DEF 14A 1 a2227772zdef14a.htm DEF 14A

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

SCHEDULE 14A
(Rule 14a-101)

INFORMATION REQUIRED IN PROXY STATEMENT

SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
(Amendment No.             )

Filed by the Registrant ý

Filed by a Party other than the Registrant o

Check the appropriate box:
o   Preliminary Proxy Statement
o   Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
ý   Definitive Proxy Statement
o   Definitive Additional Materials
o   Soliciting Material under §240.14a-12

 

Phillips 66

(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):
ý   No fee required.
o   Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
    (1)   Title of each class of securities to which transaction applies:
         
    (2)   Aggregate number of securities to which transaction applies:
         
    (3)   Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):
         
    (4)   Proposed maximum aggregate value of transaction:
         
    (5)   Total fee paid:
         
o   Fee paid previously with preliminary materials.
o   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.
    (1)   Amount Previously Paid:
         
    (2)   Form, Schedule or Registration Statement No.:
         
    (3)   Filing Party:
         
    (4)   Date Filed:
         

Table of Contents


GRAPHIC

March 25, 2016

To My Fellow Shareholders:

On behalf of your Board of Directors and management, you are cordially invited to attend the Annual Meeting of Shareholders to be held at the Houston Marriott Westchase, 2900 Briarpark Drive, Houston, Texas 77042, on Wednesday, May 4, 2016, at 9:00 a.m. Central Daylight Time. You will find information regarding the matters to be voted on at the meeting in the attached proxy statement.

We are Phillips 66—a diversified energy manufacturing and logistics company with a portfolio of midstream, chemicals, refining, and marketing and specialties businesses. Our diverse portfolio, resilient cash flow and disciplined capital allocation position us to capitalize on opportunities across the value chain. We have a passion for operating excellence, which guides everything we do. It always will. I look forward to sharing more about your company when we gather for our annual meeting.

A commitment to shareholder engagement.    We value the perspectives our shareholders provide through participation at our annual meeting and through direct conversations that we have throughout the year. We look forward to continuing our dialogue with you in the coming year. Prompted by your comments, last year we asked shareholders to vote on a proposal that would result in the annual election of all members of your board of directors. Although the proposal received significant support, it did not receive the 80 percent vote required for adoption. As your board of directors believes the proposal is in the best interest of Phillips 66, and in light of the significant support expressed by shareholders, we are again asking for a vote on this proposal this year.

Growing shareholder distributions.    We understand the importance of shareholder distributions and emphasize growing those distributions through share repurchases and dividends. In 2015, we increased the dividend by 12 percent and returned $2.7 billion of capital to shareholders through dividends and share repurchases.

Your vote is important.    Whether or not you plan to attend the annual meeting in person, and no matter how many shares you own, please vote by telephone or on the Internet, or mark your vote on the enclosed proxy card and sign, date, and return it by mail. For additional information on voting your shares, please see the instructions in the proxy statement on page 57.

Safety. Honor. Commitment.    These are the values that guide how the 14,000 employees of Phillips 66 conduct business every day as they work to fulfill our mission to provide energy and improve lives. It is in the spirit of these values that we look forward to greeting you on May 4.

Sincerely,


GRAPHIC
Greg C. Garland
Chairman of the Board and
Chief Executive Officer

 
GRAPHIC




GRAPHIC

    Phillips 66 honors the men and women who have given so much to our country to keep us safe and protect our freedom. We are grateful for what our country's veterans have endured and sacrificed—on and off the battlefield.    

 

 

At Phillips 66, we are privileged to work with many veteran and reservist members of the Army, Marines, Navy, Air Force and Coast Guard. Service members take pride in the mission, success and values of their organization. And our company's values of safety, honor and commitment are reflected in the way veterans live and work.

 

 

 

 

These performance-oriented people strengthen our company with their diverse experiences, deep skills, commitment to safety and proven ability to learn quickly and manage through adversity. We are proud that our company's mission to provide energy and improve lives extends to supporting our service members.

 

 

GRAPHIC

    Through a new partnership with Hiring Our Heroes, Phillips 66 has joined more than 30 of America's largest employers in its commitment to hiring veterans. Launched in 2011, Hiring Our Heroes is a national grassroots campaign sponsored by the U.S. Chamber of Commerce Foundation that works to connect veterans, transitioning service members and military spouses with great companies.    

 

 

This partnership will help us expand our commitment to establishing best practices for veteran and spouse employment and create a pipeline of qualified employees. It will also raise the visibility of Phillips 66 as an employer of choice for transitioning military service members who seek meaningful jobs.

 

 

 

 

The Hiring Our Heroes campaign complements our company's successful military hiring initiatives, which yielded 10 percent of our hires in 2015. These individuals are playing an essential role in sustaining Phillips 66 as a high-performing organization.

 

 

Table of Contents


GRAPHIC

NOTICE OF 2016 ANNUAL MEETING
OF SHAREHOLDERS

May 4, 2016
9:00 A.M. Central Daylight Time

Houston Marriott Westchase
2900 Briarpark Drive
Houston, Texas 77042

ITEMS OF BUSINESS

1.
To elect the two Directors named in this proxy statement

2.
To ratify the appointment of Ernst & Young LLP as the Company's independent registered public accounting firm for fiscal year 2016

3.
To consider and vote on a management proposal to approve, on an advisory (non-binding) basis, the compensation of our Named Executive Officers

4.
To consider and vote on a management proposal regarding the annual election of Directors

5.
To transact other business properly coming before the meeting

RECORD DATE

You can vote if you were a shareholder of record on March 11, 2016.

ANNUAL REPORT

Our 2015 Annual Report to Shareholders accompanies, but is not part of, these proxy materials.

PROXY VOTING

Shareholders as of the Record Date are invited to attend the annual meeting. Whether or not you plan to attend in person, please vote in advance of the meeting by using one of the methods described in this proxy statement.

By Order of the Board of Directors

GRAPHIC

Paula A. Johnson
Corporate Secretary

March 25, 2016

   




Table of Contents


TABLE OF CONTENTS

 
  Page

PROXY SUMMARY 

  3

CORPORATE GOVERNANCE OF THE COMPANY 

 
8

Board Leadership Structure 

  8

Summary of Board Committees 

  10

Director Independence 

  10

Shareholder and Community Engagement 

  10

Communications with the Board 

  11

Director Meeting Attendance 

  11

Board's Risk Oversight 

  11

Code of Business Ethics and Conduct 

  12

Related Party Transactions 

  12

Board and Committee Evaluations 

  13

Nominating Processes of the Nominating and Governance Committee 

  13

PROPOSAL 1:      ELECTION OF DIRECTORS 

 
14

PROPOSAL 2:      RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG LLP 

 
21

Audit and Finance Committee Report 

  22

PROPOSAL 3:      ADVISORY APPROVAL OF EXECUTIVE COMPENSATION 

 
23

COMPENSATION DISCUSSION AND ANALYSIS 

 
24

Our Industry, Corporate Strategy and Business Performance 

  24

Our Compensation Philosophy 

  25

Elements of Compensation 

  26

Targets and Payouts for Compensation Elements 

  27

Other Benefits and Perquisites 

  35

Executive Compensation Governance 

  37

Role of the Human Resources and Compensation Committee 

  38

Human Resources and Compensation Committee Report 

  39

EXECUTIVE COMPENSATION TABLES 

 
40

Summary Compensation Table 

  40

Grants of Plan-Based Awards 

  42

Outstanding Equity Awards at Fiscal Year End 

  43

Option Exercises and Stock Vested for 2015 

  44

Pension Benefits as of December 31, 2015 

  45

Nonqualified Deferred Compensation 

  46

Potential Payments upon Termination or Change in Control 

  47

NON-EMPLOYEE DIRECTOR COMPENSATION 

 
51

Non-Employee Director Compensation Table 

  52

Outstanding Equity Awards at Fiscal Year End 

  53

Option Exercises and Stock Vested for 2015 

  53
2016 PROXY STATEMENT    1

Table of Contents

TABLE OF CONTENTS

2    2016 PROXY STATEMENT

Table of Contents


PROXY SUMMARY

This proxy summary highlights information contained elsewhere in this proxy statement. This summary does not contain all of the information that you should consider, and you should read the entire proxy statement carefully before voting. Page references are supplied to help you find further information in this proxy statement. Throughout the proxy statement, we may refer to Phillps 66 as the "Company," "we" or "our." For more complete information regarding the Company's 2015 performance, please review the Company's Annual Report on Form 10-K for the year ended December 31, 2015.

If you are a beneficial owner and do not give your broker instructions on how to vote your shares, the broker will return the proxy card to us without voting on proposals not considered "routine." This is known as a broker non-vote. Only the ratification of Ernst & Young LLP as our independent registered public accounting firm for fiscal year 2016 is considered to be a routine matter. Your broker may not vote on any non-routine matters without instructions from you.

PROPOSALS REQUIRING YOUR VOTE

        MORE
INFORMATION
  BOARD
RECOMMENDATION
  VOTES REQUIRED
FOR APPROVAL
PROPOSAL 1   Election of Directors   Page 14   FOR each Nominee   Majority of votes cast
PROPOSAL 2   Ratification of the Appointment of Ernst & Young LLP   Page 21   FOR   Majority of votes present
PROPOSAL 3   Advisory Approval of Executive Compensation   Page 23   FOR   Majority of votes present
PROPOSAL 4   Management Proposal Regarding the Annual Election of Directors   Page 56   FOR   80% of Voting Stock

VOTE RIGHT AWAY

Your vote is very important to us and to our business.    Even if you plan to attend our Annual Meeting in person, please read this proxy statement carefully and vote right away using any of the following methods. In all cases, have your proxy card or voting instruction card in hand and follow the instructions.

 


 

 

BY INTERNET USING YOUR COMPUTER

 


 

BY TELEPHONE

 


 

BY MAILING YOUR PROXY CARD

 

 

 

 


GRAPHIC





 


GRAPHIC





 


GRAPHIC




 

 

 

Visit 24/7
www.proxyvote.com


 


 

Dial toll-free 24/7
(800) 690-6903


 


 

Cast your ballot, sign your proxy card
and send by mail in the enclosed postage-paid envelope


 

 

If you hold your Phillips 66 stock in a brokerage account (that is, in "street name"), your ability to vote by telephone or over the Internet depends on your broker's voting process. Please follow the directions on your proxy card or voting instruction card carefully. If you plan to vote in person at the Annual Meeting and you hold your Phillips 66 stock in street name, you must obtain a proxy from your broker and bring that proxy to the meeting.

If you hold your stock through a Phillips 66 employee benefit plan, please see page 58 for information about voting.

VISIT OUR WEBSITE



GRAPHIC

Visit 24/7
www.phillips66.com








 

Review and download this proxy statement and our Annual Report.

Sign up for electronic delivery of future Annual Meeting materials to save money and reduce the impact on the environment at www.proxyvote.com.

2016 PROXY STATEMENT    3

Table of Contents

PROXY SUMMARY

WE ARE PHILLIPS 66

We are a diversified energy manufacturing and logistics company with a unique portfolio of assets in the Midstream, Chemicals, Refining and Marketing and Specialties businesses. Our industry is vitally important to the global economy. Fossil fuels, particularly oil and natural gas, continue to be the world's primary energy source and are expected to remain so for decades to come. These sources are abundant and reliable, affordable and efficient. Phillips 66's mission is to provide energy and improve lives through operating excellence, delivering energy in a safe, efficient and environmentally responsible way. We improve lives by providing access to energy, which is essential to a high standard of living and health throughout the world.

Since the Company's inception in May 2012, our strategic priorities have remained unchanged. The table below summarizes those strategic priorities along with our performance during 2015 as measured by our compensation program performance targets as discussed in the Compensation Discussion and Analysis beginning on page 24. Some of these performance targets are non-GAAP financial measures for which more information is available in Appendix B

   
GRAPHIC
     
GRAPHIC
     
GRAPHIC
     
GRAPHIC
     
GRAPHIC
   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
    Maintain Strong
Operating Excellence
      Deliver Profitable
Growth
      Enhance Returns
on Capital
      Grow Shareholder
Distributions
      Build a
High-Performing
Organization
   
  2015 Performance Highlights


 


 


Top quartile Total Recordable Rate—0.19

Top quartile Lost Workday Case Rate—0.03

Crude capacity utilization of 91%


 


 


 


Adjusted Earnings of $4.2 billion—60% above target

Strong distribution growth in PSXP—41% Compound Annual Growth Rate since its 2013 IPO


 


 


 


VCIP Return on Capital Employed (ROCE) of 16.1%—7.2 percentage points above Weighted Average Cost of Capital (WACC)

Adjusted controllable costs of $5.9 billion—5% improved while absorbing company growth


 


 


 


Dividend Compound Annual Growth Rate of 34% since May 2012

From 2013 - 2015 54% of capital was reinvested in our strategic activities and 46% was distributed to shareholders

Total share repurchases and exchanges of $7.7 billion since May 2012


 


 


 


Robust succession planning

Leadership development

Organizational capabilities

Performance management

Pay for performance


 


 

Our financial performance in 2015 demonstrates the resiliency of our diversified portfolio in a low commodity price environment. We create value by focusing on operating excellence, enhancing returns in Refining and delivering on our Midstream and Chemicals growth programs. Our balance sheet is strong, and we maintain a disciplined approach to capital allocation. The graph on the next page shows our total shareholder return (TSR) compared to the S&P 100 Index and our performance peer group since May 2012.

4    2016 PROXY STATEMENT

Table of Contents

PROXY SUMMARY


TSR Since May 2012

GRAPHIC

OUR 2015 SAY-ON-PAY VOTE RESULT AND SHAREHOLDER ENGAGEMENT EFFORT

At our 2015 Annual Meeting of Shareholders, holders of approximately 95 percent of our outstanding shares who cast an advisory vote on the Company's Say-on-Pay proposal voted in favor of the Company's executive compensation programs. Throughout the past year, we have engaged in dialogue with our largest shareholders, representing about 40 percent of shares outstanding, on various corporate governance topics, including executive compensation, and have received positive feedback. The Human Resources and Compensation Committee, which we may refer to as the Compensation Committee, values these discussions and encourages shareholders to provide comments about our executive compensation programs.

Based on the results of the 2015 vote and our ongoing dialogue with shareholders, as well as consideration of evolving best practices, the Compensation Committee has continued to examine our compensation programs to ensure that alignment with shareholders remains strong. While we received no prescriptive suggestions in these meetings with shareholders, we heard a consistent theme regarding the appropriate size and segment mix of our performance peer group, which we discussed further with the Compensation Committee. As a result, the Compensation Committee approved changes to our 2015 performance peer group. The peer group examination and the associated changes are discussed further in our Compensation Discussion & Analysis under Peer Group Comparisons beginning on page 27.

2016 PROXY STATEMENT    5

Table of Contents

PROXY SUMMARY

SUMMARY OF COMPENSATION BEST PRACTICES

In conjunction with our corporate strategy, executive compensation philosophy and shareholder feedback, the following best practices are reflected in our executive compensation programs:

WE DO ...
  WE DO NOT ...

ü

Target the majority of Named Executive Officer (NEO) compensation to be performance based

 

X

Provide tax gross-ups to our NEOs under the CICSP

ü

Link NEO compensation to shareholder value creation by having a significant portion of compensation at risk

 

X

Reprice stock options without shareholder approval

ü

Apply multiple performance metrics aligned with our corporate strategy to measure our performance

 

X

Price stock options below grant date fair market value

ü

Cap maximum payouts (number of shares) under our equity programs

 

X

Allow share recycling for stock options

ü

Employ a "double trigger" for severance benefits and equity awards under our Key Employee Change in Control Severance Plan (CICSP)

 

X

Have evergreen provisions in our active equity plans

ü

Include absolute and relative metrics in our Long-Term Incentive programs

 

X

Allow hedging or pledging of Phillips 66 stock, or trading Company stock outside of approved windows

ü

Maintain stock ownership guidelines for executives

 

X

Pay dividends during the performance period on PSP targets

ü

Balance, monitor and manage compensation risk through regular assessments and robust clawback provisions

 

X

Allow transfer of equity awards (except in the case of death)

ü

Have extended vesting periods on stock awards, with a minimum one-year vesting period required for stock and stock option awards

 

X

Provide separate supplemental executive retirement benefits for individual NEOs

ü

Intend to qualify compensation payments for deductibility under Internal Revenue Code Section 162(m)

 

X

Maintain individual change in control agreements

ü

Maintain a fully independent Compensation Committee

 

X

Have an employment agreement with the CEO

ü

Retain an independent compensation consultant

 

X

Have excessive perquisites

ü

Hold a Say-on-Pay vote annually

   

GOVERNANCE HIGHLIGHTS

This year, we are again asking shareholders to vote on a management proposal to move to the annual election of all Directors. See page 56 for details of that proposal. In addition, we already follow these other corporate governance best practices:

Majority voting for Directors   YES
Active shareholder engagement   YES
Substantial majority of independent Directors   YES
Independent Lead Director   YES
Independent Board Committees   YES
Executive sessions of independent Directors   YES
Stock ownership guidelines   YES
Prohibition on pledging and hedging of our stock   YES
Clawback policy   YES
Regular Board and Committee Self-Evaluations   YES
Risk oversight by the full Board and Committees   YES
Company does not have a poison pill   YES
6    2016 PROXY STATEMENT

Table of Contents

PROXY SUMMARY

BOARD DIVERSITY AND INDEPENDENCE

Our business requires that we bring together a leadership team with a diversity of backgrounds, experience and thought. The composition of our executives and Board members reflects the commitment to diversity that we strive for throughout the organization. The charts below highlight the diversity and independence of our Directors.

GRAPHIC

ATTEND OUR 2016 ANNUAL MEETING OF SHAREHOLDERS

Date and Time:   9:00 a.m. (CDT) on Wednesday, May 4, 2016

Location:

 

Houston Marriott Westchase
2900 Briarpark Drive
Houston, Texas 77042
(713) 978-7400

Record Date:

 

March 11, 2016
2016 PROXY STATEMENT    7

Table of Contents


GRAPHIC

PROXY STATEMENT

This proxy statement and accompanying proxy are being provided to shareholders on or about March 25, 2016, in connection with the solicitation by the Board of Directors of Phillips 66 of proxies to be voted at the 2016 Annual Meeting of Shareholders on May 4, 2016.

CORPORATE GOVERNANCE OF THE COMPANY

The Nominating and Governance Committee, which we may also refer to as the Nominating Committee, and the Board of Directors, which we may also refer to as the Board, annually review the Company's governance structure to take into account changes in Securities and Exchange Commission (SEC) and New York Stock Exchange (NYSE) rules, as well as current best practices. Our Corporate Governance Guidelines, posted on the "Investors" section of the Company's website under the "Governance" caption and available in print upon request (see "Available Information" on page 61), address the following matters, among others:

    director qualifications

    director responsibilities

    committees of the board

    director access to officers, employees and independent advisors

    performance evaluations of the board

    director orientation and continuing education

    director compensation

    Chief Executive Officer (CEO) evaluation and succession planning

BOARD LEADERSHIP STRUCTURE

Chairman and CEO Roles

Although the Board of Directors has the authority to separate the positions of Chairman and CEO if it deems appropriate, the Board believes it is in the best interest of the Company's shareholders to combine them. Doing so enables one person to guide the Board in setting priorities for the Company and in addressing the risks and challenges the Company faces. The Board of Directors believes that, while its non-employee Directors bring a diversity of skills and perspectives to the Board, the Company's CEO, by virtue of his day-to-day involvement in managing the Company, currently is best suited to serve as Chairman and perform this unified role.

The Board of Directors believes that no single organizational model is the best and most effective in all circumstances. As a consequence, the Board of Directors periodically considers whether the offices of Chairman and CEO should continue to be combined and who should serve in such capacities. The Board of Directors also periodically reexamines its corporate governance policies and leadership structure to ensure that they continue to meet the Company's needs.

Independent Director Leadership

The Board of Directors has adopted strong governance practices to ensure that an appropriate balance of power exists between the non-employee Directors and management, including:

    appointing a Lead Director

    requiring a substantial majority of independent directors
8    2016 PROXY STATEMENT

Table of Contents

CORPORATE GOVERNANCE OF THE COMPANY

    having only independent directors serve on the Audit and Finance Committee, which we may also refer to as the Audit Committee; the Compensation Committee; and the Nominating Committee

    holding executive sessions of the non-employee Directors at each Board meeting

    having only independent directors evaluate the CEO's performance annually and approve the CEO's pay

Mr. McGraw served as our Lead Director in 2015. In February 2016, the Board of Directors appointed Mr. Tilton as the Lead Director. In appointing a Lead Director, the Board of Directors considered it useful and appropriate to designate an independent Director to serve in a lead capacity to coordinate the activities of the non-employee Directors and to perform such other duties and responsibilities as the Board of Directors may determine. Specifically, those duties include:

    advising the Chairman on an appropriate schedule of Board meetings, seeking to ensure that the non-employee Directors can perform their duties responsibly while not interfering with operations

    providing the Chairman with input on the preparation of the agendas for the Board meetings and assuring that there is sufficient time for discussion of all agenda items

    advising the Chairman on the quality, quantity and timeliness of the flow of information from management to the non-employee Directors in order that they may perform their duties effectively and responsibly, including specifically requesting certain materials be provided to the Board

    recommending to the Chairman the retention of consultants who report directly to the Board of Directors

    interviewing all board candidates and making nomination recommendations to the Nominating Committee and the Board of Directors

    assisting the Board of Directors and Company officers in assuring compliance with and implementation of the Corporate Governance Guidelines

    ensuring that he or she or another appropriate Director is available for engagement with shareholders when warranted

    having the authority to call meetings of the non-employee Directors, as well as to develop the agenda for and moderate any such meetings and executive sessions of the non-employee Directors

    acting as principal liaison between the non-employee Directors and the Chairman on sensitive issues

    participating in the periodic discussion of CEO performance with the Compensation Committee

    ensuring the Board of Directors conducts an annual self-assessment and meeting with the CEO to discuss the results of the annual self-assessment

    working with the Nominating Committee to recommend the membership of the various Board committees, as well as selection of the committee chairs

The Board of Directors believes that its current structure and processes encourage its non-employee Directors to be actively involved in guiding the work of the Board. The chairs of the Board's committees review their agendas and committee materials in advance, communicating directly with other Directors and members of management as each deems appropriate. Moreover, each Director is free to suggest agenda items and to raise matters at Board and committee meetings that are not on the agenda.

Our Corporate Governance Guidelines require that the non-employee Directors meet in executive session at every meeting and, when there are non-employee Directors who are not independent, that the independent Directors meet in executive session at least annually. The Lead Director presides at such executive sessions. Each executive session may include discussions of, among other things, (1) the performance of the Chairman and the CEO, (2) matters concerning the relationship of the Board of Directors with the members of senior management, and (3) such other matters as the non-employee Directors deem appropriate. No formal action of the Board of Directors is taken at these meetings, although the non-employee Directors may subsequently recommend matters for consideration by the full Board. The Board of Directors may invite guest attendees to make presentations, respond to questions, or provide counsel on specific matters within their areas of expertise.

2016 PROXY STATEMENT    9

Table of Contents

CORPORATE GOVERNANCE OF THE COMPANY

SUMMARY OF BOARD COMMITTEES

 
  Mr.
FERGUSON

  Mr.
GARLAND

  Mr.
LOOMIS

  Mr.
LOWE

  Mr.
MCGRAW

  Mr.
TILTON

  Ms.
TSCHINKEL

  Dr.
WHITTINGTON

Audit and Finance       X*   X       X   X
Executive   X   X*   X       X       X    
Human Resources and Compensation   X*         X   X    
Nominating and Governance   X               X*   X        
Public Policy       X   X       X*   X
*
Committee Chair

The charters for our Audit Committee, Executive Committee, Compensation Committee, Nominating Committee, and Public Policy Committee can be found in the "Investors" section on the Phillips 66 website under the "Governance" caption. Shareholders may also request printed copies of these charters by following the instructions located under the caption "Available Information" on page 61.

DIRECTOR INDEPENDENCE

The Corporate Governance Guidelines also contain director independence standards, which are consistent with the standards set forth in the NYSE listing standards, to assist the Board of Directors in determining the independence of the Company's Directors. The Board of Directors has determined that each Director, except Mr. Garland, meets the standards regarding independence set forth in the Corporate Governance Guidelines and is free of any material relationship with the Company (either directly or as a partner, shareholder or officer of an organization that has a relationship with the Company). Mr. Garland is not considered independent because he is an executive officer of the Company. Mr. Lowe met the criteria to be considered independent beginning in May 2015, the third anniversary of our spin-off from ConocoPhillips. In making independence determinations, the Board of Directors specifically considered the fact that many of our Directors are directors, retired officers or shareholders of companies with which we conduct business. In addition, some of our Directors serve as employees of, or consultants to, companies that do business with Phillips 66 and its affiliates (as further described in "Related Party Transactions" on page 12). Finally, some of our Directors may purchase retail products (such as gasoline, fuel additives or lubricants) from the Company. In all cases, it was determined that the nature of the business conducted and the interest of the Director by virtue of such position were immaterial both to the Company and to such Director.

SHAREHOLDER AND COMMUNITY ENGAGEMENT

The Company's guiding principles embrace shareholder engagement as an important tenet of good governance. We value the views of our shareholders and believe that positive dialogue builds informed relationships that promote transparency and accountability. Although the Lead Director or other members of the Board are available to participate in meetings with shareholders as appropriate, management has the principal responsibility for shareholder communication. During 2015, we engaged with shareholders, representing about 40 percent of shares outstanding, and other interested parties, as part of our annual engagement efforts. Topics discussed included our strategy and performance; corporate governance matters; our executive compensation programs; and environmental and social concerns. We then shared the perspectives expressed in these discussions with the Board of Directors.

We also believe that engagement and good governance involve participating in political or public policy activities that advance the Company's goals, are consistent with Company values and improve the communities where we work and live. A number of federal, state and local laws govern corporate involvement in such activities, and we maintain policies and procedures to comply with these laws. The Public Policy Committee is responsible for overseeing our political and public policy work and related activities about which it receives regular reports. Additional information about our involvement in political or public policy activities is available on our website.

10    2016 PROXY STATEMENT

Table of Contents

CORPORATE GOVERNANCE OF THE COMPANY

COMMUNICATIONS WITH THE BOARD

To support shareholder engagement, the Company maintains a process for shareholders and interested parties to communicate with the Board of Directors. Shareholders and interested parties may communicate with the Board of Directors by contacting our Corporate Secretary, Paula A. Johnson, as provided below:

Mailing Address:   Corporate Secretary
Phillips 66
P.O. Box 4428
Houston, TX 77210

Phone Number:

 

(281) 293-6600

Internet:

 

"Investors" section of the Company's website (www.phillips66.com) under the "Governance" caption

Relevant communications are distributed to the Board of Directors or to any individual Director or Directors, as appropriate, depending on the facts and circumstances outlined in the communication. In that regard, the Board has requested that certain items unrelated to its duties and responsibilities not be distributed, such as: business solicitations or advertisements; junk mail and mass mailings; new product suggestions; product complaints; product inquiries; résumés and other forms of job inquiries; spam; and surveys. In addition, material that is considered hostile, threatening, illegal or similarly unsuitable will be excluded. Any communication that is filtered out is made available to any non-employee Director upon request.

DIRECTOR MEETING ATTENDANCE

Recognizing that director attendance at the Company's Annual Meeting can provide the Company's shareholders with an opportunity to communicate with the Directors about issues affecting the Company, the Company actively encourages our Directors to attend the Annual Meeting of Shareholders. All of our Directors attended the 2015 Annual Meeting of Shareholders.

The Board of Directors met eight times in 2015. Each Director attended at least 75 percent of the aggregate of:

    the total number of meetings of the Board in 2015, and

    the total number of full-committee meetings held in 2015 by all committees of the Board on which she or he served.

BOARD'S RISK OVERSIGHT

The Company's management is responsible for the day-to-day conduct of our businesses and operations, including management of risks the Company faces. In furtherance of this responsibility, our management has established an enterprise risk management program designed to identify and facilitate management of the significant and diverse risks facing the Company and the approaches to mitigate such risks. The Board of Directors has broad oversight responsibility over the Company's enterprise risk management program and is updated by management on its development and implementation. In this oversight role, the Board of Directors is responsible for satisfying itself that the risk management processes designed and implemented by the Company's management are functioning as intended, and that necessary steps are taken to foster a culture of risk-adjusted decision making throughout the organization.

In executing its responsibilities, the Board of Directors has delegated to individual committees certain elements of this oversight function, while retaining oversight responsibility for strategic risks. In this context, the Board of Directors delegated authority to the Audit Committee to facilitate coordination among the Board's committees with respect to oversight of the Company's risk management programs. Accordingly, the Audit Committee regularly receives updates on the enterprise risk management program and discusses the Company's risk assessment and risk management policies to ensure that our risk management programs are functioning properly.

2016 PROXY STATEMENT    11

Table of Contents

CORPORATE GOVERNANCE OF THE COMPANY

The Board of Directors, either directly or through its committees, exercises its oversight function with respect to all material risks to the Company, which are identified and discussed in the Company's public filings with the SEC. The Board of Directors receives regular updates from its committees on individual areas of risk falling within each committee's area of oversight and expertise, as outlined below:

GRAPHIC

CODE OF BUSINESS ETHICS AND CONDUCT

Phillips 66 has adopted a Code of Business Ethics and Conduct for Directors and Employees designed to help resolve ethical issues in an increasingly complex global business environment. Our Code of Business Ethics and Conduct applies to all directors and employees, including the CEO and the Chief Financial Officer. Our Code of Business Ethics and Conduct covers topics including, but not limited to, conflicts of interest, insider trading, competition and fair dealing, discrimination and harassment, confidentiality, payments to government personnel, anti-boycott laws, U.S. embargoes and sanctions, compliance procedures and employee complaint procedures. Our Code of Business Ethics and Conduct is posted on the "Investors" section of our website under the "Governance" caption. Shareholders may also request printed copies of our Code of Business Ethics and Conduct by following the instructions located under the caption "Available Information" on page 61.

RELATED PARTY TRANSACTIONS

Our Code of Business Ethics and Conduct requires that all directors and executive officers promptly bring to the attention of the General Counsel and, in the case of Directors, the Chair of the Nominating Committee or, in the case of executive officers, the Chair of the Audit Committee, any transaction or relationship that arises and of which she or he becomes aware that reasonably could be expected to constitute a related party transaction. Any such transaction or relationship is reviewed by the Company's management and the appropriate Board Committee to ensure that it does not constitute a conflict of interest and is reported appropriately. Additionally, the Nominating Committee conducts an annual review of related party transactions between each of our directors and the Company (and its subsidiaries) and makes recommendations to the Board regarding the continued independence of each Board member. In 2015, there were no related party transactions in

12    2016 PROXY STATEMENT

Table of Contents

CORPORATE GOVERNANCE OF THE COMPANY

which the Company (or a subsidiary) was a participant and in which any director or executive officer (or their immediate family members) had a direct or indirect material interest. The Nominating Committee also considered relationships that, while not constituting related party transactions where a director had a direct or indirect material interest, nonetheless involved transactions between the Company and an organization with which a director is affiliated, either directly or as a partner, shareholder or officer. The Nominating Committee determined that there were no transactions impairing the independence of any member of the Board.

BOARD AND COMMITTEE EVALUATIONS

Each committee performs an annual self-assessment, and the Nominating Committee and Lead Director oversee an annual self-assessment of the Board, which includes an evaluation survey and individual discussions between the Lead Director and each other Director. A summary of the results of each committee's self-assessment is presented to the committee and discussed in executive session. The Lead Director presents a summary of the results of the Board evaluation to the Board in executive session. Any matters requiring further action are identified and action plans developed to address the matter.

NOMINATING PROCESSES OF
THE NOMINATING AND GOVERNANCE COMMITTEE

The Nominating Committee consists of three non-employee Directors, all of whom are independent under NYSE listing standards and our Corporate Governance Guidelines. The Nominating Committee identifies, investigates and recommends director candidates to the Board of Directors with the goal of creating a balance of knowledge, experience and diversity. Generally, the Nominating Committee identifies candidates through the use of a search firm or the business and organizational contacts of the directors and management. Our By-Laws permit shareholders to nominate candidates for director election at a shareholders meeting whether or not such nominee is submitted to and evaluated by the Nominating Committee. Shareholders who wish to submit nominees for election at an annual or special meeting of shareholders should follow the procedures described under "Submission of Future Shareholder Proposals" on page 61. The Nominating Committee will consider director candidates recommended by shareholders. If a shareholder wishes to recommend a candidate for nomination by the Nominating Committee, he or she should follow the same procedures referred to above for nominations to be made directly by the shareholder. In addition, the shareholder should provide such other information deemed relevant to the Nominating Committee's evaluation. Candidates recommended by the Company's shareholders are evaluated on the same basis as candidates recommended by the Company's directors, CEO, other executive officers, third-party search firms or other sources.

2016 PROXY STATEMENT    13

Table of Contents


PROPOSAL 1:      Election of Directors

Our By-Laws provide that the Directors are divided into three classes, which are to be as nearly equal in size as possible, with one class being elected each year. The Board of Directors has set the current number of Directors at eight, with two classes of three Directors each and one class of two Directors. Any director vacancies created between annual shareholder meetings (such as by a current director's death, resignation or removal for cause or an increase in the number of directors) may be filled by a majority vote of the remaining directors then in office. Any director appointed in this manner would hold office for a term expiring at the annual meeting of shareholders at which the term of office of the class to which he or she has been appointed expires. If a vacancy resulted from an action of our shareholders, only our shareholders would be entitled to elect a successor.

We expect each nominee will be able to serve if elected. If, however, a nominee is unable to serve and the Board of Directors does not elect to reduce the size of the Board, shares represented by proxies will be voted for a substitute nominated by the Board of Directors.

The names, principal occupations and certain other information about the nominees for director, as well as key experiences, qualifications, attributes and skills that led the Nominating Committee to conclude that such person is currently qualified to serve as a director, are set forth on the following pages.

NOMINEES FOR DIRECTORS TO BE ELECTED AT THE 2016 ANNUAL MEETING
for a three-year term ending at the 2019 Annual Meeting

Each nominee requires the affirmative vote of a majority of the votes cast in person or by proxy at the meeting.

THE BOARD RECOMMENDS THAT YOU VOTE "FOR" EACH OF THE FOLLOWING DIRECTOR NOMINEES.

Greg C. Garland, 58

GRAPHIC

Director since April 2012

Mr. Garland serves as Chairman and CEO of Phillips 66. He was appointed Senior Vice President, Exploration and Production-Americas for ConocoPhillips in 2010. He was previously President and CEO of Chevron Phillips Chemical Company LLC (CPChem) from 2008 to 2010, having served as Senior Vice President, Planning and Specialty Products, CPChem, from 2000 to 2008. Mr. Garland also serves on the boards of Amgen Inc. and Phillips 66 Partners GP LLC, the general partner of Phillips 66 Partners LP.

Skills and qualifications:

Mr. Garland's 35-year career with Phillips Petroleum Company, CPChem and ConocoPhillips, and as CEO of Phillips 66, makes him well qualified to serve both as a Director and as Chairman of the Board. Mr. Garland's extensive experience in the energy industry makes his service as a Director invaluable to the Company. In addition to his other skills and qualifications, Mr. Garland's role as both Chairman and CEO of Phillips 66 serves as a vital link between the Board of Directors and management, allowing the Board to perform its oversight role with the benefit of management's perspective on business and strategy.

14    2016 PROXY STATEMENT

Table of Contents

PROPOSAL 1:      Election of Directors

John E. Lowe, 57

GRAPHIC

Director since April 2012

Mr. Lowe served as assistant to the CEO of ConocoPhillips, a position he held from 2008 until May 2012. He previously held a series of executive positions with ConocoPhillips, including Executive Vice President, Exploration and Production, from 2007 to 2008, and Executive Vice President, Commercial, from 2006 to 2007. Mr. Lowe is a Special Executive Advisor to Tudor, Pickering, Holt & Co. and serves on the boards of TransCanada Corporation and Apache Corporation, where he serves as non-executive Chairman.

Skills and qualifications:

Mr. Lowe has served on the boards of DCP Midstream, LLC and CPChem, two of the Company's significant joint ventures. He has extensive experience in and knowledge of the energy industry through his service on these boards and his 30-year career with Phillips Petroleum Company and ConocoPhillips.

The following Directors will continue in office until the end of their respective terms. Included below is a listing of each continuing Director's name, age, tenure and qualifications.

DIRECTORS WHOSE TERMS EXPIRE AT THE 2017 ANNUAL MEETING

William R. Loomis, Jr., 67

GRAPHIC

Director since April 2012

Mr. Loomis has been an independent financial advisor since 2009. He was a general partner and managing director of Lazard Freres & Co. from 1984 to 2002, the CEO of Lazard LLC from 2000 to 2001 and a limited managing director of Lazard LLC from 2002 to 2004. He currently serves on the board of L Brands, Inc.

Skills and qualifications:

Mr. Loomis has extensive executive experience, financial expertise and substantial history as a senior strategic advisor to complex businesses and multiple executives.

2016 PROXY STATEMENT    15

Table of Contents

PROPOSAL 1:      Election of Directors

Glenn F. Tilton, 67

GRAPHIC

Director since April 2012

Mr. Tilton served as Chairman of the Midwest of JPMorgan Chase & Co. from 2011 to June 2014. From September 2002 to October 2010, he served as Chairman, President and CEO of UAL Corporation, a holding company, and United Air Lines, Inc., an air transportation company and wholly-owned subsidiary of UAL Corporation. Mr. Tilton previously spent more than 30 years in increasingly senior roles with Texaco Inc., including Chairman and CEO in 2001. He currently serves on the boards of Abbott Laboratories and AbbVie Inc. (as lead director).

Skills and qualifications:

Mr. Tilton has strong management experience overseeing complex multinational businesses operating in highly regulated industries, as well as 30-years experience in the energy industry and expertise in finance and capital markets matters.

Marna C. Whittington, 68

GRAPHIC

Director since May 2012

Dr. Whittington was CEO of Allianz Global Investors Capital, a diversified global investment firm, from 2002 until her retirement in January 2012. She was Chief Operating Officer of Allianz Global Investors, the parent company of Allianz Global Investors Capital, from 2001 to 2011. Prior to that, she was Managing Director and Chief Operating Officer of Morgan Stanley Asset Management. Dr. Whittington started in the investment management industry in 1992, joining Philadelphia-based Miller Anderson & Sherrerd. Previously, she was Executive Vice President and CFO of the University of Pennsylvania, from 1984 to 1992. Earlier, she served as Budget Director and, subsequently, Secretary of Finance for the State of Delaware. Dr. Whittington served on the board of Rohm & Haas Company from 1989 to 2009 and currently serves on the boards of Macy's, Inc. and Oaktree Capital Group, LLC.

Skills and qualifications:

Dr. Whittington has extensive knowledge of and substantial experience in financial, investment, and banking matters. She also provides valuable insight from her previous experience serving on the board of a chemicals company and as a statewide cabinet officer.

16    2016 PROXY STATEMENT

Table of Contents

PROPOSAL 1:      Election of Directors

DIRECTORS WHOSE TERMS EXPIRE AT THE 2018 ANNUAL MEETING

J. Brian Ferguson, 61

GRAPHIC

Director since April 2012

Mr. Ferguson retired as Chairman of Eastman Chemical Company (Eastman) in 2010 and as CEO of Eastman in 2009. He became the Chairman and CEO of Eastman in 2002. He currently serves on the board of Owens Corning.

Skills and qualifications:

Mr. Ferguson has over 30 years of leadership experience in international business, industrial operations, strategic planning and capital raising strategies, as well as in executive compensation.

Harold W. McGraw III, 67

GRAPHIC

Director since April 2012

Mr. McGraw is Chairman Emeritus of McGraw Hill Financial having served as Chairman of the Board from 1999 until 2015, as CEO from 1998 to November 2013 and as President and Chief Operating Officer from 1993 to November 2013. Mr. McGraw has been the Chairman of the International Chamber of Commerce since July 2013. He currently serves on the board of United Technologies Corporation.

Skills and qualifications:

As a former CEO and Chairman of the Board of a large, global public company with a significant role in the financial reporting industry, Mr. McGraw's experience allows him to provide Phillips 66 with valuable global financial, corporate governance and operational expertise.

2016 PROXY STATEMENT    17

Table of Contents

PROPOSAL 1:      Election of Directors

Victoria J. Tschinkel, 68

GRAPHIC

Director since April 2012

Ms. Tschinkel currently serves as the Vice-Chairwoman of 1000 Friends of Florida and previously was its Chairwoman. In addition, Ms. Tschinkel is a director of the National Fish and Wildlife Foundation, serving on the Gulf Benefits Committee. She served as State Director of the Florida Nature Conservancy from 2003 to 2006, was senior environmental consultant to Landers & Parsons, a Tallahassee, Florida law firm, from 1987 to 2002, and was the Secretary of the Florida Department of Environmental Regulation from 1981 to 1987.

Skills and qualifications:

Ms. Tschinkel's extensive environmental regulatory experience makes her well qualified to serve as a member of the Board. In addition, her relationships and experience working within the environmental community position her to advise the Board on the impact of our operations in sensitive areas.


Our By-Laws require directors to be elected by the majority of the votes cast with respect to such director (i.e., the number of votes cast "for" a director must exceed the number of votes cast "against" that director). If a nominee who is serving as a Director is not elected at the Annual Meeting and no one else is elected in place of that Director, then, under Delaware law, the Director would continue to serve on the Board of Directors as a "holdover director." However, under our By-Laws, the holdover director would be required to tender his or her resignation to the Board. The Nominating Committee then would consider and recommend to the Board whether to accept or reject the tendered resignation, or whether some other action should be taken. The Board of Directors would then make a decision whether to accept the resignation taking into account the recommendation of the Nominating Committee. The Director who tenders his or her resignation would not participate in the Board's decision. The Board is required to publicly disclose (by a press release, a filing with the SEC or other broadly disseminated means of communication) its decision regarding the tendered resignation and the rationale behind the decision within 90 days from the date of the certification of the election results. In a contested election (a situation in which the number of nominees exceeds the number of directors to be elected), the standard for election of directors will be a plurality of the shares represented in person or by proxy at any such meeting and entitled to vote on the election of directors.

For information on the compensation of our non-employee Directors, please see the the discussion beginning on page 51.

NOMINATIONS

In selecting the 2016 nominees for Director, the Nominating Committee sought candidates who possess the highest personal and professional ethics, integrity and values, and are committed to representing the long-term interests of the Company's shareholders. In addition to reviewing a candidate's background and accomplishments, the Nominating Committee reviewed candidates in the context of the current composition of the Board and the evolving needs of the Company's businesses. The Nominating Committee also considered the number of boards on which the candidate already serves. It is the Board's policy that at all times at least a substantial majority of its members meets the standards of independence promulgated by the NYSE and the SEC, and as set forth in the Company's Corporate Governance Guidelines. The Nominating Committee also seeks to ensure that the Board reflects a range of talents, ages, skills, experiences, diversity, and expertise, particularly in the areas of accounting and finance, management, domestic and international markets, leadership, and energy-related industries, sufficient to provide sound and prudent guidance with respect to the Company's operations and interests. The Board seeks to maintain a diverse membership, but does not have a separate policy on diversity. The Board also requires that its members be able to dedicate the time and resources necessary to ensure the diligent performance of their duties on the Company's behalf, including attending Board and applicable committee meetings.

The following are some of the key qualifications and skills the Nominating Committee considered in evaluating the director nominees. The individual biographies above provide additional information about each nominee's specific experiences, qualifications and skills.

18    2016 PROXY STATEMENT

Table of Contents

PROPOSAL 1:      Election of Directors

    CEO experience.  Directors with experience as CEOs of public corporations provide the Company with valuable insights. These individuals have a demonstrated record of leadership qualities and a practical understanding of organizations, processes, strategy, risk and risk management and the methods to drive change and growth. Through their service as top leaders at other organizations, they also bring valued perspectives on common issues affecting other companies and Phillips 66.

    Financial reporting experience.  An understanding of finance and financial reporting processes is important. The Company measures its operating and strategic performance by reference to financial targets. In addition, accurate financial reporting and robust auditing are critical to the Company's success. We seek to have multiple directors who qualify as audit committee financial experts, and we expect all of our directors to be financially knowledgeable.

    Industry experience.  Directors with experience as executives or directors or in other leadership positions in the energy industry bring pertinent background and knowledge to the Board. These directors have valuable perspective on issues specific to the Company's business.

    Global experience.  As a global company, directors with global business or international experience provide valuable perspectives on our operations.

    Environmental experience.  The perspective of directors who have experience within the environmental regulatory field is valued as we implement policies and conduct operations in order to ensure that our actions today will provide the energy needed to drive economic growth and social well-being, while also securing a stable and healthy environment for tomorrow.

    Risk management experience.  Directors with experience as executives managing risk provide insight and guidance that enhance the Board's capabilities in performing its risk oversight responsibilities.

 
  MR.
FERGUSON

  MR.
GARLAND

  MR.
LOOMIS

  MR.
LOWE

  MR.
MCGRAW

  MR.
TILTON

  MS.
TSCHINKEL

  DR.
WHITTINGTON

CEO Experience   ü   ü   ü     ü   ü     ü
Financial Reporting Experience   ü   ü   ü   ü   ü   ü   ü   ü
Industry Experience   ü   ü     ü     ü     ü
Global Experience   ü   ü   ü   ü   ü   ü   ü   ü
Environmental Experience   ü   ü   ü   ü     ü   ü   ü
Risk Management Experience   ü   ü   ü   ü   ü   ü   ü   ü

The lack of a "ü" for a particular item does not mean that the director does not possess that qualification, characteristic, skill or experience. We look to each director to be knowledgeable in these areas; however, the "ü" indicates that the item is a specific qualification, characteristic, skill or experience that the director brings to the Board.

2016 PROXY STATEMENT    19

Table of Contents

PROPOSAL 1:      Election of Directors

COMMITTEES OF THE BOARD

COMMITTEE
  MEMBERS
  PRINCIPAL FUNCTIONS
  NUMBER OF
MEETINGS
IN 2015

Audit and Finance   William R. Loomis, Jr.*(1)
John E. Lowe
Victoria J. Tschinkel
Marna C. Whittington



 
Discusses, with management, the independent auditors and the internal auditors, the integrity of the Company's accounting policies, internal controls, financial statements, and financial reporting practices, and select financial matters, covering the Company's capital structure, complex financial transactions, financial risk management, retirement plans and tax planning.

Reviews significant corporate risk exposures and steps management has taken to monitor, control and report such exposures.

Monitors the qualifications, independence and performance of our independent auditors and internal auditors.

Monitors our compliance with legal and regulatory requirements and corporate governance guidelines, including our Code of Business Ethics and Conduct.

Maintains open and direct lines of communication with the Board and our management, internal auditors and independent auditors.

  12
Executive   Greg C. Garland*
J. Brian Ferguson
William R. Loomis, Jr.
Harold W. McGraw III
Victoria J. Tschinkel
  Exercises the authority of the full Board between Board meetings on all matters other than (1) those expressly delegated to another committee of the Board, (2) the adoption, amendment or repeal of any of our By-Laws and (3) those that cannot be delegated to a committee under statute or our Certificate of Incorporation or By-Laws.   0
Human Resources and Compensation   J. Brian Ferguson*
Harold W. McGraw III
Glenn F. Tilton


 
Oversees our executive compensation policies, plans, programs and practices.

Assists the Board in discharging its responsibilities relating to the fair and competitive compensation of our executives and other key employees.

Reviews at least annually the performance (together with the Lead Director) and sets the compensation of the CEO.

  6
Nominating and Governance   Harold W. McGraw III*
J. Brian Ferguson
Glenn F. Tilton
  Selects and recommends director candidates to the Board to be submitted for election at Annual Meetings and to fill any vacancies on the Board.

Recommends committee assignments to the Board.

Reviews and recommends to the Board compensation and benefits policies for our non-employee Directors.

Reviews and recommends to the Board appropriate corporate governance policies and procedures for our Company.

Conducts an annual assessment of the qualifications and performance of the Board.

Reviews and reports to the Board annually on succession planning for the CEO.

  5
Public Policy   Victoria J. Tschinkel*
William R. Loomis, Jr.
John E. Lowe
Marna C. Whittington



 
Advises the Board on current and emerging domestic and international public policy issues.

Assists the Board with the development, review and approval of policies and budgets for charitable and political contributions.

Advises the Board on compliance with policies, programs and practices regarding health, safety and environmental protection.

  6
*
Committee Chairperson

(1)
Audit committee financial expert
20    2016 PROXY STATEMENT

Table of Contents

PROPOSAL 2:      Ratification of the Appointment of Ernst & Young LLP

The Audit Committee is directly responsible for the appointment, compensation, retention and oversight of the independent registered public accounting firm retained to audit the Company's financial statements. The Audit Committee has appointed Ernst & Young LLP to serve as the Company's independent registered public accounting firm for fiscal year 2016. Ernst & Young has been retained as the Company's independent registered public accounting firm continuously since 2012. The Audit Committee and the Board of Directors believe that the continued retention of Ernst & Young is in the best interests of the Company and its shareholders. We are asking you to vote on a proposal to ratify the appointment of Ernst & Young.

THE BOARD RECOMMENDS THAT YOU VOTE "FOR" THE PROPOSAL TO RATIFY THE APPOINTMENT OF ERNST & YOUNG LLP.

Approval of this proposal requires the affirmative vote of a majority of the shares present in person or represented by proxy at the meeting and entitled to vote on the proposal. If the appointment of Ernst & Young is not ratified, the Audit Committee will reconsider the appointment.

SERVICES PROVIDED BY THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Audit services of Ernst & Young for fiscal year 2015 included an audit of our consolidated financial statements, an audit of the effectiveness of the Company's internal control over financial reporting, and services related to periodic filings made with the SEC. Additionally, Ernst & Young provided certain other services as described below. In connection with the audit of the 2015 consolidated financial statements, we entered into an engagement agreement with Ernst & Young that set forth the terms by which Ernst & Young performed audit services for us.

The Audit Committee is responsible for negotiating the audit fee associated with its retention of Ernst & Young. Ernst & Young's fees for professional services totaled $12.9 million for each of 2015 and 2014, which consisted of the following:

Fees (in millions)

    2015     2014  

Audit Fees(1)

  $ 11.8   $ 11.6  

Audit-Related Fees(2)

    0.7     0.8  

Tax Fees(3)

  0.4   0.5  

All Other Fees

         

Total

  $ 12.9   $ 12.9  
(1)
Fees for audit services related to the fiscal year consolidated audit, the audit of the effectiveness of internal controls, quarterly reviews, registration statements, comfort letters, statutory and regulatory audits and accounting consultations. Includes audit fees of Phillips 66 Partners LP of $1.3 million and $1.5 million for 2015 and 2014, respectively, which were approved by the Audit Committee of the General Partner of Phillips 66 Partners LP.

(2)
Fees for audit-related services related to audits in connection with proposed or consummated dispositions, benefit plan audits, other subsidiary audits, special reports, and accounting consultations.

(3)
Fees for tax services related to tax compliance services and tax planning and advisory services.

The Audit Committee has considered whether the non-audit services provided to Phillips 66 by Ernst & Young impaired the independence of Ernst & Young and concluded they did not.

The Audit Committee has adopted a pre-approval policy that provides guidelines for the audit, audit-related, tax and other non-audit services that Ernst & Young may provide to the Company. All of the fees in the table above were approved in accordance with this policy. The policy (a) identifies the guiding principles that must be considered by the Audit Committee in approving services to ensure that Ernst & Young's independence is not impaired; (b) describes the audit, audit-related, tax and other services that may be provided and the non-audit services that are prohibited; and (c) sets forth pre-approval requirements for all permitted services. Under the policy, the Audit Committee must pre-approve all services to be provided by Ernst & Young. The Audit Committee has delegated authority to approve permitted services to its Chair. Such approval must be reported to the entire Audit Committee at its next scheduled meeting.

One or more representatives of Ernst & Young will be present at the Annual Meeting. The representatives will have an opportunity to make a statement if they desire and will be available to respond to appropriate questions from the shareholders.

2016 PROXY STATEMENT    21

Table of Contents

PROPOSAL 2:      Ratification of the Appointment of Ernst & Young LLP

AUDIT AND FINANCE COMMITTEE REPORT

The Audit Committee assists the Board of Directors in fulfilling its responsibility to provide independent, objective oversight of the financial reporting functions and internal control systems of Phillips 66. The Audit Committee currently consists of four non-employee Directors. The Board has determined that each member of the Audit Committee satisfies the requirements of the NYSE as to independence, financial literacy and expertise. The Board has determined that at least one member, William R. Loomis, Jr., is an audit committee financial expert as defined by the SEC. The responsibilities of the Audit Committee are set forth in the written charter adopted by the Board of Directors, which is available in the "Investors" section of the Company's website under the caption "Governance." One of the Audit Committee's primary responsibilities is to assist the Board in its oversight of the integrity of the Company's financial statements. The following report summarizes certain of the Audit Committee's activities in this regard for 2015.

Review with Management.    The Audit Committee has reviewed and discussed with management the audited consolidated financial statements of Phillips 66 included in the Company's Annual Report on Form 10-K for the year ended December 31, 2015, and management's assessment of the effectiveness of the Company's internal control over financial reporting as of December 31, 2015, included therein.

Discussions with Independent Registered Public Accounting Firm.    The Audit Committee has discussed with Ernst & Young LLP, independent registered public accounting firm for Phillips 66, the matters required to be discussed by Auditing Standard (AS) No. 61 as adopted by the Public Company Accounting Oversight Board, which is codified as AS No. 1301. The Audit Committee has received the written disclosures and the letter from Ernst & Young required by applicable requirements of the Public Company Accounting Oversight Board regarding the independent accountant's communications with the Audit Committee concerning independence, and has discussed with that firm its independence from Phillips 66.

Recommendation to the Phillips 66 Board of Directors.    Based on its review and discussions noted above, the Audit Committee recommended to the Board of Directors that the audited consolidated financial statements of Phillips 66 be included in the Company's Annual Report on Form 10-K for the year ended December 31, 2015.

    THE PHILLIPS 66 AUDIT AND FINANCE COMMITTEE

 

 

William R. Loomis, Jr., Chairman
John E. Lowe
Victoria J. Tschinkel
Marna C. Whittington
22    2016 PROXY STATEMENT

Table of Contents


PROPOSAL 3:      Advisory Approval of Executive Compensation

Shareholders are being asked to vote on the following advisory (non-binding) resolution:

    RESOLVED, that the shareholders approve the compensation of Phillips 66's Named Executive Officers (NEOs) as described in this proxy statement in the Compensation Discussion and Analysis section and in the Executive Compensation Tables (together with the accompanying narrative disclosures).

THE BOARD RECOMMENDS THAT YOU VOTE "FOR" THE ADVISORY APPROVAL OF THE COMPENSATION OF THE COMPANY'S NAMED EXECUTIVE OFFICERS.

Approval of this proposal requires the affirmative vote of a majority of the shares present in person or represented by proxy at the meeting and entitled to vote on the proposal.

As required by Section 14A of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), Phillips 66 is providing shareholders with the opportunity to vote on an advisory resolution, commonly known as "Say-on-Pay," considering approval of the compensation of its NEOs.

The Compensation Committee, which is responsible for the compensation of our CEO and Senior Officers, has overseen the development of compensation programs designed to attract, retain and motivate executives who enable us to achieve our strategic and financial goals. The Compensation Discussion and Analysis and the Executive Compensation Tables, together with the accompanying narrative disclosures, allow you to view the trends in compensation and application of our compensation philosophies and practices for the years presented.

The Board of Directors believes that the Phillips 66 executive compensation programs align the interests of our executives with those of our shareholders. Our compensation programs are guided by the philosophy that the Company's ability to provide sustainable value is driven by superior individual performance. The Board believes that a company must offer competitive compensation to attract and retain experienced, talented and motivated employees. In addition, the Board believes employees in leadership roles within the organization are motivated to perform at their highest levels when performance-based pay represents a significant portion of their compensation. The Board believes that our philosophy and practices have resulted in executive compensation decisions that are aligned with Company and individual performance, are appropriate in value and have benefited the Company and its shareholders.

Because your vote is advisory, it will not be binding upon the Board of Directors. Nevertheless, the Compensation Committee and the Board will consider the outcome of the vote when evaluating future executive compensation arrangements.

2016 PROXY STATEMENT    23

Table of Contents

COMPENSATION DISCUSSION AND ANALYSIS

COMPENSATION DISCUSSION AND ANALYSIS

This Compensation Discussion and Analysis (CD&A) details our executive compensation programs for 2015 and the decisions the Compensation Committee has made regarding 2015 compensation. This CD&A focuses on the compensation of our NEOs in 2015, who were:

Greg Garland   Chairman and Chief Executive Officer
Paula Johnson   Executive Vice President and General Counsel
Greg Maxwell   Executive Vice President and Chief Financial Officer
Tim Taylor   President
Larry Ziemba   Executive Vice President, Refining

At the end of 2015, Mr. Maxwell retired. In January 2016, Kevin J. Mitchell became our Executive Vice President and Chief Financial Officer.

OUR INDUSTRY, CORPORATE STRATEGY AND BUSINESS PERFORMANCE

Our industry is vitally important to the global economy. Fossil fuels, particularly oil and natural gas, continue to be the world's primary energy source and are expected to remain so for decades to come. These sources are abundant and reliable, affordable and efficient. Phillips 66's mission is to provide energy and improve lives through operating excellence, delivering energy in a safe, efficient and environmentally responsible way. We improve lives by providing access to energy, which is essential to a high standard of living and health throughout the world.

We are a diversified energy manufacturing and logistics company with a unique portfolio of assets in the Midstream, Chemicals, Refining and Marketing & Specialties businesses. We are focused on processing, transporting, storing and marketing fuels and products globally. Integral to our portfolio of assets is our master limited partnership, Phillips 66 Partners LP (PSXP).

The 2015 energy landscape highlighted the volatile nature of our industry. Our operating plans reflect this changing environment; however, our overriding objective remains the same—enable our high-performing workforce to execute our corporate strategy efficiently and effectively and remain vigilant and focused on safety and operating excellence in order to:

    Deliver Profitable Growth

    Optimize Returns

    Grow Shareholder Distributions

One way we measure progress toward implementing our corporate strategy is through enterprise value growth. Through our disciplined capital allocation model, we increase our enterprise value by strategically investing capital in our higher-return businesses while returning a significant portion of capital to shareholders through dividends and share repurchases.

24    2016 PROXY STATEMENT

Table of Contents

COMPENSATION DISCUSSION AND ANALYSIS

Our 2015 performance results and strategic highlights are presented below.

 
  STRATEGY
   
  RESULTS
   
  STRATEGIC HIGHLIGHTS
   

 

 

 

 

 

 

 

 

 

 

 

 

 
   
CHART
      Adjusted earnings of $4.2 billion—60% above target and $0.4 billion above 2014       Our 100,000 barrels-per-day Sweeny Fractionator One began operations.

On schedule with strategic projects including the Freeport LPG export terminal, JV pipelines connecting the Bakken oil field to the Gulf Coast, the Beaumont storage and terminal facility and Bayou Bridge pipeline.

CPChem completed the Cedar Bayou NAO expansion in June 2015, and is on schedule and on budget to complete the US Gulf Coast Petrochemicals project in mid-2017.
   
            PSXP distribution Compound Annual Growth Rate of 41% since its IPO in 2013       PSXP raised $1,474 million in capital, through its first follow-on equity and debt issuances, which funded asset drop downs and organic-growth projects.    
            Clean product yield of over 84%

Refinery crude utilization of 91%
      Our refineries completed $160 million of high-return projects.

Despite a heavy planned turnaround schedule, we maximized capture of increased margins by running above capacity and delaying certain turnarounds.
   
   
CHART
      VCIP ROCE of 16.1%       VCIP ROCE was 7.2 percentage points above our WACC.

Chemicals ROCE of 20%.

Strengthened the DCP balance sheet with a $1.5 billion cash infusion positioning DCP to be self-funding in the current lower commodity price environment.
   
            Adjusted controllable costs of $5.9 billion       Operations managed costs 5% below budget while absorbing company growth including the Spectrum acquisition, Sweeny Fractionator One and Beaumont Terminal.    
   
CHART
      $7.7 billion in share repurchases and exchanges since May 2012

Dividend Compound Annual Growth Rate of 34% since May 2012
      Total common shares outstanding at year-end 2015 were 529 million, down 15% since spin-off and 3% from 2014.

Consistent with our strategy, 54% of capital was reinvested through our strategic activities and 46% was distributed to shareholders from 2013 to 2015.
   

OUR COMPENSATION PHILOSOPHY

Our compensation programs support our corporate mission of providing energy and improving lives. Our programs are aligned with key elements of our corporate strategy. Important tenets of our approach include:

We ensure executive compensation drives behaviors and actions consistent with shareholder interests, prudent risk-taking and a long-term perspective
We believe our compensation programs play an important role in our employee value proposition. They provide a competitive advantage by helping us attract, retain, motivate, and reward high-performing executive talent, as well as support succession planning
We pay for performance. Executives have a significant portion of compensation tied to the achievement of annual and long-term goals that promote shareholder value creation
We target and award reasonable and competitive compensation ranges, aligned with market median levels. Awards are then differentiated based on performance relative to targets/peers and market conditions.
We emphasize Phillips 66 stock ownership by requiring stock ownership levels for our executives that are set at a multiple of their annual base salary
We provide executives the same group benefit programs as we provide other employees, on substantially the same terms
We limit executive perquisites to items that serve a reasonable business purpose
2016 PROXY STATEMENT    25

Table of Contents

COMPENSATION DISCUSSION AND ANALYSIS

ELEMENTS OF COMPENSATION

Significant Pay at Risk

Consistent with our philosophy that executive compensation should be linked to Company performance and directly aligned with shareholder value creation, a significant portion of NEO compensation is at risk and based on performance metrics tied to our corporate strategy. "At risk" means there is no guarantee that the target value of the awards will be realized. The Compensation Committee has complete authority to limit and even award nothing for the performance-based payouts and individual performance adjustments under the Variable Cash Incentive Program (VCIP) and Performance Share Program (PSP) based on its evaluation of performance. Stock options can expire with zero value if the Company stock price does not appreciate above the grant date price over the 10-year life of the options. RSUs may lose value depending on stock price performance. Therefore, for NEOs to earn and sustain competitive compensation, the Company must meet its strategic objectives, perform well relative to peers and deliver market-competitive returns to shareholders.

2015 Principal Elements of the Executive Compensation Programs

The following table summarizes the principal elements of the executive compensation programs and the performance drivers of each element.

 
  KEY ELEMENTS OF PAY
   
  DELIVERED VIA
   
  TARGET AMOUNT
   
  PERFORMANCE DRIVERS (AND WEIGHTING)
   
    Base Salary     Cash     Benchmarked to peer median; adjusted for experience, responsibility and performance     Annual fixed cash compensation to attract and retain NEOs  
    Annual Incentives       VCIP       100% of Annual Performance-Based Compensation Target       Safety and Operating Excellence (25%)

Cost Management (25%)

1-Year ROCE (25%)

Adjusted Earnings (25%)

Individual Modifier (+/–50% of target)
   
    Long-Term Incentives     PSP
(3-year performance period)

 
  50% of Long-Term Grant     Relative ROCE (25%)

Absolute ROCE (25%)

TSR (50%)




 
               
        Stock Options(1)

RSUs


 
  25% of Long-Term Grant

25% of Long-Term Grant


 
  Long-term stock price appreciation for RSUs and stock options  
(1)
The Compensation Committee believes that stock options are inherently performance-based, as options have no initial value and grantees only realize benefits if the value of our stock increases above the option price following the date of grant. This practice aligns the interests of our NEOs and shareholders.

The Compensation Committee believes this mix is aligned with our compensation philosophy, reflects the cyclical nature of our business and supports executive retention.

Target Mix

The target mix of the compensation program elements for the CEO and other NEOs is shown below. The charts outline the relative size, in percentage terms, of each element of targeted compensation.

GRAPHIC

CEO target compensation mix is 90 percent at risk and 72 percent performance-based. The target mix for the other NEOs is 82 percent at risk and 66 percent performance-based. Both the CEO and other NEO target mix percentages are commensurate with their levels of responsibility.

26    2016 PROXY STATEMENT

Table of Contents

COMPENSATION DISCUSSION AND ANALYSIS

TARGETS AND PAYOUTS FOR COMPENSATION ELEMENTS

Peer Group Comparisons

In 2015, consistent with investor feedback and best practices, we enhanced our peer group comparisons to better reflect our business segments and long-term strategy. We use a performance peer group to evaluate our business results. We believe that our performance peer group is representative of the companies that investors use for relative performance comparisons. We use a compensation peer group to evaluate and determine our compensation levels for our NEOs. Our compensation peer group is comprised of a mix of companies from our performance peer group and companies from the broader market. The mix includes companies from the broader market because we draw our executive talent from a candidate pool that extends beyond the energy industry. We utilized the following peer groups for performance comparisons and compensation decisions.

Performance Peer Group    Phillips 66 is uniquely positioned in the energy industry with a large refining base, a growing midstream NGL business and significant petrochemical exposure. To reflect our unique portfolio of assets, we expanded our peer group for performance comparison purposes to include companies from all three of our major businesses. The table below presents the sixteen companies in our 2015 performance peer group.

REFINING AND MARKETING
  MIDSTREAM
  CHEMICALS
Delek US Holdings, Inc.   Energy Transfer Equity, L.P.   Celanese Corporation
HollyFrontier Corporation   Enterprise Products Partners L.P.   The Dow Chemical Company
Marathon Petroleum Corporation   ONEOK, Inc.   Eastman Chemical Company
PBF Energy Inc.   Targa Resources Corp.   Huntsman Corporation
Tesoro Corporation     Westlake Chemical Corporation
Valero Energy Corporation        
Western Refining, Inc.        

In addition to the companies in our performance peer group, we evaluate our TSR performance against the S&P 100 Index. The Compensation Committee believes that the S&P 100 is an appropriate comparison for performance purposes because these are the companies with which we compete for capital in the broader market.

Compensation Peer Group    Compensation peers include companies that are reasonably comparable to Phillips 66 based on three primary criteria—assets, market capitalization, and business operations. Revenue is a secondary criteria due to the nature of our operations. The Compensation Committee believes reviewing each of these criteria is necessary in order to fully reflect the complex nature of our business and determine the optimal group of companies with which to compare Phillips 66.

Because our executive talent pool is broader than the energy industry, our compensation peer group consists of some of the companies from our performance peer group and large industrial companies with significant capital investments and complex international operations. At the time this compensation peer group was last reviewed in 2015, we were, in comparison to this group, in the 46th percentile in assets, 30th percentile in market capitalization and 93rd percentile in revenue. The 2015 compensation peer group is comprised of the following 26 companies.

Archer-Daniels-Midland Company   Ford Motor Company   The Procter & Gamble Company
The Boeing Company   General Dynamics Corporation   Sysco Corporation
BP p.l.c.   General Motors Company   Tesoro Corporation
Caterpillar Inc.   Honeywell International Inc.   Tyson Foods, Inc.
Chevron Corporation   Johnson & Johnson   United Parcel Service, Inc.
Deere & Company   Johnson Controls, Inc.   United Technologies Corporation
The Dow Chemical Company   Lockheed Martin Corporation   Valero Energy Corporation
E.I. du Pont de Nemours and Company   Marathon Petroleum Corporation   Verizon Communications Inc.
FedEx Corporation   Mondelez International, Inc.  

Base Salary

Base salary is designed to provide a competitive and fixed rate of pay recognizing employees' different levels of responsibility and performance. As the majority of our NEO compensation is performance-based and tied to long-term programs, base salary represents a less significant component of total compensation. In setting each NEO's base salary, the Compensation Committee considers factors including, but not limited to, the responsibility level for the position held, market data from the relevant peer groups for comparable roles, experience and expertise, individual performance and business results.

2016 PROXY STATEMENT    27

Table of Contents

COMPENSATION DISCUSSION AND ANALYSIS

Below is a summary of the annualized base salary for each NEO for 2015. Because these amounts reflect each NEO's annualized salary as of the dates indicated, this information may vary from the information provided in the "Summary Compensation Table" on page 40, which reflects actual base salary earnings in 2015, including the effect of salary changes during the year.

NAME
  POSITION
  BASE SALARY AS OF DECEMBER 31, 2014 ($)
  BASE SALARY AS OF DECEMBER 31, 2015 ($)(1)

Mr. Garland

  Chairman and Chief Executive Officer   1,522,512   1,575,816

Ms. Johnson

  Executive Vice President and General Counsel   610,008   671,016

Mr. Maxwell

  Executive Vice President and Chief Financial Officer   775,008   806,016

Mr. Taylor

  President   985,008   1,024,416

Mr. Ziemba

  Executive Vice President, Refining   679,272   701,352
(1)
The December 31, 2015 base salary for Ms. Johnson reflects an increase for a promotion received during the year.

Mr. Garland, Ms. Johnson and Messrs. Maxwell, Taylor and Ziemba received base salary increases effective July 1, 2015, as part of the annual merit cycle for all employees. These merit increases in base salary brought each applicable NEO's base salary in line with respective peer group levels and reflect that each NEO met established performance requirements for their respective roles. The Compensation Committee determined these adjustments were appropriate to maintain our competitiveness in the market. Ms. Johnson received a grade promotion, effective July 1, 2015. This promotion prompted other actions, including target VCIP increases and supplemental prospective performance plan awards.

Variable Cash Incentive Program

The VCIP, which is our annual incentive program, is designed to:

    Reward annual performance achievements

    Align corporate, business and individual goals with shareholder interests and Company strategy

    Drive behaviors and actions consistent with shareholder interests

    Provide variability and differentiation based on corporate, business and individual performance

Each NEO's base VCIP award is tied solely to corporate performance rather than the performance of any individual business unit. We believe this structure is in the best interests of shareholders as it promotes collaboration across the organization.

The annual payout for NEOs is delivered as a cash bonus and is calculated as follows:

GRAPHIC

Eligible earnings are multiplied by a target percentage that is based on each NEO's salary grade level. At the end of the performance period, the Compensation Committee reviews the Company's performance to determine the Corporate Payout Percentage. This percentage is based on a mix of operational and financial metrics selected to drive the right behaviors. Metrics and weightings are outlined in the tables below. The Compensation Committee can award a Corporate Payout Percentage of zero up to the maximum of 200 percent.

The Compensation Committee then takes into account the individual accomplishments of each NEO when determining any individual performance adjustments. These can range from +/–50 percent of target. Adjustments are based on measurable performance of the individual NEO that drives shareholder value.

28    2016 PROXY STATEMENT

Table of Contents

COMPENSATION DISCUSSION AND ANALYSIS

For 2015, the Compensation Committee used the following metrics, which are aligned with our corporate strategy, to evaluate corporate performance under the VCIP. This mix of financial and operational metrics was designed to ensure a balanced view of Company performance.

METRIC
  CORPORATE
WEIGHTING

  RATIONALE

Safety, Process Safety and Operating Excellence

  25%   Aligns payout with strategic focus on operating excellence

Cost Management

  25%   Effective cost management maintains a focus on operating excellence as well as enhancing returns

ROCE

  25%   Aligns payout with strategic focus on enhancing returns and growth initiatives

Adjusted Earnings

  25%   Measures the effectiveness of strategic growth initiatives, operating excellence and quality of returns

Generally, target performance results in 100 percent payout of target bonus opportunity. Less-than-target performance will normally result in a payout between zero and 99 percent of target. Greater-than-target performance generally results in a payout between 100 percent of target and the maximum 200 percent, before individual adjustment.

Safety, Process Safety and Operating Excellence Metrics

Operating excellence, including personal and process safety as well as environmental stewardship, is critical to meeting our corporate strategy of growth, returns and distributions. We measure ourselves against others in our industry for safety and utilization metrics and target sustained improvement in environmental events compared to prior years.

In 2015, both our Total Recordable Rate (TRR) and Lost Workday Case Rate (LWCR) were first quartile compared to an industry group. Although our Process Safety Rate was better than target, our 2015 results were second quartile compared to this industry group. 2015 was our second best performance year for agency reportable environmental events. Despite a heavy turnaround schedule, our crude capacity utilization was 91 percent and better than industry average. Although the formulaic result would have produced a higher payout percentage, the Compensation Committee exercised negative discretion to reflect that our process safety results were slightly impaired year-over-year and the fact that our personal safety metrics were flat with 2014. All these considerations were used to determine a 160 percent payout for safety, process safety and operating excellence performance.

 
   
   
       
   
   
 
  COMPANY RESULTS  
 

  PAYOUT LEVELS BASED ON PERFORMANCE  
 

   
   
   
SAFETY, PROCESS SAFETY AND
OPERATING EXCELLENCE METRICS

  PAYOUT
%

   
  CORPORATE
PAYOUT

  TARGET
  ACTUAL
   
  175-200%
  100-175%
  50-100%
  0-50%
   
  WEIGHT
             

Combined TRR

  0.43   0.19       1st Quartile   2nd Quartile   3rd Quartile   4th Quartile       185%   5%   9.25%

Combined LWCR

  0.10   0.03       1st Quartile   2nd Quartile   3rd Quartile   4th Quartile       185%   5%   9.25%

Process Safety Rate

  0.09   0.08       1st Quartile   2nd Quartile   3rd Quartile   4th Quartile       150%   5%   7.50%

Environmental Events

  150   142       <125   125-150   150-175   >175       140%   5%   7.00%

Capacity Utilization

  90%   91%       >94%   90%-94%   86%-90%   <86%       140%   5%   7.00%

Total Safety, Process Safety and Operating Excellence

                          160%   25%   40.00%

Cost Management

Cost management maintains focus on operating excellence and enhances our ability to deliver differentiated returns to shareholders. Our targets are based on our budget for the current year. We measure our costs per barrel relative to our peer group to ensure alignment with industry trends and to reflect operating decisions made in response to changing market conditions that vary from budget assumptions.

2016 PROXY STATEMENT    29

Table of Contents

COMPENSATION DISCUSSION AND ANALYSIS

In 2015, we were 5 percent improved versus our budget and were second in our peer group on costs per barrel. Additionally, we absorbed company growth costs associated with the Spectrum acquisition, start-up of Sweeny Fractionator One and the Beaumont terminal. These results were used to determine a 180 percent payout for Cost Management.

 
   
   
       
   
   
 
  COMPANY RESULTS  
 

  PAYOUT LEVELS BASED ON PERFORMANCE  
 

   
   
   
 
  PAYOUT
%

   
  CORPORATE
PAYOUT

COST METRIC
  TARGET
  ACTUAL
   
  150-200%
  100-150%
  100%
  50-100%
  0%
   
  WEIGHT
               

Cost Management* ($MM)

  $6,155   $5,853       <Target–2%   Target–1%   Target   <Target+5%   >Target+5%       180%   25%   45.00%
*
Cost management is a non-GAAP financial measure. See Appendix B for additional information.

Return on Capital Employed

ROCE is key to delivering returns to shareholders and achieving our growth initiatives. ROCE is a key metric for shareholders to determine the quality of our earnings relative to peers. The Compensation Committee reviews the relative ROCE as well as the absolute results to ensure we effectively compete for capital in the broader market. Our absolute targets are based on our WACC.

In 2015, the Compensation Committee considered that our VCIP ROCE was 7.2 percentage points above our target and that we were seventh out of 17 companies in our performance peer group, when determining a 145 percent payout for ROCE.

 
   
   
       
   
   
RETURN ON CAPITAL EMPLOYED METRIC
  COMPANY RESULTS  
 

  PAYOUT LEVELS BASED ON PERFORMANCE  
 

   
   
   
  PAYOUT
%

   
  CORPORATE
PAYOUT

  TARGET
  ACTUAL
   
  200%
  175%
  150%
  125%
  100%
  75%
  50%
  25%
  0%
   
  WEIGHT
                           

Absolute VCIP ROCE*

  8.9%   16.1%     >11.9%   11.2%   10.4%   9.7%   8.9%   8.2%   7.4%   6.7%   <5.9%     200%   12.5%   25%

 


 

 


 

 


 


 


 

PAYOUT LEVELS BASED ON PERFORMANCE

 


 


 

 


 

 


 

 

 
   
   
   
   
  160-200%
  80-160%
  25-80%
  0%
   
   
   
   
   
   
   
   
                           

Relative VCIP ROCE*

  Median
of peers

 
7th       1st-4th   5th-10th   11th-15th   16th or 17th             90%   12.5%   11.25%


Total Return on Capital Employed


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

145%

 

25%

 

36.25%
*
VCIP ROCE is a non-GAAP financial measure. See Appendix B for additional information.

The following chart shows our VCIP ROCE performance relative to our peers.

RELATIVE VCIP ROCE(1)
(PERCENT)

LOGO

(1)
Relative ROCE calculations are based on Q3 YTD results annualized for 2015.

Adjusted Earnings

Adjusted earnings measures how effectively we are delivering on our growth, returns and distribution strategies. We measure our adjusted earnings compared to budgeted targets.

In 2015, we set an aggressive target in an increasingly uncertain commodity environment and outperformed our budget by 60 percent. Total adjusted earnings were $4.2 billion. Additionally, we generated cash from operations of $5.9 billion, excluding working capital. Although a strictly formulaic result would have produced a higher payout percentage, the

30    2016 PROXY STATEMENT

Table of Contents

COMPENSATION DISCUSSION AND ANALYSIS

Compensation Committee exercised negative discretion to reflect the current market environment when determining a 175 percent payout for adjusted earnings.

 
   
   
       
   
   
 
  COMPANY RESULTS  
 

  PAYOUT LEVELS BASED ON PERFORMANCE  
 

   
   
   
 
  PAYOUT
%

   
  CORPORATE
PAYOUT

EARNINGS METRIC
  TARGET
  ACTUAL
   
  200%
  170-199%
  125-169%
  100-124%
  70-99%
  25-69%
  0%
   
  WEIGHT
                   

Adjusted Earnings* (millions)

  $2,619   $4,193       $4,200   $3,500   $3,000   $2,600   $2,300   $1,900   <$1,000       175%   25%   43.75%
*
Adjusted earnings is a non-GAAP financial measure. See Appendix B for additional information.

Total Corporate Payout

The formulaic result of our individual metrics resulted in a Total Corporate Payout of 165 percent and is summarized below.

METRIC
  PAYOUT PERCENTAGE
  WEIGHT
  CORPORATE PAYOUT
 

Safety, Process Safety and Operating Excellence

  160%   25%   40.00%  

Cost Management

    180%     25%     45.00%  

Return on Capital Employed

  145%   25%   36.25%  

Adjusted Earnings

    175%     25%     43.75%  

Total Corporate Payout

      165.00%  

Applying Project-Based and Shareholder Metrics to the Annual VCIP Payout

The Compensation Committee has the authority to adjust individual VCIP payouts by +/–50 percent of the formula-based target payout amount. The Compensation Committee applies an additional individual performance adjustment to reflect project-based accomplishments that drove or detracted from shareholder value or for market-based considerations to more closely align the payout with shareholder returns. This flexibility allows us to reflect our unique business strategy and portfolio of assets as well as differentiate individual executive performance. The Compensation Committee made adjustments to individual compensation levels based on projects and initiatives leading to the successful execution of our strategy and the senior executives responsible for the success of these projects and initiatives.

The following initiatives and results were considered when making individual adjustment decisions.

 
  GROWTH   RETURNS   DISTRIBUTIONS
 
  SWEENY
FRAC ONE

  MIDSTREAM
GROWTH
PROJECTS IN
PROGRESS

  CPCHEM
GROWTH
PROJECTS

  PSXP
DISTRIBUTION
GROWTH

  CLEAN
PRODUCT
YIELD

  REFINERY
CRUDE
UTILIZATION

  REFINING
HIGH-
RETURN
PROJECTS

  CAPTURE
REFINING
MARGINS

  CHEMICALS
ROCE

  DCP
BALANCE
SHEET

  PSX
ROCE

  CONTROL
COSTS

  SHARE
REPURCH

  DIVIDEND
GROWTH

Mr. Garland   ·   ·   ·   ·   ·   ·   ·   ·   ·   ·   ·   ·   ·   ·
Ms. Johnson   ·   ·   ·   ·                       ·       ·        
Mr. Maxwell         ·           ·   ·   ·   ·   ·   ·
Mr. Taylor   ·   ·   ·   ·                   ·   ·   ·   ·        
Mr. Ziemba   ·         ·   ·   ·   ·       ·   ·    

The Compensation Committee approved total payouts for each of our NEOs as shown in the table below.

NAME
  ELIGIBLE EARNINGS
($)

  TARGET VCIP
PERCENTAGE(1)

  CORPORATE
PAYOUT PERCENTAGE

  INDIVIDUAL PERFORMANCE
ADJUSTMENT PERCENTAGE

  TOTAL PAYOUT
($)

Mr. Garland

  1,549,164   160.00%   165%   20%   4,585,525

Ms. Johnson

  640,512   86.00%   165%   20%   1,019,055

Mr. Maxwell

  790,512   100.00%   165%   20%   1,462,447

Mr. Taylor

  1,004,712   110.00%   165%   35%   2,210,366

Mr. Ziemba

  690,312   83.00%   165%   15%   1,031,326
(1)
Target percentages are weighted to reflect promotions and/or merit increases during 2015.
2016 PROXY STATEMENT    31

Table of Contents

COMPENSATION DISCUSSION AND ANALYSIS

Long-Term Incentive (LTI) Programs

Our LTI programs are designed to:

    Align corporate, business and individual goals with shareholder interests and corporate strategy and vision

    Drive behaviors and actions consistent with shareholder interests

    Encourage prudent risk taking and long-term perspective

    Support retention of high-performing talent and succession planning


LTI Mix

CHART

Our programs deliver 50 percent of long-term target value in the form of Performance Share Units (PSUs), 25 percent in the form of stock options and 25 percent in the form of RSUs.

We believe this mix of awards is aligned with our compensation philosophy, reflects the cyclical nature of our business, promotes retention of our high-performing talent, supports succession planning and is consistent with market practice.

There are three PSP programs in progress at any time. The table below summarizes the programs in effect during 2015:

 
  PROGRAM
   
  METRICS
   
  PROGRAM TERMS
   
    PSP 2013-2015                    
    PSP 2014-2016       50% ROCE
50% TSR
      Paid in cash at the end of the performance period    
    PSP 2015-2017                    

PSP 2013-2015 Payout

For 2015, the Compensation Committee considered the following results when approving the payout for PSP 2013-2015.

RELATIVE PSP ROCE(1)
(PERCENT)

CHART

(1)
Relative ROCE calculations are based on full year results for 2013 and 2014 and Q3 YTD annualized for 2015.
32    2016 PROXY STATEMENT

Table of Contents

COMPENSATION DISCUSSION AND ANALYSIS

RELATIVE TSR
(PERCENT)

CHART

Return on Capital Employed

ROCE is an important measure of Company growth and overall performance. The Compensation Committee has used a ROCE measure as a metric in both the PSP program and the VCIP program; however, each applies ROCE to a different time period.

The target for absolute performance is based on our WACC for the performance period.

During the PSP 2013-2015 performance period, our absolute PSP ROCE was 15.8 percent, or 6.4 percentage points above our WACC target. Our relative performance was fifth out of 17 peer companies. The Compensation Committee used these results when determining a 180 percent payout for ROCE.

RETURN ON CAPITAL EMPLOYED

  COMPANY RESULTS       PAYOUT LEVELS BASED ON PERFORMANCE       PAYOUT       CORPORATE

METRIC

  TARGET   ACTUAL       200%   175%   150%   125%   100%   75%   50%   25%   0%       %   WEIGHT   PAYOUT

Absolute PSP ROCE*

  9.4%   15.8%     12.4%   11.7%   10.9%   10.2%   9.4%   8.7%   7.9%   7.2%   6.4%     200%   25%   50%
 
  COMPANY RESULTS  
 

  PAYOUT LEVELS BASED ON PERFORMANCE  
 

   
   
   
 
   
   
  CORPORATE
PAYOUT

 
  TARGET
  ACTUAL
   
   
  160-200%
  80-160%
  25-80%
  0%
   
  PAYOUT %
  WEIGHT

Relative PSP ROCE*

  Relative Ranking   5th         1st-4th   5th-10th   11th-15th   16th-17th     160%   25%   40%


Total Return on Capital Employed


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

180%

 

50%

 

90%
*
PSP ROCE is a non-GAAP financial measure. See Appendix B for additional information.

Total Shareholder Return

TSR for the performance period is compared to our performance peer group and the S&P 100. Our TSR for the 3-year performance period was 72.3 percent, fifth out of 18 (including the S&P 100 Index) on a relative basis. The Compensation Committee used this ranking when determining a 160 percent payout for our TSR performance.

 
   
   
       
   
   
 
  COMPANY RESULTS  
 

  PAYOUT LEVELS BASED ON PERFORMANCE  
 

   
   
   
TOTAL SHAREHOLDER RETURN METRIC
  PAYOUT
%

   
  CORPORATE
PAYOUT

  TARGET
  ACTUAL
   
  160-200%
  80-160%
  25-80%
  0%
   
  WEIGHT
             

Relative Total Shareholder Return

  Relative
Ranking

 
5th       1st-4th   5th-10th   11th-15th   16th-18th       160%   50%   80%

Total PSP 2013-2015 Payout

The formulaic result of these metrics yielded a Total PSP 2013-2015 payout of 170 percent.

METRIC
  PAYOUT
PERCENTAGE

  WEIGHT
  CORPORATE
PAYOUT

PSP ROCE

  180%   50%   90%

Relative TSR

  160%   50%   80%

Total PSP 2013-2015 Payout

  170%
2016 PROXY STATEMENT    33

Table of Contents

COMPENSATION DISCUSSION AND ANALYSIS

In addition, for PSP 2013-2015 the Compensation Committee could apply performance adjustments to the payout of up to +/–50 percent based on individual performance. The maximum payout inclusive of Company and individual performance adjustments is capped at 200 percent of target. Targets are prorated for changes in salary grade level during the remaining portion of the relevant performance period. The CEO provides input on individual adjustments for all NEOs (other than himself).

Accordingly, the Compensation Committee approved the following payouts for each NEO for the PSP 2013-2015 performance period:

NAME
  TARGET
SHARES (#)

  CORPORATE
PAYOUT
PERCENTAGE

  INDIVIDUAL
PERFORMANCE
ADJUSTMENT(1)

  TOTAL
SHARES(2) (#)

  TOTAL
VALUE ($)

Mr. Garland

  96,129   170%     163,419   12,848,002

Ms. Johnson

  17,799   170%     30,258   2,378,884

Mr. Maxwell

  23,967   170%     40,744   3,203,293

Mr. Taylor

  32,358   170%     55,009   4,324,808

Mr. Ziemba

  20,480   170%     34,816   2,737,234
(1)
No individual performance adjustments were given to NEOs for the PSP 2013-2015 performance period.

(2)
The Total Shares were paid out in cash at the end of of the performance period.

2015 LTI Targets

The Company uses the compensation peer group described on page 27 to benchmark compensation levels and establish multiples of base salary tied to the median LTI opportunities for similar roles at peer organizations.

PSP 2015-2017 Targets

Through the PSP, a significant portion of NEO compensation is tied to Company and individual performance over a three-year period, which is evaluated by the Compensation Committee when determining payouts. Each year, the Compensation Committee establishes metrics that will be used to evaluate Company performance relative to internal performance goals as well as appropriate peer groups for the following three years.

The Compensation Committee uses corporate performance in relation to performance goals and benchmarks when determining award payouts. Payouts can range from 0-200 percent of target opportunity. Generally, target or peer median performance results in a payout equal to 100 percent of target opportunity. Performance below target or peer median performance normally results in a payout between 0 and 99 percent of target opportunity. Performance greater than target or peer median performance generally results in a payout between 100 percent and the maximum 200 percent of target opportunity.

Individual performance adjustments of up to +/–50 percent of targets can be set at the beginning of the three-year performance period and no adjustments are made at payout.

For PSP 2015-2017, the PSP continued to be 50 percent of the LTI target. The total target units were set in February 2015 and are based on each executive's base salary, the executive's target percentage, Phillips 66's stock price on December 31, 2014 (less anticipated ordinary cash dividends during the performance period) and individual performance.

Stock Option Program

In 2015, 25 percent of the LTI target value was delivered to executives in the form of stock options. These are inherently performance-based as the stock price must increase before the executive can realize any gain. We believe stock options drive behaviors and actions that enhance long-term shareholder value.

Generally, stock options are granted in February each year. The number of options awarded is based on the Black-Scholes-Merton model. The exercise price of stock options is set at 100 percent of the fair market value of our common stock on the date of grant. Stock options granted to our NEOs in February 2015 vest ratably over a three-year period and have a ten-year term. These stock options do not have voting rights nor entitle the holder to receive dividends. Based on its assessment of the individual performance of each NEO, the Compensation Committee may adjust an award by up to +/–30 percent of the target amount at grant. The CEO provides input on the grant amounts and individual performance adjustments for all NEOs (other than himself). The Compensation Committee evaluates the individual performance of the CEO. The Compensation Committee did not make any individual performance adjustments to NEO stock option awards in 2015.

34    2016 PROXY STATEMENT

Table of Contents

COMPENSATION DISCUSSION AND ANALYSIS

Restricted Stock Units

In 2015, 25 percent of the LTI target value was delivered to executives in the form of RSUs. The Compensation Committee believes maintaining RSUs in our LTI program complements the overall compensation mix for our executives by:

    Driving the right behaviors and actions consistent with creating shareholder value

    Providing diversification of compensation in recognition of the cyclical nature of our industry

    Resulting in actual share ownership aligned with our stock ownership guidelines

    Supporting executive retention

RSUs are typically granted in February each year. The number of units is determined based on the fair market value of Company stock on the date of grant. RSUs awarded to our NEOs in February 2015 cliff vest at the end of the three-year holding period and are delivered to the NEOs in the form of unrestricted Company stock. These RSUs do not carry voting rights but do generate dividend equivalents during the holding period. The Compensation Committee assesses the individual performance of each NEO, and based on that assessment may adjust an award by up to +/–30 percent of the target amount at grant. The CEO provides input regarding awards made to all NEOs (other than himself). The Compensation Committee evaluates the individual performance of the CEO.

Driving Future Shareholder Value

Our strong 2015 results and the success of our strategic initiatives outlined previously were due in large part to the strong management and oversight of our key senior executives. When determining individual adjustments for the performance-based programs, the Compensation Committee reviewed the contributions of each of our executives to Company results and successful project outcomes.

2015 LTI Target Compensation

The Compensation Committee approved the following targets for the NEOs for 2015. The Compensation Committee considered the individual performance of each NEO as outlined above when determining these targets. These values do not reflect prospective promotional adjustments to PSP targets and may not match the accounting values presented in the "Grants of Plan-Based Awards" table on page 42.

NAME
  PSP 2015-2017(1)
($)

  STOCK OPTIONS(2)
($)

  RSUs(3)
($)

  TOTAL TARGET
($)

 

Mr. Garland

  5,526,719   2,763,359   2,763,359   11,053,437  

Ms. Johnson

    1,040,064     472,756     520,032     2,032,852  

Mr. Maxwell

  1,491,890   678,132   745,945   2,915,967  

Mr. Taylor

    2,265,518     985,008     1,182,010     4,432,536  

Mr. Ziemba

  1,158,159   526,436   579,079   2,263,674  
(1)
PSP 2015-2017 targets include individual adjustments for Ms. Johnson and Messrs. Maxwell, Taylor and Ziemba of 10, 10, 15 and 10 percent, respectively.

(2)
The Compensation Committee did not approve any individual adjustments to stock option targets.

(3)
RSU targets include individual adjustments for Ms. Johnson and Messrs. Maxwell, Taylor and Ziemba of 10, 10, 20 and 10 percent, respectively.

OTHER BENEFITS AND PERQUISITES

Below is a summary of other compensation elements available to our NEOs in addition to the five main programs described above:

Broad-Based Employee Benefit Programs

NEOs participate in the same basic benefits package available to our other U.S. salaried employees. This package includes qualified pension; 401(k) plan; medical, dental, vision, life, and accident insurance plans, as well as flexible spending arrangements for health care and dependent care expenses; and our matching gift program.

Additional Executive Perquisites

In line with our compensation philosophy to provide compensation and benefits aligned with market practice, in 2015 we provided our NEOs financial planning and executive health benefits. These benefits were imputed to the executives and included in All Other Compensation in the "Summary Compensation Table" on page 40.

2016 PROXY STATEMENT    35

Table of Contents

COMPENSATION DISCUSSION AND ANALYSIS

Comprehensive Security Program

The Board has adopted a comprehensive security program to address the increased security risks for certain senior executives. Mr. Garland was the only NEO in 2015 designated by the Board as requiring increased security under this program. This program allows for certain additional security measures in specific situations when the senior executive is traveling by car or airplane on Company business. An additional security review of his personal residence is also included. Any additional costs to the Company for these activities are reported as All Other Compensation and included in the "Summary Compensation Table" on page 40.

Executive Retirement Plans

We maintain the following supplemental retirement plans for our NEOs.

    Voluntary Deferred Compensation Plan—This plan (the Phillips 66 Key Employee Deferred Compensation Plan, which we refer to as the KEDCP) provides tax-efficient retirement savings by allowing executives to voluntarily defer both the receipt and taxation of a portion of their base salary and annual bonus until a specified date or when they leave the Company. Further information on the KEDCP is provided in the "Nonqualified Deferred Compensation" table beginning on page 46.

    Defined Contribution Restoration Plan—This plan (the Phillips 66 Defined Contribution Make-Up Plan, which we refer to as the DCMP) restores benefits capped under our qualified defined contribution plan due to Internal Revenue Code limits. Further information on the DCMP is provided in the "Nonqualified Deferred Compensation" table beginning on page 46.

    Defined Benefit Restoration Plan—This plan (the Phillips 66 Key Employee Supplemental Retirement Plan, which we refer to as the KESRP) restores Company-sponsored benefits capped under the qualified defined benefit pension plan due to Internal Revenue Code limits. Further information on the KESRP is provided in the "Pension Benefits as of December 31, 2015" table beginning on page 45.

Executive Life Insurance

We provide life insurance policies to all U.S.-based employees with a face value approximately equal to their annual base salary. For our NEOs, the face value of this coverage is approximately two times their annual base salary.

Executive Severance and Change in Control Plans

We do not maintain individual severance or change in control agreements with our executives. However, we maintain the Phillips 66 Executive Severance Plan (which we refer to as the ESP) and the Phillips 66 Change in Control Severance Plan (which we refer to as the CICSP) to accomplish several specific objectives, including:

    Ensuring shareholder interests are protected during business transactions by providing benefits that promote senior management stability

    Providing and preserving an economic motivation for participating executives to consider a business combination that might result in an executive's job loss

    Competing effectively in attracting and retaining executives in an industry that features frequent acquisitions and divestitures

Executives may not participate in both plans as a result of the same severance event. Among other benefits, the ESP provides a payment equal to one and one-half or two times the executive's base salary, depending on salary grade level, if he or she is involuntarily terminated without cause. The CICSP provides a payment equal to two or three times the executive's base salary, depending on salary grade level, if the executive is involuntarily terminated without cause in connection with a change in control or the executive terminates employment for good reason within two years after a change in control. This "double trigger" requirement is in the best interest of shareholders and is considered a best practice.

Details of potential payments under these plans are outlined in the "Potential Payments upon Termination or Change in Control" section beginning on page 47. These plans do not provide any tax gross-up protections.

36    2016 PROXY STATEMENT

Table of Contents

COMPENSATION DISCUSSION AND ANALYSIS

Personal Use of Company Aircraft

The primary purpose of our corporate aircraft is to facilitate Company business. In the course of conducting Company business, executives may occasionally invite a family member or other personal guest to travel with them to attend a meeting or function. When such travel is deemed taxable to the executive, we provide further payments to reimburse the costs of the inclusion of this item in his or her taxable income.

EXECUTIVE COMPENSATION GOVERNANCE

Clawback Provisions

Short- and long-term compensation, deferred compensation and nonqualified retirement benefits received by any executive are subject to clawback provisions if financial or other data is materially misstated due to negligence or misconduct on the part of the executive, as determined by the Compensation and Audit Committees.

Stock Ownership

The Compensation Committee believes stock ownership guidelines align executive performance with shareholder value creation and mitigate compensation risk. Each executive must own at least the following amounts of Phillips 66 common stock within five years from the date of program eligibility:

EXECUTIVE LEVEL
  SALARY MULTIPLE
 

Chairman and CEO

  6  

President

    5  

Executive Vice President

  4 / 5  

RSUs, but not stock options or PSP targets, are included when determining the amount of stock owned by an executive. Compliance with the stock ownership guidelines is reviewed annually. All NEOs currently comply with these stock ownership guidelines or are on track to comply within the applicable five-year period.

Tax Considerations—Internal Revenue Code (IRC) Section 162(m)

The Compensation Committee considers the deductibility of compensation under IRC Section 162(m) when making decisions and generally attempts to structure elements of executive compensation to meet the requirements for deductibility. However, the Compensation Committee has the flexibility to design and maintain the programs in the most beneficial manner to shareholders, including payments that may be subject to the deductibility limits under IRC Section 162(m).

For 2015 the Compensation Committee believes it has taken the necessary steps intended to qualify payments made under the VCIP and awards made under the LTI programs (PSP and RSUs) as performance-based under IRC Section 162(m).

Trading Policies

Our insider trading policy prohibits all employees and directors from trading Company stock while in possession of material, non-publicly disclosed information. This policy requires executives and directors, as well as employees with regular access to insider information, to follow specific pre-clearance procedures before entering into transactions in our stock. Our policy prohibits hedging transactions related to our stock or pledging our stock, including any stock the executive or director may hold in excess of his or her stock ownership guideline requirements.

Independent Compensation Consultant

The Compensation Committee retains Meridian Compensation Partners, LLC as its independent executive compensation consultant. The Compensation Committee has evaluated whether Meridian's work raised any conflict of interest and determined that no such conflict exists.

The primary role of this consultant is to advise the Compensation Committee on:

    Our compensation programs and processes relative to external corporate governance standards

    The appropriateness of our executive compensation programs in comparison to those of our peers

    The effectiveness of the compensation programs in accomplishing the objectives set by the Compensation Committee with respect to executives
2016 PROXY STATEMENT    37

Table of Contents

COMPENSATION DISCUSSION AND ANALYSIS

Compensation Risk Assessment

The Compensation Committee oversees management's risk assessment of all elements of our compensation programs, policies and practices for all employees. Management has concluded that our compensation programs, policies and practices are not reasonably likely to have a material adverse effect on the Company. Relevant provisions of our programs include, but are not limited to:

    LTI metrics are aligned with our corporate strategy to ensure continued focus on actions that drive shareholder value

    VCIP and PSP compensation targets increase with each pay grade, emphasizing shareholder value creation over time

    Maximum payouts under VCIP and PSP programs are appropriately limited to balance risk-taking with long-term strategic goals

    Maintaining a level of discretion in the performance-based programs, which enables the Compensation Committee to award zero payouts to executives who perform poorly

    Clawback provisions that allow for reduction in awards for executives who expose the Company to undue risk

    LTI design that provides incentives for retention and Company and individual performance

    Stock ownership guidelines that align executive interests with those of shareholders

ROLE OF THE HUMAN RESOURCES AND COMPENSATION COMMITTEE

Authority and Responsibilities

The Compensation Committee is responsible for providing independent, objective oversight of our executive compensation programs and determining the compensation for our CEO and anyone who meets our definition of a Senior Officer. Currently, our internal guidelines define a Senior Officer as an officer of the Company who reports directly to the CEO or any other officer of the Company who is either a Senior Vice President or above or a reporting officer under Section 16(b) of the Exchange Act. As of December 31, 2015, we had 10 Senior Officers. The compensation tables that follow provide information about our CEO and certain of our Senior Officers. In addition, the Compensation Committee acts as plan administrator of the compensation programs and benefit plans for our CEO and Senior Officers and as an avenue of appeal for current and former Senior Officers regarding disputes over compensation and benefits.

The Compensation Committee oversees the Company's executive compensation philosophy, policies, plans and programs for our CEO and Senior Officers to ensure:

    Alignment of our executive compensation programs with the long-term economic interests of shareholders

    Competitiveness of compensation within the markets in which Phillips 66 competes for talent

    Retention of top talent and CEO and Senior Officer succession planning

One of the Compensation Committee's responsibilities is to assist the Board in its oversight of the integrity of the Company's "Compensation Discussion and Analysis" beginning on page 24. The report on page 39 summarizes certain of the Compensation Committee's activities concerning compensation earned during 2015 by our NEOs who are identified on page 24.

A complete listing of the authority and responsibilities of the Compensation Committee is set forth in its written charter adopted by the Board of Directors, which is available in the "Investors" section of our website under the caption "Governance."

Members

The Compensation Committee consists of three members who meet all requirements for "non-employee," "independent" and "outside" director status under the Exchange Act, NYSE listing standards, and the IRC, respectively. The members of the Compensation Committee and the member to be designated as Chair, like the members and Chairs of all the Board committees, are reviewed annually by the Nominating Committee, which recommends committee appointments to the full Board. The Board of Directors has final approval of the committee structure of the Board.

38    2016 PROXY STATEMENT

Table of Contents

COMPENSATION DISCUSSION AND ANALYSIS

Meetings

The Compensation Committee holds regularly scheduled meetings in association with regular Board meetings and meets by teleconference between such meetings as necessary to discharge its duties. The Compensation Committee reserves time at each regularly scheduled meeting to review matters in executive session without management present except as specifically requested by the Compensation Committee. Additionally, the Compensation Committee meets jointly with the Lead Director, who is also a member of the Compensation Committee, at least annually to evaluate the performance of the CEO. In 2015, the Compensation Committee had five regularly scheduled meetings and one additional telephonic meeting. More information regarding the Compensation Committee's activities at such meetings can be found in the "Compensation Discussion and Analysis" beginning on page 24.

Continuous Improvement

The Compensation Committee is committed to a process of continuous improvement in exercising its responsibilities. To that end, the Compensation Committee:

    Receives ongoing training regarding best practices for executive compensation

    Regularly reviews its responsibilities and governance practices in light of ongoing changes in the legal and regulatory arena and trends in corporate governance. This review is aided by the Company's management and consultants, the Compensation Committee's independent compensation consultant, and, when deemed appropriate, independent legal counsel

    Annually reviews its charter and proposes any desired changes to the Board of Directors

    Annually conducts a self-assessment of its performance that evaluates the effectiveness of the Compensation Committee's actions and seeks ideas to improve its processes and oversight

    Regularly reviews and assesses whether the Company's executive compensation programs are having the desired effects without encouraging an inappropriate level of risk

    Regularly reviews all its activities, including its self-assessment and a compensation risk assessment, with the full Board of Directors

HUMAN RESOURCES AND COMPENSATION COMMITTEE REPORT

Review with Management.    The Compensation Committee has reviewed and discussed with management the "Compensation Discussion and Analysis" presented in this proxy statement beginning on page 24.

Discussions with Independent Executive Compensation Consultant.    The Compensation Committee has discussed with Meridian Compensation Partners, LLC (Meridian), an independent executive compensation consulting firm, the executive compensation programs of the Company, as well as specific compensation decisions made by the Compensation Committee. Meridian was retained directly by the Compensation Committee, independent of the management of the Company. The Compensation Committee has received written disclosures from Meridian confirming no other work has been performed for the Company by Meridian, has discussed with Meridian its independence from Phillips 66, and believes Meridian to be independent of management.

Recommendation to the Phillips 66 Board of Directors.    Based on its review and discussions noted above, the Compensation Committee recommended to the Board of Directors that the "Compensation Discussion and Analysis" be included in the Phillips 66 proxy statement on Schedule 14A and the Phillips 66 Annual Report on Form 10-K for the year ended December 31, 2015.

HUMAN RESOURCES AND COMPENSATION COMMITTEE

J. Brian Ferguson, Chairman
Harold W. McGraw III
Glenn F. Tilton

2016 PROXY STATEMENT    39

Table of Contents


EXECUTIVE COMPENSATION TABLES

The following tables and accompanying narrative disclosures provide information concerning total compensation earned by our CEO and other NEOs as of December 31, 2015 for services to Phillips 66 or any of our subsidiaries during 2015, 2014 and 2013.

SUMMARY COMPENSATION TABLE

The following table summarizes the compensation for our NEOs for fiscal years 2015, 2014 and 2013.

NAME AND POSITION
  YEAR
  SALARY
($)(1)

  BONUS
($)(2)

  STOCK
AWARDS
($)(3)

  OPTION
AWARDS
($)(4)

  NON-EQUITY
INCENTIVE
PLAN
COMPENSATION
($)(5)

  CHANGE IN
PENSION
VALUE AND
NONQUALIFIED
DEFERRED
COMPENSATION
EARNINGS
($)(6)

  ALL OTHER
COMPENSATION
($)(7)

  TOTAL
($)

 
Greg C. Garland, Chairman   2015   1,549,164     8,290,120   2,763,828   4,585,525   5,531,249   211,253   22,931,139  
and CEO   2014   1,510,427     8,732,652   2,393,385   2,658,351   8,984,486   229,132   24,508,433  
  2013   1,441,667     7,276,484   2,658,045   4,108,750   4,045,846   311,413   19,842,205  
Paula A. Johnson, Executive     2015     640,512         1,802,647     472,884     1,019,055     592,646     71,233     4,598,977  
Vice President and General     2014     596,676         1,634,565     371,420     590,709     879,304     76,683     4,149,357  
Counsel     2013     501,105         1,671,395     201,240     732,865     280,204     75,173     3,461,982  
Greg G. Maxwell, Executive   2015   790,512     2,237,846   678,240