CHEVRON CORPORATION - DEF 14A

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

Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

Definitive Proxy Statement

Definitive Additional Materials

Soliciting Material Pursuant to §.240.14a-12


CHEVRON CORPORATION

(Name of Registrant as Specified In Its Charter)

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

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Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

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Notice of the 2013
Annual Meeting of Stockholders

Wednesday, May 29, 2013

8:00 a.m. PDT

Chevron Park Auditorium, 6001 Bollinger Canyon Road, San Ramon, California 94583-2324

Record Date

Wednesday, April 3, 2013

Agenda

Elect 11 Directors named in this Proxy Statement;

Vote on a Board proposal to ratify the appointment of the independent registered public accounting firm;

Vote on a Board proposal to approve, on an advisory basis, named executive officer compensation;

Vote on a Board proposal to approve amendments to the Long-Term Incentive Plan of Chevron Corporation (LTIP) and the material terms of performance goals for performance-based awards under the LTIP;

Vote on nine stockholder proposals, if properly presented at the Annual Meeting; and

Transact any other business that may be properly brought before the Annual Meeting.

Admission

Stockholders or their legal proxy holders may attend the Annual Meeting. To be admitted, you will need a form of photo identification and an admission ticket, valid proof of ownership of Chevron common stock or a valid legal proxy. Please refer to page 5 of this Proxy Statement for information about attending the Annual Meeting. Seating at the Annual Meeting is available on a first-come basis.

Voting

Stockholders owning Chevron common stock at the close of business on Wednesday, April 3, 2013, or their legal proxy holders, are entitled to vote at the Annual Meeting. Please refer to pages 1 through 3 of this Proxy Statement for information about voting at the Annual Meeting.

On or about Thursday, April 11, 2013, we will mail to our stockholders either (1) a copy of this Proxy Statement, a proxy card and our Annual Report or (2) a Notice of Internet Availability of Proxy Materials, which will indicate how to access our proxy materials and vote on the Internet.

 

By Order of the Board of Directors,

 

 

Lydia I. Beebe

 

Corporate Secretary and Chief Governance Officer


2013 Proxy Statement Table of Contents

General Information

1

Election of Directors (Item 1 on the Proxy Card)

6

Director Compensation

13

Board Operations

17

Executive Compensation

23

Equity Compensation Plan Information

55

Stock Ownership Information

56

Board Proposal to Ratify the Appointment of the Independent Registered Public Accounting Firm (Item 2 on the Proxy Card)

57

Board Proposal to Approve, on an Advisory Basis, Named Executive Officer Compensation (Item 3 on the Proxy Card)

59

Board Proposal to Approve Amendments to the Long-Term Incentive Plan of Chevron Corporation (LTIP) and the Material Terms of Performance Goals for Performance-Based Awards Under the LTIP (Item 4 on the Proxy Card)

60

Stockholder Proposals (Items 5 through 13 on the Proxy Card)

70

Appendix A: Reconciliation of Non-GAAP Financial Measures Referenced in Compensation Discussion and Analysis

A-1

Appendix B: Long-Term Incentive Plan of Chevron Corporation

B-1

 


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Chevron Corporation

6001 Bollinger Canyon Road

San Ramon, California 94583-2324

April 11, 2013

2013 Proxy Statement

General Information

Your Board of Directors is providing you with these proxy materials in connection with the solicitation of proxies to be voted at Chevron Corporation’s 2013 Annual Meeting of Stockholders to be held on Wednesday, May 29, 2013 at 8:00 a.m. PDT at Chevron Park Auditorium, 6001 Bollinger Canyon Road, San Ramon, California and at any postponement or adjournment of the Annual Meeting. In this Proxy Statement, Chevron may also be referred to as “we,” “our,” “the Company” or “the Corporation.”

Items of Business to Be Considered at the Annual Meeting

Your Board is asking you to take the following actions at the Annual Meeting:

Item(s)

Your Board’s Recommendation

Vote Required

Item 1: Elect 11 Directors named in this Proxy Statement

 

Vote FOR

 

Each Director nominee who receives a majority of the votes cast (i.e., the number of shares voted FOR a Director nominee must exceed the number of shares voted AGAINST that Director nominee, excluding abstentions) will be elected a Director, in an uncontested election.

Item 2: Vote to ratify the appointment of the independent registered public accounting firm

 

Vote FOR

 

These items are approved if the number of shares voted FOR exceeds the number of shares voted AGAINST.

Item 3: Vote to approve, on an advisory basis, named executive officer compensation

 

Vote FOR

 

Item 4: Vote to approve amendments to the Long-Term Incentive Plan of Chevron Corporation (LTIP) and the material terms of performance goals for performance-based awards under the LTIP

 

Vote FOR

 

Items 5-13: Vote on nine stockholder proposals, if properly presented

 

Vote AGAINST

 

If you are a street name stockholder (i.e., you own your shares through a bank, broker or other holder of record) and do not vote your shares, your bank, broker or other holder of record can vote your shares at its discretion ONLY on Item 2. If you do not give your bank, broker, or other holder of record instructions on how to vote your shares on Item 1 or Items 3 through 13, your shares will not be voted on those matters. If you have shares in an employee stock or retirement benefit plan and do not vote those shares, your trustee may or may not vote your shares, in accordance with the terms of the plan. Any shares not voted on Item 1 or Items 3 through 13 (whether by abstention, broker nonvote or otherwise) will have no impact on that particular item.

Vote Results

At the Annual Meeting we will announce preliminary voting results for those items of business properly presented. Within four business days of the Annual Meeting, we will disclose the preliminary results (or final results, if available) in a Current Report on Form 8-K filed with the U.S. Securities and Exchange Commission.

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Appointment of Proxy Holders

Your Board asks you to appoint John S. Watson, R. Hewitt Pate and Lydia I. Beebe as your proxy holders, each with full power of substitution, to vote your shares at the Annual Meeting. You make this appointment by voting the proxy card provided to you using one of the voting methods described in “How to Vote,” below.

If you sign and return a proxy card with voting instructions, the proxy holders will vote your shares as you direct on the matters described in this Proxy Statement. If you sign and return a proxy card without voting instructions, they will vote your shares as recommended by your Board.

Unless you indicate otherwise on the proxy card, you also authorize your proxy holders to vote your shares on any matters that are not known by your Board as of the date of this Proxy Statement and that may be properly presented for action at the Annual Meeting.

Record Date; Who Can Vote

Stockholders owning Chevron common stock at the close of business on Wednesday, April 3, 2013, the Record Date, or their legal proxy holders, are entitled to vote at the Annual Meeting. At the close of business on the Record Date, there were 1,938,504,192 shares of Chevron common stock outstanding and entitled to vote at the Annual Meeting. Each outstanding share of Chevron common stock is entitled to one vote.

Quorum

A quorum, which is a majority of the outstanding shares of Chevron common stock as of the Record Date, must be present to hold the Annual Meeting. A quorum is calculated based on the number of shares represented at the meeting, either by the stockholders attending in person or by the proxy holders. If you indicate an abstention as your voting preference in any matters, your shares will be counted toward a quorum but will not be voted on any matter.

How to Vote

Stockholders can vote by mail, telephone or Internet or in person at the Annual Meeting.

Stockholders of Record

Street Name Stockholders

Employee Plan Participants

If you hold your shares in your own name through Chevron’s transfer agent, Computershare Shareowner Services LLC,

you can most conveniently vote by telephone, Internet or mail. Please review the voting instructions on your proxy card.

If you own your shares through a bank, broker or other holder of record, you can most conveniently vote by telephone, Internet or mail. Please review the voting instructions on your voting instruction form.

If you own your shares through participation in a Chevron employee stock or retirement benefit plan, you can most conveniently vote by telephone, Internet or mail. Please review the voting instructions contained in the email sent to your work address or in the materials you receive through the U.S. Postal Service.

If you vote by telephone or on the Internet, you do not need to return your proxy card. Telephone and Internet voting are available 24 hours a day and will close at 11:59 p.m. EDT on Tuesday, May 28, 2013.

You can vote in person at the Annual Meeting ONLY if you obtain a proxy, executed in your favor, from the bank, broker or other holder of record through which you hold your shares.

Telephone and Internet voting are available 24 hours a day and will close at 11:59 p.m. EDT on Thursday, May 23, 2013, or other cutoff date as determined by the plan trustee.

You can vote in person at the Annual Meeting by completing, signing, dating and returning your proxy card in person at the Annual Meeting.

You can vote in person at the Annual Meeting ONLY if you obtain a proxy, executed in your favor, from the trustee of the plan through which you hold your shares.

We encourage you to vote by telephone or on the Internet. Both are convenient and designed to record your vote immediately and allow you to confirm that your vote has been properly recorded.

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Notice and Access

Important Notice Regarding the Availability of Proxy Materials for the Stockholder Meeting to Be Held on May 29, 2013:

The Notice of 2013 Annual Meeting, 2013 Proxy Statement and 2012 Annual Report are available at www.proxyvote.com.

This year, we are again furnishing proxy materials over the Internet to a number of our stockholders under the U.S. Securities and Exchange Commission’s notice and access rules. Many of our stockholders will receive a Notice of Internet Availability of Proxy Materials in the mail instead of a paper copy of this Proxy Statement, a proxy card or voting instruction card and our 2012 Annual Report. We believe that this process will conserve natural resources and reduce the costs of printing and distributing our proxy materials.

The Notice contains instructions on how to access our proxy materials and vote over the Internet at www.proxyvote.com and how stockholders can receive a paper copy of our proxy materials, including this Proxy Statement, a proxy card or voting instruction card and our 2012 Annual Report. At www.‌proxyvote.‌com stockholders can also request to receive future proxy materials in printed form by mail or electronically by email.

All stockholders who do not receive a Notice will receive a paper copy of the proxy materials by mail, unless they have previously elected to receive proxy materials by email. We remind stockholders who receive a Notice that the Notice is not itself a proxy card and should not be returned with voting instructions.

Revoking Your Voting Instructions

Stockholders can revoke their proxy or voting instructions as follows.

Stockholders of Record

 

Street Name Stockholders

 

Employee Plan Participants

Send a written statement revoking your proxy to: Chevron Corporation, Attn: Corporate Secretary and Chief Governance Officer, 6001 Bollinger Canyon Road, San Ramon, California 94583-2324;

 

Notify your bank, broker or other holder of record in accordance with that entity’s procedures for revoking your voting instructions.

 

Notify the trustee of the plan through which you hold your shares in accordance with its procedures for revoking your voting instructions.

Submit a proxy card with a later date and signed as your name appears on your account;

Vote at a later time by telephone or the Internet; or

Vote in person at the Annual Meeting.

Confidential Voting

Chevron has a confidential voting policy to protect the privacy of your votes. Under this policy, ballots, proxy cards and voting instructions returned to banks, brokers and other holders of record are kept confidential. Only the proxy solicitor, the proxy tabulator and the Inspector of Election have access to the ballots, proxy cards and voting instructions. Anyone who processes or inspects the ballots, proxy cards and voting instructions signs a pledge to treat them as confidential. None of these persons is a Chevron Director, officer or employee. The proxy solicitor and the proxy tabulator will disclose information taken from the ballots, proxy cards and voting instructions only in the event of a proxy contest or as otherwise required by law.

Method and Cost of Soliciting and Tabulating Votes

Chevron will bear the costs of soliciting proxies and tabulating your votes. Proxies may be solicited by mail, Notice and Access (described in “Notice and Access,” above), email, telephone, or other means. Chevron has retained Broadridge Financial Solutions, Inc., to assist in distributing these proxy materials. Georgeson Inc. will act as our proxy solicitor in soliciting votes at an estimated cost of $27,000 plus additional fees for telephone and other solicitation of proxies and its reasonable out-of-pocket expenses. Chevron employees may solicit your votes without additional compensation.

Chevron will reimburse banks, brokers and other holders of record for reasonable, out-of-pocket expenses for forwarding these proxy materials to you, according to certain regulatory fee schedules. We estimate that this reimbursement will cost Chevron almost $2 million. The actual amount will depend on variables such as the number of proxy packages mailed, the number of stockholders receiving electronic delivery and postage costs. See “Email Delivery of Future Proxy Materials” below for information on how you can help reduce printing and mailing costs.

Broadridge Financial Solutions, Inc., will be the proxy tabulator, and IVS Associates, Inc., will act as the Inspector of Election.

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Householding Information

We have adopted a procedure approved by the U.S. Securities and Exchange Commission called “householding.” Under this procedure, stockholders of record who have the same address and last name and do not participate in electronic delivery of proxy materials will receive only one copy of the Annual Report and Proxy Statement or Notice of Internet Availability of Proxy Materials. This procedure will reduce our printing costs and postage fees.

If you or another stockholder of record with whom you share an address are receiving multiple copies of the Annual Report and Proxy Statement or Notice of Internet Availability of Proxy Materials, you can request to receive a single copy of these materials in the future by calling Broadridge Financial Solutions, Inc., toll-free at 1-800-542-1061 or by writing to Broadridge Financial Solutions, Inc., Attn: Householding Department, 51 Mercedes Way, Edgewood, New York 11717. If you or another stockholder of record with whom you share an address wish to receive a separate Annual Report and Proxy Statement or Notice of Internet Availability of Proxy Materials, we will promptly deliver it to you if you request it by contacting Broadridge Financial Solutions, Inc., in the same manner as described above.

Stockholders who participate in householding will continue to receive separate proxy cards. Householding will not affect your dividend check mailings.

If you are a street name stockholder, you can request householding by contacting your bank, broker or other holder of record through which you hold your shares.

Email Delivery of Future Proxy Materials

You can elect to receive future proxy materials by email, which will save us the cost of producing and mailing documents to you. If you choose to receive future proxy materials by email, you will receive an email with instructions containing a link to the website where those materials are available as well as a link to the proxy voting website.

Stockholders of Record

Street Name Stockholders

You may enroll in the email delivery service by going directly to www.icsdelivery.com/cvx.

Please check the information provided in the proxy materials mailed to you by your bank, broker or other holder of record concerning the availability of this service.

You may revoke your email delivery election at this site at any time and request a paper copy of the Proxy Statement and Annual Report.

Stockholder of Record Account Maintenance

Chevron engages a transfer agent, Computershare Shareowner Services LLC, to assist the Company in maintaining the accounts of individuals and entities that hold Chevron stock in their own name on the records of the Company, sometimes referred to as “stockholders of record” or “registered stockholders.” All communications concerning accounts of stockholders of record, including name and address changes and inquiries about the requirements to transfer shares and similar matters, can be handled by calling Chevron Stockholder Services’ toll-free number, 1-800-368-8357, or by contacting Computershare through its website at www.computershare.com/investor. You can also address correspondence to Computershare at P.O. Box 43006, Providence, RI, 02940-3006.

When you access your account through Computershare’s website, you can view your current balance, access your account history, obtain current and historical stock prices, and purchase and sell Chevron shares through the Computershare Investment Plan. For stockholders who previously used EquityAccess to access information online and do not have an account created in Computershare Investor Centre, you will need to create a new user account in Investor Centre by answering a series of questions, including a first-time user authentication process. If you have an existing account in Investor Centre, you will need your Account Number and your Password. The Account Number can be found on your account statement, direct deposit advice or dividend check stub.

The Computershare Investment Plan allows interested investors to purchase and sell shares of Chevron stock and enroll in dividend reinvestment. Directions and deadlines for the purchase of shares, including payment via electronic funds transfer or check, can be found on the Stockholder Services page of our website at www.chevron.com/investors/stockholderservices/stockpurchasedividends. Additional information can be found in the Computershare Plan Brochure available on Computershare’s website at www.computershare.com/investor.

If you are a street name stockholder, you may contact your bank, broker or other holder of record with questions concerning your account.

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Attending the Annual Meeting

The Annual Meeting will be held at the Chevron Park Auditorium, 6001 Bollinger Canyon Road, San Ramon, California 94583-2324. Only stockholders or their legal proxy holders may attend the Annual Meeting. Due to space constraints and other security considerations, we are not able to admit the guests of either stockholders or their legal proxy holders. Seating at the Annual Meeting is available on a first-come basis.

To be admitted to the Annual Meeting, you will need a form of photo identification and an admission ticket, valid proof of ownership of Chevron common stock or a valid legal proxy.

Stockholders of Record

 

Street Name Stockholders

An admission ticket is attached to your proxy card.

If you plan to attend the Annual Meeting, please vote your proxy, but keep your admission ticket and bring it with you to the Annual Meeting.

 

To be admitted to the Annual Meeting, you must present proof of your ownership of Chevron common stock, such as a recent bank or brokerage account statement.

If you arrive at the Annual Meeting without an admission ticket, we will admit you only if we are able to verify that you are a stockholder.

 

You can obtain an admission ticket in advance by mailing a written request, along with proof of your ownership of Chevron common stock, to Chevron Corporation, Attn: Corporate Secretary and Chief Governance Officer, 6001 Bollinger Canyon Road, San Ramon, California 94583-2324.

If you are not a stockholder, you will be admitted only if you have a valid legal proxy and form of photo identification. If you are receiving a legal proxy from a stockholder of record, you must bring a form of photo identification and a legal proxy from the record holder to you. If you are receiving a legal proxy from a street name stockholder, you must bring a form of photo identification, a legal proxy from the record holder (i.e., the bank, broker or other holder of record) to the street name stockholder that is assignable, and a legal proxy from the street name stockholder to you. Stockholders may appoint only one proxy holder to attend on their behalf.

Cameras, recording equipment, electronic devices (including cell phones, tablets, laptops, etc.), purses, large bags, briefcases or packages will NOT be allowed into the Annual Meeting, other than for Company purposes. A checkroom for such items will be provided. Attendees will be asked to pass through a security screening device prior to entering the Annual Meeting. We regret any inconvenience this may cause you and we appreciate your cooperation.


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Election of Directors
(Item 1 on the Proxy Card)

Your Board is nominating the 11 individuals identified below for election as Directors. Directors are elected annually and serve for a one-year term and until their successors are elected. If any nominee is unable to serve as a Director, a circumstance we do not anticipate, the Board by resolution may reduce the number of Directors or choose a substitute.

Director Election Requirements

Each Director nominee who receives a majority of the votes cast (i.e., the number of shares voted FOR a Director nominee must exceed the number of shares voted AGAINST that Director nominee, excluding abstentions) will be elected a Director, in an uncontested election.

Under Chevron’s By-Laws, in an uncontested election any current Director who receives more AGAINST votes than FOR votes must submit an offer of resignation to the Board of Directors. The Board Nominating and Governance Committee must then consider all relevant facts and circumstances, including the Director’s qualifications and past and expected future contributions, the overall composition of the Board, and whether Chevron would meet regulatory or similar requirements without the Director, and make a recommendation to the Board on what action to take with respect to the offer of resignation.

The Director Nomination Process

The Board Nominating and Governance Committee is responsible for recommending to the Board the qualifications for Board membership and identifying, assessing and recommending qualified Director candidates for the Board’s consideration. The Board membership qualifications and nomination procedures are set forth in Chevron’s Corporate Governance Guidelines, which are available on the Chevron website at www.chevron.com. Generally, the Board is seeking individuals with the following qualifications:

the highest professional and personal ethics and values, consistent with The Chevron Way and our Business Conduct and Ethics Code, both of which are available on the Chevron website at www.chevron.com;

broad experience or expertise at the policy-making level in business, governmental, educational, technological, environmental or public interest issues;

the ability to provide insights and practical wisdom based on the individual’s experience and expertise;

a commitment to enhancing stockholder value;

sufficient time to effectively carry out duties as a Director (service on boards of public companies should be limited to no more than five); and

independence (at least a majority of the Board must consist of independent Directors, as defined by the New York Stock Exchange (NYSE) Corporate Governance Standards).

The Committee uses a skills and qualifications matrix to ensure that the overall Board maintains a balance of knowledge and experience. The Committee carefully reviews all Director candidates, including current Directors, in light of these qualifications based on the context of the current and anticipated composition of the Board, the current and anticipated operating requirements of the Company, and the long-term interests of stockholders. In conducting this assessment, the Committee considers diversity, education, experience, length of service and such other factors as it deems appropriate given the current and anticipated needs of the Board and the Company. The Committee and Board define diversity broadly to include diversity of professional experience (policy, business, government, education, technology, environment or public interest), geographical location and viewpoint, as well as diversity of race, gender, nationality and ethnicity.

The Committee considers all candidates recommended by our stockholders. Stockholders may recommend candidates by writing to the Corporate Secretary and Chief Governance Officer at 6001 Bollinger Canyon Road, San Ramon, California 94583-2324, stating the recommended candidate’s name and qualifications for Board membership. When considering candidates recommended by stockholders, the Committee follows the same Board membership qualifications evaluation and nomination procedures discussed above.

In addition to stockholder recommendations, the Committee considers Director candidates identified for consideration for nomination to the Board from other sources. Board members periodically suggest possible candidates, and from time to time, the Committee may engage a third-party consultant to assist in identifying potential candidates. The Committee has retained Russell Reynolds Associates to assist it with identifying potential candidates. Russell Reynolds interviewed current Directors, evaluated the Board’s current and future makeup and needs, and has worked with the Committee to develop a list of potential candidates.

After the 2012 Annual Meeting, at which 10 of the current nominees for Director were elected, the Committee recommended and the Board concurred in electing Dr. Alice P. Gast to the Board, effective December 1, 2012. Dr. Gast was identified by our current nonemployee Directors as part of the Committee’s regular process for identifying potential Director nominees. On February 26, 2013, Charles T. Hagel resigned from the Board due to his confirmation by the U.S. Senate as U.S. Secretary of Defense. For the 2013 Annual Meeting, the Committee recommended and the Board concurred in maintaining a Board size of 11 Directors. Each of the Director nominees are current Directors.

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In the biographies that follow, we have provided additional detail regarding each Director’s specific qualifications, experience, attributes and skills.

Nominees for Director

Your Board unanimously recommends that you vote FOR each of these nominees.

Linnet F. Deily

Director since 2006

Ms. Deily, age 67, is a former Deputy U.S. Trade Representative and U.S. Ambassador to the World Trade Organization and retired financial services industry executive.

Prior Positions Held: Ms. Deily served as Deputy U.S. Trade Representative and U.S. Ambassador to the World Trade Organization from 2001 to 2005. She was Vice Chairman of Charles Schwab Corporation from 2000 until 2001 and President of the Schwab Retail Group from 1998 until 2000 and President of Schwab Institutional Services for Investment Managers from 1996 until 1998. Prior to joining Schwab, she was Chairman, Chief Executive Officer and President from 1990 until 1996 and President and Chief Operating Officer from 1988 until 1990 of the First Interstate Bank of Texas.

Current Public Company Directorships: Honeywell International Inc.

Prior Public Company Directorships (within the last five years): Alcatel-Lucent S.A. (and its predecessor, Lucent Technologies Inc.).

Other Directorships, Trusteeships and Memberships: Chair, Houston Endowment, Inc.; Vice Chair, Houston Zoo; Houston Museum of Fine Arts; Jung Center of Houston; Executive Chairman, St. Luke’s Episcopal Health System.

Qualifications, Experience, Attributes and Skills: Ms. Deily meets all of the Director qualifications described above under “The Director Nomination Process.” In particular, Ms. Deily has significant policy-making and international affairs experience, including experience with environmental issues, based in part on her work as a Deputy U.S. Trade Representative and U.S. Ambassador to the World Trade Organization (WTO). In the latter role Ms. Deily oversaw the negotiation of various environmental issues before the WTO. In addition, she has experience leading major public corporations, first as Chairman, Chief Executive Officer and President of the First Interstate Bank of Texas and later as Vice Chairman of Charles Schwab Corporation. Ms. Deily also has significant financial expertise and experience gained through the various positions she held at Charles Schwab Corporation and First Interstate Bank of Texas.

Robert E. Denham

Lead Director;

Director since 2004

Mr. Denham, age 67, has been a Partner of Munger, Tolles & Olson LLP, a law firm, since 1998 and from 1973 until 1991.

Prior Positions Held: Mr. Denham was Chairman and Chief Executive Officer of Salomon Inc. from 1992 until 1997. He joined Salomon in 1991, as General Counsel of Salomon and its subsidiary, Salomon Brothers.

Current Public Company Directorships: Fomento Económico Mexicano, S.A. de C.V.; The New York Times Company; Oaktree Capital Group, LLC; UGL Limited.

Prior Public Company Directorships (within the last five years): Alcatel-Lucent S.A. (and its predecessor, Lucent Technologies Inc.); Wesco Financial Corporation.

Other Directorships, Trusteeships and Memberships: Vice Chairman, Good Samaritan Hospital of Los Angeles; James Irvine Foundation; New Village Charter School; Chairman, Russell Sage Foundation.

Qualifications, Experience, Attributes and Skills: Mr. Denham meets all of the Director qualifications described above under “The Director Nomination Process.” In particular, Mr. Denham brings to the Board extensive board and senior executive–level expertise in accounting, law, business and finance as a result of his nearly 43-year career as a lawyer, as Chief Executive Officer at Salomon Inc., and Chairman and President of the Financial Accounting Foundation, a position he held from 2004 to 2009. Mr. Denham has held numerous leadership positions with associations and councils focusing on governance, executive compensation, accounting, professional ethics and business. Mr. Denham also brings to the Board extensive experience with environmental issues: representing buyers and sellers in complex mergers and acquisitions; as CEO of Salomon Inc., owner of refiner Basis Petroleum and commodities trader Phibro Inc. during Mr. Denham’s tenure; as a former Trustee of the Natural Resources Defense Council; and as the former Chairman of the Board of the John D. and Catherine T. MacArthur Foundation, which funds environmental and sustainable development programs.

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Alice P. Gast

Director since 2012

Dr. Gast, age 54, has been the President of Lehigh University since 2006.

Prior Positions Held: Dr. Gast served as Vice President for Research, Associate Provost and Robert T. Haslam Chair in Chemical Engineering at Massachusetts Institute of Technology from 2001 to 2006 and, prior to that, was professor of Chemical Engineering at Stanford University and the Stanford Synchrotron Radiation Laboratory from 1985 to 2001.

Current Public Company Directorships: None.

Prior Public Company Directorships (within the last five years): None.

Other Directorships, Trusteeships and Memberships: 2010 science envoy to the Caucasus and Central Asia appointed by the U.S. Department of State; King Abdullah University of Science and Technology; The New York Academy of Sciences; Lehigh Valley Association of Independent Colleges; Patriot League Council of Presidents.

Qualifications, Experience, Attributes and Skills: Dr. Gast meets all of the Director qualifications described above under “The Director Nomination Process.” In particular, Dr. Gast has an extensive engineering and science background, as well as significant experience in workforce development as a result of her 23-year career in leading educational institutions. She also has policy-making and international affairs experience, based in part on her work as a 2010 science envoy to the Caucasus and Central Asia and service on the Academic Research Council for the Singapore Ministry of Education and the Board of Trustees of King Abdullah University of Science and Technology. In addition, Dr. Gast brings to the Board valuable experience in environmental matters. As president of Lehigh she has presided over the establishment of STEPS, an initiative on science, technology, environment, policy and society, and she oversees the university’s Environmental Advisory Group. Dr. Gast also oversees the university’s emergency preparedness and crisis management planning, which includes preparedness for environmental emergencies.

Enrique Hernandez Jr.

Director since 2008

Mr. Hernandez, age 57, has been Chairman, Chief Executive Officer and President of Inter-Con Security Systems, Inc., a provider of security and facility support services to government, utilities and industrial customers, since 1986.

Prior Positions Held: Mr. Hernandez was Executive Vice President and Assistant General Counsel of Inter-Con Security Systems from 1984 to 1985 and an associate in the law firm of Brobeck, Phleger & Harrison from 1980 until 1984.

Current Public Company Directorships: McDonald’s Corporation; Nordstrom, Inc.; Wells Fargo & Company.

Prior Public Company Directorships (within the last five years): None.

Other Directorships, Trusteeships and Memberships: Harvard College Visiting Committee; Harvard University Resources Committee; University of Notre Dame; the John Randolph Haynes and Dora Haynes Foundation.

Qualifications, Experience, Attributes and Skills: Mr. Hernandez meets all of the Director qualifications described above under “The Director Nomination Process.” In particular, Mr. Hernandez brings to the Board extensive board and senior executive–level experience in international business and law as a result of his nearly 28-year career with Inter-Con Security Systems, Inc., his legal experience as a litigation attorney at Brobeck, Phleger & Harrison, and his experience as a director of several large public companies in various industries. Mr. Hernandez also provides expertise in international security from his role leading Inter-Con Security Systems, as well as expertise in communications and community affairs from his role as co-founder of Interspan Communications, a television broadcasting company serving Spanish-language audiences.

George L. Kirkland

Director since 2010

Mr. Kirkland, age 62, has been Vice Chairman of Chevron since January 2010 and Executive Vice President of Upstream and Gas since January 2005.

Prior Positions Held: Mr. Kirkland was previously President of Chevron Overseas Petroleum from 2002 through 2004. From 2000 to 2001, he was President of Chevron U.S.A. Production Co. Mr. Kirkland joined Chevron in 1974.

Current Public Company Directorships: None.

Prior Public Company Directorships (within the last five years): None.

Other Directorships, Trusteeships and Memberships: Africa America Institute; Corporate Council on Africa; U.S.-Kazakhstan Business Association; US-ASEAN Business Council.

Qualifications, Experience, Attributes and Skills: Mr. Kirkland meets all of the Director qualifications described above under “The Director Nomination Process.” In particular, Mr. Kirkland brings to the Board extensive senior executive–level experience at Chevron and in the energy industry with a strong knowledge of Chevron’s Upstream business, including strategy, markets, competitors, financials, policy, administration, operations, environmental matters and industry regulation. Mr. Kirkland’s 39-year career at Chevron has at various points included principal responsibility for Upstream research and technology, production and operations in Nigeria, the United States and Canada, international exploration and production, and, most recently, global exploration, production and gas activities.

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Charles W. Moorman IV

Director since 2012

Mr. Moorman, age 61, has been since 2006 Chairman of the Board, since 2005 Chief Executive Officer and since 2004 President of Norfolk Southern Corporation, a freight transportation company.

Prior Positions Held: From 2003 to 2004, Mr. Moorman served as Senior Vice President of Corporate Planning and Services at Norfolk Southern, and in 2003 he served as Senior Vice President of Corporate Services. From 1999 to 2004, he was President of Thoroughbred Technology and Telecommunications, Inc., a subsidiary of Norfolk Southern.

Current Public Company Directorships: Norfolk Southern Corporation.

Prior Public Company Directorships (within the last five years): None.

Other Directorships, Trusteeships and Memberships: American Society of Corporate Executives; Chesapeake Bay Foundation; Hampton Roads Community Foundation; Nature Conservancy of Virginia; University of Virginia Medical Center Operating, Board; Chairman, Virginia Business Council.

Qualifications, Experience, Attributes and Skills: Mr. Moorman meets all of the Director qualifications described above under “The Director Nomination Process.” In particular, Mr. Moorman serves as Chairman and Chief Executive Officer of a Fortune 500 public company, providing him insight and experience into the operations, challenges and complex issues facing large corporations. Mr. Moorman also has significant logistics services, technology and strategy experience, as well as a thorough understanding of safety and environmental issues as a result of his 31-year career in the freight railroad and transportation industries. As current Chairman and Chief Executive Officer of Norfolk Southern Corporation, Mr. Moorman also brings firsthand knowledge of the business climate in key regions of the United States where Chevron operates.

Kevin W. Sharer

Director since 2007

Mr. Sharer, age 65, has been a Senior Lecturer of Business Administration at the Harvard Business School since the fall of 2012.

Prior Positions Held: Mr. Sharer was Chairman of the Board from 2001 and Chief Executive Officer from 2000 of Amgen Inc. until his retirement in 2012. From 1992 until 2000, Mr. Sharer served as President and Chief Operating Officer of Amgen. From 1989 until 1992, Mr. Sharer was President of the Business Markets Division of MCI Communications Corporation. From 1984 until 1989, Mr. Sharer served in numerous executive capacities at General Electric Company.

Current Public Company Directorships: Northrop Grumman Corporation.

Prior Public Company Directorships (within the last five years): Amgen Inc.

Other Directorships, Trusteeships and Memberships: Chairman, Los Angeles County Museum of Natural History; U.S. Naval Academy Foundation.

Qualifications, Experience, Attributes and Skills: Mr. Sharer meets all of the Director qualifications described above under “The Director Nomination Process.” In particular, Mr. Sharer served as Chairman and Chief Executive Officer of a Fortune 500 public company, providing him insight and experience into the operations, challenges and complex issues facing large corporations. He has significant expertise in technology, research and development, and long investment cycles. Having served as a director of Unocal Corporation, Mr. Sharer brings to the Board strong knowledge of strategy, markets, competitors and financials of Unocal’s operations. As retired Chairman and Chief Executive Officer of Amgen, Mr. Sharer also brings firsthand knowledge of the business climate in California, where Chevron is headquartered.

John G. Stumpf

Director since 2010

Mr. Stumpf, age 59, has been since 2010 Chairman of the Board, since 2007 Chief Executive Officer, and since 2005 President of Wells Fargo & Company, a nationwide, diversified, community-based financial services company.

Prior Positions Held: From 2002 until 2005, Mr. Stumpf served as Group Executive Vice President of Community Banking at Wells Fargo. In 2000, he led the integration of Wells Fargo’s $23 billion acquisition of First Security Corporation. Beginning in 1982, Mr. Stumpf served in numerous executive capacities at Norwest Corporation until its merger with Wells Fargo in 1998, at which time he became head of Wells Fargo’s Southwestern Banking Group.

Current Public Company Directorships: Target Corporation; Wells Fargo & Company.

Prior Public Company Directorships (within the last five years): None.

Other Directorships, Trusteeships and Memberships: The Clearing House; The Financial Services Roundtable; San Francisco Museum of Modern Art.

Qualifications, Experience, Attributes and Skills: Mr. Stumpf meets all of the Director qualifications described above under “The Director Nomination Process.” In particular, Mr. Stumpf serves as Chairman and Chief Executive Officer of a Fortune 500 public company, providing him insight and experience into the operations, challenges and complex issues facing large corporations. Mr. Stumpf also has significant financial expertise and strategy and marketing experience as a result of his 31-year career in the banking and financial services industries and his service on the boards of Visa USA, Vista International and Inovant LLC. As current Chairman and Chief Executive Officer of Wells Fargo & Company, Mr. Stumpf also brings firsthand knowledge of the business climate in California and in the San Francisco Bay Area, where Chevron is headquartered.

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Ronald D. Sugar

Director since 2005

Dr. Sugar, age 64, is the retired Chairman of the Board and Chief Executive Officer of Northrop Grumman Corporation, a global defense and technology company.

Prior Positions Held: Dr. Sugar was Chairman of the Board and Chief Executive Officer of Northrop Grumman Corporation from 2003 until 2010 and President and Chief Operating Officer from 2001 until 2003. He was President and Chief Operating Officer of Litton Industries, Inc., from 2000 until 2001.

Current Public Company Directorships: Air Lease Corporation; Amgen Inc.; Apple Inc.

Prior Public Company Directorships (within the last five years): Northrop Grumman Corporation.

Other Directorships, Trusteeships and Memberships: Senior Advisor, Ares Management LLC; Boys & Girls Clubs of America; Los Angeles Philharmonic Association; National Academy of Engineering; UCLA Anderson School of Management Board of Visitors; University of Southern California.

Qualifications, Experience, Attributes and Skills: Dr. Sugar meets all of the Director qualifications described above under “The Director Nomination Process.” In particular, Dr. Sugar has served as Chairman and Chief Executive Officer of a Fortune 500 public company, providing him insight and experience into the operations, challenges and complex issues facing large corporations. Dr. Sugar has extensive board and senior executive–level expertise in manufacturing, technology, finance, government affairs, international marketing, long investment cycles and environmental issues. While Chairman and Chief Executive Officer of Northrop Grumman, Dr. Sugar oversaw environmental assessments and remediations at shipyards and aircraft electronics factories. Dr. Sugar’s career has included service as Chief Financial Officer of TRW, Inc., providing additional financial expertise. As retired Chairman and Chief Executive Officer of Northrop, Dr. Sugar also has firsthand knowledge of the business climate in California, where Chevron is headquartered.

Carl Ware

Director since 2001

Mr. Ware, age 69, is a retired Executive Vice President of The Coca-Cola Company, a manufacturer of beverages.

Prior Positions Held: Mr. Ware was a Senior Advisor to the CEO of The Coca-Cola Company from 2003 until 2005 and was an Executive Vice President, Global Public Affairs and Administration, from 2000 until 2003. He was President of The Coca-Cola Company’s Africa Group, with operational responsibility for 50 countries in sub-Saharan Africa, from 1991 until 2000.

Current Public Company Directorships: Cummins Inc.

Prior Public Company Directorships (within the last five years): Coca-Cola Bottling Co. Consolidated.

Other Directorships, Trusteeships and Memberships: Clark Atlanta University; PGA TOUR Golf Course Properties, Inc.

Qualifications, Experience, Attributes and Skills: Mr. Ware meets all of the Director qualifications described above under “The Director Nomination Process.” In particular, Mr. Ware brings to the Board extensive senior executive–level expertise in operations, manufacturing, marketing, and public and international affairs as a result of his nearly 28-year career with The Coca-Cola Company. Mr. Ware’s tenure as President and Chief Operating Officer of Coca-Cola Africa provided in-depth knowledge of one of Chevron’s key areas of operations, and his tenure as Executive Vice President for Public Affairs and Administration provided additional public policy and environmental experience. In that position, Mr. Ware supervised companywide environmental policies and procedures.

John S. Watson

Director since 2009

Mr. Watson, age 56, has been Chairman of the Board and Chief Executive Officer of Chevron since January 1, 2010.

Prior Positions Held: Mr. Watson was previously Vice Chairman of the Board of Chevron from 2009 until 2010. He was Executive Vice President of Strategy and Development from 2008 until 2009. From 2005 until 2007, he was President of Chevron International Exploration and Production, and from 2001 until 2005, he was Chief Financial Officer. In 1998, he was named Vice President with responsibility for strategic planning. Mr. Watson joined Chevron Corporation in 1980.

Current Public Company Directorships: None.

Prior Public Company Directorships (within the last five years): None.

Other Directorships, Trusteeships and Memberships: American Petroleum Institute; American Society of Corporate Executives; The Business Council; Business Roundtable; JPMorgan International Council; National Petroleum Council; University of California at Davis Chancellor’s Board of Advisors.

Qualifications, Experience, Attributes and Skills: Mr. Watson meets all of the Director qualifications described above under “The Director Nomination Process.” In particular, Mr. Watson brings to the Board extensive senior executive–level expertise at Chevron as well as the energy industry with a strong knowledge of strategy, markets, competitors, financial aspects, policy and operations. Mr. Watson’s 32-year career at Chevron has at various points included principal responsibility for corporatewide finance, strategic planning, mergers and acquisitions, and international exploration and production. In 2000, Mr. Watson led Chevron’s integration effort after its successful acquisition of Texaco Inc., after which he became Chief Financial Officer.

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Independence of Directors

The Board has determined that each nonemployee Director who served in 2012 and each current nonemployee Director is independent in accordance with the NYSE Corporate Governance Standards and that no material relationship exists that would interfere with the exercise of independent judgment in carrying out the responsibilities of a Director.

For a Director to be considered independent, the Board must determine that the Director does not have any direct or indirect material relationship with Chevron, other than as a Director. In making its determinations, the Board adheres to the specific tests for independence included in the NYSE Corporate Governance Standards. In addition, the Board has determined that the following relationships of Chevron Directors occurring within the last fiscal year are categorically immaterial to a determination of independence if the relevant transaction was conducted in the ordinary course of business:

a director of another entity if business transactions between Chevron and that entity do not exceed $5 million or 5 percent of the receiving entity’s consolidated gross revenues, whichever is greater;

a director of another entity if Chevron’s discretionary charitable contributions to that entity do not exceed $1 million or 2 percent of that entity’s gross revenues, whichever is greater, and if the charitable contributions are consistent with Chevron’s philanthropic practices; and

a relationship arising solely from a Director’s ownership of an equity or limited partnership interest in a party that engages in a transaction with Chevron as long as the Director’s ownership interest does not exceed 2 percent of the total equity or partnership interest in that other party.

These categorical standards are contained in our Corporate Governance Guidelines, which are available on our website at www.chevron.com and are available in print upon request.

During 2012, Ms. Deily and Messrs. Denham, Hagel (retired 2013), Hernandez, Moorman, Donald B. Rice (retired 2012), Sharer, Stumpf, Sugar and Ware were directors of for-profit entities with which Chevron conducts business in the ordinary course. They and Dr. Gast were also directors or trustees of, or similar advisors to, not-for-profit entities to which Chevron contributed funds in 2012. The Board determined that all of these transactions and contributions were below the thresholds set forth in the first and second categorical standards described above (except as noted below) and are, therefore, categorically immaterial to the particular Director’s independence.

The Board reviewed the following relationships and transactions that existed or occurred in 2012 that are not covered by the categorical standards described above:

For Dr. Gast, the Board considered that in 2012, Chevron matched various employee contributions to Lehigh University amounting to less than 0.004 percent of the university’s most recently reported annual gross revenues. Dr. Gast is the President of the university and joined the Board in December 2012. The Board concluded that these transactions would not impair Dr. Gast’s independence.

For Mr. Hernandez, the Board considered that in 2012, Chevron purchased services from Inter-Con Security Systems of Liberia Limited, a subsidiary of Inter-Con Security Systems, Inc., in the ordinary course of business, amounting to less than 1 percent of Inter-Con’s most recent annual consolidated gross revenues. Mr. Hernandez is Chairman, Chief Executive Officer, President and a significant shareholder of Inter-Con, a privately held business. The Board concluded that these transactions would not impair Mr. Hernandez’s independence.

For Mr. Moorman, the Board considered that in 2012, Chevron purchased products and services from Norfolk Southern Corporation, in the ordinary course of business, amounting to less than than 0.021 percent of Norfolk Southern’s most recently reported annual consolidated gross revenues, and Norfolk Southern purchased products and services from Chevron, in the ordinary course of business, amounting to less than 0.021 percent of Chevron’s most recently reported annual consolidated gross revenues. Mr. Moorman is the Chairman, Chief Executive Officer, and President of Norfolk Southern. The Board concluded that these transactions would not impair Mr. Moorman’s independence.

For Mr. Sharer, the Board considered that in 2012, Amgen Inc. purchased products and services from Chevron, in the ordinary course of business, amounting to less than 0.001 percent of Chevron’s most recently reported annual consolidated gross revenues. Until his retirement in 2012, Mr. Sharer was the Chairman, Chief Executive Officer and President of Amgen. The Board concluded that these transactions would not impair Mr. Sharer’s independence.

For Mr. Stumpf, the Board considered that in 2012, Chevron utilized Wells Fargo & Company for commercial banking, brokerage and other services, in the ordinary course of business, amounting to less than 0.018 percent of Wells Fargo’s most recently reported annual consolidated gross revenues, and Wells Fargo paid to Chevron interest in connection with timed deposits and similar transactions, in the ordinary course of business, amounting to less than 0.006 percent of Chevron’s most recently reported annual consolidated gross revenues. Mr. Stumpf is the Chairman, Chief Executive Officer and President of Wells Fargo. The Board concluded that these transactions would not impair Mr. Stumpf’s independence.

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Vote Required

Each Director nominee who receives a majority of the votes cast will be elected a Director, in an uncontested election. Any shares not voted (whether by abstention or otherwise) will have no impact on the elections. If you are a street name stockholder and do not vote your shares, your bank, broker or other holder of record cannot vote your shares at its discretion in these elections.

If the number of Director nominees exceeds the number of Directors to be elected—a circumstance we do not anticipate—the Directors shall be elected by a plurality of the shares present in person or by proxy at the Annual Meeting or any adjournment thereof and entitled to vote on the election of Directors.

Your Board’s Recommendation

Your Board unanimously recommends that you vote FOR the 11 Directors named in this Proxy Statement.

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Director Compensation

Nonemployee Director Compensation, Generally

Our compensation for nonemployee Directors is designed to be competitive with our largest global energy competitors and other large capital-intensive international companies across industries, to link rewards to business results and stockholder returns, and to facilitate increased ownership of Chevron common stock. We do not have a retirement plan for nonemployee Directors. Our executive officers are not paid additional compensation for their services as Directors.

The Board Nominating and Governance Committee evaluates and recommends to the nonemployee Directors of the Board the compensation for nonemployee Directors, and the nonemployee Directors of the Board set the compensation. Our executive officers have no role in determining the amount or form of nonemployee compensation. The Committee may retain the services of an independent compensation consultant to assist the Committee with its work in connection with Chevron’s nonemployee Director compensation program.

In 2012, the Committee retained the services of an independent compensation consultant, Pearl Meyer & Partners, to assist the Committee with its biennial review of Chevron’s nonemployee Director compensation program. Under the retention agreement, the Committee has the exclusive right to select, retain and terminate Pearl Meyer & Partners, as well as to approve any fees, terms or other conditions of Pearl Meyer & Partners’ service. Pearl Meyer & Partners and its lead consultant report directly to the Committee, but may work cooperatively with management to develop analyses and proposals when requested to do so by the Committee.

Pearl Meyer & Partners conducted a comprehensive review of Chevron’s nonemployee Director compensation, including a review of director compensation arrangements at Chevron’s domestic oil peers (i.e., Anadarko Petroleum, ConocoPhillips, Devon Energy, ExxonMobil, Hess, Marathon Oil, Occidental Petroleum, Sunoco, Tesoro Petroleum and Valero Energy) and Non-Oil Industry Peer Group Companies, which are identified in “Use of Peer Groups” in the “Compensation Discussion and Analysis” in this Proxy Statement.

The nonemployee Directors’ 2012 total annual compensation did not change from 2011. Nonemployee Directors received total annual compensation of $300,000 per Director, with 39 percent paid in cash and 61 percent paid in restricted stock units. Committee chairmen receive an additional $15,000 in cash for their services.

Changes in Nonemployee Director Compensation

Beginning with the 2013 Annual Meeting, nonemployee Directors will receive total annual compensation of $375,000 per Director, with 40 percent in cash and 60 percent to be paid in restricted stock units. Committee chairmen will continue to receive an additional $15,000 in cash for their services. Following Pearl Meyer & Partners’ comprehensive review of Chevron’s nonemployee Director compensation described above, the Board Nominating and Governance Committee recommended to and the nonemployee Directors of the Board approved this increase in nonemployee Director compensation in view of the following considerations, among others:

the Board has not increased nonemployee Director compensation since 2009, when it increased Director compensation by $10,000 and an additional $5,000 increase for committee chairmen;

since 2010, average director compensation has increased 9 percent among Chevron’s domestic oil peers; and

the increase in total compensation positions Chevron’s nonemployee Director compensation within a range among domestic oil peers which the Committee and nonemployee Directors feel is appropriate in view of Chevron’s position relative to these peers in average annual revenue.

2012 Compensation

Below, we describe the nonemployee Directors’ 2012 annual compensation:

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Cash or Stock Options (at the Director’s Election)

$116,000 annual cash retainer, paid in monthly installments beginning with the month the Director is elected to the Board.

$15,000 additional annual cash retainer for each Board committee chairman, paid in monthly installments beginning with the month the Director becomes a committee chairman.

Directors can elect to receive nonstatutory/nonqualified stock options instead of any portion of their cash compensation. Options are granted under the Chevron Corporation Nonemployee Directors’ Equity Compensation and Deferral Plan (NED Plan). The options are granted on the date of the annual meeting of stockholders that the Director is elected and are exercisable for that number of shares of Chevron common stock determined by dividing the amount of the cash retainer subject to the election by the Black-Scholes value of an option on the date of grant. Elections to receive options in lieu of any portion of cash compensation must be made by December 31 in the year preceding the year in which the options are granted. The options have an exercise price based on the closing price of Chevron common stock on the date of grant. Half of the award vests six months after the grant date, and the remaining half vests on the earlier of the 12-month anniversary of the grant date or the day preceding the first annual meeting of stockholders following the grant. The vested options become exercisable on the 12-month anniversary of the grant date and have a term of 10 years.

Directors can also elect to defer any portion of their cash compensation under the NED Plan. Deferral elections must be made by December 31 in the year preceding the year in which the cash to be deferred is earned. Deferrals are credited, at the Director’s election, into accounts tracked with reference to the same investment fund options available to participants in the Chevron Deferred Compensation Plan for Management Employees II, including a Chevron Common Stock Fund. Distribution of deferred amounts is in cash except for amounts valued with reference to the Chevron Common Stock Fund, which are distributed in shares of Chevron common stock. Distribution will be made in either one or 10 annual installments for compensation deferred after December 31, 2004, and distributions will be made in one to 10 annual installments for compensation deferred prior to January 1, 2005. Any deferred amounts unpaid at the time of a Director’s death are distributed to the Director’s beneficiary.

Restricted Stock Units

$184,000 of the annual compensation is paid in the form of restricted stock units (RSUs) that are granted on the date of the annual meeting of stockholders at which the Director is elected. If a Director is elected to the Board between annual meetings, a prorated grant is made. RSUs are subject to forfeiture (except when the Director dies, reaches mandatory retirement age, becomes disabled, changes primary occupation or enters government service) until the earlier of 12 months or the day preceding the first annual meeting of stockholders following the date of the grant. After that, the RSUs are paid out in shares of Chevron common stock unless the Director has elected to defer the payout until retirement under the NED Plan.

Expenses and Charitable Matching Gift Program

Nonemployee Directors are reimbursed for out-of-pocket expenses incurred in connection with the business and affairs of Chevron. Nonemployee Directors are eligible to participate in Humankind, our charitable matching gift program, which is available to all our employees. We will match any contributions to eligible entities up to a maximum of $10,000 per year.

Nonemployee Director Compensation During the Fiscal Year Ended December 31, 2012

The above described choices available to Directors result in slight differences in reportable compensation, even though each Director was awarded the same amount (except for committee chairmen, who receive an additional $15,000). Specifically, some Directors elected to receive stock options for all or a portion of the annual cash retainer.

The Directors’ compensation reported below also includes the aggregate incremental cost to Chevron for expenses deemed perquisites that were incurred in connection with the Board’s October 2012 trip to Southeast Asia. Generally, every two years, the Board travels to one of Chevron’s international locations of operation to gain additional insight into Chevron’s operations and meet Chevron personnel at that location. Board member spouses are invited to attend the international Board trip to learn about Chevron’s operations and foster social interaction among the Directors as well as provide opportunities for spouses to attend receptions with local and expatriate Chevron employees and their families and local government officials, tour Chevron facilities, and participate in community engagement and other goodwill activities on behalf of Chevron. Incremental costs incurred in connection with spousal attendance and attributed to the Director as a perquisite include transportation (such as commercial air travel when in lieu of corporate air travel), lodging, meals, sightseeing and other activities for the spouse.

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The following table sets forth the compensation of our nonemployee Directors for the fiscal year ended December 31, 2012. Messrs. Robert J. Eaton, Rice and Charles R. Shoemate retired from the Board on May 30, 2012, in accordance with Chevron’s Director Retirement Policy contained in our Corporate Governance Guidelines. On February 26, 2013, Mr. Hagel resigned from the Board of Directors due to his confirmation by the U.S. Senate as U.S. Secretary of Defense.

Name

Fees Earned or

Paid in Cash

 

Stock

Awards(1)

Option

Awards(2)

All Other

Compensation(3)

Total

Linnet F. Deily

$

131,000

(4)

$

184,000

$

12,081

$

327,081

Robert E. Denham

$

131,000

(4)(5)

$

184,000

$

21,525

$

336,525

Robert J. Eaton

$

$

$

31,975

$

31,975

Alice P. Gast

$

(6)

$

90,236

$

108

$

90,344

Charles T. Hagel

$

116,000

$

184,000

$

3,459

$

303,459

Enrique Hernandez Jr.

$

$

184,000

$

115,984

$

20,653

$

320,637

Charles W. Moorman

$

58,644

(5)

$

184,000

$

1,908

$

244,552

Donald B. Rice

$

57,678

$

$

27,766

$

85,444

Kevin W. Sharer

$

116,000

(5)

$

184,000

$

2,305

$

302,305

Charles R. Shoemate

$

57,678

$

$

32,091

$

89,769

John G. Stumpf

$

116,000

$

184,000

$

6,855

$

306,855

Ronald D. Sugar

$

131,000

(4)(5)

$

184,000

$

16,467

$

331,467

Carl Ware

$

131,000

(4)

$

184,000

$

6,940

$

321,940

(1)

Amounts reflect the grant date fair value for restricted stock units (RSUs) granted in 2012 under the NED Plan. The grant date fair value of these RSUs was $100.24 per unit, the closing price of Chevron common stock on May 29, 2012, except for the prorated award granted to Dr. Gast. The grant date fair value of Dr. Gast’s RSUs was $105.69 per unit, the closing price of Chevron common stock on November 30, 2012. RSUs accrue dividend equivalents, the value of which is factored into the grant date fair value. For purposes of this table only, estimates of forfeitures related to service-based vesting conditions have been disregarded. RSUs are payable in Chevron common stock.

At December 31, 2012, the following nonemployee Directors had the following number of shares subject to outstanding stock awards or deferrals:

 

Name

Restricted

Stock

Stock

Units

Restricted

Stock Units

Stock Units

From Director’s

Deferral of Cash

Retainer

Total

 

Linnet F. Deily

3,006

1,865

4,871

 

Robert E. Denham

3,082

9,560

14,415

13,438

40,495

 

Robert J. Eaton

6,192

12,549

18,741

 

Alice P. Gast

853

853

 

Charles T. Hagel

1,865

1,865

 

Enrique Hernandez Jr.

10,827

985

11,812

 

Charles W. Moorman

1,865

457

2,322

 

Donald B. Rice

3,006

12,549

15,555

 

Kevin W. Sharer

14,415

8,152

22,567

 

Charles R. Shoemate

6,192

12,549

45

18,786

 

John G. Stumpf

1,865

1,865

 

Ronald D. Sugar

2,023

6,192

14,415

11,567

34,197

 

Carl Ware

6,487

16,994

14,415

402

38,298

Despite retiring in 2012, Messrs. Eaton, Rice and Shoemate continue to have outstanding stock awards because these awards will be distributed in accordance with their previous elections to defer payout of these awards. At December 31, 2012, the following nonemployee Directors also had the following number of stock units attributed to the Texaco Inc. Director and Employee Deferral Plan: Mr. Eaton, 2,378; and Mr. Shoemate, 7,292. These stock units accrue dividend equivalents.

(2)

For Directors electing stock options in lieu of all or a portion of the annual cash compensation, amounts reflect the grant date fair value for stock options granted on May 30, 2012. The grant date fair value was determined in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718, Compensation—Stock Compensation (ASC 718) for financial reporting purposes. The grant date fair value of each option is calculated using the Black-Scholes model. Stock options granted on May 30, 2012, have an exercise price of $97.63 and a grant date fair value of $19.98. The assumptions used in the Black-Scholes model to calculate this grant date fair value were: an expected life of 6.0 years, a volatility rate of 31.6%, a risk-free interest rate of 1.01% and a dividend yield of 3.51%. For purposes of this table only, estimates of forfeitures related to service-based vesting conditions have been disregarded.

Messrs. Eaton and Hernandez elected to receive all or a portion of their 2012 annual cash compensation in the form of stock options. The number of stock options granted in 2012 to Mr. Hernandez is 5,805. Mr. Eaton received stock options in 2011 covering the period May 24, 2011, through his retirement on May 30, 2012. One-half of the options vest six months following the date of grant, and the remaining half vests on the earlier of 12 months or the day preceding the first annual meeting of stockholders following the date of grant. Options expire after 10 years.

At December 31, 2012, the following Directors had the following number of stock options: Ms. Deily, 1,456; Mr. Eaton, 20,013; Mr. Hernandez, 26,475; and Mr. Shoemate, 8,305. Under the rules governing awards of stock options under the NED Plan, Directors who retire in accordance with Chevron’s Director Retirement Policy have until 10 years from the date of grant to exercise any outstanding option.

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(3)

All Other Compensation for 2012 includes the following items.

 

Insurance(a)

Perquisites(b)

Charitable Gift(c)

 

Linnet F. Deily

$

1,310

$

771

$

10,000

 

Robert E. Denham

$

1,310

$

20,215

$

 

Robert J. Eaton

$

4,877

$

17,098

$

10,000

 

Alice P. Gast

$

108

$

$

 

Charles T. Hagel

$

1,310

$

1,149

$

1,000

 

Enrique Hernandez Jr.

$

1,310

$

9,343

$

10,000

 

Charles W. Moorman

$

759

$

1,149

$

 

Donald B. Rice

$

552

$

17,214

$

10,000

 

Kevin W. Sharer

$

1,310

$

995

$

 

Charles R. Shoemate

$

4,877

$

17,214

$

10,000

 

John G. Stumpf

$

1,310

$

5,545

$

 

Ronald D. Sugar

$

1,310

$

10,157

$

5,000

 

Carl Ware

$

1,310

$

5,630

$

(a)

Amounts reflect the annualized premium for accidental death and dismemberment insurance coverage paid by Chevron, which has been prorated for Dr. Gast and Messrs. Eaton, Moorman, Rice and Shoemate. For Messrs. Eaton and Shoemate, amounts include $4,325 for participation in the Texaco Group Personal Umbrella Liability Insurance benefit for Directors and officers. Messrs. Eaton and Shoemate are also participants in the Directors’ Charitable Gift Program, which was established by Texaco Inc. and which, following the merger of Texaco Inc. and Chevron, has been continued by Chevron solely with respect to former Directors of Texaco. The program provides for the payment upon a participating Director’s death of $1 million to tax-exempt organizations that are designated by the Director and that are not incompatible with Chevron’s philanthropic philosophy. Prior to the merger, Texaco purchased insurance policies for future gift payouts for the participating Directors under which each policy covered two Directors, with the Corporation receiving the $2 million insurance proceeds upon the death of the second of the two Directors covered by each policy. Participants receive no financial benefit from the program because the Company receives all insurance proceeds and charitable deductions. The Corporation did not pay any premiums in 2012 because the premiums were fully funded by the accumulated cash value of the policies. Accordingly, no compensation is deemed paid to any participating Director.

(b)

For Ms. Deily and Messrs. Denham, Hagel, Hernandez, Moorman, Sharer, Stumpf, Sugar and Ware, reflects aggregate incremental costs for expenses deemed perquisites incurred in connection with the Board of Directors’ October 2012 trip to Southeast Asia, as described above. For transportation costs, incremental cost is the actual per-person cost incurred for commercial air travel for spouses (when in lieu of corporate air travel), if applicable. For lodging, meals, entertainment, and other costs, incremental cost reflects actual per-person cost. For Messrs. Eaton, Rice and Shoemate, who retired in 2012, reflects the actual costs of commemorative items and gifts given to the Director and his spouse upon retirement.

(c)

Amounts paid in 2012 in the Director’s name under Humankind, our charitable matching gift program.

(4)

Amount includes the additional retainer for serving as a Board committee chairman during 2012.

(5)

The Director has elected to defer some or the entire annual cash retainer under the NED Plan in 2012. None of the earnings under the plan are above market or preferential.

(6)

Dr. Gast was elected to the Board effective December 1, 2012, and payment for December’s service was paid in the subsequent month of service received.

 

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Board Operations

Board Leadership and Independent Lead Director

Under Chevron’s By-Laws, the positions of Chairman of the Board and CEO are separate positions that may be occupied by the same person. Chevron’s Directors select the Chairman of the Board annually. Thus, the Board has great flexibility to choose the optimal leadership structure depending upon Chevron’s particular needs and circumstances and to organize its functions and conduct its business in the most efficient and effective manner.

The Board Nominating and Governance Committee conducts an annual assessment of Chevron’s corporate governance structures and processes, which includes a review of Chevron’s Board leadership structure and whether combining or separating the roles of Chairman and CEO is in the best interests of Chevron’s stockholders. At present, Chevron’s Board believes that it is in the stockholders’ best interests for the CEO, Mr. Watson, to also serve as Chairman of the Board. The Board believes that having the CEO also serve as Chairman at this time fosters an important unity of leadership between the Board and the Company that is nevertheless subject to effective oversight by the independent Lead Director and the other independent Directors. The Board does not believe that having the CEO also serve as Chairman at this time inhibits the flow of information and interactions between the Board and management and other Company personnel.

Your Board does recognize the importance of independent Board oversight of the CEO and management. The independent Directors conduct an annual review of the CEO’s performance. At each meeting, the independent Directors meet in executive session. During executive sessions, the independent Directors discuss management performance and routinely formulate guidance and feedback for the CEO and other members of management.

Under Chevron’s Corporate Governance Guidelines, when the Board selects the CEO to also serve as Chairman, the independent Directors select a Lead Director from among themselves, currently Mr. Denham. As described in the “Board Leadership and Lead Director” section of Chevron’s Corporate Governance Guidelines, the Lead Director’s responsibilities are to:

chair all meetings of the independent Directors, including executive sessions;

serve as liaison between the Chairman and the independent Directors;

consult with the Chairman on and approve meeting agendas and schedules and information sent to the Board;

consult with the Chairman on other matters pertinent to Chevron and the Board;

call meetings of the independent Directors; and

communicate with major stockholders.

The Board routinely reviews the Lead Director’s responsibilities to ensure that these responsibilities enhance the oversight of the CEO and management by the independent Directors and the flow of information and interactions between the Board and management and other Company personnel. As a result of its most recent review the Board decided to augment the Lead Director’s duties to include consulting with the Chairman on and approving information sent to the Board.

Any stockholder can communicate with the Lead Director or any of the other Directors in the manner described in the Board Nominating and Governance Committee Report in this Proxy Statement.

Board Committee Membership and Functions

Chevron’s Board of Directors has four standing committees: Audit, Board Nominating and Governance, Management Compensation, and Public Policy. The Audit, Board Nominating and Governance, and Management Compensation Committees are each constituted and operated according to the requirements of the Securities Exchange Act of 1934, as amended (Exchange Act), and related rules and the New York Stock Exchange (NYSE) Corporate Governance Standards. Each Committee is governed by a written charter that can be viewed on the Chevron website at www.‌chevron.‌com and is available in print upon request. In addition, each member of the Compensation Committee is an “outside” Director for purposes of Section 162(m) of the Internal Revenue Code of 1986, as amended, and each member of the Audit Committee is independent, financially literate and, other than Dr. Gast, an “audit committee financial expert,” as such terms are defined under the Exchange Act and related rules and the NYSE Corporate Governance Standards.

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Committees and Membership

Committee Functions

Audit

Ronald D. Sugar, Chairman

Alice P. Gast

Enrique Hernandez Jr.

John G. Stumpf

Selects the independent registered public accounting firm for endorsement by the Board and ratification by the stockholders;

Reviews reports of independent and internal auditors;

Reviews and approves the scope and cost of all services (including nonaudit services) provided by the independent registered public accounting firm;

Monitors the effectiveness of the audit process and financial reporting;

Reviews the adequacy of financial and operating controls;

Monitors implementation and effectiveness of Chevron’s compliance policies and procedures;

Assists the Board in fulfilling its oversight of enterprise risk management, particularly financial risk exposures; and

Evaluates the effectiveness of the Committee.

Board Nominating And Governance

Robert E. Denham, Chairman

Kevin W. Sharer

Carl Ware

Evaluates the effectiveness of the Board and its committees and recommends changes to improve Board, Board committee and individual Director effectiveness;

Assesses the size and composition of the Board;

Recommends prospective Director nominees;

Reviews and approves nonemployee Director compensation;

Reviews and recommends changes as appropriate in Chevron’s Corporate Governance Guidelines, Restated Certificate of Incorporation, By-Laws and other Board-adopted governance provisions; and

Assists the Board in fulfilling its oversight of enterprise risk management, particularly risks in connection with Chevron’s corporate governance structures and processes.

Management Compensation

Carl Ware, Chairman

Linnet F. Deily

Robert E. Denham

Charles W. Moorman

Kevin W. Sharer

Reviews and recommends to the independent Directors the salary and other compensation matters for the CEO;

Reviews and approves salaries and other compensation matters for executive officers other than the CEO;

Administers Chevron’s executive incentive and equity-based compensation plans;

Reviews Chevron’s strategies and supporting processes for management succession planning, leadership development, executive retention and diversity;

Assists the Board in fulfilling its oversight of enterprise risk management, particularly risks in connection with Chevron’s compensation programs; and

Evaluates the effectiveness of the Committee.

Public Policy

Linnet F. Deily, Chairman

Charles W. Moorman

Identifies, monitors and evaluates domestic and international social, political, human rights and environmental trends and issues that affect Chevron’s activities and performance;

Recommends to the Board policies, programs and strategies concerning such issues;

Recommends to the Board policies, programs and practices concerning support of charitable, political and educational organizations;

Assists the Board in fulfilling its oversight of enterprise risk management, particularly risks in connection with the social, political, environmental and public policy aspects of Chevron’s business;

Reviews, annually, the policies and procedures and expenditures for Chevron’s political activities, including political contributions and direct and indirect lobbying; and

Evaluates the effectiveness of the Committee.

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Board and Committee Meetings and Attendance

In 2012, your Board held six Board meetings, with each meeting including an executive session of independent Directors, and 22 Board committee meetings, which included nine Audit Committee, six Board Nominating and Governance Committee, four Management Compensation Committee, and three Public Policy Committee meetings.

All Directors attended 88 percent or more of the Board meetings and their Board Committee meetings during 2012. Chevron’s policy regarding Directors’ attendance at the Annual Meeting, as described in the “Board Agenda and Meetings” section of Chevron’s Corporate Governance Guidelines (available at www.‌chevron.com), is that all Directors are expected to attend the Annual Meeting, absent extenuating circumstances. All current Directors, other than Dr. Gast, who joined the Board in December 2012, attended the 2012 Annual Meeting.

Board Oversight of Risk

One of the many duties of your Board is to oversee Chevron’s risk management policies and practices to ensure that the appropriate risk management systems are employed throughout the Company. Chevron faces a broad array of risks, including market, operational, strategic, legal, political and financial risks. The Board exercises its role of risk oversight in a variety of ways, including the following:

Board of Directors

monitors overall corporate performance, the integrity of Chevron’s financial controls, and the effectiveness of its legal compliance and enterprise risk management programs;

oversees management’s implementation and utilization of appropriate risk management systems at all levels of the Company, including operating companies, business units, corporate departments and service companies;

reviews portfolio, capital allocation and geopolitical risks in the context of the Board’s annual strategy session and the annual business plan and capital budget review;

receives reports from management on risk matters in the context of the Company’s strategic, business and operational planning and decision making; and

receives reports from various centers of management-level risk expertise, including Corporate Strategic Planning, Legal, Corporate Compliance, Health Environment and Safety, Global Exploration and Reserves, Corporation Finance, and others.

Audit Committee

assists the Board in fulfilling its oversight of financial risk exposures and implementation and effectiveness of Chevron’s compliance programs;

discusses Chevron’s policies with respect to risk assessment and risk management;

meets with Chevron’s Chief Compliance Officer and representatives of Chevron’s Compliance Policy Committee to receive information regarding compliance policies and procedures and internal controls;

meets with and reviews reports from Chevron’s independent and internal auditors; and

reports its discussions to the full Board for consideration and action when appropriate.

Board Nominating and Governance Committee

assists the Board in fulfilling its oversight of risks that may arise in connection with the Company’s governance structures and processes;

conducts an annual evaluation of the Company’s governance practices with the help of the Corporate Governance department;

discusses risk management in the context of general governance matters, including, among other topics, Board and management succession planning, delegations of authority and internal approval processes, stockholder proposals and activism, and Director and officer liability insurance; and

reports its discussions to the full Board for consideration and action when appropriate.

Management Compensation Committee

assists the Board in fulfilling its oversight of risks that may arise in connection with Chevron’s compensation programs and practices;

reviews the design and goals of Chevron’s compensation programs and practices in the context of possible risks to Chevron’s financial and reputational well-being;

reviews Chevron’s strategies and supporting processes for management succession planning, leadership development, executive retention and diversity; and

reports its discussions to the full Board for consideration and action when appropriate.

Public Policy Committee

assists the Board in fulfilling its oversight of risks that may arise in connection with the social, political, environmental and public policy aspects of Chevron’s business and the communities in which it operates;

discusses risk management in the context of, among other things, legislative initiatives, safety and environmental stewardship, government and nongovernment organization relations, and Chevron’s reputation; and

reports its discussions to the full Board for consideration and action when appropriate.

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Business Conduct and Ethics Code

We have adopted a code of business conduct and ethics for Directors, officers (including the Company’s Chief Executive Officer, Chief Financial Officer and Comptroller) and employees, known as the Business Conduct and Ethics Code. The code is available on our website at www.chevron.com and is available in print upon request. We will post any amendments to the code on our website.

Transactions With Related Persons

Review and Approval of Related Persons Transactions

It is our policy that all employees and Directors must avoid any activity that is in conflict with or has the appearance of conflicting with Chevron’s business interests. This policy is included in our Business Conduct and Ethics Code. Directors and executive officers must inform the Chairman and the Corporate Secretary and Chief Governance Officer when confronted with any situation that may be perceived as a conflict of interest. In addition, at least annually, each Director and executive officer completes a detailed questionnaire specifying any business relationship that may give rise to a conflict of interest.

The Board has charged the Board Nominating and Governance Committee to review related persons transactions as defined by U.S. Securities and Exchange Commission (SEC) rules. The Committee has adopted guidelines to assist it with this review. Under these guidelines, all executive officers, Directors and Director nominees must promptly advise the Corporate Secretary and Chief Governance Officer of any proposed or actual business and financial affiliations involving themselves or their immediate family members that, to the best of their knowledge after reasonable inquiry, could reasonably be expected to give rise to a reportable related persons transaction. The Corporate Secretary and Chief Governance Officer will prepare a report summarizing any potentially reportable transactions, and the Committee will review these reports and determine whether to approve or ratify the identified transaction. The Committee has identified the following categories of transactions that are deemed to be preapproved by the Committee, even if the aggregate amount involved exceeds the $120,000 reporting threshold identified in the SEC rules:

compensation paid to an executive officer if that executive officer’s compensation is otherwise reported in our Proxy Statement or if the executive officer is not an immediate family member of another Chevron executive officer or Director;

compensation paid to a Director for service as a Director if that compensation is otherwise reportable in our Proxy Statement; transactions in which the related person’s interest arises solely as a stockholder and all stockholders receive the same benefit on a pro-rata basis;

transactions involving competitive bids (unless the bid is awarded to a related person who was not the lowest bidder or unless the bidding process did not involve the use of formal procedures normally associated with our bidding procedures);

transactions involving services as a common or contract carrier or public utility in which rates or charges are fixed by law;

transactions involving certain banking-related services under terms comparable with similarly situated transactions;

transactions conducted in the ordinary course of business in which our Director’s interest arises solely because he or she is a director of another entity and the transaction does not exceed $5 million or 5 percent (whichever is greater) of the receiving entity’s consolidated gross revenues for that year;

charitable contributions by Chevron to an entity in which our Director’s interest arises solely because he or she is a director, trustee or similar advisor to the entity and the contributions do not exceed, in the aggregate, $1 million or 2 percent (whichever is greater) of that entity’s gross revenues for that year; and

transactions conducted in the ordinary course of business and our Director’s interest arises solely because he or she owns an equity or limited partnership interest in the entity and the transaction does not exceed 2 percent of the total equity or partnership interests of the entity.

The Committee reviews all relevant information, including the amount of all business transactions involving Chevron and the entity with which the Director or executive officer is associated, and determines whether to approve or ratify the transaction. A Committee member will abstain from decisions regarding transactions involving that Director or his or her family members.

Related Persons Transactions

The stepmother of Chairman and Chief Executive Officer John S‌. Watson and Mr. Watson’s late father’s estate (of which Mr. Watson, his stepmother and several of his immediate family members are beneficiaries) are receiving payments from a law firm in connection with the law firm’s buyout in January 2008 of Mr. Watson’s father’s partnership and real property interests. Chevron retains the law firm in connection with various matters. In 2012, Chevron paid the firm approximately $15,000 and expects to pay it approximately $395,000 in 2013 for services rendered in 2012 and 2013.

The Board Nominating and Governance Committee has reviewed and approved or ratified this transaction under the standards described above.

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Board Nominating and Governance Committee Report

The Board Nominating and Governance Committee is responsible for recommending to the Board the qualifications for Board membership, identifying, assessing and recommending qualified Director candidates for the Board’s consideration, assisting the Board in organizing itself to discharge its duties and responsibilities, and providing oversight of Chevron’s corporate governance practices and policies, including an effective process for stockholders to communicate with the Board. The Committee is composed entirely of independent Directors as defined by the NYSE Corporate Governance Standards and operates under a written charter. The Committee’s charter is available on the Chevron website at www.chevron.com and is available in print upon request.

The Committee’s role in and process for identifying and evaluating Director nominees, including nominees recommended by stockholders, is described on pages 6 and 7 of this Proxy Statement. In addition, the Committee makes recommendations to the Board concerning Director independence, Board committee assignments, committee chairman positions, Audit Committee “financial experts” and the financial literacy of Audit Committee members.

The Committee regularly reviews trends and recommends best practices, initiates improvements, and plays a leadership role in maintaining Chevron’s strong corporate governance structures and practices. Among the practices the Committee believes demonstrate the Company’s commitment to strong corporate governance are:

annual election of all Directors;

supermajority of independent Directors;

majority vote standard for the election of Directors in uncontested elections coupled with a Director resignation policy;

annual election of the Chairman of the Board by the Directors;

annual election of an independent Lead Director by independent Directors;

annual assessment of Board, committee and Director performance;

Director retirement policy;

annual succession planning sessions;

confidential stockholder voting policy;

minimum stockholding requirements for Directors and officers;

review and approval or ratification of “related persons transactions” as defined by SEC rules;

policy to obtain stockholder approval of any stockholder rights plan;

right of stockholders to call for a special meeting; and

no supermajority voting provisions in Restated Certificate of Incorporation or By-Laws.

The Committee reviews interested-party communications, including stockholder inquiries directed to nonemployee Directors. The Corporate Secretary and Chief Governance Officer compiles the communications, summarizes lengthy or repetitive communications, and regularly summarizes the communications received, the responses sent and further disposition, if any. All communications are available to the Directors. Interested parties wishing to communicate their concerns or questions about Chevron to the Chairman of the Committee or any other nonemployee Directors may do so by U.S. mail addressed to Nonemployee Directors, c/o Office of the Corporate Secretary and Chief Governance Officer, 6001 Bollinger Canyon Road, San Ramon, California 94583-2324.

Stockholders can find additional information concerning Chevron’s corporate governance structures and practices in Chevron’s Corporate Governance Guidelines, By-Laws and the Restated Certificate of Incorporation, copies of which are available on Chevron’s website at www.chevron.com and are available in print upon request.

Respectfully submitted on March 26, 2013, by members of the Board Nominating and Governance Committee of your Board:

Robert E. Denham, Chairman

Kevin W. Sharer

Carl Ware

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Audit Committee Report

The Audit Committee assists your Board in fulfilling its responsibility to oversee management’s implementation of Chevron’s financial reporting process. The Audit Committee charter can be viewed on the Chevron website at www.chevron.com and is available in print upon request.

In discharging its oversight role, the Audit Committee reviewed and discussed the audited financial statements contained in the 2012 Annual Report on Form 10-K with Chevron’s management and its independent registered public accounting firm. Management is responsible for the financial statements and the reporting process, including the system of disclosure controls and procedures and internal control over financial reporting. The independent registered public accounting firm is responsible for expressing an opinion on the conformity of Chevron’s financial statements with accounting principles generally accepted in the United States and on the effectiveness of the Company’s internal control over financial reporting.

The Audit Committee met privately with the independent registered public accounting firm and discussed issues deemed significant by the accounting firm, and the Audit Committee has discussed with the independent auditors the matters required to be discussed by the Statement on Auditing Standards No. 61, as amended (AICPA, Professional Standards, Vol. 1, AU section 380), as adopted by the Public Company Accounting Oversight Board in Rule 3200T.

In addition, the Audit Committee discussed with the independent registered public accounting firm its independence from Chevron and its management; received the written disclosures and the letter required by applicable requirements of the Public Company Accounting Oversight Board regarding the independent accountant’s communications with the Audit Committee concerning independence; and considered whether the provision of nonaudit services was compatible with maintaining the accounting firm’s independence.

In reliance on the reviews and discussions outlined above, the Audit Committee has recommended to your Board that the audited financial statements be included in Chevron’s Annual Report on Form 10-K for the year ended December 31, 2012, for filing with the U.S. Securities and Exchange Commission.

Respectfully submitted on February 21, 2013, by the members of the Audit Committee of your Board:

Ronald D. Sugar, Chairman

Alice P. Gast

Enrique Hernandez Jr.

John G. Stumpf

Management Compensation Committee Report

The Management Compensation Committee of Chevron has reviewed and discussed with management the Compensation Discussion and Analysis beginning on the following page, and based on such review and discussion, the Committee recommended to the Board of Directors of the Corporation that the Compensation Discussion and Analysis be included in this Proxy Statement and incorporated by reference into the Corporation’s Annual Report on Form 10-K.

Respectfully submitted on March 26, 2013, by members of the Management Compensation Committee of your Board:

Carl Ware, Chairman

Linnet F. Deily

Robert E. Denham

Charles W. Moorman

Kevin W. Sharer

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Executive Compensation

Compensation Discussion and Analysis

A Message To Our Stockholders

“Chevron’s executive compensation program ensures alignment between stockholders, executives, and the Company.”

Carl Ware

Chairman of the Management Compensation Committee

Dear Chevron Stockholder,

The Management Compensation Committee (MCC) carefully considers your views about how we pay our executives. The MCC is composed solely of independent Directors, and we are accountable for ensuring that the links between pay and our business goals are responsible, appropriate, and strongly aligned with your interests as a Chevron stockholder.

We annually review our compensation programs, including our compensation-related risk profile, to ensure that our compensation-related risks are not likely to have a material adverse effect on the Company. Our programs are designed to be externally competitive and sufficiently flexible in order to attract, motivate, and retain top-tier talent in this highly competitive industry. To assist us, we engage an independent compensation consultant, Exequity LLP, which performs no other consulting or other services for Chevron.

Each year, we take into account the result of the “say-on-pay” vote cast by you. In 2012, approximately 95 percent of those who voted approved the compensation of Chevron’s Named Executive Officers (NEOs). We interpreted this strong level of support as affirmation of the current design, purposes, and direction of our compensation programs. We also solicited input from a number of our largest stockholders to get specific feedback.

Our leadership team has a track record of delivering superior stockholder returns. They have been successful in reaching challenging performance milestones and creating long-term stockholder value. Our existing compensation plans have clearly been a part of that success. While we did not make substantive changes to our program in 2012, we continue to review our approach and make improvements, when appropriate.

Chevron is proud to be part of your portfolio, and we look forward to many successful years ahead.

 

Sincerely,

 

 

 

Management Compensation

Committee

 

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Objectives of Our Executive Compensation Program

The overarching objective of our executive compensation program is to attract and retain seasoned management who will deliver long-term stockholder value. Our success is driven by our people.

The global energy business is the largest industry in the world and is very competitive. As measured by net income, four out of the top 10 global companies operate in this business segment. The lead times and project life spans in our business are generally very long. The development cycle of a large, major capital project, from exploration to first production, can be 10 years or longer. Equally important, the productive life spans of our assets can be very long — several decades in most cases and in excess of 100 years for some producing fields.

Accordingly, we have geared our compensation programs to reward career employees. This reflects the fact that the productive life of our asset base spans generations of employees and that the development cycle of many current investment projects are longer than an NEO’s tenure in a particular executive position.

Our management and employees have consistently delivered superior long-term stockholder returns. The stock performance graph that follows shows how an investment in Chevron common stock would have outperformed an equal investment in either the S&P 500 Index or a hypothetical portfolio of Peer Group equity securities (“Peer Group” defined as BP, ExxonMobil, Royal Dutch Shell and Total for purposes of this graph only) over a five-year period ending December 31, 2012.

The comparison includes the reinvestment of all dividends and is adjusted for stock splits, if any. The relative weightings of constituent equity securities assumed for the Peer Group hypothetical portfolio match the relative market capitalizations of the Peer Group Companies as of the beginning of each year.

Our Pay Philosophy

Our compensation programs have been designed with several important values in mind. These include:

structuring our compensation programs in a manner that ensures strong alignment between the interests of our stockholders, the Company, and our employees and executives;

paying for performance;

paying competitively, across all salary grades and across all geographies;

applying compensation program rules in a manner that is internally consistent; and

being metrics-driven and properly balanced in both our emphasis on short-term and long-term objectives and our use of measures based on absolute performance, relative performance against industry peers, historical performance and progress on key business initiatives.

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Components of Compensation

The material components of our executive compensation program and their purpose and their key characteristics are summarized in the following chart.

The majority of executive pay opportunity comes from long-term incentives, typically awarded as 60 percent stock options and 40 percent performance shares. The LTIP awards derive value directly from the Company’s stock price appreciation, which is in total alignment with stockholder interests.

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Pay-for-Performance Framework

Use of Peer Groups

We are always competing for the best talent with our direct industry peers and with the broader market. Accordingly, the MCC regularly reviews the market data, pay practices and ranges of specific comparator (“peer”) companies to ensure that we continue to offer a relevant and competitive executive pay program each year. We use two key groups for our evaluations: oil industry and non-oil industry.

Peer Group

Description

Purpose

Source

Oil Industry

(13 companies)

Represents companies with substantial U.S. or global operations that most nearly approximate the size, scope and complexity of our business or segments of our business.

To understand how each NEO’s total compensation compares with the total compensation for reasonably similar positions at these companies.

Gathered from the Oil Industry Job Match Survey, an annual survey published by Towers Watson, and from these companies’ proxy statements or other public disclosures.

Non-Oil Industry

(22 companies)

Represents companies of significant financial and operational size whose products are primarily commodities and that have, among other things, global operations, significant assets and capital requirements, long-term project investment cycles, extensive technology portfolios, an emphasis on engineering and technical skills, and extensive distribution channels.

To periodically compare our overall compensation practices (and those of the oil and energy industry, generally) against a broader mix of companies to ensure that our compensation practices are reasonable when compared with non-energy companies that are similar to Chevron in size, complexity and scope of operations.

Gathered from the Total Compensation Measurement Database, a proprietary source of compensation and data analysis developed by Aon Hewitt.

Oil Industry Peer Group (IN ORDER OF DECREASING MARKET CAPITALIZATION)

 

 

Market Cap

($ Millions)

Sales and Other

Operating

Revenues(1)

($ Millions)

Net Income

($ Millions)

Company Name

Company Ticker

12/31/12

FY 2012

FY 2012

ExxonMobil Corporation

XOM

389,648

420,714

44,880

Royal Dutch Shell plc

RDSA

217,490

467,153

26,592

Chevron Corporation

CVX

210,516

222,580

26,179

BP plc

BP

132,691

375,580

11,993

ConocoPhillips

COP

70,749

57,967

8,428

Occidental Petroleum Corporation

OXY

61,710

24,172

4,598

Anadarko Petroleum Corporation

APC

37,229

13,307

2,391

Phillips 66

PSX

33,110

166,089

4,124

Marathon Oil Corporation

MRO

21,677

15,688

1,582

Devon Energy Corporation

DVN

21,128

8,809

(206)

Marathon Petroleum Corporation

MPC

20,979

76,534

3,389

Valero Energy Corporation

VLO

18,837

138,286

2,083

Hess Corporation

HES

17,934

37,691

2,025

Tesoro Corporation

TSO

6,071

32,484

743

(1)

Excludes excise, value-added and similar taxes

The Oil Industry Peer Group companies most similar to Chevron in size, complexity, geographic reach, business lines and location of operations are ExxonMobil, BP and Royal Dutch Shell. These companies are key competitors for stockholder investments within the larger global energy sector. We also compete for stockholder interest with smaller companies, including the larger independent exploration and production companies (ConocoPhillips, Occidental, Anadarko, etc.) and the larger independent refining and marketing companies (Valero, Tesoro, etc.). We compete with all of these companies for executive talent.

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Non-Oil Industry Peer Group (IN ORDER OF DECREASING MARKET CAPITALIZATION)

 

 

Market Cap

($ Millions)

Sales and Other

Operating

Revenues(1)

($ Millions)

Net Income

($ Millions)

Company Name

Company Ticker

12/31/12

FY 2012

FY 2012

General Electric Company

GE

218,414

100,149

13,641

International Business Machines Corporation

IBM

214,032

102,467

16,604

Chevron Corporation

CVX

210,516

222,580

26,179

Johnson & Johnson

JNJ

194,772

67,224

10,853

AT&T, Inc.

T

188,136

114,652

7,264

Pfizer Inc.

PFE

182,477

58,986

14,570

Merck & Co. Inc.

MRK

123,910

47,267

6,168

Verizon Communications Inc.

VZ

123,690

115,846

875

Pepsico, Inc.

PEP

105,656

65,492

6,178

Intel Corporation

INTC

101,945

53,341

11,005

3M Company

MMM

63,796

29,904

4,444

Caterpillar Inc.

CAT

58,698

63,068

5,681

The Boeing Company

BA

56,942

81,698

3,900

Ford Motor Co.

F

50,793

126,567

5,665

Honeywell International Inc.

HON

49,684

37,665

2,926

Duke Energy Corporation

DUK

44,915

19,158

1,768

The Dow Chemical Company

DOW

38,902

56,786

1,182

Lockheed Martin Corporation

LMT

29,625

47,182

2,745

Hewlett-Packard Company(2)

HPQ

27,970

119,895

(12,650)

American Electric Power Co., Inc.

AEP

20,728

13,677

1,259

International Paper Company

IP

17,525

27,833

794

Northrop Grumman Corporation

NOC

16,166

25,218

1,978

Alcoa Inc.

AA

9,263

23,700

191

(1)

Excludes excise, value-added and similar taxes

(2)

Hewlett-Packard’s fiscal year ends on October 31.  Accordingly, market capitalization reflects October 31, 2012, shares outstanding and December 31, 2012, stock price.
Sales and Other Operating Revenues and Net Income both reflect the fiscal year ended October 31, 2012.

How Compensation Is Delivered

Our compensation program is designed to collectively deliver competitive pay in the current year (base salary plus CIP awards) and in future years (LTIP awards) based on the longer-term — largely stock price — performance of the Company. For NEOs, primary emphasis is on long-term, at-risk compensation, i.e., LTIP awards such as stock options, performance shares and, from time to time, restricted stock units, the value of which move in direct alignment with returns provided to our stockholders.

Stock options have value only if Chevron’s stock price advances above the grant-day price.

Performance shares capture value in direct proportion to Chevron’s relative ranking versus designated industry peers on total shareholder return (TSR) (price appreciation plus dividends).

Restricted stock units, which are used infrequently, hold value in direct proportion to Chevron’s stock price.

Stock options can be rendered worthless if the Company’s stock price falls below the grant-day price. Performance shares can be rendered worthless if Chevron ranks last in TSR for the designated three-year performance period.

Below we describe in detail the material components of our compensation program for our NEOs: John S. Watson (Chairman and Chief Executive Officer); Patricia E. Yarrington (Vice President and Chief Financial Officer); George L. Kirkland (Vice Chairman and Executive Vice President); Michael K. Wirth (Executive Vice President); and R. Hewitt Pate (Vice President and General Counsel).

Base Salary

Base salary is a fixed, competitive component of pay, based on responsibilities, skills and experience. Base salaries are reviewed periodically in light of market practices and changes in responsibilities.

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How the CEO’s Base Salary Is Determined

The MCC’s independent consultant reviews and reports to the MCC on the relationship of Mr. Watson’s base salary to that of his peers in our Oil Industry and Non-Oil Industry Peer Groups. The MCC does not have a predetermined target or range within the Oil Industry Peer Group or Non-Oil Industry Peer Group as an objective for Mr. Watson’s base salary. Instead, the MCC exercises its discretion, taking into account the data provided by the MCC’s independent consultant, the relative size, scope and complexity of our business, Mr. Watson’s performance, and the aggregate amount of Mr. Watson’s compensation package. After considering the totality of these elements, the MCC makes a recommendation to the independent Directors, and the independent Directors determine Mr. Watson’s base salary.

How the Other NEOs’ Base Salaries Are Determined

For our other NEOs, base salary is a function of two things: the NEO’s assigned base salary grade and individual qualitative considerations, such as individual performance, experience, skills, competitive positioning, retention objectives and leadership responsibilities relative to other NEOs.

Mr. Watson makes recommendations to the MCC as to the base salaries for each of our other NEOs. The MCC makes base salary determinations for all NEOs, and the independent Directors of the Board review and ratify the determinations.

Each NEO is assigned to a base salary grade. Each grade has a base salary minimum, midpoint and maximum that constitute the salary range for that grade, except for the CEO and Vice Chairman positions, which do not have salary grade ranges because they are single incumbent positions. Salary grades and the appropriate salary ranges are determined through market surveys of positions of comparable level, scope, complexity and responsibility. The MCC annually reviews the base salary grade ranges and may approve increases in the ranges if it determines that adjustments are necessary to maintain competitiveness.

Adjustments in 2012 Base Salaries

The MCC adjusted our NEOs’ base salaries in 2012 as follows:

NEO

Position

2011 Base Salary

2012 Base Salary

Adjustment

for 2012

 

John Watson

Chairman and CEO

$

1,600,000

$

1,700,000

6.25

%

George Kirkland

Vice Chairman and

Executive Vice President of Upstream

$

1,300,000

$

1,400,000

7.7

%

Mike Wirth

Executive Vice President, Downstream

$

955,000

$

1,000,000

4.9

%

Pat Yarrington

Vice President and Chief Financial Officer

$

860,000

$

930,000

8.1

%

Hew Pate

Vice President and General Counsel

$

739,000

$

781,000

5.7

%

The MCC determined that these adjustments were appropriate to maintain compensation competitiveness in base salary structure and in light of each NEO’s 2012 individual performance highlights noted below.

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Chevron Incentive Plan (CIP)

The CIP is designed to recognize yearly performance achievements. Annual operating and financial results figure prominently into this assessment, along with demonstrated progress on key business initiatives. Individual leadership is also recognized through this award. The award is delivered as an annual cash bonus based on a percentage of base salary and calculated as follows:

Base Salary

x

Award Target

x

Corporate Performance Rating

x

Individual Performance Modifier

 

 

 

 

 

 

Before the beginning of each performance year, the MCC establishes a CIP Award Target for each NEO, which is based on a percentage of the NEO’s base salary. The MCC sets target awards based on the median award of our Oil Industry Peer Group. All individuals in the same salary grade have the same target, which provides internal equity and consistency.

 

After the end of the performance year, the MCC sets the Corporate Performance Rating. This rating reflects the MCC’s overall assessment of the Company’s performance for that year, based on a range of metrics in four broad categories:

Financial;

Health, Environment and Safety;

Operating; and

Project Development and Commercial Transactions.

The MCC has discretion on weighting the categories and on weighting the performance metrics within each category. Performance is viewed across multiple parameters (absolute results; results versus plan; results versus peers and/or general industry; performance trends over time) and distinctions are made between the controllable and noncontrollable aspects of the metrics. With these metrics as the foundation, the MCC exercises its discretion in setting the Corporate Performance Rating. The minimum Corporate Performance Rating is zero and the maximum is 200 percent.

 

The MCC also takes into account individual performance. This is largely a personal leadership dimension, recognizing the individual effort and initiative expended and demonstrated progress on key business initiatives during the course of the year. The MCC uses its judgment in analyzing the individual performance of each NEO, his or her enterprise and business segment leadership, and how the business units reporting to the NEO performed.

Mr. Watson makes recommendations to the MCC as to the Individual Performance Modifier of each of our other NEOs.

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2012 CIP Results — Corporate Performance Rating

Our annual performance metrics are reviewed in comparison to prior years, current year plans and the results of our peer companies. The MCC also reviews actual annual cash award payments for the prior year for Chevron and our Oil Industry Peer Group, compared with actual business performance for Chevron and for our Oil Industry Peer Group. This comparison assures that our process for determining the Corporate Performance Rating is consistent with our peer group and that actual awards are consistent with both Chevron performance and performance relative to our peers.

The MCC set a Corporate Performance Rating of 150 percent for 2012. This overall Rating is based on the following assessment of Chevron’s 2012 performance.

2012 Performance

2012 was a strong performance year for the Company.

We continued to lead the industry in many financial and safety performance measures. We advanced our major capital projects and remained on track to meet our goal of 3.3 million barrels of daily oil-equivalent production by 2017. We also continued to add opportunities to our portfolio that we believe will add momentum to our growth prospects beyond 2017.

Below we highlight the Company’s performance in four broad categories and compared with ExxonMobil, BP, Royal Dutch Shell and Total over the past five years (“peer group,” for these highlights only). In these graphs, earnings have been adjusted to exclude externally disclosed, significant impacts or activities that are not representative of underlying business operations, such as divestitures, asset impairments and restructurings. We present a reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measures in Appendix A to this Proxy Statement.

Financial Highlights

Achieved earnings of $26.2 billion, second highest in the Company’s history

Posted a return on capital employed of 17 percent, second best in the peer group

Increased the quarterly dividend 11 percent, the 25th consecutive annual increase

Led the peer group in total shareholder return for five-year and 10-year periods

Led the peer group on rolling five-year earnings per share growth for the third consecutive year

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Health, Environment and Safety Highlights

Achieved industry-best performance on Days Away from Work injury rates (DAFWR)

Achieved industry-best performance on Total Recordable Incident rates (TRIR)

Lowered volume of spills, posting the best Company performance ever

Reduced Tier 1 Loss of Containment events (i.e., unplanned or uncontrolled release of material from primary containment that results in a serious outcome)

Incurred process fires at rate unchanged from 2011

Incurred higher number of fatalities than 2011

Operating Highlights

Led the industry in earnings per barrel in our Upstream segment (third consecutive year)

Led the industry in cash margins per barrel in our Upstream segment (fourth consecutive year)

Achieved a 112 percent reserves replacement ratio for 2012, 101 percent for the three-year period, 112 percent for the five-year period

2012 production impacted by delayed startup of an LNG plant in Angola and the precautionary shut-in of the Frade Field offshore Brazil

Ranked No. 2 in earnings per barrel in our Downstream segment

Successfully completed three-year Downstream restructuring plan and achieved a 10 percent improvement in Downstream returns as a result of direct actions taken by the Company in selling nonstrategic or underperforming assets, simplifying operations, and reducing costs

Improved refinery utilization rates over 2011, despite incident at the Richmond, California, refinery



Project Development and Commercial Transaction Highlights

Significant progress was made throughout the year on important capital projects.

For Upstream, three major capital projects successfully started up — Agbami 2 in Nigeria and Tahiti 2 and Caesar Tonga in the Gulf of Mexico. An additional project to expand capacity of the Caspian Pipeline, which is a key enabler of further production growth at TengizChevroil in Kazakhstan, advanced satisfactorily through the year. Progress was also made on four other key projects that underpin our production growth out to 2017:

Gorgon LNG (Australia) – now scheduled for first LNG in first quarter 2015; about 55 percent complete at year-end; now operating with an increased budget because of currency impacts and higher labor and logistics costs than originally projected

Wheatstone LNG (Australia) – scheduled for first LNG in late 2016; began site preparations

Jack/St. Malo (Gulf of Mexico) – scheduled for first production in 2014; on schedule and on budget

Big Foot (Gulf of Mexico) – scheduled for first production in 2014; on schedule and on budget

In the Downstream segment, the Heavy Oil Upgrader project at GS Caltex’s Yeosu, South Korea, refinery was 97 percent complete at year-end, with startup planned for early 2013 (several months ahead of schedule). The Pascagoula Base Oil Plant was also under construction at year-end, on schedule and on budget.

In addition to progress on these key capital projects, we made several resource additions and concluded several commercial transactions that served to strengthen our portfolio and provide future development opportunities. Highlights include acquiring a 50 percent interest in Kitimat LNG (British Columbia, Canada), entering several countries with exploration potential (Suriname, Sierra Leone, Lithuania, Ukraine, South Africa) and purchasing new acreage in the Delaware Basin (New Mexico). The Company also successfully exchanged its stake in the Australia Browse LNG development for cash and increased equity in exploration acreage in the Carnarvon Basin (Australia), acreage we believe could yield additional gas resources to underpin further expansion at our Australian LNG facilities.

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Executive Compensation Awards for 2012 Performance Year

The MCC and independent Directors of the Board assessed multiple parameters in making compensation awards based on 2012 performance. As outlined earlier, these include achievement of both short-term and long-term objectives, and absolute, historical and relative competitive performance of the Company against industry peers. In the MCC’s and the independent Directors’ assessment, the following CIP and LTIP awards demonstrate the crucial connection between pay and performance, reinforce management’s accountability for the full spectrum of operating results, and support the objective of attracting and retaining seasoned management who will deliver long-term stockholder value.

2012 CIP Results — Individual Performance Highlights

NEO

Performance Highlights

John Watson

Second-highest earnings in the Company’s history; strong per share earnings growth and total shareholder return performance versus industry peers

Development and implementation of value-creating strategies, investments and commercial transactions

Top tier safety performance and significant personal leadership around process safety; overall results adversely impacted by certain operating incidents

George Kirkland

Competitor-leading performance in Upstream earnings per barrel, cash margins per barrel and segment return on capital employed (ROCE)

Significant portfolio additions of producing and prospective acreage

Strong base business and reservoir management results

Otherwise industry-leading safety performance adversely impacted by an operating incident

Mike Wirth

Second-highest Downstream and chemical earnings

Overall strong refinery reliability; results adversely impacted by an operating incident

Completed three-year restructuring and captured greater benefits than originally planned

Pat Yarrington

Outstanding internal controls performance

Excellent cash and balance sheet management, as reflected by key financial decisions

Very effective relationship development and maintenance with the investor and finance communities

Hew Pate

Continued reduction in outstanding litigation docket through successful case resolution

Outstanding management of international cases and other major litigation matters

Effective support of major transactions and commercial activity

2012 CIP Results

Mr. Watson received an award of $3,480,000. This amount reflects the amount of his base salary ($1,700,000) multiplied by his CIP Award Target percentage of 130 percent multiplied by the Corporate Performance Rating of 150 percent, resulting in an award of $3,315,000. The remaining $165,000 of Mr. Watson’s award is attributable to the MCC’s and independent Directors’ assessment of his individual performance, as described above.

Mr. Kirkland received an award of $2,200,000. This amount reflects the amount of his base salary ($1,400,000) multiplied by his CIP Award Target percentage of 100 percent multiplied by the Corporate Performance Rating of 150 percent, resulting in an award of $2,100,000. The remaining $100,000 of Mr. Kirkland’s award is attributable to the MCC’s and independent Directors’ assessment of his individual performance, as described above.

Mr. Wirth received an award of $1,260,000. This amount reflects the amount of his base salary ($1,000,000) multiplied by his CIP Award Target percentage of 80 percent multiplied by the Corporate Performance Rating of 150 percent, resulting in an award of $1,200,000. The remaining $60,000 of Mr. Wirth’s award is attributable to the MCC’s and independent Directors’ assessment of his individual performance, as described above.

Ms. Yarrington received an award of $1,339,200. This amount reflects the amount of her base salary ($930,000) multiplied by her CIP Award Target percentage of 80 percent multiplied by the Corporate Performance Rating of 150 percent, resulting in an award of $1,116,000. The remaining $223,200 of Ms. Yarrington’s award is attributable to the MCC’s and independent Directors’ assessment of her individual performance, as described above.

Mr. Pate received an award of $948,900. This amount reflects the amount of his base salary ($781,000) multiplied by his CIP Award Target percentage of 75 percent multiplied by the Corporate Performance Rating of 150 percent, resulting in an award of $878,625. The remaining $70,275 of Mr. Pate’s award is attributable to the MCC’s and independent Directors’ assessment of his individual performance, as described above.

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Long-Term Incentive Plan (LTIP)

The key objective of our LTIP awards is to encourage performance that drives stockholder value over the long-term. The LTIP awards give our NEOs a meaningful equity stake in the business, an equity stake that vests over time. The value of an NEO’s LTIP award at grant time is determined by the MCC with input from its independent compensation consultant, using data from industry peer compensation comparisons. The objective is to ensure Chevron is competitive against key industry peers on total compensation (cash plus equity), after allowing for appropriate distinctions based on size, scale, scope and job responsibilities.

Our LTIP awards typically consist of two equity components:

Component

Weight

How It Works

Stock Options1

60%

Strike price is equal to the closing stock price on the grant date

 

 

Vest and become exercisable one-third per year based on continued service for the first three years and expires 10 years after the grant date

 

 

Gain realized by an executive depends on the stock price at the exercise date compared with the strike price

 

 

Actual number of shares granted is determined by dividing 60% of the value of the NEO’s LTIP award by an estimated Black-Scholes option value

Performance Shares2

40%

Payout is dependent on Chevron’s total shareholder return (TSR) over a three-year period, compared with our principal oil industry peers (i.e., ExxonMobil, BP, Royal Dutch Shell and ConocoPhillips)3

 

 

Payout can vary from 0% to 200% of the target number of shares, depending on this relative TSR ranking

 

 

A 200% payout is earned only if Chevron’s TSR is better than all of our performance peers

 

 

A 0% payout is earned if Chevron’s TSR is last relative to all other performance peers

 

 

Actual number of shares granted is determined by dividing 40% of the value of the NEO’s LTIP award by Chevron’s 90-day trailing average stock price

 

 

Payment is made in cash

1

We report the value of each NEO’s 2012 stock option exercises in the “Option Exercises and Stock Vested in Fiscal Year 2012” table in this Proxy Statement.

2

We report the value of each NEO’s 2012 performance share payout in the “Option Exercises and Stock Vested in Fiscal Year 2012” table in this Proxy Statement.

3

For awards granted after January 1, 2012, Total will replace ConocoPhillips in our principal oil industry peers for purposes of determining performance shares payout.

From time to time, the Board may approve the grant of restricted stock units for special retention or incentive purposes.

We use LTIP awards because they are directly linked to stockholder returns. To have value, stock options require increases in Chevron stock price. Performance shares require Chevron to provide greater stockholder returns than our principal oil industry peers. Because grants are made each year based on the stock price at that time, executives continue to realize value from these compensation elements only if stockholder returns are sustained over a long period.

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A Closer Look at Performance Shares: Why Total Shareholder Return (TSR)?

The value of the performance share payout depends on how our TSR ranks relative to that of our principal oil industry peers over a three-year performance period. TSR combines stock price appreciation and dividends paid, to show the total return to stockholders, expressed as an annualized percentage. The calculation assumes that dividends are reinvested in additional shares. The three-year period tracks the average holding period our key institutional investors typically hold a stock (three to four years).

TSR is a standard metric for stockholders to use in measuring Company performance. It easily allows for meaningful comparisons of our performance relative to other companies within our same industry. It also allows for easy comparison with our stockholders’ other investment alternatives.

Depending on our TSR rank compared with that of our principal oil industry peers, the payout is calculated as follows:

Our Relative TSR Rank

Payout as a Percentage of Target

 

1

200

%

 

2

150

%

 

3

100

%

 

4

50

%

 

5

0

%

Performance share payouts reported in the “Option Exercises and Stock Vested in Fiscal Year 2012” table in this Proxy Statement relate to performance shares granted in January 2010. For the three-year performance period ending December 31, 2012, Chevron ranked second in TSR among the five companies in the peer group. This resulted in a payout of 150 percent of target.

For awards granted after January 1, 2011, the MCC may, in its discretion, adjust the cash payout of performance shares downward if it determines that business or economic considerations warrant such an adjustment.

Performance shares awarded in January 2012 are not eligible for payout (if any) until expiration of the three-year performance period on December 31, 2014.

Additional details about performance share payouts can be found in the footnotes to the “Option Exercises and Stock Vested in Fiscal Year 2012” table in this Proxy Statement.

2012 LTIP Grants

In the “Summary Compensation Table” and the “Grants of Plan-Based Awards in Fiscal Year 2012” table in this Proxy Statement, we report the value and terms of the following LTIP awards granted in early 2012 to each NEO.

The CEO. In determining the value of an annual LTIP award for the CEO, the MCC relies upon input from our independent consultant and the data from the Oil Industry Peer Group. The CEO’s grant is based on the size, scope and complexity of our business, as well as Mr. Watson’s performance. The MCC does not, however, fix predetermined targets for award values. On January 25, 2012, the MCC recommended, and the independent Directors of the Board approved, an annual LTIP award for Mr. Watson as follows:

Stock Options

Performance

Shares

LTIP Value

at Grant Date

420,000

66,000

$                  16.90 MM

NEOs other than the CEO. For NEOs other than the CEO, the value of an annual LTIP award is a function of the NEO’s salary grade. At the beginning of the performance year, the MCC sets the annual LTIP award value for each salary grade, which is generally the median of the value of LTIP awards to persons in similar positions at companies in our Oil Industry Peer Group. The MCC does not, however, fix predetermined targets for award values. On January 25, 2012, the MCC approved annual LTIP awards for each of the NEOs other than the CEO, as follows:

NEO

Stock

Options

Performance

Shares

LTIP Value at

Grant Date

George Kirkland

175,000

27,500

$                  7.04 MM

Mike Wirth

105,000

17,000

$                  4.28 MM

Pat Yarrington

105,000

17,000

$                  4.28 MM

Hew Pate

78,000

12,000

$                  3.11 MM

All NEOs, including Mr. Watson, have held their stock options 6.5 years on average.

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2013 LTIP Grants

Below, we report the value and terms of the following LTIP awards granted in early 2013 to each NEO.

CEO

 

 

Stock Options(1)

Performance

Shares(2)

LTIP Value

at Grant Date(3)

377,000

47,000

$                  15.04 MM

NEO

Stock

Options(1)

Performance

Shares(2)

LTIP Value at

Grant Date(3)

George Kirkland

149,000

21,500

$                  6.38 MM

Mike Wirth

93,000

12,400

$                  3.82 MM

Pat Yarrington

103,000

13,500

$                  4.19 MM

Hew Pate

77,500

10,200

$                  3.16 MM

(1)

Stock options have an exercise price equal to the closing price of Chevron common stock on the grant date. For Mr. Watson, all options at $116.45 per share (January 30, 2013); for Mr. Kirkland 135,000 options at $116.45 per share (January 30, 2013) and 14,000 options at $120.19 per share (March 27, 2013); for Mr. Wirth 90,000 options at $116.45 per share (January 30, 2013) and 3,000 options at $120.19 per share (March 27, 2013); for Ms. Yarrington and Mr. Pate, all options at $116.45 per share (January 30, 2013). Stock options have a 10-year term and vest 33.33% at each anniversary of the date of grant over three years. Stock options do not accrue dividends or dividend equivalents.

(2)

Performance shares are paid in cash, and the payout, if any, will occur at the end of the three-year performance period (January 2013 through December 2015) and will be calculated in the manner described in Footnote 2 to the “Option Exercises and Stock Vested in Fiscal Year 2012” table in this Proxy Statement. Performance shares do not accrue dividends or dividend equivalents.

(3)

Reflects the aggregate grant date fair value of stock options and performance shares. We calculate the grant date fair value of these awards in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718, Compensation—Stock Compensation (ASC Topic 718). For purposes of presentation here, estimates of forfeitures for service-based vesting conditions have been disregarded. For stock options granted in January and March 2013, the fair market value was measured on the date of grant using the Black-Scholes option-pricing model, with the following weighted-average assumptions:

 

January 2013

 

March 2013

 

Expected term in years (based on historical exercise and post-vesting cancellation data)

6.0

 

6.0

 

Volatility (based on historical stock prices over an appropriate period, generally equal to expected term)

31.3

%

31.2

%

Risk-free interest rate (based on zero coupon U.S. treasury note)

1.19

%

1.05

%

Dividend yield

3.33

%

3.29

%

Weighted-average fair value per option granted

$24.48

 

$25.02

 

For performance shares, the fair market value was measured using a Monte Carlo approach and as described generally in Footnote 2 to the “Summary Compensation Table” in this Proxy Statement. For performance shares granted in January 2013, the per share grant-date fair value was $123.57 and for performance shares granted in March 2013, the per share grant-date fair value was $158.08.

Significant Pay at Risk

Approximately 90 percent of the total direct compensation (base salary, CIP and LTIP) delivered to our CEO and NEOs is at risk. By “at risk,” we mean there is no guarantee that the compensation values expected at the time individual awards were granted will be realized. The MCC has complete discretion to severely restrict, and even score at zero, the Corporate Performance Rating and Individual Performance Modifier for the annual cash bonus program (CIP). Stock options can expire worthless, if the Company has not performed well and if stock price appreciation has not occurred within 10 years of the grant date. Performance share awards can be zero as well, if Chevron ranks last on relative total shareholder return (TSR) for any given three-year period. Lastly, restricted stock units can deteriorate markedly in value from the grant date, if Chevron performs poorly. Therefore, for the NEOs to sustain competitive pay relative to industry peers, Chevron must show sustained competitive performance and Chevron’s stockholders must be rewarded with competitive TSR returns. This “at risk” feature demonstrates management’s alignment with stockholders’ interests.

In 2012, the portion of Mr. Watson’s total compensation that was at risk, along with the other NEOs, is illustrated as follows:

Our executive pay program is competitive with peer practices and rewards executives for Company performance in the short and long term.

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Retirement Programs and Other Benefits

NEOs, like all other employees, have retirement programs and other benefits as part of their overall compensation package at Chevron. We believe that these programs and benefits:

support our long-term business cycle;

complement our career employment model; and

encourage retention and long-term employment.

Retirement Programs

All of our employees, including our NEOs, have access to retirement programs that are designed to allow them to accumulate retirement income for the future. These programs include defined benefit (pension) and defined contribution (401(k) savings) plans, as well as other plans, which allow highly compensated employees to receive the same benefits they would have earned without the IRS limitations on qualified retirement plans under ERISA.

Plan Name

Plan Type

How It Works

What’s Disclosed

Chevron Retirement Plan (CRP)

Qualified Defined Benefit (IRS §401(a))

Participants are eligible for a pension benefit when they leave the Company as long as they meet age, service and other provisions under the plan.

In the “Summary Compensation Table” and “Pension Benefits Table,” we report the change in pension value in 2012 and the present value of each NEO’s accumulated benefit under the CRP. The increase in pension value is not a current cash payment. It represents the increase in the value of the NEOs’ pensions, which are paid only after retirement.

Chevron Retirement Restoration Plan (RRP)

Non-Qualified Defined Benefit

Provides participants with retirement income that cannot be paid from the CRP due to IRS limits on compensation and benefits.1

In the “Pension Benefits Table” and accompanying narrative, we describe how the RRP works and present the current value of each NEO’s accumulated benefit under the RRP.

Employee Savings Investment Plan (ESIP)

Qualified Defined Contribution (IRS §401(k))

Participants who contribute a percentage of their annual compensation (i.e., base salary and CIP award) are eligible for a Company-matching contribution, up to annual IRS limits.2

In the footnotes to the “Summary Compensation Table,” we describe Chevron’s contributions to each NEO’s ESIP account.

Employee Savings Investment Plan Restoration Plan (ESIP-RP)

Non-Qualified Defined Contribution

Provides participants with an additional Company-matching contribution that cannot be paid into the ESIP due to IRS limits on compensation and benefits.3

In the “Nonqualified Deferred Compensation Table,” and accompanying narrative, we describe how the ESIP-RP works and Chevron’s contributions to each NEO’s ESIP-RP account.

Deferred Compensation Plan (DCP)

Non-Qualified Defined Contribution

Participants can defer up to:

90% of CIP awards and LTIP performance share awards

40% of base salary above the IRS limit (IRS §401(a)(17)) for payment after retirement or separation from service.

In the “Nonqualified Deferred Compensation Table,” we report the aggregate NEO deferrals and earnings in 2012.

1

Employees whose compensation exceeds the limits established by the IRS for covered compensation and benefit levels. The 2012 IRS limit is $250,000.

2

Participants who contribute at least 2% of their annual compensation to the ESIP receive a Company-matching contribution of 8% (or 4% if they contribute 1%).

3

Participants who contribute at least 2% of their annual compensation to the Deferred Compensation Plan receive a Company-matching contribution of 8% of their base salary that exceeds the IRS limit.

Benefit Programs

The same health and welfare programs, including post-retirement health care, that are broadly available to our employees on U.S. payroll also apply to NEOs, with no other special programs.

Perquisites

Perquisites for NEOs are limited and consist principally of financial counseling fees, executive physicals, home security, and the aggregate incremental costs to Chevron for personal use of Chevron automobiles and aircraft. The MCC periodically reviews our policies with respect to perquisites. In the “Summary Compensation Table” in this Proxy Statement, we report the value of each NEO’s perquisites for 2012.

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Compensation Governance

The MCC works very closely with its independent compensation consultant, Exequity LLP, and management to examine pay and performance matters throughout the year, carefully assessing pay based on progress against business plans, individual performance and contributions, as well as Chevron’s performance relative to industry peers. The MCC then applies its judgment to make its decisions. The MCC solicits input from the CEO concerning the performance and compensation of other NEOs. The CEO does not participate in discussions about his own pay; any proposed change to the compensation of the CEO is recommended by the MCC and approved by the independent Directors of the Board.

A complete description of the MCC’s authority and responsibility is provided in its charter, which is available on our website at www.chevron.com and in print upon request.

Best-Practice Features

Embedded in our overall compensation program are additional features that strengthen the links between the interests of our NEOs and stockholders.

WE DO

 

WE DO NOT

Stock ownership guidelines, for CEO, five times base pay; Vice Chairman, Executive Vice Presidents and Chief Financial Officer, four times

 

Very limited perquisites, all with a specific business rationale

Stock held in deferred accounts is inaccessible until a minimum of one year following termination

 

No individual Supplemental Executive Retirement Plans

Clawback provisions in the CIP, LTIP, DCP, RRP and ESIP-RP for misconduct

 

No stock option repricing, reloads or exchange without stockholder approval

Over 90 percent of CEO’s pay is at risk

 

No loans or purchases of Chevron securities on margin

Thorough assessment of performance

 

No transferability of equity (except in the case of death or a qualifying court order)

Robust succession planning process with Board review twice a year

 

No stock options granted below fair market value

MCC composed entirely of outside, independent Directors

 

No hedging in or pledging of Chevron securities

Independent compensation consultant, hired by and reporting directly to the MCC

 

No change-in-control agreements for NEOs

Negative discretion on performance share payouts for awards granted after January 1, 2011

 

No tax gross-ups for NEOs

Our CIP and LTIP performance share awards are intended to qualify for deduction (e.g., performance- based) under Section 162(m) of Internal Revenue Code

 

No golden parachutes or golden coffins for NEOs

Independent Executive Compensation Advice

The MCC retains an independent compensation consultant—Exequity LLP—to assist it with its duties. The MCC has the exclusive right to select, retain and terminate Exequity, as well as to approve any fees, terms or other conditions of its service. Exequity and its lead consultant report directly to the MCC, but when directed to do so by the MCC, work cooperatively with Chevron’s management to develop analyses and proposals for the MCC. Exequity provides the following services to the MCC:

Education on executive compensation trends within and across industries

Development of compensation philosophy and guiding principles

Selection of compensation comparator groups

Identification and resolution of technical issues associated with executive compensation plans, including tax, legal, accounting and securities rules

The MCC is not aware that any work performed by Exequity raised any conflicts of interest.

CHEVRON CORPORATION2013 Proxy Statement   37


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Stock Ownership Guidelines

We require our NEOs to hold prescribed levels of Chevron common stock, further linking their interests with those of our stockholders.

Position

Ownership Requirements

CEO

Five times base pay

Vice Chairman, Executive Vice Presidents and Chief Financial Officer

Four times base pay

All other executive officers

Two times base pay

Executives have five years to attain their stock ownership guideline. Based upon our closing stock price on December 31, 2012, our CEO had a stock ownership base-salary multiple of 9.5 times, and all other NEOs met their requirement with an average stock ownership base-salary multiple of 7.2 times. The MCC believes these ownership levels provide adequate focus on our long-term business model.

Employment, Severance or Change-in-Control Agreements

In general, we do not maintain employment, severance or change-in-control agreements with our NEOs. Upon retirement or separation from service for other reasons, NEOs are entitled to certain accrued benefits and payments generally afforded other employees. We describe these benefits and payments in the “Pension Benefits Table,” “Nonqualified Deferred Compensation Table” and “Potential Payments Upon Termination or Change-in-Control” tables in this Proxy Statement.

In February 2012, Mr. Pate and Chevron mutually terminated his employment agreement described in our 2011 proxy statement in favor of an agreement relating solely to the vesting of Mr. Pate’s outstanding equity awards, if any, if Mr. Pate’s employment were terminated for any reason on or after August 1, 2019. We describe the effect of this agreement in the footnotes to Mr. Pate’s “Potential Payments Upon Termination or Change-in-Control” table in this Proxy Statement.

Compensation Recovery Policies

The CIP, LTIP, Chevron Deferred Compensation Plan for Management Employees, Chevron Retirement Restoration Plan, and Employee Savings Investment Plan-Restoration Plan include provisions permitting us to “claw back” certain amounts of compensation awarded to an NEO at any time after June 2005 if an NEO engages in certain acts of misconduct, including among other things: embezzlement; fraud or theft; disclosure of confidential information or other acts that harm our business, reputation or employees; misconduct resulting in Chevron having to prepare an accounting restatement; or failure to abide by post-termination agreements respecting confidentiality, noncompetition or nonsolicitation.

Tax Gross-Ups

We do not pay tax gross-ups to our NEOs.

Tax Deductibility of NEO Compensation

We have designed awards under the CIP and awards under the LTIP (other than awards of restricted stock units or restricted stock that vest solely based on the passage of time) to qualify for deduction under Section 162(m) of the Internal Revenue Code, which permits Chevron to deduct certain compensation paid to our CEO and other three most highly paid executives (excluding the Chief Financial Officer) if compensation in excess of $1 million is performance-based. The performance-based criteria in both the CIP and the LTIP were reapproved by stockholders in 2009. If Item 4 in this Proxy Statement—“Board Proposal to Approve Amendments to the Long-Term Incentive Plan of Chevron Corporation (LTIP) and the Material Terms of Performance Goals for Performance-Based Awards Under the LTIP”—is approved by stockholders, such approval will constitute reapproval of the performance-based criteria. The MCC intends to continue seeking a tax deduction for all qualifying compensation within the Section 162(m) limits to the extent that the MCC determines it is in the best interests of Chevron and its stockholders to do so.

CHEVRON CORPORATION2013 Proxy Statement   38


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Summary Compensation Table

The following table sets forth the compensation of our named executive officers, or “NEOs,” for the fiscal years ending December 31, 2012, December 31, 2011 and December 31, 2010. The primary components of each NEO’s compensation are also described in our “Compensation Discussion and Analysis” in this Proxy Statement.

Name and

Principal 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

($)

J.S. Watson,

Chairman &

CEO(7)

2012

$

1,670,833

$

7,095,660

$

9,807,000

$

3,480,000

$

9,948,194

$

225,435

$

32,227,122

2011

$

1,570,833

$

5,064,680

$

7,221,600

$

4,000,000

$

6,592,206

$

277,397

$

24,726,716

2010

$

1,479,167

$

3,752,400

$

5,535,200

$

3,000,000

$

2,273,265

$

220,496

$

16,260,528

P.E. Yarrington,

Vice President & Chief Financial Officer

2012

$

909,583

$

1,827,670

$

2,451,750

$

1,339,200

$

3,785,547

$

95,294

$

10,409,044

2011

$

842,500

$

3,572,160

$

2,803,680

$

1,425,000

$

2,577,459

$

67,790

$

11,288,589

2010

$

776,667

$

1,486,800

$

2,197,800

$

1,050,000

$

1,273,493

$

62,133

$

6,846,893

G.L. Kirkland,

Vice Chairman & Executive Vice President(7)

2012

$

1,370,833

$

2,956,525

$

4,086,250

$

2,200,000

$

8,008,957

$

132,153

$

18,754,718

2011

$

1,270,833

$

2,866,800

$

4,035,600

$

2,600,000

$

5,571,418

$

168,112

$

16,512,763

2010

$

1,191,667

$

2,124,000

$

3,093,200

$

2,150,000

$

3,686,572

$

116,603

$

12,362,042

M.K. Wirth,

Executive Vice President

2012

$

986,875

$

1,827,670

$

2,451,750

$

1,260,000

$

2,196,949

$

115,224

$

8,838,468

2011

$

938,958

$

3,572,160

$

2,803,680

$

1,500,000

$

2,474,409

$

89,583

$

11,378,790

2010

$

896,667

$

2,533,340

$

2,197,800

$

1,250,000

$

862,826

$

119,257

$

7,859,890

R.H. Pate,

Vice President & General Counsel

2012

$

768,750

$

1,290,120

$

1,821,300

$

948,900

$

145,851

$

101,333

$

5,076,254

2011

$

725,875

$

3,781,500

$

2,017,800

$

1,075,000

$

132,686

$

79,711

$

7,812,572

2010

$

681,167

$

1,132,800

$

1,660,560

$

850,000

$

61,387

$

90,205

$

4,476,119

(1)

Reflects actual salary earned during the fiscal year covered. Compensation is reviewed after the end of each year, and salary increases, if any, are generally effective April 1 of the following year. The table below reflects the annual salary rate and effective date for the years in which each person was an NEO and the amounts deferred under the Deferred Compensation Plan for Management Employees (DCP).

Name

Salary Effective

Date

Salary

Total Salary Deferred

Under the DCP

J.S. Watson

April 2012

$

1,700,000

$

167,083

April 2011

$

1,600,000

$

534,083

January 2010

$

1,500,000

$

24,683

P.E. Yarrington

April 2012

$

930,000

$

13,192

April 2011

$

860,000

$

337,000

April 2010

$

800,000

$

310,667

G.L. Kirkland

April 2012

$

1,400,000

$

22,417

April 2011

$

1,300,000

$

20,517

January 2010

$

1,200,000

$

18,933

M.K. Wirth

April 2012

$

1,000,000

$

14,737

April 2011

$

955,000

$

13,879

January 2010

$

900,000

$

13,033

R.H. Pate

April 2012

$

781,000

$

10,375

April 2011

$

739,000

$

9,617

April 2010

$

694,000

$

8,723

We explain the amount of salary in proportion to total compensation in our “Compensation Discussion and Analysis—How Compensation Is Delivered—Significant Pay At Risk.”

CHEVRON CORPORATION2013 Proxy Statement   39


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(2)

Amounts for each fiscal year include the aggregate grant date fair value of performance shares granted under the Long-Term Incentive Plan of Chevron Corporation (LTIP). We calculate the grant date fair value of these awards in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718, Compensation—Stock Compensation (ASC Topic 718), as described in Note 19, “Stock Options and Other Share-Based Compensation,” to the Consolidated Financial Statements contained in our Annual Report on Form 10-K for the year ended December 31, 2012. For purposes of this table only, estimates of forfeitures related to service-based vesting conditions have been disregarded.

For performance shares, the per-share grant date fair value was as follows: $107.51 for the 2012 grant, $95.56 for the 2011 grant and $70.80 for the 2010 grant. We use a Monte Carlo approach to calculate estimated grant date fair value. To derive estimated grant date fair value per share, this valuation technique simulates total shareholder return (TSR) for the Company and our top competitors in our Oil Industry Peer Group (ExxonMobil, BP, Royal Dutch Shell and ConocoPhillips, with Total replacing ConocoPhillips starting with the 2012 grant) using market data for a period equal to the term of the performance period, correlates the simulated returns within the peer group to estimate a probable payout value, and discounts the probable payout value using a risk-free rate for Treasury bonds having a term equal to the performance period. Performance shares are paid in cash, and the cash payout, if any, is based on market conditions at the end of the performance period and calculated in the manner described in Footnote 2 to the “Option Exercises and Stock Vested in Fiscal Year 2012” table, below. The terms of performance shares granted in 2012 are described in the “Grants of Plan-Based Awards in Fiscal Year 2012” table, below.

(3)

Amounts reflect the aggregate grant date fair value for nonstatutory/nonqualified stock options granted under the LTIP. The per-option grant date fair value was as follows: $23.35 for the 2012 grant, $21.24 for the 2011 grant and $16.28 for the 2010 grant. We calculate the grant date fair value of these options in accordance with ASC Topic 718, as described in Note 19, “Stock Options and Other Share-Based Compensation,” to the Consolidated Financial Statements contained in our Annual Report on Form 10-K for the year ended December 31, 2012. For purposes of this table only, estimates of forfeitures related to service-based vesting conditions have been disregarded. The terms of stock options granted in 2012 are described in the “Grants of Plan-Based Awards in Fiscal Year 2012” table, below.

(4)

2012 amounts reflect Chevron Incentive Plan (CIP) awards for the 2012 performance year that were awarded in April 2013. Ms. Yarrington elected to defer 90% of her award, or $1,205,280, to the Deferred Compensation Plan for Management Employees. See “Compensation Discussion and Analysis—How Compensation Is Delivered—Chevron Incentive Plan (CIP)” for a detailed description of CIP awards.

(5)

2012 amounts represent the aggregate change in the actuarial present value of the NEO’s pension value for the Chevron Retirement Plan (CRP) and the Chevron Retirement Restoration Plan (RRP) from January 1, 2012, through December 31, 2012, expressed as a lump sum. (The Deferred Compensation Plan (DCP) and ESIP Restoration Plan (ESIP-RP) do not pay above-market or preferential earnings and are not represented in this table.)

2012 increases in the actuarial present value of an NEO’s pension value are attributable to four factors.

First, increases in highest consecutive 36-month average base salary and CIP awards, or highest average earnings (HAE). For Mr. Watson, the impact of HAE is greater than for other NEOs because he has now been CEO for three years, and this is the first time his HAE reflects three years of compensation at the CEO level.

Second, lower interest and discount rate assumptions were used to estimate the value of the benefit. A lower interest rate produces a greater pension value. The lump sum interest rates for determining the actuarial present values of the pension benefit are based on the Pension Protection Act of 2006 lump sum interest rates, and such rates for 2013 are equivalent to a rate that is approximately 1% less than the 2012 rates. In addition, this year’s discount rate, 3.60%, is 0.15% less than last year’s discount rate, 3.75%.

Third, an additional year older resulting in a shorter discount period from the assumed retirement age to current age. For all of the NEOs (except for Mr. Kirkland who attained age 60 in 2010, and for whom the discount no longer applies because there is no period of time from the assumed retirement age to his current age), the discount period from the assumed retirement age to current age was shorter as of December 31, 2012. The result of a shorter discount period to retirement age is an increase in the pension values.

Fourth, an additional year of benefit service earned in 2012. All of the NEOs worked for a full year in 2012, and therefore their pension benefits increased because they earned an additional year of benefit service. For Mr. Pate, the impact of an additional year of service is larger relative to the other NEO’s since he has significantly fewer years of service.

The following table provides a breakdown of the percent change in the NEO’s pension values:

Name

Total Percent

Change in

Pension Value,

2011 to 2012

Factors

Higher HAE

Lower Interest

Rate and

Discount Rate

Assumptions

One Year

Older

One Additional

Year of Service

J.S. Watson

64

%

46

%

8

%

6

%

4

%

P.E. Yarrington

46

%

27

%

9

%

6

%

4

%

G.L. Kirkland

37

%

26

%

10

%

-2

%

3

%

M.K. Wirth

32

%

19

%

4

%

5

%

4

%

R.H. Pate

69

%

16

%

1

%

4

%

48

%

(6)

All Other Compensation for 2012 includes the following items but excludes other arrangements that are generally available to our salaried employees on the U.S. payroll and do not discriminate in scope, terms or operations in favor of our NEOs, such as our relocation, medical, dental, disability and group life insurance programs.

 

J.S. Watson

P.E. Yarrington

G.L. Kirkland

M.K. Wirth

R.H. Pate

 

ESIP Company Contributions(a)

$

20,000

$

20,000

$

20,000

$

20,000

$

20,000

ESIP-RP Company Contributions(a)

$

113,667

$

52,767

$

89,667

$

58,950

$

41,500

Perquisites(b)

Financial Counseling

$

25,390

$

$

19,320

$

14,880

$

14,880

Motor Vehicles

$

2,357

$

$

2,017

$

$

Corporate Aircraft(c)

$

59,137

$

2,675

$

$

2,675

$

International Board Trip(d)

$

4,789

$

19,852

$

1,149

$

11,722

$

17,274

Residential Security(e)

$

95

$

$

$

396

$

7,679

Executive Physical(f)

$

$

$

$

6,601

$

TOTAL, ALL OTHER COMPENSATION

$

225,435

$

95,294

$

132,153

$

115,224

$

101,333

CHEVRON CORPORATION2013 Proxy Statement   40


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(a)

The Employee Savings Investment Plan is a tax-qualified defined contribution plan open to employees on the U.S. payroll. When an employee contributes 2% of earnings to the ESIP, the Company provides an 8% match. Employees may choose to contribute 1% and receive a 4% match. They may also choose to contribute an amount above 2%, but none of the amount above 2% is matched. The Company match up to IRS limits ($250,000 of income in 2012) is made to the qualified ESIP account. For amounts above the IRS limit, the executive can elect to have 2% of base pay directed into the Deferred Compensation Plan, and the Company will match those funds in the nonqualified ESIP-RP.

(b)

Items deemed perquisites are valued on the basis of their aggregate incremental cost to the Company. We do not provide tax gross-ups to our NEOs for any perquisites. Except in the case of corporate aircraft and motor vehicles, aggregate incremental cost is the same as actual cost.

(c)

Generally, executives are not allowed to use Company planes for personal use. For security reasons, the CEO has been requested to use a Company plane in most instances of travel. On a very limited basis, the CEO may authorize the personal use of a Company plane by other persons if, for example, it is in relation to and part of a trip that is otherwise business related or it is in connection with a personal emergency. Aggregate incremental cost was determined by multiplying the operating hours attributable to personal use by the average estimated direct operating costs and the addition of crew costs for overnight lodging and meals and other fees, as applicable.

(d)

Reflects aggregate incremental costs for expenses deemed perquisites incurred in connection with the Board of Directors’ October 2012 trip to Southeast Asia. Generally, every two years, the Board travels to one of Chevron’s international locations of operation to gain additional insight into Chevron’s operations and meet Chevron personnel at that location. Board member and NEO spouses are invited to attend the international Board trip to learn about Chevron’s operations and foster social interaction among the Directors and NEOs as well as provide opportunities for spouses to attend receptions with local and expatriate Chevron employees and their families and local government officials, tour Chevron facilities, and participate in community engagement and other goodwill activities on behalf of Chevron. Incremental costs incurred in connection with spousal attendance and attributed to the NEO as a perquisite include transportation (such as commercial air travel when in lieu of corporate aircraft travel), lodging, meals, sightseeing and other activities for the spouse.

(e)

For Mr. Pate, reflects the aggregate incremental cost of home security improvements following a home security assessment in 2012.

(f)

For Mr. Wirth, includes travel-related costs of ground transportation and lodgings ($668).

(7)

Messrs. Watson and Kirkland are also Directors of the Company, but do not receive any additional compensation for their service.

CHEVRON CORPORATION2013 Proxy Statement   41


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Grants of Plan-Based Awards in Fiscal Year 2012

The following table sets forth information concerning the grants of non-equity and equity incentive plan awards to our named executive officers, or “NEOs,” in 2012. Non-equity incentive plan awards are made under our Chevron Incentive Plan (CIP), and equity incentive plan awards (performance shares and stock option awards) are made under our Long-Term Incentive Plan of Chevron Corporation (LTIP). These awards are also described in our “Compensation Discussion and Analysis” in this Proxy Statement.

Name

Award

Type

Grant

Date

Estimated Future Payouts Under

Non-Equity Incentive Plan Awards(1)

 

Estimated Future Payouts

Under Equity Incentive Plan

Awards(2)

All Other

Option

Awards:

Number of

Securities

Underlying

Options

(#)(3)

Exercise

or Base

Price of

Option

Awards

($/Sh)(4)

Grant Date

Fair Value

of Stock

and Option

Awards(5)

Threshold

($)

Target

($)

Maximum

($)

 

Threshold

(#)

Target

(#)

Maximum

(#)

J.S. Watson

CIP

$

2,210,000

 

Perf Shares

1/25/2012

 

16,500

66,000

132,000

$

7,095,660

Options

1/25/2012

 

420,000

$

107.73

$

9,807,000

P.E. Yarrington

CIP

$

744,000

 

Perf Shares

1/25/2012

 

4,250

17,000

34,000

$

1,827,670

Options

1/25/2012

 

105,000

$

107.73

$

2,451,750

G.L. Kirkland

CIP

$

1,400,000

 

Perf Shares

1/25/2012

 

6,875

27,500

55,000

$

2,956,525

Options

1/25/2012

 

175,000

$

107.73

$

4,086,250

M.K. Wirth

CIP

$

800,000

 

Perf Shares

1/25/2012

 

4,250

17,000

34,000

$

1,827,670

Options

1/25/2012

 

105,000

$

107.73

$

2,451,750

R.H. Pate

CIP

$

585,750

 

Perf Shares

1/25/2012

 

3,000

12,000

24,000

$

1,290,120

Options

1/25/2012

 

78,000

$

107.73

$

1,821,300

(1)

The CIP is an annual incentive plan that pays a cash award for performance and is paid in April following the performance year. See our “Compensation Discussion and Analysis—How Compensation Is Delivered—Chevron Incentive Plan (CIP)” for a detailed description of CIP awards, including the criteria to be applied in determining the amounts payable.“Target” is the percentage of the NEO’s base salary set by the Management Compensation Committee prior to the beginning of the performance year. Actual 2012 performance-year awards are shown in the “Summary Compensation Table” in the “Non-Equity Incentive Plan Compensation” column. Under the CIP, there is no threshold or maximum award.

(2)

Relates to performance share awards issued under the LTIP. See our “Compensation Discussion and Analysis—How Compensation Is Delivered—Long-Term Incentive Plan (LTIP)” for a detailed description of performance share awards, including the criteria to be applied in determining the amounts payable. “Target” is the number of performance shares awarded in 2012. If there is a payout, “threshold” represents the lowest possible payout (25% of the grant), and “Maximum” reflects the highest possible payout (200% of the grant). Performance shares are paid in cash, and the payout, if any, will occur at the end of the three-year performance period (January 2012 through December 2014) and is calculated in the manner described in Footnote 2 to the “Option Exercises and Stock Vested in Fiscal Year 2012” table, below. Performance share awards do not accrue dividends or dividend equivalents.

(3)

Relates to nonstatutory/nonqualified stock options granted under the LTIP. See our “Compensation Discussion and Analysis—How Compensation Is Delivered—Long-Term Incentive Plan (LTIP)” for a description of stock option awards. Options have a 10-year term and vest 33.33% at each anniversary of the date of grant over three years. Stock option awards do not accrue dividends or dividend equivalents.

(4)

The exercise price is the closing price of Chevron common stock on the grant date.

(5)

We calculate the grant date fair value of each award in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718, Compensation—Stock Compensation (ASC Topic 718) and as described in Footnotes 2 and 3 to the “Summary Compensation Table,” above.

CHEVRON CORPORATION2013 Proxy Statement   42


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Outstanding Equity Awards at 2012 Fiscal Year-End

The following table sets forth information concerning the outstanding equity incentive awards at December 31, 2012, for each of our named executive officers, or “NEOs.”

Name

Option Awards

 

Stock Awards

Grant Date

of Option

Awards

Number of

Securities

Underlying

Unexercised

Options (#)

Exercisable

Number of

Securities

Underlying

Unexercised

Options (#)

Unexercisable

Option

Exercise

Price

($)

Option

Expiration

Date

Number of

Shares or

Units of Stock

That Have Not

Vested

(#)

Market Value

of Shares

or Units of

Stock That

Have Not

Vested

($)(1)

Equity

Incentive

Plan Awards:

Number of

Unearned

Shares, Units

or Other

Rights That

Have Not

Vested

(#)

Equity

Incentive

Plan Awards:

Market or

Payout Value

of Unearned

Shares, Units

or Other

Rights That

Have Not

Vested ($)(2)

J.S. Watson

1/25/2012

420,000

(3)

$

107.730

1/25/2022

 

119,000

(4)

$

25,737,320

1/26/2011

113,333

226,667

(5)

$

94.640

1/26/2021

 

1/27/2010

226,666

113,334

(6)

$

73.700

1/27/2020

 

3/25/2009

170,000

$

69.700

3/25/2019

 

3/26/2008

112,000

$

84.960

3/26/2018

 

3/28/2007

125,000

$

74.080

3/28/2017

 

P.E. Yarrington

1/25/2012

105,000

(3)

$

107.730

1/25/2022

 

15,496

(7)

$

1,675,768

38,000

(8)

$

8,218,640

1/26/2011

44,000

88,000

(5)

$

94.640

1/26/2021

 

1/27/2010

90,000

45,000

(6)

$

73.700

1/27/2020

 

3/25/2009

130,000

$

69.700

3/25/2019

 

3/26/2008

39,000

$

84.960

3/26/2018

 

3/28/2007

44,000

$

74.080

3/28/2017

 

3/23/2006

38,000

$

56.630

3/23/2016

 

6/29/2005

40,000

$

56.760

6/29/2015

 

G.L. Kirkland

1/25/2012

175,000

(3)

$

107.730

1/25/2022

 

57,500

(9)

$

12,436,100

1/26/2011

63,333

126,667

(5)

$

94.640

1/26/2021

 

1/27/2010

126,666

63,334

(6)

$

73.700

1/27/2020

 

3/25/2009

170,000

$

69.700

3/25/2019

 

3/26/2008

112,000

$

84.960

3/26/2018

 

3/28/2007

125,000

$

74.080

3/28/2017

 

M.K. Wirth

1/25/2012

105,000

(3)

$

107.730

1/25/2022

 

29,696

(10)

$

3,211,356

38,000

(11)

$

8,218,640

1/26/2011

44,000

88,000

(5)

$

94.640

1/26/2021

 

1/27/2010

90,000

45,000

(6)

$

73.700

1/27/2020

 

3/25/2009

130,000

$

69.700

3/25/2019

 

3/26/2008

112,000

$

84.960

3/26/2018

 

3/28/2007

125,000

$

74.080

3/28/2017

 

3/23/2006

75,000

$

56.630

3/23/2016

 

6/29/2005

40,000

$

56.760

6/29/2015

 

R.H. Pate

1/25/2012

78,000

(3)

$

107.730

1/25/2022

 

23,244

(12)

$

2,513,652

27,000

(13)

$

5,839,560

1/26/2011

31,666

63,334

(5)

$

94.640

1/26/2021

 

1/27/2010

68,000

34,000

(6)

$

73.700

1/27/2020

 

(1)

Market value is based upon number of restricted stock units that have not vested multiplied by $108.14, which was the closing price of Chevron common stock on 12/31/12.

(2)

Represents estimated payout value of performance shares and is based upon the number of performance shares multiplied by the assumed performance modifier of 200% multiplied by $108.14, the closing price of Chevron common stock on 12/31/12. The performance modifier for the most recent payout was 150%, which exceeded the threshold. Accordingly, the estimated payout value is based upon 200% performance modifier, the next-highest performance modifier that exceeds the previous fiscal year’s performance modifier. The estimated payout value may not necessarily reflect the final payout, which will be calculated in the manner described in Footnote 2 to the “Option Exercises and Stock Vested in Fiscal Year 2012” table, below.

(3)

Stock options vest at the rate of 33.33% per year, with the vesting dates of 1/25/13, 1/25/14 and 1/25/15.

(4)

Represents performance shares that vest at the end of the applicable three-year performance period; 53,000 shares vest on 12/31/13, and 66,000 shares vest on 12/31/14.

(5)

Stock options vest at the rate of 33.33% per year, with the vesting dates of 1/26/12, 1/26/13 and 1/26/14.

(6)

Stock options vest at the rate of 33.33% per year, with the vesting dates of 1/27/11, 1/27/12 and 1/27/13.

(7)

Represents 15,000 restricted stock units granted on 12/6/11 and subsequent dividend equivalents reinvested as additional restricted stock units, 50% of which will vest on 12/6/13 and 50% on 12/6/15 if Ms. Yarrington is employed through the respective vesting dates.

(8)

Represents performance shares that vest at the end of the applicable three-year performance period; 21,000 shares vest on 12/31/13, and 17,000 shares vest on 12/31/14.

(9)

Represents performance shares that vest at the end of the applicable three-year performance period; 30,000 shares vest on 12/31/13, and 27,500 shares vest on 12/31/14.

(10)

Represents the 12/31/12 market value of 14,200 restricted stock units granted on 1/27/10 that vested on 1/27/13; and 15,000 restricted stock units granted on 12/6/2011 and subsequent dividend equivalents reinvested as additional restricted stock units, 50% of which will vest on 12/6/2013 and 50% on 12/6/2015 if Mr. Wirth is employed through the respective vesting dates.

(11)

Represents performance shares that vest at the end of the applicable three-year performance period; 21,000 shares vest on 12/31/13, and 17,000 shares vest on 12/31/14.

(12)

Represents 22,500 restricted stock units granted on 12/6/11 and subsequent dividend equivalents reinvested as additional restricted stock units, 30% of which will vest on 12/6/14, 30% on 12/6/16 and 40% on 12/6/18 if Mr. Pate is employed through the respective vesting dates.

(13)

Represents performance shares that vest at the end of the applicable three-year performance period; 15,000 shares vest on 12/31/13, and 12,000 shares vest on 12/31/14.

CHEVRON CORPORATION2013 Proxy Statement   43


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Option Exercises and Stock Vested in Fiscal Year 2012

The following table sets forth information concerning the cash value realized by each of our named executive officers, or “NEOs,” upon exercise of options or vesting of stock awards in 2012.

Name

Option Awards

 

Stock Awards

Number of Shares

Acquired on Exercise

(#)

Value Realized

on Exercise

($)(1)

Number of Shares

Acquired on Vesting

(#)(2)

 

Value Realized

on Vesting

($)(2)

J.S. Watson

240,000

$

12,575,666

 

79,500

 

$

8,565,330

P.E. Yarrington

$

 

31,500

(3)

$

3,393,810

G.L. Kirkland

240,000

$

12,917,090

 

45,000

 

$

4,848,300

M.K. Wirth

28,000

$

1,804,127

 

31,500

 

$

3,393,810

R.H. Pate

$

 

24,000

 

$

2,585,760

(1)

Value realized upon exercise was determined by multiplying the number of stock options exercised by the difference between the fair market value of the underlying stock on the exercise date and the exercise price of the stock options.

 

Name

Shares Acquired

on Exercise

Grant

Date

Exercise

Price

Fair Market Value

on Exercise Date

Value Realized

on Vesting

 

J.S. Watson

115,000

6/29/2005

$

56.76

$

109.0909

$

6,018,053

125,000

3/23/2006

$

56.63

$

109.0909

$

6,557,613

 

G.L. Kirkland

12,500

6/29/2005

$

56.76

$

107.9100

$

639,375

102,500

6/29/2005

$

56.76

$

109.0000

$

5,354,600

7,320

3/23/2006

$

56.63

$

112.0157

$

405,423

15,000

3/23/2006

$

56.63

$

111.4000

$

821,550

102,680

3/23/2006

$

56.63

$

112.1047

$

5,696,142

 

M.K. Wirth

28,000

6/30/2004

$

47.055

$

111.4881

$

1,804,127

(2)

Represents the cash value of the performance shares granted in 2010 for the performance period January 2010 through December 2012. We calculate the value of performance share payouts as follows:

First, we calculate our total shareholder return (TSR) and the TSR of ExxonMobil, BP, Royal Dutch Shell and ConocoPhillips/Phillips 66 for the three-year performance period. We calculate TSR for the three-year performance period for ourselves and our competitors as follows:

 

TSR

=

(20-day average ending stock price (–) 20-day average beginning stock price (+) reinvested dividend value)

 

 

 

20-day average beginning stock price

 

ConocoPhillips was split into ConocoPhillips and Phillips 66 in 2012, and their three-year TSR ranking was modeled based on a unified ConocoPhillips by adding the price of one share of ConocoPhillips to half a share of Phillips 66. This reflects the structure of the spin-off: integrated ConocoPhillips stockholders received half a share of Phillips 66 for every one share of ConocoPhillips. For 2012 and future awards, we have replaced ConocoPhillips/Phillips 66 with Total.

The results are expressed as an annualized average compound rate of return.

Second, we rank our TSR against the TSR of ExxonMobil, BP, Royal Dutch Shell and ConocoPhillips/Phillips 66 to determine the performance modifier applicable to the awards.

Our rank then determines what the performance modifier will be, as follows:

 

Our Rank

1st

2nd

3rd

4th

5th

 

Performance Modifier

200

%

150

%

100

%

50

%

%

 

For example, if we rank first in TSR as compared with ExxonMobil, BP, Royal Dutch Shell and ConocoPhillips/Phillips 66 (with Total replacing ConocoPhillips starting with 2012 grants), then the performance modifier would be 200%. Under the rules of the Long-Term Incentive Plan of Chevron Corporation (LTIP) relating to performance shares, in the event our measured TSR is within 1% of the nearest competitor(s), the results will be considered a tie, and the performance modifier will be the average of the tied ranks. For example, if Chevron ranks fifth in TSR and ties with the TSR of the company that ranks fourth, it will result in a modifier of 25% (the average of 50% and 0%).

Third, we determine the actual dollar amount of the performance share award to pay out. Performance share awards are paid out in cash as follows:


 

Number of Performance Shares Granted

×

Performance Modifier

×

20-Day Trailing Average Price of Chevron Common

Stock at the End of the Performance Period

=

Cash Value Realized at Vesting

 

For awards of performance shares made in 2010, the three-year performance period ended December 2012. Chevron ranked second in TSR among ExxonMobil, BP, Royal Dutch Shell and ConocoPhillips/Phillips 66. Accordingly, the performance share value vested in 2012 for 2010 awards was calculated as follows:

 

Shares

Granted

×

Modifier

 

=

Shares

Acquired on

Vesting

×

20-Day Trailing

Average Price

=

Cash Value

Realized at

Vesting

 

J.S. Watson

53,000

 

150

%

 

79,500

 

$

107.74

 

$

8,565,330

 

P.E. Yarrington

21,000

 

150

%

 

31,500