8-KLeadership ChangesExhibits & Filings

VALERO ENERGY CORP/TX 8-K Report, Executive Changes (Aug 4, 2009)

Filed August 4, 2009For Securities:VLO

Summary

Valero Energy Corporation (VLO) filed an 8-K on August 4, 2009, reporting amendments to its annual incentive bonus program and annual bonus plan, effective July 29, 2009. These changes are significant for investors as they alter how executive compensation will be determined for fiscal year 2009, directly impacting the alignment between management performance and shareholder interests. The core change involves restructuring the bonus program's performance measures. The program is now split equally (50/50) between "Operational and Strategic Measures" and "Financial Performance Measures." Notably, "Operational and Strategic Measures" are newly introduced, encompassing health, safety, environmental performance, mechanical availability, and cost management. The "Financial Performance Measures" remain consistent with prior years, including total stockholder return, earnings per share, and return-on-investment versus peers. Each of these six metrics has a potential payout range of 0% to 200% of the target bonus. Furthermore, the amendments eliminate a previous discretionary adjustment factor of 25% to the final performance measure results. This move towards a more formulaic and objective bonus calculation system may be viewed positively by investors, as it potentially reduces subjective influence on executive compensation and reinforces a direct link between measurable operational and financial outcomes and bonus payouts. Investors will want to monitor how these new measures perform and their impact on executive compensation levels.

Key Highlights

  • 1Valero Energy Corporation amended its annual incentive bonus program and annual bonus plan on July 29, 2009.
  • 2The 2009 bonus program is now equally weighted (50%) between "Operational and Strategic Measures" and "Financial Performance Measures."
  • 3New "Operational and Strategic Measures" include health, safety, environmental performance, mechanical availability, and cost management.
  • 4"Financial Performance Measures" continue to include total stockholder return, earnings per share, and return-on-investment versus peers.
  • 5Each of the six performance metrics can result in a bonus payout between 0% and 200% of the target.
  • 6A 25% discretionary adjustment factor previously applied to performance measures has been eliminated.
  • 7The amended Annual Bonus Plan document is filed as an exhibit to this report.

Frequently Asked Questions

The primary changes involve restructuring the bonus program's performance measures. It is now split 50/50 between newly introduced "Operational and Strategic Measures" (focusing on HSE, mechanical availability, and cost control) and existing "Financial Performance Measures" (total stockholder return, EPS, and ROI vs. peers). Additionally, a 25% discretionary adjustment factor was removed.

The total bonus opportunity is now determined by performance against six specific metrics, each carrying a weighting and a potential payout range of 0% to 200%. Five of these metrics fall under "Operational and Strategic Measures," and three under "Financial Performance Measures," with each segment equally contributing 50% to the total bonus. The calculations are more objective due to the elimination of the discretionary adjustment.

This change is important because it modifies how executive compensation is tied to company performance. The introduction of operational metrics alongside financial ones aims to ensure management is incentivized across a broader range of critical business areas. The elimination of discretion in bonus calculation may lead to greater transparency and a clearer link between reported performance and executive pay.

The "Operational and Strategic Measures" segment, weighted at 50% of the total bonus opportunity, includes health, safety, and environmental performance; mechanical availability; and cost management and expense control.