UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant þ
Filed by a Party other than the Registrant ¨
Check the appropriate box:
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Preliminary Proxy Statement |
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Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) |
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Definitive Proxy Statement |
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Definitive Additional Materials |
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Soliciting Material Pursuant to §240.14a-12 |
TESORO CORPORATION
(Name of Registrant as Specified in Its Charter)
Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
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Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11. |
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(1) |
Title of each class of securities to which transaction applies: |
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(2) |
Aggregate number of securities to which transaction applies: |
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Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how
it was determined): |
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Proposed maximum aggregate value of transaction: |
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Fee paid previously with preliminary materials. |
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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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(1) |
Amount Previously Paid: |
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(2) |
Form, Schedule or Registration Statement No.: |
Dear Stockholders:
It is my pleasure to invite
you to attend the 2016 Annual Meeting of Stockholders of Tesoro Corporation on Tuesday, May 3, 2016 in San Antonio, Texas.
As always, the
Annual Meeting gives me a chance to speak with you about the state of Tesoros business. It also provides you an opportunity, during our question and answer session, to express your views on subjects related to our Company. Whether or not you
attend the Annual Meeting in person, I encourage you to review the enclosed information and vote your shares.
2015 was an outstanding year in
which we were able to report record results, including record full year net earnings from continuing operations of $1.5 billion, or $12.39 per diluted share. This represents an 83% increase over 2014 net earnings of $843 million. Our strong results
generated solid free cash flow, allowing us to return over $870 million to stockholders in the form of dividends and share repurchases, while maintaining a cash balance of $942 million as of the year-end. We reduced our debt to capitalization ratio
(excluding Tesoro Logistics LP) to 19% as of year-end. Tesoros employees delivered exceptional personal safety and process safety performance, reflecting our commitment to operational excellence and the safety of our workers. In providing
their services, contractors also delivered significant improvements in safety performance. Finally, we successfully integrated the Rockies natural gas business, which Tesoro Logistics LP acquired in late 2014.
Our Board of Directors is comprised of individuals with broad leadership experience, a number of whom have operating knowledge in the energy industry.
I am grateful to our Board of Directors for their guidance, leadership and oversight. I also encourage you to review the qualifications, skills and experience that we have identified as important attributes for our Directors beginning on page 7, and
how they match up to each of us individually in our biographical information beginning on page 63 of the Proxy Statement.
Thank you for your
investment in Tesoro. I look forward to seeing you in San Antonio.
Sincerely,
Gregory J. Goff, Chairman, President and CEO
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NOTICE OF 2016 ANNUAL MEETING OF STOCKHOLDERS |
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WHEN |
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Tuesday, May 3, 2016, 8:00 am Central Time |
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WHERE |
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19100 Ridgewood Parkway, San Antonio, Texas 78259 |
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PURPOSE OF MEETING
AND
AGENDA |
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At the 2016 Annual Meeting, stockholders will vote:
1. to elect the ten directors
named in the Proxy Statement;
2. to approve our named executive officers compensation in an advisory vote;
3. to ratify the appointment
of our independent registered public accounting firm for 2016; and
4. on the stockholder proposal set forth in the Proxy Statement, if properly presented at the
Annual Meeting. Stockholders also will transact any other business that may properly come before
the meeting or any adjournment or postponement thereof. |
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WHO CAN
VOTE |
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Stockholders of record at the close of business on March 11, 2016 |
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VOTING |
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Your vote is very important. Please submit your proxy or voting instructions as soon as possible, whether or not you plan to attend the meeting. Please refer to the enclosed proxy
materials or the information forwarded by your bank, broker or other holder of record to see the voting methods that are available to you. |
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ADMISSION
TO THE ANNUAL MEETING |
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All of our stockholders are invited to attend the Annual Meeting. If you attend, you will need to bring valid, government-issued photo identification. If you are a beneficial owner of our common stock, you will also need proof of
stock ownership to be admitted. A recent brokerage statement or a letter from a bank or broker are examples of proof of ownership. Failure to bring such document or letter may delay your entry into or prevent you from attending our Annual
Meeting. The doors to the meeting room will be closed promptly at the start of the meeting and stockholders will not be permitted to enter after that time. |
Sincerely,
KIM K. W. RUCKER
Secretary
March 22, 2016
San Antonio, Texas
TABLE OF CONTENTS
Tesoro
Corporation 2016 Proxy Statement i
Tesoro
Corporation 2016 Proxy Statement ii
TESORO CORPORATION
2016 PROXY STATEMENT
This summary highlights information contained elsewhere in this Proxy
Statement. This summary does not contain all of the information that you should consider, and you should read the entire Proxy Statement carefully before voting.
Meeting Information and Mailing of Proxy Materials (See page 1)
This Proxy Statement is furnished in connection with the solicitation by the Board of Directors of Tesoro Corporation of proxies to be voted at the 2016 Annual Meeting
of Stockholders (the Annual Meeting) described below, and at any adjournment or postponement of such meeting.
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Meeting Information |
Date and Time |
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Tuesday, May 3, 2016, 8:00
AM Central Time |
Location |
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19100 Ridgewood Parkway, San Antonio, Texas 78259 |
Record Date |
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March 11, 2016 |
Voting |
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At the close of business on the record date, there were 119,890,566 shares of our common stock outstanding and entitled to vote. The holders of our common stock are entitled to one vote
for each share held by them for each director nominee and for each other matter to be voted on. We have no other voting securities outstanding. |
Availability of Proxy
Materials |
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This Proxy Statement and accompanying form of proxy are first being made available to stockholders on or about March 22, 2016. |
Voting Matters and Board Recommendations
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Proposal |
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Board Voting Recommendation
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Page Reference for More
Information |
Election of directors |
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FOR each nominee
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63 |
Advisory vote to approve our named executive officers compensation |
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FOR
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70 |
Ratify the appointment of Ernst & Young LLP as our independent registered public accounting firm for 2016 |
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FOR
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72 |
Consider and vote on a stockholder proposal, if properly presented at the meeting |
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AGAINST
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72 |
Each proxy will be voted as specified by the stockholder. Any duly executed proxy not specifying the contrary will be voted in
accordance with the Boards recommendations.
Tesoro
Corporation 2016 Proxy Statement iii
Board Nominees (See pages 7 and 63)
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Name |
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Age |
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Director Since |
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Occupation and Experience |
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Committee Memberships |
Rodney F. Chase |
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72 |
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2006 |
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Former Energy Industry Executive
Boards: Hess Corporation |
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Audit (Chair),
Governance |
Edward G. Galante |
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65 |
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2016 |
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Former Senior Vice President and Member of the Management Committee of ExxonMobil
Corporation Boards: Celanese Corporation, Clean Harbors, Inc., Praxair, Inc. |
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Compensation, EHS&S |
Gregory J. Goff,
Chairman (1) |
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59 |
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2010 |
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Chairman, President and CEO of Tesoro Corporation
Boards: Polyone Corporation, Tesoro Logistics GP, LLC (the general partner of Tesoro Logistics LP) |
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Robert W. Goldman |
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73 |
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2004 |
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Former Senior Vice President and CFO of Conoco, Inc.
Boards: BWX Technologies, Inc. , Tesoro Logistics GP, LLC (the general partner of Tesoro Logistics LP) |
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Audit,
Governance |
David Lilley |
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69 |
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2011 |
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Former Chairman, President and CEO of Cytec Industries Inc.
Boards: Rockwell Collins, Inc., Public Service Enterprise Group Incorporated |
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Compensation (Chair),
EHS&S |
Mary Pat McCarthy |
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60 |
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2012 |
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Former Vice Chair of KPMG LLP
Boards: Mutual of Omaha |
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Audit,
Compensation |
J.W. Nokes |
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69 |
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2007 |
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Former EVP of Worldwide Refining, Marketing, Supply and Transportation of ConocoPhillips; Non-Executive
Chairman of Albemarle Corporation Boards: Albemarle Corporation, Post Oak Bank, N.A. |
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Compensation, EHS&S
(Chair) |
Susan Tomasky,
Lead Director |
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62 |
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2011 |
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Former President of AEP Transmission
Boards: Public Service Enterprise Group Incorporated, Summit Midstream
Partners GP, LLC (the general partner of Summit Midstream Partners, LP) |
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Governance (Chair) ,
Ex Officio Member of all other Committees (2) |
Michael E. Wiley |
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65 |
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2005 |
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Former Chairman of the Board, President and CEO of Baker Hughes Incorporated
Boards: Bill Barrett Corporation, Post Oak Bank, N.A. , Tesoro Logistics GP, LLC (the general partner of Tesoro Logistics LP) |
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Compensation,
EHS&S |
Patrick Y. Yang |
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68 |
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2010 |
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Former Head of Global Technical Operations of F. Hoffmann-La Roche, Ltd.
Boards: Codexis, Inc., Amyris, Inc, Pharma Essentia Corporation |
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Audit,
Governance |
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As our CEO and President, Mr. Goff is our only non-independent director |
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As Lead Director, Ms. Tomasky serves as an ex officio member of all committees on which she does not serve. Whenever possible, she actively participants, but does not vote, in such meetings. |
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Snapshot of 2016 Director Nominees
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All Director nominees exhibit |
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A high level of integrity |
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Strong leadership skills |
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Knowledge of corporate governance requirements and
practices |
A proven record of success |
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Innovative approaches to challenging issues |
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Our Director nominees bring a balance of relevant
skills to our boardroom |
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Our Director nominees exhibit an effective mix of diversity, experience and fresh perspective |
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Senior Leadership Experience: 10 directors Risk Management
Experience: 9 directors International Experience: 9 directors Strategic Planning
Experience: 7 directors Extensive Industry Experience: 6 directors High Level of
Financial Expertise: 6 directors |
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Average Tenure: 6 1⁄2 years Average Age: 66 years
Gender Diversity: 20% women |
Tesoro
Corporation 2016 Proxy Statement iv
Governance Highlights (See page 7)
As part of Tesoros commitment to high ethical standards,
our Board follows sound governance practices.
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Director Independence |
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9 out of our 10 director nominees are independent
Our CEO is the
only management director
All of the Board Committees are composed exclusively of independent directors
The independent
directors regularly hold executive sessions, led by the independent Lead Director |
Independent Lead
Director |
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The independent directors
have selected Susan Tomasky to serve as independent Lead Director
Among other responsibilities, the independent Lead Director:
¡ Serves as liaison, and coordinates communications and activities, between the other
independent directors and management ¡ Works with the Chairman in setting the Board agenda by
taking into consideration the objectives of management as well as the needs of the Board and its individual committees
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Works with the independent directors to establish and approve appropriate annual goals and objectives for the Chairman, and communicates to the Chairman the results of the formal evaluation
conducted by the independent directors of the Chairmans performance pertaining to established goals and objectives
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Acts as an ex officio member of all committee of which she is not already a member, actively participating in such meetings whenever possible
¡ Leads the recruitment and selection of new Board members with the Chairman
¡ Serves as an additional point of contact for stockholders, and communicates with
stockholders in those circumstances where the Board determines that direct communication between the Board and stockholders is appropriate |
TSO Directors on TLGP
Board |
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In the spring of 2015, Mr. Goldman and Mr. Wiley were both
appointed to serve on the Board of Directors of Tesoro Logistics GP, LLC, the general partner of Tesoro Logistics LP; our Board believes that service by each of them on both Boards of Directors provides additional cohesiveness in strategies and
oversight |
Board Oversight of Risk
Management |
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The Board oversees risk management, focusing on our most
significant risks |
Stock Ownership
Requirements |
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Stock ownership
requirement for CEO of 6x annual base salary
Stock ownership requirements for all directors and members of our executive management
team |
Tesoro
Corporation 2016 Proxy Statement v
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Board Practices |
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Our Board and each of its Committees annually conduct an evaluation of their
performance ¡ Periodically enlist a third party to facilitate assessment and identify opportunities for
improved individual and Board performance
The Governance Committee reviews criteria for Board membership with the Board and
considers changes as needed so that our Board as a whole continues to reflect the appropriate mix of skills and experience
Directors who turn 75 must tender a resignation for consideration by the Board and,
unless specifically waived by the Board, such resignation will become effective at the next annual meeting after reaching age 75 |
Accountability |
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All directors stand for
election annually
In uncontested elections, directors must be elected by a majority of votes
cast |
Stockholder Engagement
and Investor Outreach |
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In the spring of 2016,
Ms. Tomasky, as independent Lead Director, wrote a letter to each of our institutional stockholders known to have held more than 0.5% of our outstanding stock as of January 29, 2016 (which constituted slightly over 55% of our outstanding
shares), inviting them to participate in one-on-one meetings with her to foster the Companys efforts at stockholder engagement.
We conduct investor outreach throughout the year to see that management and the Board
understand and consider the issues that matter most to our stockholders and enable us to address them effectively. |
For Tesoro, 2015 continued our multi-year transformation through distinctive performance. 2015 was also a year of strong financial
performance for Tesoro, as shown below.
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Revenue:
$28.8
billion |
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Earnings Per Diluted Share from Continuing Operations:
$12.39 a 186% increase
from 2014 |
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Dividends to Shareholders:
$1.85 Per
share |
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Return of Earnings to Shareholders:
$872
million through stock
repurchases and dividends |
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Total Shareholder
Return: 45% |
For more detail, please see our Annual Report on Form 10-K filed with the Securities and Exchange Commission (the SEC).
Tesoro
Corporation 2016 Proxy Statement vi
2015 Executive Compensation Highlights (See pages 20 and 39)
CEO: Gregory J. Goff (CEO since May 2010; Chairman of the Board since
December 2014)
CEO 2015 Total Direct Compensation:
Base Salary: $1.6 million
Annual Incentive: $4.1
million
Long-Term Incentives: $10 million
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What We Do
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What We Dont Do
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Align Executive Pay with Company
Performance
Use Rigorous Performance Goals
Grant Performance-Based Long-Term Incentives
Cap Incentive Awards
Maintain Stock Ownership Guidelines
Analyze Executive Compensation Risk
Retain an Independent Compensation Consultant
Impose a Clawback Policy
Mitigate Potential Dilution from Equity Awards |
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Guarantee Payouts on Performance-Based
Awards
Provide Employment Agreements
Pay Dividend Equivalents on Unvested Long-Term Incentives
Pay Tax Gross Ups
Provide Executive Perquisites
Allow Pledging or Hedging of Company
Stock |
Say-on-Pay: At our 2015 Annual Meeting of
Stockholders, our stockholders provided an advisory vote to approve the compensation program for our named executive officers (NEOs) disclosed in our 2015 proxy statement. Stockholders expressed substantial support for the compensation
program for our NEOs, with approximately 93% of the votes cast voting in favor of the proposal.
Tesoro
Corporation 2016 Proxy Statement vii
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GENERAL
INFORMATION ABOUT THE 2016 ANNUAL MEETING AND PROXY
MATERIALS |
We are providing this Proxy Statement and related materials because our Board of Directors is soliciting your proxy to
vote shares at the 2016 Annual Meeting of Stockholders (the Annual Meeting) to be held on Tuesday, May 3, 2016, beginning at 8:00 AM Central Time at our principal executive offices, 19100 Ridgewood Parkway, San
Antonio, Texas 78259, and at any adjournment or postponement of the meeting.
1. |
What is a proxy statement and what is a proxy? |
A proxy statement is a document that the Securities and Exchange Commission (SEC) regulations require us to give you when we solicit your proxy to vote your
shares on your behalf. A proxy is your legal designation of another person to vote the stock you own. When you vote by Internet or telephone or by signing, dating and returning your proxy card, you designate two of our officers as your
proxies at the Annual Meeting. These two officers are D. Jeffrey Haffner and Carrie P. Ryan, each with full power to act without the other and with full power of substitution.
2. |
Why did I receive a one-page notice (sometimes referred to as an E-Proxy Notice) regarding the Internet availability of proxy materials instead of printed proxy materials?
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Under rules adopted by the SEC,
we are furnishing proxy materials to our stockholders primarily via the Internet, instead of mailing printed copies of those materials to each stockholder. Unless you have previously signed up to receive your materials in paper form, you will
receive a document entitled Notice of Internet Availability of Proxy Materials (the Notice of Internet Availability) and will not receive a printed copy of the proxy materials or the annual report to stockholders unless you
specifically request them. Instead, the Notice of Internet Availability contains instructions on how to access our proxy materials, including our Proxy Statement and our Annual Report, and how to submit your proxy on the Internet. Instructions for
requesting printed proxy materials are also included in the Notice of Internet Availability. This process is designed to expedite stockholders receipt of proxy materials, help conserve natural resources and lower the cost of the meeting. Set
forth below is a summary of delivery methods:
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Stockholders who previously signed up to receive proxy materials electronically: If you previously signed up to receive our proxy materials electronically, we will
send the Notice of Internet Availability to you via e-mail, to the last e-mail address you have supplied, on or about March 22, 2016. You will continue to receive these materials via e-mail until you elect otherwise. |
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Stockholders who previously signed up to receive future proxy materials in printed format by mail: If you previously submitted a valid election to receive all proxy
materials in printed format, then we will send you a full set of proxy materials, including our Annual Report. We will begin mailing these materials on or about March 22, 2016. |
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All other stockholders: If you have not submitted any elections, we will send you a printed Notice of Internet Availability by mail. We will begin mailing Notices of
Internet Availability on or about March 22, 2016. |
Tesoro
Corporation 2016 Proxy Statement 1
3. |
What is the difference between holding shares as a stockholder of record and as a beneficial owner? |
These terms describe how your shares are held.
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If your shares are registered directly in your name with our transfer agent, American Stock Transfer & Trust Company, you are considered the stockholder of record with respect to those shares, and access to
proxy materials is being provided directly to you. |
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If your shares are held in a stock brokerage account or by a bank or other nominee, then you are considered the beneficial owner of those shares, which are considered to be held in street name. Access to our proxy
materials is being provided to you by your broker, bank or other nominee who is considered the stockholder of record with respect to those shares. |
4. |
How do I attend the meeting in person? What do I need to bring? |
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IMPORTANT NOTE: If you plan to attend the annual meeting, you must follow these instructions to gain
admission. |
All of our stockholders are
invited to attend the Annual Meeting. If you attend our Annual Meeting, you will need to bring valid, government-issued photo identification. If you are a beneficial owner of our common stock, you will also need proof of stock ownership to be
admitted to the Annual Meeting. A recent brokerage statement or a letter from a bank or broker are examples of proof of ownership. Failure to bring such documentation may delay your entry into or prevent you from attending our Annual Meeting. The
doors to the meeting room will be closed promptly at the start of the meeting, and stockholders will not be permitted to enter after that time.
Each
stockholder may appoint only one proxy holder or representative to attend the meeting on his or her behalf. A large number of stockholders may wish to speak at our Annual Meeting. Our Board and management appreciate the opportunity to hear the views
of stockholders and participants, and in the interest of an orderly and constructive meeting, rules of conduct will be enforced. Copies of these rules will be available and only stockholders or their valid proxy holders may address our Annual
Meeting.
If you are a stockholder of record you may use any of these methods to vote:
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Vote by Internet, by going to the web address www.proxypush.com/tso and following the instructions
for Internet voting or, if you have received a paper copy of the proxy card by mail, by following the instructions on the proxy card. Your vote by Internet must be received by 11:59 PM Eastern Time on May 2, 2016. If your
shares are held in the Tesoro Corporation Thrift Plan or Tesoro Corporation Retail Savings Plan, your vote must be received by 11:59 PM Eastern Time on April 28, 2016. |
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Vote by Telephone, by dialing 1-866-390-9971 and following the instructions for telephone voting or, if you
have received a paper copy of the proxy card by mail, by following the instructions on the proxy card. Your vote by telephone must be received by 11:59 PM Eastern Time on May 2, 2016. If your shares are held in the Tesoro
Corporation Thrift Plan or Tesoro Corporation Retail Savings Plan, your vote must be received by 11:59 PM Eastern Time on April 28, 2016. |
Tesoro
Corporation 2016 Proxy Statement 2
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Vote by Mail, by completing, signing, dating and mailing the proxy card mailed to you in the envelope provided.
If you received a Notice of Internet Availability and would like to vote by mail, follow the instructions on the Notice of Internet Availability to request a paper copy of the proxy materials. Your vote by mail must be received by 11:59
PM Eastern Time on May 2, 2016. If your shares are held in the Tesoro Corporation Thrift Plan or Tesoro Corporation Retail Savings Plan, your vote must be received by 11:59 PM Eastern Time on April 28, 2016.
If you vote by Internet or telephone, please do not mail your proxy card. |
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Vote in Person, by attending the Annual Meeting. Please refer to the instructions provided on the proxy card or
Notice of Internet Availability. Please note that if your shares are held in the Tesoro Corporation Thrift Plan or the Tesoro Corporation Retail Savings Plan, you may not vote in person at the Annual Meeting; instead you will need to submit your
vote through one of the ways described above. |
If you are a beneficial holder, you will receive separate voting instructions from your broker, bank or other nominee explaining how
to vote your shares. Please note that if your shares are held of record by a broker, bank or other nominee and you wish to vote at the Annual Meeting, you will not be permitted to vote in person unless you first obtain a legal proxy issued in
your name from the record owner.
6. |
What if my shares are held in the Tesoro Corporation Thrift Plan or Retail Savings Plan? |
Participants in the Tesoro Corporation Thrift Plan or the
Tesoro Corporation Retail Savings Plan may instruct Fidelity Management Trust Company, as trustee for such plans, how to vote all shares of our common stock allocated to their accounts. If a participant in the Tesoro Corporation Thrift Plan or the
Tesoro Corporation Retail Savings Plan does not instruct Fidelity Management Trust Company how to vote, the shares of our common stock allocated to such participants accounts will not be voted.
7. |
What if I am a stockholder of record and do not specify a choice for a matter when returning a proxy? |
Stockholders should specify their choices for each matter on
the proxy card. The proxies identified on the back of the proxy will vote your shares in accordance with your instructions. Except as noted above with respect to shares held in the Tesoro Corporation Thrift Plan or the Tesoro Corporation Retail
Savings Plan, if your properly executed proxy does not contain voting instructions, the proxies will vote your shares in accordance with the voting recommendations of the Board as follows:
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FOR the election of each of the ten nominees for director; |
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FOR the approval of the advisory vote to approve our named executive officers compensation; |
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FOR the ratification of the appointment of Ernst & Young LLP as our independent registered public accounting firm for 2016; and |
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AGAINST the stockholder proposal set forth in this Proxy Statement, if properly presented at the Annual Meeting. |
8. |
What if I am a beneficial owner and do not give voting instructions to my broker, bank or other nominee? |
A broker non-vote occurs when a broker submits a
proxy that states that the broker does not vote for some or all of the proposals because the broker has not received instructions from the beneficial owners on how to vote on the
Tesoro
Corporation 2016 Proxy Statement 3
proposals and does not have discretionary authority to vote in the absence of instructions. Under NYSE rules, brokers are not permitted to vote on any of the matters to be considered at the
Annual Meeting (other than the ratification of the appointment of the independent registered public accounting firm) without instructions from the beneficial owner. As a result, your shares will not be voted on any matter other than the ratification
of the appointment of the independent registered public accounting firm unless you affirmatively vote your shares in one of the ways indicated by your broker, bank or other nominee.
9. |
Can I revoke or change my vote? |
If you are a stockholder of record, whether you vote by telephone, Internet or mail, you can change or revoke your proxy before it is voted at the meeting in one of the
following ways:
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Submit a new proxy card bearing a later date; |
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Vote again by telephone or the Internet at a later time; |
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Give written notice before the meeting to our Secretary at the address set forth on the cover of this Proxy Statement stating that you are revoking your proxy; or |
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Attend the Annual Meeting and vote your shares in person. Please note that your attendance at the meeting will not alone serve to revoke your proxy. |
Any change or revocation of your proxy must be received by the deadlines set forth in Question 5 above or, for notice to our Secretary, before the meeting.
If you are a beneficial owner, you must follow the instructions of your broker, bank or other nominee to revoke or change your voting instructions.
10. |
Is there a quorum requirement? |
A quorum is necessary to hold a valid meeting. A quorum will exist if the holders of a majority of shares outstanding on the record date are present in person or by
proxy. All shares voted by proxy are counted as present for purposes of establishing a quorum, including abstentions and broker non-votes (described above).
11. |
What votes are necessary for action to be taken at the meeting? |
Our Bylaws include a majority vote standard for uncontested
director elections. Since the number of nominees does not exceed the number of directors to be elected at the Annual Meeting, the election of each director nominee requires a majority of the votes cast at the Annual Meeting. A majority of the
votes cast means that the number of votes cast FOR a nominee must exceed the number of votes cast AGAINST such nominees election. Abstentions and broker non-votes will have no effect on the outcome of the
director vote.
Approval of each of the other proposals that will be voted on at the Annual Meeting requires the affirmative vote of a majority of the shares
present in person or represented by proxy at the meeting and entitled to vote on the matter. For each proposal other than the election of directors, abstentions will have the same effect as AGAINST votes, and broker non-votes will
have no effect on the outcome of the votes.
12. |
Who will count votes? |
We will appoint one or more Inspectors of Election who will determine the number of shares outstanding, the voting power of each, the number of shares represented at
the Annual Meeting, the existence of a quorum and whether or not the proxies and ballots are valid and effective.
Tesoro
Corporation 2016 Proxy Statement 4
The Inspectors of Election will determine, and retain for a reasonable period a record of the disposition of, any
challenges and questions arising in connection with the right to vote, and will count all votes and ballots cast FOR and AGAINST and any abstentions and broker non-votes with respect to all proposals, and will determine the
results of each vote.
13. |
How are proxies solicited, and what are the costs of proxy solicitation? |
We pay all of the costs of the solicitation of proxies,
including preparing, printing and mailing this Proxy Statement and the Notice of Internet Availability. Solicitation may be made personally or by mail, telephonic or electronic data transfer by officers, directors and employees of the company (who
will not receive any additional compensation for any solicitation of proxies).
We have retained a professional proxy soliciting organization, Innisfree M&A
Incorporated (Innisfree), to aid in the solicitation of proxies from brokers, bank nominees and other institutional owners, and possibly individual holders of record of 1,000 shares or more, by personal interview, telephone or similar
means. We will pay Innisfree its customary fees, estimated not to exceed $11,000, and will reimburse Innisfree for certain expenses. We will also authorize banks, brokerage houses and other custodians, nominees and fiduciaries to forward copies of
our proxy materials and will reimburse them for their costs in sending the materials.
14. |
Will any other matters be presented at the Annual Meeting? |
As of the date of this Proxy Statement, we are not aware of any matter to be presented at the Annual Meeting other than the election of directors and the other
proposals set forth in this Proxy Statement. However, if any other business is properly presented at the meeting, the persons named in the accompanying form of proxy intend to vote such proxy in accordance with their best judgment.
15. |
Where can I access the Annual Report? |
We will provide without charge a copy of our Annual Report on Form 10-K, including financial statements and schedules, for the fiscal year
ended December 31, 2015, upon the written request of any stockholder to Tesoro Corporation, 19100 Ridgewood Parkway, San Antonio, Texas 78259, Attention: Investor Relations.
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Important Notice Regarding the Availability of Proxy Materials for the Stockholders Meeting to be held on May 3, 2016: This Proxy
Statement and our 2015 Annual Report are also available at www.proxydocs.com/tso. |
16. |
What is householding? If I have multiple stockholders at my address, how can I get additional copies of proxy materials? |
To reduce the expense of delivering duplicate proxy materials
to stockholders who may have more than one account holding our stock but who share the same address, we have adopted a procedure approved by the SEC called householding. Under this procedure, certain stockholders of record who have the
same address and last name will receive only one copy of the proxy statement and annual report, or Notice of Internet Availability, as applicable, until such time as one or more of these stockholders notifies us that they want to receive separate
copies. In addition, the broker, bank or other nominee for any stockholder who is a beneficial owner of our stock may deliver only one copy of the proxy statement and annual report, or Notice of Internet Availability, as applicable, to multiple
stockholders who share the same address, unless that broker, bank or other nominee has received contrary instructions from one or more of the stockholders. This procedure reduces duplicate mailings and saves printing costs and postage fees, as well
as natural resources. Stockholders who participate in householding will continue to have access to and utilize separate proxy voting instructions.
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Corporation 2016 Proxy Statement 5
If, now or in the future, you no longer wish to participate in householding and would prefer to receive a separate annual
report and proxy statement, or Notice of Internet Availability, please notify us by calling our Investor Relations Department at 1-800-837-6768 or by sending a written request to our Corporate Secretary at the address listed on page 75, and we will
promptly deliver a separate copy of these materials. Record owners who are receiving multiple copies and wish to receive only one, please call our Investor Relations Department at the number listed above or send a written request to our Corporate
Secretary at the address listed on page 75. Beneficial owners who are receiving multiple copies and wish to receive only one, should notify their broker, bank or other nominee.
18. |
Will the company announce the voting results? |
The preliminary voting results will be announced at the Annual Meeting. The final results will be published in a Quarterly Report on Form 10-Q or a Current Report on
Form 8-K that we will file with the SEC within four business days after the Annual Meeting.
Tesoro
Corporation 2016 Proxy Statement 6
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CORPORATE GOVERNANCE AND BOARD MATTERS |
The Board of Directors
The current members of our Board of Directors are Rodney F.
Chase, Edward G. Galante, Gregory J. Goff, Robert W. Goldman, David Lilley, Mary Pat McCarthy, J.W. Nokes, Susan Tomasky, Michael E. Wiley and Patrick Y. Yang. Specific information about each of the other directors experience and
qualifications can be found beginning on page 63 under Items to Be Voted On Proposal No. 1 Election of Directors. Our Corporate Governance Guidelines provide that all members of the Board are expected to attend our
Annual Meeting of Stockholders, and all nine directors then serving on the Board attended the 2015 Annual Meeting of Stockholders.
Director Experience and Qualifications; Director Nomination Process
The Board believes that it, as a whole, should possess a combination of skills, professional experience, and diversity of backgrounds and perspectives necessary to
oversee our business. Accordingly, the Board and the Governance Committee consider the qualifications of directors and director candidates individually and in the broader context of the Boards overall composition and our current and future
needs. The Governance Committee also develops and maintains a long-term plan for Board composition that takes into consideration the current strengths, skills and experience on the Board; the Companys director retirement policy; and the
strategic direction of the Company.
The Governance Committee is responsible for reviewing with the Board on an annual basis the criteria for Board membership in
the context of the current makeup of the Board. These criteria include diversity, education, skills, integrity, leadership and judgment all in the context of an assessment of the perceived needs of the Board at that point in time. In addition, Board
members generally should have knowledge of our industry and should have a background that demonstrates an understanding of the financial and operational aspects, including the associated risks, of a large and complex company. The Governance
Committee assesses the effectiveness of its criteria when evaluating new director candidates and when recommending director nominees to the Board.
In evaluating
director candidates, and considering incumbent directors for renomination, the Board and the Governance Committee consider a variety of factors, including each nominees independence, financial literacy, personal and professional
accomplishments, and experience in light of our needs. Each director candidate must supply information concerning these factors by completing and submitting a Director and Officer Questionnaire, as required by our Bylaws. For incumbent directors,
the factors include preparedness and past performance on the Board. Among other things, the Board believes it is beneficial to have individuals with the following skills and experiences on the Board:
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Leadership experience, as directors with experience in significant leadership positions possess strong abilities to motivate and manage others and to identify and
develop leadership qualities in others. |
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Knowledge of our industry, particularly oil refining, logistics operations and retail sales, which is integral to understanding our business and strategy.
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Operations experience, as it gives directors a practical understanding of developing, implementing and assessing our business strategy and operating plan.
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Legal experience, for oversight of our legal and compliance matters. |
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Risk management experience, which is critical to the Boards oversight of our risk assessment and risk management programs. |
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Financial/accounting experience, particularly knowledge of finance and financial reporting processes, which is relevant to understanding and evaluating our capital
structure and overseeing the preparation of our financial statements, and internal controls over financial reporting. |
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Corporation 2016 Proxy Statement 7
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Government/regulatory experience, as we operate in a heavily regulated industry that is directly affected by governmental requirements. |
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Strategic planning experience, which is relevant to the Boards review of our strategies and monitoring their implementation and results. |
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Talent management experience, which is valuable in helping us attract, motivate and retain top candidates for management positions. |
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Public company board service, as directors who have served on other public company boards have experience overseeing and providing insight and guidance to management.
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Highlights of the key qualifications and experience of the individual director nominees are set forth under Items to Be Voted On
Proposal No. 1 Election of Directors beginning on page 63.
The Governance Committee periodically considers from time to time suitable candidates
for membership on the Board, including candidates recommended by stockholders. Stockholder candidates will be evaluated in accordance with the criteria for director selection described above. With respect to the 2017 Annual Meeting of Stockholders,
stockholders wishing to recommend a potential Board candidate for the Governance Committees consideration must deliver such recommendation in writing to the Corporate Secretary at the address set forth on page 75 of this Proxy Statement during
the period beginning on January 3, 2017, and ending on February 2, 2017, and include the name and contact information of the candidate. Candidates recommended to the Governance Committee in accordance with these procedures also will need
to complete a Director and Officer Questionnaire in the form we provide. Stockholders who wish to nominate a director at an annual meeting in accordance with our Bylaws should follow the instructions described below under 2017 Stockholder
Proposals.
Director Independence
The Board of Directors currently consists of ten directors,
nine of whom are independent. Mr. Goff, who serves as our President and CEO, is not considered to be independent.
The Board undertook its annual review of
director independence in January 2016 and reviewed all relevant relationships of each director nominee, including transactions and relationships between each director or any member of his or her immediate family and us. The purpose of these reviews
was to determine whether any of the director nominees had relationships or transactions that were inconsistent with a determination that the nominee is independent. In assessing director independence under the New York Stock Exchange
(NYSE) standards and our Corporate Governance Guidelines, the Board considered and found to be immaterial, Mr. Chases service as a non-executive director of Hess Corporation, which serves as one of our suppliers of crude oil.
After reviewing such information, the Board affirmatively determined that each of the following directors has no material relationship with us and has satisfied the independence requirements of the NYSE and our Corporate Governance Guidelines:
Ms. McCarthy, Ms. Tomasky and Messrs. Chase, Goldman, Lilley, Nokes, Wiley and Yang. In addition, when Mr. Galante was appointed to the Board in February 2016 (effective March 1), the Board undertook a similar review and
determined that Mr. Galante has no material relationship with us and has satisfied the independence requirements of the NYSE and our Corporate Governance Guidelines. The Board previously determined that Steven H. Grapstein, who served on the
Board until the 2015 Annual Meeting, was an independent director.
Board Leadership and Committees
Our governance framework permits the roles of Chairman and CEO
to be filled by the same or different individuals. This allows the Board flexibility to select the appropriate leadership for the Company based on a number of factors, including the specific needs of the business and what is in the best interest of
our stockholders at a given time. Since December 31, 2014, Mr. Goff has served as Chairman of our Board. The Governance Committee and independent
Tesoro
Corporation 2016 Proxy Statement 8
directors believe that having the roles of Chairman and CEO combined is the best way to reflect the critical nature of strategic and operational issues in the Board structure and to continue the
Companys increased strength and growth by providing greater clarity and focus regarding our operations, outlook and future strategy for investors, other stakeholders and interested parties. Correspondingly, Ms. Tomasky has served as
independent Lead Director since December 31, 2014. The Board believes that this structure, combined with strong, active independent directors, at this time provides an effective balance between strong Company leadership and appropriate
safeguards and oversight by independent directors. The independent directors will continue to periodically evaluate what is the Boards most effective leadership structure.
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Role of the Independent Lead Director The independent Board
members elect the independent Lead Director annually. The Lead Directors responsibilities include the following:
Chairs meetings of the Board at which the Chairman is not present, including executive
sessions of the independent directors, and briefs the Chairman on any substantive concerns, issues or requests arising out of executive sessions and meetings of the independent directors
Works with the Chairman in setting the Board agenda by taking into consideration the
objectives of management as well as the needs of the Board and its individual committees
Works with the Chairman and the General Counsel and Secretary to prepare Board and
annual meeting schedules Works with the independent directors to establish and
approve appropriate annual goals and objectives for the Chairman, and communicates to the Chairman the results of the formal evaluation conducted by the independent directors of the Chairmans performance pertaining to established goals and
objectives Acts as a liaison between the independent directors and the Chairman
and other members of management, and facilitates proper flow of information to the Board
Acts as an ex officio member of all committee of which she is not already a member,
actively participating in such meetings whenever possible Leads the recruitment
and selection of new Board members with the Chairman Maintains a close
relationship of trust and mentorship with the Chairman, providing advice and support while respecting executive responsibility
Serves as an additional point of contact for stockholders, and communicates with
stockholders in those circumstances where the Board determines that direct communication between the Board and stockholders is appropriate |
The Board of Directors met eleven times during 2015. At seven of such meetings, the independent directors met in executive session,
chaired by Ms. Tomasky, who served as the independent Lead Director of the Board during 2015. It is the general practice of the Board to meet in executive session, led by the independent Lead Director without Mr. Goff or any other members
of management present, at each of the regularly scheduled meetings of the Board.
The Board has the following standing committees: Audit Committee, Compensation
Committee, Environmental, Health, Safety & Security Committee, and Governance Committee. Each director attended more than 75% of the meetings of the Board and committees on which such director served (held during the period of such
directors service) during 2015. The current membership of the Committees and the primary responsibilities of each committee, are shown below. Although primary responsibilities may be assigned to a committee, the Board receives regular,
detailed reports from each of its committees and engages in additional discussion and oversight regarding matters of particular concern or importance.
Tesoro
Corporation 2016 Proxy Statement 9
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Current
Committee Members / # of Meetings held in
2015 |
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Primary Responsibilities |
AUDIT (a)(b)(c)(d) |
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Appoints and oversees the independent registered public accounting firm, including its qualifications, independence
and performance |
Mr. Chase (Chair)
Mr. Goldman
Ms. McCarthy
Mr. Yang
7 Meetings in 2015 |
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Reviews the scope and results of the
audit to be conducted by the independent registered public accounting firm Oversees our
corporate accounting and financial reporting practices, including the quality and integrity of our financial statements
Oversees the organization, scope and performance of our internal audit function, including the
annual internal audit plan Oversees the adequacy and effectiveness of our internal controls
over financial reporting, including computerized information system controls and security addressing business and financial information, and any instances of fraud that involve management or other employees who have a significant role in the
Companys internal controls; as part of this responsibility, the Audit Committee meets regularly with the chief financial officer, chief information officer and controller regarding our technology systems and cyber-security detection and
defense measures Oversees compliance with legal and regulatory requirements and discusses with
the General Counsel major litigation that could reasonably impact the Companys financial results or cash flows
Reviews our tax strategies and the implications of tax law changes
Reviews our policies with respect to risk assessment and risk management, as well as our major
financial risk exposures and steps undertaken to control them, including mitigations and controls designed to limit our exposure to commercial and commodities risks
Considers and recommends to the Board specific financing, dividends and stock repurchase actions,
as well as major unbudgeted capital investments Oversees procedures for the receipt, retention
and treatment of complaints received by the Company regarding accounting, internal controls or auditing matters, as well as procedures for the confidential and anonymous submission by employees of concerns regarding fraud or questionable accounting
or auditing matters; meets regularly with the business compliance officer to discuss allegations regarding such matters, as well as claims regarding potential violation of the Companys Code of Business Conduct |
COMPENSATION
(a)(b)(d) |
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Oversees our overall
compensation philosophy and reviews industry pay practices, including governmental and regulatory developments
Together with the other independent directors, led by the Lead Director, annually reviews and
approves goals and objectives relevant to the compensation of the CEO Reviews and approves all
aspects of direct and indirect compensation for our CEO and other members of our senior management
Reviews and approves the selection of peer group companies for comparative purposes for
benchmarking compensation, equity and benefit decisions Reviews and approves employment and
severance arrangements and change-in-control plans affecting compensation and benefits of the CEO and senior management
Approves and oversees the administration of incentive compensation programs, including all
equity-based incentives and cash-based annual incentive programs Oversees tax-qualified and
non-qualified retirement plans and post-retirement health and welfare benefit plans Oversees
the assessment of risk associated with our compensation programs (such as the 2015 Incentive Compensation Program discussed in Compensation Discussion and Analysis Elements of Executive Compensation / Pay for Performance and our
commercial trader compensation program) |
Mr. Lilley (Chair)
Mr. Galante
Ms. McCarthy
Mr. Nokes
Mr. Wiley
8 Meetings in 2015
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ENVIRONMENTAL,
HEALTH, SAFETY &
SECURITY (a)(d) |
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Reviews and approves at least
annually our environmental, health, safety and security policies Reviews managements
programs for compliance with our environmental, health, safety and security policies, applicable laws and regulations
Reviews periodically with management its environmental, health, safety and security activities with
respect to significant legal matters, and emerging or proposed laws or regulations that may have a material effect on our financial results or operations
Reviews and assesses periodically our significant environmental, health, safety and security
liabilities reported in the financial statements Reviews periodically significant capital
expenditures that may have a material environmental, health, safety or security impact or risk exposure |
Mr. Nokes (Chair)
Mr. Galante
Mr. Lilley
Mr. Wiley
5 Meetings in 2015 |
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Tesoro
Corporation 2016 Proxy Statement 10
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Current
Committee Members / # of Meetings held in
2015 |
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Primary Responsibilities |
GOVERNANCE (a) |
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Recommends candidates for
election to the Board Develops and recommends to the Board the criteria for identifying and
evaluating director candidates Oversees the annual evaluation of the Board and the committees
of the Board Reviews and makes recommendations to the Board regarding the size, leadership
structure, organization, composition and functioning of the Board, and the committees of the Board
Reviews and recommends to the Board compensation for non-employee directors
Oversees new director orientation and continuing education for directors
Reviews succession plans for our CEO
Reviews our charitable and direct and indirect political contributions
Oversees the administration of our related party transaction policies and procedures |
Ms. Tomasky (Chair)
Mr. Chase
Mr. Goldman
Mr. Yang
7 Meetings in 2015
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(a) |
The Board has determined that all members of this Committee meet the independence requirements of the NYSE. |
(b) |
The Board has determined that all members of the Audit Committee and the Compensation Committee meet the additional independence requirements of the NYSE and SEC, as applicable. |
(c) |
The Board has determined that each member of the Audit Committee is financially literate. In addition, the Board has determined that Mr. Chase, Mr. Goldman and Ms. McCarthy each qualify as an audit
committee financial expert, as defined by SEC rules. No member of the Audit Committee serves on the audit committees of more than three public companies, including ours. |
(d) |
Effective May 7, 2015, Ms. Tomasky ceased to serve on the Audit Committee in order to focus more of her efforts on her role as independent Lead Director. In connection with his election to the Board,
Mr. Galante was appointed to serve on the Compensation Committee and the Environmental, Health, Safety & Security Committee effective March 1, 2016. Effective March 14, 2016, Mr. Yang ceased to serve on the
Environmental, Health, Safety & Security Committee and began serving on the Audit Committee. |
As independent Lead Director,
Ms. Tomaksys serves as an ex officio member of all committees on which she does not serve. Whenever possible, she actively participates, but does not vote in, such meetings.
Board and Committee Performance Self-Evaluations
Each year, our directors evaluate the performance of the Board
and each committee on which they serve. As part of Board self-evaluation process, the directors are asked to provide feedback on the Boards role and effectiveness, relations with management, composition and meetings. Each committee is also
asked to consider its role and responsibilities articulated in the committee charter, the composition of the committee and the committee meetings. The self-evaluation responses and comments are compiled by the Corporate Secretary and presented to
the Governance Committee for initial review. The responses and comments are also presented to each committee and the full Board for discussion. In addition, our Governance Committee charter and Corporate Governance Guidelines provide that
periodically, but not less than once every three years, the Governance Committee will retain a third party to conduct the performance evaluation of the Board.
Board of Directors Role in Succession Planning
The Board of Directors is responsible for succession planning for the Board, as well as senior management. In addition to routine succession planning efforts by the
Board and Governance Committee throughout the year, the full Board engages in a comprehensive management succession planning exercise at least once each year in which it analyzes potential succession candidates across all senior management
positions. Although the Board focuses on the senior management team and CEO succession, directors also discuss the talent pipeline for other key roles in the Company. As part of this exercise, the Board reviews skills, competencies and readiness
levels of succession candidates and reviews development plans presented by management to ensure that management succession candidates are adequately prepared for planned transitions.
Tesoro
Corporation 2016 Proxy Statement 11
The Board endeavors to regularly refresh its membership through a combination of adding or replacing directors to achieve
the appropriate balance of longer-term directors with deep institutional knowledge of the refining, marketing and logistics business and adding directors who bring a diversity of perspectives and experience. For example, because we have several
long-tenured directors who are reaching the retirement age discussed above, the Board increased its size to ten directors effective March 1, 2016 and appointed Mr. Galante to the Board. Mr. Galante brings a great deal of industry
experience to our Board, as further described in his biography on page 64.
Recent Corporate Governance
Enhancements
We continuously look for ways to
improve our corporate governance and increase value to our stockholders. Among the improvements made this year is our appointment of two of our directors, Robert W. Goldman and Michael E. Wiley, to the board of directors of Tesoro Logistics GP, LLC
(TLGP), the general partner of Tesoro Logistics LP. This change has improved the communication between the two boards, increased the TLGP Board industry expertise and financial expertise, and expanded our strategic view. We believe this
governance change will foster cohesive strategy and oversight, which will create value to stakeholders at both companies.
We highly value the input and insights of
our stockholders, and we take pride in the quality, knowledge and engagement of our stockholder base. This year our Governance Committee adopted improvements to our Corporate Governance Guidelines intended to enhance our communication with our
stockholders. In line with this expanded vision, in the spring of 2016, Ms. Tomasky, our independent Lead Director, wrote a letter to each of our institutional stockholders that was known to have held more than 0.5% of our outstanding stock as
of January 29, 2016 (which constituted slightly over 55% of our outstanding shares), inviting them to participate in one-on-one meetings with her to share their priorities and insights.
Corporate Governance Documents
We have a long-standing commitment to good corporate
governance. We have adopted Corporate Governance Guidelines that, along with the charters of our Board committees, provide the framework for our governance processes.
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Copies of the Corporate Governance Guidelines and charters of our Board committees are posted on our website at www.tsocorp.com under the heading Investors and the subheading Corporate
Governance. Printed copies of these documents are also available upon request to our Corporate Secretary. |
We have adopted a Code of Business
Conduct and Ethics for Senior Financial Executives that is specifically applicable to the CEO, the CFO, the Controller and persons performing similar functions. In addition, we have a Code of Business Conduct that applies to all of our directors,
officers and employees.
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Both the Code of Business Conduct and Ethics for Senior Financial Executives and the Code of Business Conduct are available on our website at www.tsocorp.com under the heading Investors and the
subheading Corporate Governance. We will post on our website any amendments to, or waivers from, either of our Codes requiring disclosure under applicable rules. |
Board Risk Oversight
The Board oversees risk management, focusing on our most
significant risks, and the processes that management has established for assessing and managing risk. The Board delegates oversight of certain categories of risk to designated Board committees, which are composed entirely of independent directors.
The committees report to the Board regularly on matters relating to the specific areas of risk the committees oversee and, for our most significant risks, the Board may engage in additional discussion and oversight.
Tesoro
Corporation 2016 Proxy Statement 12
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Oversees and reviews our processes for assessing and managing risk, including guidelines and policies that govern the processes to ensure consistency with our risk assessment and risk management policies
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Oversees and reviews our major financial risk exposures and the steps management has undertaken to monitor and manage them, as well as financial reporting and internal controls |
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Reviews annual reports from management on the results of the annual review and assessments conducted by management, and discussed below, to identify our annual priority risk profile |
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Reviews regular reports from our Vice President of Internal Audit regarding our audit activities throughout the year |
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Reviews quarterly updates from management on our legal and compliance risks |
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Approves an annual internal audit plan, which incorporates our priority risk management activities |
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Environmental,
Health, Safety & Security (EHS&S) Committee |
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Oversees environmental, health, safety and security risks and reviews our policies, performance and practices relating to these risks to our employees and assets, and the communities and environment in which we operate
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Approves an annual environmental, health, safety and security plan that also incorporates priority risks and receives regular reports throughout the year from management and operating personnel of our activities
managing those risks |
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Audit Committee
and EHS&S Committee |
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Annually discusses with management, including members of our Executive Committee, our policies and practices with respect to risk assessment and risk management |
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Reviews regular reports from management throughout the year regarding major risks facing us and the steps management has taken to monitor and manage such risks |
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Annually discusses with management, including members of our Executive Committee, our policies and practices with respect to risk assessment and risk management |
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Reviews regular reports from management throughout the year regarding major risks facing us and the steps management has taken to monitor and manage such risks |
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At least annually, receives an update from management concerning the status and effectiveness of our risk prevention and mitigation activities, emerging risks and risk assessment and management practices
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Reviews periodic reports from executive management on our strategic risks |
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Management Risk
Committee |
Our management risk
committee is comprised of senior level business management leadership from our financial, strategic, governance, administrative and operational functions. This group is chaired by the head of our Enterprise Risk Group and reports to the
Companys Executive Committee (consisting of our President and CEO; Executive Vice President, Operations; Executive Vice President, General Counsel and Secretary; Executive Vice President and CFO; and other senior officers in key areas of our
organization). Its functions include the following:
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Facilitates an annual review by our management and subject matter experts to assess and prioritize the risks facing us |
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Continually interacts with the Enterprise Risk Group, which interacts with various levels of our organization to assess the status and effectiveness of risk prevention and mitigation activities, identify emerging risks
and facilitate managements enhancement of our risk assessment and management practices |
Tesoro
Corporation 2016 Proxy Statement 13
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Meets periodically throughout the year to review priority risks, risk prevention and mitigation activities and emerging risks and to facilitate managements continual improvement of monitoring and managing risks
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Chair of this committee meets periodically with the Executive Committee to report on its activities |
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At least annually, management provides the Board of Directors an update, based on the work of the management risk committee, concerning the status and effectiveness of our risk prevention and mitigation activities,
emerging risks and risk assessment and management practices |
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Subcommittees assess and manage specific risks facing us |
Risk
Considerations in Our Compensation Programs
In
August 2015, our management in consultation with the Compensation Committees independent consultant performed an annual assessment of the risks associated with our current compensation programs. The Compensation Committee reviewed
managements assessment of the compensation programs which cover our employees, including executives and commercial trading personnel, and discussed the concept of risk as it relates to our compensation programs. The assessment and
discussions concluded the following:
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Tesoros compensation programs are designed to reward business results while enabling future success and do not present a material risk to the Company. |
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Appropriate pay philosophy and market comparisons support business objectives. |
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Programs appropriately balance fixed compensation with short-term and long-term variable compensation such that no single pay element would motivate employees to engage in excessive risk taking |
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The characteristics of our annual incentive program design do not encourage behaviors that would create material risk for our company because we base annual incentive awards on: |
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Corporate, business unit and individual performance goals, with a variety of pre-established performance conditions in each category, thus diversifying the risk associated with any single indicator of performance; and
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Financial and non-financial performance targets that are objectively determined by measureable and verifiable results. |
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Our long-term incentive program encourages employees to focus on our long-term success by providing a mix of performance shares and market stock units, each of which rewards employees if we meet specified performance
goals or our stock price increases. These awards also incorporate pre-established caps to prevent excessive compensation. |
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Our executive stock ownership guidelines ensure our senior executives maintain a substantial stake in our long-term success, strengthening the alignment between the interests of our executives and our stockholders.
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We have established a clawback policy that allows the Board to recoup annual and long-term incentive compensation received by a senior
executive for misconduct resulting in a material financial restatement. The clawback policy is discussed in more detail under the heading Compensation Discussion and Analysis Clawback Policy in this Proxy
Statement.
Social Responsibility
Tesoro, including its Board of Directors and management team,
is dedicated to operating in a socially responsible manner and our actions are guided by our Core Values and Code of Business of Conduct. Our Social Responsibility Report, which is available on our website at www.tsocorp.com under the heading
Responsibility Social Responsibility Reports outlines our commitments to our people and communities, and to operating in a manner that is safe and environmentally responsible.
Tesoro
Corporation 2016 Proxy Statement 14
Transactions with Related Parties
Except for transactions relating to Tesoro Logistics LP and its
subsidiaries, we did not have any transactions with any related party (as described below) requiring disclosure since the beginning of 2015. Our Board has a written related-party transaction policy and procedures that apply to any interested
transaction, which is any transaction, arrangement or relationship or series of similar transactions, arrangements or relationships in which we are a participant, the aggregate amount involved since the beginning of the last completed fiscal
year is or is expected to exceed $100,000, and in which a related party has a direct or indirect material interest. For purposes of the policy, a related party includes (1) any person who is or was (since the beginning of the last
completed fiscal year), an executive officer, director or nominee for director, (2) any holder of more than 5% of our common stock, and (3) any immediate family member of any of the foregoing.
Our Governance Committee reviews the material facts of all interested transactions, and may approve or ratify such transactions, as appropriate. In
determining whether to approve or ratify any such transaction, the Governance Committee may consider whether the transaction is on terms no less favorable than terms generally available to an unaffiliated third party under the same or similar
circumstances, whether there are valid business reasons to enter into the transaction, whether the transaction would impair the independence of a director or present an improper conflict of interest for any director or executive officer, and any
other factors it deems relevant.
The Chairman of our Governance Committee has the authority to pre-approve or ratify any related-party transaction in which the
aggregate amount involved is expected to be less than $1 million. Any such action by the Chairman of our Governance Committee must be reported to our Governance Committee at its next regularly scheduled meeting.
The Governance Committee has reviewed and pre-approved certain categories of transactions under the terms of the policy. Information on transactions subject to
pre-approval is maintained by the office of the General Counsel and provided to the Governance Committee for its review at least annually. The types of transactions deemed pre-approved include:
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employment of executive officers if the compensation is reported in the annual proxy statement or was approved by the Compensation Committee, |
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transactions with other companies at which a related partys only relationship is as an employee (other than an executive officer) if the aggregate amount involved does not exceed the greater of $1 million or 2% of
that companys total annual revenues, |
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charitable contributions to an organization, foundation or university at which a related partys only relationship is as an employee (other than an executive officer) if the aggregate amount involved does not
exceed the lesser of $1 million or 2% of that organizations total annual receipts, |
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certain transactions with Tesoro Logistics GP, LLC (the general partner or TLGP), Tesoro Logistics LP (TLLP) and their subsidiaries (collectively, the Tesoro Logistics
entities), as described below, |
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transactions where all shareholders receive proportional benefits, |
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transactions involving another public company with a common institutional shareholder, |
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transactions involving competitive bids, |
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regulated transactions, and |
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certain banking-related services. |
Pre-approved transactions with the Tesoro Logistics entities include:
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cash distributions by TLLP to its unitholders, |
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sales of logistics assets by us to the Tesoro Logistics entities if approved by the Board or in certain situations the CEO, |
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pipeline transportation, trucking, terminal distribution, storage and similar services provided by the Tesoro Logistics entities pursuant to long-term, fee-based commercial agreements with us, |
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ongoing performance of the Omnibus Agreement, |
Tesoro
Corporation 2016 Proxy Statement 15
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ongoing performance of the Secondment and Logistics Services Agreement or similar agreements under which we provide the Tesoro Logistics entities with certain operational services, and |
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any other transaction between us and the Tesoro Logistics entities for which the annual aggregate amount involved does not exceed $10 million. |
Relationship with TLLP
We own (directly and through our affiliates) approximately 36% of the interests in TLLP, including a 2% general partner interest held by TLGP, our wholly-owned,
indirect subsidiary. The general partner manages TLLPs operations and activities through its officers and directors. Mr. Goff, Steven M. Sterin and Charles S. Parrish serve as executive officers of both Tesoro Corporation and TLGP.
Further information about transactions between us, TLLP, and their respective subsidiaries can be found under Relationship with TLLP on page 56. Each of
those transactions was approved or ratified consistent with our related-party transaction policy.
Engaging with
our Board
We value your input and insights, and
we seek an open dialogue to understand your concerns and priorities. Effective Board-stockholder communication strengthens our role as an active, informed and engaged Board. While we believe that in most circumstances the CEO and members of senior
management are best positioned to speak for the Company, the Board is ultimately responsible for supervising managements communication and engagement with stockholders. Management reports to the Board on material stockholder comments and the
feedback it receives.
There are several ways for you to communicate with our Board. Our Corporate Governance Guidelines require the entire Board to attend the
annual meeting, absent exceptional circumstances, and for the chairs of each of our committees to be available to respond to stockholder questions regarding our corporate governance practices and views on executive compensation and stockholder
proposals.
Stockholders are also invited to request a meeting with our independent Lead Director or with other Board members as appropriate. We evaluate meeting
requests on a case-by-case basis, considering several factors, including the utility of the proposed discussion topic, whether the matter is of general concern to stockholders, how the matter may affect our performance, and whether discussions would
likely comply with our duties, regulations and our guidelines. Directors may also participate in investor meetings with management from time to time to elicit stockholder views.
You may communicate with Mr. Goff as Chairman of the Board or with our full Board of Directors by submitting such communication in writing to:
c/o Chairman of the Board of Directors
Tesoro
Corporation
19100 Ridgewood Parkway
San Antonio,
Texas 78259
You may communicate with Ms. Tomasky as Lead Director or with the independent members of the Board by submitting such communication in writing to:
c/o General Counsel and Corporate Secretary
Tesoro Corporation
19100 Ridgewood Parkway
San Antonio, Texas 78259
Tesoro
Corporation 2016 Proxy Statement 16
In addition, the Audit Committee has established procedures for the receipt, retention, and treatment of complaints
received by us regarding accounting, internal controls, or auditing matters and the confidential, anonymous submission by our employees of concerns regarding questionable accounting or auditing matters. Persons wishing to communicate with our Audit
Committee may do so by submitting such communication in writing to:
c/o Chairman of the Audit Committee
Tesoro Corporation
19100 Ridgewood Parkway
San Antonio, Texas 78259
Tesoro
Corporation 2016 Proxy Statement 17
|
Compensation of Directors |
Director Compensation Program
During 2015, the compensation program for our directors who are
not employees included an annual retainer, payable partially in cash and partially in the form of restricted stock units representing the right to receive shares of common stock with dividend equivalent rights (RSUs), together with Board
and Committee Chair fees, as set forth below. Such RSUs vest one year from the date of grant, which is typically the date of our Annual Meeting of stockholders. We do not pay management directors for Board service in addition to their regular
employee compensation.
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2015 Non-Employee Director Annual
Retainers and Fees (a) |
Cash Retainer (a) |
|
$120,000 |
Equity Grants (b) |
|
$150,000 |
Independent Lead Director |
|
$75,000 |
Audit Committee Chair |
|
$20,000 |
Compensation Committee Chair |
|
$20,000 |
Environmental, Health, Safety & Security Committee Chair |
|
$15,000 |
Governance Committee Chair |
|
$15,000 |
(a) |
In addition to the retainers set forth in the table, we reimburse our directors for travel and lodging expenses that they incur in connection with their attendance at meetings of the Board, meetings of our Board
committees and our annual meeting of stockholders. |
(b) |
Paid in the form of RSUs, which are granted on the date of the annual meeting of stockholders and vest one year from the date of grant.
|
Directors may elect to defer all or a portion of
their cash compensation under the Tesoro Corporation Board of Directors Deferred Compensation Plan. Amounts deferred under such plan accrue interest at the prime rate published in the Wall Street Journal on the last business day of the quarter plus
two percentage points.
2015 Director Compensation Table
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Name |
|
Fees Earned or
Paid in
Cash
($)
(a) |
|
|
Stock
Awards
($)
(b) |
|
|
Change in
Pension
Value and
Nonqualified
Deferred
Compensation
Earnings
($)
(c) |
|
|
All Other
Compensation
($) |
|
|
Total
($) |
|
Rodney F. Chase |
|
|
140,000 |
|
|
|
150,517 |
|
|
|
|
|
|
|
|
|
|
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290,517 |
|
Robert W. Goldman |
|
|
120,000 |
|
|
|
150,517 |
|
|
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2,435 |
|
|
|
61,561 |
(d) |
|
|
334,513 |
|
Steven H. Grapstein (e) |
|
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42,258 |
|
|
|
|
|
|
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26,294 |
|
|
|
|
|
|
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68,552 |
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David Lilley |
|
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140,000 |
|
|
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150,517 |
|
|
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1,201 |
|
|
|
|
|
|
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291,718 |
|
Mary Pat McCarthy |
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120,000 |
|
|
|
150,517 |
|
|
|
2,840 |
|
|
|
|
|
|
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273,357 |
|
J.W. Nokes |
|
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135,000 |
|
|
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150,517 |
|
|
|
|
|
|
|
|
|
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285,517 |
|
Susan Tomasky |
|
|
210,000 |
|
|
|
150,517 |
|
|
|
|
|
|
|
|
|
|
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360,517 |
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Michael E. Wiley |
|
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120,000 |
|
|
|
150,517 |
|
|
|
|
|
|
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61,561 |
(d) |
|
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332,078 |
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Patrick Y. Yang |
|
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120,000 |
|
|
|
150,517 |
|
|
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11,424 |
|
|
|
|
|
|
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281,941 |
|
|
(a) |
Of the fees earned, the following amounts were elected by the director to be deferred pursuant to the Deferred Compensation Plan into the deferred cash account: Mr. Grapstein, $42,258; Mr. Lilley, $140,000,
and Mr. Yang, $120,000. |
|
(b) |
The amounts in the table reflect the aggregate grant date fair value of RSUs granted during the fiscal year, calculated in accordance with financial accounting
standards. $150,000 of each non-employee directors annual retainer fee was |
Tesoro
Corporation 2016 Proxy Statement 18
|
granted as 1,689 RSUs on May 7, 2015. The table below reflects the total options, phantom stock units and RSUs outstanding as of December 31, 2015 for each non-employee director.
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Director |
|
Total Options Outstanding |
|
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Total Phantom Stock Units Outstanding |
|
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Total Restricted Stock Units Outstanding |
|
Rodney F. Chase |
|
|
|
|
|
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934 |
|
|
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1,689 |
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Robert W. Goldman |
|
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15,000 |
|
|
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1,674 |
|
|
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4,532 |
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Steven H. Grapstein |
|
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15,000 |
|
|
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16,337 |
|
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David Lilley |
|
|
|
|
|
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3,777 |
|
|
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1,689 |
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Mary Pat McCarthy |
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|
|
|
|
|
|
|
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6,989 |
|
J.W. Nokes |
|
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19,000 |
|
|
|
742 |
|
|
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4,146 |
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Susan Tomasky |
|
|
|
|
|
|
|
|
|
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4,349 |
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Michael E. Wiley |
|
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9,000 |
|
|
|
1,226 |
|
|
|
1,689 |
|
Patrick Y. Yang |
|
|
|
|
|
|
|
|
|
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6,786 |
|
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(c) |
The amounts shown represent interest credited under the Deferred Compensation Plan exceeding 120% of the applicable federal rate. |
|
(d) |
Messrs. Goldman and Wiley were elected to the Board of Directors of Tesoro Logistics GP, LLC (TLGP), the general partner of Tesoro Logistics LP effective April 17, 2015. The amounts reflected represent
the portion of the annual retainer earned in 2015 and meeting fees paid in 2015 for such service; such retainer is composed solely of cash and neither Mr. Goldman nor Mr. Wiley receives TLLP equity units as compensation for their service
as directors of TLGP. |
|
(e) |
Mr. Grapstein ceased to be a director effective May 7, 2015. |
Director Stock Ownership Guidelines
The Director Stock Ownership Guidelines require directors to
own a fixed number of units, currently ranging from 5,066 shares to 8,260 shares. The ownership requirement is based on the first five years of annual equity grants beginning with the date each director joined the Board. Directors who have not
reached their individual ownership requirement are required to hold all restricted stock units that vest and distribute into common stock. All current directors either meet these guidelines or are on track to do so within the required time period.
Tesoro
Corporation 2016 Proxy Statement 19
|
Executive
Compensation Compensation Discussion and Analysis |
This Compensation Discussion and Analysis (CD&A)
discusses the principles underlying our executive compensation programs and the key executive compensation decisions that were made for 2015. It also explains the most important factors relevant to those decisions. This CD&A provides additional
context and background for the compensation earned by and awarded to our named executive officers (NEOs), as reflected in the compensation tables that follow the CD&A. Our NEOs for 2015 include the following individuals:
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Gregory J. Goff, Chairman, President and Chief Executive Officer; |
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Steven M. Sterin, Executive Vice President and Chief Financial Officer; |
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Keith M. Casey, Executive Vice President, Operations; |
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Cynthia J. Warner, Executive Vice President, Strategy and Business Development; and |
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Charles S. Parrish, Executive Vice President (formerly the Executive Vice President, General Counsel and Secretary). |
2015 Advisory Vote on Executive Compensation
At our 2015 Annual Meeting of Stockholders, our stockholders provided an advisory vote to approve the compensation program for our NEOs disclosed in our 2015 proxy
statement the (Say-on-Pay Proposal). Stockholders expressed substantial support for the compensation program for our NEOs, with approximately 93% of the votes cast voting in favor of the proposal. Our Compensation Committee, Board of
Directors and executive management team took into consideration this high level of support for our executive compensation programs and continued our existing compensation strategy as a result of the stockholder vote.
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In 2015, our Say-on-Pay Proposal garnered 93% support
|
Executive Summary
Our Compensation Committee believes in pay-for-performance and
approves programs that are aligned with corporate and stockholder goals. To attract and retain top talent, total target direct compensation is determined based upon each executives experiences, market factors (including the median of the
competitive market) and internal comparisons. Payments under our annual incentive and long-term incentive programs are performance-based and dependent on the achievement of annual and long-term goals approved by the Committee or absolute or relative
appreciation in the price of our common stock.
Tesoro
Corporation 2016 Proxy Statement 20
Tesoro Achieved Record Performance in 2015
We achieved record net earnings and strong financial and operating performance in 2015. Our compensation outcomes and decisions reflect this strong
performance.
2015 Financial Results
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|
Earnings per diluted share from continuing operations increased 86% from 2014 results |
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Dividends per share increased by 68% compared to 2014 results |
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Cash distributions received from TLLP increased by 70% from 2014 amounts to $148 million |
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Our year-end cash balance was $942 million |
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Our year-end debt to capitalization ratio (excluding TLLP) was 19% |
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Our net cash from operating activities increased 56% from 2014 results to $2.1 billion |
2015 Business Results (Highlights)
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Top Tier personal safety and process safety performance |
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Fully integrated and captured synergies from the natural gas gathering, processing, treating and transportation and crude oil gathering assets acquired by TLLP from QEP Field Services Company, continuing TLLPs
transformation into a full-service logistics company with revenue diversification |
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Achieved 93% refining utilization, despite the impact of work stoppages in the spring of 2015 |
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Continued to drive business improvements across company, including capital and non-capital improvement initiatives, margin improvement initiatives, synergies related to asset acquisitions and similar projects and
initiatives |
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In light of our business results described above and other considerations, the Compensation Committees key decisions
in 2015 and early 2016 included:
|
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|
Pay Element |
|
2015 Actions |
Base Salaries |
|
Approved base salary increases ranging from 3.7% to 12.5% in February 2015 for each of our named executive officers as a result of the Compensation Committees review of competitive
market data and individual performance. |
Annual Incentives |
|
Paid 2015 annual incentive program awards in March 2016 to all of our NEOs. Our operating performance and the Compensation Committees decisions regarding special items resulted in
payouts for our NEOs between 150% and 155% of target. |
Long-Term Incentive Awards |
|
Granted awards in February 2015, which included the following types of awards, each with a three-year
performance period:
performance shares based on relative total shareholder return;
market stock unit
(MSU) awards that will become eligible for vesting based on our stock price performance over the performance period; and
for those NEOs serving as directors of TLGP (Messrs. Goff, Casey, Sterin, and
Parrish), awards also included performance-based phantom unit awards through the Tesoro Logistics LP 2011 Long Term Incentive Plan. |
The Compensation Committee believes the actions described above clearly demonstrate our commitment to implementing and executing
results-oriented compensation programs that are market-competitive and reflect good corporate governance practices.
Summary of Sound Executive Compensation Practices
In conjunction with our strategic priorities and compensation
philosophy, our executive compensation programs effectively align the interests of our NEOs with our stockholders.
Tesoro
Corporation 2016 Proxy Statement 21
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What We Do |
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Align Executive Pay with Company
Performance We reward our executives for delivering value to stockholders while
reducing or eliminating overall compensation levels if we do not achieve our goals or consistently underperform our peers. |
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Use Rigorous Performance Goals
We use objective performance-based goals in our annual incentive plan that are rigorous and designed
to motivate executive performance. As an example, one of the key metrics under our annual incentive compensation program is EBITDA performance on a margin neutral basis. This excludes the impact on our refining margins of fluctuations in commodity
prices, over which management has little influence and avoids over-rewarding executives in periods when margins are high relative to those assumed in our annual business plan. |
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Grant Performance-Based Long-Term
Incentives Executives are granted equity incentives tied to stock price performance
measured on both an absolute and relative basis. |
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Cap Incentive Awards
Awards under both our annual and long-term incentive plans are capped at 200% of
target. |
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Maintain Stock Ownership Guidelines
Our executive stock ownership guidelines ensure our senior executives maintain a substantial stake in
our long-term success, strengthening the alignment between the interests of our executives and our stockholders. |
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Analyze Executive Compensation Risk
Our Compensation Committee, together with management and our independent consultant, annually review
our compensation programs to see that they do not encourage imprudent risk. |
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Retain an Independent Compensation
Consultant Our Compensation Committee has engaged Frederic W. Cook & Co., which it
has determined is independent, to review our compensation practices, compare our executive compensation to that of our peers and advise us of good practices regarding compensation matters. |
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Impose a Clawback Policy
Our compensation recoupment or clawback policy provides that in the event of a material
restatement of financial results due to misconduct, our Board will seek to recoup such compensation to any SVP or above whose misconduct caused or significantly contributed to the material restatement. |
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Mitigate Potential Dilution from Equity
Awards Our Board has authorized us to purchase shares of our common stock in open
market transactions to offset the dilutive effect of stock-based compensation awards and to meet our obligations under employee benefit and compensation plans. |
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What We Dont Do |
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Guarantee Payouts on Performance-Based
Awards We do not provide performance-based cash or equity awards for unmet performance
goals and have no minimum guaranteed payout. |
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Provide Employment Agreements
We do not have individual employment contracts with our executive officers. |
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Pay Dividend Equivalents on Unvested Long-Term
Incentives We do not pay dividend equivalents on unvested or unearned performance
share awards. |
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Pay Tax Gross Ups
We do not provide tax reimbursements to our executive officers. |
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Provide Executive Perquisites
Our executive officers are generally not entitled to any special perquisites, with the exception of
relocation benefits. |
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Allow Pledging or Hedging of Company
Stock We prohibit our directors, officers and employees from pledging or hedging
company securities. |
Tesoro
Corporation 2016 Proxy Statement 22
Compensation Philosophy
Our compensation philosophy is to offer competitive
compensation and benefit programs that will attract and retain the talented executives and employees who are critical to executing our strategic priorities and who exemplify our core values.
Our executive compensation programs are comprised of a mix of fixed and variable cash and equity-based pay with a significant portion of actual total compensation
dependent on meeting financial and operational objectives, as well as the performance of our stock.
Our executive compensation programs are designed around the
following concepts:
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Rewarding leaders for delivery of outstanding business results and driving a performance-oriented culture; |
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Promoting and sustaining exceptional performance over time to generate long-term growth in stockholder value; and |
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Leading in accordance with our guiding principles, which are core values, exceptional people, shared purpose, powerful collaboration and superior execution. |
Our approach allows us to reward our executives for delivering value to stockholders while reducing or eliminating overall compensation levels if we do not achieve our
goals or consistently underperform our peers.
Our Compensation Committee and Compensation Decision-Making
Process
All compensation actions for our CEO
and other NEOs are approved by our Compensation Committee. The CEO; the Senior Vice President and Chief Human Resources Officer; the Vice President, Compensation, Benefits and Human Resource Information Systems; and either the General Counsel or one
of our Assistant Secretaries attend regular Committee meetings and provide information, analysis, additional perspective, and proposals for changes, as requested.
The Committee meets, together with the Committees compensation consultant, outside the presence of the NEOs and all other executive officers to consider
appropriate compensation for our CEO, taking into consideration an annual review of the CEOs performance by the independent members of the Board. The Board and our CEO mutually agree upon a list of individual goals during the first quarter
each year and the CEO formally reviews his performance against the goals with the Board during the year and after the close of the fiscal year. The independent Board members, led by Ms. Tomasky as Lead Director, evaluate the CEOs
performance. The Committee uses this performance evaluation, market data and input from its compensation consultant to make key decisions regarding the CEOs base salary, annual cash incentive award payout and long-term equity incentive awards.
Overall target compensation and grants of long-term equity incentive awards for other members of senior management, including the other NEOs, are generally based
on market data as described below under the heading Comparative Analysis and internal equity considerations. Each year, the CEO completes an evaluation of each NEOs performance, taking into consideration factors such as leadership
in accordance with our guiding principles, financial and operational results, individual contributions in obtaining those results and achievement of individual goals. Our CEO then makes annual recommendations to the Committee on the base salary,
short-term compensation and long-term equity incentive awards for members of senior management. The CEOs recommendations, our financial and operational results for the prior fiscal year as well as the comparative analysis described below under
the heading Comparative Analysis, are considered by the Committee when making decisions on adjusting base salaries, setting annual cash incentive targets, making discretionary adjustments under our annual cash incentive program and
awarding long-term equity incentives.
Tesoro
Corporation 2016 Proxy Statement 23
Compensation Consultants
Role of the Compensation Consultant
The Compensation Committee engaged Frederic W. Cook & Co. (FW Cook) during fiscal 2015 as compensation consultant. FW Cook
reviews our compensation practices and advises the Compensation Committee on regulatory developments and market trends related to executive compensation practices. In particular, FW Cook provided research, data analyses, survey information and
design expertise in developing our compensation programs. This advice assisted the Compensation Committee in creating incentives for short-term and long-term performance and mitigating risk to the Company. FW Cook also assisted in the preparation of
our peer group analysis, as discussed in further detail below under the heading Comparative Analysis. FW Cooks counsel is given serious consideration as part of the Compensation Committees decision-making process, but FW Cook
does not determine the exact form or amount of executive compensation for any of our executives or directors.
Selection and
Independence
The Compensation Committee ensures that its compensation consultant meets the independence standards of the New York Stock Exchange.
During fiscal 2015, FW Cook provided no services to us other than its work providing executive compensation advice to the Compensation Committee.
In February of
2015 and 2016, the Compensation Committee considered the following six factors with respect to FW Cook:
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the provision of other services to us by FW Cook; |
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the amount billed to us by FW Cook, as a percentage of the total revenue of FW Cook; |
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the policies and procedures of FW Cook that are designed to prevent conflicts of interest; |
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any business or personal relationship of the FW Cook consultants with members of the Compensation Committee; |
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any of our stock owned by the FW Cook consultants; and |
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any business or personal relationship of the FW Cook consultants or FW Cook with any of our executive officers. |
After
considering the foregoing factors, the Compensation Committee determined that FW Cook is independent and the work of FW Cook with the Compensation Committee for fiscal 2015 has not raised any conflicts of interest.
Comparative Analysis
For determining pay decisions during fiscal 2015, we used a
compensation peer group developed in coordination with FW Cook. The compensation peer group was developed based upon the guiding principles that the compensation peer group should include a sufficient number of companies to minimize year-over-year
volatility in compensation data; selection criteria should be objective where possible and include similar scale, industry, and business characteristics that reflect our current circumstances as well as our business direction; and companies should
be US-based to facilitate compensation comparisons.
Based on the principles outlined above, the following selection
criteria to develop the compensation peer group were used:
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Asset/Capital intensive nature; |
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Primarily manufacturers in industries such as oil and gas, chemicals, forest products and utilities in which commodity prices heavily influence profitability; |
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Environmentally and safety focused; |
Tesoro
Corporation 2016 Proxy Statement 24
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Currently in a highly regulated business or whose core operations are likely to be significantly impacted by proposed regulations; |
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Operate a number of fixed manufacturing sites or plants; and |
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Companies should generally be no less than one-third and no greater than three times our size as measured by revenue, total assets, and market capitalization. |
However, the Compensation Committee has also suggested limiting the number of companies within an adjacent industry to avoid becoming too heavily weighted in any
particular industry.
The Compensation Committee typically reviews the compensation peer group with FW Cook each year. There were no acquisitions, consolidations,
spin-offs or other significant business changes among the compensation peer group that impacted its composition. The members of our compensation peer group, which was used by FW Cook during the annual assessment of total compensation for senior
executives presented to the Compensation Committee in October 2014, are included in the table below. For purposes of measuring performance to determine payouts associated with the performance shares granted during fiscal 2015, we used a separate
performance peer group, as discussed in more detail below under the heading Long-Term Incentives.
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Air Products and Chemicals, Inc. |
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HollyFrontier Corporation |
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PPG Industries, Inc. |
Alcoa Inc. |
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Ingersoll-Rand plc |
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PPL Corporation |
Alliant Energy Corporation |
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International Paper Company |
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Praxair, Inc. |
Alon USA Energy, Inc. |
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Kimberly-Clark Corporation |
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Rock-Tenn Company |
Ameren Corporation |
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Kinder Morgan, Inc. |
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Sempra Energy |
Calpine Corporation |
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Marathon Petroleum Corporation |
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United States Steel Corporation |
Centerpoint Energy, Inc. |
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The Mosaic Company |
|
Valero Energy Corporation |
CHS Inc. |
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Murphy Oil Corporation |
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Western Refining, Inc. |
Dow Chemical Company |
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Northeast Utilities |
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Weyerhaeuser Company |
Eastman Chemical Company |
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NRG Energy |
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Williams Companies, Inc. |
Eaton Corporation |
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NuStar Energy L.P. |
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Xcel Energy Inc. |
Exelon Corporation |
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Phillips 66 |
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Hess Corporation |
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Potash Corporation of Saskachewan Inc. |
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|
Comparative information for the compensation peer group is as follows:
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Revenue
(Calendar Year 2014) |
|
Total Assets
(as of 12/31/14) |
|
Market Capitalization
(as of 12/31/14) |
Peer Group Median |
|
$11.6 billion |
|
$19.1 billion |
|
$19.0 billion |
Peer Group Range |
|
$3.1 billion to $146.6 billion |
|
$2.2 billion to $86.4 billion |
|
$0.9 billion to $89.9 billion |
Tesoro |
|
$40.6 billion |
|
$16.6 billion |
|
$9.3 billion |
In addition to data from the compensation peer group, FW Cook also provided data to the Compensation Committee from the following
resources to confirm and enhance the compensation peer group market study:
|
|
|
Supplemental general industry benchmarking data for key functional positions (such as Chief Financial Officer and General Counsel) since the skills associated with these positions can more easily be applied to companies
outside our compensation peer group; and |
|
|
|
Industry specific data from the Towers Watson Oil Industry Group (OIG) survey. |
Tesoro
Corporation 2016 Proxy Statement 25
Elements of Executive Compensation / Pay for Performance
This section highlights how and why we believe the
Companys compensation programs are designed to create a pay for performance culture. Our executive compensation programs are comprised of a mix of fixed and variable cash and equity-based pay with a significant portion of actual total
compensation dependent on meeting financial, operational, environmental and safety objectives. Our executive officers receive their maximum reward opportunity only if the Company performs exceptionally well, and our stockholders benefit from that
performance.
|
|
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|
|
|
|
Compensation Element |
|
Objective |
|
Key Features |
|
Performance-Based / At Risk? |
Base Salary |
|
Reflects executive responsibilities, job characteristics, seniority, experience and skill set; designed to be competitive with those of comparable companies with which we compete for
talent |
|
Reviewed annually and subject to adjustment based on market factors, individual performance, experience and leadership |
|
|
Annual Cash Incentive |
|
Rewards executives contributions to the achievement of predetermined corporate, business unit and individual goals |
|
Compensation Committee establishes performance measures to best align performance relative to meeting financial, operational, environmental and safety goals ultimately driving stockholder
value |
|
Pays out only based on achievement of established
measurable goals; does not pay out if established threshold goals are not achieved |
Performance Shares (Long-Term Equity Awards) |
|
Correlates executives pay with increases in shareholder value measured over a three-year period |
|
Following periods of low relative shareholder return, executives realize little or no value. Following periods of high relative shareholder return, executives may realize substantial
value |
|
Pays out only based on increased relative shareholder
value; may not vest depending upon shareholder return |
Market Stock Units (Long-Term Equity Awards) |
|
Incentivizes management contributions to long-term increases in shareholder value; retains executives in the competitive energy market |
|
A portion of executive compensation is paid in stock units with the number of shares earned based on our stock price performance over a three-year period |
|
Awards are not paid if the average closing stock
price prior to the end of the three-year period decreased by more than 50% from the average closing stock price when awards were granted |
Tesoro
Corporation 2016 Proxy Statement 26
Our emphasis on variable or at risk components of incentive pay results in actual compensation ranging above or
below targeted amounts based on the achievement of the objectives established in our annual and long-term incentive plans and changes in the value of our stock. While the Compensation Committee assesses each compensation component separately, the
aggregate total direct compensation is considered in the context of the overall pay determination. Our strategy also includes ongoing evaluation and adaptation, as necessary, of our compensation programs to ensure continued alignment between company
performance and pay.
Elements of 2015 Target Compensation
as a % of Total Direct Compensation(1)
|
(1) |
The compensation elements above are based on our CEOs and other NEOs targeted compensation opportunities on an annualized basis, which may differ from the amounts listed in the Summary Compensation table and
Grants of Plan-Based Awards table listed below. 88% of Mr. Goffs 2015 target compensation and 75% of the other NEOs 2015 target compensation was considered at-risk because it was based upon achieving specific performance
measures. |
Base Salaries
Base salaries for our NEOs are reviewed each year relative to market competitive data as well as other relevant considerations described above. On February 10,
2015, the Compensation Committee approved an increase in the base salaries for Mr. Goff and certain other NEOs, each effective February 8, 2015, as part of the annual compensation review process which includes analysis of market
competitive data for total direct compensation and the NEOs respective performance, roles and responsibilities. These decisions resulted in the base salaries for each of the NEOs shown below.
|
|
|
|
|
|
|
|
|
|
|
Before 2/8/2015 |
|
|
Effective 2/8/2015 |
|
Gregory J. Goff |
|
|
$1,500,000 |
|
|
|
$1,600,000 |
|
Steven M. Sterin |
|
|
700,000 |
|
|
|
726,000 |
|
Keith M. Casey |
|
|
600,000 |
|
|
|
675,000 |
|
Cynthia J. (CJ) Warner |
|
|
575,000 |
|
|
|
625,000 |
|
Charles S. Parrish |
|
|
558,700 |
|
|
|
582,000 |
|
Annual Performance Incentives
We believe that annual cash based incentives promote managements efforts to drive the achievement of annual performance goals and objectives, which in turn help
to create additional stockholder value. In February 2015, the Compensation Committee approved the 2015 incentive compensation program (the 2015 ICP) based on
Tesoro
Corporation 2016 Proxy Statement 27
managements recommendation. The 2015 ICP structure approved for our senior executives was similarly used for our salaried and hourly incentive-eligible employees and provides all employees
under the program with the same upward and downward bonus opportunity (0% below threshold; 50% at threshold; 100% at target; 200% at maximum). The calculation of total 2015 ICP bonus payout to an employee is determined as follows, with each element
described below the calculation:
|
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|
|
|
|
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|
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|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
Total
ICP Bonus
Payout |
|
= |
|
|
|
|
|
|
|
Bonus Eligible Earnings |
|
x |
|
Target Bonus % |
|
x |
|
% Overall Performance Achieved* |
|
|
|
|
|
|
|
+/- |
|
Individual Performance Adjustment |
* For Mr. Goff, this is a weighted average blended rate composed of corporate performance objectives. For all other NEOs, this is
a weighted average blended rate composed of corporate performance rate and business unit rate. These measures are explained in further detail on the next two pages.
Bonus Eligible Earnings is based on salary earned during the 2015
calendar year.
Target Bonus Opportunities (%) for
our NEOs are approved by the Compensation Committee based on analysis of market-competitive data of our compensation peer group, while also taking into consideration our compensation philosophy and other factors, such as internal equity and
individual contributions. Our NEOs 2015 target bonus opportunities, as a percentage of base salary earnings for the year, were as follows: Mr. Goff 150%, Mr. Sterin 80%, Mr. Casey 90%, Ms. Warner
80%, and Mr. Parrish 80%.
Performance Objectives for Determining Overall Performance Achieved (%)
The ICP structure uses a mix of objectives designed to focus management on key areas of performance. For Mr. Goff, 2015 ICP payouts were
determined by performance against pre-established performance levels for our overall corporate performance. For the other NEOs, 2015 ICP payouts were determined by performance against pre-established performance levels for two components (corporate
performance and business unit performance), as detailed below. Business unit performance was added for the NEOs, other than Mr. Goff, because each of them has responsibility for a specific business unit or several business units. The majority
of the weightings between corporate and business unit performance is 50% corporate and 50% business unit. For certain administrative functions, a heavier weighting is applied to corporate performance to create strong alignment to corporate goals and
ensure harmonization of efforts across administrative and operating functions.
|
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|
Weighting of Corporate Performance |
|
|
Weighting of Business Unit Performance |
|
Business Unit |
Goff |
|
|
100 |
% |
|
N/A |
|
N/A |
Sterin |
|
|
70 |
% |
|
30% |
|
Finance, Accounting and Information Technology |
Casey |
|
|
50 |
% |
|
50% |
|
Refining, Marketing, Logistics and Supply Chain |
Warner |
|
|
50 |
% |
|
50% |
|
Strategy and Business Development |
Parrish |
|
|
70 |
% |
|
30% |
|
Legal |
Our corporate performance results and results of the individual business units may be adjusted to take into account unplanned or
unanticipated business decisions or events that are outside of managements control, unusual or non-recurring items, and other factors, as approved by the Compensation Committee, to determine the total amount, if any, available under the 2015
ICP.
Tesoro
Corporation 2016 Proxy Statement 28
Component 1 Corporate Performance
The first component of the ICP was our corporate performance, including the earnings before interest, taxes, depreciation and amortization (EBITDA), cost management,
business improvement, and safety and environmental measures described below (ranked in order of weighting).
|
|
|
EBITDA, at 50%, was the most heavily weighted metric of this component because we believe that significant improvements in EBITDA drive cash flow, provide financial strength, and increase stockholder value. Targets for
this component are based on our annual business plan. We measure EBITDA performance on a margin neutral basis by excluding the impact on our refining margins of fluctuations in commodity prices, over which management has little influence. We take
this approach to avoid over-rewarding executives in periods when margins are high relative to those assumed in our annual business plan or, conversely, to under-reward executives when they optimize profitability in less favorable market conditions.
To ensure results achieved do not reflect positive or negative impact of market factors, we adjust reported EBITDA by the amount of the difference between actual and budgeted results for refining margins multiplied by budgeted throughput. We
recognize that the use of EBITDA on a margin neutral basis to assess our performance is different from our reported results, but we believe that it more accurately reflects the efforts and results of management and our employees to meet and exceed
performance objectives and goals without the influence of fluctuating prices and margins on compensation or goal setting. Similarly, we made adjustments for the 2015 ICP to exclude the impact of inventory valuation adjustments related to changes in
commodity prices. |
|
|
|
Controllable cost management is weighted at 17.5% of this component because it is clearly within the control of our employees and key to our performance. Targets are based on our annual business plan that is reviewed by
the Board. This metric is measured as total cash costs excluding annual incentive compensation program, stock-based compensation expense, non-controllable expenses for post-retirement employee benefits (pension, medical, life insurance) and
insurance (property, casualty and liability), spill prevention costs and environmental accruals and benefits. It includes allocations of refining maintenance and labor to capital projects. Refining energy variable costs and internally produced fuel
consumption are market adjusted to budget-assumed prices. |
|
|
|
Business Improvement is weighted at 17.5% of this component and includes capital and non-capital improvement initiatives, margin improvement initiatives, synergies related to asset acquisitions and similar projects and
initiatives. For purposes of our incentive compensation program, we only count as Business Improvement actual annual improvements, recognized and verifiable for the first full 12 months after an improvement has been established. We exclude projects
or initiatives that, although beneficial to stockholders, are targeted to avoiding increased costs or result in lower tax or interest expense. |
|
|
|
Personal safety, process safety and environmental safety, each weighted at 5%, are critical to the success of our Company and reflect our ability to operate our assets in a safe and reliable manner. Because we believe
in continuous improvement, each of our safety metrics is measured by improvement compared to the average incident rate for the prior three year period. |
Tesoro
Corporation 2016 Proxy Statement 29
See discussion above for explanation of metrics.
|
These components resulted in a weighted average overall performance on the
corporate component of 150%. See discussion below for adjustments to
results. |
Calculation and Adjustment of Corporate Performance:
|
|
|
To ensure results achieved do not reflect positive or negative impact of market factors, EBITDA performance for ICP purposes is adjusted by the amount of the difference between actual and budgeted results for the Tesoro
refining margin index times budgeted throughput. In 2015, the margin neutral EBITDA used for purposes of calculating ICP awards (as discussed below) was $2.251 billion while our reported EBITDA was $3.6 billion. In prior years, the effect of
adjusting EBITDA to a margin neutral basis has resulted in ICP EBITDA being both above and below reported EBITDA, and it will likely continue having varying impacts in future years. Similarly, for the 2015 ICP we made an adjustment to exclude the
impact of our inventory valuation adjustment related to changes in commodity prices. This adjustment relates to a $359 million non-cash lower-of-cost-or-market (LCM) inventory adjustment that we recognized in our 2015 financial statements due to
significant declines in late 2015 in the prices for crude oil and refined products compared to historical amounts. |
Tesoro
Corporation 2016 Proxy Statement 30
|
|
|
For the calculation of environmental incidents, the Compensation Committee also adjusted the performance targets to take into account a change in the method of reporting environmental emissions at one of our refineries.
|
|
|
|
For the calculation of both the EBITDA and cost management components, the Compensation Committee has the discretion to take into consideration special items, including decisions that have a material impact on our
results compared to budget, unusual items and non-recurring items. For calculation of the 2015 ICP results shown above, the Committee took into account both positive and negative special factors, including the Companys record results and the
impact of TLLPs acquisition of the Rockies natural gas business in December 2014. The Committee determined that adjusting margin neutral EBITDA to $2.251 billion, which together with results on the other criteria would result in a payout of
150% on the corporate component of the 2015 ICP, was appropriate. |
The corporate performance component of the ICP also determines the overall funding
of the program for all of the Companys employees. While individual business unit results vary, the total payout for all business units is equal to the 150% funded value reflecting corporate performance.
Component 2 Business Unit Results
The second 2015 ICP component was more specifically tailored to the performance of the individuals business unit. Our business unit goals are directly aligned
with our corporate objectives and are measured using common criteria to promote consistency throughout the organization. Business unit criteria include safety and environmental, cost management, improvements in EBITDA, value creation initiatives and
business improvement initiatives. Like the overall structure of the 2015 ICP, the business unit targets were set at stretch levels that were challenging and would generate significant value for our stockholders. Business unit targets are not
disclosed because such information is confidential and disclosure of such information would cause competitive harm to us.
Individual
Performance Adjustments
The Committee also has discretion to adjust individual awards based on their assessment of an individual executives
performance relative to successful achievement of goals, business plan execution, and other leadership attributes. Adjustments are applied as a percentage of an individual target bonus opportunity.
In recognition of Mr. Goffs significant leadership as evidenced by the Companys strong financial and operating performance during 2015, the progress
made in integrating the Rockies natural gas gathering and processing business, and continuing to drive outstanding safety and environmental results, the Committee approved a 15% upward adjustment for Mr. Goffs incentive compensation
award. Mr. Sterin demonstrated strong leadership and was instrumental in the integration of TLLPs Rockies natural gas acquisition, as well as improvements in the Companys Finance, Accounting and Information Technology
departments. As a result, the Committee provided Mr. Sterin with a 20% upward adjustment. The Committee approved a 15% upward adjustment for Mr. Casey in recognition of leadership aligned with our guiding principles as well as strong
performance in running the refining, logistics and marketing operations. The Committee approved a 10% adjustment to Ms. Warners ICP award in light of her strong contributions to the Companys strategic activities. In recognition of
Mr. Parrishs significant commercial and legal contributions in support of the integration of the Rockies natural gas gathering and processing business, the Committee approved a 10% upward adjustment to his ICP award.
Tesoro
Corporation 2016 Proxy Statement 31
Actual Performance and Payouts
The table below provides the specific bonus targets, level of achievement (including the adjustments described above), individual performance adjustment, and annual
bonus payment for each NEO for 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
Name |
|
Bonus Eligible Earnings ($) |
|
|
Target Bonus % |
|
|
Overall Performance Achieved (rounded to the nearest whole percentage) |
|
|
Calculated Bonus Payout ($) |
|
|
Individual Performance Adjustments (% Increase/ Decrease) |
|
|
Total Bonus Payout ($) |
|
Goff |
|
|
1,646,154 |
|
|
|
150 |
% |
|
|
150 |
% |
|
|
3,703,847 |
|
|
|
15 |
% |
|
|
4,074,232 |
|
Sterin |
|
|
749,923 |
|
|
|
80 |
% |
|
|
155 |
% |
|
|
929,905 |
|
|
|
20 |
% |
|
|
1,049,893 |
|
Casey |
|
|
689,423 |
|
|
|
90 |
% |
|
|
154 |
% |
|
|
955,540 |
|
|
|
15 |
% |
|
|
1,048,612 |
|
Warner |
|
|
641,346 |
|
|
|
80 |
% |
|
|
155 |
% |
|
|
795,269 |
|
|
|
10 |
% |
|
|
846,577 |
|
Parrish |
|
|
600,800 |
|
|
|
80 |
% |
|
|
155 |
% |
|
|
744,992 |
|
|
|
10 |
% |
|
|
793,056 |
|
Long-Term Incentives
We believe that our senior executives, including our NEOs, should have their interests aligned with those of our stockholders. Accordingly, we believe that these
executives should have a considerable portion of their total compensation tied to stock price performance in the form of equity incentives. For our NEOs, the Compensation Committee approves a target award value for long-term incentives based on
analysis of market-competitive data of our compensation peer group. In addition, other factors such as internal equity and individual contributions are considered. These decisions resulted in the long-term incentive target values granted in 2015 to
each of the NEOs shown below.
Our long-term incentive awards for existing employees recognize the importance of pay for performance while addressing employee
retention through the grants of performance shares. For most of our senior officers, including several of our NEOs, 50% of the total award value is in the form of performance shares and 50% is in the form of market stock units (MSUs).
However, for those NEOs who also served as directors of TLGP at the time of grant, we awarded 25% of their total award value in the form of TLLP phantom units to align a portion of the NEOs incentives with TLLPs unitholders, with the
remainder evenly split between performance shares and MSUs. The mix of equity awards is intended to align long-term incentive compensation with specific performance measures, including stock price performance. The allocation of awards between
performance shares and MSUs is designed to provide a balance between the retentive value of MSUs (tied to absolute shareholder return) with the belief that pay should also be closely aligned with relative performance. In order to determine the exact
number of performance shares or MSUs granted to an individual, we divide the targeted value by the average stock price for the 30-trading day period preceding the grant date. To derive a grant date fair value for equity based awards, we then apply a
valuation factor (provided by Radford, an Aon Hewitt consulting company) that is determined using the Monte Carlo simulation valuation method and takes into account a number of assumptions, including the estimated stock price volatility, the assumed
risk free rate of return, dividend yields and the possibility that the market conditions may not be satisfied.
Tesoro
Corporation 2016 Proxy Statement 32
The components of the long-term incentives granted to our NEOs in February 2015 were as follows:
|
|
|
|
|
|
|
|
|
Performance Shares |
|
Market Stock Units |
|
Tesoro Logistics LP Phantom Units |
Performance Drivers |
|
Total Shareholder Return (TSR) relative to the Tesoro performance peer group |
|
Stock Price Performance including dividends |
|
Relative Total Unitholder Return (TUR) compared to the TLLP performance peer
group |
Objectives |
|
Use of a relative performance metric to drive successful execution of strategy |
|
Combine retentive value of restricted stock with the ability to reward for stock price
appreciation |
|
Use of a relative performance metric to drive successful execution of
strategy |
Program Design |
|
Typically awarded each February
At the conclusion of the three-year performance cycle, payouts can range from 0% to 200% of the target grant based on the relative performance of TSR |
|
Typically awarded each February
Also awarded to certain new management
hires At the conclusion of the three-year performance cycle, the number of shares issued range from 50% to 200% of the target units based on stock price performance for the 30 days prior to vesting compared to the 30 days prior to grant |
|
Typically awarded by the TLLP Board each February to
management directors Grants are
coordinated with Tesoros Compensation Committee
At the conclusion of the three-year performance cycle, payouts can
range from 0% to 200% of the target grant based on the relative performance of TUR. |
In determining the number of shares or units granted and paid out at the end of the performance period, we use an average stock price of
the 30-trading days leading up to the date of grant or end of the performance period. This approach lessens the impact of daily stock price volatility on the number of awards granted and value of the ultimate payout. The components of the long-term
incentives granted to Mr. Goff, Mr. Sterin, Mr. Casey, Ms. Warner, and Mr. Parrish in February 2015 were as follows:
|
|
|
Components of 2015 Target Value of Long-Term Incentive Awards |
|
|
|
|
|
Total Target Grant Value(a):
Mr. Goff(b): $10,000,000
Mr. Sterin(c): $1,750,000
Mr. Casey(d): $1,750,000
Mr. Parrish(e): $1,200,000 |
|
Total Target Grant Value(a):
Ms. Warner: $1,250,000 Ms. Warner does not
serve as an officer or director for TLGP and, therefore, received a different LTI allocation |
|
(a) |
Due to rounding in the grant of equity units, changes in our stock price between the date on which the awards were determined and the date the awards were granted, and accounting assumptions utilized in valuing equity
awards, the target grant value may differ from the actual value granted. |
Tesoro
Corporation 2016 Proxy Statement 33
|
(b) |
Mr. Goff served as Chief Executive Officer for TLGP and Chairman of the TLGP Board of Directors. |
|
(c) |
Mr. Sterin served as Vice President, Chief Financial Officer for TLGP and as a member of the TLGP Board of Directors. |
|
(d) |
Mr. Casey served as Vice President, Operations for TLGP during a portion of 2015 and served as a member of the TLGP Board of Directors from April 2014 until April 2015. |
|
(e) |
Mr. Parrish served as Vice President and General Counsel for TLGP from December 2010 until March 2016 and continues to serve as a Vice President of TLGP. In addition, he served as a member of the TLGP Board of
Directors from December 2010 until April 2015. |
Performance Share Awards (PSAs)
PSA Grants. Performance share awards granted in 2015 pay
out between 0% and 200% of target based on achievement with respect to the applicable performance goal.
|
|
|
The performance peer group is made up of HollyFrontier Corporation, Marathon Petroleum Corporation, Phillips 66, Valero Energy Corporation, and PBF Energy, Inc. (together, the LTI Performance Peer Group),
and the Energy Select Sector SPDR® (the XLE Energy Index) and the Standard & Poors 500 Index (the S&P 500). The LTI Performance Peer Group includes
refining and marketing companies that have common characteristics with us. These common characteristics are not necessarily shared by other companies in our compensation peer group, or by some of our larger competitors within the oil and gas
industry. We think it is appropriate to measure our performance against the LTI Performance Peer Group for relative TSR purposes because we believe investors view our businesses in a similar manner. Use of the XLE Energy Index will reflect our
performance against a broader index of our industry, and use of the S&P 500 will reflect our performance against a broader index of large-cap common stock companies. We refer to the LTI Performance Peer Group, the XLE Energy Index and the
S&P500, collectively, as the LTI Comparator Group. |
|
|
|
Performance shares earned are based on our relative Total Shareholder Return (TSR) from January 1, 2015 through December 31, 2017 measured against the LTI Comparator Group. For purposes of the 2015
awards, TSR is defined as the appreciation in our stock price during the performance period (in dollars). Normal dividends are assumed to be reinvested in stock on the date the dividend is paid, and special dividends are not included in the
calculation. TSR will be measured using the average of three discrete one-year TSR calculations during the performance period. For the TSR metric, our performance share award payout is determined in accordance with the following table. Payouts
between points shown below will be adjusted accordingly. |
|
|
|
The actual number of performance share awards earned at the end of the performance period will be equal to the target number of performance share awards granted multiplied by our performance share payout percentage with
respect to the following table. |
|
|
|
|
|
Tesoro Corporation TSR v. LTI Comparator Group TSR |
|
Payout % |
33.33% or more below LTI Comparator Group
Median |
|
0% (Threshold) |
30% below LTI Comparator Group Median |
|
10% of Target |
20% below LTI Comparator Group Median |
|
40% of Target |
10% below LTI Comparator Group Median |
|
70% of Target |
0% of LTI Comparator Group Median |
|
100% (Target) |
10% above LTI Comparator Group Median |
|
130% of Target |
20% above LTI Comparator Group Median |
|
160% of Target |
30% above LTI Comparator Group Median |
|
190% of Target |
33.33% or more above LTI Comparator Group Median |
|
200% of Target (Maximum) |
|
|
|
The executive officers that received performance share awards in 2015 have the right to receive dividend equivalents with respect to such performance share awards based on the actual level of payout. The accrued
dividend equivalents are paid in cash at the time the underlying performance share awards are distributed, but only to the extent the underlying performance share awards vest. |
Tesoro
Corporation 2016 Proxy Statement 34
PSA Payouts. Tesoros grants of
performance share awards to executive officers made in 2012 and 2013 were benchmarked against the Companys TSR and against Returns on Capital Employed (ROCE), which differs from the TSR-only awards described above. Tesoros
grants of performance share awards to executive officers made in 2012 and 2013 were paid subsequent to the proxy statement for our 2015 annual meeting of stockholders as follows:
|
|
|
|
|
|
|
|
|
|
|
Grant Date |
|
Certification Date |
|
Performance Period |
|
PSA Performance Measure |
|
Actual Performance |
|
Vesting Percentage |
February 2012 |
|
April 2015 |
|
1/1/2012 12/31/2014 |
|
ROCE element |
|
Tesoros average ROCE was 17.09% compared against the average ROCE of 22.77% for the peer group assigned at the time of grant |
|
75% |
February 2013 |
|
January 2016 |
|
1/1/2013 12/31/2015 |
|
TSR element |
|
Comparatively against the relative peer group assigned at the time of grant, Tesoros average TSR of 40.25% ranked first among six comparators and outperformed the median index TSR of
22.84% by 17.40% |
|
152.21% |
These payouts are reported in Executive Compensation Compensation Tables and Narratives Option Exercises and Stock
Vested in 2015.
Market Stock Units
MSU Grants. As described above, MSUs were also granted in 2015. A MSU award is a grant of stock
units in which the number of shares earned at vesting is based on our stock price performance over the performance period. MSUs replace traditional time-vested awards in order to directly align long-term incentive pay with stock price performance.
The MSUs granted in 2015 will become eligible for vesting, based on stock price performance and continued employment, at the end of a 36-month performance period beginning on February 10, 2015 and ending on February 10, 2018. Upon vesting,
the number of shares earned will be determined as follows:
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|
|
|
|
|
|
|
|
Shares Earned
at Vesting |
|
= |
|
# of Targeted
MSUs at Grant |
|
x |
|
|
|
|
|
Average closing stock price for the 30 trading days* prior to the Vesting
Date Average closing stock price for the 30 trading
days* prior to the Grant Date |
|
|
|
|
|
|
|
|
|
*Normal dividends are assumed to have been reinvested on the date they are paid in order to calculate the average 30-trading day stock
price.
However, there is no payout if the average closing stock price for the 30 trading days prior to the vesting has decreased by 50% or more from the
average closing stock price for the 30 trading days prior to the grant date. In addition, the number of units that may be issued upon payout is capped at 200% of target.
MSU Payouts. Tesoros grants of MSUs to executive officers made in 2013 were paid during early
2016 as follows:
|
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|
|
|
|
|
|
|
|
|
Grant Date |
|
Certification Date |
|
Performance Period |
|
Average closing stock price for the 30 trading days* prior to the Grant Date |
|
Average closing stock price for the 30 trading days* prior to the Vesting Date |
|
Vesting Percentage (to be multiplied by Target Units for #
of Shares to be Issued) |
February 2013 |
|
February 2016 |
|
2/4/2013 2/4/2016 |
|
$44.01 |
|
$101.21 |
|
200% |
* Normal dividends are assumed to have been reinvested on the date they are paid in order to calculate the average 30-trading day stock
price.
Tesoro
Corporation 2016 Proxy Statement 35
These payouts are reported in Executive Compensation Compensation Tables and Narratives Option
Exercises and Stock Vested in 2015.
TLLP Equity Awards
Messrs. Goff, Sterin, Casey and Parrish are executive officers of Tesoro, and in addition to rendering services to Tesoro, they devoted some of their professional time
to TLLP during 2015. For Messrs. Goff, Sterin, Casey, and Parrish (each of whom was serving as a director of TLGP at the time of annual long-term incentive grants), 25% of their total 2015 long-term incentive value, approved by the Compensation
Committee, was delivered in the form of performance phantom units of TLLP. The TLLP performance phantom units will vest based on the achievement of relative total unitholder return over a performance period from January 1, 2015 through
December 31, 2017 as compared to a peer group of companies. The peer companies currently include Boardwalk Pipeline Partners, LP; Buckeye Partners, L.P.; DCP Midstream Partners LP; Enbridge Energy Partners, L.P.; EnLink Midstream Partners, LP;
EQT Midstream Partners LP; Genesis Energy LP; Holly Energy Partners L.P; Magellan Midstream Partners LP; MarkWest Energy Partners, L.P.; NuStar Energy L.P.; Sunoco Logistics Partners L.P.; Targa Resources Partners LP; ONEOK Partners, L.P.; and
Western Gas Partners LP. These companies were selected based on the TLGP Boards view that key stakeholders compare TLLPs business results and relative performance with these companies. The payout will range from none of the units vesting
to vesting of 200% of the units as shown below. Vesting between the percentile performance levels is determined by straight-line interpolation.
|
|
|
Relative Total Unitholder
Return |
|
Payout as a % of Target |
90th percentile and above |
|
200% |
75th percentile |
|
150% |
50th percentile |
|
100% |
30th percentile |
|
50% |
Below 30th percentile |
|
|
The TLLP performance units granted to executives in February 2013 represented the right to receive common units at the end of the
January 1, 2013 to December 31, 2015 performance period depending upon TLLPs achievement of relative total unitholder return against a defined performance peer group. TLLPs total unitholder return of 7.66% ranked in the 64th percentile, which resulted in a payout of 127.27% of the target amount. Such units were paid in February 2016 and are reported in under Executive Compensation Compensation Tables and
Narratives Option Exercises and Stock Vested in 2015.
Executive Benefits
In order to promote consistency with overall competitive practices and our compensation philosophy, our executive officers are generally not entitled to any
perquisites. However, in order to remain competitive and attract quality executives, we continue to allow executives to participate in our relocation program which is generally available to all management. Our executive officers do not receive a tax
gross-up associated with any relocation benefits. This program also includes a recoupment provision in the event employment is terminated within a one-year period.
We provide health and welfare benefits and maintain non-contributory qualified and non-qualified retirement plans that cover officers and other eligible employees.
Retirement and health and welfare benefits provided to our NEOs are designed to be consistent in value and aligned with benefits offered by companies with whom we compete for talent. See the discussion under the heading Retirement/Pension
Benefits in 2015 for a description of the retirement plans.
Tesoro
Corporation 2016 Proxy Statement 36
Change-in-Control and Termination Arrangements
On January 12, 2011, the Board approved an Executive Severance and Change-in-Control Plan (the Plan). The Plan reduces uncertainty for certain
executives in the event of a change-in-control or other events affecting our Companys existence and provides a benefit in the event of the termination of employment of certain executives, including each of our NEOs, under certain conditions
that are beyond the executives control. The Plan, which does not provide for excise tax gross-ups for retirement benefits, is market competitive with amounts payable to executives terminated involuntarily or upon a change-in-control event, is
consistent with stockholder-friendly pay practices and eliminates the need to offer new individuals employment agreements. Our severance and change-in-control provisions for our NEOs are summarized under the heading Potential Payments Upon
Termination or Change-In-Control in this Proxy Statement.
Omnibus Agreement with TLLP
Under the terms of an omnibus agreement with TLLP, TLLP pays an administrative fee to reimburse Tesoro for the provision of general and administrative services for
TLLPs benefit. Although Mr. Goff, Mr. Sterin, Mr. Casey, Ms. Warner and Mr. Parrish provided services to both Tesoro and TLLP during 2015, no portion of the administrative fee was specifically allocated to the services
they provided to TLLP.
Stock Ownership Guidelines
Our Board has established stock ownership guidelines under
which each of the executives in the positions named below is required to retain 50% of the net shares obtained from performance awards (including PSAs and MSUs) settled in stock, vesting of a restricted stock grant or an option exercise until he or
she satisfies the ownership guidelines based on a multiple of salary as set forth in the following table. Each executive is also required to retain that level of ownership for as long as the individual is a part of our senior management team. Our
NEOs have either met or are on track to meet the ownership guidelines and are continuing to retain 50% of the net shares obtained from performance awards settled in stock, vesting of a restricted stock grant or an option exercise.
|
|
|
Position |
|
Stock Ownership Guideline |
Chief Executive Officer |
|
6x annual base salary |
Executive Vice Presidents |
|
3x annual base salary |
Senior Vice Presidents |
|
2x annual base salary |
Equity Grant/Trading Policies
The Compensation Committee has adopted an equity award
governance policy under which all long-term equity incentives are granted. The policy prohibits the issuance of stock options at a price less than the closing sale price of our common stock on the date of grant. We generally grant equity awards at
the Compensation Committees meeting in late January or early February of each year. We have chosen this time because it is a time each calendar year at which our results of operations from the previous year are available to the Compensation
Committee. We do not purposely accelerate or delay the public release of material information, or otherwise time equity grants in coordination with the public release of material information, in consideration of a pending equity grant in order to
allow the grantee to benefit from a more favorable stock price.
We also maintain a securities trading policy which prohibits, among other things, employees and
directors from entering into transactions when in possession of material non-public information and from participating in short-term trading or hedging activities involving our securities. The policy requires directors, senior executives and
informational insiders to follow preclearance procedures for all transactions involving our securities. It also prohibits them from trading in derivative securities (other than equity-settled awards granted by the Compensation Committee or Board of
Directors) or holding our securities in a margin account or otherwise pledging them as collateral for a loan.
Tesoro
Corporation 2016 Proxy Statement 37
Deductibility of Executive Compensation
Section 162(m) of the Internal Revenue Code (the
Code) limits the tax deductibility by a publicly held corporation of compensation in excess of $1 million paid to certain executives, unless that compensation is performance-based compensation as defined by the Code. In
establishing the total compensation for the NEOs, the Compensation Committee considers the effect of Section 162(m), but also desires to retain flexibility and discretion to make compensation awards, whether or not deductible, in order to
foster achievement of performance goals established by the Compensation Committee and other corporate goals that are important to our success.
Payouts of annual
cash-based incentives under the 2015 ICP are paid based on achievement of performance measures under the stockholder-approved 2011 Long-Term Incentive Plan. For purposes of deductibility under Section 162(m), the Compensation Committee
established (a) minimum performance criteria required for the payment of any award to the NEOs as positive net income (as reported in our Annual Report on Form 10-K) for the performance period and (b) the maximum annual incentive award for
each of the NEOs as follows: Mr. Goff $6.0 million, Mr. Sterin $2.0 million, Mr. Casey $2.0 million, Ms. Warner $2.0 million, and Mr. Parrish $1.5 million. Based on our 2015 net
income of approximately $1.7 billion, criteria for the maximum possible award for each NEO was satisfied. The Compensation Committee then exercised its negative discretion in determining the amount of the actual 2015 ICP payouts based on our
performance measures, business unit performance measures and individual performance as described under Elements of Executive Compensation Annual Performance Incentives of this Compensation Discussion and Analysis. The actual 2015
ICP payouts are presented in the 2015 Summary Compensation Table.
Clawback Policy
In February 2010, we adopted a compensation recoupment, or
clawback policy that provides that in the event of a material restatement of financial results due to misconduct, our Board will review all annual incentive payments and long-term incentive compensation awards that were made to any then
existing senior vice president or above including our controller on the basis of having met or exceeded specific performance targets in grants or awards made after February 2, 2010 which occur during the 24-month period prior to restatement. If
such compensation would have been lower had it been calculated based on such restated results, the Board will, to the extent permitted by governing law, seek to recoup for our benefit such compensation to any then existing senior vice president or
above including our company controller whose misconduct caused or significantly contributed to the material restatement, as determined by the Board.
Compensation Committee Report
Our Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management and, based
on such review and discussions, the Committee recommended to the Board that the Compensation Discussion and Analysis be included in this Proxy Statement.
The
undersigned members of the Compensation Committee have submitted this Report to the Board of Directors as of February 22, 2016(a).
David Lilley, Chairman
Mary Pat McCarthy
J.W. Nokes
Michael E. Wiley
|
(a) |
Mr. Galante is not a signatory to this Compensation Committee report because he was appointed to the Committee effective March 1, 2016. Furthermore, Mr. Galante did not participate in the review,
discussions and recommendations referenced in this report. |
Tesoro
Corporation 2016 Proxy Statement 38
|
Executive
Compensation Compensation Tables and Narrative |
2015 Summary
Compensation Table
The following table sets
forth information regarding the compensation of our CEO, our CFO, and our three highest paid executive officers (other than the CEO and CFO).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name and Principal Position |
|
Year |
|
|
Salary
($)(a) |
|
|
Bonus
($)(b) |
|
|
Stock Awards
($)
(c) |
|
|
Non-
Equity Incentive Plan Compen- sation
($)
(d) |
|
|
Change
in Pension Value ($)
(e) |
|
|
All
Other Compen- sation ($)
(f) |
|
|
Total
($) |
|
Gregory J. Goff
Chairman, President and Chief
Executive Officer |
|
|
2015 |
|
|
|
1,590,000 |
|
|
|
|
|
|
|
11,336,348 |
|
|
|
4,074,232 |
|
|
|
6,173,359 |
|
|
|
80,615 |
|
|
|
23,254,554 |
|
|
|
2014 |
|
|
|
1,495,000 |
|
|
|
|
|
|
|
8,370,769 |
|
|
|
4,854,692 |
|
|
|
6,083,588 |
|
|
|
51,500 |
|
|
|
20,855,549 |
|
|
|
2013 |
|
|
|
1,378,462 |
|
|
|
|
|
|
|
8,198,090 |
|
|
|
1,985,385 |
|
|
|
1,576,505 |
|
|
|
38,653 |
|
|
|
13,177,095 |
|
Steven M. Sterin (g)
Executive Vice President
and Chief Financial Officer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015 |
|
|
|
723,400 |
|
|
|
|
|
|
|
1,983,996 |
|
|
|
1,049,893 |
|
|
|
139,744 |
|
|
|
45,897 |
|
|
|
3,942,930 |
|
|
|
2014 |
|
|
|
263,846 |
|
|
|
|
|
|
|
1,566,401 |
|
|
|
362,492 |
|
|
|
27,870 |
|
|
|
15,413 |
|
|
|
2,236,022 |
|
Keith M. Casey
(h) Executive Vice President, |
|
|
2015 |
|
|
|
667,500 |
|
|
|
|
|
|
|
1,983,996 |
|
|
|
1,048,612 |
|
|
|
211,504 |
|
|
|
77,841 |
|
|
|
3,989,453 |
|
Operations |
|
|
2014 |
|
|
|
549,415 |
|
|
|
|
|
|
|
1,117,499 |
|
|
|
874,919 |
|
|
|
100,857 |
|
|
|
29,116 |
|
|
|
2,671,806 |
|
Cynthia (CJ) Warner (i)
Executive Vice President, |
|
|
2015 |
|
|
|
620,000 |
|
|
|
|
|
|
|
1,498,580 |
|
|
|
846,577 |
|
|
|
114,494 |
|
|
|
97,731 |
|
|
|
3,177,382 |
|
Strategy and Business |
|
|
2014 |
|
|
|
139,327 |
|
|
|
340,000 |
|
|
|
2,442,672 |
|
|
|
166,308 |
|
|
|
15,230 |
|
|
|
24,131 |
|
|
|
3,127,665 |
|
Development |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charles S. Parrish (j)
Executive Vice President, |
|
|
2015 |
|
|
|
579,670 |
|
|
|
|
|
|
|
1,360,586 |
|
|
|
793,056 |
|
|
|
1,343,638 |
|
|
|
39,932 |
|
|
|
4,116,882 |
|
former Executive Vice President, |
|
|
2014 |
|
|
|
558,474 |
|
|
|
|
|
|
|
930,213 |
|
|
|
916,257 |
|
|
|
2,873,880 |
|
|
|
29,483 |
|
|
|
5,308,307 |
|
General Counsel and
Secretary |
|
|
2013 |
|
|
|
534,586 |
|
|
|
|
|
|
|
1,095,730 |
|
|
|
508,351 |
|
|
|
|
|
|
|
23,927 |
|
|
|
2,162,594 |
|
|
(a) |
The amounts shown include amounts deferred by Mr. Casey pursuant to the Tesoro Corporation Executive Deferred Compensation Plan. |
|
(b) |
The annual cash incentive award that is paid to the executive officers is reflected under the Non-Equity Incentive Plan Compensation column. The bonus amount for Ms. Warner in 2014 represents a sign-on bonus.
|
|
(c) |
The amounts shown in this column reflect the aggregate grant date fair value of restricted stock, performance shares, market stock units and TLLP performance phantom units granted during the applicable fiscal year,
calculated in accordance with financial accounting standards. The aggregate grant date fair value of such performance shares, market stock units and TLLP phantom performance units at the highest level of performance (resulting in 200% payout)
granted in 2015 would be as follows: Mr. Goff $22,672,695; Mr. Sterin $3,967,991; Mr. Casey $3,967,991; Ms. Warner $2,997,160; and Mr. Parrish $2,721,172. See Note 19 Stock-Based
Compensation in the Notes to our Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2015 for the valuation assumptions used in determining the fair market value of equity grants.
|
|
(d) |
The amounts shown in this column represent the annual cash incentive awards earned under the 2015, 2014 and 2013 Annual Incentive Compensation Programs. |
|
(e) |
The amounts shown in this column reflect the change in pension value during the fiscal year. |
|
(f) |
The amounts shown in this column for 2015 reflect the following: |
|
(1) |
Thrift Plan Company Contributions: We provide matching contributions dollar-for-dollar up to 6% of eligible earnings for all employees who participate in the Thrift Plan. The matching contributions for 2015 were $14,769
for Mr. Goff, $15,900 for Mr. Sterin, $15,900 for Mr. Casey, $15,900 for Ms. Warner, and $15,900 for Mr. Parrish. In addition, we provide a profit-sharing contribution to the Thrift Plan. This discretionary contribution,
calculated as a percentage of employees base pay based on a pre-determined target for the calendar year, can range from 0% to 4% based on actual performance. The profit-sharing contributions for 2015 were $65,846 for Mr. Goff, $29,997 for
Mr. Sterin, $27,577 for Mr. Casey, $25,654 for Ms. Warner, and $24,032 for Mr. Parrish. |
Tesoro
Corporation 2016 Proxy Statement 39
|
(2) |
Executive Deferred Compensation Company Contribution: We will match the participants base salary contributions dollar-for-dollar up to 4% eligible earnings above the IRS salary limitation (i.e., $265,000 for
2015). The matching contribution for 2015 was $34,269 for Mr. Casey. |
|
(3) |
Relocation Benefits: The Company provided benefits in 2015 under its relocation program for Ms. Warner in connection with arrangements made as part of her initial employment offer in the amount of $56,177.
|
|
(g) |
Mr. Sterin was appointed Executive Vice President, Chief Financial Officer effective August 18, 2014. |
|
(h) |
Mr. Casey was promoted from Senior Vice President, Strategy and Business Development, to Executive Vice President, Operations, effective June 1, 2014. |
|
(i) |
Ms. Warner was appointed Executive Vice President, Strategy and Business Development, effective October 6, 2014. |
|
(j) |
Mr. Parrish announced his pending retirement. Effective March 14, 2016, his successor was named and Mr. Parrish will remain Executive Vice President of the Company until his retirement, which is
anticipated to occur effective March 31, 2016. |
Grants of Plan-Based Awards in 2015
The following table sets forth information
regarding the grants of annual cash incentive compensation and long-term equity compensation to our NEOs.
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name |
|
Award Type |
|
Grant Date |
|
Estimated Future Payouts
Under Non-Equity Incentive Plan Awards (a) |
|
Estimated Future Payouts Under Equity Incentive Plan Awards (b) |
|
Grant date fair value
of stock and option awards ($) (c) |
|
|
|
Threshold ($) |
|
Target ($) |
|
Maximum
($) |
|
Threshold (#) |
|
Target (#) |
|
Maximum
(#) |
|
Goff |
|
Annual Incentive |
|
n/a |
|
1,234,616 |
|
2,469,231 |
|
4,938,462 |
|
|
|
|
|
|
|
|
|
Market Stock Units (d) |
|
2/10/2015 |
|
|
|
|
|
|
|
19,609 |
|
39,218 |
|
78,436 |
|
4,493,206 |
|
Performance Shares (e) |
|
2/10/2015 |
|
|
|
|
|
|
|
- |
|
38,126 |
|
76,252 |
|
4,497,343 |
|
TLLP Performance Phantom Units (f) |
|
2/12/2015 |
|
|
|
|
|
|
|
17,561 |
|
35,122 |
|
70,244 |
|
2,345,798 |
Sterin |
|
Annual Incentive |
|
n/a |
|
299,969 |
|
599,939 |
|
1,199,877 |
|
|
|
|
|
|
|
|
|
Market Stock Units (d) |
|
2/10/2015 |
|
|
|
|
|
|
|
3,432 |
|
6,864 |
|
13,728 |
|
786,408 |
|
Performance Shares (e) |
|
2/10/2015 |
|
|
|
|
|
|
|
- |
|
6,672 |
|
13,344 |
|
787,029 |
|
TLLP Performance Phantom Units (f) |
|
2/12/2015 |
|
|
|
|
|
|
|
3,074 |
|
6,147 |
|
12,294 |
|
410,558 |
Casey |
|
Annual Incentive |
|
n/a |
|
310,240 |
|
620,481 |
|
1,240,962 |
|
|
|
|
|
|
|
|
|
Market Stock Units (d) |
|
2/10/2015 |
|
|
|
|
|
|
|
3,432 |
|
6,864 |
|
13,728 |
|
786,408 |
|
Performance Shares (e) |
|
2/10/2015 |
|
|
|
|
|
|
|
- |
|
6,672 |
|
13,344 |
|
787,029 |
|
TLLP Performance Phantom Units (f) |
|
2/12/2015 |
|
|
|
|
|
|
|
3,074 |
|
6,147 |
|
12,294 |
|
410,558 |
Warner |
|
Annual Incentive |
|
n/a |
|
256,539 |
|
513,077 |
|
1,026,154 |
|
|
|
|
|
|
|
|
|
Market Stock Units (d) |
|
2/10/2015 |
|
|
|
|
|
|
|
3,269 |
|
6,537 |
|
13,074 |
|
748,944 |
|
Performance Shares (e) |
|
2/10/2015 |
|
|
|
|
|
|
|
- |
|
6,355 |
|
12,710 |
|
749,636 |
Parrish |
|
Annual Incentive |
|
n/a |
|
240,320 |
|
480,640 |
|
961,280 |
|
|
|
|
|
|
|
|
|
Market Stock Units (d) |
|
2/10/2015 |
|
|
|
|
|
|
|
2,354 |
|
4,707 |
|
9,414 |
|
539,281 |
|
Performance Shares (e) |
|
2/10/2015 |
|
|
|
|
|
|
|
- |
|
4,576 |
|
9,152 |
|
539,785 |
|
TLLP Performance Phantom Units (f) |
|
2/12/2015 |
|
|
|
|
|
|
|
2,108 |
|
4,215 |
|
8,430 |
|
281,520 |
(a) |
These columns show the range of awards under our 2015 Annual Incentive Compensation Program, or ICP, which is described in the section Annual Performance Incentives in the Compensation Discussion and
Analysis. The threshold column represents the minimum payout for the performance metrics under the ICP assuming that the minimum level of performance is attained. The target column represents the amount payable if the target
performance metrics are reached. The maximum column represents the maximum payout for the performance metrics under the ICP assuming that the maximum level of performance is attained. |
(b) |
The amounts shown in these columns represent the threshold, target and maximum number of shares to be issued upon vesting and settlement of performance shares
and market stock units granted during 2015 under the Amended and Restated |
Tesoro
Corporation 2016 Proxy Statement 40
|
2011 Long-Term Incentive Plan and the vesting and settlement of the TLLP Performance Phantom Units granted during 2015 under the Tesoro Logistics LP 2011 Long-Term Incentive Plan as described in
the section Long-Term Incentives in the Compensation Discussion and Analysis. |
(c) |
The amounts shown in this column represent the grant date fair value of the awards computed in accordance with financial accounting standards. |
(d) |
These market stock unit awards are contingent on our stock price performance with a performance period thirty-six months from the date of grant of February 10, 2015 through February 10, 2018. Actual payouts
will vary based on stock price performance from none of the units vesting to a threshold vesting of 50% of the units to a target vesting of 100% of the units to a maximum vesting of 200% of the units. |
(e) |
This performance share award is contingent on our achievement of relative TSR against a defined performance peer group, XLE Energy Index and the S&P 500 at the end of a thirty-six month performance period (January
1, 2015 through December 31, 2017). Actual payouts will vary based on relative TSR from a threshold vesting of none of the units to a target vesting of 100% of the units to a maximum vesting of 200% of the units. |
(f) |
This TLLP performance phantom unit award is contingent upon TLLPs achievement of relative total unitholder return at the end of the performance period from January 1, 2015 through December 31, 2017.
Actual payouts will vary based on relative total unitholder return from none of the units vesting to a threshold vesting of 50% of the units to a target vesting of 100% of the units to a maximum vesting of 200% of the units. |
Outstanding Equity Awards at 2015 Fiscal Year End
The following table sets forth the outstanding equity awards of
our NEOs at the end of 2015.
|
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|
|
|
|
|
|
|
|
|
|
|
|
Option Awards (a) |
|
|
Stock Awards |
|
Name |
|
Grant Date |
|
|
Number of Securities Underlying Unexercised Options (#) Exercisable |
|
|
Option Exercise Price ($) |
|
|
Option Expiration Date |
|
|
Number of Shares or Units of Stock That Have Not Vested (#)(b) |
|
Market Value of Shares or Units of Stock That Have
Not Vested ($)(c) |
|
Equity Incentive Plan Awards: Number of Unearned Shares, Units or
Rights That Have Not Vested (#) |
|
|
Equity Incentive Plan Awards: Market
or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($)(c) |
|
Goff |
|
|
2/12/2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
70,244 (d) |
|
|
|
3,686,932 (d) |
|
|
|
2/10/2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
78,436 (e) |
|
|
|
8,264,801 (e) |
|
|
|
2/10/2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
76,252 (g) |
|
|
|
8,175,739 (g) |
|
|
|
2/7/2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
56,432 (d) |
|
|
|
3,103,901 (d) |
|
|
|
2/4/2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
109,344 (e) |
|
|
|
11,521,577 (e) |
|
|
|
2/4/2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32,115 (f) |
|
|
|
3,478,697 (f) |
|
|
|
2/4/2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55,418 (g) |
|
|
|
6,002,878 (g) |
|
|
|
2/4/2013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33,000 (f) |
|
|
|
3,604,260 (f) |
|
|
|
5/5/2010 |
|
|
|
118,000 |
|
|
|
12.93 |
|
|
|
5/5/2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5/3/2010 |
|
|
|
33,513 |
|
|
|
13.66 |
|
|
|
5/3/2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Sterin |
|
|
2/12/2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,294 (d) |
|
|
|
645,281 (d) |
|
|
|
2/10/2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,728 (e) |
|
|
|
1,446,519 (e) |
|
|
|
2/10/2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,344 (g) |
|
|
|
1,430,744 (g) |
|
|
|
8/18/2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28,968 (h) |
|
|
|
3,052,358 (h) |
|
Casey |
|
|
2/12/2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,294 (d) |
|
|
|
645,281 (d) |
|
|
|
2/10/2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,728 (e) |
|
|
|
1,446,519 (e) |
|
|
|
2/10/2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,344 (g) |
|
|
|
1,430,744 (g) |
|
|
|
5/27/2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,272 (h) |
|
|
|
1,187,731 (h) |
|
|
|
2/4/2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,530 (e) |
|
|
|
1,320,286 (e) |
|
|
|
2/4/2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,680 (f) |
|
|
|
398,618 (f) |
|
|
|
2/4/2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,350 (g) |
|
|
|
687,832 (g) |
|
|
|
4/15/2013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,800 (h) |
|
|
|
1,137,996 (h) |
|
|
|
4/15/2013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,300 (f) |
|
|
|
359,766 (f) |
|
Tesoro
Corporation 2016 Proxy Statement 41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards (a) |
|
Stock Awards |
|
Name |
|
Grant Date |
|
|
Number of Securities Underlying Unexercised Options (#) Exercisable |
|
Option Exercise Price ($) |
|
Option Expiration Date |
|
Number of Shares or Units of Stock That Have Not Vested (#)(b) |
|
|
Market Value of Shares or Units of Stock That Have
Not Vested ($)(c) |
|
|
Equity Incentive Plan Awards: Number of Unearned Shares, Units or
Rights That Have Not Vested (#) |
|
|
Equity Incentive Plan Awards: Market
or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($)(c) |
|
Warner |
|
|
2/10/2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,074 (e) |
|
|
|
1,377,607 (e) |
|
|
|
2/10/2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,710 (g) |
|
|
|
1,362,766 (g) |
|
|
|
10/6/2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,338 (h) |
|
|
|
2,143,015 (h) |
|
|
|
10/6/2014 |
|
|
|
|
|
|
|
|
|
27,411 (i) |
|
|
|
2,947,231 (i) |
|
|
|
|
|
|
|
|
|
Parrish |
|
|
2/12/2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,430 (d) |
|
|
|
442,470 (d) |
|
|
|
2/10/2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,414 (e) |
|
|
|
991,953 (e) |
|
|
|
2/10/2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,152 (g) |
|
|
|
981,277 (g) |
|
|
|
2/7/2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,272 (d) |
|
|
|
344,976 (d) |
|
|
|
2/4/2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,150 (e) |
|
|
|
1,280,246 (e) |
|
|
|
2/4/2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,569 (f) |
|
|
|
386,594 (f) |
|
|
|
2/4/2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,158 (g) |
|
|
|
667,035 (g) |
|
|
|
2/4/2013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,500 (f) |
|
|
|
491,490 (f) |
|
(a) |
Stock options are fully vested. |
(b) |
The vesting schedule for the restricted stock award is as follows: |
|
|
|
|
|
|
|
|
Grant Date |
|
Vesting Schedule |
|
Remaining Vesting Schedule |
10/6/2014 |
|
100% vest three years from date of grant |
|
10/6/2017 |
(c) |
The closing stock price of our common stock on 12/31/15 of $105.37 as reported on the NYSE was used to calculate the market value of the unvested stock awards. The closing unit price of TLLPs common units on
12/31/15 of $50.32 as reported on the NYSE was used to calculate the market value of the unvested TLLP unit awards. |
(d) |
These awards represent TLLP performance phantom units, which are the right to receive a number of common units at the end of the performance period depending on our achievement of relative total unitholder return
against a defined performance peer group. Each award will vest at the end of the relevant performance period, subject to performance. For each award, the number of unvested units and the payout values shown assume a payout at maximum; for all such
awards, the payout value also includes any outstanding distribution equivalent rights that will be paid to the executive once both the award has vested and the payout results have been certified by the TLGP Board of Directors. The performance period
for each award, as well as the amount of outstanding distribution equivalent rights included in the payout value is shown for each of the executives below: |
|
|
|
|
|
|
|
|
|
Dividend
Equivalent Rights Accrued as of 12/31/2015 ($) |
Name |
|
TLLP Performance Phantom Units Granted February
2015 (Performance Period of 1/1/2015-12/31/2017) |
|
TLLP Performance Phantom Units Granted February
2014 (Performance Period of 1/1/2014-12/31/2016) |
Goff |
|
152,254 |
|
264,243 |
Sterin |
|
26,647 |
|
|
Casey |
|
26,647 |
|
|
Parrish |
|
18,272 |
|
29,369 |
(e) |
These awards represent MSUs, which are the right to receive a number of shares of common stock earned at vesting based on the stock price performance. The performance period is thirty-six months from the date of grant
and the payout value shown assumes a payout at maximum for each award. |
(f) |
These awards represent performance shares, which are the right to receive a number of shares of common stock at the end of the performance period depending on
our achievement of relative ROCE against a defined performance peer group. Each |
Tesoro
Corporation 2016 Proxy Statement 42
|
award will vest at the end of a thirty-six month performance period (detailed below). For each award, the payout value shown assumes a payout at target; for all such awards, the payout value also
includes any outstanding dividend equivalents that will be paid to the executive once both the award has vested and the payout results have been certified by the Compensation Committee. The performance period for each award, as well as the amount of
outstanding distribution equivalent rights included in the payout value is shown for each of the executives below: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend Equivalent Rights Accrued as of 12/31/2015 ($) |
|
Name |
|
ROCE-Based Performance Shares Granted February
2014
(Performance Period of
1/1/2014-12/31/2016) |
|
|
ROCE-Based Performance Shares Granted
February 2013 for all NEOs below except Casey (Granted April 2013) (Performance Period of 1/1/2013-12/31/2015) |
|
Goff |
|
|
94,739 |
|
|
|
127,050 |
|
Casey |
|
|
10,856 |
|
|
|
12,045 |
|
Parrish |
|
|
10,529 |
|
|
|
17,325 |
|
(g) |
These awards represent performance shares, which are the right to receive a number of shares of common stock at the end of the performance period depending on our achievement of relative TSR against a defined
performance peer group, the XLE Energy Index (beginning with the 2015 grant) and the S&P 500. Each award will vest at the end of a thirty-six month performance period (detailed below). For each award, the payout value shown assumes a payout at
maximum; for all such awards, the payout value also includes any outstanding dividend equivalents that will be paid to the executive once both the award has vested and the payout results have been certified by the Compensation Committee. The
performance period for each award, as well as the amount of outstanding distribution equivalent rights included in the payout value is shown for each of the executives below: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend Equivalent Rights Accrued as of 12/31/2015 ($) |
|
Name |
|
TSR-Based Performance Shares Granted February
2015
(Performance Period of
1/1/2015-12/31/2017) |
|
|
TSR-Based Performance Shares Granted February
2014
(Performance Period of
1/1/2014-12/31/2016) |
|
Goff |
|
|
141,066 |
|
|
|
163,483 |
|
Sterin |
|
|
24,686 |
|
|
|
|
|
Casey |
|
|
24,686 |
|
|
|
18,733 |
|
Warner |
|
|
23,514 |
|
|
|
|
|
Parrish |
|
|
16,931 |
|
|
|
18,166 |
|
(h) |
These awards represent MSUs, which are the right to receive a number of shares of common stock earned at vesting based on the stock price performance, which were granted in connection with an offer of employment or a
promotion. The performance period is thirty-six months from the date of grant and the payout value shown assumes a payout at maximum for each award. |
(i) |
These awards represent restricted stock granted in connection with an offer of employment. The market value also includes any outstanding dividends that will be paid to the executive at time of vesting of such award.
The amount of outstanding dividends included with the market value for Ms. Warner is $58,934. |
Tesoro
Corporation 2016 Proxy Statement 43
Option Exercises and Stock Vested in 2015
The following table reflects the aggregate value realized by
the NEOs for option exercises, as well as restricted stock, performance shares with total shareholder return metric (TSR) and return on capital employed metric (ROCE), market stock units and TLLP performance phantom units that vested in 2015.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards |
|
|
Stock Awards |
|
Name |
|
Number of Shares Acquired on Exercise (#) |
|
|
Value Realized on Exercise ($)(a) |
|
|
Number of Shares Acquired on Vesting (#) |
|
|
Value Realized on Vesting ($)(b) |
|
Goff |
|
|
- |
|
|
|
- |
|
|
|
237,461 |
|
|
|
17,824,943 |
|
Sterin |
|
|
- |
|
|
|
- |
|
|
|
6,253 |
|
|
|
669,696 |
|
Casey |
|
|
- |
|
|
|
- |
|
|
|
9,260 |
|
|
|
828,510 |
|
Warner |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Parrish |
|
|
79,800 |
|
|
|
3,950,856 |
|
|
|
32,442 |
|
|
|
2,456,992 |
|
(a) |
The value realized on exercise is the aggregate excess over the fair market value of the option at the time of the exercise and the exercise price of the option multiplied by the number of options exercised.
|
(b) |
The value realized is the closing stock price of our common stock on the vesting date multiplied by the number of shares of restricted stock that vested; the value also includes any dividends that were paid upon
vesting. Of the amounts realized for the restricted stock vested, the amounts paid in dividends to the NEOs were: Mr. Sterin $9,067 and Mr. Casey $11,459. The value of the performance shares with total shareholder return
metric, performance shares with return on capital employed metric and the market stock units are calculated based on the number of shares granted multiplied by the performance payout factor approved by the Compensation Committee and then multiplied
by the closing price of the stock on such date noted in the table below. Of the amounts realized for the performance shares with total shareholder return metric payout, the amounts paid in dividend equivalents to the NEOs were: Mr. Goff
$152,364, Mr. Casey $15,002, and Mr. Parrish $20,513. In addition, for Messrs. Goff and Parrish, these realized amounts include the payouts of the TLLP performance phantom units. The value realized on the payout of the
performance phantom units is calculated based on the number of units granted multiplied by the performance payout factor approved by the TLGP Board of Directors noted below and then multiplied by the closing price of the common units on such date.
Of the amounts realized for the TLLP performance phantom units payout, the amounts paid in distribution equivalent rights to the NEOs were: Mr. Goff $337,153 and Mr. Parrish $43,227. |
|
|
|
|
|
|
|
|
|
Type of Award |
|
Grant Date |
|
Approval Date |
|
Performance Payout Factor |
|
Performance Shares with ROCE |
|
2/1/2012 |
|
April 1, 2015 |
|
|
75 |
% |
TLLP Performance Phantom Units |
|
2/8/2013 |
|
January 20, 2016 |
|
|
127 |
% |
Performance Shares with TSR |
|
2/4/2013 |
|
January 22, 2016 |
|
|
152 |
% |
Market Stock Units |
|
2/4/2013 |
|
February 10, 2016 |
|
|
200 |
% |
Tesoro
Corporation 2016 Proxy Statement 44
Retirement/Pension Benefits in 2015
The following table sets forth the estimated present value as of
December 31, 2015 of the accumulated pension benefits provided under the Tesoro Corporation Retirement Plan, Executive Security Plan and Supplemental Executive Retirement Plan for each of the NEOs.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name |
|
Plan Name |
|
Years of Credited Service (a) |
|
|
Present Value of Accumulated Benefit ($) (b) |
|
|
Payments during last fiscal year ($) |
|
Goff |
|
Tesoro Corporation Retirement Plan Executive Security Plan |
|
|
0.7 6 |
|
|
|
132,056 17,585,292 |
|
|
|
- - |
|
Sterin |
|
Tesoro Corporation Retirement Plan Supplemental Executive Retirement Plan |
|
|
n/a n/a |
|
|
|
26,995 140,619 |
|
|
|
- - |
|
Casey |
|
Tesoro Corporation Retirement Plan Supplemental Executive Retirement Plan |
|
|
n/a n/a |
|
|
|
45,992 305,944 |
|
|
|
- - |
|
Warner |
|
Tesoro Corporation Retirement Plan Supplemental Executive Retirement Plan |
|
|
n/a n/a |
|
|
|
26,779 102,945 |
|
|
|
- - |
|
Parrish |
|
Tesoro Corporation Retirement Plan Executive Security Plan |
|
|
17 22 |
|
|
|
919,622 10,237,946 |
|
|
|
- - |
|
(a) |
Due to a freeze of credited service as of December 31, 2010, credited service values for the Tesoro Corporation Retirement Plan and the Supplemental Executive Retirement Plan are less than actual service
values. Credited service is used to calculate the Final Average Pay portion of the Tesoro Corporation Retirement Plan benefit pertaining to Messrs. Goff and Parrish. The Cash Balance portion of the Tesoro Corporation Retirement Plan and the
Supplemental Executive Retirement Plan, that went into effect on January 1, 2011, does not utilize credited service. Therefore since Mr. Sterin, Mr. Casey and Ms. Warner were hired after January 1, 2011, years of
credited service is not applicable. |
(b) |
The present values of the accumulated plan benefits are equal to the value of the retirement benefits at the earliest unreduced age for each plan utilizing the same assumptions used as of December 31, 2015 for
financial reporting purposes. These assumptions include a discount rate of 4.40%, a cash balance interest crediting rate of 3.40%, the use of the RP-2014 Mortality Table with generational mortality improvements in accordance with Scale MP-2014
and for the Tesoro Corporation Retirement Plan, that each employee will elect a lump sum payment at retirement using an interest rate of 4.40% and the PPA 2016 Mortality Table. |
Tesoro
Corporation 2016 Proxy Statement 45
A description of the retirement or pension benefit plans in which our NEOs participate is set forth below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tesoro Corporation Retirement Plan (the Retirement Plan) |
Short
Description |
|
A tax-qualified pension
plan with a monthly retirement benefit made up of two components:
a Final Average Pay (FAP) benefit for service through December 31, 2010, and
a Cash Balance
account based benefit for service after December 31, 2010 The final benefit payable under the
Retirement Plan is equal to the value of the sum of both the FAP and the Cash Balance components on the participants benefit commencement date. |
|
|
FAP Benefit (through 12/31/2010) |
|
1.1% of final
average compensation for each year of service through December 31, 2010, plus 0.5% of final average compensation in excess of the Social Security Covered Compensation limit for each year of service through December 31, 2010, up to 35 years
Final average
compensation is the monthly average of compensation (including base pay plus bonus but limited to the maximum compensation and benefit limits allowable for qualified plans under the Internal Revenue Code) over the consecutive 36-month period in the
last 120 months preceding retirement that produces the highest average |
|
|
Cash Balance
Benefit (after
12/31/2010) |
|
For service
after 2010, participants earn pay and interest credits: ¡ Pay credits are determined based on a percentage of eligible pay
at the end of each quarter ranging from 4.5% to 8.5% of pay based on a participants age at the end of each quarter
¡
Interest is credited quarterly on account balances based on a minimum of 3%, the 10-Year Treasury Bonds or the 30-Year Treasury Bonds, whichever is higher |
|
|
Timing of
Benefit
Payments |
|
Generally
payable the first day of the month following the attainment of age 65 and the completion of at least 3 years of service
Early Retirement:
¡ If a participant qualifies for early retirement (age 50 with service plus age greater than or
equal to 80, which is referred to as 80-point early retirement, or age 55 with 5 years of service, which is referred to as regular early retirement), the FAP benefit component will be reduced by a subsidized early retirement
factor prior to age 65. Under the 80-point early retirement definition, the FAP benefit component may be paid at age 60 without reduction or earlier than age 60 with a reduction of 5% per year for each year the age at retirement is less than 60.
Under the regular early retirement definition, the FAP benefit component may be paid at age 62 without reduction or earlier than age 62 with a reduction of approximately 7.14% per year for each year prior to age 62. If an employee does not qualify
for early retirement upon separation from service, they will be eligible for an actuarially equivalent FAP benefit based on their age at the date the benefit is paid without an early retirement subsidy
¡ The Cash Balance benefit component for service after 2010 is always based on the actual balance
of the cash balance account as of the payment date and is not subject to any reduction for payment prior to normal retirement
As of the end of fiscal 2015,
¡ Messrs. Goff and Parrish meet the regular early retirement criteria
¡ Mr. Sterin, Mr. Casey and Ms. Warner are not yet vested under the Retirement
Plan |
Tesoro
Corporation 2016 Proxy Statement 46
|
|
|
|
|
|
|
|
|
|
|
|
Executive Security Plan (ESP) |
|
|
Short Description |
|
A non-qualified pension plan that was closed to new
participants in 2010 |
|
|
Benefit Formula |
|
Final average
compensation in the ESP is the highest three years of compensation out of the last seven calendar years that produces the highest average. Compensation includes base pay plus bonus (counted in the year earned not paid).
Gross monthly
retirement benefit is equal to: ¡ 4% of final average compensation for each of the first 10 years of
service, plus ¡ 2% of final average compensation for each of the next 10 years of service, plus
¡ 1% of final average compensation for each of the last 10 years of service,
¡ for a maximum gross monthly retirement benefit of 70% of final average compensation for up to 30
years of service
Gross monthly retirement benefit is reduced by any benefits paid from the qualified
Retirement Plan, and, after age 62, estimated Social Security benefits |
|
|
Vesting and
Timing of
Benefit
Payments |
|
To qualify, a
participant must separate from the company after attaining age 50 with 80 points or age 55 and with at least 5 years of service
Payment:
¡
the gross monthly retirement benefit may be paid on or after age 60 without a reduction, or
¡
earlier than age 60 with a reduction of 7% per year for each year less than 60 (pro-rated for partial years)
As of the end of fiscal 2015,
¡ Messrs. Goff and Parrish are eligible to receive a payment |
|
|
Death and
Disability
Benefits |
|
The ESP
provides for certain death and disability benefits. The death benefits in the ESP are equal to the greater of (1) the executives ESP benefit determined at date of death, (2) the actuarial equivalent of 400% of the executives base
pay, prior to the date of death, or (3) the benefit determined as if the executive had remained an active employee through age 65 and was paid a benefit at age 65. Assuming that the following executives died on December 31, 2015, their monthly
payment under the ESP, payable for the life of the beneficiary, would be the following, offset by the estimated Social Security benefit.
If the executive becomes disabled, the executive is entitled to the monthly retirement
benefit for which he is eligible at his normal retirement date, but based upon the service the participant would have accrued had he remained in active employment until his retirement date and continued at the same rate of earnings until that date.
Assuming that the following executives became disabled on December 31, 2015, their monthly payments under the ESP are payable on the first day of the month following the date on which the executive has attained both age 65 and has a minimum of five
years of service. |
|
|
|
|
NEO |
|
Monthly Death Benefit to Executives Beneficiary Before Age 62 ($) |
|
Monthly Death Benefit to Executives Beneficiary After Age 62 ($) |
|
Monthly Disability Benefit ($) |
|
|
|
|
Goff |
|
203,148 |
|
201,161 |
|
220,249 |
|
|
|
|
Parrish |
|
67,050 |
|
65,108 |
|
76,648 |
|
|
|
|
Supplemental Executive Retirement Plan (SERP) |
Short Description |
|
A non-qualified cash balance account based
pension plan that provides eligible senior level executives who are hired on or after January 1, 2011 with a supplemental cash balance pension benefit in excess of those earned under the qualified Retirement Plan |
Benefit Formula |
|
Pay credits are equal to 15% of eligible pay
offset by the value of the pay credits allocated to the qualified Retirement Plan. Interest is credited quarterly on account balances based on a minimum of 3%, the 10-Year Treasury Bonds or the 30-Year Treasury Bonds, whichever is
higher |
Tesoro
Corporation 2016 Proxy Statement 47
|
|
|
|
|
|
|
|
|
|
|
Vesting and Timing of Benefit Payments |
|
In order to receive a payment under the SERP, a
participant must separate from the company after attaining age 50 with 80 points or age 55 and with at least 5 years of service. As of the end of fiscal 2015, Mr. Sterin, Mr. Casey and Ms. Warner had not met the eligibility requirements to receive a
payment under the plan |
Death and Disability Benefits |
|
The SERP provides for certain death and
disability benefits. The death benefit is equal to the value of the vested account balance as of the date of death. The disability benefit provides continued pay and interest credits during the period of disability up to age 65. |
|
|
|
|
NEO |
|
Present Value of
Death Benefit ($) |
|
Present Value of
Disability Benefit ($) |
|
|
|
|
Sterin |
|
171,841 |
|
1,902,637 |
|
|
|
|
Casey |
|
355,166 |
|
2,505,017 |
|
|
|
|
Warner |
|
111,006 |
|
743,839 |
Nonqualified Deferred Compensation in 2015
The following table sets forth information regarding the
contributions to and year-end balances under our nonqualified deferred compensation plan for the NEOs in 2015.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name |
|
Executive Contributions in Last Fiscal Year ($) (1) |
|
|
Registrant Contributions in Last Fiscal Year ($) (2) |
|
|
Aggregate Earnings in Last Fiscal Year
($) (3) |
|
|
Aggregate Withdrawals/
Distributions ($) |
|
|
Aggregate Balance at Last Fiscal Year- End ($) (4) |
|
Goff |
|
|
|
|
|
|
55,246 |
|
|
|
(1,652 |
) |
|
|
|
|
|
|
97,130 |
|
Sterin |
|
|
|
|
|
|
19,397 |
|
|
|
|
|
|
|
|
|
|
|
19,397 |
|
Casey |
|
|
41,365 |
|
|
|
51,246 |
|
|
|
(183 |
) |
|
|
|
|
|
|
100,069 |
|
Warner |
|
|
|
|
|
|
15,054 |
|
|
|
|
|
|
|
|
|
|
|
15,054 |
|
Parrish |
|
|
|
|
|
|
13,432 |
|
|
|
(439 |
) |
|
|
|
|
|
|
23,448 |
|
|
(1) |
The amount shown includes amounts reflected in the base salary column of the Summary Compensation Table for Mr. Casey. |
|
(2) |
The amounts shown include amounts reflected in the All Other Compensation column of the Summary Compensation Table for all the NEOs. |
|
(3) |
The amount shown reflects the change in the market value pertaining to the investment funds in which the NEO has chosen to invest his or her contributions and our contribution under the Tesoro Corporation Executive
Deferred Compensation Plan. |
|
(4) |
A portion of the amounts disclosed in this column for Messrs. Goff, Casey and Parrish has previously been reported in Summary Compensation Tables for previous years, including the following amounts: Mr. Goff
$30,615 for 2014 and $11,142 for 2013; Mr. Casey $7,016 for 2014; and Mr. Parrish $7,383 for 2014 and $2,787 for 2013. |
|
|
|
Tesoro Corporation Executive Deferred Compensation Plan (EDCP) |
Short
Description |
|
Provides executives and key management
personnel (including our NEOs) the opportunity to make additional pre-tax deferrals that cannot be made under our qualified 401(k) plan (Thrift Plan), due to salary and limitations imposed under the Internal Revenue Code. |
Participant
Contributions |
|
Participants may elect to defer up to 50% of
their base salary and/or up to 100% of their annual bonus compensation after FICA tax deductions. |
Company
Contributions |
|
We will
match the participants base salary contributions dollar-for-dollar up to 6% of eligible earnings above the IRS salary limitation (i.e., $265,000 for 2015).
Participants that are eligible for supplemental retirement benefits under
the ESP are eligible to defer compensation under the EDCP, but are not eligible for the matching provisions of the EDCP. |
Vesting |
|
A participant will vest in our matching
contributions upon the completion of three years of service. |
Tesoro
Corporation 2016 Proxy Statement 48
2015 Potential Payments Upon Termination or Change-in-Control
The following table reflects the estimated
amount of compensation for each of the NEOs upon certain termination events. Such compensation is in addition to the pension benefits, including certain termination-related pension benefits, described under the heading Pension Benefits in
2015, included in this Proxy Statement. The amounts shown below assume that the applicable termination occurred as of December 31, 2015 and are based on the agreements and arrangements in place on such date. The actual payments an
executive would be entitled to may only be determined based upon the actual occurrence and circumstances surrounding the termination. The assumptions used in determining the estimated payments upon various termination scenarios are described below
the table.
Our NEOs are eligible for certain benefits under our Executive Severance and Change-in-Control Plan in the event of a termination without
Cause, a resignation with Good Reason, or a Termination following a Change-in-Control in the event of a termination without cause or by the NEO with good reason within two years following a change-in-control (with
such terms as defined in such plan).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name |
|
Scenario |
|
Severance ($) |
|
Accelerated Equity Vesting ($) |
|
Retirement Benefits ($) |
|
Health Benefits ($) |
|
Outplace- ment Services ($) |
|
Total ($) |
Goff |
|
w/o Cause or w/ Good Reason |
|
|
9,529,384 |
|
|
|
22,441,763 |
|
|
|
- |
|
|
|
51,282 |
|
|
|
35,000 |
|
|
|
32,057,429 |
|
|
Term. after Change-in-Control |
|
|
12,000,000 |
|
|
|
40,730,958 |
|
|
|
- |
|
|
|
42,041 |
|
|
|
- |
|
|
|
52,772,999 |
|
|
Retirement or Voluntary Term. |
|
|
4,074,232 |
|
|
|
22,441,763 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
26,515,995 |
|
|
Death |
|
|
1,600,000 |
|
|
|
23,239,255 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
24,839,255 |
|
|
Disability |
|
|
1,480,000 |
|
|
|
23,239,255 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
24,719,255 |
|
|
w/Cause |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Sterin |
|
w/o Cause or w/ Good Reason |
|
|
1,904,861 |
|
|
|
1,874,500 |
|
|
|
- |
|
|
|
23,827 |
|
|
|
35,000 |
|
|
|
3,838,188 |
|
|
|
Term. after Change-in-Control |
|
|
3,267,000 |
|
|
|
5,433,364 |
|
|
|
- |
|
|
|
39,711 |
|
|
|
- |
|
|
|
8,740,075 |
|
|
|
Retirement or Voluntary Term. |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
Death |
|
|
- |
|
|
|
1,440,305 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,440,305 |
|
|
|
Disability |
|
|
- |
|
|
|
1,440,305 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,440,305 |
|
|
|
w/Cause |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Casey |
|
w/o Cause or w/ Good Reason |
|
|
2,140,236 |
|
|
|
3,026,198 |
|
|
|
- |
|
|
|
24,611 |
|
|
|
35,000 |
|
|
|
5,226,045 |
|
|
Term. after Change-in-Control |
|
|
3,206,250 |
|
|
|
7,675,053 |
|
|
|
- |
|
|
|
41,019 |
|
|
|
- |
|
|
|
10,922,322 |
|
|
Retirement or Voluntary Term. |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
Death |
|
|
- |
|
|
|
2,333,642 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
2,333,642 |
|
|
Disability |
|
|
- |
|
|
|
2,333,642 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
2,333,642 |
|
|
w/Cause |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Warner |
|
w/o Cause or w/ Good Reason |
|
|
1,384,789 |
|
|
|
1,135,841 |
|
|
|
- |
|
|
|
25,225 |
|
|
|
35,000 |
|
|
|
2,580,855 |
|
|
|
Term. after Change-in-Control |
|
|
2,812,500 |
|
|
|
4,092,766 |
|
|
|
- |
|
|
|
42,041 |
|
|
|
- |
|
|
|
6,947,307 |
|
|
|
Retirement or Voluntary Term. |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
Death |
|
|
- |
|
|
|
835,160 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
835,160 |
|
|
|
Disability |
|
|
- |
|
|
|
835,160 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
835,160 |
|
|
|
w/Cause |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Parrish |
|
w/o Cause or w/ Good Reason |
|
|
2,202,680 |
|
|
|
2,676,159 |
|
|
|
- |
|
|
|
24,642 |
|
|
|
35,000 |
|
|
|
4,938,481 |
|
|
Term. after Change-in-Control |
|
|
2,619,000 |
|
|
|
4,751,557 |
|
|
|
- |
|
|
|
41,070 |
|
|
|
- |
|
|
|
7,411,627 |
|
|
Retirement or Voluntary Term. |
|
|
793,056 |
|
|
|
2,676,159 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
3,469,215 |
|
|
Death |
|
|
- |
|
|
|
2,705,243 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
2,705,243 |
|
|
Disability |
|
|
- |
|
|
|
2,705,243 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
2,705,243 |
|
|
w/Cause |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Tesoro
Corporation 2016 Proxy Statement 49
|
|
Accrued Benefits. In each termination scenario, each NEO would be entitled to the following accrued benefits: any accrued but unpaid base salary to the date of termination; any
accrued but unpaid expenses; any unused vacation pay; any unpaid bonuses for a prior period to which the NEO is entitled per the incentive compensation program; and any other benefits to which the NEO is entitled. |
|
¡ |
|
Involuntary Termination Without Cause or Voluntary Termination with Good Reason. Pursuant to the Executive Severance and Change-in-Control Plan, Mr. Goff will receive an
amount equal to two times the sum of his base salary and the greater of his highest annual bonus earned under the applicable annual incentive compensation plan during the preceding three years or $450,000. For the other NEOs, their severance amount
is based on a multiple of their base salary and the average bonuses paid during the preceding three years, as applicable (for each of Mr. Sterin, Mr. Casey, Ms. Warner and Mr. Parrish one and three-fourths times). For the NEOs,
their severance will be paid in a lump sum following the end of the six months after termination. |
|
¡ |
|
Involuntary Termination Following a Change-in-Control. Pursuant to the Executive Severance and Change-in-Control Plan, each NEO will receive an amount equal to a multiple of
base salary and target annual bonus (Mr. Goff three times; Mr. Sterin, Mr. Casey, Ms. Warner and Mr. Parrish two and one-half times). For each NEO, the severance amount will be paid in a lump sum six months after
termination. |
|
¡ |
|
Retirement or Voluntary Termination. Pursuant to the terms of Tesoros annual incentive program, upon retirement for any reason on or after July 1 of the applicable
year, Messrs. Goff and Parrish will receive a pro-rated bonus for the year of termination since they are retirement eligible. The other NEOs will not receive a pro-rated bonus since they are not retirement eligible. |
|
¡ |
|
Death. Pursuant to the Executive Severance and Change-in-Control Plan, Mr. Goff will receive one additional year of base salary. |
|
¡ |
|
Disability. Pursuant to the Executive Security and Change-in-Control Plan, Mr. Goff will receive additional base salary for one year, offset by any payments that he would
receive under our long-term disability plan for the period specified. |
|
|
Accelerated Equity Vesting. |
|
¡ |
|
Involuntary Termination Without Cause or Voluntary Termination with Good Reason. |
|
¡ |
|
As Messrs. Goff and Parrish are retirement eligible, they will receive a pro-rated payout of their performance shares along with accrued cash dividend equivalents, their market stock units, and their TLLP performance
phantom units along with accumulated distribution equivalent rights based on actual performance at the end of the performance period. |
|
¡ |
|
As Mr. Sterin, Mr. Casey and Ms. Warner worked a minimum of twelve months during the performance period, they will receive a pro-rated payout of their performance share awards along with accrued cash
dividend equivalents and their market stock units granted in 2014 all based on actual performance at the end of the performance period. |
|
¡ |
|
As Mr. Sterin and Mr. Casey worked a minimum of twelve months during the performance period, they will receive a pro-rated payout of their TLLP performance phantom units along with accumulated distribution
equivalent rights based on actual performance at the end of the performance period. |
|
¡ |
|
Ms. Warner will forfeit any unvested restricted stock. |
|
¡ |
|
Involuntary Termination Following a Change-in-Control. |
|
¡ |
|
Each NEO will be 100% vested in all equity awards. |
|
¡ |
|
For the performance share awards, the NEOs will be paid out at the greater of the target amount or the actual performance through a date determined by the Compensation Committee of the Board of Directors (or in the
absence of the Compensation Committee, the Board itself) prior to the change-in-control along with the accrued cash dividend equivalents. |
Tesoro
Corporation 2016 Proxy Statement 50
|
¡ |
|
For the market stock units, the NEOs will earn the number of shares based on actual performance at the time of the change-in-control. |
|
¡ |
|
For the TLLP performance phantom units, Messrs. Goff, Sterin, Casey and Parrish will vest in their TLLP performance phantom units at target and will be paid the accumulated distribution equivalent rights accumulated on
those units at the time of the change-in-control. |
|
¡ |
|
The value of accelerated unvested restricted stock granted to Ms. Warner represents the fair market value of such awards as of December 31, 2015 along with cash accrued dividends. |
|
¡ |
|
Retirement or Voluntary Termination. |
|
¡ |
|
As Messrs. Goff and Parrish are retirement eligible, they will receive a pro-rated payout of their performance share awards along with accrued cash dividends and their market stock units based on actual performance at
the end of the performance period. In addition, Messrs. Goff and Parrish will receive a pro-rated payout of their TLLP performance phantom units along with accumulated distribution equivalent rights on those units based on actual performance at the
end of the performance period. All the other NEOs will forfeit all their unvested performance shares and market stock units. |
|
¡ |
|
Ms. Warner will forfeit any unvested restricted stock. |
|
¡ |
|
As Messrs. Goff and Parrish are retirement eligible, their beneficiaries or estate would receive a pro-rated payout of their performance shares along with accrued cash dividend equivalents and their market stock units
based on actual performance at the end of the performance period. |
|
¡ |
|
The beneficiaries or the estate for Mr. Sterin, Mr. Casey and Ms. Warner would receive a pro-rated payout of their performance shares along with accrued cash dividend equivalents and their market stock
units based on target performance as of December 31, 2015. |
|
¡ |
|
The TLLP performance phantom units granted to Messrs. Goff, Sterin, Casey and Parrish would vest at target and their beneficiaries or estates would be paid the accumulated distribution equivalent rights on those units
as of December 31, 2015. |
|
¡ |
|
Termination with Cause. Each NEO will forfeit all unvested equity awards upon termination due to a termination with Cause. |
|
|
Health Coverage. For each NEO, the amount represents the estimated health and welfare benefits provided to the executive. |
|
¡ |
|
Involuntary Termination Without Cause or Voluntary Termination with Good Reason. Pursuant to the Executive Severance and Change-in-Control Plan, Mr. Goff will receive
health benefits to the extent that group health coverage is being provided by us and will continue until the earliest of the following to occur: two and one-half years after the date of the executives termination, the executives death,
or if the executive becomes covered by a comparable benefit by a subsequent employer. Mr. Sterin, Mr. Casey, Ms. Warner and Mr. Parrish will receive medical benefits for a period of eighteen months from their date of termination.
|
|
¡ |
|
Involuntary Termination Following a Change-in-Control. Pursuant to the Executive Severance and Change-in-Control Plan, Mr. Goff, Mr. Sterin, Mr. Casey,
Ms. Warner and Mr. Parrish will each receive thirty additional months of our group medical plan. |
|
¡ |
|
Involuntary Termination Without Cause or Voluntary Termination with Good Reason, Pursuant to the Executive Severance and Change-in-Control Plan Mr. Goff, Mr. Sterin,
Mr. Casey, Ms. Warner, and Mr. Parrish will receive outplacement services for up to twelve months commencing after date of executives termination. |
Tesoro
Corporation 2016 Proxy Statement 51
Audit
Committee Report
Structure and Charter of the Audit Committee
The Audit Committee is composed exclusively of independent directors who our Board has determined are financially literate. In addition, the Board has determined that
Mr. Chase, Mr. Goldman and Ms. McCarthy each qualify as an audit committee financial expert, as defined by SEC rules.
The Audit
Committee operates under a written charter adopted by the Board of Directors. It is summarized under Corporate Governance and Board Matters Board Leadership and Committees on page 10 and available on our website at
http://phx.corporate-ir.net/phoenix.zhtml?c=79122&p=irol-govhighlights. The charter, which was last amended in October 2014, is reviewed annually by the Committee and, when appropriate, recommendations for changes are made to the Board.
In addition, the Audit Committee maintains an annual charter checklist and a schedule of proposed meeting topics for the upcoming year to confirm that the Audit Committee is satisfying its duties and responsibilities under the charter and addressing
any other issues of importance.
Responsibilities and 2015 Actions of the Audit Committee
The Board of Directors has the ultimate authority for effective corporate governance, including oversight of the Companys management. The Audit Committee assists
the Board in fulfilling its responsibilities by overseeing the accounting and financial reporting processes, the audits of our consolidated financial statements and internal control over financial reporting, the qualifications and performance of the
Companys independent registered public accounting firm, and the performance of our internal audit function.
During 2015, the Audit Committee fulfilled its
duties and responsibilities as outlined in the charter. The Audit Committee, which met seven times during 2015, meets at least once each quarter to review our earnings release and the quarterly Forms 10-Q or annual Form 10-K, as applicable. In
addition, the Committee meets as needed to address emerging accounting, compliance, or other matters or for educational training. Specifically, the Audit Committee:
|
|
|
reviewed and discussed with management and the independent registered public accounting firm the Companys earnings releases and quarterly and annual reports on Form 10-Q and Form 10-K prior to filing with the SEC,
|
|
|
|
reviewed and discussed with management, the internal auditor, and the independent registered public accounting firm managements assessment of the effectiveness of the Companys internal control over financial
reporting and the independent registered public accounting firms opinion about the effectiveness of the Companys internal control over financial reporting, |
|
|
|
reviewed and discussed with management, the internal auditor, and the independent registered public accounting firm, as appropriate, the audit scopes and plans of both the internal audit function and independent
registered public accounting firm, |
|
|
|
inquired about significant financial risk exposures, assessed the steps management is taking to control these risks, and reviewed the Companys policies for risk assessment and risk management, |
|
|
|
met in periodic executive sessions with each of management, the internal auditor, and the independent registered public accounting firm, to discuss the results of their examinations, their evaluations of internal
controls, and the overall quality of the Companys financial reporting, |
Tesoro
Corporation 2016 Proxy Statement 52
|
|
|
met with the chief financial officer and controller to discuss the processes they have undertaken to evaluate the accuracy and fair presentation of the Companys consolidated financial statements and the
effectiveness of the Companys systems of disclosure controls and procedures and internal control over financial reporting, |
|
|
|
reviewed and assessed the overall adequacy and effectiveness of the Companys legal, regulatory and ethical compliance programs, |
|
|
|
received reports about the receipt, retention, and treatment of financial reporting and other compliance concerns, |
|
|
|
reviewed with the general counsel legal and regulatory matters that may have a material impact on the consolidated financial statements or internal control over financial reporting; and |
|
|
|
reviewed the performance of the Companys controller and head of internal audit. |
Oversight of Independent Registered Public Accounting Firm
Our management is primarily responsible for our internal control and financial reporting process. Our independent registered public accounting firm, Ernst &
Young LLP (EY), is responsible for performing an independent audit of our consolidated financial statements and issuing opinions on the conformity of those audited financial statements with United States generally accepted accounting
principles and the effectiveness of our internal control over financial reporting. The Audit Committee monitors our financial reporting process and reports to the Board on its findings.
The Audit Committee is responsible for the appointment, compensation and oversight of our independent registered public accounting firm. EY has served as the
Companys independent registered public accounting firm since 2008 and reports directly to the Audit Committee. Representatives of EY regularly meet with the Audit Committee without management present. Reports from EY to the Audit Committee
include discussions of significant accounting policies applied by the Company in its financial statements, alternative accounting treatments, and the overall quality of the Companys financial reporting. The Audit Committee has the authority
and receives appropriate funding from the Company, as determined by the Audit Committee, to obtain advice and assistance from outside legal, accounting or other advisors as it deems appropriate.
The Audit Committee annually reviews the independence, performance, quality control procedures and fees of EY, our independent registered public accounting firm, prior
to or in connection with the Audit Committees determination of whether to retain EY or engage another firm as our independent auditor. The Audit Committee also reviews the scope of and overall plans for the annual audit and approves the terms
of EYs engagement letter. Among other things, our annual evaluation of EY addresses the quality of EYs discussions with the Audit Committee; the quality, timeliness and clarity of materials presented by EY to the Audit Committee; the
accessibility, responsiveness, technical competence, objectivity, and professionalism of the lead audit partner and other members of the audit team assigned to our account; and the effectiveness of EYs communications with the Company and the
Audit Committee.
In considering whether the independent registered public accounting firm is best positioned and qualified to provide the most effective and
efficient service, the Audit Committee considers a number of factors including, but not limited to:
|
|
|
EYs historical and recent performance on the Tesoro audit, including the results of an internal survey regarding the quality and efficiency of the services provided by EY; |
|
|
|
EYs capabilities, technical expertise, and knowledge of our operations and industry, including the expertise of the lead audit partner; |
|
|
|
The quality and candor of the firms communications with the Audit Committee and with management; |
Tesoro
Corporation 2016 Proxy Statement 53
|
|
|
An analysis of EYs known legal risks and significant proceedings; |
|
|
|
External data relating to audit quality and performance, including recent PCAOB reports on EY and its peer firms; |
|
|
|
The appropriateness of EYs fees; |
|
|
|
EYs tenure as our independent registered public accounting firm and its familiarity with our operations and business, accounting policies and practices and internal control over financial reporting;
|
|
|
|
EYs capability and expertise in handling the breadth and complexity of our operations; and |
Based on these evaluations, the Audit Committee believes that EY is independent and that it is
in the best interest of Tesoro and our stockholders to retain EY as our independent registered public accounting firm for 2016. See Items to Be Voted On Proposal No. 3 Ratification of the Appointment of Ernst &
Young LLP as Independent Registered Public Accounting Firm.
Oversight of Internal Audit and Risk Management
The Audit Committee also reviews the plan, scope and results of our internal audit. The Audit Committee meets with our head of internal audit both with and without
management to evaluate internal audit findings and performance. The Audit Committee also reviews our risk management policies, as well as our major financial risk exposures and our plans and progress to control these risks.
2015 Audited Financial Statements
In this context, the Audit Committee hereby reports as follows:
|
1. |
The Audit Committee has reviewed and discussed the audited financial statements with management. |
|
2. |
The Audit Committee has discussed with the independent registered public accounting firm the matters required to be discussed by applicable Public Company Accounting Oversight Board (PCAOB) standards.
|
|
3. |
The Audit Committee has received the written disclosures and the letter from the independent registered public accounting firm required by the PCAOB regarding the independent registered public accounting firms
communications with the Audit Committee concerning independence, and has discussed with the independent registered public accounting firm their independence. |
|
4. |
Based on the review and discussions referred to above, the Audit Committee recommended to the Board, and the Board has approved, that the audited financial statements be included in our Annual Report on Form 10-K for
the year ended December 31, 2015, for filing with the SEC. |
The undersigned members of the Audit Committee have submitted this Report to the
Board of Directors as of March 10, 2016(a).
Rodney F. Chase, Chairman
Robert W. Goldman
Mary Pat McCarthy
|
(a) |
Mr. Yang is not a signatory to this Audit Committee report because he was appointed to the Committee effective March 14, 2016, after this report was approved by the Audit Committee. |
Tesoro
Corporation 2016 Proxy Statement 54
Auditor Fees and Services
EY has served as our independent auditor since 2008. Pursuant
to the five-year partner rotation requirement mandated by the Sarbanes-Oxley Act of 2002, EYs lead engagement partner rotated after completion of the audit for the year ended December 31, 2014, and will rotate again no later than after
completion of the audit for the year ended December 31, 2019. The process for selecting the new lead audit partner involved an assessment of many factors, including the candidates industry experience, broad-based business judgment, robust
dialogue with the Audit Committee, ability to leverage the resources of EY, commitment to continuous improvement, objectivity and independence. The selection process also involved discussions with management regarding each of the candidates and a
meeting between the Audit Committee and the final candidate for the role before his appointment.
The following table presents fees billed for the years ended
December 31, 2015 and 2014, for professional services performed by EY. Note that this does not include fees paid directly by TLLP for professional services performed by EY.
|
|
|
|
|
|
|
|
|
|
|
|
2015 |
|
|
|
2014 |
|
Audit Fees (1) |
|
$ |
3,985,154 |
|
|
$ |
4,076,645 |
|
Audit-Related Fees (2) |
|
|
5,000 |
|
|
|
25,000 |
|
Tax Fees (3) |
|
|
|
|
|
|
|
|
All Other Fees (4) |
|
|
3,990 |
|
|
|
239,482 |
|
Total |
|
$ |
3,994,144 |
|
|
$ |
4,341,127 |
|
(1) |
Audit Fees represent the aggregate fees for professional services rendered by EY in connection with its audits of Tesoro Corporations consolidated financial statements, including the audits of internal control
over financial reporting, reviews of the condensed consolidated financial statements included in our Quarterly Reports on Form 10-Q, statutory audits, regulatory filings, registration statements, comfort letters and accounting consultations.
|
(2) |
Audit-Related Fees represent the aggregate fees for professional services rendered by EY in connection with its audits and related services performed in connection with business dispositions and special reports.
Audit-related fees of $20,000 in 2014 were subject to reimbursement by a third party. |
(3) |
Tax Fees represent the aggregate fees for tax services rendered by EY for matters such as consultation on income, sales, use and excise tax matters. |
(4) |
All Other Fees represent the aggregate fees billed by EY for information technology advisory services and a subscription to its web-based accounting and auditing research tool. |
In accordance with the Audit Committee charter, all audit and permitted non-audit services performed by EY in 2014 and 2015 were pre-approved by the Audit Committee.
The Audit Committees pre-approval procedures provide for pre-approval of specifically described audit, audit-related and tax services by the Audit Committee on an annual basis as long as the Audit Committee is informed of each service and the
services do not exceed certain pre-established thresholds. The procedures also authorize the Audit Committee to delegate to the Chairman of the Audit Committee pre-approval authorization with respect to audit and permitted non-audit services; any
such services that are approved by the Audit Committee Chairman must be ratified at the next regularly scheduled meeting of the Audit Committee. The Audit Committee has determined that the relatively small amount of non-audit services rendered by EY
(compared to both the overall amount of services rendered by EY to the Company and by EY to all of its customers) is compatible with maintaining EYs independence.
Tesoro
Corporation 2016 Proxy Statement 55
We own (directly and through our affiliates) approximately 36% of the interests in Tesoro Logistics LP (TLLP), including a 2% general partner interest held
by our wholly owned indirect subsidiary Tesoro Logistics GP, LLC (the general partner or TLGP). The general partner manages TLLPs operations and activities through its officers and directors. Messrs. Goff, Sterin and
Parrish serve as executive officers of both Tesoro Corporation and TLGP. Mr. Casey is an executive officer of Tesoro Corporation and also served as an executive officer of TLGP until the appointment of Don J. Sorensen as Vice President,
Operations, of TLGP in early 2015. In addition, Messrs. Goff, Goldman, Sterin and Wiley serve as directors of TLGP.
Distributions and Additional Equity Investment
TLLP makes cash distributions to its unitholders, including to
us as the direct and indirect holder of an aggregate 32,445,115 common units, as well as a 2% general partner interest. If distributions exceed the minimum quarterly distribution and other higher target distribution levels, the general partner is
entitled to increasing percentages of the distributions, up to 50% of the distributions above the highest target distribution level. During 2015, TLLP distributed approximately $80 million to us with respect to common and subordinated units and
approximately $68 million with respect to the general partner interest (including incentive distribution rights). Tesoro waived its right to $7.5 million of distributions related to incentive distribution rights paid in 2015 and an additional $2.5
million of incentive distribution rights declared in the first quarter of 2016.
In July 2015 TLLP acquired the remaining outstanding interests of QEP Midstream
Partners, LP (QEPM). Prior to this acquisition, we received distributions from QEPM of $19 million with respect to common and subordinated units and approximately $1 million with respect to the general partner interest (including
incentive distribution rights).
In November 2015, we invested an additional $250 million in TLLPs common units as part of the sale of certain logistics
assets on the U.S. West Coast. We received, through our subsidiaries, 4,263,367 common units and 269,067 general partner units as part of the transaction.
Purchase and Sale Transactions
On November 12, 2015, we entered into an agreement with TLLP pursuant to which TLLP acquired certain terminalling and pipeline assets (the 2015 Los Angeles
Refinery Storage and Handling Assets) owned by us and two of our subsidiaries, Tesoro Refining & Marketing Company LLC (TRMC) and Carson Cogeneration Company (the 2015 Los Angeles Refinery Storage and Handling Assets
Acquisition) in exchange for total consideration of approximately $500 million, comprised of approximately $250 million in cash, financed pursuant to a term loan, and the issuance of equity with a fair value of approximately $250 million.
The equity was comprised of 4,263,457 common units and 269,067 general partner units. We closed the acquisition effective November 12, 2015.
Commercial and Other Agreements
We have entered into various long-term, fee-based commercial agreements with TLLP under which TLLP provides various pipeline transportation, trucking, terminal
distribution and storage services to us, and we commit to provide TLLP with minimum monthly throughput volumes of crude oil and refined products. Except for our trucking transportation services agreements, the commercial agreements generally have
ten year initial terms. We believe the terms and conditions under these agreements, as well as our other agreements with TLLP described below, are generally no less favorable to either party than those that could have been negotiated with
unaffiliated parties with
Tesoro
Corporation 2016 Proxy Statement 56
respect to similar services. Descriptions of the services TLLP provides us under these commercial agreements and the approximate costs owed to TLLP under these categories of agreements in 2015
are as follows:
|
|
|
High Plains Pipeline Gathering and Trucking ($94 million, including $5 million of imbalance settlements paid to TLLP) a pipeline transportation services agreement for the gathering and transporting and crude oil
on TLLPs High Plains system, as well as a crude oil trucking transportation services agreement for trucking related services and storage at the Bakken Area Storage Hub; |
|
|
|
Terminalling Use, Services and Throughput ($316 million) agreements for berth access, terminal use and services, storage and throughput at TLLPs marine terminals, storage and marketing terminals and similar
facilities, including the Martinez Terminalling Agreement, the Nikiski Terminalling Agreement and the Anacortes Terminalling Agreement for terminalling and storage services; the Anacortes Storage Service Agreement for storage services; and the
Carson Storage Services Agreement for storage services in connection with the 2015 Los Angeles Refinery Storage and Handling Assets; |
|
|
|
Pipeline Transportation Services ($75 million) pipeline transportation services agreements for transporting crude oil, refined products and other commodities on TLLPs short-haul pipeline systems in Salt
Lake City and Los Angeles, as well as TLLPs pipeline system in the Los Angeles area and a regulated common carrier refined products pipeline system connecting our Kenai refinery to Anchorage; |
|
|
|
Anacortes Rail Facility ($25 million) a track use and throughput agreement in which we pay TLLP fees for transporting and offloading crude oil through TLLPs Anacortes, Washington rail unloading facility;
|
|
|
|
Carson Coke Lease and Handling ($4 million) agreements for TRMC to lease the land on which the petroleum coke handling and storage facility resides and for TLLP to provide us operational services related to the
operation of such facility; |
|
|
|
Keep-Whole Commodity Agreement ($96 million) TLLP processes gas for certain producers under keep-whole processing agreements. Under a keep-whole agreement, a producer transfers title to the natural
gas liquids (NGLs) produced during gas processing, and the processor, in exchange, delivers to the producer natural gas with a BTU content equivalent to the NGLs removed. The operating margin for these contracts is determined by the
spread between NGL sales prices and the price paid to purchase the replacement natural gas (Shrink Gas). TLLP entered into a five-year agreement with us, which transfers the commodity risk exposure associated with these
keep-whole processing agreements from TLLP to Tesoro (the Keep-Whole Commodity Agreement). Under the Keep-Whole Commodity Agreement, we pay TLLP a processing fee for NGLs related to keep-whole agreements and
deliver Shrink Gas to the producers on TLLPs behalf. TLLP pays us a marketing fee in exchange for assuming the commodity risk. Terms and pricing under this agreement are revised each year. The Keep-Whole Commodity Agreement minimizes the
impact on TLLP of commodity price movement during the annual period subsequent to renegotiation of terms and pricing each year. However, the annual fee TLLP charges us could be impacted as a result of any changes in the spread between the natural
gas liquids sales prices and the price of natural gas. |
TLLPs Northwest Products System is a FERC-regulated system and we do not have any
contractual agreements with TLLP related to the use of the system. However, TLLP charged us approximately $10 million in pipeline transportation tariffs with respect to the use of such system in 2015.
Omnibus Agreement
We are party to an
Omnibus Agreement (the Omnibus Agreement) with TLLP, TLGP, and various of our subsidiaries that addresses, among other things, the following matters:
|
|
|
TLLPs obligation to pay us an annual corporate services fee, currently in the amount of $9.3 million, for the provision by us of certain centralized corporate services, as well as its obligation to reimburse us
for all other direct or allocated costs and expenses incurred by us or our affiliates on TLLPs behalf; |
Tesoro
Corporation 2016 Proxy Statement 57
|
|
|
an agreement from us and our subsidiaries TRMC and Tesoro Alaska Company not to compete with TLLP under certain circumstances; |
|
|
|
TLLPs right of first offer to acquire certain logistics assets from us, and our subsidiaries TRMC and Tesoro Alaska Company LLC; |
|
|
|
the indemnification obligations of the parties for certain claims, losses and expenses attributable to certain environmental, title, tax and other liabilities relating to assets contributed by us and our subsidiaries to
TLLP; and |
|
|
|
the granting of a license from us to TLLP with respect to use of the Tesoro name and trademark. |
So long as we control
TLGP, the Omnibus Agreement will remain in full force and effect unless mutually terminated by the parties. We charged TLLP approximately $157 million pursuant to this agreement in 2015.
In addition, we reimburse TLLP for certain expenses, capital expenditures and deferred charges identified in the Omnibus Agreement related to assets included in
acquisitions from us. TLLP charged us $71 million to reimburse these costs during 2015 pursuant to the Omnibus Agreement.
Secondment
and Logistics Services Agreement
Our subsidiaries are party to a Secondment Agreement among TLGP, our subsidiaries, Tesoro Alaska Company LLC, TRMC
and Tesoro Companies, Inc. (Tesoro Alaska Company LLC, TRMC and Tesoro Companies, Inc. collectively the Tesoro Group) under which the Tesoro Group provides TLLP with certain operational services, such as communications, electricity,
software services, security, fire and safety, maintenance and certain environmental services. TLLP and its subsidiaries pay the Tesoro Group an annual service fee for services performed by certain of the Tesoro Groups field-level employees.
Additionally, employees of TLGP may be seconded to Tesoro to provide operational and maintenance services related to certain assets, for which Tesoro reimburses TLGP for the associated costs. We charged TLLP approximately $8 million pursuant to this
agreement during 2015, and TLLP charged us approximately $3 million.
Agreement for Construction of Anacortes Truck Rack
TLLP constructed a new gasoline and diesel truck rack at the site of the Anacortes terminal it acquired as part of its 2014 acquisition of west
coast logistics assets from TRMC. TLLP contracted with TRMC to act as general contractor for the project for a total price of $23 million. Because the project was not completed by the May 1, 2015 deadline, TLLPs payments were reduced by
$1 million. TLLP payments to Tesoro under this agreement were approximately $20 million during 2015 (including $17 million that was accrued by TLLP as of December 31, 2014). Additionally, TLLP recognized an equity contribution of $7
million from us related to our full construction cost of $30 million.
Carson Assets Indemnity Agreement
TLLP and TRMC entered into the Carson Assets Indemnity Agreement in connection with the December 2013 acquisition by TLLP of certain Los Angeles logistics assets. The
Carson Assets Indemnity Agreement established indemnification for certain matters including known and unknown environmental liabilities arising out of the use or operation of the Los Angeles Terminal Assets and the Los Angeles Logistics Assets prior
to the respective acquisition dates. The agreement also provides for reimbursement from TRMC to TLLP for repair and maintenance of the Los Angeles Terminal Assets and the Los Angeles Logistics Assets that are required to comply with current minimum
standards under certain regulations. During 2015, TRMC incurred approximately $1 million related to expenses that were reimbursable to TLLP.
Tesoro
Corporation 2016 Proxy Statement 58
First Amended and Restated Omnibus Agreement of QEP Midstream
QEPM amended and restated its omnibus agreement (QEPM Omnibus Agreement) upon the closing of TLLPs acquisition of the Rockies natural gas gathering
and processing business on December 2, 2014 to transfer all previous rights and obligations to TLLP and TLGP. Under the QEPM Omnibus Agreement, TLGP, together with TLLP, provided services to QEPM. Pursuant to the agreement, during 2015, TLGP
charged QEPM $7 million of which approximately $5 million was owed to TLLP. The Agreement was terminated in connection with the merger of QEPM and a subsidiary of TLLP in July 2015, resulting in QEPM becoming a wholly owned subsidiary of TLLP.
|
Stock Ownership Information |
Security Ownership by Directors and Executive Officers
The following table shows the beneficial ownership of our
common stock reported to us as of March 11, 2016, including shares as to which a vested right to acquire ownership exists within the meaning of Rule 13d-3(d)(1) under the Securities Exchange Act of 1934, as amended (the Exchange
Act) and shares credited to accounts under our Thrift Plan, for each director and nominee, the NEOs and our current directors and executive officers as a group.
|
|
|
Includes shares of unvested restricted stock. |
|
|
|
The ownership shown below Includes shares that the listed persons had the right to acquire through the exercise of stock options on March 11, 2016, or within 60 days thereafter, as well as restricted stock units
granted to non-employee directors that will vest or be distributed within 60 days of March 11, 2016. |
|
|
|
Units of phantom stock, payable in cash, which have been credited to the directors under the Board of Directors Deferred Compensation Plan and the Phantom Stock Plan are not included in the shares shown. Performance
shares and market stock unit awards granted to executive officers for performance periods ending December 31, 2015 and later are not included in the shares shown. |
|
|
|
Unless otherwise indicated, each person or member of the group listed has sole voting and investment power with respect to the shares of our common stock listed. |
|
|
|
As of March 11, 2016, there were 119,890,566 shares outstanding. |
|
|
|
No director, NEO or executive officer beneficially owns more than 1% of our common stock. |
Tesoro
Corporation 2016 Proxy Statement 59
|
|
|
|
|
|
|
|
|
Aggregate Number of Shares Beneficially Owned |
|
|
Additional Information |
Rodney F. Chase |
|
|
8,260 |
|
|
Includes 1,689 shares underlying restricted stock units |
Edward G. Galante |
|
|
10 |
|
|
|
Gregory J. Goff |
|
|
714,973 |
|
|
Includes 151,513 shares underlying stock options and 596 shares credited under the Tesoro Corporation Thrift Plan |
Robert W. Goldman |
|
|
50,332 |
|
|
Includes 15,000 shares underlying stock options, and 4,532 shares underlying restricted stock units |
David Lilley |
|
|
11,260 |
|
|
Includes 1,689 shares underlying restricted stock units |
Mary Pat McCarthy |
|
|
7,828 |
|
|
Includes 6,989 shares underlying restricted stock units |
J.W. Nokes |
|
|
36,326 |
|
|
Includes 19,000 shares underlying stock options, and 4,146 shares underlying restricted stock units |
Susan Tomasky |
|
|
5,600 |
|
|
Includes 1,689 shares underlying restricted stock units |
Michael E. Wiley |
|
|
37,787 |
|
|
Includes 9,000 shares underlying stock options, and 1,689 shares underlying restricted stock units |
Patrick Y. Yang |
|
|
1,474 |
|
|
|
Steven M. Sterin |
|
|
5,792 |
|
|
|
Keith M. Casey |
|
|
9,888 |
|
|
|
Cynthia J. Warner |
|
|
27,411 |
|
|
Restricted stock that remains subject to vesting requirements |
Charles S. Parrish |
|
|
124,811 |
|
|
|
All Directors and Executive Officers
(17 individuals) |
|
|
1,059,310 |
|
|
Represents less than 1% of the shares outstanding. |
Tesoro
Corporation 2016 Proxy Statement 60
Ownership of TLLP Common Units
The following table shows the beneficial ownership of our units of TLLP reported to us as of March 11, 2016, including units as to which a vested right to acquire
ownership exists within the meaning of Rule 13d-3(d)(1) under the Exchange Act, for each director and nominee, the NEOs and our current directors and officers as a group. Unless otherwise indicated, each person or member of the group listed has sole
voting and investment power with respect to the units listed. As of March 11, 2016, there were 93,633,156 common units outstanding (including 32,445,115 common units held by Tesoro Corporation and its affiliates). This table does not include
(1) the 1,900,515 general partner units held by Tesoro Logistics GP, LLC or (2) phantom units held by certain of our executive officers that do not vest within 60 days of March 11, 2016. None of our executive officers or directors
hold general partner units. No director, NEO or executive officer beneficially owns more than 1% of TLLPs common units. Furthermore, the current directors and executive officers as a group do not own more than 1% of TLLPs common units.
|
|
|
|
|
|
|
|
|
Aggregate Number of TLLP Common Units Beneficially Owned |
|
|
Additional Information |
Rodney F. Chase |
|
|
|
|
|
|
Edward G. Galante |
|
|
1,180 |
|
|
|
Gregory J. Goff |
|
|
85,785 |
|
|
|
Robert W. Goldman |
|
|
4,100 |
|
|
|
David Lilley |
|
|
|
|
|
|
Mary Pat McCarthy |
|
|
|
|
|
|
J.W. Nokes |
|
|
|
|
|
|
Susan Tomasky |
|
|
|
|
|
|
Michael E. Wiley |
|
|
|
|
|
|
Patrick Y. Yang |
|
|
|
|
|
|
Steven M. Sterin |
|
|
2,214 |
|
|
|
Keith M. Casey |
|
|
|
|
|
|
Charles S. Parrish |
|
|
13,428 |
|
|
|
Cynthia J. Warner |
|
|
|
|
|
|
All Directors and
Executive Officers
(17 individuals) |
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106,707 |
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Tesoro
Corporation 2016 Proxy Statement 61
Security Ownership by Certain Beneficial Owners
The following table sets forth information from filings made
with the SEC as to each person or group who as of December 31, 2015 (unless otherwise noted) beneficially owned more than 5% of the outstanding shares of our common stock.
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Amount and Nature
of Beneficial Ownership |
Name and Address of Beneficial Owner |
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Number of Shares
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Percent of Class (a) |
The Vanguard Group, Inc. (b) 100 Vanguard Blvd. Malvern, PA 19355 |
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11,525,297 |
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9.6% |
BlackRock, Inc. (c) 55 East 52nd
Street New York, NY 10055 |
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8,581,325 |
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7.2% |
State Street Corporation (d) State Street Financial Center One Lincoln
Street Boston, MA 02111 |
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8,454,377 |
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7.1% |
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(a) |
Based on the number of shares outstanding (119,890,566) on March 11, 2016, plus the number of shares acquirable by the specified person(s) within 60 days of March 11, 2016. |
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(b) |
According to Amendment No. 4 to Schedule 13G/A filed with the SEC on February 10, 2016, The Vanguard Group, Inc. has sole voting power with regard to 222,900 shares of our common stock, shared voting power
with regard to 11,900 shares of our common stock, sole investment power with regard to 11,288,002 shares of our common stock and shared investment power with regard to 237,295 shares of our common stock. |
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(c) |
According to Amendment No. 2 to Schedule 13G/A filed with the SEC on February 10, 2016, BlackRock, Inc. has sole voting power with regard to 7,255,977 shares of our common stock and sole investment power with
regard to 8,581,325 shares of our common stock. |
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(d) |
According to a Schedule 13G filed with the SEC on February 16, 2016, State Street Corporation and certain of its direct and indirect subsidiaries have shared voting power and shared investment power with regard to
8,454,377 shares of our common stock. |
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires
our directors, executive officers and holders of more than 10% of our voting stock to file with the SEC initial reports of ownership and reports of changes in ownership of our common stock or other equity securities. Based on a review of those forms
provided to us and any written representations, we believe that during the year ended December 31, 2015, our directors, executive officers and holders of more than 10% of our voting stock filed the required reports on a timely basis under
Section 16(a).
Tesoro
Corporation 2016 Proxy Statement 62
Proposal No. 1 Election of Directors
At the Annual Meeting, the stockholders are requested to elect
ten directors to hold office until the 2017 Annual Meeting of Stockholders or until their successors are elected and qualified. Each of the nominees has indicated his or her willingness to serve as a director, if elected, and we have no reason to
believe that any nominee will be unable to serve. The persons designated as proxies, however, reserve full discretion to cast votes for other persons in the event that any one or more of the nominees are unable to serve. Each of the director
nominees, except for Mr. Galante, who joined the Board in March 2016, is currently serving as a director after being elected at the 2015 Annual Meeting of Stockholders. Mr. Galante was recommended to the Governance Committee by a third
party search firm engaged by the Board.
We have adopted a majority voting standard in uncontested director elections. Our Bylaws prescribe the voting standard for
director elections as a majority of the votes cast in an uncontested election, such as this one, where the number of nominees does not exceed the number of directors to be elected. Under this standard, a nominee must receive more FOR
votes than AGAINST votes in order to be elected as a director. In a contested election, where the number of nominees exceeds the number of directors to be elected (which is not the case at the Annual Meeting), the directors will be
elected by the vote of a plurality of the votes cast on the election of directors. Under our Corporate Governance Guidelines, each nominee who already serves as a director submits an advance, contingent, irrevocable resignation that the Board may
accept if stockholders do not re-elect the director. In that situation, the Governance Committee will promptly consider the resignation offer and make a recommendation to the Board. The Board will then act on the Governance Committees
recommendation and will publicly disclose its decision regarding whether to accept the directors resignation offer, or, if applicable, the reason(s) for rejecting the resignation offer, within 90 days from the date of the certification of the
stockholder vote.
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Our Board of Directors recommends that you vote FOR the election to the Board of each of the following
nominees. |
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Rodney
F. Chase Age 72 Director since 2006
Former Energy Industry Executive
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Mr. Chase served as the Non-Executive Chairman of Genel Energy plc, an
international oil and gas exploration and production company, from 2011 until 2015, and Non-Executive Chairman of Computer Sciences Corporation, an information technology and professional services company, from 2012 until 2015. He previously served
as Non-Executive Chairman for Petrofac Ltd. in the United Kingdom, an international oil and gas services company, from 2005 until May 2011, and as Deputy Chairman of Tesco plc in the United Kingdom, an
international retailing company, until July 2010. Mr. Chase spent 39 years with BP plc, a large, international oil and gas company, holding positions within the upstream and downstream segments of the industry in Australia, Europe and North America.
His background includes positions in shipping, refining, marketing, distribution, oil trading and gas as well as finance and strategic planning at the corporate executive level. From 2003 to 2008, Mr. Chase served as Senior Advisor for the U.S. and
Europe for Lehman Brothers, Ltd., formerly an investment bank, in London, England.
Tesoro
Corporation 2016 Proxy Statement 63
Key Qualifications, Attributes, Skills and Experience:
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Board Leadership, Industry and Strategic Planning Experience -- 49 years of experience in the energy industry, including service as the former Non-Executive Chairman of an
international oil and gas services company (Petrofac) and a former executive of a large, international oil and gas company (BP) |
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Financial/Accounting Expertise -- Former Chief Executive Officer of BP Finance International and Group Treasurer and former senior advisor for Lehman Brothers
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Talent Management and Public Company Board Experience -- Computer Sciences Corporation, Tesco, Petrofac |
Other Current Directorships: Hess Corporation
Former Public Company Directorships: Computer Sciences Corporation (from
2012 until 2015), Genel Energy, plc (from 2011 until 2015), Nalco Holding Co. (from 2005 until 2011), Petrofac Ltd. (from 2005 until 2011) and Tesco plc (from 2002 until 2010)
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Edward
G. Galante Age 65 Director since 2016
Former Senior Vice President and Member of the
Management Committee of ExxonMobil Corporation |
Mr. Galante served as Senior Vice President and a member of the Management Committee of ExxonMobil Corporation from 2001 until his
retirement in 2006. Prior to that, he held various management positions of increasing responsibility during his more than 30 years with ExxonMobil Corporation, including serving as Executive Vice President of ExxonMobil Chemical Company from 1999 to
2001. Mr. Galante serves on the Boards of the United Way Foundation of Metropolitan Dallas and the United Way of Metropolitan Dallas, and is the Vice Chairman of the Board of Trustees of Northeastern University.
Key Qualifications, Attributes, Skills and Experience:
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Industry, Operations, Management, Leadership, Strategic Planning and Talent Management Experience -- over 30 years of experience in the oil, gas, refining and chemical sectors
of the energy industry, including service as a senior operating executive of ExxonMobil, one of the largest global energy companies, and as Chair of the Compensation and Management Committee of Praxair, Inc. |
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Risk Management Experience -- service on the Environmental, Health, Safety and Public Policy Committee of Celanese Corporation and the Technology, Safety, Sustainability
Committee and the Governance and Nominating Committee of Praxair, Inc. |
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Public Company Board Experience -- Celanese Corporation, Clean Harbors, Inc., Praxair, Inc. and Foster Wheeler AG |
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Financial/Accounting Expertise -- service on the Audit Committees of Celanese Corporation and Foster Wheeler AG |
Other Current Directorships: Celanese Corporation, Clean Harbors, Inc.,
Praxair, Inc.
Former Public Company Directorships: Foster
Wheeler AG (from 2008 until 2014)
Tesoro
Corporation 2016 Proxy Statement 64
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Gregory J.
Goff Age 59 Director since 2010
Chairman of the Board since December 31,
2014 Our Chairman, President
and Chief Executive Officer |
Mr. Goff has served as our President and Chief Executive Officer since May 2010 and as our Chairman since December 31, 2014. Since December 2011, Mr. Goff has
also served as Chairman of the Board of Directors and Chief Executive Officer of Tesoro Logistics GP, LLC, the general partner of Tesoro Logistics LP. Prior to joining us, Mr. Goff served as Senior Vice President, Commercial for ConocoPhillips
Corporation, an international, integrated energy company, from 2008 to 2010. Mr. Goff also held various other positions at ConocoPhillips from 1981 to 2008, including Managing Director and CEO of Conoco JET Nordic from 1998 to 2000; Chairman
and Managing Director of Conoco Limited, a UK-based refining and marketing affiliate, from 2000 to 2002; President of ConocoPhillips Europe and Asia Pacific downstream operations from 2002 to 2004; President of ConocoPhillips U.S. Lower 48 and Latin
America exploration and production business from 2004 to 2006; and President of ConocoPhillips specialty businesses and business development from 2006 to 2008. Mr. Goff serves as Chairman of the Board of the American Fuel and Petrochemical
Manufacturers trade association and on the National Advisory Board of the University of Utah Business School. Previously, Mr. Goff served on the board of Chevron Phillips Chemical Company and was a member of the upstream and downstream
committees of the American Petroleum Institute. In addition, Mr. Goff has public company experience from his prior service on the board of directors of DCP Midstream GP, LLC.
Key Qualifications, Attributes, Skills and Experience:
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President and CEO/Company Knowledge -- As our Chairman, President and CEO, Mr. Goff brings to the Board a deep understanding of and unique perspective on our business and
operations and the environment in which we operate. |
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Leadership, Industry and Strategic Planning Experience -- Current CEO of a large independent refining and petroleum products marketing company (Tesoro), current Chairman of a
national trade association representing refiners and petrochemical manufacturers (American Fuel and Petrochemical Manufacturers) and as a former senior executive of an international energy company (ConocoPhillips) and former member of the upstream
and downstream committees of a national oil and natural gas industry trade association (American Petroleum Institute) |
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Operations Experience -- 29 years of service in various positions with ConocoPhillips |
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Public Company Board Experience -- DCP Midstream and Polyone Corporation |
Other Current Directorships: Polyone Corporation, Tesoro Logistics GP, LLC, the general partner of Tesoro Logistics LP (a master limited partnership of which
Tesoro and its subsidiaries own approximately 36%)
Former Public Company Directorships: DCP Midstream GP, LLC (from 2008 until 2010), QEP Midstream Partners, LP (from 2014 until 2015)
Tesoro
Corporation 2016 Proxy Statement 65
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Robert W. Goldman Age 73 Director since 2004
Former Senior Vice President and Chief Financial
Officer of Conoco, Inc. |
Mr. Goldman has been an independent financial consultant since 2002. From July 1998 to October 2002, he was Senior Vice President and Chief Financial Officer of
Conoco Inc., an international, integrated energy company. Prior to joining Conoco in 1988 as its Vice President and Controller and subsequently serving as Senior Vice President, Finance, he worked for E.I. Du Pont de Nemours & Co., Inc. in
a variety of financial and operating roles. Mr. Goldman is a member of the Advisory Board of the Energy Policy Institute at Chicago. He also served on the Advisory Council of Nominating and Governance Chairs of the National Association of
Corporate Directors through 2013. He is a former chairman of the Accounting Committee of the American Petroleum Institute and former member of the Outside Advisory Council of Global Infrastructure Partners. He served as Vice President, Finance of
the London-based World Petroleum Council from 2002 to July 2008.
Key Qualifications, Attributes, Skills and Experience:
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Industry-Specific and Financial/Accounting Experience -- Financial consultant and former Senior Vice President and Chief Financial Officer of an international, integrated
energy company (Conoco), former chairman of the accounting committee at a national oil and natural gas industry trade association (American Petroleum Institute) and former finance executive of a global oil and gas forum (World Petroleum Council)
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Operations Experience -- E.I. Du Pont de Nemours & Co. |
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Public Company Board Experience -- El Paso Corporation, Parker Drilling Company, The Babcock & Wilcox Company and McDermott International |
Other Current Directorships: BWX Technologies, Inc., FRG Development
Company (a private equity company in Mexico City), Tesoro Logistics GP, LLC, the general partner of Tesoro Logistics LP (a master limited partnership of which Tesoro and its subsidiaries own approximately 36%)
Former Public Company Directorships: The Babcock & Wilcox Company
(from 2010 until 2014), El Paso Corporation (from 2003 until 2012), Gulf Indonesia Resources Ltd. (from 2000 until 2002), McDermott International Inc. (from 2005 until 2010), Parker Drilling Company (from 2005 until 2015)
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David
Lilley Age 69 Director since
2011
Former Chairman, President and Chief Executive Officer of Cytec Industries Inc.
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Mr. Lilley is a retired Chairman, President and Chief Executive Officer of Cytec Industries Inc., a multi-billion dollar
manufacturer of specialty chemicals and materials. He served as its Chairman from January 1999 through 2008 and as its President and Chief Executive Officer from May 1998 through 2008, having previously served as its President and
Tesoro
Corporation 2016 Proxy Statement 66
Chief Operating Officer from January 1997. From 1994 until January 1997, he was a vice president of American Home Products Corporation. Prior to that he was a vice president and a member of the
Executive Committee of American Cyanamid Company.
Key Qualifications, Attributes, Skills and Experience:
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Chemicals Industry, Management and Leadership Experience, Global Business Perspective, Operations Knowledge and Strategy Experience -- Over 29 years of experience in the
chemicals industry, including services as past Chairman and CEO of Cytec Industries |
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Risk Management Experience Mr. Lilleys leadership experience in a chemicals and manufacturing company and as a member of the Responsible Care Committee of the
American Chemistry Council is also important in light of the Boards oversight of our operations and adherence to safety and environmental requirements |
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Public Company Board Experience -- Rockwell Collins, Inc., Public Service Enterprise Group Incorporated, Arch Chemicals, Inc. and Cytec Industries Inc. |
Other Current Directorships: Rockwell Collins, Inc. and Public Service
Enterprise Group Incorporated
Former Public Company Directorships: Arch Chemicals, Inc. (from 2007 until October 2011)
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Mary Pat
McCarthy Age 60 Director since 2012
Former Vice Chairman of KPMG LLP
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Mary Pat McCarthy retired from her
position as Vice Chair of KPMG LLP, the U.S. member firm of the global audit, tax and advisory services firm, in 2011 after attaining such position in 1998. She joined KPMG LLP in 1977 and became a partner in 1987. She held numerous senior
leadership positions in the firm, including Executive Director of the KPMG Audit Committee Institute from 2008 to 2011, Leader of the KPMG Client Care Program from 2007 to 2008, U.S. Leader, Industries and Markets from 2005 to 2006, and Global
Leader, Information, Communication and Entertainment Practice from 1998 to 2004. Ms. McCarthy also served on the firms Management and Operations Committees. Ms. McCarthy is a member of the Risk Advisory Committee of the National
Association of Corporate Directors and also serves as a director of Mutual of Omaha, a mutual insurance company.
Key Qualifications,
Attributes, Skills and Experience:
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Financial/Accounting Experience -- Over 34 years of experience with KPMG, including services as the audit and executive partner to national and international clients
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Leadership and Talent Management Experience -- Service as Vice Chairman and in other leadership positions at KPMG; she also co-chaired the National Association of Corporate
Directors Blue Ribbon Commission on Talent Development A Boardroom Imperative |
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Strategy, Business Transformation, Audit Committee Effectiveness and Corporate Governance -- Author of multiple books on risk, strategy and business transformation, and a
frequent speaker on audit committee effectiveness and corporate governance at conferences, seminars and forums |
Other Current Directorships: Mutual of Omaha
Tesoro
Corporation 2016 Proxy Statement 67
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J. W. Nokes Age 69 Director since 2007
Former Executive Vice President of Worldwide Refining, Marketing, Supply and Transportation of
ConocoPhillips |
Mr. Nokes spent his 36-year career with ConocoPhillips, an international, integrated energy company, and retired in 2006 as Executive
Vice President of Worldwide Refining, Marketing, Supply and Transportation. His background primarily includes refining, marketing, crude and products trading, commercial natural gas operations and transportation. He also had assignments in
exploration and production, as well as strategic planning. In 1991, he was appointed Vice President of U.S. Marketing and Product Trading. From 1994 to 1999, he was Vice President of U.S. Downstream Business. For eight years beginning in 1999, he
was Executive Vice President of Refining, Marketing, Supply and Transportation for the companys global business. Mr. Nokes was a member of the World Business Council for Sustainable Development and sat on the Board of Directors of the
American Petroleum Institute, as well as the American Petroleum Institute Transportation, Marketing and Downstream Committee. Mr. Nokes is also a director of Post Oak Bank, N.A., a Houston-based community bank.
Key Qualifications, Attributes, Skills and Experience:
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Industry, Operations, International and Strategic Planning Experience -- 37 years of experience in the energy industry, including services as a former executive of an
international, integrated energy company (ConocoPhillips), former director of a national oil and natural gas industry trade association (American Petroleum Institute) and former member of a global association of business leaders that promotes
sustainable development (World Business Council for Sustainable Development) |
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Public Company Board Experience -- Albemarle Corporation |
Other Current Directorships: Albemarle Corporation (Non-Executive Chairman) and Post Oak Bank, N.A.
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Susan
Tomasky Age 62 Director since 2011
Lead Director since December 31, 2014
Former President of AEP Transmission, a business
division of American Electric Power Co. |
Ms. Tomasky served as President of AEP Transmission, a business division of American Electric Power Co., Inc., an owner and operator of utility operating companies
that produce, transmit and distribute electricity to over 5 million customers at retail in 11 states, from 2008 until July 2011. Ms. Tomasky previously served in other executive officer positions at American Electric Power Co., including
Executive Vice President and General Counsel from 1998 to 2001, Executive Vice President of Finance and Chief Financial Officer from 2001 to 2006 and Executive Vice President of Shared Services from 2006 to 2008. Prior to joining American Electric
Power Co., Ms. Tomasky served as a partner at the law firm of Hogan & Hartson (now Hogan Lovells), where she was a member of the firms energy group, and as General Counsel of the Federal Energy Regulatory Commission.
Ms. Tomasky is a director of several private and
Tesoro
Corporation 2016 Proxy Statement 68
non-profit organizations. She previously served as a director of the Federal Reserve Bank of Cleveland, a member bank in the Federal Reserve System.
Key Qualifications, Attributes, Skills and Experience:
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Leadership and Strategic Planning Experience -- Former President of a division of a large, public utility company (American Electric Power Co.) |
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Financial and Accounting Experience -- Chair of the Audit Committee of the Federal Reserve Bank of Cleveland and former Executive Vice President and Chief Financial Officer of
a large, public energy company (American Electric Power Co.) |
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Government and Regulatory Experience and Legal Experience -- Former roles as a partner in the energy group of an international law firm (Hogan & Hartson) and as
General Counsel of a federal government agency that regulates the energy industry (Federal Energy Regulatory Commission) |
Other Current Directorships: Public Service Enterprise Group Incorporated and Summit Midstream Partners, LP
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Michael
E. Wiley Age 65 Director since
2005 Former Chairman of the Board, President and Chief Executive Officer of Baker Hughes Incorporated
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Mr. Wiley has over 40 years of
experience in the energy industry. Most recently he served as Chairman of the Board, President and Chief Executive Officer of Baker Hughes Incorporated, an oilfield services company, from August 2000 until his retirement in October 2004. He was
President and Chief Operating Officer of Atlantic Richfield Company, an integrated energy company, from 1998 through May 2000. Prior to 1998, he served as Chairman, President and Chief Executive Officer of Vastar Resources, Inc., an independent oil
and gas company. Mr. Wiley is a director of Bill Barrett Corporation, an independent oil and gas company, and Post Oak Bank, N.A., a Houston-based community bank. He also serves as Chairman of Independent Trustees of Fidelity Sector Portfolios.
Key Qualifications, Attributes, Skills and Experience:
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Board leadership, Industry, Operations, Strategic Planning, Risk Management, and Talent Management Experience -- Former Chairman, President and Chief Executive Officer of an
oilfield services company (Baker Hughes Incorporated), former executive of an integrated energy company (Atlantic Richfield Company) and an independent exploration and production company (Vastar Resources, Inc.) and director of a privately held oil
and gas company (Asia Pacific Exploration Consolidated) |
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Public Company Board Experience -- Baker Hughes Incorporated, Bill Barrett Corporation and Spinnaker Exploration Company |
Other Current Directorships: Bill Barrett Corporation, Post Oak Bank,
N.A., Tesoro Logistics GP, LLC, the general partner of Tesoro Logistics LP (a master limited partnership of which Tesoro and its subsidiaries own approximately 36%)
Tesoro
Corporation 2016 Proxy Statement 69
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Patrick
Y. Yang Age 68 Director since
2010 Former Head of Global Technical Operations of F. Hoffmann-La Roche, Ltd.
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Mr. Yang has over 30 years of
experience in manufacturing and technology. From January 2010 to March 2013, Mr. Yang served as Head of Global Pharmaceutical Technical Operations for F. Hoffmann-La Roche Ltd., which operates in the pharmaceutical and diagnostics industry and
sells products in more than 150 countries. Mr. Yang joined Roche in March 2009, upon Roches merger with Genentech, Inc., and was responsible for the companys pharmaceutical manufacturing, process development, engineering, quality,
regulatory, supply chain and procurement functions. Before joining Roche, Mr. Yang served as Executive Vice President, Product Operations of Genentech, a biotechnology company, from December 2005 to December 2009 and in various other
executive-level positions with Genentech from December 2003 to December 2005. Prior to joining Genentech, Mr. Yang worked for Merck & Co. from 1992 to 2003 in manufacturing and for General Electric from 1980 to 1992 in manufacturing
and technology. Since 2015, Mr. Yang has served as President and CEO of Aspen Sciences, LLC, which provides investment and consulting services to the biotech and pharmaceutical industry. He previously provided such services through
Patrick Y. Yang, LLC.
Key Qualifications, Attributes, Skills and Experience:
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Leadership, Operations, Strategic Planning, International, and Talent Management Experience -- Former senior operations executive of a large, global pharmaceutical company (F.
Hoffmann-La Roche) and a former senior operations executive of a biotechnology company (Genentech) |
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Operations Experience -- Over 20 years spent working in manufacturing (Merck and General Electric) |
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Financial/Accounting and Risk Management Experience -- Service on Genentechs executive committee from 2004 until 2009 |
Other Current Directorships: Codexis, Inc., Amyris, Inc. and Pharma
Essentia Corporation
Former Public Company Directorships:
Celladon Corporation (from 2014 until 2015)
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Our Board of Directors recommends that you vote
FOR the election to the Board of each of the foregoing nominees. |
Proposal No. 2 Advisory Vote to Approve Our Named Executive Officers Compensation
At our 2011 Annual Meeting of Stockholders, our stockholders
voted on, among other matters, a proposal regarding the frequency of future stockholder advisory votes on the compensation of our named executive officers (Say-on-Pay Votes). More than a majority of the votes cast on the frequency
proposal were cast in favor of holding an annual Say-on-Pay Vote, as was recommended by the Board of Directors. In light of this result and other factors, the Board determined that Tesoro hold annual Say-on-Pay Votes until the next advisory vote on
the frequency of Say-on-Pay Votes, which will occur no later than our 2017 Annual Meeting of Stockholders.
Tesoro
Corporation 2016 Proxy Statement 70
At our 2015 Annual Meeting of Stockholders, our stockholders also provided an advisory vote to approve the compensation of
our named executive officers disclosed in our 2015 proxy statement. Stockholders expressed substantial support for the compensation of our named executive officers, with approximately 93% of the votes cast voting in favor of the proposal. In
accordance with Section 14A of the Securities Exchange Act of 1934, as amended, we are now asking stockholders to approve, on an advisory basis, the compensation of our named executive officers disclosed in the Compensation Discussion and
Analysis, the Summary Compensation Table and the related compensation tables, notes and narrative in this 2016 Proxy Statement. As described above in the Compensation Discussion and Analysis, the Compensation Committee has structured our executive
compensation programs to achieve the following key objectives:
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Reward leaders for delivery of outstanding business results and driving a performance-oriented culture; |
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Promote and sustain exceptional performance over time to generate long-term growth in stockholder value; and |
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Lead in accordance with our guiding principles, which are core values, exceptional people, shared purpose, powerful collaboration and superior execution. |
Our named executive officer compensation decisions in 2015 reflect these objectives. For example, we directly aligned our annual and long-term incentive compensation
programs with our strategic priorities by featuring specific performance measures that support strengthening our financial position and capturing value-driven growth, as targeted in our multi-year business plan. Our operating performance and the
Compensation Committees decisions regarding special items provided each of our NEOs between 149% and 155% of target. We achieved maximum performance levels for personal safety, process safety management, environmental, cost management and
business improvement criteria, and near-target performance levels for margin-neutral EBITDA. In addition, certain adjustments were made to incentive awards for select NEOs to recognize individual performance.
In addition, we made our annual grants of long-term incentive awards to our named executive officers in February 2015. These grants focused solely on performance awards
and no service-based restricted stock or stock options were included in the annual grants. The Compensation Committee believes the actions described above clearly demonstrate our commitment to implementing and executing results-oriented compensation
programs that are market-competitive and reflect good corporate governance practices.
We urge stockholders to read the Compensation Discussion and Analysis
beginning on page 20 of this Proxy Statement, which describes in more detail how our executive compensation programs operate and are designed to achieve our compensation objectives, as well as the Summary Compensation Table and other related
compensation tables and narrative, appearing beginning on page 39, which provide detailed information on the compensation of our named executive officers. The Compensation Committee and the Board of Directors believe that the programs articulated in
the Compensation Discussion and Analysis are effective in achieving our goals and that the compensation of our named executive officers reported in this Proxy Statement will contribute to our long-term success.
This advisory Say-on-Pay Vote is non-binding on the Board of Directors. Although non-binding, the Board and the Compensation Committee will review and consider the
voting results when making future decisions regarding our executive compensation programs.
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Our Board of Directors recommends that you vote
FOR the approval of the compensation paid to our named executive officers disclosed in the Compensation Discussion and Analysis, the Summary Compensation Table and the related compensation
tables, notes and narrative in this Proxy Statement. |
Tesoro
Corporation 2016 Proxy Statement 71
Proposal No. 3 Ratification of the Appointment of
Ernst & Young LLP as Independent Registered Public Accounting Firm
The Audit Committee has selected Ernst & Young LLP to serve as our independent registered public accounting firm for the fiscal year ending December 31,
2016. See Audit-Related Matters Audit Committee Report for additional detail regarding the process used for this selection. Although stockholder ratification is not required, the Board has directed that such appointment be
submitted to our stockholders for ratification at the Annual Meeting as a matter of good corporate governance. If the stockholders do not ratify the selection, the Audit Committee will reconsider whether to retain Ernst & Young LLP. Even if
the selection is ratified, the Audit Committee in its discretion may select a different independent registered public accounting firm at any time during the year if it determines that such a change would be in the best interests of us and our
stockholders. Representatives of Ernst & Young LLP are expected to be present at the Annual Meeting and will have an opportunity to make a statement if they desire to do so and are expected to be available to respond to appropriate
questions.
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Our Board of Directors recommends that you vote
FOR the ratification of the selection of Ernst & Young LLP as our independent registered public accounting firm for the fiscal year ending December 31,
2016. |
Proposal No. 4 Stockholder Proposal Regarding a Lobbying
Report
The following stockholder proposal will
be voted on at the 2016 Annual Meeting only if properly presented by or on behalf of the stockholder proponent. The name, address and shareholdings of the stockholder proponent will be supplied promptly upon oral or written request.
Proposal
Whereas, we believe in full
disclosure of our companys direct and indirect lobbying activities and expenditures to assess whether our companys lobbying is consistent with Tesoro Corporations (Tesoro) expressed goals and in the best
interests of shareholders.
Resolved, the shareholders of Tesoro request the preparation of a report, updated annually, disclosing:
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1. |
Company policy and procedures governing lobbying, both direct and indirect, and grassroots lobbying communications. |
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2. |
Payments by Tesoro used for (a) direct or indirect lobbying or (b) grassroots lobbying communications, in each case including the amount of the payment and the recipient. |
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3. |
Tesoros membership in and payments to any tax-exempt organization that writes and endorses model legislation. |
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4. |
Description of managements and the Boards decision making process and oversight for making payments described in sections 2 and 3 above. |
For purposes of this proposal, a grassroots lobbying communication is a communication directed to the general public that (a) refers to specific
legislation or regulation, (b) reflects a view on the legislation or regulation and (c) encourages the recipient of the communication to take action with respect to the legislation or regulation. Indirect lobbying is lobbying
engaged in by a trade association or other organization of which Tesoro is a member.
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Corporation 2016 Proxy Statement 72
Both direct and indirect lobbying and grassroots lobbying communications include efforts at the local, state and federal levels. The report shall be presented to the Audit
Committee of the Board or other relevant oversight committees of the Board and posted on the companys website.
Supporting Statement
As shareholders, we encourage transparency and accountability in Tesoros use of corporate funds to influence legislation and regulation. Tesoro
spent $1.3 million in 2014 and $1.4 million in 2013 on federal lobbying according to the Center for Responsive Politics website http://www.opensecrets.org/.
These figures do not include lobbying expenditures to influence legislation in states, where Tesoro also lobbies. For example, Tesoro spent $579,886 on lobbing in
California between 2013 and 2014 according to the California Secretary of States website http://cal-access.ss.ca.gov/.
Tesoro discloses on its website
the dollar amounts that it contributes in dues to trade associations when it contributes more than $50,000 in non-tax exempt dues. These non-tax exempt dues may be used for advocacy and grassroots communications. However, shareholders have no way to
know if Tesoro is making additional payments to trade associations beyond these disclosed amounts.
Finally, Tesoro has not disclosed if it has membership in or
contributions to tax-exempt organizations that write and endorse model legislation, such as the American Legislative Exchange Council (ALEC). More than 100 companies have publicly left ALEC, including BP, ConocoPhillips, Occidental Petroleum and
Shell.
Transparent reporting of all lobbying activity will reveal whether company assets are being used for objectives contrary to Tesoros long-term
interests. For these reasons, we urge you to vote FOR this proposal.
Board of Directors Response
We share the proponents strong belief in transparency and accountability, which is why even before we received this proposal we voluntarily provided substantial
disclosure on our website of our annual political expenditures and lobbying activities.
Engaging in public policy discussions creates value for stockholders and
helps policymakers reach informed decisions. As an industry leader, we believe it is both important and appropriate to communicate with lawmakers and regulators about the interests of our Company, our employees, our stockholders, and the
communities in which we operate. Tesoro operates in a highly regulated and often politicized environment in which experienced industry voices are essential to thoughtful debate. We seek to support policy makers in ensuring that energy policies are
well-considered and reflect all available information. Some of the policy-related issues on which we focus and advocate include refinery safety, fuel standards, environmental issues and climate change, corporate tax reform, and energy
infrastructure. We believe that these efforts create value for our stockholders, while benefiting the public.
We already provide substantial political
disclosure. We invite you to visit the Advocacy and Public Policy portion of our website at http://tsocorp.com/social-responsibility/advocacy-and-public-policy/ where you will find:
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lobbying disclosures filed with the U.S. Congress and various state agencies, |
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our aggregate political contributions, |
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the aggregate political contributions from our employee-funded political action committee, |
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the name and the amount of each candidate or campaign to which we contributed, |
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a discussion of key independent expenditures, and |
Tesoro
Corporation 2016 Proxy Statement 73
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an itemized list of our membership dues to our major trade associations to whom we pay annual non-tax exempt membership dues over $50,000, including both the total dues paid and the non-tax exempt portion of our total
dues for each organization. |
We also work to keep employees and stakeholders informed about public policy matters of interest to us through our
www.ActTesoro.com website. The site provides information on current industry issues and facilitates outreach to elected representatives.
Our political activity
disclosures surpass the disclosures required by state and federal law. In 2015, the Center for Political Accountability Zicklin Index of Corporate Political Disclosure and Accountability ranked our political disclosure in the top tier of reviewed
companies. Our board believes that our current disclosures regarding lobbying and political contribution practices, procedures and expenditures strike an appropriate balance between transparency and cost. In contrast, we believe that the
implementation of the proposals additional requirements would result in the unproductive consumption of valuable time and corporate resources tracking insignificant activities without materially enhancing existing disclosures or benefitting a
substantial number of our stockholders.
Our political activity is already subject to robust oversight. Our political activity is directly overseen by the
Governance Committee of the Board of Directors, our external policy committee, and our executive management team. We formulate our policy positions in a manner consistent with our Public Policy Principles, which are posted on our website. We also
formulate our positions based on the principle of Shared Value, which considers viewpoints that are good for the environment, the community and our business. Our external policy committee provides guidance and direction in the development of these
policy and advocacy plans, which are then subject to oversight by our Board of Directors.
Our PAC and corporate political contributions are also subject to
oversight requirements. Even de minimis political contributions to candidates and campaigns must be approved by the Vice President, Corporate Affairs. Political contributions of over $25,000 to candidates, and those over $100,000 to other
campaigns and entities, must be approved by our Chief Executive Officer, our General Counsel, and the Governance Committee of our Board of Directors.
Membership
in industry organizations and trade associations is valuable to our business. We participate in and contribute to select industry organizations, including those that engage in regulatory activities, lobbying activities and public education, for
a variety of reasons, including monitoring industry policies and trends; educating key stakeholders; advancing the technical expertise of our industry; providing our employees with developmental and professional opportunities; and promoting civic
participation. On an annual basis, we update our website to list the organizations to whom we pay non-tax exempt dues of over $50,000; this is a small number of organizations, none of which are primarily focused on drafting model legislation. Many
of the smaller organizations we belong to include local chambers of commerce, civic associations and economic development councils that enhance our focus on Shared Value with the communities in which we operate. While we may advise these
associations of our views on particular subjects, they are independent organizations that represent the interests of all their members, who may have divergent views and interests. Because the proponents supporting statement specifically
references the American Legislative Exchange Council (ALEC), we hereby confirm that Tesoro is not a member of, and has not made any contributions to, ALEC.
Tesoro
Corporation 2016 Proxy Statement 74
For the reasons set forth above, our Board believes that the requirements in this proposal are an unproductive and
burdensome use of our resources and are not in the best interests of our stockholders.
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Our Board of Directors recommends that you vote AGAINST the Stockholder Proposal regarding a Lobbying
Report |
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2017 Stockholder Proposals |
For inclusion in our 2017 Proxy Statement:
For a stockholder proposal to be considered for inclusion in our proxy statement for the 2017 Annual Meeting of Stockholders pursuant to SEC Rule 14a-8, the
Corporate Secretary must receive the written proposal at our principal executive offices no later than the close of business on November 22, 2016. Such proposals also must comply with the requirements of Rule 14a-8. Proposals should be
addressed to:
Corporate Secretary
Tesoro
Corporation
19100 Ridgewood Parkway
San Antonio,
Texas 78259
For Director Nominations, as well as Stockholder Proposals that are Not Submitted for Inclusion in the Proxy Statement:
Our Bylaws also establish an advance notice procedure with regard to director nominations and stockholder proposals that are not submitted for
inclusion in the proxy statement but that a stockholder instead wishes to present directly at an annual meeting. Under our Bylaws, notice of such nomination or stockholder proposal for the 2017 Annual Meeting of Stockholders must be delivered to the
Corporate Secretary at the above address:
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Not earlier than the close of business on January 3, 2017, and |
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Not later than the close of business on February 2, 2017. |
If the date of the annual meeting is more than 30 days
before or more than 60 days after the anniversary of our annual meeting for the prior year, then the notice of a nomination or stockholder proposal must be delivered no earlier than the close of business on the 120th day prior to the meeting and not
later than the close of business on the later of the 90th day prior to the meeting or, if the first public announcement of the date of such annual meeting is less than 100 days prior to the date of such meeting, the 10th day after the first public
announcement of the meeting date.
All nominations and stockholder proposals submitted under our Bylaws must comply with the requirements of the Bylaws. You may
contact the Corporate Secretary at the address listed above for a copy of the relevant Bylaw provisions. The presiding officer of the Annual Meeting may refuse to acknowledge or introduce any such matter if notice of the matter is not received
within the applicable deadlines or does not comply with our Bylaws. If a stockholder does not meet these deadlines, or does not satisfy the requirements of Rule 14a-4 of the Exchange Act, the persons named as proxies will be allowed to use their
discretionary voting authority when and if the matter is raised at the Annual Meeting.
Tesoro
Corporation 2016 Proxy Statement 75
TESORO CORPORATION
ANNUAL MEETING OF TESORO CORPORATION
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May 3, 2016 |
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8:00 A.M. (Central Time) |
Place: |
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Tesoro Corporation, 19100 Ridgewood Parkway, San
Antonio, Texas 78259 |
Please make your marks like this: x Use
dark black pencil or pen only
Board of Directors Recommends a Vote FOR proposals 1, 2 and 3,
and against proposal 4.
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1: |
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Election of 10 directors (all nominated as directors to serve for the term indicated in the Proxy Statement): |
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Abstain |
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Directors
Recommend ê |
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Rodney F. Chase |
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Edward G. Galante |
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Gregory J. Goff |
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Robert W. Goldman |
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David Lilley |
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Mary Pat McCarthy |
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J.W. Nokes |
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Susan Tomasky |
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Michael E. Wiley |
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Patrick Y. Yang |
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Abstain |
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To approve our named executive officers compensation in an advisory vote; |
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To ratify the appointment of Ernst & Young LLP as our independent registered public accounting firm for fiscal year 2016; |
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On the stockholder proposal set forth in the proxy statement, if properly presented at the annual meeting. |
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To attend the meeting and vote your shares in person, please mark this box. |
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Authorized Signatures - This section must be completed for your Instructions to be executed. |
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Please Sign Here |
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Please Date Above |
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Please Sign Here |
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Please Date Above |
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Please sign exactly as your name(s) appears on your
stock certificate. If held in joint tenancy, all persons should sign. Trustees, administrators, etc., should include title and authority. Corporations should provide full name of corporation and title of authorized officer signing the
proxy. |
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TESORO CORPORATION
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Annual Meeting of Tesoro Corporation |
to be held on Tuesday, May 3, 2016 |
for Holders as of March 11, 2016 |
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INTERNET |
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VOTE BY: |
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TELEPHONE |
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Go To |
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866-390-9971 |
www.proxypush.com/tso |
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Use any touch-tone telephone. |
Cast your vote online.
View Meeting Documents. |
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Have your Proxy Card/Voting Instruction Form
ready. |
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Follow the simple recorded instructions. |
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MAIL |
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Mark, sign and date your Proxy Card/Voting
Instruction Form. |
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Detach your Proxy Card/Voting Instruction Form. |
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Return your Proxy Card/Voting Instruction Form in the
postage-paid envelope provided. |
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THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED IN THE MANNER DIRECTED BY THE UNDERSIGNED STOCKHOLDER OR, IF NO DIRECTION IS
GIVEN, SHARES WILL BE VOTED FOR THE ELECTION OF THE DIRECTORS IN ITEM 1, FOR THE PROPOSALS IN ITEMS 2 AND 3, AND AGAINST PROPOSAL 4.
All votes must be received by 11:59 P.M., Eastern Time, May 2, 2016. |
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PROXY TABULATOR
FOR |
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TESORO CORPORATION |
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P.O. BOX
8016 CARY, NC
27512-9903 |
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Revocable Proxy Tesoro Corporation
Annual Meeting of Stockholders May 3, 2016, 8:00
A.M. (Central Time) This Proxy is Solicited on Behalf of the Board of Directors
The undersigned hereby appoints CARRIE P. RYAN and D. JEFFREY HAFFNER, and each of them,
as proxies of the undersigned, each with full power to act without the other and with full power of substitution, to vote all the shares of Common Stock of Tesoro Corporation (the Company) which the undersigned is entitled to vote at the
Annual Meeting of Stockholders to be held at Tesoro Corporation, 19100 Ridgewood Parkway, San Antonio, Texas 78259 on Tuesday, May 3, 2016, @ 8:00 A.M. Central time, and at any adjournment or postponement thereof, with all the powers the
undersigned would have if personally present, upon the matters set forth in the Notice of such meeting and in their discretion upon such other matters as may properly come before the meeting.
(TO BE SIGNED ON REVERSE SIDE) |
TESORO CORPORATION
Tesoro Corporation Thrift Plan
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Date: |
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May 3, 2016 |
Time: |
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8:00 A.M. (Central Time) |
Place: |
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Tesoro Corporation, 19100 Ridgewood Parkway,
San Antonio, Texas 78259 |
Please make your marks like this: x Use
dark black pencil or pen only
Board of Directors Recommends a Vote FOR proposals 1, 2, and 3, and against proposal 4.
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1: |
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Election of 10 directors (all nominated as directors to serve for the term indicated in the Proxy Statement): |
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For |
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Against |
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Abstain |
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Directors
Recommend ê |
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01 |
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Rodney F. Chase |
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For |
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02 |
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Edward G. Galante |
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For |
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03 |
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Gregory J. Goff |
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For |
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04 |
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Robert W. Goldman |
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For |
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05 |
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David Lilley |
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For |
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06 |
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Mary Pat McCarthy |
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For |
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07 |
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J.W. Nokes |
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For |
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08 |
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Susan Tomasky |
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For |
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09 |
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Michael E. Wiley |
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For |
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10 |
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Patrick Y. Yang |
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For |
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For |
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Against |
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Abstain |
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2: |
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To approve our named executive officers compensation in an advisory vote; |
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For |
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3: |
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To ratify the appointment of Ernst & Young LLP as our independent registered public accounting firm for fiscal year 2016; |
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For |
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4: |
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On the stockholder proposal set forth in the proxy statement, if properly presented at the annual meeting. |
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Against |
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To attend the meeting and vote your shares in person, please mark this box. |
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Authorized Signatures - This section must be completed for your Instructions to be executed. |
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Please Sign Here |
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Please Date Above |
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Please Sign Here |
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Please Date Above |
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Please sign exactly as your name(s) appears on your
stock certificate. If held in joint tenancy, all persons should sign. Trustees, administrators, etc., should include title and authority. Corporations should provide full name of corporation and title of authorized officer signing the
proxy. |
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TESORO CORPORATION
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Tesoro Corporation Thrift Plan
Annual Meeting of Tesoro Corporation |
to be held on Tuesday, May 3, 2016 |
for Holders as of March 11, 2016 |
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INTERNET |
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VOTE BY: |
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TELEPHONE |
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Go To |
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866-390-9971 |
www.proxypush.com/tso |
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Use any touch-tone telephone. |
Cast your vote online.
View Meeting Documents. |
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OR |
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Have your Proxy Card/Voting Instruction Form ready. |
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Follow the simple recorded instructions. |
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MAIL |
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OR |
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Mark, sign and date your Proxy Card/Voting Instruction Form. |
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Detach your Proxy Card/Voting Instruction Form. |
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Return your Proxy Card/Voting Instruction Form in the postage-paid envelope
provided. |
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THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED IN THE MANNER DIRECTED BY THE UNDERSIGNED STOCKHOLDER OR, IF NO DIRECTION IS
GIVEN, SHARES WILL NOT BE VOTED. All votes must be received by
11:59 P.M., Eastern Time, April 28, 2016. |
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PROXY TABULATOR
FOR |
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TESORO CORPORATION |
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P.O. BOX
8016 CARY, NC
27512-9903 |
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Revocable Proxy Tesoro Corporation
Annual Meeting of Stockholders
May 3, 2016, 8:00 A.M.
(Central Time)
This Proxy is Solicited on Behalf of the Board of Directors
The undersigned participant in the TESORO CORPORATION THRIFT PLAN (the Plan) hereby acknowledges receipt of the Notice of 2016 Annual Stockholders
Meeting to be held at Tesoro Corporation, 19100 Ridgewood Parkway, San Antonio, Texas 78259, on Tuesday, May 3, 2016 @ 8:00 A.M. Central time, and directs Fidelity Management Trust Company Trustee, to vote (or cause to be voted) all shares of Common
Stock (or share equivalents) of Tesoro Corporation (the Company) allocated to the undersigneds account under the Plan(s) and held in the Trustees name at the close of business on March 11, 2016, at said meeting and at any
adjournment or postponement thereof. Said Trustee is authorized to vote in accordance with the instructions given herein and in its discretion upon such other matters as may properly come before the meeting.
(TO BE SIGNED ON REVERSE SIDE)
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