DEF 14A 1 d884853ddef14a.htm DEFINITIVE PROXY STATEMENT Definitive Proxy Statement
Table of Contents

 

 

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                               Filed by a Party other than the Registrant  

Check the appropriate box:

 

Preliminary Proxy Statement

 

Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

 

Definitive Proxy Statement

 

Definitive Additional Materials

 

Soliciting Material Pursuant to § 240.14a-12

Hess Corporation

(Name of Registrant as Specified in Its Charter)

 

    

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

Payment of Filing Fee (Check the appropriate box):

 

No fee required.

 

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

 

  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:

 

      

 

 

Fee paid previously with preliminary materials.

 

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

 

  1)

Amount Previously Paid:

 

      

 

  2)

Form, Schedule or Registration Statement No.:

 

      

 

  3)

Filing Party:

 

      

 

  4)

Date Filed:

 

      

 

 

 

 


Table of Contents

LOGO


Table of Contents

LOGO

HESS CORPORATION

April 24, 2020

Dear Stockholder:

The world has been battling a global pandemic and the danger it poses to society. Our first priority in this crisis is the safety of our workforce and the communities where we operate. A multidisciplinary Hess emergency response team has been overseeing our plans and precautions to reduce the risks of the coronavirus (COVID-19) in our work environment based on recommendations by public health agencies and government directives. The COVID-19 outbreak has also been severely impacting demand for oil. At the same time, an oil price war has been flooding the markets, further pushing down crude oil prices to historic lows.

In response to this sharp decline in oil prices, our focus is on preserving cash and protecting our world class investment opportunity in Guyana. On March 17, 2020, we announced a revised $2.2 billion capital and exploratory budget for 2020, a 27% reduction from the previous budget of $3.0 billion, which primarily will be achieved by shifting from a six rig program to one rig in the Bakken. In addition, we announced a new $1.0 billion, three year term loan agreement.

Our company’s long term strategy has positioned us to manage through this low price environment. In 2020, approximately 80% of our oil production is hedged with put options for 130,000 barrels a day at $55 per barrel West Texas Intermediate and 20,000 barrels a day at $60 per barrel Brent. We entered 2020 with more than $1.5 billion in cash and cash equivalents on the balance sheet and have a $3.5 billion undrawn revolving credit facility and no material debt maturities until 2027.

The majority of our revised 2020 capital budget is directed to Guyana and the Bakken – two of the highest return investment opportunities in our industry. With Guyana as our growth engine and Malaysia, the deepwater Gulf of Mexico and now the Bakken as our cash engines, our portfolio is positioned to deliver increasing and strong financial returns and industry leading cash flow growth when oil markets recover.

Fundamental to our strategy is our position in Guyana, where Hess has a 30% interest in the Stabroek Block and ExxonMobil is the operator. On December 20, 2019, the Liza Phase 1 development achieved first production and is ramping up to reach its full capacity of 120,000 gross barrels of oil per day. The second phase of Liza development, which will have a production capacity of 220,000 gross barrels of oil per day, is expected to start production in 2022. A third development at the Payara Field is planned with a production capacity of 220,000 gross barrels of oil per day. Pending government approval to proceed, some 2020 activities at Payara are now being deferred, creating a potential delay in production startup of 6 to 12 months.

With regard to exploration, 2019 was an outstanding year with five new discoveries on the Stabroek Block in Guyana, which underpinned an increase of over 30% to the estimate of gross discovered recoverable resources for the block from the previous estimate, with multibillion barrels of exploration potential remaining. An oil discovery at the Uaru well in January 2020 marked the 16th discovery on the block. Resources associated with the Uaru discovery are incremental to the new estimate.

In the Bakken, Hess’ largest operated asset, our transition to plug and perf completions from our previous 60 stage sliding sleeve design was successful in delivering the expected 15% uplift in 180 day cumulative initial production rates. At the same time, we reduced our plug and perf drilling and completion costs to $6.8 million per well in 2019, down from $7.6 million in 2018.

Proved reserves at the end of 2019 stood at 1.197 billion barrels of oil equivalent. Net proved reserve additions and revisions in 2019 totaled 121 million barrels of oil equivalent, including negative net price revisions of 35 million barrels of oil equivalent, replacing 104% of 2019 production.


Table of Contents

Full year net production was 290,000 barrels of oil equivalent per day, excluding Libya – 17% higher than the 248,000 barrels of oil equivalent per day (pro forma for asset sales) produced in 2018. In the Bakken, 2019 net production averaged 152,000 barrels of oil equivalent per day, well above our original guidance range of 135,000 to 145,000 barrels of oil equivalent per day and nearly 30% higher than 2018.

With strong execution throughout our portfolio, we were able to reduce our full year 2019 capital and exploratory expenditures to $2.74 billion, down approximately $150 million from our original guidance. During the fourth quarter, Hess Midstream Partners completed a transaction to convert from a master limited partnership into an “Up-C” structure and acquire Hess Infrastructure Partners. As consideration for the transaction, Hess Corporation received approximately $300 million in cash and owns 47% of Hess Midstream LP on a consolidated basis.

Sustainability

As we continue to execute our strategy, our company will be guided by our longstanding commitment to sustainability. We are gratified to have been recognized once again in 2019 by a number of third-party organizations for the quality of our environmental, social and governance performance and disclosure.

We recognize that climate change is one of the greatest scientific challenges of the 21st century that must be addressed while also providing the safe, affordable and reliable energy necessary to ensure human welfare and global economic development in the context of the United Nations (U.N.) Sustainable Development Goals. Our Board is climate change literate and actively engaged in overseeing Hess’ sustainability practices. We are committed to transparency – our strategy and reporting are closely aligned with the recommendations of the Task Force on Climate-Related Financial Disclosures (TCFD).

We have tested the robustness of Hess’ portfolio under the supply and demand scenarios from the International Energy Agency (IEA), including the ambitious greenhouse gas (GHG) emission reductions assumed within the IEA’s Sustainable Development Scenario. Our strategy is consistent with the energy transition needed to achieve the Sustainable Development Scenario, where oil and gas will continue to be essential to meeting the world’s growing energy demand. Our current asset portfolio is resilient, and our pipeline of forward investments is projected to provide strong financial returns under the Sustainable Development Scenario.

Our business planning includes actions we will undertake to continue reducing our carbon footprint in keeping with the findings of the U.N. Intergovernmental Panel on Climate Change and the aim of the Paris Agreement to limit global average temperature rise to well below 2° C. Our Board of Directors and senior leadership have set aggressive targets for GHG emission reductions, and over the past 12 years our company has reduced our absolute Scope 1 and 2 GHG emissions by approximately 60% on an equity basis. In addition, we are investing in technological and scientific advances designed to reduce, capture and store carbon emissions, including groundbreaking work being conducted by the Salk Institute to develop plants with larger root systems that according to the Salk Institute are capable of absorbing and storing potentially billions of tons of carbon per year from the atmosphere.

Commitment to Shareholders

Our industry will play an important role in helping the world economy recover from the effects of the pandemic. We are confident in our ability to play our part by executing our strategy to deliver long term value and increase financial returns. We are proud of our company’s 2019 performance and grateful for the guidance of our Directors, the dedication of our employees and the continued support of our shareholders.

You are cordially invited to participate in our annual meeting of stockholders, which will be held as a virtual meeting, on Wednesday, June 3, 2020 at 9:00 a.m., Central Time. We look forward to sharing more about our company at our annual meeting.

Sincerely,

 

LOGO

 

Independent Chairman

of the Board of Directors

  

 

LOGO

 

Chief Executive Officer


Table of Contents

TABLE OF CONTENTS

 

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

     i  

PROXY SUMMARY

     ii  

2020 Annual Meeting Information

     ii  

Voting Matters

     ii  

How to Vote

     ii  

Our Purpose: To Be The World’s Most Trusted Energy Partner

     iii  

Corporate Culture and Human Capital Management

     iii  

Strategy of Value Creation

     iv  

Corporate Performance Highlights

     iv  

Commitment to Sustainability

     v  

Environmental, Social and Governance Disclosure and Transparency

     vi  

Strong Governance Practices

     vi  

Director Nominees

     vii  

Executive Compensation Tied to Company Performance

 

    

 

viii

 

 

 

PROXY STATEMENT

     1  

PROPOSAL 1:    ELECTION OF DIRECTORS

     2  

Majority Voting Standard

     2  

Nominees for Director

     2  

Director Nominations

     6  

Board Evaluation

     7  

Board Leadership Structure / Independent Chairman

     8  

Director and Nominee Independence

     8  

Meeting Attendance

     8  

Corporate Governance Guidelines

     9  

Stockholder and Interested Party Communications

     9  

Related Party Transactions

     9  

Committees of the Board

     10  

Report of the Audit Committee

     12  

Stockholder Engagement

     14  

Risk Oversight

     14  

Ownership of Voting Securities by Certain Beneficial Owners

     16  

Ownership of Equity Securities by Management

     18  

Director Compensation

 

    

 

19

 

 

 

 

EXECUTIVE COMPENSATION

     20  

Compensation Discussion and Analysis

     20  

A Special Note Regarding the COVID-19 Pandemic

     20  

Executive Summary

     21  

Compensation Program Key Practices Promote Alignment with Stockholder Interests

     25  

Compensation Objective and Philosophy

     25  

2019 Total Direct Compensation

     26  

Peer Group

     33  

Process for Determining Compensation and Role
of Compensation Consultants

     33  

Additional Information

     33  

Compensation Committee Report

     36  

Compensation Committee Interlocks and
Insider Participation

     36  

Summary Compensation Table

     37  

Grants of Plan-Based Awards

     38  

Outstanding Equity Awards at Fiscal Year End

     39  

Option Exercises and Stock Vested

     41  

Pension Benefits

     41  

Nonqualified Deferred Compensation

     42  

Employment Agreements and Termination Agreements

     42  

Potential Payments upon Termination or
Change in Control

     43  

CEO Pay Ratio

     46  

Compensation and Risk

 

    

 

47

 

 

 

PROPOSAL 2:     ADVISORY VOTE TO APPROVE THE COMPENSATION OF THE NAMED EXECUTIVE OFFICERS

     48  

PROPOSAL 3:     RATIFICATION OF THE SELECTION OF ERNST & YOUNG LLP AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS

     49  

QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING AND VOTING

     51  

ADDITIONAL INFORMATION

     56  

OTHER MATTERS

     57  
 


Table of Contents

Cautionary Note Regarding Forward-Looking Statements

 

This document contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Words such as “anticipate,” “estimate,” “expect,” “forecast,” “guidance,” “could,” “may,” “should,” “would,” “believe,” “intend,” “project,” “plan,” “predict,” “will,” “target” and similar expressions identify forward-looking statements, which are not historical in nature. Our forward-looking statements may include, without limitation: our future financial and operational results; our business strategy; estimates of our crude oil and natural gas reserves and levels of production; benchmark prices of crude oil, natural gas liquids and natural gas and our associated realized price differentials; our projected budget and capital and exploratory expenditures; our plan to syndicate the $1 billion term loan; expected timing and completion of our development projects; and future economic and market conditions in the oil and gas industry.

Forward-looking statements are based on our current understanding, assessments, estimates and projections of relevant factors and reasonable assumptions about the future. Forward-looking statements are subject to certain known and unknown risks and uncertainties that could cause actual results to differ materially from our historical experience and our current projections or expectations of future results expressed or implied by these forward-looking statements. The following important factors could cause actual results to differ materially from those in our forward-looking statements:

 

   

fluctuations in market prices of crude oil, natural gas liquids and natural gas and competition in the oil and gas exploration and production industry generally;

 

   

potential failures or delays in increasing oil and gas reserves, including as a result of unsuccessful exploration activity, drilling risks and unforeseen reservoir conditions;

 

   

potential failures or delays in achieving expected production levels given inherent uncertainties in estimating quantities of proved reserves;

 

   

potential disruption or interruption of our operations due to catastrophic events, such as accidents, severe weather, geological events, shortages of skilled labor or cyber-attacks;

 

   

reduced demand for our products, including the impact of competing or alternative energy products and political conditions and events, such as instability, changes in governments, armed conflict, economic sanctions and outbreaks of infectious diseases, including COVID-19;

 

   

changes in tax, property, contract and other laws, regulations and governmental actions applicable to our business, including legislative and regulatory initiatives regarding environmental concerns, such as measures to limit greenhouse gas emissions and well fracking bans;

 

   

the ability of our contractual counterparties to satisfy their obligations to us, including the operation of joint ventures under which we may not control;

 

   

unexpected changes in technical requirements for constructing, modifying or operating exploration and production facilities and/or the inability to timely obtain or maintain necessary permits;

 

   

availability and costs of employees and other personnel, drilling rigs, equipment, supplies and other required services;

 

   

any limitations on our access to capital or increase in our cost of capital, including our ability to fully syndicate the term loan, as a result of weakness in the oil and gas industry or negative outcomes within commodity and financial markets;

 

   

liability resulting from litigation, including heightened risks associated with being a general partner of Hess Midstream LP; and

 

   

other factors described in Item 1A—Risk Factors in our Annual Report on Form 10-K and any additional risks described in our other filings with the Securities and Exchange Commission.

As and when made, we believe that our forward-looking statements are reasonable. However, given these risks and uncertainties, caution should be taken not to place undue reliance on any such forward-looking statements since such statements speak only as of the date when made and there can be no assurance that such forward-looking statements will occur and actual results may differ materially from those contained in any forward-looking statement we make. Except as required by law, we undertake no obligation to publicly update or revise any forward-looking statements, whether because of new information, future events or otherwise.


Table of Contents

LOGO

HESS CORPORATION

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

Wednesday, June 3, 2020, at 9:00 a.m.

To the Stockholders:

The annual meeting of stockholders of Hess Corporation will be held on Wednesday, June 3, 2020, at 9:00 a.m., Central Time, for the following purposes:

 

  1.

To elect ten directors for the ensuing one-year term (pages 2 to 19 of the accompanying proxy statement);

 

  2.

To conduct a non-binding advisory vote to approve the compensation of our named executive officers (page 48);

 

  3.

To act upon the ratification of the selection by the audit committee of Ernst & Young LLP as our independent registered public accountants (pages 49-50); and

 

  4.

To transact any other business which properly may be brought before the meeting.

Due to the health impact of COVID-19 and in order to protect our stockholders, employees and others and align with relevant gathering and travel restrictions, the annual meeting will be held as a virtual only meeting of stockholders. If you are a stockholder of record at the close of business on April 9, 2020, the record date for the annual meeting, you will be able to attend the annual meeting as well as submit questions and vote during the live webcast of the meeting by visiting www.virtualshareholdermeeting.com/HES2020. You will not be able to attend the annual meeting in person. Additional information on how to participate in the virtual annual meeting can be found on page 51. This does not represent a change in our stockholder engagement philosophy, and we intend to return to an in-person meeting next year.

By order of the board of directors,

Timothy B. Goodell

Secretary

April 24, 2020

YOUR VOTE IS IMPORTANT

 

You are urged to date, sign and promptly return the proxy card in the envelope provided to you, or to use the telephone or internet method of voting described in your proxy card, so that if you are unable to attend the meeting and vote electronically your shares can be voted.

Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting of Stockholders to be held on June 3, 2020:

Hess Corporation’s notice of meeting, proxy statement and 2019 annual report are available at www.proxyvote.com.

The attached proxy statement is dated April 24, 2020 and is first being mailed to stockholders on or about April 24, 2020.


Table of Contents

PROXY SUMMARY

The following section is only a summary of key elements of the proxy statement. This summary is intended to assist you in reviewing the proxy statement in advance of the annual meeting of stockholders. It does not contain all of the information you should consider, and we encourage you to read this entire proxy statement before submitting your vote.

2020 Annual Meeting Information

 

 

 

Date & Time

Wednesday, June 3, 2020

at 9:00 a.m., Central Time

      

 

Place

Online at www.virtualshareholdermeeting.com/
HES2020

      

 

Record Date

April 9, 2020

Voting Matters

 

 

Proposals

   Board Vote
Recommendation
     Page
Reference
 
 1.   

Election of ten director nominees for one-year term expiring in 2021

   ü

FOR

each nominee

       2  
 2.   

 

Advisory approval of the compensation of our named executive officers

 

   ü

FOR

       48  
 3.   

 

Ratification of the selection of Ernst & Young LLP as our independent registered public accountants for the year ending December 31, 2020

 

   ü

FOR

    

 

 

 

 

49

 

 

 

 

Your vote is important to us. Please exercise your right to vote.

How to Vote

 

 

LOGO

  

Over the Internet

 

    

LOGO

  

By Telephone

 

  

Visit the website listed on your Notice of Internet Availability of Proxy Materials or proxy card or voting instruction form.

 

     

Call the toll-free telephone number listed on your proxy card or voting instruction form.

 

LOGO

  

By Mail

 

    

LOGO

  

In Person at the Meeting

 

  

Follow the instructions on your proxy card or voting instruction form.

     

Stockholders are invited to attend the virtual annual meeting and vote electronically.

 

To participate, you will need the 16-digit control number included on your Notice of Internet Availability of Proxy Materials or on your proxy card (or on your voting instruction form or as provided by your bank, broker or other nominee in the case of beneficial holders). See page 53 for more information.

 

LOGO    2020 PROXY STATEMENT    ii


Table of Contents

Proxy Summary

 

 

Our Purpose: To Be the World’s Most Trusted Energy Partner

 

Hess Corporation is a global Exploration and Production (“E&P”) company engaged in the exploration, development, production, transportation, purchase and sale of crude oil, natural gas liquids, and natural gas.

As a leading independent energy company, our purpose is to be the world’s most trusted energy partner through our strong company values and focus on long-term strategy. We are committed to developing oil and gas resources in an environmentally responsible and sustainable manner. We are focused on building a company that makes a positive impact for all stakeholders: our investors, employees, partners and the communities in which we do business.

Hess Values

Our company values set the framework and establish the ethical standards by which we conduct our business.

 

 

LOGO   

 

•  Integrity: We are committed to the highest level of integrity in all our relationships.

 

•  People: We are committed to attracting, retaining and energizing the best people by investing in their professional development and providing them with challenging and rewarding opportunities for personal growth.

 

•  Performance: We are committed to a culture of performance that demands and rewards outstanding results throughout our business.

 

•  Value Creation: We are committed to creating stockholder value based on sustained financial performance and long-term profitable growth.

 

•  Social Responsibility: We are committed to meeting the highest standards of corporate citizenship by protecting the health and safety of our employees, safeguarding the environment and creating a long-lasting, positive impact on the communities where we do business.

 

•  Independent Spirit: We are committed to preserving the special qualities and unique personality that have made us a successful independent enterprise.

Corporate Culture and Human Capital Management

 

We are committed to having an engaged, diverse and inclusive workplace that fosters learning, development and innovation. Our leadership team conducts a robust program of employee engagement and we have invested in the personal and professional development of our employees through programs that focus on leadership, early career and diversity, as well as mentorship programs and employee resource groups. Our leadership team holds regular employee town halls and conducts annual surveys on employee understanding of and engagement in strategic business priorities. We monitor a variety of metrics to ensure the health of our company culture and alignment with our values and strategic business priorities. Employee turnover, diversity and inclusion and leadership development metrics, along with qualitative data are discussed at the compensation and management development committee regularly throughout the year and shared with our board of directors. Directors also have opportunities throughout the year to meet with employees and visit our assets and offices.

 

iii      2020 PROXY STATEMENT   

LOGO


Table of Contents

Proxy Summary

 

 

Strategy of Value Creation

 

Our strategy is to deliver capital efficient growth in our resources and production – investing in the highest return projects to move down the cost curve and be profitable in a lower price environment with increasing cash generation and returns to stockholders. Consistent with this strategy, we divested higher-cost, mature assets over the last several years to build a balanced portfolio, and in 2019 we achieved first production from the Liza Field offshore Guyana. We are confident in our company’s strategy, which has positioned us to manage through this low price environment to deliver long term value to our stockholders.

 

 

LOGO

Corporate Performance Highlights

 

In 2019, we had exceptional operational performance and exploration success, achieving a number of important milestones and delivering higher production while lowering capital and exploratory expenses compared to guidance.

 

Strategy & Operations

 

Liza Phase 1

 

commenced production offshore Guyana in December 2019

 

 

      

  

$150 million

 

under capital budget while achieving production targets and exploration success

 

 

      

  

290,000 boepd

 

Net oil and gas production, excluding Libya, a 17% increase from 2018

 

Finance and Stockholder Returns

 

$5.4 billion

 

total liquidity at 12/31/2019, excluding midstream and including committed credit facilities

 

 

      

  

Ranked #1

 

during 2019 based on total shareholder return compared to peers using performance share unit methodology

 

      

  

150,000 bopd

 

hedged for 2020, including 130,000 bopd with $55 per barrel WTI put options and 20,000 bopd with $60 per barrel Brent put options

 

Exploration and Reserves

 

5

 

new discoveries during 2019 on the Stabroek Block offshore Guyana

 

 

      

  

60% Increase

 

in estimated gross discovered recoverable resources for the Stabroek Block since year-end 2018

 

 

      

  

>100%

 

reserve replacement for 2019

 

LOGO    2020 PROXY STATEMENT    iv


Table of Contents

Proxy Summary

 

 

Commitment to Sustainability

 

Hess is committed to helping meet the world’s growing energy needs in a safe, environmentally responsible, socially sensitive and profitable way. Our purpose is to be the world’s most trusted energy partner and sustainability is fundamental to our long-term strategy. We believe our focus on sustainability creates value for our stockholders and helps position us to continuously improve business performance. Our strategy focuses our efforts on the areas most significant to our business, including health and safety, climate change, community and stakeholder engagement, human rights, and transparency.

Climate Change Strategy

Hess has established a climate change strategy that is closely aligned with the recommendations of the Financial Stability Board’s Task Force on Climate-Related Financial Disclosures (“TCFD”) to guide our initiatives to reduce greenhouse gas (“GHG”) emissions, invest in carbon-efficient technologies and innovations, and ensure our business strategy accounts for potential low-demand scenarios. Our climate change strategy ties to our broader business strategy, strategic planning and capital allocation decisions, including applying a theoretical price of carbon in our economic evaluations for significant new projects and conducting annual scenario planning exercises which incorporate the International Energy Agency’s scenarios for future energy demand and carbon pricing. These efforts help position Hess for the long term as a low-cost producer providing the energy necessary to ensure human welfare and global economic development, even in a low-carbon future.

Board Oversight of Sustainability Practices

The board is actively engaged in overseeing Hess’ sustainability practices and works alongside senior management to ensure focus on these topics. During 2019, as a reflection of the board’s continued commitment to developing oil and gas resources in an environmentally responsible and sustainable manner, the board elevated the environmental, health and safety subcommittee of the audit committee to a stand-alone committee of the board. The environmental, health and safety committee has specific oversight responsibility and makes recommendations to the full board of directors with respect to Hess’ policies, positions and systems for environmental, health, safety and social responsibility, compliance and risk management. Our board is climate change literate, and these and other environmental risks are discussed at the board level and taken into account in strategic decisions. Furthermore, the board’s compensation and management development committee has tied executive compensation to advancing the environmental, health and safety goals of the company.

 

Safety

 

     

Climate Change & Environment

 

     

Social Responsibility

 

 

 ü   Reduced our severe safety incident rate by 36% since 2014

 

 ü   Achieved a 67% reduction in process safety incidents since 2014

 

 ü   Working closely with employees and contractors to reinforce a shared workforce goal of zero safety incidents

     

 

ü  Reduced absolute Scope 1 and 2 greenhouse gas emissions by ~60% on an equity basis over past 12 years

 

ü   Contributing to the Salk Institute’s development of plants that, according to the Salk Institute, are capable of absorbing and storing potentially billions of tons of atmospheric carbon per year

 

ü  Board evaluates sustainability risks and carbon asset risk scenarios in making strategic decisions

 

     

 

ü  Guided by commitments to international voluntary initiatives including the U.N. Global Compact

 

ü  Invest in community programs with a focus on education, workforce development and environmental stewardship

 

ü  Committed to having a positive impact on the communities where we operate

 

 

v      2020 PROXY STATEMENT   

LOGO


Table of Contents

Proxy Summary

 

 

Environmental, Social and Governance Disclosure and Transparency

 

Hess is committed to transparency. The company’s disclosures, including our annual Sustainability Report, are informed by the TCFD and the oil and gas industry metrics published by the Sustainability Accounting Standards Board (“SASB”). Our website www.hess.com contains information on our environmental and social policies and programs. Hess is recognized as a leader in environmental, social and governance disclosure and transparency:

 

LOGO    LOGO    LOGO    LOGO

11 consecutive years

Leadership status

  

10 consecutive years

on North America Index

  

10 consecutive years

on USA ESG Leaders Index

   7 consecutive years on U.S Index
LOGO    LOGO    LOGO    LOGO

No. 1 oil & gas company

12 consecutive years on list

  

Only U.S.

oil & gas company

   Oil & gas top performer    1 of only 5 oil & gas companies on list

Strong Governance Practices

 

 

 

  ü    

Independent directors (9 of 10 nominees)

 

  ü    

Independent chairman

 

  ü    

Over 75% of the board refreshed since 2013

 

  ü    

Annual board and committee evaluations

 

  ü    

Stockholder proxy access

 

  ü    

Annual election of directors

 

  ü    

Strong risk-oversight culture

 

  ü     No poison pill
  ü    

Stock ownership policy for executives and directors

 

  ü    

Majority vote for director elections

 

  ü    

Annual CEO performance evaluation led by the board

 

  ü    

Independent board committees, including two with female leadership

 

  ü     Engagement with stockholders representing approximately 70% of outstanding shares
 

Risk Oversight

The board of directors has oversight of the company’s risk management policies with an emphasis on understanding the key enterprise risks affecting the company’s business and the ways in which the company attempts to prudently mitigate such risks, to the extent reasonably practicable and consistent with the company’s long-term strategies. Periodically, the chief risk officer presents a comprehensive review of the company’s enterprise levels risks, the status of the enterprise risk program and risk management strategies utilized by the company under its corporate risk policy to the audit committee, which has been delegated primary responsibility for oversight of the company’s risk management practices. The audit committee and the board will also receive updates at meetings during the year on any particular matters relating to specific risks that management believes needs to be brought to the attention of the committee or the board. Additionally, each of the board’s committees is assigned with overseeing risk management specific to their scope of responsibilities.

 

LOGO    2020 PROXY STATEMENT    vi


Table of Contents

Proxy Summary

 

 

Director Nominees

 

 

    

Age

 

    

Director

Since

 

   

Committee Memberships

   

Audit

 

 

Compensation**

 

 

Governance

 

 

EHS

 

Terrence J. Checki*

Former EVP, Federal Reserve Bank of NY

 

  

 

 

 

 

74

 

 

 

 

  

 

 

 

 

2014

 

 

 

 

 

 

Chair

 

 

 

 

 

 

 

 

 

Leonard S. Coleman, Jr.*

Former President of the National League of Major League Baseball; Former Commissioner of the New Jersey Department of Energy

 

  

 

 

 

 

70

 

 

 

 

  

 

 

 

 

2016

 

 

 

 

     

 

 

 

 

 

 

Joaquin Duato*

Vice Chairman of the Executive Committee of Johnson & Johnson

 

  

 

 

 

 

58

 

 

 

 

  

 

 

 

 

2019

 

 

 

 

       

 

John B. Hess

Chief Executive Officer

 

  

 

 

 

 

65

 

 

 

 

  

 

 

 

 

1978

 

 

 

 

       

 

Edith E. Holiday*

Corporate Director and Trustee

 

  

 

 

 

 

67

 

 

 

 

  

 

 

 

 

1993

 

 

 

 

     

 

Chair

 

 

 

Marc S. Lipschultz*

Co-founder and President of Owl Rock Capital Partners and Co-Chief Investment Officer of Owl Rock Capital Advisors

 

  

 

 

 

 

51

 

 

 

 

  

 

 

 

 

2016

 

 

 

 

   

 

 

   

 

David McManus*

Former EVP, Pioneer Natural Resources

 

  

 

 

 

 

66

 

 

 

 

  

 

 

 

 

2013

 

 

 

 

   

 

 

   

 

 

 

Kevin O. Meyers*

Former SVP of Americas E&P, ConocoPhillips

 

  

 

 

 

 

66

 

 

 

 

  

 

 

 

 

2013

 

 

 

 

 

 

 

     

 

Chair

 

 

James H. Quigley*

Independent Chairman of the Board

 

  

 

 

 

 

67

 

 

 

 

  

 

 

 

 

2013

 

 

 

 

   

 

 

   

 

William G. Schrader*

Former COO, TNK-BP Russia

 

  

 

 

 

 

61

 

 

 

 

  

 

 

 

 

2013

 

 

 

 

 

 

 

         

 

 

*

 Independent Director

**

 Risa Lavizzo-Mourey, the current chair of the compensation and management development committee, will not stand for election at the annual meeting

Independent Director Nominee Characteristics

When evaluating nominees for our board of directors, the corporate governance and nominating committee considers diversity of viewpoints, backgrounds and experience, including diversity of race, gender, ethnicity, age, national origin and cultural background to ensure effective oversight of our strategy and culture and effective representation of the interests of all stockholders.

 

LOGO    LOGO    LOGO

 

vii      2020 PROXY STATEMENT   

LOGO


Table of Contents

Proxy Summary

 

 

Executive Compensation Tied to Company Performance

 

Compensation Objective

We strive to attract and retain talented executives and motivate them to achieve our business goals through a combination of cash and stock-based compensation, which includes a base salary, annual incentive, and long-term incentives. The board oversees our compensation program and ensures that we implement our objectives by setting short-term targets that lead to long-term success and long-term targets based on total shareholder return, which has proven to be the most effective measure of long-term value creation. 2019 was a year of strong execution and operational performance, resulting in above-target payout of our annual incentive plan (“AIP”) and maximum payout of our 2017-2019 performance share units (“PSUs”).

In early 2020, COVID-19, along with its economic and oil price impact, has led to significant declines in the market value of our stock and that of our peers in the oil and gas sector and a challenged business environment. Hess’ executive compensation programs are highly sensitive to shareholder returns and our operational performance. However, given the dynamic nature of the external market, the compensation and management development committee retains the discretion to make appropriate adjustments to 2020 executive compensation to ensure the continued alignment of pay with performance in the context of an extraordinary market environment.

Key Compensation Actions

We engage with our stockholders on a regular basis to ensure we fully understand the factors they consider to be most important when evaluating our company. The purpose of our stockholder engagement program is to discuss and solicit stockholder views on our strategy, business plan, EHS matters, human capital management, corporate governance and other matters of concern, including executive compensation.

Over the last several years, the compensation and management development committee of our board of directors implemented a number of changes to our compensation program to align with the low oil price environment, our portfolio changes and our stockholders’ interests:

 

 

2014

•  Increased performance- contingent component of NEOs’ LTI awards from 50% to 80%;

•  Added CROCE as an AIP performance metric

   

 

2015

•  Eliminated restricted stock from CEO’s LTI mix, making 100% of CEO LTI performance-contingent

   

 

2016

•  Applied negative discretion on AIP payouts of 26%;

•  Reduced grant date values of LTI awards for NEOs by 15% from 2015 levels

   

 

2017

•  Reduced the size of CEO’s LTI grant by 10% from target

   

 

2018

•  Reduced CEO LTI target award by $2 million (-21%);

•  Added EBITDAX as an AIP performance metric

In light of such changes, and based on on-going investor feedback, the committee took the following compensation actions in 2019, which are generally consistent with 2018 compensation actions, and determined 2019 payout results:

 

  Component

   2019 Compensation Action         Rationale     

Salary

  

 

NEO salaries held flat

       

Reviewed annually and considers: external market, internal equity, compensation philosophy, job responsibilities, experience level, and individual performance

  

AIP Targets

  

 

NEO AIP target value held flat

    

2019 LTI Grants

  

 

NEO LTI target value held flat

 

    
Component    Performance Result          Basis      

2019 AIP Enterprise  Payout        

   145.8%        

Exceptional year operationally resulted in high final enterprise performance results of annual goals, as described on page 29

    

 

2017-19 PSU

Payout

  

200%

       

Final 3 year relative total shareholder return (“TSR”) versus peers; Hess ranked second among peers and far ahead of the remaining 10 peers

    

 

 

LOGO    2020 PROXY STATEMENT    viii


Table of Contents

Proxy Summary

 

 

Compensation Actions in 2020. In early 2020, the committee approved the addition of the S&P 500 Total Return Index as a comparator for evaluating performance of the 2020 PSU awards. The inclusion of the S&P 500 Total Return Index extends the comparator group beyond industry peers and measures the company’s performance against the broader market. The committee also removed Chesapeake Energy Corporation from the company’s peer group due to the substantial decrease in its market capitalization and its business focus no longer being comparable to the company. The committee believes these two changes further align executive pay with long-term stockholder interests.

Corporate Performance

In 2019, we continued the exceptional operational performance and exploration success at our key assets in Guyana and the Bakken to achieve a number of important milestones and deliver higher production and lower capital and exploratory expenditures than guidance. The enterprise performance metrics of our annual incentive program are designed to reward management for progress made against measurable goals that align with our overall company strategy.

Our PSUs are tied to relative TSR to effectively measure our performance compared to peers. Our 1-year and 3-year TSR as of December 31, 2019 were ranked first and second among peers, respectively. Our ability to navigate the low oil price environment during the last several years has resulted in our TSR far exceeding our peers, as indicated by our 1-year and 3-year TSR performance as of December 31, 2019.

 

LOGO    LOGO

Compensation Program Key Practices Promote Alignment with Stockholder Interests

 

What We Do

 

  ü

 

Directly link pay to performance outcomes, operational results and stockholder returns

  ü

 

Engage in ongoing dialogue with stockholders to incorporate feedback into our compensation programs

  ü

 

Target total direct compensation (base salary / annual incentive / long-term incentives) within a competitive range of market median

  ü

 

Use a structured approach to CEO performance evaluation and related compensation decisions

  ü

 

Maintain a cap on CEO incentive compensation payments

  ü

 

Emphasize a culture of safety (a weighted metric in the AIP for all employees)

  ü

 

Maintain stock ownership guidelines for senior executives

  ü

 

Conduct annual CEO performance evaluation led by the board

  ü

 

Design compensation plans with provisions to mitigate undue risk

  ü

 

Maintain double-trigger change-in-control severance benefits

  ü

 

Maintain a compensation clawback policy, which includes recoupment and forfeiture provisions

  ü

 

Have an anti-hedging policy and an anti-pledging policy for all executives

  ü

 

Employ best-practice share counting and review share utilization annually

  ü

 

Provide de minimis perquisites for executives

  ü

 

Offer executives the same health and welfare benefit and savings plans as other salaried employees

  ü

 

Devote significant time to management succession, corporate culture and leadership development efforts

  ü

 

Retain an independent compensation consultant to advise the committee

 

 

What We Don’t Do

 

 

  LOGO

 

 

No employment contracts for NEOs

 

  LOGO

 

No payment of dividends or dividend equivalents on unearned restricted stock or PSUs

  LOGO

 

No excise tax gross-ups in new change-in-control agreements since 2010

  LOGO

 

No re-pricing of underwater stock options without stockholder approval

  LOGO

 

No excessive severance or change-in-control benefits

 

 

 

ix      2020 PROXY STATEMENT   

LOGO


Table of Contents

PROXY STATEMENT

The enclosed proxy is solicited by the board of directors of Hess Corporation for use at the annual meeting of stockholders to be held on Wednesday, June 3, 2020, at 9:00 a.m. Central Time virtually, via live webcast. You will be able to attend the annual meeting as well as submit questions and vote during the live webcast of the meeting by visiting www.virtualshareholdermeeting.com/HES2020.

On or about April 24, 2020, we commenced mailing this proxy statement, the notice of annual meeting and the proxy card to stockholders. Holders of record of common stock of the company at the close of business on April 9, 2020 will be entitled to vote at the annual meeting. Each share of common stock will be entitled to one vote. As of April 9, 2020, there were 307,143,993 shares of common stock outstanding and entitled to vote at the annual meeting. There are no other voting securities of the company outstanding. A majority of the outstanding shares of common stock, present in person or represented by proxy, will constitute a quorum at the annual meeting. Abstentions and broker non-votes will be counted as shares present for purposes of determining the presence of a quorum for the transaction of business.

In accordance with Securities and Exchange Commission (“SEC”) rules, we are making our proxy materials available to stockholders over the internet. On or about April 24, 2020, we mailed the Notice of Internet Availability of Proxy Materials to our stockholders (the “Notice”). The Notice contains instructions on how to access this proxy statement and our annual report and submit a proxy over the internet. If you received the Notice by mail, you will not receive a paper copy of the proxy materials unless you request such materials by following the instructions contained in the Notice.

If at the close of business on April 9, 2020 your shares were held in an account at a brokerage firm, bank, dealer, or other similar organization, then you are the beneficial owner of shares held in “street name” and the proxy materials, as applicable, are being forwarded to you by that organization. The organization holding your account is considered the stockholder of record for purposes of voting at the annual meeting. As a beneficial owner, you have the right to direct that organization on how to vote the shares in your account. If that organization is not given specific direction, shares held in the name of that organization may not be voted and will not be considered as present and entitled to vote on any matter to be considered at the annual meeting, except with respect to the ratification of the company’s independent auditors. Brokers are not permitted to vote your shares with respect to Proposal 1, the election of directors, or Proposal 2, the advisory vote on executive compensation, without your instructions as to how to vote. Please instruct your broker how to vote your shares using the voting instruction form provided by your broker so that your vote can be counted.

If you are a stockholder of record, you can vote by using the internet or by calling a toll-free telephone number. Internet and telephone voting information is provided on the proxy card or the Notice. A control number, located on the instruction sheet attached to the proxy card or the Notice, is designated to verify your identity and allow you to vote your shares and confirm that your voting instructions have been recorded properly. If you vote via the internet or by telephone, there is no need to return a signed proxy card. However, you may still vote by proxy by using the proxy card.

Proxies will be voted at the annual meeting in accordance with the specifications you make on the proxy. If you sign the proxy card or submit a proxy by telephone or over the internet and do not specify how your shares are to be voted, your shares will be voted in accordance with the recommendations of the board of directors. For more information, see “Questions and Answers About the Annual Meeting and Voting” beginning on page 51.

 

LOGO    2020 PROXY STATEMENT    1


Table of Contents

PROPOSAL 1: ELECTION OF DIRECTORS

Majority Voting Standard

 

It is intended that proxies will be voted for the nominees set forth below. The company’s by-laws provide for majority voting in uncontested elections of directors, which is the case for the election of directors at the annual meeting. To be elected as a director of the company at the annual meeting, nominees must receive a majority of the votes cast. A majority of votes cast means that the number of shares voted “for” a director’s election exceeds 50% of the number of votes cast with respect to that director’s election. Abstentions and broker non-votes are not counted as votes cast.

If a director is not elected at the annual meeting and no successor has been elected at the annual meeting, the director is required to promptly tender his or her resignation to the board. The corporate governance and nominating committee is then required to make a recommendation to the board as to whether to accept or reject the tendered resignation, or whether other action should be taken. The board will act on the tendered resignation and will publicly disclose its decision and rationale within 90 days following certification of the election results. These procedures are described in full in our by-laws, which may be found on the company’s website at www.hess.com.

It is expected that all candidates will be able to serve. However, if before the annual meeting any nominee in this proxy statement is unable to serve, or for good cause will not serve as a director, the proxy holders will vote the proxies for the remaining nominees and for substitute nominees chosen by the board of directors to fill the vacancy unless the board reduces the number of directors to be elected at the annual meeting.

Nominees for Director

 

The following table presents information as of January 27, 2020 about the nominees for election as directors of the company at the annual meeting, including the specific experience, qualifications, attributes and skills that led the board to conclude that such person should serve as a director. All of the directors on the board are elected for a one-year term expiring in 2021.

 

 

LOGO     

 

 

Terrence J. Checki

 

 

Independent Director

Age: 74

Director Since: 2014

Committees Served: Audit (Chair), Compensation, Governance

Principal Occupation: Former Executive Vice President and Head, Emerging Markets and International Affairs, Federal Reserve Bank of New York. Mr. Checki retired from the Federal Reserve Bank of New York in March 2014.

 

Other Directorships: Director or trustee of various Franklin Templeton funds.

 

Skills and Experience

Mr. Checki brings decades of experience in management, international relations, government and public policy to the Hess board. He has had key roles in the resolution of numerous economic and financial challenges in the U.S. and abroad during his tenure at the Federal Reserve Bank of New York. Mr. Checki currently chairs our audit committee.

 

 

 

LOGO     

 

 

Leonard S. Coleman, Jr.

 

 

Independent Director

Age: 70

Director Since: 2016

Committees Served: Governance, EHS

Principal Occupation: Former President of the National League of Major League Baseball and Former Commissioner of the New Jersey Department of Energy.

 

Other Directorships: Avis Budget Group, Inc., Electronic Arts Inc., and Omnicom Group Inc. Former Director, Aramark, H.J. Heinz Company, Churchill Downs, Inc.

 

Skills and Experience

Mr. Coleman has acquired diverse business experience over his career, including more than a decade of senior management experience in Major League Baseball, significant financial experience through his years of working as a municipal finance banker at Kidder Peabody and extensive government experience, including serving as Commissioner of the New Jersey Department of Energy.

 

2      2020 PROXY STATEMENT   

LOGO


Table of Contents

Proposal 1: Election of Directors + Nominees for Director

 

 

 

LOGO     

 

 

Joaquin Duato

 

 

Independent Director

Age: 57

Director Since: 2019

Committees Served: Not yet appointed

Principal Occupation: Vice Chairman of the Executive Committee, Johnson & Johnson.

 

Skills and Experience

Mr. Duato brings extensive experience overseeing key operational, human capital management and innovation functions. He also provides a unique international perspective to the Hess board as a dual citizen of Spain and the United States with experience living and working on-the-ground on multiple continents. Mr. Duato is responsible for Johnson & Johnson’s pharmaceuticals and consumer sectors, as well as supply chain, information technology, global services and health and wellness functions. He was named to his current role in 2018 after serving as Worldwide Chairman, Pharmaceuticals since 2011. Prior to that, he held executive positions of increasing responsibility in the pharmaceutical sector since joining Johnson & Johnson in 1989.

 

 

 

LOGO     

 

 

 

John B. Hess

 

 

Age: 65

Director Since: 1978

Principal Occupation: Chief Executive Officer of Hess Corporation and Hess Midstream GP LLC, the General Partner of Hess Midstream LP.

 

Other Directorships: Hess Midstream GP LLC and KKR & Co. Inc. Former Director, Dow Chemical Company.

 

Skills and Experience

Mr. Hess has over 40 years of experience with the company. During his career, Mr. Hess has acquired in-depth knowledge of the company’s strategy and operations and the history of the company’s development, and he and his family have had a long-standing commitment to the company.

 

 

 

LOGO     

 

 

Edith E. Holiday

 

 

Independent Director

Age: 67

Director Since: 1993

Committees Served: Governance (Chair)

Principal Occupation: Corporate Director and Trustee. Former Assistant to the President of the United States and Secretary of the Cabinet and Former General Counsel, United States Department of the Treasury.

 

Other Directorships: Canadian National Railway Company, White Mountains Insurance Group Ltd. and Santander Consumer USA. She also serves as a director or trustee of Franklin Templeton mutual funds. Former Director, RTI International and H.J. Heinz Company.

 

Skills and Experience

Ms. Holiday brings deep public policy and governance expertise to the Hess board. The first woman to serve as General Counsel of the Treasury Department, Ms. Holiday possesses strong corporate governance and regulatory expertise, as well as legal and managerial experience in both the private and public sectors. She has also served in a directorship capacity across a diverse range of industries throughout her career. Ms. Holiday currently chairs our corporate governance and nominating committee.

 

 

LOGO    2020 PROXY STATEMENT    3


Table of Contents

Proposal 1: Election of Directors + Nominees for Director

 

 

 

LOGO     

 

 

Marc S. Lipschultz

 

 

Independent Director

Age: 51

Director Since: 2016

Committees Served: Compensation

Principal Occupation: Co-founder and President of Owl Rock Capital Partners and Co-Chief Investment Officer of Owl Rock Capital Advisors. Mr. Lipschultz served as Global Head of Energy and Infrastructure at KKR & Co. LP, from 1995 to 2016 prior to founding Owl Rock.

 

Skills and Experience

Mr. Lipschultz brings significant energy, infrastructure, investment, finance and management experience to the Hess board after two decades at KKR & Co. LP, including as the Global Head of Energy and Infrastructure, as well as his current leadership position at Owl Rock, the investment firm that he co-founded.

 

 

 

LOGO     

 

 

David McManus

 

 

Independent Director

Age: 66

Director Since: 2013

Committees Served: Compensation, EHS

Principal Occupation: Former Executive Vice President and Head of International Operations, Pioneer Natural Resources Co.

 

Other Directorships: FLEX LNG Limited and Costain Group plc. Former Director, Caza Oil & Gas Inc. and Rockhopper Exploration plc.

 

Skills and Experience

Mr. McManus is an experienced international business leader in the energy industry and provides the Hess board with oil and gas project management and commercial expertise.

 

 

 

LOGO     

 

 

Kevin O. Meyers, Ph.D.

 

 

Independent Director

Age: 66

Director Since: 2013

Committees Served: EHS (Chair), Audit

Principal Occupation: Independent Energy Consultant. Former Senior Vice President of E&P for the Americas, ConocoPhillips.

 

Other Directorships: Denbury Resources Inc., Hornbeck Offshore Services, Inc. and Precision Drilling Corporation, Former Director, Bill Barrett Corporation.

 

Skills and Experience

Dr. Meyers has over 30 years of experience in E&P, both domestic and international. Based on this experience, Dr. Meyers brings to the Hess board decades of managing E&P operations in geographies directly relevant to Hess’ focused E&P portfolio. Dr. Meyers currently chairs the environmental, health and safety committee.

 

 

4      2020 PROXY STATEMENT   

LOGO


Table of Contents

Proposal 1: Election of Directors + Nominees for Director

 

 

 

LOGO     

 

 

 

James H. Quigley

 

 

Independent Chair

Age: 67

Director Since: 2013

Committees Served: Compensation

Principal Occupation: Chairman of the Board of Hess Corporation; Former Chief Executive Officer, Deloitte, Touche Tohmatsu Limited.

 

Other Directorships: Former Director, Merrimack Pharmaceuticals Inc. and Wells Fargo & Company.

 

Skills and Experience

Mr. Quigley led Deloitte, Touche Tohmatsu Limited, one of the world’s largest accounting and consulting firms. During his 38 years at Deloitte, he was a trusted consultant on strategic leadership and operating matters to senior management teams of multinational companies across multiple industries. He brings to the Hess board significant leadership and governance experience, on a global scale, and knowledge of financial, tax and regulatory matters that are relevant to Hess’ operations.

 

 

 

LOGO     

 

 

William G. Schrader

 

 

Independent Director

Age: 61

Director Since: 2013

Committees Served: Audit, EHS

Principal Occupation: Former Chief Operating Officer, TNK-BP Russia.

 

Other Directorships: Bahamas Petroleum Company Ltd. (Chairman). Former Director, CHC Group Ltd. and Ophir Energy plc (African oil and gas exploration company).

 

Skills and Experience

Mr. Schrader is an experienced international E&P executive responsible for transforming BP’s significant E&P assets, and brings to the Hess board his experience as a disciplined E&P operator with expertise in production sharing structures, government relations and delivering returns.

 

 

 

LOGO

  

 

The board of directors unanimously recommends that stockholders vote

FOR the election of each of the ten director nominees named above.

 

LOGO    2020 PROXY STATEMENT    5


Table of Contents

Proposal 1: Election of Directors + Director Nominations

 

 

Director Nominations

 

The corporate governance and nominating committee is responsible for recommending to the board qualified candidates for election as directors. In advance of each annual meeting, the committee meets to recommend nominees for election at the annual meeting. From time to time throughout the year, the committee reviews the mix of skills, qualifications and experience of the directors currently on the board and seeks to identify individuals whose skills, qualifications and experience will supplement and contribute to the effectiveness of the board. Members of the committee may from time to time meet with potential candidates.

The corporate governance and nominating committee and the board believe that the board collectively should encompass a broad range of skills, expertise, general industry knowledge and diversity of opinion. New perspectives and ideas are essential to the proper functioning of the board as is the experience and institutional knowledge of longer-tenured directors. The board has undergone significant refreshment over the last several years, replacing over 75% of the board since 2013. Mr. Joaquin Duato was appointed to the board in November 2019 as part of our refreshment process. The average tenure of our independent director nominees is approximately eight years. The corporate governance and nominating committee seeks to ensure that board nominees reflect an appropriate balance of tenure, experience, skills and diversity.

 

In accordance with the company’s corporate governance guidelines approved by the board of directors, nominees are reviewed and recommended based on a variety of criteria including:

 

    personal qualities and characteristics, education, background, accomplishments and reputation in the business community;

 

    current knowledge of the energy industry or industries relevant to the company’s business and relationships with individuals or organizations affecting the domestic and international areas in which the company does business;

 

    ability and willingness to commit adequate time to board and committee matters;
    the fit of the individual’s skills and personality with those of other directors and potential directors in building a board that is effective, collegial and responsive to the needs of the company;  

 

    diversity of viewpoints, background and experience; and  

 

    compatibility with independence and other qualifications established by applicable law and rules.  

 

 

As noted above, among the criteria used to evaluate nominees for the board is diversity of viewpoints, background and experience, including diversity of race, gender, ethnicity, age, national origin and cultural background. The board believes that such diversity provides varied perspectives which promote active and constructive dialogue among board members and between the board and management, resulting in more effective oversight. The board believes this diversity is amply demonstrated in the varied backgrounds, experience, qualifications and skills of the current and proposed members of the board, including board leadership positions. In the board’s executive sessions and in annual performance evaluations conducted by the board and its committees, the board from time to time considers whether the members of the board reflect such diversity and whether such diversity contributes to a constructive and collegial environment.

The corporate governance and nominating committee has retained Russell Reynolds Associates, a director and executive search and recruiting firm, to identify and review potential independent director candidates and assist the committee and the board in assessing the qualifications of candidates. The committee has not paid fees to any other third parties to assist in identifying or evaluating potential nominees. Each of the nominees for election at the 2020 annual meeting were recommended by the non-management directors of the corporate governance and nominating committee, with the input of senior management, the committee’s consultants and advisors.

In addition, the company has adopted a director retirement policy, which provides that no person may be nominated to stand for election or re-election to the board of directors as a non-management director if the election would take place after such person has attained the age of 75, unless otherwise approved by the board. Mr. Chase will not stand for re-election at the annual meeting because he is above the mandatory retirement age established pursuant to the director retirement policy.

 

6      2020 PROXY STATEMENT   

LOGO


Table of Contents

Proposal 1: Election of Directors + Director Nominations

 

 

Stockholder Recommendations and Proxy Access

Stockholders may suggest candidates by writing to the corporate governance and nominating committee, in care of the corporate secretary of the company at the address set forth on page 56. Stockholder suggestions should include a summary of the candidate’s qualifications, the information required by SEC rules for director nominees and contact information for the candidate. Stockholder suggestions should be submitted no later than December 1 for consideration as nominees for election at the next annual meeting and otherwise in accordance with the company’s policy and by-laws. The committee follows the same process of identifying and evaluating nominees recommended by stockholders as that for candidates recommended by any other source.

In 2015, our board adopted a proxy access by-law that permits a stockholder, or group of up to 20 stockholders, owning at least 3% of our outstanding common stock continuously for at least three years to nominate and include in our proxy materials up to the greater of two directors or 20% of our board of directors. Stockholders and nominees must satisfy the requirements set forth in the by-laws in connection with such nominations. We believe that this by-law provision provides meaningful and effective proxy access rights to our stockholders, and balances those benefits against the risk of misuse by stockholders with interests that are not shared by a significant percentage of our stockholders.

Board Evaluation

 

Our board is committed to continuous improvement and recognizes the importance of a rigorous evaluation process to enhance board performance and effectiveness. Our corporate governance and nominating committee oversees the annual performance evaluation of the board and ensures that each of the board’s committees conducts an annual self-evaluation. The chair of the corporate governance and nominating committee also oversees the evaluation of our board chairman.

 

LOGO

Governance Committee Reviews Process Board and Committees Complete Evaluation Governance Committee Reviews Results Board and committee Discussion Feedback Implemented Corporate governance and nominating committee reviews the design and format of the evaluation process. Directors complete written questionnaire. Corporate Secretary summarizes director responses to board and chairman evaluation. Corporate governance and nominating committee chair reviews the results of the board and chairman evaluation with the full board. Feedback informs changes to policies, practices and procedures, as appropriate. Option to request One -on-one calls with the board chairman or the committee chair to provide further feedback. Responses are not attributed to individual directors. Results requiring further consideration are addressed at subsequent board Of committee meetings. Ensure directors have opportunity to provide constructive feedback about board and director performance. Each committee chairperson reviews the results of the committee evaluation with the full board. Each committee conducts annual self evaluation. Summary is shared with the committee.

 

Our board evaluations are designed to solicit input and perspective on various topics, including:

 

    board structure, size and composition, including director skills and experience;

 

    committee structure and allocation of responsibilities;

 

    conduct of meetings, including cadence, length and opportunity for director input and meaningful discussion;

 

    materials and information, including quality, timeliness and relevance;

 

    director orientation and education;

 

    director performance, including attendance, preparation and participation;
    access to management and internal and external experts, resources and support;  

 

    key areas of focus for the board, including strategy, sustainability, crisis management and stockholder engagement;  

 

    committee structure and process, member and chair performance, duties and functions and management support; and  

 

    performance of the board chair, including communication, relationship with management, availability, focus on appropriate issues and inclusiveness.  
 

 

LOGO    2020 PROXY STATEMENT    7


Table of Contents

Proposal 1: Election of Directors + Board Leadership Structure / Independent Chairman

 

 

Board Leadership Structure / Independent Chairman

 

Our by-laws provide separate positions for the chairman of the board and chief executive officer. Mr. Quigley serves as the independent chairman of the board and Mr. Hess serves as CEO and a director of the board.

The board currently believes that having a separate chairman and chief executive officer allows for better alignment of corporate governance with stockholder interests and aids in the board’s oversight of management and the board’s ability to carry out its roles and responsibilities on behalf of the stockholders. The board also believes that the separation of the roles of chairman and chief executive officer allows the chief executive officer to focus more of his time and energy on operating and managing the company and leverages the chairman’s leadership and financial, governance and regulatory experience.

The chairman, an independent member of the board who has not previously served as an executive officer of the company, is appointed by the board annually.

 

As set forth in the company’s corporate governance guidelines, the responsibilities of the chairman include:

 

    acting as chair of regular and special meetings of the board;

 

    acting as chair of executive sessions or other meetings of the independent directors and leading such executive sessions and meetings;

 

    determining if special meetings of the board should be called (but without prejudice to any rights of others to call special board meetings);

 

    acting as a liaison between the chief executive officer and the board and facilitating communication between meetings, including discussing action items with the chief executive officer following executive sessions;
    consulting with the chief executive officer regarding agenda items and appropriate materials for board meetings, and the allocation of time to each discussion topic on the agenda and coordinating with committee chairpersons to facilitate their meetings;

 

    presiding over the annual stockholders meeting;

 

    being available to participate in or facilitating appropriate meetings with stockholders; and

 

    partnering with the chair of the compensation and management development committee to conduct the annual performance evaluation of the chief executive officer and relay board feedback.
 

Director and Nominee Independence

 

The board of directors has affirmatively determined that all of the current directors on the board other than Mr. Hess and 9 of the 10 nominees for election at the annual meeting, namely, Mr. Checki, Mr. Coleman, Mr. Duato, Ms. Holiday, Mr. Lipschultz, Mr. McManus, Dr. Meyers, Mr. Quigley, and Mr. Schrader, are independent within the meaning of the rules and standards of the New York Stock Exchange (the “NYSE”). The board determined that these directors and nominees not only met all “bright-line” criteria under these rules, but also that, based on all known relevant facts and circumstances, there did not exist any relationship that would compromise the independence of these directors.

Meeting Attendance

 

The board of directors met nine times in 2019, including one special meeting. Each director attended at least 75% of the aggregate of all board of directors meetings and all meetings of the committees of the board of directors on which he or she served during 2019.

Non-management directors meet without members of management present after each regularly scheduled board meeting. The chairman of the board of directors presides at these meetings.

All of the current directors who were serving as a director at the time of last year’s annual meeting attended that meeting.

 

8      2020 PROXY STATEMENT   

LOGO


Table of Contents

Proposal 1: Election of Directors + Corporate Governance Guidelines

 

 

Corporate Governance Guidelines

 

The board has approved a set of corporate governance guidelines in accordance with the rules of the NYSE. These guidelines set forth the key policies relating to corporate governance, including director qualification standards, director responsibilities and director compensation. The board has also approved a code of business conduct and ethics in accordance with rules of the NYSE and the SEC applicable to all directors, officers and employees, including the chief executive officer, the principal financial and accounting officer and other senior financial officers. The code is intended to provide guidance to directors and management to assure compliance with law and promote ethical behavior. Copies of the company’s corporate governance guidelines and its code of business conduct and ethics may be found on the company’s website at www.hess.com and are also available without charge upon request to the company’s corporate secretary at the address set forth on page 56.

Stockholder and Interested Party Communications

 

Any stockholder or interested party who wishes to communicate or request a meeting with members of the board of directors or with only non-management directors or any specified individual director may do so by writing to them in care of the chairman of the board of directors, Hess Corporation, at the address set forth on page 56. Stockholders may also communicate directly to the chairman by e-mail to BoardChairman@hess.com. Communications sent by mail or e-mail will be reviewed by the chairman and will be referred for resolution and response as deemed appropriate by the chairman. If a stockholder requests a meeting, the corporate governance and nominating committee will decide whether the subject matter is a proper one to be addressed by the board and, if so, whether a meeting is warranted. The corporate governance and nominating committee will meet periodically to review all stockholder communications received.

Related Party Transactions

 

The company expects all directors and executive officers to bring to the company’s attention any related party transactions, including transactions which may be required to be disclosed under Item 404 of Regulation S-K promulgated by the SEC. The company’s policies provide that if any company representative, including a director or officer, considers conducting any transaction that reasonably would be expected to give rise to a conflict of interest between the representative and the company, such representative must disclose such transaction in advance to the company’s legal department for review. In addition, the company annually sends each director and executive officer a questionnaire requiring such person to describe any transaction contemplated under Item 404 or in the case of independent directors, any transaction that might compromise their independence. The company also annually conducts a review of its accounting records to determine whether any such related party transaction occurred in the prior fiscal year. If any proposed or existing related party transaction is identified, the transaction is brought to the general counsel for review. If the general counsel determines the transaction poses a conflict of interest, or would compromise the independence of a non-management director, the general counsel will advise the audit committee of the transaction and the disinterested members of the audit committee will determine whether the transaction serves the best interest of the company and its stockholders and whether if proposed, it may proceed and if existing, it may continue to exist. The general counsel and the disinterested members of the audit committee will determine the appropriate scope of, and process for, the review of any such transaction based on the then existing facts and circumstances of the transaction in view of applicable listing standards of the NYSE.

 

LOGO    2020 PROXY STATEMENT    9


Table of Contents

Proposal 1: Election of Directors + Committees of the Board

 

 

Committees of the Board

 

The board has four standing committees: the compensation and management development committee, the corporate governance and nominating committee, the audit committee and the environmental, health and safety committee. Each committee’s written charter is available on our website at www.hess.com and also available without charge upon request to the company’s corporate secretary at the address set forth on page 56. The board receives regular reports from each committee and discusses matters of particular concern or importance.

 

 

Compensation and Management Development Committee

 

 

LOGO                 

Dr. Lavizzo-Mourey (Chair)

Mr. Checki

Mr. Lipschultz

Mr. McManus

Mr. Quigley

 

All committee

members are

independent

  

 

6 meetings in 2019

 

  

The committee’s principal responsibilities are to:

 

•  review and approve the company’s overall compensation philosophy;

 

•  establish performance goals and objectives for the company’s chief executive officer and reviews the goals set by the company’s chief executive officer for the other named executive officers;

 

•  review the performance and approve the compensation of the company’s chief executive officer and other named executive officers;

 

•  provide oversight and monitor the company’s compensation and benefit programs, including the company’s pension, savings, bonus, medical, health and wellness plans;

 

•  administer and make awards of stock-based compensation under the company’s long-term incentive plans;

 

•  review management development and succession programs;

 

•  oversee the assessment of potential risks to the company from its compensation programs and policies;

 

•  approve the retention and review the performance and independence of compensation consultants to the committee; and

 

•  prepare an annual report on executive compensation for the company’s proxy statement.

 

Executive Compensation. The committee’s processes for determining executive compensation are described in “Compensation Discussion and Analysis” on page 20.

 

 

Corporate Governance and Nominating Committee

 

 

LOGO                 

Ms. Holiday (Chair)

Mr. Chase

Mr. Checki

Mr. Coleman

 

All committee

members are

independent

  

 

6 meetings in 2019

 

  

The committee’s principal responsibilities are to:

 

•  develop and recommend to the board the criteria for board membership;

 

•  identify and recommend individuals to the board for nomination as members of the board and its committees consistent with criteria approved by the board;

 

•  review and make recommendations to the board regarding the size and composition of the board of directors and the establishment and composition of committees;

 

•  oversee board, committee and chair performance evaluations;

 

•  identify and recommend to the board potential continuing education opportunities for directors;

 

•  periodically review and, if appropriate, make recommendations to the board relating to board practices and corporate governance; and

 

•  develop, recommend to the board and periodically review a set of corporate governance principles applicable to the company.

 

Director Candidates. This committee recommends for election as directors qualified, diverse candidates identified through a variety of sources, as described on page 6.

 

10      2020 PROXY STATEMENT   

LOGO


Table of Contents

Proposal 1: Election of Directors + Committees of the Board

 

 

 

Audit Committee

 

 

LOGO                 

Mr. Checki (Chair)

Mr. Chase*

Dr. Meyers

Mr. Schrader

 

*Audit committee

financial expert

 

All committee

members are

independent and

financially literate.

 

 

5 meetings in 2019, plus 4 reviews of quarterly financial results

 

 

The audit committee’s principal responsibility is to provide assistance to the board of directors in fulfilling its oversight responsibility to the stockholders, the investment community and others, including to:

 

•  review and discuss with management, internal audit and the independent registered public accountants matters relating to the company’s financial statements, earnings releases and annual and quarterly reports;

 

•  meet with management, internal audit and the independent registered public accountants to review and discuss the company’s financial reporting practices and accounting policies and systems, including the appropriateness of management’s application of those policies;

 

•  review and discuss with management, internal audit and the independent registered public accountants the adequacy and effectiveness of the company’s internal controls over financial reporting and disclosure controls and procedures;

 

•  appoint and oversee the independent registered public accountants, determine their compensation and review their qualifications, performance and independence from management when deciding whether to retain the independent registered public accountants;

 

•  review the scope and results of the internal audit program and the performance of the internal audit function;

 

•  review and discuss with management the company’s policies with respect to risk assessment and risk management, including cyber-security and the company’s overall insurance coverage; and

 

•  review compliance with legal and regulatory requirements and company policies and procedures and discuss the effectiveness of the company’s legal, regulatory and ethical compliance programs.

 

   

No member of the audit committee serves on the audit committees of more than three public companies, including ours.

    

 

 

 

Environmental, Health and Safety Committee

 

 

LOGO                 

Dr. Meyers (Chair)

Mr. Chase

Mr. Coleman

Mr. McManus

Mr. Schrader

 

All committee

members are

independent

 

 

4 meetings in 2019

 

 

In 2013, the audit committee established a subcommittee to focus the committee’s oversight of environmental, health and safety (“EHS”) matters. In 2019, the EHS subcommittee was elevated to a stand-alone committee of the board as a reflection of the board’s continued commitment to developing oil and gas resources in an environmentally responsible and sustainable manner. The EHS committee’s principal responsibilities are to:

 

•  develop recommendations to the board for the formulation and adoption of policies, programs and practices to address EHS issues and risks, including climate change;

 

•  review and monitor the company’s compliance with policies, programs and practices concerning EHS issues;

 

•  identify, evaluate and monitor EHS risks, domestic and international, which affect or could affect the company’s business activities, performance and reputation;

 

•  periodically review EHS legislative and regulatory issues affecting the company’s business and operations; and

 

•  review emergency response planning procedures for EHS events.

 

LOGO    2020 PROXY STATEMENT    11


Table of Contents

Proposal 1: Election of Directors + Report of the Audit Committee

 

 

Report of the Audit Committee

 

The audit committee of the board of directors oversees the company’s financial reporting on behalf of the board. Management is responsible for the system of internal controls and for preparing financial statements. Ernst & Young LLP, the company’s independent registered public accountants, are responsible for expressing an opinion on the effectiveness of internal controls over financial reporting and the fair presentation of the financial statements in conformity with generally accepted accounting principles. The audit committee is composed of independent directors and operates in accordance with a charter approved by the board of directors, which is available at www.hess.com. The charter sets forth the audit committee’s responsibilities, which are summarized under “Committees of the Board” on page 11. The committee reviews its charter annually and, when appropriate, makes recommendations for changes to the board.

2019 Actions of the Audit Committee

The audit committee met 5 times during 2019 and met in executive session after each of those meetings. Additionally, the audit committee met 4 times to review quarterly financial results.

During 2019, the audit committee met with management, Ernst & Young LLP and internal auditors and among other things:

 

   

reviewed and discussed with management and Ernst & Young LLP our audited financial statements included in our annual report on Form 10-K and quarterly unaudited financial statements included in quarterly reports on Form 10-Q prior to filing with the SEC;

 

   

discussed with management and Ernst & Young LLP accounting policies and management’s application of those policies as they relate to the company’s financial results, significant judgments inherent in the financial statements, disclosures, and other matters required by generally accepted auditing standards;

 

   

discussed with Ernst & Young LLP all matters and communications required to be discussed by applicable Public Company Accounting Oversight Board (“PCAOB”) standards, including matters related to independence, received the written disclosures and the letter from Ernst & Young LLP required by the PCAOB regarding their independence and “critical audit matters” identified by the Ernst & Young LLP arising from the audit of the company’s financial statements;

 

   

reviewed and discussed with management the processes undertaken to evaluate the accuracy and fair presentation of our consolidated financial statements and the effectiveness of our systems of disclosure controls and procedures and internal control over financial reporting;

 

   

reviewed and discussed with management, the internal auditor, and Ernst & Young LLP, management’s assessment of the effectiveness of our internal control over financial reporting and Ernst & Young LLP’s opinion about the effectiveness of our internal control over financial reporting;

 

   

reviewed and discussed matters related to risk, risk controls and compliance and inquired about significant financial risk exposures, assessed the steps management is taking to mitigate these risks, and reviewed our policies for risk assessment and risk management, including the company’s overall insurance coverage;

 

   

met with management regarding our technology systems and cyber-security incident detection, defense and response;

 

   

reviewed and assessed the overall adequacy and effectiveness of our legal, regulatory and ethical compliance programs, including concerns raised on the company’s whistleblower reporting system;

 

   

reviewed our tax strategies and the implications of tax law changes; and

 

   

reviewed with the general counsel legal and regulatory matters that may have a material impact on the consolidated financial statements or internal control over financial reporting.

The audit committee also met separately with Ernst & Young LLP and the internal auditors without management present.

 

12      2020 PROXY STATEMENT   

LOGO


Table of Contents

Proposal 1: Election of Directors + Report of the Audit Committee

 

 

Assessment of Independent Registered Public Accountants

The audit committee reviews the scope of and overall plans for the annual audit and negotiates fees and approves the other terms of Ernst & Young LLP’s engagement letter. The audit committee also oversees the periodic required rotation of the lead audit partner, as required by SEC rules, and is directly involved in the selection of such partner.

The audit committee discussed with Ernst & Young LLP their independence from management and the company and considered the compatibility of all non-audit services with the auditors’ independence. The audit committee also assessed the qualifications and performance of Ernst & Young LLP in determining whether to retain them. In conducting this assessment, the audit committee considered, among other things: information relating to audit effectiveness, including the results of PCAOB inspection reports; the depth and expertise of the audit team, including their demonstrated understanding of the company’s businesses, significant accounting practices, and system of internal control over financial reporting; the quality and candor of Ernst & Young LLP’s communications with the audit committee and management; the accessibility, responsiveness, technical competence, and professionalism of the lead audit partner and other members of the audit team assigned to our account; the impact to the company of changing auditors; the appropriateness of Ernst & Young LLP’s fees; and Ernst & Young LLP’s ability to employ professional skepticism, objectivity, integrity, and trustworthiness.

The audit committee reviewed the audited December 31, 2019 financial statements of the company with management and the independent registered public accountants. Management represented to the committee that the financial statements were prepared in accordance with generally accepted accounting principles. In reliance on the reviews and discussions with management and the independent registered public accountants, the audit committee recommended to the board of directors, and the board approved, the inclusion of the audited financial statements in the annual report on Form 10-K for the year ended December 31, 2019 filed with the SEC. Based on its assessment and review as described in this report, the audit committee has determined that selecting Ernst & Young LLP as independent registered public accountants for 2020 is in the best interest of the company and its stockholders. The board has unanimously proposed that the stockholders ratify this selection at the annual meeting.

Committee Members:

Terrence J. Checki, Chair

Rodney F. Chase

Kevin O. Meyers

William G. Schrader

The Report of the Audit Committee does not constitute soliciting material, and shall not be deemed to be filed or incorporated by reference into any other company filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (the “Exchange Act”), except to the extent that the company specifically incorporates the Report of the Audit Committee by reference therein.

 

LOGO    2020 PROXY STATEMENT    13


Table of Contents

Proposal 1: Election of Directors + Stockholder Engagement

 

 

Stockholder Engagement

 

We engage with our stockholders on a regular basis to ensure we fully understand the factors they consider to be most important when evaluating our company. The purpose of our stockholder engagement program is to discuss and solicit stockholder views on our strategy, business plan, EHS matters, human capital management, corporate governance and other matters of concern, including executive compensation.

During 2019, our CEO and other members of senior management, at times accompanied by our independent chairman, conducted a broad outreach effort to investors representing, in the aggregate, approximately 70% of our outstanding shares.

Robust stockholder engagement program throughout the year

 

 

  ü  Participated in 16 major investor conferences

     

 

ü

 

 

 

Presented at CERAWeek, a premier energy conference attended by institutional investors, industry leaders and policymakers

 

       

 

  ü  Held more than 350 investor meetings with institutional investors in 28 cities in the U.S. and internationally

 

     

 

ü   

 

 

 

Participated in conferences hosted by Council of Institutional Investors

 

 

Topics Covered

 

LOGO

 

Strategy

 

 

 

LOGO

 

Environment and

Sustainability

 

 

 

LOGO

 

Human Capital Management

 

 

 

LOGO

 

Governance

 

 

 

 

LOGO

 

Executive

Compensation

 

 

Management and the chairman provide feedback from these meetings to the full board on a regular basis.

 

Risk Oversight

 

The board of directors has oversight of the company’s risk management policies with an emphasis on understanding the key enterprise risks affecting the company’s business and the ways in which the company attempts to prudently mitigate such risks, to the extent reasonably practicable and consistent with the company’s long-term strategies. Additionally, each of the board’s committees is assigned with overseeing risk management specific to their scope of responsibilities, as illustrated below. Management applies a comprehensive, standardized approach to identifying and managing risks of all types across our operations. Our enterprise risk management process is used to develop a holistic risk profile for each asset and major project, drawing input from subject matter experts, performance data, incident investigations, lessons learned and recent internal audits. In these risk assessments, we identify each risk and assess its likelihood and potential impact to people, the environment, our reputation and our business, as well as other risks as appropriate.

Periodically, the chief risk officer presents a comprehensive review of the company’s enterprise levels risks, the status of the enterprise risk program and risk management strategies utilized by the company under its corporate risk policy to the audit committee, which has been delegated primary responsibility for oversight of the company’s risk management practices. The audit committee and the board will also receive updates at meetings during the year on any particular matters relating to specific risks that management believes needs to be brought to the attention of the committee or the board. In addition, the company conducts an annual risk assessment to determine the extent, if any, to which the company’s compensation programs and practices may create incentives for excessive risk-taking. For a discussion of this assessment, see “Compensation and Risk” on page 47. Cyber-security is an integral part of risk management at Hess. The board appreciates the rapidly evolving nature of threats presented by cyber-security incidents and is committed to the prevention, timely detection, and mitigation of the effects of any such incidents on the company. The audit committee receives regular updates from management regarding cyber-security, including the nature of threats, defense and detection capabilities, incident response plans and employee training activities.

 

14      2020 PROXY STATEMENT   

LOGO


Table of Contents

Proposal 1: Election of Directors + Risk Oversight

 

 

LOGO

Board Oversight of Corporate Culture and Human Capital Management

We are committed to having an engaged, diverse and inclusive workplace that fosters learning, development and innovation. The board is actively engaged in overseeing our values and its connection to our long-term strategy. Directors have the opportunity to participate in our culture first-hand through interactions with employees and visits to our assets and offices. Through the compensation and management development committee, the board meets with management to understand and monitor company culture and its alignment with our values and strategic business priorities. Employee turnover, diversity and inclusion and leadership development metrics, along with qualitative data are discussed at the compensation and management development committee regularly throughout the year and shared with our board of directors. The entire board attends the compensation and management development committee meetings that involve reviews and discussions of CEO performance objectives, evaluations, management succession and compensation.

 

LOGO    2020 PROXY STATEMENT    15


Table of Contents

Proposal 1: Election of Directors + Ownership of Voting Securities by Certain Beneficial Owners

 

 

Ownership of Voting Securities by Certain Beneficial Owners

 

The following table sets forth, as of April 9, 2020 for Messrs. Hess, Brady, Kean and Goodwillie and as of December 31, 2019 for the other beneficial owners identified in the table, information as to the ownership of more than 5% of any class of the company’s voting securities by beneficial owners known by the company to hold more than 5% of any such class:

 

 

  Name and address

  of beneficial owner

 

 

  

 

Amount and nature

of beneficial ownership(a)

 

 

  

 

Percent
of class

 

 

 

 

Common Stock

 

 

 

John B. Hess

 

  

 

          33,227,854(b)(c)(d)(e)

 

  

 

 

 

 

10.79

 

 

 

 

 

Nicholas F. Brady

 

  

 

          18,221,340(b)(c)(f)

 

  

 

 

 

 

5.93

 

 

 

 

 

Thomas H. Kean

 

  

 

          24,603,178(b)(c)(d)(g)

 

  

 

 

 

 

8.01

 

 

 

 

 

Eugene W. Goodwillie, Jr.

c/o Hess Corporation

1185 Avenue of the Americas

New York, NY 10036

 

  

 

          28,183,550(b)(c)(d)(e)(h)

  

 

 

 

9.18

 

 

 

FMR LLC

245 Summer Street

Boston, MA 02210

 

  

 

          39,547,908(i)

  

 

 

 

12.98

 

 

 

The Vanguard Group

100 Vanguard Blvd.

Malvern, PA 19355

 

  

 

          30,521,119(j)

  

 

 

 

10.01

 

 

 

BlackRock, Inc.

55 East 52nd Street

New York, NY 10055

 

  

 

          18,727,842(k)

  

 

 

 

6.10

 

 

(a)

The individual amounts and percentages shown for Messrs. Hess, Brady, Kean and Goodwillie should not be added because they reflect shared beneficial ownership. Information with respect to FMR LLC was obtained from a Schedule 13G/A filed by such person with the SEC on February 7, 2020. Information with respect to The Vanguard Group was obtained from a Schedule 13G/A filed by such person with the SEC on February 12, 2020. Information with respect to BlackRock, Inc. was obtained from a Schedule 13G/A filed by such person with the SEC on February 5, 2020. Mr. Hess may be deemed to be a control person of the company by virtue of his beneficial ownership of common stock as described below.

 

(b)

This amount includes 9,329,037 shares held by a charitable lead annuity trust established under the will of Leon Hess. Mr. John B. Hess has sole voting power over the stock held by this trust and shares dispositive power over such stock with Messrs. Brady, Kean and Goodwillie.

 

(c)

This amount includes 8,817,802 shares held by a limited partnership. Messrs. Hess, Brady, Kean and Goodwillie serve on the management committee of the general partner of this limited partnership and share, inter alia, voting and dispositive power with respect to shares held by the limited partnership.

 

(d)

This amount includes 6,436,881 shares held by the Hess Foundation, Inc. of which Messrs. Hess, Kean and Goodwillie are directors and as to which Mr. Hess has sole voting power and shares dispositive power with Messrs. Kean and Goodwillie.

 

(e)

This amount includes:

 

   

1,344,124 shares owned directly by Mr. Hess, of which 600,000 shares are held by a trust for the benefit of Mr. Hess and as of which he has sole voting and dispositive power;

 

   

28,753 shares held by a family limited liability company controlled by Mr. Hess, as to which Mr. Hess has sole voting power and dispositive power;

 

   

907,412 shares underlying options to purchase common stock, as to which Mr. Hess has no voting or dispositive power until they are acquired upon exercise of the options;

 

   

67,297 shares vested in the name of Mr. Hess under the employees’ savings plan as to which he has sole voting and dispositive power;

 

   

1,008,401 shares held by a trust for the benefit of Mr. Hess, of which he and Mr. Goodwillie are co-trustees, as to which Mr. Hess has sole voting power and shares dispositive power with Mr. Goodwillie;

 

16      2020 PROXY STATEMENT   

LOGO


Table of Contents

Proposal 1: Election of Directors + Ownership of Voting Securities by Certain Beneficial Owners

 

 

   

146,582 shares held by four trusts of which Mr. Hess is co-trustee. 80,922 of these shares as to which Mr. Hess has sole voting power and shares dispositive power with Mr. Goodwillie, and the remaining 65,660 shares as to which Mr. Hess shares voting and dispositive power;

 

   

1,647,217 shares held by Mr. Hess’ siblings or their children, or by trusts for the benefit of Mr. Hess’ siblings or their children, as to which Mr. Hess has sole voting power pursuant to shareholders agreements among Mr. Hess and his siblings or their children and as to 678,471 shares of which he shares dispositive power pursuant to a shareholder’s agreement among Mr. Hess and a sibling and others. 315,000 of these shares (representing approximately 0.1% of Hess common stock outstanding) have been pledged by certain of the trusts. Mr. Hess has no financial or economic interest in the shares pledged by the trusts;

 

   

1,008,402 shares held by a trust for the benefit of Mr. Hess’ sibling, of which Mr. Hess has sole voting and shared dispositive power; and

 

   

2,485,946 shares held by trusts as to which Mr. Hess has sole voting power and as to which Mr. Goodwillie has shared dispositive power. These shares (representing approximately 0.8% of Hess common stock outstanding) have been pledged by certain of the trusts. Mr. Hess is not a trustee of these trusts and has no financial or economic interest in the shares pledged by the trusts.

 

(f)

This amount includes 69,518 shares held directly by Mr. Brady, as to which he has sole voting and dispositive power. This amount also includes 4,983 shares held by a trust of which Mr. Brady is a co-trustee as to which Mr. Brady shares voting and dispositive power.

 

(g)

This amount includes 19,458 shares held directly by Mr. Kean, as to which he has sole voting and dispositive power.

 

(h)

This amount includes 24,561 shares held by a trust of which Mr. Goodwillie has sole voting and dispositive power.

 

(i)

This amount includes (y) 6,124,292 shares over which FMR LLC has sole voting power and (z) 39,547,908 shares over which FMR LLC has sole dispositive power.

 

(j)

This amount includes (w) 386,702 shares over which The Vanguard Group has sole voting power, (x) 30,072,255 shares over which The Vanguard Group has sole dispositive power, (y) 81,486 shares over which The Vanguard Group has shared voting power and (z) 448,864 shares over which The Vanguard Group has shared dispositive power.

 

(k)

This amount includes (y) 16,506,696 shares over which Blackrock, Inc. has sole voting power and (z) 18,727,842 shares over which BlackRock, Inc. has sole dispositive power. The shares are held by subsidiaries of Blackrock, Inc.

 

LOGO    2020 PROXY STATEMENT    17


Table of Contents

Proposal 1: Election of Directors + Ownership of Equity Securities by Management

 

 

Ownership of Equity Securities by Management

 

The table below sets forth as to each director, nominee and named executive officer, and all directors, nominees and executive officers as a group, information regarding their ownership of equity securities of the company on April 9, 2020. The persons listed below have sole voting and investment power as to all shares indicated except as set forth in the footnotes to the table. Where no information appears in the column “Percent of outstanding shares of common stock owned,” the securities held represent less than 1% of the common stock outstanding.

 

Name

   Total number of shares
beneficially owned
and nature of
beneficial ownership(a)
  Percent of
outstanding
shares of
common stock
owned
  

Of total number of  

shares beneficially  

owned, number of  

option shares  

Chase, Rodney F.

    

 

56,677

   

 

    

 

Checki, Terrence J.

    

 

21,244

   

 

    

 

Coleman, Leonard S.

    

 

14,701

   

 

    

 

Duato, Joaquin

    

 

4,060

   

 

    

 

Goodell, Timothy B.

    

 

293,615

   

 

    

 

156,366

Hess, John B.

    

 

33,227,854

(b)

   

 

10.79

    

 

907,412

Hill, Gregory P.

    

 

412,143

   

 

    

 

283,830

Holiday, Edith E.

    

 

56,799

   

 

    

 

Lavizzo-Mourey, Risa

    

 

44,379

   

 

    

 

Lipschultz, Marc S.

    

 

13,852

   

 

    

 

McManus, David

    

 

33,198

   

 

    

 

Meyers, Kevin O.

    

 

30,329

   

 

    

 

Quigley, James H.

    

 

24,659

   

 

    

 

Rielly, John P.

    

 

412,652

   

 

    

 

156,366

Schrader, William G.

    

 

25,706

   

 

    

 

Turner, Michael R.

    

 

140,517

   

 

    

 

70,035

All directors and executive officers as a group (20 persons)

    

 

35,198,010

   

 

11.39

    

 

1,769,779

(a)

These figures include 67,297 shares vested in the name of Mr. Hess, 4,747 shares vested in the name of Mr. Rielly and 72,044 shares vested for all executive officers and directors as a group under the employees’ savings plan as to which these individuals and the group have voting and dispositive power. These amounts also include 15,999 shares held in escrow under Hess Corporation’s long-term incentive plans for Mr. Goodell, 38,419 shares held in escrow under these plans for Mr. Hill, 16,301 shares held in escrow under these plans for Mr. Rielly, and 123,533 shares held in escrow under these plans for all executive officers and directors as a group. As to these shares, these individuals and the group have voting power but not dispositive power. Holders of stock options do not have the right to vote or any other right of a stockholder with respect to shares of common stock underlying such options until they are exercised.

 

(b)

See footnotes (b), (c), (d) and (e) to the table under the caption “Ownership of Voting Securities by Certain Beneficial Owners.”

 

18      2020 PROXY STATEMENT   

LOGO


Table of Contents

Proposal 1: Election of Directors + Director Compensation

 

 

Director Compensation

 

The following table shows compensation for services rendered by our non-employee directors during 2019.

 

Name

   Fees Earned or
Paid in Cash
($)
       Stock
Awards(1)
($)
      

All other
Compensation(2)

($)

      

Total

($)

 

Chase, Rodney F.

  

 

150,000

 

    

 

175,043

 

    

 

12,174

 

    

 

337,217  

 

Checki, Terrence J.

  

 

150,000

 

    

 

175,043

 

    

 

2,472

 

    

 

327,515  

 

Coleman, Leonard S.

  

 

125,000

 

    

 

175,043

 

    

 

2,995

 

    

 

303,038  

 

Duato, Joaquin

  

 

16,739

 

    

 

26,849

 

    

 

 

    

 

43,588  

 

Holiday, Edith E.

  

 

130,000

 

    

 

175,043

 

    

 

1,524

 

    

 

306,567  

 

Lavizzo-Mourey, Risa

  

 

130,000

 

    

 

175,043

 

    

 

1,524

 

    

 

306,567  

 

Lipschultz, Marc S.

  

 

120,000

 

    

 

175,043

 

    

 

276

 

    

 

295,319  

 

McManus, David

  

 

125,000

 

    

 

175,043

 

    

 

1,524

 

    

 

301,567  

 

Meyers, Kevin O.

  

 

147,857

 

    

 

175,043

 

    

 

11,226

 

    

 

334,126  

 

Quigley, James H.

  

 

310,000

 

    

 

175,043

 

    

 

4,012

 

    

 

489,055  

 

Reynolds, Fredric G.

  

 

68,572

 

    

 

74,840

 

    

 

1,285

 

    

 

144,697  

 

Schrader, William G.

  

 

140,000

 

    

 

175,043

 

    

 

1,838

 

    

 

316,881  

 

(1)

Stock awards consist of 3,085 common shares granted to non-employee directors on March 6, 2019, which were fully vested on the grant date. The aggregate grant date value for 2019 stock awards was computed in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718 (“ASC 718”). Messrs. Duato and Reynolds received pro-rated awards of 540 and 1,319 common shares, respectively, based on their length of service on the board in 2019.

 

(2)

Amounts in this column consist of (i) annual life insurance premiums for each director, other than Mr. Duato, (ii) medical and dental benefits of $9,702 for Mr. Chase and Dr. Meyers and $2,488 for Mr. Quigley, and (iii) dental benefits of $523 for Messrs. Coleman and Reynolds and $1,046 for Mr. Schrader.

Each director who was not an employee of the company or any of its subsidiaries receives an annual cash retainer of $110,000 for membership on the board of directors and the independent chairman of the board receives an additional annual cash retainer of $185,000. Directors receive an additional annual cash fee of $25,000 for service on the audit committee, $5,000 for service on the EHS committee and $10,000 for service on each of the other committees of the board of directors on which such director serves. The chairperson of the audit committee receives an annual cash fee of $30,000, the chairperson of the EHS committee receives an annual cash fee of $10,000 and the chairperson of each of the other board committees receives an annual cash fee of $15,000. In addition, each non-employee director receives shares of fully vested common stock constituting approximately $175,000 in value on the date of award. These awards are made from shares purchased by the company in the open market. For 2019, Messrs. Duato and Reynolds received a pro-rated retainer based on their length of service on the board in 2019.

 

LOGO    2020 PROXY STATEMENT    19


Table of Contents

EXECUTIVE COMPENSATION

Compensation Discussion and Analysis

 

This Compensation Discussion and Analysis (“CD&A”) explains the key elements of our executive compensation program and 2019 compensation decisions for our named executive officers (“NEOs”). The compensation and management development committee of our board of directors (the “compensation committee” or the “committee”), with input from its independent compensation consultant, oversees these programs and determines compensation for our NEOs.

For fiscal year 2019, our NEOs were:

 

   

John B. Hess, Chief Executive Officer (“CEO”)

 

   

Gregory P. Hill, Chief Operating Officer and President, Exploration & Production (“COO & President E&P”)

 

   

Timothy B. Goodell, Senior Vice President, General Counsel, Corporate Secretary and Chief Compliance Officer (“SVP & GC”)

 

   

John P. Rielly, Senior Vice President and Chief Financial Officer (“SVP & CFO”)

 

   

Michael R. Turner, Senior Vice President, Global Production (“SVP Global Production”)

A Special Note Regarding the COVID-19 Pandemic

This CD&A describes our executive compensation programs including pay and performance outcomes for 2019. With continued operational performance and exploration success at our key assets in Guyana and the Bakken during 2019, Hess was able to achieve a number of important milestones and deliver higher production and lower capital and exploratory expenditures than guidance.

In early 2020, COVID-19, along with its economic and oil price impact, has led to significant declines in the market value of our stock and that of our peers in the oil and gas sector and a challenged business environment. Hess’ executive compensation programs are highly sensitive to shareholder returns and our operational performance. However, given the dynamic nature of the external market, the committee retains the discretion to make appropriate adjustments to 2020 executive compensation to ensure the continued alignment of pay with performance in the context of an extraordinary market environment.

CD&A Table of Contents

 

Executive Summary

    21  

Summary of Business and Strategy

    21  

Compensation Actions as a Result of Proactive Stockholder Engagement

    21  

Compensation Actions in 2020

    22  

Corporate Performance

    22  

Summary of Hess’ 2019 Executive Compensation Program

    23  

Pay Mix

    24  

Compensation Program Key Practices Promote Alignment with Stockholder Interests

    25  

Compensation Objective and Philosophy

    25  

2019 Total Direct Compensation

    26  

Peer Group

    33  

Process for Determining Compensation and Role of Compensation Consultants

    33  

Additional Information

    33  

Compensation Committee Report

    36  

Compensation Committee Interlocks and Insider Participation

    36  

 

20      2020 PROXY STATEMENT   

LOGO


Table of Contents

Executive Compensation + Compensation Discussion and Analysis

 

 

Executive Summary

Our compensation program is focused on building long-term value in an industry where oil and gas reserves are depleted annually and investments require significant capital and generally take several years before yielding returns. It is critical we maintain and grow our resource base in a capital disciplined manner while ensuring our cost of production is sufficiently low to generate returns for our stockholders in a low oil price environment. The board believes that our compensation program should set short-term targets that lead to long-term success and long-term targets based on shareholder returns, which we believe is the most effective measure of long-term value creation currently available. As a result, our annual incentive plan is designed to maintain an annual focus on management’s day-to-day efforts on outcomes largely within its control, with a strong emphasis on formulaic, metrics-driven enterprise results. Our long-term incentive plan focuses on longer term objectives, including stockholder value creation and alignment of management’s interests with those of our stockholders.

Summary of Business and Strategy. Hess Corporation is a global Exploration and Production (“E&P”) company engaged in the exploration, development, production, transportation, purchase and sale of crude oil, natural gas liquids, and natural gas. Our strategy is to deliver capital efficient growth in our resources and production – investing in the highest return projects to move down the cost curve and be profitable in a lower price environment with increasing cash generation and returns to stockholders. Consistent with this strategy, we divested higher-cost, mature assets over the last several years to build a balanced portfolio, and in 2019 we achieved first production from the Liza Field offshore Guyana. We are confident in our company’s strategy, which has positioned us to manage through this low price environment to deliver long term value to our stockholders.

Compensation Actions as a Result of Proactive Stockholder Engagement. We engage with our stockholders on a regular basis to ensure we fully understand the factors they consider to be most important when evaluating our company. The purpose of our stockholder engagement program is to discuss and solicit stockholder views on our strategy, business plan, EHS matters, human capital management, corporate governance and other matters of concern, including executive compensation.

Over the last several years, the committee implemented a number of changes to our compensation program based on feedback we received and to align with the low oil price environment, our portfolio changes and our stockholders’ interests:

 

 

2014

•  Increased  performance-
contingent component
of NEOs’ LTI awards
from 50% to 80%;

•  Added cash return on
capital employed as
an AIP performance
metric

   

 

2015

•  Eliminated restricted
stock from CEO’s LTI
mix, making 100% of
CEO LTI
performance-
contingent

   

 

2016

•  Applied negative
discretion on AIP
payouts of 26%;

•  Reduced grant date
values of LTI awards
for NEOs by 15% from
2015 levels

   

 

2017

•  Reduced the size of
CEO’s LTI grant by
10% from target

   

 

2018

•  Reduced CEO LTI
target award by
$2 million (-21%);

•  Added EBITDAX as
an AIP performance
metric

In light of such changes, and based on on-going investor feedback, the committee took the following compensation actions in 2019, which are generally consistent with 2018 compensation actions, and determined 2019 payout results:

 

    Component    2019 Compensation Action         Rationale     

 

Salary

  

 

NEO salaries held flat

       

Reviewed annually and considers: external market, internal equity, compensation philosophy, job responsibilities, experience level, and individual performance

  

 

AIP Targets

  

 

NEO AIP target value held flat

    

 

2019 LTI Grants

  

 

NEO LTI target value held flat

 

    
Component    Performance Result          Basis      

 

2019 AIP Enterprise 

Payout        

   145.8%        

 

Exceptional year operationally resulted in high final enterprise performance results of annual goals, as described on page 29

 

    

 

2017-19 PSU

Payout

  

200%

       

 

Final 3 year relative Total Shareholder Return (“TSR”) versus peers; Hess ranked second among peers and far ahead of the remaining 10 peers

 

    

 

LOGO    2020 PROXY STATEMENT    21


Table of Contents

Executive Compensation + Compensation Discussion and Analysis

 

 

The committee follows a rigorous target setting process each year to ensure the enterprise performance metrics of our AIP include challenging, yet attainable, targets for executives designed to align our executives’ interests with those of our stockholders. The committee also considers a number of factors when determining appropriate individual AIP target percentages, including the executive’s position within the company, his or her corresponding responsibilities, and the competitive annual incentive opportunity for similar positions in other companies in our industry. The committee will also assess the outcomes of the prior year in making its decision on the targets for the current year.

Compensation Actions in 2020. In early 2020, the committee approved the addition of the S&P 500 Total Return Index as a comparator for evaluating performance of the 2020 PSU awards. The inclusion of the S&P 500 Total Return Index extends the comparator group beyond industry peers and measures the company’s performance against the broader market. The committee also removed Chesapeake Energy Corporation from the company’s peer group due to the substantial decrease in its market capitalization and its business focus no longer being comparable to the company. The committee believes these two changes further align executive pay with long-term stockholder interests.

Corporate Performance. We built upon our strong performance in 2018 to achieve a number of important performance milestones at our key assets in Guyana and the Bakken in 2019 and to deliver higher production and lower capital and exploratory expenditures than guidance. We were able to reduce our full year 2019 capital and exploratory expenditures to $2.74 billion, down approximately $150 million from our original guidance. Net production during 2019 was 290,000 barrels of oil equivalent per day, excluding Libya, a 17% increase from 2018.

The enterprise performance metrics of our annual incentive program are designed to reward management for progress made against challenging, measurable goals that align with our overall company strategy that incentivize strong near- and long-term performance, without promoting excessive risk-taking. In 2019, the committee considered the progress made against each of these metrics in determining executive compensation payouts under the annual incentive program:

 

 

LOGO

 

22      2020 PROXY STATEMENT   

LOGO


Table of Contents

Executive Compensation + Compensation Discussion and Analysis

 

 

   

Strategic Priority

 

 

Annual Incentive Plan Metric

 

 

Environment,

Health and

Safety

 

 

Production

  Exploration Resource Additions   Capital and Exploratory
Spend
  Controllable Operated Cash Costs   Returns
+ Cash Flow

  1. Invest in high return, low cost opportunities

 

 

We believe that EHS practices are vital for all stakeholders: our investors, employees, partners and the communities in which we do business

     

LOGO

 

LOGO

     

LOGO

  2. Build focused and balanced portfolio – robust at low prices

 

     

LOGO

 

LOGO

       

  3. Maintain financial strength and manage for risk

 

         

LOGO

 

LOGO

 

LOGO

  4. Grow free cash flow in disciplined, reliable manner

 

 

LOGO

 

LOGO

     

LOGO

 

LOGO

  5. Prioritize return of capital to stockholders

 

 

LOGO

     

LOGO

 

LOGO

 

LOGO

We are focused on building long-term value in an industry where investments require significant capital and generally take several years before generating returns. The board believes that total shareholder returns are the most effective measure of long-term value creation currently available. Accordingly, our PSUs are tied to relative TSR to effectively measure our performance compared to peers. The last several years, as we were transitioning our long-term strategy to a pure-play E&P company, our 3-year relative TSR was not as strong as some of our peers and our PSUs paid out at 75%, 63% and 67% for the 2016-2018, 2015-2017 and 2014-2016 performance cycles, respectively. For the 2017-2019 performance cycle, our 3-year TSR was second among peers, resulting in a PSU payout at 200% of target. Our 1-year and 3-year TSR as of December 31, 2019 were ranked first and second among peers, respectively. Our ability to navigate the low oil price environment during the last several years has resulted in our TSR far exceeding our peers, as indicated by our 1-year and 3-year TSR performance as of December 31, 2019.

 

LOGO

  

LOGO

Summary of Hess’ 2019 Executive Compensation Program

 

Compensation
Element

 

 

Form and Objective

 

 

2019 Result

 

 

Link to Business Strategy

 

  Base Salary

 

•  Fixed rate of pay

 

•  Base salaries for our NEOs held flat for 2019

 

•  Competitive Pay Levels. Generally, we target total direct compensation (salary, annual incentive and long-term incentives) within a competitive range of market median.

 

•  Individual Performance Rewarded. Sustained performance may be recognized in individual pay components, and pay will vary above or below target based primarily on enterprise and, to a lesser degree, individual performance outcomes.

 

 

 

LOGO    2020 PROXY STATEMENT    23


Table of Contents

Executive Compensation + Compensation Discussion and Analysis

 

 

Compensation
Element

 

 

Form and Objective

 

 

2019 Result

 

 

Link to Business Strategy

 

Annual Incentive Plan (“AIP”)

 

•  Payout from 0%-200% of target

 

•  Payout based on enterprise performance factor (0%-175% of target) and individual performance

 

•  Enterprise result was 145.8% of target

 

•  No adjustments for individual performance were made for the NEOs, as described on pages 27 to 31

 

 

•  Balanced Focus on Controllable Outcomes and Value Creation. In our industry, the macroeconomic environment and oil prices significantly impact our financial results and stock price performance. As a result, our AIP is designed to focus on management’s day-to-day efforts on outcomes largely within its control, with a strong emphasis on formulaic, metrics-driven enterprise results, subject to board oversight and discretion.

 

Long-Term Incentive (“LTI”)

 

•  60% PSUs; payout from 0%-200% of target is at-risk based on three-year relative TSR performance compared to peers

 

•  20% Stock Options (40% for CEO); stock price must appreciate for any value to be realized

 

•  20% Restricted Stock (0% for CEO); vesting occurs ratably over three years

 

 

•  NEOs received target-level LTI awards

 

•  Payout of PSUs for the 2017-19 performance period was 200% of target, given our relative TSR performance

 

•  Long-term Orientation. Our LTI is delivered using different types of awards to balance both absolute stock price performance and stock price performance relative to peers, over varying time horizons, and retention considerations.

 

•  Stockholder Alignment. Mix of long-term awards is heavily performance-contingent (80% to 100%), based on grant date target value, aligning management with the long-term stockholder experience.

Pay Mix. The majority of NEO compensation is variable and performance based. For our CEO and other NEOs, approximately 87% and 81%, respectively, of 2019 target total direct compensation was variable. Variable pay directly ties each NEO’s pay to company performance outcomes, including financial results, operational results, strategic initiatives, and stock price performance. Mr. Hess’ long-term incentive mix consists of a combination of PSUs and stock options, making 100% of his long-term incentive compensation performance-contingent and closely aligning Mr. Hess’ total compensation to the company’s long-term performance.

 

 

LOGO

   LOGO

 

24      2020 PROXY STATEMENT   

LOGO


Table of Contents

Executive Compensation + Compensation Discussion and Analysis

 

 

Compensation Program Key Practices Promote Alignment with Stockholder Interests

At our 2019 annual meeting of stockholders, over 93% of shares present and entitled to vote supported Hess’ executive compensation program, consistent with stockholder support since 2014. In addition, we regularly engage with stockholders to ensure we fully understand the factors they consider to be the most important when evaluating our executive compensation program. During 2019, our CEO and other members of senior management, at times accompanied by our independent chairman, conducted a broad outreach effort to investors representing, in the aggregate, approximately 70% of our outstanding shares. The purpose of our stockholder engagement program is to discuss and solicit stockholder views on our strategy, business plan, EHS matters, human capital management, corporate governance and other matters of concern, including executive compensation. The key design change to our compensation program in 2020 is the addition of the S&P 500 Total Return Index to the comparator group for our PSUs.

Our key executive compensation practices are summarized below. We believe these practices promote close alignment with the long-term interests of our stockholders.

 

What We Do

 

  ü

 

Directly link pay to performance outcomes, operational results and stockholder returns

  ü

 

Engage in ongoing dialogue with stockholders to incorporate feedback into our compensation programs

  ü

 

Target total direct compensation (base salary / annual incentive / long-term incentives) within a competitive range of market median

  ü

 

Use a structured approach to CEO performance evaluation and related compensation decisions

  ü

 

Maintain a cap on CEO incentive compensation payments

  ü

 

Emphasize a culture of safety (a weighted metric in the AIP for all employees)

  ü

 

Maintain stock ownership guidelines for senior executives

  ü

 

Conduct annual CEO performance evaluation led by the board

  ü

 

Design compensation plans with provisions to mitigate undue risk

  ü

 

Maintain double-trigger change-in-control severance benefits

  ü

 

Maintain a compensation clawback policy, which includes recoupment and forfeiture provisions

  ü

 

Have an anti-hedging policy and an anti-pledging policy for all executives

  ü

 

Employ best-practice share counting and review share utilization annually

  ü

 

Provide de minimis perquisites for executives

  ü

 

Offer executives the same health and welfare benefit and savings plans as other salaried employees

  ü

 

Devote significant time to management succession, corporate culture and leadership development efforts

  ü

 

Retain an independent compensation consultant to advise the committee

 

What We Don’t Do

 

 

  LOGO

 

No employment contracts for NEOs

  LOGO

 

No payment of dividends or dividend equivalents on unearned restricted stock or PSUs

  LOGO

 

No excise tax gross-ups in new change-in-control agreements since 2010

  LOGO

 

No re-pricing of underwater stock options without stockholder approval

  LOGO

 

No excessive severance or change-in-control benefits

 

 

Compensation Objective and Philosophy

Compensation Objective. The objective of our executive compensation program is to attract and retain talented executives and motivate them to achieve our business goals through a combination of cash and stock-based compensation. The principal elements of an executive’s total compensation consist of base salary, annual incentive, and long-term incentives.

 

LOGO    2020 PROXY STATEMENT    25


Table of Contents

Executive Compensation + Compensation Discussion and Analysis

 

 

We are focused on building long-term value in an industry where investments require significant capital and generally take several years before showing returns. The board believes that the compensation program should set short-term targets that lead to long-term success and long-term targets based on total shareholder returns, which we believe to be the most effective measure of long-term value creation currently available.

We also review other elements of compensation, including retirement benefits, health and welfare plans and other benefits offered to employees generally, when evaluating comprehensive executive compensation packages.

Compensation Philosophy. Our compensation program is designed to provide competitive pay to executives, reward individual and company performance, and maintain a long-term orientation that aligns with stockholder interests. The annual incentive plan emphasizes formulaic, metrics-driven enterprise results with a focus on measures largely within management’s control that reflect the core operating functions throughout the business cycle. The long-term incentives balance absolute stock price performance and stock price performance relative to peers, and is designed to support our long-term business strategy, serve as a retention tool and align employees with stockholder interests.

Generally, we target total direct compensation (salary, annual incentive and long-term incentives) within a competitive range of market median. Sustained performance may be recognized in individual pay components and pay will vary above or below target based primarily on actual enterprise performance and, to a lesser degree, individual performance. Variations in total direct compensation among the NEOs reflect differences in competitive pay for their respective positions as well as the size and complexity of the groups or functions they oversee, the performance of those groups or functions, and individual performance. The committee also considers market conditions in our industry when making compensation decisions.

2019 Total Direct Compensation

We structure NEO total direct compensation so that the majority is delivered in the form of long-term incentive awards in order to provide incentives to work toward growth of long-term profitability that will enhance stockholder returns. We also structure NEOs’ cash compensation so that a significant portion is at risk under the company’s annual incentive plan, payable primarily based on enterprise results, and to a lesser degree individual performance. We further detail each component of total direct compensation below.

Base Salary. We review base salaries annually, but we do not necessarily make adjustments to NEO salaries each year. In determining base salary levels for NEOs, the committee considers the following qualitative and quantitative factors: job level and responsibilities, relevant experience, individual performance, recent corporate and business unit performance, internal equity and our objective of paying competitive total direct compensation if performance is met.

From time to time base salaries may be adjusted other than as a result of an annual review in order to address competitive pressures or in connection with a promotion. We have held salaries flat for our NEOs over the past two years.

 

       Salary  

Name

 

    

2019

 

      

2018

 

      

% Increase

2018-2019

 

 

Hess, John B.

CEO

    

$

1,500,000

 

    

$

1,500,000

 

    

 

0.0%

 

Hill, Gregory P.

COO & President E&P

    

$

1,100,000

 

    

$

1,100,000

 

    

 

0.0%

 

Goodell, Timothy B.

SVP & GC

    

$

750,000

 

    

$

750,000

 

    

 

0.0%

 

Rielly, John P

SVP & CFO

    

$

775,000

 

    

$

775,000

 

    

 

0.0%

 

Turner, Michael R.

SVP, Global Production

    

$

625,000

 

    

$

625,000

 

    

 

0.0%

 

 

26      2020 PROXY STATEMENT   

LOGO


Table of Contents

Executive Compensation + Compensation Discussion and Analysis

 

 

Annual Incentive Plan. We establish an annual incentive target for employees, including each executive officer, based upon his or her position within the company, corresponding responsibilities and competitive annual incentive opportunity for similar positions in other companies in our industry. Payouts are in cash and may range from 0% to 200% of the target annual incentive opportunity based on actual enterprise and individual performance outcomes. Annual incentive target percentages for our NEOs and other senior executives have generally been held flat over the last three years.

 

       2019 Annual Incentive Plan Opportunity ($)  

Name

 

    

Minimum

(0% of target)

      

Target

(100% of target)

 

    

Maximum

(200% of target)

 

 

Hess, John B.

CEO

    

 

$0       

 

    

$2,250,000

(150% of salary)

    

 

$4,500,000

 

Hill, Gregory P.

COO & President E&P

    

 

$0       

 

    

$1,430,000

(130% of salary)

    

 

$2,860,000

 

Goodell, Timothy B.

SVP & GC

    

 

$0       

 

    

$700,000

(93% of salary)

    

 

$1,400,000

 

Rielly, John P.

SVP & CFO

    

 

$0       

 

    

$700,000

(90% of salary)

    

 

$1,400,000

 

Turner, Michael R.

SVP, Global Production

    

 

$0       

 

    

$375,000

(60% of salary)

    

 

$   750,000

 

2019 AIP Design. Our annual incentive program is designed to motivate and reward employees for achieving the key business objectives that drive Hess’ long-term value creation. In our industry, the macroeconomic environment and oil prices have a significant impact on our financial results and stock price performance. As a result, our AIP is designed to focus management’s day-to-day efforts on outcomes largely within its control. The AIP payout for executive officers is primarily determined based on enterprise performance results that align with the company’s business strategy and apply to all employees.

 

2019 Enterprise Metrics

  

Weighting

 

Environment, Health & Safety (4 measures)

  

 

20%

 

Production

  

 

20%

 

Capital and Exploratory Spend

  

 

15%

 

Controllable Operated Cash Costs

  

 

15%

 

Returns and Cash Flow (2 measures)

  

 

15%

 

Exploration Resource Additions

  

 

15%

 

Total

  

 

100%

 

Payouts under the AIP depend on enterprise performance results and can range from 0% to 175% of target. An individual performance multiplier can reduce the annual incentive payout down to zero or increase it by up to 25% of target based on actual individual performance results measured against pre-defined individual performance goals. There will be no payout associated with an enterprise metric if the threshold level for the metric is not achieved. The payout is capped at 200% of the target award.

The enterprise performance metrics are selected each year to reflect the core operating functions of our management team through the business cycle and are approved by the committee. The metrics provide a balance of annual and long-term objectives for the business, as described below:

 

   

Environment, Health and Safety: Direct inclusion in our AIP underscores the importance of sustainability, health and safety and its integration into our strategy and operations, incentivizing management to continue to build on our industry leading performance in these areas.

 

   

Production and Operated Cash Costs tie to our annual financial results. The management team is incentivized to meet or exceed production goals but not at the expense of profitability or safety.

 

LOGO    2020 PROXY STATEMENT    27


Table of Contents

Executive Compensation + Compensation Discussion and Analysis

 

 

   

Capital Spend, Exploration Resource Additions, Cash Returns and EBITDAX primarily tie to our future results. In the offshore industry, it takes several years from the exploration of a resource to the generation of revenue. The board believes combining incentives for growing the resource base while also requiring adherence to a set capital budget with an emphasis on returns and cash flow, properly incentivizes management to grow our resource base without over-spending to achieve a short-term target. In 2018, based on stockholder feedback, we added EBITDAX as an additional metric to help drive the company’s financial performance, to improve profitability and cash flow and to emphasize the importance of strategic decisions to become profitable in a volatile market.

ILLUSTRATION OF AIP DESIGN

 

 

Target Cash

Incentive

Opportunity

($)

 

 

  X  

 

 

Enterprise Performance

Payout Range:

0%-175% of target

 

 

  X  

 

 

Individual Performance

Modifier

(0% - 114%)

 

 

  =  

 

 

Actual Cash

Incentive Award

($)

Actual Cash Incentive Awards. The following table shows actual performance as a percent of target based on the 2019 results for each component of the AIP, and the actual cash incentive award for each NEO. The following discussion explains how the payouts for each component were determined. No individual performance adjustments were made for our NEOs.

 

Name

 

  

2019 Target
Cash
Incentive
Opportunity

 

    

X

2019 Enterprise
Performance as
% of Target

 

    

X

2019 Individual
Performance
Modifier

 

 

=

 

 

    

2019 Actual
Cash

Incentive
Award

 

 

Hess, John B.

CEO

  

$

2,250,000

 

  

 

145.8%     

 

  

100%

    

$

3,280,500

 

Hill, Gregory P.

COO & President E&P

  

$

1,430,000

 

  

 

145.8%     

 

  

100%

    

$

2,084,900

 

Goodell, Timothy B.

SVP & GC

  

$

700,000

 

  

 

145.8%     

 

  

100%

    

$

1,020,600

 

Rielly, John P.

SVP & CFO

  

$

700,000

 

  

 

145.8%     

 

  

100%

    

$

1,020,600

 

Turner, Michael R.

SVP, Global Production

  

$

375,000

 

  

 

145.8%     

 

  

100%

          

$

546,800

 

Rigorous Target Setting for Enterprise Performance Metrics. The committee follows a rigorous target setting process each year to ensure the AIP includes challenging, yet achievable, targets for executives. The enterprise metrics are selected each year to reflect the core operating functions of our management team through the business cycle.

Given the evolution of our portfolio, including significant divestitures over the last several years, comparing changes in target levels on a year-over-year basis is not representative of the level of difficulty in achieving these targets. The committee relied on a thorough process and believes that targets for 2019 were set with sufficient rigor to create the proper incentives for the executive team for each of the enterprise performance metrics. For example, the committee used the company’s public production and capital budget guidance as the threshold performance level for these metrics. If the company did not meet guidance on production or capital budget, those portions of each of the AIP would have resulted in a $0 payout. The above target payout is the result of exceeding guidance. Additionally, the committee expanded two EHS metrics for 2019 to include not only severe events but also events that are significant, further emphasizing the importance of EHS to the company’s strategy.

 

28      2020 PROXY STATEMENT   

LOGO


Table of Contents

Executive Compensation + Compensation Discussion and Analysis

 

 

2019 Enterprise Performance Metrics. The following table details our 2019 goals for enterprise performance metrics and actual results.

 

2019 Metric

  Rationale for Use  

2019

Threshold /Target/
Maximum

 

2019

Result

   

Metric

Payout

 

Environment, Health &

Safety (4 measures)(1)

 

•  Protects employees, contractors, communities, reputation and ensures safe operations

 

Varies by measure

   

 

129

Production

 

•  Aligned to growth

•  Primary output of E&P investments

 

275 / 280 / 285 (MBOED)

 

 

290

(2) 

 

 

175

Capital and Exploratory

Spend(3)

 

•  Aligned to sustainability and profitability

 

2,990 / 2,850, / 2,700 ($MM)

 

 

2,743

 

 

 

154

Controllable Operated Cash Costs

 

•  Management of expenses to maximize cash margin

•  Controllable component of cash margin

 

1,240 / 1,180 / 1,120 ($MM)

 

 

1,152

 

 

 

135

Returns and Cash Flow

 

•  Measure company’s use of capital (CROCE)

 

11.4 / 12.9 / 15.7 (%)

 

 

13.2

 

 

 

109

(2 measures, CROCE & EBITDAX)

 

•  Measure ability to generate cash from operations (EBITDAX)

 

2,830 / 3,185 / 3,780 ($MM)

 

 

3,143

 

 

 

91

Exploration Resource Additions(4)

 

•  Aligned to sustainability

•  Aligned to growth

 

82 / 100 / 124 (%)

 

 

Maximum

 

 

 

175

(1)  Includes 4 measures (equally weighted): SAP Integrity Critical Maintenance Compliance, Leadership Site Visits & Safety Observations, Severe + Significant Safety Incident Rate, and Severe + Significant Environment Incident Rate.

(2)  Excludes Libya. 2019 result is rounded.

(3)  Excludes Midstream.

(4)  Target performance goal reflects risked, net entitlement volumes for wells drilled in 2019. Performance above target required exceptional results and caused a payout above target.

 

 

 

 

Total:

 

 

 

 

 

 

145.8

 

   

2019 Enterprise Performance. EHS remains a core focus of management, and the company delivered significantly ahead of expectations on three of the four EHS measures. In 2018, we reduced our Severe Safety Incident and Severe Environmental Incident rates by over 40% compared to 2017 and in 2019 these two EHS metrics were expanded to include not only Severe but also Significant events, further emphasizing the importance of delivering on our pledge to have “everyone, everywhere, every day home safe.” We delivered at the maximum performance level on our Severe and Significant Environmental Incident rate. While we narrowly missed the threshold performance level set for our Severe and Significant Safety Incident Rate, our safety and environmental performance record was still among the best in our industry.

To emphasize our production delivery and capital budget, the threshold for payout on the Production and Capital and Exploratory Spend metrics are based on our public guidance range. The target and maximum payout levels were set above our budget and the top end of guidance. In 2019, we considerably exceeded our public guidance for production and our spending was below guidance, resulting in above target payout on the Capital and Exploratory Spend metric and a maximum payout on the Production metric.

The Exploration Resource Addition metric far exceeded the target goal and paid out at the maximum level, driven by our outstanding exploration success in Guyana.

We controlled costs and delivered on our strategic priorities safely and under budget. Our disciplined approach to improving operational efficiencies also drove Controllable Operated Cash Costs below budget for an above target pay-out level. Cash Return on Capital Employed and EBITDAX approximated target performance, due to strong production performance offsetting decreased commodity prices.

The committee maintains discretion to reduce the AIP payouts below achievement levels. The committee believes that management continued exceptional performance in 2019, which will result in long-term value for the company, and that a payout in-line with the formulaic, metrics-driven AIP determination was appropriate.

Assessment of Individual Performance. We assess individual performance based on goals set at the beginning of each year, specific to each NEO. Following year-end, achievement of these pre-defined performance goals is assessed. The CEO conducts performance reviews for his direct reporting NEOs and makes compensation recommendations to the committee based on these reviews, with the committee making the final award determination. The cumulative assessment against these objectives for each NEO determines the modifier used (if any) to influence the final payout of their annual incentive award. The target LTI value for any NEO can be adjusted down to zero or increased by up to 25%, based on each individual performance assessment. This review can also influence the grant date dollar value of LTI compensation and base salary adjustments for the subsequent year.

 

LOGO    2020 PROXY STATEMENT    29


Table of Contents

Executive Compensation + Compensation Discussion and Analysis

 

 

The committee chairperson and chairman of the board facilitate a process with the full board of directors to review the CEO self-assessment of prior year performance and discuss specific feedback on that performance against pre-established operational, financial and organizational performance objectives. Upon review of this collective feedback, the committee makes CEO award determinations for base salary increases, annual incentive awards and long-term incentive award dollar values. Other considerations by the committee in the compensation determinations include external market reference points and overall enterprise and share price performance.

In March 2019, the committee approved the individual performance objectives for our CEO and other NEOs. None of the objectives had specific weighting, but rather each objective is intended to be used together with other information the committee determines relevant to develop a holistic evaluation of individual performance. In the first quarter of 2020, the committee evaluated 2019 performance for each NEO against the approved performance objectives and in light of external market trends and enterprise performance. For Mr. Hess, the committee conducted the process described above, reviewed and considered his 2019 performance self-assessment, collectively discussed feedback on the performance objectives outlined below and concluded that his 2019 performance met or exceeded expectations.

 

 

Performance vs. Goals for our Chief Executive Officer

 

   

Strategic Initiatives

•  Production from Liza Phase 1 in Guyana commenced ahead of schedule and under budget

 

•  Completed five successful exploration wells in Guyana during 2019, which increased the successful wells to 15 out of 17 wells drilled on the Stabroek Block, increasing estimated recoverable resources by 60% from year end 2018

 

•  Liza Phase 2 development project in Guyana was sanctioned and first oil is expected by 2022

 

•  Oversaw Hess Midstream Partners LP acquisition of Hess Infrastructure Partners LP and conversion into a simplified, Up-C corporate structure, improving long-term value

 

•  In the Gulf of Mexico, the Llano 5 tieback opportunity was successfully completed and began production; the Esox exploration well was also successful with first production achieved in February 2020

 

 

 

Annual Operations and Financial Goals

•  Met or exceeded all targets for corporate and Bakken production, cash costs and capital and exploratory expenditures in 2019

 

•  Overall production of 290 Mboe/d and Bakken production of 152 Mboe/d exceeded public guidance

 

•  E&P capital spend of $2.74 billion was significantly under public guidance of $2.90 billion

 

•  Net proved reserve additions and revisions in 2019 of 121 million boe and exceeded exploration resource target

 

Environment, Health, Safety & Sustainability

•  Proactively addressing climate change by conducting carbon asset risk scenario planning; demonstrating leadership in the industry by updating our climate change position; decreasing flaring and greenhouse gas emission (GHG) intensities; commissioning Hess GHG Taskforce to evaluate additional emission reduction opportunities and advocating for a clearly articulated climate change position for the industry

 

•  Published our 22nd annual Sustainability Report; Hess’ sustainability practices continue to be recognized by third party organizations: earned leadership status for the 11th consecutive year in CDP’s 2019 Global Climate Analysis, the only U.S. oil and gas producer to do so; included in Corporate Responsibility Magazine’s 100 Best Corporate Citizens for the 12th consecutive year and the Dow Jones sustainability Index for North America for the 10th consecutive year

 

•  Supporting the Salk Institute’s Harnessing Plants Initiative research and development program to advance the process to enhance the natural abilities of plants to store CO2

 

Corporate Reputation and Relationship Building

•  Maintained robust dialogue with investors, including more than 130 investor meetings

 

•  Continued meaningful engagement with employees through town halls, leadership dialogues and focus groups

 

•  Advanced Hess’ interests as a spokesperson for the industry, including speaking at CERAWeek, the World Economic Forum in Davos, among others, and conducted numerous interviews with trade media about industry challenges

 

•  Maintained strong relationships with global industry leaders and government officials on corporate and industry issues

 

 

 

Messrs. Hill, Goodell, Rielly and Turner contributed to the positive outcomes listed above. In addition, specific to each individual, the committee considered, among other things, the items listed below, as well as input from the CEO and other members of the board of directors.

 

30      2020 PROXY STATEMENT   

LOGO


Table of Contents

Executive Compensation + Compensation Discussion and Analysis

 

 

Mr. Hill managed the delivery of key commitments to organizational changes and enterprise cost reductions. He was instrumental in achieving the exploration success in Guyana and first production at the Liza Field as well as delivering overall production, costs and capital and exploratory expenditures that met or exceeded assigned targets. He continued to improve our environmental incident rates. Mr. Hill oversaw our successful transition to plug and perf completions in the Bakken, leading to increased initial production rates while significantly reducing the costs to drill and complete these wells. In addition to managing the relationships with our strategic production partners, Mr. Hill is a crucial presence in shareholder engagements through participation in numerous investor and industry conferences.

Mr. Goodell delivered key business targets as evidenced by the company’s recognized excellence in corporate governance and world-class sustainability practices. Mr. Goodell is responsible for our global legal strategy regarding compliance, governance and litigation matters. Mr. Goodell also oversees our external affairs activities, internal communications teams and plays a critical role in the company’s award-winning inclusion and diversity program.

Mr. Rielly delivered key business and financial targets as set forth in his performance goals. He played a critical role in our investor engagement activities, representing the company at various investor and industry conferences and was integral to the Hess Midstream Partners LP acquisition of Hess Infrastructure Partners LP and conversion into a simplified, Up-C corporate structure. Mr. Rielly oversaw the extension of the company’s revolving credit agreement to May 2023 as well as the company’s 2020 hedging program that has put options for 130,000 barrels of oil per day at $55 per barrel WTI and 20,000 barrels of oil per day at $60 per barrel Brent. He provided fiscal discipline associated with our cost reduction program, which had a significant impact on operational and financial efficiencies.

Mr. Turner delivered key business targets as set forth in his performance goals. He delivered overall production that exceeded our target and the top end of our public guidance range, delivered capital expenditures below our target and stewarded the achievement of the company’s safety and environmental performance. Mr. Turner was a significant contributor to the reduction of our operating cost per barrel as well as our successful transition to plug and perf wells in the Bakken.

After reviewing the 2019 pre-defined individual performance goals in light of the overall enterprise financial performance, the committee made no individual adjustments to annual incentive payments for the NEOs, as described above.

LTI Program Structure. Long-term incentive compensation is an important tool to drive behavior that supports our long-term business strategy. LTI compensation is also an important retention tool and aligns employee interests with stockholder interests. As a result, LTI compensation represents the largest portion of each executive officer’s target total direct compensation package. When determining the appropriate mix of LTI awards, the committee considers the typical time horizons of investment decisions for Hess’ business and industry, the current commodity price environment, the current performance metric for PSUs and market practice. For 2019, the committee determined to maintain the long-term incentive mix for Mr. Hess, which links 100% of his target LTI compensation to performance. As a result, 60% of Mr. Hess’ target LTI award was in the form of PSUs and 40% in the form of stock options. The committee also maintained the LTI mix for the company’s other NEOs for 2019. For such NEOs, 80% of the target LTI compensation was performance-contingent, with 60% in the form of PSUs, 20% in the form of stock options and the remaining 20% in the form of restricted stock.

 

LOGO

 

LOGO    2020 PROXY STATEMENT    31


Table of Contents

Executive Compensation + Compensation Discussion and Analysis

 

 

Payout of PSUs is contingent upon the company’s TSR compared with that of our peer companies, identified on page 33, over a three-year period. In addition, our TSR must be positive during the three-year performance period for payout to exceed target, even if the company outperforms peers. Use of stock options, which remain exercisable for ten years, is supported by the company’s capital intensive industry, where the time horizon for investment decisions often extends over many years. Stock options, which only provide value upon absolute stock price appreciation, also reinforce a balance between relative and absolute stock price performance goals, given that the PSU payout is primarily based on relative TSR. Use of restricted stock promotes retention and aligns long-term interests of employees and stockholders.

Timing of LTI Awards. In general, awards of restricted stock, stock options and PSUs to the NEOs are made in early March after our financial statements have been audited by our independent public accountants. However, the committee retains discretion to vary the timing of awards as it deems appropriate.

Terms of LTI Awards. Restricted stock awards and stock options vest annually in equal installments over a three-year period from the date of grant and stock options remain exercisable for ten years after the date of grant. PSUs, if earned, vest 100% following the completion of the three-year performance period. We believe these vesting periods are appropriate and are generally consistent with market practice. Generally, all our awards are subject to continued employment.

Shares of restricted stock are entitled to dividend equivalents if and when such dividend equivalents are paid on shares of common stock. Dividends accrued on shares of restricted stock are paid upon vesting. To the extent earned, performance share units will be paid in shares of common stock which will vest and be issued following the end of the performance period. Dividend equivalents for PSUs will only be paid on earned PSUs, after the completion of the applicable performance period.

Value of LTI Awards. We aim to provide long-term incentive awards such that together with total cash compensation, target total direct compensation is within a competitive range of market median. Compensation is intended to vary based on company and individual performance outcomes. The committee determines individual award levels based on comparative market data for the executive’s position, award levels of comparably-situated executives, and an assessment of individual potential and sustained performance. In making awards to any individual, the committee does not consider his or her gains made, or failure to achieve gains, on prior restricted stock, stock option or performance share unit awards.

The chart below reflects the payout matrix for the 2019 PSU awards based on the company’s 2019 peer group, described below. In defining the PSU payout schedule, the following guiding principles were used: for maximum payout, performance must be approximately top 15% versus our peers; for target payout, performance must exceed median; for threshold payout, approximately 25th percentile must be achieved and no payout is earned for performance below 25th percentile. In addition, as described above, the payout can only exceed target if our TSR during the performance measurement period is positive, regardless of relative positioning versus peers.

 

 

LOGO

 

  (1)

Includes Hess Corporation

2017 PSU Award Payout. In February 2020, the committee certified performance results with respect to the 2017 to 2019 performance period and determined that 200% of PSUs were earned with respect to the 2017 award to be paid out in 2020, illustrating exceptional performance of the company’s stock relative to peers. Hess ranked second among peers for the performance period and was one of only two companies with a positive TSR over this period.

 

32      2020 PROXY STATEMENT   

LOGO


Table of Contents

Executive Compensation + Compensation Discussion and Analysis

 

 

Peer Group

The committee engages with our compensation consultant annually to identify a peer group that is an appropriate comparative group from a compensation and performance perspective. To make this determination, the committee focuses solely on domestic E&P companies and looks at factors including revenue, market capitalization, total assets, production, and whether the company lists Hess as a peer. Our peer group has evolved over the years as we have changed, but the peer group for 2019 consists of the same companies as 2018, except for Anadarko Petroleum Corporation, which was removed after it was acquired by Occidental Petroleum Corporation during 2019.

 

2019 Peer Group – 11 Companies

 

Apache Corporation

  

Devon Energy Corporation

  

Noble Energy, Inc.

Chesapeake Energy Corporation

  

EOG Resources, Inc.

  

Occidental Petroleum Corporation

ConocoPhillips

  

Marathon Oil Corporation

  

Pioneer Natural Resources Co.

Continental Resources, Inc.

 

  

Murphy Oil Corporation

 

    

As discussed above, we generally target total direct compensation (salary, annual incentive and long-term incentives) within a competitive range of market median. Overall, our review found that target total direct compensation of our NEOs was aligned with our executive compensation philosophy.

2020 Peer Group. In early 2020, the committee approved the addition of the S&P 500 Total Return Index as a comparator for evaluating performance of the 2020 PSU awards. The inclusion of the S&P 500 Total Return Index provides a unique and challenging metric that extends the comparator group beyond industry peers and measures the company’s performance against the broader market. The committee also removed Chesapeake Energy Corporation from the peer group due to the substantial decrease in its market capitalization and its business focus no longer being comparable to the company, reducing the company’s 2020 peer group to 10 comparator companies plus the S&P 500 Total Return Index. The committee believes these two changes further align executive pay with long-term stockholder interests.

Process for Determining Compensation and Role of Compensation Consultants

The committee has exclusive authority for approving the compensation of the CEO and the other NEOs. Human resources management, acting under the supervision of the CEO, develops compensation recommendations for all officers and employees, including the NEOs, in accordance with the compensation philosophy and policies more fully described elsewhere in this CD&A.

To assist in its review of the compensation recommendations, the committee directly engaged the firm Semler Brossy Consulting Group LLC (“Semler Brossy”) as its independent compensation consultant. Semler Brossy reported exclusively to the committee, which has sole authority to engage, dismiss and approve the terms of engagement of its consultant. During 2019, Semler Brossy did not provide any additional services to the company. The committee assessed the independence of Semler Brossy pursuant to SEC and NYSE rules, and concluded that no conflict of interest concerns exist.

The compensation consultant’s principal responsibility is to advise the committee on compensation recommendations for the NEOs, as well as on general matters relating to executive compensation strategy and programs. The CEO meets with the committee and the compensation consultant to discuss performance objectives and review compensation recommendations for executive officers directly reporting to him, including the other NEOs. Thereafter, the committee meets privately with the independent compensation consultant to review the compensation recommendations. Final decisions on compensation for the NEOs are made solely by the committee.

Additional Information

Other Benefits. We have adopted certain broad-based employee benefit plans in which executive officers are permitted to participate on the same terms as other eligible employees of the company, subject to applicable limits imposed on contributions and benefits under applicable law. Our objective is that the value of these benefits be competitive with what is offered by companies in our peer group. In addition to group life insurance and health and welfare plans, we have a savings plan under which participants can elect to invest (subject to contribution limits imposed by law) up to 50% of pre-tax or after-tax salary in a variety of funds, one of which invests in our common stock, and the company provides matching contributions up to approximately 6% of pre-tax salary for each participant, which are invested at the discretion of the participant.

 

LOGO    2020 PROXY STATEMENT    33


Table of Contents

Executive Compensation + Compensation Discussion and Analysis

 

 

Pension Benefits. As explained elsewhere in this proxy statement, all of our employees hired prior to January 1, 2017 are eligible for both a qualified defined benefit pension plan and a non-qualified supplemental plan (the restoration plan referred to in the Pension Benefits table) that provides only the benefits that would otherwise be paid to participants under the qualified pension plan but for limitations imposed by the Internal Revenue Code (the “Code”). On January 1, 2017, we closed the existing final average pay formula pension plan to new employees and introduced a cash balance pension plan for new hires which has a restoration component. Employees are eligible to participate in our pension plans after one year of service and vest in the final average pay retirement benefit after five years of service. The vesting requirement for the cash balance plan is three years. All of our NEOs are participants in the final average pay formula pension plan. While benefits from the qualified final average pay formula pension plan are payable as monthly annuities beginning at retirement, benefits from the restoration plan are payable in a single lump sum at first retirement eligibility, but no earlier than six months following termination of employment. The value of the lump sum payment is determined by the benefit formula and various assumptions, including the interest rate which is used to determine the equivalent present value of the amount that would be payable monthly if the restoration plan paid annuities. Benefits from the cash balance pension plan are payable as a lump sum or annuity, per the employee’s election.

Prior to 2010, the committee granted additional years of credited service under our pension restoration plan to Messrs. Hill and Rielly as part of the compensation packages necessary to recruit them. In 2009, the committee gave Mr. Hill credit for ten years of service with his prior employer, upon completion of five years of service with the company. Mr. Hill worked for over 25 years with Royal Dutch Shell plc and its affiliates, most recently in senior executive positions. This agreement was intended to compensate Mr. Hill for the difference between the pension benefits he would have received from his prior employer had he retired from his prior employment at age 60 and the pension benefits he would have received, absent such credited service, under the company’s pension plans for his retirement at the same age. The additional years of service for Mr. Rielly are equal to his service with his prior employer, and his supplemental benefits are offset by his pension benefits from his prior employer. Mr. Rielly had more than 16 years of experience with Ernst & Young LLP. He had a successful career at his prior employer and would have continued to accrue years of service under the pension plan of his prior employer. Again, the committee believed that an award of credited service was necessary to compensate this executive for the loss of pension benefits and to induce him to join the company. In addition, Mr. Turner was granted an additional $1,850,000 lump sum in the pension restoration plan conditional on his reaching age 60 at retirement. This agreement was intended to compensate Mr. Turner for the difference in pension benefits at retirement under the plans of his prior employer, Royal Dutch Shell, and the company’s plans. In the event that the company initiates a termination of employment (other than for cause) prior to that time, a prorated portion of the payment would be due.

Perquisites. The company did not provide perquisites or personal benefits valued at $10,000 or more to any of our NEOs in 2019. While we from time to time offer a very limited amount of perquisites and other personal benefits to our NEOs, perquisites are not a material part of our compensation program. The committee periodically reviews the levels of perquisites and other personal benefits provided to our NEOs.

Management Stock Ownership Guidelines. In order to further align the interests of senior management and stockholders, we maintain stock ownership guidelines for corporate officers. The guidelines provide that each corporate officer should attain a specified level of ownership of shares of the company’s common stock equal in value to a multiple of the their base salary within five years of the later of the date of adoption of the guidelines and the officer’s first election to his or her role.

 

Role

  

Requirement     

(multiple of base salary)       

Chief Executive Officer

   6x

Chief Operating Officer

   4x

Senior Vice Presidents

   3x

Vice Presidents

   1x

Our NEOs maintain significant ownership in Hess stock. Mr. Hess, our CEO, beneficially owns approximately 10.79% of our outstanding shares, and the other NEOs, on average, own approximately eight times base salary. This reflects significant alignment of interests between our NEOs and our stockholders. Currently, shares owned outright by an executive, restricted stock and stock held in an executive’s savings plan account are counted for purposes of determining stock ownership levels. Stock options and unvested performance share units are not counted.

 

34      2020 PROXY STATEMENT   

LOGO


Table of Contents

Executive Compensation + Compensation Discussion and Analysis

 

 

Anti-hedging and Anti-pledging Policies. Under our hedging policy, we prohibit directors and all employees (including executive officers) from trading in derivative or other instruments in order to hedge the economic risks of holding the company’s stock received as long-term equity incentive awards under our compensation programs. Our hedging policy does not allow any type of hedge strategy that involves creating downside protection, or that will generate an offsetting gain, in the event of a decline in the value of our stock including, but not limited to, transactions involving purchasing put or selling call options, collars or forward sales contracts. However, derivative strategies that only increase downside risk and upside gains are permitted. Employees may not hedge movements in company stock held in our employee’s savings plan, issued stock or stock options they own even if they are fully vested. The purpose of our hedging policy is to align the interests, including the economic risk of ownership, of directors, employees and stockholders. In addition, we do not permit our executives to pledge shares of company stock in which they have a financial interest.

Recoupment (“Clawback”) Policy. In the event that the company is required to prepare an accounting restatement due to the material noncompliance of the company with any financial reporting requirement under U.S. securities laws, the company has the right to recover from any current or former executive officer (not only NEOs) of the company who received incentive-based compensation (including stock options awarded as compensation) during the three-year period preceding the date on which the company is required to prepare an accounting restatement, based on the erroneous data, in excess of what would have been paid to the executive officer under the accounting restatement. The committee has full authority and discretion to administer this policy and all determinations of the committee are final and binding. This policy operates in addition to any compensation recoupment provided for by law or by the company’s long-term incentive plans. Once final rules are effective regarding clawback requirements under the Dodd-Frank Act, the company intends to review its compensation recoupment policy and, if necessary, amend such policy to comply with the new mandates.

In addition, in the event of misconduct by an employee that results in material noncompliance with financial reporting requirements, we reserve the right to take all appropriate action to remedy the misconduct, discipline such officer or employee and prevent its recurrence, including (i) termination of employment of such officer or employee and forfeiture of outstanding equity awards, (ii) commencing an action for breach of fiduciary duty and/or (iii) seeking reimbursement of any compensation paid in excess of that which would have been paid in the absence of such noncompliance, either by legal action or by offsetting other amounts owed by the company to such officer or employee to the extent permissible.

Change-in-Control Agreements. As explained in greater detail elsewhere in this proxy statement, we have change-in-control agreements with certain executives, including our NEOs, that provide for a lump sum cash payment equal to a multiple of the executive’s compensation, as well as other benefits, if (1) there is a change in control, as defined in the agreements, and (2) the executive is actually or constructively terminated within 24 months following a change in control (“double-trigger”). We believe these agreements are necessary to remain competitive with the overall compensation packages afforded by companies in our peer group. We also believe these agreements work to provide security to our executives, many of whom would have key roles in negotiating and implementing a potential change-in-control transaction, and further align their interests with the best long-term interests of stockholders. In 2010, the committee decided to eliminate “golden parachute” excise tax gross-up provisions from any such agreements entered into in the future. As a result, our change-in-control agreement with Mr. Turner, which was entered into during 2015, does not contain a tax gross up provision.

Tax Deductibility of Compensation. Section 162(m) of the Internal Revenue Code places a limit of $1 million per year on the amount of compensation paid to certain of our executive officers that the company may deduct from our federal income tax return for any single taxable year. There was an exception to the $1 million limitation for performance-based compensation meeting certain requirements. The material terms of our incentive plans that were previously approved by stockholders allowed us to grant certain cash incentive compensation and LTI awards that were designed to meet the definition of performance-based compensation which qualified for the exception to the $1 million deduction limit. The Tax Cuts and Jobs Act of 2017 repealed the performance-based compensation exception described in this paragraph. Following enactment of the Tax Cuts and Jobs Act of 2017, we generally expect that compensation paid to our CEO, CFO and other applicable Covered Employees in excess of $1 million will not be deductible, subject to a transition rule for compensation provided pursuant to a binding written contract in effect as of November 2, 2017 that is not materially modified after such date. To the extent applicable to our existing plans and previously granted awards, the company may avail itself of this transition rule. However, because of uncertainties as to the application and interpretation of the transition rule, no assurances can be given at this time that our existing

 

LOGO    2020 PROXY STATEMENT    35


Table of Contents

Executive Compensation + Compensation Discussion and Analysis

 

 

plans and previously granted awards, even if in place on November 2, 2017, will meet the requirements of the transition rule. To maintain flexibility in compensating executive officers in a manner designed to promote varying corporate goals in the best interest of the company, the committee does not limit its actions with respect to executive compensation to preserve deductibility under Section 162(m) if the committee determines that doing so is in the best interests of the company.

Accounting Implications. In designing our compensation and benefit programs, the committee reviews and considers the accounting implications of its decisions, including the accounting treatment of amounts awarded or paid to executives.

Compensation Committee Report

The committee has reviewed and discussed the Compensation Discussion and Analysis section with management, and based on this review and discussion, the committee recommended to the board of directors that the Compensation Discussion and Analysis section be included in this proxy statement and incorporated by reference into the 2019 annual report on Form 10-K.

Compensation and Management Development Committee Members:

Risa Lavizzo-Mourey, Chair

Terrence J. Checki

Marc S. Lipschultz

David McManus

James H. Quigley

Compensation Committee Interlocks and Insider Participation

None of the current members of the compensation and management committee (whose names appear under “Compensation Committee Report”) is, or has ever been, an officer or employee of the company or any of its subsidiaries. In addition, during the last fiscal year, no executive officer of the company served as a member of the board of directors or the compensation committee of any other entity that has one or more executive officers serving on our board of directors or our compensation and management committee.

 

36      2020 PROXY STATEMENT   

LOGO


Table of Contents

Executive Compensation + Summary Compensation Table

 

 

Summary Compensation Table

 

The following table sets forth information regarding compensation paid to or accrued for the last three fiscal years to the CEO, the chief financial officer and the three other most highly compensated executive officers, for services in all capacities to the company and its subsidiaries.

 

  Name &

  Principal Position

  (a)

Year
(b)

Salary
($)

(c)

Bonus(1)

($)

(d)

Stock
Awards(2)
($)

(e)

Option
Awards(3)
($)

(f)

Non-Equity

Incentive

Plan
Compensation(1)

($)

(g)

Change
in Pension
Value &
Nonqualified
Deferred
Compensation
Earnings(4)
($)

(h)

All Other

Compensation(5)

($)

(i)

Total
($)

(j)

 

Hess, John B.

CEO

 

 

 

 

2019

 

 

 

 

 

 

 

1,500,000

 

 

 

 

 

 

 

—  

 

 

 

 

 

 

 

4,499,973

 

 

 

 

 

 

 

2,999,996

 

 

 

 

 

 

 

3,280,500

 

 

 

 

 

 

 

1,190,848

 

 

 

 

 

 

 

22,344

 

 

 

 

 

 

 

13,493,661

 

 

 

 

 

2018

 

 

 

 

1,500,000

 

 

 

 

—  

 

 

 

 

4,499,996

 

 

 

 

2,999,999

 

 

 

 

3,550,500

 

 

 

 

—  

 

 

 

 

21,945

 

 

 

 

12,572,440

 

 

 

 

2017

 

 

 

 

1,500,000

 

 

 

 

—  

 

 

 

 

5,985,021

 

 

 

 

2,565,005

 

 

 

 

2,693,300

 

 

 

 

1,807,034

 

 

 

 

21,546

 

 

 

 

14,571,906

 

 

 

Hill, Gregory P.

COO & President E&P

 

 

 

 

2019

 

 

 

 

 

 

 

1,100,000

 

 

 

 

 

 

 

—  

 

 

 

 

 

 

 

3,780,026

 

 

 

 

 

 

 

945,005

 

 

 

 

 

 

 

2,084,900

 

 

 

 

 

 

 

3,710,906

 

 

 

 

 

 

 

22,344

 

 

 

 

 

 

 

11,643,181

 

 

 

 

 

2018

 

 

 

 

1,100,000

 

 

 

 

—  

 

 

 

 

3,780,007

 

 

 

 

944,993

 

 

 

 

2,256,500

 

 

 

 

619,341

 

 

 

 

21,945

 

 

 

 

8,722,787

 

 

 

 

2017

 

 

 

 

1,100,000

 

 

 

 

—  

 

 

 

 

3,780,012

 

 

 

 

944,993

 

 

 

 

1,711,700

 

 

 

 

2,029,095

 

 

 

 

21,546

 

 

 

 

9,587,346

 

 

 

Goodell, Timothy B.

SVP & GC

 

 

 

 

2019

 

 

 

 

 

 

 

750,000

 

 

 

 

 

 

 

—  

 

 

 

 

 

 

 

1,600,053

 

 

 

 

 

 

 

400,002

 

 

 

 

 

 

 

1,020,600

 

 

 

 

 

 

 

765,098

 

 

 

 

 

 

 

22,344

 

 

 

 

 

 

 

4,558,097

 

 

 

 

 

2018

 

 

 

 

750,000

 

 

 

 

—  

 

 

 

 

1,599,987

 

 

 

 

399,994

 

 

 

 

1,104,600

 

 

 

 

251,703

 

 

 

 

21,945

 

 

 

 

4,128,229

 

 

 

 

2017

 

 

 

 

750,000

 

 

 

 

—  

 

 

 

 

1,599,999

 

 

 

 

399,997

 

 

 

 

837,900

 

 

 

 

660,228

 

 

 

 

21,546

 

 

 

 

4,269,670

 

 

 

Rielly, John P.

SVP & CFO

 

 

 

 

2019

 

 

 

 

 

 

 

775,000

 

 

 

 

 

 

 

—  

 

 

 

 

 

 

 

1,600,053

 

 

 

 

 

 

 

400,002

 

 

 

 

 

 

 

1,020,600

 

 

 

 

 

 

 

3,182,625

 

 

 

 

 

 

 

22,344

 

 

 

 

 

 

 

7,000,624

 

 

 

 

 

2018

 

 

 

 

775,000

 

 

 

 

—  

 

 

 

 

1,599,987

 

 

 

 

399,994

 

 

 

 

1,104,600

 

 

 

 

77,224

 

 

 

 

21,945

 

 

 

 

3,978,750

 

 

 

 

2017

 

 

 

 

775,000

 

 

 

 

—  

 

 

 

 

1,599,999

 

 

 

 

399,997

 

 

 

 

837,900

 

 

 

 

1,551,307

 

 

 

 

21,546

 

 

 

 

5,185,749

 

 

 

Turner, Michael R.

SVP, Global Production(6)

 

 

 

 

2019

 

 

 

 

 

 

 

625,000

 

 

 

 

 

 

 

—  

 

 

 

 

 

 

 

1,240,003

 

 

 

 

 

 

 

310,000

 

 

 

 

 

 

 

546,800

 

 

 

 

 

 

 

946,241

 

 

 

 

 

 

 

22,344

 

 

 

 

 

 

 

3,690,338

 

 

 

 

 

2018

 

 

 

 

625,000

 

 

 

 

59,100

 

 

 

 

1,239,984

 

 

 

 

309,996

 

 

 

 

591,800

 

 

 

 

301,809

 

 

 

 

21,945

 

 

 

 

3,149,634

 

 

  2017  

 

611,538

 

 

  —     1,240,026   310,006   448,900   505,742   21,546   3,137,758
(1)

The amounts shown in column (d) represent the discretionary component of the Annual Incentive Plan (“AIP”), reflecting individual performance. No discretionary adjustments were made in 2019. See “Assessment of Individual Performance” in the Compensation Discussion and Analysis. The amounts shown in column (g) represent the components of the AIP relating to the attainment of enterprise performance metrics, paid to the NEOs, as discussed more fully under “2019 Enterprise Performance Metrics” in the Compensation Discussion and Analysis.

 

(2)

Represents the aggregate grant date fair value of PSUs and restricted stock computed in accordance with ASC 718. A discussion of the valuation assumptions is in Note 11, Share-based Compensation, to our consolidated financial statements included in our annual report on Form 10-K for the year ended December 31, 2019.

 

(3)

Represents the aggregate grant date fair value for stock options computed in accordance with ASC 718. A discussion of the valuation assumptions is in Note 11, Share-based Compensation, to our consolidated financial statements included in our annual report on Form 10-K for the year ended December 31, 2019.

 

(4)

As described in the Compensation Discussion and Analysis, Hess offers pension benefits to all U.S. employees consisting of the Employee’s Pension Plan (“EPP”) and the Pension Restoration Plan (“PRP”). There were no changes to either the EPP or PRP during 2019. The Pension Value for Mr. Hess decreased by $4,266,688 in 2018 primarily due to the (i) increase in the assumed discount rate used to value lump sums under the Hess Pension Restoration Plan and (ii) the fact that Mr. Hess has met the age and service requirements for unreduced early retirement benefits and remained in employment at Hess. The value of the unreduced early retirement benefits decreases with age due to the decrease in life expectancy. The effect of these decreases exceeded the value of benefits earned under the EPP and PRP in 2018. In 2019, the assumed discount rate decreased, which is the primary reason the pension value increased for each NEO in 2019.

 

(5)

Represents matching contributions by the company credited to the NEOs under the company’s employees’ savings plan.

 

(6)

Mr. Turner’s employment with the company was terminated without cause on April 3, 2020.

 

LOGO    2020 PROXY STATEMENT    37


Table of Contents

Executive Compensation + Grants of Plan-Based Awards

 

 

Grants of Plan-Based Awards

 

On March 5, 2019, the committee established target bonuses and approved awards of performance shares, stock options and restricted stock to the NEOs. The following table sets forth information concerning potential payouts under the AIP and for performance share awards made under our long-term incentive plan for 2019 and individual grants of restricted stock and stock options made under our long-term incentive plan for 2019 to each of the NEOs:

 

     

 

Estimated Future Payouts
Under Non-Equity Incentive
              Plan Awards(1)              

Estimated Future Payouts
Under Equity Incentive
              Plan Awards(2)              

All Other
Stock
Awards:
Number
of Shares
of Stock
or Units
(#)

(j)

All Other
Option
Awards:
Number of
Securities
Underlying
Options
(#)

(k)

Exercise
Price of
Option
Awards
($ / Sh)

(l)

Grant Date
Fair Value of
Stock &
Option
Awards(3)($)

(m)

Name

(a)

Award Type

(b)

Grant
Date

(c)

Threshold
($)

(d)

Target
($)

(e)

Maximum
($)

(f)

Threshold
(#)

(g)

Target
(#)

(h)

Maximum
(#)

(i)

 

Hess, John B.

 

Performance Shares

 

 

 

06-Mar-19

 

 

 

 

31,535

 

 

 

 

63,069

 

 

 

 

126,138

 

 

 

 

4,499,973

 

 

Stock Options

 

 

 

06-Mar-19

 

 

 

 

165,929

 

 

 

 

56.74

 

 

 

 

2,999,996

 

 

AIP

 

 

 

1,125,000

 

 

 

 

2,250,000

 

 

 

 

3,937,500

 

 

 

Hill, Gregory P.

 

Performance Shares

 

 

 

06-Mar-19

 

 

 

 

19,867

 

 

 

 

39,734

 

 

 

 

79,468

 

 

 

 

2,835,021

 

 

Restricted Stock

 

 

 

06-Mar-19

 

 

 

 

16,655

 

 

 

 

945,005

 

 

Stock Options

 

 

 

06-Mar-19

 

 

 

 

52,268

 

 

 

 

56.74

 

 

 

 

945,005

 

 

AIP

 

 

 

715,000

 

 

 

 

1,430,000

 

 

 

 

2,502,500

 

 

 

Goodell, Timothy B.

 

Performance Shares

 

 

 

06-Mar-19

 

 

 

 

8,410

 

 

 

 

16,819

 

 

 

 

33,638

 

 

 

 

1,200,036

 

 

Restricted Stock

 

 

 

06-Mar-19

 

 

 

 

7,050

 

 

 

 

400,017

 

 

Stock Options

 

 

 

06-Mar-19

 

 

 

 

22,124

 

 

 

 

56.74

 

 

 

 

400,002

 

 

AIP

 

 

 

350,000

 

 

 

 

700,000

 

 

 

 

1,225,000

 

 

 

Rielly, John P.

 

Performance Shares

 

 

 

06-Mar-19

 

 

 

 

8,410

 

 

 

 

16,819

 

 

 

 

33,638

 

 

 

 

1,200,036

 

 

Restricted Stock

 

 

 

06-Mar-19

 

 

 

 

7,050

 

 

 

 

400,017

 

 

Stock Options

 

 

 

06-Mar-19

 

 

 

 

22,124

 

 

 

 

56.74

 

 

 

 

400,002

 

 

AIP

 

 

 

350,000

 

 

 

 

700,000

 

 

 

 

1,225,000

 

 

 

Turner, Michael R.

 

 

Performance Shares

 

 

 

06-Mar-19

 

 

 

 

6,517

 

 

 

 

13,034

 

 

 

 

26,068

 

 

 

 

929,976

 

 

Restricted Stock

 

 

 

06-Mar-19

 

 

 

 

5,464

 

 

 

 

310,027

 

 

Stock Options

 

 

 

06-Mar-19

 

 

 

 

17,146

 

 

 

 

56.74

 

 

 

 

310,000

 

 

AIP

 

 

 

187,500

 

 

 

 

375,000

 

 

 

 

656,250

 

 

(1)

The amount shown in columns (d), (e) and (f) above represent the threshold, target and maximum payouts for the components of the 2019 AIP relating to the attainment of enterprise performance metrics. “Threshold” represents the lowest payout if the threshold level of performance is achieved for every performance metric. “Maximum” represents a payout at 175% of target. The actual amounts paid for 2019 relating to these components are shown in column (g) of the Summary Compensation Table.

 

(2)

Relates to PSU awards issued under the Hess Corporation 2017 Long-Term Incentive Plan. Actual payout of shares earned will range from 0 to 200% of the units granted based on the relative performance of the company’s TSR over the three-year performance period ending December 31, 2021, compared with that of 11 peer companies in the company’s peer group described on page 33 and payouts, if any, will occur following the committee’s certification of performance results in 2022 upon the completion of the three-year performance period. “Target” is the number of PSUs awarded in 2019. “Threshold” represents the lowest possible payout if a payout is made (50% of the units granted).

 

(3)

The grant date fair value of restricted stock awards is determined by multiplying the number of shares of stock awarded as shown in column (j) by the closing price of the company’s common stock on the date of grant. A discussion of the valuation assumptions is in Note 11, Share-based Compensation, to our consolidated financial statements included in our annual report on Form 10-K for the year ended December 31, 2019. The grant date fair value of PSUs granted is determined by multiplying the number of units granted as shown in column (h) by the fair value of the award as determined by a Monte Carlo valuation model ($71.35). The grant date fair value of Stock Options granted is determined by multiplying the number of options granted by the Black-Scholes Value. A discussion of the valuation assumptions is in Note 11, Share-based Compensation, to our consolidated financial statements included in our annual report on Form 10-K for the year ended December 31, 2019.

Equity awards under our long-term incentive plans are discussed in the “Compensation Discussion and Analysis” under the heading “LTI Program Structure.” Non-equity incentive plan awards are discussed in the “Compensation Discussion and Analysis” under the heading “Annual Incentive Plan.”

 

38      2020 PROXY STATEMENT   

LOGO


Table of Contents

Executive Compensation + Outstanding Equity Awards at Fiscal Year End

 

 

Outstanding Equity Awards at Fiscal Year End

 

The following table shows outstanding equity awards held by the NEOs at the end of the last fiscal year.

 

        Stock Awards
  Option Awards   Restricted Stock   Performance Share Units

Name

(a)

Number of
Securities
Underlying
Unexercised
Options
Exercisable
(#)
(b)

Number of
Securities
Underlying
Unexercised
Options
Unexercisable
(#)(4)

(c)

Option
Exercise
Price
($)
(d)
Option
Expiration
Date
(e)
 

Number of
Shares or
Units of
Stock That
Have Not
Vested

(#)(8)
(f)

Market Value
of Shares or
Units of
Stock That
Have Not
Vested
($)(8)
(g)
 

Number of
Unearned
Shares,
Units or
Other Rights
That Have Not
Vested

(#)(13)

(h)

Market Value
of Shares or
Units of Stock
That Have
Not Vested

($)(14)
(i)

Hess, John B.

  208,890   —     60.07   03-Feb-20   503,466 (9)   33,636,563
  150,930   —     83.88   02-Feb-21
  73,885   —     80.35   04-Mar-24
  90,476   —     74.49   03-Mar-25
  213,945   —     44.31   01-Mar-26
  117,850   58,925 (1)   51.03   06-Mar-27
  73,046   146,092 (2)   48.48   06-Mar-28
  —     165,929 (3)   56.74   06-Mar-29

Hill, Gregory P.

  62,145   —     83.88   02-Feb-21   35,824 (5)   2,393,401   281,786 (10)   18,826,123
  41,028   —     80.35   04-Mar-24
  45,000   —     74.49   03-Mar-25
  7,090   —     44.31   01-Mar-26
  43,418   21,709 (1)   51.03   06-Mar-27
  23,009   46,019 (2)   48.48   06-Mar-28
  —     52,268 (3)   56.74   06-Mar-29

Goodell, Timothy B.

  49,740   —     60.07   03-Feb-20   15,164 (6)   1,013,107   119,274 (11)   7,968,696
  35,505   —     83.88   02-Feb-21
  17,385   —     80.35   04-Mar-24
  19,048   —     74.49   03-Mar-25
  30,009   —     44.31   01-Mar-26
  18,378   9,189 (1)   51.03   06-Mar-27
  9,739   19,479 (2)   48.48   06-Mar-28
  —     22,124 (3)   56.74   06-Mar-29

Rielly, John P.

  49,740   —     60.07   03-Feb-20   15,164 (6)   1,013,107   119,274 (11)   7,968,696
  35,505   —     83.88   02-Feb-21
  17,385   —     80.35   04-Mar-24
  19,048   —     74.49   03-Mar-25
  30,009   —     44.31   01-Mar-26
  18,378   9,189 (1)   51.03   06-Mar-27
  9,739   19,479 (2)   48.48   06-Mar-28
  —     22,124 (3)   56.74   06-Mar-29

Turner, Michael R.

  21,660   —     83.88   02-Feb-21   11,752 (7)   785,151   92,438 (12)   6,175,783
  13,228   —     80.35   04-Mar-24
  14,762   —     74.49   03-Mar-25
  —     7,122 (1)   51.03   06-Mar-27
  —     15,096 (2)   48.48   06-Mar-28
  —     17,146 (3)   56.74   06-Mar-29
(1)

Options vest in equal installments annually over a three-year period from the date of grant of March 6, 2017 if the NEO continues to be employed.

 

(2)

Options vest in equal installments annually over a three-year period from the date of grant of March 6, 2018 if the NEO continues to be employed.

 

(3)

Options vest in equal installments annually over a three-year period from the date of grant of March 6, 2019 if the NEO continues to be employed.

 

(4)

Options may become exercisable earlier in full upon death, disability, normal retirement or a change in control. At the discretion of the committee, upon early retirement of an awardee, options not then exercisable may become exercisable in proportion to the calendar days elapsed in the vesting period up to the early retirement date. The options remain exercisable until the tenth anniversary of the date of grant, except in cases of termination of employment for reasons other than death, disability, normal retirement or early retirement, in which case options remain exercisable only for specified periods. If a grantee’s employment terminates (other than by reason of death, disability or retirement) before these options become exercisable, they will be forfeited.

 

LOGO    2020 PROXY STATEMENT    39


Table of Contents

Executive Compensation + Outstanding Equity Awards at Fiscal Year End

 

 

(5)

Shares of restricted stock vest provided the NEO continues to be employed as follows: 18,222 on March 6, 2020, 12,050 on March 6, 2021, and 5,552 on March 6, 2022.

 

(6)

Shares of restricted stock vest provided the NEO continues to be employed as follows: 7,713 on March 6, 2020, 5,101 on March 6, 2021, and 2,350 on March 6, 2022.

 

(7)

Shares of restricted stock vest provided the NEO continues to be employed as follows: 5,977 on March 6, 2020, 3,953 on March 6, 2021, and 1,822 on March 6, 2022.

 

(8)

Shares of restricted stock may vest earlier in full upon normal retirement, death, permanent total disability or a change in control, with proportional vesting at the discretion of the committee in the case of early retirement. The amount listed in column (g) represents the product of the closing market price of the company’s stock as of December 31, 2019 ($66.81) multiplied by the number of shares of stock subject to the award.

 

(9)

Number of shares shown in the table is based on achieving maximum performance goals for each of the PSUs granted in 2017 (226,448 shares), 2018 (150,880) and 2019 (126,138 shares). Actual payout of shares earned will range from zero to 200 percent of the units granted and will occur following the three-year performance periods ending December 31, 2019, December 31, 2020 and December 31, 2021 for the 2017, 2018 and 2019 grants respectively. In February 2020, the committee certified payout of the 2017 PSUs at 200%.

 

(10)

Number of shares shown in the table is based on achieving maximum performance goals for each of the PSUs granted in 2017 (107,264 shares), 2018 (95,054 shares) and 2019 (79,468). Actual payout of shares earned will range from zero to 200 percent of the units granted and will occur following the three-year performance periods ending December 31, 2019, December 31, 2020 and December 31, 2021 for the 2017, 2018 and 2019 grants respectively. In February 2020, the committee certified payout of the 2017 PSUs at 200%.

 

(11)

Number of shares shown in the table is based on achieving maximum performance goals for each of the PSUs granted in 2017 (45,402 shares), 2018 (40,234 shares) and 2019 (33,638). Actual payout of shares earned will range from zero to 200 percent of the units granted and will occur following the three-year performance periods ending December 31, 2019, December 31, 2020, and December 31, 2021 for the 2017, 2018 and 2019 grants respectively. In February 2020, the committee certified payout of the 2017 PSUs at 200%.

 

(12)

Number of shares shown in the table is based on achieving maximum performance goals for each of the PSUs granted in 2017 (35,188 shares), 2018 (31,182 shares) and 2019 (26,068). Actual payout of shares earned will range from zero to 200 percent of the units granted and will occur following the three-year performance periods ending December 31, 2019, December 31, 2020, and December 31, 2021 for the 2017, 2018 and 2019 grants respectively. In February 2020, the committee certified payout of the 2017 PSUs at 200%.

 

(13)

PSUs may vest earlier upon termination or a change in control as described under “Potential Payments upon Termination or Change in Control” beginning on page 43.

 

(14)

Value of PSUs reflects maximum performance level for PSUs granted in 2017, 2018 and 2019 based on the closing price of $66.81 on December 31, 2019 as required by the SEC disclosure rules. Actual performance attained as of December 31, 2019 was at maximum performance for PSUs granted in 2017 and for each respective truncated performance period for PSUs granted in 2018 and 2019. Actual payments at vesting of the PSU grants could be different based on final performance results. The performance period for the 2017 grants concluded on December 31, 2019, but the award remained unearned and unvested, subject to the committee’s certification of performance results. In February 2020, the committee certified payout on the 2017 PSUs at 200%.

 

40      2020 PROXY STATEMENT   

LOGO


Table of Contents

Executive Compensation + Option Exercises and Stock Vested

 

 

Option Exercises and Stock Vested

 

The following table sets forth information as to the NEOs regarding the exercise of stock options and the vesting of restricted stock and performance share units under the long-term incentive plan during the last fiscal year:

 

                                                                  Stock Awards                                                      
                      Option Awards                                     Restricted Stock                           Performance Share Units        

Name

(a)

 

Number of Shares
Acquired on
Exercise (#)
(b)

 

 

Value Realized
on Exercise ($)
(c)

 

 

Number of Shares
Acquired on
Vesting (#)
(d)

 

 

Value Realized
on Vesting ($)
(e)(1)

 

 

Number of Shares
Acquired on
Vesting (#)
(f)

 

 

Value Realized   
on Vesting ($)   

(g)(2)   

 

 

Hess, John B.

 

     

 

—  

 

 

     

 

—  

 

 

     

 

—  

 

 

     

 

—  

 

 

     

 

83,917

 

 

     

 

4,565,924

 

 

Hill, Gregory P.

 

     

 

101,111

 

 

     

 

1,662,057

 

 

     

 

30,798

 

 

     

 

1,792,617

 

 

     

 

35,754

 

 

     

 

1,945,375

 

 

 

Goodell, Timothy B.

 

     

 

—  

 

 

     

 

—  

 

 

     

 

13,036

 

 

     

 

758,768

 

 

     

 

15,134

 

 

     

 

823,441

 

 

 

Rielly, John P.

 

     

 

—  

 

 

     

 

—  

 

 

     

 

13,036

 

 

     

 

758,768

 

 

     

 

15,134

 

 

     

 

823,441

 

 

Turner, Michael R.

 

     

 

96,062