DEF 14A 1 d275049ddef14a.htm DEF 14A DEF 14A
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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

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 Pursuant to §240.14a-12

Marathon Petroleum Corporation

 

 

 

(Name of Registrant as Specified In Its Charter)

 

 

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

Payment of Filing Fee (Check the appropriate box):

 

No fee required.

 

Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

 

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Fee paid previously with preliminary materials.

 

Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

 

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Table of Contents

LOGO

 


Table of Contents

2017

Annual Meeting of

Shareholders

 

March 15, 2017

Dear Fellow Marathon Petroleum Corporation Shareholder:

On behalf of the Board of Directors and management team, I am pleased to invite you to attend Marathon Petroleum Corporation’s Annual Meeting of Shareholders to be held in the Auditorium of Marathon Petroleum Corporation, 539 South Main Street, Findlay, Ohio 45840 on Wednesday, April 26, 2017, at 10 a.m. Eastern Daylight Time.

Marathon Petroleum Corporation delivered strong operational and financial performance for our shareholders in 2016, a year that marked our fifth year as a stand-alone company and our first year incorporating the MarkWest business in our operations. We also announced plans for strategic actions to enhance shareholder value.

MPC drew upon its strengths in 2016 in order to deliver solid results despite a challenging year from a commodity price and margin perspective. Among the year’s notable achievements were record financial results from our stable-cash-flow Speedway and Midstream segments.

Looking forward, we are enthusiastic about our plans to enhance shareholder value and remain encouraged by the opportunities ahead, particularly the growth opportunities at MPLX, in our Midstream segment, which will continue to be a source of long-term value for our investors.

Since our formation in 2011, we have generated more than $13 billion in net income and increased our base dividend at a 28 percent compound annual growth rate through 2016. We have also returned more than $10 billion to shareholders.

LOGO

 

Meeting Information
   
Date:           April 26, 2017
Time:           10 a.m. EDT
Location:  

        Marathon Petroleum Corporation

        539 South Main Street

        Findlay, Ohio 45840

 

While we at MPC continue to work with a near-term intensity to execute strategic actions to enhance shareholder value, we remain committed in the long term to operational excellence, generating compelling capital returns and delivering enduring value for our shareholders.

MPC has a track record of success and continues to deliver strong returns for our investors. With strengthening commodity prices, recovering refinery spreads and our aggressive plans to enhance investor value, we remain well positioned across the business to create and deliver long-term value for our shareholders.

We have included a Proxy Summary at the beginning of our Proxy Statement. The Proxy Summary is intended to provide highlights of the Proxy Statement, including facts regarding our corporate governance and our 2016 company performance. We hope you find the Proxy Summary beneficial.

We thank you for investing in MPC, for sharing in our vision and for contributing to our success.

Sincerely,

 

LOGO

  

LOGO

Gary R. Heminger

Chairman, President and

Chief Executive Officer

 

 

 

 

Your vote is important. Whether or not you plan to attend the Annual Meeting, we hope you will authorize your proxy as soon as possible. You may vote by proxy using the internet. Alternatively, if you receive the proxy materials by mail, you may vote by proxy using the internet, by calling a toll-free telephone number or by completing and returning a proxy card or voting instruction form in the mail. Your vote will ensure your representation at the Annual Meeting regardless of whether you attend in person.

 

You are entitled to vote at the meeting if you were an owner of record of Marathon Petroleum Corporation common stock at the close of business on February 27, 2017. Owners of record will need to have a valid form of identification to be admitted to the meeting. If your ownership is through a broker or other intermediary, then, in addition to a valid form of identification, you will also need to have proof of your share ownership to be admitted to the meeting. A recent account statement, letter or proxy from your broker or other intermediary will suffice.

 

 

 

You Can Access the Proxy Materials Online at www.proxyvote.com

Please vote promptly by:

              usingthe internet;
              marking,signing and returning your proxy card or voting instruction form; or

       

 

 

    callinga toll-free telephone number.

 


Table of Contents

TABLE OF CONTENTS

 

 

     Page  

Notice of Annual Meeting of Shareholders

     i  

 

Proxy Summary

     1  

 

Proxy Statement

     7  

 

Questions and Answers About the Annual Meeting

     7  

 

The Board of Directors and Corporate Governance

     10  

 

Compensation of Directors

     20  

 

Proposals of the Board

 

     22  
  Proposal No. 1  

Election of Class III Directors

 

     22  
    Nominees for Class III Directors      23  
 

 

Proposal No. 2

 

 

Ratification of Independent Auditor for 2017

     30  
 

 

Proposal No. 3

 

 

Approval, on an Advisory Basis, of the Compensation of the Company’s Named Executive Officers

     31  
 

 

Proposal No. 4

 

 

Approval of 162(m) Material Terms for Qualified Performance-Based Compensation under the Amended and Restated Marathon Petroleum Corporation 2012 Incentive Compensation Plan

     32  

 

Proposals of Shareholders

 

     39  
  Proposal No. 5   Shareholder Proposal Seeking Various Disclosures Respecting Environmental and Human Rights Due Diligence      39  
  Proposal No. 6   Shareholder Proposal Seeking the Disclosure of Our Strategy to Align Our Business Plan with the 2-Degree Goal of the Paris Agreement      41  
 

 

Proposal No. 7

 

 

Shareholder Proposal Seeking Simple Majority Vote Provisions

     45  

 

Audit Committee Report

     47  

 

Independent Registered Public Accounting Firm’s Fees, Services and Independence

     47  

 

Security Ownership of Certain Beneficial Owners

     48  

 

Section  16(a) Beneficial Ownership Reporting Compliance

     48  

 

Security Ownership of Directors and Executive Officers

     49  

 

Compensation Committee Report

     51  

 

Compensation Discussion and Analysis

     51  

 

Compensation-Based Risk Assessment

     72  

 

Executive Succession Planning

     73  

 

Executive Compensation

     74  

 

Certain Relationships and Related Person Transactions

     93  

 

Compensation Policies and Practices for Employees

     96  

 

Householding Information

     96  

 

Solicitation Statement

 

     96  

Appendix I

    Amended and Restated Marathon Petroleum Corporation 2012 Incentive Compensation Plan      I-1  
 


Table of Contents

Notice of Annual Meeting of Shareholders of

Marathon Petroleum Corporation

 

Date:

Wednesday, April 26, 2017

Time:

10 a.m. EDT

Place:

The Auditorium of Marathon Petroleum Corporation

539 South Main Street, Findlay, Ohio 45840

Purpose:

Elect Messrs. Steven A. Davis, Gary R. Heminger, J. Michael Stice and John P. Surma to serve as Class III Directors, each for a three-year term expiring on the date of the 2020 Annual Meeting;

Ratify the selection of PricewaterhouseCoopers LLP as independent auditor for 2017;

Approve, on an advisory basis, named executive officer compensation;

Approve 162(m) material terms for qualified performance-based compensation under the Amended and Restated Marathon Petroleum Corporation 2012 Incentive Compensation Plan;

Vote on three proposals submitted by shareholders, if presented; and

Transact any other business that properly comes before the meeting.

Other Important Information:

In reliance on the rules of the Securities and Exchange Commission, most Marathon Petroleum Corporation shareholders are being furnished proxy materials via the internet. We plan to commence mailing a Notice Regarding the Availability of Proxy Materials to our shareholders on or about March 15, 2017. Shareholders have the option to receive Marathon Petroleum Corporation proxy materials (which include the 2017 Proxy Statement, the 2016 Annual Report and the form of proxy card or voting instruction form) via the internet. We believe this option provides our shareholders the information they need in an efficient, lower-cost and environmentally conscious manner. Shareholders may still request paper copies of the proxy materials if desired. Shareholders who have previously requested the continued receipt of printed proxy materials will receive proxy materials by mail. If you received printed proxy materials, a copy of the Marathon Petroleum Corporation 2016 Annual Report is enclosed. The Notice contains instructions on accessing the proxy materials online, voting online and obtaining a paper copy of our proxy materials.

You are entitled to vote at the meeting if you were an owner of record of Marathon Petroleum Corporation common stock at the close of business on February 27, 2017. Owners of record will need to have a valid form of identification to be admitted to the meeting. If your ownership is through a broker or other intermediary, then, in addition to a valid form of identification, you will also need to have proof of your share ownership to be admitted to the meeting. A recent account statement, letter or proxy from your broker or other intermediary will suffice.

You can find directions to the location of the Annual Meeting on the back cover of this Proxy Statement.

By order of the Board of Directors,

 

LOGO

 

  

LOGO

Molly R. Benson

Vice President, Corporate Secretary and

Chief Compliance Officer

 

March 15, 2017

 

Marathon Petroleum Corporation Proxy Statement    /    page i

 

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Proxy Summary

 

This summary highlights information contained elsewhere in the Proxy Statement. This summary does not contain all of the information that you should consider. You should read the entire Proxy Statement carefully before voting.

2017 ANNUAL MEETING OF SHAREHOLDERS

 

 

Date:

   April 26, 2017

Time:

   10 a.m. EDT

Place:

  

The Auditorium of Marathon Petroleum Corporation

539 South Main Street, Findlay, Ohio 45840

Record Date:

   February 27, 2017

Voting:

   You are entitled to vote at the meeting if you were an owner of record of Marathon Petroleum Corporation common stock at the close of business on February 27, 2017. Owners of record will need to have a valid form of identification to be admitted to the meeting. If your ownership is through a broker or other intermediary, then, in addition to a valid form of identification, you will also need to have proof of your share ownership to be admitted to the meeting. A recent account statement, letter or proxy from your broker or other intermediary will suffice.
   Regardless of whether you plan to attend the Annual Meeting, we hope you will authorize your proxy as soon as possible. You may vote by proxy using the internet. Alternatively, if you receive the proxy materials by mail, you may vote by proxy using the internet, by calling a toll-free telephone number or by completing and returning a proxy card or voting instruction form in the mail. Your vote will ensure your representation at the Annual Meeting.

 

 

MATTERS TO BE VOTED ON AT THE ANNUAL MEETING

 

 

 

 

    Item   

Description

 

     Page  
    1   

Election of Class III Directors

 

Board Recommendation: LOGO FOR each nominee

     22  

 

    2

  

 

Ratification of Independent Auditor for 2017

 

Board Recommendation: LOGO FOR

  

 

 

 

30

 

 

 

    3

  

 

Approval, on an Advisory Basis, of Named Executive Officer Compensation

 

Board Recommendation: LOGO FOR

  

 

 

 

31

 

 

 

    4

  

 

Approval of 162(m)-Related Provisions of the Amended and Restated MPC 2012 Incentive Compensation Plan

 

Board Recommendation: LOGO FOR

  

 

 

 

32

 

 

 

    5

  

 

Shareholder Proposal: Various Disclosures Respecting Environmental and Human Rights Due Diligence

 

Board Recommendation: LOGO AGAINST

  

 

 

 

39

 

 

 

    6

  

 

Shareholder Proposal: Climate-Related 2-Degree Transition Plan

 

Board Recommendation: LOGO AGAINST

  

 

 

 

41

 

 

 

    7

  

 

Shareholder Proposal: Simple Majority Vote Provisions

 

Board Recommendation: LOGO AGAINST

  

 

 

 

45

 

 

               

 

Marathon Petroleum Corporation Proxy Statement    /    page 1

 

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GOVERNANCE HIGHLIGHTS

 

MPC has engaged with its Shareholders

In addition to our regular dialogue with a wide variety of investors on an array of topics, in 2016 we undertook an outreach effort focused on corporate governance matters and met with shareholders representing approximately 30 percent of our shares outstanding. In addition to corporate governance matters, we discussed MPC’s priorities for long-term value creation and the Board’s risk management oversight, and we specifically elicited feedback on our NEO compensation program. In many of these engagements, a member of our Board was available to answer shareholder questions. The feedback shared during these discussions was positive. Our Board and its committees highly value the feedback we receive from our shareholders.

MPC has adopted a Majority Voting Standard for Uncontested Director Elections

In 2016, MPC adopted a majority voting standard for uncontested director elections, commencing with this Annual Meeting. Please see Page 9 of this Proxy Statement for a full description of the majority voting standard.

MPC has named a Lead Director

At the conclusion of the 2016 Annual Meeting, David A. Daberko was named our Lead Director. In that capacity, he functions as a voice of the non-management directors and reinforces effective independent leadership on the Board of Directors.

MPC’s Board benefits from a Diverse Set of Skills

 

       Tenure       CEO       Finance     Industry
  Expertise  
  Gov’t /
  Regulatory  

  Gary R. Heminger

  5   LOGO     LOGO  

  David A. Daberko (Ind.)

  5   LOGO   LOGO   LOGO  

  Abdulaziz F. Alkhayyal (Ind.)

  *       LOGO  

  Evan Bayh (Ind.)

  5     LOGO     LOGO

  Charles E. Bunch (Ind.)

  1   LOGO     LOGO  

  Steven A. Davis (Ind.)

  3   LOGO     LOGO  

  Donna A. James (Ind.)

  5     LOGO    

  James E. Rohr (Ind.)

  3   LOGO   LOGO   LOGO  

  Frank M. Semple

  1   LOGO     LOGO  

  John W. Snow (Ind.)

  5   LOGO   LOGO   LOGO   LOGO

  J. Michael Stice (Ind.)

  *   LOGO     LOGO  

  John P. Surma (Ind.)

  5   LOGO   LOGO   LOGO   LOGO
* Denotes less than one year of service on our Board.

 

10 of 12 Directors are Independent   6 new directors since 2013 adding midstream, MLP, refining industry, large cap manufacturing, petroleum industry and financial services industry experience   Diverse mix of financial, industry and government/regulatory skills
Average tenure of 3.5 years     96% attendance at all Board and committee meetings in 2016
9 of 12 Directors are current or former CEOs     Mandatory retirement age for directors

 

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Corporate Governance Highlights

 

  The Board has three fully independent standing committees:

 

    Audit;

 

    Compensation; and

 

    Corporate Governance and Nominating.

 

  Independent directors meet regularly in executive session without the chief executive officer present.

 

  Members of the Board and committees perform self-evaluations each year and meet to review and discuss results.

 

  We maintain stock ownership guidelines for directors, as well as executive officers.

 

  We have specific policies and practices to align our director and executive compensation with long-term shareholder interests. For example, we maintain a policy that prohibits hedging and pledging of MPC stock by our directors and executives and have clawback provisions within our executive cash bonus and long-term incentive programs to recoup funds under certain forfeiture events. Other important shareholder-friendly features of our
   

executive compensation program are described in the Compensation Discussion and Analysis portion of this Proxy Statement.

 

  Corporate political spending oversight resides with the Corporate Governance and Nominating Committee.

 

  Voluntary disclosures of political contributions and environmental data are available on the Company website. In recognition that our promotion of a strong U.S. energy industry in public policy matters and our significant achievements in energy efficiency and environmental performance may be of interest to our shareholders and other stakeholders, we have elected to make extensive voluntary disclosures in these areas. We invite our shareholders and others to visit our website at http://www.marathonpetroleum.com and select “Corporate Citizenship” to access our “Political Engagement and Disclosure” and “Health, Environment, Safety & Security” web pages. Representative samples of our voluntary disclosures are included in this Proxy Statement on Page 17 as to political contributions and lobbying expenditures, and on Page 43 as to energy efficiency and emissions data.
 

 

Marathon Petroleum Corporation Proxy Statement    /    page 3

 

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BOARD OF DIRECTORS

 

The Marathon Petroleum Corporation Board of Directors is divided into three classes. Directors are elected for three-year terms. The following table provides summary information about each director nominee standing for election to the Board as a Class III director for a three-year term expiring in 2020, each of the directors continuing to serve as a Class I or Class II director and one director who will be retiring at the conclusion of the 2017 Annual Meeting pursuant to our mandatory retirement policy.

 

Name   Age   Director
Since
  Occupation   Independent   Committees     Other
Public
Company
Boards
1
 

Nominees for Class III Directors

   

Steven A. Davis

  58   2013  

Board Member; Former Chairman and

CEO, Bob Evans Farms, Inc.

  LOGO    

Comp2

CG&N3

 

 

    1  

Gary R. Heminger

  63   2011  

Chairman, President and CEO,

Marathon Petroleum Corporation

                1  

J. Michael Stice

  57   2017   Dean, Mewbourne College of Earth &
Energy, University of Oklahoma
  LOGO    

Audit4

CG&N4

 

 

    1  

John P. Surma

  62   2011  

Retired Chairman and CEO,

United States Steel Corporation

  LOGO    

Audit

CG&N (Chair)

 

 

    2  

Continuing Class I and Class II Directors

 

David A. Daberko

  71   2011  

Lead Director,

Marathon Petroleum Corporation

  LOGO     Audit       1  

Donna A. James

  59   2011  

Managing Director,

Lardon & Associates, LLC

  LOGO    

Audit (Chair)

Comp

 

 

    2  

James E. Rohr

  68   2013  

Retired Chairman and CEO,

The PNC Financial Services Group, Inc.

  LOGO    

Audit

Comp (Chair)

 

 

    3  

Abdulaziz F. Alkhayyal

  63   2016   Retired Senior Vice President, Industrial
Relations, Saudi Aramco
  LOGO    

Audit

CG&N

 

 

    1  

Evan Bayh

  61   2011   Senior Advisor, Apollo Global
Management; Partner, McGuireWoods
LLP
  LOGO    

Audit

CG&N

 

 

    3  

Charles E. Bunch

  67   2015   Retired Chairman and CEO, PPG
Industries, Inc.
  LOGO    

Comp

CG&N

 

 

    3  

Frank M. Semple

  65   2015   Retired Chairman, President and CEO,
MarkWest Energy Partners, L.P.
                 

Retiring Class III Director5

 

John W. Snow

  77   2011   Non-Executive Chairman, Cerberus
Capital Management, L.P.
  LOGO    

Comp

CG&N

 

 

    2  

 

1  For purposes of this disclosure, “Other Public Company Boards” do not include the board of directors of MPLX GP LLC, a wholly owned indirect subsidiary of Marathon Petroleum Corporation.

 

2  Compensation Committee.

 

3  Corporate Governance and Nominating Committee.

 

4  Effective April 26, 2017.

 

5  Retirement effective upon conclusion of the 2017 Annual Meeting of Shareholders.

 

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PERFORMANCE AND COMPENSATION HIGHLIGHTS

 

Pursuant to Section 14A of the Securities Exchange Act of 1934 (or the Exchange Act), Marathon Petroleum Corporation is seeking your approval, on an advisory basis, of the compensation of named executive officers as disclosed in this Proxy Statement. Executive compensation decisions are made to attract, motivate, retain and reward talented executives, with a focus on delivering business results and value to our shareholders.

 

 2016 “Say-on-Pay” Vote Results

At the Annual Meeting held in April 2016, approximately 94 percent of votes cast were in support of the compensation of our named executive officers as described in our 2016 Proxy Statement. In an outreach effort focused on corporate governance matters, we met with shareholders representing approximately 30 percent of our shares outstanding in 2016. During these meetings, we specifically elicited feedback on our NEO compensation program. A member of our Board was available for many of these meetings, and the feedback shared during these engagements was provided to our Compensation Committee. The Compensation Committee interpreted the 2016 vote results, as well as the shareholder engagement feedback, as affirmation of the design and objectives of our executive compensation programs, which recognize long-term financial performance to drive shareholder value. Based on this 2016 “Say-on-Pay” vote and the results of our shareholder engagement, the Compensation Committee has determined that no material changes to our core compensation programs are warranted.

 

 2016 Company Performance

 

  Reported net income attributable to MPC of $1.17 billion, or $2.21 per diluted share, compared with $2.85 billion, or $5.26 per diluted share, in 2015.

 

  Increased the quarterly dividend by 13 percent, to $0.36 from $0.32.

 

  Completed first full year following MPLX’s acquisition of MarkWest, executing on our strategy to grow our midstream stable cash flows.

 

  Speedway surpassed segment all-time highs in income from operations, light product gallons sold, merchandise sales, and merchandise gross margin on a percentage and absolute dollar basis.

 

  Executed on refining margin-enhancing projects.

 

  Announced strategic plan to unlock shareholder value.

 

Marathon Petroleum Corporation Proxy Statement    /    page 5

 

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Table of Contents

 Cumulative Total Shareholder Return

 

 

LOGO

 

   

 

12/31/11

 

   

 

12/31/12

 

   

 

12/31/13

 

   

 

12/31/14

 

   

 

12/31/15

 

   

 

12/31/16

 

 

 Marathon Petroleum Corporation

 

   

 

100.00

 

 

 

   

 

194.21

 

 

 

   

 

288.54

 

 

 

   

 

289.77

 

 

 

   

 

340.01

 

 

 

   

 

342.30

 

 

 

 S&P 500

 

   

 

100.00

 

 

 

   

 

116.00

 

 

 

   

 

153.58

 

 

 

   

 

174.60

 

 

 

   

 

177.01

 

 

 

   

 

198.18

 

 

 

 Peer Group

    100.00       111.09       134.11       124.82       109.96       135.59  

The performance graph above compares the cumulative total return, assuming the reinvestment of dividends, of a $100 investment in our common stock from December 31, 2011, to December 31, 2016, compared to the cumulative total value return of a $100 investment in the S&P 500 index and an index of peer companies (selected by us) for the same period. Our peer group consists of the following companies that engage in domestic refining operations: BP p.l.c., Royal Dutch Shell plc, Chevron Corporation, HollyFrontier Corporation, Phillips 66 (ConocoPhillips prior to May 1, 2012), Tesoro Corporation, ExxonMobil Corporation, and Valero Energy Corporation.

GENERAL INFORMATION

 

 

MPLX LP (or MPLX) is a diversified, growth-oriented master limited partnership (or MLP) formed in 2012 by Marathon Petroleum Corporation to own, operate, develop and acquire midstream energy infrastructure assets. MPLX is engaged in the gathering, processing and transportation of natural gas; the gathering, transportation, fractionation, storage and marketing of NGLs; and the transportation and storage of crude oil and refined petroleum products.

On December 4, 2015, MarkWest Energy Partners, L.P. (or MarkWest), which owns and operates midstream service businesses, merged with and became a wholly owned subsidiary of MPLX (which we refer to as the MPLX/MarkWest Merger). MarkWest has a leading presence in many natural gas resource plays, including the Marcellus Shale, Utica Shale, Huron/Berea Shale, Haynesville Shale, Woodford Shale, Permian Basin and Granite Wash formation.

We own an approximate 28 percent interest in MPLX, including the general partner interest, and we consolidate this entity for financial reporting purposes. References to MPLX are included in these materials as appropriate to add clarity to certain disclosures.

The separation of Marathon Petroleum Corporation from Marathon Oil Corporation (which we refer to as Marathon Oil) was completed on June 30, 2011. References to the separation of Marathon Petroleum Corporation from Marathon Oil (which we refer to as the Spinoff) are included in these materials as appropriate to provide an explanation of certain disclosures relating to prior periods or compensation programs.

We completed a two-for-one stock split in June 2015 (which we refer to as the Stock Split). Certain information in this Proxy Statement has been adjusted to reflect the Stock Split.

 

 

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LOGO

 

Proxy Statement

 

 

On behalf of the Board of Directors (which we refer to as the Board of Directors or the Board) of Marathon Petroleum Corporation, a Delaware corporation (which we refer to as Marathon Petroleum, MPC, the Company, we or us), we have provided this Proxy Statement to you in connection with the solicitation by the Board of Directors of your proxy to be voted on your behalf at our 2017 Annual Meeting of Shareholders (which we refer to as the Annual Meeting). The members of the MPC Proxy Committee are Gary R. Heminger, David A. Daberko and Donald C. Templin.

We will hold the Annual Meeting at 10 a.m. EDT on April 26, 2017, in the Auditorium of Marathon Petroleum Corporation, 539 South Main Street, Findlay, Ohio 45840. This Proxy Statement contains information about the matters to be voted on and other information that may be of help to you.

We plan to commence mailing a Notice Regarding the Availability of Proxy Materials (or the Notice) on or about March 15, 2017. We have included with these materials our Annual Report for the year ended December 31, 2016. The Notice and Annual Report on Form 10-K for the year ended December 31, 2016, are available at www.proxyvote.com.

Questions and Answers About the Annual Meeting

 

 

    What is the purpose of the Annual Meeting?

At the Annual Meeting, shareholders will act upon the proposals set forth in this Proxy Statement, which are:

 

  the election of four nominees to serve as Class III Directors;

 

  the ratification of the selection of PricewaterhouseCoopers LLP as our independent auditor for 2017;

 

  the approval, on an advisory basis, of our named executive officer compensation;

 

  the approval of 162(m)-related provisions of the Amended and Restated MPC 2012 Incentive Compensation Plan; and

 

  three proposals submitted by shareholders, if presented.

 

    Am I entitled to vote?

You may vote if you were a holder of MPC common stock at the close of business on February 27, 2017, which is the record date for our Annual Meeting. Each share of common stock entitles its holder to one vote on each matter to be voted on at the Annual Meeting.

 

    Why did I receive a Notice in the mail regarding the internet availability of proxy materials instead of a full set of printed materials?

Pursuant to rules adopted by the Securities and Exchange Commission (or SEC) that provide for the delivery of a notice to shareholders of their means of internet access to proxy materials, we have again this year elected to reduce the number of sets of printed materials. Unless a shareholder has requested receipt of printed proxy materials, we have sent the Notice to our shareholders of record. All shareholders will have the ability to access proxy materials. The Notice provides instructions to access the materials on the internet or request a traditional set of printed materials be mailed at no cost to the shareholder.

 

 

Marathon Petroleum Corporation Proxy Statement    /    page 7

 

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    How does the Board recommend I vote?

The Board recommends you vote:

 

LOGO FOR each of the nominees for Class III Director;

 

LOGO FOR the ratification of the selection of PricewaterhouseCoopers LLP as our independent auditor for 2017;

 

LOGO FOR the resolution approving, on an advisory basis, our named executive officer compensation;

 

LOGO FOR the approval of 162(m)-related provisions of the Amended and Restated MPC 2012 Incentive Compensation Plan;

 

LOGO AGAINST the proposal seeking various disclosures respecting environmental and human rights due diligence;

 

LOGO AGAINST the proposal seeking a climate-related 2-degree transition plan; and

 

LOGO AGAINST the proposal seeking simple majority vote provisions.

 

    How do I know if I am a shareholder of record or a beneficial owner of shares held in street name?

If your shares are registered in your name with our transfer agent, Computershare Investor Services, LLC, you are a shareholder of record with respect to those shares and you received the Notice or printed proxy materials directly from us. If your shares are held in an account at a brokerage firm, bank, broker-dealer or other similar organization, you are the “beneficial owner” of such shares and the Notice or printed proxy materials were forwarded to you by that organization. In that circumstance, the organization is considered the shareholder of record for purposes of voting at the Annual Meeting. As a beneficial owner, you have the right to instruct the organization how to vote the shares held in your account.

 

    If I am a shareholder of record of MPC shares, how do I cast my vote?

If you are a shareholder of record of MPC common stock, you may vote:

 

  Via the Internet. You may vote by proxy via the internet by following the instructions provided in the Notice;

 

  By Telephone. You may vote by proxy by calling the toll-free telephone number located on the proxy card or available via the internet;

 

  By Mail. If you requested a printed copy of the proxy materials, you may vote by proxy by completing the proxy card and returning it in the provided envelope; or

 

  In Person. You may vote in person at the Annual Meeting. You will be required to present a valid form of identification to be admitted to the meeting and a ballot will be provided to you upon arrival.
    If I am a beneficial owner of MPC shares, how do I cast my vote?

If you are a beneficial owner of shares of MPC common stock held in street name, you may vote:

 

  Via the Internet. You may vote by proxy via the internet by following the instructions provided in the Notice forwarded to you by your broker or other intermediary;

 

  By Telephone. You may vote by proxy by calling the toll-free telephone number located on the voting instruction form or available via the internet;

 

  By Mail. If you requested a printed copy of the proxy materials, you may vote by proxy by completing the voting instruction form and returning it in the provided envelope; or

 

  In Person. You may vote in person at the Annual Meeting but you must first obtain a legal proxy form from the broker or other organization that holds your shares. Please contact such broker or organization for instructions regarding obtaining a legal proxy. If you do obtain a legal proxy and plan to attend the meeting, you will be required to present a valid form of identification.

We provide internet proxy voting to allow you to vote your shares online; however, please be aware you must bear any costs associated with your internet access, such as usage charges from internet access providers or telecommunication companies.

 

    May I change my vote?

If you are a shareholder of record of MPC common stock, you may change your vote or revoke your proxy at any time before your shares are voted at the meeting by:

 

  voting again using the internet or by telephone;

 

  sending us a proxy card dated later than your last vote;

 

  notifying the Corporate Secretary of MPC in writing; or

 

  voting at the meeting.

If you are a beneficial owner of shares of MPC common stock, you must contact your broker or other intermediary with whom you have an account to obtain information regarding changing your voting instructions.

 

    What is the number of outstanding shares?

At the close of business on February 27, 2017, which is the record date for the Annual Meeting, there were 527,875,060 shares of MPC common stock outstanding and entitled to vote.

 

 

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    What is the voting requirement to approve each of the proposals?

 

  Proposal No. 1 - At the Annual Meeting, Directors will be elected by a majority voting standard. Each Director nominee who receives the affirmative vote of a majority of the votes cast with respect to such Director nominee will be elected a Director, in which case abstentions and broker non-votes will not be considered votes “cast” and shall have no effect on the outcome. In an uncontested election, if a Director nominee does not receive a majority of the votes cast, such a Director is required by our Amended and Restated Bylaws (which we refer to as our Bylaws) to submit an irrevocable resignation to the Corporate Governance and Nominating Committee of the Board, which shall make a recommendation to the Board as to whether to accept or reject the resignation of such incumbent Director, or whether other action should be taken. The Board will act on the resignation within 90 days following certification of the election results and publicly disclose its decision regarding the resignation and, if such resignation is rejected, the rationale behind the decision.

In a contested election, a plurality voting standard will apply. In this circumstance, Directors who receive the highest number of affirmative votes of the shares present, in person or by proxy, and entitled to vote, are elected.

 

  Proposal No. 2 will be approved if it receives the affirmative vote of a majority of the votes cast on the proposal, in which case abstentions will not be considered votes “cast” and shall have no effect on the proposal.

 

  Proposal No. 3 will be approved if it receives the affirmative vote of a majority of the votes cast on the proposal, in which case abstentions and broker non-votes will not be considered votes “cast” and shall have no effect on the proposal. Although the advisory vote on Proposal No. 3 is nonbinding, our Board will review the results of the vote and will take them into account in making determinations concerning executive compensation.

 

  Proposal No. 4 will be approved if it receives the affirmative vote of a majority of the votes cast on the proposal, in which case abstentions and broker non-votes will not be considered votes “cast” and shall have no effect on the proposal.

 

  Each of Proposals No. 5, No. 6 and No. 7 will be approved if it receives the affirmative vote of a majority of the shares present, in person or by proxy, and entitled to vote. Abstentions and broker non-votes will have the same effect as votes against these proposals.
    What are “broker non-votes?”

The New York Stock Exchange (or NYSE) permits brokers to vote their customers’ shares on routine matters when the brokers have not received voting instructions from such customers. The ratification of an independent auditor is an example of a routine matter on which brokers may vote in this manner. Brokers may not vote their customers’ shares on non-routine matters such as the election of directors or proposals related to executive compensation unless they have received voting instructions from their customers. Shares held by brokers on behalf of customers who do not provide voting instructions on non-routine matters are “broker non-votes.”

 

    What constitutes a quorum?

Under our Bylaws, a quorum is a majority of the voting power of the outstanding shares of stock entitled to vote. Both abstentions and broker non-votes are counted in determining whether a quorum is present for the meeting.

 

    How will voting be conducted if any matters not contained in this Proxy Statement are raised at the Annual Meeting?

If any matters are presented at the Annual Meeting other than the proposals on the proxy card, the Proxy Committee will vote on them using their best judgment. Your signed proxy card, or internet or telephone vote provides this authority. Under our Bylaws, notice of any matter (including director nominations) to be presented by a shareholder for a vote at the Annual Meeting must have been received by December 15, 2016, and must have been accompanied by certain information about the shareholder presenting it. Director nominations from any shareholder who requested the form of certain director nominating documents prior to December 15, 2016, must have been received by January 9, 2017.

 

    When must shareholder proposals and director nominations be submitted for the 2018 Annual Meeting?

Shareholder proposals submitted for inclusion in our 2018 Proxy Statement must be received in writing by our Corporate Secretary no later than the close of business on November 15, 2017. Notices of shareholder director nominations for inclusion in our 2018 Proxy Statement must be received by our Corporate Secretary on or after October 16, 2017, and no later than November 15, 2017, and must comply with our proxy access bylaw provisions. Shareholder proposals (including director nominations) submitted outside the process for inclusion in our 2018 Proxy Statement must be received from shareholders of record on or after November 16, 2017, and no later than December 15, 2017, and must be accompanied by certain information about the shareholder making the proposal, in accordance with our Bylaws.

 

 

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The Board of Directors and Corporate Governance

 

 

Recent Corporate Governance Changes

Proxy Access

In February 2016, our Board of Directors adopted shareholder proxy access bylaw provisions to enable shareholders satisfying certain requirements to submit director nominations for inclusion in the Company’s proxy statement. A single shareholder, or a group of up to 20 shareholders, who have held 3 percent of MPC stock for at least three years may nominate candidates comprising up to the greater of two individuals or 20 percent of the Board of Directors. Our Bylaws describe the procedures that must be followed by a shareholder, or group of shareholders, seeking to make director nominations by way of shareholder proxy access.

 

  MPC’s Proxy Access Bylaw1:

 

LOGO   does allow shareholder(s) to submit director nominees for inclusion in the Company’s proxy statement;
LOGO   does require a 3% ownership threshold;
LOGO   does limit to 20 the number of shareholders aggregating shares to comprise the 3% ownership threshold;
LOGO   does cap proxy access nominees at the greater of two individuals or 20% of the Board; and
LOGO   does explicitly allow loaned shares to count as “owned” shares if recallable.
LOGO   does not prohibit re-nomination of failed nominees;
LOGO   does not impose MPC stock holding requirements beyond the annual meeting in question;
LOGO   does not prohibit the counting of loaned shares to meet the 3% ownership threshold so long as they are subject to recall (no actual recall action required);
LOGO   does not count individual funds within a family of funds as separate shareholders for purposes of the 20-shareholder aggregation limit;
LOGO   does not prohibit third-party director compensation arrangements so long as disclosed; and
LOGO   does not impose qualification restrictions on proxy access nominees that are different than those imposed on Board nominees.

 

(1) The description of the material terms of the MPC proxy access bylaw provisions included within this Proxy Summary is qualified in its entirety by reference to the MPC Bylaws, which are available on our website at http://ir.marathonpetroleum.com by selecting “Corporate Governance” and clicking on “Restated
  Certificate of Incorporation and Bylaws,” “Bylaws of Marathon Petroleum Corporation.”

Majority Voting

Our Board has also adopted a majority voting standard for uncontested director elections to be effective commencing with this Annual Meeting.

Lead Director

In connection with the appointment of our President and Chief Executive Officer, Gary R. Heminger, as Chairman of the Board effective at the conclusion of the 2016 Annual Meeting, our Board appointed David A. Daberko as Lead Director. As Lead Director, Mr. Daberko functions as a voice of the non-management directors and reinforces effective independent leadership on the Board.

We invite our shareholders to review these corporate governance changes as reflected in our Bylaws and our Corporate Governance Principles by visiting our website at http://ir.marathonpetroleum.com and selecting “Corporate Governance.” From that page, the Bylaws are accessible by clicking on “Restated Certificate of Incorporation and Bylaws,” “Bylaws of Marathon Petroleum Corporation” and the Corporate Governance Principles are accessible by clicking on “Corporate Governance Principles.”

The Board of Directors

Under our Bylaws and the laws of the state of Delaware, MPC’s state of incorporation, the business and affairs of MPC are managed under the direction of our Board of Directors. Our Board is divided into three classes, which must be as nearly equal in size as practicable. Currently, each class consists of four directors. Directors are elected by shareholders for terms of three years and hold office until their successors are elected and qualify. One of the three classes is elected each year to succeed the directors whose terms are expiring. As of the Annual Meeting, the terms for the directors in Classes I, II and III of the Board of Directors expire in 2018, 2019 and 2017, respectively.

As part of its ongoing Board succession planning process, our Corporate Governance and Nominating Committee determined to recruit a new member of the Board in 2016. With input from our Chairman, President and Chief Executive Officer (whom we refer to as our Chairman and CEO) and Lead Director, and following consideration of the qualifications and abilities of the nominee, Abdulaziz F. Alkhayyal was recommended by our Corporate Governance and Nominating Committee to be elected as a director. On September 29, 2016, the size of the Board was increased from 10 members to 11, and Mr. Alkhayyal was elected to

 

 

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serve as a Class II director, effective October 26, 2016. As a Class II director, Mr. Alkhayyal’s initial term expires in 2019.

In early 2017, with input from our Chairman and CEO, Lead Director and Chair of the Corporate Governance and Nominating Committee, and following consideration of the qualifications and abilities of the nominee, J. Michael Stice was recommended by our Corporate Governance and Nominating Committee to be elected as a director. On January 27, 2017, the size of the Board was increased from 11 members to 12, and Mr. Stice was elected to serve as a Class I director, with an effective date of February 22, 2017. As a Class I director, Mr. Stice’s initial term would have expired in 2018. Mr. Stice, however, has been nominated for election at the Annual Meeting as a Class III director. Reclassifying Mr. Stice as a Class III director nominee will result in his standing for election one year earlier than would be the case if he remained a Class I director.

On February 22, 2017, our Board determined that upon the retirement of John W. Snow at the conclusion of the Annual Meeting, the size of the MPC Board of Directors will be fixed at 11 directors. Assuming the election of the four Class III director nominees, at the conclusion of the Annual Meeting, our Board will consist of three classes with three directors in Class I, four directors in Class II and four directors in Class III.

Our Board met 12 times in 2016. The attendance of the members of our Board averaged approximately 96 percent for the aggregate of the total number of Board and committee meetings held in 2016. Each of our directors attended at least 75 percent of the meetings of the Board and committees on which he or she served except Evan Bayh, who attended 83 percent of Board meetings but 70 percent of the combined total number of Board and committee meetings. Pursuant to our Corporate Governance Principles, members of our Board are expected to attend the Annual Meeting. All except two members of our Board attended the annual meeting of shareholders on April 27, 2016.

Our Chairman and CEO presides at all meetings of shareholders and of the Board. If the non-employee directors meet without the Chairman and CEO or in circumstances in which the Chairman and CEO is unavailable, the Lead Director serves as the presiding director at such meeting. The Chairman and CEO also attends Board committee meetings, other than the executive sessions of the non-management directors.

Pursuant to our Corporate Governance Principles, non-employee directors of the Board hold executive sessions. An offer of an executive session is extended to non-employee directors at each Board meeting. The Lead Director presides at these executive sessions. In 2016, non-employee directors of the Board held executive sessions at eight Board meetings.

Our Board has three principal committees, all of the members of which are independent, non-employee directors. The table below reflects the current committee memberships of each independent director and the number of meetings each committee held in 2016.

 

 

Board Committee Memberships

 

Director

 

 

Audit

Committee

 

 

Compensation

Committee

 

 

Corporate

Governance

and

Nominating

Committee

 

  Abdulaziz F. Alkhayyal      
  Evan Bayh      
  Charles E. Bunch      
  David A. Daberko      
  Steven A. Davis      
  Donna A. James   Chair    
  James E. Rohr     Chair  
  John W. Snow (retiring)      
  John P. Surma       Chair

  Number of

  meetings in 2016

  5   5   6

Effective as of April 26, 2017, Mr. Stice, who recently joined our Board, will be a member of the Audit and Corporate Governance and Nominating Committees, and Mr. Alkhayyal will be a member of the Audit and Compensation Committees.

In 2017, the Board formed a special committee comprised entirely of independent directors to evaluate strategic and financial alternatives for the Company’s retail transportation fuels and convenience store business (which we refer to as Speedway).

Board and Committee Independence

As referenced, the principal committee structure of our Board of Directors includes the Audit Committee, the Compensation Committee and the Corporate Governance and Nominating Committee. These committees are comprised entirely of independent directors. Additionally, an Executive Committee of the Board, comprised of David A. Daberko and Gary R. Heminger, has been established to address matters that may arise between meetings of the Board. This Executive Committee may exercise the powers and authority of the Board subject to specific limitations consistent with our Bylaws and applicable law.

To determine director independence, our Board uses the categorical standards set forth below and, additionally, considers the materiality of any relationships between a director and the Company. The Board considers all relevant facts and circumstances including, without limitation, transactions between the Company and the director directly,

 

 

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immediate family members of the director or organizations with which the director is affiliated, and the frequency and dollar amounts associated with these transactions. The Board further considers whether such transactions are at arm’s length in the ordinary course of business and whether any such transactions are consummated on terms and conditions similar to those with unrelated parties.

To be determined categorically independent, a director must not:

 

  be a current employee of the Company or former employee of the Company within the past three years;

 

  have an immediate family member serving as a current executive officer of the Company or former executive officer of the Company within the past three years;

 

  have personally received, or have an immediate family member who has received, any direct compensation from the Company in excess of $120,000 during any 12-month period within the past three years, other than compensation for Board or committee service, pension or other forms of deferred compensation for prior service or compensation paid to an immediate family member who is a non-executive employee of the Company;

 

  have any of the following affiliations with respect to the Company’s external auditor:

 

    current employee of such firm,

 

    engaged, or have an immediate family member engaged, as a current partner of such firm,

 

    have an immediate family member who is a current employee of such firm and who personally works on the Company’s audit, or

 

    has been, or has an immediate family member who has been, engaged or employed by such firm as a partner or employee within the past three years and who personally worked on the Company’s audit within that time;

 

  be employed, or have an immediate family member employed, within the past three years as an executive officer of another company where now, or at any time during the past three years, any of the Company’s current executive officers at the same time serve or served on the other company’s compensation committee;

 

  be an employee, or have an immediate family member who is an executive officer, of a company that makes or made payments to, or receives or received payments from, the Company for property or services in an amount which in any of the three preceding fiscal years exceeded the greater of $1 million or 2 percent of the other company’s consolidated gross revenues;

 

  be an executive officer of a tax-exempt organization to which the Company has within the three preceding fiscal years made any contributions in any single fiscal year
   

that exceeded the greater of $1 million or 2 percent of the tax-exempt organization’s consolidated gross revenues;

 

  be a partner of or of counsel to a law firm that provides substantial legal services to the Company on a regular basis; or

 

  be a partner, officer or employee of an investment bank or consulting firm that provides substantial services to the Company on a regular basis.

Under our Corporate Governance Principles, the following relationships are not considered to be material relationships that would impair a director’s independence:

 

  if the director is, or has an immediate family member who is, a partner (general or limited) in, or a controlling shareholder, equity holder, executive officer or a director of, any organization to which the Company made, or from which the Company received, payments for property or services in the current or any of the past three fiscal years where the amount involved in such transaction in any such fiscal year was less than the greater of $1 million or 2 percent of the recipient’s consolidated gross revenues for that year;

 

  if the director is, or has an immediate family member who is, a director or trustee of any organization to which the Company has made, or from which the Company has received, payments for property or services, and the director (or his or her immediate family member) was not involved in the negotiations of the terms of the transaction, did not, to the extent applicable, provide any services directly to the Company, and did not receive any special benefits as a result of the transaction; or

 

  if the director, or an immediate family member of the director, serves as an officer, director or trustee of a foundation, university, charitable or other not-for-profit organization, and the Company’s discretionary charitable contributions to the organization, in the aggregate, are less than the greater of $1 million or 2 percent of that organization’s latest publicly available annual consolidated gross revenues.

These categorical independence standards and material relationship considerations are found within our Corporate Governance Principles, which are available on our website at http://ir.marathonpetroleum.com by selecting “Corporate Governance” and clicking on “Corporate Governance Principles.”

Our Board performed its independence review for 2017 earlier this year. In applying the categorical standards and assessing the materiality of any relationships, the Board affirmatively determined that each of Ms. James and Messrs. Alkhayyal, Bayh, Bunch, Daberko, S.A. Davis, Rohr, Snow, Stice and Surma, meets the categorical independence standards, has no material relationship with the Company other than that arising solely from the capacity as a director and, in addition, satisfies

 

 

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the independence requirements of the NYSE, including the NYSE independence standards applicable to the committees on which each such director serves. Messrs. Usher and W. L. Davis, who retired effective at the conclusion of our 2016 Annual Meeting held on April 27, 2016, also met the independence standards referred to in the preceding sentence during their service on the Board in 2016.

Audit Committee

Our Audit Committee has a written charter adopted by the Board, which is available on our website at

http://ir.marathonpetroleum.com by selecting “Corporate Governance” and clicking on “Board Committees and Charters,” “Audit Committee,” “Audit Committee Charter.” The Audit Committee Charter requires our Audit Committee to assess and report to the Board on the adequacy of the Charter on an annual basis. Each of the members of our Audit Committee is independent as independence is defined in Exchange Act Rule 10A-3, as well as in the general independence requirements of NYSE Rule 303A.02.

Our Audit Committee is, among other things, responsible for:

 

  appointing, compensating, retaining and overseeing the independent auditor;

 

  reviewing fees proposed by the independent auditor and approving in advance all audit, audit-related, tax and permissible non-audit services to be performed by the independent auditor;

 

  separately meeting with the independent auditor, our internal auditors and our management with respect to the status and results of their activities;

 

  reviewing the structure of the internal audit function to ensure its organizational independence and its access to the Board, Audit Committee and management;

 

  approving the appointment of the general manager of internal audit, and reviewing the performance and compensation of the general manager of internal audit on an annual basis;

 

  reviewing and approving the internal audit expense budget on an annual basis;

 

  reviewing with our Chief Executive Officer (who we may refer to as our CEO), our Chief Financial Officer (who we may refer to as our CFO) and our General Counsel, disclosure controls and procedures and management’s conclusions about such disclosure controls and procedures;

 

  reviewing and discussing with our management and the independent auditor, annual and quarterly financial statements, including those reported on Forms 10-K and 10-Q, prior to their filing, and reports of internal controls over financial reporting;
  reviewing our quarterly earnings press releases prior to their publication and discussing any financial information and any earnings guidance to be provided;

 

  discussing with our management guidelines and policies to govern the process by which risk assessment is undertaken by the Company;

 

  reviewing legal and regulatory compliance regarding the Company’s financial statements, auditing matters and compliance with the Company’s Code of Business Conduct, Code of Ethics for Senior Financial Officers and Whistleblowing as to Accounting Matters Policy; and

 

  evaluating the Audit Committee’s performance on an annual basis.

Our Audit Committee has the authority to investigate any matter brought to its attention with full access to all books, records, facilities and personnel of the Company, and to retain independent legal, accounting or other advisors or consultants.

Policy for Pre-Approval of Audit, Audit-Related, Tax and Permissible Non-Audit Services

Our Pre-Approval of Audit, Audit-Related, Tax and Permissible Non-Audit Services Policy is available on our website at http://ir.marathonpetroleum.com by selecting “Corporate Governance” and clicking on “Policies and Guidelines” “Pre-Approval of Audit, Audit-Related, Tax and Permissible Non-Audit Services.” Among other things, this policy sets forth the procedure for the Audit Committee to pre-approve all audit, audit-related, tax and permissible non-audit services, other than as provided under a de minimis exception.

Under the policy, the Audit Committee may pre-approve any services to be performed by our independent auditor up to 12 months in advance and may approve in advance services by specific categories pursuant to a forecasted budget. Once each year, our CFO presents a forecast of audit, audit-related, tax and permissible non-audit services to the Audit Committee for approval in advance. Our CFO, in coordination with the independent auditor, provides an updated budget to the Audit Committee, as needed, throughout the ensuing fiscal year.

Pursuant to the policy, the Audit Committee has delegated pre-approval authority of up to $500,000 to the Chair of the Audit Committee for unbudgeted items, and the Chair reports the items pre-approved pursuant to this delegation to the full Audit Committee at its next scheduled meeting.

Audit Committee Financial Expert

Based on the attributes, education and experience requirements set forth in the rules of the SEC, our Board has

 

 

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determined David A. Daberko, Donna A. James and John P. Surma each qualifies as an “audit committee financial expert.”

Mr. Daberko was chairman of the board and chief executive officer of National City Corporation for 12 years. In addition to certifying the effectiveness of internal controls and procedures required by his former position as chairman and chief executive officer, Mr. Daberko’s various other roles with National City through his many years of service involved oversight of accounting and both internal and external audit functions. Mr. Daberko was also a member of the audit committee of Williams Partners GP LLC. Mr. Daberko holds a master’s degree in business administration from Case Western Reserve University.

Ms. James previously served as president of Nationwide Strategic Investments, a division of Nationwide Mutual Insurance Company, a financial services and insurance company. Ms. James serves on two other public company boards and has extensive current and former service on the audit committees of public companies. She has experience auditing financial operations and controls and in preparing financial statements under generally accepted accounting principles and statutory accounting principles. She received a bachelor of science degree in accounting from North Carolina Agricultural and Technical State University and is a non-practicing CPA.

Mr. Surma was the chairman and chief executive officer of United States Steel Corporation, an integrated steel producer, and prior to that, he was its chief financial officer and a partner at Price Waterhouse LLP, a public accounting firm. Mr. Surma serves on two other public company audit committees and has extensive experience reviewing, preparing, auditing and analyzing financial statements. He received a bachelor of science degree in accounting from Pennsylvania State University and is a non-practicing CPA.

Guidelines for Hiring Employees or Former Employees of the Independent Auditor

Our guidelines for the hiring of employees or former employees of the independent auditor satisfy the criteria under applicable law and NYSE listing standards, and are available on our website at http://ir.marathonpetroleum.com by selecting “Corporate Governance” and clicking on “Policies and Guidelines” “Guidelines for Hiring of Employees or Former Employees of Independent Auditor.”

Whistleblowing as to Accounting Matters Policy

Our Whistleblowing as to Accounting Matters Policy establishes procedures for the receipt, retention and treatment of complaints received by the Company regarding accounting, internal accounting controls or auditing matters, and the confidential, anonymous submission by employees of the Company or others of concerns regarding

questionable accounting or auditing matters. The Policy for Whistleblowing as to Accounting Matters is available on our website at http://ir.marathonpetroleum.com by selecting “Corporate Governance” and clicking on “Policies and Guidelines” “Whistleblowing as to Accounting Matters.”

Compensation Committee

Our Compensation Committee is comprised solely of directors who satisfy all criteria for independence under applicable law, NYSE listing standards and our Corporate Governance Principles. The Compensation Committee has a written charter adopted by the Board, which is available on our website at http://ir.marathonpetroleum.com by selecting “Corporate Governance” and clicking on “Board Committees and Charters,” “Compensation Committee,” “Compensation Committee Charter.” The Compensation Committee Charter requires our Compensation Committee to assess and report to the Board on the adequacy of the Charter on an annual basis.

Our Compensation Committee is, among other things, responsible for:

 

  determining all matters of policy and procedures relating to officer compensation;

 

  reviewing and approving corporate goals and objectives relevant to our CEO’s compensation and evaluating our CEO’s performance in light of those goals and objectives and, with guidance from our Board, determining and approving our CEO’s compensation based on the Compensation Committee’s performance evaluation;

 

  determining and approving the compensation of our other officers and reviewing the succession plan for senior management;

 

  recommending to the Board and administering the incentive compensation plans and equity-based plans of the Company;

 

  certifying the achievement of performance levels under our incentive compensation plans;

 

  reviewing, recommending and discussing with the Company’s management, the Compensation Discussion and Analysis section included in our annual proxy statements or other securities filings; and

 

  evaluating the Compensation Committee’s performance on an annual basis.

Our Compensation Committee engaged Pay Governance LLC to serve as its independent compensation consultant for 2016. Pay Governance reported directly to our Compensation Committee and provided the Compensation Committee with comparative data on executive compensation and expert advice on the design and implementation of our compensation policies and programs.

 

 

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Our Compensation Committee may delegate any of its responsibilities to a subcommittee comprised of one or more members of the Compensation Committee. In addition, the Compensation Committee may delegate to one or more officers of the Company (or to a Salary and Benefits Committee or a similar committee comprised of officers of the Company) any of its responsibilities with respect to non-equity based plans, such as plans created pursuant to health and other employee benefit plans. In 2016, our Compensation Committee delegated certain responsibilities with respect to non-officer compensation to a Salary and Benefits Committee comprised of officers of the Company.

Our Compensation Committee seeks input from our Chairman and CEO on compensation decisions and performance appraisals for all other officers. However, all officer compensation matters are approved by the Compensation Committee.

Our Compensation Committee meets at least four times a year and is given the opportunity to meet in executive session at each of its meetings. With input from the compensation consultant, our Chairman and CEO and our Senior Vice President of Human Resources and Administrative Services, the Chair of our Compensation Committee approves the agendas for Compensation Committee meetings.

Compensation Committee Interlocks and Insider Participation

The members of our Compensation Committee are James E. Rohr (Chair), Charles E. Bunch, Steven A. Davis, Donna A. James and John W. Snow. Each member of the Compensation Committee qualifies as an independent director. During 2016, none of the Company’s executive officers served as a member of a compensation committee or board of directors of any unaffiliated entity that has an executive officer serving as a member of our Compensation Committee or Board of Directors. Gary R. Heminger serves as an officer and director of MPC and of the general partner of MPLX, MPLX GP LLC. Frank M. Semple serves as a director of MPC and MPLX GP LLC and served as an officer of MPLX GP LLC until his retirement in 2016.

Corporate Governance and Nominating Committee

Our Corporate Governance and Nominating Committee has a written charter adopted by our Board, which is available on our website at http://ir.marathonpetroleum.com by selecting “Corporate Governance” and clicking on “Board Committees and Charters,” “Corporate Governance and Nominating Committee,” “Corporate Governance and Nominating Committee Charter.” Each member of our Corporate Governance and Nominating Committee is independent and qualified under standards established by applicable law, NYSE listing standards and our Corporate Governance Principles. The Corporate Governance and Nominating Committee Charter requires our Corporate Governance and Nominating Committee to assess and report to the Board on the adequacy of the Charter on an annual basis.

Our Corporate Governance and Nominating Committee is, among other things, responsible for:

 

  reviewing and making recommendations to our Board concerning the appropriate size and composition of the Board, including:

 

    candidates for election or re-election as directors;

 

    the criteria to be used for the selection of candidates for election or re-election as directors;

 

    the appropriate skills and characteristics required of Board members in the context of the current composition of the Board;

 

    the composition and functions of Board committees; and

 

    all matters relating to the development and effective functioning of the Board;

 

  considering and recruiting candidates to fill positions on our Board;

 

  considering nominees recommended by shareholders for election as directors;

 

  reviewing and making recommendations to our Board, based on the qualifications set forth in our Corporate Governance Principles, concerning each Board committee’s membership and committee chairs including, without limitation, a determination of whether one or more Audit Committee member qualifies as an “audit committee financial expert” as defined by the rules of the SEC;

 

  assessing and recommending overall corporate governance practices;

 

  reviewing political contributions, lobbying expenditures and payments to certain trade associations;

 

  establishing the process for, and overseeing the evaluation of, our Board;

 

  reviewing and approving codes of conduct applicable to directors, officers and employees;

 

  reviewing the Company’s position statement on stockholders’ rights plans and reporting any recommendations to our Board related thereto; and

 

  evaluating the Corporate Governance and Nominating Committee’s performance on an annual basis.

Oversight of Political Engagement, Contributions and Disclosure

The Corporate Governance and Nominating Committee Charter memorializes among the Committee’s responsibilities semi-annual review of contributions made by the Company to political candidates, committees or parties and the annual review of lobbying expenditures, payments in excess of $50,000 to trade associations that engage in lobbying activities and the content of the “Political

 

 

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Engagement and Disclosure” page on our website. Our Corporate Governance and Nominating Committee believes this oversight, formalized in its charter, conveys the strength of its commitment to ensure our exercise of political speech and involvement in the public policy process remains aligned with the interests of our shareholders.

At the direction of our Corporate Governance and Nominating Committee, we provide detail on our website describing the role of our Government Affairs Organization and our means of promoting and ensuring compliance with our political activity policy through the support of our Office of Business Integrity and Compliance and our Internal Audit Organization. Political activities by and on behalf of the Company are managed by our Government Affairs Organization. To ensure compliance with laws regulating political contributions and lobbying activities, and to ensure that such activities are aligned with the interests of the Company and its shareholders, lobbying contacts made on behalf of the Company with federal, state and local government officials, and all political contributions made by the Company, are centrally coordinated through the management and other professional staff members of our Government Affairs Organization. Additionally, members of our executive management, in consultation with the leadership of our Government Affairs Organization, are involved in approving lobbying expenditures through our annual budgeting process and throughout the year as appropriate.

On an annual basis our Office of Business Integrity and Compliance circulates a Code of Business Conduct questionnaire and members of our Board of Directors, executive officers and salaried employees are required to complete the questionnaire and sign a certification that includes a specific statement of compliance with our political activity policy. Our Internal Audit Organization routinely conducts reviews of the practices of, and reporting documentation prepared by, the Government Affairs Organization, as well as the eligibility of employees contributing to the Marathon Petroleum Corporation Employees Political Action Committee (or MPAC), and reports its findings to executive management.

 

Like most large companies, we are active in trade associations and similar groups at the national, state and local levels. We believe participation in these associations is important in the Company’s role as an industry leader and as an active member of the business communities in which we operate. While not our primary motivation for joining or maintaining our memberships, many trade associations actively engage in lobbying on issues that impact their respective members. We believe it is important to be engaged with these organizations so our positions on issues of importance to the Company can be expressed. We take seriously our leadership in the industry by maintaining an active role in our trade associations and have executives, technical experts and other personnel serving in various leadership and support roles within such groups. Each year our executive management undertakes a review of trade association memberships and assesses the effectiveness of the respective groups and the utility of our new or continued participation and our Corporate Governance and Nominating Committee has oversight of annual payments to such groups in excess of $50,000.

Visitors to our “Political Engagement and Disclosure” page on the Company website are able to directly access:

 

  federal lobbying reports that MPC files quarterly with the Office of the Clerk of the U.S. House of Representatives and links to state lobbying report databases;

 

  itemized lists of corporate political contributions in an interactive map format;

 

  itemized lists of employee political action committee (PAC) contributions in an interactive map format;

 

  a list of trade associations to which MPC or its subsidiaries paid annual dues in excess of $50,000 in 2016;

 

  statements on key positions MPC has taken on important regulatory and legislative issues; and

 

  a statement of philosophy and purpose that includes several embedded links, including to public sources of information.
 

 

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The federal lobbying reports and itemized corporate and PAC contributions available on our website are included for a period of five years. We have included a representative sample of our voluntary disclosures below.

 

 

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Evaluating Board and Committee Effectiveness

Our Corporate Governance and Nominating Committee oversees an annual Board and committee self-evaluation process that involves the opportunity for each member of the Board to complete detailed surveys designed to assess the effectiveness of the Board as a whole and, separately, the effectiveness of each of its committees. The surveys seek feedback on Board and committee composition and organization, the frequency and content of Board and committee meetings, the quality of management presentations to the Board and its committees, the Board’s relationship to senior management, and the performance of the Board and its committees in light of the responsibilities of each body as established in our Corporate Governance Principles and the respective committee charters.

Along with these surveys, each director is asked to review the Corporate Governance Principles and the charter of each committee on which he or she serves, and to offer comments and revision suggestions as deemed appropriate. Summary reports of survey results are compiled and provided to the directors. Our Chairman and CEO and Lead Director lead a

discussion of survey results with all of the directors as a group, and each committee chair leads a discussion of committee results within a committee meeting setting. Our Corporate Governance and Nominating Committee views this process, which combines the opportunity for each director to individually reflect on Board and committee effectiveness with a collaborative discussion on performance, as providing a meaningful assessment tool and a forum for discussing areas for improvement.

Director Identification and Selection

The processes for director selection and the establishment of director qualifications are set forth in Article III of our Corporate Governance Principles, which are available on our website at http://ir.marathonpetroleum.com by selecting “Corporate Governance” and clicking on “Corporate Governance Principles.” In summary, our Board has delegated the director recruiting process to the Corporate Governance and Nominating Committee with input from our Chairman and CEO and Lead Director. Our Corporate Governance and Nominating Committee may work with a third-party professional search firm to review director candidates and their credentials. At least one member of the

 

 

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Corporate Governance and Nominating Committee and our Chairman and CEO are expected to meet with each potential director candidate as part of the recruiting process. The foregoing recruiting process applies to nominees recommended by our Corporate Governance and Nominating Committee, as well as nominees recommended by shareholders in accordance with our Bylaws and applicable law.

The criteria for selecting new directors include the following:

 

  their independence, as defined by applicable law, stock exchange listing standards and the categorical standards listed in our Corporate Governance Principles;

 

  their business or professional experience;

 

  their integrity and judgment;

 

  their record of public service;

 

  their ability to devote sufficient time to the affairs of the Company;

 

  the diversity of backgrounds and experiences they bring to the Board; and

 

  the needs of the Company from time to time.

Directors should also be individuals of substantial accomplishment and experience with demonstrated leadership capabilities, and the ability to represent all shareholders as opposed to a specific constituency. The Corporate Governance and Nominating Committee Charter also gives the Committee the authority to retain and terminate any search firm used to identify director candidates, including the authority to approve the search firm’s fees and other retention terms.

The Board’s Role in Risk Oversight

Responsibility for risk oversight rests with our Board of Directors and the committees of the Board. Our Audit Committee assists our Board in fulfilling its oversight responsibilities by regularly reviewing risks associated with financial and accounting matters, as well as those related to financial reporting. In this regard, our Audit Committee monitors compliance with regulatory requirements and internal control systems. Our Audit Committee reviews risks associated with financial strategies and the capital structure of the Company. Our Audit Committee also reviews the process by which enterprise risk management is undertaken by the Company.

Our Compensation Committee assists the Board with risk oversight through its review of compensation programs to help ensure such programs do not encourage excessive risk-taking. The Compensation Committee reviews base compensation levels, incentive compensation and succession plans to confirm the Company has appropriate practices in place to support the retention and development of the employees necessary to achieve the Company’s business goals and objectives.

The Board receives regular updates from these committees regarding their activities and also reviews risks of a more strategic nature. Key risks associated with the strategic plan of the Company are reviewed annually at a designated strategy meeting of the Board and on an ongoing basis periodically throughout the year.

While our Board and its committees oversee risk management, the senior management team of the Company is charged with managing risk. The Company has a strong enterprise risk management process for identifying, assessing and managing risk, as well as monitoring the performance of risk mitigation strategies. The governance of this process is effected through the executive sponsorship of our CEO and CFO, and is led by an enterprise risk manager, and officers and senior managers responsible for working across the business to manage enterprise level risks and identify emerging risks. These leaders meet routinely and provide regular updates to our Board and its committees throughout the year.

Corporate Governance Principles

Our Corporate Governance Principles are available on our website at http://ir.marathonpetroleum.com by selecting “Corporate Governance” and clicking on “Corporate Governance Principles.” In summary, our Corporate Governance Principles provide the functional framework of our Board of Directors, including its roles and responsibilities. These principles also address director independence, committee composition, the presiding and lead director positions, the process for director selection and director qualifications, the Board’s performance review, the Board’s planning and oversight functions, director compensation and director retirement and resignation.

Leadership Structure of the Board

As provided in our Corporate Governance Principles, our Board of Directors does not have a policy requiring the roles of chairman of the board and chief executive officer to be filled by separate persons or a policy requiring the chairman of the board to be a non-employee director. Our Board will make determinations about leadership structure based on what it believes is best for the Company given specific circumstances. The Board views its active engagement in the process of assessing specific risks through the involvement of our Audit and Compensation Committees, assessing more strategic risks at its annual strategy review meeting and assessing operational and other risks periodically with members of our senior management as providing the desired level of oversight and accountability for our current leadership structure. Effective with the retirement of our former Chairman, Thomas J. Usher, at the conclusion of the 2016 Annual Meeting, the Board appointed Gary R. Heminger as Chairman of the Board and David A. Daberko as Lead Director.

 

 

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On February 24, 2016, our Board of Directors amended our Corporate Governance Principles to include responsibilities of the Lead Director. The Lead Director’s responsibilities include, but are not limited to:

 

  consulting with the Chairman and CEO to include on the agenda for Board meetings any matters requested by the Lead Director;

 

  presiding at meetings of the Board in the absence of, or upon the request of, the Chairman and CEO, including presiding over all executive sessions of the independent directors;

 

  serving as liaison between the Chairman and CEO and the independent directors;

 

  approving meeting schedules to assure that there is sufficient time for discussion of all agenda items;

 

  having the authority to call meetings of the independent directors;

 

  coordinating the agenda for moderating sessions of the Board’s independent directors; and

 

  being available for direct communication from significant stockholders.

Our Board has determined that due to Mr. Heminger’s extensive knowledge of all aspects of MPC’s business as its President and Chief Executive Officer, Mr. Heminger is in the best position at this time to lead the Board of Directors as its Chairman, and Mr. Daberko is in the best position to serve in the capacity as Lead Director. The Board believes that this leadership structure is appropriate because it strikes an effective balance between management and independent director participation in the Board process.

Communications with the Board of Directors

All interested parties, including shareholders, may communicate directly with our non-employee directors by submitting a communication in an envelope addressed to the “Board of Directors (non-employee members)” in care of the Company’s Corporate Secretary, 539 South Main Street, Findlay, OH 45840. Additionally, employees of the Company may communicate with the non-employee directors by following the procedures set forth in our Code of Business Conduct. Communications with our Audit, Compensation, and Corporate Governance and Nominating Committee chairpersons may be made by sending an email to:

 

  auditchair@marathonpetroleum.com;

 

  compchair@marathonpetroleum.com; or

 

  corpgovchair@marathonpetroleum.com.

Interested parties, including shareholders, may communicate with the non-employee directors, individually or as a group, by sending an email to non-managedirectors@marathonpetroleum.com.

Our Corporate Secretary will forward to the directors all communications that, in the Secretary’s judgment, are appropriate for consideration by the directors. Examples of communications that would not be considered appropriate include commercial solicitations and matters not relevant to the affairs of the Company.

Code of Business Conduct

Our Code of Business Conduct is available on our website at http://ir.marathonpetroleum.com by selecting “Corporate Governance” and clicking on “Code of Business Conduct.” The Code of Business Conduct applies to our directors, officers and employees.

Code of Ethics for Senior Financial Officers

Our Code of Ethics for Senior Financial Officers is available on our website at http://ir.marathonpetroleum.com by selecting “Corporate Governance” and clicking on “Code of Ethics for Senior Financial Officers.” This Code of Ethics applies to our CEO, CFO, Vice President and Controller, Treasurer and other persons performing similar functions, as well as to those designated as Senior Financial Officers by our CEO or our Audit Committee.

Under this Code of Ethics, these Senior Financial Officers shall, among other things:

 

  act with honesty and integrity, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships;

 

  provide full, fair, accurate, timely and understandable disclosure in reports and documents that the Company files with, or submits to, the SEC, and in other public communications made by the Company;

 

  comply with applicable laws, governmental rules and regulations, including insider trading laws; and

 

  promote the prompt internal reporting of potential violations or other concerns related to this Code of Ethics to the Chair of the Audit Committee and to the appropriate person or persons identified in our Code of Business Conduct, and encourage employees to talk to supervisors, managers or other appropriate personnel when in doubt about the best course of action in a particular situation.

Our Code of Ethics for Senior Financial Officers further provides that any violation will be subject to appropriate discipline, up to and including dismissal from the Company and prosecution under the law.

 

 

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Compensation of Directors

 

Our Board of Directors determines annual retainers and other compensation for non-employee directors. Directors who are employees of MPC and its subsidiaries receive no compensation for their service on the Board. For 2016, the annual retainers and other compensation were established at the levels set forth below.

 

  Form of Compensation

 

 

Lead

Director

($)

 

   

Audit

Committee

Chair

($)

 

   

Compensation

Committee

Chair

($)

 

   

Corporate

Governance and

Nominating

Committee

Chair

($)

 

   

All

Other

Directors

($)

 

 

 

  Cash Retainer

 

 

 

 

 

 

175,000

 

 

 

 

 

 

 

 

 

150,000  

 

 

 

 

 

 

 

 

 

150,000    

 

 

 

 

 

 

 

 

 

150,000      

 

 

 

 

 

 

 

 

 

150,000

 

 

 

 

 

  Committee Chair Fees

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

15,000  

 

 

 

 

 

 

 

 

 

15,000    

 

 

 

 

 

 

 

 

 

10,000      

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  Deferred Equity Awards

 

 

 

 

 

 

150,000

 

 

 

 

 

 

 

 

 

150,000  

 

 

 

 

 

 

 

 

 

150,000    

 

 

 

 

 

 

 

 

 

150,000      

 

 

 

 

 

 

 

 

 

150,000

 

 

 

 

 

  Total

 

 

 

 

 

 

325,000

 

 

 

 

 

 

 

 

 

315,000  

 

 

 

 

 

 

 

 

 

315,000    

 

 

 

 

 

 

 

 

 

310,000      

 

 

 

 

 

 

 

 

 

300,000

 

 

 

 

 

Directors did not receive meeting fees for attendance at Board or committee meetings in 2016. Non-employee directors, other than the Lead Director, received an annual cash retainer of $150,000. The Lead Director received a prorated annual cash retainer of $175,000. Each of the chairs of the principal committees of the Board also received an annual committee chair fee for their respective leadership roles. All non-employee directors received annual deferred equity awards valued at $150,000. The annual deferred equity awards granted in 2016 to the non-employee directors were granted in the form of MPC restricted stock units valued at $135,000 and MPLX phantom units valued at $15,000. Prior to the 2016 Annual Meeting, our former non-employee Chairman of the Board, who retired at the conclusion of the 2016 Annual Meeting, received a prorated annual cash retainer of $350,000 and prorated equity awards valued at $150,000. In 2017, the Board formed a special committee comprised entirely of independent directors to evaluate strategic and financial alternatives for Speedway. Each member of the Special Committee will receive a one-time cash retainer of $25,000 in 2017.

In 2016, the annual deferred equity awards in the form of MPC restricted stock units and MPLX phantom units were credited to unfunded accounts based on the closing stock price of MPC common stock and the closing unit price of MPLX common units on the grant dates. When dividends were paid on MPC common stock and distributions were paid on MPLX common units, non-employee directors received, respectively, dividend equivalents in the form of additional MPC restricted stock units and distribution equivalents in the form of additional MPLX phantom units. The deferred MPC restricted stock units and deferred MPLX phantom units are payable in shares of MPC common stock and MPLX common units, respectively, only upon a director’s departure from the Board.

In addition, three of our non-employee directors, Messrs. Daberko, Semple and Surma, serve on the board of MPLX GP LLC, a wholly owned indirect subsidiary of MPC, and receive compensation for that board service. Their annual cash retainers and deferred equity awards received as compensation for MPLX GP LLC board service in 2016 are reflected in the “2016 Director Compensation Table” on Page 21.

Each year, non-employee directors have the opportunity to defer up to 100 percent of their annual cash compensation into an unfunded account. This deferred cash account may be invested in certain notional investment options offered under the Marathon Petroleum Corporation Deferred Compensation Plan for Non-Employee Directors, which generally mirror the investment options offered to employees under our thrift plan except that there is no option to invest in MPC common stock. When a director who has deferred cash compensation departs from the Board, he or she receives cash from the deferred account in a lump sum.

Under our matching gifts program, non-employee directors are eligible to have up to $10,000 of their contributions to certain tax-exempt educational institutions matched by the Company each year. The annual limit is applied based on the date of the director’s gift to the institution. Due to processing delays, the actual amount paid out on behalf of a director may exceed $10,000 in a given year.

We also have stock ownership guidelines in place for non-employee directors. Each of the non-employee directors, including the Lead Director, is expected to hold three times the value of such director’s annual cash retainer in MPC common stock. Directors have five years from the commencement of their service on the Board to satisfy these guidelines, and restricted stock unit awards are credited toward these guidelines.

 

 

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2016 Director Compensation Table

 

The following table and footnotes provide information regarding the compensation earned by or paid to the Company’s non-employee directors in the 12 months ended December 31, 2016.

 

Name

 

  

Fees

Earned

or Paid

in Cash(1)

($)

 

  

Stock

Awards(2)

($)

 

  

Option

Awards

($)

 

  

Non-Equity

Incentive

Plan

Compensation

($)

 

  

Change in

Pension Value

and

Non-Qualified

Deferred

Compensation

Earnings

($)

 

  

All Other

Compensation(3)

($)

 

  

Total

($)

 

 

 Abdulaziz F. Alkhayyal(4)

 

    

 

 

 

 

27,310

 

 

 

    

 

 

 

 

27,310

 

 

 

  

 

 

  

 

 

  

 

 

    

 

 

 

 

 

 

 

    

 

 

 

 

54,620

 

 

 

 

 Evan Bayh

 

    

 

 

 

 

150,000

 

 

 

    

 

 

 

 

150,000

 

 

 

  

 

 

  

 

 

  

 

 

    

 

 

 

 

 

 

 

    

 

 

 

 

300,000

 

 

 

 

 Charles E. Bunch

 

    

 

 

 

 

150,000

 

 

 

    

 

 

 

 

150,000

 

 

 

  

 

 

  

 

 

  

 

 

    

 

 

 

 

10,000

 

 

 

    

 

 

 

 

310,000

 

 

 

 

 David A. Daberko

 

    

 

 

 

 

249,464

 

 

 

    

 

 

 

 

225,000

 

 

 

  

 

 

  

 

 

  

 

 

    

 

 

 

 

10,000

 

 

 

    

 

 

 

 

484,464

 

 

 

 

 Steven A. Davis

 

    

 

 

 

 

150,000

 

 

 

    

 

 

 

 

150,000

 

 

 

  

 

 

  

 

 

  

 

 

    

 

 

 

 

10,000

 

 

 

    

 

 

 

 

310,000

 

 

 

 

 William L. Davis(5)

 

    

 

 

 

 

51,868

 

 

 

    

 

 

 

 

48,626

 

 

 

  

 

 

  

 

 

  

 

 

    

 

 

 

 

 

 

 

    

 

 

 

 

100,494

 

 

 

 

 Donna A. James

 

    

 

 

 

 

158,984

 

 

 

    

 

 

 

 

150,000

 

 

 

  

 

 

  

 

 

  

 

 

    

 

 

 

 

10,000

 

 

 

    

 

 

 

 

318,984

 

 

 

 

 James E. Rohr

 

    

 

 

 

 

165,000

 

 

 

    

 

 

 

 

150,000

 

 

 

  

 

 

  

 

 

  

 

 

    

 

 

 

 

10,000

 

 

 

    

 

 

 

 

325,000

 

 

 

 

 Frank M. Semple(6)

 

    

 

 

 

 

37,297

 

 

 

    

 

 

 

 

37,297

 

 

 

  

 

 

  

 

 

  

 

 

    

 

 

 

 

2,467

 

 

 

    

 

 

 

 

77,061

 

 

 

 

 John W. Snow

 

    

 

 

 

 

150,000

 

 

 

    

 

 

 

 

150,000

 

 

 

  

 

 

  

 

 

  

 

 

    

 

 

 

 

 

 

 

    

 

 

 

 

300,000

 

 

 

 

 John P. Surma

 

    

 

 

 

 

231,786

 

 

 

    

 

 

 

 

225,000

 

 

 

  

 

 

  

 

 

  

 

 

    

 

 

 

 

 

 

 

    

 

 

 

 

456,786

 

 

 

 

 Thomas J. Usher(5)(7)

 

    

 

 

 

 

113,462

 

 

 

    

 

 

 

 

48,626

 

 

 

  

 

 

  

 

 

  

 

 

    

 

 

 

 

20,000

 

 

 

    

 

 

 

 

182,088

 

 

 

(1) The amounts shown in this column reflect the non-employee director and Lead Director cash retainers and committee chair fees earned or paid for Board service from January 1, 2016, through December 31, 2016. Directors are eligible to defer up to 100 percent of their annual cash compensation. For Messrs. Daberko, Semple and Surma, the amounts shown in this column include cash retainers earned or paid for MPLX GP LLC Board service from January 1, 2016, through December 31, 2016.

 

(2) The amounts shown in this column reflect the aggregate grant date fair value, as calculated in accordance with provisions of the Financial Accounting Standards Board Accounting Standards Codification 718, Compensation - Stock Compensation (FASB ASC Topic 718), for MPC restricted stock unit awards and MPLX phantom unit awards granted to the non-employee directors in 2016. All MPC restricted stock unit awards and MPLX phantom unit awards are deferred until departure from the Board, and dividend and distribution equivalents, as applicable, in the form of additional MPC restricted stock unit awards and additional MPLX phantom unit awards are credited to non-employee director deferred accounts as and when dividends and distributions are paid on MPC common stock and MPLX common units, respectively. The aggregate number of MPC restricted stock unit awards credited for MPC Board service and outstanding as of December 31, 2016, for each non-employee director, is as follows: Mr. Alkhayyal, 559; Mr. Bayh, 26,737; Mr. Bunch, 4,139; Mr. Daberko, 140,360; Mr. S.A. Davis, 11,408; Ms. James, 26,737; Mr. Rohr, 11,408; Mr. Semple, 532; Mr. Snow, 76,326; and Mr. Surma, 26,737. For Messrs. Daberko and Snow, the aggregate number of MPC restricted stock unit awards outstanding as of December 31, 2016, includes replacement awards received for prior service on the Board of Directors of Marathon Oil. The aggregate number of MPLX phantom unit awards credited for MPC Board service and outstanding as of December 31, 2016, for each non-employee director is as follows: Ms. James and Messrs. Bayh and Snow, 1,563 each; Messrs. S.A. Davis and Rohr, 1,277 each; Mr. Bunch, 594; and Mr. Alkhayyal, 87. For Messrs. Daberko, Semple and Surma, who also serve on the MPLX GP LLC Board of Directors, the aggregate number of MPLX phantom unit awards credited for MPC Board service and MPLX GP LLC Board service and outstanding as of December 31, 2016, is as follows: Messrs. Daberko and Surma, 9,115 each; and Mr. Semple, 439.

 

(3) The amounts shown in this column reflect contributions made on behalf of Ms. James and Messrs. Bunch, Daberko, S.A. Davis, Rohr, Semple and Usher to educational institutions under our matching gifts program. This column does not include perquisites or personal benefits provided to our non-employee directors. To the extent provided, the aggregate amount of perquisites and personal benefits provided to any non-employee director in 2016 was less than $10,000.

 

(4) Mr. Alkhayyal joined the Board on October 26, 2016.

 

(5) Messrs. W.L. Davis and Usher served on the Board until their respective retirements, which were effective at the conclusion of our 2016 Annual Meeting held on April 27, 2016. In July 2016, Mr. W.L. Davis received a distribution of MPC common stock from his deferred equity account valued at $5,110,873, cash in lieu of a fractional share of MPC common stock in the amount of $25, MPLX common units from his deferred equity account valued at $39,238, and cash in lieu of a fractional MPLX common unit in the amount of $18. In July 2016, Mr. Usher received a distribution of MPC common stock from his deferred equity account valued at $2,351,762, cash in lieu of a fractional share of MPC common stock in the amount of $4, MPLX common units from his deferred equity account valued at $39,238, cash in lieu of a fractional MPLX common unit in the amount of $19, and $68,236 in cash deferred during his prior service on the Board of Directors of Marathon Oil.

 

(6) Mr. Semple became a non-employee director effective with his retirement from his MPLX GP LLC executive position effective October 31, 2016.

 

(7) The amounts shown for Mr. Usher reflect a prorated 2016 annual cash retainer of $350,000 and prorated annual equity awards valued at $150,000 for his role as Chairman of the Board. He retired at the conclusion our 2016 Annual Meeting held on April 27, 2016.

 

Marathon Petroleum Corporation Proxy Statement    /    page 21

 

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Table of Contents

PROPOSAL OF THE BOARD   /   PROPOSAL NO. 1 - ELECTION OF CLASS III DIRECTORS

 

Proposals of the Board

 

Our Board will present the following proposals at the Annual Meeting:

Proposal No. 1 – Election of Class III Directors

 

Our Restated Certificate of Incorporation provides that the Board shall fix the number of directors at no fewer than three and no more than 12. Our Board of Directors currently consists of 12 directors and is divided into three classes of equal size. Directors are elected by shareholders for terms of three years and hold office until their successors are duly elected and qualify. One of the three classes is elected each year to succeed the directors whose terms are expiring. As of the Annual Meeting, the terms for the directors in Classes I, II and III of the Board of Directors expire in 2018, 2019 and 2017, respectively.

Messrs. S.A. Davis, Heminger and Surma are currently Class III directors whose terms are expiring at the Annual Meeting. All three have been nominated by the Board for re-election, to serve as Class III directors through the 2020 Annual Meeting. Mr. Snow has not been nominated to stand for re-election as he is retiring pursuant to our retirement policy. Mr. Stice — who currently serves as a Class I director — has been nominated for election as a Class III director.

On February 22, 2017, our Board fixed the number of directors at 11, effective at the conclusion of the Annual Meeting. If all four Class III director nominees are elected, the Board of Directors will consist of 11 directors, with three directors in Class I, four directors in Class II, and four directors in Class III. A brief statement about the background and qualifications of each nominee is given on the following pages. If any nominee for whom you have voted becomes unable to serve, your proxy may be voted for another person designated by our Board.

Our Bylaws describe the procedures that must be followed by a shareholder of record seeking to nominate someone for election as a director. Such procedures generally require notice be received by our Corporate Secretary at least 90 days, but not more than 120 days, before the first anniversary of the date on which proxy materials were mailed for the preceding year’s annual meeting of shareholders. The Company’s shareholder proxy access bylaw provisions enable shareholders satisfying certain requirements to submit director nominations for inclusion in the Company’s proxy statement. Under these provisions, notice must be received by our Corporate Secretary at least 120 days, but not more than 150 days, before the first anniversary of the date on which proxy materials were mailed for the preceding year’s annual meeting of shareholders. Our Bylaws describe the procedures that must be followed by a shareholder, or group of shareholders, seeking to make director nominations. As set forth in our Bylaws, a notice must contain certain information about the nominee, including his or her age, address, citizenship, occupation and share ownership, as well as the name, address and share ownership of the shareholder giving the notice.

As explained earlier in the “Questions and Answers” section of this Proxy Statement, directors will be elected by a majority voting standard at the Annual Meeting.

 

 

LOGO  

 

Our Board of Directors recommends you vote FOR the Nominees for Class III Director in Proposal No. 1.

 

 

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PROPOSAL OF THE BOARD   /   PROPOSAL NO. 1 - ELECTION OF CLASS III DIRECTORS

 

 
LOGO  

Our Board of Directors recommends you vote for the Nominees for Class III Director in Proposal No. 1.

 

Nominees for Class III Directors – Current Terms Expiring in 2017:

 

Steven A. Davis

 

 

 

 

LOGO

   

 

     MPC Director since: 2013    Age 58

 

       
     

  Board Member; Former Chairman and CEO, Bob Evans Farms, Inc.

 

Mr. Davis serves on the boards of directors of Sonic Corporation, the largest chain of drive-in restaurants in America, and Albertsons Companies, Inc., the second largest retail grocery chain in the United States. Mr. Davis served as the chairman and chief executive officer of Bob Evans Farms, Inc., a foodservice and consumer products company, from May 2006 to December 2014. He previously served on the board of directors for Walgreens Boots Alliance, Inc., a global retail pharmacy and healthcare company from 2009 to 2015. Prior to joining Bob Evans Farms in 2006, Mr. Davis served in a variety of restaurant and consumer packaged goods leadership positions, including president of Long John Silver’s and A&W All-American Food Restaurants.

 

In addition, he held senior executive and operational positions at Yum! Brands’ Pizza Hut division and at Kraft General Foods. Mr. Davis holds a bachelor of science degree in business administration from the University of Wisconsin at Milwaukee and a master’s degree in business administration from the University of Chicago.

 

As the former chairman and chief executive officer of a large foodservice and consumer products company, Mr. Davis has a wealth of experience in marketing products, managing a network of branded retail locations and dealing with the operational challenges presented by a customer service-oriented line of business. He also has expertise in mergers and acquisitions, management development, operations and sales and

 

marketing. His current and former service on other boards of directors of public companies also informs his perspective. As a former chairman and corporate chief executive, Mr. Davis brings to our Board a relevant skill set developed through his direct responsibilities in overseeing the operations and financial performance of a large public company, and his diverse board experience on multiple Fortune 250 companies.

 

Other Current Public Company Directorships:

  Sonic Corp.

 

Recent Past Directorships:

  Bob Evans Farms, Inc.

  Walgreens Boots Alliance, Inc.

 

Gary R. Heminger

 

 

 

 

LOGO

   

 

     MPC Director since: 2011    Age 63

 

       
     

  Chairman, President and CEO Marathon Petroleum Corporation

 

Mr. Heminger is chairman of the board, president and chief executive officer of Marathon Petroleum Corporation. He is also chairman of the board and chief executive officer of MPLX GP LLC, a wholly owned indirect subsidiary of MPC, and a member of the board of directors of Fifth Third Bancorp. Mr. Heminger serves on the boards of directors and executive committees of the American Petroleum Institute (API) and the American Fuel and Petrochemicals Manufacturers (AFPM) and on the board of directors of JobsOhio. He is also a member of the Oxford Institute for Energy Studies. He is past-chairman of the board of trustees of Tiffin University. Mr. Heminger joined Marathon in 1975. Early in his career, he served in various finance and administration roles, as well as in Auditing and Marketing. From 1995 to 1996, he served as president of Marathon Pipe Line Company. He assumed the position of manager, Business Development and Joint Interest of Marathon Oil Company in November 1996. Mr. Heminger was named vice president of Business Development for Marathon Ashland Petroleum LLC

 

upon its formation in 1998, and senior vice president, Business Development in 1999. In January 2001, he was named executive vice president, Supply, Transportation and Marketing. Mr. Heminger was appointed president of Marathon Petroleum Company LLC, a wholly owned subsidiary of Marathon in September 2001. In addition, he was named executive vice president – Downstream of Marathon Oil Corporation, in September 2001. He was named president and chief executive officer of Marathon Petroleum Corporation on July 1, 2011, and to his current position as Chairman in 2016. Mr. Heminger earned a bachelor’s degree in accounting from Tiffin University in 1976. He earned a master’s degree in business administration from the University of Dayton in 1982. He is a graduate of the Wharton School Advanced Management Program at the University of Pennsylvania.

 

Mr. Heminger has extensive knowledge of all aspects of our business. As our chief executive officer, he leverages that expertise in advising on the strategic direction of the Company and apprising our Board on issues of significance to both our Company

 

and our industry. Through his many years of service with the Company in numerous leadership roles, he is also specifically qualified to speak to the Company’s history and culture, which is useful to the Board’s understanding for long-term planning and opportunities for growth. Mr. Heminger also serves on one outside public company board of directors, which affords him a fresh perspective on management and governance. Mr. Heminger brings to our Board energy industry expertise, a great breadth of transactional experience and an intimate knowledge of our Company.

 

Other Current Public Company Directorships:

  Fifth Third Bancorp

  MPLX GP LLC

 

Recent Past Directorships:

  None

 

Marathon Petroleum Corporation Proxy Statement    /    page 23

 

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PROPOSAL OF THE BOARD   /   PROPOSAL NO. 1 - ELECTION OF CLASS III DIRECTORS

 

Nominee for Class III Director:

 

John P. Surma

 

 

 

LOGO

   

 

     MPC Director since: 2011    Age 62

 

       
     

  Retired Chairman and CEO, United States Steel Corporation

 

Mr. Surma is a member of the boards of directors of MPLX GP LLC, a wholly owned indirect subsidiary of MPC, Ingersoll-Rand plc and Concho Resources Inc. He serves as the chairman of the board of directors of the Federal Reserve Bank of Cleveland. He is also the chairman of the board of directors of the National Safety Council and is a member of the University of Pittsburgh Medical Center board. At the appointment of President Barack Obama, Mr. Surma served on the President’s Advisory Committee for Trade Policy and Negotiations from September 2010 to September 2014, and was its vice chairman. Mr. Surma retired as the chief executive officer of United States Steel Corporation, an integrated steel producer, in September 2013, and as executive chairman in December 2013. Prior to joining United States Steel, Mr. Surma served in several executive positions with Marathon Oil Corporation. He was named senior vice president, Finance & Accounting

 

of Marathon Oil Company in 1997, president, Speedway SuperAmerica LLC in 1998, senior vice president, Supply & Transportation of Marathon Ashland Petroleum LLC in 2000 and president of Marathon Ashland Petroleum LLC in 2001. Prior to joining Marathon, Mr. Surma worked for Price Waterhouse LLP where he was admitted to the partnership in 1987. In 1983, Mr. Surma participated in the President’s Executive Exchange Program in Washington, D.C., where he served as executive staff assistant to the vice chairman of the Federal Reserve Board. Mr. Surma earned a bachelor of science degree in accounting from Pennsylvania State University in 1976.

 

As the retired chairman and chief executive officer of a large industrial firm, Mr. Surma has direct insight into many of the same opportunities, risks and challenges faced by our Company. His public accounting background also equips him with an understanding of public company financial reporting

 

requirements that is useful in carrying out his oversight function as a member of our Board and our Audit Committee. His current and former service on other public company boards of directors, including in the energy sector, affords him a perspective that is particularly valuable and informs his service as Chair of our Corporate Governance and Nominating Committee. Mr. Surma brings to our Board his significant experience in public accounting and in executive leadership in the energy and steel industries.

 

Other Current Public Company Directorships:

  Concho Resources Inc.

  Ingersoll-Rand plc

  MPLX GP LLC

 

Recent Past Directorships:

  Bank of New York Mellon

  United States Steel Corporation

Nominee for Class III Director - Reclassification from Class I:

 

J. Michael Stice

 

 

 

LOGO

   

 

     MPC Director since: 2017    Age 57

 

       
     

  Dean of the Mewbourne College of Earth & Energy, The University of Oklahoma

 

Mr. Stice has served as the Dean of the Mewbourne College of Earth & Energy at The University of Oklahoma since August 2015. He also serves on the board of directors of U.S. Silica Holdings, Inc., a leading silica sand supplier. Mr. Stice retired as the chief executive officer of Access Midstream Partners L.P., a gathering and processing master limited partnership, in 2014 and from its board of directors in 2015. He had served as Access Midstream’s and Chesapeake Midstream Partners, L.P.’s chief executive officer since 2009, and as president and chief operating officer of Chesapeake Midstream Development, L.P., a wholly owned subsidiary of Chesapeake Energy Corporation and as senior vice president of natural gas projects of Chesapeake Energy Corporation since 2008. Stice began his career in 1981 with Conoco, working in a variety of positions of

 

increasing responsibility. He was named president of ConocoPhillips Qatar in 2006. Mr. Stice holds a bachelor’s degree in chemical engineering from the University of Oklahoma, a master’s degree in business from Stanford University and a doctorate in education from George Washington University.

 

Mr. Stice has extensive experience with MLPs, including as the chief executive officer of one of the largest publicly traded gathering and processing MLPs, and previously served on the board of directors of MarkWest Energy Partners, L.P., which was acquired by MPLX in 2015. He has 35 years of experience in the upstream and midstream gas businesses. Additionally, Mr. Stice has served on other public company boards of directors.

 

Other Current Public Company Directorships:

 U.S. Silica Holdings, Inc.

 

Recent Past Directorships:

  Access Midstream Partners GP,  L.L.C.

  MarkWest Energy GP L.L.C.

  SandRidge Energy, Inc.

  Williams Partners GP LLC

 

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PROPOSAL OF THE BOARD   /   PROPOSAL NO. 1 - ELECTION OF CLASS III DIRECTORS

 

Continuing Class I Directors – Current Terms Expiring in 2018:

 

David A. Daberko

 

 

 

LOGO

   

 

     MPC Director since: 2011    Age 71

 

       
     

  Lead Director, Marathon Petroleum Corporation

 

Mr. Daberko serves as the Lead Director of Marathon Petroleum Corporation and on the boards of directors of MPLX GP LLC, a wholly owned indirect subsidiary of MPC, and RPM International Inc. Mr. Daberko joined National City Bank in 1968, and went on to hold a number of management positions with National City. In 1987, Mr. Daberko was elected deputy chairman of National City Corporation, a financial services corporation, which is now a part of The PNC Financial Services Group, Inc., and president of National City Bank in Cleveland. He served as president and chief operating officer of National City Corporation from 1993 until 1995, when he was named chairman of the board and chief executive officer.

He retired as chief executive officer in June 2007 and as chairman of the board in December 2007. Mr. Daberko holds a bachelor’s degree from Denison University and a master’s degree in business

 

administration from Case Western Reserve University.

 

With nearly 40 years of experience in the banking industry, including 12 years as the chairman and chief executive officer of a large financial services corporation, Mr. Daberko has extensive knowledge of the financial services and investment banking sectors. He draws upon the depth of his expertise in accounting and financial management processes in his role on our Audit Committee and in serving as one of our named “audit committee financial experts.” He also has considerable experience from his service as a member of other public company boards of directors, including within the energy industry. Mr. Daberko brings to his role as our Lead Director his knowledge of public company financial reporting requirements and an understanding of the energy business.

 

Other Current Public Company Directorships:

    MPLX GP LLC

    RPM International Inc.

 

Recent Past Directorships:

    Williams Partners GP LLC

 

 

Donna A. James

 

 

 

LOGO

   

 

     MPC Director since: 2011    Age 59

 

       
     

  Managing Director, Lardon & Associates, LLC

 

Ms. James is managing director of Lardon & Associates, LLC, a business and executive advisory services firm. She is a member of the boards of directors of L Brands, Inc., Boston Scientific Corp. and FIS Group, Inc. Additionally, Ms. James is the founder and chair of The Center for Healthy Families in Columbus, Ohio, and is a former chair of the National Women’s Business Council. Before starting Lardon & Associates, Ms. James served in leadership positions with Nationwide Insurance and Financial Services, including as president of Nationwide Strategic Investments. Prior to that, she was executive vice president and chief administrative officer and held other executive positions at Nationwide, including that of executive vice president and chief human resources officer. Her responsibilities included

 

leading several U.S. and internationally based subsidiary companies, a venture capital fund and new business development teams with responsibility for emerging opportunities in financial services. Ms. James graduated from North Carolina Agricultural and Technical State University with a bachelor of science degree in accounting. She is a non-practicing CPA.

 

As a former senior executive in the insurance industry, Ms. James has expertise in finance, accounting, public company financial reporting requirements and business development. She also draws upon her broad executive experience in providing insight on matters of corporate management and talent acquisition. As a current and former member of other public company boards of directors,

 

and as one of our named “audit committee financial experts,” Ms. James brings to her service on our Board and as the Chair of our Audit Committee a valuable perspective on many of the topics impacting our business, including financial reporting, risk management, business strategy and human resources.

 

Other Current Public Company Directorships:

  Boston Scientific Corp.

  L Brands, Inc.

 

Recent Past Directorships:

  CNO Financial Group, Inc.

  Coca-Cola Enterprises, Inc.

  Time Warner Cable Inc.

 

Marathon Petroleum Corporation Proxy Statement    /    page 25

 

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PROPOSAL OF THE BOARD   /   PROPOSAL NO. 1 - ELECTION OF CLASS III DIRECTORS

 

 

James E.

Rohr

 

 

 

LOGO

   

 

    MPC Director since: 2013    Age 68

 

       
     

  Retired Chairman and CEO, The PNC Financial Services Group, Inc.

 

Mr. Rohr serves on the boards of directors of Allegheny Technologies Incorporated, EQT Corporation, General Electric Company and ECHO Realty, LP. Additionally, he is on the board of directors of The Heinz Endowments, is chairman of the board of trustees of Carnegie Mellon University and a member of the boards of trustees of the University of Notre Dame and the Dietrich Foundation, and is a past chairman of the Pittsburgh Cultural Trust. He is also a board member emeritus of the Salvation Army and a member of the Allegheny Foundation. Mr. Rohr joined The PNC Financial Services Group, Inc., a financial services company, in 1972. After serving in various capacities of increasing responsibility and in several leadership roles, he was named chief executive officer in 2000. Mr. Rohr oversaw PNC’s expansion into new markets and led PNC to record growth. After more than 40 years of

 

service with the company, he retired as chief executive officer in April 2013 and as executive chairman of the board in April 2014. Mr. Rohr earned a bachelor of arts degree from the University of Notre Dame in 1970 and a master’s degree in business administration from The Ohio State University in 1972.

 

As the former chairman and chief executive officer of a large diversified financial services company, Mr. Rohr has proven leadership abilities in managing a complex business. His understanding of financial markets and his strategic vision are of particular value to the Company. Mr. Rohr serves on other public company boards of directors across a diverse range of business and industry sectors. He is uniquely positioned to offer guidance on the risk management oversight function of the Board, as well as in areas such as capital allocation, the evaluation of the

 

capital structure of the Company and shareholder relations. Mr. Rohr brings considerable financial acumen and leadership ability to his service on our Board and as the Chair of our Compensation Committee.

 

Other Current Public Company Directorships:

  Allegheny Technologies Incorporated

  EQT Corporation

 General Electric Company

 

Recent Past Directorships:

  BlackRock, Inc.

  The PNC Financial Services Group, Inc.

 

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PROPOSAL OF THE BOARD   /   PROPOSAL NO. 1 - ELECTION OF CLASS III DIRECTORS

 

Continuing Class II Directors – Current Terms Expiring in 2019:

 

Abdulaziz F. Alkhayyal

 

 

 

LOGO

   

 

    MPC Director since: 2016    Age 63

 

       
     

   Retired Senior Vice President, Industrial Relations, Saudi Aramco

 

Mr. Alkhayyal serves on the boards of directors of Halliburton Company and the International Youth Foundation. Mr. Alkhayyal joined Saudi Aramco, the Saudi Arabian national petroleum and natural gas company, in 1981, where he served in various company field operations. From 1993 to 1996, he served as a member of general management, and was then named vice president, Sales and Marketing in 1996, vice president Employee Relations and Training in 1997 and vice president, Corporate Planning in 1998. He was appointed senior vice president, International Operations in 2000, where he was responsible for the development of Saudi Aramco’s downstream international business. Mr. Alkhayyal was named senior vice president, Refining, Marketing and International in 2001 and senior vice president industrial relations in 2007. He served in this position until his retirement from Saudi Aramco in

 

2014. Mr. Alkhayyal received a bachelor’s degree in mechanical engineering in 1977, and a master’s degree in business administration in 1979, both from the University of California, Irvine. He attended the Advanced Management Program at the University of Pennsylvania in 1995.

 

Mr. Alkhayyal has exceptional oil and gas knowledge, including significant international business experience in the energy industry. He served as an executive with the world’s largest producer of crude oil, which has given him unique insight into global energy markets. In addition, Mr. Alkhayyal’s service on another public company board, where he is a member of the Health, Safety and Environment and the Nominating and Corporate Governance Committees provides him with additional insight that informs his service on our Board.

 

Other Current Public Company Directorships:

   Halliburton Company

 

Recent Past Directorships:

   None

 

Evan

Bayh

 

 

 

LOGO

   

 

    MPC Director since: 2011    Age 61

 

       
     

   Senior Advisor, Apollo Global Management; Partner, McGuireWoods LLP

 

Senator Bayh is a senior advisor with Apollo Global Management, a leading global alternative asset management firm, and a partner with McGuireWoods LLP, a global diversified law firm. He is also a member of the boards of directors of Berry Plastics Group, Inc., Fifth Third Bancorp and RLJ Lodging Trust. As a former U.S. senator and the governor of Indiana, Senator Bayh has held numerous leadership positions. He was elected as Indiana’s secretary of state in 1986 and as its governor in 1988. After two terms as governor, Mr. Bayh was elected to the U.S. Senate where he served for 12 years. Senator Bayh’s committee assignments included Banking, Housing and Urban Affairs; Armed Services; Energy and Natural Resources; the Select Committee on Intelligence; Small Business and Entrepreneurship; and the Special Committee on Aging. During his time in office, he focused on job creation,

 

national security, small business growth and many other critical domestic issues. Senator Bayh graduated with a bachelor’s degree in business economics from Indiana University in 1978 and a juris doctor degree from the University of Virginia in 1981.

 

Senator Bayh served as an elected official at the statewide or federal level for more than two decades, first as the governor of the state of Indiana and later as a U.S. senator. As Indiana’s governor, Senator Bayh led large organizations with thousands of employees and oversaw budgets in the billions of dollars. During his time in the U.S. Senate, he served on the Banking Committee and as chairman of the International Trade and Finance Subcommittee. He now leverages his professional expertise as an advisor in private equity markets. His service on other public company boards of directors also exposes

 

him to various industries and management approaches. Senator Bayh brings to our Board a depth of public and private sector experience and offers a unique perspective on matters of government regulation, risk management, finance, corporate governance and leadership.

 

Other Current Public Company Directorships:

   Berry Plastics Group, Inc.

   Fifth Third Bancorp

   RLJ Lodging Trust

 

Recent Past Directorships:

   None

 

Marathon Petroleum Corporation Proxy Statement    /    page 27

 

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PROPOSAL OF THE BOARD   /   PROPOSAL NO. 1 - ELECTION OF CLASS III DIRECTORS

 

 

Charles E. Bunch

 

 

 

LOGO

   

 

     MPC Director since: 2015    Age 67

 

       
     

  Retired Chairman and CEO, PPG Industries, Inc.

 

Mr. Bunch serves on the boards of directors of ConocoPhillips, Mondelez International, Inc. and The PNC Financial Services Group, Inc. Mr. Bunch joined PPG Industries, a global supplier of paints, coatings and other materials, in 1979, and held various positions in finance and planning, marketing, and general management in the United States and Europe. He later served as senior vice president of strategic planning and corporate services and executive vice president, Coatings. He was named president, chief operating officer and board member in 2002, and chairman and CEO in 2005. He retired as chief executive officer in 2015, and as chairman of the board in 2016. Mr. Bunch received a bachelor’s degree in international affairs from Georgetown University and a master’s degree in business administration from the Harvard University Graduate School of Business Administration.

 

 

As the former chairman and chief executive officer of a large, multinational company, and a member of the boards of directors of ConocoPhillips, PNC and Mondelez, Mr. Bunch’s areas of expertise include an in-depth knowledge of the petroleum industry, the financial services industry, organizational and operational management, capital allocation and manufacturing. In addition, Mr. Bunch has a deep understanding of the U.S. economy and corporate finance. His current and former service on other boards of directors of public companies, including in the petroleum industry and the financial industry, have also provided him exposure to varying approaches to governance and leadership across several industry sectors.

 

 

Other Current Public Company Directorships:

  ConocoPhillips

  Mondelez International, Inc.

  The PNC Financial Services Group, Inc.

 

Recent Past Directorships:

  H.J. Heinz Company

  PPG Industries, Inc.

 

Frank M. Semple

 

 

 

LOGO

   

 

      MPC Director since: 2015    Age 65

 

       
     

  Retired Chairman, President and CEO, MarkWest Energy Partners, L.P.

 

Mr. Semple serves on the board of directors of MPLX GP LLC, a wholly owned indirect subsidiary of MPC. He was appointed to our Board in fulfillment of our commitment under the merger agreement between MPLX and MarkWest to appoint one director to our Board effective at the close of the merger. Mr. Semple served as vice chairman of MPLX GP LLC from the time of the MPLX/MarkWest Merger in 2015, until his retirement in 2016. He joined MarkWest in 2003, as president and chief executive officer, and was elected chairman of the board in 2008. Prior to joining MarkWest, Mr. Semple completed a 22-year career with The Williams Companies, Inc. and WilTel Communications. He served as the chief operating officer of WilTel Communications, senior vice president/general manager of Williams Natural Gas Company, vice president of operations and engineering for Northwest Pipeline

 

Company and division manager for Williams Pipe Line Company. Prior to his time with Williams, Mr. Semple served in the United States Navy. Mr. Semple earned a bachelor’s degree in mechanical engineering from the United States Naval Academy and has completed the Program for Management Development at Harvard Business School.

 

As the former chairman and chief executive officer of MarkWest, the master limited partnership acquired by MPLX, Mr. Semple has proven leadership abilities in managing a complex business and a deep understanding of the midstream sector. Mr. Semple has significant experience regarding operations, strategic planning, finance and corporate governance matters.

 

Other Current Public Company Directorships:

  MPLX GP LLC

 

Recent Past Directorships:

  MarkWest Energy GP, L.L.C.

 

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PROPOSAL OF THE BOARD   /   PROPOSAL NO. 1 - ELECTION OF CLASS III DIRECTORS

 

Retiring Director:

John W. Snow, a member of our Compensation Committee and our Corporate Governance and Nominating Committee, will retire from the Board effective April 26, 2017. Mr. Snow has served as a director of our Board since Marathon Petroleum’s inception as an independent company in 2011. Mr. Snow was appointed to the board of directors of Marathon Oil’s predecessor, USX Corporation, in March 1995, and served until December 2001. President George W. Bush nominated Mr. Snow to be Secretary of the Treasury in January 2003, and he was unanimously confirmed to the position by the United States Senate. After leaving that office in 2006, Mr. Snow served on the Marathon Oil board until our Spinoff. Mr. Snow was instrumental in the formation of our Company and our success as a new publicly traded company. We are grateful for his leadership and vision and thank him for his distinguished service.

 

John W. Snow

 

 

 

LOGO

 

   

    Non-Executive Chairman,

    Cerberus Capital Management, L.P.

    Age 77

   
     

 

Mr. Snow is the non-executive chairman of Cerberus Capital Management, L.P. He is also a member of the boards of directors of Armada Hoffler Properties, Inc., Dominion Midstream Partners, LP. and Afiniti. Mr. Snow was sworn into office as U.S. Secretary of the Treasury in February 2003, where he served until leaving office in June 2006.

 

Prior to becoming Secretary of the Treasury, he served as chairman and chief executive officer of CSX Corporation. He also held several high-ranking positions in the Department of Transportation during the Ford administration. Mr. Snow is a former co-chairman of the Conference Board’s Blue-Ribbon Commission on Public Trust and Private Enterprise. He also served as co-chairman of the National Commission on Financial Institution Reform, Recovery and Enforcement.

 

Mr. Snow graduated with a bachelor’s degree from the University of Toledo in 1962. He also holds a master’s degree from Johns Hopkins University, a doctorate in economics from the University of Virginia and a juris doctor degree from George Washington University.

 

Through his role as chairman of a leading private investment firm and his experience as the U.S. Secretary of the Treasury and as the chairman and chief executive officer of a large public company, Mr. Snow is uniquely qualified on a broad array of issues, including global economic conditions, corporate strategic direction, finance, government regulation and leadership. He also serves on the boards of directors of other public companies and is exposed to various views on corporate management and governance. Mr. Snow has considerable skill in various disciplines developed through his distinguished careers in both the private and public sectors.

 

Other public company directorships during the past five years: Armada Hoffler Properties, Inc.; Dominion Midstream Partners, LP; Amerigroup Corporation; Verizon Communications, Inc.; International Consolidated Airlines Group.

 

 

Marathon Petroleum Corporation Proxy Statement    /    page 29

 

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PROPOSAL OF THE BOARD   /   PROPOSAL NO. 2 - RATIFICATION OF INDEPENDENT AUDITOR FOR 2017

 

Proposal No. 2 – Ratification of Independent Auditor for 2017

 

Our Audit Committee has selected PricewaterhouseCoopers LLP (which we refer to as PricewaterhouseCoopers), an independent registered public accounting firm, as our independent auditor to audit the Company’s books and accounts for the year ending December 31, 2017. PricewaterhouseCoopers served as our independent auditor in 2016. While our Audit Committee is responsible for appointing, replacing, compensating and overseeing the work of the independent auditor, we are requesting, as a matter of good corporate governance, our shareholders ratify the appointment of PricewaterhouseCoopers as our independent auditor for 2017. If our shareholders fail to ratify this appointment, our Audit Committee will reconsider

whether to retain PricewaterhouseCoopers and may elect to continue the retention of PricewaterhouseCoopers or may retain another firm without resubmitting the matter to our shareholders. Even if the appointment is ratified, our Audit Committee may, in its discretion, direct the appointment of a different independent auditor at any time during the year if it determines such change would be in the Company’s best interest and in the best interests of our shareholders.

We expect representatives of PricewaterhouseCoopers to be present at our Annual Meeting, with an opportunity to make a statement if they desire to do so, and to be available to respond to appropriate questions from our shareholders.

 

 

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Our Board of Directors recommends you vote FOR Proposal No. 2.

 

 

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PROPOSAL OF THE BOARD   /   PROPOSAL NO. 3 - APPROVAL, ON AN ADVISORY BASIS, OF THE COMPENSATION OF THE COMPANY’S NAMED EXECUTIVE OFFICERS

 

Proposal No. 3 – Approval, on an Advisory Basis, of the Compensation of the Company’s Named Executive Officers

 

Pursuant to Section 14A of the Exchange Act, we seek your advisory vote on the compensation of our named executive officers as disclosed in this Proxy Statement.

Although this vote is non-binding, the Compensation Committee values your opinion and expects to consider the voting results when making future decisions about named executive officer compensation. The next advisory vote, following the vote at the Annual Meeting, on the compensation of our named executive officers will take place at our 2018 Annual Meeting.

Additionally, we think constructive dialogue with our shareholders provides meaningful feedback about specific named executive officer compensation practices and programs and encourage shareholders to communicate directly with both management of the Company and the Compensation Committee about named executive officer compensation. Shareholders may contact the Compensation Committee Chair to provide input on named executive officer compensation matters at any time by email at: compchair@marathonpetroleum.com.

Shareholders may also contact management to provide input on named executive officer compensation matters at any

time by contacting Lisa Wilson, Director, Investor Relations by email at: lisadwilson@marathonpetroleum.com.

As described in the “Compensation Discussion and Analysis” section of this Proxy Statement, our Compensation Committee has effectively established executive compensation programs that reflect both Company and individual performance. Executive compensation decisions are made in order to attract, motivate, retain and reward talented executives, with a focus on delivering business results and value to our shareholders.

Our Compensation Committee consistently exercises care and discipline in determining executive compensation. Our Board of Directors urges you to review carefully the Compensation Discussion and Analysis that describes our compensation philosophy and programs in greater detail and to approve the following resolution:

“RESOLVED, that the compensation paid to the Company’s named executive officers, as disclosed pursuant to Item 402 of Regulation S-K, including in the Compensation Discussion and Analysis, compensation tables and narrative discussion, is hereby APPROVED.”

 

 

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Our Board of Directors recommends you vote FOR Proposal No. 3.

 

 

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PROPOSAL OF THE BOARD   /   PROPOSAL NO. 4 - APPROVAL OF 162(m) MATERIAL TERMS FOR QUALIFIED PERFORMANCE-BASED COMPENSATION UNDER THE AMENDED AND RESTATED MARATHON PETROLEUM CORPORATION 2012 INCENTIVE COMPENSATION PLAN

 

Proposal No. 4 – Approval of 162(m) Material Terms for Qualified Performance-Based Compensation under the Amended and Restated Marathon Petroleum Corporation 2012 Incentive Compensation Plan

 

On February 22, 2017, the Compensation Committee of our Board approved and adopted the Marathon Petroleum Corporation 2012 Incentive Compensation Plan, amended and restated as of that date (which we refer to as the Amended Plan). The Amended Plan is intended to continue to allow us to reward participants by providing cash benefits and opportunities to acquire our common stock, to attract and retain officers, employees and directors, to strengthen the alignment of their interests with shareholder interests and to reward outstanding contributions to our development and financial success.

The Marathon Petroleum Corporation 2012 Incentive Compensation Plan (which we refer to as the 2012 Plan) was approved by shareholders at the 2012 Annual Meeting. The 2012 Plan was amended effective as of June 10, 2015, to reflect the effect of the Stock Split (which we refer to as the First Amendment). The Amended Plan incorporates the terms of the First Amendment and makes certain other non-material changes, including a plan-level limitation on making dividends or dividend equivalents currently payable with respect to unvested awards and a limit on certain share recycling practices. The changes described in this paragraph did not require shareholder approval under the terms of the 2012 Plan or the applicable stock exchange rules and regulations.

We are not asking shareholders to approve either the First Amendment or the Amended Plan. Instead, we are only asking shareholders to approve the material terms for “qualified performance-based compensation” under the Amended Plan for purposes of the approval requirements under Section 162(m) of the Internal Revenue Code of 1986, as amended (or the Code). This approval is intended to preserve our ability to potentially design certain types of awards under the Amended Plan so that they may satisfy the requirements for “qualified performance-based compensation” and may permit us to benefit from certain tax deductions, under Section 162(m) of the Code.

Section 162(m) of the Code disallows a deduction for certain compensation paid to our CEO and to each of our other three most highly compensated executive officers, other than our CFO, in a taxable year to the extent that compensation to a covered employee exceeds $1 million for such year. However, some types of compensation, including “qualified performance-based compensation” under Section 162(m) of the Code, are not subject to the deduction limit if the compensation satisfies the requirements of Section 162(m)

of the Code. The deduction limit does not apply to compensation paid under a shareholder-approved plan that meets certain requirements for “qualified performance-based compensation” under Section 162(m) of the Code. While we believe it is in our best interests and that of our shareholders to have the ability to potentially grant “qualified performance-based compensation” under the Amended Plan, we may decide to grant compensation to covered employees that will not qualify as “qualified performance-based compensation” for purposes of Section 162(m) of the Code. Moreover, even if we intend to grant compensation that qualifies as “qualified performance-based compensation” for purposes of Section 162(m) of the Code under the Amended Plan, we cannot guarantee that such compensation will so qualify or will ultimately be deductible by us.

Generally, compensation attributable to stock options, appreciation rights and other performance-based awards may be deemed to qualify as “qualified performance-based compensation” under Section 162(m) of the Code if: (1) the grant is made by a committee of outside directors for purposes of Section 162(m) of the Code; (2) the plan under which the award is granted states the maximum number of shares with respect to which share-based awards and the maximum amount of cash awards that may be granted to any individual during a specified period of time; and (3) the amount of compensation an individual may receive under the award is based solely on the achievement of one or more pre-established performance goals that incorporate business criteria approved by shareholders (or, in the case of stock options or appreciation rights, the increase in the value of the shares after the date of grant). Shareholder approval of this proposal is intended to satisfy the shareholder approval requirements of Section 162(m) of the Code.

We are seeking shareholder approval of the material terms for “qualified performance-based compensation” under the Amended Plan, including the performance measures and grant limits under the Amended Plan, as well as the individuals eligible to receive awards under the Amended Plan, to have the flexibility to potentially grant awards under the Amended Plan that may be fully deductible for federal income tax purposes. If our shareholders approve the material terms for “qualified performance-based compensation” under the Amended Plan, assuming that all other requirements under Section 162(m) of the Code are met, we may be able to obtain tax deductions with respect to awards issued under the Amended Plan to our covered employees without regard to the limitations of Section 162(m) of the Code through the 2022 Annual Meeting (in

 

 

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PROPOSAL OF THE BOARD   /   PROPOSAL NO. 4 - APPROVAL OF 162(m) MATERIAL TERMS FOR QUALIFIED PERFORMANCE-BASED COMPENSATION UNDER THE AMENDED AND RESTATED MARATHON PETROLEUM CORPORATION 2012 INCENTIVE COMPENSATION PLAN

 

other words, for approximately five years). If our shareholders do not approve this proposal, we will generally be limited in our ability to deduct certain performance-based awards.

We are not seeking to increase the amount of shares available for issuance or to adjust any of the individual awards limits contained in the Amended Plan.

The actual text of the Amended Plan is attached to this Proxy Statement as Appendix I. The following description of the Amended Plan is only a summary of its principal terms and provisions and is qualified by reference to the actual text as set forth in Appendix I.

Section 162(m) Performance Measures

As discussed above, the principal reason for submitting this proposal to shareholders is to obtain shareholder approval of the material terms for “qualified performance-based compensation” under the Amended Plan for purposes of Section 162(m) of the Code. Such shareholder approval is expected to enable us to structure certain awards so that they may be able to qualify as “qualified performance-based compensation” under Section 162(m) of the Code.

In particular, the Amended Plan includes a list of performance measures upon which the Compensation Committee must condition a grant or vesting of certain “qualified performance-based compensation” awards pursuant to the Amended Plan, which measures may include any of the following:

 

  revenue and income measures (which include revenue, gross margin, income from operations, net income, net sales, earnings per share, earnings before interest, taxes, depreciation and amortization, earnings before interest, taxes and amortization, earnings before interest and taxes and economic value added);

 

  expense measures (which include costs of goods sold, selling, finding and development costs, general and administrative expenses and overhead costs);

 

  operating measures (which include refinery throughput, mechanical availability, productivity, operating income, funds from operations, product quality, cash from operations, after-tax operating income, market share, margin and sales volumes);

 

  margin measures (which include crack spreads);

 

  refined product measures;

 

  cash management and cash flow measures (which include net cash flow from operating activities, working capital, receivables management and related customer terms);
  liquidity measures (which include earnings before or after the effect of certain items such as interest, taxes, depreciation and amortization, improvement in or attainment of working capital levels and free cash flow);

 

  leverage measures (which include debt-to-equity ratio, debt reduction and net debt);

 

  market measures (which include market share, stock price, growth measures, total shareholder return, share price performance, return on equity, return on invested capital and return on assets and market capitalization measures);

 

  return measures (which include return on equity, return on assets and return on invested capital);

 

  corporate value and sustainability measures (which include compliance, safety, environmental and personnel matters);

 

  project completion measures (which may include measures regarding whether interim milestones regarding budgets and deadlines are met, as well as whether projects are completed on time and on or under budget); and

 

  other measures such as those relating to acquisitions, dispositions or customer satisfaction.

In addition to the performance measures, the Amended Plan also includes individual award limits for equity or incentive awards that can be granted pursuant to the Amended Plan, as further described below under the heading “Summary of Material Terms of the Amended Plan”.

Summary of Material Terms of the Amended Plan

The Amended Plan authorizes the grant of awards, including shares of our common stock, in any combination of the following:

 

  stock options, including incentive stock options and non-qualified stock options;

 

  stock appreciation rights (or SARs);

 

  stock awards, restricted stock awards and other awards denominated or paid in common stock;

 

  restricted stock units (which may include dividend equivalents);

 

  cash awards; and

 

  performance awards.

Administration of the Plan

Our Board has designated a committee (or the Plan Committee) to administer the Amended Plan. The Plan Committee has the authority to identify employee award

 

 

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PROPOSAL OF THE BOARD   /   PROPOSAL NO. 4 - APPROVAL OF 162(m) MATERIAL TERMS FOR QUALIFIED PERFORMANCE-BASED COMPENSATION UNDER THE AMENDED AND RESTATED MARATHON PETROLEUM CORPORATION 2012 INCENTIVE COMPENSATION PLAN

 

recipients and determine the types of employee awards made under the Amended Plan. The Plan Committee has full and exclusive authority to administer and interpret the Amended Plan and participant award agreements, and it may adopt guidelines for administering the Amended Plan as it deems necessary or proper.

The Plan Committee may also correct any defect, supply any omission or reconcile any inconsistency in the Amended Plan or in any award. Decisions of the Plan Committee in the interpretation and administration of the Amended Plan are within its sole and absolute discretion and are final, conclusive and binding on all parties concerned.

With respect to director awards, our Board determines the types of director awards made under the Amended Plan and has the same authority as the Plan Committee has with respect to employee awards.

Our Board or the Plan Committee may delegate to a subcommittee, our CEO or other senior officers, or to another committee of the Board, its duties or authority under the Amended Plan with respect to employee awards subject to the limitations as set forth in the Amended Plan.

Our Board may delegate to the Plan Committee or to another committee of the Board its administrative functions under the Amended Plan with respect to director awards, subject to the conditions or limitations as the Board may establish. Our Board and the Plan Committee may also engage third-party administrators to carry out administrative functions under the Amended Plan.

Authorized Shares and Limits

We have reserved a total of 50 million shares of our common stock for issuance in connection with the Amended Plan. No more than 20 million shares may be used for awards other than stock options or SARs. No more than 20 million shares may be granted as incentive stock options. The number of shares authorized to be issued under the Amended Plan, as well as individual limits and exercise prices, are subject to adjustment for stock dividends, stock splits, recapitalizations, mergers or similar corporate events. As of March 1, 2017, the closing price for a share of our common stock on the New York Stock Exchange was $50.99 per share.

The following limitations apply to awards made under the Amended Plan:

 

  no employee may be granted, during any calendar year, stock options or SARs that are exercisable for or relate to more than 12 million shares of common stock;

 

  no employee may be granted, during any one-year period, stock awards or restricted stock unit awards
   

covering or relating to more than 4 million shares of common stock;

 

  no employee may be granted awards (including cash awards granted as performance awards) consisting of cash for any calendar year, having a maximum value determined on the date of grant in excess of $20 million.

Eligibility

Employees eligible for awards under the Amended Plan are employees of our Company or its subsidiaries who are selected by the Plan Committee. All of our non-employee directors are also eligible for awards under the Amended Plan. The Plan Committee has the authority to identify employee recipients to whom awards will be granted, and the type and amount of each award. As of March 1, 2017, there were approximately 580 employees and 11 non-employee directors expected to participate in the Amended Plan.

Employee Award Terms

All awards to employees under the Amended Plan are subject to the terms, conditions and limitations as determined by the Plan Committee. Awards may be made in combination with, in replacement of, or as alternatives to, grants under the Amended Plan or other plans of our Company or subsidiaries, including plans of an acquired entity. Upon the termination of employment of a participant who is an employee, any unexercised, deferred, unvested, or unpaid awards will be treated as set forth in the applicable award agreement.

A stock option granted to an employee under the Amended Plan may consist of either an incentive stock option that is intended to comply with the requirements of Section 422 of the Code or a non-qualified stock option. Incentive stock options and non-qualified stock options must have an exercise price per share that is not less than the fair market value of the common stock on the date of grant and, subject to certain adjustment provisions of the Amended Plan that apply only upon specified corporate events, the exercise price of an option granted under the Amended Plan may not be decreased. The term of a stock option may not extend more than 10 years from the date of grant.

A SAR may be granted under the Amended Plan with respect to all or a portion of the shares of common stock subject to a stock option or may be granted separately. The granted price of a SAR may not be less than the fair market value of the common stock on the date of grant and its term shall extend no more than 10 years from the date of grant. Any SAR which is not a performance award will have a minimum vesting period of three years from the date of grant, which vesting may occur incrementally over the three-year minimum vesting period, as long as no portion of any

 

 

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PROPOSAL OF THE BOARD   /   PROPOSAL NO. 4 - APPROVAL OF 162(m) MATERIAL TERMS FOR QUALIFIED PERFORMANCE-BASED COMPENSATION UNDER THE AMENDED AND RESTATED MARATHON PETROLEUM CORPORATION 2012 INCENTIVE COMPENSATION PLAN

 

SAR award will have a vesting period of less than one year. However, the Plan Committee may provide for earlier vesting following a change of control or other specified events involving the Company or upon an employee’s termination of employment by reason of death, disability or retirement.

Employees may be granted awards in the form of restricted stock or restricted stock units. Unless otherwise provided in an award agreement, the recipient of a restricted stock award will have all rights of a shareholder with respect to the shares of common stock subject to the award, including the right to vote and the right, upon vesting, to receive distributions made with respect to such shares. Restricted stock unit awards consist of awards of units denominated in common stock. Recipients of restricted stock unit awards will not possess voting rights with respect to these awards. However, rights to dividend equivalents may be extended to and made part of any restricted stock unit award at the discretion of the Plan Committee. Except as otherwise provided in an award agreement, any shares or other property (other than cash) distributed as a dividend or otherwise with respect to any restricted stock or restricted stock unit award as to which the restrictions have not yet lapsed will be subject to the same restrictions as the restricted stock or restricted stock unit award.

Any restricted stock or restricted stock unit award which is not a performance award will have a minimum vesting period of three years from the date of grant, which vesting may occur incrementally over the three-year minimum vesting period, provided that no portion of any restricted stock or restricted stock unit award has a vesting period of less than one year. However, the Plan Committee may provide for earlier vesting following a change of control or other specific events involving the Company or upon an employee’s termination of employment by reason of death, disability or retirement.

Notwithstanding the foregoing minimum vesting requirements, no more than 3 percent of the total awards authorized under the Amended Plan will be available and permitted to be granted to executives with shorter vesting periods than one year. In addition, employees who are officers at the time a restricted stock or stock settled restricted stock unit award is made will be subject to an additional one-year holding period following the end of the applicable restriction period before such shares (net of shares used to satisfy applicable tax withholding) may be sold.

Employees may be granted performance awards under the Amended Plan. Performance awards consist of grants made subject to the attainment of one or more performance goals and such awards may be intended to meet the requirements of “qualified performance-based compensation” under Section 162(m) of the Code. The performance goals

intended to satisfy Section 162(m) of the Code must be established by the Plan Committee in accordance with Section 162(m) of the Code and the applicable regulations thereunder, and may be based upon one or more business criteria that apply to the employee, one or more business units of the Company or the Company as a whole, and may include as set forth in the Amended Plan any of the following performance goals set forth above in the “Section 162(m) Performance Measures” on Page 33. Adjustments may be made to the performance goals and the level of the performance award that a participant may earn under the Amended Plan in accordance with the terms set forth in the Amended Plan; provided, that performance awards granted to certain executive officers will only be adjusted to the extent permitted under Section 162(m) of the Code.

Prior to the payment of any performance award based on the achievement of performance goals, our Compensation Committee is required to certify in writing, pursuant to Section 162(m) of the Code, that the applicable performance goals and any material terms are, in fact, satisfied.

Any stock award that is a performance award is subject to a one-year minimum vesting period. However, the Plan Committee may provide for earlier vesting, following a change of control or other specified events involving the Company or upon an employee’s termination of employment by reason of death, disability or retirement. Additionally, employees who are officers at the time a performance award that will settle in shares is made, have an additional one-year holding requirement after the performance award is settled before such shares (net of shares used to satisfy applicable tax withholding) may be sold.

Cash awards, which consist of grants denominated in cash, may also be granted to employees under the Amended Plan. Such cash awards shall be subject to the same performance criteria proposed above with respect to performance awards, with the addition of subjective performance criteria consisting of group, team or individual performance goals aligned with desired business results.

In addition to the holding period for officers following the vesting of awards under the Amended Plan, executive officers are also subject to stock ownership guidelines, which may require an executive officer to retain vested shares (net of shares used to satisfy applicable tax withholding) beyond the holding requirements provided in the Amended Plan.

Non-Employee Director Award Terms

Non-employee directors may be granted stock options, SARs, stock awards, restricted stock unit awards, cash awards and performance awards under the Amended Plan. All awards to our non-employee directors under the Amended Plan are subject to the terms, conditions and

 

 

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PROPOSAL OF THE BOARD   /   PROPOSAL NO. 4 - APPROVAL OF 162(m) MATERIAL TERMS FOR QUALIFIED PERFORMANCE-BASED COMPENSATION UNDER THE AMENDED AND RESTATED MARATHON PETROLEUM CORPORATION 2012 INCENTIVE COMPENSATION PLAN

 

limitations determined by our Board and evidenced in either an individual award agreement or by some other document or plan which sets forth such terms, conditions and limitations. Awards may be made in combination with, in replacement of or as alternatives to, grants under the Amended Plan or other plans maintained by the Company or its subsidiaries, including plans of an acquired entity. Upon the termination of service by a participant who is a non-employee director, any unexercised, deferred, unvested or unpaid awards will be treated as set forth in the applicable award agreement.

A stock option granted to a director under the Amended Plan will consist of a non-qualified stock option. Non-qualified stock options must have an exercise price per share that is not less than the fair market value of the common stock on the date of grant and, subject to certain adjustment provisions of the Amended Plan that apply only upon specified corporate events, the exercise price of an option granted under the Amended Plan may not be decreased. The term of a stock option may not extend more than ten years after the date of grant.

A SAR may be granted under the Amended Plan with respect to all or a portion of the shares of common stock subject to a stock option or may be granted separately. The exercise price of a SAR may not be less than the fair market value of the common stock on the date of grant and its term shall extend no more than 10 years from the date of grant.

Stock awards consist of restricted and non-restricted grants of common stock.

Restricted stock unit awards consist of awards of units denominated in common stock.

Performance awards consist of grants made subject to the attainment of one or more performance goals. Performance awards to non-employee directors are not required to meet the requirements of “qualified performance-based compensation” under Section 162(m) of the Code. Our Board determines the terms, conditions, limitations and performance goals with respect to performance awards to our non-employee directors.

Other Terms of Employee and Director Awards

No Repricing of Stock Options or SARs Without Shareholder Approval

Awards that are stock options or SARs may not be repriced, replaced, regranted through cancellation or modified without shareholder approval (except if in connection with a change in our capitalization) if the effect would be to reduce the underlying grant price. Similarly, no stock options or SARs may be repurchased with cash without shareholder approval.

Dividends and Interest

Rights to dividends or dividend equivalents may be extended to and made part of an award consisting of shares of common stock or units denominated in shares of common stock, subject to such terms, conditions and restrictions as the Plan Committee or the Board shall establish. The Plan Committee or the Board may establish rules and procedures for the crediting of interest on deferred cash payments and dividend equivalents for awards consisting of shares of common stock or units denominated in shares of common stock. In no case, however, will dividends or dividend equivalents be currently payable with respect to an unvested award.

Tax Withholding

The Company or its third party administrator has the right to deduct applicable taxes from any award payment and withhold an appropriate amount of cash or number of shares of common stock or a combination thereof for payment of taxes required by law or to take such other actions as may be necessary to satisfy all obligations for the withholding of such taxes. The Plan Committee or the Board may permit withholding to be satisfied by the transfer to the Company of shares of common stock owned by the holder of the award with respect to which withholding is required.

Other Adjustments

In the event of a corporate merger, consolidation, acquisition of property or stock, separation, reorganization or liquidation, the Board may make such adjustments to awards or other provisions for the disposition of awards as it deems equitable, and shall be authorized to provide for (1) the substitution or assumption of awards, (2) the acceleration of the vesting and exercisability of, or lapse of restrictions with respect to, an award, or (3) the cancellation of awards in exchange for a cash payment in an amount that the Board determines is equal to the fair market value of such awards on the date of such event (which, in the case of stock options or SARs, would be the excess, if any, of the fair market value of common stock on such date over the exercise price of the award).

Amendment of the Plan

Our Board or the Plan Committee may amend or terminate the Amended Plan, except that no amendment that would materially adversely affect the rights of a participant may be made without the consent of the participant and no amendment may be effective prior to its approval by our shareholders if such approval is required by law or any stock exchange on which our common stock is listed. No amendment may cause an option or SAR to be repriced, replaced, repurchased, regranted through cancellation or modification without shareholder approval except for certain adjustments permitted under the Amended Plan.

 

 

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PROPOSAL OF THE BOARD   /   PROPOSAL NO. 4 - APPROVAL OF 162(m) MATERIAL TERMS FOR QUALIFIED PERFORMANCE-BASED COMPENSATION UNDER THE AMENDED AND RESTATED MARATHON PETROLEUM CORPORATION 2012 INCENTIVE COMPENSATION PLAN

 

Federal Income Tax Consequences of the Plan

The following is a brief summary of certain of the U.S. federal income tax consequences to participants for certain transactions under the Amended Plan, based on the law as in effect on the date of this Proxy Statement. This summary, which is presented for the information of shareholders considering how to vote on this proposal and not for Amended Plan participants, is not intended to be complete and does not describe federal taxes other than income taxes (such as Medicare and Social Security taxes), or state, local or foreign tax consequences.

Participants will not realize taxable income upon the grant of a non-qualified stock option or SAR. Upon the exercise of a non-qualified stock option or SAR, the participant will recognize ordinary income. In the case of employees, the ordinary income recognized is an amount equal to the excess of the amount of cash and the fair market value of the common stock received on the date of exercise over the exercise price, if any, paid. This ordinary income is subject to tax withholding by us. The participant will generally have a tax basis in any shares of common stock received pursuant to the exercise of a SAR, or pursuant to the cash exercise of a non-qualified stock option, that equals the fair market value of the shares on the date of exercise. Generally, we will be entitled to a deduction for U.S. federal income tax purposes that corresponds as to timing and amount with the compensation income recognized by the participant.

Employees will not have taxable income upon the grant or the exercise of an incentive stock option. However, the excess of the fair market value of the shares of common stock received upon exercise of the incentive stock option over the exercise price may increase the alternative minimum taxable income of the employee, which may cause the employee to incur alternative minimum tax.

Upon the disposition of stock received as a result of an exercise of an incentive stock option that has been held for the requisite holding period (generally one year from the date of exercise and two years from the date of grant), the employee will generally recognize capital gain or loss equal to the difference between the amount received in the disposition and the exercise price paid. However, if an employee disposes of stock that has not been held for the requisite holding period, the employee will recognize ordinary income in the year of the disqualifying disposition to the extent that the fair market value of the stock at the time of exercise of the incentive stock option, or, if less, the amount realized in the case of an arm’s-length disqualifying disposition to an unrelated party, exceeds the exercise price paid by the employee for the stock. The employee will also recognize capital gain, or, depending on the holding period,

additional ordinary income, to the extent the amount realized in the disqualifying disposition exceeds the fair market value of the stock on the exercise date. If the exercise price paid for the stock exceeds the amount realized in the disqualifying disposition, in the case of an arm’s-length disposition to an unrelated party, the excess would ordinarily be a capital loss.

The Company is generally not entitled to any federal income tax deduction upon the grant or exercise of an incentive stock option, unless the employee makes a disqualifying disposition of the stock. If an employee makes a disqualifying disposition, the Company will generally be entitled to a tax deduction that corresponds as to timing and amount with the compensation income recognized by the employee.

An employee will recognize ordinary compensation income upon receipt of cash pursuant to a cash award or performance award or, if earlier, at the time the cash is otherwise made available to the employee.

A participant will not have taxable income upon the grant of a stock award in the form of units denominated in common stock but, rather, will generally recognize ordinary compensation income at the time the participant receives common stock or cash in satisfaction of a stock unit award in an amount equal to the fair market value of the common stock or cash received. In general, a participant will recognize ordinary compensation income as a result of the receipt of common stock pursuant to a stock award or performance award in an amount equal to the fair market value of the common stock when the stock is received; provided, however, that if the stock is not transferable and is subject to a substantial risk of forfeiture when received, the participant will recognize ordinary compensation income in an amount equal to the fair market value of the common stock when it first becomes transferable or is no longer subject to a substantial risk of forfeiture, unless the participant makes an election to be taxed on the fair market value of the common stock when the stock is received.

An employee will be subject to tax withholding for federal, and generally for state and local, income taxes at the time the employee recognizes income with respect to common stock or cash received pursuant to a cash award, performance award, stock award or stock unit award. Dividends that are received by a participant prior to the time that the common stock is taxed to the participant are taxed as additional compensation, not as dividend income. A participant’s tax basis in the common stock received will equal the amount recognized by the participant as compensation income and the participant’s holding period in the shares will commence on the date income is recognized.

 

 

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PROPOSAL OF THE BOARD   /   PROPOSAL NO. 4 - APPROVAL OF 162(m) MATERIAL TERMS FOR QUALIFIED PERFORMANCE-BASED COMPENSATION UNDER THE AMENDED AND RESTATED MARATHON PETROLEUM CORPORATION 2012 INCENTIVE COMPENSATION PLAN

 

Generally, the Company will be entitled to a deduction for U.S. federal income tax purposes that corresponds as to timing and amount with the compensation income recognized by the participant. Section 162(m) of the Code provides that certain compensation received in any year by a “covered employee” in excess of $1 million is non-deductible by the Company for federal income tax purposes. Section 162(m) of the Code provides an exception, however, for “qualified performance-based compensation.” The Amended Plan permits the Plan Committee to structure grants and awards made under the Amended Plan to “covered employees” as “qualified performance-based compensation” that may be exempt from the limitations of Section 162(m) of the Code. However, the Plan Committee

may award compensation that is or may become non-deductible, based on its consideration of whether the grants are in the best interest of the Company, balancing tax efficiency with long-term strategic objectives.

Awards Under the Plan

Awards under the Amended Plan will be granted at the discretion of the Board or the Plan Committee, as appropriate.

Therefore, the total benefits that will be received by any particular person or group under the Amended Plan are not determinable at this time.

 

 

The following table shows, as to each NEO and the various indicated groups, the aggregate number of stock option awards granted under the 2012 Plan or the Amended Plan from inception through March 1, 2017:

 

 

 Persons or Groups

 

 

 

Number of
Options Granted

 

 

Named Executive Officers (Titles):

 

         

 

Gary R. Heminger (Chairman, President and Chief Executive Officer)

 

      1,362,259

 

Timothy T. Griffith (Senior Vice President and Chief Financial Officer)

 

      192,519

 

Donald C. Templin (Executive Vice President and President, MPLX)

 

      244,585

 

Anthony R. Kenney (President, Speedway LLC)

 

      261,424

 

C. Michael Palmer (Senior Vice President, Supply, Distribution and Planning)

 

      213,768

 

All current executive officers as a group:

 

      2,990,481

 

 

All current non-employee directors as a group:

 

 

      —    

 

Associates of the foregoing:

 

      —    

 

Each other person who received at least 5% of all options granted:

 

      —    

 

All employees, excluding current executive officers:

 

      1,420,898

 

  LOGO  

 

Our Board of Directors recommends you vote FOR Proposal No. 4.

 

 

LOGO   page 38    /    Marathon Petroleum Corporation Proxy Statement

 


Table of Contents

PROPOSAL OF SHAREHOLDER   /   PROPOSAL NO. 5 - SHAREHOLDER PROPOSAL SEEKING VARIOUS DISCLOSURES RESPECTING ENVIRONMENTAL AND HUMAN RIGHTS DUE DILIGENCE

 

Proposals of Shareholders

 

Proposal No. 5 – Shareholder Proposal Seeking Various Disclosures Respecting Environmental and Human Rights Due Diligence

 

Thomas P. DiNapoli, the Comptroller of the State of New York, as trustee of the New York State Common Retirement Fund, 59 Maiden Lane – 30th Floor, New York, New York 10038, owner of 1,307,932 shares of MPC common stock, has given notice that it intends to present the following proposal at the Annual Meeting. In accordance with applicable proxy regulations, the proposal and supporting statement, for which the Company accepts no responsibility, are set forth below.

Proposal 5 – Environmental and Human Rights

Due Diligence Report

WHEREAS: The construction and operation of energy infrastructure in North America requires respect for rigorous standards of environmental review and practice, and impacted Indigenous Peoples.

Environmental and human rights due diligence are essential to assessing the full risk of an asset acquisition. Where such risks are not adequately considered, decisions can be made that lead to reputational, regulatory and financial loss.

The UN Declaration on the Rights of Indigenous Peoples sets out international standards for Indigenous Peoples’ rights including the right to Free, Prior, and Informed Consent prior to the approval of any projects affecting their traditional territory. Human rights due diligence expectations are outlined in principles 17 to 21 of the UN Guiding Principles on Business and Human Rights.

MPLX LP (MPLX), a master limited partnership and consolidated subsidiary of Marathon Petroleum, has invested $500 million in the Bakken Pipeline Project consisting of the Dakota Access Pipeline (DAPL) and Energy Transfer Crude Oil Pipeline via a joint venture with a subsidiary of Enbridge, Inc. that owns 36.75% of the Bakken Pipeline Project.

MPLX’s investment pales, however, in the face of potential environmental liability and loss of reputation from a catastrophic pipeline failure. The pipeline’s operator, Energy Transfer Partners (ETP), has a poor environmental record, with pending water contamination lawsuits in New Jersey, Vermont, Pennsylvania, Louisiana, and Puerto Rico.

The agreement to acquire its ownership in DAPL was reached on August 2, 2016, five days after the project was approved by the US Army Corps of Engineers and eight days before the Standing Rock Sioux Tribe (SRST) began its blockade to stop construction.

However, in the months preceding this agreement, the SRST, as well as three federal agencies, raised concerns about the lack of tribal consultation and the inadequacy of the environmental impact review. At the time of this agreement, proponents believe that Marathon and its shareholders should have been aware of the risks posed by these concerns.

Since August, the conflict has escalated as DAPL construction continued despite the Obama Administration’s request that ETP voluntarily pause construction within 20 miles of Lake Oahe. The alleged use of force towards peaceful protesters is generating negative media coverage while further jeopardizing DAPL’s social license to operate. ETP reports losses of $1.4 billion in a year if delays continue.

RESOLVED: Marathon prepare a report to shareholders, at reasonable cost and omitting proprietary information, that describes the due diligence process used to identify and address environmental and social risks, including Indigenous rights risk, in reviewing potential acquisitions. Such a report should consider:

 

  Which committees, departments and/or managers are responsible for review, oversight and verification;

 

  How social and environmental risks are identified and assessed;

 

  Which international standards are used to define the company’s due diligence procedures;

 

  How this information informs and is weighted in acquisition decisions;

 

  If and how risks identified were disclosed to shareholders;

 

  Whether MPLX has an exit option in DAPL;

 

  Whether Marathon will adjust its policies and practices so as to not become entangled with such situations in the future.
 

 

Marathon Petroleum Corporation Proxy Statement    /    page 39

 

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Table of Contents

PROPOSAL OF SHAREHOLDER   /   PROPOSAL NO. 5 - SHAREHOLDER PROPOSAL SEEKING VARIOUS DISCLOSURES RESPECTING ENVIRONMENTAL AND HUMAN RIGHTS DUE DILIGENCE

 

 

LOGO

 

 

OUR BOARD OF DIRECTORS RECOMMENDS YOU VOTE AGAINST THIS SHAREHOLDER PROPOSAL SEEKING VARIOUS DISCLOSURES RESPECTING ENVIRONMENTAL AND HUMAN RIGHTS DUE DILIGENCE.

 

 

Important Note on this Proposal: We believe it is important for our shareholders to understand that the indirect ownership interest in the Bakken Pipeline Project, as referenced in the proponent’s supporting statement, is held by MPLX, the midstream master limited partnership in which MPC owns an approximate 28 percent interest.

MPC respects the human, cultural and legal rights of individuals and communities and promotes, within its sphere of influence and business role, the goals and principles of the United Nations Universal Declaration of Human Rights. Our acknowledgment of these principles is consistent with our dedication to enriching the workplace, preserving the environment, strengthening the communities where we operate and engaging with our stakeholders to pursue progress toward these goals.

Our Board of Directors believes that preparing a report that discloses the due diligence process used to identify and address certain risks in reviewing potential acquisitions is not in the best interests of our shareholders. Specifically, the proponent seeks a report that includes: the identification of the committees and departments and/or managers responsible for due diligence review, oversight and verification; an explanation of how social and environmental risks are identified and assessed; disclosure of which international standards are used to define our due diligence procedures; an explanation of how such information informs and is weighted in acquisition decisions; an explanation how identified due diligence risks are disclosed to shareholders; disclosure of whether there exists an “exit option” in a particular transaction of an MPC affiliate; and disclosure of whether MPC will adjust its policies and practices in its future commercial due diligence efforts.

Performing due diligence to assess the risks involved in pursuing any transaction is a complex process and one that is highly customized to the transaction involved. Providing a report of the nature the proponent seeks would require MPC to present an incomplete and potentially misleading picture of prospective strategic transactions to its shareholders and to the public generally. Furthermore, many of the projects in which MPC invests involve rigorous permitting processes as ours is a highly regulated industry. Consequently, stakeholder engagement through public comment and other means is already a significant part of the process through which MPC and others in our energy sector advance commercial objectives.

As part of enterprise risk management, as overseen by our Board, MPC continually identifies, evaluates and monitors

social, political and environmental trends, issues and concerns that could affect MPC’s business activities and performance. We have historically demonstrated and continue to demonstrate our commitment to human dignity, human rights and fairness in our employment practices, non-discrimination policies, fair compensation policies and our policies on health, environment, safety and security. MPC clearly communicates its support for these principles in our Code of Business Conduct, which can be found on our website at http://ir.marathonpetroleum.com by selecting “Corporate Governance” and clicking on “Code of Business Conduct”.

We acknowledge that the actions and operations of MPC affect many stakeholders and affirm our responsibility and commitment to promote social, environmental and economic benefits everywhere we operate. We commit to our investors, employees, customers, suppliers, business partners and to the communities where we operate to remain accountable for our actions in the operation of our business with a spirit of respect, collaboration, stewardship and responsible investment. We refer to this broad commitment as “Corporate Citizenship.”

As a member of the American Chemistry Council, we have pledged to operate our business according to the Guiding Principles of Responsible Care®. The first principle notes that we aspire to be an ethical industry leader that increasingly benefits society, the economy and the environment. A sound business plan requires not only manufacturing great products and providing exemplary services, but also taking responsibility for the potential impacts of the business on local communities and the environment.

Through our community engagement programs, community advisory panels and other opportunities to engage with neighbors, we regularly communicate with people who live near our plants and transportation infrastructure.

We believe our public reporting of non-financial performance on Corporate Citizenship matters offers an important tool for measuring the Company’s progress and advancing our dialogue with stakeholders. We also believe our reporting on Corporate Citizenship through our Citizenship Report and our promotion of the goals and principles of the United Nations Universal Declaration of Human Rights through our Code of Business Conduct and Company policies provide stakeholders with ample disclosures regarding environmental and human rights matters relating to MPC’s business.

 

 

LOGO

 

 

 

For the reasons stated above, our Board of Directors recommends you vote AGAINST Proposal No. 5.

 

 

LOGO   page 40    /    Marathon Petroleum Corporation Proxy Statement

 


Table of Contents

PROPOSAL OF SHAREHOLDER   /   PROPOSAL NO. 6 - SHAREHOLDER PROPOSAL SEEKING THE DISCLOSURE OF OUR STRATEGY TO ALIGN OUR BUSINESS PLAN WITH THE 2-DEGREE GOAL OF THE PARIS AGREEMENT

 

Proposal No. 6 – Shareholder Proposal Seeking the Disclosure of Our Strategy to Align Our Business Plan with the 2-Degree Goal of the Paris Agreement

 

Mercy Investment Services, Inc., 2039 North Geyer Road, St. Louis, Missouri 63131, owner of 82 shares of MPC common stock, has given notice that it intends to present the following proposal at the Annual Meeting. In accordance with applicable proxy regulations, the proposal and supporting statement, for which the Company accepts no responsibility, are set forth below.

Proposal 6 - Two Degree Transition Plan

WHEREAS: In November 2016 the Paris Agreement entered into force and its goal of keeping global temperature rise well below 2 degrees Celsius will begin to shape national policy decisions. According to the International Energy Agency, transportation accounts for more than one-fifth of global carbon dioxide emissions and is likely to rise, requiring rapid adoption of new technologies to keep temperatures within limits.

The International Energy Agency and the International Council on Clean Transportation forecast that electrification of transport will play a critical role in achieving required greenhouse gas reductions by 2050. Increased fuel efficiency for internal combustion engines will also play a role: in the U.S., efficiency requirements for light duty vehicles will rise to 54.5 miles per gallon by 2025 and agencies are considering standards leading to significant reductions in fuel consumption for medium and heavy-duty trucks.

In June 2016, the credit rating agency Moody’s indicated that they would begin to analyze carbon transition risk based on scenarios consistent with the Paris Agreement, and noted the high carbon risk exposure of the energy sector.

Expansion of electric and hybrid vehicles, growth in autonomous vehicles and ride sharing, innovations in low carbon fuels, and increased fuel efficiency and battery range hold the potential to reduce demand for petroleum-based fuels and transform the marketing and retail business lines

for refiners. According to the Sustainable Accounting Standards Board, market changes driven by climate change regulations can provide not only challenges for existing refining and retail business models but also opportunities for growth and brand enhancement. For example, many large corporations are actively seeking to reduce transportation emissions, with significant market opportunities for forward-thinking downstream companies.

According to recent 10-Ks, Marathon Petroleum has spent significant capital resources expanding its crude oil refining capacity; recent Citizenship Reports detail investments in renewable energy projects and increased energy efficiency at Marathon refineries. However, the company has not disclosed how the 2 degree challenge is being accounted for in its short and long term capital investment decisions, predictions of future demand, plans for growth, or strategies to manage risks from climate change regulations or related market changes. Such information would allow investors to better assess the risks that climate change regulations may pose to the company and shareholder value.

RESOLVED: Shareholders request that Marathon Petroleum issue a report by December 30, 2017 with board oversight, at reasonable cost and omitting proprietary information, on the Company’s strategy for aligning its business plan with the well below 2 degree Celsius goal of the Paris Agreement, while continuing to provide safe, affordable and reliable energy.

Supporting Statement: This report could include:

 

    The impact of a below 2 degree scenario on Marathon Petroleum’s current business model, business lines and products; and

 

    Plans to integrate technological, regulatory and business model innovations such as advanced biofuels, fuel cells, and electric vehicle charging infrastructure.
 

 

Marathon Petroleum Corporation Proxy Statement    /    page 41

 

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Table of Contents

PROPOSAL OF SHAREHOLDER   /   PROPOSAL NO. 6 - SHAREHOLDER PROPOSAL SEEKING THE DISCLOSURE OF OUR STRATEGY TO ALIGN OUR BUSINESS PLAN WITH THE 2-DEGREE GOAL OF THE PARIS AGREEMENT

 

 

LOGO

 

 

OUR BOARD OF DIRECTORS RECOMMENDS YOU VOTE AGAINST THIS SHAREHOLDER PROPOSAL SEEKING THE DISCLOSURE OF OUR STRATEGY TO ALIGN OUR BUSINESS PLAN WITH THE 2-DEGREE GOAL OF THE PARIS AGREEMENT.

 

 

Our Board of Directors believes that generating a report to disclose the company’s competitive strategies and its business plan is neither necessary to demonstrate MPC’s leadership in achieving emission reductions nor in the best interests of our shareholders. Prevailing market conditions, forecasted demand for our products and the risks and opportunities associated with public policy are all factors we consider, and have long considered, in our planning, investment decisions and development of our corporate strategy, including as that strategy relates to our peer-leading performance in greenhouse gas (GHG) emission reductions and our investments in renewable energy sources and renewable fuels.

Since becoming a standalone downstream energy company in 2011, we have taken significant steps to diversify our business and enhance our competitive position. These steps include the expansion of MPC’s midstream business through our master limited partnership, MPLX, and the growth of our retail segment through Speedway’s acquisition of more than 1,200 retail locations in the Northeast and the South. Likewise, MPLX’s acquisition of MarkWest in 2015 provides the consolidated enterprise with a diverse set of customers in some of the nation’s most prolific shale plays, positioning us to benefit from rising commodity prices and increased demand for natural gas and natural gas liquids. Our Board of Directors believes that these strategic moves illustrate our commitment to adapting to a changing marketplace, supplying products and services demanded by our customers and remaining competitive for the benefit of our shareholders. To the extent public policy results in regulations limiting GHG emissions in the jurisdictions where we operate, similarly situated industry participants will compete under common requirements, and MPC is well positioned as an established industry leader in energy efficiency to adapt to such requirements, just as we have adapted to other dynamic conditions.

Our operations remain among the most energy efficient in our industry. This translates not only into significant reductions in GHG and other emissions, but also saves on energy costs to the benefit of our competitive position and

our shareholders. We long ago recognized the opportunity for, and benefit of, improved energy efficiency in our operations. After crude oil, the single largest expense for our refineries is energy. This alone is ample incentive to pursue greater energy efficiency, resulting in improved emissions intensity of GHG and other emissions. Our efforts to improve energy efficiency, along with other operational improvements, have yielded substantial, quantifiable results at our refineries. For instance, MPC represents 9.6 percent of the total U.S. refining capacity but emits only 8.3 percent of the total direct GHG emissions for the U.S. refining industry. In other words, MPC’s refineries emit substantially less GHGs per share of crude capacity than the industry average. Further, on an individual basis all seven of MPC’s refineries emit less GHGs per share of crude capacity than the industry average.

To ensure our shareholders and other stakeholders have ready access to information regarding our impressive energy efficiency accomplishments and environmental record, as well as year-over-year GHG and other emissions data, we make this information available on our website. We invite our shareholders and others to visit our website at http://www.marathonpetroleum.com by selecting “Corporate Citizenship” and clicking on “Health, Environment, Safety & Security,” “Environment.”

Specifically, visitors to this page on our website are able to review:

 

  information regarding our Responsible Care® Management System;

 

  our Health, Environment, Safety & Security Policy;

 

  year-over-year GHG emissions data from our refining operations and total operations;

 

  year-over-year criteria pollutant emissions data from our refining operations and total operations;

 

  refinery flare emissions data; and

 

  descriptions of various environmental initiatives and achievements.
 

 

LOGO   page 42    /    Marathon Petroleum Corporation Proxy Statement

 


Table of Contents

PROPOSAL OF SHAREHOLDER   /   PROPOSAL NO. 6 - SHAREHOLDER PROPOSAL SEEKING THE DISCLOSURE OF OUR STRATEGY TO ALIGN OUR BUSINESS PLAN WITH THE 2-DEGREE GOAL OF THE PARIS AGREEMENT

 

We have included representative samples of our disclosures throughout this response, including the information contained in the tables and graphic below.

 

 

Comparison of 2015 Refinery Capacities and

Direct GHG Emissions

 

 
    

Crude
Capacity

MBPD

 

 

 

Crude
Capacity

% of
Industry

 

 

Direct GHG
Emissions

MM Tonnes

 

 

 

Direct GHG
Emissions

% of
Industry

 

 

 

 MPC Non-GBR

 

 

 

  1,280

 

 

 

7.1%

 

 

 

  10.1

 

 

 

 

 

 

5.8%

 

 

 

 

 

 MPC GBR

 

 

 

     451

 

 

 

2.5%

 

 

 

    4.3

 

 

 

 

 

 

2.5%

 

 

 

 

 

 Total MPC

 

 

 

  1,731

 

 

 

9.6%

 

 

 

  14.4

 

 

 

 

 

 

8.3%

 

 

 

 

 

 Total Industry

 

 

 

18,024

 

     

 

174.5

 

       

Source: 2015 U.S. Refining Survey, Oil & Gas Journal and U.S. EPA 2015 GHG Report

 

Comparison of 2015 Refinery Capacities and

Direct GHG Emissions

 

 MPC Facility   

 

Crude
Capacity

% of Industry

 

  

 

Direct GHG  
Emissions  

% of Industry  

 

 

 Canton

 

  

 

0.50%

 

  

 

0.32%

 

 

 Catlettsburg

 

  

 

1.34%

 

  

 

1.28%

 

 

 Detroit

 

  

 

0.72%

 

  

 

0.51%

 

 

 Galveston Bay

 

  

 

2.50%

 

  

 

2.48%

 

 

 Garyville

 

  

 

2.90%

 

  

 

2.28%

 

 

 Robinson

 

  

 

1.18%

 

  

 

0.98%

 

 

 Texas City

 

  

 

0.47%

 

  

 

0.45%

 

 

 Total MPC Refining

 

  

 

9.60%

 

  

 

8.30%

 

Source: 2015 U.S. Refining Survey, Oil & Gas Journal and U.S. EPA 2015 GHG Report

 

 

LOGO

 

Listed below are just a couple of our energy efficiency efforts and recognitions:

 

1. MPC continues to lead the refining industry in recognition by the EPA’s ENERGY STAR program. MPC became an EPA ENERGY STAR partner company in 2009, representing our corporate commitment to consider energy efficiency and GHG emissions in all investment and operating decisions. Despite owning and operating less than 10 percent of U.S. refining capacity, MPC has earned 75 percent (36 of 48) of the recognitions awarded to
  refineries since the ENERGY STAR program began, including three of the four recognitions awarded for 2016. Two of our refineries – Canton, Ohio, and Garyville, Louisiana – have earned the award every year of the program’s existence, the only two refineries in the nation with that distinction. As a result, MPC has avoided emitting millions of tons of GHGs as compared to petroleum refineries operating at average U.S. efficiency levels.

 

2.

In response to an EPA enforcement initiative, MPC led the industry by working with the EPA to significantly reduce

 

 

Marathon Petroleum Corporation Proxy Statement    /    page 43

 

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PROPOSAL OF SHAREHOLDER   /   PROPOSAL NO. 6 - SHAREHOLDER PROPOSAL SEEKING THE DISCLOSURE OF OUR STRATEGY TO ALIGN OUR BUSINESS PLAN WITH THE 2-DEGREE GOAL OF THE PARIS AGREEMENT

 

  emissions from flaring operations. In partnership with the EPA, we defined a series of operating parameters to ensure flares operate above 98 percent combustion efficiency on a continuous basis. As of 2015, MPC’s efforts resulted in an over 84 percent reduction in emissions of volatile organic compounds (VOCs), a 78 percent reduction in emissions of hazardous air pollutants and a 44 percent reduction in GHG emissions from our flares. MPC has commenced implementation of additional flare efficiency projects to be completed over the next few years, including the installation of flare gas recovery systems at five of our seven refineries, utilizing innovative compressor technologies specifically developed for MPC. These projects are expected to yield a 90 percent reduction in emissions of hazardous air pollutants, a 90 percent reduction in emissions of VOCs and an 80 percent reduction in emissions of GHGs from flaring operations as compared to 2007 levels. These GHG emission reductions from flaring are anticipated to reduce overall GHG emissions from our refineries by approximately 10 percent.

MPC’s efforts to increase the efficiency of our products and operations are not limited to our refineries. For example:

 

1. In 2016, MPC placed in the top 20 percent of the most efficient freight companies for our category in the EPA’s SmartWay Transport Partnership. We have performed in the best performance range for grams of carbon dioxide per ton-mile for three straight years.

 

2. MPC is conducting research with Argonne National Laboratory (part of the U.S. Department of Transportation) in search of greater automobile engine efficiency. The collaboration between MPC and Argonne National Laboratory will bring together experts on fuel design, analysis and production with scientists who work on advanced engine combustion and emissions formation. Through this joint effort, which supports the Co-Optimization of Fuels and Engines initiative launched by the Department of Energy’s Vehicle Technologies and Bioenergy Technologies Offices, researchers hope to make substantial gains in efficiencies that could not be achieved by studying engines or fuels separately.

MPC is also active in the renewable energy and renewable fuels space. For example:

 

1. MPC continues to actively explore the potential for renewable energy sources at our facilities. In 2012, we installed a 6,000-panel solar array at the Municipal Water Pollution Control Center in Findlay, Ohio, for purposes of studying the potential for using solar energy at our own
  facilities. MPC continues to operate the solar array and gather data on its performance. In the meantime, the electricity generated by the array is donated to the city of Findlay. We are also exploring the potential for wind power, and in 2016 installed a wind turbine at our pipeline station in Harpster, Ohio. The turbine provides us with the opportunity to learn how wind power may be deployed at other of our facilities.

 

2. MPC is invested in the production of renewable fuels through equity ownership in three corn ethanol plants operated by The Andersons Inc. and located in Greenville, Ohio (110 million gallons/year capacity), Clymers, Indiana (110 million gallons/year capacity) and Albion, Michigan (55 million gallons/year capacity). Further, in 2014, MPC purchased a facility in Cincinnati, Ohio, to begin producing biodiesel from soybean oil and methanol. The plant has a capacity of 63 million gallons/year. MPC also supports advanced biofuels research through its equity ownership in Enchi Corporation. Enchi Corporation is developing proprietary technology related to bioprocessing of corn fiber to produce cellulosic ethanol.

 

3. MPC is an industry leader in offering renewable fuels along with conventional fuels to the consumer through our Speedway brand. According to the U.S. Department of Energy’s Alternative Fuels Data Center there are just over 2,800 stations in the U.S. offering E85 flex fuel to the public. Speedway offers E85 flex fuel at more than 330 of its 2,730 convenience stores. This is 12 percent of the total locations offering E85 flex fuel nationwide. Speedway also offers biodiesel (as B11) as a consumer choice at more than 110 stores and offers compressed natural gas (CNG) at three locations where there is consumer demand for this fuel.

Finally, risks associated with changing market conditions, including those that may be driven by GHG regulation or climate change mitigation commitments such as the Paris Agreement, are disclosed in our filings with the SEC, including our Annual Report on Form 10-K.

The petroleum refining, transportation and marketing business provides great benefit to society in the form of affordable and reliable energy used by tens of millions of consumers in the U.S. and other nations. We are committed to performing our role in a safe and environmentally responsible manner and have demonstrated our ability to adapt to changing market and other conditions. We view the request for MPC to disclose elements of its competitive strategy and business plan as not in the best interests of our shareholders.

 

 

LOGO  

 

For the reasons stated above, our Board of Directors recommends you vote AGAINST Proposal No. 6.

 

 

LOGO   page 44    /    Marathon Petroleum Corporation Proxy Statement

 


Table of Contents

PROPOSAL OF SHAREHOLDER   /   PROPOSAL NO. 7 - SHAREHOLDER PROPOSAL SEEKING SIMPLE MAJORITY VOTE PROVISIONS

 

Proposal No. 7 – Shareholder Proposal Seeking Simple Majority Vote Provisions

 

John Chevedden, 2215 Nelson Ave., No. 205, Redondo Beach, California 90278, owner of no less than 100 shares of MPC common stock, has given notice that he intends to present the following proposal at the Annual Meeting. In accordance with applicable proxy regulations, the proposal and supporting statement, for which the Company accepts no responsibility, are set forth below.

Proposal 7 - Simple Majority Vote

RESOLVED, Shareholders request that our board take the steps necessary so that each voting requirement in our charter and bylaws that calls for a greater than simple majority vote be eliminated, and replaced by a requirement for a majority of the votes cast for and against applicable proposals, or a simple majority in compliance with applicable laws. If necessary this means the closest standard to a majority of the votes cast for and against such proposals consistent with applicable laws.

Shareowners are willing to pay a premium for shares of companies that have excellent corporate governance.

Supermajority voting requirements have been found to be one of 6 entrenching mechanisms that are negatively related to company performance according to “What Matters in Corporate Governance” by Lucien Bebchuk, Alma Cohen and Allen Ferrell of the Harvard Law School. Supermajority requirements are used to block initiatives supported by most shareowners but opposed by a status quo management.

This proposal topic won from 74% to 88% support at Weyerhaeuser, Alcoa, Waste Management, Goldman Sachs, FirstEnergy, McGraw-Hill and Macy’s. The proponents of these proposals included Ray T. Chevedden and William Steiner.

Currently a 1%-minority can frustrate the will of our 79%-shareholder majority. In other words a 1%-minority could have the power to prevent shareholders from improving our charter and bylaws.

Please vote to enhance shareholder value:

Simple Majority Vote - Proposal 7

 

 

Marathon Petroleum Corporation Proxy Statement    /    page 45

 

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Table of Contents

PROPOSAL OF SHAREHOLDER   /   PROPOSAL NO. 7 - SHAREHOLDER PROPOSAL SEEKING SIMPLE MAJORITY VOTE PROVISIONS

 

LOGO  

 

OUR BOARD OF DIRECTORS RECOMMENDS YOU VOTE AGAINST THIS SHAREHOLDER PROPOSAL SEEKING TO ELIMINATE LIMITED SUPERMAJORITY VOTING REQUIREMENTS FROM OUR CORPORATE GOVERNANCE DOCUMENTS.

 

 

After careful consideration of this proposal, the Board has determined that retention of the limited supermajority voting requirements in MPC’s Amended and Restated Certificate of Incorporation (or the Certificate) and its Amended and Restated Bylaws (or the Bylaws and, collectively with the Certificate, the Governance Documents) remains in the best interests of the Company and its shareholders. The Board believes that the substantial benefits of these supermajority voting provisions do not come at the expense of prudent corporate governance. To the contrary, these voting provisions serve to protect the interests of all shareholders and should be retained for the following reasons:

 

  To Ensure Broad Shareholder Consensus for Limited Fundamental Corporate Governance Matters. Under our Governance Documents, a simple majority vote requirement applies to most matters submitted for shareholder approval. Nonetheless, our Board believes that supermajority voting requirements applicable to a limited number of actions under our Governance Documents are appropriate and necessary to protect against imprudent actions favored by less than a compelling number of our shareholders. Supermajority voting requirements remain an established tenet of Delaware corporate law and the Board believes that targeted requirements of this nature maximize long-term value for all shareholders on the belief that fundamental changes to corporate governance should have the support of a broad consensus of the Company’s shareholders. By demanding that a small number of corporate actions receive the support of a greater than simple majority of votes cast (which at any given shareholder meeting would be less than half of our outstanding shares as not all shares are voted), our governance structure ensures that fundamental changes may be made only with broad-based support.

 

  To Protect the Interests of Minority Shareholders. The Board also believes that the supermajority vote
   

provisions within our Governance Documents protect shareholders, particularly minority shareholders, from the actions of larger investors. Without these provisions, it would be possible for a small group of very large shareholders to approve fundamental changes to corporate governance that are opposed by many more, smaller shareholders who comprise nearly half of the votes cast.

 

  To Safeguard Long-Term Shareholder Interests. Our Board is bound by fiduciary duties to act in a manner that it believes to be in the best interests of the Company and its shareholders. Shareholders, on the other hand, do not have the same fiduciary duties. As a result, a group of shareholders – who may be acting in their own short-term or other interests not shared by MPC investors generally – may vote in a manner that is detrimental to large numbers of shareholders. Accordingly, our supermajority voting requirements safeguard the long-term interests of the Company and its shareholders.

Our Board of Directors is committed to good corporate governance and regularly considers and evaluates developments in this area. And, when warranted, the Board has adopted changes to our Governance Documents. As recently as February 2016, the Board revised our Bylaws to implement proxy access, as well as to implement a majority voting standard for uncontested director elections. Our Board is accountable to shareholders through a variety of other policies and strong governance practices.

Important Note on the Effect of this Proposal: We believe it is important for our shareholders to understand that approval of this proposal would not in itself remove the supermajority voting standards within our Governance Documents. The supermajority voting provisions are subject to revision by means of various approval thresholds involving further Board and shareholder action.

 

 

LOGO  

 

For the reasons stated above, our Board of Directors recommends you vote AGAINST Proposal No. 7.

 

 

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Audit Committee Report

 

The Audit Committee has reviewed and discussed Marathon Petroleum’s audited financial statements and its report on internal controls over financial reporting for 2016 with Marathon Petroleum’s management. The Audit Committee discussed with the independent auditors, PricewaterhouseCoopers LLP, the matters required to be discussed by the Public Company Accounting Oversight Board’s standard, Auditing Standard No. 1301. The Committee has received the written disclosures and the letter from PricewaterhouseCoopers LLP required by the applicable requirements of the Public Company Accounting Oversight Board for independent auditor communications with audit committees concerning independence and has discussed with PricewaterhouseCoopers LLP its independence. Based on the review and discussions referred to above, the Audit Committee recommended to the Board that the audited financial statements and the report on internal controls over financial reporting for Marathon Petroleum be included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016, for filing with the SEC.

Audit Committee

Donna A. James, Chair

Abdulaziz F. Alkhayyal

Evan Bayh

David A. Daberko

James E. Rohr

John P. Surma

Independent Registered Public Accounting Firm’s

Fees, Services and Independence

 

Independent Auditor Fees and Services

Aggregate fees for professional services rendered for the Company by PricewaterhouseCoopers for the years ended December 31, 2016, and December 31, 2015, were:

 

 Fees(1)    2016      2015  
     (in 000s)       (in 000s)   

 Audit(2)

   $ 7,417      $ 7,284  

 Audit-Related

             

 Tax

             

 All Other

     $2        $3  

 Total

   $ 7,419      $ 7,287  

 

(1) The Company’s Pre-Approval of Audit, Audit-Related, Tax and Permissible Non-Audit Services Policy is summarized in this Proxy Statement. See “The Board of Directors and Corporate Governance – Pre-Approval of Audit, Audit-Related, Tax and Permissible Non-Audit Services.” In 2016 and 2015, our Audit Committee pre-approved all of these services in accordance with its pre-approval policy. Our Audit Committee did not utilize the Policy’s de minimis exception in 2016 or 2015.

 

(2) MPLX, a consolidated subsidiary of MPC, separately pays its own Audit fees, which totaled $5.2 million for the year ended December 31, 2016, and $4.8 million for the year ended December 31, 2015.

The Audit fees for the years ended December 31, 2016, and December 31, 2015, were for professional services rendered for the audit of consolidated financial statements and internal controls over financial reporting, the performance of subsidiary, statutory and regulatory audits, the issuance of comfort letters, the provision of consents and the review of documents filed with the SEC.

No Audit-Related fees were incurred for the years ended December 31, 2016, and December 31, 2015.

No Tax fees were incurred for the years ended December 31, 2016, and December 31, 2015.

The All Other fees for the years ended December 31, 2016, and December 31, 2015, were for an accounting research software license.

Our Audit Committee has considered whether PricewaterhouseCoopers is independent for purposes of providing external audit services to the Company, and has determined that it is.

 

 

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Security Ownership of Certain Beneficial Owners

  

 

The following table furnishes information concerning all persons known to MPC to beneficially own 5 percent or more of MPC common stock as of December 31, 2016. The information provided below was derived from reports filed with the SEC by the beneficial owners on the dates indicated in the footnotes below.

 

 Name and Address of

 Beneficial Owner

  

Amount and
Nature of
Beneficial

Ownership

in Shares

(#)

 

 

Percent
of

Outstanding  

Shares

(%)

 BlackRock, Inc.(1)

       58,412,286 (1)       11.10

 55 East 52nd Street

        

 New York, NY 10055

        

 The Vanguard Group(2)

       36,162,130 (2)       6.85

 100 Vanguard Blvd.

        

 Malvern, PA 19355

        

 State Street Corporation(3)

       27,927,356 (3)       5.29

 State Street Financial Center

        

 One Lincoln Street

        

 Boston, MA 02111

                    

 

(1) Based on the Schedule 13G/A dated January 10, 2017, which indicates that it was filed by BlackRock, Inc. According to such Schedule 13G/A, BlackRock, Inc., as the parent holding company of several subsidiaries, reported aggregate beneficial ownership of 58,412,286 shares of MPC’s common stock. BlackRock, Inc. reported that it possessed sole voting power over 52,308,633 of these shares, shared voting power over no shares, and sole dispositive power over all of these shares.

 

(2) Based on the Schedule 13G/A dated February 9, 2017, which indicates that it was filed by The Vanguard Group. According to such Schedule 13G/A, these shares are owned by The Vanguard Group and two wholly owned subsidiaries, Vanguard Fiduciary Trust Company (or VFTC) and Vanguard Investments Australia, Ltd. (or VIA), as investment managers of collective trust accounts and investment offerings. The Schedule 13G/A reports that VFTC is the beneficial owner of 682,700 shares and VIA is the beneficial owner of 381,125 shares. The Vanguard Group is a registered investment advisor and has sole voting power with respect to 830,528 shares, shared voting power with respect to 95,669 shares, sole dispositive power with respect to 35,246,133 shares, and shared dispositive power with respect to 915,997 shares.

 

(3) Based on the Schedule 13G dated February 6, 2017, which indicates it was filed by State Street Corporation. According to such Schedule 13G, State Street Corporation, as the parent holding company of several subsidiaries, reported aggregate beneficial ownership of 27,927,356 shares of MPC’s common stock. State Street Corporation reported that it possessed shared voting power and shared dispositive power over all of these shares.

Section 16(a) Beneficial Ownership Reporting Compliance

 

Section 16(a) of the Exchange Act requires our directors and executive officers, and persons who own more than 10 percent of a registered class of the Company’s equity securities, to file reports of beneficial ownership on Form 3 and changes in beneficial ownership on Forms 4 or 5 with the SEC. Based solely on our review of the reporting forms and written representations provided to the Company from the individuals required to file reports, we believe each of our directors and executive officers has complied with the applicable reporting requirements for transactions in the Company’s securities during the year ended December 31, 2016.

 

 

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Security Ownership of Directors and Executive Officers

 

The following table sets forth the number of shares of MPC common stock beneficially owned as of January 31, 2017, except as otherwise noted, by each director, by each named executive officer and by all directors and executive officers as a group. The address for each person named below is c/o Marathon Petroleum Corporation, 539 South Main Street, Findlay, Ohio 45840.

 

 Name of Beneficial Owner

 Directors / Named Executive Officers

   Amount and Nature of
Beneficial Ownership
(1)
   Percent of
Total 
Outstanding  

 Gary R. Heminger

     2,589,729     (2)(5)(6)(8)(9)(10)    *

 Abdulaziz F. Alkhayyal

     1,197     (3)    *

 Evan Bayh

     38,475     (2)(3)    *

 Charles E. Bunch

     6,776     (2)(3)    *

 David A. Daberko

     144,998     (2)(3)    *

 Steven A. Davis

     20,545     (3)(8)    *

 Timothy T. Griffith

     160,261     (2)(5)(9)(10)    *

 Donna A. James

     27,925     (2)(3)    *

 Anthony R. Kenney

     459,889     (2)(5)(6)(9)(10)    *

 C. Michael Palmer

     342,724     (2)(5)(6)(7)(9)(10)    *

 James E. Rohr

     27,045     (3)(8)    *

 Frank M. Semple

     1,170     (3)    *

 John W. Snow

     80,963     (2)(3)    *

 J. Michael Stice

            *

 John P. Surma

     37,375     (3)(8)    *

 Donald C. Templin

     482,296     (2)(5)(9)(10)    *
       

 All Directors and Executive Officers as a group (24 reporting persons)

     5,536,096     (2)(3)(4)(5)(6)(7)(8)(9)(10)    1.05%

 

  (1) None of the shares of common stock reported in this column are pledged as security.

 

  (2) Includes shares of common stock directly or indirectly held in registered or beneficial form.

 

  (3) Includes restricted stock unit awards granted pursuant to the Second Amended and Restated Marathon Petroleum Corporation 2011 Incentive Compensation Plan and/or the Marathon Petroleum Corporation 2012 Incentive Compensation Plan, and credited within a deferred account pursuant to the Marathon Petroleum Corporation Deferred Compensation Plan for Non-Employee Directors. The aggregate number of restricted stock unit awards credited as of January 31, 2017, for each of the non-employee directors is as follows: Mr. Alkhayyal, 1,197; Mr. Bayh, 27,375; Mr. Bunch, 4,776; Mr. Daberko, 140,998; Mr. S.A. Davis, 12,045; Ms. James, 27,375; Mr. Rohr, 12,045; Mr. Semple, 1,170; Mr. Snow, 76,963; and Mr. Surma, 27,375.

 

  (4) Includes restricted stock unit awards granted pursuant to the Marathon Petroleum Corporation 2012 Incentive Compensation Plan, a portion of which may be forfeited under certain conditions.

 

  (5) Includes shares of restricted stock issued pursuant to the Marathon Petroleum Corporation 2012 Incentive Compensation Plan, which are subject to limits on sale and transfer, and may be forfeited under certain conditions.

 

  (6) Includes shares of common stock held within the Marathon Petroleum Thrift Plan.

 

  (7) Includes shares of common stock held within the Marathon Petroleum Corporation Dividend Reinvestment and Direct Stock Purchase Plan.

 

  (8) Includes shares of common stock indirectly beneficially owned in trust. The number of shares held in trust as of January 31, 2017, by each applicable director or named executive officer is as follows: Mr. Heminger, 21,228; Mr. S.A. Davis, 8,500; Mr. Rohr, 15,000; and Mr. Surma, 10,000.

 

  (9) Includes stock options exercisable within 60 days of January 31, 2017, including 305,878 stock options exercisable by the applicable named executive officers but not in the money as of January 31, 2017.

 

  (10) Includes shares of common stock issued in settlement of performance units within 60 days of January 31, 2017.

 

  * The percentage of shares beneficially owned by each director or each executive officer does not exceed 1% of the common shares outstanding, and the percentage of shares beneficially owned by all directors and executive officers of the Company as a group is 1.05% of the common shares outstanding.

 

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Security Ownership of Directors and Executive Officers

 

The following table sets forth the number of MPLX common units beneficially owned as of January 31, 2017, except as otherwise noted, by each director, by each named executive officer and by all directors and executive officers as a group. The address for each person named below is c/o Marathon Petroleum Corporation, 539 South Main Street, Findlay, Ohio 45840.

 

 Name of Beneficial Owner

 Directors / Named Executive Officers

   Amount and Nature of
Beneficial Ownership
(1)
  

Percent of

Total 
Outstanding  

 Gary R. Heminger

     174,753      (2)(5)(6)(7)    *

 Abdulaziz F. Alkhayyal

     193      (3)    *

 Evan Bayh

     25,669      (2)(3)    *

 Charles E. Bunch

     3,131      (2)(3)    *

 David A. Daberko

     19,843      (2)(3)(4)    *

 Steven A. Davis

     18,884      (3)(6)    *

 Timothy T. Griffith

     18,302      (2)(5)(7)    *

 Donna A. James

     5,419      (2)(3)    *

 Anthony R. Kenney

     7,768      (2)(5)(7)    *

 C. Michael Palmer

     25,556      (2)(5)(7)    *

 James E. Rohr

     6,580      (3)(6)    *

 Frank M. Semple

     577,461      (2)(3)(4)(6)    *

 John W. Snow

     51,669      (2)(3)    *

 J. Michael Stice

     1,528      (6)    *

 John P. Surma

     17,343      (2)(3)(4)    *

 Donald C. Templin

     57,409      (2)(5)(7)    *
        

 All Directors and Executive Officers as a group (24 reporting persons)

     1,246,570      (2)(3)(4)(5)(6)(7)    *
  (1) None of the common units reported in this column are pledged as security.

 

  (2) Includes common units directly or indirectly held in beneficial form.

 

  (3) Includes phantom unit awards granted pursuant to the MPLX LP 2012 Incentive Compensation Plan and credited within a deferred account pursuant to the Marathon Petroleum Corporation Deferred Compensation Plan for Non-Employee Directors. The aggregate number of phantom unit awards credited as of January 31, 2017, for the non-employee directors is as follows: Ms. James and Messrs. Bayh and Snow, 1,669 each; Messrs. Daberko and Surma, 1,670 each; Messrs. S.A. Davis and Rohr, 1,384 each; Mr. Alkhayyal, 193; Mr. Bunch, 701; and Mr. Semple, 180.

 

  (4) Includes phantom unit awards granted pursuant to the MPLX LP 2012 Incentive Compensation Plan and credited within a deferred account pursuant to the MPLX GP LLC Non-Management Director Compensation Policy and Director Equity Award Terms. The aggregate number of phantom unit awards credited as of January 31, 2017, for each of Messrs. Daberko and Surma is 8,173; and Mr. Semple 987.

 

  (5) Includes phantom unit awards granted pursuant to the MPLX LP 2012 Incentive Compensation Plan, which may be forfeited under certain conditions.

 

  (6) Includes common units indirectly beneficially owned in trust. The number of common units held in trust as of January 31, 2017, by each applicable director or named executive officer is as follows: Mr. Heminger, 26,750; Mr. S.A. Davis, 17,500; Mr. Rohr, 5,196; Mr. Semple, 527,517; and Mr. Stice, 1,528.

 

  (7) Includes common units issued in settlement of performance units within 60 days of January 31, 2017.
  * The percentage of common units beneficially owned by each director or each executive officer does not exceed 1% of MPLX common units outstanding, and the percentage of common units beneficially owned by all directors and executive officers of the Company as a group does not exceed 1% of the MPLX common units outstanding.

 

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Compensation Committee Report

 

The Compensation Committee has reviewed and discussed Marathon Petroleum’s Compensation Discussion and Analysis for 2016 with Marathon Petroleum’s management. Based on its review and discussions, the Compensation Committee has recommended to the Board of Directors that the Compensation Discussion and Analysis report be included in this Proxy Statement and incorporated by reference into the Annual Report on Form 10-K for the year ended December 31, 2016.

Compensation Committee

James E. Rohr, Chair

Charles E. Bunch

Steven A. Davis

Donna A. James

John W. Snow

Compensation Discussion and Analysis

 

In this section, we describe the material elements of our executive compensation program for our named executive officers (or NEOs), we provide an overview of our compensation philosophy and objectives and we explain how and why the Compensation Committee made its 2016 compensation decisions for our NEOs. We recommend that this section be read in conjunction with the tabular and narrative disclosures in the “Executive Compensation” section of this Proxy Statement.

Named Executive Officers

Our NEOs for 2016 consist of our principal executive officer, our principal financial officer and the three most highly compensated executive officers, all of whom held a position as an executive officer as of December 31, 2016:

 

 

  Name

 

    

 

   Title (as of December 31, 2016)

 

 Gary R. Heminger      Chairman, President and Chief Executive Officer
 Timothy T. Griffith      Senior Vice President and Chief Financial Officer
 Donald C. Templin      Executive Vice President and President, MPLX
 Anthony R. Kenney      President, Speedway LLC
 C. Michael Palmer      Senior Vice President, Supply, Distribution and Planning

Other Changes Affecting our Named Executive Officers in 2016

 

    Gary R. Heminger was given the additional responsibilities and title of Chairman of the Board.
    Donald C. Templin became the President of MPLX GP LLC in addition to his role as Executive Vice President of MPC.

Executive Summary

Our Business

We are one of the largest independent petroleum products refining, marketing, retail and transportation businesses in the United States. Our operations consist of three business segments:

 

    Refining & Marketing—refines crude oil and other feedstocks at our seven refineries in the Gulf Coast and Midwest regions of the United States, purchases refined products and ethanol for resale and distributes refined products through various means, including terminals and trucks that we own or operate. We sell refined products to wholesale marketing customers domestically and internationally, to buyers on the spot market, to our Speedway® business segment and to independent entrepreneurs who operate Marathon® retail outlets.

 

    Speedway—sells transportation fuels and convenience products in the retail markets in the Midwest, East Coast and Southeast regions of the United States.

 

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    Midstream—gathers, processes and transports natural gas; gathers, transports, fractionates, stores and markets NGLs and transports and stores crude oil and refined products. The operations of MPLX and certain other related operations are part of the Midstream segment.

2016 Financial and Operational Highlights

 

    Our net income attributable to MPC decreased to $1.17 billion, or $2.21 per diluted share, in 2016 from $2.85 billion, or $5.26 per diluted share, in 2015.

 

    We increased our quarterly dividend per share by 13 percent to $0.36 from $0.32, representing a 28 percent compound annual growth rate from the dividend established when we became an independent company on June 30, 2011.

 

    Completed first full year following MPLX’s acquisition of MarkWest, executing on our strategy to grow our midstream stable cash flows.

 

    Executed on refining margin-enhancing projects.

 

    Announced strategic plan to unlock shareholder value.

After reviewing these results, the performance metrics outlined in the Annual Cash Bonus Program Section of this Proxy Statement and MPC’s relative TSR performance, the Compensation Committee approved 2016 cash bonuses for our NEOs eligible to receive such awards averaging 163.4 percent of target and a performance unit grant payout at 114.28 percent of target.

Shareholder-Friendly Features of Our Executive Compensation Program

Our executive compensation program contains the following shareholder-friendly features that align with contemporary governance practices, promote alignment with our pay-for-performance philosophy and mitigate risk to our shareholders.

 

  We do:

 

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cap annual cash bonus and performance unit payouts;

 

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have long-term incentive (or LTI) awards based on relative total shareholder return;

 

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impose an additional one-year holding requirement for all shares received under our incentive compensation plan;

 

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have “double triggers” for change-in-control payout provisions for all LTI awards;

 

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maintain significant stock ownership guidelines for NEOs and other executive officers;

 

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impose clawback provisions on both long-term and short-term incentive awards;

 

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conduct an annual shareholder say-on-pay vote on NEO compensation;

 

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have limited business perquisites; and

 

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retain an independent compensation consultant who regularly advises the Compensation Committee.

 

We do not:

 

 

 

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allow the hedging or pledging of MPC stock;

 

 

 

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enter into employment contracts with NEOs or any other executive officers;

 

 

 

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guarantee minimum bonus payments to any of our executive officers;

 

 

 

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provide tax gross-ups for perquisites;

 

 

 

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pay dividends or dividend equivalents on unvested equity;

 

 

 

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allow the repricing of stock options without shareholder approval;

 

 

 

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provide excise tax gross-up provisions with regard to any change in control of MPC; or

 

 

 

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grant stock options below fair market value as of the grant date.

  
 

 

“Say-on-Pay” Vote Result and Engagement

The Compensation Committee has carefully considered the results of the 2016 annual shareholder advisory vote on our NEO compensation program (or Say-on-Pay), when approximately 94 percent of votes cast were in support of the program. The Compensation Committee interpreted this strong level of support as affirmation of the design and objectives of our NEO compensation program.

 

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While the Compensation Committee is pleased with the results of the 2016 Say-on-Pay, we continue to maintain a regular dialogue with a wide variety of investors on numerous topics, including our NEO compensation program. During these engagements, our investors have not expressed significant concerns with our NEO compensation program.

Based on this input, and our 2016 Say-on-Pay results, the Compensation Committee reaffirmed the elements of our NEO compensation program and continued its practice of making compensation decisions intended to drive shareholder value.

We have indicated we will continue to seek a shareholder advisory vote on NEO compensation on an annual basis.

Significant 2016 Compensation Committee Actions

The Compensation Committee took the following significant actions in 2016:

 

    

 

Action

 

  

 

            Reason for Action

 

 

 

 

Added a new financial metric to the annual cash bonus (or ACB) program - Selling, General and Administrative Costs

  

 

•  To focus employees on selling, general and administrative cost management of controllable expenditures

  Added a new financial metric to the ACB program – MPLX/MarkWest Commercial Synergies   

•  To emphasize the importance of capturing synergies between MPLX and MarkWest, which became part of MPLX in late 2015

  Removed the metric of rebranding the acquired Hess retail locations to Speedway from the ACB program   

•  The acquired Hess store sites were successfully rebranded to Speedway in 2015

The Compensation Committee believes these changes were appropriate because they are consistent with:

 

    our business objectives;

 

    the realities of our competitive situation;

 

    the inherent uncertainties of our commodity-based business; and

 

    the compensation programs of our peer group companies.

Independent Consultant to the Compensation Committee

In order to help ensure objectivity in reviewing and analyzing market data and trends, the Compensation Committee uses Pay Governance LLC (or the Advisor) as its independent compensation consultant. The Advisor attended four Compensation Committee meetings in 2016 to provide independent analysis and advice on our executive compensation programs and the regulatory environment surrounding executive compensation.

The Advisor also maintains a set of internal policies that prohibit any of its consultants that advise the Compensation Committee from, among other things, owning shares of our common stock or engaging in personal or business relationships with our directors, NEOs or any other executive officers without prior disclosure to the Compensation Committee. Based on the above-mentioned procedures and policies, the Compensation Committee is confident the advice it receives from the Advisor is objective and not influenced by the Advisor’s working relationship with MPC or the Compensation Committee.

Furthermore, the Compensation Committee has assessed the independence of the Advisor as required by the rules of the NYSE and has determined that the Advisor satisfies the independence requirements of the NYSE.

Our management does not direct or oversee the activities of the Advisor. However, the Advisor does seek and receive information and input from our management on various executive compensation matters and works with management to formalize proposals for presentation to the Compensation Committee. Additionally, in determining executive compensation, the Compensation Committee considers recommendations from the Advisor as well as management. The Advisor did not perform any consulting services for us during 2016 that were not related to executive or director compensation, nor did the Advisor provide any services to our NEOs or other executive officers, individually, in 2016. The Compensation Committee has considered and assessed all relevant factors, including those required by the SEC that could give rise to a potential conflict of interest with respect to the Advisor in 2016. Based on this review, the Compensation Committee did not identify any conflicts of interest with respect to the work performed by the Advisor.

 

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Executive Compensation Philosophy and Objectives

We believe our executive compensation program plays a critical role in maximizing long-term shareholder value. It supports our ability to attract, motivate, retain and reward the highest quality executives to excel within our performance culture. We use our executive compensation program to create value for our shareholders through the quality products and services we provide to our customers. We do this while striving to maintain our sustainability and environmental commitments by acting responsibly toward those who work for us, those business partners who work with us and with every community in which we operate.

After evaluating our year-to-date financial, operational and employee performance, considering shareholder feedback and comparing the compensation of our NEOs and other executive officers to that of executives of companies within our peer groups, the Compensation Committee decided to continue our existing compensation philosophy. Our existing philosophy generally targets the Total Direct Compensation (defined as base salary + target bonus + intended value of annual LTI awards) for our NEOs and other executive officers at the median (50th percentile) of the compensation for similar executives of companies in our peer groups. In support of this philosophy, the decisions of the Compensation Committee are designed to:

 

    provide fair and competitive levels of compensation, after taking into account individual roles and responsibilities, while allowing for the discretion to place each NEO and other executive officer within the competitive range of each pay element;

 

    align compensation programs with the performance of MPC and the individual;

 

    foster an ownership culture that aligns the interests of our NEOs and other executive officers with those of shareholders;

 

    address the cyclical commodity influences of the business; and

 

    ensure compensation programs do not encourage NEOs and other executive officers to take excessive risk.

Our mix of pay elements allows the Compensation Committee to use both cash (base salary and annual cash bonus opportunities) and equity (performance units, stock options, restricted stock and phantom units) to encourage and motivate our NEOs and other executive officers to achieve both our short-term and long-term business objectives.

 

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Key Elements of 2016 Named Executive Officer Compensation

Our executive compensation program is comprised of the following three key elements. Each is designed to be market-competitive and help meet the objectives of our executive compensation program as established by the Compensation Committee:

 

 

  What We Pay Our NEOs

 

  

  Key Characteristics

 

  

  Why We Pay Our NEOs This Way

 

  Base Salary

  

•   Fixed cash compensation component

 

•   Reviewed at least annually and adjusted as appropriate

 

•   Based on the scope and responsibility level of the position held, individual performance and experience, as well as peer group market data

 

  

•   To provide a competitive level of cash compensation upon which our NEOs may rely

 

•   To attract and retain executive talent

  ACB Program

  

•   Variable cash compensation component

 

•   Performance-based award opportunity

 

•   Determined based on both corporate and applicable operating organization’s performance against pre-determined metrics, as well as the assessment of individual performance by our CEO and the Compensation Committee

 

  

•   To motivate and reward our NEOs for achieving our annual business objectives that drive overall performance and shareholder value creation

 

•   To support our culture of aligning pay with executive performance

 

•   To encourage and reward responsible risk-taking and accountability

  LTI Awards

  

•   Variable equity-based compensation component

 

•   Performance-based awards in the form of annual grants

 

•   A combination of performance units, stock options* and time-based restricted stock and phantom unit awards

 

•   Stock option value realized solely on stock price appreciation

 

•   Performance units exceed target value only with above median relative Total Shareholder Return / Total Unitholder Return ranking among our peers

 

•   Restricted stock / phantom unit value dependent on stock / unit performance

  

•   To motivate our executives to achieve our long-term business objectives by linking their compensation directly to the performance of stock / units over the long term

 

•   To strengthen the alignment between the interests of our executive officers, including NEOs, and our shareholders / unitholders by promoting stock / unit appreciation while building equity to help meet ownership guidelines

 

•   To encourage retention of executives

* The Compensation Committee believes our stock options are inherently performance based as they have no initial value and grantees only realize value if the price of our stock increases for all shareholders following the date of grant.

In addition to these compensation elements, our employees, including our NEOs and other executive officers, are generally eligible to participate in our market-competitive health and life insurance plans, long-term and short-term disability programs, as well as retirement and severance programs. We also provide limited perquisites to our NEOs and other executive officers that are consistent with our business strategy and market-based trends. None of these additional programs are considered material by the Compensation Committee when making compensation decisions. For a detailed discussion of MPC-sponsored retirement plans and benefits, including the 2016 Pension Benefits Table, see the “Post-Employment Benefits for 2016” section of this Proxy Statement.

 

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Summary of 2016 Compensation Awarded

The table below summarizes our NEOs’ total direct compensation for 2016, which was approved by the Compensation Committee as part of our 2016 executive compensation program. This table is complementary to the Summary Compensation Table as it excludes the “Change in Pension Value and Nonqualified Deferred Compensation Earnings” and “All Other Compensation” columns and provides the intended value for LTI compensation on the date of grant rather than the accounting value required to be reported in the Summary Compensation Table. Please refer to the Summary Compensation Table within the “Executive Compensation” section of this Proxy Statement for more detail regarding our NEOs’ reportable compensation in 2016.

 

  Name

 

  

2016

Year-End

Base Salary

($)

 

    

Target
Bonus
Amount

($)

 

    

 

Actual

2016 Bonus

Payment

(Paid in 2017)

($)

 

  

Intended Value

of MPC LTI

Awards

($)

 

  

Intended Value

of MPLX LTI

Awards*

($)

 

  

Total Direct

Compensation

($)

 

 

 G. R. Heminger

     1,600,000        2,400,000      4,200,000    8,800,000    2,200,000      16,800,000  

 T. T. Griffith

     625,000        500,000         750,000    1,600,000       400,000      3,375,000  

 D. C. Templin

     800,000        800,000      1,300,000    1,500,000    1,500,000      5,100,000  

 A. R. Kenney

     700,000        595,000      1,075,000    1,890,000       210,000      3,875,000  

 C. M. Palmer

     650,000        487,500         725,000    1,445,000       255,000      3,075,000  

 

* In 2016, our NEOs and other executive officers were also awarded MPLX LTI by the Board of Directors of MPLX GP LLC, the general partner of MPLX, which is the master limited partnership sponsored by MPC. These awards were granted for services provided to MPLX and are included in this table to reflect the Total Direct Compensation our NEOs received in 2016 for their employment with MPC.

 

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The majority of our NEO compensation is performance-based, at risk pay in the form of both short-term and long-term incentives. Based on data from 2016 proxy statements, our mix of pay elements is competitive with current market practices at our peer group companies as reflected in the charts below.

Compensation Mix

 

Mr. Heminger

 

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CEO Direct Peer Group*

 

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All Other NEOs

 

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Direct Peer Group* NEOs

 

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*       The Compensation Committee excluded BP p.l.c. and ExxonMobil Corporation from the direct industry peer group (further described below) when reviewing total compensation for our CEO and CFO. See “Setting Executive Compensation — Obtaining Market Data/Benchmarking” for more information.

The Compensation Committee continues to believe our flexibility to mix cash and equity allows us the ability to reward NEOs and other executive officers based on potentially very different business and strategic objectives across our business segments, recognizing that some of our organizations (such as retail and transportation) compete for talent with companies in industries that typically have compensation structures significantly different than those of our core business.

The Compensation Committee does not consider amounts earned from prior performance-based compensation, such as prior bonus awards or realized or unrealized stock option gains, in its decisions to increase or decrease compensation for a future year. The Compensation Committee believes that doing so would not be in the best interests of our shareholders and would not motivate, or promote retention of, our NEOs.

 

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Setting Executive Compensation

Obtaining Market Data/Benchmarking

Due to the limited number of domestic independent downstream companies, and in recognition of MPC’s size, complexity, revenue and market capitalization, the Compensation Committee decided to continue using two peer groups – a direct industry peer group and a broad industry peer group – for benchmarking our NEOs’ compensation for pay decisions made in 2016.

The direct industry peer group is composed of: (1) independent downstream companies similar to MPC and integrated oil companies with significant downstream operations; (2) companies with which we compete for talent; and (3) companies we include as peers in our compensation program metrics. This peer group provides industry-specific market compensation and program design data obtained from both proxy statements and compensation surveys. This peer group is comprised of the following nine companies:

 

•    BP p.l.c.

  

•    HollyFrontier Corporation

  

•    Royal Dutch Shell plc

•    Chevron Corporation

  

•    Koch Industries, Inc.

  

•    Tesoro Corporation

•    ExxonMobil Corporation

  

•    Phillips 66

  

•    Valero Energy Corporation

At the time the direct industry peer group was approved by the Compensation Committee, MPC was at approximately the 31st percentile of the group in terms of market capitalization and the 27th percentile in terms of revenue.

The Compensation Committee determined that it would not consider BP p.l.c. or ExxonMobil Corporation in the direct industry peer group when reviewing survey data for our CEO or CFO positions. This is due to the concern that the relative sizes of these two companies (including their market capitalizations and revenues), their complexity and their extensive global footprints could result in substantially different scopes for these executive positions.

A broad industry peer group was selected to supplement the direct industry peer group. The broad industry peer group was selected because it is comprised of large oil and gas companies, as well as other industrial companies focused on manufacturing, which, like MPC, could be sensitive to fluctuations in the costs of commodities. This peer group is expected to change slightly from year to year based on the companies that choose to participate in Willis Towers Watson’s Compensation Data Bank. Criteria used to screen for these companies included:

 

    revenues generally greater than $10 billion;

 

    heavy manufacturing operations;

 

    commodity exposure;

 

    safety and environmental focus; and

 

    the availability of publicly reported information.

The 33 companies that were selected to comprise the broad industry peer group for 2016 are:

 

•    3M Company

 

•    Johnson Controls Inc.

•    Alcoa Corporation

 

•    Lockheed Martin Corporation

•    Caterpillar Inc.

 

•    The Mosaic Company

•    Chevron Corporation

 

•    Navistar International Corporation

•    ConocoPhillips

 

•    Northrop Grumman Corporation

•    The Dow Chemical Company

 

•    Occidental Petroleum Corporation

•    E.I. du Pont de Nemours and Company

 

•    Parker Hannifin Corporation

•    Eaton Corporation

 

•    Phillips 66

•    ExxonMobil Corporation

 

•    Schlumberger Limited

•    Ford Motor Company

 

•    Tesoro Corporation

•    FREEPORT-McMoRan Inc.

 

•    Textron Inc.

•    General Dynamics Corporation

 

•    TRW Automotive Inc.

•    General Electric Company

 

•    United States Steel Corporation

•    Hess Corporation

 

•    United Technologies Corporation

•    Honeywell International Inc.

 

•    Valero Energy Corporation

•    Ingersoll-Rand Public Limited  Company

 

•    Whirlpool Corporation

•    International Paper Company

 

 

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When the broad industry peer group was approved, MPC was at approximately the 36th percentile of this group in terms of market capitalization and the 83rd percentile in terms of revenue.

How We Use Market Data

The Compensation Committee’s Advisor works with our Human Resources compensation team to identify key job responsibilities for each NEO and then matches the job responsibilities to comparable job descriptions of executives in our peer groups. The Advisor then obtains market data based on these matches, which is used as a starting point for the evaluation of base salary, short-term incentive targets as a percentage of base salary and LTI awards. While the Compensation Committee targets Total Direct Compensation at the median of the market, factors such as those listed below may result in the actual level of compensation being above or below each NEO’s respective market median:

 

    the size and complexity of each NEO’s role;

 

    an incumbent’s experience and demonstrated performance;

 

    our current and future succession needs;

 

    business results;

 

    external competitiveness; and

 

    internal equity.

Analysis of 2016 Compensation Decisions and Actions

Base Salary

Base salary is a compensation component intended to provide a competitive, fixed level of income upon which our NEOs and other executive officers may rely so that we may attract and retain executive talent. The Compensation Committee reviews each NEO’s base salary at least annually and makes adjustments at its discretion. In setting each NEO’s base salary, the Compensation Committee considers factors including, but not limited to:

 

    the complexity and responsibility level of the position held;

 

    the individual’s experience;

 

    demonstrated performance;

 

    external competitiveness;

 

    internal equity; and

 

    business results.

As a result of the Compensation Committee’s review, the following adjustments were made to the base salaries of our NEOs in 2016:

 

 Name    Title   

Previous

Base Salary

($)

  

Base

Salary

Effective

April 2016

($)

  

Increase

(%)

 G. R. Heminger

   Chairman, President and Chief Executive Officer    1,600,000    1,600,000   

 T. T. Griffith

   Senior Vice President and Chief Financial Officer       525,000       625,000    19.0

 D. C. Templin

   Executive Vice President and President, MPLX       750,000       800,000      6.7

 A. R. Kenney

   President, Speedway LLC       650,000       700,000      7.7

 C. M. Palmer

   Senior Vice President, Supply, Distribution and Planning       600,000       650,000      8.3

Mr. Heminger did not receive a base pay increase as the Compensation Committee concluded his salary was already market competitive. The increase amount for Mr. Griffith was based on his strong performance in his first year as Chief Financial Officer for MPC and to bring him closer to the market median for his position. The increase amount for Mr. Templin was made to recognize his increased responsibilities and duties as the President of MPLX. The increases for Messrs. Kenney and Palmer were made to maintain market competitiveness.

 

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Annual Cash Bonus Program

The ACB program is a variable incentive program intended to motivate and reward NEOs and other executive officers for achieving short-term (annual) financial and operational business objectives that drive overall shareholder value while encouraging responsible risk-taking and accountability.

The Compensation Committee approves the establishment of a qualified Section 162(m) funding pool for the ACB program in the first quarter of each year to ensure payments from the program qualify as performance-based compensation if certain metric levels are achieved. This maximizes our tax deductibility opportunity with respect to the compensation paid from the ACB program for NEOs and other executive officers whose Section 162(m) compensation may otherwise exceed $1 million. The performance metrics used to determine the 2016 Section 162(m) funding pool were net income and mechanical availability. Net income was chosen as it measures MPC’s profitability. Mechanical availability is an essential element in achieving our financial and operational objectives and a significant indicator of the success of our operations as it measures the availability and reliability of the processing equipment in our refinery and midstream operations. The funding pool for 2016 was established by the Compensation Committee as the greater of 2 percent of net income or $19 million if mechanical availability reached 91 percent.

Based on net income attributable to MPC of $1.17 billion, after adjusting for certain items, our pool for 2016 executive bonuses was $23.9 million. The Compensation Committee approved the actual incentive payments for each of our NEOs at levels less than what the pool would have otherwise permitted. As a result, all 2016 ACB payments made in 2017 were fully tax deductible.

For the 2016 ACB program, the Compensation Committee elected to add a selling, general and administrative cost metric to increase focus on controllable expenditures. In addition, a new metric intended to maintain focus on the commercial synergies between MPLX and MarkWest was added. With the completion of the rebranding of the acquired Hess retail locations to Speedway branded sites in 2015, this project metric was removed for 2016.

These changes continue to support the Compensation Committee’s commitment to an annual incentive program in which a majority (70 percent) is funded by pre-established financial and operational (including environmental and safety) performance measures. The remaining 30 percent under the ACB program is driven by a number of discretionary factors, including adjustments due to the volatility in petroleum-related commodity prices throughout the year, which makes it difficult to establish reliable, pre-determined goals. Regardless of the funding generated by the ACB program, the Compensation Committee has discretion to generally award each of our NEOs and other executive officers up to the limits of any applicable Section 162(m) funding pool, or make no award at all.

 

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The financial and operational performance metrics used for the 2016 ACB program were:

 

 Performance Metric    Description    Type of
Measure

 Operating Income Per Barrel(a)

   Measures domestic operating income per barrel of crude oil throughput, adjusted for unusual business items and accounting changes. This metric compares a group of nine integrated or downstream companies, including MPC.    Financial (relative)

 EBITDA(b)

   As derived from the consolidated financial statements and as disclosed to investors as part of the quarterly earnings materials.    Financial (absolute)

 Mechanical Availability(c)

   Measures the mechanical availability and reliability of the processing equipment in our refining, pipeline, terminal and marine operations.    Operational (absolute)

 Selling, General and

 Administrative Costs (SG&A)(d)

   Actual selling, general and administrative expenses adjusted for certain items.   

Financial

(absolute)

 MPLX/MarkWest Commercial

 Synergies

   Measures revenue enhancements or cost savings at either MPLX or MPC resulting from the combination for which committed actions were taken in 2016.   

Financial

(absolute)

 Responsible Care(e)

   The metrics below measure our success in meeting our goals for the health and safety of our employees, contractors and neighboring communities, while continuously improving on our environmental stewardship commitment by minimizing our environmental impact.     

Marathon Safety

Performance Index(f)

   Measurement of MPC’s success and commitment to employee safety. Goals are set annually at best-in-class industry performance, focusing on continual improvement. This includes common industry metrics such as Occupational Safety and Health Administration (or OSHA) Recordable Incident Rates and Days Away Rates.    Operational (absolute)

Process Safety

Events Score

   Measures the success of MPC’s ability to identify, understand and control process hazards, which can be defined as unplanned or uncontrolled releases of highly hazardous chemicals or materials that have the potential to cause catastrophic fires, explosions, injury, plant damage and high-potential near misses or toxic exposures.    Operational (absolute)

Designated

Environmental

Incidents

   Measures environmental performance and consists of tracking certain: a) releases of hazardous substances into air, water or land; b) permit exceedences; and c) government agency enforcement actions.    Operational (absolute)

Quality

   Measures the impact of product quality incidents and cumulative costs to MPC (no Category 4 Incident, and costs of Category 3 Incidents).(g)    Operational (absolute)

 

(a) This is a per barrel measure of throughput—U.S. downstream segment income adjusted for certain items. It includes a total of nine comparator companies (including MPC). Comparator company income is adjusted for special items or other like items as adjusted by MPC. The comparator companies for 2016 were: BP p.l.c.; Chevron Corporation; ExxonMobil Corporation; HollyFrontier Corporation; PBF Energy; Phillips 66; Tesoro Corporation; and Valero Energy Corporation. This is a non-GAAP performance metric which is calculated as income before taxes, as presented in our audited consolidated financial statements, as adjusted, divided by the total number of barrels of crude oil throughput at the peer’s respective U.S. refinery operations. To ensure consistency of this metric when comparing results to the comparator group, adjustments to our and peer company segment income before taxes are sometimes necessary to remove certain items, such as the gain/loss on asset sales and certain asset and goodwill impairment expenses.

 

(b) This is a non-GAAP performance metric. It is calculated as earnings before interest and financing costs, interest income, income taxes, depreciation and amortization expense adjusted to exclude the effects of impairment expense, pension settlement expense and inventory market valuation adjustments.

 

(c) Mechanical availability represents the percentage of capacity available for critical downstream equipment to perform its primary function for the full year.

 

(d) This represents SG&A expenses per our consolidated financial statements adjusted to exclude costs related to employee bonus program accruals, pension settlement expense, insurance expense and certain other expenses.
(e) These metrics exclude MarkWest.

 

(f) This metric excludes Speedway and measures the personal safety performance level of MPC employees and contractors based on lost time, the number of OSHA recordable injuries or fatalities, and restricted duty incidents. In the event of a fatality, payout is determined by the Compensation Committee.

 

(g) A Category 4 Incident is one that involves a fatality. Category 3 Incidents include those in which: we incur out-of-pocket costs for incident response and recovery activities, mitigation of customer claims or regulatory penalties in excess of $50,000; a media advisory is issued; or the extenuating circumstances are deemed to be of such severity by our Quality Committee that a recommendation for this category is made to the MPC Quality Steering Committee and is subsequently approved.

The threshold, target and maximum levels of performance for each performance metric were established for 2016 by evaluating factors such as performance achieved in the prior year(s), anticipated challenges for 2016, our business plan and our overall strategy. At the time the performance levels were set for 2016, the threshold levels were viewed as likely achievable, the target levels were viewed as challenging but achievable and the maximum levels were viewed as extremely difficult to achieve.

 

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The table below provides both the goals for each metric and our performance achieved in 2016:

 

 Performance Metric   

Threshold

Level

  

Target

Level

  

Maximum

Level

   Performance
Achieved
  

Target

Weighting

   Performance
Achieved

 Operating Income Per

 Barrel

       5th or 6th     

Position

       3rd or 4th     

Position

       1st or 2nd     

Position

   3rd Position
(100% of target)
   20.0%    20.0%

 EBITDA(1)

   $3,650    $4,750    $6,670    $4,501

(89% of target)

   10.0%    8.9%

 Mechanical Availability

   92.4%    93.4%    94.4%    94.9%

(200% of target)

   10.0%    20.0%

Selling, General and Administrative Costs(1)

   $1,339    $1,309    $1,279    $1,243

(200% of target)

   5.0%    10.0%

MPLX/MarkWest Commercial Synergies

   $25,000,000    $35,000,000    $50,000,000    $75,500,000

(200% of target)

   5.0%    10.0%

 Responsible Care

                             

Marathon Safety

Performance Index

   0.90    0.60    0.40    0.95

(0% of target)

   5.0%    0.0%

Process Safety

Events Score

   120    80    60    56

(200% of target)

   5.0%    10.0%

Designated

Environmental

Incidents

   72    51    30    30

(200% of target)

   5.0%    10.0%

Quality

   $500,000    $250,000    $125,000    $135,000

(192% of target)

   5.0%    9.60%
                    Total    70.0%    98.50%
  (1) Represented in millions.

Organizational and Individual Performance Achievements for the 2016 ACB Program

At the beginning of the year, each NEO develops individual performance goals relative to their respective organizational responsibilities, which are directly related to our business objectives. The subjective goals used to evaluate the individual performance of our NEOs for 2016 fell into the following general categories:

 

     Mr.
Heminger
  Mr.
Griffith
  Mr.
Templin
  Mr.
Kenney
  Mr.
 Palmer 

 Talent development, retention, succession and acquisition

                   

 Enhancement of shareholder value through return of capital and unlocking

 midstream asset value

                               

 System integration, optimization and debottlenecking

                         

 Growth through organic expansion and acquisition opportunities

                         

 Growth of market share for gasoline and diesel

                               

 Preparation of assets for potential dropdown to MPLX

                         

 Progress on diversity initiatives

                   

Our CEO reviews the organizational and individual performance of our other NEOs and makes annual bonus recommendations to the Compensation Committee. Key factors considered for 2016 included:

 

    net income attributable to MPC decreased 59% to $1.17 billion in 2016 from $2.85 billion in 2015;

 

    TSR for 2016 of -1.8% compared to the median TSR of -1.5% for our performance unit peer group;

 

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    sustained focus on shareholder returns with $916 million returned to shareholders through dividends and share repurchases; and

 

    continued integration of the MarkWest assets into the MPLX portfolio.

The Compensation Committee evaluates the performance of our CEO with input from our full Board and makes final annual bonus decisions for our NEOs and other executive officers.

Bonus opportunities for our NEOs under the ACB program are communicated as a target percentage of annualized base salary at year-end. Each of our NEOs and other executive officers can generally earn a maximum of 200 percent of the target award, although the Compensation Committee has discretion to award each of our NEOs and other officers up to the limits of any applicable Section 162(m) funding pool, or make no award at all, depending on MPC’s overall performance and the subjective evaluation of each NEO’s and other officer’s organizational and individual performance. The Compensation Committee reviews market data provided by its Advisor annually with respect to competitive pay levels and sets specific bonus target opportunities for each of our NEOs.

Bonus Target Adjustments

In February 2016 the Compensation Committee approved one change to bonus targets for our NEOs. Mr. Templin’s bonus target was adjusted to 100% of his base salary from 90%, in light of the significant increase in his responsibilities as President of MPLX.

We do not guarantee minimum bonus payments to our NEOs.

2017 Bonus Payments (for 2016 Performance)

In February 2017, the Compensation Committee certified the results of our performance metrics for the 2016 ACB program and applied the following formula based on performance of established metrics, organizational and individual performance to determine our NEOs’ final award for 2016 performance:

 

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  Name

 

    

Annualized
Base
Salary

(as of 12/31/16)

($)

 

    

Bonus
Target
as a %

of Base
Salary

(%)

 

    

Target
Bonus

($)

 

      

Final
Award
as a % of
Target

(%)

 

    

Final

Award

($)1

 

 

  G. R. Heminger

 

     1,600,000

 

     150

 

      

 

2,400,000

 

 

 

     175.0

 

      

 

4,200,000

 

 

 

  T. T. Griffith

 

        625,000

 

       80

 

      

 

500,000

 

 

 

     150.0

 

      

 

750,000

 

 

 

  D. C. Templin

 

        800,000

 

     100

 

      

 

800,000

 

 

 

     162.5

 

      

 

1,300,000

 

 

 

  A. R. Kenney

 

        700,000

 

       85

 

      

 

595,000

 

 

 

     180.6

 

      

 

1,075,000

 

 

 

  C. M. Palmer

 

        650,000

 

       75

 

      

 

487,500

 

 

 

     148.7

 

      

 

725,000

 

 

 

 

  (1) The final award is rounded to the nearest $5,000.

MPC Long-Term Incentive Compensation Program

Annual MPC LTI awards are granted in the form of performance units (40 percent), stock options (40 percent) and restricted stock (20 percent). The primary purpose of our equity grants is to motivate our NEOs to achieve our long-term business objectives over multiple years and align the NEOs’ interests with those of our shareholders. The award vehicles differ as illustrated below:

 

 

  LTI Award Vehicle

 

 

 

Form of Settlement

 

 

 

Compensation Realized

 

  MPC Performance Units  

25% in MPC common stock; and

75% in cash

 

 

$0.00 to $2.00 per unit based on our relative TSR ranking among a group of peer companies

 

  MPC Stock Options

 

 

Stock

 

 

Stock price appreciation from grant date to exercise date

 

  MPC Restricted Stock

 

 

Stock

 

 

Full value of stock upon vesting

 

 

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Due to the nature of LTI awards, the actual long-term compensation value realized by each of our NEOs will depend on the price of our underlying stock at the time of settlement. We based the 2016 LTI awards on an intended dollar value rather than a specific number of performance units, stock options or shares of restricted stock.

MPC granted the 2016 LTI awards to our NEOs on March 1, 2016. The exercise price for stock options is equal to the closing price of a share of MPC common stock on the grant date, or the first trading day thereafter if the grant date is not a trading day. We discuss each of our LTI award vehicles in more detail below.

MPC Performance Units

The Compensation Committee believes a performance unit program serves as a complement to stock options and restricted stock. Our program benchmarks MPC’s TSR relative to a peer group of oil industry competitors and a market index. This relative evaluation allows for the cyclicality of our business and commodity prices (crude oil) to be recognized and prevents volatility from directly advantaging or disadvantaging the payout of the award beyond that of our peers. The Compensation Committee continues to believe that TSR relative to a peer group is the single best metric for our performance unit program as it is commonly used by shareholders to measure a company’s performance relative to others within the same industry. It also aligns the compensation of our NEOs with the value delivered to our shareholders. The design of our performance unit program ensures we pay above target compensation only when our TSR is above the median of the peer group.

Under our program, TSR for MPC and each of the peer group companies is measured over a 36-month performance cycle. Each performance cycle has four measurement periods: (1) the first 12 months, (2) the second 12 months, (3) the third 12 months, and (4) the entire 36-month period. MPC’s TSR performance percentile within the peer group is measured for each measurement period, with the related payout percentage determined using the following table. However, if MPC’s TSR is negative for a measurement period, the payout percentage for that measurement period is capped at target (100 percent) regardless of actual relative TSR performance percentile.

 

 

TSR

Percentile

 

  

 

Payout

(% of Target)*

 

100th (Highest)

   200%

50th

   100%

25th

   50%

Below 25th

 

  

0%

 

 

  * Payout for TSR between quartiles will be determined using linear interpolation.

Each performance unit is dollar denominated with a target value of $1.00. The actual payout will vary from $0.00 to $2.00 (0 percent to 200 percent of target). The final value of the award will be determined by multiplying the simple average of the payout percentages for the four measurement periods by the number of performance units granted. These awards will then settle 25 percent in MPC full-value common stock and 75 percent in cash.

TSR is determined by taking the sum of a company’s stock price appreciation or reduction, plus its cumulative cash dividends, for each measurement period and dividing that total by the company’s beginning stock price for that period, as illustrated below:

(Ending Stock Price – Beginning Stock Price) + Cumulative Cash Dividends

Beginning Stock Price

The beginning and ending stock prices used for MPC and each peer group member in the TSR calculation will be the average of their respective closing stock prices for the 20 trading days immediately preceding the beginning and ending date of the applicable measurement period.

The Compensation Committee believes that providing four measurement periods over a 36-month cycle is appropriate and serves the best interest of our shareholders. By having four equally weighted measurement periods, attaining maximum payout is more difficult as maximum payout levels can only be achieved by outperforming the TSR peer group for all four measurement periods. Our design also mitigates significant market fluctuations in stock price at the beginning or end of a performance cycle and does not encourage high-risk decisions near the end of a performance cycle by limiting their impact on the overall payout of the award. In addition, the Compensation Committee also believes that having the maximum payout capped at $2.00 per unit helps mitigate excessive or inappropriate risk-taking.

MPC Performance Units Granted in 2014

Performance units granted in 2014 had a performance cycle of January 1, 2014, through December 31, 2016. Additional information about these grants, including the peer group used, can be found in the “Long-Term Incentive Compensation Program” section of our 2015 Proxy Statement.

 

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In January 2017, the Compensation Committee certified the final TSR for the four measurement periods for the 2014 performance unit grants, which are as follows:

 

Measurement Period   

Actual TSR

(%)

   Position  

 

Percentile
Ranking

(%)

   Payout
(% of target)  

    January 1, 2014 - December 31, 2014

 

       3.2        3 rd       71.43            142.86

    January 1, 2015 - December 31, 2015

 

       20.2        4 th       57.14            114.28

    January 1, 2016 - December 31, 2016

 

       -1.8        5 th       42.85            85.70

    January 1, 2014 - December 31, 2016

 

       21.5        4 th       57.14            114.28
                           

 

 

 

 

Average:

 

 

 

    

 

 

 

 

114.28

 

 

 

The resulting average of 114.28 percent of target provided for a payment equal to $1.1428 per performance unit granted. As a result, the Compensation Committee approved the following payments to our NEOs:

 

  Name    Target Number of
Performance Units  
  

 

Compensation Committee   

Approved Payout

($)

  G. R. Heminger

 

      

 

3,200,000

 

 

      

 

3,656,960  

 

 

  T. T. Griffith

 

      

 

204,000

 

 

      

 

233,132  

 

 

  D. C. Templin

 

      

 

704,000

 

 

      

 

804,532  

 

 

  A. R. Kenney

 

      

 

540,000

 

 

      

 

617,112  

 

 

  C. M. Palmer

 

      

 

510,000

 

 

      

 

582,828  

 

 

The results of the 2014 performance unit grant were certified by the Compensation Committee and settled 25 percent in full-value MPC shares and 75 percent in cash.

MPC Performance Units Granted in 2015

Performance units granted in 2015 have a performance cycle of January 1, 2015, through December 31, 2017. They remain outstanding and are included in the “Outstanding Equity Awards at 2016 Fiscal Year-End” table. Additional information about these grants, including the peer group used, can be found in the “Long-Term Incentive Compensation Program” section of our 2016 Proxy Statement.

MPC Performance Units Granted in 2016

After an annual review of market practices, the Compensation Committee again made the decision to award performance unit grants in February 2016. The Compensation Committee approved the following peer group for performance unit awards granted in 2016:

 

•   Chevron Corporation

  

•   Phillips 66

 

•   S&P 500 Energy Index

 

•   HollyFrontier Corporation

  

•   Tesoro Corporation

 

 

•   PBF Energy

  

•   Valero Energy Corporation

 

The number of performance units granted to each of our NEOs can be found in the “Grants of Plan-Based Awards” table in this Proxy Statement.

MPC Stock Options

Stock options provide a direct but variable link between our NEOs’ and other executive officers’ long-term compensation and the long-term value shareholders receive by investing in MPC. The Compensation Committee believes our stock options are inherently performance based as option holders only realize benefits if the value of our stock increases for all shareholders after the grant date. The exercise price of our stock options is generally equal to the per-share closing price of MPC common stock on the grant date. Stock options vest in equal installments on the first, second and third anniversary of the date of grant and have a maximum 10-year term during which an NEO may exercise the options. Option holders do not have voting, dividend or dividend equivalent rights on the underlying stock.

 

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The number of options granted to each of our NEOs can be found in the “Grants of Plan-Based Awards” table in this Proxy Statement.

MPC Restricted Stock

Grants of restricted stock provide diversification in the mix of LTI awards, result in ownership of actual shares of stock and promote NEO retention. Restricted stock grants are also intended to help our NEOs increase their holdings in MPC common stock to comply with established stock ownership guidelines.

The value of restricted stock awards is also variable, and the awards vest in equal installments on the first, second and third anniversary of the date of grant. Prior to vesting, recipients have voting rights but dividends declared during the restricted period are accrued and paid in cash upon vesting. Upon vesting, a one-year holding period requirement is in effect for all full-value shares received under our incentive compensation plan. This holding period prevents our NEOs and other executive officers from selling any stock or performance units settled in shares for 12 months from the time the awards are vested or earned. This requirement applies to shares net of taxes at the time of vesting or distribution.

The number of restricted shares granted to each of our NEOs can be found in the “Grants of Plan-Based Awards” table in this Proxy Statement.

MPLX Long-Term Incentive Compensation Program

Our NEOs are awarded MPLX performance units and/or phantom units by the Board of Directors of MPLX GP LLC (or MPLX Board) for direct and/or indirect services provided to MPLX, which are expected to create long-term value to MPC. If any of our NEOs were also an MPLX named executive officer for 2016, such NEOs’ MPLX equity awards are also reported and discussed in the MPLX Annual Report on Form 10-K for the year ended December 31, 2016. The amounts reported by MPLX in its Annual Report on Form 10-K are not incremental to the amounts reported in this Proxy Statement.

In January 2016, the MPLX Board met and approved an LTI design whereby the MPLX LTI awards granted are in the form of performance units (50 percent) and phantom units (50 percent). Both forms of LTI generally reward performance over a multi-year period to the extent service and/or partnership performance conditions are achieved. The primary purpose of MPLX LTI granted to our NEOs is to advance MPLX’s long-term business objectives and strengthen the alignment between the interests of our NEOs and MPLX unitholders. The forms of LTI awards differ as illustrated below:

 

 

 Form of LTI Award

 

 

 

  Form of Settlement

 

 

 

  Compensation Realized

 

 

 MPLX Performance Units

 

 

25% in MPLX common units and 75% in     cash

 

 

$0.00 to $2.00 per unit based on MPLX’s     relative Total Unitholder Return (or TUR) ranking among a group of peers

 

 MPLX Phantom Units   MPLX common units   Full value of common units upon vesting

MPLX Performance Units

The MPLX Board believes that performance unit awards complement its phantom unit awards. The performance unit program benchmarks MPLX’s TUR against a peer group of midstream competitors. The MPLX Board continues to believe TUR relative to a peer group is the single best metric for its performance program as it is commonly used by unitholders to measure a partnership’s performance against others within the same industry. It also aligns the awardee’s interests with those of MPLX unitholders. The MPLX performance unit program is designed to pay above target compensation only when TUR is above the median of the peer group.

 

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Under the MPLX program, the TUR and that of each of the peer group members is measured over a 36-month performance cycle. Each performance cycle has four equally weighted measurement periods: (1) the first 12 months, (2) the second 12 months, (3) the third 12 months, and (4) the entire 36-month period. MPLX’s TUR performance percentile within the peer group is measured for each measurement period with the related payout percentage determined using the following table. However, if MPLX’s TUR is negative for a measurement period, the payout percentage for that measurement period is capped at target (100 percent) regardless of actual relative TUR performance percentile.

 

TUR

Percentile

 

  

Payout

  (% of Target)*  

 

 

100th (Highest)

 

  

 

200%

 

50th

 

   100%

 

25th

 

   50%

 

Below 25th

 

   0%

 

 

  * Payout for TUR between quartiles will be determined using linear interpolation.

Each performance unit is dollar denominated with a target value of $1.00. The actual payout will vary from $0.00 to $2.00 (0 percent to 200 percent of target). The final value of the award will be determined by multiplying the simple average of the payout percentages for the four measurement periods by the number of performance units granted. These awards will then settle 25 percent in MPLX full-value common units and 75 percent in cash.

TUR is determined by taking the sum of a partnership’s unit price appreciation or reduction, plus its cumulative cash distributions, for each measurement period and dividing that total by the partnership’s beginning unit price for that period, as illustrated below.

(Ending Unit Price – Beginning Unit Price) + Cumulative Cash Distributions

Beginning Unit Price

The beginning and ending unit prices used for MPLX and each peer group member in the TUR calculation will be the average of their respective closing unit prices for the 20 trading days immediately preceding the beginning and ending date of the applicable measurement period.

The MPLX Board also believes that providing four measurement periods over a 36-month performance cycle is appropriate and serves the best interests of its unitholders. By having four equally weighted measurement periods, attaining maximum payout is more difficult as maximum payout levels can only be achieved by outperforming the TUR peer group for all four measurement periods. The program design also mitigates significant market fluctuations in unit price at the beginning or end of a performance cycle and does not encourage high-risk decisions near the end of a performance cycle by limiting their effect on the overall payout of the award. In addition, the MPLX Board believes that having the maximum payout capped at $2.00 per unit helps mitigate excessive or inappropriate risk-taking.

MPLX Performance Units Granted in 2014

Performance units granted by MPLX in 2014 had a performance cycle of January 1, 2014, through December 31, 2016. Additional information about these grants, including the peer group used, can be found in the “Long-Term Incentive Compensation Program” section of the MPLX Annual Report on Form 10-K for the year ended December 31, 2014.

In January 2017, the independent directors of the MPLX Board reviewed and approved the final TUR for the four measurement periods of the 2014 performance unit grants, which are as follows:

 

                         Measurement Period

 

  

Actual TUR

(%)

 

  

Position

 

  

Percentile

Ranking

(%)

 

  

Payout

  (% of target)  

 

 

     January 1, 2014 - December 31, 2014

 

    

 

 

 

 

68.4

 

 

 

    

 

 

 

 

2nd

 

 

 

  

 

90.91

 

    

 

 

 

 

181.82

 

 

 

     January 1, 2015 - December 31, 2015

 

      

 

-45.3

 

 

      

 

10th

 

 

   10.00

 

      

 

0.00

 

 

     January 1, 2016 - December 31, 2016

 

      

 

3.2

 

 

      

 

9th

 

 

   20.00

 

      

 

0.00

 

 

     January 1, 2014 - December 31, 2016

 

      

 

-3.7

 

 

      

 

9th

 

 

   20.00

 

      

 

0.00

 

 

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