Phillips 66
For the period ended May 15, 2024. Filed Apr 3, 2024.
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What shareholders are asked to vote on at a company's meeting. It is where to find what directors and top executives are paid, and who owns the most shares.
May 15, 2024 · Filed Apr 3, 2024
Contents
Executive Compensation Program Summary
Through our use of performance- and equity-based awards, the compensation realized by our executives is directly linked to our performance. In order for NEOs to earn and sustain competitive levels of compensation, the Company must meet its strategic objectives, perform well relative to peers, and deliver market-competitive returns to shareholders.
COMPENSATION PROGRAM MIX
The CEO’s target compensation mix is 90% at risk and 72% performance based. Based on its evaluation of performance, the HRCC has the authority to reduce or eliminate the performance-based payouts that may be awarded under the PSP and VCIP. Stock options can expire with zero value if the Company's stock price does not appreciate above the grant date price over the 10-year term of the options. RSUs may lose value depending on stock price performance. The average target mix for the other NEOs is 83% at risk and 66% performance-based. The charts below outline the relative size, in percentage terms, of each element of the 2023 annualized target compensation.
| Key Elements of Pay | ||||||
| CEO | Other NEOs(1) | Delivered via | Performance Drivers and Weightings | |||
| Base Salary | Cash | •Annual fixed cash compensation to attract and retain NEOs | ||||
| Annual Incentive | Variable Cash Incentive Program (VCIP) | 50% Operational Sustainability | ||||
| •Safety & Operating Excellence (25%) •Environment (15%) •High-Performing Organization (10%) | ||||||
| 50% Financial Sustainability | ||||||
| •Adjusted VICP Controllable Costs(3) (10%) •Adjusted VCIP EBITDA(3) (40%) | ||||||
| Long-Term Incentives | Performance Share Program (PSP)50% of LTI Target3-year performance period | •Adjusted PSP ROCE(3) (50%)•Relative TSR (50%) | ||||
| Stock Options(2)25% of LTI Target3-year ratable vesting period | •Long-term stock price appreciation | |||||
| Restricted Stock Units (RSUs) 25% of LTI Target3-year cliff vesting | •Long-term stock price appreciation | |||||
(1)Excludes Mr. Garland as his compensation as Executive Chairman materially differs from the other NEOs. Mr. Garland's 2023 target compensation mix as Executive Chairman was 10% base salary, 16% annual incentive, and 74% long-term incentives.
(2)Beginning in 2024, the HRCC eliminated stock options from the LTI program. See page 50 of this Proxy Statement for more information regarding executive compensation program changes in 2024.
(3)See Appendix A for reconciliations to the nearest GAAP financial measures.
| 52 | Phillips 66 2024 Proxy Statement |
2023 OPERATING AND FINANCIAL HIGHLIGHTS THAT IMPACTED PAY OUTCOMES
2023 was an exciting year for Phillips 66. We made significant progress toward achieving our strategic priority targets and realizing our vision of being the leading integrated downstream energy provider. We continued to see strong operational and financial performance in 2023 across a range of different measures. We are proud to have maintained industry-leading personal safety performance in 2023, with injury rates among the lowest in the Company's history.
Our 2023 results reflect the successful execution of our strategy. Our TSR was 33% during the year, and we increased our quarterly dividend by 8%. Our diversified and integrated portfolio delivered strong returns on capital employed, bolstered by our commitment to disciplined capital allocation. Our average return on capital employed since our formation in 2012 was 13% as of year-end, almost double our cost of capital. Our TSR since inception reflects the cyclical nature of our industry and the resilience of our business over the long term. The diversity of our portfolio provides us with the unique advantage to maximize value throughout the commodity cycles.
Operating Performance(1)
| COMBINED TOTAL RECORDABLE RATE (TRR) | TIER 1 AND 2 PROCESS SAFETY EVENT RATE |
|---|
Financial Performance
| NET INCOME | ADJUSTED VCIP EBITDA(2) | ADJUSTED PSP ROCE(2) |
|---|---|---|
| ($MM) | ($MM) | (%) |
TOTAL SHAREHOLDER RETURN(3)
(1)Operating Performance metrics reflect combined Phillips 66 and DCP performance for both years. The 2022 Industry Average for Tier 1 and Tier 2 Process Safety Event Rates is the 2022 AFPM Refining Average.
(2)See Appendix A for reconciliations to GAAP.
(3)Presented on a simple average basis using the 2023-2025 performance peer group . Dividends assumed to be reinvested in common stock. Phillips 66's common stock initiated trading on the NYSE in May 2012. Source: Bloomberg.
| Compensation Discussion and Analysis | 53 |
|---|
2023 PERFORMANCE-BASED COMPENSATION OUTCOMES
2021-2023 PSP Payout
Our PSP awards directly link our performance on an absolute and relative basis to the experience of our shareholders. The 2021-2023 PSP results reflected the strong performance and recovery of our business after enduring a challenging economic environment early in the performance period. Ultimately, performance over the 2021-2023 PSP performance period resulted in a payout of 150% of target, as absolute Adjusted PSP ROCE performance was above maximum, and our relative TSR performance was above the 50th percentile relative to peers, resulting in a payout of 100% of target.
| 2021 - 2023 PSP Metrics and Weightings | Performance Result | Weight | Payout |
|---|---|---|---|
| Adjusted Return on Capital Employed (50% Weighting)(1)Adjusted PSP ROCE performance above maximum | Above Maximum | 50% | 200% |
| Total Shareholder Return (50% Weighting)TSR performance at 54th percentile relative to peers | 7th out of 14 peers | 50% | 100% |
| Total 2021 - 2023 PSP Payout | 150% | ||
(1)See Appendix A for a reconciliation to the nearest GAAP financial measure.
2023 VCIP Payout
In 2023, we remained focused on our operational and financial performance while pursuing returns-focused lower-carbon projects aligned with our long-term strategy. Overall payout of the 2023 VCIP reflected our strong operational and financial performance across our established metrics. There is no individual performance modifier for executive officers under the 2023 VCIP. No additional compensation above the formulaic payout was awarded.
Our financial and operational performance in 2023 resulted in a payout of 161% of target for our 2023 VCIP due to strong results across most metrics, particularly Safety & Operating Excellence and Adjusted VCIP EBITDA. Adjusted VCIP Controllable Costs was the only metric that was earned below target.
| Payout | |||
| 2023 VCIP Metrics and Weightings | Threshold | Target100% Payout | Maximum200% Payout |
|---|---|---|---|
| Operational Sustainability Metrics (50% Weighting)Safety & Operating Excellence (25%) Environment (15%) High-Performing Organization (10%) | |||
| Financial Sustainability Metrics (50% Weighting)Adjusted VCIP Controllable Costs (10%)(1) Adjusted VCIP EBITDA (40%)(1) | |||
(1)See Appendix A for a reconciliation to the nearest GAAP financial measures.
For more details regarding the 2021-2023 PSP payout, see Performance Share Program 2021 - 2023 Payout on page 59, and for more details regarding the Company's performance relative to the 2023 VCIP performance metrics, see Variable Cash Incentive Program (VCIP) -2023 Payout beginning on page 63.
| 54 | Phillips 66 2024 Proxy Statement |
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