UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
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(Amendment No. )
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 Audio Webcast
Audio Webcast
May 14, 2014
1:00 p.m. CT
Before you cast your vote on
Management Resolution Item 3 –
Advisory Vote to Approve Executive
Compensation,
please
review
the
Executive Compensation Overview, as
well as the more detailed information
included in the Compensation
Discussion and Analysis, compensation
tables, and narrative in ExxonMobil’s
2014 Proxy Statement. |
 1
Good afternoon and welcome to today’s webinar to discuss ExxonMobil’s executive
compensation program. This webinar is part of a broad shareholder outreach effort at
the direction of the Compensation Committee of the Board of Directors. Randy and
I would like to thank you for the opportunity to discuss this important topic and we appreciate you taking the time to
participate this afternoon.
We expect our prepared comments to take about 40 minutes, leaving the balance of our time
today for questions and answers. Please feel free to submit your questions via
the Internet at any time during the session. Before
you
cast
your
vote
on
Management
Resolution
Item
3
–
Advisory
Vote
to
Approve
Executive
Compensation,
please
review
the
Executive Compensation Overview, as well as the more detailed information included in the
Compensation Discussion and Analysis, compensation tables, and narrative in
ExxonMobil’s 2014 Proxy Statement. •
•
•
•
• |
 EXXONMOBIL
2014
EXECUTIVE
COMPENSATION
OVERVIEW
WEBINAR
2
Forward-Looking
Statements
Statements
regarding
future
events
or
conditions
are
forward-looking
statements.
Actual
future
results,
including
project
plans,
schedules,
and
results,
as
well
as
the
impact
of compensation incentives, could differ materially due to changes in oil and gas prices and
other factors affecting our industry, technical or operating conditions, and other
factors
described
under
the
heading
“Factors
Affecting
Future
Results”
in our
most
recent
Form
10-K
and
on
the
“Investors”
page at
our
website
at
exxonmobil.com.
Financial and Operating Terms
This presentation includes certain non-GAAP financial measures, including Return on Average
Capital Employed, Free Cash Flow, and Cash from Operations and Asset Sales.
For
definitions
of
and
additional
information
concerning
these
terms,
including
information
required
by
SEC
Regulation
G,
see
the
“Frequently
Used
Terms”
on
the
“Investors”
page of our website at exxonmobil.com. References in this report to oil-equivalent
barrels, resources, and similar terms may include quantities of oil and gas that are not
yet classified as proved reserves under SEC definitions but that we believe will ultimately be developed and moved into the proved reserve category. The term
“project”
as used in this presentation may refer to a variety of different activities and does not
necessarily have the same meaning as under any government payment transparency
reports. Compensation-Related Terms
Reported
Pay
is
Total
Compensation
reported
in
the
Summary
Compensation
Table,
except
for
years
2006
to
2008,
where
the
grant
date
value
of
restricted
stock
as
provided
under
current
SEC
rules
is
used
to
put
all
years
of
compensation on the
same
basis.
Realized
Pay
is
compensation
actually
received
by
the
CEO
during
the
year,
including
salary,
current
bonus,
payouts
of
previously
granted
Earnings
Bonus
Units
(EBU),
net
spread
on
stock
option
exercises,
market
value
at
vesting
of
previously
granted
stock-based
awards,
and
All
Other
Compensation
amounts
realized
during the
year.
It
excludes
unvested
grants,
change
in
pension
value,
and
other
amounts
that
will
not
actually
be
received
until
a
future
date.
Amounts
for
other
companies
include
salary,
bonus,
payouts
of non-equity incentive plan compensation, and All Other Compensation as reported in the
Summary Compensation Table, plus value realized on option exercise or stock vesting as
reported in the Option Exercises and Stock Vested table. It excludes unvested grants, change in pension value, and other amounts that will not actually be received
until a future date, as well as any retirement-related payouts from pension or nonqualified
compensation plans. Unrealized
Pay
includes
the
value
based
on
each
compensation
benchmark
company’s
closing
stock
price
at
fiscal
year-end
2013
of:
unvested
restricted
stock
awards;
unvested
long-term
share
and
cash
performance
awards
valued
at
target
levels;
and
the
“in
the
money”
value
of
unexercised
stock
options
(both
vested
and
unvested),
in
each
case for awards granted during the covered period. If a CEO retired during the period,
outstanding equity is included assuming that unvested awards, as of the retirement date,
continued to vest pursuant to the original terms of the award.
Compensation
Benchmark
Companies
consist
of:
AT&T,
Boeing,
Caterpillar,
Chevron,
Ford,
General
Electric,
IBM,
Johnson
&
Johnson,
Pfizer,
Procter
&
Gamble,
United
Technologies, and Verizon.
Cautionary Statement and Definitions |
 •
•
You may also refer to our website, www.exxonmobil.com, for additional information as well as
definitions of key financial and operating terms that we will use today.
2
I would particularly call your attention to the definitions included on Slide 2 of certain
compensation-related terms, which differ in some respects from compensation totals
reported in the proxy statement tables. We will be discussing these terms in more
detail in today’s webinar. |
 EXXONMOBIL
2014
EXECUTIVE
COMPENSATION
OVERVIEW
WEBINAR
3
Agenda
Agenda
•
SHAREHOLDER
ENGAGEMENT
•
HEADLINES
•
LONG-TERM
BUSINESS
PERFORMANCE
AND
BASIS
FOR
COMPENSATION
DECISIONS
•
CEO COMPENSATION
•
ANNUAL
BONUS
PROGRAM
•
EQUITY
INCENTIVE
PROGRAM
•
EXXONMOBIL
PROGRAM VS.
FORMULA-BASED
PAY
•
QUESTIONS AND
ANSWERS |
 3
•
We will begin our review with a quick recap of our shareholder engagement in 2013 and the
business performance for this period.
•
The balance of the review will focus on how the compensation program is carefully designed to
support our business and incentivize management to achieve long-term, sustainable
shareholder value. •
We will also address the suggestion from some shareholders that ExxonMobil consider a
formula-based methodology based on three-year TSR versus the industry.
•
We will have time for questions and answers at the end of this session.
|
 EXXONMOBIL
2014
EXECUTIVE
COMPENSATION
OVERVIEW
WEBINAR
4
Positive shareholder feedback was received on the
following:
SHAREHOLDER
ENGAGEMENT
The unique long-term orientation of the overall ExxonMobil
compensation program.
Alignment with Business Model: Chart that illustrated how the
equity program aligns with ExxonMobil capital investment lead
times and cash flows.
Risk of forfeiture and cancellation provisions in equity grants.
Expanded disclosure of the bonus program formula.
Disclosure of seven years of realized pay history.
Linkage of the compensation programs to continuity of
leadership. |
 4
•
Ongoing shareholder engagement is a high priority for ExxonMobil and the Compensation
Committee of the Board of Directors. This means we are committed to engagement between
shareholders and the Company to fully understand diverse viewpoints on the topic of
executive compensation and to ensure shareholder understanding of ExxonMobil's executive compensation
program.
•
The Committee has carefully considered the results of the 2013 advisory vote in which more
than 70 percent of votes cast supported the say-on-pay resolution. •
The Compensation Discussion and Analysis (CD&A) and brochure describe our exchange with
shareholders in 2013 both before and after the vote on executive compensation. •
This expansive dialogue provided an excellent opportunity to exchange perspectives and
improve understanding.
•
A summary of the positive feedback we received from our shareholders on our compensation
program is described on this slide. (Cover points on slide) |
 EXXONMOBIL
2014
EXECUTIVE
COMPENSATION
OVERVIEW
WEBINAR
5
Shareholders requested additional information on the
following:
Equity
Program:
Further
explanation
on
the
Compensation
Committee’s determination that time-vested restricted stock
or restricted stock units with long vesting periods are the most
effective method for aligning with the fundamentals of the
business model and the experience of long-term shareholders.
Realized
Pay
Benchmark:
Disclosure
of
realized
pay
for
our
compensation benchmark companies compared to
ExxonMobil’s CEO.
Vesting
Methodology:
Further
explanation
of
the
ExxonMobil vesting terms given that half of the stock-based
grants require 10 years or longer to vest.
SHAREHOLDER
ENGAGEMENT |
 5
•
We have incorporated a response to these requests into our disclosure this year and will be
covering them in this webinar.
•
We also received several questions which typically took the form of requests for additional
information or clarification in these three areas: Further explanation on the Compensation Committee’s determination that
time-vested restricted stock or restricted stock units with long vesting periods
are the most effective method for aligning with the fundamentals of the business model
and the experience of long-term shareholders, versus formula-based compensation tied to three-year total
shareholder return (TSR). Disclosure of realized pay for our compensation benchmark companies compared to
ExxonMobil’s CEO.
Further explanation of the ExxonMobil vesting terms given that half of the stock-based
grants Equity
Program: Realized Pay Benchmark:
Vesting Methodology:
require
10
years
or
longer
to
vest. |
 EXXONMOBIL
2014
EXECUTIVE
COMPENSATION
OVERVIEW
WEBINAR
6
HEADLINES
•
30-percent reduction in CEO reported compensation.
•
For the CEO’s tenure from 2006 to 2013:
–
Ranked 10 of 13 in cumulative realized compensation
among compensation benchmark companies
–
Ranked
8
of
13
in
combined
cumulative
realized
and
unrealized compensation among compensation
benchmark companies
•
Vesting periods for stock-based compensation far
longer than most companies.
•
Half of the annual bonus is delayed.
•
No employment agreements, severance
arrangements, or change-in-control arrangements.
•
All U.S. executives participate in common programs. |
 6
Before
you
cast
your
vote
on
Management
Resolution
Item
3
–
Advisory
Vote
to
Approve
Executive
Compensation
for
2014,
here are some of the headlines of our compensation program to consider.
We will be sharing specific charts and data that elaborate on these key points during this
webinar. –
All U.S. executives (more than 1,000, including the CEO), participate in common programs (the same salary, incentive, and
retirement programs).
–
No
Contracts:
No
employment
agreements,
severance
arrangements,
or
change-in-control
arrangements.
–
Half
of
the
annual
bonus
is
delayed
to
strengthen
alignment
with
sustainable
growth
in
shareholder
value
and
allow
for forfeiture in the event of executive resignation or detrimental activity.
–
Vesting periods for stock-based compensation are far longer than most companies.
–
In the last few years, the media and others have reported that ExxonMobil CEO is the highest
paid versus comparator companies. However, we’ll share with you our analysis
(using combined realized and unrealized pay) that shows otherwise. –
ExxonMobil CEO reported pay as disclosed in the Summary Compensation Table (SCT) shows a
30-percent reduction due
to
a
20-percent
reduction
in
bonus
and
a
reduction
in
pension
value.
We
will
also
show
that
if
the
full
negative change
in
value of pension were included, it would result in an even larger decrease of 46 percent in
reported pay. |
 EXXONMOBIL
2014
EXECUTIVE
COMPENSATION
OVERVIEW
WEBINAR
7
Financial and Operating Performance
•
•
•
•
Earnings of $32.6 billion in 2013, a 27-percent decrease
versus 2012. Five-year annual average of $33.7 billion
in earnings.
Distributed $25.9 billion to shareholders in dividends
and share purchases in 2013 and $318 billion since the
beginning of 2000. Dividends per share increased for
the
31st
consecutive
year.
Industry-leading return on average capital employed
(ROCE) of 17.2 percent, with a five-year average of 21
percent.
Strong safety and operations performance supported
by effective risk management.
SHORT-TERM
BUSINESS
PERFORMANCE
AND
BASIS FOR
COMPENSATION
DECISIONS
|
 7
•
We often get asked the basis of the Compensation Committee assessment of the CEO’s
performance. In the next few slides, we will share the metrics and the business
results that the Committee reviews. It is a rigorous assessment that looks at both the
short- and long-term business performance.
•
The Committee links the short-term incentive compensation to key short-term financial
and operating performance: In 2013, the Corporation sustained solid financial and operating performance despite global
economic challenges and a fair degree of uncertainty.
We delivered industry-leading earnings of $32.6 billion, a decrease of 27 percent due
mostly to lower gains on asset sales. Over the last five years, we have averaged
almost $34 billion in earnings. Total shareholder distributions were $25.9 billion. Dividends per share increased for the
31st consecutive year. We also maintained an industry-leading return on average capital employed of 17.2
percent. Key to sustainability and maintaining our license to operate, we achieved strong safety,
environmental, and operations performance, supported by effective risk management
systems. |
 Strategic Business
Results Started up six major projects.
Added 6.6 billion oil-equivalent barrels of new
resources.
Achieved exploration discoveries totaling 1.5 billion
oil-equivalent barrels.
Captured new exploration acreage.
Progressed and expanded the Strategic Cooperation
Agreement with Rosneft.
Commissioned a new diesel hydrotreater in
Singapore.
Completed multiyear conversion to a branded
wholesaler business model in the United States.
Started up the Singapore Chemical Expansion
project.
Progressed construction of a 400–thousand-tonnes-
per-year specialty elastomers project in Saudi
Arabia.
Advanced plans for a major expansion at our
Texas
facilities.
Upstream
Downstream
Chemical
EXXONMOBIL
2014
EXECUTIVE
COMPENSATION
OVERVIEW
WEBINAR
8
LONG
-TERM
BUSINESS
PERFORMANCE
AND
B
ASIS FOR
COMPENSATION
DECISIONS
|
 8
•
Another key performance criterion underlying the compensation decisions made by our
Compensation Committee in 2013 was the progress achieved on several long-term
strategic priorities. The accomplishments outlined on Slide 8 are expected to have a positive
impact on Company performance for decades, potentially generating significant shareholder
value. •
In the Upstream:
–
Started up several major projects with gross facility capacity of more than 930 thousand
oil-equivalent barrels per day. –
Added 6.6 billion oil-equivalent barrels of new resources.
–
Achieved exploration discoveries totaling 1.5 billion oil-equivalent barrels and captured
new exploration acreage in several countries.
–
Progressed and expanded the Strategic Cooperation Agreement with Rosneft.
•
In the Downstream and Chemical business:
–
Commissioned a new diesel hydrotreater in Singapore to increase ultra-low sulfur diesel
production capacity to meet growing demand for this product in the region.
–
Completed multiyear conversion to a branded wholesaler business model in the United
States. –
Started up the Singapore Chemical Expansion project.
–
Progressed construction of a 400–thousand-tonnes-per-year specialty
elastomers project in Saudi Arabia. –
Advanced plans for a major expansion at our Texas facilities.
|
 Long-Term
Business Performance (1) Employee and contractor safety data from participating American
Petroleum Institute companies (2013 industry data not available at time of publication).
(2) XTO Energy Inc. data included beginning 2011.
(3) Competitor data estimated on a consistent basis with ExxonMobil and based on public
information. EXXONMOBIL
2014
EXECUTIVE
COMPENSATION
OVERVIEW
WEBINAR
9 |
 9
•
•
In 2013, our safety performance continues to improve and remains strong in the
industry. In 2013, ExxonMobil’s ROCE was 17.2 percent, about 3.5
percentage points higher than our nearest competitor. Over the past five years,
ROCE averaged 21 percent, about 5 percentage points higher than our nearest competitor. |
 Long-Term
Business Performance (4) Competitor data estimated on a consistent basis with ExxonMobil
and based on public information; excludes impact of Gulf of Mexico spill and TNK-BP divestment for BP.
(5) Shareholder distributions consist of cash dividends and share buybacks.
EXXONMOBIL
2014
EXECUTIVE
COMPENSATION
OVERVIEW
WEBINAR
10 |
 10
During this five-year period, ExxonMobil distributed to shareholders 50 percent of the
cash flow from operations and asset sales. Since the beginning of 2009, ExxonMobil has
distributed $131 billion to shareholders, including $47 billion of dividends and $84 billion of share
repurchases to reduce shares outstanding.
Let’s now take a look at shareholder distributions.
Chart 3 shows that over the past five years, ExxonMobil generated $104 billion of free cash
flow. Another measure of the value created through strong financial and operating
performance is the cash flow remaining after fully funding attractive investment
opportunities. We added a new chart this year to illustrate this. |
 Long-Term
Business Performance (6) Annualized returns assuming dividends are reinvested when paid.
(7) Royal
Dutch
Shell,
BP,
Chevron,
and
Total
weighted
by
market
capitalization.
(8) AT&T, Boeing, Caterpillar, Chevron, Ford, General Electric, IBM, Johnson & Johnson,
Pfizer, Procter & Gamble, United Technologies, and Verizon. 11
EXXONMOBIL
2014
EXECUTIVE
COMPENSATION
OVERVIEW
WEBINAR |
 11
TSR of companies in the same industry with similar size and scale is the most relevant metric
for comparing shareholder returns. ExxonMobil leads the industry in TSR in almost all
performance periods. Chart 6 shows that ExxonMobil generated superior returns through a
range of economic environments and cycles, and we maintained strong relative
performance through the financial crisis. I will now turn it over to Randy who will
take you through the highlights of the CEO compensation. Over the last decade, the
S&P annualized return was 7 percent, versus ExxonMobil’s annualized return of 12 percent. |
 CEO COMPENSATION (1)
In
2013,
the
change
in
pension
value
was
negative
(-$6.24
million),
but
under
SEC
reporting
rules,
a
negative
change
in
pension
value
must
be
shown
in
the
Summary
Compensation
Table
as
zero.
This
shows
the
impact
the
full
negative pension valuation would have if applied to total compensation.
(2) TSR represents annualized returns assuming dividends are reinvested when paid.
EXXONMOBIL
2014
EXECUTIVE
COMPENSATION
OVERVIEW
WEBINAR
12 |
 12
There is a 30-percent reduction in reported pay primarily due to 20-percent reduction
in bonus and change in pension value (due to the interest rate change).
A negative number for change in pension cannot be reflected on the SCT per the SEC
rules, but with the full impact of pension valuation considered, the CEO reported pay
decreased 46 percent from 2012. Chart 8 shows the relationship between the percentage
change in ExxonMobil CEO’s reported pay and ExxonMobil’s TSR throughout the
CEO’s tenure. A substantial portion of the compensation granted by the
Compensation Committee to the CEO and reported in the SCT represents an incentive for
future performance, not current cash compensation. This long-term incentive pay will not actually be
received by the CEO for many years in the future and remains at risk of forfeiture. The
next several charts will demonstrate this point.
•
Thank you, David.
Chart 7 shows the Summary Compensation Table (SCT) reported pay for 2013 versus
2012. •
•
–
– |
 CEO COMPENSATION (3) Reported pay values shown correspond to the companies
with the highest, median, and lowest realized pay values.
EXXONMOBIL
2014
EXECUTIVE
COMPENSATION
OVERVIEW
WEBINAR
13 |
 13
Looking at reported pay in isolation is not the most complete way to view or compare
compensation across a group of companies. For this reason, we started disclosing
realized pay of the CEO in our proxy last year and received positive feedback from you, our
shareholders, on the additional perspective it brought.
“Realized pay”
is compensation actually received by the CEO during the year, excluding any retirement
distributions. It includes salary, current bonus, payouts of previously granted
Earnings Bonus Units (EBU), net spread on stock option exercises, market value at vesting
of
previously
granted
stock-based
awards,
and
All
Other
Compensation
amounts
realized
during
the
year.
Amounts for other companies include salary, bonus, payouts of non-equity incentive plan
compensation, and All Other Compensation as reported in the SCT, plus value realized
on option exercise or stock vesting as reported in the Option Exercises and Stock Vested
table.
Chart 9 shows the realized pay history compared to reported pay for the CEO’s
tenure. ExxonMobil
CEO’s
realized
compensation
averaged
44
percent
of
reported
pay
over
that
period.
2011 is a higher percentage as that was the year the CEO exercised his last stock options
that were granted in 2001 and would have expired in 2011. No stock options have
been granted since 2001. Chart 10 puts in perspective why relying solely on reported
pay from the SCT to determine the CEO’s compensation relative to our benchmark
companies may not result in the right conclusions. Realized pay can significantly
differ from reported pay for companies that grant stock options and/or have formula-based pay with
steep payout factors.
ExxonMobil CEO’s realized pay ranked 11 of 13 among the compensation benchmark companies
versus 1 of 13 for reported pay. The benchmark companies’
realized pay median is almost $24 million and the high is just over $68 million.
•
•
•
•
–
–
–
–
–
–
It excludes unvested grants, change in pension value, and other amounts that will not actually
be received until a future date, as well as any retirement-related payouts from
pension or nonqualified compensation plans. We will, however, include these
values in a subsequent chart. |
 CEO COMPENSATION REALIZED PAY AND UNREALIZED PAY
(1)
EXXONMOBIL
2014
EXECUTIVE
COMPENSATION
OVERVIEW
WEBINAR
14
REALIZED PAY AND UNREALIZED PAY
(1)
(1)The figures reflected above are calculated on a different basis from the grant date fair
value of awards used in the Summary Compensation Table. Values for Caterpillar include estimates for FY 2013 as the 2014 proxy had not been filed
as of April 15, 2014. Values for Procter & Gamble include values for the fiscal years
ending June 30, 2006, through June 30, 2013. ExxonMobil CEO’s realized pay is below
the compensation benchmark
companies’
median for most of his
tenure.
CEO's Tenure 2006 to 2013
Rank Percentile
Position
Realized Pay
23%
10 of 13
Realized Pay and Unrealized Pay
41%
8 of 13
ExxonMobil
ExxonMobil CEO’s realized pay and
unrealized
pay
is
at
the
41
st
percentile
of
the compensation benchmark companies.
With pension value and nonqualified
deferred compensation included, the
orientation
will
be
between
the
36
th
and
71 percentiles, depending on the method
of quantifying pension values.
st |
 14
Additional
Information
After our disclosure of CEO realized pay in last year’s proxy, we received shareholder
feedback requesting a chart on how ExxonMobil CEO’s realized pay compares to our
compensation benchmark companies over multiple years. We added Chart 12 for this purpose.
–
Chart
12
provided
new
information on
CEO
realized pay
versus
our
compensation
benchmark
companies
during
the
eight
years
of
the
ExxonMobil CEO’s tenure through 2013.
ExxonMobil CEO’s realized pay is below the median for most of his tenure.
Following this disclosure, questions have been asked as to how the comparison between
ExxonMobil and our compensation benchmark companies
might
differ
if
the
analysis
included
both
realized
pay
and
unrealized
pay
granted
during
the
covered
years.
We
filed
a
supplemental disclosure on April 22, 2014 to respond to this question. Additional Chart
12a shows the results. –
Chart
12a
illustrates
that
ExxonMobil
CEO’s
aggregate
realized
and
unrealized
granted
pay
is
at
the
41
percentile
for
the
period
of the ExxonMobil CEO’s tenure through 2013.
–
Depending on how “pension values”
for the 2006 to 2013 period are determined, including pension value and nonqualified deferred
compensation
together
with
the
realized
pay
and
unrealized
award
values
shown
above
would
place
the
ExxonMobil
CEO
between
the
36
and
the
71
percentiles
of
the
compensation
benchmark
companies.
Charts 12 and 12a do not adjust for the substantial differences in size, scale, and scope
between ExxonMobil and the compensation benchmark companies.
This analysis clarifies the inaccuracy of reports by the media and various other sources in
the last few years that ExxonMobil CEO was the highest paid versus comparator
companies. •
•
•
•
•
ExxonMobil
CEO
would
rank
in
the
36 percentile
if
pension
values
are
based
on
eight
years
of
average
value
per
year
of
pension
service,
and
in
the
71
percentile
if
pension
value
is
simply
calculated
by
aggregating
the
positive
amounts
shown
in
the
annual
“Change
in
Pension Value”
column of the SCT for the covered period. For companies who have had more than one CEO
during this period, the pension values for both paid and accumulated pensions were
averaged for this purpose, weighted by the tenure of the respective individual in the
CEO position. th
For
this
purpose,
“unrealized
pay”
means
the
current
value
–
not
the
grant
date
value
used
for
reporting
in
the
SCT
–
of
outstanding
unvested
cash
and
stock-based
incentive
awards
as
well
as
the
current
market
value
of
unexercised
“in
the
money”
stock
options
granted during the years 2006 to 2013. Formula-based cash and stock awards were
quantified using the target award levels. st
th
st
st |
 Performance Factors
that Determine Annual Bonus ANNUAL
BONUS
PROGRAM
Bonus Program Formula
The bonus program formula has been consistently
applied in each of the last 12 years, including years in
which earnings declined.
* The purpose of the two-thirds adjustment is to mitigate the impact of commodity
price swings on short-term earnings performance. The annual bonus is subject to
recoupment in the case of a material negative restatement of ExxonMobil’s
financial or operating results.
3.
Half
of
the
annual
bonus
is
delayed
until
cumulative earnings per share
(EPS) reach a
specified level, further aligning the interests of
executives with sustainable long-term growth in
shareholder value.
2.
The
bonus
program
differentiates
for
individual
performance.
1.
The
bonus
program
is
determined
by
annual
earnings.
EXXONMOBIL
2014
EXECUTIVE
COMPENSATION
OVERVIEW
WEBINAR
15 |
 15
•
We now turn to the design of our compensation program.
•
Since 2002, the annual bonus program for more than 1,600 executives worldwide, including the
CEO, has been determined based on the annual percentage change in projected net income
according to the formula shown.
-
The net income (earnings) performance is tempered (two-thirds x earnings) to mitigate the
impact of commodity price swings on short-term earnings performance.
•
As shown in Chart 14, the bonus program formula has been consistently applied in each of the
last 12 years, including years in which earnings declined. The red line on Chart
12 shows the annual percentage change in earnings and the blue line is the annual
change in the bonus program. •
In
addition
to
earnings
performance
being
the
basis
for
the
size
of
the
bonus
program,
there
are
other
performance factors that determine annual bonus.
-
Actual individual bonus awards are differentiated based on pay grade and individual
performance assessment.
-
The annual bonus for the CEO decreased 20 percent in 2013 corresponding to a 27-percent
decrease in corporate earnings to $32.6 billion, even though TSR increased to 20.1
percent in 2013. The bonus is intentionally a small portion of the CEO’s
total compensation (13 percent in 2013) to reflect the Compensation Committee’s
continuing emphasis on long-term compensation. -
Half of the annual bonus is delayed until cumulative earnings per share (EPS) reach a
specified level, further aligning the interests of executives with sustainable
long-term growth in shareholder value. The EPS threshold has been raised
over the years, from $3.00 per unit in 2001 to $6.25 in 2012/2013. The purpose
of this delay is to strengthen our forfeiture flexibility. •
The annual bonus is subject to recoupment in the case of a material negative restatement of
ExxonMobil’s financial or operating results.
•
We benchmark the bonus program, along with all other compensation, to ensure alignment with
the market. |
 Vesting /
Restriction Period •
The aggregate level of risk increases
with the holding period.
(1) Includes shares granted to the CEO between 2002 and 2005 before his appointment to
CEO. (2) Assuming retirement at age 65 in 2017, 50 percent of shares granted in 2002 will
vest at retirement resulting in a 15-year vesting period. The vesting period for 50 percent of shares granted in 2003 is
14 years; 2004 is 13 years; 2005 is 12 years; 2006 is 11 years; and 2007 is 10 years.
16
EXXONMOBIL
2014
EXECUTIVE
COMPENSATION
OVERVIEW
WEBINAR
These extended holding periods have inherent risks unique to ExxonMobil’s
compensation program and are not fully quantified in traditional assessment
models: 75 percent of the CEO’s reported compensation in 2013 is in restricted
stock units with vesting periods far longer than most companies across all industries.
Half of the annual equity award is restricted for 10 years from grant date or until
retirement, whichever is later.
•
•
EQUITY
INCENTIVE
PROGRAM
Forfeiture Risk
Business Cycle Risk
Commodity Price Risk
Execution Risk
Stock Price Risk |
 •
ExxonMobil’s equity incentive program aligns with long investment lead times by granting
restricted stock units with long vesting periods.
•
Shareholders have requested further explanation of the ExxonMobil vesting terms given that
half of the stock-based grants require 10 years
or
longer
to
vest.
•
In 2013, 75 percent of the CEO’s reported compensation is in restricted stock units with
vesting periods far longer than most companies across all industries.
Specifically, half of the annual equity award is restricted for 10 years from grant date or until retirement, whichever
is later, and the other half is restricted for five years.
•
The
“10
years
or
retirement,
whichever
is
later”
feature
results
in
senior
executives
holding
equity
grants
for
well
over
10
years
as
illustrated in Chart 15. Half of the shares granted in 2013 will not vest until 2023,
well after retirement. Vesting is not accelerated for any reason other than
death. •
The basis for the size of individual grants includes a rigorous annual performance assessment
of individual executives. The 2013 equity grant to the CEO was based on the
performance assessment of the CEO by the Compensation Committee on the operating and financial
performance and strategic business results outlined earlier.
•
The long holding periods are significant in that, unlike the typical three-year
formula-based programs, the ExxonMobil senior executive cannot monetize
compensation in a short period of time at the expense of long-term shareholders by taking short-term optimization
actions to achieve a higher compensation payout.
•
These extended holding periods amplify the risks of the program and are not fully quantified
in traditional assessment models. These risks include:
•
The aggregate level of risk increases with the holding period. We believe the current
method with unparalleled vesting periods provides a much higher risk profile than the
more typical three-year formula-based incentive awards.
16
–
–
–
–
–
Stock Price Risk
Execution Risk
Commodity Price Risk
Business Cycle Risk
Forfeiture Risk |
 (4) Financial data
estimated based on publicly available information. Market capitalization is as of December 31, 2013.
(5) Trailing twelve months (TTM); excludes excise taxes and other sales-based taxes, if
applicable. (6) Excludes General Electric due to lack of comparability resulting
from how assets are quantified and reported for its financial business. (7)
Trailing twelve months (TTM). EXXONMOBIL
2014
EXECUTIVE
COMPENSATION
OVERVIEW
WEBINAR
17
S
CALE AND
S
COPE OF
E
XXON
M
OBIL
|
 •
With that, I will turn it over to David to cover the Compensation Committee’s
consideration of the compensation program before we get to the questions.
17
Chart 13 puts in perspective the scale, scope, and complexity of ExxonMobil versus our
comparator companies. The geographic scope involves conducting business in over
120 countries and territories.
In determining compensation levels, the Compensation Committee places the most emphasis on
individual performance and business results. The Committee also
believes that the compensation program should recognize that our senior executives are responsible for managing a
larger investment on behalf of shareholders relative to that of most other large, publicly
traded companies. Size and complexity of ExxonMobil are considered among several
factors. •
• |
 Potential
Misalignment of Formula-Based Pay with Long-Term Shareholder Experience A typical
approach to formula-based compensation.
The ExxonMobil method of granting equity awards will result in executives seeing a
one-for-one change in compensation through stock price that coincides with the
experience of the long-term shareholder. There is potential for an alternate
formula-based program to result in unintended consequences including:
Compensation that is misaligned with the gains or losses
incurred by long-term shareholders through the use of steep payout
factors.
A focus on short-term results at the expense of long-term sustainable
growth in shareholder value.
Undermining the critical importance of sustainable risk management
strategies.
A shorter payout period due to the practical inability to forecast
events much beyond the typical three-year vesting period.
Undermining of the executive retention strategy.
Compensation paid out or realized that differs significantly from grant
values.
•
•
•
•
•
•
EXXONMOBIL
2014
EXECUTIVE
COMPENSATION
OVERVIEW
WEBINAR
18 |
 18
Thanks, Randy.
As mentioned earlier, some shareholders have suggested that ExxonMobil consider a
formula-based methodology based on three-year TSR versus the industry.
Chart 16 shows a typical approach to this formula-based methodology.
The Compensation Committee reviewed and assessed this approach and determined that there is a
potential for such a program to result in the following unintended consequences:
A risk/reward profile that is misaligned with that of long-term shareholders due to the
use of steep payout factors, e.g., a one-point TSR difference over benchmark
companies could result in a payout of 200 percent regardless of the absolute value of TSR.
With just a three-year vesting, executives can monetize compensation in a short period of
time at the expense of long-term shareholders by taking short-term optimization
actions to achieve a higher compensation payout. ExxonMobil senior executives on the other hand, with the
program’s long vesting periods, are held accountable for those decisions that they
make. A formula-based plan by design necessitates a shorter payout period due to the practical
inability to forecast events much beyond the typical three-year vesting
period. However, in the oil and gas industry, management decisions on large, capital-intensive projects
affect financial and operating results for decades into the future.
The shorter payout period does not reinforce our retention strategy.
ExxonMobil’s retention strategy in combination with our management development
and succession planning programs helps achieve continuity of leadership and competitive advantage.
Compensation paid out or realized could also differ significantly from grant values as shown
in the prior charts. The ExxonMobil method of granting equity or stock-based
awards will result in ExxonMobil executives seeing a one-for-one change in
compensation through stock price that coincides with the experience of the long-term
shareholder. •
•
•
–
–
–
–
Given the nature of our industry, the steep leverage of a formula-based approach does not
reinforce the critical importance of sustainable risk management strategies.
|
 Potential
Misalignment of Formula-Based Pay with ExxonMobil’s Business Model The
ExxonMobil design of granting and vesting stock-based awards better aligns with the long-term
investment lead times and risks of our business.
Annual investment required and cash flow generated by a typical ExxonMobil project.
ExxonMobil equity program: 50 percent of an annual grant of restricted stock or restricted stock
units vests in 10 years or retirement, whichever is later, and the other 50 percent vests in five years.
Hypothetical
alternate
program:
Percent
of
target
shares
that
pay
out
are
shown
in
Chart
16
and
depend
on
ExxonMobil’s
relative
three-year
TSR
rank
versus
our
primary
competitors:
Royal
Dutch
Shell,
BP,
Chevron,
and
Total.
TSR
ranking
has
been
determined
by
a
Monte
Carlo
simulation
that
applies
equal
probability
to
each
rank
position.
The
Monte
Carlo
simulation
method
is
consistent
with
U.S.
GAAP
accounting
principles
for
valuing
performance stock awards.
EXXONMOBIL
2014
EXECUTIVE
COMPENSATION
OVERVIEW
WEBINAR
19
•
•
•
Approximately 70
percent of cumulative
stock-based awards granted over the
illustrated time period for the ExxonMobil
program will remain unvested and at risk
during employment, versus approximately
30
percent for the alternate program.
•
After retirement, the ExxonMobil senior
executive will continue to have grants
unvested and at risk of forfeiture for 10
years. |
 19
•
The ExxonMobil compensation program supports the ExxonMobil business model. To
illustrate that, let’s take a look at Chart 17.
-
The purple line shows the project net cash flow of a typical ExxonMobil project, and the red
and blue lines show the payout profiles of the ExxonMobil stock-based program and
the alternate formula-based program, respectively.
-
On this chart, to better demonstrate the difference in pace of payout, the total number of
shares paid out under both compensation programs is the same.
-
Chart 17 illustrates how the ExxonMobil design of granting and vesting stock-based awards
better aligns with the long-term investment lead times and risks of our
business. -
By contrast, the high degree of variability and earlier payout of the alternate
formula-based program are misaligned with the investment profile of a typical
ExxonMobil project and could result in an overemphasis on short-term business
performance at the expense of sustainable risk management and long-term business
results.
•
Approximately 70 percent of a senior executive’s cumulative shares granted over the
illustrated time period will be unvested and at risk during employment under the
ExxonMobil program, versus approximately 30 percent for the alternate case.
•
Even after retirement, the ExxonMobil senior executive will continue to have shares unvested
and at risk of forfeiture.
•
Sustainable growth in shareholder value relies on strong alignment between the design of
compensation and the ExxonMobil investment profile. The Compensation Committee
believes the current ExxonMobil compensation program does that.
|
 Summary
The Compensation Committee on multiple occasions has carefully analyzed alternative
methods of granting stock-based awards and recognizing business performance and,
for the reasons mentioned above, believes that a formula-based plan would not deliver
the desired results for ExxonMobil or its shareholders.
The Committee believes that the current ExxonMobil stock-based program achieves the
following:
Retention:
Supports
continuity
of
leadership
by
encouraging
a
career
orientation.
Performance
and
Results:
Keeps
executives
focused
on
delivering
industry-
leading results; and
Alignment:
Links
financial
gains
or
losses
of
each
executive
to
the
experience
Accountability:
Holds
senior
executives
accountable
for
many
years,
extending
EXXONMOBIL
2014
EXECUTIVE
COMPENSATION
OVERVIEW
WEBINAR
20
model;
of
the
long-term
shareholder
and
aligns
strongly
with
ExxonMobil
business
well beyond retirement date, with long vesting periods; |
 The Compensation
Committee on multiple occasions has carefully analyzed alternative methods of granting stock-based awards and
recognizing business performance and, for the reasons mentioned above, believes that a
formula-based plan would not deliver the desired results for ExxonMobil or its
shareholders. (Cover points on slide) 20
|
 EXXONMOBIL
2014
EXECUTIVE
COMPENSATION
OVERVIEW
WEBINAR
21
Vote
‘FOR’
Item
3:
Advisory
Vote
to
Approve
Executive
Compensation
•
ExxonMobil’s compensation program supports a business model that has weathered
volatile commodity prices and industry business cycles for many years.
•
Our compensation program has contributed to a culture of performance, integrity,
reliability, and consistency.
•
The Company has taken additional steps to address questions raised by shareholders
including, on multiple occasions, careful consideration of alternative methods of
granting stock-based awards.
•
Our compensation program is designed to ensure that executives maintain an
unwavering focus on the long-term performance of the business and the interests of
shareholders.
•
We believe ExxonMobil’s business model and supporting compensation program will
continue to serve shareholders well in the future.
YOUR VOTE IS IMPORTANT: PLEASE VOTE ‘FOR’
ADVISORY VOTE TO APPROVE EXECUTIVE COMPENSATION |
 •
In conclusion, ExxonMobil’s compensation program supports a business model that has
weathered volatile commodity prices and industry business cycles for many years and
consistently generated industry-leading financial and operating performance and shareholder returns over
a very long time.
•
The compensation program contributes to a culture of performance, integrity, reliability, and
consistency. We hope that you as shareholders recognize that the compensation
program has been a key ingredient in achieving these objectives. •
The Company has taken additional steps to address questions raised by shareholders including,
on multiple occasions, careful consideration of alternative methods of granting
stock-based awards. •
Our compensation program is designed to ensure that executives maintain an unwavering focus
on the long-term performance of the business and the interest of
shareholders. •
On behalf of your Board of Directors, we recognize your vote is important and encourage you
to carefully consider the information provided today and vote FOR the advisory vote to
approve executive compensation. 21 |
 EXXONMOBIL
2014
EXECUTIVE
COMPENSATION
OVERVIEW
WEBINAR
22
QUESTIONS
&
ANSWERS |
 That concludes our
prepared remarks. We would now be happy to take your questions.
22 |