8-KOther Events

CHEVRON CORP 8-K Report, Corporate Update (Jan 30, 2017)

Filed January 30, 2017For Securities:CVX

Summary

Chevron Corporation (CVX) filed an 8-K on January 30, 2017, to provide supplemental information regarding changes to its executive compensation structure, approved by the Board of Directors on January 25, 2017. These revisions are a direct response to stockholder feedback, particularly following a lower-than-usual "Say on Pay" vote in 2016, where support dropped to 54% from an average of 95% between 2011-2015. The company engaged extensively with stockholders, holding meetings with those representing a significant portion of its outstanding stock, to understand their concerns. The core objective of these changes is to better align executive compensation with both company performance and stockholder interests, while also reducing volatility. Key adjustments include a reduced reliance on stock options, the inclusion of the S&P 500 Total Return Index in the Long-Term Incentive Plan (LTIP) peer group for performance share awards, strengthened performance measures for the annual Chevron Incentive Plan (CIP), extended vesting periods for LTIP awards, and enhanced stock ownership requirements for senior executives. These measures aim to ensure greater accountability and a stronger link between executive pay and long-term stockholder value creation, especially in light of challenging industry conditions.

Key Highlights

  • 1Chevron is revising its executive compensation structure in response to stockholder concerns, evidenced by a lower 'Say on Pay' vote in 2016.
  • 2Extensive outreach to stockholders, including meetings with representatives of approximately 36% of outstanding stock, informed these compensation changes.
  • 3Key changes include a reduction in the proportion of compensation awarded as stock options to decrease volatility.
  • 4The Long-Term Incentive Plan (LTIP) peer group for Performance Share awards will now include the S&P 500 Total Return Index.
  • 5Accountability for project performance and capital discipline is strengthened through revisions to the annual Chevron Incentive Plan (CIP) performance measures.
  • 6Vesting periods for LTIP awards are being extended, and stock ownership requirements for the CEO and other named executive officers are being reinforced.
  • 7Despite changes in equity mix, the target award value for executives is intended to remain constant, with a focus on reducing option volatility and improving alignment with stockholder returns.

Frequently Asked Questions

Chevron is revising its executive compensation structure primarily in response to feedback from stockholders, particularly following a decline in stockholder support for 'Say on Pay' proposals in 2016. The company seeks to better align executive pay with company performance and stockholder interests, reduce compensation volatility, and enhance accountability.

The key changes include: reducing the percentage of compensation awarded as stock options, incorporating the S&P 500 Total Return Index into the LTIP peer group for performance share awards, strengthening performance measures for the annual CIP, extending LTIP vesting periods, and increasing stock ownership requirements for senior executives.

While the mix of equity award components is changing, Chevron states that the target award value for executives is intended to remain constant. The adjustments are designed to reduce the volatility associated with stock options and tie compensation more closely to long-term performance and stockholder returns.

Yes, Chevron conducted an extensive outreach effort, holding meetings with stockholders representing approximately 36% of its outstanding stock, as well as with governance stakeholders like ISS and Glass Lewis, to gather specific feedback before implementing these compensation revisions.