UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
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Preliminary Proxy Statement
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Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
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Definitive Proxy Statement
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Definitive Additional Materials
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Soliciting Material Pursuant to §.240.14a-12
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stockholder engagement: executive compensation program
This document supplements our proxy statement filed on April 7, 2016. With a challenging 2015 performance year, the Management Compensation Committee believes the additional disclosure will further clarify the link between management’s and stockholders’ interests.
We ask stockholders to vote FOR Item 3 on this year’s proxy, approving on an advisory basis our named executive officer compensation.
© 2016 Chevron Corporation
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Chevron business overview and performance update
Chevron’s long-term business:
—Heavily influenced by the competitive and volatile oil & gas industry
—Characterized by a need to replenish resources, often through investment in capital intensive and long development cycle projects with
decades-long asset lives
—Requires career employment model; ability to attract and retain employees is critical
2015 Business Overview:
—Sharp decline in commodity prices
—Higher weighting than peers to both the Upstream business segment (versus Downstream) and to liquids production (versus natural gas)
—Upstream earnings hit hard by low crude oil and natural gas prices at a time when several major capital projects were under construction;
significant volume growth expected once these projects are fully online (2017-2018)
—Downstream reported record earnings and achieved strong utilization rates across the refineries
2015 performance in context:
Days Away from Work
Net Production Crude Prices and Cash from Operations Rate*
MBOED $ billions $/bbl $ billions
Earnings
3,000 30 120 50 0.20
40 0.15
2,000 20 80 30
0.10
1,000 10 40 20
10 0.05 1
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1 1 1 |
— 0 0—0.00
2010 2011 2012201320142015 2010 2011 2012201320142015 2010 2011 2012 2013 2014 2015 2010 2011 2012 2013 2014 2015
Earnings Brent Price Competitor Range CVX
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Per 200,000 hours worked. LTIP Performance Share Peer Group used for |
comparison. Reported earnings normalized to reflect inventory accounting
differences for IFRS based reporting.
© 2016 Chevron Corporation 2
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Compensation program aligns incentives with stockholder interests
Pay decisions and outcomes demonstrate strong link to performance
2015 Compensation Outcomes
Board and Management Compensation Committee
(MCC) decreased 2015 CEO compensation to parallel
stockholder experience
Intended compensation down year-over-year
—Chevron Incentive Plan payout down year-
over-year, reflecting rigorous MCC target-
setting process
—Intended equity grant level year-over-year
(accounting value increased due to valuation
differences)
Realizable pay down versus target pay over last 3
years
—Option grants from last 5 years all underwater
© 2016 Chevron Corporation
TSR Performance Compared to Peers1
Performance Chevron Peer Group Chevron CEO
Period TSR TSR 2 Pay Alignment
Short-term incentive
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year (16.0%) (14.7%) down 21% from prior |
(2015) year
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years 3-year performance |
(2013-2015) (2.3%) (2.8%) share payout down
19% from target value
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years 5 years of option grants |
3.3% 0.6%
(2011-2015) are underwater
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As of December 31, 2015 |
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Peer Group TSR refers to average TSR of LTIP Performance Share Peer Group (BP, ExxonMobil, Royal |
Dutch Shell and Total)
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Significant CEO and NEO compensation ‘at risk’
Substantial portion of pay directly aligned to stockholder value creation
Reward element Form Purpose CEO compensation mix 2
Provide a fixed level of
Fixed competitive base pay to help us 10%
Base salary Cash attract and retain strong executive 12%
talent through a full career 90%
78% at risk
Chevron Cash Reward NEOs for annual
Incentive Plan company, business unit and
(CIP) individual performance
At risk Other NEO compensation mix 2
Long-Term Stock options Reward creation of long-term
Incentive Plan Performance shares stockholder value
(LTIP) Restricted stock units 1 15%
15% 85%
Retirement Lump sum or annuity Provide retirement benefits
Benefits plans/savings savings plan designed to achieve a base 70% at risk
plans level of replacement pay
upon retirement
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RSU grants were made in 2015 to 3 non-CEO NEOs; see slide 9 for details |
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Pie charts exclude benefits Base Salary CIP LTIP |
© 2016 Chevron Corporation 4
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Realizable pay demonstrates compensation aligns with performance
CEO’s cumulative realizable pay over the past three years is 55 percent less than its original
intended target value
Target and realizable values
Millions
$25
$20 Same realizable $9.9MM realizable $10.2MM
value as of value as of realizable value as
$19.5 5/9/2016 stock $19.9 5/9/2016 stock $20.0 of 5/9/2016 stock
$15 price $100 price $100 price $100
$10
$9.2 $9.4 $8.3
$5
$0
Target1 2013 Realizable2 Target1 2014 Realizable2 Target1 2015 Realizable2
Base Salary Bonus Stock Options Performance Shares
(1) Target Value at Award Date reflects: (i) base salary at year end, (ii) target CIP award, and (iii) intended grant date value of LTIP awards (60 percent stock options and 40 percent performance shares).
(2) Realizable Value at 12/31/15 reflects: (i) paid base salary during the calendar year; (ii) the actual CIP award earned for that year, and (iii) the actual prevailing LTIP value at 12/31/15. For stock options: reflects that none of the past three
awards is currently “in the money”, with exercise prices of $116.45 (2013); $116.00 (2014) and $103.71 (2015) relative to Chevron’s common stock price at 12/31/15 of $89.96. For (i) 2014 and 2015 performance shares: reflect 12/31/15 TSR
rank versus the LTIP Performance Share Peer Group and associated performance modifier multiplied by Chevron’s common stock price at 12/31/15 ($89.96) and (ii) for the 2013 performance shares: the amount earned and paid at 100
percent (median Peer Group ranking) using the 20-day average trailing price of Chevron common stock at 12/31/15 ($89.93).
© 2016 Chevron Corporation 5
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Board decreased CEO compensation in 2015
Accounting value differences show increase in compensation
Compensation elements approved by Board
Short-term Long-term Incentive
Year Salary Total
Incentive (target value)1
2015 $1,855,479 $ 2,450,000 $15,322,000 $19,627,479
2014 $1,825,500 $ 3,100,000 $15,322,000 $20,247,500
Difference $29,979 $ (650,000)—($620,021)
% Change 1.6% (21.0%) no change (3.1%)
1Target value is disclosed in the Compensation Discussion & Analysis (CD&A) section of the proxy statement
Summary Compensation Table disclosure2
Non-Equity Option Awards
Year Salary Incentive + Total
Compensation Stock Awards
2015 $1,855,479 $ 2,450,000 $14,679,660 $18,985,139
2014 $1,825,500 $ 3,100,000 $13,402,740 $18,328,240
Difference $29,979 $ (650,000) $1,276,920 $656,899
% Change 1.6% (21.0%) 9.5% 3.6%
2Including other compensation and change in pension and non-qualified deferred compensation, total CEO compensation decreased by 15 percent from 2014
© 2016 Chevron Corporation
Basis for Board decisions
Salary: modest increase in recognition of strong 2014
performance
Short-term incentive: reduced to recognize mixed 2015
performance
Long-term incentive: remained same based on the independent
consultant’s input and competitive data primarily from the Oil
Industry Peer Group adjusted for Company’s size, scope and
complexity; also considered CEO’s demonstrated performance
Why is the disclosed equity value different?
Accounting Standards Codification Topic 718 (ASC 718) requires
Grant Date Fair Value reporting of equity grants using Monte Carlo
simulation for TSR-based performance shares and Black Scholes
option valuation—see footnote (2) and (3) to the Summary
Compensation Table (page 52 of the 2016 proxy statement)
Approved target value will always differ from disclosed accounting
value
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Executive compensation governance is driven by strong metrics-based oversight
Board of Directors Compensation Oversight Process
Management Compensation Committee (MCC)
Composed of
Independent Directors Oversight responsibility for compensation program
Independent (Retained by Compensation Management
Compensation
Consultant Committee)
Advise on CEO compensation package, based on market-data Assist with peer group selection Review and provide data on executive compensation levels, practices and market trends
© 2016 Chevron Corporation
Evaluation of
corporate and
individual
performance
Metrics-based corporate
performance measures:
Financial
Health, environment
and safety
Operating
performance
Milestones
and commercial
Individual leadership
performance
Total Shareholder Return
relative to peer group
companies
Set compensation levels
Base salary Chevron Incentive Plan (CIP) awards Long-Term Incentive Plan (LTIP) awards
Rigorous Goal Setting & Performance Review
Beginning of year
goal-setting
Shareholder
feedback
presented to
Board
Board sets annual
business plan at
Chevron
Robust
measures,
weighting and
goals are
established
alongside
business plan
Mid-year performance review on metrics
Board/MCC reviews progress update on CIP measures Quantitative and qualitative updates delivered
Comprehensive year-end performance assessment
Board/MCC
systematically
reviews and
assesses company
performance
metrics
Performance
parameters analyzed
formulaically
– Absolute results to
current year plan
– Relative results to
Oil Industry Peer
Group
– Performance trend
over time
– Individual
performance
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Chevron Incentive Plan is tied to value delivered to shareholders
CIP is designed to recognize annual performance achievements across
more than 55,000 CIP-eligible Chevron employees
The Management Compensation Committee determined a Corporate
Performance Rating of 80% for 2015 performance year, with a possible range
of 0%-200%
Significant non-financial achievements also include:
– Industry leading safety results
– Historic downstream facility utilization and reliability
– Advanced many major capital projects and realized significant value from
divestment
CIP Payout Calculator
Corporate Individual Base Award Performance Performance salary Target Rating Factor
Award Target & Benchmarking
Prior to each performance year, MCC sets the CIP Award Target as a multiple of base salary with reference to the median awards of Oil Industry Peer Group pay
Chevron Incentive
Plan (“CIP”) Oil Industry Peer Group: Exxon Mobil, Royal Dutch Shell, BP, ConocoPhillips, Occidental Petroleum, Philips 66, Valero Energy, Marathon Petroleum, Anadarko Petroleum, Hess, Devon Energy, Tesoro, Marathon Oil
© 2016 Chevron Corporation
Corporate Performance Rating Components & Metrics
Financial 40%
Health,
Environment, and 20% Safety
Operating
25%
Performance
Milestones and
15%
Commercial
Earnings/EPS
Return on Capital Employed
Total Shareholder Return (1, 3 and 5 year) Process Safety Personal Safety Environmental Performance Operating Expenses Segment Earnings per Barrel Production Reserves Asset Utilization Rates
Major Capital Projects Commercial Transactions
Performance is assessed against key performance measures on historical, absolute and relative performance to the Oil Industry Peer Group
Performance Assessment
Performance highlights include:
Significant actions in response to low
commodity prices
28th consecutive dividend increase
One of the best years in overall
Operational Excellence performance
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Long-term incentive plan (LTIP) aligns with stockholder interests
Targets vs. pay outcomes demonstrate strong link to performance
Term of LTIP awards
Grant Year: Perf. shares
2015 Stock options
Perf. shares
2014 Stock options
Perf. shares
2013 Stock options
2013 2015 2017 2019 2021 2023 2025
CEO 2013 PSU Target vs. Payout Value
(2013-2015 performance period)
$5,206,660
$4,226,710
Target Value at Grant Actual Payout
Payout = modifier 100% x 20-day trailing average price $89.93 x vested shares 47,000
© 2016 Chevron Corporation
Performance Shares (40% of target grant value)
Realized value is significantly lower than the target due to lower payout price
($89.93) despite 2013 performance share grant paid out at 100% modifier
Stock Options (60% of target grant value)
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years of option grants underwater as of 12/31/2015 (closing price of $89.96) |
Stock options and performance shares as key compensation elements ensure
CEO and NEOs are:
Fully aligned with the economic interests of our stockholders, on medium and
long term horizon;
Significantly leveraged, from an ultimate compensation standpoint, to
Chevron’s common stock price performance; and
Rewarded based on a balance between relative (performance shares) and
absolute (stock options) pay-for-performance.
Restricted Stock Units
Granted on rare occasions to recognize performance or incentivize retention. The
following NEOs received RSU grants in 2015 in recognition of their strong
performance in 2014:
James W. Johnson: Increased responsibility and seamless leadership transition in
Upstream operations
Michael K. Wirth: Industry-leading Downstream performance
R. Hewitt Pate: Exceptional progress on major litigation matters
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