DEF 14A 1 d684656ddef14a.htm DEFINITIVE PROXY STATEMENT Definitive Proxy Statement
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

 

 

Filed by the Registrant                               Filed by a party other than the Registrant  

Check the appropriate box:

 

  Preliminary Proxy Statement
  Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
  Definitive Proxy Statement
  Definitive Additional Materials
  Soliciting Material Under Rule 14a-12

Valero Energy Corporation

(Name of Registrant as Specified In Its Charter)

 

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

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Notice of 2019 Annual Meeting of Stockholders

 

 

 

The 2019 annual meeting of stockholders of Valero Energy Corporation is scheduled to be held as follows:

 

 

LOGO

 

 

LOGO

 

 

 

LOGO

 

MEETING DATE & TIME:

 

 

MEETING PLACE:

 

 

RECORD DATE:

 

Tuesday, April 30, 2019

10 a.m., Central Time

 

Valero Energy Corporation

One Valero Way

San Antonio, Texas 78249

 

  March 5, 2019

The purpose of the annual meeting is to consider and vote on the following:

 

  Voting Matters    Board
Recommendation
   Proxy
Statement
Disclosure

1.  Elect directors;

  

FOR

each director nominee

       p. 11

2.  Ratify KPMG LLP as independent auditor;

  

FOR

    

       p. 63

3.  Advisory vote to approve executive compensation; and

  

FOR

    

       p. 66

4.  Other matters, if any, properly brought before the meeting.

  

    

          

 

Valero Energy Corporation

One Valero Way

San Antonio, Texas 78249

March 20, 2019

  

By order of the Board of Directors,

 

LOGO

J. Stephen Gilbert

Secretary

 

LOGO

 

 


Table of Contents

Table of Contents

 

  

LOGO

 

 

Annual Meeting of Stockholders                                               1  
Information Regarding the Board of Directors                     3  

Independent Directors

     3  

Committees of the Board

     4  

Selection of Director Nominees

     5  

Board Evaluation Process

     6  

Leadership Structure of the Board

     7  

Lead Director and Meetings of Non-Management Directors

     7  

Risk Oversight

     8  
Stockholder Engagement      9  
Climate Change Disclosure      10  
Proposal No. 1—Election of Directors                                     11  

Information Concerning Nominees and Directors

     11  

Summary of Board Skills and Attributes

     12  

Nominees

     13  
Identification of Executive Officers                                           18  
Beneficial Ownership of Valero Securities                             19  

Section 16(a) Beneficial Ownership Reporting Compliance

     20  
Risk Assessment of Compensation Programs                     21  
Compensation Committee Report                                            22  
Compensation Discussion and Analysis                                22  

Company Overview

     22  

Company Performance

     23  

Alignment of Executive Pay to Company Performance

     26  

Adoption of Compensation Governance Best Practices

     29  

Dialogue With Stockholders

     30  

Administration of Executive Compensation Programs

     31  

Benchmarking Data

     31  

Process and Timing of Compensation Decisions

     32  

Elements of Executive Compensation

     32  

Benchmarking Competitive Pay Levels

     33  

Relative Size of Major Compensation Elements

     33  

Individual Performance and Personal Objectives

     34  

Base Salaries

     35  

Annual Incentive Bonus

     35  

Long-Term Incentive Awards

     38  

Perquisites and Other Benefits

     39  

Post-Employment Benefits

     40  

Accounting and Tax Treatment

     40  

Compensation-Related Policies

     41  
Compensation Consultant Disclosures                                     43  
Equity Compensation Plan Information                                     44  
Executive Compensation                                                               45  

Summary Compensation Table

     45  

Grants of Plan-Based Awards

     47  

Outstanding Equity Awards

     50  

Option Exercises and Stock Vested

     52  

Post-Employment Compensation

     53  

Pension Benefits

     53  

Nonqualified Deferred Compensation

     55  

Potential Payments Upon Termination or Change of Control

     56  
Director Compensation                                                                 59  
Pay Ratio Disclosure                                                                      61  
Certain Relationships and Related Transactions                   62  
Proposal No. 2—Ratify Appointment of Independent Auditors                                                                                                63  
KPMG LLP Fees                                                                                 64  
Report of the Audit Committee                                                    65  
Proposal No. 3—Advisory Vote to Approve Compensation of Named Executive Officers                           66  
Miscellaneous                                                                                    67  

Governance Documents and Codes of Ethics

     67  

Stockholder Communications, Nominations, and Proposals

     67  

Financial Statements

     68  

Householding

     68  

Transfer Agent

     68  
 

 

 


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    2019 ANNUAL MEETING OF STOCKHOLDERS

 

Our Board is soliciting proxies to be voted at the Annual Meeting of Stockholders on April 30, 2019 (the “Annual Meeting”). The accompanying notice describes the time, place, and purposes of the Annual Meeting. Action may be taken at the Annual Meeting or on any date to which the meeting may be adjourned. Unless otherwise indicated the terms “Valero,” “we,” “our,” and “us” in this proxy statement refer to Valero Energy Corporation, to one or more of our consolidated subsidiaries, or to all of them taken as a whole. “Board” means our board of directors.

We are mailing our Notice of Internet Availability of Proxy Materials (“Notice”) to stockholders on or about March 20, 2019. On this date, you will be able to access our proxy materials on the website referenced in the Notice.

RECORD DATE, SHARES OUTSTANDING, QUORUM

 

 

Holders of record of our common stock, $0.01 par value (“Common Stock”), at the close of business on March 5, 2019 (the “record date”) are entitled to vote on the matters presented at the Annual Meeting. On the record date, 417,613,362 shares of Common Stock were issued and outstanding and entitled to one vote per share. Stockholders representing a majority of voting power, present in person or represented by properly executed proxy, will constitute a quorum.

VOTING IN PERSON, REVOCABILITY OF PROXIES

 

 

If you attend the Annual Meeting and want to vote in person, we will give you a ballot at the meeting.

If your shares are registered in your name, you are considered the stockholder “of record” and you have the right to vote the shares at the meeting.

If, however, your shares are held in the name of your broker or other nominee, you are considered the beneficial owner of shares held in “street name.” As a beneficial owner, if you wish to vote at the meeting, you will need to bring to the meeting a legal proxy from the stockholder of record (e.g., your broker) authorizing you to vote the shares.

You may revoke your proxy at any time before it is voted at the Annual Meeting by (i) submitting a written revocation to Valero, (ii) returning a subsequently dated proxy to Valero, or (iii) attending the Annual Meeting, request that your proxy be revoked, and vote in person at the Annual Meeting. If instructions to the contrary are not provided, shares will be voted as indicated on the proxy card.

REQUIRED VOTES

 

 

For Proposal 1, as required by Valero’s bylaws, each director is to be elected by a majority of votes cast with respect to that director’s election.

Proposals 2 and 3 require approval by the affirmative vote of a majority of the voting power of the shares present in person or by proxy at the Annual Meeting and entitled to vote.

EFFECT OF ABSTENTIONS

 

 

Shares voted to abstain are treated as “present” for purposes of determining a quorum. In the election of directors (Proposal 1), pursuant to our bylaws, shares voted to abstain are not deemed “votes cast,” and are accordingly disregarded. When approval for a proposal requires (i) the affirmative vote of a majority of the voting power of the shares present in person or by proxy and entitled to vote (Proposals 2 and 3), or (ii) the affirmative vote of a majority of the voting power of the issued and outstanding Common Stock, then shares voted to “abstain” have the effect of a negative vote (a vote “against”).

 

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2019 ANNUAL MEETING OF STOCKHOLDERS

 

BROKER NON-VOTES

 

 

Brokers holding shares must vote according to the specific instructions they receive from the beneficial owners of the stock. If your broker does not receive specific voting instructions from you, in some cases the broker may vote the shares in the broker’s discretion.

The New York Stock Exchange (the “NYSE”), however, precludes brokers from voting on certain proposals without specific instructions from the beneficial owner. This results in a “broker non-vote” on the proposal. A broker non-vote (i) is treated as “present” for purposes of determining a quorum, (ii) has the effect of a negative vote when a majority of the voting power of the issued and outstanding shares is required for approval of a particular proposal, and (iii) has no effect when a majority of the voting power of the shares present in person or by proxy and entitled to vote or a plurality or majority of the votes cast is required for approval.

Proposal 2 is deemed to be a routine matter under NYSE rules. A broker or other nominee generally may vote uninstructed shares on routine matters, and therefore no broker non-votes are expected to occur for Proposal 2. Proposals 1 and 3 are considered non-routine under applicable rules. Because a broker or other nominee cannot vote without instructions on non-routine matters, we expect an undetermined number of broker non-votes to occur on these proposals.

SOLICITATION OF PROXIES

 

 

Valero pays the cost for soliciting proxies and the Annual Meeting. In addition to solicitation by mail, proxies may be solicited by personal interview, telephone, and similar means by directors, officers, or employees of Valero, none of whom will be specially compensated for such activities. Valero also intends to request that brokers, banks, and other nominees solicit proxies from their principals and will pay such brokers, banks, and other nominees certain expenses incurred by them for such activities. Valero retained Georgeson LLC, a proxy soliciting firm, to assist in the solicitation of proxies for a fee of $17,500, plus reimbursement of certain out-of-pocket expenses.

For participants in our qualified 401(k) plan (“Thrift Plan”), the proxy card will represent (in addition to any shares held individually of record by the participant) the number of shares allocated to the participant’s account in the Thrift Plan. For shares held by the Thrift Plan, the proxy card will constitute an instruction to the trustee of the plan on how to vote those shares. Shares for which instructions are not received may be voted by the trustee per the terms of the plan.

 

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    INFORMATION REGARDING THE BOARD OF DIRECTORS

 

Valero’s business is managed under the oversight of our Board. Our Board conducts its business through meetings of its members and its committees. During 2018, our Board held seven meetings and the standing Board committees held 13 meetings.

None of our Board members attended less than 75 percent of the meetings of the Board and committees of which he or she was a member. All Board members are expected to attend the Annual Meeting, and all of our Board members attended the 2018 annual meeting.

Independent Directors

 

 

Independent Directors. Our Corporate Governance Guidelines require a majority of the Board to be independent. The Board presently has nine non-management directors and one member from management: Joseph W. Gorder (our Chief Executive Officer). As a member of management, Mr. Gorder is not an independent director under NYSE listing standards. The Board determined that all of our non-management directors who served on the Board at any time in 2018 met the Board’s independence requirements. Those independent directors were:

 

  H. Paulett Eberhart    Philip J. Pfeiffer    Randall J. Weisenburger
  Kimberly S. Greene    Robert A. Profusek    Rayford Wilkins, Jr.
  Deborah P. Majoras    Stephen M. Waters    Susan Kaufman Purcell (retired)
  Donald L. Nickles      

Independent Committees. The Board’s Audit Committee, Compensation Committee, and Nominating/Governance and Public Policy Committee are composed entirely of directors who meet the independence requirements of the NYSE. Each member of the Audit Committee also meets the additional independence standards for Audit Committee members required by the SEC.

Independence Standards and Determination. The Board determines independence on the basis of the standards specified by the NYSE, the standards listed in our Corporate Governance Guidelines, and other facts and circumstances the Board may consider relevant. In general, our Corporate Governance Guidelines require that an independent director must have no material relationship with Valero. A relationship is not material under the guidelines if it:

 

   

is not a relationship that would preclude a determination of independence under Section 303A.02(b) of the NYSE Listed Company Manual;

   

consists of charitable contributions by Valero to an organization in which a director is an executive officer that do not exceed the greater of $1 million or two percent of the organization’s gross revenue in any of the last three years;

   

consists of charitable contributions to any organization with which a director, or any member of a director’s immediate family, is affiliated as an officer, director, or trustee pursuant to a matching gift program of Valero and made on terms applicable to employees and directors, or is in amounts that do not exceed $1 million per year; and

   

is not a relationship required to be disclosed by Valero under Item 404 of Regulation S-K (regarding related person transactions).

Under the NYSE’s listing standards, a director is not deemed independent unless the Board affirmatively determines that the director has no material relationship with Valero. The Board has reviewed pertinent information concerning the background, employment, and affiliations (including commercial, banking, consulting, legal, accounting, charitable, and familial relationships) of our directors, and the Board has determined that each of our non-management directors and each member of the Audit, Compensation, and Nominating/Governance and Public Policy Committees has no material relationship with Valero, and is therefore independent.

 

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INFORMATION REGARDING THE BOARD OF DIRECTORS

 

Committees of the Board

 

 

 

Our Board has three standing committees:

 

 

 

The committees’ charters are
available on our website at:

 

www.valero.com u Investors u 

Corporate Governance u Governance Documents u  Charters.

LOGO

 

  Audit Committee,

LOGO

 

  Compensation Committee, and

LOGO

 

 

Nominating/Governance and Public Policy Committee.

 

AUDIT COMMITTEE

 

 

The Audit Committee assists the Board in oversight of the integrity of Valero’s financial statements and public financial information, Valero’s compliance with legal and regulatory requirements, the qualifications and independence of Valero’s independent auditor, and the performance of Valero’s internal audit function and independent auditors. The Audit Committee met five times in 2018.

We make additional disclosures about the Audit Committee in this proxy statement under the caption “Risk Oversight” and in connection with “Proposal No. 2—Ratify Appointment of KPMG LLP as Independent Auditors” below.

 

Members of the Audit Committee are:

    Randall J. Weisenburger (Chair),
    H. Paulett Eberhart, and
    Stephen M. Waters.

Notes:

Audit Committee Financial Experts. The Board has determined that each of the following directors is an “audit committee financial expert” (as defined by the SEC) and that each is “independent” under applicable regulations/standards: (1) Mr. Weisenburger, (2) Ms. Eberhart, and (3) Mr. Waters. For more information regarding their experience, see “Proposal No. 1—Election of Directors—Nominees.”

 

 

COMPENSATION COMMITTEE

 

 

The Compensation Committee reviews and reports to the Board on matters related to compensation programs, policies, and strategies. The Compensation Committee’s duties are further described in “Compensation Discussion and Analysis” below and in the committee’s charter. The Compensation Committee met five times in 2018. The Compensation Committee has, for administrative convenience, delegated authority to our Chief Executive Officer to make non-material amendments to Valero’s benefit plans and to make limited grants of stock options and restricted stock to new hires who are not executive officers.

 

Members of the Compensation Committee are:

    Rayford Wilkins, Jr. (Chair),
    Philip J. Pfeiffer, and
    Robert A. Profusek.

Notes:

The Compensation Committee Report for fiscal year 2018 appears in this proxy statement immediately preceding “Compensation Discussion and Analysis.”

 

 

Compensation Committee Interlocks and Insider Participation: There are no compensation committee interlocks. None of the members of the Compensation Committee has served as an officer or employee of Valero or had any relationship requiring disclosure by Valero under Item 404 of the SEC’s Regulation S-K, which addresses related-person transactions.

 

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INFORMATION REGARDING THE BOARD OF DIRECTORS

 

NOMINATING/GOVERNANCE AND PUBLIC POLICY COMMITTEE

 

 

The Nominating/Governance and Public Policy Committee assists the Board in its oversight responsibilities with respect to corporate governance, Board membership, and public policy matters. The committee’s specific purposes are to:

 

   

identify individuals qualified to become Board members, consistent with criteria approved by the Board;

   

recommend to the Board director nominees to stand for election at the annual meetings of stockholders;

   

develop and recommend a set of corporate governance principles applicable to Valero;

   

assist the Board in identifying, evaluating, and monitoring public policy trends and social and political issues that could impact our business activities and performance;

   

assist the Board in oversight of Valero’s climate-related risks and opportunities;

   

consider and make recommendations for our strategies relating to corporate responsibility, contributions, and reputation management; and

   

oversee and lead the Board’s and the committees’ annual self-evaluation of performance.

 

Members of the committee are:

  Deborah P. Majoras (Chair),

  Kimberly S. Greene, and

  Donald L. Nickles.

  

Notes:

The committee met three times in 2018. The committee recommended to the Board the directors listed in this proxy statement in Proposal No. 1 as nominees for election as directors at the Annual Meeting. The committee also considered and recommended the appointment of a Lead Director to preside at meetings of the independent directors without management, and recommended assignments for the Board’s committees. The full Board approved the recommendations of the committee and adopted resolutions approving the slate of director nominees to stand for election at the Annual Meeting, the appointment of a Lead Director, and Board committee assignments.

Selection of Director Nominees

 

 

The Nominating/Governance and Public Policy Committee solicits recommendations for Board candidates from a number of sources, including our directors, our officers, and third-party research. In addition, the Committee will consider candidates submitted by stockholders when submitted in accordance with the procedures described in this proxy statement under the caption “Miscellaneous—Stockholder Communications, Nominations, and Proposals.”

The Committee will consider all candidates identified through the processes described above and will evaluate each of them on the same basis. The level of consideration the Committee will extend to a stockholder’s candidate will be commensurate with the quality and quantity of information about the candidate that the nominating stockholder makes available to the Committee.

Proxy Access. Our amended and restated bylaws permit a stockholder, or a group of up to 20 stockholders, that has owned at least three percent of our outstanding Common Stock for at least three years to nominate and include in our proxy statement candidates for our Board, subject to certain requirements. Each stockholder, or group of stockholders, may nominate candidates for director, up to a limit of the greater of two or 20 percent of the number of directors on the Board. Any nominee must meet the qualification standards listed in our bylaws. The procedures for nominating a candidate pursuant to our proxy access provisions are described in this proxy statement under the caption “Miscellaneous—Stockholder Communications, Nominations, and Proposals.”

EVALUATION OF DIRECTOR CANDIDATES

 

 

Our Corporate Governance Guidelines state that the Nominating/Governance and Public Policy Committee is responsible for reviewing the composition of the Board as well as the qualifications of the individual members of the Board and its various committees. This review includes consideration of the Board members’ independence, character, judgment, integrity, diversity, age, skills (including financial literacy) and experience in the context of the overall needs of the Board. Thus, the Committee’s assessments include consideration of:

 

   

applicable independence standards;

   

skills and experience necessary for service on the Board’s committees; and

   

skills and expertise to serve the needs of the Board as a whole.

 

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INFORMATION REGARDING THE BOARD OF DIRECTORS

 

Each candidate must meet certain minimum qualifications, including:

 

   

strong ethical principles and integrity;

   

independence of thought and judgment;

   

the ability to dedicate sufficient time, energy, and attention to the performance of duties, taking into consideration the candidate’s service on other public company boards; and

   

skills and expertise complementary to those of the existing Board members; in this regard, the Board will consider its need for operational, managerial, financial, governmental affairs, technology, human resources, or other expertise.

The Committee also considers:

 

   

diversity concepts such as race, gender, national origin, age, and geography;

   

the ability of a prospective candidate to work with the interpersonal dynamics of the Board and contribute to the Board’s collaborative culture.

Based on this initial evaluation, the Committee will determine whether to interview a proposed candidate and, if warranted, will recommend that one or more of its members, other members of the Board, and/or senior officers, as appropriate, interview the candidate. Following this process, the Committee ultimately determines its list of nominees and recommends the list to the full Board for consideration and approval.

Diversity. Although the Board does not establish specific goals with respect to diversity, the Board’s overall diversity is a significant consideration in the director nomination process. For this year’s election, the Board has nominated 10 individuals who bring valuable diversity to the Board in terms of gender, ethnicity, industries represented, experience, age, and tenure. The nominees range in age from 52 to 72. Four of this year’s nominees represent diversity of ethnicity or gender. Three of the nominees have served on the Board for five years or less.

Refreshment. We do not set term limits for our directors. As stated in Article I of our Corporate Governance Guidelines, the Board believes that directors who have served on the Board for an extended period of time are able to provide valuable insight into the operations and future of Valero based on their experience with and understanding of Valero’s history, policy, and objectives. As an alternative to term limits, the Board believes that its evaluation and nomination processes serve as an appropriate check on each Board member’s continued effectiveness.

Retirement Policy. Our directors are subject to a retirement policy (set forth in Article I of our Corporate Governance Guidelines). Under that policy, a director may serve on our Board until he or she reaches the age of 75. A director who turns 75 may serve the remainder of his or her term of office, which shall be deemed to end at the next annual meeting of stockholders at which directors are elected.

Board Evaluation Process

 

 

Our Corporate Governance Guidelines and the charters of each of the Board’s committees require the Board and the committees to conduct an annual performance evaluation. The Nominating/Governance and Public Policy Committee oversees the Board and committee self-evaluation process.

At the end of each year, the directors complete detailed surveys designed to evaluate the performance of the Board and each of its standing committees. The surveys seek feedback on, among other things, Board and committee composition, the frequency and content of Board and committee meetings, the quality of management’s presentations to the Board and the committees, the adequacy of the committees’ charters, and the performance of the Board and the committees in light of the responsibilities of each as established in the Corporate Governance Guidelines and the committees’ charters. Summary reports of the evaluation results are compiled and provided to each director. The summary reports are discussed at Board and/or committee meetings in executive session, led by the Chair of the Nominating/Governance and Public Policy Committee, the Lead Director, and/or the Chairman of the Board, all of whom ensure that the Board or senior management, as appropriate, follow up on any identified areas for improvement.

In addition to the annual self-evaluation process, the Chair of the Nominating/Governance and Public Policy Committee, the Lead Director, and/or the Chairman of the Board will meet from time to time with each director individually, either in-person or via teleconference, in order to obtain feedback on the performance of the Board, a committee, or an individual director. The Board believes that all of these evaluation tools provide effective measures and forums for discussing the Board’s effectiveness and potential areas for improvement.

 

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INFORMATION REGARDING THE BOARD OF DIRECTORS

 

Leadership Structure of the Board

 

 

Our bylaws state that the Chairman of the Board has the power to preside at all meetings of the Board. Joseph W. Gorder, our Chief Executive Officer, serves as the Chairman of the Board. Although the Board believes that the combination of the Chairman and Chief Executive Officer roles is appropriate in current circumstances, Valero’s Corporate Governance Guidelines do not establish this approach as a policy, and in fact, the Chairman and Chief Executive Officer roles were separate from 2005–2007 and from May–December 2014.

The Chief Executive Officer is appointed by the Board to manage Valero’s daily affairs and operations. We believe that Mr. Gorder’s extensive industry experience and direct involvement in Valero’s operations make him best suited to serve as Chairman in order to:

 

   

lead the Board in productive, strategic planning;

   

determine necessary and appropriate agenda items for meetings of the Board with input from the Lead Director and independent Board committee Chairs; and

   

determine and manage the amount of time and information devoted to discussion of agenda items and other matters that may come before the Board.

Oversight by Independent Directors. Our Board structure includes strong oversight by independent directors. Mr. Gorder is the only member from our management (past or present) who serves on the Board; all of our other directors are independent. Each of the Board’s committees is chaired by an independent director, all committee members are independent, and our Board has named an independent Lead Director whose duties are described in the following section.

Lead Director and Meetings of Non-Management Directors

 

 

Our independent directors appoint a Lead Director whose responsibilities include leading the meetings of our non-management directors outside the presence of management. Following the recommendation of the Nominating/Governance and Public Policy Committee, the Board’s independent directors selected Robert A. Profusek to serve as Lead Director during 2019. He also served as Lead Director in 2018. Our Board regularly meets in executive session outside the presence of management, generally at each Board and committee meeting.

The Lead Director, working with the committee Chairs, sets agendas and leads the discussion of regular meetings of the Board outside the presence of management, provides feedback regarding these meetings to the Chairman, and otherwise serves as liaison between the independent directors and the Chairman. The Lead Director regularly communicates with the Chairman between meetings of the Board to discuss policy issues, strategies, governance, and other matters that arise throughout the year. The Chairs of the Board’s committees also communicate regularly with the Lead Director to discuss policy issues facing Valero and the Board and to recommend agenda items for consideration at future Board meetings. The Board believes that this approach appropriately and effectively complements Valero’s combined Chief Executive Officer/Chairman structure.

Our Corporate Governance Guidelines enumerate the duties and responsibilities of the Lead Director, which include:

 

(a)

serving as a liaison between the Chairman and the independent directors,

(b)

consulting with the Chairman on agendas for board meetings,

(c)

reviewing and approving information sent to the Board as and when appropriate,

(d)

the authority to call meetings of the independent directors,

(e)

setting agendas and leading the discussion of regular executive session meetings of the Board outside the presence of management and providing feedback regarding these meetings to the Chairman, and

(f)

receiving, reviewing, and acting upon communications from stockholders or other interested parties when those interests should be addressed by a person independent of management.

 

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INFORMATION REGARDING THE BOARD OF DIRECTORS

 

Risk Oversight

 

 

The Board considers oversight of Valero’s risk management to be a responsibility of the full Board. The Board’s role in risk oversight includes receiving regular reports from its committees and from members of senior management on areas of material risk to Valero, or to the success of a particular project or endeavor under consideration, including operational, financial, legal, regulatory, strategic, political, reputational, environmental, cybersecurity, and climate-related risks. For example, in 2018 the Board completed a review with management of Valero’s policies and procedures concerning issues of workplace diversity, sexual harassment and discrimination, and ensuring a safe workplace.

The full Board (or appropriate Board committee) regularly receives reports from management to enable the Board (or committee) to assess Valero’s risk identification, risk management, and risk mitigation strategies. When a report is vetted at the committee level, the Chair of that committee thereafter reports on the matter to the full Board. This enables to the Board and its committees to coordinate the Board’s risk oversight role. The Board also believes that risk management is an integral part of Valero’s annual strategic planning process, which addresses, among other things, the risks and opportunities facing Valero in the long term.

One of the Audit Committee’s responsibilities is to discuss with management Valero’s major financial risk exposures and the steps Valero has taken to monitor and control those exposures, including our risk assessment and risk management policies. The Audit Committee also has oversight responsibility regarding management’s annual assessment of, and report on, Valero’s internal control over financial reporting. In addition, Valero’s Chief Information Officer reports regularly to the Audit Committee regarding Valero’s initiatives and strategies respecting cybersecurity and information technology risks.

Our Nominating/Governance and Public Policy Committee reviews our policies and performance in areas of employee and contractor safety, environmental compliance, governmental affairs, reputation management, climate-related risks and opportunities, contributions, and policy matters generally. Valero’s EVP & General Counsel and EVP & COO attend all meetings of the Committee. In addition, members from senior management report, at least annually, to the Committee regarding Valero’s safety and environmental risks, strategies, and assessments. The Committee also assists the Board in oversight of Valero’s disclosure of climate-related risks and opportunities (as described further in “Climate Change Disclosure” below).

Our Compensation Committee assesses the risk of our compensation programs. Our compensation consultant regularly attends meetings of the Committee to provide updates on compensation related risks and trends. See also, “Risk Assessment of Compensation Programs” elsewhere in this proxy statement.

 

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   STOCKHOLDER ENGAGEMENT

 

Engagement Process

 

 

Ongoing engagement with our stockholders is important to us. We communicate with our stockholders through a variety of means, including direct interface, investor presentations, our website, and publications we issue. As part of our engagement program, our senior management team reaches out to our stockholders for dialogue concerning their priorities – which may include our strategy, company culture, environmental initiatives, financial performance, capital allocation, executive compensation, and/or corporate governance. We value our stockholders’ views and their input is important. Our Investor Relations team is dedicated to leading our engagement efforts and collaborating with Valero’s management teams and subject matter experts (SMEs) in order to provide appropriate resources for engagement with our stockholders.

Our engagements with stockholders have been constructive and have provided management and the Board with insights on issues and initiatives that are important to our stockholders and other stakeholders. We initiate formal outreach efforts in the months prior to our annual meeting of stockholders. Through that process, we contact stockholders and invite them to engage in discussions with our management team and SMEs on a variety of topics, including the stockholders’ priorities and interests, our proxy statement disclosures, stockholder proposals, and corporate governance matters. Following our annual meeting, our engagement efforts continue so that we may follow up on matters brought to our attention and/or discuss new issues of interest. Procedures for communicating with us are stated in “Stockholder Communications, Nominations, and Proposals” elsewhere in this proxy statement.

The following graphic depicts the ongoing elements of our engagement process.

 

 

LOGO

As part of our engagement process in 2018, we contacted our 25 largest stockholders—representing over 45% of our outstanding common shares—offering to discuss our proxy statement disclosures and proposals as well as a wide range of matters of interest to our stockholders (e.g., climate-related risks and opportunities). We also respond routinely to individual stockholders and other stakeholders who inquire about our business.

Input from our stockholders helps us formulate an appropriate action plan for addressing certain issues. The publication of our climate report (“Climate-Related Risks and Opportunities”) in 2018 was strongly influenced by our previous engagements with stockholders and stakeholders. Also, in 2018, after receiving input from our stockholders, the Nominating/Governance and Public Policy Committee amended its charter specifically to address oversight of climate-related risks and opportunities.

 

   2019 PROXY STATEMENT    9


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    CLIMATE CHANGE DISCLOSURE

 

In 2017 the Financial Stability Board’s Task Force on Climate-related Financial Disclosure (TCFD) issued its recommendations on reporting climate-related financial information. In September 2018, Valero published its climate report—under Board oversight led by the Nominating/Governance and Public Policy Committee—that is aligned with the main principles outlined in the recommendations of the TCFD. The report is published on our website at www.valero.com > About Valero > Corporate Responsibility > Climate-Related Risks and Opportunities.

Per the Board’s Nominating/Governance and Public Policy Committee charter, the committee reviews and discusses with management, at least annually, Valero’s strategy and performance in assessing and responding to climate-related risks and opportunities.

 

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    PROPOSAL NO. 1—ELECTION OF DIRECTORS

 

      (ITEM 1 ON THE PROXY CARD)

 

 

We do not have a classified board. Each of our directors stands for election every year at the annual meeting of stockholders. If elected at the 2019 Annual Meeting, all of the nominees listed below will serve as director for a one-year term expiring at the 2020 annual meeting of stockholders. The persons named on the proxy card intend to vote for the election of each of these nominees unless you direct otherwise on your proxy card.

  

 

LOGO

The Board recommends a
vote “FOR” all nominees.

Majority Voting. Under our bylaws, each director is to be elected by the vote of the majority of the votes cast at the Annual Meeting if a quorum is present. For this purpose, a “majority of the votes cast” means that the number of shares voted “for” a director’s election exceeds 50 percent of the number of votes cast with respect to that director’s election. Votes “cast” exclude abstentions. If any nominee is unavailable as a candidate at the time of the Annual Meeting, either the number of directors constituting the full Board will be reduced to eliminate the resulting vacancy, or the persons named as proxies will use their best judgment in voting for any available nominee.

Information Concerning Nominees and Directors

 

Each of the following is a nominee for election as a director at the Annual Meeting. There is no family relationship among any of the executive officers or nominees for director. There is no arrangement or understanding between any director or any other person pursuant to which the director was or is to be selected a director or nominee.

 

  Directors   

Director

Since

  

Age

as of

12/31/2018

Joseph W. Gorder,

Chairman of the Board,

President, and Chief Executive Officer

       2014        61

H. Paulett Eberhart

       2016        65

Kimberly S. Greene

       2016        52

Deborah P. Majoras

       2012        55

Donald L. Nickles

       2005        70

Philip J. Pfeiffer

       2012        71

Robert A. Profusek

       2005        68

Stephen M. Waters

       2008        72

Randall J. Weisenburger

       2011        60

Rayford Wilkins, Jr.

       2011        67

LOGO

 

 

   2019 PROXY STATEMENT    11


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PROPOSAL NO. 1—ELECTION OF DIRECTORS

 

Summary of Board Skills and Attributes

 

 

Our directors have an effective mix of backgrounds, knowledge, and skills. The table below provides a summary of certain collective competencies and attributes of the Board nominees. The lack of an indicator for a particular item does not mean that the director does not possess that skill or experience. We look to each director to be knowledgeable in all of these areas. Rather, the indicator represents that the item is a core competency that the director brings to the Board.

 

    LOGO   LOGO   LOGO   LOGO   LOGO   LOGO   LOGO   LOGO   LOGO   LOGO
skills and experience                                        

CEO/LEADERSHIP EXPERIENCE

contributes to the Board’s understanding of operations and strategy and demonstrates leadership ability

  🌑   🌑   🌑   🌑   🌑   🌑   🌑   🌑   🌑   🌑
FINANCE/ACCOUNTING EXPERIENCE is valuable in evaluating Valero’s financial statements, capital structure, and financial strategy  

🌑

 

🌑

 

🌑

             

🌑

 

🌑

 

🌑

 

🌑

GLOBAL EXPERIENCE

provides the company with valuable business knowledge and perspective on our international operations and global commodity trade

  🌑   🌑       🌑           🌑   🌑   🌑   🌑

GOVERNMENT/LEGAL

REGULATORY EXPERIENCE

contributes to the Board’s ability to guide Valero through government regulations, complex legal matters, and public policy issues

  🌑   🌑   🌑   🌑   🌑   🌑   🌑   🌑   🌑   🌑
RISK MANAGEMENT EXPERIENCE contributes to the identification, assessment, and prioritization of risks facing Valero  

🌑

 

🌑

 

🌑

 

🌑

 

🌑

 

🌑

 

🌑

 

🌑

 

🌑

 

🌑

attributes                                        

DIVERSITY/GENDER

represents diversity of race, ethnicity, and/or gender

     

🌑

 

🌑

 

🌑

                     

🌑

INDEPENDENT

represents directors who are independent under NYSE and SEC standards

     

🌑

 

🌑

 

🌑

 

🌑

 

🌑

 

🌑

 

🌑

 

🌑

 

🌑

Our directors have a wide range of additional skills and experience not mentioned above, which they bring to their role as directors to Valero’s benefit, including experience in the energy industry, and the technology/cybersecurity, consumer goods, human capital, corporate governance, and nonprofit leadership areas. Our directors’ skills and experience are further described in the directors’ biographies on the following pages.

 

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PROPOSAL NO. 1—ELECTION OF DIRECTORS

 

Nominees

 

 

 

LOGO

 

Age: 61

 

Director Since: 2014

 

Chairman

 

 

JOSEPH W. GORDER

 

Featured experience, qualifications, and attributes:

  Global energy business leadership at Valero Energy Corporation as Chairman of the Board (since Dec. 31, 2014), President (since 2012) and Chief Executive Officer (since May 1, 2014).

 

  Refining and marketing operations experience as Valero’s President and Chief Operating Officer beginning in 2012. Prior to that, Mr. Gorder was Executive Vice President and Chief Commercial Officer (beginning in 2011), and led Valero’s European operations from its London office. Before that, he held several positions with Valero and Ultramar Diamond Shamrock Corporation (UDS) with responsibilities including marketing & supply and corporate development.

 

Other public company boards (current): Anadarko Petroleum Corporation (NYSE: APC)

 

Prior public company boards (in last five years): Valero Energy Partners LP (NYSE: VLP)

 

LOGO

 

Age: 65

 

Director Since: 2016

 

Committee: Audit

 

Independent

 

H. PAULETT EBERHART

 

Featured experience, qualifications, and attributes:

  Business leadership as Chairman and CEO of HMS Ventures (since 2014), a privately held business involved with technology services and the acquisition and management of real estate. From 2011 through March 2014, she served as President and CEO of CDI Corp. (NYSE: CDI), a provider of engineering and information technology outsourcing and professional staffing services. She served as a consultant to CDI from April 2014 through December 2014. Ms. Eberhart also served as Chairman and CEO of HMS Ventures from January 2009 until January 2011.

 

  Information technology, management, accounting, and finance expertise at Invensys Process Systems, Inc. (Invensys), a process automation company (President and CEO from 2007 to 2009), and Electronic Data Systems Corporation (EDS) (1978 to 2004), an information technology and business process outsourcing company. She was President of Americas of EDS (2003 to March 2004), and served as President of Solutions Consulting at EDS (2002 to 2003). Ms. Eberhart is a Certified Public Accountant.

 

  Public company governance expertise through her service as Lead Director for another public company.

 

Other public company boards (current): Anadarko Petroleum Corporation (NYSE: APC), LPL Financial Holdings Inc. (NASDAQ: LPLA)

 

Prior public company boards (in last five years): CDI Corp. (NYSE: CDI), Cameron International Corporation (NYSE: CAM), Ciber, Inc. (NYSE: CBR), Advanced Micro Devices, Inc. (NASDAQ: AMD).

 

 

   2019 PROXY STATEMENT    13


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PROPOSAL NO. 1—ELECTION OF DIRECTORS

 

 

LOGO

 

Age: 52

 

Director Since: 2016

 

Committee:

Nom/Gov

 

Independent

 

KIMBERLY S. GREENE

 

Featured experience, qualifications, and attributes:

  Energy business leadership at Southern Company Gas as Chief Executive Officer and President (since June 2018). She served as Executive Vice President and Chief Operating Officer of the Southern Company (NYSE: SO) from 2014 to May 2018. Prior to that, she was President and CEO of Southern Company Services, Inc. Ms. Greene began her career at Southern Company in 1991 and held positions of increasing responsibility in the areas of engineering, strategy, finance, and wholesale marketing, including Senior Vice President and Treasurer of Southern Company Services, Inc. from 2004 to 2007. She rejoined Southern Company in 2013.

 

  Finance expertise and regulatory business management experience as Executive Vice President and Chief Generation Officer of Tennessee Valley Authority (TVA). While at TVA (2007 to 2013), she served as Chief Financial Officer, Executive Vice President of financial services and Chief Risk Officer, as well as Group President for strategy and external relations.

 

  Organizational leadership experience through service with the American Gas Association, Metro Atlanta Chamber of Commerce, College of Engineering Board of Advisors for the Univ. of Tennessee, Alliance Theatre Atlanta.

 

Other public company boards (current): none

 

Prior public company boards (in last five years): none

 

LOGO

 

Age: 55

 

Director Since: 2012

 

Committee:

Nom/Gov (Chair)

 

Independent

 

DEBORAH P. MAJORAS

 

Featured experience, qualifications, and attributes:

  Public company leadership and governance experience as Chief Legal Officer and Secretary of The Procter & Gamble Company (P&G) (NYSE: PG) since 2010. She joined P&G in 2008 as Senior Vice President and General Counsel.

 

  Government, regulatory, and legal experience as Chair of the U.S. Federal Trade Commission from 2004 until 2008. From 2001 to 2004, Ms. Majoras was Deputy Assistant Attorney General in the U.S. Department of Justice, Antitrust Division. Ms. Majoras joined the law firm of Jones Day in 1991, and became a partner in 1999.

 

  Organizational leadership experience through service on the boards of The Christ Hospital Health Network, Legal Aid Society of Greater Cincinnati, Westminster College, Leadership Council on Legal Diversity, United States Golf Association.

 

Other public company boards (current): none

 

Prior public company boards (in last five years): none

 

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PROPOSAL NO. 1—ELECTION OF DIRECTORS

 

 

LOGO

 

Age: 70

 

Director Since: 2005

 

Committee:

Nom/Gov

 

Independent

 

DONALD L. NICKLES

 

Featured experience, qualifications, and attributes:

  Government affairs leadership and experience as U.S. Senator from Oklahoma for 24 years (retired 2005). He also served in the Oklahoma State Senate for two years. During his tenure as U.S. Senator, he was Assistant Republican Leader for six years, Chairman of the Republican Senatorial Committee, and Chairman of the Republican Policy Committee. He served as Chairman of the Budget Committee and as a member of the Finance and Energy and Natural Resources Committees.

 

  Business leadership as current Chairman and Chief Executive Officer of The Nickles Group, a Washington-based consulting and business venture firm formed in 2005.

 

  Organizational leadership experience through service on the Oklahoma Medical Research Foundation Advisory Board.

 

Other public company boards (current): Board of Trustees of Washington Mutual Investors Fund

(AWSHX)

 

Prior public company boards (in last five years): none

 

LOGO

 

Age: 71

 

Director Since: 2012

 

Committee:

Compensation

 

Independent

 

PHILIP J. PFEIFFER

 

Featured experience, qualifications, and attributes:

  Business leadership, legal and human capital expertise in the San Antonio office of Norton Rose Fulbright LLP, where he was Partner-in-Charge for 25 years and led the office’s labor and employment practice (he presently serves Of Counsel). Through his 47 years with the firm, Mr. Pfeiffer assisted employers in traditional management–union matters, complex civil rights matters, employment discrimination cases, affirmative action compliance, employment torts, alternative dispute resolution, employment contracts, and ERISA litigation.

 

  Organizational leadership through board service and affiliations with Southwest Research Institute, United Way of San Antonio and Bexar County, San Antonio Medical Foundation, The Children’s Hospital of San Antonio Foundation, Alamo Area Council of Boy Scouts, and the UT Health San Antonio MD Anderson Cancer Center.

 

Other public company boards (current): none

 

Prior public company boards (in last five years): none

 

   2019 PROXY STATEMENT    15


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PROPOSAL NO. 1—ELECTION OF DIRECTORS

 

 

LOGO

 

Age: 68

 

Director Since: 2005

Lead Director

 

Committee:

Compensation

 

Independent

 

ROBERT A. PROFUSEK

 

Featured experience, qualifications, and attributes:

  Business leadership and capital markets expertise as a partner of the Jones Day law firm where Mr. Profusek chairs the firm’s global mergers and acquisitions practice. His law practice focuses on mergers, acquisitions, takeovers, restructurings, and corporate governance matters.

 

  Public company governance experience and expertise through service as Valero’s Lead Director and the Lead Director of two other public companies. He is a frequent speaker regarding corporate takeovers and corporate governance, has authored or co-authored numerous articles, has testified before Congress and the SEC about takeover and compensation-related matters, and is a frequent guest commentator on CNBC, CNN, and Bloomberg TV.

 

Other public company boards (current): Kodiak Sciences Inc. (NASDAQ: KOD), CTS Corporation

(NYSE: CTS)

 

Prior public company boards (in last five years): none

 

LOGO

 

Age: 72

 

Director Since: 2008

 

Committee:

Audit

 

Independent

 

STEPHEN M. WATERS

 

Featured experience, qualifications, and attributes:

  Financial business leadership as the managing partner of Compass Partners Capital since 2018, the managing partner of Compass Partners Advisers LLP and its predecessor partnerships (since 1996) and Chief Executive of Compass Partners European Equity Fund from 2005 to 2013.

 

  Finance and global experience from his service in several capacities at Morgan Stanley, including Co-Head of the Mergers and Acquisitions department from 1990 to 1992, Co-Chief Executive Officer of Morgan Stanley Europe from 1992 to 1996, and as a member of its worldwide Firm Operating Committee from 1992 to 1996. From 1974 to 1988, he was with Lehman Brothers, co-founding the Mergers and Acquisitions department in 1977, becoming a partner in 1980, and serving as Co-Head of the Mergers and Acquisitions department from 1985 to 1988.

 

Other public company boards (current): Boston Private Financial Holdings, Inc. (NASDAQ: BPFH)

 

Prior public company boards (in last five years): none

 

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PROPOSAL NO. 1—ELECTION OF DIRECTORS

 

 

LOGO

 

Age: 60

 

Director Since: 2011

 

Committee:

Audit (Chair)

 

Independent

 

RANDALL J. WEISENBURGER

 

Featured experience, qualifications, and attributes:

  Global business leadership and capital markets and finance expertise as the managing member of Mile 26 Capital, LLC, a hedge fund based in Greenwich, Connecticut (since 2014), and service as Executive Vice President and Chief Financial Officer of Omnicom Group Inc. (NYSE: OMC) from 1998 through 2014. Prior to joining Omnicom, he was a founding member of Wasserstein Perella and a former member of First Boston Corporation. At Wasserstein Perella, Mr. Weisenburger specialized in private equity investing and leveraged acquisitions, and in 1993, he became President and CEO of the firm’s private equity subsidiary.

 

  Organizational leadership through service on the board of directors of Acosta Sales and Marketing, Corsair Components, Inc.; and the Board of Overseers of Wharton School of Business at the University of Pennsylvania.

 

Other public company boards (current): Carnival Corporation and Carnival plc (NYSE: CCL)

 

Prior public company boards (in last five years): none

 

LOGO

 

Age: 67

 

Director Since: 2011

 

Committee:

Compensation

(Chair)

 

Independent

 

RAYFORD WILKINS, JR.

 

Featured experience, qualifications, and attributes:

  Global business leadership and technology and finance expertise as CEO of Diversified Businesses of AT&T Inc. (NYSE: T), where he was responsible for international investments, AT&T Interactive, AT&T Advertising Solutions, customer information services, and the consumer wireless initiative in India. He retired from AT&T at the end of March 2012. Mr. Wilkins held several other leadership positions at AT&T and its predecessor companies, including Group President and CEO of SBC Enterprise Business Services and President and CEO of SBC Pacific Bell.

 

  Organizational leadership through service on the Advisory Council of the McCombs School of Business at the University of Texas at Austin.

 

Other public company boards (current): Morgan Stanley (NYSE: MS), Caterpillar Inc. (NYSE: CAT)

 

Prior public company boards (in last five years): none

For information regarding the nominees’ Common Stock holdings, compensation, and other arrangements, see “Information Regarding the Board of Directors,” “Beneficial Ownership of Valero Securities,” “Compensation Discussion and Analysis,” and “Compensation of Directors” elsewhere in this proxy statement.

 

   2019 PROXY STATEMENT    17


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    IDENTIFICATION OF EXECUTIVE OFFICERS

 

The following table lists Valero’s executive officers (for purposes of Rule 3b-7 under the Securities Exchange Act of 1934) as of December 31, 2018. As used in this proxy statement, our “named executive officers” are the persons listed in the Summary Compensation Table; our “named executive officers” include Mr. Ciskowski, who retired in May 2018, in compliance with Rule 402(a)(3)(ii) under Regulation S-K. There is no arrangement or understanding between any executive officer listed below or any other person under which the executive officer was or is to be selected as an officer.

 

     

Officer

Since

  

Age as of

12/31/2018

Joseph W. Gorder, President and Chief Executive Officer

  

2003

  

61

Jay D. Browning, Executive Vice President and General Counsel

  

1997

  

60

R. Lane Riggs, Executive Vice President and Chief Operating Officer

  

2011

  

53

Donna M. Titzman, Executive Vice President and Chief Financial Officer

  

2001

  

55

 

Gary K. Simmons, Senior Vice President–Supply, International Operations and Systems Optimization

 

  

 

2011

 

  

 

54

 

Mr. Gorder. Mr. Gorder’s biographical information is stated above under the captions “Information Concerning Nominees and Directors” and “Nominees.”

Mr. Browning served as Executive Vice President and General Counsel from May 1, 2014 until his retirement on January 1, 2019. He served as Senior Vice President and General Counsel from 2012 to 2014. He previously served as Senior Vice President–Corporate Law and Secretary from 2006 to 2012. Mr. Browning was elected Vice President of Valero in 2002, and was first elected as Secretary in 1997.

Mr. Riggs was elected Executive Vice President and Chief Operating Officer effective January 1, 2018. Prior to that, he served as Executive Vice President–Refining Operations and Engineering since 2014, and Senior Vice President–Refining Operations since 2011. His previous positions included Senior Vice President–Crude, Feedstock Supply & Trading and Vice President–Refinery Planning & Economics for Valero’s refining division. Mr. Riggs also served on the board of directors of Valero Energy Partners GP LLC (the general partner of Valero Energy Partners LP (NYSE: VLP, no longer public)).

Ms. Titzman has served as Executive Vice President and Chief Financial Officer since May 3, 2018. From 2013 to May 2018, she served as Senior Vice President and Treasurer having responsibility for banking, cash management, customer credit, investment management, and risk management. She has also served as Chief Financial Officer and director of Valero Energy Partners GP LLC (the general partner of Valero Energy Partners LP (NYSE: VLP, no longer public)) since 2013. She joined Valero in 1986 and held various leadership positions before being elected Valero’s Treasurer in 1998, and Vice President and Treasurer in 2001. Ms. Titzman is a Certified Public Accountant.

Mr. Simmons was elected Senior Vice President–Supply, International Operations and Systems Optimization effective May 1, 2014. He previously served as Vice President–Crude and Feedstock Supply and Trading from 2012 to 2014, and Vice President–Supply Chain Optimization from 2011 to 2012. Mr. Simmons joined Valero in 1987 as a process engineer and has since held many leadership positions including Vice President and General Manager of Valero’s Ardmore and St. Charles refineries.

Michael S. Ciskowski served as Executive Vice President and Chief Financial Officer of Valero from August 2003 until his retirement effective May 3, 2018. Before that, he served as Executive Vice President–Corporate Development since April 2003, and Senior Vice President in charge of business and corporate development since 2001.

Jason W. Fraser (age 50) was elected Executive Vice President and General Counsel effective January 1, 2019 (succeeding Mr. Browning). From May 2018 to January 1, 2019, Mr. Fraser served as Senior Vice President of Valero overseeing Valero’s Public Policy & Strategic Planning, Governmental Affairs, Investor Relations, and External Communications functions. From November 2016 to May 2018, he served as Vice President-Public Policy & Strategic Planning of Valero. From May 2015 to November 2016, Mr. Fraser served in London as Valero’s Vice President-Europe, overseeing Valero’s European commercial businesses. Prior to his service in London, he served in Valero’s San Antonio headquarters as Senior Vice President & Deputy General Counsel of Valero Services, Inc. from 2013 to 2015. Prior to that, he held various roles including Senior Vice President-Specialty Products of Valero Marketing and Supply Company, and as a member of Valero’s integration team in London tasked with integrating the European businesses acquired by Valero in 2011.

 

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    BENEFICIAL OWNERSHIP OF VALERO SECURITIES

 

SECURITY OWNERSHIP OF MANAGEMENT AND DIRECTORS

 

 

This table lists the beneficial ownership of our Common Stock as of February 20, 2019, by all directors and nominees, the executive officers named in the Summary Compensation Table, and the directors and executive officers of Valero as a group. No executive officer, director, or nominee for director owns any class of equity securities of Valero other than Common Stock. None of the shares listed below are pledged as security. The address for each person is One Valero Way, San Antonio, Texas 78249.

 

  Name of Beneficial Owner   

Shares

Held (1)

    

Shares Under

Options (2)

    

Total

Shares

    

Percent of

Class

Jay D. Browning

  

 

223,107

 

  

 

34,766

 

  

 

257,873

 

  

*

H. Paulett Eberhart

  

 

4,223

 

  

 

 

  

 

4,223

 

  

*

Joseph W. Gorder

  

 

467,602

 

  

 

161,297

 

  

 

628,899

 

  

*

Kimberly S. Greene

  

 

4,163

 

  

 

 

  

 

4,163

 

  

*

Deborah P. Majoras

  

 

19,282

 

  

 

 

  

 

19,282

 

  

*

Donald L. Nickles

  

 

25,767

 

  

 

 

  

 

25,767

 

  

*

Philip J. Pfeiffer

  

 

20,125

 

  

 

 

  

 

20,125

 

  

*

Robert A. Profusek

  

 

37,598

 

  

 

 

  

 

37,598

 

  

*

R. Lane Riggs

  

 

150,767

 

  

 

2,667

 

  

 

153,434

 

  

*

Gary K. Simmons

  

 

123,720

 

  

 

1,750

 

  

 

125,470

 

  

*

Donna M. Titzman

  

 

189,975

 

  

 

16,623

 

  

 

206,598

 

  

*

Stephen M. Waters

  

 

7,964

 

  

 

 

  

 

7,964

 

  

*

Randall J. Weisenburger

  

 

53,717

 

  

 

 

  

 

53,717

 

  

*

Rayford Wilkins, Jr.

  

 

31,409

 

  

 

 

  

 

31,409

 

  

*

Directors and current executive officers as a group (14 persons)

 

    

 

1,359,419

 

 

 

    

 

217,103

 

 

 

    

 

1,576,522

 

 

 

   *

 

 

*

Indicates that the percentage of beneficial ownership does not exceed 1% of the class.

 

(1)

Includes shares allocated under the Thrift Plan and shares of restricted stock. The balance for Mr. Browning is shown as of January 1, 2019, and includes shares held by his spouse. The balance shown for Mr. Waters includes 500 shares held in a trust for which Mr. Waters is a beneficiary. The balance shown for Mr. Waters does not include 2,940 shares held in a trust for which his spouse serves as trustee (Mr. Waters disclaims beneficial ownership of those shares).

 

(2)

Represents shares of Common Stock that may be acquired under outstanding stock options currently exercisable and that are exercisable within 60 days from February 20, 2019. Shares subject to options may not be voted unless the options are exercised.

 

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BENEFICIAL OWNERSHIP OF VALERO SECURITIES

 

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS

 

 

This table describes each person or group of affiliated persons known to be a beneficial owner of more than five percent of our Common Stock as of December 31, 2018. The information is based on reports filed by such persons with the SEC.

 

Name and Address of Beneficial Owner   

Amount and Nature of

Beneficial Ownership

 

Percent of

Class

 

BlackRock, Inc.

    55 East 52nd Street

    New York NY 10055

 

  

 

33,855,840 (1)

 

 

 

8.0%

 

 

The Vanguard Group

    100 Vanguard Blvd

    Malvern PA 19355

 

  

 

33,828,468 (2)

 

 

 

8.0%

 

 

State Street Corporation

    State Street Financial Center

    One Lincoln Street

    Boston MA 02111

 

  

 

22,372,500 (3)

 

 

 

5.3%

 

 

(1)

BlackRock, Inc. filed with the SEC an amended Schedule 13G on February 6, 2019, reporting that it or certain of its affiliates beneficially owned in the aggregate 33,855,840 shares, for which it had sole voting power for 28,303,026 shares and sole dispositive power for 33,855,840 shares.

 

(2)

The Vanguard Group filed with the SEC a Schedule 13G on February 11, 2019, reporting that it or certain of its affiliates beneficially owned in the aggregate 33,828,468 shares, for which it had sole voting power for 493,029 shares, shared voting power for 101,047 shares, sole dispositive power for 33,245,871 shares, and shared dispositive power for 582,597 shares.

 

(3)

State Street Corporation filed with the SEC a Schedule 13G on February 14, 2019, reporting that it or certain of its affiliates beneficially owned in the aggregate 22,372,500 shares, for which it had shared voting power for 20,262,884 shares, and shared dispositive power for 22,367,091 shares.

Section 16(a) Beneficial Ownership Reporting Compliance

 

 

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our executive officers, directors, and greater than 10 percent stockholders to file with the SEC certain reports of ownership and changes in ownership of our Common Stock. We believe that all Section 16(a) reports applicable to our executive officers, directors, and greater than 10 percent stockholders for 2018 were filed on time, with the exception of one Form 4 filed on behalf of our director Paulett Eberhart, which was inadvertently filed late in 2018.

 

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    RISK ASSESSMENT OF COMPENSATION PROGRAMS

 

We believe that our incentive compensation programs effectively balance risk and reward. When assessing risk, we consider both cash compensation payable under our annual incentive bonus plan as well as long-term incentives that are awarded under our stock incentive plan. We also consider the mix of award opportunities (i.e., short- versus long-term), performance targets and metrics, the target-setting process, and the administration and governance associated with our plans. We do not believe that our compensation policies and practices are reasonably likely to have an adverse effect on Valero. Features of our compensation programs that we believe mitigate excessive risk taking include:

 

   

the mix between fixed and variable, annual and long-term, and cash and equity compensation, designed to encourage strategies and actions that are in Valero’s long-term best interests;

   

determination of incentive awards based on a variety of indicators of performance, thus diversifying the risk associated with a single indicator of performance;

   

incorporation of relative total stockholder return into our incentive program, calibrating pay and performance relationships to companies facing the same or similar market forces as Valero;

   

multi-year vesting periods for equity incentive awards, which encourage focus on sustained growth and earnings;

   

maximum payout ceilings under our annual bonus program and performance share awards;

   

restricted stock awards that help contain volatility of incentive awards and further align executives’ interests with long-term stockholder value creation; and

   

our compensation-related policies, including our executive compensation “clawback” policy and stock ownership guidelines (discussed under the caption “Compensation Discussion and Analysis—Compensation Related Policies”).

 

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   COMPENSATION DISCUSSION AND ANALYSIS

 

 

TABLE OF CONTENTS

 

 

 

Company Overview                                                              22  
Company Performance                                                       23  
Alignment of Executive Pay to Company Performance                                                                           26  
Adoption of Compensation Governance Best Practices                                                                                  29  
Dialogue With Stockholders                                              30  
Administration of Executive Compensation Programs                                                                                 31  

Benchmarking Data

    31  

Process and Timing of Compensation Decisions

    32  
 

 

The following Compensation Committee Report is not “soliciting material,” is not deemed filed with the SEC, and is not to be incorporated by reference into any of Valero’s filings under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this proxy statement and irrespective of any general incorporation language therein.

COMPENSATION COMMITTEE REPORT

 

 

The Compensation Committee has reviewed and discussed the following Compensation Discussion and Analysis with management. Based on the foregoing review and discussions and such other matters the Compensation Committee deemed relevant and appropriate, the Committee recommended to the Board that the Compensation Discussion and Analysis be included in this proxy statement.

Members of the Compensation Committee:

Rayford Wilkins, Jr., Chair

Philip J. Pfeiffer

Robert A. Profusek

Compensation Discussion and Analysis—Overview

 

 

Company Overview

Valero strives to be the premier operator within the refining industry with a focus on creating value for its stockholders while serving the needs of all stakeholders. Sustained profitability within the fuels manufacturing and marketing business, in which operating margins are primarily influenced by volatile commodity prices, requires a sound business strategy, organizational discipline, and a committed workforce.

VALERO’S STRATEGY FOR VALUE CREATION

 

   

Maintain manufacturing excellence through safe, reliable, environmentally responsible operations.

   

Utilize a disciplined capital allocation that delivers distinctive financial results and peer-leading returns to stockholders.

   

Grow earnings through market expansion, margin improvement and operating cost control.

 

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COMPENSATION DISCUSSION AND ANALYSIS

 

Company Performance

While 2018 ended in a challenging environment for the refining and fuels marketing industry, Valero’s 2018 achievements and operational performance demonstrated sustained excellence in several key areas. This performance reflects Valero’s continuing commitment to being the premier operator within the industry.

OPERATIONAL AND SAFETY PERFORMANCE DRIVES PROFITABILITY

Operating safely and reliably is Valero’s highest priority and is critically important to maximizing profitability. Ongoing improvement and excellent performance in key operational and safety measures have enabled Valero to improve its earnings capabilities and realize industry-leading returns. The following charts demonstrate Valero’s multi-year improvement in performance resulting from strategic investments and a disciplined focus on operational improvement, maintenance and safety programs.

 

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MECHANICAL AVAILABILITY Valero's 97.2% mechanical availability for 20~ 8 represents highly reliable and industry-leading operations and near record performance. Excellent performance in this metric reflects our ability to avoid unplanned downtime and successfully execute planned and unplanned refinery maintenance.

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PERSONNEL SAFETY Personnel safety continues to improve and to outperform the industry average.

 

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COMPENSATION DISCUSSION AND ANALYSIS

 

 

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TIER 1 PROCESS SAFETY (Process Safety Event Rate, Three- Year Rolling Averages) Valero has experienced significant and continuous improvement in process safety since 2010. A Tier 1 Process Safety Event represents the loss of primary containment of a fuel, feedstock, or hazardous chemical from equipment associated with a refinery processing unit or storage tank and typically results in a safety and/or environmental incident.

Valero seeks to be the leader among its peers in stockholder returns and makes operational and capital allocation decisions in support of this objective. Through targeted share buybacks and sustainable dividend growth, Valero has prioritized the delivery of cash returns to stockholders.

 

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ANNUAL DIVIDEND PER SHARE AND WEIGHTED AVERAGE SHARES OUTSTANDING AS PERCENTAGE RELATIVE TO 2011

 

*

2019 dividends per share annualized based on most recent quarterly dividend.

 

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COMPENSATION DISCUSSION AND ANALYSIS

 

As a result of Valero’s performance and capital allocation decisions implemented under the current leadership team, Valero’s Total Stockholder Return1 (TSR) leads all companies within the XLE2 energy index constituency over the past four years.

 

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Footnotes:

 

1

TSR from Dec 31, 2014, through Dec 31, 2018. TSR includes stock price appreciation and dividends paid.

2

XLE includes refining peers PSX, MPC, HFC and 27 other energy companies such as XOM, CVX, SLB, COP, EOG, OXY, and KMI.

 

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COMPENSATION DISCUSSION AND ANALYSIS

 

Company Performance Highlights—2018

 

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Returned $3.08 billion to stockholders through dividends and share repurchases FINANCIAL " Achieved $3. 12 billion in net income ACHIEVEMENTS " Increased quarterly dividend by 14% (from $0 .70 to $0 .80 per share) " Maintained our investment-grade credit ratings " Maintained one of the lowest debt to capitalization ratios within peer group " Recorded second best-ever refinery Mechanical Availability results (97.2%) allowing us to maximize margin capture OPERATIONAL " Continued cost-savings efforts to increase our cumulative savings since initiation of the program in 2007 to $ 1.87 billion ACHIEVEMENTS " Achieved best-ever or second best-ever in four of our critical safety and environmental metrics " Completed a 16 ,500 barrel/day expansion of our Diamond Green Diesel renewable diesel plant STRATEGIC " Acquired three ethanol plants from Green Plains Renewable Energy, adding 280 million gallons per year of ethanol production capacity & OTHER ACHIEVEMENTS " Expanded our international logistics and distribution capabilities through strategic acquisitions of storage facilities in Wales and of a fuels distribution business in Peru " Recognized by Institutional Investor magazine for "Best CEO'' and "Best Investor Relations Department" in our industry for the third year in a row " Simplified corporate structure through the buy-in of Valero Energy Partners LP (VLP)-transaction closed on January 10, 2019

Alignment of Executive Pay to Company Performance

Valero’s executive pay program is designed to reward executives for superior company performance. The program design emphasizes variable incentive pay (delivered through annual and long-term incentives) such that an executive’s ultimate realizable pay is significantly dependent upon the achievement of both absolute and relative performance measures.

VALERO’S COMPENSATION PHILOSOPHY

 

 

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Tightly link company performance and executive pay

 

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Align the interests of executives and stockholders

 

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Manage risk and adopt best practices in executive pay

 

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Balance compensation over short- and long-term

 

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Facilitate retention of top executive talent

 

 

 

 

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COMPENSATION DISCUSSION AND ANALYSIS

 

Executive Transition

On May 3, 2018, Ms. Donna Titzman was promoted to the role of Executive Vice President and Chief Financial Officer (CFO), replacing Mr. Michael Ciskowski who retired. Unless noted otherwise, the elements and values of Valero’s 2018 executive pay program as described in this document reflect the CFO pay for Ms. Titzman.

ELEMENTS OF EXECUTIVE COMPENSATION—SUMMARY

The primary elements of our 2018 executive compensation program are summarized in the table below.

 

Element   Form        Key Characteristics
Base Salary   Cash     Takes into consideration scope and complexity of the role, peer market data, experience of the incumbent, and individual performance
   

Aligned with competitive practices in order to support recruitment and retention of top talent

 

Annual Bonus Plan   Performance-Based Cash    

Variable component of annual pay focused on achievement of short-term annual financial, operational and strategic objectives that are critical drivers for safe and reliable operations, returns to stockholders, and the disciplined use of capital

 

Long-term

Incentive Program

 

Performance Shares

(50%)

    Measures relative Total Shareholder Return (TSR) against eight-company Performance Peer group across a three-year period
    Incentivizes stockholder returns
   

Value delivered is driven by performance relative to relevant peers in industry

 

 

Restricted Stock

(50%)

    Vests 1/3 per year over three years
    Value delivered is driven by absolute performance of company stock
    Aids in retention of critical talent

 Fixed     Variable

 

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2018 TARGET PAY MIX FOR EXECUTIVES Variable pay tied to company performance represents the majority of total target pay for our executives as shown for the various executive levels below.

 

*

Represents the target pay mix for Ms. Titzman as EVP & CFO, who assumed the role on May 3, 2018 upon the retirement of Mr. Ciskowski.

 

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COMPENSATION DISCUSSION AND ANALYSIS

 

 

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EXECUTIVE PAY IN SUMMARY The following charts summarize year over year changes to TargetTotal Pay1 from 2016 through 2018 for our CEO and our four other Named Executive Officers2 (shown in average). CEO Pay ($ mill) Avg of other NEOs ($ mill)

Footnotes:

 

(1)

Base salary plus target bonus plus target long-term incentives value.

(2)

Includes Ms. Titzman as EVP & CFO, but excludes Mr. Ciskowski who retired on May 3, 2018.

While Target Total Pay for the CEO increased slightly from 2017, the average Target Total Pay for the four other Named Executive Officers (NEOs) decreased from 2017. This decrease primarily reflects the difference in Target Total Pay between Mr. Ciskowski, Valero’s former Executive Vice President & CFO, and Ms. Titzman, his successor.

PAY FOR PERFORMANCE ALIGNMENT RELATIVE TO PEERS

The table below shows relative performance and pay versus peers over the three- and five-year periods ending 2017 (results through 2018 cannot be determined until 2018 executive pay for all comparator companies is disclosed in 2019 proxy statements). Valero’s pay results are generally aligned with TSR performance results, but realizable compensation values for Valero’s executives are at a lower percentile versus peers than Valero’s TSR performance.

 

              Valero’s Percentile Ranking vs. Peers1
Timeframe      Role      Relative
Performance
vs. Peers
     Relative Pay2
vs. Peers

3 Years

    

CEO

 

    

100th percentile

 

    

55th percentile

 

     Top-5 Executives      100th percentile      67th percentile

5 Years

    

CEO

 

    

100th percentile

 

    

64th percentile

 

     Top-5 Executives      100th percentile      67th percentile

Footnotes:

 

(1)

Compensation Comparator Group of 11 peers as described in the “Benchmarking Data” section of this document. Pay comparisons are drawn against the “Top-5” group of executives at Valero and the peers, inclusive of the CEO, the CFO, and the three highest-paid other executive officers.

(2)

Represents “realizable” pay as reported in company annual proxy statements and includes: salaries; annual bonuses earned; long-term incentive awards that have vested or been exercised; the increase/decrease in long-term incentive awards that are still outstanding; and one-off payments like severance to outgoing executives and sign-on awards for incoming executives.

 

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COMPENSATION DISCUSSION AND ANALYSIS

 

The chart below illustrates the CEO three-year relationship between relative pay and relative performance versus the peers through 2017 (referenced in the preceding table).

 

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3-YEAR CUMULATIVE REAL COMPENSATION PERCENTILE VS. CUMULATIVE TOTAL SHAREHOLDER RETURN PERCENTILE (1 /1/15-12/31/17)

 

1 

Three-year pay history reflects Mr. Gorder’s realizable pay during this period.

Compensation Discussion and Analysis—Detail

 

 

Adoption of Compensation Governance Best Practices

We use executive pay arrangements that are commonly recognized as best practices. Our executive pay program includes these leading practices.

PAY FOR PERFORMANCE

 

   

Incentive compensation (annual bonus and long-term incentives) represents the majority (ranging from 70 percent to 88 percent) of the targeted direct compensation of our named executive officers.

   

We target 50 percent of the long-term incentive value granted to our named executive officers to be awarded in the form of performance shares tied to relative TSR performance.

STOCKHOLDER ALIGNMENT

 

   

We use multiple performance metrics to motivate achievements that complement one another and that contribute to the long-term creation of stockholder value.

   

Our executive officers and directors are subject to meaningful stock ownership guidelines.

   

We engage in stockholder outreach to solicit the input of stockholders to our pay programs.

 

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COMPENSATION DISCUSSION AND ANALYSIS

 

PROGRAM DESIGN

 

   

Incentives are balanced between absolute performance goals (rewarding the achievement of pre-established goals) and relative measures (linking the incentives to surpassing the performance of our peers).

   

We have maximum payout ceilings on both our annual bonus opportunities and our performance shares.

   

Our executive pay programs include design features that mitigate against the risk of inappropriate behaviors.

PAY BENCHMARKING

 

   

Valero’s revenues and market capitalization are within a reasonable range of the median revenues and market capitalization of the peer group of companies within our industry against which we benchmark our executives’ pay, reflecting that we make pay comparisons in a size-appropriate fashion.

   

We benchmark against the median pay levels of the peer group for each of base pay, annual bonus, and long-term incentives.

AVOID PROBLEMATIC PAY PRACTICES

 

   

We have eliminated all change-in-control gross-ups for potential parachute excise taxes and maintain a policy against the implementation of change-in-control arrangements that contain gross-ups.

   

We have a policy stipulating that grants of performance shares contain “double trigger” terms and conditions for vesting in a change-of-control context such that performance shares will vest on a partial, pro rata basis following termination of employment (rather than vesting automatically in full upon the change of control).

   

Our long-term incentive program mandates that stock options cannot be re-priced without stockholder approval.

   

Our executive officers and directors are prohibited from pledging shares of Common Stock as collateral or security for indebtedness, and may not purchase, sell, or write calls, puts, or other options or derivative instruments that are designed to hedge or offset any decrease in the market value of our Common Stock.

   

We have a “clawback” policy requiring the return of incentive payments in certain restatement situations.

GOOD GOVERNANCE

 

   

Our Compensation Committee is composed entirely of directors who meet the independence requirements of the SEC and NYSE as well as pertinent tax requirements for preserving the deductibility of executive pay.

   

Our Compensation Committee retains the services of an independent executive compensation consultant that provides services directly to the Committee.

   

We conduct an annual say-on-pay vote as recommended by our stockholders.

   

We have a declassified board of directors; all of our directors stand for re-election each year.

   

Our Board has approved a limitation on the amount of equity compensation that may be paid to our non-employee directors in any year.

   

We have engaged a third-party to conduct a review of our governance documents and committee charters, and we adopted revisions thereto, to ensure compliance with regulatory requirements and alignment with best practices.

   

Our Bylaws grant proxy access to our stockholders.

   

Our Bylaws permit stockholders to call special meetings of stockholders.

Dialogue With Stockholders

Valero’s strong corporate governance principles, implemented under the guidance of the Board, are a major driving force in encouraging constructive dialogue with stockholders and other stakeholders. Valero’s senior management team reaches out to stockholders for dialogue concerning our compensation programs and other matters of concern to our stockholders. Our stockholder outreach efforts have been constructive and have provided management with insight on executive compensation issues and other matters that are important to our stockholders. We carefully consider the results of the most recent stockholder advisory vote on executive compensation (say-on-pay). As part of our dialogue with stockholders, we determine how the stockholders have voted on our say-on-pay proposals, and we discuss any issues of concern. Our engagements with stockholders have provided management with the opportunity to review our executive compensation practices and explain the principles on which they were designed. Our engagement process is more fully described in the “Stockholder Engagement” section of this proxy statement.

 

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COMPENSATION DISCUSSION AND ANALYSIS

 

Administration of Executive Compensation Programs

Our executive compensation programs are administered by our Board’s Compensation Committee. The Committee is composed of three independent directors from our Board. They do not participate in our executive compensation programs. Policies adopted by the Committee are implemented by our compensation and benefits staff. In 2018, the Committee retained Exequity LLP as an independent compensation consultant for executive and director compensation matters. The nature and scope of the consultant’s services are described below under the caption, “Compensation Consultant Disclosures.”

BENCHMARKING DATA

The Compensation Committee uses peer group compensation data to assess benchmarks of base salary, annual incentive compensation, and long-term incentive compensation. The Committee uses the Compensation Comparator Group (further described below) to benchmark compensation for our named executive officers. This reference is sometimes referred to in this proxy statement as “compensation survey data” or “competitive survey data.”

Compensation Comparator Group

The Compensation Comparator Group comprises the following companies that engage in U.S. domestic oil and gas operations:

 

Andeavor1

   Marathon Oil Corporation

BP p.l.c.

   Marathon Petroleum Corporation

Chevron Corporation

   Murphy Oil Corporation

Exxon Mobil Corporation

   Phillips 66

Hess Corporation

   Royal Dutch Shell plc

HollyFrontier Corporation

  

1 Acquired by Marathon Petroleum Corporation in October 2018.

The Compensation Comparator Group is relevant to our business because we compete with the member companies for talent at every level from entry-level employees to senior executives. We believe that our pay comparisons are size-appropriate because the median revenues and market capitalization of the Compensation Comparator Group are both within a reasonable range of Valero’s revenues and market capitalization for the period covered in the pay study. Both were below Valero’s revenues and market capitalization. Our understanding of this group’s compensation programs and levels is vitally important in order to remain competitive in the market for employee talent. Given Valero’s size and complexity, our employees at all levels would be qualified candidates for similar jobs at any of the companies included in this group.

Our compensation and benefits staff, under supervision of the Compensation Committee, develops recommendations for base salary, bonuses, and other compensation arrangements using the compensation survey data with assistance from Exequity. Our use of the data is consistent with our philosophy of providing executive compensation and benefits that are competitive with companies that we compete with for executive talent. In addition, the competitive compensation survey data and analyses assist the Compensation Committee in assessing our pay levels and targets relative to companies in the Compensation Comparator Group as described under the caption “Elements of Executive Compensation—Benchmarking Competitive Pay Levels.”

Performance Peer Group

We also use a peer group for purposes of determining the relative performance of Valero’s total stockholder return (TSR). We use this relative TSR metric in our performance shares incentive program. For the 2018 performance peer group, companies were selected based on their engagement in U.S. domestic refining and marketing operations.

Our use of different peer groups for compensation and performance is based on the following. We believe that when measuring business performance, companies with a similar business model should be included. But we also recognize that comparing the performance of Valero’s generally non-integrated operations with those of upstream and integrated oil companies can result in anomalies due to the mismatch in how similar industry-specific events can impact companies with these varying business models. In addition, there are relatively few companies in our business against which clear comparisons can be drawn, rendering a peer group composition more challenging than in most industries.

 

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COMPENSATION DISCUSSION AND ANALYSIS

 

In October 2018, the Compensation Committee established a peer group for TSR measurement applicable to the 2018 awards of performance shares (which have TSR measurement periods ending in 2019, 2020, and 2021). Removed from the peer group for 2018 was Andeavor, which was acquired in 2018 by Marathon Petroleum Corporation. Valero is included in this peer group when results are calculated. In addition to Valero, the peer group for the 2018 awards is composed of the following entities.

 

BP p.l.c.

   Marathon Petroleum Corporation

CVR Energy Inc.

   PBF Energy Inc.

Delek US Holdings

   Phillips 66

HollyFrontier Corporation

   Royal Dutch Shell plc

PROCESS AND TIMING OF COMPENSATION DECISIONS

The Compensation Committee reviews and approves all compensation targets and payments for the named executive officers each year in conjunction with Valero’s annual strategic planning meeting (October or November). The Chief Executive Officer evaluates the performance of the other executive officers and develops individual recommendations based upon the competitive survey data. The Chief Executive Officer and the Committee may make adjustments to the recommended compensation based upon an assessment of an individual’s performance and contributions to Valero. The compensation for the Chief Executive Officer is reviewed by the Compensation Committee and recommended to the Board’s independent directors for approval. This assessment is based on the competitive survey data and other factors described in this Compensation Discussion and Analysis, and adjustments may be made based upon the independent directors’ evaluation of the Chief Executive Officer’s performance and contributions.

We evaluate the total compensation opportunity offered to each executive officer at least once annually. The Compensation Committee establishes the target levels of annual incentive and long-term incentive compensation for the current fiscal year based upon its review of competitive market data provided by Exequity. The Compensation Committee also reviews competitive market data for annual salary rates for executive officer positions for the next fiscal year and recommends new salary rates to become effective the next fiscal year. The Compensation Committee may, however, review salaries or grant long-term incentive awards at other times during the year because of new appointments or promotions. Our Compensation Committee does not time the grants of long-term incentive awards around Valero’s release of undisclosed material information.

Elements of Executive Compensation

Our executive compensation programs include the following material elements:

 

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We chose these elements to foster the potential for both current and long-term compensation opportunities and to attract and retain executive talent. We believe that variable pay (i.e., annual incentive bonus and long-term equity-based incentives that do not become a permanent part of base salary)—when delivered through appropriate incentives—is ultimately the best way to drive total compensation among our executive officers.

We believe that a significant portion of the compensation paid to our named executive officers should be incentive-based and determined by both company and individual performance. Our executive compensation program is designed to accomplish the following long-term objectives:

 

   

to provide compensation payouts that are tied to the performance of internal and external metrics both on a relative and absolute basis;

   

to align executives’ pay opportunities with stockholder value creation; and

   

to attract, motivate, and retain the best executive talent in our industry.

We believe that superior performance is motivated when an executive’s earn-out of his or her full compensation opportunities is contingent on achieving performance results that exceed pre-established goals and/or outperforming our industry peers.

 

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COMPENSATION DISCUSSION AND ANALYSIS

 

Our annual incentive program rewards are tied to:

 

   

Valero’s attainment of key financial performance measures;

   

Valero’s success in key operational and strategic measures;

   

safe operations;

   

environmental responsibility;

   

reliable operations; and

   

cost management.

Our long-term equity incentive awards are designed to tie executives’ financial reward opportunities with increased stockholder value creation as measured by:

 

   

long-term stock price performance (both absolute and relative to our peer group); and

   

payment of regular dividends.

Base salary is designed to provide a fixed level of competitive pay that reflects the executive officer’s primary duties and responsibilities, and to provide a base upon which incentive opportunities and benefit levels are established.

The long-term incentive awards in our compensation program include performance shares and restricted stock. We believe that incentives that drive stockholder value should also drive executive officer pay. We note that performance shares, when issued, do not assure a payout to the executive officer unless and until stockholder value is created through both company performance and TSR relative to our peers. We also believe that executive officers should hold an equity stake in the company to further motivate the creation of stockholder value, which is why we include awards of restricted stock in our long-term incentive program coupled with stock ownership guidelines.

BENCHMARKING COMPETITIVE PAY LEVELS

Our Compensation Committee benchmarks base salaries for our named executive officers against the 50th percentile (median) of competitive survey data and may make decisions to pay above or below this target based on individual circumstances (e.g., performance of the executive, internal parity, and management succession planning).

We also benchmark annual bonus, long-term incentive targets (expressed as a percentage of base salary), and total targeted pay for each executive position by reference to the 50th percentile (median) benchmark of the Compensation Comparator Group, and may make decisions to award above or below these targets based on individual circumstances (e.g., performance of the executive, internal parity, and management succession planning). Preserving flexibility to award incentive opportunities above or below the median peer levels helps tailor the incentives to the executive and the role, resulting in a more customized match of competitive pay opportunities and pay-for-performance design attributes.

In addition to benchmarking competitive pay levels to establish compensation levels and targets, we also consider the relative importance of a particular management position in comparison to other management positions in the organization. In this regard, when setting the level and targets for compensation for a particular position, we evaluate that position’s scope and nature of responsibilities, size of business unit, complexity of duties and responsibilities, as well as that position’s relationship to managerial authorities throughout the management ranks of Valero.

RELATIVE SIZE OF MAJOR COMPENSATION ELEMENTS

An executive officer’s total direct compensation is structured so that realizing the targeted amount is highly contingent on Valero’s performance due to the executive’s level of at-risk pay. We use the term “total direct compensation” to refer to the sum of an executive’s base salary, targeted incentive bonus, and the target values of long-term incentive awards.

 

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COMPENSATION DISCUSSION AND ANALYSIS

 

The following graphics summarize the relative target pay mix of base salary and incentive compensation for 2018 for our named executive officers.

 

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*

Represents the target pay mix for Ms. Titzman as EVP & CFO, who assumed the role on May 3, 2018 upon the retirement of Mr. Ciskowski.

When setting executive compensation, the Compensation Committee considers the amount and form of compensation payable to an executive officer. The Committee seeks to achieve an appropriate balance between immediate cash rewards for the achievement of company and personal objectives and long-term incentives that align the interests of our officers with those of our stockholders. The size of each element is based on the assessment of competitive market practices as well as company and individual performance.

The Compensation Committee analyzes total direct compensation from a market competitive perspective, and then evaluates each component relative to its market reference. The Committee believes that making a significant portion of an executive officer’s incentive compensation contingent on long-term stock price performance more closely aligns the executive officer’s interests with those of our stockholders.

Because we place a large amount of total direct compensation at risk in the form of variable pay (annual bonus and long-term incentives), the Committee generally does not adjust current compensation based upon realized gains or losses from prior incentive awards or current stock holdings. For example, we normally will not change the size of a target long-term incentive grant in a particular year solely because of Valero’s stock price performance during the immediately preceding years. The Compensation Committee recognizes that the refining and marketing industry is volatile and strives to maintain a measure of predictability consistent with a substantial reliance on variable compensation structures in furtherance of a fundamental pay-for-performance philosophy.

INDIVIDUAL PERFORMANCE AND PERSONAL OBJECTIVES

The Compensation Committee evaluates the individual performance of, and performance objectives for, our named executive officers. Performance and compensation for our Chief Executive Officer are reviewed and approved by the Board’s independent directors with recommendations from the Compensation Committee. For officers other than the Chief Executive Officer, individual performance and compensation are evaluated by the Compensation Committee with recommendations from our Chief Executive Officer. Individual performance and objectives are specific to each officer position.

Criteria used to measure an individual’s performance may include assessment of objective criteria (e.g., execution of projects within budget parameters, improving an operating unit’s profitability, or timely completing an acquisition or divestiture) as well as qualitative factors such as the executive’s ability to lead, ability to communicate, and successful adherence to Valero’s stated values (i.e., commitment to safety, commitment to the environment, commitment to our communities, commitment to our employees, and commitment to our stakeholders). There are no specific weights assigned to these various elements of performance.

 

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COMPENSATION DISCUSSION AND ANALYSIS

 

BASE SALARIES

Base salaries for our named executive officers are approved by the Compensation Committee after taking into consideration median practices for comparable roles among the peer companies. The Compensation Committee also considers the recommendations of the Chief Executive Officer for officers other than the Chief Executive Officer. The base salary and all other compensation of the Chief Executive Officer are reviewed and approved by the independent directors of the Board.

Base salaries are reviewed annually and may be adjusted to reflect promotions, the assignment of additional responsibilities, individual performance, or the performance of Valero. Salaries are also periodically adjusted to remain competitive with companies within the compensation survey data. An executive’s compensation typically increases in relation to his or her responsibilities within Valero.

ANNUAL INCENTIVE BONUS

We believe that the achievement of short-term financial and operational performance objectives is critical to creating long-term stockholder value. The annual incentive bonus is designed to incentivize executives to achieve industry-leading results as reflected through business-critical financial, operational, and strategic performance measures. We continue as the premier operator in the refining industry through disciplined execution of our strategic plan and daily focus on operational excellence by our employees and management team. The annual incentive bonus design guides and incentivizes this daily focus with particular emphasis on ensuring safety and protection of our employees, contractors and communities. Our additional focus on operating our plants reliably at the lowest cost allows us to maximize profitability in all margin environments.

The Compensation Committee considers the following to determine bonuses for each officer:

 

   

the position of the named executive officer, which is used to determine a targeted percentage of base salary that may be awarded as incentive bonus;

   

pre-established performance objectives that include a quantitative financial performance goal (Financial Performance Goal), operational performance goals (Operational Performance Goals), and qualitative goals and objectives including the effective use of capital (Strategic Company Performance Goals) for the completed fiscal year; and

   

a qualitative evaluation of the individual’s performance.

Thus, the amount of the bonus ultimately paid to a named executive officer takes into consideration the Compensation Committee’s assessment of Valero’s and each executive’s performance in relation to the pre-established performance goals more fully described below.

Financial Performance Goal

The Financial Performance Goal considered for our annual incentive bonus targets is EPS, adjusted for special items and impairments that are non-recurring and/or not indicative of our core performance (i.e., adjusted earnings per common share – assuming dilution). The Compensation Committee establishes minimum, target, and maximum levels for EPS in the first quarter of the performance year. We believe that this measure appropriately reflects our business planning process and corporate philosophy regarding financial performance measurement. Valero’s performance in 2018 was $7.37 per share (versus a target of $4.96 per share). See Annex A for the list of items that were excluded from earnings per common share – assuming dilution to determine adjusted earnings per common share – assuming dilution.

Operational Performance Goals

The Operational Performance Goals considered for our annual incentive bonuses, as established and approved by the Compensation Committee in the first quarter of the performance year, are measured against:

 

   

Valero’s achievements in the areas of health, safety, and environmental;

   

Valero’s achievements in improving refining competitiveness through improved mechanical availability; and

   

Valero’s achievements in cost management.

We believe that these measures appropriately reflect key business objectives of Valero. After completion of the fiscal year, each of the Operational Performance Goals is measured against Valero’s actual performance in these areas and the minimum, target, and maximum levels established by the Compensation Committee. Valero’s performance score for 2018 for this category was 86.44 percent (versus a target score of 40.00 percent). For additional details on Valero’s 2018 performance versus targeted amounts for our Operational Performance Goals, see the “Annual Incentive Bonus Performance Goals” table that follows in this section.

 

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Strategic Company Performance Goals

Valero’s Strategic Company Performance Goals were established in the first quarter of the 2018 performance year by the Chief Executive Officer and approved by the Compensation Committee. Included in these goals for 2018 was a qualitative capital-based performance measure assessed by the Compensation Committee through return on capital employed and a qualitative assessment by the Compensation Committee of cost control initiatives. After completion of the fiscal year, the Strategic Company Performance Goals were evaluated as a whole. Significant achievements in this area for 2018 included: (i) the creation of long-term stockholder value and the return of cash to stockholders through a quarterly cash dividend increase from $0.70 per share to $0.80 per share and $1.7 billion of common stock repurchases; (ii) the return of 54% of adjusted net cash provided by operating activities to stockholders through dividends and stock buybacks, exceeding management’s payout goal; (iii) the successful expansion of our ethanol business through the acquisition of three ethanol plants; (iv) the global expansion of fuel distribution capabilities in Latin America and Europe; (v) the successful execution of Valero’s capital expenditures plan which totaled $2.7 billion for 2018; and (vi) identified cost savings and expense management totaling $168 million. Valero’s performance score for 2018 for this category was 20.00 percent (versus a target score of 20.00 percent).

 

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Valero’s Achievement of Performance Goals for 2018

The following table details the performance targets and final results of Valero’s achievements in 2018 for each of the sub-components of the bonus program’s Financial Performance Goal, Operational Performance Goals, and Strategic Goals.

 

Annual Incentive Bonus Performance Goals & Achievement  
          Component   Weighting     Minimum     Target     Maximum    

Achieved

in 2018

   

Bonus

Percent

Earned (1)

 

Financial Performance Goal

           
  I.    

EPS,adjusted ($/share)

    40.00     $1.24       $4.96       $9.92       $7.37       66.87
     

 

 

           

 

 

 

Operational

           
  II.    

Health,Safety, and Environmental (2)

    13.33     0.00     112.50     225.00     219.76     29.30
  III.    

MechanicalAvailability (3)

    13.33     95.6       96.2       97.6       97.2       27.14
  IV.    

RefiningCash Operating Expense Management (4)
($/EDC)

   

 

13.34

 

 

   

 

$145

 

 

 

   

 

$120

 

 

 

   

 

$111

 

 

 

   

 

$110

 

 

 

   

 

30.00

 

 

     

 

 

           

 

 

 
    subtotal     40.00           subtotal       86.44
     

 

 

           

 

 

 

Strategic

           
  V.    

CompanyGoals and Objectives (4)

    20.00             20.00
     

 

 

           

 

 

 
Total     100.00                                     173.31

Footnotes:

 

(1)

Represents performance achieved in 2018 and component percent weighting.

 

(2)

Consists of 14 separately weighted health, safety, and environmental metrics across Valero’s three operations business units with an aggregated performance score opportunity ranging from 0% to 225%. Performance “achieved” was at 97.7% of maximum.

 

(3)

Using the Mechanical Availability scoring from the industry-standard Solomon Associates survey in which “Target” represents median performance.

 

(4)

Using the Cash Operating Expense per EDC (Equivalent Distillation Capacity) metric as reported in the industry-standard Solomon Associates survey in which “Target” represents median performance (lower is better).

 

(5)

As established by the Compensation Committee in consultation with the CEO, and includes a qualitative assessment of progress against strategic objectives, use of capital and cost control initiatives. Performance “achieved” was at maximum.

The final 2018 bonus amounts paid to our named executive officers were determined as a function of: (i) Valero’s performance as measured against the financial, operational, and strategic performance goals, and (ii) the Committee’s assessment of the named executive officers’ individual performance in 2018.

The following table summarizes the 2018 bonus amounts paid to our named executive officers:

 

      Gorder      Titzman      Riggs      Browning      Simmons  

Base Salary (1)

  

$

1,660,000

 

  

$

641,667

 

  

$

800,000

 

  

$

650,000

 

  

$

625,000

 

Bonus Target Percentage (2)(8)

  

 

160%

 

  

 

65%/80%

 

  

 

80%

 

  

 

80%

 

  

 

65%

 

Bonus Target Amount (3)(8)

  

$

2,656,000

 

  

$

484,583

 

  

$

640,000

 

  

$

520,000

 

  

$

406,250

 

Bonus Percentage Achieved (4)

  

 

173.31%

 

  

 

173.31%

 

  

 

173.31%

 

  

 

173.31%

 

  

 

173.31%

 

Earned Target Incentive Bonus (5)

  

$

4,603,114

 

  

$

839,831

 

  

$

1,109,184

 

  

$

901,212

 

  

$

704,072

 

Bonus Amount Paid (6)(7)

  

$

4,625,000

 

  

$

840,000

 

  

$

1,110,000

 

  

$

900,000

 

  

$

705,000

 

Footnotes:

 

  (1)

Base salary is the officer’s base salary for 2018.

 

  (2)

Bonus target as a percentage of base salary. See footnote 8 for an explanation of the percentages applicable to Ms. Titzman.

 

  (3)

Determined by multiplying “Bonus target percentage” times “Base salary.”

 

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Footnotes (cont.):

 

  (4)

Valero’s performance score for “Bonus percentage achieved” was 173.31% based on results of the Annual Incentive Bonus Performance Goals detailed in the previous table.

 

  (5)

Determined by multiplying “Bonus target amount” times “Bonus percentage achieved.”

 

  (6)

As disclosed in the Summary Compensation Table. The actual amount paid was determined based on: (i) Valero’s performance as measured against financial, operational, and strategic goals, and (ii) the Committee’s assessment of the named executive officers’ individual performance in 2018.

 

  (7)

Mr. Ciskowski retired on May 3, 2018, and was not eligible to receive a bonus for 2018.

 

  (8)

Based on her promotion to EVP and CFO effective May 3, 2018, the “Bonus target amount” for Ms. Titzman represents four months of her pre-promotion salary ($575,000) times her pre-promotion bonus target percentage of 65% PLUS eight months of her post-promotion salary ($675,000) times her post-promotion target bonus percentage of 80%.

LONG-TERM INCENTIVE AWARDS

We provide stock-based, long-term compensation to our executive officers through our stockholder-approved equity plan. The plan provides for a variety of stock and stock-based awards, including restricted stock which vests over a period (at least three years) determined by the Compensation Committee, and performance shares that vest (become non-forfeitable) contingent upon Valero’s achievement of an objective performance goal.

For 2018, the mix of long-term incentives awarded to our named executive officers was split evenly, on a share value basis, between grants of restricted stock and awards of performance shares. We believe that these awards create a powerful link between the creation of stockholder value and executive pay delivered. In addition, we believe that the balance between absolute performance alignment through restricted shares, and the relative performance objectives underscored by the relative TSR performance shares, is appropriate. In order for executives to fully realize their targeted opportunities, Valero must both perform well and beat the stock price performance of companies in the Performance Peer Group listed previously under the caption “Administration of Executive Compensation Programs—Benchmarking Data—Performance Peer Group.”

For each officer, a target amount of long-term incentives is established and is expressed as a percentage of base salary. In establishing award sizes, the Compensation Committee makes primary reference to median peer company grant levels and makes individualized determinations of award sizes based on additional factors such as: each executive’s experience and contribution to company success, internal parity, and management succession. In addition, an executive’s targeted award may be adjusted based upon the Compensation Committee’s determination of the officer’s individual performance, which (for officers other than the Chief Executive Officer) takes into consideration the recommendation of the Chief Executive Officer.

Performance Shares

For 2018, performance share targets represent 50 percent of each executive officer’s long-term incentive target on a share value basis. Performance shares are payable in shares of Common Stock on the vesting dates of the performance shares. Shares of Common Stock are earned with respect to vesting performance shares only upon Valero’s achievement of TSR objectives (measured in relation to the TSR of our peers). Shares not earned in a given performance period expire and are forfeited. Performance shares are also subject to potential forfeiture if an executive terminates his or her employment prior to vesting.

The performance shares awarded in 2018 are subject to vesting in three increments, based upon our TSR compared to our peer group during one-year, two-year, and three-year performance periods. Performance periods measure TSR based on the average closing stock prices for the final 15 trading days of December at the beginning and end of the performance periods, including dividends. At the end of each performance period, our TSR for the period is compared to the TSR of our peer group. Shares of Common Stock are awarded based on Valero’s TSR performance versus the peers’ TSR as shown in the table below.

 

  Percentile TSR Rank (1)   

% of Target
Performance Shares

Awarded

as Common Shares

      1st or 2nd Position

  

200%

           50th Percentile

  

100%

Last or 2nd-to-Last Position

  

    0%

 

  (1)

TSR performance ranking between the 2nd and 2nd-to-last positions generate payouts determined by straight-line interpolation unless ranking of 50th percentile is achieved, which pays out at 100%.

 

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Additional shares of Common Stock may be earned based on the accumulated value of dividends paid on Valero’s Common Stock during the pertinent performance period. The amount of accumulated dividends is multiplied by the earned percentage payout (if any) for the performance shares, and the product is divided by the fair market value of the Common Stock on the performance shares’ vesting date. The resulting amount is paid in a whole number of shares of Common Stock. The value of the dividends credited to the outstanding performance shares is paid to participants only to the extent that the underlying performance shares earn shares of Common Stock, based on Valero’s TSR performance, and is paid (in shares of Common Stock) only when the underlying performance shares vest.

Upon vesting, officers can designate up to 50% of the after-tax vested shares of Common Stock to be delivered in cash. If a cash payment is elected, the total number of after-tax shares to be delivered is multiplied by the fair market value of the Common Stock on the performance shares’ vesting date, and the product is multiplied by the cash payment election percentage designated by the award recipient. The resulting amount is paid in cash, with the remainder paid in shares of Common Stock.

As shown in the following table, the vesting outcomes for Valero’s previously granted and outstanding Performance Shares which had performance periods ending on December 31, 2018 effectively demonstrates the alignment of Valero’s long-term incentive program to the interests of Valero’s stockholders. While Valero’s 2018 operational and financial results were excellent, Valero’s total shareholder return performance versus the peer group over the one, two, and three-year periods ending in 2018 resulted in delivery of performance shares to executives at levels below target.

 

  Performance Shares Grant

  (Year & Segment)

  

Final Percentile TSR Ranking
versus Peers

  

Vesting Percentage of Target

(Target = 100%)

(Range of 0% to 200%)

2015 (final of 3 segments)

  

6th of 9

  

62.5%

2016 (2nd of 3 segments)

  

8th of 9

  

    0%

2017 (1st of 3 segments)

  

9th of 9

  

    0%

Restricted Stock

Restricted stock targets represent the remaining 50 percent of each executive officer’s long-term incentive target on a share value basis. Restricted stock is subject to forfeiture if an executive terminates his or her employment prior to vesting (other than upon retirement and other than following a permitted voluntary termination following a change in control). Dividends are paid on shares of restricted stock as and when dividends are declared and paid on Valero’s outstanding common stock.

Our mix of long-term incentives provides an appropriate balance between the pay-for-performance attributes of performance shares and the equity alignment and retentive qualities of restricted shares. This mix also generally aligns with market practices, and thus supports recruitment and retention of top-quality executive talent.

The Compensation Committee considers and grants long-term incentive awards to our officers and certain other employees annually, typically during the fourth quarter in conjunction with the last regularly scheduled meeting of the Compensation Committee for the year. The performance shares and restricted stock components of our executive officers’ 2018 long-term incentive awards were granted in October 2018.

PERQUISITES AND OTHER BENEFITS

Consistent with our goal of providing compensation and benefits that are aligned with market practices among our peers, officers are eligible to receive reimbursement for club dues, federal income tax preparation, home security protection, and an annual health examination. We do not provide executive officers with automobiles or automobile allowances or supplemental executive medical coverage.

We provide other benefits, including medical, life, dental, and disability insurance in line with competitive market conditions. Our named executive officers are eligible for the same benefit plans provided to our other employees, including our Thrift Plan and insurance and supplemental plans chosen and paid for by employees who desire additional coverage.

Consistent with typical practices among our peers, executive officers and other employees whose compensation exceeds certain limits are eligible to participate in non-qualified excess benefit programs whereby those individuals can choose to make larger contributions than allowed under the qualified plan rules and receive correspondingly higher benefits. These plans are described below.

 

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POST-EMPLOYMENT BENEFITS

Pension Plans

We have a noncontributory defined benefit Pension Plan in which most of our employees, including our named executive officers, are eligible to participate and under which contributions by individual participants are neither required nor permitted. We also have a noncontributory, non-qualified Excess Pension Plan and a non-qualified Supplemental Executive Retirement Plan (SERP), which provide supplemental pension benefits to certain highly compensated employees. Our named executive officers are participants in the SERP. The SERP is offered to align with competitive practices among our peers, and to thus support recruitment and retention of critical executive talent. The Excess Pension Plan and the SERP provide eligible employees with additional retirement savings opportunities that cannot be achieved with tax-qualified plans due to Internal Revenue Code limits on (i) annual compensation that can be taken into account under qualified plans, or (ii) annual benefits that can be provided under qualified plans.

Nonqualified Deferred Compensation Plans

Deferred Compensation Plan. Our named executive officers are eligible to participate in our Deferred Compensation Plan (“DC Plan”). The DC Plan is offered to align with competitive practices among our peers, and thereby support recruitment and retention of executive talent. The DC Plan permits eligible employees to defer a portion of their salary and/or bonus until separation (i.e., retirement or termination of employment). Under the DC Plan, each year eligible employees are permitted to elect to defer up to 30 percent of their salary and/or 50 percent of their cash bonuses to be earned for services performed during the following year. We have not made discretionary contributions to participants’ accounts, and currently we have no plans to do so.

All amounts credited under the DC Plan (other than discretionary credits) are immediately 100 percent vested. Any discretionary credits, if ever granted, will vest in accordance with the vesting schedule determined at the time of the grant of discretionary credits. Participant accounts are credited with earnings (or losses) based on investment fund choices made by the participants among available funds selected by Valero’s Benefits Plans Administrative Committee.

Excess Thrift Plan. Our Excess Thrift Plan provides benefits to participants in our Thrift Plan whose annual additions to the Thrift Plan are subject to the limitations on annual additions as provided under Section 415 of the Internal Revenue Code, and/or who are constrained from making maximum contributions under the Thrift Plan by Section 401(a)(17) of the Internal Revenue Code, which limits the amount of an employee’s annual compensation which may be taken into account under that plan. Two separate components comprise the Excess Thrift Plan: (i) an “excess benefit plan” as defined under Section 3(36) of ERISA; and (ii) a plan that is unfunded and maintained primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees.

Additional information about these plans and contributions made by Valero and each of our named executive officers under non-qualified defined contribution and other deferred compensation plans are presented in this proxy statement under the caption “Executive Compensation—Nonqualified Deferred Compensation.”

Change of Control Severance Arrangements

We have change of control severance agreements with each of our named executive officers (except for Mr. Ciskowski and Mr. Browning who have retired). The agreements are intended to assure the continued objectivity and availability of the officers in the event of any merger or acquisition that would likely threaten the job security of many top executives. These arrangements are also intended to maintain executive focus and productivity in a period of uncertainty. If a change of control occurs during the term of an agreement, the agreement becomes operative for a fixed three-year period. The agreements provide generally that the officers’ terms and conditions of employment will not be adversely changed during the three-year period after a change of control. For information regarding payments that may be made under these agreements, see the disclosures in this proxy statement under the caption “Executive Compensation—Potential Payments upon Termination or Change of Control.”

Accounting and Tax Treatment

ACCOUNTING TREATMENT

Compensation expense for our share-based compensation plans is based on the fair value of the awards granted and is recognized in income on a straight-line basis over the shorter of (a) the requisite service period of each award, or (b) the period from the grant date to the date retirement eligibility is achieved if that date is expected to occur during the nominal vesting period. Specific components of our stock-based compensation programs are discussed in Note 14 of Notes to Consolidated Financial Statements in Valero’s Annual Report on Form 10-K for the year ended December 31, 2018.

 

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COMPENSATION DISCUSSION AND ANALYSIS

 

TAX TREATMENT

Section 162(m) of the Internal Revenue Code of 1986 limits the deductibility of compensation paid to certain top executives to $1 million. In previous years, there was an exemption from this $1 million deduction limit for compensation payments that qualified as “performance-based” under applicable regulations. However, the enactment of the Tax Cuts and Jobs Act of 2017 eliminated the performance-based compensation exemption, except with respect to certain grandfathered arrangements.

We believe that outstanding stock options, as well as performance shares granted in 2017, continue to qualify as performance-based compensation under the grandfather rules provided under the Tax Cuts and Jobs Act of 2017. Grants of restricted stock that are not subject to specific quantitative performance measures, and that were awarded in 2017 and earlier years, will likely not qualify as performance-based compensation under the Section 162(m) grandfather rules, and in such event, would be subject to Section 162(m) deduction restrictions.

Prospectively, for pay vehicles granted and earned in 2018 and beyond, the Tax Cuts and Jobs Acts of 2017 eliminated the deductibility of most components of pay to certain top executives to the extent that such pay exceeds $1 million in a year. Consistent with Valero’s historic approach to deductibility under former Section 162(m), the Compensation Committee will continue to exercise flexibility and discretion in determining whether any given form of pay should be designed and administered to qualify for full deductibility.

Compensation-Related Policies

POLICY ON VESTING OF PERFORMANCE SHARES UPON CHANGE OF CONTROL OF VALERO

Our Board has adopted a policy regarding the vesting of performance shares upon a change of control of Valero. The policy provides that performance shares granted to participants in Valero’s equity incentive plans will not vest automatically upon the date of a change of control (as defined in the applicable plan) of Valero. The policy further provides that in making awards of performance shares to participants, the Compensation Committee may provide in the award agreement with the participant that if a participant’s employment with Valero is terminated following a change of control, any unvested performance shares held by the participant will vest on a partial, pro rata basis on the date of the participant’s termination of employment, with such qualifications for an award as the Committee may determine. The policy is available on our website at www.valero.com > Investor Relations > Corporate Governance > Governance Policies.

EXECUTIVE COMPENSATION CLAWBACK POLICY

Under our executive compensation clawback policy, in the event of a material restatement of Valero’s financial results, the Board, or the appropriate committee thereof, will review all bonuses and other incentive and equity compensation awarded to our executive officers. The policy provides that if the bonuses and other incentive and equity compensation would have been lower had they been calculated based on such restated results, the Board (or committee), will, to the extent permitted by governing law and as appropriate under the circumstances, seek to recover for the benefit of Valero all or a portion of the specified compensation awarded to executive officers whose fraud or misconduct caused or partially caused such restatement, as determined by the Board (or committee). In determining whether to seek recovery, the policy states that the Board (or committee) shall take into account such considerations as it deems appropriate, including governing law and whether the assertion of a claim may prejudice the interests of Valero in any related proceeding or investigation. The policy is available on our website at www.valero.com > Investor Relations > Corporate Governance > Governance Policies.

COMPENSATION CONSULTANT DISCLOSURE POLICY

Per the terms of our compensation consultant disclosure policy, Valero will make certain disclosures pertaining to compensation consultants in our proxy statements for annual meetings of stockholders. For any compensation consultant retained by the Compensation Committee to provide compensation advice with respect to the compensation disclosed in the Summary Compensation Table in the proxy statement, we will disclose (i) the total fees paid annually to the consultant for compensation-related services and non-compensation-related services, (ii) a description of any non-compensation-related services provided by the consultant, and (iii) any services that the consultant has provided to senior executives of Valero and the nature of those services. The policy is available on our website at www.valero.com > Investor Relations > Corporate Governance > Governance Policies.

 

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STOCK OWNERSHIP GUIDELINES

We have adopted stock ownership guidelines applicable to our officers and non-employee directors. The guidelines require that non-employee directors acquire and hold during their service shares of Common Stock equal in value to at least five times their annual cash retainer. Our officers are required to meet the applicable guidelines stated below.

 

  Officer Position    Value of Shares Owned

Chief Executive Officer

  

5x Base Salary

President

  

3x Base Salary

Executive Vice Presidents

  

2x Base Salary

Senior Vice Presidents

  

1x Base Salary

Vice Presidents

  

1x Base Salary

Officers and non-employee directors have five years after becoming subject to the guidelines to meet the requisite ownership threshold and, once attained, are expected to continuously own sufficient shares to meet that threshold.

PROHIBITION AGAINST HEDGING AND PLEDGING

Our policies prohibit our directors, officers, and employees from speculating in our stock, which includes short selling (profiting if the market price of our stock decreases), buying or selling publicly traded options (including writing covered calls), hedging, or any other type of derivative arrangement that has a similar economic effect. In addition, our directors and officers are prohibited from pledging shares of Common Stock as collateral or security for indebtedness. Compliance with the guidelines is monitored by the Compensation Committee. The full text of our guidelines is included in our Corporate Governance Guidelines (as Article IX), available on our website at www.valero.com > Investor Relations > Corporate Governance > Governance Documents.

INSIDER TRADING POLICY

Our Securities Trading Policy prohibits our officers, directors, and employees from purchasing or selling Valero securities while in possession of material, nonpublic information, or otherwise using such information for their personal benefit or in any manner that would violate applicable laws and regulations.

 

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    COMPENSATION CONSULTANT DISCLOSURES

 

Our Compensation Committee may, in its sole discretion, retain or obtain the advice of a compensation consultant, independent legal counsel, or other adviser, and is directly responsible for the appointment, compensation, and oversight of the work of any compensation consultant, independent legal counsel, or other adviser retained by the Committee. Valero is obligated to provide appropriate funding for the Committee’s retention of a consultant, counsel, or adviser.

In 2018, the Committee retained Exequity LLP as an independent compensation consultant. Exequity provided to the Committee objective expert analysis and independent advice regarding executive and director compensation. For the 2018 executive and director compensation services rendered to the Committee, Exequity earned professional fees of $275,624. Exequity did not provide other consulting services to the Committee, to Valero, or to any senior executives of Valero. Exequity is an independent adviser as determined under the SEC’s rules and the NYSE’s listing standards.

During 2018, Exequity’s executive and director compensation consulting services included:

 

   

assistance with establishing our overall executive compensation philosophy in light of our business strategies;

   

assistance with selecting peer and comparator companies for benchmarking executive pay and monitoring Valero’s performance;

   

assessment of competitive pay for our executives, with separate analyses of base salary, annual incentive, and long-term incentive compensation;

   

assessment of, and recommendations for, our annual incentive bonus program;

   

assessment of, and recommendation of enhancements to, our long-term incentive program strategy, including (i) the design of an appropriate mix of equity incentive vehicles, (ii) determination of performance measures and measurement techniques, and (iii) determination of competitive equity grant guidelines consistent with our overall pay philosophy;

   

updates on trends and developments in executive compensation, new regulatory issues, and best practices;

   

assessment of competitive pay for our directors; and

   

assistance with proxy statement disclosures.

 

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    EQUITY COMPENSATION PLAN INFORMATION

 

The following table presents information regarding our equity compensation plans as of December 31, 2018.

 

     

Number of

Securities

to be Issued

Upon Exercise

of Outstanding

Options, Warrants

and Rights (#)

  

Weighted-

Average

Exercise Price

of Outstanding

Options, Warrants

and Rights ($)

  

Number of

Securities

Remaining Available

for Future

Issuance Under

Equity Compensation

Plans (1)

Approved by stockholders:

              

2011 Omnibus Stock Incentive Plan

    

 

359,462

    

 

$34.66

    

 

8,532,542

2005 Omnibus Stock Incentive Plan

    

 

223,831

    

 

17.70

    

 

Not approved by stockholders:

              

2003 All-Employee Stock Incentive Plan (2)

    

 

27,169

    

 

17.68

    

 

Total

    

 

610,462

    

 

27.68

    

 

8,532,542

Footnotes:

 

(1)

Securities available for future issuance under these plans can be issued in various forms, including restricted stock and stock options.

 

(2)

Officers and directors of Valero were not eligible to receive grants under this plan.

Our equity plans are described further in Note 14 of Notes to Consolidated Financial Statements for the fiscal year ended December 31, 2018, included in Valero’s Annual Report on Form 10-K.

 

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    EXECUTIVE COMPENSATION

 

The following tables disclose compensation paid to or earned by our named executive officers for 2018. We use captions and headings in these tables that correspond to the SEC regulations requiring these disclosures. The footnotes to these tables provide important information to explain the values presented in the tables.

Summary Compensation Table

 

 

This table summarizes the compensation paid to our named executive officers for fiscal years 2018, 2017, and 2016. The elements of compensation listed in the table are described in the Compensation Discussion and Analysis section of this proxy statement and in the table’s footnotes.

 

Principal Position (1)   Year    

Salary

($)

   

Stock

Awards

($)(2)(3)

   

Option

Awards

($)(4)

   

Non-Equity

Incentive Plan

Compensation

($)(5)

   

Change in

Pension Value

and Non-

qualified

Deferred

Compensation

Earnings ($)(6)

   

All Other

Compensation

($)(7)

    Total ($)  

Joseph W. Gorder,

Chairman of the Board, President & CEO

 

 

2018

 

 

 

1,660,000

 

 

 

10,931,251

 

 

 

 

 

 

4,625,000

 

 

 

1,353,779

 

 

 

189,126

 

 

 

18,759,156

 

 

 

2017

 

 

 

1,585,000

 

 

 

12,734,060

 

 

 

 

 

 

3,800,000

 

 

 

4,269,202

 

 

 

143,998

 

 

 

22,532,260

 

 

 

2016

 

 

 

1,450,000

 

 

 

10,610,898

 

 

 

 

 

 

2,925,000

 

 

 

3,334,310

 

 

 

132,410

 

 

 

18,452,618

 

Donna M. Titzman,

EVP and CFO

 

 

2018

 

 

 

641,667

 

 

 

1,508,905

 

 

 

 

 

 

840,000

 

 

 

382,570

 

 

 

70,593

 

 

 

3,443,735

 

 

 

(8

                 

 

 

                               
 

 

(8

                 

 

 

                               

R. Lane Riggs,

EVP and COO

 

 

2018

 

 

 

800,000

 

 

 

2,200,997

 

 

 

 

 

 

1,110,000

 

 

 

 

 

 

103,172

 

 

 

4,214,169

 

 

 

2017

 

 

 

700,000

 

 

 

2,710,576

 

 

 

 

 

 

925,000

 

 

 

1,743,387

 

 

 

96,683

 

 

 

6,175,646

 

 

 

2016

 

 

 

640,000

 

 

 

2,191,016

 

 

 

 

 

 

725,000

 

 

 

1,206,237

 

 

 

73,248

 

 

 

4,835,501

 

Jay D. Browning,

EVP and General Counsel

 

 

2018

 

 

 

650,000

 

 

 

1,713,993

 

 

 

 

 

 

900,000

 

 

 

 

 

 

96,783

 

 

 

3,360,776

 

 

 

2017

 

 

 

620,000

 

 

 

2,039,272

 

 

 

 

 

 

790,000

 

 

 

1,436,316

 

 

 

86,737

 

 

 

4,972,325

 

 

 

2016

 

 

 

595,000

 

 

 

1,773,224

 

 

 

 

 

 

640,000

 

 

 

973,148

 

 

 

71,101

 

 

 

4,052,473

 

Gary K. Simmons,

SVP-Supply, Int’l Ops. & Systems Optimization

 

 

2018

 

 

 

625,000

 

 

 

1,174,051

 

 

 

 

 

 

705,000

 

 

 

 

 

 

81,590

 

 

 

2,585,641

 

 

 

2017

 

 

 

600,000

 

 

 

1,398,749

 

 

 

 

 

 

620,000

 

 

 

1,345,120

 

 

 

88,961

 

 

 

4,052,830

 

 

 

2016

 

 

 

565,000

 

 

 

1,203,887

 

 

 

 

 

 

500,000

 

 

 

876,063

 

 

 

57,980

 

 

 

3,202,930

 

Michael S. Ciskowski,

EVP and CFO (retired) (9)

 

 

2018

 

 

 

336,706

 

 

 

1,257,034

 

 

 

 

 

 

 

 

 

 

 

 

40,349

 

 

 

1,634,089

 

 

 

2017

 

 

 

930,000

 

 

 

4,687,459

 

 

 

 

 

 

1,625,000

 

 

 

3,118,093

 

 

 

87,568

 

 

 

10,448,120

 

 

 

2016

 

 

 

890,000

 

 

 

4,057,373

 

 

 

 

 

 

1,320,000

 

 

 

1,855,463

 

 

 

91,783

 

 

 

8,214,619

 

Footnotes to Summary Compensation Table:

 

(1)

The persons listed in this table are referred to in this proxy statement as our “named executive officers.”

 

(2)

The amount shown is the “grant date fair value” of stock awards (restricted stock and performance shares) computed under Financial Accounting Standards Board Accounting Standards Codification Topic 718, Compensation–Stock Compensation (FASB ASC Topic 718). Under FASB ASC Topic 718, the grant date fair values that we must disclose for our performance share awards include the values of certain tranches of unvested performance shares that were awarded in years prior to the fiscal year shown in the table. The computations of grant date fair values for performance shares are more fully described in footnote (5) to the Grants of Plan-Based Awards table in this proxy statement.

(footnote (2) continues on the following page)

 

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EXECUTIVE COMPENSATION

 

Footnotes to Summary Compensation Table (cont.):

footnote (2) continued

 

    

The dollar values included in the “Stock Awards” column include the following components:

 

      Gorder      Titzman      Riggs      Browning      Simmons      Ciskowski  

Restricted Stock

  

 

4,992,528

 

  

 

804,978

 

  

 

953,774

 

  

 

774,480

 

  

 

531,415

 

  

 

 

Performance Shares

  

 

5,938,723

 

  

 

703,927

 

  

 

1,247,223

 

  

 

939,513

 

  

 

642,636

 

  

 

1,257,034

 

Total (in dollars)

  

 

10,931,251

 

  

 

1,508,905

 

  

 

2,200,997

 

  

 

1,713,993

 

  

 

1,174,051

 

  

 

1,257,034

 

 

(3)

Additional information about the restricted stock and performance shares granted in 2018 is disclosed in the Grants of Plan-Based Awards table in this proxy statement. Additional information about the restricted stock awards is disclosed in Note 14 (“Stock-Based Compensation”) of Notes to Consolidated Financial Statements in Valero’s Annual Report on Form 10-K for the year ended December 31, 2018.

 

(4)

Stock options were not granted to our named executive officers in 2018, 2017, or 2016.

 

(5)

Represents amounts earned under our annual incentive bonus plan, as described in “Compensation Discussion and Analysis—Elements of Executive Compensation—Annual Incentive Bonus.”

 

(6)

This column represents the sum of the change in pension value and non-qualified deferred compensation earnings for each of the named executive officers. See the Pension Benefits table for the present value assumptions used for these calculations.

 

    

Disclosures in the table above show a zero value for Mr. Riggs, Mr. Browning, and Mr. Simmons, as required by Instruction 3 to Item 402(c)(2)(viii) of Regulation S-K. The actual aggregate changes in the actuarial present value of these officers’ accumulated benefits under their defined benefit and actuarial pension plans (including supplemental plans) are negative values. These negative values are: Mr. Riggs (-$35,467), Mr. Browning (-$118,825), Mr. Simmons (-$317,781).

 

    

The disclosure for Mr. Ciskowski is a zero value. Following his retirement, Mr. Ciskowski received a lump sum payment of his nonqualified benefits in 2018 and began receiving monthly payments during 2018 attributable to his qualified benefit. These amounts are disclosed in the Pension Benefits table.

 

    

There are no above-market or preferential earnings on non-tax-qualified deferred compensation amounts included in the table presented above.

 

(7)

Amounts listed as “All Other Compensation” for 2018 are composed of the following items. Any amount in excess of $10,000 (whether or not such amount may be deemed to be a perquisite or other personal benefit) is separately quantified.

 

    

For Mr. Gorder: Valero contributions to the officer’s Thrift Plan account ($19,250), Valero contributions to the officer’s Excess Thrift Plan account ($96,950), home security ($35,136), an executive physical exam, reimbursement of club membership dues, Valero provided dollars for the purchase of health and welfare benefits ($25,020), imputed income for tax return preparation fees.

 

    

For Ms. Titzman: Valero contributions to the officer’s Thrift Plan account ($19,250), Valero contributions to the officer’s Excess Thrift Plan account ($25,667), an executive physical exam, Valero provided dollars for the purchase of health and welfare benefits ($21,096), imputed income for tax return preparation fees.

 

    

For Mr. Riggs: Valero contributions to the officer’s Thrift Plan account ($19,250), Valero contributions to the officer’s Excess Thrift Plan account ($36,750), home security, reimbursement of club membership dues, Valero provided dollars for the purchase of health and welfare benefits ($27,656), imputed income for tax return preparation fees.

 

    

For Mr. Browning: Valero contributions to the officer’s Thrift Plan account ($19,250), Valero contributions to the officer’s Excess Thrift Plan account ($26,250), home security, an executive physical exam, reimbursement of club membership dues, Valero provided dollars for the purchase of health and welfare benefits ($23,136), imputed income for tax return preparation fees ($10,916).

 

    

For Mr. Simmons: Valero contributions to the officer’s Thrift Plan account ($19,250), Valero contributions to the officer’s Excess Thrift Plan account ($24,500), reimbursement of club membership dues ($10,184), Valero provided dollars for the purchase of health and welfare benefits ($27,656).

 

    

For Mr. Ciskowski: Valero contributions to the officer’s Thrift Plan account, Valero contributions to the officer’s Excess Thrift Plan account ($16,351), home security, an executive physical exam, Valero provided dollars for the purchase of health and welfare benefits, imputed income for tax return preparation fees.

 

(8)

Ms. Titzman became Executive Vice President and Chief Financial Officer on May 3, 2018. Ms. Titzman was not a named executive officer for 2017 or 2016.

 

(9)

Mr. Ciskowski retired effective May 3, 2018.

 

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EXECUTIVE COMPENSATION

 

Grants of Plan-Based Awards

 

 

The following table describes plan-based awards for our named executive officers in 2018.

 

           

Estimated Future Payouts Under

Non-Equity Incentive Plan

Awards

 

 

Estimated Future Payouts Under

Equity Incentive Plan Awards

 

 

Grant Date

Fair Value

of Stock

and Option

Awards

($) (1)

 

  Name

 

 

 

Grant

Date

 

      

 

Threshold

($)

 

 

 

Target

($)

 

 

 

Maximum

($)

 

 

 

Threshold

(#)

 

 

 

Target

(#)

 

 

 

Maximum

(#)

 

Joseph W. Gorder

      n/a       (2 )             2,656,000       5,312,000                                        
      10/31/2018       (3 )                                     n/a       54,020       n/a       4,992,528
      n/a       (4 )                                               54,020                    
      10/31/2018       (5 )                                               18,007       36,014       1,823,929
      10/31/2018       (5 )                                               23,767       47,534       1,715,027
        10/31/2018       (5 )                                               27,473       54,946       2,399,767

Donna M. Titzman

      n/a       (2 )             484,583       969,166                                        
      10/31/2018       (3 )                                     n/a       8,710       n/a       804,978
      n/a       (4 )                                               8,710                    
      10/31/2018       (5 )                                               2,904       5,808       294,146
      10/31/2018       (5 )                                               2,500       5,000       180,400
        10/31/2018       (5 )                                               2,626       5,252       229,381

R. Lane Riggs

      n/a       (2 )             640,000       1,280,000                                        
      10/31/2018       (3 )                                     n/a       10,320       n/a       953,774
      n/a       (4 )                                               10,320                    
      10/31/2018       (5 )                                               3,440       6,880       348,438
      10/31/2018       (5 )                                               5,213       10,426       376,170
        10/31/2018       (5 )                                               5,983       11,966       522,615

Jay D. Browning

      n/a       (2 )             520,000       1,040,000                                        
      10/31/2018       (3 )                                     n/a       8,380       n/a       774,480
      n/a       (4 )                                               8,380                    
      10/31/2018       (5 )                                               2,794       5,588       283,004
      10/31/2018       (5 )                                               3,687       7,374       266,054
        10/31/2018       (5 )                                               4,470       8,940       390,455

Gary K. Simmons

      n/a       (2 )             406,250       812,500                                        
      10/31/2018       (3 )                                     n/a       5,750       n/a       531,415
      n/a       (4 )                                               5,750                    
      10/31/2018       (5 )                                               1,917       3,834       194,173
      10/31/2018       (5 )                                               2,547       5,094       183,792
        10/31/2018       (5 )                                               3,030       6,060       264,671

Michael S. Ciskowski

      n/a       (2 )                                              
      10/31/2018       (3 )                                     n/a                  
      n/a       (4 )                                                          
      10/31/2018       (5 )                                                          
      10/31/2018       (5 )                                               4,964       9,928       358,202
        10/31/2018       (5 )                                               10,290       20,580       898,832

 

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EXECUTIVE COMPENSATION

 

Footnotes to Grants of Plan-Based Awards table:

 

(1)

The reported grant date fair value of stock awards was determined in compliance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 718. Stock options were not granted to our named executive officers in 2018.

 

(2)

Represents potential awards under our annual incentive bonus program for named executive officers (NEOs). Actual amounts earned by our NEOs for 2018 are reported in the Summary Compensation Table under the column “Non-Equity Incentive Plan Compensation.” The “target” amounts listed in the Grants of Plan-Based Awards table are computed by multiplying base salary by 160%, 80%, 80%, and 65% for Mr. Gorder, Mr. Riggs, Mr. Browning, and Mr. Simmons, respectively. The target amount for Ms. Titzman is determined using 65% for four months of 2018 and 80% for eight months of 2018 (as described in Compensation Discussion and Analysis).

 

    

Mr. Ciskowski did not receive a payment for this award with respect to fiscal year 2018. Our annual incentive bonus program for named executive officers is described in “Compensation Discussion and Analysis—Elements of Executive Compensation—Annual Incentive Bonus.”

 

(3)

Represents an award of restricted stock granted Oct. 31, 2018. The shares are scheduled to vest (become nonforfeitable) annually in equal one-third increments. Dividends on the restricted shares are paid as and when dividends are declared and paid on our Common Stock. Restricted stock awards are more fully described in “Compensation Discussion and Analysis—Elements of Executive Compensation—Long-Term Incentive Awards—Restricted Stock.” For each NEO, the dollar amount stated in the column “Grant Date Fair Value of Stock and Option Awards” is included within the amount listed in the “Stock Awards” column of the Summary Compensation Table and in footnote (2) to the Summary Compensation Table.

 

(4)

Represents the number of performance shares awarded under our 2011 Omnibus Stock Incentive Plan to our NEOs on Oct. 31, 2018 under our long-term incentive awards program described in “Compensation Discussion and Analysis—Elements of Executive Compensation—Long-Term Incentive Awards—Performance Shares.” Per the awards’ terms, on a normal vesting date officers can earn, in shares of Common Stock, from 0% to 200% of the number of performance shares that are vesting, based upon Valero’s achievement of objective performance measures during the performance periods prescribed by our Compensation Committee. The performance shares are scheduled to vest annually in one-third increments (tranches) in January 2020, January 2021, and January 2022, with any resulting payout at those times conditioned upon Valero’s performance during the pertinent performance periods. Only the first tranche of these performance shares is deemed to have a “grant date” in 2018, as explained in footnote (5) below. Our disclosures referenced by footnote (4) are for information purposes only, and tie to the disclosures made by our NEOs in 2018 on Forms 4 in compliance with Section 16 of the Exchange Act. Our disclosures in footnote (5) below are intended to comply with the requirements of Item 402 of Regulation S-K with respect to “grants” of performance shares.

 

(5)

Item 402(d)(2)(viii) of Regulation S-K requires us to disclose the “grant date fair value” of equity awards “computed in accordance with FASB ASC Topic 718” (Topic 718). Our performance shares are awarded in three tranches, with the tranches having measurement periods (the performance period) of differing lengths. The first tranche of an award has a performance period of 12 months, the second tranche of an award has a performance period of 24 months, and the third tranche of an award has a performance period of 36 months.

 

    

The amounts referenced by footnote (5) in the Grants of Plan-Based Awards table represent three tranches from three separate award years—namely, the first tranche of performance shares awarded in 2018 (awarded on Oct. 31, 2018), the second tranche of performance shares awarded in 2017 (awarded on Nov. 1, 2017), and the third tranche of performance shares awarded in 2016 (awarded on Nov. 2, 2016). Under Topic 718, each of these tranches is deemed to be a separate “grant” for fair value purposes, and each is deemed to have a “grant date” in 2018, that is, Oct. 31, 2018, the date when the Compensation Committee established the peer group of companies for these tranches. The dollar amounts included in the table represent the grant date fair values from the three tranches that are deemed to have a grant date in 2018.

(footnote (5) continues on the following page)

 

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Footnotes to Grants of Plan-Based Awards table (cont.):

footnote (5) continued

 

    

For each NEO, the sum of the dollar amounts stated in the Grants of Plan-Based Awards table’s column entitled “Grant Date Fair Value of Stock and Option Awards” is also included in the Summary Compensation Table, first, within the amount listed in the “Stock Awards” column of the Summary Compensation Table, and second, in footnote (2) to the Summary Compensation Table. The grant date fair values for the performance shares included in the Grants of Plan-Based Awards table are summarized in the table that follows.

 

     

performance shares deemed (under Topic 718) to

have a grant date in 2018

 

    

grant date

fair value ($)

 

    

highest possible

performance ($)

 

 

 

Gorder

  

 

1st tranche of 2018 award

 

  

 

 

 

 

18,007

 

 

 

 

  

 

 

 

 

1,823,929

 

 

 

 

  

 

 

 

 

3,647,858

 

 

 

 

  

 

2nd tranche of 2017 award

 

  

 

 

 

 

23,767

 

 

 

 

  

 

 

 

 

1,715,027

 

 

 

 

  

 

 

 

 

3,430,054

 

 

 

 

  

 

3rd tranche of 2016 award

 

  

 

 

 

 

27,473

 

 

 

 

  

 

 

 

 

2,399,767

 

 

 

 

  

 

 

 

 

4,799,534

 

 

 

 

  

 

total 2018 grant date fair value

 

     

 

 

 

 

5,938,723

 

 

 

 

  

 

 

 

 

11,877,446

 

 

 

 

 

Titzman

  

 

1st tranche of 2018 award

 

  

 

 

 

 

2,904

 

 

 

 

  

 

 

 

 

294,146

 

 

 

 

  

 

 

 

 

588,292

 

 

 

 

  

 

2nd tranche of 2017 award

 

  

 

 

 

 

2,500

 

 

 

 

  

 

 

 

 

180,400

 

 

 

 

  

 

 

 

 

360,800

 

 

 

 

  

 

3rd tranche of 2016 award

 

  

 

 

 

 

2,626

 

 

 

 

  

 

 

 

 

229,381

 

 

 

 

  

 

 

 

 

458,762

 

 

 

 

  

 

total 2018 grant date fair value

 

     

 

 

 

 

703,927

 

 

 

 

  

 

 

 

 

1,407,854

 

 

 

 

 

Riggs

  

 

1st tranche of 2018 award

 

  

 

 

 

 

3,440

 

 

 

 

  

 

 

 

 

348,438

 

 

 

 

  

 

 

 

 

696,876

 

 

 

 

  

 

2nd tranche of 2017 award

 

  

 

 

 

 

5,213

 

 

 

 

  

 

 

 

 

376,170

 

 

 

 

  

 

 

 

 

752,340

 

 

 

 

  

 

3rd tranche of 2016 award

 

  

 

 

 

 

5,983

 

 

 

 

  

 

 

 

 

522,615

 

 

 

 

  

 

 

 

 

1,045,230

 

 

 

 

  

 

total 2018 grant date fair value

 

     

 

 

 

 

1,247,223

 

 

 

 

  

 

 

 

 

2,494,446

 

 

 

 

 

Browning

  

 

1st tranche of 2018 award

 

  

 

 

 

 

2,794

 

 

 

 

  

 

 

 

 

283,004

 

 

 

 

  

 

 

 

 

566,008

 

 

 

 

  

 

2nd tranche of 2017 award

 

  

 

 

 

 

3,687

 

 

 

 

  

 

 

 

 

266,054

 

 

 

 

  

 

 

 

 

532,108

 

 

 

 

  

 

3rd tranche of 2016 award

 

  

 

 

 

 

4,470

 

 

 

 

  

 

 

 

 

390,455

 

 

 

 

  

 

 

 

 

780,910

 

 

 

 

  

 

total 2018 grant date fair value

 

     

 

 

 

 

939,513

 

 

 

 

  

 

 

 

 

1,879,026

 

 

 

 

 

Simmons

  

 

1st tranche of 2018 award

 

  

 

 

 

 

1,917

 

 

 

 

  

 

 

 

 

194,173

 

 

 

 

  

 

 

 

 

388,346

 

 

 

 

  

 

2nd tranche of 2017 award

 

  

 

 

 

 

2,547

 

 

 

 

  

 

 

 

 

183,792

 

 

 

 

  

 

 

 

 

367,584

 

 

 

 

  

 

3rd tranche of 2016 award

 

  

 

 

 

 

3,030

 

 

 

 

  

 

 

 

 

264,671

 

 

 

 

  

 

 

 

 

529,342

 

 

 

 

  

 

total 2018 grant date fair value

 

     

 

 

 

 

642,636

 

 

 

 

  

 

 

 

 

1,285,272

 

 

 

 

 

Ciskowski

  

 

2nd tranche of 2017 award

 

  

 

 

 

 

4,964

 

 

 

 

  

 

 

 

 

358,202

 

 

 

 

  

 

 

 

 

716,404

 

 

 

 

  

 

3rd tranche of 2016 award

 

  

 

 

 

 

10,290

 

 

 

 

  

 

 

 

 

898,832

 

 

 

 

  

 

 

 

 

1,797,664

 

 

 

 

  

 

total 2018 grant date fair value

 

           

 

 

 

 

1,257,034

 

 

 

 

  

 

 

 

 

2,514,068

 

 

 

 

 

  

2018 Award. For performance shares awarded on Oct. 31, 2018, the grant date (per Topic 718) for the first tranche is deemed to have occurred in 2018. The performance shares in this tranche were deemed to have an expected conversion rate (probable outcome) of 111.20% with a fair value per share of $101.29. The grant date (per Topic 718) for the second tranche of the performance shares awarded in 2018 is expected to occur in the fourth quarter of 2019, depending on actions to be taken by our Compensation Committee. Similarly, the grant date for the third tranche is expected to occur in the fourth quarter of 2020, depending on actions to be taken by our Compensation Committee. The fair values of the second and third tranches will be determined on their respective Topic 718 grant dates.

 

  

2017 Award. For performance shares awarded on Nov. 1, 2017, the grant date (per Topic 718) for the second tranche is deemed to have occurred in 2018. The performance shares in this tranche were deemed to have an expected conversion rate (probable outcome) of 79.22% and fair value per share of $72.16. The grant date (per Topic 718) for the third tranche of performance shares awarded in 2017 is expected to occur in the fourth quarter of 2019, depending on actions to be taken by our Compensation Committee. The fair value of the third tranche will be determined on its Topic 718 grant date.

 

  

2016 Award. For performance shares awarded on Nov. 2, 2016, the grant date (per Topic 718) for the third tranche is deemed to have occurred in 2018. The performance shares in this tranche were deemed to have an expected conversion rate (probable outcome) of 95.89% and fair value per share of $87.35.

 

  

All Awards. For all awards, the “highest possible performance” values assume achievement of the highest level of possible performance conditions (vesting at 200% of target) per SEC Regulation S-K, Instruction 3 to Item 402(c)(2)(v).

 

   2019 PROXY STATEMENT    49


Table of Contents

EXECUTIVE COMPENSATION

 

Outstanding Equity Awards at December 31, 2018

 

 

This table describes unexercised stock options, unvested shares of restricted stock, and unvested performance shares held by our named executive officers as of Dec. 31, 2018.

 

    

Option Awards

 

  

Stock Awards

 

         

Restricted Stock

 

  

Performance Shares

 

     

Number of

Securities

Underlying

Unexercised

Options (#)

Exercisable

 

  

Number of

Securities

Underlying

Unexercised

Options (#)

Unexercisable

 

  

Option

Exercise

Price

($)(1)

 

  

Option

Expiration

Date

 

  

Number of

Shares or

Units of

Stock

That Have

Not

Vested (#)

 

 

Market

Value of

Shares or

Units of

Stock

That Have

Not

Vested

($)(2)

 

  

Equity Incentive

Plan Awards:

Number of

Unearned

Shares, Units

or Other Rights

That Have Not

Vested (#)(2)

 

 

Equity Incentive

Plan Awards:

Market or

Payout Value of

Unearned

Shares, Units

or Other Rights

That Have Not

Vested ($)(2)

 

Joseph W. Gorder

       21,400               17.743        11/17/2020        15,949  (3)       1,195,697        19,590  (7)       1,468,662
       26,750               24.582        10/28/2021        27,594  (4)       2,068,722        54,946  (8)       4,119,302
       37,567               27.318        11/09/2022        32,763  (5)       2,456,242        71,300  (9)       5,345,361
       31,770               39.665        11/08/2023                             54,020  (10)       4,049,879
         43,810               48.565        10/23/2024                                          

Donna M. Titzman

       6,398               27.318        11/09/2022        1,594  (3)       119,502        2,000  (7)       149,940
       5,860               39.665        11/08/2023        3,033  (4)       227,384        5,253  (8)       393,817
       4,365               48.565        10/23/2024        2,272  (6)       170,332        7,500  (9)       562,275
                                                 5,282  (5)       395,992        8,710  (10)       652,989

R. Lane Riggs

       2,667               48.565        10/23/2024        5,984  (3)       448,620        3,583  (7)       268,618
                                                   10,427  (4)       781,712        11,966  (8)       897,091
                                                   10,320  (5)       773,690        15,640  (9)       1,172,531
                                                                          10,320  (10)       773,690

Jay D. Browning

       3,922               17.743        11/17/2020        2,595  (3)       194,547        3,433  (7)       257,372
       7,846               24.582        10/28/2021        4,281  (4)       320,947        8,940  (8)       670,232
       8,378               27.318        11/09/2022        5,082  (5)       380,998        11,060  (9)       829,168
       6,980               39.665        11/08/2023                             8,380  (10)       628,249
         7,640               48.565        10/23/2024                                          

Gary K. Simmons

       1,750               48.565        10/23/2024        3,030  (3)       227,159