose terms end at the 2025 Annual Meeting will be elected for one-year terms ending at the 2026 Annual Meeting.
•At the 2026 Annual Meeting, all nominees presented for election to the Board at the 2026 Annual Meeting will be elected to one-year terms.
Beginning with the 2026 annual meeting of shareholders, all directors will stand for election at each annual meeting of shareholders for a one-year term expiring at the subsequent annual meeting of shareholders. The proposed amendment does not change the present number of directors or the Board's authority to change that number and to fill any vacancies or newly created directorships. While the declassification of our Board is being phased in, any director selected to fill a vacancy on the Board will serve for the same term as the remainder of the class to which the director is elected
Delaware law provides, unless otherwise addressed in the certificate of incorporation, that members of a board that is classified may be removed only for cause. The proposed amendment provides that, once the Board is fully declassified as of the 2026 Annual Meeting of Shareholders, directors may be removed with or without cause. Before that time, directors serving in a class elected at any annual meeting held from 2021 through 2023 may be removed only for cause. Directors elected for a one-year term at each annual meeting between 2024 through 2025 may be removed with or without cause.
The proposed Certificate of Amendment to the Certificate of Incorporation is included in this Proxy Statement as Appendix A. If our shareholders approve the proposed amendment to the Certificate of Incorporation, the Board will make certain conforming changes to the Company’s By-Laws.
| | | | | |
PROPOSAL 3 | Advisory Approval of Executive Compensation The Board recommends that you vote “FOR” the advisory approval of the compensation of the Company'sCompany’s named executive officers. |
PROPOSAL 2 |
|
In accordance with Section 14A of the Securities Exchange Act of 1934, as amended, shareholders are being asked to vote on the following advisory (non-binding) resolution:
RESOLVED, that the shareholders approve the compensation of Phillips 66’s Named Executive Officers (NEOs) as described in this Proxy Statement in the Compensation Discussion and Analysis section and in the Executive Compensation Tables (together(together with the accompanying narrative disclosures). Approval of this proposal requires the affirmative vote of a majority of the shares present in person or represented by proxy at the meeting and entitled to vote on the proposal.
As required by SEC rules, Phillips 66 is providing shareholders with the opportunity to vote on an advisory,
non-binding resolution, commonly known as “Say-on-Pay,” considering approval of the compensation of its NEOs. We currently provide our shareholders the opportunity to vote on this proposal annually. Our next vote to determine the frequency with which we will provide Say-on-Pay votes is expected to take place in 2025.
The Compensation Committee, which is responsible for the compensation of our Chairman, CEO and Senior Officers (as defined in Role of the Compensation Committee),executive officers, oversees the development of compensation programs designed to attract, retain and motivate executives who enable us to achieve our strategic and financial goals. The Compensation Discussion and Analysis and the Executive Compensation Tables, together with the accompanying narrative disclosures, allow you to view the trends in compensation and application of our compensation philosophies and practices for the years presented. The Board
of Directors believes that the Phillips 66 executive compensation programs align the interests of our executives with those of our shareholders. Our compensation programs are guided by the
philosophy that the Company’s ability to provide value is driven by superior individual performance. The Board believes that a company must offer competitive compensation to attract and retain experienced, talented and motivated employees. In addition, the Board believes employees in leadership roles within the organization are motivated to perform at their highest levels when performance-based pay represents a significant portion of their compensation. The Board believes that our philosophy and practices have resulted in executive compensation decisions that are aligned with Company and individual performance, are appropriate in value, and have benefited the Company and its
shareholders.Because your vote is advisory, it will not be binding upon the
Board of Directors.Board. Nevertheless, the Compensation Committee and the Board will consider the outcome of the vote when evaluating future
executive compensation arrangements. However, votes for or against our compensation programs will not necessarily inform the Compensation Committee and the Board about which elements of those programs shareholders approve or disapprove. For this reason, the Board encourages shareholders to engage with us to allow the Compensation Committee to understand shareholders’ views and consider that feedback when making decisions.
40 Phillips 66 2022 Proxy Statement | |
Compensation Discussion and Analysis
| | | | | |
| 38 | Phillips 66 2023 Proxy Statement |
| | | | | |
| |
|
CompensationDiscussionandAnalysis |
Kevin Mitchell
Our Named Executive Officers (“NEOs”) for 2021 were:
 | Greg Garland
Chairman and
Chief Executive
Officer
|  | Mark Lashier
Vice President and Chief
Operating Financial Officer | | | Vanessa Allen Sutherland Executive Vice President, Government Affairs, General Counsel & Corporate Secretary |
| | | |
 | Kevin Mitchell
Executive Vice
President, Finance and
Chief Financial Officer
|  | Robert Herman
Executive Vice
President, Refining
|
Participants in
Compensation Setting | 58 | | |
 | |
| |
| |
| |
| | | | | |
| | Brian Mandell Executive Vice President, Marketing & Commercial | | | Executive Vice
President, Midstream & Chemicals |
| | | |
Additional
Compensation Practices | 61 | | |
| | | | | | | |
| | | | | | | |
 | "The Board values opportunities to hear directly from our shareholders. Over the past year, the Chair of the Compensation Committee and I engaged with our shareholders, and the committee has made changes to Phillips 66's executive compensation programs informed by the feedback we gathered.”
| | | |
- Glenn Tilton, Lead Director and Member of the Compensation Committee | EXECUTIVE SUMMARY |
|
| | |
Our Approach to Executive Compensation and Governance |
|
Since our inception in 2012, our strategy is unchanged and we have operated withmaintained the same clear objectives – enablewhich are reflected throughout our high-performing workforceapproach to execute ourcompensation. Our people are committed to achieving the highest standards of performance and safety while executing a corporate strategy efficiently and effectively, while remaining vigilant and focused on safety and operating excellence, in order to deliver profitable growth, enhancegenerating returns and providegrowing distributions in a secure, competitive and growing dividend.sustainable way. As a result of our foundational operating excellence, we have built a resilient company positioned for long-term performance eventhat demonstrates resilience during turbulent times and maximizes value capture in the midst of difficultfavorable market conditions. Consistent with our philosophy that executive compensation should be linked to Company performance and directly aligned with shareholder value creation, a significant portion of NEO compensation is at risk and based on performance metrics aligned with the execution of our corporate strategy.
Pay-For-
Performance
| Consistent with our philosophy that executive compensation should be linked to Company performance and directly aligned with shareholder value creation, a significant portion of NEO compensation remains at risk and based on performance metrics aligned with the execution of our corporate strategy. | | | | |
| |
Shareholder
Engagement
| After reviewing the results of the 2021 Annual Meeting, our Compensation Committee sought to better understand shareholder perspectives on our executive compensation program and practices. We have a well-established shareholder engagement program, including more in-depth conversations following the Annual Meeting to ensure a clear understanding of key considerations driving our shareholders' votes. | |
|
Responsive
Changes
| The Compensation Committee leveraged specific insights from shareholders to build a set of potential executive compensation program changes that we discussed in depth with them in the fall of 2021. In those conversations, we solicited additional perspectives on our executive compensation practices and found that our shareholders strongly supported the proposed changes. | |
|
41
Stakeholder Engagement on 2021 Say-on-Pay Vote Outcome | |
 | “We integrate shareholder perspectives in the design and delivery of ourOur executive compensation programs, which are linked to our strategy, align pay and performance, and help us attract and retain executives. In additionThe thoughtful approach we bring to evaluating our executive compensation program design,was crucial as we reviewedimplemented our succession planning and enhancedleadership transition efforts, in an effort to ensure we have the right leaders in place and that they are properly incentivized to pursue our disclosures to align with shareholder feedback and expectations.strategic goals.” |
– Marna Whittington, Chair, Human Resources and Compensation Committee |
| |
Responding
| | |
| Recent Leadership Transitions |
|
The Company's executive leadership team evolved in 2022, with seven members of the 12-member leadership team taking on new or restructured roles and the hiring of two new members from outside of the organization. These changes included the planned succession of Greg Garland, who stepped down as Chief Executive Officer on July 1, 2022 after 10 years of leading the Company. At that time, Mr. Garland was appointed to serve as the Executive Chairman of the Board until his planned retirement in 2024. Mark Lashier, who previously served as our President and Chief Operating Officer since April 2021, assumed the President and Chief Executive Officer role on July 1, 2022. Mr. Lashier has a long history with the Company, having started his career at Phillips Petroleum Company more than 30 years ago and having previously served as President and Chief Executive Officer of CPChem from 2017 to 2021. The Board believes that Mr. Lashier is the right leader at a critical time in the Company’s history. The Board selected him for this role based on his exceptional leadership experience, his significant expertise in the industry, and his ability to motivate others to achieve the Company’s goals. The roles of Chief Executive Officer, Executive Chairman, and Lead Independent Director are discussed in greater detail under Board Leadership Structure on page 25.
| | | | | | | | | | | | | | |
| | | | |
| Greg Garland Chairman & CEO,
March 2012 – June 2022 Executive Chairman, July 2022 | | Mark Lashier President & COO,
April 2021 – June 2022 President & CEO, July 2022 |
| Qualifications include: industry leadership in safety, reliability and environmental stewardship and pioneering disciplined capital allocation in the energy business | Qualifications include: more than 30 years of experience in the energy and petrochemicals industry, track record of managerial success and demonstrated ability to lead |
| | | |
COMPENSATION COMMITTEE'S COMPENSATION DECISIONS FOR MR. LASHIER AS CEO
•Increase in base salary to $1,500,000
•Target opportunity under the Variable Cash Incentive Program ("VCIP") increased from 110% to 150% of base salary (prorated for the time he spent in each position in 2022), with actual payouts, if any, to be based on performance relative to the 2021performance goals established under the VCIP
•2022 long-term incentive ("LTI") award target of $8,970,417 in the form of restricted stock units (“RSUs”), stock options, and performance share plan ("PSP")
•Supplemental LTI grants of $2,466,667 comprised of $462,500 in the form of RSUs, $462,500 in the form of stock options, and $1,541,667 in performance shares for the 2022-2024 PSP, which grant was intended to adjust Mr. Lashier's 2022 LTI award commensurate with his promotion, as his initial LTI grant was awarded based on his prior position of President and COO
COMPENSATION COMMITTEE'S COMPENSATION DECISIONS FOR MR. GARLAND AS EXECUTIVE CHAIRMAN
•Base salary of $1,000,000, reduced from $1,675,008
•Target opportunity under the VCIP remained at 160% of base salary, with actual payouts, if any, to be based on performance relative to the performance goals established under the VCIP
•Reduction in LTI target from $12,562,500 to $7,500,000 in the form of 25% RSUs, 25% stock options, and 50% PSP
•Total target direct compensation reduced from $16.9 million to $10.1 million
Mr. Garland's overall level of compensation for 2022 reflected his service as CEO until July and his continued leadership throughout the remainder of the year pursuant to the CEO transition plan, including his responsibilities as Executive Chairman.
| | | | | |
| 40 | Phillips 66 2023 Proxy Statement |
MAKE-WHOLE EQUITY GRANT FOR VANESSA ALLEN SUTHERLAND
Vanessa Allen Sutherland joined the Company in January 2022 as our Executive Vice President, Government Affairs, General Counsel and Corporate Secretary. Ms. Sutherland received a sign-on RSU award valued at approximately $3.0 million in order to replace equity forfeited by Ms. Sutherland when she left her former employer. These RSUs are supplemental to her normal annual compensation package. The RSUs vest on the third anniversary of the grant date and are reflected in the "Stock Awards" column of the Summary Compensation Table.
| | | | | |
| Shareholder Engagement on 2022 Say-on-Pay Vote Outcome |
|
| | | | | |
| |
| “2022 was an important year for the Compensation Committee in terms of demonstrating our responsiveness to shareholder feedback regarding our recent executive compensation program changes. I greatly valued opportunities I had to hear directly from our shareholders, and shareholder insights from our engagement program are brought back to the full Board. We are proud to share that the feedback we received in recent months has been overwhelmingly positive.” – Glenn Tilton, Lead Independent Director & Member, Human Resources and Compensation Committee |
| |
2022 Say-on-Pay
Vote Outcome and Engagement Efforts
The Compensation Committee viewed the results of the 2021 say-on-pay vote as an opportunity to have more in-depth conversations with shareholders to understand their perspectives on our executive compensation practices and programs, and the Company’s approach to GHG emissions reduction targets and Climate Lobbying Disclosures. We leveraged those valuable insights to help buildimplemented a set of potential compensation programsprogram changes for 2022. Following2022, following extensive discussions with shareholders in 2021. We were pleased to see the 2021solid shareholder support of our 2022 say-on-pay vote, which received support from 88% of votes cast.
We continued our robust shareholder engagement program following the 2022 Annual Meeting two separate roundsto solicit further feedback from our shareholders on executive compensation and a variety of engagement discussions took place,ESG-related topics, and are pleased to share that the firstfeedback related to executive compensation was overwhelmingly positive in light of which was in September 2021 and focused on our recent compensation program design, the relative degreeimprovements and disclosure enhancements. Shareholders were particularly supportive of alignment between Company performanceour recent changes to our performance-based programs (PSP and rewards,VCIP) and potential programdisclosure enhancements, in response towhich were directly informed by prior shareholder feedback. The second round of engagement discussions, which took place in November 2021, provided opportunity to discuss investor perspectives on climate and the Company’s approach to the energy transition, in addition to capturing any further perspectives regarding compensation matters. SPRING 2021
Lead-Up to
| | | | | | | | |
2022 Shareholder Engagement by the
2021 Annual
Meeting Numbers |
57% of shares outstanding
contacted | In the lead-up to the 2021 Annual Meeting, we undertook a significant effort to speak with our shareholders and hear their feedback on our compensation program, among other topics
47% of interest. We contacted 59% shares outstanding
engaged | 26% of shares outstanding and engaged with shareholders representing a combined 31% of shares outstanding. We leveraged those valuable insights to help build a set of potential compensation program changes for 2022.
Lead Independent Director |
SPRING 2021 Annual Meeting | | | | | |
SEPTEMBER 2021 Compensation-Focused Engagement:Gathered investor feedback on compensation programsCompensation Discussion and previewed potential enhancements
Analysis |  |
| Evaluating
| |
| Investor Feedback |
49% of
shares outstanding
contacted | 40% of
shares outstanding
engaged | 34% of shares outstanding
engaged with Lead Director and Chair
of the Compensation Committee
| The Compensation Committee reviewed shareholder feedback and approved a slate of meaningful executive compensation program changes outlined on page 43. |
Shareholders were supportive of our proposed changes to our performance-based programs (PSP and VCIP), which were meaningful, and planned disclosure enhancements, including around goal-setting, metric selection, and peer group selection. See Taking Action in Response to Investor Feedbackfor additional detail. The feedback we heard directly informed the Compensation Committee’s decision-making regarding program changes for 2022. | | |
| | |
NOVEMBER 2021 Follow Up Engagement:
Solicited additional investor perspectives on
In last year’s proxy statement, we disclosed a
full rangeseries of
ESG topicsFollowing the compensation-focused discussions,changes to our executive compensation program to directly address feedback we held conversations with over 20 shareholders representing a combined 40% of outstanding shares to discuss the Company’s business and ESG strategy, continuing Phillips 66’s long-standing shareholder engagement program. Outreach in this round of engagement included nearly all investors contacted in the compensation-focused engagement, and because of this, we met with a number of investors twice in fall 2021. Shareholders were supportive of responsive actions taken on climate matters, including setting robust GHG emissions reduction targets and publishing a climate lobbying report.
42 Phillips 66 2022 Proxy Statement | |
Taking Action in Response to Investor Feedback | |
heard from shareholders. The table below details feedbackthe responsive actions we heard from our shareholders andhave taken over the actions the Compensation Committee took to address shareholders’ views on our executive compensation program. The changes implemented in 2021 reflect our Board’s strong commitment to shareholder engagement.
last two years. | | | | | | | | | | | | | | | | | |
| | | What We Heard | Actions Taken in Response | Implemented
for 2021
Performance Year
of Implementation |
 | | | | | |
| | Individual VCIP
Modifier | ● | •Individual VCIP modifier allows for too much discretion | ● | •Removed positive individual performance modifier from VCIP for all NEOsexecutive officers |  |
| Disclosure
of Rigorous
Performance Goals &
Metric Selection | ●
●
| •Explain how performance goals are set each year to ensure goals remain rigorous even if targets decrease on absolute terms •Provide more explanation around the weighting and selection of VCIP metrics and rationale for payouts | ●
●
| •Enhanced disclosures on goal setting, particularly where targets decrease on a year-over-year basis •Enhanced disclosures of the weighting and selection of VCIP metrics and the rationale for payouts |
2021 |
| | | | | | | 2021 |
 | | | | | |
| | | | | |
| | Consider
Absolute TSR | ● | •Relative TSR drives 50% of the PSP, but there is no cap on payouts in the event of negative absolute TSR performance | ● | •Capped payout at 100% on the TSR portion of PSP if absolute TSR is negative | |
| Rigor of Relative
TSR Goal | ● | •Relative TSR pays at target for median performance | ● | Require•Required performance above the 50th percentile relative to peer group to achieve target payout | Changed for PSP
2022 - 2024 |
| Adjustments
to Metrics | ● | •Limited disclosure of rationale for significant ROCE adjustment in FY20FY 2020 | ● | •Enhanced disclosures in proxy of rationale for any adjustments to financial results | |
| | | | | | | |
 | | | | | |
| | Selection &
Rationale | ● | •Provide more explanation for the use of two peer groups and how the peers are determined | ● | •Enhanced disclosure about the peer group utilization and peer selection | |
| | | | | |
| 42 | Phillips 66 2023 Proxy Statement |
| | | | | |
| EXECUTIVE COMPENSATION PROGRAM SUMMARY | |
 | “The compensation programs for our senior officers reflect the approach we have taken throughout the Company: we set well-defined goals that drive execution of our strategy and reward results.”
|
– Sonya Reed, SVP, Human Resources and Corporate Communications |
Consistent with
Due to our philosophy that executiveuse of performance- and equity-based awards, the compensation berealized by our executives is directly linked to our performance. In order for NEOs to earn and sustain competitive compensation, the Company performancemust meet its strategic objectives, perform well relative to peers, and aligned with shareholder value creation, thedeliver market-competitive returns to shareholders.
The CEO’s target compensation mix
ensures that a significant portion of NEO compensation is
89% at risk and
based on71% performance
metrics tied to our corporate strategy.based. Based on its evaluation of performance, the Compensation Committee has authority to reduce, and even
award | Compensation Discussion and Analysis 43 |
nothing for, the performance-based payouts. Stock options can expire with zero value if the Company stock price does not appreciate above the grant date price over the 10-year term of the options. RSUs may lose value depending on stock price performance. Therefore, for NEOs to earn and sustain competitive compensation, the Company must meet its strategic objectives, perform well relative to peers, and deliver market-competitive returns to shareholders.
The CEO’s target compensation mix is 90% at risk and 71% performance-based. The average target mix for the other NEOs is 84%82% at risk and 67% performance-based.66% performance based. Further, LTI awards make up 74%72% of the CEO and 69%66% of other NEOs target compensation mix. The target mix of the compensation program elements for the CEO and other NEOs is shown below. The charts outline the relative size, in percentage terms, of each element of the 2022 annualized target compensation.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Key Elements of Pay | | | | |
CEO | Other
NEOs
| | | CEO | Other NEOs(1) | | Delivered via | Performance Drivers
(and Weightings) | Weightings |
| | | | Base Salary | Cash | ●Cash | •Annual fixed cash compensation to attract and retain NEOs | |
 |  | | | | | | |
| | | | | | | | |
 | | | | | | | | |
| | | | Annual Incentive | | Variable Cash Incentive Program (VCIP) | 50% Operational Sustainability | |
 |  | |
● | | | •Safety & Operating Excellence (25%) | |
● | •Environment (15%) | |
● | •High-Performing Organization (10%) | |
| | | | | | 50% Financial Sustainability | |
● | | | | | | •Adjusted VCIP EBITDA (40%) | |
● | •Adjusted Controllable Costs (10%) | |
| | | | | | |
| | | | | | |
| | Long-Term
Incentives (LTI) | | Performance Share Program (PSP) | ● | Return on Capital Employed (50%) | |
50% of LTI Target 3-year performance period | ● | •Adjusted PSP ROCE (50%) •Relative TSR (50%) | |
 |  | 3-year performance period | | | |
| | | Stock Option Program(1)(2) 3-year ratable vesting period | ● | •Long-term stock price appreciation | |
| | | | Restricted Stock Unit (RSU) Program
3-year cliff vestvesting | ● | •Long-term stock price appreciation | |
(1)Adjusted VCIP EBITDA, Adjusted Controllable Costs and Adjusted PSP ROCE are non-GAAP financial measures. See Appendix B for reconciliations to the nearest GAAP financial measures.
(2)Excludes Mr. Garland as his compensation as Executive Chairman materially differs from the other NEOs. Mr. Garland's 2022 target compensation mix as Executive Chairman was 10% base salary, 15% annual incentive, and 75% long-term incentives.
(3)The Compensation Committee believes that stock options are inherently performance based, as options have no initial value and grantees only realize benefits if the value of our stock increases after the date of grant.
(1) | | The | | | |
Compensation Committee believes that stock options are inherently performance-based, as options have no initial valueDiscussion and grantees only realize benefits if the value of our stock increases after the date of grant. This practice is intended to ensure that the interests of our NEOs are aligned with those of our shareholders.Analysis | 43 |
44 Phillips 66 2022 Proxy Statement | | |
20212022 Operating, Financial and Company Highlights that Impacted Pay Outcomes |
|
Demonstrating Resilience in the Face of Challenging Market Conditions |
Our
We improved
our performance
in 2022 across a range of operating and financial performance measures. These results
for 2021 reflect our management team’s
significantongoing efforts and strategic decisions to navigate the
current market environment. Although the pandemic challenged our operationalwide range of macroeconomic and
financial environment, we demonstrated our resilience as a company. Duringgeopolitical challenges of the past
two years,few years. We are proud to have maintained our industry-leading personal safety performance in 2022, with injury rates among the best in Company history as we
tied our best-ever Tier 1 and Tier 2 combined process safety event rate of 0.13. Additionally, improved market conditions and our maintained our focus on operating excellence while also acting swiftlyled to improve liquidity and manage controllable costs, and as a result, we have returned to profitability. In 2021, we strengthened our balance sheet, leveraged the value of our diverse portfolio, and advanced major projects, all with a focus on a lower-carbon future.significant improvements in financial performance in 2022.
Our
20212022 results
illustrated by the blue bars, build onare built upon our sustained operating and financial performance over
prior years. Our total shareholder return since inception reflects the
past years.
cyclical nature of our industry and the resilience of our business over the long term. Our diversified, integrated portfolio provides us with the ability to maximize value throughout the commodity cycles.Operating Performance
(1) | | Dividends assumed to be reinvested in stock. Source: Bloomberg. |
(2) | | Peer average includes Performance Peer Group for 2021 |
(3) | | Company stock initiated trading in May 2012. |
| Compensation Discussion and Analysis 45 |
Company Performance
| | |
 | Operating Excellence | TIER 1 AND 2 PROCESS SAFETY EVENT RATE |
● | Maintained strong industry-leading personal safety performance; injury rate of 0.12 is second best in Company history | |
Financial Performance
| | | | | | | | | | | | | | |
●NET INCOME (LOSS) | Best-ever | ADJUSTED VCIP EBITDA(1) | | ADJUSTED PSP ROCE(1) |
| ($MM) | | ($MM) | | (%) |
| | | | |
| | | | | |
TOTAL SHAREHOLDER RETURN(2) | |
|
(1)Adjusted VCIP EBITDA and Adjusted PSP ROCE are non-GAAP financial measures. See Appendix B for reconciliations to GAAP.
(2)Presented on a simple average basis using the 2022 Performance Peer Group. Dividends assumed to be reinvested in stock. Phillips 66 common stock initiated trading on the NYSE in May 2012. Source: Bloomberg.
| | | | | |
| 44 | Phillips 66 2023 Proxy Statement |
Company Highlights
| | | | | |
| |
Achieve Operating Excellence Prioritizing safety, environmental stewardship, sustainability, reliability and cost efficiency while protecting shareholder value •Tied best-ever Tier 1 + Tierand 2 combined process safety event rate at 0.13 |
● | Advanced sustainability efforts: Established greenhouse gas•Expanded Greenhouse Gas emissions reduction targets to include a 2050 emissions intensity reduction targetstarget for Scope 1 and Scope 2 emissions •Recognized by American Fuel and 3Petrochemical Manufacturers for exemplary safety performance •Awarded American Petroleum Institute’s large operator Distinguished Pipeline Safety Award for the second consecutive year |
● | On target to achieve AdvantEdge66 program value targets; unlocked value through digital transformation |
 | Growth |
● | Drive Disciplined Growth Enhancing our portfolio by growing our integrated Midstream delivered record pre-tax income; completed C2G Ethane Pipeline project; advancing construction of Sweeny Frac 4 |
● | Reached agreement to buy-in public ownershipand Chemicals businesses, as well as executing our returns-focused lower-carbon strategy•Completed the acquisition of Phillips 66 Partners, LP |
● | Chemicals delivered record pre-tax income; continued•Increased ownership and integration of DCP Midstream to advance USGC II and RLPP |
● | Began production of renewable diesel at theenhance our wellhead-to-market strategy•Reached a final investment decision to convert our San Francisco Refinery into one of the world’s largest renewable fuels facilities •Reached a final investment decision at CPChem, our 50-50 joint venture, in early 2023 for the construction of two world-scale petrochemical facilities that are expected to be self-funded |
● | Developed Emerging Energy strategy, made investments in renewable feedstocks and battery value chain |
 | Returns |
● | Marketing & Specialties delivered record pre-tax income; acquired approximately 200 sites via US JV, upgraded over 1,000 sites globally |
● | Converted almost 600 California marketing sites to sell Renewable Diesel (RD), acquired a mobile RD refueler |
● | Expanded roll out ofDeliver Shareholder Returns Rewarding shareholders through continued dividend growth and share repurchases •Increased the Value Chain Supply Optimization engine to enhance general interest decision making |
 | Distributions |
● | Returned $1.6dividend by 5% in May 2022 and returned $1.8 billion in dividends to shareholders in 2022•Resumed share repurchases in the second quarter and repurchased $1.5 billion of shares in 2022 •Authorized a $5 billion increase to the share repurchase authorization in November 2022 •Announced a target to return $10 billion to $12 billion to shareholders through dividends and share repurchases between July 2022 and year-end 2024 |
● | Increased dividend by 2%; first increase since |
| |
Maintain Financial Strength & Flexibility Maintaining financial strength and disciplined capital allocation strategy to enhance resiliency •Generated $10.8 billion of operating cash flow •Ended the beginning of the pandemic and the ninth consecutive year with a higher annual dividend payout |
● | cash balance of $6.1 billion •Paid down $1.5$2.4 billion of debt progressing towards pre-pandemic debt levelsand ended the year with a net-debt-to-capital ratio of 24% •Implemented Business Transformation initiative to sustainably lower our cost structure, and captured a run-rate savings in excess of $500 million by year-end |
 | High-Performing Organization |
● | Improvements in employee engagement, manager effectiveness and performance enablement; established baseline metrics for Our Energy In Action and inclusive culture |
● | Advanced leader-led I&D effortsCultivate a High-Performing Organization Building capability, pursuing excellence, and doing the right thing •Responded to employee feedback by increasing engagementenhancing workplace benefits •Contributed $27 million to support the communities where we operate and transparencydonated over $7 million through metrics that will drive sustainable results |
● | Recognized externallymatching gifts and volunteer grant programs•Logged 88,000 employee volunteer hours •Received six external top employer recognition awards as a great place to work |
| | | | | |
●Compensation Discussion and Analysis | Continued to support the local communities where we operate through Company and employee-led volunteerism and contributions45 |
46 Phillips 66 2022 Proxy Statement | |
2021 Compensation Decisions | |
| 2022 Performance-Based Compensation Outcomes |
|
2020-2022 PSP 2019-2021 Payout
Aligning Performance Outcomes and Executive Pay with Shareholder Experience
Our Company’sPSP awards directly link our performance against rigorous targets, bothon an absolute and relative reflect our commitmentbasis to link pay and performance of our NEOs with the experience of our shareholders.
% OF TARGET COMPENSATION |
CEO
| Other NEOs
| Results under our long-term program, reflect the challenging environment that existed during the 2019-2021 performance period — for both our shareholders and our Company. As a result, a below-target payout of 61% was earned. |
| | |
| Payout |
| Threshold | Target
100% Payout | Maximum |
Return on Capital Employed (50% Weighting) |  |
Absolute ROCE (25%) |
Relative ROCE (25%) |
Total Shareholder Return (50% Weighting) |
TSR |
The 2020-2022 PSP 2019-2021 REALIZED VALUE
results reflected the dynamic nature of our business over the performance period, with a challenging economic environment early in the period offset by favorable market conditions and strong results in 2022. Ultimately, performance over the 2020-2022 PSP performance period resulted in a payout of 100% of target, as absolute non-GAAP Adjusted PSP ROCE performance was above maximum, and our relative TSR performance was below threshold.56%
of Initial Target Value
Due to the combined impact of the below target payout of the PSP program and the share price depreciation over the 3-year performance period, our NEOs realized 56% of the initial target value. |
| | | | | | | | | | | |
| |
| 2020 - 2022 PSP Metrics and Weightings | Performance Result | Weight | Payout |
| | | |
| | | |
Adjusted Return on Capital Employed (50% Weighting)(1) Adjusted PSP ROCE performance above maximum | Above Maximum | 50% | 200% |
| | | |
| | | |
Total Shareholder Return (50% Weighting) Relative TSR performance below threshold | Below Threshold | 50% | 0% |
| |
| Total 2020 - 2022 PSP Payout | 100% |
| Compensation Discussion and Analysis 47 |
(1)Adjusted PSP ROCE is a non-GAAP financial measure. See Appendix B for a reconciliation to the nearest GAAP financial measure. 20212022 VCIP Payout
Demonstrating Resilience and Delivering Improved Performance
In 2021,2022, we remained focused on our financial and operatingoperational performance including navigatingwhile pursuing a variety of lower-carbon priorities aligned with our long-term strategy. Overall payout of the pandemic2022 VCIP reflected our strong operational and thinking long-term about the energy transition. While we realized a strong recovery year, actual results were scrutinized relative to prior yearfinancial performance and negative discretion was applied to the payout.across our established metrics. The individual performance modifier for all NEOsexecutive officers was removed beginning in 2021 based on shareholder feedback, therefore, nofeedback. No additional compensation above companythe formulaic payout was delivereddelivered.
Our financial and operational performance in 2022 resulted in a payout of 166% of target for our 2022 VCIP due to strong results across most metrics, particularly Safety & Operating Excellence and non-GAAP Adjusted VCIP EBITDA. Non-GAAP Adjusted Controllable Costs was the NEOs.only metric to pay out below target.
% OF TARGET COMPENSATION | | | | | | | | | | | | | | |
CEO
| Other NEOs
| Our financial and operating performance in 2021 resulted in a 155% of target payout of our VCIP due to strong safety and operating excellence performance that positioned us to deliver strong financial performance as market conditions improved.Payout |
| 2022 VCIP Metrics and Weightings | | |
| Threshold | Target
100% Payout | Maximum 200% Payout | |
| Threshold | Target
100% Payout | Maximum | |
| | | | |
Operational Sustainability Metrics (50% Weighting) |  |
Safety & Operating Excellence (25%) |
Environment (15%) |
High-Performing Organization (10%) | | |
| |
| |
Financial Sustainability Metrics (50% Weighting) |
Adjusted Controllable Costs (10%)(1) Adjusted VCIP EBITDA (40%)(1) | |
| | |
(1)Adjusted Controllable Costs and Adjusted VCIP EBITDA are non-GAAP financial measures. See Appendix B for a reconciliation to the nearest GAAP financial measures.
For more details regarding the Company's performance relative to the 2022 VCIP performance metrics, see Variable Cash Incentive Program (VCIP) - 2022 Payout beginning on page 57, and for more details regarding the 2020-2022 PSP payout, see Performance Share Program 2020 - 2022 Payout on page 51.
| | | | | |
| 46 | Phillips 66 2023 Proxy Statement |
| | | | | |
| EXECUTIVE COMPENSATION PROGRAM DETAILS |
|
Total Rewards Philosophy and Guiding Principles
Our executive compensation program is built upon the company-wide Total Rewards Philosophy and Guiding Principles, which are aligned with our corporate vision, strategy and values. The Compensation Committee regularly reviews our Philosophy and Guiding Principles. Our programs are designed to attract, retain, develop and reward a high-performing workforce to successfully execute our corporate strategy by:
•Compensating all employees equitably regardless of race, gender, or other personal characteristics
•Paying for performance and driving the actions and behaviors of our employees, consistent with shareholder value creation, prudent risk-taking and a long-term perspective
•Providing competitive total compensation aligned with market practice
•Responding to the priorities of our evolving workforce
| | | | | |
| |
| “Our compensation program is an outgrowth of our Company’s business strategy, values and culture. As we cultivate a high-performing organization, we are working to meet the world’s growing energy needs and ensure that all of our team members can reach their full potential. These are the building blocks for financial results that translate into shareholder returns.” – Sonya Reed, SVP, Chief Human Resources Officer |
| |
2022 Target-Setting Methodology
The Compensation Committee establishes targets and goals that demand strong performance relative to peers, are aligned with corporate strategy, and protect and create shareholder value. In addition, our compensation program is used to educate, reinforce and focus our employees on areas important to key stakeholders — shareholders, customers, directors, management and our local communities.
Our target-setting process reflects changes in our operational and financial environment, so targets may vary year-over-year and relative to prior year performance while still representing a comparable level of challenge for our executive team.
| | |
|
EMPHASIZING THE IMPORTANCE OF RETURNS – EMBEDDING WACC IN OUR TARGET SETTING PROCESS We use Weighted Average Cost of Capital (WACC) as part of our target-setting for the VCIP to set the non-GAAP Adjusted VCIP EBITDA targets and in our PSP to set the non-GAAP Adjusted PSP ROCE targets. WACC represents our blended cost of capital across our businesses. Results above our WACC reflect the ability of our executives to effectively manage capital and capture market opportunities, which results in value creation for our shareholders. Our executives must deliver results that are at least 1.5 percentage points above our WACC to receive a target payout for either the non-GAAP Adjusted VCIP EBITDA metric or the non-GAAP Adjusted PSP ROCE metric. |
|
| | | | | |
| |
| “Our anchoring of metrics used in our compensation program around the company’s WACC reflects the Compensation Committee’s commitment to upholding shareholder value creation principles. This metric provides a point of reference to incentivize our executives throughout changing macroeconomic environments and strategic business needs.” – Lisa Davis, Member, Human Resources and Compensation Committee |
| |
| | | | | |
| Compensation Discussion and Analysis | 47 |
| | |
| Elements of Executive Compensation |
|
Base Salary
% OF TARGET COMPENSATION
| | | | | | | | |
CEO | Other NEOs | Base salary is designed to provide a competitive and fixed rate of pay recognizing employees’ different levels of responsibility and performance. As the majority of our NEO compensation is performance based and tied to long-term programs, base salary represents a less significant component of total compensation. |
Below is a summary of the annualized base salary for each NEO for 2022. In making salary decisions in 2022, the Compensation Committee considered factors including, but not limited to, the responsibility level for the position held by each NEO, market data from the compensation peer group for comparable roles, the individual's experience, expertise, and performance review, internal pay equity, and recent business results.
Because these amounts reflect each NEO’s base salary as of the dates indicated, this information may vary from the information provided in the Summary Compensation Table, which reflects actual base salary earnings in 2022, including the effect of salary changes during the year.
| | | | | | | | |
| Name | Salary as of
1/1/2022
($) | Salary as of
12/31/2022
($) |
| Mark Lashier | 1,100,000 | | 1,500,000 |
| Greg Garland | 1,675,008 | | 1,000,000 |
| Kevin Mitchell | 903,432 | | 961,704 |
| Vanessa Allen Sutherland | — | | 750,000 |
| Brian Mandell | 750,000 | | 820,050 |
| Tim Roberts | 887,424 | | 940,226 |
| | | | | |
| 48 | Phillips 66 2023 Proxy Statement |
| | |
| Long-Term Incentives - 2022 Program Design |
|
% OF TARGET COMPENSATION
| | | | | | | | | | | |
| | | |
| | Restricted Stock Units (RSUs) The number of RSUs granted is determined based on the fair market value of Company stock on the date of grant. RSUs awarded to our NEOs in February 2022 cliff vest after three years. RSUs do not carry voting rights but do earn dividend equivalents during the vesting period. RSUs are typically granted in February each year. The Compensation Committee assesses the individual performance of each NEO and based on that assessment, may adjust an award by up to +/–30% of the target amount at grant. | |
| | | |
| | | |
| | Stock Options These awards are inherently performance based, as the stock price must increase before the executive can realize any value. We believe stock options drive behaviors and actions that enhance long-term shareholder value. Stock options are typically granted in February each year. The number of stock options awarded is calculated based on the Black-Scholes-Merton model. The exercise price of stock options is set at 100% of the fair market value of our common stock on the date of grant. Stock options granted to our NEOs in February 2022 vest ratably over a three-year period and have a ten-year term. Stock options do not have voting rights and are not entitled to receive dividends. | |
| | | |
| | | |
| | Performance Share Program (PSP) Each PSP has a three-year performance period, and therefore three overlapping PSPs are in progress at any given time. Programs in effect during 2022 were PSP 2020-2022, PSP 2021-2023, and PSP 2022-2024. The target number of shares is determined by dividing the target value by the average of the stock’s fair market value for the 20 trading days prior to the start of the performance period, less anticipated dividends during the performance period. The Compensation Committee assesses the individual performance of each NEO and based on that assessment, may adjust an award by up to +/–30% of the target amount at grant. Performance adjustments to the number of target shares are applied at the beginning of the performance period, rather than the end, so that performance-adjusted compensation is subject to Company performance and market volatility throughout the performance period, aligning executive compensation with shareholder interests. •Target shares may be adjusted during the performance period for promotions that occur during the performance period. •Executives hired after the start of the performance period may receive prorated target shares in ongoing PSP cycles, at the discretion of the Compensation Committee, so that their interests are immediately aligned with the Company’s long-term goals and shareholder interests. •Awards under the PSP programs are denominated in shares but are paid in cash using the average stock fair market value for the last 20 trading days of the performance period. | |
| | | |
| | | | | |
| Compensation Discussion and Analysis | 49 |
| | |
| Performance Share Program - Metrics and Targets |
|
% OF TARGET COMPENSATION
| | | | | | | | |
CEO | Other NEOs | The performance metrics used for the 2020-2022 PSP are non-GAAP absolute adjusted return on capital employed (Adjusted PSP ROCE) and relative total shareholder return (TSR) based on a 20-trading day average closing price. |
| | | | | | | | | | | | | | |
| | | | |
| | Relative TSR The Compensation Committee recognizes that relative TSR is the most common performance metric for comparisons to peers. Our performance is assessed as compared to our Performance Peer Group and the S&P 100 Index. Starting with the 2019-2021 PSP program, we added a cap on the portion of the PSP earned based on relative TSR if absolute TSR is negative. Additionally, starting with the 2022-2024 PSP program, the portion of the PSP earned based on relative TSR requires performance above the 50th percentile relative to the peer group to achieve a target payout (this is not reflected in the target listed below, which reflects the 2020-2022 PSP). We made these changes in response to shareholder input and in order to better align pay with corporate performance and shareholder experience. | |
| | | | |
| | Threshold | Above 10th percentile of Performance Peers | |
| | Target | 50th percentile of Performance Peers | |
| | Maximum | Above 90th percentile of Performance Peers | |
| | | |
| | | | |
| | | | |
| | Adjusted PSP ROCE (non-GAAP) The Compensation Committee considers Adjusted PSP ROCE an important measure of Company growth, shareholder value creation and overall performance. | |
| | | |
| Threshold | 3.4% Delivers sustaining capital and dividend payments over 3-year performance period | |
| Target | 8.3% Delivers WACC +1.5% over 3-year performance period | |
| Maximum | 9.8% Delivers WACC +3.0% over 3-year performance period | |
| | | |
| Aligned with other peers’ practices, we have historically adjusted ROCE for “special items” that are not representative of our underlying operating performance. The Compensation Committee carefully evaluates all such adjustments to understand the impacts the adjustment would have on compensation outcomes and how the item factored into the Company’s operating and financial outcomes. | |
| | | | |
| | | | | |
| 50 | Phillips 66 2023 Proxy Statement |
| | |
| Performance Share Program – 2020 - 2022 Payout |
|
The Compensation Committee considered the following results when approving the payout of the 2020-2022 PSP at 100% of target. The Compensation Committee certified the results of the 2020-2022 PSP in February 2023, and payout of the award is described further below and in the footnotes to the Summary Compensation Table.
| | | | | | | | | | | |
| |
| 2020 - 2022 PSP Metrics and Weightings | Performance Result | Weight | Payout |
| | | |
| | | |
Adjusted Return on Capital Employed (50% Weighting)(1) Adjusted PSP ROCE performance above maximum | Above Maximum | 50% | 200% |
| | | |
| | | |
Total Shareholder Return (50% Weighting) Relative TSR performance below threshold | Below Threshold | 50% | 0% |
| |
| Total 2020 - 2022 PSP Payout | 100% |
(1)Adjusted PSP ROCE is a non-GAAP financial measure. See Appendix B for a reconciliation to the nearest GAAP financial measure.
| | | | | | | | | | | | | | | | | |
| Adjusted PSP ROCE Performance | |
| Metric | Threshold (3.4%) | Target (8.3%) | Maximum (9.8%) | |
| | | | | |
| Adjusted PSP ROCE | | |
| | | |
Performance Results
ADJUSTED RETURN ON CAPITAL EMPLOYED
•Non-GAAP Adjusted PSP ROCE paid out at a maximum of 200% of target as the average Adjusted PSP ROCE for the performance period of 11.2% exceeded the maximum performance level of 9.8%.
RELATIVE TOTAL SHAREHOLDER RETURN
•Our TSR performance of 4.5% was below the threshold level relative to our 15 peers, including 13 peer companies, the S&P 100 Index and Phillips 66. This resulted in a payout of 0% of target for relative TSR performance, weighted at 50% of the target 2020-2022 PSP award.
| | | | | |
| Compensation Discussion and Analysis | 51 |
The Compensation Committee considers individual performance when determining the target LTI to be granted to each of the NEOs. After considering individual achievements, the Compensation Committee approved the following LTI target award values for the NEOs for 2022. These values may not match the accounting values presented in the Grants of Plan-Based Awards table.
| | | | | | | | | | | | | | |
| Name | 2022-2024 PSP
($) | Stock
Options
($) | RSUs
($) | Total
Target(1)
($) |
| Mark Lashier | 4,869,167 | | 1,975,000 | | 2,126,250 | | 8,970,417 | |
| Greg Garland | 5,000,000 | | 2,500,000 | | 2,500,000 | | 10,000,000 | |
| Kevin Mitchell | 2,493,472 | | 1,038,947 | | 1,246,736 | | 4,779,155 | |
Vanessa Allen Sutherland(2) | 1,200,000 | | 600,000 | | 600,000 | | 2,400,000 | |
| Brian Mandell | 1,620,000 | | 675,000 | | 810,000 | | 3,105,000 | |
| Tim Roberts | 1,916,836 | | 798,682 | | 958,418 | | 3,673,936 | |
(1)2022 – 2024 PSP and RSU targets include individual performance adjustments for Mr. Lashier (+10%), Mr. Mitchell (+20%), Mr. Mandell (+20%), and Mr. Roberts (+20%). No adjustments were made to stock option targets.
(2)Amounts shown do not include Ms. Sutherland's sign-on equity grant described under Make-Whole Equity Grant for Vanessa Allen Sutherland on page 41.
| | | | | |
| 52 | Phillips 66 2023 Proxy Statement |
| | |
| Variable Cash Incentive Program (VCIP) – Program Design |
|
| | | | | | | | |
| % OF TARGET COMPENSATION |
| | |
CEO | Other NEOs | The VCIP, which is our annual incentive program, is designed to provide payout variability and differentiation based on corporate performance. Through our operational and financial metrics, we designed our VCIP program to align annual awards with shareholder interests and execution of our corporate strategy. The metrics are weighted to balance operational sustainability considerations and financial sustainability considerations, which we believe is appropriate in light of the annual nature of the VCIP and relatively smaller value of the VCIP versus the LTI program. We do not link executive officer VCIP awards to the performance of any individual business unit. We believe this structure serves the best interests of shareholders as it promotes collaboration across the organization. |
Eligible earnings, defined as base salary earned during the year, are multiplied by a VCIP target percentage that is based on each NEO’s salary grade level to derive the NEO’s target VCIP award. At the end of the performance period, the Compensation Committee reviews the Company’s performance against established metrics to determine the payout percentage, which may range from 0% to 200% of target.
2022 Variable Cash Incentive Program – Payout Formula
| | | | | | | | | | | | | | | | | | | | |
| | | | | | |
$ Eligible Earnings | × | % Target Percentage | × | % Payout Percentage | = | $ Total VCIP Payout |
| | | | | | |
2022 Variable Cash Incentive Program – Metrics and Weightings
| | | | | |
| Compensation Discussion and Analysis | 53 |
| | |
| Variable Cash Incentive Program (VCIP) – Metrics and Targets |
|
| | |
|
Operational Sustainability 50%:Half of our VCIP is based on Operational performance because strong safety, reliability and operating excellence are fundamental to our business success. It also enables the Company to maximize market opportunities, generate higher returns and create shareholder value. |
|
| | | | | | | | | | | | | | |
| | | | |
| | High-Performing Organization Maintaining and enhancing a high-performing organization is critical to our success and is part of our human capital management strategy. Our employees promote our culture and are integral to achieving our strategic goals and maximizing long-term shareholder value. We measure our High-Performing Organization performance relative to the following: •Culture: foster behaviors that promote our unique culture •Capability: build depth and breadth in our skills •Performance: deliver exceptional, sustainable results | |
| | | | |
| | | | |
| | Environment For environmental performance, we set targets based on our historical performance for Agency Reportable Environmental Events and Spill Volumes normalized for throughput. Targets are expected to become more challenging each year to drive continuous performance improvement. Starting in 2021, we enhanced the environmental component to include two new metrics: Lower-Carbon Priorities and Greenhouse Gas Priorities. These priorities reflected efforts to advance lower-carbon investments, optimization, and innovation as well as efforts to reduce manufacturing emissions intensity and setting GHG emissions intensity reduction targets. For 2022, these metrics were combined into one metric – Lower-Carbon / GHG Priorities – weighted at 10% of the target VCIP opportunity. | |
| | | | |
| | | | |
| | Safety & Operating Excellence For personal and process safety performance, we measure ourselves against the top performing companies in our industry. Generally, these companies fall within the top two quartiles of all companies reported. We then establish our threshold, target, and maximum goals based on the performance (25th, 50th, and 75th percentiles) of this group of companies. For asset availability, for which comparative data is not available, we establish our threshold, target, and maximum goals based on our operating plan and historical performance with the goal of continuous improvement, incorporating the segments of our business and weighting them by adjusted EBITDA. | |
| | | | |
| | | | | |
| 54 | Phillips 66 2023 Proxy Statement |
| | |
|
Financial Sustainability 50%: The other half of our VCIP is based on Financial performance to ensure our executives effectively manage costs and deliver financial results above our WACC. |
|
| | | | | | | | | | | | | | |
| | | | |
| | Adjusted Controllable Costs (non-GAAP) For Adjusted Controllable Costs, we measure our effectiveness in managing costs and set our threshold, target, and maximum based on our annual budget. | |
| | | |
| Threshold | $5.093 billion | |
| Target | $4.851 billion | |
| Maximum | $4.608 billion | |
| | | |
| The 2022 Adjusted Controllable Costs target excludes turnarounds and utilities expenses, and includes $200 million in cost reductions as part of our Business Transformation. | |
| | | | |
| | | | |
| | Adjusted VCIP EBITDA (non-GAAP) Adjusted VCIP EBITDA measures our ability to create shareholder value. Our threshold is the Adjusted VCIP EBITDA required to cover our budgeted sustaining capital and annualized common stock dividend payment, and target and maximum are set at Adjusted VCIP EBITDA levels that equate to ROCE levels 1.5 and 3.0 percentage points above our WACC. | |
| | | | |
| | Threshold | $4.094 billion | |
| | Target | Adjusted VCIP EBITDA equivalent to ROCE of WACC + 1.5 percentage points ($6.333 billion) | |
| | Maximum | Adjusted VCIP EBITDA equivalent to ROCE of WACC + 3.0 percentage points ($7.044 billion) | |
| | | | |
| | The 2022 Adjusted VCIP EBITDA target increased from $5.4 billion in 2021 to approximately $6.3 billion in 2022 as a result of the Company's WACC increasing to 7.0%. | |
| | | | |
| | |
| Variable Cash Incentive Program (VCIP) – 2022 Payout |
|
The Company's 2022 actual performance resulted in a payout of 166% of target.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Weight | Threshold | Target | Maximum | 2022 Actual |
Payout |
| | Safety & Operating Excellence | | | | | | | | | | |
| Total Recordable Rate (TRR) | 7.5 | % | | 0.32 | | 0.21 | | 0.16 | | 0.11 | 190 | % |
| Process Safety Event Rate – Tier 1 & 2 | 7.5 | % | | 0.24 | | 0.15 | | 0.14 | | 0.13 | 200 | % |
| Asset Availability | 10 | % | | 93.2 | % | | 94.7 | % | | 96.2 | % | | 97.4 | % | 200 | % |
| Environment | | | | | | | | | | |
| Lower-Carbon / GHG Priorities | 10 | % | | - | | - | | - | | - | 100 | % |
| Environmental Performance | 5 | % | | 0.088 | | 0.077 | | 0.065 | | 0.071 | 150 | % |
| High-Performing Organization | 10 | % | | - | | - | | - | | - | 120 | % |
| | | | | | | | | | | | |
| | Adjusted Controllable Costs ($MM)(1) | 10 | % | | $5,093 | | $4,851 | | $4,608 | | $4,993 | 71 | % |
| Adjusted VCIP EBITDA ($MM)(1) | 40 | % | | $4,094 | | $6,333 | | $7,044 | | $15,090 | 200 | % |
| | | | | | | | | | TOTAL | 166 | % |
(1)Adjusted Controllable Costs and Adjusted VCIP EBITDA are non-GAAP financial measures. See Appendix B for a reconciliations to the nearest GAAP financial measure.
| | | | | |
| Compensation Discussion and Analysis | 55 |
2022 VCIP Performance Results by Metric
SAFETY & OPERATING EXCELLENCE
•Total Recordable Rate: Performance of 0.11 tied our 2020 performance, which was the best in the Company's history. The Compensation Committee applied negative discretion to reduce the award as a result of contractor incidents in 2022.
•Tier 1 and 2 Process Safety Rate: Performance of 0.13 was tied for the best in Company history.
•Asset Availability: Average full-year availability of 97.4% was above our maximum performance level. The availability to run metric is weighted at 60% of Refining, 30% Pipelines and Terminals and 10% Fractionation assets.
| | | | | | | | | | | |
| Payout |
| Metric and Weighting | Threshold | Target | Maximum |
| | | |
| Safety & Operating Excellence (25%) | |
| |
ENVIRONMENT
•Lower-Carbon / GHG Priorities: In 2022, we progressed efforts in support of the energy transition and a lower-carbon future by advancing our projects in renewable fuels, including Rodeo Renewed, continuing our partnership with NOVONIX, establishing our market position in carbon capture, progressing our projects in hydrogen, and securing renewable power supply at key sites.
•Environmental Performance: Our performance was 8% improved over target.
| | | | | | | | | | | |
| Payout |
| Metric and Weighting | Threshold | Target | Maximum |
| | | |
| Environment (15%) | |
| |
HIGH-PERFORMING ORGANIZATION
•Provided $27 million to support the communities where we operate.
•Recorded 88,000 employee volunteer hours and $7.4 million in matching gifts and volunteer grants.
•Maintained an engaged workforce with 93% retention of high performers, saw a significant increase in the hiring of underrepresented minorities and enhanced workplace benefits.
•Received six external top employer recognition awards.
•Implemented Business Transformation initiatives totaling approximately $0.6 billion of run-rate value at year-end.
•Continued to progress Digital Innovation across the enterprise.
| | | | | | | | | | | |
| Payout |
| Metric and Weighting | Threshold | Target | Maximum |
| | | |
| High-Performing Organization (10%) | |
| |
| | | | | |
| 56 | Phillips 66 2023 Proxy Statement |
ADJUSTED CONTROLLABLE COSTS
•In 2022, non-GAAP Adjusted Controllable Costs were slightly above 2021 levels and 3% impaired versus target, mainly due to inflationary pressure.
| | | | | | | | | | | |
| Payout |
| Metric and Weighting | Threshold | Target
100% Payout | Maximum |
| | | |
| Adjusted Controllable Costs (10%) | |
| |
ADJUSTED VCIP EBITDA
•In 2022, non-GAAP Adjusted VCIP EBITDA significantly exceeded our maximum performance level, as well as 2021 Adjusted VCIP EBITDA ($5.921 billion) attributable to favorable market conditions and strong operating performance.
| | | | | | | | | | | |
| Payout |
| Metric and Weighting | Threshold | Target
100% Payout | Maximum |
| | | |
| Adjusted VCIP EBITDA (40%) |
48 Phillips 66 2022 Proxy Statement | |
| | |
|
VCIP Developments for 2021: Removed the individual performance modifier for all NEOs. New VCIP Developments for 2022: Continued to weight the target VCIP toward 50% operational and 50% financial sustainability metrics, but changes to the individual metric weightings were made to reinforce our commitment to best-in-class safety performance and progress of lower-carbon initiatives: •Safety & Operating Excellence: Total Recordable Rate and Process Safety Event Rate were weighted equally at 7.5% and Process Safety Event Rate included both Tier 1 and Tier 2 safety events. •Environmental: GHG Priorities and Lower-Carbon Priorities were combined into a single metric weighted at 10%. Environment Performance continues at a 5% weighting. We redesigned this metric in 2022 to include Agency Reportable Events and Spills normalized for throughput. |
|
The total VCIP payout for each of our NEOs is shown in the table below.
| | | | | | | | | | | | | | |
| Name | 2022 Eligible
Earnings ($) | Target VCIP
Percentage
(%) | VCIP
Payout
Percentage (%) |
Total
Payout ($) |
Mark Lashier(1) | 1,314,667 | 130 | % | 166 | % | 2,837,051 |
| Greg Garland | 1,337,504 | 160 | % | 166 | % | 3,552,411 |
| Kevin Mitchell | 951,992 | 100 | % | 166 | % | 1,580,306 |
| Vanessa Allen Sutherland | 718,750 | 85 | % | 166 | % | 1,014,156 |
| Brian Mandell | 808,375 | 90 | % | 166 | % | 1,207,712 |
| Tim Roberts | 931,426 | 90 | % | 166 | % | 1,391,550 |
(1) Mr. Lashier's target represents a weighted average as a result of his promotion in July 2022.
| | | | | |
| Compensation Discussion and Analysis | 57 |
| | | | | |
| PARTICIPANTS IN COMPENSATION-SETTING |
|
| | |
| Role of the Compensation Committee |
|
The Compensation Committee reviews and determines all elements of compensation for the Company's executive officers with input from its independent compensation consultant, consideration of compensation peer group pay levels and practices, and feedback from our shareholders. In fulfilling its duties, the Compensation Committee is supported by the Company's Chief Human Resources Officer and receives recommendations from the CEO and Executive Chairman regarding the performance and compensation of other executive officers. No member of management has any role in determining his or her own compensation.
| | | | | |
Authority and
Responsibility of the Compensation Committee | •Provides independent, objective oversight of our executive compensation programs and determines the compensation for our senior officers. •Acts as plan administrator of the compensation programs and benefit plans for our senior officers and as an avenue of appeal for current and former executive officers regarding disputes over compensation and benefits. •Oversees the Company’s executive compensation philosophy, policies, plans and programs for our executive officers. •Assists the Board in its oversight of the integrity of the Company’s Compensation Discussion and Analysis. |
| | |
| Compensation Determination Process |
|
| | | | | | | | | | | | | | |
| | | | |
| | | | |
| FEBRUARY •Approve VCIP and PSP payouts at the end of the performance period •Approve VCIP and PSP performance goals for the performance period •Review individual executive officer performance and compensation levels | | JULY •Review of compensation peer group proxies (disclosing previous compensation program) •Review compensation and performance peer groups •Receive a VCIP and PSP Performance Update | |
| | | | |
| | | | |
| Compensation Committee Oversight | |
| | | | |
| | | | |
| DECEMBER •Approve VCIP and LTI program design, award terms and conditions, and metrics and weightings for the following year •Review of VCIP and PSP performance goals for the following year •Approve executive salary structure (including LTI targets) for following year •Receive a VCIP and PSP Performance Update | | OCTOBER •Approve compensation and performance peer groups •Review of VCIP program design/terms & conditions, and metrics and weightings •Review of RSU and Stock Options program design/terms & conditions •Review of PSP program design/terms & conditions, and metrics and weightings •Receive a VCIP and PSP Performance Update | |
| | | | |
| | | | |
| | | | | |
| 58 | Phillips 66 2023 Proxy Statement |
The Compensation Committee is committed to a process of continuous improvement in exercising its responsibilities. To that end, the Compensation Committee:
•Receives updates regarding evolving best practices in executive compensation.
•Regularly reviews its responsibilities and compensation governance practices in light of ongoing legal and regulatory changes.
•Annually reviews its charter and proposes any desired changes to the Board.
•Annually conducts a self-assessment of its performance and effectiveness, and seeks ideas to improve its processes and oversight.
•Regularly reviews and assesses whether the Company’s executive compensation program is having the desired effects without encouraging an inappropriate level of risk.
•Regularly reviews all of its activities, including its self-assessment and a compensation risk assessment, with the full Board.
| | |
| Role of the Independent Compensation Consultant |
|
In 2022, the Compensation Committee retained Mercer as its independent executive compensation consultant.
| | | | | |
Independent
Compensation
Consultant | Advises the Compensation Committee on: •Compensation program design and processes relative to external corporate governance standards. •Appropriateness of our executive compensation program in comparison to those of our peers. •Effectiveness of the compensation program in accomplishing the objectives set by the Compensation Committee. |
The Compensation Committee evaluated whether Mercer’s work raised any conflict of interest and determined that no such conflict existed. During 2022, fees paid to Mercer in its role as the independent compensation consultant for the Compensation Committee totaled $130,990. In reviewing Mercer's independence, the Compensation Committee considered fees paid by the Company to Mercer totaling $1.5 million during 2022 for services performed for the Company. These services can be broken down as 37% related to administration of pension liabilities in international locations that have been sold, 27% related to administration of ongoing international benefit plans, 30% related to human resources consulting engagements, and 6% related to insurance and surety bonds.
| | |
| Role of our Peer Companies |
|
Peer Group Selection & Rationale
Due to the size and complexity of our Company and diversification of assets, we utilizethe Compensation Committee utilizes both (1) a compensation peer group and (2) a performance peer group. The Compensation Committee thoughtfully selects the peers in each peer group, evaluates their inclusion on an annual basis, and makes adjustments as necessary. The Compensation Committee uses the compensation peer group to evaluate and determine compensation levels for our NEOs, including base salary levels and targets for our annual bonus and LTI programs. The Compensation Committee uses the performance peer group to evaluate our relative TSR performance under our PSP program.
2021 | | | | | |
| Compensation Discussion and Analysis | 59 |
| | | | | | | | | | | |
| | | |
| 2022 COMPENSATION PEER GROUP | | | 20192020 - 20212022 PERFORMANCE PEER GROUP |
| | | |
| | | |
| Used to evaluate and determine compensation levels for our NEOs, including base salary levels and targets for our annual bonus and LTI programs | | | Used to evaluate our relative ROCE and relative TSR performance for our 20192020 – 20212022 Performance Share Program |
| | | |
| | | |
•Archer-Daniels-Midland Company●
•Dow Inc.● Exxon Mobil Corporation
●
•Honeywell International Inc.●
•LyondellBasell Industries N.V.●
•Marathon Petroleum Corporation●
•Occidental Petroleum Corporation●
•The Williams Companies, Inc.●
•Valero Energy Corporation | | | •Delek US Holdings, Inc.● HollyFrontier
•HF Sinclair Corporation●
(1) •Marathon Petroleum Corporation●
•Valero Energy Corporation Midstream ● Enterprise Products
•Magellan Midstream Partners, L.P.●
•MPLX LP •The Williams Companies, Inc. Chemicals ● Celanese Corporation
● Eastman Chemical Company
●
•Dow Inc. •LyondellBasell Industries N.V.● Huntsman Corporation
●
•Westlake Corporation |
| | | |
| | | |
Our compensation peer group includes companies that are comparable to Phillips 66 based on three primary criteria –— assets, market capitalization, and business operations. Revenue is an additional, secondary criterion. The compensation peer group primarily consists of large companies with which we compete for talent. While some of our compensation peers fall outside our industry, the Compensation Committee believes their size, significant capital investments, and similarly complex international operations make them appropriate peers against which to benchmark our compensation levels and practices. At the time the compensation peer group was thoughtfully determined, Phillips 66 was at the 43rd41st percentile in assets, 63rd43rd percentile in market value, and 65th66th percentile in revenue. | | | Criteria for Selection Phillips 66 is uniquely positioned in the energy industry, with a large refining and marketing base, a growing midstream/NGL business and significant petrochemical operations.
To reflect our unique portfolio of assets, we include companies operating in each of our three major segments – Refining and Marketing, Midstream and Chemicals. The performance peer group is used in the PSP program to assess relative ROCE and TSR performance. We believe that our performance peer group is representative of the companies that investors use for relative performance comparisons. In addition to our performance peer group, we include the S&P 100 Index in the assessment of our relative TSR performance. The Compensation Committee believes the S&P 100 is an appropriate comparison for performance purposes as the index reflects companies with which we compete for capital in the broader market. |
| Compensation Discussion and Analysis 49 |
EXECUTIVE COMPENSATION PROGRAM DETAILS | |
|
Total Rewards Philosophy and Guiding Principles | |
|
Our Total Rewards Philosophy and Guiding Principles form the foundation upon which our programs are developed in alignment with our corporate vision, strategy and values. The Compensation Committee regularly reviews our Philosophy and Guiding Principles. Our programs are designed to attract, retain, develop and reward a high-performing workforce to successfully execute our corporate strategy by:
● | Compensating all employees equitably regardless of race, gender, or other personal characteristics |
● | Paying for performance and driving the actions and behaviorsChanges from 2021 to 2022 Compensation Peer Group To better position our peer group to accurately reflect businesses of our employees, consistent with shareholder value creation, prudent risk-taking and a long-term perspective |
● | Providing competitive Total Rewards aligned with market practice |
● | Responding to the priorities of our evolving workforce |
% OF TARGET COMPENSATION | |
CEO
| Other NEOs
| Base salary is designed to provide a competitive and fixed rate of pay recognizing employees’ different levels of responsibility and performance. As the majority of our NEO compensation is performance-based and tied to long-term programs, base salary represents a less significant component of total compensation. In setting each NEO’s base salary, the Compensation Committee considers factors including, but not limited to, the responsibility level for the position held, market datasize, Exxon Mobil Corporation was removed from the compensation peer group for comparable roles, experience and expertise, individual performance and business results. |
| group. | | |
Below is a summary of the annualized base salary for each NEO for 2021. Because these amounts reflect each NEO’s annualized salary as of the dates indicated, this information may vary from the information provided in the Summary Compensation Table, which reflects actual base salary earnings in 2021, including the effect of salary changes during the year.
| Name | | Salary as of
1/1/2021
($) | | | Salary as of
12/31/2021
($) |
| Greg Garland | | | 1,675,008 | | | | 1,675,008 | (1) |
| Mark Lashier | | | N/A | | | | 1,100,000 | |
| Kevin Mitchell | | | 903,432 | | | | 903,432 | |
| Robert Herman | | | 870,432 | | | | 870,432 | |
| Tim Roberts | | | 887,424 | | | | 887,424 | |
| |
(1) | Mr. Garland’s base salary has remained unchanged since March 1, 2017. |
The Executive Leadership Team deferred the annual merit increase for all eligible employees in 2021 in response to challenging market conditions due to the ongoing impacts of the COVID-19 pandemic.
50 Phillips 66 2022 Proxy Statement | |
2021 Target Setting Methodology | |
|
The Compensation Committee establishes targets and goals that demand strong performance relative to peers, are aligned with corporate strategy, and protect and create shareholder value. In addition, our compensation program is used to educate, reinforce and focus our employees on areas important to key stakeholders — shareholders, customers, directors, management and our local communities.
Our target-setting process reflects changes in our operating and financial environment, so targets may decline relative to prior year performance while still representing a comparable level of challenge for our executive team.
EMPHASIZING THE IMPORTANCE OF RETURNS – EMBEDDING WACC IN OUR TARGET SETTING PROCESS
We use Weighted Average Cost of Capital (WACC) as part of our target-setting practice in our VCIP to set the Adjusted EBITDA targets and in our PSP to set the Adjusted ROCE targets. WACC represents our blended cost of capital across our businesses. Performance or results above our WACC reflect the ability of our executives to effectively manage capital and capture market opportunities, which results in value creation for our shareholders. Our executives must deliver results that are at least 1.5 percentage points above our WACC to receive a target payout in either the EBITDA metric in VCIP or the ROCE metric in PSP.
| Compensation Discussion and Analysis 51 |
Long-Term Incentives – Program Design | |
|
% OF TARGET COMPENSATION | |
CEO
| Other NEOs
| |
 |  | |
| 50% | 25% | 25% | |
| | | | |
| | | Restricted Stock Units The number of RSUs is determined based on the fair market value of Company stock on the date of grant. RSUs awarded to our NEOs in February 2021 cliff vest after three years. RSUs do not carry voting rights but do earn dividend equivalents during the vesting period. RSUs are typically granted in February each year. The Compensation Committee assesses the individual performance of each NEO and based on that assessment, may adjust an award by up to +/–30% of the target amount at grant. |
| | Stock Options These awards are inherently performance-based, as the stock price must increase before the executive can realize any value. We believe stock options drive behaviors and actions that enhance long-term shareholder value. Stock options are typically granted in February each year. The number of options awarded is calculated based on the Black-Scholes-Merton model. The exercise price of stock options is set at 100% of the fair market value of our common stock on the date of grant. Stock options granted to our NEOs in February 2021 vest ratably over a three-year period and have a ten-year term. Stock options do not have voting rights and are not entitled to receive dividends. |
Performance Share Program (PSP) Each PSP has a three-year performance period, and therefore three PSPs are in progress at any time. Programs in effect during 2021 were PSP 2019-2021, PSP 2020-2022, and PSP 2021-2023. The number of shares is determined by dividing the target value by the average of the stock’s fair market value for the 20 trading days prior to the start of the performance period, less anticipated dividends during the performance period. The Compensation Committee assesses the individual performance of each NEO and based on that assessment, may adjust an award by up to +/–50% of the target amount at grant. Performance adjustments to the number of target shares are applied at the beginning of the performance period, rather than the end, so that performance-adjusted compensation is subject to Company performance and market volatility throughout the performance period, aligning executive compensation with shareholder interests. ● Target shares may be adjusted during the performance period for promotions that occur during the performance period. ● NEOs hired after the start of the performance period may receive prorated target shares in ongoing PSP cycles, at the discretion of the Compensation Committee, so that their interests are immediately aligned with the Company’s long-term goals and shareholder interests. ● Awards under the PSP programs are denominated in shares but are paid in cash using the average stock fair market value for the last 20 trading days of the performance period. |
52 Phillips 66 2022 Proxy Statement | |
Changes from 2019-2021 to 2020-2022 Performance Share Program - Metrics and Target | |
|
% OF TARGET COMPENSATION | |
CEO
| Other NEOs
| The performance metrics used for the PSP 2019-2021 are after-tax return on capital employed (ROCE) and total shareholder return (TSR) based on a 20-trading day average closing price. |
| | |
| 25% | 25% | 50% | |
| | | | |
| | | Relative TSR The Compensation Committee recognizes that relative TSR is the most common performance metric for comparisons to peers. Our performance is assessed as compared to our Performance Peer Group and the S&P 100 Index. Starting with the 2019-2021 program, we added a cap on the portion of the PSP earned based on relative TSR if absolute TSR is negative. We made this change in response to shareholder input and in order to better align pay with corporate performance and shareholder experience. Threshold Above 10th percentile of Performance Peers Target Median of Performance Peers Maximum Above 90th percentile of Performance Peers |
| | Relative ROCE Relative ROCE complements the Absolute ROCE metric by measuring the Company’s performance relative to ROCE of Performance Peers. Threshold Above 10th percentile of Performance Peers Target Median of Performance Peers Maximum Above 90th percentile of Performance Peers |
Absolute ROCE The Compensation Committee considers ROCE an important measure of Company growth, shareholder value creation and overall performance. Threshold 3.2% Delivers sustaining capital and shareholder dividend commitments over 3-year period Target 8.6% Delivers WACC +1.5% over 3-year period Maximum 10.1% Delivers WACC +3.0% over 3-year period Aligned with other peers’ practices, we have historically adjusted ROCE for “special items” that are not representative of our underlying operating performance. The Compensation Committee carefully evaluates all such adjustments to understand what impacts the adjustment would have on compensation outcomes and how the item factored into the Company’s operating and financial outcomes. |
| Compensation Discussion and Analysis 53 |
Performance Share Program – 2019 to 2021 Payout | |
|
Stock price depreciation over the performance period, coupled with the 61% performance multiplier, resulted in a realized value of 56% of the initial target value, consistent with our pay for performance philosophy. This represents the lowest payout in Company history and reflects the challenging market conditions in which we have operated for the past two years.
The Compensation Committee considered the following results when approving the payout of 61% of target.
RELATIVE ROCE (25% WEIGHTING)
RELATIVE TSR (50% WEIGHTING)
ABSOLUTE ROCE (25% WEIGHTING)
PSP 2019-2021 PAYOUT
| Metric | | Weight | | Payout |
| Relative ROCE | | 25% | | 86% |
| Absolute ROCE | | 25% | | 79% |
| Relative TSR | | 50% | | 40% |
| Payout (as a percent of target) | | | | 61% |
Key Highlights
RETURN ON CAPITAL EMPLOYED
● | The Compensation Committee determined that it was appropriate to increase the Company’s 2021 ROCE earnings used in the ROCE calculations by $1 billion after-tax. This increase primarily relates to removing the after-tax impact of asset impairment charges partially offset by removing the after-tax unrealized increase in value of our investment in NOVONIX. ROCE, as used in our PSP program, is a non-GAAP financial measure. |
54 Phillips 66 2022 Proxy Statement | |
RELATIVE TSR
● | Relative TSR performance for the three-year performance period was -6.1% and 12th of 15 peers, including 13 peer companies, the S&P 100 Index and Phillips 66. This resulted in a payout of 40% of target for relative TSR performance, weighted at 50%. |
The Compensation Committee approved payouts for our NEOs for PSP 2019-2021. The payment was made in February 2022 and is described further below and in the footnotes of the Summary Compensation Table.
New PSP Developments for 2021
 | Capped payout at 100% on TSR portion if absolute TSR is negative |
New PSP Developments for 2022
The Compensation Committee approved the following LTI for the NEOs for 2021. The Compensation Committee considered the individual performance of each NEO as outlined above when determining the target values. These values may not match the accounting values presented in the Grants of Plan-Based Awards table.
| Name | | PSP
2021-2023
($) | | Stock
Options
($) | | RSUs
($) | | Total
Target(1)
($) |
| Greg Garland | | 6,281,280 | | 3,140,640 | | 3,140,640 | | 12,562,560 |
| Mark Lashier | | 3,025,000 | | 1,512,500 | | 1,512,500 | | 6,050,000 |
| Kevin Mitchell | | 2,493,472 | | 1,038,947 | | 1,246,736 | | 4,779,155 |
| Robert Herman | | 1,880,133 | | 783,389 | | 940,067 | | 3,603,589 |
| Tim Roberts | | 1,916,836 | | 798,682 | | 958,418 | | 3,673,936 |
| |
(1) | PSP 2021 – 2023 and RSU targets include individual adjustments for Mr. Mitchell (+20%), Mr. Herman (+20%)Williams Companies, Inc., and Mr. Roberts (+20%). The Compensation Committee did not approve any adjustmentsDow Inc. were added to stock option targets. Mr. Garland’s LTI target decreased approximately $800,000 or 5% in 2021 to better align with our compensationthe performance peer group and the challenging market conditions.Celanese Corporation, Eastman Chemical Company, Huntsman Corporation, and Enterprise Products Partners L.P. were removed. |
(1)In March 2022, HF Sinclair Corporation became the parent company of HollyFrontier Corporation.
| Compensation Discussion and Analysis 55 |
Variable Cash Incentive Program (VCIP) – Program Design | | | | |
| 60 | Phillips 66 2023 Proxy Statement |
% OF TARGET COMPENSATION | | | | | |
CEO
| Other NEOs
| The VCIP, which is our annual incentive program, is designed to provide variability and differentiation based on corporate performance. Through our operational and financial metrics, we designed our VCIP program to align annual awards with shareholder interests and execution of our corporate strategy. We do not tie NEO VCIP awards to the performance of any individual business unit. We believe this structure serves the best interests of shareholders as it promotes collaboration across the organization. |
Eligible earnings, which is base salary earned during the year, are multiplied by a VCIP target percentage that is based on each NEO’s salary grade level to derive the NEO’s target VCIP award. At the end of the performance period, the Compensation Committee reviews the Company’s performance to determine the Corporate Payout Percentage. This percentage is based on a mix of operational and financial metrics, the details and weighting of which are described below. The Compensation Committee can award a Corporate Payout Percentage of zero up to the maximum of 200%.
$
Eligible
Earnings | x | %
Target
Percentage | x | %
Corporate
Payout Percentage | = | $
Total
VCIP Payout |
Variable Cash Incentive Program – Metrics and Weighting
56 Phillips 66 2022 Proxy Statement | |
Variable Cash Incentive Program (VCIP) – Metrics and Targets | |
|
Operational Sustainability 50%: Half of our VCIP is based on Operational performance because strong safety, reliability and operating excellence are fundamental to protecting shareholder value. It also enables the Company to maximize market opportunities, generate higher returns and create shareholder value.
| 25% | 15% | 10% | |
| | | | |
| | | High-Performing Organization Maintaining and enhancing a high-performing organization is critical to our success and is part of our human capital management strategy. Our employees promote our culture and are integral to achieving our strategic goals and maximizing long-term shareholder value. We measure our High-Performing Organization performance relative to the following: ● Culture: foster behaviors that promote our unique culture ● Capability: build depth and breadth in our skills ● Performance: deliver exceptional, sustainable results |
| | Environment For Environment, we set Agency Reportable Environmental Events targets based on historical performance with the goal of continuous improvement. It is important to note that targets will fluctuate year over year due to Company growth and regulatory changes. For 2021, we enhanced Environment to include two new metrics: Low-Carbon Priorities and Greenhouse Gas Priorities. These priorities reflected efforts to advance lower-carbon investments, optimization, and innovation as well as efforts to reduce manufacturing emissions intensity and setting GHG emissions intensity reduction targets. |
Safety & Operating Excellence For personal and process safety performance, we measure ourselves against the top performing companies in our industry. Generally, these companies fall within the top two quartiles of all companies reported. We then establish our threshold, target, and maximum goals based on the performance (25th, 50th, and 75th percentiles) of this group of companies. For asset availability, for which comparative data is not available, we establish our threshold, target, and maximum goals based on our operating plan and historical performance with the goal of continuous improvement, incorporating the segments of our business and weighting them by adjusted EBITDA. |
| Compensation Discussion and Analysis 57 |
Financial Sustainability 50%: The other half of our VCIP is based on Financial performance to ensure our executives effectively manage costs and deliver financial results above our WACC
| 40% | 10% | |
| | | |
| | Adjusted Controllable Costs For Adjusted Controllable Costs, we measure our effectiveness in managing costs and set our threshold, target, and maximum based on our annual budget. Threshold Adjusted Controllable Costs should not exceed budget by more than 3% Target Adjusted Controllable Costs should achieve budget Maximum Adjusted Controllable Costs should be 3% under budget For 2021, the adjusted controllable cost target was above actual performance in 2020 as the budget in 2021 assumed partial return to normal operations after a strong response of cutting costs in 2020 due to challenging market conditions. The increase in the 2021 target vs. actual performance in 2020 is mainly the result of increased maintenance expenses and growth. |
Adjusted EBITDA Adjusted EBITDA measures our ability to create shareholder value. Our threshold is the EBITDA required to cover sustaining capital and shareholder dividend commitments, and target and maximum are set at EBITDA levels that equate to ROCE levels 1.5 and 3.0 percentage points above our WACC. Threshold Adjusted EBITDA required to cover our sustaining capital and shareholder dividend commitments Target Adjusted EBITDA equivalent to ROCE of WACC + 1.5 percentage points. Maximum Adjusted EBITDA equivalent to ROCE of WACC + 3.0 percentage points The 2021 adjusted EBITDA target decreased from $6.3 billion to $5.4 billion as a result of the Company’s WACC decreasing from 7.3% to 6.2% at the end of 2020 mainly as a result of lower risk-free rates and changes in our capital structure. Although the target decreased, the level of performance rigor required of management remained stable year over year. |
58 Phillips 66 2022 Proxy Statement | |
Variable Cash Incentive Program (VCIP) – 2021 Payout | |
|
The formulaic result of the individual metrics less negative discretion applied resulted in a payout of 155%.
| | | | | Weight | | Threshold | | Target | | Maximum | | 2021
Actual | | Formulaic
Payout | | Final
Payout
(Discretion
Applied) |
| | | | | | | | | | | | | | | | | |
 | | Safety & Operating Excellence | | | | | | | | | | | | | | |
| | Total Recordable Rate (TRR) | | 5% | | 0.32 | | 0.21 | | 0.16 | | 0.12 | | 200% | | 180% |
| | Lost Workday Case Rate (LWCR) | | 5% | | 0.10 | | 0.06 | | 0.04 | | 0.04 | | 200% | | 150% |
| | Process Safety Event Rate – Tier 1 | | 5% | | 0.06 | | 0.05 | | 0.04 | | 0.05 | | 100% | | 80% |
| | Availability | | 10% | | 93.9% | | 95.4% | | 96.9% | | 96.0% | | 140% | | 140% |
| | Environment | | | | | | | | | | | | | | |
| | Low Carbon Priorities | | 5% | | - | | - | | - | | - | | 100% | | 100% |
| | GHG Priorities | �� | 5% | | - | | - | | - | | - | | 100% | | 100% |
| | Environmental Events | | 5% | | < 121 | | 114 | | < 105 | | 115 | | 93% | | 93% |
| | High Performing Organization | | 10% | | - | | - | | - | | - | | 175% | | 175% |
| | | | | | | | | | | | | | | | | |
 | | Adjusted Controllable Costs($MM) | | 10% | | $6,946 | | $6,743 | | $6,541 | | $6,566 | | 188% | | 150% |
| | Adjusted EBITDA ($MM) | | 40% | | $3,468 | | $5,389 | | $6,027 | | $5,921 | | 183% | | 183% |
| | | | | | | | | | | | | TOTAL | | 163% | | 155% |
Key Highlights
SAFETY & OPERATING EXCELLENCE
● | Total Recordable Rate: Performance of 0.12 was the second best in Company history. Negative discretion was applied given performance was impaired versus 2020. |
● | Lost Workday Case Rate: Negative discretion was applied given performance was impaired versus 2020. |
● | Process Safety Event Rate: Negative discretion was applied given performance was impaired versus 2020. |
| | Payout | |
| Threshold | Target
100% Payout | Maximum |
Safety & Operating Excellence (25%) |  |
| Compensation Discussion and Analysis 59 |
ENVIRONMENT
Low Carbon / GHG Priorities: In 2021, we progressed efforts in support of the energy transition and a low-carbon future including: establishing our Emerging Energy organization and developing its long-term strategy, executing several investment, supply and collaboration arrangements for key initiatives (e.g. Shell Rock, NOVONIX, Southwest Airlines and British Airways), progressing Rodeo Renewed activities, progressing UK renewable activities, and building renewable feedstock supply and product placement capability, and setting GHG emission intensity reduction targets for 2030 for Scope 1, 2 and 3 emissions.
| | Payout | |
| Threshold | Target
100% Payout | Maximum |
Environment (15%) |  |
HIGH-PERFORMING ORGANIZATION
● | Progressed several AdvantEdge66 initiatives with multiple successful go-lives in Digital Operations and Maintenance |
● | Advanced I&D efforts including Executive I&D Council, Organization Assessments, and ERG expansion |
● | Published inaugural Human Capital Management Report, Lobbying Activities Report and enhanced Sustainability Report |
● | Received external recognition as a great place to work |
| | Payout | |
| Threshold | Target
100% Payout | Maximum |
High-Performing Organization (10%) |  |
ADJUSTED CONTROLLABLE COSTS
● | In 2021, Adjusted Controllable Costs were 3% improved versus our target but above 2020 levels. As a result, negative discretion was applied. |
● | Adjusted Controllable Costs as used in VCIP is a non-GAAP financial measure. |
| | Payout | |
| Threshold | Target
100% Payout | Maximum |
Adjusted Controllable Costs (10%) |  |
60 Phillips 66 2022 Proxy Statement | |
ADJUSTED EBITDA
● | In 2021, despite challenging market conditions for our industry, we achieved record adjusted EBITDA in Midstream, Marketing & Specialties, and Chemicals. |
● | Adjusted EBITDA includes a $370 million downward adjustment attributable to removing the unrealized increase in value of our investment in NOVONIX as part of our Emerging Energy strategy. |
● | Adjusted EBITDA used for VCIP is a non-GAAP financial measure. |
| | Payout | |
| Threshold | Target
100% Payout | Maximum |
Adjusted EBITDA (40%) |  |
New VCIP Developments for 2021 |
| Removed positive individual performance modifier for all NEOs |
New VCIP Developments for 2022 |
| The corporate metrics used in the VCIP will continue to reflect 50% operational sustainability metrics and 50% financial sustainability metrics, but the Compensation Committee has approved changes to the individual metric weightings to reinforce our commitment to best-in-class safety and achievement of low-carbon initiatives: |
| | Within the Safety & Operating Excellence component, Total Recordable Rate and Process Safety Event Rate will now each be weighted at 7.5% of the total VCIP, and Process Safety Event Rate will include both Tier 1 and Tier 2 events |
| | GHG Priorities and Low Carbon Priorities will be combined into a singular metric weighted at 10% to properly reflect how the Company progresses its low carbon initiatives (Agency Reportable Environmental Events will remain at 5% weighting, for a total of 15% Environmental Metrics) |
Total VCIP payouts for each of our NEOs are shown in the table below.
| Name | | 2021 Eligible
Earnings
($) | | Target VCIP
Percentage
(%) | | Corporate
Payout
Percentage
(%) | | Total
Payout
($) |
| Greg Garland | | 1,675,008 | | 160% | | 155% | | 4,154,020 |
| Mark Lashier | | 825,000 | | 110% | | 155% | | 1,406,625 |
| Kevin Mitchell | | 903,432 | | 100% | | 155% | | 1,400,320 |
| Robert Herman | | 870,432 | | 90% | | 155% | | 1,214,253 |
| Tim Roberts | | 887,424 | | 90% | | 155% | | 1,237,956 |
| Compensation Discussion and Analysis 61 |
CEO PAY ALIGNED WITH COMPANY PERFORMANCE | |
|
A significant portion of CEO pay is delivered in long-term incentives, which are designed to tie share price performance and achievement of our long-term financial goals. Mr. Garland’s pay as reported in the Summary Compensation Table (“SCT”) reflects the accounting value of long-term incentives at the time of grant and not the actual value received from these grants. When evaluating the compensation program each year, the Compensation Committee reviews outstanding awards and the value earned under the long-term incentive program in prior periods to confirm that the payouts are aligned with performance and intended incentives. As such, we believe it is useful to compare Mr. Garland’s “Adjusted SCT Pay” in the context of his “Realized Pay” to provide a clear picture of the value being delivered to Mr. Garland and how it relates to Company performance.
For purposes of the information in this section, we define:
● | “Adjusted SCT Pay” as the compensation disclosed in the Summary Compensation Table, adjusted to exclude “Changes in Pension Value and Nonqualified Deferred Compensation Earnings” and “Other Compensation.” |
● | Realized Pay” as the sum of (a) base salary and VCIP paid; (b) the amount reported as W-2 taxable earnings for the vesting of RSUs, exercise of any stock options, and vesting of PSPs with performance periods that ended in the applicable year (i.e., PSP 2017-2019 for 2019, PSP 2018-2020 for 2020, and PSP 2019-2021 for 2021). |
As demonstrated in the chart below, Adjusted SCT Pay and Realized Pay differ meaningfully and demonstrate the intended link between our compensation program and outcomes for shareholders. During periods of strong stock price performance, our equity-linked long-term incentives may deliver more value to executives than is rendered in the Summary Compensation Table. When our share price declines, the value of our executive’s equity-linked long-term compensation declines and realized compensation may lag the value rendered in the Summary Compensation Table, consistent with the intended alignment between investor outcomes and compensation outcomes.
The charts and information included below are not substitutes for the information included in the Summary Compensation Table, but are meant to provide additional insight into our CEO pay:
(1) | We have not included the Performance Share Programs that had a 5-year restriction period after the performance period for Realized Pay purposes. Specifically, we did not include the lapsing of restrictions of PSP 2011-2013 in 2019, and PSP 2012-2014 in 2020. |
62 Phillips 66 2022 Proxy Statement | |
| ADDITIONAL COMPENSATION PRACTICES |
|
| | |
| Other Benefits and Perquisites | |
|
Below is a summary of other compensation elements available to our NEOs:
BROAD-BASED EMPLOYEE BENEFIT PROGRAMS
NEOs participate in the same basic benefits package available to our other U.S. salaried employees. This package includes qualified pension; 401(k) plan; medical, dental, vision, life, and accident insurance plans, as well as flexible spending arrangements for health care and dependent care expenses; and our matching gift program.
ADDITIONAL EXECUTIVE PERQUISITES
Consistent with our compensation philosophy to provide compensation and benefits aligned with market practice, we provide our NEOs financial planning and executive health benefits. These benefits were imputed to the executives and included in All Other Compensation in the Summary Compensation Table. We did not provide a tax gross-up for these benefits. COMPREHENSIVE SECURITY PROGRAM
The Board has adopted a comprehensive security program to address the increased security risks for certain senior executives. Mr.Messrs. Garland and Mr. Lashier were the only NEOs in 20212022 designated by the Board as requiring increased security under this program. The program allows for certain additional security measures in specific situations when the senior executive is traveling by car or airplane. An additional security review of the NEO’s personal residences is also included. Any additional costs to the Company for these activities are reported as All Other Compensation and included in the Summary Compensation Table. EXECUTIVE RETIREMENT PLANS
We maintain the following supplemental retirement plans for our
NEOs.● | Phillips 66 Key Employee Deferred Compensation Plan (KEDCP) — This voluntary deferred compensation plan provides tax-efficient retirement savings by allowing executives to voluntarily defer both the receipt and taxation of a portion of their base salary and annual bonus until a specified date or when they leave the Company. Further information is provided in the Nonqualified Deferred Compensation table. |
● | Phillips 66 Defined Contribution Make-Up Plan (DCMP) — This defined contribution restoration plan restores benefits capped under our qualified defined contribution plan due to Internal Revenue Code (IRC) limits. Further information is provided in the Nonqualified Deferred Compensation table. |
● | Phillips 66 Key Employee Supplemental Retirement Plan (KESRP) — This defined benefit restoration plan restores Company-sponsored benefits capped under the qualified defined benefit pension plan due to IRC limits. Further information is provided in the Pension Benefits as of December 31, 2021 table. |
NEOs:
•Phillips 66 Key Employee Deferred Compensation Plan (KEDCP) — This voluntary deferred compensation plan provides tax-efficient retirement savings by allowing executives to voluntarily defer both the receipt and taxation of a portion of their base salary and annual bonus until a specified date or when they leave the Company. Further information is provided in the Nonqualified Deferred Compensation table and accompanying narrative.
•Phillips 66 Defined Contribution Make-Up Plan (DCMP) — This defined contribution restoration plan restores benefits capped under our qualified defined contribution plan due to Internal Revenue Code (IRC) limits. Further information is provided in the Nonqualified Deferred Compensation table and accompanying narrative.
•Phillips 66 Key Employee Supplemental Retirement Plan (KESRP) — This defined benefit restoration plan restores Company-sponsored benefits capped under the qualified defined benefit pension plan due to IRC limits. Further information is provided in the Pension Benefits as of December 31, 2022 table and accompanying narrative.
We provide life insurance policies to all U.S.-based employees with a face value approximately equal to their annual base salary. For our NEOs, the face value of this coverage is approximately two times their annual base salary.
EXECUTIVE SEVERANCE AND CHANGE IN CONTROL PLANS
We do not maintain individual severance or change in control agreements with our executives. However, we maintain the Phillips 66 Executive Severance Plan (ESP) and the Phillips 66 Change in Control Severance Plan (CICSP) to accomplish several specific objectives, including:
● | ensuring•Ensuring shareholder interests are protected during business transactions by providing benefits that promote senior management stability; •Providing and preserving an economic motivation for participating executives to consider a business combination that might result in an executive’s job loss; and | | | | | | ● | providing and preserving an economic motivation for participating executives to consider a business combination that might result in an executive’s job loss; and | ● | competing effectively in attracting and retaining executives in an industry that features frequent acquisitions and divestitures. |
| Compensation Discussion and Analysis63 | 61 |
Table of Contents
•Competing effectively in attracting and retaining executives in an industry that features frequent acquisitions and divestitures.Executives may not participate inreceive benefits under both plans as a result of the same severance event. Among other benefits, the ESP provides a payment equal to one and one-half or two times the executive’s base salary, depending on the executive's salary grade level, and the executive’s current target annual bonus if he or she is involuntarily terminated without cause. The CICSP provides a payment equal to two or three times the sum of the executive’s base salary and the greater of his or her target bonus or average of the last two bonus payments, depending on salary grade level.level, and accelerated vesting of equity awards. The executive must be involuntarily terminated without cause in connection with a change in control or terminate employment for good reason within two years after the change in control to be eligible for a CICSP payment. We believe this “double trigger” requirement is in the best interest of shareholders and is considered a best practice. Details of potential payments under these plans are outlined in the Potential Payments Upon Termination or Change in Controlsection. These plans do not provide any excise tax gross-up protections. PERSONAL USE OF COMPANY AIRCRAFT The primary purpose of our corporate aircraft is to facilitate Company business. In the course of conducting Company business, executives may occasionally invite a family member or other personal guest to travel with them to attend a meeting or function. When such travel is deemed taxable to the executive, we provide further payments to reimburse the costs of the inclusion of this item in his or her taxable income. | | | | Executive Compensation Governance | | |
Short- and long-term compensation, deferred compensation and nonqualified retirement benefits received by any executive are subject to clawback provisions if financial or other data is materially misstated due to negligence or misconduct on the part of the executive, as determined by the Compensation Committee and the Audit and Finance Committee. We intend to adopt a clawback policy consistent with the requirements of Exchange Act Rule 10D-1 prior to the effectiveness of final New York Stock Exchange listing standards implementing the rule. The Compensation Committee believes requiring executives to retain shares of Phillips 66 common stock helps align executive performance with shareholder value creation and mitigates compensation risk. Our stock ownership guidelines require executives to own Phillips 66 common stock, valued as a multiple of the executive’s base salary, within five years from the date the executive becomes subject to the guidelines, asguidelines. The multiple applicable to each NEO is shown below: Executive Level | Salary Multiple | | | | | Chairman and CEOExecutive | 6Required Salary Multiple | Executive Vice PresidentMark Lashier | 3-56x | | Greg Garland | 6x | | Kevin Mitchell | 4x | | Vanessa Allen Sutherland | 3x | | Brian Mandell | 4x | | Tim Roberts | 4x |
Shares of Phillips 66 common stock owned outright and RSUs are includedcounted when determining whether an executive has met the required ownership levels. Compliance with the stock ownership guidelines is reviewed annually.annually by the Compensation Committee. All NEOs currently comply with these stock ownership guidelines or are on track to comply within the applicable five-year period. TAX CONSIDERATIONS—INTERNAL REVENUE CODE SECTION 162(m)
IRC Section 162(m) places a $1 million limit on compensation that we may deduct for federal income tax purposes in any one year with respect to certain “covered employees.” Prior to the passage of the Tax Cuts and Jobs Act in December 2017, such covered employees included our chief executive officer and our three other most highly compensated executive officers (excluding our chief financial officer). The $1 million deduction limitation was subject to an exemption for performance-based compensation.
With the enactment of the Tax Cuts and Jobs Act, the Section 162(m) performance-based compensation exemption has been repealed and the $1 million deduction limit now applies to our chief financial officer, as well as our chief executive officer and our three other most highly compensated executive officers. Further, once an executive officer becomes a “covered employee” the $1 million deduction limit
64 | | | | | | | 62 | Phillips 66 2022 2023 Proxy Statement | |
continues to apply to compensation paid to such executive officer at any time, including any future roles within the Company, any termination or retirement payments, and payments occurring after their death. The Tax Cuts and Jobs Act rules generally applied to us starting with our taxable year that commenced January 1, 2018, but do not apply to compensation provided pursuant to written binding contracts in effect on November 2, 2017, that are not materially modified after that date.
We monitor the application of Section 162(m) and the associated Treasury regulations on an ongoing basis and the advisability of qualifying executive compensation for deductibility. Notwithstanding the repeal of the exemption for “performance-based compensation,” the Committee intends to maintain its commitment to structuring the Company’s executive compensation programs in a manner designed to align pay with performance.
TRADING POLICY Our insider trading policy prohibits all employees and directors from trading Company stockin the Company's securities while in possession of material, non-public information. This policy requires executivesexecutive officers and directors as well as employees with regular access to insider information, to follow specificcertain pre-clearance procedures before entering into transactions ininvolving our stock.securities. HEDGING OR PLEDGING OF COMPANY STOCK Our insider trading policy also prohibits hedging transactions and pledging of our common stock. These prohibitions apply to all employees and directors of the Company, and cover any transactions in our common stock, whether acquired pursuant to our compensation plans, owned directly, or otherwise. The prohibitions on hedging transactions include purchasing any financial instruments, or otherwise engaging in any transactions, that hedge or offset any decrease in the market value of our stock or limit an employee or director’s ability to profit from an increase in the market value of our stock. The prohibition on pledging includes holding Phillips 66 stock in a margin account or pledging our stock as collateral for a loan. COMPENSATION RISK ASSESSMENT The Compensation Committee oversees management’s risk assessment of all elements of our compensation programs, policies and practices for all employees. Management has concluded that our compensation programs, policies and practices are not reasonably likely to have a material adverse effect on the Company. Relevant provisions of our programs include, but are not limited to: ● | VCIP and LTI metrics are aligned with our corporate strategy to ensure continued focus on actions that drive shareholder value. | ● | VCIP and LTI compensation targets increase with each pay grade, further emphasizing long-term value creation and alignment with shareholder interests. | ● | Maximum payouts under VCIP and PSP programs are appropriately limited to balance risk-taking with long-term strategic goals. | ● | Maintaining a level of discretion in the performance-based programs, which enables the Compensation Committee to award zero payouts to executives who perform poorly or when warranted by Company performance. | ● | Clawback provisions that allow for reduction in awards for executives who expose the Company to undue risk. | ● | LTI design that provides incentives for executive retention and Company and individual performance. | ● | Stock ownership guidelines, anti-pledging policies, and anti-hedging policies that align executive interests with those of shareholders. |
•VCIP and LTI metrics are aligned with our corporate strategy to ensure continued focus on actions that drive shareholder value. •VCIP and LTI compensation targets increase with each pay grade, further emphasizing long-term value creation and alignment with shareholder interests. •Maximum payouts under VCIP and PSP programs are appropriately limited to balance risk-taking with long-term strategic goals. •Maintaining a level of discretion in the performance-based programs, which enables the Compensation Committee to award zero payouts to executives who perform poorly or when warranted by Company performance. •Clawback provisions that allow for reduction in awards for executives who expose the Company to undue risk. •LTI design that provides incentives for executive retention and Company and individual performance. •Stock ownership guidelines, anti-pledging policies, and anti-hedging policies that align executive interests with those of shareholders. The Compensation Committee considers senior management succession planning a core part of the Company’s risk management program. The Compensation Committee regularly reviews with the CEO succession planning for senior leadership positions (other than the CEO position, itself, for which succession planning is reviewed by the Nominating and Governance Committee), and the timing and development required to ensure continuity of leadership over the short- and long-terms, to manage risk in this area. | | | | | | Compensation Discussion and Analysis65 | 63 |
Our Compensation Programs are Aligned with Best Practices | | | | | | | |   We Do… |   We Do Not… | 
 Target the majority of NEO compensation to be performance-basedperformance based and at-risk
at risk Apply multiple performance metrics aligned with our corporate strategy
Cap maximum payouts for VCIP and PSP
Cap payout at 100% on the TSR portion of the PSP if absolute TSR is negative
 Require TSR performance above the 50th percentile relative to peer group to achieve target payoutEmploy a “double trigger” for change in control severance benefits and equity awards
award acceleration Include absolute and relative metrics in our LTI programs
Maintain robust stock ownership guidelines for executives — CEO and Executive Chairman 6x base salary; other NEOs 3-5x3-4x base salary
Balance, monitor and manage compensation risk through regular assessments and robust clawback provisions
Have extended vesting periods on stock awards, with a minimum one-year vesting period required for stock and stock option awards
Maintain a fully independent compensation committee
Retain an independent compensation consultant
Hold aan annual Say-on-Pay vote annually and consider shareholder feedback in the design of our compensation program | 
 Provide excise tax gross-ups to our NEOs under our CICSP
Reprice stock options without shareholder approval
Price stock optionsoption exercise prices below grant date fair market value
Allow share recycling for stock options
under our equity plan Include evergreen provisions in our active equity plans
Allow hedging or pledging of Company stock
Pay dividends during the performance period on unearned PSPs
Allow transfer of equity awards (except in the case of death)
Provide separate supplemental executive retirement benefits for individual NEOs
Maintain individual change-in-control agreements
Have an employment agreement with the CEO
Provide excessive perquisites | | |
66 Phillips 66 2022 Proxy Statement | |
ROLE OF THE COMPENSATION COMMITTEE | | | | | | 64 | Phillips 66 2023 Proxy Statement |
Compensation Determination Process | | | |
Authority and
Responsibility | ● | Provides independent, objective oversight of our executive compensation programs and determines the compensation for our CEO and anyone who meets our definition of a Senior Officer. | | ● | Acts as plan administrator of the compensation programs and benefit plans for our CEO and Senior Officers and as an avenue of appeal for current and former Senior Officers regarding disputes over compensation and benefits. | | ● | Oversees the Company’s executive compensation philosophy, policies, plans and programs for our CEO and Senior Officers. | | ● | Assists the Board in its oversight of the integrity of the Company’s Compensation Discussion and Analysis. |
The Compensation Committee is committed to a process of continuous improvement in exercising its responsibilities. To that end, the Compensation Committee:
● | receives ongoing training regarding best practices for executive compensation; | ● | regularly reviews its responsibilities and governance practices in light of ongoing changes in the legal and regulatory arena and trends in corporate governance; | ● | annually reviews its charter and proposes any desired changes to the Board of Directors; |
| Compensation Discussion and Analysis 67 |
● | annually conducts a self-assessment of its performance that evaluates the effectiveness and seeks ideas to improve its processes and oversight; | ● | regularly reviews and assesses whether the Company’s executive compensation program is having the desired effects without encouraging an inappropriate level of risk; and | ● | regularly reviews all its activities, including its self-assessment and a compensation risk assessment, with the full Board of Directors. |
Independent
Compensation
Consultant | Advises the Compensation Committee on:
●
our compensation program and processes relative to external corporate governance standards;
●
the appropriateness of our executive compensation program in comparison to those of our peers; and
●
the effectiveness of the compensation program in accomplishing the objectives set by the Compensation Committee with respect to executives.
|
In 2021, the Compensation Committee retained Mercer as its independent executive compensation consultant. The Compensation Committee evaluated whether Mercer’s work raised any conflict of interest and determined that no such conflict existed. During 2021, fees paid to Mercer in its role as the independent compensation consultant for the Compensation Committee totaled $168,815. In addition, the Company paid fees to Mercer totaling $3.5 million during 2021 for all other services performed for the Company. These services can be broken down as 17% related to administration of pension liabilities in international locations that have been sold, 55% related to administration of ongoing international benefit plans, 7% related to Human Resources consulting engagements, and 21% related to insurance and surety bonds.
| Human Resources and Compensation Committee Report | | |
Review with Management. The Human Resources and Compensation Committee has reviewed and discussed with management the Compensation Discussion and Analysis presented in this proxy statement.Proxy Statement. Discussions with Independent Executive Compensation Consultant. The Human Resources and Compensation Committee has discussed with Mercer, anits independent executive compensation consulting firm,consultant, the executive compensation programs of the Company, as well as specific compensation decisions made by the Human Resources and Compensation Committee for 2021.2022. Mercer was retained directly by the Human Resources and Compensation Committee, independent of the management of the Company. The Human Resources and Compensation Committee has received written disclosure from Mercer confirming the consultant’s independence, has discussed with Mercer its independence from Phillips 66, and believes Mercer to be independent of management.
Recommendation to the Phillips 66 Board of Directors. Based on its review and discussions noted above, the Human Resources and Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in the Phillips 66 proxy statementProxy Statement on Schedule 14A and the Phillips 66 Annual Report on Form 10-K for the year ended December 31, 2021.2022. HUMAN RESOURCES AND COMPENSATION COMMITTEE
Dr. Marna C. Whittington, Chair
Gary K. Adams
Lisa A. Davis
Gregory J. Hayes
Douglas T. Terreson
Glenn F. Tilton 68 Phillips 66 2022 Proxy Statement | | | | | | | Compensation Discussion and Analysis | 65 |
| | | | | | | | | | Executive Compensation Tables |
Executive Compensation Tables
The following tables and accompanying narrative disclosures provide information concerning total compensation earned by our CEO and other NEOs as of December 31, 2021,for 2022, for services to Phillips 66 or any of our subsidiaries during 2022, 2021 2020 and 2019.2020. SUMMARY COMPENSATION TABLE The following table summarizes the compensation for our NEOs for fiscal years 2022, 2021 2020 and 2019.Name,
Position,
Year | | Salary(1)
($) | | 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)
($) | | Total
($) | | Total
Without
Change
in Pension
Value(7)
($) | Greg Garland
Chairman and Chief Executive Officer | | 2021 | | 1,675,008 | | 11,318,245 | | 3,140,920 | | 4,154,020 | | — | | 665,013 | | 20,953,206 | | 20,953,206 | | 2020 | | 1,675,008 | | 9,237,623 | | 3,351,180 | | 3,082,015 | | 6,851,884 | | 791,664 | | 24,989,374 | | 18,137,490 | | 2019 | | 1,675,008 | | 10,806,257 | | 3,141,546 | | 5,226,025 | | 9,936,893 | | 1,115,149 | | 31,900,878 | | 21,963,985 | Mark Lashier
President and Chief Operating Officer | | 2021 | | 825,000 | | 6,830,884 | | 1,513,217 | | 1,406,625 | | 71,546 | | 230,816 | | 10,878,088 | | 10,806,542 | | 2020 | | — | | — | | — | | — | | — | | — | | — | | — | | 2019 | | — | | — | | — | | — | | — | | — | | — | | — | Kevin Mitchell
Executive Vice President, Finance and Chief Financial Officer | | 2021 | | 903,432 | | 4,493,056 | | 1,039,424 | | 1,400,320 | | 164,332 | | 216,301 | | 8,216,865 | | 8,052,533 | | 2020 | | 897,360 | | 3,024,331 | | 998,560 | | 1,256,304 | | 258,546 | | 245,367 | | 6,680,468 | | 6,421,922 | | 2019 | | 861,172 | | 3,542,763 | | 937,014 | | 1,722,344 | | 264,245 | | 354,754 | | 7,682,292 | | 7,418,047 | Robert Herman
Executive Vice President, Refining | | 2021 | | 870,432 | | 3,387,870 | | 784,336 | | 1,214,253 | | 209,797 | | 187,575 | | 6,654,263 | | 6,444,466 | | 2020 | | 867,028 | | 2,320,490 | | 766,300 | | 1,092,455 | | 318,450 | | 214,446 | | 5,579,169 | | 5,260,719 | | 2019 | | 781,558 | | 2,575,994 | | 553,770 | | 1,293,153 | | 340,714 | | 441,201 | | 5,986,390 | | 5,645,676 | Tim Roberts
Executive Vice President, Midstream | | 2021 | | 887,424 | | 3,453,979 | | 799,832 | | 1,237,956 | | 342,146 | | 182,659 | | 6,903,996 | | 6,561,850 | | 2020 | | 881,188 | | 2,531,427 | | 766,300 | | 1,110,297 | | 297,744 | | 204,254 | | 5,791,210 | | 5,493,466 | | 2019 | | 781,558 | | 2,385,489 | | 553,770 | | 1,395,244 | | 29,621 | | 275,030 | | 5,420,712 | | 5,391,091 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | Name,
Position,
Year | Salary(1)
($) | 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)
($) | Total
($) | Total
Without
Change
in Pension
Value(7)
($) | Mark Lashier(8) | | President and Chief Executive Officer | | 2022 | 1,314,667 | | 9,260,117 | | 1,976,406 | | 2,837,051 | | 231,983 | | 668,646 | | 16,288,870 | | 16,056,887 | | | 2021 | 825,000 | | 6,830,884 | | 1,513,217 | | 1,406,625 | | 71,546 | | 230,816 | | 10,878,088 | | 10,806,542 | | | | | | | | | | | | Greg Garland | | Executive Chairman and former Chief Executive Officer | | 2022 | 1,337,504 | | 9,825,510 | | 2,500,700 | | 3,552,411 | | — | | 1,013,792 | | 18,229,917 | | 18,229,917 | | | 2021 | 1,675,008 | | 11,318,245 | | 3,140,920 | | 4,154,020 | | — | | 665,013 | | 20,953,206 | | 20,953,206 | | | 2020 | 1,675,008 | | 9,237,623 | | 3,351,180 | | 3,082,015 | | 6,851,884 | | 791,664 | | 24,989,374 | | 18,137,490 | | | Kevin Mitchell | | Executive Vice President and Chief Financial Officer | | 2022 | 951,992 | | 4,899,887 | | 1,040,400 | | 1,580,306 | | 144,483 | | 328,542 | | 8,945,610 | | 8,801,127 | | | 2021 | 903,432 | | 4,493,056 | | 1,039,424 | | 1,400,320 | | 164,332 | | 216,301 | | 8,216,865 | | 8,052,533 | | | 2020 | 897,360 | | 3,024,331 | | 998,560 | | 1,256,304 | | 258,546 | | 245,367 | | 6,680,468 | | 6,421,922 | | Vanessa Allen Sutherland(8) | | Executive Vice President, Government Affairs, General Counsel & Corporate Secretary | | 2022 | 718,750 | | 5,358,106 | | 600,100 | | 1,014,156 | | — | | 109,181 | | 7,800,293 | | 7,800,293 | | | | | | | | | | | | | | | | | | | | Brian Mandell(8) | | Executive Vice President, Marketing & Commercial | | 2022 | 808,375 | | 3,183,449 | | 676,600 | | 1,207,712 | | — | | 266,584 | | 6,142,720 | | 6,142,720 | | | | | | | | | | | | | | | | | | | | | Tim Roberts | | Executive Vice President, Midstream & Chemicals | | 2022 | 931,426 | | 3,766,815 | | 799,000 | | 1,391,550 | | 191,842 | | 289,679 | | 7,370,312 | | 7,178,470 | | | 2021 | 887,424 | | 3,453,979 | | 799,832 | | 1,237,956 | | 342,146 | | 182,659 | | 6,903,996 | | 6,561,850 | | | 2020 | 881,188 | | 2,531,427 | | 766,300 | | 1,110,297 | | 297,744 | | 204,254 | | 5,791,210 | | 5,493,466 | |
(1)Includes any amounts that were voluntarily deferred under our KEDCP. (2)Amounts shown represent the aggregate grant date fair value of RSU and PSP awards determined in accordance with U.S. GAAP. Assumptions used in calculating these amounts are included in Note 22—Share-Based Compensation | | | | | | (1)66 | IncludesPhillips 66 2023 Proxy Statement |
Plans in the Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2022 (our “2022 Form 10-K”). The PSP award included in 2020 has a performance period that ended on December 31, 2022. The PSP award included in 2021 has a performance period that ends on December 31, 2023. The PSP award included in 2022 has a performance period that ends on December 31, 2024. The PSP awards are shown target because target was determined to be the probable outcome for the applicable performance period at the time of grant of each award, consistent with the accounting treatment under GAAP. If the maximum payout were used for the PSP awards, the amounts shown relating to PSP would double, although the value of the actual payout would depend on the share price at the time of the payout. If the minimum payout were used, the amounts for PSP awards would be reduced to zero. Actual payouts with regard to the targets set for the performance period that ended in 2022 were approved by the Compensation Committee at its February 2023 meeting. Those payouts were as follows: Mr. Lashier, $2,087,811; Mr. Garland, $6,748,093; Mr. Mitchell, $2,209,258; Mr. Mandell, $1,495,664; and Mr. Roberts, $1,849,227. Earned payouts under the 2020-2022 PSP have been, and under the 2021-2023 PSP and 2022-2024 PSP are expected to be, made in cash at the end of the applicable performance period and will be forfeited if the NEO is terminated prior to the end of the performance period (other than for death or following disability or after a change in control). If the NEO retires after age 55 and with five years of service, the NEO is entitled to a prorated award for any ongoing program in which he or she participated for at least 12 months. (3)Amounts shown represent the aggregate grant date fair value of awards determined in accordance with GAAP. Assumptions used in calculating these amounts are included in Note 20—Share-Based Compensation Plans in the Notes to Consolidated Financial Statements in our 2022 Form 10-K. (4)These are amounts paid under our VCIP, including amounts that were voluntarily deferred under our KEDCP. These amounts were paid in February 2023, following the performance year. (5)Reflects the actuarial increase in the present value of the benefits under our pension plans determined using interest rate and mortality rate assumptions consistent with those used in our financial statements. There are no deferred compensation earnings reported in this column, as our nonqualified deferred compensation plans do not provide above-market or preferential earnings. (6)We offer limited perquisites to our NEOs, which, together with Company contributions to our qualified savings and nonqualified defined contribution plans, are reflected in the All Other Compensation column as summarized below: | | | | | | | | | | | | | | | | | | | | | | | | | | | | Name | Company
Contributions
to Nonqualified
Defined
Contribution
Plans(a)
($) | Executive
Group Life
Insurance
Premiums(b)
($) |
Executive
Health
Physical(c)
($)
| Financial
Counseling(d)
($) | Matching
Contributions
under the
Tax-Qualified
Savings
Plan(e)
($) | Matching
Gift
Program(f)
($) | Miscellaneous
Perquisites
and Tax
Protection(g)
($) | Personal
Use of
Company
Aircraft(h)
($) | | M. Lashier | 298,155 | | 10,412 | | 2,183 | | 16,280 | | 24,400 | | — | | 50,866 | | 266,350 | | | G. Garland | 641,333 | | 20,384 | | 1,860 | | 16,270 | | 24,400 | | 15,000 | | 41,851 | | 252,694 | | | K. Mitchell | 257,295 | | 4,912 | | 1,860 | | 16,270 | | 24,400 | | 15,000 | | 8,805 | | — | | | V. A. Sutherland | 54,350 | | 1,898 | | — | | 12,258 | | 24,400 | | 15,000 | | 1,275 | | — | | | B. Mandell | 197,455 | | 4,171 | | 1,860 | | 16,270 | | 24,400 | | 7,500 | | 14,928 | | — | | | T. Roberts | 235,398 | | 7,377 | | 1,860 | | — | | 24,400 | | 15,000 | | 5,644 | | — | |
(a)Under the terms of our nonqualified defined contribution plans, we make contributions to the accounts of all eligible employees, including the NEOs. See the Nonqualified Deferred Compensation table and accompanying narrative and notes for more information. (b)We maintain life insurance policies and/or death benefits for all our U.S.-based salaried employees (at no cost to the employee) with a face value approximately equal to the employee’s annual salary. We maintain group life insurance policies on each of our NEOs equal to approximately two times his or her annual salary. The amounts shown are for premiums paid by us to provide the additional group life insurance above what is provided to the broad-based employees. (c)Costs associated with executive physicals. (d)Costs associated with financial counseling and estate planning services with approved provider. (e)Under the terms of our tax-qualified defined contribution plans, we make contributions to the accounts of all eligible employees, including the NEOs. (f)We maintain a Matching Gift Program under which certain gifts by employees to qualified educational or charitable institutions are matched by the Company. The program matches up to $15,000 annually. The amounts shown reflect the actual payments made by us in 2022, which due to processing delays can include contributions in 2021 that were matched by the Company in 2022 and are therefore reported in this Proxy Statement. | | | | | | (2) | Amounts shown represent the aggregate grant date fair value of RSU and PSP awards determined in accordance with U.S. GAAP. Assumptions used in calculating these amounts are included in Note 20—Share-Based Compensation Plans in the Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2021 (our “2021 Form 10-K”). | | The PSP target award included in 2019 has a performance period that ended on December 31, 2021. The PSP target award included in 2020 has a performance period that ends in 2022. The PSP target award included in 2021 has a performance period that ends in 2023. |
| Amounts shown relating to PSP are targets because target is the probable outcome for the applicable performance period, consistent with the accounting treatment under GAAP. If the maximum payout were used for the PSP awards, the amounts shown relating to PSP would double, although the value of the actual payout would depend on the share price at the time of the payout. If the minimum payout were used, the amounts for PSP awards would be reduced to zero. Actual payouts with regard to the targets set for the performance period that ended in 2021 were approved by the Compensation Committee at its February 2022 meeting. Those payouts were as follows (with values shown at fair market value on the date of payout): Mr. Garland, $3,536,303; Mr. Mitchell, $1,159,328; Mr. Herman, $881,885; and Mr. Roberts, $819,545. | | Earned payouts under the PSP 2019-2021 have been, and under the PSP 2020-2022 and PSP 2021-2023 are expected to be, made in cash at the end of the applicable performance period and will be forfeited if the NEO is terminated prior to the end of the performance period (other than for death or following disability or after a change in control). If the NEO retires after age 55 and with five years of service, the NEO is entitled to a prorated award for any ongoing program in which he or she participated for at least 12 months. | (3) | Amounts shown represent the aggregate grant date fair value of awards determined in accordance with GAAP. Assumptions used in calculating these amounts are included in Note 20—Share-Based Compensation Plans in the Notes to Consolidated Financial Statements in our 2021 Form 10-K. | (4) | These are amounts paid under our annual bonus program (VCIP), including bonus amounts that were voluntarily deferred under our KEDCP. These amounts were paid in February 2022, following the performance year. | (5) | Reflects the actuarial increase in the present value of the benefits under our pension plans determined using interest rate and mortality rate assumptions consistent with those used in our financial statements. There are no deferred compensation earnings reported in this column, as our nonqualified deferred compensation plans do not provide above-market or preferential earnings. | (6) | We offer limited perquisites to our NEOs, which, together with Company contributions to our qualified savings and nonqualified defined contribution plans, are reflected in the All Other Compensation column as summarized below: | | |
| | Name | | Company
Contributions
to Nonqualified
Defined
Contribution
Plans(a)
($) | | Executive
Group Life
Insurance
Premiums(b)
($) | | Wellness
Programs
and
Executive
Health
Physical(c)
($) | | Financial
Counseling(d)
($) | | Matching
Contributions
under the
Tax-Qualified
Savings
Plan(e)
($) | | Matching
Gift
Program(f)
($) | | Miscellaneous
Perquisites
and Tax
Protection(g)
($) | | Personal
Use of
Company
Aircraft(h)
($) | | | Greg Garland | | 363,162 | | 13,266 | | — | | 16,270 | | 17,400 | | 15,000 | | 163,312 | | 76,603 | | | Mark Lashier | | 43,100 | | 6,534 | | — | | — | | 17,400 | | — | | 47,732 | | 116,050 | | | Kevin Mitchell | | 155,379 | | 4,662 | | 2,150 | | 16,270 | | 17,400 | | 15,000 | | 5,440 | | — | | | Robert Herman | | 139,631 | | 6,894 | | 2,150 | | 16,270 | | 17,400 | | — | | 5,230 | | — | | | Tim Roberts | | 142,418 | | 7,029 | | — | | — | | 17,400 | | 15,000 | | 812 | | — |
| | | | (a) | Under the terms of our nonqualified defined contribution plans, we make contributions to the accounts of all eligible employees, including the NEOs. See the Nonqualified Deferred Compensation table and accompanying narrative and notes for more information. | | (b) | We maintain life insurance policies and/or death benefits for all our U.S.-based salaried employees (at no cost to the employee) with a face value approximately equal to the employee’s annual salary. We maintain group life insurance policies on each of our NEOs equal to approximately two times his or her annual salary. The amounts shown are for premiums paid by us to provide the additional group life insurance above what is provided to the broad-based employees. | | (c) | Costs associated with executive physicals. | | (d) | Costs associated with financial counseling and estate planning services with approved provider. | | (e) | Under the terms of our tax-qualified defined contribution plans, we make contributions to the accounts of all eligible employees, including the NEOs. | | (f) | We maintain a Matching Gift Program under which certain gifts by employees to qualified educational or charitable institutions are matched by the Company. The program matches up to $15,000 annually. The amounts shown reflect the actual payments made by us in 2021, which due to processing delays can include contributions in 2020 that were matched by the Company in 2021 and are therefore reported in this proxy statement. | | (g) | The amounts shown primarily reflect payments by us relating to certain taxes incurred by the NEOs. We provide tax assistance when we request family members or other guests to accompany an NEO to a Company function and, as a result, the NEO is deemed to make personal use of Company assets such as Company aircraft and thereby incurs imputed income. We believe this type of expense is appropriately characterized as a business expense and, if the NEO incurs imputed income in accordance with applicable tax laws, we will generally reimburse the NEO for any increased tax costs (Mr. Garland $2,723; Mr. Lashier $211; Mr. Mitchell $5,440; Mr. Herman $5,230; and Mr. Roberts $812). |
70 Phillips 66 2022 Proxy Statement | |
| | Also included are benefits required for employees covered under our Comprehensive Security Program, which currently includes Mr. Garland ($160,589) and Mr. Lashier ($47,521). Under the Comprehensive Security Program, Mr. Garland and Mr. Lashier are provided with the use of a car and driver when security deems it required and home security fees that are in excess of the cost of a system typical for homes in their neighborhoods. | | (h) | The Phillips 66 Comprehensive Security Program requires in certain circumstances that Mr. Garland and Mr. Lashier fly on Company aircraft. The amount presented above represents the approximate incremental cost to Phillips 66 for personal use of the aircraft. Approximate incremental cost has been determined by calculating the variable costs for each aircraft during the year, dividing that amount by the total number of miles flown by that aircraft, and multiplying the result by the miles flown for personal use during the year. Incremental costs for flights to the hangar or other locations without passengers, commonly referred to as “deadhead” flights, are included in the calculation. | (7) | To show how year-over-year changes in pension value impact total compensation, as determined under SEC rules, we included this column to show total compensation without pension value changes. The amounts reported in this column are calculated by subtracting the change in pension value, as described in footnote 6 to this table, from the amounts reported in the Total column. The amounts reported in this column differ substantially from, and are not a substitute for, the amounts reported in the Total column. |
| Executive Compensation Tables71 | 67 |
Also included are gifts and their tax reimbursement (Mr. Lashier $317) and benefits required for employees covered under our Comprehensive Security Program, which currently includes Mr. Lashier ($39,066) and Mr. Garland ($21,017). Under the Comprehensive Security Program, Mr. Lashier and Mr. Garland are provided with the use of a car and driver when security deems it required and home security fees that are in excess of the cost of a system typical for homes in their neighborhoods. (h)The Phillips 66 Comprehensive Security Program requires in certain circumstances that Mr. Lashier and Mr. Garland fly on Company aircraft. The amount presented above represents the approximate incremental cost to Phillips 66 for personal use of the aircraft. Approximate incremental cost has been determined by calculating the variable costs for each aircraft during the year, dividing that amount by the total number of miles flown by that aircraft, and multiplying the result by the miles flown for personal use during the year. Incremental costs for flights to the hangar or other locations without passengers, commonly referred to as “deadhead” flights, are included in the calculation. (7)To show how year-over-year changes in pension value impact total compensation, as determined under SEC rules, we included this column to show total compensation without pension value changes. The amounts reported in this column are calculated by subtracting the change in pension value, as described in footnote 6 to this table, from the amounts reported in the Total column. The amounts reported in this column are not a substitute for the amounts reported in the Total column. (8)Mr. Lashier joined the Company in April 2021 and Ms. Sutherland joined the Company in January 2022. Mr. Mandell was not a NEO for 2020 or 2021. | | | | | | | 68 | Phillips 66 2023 Proxy Statement |
GRANTS OF PLAN-BASED AWARDS The following table provides additional information about plan-based compensation disclosed in the Summary Compensation Table. This table includes both equity and non-equity awards.| | | Estimated Future Payouts under Non-Equity
Incentive Plan Awards(2) | | Estimated Future Payouts
under Equity Incentive Plan
Awards(3) | | All other
Stock
Awards:
Number
of Shares
of Stock
or Units(4)
(#) | | All other
Option
Awards:
Number of
Securities
Underlying
Options
(#) | | Exercise
or Base
Price of
Option
Awards
($/SH) | | Grant
Date Fair
Value of
Stock and
Option
Awards(5)
($) | | Name | | Grant
Date(1) | | Threshold
($) | | Target
($) | | Maximum
($) | | Threshold
(#) | | Target
($) | | Maximum
($) | | | | | | Greg Garland | | | | — | | 2,680,013 | | 5,360,026 | | — | | — | | — | | — | | — | | — | | — | | | | 2/9/2021 | | — | | — | | — | | — | | — | | — | | 42,043 | | — | | — | | 3,140,612 | | | | 2/9/2021 | | — | | — | | — | | — | | 109,473 | | 218,946 | | — | | — | | — | | 8,177,633 | | | | 2/9/2021 | | — | | — | | — | | — | | — | | — | | — | | 263,500 | | 74.70 | | 3,140,920 | | Mark Lashier | | | | — | | 907,500 | | 1,815,000 | | — | | — | | — | | — | | — | | — | | — | | | | 4/1/2021 | | — | | — | | — | | — | | — | | — | | 30,674 | | — | | — | | 2,512,507 | | | | 4/1/2021 | | — | | — | | — | | — | | 52,721 | | 105,442 | | — | | — | | — | | 4,318,377 | | | | 4/1/2021 | | — | | — | | — | | — | | — | | — | | — | | 109,100 | | 81.91 | | 1,513,217 | | Kevin Mitchell | | | | — | | 903,432 | | 1,806,864 | | — | | — | | — | | — | | — | | — | | — | | | | 2/9/2021 | | — | | — | | — | | — | | — | | — | | 16,690 | | — | | — | | 1,246,743 | | | | 2/9/2021 | | — | | — | | — | | — | | 43,458 | | 86,916 | | — | | — | | — | | 3,246,313 | | | | 2/9/2021 | | — | | — | | — | | — | | — | | — | | — | | 87,200 | | 74.70 | | 1,039,424 | | Robert Herman | | | | — | | 783,389 | | 1,566,778 | | — | | — | | — | | — | | — | | — | | — | | | | 2/9/2021 | | — | | — | | — | | — | | — | | — | | 12,585 | | — | | — | | 940,100 | | | | 2/9/2021 | | — | | — | | — | | — | | 32,768 | | 65,536 | | — | | — | | — | | 2,447,770 | | | | 2/9/2021 | | — | | — | | — | | — | | — | | — | | — | | 65,800 | | 74.70 | | 784,336 | | Tim Roberts | | | | — | | 798,682 | | 1,597,364 | | — | | — | | — | | — | | — | | — | | — | | | | 2/9/2021 | | — | | — | | — | | — | | — | | — | | 12,830 | | — | | — | | 958,401 | | | | 2/9/2021 | | — | | — | | — | | — | | 33,408 | | 66,816 | | — | | — | | — | | 2,495,578 | | | | 2/9/2021 | | — | | — | | — | | — | | — | | — | | — | | 67,100 | | 74.70 | | 799,832 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Estimated Future Payouts under Non-Equity
Incentive Plan Awards(2) | | Estimated Future Payouts
under Equity Incentive Plan
Awards(3) | All other
Stock
Awards:
Number
of Shares
of Stock
or Units(4)
(#) | All other
Option
Awards:
Number of
Securities
Underlying
Options
(#) | Exercise
or Base
Price of
Option
Awards
($/SH) | Grant
Date Fair
Value of
Stock and
Option
Awards(5)
($) | | Name | Grant
Date(1) | Threshold
($) | Target
($) | Maximum
($) | | Threshold
(#) | Target
($) | Maximum
($) | | Mark Lashier | | — | | 1,709,067 | | 3,418,134 | | | — | | — | | — | | — | | — | | — | | — | | | 2/8/2022 | — | | — | | — | | | — | | — | | — | | 18,683 | | — | | — | | 1,663,721 | | | 7/1/2022 | — | | — | | — | | | — | | — | | — | | 5,594 | | — | | — | | 462,512 | | | 2/8/2022 | — | | — | | — | | | — | | 80,111 | | 160,222 | | — | | — | | — | | 7,133,884 | | | 2/8/2022 | — | | — | | — | | | — | | — | | — | | — | | 89,000 | | 89.05 | | 1,513,000 | | | 7/1/2022 | — | | — | | — | | | — | | — | | — | | — | | 26,300 | | 82.68 | | 463,406 | | | Greg Garland | | — | | 2,140,006 | | 4,280,012 | | | — | | — | | — | | — | | — | | — | | — | | | 2/8/2022 | — | | — | | — | | | — | | — | | — | | 28,074 | | — | | — | | 2,499,990 | | | 2/8/2022 | — | | — | | — | | | — | | 82,263 | | 164,526 | | — | | — | | — | | 7,325,520 | | | 2/8/2022 | — | | — | | — | | | — | | — | | — | | — | | 147,100 | | 89.05 | | 2,500,700 | | Kevin
Mitchell | | — | | 951,992 | | 1,903,984 | | | — | | — | | — | | — | | — | | — | | — | | | 2/8/2022 | — | | — | | — | | | — | | — | | — | | 14,000 | | — | | — | | 1,246,700 | | | 2/8/2022 | — | | — | | — | | | — | | 41,024 | | 82,048 | | — | | — | | — | | 3,653,187 | | | 2/8/2022 | — | | — | | — | | | — | | — | | — | | — | | 61,200 | | 89.05 | | 1,040,400 | | | Vanessa Allen Sutherland | | — | | 610,938 | | 1,221,876 | | | — | | — | | — | | — | | — | | — | | — | | | 1/17/2022 | — | | — | | — | | | — | | — | | — | | 34,258 | | — | | — | | 2,999,973 | | | 2/8/2022 | — | | — | | — | | | — | | — | | — | | 6,738 | | — | | — | | 600,019 | | | 2/8/2022 | — | | — | | — | | | — | | 19,743 | | 39,486 | | — | | — | | — | | 1,758,114 | | | 2/8/2022 | — | | — | | — | | | — | | — | | — | | — | | 35,300 | | 89.05 | | 600,100 | | | Brian Mandell | | — | | 727,538 | | 1,455,076 | | | — | | — | | — | | — | | — | | — | | — | | | 2/8/2022 | — | | — | | — | | | — | | — | | — | | 9,096 | | — | | — | | 809,999 | | | 2/8/2022 | — | | — | | — | | | — | | 26,653 | | 53,306 | | — | | — | | — | | 2,373,450 | | | 2/8/2022 | — | | — | | — | | | — | | — | | — | | — | | 39,800 | | 89.05 | | 676,600 | | Tim
Roberts | | — | | 838,283 | | 1,676,566 | | | — | | — | | — | | — | | — | | — | | — | | | 2/8/2022 | — | | — | | — | | | — | | — | | — | | 10,763 | | — | | — | | 958,445 | | | 2/8/2022 | — | | — | | — | | | — | | 31,537 | | 63,074 | | — | | — | | — | | 2,808,370 | | | 2/8/2022 | — | | — | | — | | | — | | — | | — | | — | | 47,000 | | 89.05 | | 799,000 | |
(1)The grant date shown is the date on which the Compensation Committee approved the target awards. (2)Threshold and maximum awards are based on the provisions in the VCIP. Actual awards earned can range from 0% to 200% of the target award. Actual payouts under the annual bonus program for 2022 are calculated using base salary earned in 2022 and reflected in the “Non-Equity Incentive Plan Compensation” column of the Summary Compensation Table. (3)Threshold and maximum awards are based on the provisions of the PSP. Actual awards earned range from 0% to 200% of the target. Performance periods under the PSP cover a three-year period, and because a new three-year period commences each year, there could be three overlapping performance periods ongoing. In 2022, targets were set with respect to an award for the performance period beginning in 2022 and ending in 2024. The Compensation Committee retains authority to make awards under the PSP using its judgment, including making awards greater than the maximum payout shown in the table above, provided the award does not exceed amounts permitted under the 2022 Omnibus Stock and Performance Incentive Plan of Phillips 66. (4)RSUs were granted in 2022 and will vest in 2025. For Mr. Lashier, includes an RSU grant on July 1, 2022 upon his promotion to CEO and for Ms. Sutherland, includes an RSU grant on January 17, 2022 upon her commencement of employment with the Company. (5)For equity incentive plan awards, these amounts represent the grant date fair value at target level under the PSP as determined in accordance with GAAP. For Stock Option awards, these amounts represent the grant date fair value of the option awards using a Black-Scholes-Merton-based methodology. Actual value realized upon option exercise depends on market prices at the time of exercise. For other stock awards, these amounts represent the grant date fair value of the RSU awards determined in accordance with GAAP. See Note 20—Share-Based Compensation Plans in the Notes to Consolidated Financial Statements in our 2022 Form 10-K, for a discussion of the relevant assumptions used in this determination. | | | | | | | Executive Compensation Tables | (1) | The grant date shown is the date on which the Compensation Committee approved the target awards. | | (2) | Threshold and maximum awards are based on the provisions in the VCIP. Actual awards earned can range from 0 to 200% of the target awards. Actual payouts under the annual bonus program for 2021 are calculated using base salary earned in 2021 and reflected in the “Non-Equity Incentive Plan Compensation” column of the Summary Compensation Table. | | (3) | Threshold and maximum awards are based on the provisions of the PSP. Actual awards earned range from 0 to 200% of the target. Performance periods under the PSP cover a three-year period, and because a new three-year period commences each year, there could be three overlapping performance periods ongoing. In 2021, targets were set with respect to an award for the performance period beginning in 2021 and ending in 2023. The Compensation Committee retains authority to make awards under the PSP using its judgment, including making awards greater than the maximum payout shown in the table above, provided the award does not exceed amounts permitted under the 2013 Omnibus Stock and Performance Incentive Plan of Phillips 66. | | (4) | RSUs were granted in 2021 and will vest in 2024. | | (5) | For equity incentive plan awards, these amounts represent the grant date fair value at target level under the PSP as determined in accordance with GAAP. For Stock Option awards, these amounts represent the grant date fair value of the option awards using a Black-Scholes-Merton-based methodology. Actual value realized upon option exercise depends on market prices at the time of exercise. For other stock awards, these amounts represent the grant date fair value of the RSU awards determined in accordance with GAAP. See Note 20—Share-Based Compensation Plans in the Notes to Consolidated Financial Statements in our 2021 Form 10-K, for a discussion of the relevant assumptions used in this determination.69 |
72 Phillips 66 2022 Proxy Statement | |
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END The following table lists outstanding Phillips 66 equity grants for each NEO as of December 31, 2021.| | | | | Option Awards(1) | | Stock Awards | | Name | | Grant
Date | | Number of
Securities
Underlying
Unexercised
Options
Exercisable(2)
(#) | | Number of
Securities
Underlying
Unexercised
Options
Unexercisable
(#) | | Option
Exercise
Price
($) | | Option
Expiration
Date | | Number
of Shares
or Units
of Stock
that
Have not
Vested(3)
(#) | | Market
Value of
Shares
or Units
of Stock
that
Have not
Vested
($) | | Equity
Incentive
Plan
Awards:
Number of
Unearned
Shares,
Units or
Other
Rights that
Have not
Vested(4)
(#) | | Equity
Incentive
Plan
Awards:
Market or
Payout
Value of
Unearned
Shares,
Units or
Other
Rights that
Have not
Vested ($) | | Greg Garland | | 2/6/2014 | | 126,300 | | — | | 72.255 | | 2/6/2024 | | — | | — | | — | | — | | | 2/3/2015 | | 146,700 | | — | | 74.135 | | 2/3/2025 | | — | | — | | — | | — | | | | 2/2/2016 | | 169,400 | | — | | 78.620 | | 2/2/2026 | | — | | — | | — | | — | | | | 2/7/2017 | | 174,000 | | — | | 78.475 | | 2/7/2027 | | — | | — | | — | | — | | | | 2/6/2018 | | 147,000 | | — | | 94.850 | | 2/6/2028 | | — | | — | | — | | — | | | | 2/5/2019 | | 119,133 | | 59,567 | | 94.968 | | 2/5/2029 | | — | | — | | — | | — | | | | 2/4/2020 | | 70,700 | | 141,400 | | 89.570 | | 2/4/2030 | | — | | — | | — | | — | | | | 2/9/2021 | | — | | 263,500 | | 74.700 | | 2/9/2031 | | — | | — | | — | | — | | | | | | — | | — | | — | | — | | 108,316 | | 7,848,577 | | 350,410 | | 25,390,708 | | Mark Lashier | | 4/1/2021 | | — | | 109,100 | | 81.91 | | 4/1/2031 | | — | | — | | — | | — | | | | | — | | — | | — | | — | | 30,117 | | 2,182,278 | | 140,066 | | 10,149,182 | | Kevin Mitchell | | 2/3/2015 | | 9,900 | | — | | 74.135 | | 2/3/2025 | | — | | — | | — | | — | | | 2/2/2016 | | 30,800 | | — | | 78.620 | | 2/2/2026 | | — | | — | | — | | — | | | | 2/7/2017 | | 31,700 | | — | | 78.475 | | 2/7/2027 | | — | | — | | — | | — | | | | 2/6/2018 | | 43,600 | | — | | 94.850 | | 2/6/2028 | | — | | — | | — | | — | | | | 2/5/2019 | | 35,533 | | 17,767 | | 94.968 | | 2/5/2029 | | — | | — | | — | | — | | | | 2/4/2020 | | 21,066 | | 42,134 | | 89.570 | | 2/4/2030 | | — | | — | | — | | — | | | | 2/9/2021 | | — | | 87,200 | | 74.700 | | 2/9/2031 | | — | | — | | — | | — | | | | | | — | | — | | — | | — | | 38,292 | | 2,774,638 | | 129,956 | | 9,416,612 | | Robert Herman | | 2/7/2013 | | 12,300 | | — | | 62.170 | | 2/7/2023 | | — | | — | | — | | — | | | 2/6/2014 | | 11,400 | | — | | 72.255 | | 2/6/2024 | | — | | — | | — | | — | | | | 2/3/2015 | | 23,500 | | — | | 74.135 | | 2/3/2025 | | — | | — | | — | | — | | | | 2/2/2016 | | 28,800 | | — | | 78.620 | | 2/2/2026 | | — | | — | | — | | — | | | | 2/7/2017 | | 30,700 | | — | | 78.475 | | 2/7/2027 | | — | | — | | — | | — | | | | 2/6/2018 | | 26,000 | | — | | 94.850 | | 2/6/2028 | | — | | — | | — | | — | | | | 2/5/2019 | | 21,000 | | 10,500 | | 94.968 | | 2/5/2029 | | — | | — | | — | | — | | | | 2/4/2020 | | 16,166 | | 32,334 | | 89.570 | | 2/4/2030 | | — | | — | | — | | — | | | | 2/9/2021 | | — | | 65,800 | | 74.700 | | 2/9/2031 | | — | | — | | — | | — | | | | | | — | | — | | — | | — | | 75,292 | | 5,455,658 | | 98,560 | | 7,141,658 | | Tim Roberts | | 4/4/2016 | | 28,400 | | — | | 85.973 | | 4/4/2026 | | — | | — | | — | | — | | | 2/7/2017 | | 30,700 | | — | | 78.475 | | 2/7/2027 | | — | | — | | — | | — | | | | 2/6/2018 | | 25,900 | | — | | 94.850 | | 2/6/2028 | | — | | — | | — | | — | | | | 2/5/2019 | | 21,000 | | 10,500 | | 94.968 | | 2/5/2029 | | — | | — | | — | | — | | | | 2/4/2020 | | 16,166 | | 32,334 | | 89.570 | | 2/4/2030 | | — | | — | | — | | — | | | | 2/9/2021 | | — | | 67,100 | | 74.700 | | 2/9/2031 | | — | | — | | — | | — | | | | | | — | | — | | — | | — | | 29,012 | | 2,102,209 | | 102,842 | | 7,451,931 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Option Awards(1) | | Stock Awards | | Name | Grant
Date | Number of
Securities
Underlying
Unexercised
Options
Exercisable(2)
(#) | Number of
Securities
Underlying
Unexercised
Options
Unexercisable
(#) | Option
Exercise
Price
($) | Option
Expiration
Date | | Number of Shares or Units of Stock that Have not Vested(3) (#) | Market Value of Shares or Units of Stock that Have not Vested ($) | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights that Have not Vested(4) (#) | Equity
Incentive
Plan
Awards:
Market or
Payout
Value of
Unearned
Shares,
Units or
Other
Rights that
Have not
Vested ($) | | Mark Lashier | 4/1/2021 | 36,366 | | 72,734 | | 81.910 | | 4/1/2031 | | — | | — | | — | | — | | | 2/8/2022 | — | | 89,000 | | 89.050 | | 2/8/2032 | | — | | — | | — | | — | | | 7/1/2022 | — | | 26,300 | | 82.680 | | 7/1/2032 | | — | | — | | — | | — | | | — | | — | | — | | — | | | 47,592 | | 4,953,375 | | 297,908 | | 31,006,265 | | | Greg Garland | 2/2/2016 | 169,400 | | — | | 78.62 | | 2/2/2026 | | — | | — | | — | | — | | | 2/7/2017 | 174,000 | | — | | 78.475 | | 2/7/2027 | | — | | — | | — | | — | | | 2/6/2018 | 147,000 | | — | | 94.850 | | 2/6/2028 | | — | | — | | — | | — | | | 2/5/2019 | 178,700 | | — | | 94.968 | | 2/5/2029 | | — | | — | | — | | — | | | 2/4/2020 | 141,400 | | 70,700 | | 89.570 | | 2/4/2030 | | — | | — | | — | | — | | | 2/9/2021 | 87,833 | | 175,667 | | 74.700 | | 2/9/2031 | | — | | — | | — | | — | | | 2/8/2022 | — | | 147,100 | | 89.050 | | 2/8/2032 | | — | | — | | — | | — | | | — | | — | | — | | — | | | 103,505 | | 10,772,801 | | 383,472 | | 39,911,767 | | | Kevin Mitchell | 2/3/2015 | 9,900 | | — | | 74.135 | | 2/3/2025 | | — | | — | | — | | — | | | 2/2/2016 | 30,800 | | — | | 78.620 | | 2/2/2026 | | — | | — | | — | | — | | | 2/7/2017 | 31,700 | | — | | 78.475 | | 2/7/2027 | | — | | — | | — | | — | | | 2/6/2018 | 43,600 | | — | | 94.850 | | 2/6/2028 | | — | | — | | — | | — | | | 2/5/2019 | 53,300 | | — | | 94.968 | | 2/5/2029 | | — | | — | | — | | — | | | 2/4/2020 | 42,133 | | 21,067 | | 89.570 | | 2/4/2030 | | — | | — | | — | | — | | | 2/9/2021 | 29,066 | | 58,134 | | 74.700 | | 2/9/2031 | | — | | — | | — | | — | | | 2/8/2022 | — | | 61,200 | | 89.050 | | 2/8/2032 | | — | | — | | — | | — | | | — | | — | | — | | — | | | 41,665 | | 4,336,493 | | 168,964 | | 17,585,773 | | | Vanessa Allen Sutherland | 2/8/2022 | — | | 35,300 | | 89.050 | | 2/8/2032 | | — | | — | | — | | — | | | — | | — | | — | | — | | | 40,996 | | 4,266,864 | | 66,210 | | 6,891,137 | | | Brian Mandell | 2/3/2015 | 3,000 | | — | | 74.135 | | 2/3/2025 | | — | | — | | — | | — | | | 2/2/2016 | 9,800 | | — | | 78.620 | | 2/2/2026 | | — | | — | | — | | — | | | 2/7/2017 | 14,100 | | — | | 78.475 | | 2/7/2027 | | — | | — | | — | | — | | | 2/6/2018 | 12,100 | | — | | 94.850 | | 2/6/2028 | | — | | — | | — | | — | | | 2/5/2019 | 25,500 | | — | | 94.968 | | 2/5/2029 | | — | | — | | — | | — | | | 2/4/2020 | 28,533 | | 14,267 | | 89.570 | | 2/4/2030 | | — | | — | | — | | — | | | 2/9/2021 | 18,900 | | 37,800 | | 74.700 | | 2/9/2031 | | — | | — | | — | | — | | | 2/8/2022 | — | | 39,800 | | 89.050 | | 2/8/2032 | | — | | — | | — | | — | | | — | | — | | — | | — | | | 26,305 | | 2,737,824 | | 105,068 | | 10,935,478 | | | Tim Roberts | 2/6/2018 | 25,900 | | — | | 94.850 | | 2/6/2028 | | — | | — | | — | | — | | | 2/5/2019 | 31,500 | | — | | 94.968 | | 2/5/2029 | | — | | — | | — | | — | | | 2/4/2020 | 32,333 | | 16,167 | | 89.570 | | 2/4/2030 | | — | | — | | — | | — | | | 2/9/2021 | 22,366 | | 44,734 | | 74.700 | | 2/9/2031 | | | | | | | 2/8/2022 | — | | 47,000 | | 89.050 | | 2/8/2032 | | — | | — | | — | | — | | | | — | | — | | — | | — | | | 32,578 | | 3,390,718 | | 129,890 | | 13,518,951 | |
| | | | | | | 70 | Phillips 66 2023 Proxy Statement |
(1)All options shown in the table have a maximum term for exercise of ten years from the grant date. Under certain circumstances, the terms for exercise may be shorter, and in certain circumstances, the options may be forfeited and cancelled. All awards shown in the table have associated restrictions upon transferability. (2)The options shown in this column vested and became exercisable in 2022 or prior years (although under certain termination circumstances, the options may still be forfeited). Options become exercisable in one-third increments on the first, second and third anniversaries of the grant date. (3)Awards are subject to forfeiture if, prior to the lapsing of restrictions, the NEO separates from service for a reason other than death, disability, layoff, retirement after reaching age 55 with five years of service, or after a change of control, although the Compensation Committee has the authority to waive forfeiture. The awards have no voting rights, but do entitle the holder to receive dividend equivalents in cash. The value of the awards reflects the closing price of our common stock, as reported on the NYSE, on December 30, 2022 ($104.08). (4)Reflects potential awards from ongoing performance periods under the PSP for performance periods ending December 31, 2023 and December 31, 2024. These awards are shown at maximum; however, there is no assurance that awards will be granted at, below or above target after the end of the relevant performance periods, as the determination to make a grant and the amount of any grant is within the judgment of the Compensation Committee. Until an actual grant is made, these unearned awards pay no dividend equivalents. The value of these unearned awards reflects the closing price of our common stock, as reported on the NYSE, on December 30, 2022 ($104.08). | | | | | | Executive Compensation Tables73 | 71 |
(1) | All options shown in the table have a maximum term for exercise of ten years from the grant date. Under certain circumstances, the terms for exercise may be shorter, and in certain circumstances, the options may be forfeited and cancelled. All awards shown in the table have associated restrictions upon transferability. | (2) | The options shown in this column vested and became exercisable in 2021 or prior years (although under certain termination circumstances, the options may still be forfeited). Options become exercisable in one-third increments on the first, second and third anniversaries of the grant date. | (3) | Restrictions on PSP awards for performance periods that ended on or before December 31, 2010, lapse upon separation from service. Awards are subject to forfeiture if, prior to lapsing, the NEO separates from service for a reason other than death, disability, layoff, retirement after reaching age 55 with five years of service, or after a change of control, although the Compensation Committee has the authority to waive forfeiture. The awards have no voting rights, but do entitle the holder to receive dividend equivalents in cash. The value of the awards reflects the closing price of our common stock, as reported on the NYSE, on December 31, 2021 ($72.46). | (4) | Reflects potential awards from ongoing performance periods under the PSP for performance periods ending December 31, 2022 and December 31, 2023. These awards are shown at maximum; however, there is no assurance that awards will be granted at, below or above target after the end of the relevant performance periods, as the determination to make a grant and the amount of any grant is within the judgment of the Compensation Committee. Until an actual grant is made, these unearned awards pay no dividend equivalents. The value of these unearned awards reflects the closing price of our common stock, as reported on the NYSE, on December 31, 2021 ($72.46). |
74 Phillips 66 2022 Proxy Statement | |
OPTION EXERCISES AND STOCK VESTED FOR 2021 2022 The following table summarizes the value received from stock option exercises and stock grants vested during 2021:| | | Option Awards | | Stock Awards(1) | | Name | | Number of Shares
Acquired on Exercise
(#) | | Value Realized
Upon Exercise
($) | | Number of Shares
Acquired on Vesting
(#) | | Value Realized
Upon Vesting
($) | | Greg Garland | | 158,500 | | 4,172,814 | | 81,633 | | 5,886,144 | | Mark Lashier | | — | | — | | 557 | | 39,789 | | Kevin Mitchell | | — | | — | | 28,065 | | 2,034,924 | | Robert Herman | | — | | — | | 18,749 | | 1,350,895 | | Tim Roberts | | — | | — | | 18,093 | | 1,303,917 |
| | | | | | | | | | | | | | | | | | | Option Awards | | Stock Awards(1) | | | | Name | Number of Shares
Acquired on Exercise
(#) | Value Realized
Upon Exercise
($) | | Number of Shares
Acquired on Vesting
(#) | Value Realized
Upon Vesting
($) | | Mark Lashier | — | | — | | | 27,139 | | 2,671,478 | | | Greg Garland | 273,000 | | 7,265,523 | | | 98,617 | | 9,660,109 | | | Kevin Mitchell | — | | — | | | 32,480 | | 3,178,973 | | | Vanessa Allen Sutherland | — | | — | | | — | | — | | | Brian Mandell | — | | — | | | 20,358 | | 2,007,564 | | | Tim Roberts | 59,100 | | 1,662,629 | | | 24,827 | | 2,451,756 | |
(1)Stock awards include RSUs that vested during the year, as well as the 2020-2022 PSP award that vested on December 31, 2022 and was paid out in cash in early 2023. The 2020-2022 PSP awards were earned as follows: Mr. Lashier, 20,337 units valued at $2,087,811; Mr. Garland, 65,732 units valued at $6,748,093; Mr. Mitchell, 21,520 units valued at $2,209,258; Mr. Mandell, 14,569 units valued at $1,495,664; and Mr. Roberts, 18,013 units valued at $1,849,227. | | | | | | (1)72 | Stock awards include RSUs that vested during the year, as well as the PSP 2019-2021 award that vested on December 31, 2021 and was paid out in cash in early 2022. The PSP awards were as follows: Mr. Garland, 49,238 units valued at $3,536,303; Mr. Mitchell, 16,142 units valued at $1,159,328; Mr. Herman, 12,279 units valued at $881,885; and Mr. Roberts, 11,411 units valued at $819,545.Phillips 66 2023 Proxy Statement |
PENSION BENEFITS AS OF DECEMBER 31, 20212022 Our defined benefit pension plan, covering NEOs, the Phillips 66 Retirement Plan (the "Retirement Plan"), consists of multiple titles with different terms. NEOs are only eligible to participate in one title at any time but may have frozen benefits under one or more other titles. | | | | | | | | | | | | | Title I | | Title II(1) | Title IV | | Current Eligibility | | Mr. Garland | | Mr. Lashier, Mr. Mitchell, Ms. Sutherland, Mr. Roberts | Mr. Mandell | | | | | Mr. Herman(4), Mr. Roberts | | Normal Retirement | Age 65 | Age 65 | | Age 65 | Early Retirement(2) | | Age 55 with five years of service or if laid off during or after the year in which the participant reaches age 50 | | Executives may receive their vested benefit upon termination of employment at any age | Age 50 with ten years of service | Benefit Calculation(2) | | Calculated as the product of 1.6% times years of credited service multiplied by the final average eligible earnings | | Based on monthly pay and interest credits to a nominal cash balance account created on the first day of the month after an executive’s hire date. Pay credits are equal to a percentage of total salary and annual bonus. | Calculated as the product of 1.6% times years of credited service multiplied by the final average eligible earnings | Final Average
Earnings
Calculation | | Calculated using the three highest compensation years in the last ten calendar years before retirement plus the year of retirement | | N/A | Calculated using the higher of the highest three years of compensation or the highest 36 months of compensation | Eligible Pension
Compensation(3) | Includes salary and annual bonus | Includes salary and annual bonus | | Includes salary and annual bonus | | Benefit Vesting | | All participants are vested in this title | | Employees vest after three years of service | All participants are vested in this title | | Payment Types | | Allows payments in the form of several annuity types or a single lump sum | | IRS limitations | | Benefits under all Titles are limited by the IRC. In 2021,2022, the compensation limit was $290,000.$305,000. The IRC also limits the annual benefit available under these Titles expressed as an annuity. In 2021,2022, that limit was $230,000$245,000 (reduced actuarially for ages below 62). |
(1)NEOs whose combined years of age and service total less than 44 receive a 6% pay credit, those with a total of 44 through 65 receive a 7% pay credit and those with a total of 66 or more receive a 9% pay credit. Interest credits are applied to the cash balance account each month. This credit is calculated by multiplying the value of the account by the interest credit rate, based on 30-year U.S. Treasury security rates adjusted quarterly. (2)An early benefit reduction is calculated on Title I by reducing the benefit 5% for each year before age 60 that benefits are paid. Title IV early benefit reduction is calculated by reducing the benefit by 5% per year for each year before age 57 that benefits are paid and 4% per year for benefits that are paid between ages 57 and 60. The benefit calculation for Titles I and IV is reduced by the product of 1.5% of the annual primary social security benefit multiplied by years of credited service, although a reduction limit of 50% of the primary Social Security benefit may apply. (3)Under Title I, if an executive receives layoff benefits, then the eligible compensation calculation also includes the annualized salary for the year of layoff (rather than the actual salary for that year) and years of service are increased by any period for which layoff benefits are calculated. | | | | | | (1) | NEOs whose combined years of age and service total less than 44 receive a 6% pay credit, those with 44 through 65 receive a 7% pay credit and those with 66 or more receive a 9% pay credit. Interest credits are applied to the cash balance account each month. This credit is calculated by multiplying the value of the account by the interest credit rate, based on 30-year U.S. Treasury security rates adjusted quarterly. |
| Executive Compensation Tables75 | 73 |
(2) | An early benefit reduction is calculated on Title I by reducing the benefit 5% for each year before age 60 that benefits are paid. An early benefit reduction is calculated on Title III by reducing the benefit 6.67% for each year before age 60 that benefits are paid, unless the participant has at least 85 points awarded, with one point for each year of age and one point for each year of service. The benefit calculation for Titles I and III is reduced by the product of 1.5% of the annual primary social security benefit multiplied by years of credited service, although a reduction limit of 50% of the primary Social Security benefit may apply. | (3) | Under Title I, if an executive receives layoff benefits, then the eligible compensation calculation also includes the annualized salary for the year of layoff (rather than the actual salary for that year) and years of service are increased by any period for which layoff benefits are calculated. | (4) | Mr. Herman has a frozen benefit under Title III from prior years of service with predecessor companies. Under Title III, normal retirement is age 65 and early retirement is age 55 with 10 years of service. Title III is similar to Title I, except that bonus is not eligible pension compensation and payout is made in the form of an annuity. |
The following table lists the pension program participation and actuarial present value of each NEO’s defined benefit pension as of December 31, 2021. | Name | | Plan Name | | Number of Years
Credited Service(1)
(#) | | Present Value of
Accumulated Benefit
($) | | Payments During
Last Fiscal Year
($) | | Greg Garland | | Phillips 66 Retirement Plan - Title I | | 32 | | 2,071,363 | | — | | | | Phillips 66 Key Employee Supplemental Retirement Plan(2) | | — | | 51,112,906 | | — | | Mark Lashier | | Phillips 66 Retirement Plan - Title II | | 1 | | 25,279 | | — | | | | Phillips 66 Key Employee Supplemental Retirement Plan(2) | | — | | 46,267 | | — | | Kevin Mitchell | | Phillips 66 Retirement Plan - Title II | | 8 | | 186,914 | | — | | | | Phillips 66 Key Employee Supplemental Retirement Plan(2) | | — | | 920,295 | | — | | Robert Herman | | Phillips 66 Retirement Plan - Title II | | 16 | | 462,681 | | — | | | | Phillips 66 Retirement Plan - Title III | | 23 | | 730,045 | | — | | | | Phillips 66 Key Employee Supplemental Retirement Plan(2) | | — | | 1,409,064 | | — | | Tim Roberts | | Phillips 66 Retirement Plan - Title II | | 6 | | 155,692 | | — | | | | Phillips 66 Key Employee Supplemental Retirement Plan(2) | | — | | 736,072 | | — |
| | | | | | | | | | | | | | | | Name | Plan Name | Number of Years Credited Service(1) (#) | Present Value of
Accumulated Benefit
($) | Payments During
Last Fiscal Year
($) | | Mark Lashier | Retirement Plan - Title II | 33 | | 51,371 | | — | | | KESRP(2) | | 252,157 | | — | | | Greg Garland | Retirement Plan - Title I | 33 | | 1,716,484 | | — | | | KESRP(2) | | 40,272,369 | | — | | | Kevin Mitchell | Retirement Plan - Title II | 9 | | 204,082 | | — | | | KESRP(2) | | 1,047,610 | | — | | | Vanessa Allen Sutherland | Retirement Plan - Title II | — | | — | | — | | KESRP(2) | | — | | — | | | Brian Mandell | Retirement Plan - Title IV | 32 | | 1,714,995 | | — | | | KESRP(2) | | 9,226,348 | | — | | | Tim Roberts | Retirement Plan - Title II | 30 | | 182,876 | | — | | KESRP(2) | | 900,730 | | — | |
(1)Years of credited service include service recognized under the predecessor ConocoPhillips plans from which these plans were spun off effective May 1, 2012. Credited Service displays the number of years the NEO was in each applicable formula. Mr. Lashier’s and Mr. Roberts’ tenure with Phillips 66 is 2 years and 7 years, respectively. Their credited years of service calculations include 33 years and 30 years of prior service recognition, respectively. (2)The Phillips 66 Key Employee Supplemental Retirement Plan ("KESRP") restores Company-sponsored benefits capped under the qualified defined benefit pension plan due to IRC limits. All employees, including our NEOs, are eligible to participate in the plan. | | | | | | (1) | Years of credited service include service recognized underUnderstanding the predecessor ConocoPhillips plans from which these plans were spun off effective May 1, 2012. Credited Service displays the number of years the NEO wasAnnual Change in each applicable formula. Mr. Lashier’s and Mr. Roberts’ calculations include 32 years and 29 years of prior service recognition respectively.Pension Value | (2) | The Phillips 66 Key Employee Supplemental Retirement Plan restores Company-sponsored benefits capped under the qualified defined benefit pension plan due to IRC limits. All employees, including our NEOs, are eligible to participate in the plan. |
Understanding the Annual Change in Pension Value
| No modifications to pension | ●
•There were no modifications to our existing pension program in 20212022 | | Change in value | ●
•The value of traditional pension plans is particularly sensitive to interest rate movement, which is outside of Companythe Company's control●
•While our short-term and long-term incentive programs are based entirely on performance, pension value is not performance based and does not reflect or reward Company performance | | Pension plan going forward | ●
•The Compensation Committee will continue to assess our pension program to ensure viability as an attraction and retention tool |
76 | | | | | | | 74 | Phillips 66 2022 2023 Proxy Statement | |
NONQUALIFIED DEFERRED COMPENSATION Our NEOs are eligible to participate in two nonqualified deferred compensation plans, the Phillips 66 KEDCP and the Phillips 66 DCMP. The KEDCP allows NEOs to defer up to 50% of their salary and up to 100% of their VCIP. The default distribution option is a lump sum payment paid at least six months after separation from service. NEOs may elect to defer payments from one to five years, and to receive annual, semiannual or quarterly payments for a period of up to fifteen years. NEOs may also elect to defer their VCIP to a specificspecified date in the future. The DCMP is a nonqualified restoration plan for employer contributions that cannot be made to our 401(k) plan either due to an NEO’s salary deferral under the KEDCP or due to the IRC annual limit on compensation that may be taken into account under a qualified plan. Distributions are made as a lump sum six months after separation from service, unless the NEO elects to receive one to fifteen annual payments beginning at least one year after separation from service. Each NEO directs investments of his or her individual accounts under the KEDCP and DCMP. Both plans provide a broad range of market-based investments that may be changed daily. No investment provides above-market returns. The aggregate performance of these investments is reflected in the Nonqualified Deferred Compensationtable below. Benefits due under these plans are paid from our general assets, although we also maintain rabbi trusts that may be used to pay benefits. The trusts and the funds held in them are Company assets. In the event of our bankruptcy, NEOs would be unsecured general creditors. The following table provides information on the NEO's nonqualified deferred compensation as of December 31, 2021:| Name | | Applicable Plan(1) | | Beginning
Balance
($) | | Executive
Contributions
in Last
Fiscal Year
($) | | Company
Contributions
in the Last
Fiscal Year(2)
($) | | Aggregate
Earnings in
Last Fiscal
Year(3)
($) | | Aggregate
Withdrawals/
Distributions
($) | | Aggregate
Balance at
Last Fiscal
Year End(4)
($) | | Greg Garland | | Phillips 66 Defined Contribution Make-Up Plan | | 2,944,579 | | — | | 363,162 | | 302,749 | | — | | 3,610,490 | | | | Phillips 66 Key Employee Deferred Compensation Plan | | 1,051,822 | | — | | — | | 308,963 | | — | | 1,360,785 | | Mark Lashier | | Phillips 66 Defined Contribution Make-Up Plan | | — | | — | | 43,100 | | 506 | | — | | 43,606 | | | | Phillips 66 Key Employee Deferred Compensation Plan | | — | | — | | — | | — | | — | | — | | Kevin Mitchell | | Phillips 66 Defined Contribution Make-Up Plan | | 746,937 | | — | | 155,379 | | 134,489 | | — | | 1,036,805 | | | | Phillips 66 Key Employee Deferred Compensation Plan | | — | | — | | — | | — | | — | | — | | Robert Herman | | Phillips 66 Defined Contribution Make-Up Plan | | 892,236 | | — | | 139,631 | | 126,165 | | — | | 1,158,032 | | | | Phillips 66 Key Employee Deferred Compensation Plan | | 2,887,620 | | — | | — | | 726,636 | | — | | 3,614,256 | | Tim Roberts | | Phillips 66 Defined Contribution Make-Up Plan | | 563,188 | | — | | 142,418 | | 33,406 | | — | | 739,012 | | | | Phillips 66 Key Employee Deferred Compensation Plan | | 756,467 | | 555,148 | | — | | 65,839 | | — | | 1,377,454 |
| | | | | | | | | | | | | | | | | | | | | | | | | Name | Applicable Plan(1) | Beginning
Balance
($) | Executive
Contributions
in Last
Fiscal Year
($) | Company
Contributions
in the Last
Fiscal Year(2)
($) | Aggregate
Earnings (Loss) in
Last Fiscal
Year(3)
($) | Aggregate
Withdrawals/
Distributions
($) | Aggregate
Balance at
Last Fiscal
Year End(4)
($) | | Mark Lashier | DCMP | 43,606 | | — | | 298,155 | | (13,998) | | — | | 327,763 | | | | | | | | | | | KEDCP | — | | — | | — | | — | | — | | — | | | Greg Garland | DCMP | 3,610,490 | | — | | 641,333 | | (188,039) | | — | | 4,063,784 | | | | | | | | | | | KEDCP | 1,360,786 | | — | | — | | 560,857 | | — | | 1,921,643 | | | Kevin Mitchell | DCMP | 1,036,805 | | — | | 257,295 | | (153,219) | | — | | 1,140,881 | | | | | | | | | | | KEDCP | — | | — | | — | | — | | — | | — | | | Vanessa Allen Sutherland | DCMP | — | | — | | 54,350 | | 1,355 | | — | | 55,705 | | | | | | | | | | KEDCP | — | | — | | — | | — | | — | | — | | | Brian Mandell | DCMP | 863,962 | | — | | 197,455 | | (166,545) | | — | | 894,871 | | | | | | | | | | | KEDCP | 4,689,190 | | — | | | (1,101,515) | | — | | 3,587,675 | | | Tim Roberts | DCMP | 739,012 | | — | | 235,398 | | (149,420) | | — | | 824,990 | | | | | | | | | | | KEDCP | 1,377,453 | | 1,188,085 | | — | | (416,517) | | — | | 2,149,020 | |
(1)As of December 31, 2022, participants in these plans had 34 investment options – 26 of the options were the same as those available in our 401(k) plan and the remaining options were other mutual funds approved by the plan administrator. (2)These amounts represent Company contributions under the DCMP. These amounts are also included in the “All Other Compensation” column of the Summary Compensation Table. (3)These amounts represent earnings or losses on plan balances, as applicable, from January 1 to December 31, 2022. These amounts are not included in the Summary Compensation Table. | | | | | | (1) | We have two defined contribution deferred compensation programs for our executives – the DCMP and the KEDCP. As of December 31, 2021, participants in these plans had 36 investment options – 28 of the options were the same as those available in our 401(k) plan and the remaining options were other mutual funds approved by the plan administrator. |
| Executive Compensation Tables77 | 75 |
Table(4)The total reflects contributions by our NEOs, contributions by us, and earnings on balances prior to 2022; plus contributions by our NEOs, and earnings (or losses) from January 1, 2022, through December 31, 2022 (shown in the appropriate columns of Contents
this table, with amounts that are included in the Summary Compensation Table). The total includes all contributions by our NEOs and by us reported in this Proxy Statement and our proxy statements from prior years as follows: $341,255 for Mr. Lashier; $3,110,603 for Mr. Garland; $993,371 for Mr. Mitchell; $54,350 for Ms. Allen Sutherland; $197,455 for Mr. Mandell, and $3,236,602 for Mr. Roberts.(2) | These amounts represent Company contributions under the DCMP. These amounts are also included in the “All Other Compensation” column of the Summary Compensation Table. | (3) | These amounts represent earnings on plan balances from January 1 to December 31, 2021. These amounts are not included in the Summary Compensation Table. | (4) | The total reflects contributions by our NEOs, contributions by us, and earnings on balances prior to 2021; plus contributions by our NEOs, and earnings from January 1, 2021, through December 31, 2021 (shown in the appropriate columns of this table, with amounts that are included in the Summary Compensation Table). The total includes all contributions by our NEOs and by us reported in this proxy statement and our proxy statements from prior years as follows: $2,469,270 for Mr. Garland; $43,100 for Mr. Lashier, $736,076 for Mr. Mitchell; $605,647 for Mr. Herman; and $1,813,118 for Mr. Roberts. |
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL Our programs are designed to pay out amounts earned during employment unless the employee voluntarily resigns prior to becoming retirement-eligible or is terminated for cause. Although normal retirement age under our benefit plans is 65, early retirement provisions allow receipt of benefits at earlier ages if vesting requirements are met. For our incentive compensation programs (VCIP, RSU, Stock Options, and PSP), early retirement is generally defined as termination at or after the age of 55 with five years of service. As of December 31, 2021, Mr.2022, Messrs. Lashier, Garland, Mr. Lashier, Mr. Mitchell, Mr. Herman,Mandell and Mr. Roberts were each retirement-eligible under both our benefit plans and our compensation programs. Therefore, as of December 31, 2021,2022, a voluntary resignation of Mr.Messrs. Lashier, Garland, Mr. Lashier, Mr. Mitchell, Mr. Herman,Mandell or Mr. Roberts, would have been treated as a retirement, and each would have retained all awards earned under the current and earlier programs. As such, awards under these programs are not included in the amounts reflected in the table below. Please see the Outstanding Equity Awards at Fiscal Year Endtable for more information. Our compensation programs provide for the following upon retirement:
Cash Payments.Cash payments include VCIP earned during the fiscal year, amounts contributed and vested under our defined contribution plans, and amounts accrued and vested under our pension plans.
Equity.Equity considerations include grants under the PSP for ongoing performance periods in which the executive participated for at least one year, previously granted restricted stock and RSUs, and previously granted stock option awards exercisable through the original term.term if the awards were granted at least six months prior. As of December 31, 2022, Ms. Sutherland was not retirement-eligible under our benefits plans and compensation programs. Therefore, as of December 31, 2022, upon a voluntary resignation of Ms. Sutherland, she would have forfeited all unvested awards. The table at the end of this section summarizes the potential additional value of the benefits to be received by each NEO as of December 31, 2021,2022, through the Phillips 66 ESP due to an involuntary termination without cause or through the Phillips 66 CICSP due to a change in control event. Benefits that would be available generally to all or substantially all salaried employees on the U.S. payroll are not included in the amounts shown. Executives are not entitled to receive benefits under both the ESP and the CICSP as a result of the same event. These two plans have the following in common: ● | •Amounts payable under both are offset by any severance payments or benefits payable under any of our other plans; •Benefits under both may also be reduced in the event of willful and bad faith conduct demonstrably injurious to the Company; and •Both are Company plans under which awards and payments are subject to clawback provisions and to forfeiture or recoupment, in whole or in part, under applicable law, including the Sarbanes-Oxley Act and the Dodd-Frank Act. | | | | | | ●76 | Benefits under both may also be reduced in the event of willful and bad faith conduct demonstrably injurious to the Company; and | ● | Both are Company plans under which awards and payments are subject to clawback provisions and to forfeiture or recoupment, in whole or in part, under applicable law, including the Sarbanes-Oxley Act and the Dodd-Frank Act.Phillips 66 2023 Proxy Statement |
78 Phillips 66 2022 Proxy Statement | |
Executive Severance Plan The ESP provides that if a NEO separates due to an involuntary termination without cause, the executive will receive the following benefits, which may vary depending on salary grade level.level, subject to the executive's execution of a release of claims. Cash Severance Payments. Payments.ESP cash severance payments include:● | A lump sum payment equal to one and one-half or two times the sum of the executive’s base salary and current target annual bonus; | ● | A lump sum payment equal to the present value of the increase in pension benefits that would result from crediting the executive with an additional one and one-half or two years of age and service under the pension plan; and | ● | A lump sum payment generally equal to the Company contribution for active employees toward the cost of certain welfare benefits for an additional one and one-half or two years. |
•A lump sum payment equal to one and one-half or two times the sum of the executive’s base salary and current target annual bonus; •A lump sum payment equal to the present value of the increase in pension benefits that would result from crediting the executive with an additional one and one-half or two years of age and service under the pension plan; and •A lump sum payment generally equal to the Company contribution for active employees toward the cost of certain welfare benefits for an additional one and one-half or two years. Accelerated Equity.Layoff treatment under our compensation plans generally allows the executive to retain a prorated portion of grants held for more than six months but less than one year and the full award for grants held for one year or more of Restricted Stock,restricted stock, RSUs, and Stock Options,stock options, and maintain eligibility for prorated PSP awards for ongoing periods in which he or she had participated for at least one year.year, subject to the executive's execution of a release of claims. Change in Control Severance Plan The CICSP provides that if, within two years of a change in control of the Company, an executive’s employment is terminated by the employer other than for cause, or by the executive for good reason, the executive will receive the following benefits, which may vary depending on salary grade level. CICSP benefits include:
Cash Severance Payments.CICSP cash severance payments include:● | A lump sum payment equal to two or three times the sum of the executive’s base salary and the higher of the current target annual bonus or the average of the annual bonuses paid for the previous two years; | ● | A lump sum payment equal to the present value of the increase in pension benefits that would result from crediting the executive with an additional two or three years of age and service under the pension plan; and, | ● | A lump sum payment generally equal to the Company contribution for active employees toward the cost of certain welfare benefits for an additional two or three years. |
•A lump sum payment equal to two or three times the sum of the executive’s base salary and the higher of the current target annual bonus or the average of the annual bonuses paid for the previous two years; •A lump sum payment equal to the present value of the increase in pension benefits that would result from crediting the executive with an additional two or three years of age and service under the pension plan; and •A lump sum payment generally equal to the Company contribution for active employees toward the cost of certain welfare benefits for an additional two or three years. Accelerated Equity.CICSP benefits also include the vesting of all equity awards and lapsing of any restrictions. | | | | | | Executive Compensation Tables79 | 77 |
The following table presents, for each of Contents Death or Disability
For completeness,the NEOs, the estimated payments and benefits that would behave been payable to each NEO upon separationof the NEOs as a result of disability or toDecember 31, 2022, for each NEO’s estate as a result of death are likewise provided.
| | | Executive Benefits and Payments Upon Termination | | | | Involuntary Not-For-
Cause Termination
(Not CIC)
($) | | Involuntary or
Good Reason
Termination (CIC)
($) | | Death
($) | | Disability
($) | | Greg Garland | | | | | | | | | | Severance Payment | | 12,177,187 | | 22,687,801 | | — | | — | | Accelerated Equity | | — | | — | | — | | — | | Life Insurance | | — | | — | | 3,350,016 | | — | | TOTAL | | 12,177,187 | | 22,687,801 | | 3,350,016 | | — | | Mark Lashier | | | | | | | | | | Severance Payment | | 5,069,949 | | 7,604,923 | | — | | — | | Accelerated Equity | | — | | — | | — | | — | | Life Insurance | | — | | — | | 2,200,000 | | — | | TOTAL | | 5,069,949 | | 7,604,923 | | 2,200,000 | | | | Kevin Mitchell | | | | | | | | | | Severance Payment | | 3,971,391 | | 7,714,763 | | — | | — | | Accelerated Equity | | — | | — | | — | | — | | Life Insurance | | — | | — | | 1,806,864 | | — | | TOTAL | | 3,971,391 | | 7,714,763 | | 1,806,864 | | — | | Robert Herman | | | | | | | | | | Severance Payment | | 3,637,469 | | 6,684,448 | | — | | — | | Accelerated Equity | | — | | — | | — | | — | | Life Insurance | | — | | — | | 1,740,864 | | — | | TOTAL | | 3,637,469 | | 6,684,448 | | 1,740,864 | | — | | Tim Roberts | | | | | | | | | | Severance Payment | | 3,707,999 | | 6,924,263 | | — | | — | | Accelerated Equity | | — | | — | | — | | — | | Life Insurance | | — | | — | | 1,774,848 | | — | | TOTAL | | 3,707,999 | | 6,924,263 | | 1,774,848 | | — |
the circumstances described below. | | | | | | | | | | | | | | | | Executive Benefits and Payments Upon Termination | | Involuntary Not-For-
Cause Termination
(Not CIC)
($) | Involuntary or
Good Reason
Termination (CIC)
($) | Death
($) | Disability
($) | | Mark Lashier | | | | | | Severance Payment | 8,404,649 | | 12,606,974 | | — | | — | | | Accelerated Equity | — | | — | | 5,213,304 | | 5,213,304 | | | Life Insurance | — | | — | | 3,000,000 | | — | | | TOTAL | 8,404,649 | | 12,606,974 | | 8,213,304 | | 5,213,304 | | | Greg Garland | | | | | | Severance Payment | 7,850,876 | | 17,830,366 | | — | | — | | | Accelerated Equity | — | | — | | 5,707,955 | | 5,707,955 | | | Life Insurance | — | | — | | 2,000,000 | | — | | | TOTAL | 7,850,876 | | 17,830,366 | | 7,707,956 | | 5,707,955 | | | Kevin Mitchell | | | | | | Severance Payment | 4,225,966 | | 7,438,774 | | — | | — | | | Accelerated Equity | — | | — | | 2,372,092 | | 2,372,092 | | | Life Insurance | — | | — | | 1,923,407 | | — | | | TOTAL | 4,225,966 | | 7,438,774 | | 4,295,499 | | 2,372,092 | | | Vanessa Allen Sutherland | | | | | | Severance Payment | 2,806,248 | | 4,209,371 | | — | | — | | | Accelerated Equity | 4,302,762 | | 4,797,423 | | 6,762,079 | | 6,762,079 | | | Life Insurance | — | | — | | 1,500,000 | | — | | | TOTAL | 7,109,010 | | 9,006,794 | | 8,262,079 | | 6,762,079 | | | Brian Mandell | | | | | | Severance Payment | 4,444,343 | | 7,022,671 | | — | | — | | | Accelerated Equity | — | | — | | 1,541,125 | | 1,541,125 | | | Life Insurance | — | | — | | 1,640,100 | | — | | | TOTAL | 4,444,343 | | 7,022,671 | | 3,181,225 | | 1,541,125 | | | Tim Roberts | | | | | | Severance Payment | 3,927,165 | | 6,874,518 | | — | | — | | | Accelerated Equity | — | | — | | 1,823,541 | | 1,823,541 | | | Life Insurance | — | | — | | 1,880,452 | | — | | | TOTAL | 3,927,165 | | 6,874,518 | | 3,703,993 | | 1,823,541 | |
80 | | | | | | | 78 | Phillips 66 2022 2023 Proxy Statement | |
CEO PAY RATIO
As required by Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act, and Item 402(u) of Regulation S-K, we are providing the following information about the ratio of the annual total compensation, calculated in accordance with the requirements of Item 402(c)(2)(x) of Regulation S-K, of our median employee and the annual total compensation of our CEO.CEO, Mr. Lashier. For 2021,2022, the annual total compensation of our CEO was 13091 times that of the median of the annual total compensation of all employees, based on annual total compensation of $20,980,867$16,314,212 for the CEO and $161,584$179,184 for the median employee. This ratio is based on an October 1, 2020, employee population of 14,215, which excluded 413 non-U.S. employees in Germany (260), Singapore (75), Austria (42), Canada (32), China (3), and the United Arab Emirates (1). The median employee was identified using annual base pay, overtime pay, annual bonus, and target LTI compensation using data as of September 30, 2020. The annual total compensation for our CEO includes both the amount reported in the “Total” column of the Summary Compensation Tableof $20,953,206$16,288,870 and the estimated value of our CEO’s health and welfare benefits of $27,661.$25,342. The SEC’s rules for identifying the median compensated employee and calculating the pay ratio based on that employee’s annual total compensation allow companies to adopt a variety of methodologies, to apply certain exclusions, and to make reasonable estimates and assumptions that reflect their employee populations and compensation practices. As a result, the pay ratio reported by other companies may not be comparable to the pay ratio reported above, as other companies have different employee populations and compensation practices and may utilize different methodologies, exclusions, estimates and assumptions in calculating their own pay ratios. | Executive Compensation Tables 81 | | | | | | 79 |
We are required by SEC rules to disclose the following information regarding compensation paid to our NEOs. The amounts set forth below under the headings “Compensation Actually Paid” ("CAP") have been calculated in a manner consistent with Item 402(v) of Regulation S-K. The methodology for calculating the CAP, including details regarding the amounts that were deducted from, and added to, the Summary Compensation Plan InformationTable totals to arrive at the values presented for CAP, are provided in the footnotes to the table. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Year | Summary Compensation Table Total for First PEO1 ($) | Summary Compensation Table Total for Second PEO1 ($) | Compensation Actually Paid to First PEO2 $) | Compensation Actually Paid to Second PEO2 ($) | Average Summary Compensation Table Total for Non-PEO NEOs3 ($) | Average Compensation Actually Paid to Non-PEO NEOs2,3 ($) | Value of Initial Fixed $100 Investment Based On: | GAAP Net Income ($ MM) | Annual Adjusted PSP ROCE5 (%) | Total Shareholder Return4 ($) | Peer Group Total Shareholder Return4 ($) | | (a) | (b) | (b) | (c) | (c) | (d) | (e) | (f) | (g) | (h) | (i) | | 2022 | 18,229,917 | | 16,288,870 | | 36,488,607 | | 24,349,594 | | 7,564,734 | | 12,019,418 | | 108.84 | | 140.02 | | 11,391 | | 24.5 | | | 2021 | 20,953,206 | | — | | 21,535,633 | | — | | 8,163,303 | | 7,817,258 | | 72.45 | | 106.53 | | 1,594 | | 8.5 | | | 2020 | 24,989,374 | | — | | 2,700,837 | | — | | 6,290,976 | | 2,618,978 | | 66.45 | | 78.79 | | (3,714) | | 0.8 | |
(1)The first Principal Executive Officer (PEO) reflected in column (b) refers to Mr. Garland, Chairman and Chief Executive Officer until June 30, 2022 and Executive Chairman beginning July 1, 2022. The second Principal Executive Officer (PEO) reflected in column (b) refers to Mr. Lashier, President and Chief Operating Officer until June 30, 2022, and President and Chief Executive Officer beginning July 1, 2022. (2)To calculate CAP, the following adjustments were made to Summary Compensation Table total compensation, in accordance with SEC rules: | | | | | | | | | | | | | | | | Compensation Actually Paid to PEO | 2022
(Mr. Garland) | 2022
(Mr. Lashier) | 2021
(Mr. Garland) | 2020
(Mr. Garland) | | | | | | | Summary Compensation Table Total | 18,229,917 | | 16,288,870 | | 20,953,206 | | 24,989,374 | | Less, value of “Stock Awards” and “Option Awards” reported in Summary Compensation Table | (12,326,210) | | (11,236,523) | | (14,459,165) | | (12,588,803) | | Less, Change in Pension Value reported in Summary Compensation Table | — | | (231,983) | | — | | (6,851,884) | | Plus, year-end fair value of outstanding and unvested equity awards granted in the year | 15,794,483 | | 14,260,576 | | 14,662,552 | | 9,514,060 | | Plus, fair value as of vesting date of equity awards granted and vested in the year(a) | 89,225 | | 59,342 | | 114,921 | | 85,470 | | Plus (less), year over year change in fair value of outstanding and unvested equity awards granted in prior years | 9,650,492 | | 4,073,013 | | 470,710 | | (6,371,181) | | | Plus (less), year over year change in fair value of equity awards granted in prior years that vested in the year | 3,803,161 | | 910,182 | | (1,835,338) | | (7,136,027) | | | Plus, the value of dividends or other earnings paid on equity awards in the year | 398,405 | | 178,639 | | 394,928 | | 357,826 | | | Plus, pension service cost for services rendered during the year | 849,133 | | 47,478 | | 1,233,818 | | 702,002 | | | Compensation Actually Paid to PEO | 36,488,607 | | 24,349,594 | | 21,535,633 | | 2,700,837 | |
(a) Represents value of RSUs withheld to satisfy Federal Insurance Contributions Act (FICA) tax obligations. | | | | | | | 80 | Phillips 66 2023 Proxy Statement |
| | | | | | | | | | | | | Average Compensation Actually Paid to Non-PEO NEOs | 2022 | 2021 | 2020 | | | | | | Summary Compensation Table Total | 7,564,734 | | 8,163,303 | | 6,290,976 | | | Less, value of “Stock Awards” and “Option Awards” reported in Summary Compensation Table | (5,081,089) | | (5,575,650) | | (3,332,826) | | | Less, Change in Pension Value reported in Summary Compensation Table | (84,081) | | (196,955) | | (765,023) | | | Plus, year-end fair value of outstanding and unvested equity awards granted in the year | 6,388,526 | | 5,407,971 | | 2,531,727 | | Plus, fair value as of vesting date of equity awards granted and vested in the year(a) | 26,925 | | 38,733 | | 16,332 | | | Plus (less), year over year change in fair value of outstanding and unvested equity awards granted in prior years | 2,188,370 | | 102,802 | | (1,578,875) | | | Plus (less), year over year change in fair value of equity awards granted in prior years that vested in the year | 735,558 | | (359,892) | | (821,489) | | | Plus, the value of dividends or other earnings paid on equity awards in the year | 135,895 | | 150,681 | | 133,668 | | | Plus, pension service cost for services rendered during the year | 144,581 | | 86,265 | | 144,488 | | | Compensation Actually Paid to Non-PEO NEOs | 12,019,418 | | 7,817,258 | | 2,618,978 | |
(a) Represents value of RSUs withheld to satisfy FICA tax obligations. (3)The Non-PEO NEOs reflected in columns (d) and (e) represent the following individuals: For 2022, Mr. Mitchell, Ms. Allen Sutherland, Mr. Mandell, and Mr. Roberts; for 2021, Mr. Lashier, Mr. Mitchell, Mr. Roberts, and Mr. Herman; and for 2020, Mr. Mitchell, Mr. Roberts, Mr. Herman, and Ms. Johnson. (4)The Peer Group TSR in column (g) represents the weighted average market capitalization of our peer group used for purposes of Item 201(e) of Regulation S-K, which are: Delek US Holdings, Inc.; HF Sinclair Corporation; Marathon Petroleum Corporation; PBF Energy Inc.; Valero Energy Corporation; CVR Energy Inc.; Dow Inc.; Westlake Chemical Corporation; LyondellBasell Industries N.V; ONEOK, Inc.; Targa Resources Corp.; and The Williams Companies, Inc. (5)See Appendix B for a reconciliation of Adjusted PSP ROCE to the nearest GAAP financial measure.
| | | | RELATIONSHIP BETWEEN COMPENSATION ACTUALLY PAID AND PERFORMANCE |
The charts that follow depict the relationship of "compensation actually paid" (CAP) to our PEOs and other NEOs to (i) the TSR of the Company and its peer group (as described in Footnote 4 above), (ii) the Company's net income, and (iii) the Company's annual non-GAAP Adjusted PSP ROCE. Pursuant to Item 402(v) of Regulation S-K, CAP reflects adjustments to the fair value of equity awards during the years presented. Changes in our stock price and the projected and actual achievement of our performance goals greatly impact the total CAP reported for each year presented. For example, our annual TSR performance of -37%, 3%, and 44% for 2020, 2021, and 2022, respectively, contributed to significant changes in CAP values reported for each year.
CAP versus Total Shareholder Return The chart below shows the alignment between the PEO and other NEOs’ CAP amounts and the Company’s TSR. This is primarily due to the Company’s use of equity incentives, which are tied directly to stock price performance and the Company’s financial performance. CAP versus Net Income (Loss) As shown in the chart below, the Company’s net income has significantly increased since 2020 primarily as a result of improved market conditions and strong operating results. In 2020, the pandemic challenged our operational and financial environment and we reported a net loss of approximately $3.7 billion. In 2021 and 2022, we realized strong performance and reported net income of approximately $1.6 billion and $11.4 billion, respectively. The recovery has positively impacted our stock price and therefore the PEO and other NEOs’ CAP amounts increased in 2021 and 2022 as equity incentives are sensitive to changes in stock price. | | | | | | | 82 | Phillips 66 2023 Proxy Statement |
CAP versus Annual Adjusted PSP ROCE The chart below shows the correlation between annual non-GAAP Adjusted PSP ROCE and CAP. Because CAP values both vested and outstanding equity using either the value of the award as of the vesting date or the change in value of the award with respect to the prior year end, we consider annual Adjusted PSP ROCE a better measure to show the correlation of company performance to CAP rather than the three-year performance period average non-GAAP Adjusted PSP ROCE we use to determine final payout of our PSP. Most Important Measures Linking NEO Compensation to Performance The items listed below represent the most important metrics we used to determine CAP for all fiscal years reported as further described in our Compensation Discussion and Analysis within the sections titled “Annual Incentive Compensation” and “Long-Term Incentive Compensation.” | | | | | | | Most Important Performance Measures | •Adjusted EBITDA | •Adjusted Controllable Costs | •Adjusted PSP ROCE | •3-Year Relative TSR |
| | | | | | | | | | Equity Compensation Plan Information |
The following table sets forth information about Phillips 66 common stock that may be issued under all existing equity compensation plans as of December 31, 2021:| Plan Category | | Number of Securities to
be Issued upon Exercise
of Outstanding Options,
Warrants and Rights(1,2) | | Weighted-Average
Exercise Price of
Outstanding Options,
Warrants and Rights(3) | | Number of Securities
Remaining Available for
Future Issuance Under
Equity Compensation
Plans (Excluding
Securities Reflected in
Column (a)(4) | | Equity compensation plans approved by security holders | | 10,813,488 | | 81.25 | | 25,772,441 | | Equity compensation plans not approved by security holders | | — | | — | | — | | Total | | 10,813,488 | | 81.25 | | 25,772,441 |
| | | | | | | | | | | | | Plan Category | Number of Securities to
be Issued upon Exercise
of Outstanding Options,
Warrants and Rights(1,2) | Weighted-Average
Exercise Price of
Outstanding Options,
Warrants and Rights(3) | Number of Securities
Remaining Available for
Future Issuance Under
Equity Compensation
Plans (Excluding
Securities Reflected in
Column (a)(4) | | Equity compensation plans approved by security holders | 10,266,486 | $84.97 | 14,867,234 | | Equity compensation plans not approved by security holders | — | — | — | | Total | 10,266,486 | $84.97 | 14,867,234 |
(1)Includes awards issued under the Omnibus Stock and Performance Incentive Plan of Phillips 66, awards issued under the 2013 Omnibus Stock and Performance Incentive Plan of Phillips 66 and awards issued under the 2022 Omnibus Stock and Performance Incentive Plan of Phillips 66 . (2)Includes an aggregate of 5,842,915 Stock Options issued to employees and 703,169 PSUs. The number of securities to be issued includes 3,720,402 RSUs, of which 169,520 were issued to non-employee directors. Some awards held by ConocoPhillips employees at our spin-off were adjusted or substituted with a combination of ConocoPhillips and Phillips 66 equity. Awards representing a total of 13,071,435 shares were issued to ConocoPhillips employees, of which 804,199 remain outstanding as of December 31, 2022. The awards issued to ConocoPhillips employees are included in the outstanding awards listed above. (3)The weighted-average exercise price reflects the weighted-average price for outstanding Incentive Stock Options and Nonqualified Stock Options only. It does not include stock awards outstanding which do not have an exercise price. (4)Total includes forfeited shares under the Omnibus Stock and Performance Incentive Plan of Phillips 66 that are now available for grant under the 2022 Omnibus Stock and Performance Incentive Plan of Phillips 66. | | | | | | (1)84 | Includes awards issued under the Omnibus Stock and Performance Incentive Plan of Phillips 66 and awards issued under the 2013 Omnibus Stock and Performance Incentive Plan of Phillips 66. 2023 Proxy Statement |
| | | | | | (2)PROPOSAL 4 | Includes an aggregate of 6,264,206 Incentive Stock Options issued to employees, 3,990 Restricted Stock Awards granted under historical LTI plans, and 812,370 PSUs. The number of securities to be issued includes 3,732,922 RSUs, of which 147,379 were issued to non-employee directors. Some awards held by ConocoPhillips employees at our spin-off were adjusted or substituted with a combination of ConocoPhillips and Phillips 66 equity. Awards representing a total of 13,071,435 shares were issued to ConocoPhillips employees, of which 1,042,810 remain outstanding as of December 31, 2021. The awards issued to ConocoPhillips employees are included in the outstanding awards listed above. | (3) | The weighted-average exercise price reflects the weighted-average price for outstanding Incentive Stock Options and Nonqualified Stock Options only. It does not include stock awards outstanding. | (4) | Total includes forfeited shares under the Omnibus Stock and Performance Incentive Plan of Phillips 66 that are now available for grant under the 2013 Omnibus Stock and Performance Incentive Plan of Phillips 66. |
82 Phillips 66 2022 Proxy Statement | |
PROPOSAL 3
| Ratification of the Appointment
of Ernst & Young | | | | The Board recommends that you vote “FOR”the proposal to ratify the appointment of Ernst & Young LLP.LLP for fiscal year 2023. |
The Audit Committee is directly responsible for the appointment, compensation, retention and oversight of the independent registered public accounting firm retained to audit the Company’s financial statements. The Audit Committee has appointed Ernst & Young LLP to serve as the Company’s independent registered public accounting firm for fiscal year 2022.2023. Ernst & Young has acted as the Company’s independent registered public accounting firm continuously since 2011. The Audit Committee annually considers the independence of the Company’s independent auditors prior to the firm’s engagement, and periodically considers whether a regular rotation of the independent auditors is necessary to assure continuing independence. The Audit Committee and its Chair are directly involved in the selection of Ernst & Young’s lead engagement partner. The Audit Committee and the Board of Directors believe that the continued retention of Ernst & Young is in the best interests of the Company and its shareholders. We are asking you to vote on a proposal to ratify the appointment of Ernst & Young. One or more representatives of Ernst & Young are expected to be present at the Annual Meeting. The representatives will have an opportunity to make a statement if they desire and will be available to respond to appropriate questions from shareholders. The submission of this matter for approval by shareholders is not legally required, but the Board and the Audit Committee believe it provides an opportunity for shareholders to vote on an important aspect of corporate governance. If the shareholders do not ratify the selection of Ernst & Young, the Audit Committee will reconsider the selection of that firm as the Company’s independent registered public accounting firm. Even if the selection is ratified, the Audit Committee in its discretion may select a different independent registered public accounting firm at any time during the year if it determines that such a change would be in the best interests of the Company and its shareholders.
Audit services of Ernst & Young for fiscal year 20212022 included an audit of our consolidated financial statements, an audit of the effectiveness of the Company’s internal control over financial reporting, and services related to periodic filings made with the SEC. Additionally, Ernst & Young provided certain other services as described below. In connection with the audit of the 20212022 consolidated financial statements, we entered into an engagement agreement with Ernst & Young that set forth the terms by which Ernst & Young performed audit services for us. | 83 | | | | | | Proposal 4: Ratification of the Appointment of Ernst & Young | 85 |
The Audit Committee is responsible for negotiating the audit fee associated with its retention of Ernst & Young. Ernst & Young’s fees for professional services totaled $13.1 million for 2022 and $12.2 million for 2021, and $12.7 million for 2020, which consisted of the following: | Fees (in millions) | | 2021 | | | 2020 | | | Audit Fees(1) | | $ | 11.4 | | | $ | 11.4 | | | Audit-Related Fees(2) | | | 0.6 | | | | 1.0 | | | Tax Fees(3) | | | — | | | | 0.1 | | | All Other Fees | | | 0.2 | | | | 0.2 | | | Total | | $ | 12.2 | | | $ | 12.7 | |
| | (1) | Fees for audit services related to the fiscal year consolidated audit, the audit of the effectiveness of internal controls over financial reporting, quarterly reviews, registration statements, comfort letters, statutory and regulatory audits and accounting consultations. Includes audit fees of Phillips 66 Partners LP of $0.8 million for 2021 and $0.9 million for 2020, which were approved by the Audit Committee of the General Partner of Phillips 66 Partners LP. | (2) | Fees for audit-related services related to audits in connection with proposed or consummated dispositions, benefit plan audits, other subsidiary audits, special reports, and accounting consultations. | (3) | Fees for tax services related to tax compliance services and tax planning and advisory services. |
| | | | | | | | | | Fees (in millions) | 2022 | 2021 | Audit Fees(1) | $ | 12.2 | | $ | 11.4 | | Audit-Related Fees(2) | $ | 0.5 | | $ | 0.6 | | Tax Fees(3) | $ | 0.3 | | $ | — | | | All Other Fees | $ | 0.1 | | $ | 0.2 | | | Total | $ | 13.1 | | $ | 12.2 | |
(1)Fees for audit services related to the fiscal year consolidated audit, the audit of the effectiveness of internal controls over financial reporting, quarterly reviews, registration statements, comfort letters, statutory and regulatory audits and accounting consultations. (2)Fees for audit-related services related to audits in connection with proposed or consummated acquisitions or dispositions, benefit plan audits, other subsidiary audits, special reports, and accounting consultations. (3)Tax fees relate to tax compliance services and tax planning and advisory services. (4)All other fees primarily include audit-related software and advisory services. The Audit Committee has considered whether the non-audit services provided to Phillips 66 by Ernst & Young impaired the independence of Ernst & Young and concluded they did not. The Audit Committee has adopted a pre-approval policy that provides guidelines for the audit, audit-related, tax and other non-audit services that Ernst & Young may provide to the Company. All of the fees in the table above were approved in accordance with this policy. The policy (a) identifies the guiding principles that the Audit Committee must consider in approving services to ensure that Ernst & Young’s independence is not impaired; (b) describes the audit, audit-related, tax and other services that may be provided and the non-audit services that are prohibited; and (c) sets forth pre-approval requirements for all permitted services. Under the policy, the Audit Committee must pre-approve all services to be provided by Ernst & Young. The Audit Committee has delegated authority to approve permitted services to its Chair. Such approval must be reported to the entire Audit Committee at its next scheduled meeting.
AUDIT AND FINANCE COMMITTEE REPORT The Audit Committee assists the Board of Directors in fulfilling its responsibility to provide independent, objective oversight of the financial reporting functions and internal control systems of Phillips 66. The Audit Committee currently consists of five non-employee directors. The Board has determined that each member of the Audit Committee satisfies the requirements of the NYSE as to independence, financial literacy and expertise. The Board has further determined that each of Charles M. Holley, John E. Lowe, and Denise L. Ramos is an audit committee financial expert as defined by the SEC. The responsibilities of the Audit Committee are set forth in the written charter adopted by the Board of Directors, which is available in the “Investors”section of the Company’s website under the caption “Corporate Governance.”One of the Audit Committee’s primary responsibilities is to assist the Board in its oversight of the integrity of the Company’s financial statements. The following report summarizes certain of the Audit Committee’s activities in this regard for 2021.2022. Review with Management.The Audit Committee has reviewed and discussed with management the audited consolidated financial statements of Phillips 66 included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021,2022, and management’s assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2021,2022, included therein.therein. 84 | | | | | | | 86 | Phillips 66 2022 2023 Proxy Statement | |
Discussions with Independent Registered Public Accounting Firm.The Audit Committee has discussed with Ernst & Young LLP, independent registered public accounting firm for Phillips 66, the matters required to be discussed by the applicable requirements of the Public Company Accounting Oversight Board and the SEC. The Audit Committee has received the written disclosures and the letter from Ernst & Young required by applicable requirements of the Public Company Accounting Oversight Board regarding the independent accountant’s communications with the Audit Committee concerning independence, and has discussed with that firm its independence from Phillips 66.
Recommendation to the Phillips 66 Board of Directors.Based on its review and discussions noted above, the Audit Committee recommended to the Board of Directors that the audited consolidated financial statements of Phillips 66 be included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.2022. AUDIT AND FINANCE COMMITTEE
John E. Lowe, Chairman
Julie L. Bushman
Charles M. Holley
Denise L. Ramos
Denise R. Singleton | | | | | | Proposal 3:4: Ratification of the Appointment of Ernst & Young85 | 87 |
PROPOSAL 4
| Approval of 2022 Omnibus Stock and Performance Incentive Plan of Phillips 66 | | | | | | | | The Board recommends that you vote “FOR” the proposal to approve the 2022 Omnibus Stock and Performance Incentive Plan. |
We are asking you to approve the 2022 Omnibus Stock and Performance Incentive Plan of Phillips 66 (the “2022 Plan”), as set forth in Appendix A. The 2022 Plan will only become effective upon approval by stockholders. The 2022 Plan was approved by the Board of Directors on February 9, 2022, and the 2022 Plan will, among other things, allow the issuance of up to 15 million shares of common stock for compensation to our employees and directors. The 2022 Plan will replace the Omnibus Stock and Performance Incentive Plan of Phillips 66 (the “2013 Plan”), which was approved at the 2013 Annual Meeting of Shareholders. If the 2022 Plan is approved by stockholders, the 2013 Plan will no longer be used for further awards. As of March 15, 2022, there were 23,388,404 shares of common stock available for awards under the 2013 Plan. Additionally, shares subject to awards under the 2022 Plan or the 2013 Plan may become available from time to time for awards under the 2022 Plan to the extent that such shares are not actually delivered due to forfeiture, termination or expiration of the award.
The 15 million shares available for issuance under the 2022 Plan would represent approximately 3.1% of the Company’s outstanding shares as of March 15, 2022. We recognize that equity awards may have a dilutive impact on existing shareholders. We believe, however, that we have demonstrated our ability to carefully manage the growth of our equity compensation program. We further believe that our current level of dilution and the pace at which we grant equity awards (referred to as the “burn rate”) is reasonable, in line with those of our peer companies, and consistent with the Board’s preference for conservative compensation practices. We are committed to effectively monitoring our equity compensation share reserve, including our burn rate, to ensure that we maximize shareholder value by granting the appropriate number of equity awards necessary to attract, reward and retain employees.
The primary objectives of the 2022 Plan are:
• | To attract and retain the services of employees and directors; and | • | To provide incentive awards to our employees and directors in a method that aligns their interests with our stockholders’ interests.Shareholder Proposals |
In accordance with these objectives, the 2022 Plan is designed to enable our employees and directors to acquire or increase their ownership of our common stock and to compensate employees and directors for the creation of stockholder value. The 2022 Plan is also designed with the intent of placing more executive compensation at risk over the long-term. The 2022 Plan provides variable long-term compensation to employees and directors that is consistent with the compensation philosophy adopted by the Compensation Committee as set out in Compensation Discussion and Analysis beginning on page 41 of this proxy statement. This philosophy is based on the fundamental principles of pay for performance and external competitiveness, and the Board of Directors sees this proposal as a means of further aligning the goals of our employees and directors with those of our stockholders.
While all of our employees and directors will be eligible to participate in the 2022 Plan according to its terms, it is expected that most awards under the 2022 Plan will be made to our key employees, typically senior officers, managers, and technical and professional personnel. As of March 15, 2022, the following
86 Phillips 66 2022 Proxy Statement | |
stock options, stock appreciation rights (SARs), restricted stock awards, and restricted stock unit awards (including those under all prior plans, whether reserves have been used or still exist to allow further issuance of awards) were outstanding under the 2013 Plan:
• | Options to purchase 6,887,541 shares of our common stock at a weighted average price of $82.95 and a weighted average term of 6.9 years, of which 4,667,504 shares were subject to vested options; | • | Restricted stock awards of 3,990 shares of our common stock; | • | Restricted stock units of 4,873,980 shares; and | • | 455,078 shares of our common stock for stock purchase programs for international employees. |
What vote is required to approve this proposal?
Approval of this proposal requires the affirmative vote of a majority of the shares present in person or represented by proxy at the Annual Meeting and entitled to vote on the proposal. Additionally, under the rules of the NYSE, approval must represent a majority of votes cast at the meeting. Broker non-votes are not considered votes cast for this purpose.
What does the Board recommend?
THE BOARD RECOMMENDS THAT YOU VOTE “FOR” THE APPROVAL OF OUR 2022 OMNIBUS STOCK AND PERFORMANCE INCENTIVE PLAN.
Summary of Our 2022 Omnibus Stock and Performance Incentive Plan
The following summary of the 2022 Plan is qualified by reference to the full text of the 2022 Plan, which is attached as Appendix A.
Corporate Governance Best Practices
The use of stock-based incentive awards promotes best practices in corporate governance by aligning participants’ interests with the interests of Company stockholders. Specific features in the 2022 Plan that are consistent with industry best practices include, but are not limited to:
• | incentive and nonqualified Stock Options and Stock Appreciation Rights (SARs) must have an exercise price per share that is no less than the fair market value of the common stock on the date of grant; | • | there can be no repricing, replacement or regranting through cancellation or modification without stockholder approval, if the effect would be to reduce the exercise price for the shares underlying the option or SAR; | • | no option or SAR may be bought back with cash without shareholder approval; | • | shares withheld as full or partial payment of withholding or other taxes or as payment for the exercise or conversion price of an award shall not be added back to the number of shares available for issuance under the plan; | • | Awards valued by reference to common stock that may be settled in equivalent cash value will count as shares of common stock delivered as if the award were settled with shares; | • | no dividends or dividend equivalents may be extended to or made part of any unearned performance award; | • | no award or any other benefit under the 2022 Plan shall be assignable or otherwise transferable except by will, by beneficiary designation, or by the laws of descent and distribution or pursuant to a qualified domestic relations order as defined by the Code; | • | change in control provisions are subject to a “double trigger” requiring a change in control event as well as termination of employment before taking effect; and | • | all programs offered under the 2022 Plan are subject to clawback. |
| Equity Compensation Plan Information 87 |
Eligibility
All employees of the Company and its subsidiaries are eligible to participate in and receive awards under the 2022 Plan. Awards may be subject to such terms and conditions as may be established by the Compensation Committee. The Compensation Committee is responsible for designating which employees of the Company are participants in the 2022 Plan. The Compensation Committee expects to limit participation to those employees whose level of job responsibility places them within an executive, management, technical, or professional group of employees. This is consistent with our current practice under the 2013 Plan, under which approximately 2,700 of our employees received awards for the annual compensation program payouts in February 2022 (described in Compensation Discussion and Analysis). Non-employee Directors are also eligible to participate in and receive awards under the 2022 Plan.
Authorized Shares and Limits
Subject to stockholder approval, we have reserved a total of 15 million shares of common stock for issuance in connection with the 2022 Plan. The number of shares authorized to be issued under the 2022 Plan is subject to adjustment for stock splits, stock dividends, recapitalizations, mergers, or similar corporate events. Upon stockholder approval of the 2022 Plan, the 2013 Plan will no longer be available for use for new awards, although prior awards will continue to be valid.
The 2022 Plan contains limitations with respect to awards that may be made. If stockholders approve the 2022 Plan, the following limitations will apply to any awards made under the 2022 Plan:
• | No participant who is an employee of the Company or its subsidiaries may be granted, during any calendar year, awards consisting of stock options or Stock Appreciation Rights (SARs) that are exercisable for or relate to more than 2 million shares of common stock; | • | No participant who is an employee of the Company or its subsidiaries may be granted, during any calendar year, awards consisting of stock awards covering or relating to more than 2 million shares of common stock; | • | No participant who is an employee of the Company or its subsidiaries may be granted awards consisting of cash or in any other form permitted under the 2022 Plan, other than awards consisting of stock options or SARs or stock awards, for any calendar year having a value determined on the date of grant in excess of $30 million; | • | No participant who is a non-employee Director may be granted, during any calendar year, awards consisting of stock options or SARs that are exercisable for or relate to more than 100,000 shares of common stock; and | • | No participant who is a non-employee Director may be granted, during any calendar year, awards consisting of stock awards covering or relating to more than 50,000 shares of common stock. |
Potential Dilution
Our potential dilution, or “overhang,” from outstanding awards and shares available for future awards under the 2022 Plan is approximately 5.3%. This percentage is calculated on a fully-diluted basis, by dividing the total shares underlying outstanding stock-based awards (11,765,511) plus the shares available for future awards under the 2022 Plan (15,000,000) (together, the numerator) by the total shares of Company common stock outstanding as of March 15, 2022 (481,086,327) plus the number of shares in the numerator. The closing price per share of our common stock on March 15, 2022 as reported by the NYSE corporate transaction system was $75.34.
88 Phillips 66 2022 Proxy Statement | |
Types of Awards and Award Terms
The 2022 Plan authorizes the Compensation Committee to grant to participants the following types of awards (“Awards”): (i) restricted stock or restricted stock units; (ii) performance shares; (iii) performance units; (iv) stock options; (v) SARs; (vi) cash-based awards; and (vii) other forms of equity-based or equity-related Awards that the Compensation Committee determines to be consistent with the purposes of the 2022 Plan.
The Compensation Committee determines the types of Awards made under the 2022 Plan and designates the Senior Officers who are to be the recipients of such Awards. The Compensation Committee has delegated authority to designate other recipients of Awards under the 2013 Plan to the CEO (acting as a special awards committee) and expects to continue that practice under the 2022 Plan. The Board of Directors determines the types of Awards made to non-employee Directors under the 2022 Plan. We refer to the Board of Directors or the committee authorized to grant Awards under the 2022 Plan (or the 2013 Plan) as the Granting Committee.
Awards are subject to the terms, conditions, and limitations as determined by the Granting Committee. Awards may also be made in combination or in tandem with, in replacement of, or as alternatives to, grants or rights under the 2022 Plan or any of our other employee plans or our subsidiaries’ employee plans. An Award may provide for the grant or issuance of additional, replacement, or alternative Awards upon the occurrence of specified events, including the exercise of the original Award. At the discretion of the Granting Committee, a recipient of an Award may be offered an election to substitute an Award for another Award or Awards of the same or different type. All or part of an Award may be subject to conditions established by the Granting Committee, which may include, but are not limited to, continuous service with the Company, achievement of specific business objectives, increases in specified indices, attainment of specified growth rates, and other comparable measurements of performance. Upon the termination of service by a recipient, any unexercised, deferred, unvested, or unpaid Awards will be treated as set forth in the applicable Award agreement.
Stock Options. A stock option granted under the 2022 Plan may consist of either an incentive stock option that complies with the requirements of Section 422 of the Internal Revenue Code or a nonqualified stock option that does not comply with those requirements. Incentive stock options and 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 date of grant and, subject to certain adjustment provisions of the 2022 Plan that apply only upon occurrence of specified corporate events, the exercise price of an option granted under the 2022 Plan may not be decreased. The term may extend no more than 10 years from the grant date.
Stock Appreciation Rights. A SAR may be granted under the 2022 Plan to the holder of a stock option with respect to all or a portion of the shares of common stock subject to the stock option or may be granted separately. The terms, conditions, and limitations applicable to any SARs, including the term of any SARs and the date or dates upon which they become exercisable, will be determined by the Granting Committee. The term may extend no more than 10 years from the grant date.
Restricted Stock, Restricted Stock Units, and Stock Awards. Stock awards consist of restricted and non-restricted grants of common stock or units denominated in common stock. The terms, conditions, and limitations applicable to any stock awards will be determined by the Granting Committee. Without limiting the foregoing, rights to dividends or dividend equivalents may be extended to and made part of any stock award at the discretion of the Granting Committee. The Granting Committee may also establish rules and procedures for the crediting of interest or other earnings on deferred cash payments and dividend equivalents for stock awards. Subject to earlier vesting upon death, disability, layoff, retirement or change in control, stock awards that are performance-based will vest over a minimum period of one year.
| Equity Compensation Plan Information 89 |
Cash Awards. Cash awards consist of grants denominated in cash. The terms, conditions, and limitations applicable to any cash awards will be determined by the Granting Committee.
Unless otherwise provided in an award agreement, in the event of a change in control of the Company, followed by the termination of employment (double trigger), Awards held by a participant that were not previously vested or exercisable become fully vested and exercisable and generally remain exercisable for the remainder of their term if the participant is still in the service of the Company at the time of the change in control.
The 2022 Plan is not qualified under Section 401(a) of the Internal Revenue Code and is not subject to the provisions of the Employee Retirement Income Security Act of 1974, as amended.
Administration of the 2022 Plan
The Compensation Committee will administer the 2022 Plan with respect to employee Awards, as it has done under the 2013 Plan. The Compensation Committee has full and exclusive power to administer the 2022 Plan and take all actions specifically contemplated by the 2022 Plan or necessary or appropriate in connection with its administration. The Compensation Committee has the full and exclusive power to interpret the 2022 Plan and to adopt such rules, regulations, and guidelines for carrying out the 2022 Plan as the Compensation Committee may deem necessary or proper in keeping with its objectives. The Compensation Committee may delegate its duties under the 2022 Plan to our CEO and other Senior Officers with respect to Awards other than those to Senior Officers. The Compensation Committee also may engage or authorize the engagement of third-party administrators to carry out administrative functions under the 2022 Plan. The Compensation Committee may also correct any defect or supply any omission or reconcile any inconsistency in the 2022 Plan or in any Award granted under the 2022 Plan. Any decision of the Compensation Committee in the interpretation and administration of the 2022 Plan will be within its sole and absolute discretion and will be final, conclusive, and binding on all parties concerned. With respect to director Awards, the Board of Directors will have the same powers, duties and authority as the Compensation Committee has with respect to employee Awards.
Term of the 2022 Plan
No Award may be made under the 2022 Plan following the 10th anniversary of the date stockholders approve the 2022 Plan.
Amendment of the 2022 Plan
The Board of Directors may amend, modify, suspend, or terminate the 2022 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 adversely affect the rights of any participant under any Award previously granted to such participant will be made without the consent of the participant and (ii) no amendment or alteration will be effective prior to its approval by the stockholders of the Company to the extent such approval is required by applicable legal requirements or the applicable requirements of the securities exchange on which the Company’s common stock is listed. Furthermore, without the prior approval of the Company’s stockholders, options issued under the 2022 Plan will not be repriced, replaced, or regranted through cancellation or by decreasing the exercise price of a previously granted option (except for adjustment for stock splits, stock dividends, recapitalizations, mergers, or similar corporate events).
Federal Income Tax Consequences of the 2022 Plan
The following is a discussion of material U.S. federal income tax consequences to participants in the 2022 Plan. This discussion is based on statutory provisions, Treasury regulations thereunder, judicial decisions, and rulings of the Internal Revenue Service in effect on the date of this proxy statement. This discussion does not purport to be complete, and does not cover, among other things, state, local or foreign tax treatment of participation in the 2022 Plan. Furthermore, differences in participants’ financial situations may cause federal, state, local and foreign tax consequences of participation in the 2022 Plan to vary.
90 Phillips 66 2022 Proxy Statement | |
Participants will not realize taxable income upon the grant of a nonqualified stock option or SAR. Upon the exercise of a nonqualified stock option or SAR, the employee or non-employee Director will recognize ordinary income, subject, in the case of employees, to tax withholding by the Company, in an amount equal to the excess of the amount of cash and the fair market value on the date of exercise of the common stock received over the exercise price, if any, paid therefor. The employee or non-employee Director will generally have a tax basis in any shares of common stock received pursuant to the exercise of a SAR, or pursuant to the cash exercise of a nonqualified stock option, that equals the fair market value of such 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 under the foregoing rules.
Employees will not have taxable income upon the grant of an incentive stock option. 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 such employee to incur alternative minimum tax. The payment of any alternative minimum tax attributable to the exercise of an incentive stock option would be allowed as a credit against the employee’s regular tax liability in a later year to the extent the employee’s regular tax liability is in excess of the alternative minimum tax for that 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 date of grant), 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 by the employee for the stock. 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 the 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 such stock. The employee would 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, such excess would ordinarily constitute a capital loss.
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 such 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 under the rules described in the preceding paragraph.
An employee will recognize ordinary compensation income upon receipt of cash pursuant to a cash award or performance award or, if earlier, at the time such cash is otherwise made available for the employee to draw upon it. An employee 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 compensation income at the time the employee receives common stock or cash in satisfaction of such 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 compensation 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 such 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 compensation 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 such stock is received.
| Equity Compensation Plan Information 91 |
An employee will be subject to tax withholding for federal, and generally for state and local, income taxes at the time the employee recognizes income under the rules described above 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 receipt of the common stock is taxed to the participant under the rules described in the preceding paragraph 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 employee as compensation income under the rules described in the preceding paragraph, and the employee’s holding period in such shares will commence on the date income is so recognized.
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 under the foregoing rules. Section 162(m) of the Internal Revenue Code provides that certain compensation received in any year by a “covered employee” in excess of $1,000,000 is non-deductible by the Company for federal income tax purposes.
Participation in the 2022 Plan
The allocation of Awards for 2022 under the 2022 Plan for participants other than non-employee Directors is not currently determinable since allocation is dependent on future decisions of the Granting Committee, subject to applicable provisions of the 2022 Plan. Our executive officers and non-employee directors have an interest in this proposal because they are eligible to receive discretionary Awards under the Stock Plan. Non-employee Directors receive annual grants of restricted stock units denominated in common stock with a value on the date of grant of $200,000. For Awards that were granted under the 2013 Plan to our named executive officers, during fiscal 2021, please see the Summary Compensation Table and the Grants of Plan Based Awards Table. The following table provides information for Awards to the listed groups under the 2013 Plan during fiscal 2021:
| | | Dollar Value | | | No. of Units | | | All current executive officers as a group | | $ | 41,445,815 | | | | 1,097,271 | | | All non-employee directors as a group | | $ | 2,186,506 | | | | 30,026 | | | All other employees as a group | | $ | 137,591,562 | | | | 2,533,380 | |
92 Phillips 66 2022 Proxy Statement | |
Shareholder Proposals
We communicate proactively and transparently on issues of interest to the Company and our shareholders, including the topics presented in the shareholder proposals on the following pages. You can read more about our engagement with our shareholders under Shareholder Outreach and Responsiveness. As discussed in that section, we communicate with shareholders throughout the year to gather feedback and enhance our disclosures or other practices on an ongoing basis. When we receive shareholder proposals, our process includes contacting the proponent to discuss the proposal, the concerns raised, and whether additional engagements could resolve the proponent’s concerns. This engagement seeks to understand the proponent’s interests and how the Company can address or alleviate concerns raised in the proposal, either by discussion of actions and efforts the Company has planned or underway, or by providing information of which the proponent may not be aware. We followed our normal practice of engagement with the proponents of the proposals included on the following pages. The following are shareholder proposals that will be voted on at the Annual Meeting only if properly presented by or on behalf of the shareholder proponent. These proposals contain certain assertions that we believe are incorrect, and we have not attempted to refute all of the inaccuracies. The proposals we received relate to environmental, sustainability, or governance issues, and request that we take particular action, which may include preparing a report. We share some of the concerns addressed in the proposals, and we have taken actions that we believe address many of the underlying concerns of the proposals. However, we disagree with how the proposal seeks to prescribe the manner in which we approach or report on the issue. The Board generally opposes proposals requesting specially developedspecially-developed reports or initiatives as theythat it believes are overly prescriptive, since these do not necessarily add shareholder value and may not reflect the actions we are already taking to address such issues, the decisions we have made in prioritizing our initiatives, or the unique and evolving nature of our operations. Additionally, producing special reports is often not a good use of our resources when the issues are addressed through existing communications. Moreover, we believe that shareholders benefit from reading about these issues in the context of Phillips 66’s other activities rather than in isolation.limited company resources. Many of the issues raised in the following proposals are already discussed in the sustainability report issued by our 50-50 joint venture CPChem, our Sustainability Report, our Annual Report on Form 10-K, this Proxy Statement and other information on our website at www.phillips66.com.
We encourage you to read Information on our website is not incorporated by reference into this Proxy Statement, our Annual Report on Form 10-K, our Sustainability Report and the other information presented on our website.
Statement. | 93 | | | | | | 88 | Phillips 66 2023 Proxy Statement |
| | | | | | PROPOSAL 5 | Shareholder Proposal Regarding GHG Emissions Targets | | | | Requesting Audited Report on Impact to Chemicals Business under the System Change Scenario The Board recommends that you vote “AGAINST”proposal 5. |
Follow This, located at Anthony Fokkerweg 1, 1059 CM, Amsterdam, The Netherlands, has notified Phillips 66 that it intends to present the following proposal on behalf of Benta B.V. at the Annual Meeting. Follow This has indicated that Benta B.V. holds 400 shares of Phillips 66 common stock in accordance with the requirements of Rule 14a-8.
WHEREAS: We, the shareholders, must protect our assets against devastating climate change, and we therefore support companies to substantially reduce greenhouse gas (GHG) emissions.
RESOLVED: Shareholders support the company to set and publish targets that are consistent with the goal of the Paris Climate Agreement: to limit global warming to well below 2°C above pre-industrial levels and to pursue efforts to limit the temperature increase to 1.5°C.
These quantitative targets should cover the medium- and long-term greenhouse gas (GHG) emissions of the company’s operations and the use of its energy products (Scope 1, 2, and 3).
Shareholders request that the company report on the strategy and underlying policies for reaching these targets and on the progress made, at least on an annual basis, at reasonable cost and omitting proprietary information.
You have our support.
SUPPORTING STATEMENT:
The policies of energy companies - the largest greenhouse gas (GHG) emitters – are crucial to confronting the climate crisis. Therefore shareholders support oil and gas companies to substantially reduce their emissions.
We, the shareholders, understand this support to be essential in protecting all our assets in the global economy from devastating climate change.
We therefore support the Company to set emission reduction targets for all emissions: the emissions of the company’s operations and the emissions of its energy products (Scope 1, 2, and 3). Reducing Scope 3 emissions, the vast majority, is essential to limiting global heating.
Scientific consensus
The world’s leading international scientific bodies recently released reports which clearly state the need for deep cuts in emissions in order to limit global warming to safe levels.
Financial momentum
A growing international consensus has emerged among financial institutions that climate-related risks are a source of financial risk, and therefore limiting global warming is essential to risk management and responsible stewardship of the economy.
Backing from investors that insist on targets for all emissions continues to gain momentum: 2021 saw unprecedented investor support for climate resolutions. In the US, three of these climate resolutions passed with a historic majority. In Europe, support for these climate resolutions continued to build.
94 Phillips 66 2022 Proxy Statement | |
Legal risk
In 2021, a Dutch court ordered Shell to severely reduce their worldwide emissions (Scope 1, 2, and 3) by 2030. This indicates that oil majors and large investors have an individual legal responsibility to combat dangerous climate change by reducing emissions and confirms the risk of liability.
We believe that the Company could lead and thrive in the energy transition. We therefore encourage you to set targets that are inspirational for society, employees, shareholders, and the energy sector, allowing the company to meet an increasing demand for energy while reducing GHG emissions to levels consistent with curbing climate change.
You have our support.
BOARD OF DIRECTOR’S RESPONSE
The Board has carefully considered this proposal and, for the reasons set forth below, does not believe it is in the best interests of the Company and its shareholders, and unanimously recommends a vote “AGAINST” the proposal.
Phillips 66 supports the goals of the Paris Climate Agreement and is committed to being a part of the solution to help the world address climate change.
Phillips 66 is well positioned to develop lower-carbon operations, make lower-carbon products and thrive in a market-based, economy-wide energy transition. The Company already has set meaningful medium- and long-term targets in the past twelve months and will report progress against those targets. Adopting this proposal and setting goals with no clear path to achieving them will not achieve a faster energy transition.
We have meaningful, achievable, and comprehensive GHG emissions reduction targets for 2030 (Scope 1, 2 and 3) and 2050 (Scope 1 and 2).
In support of the work of the entire Board of Directors in providing oversight of the Company and risks associated with climate change, the Public Policy and Sustainability Committee is tasked with reviewing environmental trends and related risks. This governance framework informs the Board’s oversight of target setting for the reduction of GHG emissions. Our strategy in support of the goals of the Paris Climate Agreement is also grounded in an analysis of a range of scenarios, including the International Energy Agency’s Net Zero by 2050 scenario.
The Company set and published meaningful, achievable, and comprehensive GHG emissions reduction targets for 2030 and 2050.
In 2021, we announced 2030 targets to reduce the GHG emissions intensity of our operations (Scope 1 and 2) and products (Scope 3) by 30% and 15%, respectively, from a 2019 baseline. These medium-term targets are tied to planned projects and projects under development that are consistent with the Company’s disciplined approach to capital allocation and focus on returns. The following are projects and reductions completed or underway that lower Scope 1, 2 and 3 absolute emissions and emissions intensity:
Operations:
| • | Utilizing renewable sources of power | | • | Developing and executing energy efficiency projects across the portfolio | | • | Capturing carbon from operations at various facilities |
Products:
| • | Producing renewable fuels at Humber Refinery in the U.K. and San Francisco Refinery in Rodeo, CA, with plans to convert the latter into one of the world’s largest renewable fuels facilities through the Rodeo Renewed project | | • | Manufacturing products that advance the electric vehicle battery supply chain | | • | Improving engine energy efficiency to lower the carbon intensity of the transportation sector | | • | Low-carbon hydrogen and technology development partnerships |
Our 2050 target requires changes that are beyond our sphere of influence and control, but which we believe are achievable. Setting targets that require even more significant technological and social transformation outside our control could create reputational risk and potential harm to shareholders.
Phillips 66 also recently announced a 2050 target to reduce the GHG emissions intensity of its operations (Scope 1 and 2). This long-term target is tied to our company operations, over which we have the most influence and direct control. Phillips 66 included electricity and steam purchase commitments in the 2050 target, despite having less control over electricity providers and grid development.
Achieving our 2050 target will require changes beyond Phillips 66’s sphere of influence and control, such as:
• | Advancements enabling broad commercial deployment and use of lower-carbon technologies | • | Global policies that fund and incentivize development of a lower-carbon energy system | • | Change in consumer behavior and energy choices | • | Available materials throughout the supply chain |
All of these are necessary to support the Paris Climate Agreement goals while we continue to provide affordable, reliable, and abundant energy that drives human progress.
Based on our analysis of current technology and viable future solutions, we believe that our current target is ambitious and achievable. Phillips 66 recognizes the importance of credible disclosure to shareholders. Reputational and potential economic harm could result from setting goals outside our current understanding of economic pathways to meet those targets.
Phillips 66 is investing significant capital to support the energy transition
Phillips 66 is progressing the energy transition by following an integrated approach that encompasses research, lower-carbon investments and improving the energy efficiency of existing assets. Disciplined capital allocation and a well-structured compensation program drive alignment with our energy transition goals.
We fund research and feasibility assessments for near- and long-term lower-carbon energy solutions (i.e., batteries, solid oxide fuel cells and others) through our Energy Research and Innovation business unit.
The Emerging Energy organization is evaluating, investing in, and commercializing lower-carbon technologies. Recent examples include:
• | Investment in or collaborations with Rodeo Renewed, NOVONIX, Faradion, Southwest Airlines, British Airways, H2 Energy and Plug Power to advance and supply lower-carbon energy solutions | • | Active participation in industry consortia to identify potential technological and implementation constraints impacting widescale adoption of lower-carbon technologies such as carbon capture and hydrogen. This collaboration includes proposing mitigation plans to be considered by policymakers, such as Humber Zero, Global CCS Institute, and Houston Carbon Capture Hub. |
96 Phillips 66 2022 Proxy Statement | |
Phillips 66’s capital program includes progressing energy transition projects. The 2022 capital program of $1.9 billion includes $916 million for growth capital, of which 45% supports lower-carbon opportunities.
All employees are incentivized for achieving lower carbon emissions.
Our commitment to sustainability is reflected in changes to our executive compensation program. In 2021, the Compensation Committee increased the weighting of the environmental factor in our VCIP from 5 percent to 15 percent. In addition, we have added metrics for (1) advancing lower-carbon investments, optimization, and innovation and (2) reducing manufacturing emissions intensity and setting GHG emissions reduction targets. These elements are part of the annual incentive program for all employees, not just the NEOs and the CEO.
We are committed to reassessing our targets in step with technology developments, policy changes and consumer energy demand trends
As we progress toward the 2030 and 2050 emissions reduction targets, we will regularly assess our performance against the targets.
Continuous improvement is inherent in our business processes. We will reevaluate our targets as technology is developed, consumer behavior changes and policies support lower-carbon solutions. Phillips 66 is on the right path in the energy transition and is transparent about its progress.
Accordingly, the Board of Directors recommends voting AGAINST this proposal.
PROPOSAL 6
| Shareholder Proposal Regarding Report on Shift to Recycled Polymer for Single Use Plastics | | | | The Board recommends that you vote “AGAINST” proposal 6. |
As You Sow, located at 2020 Milvia Street, Suite 500, Berkeley, California, has notified Phillips 66 that it intends to present the following proposal on behalf of Handlery Hotels, Inc. and Meyer Memorial Trust (S) at the 2023 Annual Meeting. As You Sow has indicated that Meyer Memorial Trust (S) holds 1,944 shares of Phillips 66 common stock and Handlery Hotels, Inc. holds 9,888 shares of Phillips 66 common stock in accordance with the requirements of Rule 14a-8. Whereas
WHEREAS: Plastics, with a lifecycle social cost at least ten times higher than its market price, actively threaten the world’s oceans, wildlife, and public health.1Concern about the growing scale and impact of global plastic pollution has elevated the issue to crisis levels.2Of particular concern are single-use plastics (SUPs),3which make up the largest component of the 11 million metric tons of plastic ending up in waterways annually.4Without drastic action, this amount could triple by 2040.5 In response to the plastic pollution crisis, countries and major packaging brands are beginning to drive reductions in virgin plastic use.6,7Several studies demonstrate that a shift away from virgin plastic production is critical to curbing the flow of plastic into oceans.8One of the most robust pathways is presented in the widely respected Breaking the Plastic Wave report,, which finds that plastic leakage into the ocean can feasibly be reduced 80 percent under its System Change Scenario (SCS), which is based onincludes a global shift to recycled plastics (almost tripling demand for recycled content) coupled with a one-thirdsignificant absolute reduction of virgin SUPs.9,10 BP has recognized the potential disruption that global SUP reductions could have on the oil industry in its 2019 Outlook, finding that a global SUP ban by 2040 would reduce oil demand (mostly of virgin SUPs).9,10growth by 60 percent. 11 The future under the SCS — one– built partially on recycled plastics and circular business models – looks drastically different than today’s linear take-make-waste production modelmodel. Several implications of the SCS, including a one-third absolute demand reduction (mostly of virgin SUPs) and would peakimmediate reduction of new investment in virgin plastic demand globally before 2030.production, are at odds with the Company’s planned investments. Chevron Phillips Chemical Company (CPChem), jointly owned by Phillips 66 and Chevron, is a major producer of virgin plastics.11 CPChem is estimated to be the 15th largest global producer of SUP-bound polymers, with 1.8 million metric tons produced in 2019, an estimated 42 percent of its total production.12 While CPChem has made significant investments into circular polymers,13 and states a goal to “not only end post-consumer plastic waste, but also keep plastic where it belongs,”14 itsThe Company’s core business model of producing virgin plastics (especially SUPs) from fossil fuels is rapidly expanding. As a partial owner of CPChem, Phillips 66 faces growing risk from CPChem’s continued investment in virgin plastic production infrastructure.15Resolved
RESOLVED: With board oversight, shareholdersShareholders request that PhillipPhilips 66 prepareissue an audited report addressing whether and how a significant reduction in virgin plastic demand, as set forth in Breaking the Plastic Wave’s System Change Scenario to reduce ocean plastic pollution, would affect the Company’s financial position and the assumptions underlying its financial statements. The report (atshould be at reasonable cost and omittingomit proprietary information) describing howinformation.
SUPPORTING STATEMENT: Proponents recommend that, at Board discretion, the Company couldreport include: •Quantification of the Company’s polymer production for SUP markets; •A summary of the Company’s existing and planned investments that may be materially impacted by the SCS; •Plans or goals to shift its plastic resin business model from virgin to recycled polymer production as a means of reducing plastic pollution of the oceans.Supporting Statement: Proponents suggest, at Company discretion, the analysis include:
plastics and use recycling technologies that are cost-effective, process and energy efficient, and environmentally sound. __________________________ (1)https://wwfint.awsassets.panda.org/downloads/wwf_pctsee_report_english.pdf (2)https://www.unep.org/resources/pollution-solution-global-assessment-marine-litter-and-plastic-pollution (3)https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32019L0904&from=EN#page=8 (4)https://www.minderoo.org/plastic-waste-makers-index/findings/executive-summary/ (5)https://www.nationalgeographic.com/science/article/plastic-trash-in-seas-will-nearly-triple-by-2040-if-nothing-done (6)https://www.pbs.org/newshour/science/bold-single-use-plastic-ban-kicks-europes-plastic-purge-into-high-gear (7)https://www.edie.net/news/5/Ellen-MacArthur-Foundation--Plastic-use-by-big-businesses-likely-to-peak-in-2021/ (8)https://www.theguardian.com/environment/2021/jul/01/call-for-global-treaty-to-end-production-of-virgin-plastic-by-2040 (9)https://www.pewtrusts.org/-/media/assets/2020/07/breakingtheplasticwave_report.pdf (10)https://www.science.org/doi/full/10.1126/science.aba9475 (11)https://www.bp.com/content/dam/bp/business-sites/en/global/corporate/pdfs/energy-economics/energy-outlook/bpenergy-outlook-2019.pdf#page=18 (12)https://www.minderoo.org/plastic-waste-makers-index/data/flows/#/sankey/global/10 • | Quantification (in tons and/or as a percentage of total production) of the company’s polymer production for SUP markets | | | | | •90 | An assessment of the resilience of the company’s portfolio of petrochemical assets under virgin to recycled transition scenarios of five and ten years, and the financial risks associated with such scenariosPhillips 66 2023 Proxy Statement |
98 Phillips 66 2022 Proxy Statement | |
• | The benefits of such a shift in terms of plastic pollution avoided | • | Any risks or benefits to the Company’s finances or operations |
1 | https://wwfint.awsassets.panda.org/downloads/wwf_pctsee_report_english.pdf | 2 | https://www.unep.org/resources/pollution-solution-global-assessment-marine-litter-and-plastic-pollution | 3 | As defined by the European Union, a global pioneer in SUP reduction, at https://eur-lex.europa.eu/legalcontent/EN/TXT/PDF/?uri=CELEX:32019L0904 &from=EN#page=8 | 4 | https://www.minderoo.org/plastic-waste-makers-index/findings/executive-summary/ | 5 | https://www.nationalgeographic.com/science/article/plastic-trash-in-seas-will-nearly-triple-by-2040-if-nothing-done | 6 | https://www.pbs.org/newshour/science/bold-single-use-plastic-ban-kicks-europes-plastic-purge-into-high-gear | 7 | https://www.edie.net/news/5/Ellen-MacArthur-Foundation--Plastic-use-by-big-businesses-likely-to-peak-in-2021/ | 8 | https://www.theguardian.com/environment/2021/jul/01/call-for-global-treaty-to-end-production-of-virgin-plastic-by-2040 | 9 | https://www.pewtrusts.org/-/media/assets/2020/07/breakingtheplasticwave_report.pdf | 10 | https://www.science.org/doi/full/10.1126/science.aba9475 | 11 | https://s22.q4cdn.com/128149789/files/doc_presentations/2021/08/Investor-Update-August-2021-VF.pdf#page=22 | 12 | https://www.minderoo.org/plastic-waste-makers-index/data/flows/#/sankey/global/10 | 13 | https://www.cpchem.com/AdvancedRecycling | 14 | https://www.cpchem.com/sites/default/files/2021-07/2020_Sustainability_Report1.pdf#page=35 | 15 | https://www.asyousow.org/reports/plastics-the-last-straw-for-big-oil |
BOARD OF DIRECTORS’ RESPONSE TO SHAREHOLDER PROPOSAL REQUESTING AUDITED REPORT ON IMPACT TO CHEMICALS BUSINESS UNDER THE SYSTEM CHANGE SCENARIO The Board has carefully considered this proposal and, for the reasons set forth below, does not believe that it is in the best interests of the Company and its shareholders, and unanimously recommends a vote “AGAINST” the proposal. CPChem is investing to achieve a more circular economy
This proposal relates to reporting by Chevron Phillips Chemical Company LLC (CPChem)* about plastic recycling to reduce plastic pollution. Phillips 66 and CPChem are committed to keeping plastic out of the environment and progressing toward a more circular economy where plastic packaging is reused, recycled, or recovered. As a strong advocate for the responsible handling and repurposing of all plastics, CPChem has set an ambitious target to produce 1 billion pounds of circular polymers by 2030. CPChem is already supportingsubstantially addressed by recent analysis from CPChem, the developing circular plastics economy via mechanical and chemical processes,findings of which makes this proposal unnecessary.CPChem is focused on achievingare publicly available in its 2030 circular polymer production target of 1 billion pounds
To achieve circular plastic production, CPChem is investing in mechanical and chemical processes. Mechanical recycling takes collected and sorted plastics and reworks them back into products. Advanced or chemical recycling converts post-use plastics into feedstocks that can be transformed into new products, such as polyethylene. Advanced recycling is a complementary approach to mechanical recycling that can be repeated, keeping plastics in a circular loop.
CPChem’s actions to achieve its circular production goals include:
• | Becoming the first company to announce commercial-scale production of circular polymers in the U.S. using advanced recycling technology, the Marlex® Anew™ Circular Polyethylene product line. | • | Receiving certification of Marlex® Anew™ Circular Polyethylene from International Sustainability and Carbon Certification PLUS (ISCC PLUS). | • | Signing a long-term agreement with Nexus Circular LLC (Nexus) to supply pyrolysis oil. Nexus also obtained ISCC PLUS certification, which combined with CPChem’s certification, establishes Marlex® Anew™ Circular Polyethylene as an end-to-end certified circular product. |
• | Achieving the first commercial sales of Marlex® Anew™ Circular Polyethylene, delivering on CPChem’s commitment to bring a fully certified circular polyethylene product to market in the U.S. | • | Maintaining research and application development labs in Bartlesville, OK and Kingwood, TX that are working with technology providers to find solutions to accelerate circular products |
CPChem invests in and collaborates to advance circular solutions and reduce plastic waste in the environment
CPChem is committed to operational excellence and working with stakeholders to improve the recycling and recovery of post-use plastic packaging through:
• | Voluntarily operating to Operation Clean Sweep® Blue standards and implementing programs to ensure it meets its goal of zero plastic loss from its facilities and sharing these best practices with the value chain | • | Investing in two leading circular plastics recyclers, Nexus Circular, LLC (Nexus) and Mura Technology Ltd. (Mura), which convert waste plastics into feedstock used in advanced recycling to produce circular polymers | • | Investing in Infinity Recycling’s circular plastics fund that will invest in advanced recycling businesses, which convert plastic waste back into virgin grade feedstock for the manufacturing of new products, focusing first in Europe with the ambition to expand globally | • | Investing as a founding member of Circulate Capital Ocean Fund (CCOF), which provides financing to waste management, recycling, and circular economy projects throughout India and Indonesia. CCOF has a goal of diverting at least 5 million tons by 2030 | • | Becoming a founding member of Alliance to End Plastic Waste, which committed $1.5 billion to eliminate plastic waste via investments in infrastructure, innovation, education and engagement, and cleanup | • | Supporting American Chemistry Council efforts to advance a circular economy, PlasticsEurope’s position for mandatory EU recycled content target for plastics packaging of 30% by 2030, and World Plastics Council’s recognition that global action is needed to prevent leakage of plastic into the environment and achieve universal access to waste collection |
CPChem reports on its recycling target, investments, and efforts to transition to circular polymer production
For 10 years, CPChem’s Sustainability Report has followed the Global Reporting Initiative (GRI) standard. The current report includes sections addressing sustainability strategy, climate change, circularity,released in August 2022,
Accelerating Change for a Sustainable Future, and plastic waste. The report can be accessed at www.cpchem.com/sustainability.its Climate Risk Report. CPChem usesconducts and discloses scenario analysis considering various demand outlooks to test its portfolio, assess its strategy, and evaluate potential impactsfinancial impacts. In contrast to the range of variousscenarios CPChem evaluates, the proposal asks for a single, specific scenario that implies certainty about the future environments. Inof the 2022plastics market that we believe do not exist. The range of scenarios1 evaluated by CPChem include: •“Business as usual” considering GDP and middle-class growth as drivers for polyethylene production investment, •“Increased Recycling” driven by demand for circular plastics by consumer goods companies and regulatory mandates and •“Advanced Circular Economy” resulting from increased legislation, carbon emission reductions and advancements in circular technology. CPChem’s assets show long-term resilience under multiple market conditions through increased revenue growth. This analysis is detailed in CPChem’s Sustainability Report and Climate Risk Report, both available on www.cpchem.com/sustainability. Relevant business risks are already disclosed in the Company’s financial information and presenting a singular scenario that the Company does not deem informative can create confusion for investors regarding the Company’s views of relevant business risks. An audited report will divert money and people resources from Phillips 66 and CPChem, will discuss risk categories relevantthat would be better spent on advancing recycling, operating excellence, and environmental stewardship. CPChem has targets to a transition toincrease its circular polymer production which will coverand its resources are better focused on executing on this commitment. CPChem has set a meaningful target to annually produce 1 billion pounds of Marlex® Anew™ Circular Polyethylene by 2030. It is working toward this goal by becoming the topicsfirst company to announce commercial-scale production of polymers in the proposal, including:• | increased regulation of end-use applications | • | substitution of alternative products | • | increased stakeholder expectations, and | • | unsuccessful investments in new technologies |
100 Phillips 66 2022 Proxy Statement | |
U.S. using advanced recycling technology, achieving its first commercial sales of circular polymers, and securing long-term agreements for circular feedstocks. Table of Contents
We are focused on realistic, actionable solutions to eliminate plastic waste from our operations.Plastics are valuable to society and offer solutions in almost every part of modern life and they do not belongprovide value to society now and for decades to come. CPChem’s plastics are converted into products that serve healthcare, agriculture, transportation, construction, and other industries. As the world continues to work through the energy transition, plastics are a key solution for businesses seeking to lower emissions and participate in circular solutions.2, 3, 4 As a founding member of the natural environment. We believeAlliance to End Plastic Waste, CPChem resources are better focused on advancing polymer recycling,collaborates with more than 90 companies to support organizations to eliminate plastic waste collection, ocean clean-up programsvia investments in infrastructure, cleanup, education, engagement, and reporting on businessinnovation. Members have collectively committed to $1.5 billion over five years to design and scale realistic solutions.
The Company and CPChem have engaged with the proponent and could not agree to a resolution. CPChem already analyzes and discloses a range of scenarios as discussed above. A supplemental report as asked for in the proposal does not add shareholder value.considering various demand outlooks that provides decision-useful information to shareholders. Accordingly, the Board of Directors recommends voting AGAINST this proposal. _________________ (1)Bloomberg BNEF May 5, 2020, Circular Economy Series, CPChem “Climate Impact of Plastics" (2)"Climate Impact of Plastics", McKinsey & Company, July 2022. https://www.mckinsey.com/industries/chemicals/our-insights/climate-impact-of-plastics (3)"Global Energy and Natural Resources Report 2022", Bain & Company https://www.bain.com/globalassets/noindex/2022/bain_report_global-energy-and-natural-resources-2022.pdf (4)"The plastics industry must go under the knife for a more sustainable future", Wood Mackenzie, Nov, 18, 2021, https://www.woodmac.com/press-releases/the-plastics-industry-must-go-under-the-knife-for-a-more-sustainable-future/ * | | | | | | | 92 | Phillips 66’s Chemical segment consists of the 50% equity investment in Chevron Phillips Chemical Company (CPChem), which manufactures and markets petrochemicals and plastics worldwide.66 2023 Proxy Statement |
| | | | | | PROPOSAL 6 | Shareholder Proposals 101Proposal Requesting Audited Report on Asset Retirement Obligations of Assets with Indeterminate Lives The Board recommends that you vote “AGAINST” proposal 6. |
Beneficial OwnershipNew Jersey Common Pension Fund D, located at P.O. Box 290, Trenton, NJ 08625, has notified Phillips 66 that it intends to present the following proposal at the Annual Meeting. The State of New Jersey Common Pension Fund D has indicated that it holds 260,940 shares of Phillips 66 common stock in accordance with the requirements of Rule 14a-8.
Oil and gas companies are legally required to decommission certain long-lived tangible assets at the end of their useful life. The obligations associated with doing so are recognized as Asset Retirement Obligations (AROs) by the Financial Accounting Standards Board. The demand for refined products such as gasoline is anticipated to decline as alternative sources of energy become more widely adopted, whether because of consumer demand, government directives, or other forces. As a result, the time to decommission refineries will likely come sooner than anticipated. Yet, investors have little insight into the associated costs of such decommissioning. AROs are critical accounting estimates, yet useful detail on midstream and downstream AROs is not included in the Company's financial reports due to uncertainty about the timing of decommissioning. According to the Company's most recent annual report, it owns 12 refineries in the U.S. and Europe, which have a new crude throughput capacity of approximately 2 million barrels per day. We appreciate that the Company discloses some information in its most recent annual report about its recognized AROs. However, for those unrecognized AROs, the Company states "[w]e believe that generally these assets have no expected retirement dates for purposes of estimating asset retirement obligations since the dates or ranges of dates upon which we would retire these assets cannot be reasonably estimated at this time.” Rising climate transition risks and responsive corporate climate strategies make it reasonably possible that near-term changes in legal or economic conditions could materially accelerate realization of these liabilities. If companies choose not to recognize the fair value of AROs on grounds that assets have indeterminate lives, it is imperative that they disclose the undiscounted costs to settle these material off-balance sheet liabilities. Absent this information, investors cannot assess the true risk-adjusted value of their investment nor deploy capital effectively. Resolved: Shareholders request that the Board of Directors issue an audited report that describes the undiscounted expected value to settle obligations for AROs with indeterminate settlement dates. The Board should obtain and ensure publication of the report by February 2024 at reasonable cost and omitting proprietary information. To allow maximum flexibility, nothing in this resolution shall serve to micromanage the Company by seeking to impose methods for implementing complex policies in place of the ongoing judgement of management as overseen by its Board of Directors. Supporting Statement: In the Board and management’s reasonable discretion we recommend such report also include: (1) a range of potential settlement dates based on each asset’s estimated economic life, (2) probabilities associated with the potential settlement dates, with due consideration given to the potential impact of the energy transition away from fossil fuels, and (3) whether, based on known information, it is reasonably possible that these assumptions and estimates will change in the near term.
BOARD OF DIRECTORS' RESPONSE TO SHAREHOLDER PROPOSAL REQUESTING AUDITED REPORT ON ASSET RETIREMENT OBLIGATIONS OF ASSETS WITH INDETERMINATE LIVES The Board has carefully considered this proposal and, for the reasons set forth below, does not believe it is in the best interests of the Company and its shareholders, and unanimously recommends a vote “AGAINST” the proposal. The Board believes the audited report requested in this proposal is not in the best interests of our shareholders because it: •Directly conflicts with the Company’s accounting policy for its asset retirement obligations, which complies with US GAAP and is consistent with industry practice for companies with similar assets •Is potentially misleading to shareholders because asset retirement costs ultimately to be incurred for assets with indeterminate lives, and the timeframe in which such costs will be incurred, depend on a variety of factors, many of which are outside of management’s control and indeterminable at this time •Disregards how the impact of the Company’s commitment to the energy transition may extend the useful lives of certain assets beyond what may be currently conceivable The requested report would directly conflict with the Company’s accounting policy for its asset retirement obligations, which complies with US GAAP and is consistent with industry practice for companies with similar assets. This proposal seeks to require the Company to account for its asset retirement obligations (AROs) in a manner that is contrary to management’s accounting policies, judgments, and conclusions with respect to its AROs, which are made in accordance with generally accepted accounting principles (“US GAAP”) as established and interpreted by the Financial Accounting Standards Board (“FASB”) and consistent with industry practice. Management makes accounting judgments and conclusions with oversight of the Board and its Audit and Finance Committee. The proposal seeks to change management’s accounting policy, which complies with US GAAP, and require the Company to prepare and provide information that is inconsistent with its annual audited consolidated financial statements. The Company provides financial disclosures to its shareholders that are both informative and compliant with US GAAP, including its AROs, in its annual report on Form 10-K and quarterly reports on Form 10-Q filed with the Securities and Exchange Commission (“SEC”). The Company’s annual consolidated financial statements are audited by an independent registered public accounting firm. That firm has opined that the Company’s consolidated financial statements present fairly, in all material respects, its consolidated financial position and the consolidated results of its operations and its cash flows in conformity with US GAAP. With respect to accounting for AROs, the FASB Accounting Standards Codification (“ASC”) Topic 410, Asset Retirement and Environmental Obligations (“ASC 410”) is the source of authoritative US GAAP guidance. The Company uses this guidance to account for and make disclosures about its AROs, including disclosures about its assets with indeterminate settlement dates (such as certain refining assets), for which a reasonable estimate of fair value cannot be made of the AROs. The Company cannot determine the fair value of AROs for such refining assets because a retirement date or range of retirement dates cannot be reasonably determined. In accordance with US GAAP, the Company will recognize a liability for the AROs with respect to these assets when it has enough information to reasonable estimate a retirement date or range of retirement dates. Therefore, the proposal requests an alternate presentation of AROs that is inconsistent with the Company’s application of US GAAP and its consolidated financial statements. In developing the US GAAP guidance on AROs, the FASB understood that the information necessary to record an ARO may not be available until a future date. Accordingly, US GAAP provides guidance on when to recognize AROs and disclosures to make when sufficient information is not available to make a reasonable estimate of an ARO. In developing such guidance, we believe the FASB was promulgating accounting standards with a view towards enhancing the accuracy, transparency and comparability of financial reporting. Yet this proposal seeks to require the Company to estimate the timing and cost of future asset retirements. This estimation would require the Company to make significant assumptions as | | | | | | | 94 | Phillips 66 2023 Proxy Statement |
to the scope and extent of remediation activities that may be required if and when a removal event actually occurs. The Board concluded that engaging in such an estimation exercise would not add shareholder value and would result in the presentation of information that is not comparable to our peers. The Board believes that changes to accounting guidance should be led by standard-setters such as FASB, rather than through shareholder proposals. The requested report would cloud shareholder’s understanding of potential liabilities since future ARO costs depend on a variety of factors, many of which are outside of management’s control and indeterminable at this time. The Board believes that the audited report requested by the proponent would be inherently misleading to shareholders, as the timing and ultimate costs to settle AROs for assets with indeterminate lives will depend on a variety of factors, many of which are both outside of management’s control and unknown at this time, such as (i) investments to maintain and modernize assets, (ii) the extent to which existing assets may be utilized in the energy transition, (iii) the regulations in effect at the time of decommissioning, (iv) the speed and extent to which the energy transition develops, and (v) the future land usage, among others. These factors will influence the useful life of the underlying assets and the magnitude and timing of costs that will ultimately be borne by the company to satisfy its AROs. Put simply, the requested report ignores the importance and complexity of making accurate determinations regarding settlement timing in calculating AROs. The report sought in this proposal risks being misinterpreted as reflecting the Company’s views of its AROs and being misused in comparison with peers. Corporate financial reporting and the application of accounting guidance is intended to provide the market with clear, comparable information so that informed investment decisions can be made. Providing alternative information about the Company’s AROs which is inconsistent with the Company’s accounting policies, judgments and conclusions would cloud, rather than clarify, an investor’s understanding of the Company’s liabilities. Moreover, the requested estimation deviates from industry practice for ARO recognition, which could confuse shareholders, as it may be interpreted as an estimate of liability, and would create a lack of comparability in reporting among peers to the detriment of our shareholders. The Company’s commitment to the energy transition may extend the useful lives of certain assets beyond what may be currently conceivable. In taking issue with the Company’s GAAP-compliant disclosures regarding AROs, the proponent cites climate transition risks as a basis to ask shareholders to vote to change management’s accounting policy for its AROs. The Company recognizes the need to address climate change and is committed to participating in the energy transition. This commitment includes the Company’s investment in technology to increase the efficiency of its operations, lower the emissions intensity of its operations, and enhance the resiliency of its assets. The Company is using its existing infrastructure and capabilities along with its research into emerging energies and renewable fuels to participate in the energy transition. A prime example of this is the Company’s San Francisco refining complex that is currently being transformed into one of the world’s largest renewable fuels facilities, Rodeo Renewed. When complete, Rodeo Renewed is expected to extend the economic life of the Rodeo refining facility, help meet growing demand for lower-carbon fuels, preserve jobs and support the US in achieving its climate goals. By repurposing certain assets like the San Francisco refining complex in support of the energy transition, the Company is further extending their economic lives.This further supports the Company’s assertion that our assets have no expected retirement dates for the purpose of estimating AROs, as the dates or ranges of dates upon which we would retire these assets cannot reasonably be estimated. For the reasons set forth above, the Board believes that the Company’s resources are better spent pursuing our strategic priorities. Because the requested report would be inconsistent with management’s accounting policies, judgments, and conclusions, require estimations that are arbitrary, and have the potential to confuse and mislead shareholders with discrepancies between our audited financial statements and peer disclosures, the Board of Directors recommends voting AGAINST this proposal.
| | | | | | | | | Beneficial Ownership of
Phillips 66 Securities |
SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS The following table sets forth information regarding persons who we know to be the beneficial owners of more than five percent of our issued and outstanding common stock as of March 15, 2022.2023. The information is based on reports filed by such person with the SEC: | Name and Address | | Number of Shares | | | Percent of Class | | The Vanguard Group(1)
100 Vanguard Blvd.
Malvern, PA 19335 | | | 44,677,746 | | | | 9.29 | % | BlackRock, Inc.(2)
55 East 52nd Street
New York, NY 10055 | | | 31,574,587 | | | | 6.56 | % | State Street Corporation(3)
One Lincoln Street
Boston, MA 02111 | | | 26,629,712 | | | | 5.53 | % |
| | | | | | | | | | Name and Address | Number of Shares | Percent of Class | The Vanguard Group(1)
100 Vanguard Blvd.
Malvern, PA 19335 | 50,216,131 | 10.62 | % | BlackRock, Inc.(2)
55 East 52nd Street
New York, NY 10055 | 37,326,049 | 7.90 | % | State Street Corporation(3)
One Lincoln Street
Boston, MA 02111 | 32,689,120 | 6.92 | % |
(1)Based solely on an Amendment to Schedule 13G filed with the SEC on February 9, 2023, by The Vanguard Group. The Amendment to Schedule 13G reports sole voting power for no shares of common stock, shared voting power for 670,300 shares of common stock, sole dispositive power for 48,243,781 shares of common stock and shared dispositive power for 1,972,350 shares of common stock. (2)Based solely on an Amendment to Schedule 13G filed with the SEC on February 3, 2023, by BlackRock, Inc. on behalf of itself, BlackRock Life Limited; BlackRock International Limited; BlackRock Advisors, LLC; Aperio Group, LLC; BlackRock (Netherlands) B.V.; BlackRock Institutional Trust Company National Association; BlackRock Asset Management Ireland Limited; BlackRock Financial Management, Inc.; BlackRock Japan Co., Ltd.; BlackRock Asset Management Schweiz AG; BlackRock Investment Management, LLC; FutureAdvisor, Inc.; BlackRock Investment Management (UK) Limited; BlackRock Asset Management Canada Limited; BlackRock (Luxembourg) S.A.; BlackRock Investment Management (Australia) Limited; BlackRock Advisors (UK) Limited; BlackRock Fund Advisors; BlackRock Asset Management North Asia Limited; BlackRock (Singapore) Limited; and BlackRock Fund Managers Ltd. The Amendment to Schedule 13G reports sole voting power for 33,911,002 shares of common stock, no shared voting power for shares of common stock, sole dispositive power for 37,326,049 shares of common stock and no shared dispositive power for shares of common stock. (3)Based solely on an Amendment to Schedule 13G filed with the SEC on February 3, 2023, by State Street Corporation on behalf of itself, State Street Bank And Trust Company; SSGA Funds Management, Inc.; State Street Global Advisors Europe Limited; State Street Global Advisors Limited; State Street Global Advisors Trust Company; State Street Global Advisors, Australia, Limited; State Street Global Advisors (Japan) Co., Ltd.; State Street Global Advisors Asia Limited; State Street Global Advisors, Ltd.; State Street Global Advisors Singapore Limited; and State Street Saudi Arabia Financial Solutions Company. The Amendment to Schedule 13G reports sole voting power for no shares of common stock, shared voting power for 30,551,010 shares of common stock, sole dispositive power for no shares of common stock and shared dispositive power for 32,658,855 shares of common stock. | | | | | | (1)96 | Based solely on an Amendment to Schedule 13G filed with the SEC on March 9, 2022, by The Vanguard Group. The Amendment to Schedule 13G reports sole voting power for no shares of common stock, shared voting power for 671,847 shares of common stock, sole dispositive power for 42,891,483 shares of common stock and shared dispositive power for 1,786,263 shares of common stock. | (2) | Based solely on an Amendment to Schedule 13G filed with the SEC on February 7, 2022, by BlackRock, Inc. on behalf of itself, BlackRock Life Limited, BlackRock International Limited, BlackRock Advisors, LLC, Aperio Group, LLC, BlackRock (Netherlands) B.V., BlackRock Institutional Trust Company, National Association, BlackRock Asset Management Ireland Limited, BlackRock Financial Management, Inc., BlackRock Japan Co., Ltd., BlackRock Asset Management Schweiz AG, BlackRock Investment Management, LLC, FutureAdvisor, Inc., BlackRock Investment Management (UK) Limited, BlackRock Asset Management Canada Limited, BlackRock (Luxembourg) S.A., BlackRock Investment Management (Australia) Limited, BlackRock Advisors (UK) Limited, BlackRock Fund Advisors, BlackRock Asset Management North Asia Limited, BlackRock (Singapore) Limited and BlackRock Fund Managers Ltd. The Amendment to Schedule 13G reports sole voting power for 27,660,975 shares of common stock, no shared voting power for shares of common stock, sole dispositive power for 31,574,587 shares of common stock and no shared dispositive power for shares of common stock. | (3) | Based solely on a Schedule 13G filed with the SEC on February 11, 2022, by State Street Corporation on behalf of itself, State Street Bank And Trust Company, SSGA Funds Management, Inc, State Street Global Advisors Limited, State Street Global Advisors, Australia Limited, State Street Global Advisors (Japan) Co., Ltd, State Street Global Advisors Asia Limited, State Street Global Advisors Singapore Limited, State Street Global Advisors Europe Limited, and State Street Global Advisors Trust Company. The Schedule 13G reports sole voting power for no shares of common stock, shared voting power for 27,699,931 shares of common stock, sole dispositive power for no shares of common stock and shared dispositive power for 29,608,366 shares of common stock.Phillips 66 2023 Proxy Statement |
102 Phillips 66 2022 Proxy Statement | |
SECURITIES OWNERSHIP OF OFFICERS AND DIRECTORS This table lists the beneficial ownership of our common stock as of February 15, 2022,2023, by all directors and nominees, the executive officers named in the Summary Compensation Table, and by all of our directors and executive officers as a group. Together these individuals beneficially own less than one percent of our common stock.| | | Number of Shares or Units | | Name of Beneficial Owner | | Shares Beneficially
Owned | | Restricted or Deferred
Stock Units(1) | | Options Exercisable
within 60 Days(2) | | Mr. Garland | | 553,669 | | 104,553 | | 1,045,034 | | Mr. Lashier | | 1,080 | | 48,800 | | 198,100 | | Mr. Herman | | 36,093 | | 29,956 | | 218,467 | | Mr. Mitchell | | 49,720 | | 41,855 | | 240,500 | | Mr. Roberts | | 15,221 | | 33,363 | | 171,199 | | Mr. Adams | | 15,268 | | — | | — | | Ms. Bushman | | — | | 6,795 | | — | | Ms. Davis | | 5,930 | | — | | — | | Mr. Holley | | 77 | | 9,812 | | — | | Mr. Lowe | | 40,000 | | 34,139 | | — | | Ms. Ramos | | — | | 15,668 | | — | | Ms. Singleton | | — | | 3,472 | | — | | Mr. Terreson | | — | | 3,472 | | — | | Mr. Tilton | | 5,900 | | 34,139 | | — | | Dr. Whittington | | 2,500 | | 34,139 | | — | | Directors and Executive Officers as a Group (18 Persons) | | 743,400 | | 448,047 | | 1,998,932 |
| | | | | | | | | | | | | Number of Shares or Units | | Name of Beneficial Owner | Shares Beneficially Owned | Restricted or Deferred Stock Units(1) | Options Exercisable within 60 Days(2) | | Mr. Garland | 597,066 | 86,169 | 1,105,899 | | Mr. Lashier | 7,185 | 77,462 | 66,032 | | Mr. Mandell | 19,308 | 27,143 | 158,366 | | Mr. Mitchell | 68,048 | 41,657 | 311,033 | | Mr. Roberts | 21,463 | 32,822 | 166,299 | | Ms. Sutherland | — | 47,567 | 11,766 | | Mr. Adams | 18,596 | — | — | | Ms. Bushman | — | 9,005 | — | | Ms. Davis | 7,859 | — | — | | Mr. Hayes | 10,250 | 4,049 | | | Mr. Holley | 77 | 12,146 | — | | Mr. Lowe | 40,000 | 37,476 | — | | Ms. Ramos | — | 18,243 | — | | Ms. Singleton | — | 5,544 | — | | Mr. Terreson | — | 5,544 | — | | Mr. Tilton | 28,400 | 37,476 | — | | Dr. Whittington | 10,000 | 37,476 | — | Directors and Executive Officers as a
Group (20 Persons) | 852,699 | 528,663 | 19,700,694 |
(1)Includes RSUs and deferred stock units that may be voted or sold only upon the passage of time. (2)Includes beneficial ownership of shares of common stock which may be acquired within 60 days of February 15, 2023, through stock options awarded under compensation plans. | | | | | | (1) | Includes RSUs or deferred stock units that may be voted or sold only upon passage of time. | (2) | Includes beneficial ownership of shares of common stock which may be acquired within 60 days of February 15, 2022, through stock options awarded under compensation plans. |
| Beneficial Ownership of Phillips 66 Securities103 | 97 |
Delinquent Section 16(a) Reports Section 16(a) of the Exchange Act requires our directors and executive officers and persons who own more than 10% of a registered class of our equity securities, to file reports of ownership on Form 3 and changes in ownership on Form 4 or 5 with the SEC and the NYSE. Such executive officers, directors and stockholders also are required by SEC rules to furnish us with copies of all Section 16(a) forms that they file. To our knowledge, based solely on our review of the copies of such reports furnished to us and written representations that no other reports were required to be filed during the year ended December 31, 2021,2022, we believe that for 2021,2022, all required reports were filed on a timely basis under Section 16(a), exceptexcept: •A Form 4 was filed on April 5, 2022, reporting the withholding of 383 shares to satisfy FICA withholding taxes for Mr. Roberts. The withholding of the shares should have occurred on August 4, 2020, but did not occur until February 4, 2022. The delay in processing and reporting the transaction was due to an administrative error. •A Form 4 was filed on June 22, 2022, reporting a grant of 34,258 RSUs to Ms. Sutherland on January 17, 2022. This report was filed late due to an administrative error. • | A Form 4 was filed on February 24, 2021 for Mr. Holley relating to a purchase of 77 shares on February 10, 2021. This report was filed late due to an error by the third-party broker firm that administered the transaction. | | | | | •Beneficial Ownership of Phillips 66 Securities | A transaction on March 7, 2021, representing the withholding of 862 shares from Mr. Mitchell to satisfy FICA taxes arising from the reporting person being eligible for normal retirement, was not reported until October 7, 2021, due to an inadvertent administrative error.98 |
| | | | | | • | Transactions on August 9, 2021, representing the withholding of shares to satisfy FICA taxes arising from the reporting person being eligible for normal retirement, were not reported until October 7, 2021, due to an inadvertent administrative error. This error resulted in delinquent filings on behalf of Messrs. Garland (1,569 shares), Herman (470 shares), Mandell (371 shares), Mitchell (623 shares), Pruitt (43 shares), and Roberts (479 shares) and Ms. Johnson (who retired at the end of 2021) (414 shares). | | | Additional Information |
104 Phillips 66 2022 Proxy Statement | |
Additional Information
Why am I receiving these proxy materials? We have made these materials available to you or delivered paper copies to you by mail because you are a Phillips 66 shareholder of record as of March 15, 2022,2023, and Phillips 66’s Board of Directors is soliciting your proxy to vote your shares at the 20222023 annual meeting of shareholders. This Proxy Statement includes information that we are required to provide to you under SEC rules and is designed to assist you in voting your shares.
A proxy is your legal designation of another person to vote the shares you own. The person you designate is called a proxy. If you designate someone as your proxy in a written document, that document is also called a proxy or a proxy card. By submitting your proxy (either by voting electronically on the Internet or by telephone or by signing and returning a proxy card), you authorize Greg C. Garland,Mark E. Lashier, our ChairmanPresident and CEO,Chief Executive Officer, and Vanessa Allen Sutherland, our Executive Vice President, Legal and Government Affairs, General Counsel and Corporate Secretary, to represent you and vote your shares at the meeting in accordance with your instructions. They also may vote your shares to adjourn the meeting and will be authorized to vote your shares at any postponements or adjournments of the meeting.
What is included in the proxy materials? The proxy materials for our 20222023 Annual Meeting include the Notice of 20222023 Annual Meeting of Shareholders (the “Annual Meeting Notice”), this Proxy Statement (the “Proxy Statement”), and Phillips 66’s Annual Report on Form 10-K for the year ended December 31, 20212022 (the “Annual Report”). If you receive a paper copy of the proxy materials, a proxy card or voting instruction form and pre-paid return envelope are also included. The Annual Meeting Notice (which is included in the Proxy Statement), Proxy Statement and Annual Report are being made available at www.proxyvote.com and are being mailed, along with the accompanying proxy card or voting instruction form, to applicable shareholders beginning on or about March 31, 2022., 2023. Why did I receive a notice regarding the internet availability of proxy materials instead of a full set of proxy materials? We are furnishing proxy materials to our shareholders primarily through notice-and-access delivery pursuant to SEC rules. As a result, we are mailing to many of our shareholders a Notice Regarding the Internet Availability of Proxy Materials (the “Notice of Internet Availability”) containing instructions on how to access the proxy materials on the Internet. Shareholders who have affirmatively requested electronic delivery of our proxy materials will receive instructions via email regarding how to access these materials electronically. All other shareholders, including shareholders who have previously requested to receive a paper copy of the materials, will receive a full paper set of the proxy materials by mail. Using the notice-and-access method of proxy delivery expedites receipt of proxy materials by our shareholders, reduces the cost of producing and mailing the full set of proxy materials and helps us contribute to sustainable practices.
If you receive a Notice of Internet Availability by mail, you will not receive a printed copy of the proxy materials in the mail. Instead, the notice instructs you on how to access the proxy materials and vote on the Internet. If you received a notice by mail and would like to receive paper copies of our proxy materials in the mail, you may call 1-800-579-1639 or send an email to sendmaterial@proxyvote.com to request a printed copy of our proxy materials.
Who is entitled to vote at the meeting? The record date for the meeting is March 15, 2022.2023. Only shareholders of record as of the close of business on that date are entitled to vote at the meeting. Each share of common stock is entitled to one vote for all matters before the meeting. At the close of business on March 15, 2023, the record date, there were 481,086,327 shares of common stock outstanding.
What is the difference between holding shares as a shareholder of record and as a beneficial owner? Am I entitled to vote if my shares are held in “street name”? If your shares are registered in your name with our transfer agent, Computershare Trust Company, N.A., you are the “shareholder of record” (or “registered holder”) of those shares, and the Notice of Internet Availability or proxy materials have been provided directly to you by Phillips 66. If your shares are held by a bank, brokerage firm or other nominee, you are considered the “beneficial owner” of shares held in “street name.” If your shares are held in street name, the Notice of Internet Availability or proxy materials (including a voting instruction form) are being forwarded to you by your bank, brokerage firm or other nominee (the “bank or broker”). As the beneficial owner, you have the right to direct your bank or broker how to vote your shares by following the instructions on the Notice of Internet Availability or voting instruction form for voting on the Internet or by telephone (if made available by your bank or broker with respect to any shares you hold in street name), or by completing and returning the voting instruction form, and the bank or broker is required to vote your shares in accordance with your instructions. If you do
Brokers are not give voting instructions, your broker will nevertheless be entitledpermitted to vote your shares in its discretion on the ratificationcertain proposals and may not vote on any of the appointment of the independent registered public accounting firm (Proposal 3). Absent your instructions, the broker will not be permitted, however, to vote your shares on the election of directors (Proposal 1), the advisory vote to approve named executive officer compensation (Proposal 2), the management proposal to approve the Omnibus Stock and Performance Incentive Plan (Proposal 4), or adoption of the two shareholder proposals (Proposals 5 and 6), andunless you provide voting instructions. Voting your shares will be considered “broker non-votes” on those proposals.help to ensure that your interests are represented at the meeting. See “— How will broker non-votes be treated?” below.
What does it mean if I receive more than one Notice of Internet Availability, proxy card or voting instruction form? If you receive more than one Notice of Internet Availability, proxy card or voting instruction form that means your shares are registered differently and are held in more than one account. To ensure that all of your shares are voted, please vote each account over the Internet or by telephone (if made available by the bank or broker with respect to any shares you hold in street name), or sign and return by mail all proxy cards and voting instruction forms.
How can shareholders help Phillips 66 reduce mailing costs? If you vote on the Internet, you may elect to have next year’s proxy materials delivered to you electronically. We strongly encourage you to enroll in electronic delivery. Opting to receive your proxy materials electronically will reduce the cost of producing and mailing documents and help us contribute to sustainable practices.
How many shares must be present to hold the meeting? A quorum must be present at the meeting for any business to be conducted. The presence at the meeting, in person (online) or represented by proxy, of the holders of a majority of the shares of outstanding common stock on the record date will constitute a quorum. Proxies received but marked as abstentions or treated as broker non-votes will be included in the calculation of the number of shares considered to be present at the meeting. 106 | | | | | | | 100 | Phillips 66 2022 2023 Proxy Statement | |
How do I vote? You can vote either in person at the meeting or by proxy.proxy. This Proxy Statement, the accompanying proxy card and the Annual Report are being made available to shareholders on the internet at www.proxyvote.comw ww.proxyvote.com through the notice and access process. The Annual Report contains consolidated financial statements and reports of the independent registered public accounting firm, management’s discussion and analysis of financial condition and results of operations, and other information. To vote by proxy, you must do one of the following: • | Vote over the internet (instructions are on the proxy card) | • | Vote by telephone (instructions are on the proxy card). | • | If you elected to receive a hard copy of your proxy materials, fill out the enclosed proxy card, date and sign it, and return it in the enclosed postage-paid envelope. |
•Vote over the Internet (instructions are on the proxy card). •Vote by telephone (instructions are on the proxy card). •If you elected to receive a hard copy of your proxy materials, fill out the enclosed proxy card, date and sign it, and return it in the enclosed postage-paid envelope. If you hold your Phillips 66 stock in a brokerage account (that is, in “street name”), your ability to vote by telephone or over the internet depends on your broker’s voting process. Please follow the directions on your proxy card or voter instruction form carefully. Even if you plan to attend the Annual Meeting, we encourage you to vote your shares by proxy.
How do I vote if I hold my stock through a Phillips 66 employee benefit plan? If you hold your stock through a Phillips 66 employee benefit plan, you must either: • | Vote over the internet (instructions are in the email sent to you or on the notice and access form). | • | Vote by telephone (instructions are on the notice and access form). | • | If you elected to receive a hard copy of your proxy materials, fill out the enclosed voting instruction form, date and sign it, and return it in the enclosed postage-paid envelope. |
•Vote over the internet (instructions are in the email sent to you or on the notice and access form). •Vote by telephone (instructions are on the notice and access form). •If you elected to receive a hard copy of your proxy materials, fill out the enclosed voting instruction form, date and sign it, and return it in the enclosed postage-paid envelope. You will receive a separate voting instruction form for each employee benefit plan in which you hold Phillips 66 stock. Please pay close attention to the deadline for returning your voting instruction form to the plan trustee. The voting deadline for each plan is set forth on the voting instruction form. Please note that different plans may have different deadlines.
Do I have to register in advance to attend the meeting? Due to continuing concerns relating to COVID-19, we
We will have a virtual-only annual meeting of shareholders in 2022.2023. The meeting will be conducted exclusively via live audio webcast. You do not have to register in advance to attend the virtual meeting. To participate in the virtual meeting, please visit w ww.virtualshareholdermeeting.com/ PSX2022PSX2023 and enter the 16-digit control number included in your Notice of Internet Availability, on your proxy card, or on the voting instruction form that accompanied your proxy materials. You may begin to log into the meeting platform beginning at 8:45 a.m. Central Time on May 11, 2022.10, 2023. The meeting will begin promptly at 9:00 a.m. Central Time on May 11, 2022.10, 2023. See below for additional details. If the Notice of Internet Availability or voting instruction form that you received does not indicate that you may vote your shares through the www.proxyvote.com website, you should contact your bank, broker or other nominee (preferably at least 5 days before the meeting) and obtain a “legal proxy” (which will contain a 16-digit control number that will allow you to attend, participate in or vote at the meeting). Who can attend the Annual Meeting? Shareholders of record and “street name” holders at the close of business on March 15, 20222023 can attend the meeting by accessing www.virtualshareholdermeeting.com/PSX2022w ww.virtualshareholdermeeting.com/PSX2023 and entering the 16-digit control number included in the proxy materials previously received.materials. Please note that the www.virtualshareholdermeeting.com/PSX2022PSX2023 website will not be active until approximately two weeks before the meeting date. | | | | | | Additional Information107 | 101 |
If you do not have a 16-digit control number, you may still attend the meeting as a guest in listen-only mode. To attend as a guest, please access www.virtualshareholdermeeting.com/PSX2022w ww.virtualshareholdermeeting.com/PSX2023 and enter the information requested on the screen to register as a guest. Please note that you will not have the ability to ask questions vote or examine the list of shareholders during the meetingvote if you participate as a guest. See “Virtual Meeting Information” below for additional details.
How can I revoke my proxy? You can revoke your proxy by sending written notice of revocation of your proxy to our Corporate Secretary so that it is received prior to 5:00 p.m., Central Time, on May 10, 2022.9, 2023. If you hold your Phillips 66 stock in street name, you may revoke any voting instructions by contacting the bank, brokerage firm, or other nominee holding the shares or you may also attend the virtual annual meeting and vote online during the meeting, which will replace any previous votes (however, attending the meeting virtually, without voting, will not revoke a proxy). Can I change my vote after I submit my proxy? Yes. You can change your vote at any time before the polls close at the Annual Meeting, which will void any earlier vote. You can change your vote by: • | voting again by telephone or over the internet prior to 11:59 p.m., Eastern Time, on May 10, 2022; | • | signing another proxy card with a later date and returning it to us prior to the meeting; or | • | voting again at the meeting. |
•voting again by telephone or over the Internet prior to 11:59 p.m., Eastern Time, on May 9, 2023; •signing another proxy card with a later date and returning it to us prior to the meeting; or •voting again at the meeting. If you hold your Phillips 66 stock in street name, you must contact your brokerbank, brokerage firm, or other nominee holding the shares to obtain information regarding changing your voting instructions.
We hired Broadridge Financial Solutions, Inc. to count the votes represented by proxies and cast by ballot, and appointed Natalie Hairston of American Election Services to act as Inspector of Election.
Will my shares be voted if I don’t provide my proxy and don’t attend the Annual Meeting? For shares held in your name, if you do not provide a proxy or vote your shares at the Annual Meeting, those shares will not be voted. If you hold shares in street name (i.e., you own your shares through a brokerage, bank, or other institutional account), you are considered the beneficial owner of those shares, but not the record holder. This means that you vote by providing instructions to your broker rather than directly to Phillips 66. Brokers are not permitted to vote on certain proposals and may not vote those shares for routine matters even ifon any of the proposals unless you do not provide the broker with voting instructions. OnlyTherefore, unless you provide specific voting instructions, your shares may not be represented or voted at the ratificationmeeting. Voting your shares will help to ensure that your interests are represented at the meeting. What are the votes required to elect each director nominee and approve the other proposals? For Proposal 1, as required by Phillips 66’s By-Laws, each nominee requires the affirmative vote of Ernst & Young LLPa majority of the votes cast in person or by proxy at the meeting. For Proposal 2, as our independent registered public accounting firm for fiscal year 2022,required by Phillips 66’s Certificate of Incorporation, the affirmative vote of the holders of 80% of the outstanding shares of stock entitled to vote is consideredrequired to beapprove Proposal 2. Proposals 3, 4, 5 and 6 require approval of the affirmative vote of a routine matter.majority of the shares present in person or represented by proxy at the meeting and entitled to vote on the proposal. If you do not give your broker instructions on how to vote your shares, the broker will return the proxy card without voting on proposals that are non-routine. This is a broker non-vote. Without instructions from you, the broker may not vote on any proposals other than the ratification of Ernst & Young LLP as our independent registered public accounting firm for 2022.2023. | | | | | | | 102 | Phillips 66 2023 Proxy Statement |
How will abstentions be treated? Abstentions will have no effect on the election of directors (Proposal 1). For each of the other proposals (Proposals 2, 3, 4, 5 and 6), abstentions will be treated as shares present for quorum purposes and entitled to vote, so they will have the same practical effect as votes against the proposal.
How will broker non-votes be treated? If your shares are held in street name, in order to ensure your shares are voted in the way you would like, you must provide voting instructions to your bank or broker by the deadline provided in the materials you receive from your bank or broker. Brokers holding shares must vote according to specific instructions they receive from the beneficial owners of those shares. If you hold yourbrokers do not receive specific instructions, brokers may in some cases vote the shares in street nametheir discretion, but are not permitted to vote on certain proposals and may elect not vote on any of the proposals unless you provide voting instructions. If you do not instruct yourprovide voting instructions and the broker howelects to vote your shares youron some but not all matters, it will result in a “broker non-vote” for the matters on which the broker may vote your shares in its discretion on the ratification of the appointment of the independent registered public accounting firm (Proposal 3). Your shares will be treated as broker non-votes on all the other proposals. 108 Phillips 66 2022 Proxy Statement | |
Broker non-votes will be treated as shares present for quorum purposes, but they are not considered as votes cast or entitled to vote. Thus, absent voting instructions from you, your broker mayvote and will not be counted in determining the outcome of the vote your shares on the election of directors (Proposal 1), or on Proposals 3, 4, 5 or 6. Proposal 2 requires the advisoryaffirmative “FOR” vote of 80% of outstanding shares entitled to approve named executive officer compensation (Proposal 2), the management proposal to approve the 2022 Omnibus Stock and Performance Incentive Plan (Proposal 4), or adoption of the two shareholder proposals (Proposals 5 and 6). Avote. Therefore, a broker non-vote will not affecthas the outcome of any of the matters. same effect as a vote against this proposal. Will the meeting be webcast? The 20222023 Annual Meeting will be a virtual meeting, conducted exclusively via live audio webcast at www.virtualshareholdermeeting.com/ PSX2022,PSX2023, and is available to Philips 66’s shareholders as of the record date. Guests may also attend the virtual meeting. A replay of the annual meeting will be available on the Events and Presentations page of the Investor Relations section of our website (investors.Phillips66.com) approximately 24 hours after the meeting ends and will remain available on our website for at least one month following the meeting.
What if I return my proxy but don’t vote for some of the matters listed on my proxy card? If you return a signed proxy card without indicating your vote, your shares will be voted “FOR”FOR” the director nominees listed on the card; the declassification of the Board of Directors; the approval of the 2022 Omnibus Stockcompensation of our named executive officers; and Performance Incentive Plan; the ratification of Ernst & Young LLP as the independent registered public accounting firm for Phillips 66 for fiscal year 2022; and the approval of the compensation of our named executive officers.2023. Your shares will be voted “AGAINST” the shareholder proposals.
Could other matters be decided at the Annual Meeting? We are not aware of any other matters to be presented at the Annual Meeting. If any other matters are properly brought before the Annual Meeting, the persons named in your proxy will vote in accordance with their best judgment. Discretionary authority to vote on other matters is included in the proxy.
Will my vote be kept confidential? The Board of Directors has a policy that shareholder proxies, ballots, and tabulations that identify shareholders are to be maintained in confidence. No such document will be available for examination, and the identity and vote of any shareholder will not be disclosed, except as necessary to meet legal requirements and allow the inspectors of election to certify the results of the shareholder vote. The policy also provides that inspectors of election must be independent and cannot be employees of the Company. Occasionally, shareholders provide written comments on their proxy card that may be forwarded to management.
| | | | | | | Additional Information | 103 |
VIRTUAL MEETING INFORMATION Due to continuing concerns relating to COVID-19 at the time arrangements for the meeting needed to be finalized, the
The 2023 Annual Meeting in 2022 will be a virtual meeting, conducted exclusively via live audio webcast at www.virtualshareholdermeeting.com/ PSX2022.PSX2023. There will not be a physical location for the annual meeting,2023 Annual Meeting, and you will not be able to attend the meeting2023 Annual Meeting in person. To participate in the virtual meeting, please visit www.virtualshareholdermeeting.com/PSX2022w ww.virtualshareholdermeeting.com/PSX2023 and enter the 16-digit control number included in your Notice of Internet Availability, on your proxy card, or on the voting instruction form that accompanied your proxy materials. You may begin to log into the meeting platform beginning at 8:45 a.m. Central Time on May 11, 2022.10, 2023. The meeting audio webcast will begin promptly at 9:00 a.m. Central Time on May 11, 2022. | Additional Information 109 |
The virtual meeting platform is fully supported across browsers and devices running the most updated version of applicable software and plug-ins. Please ensure that you have a strong internet connection wherever you intend to participate in the meeting. Please also give yourself sufficient time to log-in and ensure you can hear the streaming audio before the meeting starts. Shareholders will be able to submit questions live during the virtual meeting by typing the question into the “Ask a Question” field and clicking submit. We will answer questions that comply with the meeting rules of conduct during the annual meeting, of shareholders, subject to time constraints. If we receive substantially similar questions, we will group such questions together. Questions that we do not have time to answer during the meeting will be addressed by direct response or posted to our website following the meeting, depending on the subject matter. Questions regarding personal matters or matters not relevant to meeting matters will not be answered. If you do not have a 16-digit control number, you may still attend the meeting as a guest in listen-only mode. To attend as a guest, please access www.virtualshareholdermeeting.com/PSX2022w ww.virtualshareholdermeeting.com/PSX2023 and enter the information requested on the screen to register as a guest. Please note that you will not have the ability to ask questions, vote, or examine the list of shareholders during the meeting if you participate as a guest. An archived copy of the audio webcast will be made available on our website (investors.phillips66.com)(investor.phillips66.com) after the meeting and will remain available for at least one month following the meeting. If you encounter any technical difficulties with the virtual meeting website on the meeting day, please call the technical support number that will be posted on the virtual meeting log-in page. Technical support will be available starting at 8:45 a.m. Central Time and until the meeting has finished. At this time, we do not intend for this to be a permanent shift from in-person meetings.
The principal executive offices of Phillips 66 are located at 2331 CityWest Blvd., Houston, Texas 77042. Phillips 66’s Annual Report on Form 10-K for the year ended December 31, 2021, which includes our fiscal 2021 audited consolidated financial statements, accompanies this Proxy Statement. The Annual Report does not constitute a part of the proxy solicitation materials and is not incorporated by reference into this Proxy Statement.
Printed copies of our Corporate Governance Guidelines, Code of Business Ethics and Conduct, charters for each of the committees of the Board of Directors and our Annual Report on Form 10-K for the year ended December 31, 2021,2022, including the audited financial statements and the financial statement schedules, are available without charge to shareholders upon written request to Phillips 66, 411 S. Keeler, Bartlesville, Oklahoma, 74003 or via the internet at www.phillips66.com. We will furnish the exhibits to our Annual Report on Form 10-K upon payment of our copying and mailing expenses. In addition, the information on any website referenced in this Proxy Statement, including www.phillips66.comw ww.phillips66.com is not deemed to be part of or incorporated by reference into this Proxy Statement.
| | | | | | | 104 | Phillips 66 2023 Proxy Statement |
We will bear all costs of this proxy solicitation. In addition to soliciting proxies by this distribution, our directors, officers and regular employees may solicit proxies personally or by mail, telephone, facsimile or other electronic means, for which solicitation they will not receive any additional compensation. We will reimburse brokerage firms, custodians, fiduciaries and other nominees for their out-of-pocket expenses in forwarding solicitation materials to beneficial owners upon our request. We have retained Alliance Advisors to assist in the solicitation of proxies for a fee of $15,000$20,000 plus reimbursement of certain disbursements and expenses. 110 Phillips 66 2022 Proxy Statement | |
We have adopted a procedure approved by the SEC called “householding.” Under this procedure, shareholders of record who have the same address and last name and do not participate in electronic delivery will receive only one copy of the Notice of Internet Availability or proxy materials, unless contrary instructions have been received from one or more of these shareholders. This procedure will reduce our printing costs and postage fees. Shareholders who participate in householding and receive full sets of the proxy materials will continue to receive separate proxy cards. Also, householding will not in any way affect dividend check mailings. If your household only received a single set of proxy materials or you hold shares in more than one account and in either case you prefer to receive separate copies or you received multiple copies of the proxy materials and only wish to receive a single copy, please contact Broadridge by calling 800-579-1639, through the internet at www.proxyvote.com, or by email at sendmaterial@proxyvote.com. Beneficial owners of shares held in street name can request information about householding from their banks, brokerage firms or other holders of record.
SUBMISSION OF FUTURE SHAREHOLDER PROPOSALS AND DIRECTOR NOMINATIONS Shareholder Proposals for 2023the 2024 Annual Meeting Shareholder proposals (other than director nominations) intended to be presented at Phillips 66’s 20232024 annual meeting must be received no later than December 1, 2022,2, 2023, and must comply with applicable SEC rules, including Rule 14a-8, to be eligible for inclusion in our proxy materials for next year’s meeting. Proposals should be addressed to Phillips 66, Attention: Corporate Secretary, 2331 CityWest Blvd., Houston, Texas 77042. For any proposal that is not submitted for inclusion in next year’s proxy statement (as described in the preceding paragraph or in the proxy access director nominations section below), but is instead sought to be presented directly at the 20232024 annual meeting, including director nominations, our By-Laws require shareholders to give advance notice of such proposals. The required notice, which must include the information and documents set forth in the By-Laws (which includes information required under Rule 14a-19), must be given no more than 120 days and no less than 90 days in advance of the anniversary date of the immediately preceding annual meeting. Accordingly, with respect to our 20232024 annual meeting of shareholders, our By-laws require notice to be provideddelivered to or mailed and received by the Corporate Secretary at the address listed above, as early as January 11, 2023,2024, but no later than February 10, 2023.2024. | | | | | | | Additional Information | 105 |
Proxy Access Director Nominations Our proxy access bylaw permits up to 20 shareholders owning 3% or more of our outstanding shares continuously for at least three years to nominate and include in our proxy materials director nominees constituting up to two individuals or 20% of the Board, whichever is greater, provided that the shareholder(s) and the nominee(s) satisfy the requirements specified in the By-Laws. Phillips 66’s By-Laws require shareholders to give advance notice of any proxy access director nomination. The required notice, which must include the information and documents set forth in the
By-Laws, must be given no more than 120 days and no less than 90 days prior to the anniversary of the date that Phillips 66 mailed its proxy statement for the prior year’s annual meeting. Accordingly, with respect to our 20222024 annual meeting, our By-Laws require notice to be provided toreceived by the Corporate Secretary at the address listed above, as early as January 11, 2023,2024, but no later than February 10, 2023.2024. Our By-Laws are available under “Documents and Charters” on the Corporate Governance page of the Investors section of our website at investor.phillips66.com. Except as otherwise provided by law, the chairman of the meeting will declare out of order and disregard any nomination or other business proposed to be brought before the meeting by a shareholder that is not made in accordance with our By-Laws. | Additional Information 111 | | | | | | 106 | Phillips 66 2023 Proxy Statement |
Appendix A
2022 OMNIBUS STOCK AND PERFORMANCE INCENTIVE PLAN OF PHILLIPS
Certificate of Amendment to the Amended and Restated Certificate of Incorporation of Phillips 66 (As Established Effective May 11, 2022)
RECITALS
Phillips 66, has establisheda corporation organized and maintained the Omnibus Stockexisting under and Performance Incentive Plan of Phillips 66, effective May 8, 2013 (together with other stock incentive plans established and maintained by Phillips 66 or its subsidiaries or predecessors under which shares have been reserved but not yet used, such plans being set forth in the definition in Section 3 as the “Prior Plans”).Effective May 11, 2022, upon shareholder approval, Phillips 66 hereby establishes the 2022 Omnibus Stock and Performance Incentive Plan of Phillips 66 (the “Plan”). As of the effective date of the Plan, (i) any shares of Common Stock available for future awards under the Prior Plans and (ii) any shares of Common Stock represented by awards granted under the Prior Plans that are forfeited, expire, or are canceled without delivery of shares of Common Stock or which result in the forfeiture of shares of Common Stock back to the Company will not be available for Awards under the Plan and no new awards shall be granted under the Prior Plans.
1. | Plan. The 2022 Omnibus Stock and Performance Incentive Plan of Phillips 66 (the “Plan”) is adopted by Phillips 66, a Delaware corporation, to reward certain employees and nonemployee directors of the Company and its Subsidiaries by providing for certain cash benefits and by enabling them to acquire shares of Common Stock of the Company. | 2. | Objectives. The purpose of the Plan is to further the interests of the Company, its Subsidiaries and its shareholders by providing incentives in the form of Awards to employees and directors who can contribute materially to the success and profitability of the Company and its Subsidiaries. Such Awards will recognize and reward outstanding performances and individual contributions and give Participants in the Plan an interest in the Company parallel to that of the shareholders, thus enhancing the proprietary and personal interest of such Participants in the Company’s continued success and progress. This Plan will also enable the Company and its Subsidiaries to attract and retain such employees and directors. | 3. | 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 one or more Employee Award Agreements or Director Award Agreements. | | | | “Board” means the Board of Directors of the Company. | | | | “Cash Award” means an award denominated in cash. | | | | “Change of Control” is defined in Attachment A. | | | | “Code” means the Internal Revenue Code of 1986, as amended from time to time. | | | | “Committee” means the Compensation Committee or any committee designated pursuant to Paragraph 7. | | | | “Common Stock” means Phillips 66 common stock, par value $.01 per share. | | | | “Company” means Phillips 66, a Delaware corporation. |
112 Phillips 66 2022 Proxy Statement | |
| “Compensation Committee” means the Human Resources and Compensation Committee of the Board or any successor committee of the Board that is designated by the Board to administer certain portions of the Plan. | | | | “Director” means an individual serving as a member of the Board. | | | | “Director Award” means the grant of any Nonqualified Stock Option, SAR, Stock Award, Cash Award, or Performance Award, whether granted singly, in combination, or in tandem, to a Participant who is a Nonemployee Director pursuant to such applicable terms, conditions, and limitations as may be established in order to fulfill the objectives of the Plan. | | | | “Director Award Agreement” means one or more agreements between the Company and a Nonemployee Director setting forth the terms, conditions, and limitations applicable to a Director Award. | | | | “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 shareholders of record during the Restriction Period on a like number of shares of Common Stock. | | | | “Employee” means an employee of the Company or any of its Subsidiaries and an individual who has agreed to become an employee of the Company or any of its Subsidiaries and is expected to become such an employee within the following six months. | | | | “Employee Award” means the grant of any Option, SAR, Stock Award, Cash Award, or Performance Award, whether granted singly, in combination, or in tandem, to an Employee pursuant to such applicable terms, conditions, and limitations (including treatment as a Performance Award) as may be established in order to fulfill the objectives of the Plan. | | | | “Employee Award Agreement” means one or more agreements between the Company and an Employee setting forth the terms, conditions, and limitations applicable to an Employee Award. | | | | “Fair Market Value” of a share of Common Stock means, as of a particular date, (i) (A) if shares of Common Stock are listed on a national securities exchange, the mean between the highest and lowest sales price per share of the Common Stock on the consolidated transaction reporting system for the principal national securities exchange on which shares of Common Stock are listed on that date, or, if there shall have been no such sale so reported on that date, on the last preceding date on which such a sale was so reported, or, at the discretion of the Committee, the price prevailing on the exchange at the relevant time (as determined under procedures established by the Committee), (B) if the Common Stock is not so listed, the mean between the closing bid and asked price on that date, or, if there are no quotations available for such date, on the last preceding date on which such quotations shall be available, as reported by Pink OTC Markets Inc., or (C) if shares of Common Stock are not publicly traded, the most recent value determined by an independent appraiser appointed by the Company for such purpose in accordance with the requirements of Section 409A of the Code, or (ii) if applicable and taking into account the requirements of Section 409A of the Code, the price per share as determined in accordance with the terms, conditions, and limitations set forth in an Award Agreement, or (iii) if applicable and taking into account the requirements of Section 409A of the Code, the price per share as determined in accordance with the procedures of a third party administrator retained by the Company to administer the Plan and as approved by the Committee. | | | | “Grant Date” means the date an Award is granted to a Participant pursuant to the Plan. The Grant Date for a substituted award is the Grant Date of the original award. | | | | “Grant Price” means the price at which a Participant may exercise his or her 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. | | | | “Nonemployee Director” means an individual serving as a member of the Board who is not an Employee. | | | | “Nonqualified Stock Option” means an Option that is not an Incentive Stock Option. | | | | “Option” means a right to purchase a specified number of shares of Common Stock at a specified Grant Price, which right may be an Incentive Stock Option or a Nonqualified Stock Option. | | | | “Participant” means an Employee or a Director to whom an Award has been granted under this Plan. | | | | “Performance Award” means an award made pursuant to this Plan that is subject to the attainment of one or more Performance Goals. | | | | “Performance Goal” means one or more standards established by the Committee to determine in whole or in part whether a Performance Award shall be earned. | | | | “Prior Plans” means the following plans: | | |
| 1. | 1986 Stock Plan of Phillips Petroleum Company | | 2. | 1990 Stock Plan of Phillips Petroleum Company | | 3. | Annual Incentive Compensation Plan of Phillips Petroleum Company | | 4. | Incentive Compensation Plan of Phillips Petroleum Company | | 5. | Omnibus Securities Plan of Phillips Petroleum Company | | 6. | Phillips Petroleum Company Stock Plan for Non-Employee Directors | | 7. | 2002 Omnibus Securities Plan of Phillips Petroleum Company | | 8. | Burlington Resources Inc. 1993 Stock Incentive Plan | | 9. | Burlington Resources Inc. 1997 Stock Incentive Plan | | 10. | Burlington Resources Inc. 2000 Stock Option Plan for Non-Employee Directors | | 11. | Burlington Resources Inc. 2002 Stock Incentive Plan | | 12. | 1998 Stock and Performance Incentive Plan of ConocoPhillips | | 13. | 1998 Key Employee Stock Performance Plan of ConocoPhillips | | 14. | 2004 Omnibus Stock and Performance Incentive Plan of ConocoPhillips | | 15. | 2009 Omnibus Stock and Performance Incentive Plan of ConocoPhillips | | 16. | 2011 Omnibus Stock and Performance Incentive Plan of ConocoPhillips | | 17. | Omnibus Stock and Performance Incentive Plan of Phillips 66 | | 18. | 2013 Omnibus Stock and Performance Incentive Plan of Phillips 66 | | | |
| “Restricted Stock” means any shares of Common Stock that are 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 no longer restricted or subject to forfeiture provisions. | | | | “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 |
114 Phillips 66 2022 Proxy Statement | |
| 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 Company 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 shareholders 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 Company 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 Company within the meaning of Rule 405 promulgated by the Securities and Exchange Commission under the Securities Act of 1933, as amended. | | | | “Ten Percent Shareholder” means a person owning shares possessing more than ten percent of the total combined voting power of all classes of shares of the Company, any subsidiary corporation (within the meaning of Section 424(f) of the Code), or parent corporation (within the meaning of Section 424(f) of the Code). | | | 4. | Eligibility. | | a.Employees. All Employees are eligible for the grant of Employee Awards under this Plan in the discretion of the Committee. | | b. Directors. Nonemployee Directors are eligible for the grant of Director Awards under this Plan. | | | 5. | Common Stock Available for Awards. Subject to the provisions of Paragraph 18 hereof, no Award shall be granted if it shall result in the aggregate number of shares of Common Stock issued under the Plan plus the number of shares of Common Stock covered by or subject to Awards then outstanding under this Plan (after giving effect to the grant of the Award in question) to exceed 15,000,000. | | | | The number of shares of Common Stock that are the subject of Awards under this Plan that are forfeited or terminated, or that expire unexercised, shall again immediately become available for Awards hereunder. Shares of Common Stock delivered under the Plan as an Award or in settlement of an Award issued or made (a) upon the assumption, substitution, conversion, or replacement of outstanding awards under a plan or arrangement of an entity acquired in a merger or other acquisition or (b) 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 the exemption for transactions in connection with mergers and acquisitions from the shareholder approval requirements of the New York Stock Exchange for equity compensation plans applies. | | | | Shares of Common Stock that are tendered or withheld as full or partial payment of withholding or other taxes or as payment for the exercise or conversion price of an Award shall not be added back to the number of shares available for issuance under the Plan. 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. | | | | The Committee may adopt and observe additional rules and procedures concerning the counting of shares against the Plan maximum or any sublimit as necessary to satisfy the requirements of |
| any national stock exchange on which the Common Stock is listed or any applicable regulatory requirement. The Board and the appropriate officers of the Company are authorized to take from time to time whatever actions are necessary, and to file any required documents with governmental authorities, stock exchanges, and transaction reporting systems to ensure that shares of Common Stock are available for issuance pursuant to Awards. | | | 6. | Administration. |
| a. | This Plan shall be administered by the Committee, except as otherwise provided herein. | | b. | Subject to the provisions hereof, the Committee shall have full and exclusive power and authority to interpret and administer this Plan. 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 Plan purposes. Any decision of the Committee in the interpretation and administration of this Plan shall lie within its sole and absolute discretion and shall be final, conclusive, and binding on all parties concerned. | | c. | No member of the Committee or officer of the Company to whom the Committee has delegated authority in accordance with the provisions of Paragraph 7 of this Plan shall be liable for anything done or omitted to be done by him or her, by any member of the Committee, or by any officer of the Company 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. | | d. | The Board shall have the same powers, duties, and authority to administer the Plan with respect to Director Awards as the Committee retains with respect to Employee Awards. | | e. | No Option or Stock Appreciation Right may be repriced, replaced, or regranted through cancellation or modified without shareholder approval (except as contemplated in Paragraph 18 of this Plan), if the effect would be to reduce the exercise price for the shares underlying such Option or Stock Appreciation Right. | | f. | No Option or Stock Appreciation Right may be bought back with cash without shareholder approval. | | | |
7. | Delegation of Authority. Following the authorization of a pool of cash or shares of Common Stock to be available for Awards, the Board or the Committee may authorize a committee of one or more members of the Board, or one or more officers of the Company, to grant individual Employee Awards from such pool pursuant to such conditions or limitations as the Board or the Committee may establish consistent with Section 157(c) of the Delaware General Corporation Law, if applicable. The Committee may delegate to the Chief Executive Officer and to other employees of the Company its administrative duties under this Plan (excluding its granting authority) pursuant to such conditions or limitations as the Committee may establish. The Committee may engage or authorize the engagement of a third party administrator to carry out administrative functions under the Plan. | 8. | Employee Awards. |
| a. | The Committee shall determine the type or types of Employee Awards to be made under this Plan and shall designate from time to time the Employees who are to be the recipients of such Awards. Each Employee Award may, in the discretion of the Committee, be embodied in an Employee Award Agreement, which shall contain such terms, conditions, and limitations as shall be determined by the Committee in its sole discretion and, if required by the Committee, shall be signed by the Participant to whom the Employee Award is granted and signed for and on behalf of the Company. Employee Awards may consist of those listed in this Paragraph 8(a) and may be granted singly, in combination, or in tandem. Employee Awards may also be granted in combination or in tandem with, in replacement of (subject to the last sentence of Paragraph 16), or as alternatives to, grants or rights under this Plan or any other employee plan of the Company or any of its Subsidiaries, including the plan of any acquired entity. Subject to the immediately following Clauses i. and ii., an Employee Award may provide for |
116 Phillips 66 2022 Proxy Statement | |
| the grant or issuance of additional, replacement, or alternative Employee Awards upon the occurrence of specified events, including the exercise of the original Employee Award granted to a Participant. All or part of an Employee Award may be subject to conditions established by the Committee, which may include, but are not limited to, continuous service with the Company and its Subsidiaries, achievement of specific business objectives, items referenced in Clause v. below, and other comparable measurements of performance. Upon the termination of employment by a Participant who is an Employee, any unexercised, deferred, unvested, or unpaid Employee Awards shall be treated as set forth in the applicable Employee Award Agreement or as otherwise specified by the Committee. Notwithstanding the foregoing, any Award that constitutes a “stock right” within the meaning of Section 409A of the Code shall only be granted to Participants with respect to whom the Company is an “eligible issuer of service recipient stock” under Section 409A of the Code. | | |
| | i. | Options. An Employee Award may be in the form of an Option, which may be an Incentive Stock Option or a Nonqualified Stock Option. The Grant Price of an Option shall be not less than the Fair Market Value of the Common Stock subject to such Option on the Grant Date, provided that in the case of an Incentive Stock Option granted to a Ten Percent Shareholder, the Grant Price shall be no less than 110 percent of the Fair Market Value of the Common Stock subject to such Option on the Grant Date. The term of the Option shall extend no more than 10 years after the Grant Date, provided that in the case of an Incentive Stock Option granted to a Ten Percent Shareholder, the term shall extend no more than five years after the Grant Date. Options may not include provisions that “reload” the Option upon exercise. Subject to the foregoing provisions, the terms, conditions, and limitations applicable to any Options awarded to Employees pursuant to this Plan, including the Grant Price, the term of the Options, the number of shares subject to the Option, and the date or dates upon which they become exercisable, shall be determined by the Committee. | | | ii. | Stock Appreciation Rights. An Employee Award may be in the form of an SAR. On the Grant Date, the Grant Price of an SAR shall be not less than the Fair Market Value of the Common Stock subject to such SAR. The holder of an SAR granted in tandem with an Option may elect to exercise either the Option or the SAR, but not both. The exercise period for an SAR shall extend no more than 10 years after the Grant Date. SARs may not include provisions that “reload” the SAR upon exercise. Subject to the foregoing provisions, the terms, conditions, and limitations applicable to any SARs awarded to Employees pursuant to this Plan, including the Grant Price, the term of any SARs, and the date or dates upon which they become exercisable, shall be determined by the Committee. | | | iii. | Stock Awards. An Employee Award may be in the form of a Stock Award. The terms, conditions and limitations applicable to any Stock Awards granted pursuant to this Plan shall be determined by the Committee. | | | iv. | Cash Awards. An Employee Award may be in the form of a Cash Award. The terms, conditions, and limitations applicable to any Cash Awards granted pursuant to this Plan shall be determined by the Committee. | | | v. | Performance Awards. Without limiting the type or number of Employee Awards that may be made under the other provisions of this Plan, an Employee Award may be in the form of a Performance Award. The terms, conditions and limitations applicable to any Performance Awards granted to Participants pursuant to this Plan shall be determined by the Committee, subject to the limitations set forth below. The Committee shall set Performance Goals in its 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 and/or the portion of an Award that may be exercised. |
| b. | Notwithstanding anything to the contrary contained in this Plan, the following limitations shall apply to any Employee Awards made hereunder: |
| | i. | no Participant may be granted, during any calendar year, Employee Awards consisting of Options or SARs (including Options or SARs that are granted as Performance Awards) that are exercisable for or in respect of more than 2,000,000 shares of Common Stock; | | | ii. | no Participant may be granted, during any calendar year, Stock Awards (including Stock Awards that are granted as Performance Awards) covering or relating to more than 2,000,000 shares of Common Stock (the limitation set forth in this clause (ii), together with the limitation set forth in clause (i) above, being hereinafter collectively referred to as the “Stock Based Awards Limitations”); and | | | iii. | no Participant may be paid an Employee Award consisting of cash (including Cash Awards that are granted as Performance Awards) during any calendar year in excess of $30,000,000. | | | | |
| a. | The Board may grant Director Awards to Nonemployee Directors of the Company from time to time in accordance with this Paragraph 9. Director Awards may consist of those listed in this Paragraph 9 and may be granted singly, in combination, or in tandem. Each Director Award may, in the discretion of the Board, be embodied in a Director Award Agreement, which shall contain such terms, conditions, and limitations as shall be determined by the Board in its sole discretion and, if required by the Board, shall be signed by the Participant to whom the Director Award is granted and signed for and on behalf of the Company. |
| | i. | Options. A Director Award may be in the form of an Option; provided that Options granted as Director Awards are not Incentive Stock Options. The Grant Price of an Option shall be not less than the Fair Market Value of the Common Stock subject to such Option on the Grant Date. In no event shall the term of the Option extend more than 10 years after the Grant Date. Options may not include provisions that “reload” the option upon exercise. Subject to the foregoing provisions, the terms, conditions, and limitations applicable to any Options awarded to Participants pursuant to this Paragraph 9, including the Grant Price, the term of the Options, the number of shares subject to the Option and the date or dates upon which they become exercisable, shall be determined by the Board. | | | ii. | Stock Appreciation Rights. A Director Award may be in the form of an SAR. On the Grant Date, the Grant Price of an SAR shall be not less than the Fair Market Value of the Common Stock subject to such SAR. The holder of an SAR granted in tandem with an Option may elect to exercise either the Option or the SAR, but not both. The exercise period for an SAR shall extend no more than 10 years after the Grant Date. SARs may not include provisions that “reload” the SAR upon exercise. Subject to the foregoing provisions, the terms, conditions, and limitations applicable to any SARs awarded to Directors pursuant to this Plan, including the Grant Price, the term of any SARs, and the date or dates upon which they become exercisable, shall be determined by the Board. | | | iii. | Stock Awards. A Director Award may be in the form of a Stock Award. Any terms, conditions, and limitations applicable to any Stock Awards granted to a Nonemployee Director pursuant to this Plan, including but not limited to rights to Dividend Equivalents, shall be determined by the Board. | | | iv. | Performance Awards. Without limiting the type or number of Director Awards that may be made under the other provisions of this Plan, a Director Award may be in the form of a Performance Award. Any additional terms, conditions, and limitations applicable to any Performance Awards granted to a Nonemployee Director pursuant to this Plan shall be determined by the Board. The Board shall set Performance Goals in its 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 Nonemployee Director. |
118 Phillips 66 2022 Proxy Statement | |
| b. | Notwithstanding anything to the contrary contained in this Plan the following limitations shall apply to any Director Awards made hereunder: |
| | i. | no Participant may be granted, during any fiscal year, Director Awards consisting of Options or SARs (including Options or SARs that are granted as Performance Awards) that are exercisable for or in respect of more than 100,000 shares of Common Stock; and | | | ii. | no Participant may be granted, during any fiscal year, Director Awards consisting of Stock Awards (including Stock Awards that are granted as Performance Awards) covering or relating to more than 50,000 shares of Common Stock. | | | | |
| c. | Subject to the Paragraph 16, at the discretion of the Board, Director Awards may be settled by a cash payment in an amount that the Board shall determine in its sole discretion is equal to the fair market value of such Director Awards (which, in the case of Option or SARs, may be the excess, if any, of the Fair Market Value of the Common Stock subject to such Award over Grant Price of such Award). | | d. | Each Nonemployee Director may have the option to elect to receive shares of Common Stock, including Restricted Stock or Restricted Stock Units, as prescribed by the Board, in lieu of all or part of the compensation otherwise payable by the Company to such Nonemployee Director. | | | |
10. | Minimum Vesting. Service-based Awards shall be subject to a vesting period of not less than one year from the applicable Grant Date, and Performance Awards shall be subject to a performance period of not less than one year. These minimum vesting and performance periods will not apply in connection with: (i) a Change of Control, (ii) a termination of employment or other service due to death, disability, or retirement, (iii) a substitute Award that does not reduce the vesting period of the Award being replaced, (iv) an Award made in payment of or exchange for other compensation already earned and payable, and (v) outstanding , exercised, and settled Awards involving an aggregate number of shares not in excess of 5% of the Plan’s share reserve. | 11. | Change of Control. Notwithstanding any other provisions of the Plan, including Paragraphs 8 and 9 hereof, unless otherwise expressly provided in the applicable Award Agreement, in the event of a Change of Control during a Participant’s employment (or service as a Nonemployee Director) with the Company or one of its Subsidiaries, followed by the termination of employment of such Participant (or separation from service of such Nonemployee Director), (i) each Award granted under this Plan to the Participant shall become immediately vested and fully exercisable and any restrictions applicable to the Award shall lapse and (ii) if the Award is an Option or SAR, shall remain exercisable until the expiration of the term of the Award or, if the Participant should die before the expiration of the term of the Award and the Award is an Incentive Stock Option, until the earlier of (a) the expiration of the term of the Incentive Stock Option or (b) two (2) years following the date of the Participant’s death; 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 of the Code, the settlement of such Stock Unit or Restricted Stock Unit or other Award pursuant to this Section 11 shall only occur upon the Change of Control if such Change of Control constitutes 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)(v) of the Code. With respect to any Performance Award, Performance Goals will be deemed achieved at the greater of one hundred percent (100%) of target or the actual level of performance (if determinable). | 12. | 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 option exercise 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 Exchange Act, the Code, any securities law, any governing statute, or any other applicable law. |
| a. | General. Payment made to a Participant pursuant to an Award 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 such payment is made in the form of Restricted Stock, the Committee shall specify whether the underlying shares 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. | Deferral. With the approval of the Committee and in a manner which is intended to either (i) comply with Section 409A of the Code or (ii) not cause an Award to become subject to Section 409A of the Code, amounts payable in respect of Awards may be deferred and paid either in the form of installments or as a lump-sum payment. The Committee may permit selected Participants to elect to defer payments of some or all types of Awards or any other compensation otherwise payable by the Company in accordance with procedures or a plan, program, or other arrangement established by the Committee or the Board in a manner which is intended to either (i) comply with Section 409A of the Code or (ii) not cause an Award to become subject to Section 409A of the Code, and may provide that such deferred compensation may be payable in shares of Common Stock. Any deferred payment pursuant to an Award, whether elected by the Participant or specified by the Award Agreement or the terms of the Award or by the Committee, may be forfeited if and to the extent that the Award Agreement or the terms of the Award so provide. | | c. | Dividends, Earnings, and Interest. Rights to dividends or Dividend Equivalents may be extended to and made part of any Stock Award, subject to such terms, conditions, and restrictions as the Committee may establish. The Committee may also establish rules and procedures for the crediting of interest or other earnings on deferred cash payments and Dividend Equivalents for Stock Awards. No dividends or Dividend Equivalents may be extended to or made part of any unearned Performance Award. | | d. | Substitution of Awards. Subject to Paragraphs 16 and 18, at the discretion of the Committee, a Participant who is an Employee may be offered an election to substitute an Employee Award for another Employee Award or Employee Awards of the same or different type, provided that, without the Participant’s consent, such substitution may not be offered in a manner which would result in accelerated or additional tax to the Participant pursuant to Section 409A of the Code. | | e. | Cash-out of Awards. Subject to the Paragraph 16, at the discretion of the Committee, an Award may be settled by a cash payment in an amount that the Board shall determine in its sole discretion is equal to the fair market value of such Award (which, in the case of an Option or SAR, may be the excess, if any, of the Fair Market Value of the Common Stock subject to such Award over Grant Price of such Award). | | f. | Clawback or Recoupment. Notwithstanding any other provisions in this Plan, the Company may cancel any Award, require reimbursement of any Award by a Participant, and effect any other right of recoupment of equity or other compensation provided under the Plan in accordance with any Company policies that may be adopted and/or modified from time to time (“Clawback Policy”). In addition, a Participant may be required to repay to the Company previously paid compensation, whether provided pursuant to the Plan or an Award Agreement, in accordance with the Clawback Policy. By accepting an Award, the Participant is agreeing to be bound by the Clawback Policy, as in effect or as may adopted and/.or modified from time to time by the Company in its discretion (including, without limitation, to comply with applicable law or stock exchange listing requirements). |
120 Phillips 66 2022 Proxy Statement | |
14. | Option Exercise. The Grant Price shall be paid in full at the time of exercise in cash or, if permitted by the Committee and elected by the optionee, the optionee may purchase such shares by means of tendering Common Stock or surrendering another Award valued at Fair Market Value on the date of exercise, or any combination thereof. The Committee shall determine acceptable methods for Participants who are Employees to tender Common Stock or other Employee 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 exercise 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 Paragraph 14. | | An optionee desiring to pay the Grant Price of an Option by tendering Common Stock using the method of attestation may, subject to any such conditions and in compliance with any such procedures as the Committee may adopt, do so by attesting to the ownership of Common Stock of the requisite value in which case the Company shall issue or otherwise deliver to the optionee upon such exercise a number of shares of Common Stock subject to the Option equal to the result obtained, rounded down to the nearest whole share, by dividing (a) the excess of the aggregate Fair Market Value of the shares of Common Stock subject to the Option for which the Option (or portion thereof) is being exercised over the Grant Price payable in respect of such exercise by (b) the Fair Market Value per share of Common Stock subject to the Option, and the optionee may retain the shares of Common Stock the ownership of which is attested. | 15. | Taxes. The Company or its designated third party administrator shall have the right to deduct applicable taxes from any Employee 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 or other amounts required by law or to take such other action as may be necessary in the opinion of the Company to satisfy all obligations for withholding of such taxes. The Committee may also permit withholding to be satisfied by the transfer to the Company of shares of Common Stock theretofore owned by the holder of the Employee 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. The Committee may provide for loans, to the extent not otherwise prohibited by law (including, without limitation, the Sarbanes-Oxley Act of 2002), on either a short term or demand basis, from the Company to a Participant who is an Employee to permit the payment of taxes required by law. | 16. | Amendment, Modification, Suspension, or Termination of the Plan. 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 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 shareholders of the Company to the extent such approval is required by applicable legal requirements or the |
| applicable requirements of the securities exchange on which the Company’s Common Stock is listed. Notwithstanding anything herein to the contrary, without the prior approval of the Company’s shareholders, Options or SARs issued under the Plan (i) will not be repriced, replaced, or regranted through cancellation or by decreasing the Grant Price of a previously granted Option or SAR except as expressly provided by the adjustment provisions of Paragraph 18, and (ii) as to which the Fair Market Value of the Common Stock subject thereto is less than or equal to the Grant Price thereof may not be substituted for pursuant to Paragraph 13(d) or cashed out pursuant to Paragraph 9(c) or Paragraph 13(e). | 17. | Assignability. Unless otherwise determined by the Committee and provided in an Award Agreement or the terms of an Award, no Award or any other benefit under this Plan shall be assignable or otherwise transferable except by will, by beneficiary designation, or by the laws of descent and distribution or pursuant to a qualified domestic relations order as defined by the Code, or the regulations thereunder. In the event that a beneficiary designation conflicts with an assignment by will or the laws of descent and distribution, the beneficiary designation will prevail. The Committee may prescribe and include in applicable Award Agreements or the terms of the Award other restrictions on transfer. Any attempted assignment of an Award or any other benefit under this Plan in violation of this Paragraph 17 shall be null and void. | 18. | Adjustments. |
| a. | The existence of outstanding Awards shall not affect in any manner the right or power of the Company or its shareholders to make or authorize any or all adjustments, recapitalizations, reorganizations, or other changes in the capital stock of the Company or its business or any merger or consolidation of the Company, or any issue of bonds, debentures, preferred or prior preference stock (whether or not such issue is prior to, on a parity with or junior to the existing Common Stock), or the dissolution or liquidation of the Company, or any sale or transfer of all or any part of its assets or business, or any other corporate act or proceeding of any kind, whether or not of a character similar to that of the acts or proceedings enumerated above. | | b. | 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 Paragraph 5, (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) 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 Company, any consolidation or merger of the Company with another corporation or entity, the adoption by the Company 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 Paragraph 5 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) 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; |
122 Phillips 66 2022 Proxy Statement | |
| | (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 any such 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 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. | | c. | Notwithstanding the foregoing: (i) any adjustments made pursuant to Section 18 to Awards that are considered “deferred compensation” within the meaning of Section 409A of the Code shall be made in a manner which is intended to not result in accelerated or additional tax to a Participant pursuant to Section 409A of the Code; (ii) any adjustments made pursuant to Section 18 to Awards that are not considered “deferred compensation” subject to Section 409A of the Code 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 of the Code or (B) do not result in accelerated or additional tax to a Participant pursuant to Section 409A of the Code; and (iii) in any event, neither the Committee nor the Board shall have the authority to make any adjustments pursuant to Section 18 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 the Grant Date to be subject thereto as of the Grant Date. |
19. | Restrictions. No Common Stock or other form of payment shall be issued with respect to any Award unless the Company shall be satisfied based on the advice of its counsel that such issuance will be in compliance with applicable federal and state securities laws. 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. | 20. | Unfunded Plan. This Plan shall be unfunded. Although bookkeeping accounts may be established with respect to Participants under this Plan, any such accounts shall be used merely as a bookkeeping convenience, including bookkeeping accounts established by a third party administrator retained by the Company to administer the Plan. The Company shall not be required to segregate any assets for purposes of this Plan or Awards hereunder, nor shall the Company, the Board or the Committee be deemed to be a trustee of any benefit to be granted under this Plan. Any liability or obligation of the Company to any Participant with respect to an Award under this Plan shall be based solely upon any contractual obligations that may be created by this Plan and any Award Agreement or the terms of the Award, and no such liability or obligation of the Company shall be deemed to be secured by any pledge or other encumbrance on any property of the Company. Neither the Company 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. | 21. | Right to Employment. Nothing in the Plan or an Award Agreement shall interfere with or limit in any way the right of the Company or its Subsidiaries to terminate any Participant’s employment or other service relationship at any time, or confer upon any Participant any right to continue in the capacity in which he or she is employed or otherwise serves the Company or its Subsidiaries. | 22. | Successors. All obligations of the Company under the Plan with respect to Awards granted hereunder shall be binding on any successor to the Company, 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 and/or assets of the Company. |
23. | Governing Law. This Plan and all determinations made and actions taken pursuant hereto, 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 Delaware. | 24. | Section 409A. It is the intention of the Company that Awards granted under the Plan either (i) shall not be “nonqualified deferred compensation” subject to Section 409A of the Code, or (ii) shall meet the requirements of Section 409A of the Code such that no Participant shall be subject to accelerated or additional tax pursuant to Section 409A of the Code in respect thereof, and the Plan and the terms and conditions of all Awards shall be interpreted accordingly. Notwithstanding any other provision of the Plan to the contrary, 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 of the Code, to be made upon a Participant’s termination of employment shall be made no earlier than (A) the first day of the seventh month following the Participant’s “separation from service” (within the meaning of Section 409A of the Code) and (B) the Participant’s death if at the time of such termination of employment the Participant is a “specified employee,” within the meaning of Section 409A of the Code (as determined by the Company in accordance with its uniform policy with respect to all arrangements subject to Section 409A of the Code). | 25. | Effectiveness and Term. The Plan will be submitted to the shareholders of the Company for approval at the 2022 annual meeting of the shareholders, and the effectiveness of the Plan shall be subject to such approval. No Award shall be made under the Plan ten years or more after such approval. Notwithstanding anything herein to the contrary, any and all outstanding awards granted under the Prior Plans shall continue to be outstanding and shall be subject to the appropriate terms of the Prior Plan under which such award was granted and as are in effect as of the date this Plan is effective. |
Attachment “A”
“Change of Control”
The following definitions apply to the Change of Control provision in Paragraph 10 of the foregoing Plan.
“Affiliate” shall have the meaning ascribed to such term in Rule 12b-2virtue of the General RulesCorporation Law of the State of Delaware (the “
Corporation”), does hereby certify:
1.That Article FIFTH of the Amended and RegulationsRestated Certificate of Incorporation of the Corporation is hereby amended to read in its entirety as follows:
FIFTH: A. The business and affairs of the Corporation shall be managed by or under the Exchange Act,direction of a Board of Directors. The total number of directors constituting the entire Board shall be not less than six nor more than twenty as determined from time to time by resolution adopted by affirmative vote of a majority of the entire Board of Directors. The directors, other than those who may be elected by the holders of any series of Preferred Stock under specified circumstances, shall be divided, with respect to the time for which they severally hold office, into three classes, as nearly equal in effectnumber as is reasonably possible, each with a term of office to expire at the timethird succeeding annual meeting of determination.“Associate”stockholders after their election, with each director to hold office until his or her successor shall mean, with reference tohave been duly elected and qualified. Unless otherwise required by law, any Person, (a) any corporation, firm, partnership, association, unincorporated organization,vacancy on the Board of Directors or other entity (other than the Company ornewly created directorship may be filled only by a subsidiarymajority of the Company)directors then in office, though less than a quorum, or by a sole remaining director, and the directors so chosen shall hold office for a term expiring at the annual meeting of stockholders at which the term of office of the class to which they have been appointed expires and until their successors are duly elected and qualified, or until their earlier death, resignation, removal or departure from the Board of Directors for other cause.
Subject to the rights of the holders of any series of Preferred Stock to elect directors under specified circumstances:
(1)Commencing with the election of directors at the 2024 annual meeting of stockholders, there shall be two classes of directors: (i) the directors in the class elected at the 2022 annual meeting of stockholders and having a term that expires at the 2025 annual meeting of stockholders, and (ii) the directors in the class elected at the 2023 annual meeting of stockholders and having a term that expires at the 2026 annual meeting of stockholders. Directors elected at the 2024 annual meeting of stockholders shall be elected for a one-year term expiring at the 2025 annual meeting of stockholders. (2)Commencing with the election of directors at the 2025 annual meeting of stockholders, there shall be one class of directors: those directors elected at the 2023 annual meeting of stockholders and having a term that expires at the 2026 annual meeting of stockholders. Directors elected at the 2025 annual meeting of stockholders shall be elected for a one-year term expiring at the 2026 annual meeting of stockholders. (3)From and after the election of directors at the 2026 annual meeting of stockholders, the Board of Directors shall cease to be classified and the directors elected at the 2026 annual meeting of stockholders (and each annual meeting of stockholders thereafter) shall be elected for a term expiring at the following annual meeting of stockholders.
Unless otherwise required by law, in the event of any increase or decrease in the authorized number of directors at any time when the Board of Directors is divided into a class or classes, each director then serving as a member of a class of directors shall continue as a director of the class of which such Person is an officerhe or general partner (or officer or general partner of a general partner) or is, directly or indirectly, the Beneficial Owner of 10% or more of any class of equity securities, (b) any trust or other estate in which such Person has a substantial beneficial interest or as to which such Person serves as trustee or in a similar fiduciary capacity, and (c) any relative or spouse of such Person, or any relative of such spouse, who has the same home as such Person.“Beneficial Owner” shall mean, with reference to any securities, any Person if:
a. | such Person or any of such Person’s Affiliates and Associates, directly or indirectly, is the “beneficial owner” of (as determined pursuant to Rule 13d-3 of the General Rules and Regulations under the Exchange Act, as in effect at the time of determination) such securities or otherwise has the right to vote or dispose of such securities; | b. | such Person or any of such Person’s Affiliates and Associates, directly or indirectly, has the right or obligation to acquire such securities (whether such right or obligation is exercisable or effective immediately or only after the passage of time or the occurrence of an event) pursuant to any agreement, arrangement, or understanding (whether or not in writing) or upon the exercise of |
124 Phillips 66 2022 Proxy Statement | |
| conversion rights, exchange rights, other rights, warrants, or options, or otherwise; provided, however, that a Person shall not be deemed the Beneficial Owner of, or to “beneficially own,” (i) securities tendered pursuant to a tender or exchange offer made by such Person or any of such Person’s Affiliates or Associates until such tendered securities are accepted for purchase or exchange or (ii) securities issuable upon exercise of Exempt Rights; or | c. | such Person or any of such Person’s Affiliates or Associates (i) has any agreement, arrangement or understanding (whether or not in writing) with any other Person (or any Affiliate or Associate thereof) that beneficially owns such securities for the purpose of acquiring, holding, voting (except as set forth in the proviso to subsection (a) of this definition) or disposing of such securities or (ii)she is a member of a group (as that term is used in Rule 13d-5(b) of the General Rules and Regulations under the Exchange Act) that includes any other Person that beneficially owns such securities; | | provided, however, that nothing in this definition shall cause a Person engaged in business as an underwriter of securities to be the Beneficial Owner of, or to “beneficially own,” any securities acquired through such Person’s participation in good faith in a firm commitment underwriting until the expiration of 40 days after the date of such acquisition. For purposes hereof, “voting” a security shall include voting, granting a proxy, consenting or making a request or demand relating to corporate action (including, without limitation, a demand for a shareholder list, to call a shareholder meeting, or to inspect corporate books and records), or otherwise giving an authorization (within the meaning of Section 14(a) of the Exchange Act) in respect of such security. |
The terms “beneficially own” and “beneficially owning” shall have meanings that are correlative to this definition of the director’s term “Beneficial Owner.”
“Board” shall haveor the meaning set forth indirector’s death, retirement, resignation, or removal. Each newly created directorship on the foregoing Plan.
“ChangeBoard of Control” shall mean any of the following occurring on or after May 11, 2022:
| a. | any Person (other than an Exempt Person) shall become the Beneficial Owner of 20% or more of the shares of Common Stock then outstanding or 20% or more of the combined voting power of the Voting Stock of the Company then outstanding; provided, however, that no Change of Control shall be deemed to occur for purposes of this subsection (a) if such Person shall become a Beneficial Owner of 20% or more of the shares of Common Stock or 20% or more of the combined voting power of the Voting Stock of the Company solely as a result of (i) an Exempt Transaction or (ii) an acquisition by a Person pursuant to a reorganization, merger, or consolidation, if, following such reorganization, merger, or consolidation, the conditions described in clauses (i), (ii), and (iii) of subsection (c) of this definition are satisfied; | | b. | individuals who, as of May 11, 2022, constitute the Board (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to May 11, 2022 whose election, or nomination for election by the Company’s shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board; provided, further, that there shall be excluded, for this purpose, any such individual whose initial assumption of office occurs as a result of any actual or threatened Election Contest that is subject to the provisions of Rule 14a-11 of the General Rules and Regulations under the Exchange Act; | | c. | the Company shall consummate a reorganization, merger, or consolidation, in each case, unless, following such reorganization, merger, or consolidation, (i) 50% or more of the then outstanding shares of common stock of the corporation, or common equity securities of an entity other than a corporation, resultingDirectors that results from such reorganization, merger, or consolidation and the combined voting power of the then outstanding Voting Stock of such corporation or other entity are beneficially owned, directly or indirectly, by all or substantially all of the Persons who were the Beneficial Owners of the outstanding Common Stock immediately prior to such reorganization, |
| | merger, or consolidation in substantially the same proportions as their ownership, immediately prior to such reorganization, merger, or consolidation, of the outstanding Common Stock, (ii) no Person (excluding any Exempt Person or any Person beneficially owning, immediately prior to such reorganization, merger, or consolidation, directly or indirectly, 20% or more of the Common Stock then outstanding or 20% or more of the combined voting power of the Voting Stock of the Company then outstanding) beneficially owns, directly or indirectly, 20% or more of the then outstanding shares of common stock of the corporation, or common equity securities of an entity other than a corporation, resulting from such reorganization, merger, or consolidation or the combined voting power of the then outstanding Voting Stock of such corporation or other entity, and (iii) at least a majority of the members of the board of directors of the corporation, or the body which is most analogous to the board of directors of a corporation if not a corporation, resulting from such reorganization, merger, or consolidation were members of the Incumbent Board at the time of the initial agreement or initial action by the Board providing for such reorganization, merger, or consolidation; or | | d. | (i) the shareholders of the Company shall approve a complete liquidation or dissolution of the Company unless such liquidation or dissolution is approved as part of a plan of liquidation and dissolution involving a sale or disposition of all or substantially all of the assets of the Company to a corporation with respect to which, following such sale or other disposition, all of the requirements of clauses (ii)(A), (B), and (C) of this subsection (d) are satisfied, or (ii) the Company shall consummate the sale or other disposition of all or substantially all of the assets of the Company, other than to a corporation or other entity, with respect to which, following such sale or other disposition, (A) 50% or more of the then outstanding shares of common stock of such corporation, or common equity securities of an entity other than a corporation, and the combined voting power of the Voting Stock of such corporation or other entity is then beneficially owned, directly or indirectly, by all or substantially all of the Persons who were the Beneficial Owners of the outstanding Common Stock immediately prior to such sale or other disposition in substantially the same proportion as their ownership, immediately prior to such sale or other disposition, of the outstanding Common Stock, (B) no Person (excluding any Exempt Person and any Person beneficially owning, immediately prior to such sale or other disposition, directly or indirectly, 20% or more of the Common Stock then outstanding or 20% or more of the combined voting power of the Voting Stock of the Company then outstanding) beneficially owns, directly or indirectly, 20% or more of the then outstanding shares of common stock of such corporation, or common equity securities of an entity other than a corporation, and the combined voting power of the then outstanding Voting Stock of such corporation or other entity, and (C) at least a majority of the members of the board of directors of such corporation, or the body which is most analogous to the board of directors of a corporation if not a corporation, were members of the Incumbent Board at the time of the initial agreement or initial action of the Board providing for such sale or other disposition of assets of the Company. |
“Common Stock” shall have the meaning set forth in the foregoing Plan.
“Company” shall have the meaning set forth in the foregoing Plan.
“Election Contest” shall mean a solicitation of proxies of the kind described in Rule 14a-12(c) under the Exchange Act.
“Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.
“Exempt Person” shall mean any of the Company, any subsidiary of the Company, any employee benefit plan of the Company or any subsidiary of the Company, and any Person organized, appointed or established by the Company for or pursuant to the terms of any such plan.
126 Phillips 66 2022 Proxy Statement | |
“Exempt Rights” shall mean any rights to purchase shares of Common Stock or other Voting Stock of the Company if at the time of the issuance thereof such rights are not separable from such Common Stock or other Voting Stock (i.e., are not transferable otherwise than in connection with a transfer of the underlying Common Stock or other Voting Stock), except upon the occurrence of a contingency, whether such rights exist as of May 11, 2022 or are thereafter issued by the Company as a dividend on shares of Common Stock or other Voting Securities or otherwise.
“Exempt Transaction” shall mean an increase in the percentagenumber of directors and any vacancy occurring in the Board of Directors shall be filled only by a majority of the outstanding shares of Common Stock directors then in office, though less than a quorum,
or the percentageby a sole remaining director, pursuant to Section 223 of the combined voting power of the outstanding Voting Stock of the Company beneficially owned by any Person solely asDGCL. Any director elected to fill a result of a reductionnewly created directorship that results from an increase in the number of sharesdirectors shall be elected for a term expiring at the next annual meeting of Common Stock then outstanding due to the repurchase of Common Stock or Voting Stock by the Company, unlessstockholders and until such timetheir successor is duly elected and qualified, or until their earlier death, retirement, resignation, removal or departure from the Board of Directors for other cause, and any director elected to fill a vacancy not resulting from an increase in the number of directors shall have the same remaining term as (a) such Person or any Affiliate or Associate of such Person shall purchase or otherwise become the Beneficial Owner of additional shares of Common Stock constituting 1% or morethat of the thenpredecessor director. Current directors serving in a class that was elected for a three-year term at the annual meetings of stockholders held from 2021 through 2023 may be removed only for cause. All other directors may be removed either with or without cause.
Notwithstanding the foregoing, whenever the holders of outstanding shares of Common Stock or additional Voting Stock representing 1%one or more series of Preferred Stock are entitled to elect a director or directors of the combined voting powerCorporation separately as a series or together with one or more other series pursuant to a resolution of the then outstanding Voting Stock,Board of Directors providing for the establishment of such series, such director or (b) any other Person (or Persons) who is (or collectively are)directors shall not be subject to the Beneficial Ownerforegoing provisions of sharesthis Article FIFTH, and the election, term of Common Stock constituting 1%office, removal and filling of vacancies in respect of such director or moredirectors shall be governed by the resolution of the thenBoard of Directors so providing for the establishment of such series and by applicable law.
B. Subject to applicable law, any director or the entire Board of Directors may only be removed with cause, such removal to be by the affirmative vote of the shares representing at least a majority of the votes entitled to be cast by the Voting Stock.
Notwithstanding the foregoing, whenever holders of outstanding shares of Common Stock or Voting Stock representing 1%one or more series of Preferred Stock are entitled to elect directors of the combined voting powerCorporation pursuant to theprovisions applicable in the case of arrearages in the payment of dividends or other defaults contained in the resolution or resolutions of the then outstanding Voting Stock shall become an Affiliate or AssociateBoard of Directors providing for the establishment of any such series, any such director of the Corporation so elected may be removed in accordance with the provisions of such Person.“Person”resolution or resolutions.
CB. There shall meanbe no limitation on the qualification of any individual, firm, corporation, partnership, association, trust, unincorporated organization,person to be a director or other entity.“Voting Stock” shall mean,on the ability of any director to vote on any matter brought before the Board or any Board committee, except (i) as required by applicable law, (ii) as set forth in this Certificate of Incorporation or (iii) any By-Law adopted by the Board of Directors with respect to the eligibility for election as a corporation, all securities of such corporation of any classdirector or series that are entitled to vote generallythe qualification for continuing service as a director upon reaching a specified age or, in the electioncase of or to appoint by contract,employee directors, of such corporation (excluding any class or series that would be entitled so to vote by reason of the occurrence of any contingency, so long as such contingency has not occurred) and (ii) with respect to the qualification for continuing service of directors upon ceasing employment from the Corporation.
DC. Except as (i) required by applicable law or (ii) set forth in this Certificate of Incorporation, at all meetings of the Board of Directors, a majority of the entire Board of Directors shall constitute a quorum for the transaction of business and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board of Directors. ED. The following provisions are inserted for further definition, limitation and regulation of the powers of the Corporation and of its directors and stockholders: (1)The By-Laws of the Corporation may be adopted, altered, amended or repealed (i) by the affirmative vote of the shares representing a majority of the votes entitled to be cast by the Voting Stock; PROVIDED, HOWEVER, that any proposed alteration, amendment or repeal of, or the adoption of any By-Law inconsistent with, Section 3, 7, 10, 11, 12 or 13 of Article II of the By-Laws or Section 1, 2 or 11 of Article III of the By-Laws or Section 4, 5 or 12 of Article IV of the By-Laws (in each case, as in effect on the date hereof), or the alteration, amendment or the repeal of, or the adoption of any provision inconsistent with, this sentence, by the stockholders shall require the affirmative vote of shares representing not less than 80% of the votes entitled to be cast by the Voting Stock; and PROVIDED, FURTHER, HOWEVER, that in the case of any such stockholder action at a special meeting of stockholders, notice of the proposed alteration, amendment, repeal or adoption of the new By-Law or By-Laws must be contained in the notice of such special meeting, or (ii) by action of the Board of Directors of the Corporation; provided, however, that in the case of any such action at a meeting of the Board of Directors, notice of the proposed alteration, amendment, repeal or adoption of the new By-Law or By-Laws must be given not less than two days prior to the | | | | | | | 108 | Phillips 66 2023 Proxy Statement |
meeting. The Provisions of this paragraph (ED)(1) of this Article FIFTH are subject to Section 12 of ArticleIIIV of the By-Laws. (2)In addition to the powers and authority herein before or by statute expressly conferred upon them, the directors are hereby empowered to exercise all such powers and do all such acts and things as may be exercised or done by the Corporation, subject, nevertheless, to the provisions of the DGCL, this Certificate of Incorporation, and any By-Laws adopted by the stockholders; PROVIDED, HOWEVER, that no By-Laws hereafter adopted by the stockholders shall invalidate any prior act of the directors which would have been valid if such By-Laws had not been adopted.
2.The foregoing amendment to the Amended and Restated Certificate of Incorporation of the Corporation was duly adopted in accordance with the provisions of Section 242 of the Delaware General Corporation Law.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of Amendment to the Amended and Restated Certificate of Incorporation to be executed by the undersigned officer, duly authorized, as of the day of 2023.
Phillips 66
By: Name: Title:
NON-GAAP FINANCIAL MEASURES Adjusted PSP ROCE We believe that Adjusted PSP ROCE is an entityimportant metric for evaluating the quality of capital allocation decisions, measuring portfolio value, and measuring the efficiency and profitability of capital investments. The Compensation Committee uses this measure as a factor in its assessment of management's performance. Adjusted PSP ROCE is a ratio, the numerator of which is not a corporation, all securities of any class or series that are entitled to vote generally in the election of, or to appoint by contract, members of the body which is most analogous to the board of directors of a corporation.Appendix B
NON-GAAP FINANCIAL MEASURES
Adjusted Earnings
Adjusted earnings and adjusted earnings per share (“EPS”) are non-GAAP financial measures because net income attributable to Phillips 66 is(loss) adjusted for items management does not consider to be representative of the Company's underlying operating performance. These non-GAAP measures are used to help facilitate comparisonsperformance plus after-tax interest expense, and the denominator of operating performance across periods and to help facilitate comparisons with other companies in our industry.which is average adjusted total equity plus total debt. A reconciliation of net income attributableROCE calculated using GAAP amounts to Phillips 66, the most directly comparable GAAP financial measure, to adjusted earnings, and additional information on calculating adjusted EPSAdjusted PSP ROCE is set forth below.
| Year Ended December 31, 2021 | | Millions of
Dollars | | | Reconciliation of Phillips 66 Consolidated Earnings to Adjusted Earnings | | | | | | Consolidated Earnings (Loss) | | $ | 1,317 | | | Pre-Tax Adjustments | | | | | | Pension settlement expense | | | 77 | | | Impairments | | | 1,496 | | | Certain tax impacts | | | (11 | ) | | Hurricane-related costs | | | 45 | | | Winter-storm-related costs | | | 51 | | | Alliance shutdown-related costs(1) | | | 192 | | | Regulatory compliance costs | | | (88 | ) | | Tax impact of adjustments | | | (420 | ) | | Other tax impacts | | | (85 | ) | | Noncontrolling interest | | | (53 | ) | | Adjusted Earnings | | $ | 2,521 | | | | | | | | | Earnings Per Share of Common Stock (dollars) | | $ | 2.97 | | | Adjusted Earnings Per Share of Common Stock (dollars)(2) | | $ | 5.70 | |
| | | | | | | | | | | | | | | | | | | | Millions of Dollars
(except as indicated) | | Average
2020-2022 | 2022 | | 2021 | 2020 | | Numerator | | | | | | | Net Income (Loss) | | | $ | 11,391 | | $ | 1,594 | | $ | (3,714) | | | After-tax interest expense | | | 489 | | 459 | | 394 | | | ROCE earnings (loss) - GAAP | | | 11,880 | | 2,053 | | (3,320) | | | Adjustments | | | (1,787) | | 956 | | 3,598 | | | ROCE earnings (as used in PSP) | | | $ | 10,093 | | $ | 3,009 | | $ | 278 | | | Denominator | | | | | | Average capital employed(1) - GAAP | | | 43,691 | | 36,751 | | 38,174 | | | In-process capital and other | | | (2,488) | | (1,339) | | (2,244) | | | Average capital employed - as used in PSP | | | $ | 41,243 | | $ | 35,412 | | $ | 35,930 | | | ROCE - GAAP | 8.0 | % | | 27.2 | % | 5.6 | % | (8.7) | % | Adjusted PSP ROCE(2) | 11.2 | % | | 24.5 | % | 8.5 | % | 0.8% |
(1)Total equity plus total debt. (2)Average may not foot due to rounding.
| | | | | | | | | (1)Net Debt-to-Capital Ratio | Costs related to the shutdown of the Alliance Refinery totaled $192 million pre-tax. Shutdown-related costs recorded in the Refining segment include asset retirements of $91 million pre-tax recorded in depreciation and amortization expense and pre-tax charges for severance and other exit costs of $31 million. Shutdown-related costs in the Midstream segment include asset retirements of $70 million pre-tax recorded in depreciation and amortization. | (2)Year Ended December 31, 2022 | Based on adjusted weighted-average diluted sharesMillions of 441,418 thousand.Dollars
(except as Indicated) | | Total Debt | | $ | 17,190 | | | Total Equity | | $ | 34,106 | | | Debt-to-Capital Ratio | | 34 | % | | Total Cash | | $ | 6,133 | | | Net Debt-to-Capital Ratio | | 24 | % |
Net Debt-to-Capital Ratio
| Year Ended December 31, 2021 | | Millions of Dollars
Except as Indicated | | | Total Debt | | $ | 14,448 | | | Total Equity | | | 21,637 | | | Debt-to-Capital Ratio | | | 40 | % | | Total Cash | | $ | 3,147 | | | Net Debt-to-Capital Ratio | | | 34 | % |
128 | | | | | | | 110 | Phillips 66 2022 2023 Proxy Statement | |
Adjusted VCIPEBITDA – as used in VCIP Adjusted VCIP EBITDA – as used in VCIP, is a non-GAAP financial measure because it adjusts net income (loss) to exclude depreciation and amortization, net interest expense and income taxes, as well as certain items of expense or income that management does not consider representative of our operating performance. Management uses this measure as a factor in its assessment of performance for the purposes of compensation decisions. A reconciliation of net income (loss), the most directly comparable GAAP financial measure, to adjustedAdjusted VCIP EBITDA – as used in VCIP is set forth below. | | | Millions of Dollars | | | Year Ended December 31 | | 2021 | | | 2020 | | | 2019 | | | Net Income (Loss) | | $ | 1,594 | | | $ | (3,714 | ) | | $ | 3,377 | | | Plus: | | | | | | | | | | | | | | Income tax expense (benefit) | | | 146 | | | | (1,250 | ) | | | 801 | | | Net interest expense | | | 583 | | | | 485 | | | | 415 | | | Depreciation and amortization (D&A) | | | 1,605 | | | | 1,395 | | | | 1,341 | | | EBITDA | | | 3,928 | | | | (3,084 | ) | | | 5,934 | | | Adjustments: | | | | | | | | | | | | | | Impairments | | | 1,496 | | | | 4,241 | | | | 853 | | | Impairments by equity affiliates | | | — | | | | 15 | | | | 47 | | | Pending claims and settlements | | | — | | | | (37 | ) | | | (21 | ) | | Certain tax impacts | | | (11 | ) | | | (6 | ) | | | (90 | ) | | Pension settlement expense | | | 77 | | | | 81 | | | | — | | | Lower-of-cost-or-market inventory adjustments | | | — | | | | (55 | ) | | | 65 | | | Hurricane-related costs | | | 45 | | | | 43 | | | | — | | | Asset dispositions | | | — | | | | (93 | ) | | | (17 | ) | | Winter-storm-related costs | | | 51 | | | | — | | | | — | | | Alliance shutdown-related costs | | | 31 | | | | — | | | | — | | | Regulatory costs | | | (88 | ) | | | — | | | | — | | | Proportional share of selected equity affiliates income taxes, net interest and D&A | | | 1,236 | | | | 1,291 | | | | 1,202 | | | Adjusted EBITDA attributable to joint venture partners’ noncontrolling interests | | | (81 | ) | | | (37 | ) | | | (391 | ) | | Adjusted EBITDA attributable to public ownership interest in PSXP | | | (393 | ) | | | (353 | ) | | | — | | | NOVONIX Unrealized Gain(1) | | | (370 | ) | | | — | | | | — | | | Adjusted EBITDA – as used in VCIP | | $ | 5,921 | | | $ | 2,006 | | | $ | 7,582 | |
| | | | | | | | | | | | | Millions of Dollars | | Year Ended December 31 | 2022 | 2021 | 2020 | | Net Income (Loss) | $ | 11,391 | | $ | 1,594 | | $ | (3,714) | | | Plus: | | | | | Income tax expense (benefit) | 3,248 | | 146 | | (1,250) | | | Net interest expense | 537 | | 583 | | 485 | | | Depreciation and amortization (D&A) | 1,629 | | 1,605 | | 1,395 | | | EBITDA | $ | 16,805 | | $ | 3,928 | | $ | (3,084) | | | Adjustments: | | | | | Impairments | — | | 1,496 | | 4,241 | | | Impairments by equity affiliates | — | | — | | 15 | | | Pending claims and settlements | — | | — | | (37) | | | Certain tax impacts | — | | (11) | | (6) | | | Pension settlement expense | — | | 77 | | 81 | | | Lower-of-cost-or-market inventory adjustments | — | | — | | (55) | | | Hurricane-related costs | (21) | | 45 | | 43 | | | Asset dispositions | — | | — | | (93) | | | Winter-storm-related costs | — | | 51 | | — | | | Alliance shutdown-related costs | 20 | | 31 | | — | | | Regulatory costs | 70 | | (88) | | — | | | Restructuring costs | 177 | | — | | — | | | Merger transaction costs | 13 | | — | | — | | | Gain related to merger of businesses | (3,013) | | — | | — | | Proportional share of selected equity affiliates income taxes, net
interest and D&A | 1,106 | | 1,236 | | 1,291 | | Adjusted EBITDA attributable to joint venture partners’ noncontrolling
interests | (427) | | (81) | | (37) | | | Adjusted EBITDA attributable to public ownership interest in PSXP | (82) | | (393) | | (353) | | NOVONIX unrealized gain(1) | 442 | | (370) | | — | | | Adjusted VCIP EBITDA | $ | 15,090 | | $ | 5,921 | | $ | 2,006 | |
(1)Represents the change in value, including foreign exchange impacts, of our investment in NOVONIX. | | | | | | (1)Appendix B | Represents the change in value, including foreign exchange impacts, of our investment in NOVONIX in the third and fourth quarters of 2021.111 |
ROCE – as used in PSP
We believe after-tax ROCE is an important metric for evaluating the quality of capital allocation decisions, measuring portfolio value, and measuring the efficiency and profitability of capital investments. Management uses this measure as a factor in its assessment of performance for the purposes of compensation decisions. After-tax ROCE – as used in PSP is a ratio, the numerator of which is net income (loss) adjusted for items management does not consider to be representative of the underlying operating performance plus after-tax interest expense, and the denominator of which is average adjusted total equity plus total debt. A reconciliation of after-tax ROCE calculated using GAAP amounts to after-tax ROCE – as used in PSP is set forth below.
| | | | | Millions of Dollars
(except as indicated) | | | | | Average
2019-2021 | | | 2021 | | | 2020 | | | 2019 | | | Numerator | | | | | | | | | | | | | | Net Income (Loss) | | | | | | $ | 1,594 | | | | (3,714) | | | | 3,377 | | | After-tax interest expense | | | | | | | 459 | | | | 394 | | | | 362 | | | ROCE earnings (loss) - GAAP | | | | | | | 2,053 | | | | (3,320) | | | | 3,739 | | | Adjustments(1) | | | | | | | 956 | | | | 3,598 | | | | 581 | | | ROCE earnings - as used in PSP | | | | | | | 3,009 | | | | 278 | | | | 4,320 | | | Denominator | | | | | | | | | | | | | | | | | | Average capital employed(2) - GAAP | | | | | | | 36,751 | | | | 38,174 | | | | 38,622 | | | In-process capital and other | | | | | | | (1,339) | | | | (2,244) | | | | (2,292) | | | Average capital employed - as used in PSP | | | | | | $ | 35,412 | | | | 35,930 | | | | 36,330 | | | ROCE - GAAP | | | 2.2% | | | | 5.6% | | | | (8.7)% | | | | 9.7% | | | ROCE - as used in PSP | | | 7.1% | | | | 8.5% | | | | 0.8% | | | | 11.9% | |
| | (1) | Primarily related to impairments. 2021 adjustment includes the removal of unrealized gains related to our investment in NOVONIX | (2) | Total equity plus total debt. |
Adjusted Controllable Costs as used in VCIPAdjusted controllable costs as used in VCIP is a non-GAAP financial measure of how effectively we manage costs versus internal targets. Management uses this measure as a factor in its assessment of performance for the purposes of compensation decisions. Adjusted controllable costs is a non-GAAP financial measure because itControllable Costs excludes certain costs that management believes are not directly relevant to compensation decisions. A reconciliation of the sum of operating expenses and selling, general and administrative expenses, the most directly comparable GAAP measures, to adjusted controllable costsAdjusted Controllable Costs is set forth below.
| Year Ended December 31, 2021 | | Millions of Dollars | | | Operating Expenses | | $ | 5,147 | | | Selling, General and Administrative Expenses | | | 1,744 | | | Adjustments: | | | | | | Certain employee benefits | | | (113) | | | Foreign currency and other | | | (4) | | | Utility Prices / Bank Card Fees | | | (208) | | | Adjusted Controllable Costs as used in VCIP | | $ | 6,566 | |
130 Phillips 66 2022 Proxy Statement | |
This page intentionally left blank.
This page intentionally left blank.
 2331 CITYWEST BLVD.
HOUSTON, TX 77042
 VOTE BY INTERNET
Before The Meeting - Go to www.proxyvote.com or scan the QR Barcode above
Use the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 p.m. Eastern Time on May 10, 2022. Have your Voting Direction card in hand when you access the web site and follow the instructions to obtain your records and to complete an electronic voting instruction form.
During The Meeting - Go to www.virtualshareholdermeeting.com/PSX2022
You may attend the meeting via the Internet and vote during the meeting. Have the information that is printed in the box marked by the arrow available and follow the instructions.
VOTE BY PHONE - 1-800-690-6903
Use any touch-tone telephone to transmit your voting instructions up until 11:59 p.m. Eastern Time on May 10, 2022. Have your Voting Direction card in hand when you call and then follow the instructions.
VOTE BY MAIL
Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717.
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: | | D69655-P70384-Z82117 | KEEP THIS PORTION FOR YOUR RECORDS | | DETACH AND RETURN THIS PORTION ONLY | THIS VOTING DIRECTION CARD IS VALID ONLY WHEN SIGNED AND DATED. |
PHILLIPS 66
| The Board of Directors recommends a vote "FOR" each listed nominee in item #1. | | | | | | | | | | | | | | | | Year Ended December 31, 2022 | 1. Millions of Dollars | | Operating Expenses | To elect four directors for a term of office expiring at the 2025 annual meeting of shareholders. | $ | 6,111 | | | Selling, General and Administrative Expenses | | $ | 2,168 | | | Less: | | | | Utilities | | 1,312 | | Turnarounds & Catalyst Change-Out | | 771 | | | Bank Card Fees | | 428 | | 2022 Actuals | | 5,768 | | | Less: | | | | Certain employee benefits | | 284 | | | Foreign currency | | (101) | | | DCP Controllable Costs | | 483 | | | Alliance/Belle Chasse | | 20 | | | Restructuring | | 89 | | | Adjusted Controllable Costs | | $ | 4,993 | |
| | | | | | | 112 | | The nominees for election are: | | For | | Against | | Abstain | | | | | | | | | | | | | 1a. | Greg C. Garland | | ☐ | | ☐ | | ☐ | | | | | | | | | | | | | 1b. | Gary K. Adams | | ☐ | | ☐ | | ☐ | | | | | | | | | | | | | 1c. | John E. Lowe | | ☐ | | ☐ | | ☐ | | | | | | | | | | | | | 1d. | Denise L. Ramos | | ☐ | | ☐ | | ☐ | | | | | | | | | | | | The Board of Directors recommends a vote "FOR" each of items #2, #3 and #4. | | | | | | | | | | | | | | | | | | 2. | Advisory vote to approve our executive compensation. | | ☐ | | ☐ | | ☐ | | | | | | | | | | | | 3. | To ratify the appointment of Ernst & Young LLP as the Company's independent registered public accounting firm for fiscal year 2022. | | ☐ | | ☐ | | ☐ | | | | | | | | | | | | 4. | To approve the 2022 Omnibus Stock and Performance Incentive Plan. | | ☐ | | ☐ | | ☐Phillips 66 2023 Proxy Statement |
The Board of Directors recommends a vote "AGAINST" the shareholder proposals in items #5 and #6. | | For | | Against | | Abstain | | | | | | | | 5. | Shareholder proposal regarding greenhouse gas emissions targets. | | ☐ | | ☐ | | ☐ | | | | | | | | | 6. | Shareholder proposal regarding report on shift to recycled polymers for single use plastics. | | ☐ | | ☐ | | ☐ | | | | | | | | | In their discretion, the named proxies are authorized to vote upon such other matters that may properly come before the meeting or any adjournment or postponement thereof. | | | | | | |
| | Signature [PLEASE SIGN WITHIN BOX] | Date |
| | Signature (Joint Owners) | Date |
Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting:
The Notice and Proxy Statement and Annual Report are available at www.proxyvote.com.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
ANNUAL MEETING OF SHAREHOLDERS
MAY 11, 2022 9:00 a.m., Central Time
The shareholder(s) hereby appoint(s) Greg C. Garland and Vanessa Allen Sutherland, or either of them, as proxies, each with the power to appoint his or her substitute, and hereby authorize(s) them to represent and to vote, as designated on the reverse side of this ballot, all of the shares of Common Stock of Phillips 66 that the shareholder(s) is/are entitled to vote at the Annual Meeting of Shareholders virtually at www.virtualshareholdermeeting.com/PSX2022, and any adjournment or postponement thereof.
This proxy card will be voted as specified or, if no choice is specified, will be voted "FOR" the election of the four director nominees named on the reverse side; "FOR" the advisory vote to approve executive compensation; "FOR" ratification of the appointment of Ernst & Young LLP; "FOR" approval of the 2022 Omnibus Stock and Performance Incentive Plan; and "AGAINST" the shareholder proposals.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED REPLY ENVELOPE.
Continued and to be signed on reverse side
2331 CITYWEST BLVD.
HOUSTON, TX 77042
VOTE BY INTERNET
Before The Meeting - Go to www.proxyvote.com or scan the QR Barcode above
Use the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 p.m. Eastern Time on May 8, 2022. Have your Voting Direction card in hand when you access the web site and follow the instructions to obtain your records and to complete an electronic voting instruction form.
During The Meeting - Go to www.virtualshareholdermeeting.com/PSX2022
You may attend the meeting via the Internet. Have the information that is printed in the box marked by the arrow available and follow the instructions.
VOTE BY PHONE - 1-800-690-6903
Use any touch-tone telephone to transmit your voting instructions up until 11:59 p.m. Eastern Time on May 8, 2022. Have your Voting Direction card in hand when you call and then follow the instructions.
VOTE BY MAIL
Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717.
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: | | D69657-P70384-Z82117 | KEEP THIS PORTION FOR YOUR RECORDS | | DETACH AND RETURN THIS PORTION ONLY | THIS VOTING DIRECTION CARD IS VALID ONLY WHEN SIGNED AND DATED. |
PHILLIPS 66
| The Board of Directors recommends a vote "FOR" each listed nominee in item #1. | | | | | | | | | | | | | | | | 1. | To elect four directors for a term of office expiring at the 2025 annual meeting of shareholders. | | | | | | | | | The nominees for election are: | | For | | Against | | Abstain | | | | | | | | | | | | | 1a. | Greg C. Garland | | ☐ | | ☐ | | ☐ | | | | | | | | | | | | | 1b. | Gary K. Adams | | ☐ | | ☐ | | ☐ | | | | | | | | | | | | | 1c. | John E. Lowe | | ☐ | | ☐ | | ☐ | | | | | | | | | | | | | 1d. | Denise L. Ramos | | ☐ | | ☐ | | ☐ | | | | | | | | | | | | The Board of Directors recommends a vote "FOR" each of items #2, #3 and #4. | | | | | | | | | | | | | | | | | | 2. | Advisory vote to approve our executive compensation. | | ☐ | | ☐ | | ☐ | | | | | | | | | | | | 3. | To ratify the appointment of Ernst & Young LLP as the Company's independent registered public accounting firm for fiscal year 2022. | | ☐ | | ☐ | | ☐ | | | | | | | | | | | | 4. | To approve the 2022 Omnibus Stock and Performance Incentive Plan. | | ☐ | | ☐ | | ☐ |
 The Board of Directors recommends a vote "AGAINST" the shareholder proposals in items #5 and #6. | | For | | Against | | Abstain | | | | | | | | 5. | Shareholder proposal regarding greenhouse gas emissions targets. | | ☐ | | ☐ | | ☐ | | | | | | | | | 6. | Shareholder proposal regarding report on shift to recycled polymers for single use plastics. | | ☐ | | ☐ | | ☐ | | | | | | | | | In their discretion, the named proxies are authorized to vote upon such other matters that may properly come before the meeting or any adjournment or postponement thereof. | | | | | | |
| | Signature [PLEASE SIGN WITHIN BOX] | Date |
| | Signature (Joint Owners) | Date |
Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting:
The Notice and Proxy Statement and Annual Report are available at www.proxyvote.com.
PHILLIPS 66 SAVINGS PLAN
CONFIDENTIAL VOTING DIRECTION
PHILLIPS 66 ANNUAL MEETING OF SHAREHOLDERS MAY 11, 2022 9:00 a.m., Central Time
The undersigned hereby directs that Vanguard Fiduciary Trust Company, Trustee of the Phillips 66 Savings Plan (the "Savings Plan"), vote all shares of Common Stock of Phillips 66 (described on the back of this Voting Direction card) at the Phillips 66 Annual Meeting of Shareholders to be held at 9:00 a.m., Central Time, on May 11, 2022, virtually at www.virtualshareholdermeeting.com/PSX2022, and any adjournment or postponement thereof, in the manner indicated on the back of this card as to the matters shown and at its discretion as to any other matters that come before the meeting, all as described in the Notice and Proxy Statement.
If Broadridge, the Tabulator for the Trustee, Vanguard Fiduciary Trust Company, does not receive this Voting Direction card by 11:59 p.m. Eastern Time on May 8, 2022, if you do not fill in any boxes on the back of this card, if you return this card unsigned, or if you do not vote by the Internet or telephone on or before May 8, 2022, any shares in the Savings Plan that you otherwise could have directed will be voted in proportion to the shares for which the Trustee has received direction from other Participants.
Phillips 66 has acknowledged and agreed to honor the confidentiality of your voting instructions to the Trustee. The Trustee will keep your voting instructions confidential.
This package contains your confidential Voting Direction card to instruct the Trustee of the Savings Plan how to vote the shares of Phillips 66 Common Stock described on the back of the card representing your interest in the Savings Plan. Also enclosed is the Company's 2021 Annual Report along with the Notice and Proxy Statement for the 2022 Annual Meeting. Please use these documents to help you decide how to direct the way the Trustee (Vanguard Fiduciary Trust Company) should vote.
Continued and to be signed on reverse side
 |
|
See page 13
Equity CompensationIn 
Mark LashierPresident and
Greg GarlandExecutive Chairman and
Vanessa Allen SutherlandExecutive Vice President, Government Affairs, General Counsel & Corporate Secretary
Brian MandellExecutive Vice President, Marketing & Commercial
Tim RobertsExecutive Vice
Greg GarlandChairman & CEO,
Mark LashierPresident & COO,
“2022 was an important year for the Compensation Committee in terms of demonstrating our responsiveness to shareholder feedback regarding our recent executive compensation program changes. I greatly valued opportunities I had to hear directly from our shareholders, and shareholder insights from our engagement program are brought back to the full Board. We are proud to share that the feedback we received in recent months has been overwhelmingly positive.”– Glenn Tilton, Lead Independent Director & Member, Human Resources and Compensation Committee2022 Say-on-Pay 
Individual VCIPModifier
ConsiderAbsolute TSR
Selection &Rationale
Financial Performance
TOTAL SHAREHOLDER RETURN(2)
(1)Adjusted VCIP EBITDA and Adjusted PSP ROCE are non-GAAP financial measures. See Appendix B for reconciliations to GAAP.(2)Presented on a simple average basis using the 2022 Performance Peer Group. Dividends assumed to be reinvested in stock. Phillips 66 common stock initiated trading on the NYSE in May 2012. Source: Bloomberg.
Financial Sustainability Metrics (50% Weighting)Adjusted Controllable Costs (10%)(1)Adjusted VCIP EBITDA (40%)(1)(1)Adjusted Controllable Costs and Adjusted VCIP EBITDA are non-GAAP financial measures. See Appendix B for a reconciliation to the nearest GAAP financial measures.For more details regarding the Company's performance relative to the 2022 VCIP performance metrics, see Variable Cash Incentive Program (VCIP) - 2022 Payout beginning on page 57, and for more details regarding the 2020-2022 PSP payout, see Performance Share Program 2020 - 2022 Payout on page 51.
“Our compensation program is an outgrowth of our Company’s business strategy, values and culture. As we cultivate a high-performing organization, we are working to meet the world’s growing energy needs and ensure that all of our team members can reach their full potential. These are the building blocks for financial results that translate into shareholder returns.”– Sonya Reed, SVP, Chief Human Resources Officer2022 Target-Setting MethodologyThe Compensation Committee establishes targets and goals that demand strong performance relative to peers, are aligned with corporate strategy, and protect and create shareholder value. In addition, our compensation program is used to educate, reinforce and focus our employees on areas important to key stakeholders — shareholders, customers, directors, management and our local communities.Our target-setting process reflects changes in our operational and financial environment, so targets may vary year-over-year and relative to prior year performance while still representing a comparable level of challenge for our executive team.EMPHASIZING THE IMPORTANCE OF RETURNS – EMBEDDING WACC IN OUR TARGET SETTING PROCESSWe use Weighted Average Cost of Capital (WACC) as part of our target-setting for the VCIP to set the non-GAAP Adjusted VCIP EBITDA targets and in our PSP to set the non-GAAP Adjusted PSP ROCE targets. WACC represents our blended cost of capital across our businesses. Results above our WACC reflect the ability of our executives to effectively manage capital and capture market opportunities, which results in value creation for our shareholders. Our executives must deliver results that are at least 1.5 percentage points above our WACC to receive a target payout for either the non-GAAP Adjusted VCIP EBITDA metric or the non-GAAP Adjusted PSP ROCE metric.
“Our anchoring of metrics used in our compensation program around the company’s WACC reflects the Compensation Committee’s commitment to upholding shareholder value creation principles. This metric provides a point of reference to incentivize our executives throughout changing macroeconomic environments and strategic business needs.”– Lisa Davis, Member, Human Resources and Compensation Committee
Other NEOs
Restricted Stock Units (RSUs)The number of RSUs granted is determined based on the fair market value of Company stock on the date of grant. RSUs awarded to our NEOs in February 2022 cliff vest after three years. RSUs do not carry voting rights but do earn dividend equivalents during the vesting period.RSUs are typically granted in February each year. The Compensation Committee assesses the individual performance of each NEO and based on that assessment, may adjust an award by up to +/–30% of the target amount at grant.
Stock OptionsThese awards are inherently performance based, as the stock price must increase before the executive can realize any value. We believe stock options drive behaviors and actions that enhance long-term shareholder value.Stock options are typically granted in February each year. The number of stock options awarded is calculated based on the Black-Scholes-Merton model. The exercise price of stock options is set at 100% of the fair market value of our common stock on the date of grant. Stock options granted to our NEOs in February 2022 vest ratably over a three-year period and have a ten-year term. Stock options do not have voting rights and are not entitled to receive dividends.
Performance Share Program (PSP)Each PSP has a three-year performance period, and therefore three overlapping PSPs are in progress at any given time. Programs in effect during 2022 were PSP 2020-2022, PSP 2021-2023, and PSP 2022-2024.The target number of shares is determined by dividing the target value by the average of the stock’s fair market value for the 20 trading days prior to the start of the performance period, less anticipated dividends during the performance period.The Compensation Committee assesses the individual performance of each NEO and based on that assessment, may adjust an award by up to +/–30% of the target amount at grant. Performance adjustments to the number of target shares are applied at the beginning of the performance period, rather than the end, so that performance-adjusted compensation is subject to Company performance and market volatility throughout the performance period, aligning executive compensation with shareholder interests.•Target shares may be adjusted during the performance period for promotions that occur during the performance period.•Executives hired after the start of the performance period may receive prorated target shares in ongoing PSP cycles, at the discretion of the Compensation Committee, so that their interests are immediately aligned with the Company’s long-term goals and shareholder interests.•Awards under the PSP programs are denominated in shares but are paid in cash using the average stock fair market value for the last 20 trading days of the performance period.
Other NEOs
Relative TSRThe Compensation Committee recognizes that relative TSR is the most common performance metric for comparisons to peers. Our performance is assessed as compared to our Performance Peer Group and the S&P 100 Index. Starting with the 2019-2021 PSP program, we added a cap on the portion of the PSP earned based on relative TSR if absolute TSR is negative. Additionally, starting with the 2022-2024 PSP program, the portion of the PSP earned based on relative TSR requires performance above the 50th percentile relative to the peer group to achieve a target payout (this is not reflected in the target listed below, which reflects the 2020-2022 PSP). We made these changes in response to shareholder input and in order to better align pay with corporate performance and shareholder experience.
Adjusted PSP ROCE (non-GAAP)The Compensation Committee considers Adjusted PSP ROCE an important measure of Company growth, shareholder value creation and overall performance.
Relative TSR Performance
Performance ResultsADJUSTED RETURN ON CAPITAL EMPLOYED•Non-GAAP Adjusted PSP ROCE paid out at a maximum of 200% of target as the average Adjusted PSP ROCE for the performance period of 11.2% exceeded the maximum performance level of 9.8%.RELATIVE TOTAL SHAREHOLDER RETURN•Our TSR performance of 4.5% was below the threshold level relative to our 15 peers, including 13 peer companies, the S&P 100 Index and Phillips 66. This resulted in a payout of 0% of target for relative TSR performance, weighted at 50% of the target 2020-2022 PSP award.
Based on shareholder input and in order to create more challenging goals, starting with 2022-2024 PSP, we require relative TSR performance above the 50th percentile relative to the peer group to achieve a target payout
Other NEOs
High-Performing OrganizationMaintaining and enhancing a high-performing organization is critical to our success and is part of our human capital management strategy. Our employees promote our culture and are integral to achieving our strategic goals and maximizing long-term shareholder value. We measure our High-Performing Organization performance relative to the following:•Culture: foster behaviors that promote our unique culture•Capability: build depth and breadth in our skills•Performance: deliver exceptional, sustainable results
EnvironmentFor environmental performance, we set targets based on our historical performance for Agency Reportable Environmental Events and Spill Volumes normalized for throughput. Targets are expected to become more challenging each year to drive continuous performance improvement.Starting in 2021, we enhanced the environmental component to include two new metrics: Lower-Carbon Priorities and Greenhouse Gas Priorities. These priorities reflected efforts to advance lower-carbon investments, optimization, and innovation as well as efforts to reduce manufacturing emissions intensity and setting GHG emissions intensity reduction targets. For 2022, these metrics were combined into one metric – Lower-Carbon / GHG Priorities – weighted at 10% of the target VCIP opportunity.
Safety & Operating ExcellenceFor personal and process safety performance, we measure ourselves against the top performing companies in our industry. Generally, these companies fall within the top two quartiles of all companies reported. We then establish our threshold, target, and maximum goals based on the performance (25th, 50th, and 75th percentiles) of this group of companies.For asset availability, for which comparative data is not available, we establish our threshold, target, and maximum goals based on our operating plan and historical performance with the goal of continuous improvement, incorporating the segments of our business and weighting them by adjusted EBITDA.
Adjusted Controllable Costs (non-GAAP)For Adjusted Controllable Costs, we measure our effectiveness in managing costs and set our threshold, target, and maximum based on our annual budget.
Adjusted VCIP EBITDA (non-GAAP)Adjusted VCIP EBITDA measures our ability to create shareholder value. Our threshold is the Adjusted VCIP EBITDA required to cover our budgeted sustaining capital and annualized common stock dividend payment, and target and maximum are set at Adjusted VCIP EBITDA levels that equate to ROCE levels 1.5 and 3.0 percentage points above our WACC.
Adjusted Controllable Costs ($MM)(1)
ENVIRONMENT•Lower-Carbon / GHG Priorities: In 2022, we progressed efforts in support of the energy transition and a lower-carbon future by advancing our projects in renewable fuels, including Rodeo Renewed, continuing our partnership with NOVONIX, establishing our market position in carbon capture, progressing our projects in hydrogen, and securing renewable power supply at key sites.•Environmental Performance: Our performance was 8% improved over target.
HIGH-PERFORMING ORGANIZATION •Provided $27 million to support the communities where we operate.•Recorded 88,000 employee volunteer hours and $7.4 million in matching gifts and volunteer grants.•Maintained an engaged workforce with 93% retention of high performers, saw a significant increase in the hiring of underrepresented minorities and enhanced workplace benefits.•Received six external top employer recognition awards.•Implemented Business Transformation initiatives totaling approximately $0.6 billion of run-rate value at year-end.•Continued to progress Digital Innovation across the enterprise.
ADJUSTED VCIP EBITDA•In 2022, non-GAAP Adjusted VCIP EBITDA significantly exceeded our maximum performance level, as well as 2021 Adjusted VCIP EBITDA ($5.921 billion) attributable to favorable market conditions and strong operating performance.
FEBRUARY•Approve VCIP and PSP payouts at the end of the performance period•Approve VCIP and PSP performance goals for the performance period•Review individual executive officer performance and compensation levelsJULY•Review of compensation peer group proxies (disclosing previous compensation program)•Review compensation and performance peer groups•Receive a VCIP and PSP Performance Update
DECEMBER•Approve VCIP and LTI program design, award terms and conditions, and metrics and weightings for the following year•Review of VCIP and PSP performance goals for the following year•Approve executive salary structure (including LTI targets) for following year•Receive a VCIP and PSP Performance UpdateOCTOBER•Approve compensation and performance peer groups•Review of VCIP program design/terms & conditions, and metrics and weightings•Review of RSU and Stock Options program design/terms & conditions•Review of PSP program design/terms & conditions, and metrics and weightings•Receive a VCIP and PSP Performance Update
