Document:

exh10-3.htm

Exhibit 10.3

 

Compensation and Benefits

Performance Share Awards Granted in 2011

Summary of Key Provisions

	
 

Purpose

	
 

	
To advance the interests of the Company by motivating plan participants to contribute to the long-term success and progress of the Company.

	
 

Eligibility

	
 

	
All senior executives and employees in salary grades 4 and above or as approved by the Compensation Committee of Tesoro’s Board of Directors.

 

	
 

Plan

	
 

	
These awards are granted under the general terms and conditions of the 2011 Long-Term Incentive Plan.

 

	
Performance Shares

	
 

	
A Performance Share Award is a grant of shares where the final payout upon vesting is contingent upon achieving specific performance goals during a specified performance period.

 

	
 

 

Performance Period

	
 

	
The performance period for the Performance Share Awards granted in 2011 is 36 months (April 1, 2011 to March 31, 2014).

 

	
 

 

Vesting

	
 

	
The Performance Share Awards will vest at the end of the 36 month performance period (100% of award vests on March 31, 2014).

 

	
Form and Timing of Payout

	
 

	
The Performance Share Awards will be settled in common stock of the Company within 2 1⁄2 months after the end of the performance period.

 

	
 

 

Payout Range

	
 

	
The payout for the Performance Share Awards can range from 0% to 200% as reflected in the Performance Payout Tables.

 

  

1

  

	
 

Performance Measures

	
Performance Shares will be granted as two equally weighted awards each having its own performance goal.

 

          (1)   Performance Share Award # 1 will be measured using relative Total Shareholder Return (TSR) against the   Performance Peer Group defined below.

 

· For purposes of calculating TSR for the Company and our Performance Peer Group:

   

       ·  An average of the stock prices for the 30 business days preceding the beginning and end of each individual year of the performance period.

 

·  Dividends will be assumed to be reinvested in stock on the date the dividend is paid to shareholders.

 

 

·  The TSR for each year of the three year performance period will be averaged.

 

·  The Relative TSR performance will be determined by ranking the three-year average TSR for the Company and each company in the Performance Peer Group.  The payout percentage (in the payout table below) will be applied to the performance shares granted to the employee at time of grant.  

                   Payout %(1)

       Rank             (5 peers plus Tesoro)

      #1             150% - 200%

      #2             125% - 175%

      #3             100% - 150%

      #4               75% - 125%

      #5               50% - 100%

      #6                 0% -   50%

             

 

(1) The Committee will have the discretion to award within the payout range assigned to each ranking based on factors such as absolute TSR and proximity of the Company’s TSR ranking to next higher peer.  The Committee will also retain discretion to revise the peer group, if deemed necessary, to mitigate the impact of acquisitions or other significant changes to the on-going operations of companies in the Performance Peer Group.

 

2) Performance Share Award # 2 will be measured using relative Return on Capital Employed (ROCE) against the Performance Peer Group defined below.

 

· Relative ROCE for the Company and our Performance Peer Group is defined as follows:

 

· ROCE will equal earnings before interest and taxes divided by the average total capital employed.

 

· Total capital employed equals working capital (excluding current maturities of debt) plus net property, plant and equipment and other long-term assets less other liabilities (excluding debt).

 

· An average of each of the fiscal year's ROCE during the three-year performance period will be calculated for the Company and our Performance Peer Group.

 

· The three-year average ROCE for each of our Performance Peer Group companies will be averaged to obtain the overall three-year average of the Performance Peer Group’s ROCE.  A payout percentage will be determined by the ratio of the Company’s average ROCE to the average of the Performance Peer Group as illustrated in the table below.  The payout percentage will be applied to the performance shares granted to the employee at time of grant to determine the number of shares earned.

 

            Relative ROCE                  Payout %

          (to overall average ROCE of peer             (determined using straight-

          group excluding Tesoro)               line interpolation)

         

          112.6% - 125%                151% - 200%

         100.1% - 112.5%               100% - 150%

                   75%  - 100%                 50% - 99%

          Less than 75%                     0 - 49%

 

  

2

  

	
 

Performance Peer Group

	
   · The Performance Peer Group for the award measured using the TSR performance measure are the following companies:

   

 · Frontier/Holly*, Marathon Petroleum*, Sunoco, Valero and S&P 500 Index

 

    *The TSR calculation for Frontier/Holly and Marathon Petroleum will be annualized during the first year of the performance period.

 

·  The Performance Peer Group for the award measured using the ROCE performance measure are the following companies:

 

    · Frontier/Holly, Marathon Petroleum, Sunoco and Valero

 

	
 

Termination of Employment and Timing of Payout

	
·  Death – a pro-rated payout of shares will be issued based on the number of full months worked (minimum of 12 months required) within the performance period based on the achievement of target performance.  Shares will be issued as soon as administratively possible upon termination event.

 

·  Disability – a pro-rated payout of shares will be issued based on the number of full months worked (minimum of 12 months required) within the performance period based on the achievement of target performance.  Shares will be issued as soon as administratively possible upon termination event.

 

·  Retirement – a pro-rated payout of shares will be issued based on the number of full months worked (minimum of 12 months required) within the performance period based on the achievement of actual performance.  Shares will be issued within 2 1⁄2 months after the end of the performance period.

 

·  Voluntary Termination or Termination for Cause – shares will be forfeited.

 

·  Involuntary Termination - a pro-rated payout of shares will be issued based on the number of full months worked (minimum of 12 months required) within the performance period based on the achievement of actual performance.  Shares will be issued within 2 1⁄2 months after the end of the performance period.

 

	  

Change in Control

	
·  In the event of a Change in Control of the Company, the Performance Share Awards will be paid out at the greater of the target amount or the actual performance through a date determined by the Compensation Committee of the Board of Directors (or in the absence of the Compensation Committee, the Board itself) prior to the Change in Control.

 

 

 

Nothing herein is intended to modify any referenced Plan.  The applicable Plan is the legally governing document and is the final authority on the terms of such Plan unless the Compensation Committee of the Board of Directors (or in the absence of the Compensation Committee, the Board itself) specifies otherwise (either in an Award Agreement or otherwise).

 

3exh10-4.htm

Exhibit 10.4

 

Compensation and Benefits

Market Stock Unit Award Granted in 2011

Summary of Key Provisions

	
 

Purpose

	
 

	
To advance the interests of Tesoro (the “Company”) by motivating plan participants to contribute to the long-term success and progress of the Company.

 

	
 

Eligibility

	
 

	
All senior executives and employees in salary grades 6 and above or as approved by the Compensation Committee of Tesoro’s Board of Directors.

 

	
 

Plan

	
 

	
These awards are granted under the general terms and conditions of the 2011 Long-Term Incentive Plan.

 

	
Market Stock Unit

	
 

	
A Market Stock Unit Award is a grant of stock units in which the number of shares of the Company’s common stock earned at vesting is based on the stock price performance.

 

	
 

Performance Period

	
 

	
The performance period for the Market Stock Unit Award granted in 2011 is 36 months from the effective date of the grant.

 

	
 

Vesting

	
 

	
The Market Stock Unit Award will vest at the end of the 36 month performance period.

 

	
Form and Timing of Payout

	
 

	
The Market Stock Unit Award will be settled in common stock of the Company within 2 1⁄2 months after the end of the performance period.

 

	
Calculation of Market Stock Unit Award at Vesting

	
 

	
The number of shares earned at time of vesting will be calculated as follows:

 

Shares Earned at Vesting* = A times (C/B)

     Symbol       Description

       A       # of Targeted Market Stock Units at Grant

       B       Average closing stock price for the 30 trading days prior to the Grant Date

       C       Average closing stock price for the 30 trading days prior to the Vesting Date

 

*Shares Earned at Vesting is capped at 200% of number of Targeted Market Stock Units at Grant.

Market Stock Unit Award Granted in 2011 

  

1

  

	
 

Payout Range

	
 

	
The payout for the Market Stock Unit Award can range from 50% to 200% based on stock price appreciation.  However, there is no payout if the average closing stock price for the 30 trading days prior to the Vesting Date (or Change in Control) has decreased by more than 50% from the average closing stock price for the 30 trading days prior to the Grant Date.

 

	
 

Termination of Employment

	
 

	
Retirement – a pro-rated payout of shares will be issued based on the number of full months worked (minimum of 12 months required within the performance period based on the achievement of actual performance.  Shares will be issued within 2 1⁄2 months after the end of the performance period.

 

 

	
All Other Terminations – award will be forfeited.

 

	
 

Change in Control

 

	
 

	
In the event of a Change in Control of the Company, the number of shares earned will be calculated as follows:

 

Shares Earned At Vesting* = A times (C/B)

      

      Symbol   Description

       A      # of Targeted Market Stock Units at Grant

       B       Average closing stock price for the 30 trading days prior to the Grant Date

       C       Average closing stock price for the 30 trading days prior to the Change in Control

 

*Shares Earned at Vesting is capped at 200% of number of Targeted Market Stock Units at Grant.

Nothing herein is intended to modify any referenced Plan.  The applicable Plan is the legally governing document and is the final authority on the terms of such Plan unless the Compensation Committee of the Board of Directors (or in the absence of the Compensation Committee, the Board itself) specifies otherwise (either in an Award Agreement or otherwise).

Market Stock Unit Award Granted in 2011 

 

 

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