NOTE 12STOCK-BASED INCENTIVE PLANS

Occidental has established several plans that allow it to issue stock-based awards including in the form of RSUs, stock options (Options), stock appreciation rights (SARs), ROCEI/ROAI and TSRIs. An aggregate of 66 million shares of Occidental common stock were authorized for issuance and approximately 17 million shares had been issued through December 31, 2014. Of the remaining shares, only approximately 20 million shares are available for grants of future awards because a plan provision requires each share covered by an award (other than Options and SARs) to be counted as if three shares were issued in determining the number of shares that are available for future awards. Accordingly, the number of shares available for future awards may be less than 20 million depending on the type of award granted. Additionally, under the plan, the shares available for future awards may increase, depending on the award type, by the number of shares currently unvested or forfeitable, or three times that number as applicable, that (i) fail to vest, (ii) are forfeited or canceled, or (iii) correspond to the portion of any stock-based awards settled in cash.

During 2014, non-employee directors were granted awards for 28,283 shares of common stock. Compensation expense for these awards was measured using the quoted market price of Occidental’s common stock on the grant date and was fully recognized at that time.

California Resources Spin-off Adjustments

In connection with the separation of California Resources, Occidental entered into an Employee Matters Agreement with California Resources, which provided that employees of California Resources no longer participate in incentive programs sponsored or maintained by Occidental. Pursuant to the Employee Matters Agreement, Occidental made certain adjustments, using volumetric weighted-average prices for the 4-day period immediately prior to and immediately following the separation, to the exercise price and number of share-based compensation awards, with the intention of preserving the intrinsic value of the awards immediately prior to the separation for all Occidental employees. These adjustments are summarized as follows:

Any unvested long-term incentive award units or shares, including Total Shareholder Return Incentives (TSRI), Return on Capital Employed Incentives (ROCEI), Return on Asset Incentives (ROAI), Restricted Stock Incentives (RSI), Long-Term Incentives (LTI) and Phantom Share Units (PHSU) were adjusted by multiplying the pre-spin number of units held by the quotient of the simple average of the volume weighted average price per share of Oxy stock for the four trading days immediately prior to and the four trading days immediate after the date of spin-off. Post-spin units were rounded up to the next whole number.

For outstanding option awards, the strike price was adjusted (reduced) by the same quotient as described above.

Performance periods, performance targets and vesting dates of Long-Term Incentive awards were not adjusted.

Pursuant to the terms of all outstanding TSRI awards, the spin-off was treated as a dividend.

The separation-related adjustments did not have a material impact on either compensation expense for the year ended December 31, 2014, or the number of potentially dilutive securities as of December 31, 2014.

The following table summarizes total share-based compensation expense recognized in income related to continuing and discontinued operations and the associated tax benefit for the years ended December 31:

For the years ended December 31, (in millions)	2014		2013		2012
Compensation expense	$	129	$	152	$	78
Income tax benefit recognized in the income statement	46		55		29
Intrinsic value of options and stock-settled SARs exercised	5		24		18
Cash paid (a)	95		96		83
Fair value of RSUs and TSRIs vested during the year (b)	56		83		28

(a)

Includes cash paid under the cash-settled portion of the SARs, RSUs and TSRIs.

(b)

As measured on the vesting date for the stock-settled portion of the RSUs and TSRIs.

As of December 31, 2014, unrecognized compensation expense for all unvested stock-based incentive awards was $160 million. This expense is expected to be recognized over a weighted-average period of 2.0 years.

RSUs

Certain employees are awarded the right to receive RSUs, some of which have performance criteria, and are in the form of, or equivalent in value to, actual shares of Occidental common stock. Depending on their terms, RSUs are settled in cash or stock at the time of vesting. These awards vest ratably over three years, or at the end of two or three years, following the grant date, however, certain of the RSUs are forfeitable if performance objectives are not satisfied by the seventh anniversary of the grant date. For certain three-year RSUs, dividend equivalents are paid during the vesting period. For those awards that cliff vest in two or three years, dividend equivalents are accumulated during the vesting period and are paid when they vest.

The weighted-average, grant-date fair values of cash-settled RSUs granted in 2014, 2013 and 2012 were $100.95, $89.70, and $84.38 per share, respectively. The weighted-average, grant-date fair values of the stock-settled RSUs granted in 2014, 2013, and 2012 were $101.77, $90.35 and $84.81, respectively.

A summary of changes in Occidental’s unvested cash- and stock-settled RSUs during the year ended December 31, 2014 is presented below:

	Cash-Settled					Stock-Settled
	RSUs (000’s)		Weighted-Average Grant-Date Fair Value			RSUs (000’s)		Weighted-Average Grant-Date Fair Value
Unvested at January 1	1,431			$	90.12	1,607			$	90.26
Granted	726			100.95		785			101.77
Vested	(641	)		92.46		(553	)		94.34
Shares issued upon California Resources spin-off	76			—		95			—
Shares forfeited by employees of California Resources	(396	)		90.70		(412	)		93.30
Forfeitures	(79	)		91.00		(97	)		92.13
Unvested at December 31	1,117			89.42		1,425			88.98

TSRIs

Certain executives are awarded TSRIs that vest at the end of a three-year period following the grant date if performance targets are certified as being met. TSRIs granted in July 2014 and 2013 have payouts that range from 0 to 150 percent of the target award; TSRIs granted in 2012 have payouts that range from 0 to 100 percent of the maximum award. All outstanding TSRIs settle fully in stock once certified. Dividend equivalents for TSRIs are accumulated and paid upon vesting for the number of vested shares.

The fair values of TSRIs are initially determined on the grant date using a Monte Carlo simulation model based on Occidental’s assumptions, noted in the following table, and the volatility from corresponding peer group companies. The expected life is based on the vesting period (Term). The risk-free interest rate is the implied yield available on zero coupon T-notes (US Treasury Strip) at the time of grant with a remaining term equal to the Term. The dividend yield is the expected annual dividend yield over the Term, expressed as a percentage of the stock price on the grant date. Estimates of fair value may not accurately predict the value ultimately realized by the employees who receive the awards, and the ultimate value may not be indicative of the reasonableness of the original estimates of fair value made by Occidental.

The grant-date assumptions used in the Monte Carlo simulation models for the estimated payout level of TSRIs were as follows:

	TSRIs
Year Granted	2014			2013			2012
Assumptions used:
Risk-free interest rate	1.0		%	0.6		%	0.4		%
Dividend yield	2.8		%	2.8		%	2.6		%
Volatility factor	27		%	30		%	34		%
Expected life (years)	3			3			3
Grant-date fair value of underlying Occidental common stock	$	101.95		$	91.97		$	84.57

A summary of Occidental’s unvested TSRIs as of December 31, 2014, and changes during the year ended December 31, 2014, is presented below:

	TSRIs
	Awards (000’s)		Weighted-Average Grant-Date Fair Value of Occidental Stock
Unvested at January 1 (a)	832			$	92.49
Granted (a)	106			101.95
Vested (a)	(300	)		102.97
Forfeitures	(16	)		90.65
Shares issued upon California Resources spin-off	33			—
Shares forfeited by employees of California Resources	(82	)		87.28
Unvested at December 31 (a)	573			84.22

(a)

Presented at the target or mid-point payouts.

STOCK OPTIONS AND SARs

Certain employees have been granted Options that are settled in stock and SARs that are settled either only in stock or only in cash. Exercise prices of the Options and SARs were equal to the quoted market value of Occidental’s stock on the grant date. Generally, the Options and SARs vest ratably over three years from the grant date with a maximum term of ten years. These Options and SARs may be forfeited or accelerated under certain circumstances.

The fair value of each Option, stock-settled SAR or cash-settled SAR is initially measured on the grant date using the Black Scholes option valuation model. The expected life is estimated based on the actual weighted-average life of historical exercise activity of the grantee population at the grant date. The volatility factors are based on the historical volatilities of Occidental common stock over the expected lives as estimated on the grant date. The risk-free interest rate is the implied yield available on US Treasury Strips at the grant date with a remaining term equal to the expected life of the measured instrument. The dividend yield is the expected annual dividend yield over the expected life, expressed as a percentage of the stock price on the grant date. Estimates of fair value may not accurately predict the value ultimately realized by employees who receive stock-based incentive awards, and the ultimate value may not be indicative of the reasonableness of the original estimates of fair value made by Occidental.

The following is a summary of Option and SAR transactions during the year ended December 31, 2014:

	Cash-Settled						Stock-Settled
	SARs (000’s)	Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (yrs)	Aggregate Intrinsic Value (000’s)		SARs & Options (000’s)	Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (yrs)	Aggregate Intrinsic Value (000’s)
Beginning balance, January 1	352	$	24.66				145	$	42.11
Exercised	(352)	$	24.66				(87)	$	38.00
Shares issued upon California Resources spin-off	—	$	—				3	$	47.87
Ending balance, December 31	—	$	—	—	$	—	61	$	45.78	1.3	$	2,125
Exercisable at December 31	—	$	—	—	$	—	61	$	45.78	1.3	$	2,125

ROCEI / ROAI

During 2014, Occidental also granted approximately 141,000 share-equivalents to certain employees that vest at the end of a three-year period beginning January 1, 2015, if performance targets based on return on assets of the applicable segment or return on capital employed are certified as being met. These awards are settled in stock at the time of vesting, with payouts that range from 0 to 200 percent of the target award. Dividend equivalents are accumulated and paid upon vesting for the number of vested shares.

	ROCEI / ROAI
	Awards (000’s)		Weighted-Average Grant-Date Fair Value of Occidental Stock
Unvested at January 1	158			$	91.90
Granted	141			101.95
Shares issued upon California Resources spin-off	16			—
Shares forfeited by employees of California Resources	(33	)		87.28
Unvested at December 31	282			92.25