Incentive Plans

12 Months Ended

Dec. 31, 2024

Share-Based Payment Arrangement [Abstract]

Incentive Plans

Note I – Incentive Plans

Murphy utilizes cash-based and/or share-based incentive awards to supplement normal salaries as compensation for executive management and certain employees. For share-based awards that qualify for equity accounting, costs are recognized as an expense in the Consolidated Statements of Operations, using a grant date fair value-based measurement method, over the periods that the awards vest. For cash-settled equity awards that are required to be accounted for under liability accounting rules, costs are recognized as expense using a fair value-based measurement method over the vesting period, but expense is adjusted as necessary through the date the award value is finally determined. Total expense for liability awards is ultimately adjusted to the final intrinsic value for the award.

The Company currently has outstanding incentive awards issued to certain employees under the Annual Incentive Plan (AIP), the 2018 Long-Term Incentive Plan (2018 Long-Term Plan) and the 2020 Long-Term Incentive Plan (2020 Long-Term Plan). 

The AIP authorizes the Compensation Committee (the Committee) to establish specific performance goals associated with annual cash awards that may be earned by officers, executives and certain other employees. Cash awards under the AIP are determined based on the Company’s actual financial and operating results as measured against the performance goals established by the Committee.

The 2020 Long-Term Plan authorizes the Committee to make grants of the Company’s common stock to employees. These grants may be in the form of stock options (nonqualified or incentive), SARs, restricted stock, RSUs, performance units, performance shares, dividend equivalents and other stock-based incentives. The 2020 Long-Term Plan expires in 2030. A total of 5 million shares are issuable during the life of the 2020 Long-Term Plan. Shares issued pursuant to awards granted under this Plan may be shares that are authorized and unissued or shares that were reacquired by the Company, including shares purchased in the open market. Share awards that have been canceled, expired, forfeited or otherwise not issued under an award shall not count as shares issued under this Plan. Based on awards made to date, 1.2 million shares are available for grant under the 2020 Long-Term Plan at December 31, 2024.

The Company also has a Stock Plan for Non-Employee Directors (NEDs) that permits the issuance of RSUs and stock options or a combination thereof to the Company’s NEDs.

The Company currently has outstanding incentive awards issued to Directors under the 2021 Stock Plan for NEDs (2021 NED Plan) and the 2018 Stock Plan for NEDs. All awards on or after May 12, 2021, were made under the 2021 NED Plan.

The Company generally expects to issue treasury shares to satisfy the vesting of restricted stock and RSUs.

Amounts recognized in the financial statements with respect to share-based plans for each of the three years presented are shown in the following table.

(Thousands of dollars)	2024		2023		2022
Compensation charged against income before income tax benefit	$	40,831	$	58,760	$	74,587
Related income tax benefit recognized in income	5,513		9,330		12,710

As of December 31, 2024, there were $46.9 million in compensation costs, to be expensed over approximately the next three years, related to unvested share-based compensation arrangements granted by the Company. Employees receive net shares, after applicable withholding obligations, upon each stock option exercise and RSU vest. 

Equity-Settled Awards

PERFORMANCE-BASED RESTRICTED STOCK UNITS – PSUs to be settled in common shares were granted in 2022, 2023 and 2024 under the 2020 Long-Term Plan. Each grant will vest if the Company achieves specific performance objectives at the end of the designated performance period. Additional shares may be awarded if performance objectives are exceeded. If performance goals are not met, PSUs will not vest, but the recognized compensation cost associated with the stock award would not be reversed. The performance conditions for the PSUs are weighted 80% on the Company’s total shareholder return (TSR) relative to an industry peer group and 20% on the return on average capital employed (ROACE), measured over the applicable performance period. ROACE is calculated by dividing the Company’s EBITDA by the average of the opening and closing Capital Employed (the sum of total equity and short-term and long-term debt). During the performance period, PSUs are subject to transfer restrictions and are subject to forfeiture if a grantee terminates for reasons other than retirement, disability or death. Termination for these three reasons will lead to a pro rata award of amounts earned. No dividends are paid, nor do voting rights exist on awards of PSUs prior to their settlement.

The fair value of the PSUs based on the Company’s TSR was estimated on the date of grant using a Monte Carlo valuation model. Expected volatility was based on daily historical volatility of the Company’s stock price compared to a peer group average over a three-year performance measurement period. The risk-free interest rate is based on the yield curve of three-year U.S. Treasury bonds, and the stock beta was calculated using three years of historical averages of daily stock data for Murphy and the peer group. The assumptions used in the valuation of the performance awards granted in 2024, 2023 and 2022 are presented in the following table.

	2024	2023	2022
Fair value per share at grant date	$41.95	$60.46	$37.77 - $47.37
Assumptions
Expected volatility	50.00%	81.00%	79.00% - 81.00%
Risk-free interest rate	4.14%	3.90%	1.39% - 2.85%
Stock beta	1.062	1.034	1.195 - 1.200
Expected life	3.0 years	3.0 years	3.0 years

The fair value of the PSUs based on ROACE was estimated based on the average high/low price of the Company’s stock on the grant date.

Changes in PSUs outstanding for each of the last three years are presented in the following table.

(Number of stock units)	2024	2023	2022
Outstanding at beginning of year	1,818,188	2,148,467	2,670,756
Granted	536,900	409,160	595,700
Vested and issued	(938,599)	(408,135)	(654,177)
Forfeited	(24,068)	(331,304)	(463,812)
Outstanding at end of year	1,392,421	1,818,188	2,148,467

TIME-BASED RESTRICTED STOCK UNITS – Time-based RSUs have been granted to the Company’s NEDs under the 2021 NED Plan, and to certain employees under the 2020 Long-Term Plan.

The fair value of the time-based RSUs awarded for each of the last three years is presented in the following table.

Type of Plan	Valuation Methodology	2024	2023	2022
Non-Employee Directors 1	Closing Stock Price at Grant Date	$30.26 - $45.70	$43.27	$32.84
Long-Term Incentive Plan 2	Average High/Low Stock Price at Grant Date	$37.78 - $45.98	$42.20	$29.80 - $49.86

1 Under the 2021 NED Plan, RSUs granted in 2024 are scheduled to vest in February 2025.

2 The RSUs granted under the 2020 Long-Term Plan generally vest on the third anniversary of the date of grant.

Changes in RSUs outstanding for each of the last three years are presented in the following table.

(Number of share units)	2024	2023	2022
Outstanding at beginning of year	1,219,584	1,227,792	1,451,438
Granted	741,228	556,100	416,492
Vested and issued	(330,444)	(517,047)	(462,418)
Forfeited	(71,768)	(47,261)	(177,720)
Outstanding at end of year	1,558,600	1,219,584	1,227,792

STOCK OPTIONS – In 2017, the Company ceased the inclusion of stock options and SARs as a part of the long-term incentive compensation mix. As of December 31, 2023 there were no outstanding stock options. As of December 31, 2024, there were no outstanding SARs.

Prior to 2017, the Committee fixed the option price of each option granted at no less than fair market value (FMV) on the date of the grant and fixed the option term at no more than seven years from such date. Each option granted to date under the 2012 Long-Term Incentive Plan has been nonqualified, with a term of seven years and an option price equal to FMV at date of grant. Under these plans, one-half of each grant is generally exercisable after two years and the remainder after three years. For stock options, the number of shares issued upon exercise is reduced for settlement of applicable statutory income tax withholdings owed by the grantee.

The fair value of each option award was estimated on the date of grant using the Black-Scholes pricing model based on the assumptions noted in the following table. Expected volatility is based on historical volatility of the Company’s stock and implied volatility on publicly traded at-the-money options on the Company’s stock. The Company estimates the expected term of the options granted based on historical option exercise patterns and considers certain groups of employees exhibiting different behavior. The risk-free interest rate for periods within the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of grant.

Changes in stock options outstanding during the last three years are presented in the following table.

	Number of Shares	Average Exercise Price
Outstanding at December 31, 2021	1,319,500	$	37.77
Exercised	(760,500)	23.29
Forfeited	(546,000)	49.65
Outstanding at December 31, 2022	13,000	28.51
Exercised	(11,000)	28.51
Forfeited	(2,000)	28.51
Outstanding at December 31, 2023	—	—
Exercisable at December 31, 2021	1,319,500	34.25
Exercisable at December 31, 2022	13,000	28.51

Cash-Settled Awards

The Company has granted phantom stock-based incentive awards to be settled in cash to certain employees in the form of SARs and CRSUs.

SAR awards have terms similar to stock options. CRSUs generally settle on the third anniversary of the date of grant. Each award granted is settled, net of applicable income tax withholdings, in cash rather than with common shares. Total pretax expense recorded in the Consolidated Statements of Operations for all cash-settled stock-based awards was $1.7 million in 2024, $29.4 million in 2023 and $49.3 million in 2022.

The Committee also administers the Company’s incentive compensation plans, which provide for annual or periodic cash awards to officers, directors and certain other employees. These cash awards are generally determinable based on the Company achieving specific financial and/or operational objectives. Compensation expense of $37.1 million, $30.9 million and $42.9 million was recorded in 2024, 2023 and 2022, respectively, for these plans.