The Williams Companies, Inc. 2017 Proxy Statement
34
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JAMES E.
SCHEEL
Senior Vice President -
Northeast
G&P
Position held since
2014
Stock
ownership
(1)
>3x base salary
Performance-based
compensation
(2)
57% of total
compensation
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James E. Scheel, 52, has served as Senior Vice
President Northeast G&P since 2014. Previously, he was Senior Vice President Corporate Strategic Development of us and the general partner of Pre-merger Williams Partners from 2012 to 2014. From 2011 until 2012, Mr. Scheel served
as Vice President of Business Development for our midstream business. Mr. Scheel joined Williams in 1988 and has served in leadership roles in business strategic development, engineering and operations, our NGL business, and international
operations. Mr. Scheel has served as a director of the general partner of Williams Partners since the ACMP Merger, having previously served as a director of the general partner of Pre-merger Williams Partners from 2012 until the ACMP
Merger.
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2016 Target Compensation
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2016 Target Compensation
(3)
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Long-Term Incentives (LTI)
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$1,500,000
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Performance-based
RSUs
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$675,000
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Time-based RSUs
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$525,000
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Stock Options
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$300,000
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Short-Term
Incentive at Target
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Annual Incentive Program (AIP)
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$312,200
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Base Pay
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$446,000
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Total Target Compensation
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$2,258,200
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Retirement
Benefits
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Pension (year-over-year
change)
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$85,517
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Restoration Plan (year-over-year
change)
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$99,941
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401(k) Company Match
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$11,825
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Payment Upon Termination
(as of Dec 31, 2016)
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Voluntary Termination
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$0
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Termination with Cause
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$0
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Involuntary
Termination without Cause
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$4,581,068
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Retirement
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$0
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Death or
Disability
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$3,255,810
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Change in Control
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$5,678,460
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(1)
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Mr. Scheels ownership in our common stock exceeded the required NEO ownership threshold of three times base
salary. WMB shares owned outright and time-based RSUs count as owned for purposes of the program.
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(2)
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Performance-based compensation includes performance-based RSUs, stock options, and AIP.
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(3)
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2016 Target Compensation reflects target pay and consists of annual base pay, AIP at target, and the targeted long-term
incentive grant. These amounts will differ from the Summary Compensation Table. The retirement benefits are valued in the same manner shown in the Summary Compensation Table.
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The Williams Companies, Inc. 2017 Proxy Statement
35
Compensation Discussion & Analysis
The Compensation Discussion and Analysis (CD&A) provides a detailed description of the objectives and principles of Williams
executive compensation programs. It explains how compensation decisions are linked to performance as compared to the Companys strategic goals and stockholder interests. Generally, Williams executive compensation programs apply to all
officers; however, this CD&A focuses on the Named Executive Officers (NEOs) for the Company for the 2016 fiscal year. The NEOs for the Company for the 2016 fiscal year are Mr. Armstrong, Mr. Chappel, Mr. Seldenrust,
Mr. Miller, and Mr. Scheel.
We seek stockholder support on our executive compensation pay programs annually. In 2016, our stockholders
supported our programs with 99.3 percent for votes. In considering this positive response, along with our analysis of the competitive market, we have not made any material changes to our overall executive compensation program.
Our Commitment to Pay for Performance
Pay for Performance
We design our compensation programs to
support our commitment to performance. At target, 79 percent or more of an NEOs compensation will vary based on our company performance.
The Summary Compensation Table provides SEC required disclosures for the 2014, 2015, and 2016 calendar years. These
disclosures require the reporting of accounting based grant date fair values for all stock-based compensation. These values remain fixed in Summary Compensation Table disclosures and are not adjusted to reflect how the Companys business and/or
stock price performance actually impact the value of stock awards earned by our NEOs. To supplement the SEC required disclosure, the chart below compares the accounting grant date fair value of stock based awards for Mr. Armstrong in 2014,
2015, and 2016 compared to the realizable value as of December 31, 2016 at a stock price of $31.14. The realizable value shown for stock options includes the intrinsic value for each award on this date. The realizable value shown for time-based
restricted stock unit (RSU) awards includes accrued cash dividend equivalents on this date. Its important to note that since the 2014 performance-based awards did not meet the minimum performance requirements, the awards were
cancelled and Mr. Armstrong did not receive any value or shares from this award. The realizable amount for the 2015 performance-based RSUs and leveraged awards granted in 2014 are shown at $0 based on estimated performance utilizing the
December 31, 2016 stock price. The 2016 performance-based RSU awards are shown at target as it is too early in the performance period to estimate a payout. The Annual Incentive Program (AIP) award shows the target value compared to
actual award earned for the calendar year.
The Williams Companies, Inc. 2017 Proxy Statement
36
In order to demonstrate how the design of our executive pay program is aligned with the experience of
our stockholders, the chart also includes the Companys annualized total shareholder return (TSR) associated with 2014, 2015, and 2016 performance-based RSU awards at December 31, 2016. As shown below, Mr. Armstrongs
realizable incentive pay for the past three years ending December 31, 2016, is in aggregate,
only 55.1 percent of what was targeted for his incentive pay
. The
Compensation and Management Development Committee (Committee) believes it is important to demonstrate this strong correlation between executive pay and Company performance.
CEO Target Incentive Pay Compared to Realizable Incentive Pay
Note: Target Incentive Pay includes the grant date value of the equity awards as valued in the Summary Compensation
Table plus the AIP value at target performance.
The Williams Companies, Inc. 2017 Proxy Statement
37
Long-term Incentives
Annual equity awards provide the most significant differentiation in pay and performance in our executive compensation program. We use equity awards to
align compensation with the long-term interests of our stockholders. Equity awards consist of performance-based RSUs, time-based RSUs, and stock options. The largest component of an NEOs long-term incentive award is performance-based RSUs.
Historically, both relative and absolute TSR have been used to determine the actual number of units that will be distributed to an NEO upon vesting. We have been unique among our comparator companies in measuring both relative and absolute TSR to
determine results and ultimately the number of units that vest. Relative TSR gauges our TSR performance relative to our comparator companies while absolute TSR requires that we deliver a strong absolute TSR to our stockholders. The performance-based
RSUs awarded in 2013 for the performance period 2013 through 2015 generated an award of just 3.5 percent of target and distributed in February 2016. The amount earned from this award by Mr. Armstrong was just 2.4 percent of the original 2013
grant date value disclosed in the Summary Compensation Table. Additionally, the 2014 performance-based awards granted for the performance period 2014 through 2016 did not meet minimum performance requirements and did not earn a payout.
Mr. Armstrong did not receive any value or shares from this award. The combined grant date fair value of Mr. Armstrongs 2013 and 2014 performance-based awards were disclosed in prior Summary Compensation Tables as $4,633,297.
Mr. Armstrong received just 1.1 percent of the value of these awards, or $50,062, due to relative and absolute TSR results for the corresponding performance periods. We also consider stock options to be performance-based compensation. Stock
options only provide value to the extent that the Companys stock price has increased above the grant price. All three equity vehicles incent Company performance and most importantly align to the experience of the stockholder.
Annual Incentive Program
Our performance-based cash
compensation is paid under our AIP which is based on the Companys business and safety performance and the NEOs individual performance. Under this program, cash compensation reflects annual business performance and is based on weighted
measures of distributable cash flow, controllable costs, fee-based revenue, and safety performance.
2016
Business Overview
We marked 2016 with the continued expansion in the portfolio of opportunities led by growth on the demand side of the
natural gas market as we placed one Transco system expansion project into service during the year (Rock Springs); placed another Transco system expansion project into service in early 2017 (Gulf Trace) and began construction
on four other Transco system expansion projects in 2016 that are planned to be completed in 2017 (Dalton, Hillabee Phase 1, New York Bay, and Virginia Southside II).
In 2016, we continued to fortify our focus on natural gas market fundamentals and took several steps toward simplifying our structure, consolidating the
number of operating areas from five to three: Atlantic-Gulf, West and Northeast Gathering & Processing. Our disciplined approach drove lower expenses even as we brought new assets online. We also reduced commodity exposure, completing the
sale of our now former Canadian businesses in September 2016. And we continued to grow our fee-based revenues.
Despite the headwinds of low commodity
prices, we further positioned Williams in 2016 to take advantage of long-term natural gas demand growth in power generation, manufacturing and exports. In 2017, Williams Partners is planning to deploy between $2.1 and $2.8 billion for growth capital
and investment expenditures. Most of this planned spending is for fee-based projects, with approximately two-thirds of the total spending directed to fully contracted Transco projects supported by demand charges. We believe our financial
repositioning announced January 9, 2017 strengthens Williams and Williams Partners and boosts our growth outlook.
The Williams Companies, Inc. 2017 Proxy Statement
38
2016 Projects and Milestones
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In third-quarter 2016, our Rock Springs expansion was placed into service. The project expanded Transcos existing
natural gas transmission system from New Jersey to a generation facility in Maryland and increased capacity by 192 Mdth/d.
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In first-quarter 2017, the Gulf Trace expansion was placed into service. The project expanded Transcos existing
natural gas transmission system together with greenfield facilities to provide incremental firm transportation capacity from Station 65 in St. Helena Parish, Louisiana to a new interconnection with Sabine Pass Liquefaction in Cameron Parish,
Louisiana. It is expected to increase capacity by 1,200 Mdth/d. Much of the construction on this project was carried out in 2016.
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In fourth-quarter 2016, we executed a new gas gathering agreement in the Barnett Shale, in conjunction with our existing
customer, Chesapeake Energy Corporation, closing the sale of its Barnett Shale properties to another producer. The other producer, which has an investment grade credit rating, is now our customer under the new gas gathering agreement. The
restructured agreement provided a $754 million up-front cash payment to us primarily in exchange for eliminating future minimum volume commitments. The restructured agreement also provides for revised gathering rates.
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In third-quarter 2016, we agreed to a revised contract in the Mid-Continent region with Chesapeake Energy Corporation.
The revised contract was executed in the third quarter of 2016, and provided an up-front cash payment to us of $66 million primarily in exchange for changing from a cost of service contract to fixed-fee terms.
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In third-quarter 2016, we announced that we have initiated a process to explore monetization of our ownership interest in
the Geismar, Louisiana, olefins plant and complex, consistent with our strategy to narrow our focus and allocate capital to our natural gas-focused business.
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In third-quarter 2016, we completed the sale of our Canadian operations for total consideration of $1.02 billion.
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In third-quarter 2016, we announced organizational changes aiming to simplify our structure, increase direct operational
alignment to advance our natural gas-focused strategy, and drive continued focus on customer service and execution. Effective January 1, 2017, we implemented these changes, which combined the management of certain of our operations and reduced
the overall number of operating areas managed within our business.
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In fourth-quarter 2016, in conjunction with our partner in the Bucking Horse natural gas processing plant and Jackalope
Gas Gathering System, we announced an agreement with Chesapeake Energy Corporation to restructure gathering and processing contracts in the Powder River basin. The restructured contracts became effective in January 2017 and replaced the previous
cost-of-service arrangement with minimum volume commitments in the near-term such that we do not expect that our near-term trend of reported results will be significantly impacted by the restructured terms.
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In first-quarter 2016, the FERC issued a certificate order for the initial phases of Transcos Hillabee Expansion
Project. The project involves an expansion of Transcos existing natural gas transmission system from Station 85 in west central Alabama to a proposed new interconnection with the Sabal Trail project in Alabama. The project will be constructed
in phases, and all of the project expansion capacity will be leased to Sabal Trail. We plan to place the initial phase of the project into service concurrent with the in-service date of the Sabal Trail project, which is planned to occur as early as
the second quarter of 2017. The in-service date of the second phase of the project is planned for the second quarter of 2020 and together they are expected to increase capacity by 1,025 Mdth/d.
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The Williams Companies, Inc. 2017 Proxy Statement
39
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In second-quarter 2016, we received approval from the FERC for the Garden State project to expand Transcos existing
natural gas transmission system to provide incremental firm transportation capacity from Station 210 in New Jersey to a new interconnection on our Trenton Woodbury Lateral in New Jersey. The project will be constructed in phases and is expected to
increase capacity by 180 Mdth/d. We plan to place the initial phase of the project into service during the third quarter of 2017 and the remaining portion in the second quarter of 2018, assuming timely receipt of all necessary regulatory approvals.
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In third-quarter 2016, we received approval from the FERC for the New York Bay Expansion to expand Transcos
existing natural gas transmission system to provide incremental firm transportation capacity from Pennsylvania to the Rockaway Delivery Lateral transfer point and the Narrows meter station in Richmond County, New York. We plan to place the project
into service during the fourth quarter of 2017, and it is expected to increase capacity by 115 Mdth/d.
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In third-quarter 2016, we received approval from the FERC for the Virginia Southside II project to expand Transcos
existing natural gas transmission system together with greenfield facilities to provide incremental firm transportation capacity from Station 210 in New Jersey and Station 165 in Virginia to a new lateral extending from our Brunswick Lateral in
Virginia. We plan to place the project into service during the fourth quarter of 2017 and it is expected to increase capacity by 250 Mdth/d.
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In third-quarter 2016, we obtained approval from the FERC for the Dalton project to expand Transcos existing
natural gas transmission system together with greenfield facilities to provide incremental firm transportation capacity from Station 210 in New Jersey to markets in northwest Georgia. We plan to place the project into service in 2017 and it is
expected to increase capacity by 448 Mdth/d.
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In 2016, we completed additional tie-backs to our deepwater systems, with the Kodiak prospect now flowing across our
Devils Tower spar and the Gunflint prospect flowing across Gulfstar One.
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On September 28, 2015, we publicly announced that we had entered into a merger agreement with Energy Transfer
Equity, L.P. and certain of its affiliates. On June 29, 2016, Energy Transfer provided us written notice terminating the merger agreement, citing the alleged failure of certain conditions under the merger agreement.
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The accompanying chart compares Williams cumulative total shareholder return on our common stock (assuming reinvestment of dividends) to the
cumulative total return of the S&P 500 Stock Index and the median of our comparator company group. For more details on our comparator company group, see the CD&A section titled Determining Our Comparator Group. The graph below
assumes an initial investment of $100 at the beginning of the period on December 31, 2013.
The Williams Companies, Inc. 2017 Proxy Statement
40
Compensation Summary
Objective of Our Compensation Programs
The role of compensation is to attract and retain the talent needed to increase stockholder value and to help our businesses meet or exceed financial and
operational performance goals. Our compensation programs objectives are to reward our NEOs and employees for successfully implementing our strategy to grow our business and create long-term stockholder value. To that end, in 2016 we used
relative and absolute TSR to measure long-term performance; and we used distributable cash flow, controllable costs, fee-based revenue, and safety metrics to measure annual performance. We believe using separate long-term and annual metrics to
incent and pay NEOs helps ensure that the business decisions made were aligned with the long-term interests of our stockholders.
Our
Pay Philosophy
Our pay philosophy throughout the entire organization is to pay for performance, be competitive in the marketplace, and consider
the value a job provides to the Company. Our compensation programs reward NEOs not just for accomplishing goals, but also for how those goals are pursued. The principles of our pay philosophy influence the design and administration of our pay
programs. Decisions about how we pay NEOs are based on these principles. The Committee uses several types of pay that are linked to both our long-term and short-term performance in the executive compensation programs. Included are long-term
incentives, annual cash incentives, base pay, and benefits. The chart below illustrates the linkage between the types of pay we use and our pay principles.
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Pay Principles
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Long-term
Incentives
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Annual Cash
Incentives
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Base Pay
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Benefits
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Pay should reinforce business objectives and values.
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🌑
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🌑
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A significant portion of an NEOs total pay should be variable based on performance.
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🌑
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🌑
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Incentive pay should balance long-term, intermediate, and short-term performance.
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🌑
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🌑
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Incentives should align interest of NEOs with stockholders.
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🌑
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🌑
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Pay should foster a culture of collaboration with shared focus and commitment to our Company.
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🌑
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Incentives should enforce the value of safety within our Company.
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🌑
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Pay opportunities should be competitive.
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A portion of pay should be provided to compensate for the core activities required for performing in the role.
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The Williams Companies, Inc. 2017 Proxy Statement
41
Our Commitment to Pay for Performance
2016 Comparator Group
Determining Our Comparator Group
Companies in our comparator
group have a range of revenues, assets, market capitalization, and enterprise value. Business consolidation and unique operating models create some challenges in identifying comparator companies. Accordingly, we take a broad view of comparability to
include organizations that are similar to Williams. This results in compensation that is appropriately scaled and reflects comparable complexities in business operations. We typically aim for a comparator group of 15 to 20 companies so our
comparisons will be valid. The 2016 comparator group includes 18 companies which comprised a mix of both direct business competitors and companies with whom we compete for talent.
How We Use Our Comparator Group
We refer to publicly
available information to analyze our comparator companies practices including how pay is divided among long-term incentives, annual incentives, base pay, and other forms of compensation. This allows the Committee to ensure competitiveness and
appropriateness of proposed compensation packages. When setting pay, the Committee uses market median information of our comparator group, as opposed to market averages, to ensure that the impact of any unusual events that may occur at one or two
companies during any particular year is diminished from the analysis. If an event is particularly unusual and surrounded by unique circumstances, the data is completely removed from the assessment. Three of our comparator companies are not
considered in our aggregate pay statistics due to significant pay practice differences, but are still considered in the analysis of company performance with regard to our performance-based equity awards.
The Williams Companies, Inc. 2017 Proxy Statement
42
The following table shows the range of our 2016 comparator companies revenues, assets, market
capitalization, and enterprise value as originally reported for 2015. (
dollars in millions
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Company Name
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Ticker
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Revenue
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Total Assets
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Market
Capitalization
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Enterprise Value
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CENTERPOINT ENERGY
INC.
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CNP
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$
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7,386
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$
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21,334
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$
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7,895
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$
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15,640
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DEVON ENERGY CORP.
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DVN
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13,145
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29,532
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13,376
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28,119
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DOMINION RESOURCES
INC.
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D
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11,683
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58,797
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40,313
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69,595
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ENBRIDGE INC.
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ENB
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26,462
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61,226
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28,875
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66,068
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ENERGY TRANSFER
EQUITY LP
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ETE
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42,126
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71,189
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14,385
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75,325
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ENTERPRISE PRODUCTS
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EPD
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27,028
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48,952
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51,481
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74,359
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EOG
RESOURCES
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EOG
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8,757
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26,975
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38,925
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44,873
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KINDER MORGAN INC.
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KMI
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14,403
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84,104
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33,260
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74,768
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NISOURCE
INC.
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NI
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4,652
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17,493
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6,226
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13,130
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ONEOK INC.
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OKE
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7,763
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15,446
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5,172
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17,486
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PLAINS ALL AMERICAN
PIPELINE
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PAA
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23,152
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22,288
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9,188
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20,593
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PG&E
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PCG
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16,833
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63,339
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26,171
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43,275
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PIONEER NATURAL
RESOURCES
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PXD
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4,043
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15,154
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18,729
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21,000
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SEMPRA ENERGY CORP.
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SRE
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10,231
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41,150
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23,343
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38,326
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SOUTHERN CO.
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SO
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17,489
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78,318
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42,654
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71,539
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SPECTRA ENERGY CORP.
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SE
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5,234
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32,923
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16,064
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33,852
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TARGA RESOURCES
CORP.
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TRGP
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6,659
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13,254
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1,516
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11,926
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TRANSCANADA CORP.
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TRP
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8,848
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46,632
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22,974
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50,881
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75th percentile
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$
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17,325
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$
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60,619
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$
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32,164
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$68,713
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50th percentile
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10,957
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37,037
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20,852
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40,801
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25th percentile
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7,480
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21,573
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10,235
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20,695
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The Williams Companies, Inc.
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WMB
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$7,360
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$
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49,020
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$
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19,249
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$
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53,713
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Percent rank
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23%
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65%
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48%
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66%
|
|
The Committee determined that the following companies will be used to benchmark compensation practices and pay decisions
in 2017.
|
|
|
Pioneer Natural Resources
|
|
|
|
Plains All American Pipeline
|
A separate comparator group will be used to specifically measure Relative TSR as it pertains to the
2017 performance-based RSU awards.
|
|
|
Plains All American Pipeline
|
The Williams Companies, Inc. 2017 Proxy Statement
43
Our Pay Setting Process
During the first quarter of the year, the Committee completes a review to ensure we are paying competitively, equitably, and in a way that encourages and
rewards performance.
The compensation data of our comparator group, disclosed primarily in proxy statements, is the primary market data we use when
benchmarking the competitive pay of our NEOs. Aggregate market data obtained from recognized third-party executive compensation survey companies is used to supplement and validate comparator group market data.
|
|
|
|
|
Although the Committee reviews relevant data as it determines compensation packages, other considerations are taken into account.
Because market data alone does not reflect the strategic competitive value of various roles within our Company, internal pay equity is also considered when making pay decisions. Other considerations when making pay decisions for the NEOs include
individual experience, sustained performance, historical pay, realized and realizable pay over three years, and tally sheets that include annual pay and benefit amounts, wealth accumulated over the past five years, and the total aggregate value of
the NEOs equity awards and holdings.
|
|
|
|
Multiple internal and
external factors
are
considered when
determining NEO
compensation
packages
|
When setting pay, we determine a target pay mix (distribution of pay among long-term incentives, annual incentives, base
pay, and other forms of compensation) for the NEOs. Consistent with our pay-for-performance philosophy, the actual amounts paid, excluding benefits, are determined based on Company and individual performance. Because performance is a factor, the
target versus actual pay mix will vary, specifically as it relates to the annual cash incentives and long-term incentives.
|
|
|
|
|
CEO
2016 Total Compensation at Target Pay Mix
|
|
|
|
NEO (Excluding CEO)
2016 Total Compensation at Target Pay Mix
|
|
|
|
|
|
|
|
|
The Williams Companies, Inc. 2017 Proxy Statement
44
How We Determine the Amount for Each Type of Pay
Base pay, annual cash incentives, and long-term incentives accomplish different objectives. The table below illustrates a summary of the primary
objectives associated with each component of pay listed in the order of most significant to the NEOs total compensation. The table is followed by specific details regarding each pay component.
Base Pay
Base pay compensates the NEOs for carrying out the duties of their jobs and serves as the foundation of our pay program. Most other major components of
pay are set based on a relationship to base pay, including long-term and annual incentives, as well as retirement benefits.
Base pay for the NEOs,
including the CEO, is set considering the market median, with potential individual variation from the median due to experience, skills, and sustained performance of the individual as part of our pay-for-performance philosophy. Performance is
measured in two ways: through the Right Results obtained in the Right Way. Right Results considers the NEOs success in attaining their annual goals, operational and/or functional area strategies, and personal
development plans. Right Way reflects the NEOs behavior as exhibited through our organizational, operational, and people leadership competencies.
Annual Cash Incentives
As previously mentioned in the Our Commitment to Pay for Performance section, we pay annual cash
incentives to encourage and reward our NEOs for making decisions that improve our annual operating performance through our AIP. The objectives of our AIP are to:
|
|
|
Offer sufficient incentive compensation to motivate management to put forth extra effort, take prudent risks, and make
effective decisions to maximize stockholder value;
|
The Williams Companies, Inc. 2017 Proxy Statement
45
|
|
|
Motivate and incent management to choose strategies and investments that maximize long-term stockholder value;
|
|
|
|
Provide sufficient total compensation to retain management;
|
|
|
|
Limit the cost of compensation to levels that will maximize the return of current stockholders without compromising the
other objectives.
|
NEOs AIP business performance is based on enterprise results of these business metrics in relation to
established targets. We only use enterprise-level performance metrics for our NEOs in order to promote teamwork and collaboration by creating a shared goal for the overall Company performance. Our incentive program allows the Committee to make
adjustments to these business performance metrics to reflect certain business events. When determining which adjustments are appropriate, we are guided by the principle that incentive payments should not result in unearned windfalls or impose undue
penalties. In other words, we make adjustments to ensure NEOs are not rewarded for positive results they did not facilitate nor are they penalized for certain unusual circumstances outside their control.
Management regularly reviews with the Committee a supplemental scorecard reflecting the Companys WPZ EBITDA, WPZ maintenance capex, WPZ
distributable cash flow, WPZ capital expenditures, WMB stock price performance, WMB return on capital employed (ROCE), and WPZ cash flow from operations to provide updates regarding the Companys performance as well as to ensure
alignment between these measures and the AIPs business performance metrics. This scorecard provides the Committee with additional data to assist in determining final AIP awards.
The Committees independent compensation consultant annually compares our relative performance on various measures, including TSR and earnings per
share with our comparator group of companies. The Committee also uses this analysis to validate the reasonableness of our AIP results.
How We Set the 2016 AIP
Goals.
The Williams Companies, Inc. 2017 Proxy Statement
46
The AIP
Calculation
. The 2016 AIP is based on the weighted measures of WPZ distributable cash flow, controllable costs, fee-based revenue, and three safety metrics. Each metric is directly aligned with our
business strategy to operationally grow the business, operate safely in everything we do, and continue to align with our dividend growth strategy.
For 2016, there were three safety metrics, each of which are equally weighted. The metrics include Lost Time Incident
Rate, Days Away From Work Rate and Motor Vehicle Accident Rate.
The attainment percentage of AIP goals results in payment of annual cash incentives
along a continuum between threshold and stretch levels, which corresponds to 0 percent through 200 percent of the NEOs annual cash incentive target. NEOs have the possibility to exceed the stretch level up to 245 percent of their annual cash
incentive target. WPZ distributable cash flow, controllable costs, and fee-based revenue can exceed the stretch level to 250 percent while safety cannot exceed the 200 percent stretch.
The Williams Companies, Inc. 2017 Proxy Statement
47
2016 NEO AIP Targets
. The
starting point to determine annual cash incentive targets (expressed as a percentage of base pay) is competitive market information, which gives us an idea of what other companies target to pay in annual cash incentives for similar jobs. We also
consider the internal value of each job (i.e., how important the job is to executing our strategy compared to other jobs in the Company) before the target is set for the year. The annual cash incentive targets as a percentage of base pay for the
NEOs in 2016 were as follows:
|
|
|
|
|
Position
|
|
Target
|
|
President and Chief Executive Officer
|
|
|
125
|
%
|
SVP, Chief Financial Officer
|
|
|
75
|
%
|
SVP, Engineering Services
|
|
|
70
|
%
|
SVP, Atlantic Gulf
|
|
|
70
|
%
|
SVP, North East
G&P
|
|
|
70
|
%
|
Determining 2016 AIP Awards.
To
determine the funding of the annual cash incentive, we use the following calculation for each NEO:
Based on business performance relative to the established goals, the Committee certified business performance results
as follows and the 2016 AIP award payout at 135 percent of target was paid in early March 2017. This is the first payout at or above 100 percent since 2012.
The Williams Companies, Inc. 2017 Proxy Statement
48
Effective December 1, 2016, the Occupational Safety and Health Administration (OSHA) published a
final rule which prevents incentive plans from reducing or eliminating employee bonuses due to reported workplace injuries or illnesses. To this effect, the three safety metrics of Lost Time Incident Rate, Days Away From Work Rate and Motor Vehicle
Accident Rate were not measured for our 2016 AIP result. Rather, the Committee used its discretion to approve a two percent result for the safety portion of the 2016 AIP payout.
We calculate (a) WPZ Distributable Cash Flow as:
Modified EBITDA
,
adjusted for certain items of income or loss that we characterize as unrepresentative of our ongoing operations; less maintenance capital expenditures; less interest expense; less cash taxes; less income attributable to non-controlling interests,
adjusted for certain items outside of EBITDA that we characterize as unrepresentative of our ongoing operations; (b) Controllable Costs as:
operating and maintenance costs and selling
,
general and administrative costs
that are under the responsibility of a cost center manager; less certain expenses that are considered
less controllable (such as pension and postretirement benefit costs) or have no net impact on financial performance (such as costs that are passed directly to customers); and (c) Fee-based Revenues as:
total service revenues
from our reportable segments before intercompany eliminations; less certain tracked revenues that have no net impact on financial
performance. In addition, each measure above may be further adjusted as appropriate to avoid undue penalties or windfalls. (Modified EBITDA includes our proportional ownership share of EBITDA of our equity method investees. Operating and
maintenance costs, SG&A costs, and total service revenues include our proportional ownership share of such items recognized by certain equity method investees.)
Individual performance, such as success toward our strategic objectives and individual goals, and successful demonstration of the Companys
leadership competencies which exceeded expectations may be recognized through adjustments. Payments may also be adjusted downward if performance warrants. The Committee chose to apply an adjustment to certain NEOs. In total, the adjustments applied
to NEO awards were less than two percent of the original calculated award.
John Seldenrust Special Incentive
Payment.
Supporting an investment to develop best-in-class engineering and construction capabilities, in 2015, the Committee provided a special incentive program for John Seldenrust. The
The Williams Companies, Inc. 2017 Proxy Statement
49
program defines performance goals for 2015, 2016 and 2017 and provides an annual payout of $250,000 at target. If the target goal is not achieved, no payment will be made. If both the target and
stretch goals are achieved, the payment will be $500,000. In 2016, Mr. Seldenrust achieved the $500,000 payout amount by meeting target and stretch performance goals related to the integration of the technical services team in the Northeast
Operating Area with the corresponding Engineering and Construction organization design resulting in the management of all projects in the area according to established E&C standards, processes and procedures. Additionally, Mr. Seldenrust
completed a standard compression design for medium non-urban and small non-urban facilities resulting in a completed compression tag matrix and associated training. Mr. Seldenrusts 2016 Special Incentive was paid in early 2017.
Long-Term Incentives
To determine
the value for long-term incentives granted to an NEO each year, we consider the following factors:
|
|
|
The proportion of long-term incentives relative to base pay;
|
|
|
|
The NEOs impact on Company performance and ability to create value;
|
|
|
|
Long-term business objectives;
|
|
|
|
Awards made to executives in similar positions within our comparator group of companies;
|
|
|
|
The market demand for the NEOs particular skills and experience;
|
|
|
|
The amount granted to other NEOs in comparable positions at the Company;
|
|
|
|
The NEOs demonstrated historical performance; and
|
|
|
|
The NEOs leadership performance.
|
A summary of the long-term incentive program details for 2016 are shown in the table below. The long-term incentive mix for the CEO differs from the mix
for the other NEOs. Since the CEO has more opportunity to influence our financial results, the Committee considers it appropriate that a greater percentage of his long-term incentives are directly tied to the performance of the Companys stock
price.
|
|
|
|
|
|
|
|
|
Performance-based RSUs
|
|
Time-based RSUs
|
|
Stock Options
|
CEO Equity Mix
|
|
55%
|
|
25%
|
|
20%
|
NEO Equity Mix
|
|
45%
|
|
35%
|
|
20%
|
Term
|
|
Three years
|
|
Three years
|
|
10 years
|
Frequency
|
|
Granted annually
|
|
Granted annually
|
|
Granted annually
|
Performance Criteria
|
|
Absolute TSR and
Relative TSR
|
|
Retention
|
|
Stock price appreciation
|
Vesting
|
|
Cliff vesting after
three years
|
|
Cliff vesting after
three years
|
|
Ratable vesting over
three years
|
Payout
|
|
Upon vesting, shares are distributed based on
performance certification
(0% - 200%)
|
|
Upon vesting, shares are
distributed
|
|
Upon vesting, options are
available to exercise
|
Dividends
|
|
No dividends
|
|
Dividend equivalents
accrued and paid in cash
upon vesting
|
|
No dividends
|
We continued to grant long-term incentives in the form of (1) performance-based RSUs, (2) time-based RSUs, and
(3) stock options in 2016 to emphasize our commitment to pay for performance, enable ownership in the Company, and ensure appropriate retention of our NEOs.
The Williams Companies, Inc. 2017 Proxy Statement
50
Performance-based RSUs.
Performance-based RSUs awarded are only earned if we attain specific TSR results. Since 2009, we have measured both relative TSR and absolute TSR as interdependent measures in determining the attainment level of our performance-based awards. This
approach requires that we deliver a strong absolute TSR to our stockholders in addition to emphasizing the importance of achieving strong TSR performance relative to our comparator companies. Performance-based equity is a significant portion of our
NEO compensation. The performance-based RSU matrix included in this section shows how the two metrics work together to generate a performance multiple.
A maximum payout is achieved only when we exceed our goals in absolute and relative terms.
Example 1
: If our Relative TSR performance is below the
median (i.e., 50 Percentile) of our comparator company group, we only deliver a payout if our Annualized Absolute TSR performance is at least 7.5 percent during the three-year period. At a 7.5 percent annualized TSR result, the payout would be
between 0 percent to 50 percent of the original grant.
Example 2:
Relative TSR performance near or at the top of our comparator group would be capped at 60 percent of the original grant if we fail to return at least an annualized 7.5 percent to our stockholders. This would result in
each NEO receiving well below the targeted award despite high relative TSR compared to our peers.
2013 Performance-based RSUs
Earned.
The three-year performance cycle for our 2013 performance-based RSUs was completed at the end of 2015 and earned awards were distributed in in the first quarter of 2016 upon vesting and
performance certification. The 2013-2015 performance did not meet the three-year performance target despite relative TSR performing in the second quartile relative to our comparator companies. Applying these results generated a distribution of just
3.5 percent of target performance result.
2014 Performance-based RSUs.
The three-year performance cycle for our 2014 performance-based RSUs was completed at the end of 2016. Our relative TSR performance was below the median of our comparator company group, finishing in the third quartile.
Because we did not deliver annualized absolute TSR performance of at least 7.5 percent, a payout was not earned and the awards were cancelled.
Of note, over the past eight performance periods ending in 2016, three of our performance-based RSU grants did not achieve the minimum threshold for
payout and awards were cancelled. The 2013 award vesting in 2016 earned just 3.5 percent of the original number of RSUs awarded. Four of the awards earned above target performance results.
The Williams Companies, Inc. 2017 Proxy Statement
51
Time-based RSUs.
We
grant time-based RSUs to retain executives and to facilitate stock ownership. The use of time-based RSUs is also consistent with the practices of our comparator group of companies. In 2012, we began accruing dividend equivalents on our time-based
RSUs. Accrued dividend equivalents will only distribute upon vesting.
Stock Option Awards.
For recipients, stock options have value only to the extent the price of our common stock is higher on the date the options are exercised than it was on the date the options were granted.
Grant Practices
. The Committee typically approves our annual equity
grant in February or early March of each year, shortly after the annual earnings release. The grant date for awards is on or after the date of such approval to ensure the market has time to absorb material information disclosed in the earnings
release and reflect that information in the stock price. Our grant practices in 2016 were different than prior years due to the interim operating covenants of the Energy Transfer merger agreement which prevented us from granting equity in February.
When the merger agreement was terminated in late June 2016, we moved forward with our annual equity grant in early August. We returned to our normal annual grant cycle in 2017. The grant date for off-cycle grants for individuals who are not NEOs,
for reasons such as retention or new hires, is generally the first business day of the month following the approval of the grant. By using this consistent approach, we remove grant timing from the influence of the release of material information.
Stock Ownership Guidelines
. Our program provides stock
ownership guidelines for each of our NEOs and our Board of Directors as shown in the table below:
|
|
|
|
|
|
|
Position
|
|
Ownership Multiple
|
|
As a Multiple of
|
|
Holding / Retention Requirement
|
CEO
|
|
6x
|
|
Base Pay
|
|
50%, after taxes, until guidelines are met
|
NEO
|
|
3x
|
|
Base Pay
|
|
50%, after taxes, until guidelines are met
|
Board of Directors
|
|
5x
|
|
Annual Cash Retainer
|
|
60% until guidelines are met
|
The Committee annually reviews the guidelines for competitiveness and alignment with best practices and monitors the
NEOs progress toward compliance. Only WMB shares owned outright and outstanding time-based RSUs count as owned for purposes of the program. Stock options and performance-based equity are not included as owned for purposes of the program. (It
is important to note that the majority of NEO equity grants are in the form of performance-based RSUs and stock options.) NEOs must retain 50 percent of any vested equity awards, net of taxes, until their ownership guidelines are met. Board members
must retain 60 percent of distributed vested equity awards until their ownership guidelines are met. At Williams, NEOs must hold at least 50 percent of any equity transaction if they have not met their ownership guideline regardless of their time in
the role.
Benefits
Consistent
with our philosophy to emphasize pay for performance, our NEOs receive very few perquisites or supplemental benefits. They are as follows:
|
|
|
Retirement Restoration Benefits
. NEOs participate in our qualified
retirement program on the same terms as our other employees. We offer a retirement restoration plan to maintain a proportional level of pension benefits to our NEOs as provided to other employees. The Internal Revenue Code of 1986, as amended (the
Internal Revenue Code), limits qualified pension benefits based on an annual compensation limit. For 2016, the limit was $265,000. Any limitation in an NEOs pension benefit in the tax-qualified pension plan due to this limit is made up for
(subject to a cap) in the unfunded retirement restoration plan. Benefits for NEOs are not enhanced and are calculated using the same benefit formula as that used to calculate benefits for all employees in the qualified pension plan. The compensation
included in the
|
The Williams Companies, Inc. 2017 Proxy Statement
52
|
retirement restoration benefit is consistent with pay considered for all employees in the qualified pension plan. Equity compensation, including RSUs and stock options, is not considered.
Additionally, we do not provide a nonqualified benefit related to our qualified 401(k) defined contribution retirement plan.
|
|
|
|
Financial Planning Allowance
. We offer financial planning to provide
expertise on current tax laws to assist NEOs with personal financial planning and preparations for contingencies such as death and disability. Covered services include estate planning, tax planning, tax return preparation, wealth accumulation
planning, and other personal financial planning services. In addition, by working with a financial planner, NEOs gain a better understanding of and appreciation for the programs the Company provides, which helps to maximize the retention and
engagement aspects of the dollars the Company spends on these programs.
|
|
|
|
Personal Use of Company Aircraft
. The CEO is allowed, but not required, to
use the Companys private aircraft for personal travel. Our policy for all other executive officers is to discourage personal use of the aircraft, but the CEO retains discretion to permit its use when he deems appropriate, such as when the
destination is not well served by commercial airlines, personal emergencies, and the aircraft is not being used for business purposes. To the extent that NEOs use the Companys private aircraft for personal travel, imputed income will be
applied to the NEO, in compliance with Internal Revenue Code requirements.
|
|
|
|
Executive Physicals
. The Committee requires annual physicals for the NEOs.
NEO physicals align with our wellness initiative as well as assist in mitigating risk. NEO physicals are intended to identify any health risks and medical conditions as early as possible in an effort to achieve more effective treatment and outcomes.
|
|
|
|
Event Center
. We have a suite and club seats at certain event centers that
were purchased for business purposes. If they are not being used for business purposes, we make them available to all employees, including our NEOs, as a form of reward and recognition. This is not a perquisite to our NEOs because it is available to
all employees.
|
|
|
|
Spousal Travel
. When it is deemed necessary or appropriate for spouses of
employees to travel for Company business purposes, we provide a tax gross-up under our company-wide policy to cover the personal tax obligations associated with spousal travel for business purposes for all employees.
|
Additional Components of our Executive Compensation Program
In addition to establishing the pay elements described above, we have adopted a number of policies to further the goals of the executive compensation
program, particularly with respect to strengthening the alignment of our NEOs interests with stockholder long-term interests.
Employment Agreements.
We do not have employment agreements with our NEOs
.
Termination and Severance Arrangements
. In 2016, the Committee amended the
existing Executive Severance Pay Plan to include senior executive officers, which includes NEOs other than the CEO, in order to define a consistent approach of treatment in the event of a severance event. Under the plan, NEOs are eligible to receive
a discretionary payment 1.5 to 2.0 times the sum of the NEOs base salary and target annual bonus. The severance payment is discretionary and may range anywhere from zero to two times the sum of the NEOs base salary and target annual bonus.
Considerations include the NEOs term of employment, past accomplishments, reasons for separation from the Company, and competitive market practice. The NEO can elect coverage under the Companys medical benefits plans for 18 months from
the termination in the same manner and at the same cost as similarly situated active employees for up to the first 12 months. Outplacement services are provided up to a maximum
The Williams Companies, Inc. 2017 Proxy Statement
53
amount of $25,000. A Form 8-K filed on February 20, 2017 disclosed that the Company entered into an arrangement with each NEO, other than the CEO who is not eligible for the plan, whereby if
the NEOs employment with the Company involuntarily terminates, other than for cause, on or prior to December 31, 2018, the NEO would receive a severance payment equal to two times the sum of the NEOs base salary and target annual
bonus.
Change in Control Agreements
. Our change in control agreements,
in conjunction with the NEOs equity award agreements, provide separation benefits for our NEOs. Our program includes a double trigger for benefits and equity vesting. This means there must be a Company change in control and the NEO must
experience a qualifying termination of employment prior to receiving benefits under the agreement. This practice creates security for the NEOs but does not provide an incentive for the NEO to leave the Company. Our program is designed to encourage
the NEOs to focus on the best interests of stockholders by alleviating their concerns about a possible detrimental impact to their compensation and benefits under a potential change in control, not to provide compensation advantages to NEOs for
executing a transaction.
Our Committee reviews our change in control benefits annually to ensure they are consistent with competitive
practice and aligned with our compensation philosophy. As part of the review, calculations are performed to determine the overall program cost to the Company if a change in control event were to occur and all covered NEOs were terminated as a
result. An assessment of competitive norms, including the reasonableness of the elements of compensation received, is used to validate benefit levels for a change in control. We do not offer a tax gross-up provision in our change in control
agreements but instead include a best net provision providing our NEOs with the better of their after-tax benefit capped at the safe harbor amount or their benefit paid in full, subjecting them to possible excise tax payments. The
Committee continues to believe that offering a change in control program is appropriate and critical to attracting and retaining executive talent and keeping them aligned with stockholder interests in the event of a change in control.
The Williams Companies, Inc. 2017 Proxy Statement
54
The following chart details the benefits received if an NEO were to be terminated or resigned for a
defined good reason following a change in control as well as an analysis of those benefits as it relates to the Company, stockholders, and the NEO. Please also see the Change in Control Agreements section following the CD&A for
further discussion of our change in control program.
|
|
|
|
|
Change in Control Benefit
|
|
What does the benefit provide to
the Company and stockholders?
|
|
What does the benefit provide to
the NEO?
|
Multiple of 3x base pay
plus annual cash incentive at
target
|
|
Encourages NEOs to remain engaged
and stay focused on successfully
closing the transaction.
|
|
Financial security for the NEO
equivalent to two or three-years of
continued employment.
|
Accelerated vesting of stock
awards
|
|
An incentive to stay during and after a change in control. If there is risk of
forfeiture, NEOs may be less inclined
to stay or to support the transaction.
|
|
The NEOs are kept whole if they have
a separation from service following a
change in control.
|
Up to 18 months of medical or
health coverage through COBRA
|
|
This is a minimal cost to the Company that creates a competitive benefit.
|
|
Access to health coverage.
|
3x the previous years
retirement restoration allocation
|
|
This is a minimal cost to the Company that creates a competitive benefit.
|
|
May allow those NEOs who are
nearing retirement to receive a cash payment to make up for lost
allocations due to a
change in control.
|
Reimbursement of legal fees to enforce benefit
|
|
Keeps NEOs focused on the Company
and not concerned about whether the acquiring company will honor
commitments after a change in control.
|
|
Security during an unstable period of
time.
|
Outplacement assistance
|
|
Keeps NEOs focused on supporting the transaction and less concerned about
trying to secure another position.
|
|
Assists NEOs in finding a comparable executive position.
|
Best Net provision
|
|
Enables the change in control
benefits to be delivered in as close a
manner to the intended value of the
benefits as
possible.
|
|
Provides NEOs with the better of their after-tax benefit capped at the safe
harbor
amount or their benefit paid in full, which would subject them to possible excise tax payments.
|
Derivative Transactions.
Our insider
trading policy applies to transactions in positions or interests whose value is based on the performance or price of our common stock. Because of the inherent potential for abuse, Williams prohibits officers, directors, and certain key employees
from entering into short sales or using equivalent derivative securities in connection with Williams or its affiliates securities. Williams also prohibits officers, directors and key employees from including Williams securities in
a margin account or pledging Williams securities as collateral for a loan.
Mitigating Risk
Although no compensation-related risk was identified as a top risk, the approach to determine if there were adverse compensation risks was
similar to the process detailed in the Corporate Governance and Board Matters Corporate Governance Board Oversight of Williams Risk Management Process section of this proxy statement. After this thorough review
and analysis, it was determined we do not have material adverse compensation-related risks. Our compensation plans are effectively designed and functioning to reward positive
The Williams Companies, Inc. 2017 Proxy Statement
55
performance and motivate NEOs and employees to behave in a manner consistent with our stockholder interests, business strategies and objectives, ethical standards, and prudent business practices,
along with our Core Values & Beliefs which are the foundation on which we conduct business. Our Core Values & Beliefs can be found on our website at www.williams.com from the Our Company tab. In fact, many elements of our executive
pay program serve to mitigate excessive risk taking. For example:
|
|
|
Target Pay Mix.
The target pay mix weighting of long-term incentives,
annual cash incentives, and base pay is consistent with comparator company practices and avoids placing too much value on any one element of compensation, particularly the annual cash incentive. The mix of our pay program is intended to motivate
NEOs to consider the impact of decisions on stockholders in the long, intermediate, and short terms.
|
|
|
|
Annual Cash Incentive.
Our annual cash incentive program does not allow for
unlimited payouts. Calculated cash incentive payments for NEOs cannot exceed 245 percent of target levels.
|
|
|
|
Performance-based Awards.
|
|
|
Our annual cash incentive and long-term incentive programs include performance-based awards. The entire annual cash
incentive award is measured against performance targets, while a significant portion of the long-term equity awards provided to NEOs is in the form of performance-based RSUs and stock options. Performance-based RSUs have no value unless we achieve
pre-determined three-year performance target thresholds. Stock options will have no value unless the stock price increases from the date of grant.
|
|
|
To drive a long-term perspective, all RSU awards vest at the end of three years rather than vesting ratably on an annual
basis.
|
|
|
NEOs incentive compensation performance is measured at the enterprise level rather than on a business unit level to
ensure a focus on the overall success of the Company.
|
|
|
|
Stock Ownership Guidelines.
As discussed in this CD&A, all NEOs,
consistent with their responsibilities to stockholders, must hold an equity interest in the Company equal to a stated multiple of their base pay.
|
|
|
|
Recoupment Policy
. In the event that financial results of the Company are
restated due to fraud or intentional misconduct, the Board will review any performance-based incentive payments, including payments under the AIP and performance-based RSUs, paid to executive officers, who are found by the Board to be personally
responsible for the fraud or intentional misconduct that caused the need for the restatement and will, to the extent permitted by applicable law, seek recoupment from all executive officers of any amounts paid in excess of the amounts that would
have been paid based on the restated financial results. In addition, the Company will take action to comply with Section 954 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 upon promulgation of final rules from the SEC.
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Insider Trading Policy.
Our insider trading policy prohibits NEOs and
directors, directly or through family members or other persons or entities, from buying or selling Williams securities or engaging in any other action to take personal advantage of material nonpublic information. In addition, if during the
course of working for the Company, the NEO or Director learn of material nonpublic information about a competitor or a company with which Williams or an affiliate of Williams does or anticipates doing business with, they may not trade in that
companys securities until the information becomes public or is no longer material.
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Accounting and Tax Treatment.
We consider the impact of accounting and tax
treatment when designing all aspects of pay, but the primary driver of our program design is to support our business objectives. Stock options and performance-based RSUs are intended to satisfy the requirements for performance-based compensation as
defined in Section 162(m) of the Internal Revenue Code and are therefore considered a tax deductible expense. Time-based RSUs do not qualify as performance-based and may not be fully deductible.
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The annual cash incentive program satisfies the requirements for performance-based compensation as
defined in Section 162(m) of the Internal Revenue Code and is therefore a tax deductible expense. For payments under our annual cash incentive program to be considered performance-based compensation under Section 162(m), the Committee can
only exercise negative discretion relative to actual performance when determining the amount to be paid. In order to ensure compliance with Section 162(m), the Committee has established a target in excess of the maximum individual payout
allowed to NEOs under our annual cash incentive program. Reductions are made each year and are not a reflection of the performance of the NEOs but rather ensure flexibility with respect to paying based upon performance.
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