UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of

the Securities Exchange Act of 1934 (Amendment No.     ) 

     
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Phillips 66

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From Our Chairman of the Board

LOGO

 

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Dear Fellow Shareholders,

Over the past year, we were faced with a number of unprecedented challenges. When it mattered the most, the employees of Phillips 66 rose to the challenge. Our employees delivered exceptional performance and achieved record safety results for the year. Management and the Board were highly engaged, focusing on the health and safety of our people and our communities. We also focused on our strategy - not just to weather the current environment - but on how we plan to thrive in a lower-carbon future. In 2020, we made progress executing our strategic priorities of growth, returns and distributions supported by a strong foundation of operating excellence and a high-performing organization:

     

As a company in a critical infrastructure sector, we continued providing energy to our communities where we live and work. We implemented procedures and put measures in place to keep our employees safe and our facilities on-line. We reconfigured work areas, provided protective equipment and put policies in place to support employees with underlying conditions or children at home, among others. We did this while achieving our best ever rate for personal safety at the Company.

We took swift action to secure liquidity and maintain our dividend. We suspended our share repurchases, identified projects that could be deferred while still meeting our commitment to personal and process safety, and implemented measures to reduce our controllable costs.

We focused on the future, announcing further investments in a lower-carbon economy and continuing to expand our participation in the energy transition. Our Rodeo Renewed project will convert our San Francisco Refinery into one of the world’s largest renewable fuels facilities and is expected to reduce the facility’s greenhouse gas emissions by 50%. We formed a new organization within the Company, Emerging Energy, that is dedicated to working on a lower-carbon business platform and opportunities within our portfolio to commercialize emerging energy technologies.

We completed major growth projects and progressed milestones on others. We completed the Gray Oak Pipeline and the Sweeny Hub Phase 2 expansion. We also added a fourth dock at our Beaumont Terminal, and two docks began crude oil export operations at the South Texas Gateway Terminal during 2020.

We added two new directors to our Board. We continued our Board refreshment, adding two new directors in 2020 who bring diverse experience to our Board. The addition of these directors adds to our Board’s industry expertise, further increases our Board’s gender diversity, and broadens the depth and breadth of the skills and experiences our directors bring to the Board.

Finally, I would like to note that we are optimistic about the impact of the COVID-19 vaccines on economic recovery and longer term, the opportunities for value creation across our portfolio. To ensure everyone’s health and well-being, the 2021 Annual Meeting will be held exclusively online. You can find information about how to attend in the attached Proxy Statement.

Thank you for your continued support and investment in Phillips 66.

In safety, honor and commitment,


Greg C. Garland
Chairman and CEO
March    , 2021

 

 

 

We Work Together, We Get It Done

In a year full of challenges and uncertainty, the people of Phillips 66 stayed committed, determined and resilient. They worked safer than ever before and looked out for one another, their families and communities. As essential workers in a critical infrastructure industry, they kept our refineries, pipelines, terminals and businesses going, helping to fuel the response against COVID-19 and the economic recovery.

 

Nowhere was that more apparent than in Southwest Louisiana, home to hundreds of Phillips 66 employees and several Company assets — and ground zero for two destructive hurricanes in 2020. Hurricane Laura struck the Lake Charles area in late August and Hurricane Delta tested the community’s resolve once more six weeks later.

 

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The Lake Charles Manufacturing Complex in Southwest Louisiana was still without utility power in early September because of Hurricane Laura, but workers at the site made sure to hoist a U.S. flag in remembrance of 9/11 victims on the 19th anniversary of the attacks.

 

“That’s just the way people are down here in Louisiana,” said Jerry Lemons, a senior safety consultant at the Lake Charles Manufacturing Complex in Westlake. “We work together, and we just get it done.” 

 

Like Lemons, most Phillips 66 employees in the area endured significant damage to their homes and property from the storms. Many were displaced. Some suffered unimaginable losses. Yet, they suited up, showed up and displayed exemplary focus in helping Phillips 66 repair, rebuild and restart operations as soon as it was safe to do so.

 

Phillips 66 did what was needed to take care of its people. Right after Hurricane Laura, it set up a distribution center with essentials, including portable generators and A/C units, carbon monoxide detectors, roof repair supplies, water and ice. The Company also expedited financial hardship, benefits and claims assistance to employees, and it secured temporary housing for many of those who were displaced. The Lake Charles complex donated fuel to local law enforcement and supplies to first responders volunteering to tarp roofs. Phillips 66 donated $750,000 to the American Red Cross in support of relief efforts. But it was the people of Phillips 66 who led by example.

 

“We’re going to rebuild,” Lemons said. “We’re grateful we’ve got a place to work that’s open and running, and we’ll just work through it, like we always do.”

 

 

 

 

 

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Notice of 2021 Annual
Meeting of Shareholders

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2331 CityWest Blvd.

Houston, Texas 77042

 

DATE

Wednesday, May 12, 2021

 

TIME

9:00 a.m. Central Daylight Time

 

PLACE

virtualshareholdermeeting.com/PSX2021

The 2021 Annual Meeting will be held exclusively online at www.virtualshareholdermeeting.com/PSX2021. To join as a shareholder, you must enter the 16-digit control number on your proxy card, voting instruction form, or Notice of Internet Availability you previously received. During the meeting shareholders may ask questions, examine our shareholder list and vote their shares (other than shares held through employee benefit plans, which must be voted prior to the meeting). Other interested parties may join the meeting as a guest, in which case no control number is required. For more information, please see the section entitled ADDITIONAL INFORMATION in this Proxy Statement. We are making the Proxy Statement and the form of proxy first available beginning on March     , 2021.

     

At the meeting, shareholders will be asked to vote on:

   The election of two directors

    A management proposal for the annual election of directors

    The ratification of Ernst & Young LLP as independent auditors

     An advisory proposal to approve executive compensation

     Two shareholder proposals contained in this Proxy Statement, if properly presented

     Any other business that is properly raised at the meeting

  Shareholders of record at the close of business on March 17, 2021, may vote at the meeting or any postponements or adjournments of the meeting.
  HOW TO CAST YOUR VOTE:
  GRAPHIC

Online

www.proxyvote.com

  GRAPHIC

By phone

(800) 690-6903

  GRAPHIC

Proxy card

Complete, sign and return your proxy card

  GRAPHIC

At the meeting

You also may vote online during the annual meeting by following the instructions provided on the meeting website during the annual meeting. To vote at the meeting, visit www.virtualshareholdermeeting.com/PSX2021

  If you are a beneficial owner and received a voting instruction form, please follow the instructions provided by your bank or broker to vote your shares.
For the Board of Directors,  

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE SHAREHOLDER MEETING

TO BE HELD ON MAY 12, 2021

The Notice of 2021 Annual Meeting of Shareholders, Proxy Statement and Annual Report on Form 10-K for the year ended December 31, 2020 are available at www.proxyvote.com

 

Paula A. Johnson

Corporate Secretary

March     , 2021

 

 

 

 

 

Table of Contents

 

The Company will provide the Notice of Internet Availability, electronic delivery of the proxy materials or mailing of this Proxy Statement, the Annual Report on Form 10-K for the year ended December 31, 2020, and a proxy card to shareholders beginning on March     , 2021.

 

Table of Contents 4
PROXY SUMMARY 1
INFORMATION REGARDING THE BOARD OF DIRECTORS 5
DIRECTOR INDEPENDENCE 5
BOARD LEADERSHIP STRUCTURE 5
BOARD MEETINGS, COMMITTEES AND MEMBERSHIP 6
BOARD'S ACTIVE ROLE IN RISK OVERSIGHT 9
RELATED PARTY TRANSACTIONS 10
DIRECTOR QUALIFICATIONS AND NOMINATION PROCESS 10
BOARD SKILLS AND EXPERIENCE 12
PROPOSAL 1:   ELECTION OF DIRECTORS 16
PROPOSAL 2:    MANAGEMENT PROPOSAL REGARDING ANNUAL ELECTION OF DIRECTORS 17
BENEFICIAL OWNERSHIP OF PHILLIPS 66 SECURITIES 18
SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS 18
SECURITIES OWNERSHIP OF OFFICERS AND DIRECTORS 18
CORPORATE RESPONSIBILITY 20
SHAREHOLDER ENGAGEMENT 20
HUMAN CAPITAL MANAGEMENT 21
COMMUNITY INVOLVEMENT AND ENGAGEMENT 22
POLITICAL ACTIVITIES AND LOBBYING ACTIVITIES 22
SUSTAINABILITY AND TRANSITION TO LOWER-CARBON FUTURE 22
PROPOSAL 3:   RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG 23
ERNST & YOUNG LLP FEES 23
AUDIT AND FINANCE COMMITTEE REPORT 25
PROPOSAL 4:   ADVISORY APPROVAL OF EXECUTIVE COMPENSATION 26
COMPENSATION DISCUSSION AND ANALYSIS 27
COMPANY PERFORMANCE SUMMARY 27
EXECUTIVE COMPENSATION PROGRAM SUMMARY 28
EXECUTIVE COMPENSATION PROGRAM DETAILS 32
OTHER BENEFITS AND PERQUISITES 44
EXECUTIVE COMPENSATION GOVERNANCE 45
ROLE OF THE HUMAN RESOURCES AND COMPENSATION COMMITTEE 47
HUMAN RESOURCES AND COMPENSATION COMMITTEE REPORT 48
EXECUTIVE COMPENSATION TABLES 50
SUMMARY COMPENSATION TABLE 50
GRANTS OF PLAN-BASED AWARDS 53
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END 54
OPTION EXERCISES AND STOCK VESTED FOR 2020 55
PENSION BENEFITS AS OF DECEMBER 31, 2020 56
NONQUALIFIED DEFERRED COMPENSATION 57
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL 59
CEO PAY RATIO 62

 

 

 

 

TABLE OF CONTENTS

 

DIRECTOR COMPENSATION 63
OBJECTIVES AND PRINCIPLES 63
DIRECTOR COMPENSATION TABLE 64
EQUITY COMPENSATION PLAN INFORMATION 65
SHAREHOLDER PROPOSALS 66
ADDITIONAL INFORMATION 73
ABOUT THE ANNUAL MEETING 73
VIRTUAL MEETING INFORMATION 77
COMMUNICATIONS WITH THE BOARD 78
GENERAL INFORMATION 78
PROXY SOLICITATION 78
HOUSEHOLDING 79
SUBMISSION OF FUTURE SHAREHOLDER PROPOSALS AND DIRECTOR NOMINATIONS 79
Appendix A – Certificate of Amendment to the Amended and Restated Certificate of Incorporation A-1
Appendix B – Non-GAAP Financial Measures B-1

 

 

 

 

PROXY SUMMARY

 

PROXY SUMMARY

 

This summary highlights information contained elsewhere in this Proxy Statement, but does not contain all of the information that you should consider. You should read the entire Proxy Statement before you vote.

 

YOUR COMPANY

 

Phillips 66 is a diversified energy manufacturing and logistics company. With a unique portfolio of assets and investments in the midstream, chemicals, refining, and marketing and specialties businesses, we process, transport, store and market fuels and products globally. At Phillips 66, we provide energy that improves lives and contributes to meeting the world’s growing energy needs. Affordable, reliable and abundant energy is essential to sustaining human health and well-being and improving the global standard of living.

 

VOTING MATTERS

 

  Proposals Board
Recommendation
Item 1 Election of two director nominees

FOR

(each nominee)

Item 2 Management proposal regarding annual election of directors FOR
Item 3 Ratification of the appointment of our independent registered public accounting firm FOR
Item 4 Approval, on an advisory basis, of compensation paid to our named executive officers FOR
Items 5-6 Two shareholder proposals, if properly presented AGAINST

 

CORPORATE GOVERNANCE HIGHLIGHTS

 

  Majority voting for directors

  Demonstrated commitment to Board refreshment

  Director retirement age policy of 75

  Meaningful director and executive stock ownership guidelines

  Annual evaluation of the Board and committees

  Board level oversight of corporate culture and human capital management

  Shareholder right to proxy access (3% for 3 years, up to 20% of the Board)

  Robust Lead Director duties

  Clawback policy for incentive compensation

  Commitment to diverse candidate pools

  Policy prohibiting pledging and hedging of Company stock

  Annual evaluation of CEO by independent directors

 

SHAREHOLDER ENGAGEMENT

 

Ongoing engagement with our shareholders is important to us. We communicate with our shareholders through a variety of means, including meetings, investor presentations, our website, and publications we issue. As part of our engagement program, we reach out to shareholders for dialogue concerning their priorities – which in 2020 generally included environmental, human capital and Board governance matters. During 2020, we solicited feedback from investors representing approximately 48% of our outstanding shares and engaged with nearly 20 global institutional investors, representing over 39% of our outstanding shares. Our Lead Director and the Chair of

 

 

PHILLIPS 66 PROXY STATEMENT 2021     1

 

 

 

PROXY SUMMARY

 

 

our Public Policy and Sustainability Committee also have participated in our engagements with shareholders. More information about our engagement process can be found under CORPORATE RESPONSIBILITY.

 

BOARD HIGHLIGHTS

 

We currently have a classified Board, meaning our Board is divided into three classes of directors, with each class elected for a three-year term. This year, as we did in 2015, 2016 and 2018, we are submitting a proposal to shareholders to amend our organizational documents to declassify the Board over the next three years. If shareholders approve the proposal, beginning with the annual meeting in 2024, all directors will be elected annually. For more information, see PROPOSAL 2: MANAGEMENT PROPOSAL REGARDING THE ANNUAL ELECTION OF DIRECTORS.

 

Summarized information about our continuing directors and the nominees for election at this Annual Meeting is shown below. Earlier this year, Harold W. McGraw III and Victoria J. Tschinkel, each of whom had served on our Board since 2012, decided to retire in March and not stand for reelection at the Annual Meeting. As a result, Lisa A. Davis, who originally was appointed to the class of directors whose terms expire in 2023, will stand for election at this meeting in order to have the classes of directors as nearly equal as possible.

 

Current Nominees Director
Since
Independent Committee Memberships Other
Public
Boards
AFC HRCC NGC PPSC EC
Julie L. Bushman 2020 l     l   2
Lisa A. Davis 2020   l   l   3
Directors whose terms expire in 2022            
Greg C. Garland 2012           GRAPHIC 2
Gary K. Adams 2016   l   l   1
John E. Lowe 2012 GRAPHIC   l l l 2
Denise L. Ramos 2016 l   l GRAPHIC l 2
Directors whose terms expire in 2023            
Charles M. Holley 2019 l     l   2
Glenn F. Tilton 2012   l GRAPHIC l l 2
Marna C. Whittington 2012   GRAPHIC l l l 2

AFC = Audit and Finance Compensation                               HRCC = Human Resources and

NGC = Nominating and Governance                                      PPSC = Public Policy and Sustainability

EC = Executive

l = Member     GRAPHIC = Chair
                   

Our Board seeks to achieve a diverse and broadly inclusive membership. Our directors bring varying perspectives to the Board by virtue of their backgrounds and experiences. The Board views diversity in terms of skills, as well as gender, age, race, ethnicity, background, tenures, professional experience and perspectives. In late 2019, Charles Holley was appointed to the Board and in 2020, Julie Bushman and Lisa Davis were both appointed. We believe these new directors add to the breadth of experience and perspective of our Board. Our Nominating and Governance Committee is focused on Board refreshment and evaluates directors’ skills in the context of our Company’s evolving business and prioritizes diversity to ensure effective Board oversight. To more completely convey our Board’s composition, we have included a skills matrix under the INFORMATION REGARDING THE BOARD OF DIRECTORS section of this Proxy Statement that our Nominating and Governance Committee uses to review and identify the competencies of directors and composition of the Board as a whole.

 

2     PHILLIPS 66 PROXY STATEMENT 2021

 

 

 

 

 

PROXY SUMMARY

 

8 of 9 directors are independent Average tenure of 4 years 45% gender diversity Average age of 65
PIE CHART PIE CHART PIE CHART PIE CHART

 

2020 PERFORMANCE HIGHLIGHTS

 

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Operating Excellence

GRAPHIC

Growth

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Returns

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Distributions

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High-Performing Organization

         

Company best and industry leading safety and environmental performance

Advanced digital innovation across business segments

Gray Oak Pipeline and Sweeny Hub Phase 2 expansion completed

Established Emerging Energy organization and announced Rodeo Renewed project

Generated over $2 billion of operating cash flow

On target to achieve AdvantEdge 66 program value targets

Expanded retail presence through West Coast joint venture

Maintained competitive dividend, distributing $1.6 billion in 2020

Preserved liquidity through cost reductions and suspension of share repurchases

Accelerated efforts to advance inclusion and diversity

Supported our people and communities through volunteerism and financial assistance

 

EXECUTIVE COMPENSATION HIGHLIGHTS

 

Our executive compensation programs are designed to pay for performance. We link compensation to Company performance and use metrics we believe will drive long-term shareholder value and that are aligned with Company strategy. We also align the interests of our executives with our shareholders through equity compensation.

 

Our executives’ compensation includes base salary, an annual bonus opportunity under our Variable Compensation Incentive Program (“VCIP”), and equity-based compensation, including stock options, restricted stock units (“RSUs”) and awards under our Performance Share Program (“PSP”). The illustrations below show the percentage each pay element comprises of our CEO and other named executive officers’ (“NEOs’”) target total direct compensation for 2020.

 

 

PHILLIPS 66 PROXY STATEMENT 2021     3

 

 

 

PROXY SUMMARY

 

 

   CEO Target Mix   Other NEOs Target Mix   

 

PIE CHART

 

The VCIP is designed to align annual bonus awards with shareholder interests and execution of our corporate strategy. Performance under the VCIP is based on operational and financial metrics. In 2020, 45% of VCIP was weighted to operational metrics − operating excellence and high-performing organization − and 55% was weighted to financial metrics – adjusted EBITDA and controllable costs. For 2021, the weighting has changed, and two new metrics were added – Low Carbon Priorities and Greenhouse Gas Priorities. These changes were made to reinforce our commitment to the energy transition and further align our compensation program with shareholder interests. More information can be found in the COMPENSATION DISCLOSURE AND ANALYSIS section of this Proxy Statement.

 

CORPORATE RESPONSIBILITY AND SUSTAINABILITY

 

Our vision is to provide energy in ways that improve lives, which we reinforce through our core Company values of safety, honor and commitment. Operational, economic, social and environmental sustainability is at the heart of how we deliver on our vision. By maintaining strong operating excellence, we are committed to safety, reliability and environmental stewardship while delivering shareholder value.

 

We also are committed to achieving a high-performing organization that is focused on culture, inclusion and diversity, as well as building community through volunteerism, financial support, and engagement, including community awareness and education.

 

More information can be found in the CORPORATE RESPONSIBILITY section of this Proxy Statement.

 

4     PHILLIPS 66 PROXY STATEMENT 2021

 

 

 

 

 

INFORMATION REGARDING THE BOARD OF DIRECTORS

 

INFORMATION REGARDING THE BOARD OF DIRECTORS

 

DIRECTOR INDEPENDENCE

 

Our Corporate Governance Guidelines contain director independence standards, which are consistent with the listing standards of the NYSE. These standards assist the Board in determining the independence of the Company's directors. The Board of Directors has affirmatively determined that each director, other than Mr. Garland, meets our independence standards. Mr. Garland is not considered independent because he is an executive officer of the Company.

 

In making independence determinations, the Board specifically considered the fact that many of our directors are directors of companies with which we may conduct business. Additionally, some of our directors may purchase products, such as gasoline from our retail sites, from the Company. In all cases, it was determined that there are no relationships or transactions that are material to the Company or the director and accordingly, there are no relationships that would affect the independence of any director other than Mr. Garland.

 

Executive Sessions of Independent Directors

 

The independent directors hold regularly scheduled executive sessions of the Board and its committees without Company management present. These executive sessions are chaired by the Lead Director at Board meetings or by the committee chairs at committee meetings.

 

BOARD LEADERSHIP STRUCTURE

 

Chairman and CEO Roles

 

The Board of Directors believes that currently, it is in the best interests of the Company and shareholders to combine the roles of Chairman and CEO. However, there is no Company policy regarding whether the roles should be combined or separated, and our Corporate Governance Guidelines state that the Board will retain flexibility and periodically consider whether the roles should be separated and, if so, the Chairman should be an independent director or an employee. The Board believes that Mr. Garland’s extensive industry experience and direct, day-to-day involvement in managing the Company as the CEO makes him best suited to also serve as Chairman and guide the Board in setting Company priorities and addressing Company risks and challenges.

 

Independent Director Leadership

 

Our Corporate Governance Guidelines state that when the Chairman of the Board is an employee of the Company, the non-employee directors will name a Lead Director. Glenn Tilton was appointed to serve as our Lead Director in 2016. As Lead Director, Mr. Tilton chairs executive sessions, coordinates the activities of the non-employee directors and performs other duties and responsibilities as determined by the Board, including:

 

advising the Chairman on Board meeting schedules, seeking to ensure that the non-employee directors can perform their duties responsibly without interfering with operations;

 

providing the Chairman with input on agendas for Board meetings to assure there is sufficient time for discussions;

 

advising the Chairman on the quality, quantity and timeliness of the flow of information from management to allow directors to perform their duties effectively and responsibly, including specifically requesting certain materials be provided to the Board;

 

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

 

interviewing Board candidates and making nomination recommendations;

 

 

PHILLIPS 66 PROXY STATEMENT 2021     5

 

 

 

INFORMATION REGARDING THE BOARD OF DIRECTORS

 

 

assisting in assuring compliance with and implementation of the Corporate Governance Guidelines;

 

ensuring that he, or another appropriate director, is available for engagement with shareholders when warranted;

 

calling meetings of the non-employee directors as needed, developing the agenda for and chairing any such meetings and executive sessions;

 

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

 

participating with the Human Resources and Compensation Committee in the periodic discussion of CEO performance;

 

leading the Board’s annual self-assessment, which includes individual interviews with each director, and meeting with the CEO to discuss the results of the annual self-assessment; and

 

working with the Nominating and Governance Committee to recommend Board committee membership and committee chairs.

 

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

 

BOARD MEETINGS, COMMITTEES AND MEMBERSHIP

 

The Board of Directors met six times in 2020. In addition to the regularly scheduled meetings of the Board, in October of each year, the Board holds a two-day strategy session with members of management to provide deep dives into the Company’s operating segments and corporate functions. All of our directors attended at least 75% of the meetings of the Board and committees on which they served. Recognizing that director attendance at the Company's annual meeting can provide the Company's shareholders with an opportunity to communicate with the directors about issues affecting the Company, the Company actively encourages directors to attend the annual meetings of shareholders. All of our directors who were serving as such as of the date of our 2020 Annual Meeting attended virtually.

 

BOARD COMMITTEES AND MEMBERSHIP

 

The Board has five standing committees, as described below. The charters for each of the committees may be found in the “Investors” section on the Phillips 66 website (www.phillips66.com) under the “Corporate Governance” caption. Shareholders may also request printed copies of these charters by following the instructions located under ADDITIONAL INFORMATION. Other than our Executive Committee, all members of our Board’s committees meet the independence standards under our Corporate Governance Guidelines, the NYSE listing standards, and SEC rules or regulations, as applicable. The tables below show the composition of the committees as of March 15, 2021; as disclosed elsewhere in this Proxy Statement, Mr. McGraw and Ms. Tschinkel retired from the Board at the end of March 2021 and will not continue to serve as members of the committees.

 

6     PHILLIPS 66 PROXY STATEMENT 2021

 

 

 

 

 

INFORMATION REGARDING THE BOARD OF DIRECTORS

 

  Audit and Finance Committee
(the “Audit Committee”)
 
   

Members: John E. Lowe (Chair), Julie L. Bushman, Charles M. Holley, Denise L. Ramos, Victoria J. Tschinkel

Met 11 times in 2020

Primary Responsibilities:

·     Oversee the integrity of the Company's accounting policies, internal controls, financial statements, and financial reporting practices, and certain financial matters covering the Company's capital structure, complex financial transactions, financial risk management, retirement plans and tax planning.

·     Review significant risk exposures and management’s monitoring, control and reporting of such exposures.

·     Monitor our compliance with legal and regulatory requirements, including our Code of Business Ethics and Conduct; the qualifications and independence our independent auditors; and the performance of our internal audit function and independent auditors.

Financial Expertise and Financial Literacy of Audit Committee Members

The Board has determined that each of Mr. Lowe, Mr. Holley and Ms. Ramos satisfies the SEC's criteria for “audit committee financial experts.” Additionally, the Board has determined that each member is financially literate within the meaning of the NYSE listing standards.

 

  Human Resources and Compensation Committee
(the “Compensation Committee”)
 
   

Members: Marna C. Whittington (Chair), Gary K. Adams, Lisa A. Davis, Harold W. McGraw III, Glenn F. Tilton

Met 6 times in 2020

Primary Responsibilities:

·     Oversee our executive compensation programs, policies and strategies and approve metrics, goals and objectives under incentive compensation programs, including those relevant to executive officers.

·     Approve goals and objectives relevant to CEO compensation, evaluate CEO performance in light of those goals and objectives, and determinate the CEO’s overall compensation.

·     Oversee initiatives and strategies in the areas of inclusion and diversity, management succession planning, talent management and human capital.

Additional information about the Compensation Committee can be found in the COMPENSATION DISCUSSION AND ANALYSIS.

Compensation Committee Interlocks and Insider Participation

None of the members of the Compensation Committee during fiscal year 2020 or as of the date of this Proxy Statement is or has been an officer or employee of Phillips 66 and no executive officer of Phillips 66 served on the compensation committee or board of any company that employed any member of Phillips 66’s Compensation Committee or Board.

 

 

PHILLIPS 66 PROXY STATEMENT 2021     7

 

 

 

INFORMATION REGARDING THE BOARD OF DIRECTORS

 

 

  Nominating and Governance Committee  
   

Members: Glenn F. Tilton (Chair), John E. Lowe, Denise L. Ramos, Marna C. Whittington

Met 4 times in 2020

Primary Responsibilities:

·     Identify individuals to become Board members, recommend nominees for election and Board committee assignments.

·     Review and recommend compensation and benefits policies for our non-employee directors.

·     Recommend appropriate corporate governance policies and procedures for our Company.

·     Oversee Board’s annual self-evaluation of performance and monitor Board composition.

·     Jointly with Compensation Committee evaluate potential successors for the CEO.

 

  Public Policy and Sustainability Committee  
   

Members: Denise L. Ramos (Chair), Gary K. Adams, Julie L. Bushman, Lisa A. Davis, Charles M. Holley, John E. Lowe, Harold W. McGraw III, Glenn F. Tilton, Victoria J. Tschinkel, Marna C. Whittington

Met 4 times in 2020

Primary Responsibilities:

·     Review policies, programs and practices regarding health, safety and environmental protection; social impact and corporate responsibility matters.

·     Review the Company’s sustainability program and oversee progress of sustainability initiatives.

·     Review and approve budget for charitable contributions and for political contributions and independent expenditures, and oversee all such expenditures and the administration of any political action committees.

 

  Executive Committee  
   

Members: Greg C. Garland (Chair), John E. Lowe, Denise L. Ramos, Glenn F. Tilton, Marna C. Whittington

Met 1 time in 2020

Primary Responsibilities:

·     Exercise the authority of the full Board, if needed, in intervals between regularly scheduled Board meetings, other than (1) those matters expressly delegated to another committee of the Board, (2) the adoption, amendment or repeal of any of our By-Laws, and (3) those matters that cannot be delegated to a committee under statute, our Certificate of Incorporation, or our Bylaws.

 

To ensure continued Board effectiveness, the Nominating and Governance Committee periodically considers committee rotations, including in the event of a change in the composition of the Board. In 2020, J. Brian Ferguson, who previously had served as Chair of the Audit Committee, retired and the Nominating and Governance Committee recommended, and the Board approved, the appointment of Mr. Lowe as Chair of the Audit Committee and Ms. Ramos as Chair of the Public Policy and Sustainability Committee.

 

Additionally, in 2020 the Public Policy Committee changed its name to the Public Policy and Sustainability Committee. This name change was in connection with revisions to the committee’s charter that broadened the scope of its responsibilities to specifically include oversight of the Company’s sustainability program and initiatives.

 

8     PHILLIPS 66 PROXY STATEMENT 2021

 

 

 

 

 

INFORMATION REGARDING THE BOARD OF DIRECTORS

 

BOARD'S ACTIVE ROLE IN RISK OVERSIGHT

 

The Company's management is responsible for the day-to-day conduct of our businesses and operations, including management of risks the Company faces. To fulfill this responsibility, our management has established an enterprise risk management (“ERM”) program. The program is designed to identify and facilitate the management of significant risks facing the Company as well as the approaches to addressing risks.

 

The Board of Directors has broad oversight responsibility over the Company's ERM program and receives management updates on its development and implementation. In this oversight role, the Board is responsible for satisfying itself that the risk management processes designed and implemented by the Company's management are functioning as intended, and that necessary steps are taken to foster a culture of risk-adjusted decision making throughout the organization.

 

The Board exercises its oversight responsibility for risk assessment and risk management directly and through its committees. However, the full Board maintains responsibility for oversight of strategic risks. Setting the strategic course of the Company and providing oversight of strategic risks involves a high level of constructive engagement between management and the Board. The Board regularly discusses the strategic priorities of the Company and the risks to the Company's successful execution of its strategy, including global economic and other significant trends, as well as changes in the energy industry and regulatory initiatives.

 

The Board of Directors receives regular updates from its committees on individual areas of risk falling within each committee's area of oversight and expertise, as outlined below.

 

Committee Risk Oversight Responsibilities

 

Audit Committee

 

The Audit Committee has primary responsibility for overseeing Phillips 66’s ERM program. The Audit Committee discusses the guidelines and policies to govern the process by which ERM is handled, and has been delegated responsibility to facilitate coordination among the Board's committees with respect to the Company's risk management programs. The Audit Committee’s meeting agendas throughout the year include discussions of individual risk areas, as well as an annual summary of the ERM process. The Audit Committee also oversees the Company’s information security (including cybersecurity) and technology risk management programs, which are fully integrated into the overall ERM program.

 

Public Policy and Sustainability Committee

 

The Public Policy and Sustainability Committee assists the Board in identifying, evaluating and reviewing social, political and environmental trends and related risks. It also reviews management's proposed actions to anticipate and adjust to such trends and manage risks to achieve the Company's long-term business goals. The Public Policy and Sustainability Committee considers risks relating to: (i) the health, safety and environmental matters; (ii) the Company’s lobbying priorities and activities; (iii) Company issues related to public policy, including political spending policies and practices; (iv) Company issues related to corporate social responsibility and sustainability; and (v) emerging issues potentially affecting the reputation of the energy industry and the Company.

 

Other Board Committees

 

The Board’s other committees oversee risks associated with their respective areas of responsibility. For example:

 

•  The Compensation Committee considers the risks associated with our compensation policies and practices for both executive compensation and compensation generally, as well as corporate culture and human capital risks generally.

 

•  The Nominating and Governance Committee reviews policies and practices in the areas of corporate governance and is responsible for overseeing Board composition and director qualifications through the nomination process. Additionally, the Nominating and Governance Committee is responsible for CEO succession planning.

 

 

PHILLIPS 66 PROXY STATEMENT 2021     9

 

 

 

INFORMATION REGARDING THE BOARD OF DIRECTORS

 

 

RELATED PARTY TRANSACTIONS

 

Our Code of Business Ethics and Conduct requires all directors and executive officers to promptly report any transactions or relationships that reasonably could be expected to constitute a related party transaction. The transaction or relationship is reviewed by the Company's management and the appropriate committee of the Board to ensure that it does not constitute a conflict of interest and is appropriately disclosed.

 

Additionally, the Nominating and Governance Committee conducts an annual review of related party transactions between each director and the Company and its subsidiaries in making recommendations to the Board regarding the continued independence of each director. Since January 1, 2020, there have been no related party transactions in which the Company or a subsidiary was a participant and in which any director, executive officer, or any of their immediate family members had a direct or indirect material interest.

 

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

 

DIRECTOR QUALIFICATIONS AND NOMINATION PROCESS

 

Director Skills and Qualifications Aligned with Company Strategy

 

In evaluating potential candidates for nomination to the Board, as well as evaluating the Board's overall composition, the Nominating and Governance Committee and the Board consider several factors. First, all directors are expected to possess the highest personal and professional ethics, integrity and values and be committed to representing the long-term interests of the Company's shareholders. Additionally, directors are expected to devote sufficient time and effort to their duties as a director.

 

The Nominating and Governance Committee believes that the Board should reflect a range of talents, ages, skills, experiences, diversity, and expertise sufficient to provide sound and prudent guidance with respect to the Company's strategic and operational objectives. The Board has committed to seeking women and minority candidates, as well as candidates with diverse backgrounds, skills and experiences, as part of the search process for new directors.

 

The core skills and qualifications considered in evaluating director nominees and Board composition as a whole are described below.

 

C-Suite experience

Executive management experience provides valuable insights and practical understanding of companies, and the methods to drive change and growth within an organization

 

Industry experience

Energy experience brings pertinent background and knowledge to provide perspective on issues specific to the Company’s industry, business, operations and strategy

 

Risk management experience

Experience in managing risk ensures capabilities necessary for risk oversight responsibilities, bringing background and experience that increase directors’ effectiveness

         

Financial experience

Finance and financial reporting experience provide knowledge necessary to evaluate our performance by reference to financial targets and to oversee financial reporting

 

Global experience

Global business or international experience provides valuable perspectives on our operations and enables the oversight of our strategic initiatives

 

Environmental experience

Experience in environmental regulation helps in effective evaluation and oversight of our strategy to provide energy and improve lives while securing a healthy environment

 

10     PHILLIPS 66 PROXY STATEMENT 2021

 

 

 

 

 

INFORMATION REGARDING THE BOARD OF DIRECTORS

 

Board Refreshment

 

The Board strives to maintain an appropriate balance of tenure, turnover, diversity, skills and experience. Our average director tenure is five years, representing an appropriate balance of tenures. The Board does not maintain term limits, as the Board believes that continuity of service can provide stability and valuable insight. Our Corporate Governance Guidelines include a mandatory retirement that provides that no director may serve past the annual meeting immediately following his or her 75th birthday. The average age of our continuing directors is 65.

 

The Board ensures refreshment and continued effectiveness through evaluation, nomination, and other policies, processes and practices. For example:

The Nominating and Governance Committee annually reviews with the Board the qualifications for Board members and the composition of the Board as a whole.
The Nominating and Governance Committee annually reviews each director nominee's continuation on the Board and makes recommendations to the full Board.
The Company's Corporate Governance Guidelines provide that any director whose principal outside responsibilities have changed since election to the Board should volunteer to resign to give the Board the opportunity to review the appropriateness of continued Board membership under the circumstances.
Each committee of the Board performs an annual self-assessment, and the Nominating and Governance Committee and Lead Director oversee an annual self-assessment of the full Board. The self-assessment includes an evaluation survey and individual discussions between the Lead Director and each other director. A summary of the results of each committee's self-assessment is presented to the committee and discussed in executive session. The Lead Director presents a summary of the results of the Board evaluation to the Board in executive session. Any matters requiring further action are identified and action plans developed to address the matter.

 

Recent Board Refreshment

 

In 2020, the Board appointed Julie L. Bushman and Lisa A. Davis. These directors’ skills and perspectives further enhance our diversity and expertise in the boardroom. Their appointments were informed by the Board’s continued focus on its composition, as well as insights provided through the Board’s annual self-evaluation process. In March of this year, Harold W. McGraw III and Victoria J. Tschinkel, who have served on our Board since 2012, informed us that they would be retiring from the Board and not standing for reelection at this Annual Meeting.

 

How We Select Our Director Nominees

 

The Board is responsible for nominating directors and filling vacancies that may occur between annual meetings, based upon the recommendation of the Nominating and Governance Committee. The Nominating and Governance Committee considers the Company’s current needs and long-term and strategic plans to determine the skills, experience and characteristics needed by our Board. The Nominating and Governance Committee identifies, considers and recommends director candidates to the Board of Directors with the goal of creating a balance of knowledge, experience and diversity. Generally, the Nominating and Governance Committee identifies candidates through the use of a search firm or the business and organizational contacts of directors and management. In 2018, the Board amended our Corporate Governance Guidelines to formalize its commitment to ensuring that the pool of candidates in any search process for new directors includes diverse candidates.

 

Shareholder Recommendation of Candidates

 

The Nominating and Governance Committee will consider director candidates recommended by shareholders. A shareholder wishing to recommend a candidate for nomination by the Nominating and Governance Committee should follow the procedures described under SUBMISSION OF FUTURE SHAREHOLDER PROPOSALS AND DIRECTOR NOMINATIONS. In addition, the shareholder should provide such other information deemed relevant to the Nominating and Governance Committee's evaluation. Candidates recommended by the Company's

 

 

PHILLIPS 66 PROXY STATEMENT 2021     11

 

 

  

INFORMATION REGARDING THE BOARD OF DIRECTORS

 

 

shareholders are evaluated on the same basis as candidates recommended by the Company's directors, management, third-party search firms or other sources.

 

BOARD SKILLS AND EXPERIENCE

 

Throughout the year, the Board continued its proactive assessment of board succession planning and refreshment. The Nominating and Governance Committee and full Board works to ensure we maintain a Board that embodies a broad and diverse set of experiences, qualifications, attributes and skills to provide effective oversight of management and the Company. When seeking new candidates, the Board considers a diverse pool of qualified candidates who could potentially serve as Board members. We view diversity in terms of skills, as well as gender, age, race, ethnicity, background, professional experience and perspectives.

 

As the needs of the Company change, the Board revisits the skills and experiences it seeks. Included in the matrix below are the core skills and experiences of C-suite, environmental, risk management, international/global and industry experience, as well as additional skills and experiences the Board currently considers, for our continuing directors.

 

TABLE  

*As of March 15, 2021

 

12     PHILLIPS 66 PROXY STATEMENT 2021

 

 

 

 

 

INFORMATION REGARDING THE BOARD OF DIRECTORS

 

Directors Whose Terms Expire at the 2022 Annual Meeting


   
PHOTO

Greg C. Garland, 63 – Director since 2012

Chairman and CEO of Phillips 66 (2012 to present)

Experience: Mr. Garland brings extensive knowledge of all aspects of our business and industry, having served in executive positions at ConocoPhillips, as president and chief executive officer of Chevron Phillips Chemical Company, and currently as the chairman and chief executive officer of Phillips 66 Partners. Through his more than 35 years of service and experience in the energy industry, Mr. Garland brings to the Board each of the key skills we seek in a director.

Committees: Executive (Chair) Key Skills: C-Suite, Finance, Global Business, Risk Management, Environmental, Industry Other current directorships: Amgen and Phillips 66 Partners

 

 

   
PHOTO

Gary K. Adams, 70 – Director since 2016

Former Chief Advisor - Chemicals for IHS Markit (2011 to 2017), Director of Westlake Chemical Partners LP (2014 to 2016) and Director of Phillips 66 Partners LP (2013 to 2016)

Experience: Mr. Adams has over 40 years of experience in the petrochemicals and plastics industries, including 15 years at Union Carbide, where he began his career. Through various management positions, including as president, chief executive officer and chairman of Chemical Markets Associates Inc. (“CMAI”) before its acquisition by IHS, Mr. Adams also has leadership experience with operating responsibilities, and financial and risk oversight for a global business.

Committees: Compensation
and Public Policy and Sustainability
Key Skills: Industry, Finance, Global Business, Risk Management Other current directorships: Trecora Resources
       

 

   
PHOTO

John E. Lowe, 62 – Director since 2012

Senior Executive Advisor to Tudor, Pickering, Holt & Co. (2012 to present) and Director of Agrium Inc. (2010 to 2015)

Experience: Mr. Lowe had a 30-year career with ConocoPhillips and Phillips Petroleum Company, including several executive positions with ConocoPhillips, providing him extensive industry experience. Mr. Lowe also has financial and risk oversight, international and environmental experience through the series of executive positions he has held and his service on the boards of publicly traded oil and gas and energy companies.

Committees: Audit (Chair), Nominating and Governance, Public Policy and Sustainability, and Executive Key Skills: C-Suite, Finance, Global Business, Risk Management, Environmental, Industry Other current directorships: TC Energy, Apache (Non-Executive Chairman)
       

 

 

PHILLIPS 66 PROXY STATEMENT 2021     13

 

 
 

 

INFORMATION REGARDING THE BOARD OF DIRECTORS

 

 

   
PHOTO

Denise L. Ramos, 64 – Director since 2016

Former Chief Executive Officer, President and director of ITT Inc. (2011 to 2018) and Director of Praxair, Inc. (2014 to 2016)

Experience: Ms. Ramos has experience in the oil and gas industry, including more than 20 years in various finance positions at Atlantic Richfield Company. Having also served as CEO of ITT and chief financial officer at ITT as well as Furniture Brands International and Yum! Brands, Ms. Ramos brings extensive senior leadership, risk management and global business expertise to the Board.

Committees: Audit, Nominating and Governance, Public Policy and Sustainability (Chair) and Executive Key Skills: C-Suite, Finance, Global Business, Risk Management, Environmental Other current directorships: Bank of America and Raytheon Technologies
       

 

Directors Whose Terms Expire at the 2023 Annual Meeting

 

   
PHOTO

Charles M. Holley, 64 – Director since 2019

Former Executive Vice President and Chief Financial Officer of Walmart Inc. (2010 to 2015)

Experience: Mr. Holley served as chief financial officer at one of the largest U.S. corporations, providing him with expertise in finance, senior management, risk and asset management, strategic planning and capital markets. He also has extensive experience in international operations and technology platforms.

Committees: Audit and Public Policy and Sustainability Key Skills: C-Suite, Finance, Global Business, Risk Management Other current directorships: Amgen and Carrier Global
       

 

   
PHOTO

Glenn F. Tilton, 72 – Director since 2012

Experience: Mr. Tilton previously served as chairman and chief executive officer of UAL Corporation, the parent company of United Air Lines as well as chairman of the Midwest of JPMorgan Chase & Co. Mr. Tilton’s career has provided him with strong management experience overseeing complex multinational businesses operating in highly regulated industries as well as expertise in finance and capital markets matters. He also has extensive experience in the energy industry through his more than 30 years in increasingly senior roles with Texaco Inc., including chairman and chief executive officer.

Committees: Compensation, Nominating and Governance (Chair), Public Policy and Sustainability, Executive Key Skills: C-Suite, Finance, Global Business, Risk Management, Environmental, Industry Other current directorships: Abbot Laboratories and  AbbVie Inc. (Lead Director)
       

 

14     PHILLIPS 66 PROXY STATEMENT 2021

 

 

 

 

 

INFORMATION REGARDING THE BOARD OF DIRECTORS

 

   
PHOTO

Marna C. Whittington, 73 – Director since 2012

Experience: Dr. Whittington has many years of leadership experience and expertise as a former senior executive in the investment management industry, including as chief executive officer of Allianz Global Investors Capital. She has extensive knowledge of and substantial experience in management, and in financial, investment and banking matters and provides valuable insight from her previous experience serving as a public company board member.

Committees: Compensation (Chair), Nominating and Governance, Public Policy and Sustainability, Executive Key Skills C-Suite, Finance, Global Business, Risk Management Other current directorships: Macy’s, Inc and Oaktree Capital Group LLC
       

 

 

PHILLIPS 66 PROXY STATEMENT 2021     15

 

 

 

 

 

 

 

PROPOSAL 1: ELECTION OF DIRECTORS

 

The Board has nominated Julie L. Bushman and Lisa A. Davis to stand for election for a term that expires at the annual meeting of shareholders in 2024. Mr. McGraw and Ms. Tschinkel previously served in this class of directors, but both decided to retire in March of this year and not stand for reelection. Although Ms. Davis originally was appointed to the Board to serve in the class whose term ends at the annual meeting in 2023, the Board determined that Ms. Davis should stand for election at this meeting to make the classes of directors as nearly equal as possible.

 

Each nominee requires the affirmative vote of a majority of the votes cast in person or by proxy at the meeting. Directors are elected to serve until their successor is duly elected and qualified. If a nominee is unavailable for election, proxy holders may vote for another nominee proposed by the Board or the Board may reduce the number of directors to be elected at the Annual Meeting. No family relationship exists among any of our directors, director nominees or executive officers. There is no arrangement between any director or director nominee and any other person pursuant to which he or she was, or is to be, selected as a director or director nominee.

 

THE BOARD RECOMMENDS THAT YOU VOTE “FOR” THE FOLLOWING DIRECTOR
NOMINEES.

 
     
PHOTO

Julie L. Bushman, 60 – Director since 2020

Former Executive Vice President of International Operations of 3M (2017 to 2020) and Senior Vice President of Business Transformation and Information Technology of 3M (2013 to 2017); Director of Johnson Controls (2012 to 2016)

Experience: As a former executive of 3M, Ms. Bushman brings executive management experience, as well as experience in international business, risk management and financial oversight. Ms. Bushman also brings environmental experience through her roles leading occupational health and environmental safety divisions at 3M.

 
Committees: Audit and Public Policy and Sustainability Key Skills: C-Suite, Finance, Global Business, Risk Management, Environmental Other current directorships: Adient plc and Bio-Techne Corporation  
         

 

   
PHOTO

Lisa A. Davis, 57 – Director since 2020

Former member of Managing Board of Siemens AG and CEO for Siemens Gas and Power (2014 to 2020)

Experience: Ms. Davis brings significant industry experience to the Board through her roles at Siemens, as well as over 25 years in engineering and management roles at large integrated oil companies including ExxonMobil, Texaco and Shell, including executive vice president strategy and portfolio at Shell. Ms. Davis’s career has provided her with each of the skills sought by the Board.

Committees:Compensation and Public Policy and Sustainability Key Skills: C-Suite, Finance, Global Business, Risk Management, Industry Other current directorships: Air Products and Chemicals, Kosmos Energy and Penske Automotive Group
       

 

16     PHILLIPS 66 PROXY STATEMENT 2021

 

 

 

 

 

PROPOSAL 2: MANAGEMENT PROPOSAL REGARDING ANNUAL ELECTION OF DIRECTORS

 

PROPOSAL 2:  MANAGEMENT PROPOSAL REGARDING ANNUAL ELECTION OF DIRECTORS

 

Currently, the Amended and Restated Certificate of Incorporation (the “Certificate of Incorporation”) of the Company provides for a staggered Board, divided into three classes of directors, with each class elected for a three-year term.

 

After considering the advantages and disadvantages of declassification, including the opinion of our shareholders, the Board has determined it is in the best interests of the Company and its shareholders to amend the Certificate of Incorporation and the By-Laws of the Company to declassify the Board over the next three years. This will result in a fully declassified Board by the 2024 Annual Meeting of Shareholders.

 

THE BOARD RECOMMENDS THAT YOU VOTE “FOR” THE PROPOSAL TO AMEND THE
CERTIFICATE OF INCORPORATION TO DECLASSIFY THE BOARD OF DIRECTORS.

 

The affirmative vote of the holders of 80% of the outstanding shares of stock entitled to vote is required to approve this proposal. We submitted this proposal in 2015, 2016 and 2018 and, while it received significant support, it did not receive the 80% vote required for adoption. Because brokers may not cast a vote on this proposal without your instruction, it is very important that you vote your shares.

 

The proposed amendment to the Certificate of Incorporation would eliminate the classification of the Board over a three-year period and provide for the annual election of all directors beginning at the 2024 Annual Meeting of Shareholders. The proposed amendment to the Certificate of Incorporation would become effective upon the filing of a Certificate of Amendment with the Secretary of State of the State of Delaware, which the Company would file promptly following the Annual Meeting if our shareholders approve the amendment. Board declassification would be phased-in over a three-year period, beginning at the 2022 Annual Meeting of Shareholders, as follows:

 

· Nominees at this Annual Meeting will be elected to serve a three-year period ending at the 2024 Annual Meeting.

 

· Directors whose terms end at the 2022 Annual Meeting will continue to serve until that meeting. At the 2022 Annual Meeting, they will be elected for one-year terms ending at the 2023 Annual Meeting.

 

· Directors whose terms end at the 2023 Annual Meeting will be elected for one-year terms ending at the 2024 Annual Meeting.

 

· At the 2024 Annual Meeting, all nominees presented for election to the Board at the 2024 Annual Meeting will be elected to one-year terms.

 

Beginning with the 2024 Annual Meeting of Shareholders, all directors will stand for election at each annual meeting of shareholders for a one-year term expiring at the subsequent annual meeting of shareholders. The proposed amendment does not change the number of directors or the Board's authority to change that number and to fill any vacancies or newly created directorships.

 

Delaware law provides, unless otherwise addressed in the certificate of incorporation, that members of a board that is classified may be removed only for cause. The proposed amendment provides that, once the Board is fully declassified as of the 2024 Annual Meeting of Shareholders, directors may be removed with or without cause. Before that time, directors serving in a class elected at any annual meeting between 2019 through 2021 may be removed only for cause. Directors elected for a one-year term at each annual meeting between 2022 through 2023 may be removed with or without cause.

 

The proposed Certificate of Amendment to the Certificate of Incorporation is attached to this Proxy Statement as Appendix A. If our shareholders approve the proposed amendment to the Certificate of Incorporation, the Board will make certain conforming changes to the Company’s By-Laws.

 

 

PHILLIPS 66 PROXY STATEMENT 2021     17

 

 

 

BENEFICIAL OWNERSHIP OF PHILLIPS 66 SECURITIES

 

 

BENEFICIAL OWNERSHIP OF PHILLIPS 66 SECURITIES

 

SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS

 

The following table sets forth information regarding persons who we know to be the beneficial owners of more than five percent of our issued and outstanding common stock as of December 31, 2020. The information is based on reports filed by such person with the SEC:

 

NAME AND ADDRESS NUMBER OF SHARES PERCENT OF CLASS

The Vanguard Group(1)

100 Vanguard Blvd.

Malvern, PA 19335

42,759,263 9.79 %

BlackRock, Inc.(2)

55 East 52nd Street

New York, NY 10055

32,908,454 7.5 %

State Street Corporation(3)

One Lincoln Street

Boston, MA 02111

26,710,734

 

6.12 %
         
(1) Based solely on an Amendment to Schedule 13G filed with the SEC on February 10, 2021, by The Vanguard Group on behalf of itself, Vanguard Asset Management, Limited, Vanguard Fiduciary Trust Company, Vanguard Global Advisors, LLC, Vanguard Group (Ireland) Limited, Vanguard Investments Australia Ltd, Vanguard Investments Canada Inc., Vanguard Investments Hong Kong Limited and Vanguard Investments UK, Limited. The Amendment to Schedule 13G reports sole voting power for no shares of common stock, shared voting power for 694,259 shares of common stock, sole dispositive power for 40,851,991 shares of common stock and shared dispositive power for 1,907,272 shares of common stock.
(2) Based solely on an Amendment to Schedule 13G filed with the SEC on January 29, 2021, by BlackRock, Inc. on behalf of itself, BlackRock Life Limited, BlackRock International Limited, BlackRock Advisors, LLC, BlackRock (Netherlands) B.V., BlackRock Institutional Trust Company, National Association, BlackRock Asset Management Ireland Limited, BlackRock Financial Management, Inc., BlackRock Japan Co., Ltd., BlackRock Asset Management Schweiz AG, BlackRock Investment Management, LLC, FutureAdvisor, Inc., BlackRock Investment Management (UK) Limited, BlackRock Asset Management Canada Limited, BlackRock (Luxembourg) S.A., BlackRock Investment Management (Australia) Limited, BlackRock Advisors (UK) Limited, BlackRock Fund Advisors, BlackRock Asset Management North Asia Limited, BlackRock (Singapore) Limited and BlackRock Fund Managers Ltd. The Amendment to Schedule 13G reports sole voting power for 27,404,629 shares of common stock, no shared voting power for shares of common stock, sole dispositive power for 32,908,454 shares of common stock and no shared dispositive power for shares of common stock.
(3) Based solely on a Schedule 13G filed with the SEC on February 9, 2021, by State Street Corporation on behalf of itself, State Street Bank And Trust Company, SSGA Funds Management, Inc, State Street Global Advisors Limited (UK), State Street Global Advisors Ltd (Canada), State Street Global Advisors, Australia Limited, State Street Global Advisors (Japan) Co., Ltd, State Street Global Advisors Asia Ltd, State Street Global Advisors Singapore Ltd, State Street Global Advisors GmbH, State Street Global Advisors Ireland Limited, and State Street Global Advisors Trust Company. The Schedule 13G reports sole voting power for no shares of common stock, shared voting power for 24,362,349 shares of common stock, sole dispositive power for no shares of common stock and shared dispositive power for 26,680,953 shares of common stock.

 

SECURITIES OWNERSHIP OF OFFICERS AND DIRECTORS

 

This table lists the beneficial ownership of our common stock as of February 15, 2021, by all directors and nominees, the executive officers named in the Summary Compensation Table, and by all of our directors and executive officers as a group. Together these individuals beneficially own less than one percent of our common stock.

 

18     PHILLIPS 66 PROXY STATEMENT 2021

 

 

 

 

 

BENEFICIAL OWNERSHIP OF PHILLIPS 66 SECURITIES

 

  NUMBER OF SHARES OR UNITS
NAME OF BENEFICIAL OWNER

SHARES
BENEFICIALLY
OWNED

RESTRICTED OR
DEFERRED
STOCK UNITS(1)

OPTIONS
EXERCISABLE
WITHIN 60 DAYS(2)

Mr. Garland 532,974 109,885 1,111,733
Mr. Herman 39,760 75,762 169,866
Ms. Johnson 77,416 26,787 193,333
Mr. Mitchell 49,047 39,777 172,599
Mr. Roberts 11,367 29,491 122,166
Mr. Adams 12,984 -- --
Ms. Bushman -- 4,305 --
Ms. Davis 3,646 -- --
Mr. Holley 77 5,775 --
Mr. Lowe 40,000 30,403 --
Mr. McGraw(3) 873 52,122 --
Ms. Ramos -- 12,773 --
Mr. Tilton 5,900 30,403 --
Ms. Tschinkel 51,757 9,303 --
Dr. Whittington 2,500 30,403 --
Directors and Executive Officers as a Group (17 Persons) 858,259 488,437 1,882,529
(1) Includes RSUs or deferred stock units that may be voted or sold only upon passage of time.
(2) Includes beneficial ownership of shares of common stock which may be acquired within 60 days of February 15, 2021, through stock options awarded under compensation plans.
(3) Includes 373 shares for which Mr. McGraw disclaims beneficial ownership. These shares are held in a foundation and in various trusts for which Mr. McGraw serves on the board or as trustee, as applicable.

 

 

PHILLIPS 66 PROXY STATEMENT 2021     19

 

 

 

CORPORATE RESPONSIBILITY

 

 

CORPORATE RESPONSIBILITY

 

At Phillips 66, we believe that we succeed together as a team, leveraging our diverse experiences and thoughts in an environment that thrives on collaboration. We embrace engagement as an important tenet of good governance, and value the views of our shareholders and other stakeholders. We believe that positive dialogue builds informed relationships that promote transparency and accountability. Although our Lead Director or other members of the Board are available to participate in meetings with shareholders as appropriate, management has the principal responsibility for shareholder communication.

 

SHAREHOLDER ENGAGEMENT

 

For several years, Phillips 66 has conducted a formal shareholder outreach program to listen to investor perspectives on our business strategy; corporate governance; executive compensation programs; environmental, social and governance (“ESG”); and other matters that are important to our investors. Information and feedback received through our engagement activities are shared with our executive leadership team and the Board of Directors, which help inform their decisions and oversight, respectively. In 2020, we engaged with representatives of many of our top institutional shareholders and discussed the energy transition and our sustainability efforts; board composition, refreshment and tenure; inclusion and diversity; our response to COVID-19; and executive compensation. Our year-round focus on investor engagement is described below:

 

April to June

Meet with shareholders about annual meeting matters, including any management and shareholder proposals

PIE CHART

July to September

Plan engagements, topics for discussion and any changes for upcoming year; assess feedback and share with Board


January to March

Complete meetings, review feedback and share with management, discuss any proposals with proponents


October to December

Meet with shareholders, modify meeting content based on early feedback, and identify areas of interest or concern

 

This year, we heard that our investors are interested in, and supportive of, our Board refreshment efforts, as well as our work towards setting targets for greenhouse gas emissions reductions. We also heard that investors are interested in additional disclosures on human capital management and our efforts to declassify our Board. We are committed to continued shareholder engagement. Highlights of some of the actions we have taken in response to our engagements over the last several years are shown below:

 

2015 2016 2017 2018 2019 2020 2021

Adopted proxy access bylaw

Sought shareholder approval of declassification

Refreshed sustainability information on website

Added two new independent directors

Sought shareholder approval of declassification

 

Expanded sustainability disclosures from website to report

 

Committed to diverse director candidate pools

Sought shareholder approval of declassification

Initial TCFD*-informed sustainability report

Added new independent director

 

Incorporated TCFD* and SASB* into sustainability report

Added two new independent directors

Enhanced lobbying disclosures

Seeking shareholder approval of declassification

Published Human Capital Management Report

 

 

*TCFD is the Task Force on Climate-Related Financial Disclosures and SASB is the Sustainability Accounting Standards Board.

 

20     PHILLIPS 66 PROXY STATEMENT 2021

 

 

 

 

 

CORPORATE RESPONSIBILITY

 

HUMAN CAPITAL MANAGEMENT

 

Our Board recognizes the importance of our human capital practices in creating value and supporting our vision. Our ability to attract, retain and develop talented employees, and create a workplace where they can innovate and thrive, is an integral part of our competitive strategy to drive long-term value and mitigate risk.

 

To that end, our Board routinely engages with senior leadership on matters such as talent pipeline, turnover, workplace culture, and inclusion and diversity. Results of employee surveys and metrics on talent and diversity initiatives are reviewed by the Board on a regular basis. This oversight responsibility sits with the full Board. In addition, certain human capital metrics have been and continue to be measured, reviewed and managed as part of our compensation program and are discussed by the Compensation Committee in its regular meetings. The table below provides an overview of certain of our human capital practices. More information regarding our human capital practices can be found in our Human Capital Management Report on our website at www.phillips66.com.

 

Corporate Culture and Employee
Engagement
  Inclusion and Diversity

Our culture is built on our values of safety, honor and commitment. After learning how our employees experience our culture, we developed a set of behaviors called “Our Energy in Action.” 

  We value inclusion and diversity (I&D) — concepts that are interdependent and equally important. They are essential to who we are, what we believe and how we do business.

·  Work for the Greater Good: We embrace our values as a common bond. Living our values earns us the confidence of our business partners, communities and co-workers.

·  Create an Environment of Trust: We depend on each other to do our jobs. Trusting each other makes us more productive and agile.

·  Seek Different Perspectives: We create space for possibilities. Championing inclusion enables us to innovate and thrive.

·  Achieve Excellence: We challenge ourselves and never settle. Continuing to improve ensures we deliver extraordinary performance.

·  Employee Engagement Survey: We conduct biennial confidential employee engagement surveys to gather employee perspectives on their experience working at Phillips 66. Results are available to all employees and are made available to our Board. Management analyzes findings to identify progress on previous recommendations and areas of continued opportunity.

 

·  Commitment to Diversity: We foster a culture of inclusion because in its absence, diversity cannot thrive. We enhance representation through attraction and retention, and promote environments free of biases where all employees feel valued, respected and belonging.

·  Executive Inclusion and Diversity Council (I&D Council): an advisory group committed to building an inclusive and diverse workplace. Established in 2019, the I&D Council sets the strategic vision from the top and throughout our organization for I&D efforts that drive innovation and enhance business outcomes.

·  Employee Resource Groups (ERGs): Designed to be forums for sharing ideas and raising awareness around identity and belonging, our nine ERGs have over 50 chapters throughout the Company.

·  Inclusive Benefits: We offer various benefits to eligible employees and their families including parental leave; adoption assistance; flex time; family, personal, military & disability leave; gender transition support; and natural disaster financial support.

Health, Safety and Wellness   Talent Retention and Development
We are proud to be one of the energy industry’s safest and most reliable companies. We also inspire life-long healthy choices, educating and supporting employees through fitness programs and services.   We regularly provide opportunities for employees to deepen expertise and further enhance foundational skills like communication and team building. We are also building our pipeline of talent through recruiting diverse internship classes.

·  Safety Performance: Our safety culture, comprehensive HSE policies, management systems and the commitment of employees and contractors who

 

·  Attracting and Retaining the Best People: We recognize that executing our corporate strategy depends on the talents of our high-performing

 

 

PHILLIPS 66 PROXY STATEMENT 2021     21

 

 

 

CORPORATE RESPONSIBILITY

 

 

work for us resulted in a total recordable incident rate (TRR) of 0.11 in 2020, which is 30 times lower than the overall U.S. manufacturing average in 2019.

·  Technology to Create Community: We are using technology, including apps that allow employees to share information such as safety learnings and report near misses in real time. Our cloud-based solutions promote collaboration and teamwork, including a Parent’s Hub for our working parents and a Pandemic Prevention Control Team hub to keep our employees informed about COVID-19 safe practices.

·  Employee Wellness: Our fitness centers offer a variety of services, including group classes, personal training, and fitness assessments, where members can focus on becoming healthier. We also provide on-site medical and dental at some of our locations, as well as an Employee Assistance Program to all employees.

 

organization. We are committed to attracting and retaining the best talent for our business.

·  Investing in our People: We offer employees various opportunities for career growth, including on-demand professional development for employees through digital learning platforms; specialized training for employees in operator roles, engineering, sales and finance; “Lunch and Learn” sessions on a variety of topics and more.

·  Leadership Development Programs: “Leading the Vision” and “Leading for Success” programs advance continuous coaching skills for our people leaders.

·  Internships: We provide paid internships at every major U.S. job location, offering students opportunities to learn and play a role in our organization’s success. In 2020, we honored our intern commitments by pivoting to a virtual experience.

 

COMMUNITY INVOLVEMENT AND ENGAGEMENT

 

We are committed to creating value for our communities through economic development, philanthropy, volunteerism and advocacy, and by operating our business in a socially and environmentally responsible way. In 2020, much of our focus was on helping those impacted by COVID-19, as well as by hurricanes in the Gulf Coast and wildfires on the West Coast. We contributed $6 million to COVID-19 and natural disaster relief efforts across the U.S. and the U.K. Through our matching gift program, we contributed over $5 million to over 2,000 organizations supported by employees. Additionally, we awarded over $1.5 million in volunteer grants to over 600 organizations where our employees and their families volunteer.

 

The communities in which our assets are located and where our employees live are critical stakeholders. We consistently and regularly engage with our local communities and seek their feedback. Our refining operations have community advisory councils or panels that include both Company representatives and community members. Many panels include adjacent operations from our midstream and lubricants businesses. These panels meet at least quarterly with refinery management to provide feedback, discuss topics of local concern and share insights on plans and activities. Our pipeline business units have year-round community awareness, education and listening panels to stay connected with those involved with and living near our extensive pipeline network.

 

POLITICAL ACTIVITIES AND LOBBYING ACTIVITIES

 

We believe that engagement and good governance involves participating in political or public policy activities that advance the Company's goals, are consistent with Company values, and improve the communities where we work and live. A number of federal, state and local laws govern corporate involvement in such activities, and we maintain policies, procedures and programs to comply with these laws. Our policy, contributions and disclosures about our involvement in political or public policy activities are available on our website.

 

SUSTAINABILITY AND TRANSITION TO LOWER-CARBON FUTURE

 

We recognize the climate challenge and are making investments that advance a lower carbon future. We are focused on implementing sustainability practices today and are seeking solutions for tomorrow’s energy needs. We formed a new organization, Emerging Energy, within the Company to focus on a lower-carbon business platform. We are conducting research on energies of the future, including renewable fuels, organic photovoltaics, current and next generation batteries, and solid oxide fuel cells. In addition, we have a portfolio of renewable fuel projects in development that comply with low-carbon fuel standards. We are leveraging our existing infrastructure, supply network and capabilities to participate in lower carbon businesses. More information on the Company sustainability strategy and programs is available in our sustainability report on our website.

 

22     PHILLIPS 66 PROXY STATEMENT 2021

 

 

 

 

 

PROPOSAL 3: RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG

 

PROPOSAL 3: RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG

 

The Audit Committee is directly responsible for the appointment, compensation, retention and oversight of the independent registered public accounting firm retained to audit the Company's financial statements. The Audit Committee has appointed Ernst & Young LLP to serve as the Company's independent registered public accounting firm for fiscal year 2021. Ernst & Young has acted as the Company's independent registered public accounting firm continuously since 2011.

 

The Audit Committee annually considers the independence of the Company’s independent auditors prior to the firm’s engagement, and periodically considers whether a regular rotation of the independent auditors is necessary to assure continuing independence. The Audit Committee and its Chair are directly involved in the selection of Ernst & Young’s lead engagement partner.

 

The Audit Committee and the Board of Directors believe that the continued retention of Ernst & Young is in the best interests of the Company and its shareholders. We are asking you to vote on a proposal to ratify the appointment of Ernst & Young.

 

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

 

The submission of this matter for approval by shareholders is not legally required, but the Board and the Audit Committee believe it provides an opportunity for shareholders to vote on an important aspect of corporate governance. If the shareholders do not ratify the selection of Ernst & Young, the Audit Committee will reconsider the selection of that firm as the Company’s independent registered public accounting firm. Even if the selection is ratified, the Audit Committee in its discretion may select a different independent registered public accounting firm at any time during the year if it determines that such a change would be in the best interests of the Company and its shareholders.

 

ERNST & YOUNG LLP FEES

 

Audit services of Ernst & Young for fiscal year 2020 included an audit of our consolidated financial statements, an audit of the effectiveness of the Company's internal control over financial reporting, and services related to periodic filings made with the SEC. Additionally, Ernst & Young provided certain other services as described below. In connection with the audit of the 2020 consolidated financial statements, we entered into an engagement agreement with Ernst & Young that set forth the terms by which Ernst & Young performed audit services for us.

 

The Audit Committee is responsible for negotiating the audit fee associated with its retention of Ernst & Young. Ernst & Young's fees for professional services totaled $12.7 million for 2020 and $14.5 million for 2019, which consisted of the following:

 

Fees (in millions) 2020 2019
Audit Fees(1) $11.4 $13.0
Audit-Related Fees(2) 1.0 1.2
Tax Fees(3) 0.1 0.1
All Other Fees 0.2 0.2

Total

$12.7 $14.5

 

(1) Fees for audit services related to the fiscal year consolidated audit, the audit of the effectiveness of internal controls over financial reporting, quarterly reviews, registration statements, comfort letters, statutory and regulatory audits and accounting consultations. Includes audit fees of Phillips 66 Partners LP of $0.9 million for 2020 and $1.3 million for 2019, which were approved by the Audit Committee of the General Partner of Phillips 66 Partners LP.

 

 

PHILLIPS 66 PROXY STATEMENT 2021     23

 

 

 

PROPOSAL 3: RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG

 

 

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

 

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

 

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

 

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

 

24     PHILLIPS 66 PROXY STATEMENT 2021

 

 

 

 

 

PROPOSAL 3: RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG

 

AUDIT AND FINANCE COMMITTEE REPORT

 

The Audit Committee assists the Board of Directors in fulfilling its responsibility to provide independent, objective oversight of the financial reporting functions and internal control systems of Phillips 66. The Audit Committee currently consists of five non-employee directors. The Board has determined that each member of the Audit Committee satisfies the requirements of the NYSE as to independence, financial literacy and expertise. The Board has further determined that each of Charles M. Holley, John E. Lowe, and Denise L. Ramos is an audit committee financial expert as defined by the SEC. The responsibilities of the Audit Committee are set forth in the written charter adopted by the Board of Directors, which is available in the “Investors” section of the Company's website under the caption “Corporate Governance.” One of the Audit Committee's primary responsibilities is to assist the Board in its oversight of the integrity of the Company's financial statements. The following report summarizes certain of the Audit Committee's activities in this regard for 2020.

 

Review with Management. The Audit Committee has reviewed and discussed with management the audited consolidated financial statements of Phillips 66 included in the Company's Annual Report on Form 10-K for the year ended December 31, 2020, and management's assessment of the effectiveness of the Company's internal control over financial reporting as of December 31, 2020, included therein.

 

Discussions with Independent Registered Public Accounting Firm. The Audit Committee has discussed with Ernst & Young LLP, independent registered public accounting firm for Phillips 66, the matters required to be discussed by the applicable requirements of the Public Company Accounting Oversight Board and the SEC. The Audit Committee has received the written disclosures and the letter from Ernst & Young required by applicable requirements of the Public Company Accounting Oversight Board regarding the independent accountant's communications with the Audit Committee concerning independence, and has discussed with that firm its independence from Phillips 66.

 

Recommendation to the Phillips 66 Board of Directors. Based on its review and discussions noted above, the Audit Committee recommended to the Board of Directors that the audited consolidated financial statements of Phillips 66 be included in the Company's Annual Report on Form 10-K for the year ended December 31, 2020.

 

AUDIT AND FINANCE COMMITTEE

 

John E. Lowe, Chairman

Julie L. Bushman

Charles M. Holley

Denise L. Ramos

Victoria J. Tschinkel

 

 

PHILLIPS 66 PROXY STATEMENT 2021     25

 

 

 

COMPENSATION DISCUSSION AND ANALYSIS

 

 

PROPOSAL 4: ADVISORY APPROVAL OF EXECUTIVE COMPENSATION

 

In accordance with Section 14A of the Securities Exchange Act of 1934, as amended, shareholders are being asked to vote on the following advisory (non-binding) resolution:

 

RESOLVED, that the shareholders approve the compensation of Phillips 66's Named Executive Officers (NEOs) as described in this Proxy Statement in the COMPENSATION DISCUSSION AND ANALYSIS section and in the EXECUTIVE COMPENSATION TABLES (together with the accompanying narrative disclosures).

 

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

 

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

 

As required by SEC rules, Phillips 66 is providing shareholders with the opportunity to vote on an advisory resolution, commonly known as “Say-on-Pay,” considering approval of the compensation of its NEOs.

 

The Compensation Committee, which is responsible for the compensation of our CEO and Senior Officers (as defined in ROLE OF THE HUMAN RESOURCES AND COMPENSATION COMMITTEE), has overseen the development of compensation programs designed to attract, retain and motivate executives who enable us to achieve our strategic and financial goals. The COMPENSATION DISCUSSION AND ANALYSIS and the EXECUTIVE COMPENSATION TABLES, together with the accompanying narrative disclosures, allow you to view the trends in compensation and application of our compensation philosophies and practices for the years presented.

 

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

 

Because your vote is advisory, it will not be binding upon the Board of Directors. Nevertheless, the Compensation Committee and the Board will consider the outcome of the vote when evaluating future executive compensation arrangements. However, votes for or against our compensation programs will not necessarily inform the Compensation Committee and the Board about which elements of those programs shareholders approve or disapprove. For this reason, the Board encourages shareholders to engage with us to allow the Compensation Committee to understand shareholders' views and consider that feedback when making decisions.

 

26     PHILLIPS 66 PROXY STATEMENT 2021

 

 

 

 

 

PROPOSAL 4: ADVISORY APPROVAL OF EXECUTIVE COMPENSATION

 

COMPENSATION DISCUSSION AND ANALYSIS

 

COMPANY PERFORMANCE SUMMARY

 

Our performance results and strategic highlights are presented below. The compensation decisions reflected in this Compensation Discussion and Analysis (“CD&A”) demonstrate the Compensation Committee’s disciplined and rigorous application of the Phillips 66 compensation philosophy, program structure and performance standards relative to the 2020 performance of Phillips 66 and the named executive officers. Some of these results are not measures of financial performance under U.S. generally accepted accounting principles (GAAP), for which more information is available in Appendix B.

 

GRAPHIC

Operating
Excellence

Top
Performance
Industry leading and Company-best performance for personal and process safety metrics – combined Total Recordable Rate of 0.11, combined Lost Workday Case Rate of 0.02 and Tier 1 Process Safety Event Rate of 0.02.

34%
Improved

Lowest number of Agency Reportable Environment Events in Company history – 34% improved versus 2019 performance.
Digital
Innovation
Advanced digital innovation efforts across Refining, Midstream, and Marketing and Specialties segments.
Record
Production
Produced record ethylene and polyethylene volumes through our joint venture, Chevron Phillips Chemical Company.

GRAPHIC

Growth

+900,000
BPD

Completed Gray Oak Pipeline which runs 845 miles from the Permian and Eagle Ford to the Texas Gulf Coast and has capacity to transport 900,000 BPD.

+300,000
BPD

Added two new 150,000 BPD fractionators at our Sweeny Hub, bringing the site’s total fractionation capacity to 400,000 BPD – quadrupling our output.
Emerging
Energy
Established Emerging Energy organization dedicated to commercializing renewable, lower-carbon technologies for a sustainable future.

+50,000
BPD

Announced plans for Rodeo Renewed – projected production of 50,000 BPD of renewable diesel with >30% forecasted returns – which will reconfigure our San Francisco Refinery into one of the largest renewable transportation fuels production facilities in the world.

GRAPHIC

Returns

$2.1 B
Cash Flow

Generated $2.1 B operating cash flow, demonstrating the strength of our diversified portfolio despite the unprecedented demand decrease.

$1.2
billion

On target to achieve AdvantEdge66 program value targets, sustain self-funding status, and initiate next phase of digital transformation.
Product
Placement
Expanded retail presence through addition of 95 sites to our West Coast joint venture; upgraded 1,257 sites globally.

GRAPHIC

Distributions

Preserved
Liquidity
Reduced costs by over $500 million and suspended share repurchases in March 2020 to manage and preserve liquidity.
$1.6 B Maintained competitive dividend – distributions to shareholders through dividends totaled $1.6 billion in 2020.

(-33%)
2020 TSR

Total Shareholder Return (TSR) since 2012 of 178%, which outperformed our peers but underperformed the S&P 100. TSR for 2020 was (-33.2%).

GRAPHIC

High-
Performing
Organization

Inclusion &
Diversity
Strengthened commitment and accelerated efforts to advance Inclusion and Diversity in light of the social unrest events during 2020.
Community
Response
Our employees volunteered over 52,000 hours and Phillips 66 provided $32 million in financial support to our communities.

 

 

PHILLIPS 66 PROXY STATEMENT 2021     27

 

 

 

COMPENSATION DISCUSSION AND ANALYSIS

 

 

COVID-19 Response

 

COVID-19 has had significant, far-reaching impacts on the global economy and its citizens. Our top priority has been the health and safety of our Company, our employees and their families, and the communities in which we live and work. Highlights of our efforts are presented below:

 

 

  GRAPHIC

Our People

ü  No Company-wide reductions in workforce, furloughs, or salary or benefit reductions

ü  Provide personal protective equipment (e.g., masks, sanitizer, etc.)

ü  Require temperature checks, face coverings in common areas and pre-screening questionnaire for employees working onsite

ü  Reconfigured site and work areas to ensure social distancing

ü  In-house medical services provide guidance and lead contact tracing protocols

GRAPHIC  

Our
Communities

ü  Continued to provide energy as an essential business to our communities

ü  Contributed $6 million to COVID-19 and natural disaster relief efforts across the U.S. and U.K.

ü  Delivered 18,000 pieces of personal protective equipment to front-line workers

ü  Honored our commitment to host virtual internship program and provide university and dependent scholarships

 

  GRAPHIC

Our Business
Operations

ü  Exceeded $500 million in cost reductions and cut capital spending by more than $700 million

ü  Suspended share repurchases in March 2020

ü  Added debt with repayment flexibility, positioning us to navigate uncertain environment

ü  Operated safely and reliably, providing critical energy products to our customers

 

No Change to Compensation Programs Related to COVID-19

 

This year tested the resilience and effectiveness of our compensation program design and targets, particularly in a challenging economic environment. As the year progressed, the Compensation Committee monitored the Company’s performance relative to the originally approved targets and determined that the programs were functioning as intended and no adjustments were warranted. Specifically, we are pleased to highlight that we did not:

 

х Make any one-time special awards

 

х Change or modify the targets or metrics for the 2020 Variable Cash Incentive Program

 

х Change or modify the terms, conditions, targets or metrics for any in-process long-term incentive compensation programs

 

The payouts for our 2020 VCIP and Performance Share Program 2018 – 2020 described in this CD&A were based on the Company’s performance relative to the originally approved metrics with no adjustments.

 

EXECUTIVE COMPENSATION PROGRAM SUMMARY

 

Since our inception in 2012, our strategy is unchanged and we have operated with clear objectives − enable our high-performing workforce to execute our corporate strategy efficiently and effectively, while remaining vigilant and focused on safety and operating excellence, in order to deliver profitable growth, enhance returns, and provide a secure, competitive and growing dividend. 

 

We operate in a volatile industry and the events of 2020, including the COVID-19 pandemic, social unrest and natural disasters, challenged the resiliency of our diversified portfolio, our strategy and our employees. Through our

 

28     PHILLIPS 66 PROXY STATEMENT 2021

 

 

 

 

 

COMPENSATION DISCUSSION AND ANALYSIS

 

disciplined approach to capital management, we took measures to secure additional liquidity and reduce our controllable costs.

 

Our Named Executive Officers (“NEOs”) for 2020 were:

 

Name Title
Greg Garland Chairman and Chief Executive Officer
Kevin Mitchell Executive Vice President, Finance and Chief Financial Officer
Robert Herman Executive Vice President, Refining
Paula Johnson Executive Vice President, Legal and Government Affairs, General Counsel and Corporate Secretary
Tim Roberts Executive Vice President, Midstream

 

Compensation and Benefits Philosophy and Guiding Principles

 

Our Compensation and Benefits Philosophy and Guiding Principles form the foundation upon which our compensation and benefits programs are developed in alignment with our corporate vision, strategy and values. The Compensation Committee regularly reviews our Compensation Philosophy and Guiding Principles. Our programs are designed to attract, retain, develop and reward a high-performing workforce to successfully execute our corporate strategy. Embedded in our talent management strategy is the longstanding commitment to equal opportunity in all aspects of employment.

 

ü Our programs drive the actions and behaviors of our employees, consistent with shareholder value creation, prudent risk-taking and a long-term perspective.

 

ü Our programs form a critical part of the Company’s employment relationship, which also includes challenging and rewarding work, growth and career development opportunities and being part of a leading company with a unique, inclusive culture and diverse workforce.

 

ü Our programs have a pay for performance focus – payouts are differentiated based on performance relative to targets and peers.

 

ü Our programs target reasonable, affordable and competitive compensation and benefits, aligned with market median levels.

 

ü Our programs are fair and equitable, irrespective of gender, race or other personal characteristics.

 

Executive Compensation Best Practices

 

ü Our executive compensation structure delivers a significant portion of compensation tied to the achievement of annual and long-term goals that promote shareholder value creation.

 

ü We emphasize Phillips 66 stock ownership by requiring stock ownership levels for our executives.

 

ü We limit executive perquisites to items that serve a reasonable business purpose and are common among our peer group.

 

ü We regularly engage with shareholders on executive compensation.

 

ü We provide executives the same group benefit programs as we provide other employees, on substantially the same terms.

 

 

PHILLIPS 66 PROXY STATEMENT 2021     29

 

 

 

COMPENSATION DISCUSSION AND ANALYSIS

 

 

New Executive Compensation Developments For 2021

 

ü We have enhanced our annual incentive program to increase the weighting of our Environment metric from 5% to 15% to include two new metrics: Low Carbon Priorities and Greenhouse Gas Priorities.

 

ü We reduced 2021 total target pay for our Chairman and CEO by approximately 5%.

 

Compensation Programs

 

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

 

KEY ELEMENTS OF PAY DELIVERED VIA TARGET AMOUNT

PERFORMANCE DRIVERS
(AND WEIGHTINGS)

Base Salary Cash Benchmarked to compensation peer group median; adjusted for experience, responsibility, performance and potential

Annual fixed cash compensation

to attract and retain NEOs

Annual Incentive Variable Cash Incentive Program (VCIP)

Percentage of base salary

benchmarked to peer group

Adjusted EBITDA (40%)

Operating Excellence (35%)
Adjusted Controllable Costs (15%)
High-Performing Organization (10%)

Individual Modifier (+/- 50% of target)

Long-Term Incentives (LTI)

Performance Share Program (PSP)(1)

(3-year performance period)

50% of LTI Target

Percentage of base salary

benchmarked to peer group

Absolute ROCE (25%)

Relative ROCE (25%)
Relative TSR (50%)

 

Stock Option Program(2)

25% of LTI Target

Long-term stock price appreciation
 

Restricted Stock Unit (RSU) Program

25% of LTI Target

Long-term stock price appreciation
(1) Beginning with the PSP 2020-2022, the performance drivers and weightings are Absolute ROCE (50%) and Relative TSR (50%).
(2) The Compensation Committee believes that stock options are inherently performance-based, as options have no initial value and grantees only realize benefits if the value of our stock increases after the date of grant. This practice is intended to ensure that the interests of our NEOs are aligned with those of our shareholders.

 

Compensation Mix Puts Significant Pay at Risk

 

Consistent with our philosophy that executive compensation should be linked to Company performance and directly aligned with shareholder value creation, a significant portion of NEO compensation is at risk and based on performance metrics tied to our corporate strategy. "At risk" means there is no guarantee that the target value of the awards will be realized. Based on its evaluation of performance, the Compensation Committee has authority to reduce, and even award nothing for, the performance-based payouts and individual performance adjustments under each of the VCIP and PSP. Stock options can expire with zero value if the Company stock price does not appreciate above the grant date price over the 10-year term of the options. RSUs may lose value depending on stock price performance. Therefore, for NEOs to earn and sustain competitive compensation, the Company must meet its strategic objectives, perform well relative to peers, and deliver market-competitive returns to shareholders. Further detail on the alignment of compensation and shareholder outcomes is described in CEO PAY ALIGNED WITH COMPANY PERFORMANCE.

 

CEO target compensation mix is 91% at risk and 74% performance-based. The average target mix for the other NEOs is 84% at risk and 69% performance-based. Further, LTI awards make up 76% of the CEO and 69% of other NEOs target compensation mix. For both the CEO and other NEOs, target mix percentages are commensurate with their levels of responsibility. Further detail on these programs is provided in EXECUTIVE COMPENSATION PROGRAM DETAILS.

 

30     PHILLIPS 66 PROXY STATEMENT 2021

 

 

 

 

 

COMPENSATION DISCUSSION AND ANALYSIS

 

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

 


CEO Target Mix
  Other NEOs Target Mix

 

PIE CHART

 

Aligned with Best Practices

 

The following best practices are reflected in our executive compensation programs:

 

WE DO ...
ü Target the majority of NEO compensation to be performance-based

ü

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

ü

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

ü

Cap maximum payouts under our VCIP and PSP

ü

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

ü

Include absolute and relative metrics in our LTI programs

ü

Maintain stock ownership guidelines for executives -- CEO 6x base salary; other NEOs 3-5x base salary

ü

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

ü

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

ü

Maintain a fully independent Compensation Committee

ü

Retain an independent compensation consultant

ü

Hold a Say-on-Pay vote annually and consider shareholder feedback in the design of our compensation programs
WE DO NOT ...
û Provide excise tax gross-ups to our NEOs under our CICSP

û

Reprice stock options without shareholder approval

û

Price stock options below grant date fair market value

û

Allow share recycling for stock options

û

Include evergreen provisions in our active equity plans

û

Allow hedging or pledging of Phillips 66 stock

û

Pay dividends during the performance period on unearned PSPs

û

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

û

Provide separate supplemental executive retirement benefits for individual NEOs

 

 

PHILLIPS 66 PROXY STATEMENT 2021     31

 

 

 

COMPENSATION DISCUSSION AND ANALYSIS

 

 

û

Maintain individual change-in-control agreements

û

Have an employment agreement with the CEO

û

Provide excessive perquisites

 

EXECUTIVE COMPENSATION PROGRAM DETAILS

 

Base Salary

 

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

 

Below is a summary of the annualized base salary for each NEO for 2020. Because these amounts reflect each NEO's annualized salary as of the dates indicated, this information may vary from the information provided in the SUMMARY COMPENSATION TABLE, which reflects actual base salary earnings in 2020, including the effect of salary changes during the year.

  

Name Salary as of 1/1/2020
($)
Salary as of 12/31/2020
($)
Greg Garland 1,675,008   1,675,008 (1)
Kevin Mitchell 867,000   903,432  
Robert Herman 850,008   870,432  
Paula Johnson 805,416   836,040  
Tim Roberts 850,008   887,424  
(1) Mr. Garland’s base salary has remained unchanged since March 1, 2017.

 

Annual base salary increases were effective March 1, 2020, as part of the annual merit cycle for all employees. Base salary increases realign the NEO with the respective compensation peer group levels and reflect each NEO's achievement of established performance objectives corresponding to his or her role. The Compensation Committee determined the adjustments that were made were appropriate to maintain our competitiveness in the market.

 

Variable Cash Incentive Program (VCIP)

 

The VCIP, which is our annual incentive program, is designed to provide variability and differentiation based on corporate and individual performance. Through our operational and financial metrics, we designed our VCIP program to align annual awards with shareholder interests and execution of our corporate strategy. We do not tie NEO VCIP awards to the performance of any individual business unit. We believe this structure serves the best interests of shareholders as it promotes collaboration across the organization.

 

Eligible earnings, which is base salary earned during the year, are multiplied by a VCIP target percentage that is based on each NEO's salary grade level to derive the NEO's target VCIP award. At the end of the performance period, the Compensation Committee reviews the Company's performance to determine the Corporate Payout Percentage. This percentage is based on a mix of operational and financial metrics, the details and weighting of which are described below. The Compensation Committee can award a Corporate Payout Percentage of zero up to the maximum of 200%.

 

The target award is multiplied by the Corporate Payout Percentage, after which the Compensation Committee takes into account the individual accomplishments of each NEO when determining applicable Individual Performance Adjustments. Individual Performance Adjustments can range from +/–50% of the target award. Adjustments are based on measurable performance of the individual NEO that drives shareholder value.

 

32     PHILLIPS 66 PROXY STATEMENT 2021

 

 

 

 

 

COMPENSATION DISCUSSION AND ANALYSIS

 

$ × % × % + +/- = $

Eligible

Earnings

Target

Percentage

Corporate Payout

Percentage

Individual

Adjustments

Total VCIP

Payout

 

The Compensation Committee reviews metric selection annually to ensure continued alignment with our strategy. For 2020, the Committee used the same metrics as it has in prior years as they believe these metrics were the most appropriate to align compensation with our corporate strategy at this time. This mix of financial and operational metrics, and the rigorous goals set annually by the Compensation Committee, is designed to ensure a balanced view of the Company performance and drive results and continued improvement over the near term.

 

2020 VCIP METRICS

PIE CHART  

Adjusted EBITDA

 

We believe Adjusted EBITDA is effective in evaluating our annual core operating performance and is how we determine enterprise value. Our threshold represents the Adjusted EBITDA required to cover our sustaining capital and shareholder dividend commitments. To ensure we continue to deliver on our growth strategy, the target and maximum for Adjusted EBITDA represent returns that are 1.5% and 3.0% above our Weighted Average Cost of Capital (WACC), respectively.

 

Based on actual Company performance being 68% below target and below threshold, the Compensation Committee determined that no payout was earned for this metric. Adjusted EBITDA, as used for VCIP, is a non-GAAP financial measure. See Appendix B for additional information.

BAR CHART

Operating Excellence

 

Operating excellence, including personal and process safety, environmental stewardship and asset availability, is foundational in meeting our corporate strategy of growth, returns and distributions. Strong operating excellence is essential in demonstrating our focus on Environment, Social and Governance matters, which we view as driving shareholder value creation. We measure ourselves against other companies in our industry for personal and process safety metrics and target sustained performance in environmental stewardship and effective management of unplanned downtime for asset availability.

 

For metrics for which comparative data was available, like Total Recordable Rate (TRR), Lost Workday Case Rate (LWCR), and Process Safety Event (PSE) Rate, we benchmarked ourselves against companies with the strongest

 

 

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COMPENSATION DISCUSSION AND ANALYSIS

 

 

safety records in our industry. Generally, these companies fall within the top two quartiles of all companies reported. We then established our threshold, target, and maximum goals based on the 25th, 50th, and 75th percentiles of this group of companies.

 

Where comparative data was not available, like for asset availability and environmental events, we established our threshold, target, and maximum goals based on our own historical performance, with the goal of continuous improvement. For asset availability, we incorporate the lines of our business and weight them by EBITDA.

 

In 2020, we exceeded or tied our previously best performance for TRR, LWCR, PSE Rate, and Environmental Events. For Asset Availability, we exceeded our target level of performance. As a result, the Compensation Committee approved an overall payout for Operating Excellence of 194% of target.

 

Combined TRR and LWCR: Our industry-leading performance for TRR was 31% better than our maximum goal, achieving a payout of 200% of target. Our industry-leading performance in LWCR was 60% better than maximum, achieving a payout of 200% of target.

 

PSE Rate: Our industry-leading PSE Rate was 50% better than maximum, achieving a payout of 200% of target.

 

Environmental Events: The Compensation Committee considered that in the industries in which we operate there is increasingly stringent regulation and scrutiny on environmental performance. Our performance was 31% better than maximum, achieving a payout of 200% of target.

 

Asset Availability: Our availability of 96.8% across our lines of business was 1.5 percentage points above target, which resulted in a payout of 188% of target.

 

  Payout Levels Based on Performance

2020

Results

Payout

%

  0% 50% 100% 200%
Combined TRR > 0.37 0.37 0.21 0.16 0.11 200%
Combined LWCR > 0.13 0.13 0.06 0.05 0.02 200%
Process Safety Event Rate > 0.09 0.09 0.07 0.04 0.02 200%
Environmental Events > 122 122 115 < 109 75 200%
Asset Availability < 93.6% 93.6% 95.3% 97.0% 96.8% 188%
Combined Operating Excellence           194%

 

BAR CHART  

 

Adjusted Controllable Costs

 

Adjusted Controllable Costs focuses on maintaining or reducing costs. We operate in an industry where a substantial portion of operating costs are market driven and this metric drives a culture of cost discipline. Our targets for threshold, target, and maximum are based on our budget for the year. For threshold performance, Adjusted Controllable Costs could not exceed budget by more than 3%, target performance was based on achieving budget, and maximum performance required Adjusted Controllable Costs to be 3% under budget.

 

34     PHILLIPS 66 PROXY STATEMENT 2021

 

 

 

 

 

COMPENSATION DISCUSSION AND ANALYSIS

 

Given the economic environment during 2020, we quickly adapted to the market conditions and reduced our adjusted controllable costs by 6% versus our approved budget, resulting in a payout of 200%. Adjusted Controllable Costs is a non-GAAP financial measure. See Appendix B for additional information.

 

BAR CHART  

 

High-Performing Organization (HPO)

 

We believe maintaining and enhancing a high-performing organization is critical to our success and is part of our human capital management strategy. Our employees promote our culture and are integral to achieving our strategic goals and maximizing long-term shareholder value. We measure our High-Performing Organization performance relative to the following:

 

Culture

foster behaviors that promote

our unique culture

Capability

build depth and breadth

in our skills

Performance
deliver exceptional,

sustainable results

ü     Continued to embed Our Energy in Action, our leadership behaviors, in talent and business practices

 

ü     Strengthened our commitment and accelerated our efforts to advance Inclusion and Diversity

 

ü     Recognized by Forbes as a Best Employer for Diversity, and a Best Place to Work for Vets by Military Times

ü     Sharpened managerial skills through our internal development programs

 

ü     Deployed new technologies and implemented new ways of working to drive efficiency and improve performance

 

ü     Implemented virtual intern and recruiting programs and leveraged national diversity partnerships to expand recruiting reach

ü     Realized strong retention of top talent, and recruitment and promotions for diverse groups

 

ü     Continued to enhance the performance management process and experience

 

ü     Deployed “Your Personal Priorities” survey to inform our global Total Rewards strategy

 

ü     Enhanced 2021 VCIP design to incorporate metrics that demonstrate our commitment to a lower-carbon economy

ü     Significant progress made on AdvantEdge66 initiatives by leveraging technology, process improvements, and data analytics

ü     Responded to COVID-19 with measured protocols to ensure a safe workplace for employees and support for our communities 

 

We strive for continuous improvement of our high-performing organization, as we believe it is our employees that differentiate us in the market. Based on our superior performance, the Compensation Committee determined that 180% of target was earned for High-Performing Organization.

 

BAR CHART  

 

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COMPENSATION DISCUSSION AND ANALYSIS

 

 

Total Corporate Payout

 

The formulaic result of our individual metrics was a Total Corporate Payout of 115%, as summarized in the following table.

 

Metric Payout Percentage Weight Corporate Amount
Adjusted EBITDA 0% 40% 0%
Operating Excellence 194% 35% 67%
Adjusted Controllable Costs 200% 15% 30%
High-Performing Organization 180% 10%   18%
Total Corporate Payout     115%

 

Individual Performance Highlights

 

The Compensation Committee has the authority to adjust our NEOs' individual VCIP payouts by +/–50% of the formula-based target payout. The Compensation Committee may apply an individual performance adjustment to reflect project-based accomplishments that drove or detracted from shareholder value or for market-based considerations to more closely align the payout with shareholder returns. This flexibility allows us to reflect our unique business strategy and portfolio of assets as well as differentiate individual executive performance. The Compensation Committee adjusted the individual VCIP payouts for NEOs based on their responsibility for the success of projects and initiatives that led to the execution of our strategy. These projects and initiatives, as shown in the following table, contributed to the execution of our strategy and produced the results as shown in our Company Performance Summary.

 

TABLE  

 

36     PHILLIPS 66 PROXY STATEMENT 2021

 

 

 

 

 

COMPENSATION DISCUSSION AND ANALYSIS

 

Total VCIP payouts for each of our NEOs are shown in the table below.

 

  2020 Eligible Earnings
($)
Target VCIP Percentage
(%)
Corporate Payout Percentage
(%)
Individual Performance Adjustment
(%)
Total Payout
($)
Greg Garland 1,675,008   160 % 115 % 0 % 3,082,015  
Kevin Mitchell 897,360   100 % 115 % 25 % 1,256,304  
Robert Herman 867,028   90 % 115 % 25 % 1,092,455  
Paula Johnson 830,936   90 % 115 % 15 % 972,195  
Tim Roberts 881,188   90 % 115 % 25 % 1,110,297  

 

The Compensation Committee concluded that, due to the challenging economic environment and our TSR performance, it was not appropriate to make a positive individual performance adjustment on Mr. Garland’s 2020 VCIP award despite significant achievements during the year.

 

Variable Cash Incentive Program – Increased Focus on Sustainable Performance in 2021

 

At Phillips 66, we provide energy that improves lives and meets the world’s growing needs. At the same time, we know that climate change is a complex, global issue that requires long-term commitment, action by every segment of society, technology development and free-markets solutions.

 

Our commitment to providing energy and improving lives includes advancing the global effort to transition to a lower-carbon economy. To demonstrate this commitment, we have enhanced our 2021 VCIP design to increase the weighting of our Environment metric from 5% to 15% to include two new metrics, each weighted 5%:

 

Low-Carbon Priorities: 2021 priorities will reflect efforts to advance lower-carbon investments, optimization and innovation

 

Greenhouse Gas Priorities: 2021 priorities will reflect efforts to reduce manufacturing emissions intensity and setting GHG reduction targets

 

PIE CHART  

 

These enhancements deliver a VCIP design that equally weights our Operational Sustainability and Financial Sustainability performance – both essential as we execute our corporate strategy and maximize shareholder value.

 

Long-Term Incentive Programs Link Pay Outcomes to Company Performance

 

We deliver 50% of long-term target value as awards from our Performance Share Program, 25% in the form of stock options, and 25% in the form of RSUs.

 

We believe this mix of awards is aligned with our compensation philosophy, reflects the cyclical nature of our

 

 

PHILLIPS 66 PROXY STATEMENT 2021     37

 

 

 

COMPENSATION DISCUSSION AND ANALYSIS

 

 

business, promotes retention of our high-performing talent, supports succession planning and is consistent with market practice.

 

PIE CHART  

 

Performance Share Program (PSP)

 

Each PSP has a three-year performance period, and therefore three PSPs are in progress at any time. Programs in effect during 2020 were PSP 2018-2020, PSP 2019-2021, and PSP 2020-2022. By delivering 50% of LTI through the PSP, a significant portion of NEO compensation is tied to long-term Company performance, incentivizing continued outperformance relative to peers and aligning management interests with those of shareholders.

 

Target Shares at Beginning of Performance Period. The Compensation Committee uses the Compensation Peer Group to benchmark LTI and establish base salary multiples for similar roles at peer organizations. The number of target shares is determined by dividing the multiple by the average of the stock's fair market value for the 20 days prior to the start of the performance period, less anticipated dividends during the performance period.

 

The Compensation Committee assesses the individual performance of each NEO and, based on that assessment, may adjust an award by up to +/–30% of the target amount at grant. The CEO provides input regarding awards made to all NEOs (other than himself) and the Compensation Committee evaluates the individual performance of the CEO. The Compensation Committee believes in applying performance adjustments to the number of target shares at the beginning of the performance period, rather than the end, so that performance-adjusted compensation is subject to Company performance and market volatility throughout the performance period, aligning executive compensation with shareholder interests.

 

Target shares may be adjusted during the performance period for promotions that occur during the performance period.

 

NEOs hired after the start of the performance period may receive prorated target shares in ongoing PSP cycles, at the discretion of the Compensation Committee, so that their interests are immediately aligned with the Company long-term goals and shareholder interests.

 

Performance Metrics. The performance metrics used for all three current PSP programs are after-tax return on capital employed (ROCE) and total shareholder return (TSR) based on a 20-day average closing price. After-tax ROCE accounts for 50% and is equally weighted between absolute and relative performance (for the PSP 2020-2022, only absolute ROCE is used). The remaining 50% is our TSR performance relative to peers.

 

The Compensation Committee considers ROCE an important measure of Company growth and overall performance. When establishing the Absolute ROCE performance metrics, the Compensation Committee reviews the corporate strategy, operating targets, and past performance to set metrics that are expected to be rigorous, demand strong performance, and reward for delivering results above the Company’s WACC.

 

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COMPENSATION DISCUSSION AND ANALYSIS

 

The absolute ROCE threshold is a return percentage equivalent to the adjusted EBITDA required to cover our sustaining capital and shareholder dividend commitments during the three-year performance period.

 

The absolute ROCE target delivers 1.5 percentage points above our WACC over the performance period.

 

The absolute ROCE maximum delivers 3.0 percentage points above WACC over the performance period.

 

The Compensation Committee also recognizes that relative TSR is the most common standard for relative comparisons to peers. Our performance is evaluated as compared to our Performance Peer Group and the S&P 100 Index. Further information regarding our Performance Peer Group is provided in Peer Group Comparisons.

 

These metrics translate into the following goals:

 

    Performance Share Program 2018-2020
Metric Weight Threshold (1) Target (2) Maximum (3)
Absolute ROCE 25%

2.9%

 

average of 2018 (2.4%),

2019 (2.8%), and 2020 (3.6%)

 

delivers sustaining capital and shareholder dividend commitments over 3-year period

9.1%

average of 2018 (9.4%),

2019 (9.2%), and 2020 (8.8%)

 

delivers WACC +1.5%

over 3-year period

10.6%

average of 2018 (10.9%),

2019 (10.7%), and 2020 (10.3%)

 

delivers WACC +3.0%

over 3-year period

 

Relative ROCE 25%

above 10th percentile

of Performance Peers

median

of Performance Peers

above 90th percentile

of Performance Peers

Relative TSR 50%

above 10th percentile

of Performance Peers

median

of Performance Peers

above 90th percentile

of Performance Peers

 

(1) Threshold for PSP 2019-2021 will be an average of 2019 (2.8%), 2020 (3.6%), and 2021 (3.2%). Threshold for PSP 2020-2022 will be an average of 2020 (3.6%), 2021 (3.2%), and the ROCE necessary to deliver sustaining capital and dividend commitments in 2022. The 2022 number will be known by end of 2021.

 

(2) Target for PSP 2019-2021 will be an average of 2019 (9.2%), 2020 (8.8%), and 2021 (7.7%). Target for PSP 2020-2022 will be an average of 2020 (8.8%), 2021 (7.7%), and the ROCE necessary to deliver WACC plus 1.5% in 2022. The 2022 number will be known by end of 2021.

 

(3) Maximum for PSP 2019-2021 will be an average of 2019 (10.7%), 2020 (10.3%), and 2021 (9.2%). Maximum for PSP 2020-2022 will be an average of 2020 (10.3%), 2021 (9.2%), and the ROCE necessary to deliver WACC plus 3.0% in 2022. The 2022 number will be known by end of 2021.

 

Settlement. Awards under the PSP programs are denominated in shares but are paid in cash at the end of their respective performance periods. Performance can range from 0-200% of target.

 

PSP 2018-2020 Payout. After the close of the PSP 2018-2020, the Compensation Committee considered the following results when approving the payout of 125% of target.

 

Absolute ROCE: Absolute ROCE performance for the three-year performance period was 10.0%, or 0.9 percentage points above target, resulting in a payout of 160% of target, weighted at 25%. ROCE, as used in our PSP program, is a non-GAAP financial measure. See Appendix B for additional information.

 

BAR CHART

 

Relative ROCE: Relative ROCE performance for the three-year performance period was 4th of 14 peers, including 13 peer companies and Phillips 66. This resulted in a payout of 160% of target for relative ROCE performance, weighted at 25%.

 

 

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COMPENSATION DISCUSSION AND ANALYSIS

 

 

BAR CHART

 

Relative TSR: Relative TSR performance for the three-year performance period was -14.7% and 9th of 15 peers, including 13 peer companies, the S&P 100 Index and Phillips 66. This resulted in a payout of 85% of target for relative TSR performance, weighted at 50%.

 

BAR CHART

 

The Compensation Committee approved payouts for our NEOs for PSP 2018-2020. The payment was made in February 2021 and is described further below and in the footnotes of the SUMMARY COMPENSATION TABLE.

 

BAR CHART

 

Stock Option Program

 

In 2020, 25% of the LTI target value was delivered to executives in the form of stock options. These awards are inherently performance-based, as the stock price must increase before the executive can realize any value. We believe stock options drive behaviors and actions that enhance long-term shareholder value.

 

Stock options are typically granted in February each year. The number of options awarded is calculated based on the Black-Scholes-Merton model. The exercise price of stock options is set at 100% of the fair market value of our common stock on the date of grant. Stock options granted to our NEOs in February 2020 vest ratably over a three-year period and have a ten-year term. Stock options do not have voting rights and are not entitled to receive dividends.

 

Restricted Stock Units (RSUs)

 

In 2020, 25% of the LTI target value was delivered to executives in the form of RSUs. The Compensation Committee believes maintaining RSUs in our LTI program complements the overall compensation mix by:

 

40     PHILLIPS 66 PROXY STATEMENT 2021

 

 

 

 

 

COMPENSATION DISCUSSION AND ANALYSIS

 

driving the right behaviors and actions consistent with creating shareholder value;

 

providing diversification of compensation in recognition of the cyclical nature of our industry;

 

resulting in actual share ownership aligned with our stock ownership guidelines; and

 

supporting executive retention.

 

RSUs are typically granted in February each year. The Compensation Committee assesses the individual performance of each NEO and based on that assessment, may adjust an award by up to +/–30% of the target amount at grant. The CEO provides input regarding awards made to all NEOs (other than himself). The Compensation Committee evaluates the individual performance of the CEO. The number of RSUs is determined based on the fair market value of Company stock on the date of grant. RSUs awarded to our NEOs in February 2020 cliff vest after three years. RSUs do not carry voting rights but do earn dividend equivalents during the vesting period.

 

2020 LTI Compensation

 

The Compensation Committee approved the following LTI for the NEOs for 2020. The Compensation Committee considered the individual performance of each NEO as outlined above when determining the target values. These values may not match the accounting values presented in the GRANTS OF PLAN-BASED AWARDS table.

 

NAME PSP 2020-2022
($)
STOCK OPTIONS
($)
RSUs
($)
TOTAL TARGET (1)
($)
Greg Garland 6,700,032   3,350,016   3,350,016   13,400,064  
Kevin Mitchell 2,193,510   997,050   1,096,755   4,287,315  
Robert Herman 1,683,016   765,007   841,508   3,289,531  
Paula Johnson 1,594,724   724,874   797,362   3,116,960  
Tim Roberts 1,836,017   765,007   918,009   3,519,033  
(1) PSP 2020 – 2022 and RSU targets include individual adjustments Mr. Mitchell (+10%), Mr. Herman (+10%), Ms. Johnson (+10%), and Mr. Roberts (+20%). The Compensation Committee did not approve any adjustments to stock option targets.

 

CEO Pay Aligned with Company Performance

 

A significant portion of CEO pay is delivered in long-term incentives, which are designed to tie share price performance and achievement of our long-term financial goals. Mr. Garland’s pay as reported in the SUMMARY COMPENSATION TABLE (“SCT”) reflects the accounting value of long-term incentives at the time of grant and not the actual value received from these grants. When evaluating the compensation program each year, the Compensation Committee reviews outstanding awards and the value earned under the long-term incentive program in prior periods to confirm that the payouts are aligned with performance and intended incentives. As such, we believe it is useful to compare Mr. Garland’s “Adjusted SCT Pay” in the context of his “Realized Pay” to provide a clear picture of the value being delivered to Mr. Garland and how it relates to Company performance.

 

For purposes of the information in this section, we define:

 

· “Adjusted SCT Pay” as the compensation disclosed in the SUMMARY COMPENSATION TABLE, adjusted to exclude “Changes in Pension Value and Nonqualified Deferred Compensation Earnings.”
· “Realized Pay” as the sum of (a) base salary and VCIP paid; (b) the amount reported as W-2 taxable earnings for the vesting of RSUs, exercise of any stock options, and vesting of PSPs with performance periods that ended in the applicable year (i.e., PSP 2016-2018 for 2018, PSP 2017-2019 for 2019, and PSP 2018-2020 for 2020).

As demonstrated in the chart below, Adjusted SCT Pay and Realized Pay differ meaningfully and demonstrate the intended link between our compensation program and outcomes for shareholders. During periods of strong stock price performance, our equity-linked long-term incentives may deliver more value to executives than is rendered in

 

 

PHILLIPS 66 PROXY STATEMENT 2021     41

 

 

 

COMPENSATION DISCUSSION AND ANALYSIS

 

 

the Summary Compensation Table. When stock price declines, the value of our executive’s equity-linked long-term compensation declines and realized compensation may lag the value rendered in the Summary Compensation Table, consistent with the intended alignment between investor outcomes and compensation outcomes.

 

The charts and information included below are not substitutes for the information included in the SUMMARY COMPENSATION TABLE, but are meant to provide additional insight into our CEO pay:

 

BAR CHART  

 

(1) We have not included the Performance Share Programs that had a 5-year restriction period after the performance period for Realized Pay purposes. Specifically, we did not include the lapsing of restrictions of PSP 2010-2012 in 2018, PSP 2011-2013 in 2019, and PSP 2012-2014 in 2020.

 

2021 Chairman and Chief Executive Officer Compensation

 

At its February 4, 2021 meeting, the Compensation Committee approved a reduction to the 2021 target compensation for Greg Garland, Chairman and Chief Executive Officer to better align with our compensation peer group and the changing market conditions. The Compensation Committee also decided not to increase Mr. Garland’s base salary, which has remained unchanged since March 1, 2017.

 

YEAR

BASE SALARY

($)

VCIP

($)

PSP
($)

STOCK OPTIONS

($)

RSUs

($)

TOTAL TARGET

($)

2020 1,675,008 2,680,013 6,700,032 3,350,016 3,350,016 17,755,085
2021 1,675,008 2,680,013 6,281,280 3,140,640 3,140,640 16,917,581

 

The reduction in total target compensation is approximately $800,000 or 5%.

 

Peer Group Comparisons

 

We utilize both a compensation peer group and a performance peer group due to the size of our Company and diversification of assets. The Compensation Committee reviews these peer groups annually and adjusts as necessary. We benchmark against large companies, as measured by asset value and market capitalization, to set target compensation using the compensation peer group. We assess our relative performance against peers in the industries in which we operate using the performance peer group. While our unique portfolio of assets provides an advantage to investors, it does necessitate using two peer groups to appropriately align compensation and assess performance.

 


 

42     PHILLIPS 66 PROXY STATEMENT 2021

 

 

 

 

 

COMPENSATION DISCUSSION AND ANALYSIS

 


Compensation Peer Group


Relative analysis. We use the compensation peer group to evaluate and determine compensation levels for our NEOs, including base salary adjustments and targets for our annual bonus and LTI programs.

 

Criteria for selection. Our compensation peer group consists of companies that have similar jobs and job scope as our NEOs. The compensation peer group primarily consists of large companies with significant capital investments and complex international operations.

 

Our compensation peer group includes companies that are comparable to Phillips 66 based on three primary criteria – assets, market capitalization, and business operations. Revenue is a secondary criterion due to the nature of our operations. The Compensation Committee believes each of these criteria is necessary to fully reflect the complex nature of our business and determine the optimal group of companies with which to compare Phillips 66.

 

Companies included. The table below shows the companies in our 2020 compensation peer group. At the time the compensation peer group was determined, we were at the 43rd percentile in assets, 63rd percentile in market value, and 65th percentile in revenue.

 

2020 Compensation Peer Group
Archer-Daniels-Midland Company Ford Motor Company Marathon Petroleum Corporation
Chevron Corporation General Motors Company Occidental Petroleum Corporation

ConocoPhillips

Halliburton Company Schlumberger Limited

Dow Inc.

Honeywell International Inc. The Williams Companies, Inc.
Exxon Mobil Corporation LyondellBasell Industries N.V. Valero Energy Corporation

 

Performance Peer Group

 

Relative analysis. The performance peer group is used to evaluate relative business results in our Performance Share Program. This includes both relative TSR and relative ROCE. We also evaluate our relative TSR performance against the S&P 100 Index, which the Compensation Committee believes is an appropriate comparison for performance purposes because the index reflects the companies with which we compete for capital in the broader market.

 

Criteria for selection. Phillips 66 is uniquely positioned in the energy industry, with a large refining and marketing base, a growing midstream NGL business and significant petrochemical exposure. To reflect our unique portfolio of assets, we include companies operating in each of our three major businesses. We believe that our performance peer group is representative of the companies that investors use for relative performance comparisons.

 

Companies included. The table below shows the performance peer group that was established for evaluating both relative TSR and relative ROCE for the three-year performance period ended December 31, 2020.

 

Refining and Marketing   Midstream   Chemicals
Andeavor   Enterprise Products Partners L.P.   Celanese Corporation
Delek US Holdings, Inc.   ONEOK, Inc.   Eastman Chemical Company
HollyFrontier Corporation   Targa Resources Corp.   LyondellBasell Industries N.V.
Marathon Petroleum Corporation       Huntsman Corporation
PBF Energy Inc.       Westlake Chemical Corporation
Valero Energy Corporation        

 

Marathon Petroleum Corporation acquired Andeavor during the performance period. Each of Marathon Petroleum Corporation and Andeavor was previously in our performance peer group; after the acquisition we included the combined company.

 

Changes for 2020. For performance periods beginning in 2020, the Compensation Committee reviewed the current performance peers and approved the following changes:

 

replace Celanese, Eastman, and Huntsman with Dow Inc.

 

 

PHILLIPS 66 PROXY STATEMENT 2021     43

 

 

 

COMPENSATION DISCUSSION AND ANALYSIS

 

 

replace Enterprise Products Partners L.P. with Magellan Midstream Partners, MPLX LP, and The Williams Companies, Inc.

 

OTHER BENEFITS AND PERQUISITES

 

Below is a summary of other compensation elements available to our NEOs:

 

Broad-Based Employee Benefit Programs

 

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

 

Additional Executive Perquisites

 

Consistent with our compensation philosophy to provide compensation and benefits aligned with market practice, we provide our NEOs financial planning and executive health benefits. These benefits were imputed to the executives and included in All Other Compensation in the SUMMARY COMPENSATION TABLE. We did not provide a gross-up for these benefits.

 

Comprehensive Security Program

 

The Board has adopted a comprehensive security program to address the increased security risks for certain senior executives. Mr. Garland was the only NEO in 2020 designated by the Board as requiring increased security under this program. The program allows for certain additional security measures in specific situations when the senior executive is traveling by car or airplane. An additional security review of the NEO's personal residences is also included. Any additional costs to the Company for these activities are reported as All Other Compensation and included in the SUMMARY COMPENSATION TABLE.

 

Executive Retirement Plans

 

We maintain the following supplemental retirement plans for our NEOs.

 

Phillips 66 Key Employee Deferred Compensation Plan (KEDCP) — This voluntary deferred compensation plan provides tax-efficient retirement savings by allowing executives to voluntarily defer both the receipt and taxation of a portion of their base salary and annual bonus until a specified date or when they leave the Company. Further information is provided in the NONQUALIFIED DEFERRED COMPENSATION table.

 

Phillips 66 Defined Contribution Make-Up Plan (DCMP) — This defined contribution restoration plan restores benefits capped under our qualified defined contribution plan due to Internal Revenue Code (IRC) limits. Further information is provided in the NONQUALIFIED DEFERRED COMPENSATION table.

 

Phillips 66 Key Employee Supplemental Retirement Plan (KESRP) — This defined benefit restoration plan restores Company-sponsored benefits capped under the qualified defined benefit pension plan due to IRC limits. Further information is provided in the PENSION BENEFITS AS OF DECEMBER 31, 2020 table.

 

Executive Life Insurance

 

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

 

Executive Severance and Change in Control Plans

 

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

 

44     PHILLIPS 66 PROXY STATEMENT 2021

 

 

 

 

 

COMPENSATION DISCUSSION AND ANALYSIS

 

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

 

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

 

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

 

Executives may not participate in both plans as a result of the same severance event. Among other benefits, the ESP provides a payment equal to one and one-half or two times the executive's base salary, depending on salary grade level, and the executive's current target annual bonus if he or she is involuntarily terminated without cause. The CICSP provides a payment equal to two or three times the sum of the executive's base salary and the greater of his or her target bonus or average of the last two bonus payments, depending on salary grade level. The executive must be involuntarily terminated without cause in connection with a change in control or terminate employment for good reason within two years after the change in control to be eligible for a CICSP payment. We believe this "double trigger" requirement is in the best interest of shareholders and is considered a best practice.

 

Details of potential payments under these plans are outlined in the POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL section. These plans do not provide any excise tax gross-up protections.

 

Personal Use of Company Aircraft

 

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

 

EXECUTIVE COMPENSATION GOVERNANCE

 

Clawback Provisions

 

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

 

Stock Ownership

 

The Compensation Committee believes requiring executives to retain shares of Phillips 66 common stock helps align executive performance with shareholder value creation and mitigates compensation risk. Our stock ownership guidelines require executives to own Phillips 66 common stock, valued as a multiple of the executive's base salary, within five years from the date the executive becomes subject to the guidelines, as shown below:

 

EXECUTIVE LEVEL SALARY MULTIPLE
Chairman and CEO 6
Executive Vice President 3-5

 

Shares of Phillips 66 common stock owned and RSUs are included when determining whether an executive has met the required ownership levels. Compliance with the stock ownership guidelines is reviewed annually. All NEOs currently comply with these stock ownership guidelines or are on track to comply within the applicable five-year period.

 

Tax Considerations—Internal Revenue Code Section 162(m)

 

IRC Section 162(m) places a $1 million limit on compensation that we may deduct for federal income tax purposes in any one year with respect to certain “covered employees.” Prior to the passage of the Tax Cuts and Jobs Act in

 

 

PHILLIPS 66 PROXY STATEMENT 2021     45

 

 

 

COMPENSATION DISCUSSION AND ANALYSIS

 

 

December 2017, such covered employees included our chief executive officer and our three other most highly compensated executive officers (excluding our chief financial officer). The $1 million deduction limitation was subject to an exemption for performance-based compensation.

 

With the enactment of the Tax Cuts and Jobs Act, the Section 162(m) performance-based compensation exemption has been repealed and the $1 million deduction limit now applies to our chief financial officer, as well as our chief executive officer and our three other most highly compensated executive officers. Further, once an executive officer becomes a “covered employee” the $1 million deduction limit continues to apply to compensation paid to such executive officer at any time, including any future roles within the Company, any termination or retirement payments, and payments occurring after their death. The Tax Cuts and Jobs Act rules generally applied to us starting with our taxable year that commenced January 1, 2018, but do not apply to compensation provided pursuant to written binding contracts in effect on November 2, 2017, that are not materially modified after that date.

 

We monitor the application of Section 162(m) and the associated Treasury regulations on an ongoing basis and the advisability of qualifying executive compensation for deductibility. Notwithstanding the repeal of the exemption for "performance-based compensation," the Compensation Committee intends to maintain its commitment to structuring the Company's executive compensation programs in a manner designed to align pay with performance.

 

Trading Policies

 

Our insider trading policy prohibits all employees and directors from trading Company stock while in possession of material, non-public information. This policy requires executives and directors, as well as employees with regular access to insider information, to follow specific pre-clearance procedures before entering into transactions in our stock.

 

Hedging or Pledging of Company Stock

 

Our insider trading policy also prohibits hedging transactions and pledging of our stock. These prohibitions apply to all employees and directors of the Company, and cover any transactions in our stock, whether acquired pursuant to our compensation plans, owned directly, or otherwise. The prohibitions on hedging transactions include purchasing any financial instruments, or otherwise engaging in any transactions, that hedge or offset any decrease in the market value of our stock or limit an employee or director’s ability to profit from an increase in the market value of our stock. The prohibition on pledging includes holding Phillips 66 stock in a margin account or pledging our stock as collateral for a loan.

 

Independent Compensation Consultant

 

The primary role of the independent executive compensation consultant retained by the Compensation Committee is to advise the Compensation Committee on:

 

our compensation programs and processes relative to external corporate governance standards;

 

the appropriateness of our executive compensation programs in comparison to those of our peers; and

 

the effectiveness of the compensation programs in accomplishing the objectives set by the Compensation Committee with respect to executives.

 

In 2020, the Compensation Committee retained Mercer as its independent executive compensation consultant. The Compensation Committee evaluated whether Mercer's work raised any conflict of interest and determined that no such conflict existed. During 2020, fees paid to Mercer in its role as the independent compensation consultant for the Compensation Committee totaled $222,528. In addition, the Company paid fees to Mercer totaling $1,890,075 during 2020 for all other services performed for the Company. These services can be broken down as 32% related to administration of pension liabilities in international locations that have been sold, 18% related to administration of ongoing international benefit plans, 11% related to Human Resources consulting engagements, and 39% related to insurance and surety bonds.

 

46     PHILLIPS 66 PROXY STATEMENT 2021

 

 

 

 

COMPENSATION DISCUSSION AND ANALYSIS

Compensation Risk Assessment

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

VCIP and LTI metrics are aligned with our corporate strategy to ensure continued focus on actions that drive shareholder value.
VCIP and LTI compensation targets increase with each pay grade, further emphasizing long-term value creation and alignment with shareholder interests.
Maximum payouts under VCIP and PSP programs are appropriately limited to balance risk-taking with long-term strategic goals.
Maintaining a level of discretion in the performance-based programs, which enables the Compensation Committee to award zero payouts to executives who perform poorly or when warranted by Company performance.
Clawback provisions that allow for reduction in awards for executives who expose the Company to undue risk.
LTI design that provides incentives for executive retention and Company and individual performance.
Stock ownership guidelines, anti-pledging policies, and anti-hedging policies that align executive interests with those of shareholders.

The Compensation Committee considers senior management succession planning a core part of the Company’s risk management program. The Compensation Committee regularly reviews with the CEO succession planning for senior leadership positions (other than the CEO position itself, for which succession planning is reviewed by the Nominating and Governance Committee), and the timing and development required to ensure continuity of leadership over the short- and long-terms, to manage risk in this area.

ROLE OF THE HUMAN RESOURCES AND COMPENSATION COMMITTEE

Authority and Responsibilities

The Compensation Committee is responsible for providing independent, objective oversight of our executive compensation programs and determining the compensation for our CEO and anyone who meets our definition of a Senior Officer. Currently, our internal guidelines define a Senior Officer as an officer of the Company who reports directly to the CEO or any other officer of the Company who is either a Senior Vice President or above or a reporting officer under Section 16(b) of the Exchange Act. As of December 31, 2020, we had 10 Senior Officers. In addition, the Compensation Committee acts as plan administrator of the compensation programs and benefit plans for our CEO and Senior Officers and as an avenue of appeal for current and former Senior Officers regarding disputes over compensation and benefits.

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

alignment of our executive compensation programs with the long-term economic interests of shareholders;
competitiveness of compensation within the markets in which Phillips 66 competes for talent;
retention of top talent; and,
development of a diverse talent pool with respect to CEO and Senior Officer succession planning.
 

PHILLIPS 66 PROXY STATEMENT 2021     47

 

 

COMPENSATION DISCUSSION AND ANALYSIS

One of the Compensation Committee's responsibilities is to assist the Board in its oversight of the integrity of the Company's COMPENSATION DISCUSSION AND ANALYSIS. The HUMAN RESOURCES AND COMPENSATION COMMITTEE REPORT summarizes certain Compensation Committee activities concerning compensation earned during 2020 by our NEOs.

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

Members

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

Meetings

The Compensation Committee holds regularly scheduled meetings in association with regular Board meetings and meets by teleconference between such meetings as necessary to discharge its duties. The Compensation Committee reserves time at each regularly scheduled meeting to review matters in executive session without management present except as specifically requested by the Compensation Committee. In 2020, the Compensation Committee had five regularly scheduled meetings and one additional telephonic meeting. More information regarding the Compensation Committee's activities at such meetings can be found in the COMPENSATION DISCUSSION AND ANALYSIS.

Continuous Improvement

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

receives ongoing training regarding best practices for executive compensation;
regularly reviews its responsibilities and governance practices in light of ongoing changes in the legal and regulatory arena and trends in corporate governance;
annually reviews its charter and proposes any desired changes to the Board of Directors;
annually conducts a self-assessment of its performance that evaluates the effectiveness and seeks ideas to improve its processes and oversight;
regularly reviews and assesses whether the Company's executive compensation programs are having the desired effects without encouraging an inappropriate level of risk; and
regularly reviews all its activities, including its self-assessment and a compensation risk assessment, with the full Board of Directors.

HUMAN RESOURCES AND COMPENSATION COMMITTEE REPORT

Review with Management. The Human Resources and Compensation Committee has reviewed and discussed with management the COMPENSATION DISCUSSION AND ANALYSIS presented in this proxy statement.

Discussions with Independent Executive Compensation Consultant. The Human Resources and Compensation Committee has discussed with Mercer, an independent executive compensation consulting firm, the executive compensation programs of the Company, as well as specific compensation decisions made by the Human Resources and Compensation Committee for 2020. Mercer was retained directly by the Human Resources and

48     PHILLIPS 66 PROXY STATEMENT 2021

 

 

 

COMPENSATION DISCUSSION AND ANALYSIS

Compensation Committee, independent of the management of the Company. The Human Resources and Compensation Committee has received written disclosure from Mercer confirming the consultant's independence, has discussed with Mercer its independence from Phillips 66, and believes Mercer to be independent of management.

Recommendation to the Phillips 66 Board of Directors. Based on its review and discussions noted above, the Human Resources and Compensation Committee recommended to the Board of Directors that the COMPENSATION DISCUSSION AND ANALYSIS be included in the Phillips 66 proxy statement on Schedule 14A and the Phillips 66 Annual Report on Form 10-K for the year ended December 31, 2020.

HUMAN RESOURCES AND COMPENSATION COMMITTEE

Dr. Marna C. Whittington, Chair

Gary K. Adams

Lisa A. Davis

Harold W. McGraw III

Glenn F. Tilton

 

 

PHILLIPS 66 PROXY STATEMENT 2021     49

 

 

EXECUTIVE COMPENSATION TABLES

EXECUTIVE COMPENSATION TABLES

The following tables and accompanying narrative disclosures provide information concerning total compensation earned by our CEO and other NEOs as of December 31, 2020, for services to Phillips 66 or any of our subsidiaries during 2020, 2019 and 2018.

SUMMARY COMPENSATION TABLE

The following table summarizes the compensation for our NEOs for fiscal years 2020, 2019 and 2018.

NAME, POSITION,
YEAR

SALARY

(1) ($)

 

STOCK
AWARDS

(2) ($)

  OPTION
AWARDS
(3) ($)
  NON-EQUITY
INCENTIVE PLAN
COMPENSATION
(4) ($)
 

CHANGE IN
PENSION VALUE
AND
NONQUALIFIED
DEFERRED
COMPENSATION
EARNINGS

(5) ($)

  ALL OTHER
COMPENSATION
(6) ($)
  TOTAL
($)
 

TOTAL
WITHOUT
CHANGE IN
PENSION
VALUE

(7) ($)

Greg Garland

Chairman and Chief Executive Officer

2020 1,675,008   9,237,623   3,351,180   3,082,015   6,851,884   791,664      24,989,374   18,137,490
2019 1,675,008   10,806,257   3,141,546   5,226,025   9,936,893   1,115,149   31,900,878   21,963,985
2018 1,675,008   9,353,917   3,041,430   4,958,024     249,956   19,278,335   19,278,335

Kevin Mitchell

Executive Vice President, Finance and Chief Financial Officer

2020 897,360   3,024,331   998,560   1,256,304   258,546   245,367   6,680,468   6,421,922
2019 861,172   3,542,763   937,014   1,722,344   264,245   354,754   7,682,292   7,418,047
2018 826,696   3,046,107   902,084   1,777,396   138,280   116,580   6,807,143   6,668,863

Robert Herman

Executive Vice President, Refining

2020 867,028   2,320,490   766,300   1,092,455   318,450   214,446   5,579,169   5,260,719
2019 781,558   2,575,994   553,770   1,293,153   340,714   441,201   5,986,390   5,645,676
2018 710,820   1,819,033   537,940   1,299,024   124,871   652,145   5,143,833   5,018,962

Paula Johnson

Executive Vice President, Legal and Government Affairs, General Counsel and Corporate Secretary

2020 830,936   2,198,675   725,220   972,195   2,185,352   200,680   7,113,058   4,927,706
2019 800,500   2,422,811   641,670   1,440,900   2,108,413   272,165   7,686,459   5,578,046
2018 771,544   2,093,245   618,631   1,388,779   368,541   81,585   5,322,325   4,953,784

Tim Roberts

Executive Vice President, Midstream

2020 881,188   2,531,427   766,300   1,110,297   297,744   204,254   5,791,210   5,493,466
2019 781,558   2,385,489   553,770   1,395,244   29,621   275,030   5,420,712   5,391,091
2018 710,260   1,810,213   535,871   1,298,000   107,410   75,521   4,537,275   4,429,865

(1) Includes any amounts that were voluntarily deferred under our KEDCP.

(2) Amounts shown represent the aggregate grant date fair value of RSU and PSP awards determined in accordance with U.S. GAAP. Assumptions used in calculating these amounts are included in Note 20—Share-Based Compensation Plans in the Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2020 (our "2020 Form 10-K").

The PSP target award included in 2018 has a performance period that ended on December 31, 2020. The PSP target award included in 2019 has a performance period that ends in 2021. The PSP target award included in 2020 has a performance period that ends in 2022.

 

50     PHILLIPS 66 PROXY STATEMENT 2021

 

 

 

EXECUTIVE COMPENSATION TABLES

Amounts shown relating to PSP are targets because target is the probable outcome for the applicable performance period, consistent with the accounting treatment under GAAP. If the maximum payout were used for the PSP awards, the amounts shown relating to PSP would double, although the value of the actual payout would depend on the stock price at the time of the payout. If the minimum payout were used, the amounts for PSP awards would be reduced to zero. Actual payouts with regard to the targets set for the performance period that ended in 2020 were approved by the Compensation Committee at its February 2021 meeting. Those payouts were as follows (with values shown at fair market value on the date of payout): Mr. Garland, $5,672,888; Mr. Mitchell, $1,847,329; Mr. Herman, $1,247,575; Ms. Johnson, $1,269,459; and Mr. Roberts, $1,244,507.

Earned payouts under the PSP 2018-2020 have been, and under the PSP 2019-2021 and PSP 2020-2022 are expected to be, made in cash at the end of the applicable performance period and will be forfeited if the NEO is terminated prior to the end of the performance period (other than for death or following disability or after a change in control). If the NEO retires after age 55 and with five years of service, the NEO is entitled to a prorated award for any ongoing program in which he or she participated for at least 12 months.

(3) Amounts shown represent the aggregate grant date fair value of awards determined in accordance with GAAP. Assumptions used in calculating these amounts are included in Note 20—Share-Based Compensation Plans in the Notes to Consolidated Financial Statements in our 2020 Form 10-K.

(4) These are amounts paid under our annual bonus program (VCIP), including bonus amounts that were voluntarily deferred under our KEDCP. These amounts were paid in February 2021, following the performance year.

(5) Reflects the actuarial increase in the present value of the benefits under our pension plans determined using interest rate and mortality rate assumptions consistent with those used in our financial statements. There are no deferred compensation earnings reported in this column, as our nonqualified deferred compensation plans do not provide above-market or preferential earnings.

(6) We offer limited perquisites to our NEOs, which, together with Company contributions to our qualified savings and nonqualified defined contribution plans, are reflected in the All Other Compensation column as summarized below:

NAME   COMPANY
CONTRIBUTIONS
TO
NONQUALIFIED
DEFINED
CONTRIBUTION
PLANS
 (a)($)
  EXECUTIVE
GROUP
LIFE
INSURANCE
PREMIUMS
(b)($)
  WELLNESS
PROGRAMS
AND
EXECUTIVE
HEALTH
PHYSICAL
(c)($)
  FINANCIAL
COUNSELING
(d)($)
  MATCHING
CONTRIBUTIONS
UNDER THE TAX-
QUALIFIED
SAVINGS PLAN
(e)($)
  MATCHING
GIFT
PROGRAM
(f)($)
  MISCELLANEOUS
PERQUISITES
AND TAX
PROTECTION
(g)
($)
  PERSONAL
USE OF
COMPANY
AIRCRAFT
 (h)($)
Greg Garland   534,983   13,266     16,270   14,250   15,000   22,017   175,878
Kevin Mitchell   192,294   2,477   732   16,270   17,100   15,000   1,494  
Robert Herman   155,612   6,867   787   16,270   17,100   15,000   2,810  
Paula Johnson   164,494   4,288       17,100   10,000   4,798  
Tim Roberts   164,827   4,547       17,100   15,000   2,780  

(a) Under the terms of our nonqualified defined contribution plans, we make contributions to the accounts of all eligible employees, including the NEOs. See the NONQUALIFIED DEFERRED COMPENSATION table and accompanying narrative and notes for more information.

(b) We maintain life insurance policies and/or death benefits for all our U.S.-based salaried employees (at no cost to the employee) with a face value approximately equal to the employee's annual salary. We maintain group life insurance policies on each of our NEOs equal to approximately two times his or her annual salary. The amounts shown are for premiums paid by us to provide the additional group life insurance above what is provided to the broad-based employees.

(c) Costs associated with executive physicals.

(d) Costs associated with financial counseling and estate planning services with approved provider.

(e) Under the terms of our tax-qualified defined contribution plans, we make contributions to the accounts of all eligible employees, including the NEOs.

(f) We maintain a Matching Gift Program under which certain gifts by employees to qualified educational or charitable institutions are matched by the Company. The program matches up to $15,000 annually. The amounts shown reflect the actual payments made by us in 2020, which due to processing delays can include contributions in 2019 that were matched by the Company in 2020 and are therefore reported in this proxy statement.

(g) The amounts shown primarily reflect payments by us relating to certain taxes incurred by the NEOs. Mr. Herman received tax assistance after he exercised stock options that he had been granted while an expatriate employee prior

 

 

PHILLIPS 66 PROXY STATEMENT 2021     51

 

 

EXECUTIVE COMPENSATION TABLES

 

to becoming an NEO ($1,237). All expatriate employees receive this tax assistance. We also provide tax assistance when we request family members or other guests to accompany an NEO to a Company function and, as a result, the NEO is deemed to make personal use of Company assets such as Company aircraft and thereby incurs imputed income. We believe this type of expense is appropriately characterized as a business expense and, if the NEO incurs imputed income in accordance with applicable tax laws, we will generally reimburse the NEO for any increased tax costs (Mr. Garland $5,131; Mr. Mitchell $1,494; Mr. Herman $1,494; Ms. Johnson $4,798; and Mr. Roberts $2,701). We also occasionally provide small gifts with tax assistance (such as duffel bags, jackets, and ornaments received as a member of the Board or the Executive Leadership Team) and companion travel expenses. The total cost of these benefits and their tax assistance are as follows: Mr. Garland $79; Mr. Herman $79; and Mr. Roberts $79.

Also included are benefits required for employees covered under our Comprehensive Security Program, which currently includes only Mr. Garland. Under the Comprehensive Security Program, Mr. Garland is provided with the use of a car and driver when security deems it required and home security fees that are in excess of the cost of a system typical for homes in his neighborhood ($16,807).

(h) The Phillips 66 Comprehensive Security Program requires in certain circumstances that Mr. Garland fly on Company aircraft. The amount presented above represents the approximate incremental cost to Phillips 66 for personal use of the aircraft. Approximate incremental cost has been determined by calculating the variable costs for each aircraft during the year, dividing that amount by the total number of miles flown by that aircraft, and multiplying the result by the miles flown for personal use during the year. Incremental costs for flights to the hangar or other locations without passengers, commonly referred to as "deadhead" flights, are included in the calculation.

(7) To show how year-over-year changes in pension value impact total compensation, as determined under SEC rules, we included this column to show total compensation without pension value changes. The amounts reported in this column are calculated by subtracting the change in pension value, as described in footnote 6 to this table, from the amounts reported in the Total column. The amounts reported in this column differ substantially from, and are not a substitute for, the amounts reported in the Total column.

 

 

52     PHILLIPS 66 PROXY STATEMENT 2021

 

 

 

 

EXECUTIVE COMPENSATION TABLES

GRANTS OF PLAN-BASED AWARDS

The following table provides additional information about plan-based compensation disclosed in the SUMMARY COMPENSATION TABLE. This table includes both equity and non-equity awards.

    ESTIMATED FUTURE PAYOUTS
UNDER NON-EQUITY INCENTIVE
PLAN AWARDS (2)
ESTIMATED FUTURE PAOUTS
UNDER EQUITY INCENTIVE
PLAN AWARDS (3)
ALL
OTHER
STOCK

AWARDS:
NUMBER
OF
SHARES

OF
STOCK
OR
UNITS
(4) (#)
ALL OTHER
OPTION
AWARDS:
NUMBER OF

SECURITIES
UNDERLYING
OPTIONS
(#)

EXERCISE
 OR BASE

PRICE OF
OPTION
AWARDS
($/SH)

GRANT
DATE
FAIR

VALUE
OF
STOCK

AND
OPTION
AWARDS
(5) ($)
NAME GRANT
DATE (1)
THRESHOLD
($)
TARGET
($)
MAXIMUM
($)
THRESHOLD
(#)
TARGET
(#)
MAXIMUM
(#)
Greg Garland   2,680,013 6,700,033
2/4/2020 37,401 3,350,008
2/4/2020 65,732 131,464 5,887,615
2/4/2020 212,100 89.57 3,351,180
Kevin Mitchell   897,360 2,243,400
2/4/2020 12,245 1,096,785
2/4/2020 21,520 43,040 1,927,546
2/4/2020 63,200 89.57 998,560
Robert Herman   780,325 1,950,813
2/4/2020 9,395 841,510
2/4/2020 16,512 33,024 1,478,980
2/4/2020 48,500 89.57 766,300
Paula Johnson   747,842 1,869,605
2/4/2020 8,902 797,352
2/4/2020 15,645 31,290 1,401,323
2/4/2020 45,900 89.57 725,220
Tim Roberts   793,069 1,982,673
2/4/2020 10,249 918,003
2/4/2020 18,013 36,026 1,613,424
2/4/2020 48,500 89.57 766,300

(1) The grant date shown is the date on which the Compensation Committee approved the target awards.

(2) Threshold and maximum awards are based on the provisions in the VCIP. Actual awards earned can range from 0 to 200% of the target awards, with a further possible adjustment of +/–50% of the target award depending on individual performance. The Compensation Committee retains the authority to make awards under the program and to use its judgment in adjusting awards, including making awards greater than the amounts shown in the table above, provided the award does not exceed amounts permitted under the 2013 Omnibus Stock and Performance Incentive Plan of Phillips 66. Actual payouts under the annual bonus program for 2020 are calculated using base salary earned in 2020 and reflected in the "Non-Equity Incentive Plan Compensation" column of the SUMMARY COMPENSATION TABLE.

(3) Threshold and maximum awards are based on the provisions of the PSP. Actual awards earned range from 0 to 200% of the target. Performance periods under the PSP cover a three-year period, and because a new three-year period commences each year, there could be three overlapping performance periods ongoing. In 2020, targets were set with respect to an award for the performance period beginning in 2020 and ending in 2022. The Compensation Committee retains authority to make awards under the PSP using its judgment, including making awards greater than the maximum payout shown in the table above, provided the award does not exceed amounts permitted under the 2013 Omnibus Stock and Performance Incentive Plan of Phillips 66.

(4) RSUs were granted in 2020 and will vest in 2023.

 

PHILLIPS 66 PROXY STATEMENT 2021     53

 

EXECUTIVE COMPENSATION TABLES

 

(5)   For equity incentive plan awards, these amounts represent the grant date fair value at target level under the PSP as determined in accordance with GAAP. For Stock Option awards, these amounts represent the grant date fair value of the option awards using a Black-Scholes-Merton-based methodology. Actual value realized upon option exercise depends on market prices at the time of exercise. For other stock awards, these amounts represent the grant date fair value of the RSU awards determined in accordance with GAAP. See Note 20—Share-Based Compensation Plans in the Notes to Consolidated Financial Statements in our 2020 Form 10-K, for a discussion of the relevant assumptions used in this determination.

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END

The following table lists outstanding Phillips 66 equity grants for each NEO as of December 31, 2020.

    OPTION AWARDS (1) STOCK AWARDS
NAME GRANT DATE NUMBER OF
SECURITIES
UNDERLYING
UNEXERCISED
OPTIONS
EXERCISABLE
(2)(#)
NUMBER OF
SECURITIES
UNDERLYING
UNEXERCISED
OPTIONS
UNEXERCISABLE(#)
OPTION
EXERCISE
PRICE ($)
OPTION
EXPIRATION
DATE
NUMBER OF
SHARES OR
UNITS OF
STOCK
THAT HAVE
NOT VESTED
(3)(#)
MARKET
VALUE OF
SHARES
OR UNITS
OF
STOCK
THAT
HAVE
NOT
VESTED
($)
EQUITY
INCENTIVE
PLAN
AWARDS:
NUMBER OF
UNEARNED
SHARES,
UNITS OR
OTHER
RIGHTS
THAT HAVE
NOT VESTED
(4) (#)
EQUITY
INCENTIVE
PLAN
AWARDS:
MARKET OR
PAYOUT
VALUE
OF UNEARNED
SHARES, UNITS
OR OTHER
RIGHTS THAT
HAVE NOT
VESTED
($)
Greg Garland 2/7/2013 158,500     62.170   2/7/2023
2/6/2014 126,300     72.255   2/6/2024
2/3/2015 146,700     74.135   2/3/2025
2/2/2016 169,400     78.620   2/2/2026
2/7/2017 174,000     78.475   2/7/2027
2/6/2018 98,000   49,000   94.850   2/6/2028
2/5/2019 59,566   119,134   94.968   2/5/2029
2/4/2020   212,100   89.570   2/4/2030
          98,698 6,902,938 292,900 20,485,426
Kevin Mitchell 2/3/2015 9,900     74.135   2/3/2025
2/2/2016 30,800     78.620   2/2/2026
2/7/2017 31,700     78.475   2/7/2027
2/6/2018 29,066   14,534   94.850   2/6/2028
2/5/2019 17,766   35,534   94.968   2/5/2029
2/4/2020   63,200   89.570   2/4/2030        
          33,525 2,344,739 95,966 6,711,862
Robert Herman 2/7/2013 12,300     62.170   2/7/2023
2/6/2014 11,400     72.255   2/6/2024
2/3/2015 23,500     74.135   2/3/2025
2/2/2016 28,800     78.620   2/2/2026
2/7/2017 30,700     78.475   2/7/2027
2/6/2018 17,333   8,667   94.850   2/6/2028
2/5/2019 10,500   21,000   94.968   2/5/2029
2/4/2020   48,500   89.570   2/4/2030        
          69,177 4,838,239 73,284 5,125,483
Paula Johnson 2/7/2013 12,000     62.170   2/7/2023
2/6/2014 19,600     72.255   2/6/2024
2/3/2015 25,100     74.135   2/3/2025
2/2/2016 32,800     78.620   2/2/2026
2/7/2017 34,300     78.475   2/7/2027
2/6/2018 19,933   9,967   94.850   2/6/2028
2/5/2019 12,166   24,334   94.968   2/5/2029
2/4/2020   45,900   89.570   2/4/2030        
          22,612 1,581,483 67,484 4,719,831
Tim Roberts 4/4/2016 28,400     85.973   4/4/2026
2/7/2017 30,700     78.475   2/7/2027
2/6/2018 17,266   8,634   94.850   2/6/2028
2/5/2019 10,500   21,000   94.968   2/5/2029
2/4/2020   48,500   89.570   2/4/2030        
          22,864 1,599,108 73,440 5,136,394
                             

 

54     PHILLIPS 66 PROXY STATEMENT 2021

 

 

 

 

EXECUTIVE COMPENSATION TABLES

 

(1) All options shown in the table have a maximum term for exercise of ten years from the grant date. Under certain circumstances, the terms for exercise may be shorter, and in certain circumstances, the options may be forfeited and cancelled. All awards shown in the table have associated restrictions upon transferability.
(2) The options shown in this column vested and became exercisable in 2020 or prior years (although under certain termination circumstances, the options may still be forfeited). Options become exercisable in one-third increments on the first, second and third anniversaries of the grant date.
(3) These amounts include unvested restricted stock and RSUs awarded under the PSP for performance periods that ended on or before December 31, 2014. All awards for performance periods that ended on or before December 31, 2014, continue to have restrictions upon transferability. Restrictions on PSP awards for performance periods that ended on or before December 31, 2010, lapse upon separation from service. Restrictions on PSP awards for later performance periods lapse five years from the grant date unless the NEO elected prior to the beginning of the performance period to defer lapsing of the restrictions until separation from service. Awards are subject to forfeiture if, prior to lapsing, the NEO separates from service for a reason other than death, disability, layoff, retirement after reaching age 55 with five years of service, or after a change of control, although the Compensation Committee has the authority to waive forfeiture. The awards have no voting rights, but do entitle the holder to receive dividend equivalents in cash. The value of the awards reflects the closing price of our common stock, as reported on the NYSE, on December 31, 2020 ($69.94).
(4) Reflects potential awards from ongoing performance periods under the PSP for performance periods ending December 31, 2021 and December 31, 2022. These awards are shown at maximum; however, there is no assurance that awards will be granted at, below or above target after the end of the relevant performance periods, as the determination to make a grant and the amount of any grant is within the judgment of the Compensation Committee. Until an actual grant is made, these unearned awards pay no dividend equivalents. The value of these unearned awards reflects the closing price of our common stock, as reported on the NYSE, on December 31, 2020 ($69.94).

OPTION EXERCISES AND STOCK VESTED FOR 2020

The following table summarizes the value received from stock option exercises and stock grants vested during 2020:

  OPTION AWARDS STOCK AWARDS (1)
NAME
NUMBER OF SHARES ACQUIRED
ON EXERCISE
(#)
VALUE REALIZED
UPON EXERCISE
($)
NUMBER OF SHARES ACQUIRED ON VESTING
(#)
VALUE REALIZED UPON VESTING
($)
Greg Garland 319,292 26,857,890
Kevin Mitchell 33,931 2,461,625
Robert Herman 25,618 1,895,314
Paula Johnson 54,035 4,443,795
Tim Roberts 24,871 1,839,209

(1) Stock awards include RSUs that vested during the year, as well as the PSP 2018-2020 award that vested on December 31, 2020 and was paid out in cash in early 2021. The PSP awards were as follows: Mr. Garland, 83,208 units valued at

 

PHILLIPS 66 PROXY STATEMENT 2021     55

 

 

EXECUTIVE COMPENSATION TABLES

 

$5,672,888; Mr. Mitchell, 27,096 units valued at $1,847,329; Mr. Herman, 18,299 units valued at $1,247,575; Ms. Johnson, 18,620 units valued at $1,269,459; and Mr. Roberts, 18,254 units valued at $1,244,507.

PENSION BENEFITS AS OF DECEMBER 31, 2020

Our defined benefit pension plan covering NEOs, the Phillips 66 Retirement Plan, consists of multiple titles with different terms. NEOs are only eligible to participate in one title at any time but may have frozen benefits under one or more other titles.

  TITLE I TITLE II (1) TITLE IV
Current Eligibility Mr. Garland Mr. Herman (4), Mr. Mitchell, Mr. Roberts Ms. Johnson
Normal Retirement Age 65 Age 65 Age 65
Early Retirement (2) Age 55 with five years of service or if laid off during or after the year in which the participant reaches age 50 Executives may receive their vested benefit upon termination of employment at any age Age 50 with ten years of service
Benefit Calculation (2) Calculated as the product of 1.6% times years of credited service multiplied by the final average eligible earnings Based on monthly pay and interest credits to a nominal cash balance account created on the first day of the month after an executive's hire date. Pay credits are equal to a percentage of total salary and annual bonus. Calculated as the product of 1.6% times years of credited service multiplied by the final average eligible earnings
Final Average Earnings Calculation Calculated using the three highest compensation years in the last ten calendar years before retirement plus the year of retirement N/A Calculated using the higher of the highest three years of compensation or the highest 36 months of compensation
Eligible Pension Compensation (3) Includes salary and annual bonus Includes salary and annual bonus Includes salary and annual bonus
Benefit Vesting All participants are vested in this title Employees vest after three years of service All participants are vested in this title
Payment Types Allows payments in the form of several annuity types or a single lump sum
IRS limitations Benefits under all Titles are limited by the IRC. In 2020, the compensation limit was $285,000. The IRC also limits the annual benefit available under these Titles expressed as an annuity. In 2020, that limit was $230,000 (reduced actuarially for ages below 62).
(1) NEOs whose combined years of age and service total less than 44 receive a 6% pay credit, those with 44 through 65 receive a 7% pay credit and those with 66 or more receive a 9% pay credit. Interest credits are applied to the cash balance account each month. This credit is calculated by multiplying the value of the account by the interest credit rate, based on 30-year U.S. Treasury security rates adjusted quarterly.
(2) An early benefit reduction is calculated on Title I by reducing the benefit 5% for each year before age 60 that benefits are paid. An early benefit reduction is calculated on Title III by reducing the benefit 6.67% for each year before age 60 that benefits are paid, unless the participant has at least 85 points awarded, with one point for each year of age and one point for each year of service. Title IV early benefit reduction is calculated by reducing the benefit by 5% per year for each year before age 57 that benefits are paid and 4% per year for benefits that are paid between ages 57 and 60. The benefit calculation for Titles I, III and IV is reduced by the product of 1.5% of the annual primary social security benefit multiplied by years of credited service, although a reduction limit of 50% of the primary Social Security benefit may apply.
(3) Under Title I, if an executive receives layoff benefits, then the eligible compensation calculation also includes the annualized salary for the year of layoff (rather than the actual salary for that year) and years of service are increased by any period for which layoff benefits are calculated.
(4) Mr. Herman has a frozen benefit under Title III from prior years of service with predecessor companies. Under Title III, normal retirement is age 65 and early retirement is age 55 with 10 years of service. Title III is similar to Title I, except that bonus is not eligible pension compensation and payout is made in the form of an annuity.

 

56     PHILLIPS 66 PROXY STATEMENT 2021

 

 

 

EXECUTIVE COMPENSATION TABLES

The following table lists the pension program participation and actuarial present value of each NEO's defined benefit pension as of December 31, 2020.

NAME PLAN NAME NUMBER OF YEARS CREDITED SERVICE (1) (#) PRESENT VALUE OF ACCUMULATED BENEFIT ($) PAYMENTS DURING LAST FISCAL YEAR
($)
Greg Garland Phillips 66 Retirement Plan - Title I 31 2,076,817
  Phillips 66 Key Employee Supplemental Retirement Plan (2) 51,817,577
Kevin Mitchell Phillips 66 Retirement Plan - Title II 7 165,494
  Phillips 66 Key Employee Supplemental Retirement Plan (2) 777,384
Robert Herman Phillips 66 Retirement Plan - Title II 15 431,255
  Phillips 66 Retirement Plan - Title III 23 716,291
  Phillips 66 Key Employee Supplemental Retirement Plan (2) 1,244,447
Paula Johnson Phillips 66 Retirement Plan - Title IV 18 1,115,296
  Phillips 66 Key Employee Supplemental Retirement Plan (2) 8,042,831
Tim Roberts Phillips 66 Retirement Plan - Title II 5 96,489
  Phillips 66 Key Employee Supplemental Retirement Plan (2) 453,129

(1) Years of credited service include service recognized under the predecessor ConocoPhillips plans from which these plans were spun off effective May 1, 2012. Credited Service displays the number of years the NEO was in each applicable formula.

(2) The Phillips 66 Key Employee Supplemental Retirement Plan restores Company-sponsored benefits capped under the qualified defined benefit pension plan due to IRC limits. All employees, including our NEOs, are eligible to participate in the plan.

Understanding the Annual Change in Pension Value

No modifications to pension
ü
There were no modifications to our existing pension program in 2020
Change in value
ü
The value of traditional pension plans is particularly sensitive to interest rate movement, which is outside of Company control
ü
While our short-term and long-term incentive programs are based entirely on performance, pension value is not performance based and does not reflect or reward Company performance
Pension plan going forward
ü
The Compensation Committee will continue to assess our pension program to ensure viability as an attraction and retention tool

NONQUALIFIED DEFERRED COMPENSATION

Our NEOs are eligible to participate in two nonqualified deferred compensation plans, the Phillips 66 KEDCP and the Phillips 66 DCMP.

The KEDCP allows NEOs to defer up to 50% of their salary and up to 100% of their VCIP. The default distribution option is a lump sum payment paid at least six months after separation from service. NEOs may elect to defer payments from one to five years, and to receive annual, semiannual or quarterly payments for a period of up to fifteen years. NEOs may also elect to defer their VCIP to a specific date in the future.

The DCMP is a nonqualified restoration plan for employer contributions that cannot be made to our 401(k) plan either due to an NEO's salary deferral under the KEDCP or due to the IRC annual limit on compensation that may be taken into account under a qualified plan. Distributions are made as a lump sum six months after separation

 

PHILLIPS 66 PROXY STATEMENT 2021     57

 

EXECUTIVE COMPENSATION TABLES

from service, unless the NEO elects to receive one to fifteen annual payments beginning at least one year after separation from service.

Each NEO directs investments of his or her individual accounts under the KEDCP and DCMP. Both plans provide a broad range of market-based investments, that may be changed daily. No investment provides above-market returns. The aggregate performance of these investments is reflected in the NONQUALIFIED DEFERRED COMPENSATION table below.

Benefits due under these plans are paid from our general assets, although we also maintain rabbi trusts that may be used to pay benefits. The trusts and the funds held in them are Company assets. In the event of our bankruptcy, NEOs would be unsecured general creditors.

The following table provides information on nonqualified deferred compensation as of December 31, 2020:

NAME APPLICABLE PLAN (1) BEGINNING
BALANCE
(2) ($)
EXECUTIVE
CONTRIBUTIONS
IN LAST
FISCAL YEAR
($)
COMPANY
CONTRIBUTIONS
IN THE LAST
FISCAL YEAR
(3) ($)
AGGREGATE
EARNINGS
IN LAST
FISCAL YEAR
(4) ($)
AGGREGATE
WITHDRAWALS/
DISTRIBUTIONS
($)
AGGREGATE
BALANCE
AT LAST
FISCAL
YEAR END
(5) ($)
Greg Garland Phillips 66 Defined Contribution
Make-Up Plan
2,385,595 534,983 24,002 2,944,579
Phillips 66 Key Employee
Deferred Compensation Plan
1,435,135 (383,312) 1,051,822
Kevin Mitchell Phillips 66 Defined Contribution
Make-Up Plan
471,936 192,294 82,716 746,937
Phillips 66 Key Employee
Deferred Compensation Plan
Robert Herman Phillips 66 Defined Contribution
Make-Up Plan
740,799 155,612 (4,175) 892,236
Phillips 66 Key Employee
Deferred Compensation Plan
2,525,254 362,366 2,887,620
Paula Johnson Phillips 66 Defined Contribution
Make-Up Plan
609,842 164,494 67,150 841,486
Phillips 66 Key Employee
Deferred Compensation Plan
Tim Roberts Phillips 66 Defined Contribution
Make-Up Plan
333,783 164,827 64,577 563,188
Phillips 66 Key Employee
Deferred Compensation Plan
697,622 58,845 756,467

(1) We have two defined contribution deferred compensation programs for our executives -- the DCMP and the KEDCP. As of December 31, 2020, participants in these plans had 36 investment options -- 28 of the options were the same as those available in our 401(k) plan and the remaining options were other mutual funds approved by the plan administrator.

(2) The beginning balance includes the final Company contribution of fiscal year 2019 (DCMP $6,792 and KEDCP $4,542 for Mr. Garland; DCMP $7,779 for Mr. Mitchell; DCMP $5,051 and KEDCP $22,806 for Mr. Herman; DCMP $6,495 for Ms. Johnson; and DCMP $5,907 for Mr. Roberts).

(3) These amounts represent Company contributions under the DCMP. These amounts are also included in the "All Other Compensation" column of the SUMMARY COMPENSATION TABLE.

(4) These amounts represent earnings on plan balances from January 1 to December 31, 2020. These amounts are not included in the SUMMARY COMPENSATION TABLE.

(5) The total reflects contributions by our NEOs, contributions by us, and earnings on balances prior to 2020; plus contributions by our NEOs, and earnings from January 1, 2020, through December 31, 2020 (shown in the appropriate columns of this table, with amounts that are included in the SUMMARY COMPENSATION TABLE). The total includes all contributions by our NEOs and by us reported in this proxy statement and our proxy statements from prior years as follows: $2,106,109 for Mr. Garland; $580,697 for Mr. Mitchell; $466,016 for Mr. Herman; $750,079 for Ms. Johnson; and $1,115,552 for Mr. Roberts.

 

58     PHILLIPS 66 PROXY STATEMENT 2021

 

 

 

EXECUTIVE COMPENSATION TABLES

POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL

Our programs are designed to pay out amounts earned during employment unless the employee voluntarily resigns prior to becoming retirement-eligible or is terminated for cause. Although normal retirement age under our benefit plans is 65, early retirement provisions allow receipt of benefits at earlier ages if vesting requirements are met. For our incentive compensation programs (VCIP, RSU, Stock Options, and PSP), early retirement is generally defined as termination at or after the age of 55 with five years of service.

As of December 31, 2020, Mr. Garland, Mr. Herman, and Ms. Johnson were retirement-eligible under both our benefit plans and our compensation programs. Therefore, as of December 31, 2020, a voluntary resignation of Mr. Garland, Mr. Herman, or Ms. Johnson, would have been treated as a retirement, and each would have retained all awards earned under the current and earlier programs. As such, awards under these programs are not included in the amounts reflected in the table below. Please see the OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END table for more information. Our compensation programs provide for the following upon retirement:

Cash Payments. Cash payments include VCIP earned during the fiscal year, amounts contributed and vested under our defined contribution plans, and amounts accrued and vested under our pension plans.

Equity. Equity considerations include grants under the PSP for ongoing performance periods in which the executive participated for at least one year, previously granted restricted stock and RSUs, and previously granted stock option awards exercisable through the original term.

The table at the end of this section summarizes the potential additional value of the benefits to be received by each NEO as of December 31, 2020, through the Phillips 66 ESP due to an involuntary termination without cause or through the Phillips 66 CICSP due to a change in control event. Benefits that would be available generally to all or substantially all salaried employees on the U.S. payroll are not included in the amounts shown. Executives are not entitled to receive benefits under both the ESP and the CICSP as a result of the same event. These two plans have the following in common:

amounts payable under both are offset by any payments or benefits payable under any of our other plans;
benefits under both may also be reduced in the event of willful and bad faith conduct demonstrably injurious to the Company; and
both are Company plans under which awards and payments are subject to clawback provisions and to forfeiture or recoupment, in whole or in part, under applicable law, including the Sarbanes-Oxley Act and the Dodd-Frank Act.

Executive Severance Plan

The ESP provides that if a NEO separates due to an involuntary termination without cause, the executive will receive the following benefits, which may vary depending on salary grade level.

Cash Severance Payments. ESP cash severance payments include:

a lump sum payment equal to one and one-half or two times the sum of the executive's base salary and current target annual bonus;
a lump sum payment equal to the present value of the increase in pension benefits that would result from crediting the executive with an additional one and one-half or two years of age and service under the pension plan; and
a lump sum payment generally equal to the Company contribution for active employees toward the cost of certain welfare benefits for an additional one and one-half or two years.
 

PHILLIPS 66 PROXY STATEMENT 2021     59

 

 

EXECUTIVE COMPENSATION TABLES

Accelerated Equity. Layoff treatment under our compensation plans generally allows the executive to retain a prorated portion of grants held less than one year and full grants held for one year or more of Restricted Stock, RSUs, and Stock Options, and maintain eligibility for prorated PSP awards for ongoing periods in which he or she had participated for at least one year.

Change in Control Severance Plan

The CICSP provides that if, within two years of a change in control of the Company, an executive's employment is terminated by the employer other than for cause, or by the executive for good reason, the executive will receive the following benefits, which may vary depending on salary grade level. CICSP benefits include:

Cash Severance Payments. CICSP cash severance payments include:

a lump sum payment equal to two or three times the sum of the executive's base salary and the higher of the current target annual bonus or the average of the annual bonuses paid for the previous two years;
a lump sum payment equal to the present value of the increase in pension benefits that would result from crediting the executive with an additional two or three years of age and service under the pension plan; and,
a lump sum payment generally equal to the Company contribution for active employees toward the cost of certain welfare benefits for an additional two or three years.

Accelerated Equity. CICSP benefits include the vesting of all equity awards and lapsing of any restrictions.

60     PHILLIPS 66 PROXY STATEMENT 2021

 

 

 

 

EXECUTIVE COMPENSATION TABLES

 

Death or Disability

For completeness, payments that would be payable to each NEO upon separation as a result of disability or to each NEO’s estate as a result of death are likewise provided.

  EXECUTIVE BENEFITS AND PAYMENTS UPON TERMINATION
  INVOLUNTARY
NOT-FOR-CAUSE
TERMINATION
(NOT CIC)
($)
INVOLUNTARY OR
GOOD REASON
TERMINATION
(CIC)
($)
DEATH
($)
DISABILITY
($)
Greg Garland        
Severance Payment 12,303,066 25,690,632
Accelerated Equity
Life Insurance 3,350,016
TOTAL 12,303,066 25,690,632 3,350,016
Kevin Mitchell        
Severance Payment 3,970,421 8,494,946
Accelerated Equity (1) 6,006,409 6,074,923 6,006,409 6,006,409
Life Insurance 1,806,864
TOTAL 9,976,830 14,569,869 7,813,273 6,006,409
Robert Herman        
Severance Payment 3,635,878 6,991,915
Accelerated Equity
Life Insurance 1,740,864
TOTAL 3,635,878 6,991,915 1,740,864
Paula Johnson        
Severance Payment 5,367,208 9,803,192
Accelerated Equity
Life Insurance 1,672,080
TOTAL 5,367,208 9,803,192 1,672,080
Tim Roberts        
Severance Payment 3,638,964 7,102,266
Accelerated Equity (1) 4,251,583 4,308,928 4,251,583 4,251,583
Life Insurance 1,774,848
TOTAL 7,890,547 11,411,194 6,026,431 4,251,583

 

(1) For the PSP, amounts for PSP 2018-2020 are shown based on the cash amount received in February 2021, while amounts for other periods are prorated to reflect the portion of the performance period completed by the end of 2020 and shown at target payout levels. These amounts reflect the closing price of our common stock as reported on the NYSE on December 31, 2020 ($69.94).

Restricted Stock and RSU amounts reflect the closing price of our common stock as reported on the NYSE on December 31, 2020 ($69.94).

Stock Option amounts reflect the intrinsic value as if the options had been exercised on December 31, 2020, but only for options the NEO would have retained for the specific termination event.

 

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EXECUTIVE COMPENSATION TABLES

CEO PAY RATIO

As required by Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act, and Item 402(u) of Regulation S-K, we are providing the following information about the ratio of the annual total compensation, calculated in accordance with the requirements of Item 402(c)(2)(x) of Regulation S-K, of our median employee and the annual total compensation of our CEO.

For 2020, the annual total compensation of our CEO was 149 times that of the median of the annual total compensation of all employees, based on annual total compensation of $25,016,843 for the CEO and $167,382 for the median employee.

This ratio is based on an October 1, 2020, employee population of 14,316, which excluded 413 non-U.S. employees in Germany (260), Singapore (75), Austria (42), Canada (32), China (3), and the United Arab Emirates (1). The median employee was identified using annual base pay, overtime pay, annual bonus, and target LTI compensation using data as of September 30, 2020. The annual total compensation for our CEO includes both the amount reported in the “Total” column of the SUMMARY COMPENSATION TABLE of $24,989,374 and the estimated value of our CEO’s health and welfare benefits of $27,469.

The SEC’s rules for identifying the median compensated employee and calculating the pay ratio based on that employee’s annual total compensation allow companies to adopt a variety of methodologies, to apply certain exclusions, and to make reasonable estimates and assumptions that reflect their employee populations and compensation practices. As a result, the pay ratio reported by other companies may not be comparable to the pay ratio reported above, as other companies have different employee populations and compensation practices and may utilize different methodologies, exclusions, estimates and assumptions in calculating their own pay ratios.

62     PHILLIPS 66 PROXY STATEMENT 2021

 

 

 

DIRECTOR COMPENSATION

DIRECTOR COMPENSATION

The primary elements of our non-employee director compensation program are equity compensation and cash compensation.

OBJECTIVES AND PRINCIPLES

Compensation for non-employee directors is reviewed annually by the Nominating and Governance Committee, with the assistance of such third-party consultants as the Nominating and Governance Committee deems advisable, and set by action of the Board of Directors. The Board's goal in designing such compensation is to provide a competitive package that will enable it to attract and retain highly skilled individuals with relevant experience and reflects the time and talent required to serve on the board of a complex, multinational corporation. The Board seeks to provide sufficient flexibility in the form of payment to meet individual needs while ensuring that a substantial portion of director compensation is linked to the long-term success of the Company. In furtherance of our commitment to be a socially responsible member of the communities in which we participate, the Board believes that it is appropriate to extend the Phillips 66 matching gift program to charitable contributions made by individual directors.

Equity Compensation

In 2020, each non-employee director received a grant of RSUs with an aggregate value of $200,000 on the date of grant. Restrictions on the units issued to a non-employee director will lapse in the event of retirement, disability, death, or a change of control, unless the director has elected to receive the underlying shares after a stated period of time. Directors forfeit the units if, prior to the lapse of restrictions, the Board finds sufficient cause for forfeiture (although no such finding can be made after a change in control). Before the restrictions lapse, directors cannot sell or otherwise transfer the units, but the units are credited with dividend equivalents in the form of additional RSUs. When restrictions lapse, directors will receive unrestricted shares of Company stock as settlement of the RSUs.

Cash Compensation

In 2020, each non-employee director received $125,000 in cash compensation for service as a director. Non-employee directors serving in specified committee or leadership positions also received the following additional cash compensation:

  LEAD / CHAIR MEMBER
Lead Director $50,000 N/A
Audit and Finance Committee $25,000 $10,000
Human Resources and Compensation Committee $25,000 $10,000
All Other Committees $20,000 N/A

The total annual cash compensation is payable in monthly cash installments. Directors may elect, on an annual basis, to receive all or part of their cash compensation in unrestricted stock or in RSUs (such unrestricted stock or RSUs are issued on the first business day of the month valued using the average of the high and low prices of Phillips 66 common stock as reported on the NYSE on such date), or to have the amount credited to the director's deferred compensation account as described below. The RSUs issued in lieu of cash compensation are subject to the same restrictions as the annual RSUs described above.

Deferral of Compensation

Non-employee directors can elect to defer their cash compensation under the Phillips 66 Deferred Compensation Program for non-Employee Directors (the “Director Deferral Plan”). Deferred amounts are deemed to be invested in various mutual funds and similar investment choices (including Phillips 66 common stock) selected by the director from a list of investment choices available under the Director Deferral Plan.

 

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DIRECTOR COMPENSATION

The future payment of any compensation deferred by non-employee directors of Phillips 66 may be funded in a grantor trust designed for this purpose.

Directors' Matching Gift Program

All active and retired non-employee directors are eligible to participate in the Directors' Annual Matching Gift Program. This provides a dollar-for-dollar match of gifts of cash or securities, up to a maximum during any one calendar year of $15,000 per donor for active directors and $7,500 per donor for retired directors, to charities and educational institutions (excluding certain religious, political, fraternal, or collegiate athletic organizations) that are tax-exempt under Section 501(c)(3) of the IRC or meet similar requirements under the applicable law of other countries. Amounts representing these matching contributions are contained in the “All Other Compensation” column of the DIRECTOR COMPENSATION TABLE.

Other Compensation

The Board believes that it is important for significant others of directors and executives to attend certain meetings to enhance the collegiality of the Board. The cost of such attendance is treated by the Internal Revenue Service as income and is taxable to the recipient. The Company reimburses directors for the cost of resulting income taxes. Amounts representing this reimbursement are contained in the “All Other Compensation” column of the DIRECTOR COMPENSATION TABLE.

Stock Ownership

Each director is expected to own an amount of Company stock equal to at least the aggregate value of the annual equity grants during their first five years on the Board. Directors are expected to reach this level of target ownership within five years of joining the Board. Actual shares of stock, Restricted Stock, or RSUs, including deferred stock units, may be counted in satisfying the stock ownership guidelines. All current directors are in compliance, or on track to comply, with the guidelines.

DIRECTOR COMPENSATION TABLE

Phillips 66 benchmarks its non-employee director compensation design and pay levels against a group of peer companies. The Company targets the median of this peer group for all elements of non-employee director compensation.

The following table summarizes the compensation for our non-employee directors for 2020 (for compensation paid to our sole employee director, Mr. Garland, please see EXECUTIVE COMPENSATION TABLES).

NAME FEES EARNED OR PAID IN CASH
 (1) ($)
STOCK AWARDS
(2) ($)

ALL OTHER COMPENSATION

(3) ($)

TOTAL
($)
Gary K. Adams 135,000 200,073 15,000 350,073
Julie L. Bushman (4) 64,960 96,255 16,241 177,456
Lisa A. Davis (4) 31,210 46,253 77,463
J. Brian Ferguson 87,500 200,073 4,836 292,409
Charles M. Holley 135,000 200,073 12,498 347,571
John E. Lowe 152,917 200,073 1,515 354,505
Harold W. McGraw III 135,000 200,073 335,073
Denise L. Ramos 143,333 200,073 343,406
Glenn F. Tilton 205,000 200,073 15,870 420,943
Victoria J. Tschinkel 135,000 200,073 20,527 355,600
Marna C. Whittington 150,000 200,073 15,925 365,998

(1) Reflects 2020 base cash compensation of $125,000 payable to each non-employee director. In 2020, non-employee directors serving in specified committee positions also received the additional cash compensation described previously.

 

64     PHILLIPS 66 PROXY STATEMENT 2021

 

 

 

 

DIRECTOR COMPENSATION

Compensation amounts reflect adjustments related to various changes in committee assignments by Board members throughout the year, if any. Amounts shown include any amounts that were voluntarily deferred to the Director Deferral Plan.

(2) Amounts represent the grant date fair market value of RSUs. Under our non-employee director compensation program, non-employee directors received a 2020 grant of RSUs with an aggregate value of $200,000 on the date of grant, based on the average of the high and low prices for Phillips 66 common stock, as reported on the NYSE, on such date. These grants are made in whole shares with fractional share amounts rounded up, resulting in shares with a value of $200,073 being granted on January 15, 2020 ($96,255 granted on July 8, 2020 for Ms. Bushman's pro-rated grant and $46,253 granted on October 8, 2020 for Ms. Davis’ pro-rated grant).

(3) All Other Compensation is made up primarily of certain gifts by directors to charities and educational institutions (excluding certain religious, political, fraternal, or collegiate athletic organizations) that are tax-exempt under Section 501(c)(3) of the IRC or meet similar requirements under the applicable law of other countries that we match under our Matching Gifts Program (Mr. Adams $15,000; Ms. Bushman $15,000; Mr. Holley $10,000; Ms. Tschinkel $15,000; and Dr. Whittington $15,000). For active directors, the program matches up to $15,000 with regard to each program year. The amounts shown reflect the actual payments made by us in 2020. All Other Compensation also includes any personal flights, automobile transportation expenses, smaller gifts (such as books, ornaments, and jackets) as well as associated tax protection, and tax assistance when we request family members or other guests to accompany a director to a Company function and, as a result, the director is deemed to make personal use of Company assets such as Company aircraft and thereby incurs imputed income.

(4) Amounts shown represent compensation paid to Ms. Bushman and Ms. Davis following election to the Board in July 2020 and October 2020, respectively.

EQUITY COMPENSATION PLAN INFORMATION

The following table sets forth information about Phillips 66 common stock that may be issued under all existing equity compensation plans as of December 31, 2020:

PLAN CATEGORY

NUMBER OF SECURITIES
TO BE ISSUED UPON
EXERCISE OF
OUTSTANDING OPTIONS,

WARRANTS AND RIGHTS (1,2)

WEIGHTED-AVERAGE

EXERCISE PRICE OF

OUTSTANDING OPTIONS,

WARRANTS AND
RIGHTS(3)

NUMBER OF SECURITIES
REMAINING

AVAILABLE FOR FUTURE ISSUANCE
UNDER EQUITY COMPENSATION
PLANS (EXCLUDING SECURITIES
REFLECTED IN COLUMN (a) (4)

Equity compensation plans approved by security holders 9,700,131 78.49 29,010,540
Equity compensation plans not approved by security holders      
Total 9,700,131 78.49 29,010,540

 

(1) Includes awards issued under the Omnibus Stock and Performance Incentive Plan of Phillips 66 and awards issued under the 2013 Omnibus Stock and Performance Incentive Plan of Phillips 66.
(2) Includes an aggregate of 5,433,988 Incentive Stock Options and Nonqualified Stock Options issued to employees, 4,093 Restricted Stock Awards granted under historical LTI plans, and 959,768 PSUs. The number of securities to be issued includes 3,302,282 RSUs, of which 199,315 were issued to non-employee directors. Some awards held by ConocoPhillips employees at our spin-off were adjusted or substituted with a combination of ConocoPhillips and Phillips 66 equity. Awards representing a total of 13,071,435 shares were issued to ConocoPhillips employees, of which 1,389,126 remain outstanding as of December 31, 2020. The awards issued to ConocoPhillips employees are included in the outstanding awards listed above.
(3) The weighted-average exercise price reflects the weighted-average price for outstanding Incentive Stock Options and Nonqualified Stock Options only. It does not include stock awards outstanding.
(4) Total includes forfeited shares under the Omnibus Stock and Performance Incentive Plan of Phillips 66 that are now available for grant under the 2013 Omnibus Stock and Performance Incentive Plan of Phillips 66.
 

PHILLIPS 66 PROXY STATEMENT 2021     65

 

SHAREHOLDER PROPOSALS

SHAREHOLDER PROPOSALS

We communicate proactively and transparently on issues of interest to the Company and our shareholders, including the topics presented in the shareholder proposals on the following pages. You can read more about our engagement with our shareholders under the CORPORATE RESPONSIBILITY section of this Proxy Statement. As discussed in that section, we communicate with shareholders throughout the year to gather feedback and enhance our disclosures or other practices on an ongoing basis. When we receive shareholder proposals, our process includes contacting the proponent to discuss the proposal, the concerns raised, and whether additional engagements could resolve the proponent’s concerns. This engagement seeks to understand the proponent’s interests and how the Company can address or alleviate concerns raised in the proposal, either by discussion of actions and efforts the Company has planned or underway, or by providing information of which the proponent may not be aware. We followed our normal practice of engagement with the proponents of the proposals included on the following pages.

The following are shareholder proposals that will be voted on at the Annual Meeting only if properly presented by or on behalf of the shareholder proponent. These proposals contain certain assertions that we believe are incorrect, and we have not attempted to refute all of the inaccuracies.

The proposals we received relate to environmental, sustainability, or governance issues, and request that we take particular action, which may include preparing a report. We share some of the concerns addressed in the proposals, and we have taken actions that we believe address many of the underlying concerns of the proposals. However, we disagree with how the proposal seeks to prescribe the manner in which we approach or report on the issue. The Board generally opposes proposals requesting specially developed reports or initiatives as they do not necessarily reflect the actions we are already taking to address such issues, the decisions we have made in prioritizing our initiatives, or the unique and evolving nature of our operations. Additionally, producing special reports is often not a good use of our resources when the issues are addressed through existing communications. Moreover, we believe that shareholders benefit from reading about these issues in the context of Phillips 66’s other activities rather than in isolation. Many of the issues raised in the following proposals are already discussed in our Sustainability Report, our Annual Report on Form 10-K, this Proxy Statement and other information on our website at www.phillips66.com.

We encourage you to read this Proxy Statement, our Annual Report on Form 10-K, our Sustainability Report and the other information presented on our website.

We will promptly provide each shareholder proponent’s name, address, and, to our knowledge, share ownership upon a shareholder’s request.

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SHAREHOLDER PROPOSALS

PROPOSAL 5: SHAREHOLDER PROPOSAL REGARDING GHG EMISSIONS TARGETS

WHEREAS: We, the shareholders, must protect our assets against devastating climate change, and therefore support companies to substantially reduce greenhouse gas (GHG) emissions.

RESOLVED: Shareholders request the Company to set and publish emissions reduction targets covering the greenhouse gas (GHG) emissions of the Company’s operations and energy products.

You have our support.

SUPPORTING STATEMENT:

The policies of the energy industry are crucial to curbing climate change. Therefore, shareholders support oil and gas companies to change course; to substantially reduce emissions and invest accordingly in the energy transition.

Fiduciary duty

As shareholders, we understand this support to be part of our fiduciary duty to protect all assets in the global economy from devastating climate change.

A growing international consensus has emerged among financial institutions that climate-related risks are a source of financial risk, and therefore limiting global warming is essential to risk management and responsible stewardship of the economy.

We therefore support the company to set emissions reduction targets for all emissions: the emissions of the company’s operations and the emissions of its energy products (Scope 1, 2, and 3). Reducing emissions from the use of energy products (Scope 3) is essential to limiting global warming.

Increasing number of investors insists on targets for all emissions

Shell, BP, Equinor, and Total have already adopted Scope 3 ambitions. Backing from investors that insist on targets for all emissions continues to gain momentum; in 2020, an unprecedented number of shareholders voted for climate targets resolutions. It is evident that a growing group of investors across the energy sector unites behind visible and unambiguous support for targets for all emissions.

Shareholders request that the company report on the strategy and underlying policies for reaching these targets and on the progress made, at least on an annual basis, at reasonable cost and omitting proprietary information.

Nothing in this resolution shall limit the company’s powers to set and vary their strategy or take any action which they believe in good faith would best contribute to reaching these targets.

We believe that the company could lead and thrive in the energy transition. We therefore encourage you to set targets that are inspirational for society, employees, shareholders, and the energy sector, allowing the company to meet an increasing demand for energy while reducing GHG emissions to levels consistent with the curbing climate change.

You have our support.

 

PHILLIPS 66 PROXY STATEMENT 2021     67

 

 

SHAREHOLDER PROPOSALS

BOARD OF DIRECTOR’S RESPONSE TO PROPOSAL 5

THE BOARD RECOMMENDS THAT YOU VOTE “AGAINST” PROPOSAL 5.

The Board has carefully considered this proposal and, for the reasons set forth below, does not believe that it is in the best interests of the Company and its shareholders, and unanimously recommends a vote “AGAINST” the proposal. 

We are working toward setting attainable targets for GHG reduction that are tied to identified projects.

Earlier this year we announced that we are working towards setting GHG reduction targets tied to identified projects, information that was shared with the proponent during our engagement. We believe that we have a dual challenge of providing affordable, abundant, reliable energy to the world and also addressing the global climate challenge. Phillips 66 is committed to doing both while continuing to deliver shareholder returns.

The Company manages GHG emissions, use of renewable energy, energy efficiency and capital investments on a facility-by-facility basis. The array of assets within our diversified portfolio makes this management approach most efficient. Experience with each facilities’ configuration is an important factor in determining the best way to reduce emissions. Over the last several years, local facility management has integrated a variety of energy efficiency practices into operations to reduce energy consumption and reduce GHG emissions. 

For example, at our refineries, we capitalize on opportunities such as improvements in heat exchange or recovery, furnace controls and steam optimization. Over the last five years, five of our refineries have received U.S. Environmental Protection Agency ENERGY STAR® certifications for being among the most energy-efficient plants in our industry. Seven of our refineries have associated cogeneration units. Cogeneration is the use of a single fuel source to produce both electricity and heat simultaneously. The process helps us meet our manufacturing needs and convert heat that would otherwise be lost to the environment into thermal energy to power our process equipment. We also voluntarily achieved Leadership in Energy & Environmental Design (LEED) Platinum certification, the highest level of such certification, for our headquarters building in Houston, Texas, demonstrating energy savings, carbon dioxide emissions reduction, and water efficiency.

We believe that setting a company-wide goal for the reduction of GHG emissions, as requested by the proposal, does not allow local facility management the full flexibility that is necessary to reduce environmental impact, increase energy efficiency and employ renewable energy at their facilities in an economic and efficient manner. We believe that our current approach, which allows local management to institute the best initiatives for their facilities and is focused on specific projects that will lower emissions, is more meaningful than setting aspirational and possibly arbitrary company-wide targets.

Our commitment to advancing a lower-carbon future is reflected in changes to our compensation programs.

As described in the Compensation Discussion and Analysis beginning on page 27, the Compensation Committee of our Board introduced two new metrics into our annual compensation program, “Low-Carbon Priorities” and “GHG Priorities.” The first metric is focused on lower-carbon investments, optimization and innovation, while the second metric is focused on manufacturing emissions intensity. These changes were made to reinforce our focused efforts to advance a lower-carbon economy. Our compensation programs are designed to drive desired behaviors and results, and we believe that including these metrics in our Variable Compensation Incentive Program, including for 2021 performance, demonstrates our commitment in these areas.

We are making investments that advance a lower carbon future and are focusing on technologies that support energy transition.

We agree with the proponent that action by companies is needed and that Phillips 66 can thrive in the energy transition. To that end, we have already acted and invested, with plans to continue and build on what we have already done. Earlier in 2021, we announced a new organization within Phillips 66, Emerging Energy, tasked with establishing a lower-carbon, sustainable business platform. The organization is meant to coordinate on an

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SHAREHOLDER PROPOSALS

enterprise-wide basis all of our existing investments, work with our Energy Research and Innovation team to commercialize and implement energy technology within our operations and portfolio of assets, and build on those efforts. Outlined below are examples of our work to support the energy transition and lower our Scope 1, Scope 2 or Scope 3 emissions that are already completed or underway.

Operations:

· We are converting our San Francisco Refinery to a renewable fuels facility that, upon completion, is expected to have 800 million gallons per year of renewable fuel production capacity, reduce the facility’s GHG emissions by 50%, and be one of the world’s largest renewable fuels facilities
· We are progressing an industrial scale renewable hydrogen project at Humber Refinery
· We are jointly developing a carbon capture project to capture emissions from the Humber Refinery and associated local industry
· We are evaluating solar and wind energy to power our pipelines and refineries
· We are developing energy improvement projects and evaluating construction of cogeneration units to achieve ENERGY STAR® certification at all our refineries
· We have piloted solid oxide fuel cells technology in Wyoming to power cathodic protection through pipelines to maintain asset integrity
· We are utilizing GHG offsets, such as forestry protocols, to support projects designed to mitigate carbon dioxide emissions

Products:

· We are producing renewable diesel from used cooking oil at our Humber Refinery, with plans to further expand capacity by 2024
· We have entered into agreements for supply and offtake at two third-party renewable diesel facilities under construction in Nevada
· We have increased marketing of low carbon fuels on the U.S. West Coast
· We installed a hydrogen pump station in Switzerland, with plans to annually add more stations
· We produce and supply feedstock that is used to make anodes and lithium-ion batteries for electric vehicles (EVs) and electronic devices, which also is used to increase productivity of steel recycling
· We have developed and are manufacturing fluids and lubricants for motors and battery packs in EVs and are producing low viscosity heavy duty engine oil to improve fuel economy

Implementing the proposal would not provide incremental benefits to the Company or its shareholders.

Phillips 66 recognizes the climate challenge and agrees with the proponent that the reduction of GHG emissions is an important issue. The Company maintains its commitment to the reduction of GHG emissions by (i) making investments and growing our business to support a lower carbon future; (ii) pursuing internal efforts to reduce emissions through energy efficiency; (iii) including new metrics in our annual compensation program that support low carbon and GHG priorities; (iv) continuing to develop innovative technologies that can play a role in the energy transition; and (v) voluntarily reporting our Scope 1 and Scope 2 GHG emissions.

In light of our evidenced continuing commitment to GHG reductions and reporting, the Board believes implementing the proposal would not be additive to the work already underway and is unnecessary to further these efforts. The Board recommends a vote “AGAINST” this proposal.

 

 

PHILLIPS 66 PROXY STATEMENT 2021     69

 

 

SHAREHOLDER PROPOSALS

PROPOSAL 6:  SHAREHOLDER PROPOSAL REGARDING REPORT ON CLIMATE LOBBYING

Resolved: Shareholders request that the Board of Directors conduct an evaluation and issue a report within the next year (at reasonable cost, omitting proprietary information) describing if, and how, Phillips 66’s lobbying activities (direct and through trade associations) align with the goal of limiting average global warming to well below 2 degrees Celsius (the Paris Climate Agreement’s goal). The report should also address the risks presented by any misaligned lobbying and the company’s plans, if any, to mitigate these risks.

Supporting Statement: According to the November 2019 “Emissions Gap Report” issued by the United Nations Environment Programme, critical gaps remain between the commitments national governments have made and the actions required to prevent the worst effects of climate change. Companies have an important and constructive role to play in enabling policy- makers to close these gaps.

Corporate lobbying activities that are inconsistent with meeting the goals of the Paris Climate Agreement, however, present regulatory, reputational, legal and financial risks to investors. These efforts also exacerbate systemic risks to our economies, as delays in implementation of the Paris Climate Agreement increase the physical risks of climate change - as we have seen in abundance in 2020 with wildfires and severe storms - and introduce uncertainty and volatility into our portfolios. We believe that Paris Climate Agreement-aligned climate lobbying helps to mitigate these risks, and contributes positively to the long-term value of our investment portfolios.

Of particular concern are the trade associations and other politically active organizations that speak for business but, unfortunately, too often present forceful obstacles to progress in addressing the climate crisis.

As investors, we view fulfillment of the Paris Climate Agreement’s agreed goal—to hold the increase in the global average temperature to “well below” 2°C above preindustrial levels, and to pursue efforts to limit the temperature increase to 1.5°C—as an imperative. We are convinced that unabated climate change will have a devastating impact on our clients, plan beneficiaries, and the value of their portfolios. We see future “business as usual” scenarios of a 3-4°C or greater increase in the global average temperature as both unacceptable and uninvestable.

In 2019, two hundred institutional investors managing $6.5 trillion wrote to Phillips 66, seeking information on how the company is managing this critical governance issue. Insufficient information is presently available to help investors understand whether Phillips 66 works to ensure that its lobbying activities, directly, in the company’s name, and indirectly, through trade associations, align with the Paris Climate Agreement’s goals, and whether Phillips 66 takes any action to address any misalignments it has found. We believe Philips 66’s reply was not responsive to this request.

Thus, we urge the Board and management to assess the company’s climate related lobbying and report to shareholders.

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SHAREHOLDER PROPOSALS

BOARD OF DIRECTOR’S RESPONSE TO PROPOSAL 6

THE BOARD RECOMMENDS THAT YOU VOTE “AGAINST” PROPOSAL 6.

The Board has carefully considered this proposal and, for the reasons set forth below, does not believe that it is in the best interests of the Company and its shareholders, and unanimously recommends a vote “AGAINST” the proposal. 

Phillips 66’s governance policies provide for effective oversight of its political activities.

The Board fully supports accountability, appropriate transparency, and disclosure of lobbying activities and expenditures. Our Board’s Public Policy and Sustainability Committee (PPSC), which oversees our polices, programs and practices regarding environmental protection and our sustainability programs and initiatives, also has oversight of our lobbying and political engagements. These matters are under the purview of the PPSC as part of its oversight responsibility for the Company’s global reputation and political trends and risks.

The Company follows an internal review and oversight process to ensure its public policy positions are aligned with its lobbying activities. Regular reviews of public policy issues of significance are provided to senior management and to the PPSC. Company positions on key issues are made public through a variety of sources, including our Sustainability Report, with climate change disclosures and analysis, SEC filings, and press releases, all of which are available on our website at www.phillips66.com. Our lobbying and political contributions support the Company strategy and are consistent with publicly available positions.

Our Political Giving and Activities Policy, which also is publicly available on our website, clearly provides that only certain employees are authorized to execute the Company’s political activities, including lobbying. Our well-established processes provide effective oversight of our political activities, including lobbying. 

Phillips 66 already provides comprehensive political and lobbying disclosure.

Phillips 66 publicly reports, on a quarterly basis, to the U.S. Congress its federal lobbying expenses and the specific issues lobbied. The total figure reported in Phillips 66’s public Lobbying Disclosure Act (LDA) filings includes expenses associated with the costs of employee federal lobbying, as well as those portions of payments to trade associations, coalitions and think tanks that are spent on federal lobbying. The LDA filings disclose Phillips 66’s lobbying expenditures, describe legislation and general issues that were the topic of communication, and identify the individual who lobbied on behalf of Phillips 66. All of these filings are accessible to the general public on the U.S. Senate website at www.senate.gov. Phillips 66 also files similar periodic reports with state agencies and publicly provides links to Company filings or state search tools if direct links are not possible. Furthermore, Phillips 66, and its employees involved in lobbying, file lobby disclosure reports at the federal, state and local level, in accordance with all applicable disclosure laws.

As part of our overall effort to promote political transparency and accountability, Phillips 66 publishes a semiannual voluntary report of political contributions. Included in this report are (i) contributions to section 527 organizations; (ii) contributions to individual candidates for state and local office; (iii) portions of dues or similar payments to trade associations, 501(c)(3) organizations that develop model legislation and section 501(c)(4) organizations to the extent the dues or other payments equal or exceed $50,000 and are attributable to political purposes; and (iv) a link to all contributions by Phillips 66 for the prior five years.

Requiring additional disclosure would hold Phillips 66 to a different standard than other groups engaging in similar lobbying activities.

Phillips 66 participation in the political process is in the best interest of shareholders.

We recognize that among trade association members there can be viable viewpoints that differ from ours. When this occurs, we seek to work with the association membership to promote reasonable compromise on major initiatives affecting us and our stakeholders. Company contribution to or participation in trade associations, including membership on a trade association board, does not mean that the Company agrees with every position a

 

 

PHILLIPS 66 PROXY STATEMENT 2021     71

 

 

SHAREHOLDER PROPOSALS

trade association takes on an issue and from time to time our corporate positions may differ from those of the trade association of which we are members. Annually, the Company reviews the merits of each organization in which it is involved and assesses whether to sustain or withdraw support.

Phillips 66 is committed to adhering to the highest standards of ethics in engaging in any government relations activities. Phillips 66 is highly regulated and significantly impacted by public policy decisions at the local, state, and federal levels. As such, the Board believes that Phillips 66's public policy engagement is essential to protect the interests of Phillips 66, our customers, employees, shareholders, and communities. Participation in public policy dialogues includes contributing to organizations that advocate positions that support the interests of Phillips 66, our customers, employe