Definitive Proxy Statement
Table of Contents

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.      )

 

Filed by the Registrant x                            Filed by a Party other than the Registrant ¨

Check the appropriate box:

 

¨ Preliminary Proxy Statement

 

¨ Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

 

x Definitive Proxy Statement

 

¨ Definitive Additional Materials

 

¨ Soliciting Material Pursuant to §240.14a-12

 

 

Marathon Oil Corporation

 

(Name of Registrant as Specified In Its Charter)

 

 

 

  

 

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

 

Payment of Filing Fee (Check the appropriate box):

 

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¨ Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

 

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¨ Fee paid previously with preliminary materials.

 

¨ Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

 

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Table of Contents

 

LOGO

 

Notice of Annual Meeting

of Stockholders and Proxy Statement

2012

 

 

 

Wednesday, April 25, 2012

10:00 a.m. Central Time

 

 

Conference Center Auditorium

Marathon Oil Tower

5555 San Felipe Street

Houston, Texas 77056

 

 

Please vote promptly either by:

u    telephone,

u    the Internet, or

u    marking, signing and returning your proxy or voting instruction card.


Table of Contents
  LOGO  

Marathon Oil Corporation

5555 San Felipe Street

Houston, TX 77056

   

Clarence P. Cazalot, Jr.

Chairman, President and

Chief Executive Officer

 

March 8, 2012

Dear Marathon Oil Stockholder,

On behalf of your Board of Directors and management, you are cordially invited to attend our 2012 annual meeting of stockholders to be held in the Conference Center Auditorium of the Marathon Oil Tower, 5555 San Felipe Street, Houston, Texas, on Wednesday, April 25, 2012 at 10:00 a.m. Central Time.

We are pleased to continue taking advantage of the Securities and Exchange Commission rules allowing issuers to furnish proxy materials over the Internet. Please read the proxy statement for more information on this alternative, which allows us to provide our stockholders with the information they need, while lowering the costs of delivery and reducing the environmental impact of our annual meeting. On March 14, 2012, we plan to commence mailing to our U.S. stockholders a Notice containing instructions on how to access our 2012 Proxy Statement and 2011 Annual Report on Form 10-K and vote online. In addition, instructions on how to request a printed copy of these materials may also be found on the Notice. All other stockholders will continue to receive copies of the proxy statement and annual report by mail. The matters to be voted on at the meeting can be found in the 2012 Proxy Statement.

Your vote is important. We hope you will vote either by telephone, over the Internet, or by marking, signing and returning your proxy or voting instruction card as soon as possible, whether or not you plan to attend the meeting.

Sincerely,

 

LOGO


Table of Contents
Table of Contents   
Notice of Annual Meeting of Stockholders      4   
Proxy Statement Summary      5   
Proxy Statement      9   

Questions and Answers

     9   

The Board of Directors and Governance Matters

     12   

Compensation of Directors

     22   

Proposals of the Board

  

Proposal No. 1
Election of Directors

     24   

Nominees for Director

     25   

Proposal No. 2
Ratification of Independent Auditor for 2012

     29   

Proposal No. 3
Say on Executive Pay

     30   

Proposal No. 4
Approval of 2012 Incentive Compensation Plan

     31   

Audit and Finance Committee Report

     40   

Information Regarding the Independent Registered Public Accounting Firm’s Fees, Services and Independence

     41   

Security Ownership of Certain Beneficial Owners

     42   

Security Ownership of Directors and Executive Officers

     43   

Section 16(a) Beneficial Ownership Reporting Compliance

     44   

Compensation Committee Report

     45   

Compensation Discussion and Analysis

     46   

Executive Compensation Tables and Other Information

     68   

Certain Relationships and Related Person Transactions

     87   

Compensation Policies and Practices for Employees

     89   

Statement Regarding the Delivery of a Single Set of Proxy Materials to Households with Multiple Marathon Oil Stockholders

     89   

Solicitation Statement

     89   
APPENDIX I      Audit and Finance Committee Charter   
APPENDIX II      Audit and Finance Committee Policy For Pre-Approval of Audit, Audit-Related, Tax and Permissible Non-Audit Services   
APPENDIX III      2012 Incentive Compensation Plan   

 

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Notice of Annual Meeting of Stockholders

on April 25, 2012

We will hold our 2012 annual meeting of stockholders in the Conference Center Auditorium of the Marathon Oil Tower, 5555 San Felipe Street, Houston, Texas 77056 on Wednesday, April 25, 2012 at 10:00 a.m. Central Time, in order to:

 

 

elect eight directors;

 

 

ratify the selection of PricewaterhouseCoopers LLP as our independent auditor for 2012;

 

 

consider a non-binding advisory vote to approve our executive compensation;

 

 

approve the 2012 Incentive Compensation Plan; and

 

 

transact any other business that properly comes before the meeting.

You are entitled to vote at the meeting if you were an owner of record of Marathon Oil Corporation common stock at the close of business on February 27, 2012. If your ownership is through a broker or other intermediary, you will need to have proof of your stockholdings in order to be admitted to the meeting. A recent account statement, letter or proxy from your broker or other intermediary will suffice.

Marathon Oil is taking advantage of the Securities and Exchange Commission rules which allow issuers to furnish proxy materials to their stockholders over the Internet. We believe these rules allow us to provide our stockholders with the information they need, while lowering the costs of delivery and reducing the environmental impact of our annual meeting.

If you received a printed copy of the materials, we have enclosed a copy of the Company’s 2011 Annual Report on Form 10-K to stockholders with this notice and proxy statement.

 

By order of the Board of Directors,

LOGO

Sylvia J. Kerrigan

Secretary

Dated: March 8, 2012

 

 

Marathon Oil Corporation

5555 San Felipe Street

Houston, TX 77056

 

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Proxy Statement Summary

This summary highlights information contained elsewhere in this proxy statement. You should read the entire proxy statement carefully before voting.

Annual Meeting of Shareholders

 

•    Time and Date:

   10:00 a.m. Central Time, April 25, 2012

•    Place:

   Marathon Oil Corporation Tower
   Conference Center Auditorium
   5555 San Felipe Street
   Houston, Texas 77056

•    Record Date:

   February 27, 2012

•    Voting:

   Stockholders

Meeting Agenda

 

   

Election of eight directors

 

   

Ratification of the selection of PricewaterhouseCoopers LLP as independent auditor for 2012

 

   

Non-binding advisory vote to approve our executive compensation

 

   

Approve the 2012 Incentive Compensation Plan

 

   

Transact any other business that may properly come before the meeting

Voting Matters

 

Board Proposals   

Board Vote

Recommendation

   Page Reference
(for more detail)

 

Election of Directors

  

FOR EACH DIRECTOR NOMINEE

   24

Ratification of the selection of PricewaterhouseCoopers LLP as independent auditor for 2012

  

FOR

   29

Non-binding advisory vote to approve executive compensation

  

FOR

   30

Approve the 2012 Incentive Compensation Plan

  

FOR

   31

Board Nominees

The following table provides summary information about each director who is nominated for election. Each director nominee will serve terms expiring at the 2013 annual meeting of stockholders and until their successors are elected and qualified.

 

Name    Age    Director
Since
   Occupation   

Experience/

Qualification

   Independent   

Committee

Assignments

 

Gregory H. Boyce

   57    2008    Chairman and CEO of Peabody Energy Corporation   

•    Leadership

•    Industry

•    International

•    Engineering

   X    Audit; Compensation¿; & HES&CR

Pierre Brondeau

   54    2011    Chairman, President and CEO of FMC Corporation   

•    Technology

•    Leadership

•    Engineering

•    International

   X    Compensation; Corp. Gov.; & HES&CR

 

 

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Proxy Statement Summary (continued)

 

Name    Age    Director
Since
   Occupation   

Experience/

Qualification

   Independent   

Committee

Assignments

 

Clarence P. Cazalot, Jr.    61    2000    Chairman, President and CEO of Marathon Oil Corporation   

•    Leadership

•    Industry

•    International

•    Engineering

     
Linda Z. Cook    53    2011    Retired Executive Director of Royal Dutch Shell plc   

•    Leadership

•    Industry

•    International

•    Engineering

   X    Audit; Compensation; & Corp. Gov.
Dr. Shirley Ann Jackson    65    2000    President of Rensselaer Polytechnic Institute   

•    Education

•    Technology

•    Government

•    Leadership

   X    Audit¿ ; Compensation; & HES&CR
Philip Lader    65    2002    Non-executive Chairman of WPP plc   

•    Government

•    International

•    Leadership

•    Industry

   X    Corp. Gov.; & HES&CR¿
Michael E. J. Phelps    64    2009    Chairman and Founder of Dornoch Capital, Inc.   

•    Finance

•    International

•    Leadership

•    Industry

   X    Audit; Corp. Gov.; & HES&CR
Dennis H. Reilley    58    2002    Former Non-executive Chairman of Covidien Ltd.   

•    Finance

•    International

•    Leadership

•    Industry

   X    Audit; Compensation; & Corp. Gov.¿

 

 

Audit    Audit and Finance Committee
Compensation    Compensation Committee
Corp. Gov.    Corporate Governance and Nominating Committee
HES&CR    Health, Environmental, Safety and Corporate Responsibility Committee
¿    Committee Chair
Attendance    In 2011, the director nominees, all of whom are current directors, attendance averaged approximately 94% for the aggregate of the total number of the Board and committee meetings. Ms. Cook was appointed to the Board in July 2011, and thereafter attended 100% of the Board meetings and meetings of the committees on which she sits.

Auditors

As a matter of good corporate governance, we are asking our stockholders to ratify the selection of PricewaterhouseCoopers LLP as our independent registered public accounting firm for 2012.

 

 

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Proxy Statement Summary (continued)

 

Executive Compensation Advisory Vote

We seek your advisory vote to approve the compensation of our named executive officers and ask that you support the compensation of our named executive officers with a FOR vote. The Board believes that our compensation policies and practices attract talented and experienced executives, motivate them by rewarding individual and collective contributions to our success and retain our executives so that they can directly impact our business.

2012 Incentive Compensation Plan

On February 29, 2012, the Board approved the 2012 Incentive Compensation Plan (the “Plan”) and submitted the Plan to stockholders for approval. We are asking our stockholders to approve the Plan so that it may replace, on a prospective basis, the 2007 Incentive Compensation Plan (the “2007 Plan”). The Plan is designed to attract and retain employees and directors, to strengthen the alignment of their interests with stockholder interests, and to reward outstanding contributions to our development and financial success. Our Board believes it is appropriate to propose a replacement plan at this time in order to optimize our tax deduction under Section 162(m) of the Internal Revenue Code, which requires periodic stockholder approval of incentive compensation plans. If the 2012 Plan is approved by our stockholders, all granting authority under the 2007 Plan will be revoked and no new grants will be made from the 2007 Plan following the date of stockholder approval.

Executive Compensation Components

 

Type    Form    Terms

Equity

  

•   Stock Options

  

•   Generally vest pro-rata over three years

    

 

•   Restricted Stock

  

 

•   Granted to officers other than CEO (the CEO does not receive restricted stock)

•   Generally vests at the end of three years

 

Cash

  

•   Base Salary

  

•   Reviewed annually

    

 

•   Annual Cash Bonus

  

 

•   Determined by the Compensation Committee based upon a combination of quantitative performance metrics and individual performance goals

     
    

•   Performance Unit Awards

  

•   Payment is based upon relative total stockholder return ranking at the end of a defined performance period

 

Retirement

  

•   Tax-qualified plans

  

•   Broad-based defined benefit and Code Section 401(k) plans to provide retirement benefits

 

    

 

•   Nonqualified plans

  

 

•   Generally provide for benefits that officers do not receive due to Internal Revenue Code limits

 

Other

  

•   Perquisites

  

•   Executive physical; reimbursement of tax and financial planning up to an annual maximum

 

 

 

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Proxy Statement Summary (continued)

 

Other Key Compensation Features

 

   

Significant stock ownership requirements, including 6x base salary for CEO

 

   

Clawback of incentive compensation

 

   

No severance or employment agreements

 

   

No tax gross-up of perquisites

2011 Compensation Decisions

For a complete description of our 2011 compensation decisions, please refer to the Compensation Discussion and Analysis beginning on page 46.

2013 Annual Meeting of Stockholders

Stockholder proposals submitted for inclusion in our 2013 proxy statement must be received in writing by our corporate Secretary no later than the close of business on November 14, 2012.

 

 

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Proxy Statement

We have sent you this proxy statement because the Board of Directors (the “Board”) is asking you to give your proxy (that is, the authority to vote your shares) to our proxy committee so they may vote your shares on your behalf at our annual meeting of stockholders. The members of the proxy committee are Clarence P. Cazalot, Jr., Dennis H. Reilley, and Janet F. Clark.

We will hold the meeting on April 25, 2012 in the Conference Center Auditorium of the Marathon Oil Tower, 5555 San Felipe Street, Houston, Texas. The proxy statement contains information about the matters being voted on and other information that may be helpful to you.

We began the mailing of the Notice Regarding the Availability of Proxy Materials, the 2012 Proxy Statement, the proxy card, and the Letter to Stockholders and 2011 Annual Report on Form 10-K on or about March 14, 2012.

Questions and Answers

 

 

 

¢ Who may vote?

You may vote if you were a holder of Marathon Oil Corporation (“Marathon Oil” or the “Company”) common stock at the close of business on February 27, 2012, which is the record date of the meeting. Each share of common stock entitles its holder to one vote on each matter to be voted on at the meeting.

 

¢ What may I vote on?

You may vote on:

  the election of eight nominees to serve as directors;
  the ratification of the selection of PricewaterhouseCoopers LLP as our independent auditor for 2012;
  a non-binding advisory vote to approve our executive compensation; and
  the approval of our 2012 Incentive Compensation Plan.
¢ How does the Board recommend I vote?

The Board recommends that you vote:

  FOR each of the nominees for director;
  FOR the ratification of the selection of PricewaterhouseCoopers LLP as our independent auditor for 2012;
  FOR the non-binding advisory vote to approve our executive compensation;
  FOR the approval of the 2012 Incentive Compensation Plan.

 

¢ If I am a stockholder of record of Marathon Oil shares, how do I cast my vote?

If you are a holder of record of Marathon Oil common stock, you may vote in person at the annual meeting. We will give you a ballot at the meeting.

If you do not wish to vote in person or if you will not be attending the annual meeting, you may vote by proxy. If you received a printed copy of these proxy materials by mail, you may vote by proxy on the Internet, vote by proxy

 

 

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using the enclosed proxy card, or vote by proxy over the telephone. The procedures for voting by proxy are as follows:

  To vote by proxy on the Internet, go to http://www.proxyvote.com to complete an electronic proxy card. You will need the 12-digit Control Number included on your Notice Regarding the Availability of Proxy Materials (the “Notice”) or on your proxy card;
  To vote by proxy using the enclosed proxy card (if you received a printed copy of these proxy materials by mail), complete, sign and date your proxy card and return it promptly in the envelope provided; or
  To vote by proxy over the telephone (if you received a printed copy of these proxy materials by mail), dial the toll-free phone number listed on your proxy card under the heading “Vote by Phone” using a touch-tone phone and follow the recorded instructions.

If you vote by proxy, your vote must be received by 11:59 p.m., Eastern Time on April 24, 2012 to be counted.

We provide Internet proxy voting to allow you to vote your shares on-line, with procedures designed to ensure the authenticity and correctness of your proxy vote instructions. However, please be aware that you must bear any costs associated with your Internet access, such as usage charges from Internet access providers and telephone companies.

 

¢ If I am a beneficial owner of Marathon Oil shares, how do I vote?

If you are a beneficial owner of shares of Marathon Oil common stock held in street name and you received a printed copy of these proxy materials by mail, you should have received a voting instruction card with these proxy materials from the organization that is the record owner of your shares rather than from us. If you are a beneficial owner of shares held in street name and you received a notice by mail, you should have received the notice from the organization that is the record owner of your shares rather than from us. Beneficial owners that received a printed copy of these proxy materials by mail from the record owner may complete and mail that voting instruction card or may vote by telephone or over the Internet as instructed by that organization in the voting instruction card. Beneficial owners that received a Notice by mail from the record owner should follow the instructions included in the Notice to view the proxy statement and transmit their voting instructions. A beneficial owner planning to vote in person at the annual meeting must obtain a valid proxy from the record owner. To request the requisite proxy form, follow the instructions provided by your broker or contact your broker.

¢ Why did I receive a Notice in the mail regarding the Internet availability of proxy materials this year instead of a full set of proxy materials?

Pursuant to the rules adopted by the Securities and Exchange Commission, we have elected to provide access to our proxy materials over the Internet. Unless you previously requested to receive a printed copy of the proxy materials or reside in a location outside the United States, we are sending a Notice Regarding the Availability of Proxy Materials to our stockholders of record. All stockholders will have the ability to access the proxy materials. Instructions on how to access the proxy materials over the Internet or to request a printed copy may be found on the Notice. In addition, stockholders may request to receive proxy materials in printed form by mail or electronically by e-mail on an ongoing basis.

 

¢ May I change my vote?

If you are a holder of record of shares of Marathon Oil common stock, you may change your vote or revoke your proxy at any time before your shares are voted at the meeting by:

  voting again by telephone or over the Internet;
  sending us a proxy card dated later than your last vote;
  notifying the Secretary of Marathon Oil in writing; or
  voting at the meeting.

 

¢ How many outstanding shares are there?

At the close of business on February 27, 2012, which is the record date for the meeting, there were 704,243,734 shares of Marathon Oil common stock outstanding and entitled to vote.

 

 

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¢ How big a vote do the proposals need in order to be approved?

Directors are elected by a majority of the votes cast. For a director to be elected, the number of shares voted “for” a director must exceed the number of votes cast “against” that director. Abstentions will not be taken into account in director elections. Each of the other proposals will be approved if it receives a majority of the votes of the shares present in person at the meeting and those represented by proxy and entitled to vote. Although the advisory vote on Proposal 3 is non-binding, as provided by law, our board will review the results of the vote and, consistent with our record of stockholder engagement, will take it into account in making a determination concerning executive compensation. Except as otherwise provided above, abstentions are counted as votes present and entitled to vote and have the same effect as votes against a proposal. Broker non-votes are not counted as either votes for or votes against a proposal. Both abstentions and broker non-votes are counted in determining that a quorum is present for the meeting.

 

¢ What are broker non-votes?

The New York Stock Exchange permits brokers to vote their customers’ shares on routine matters when the brokers have not received voting instructions from customers. The ratification of the independent auditor is an example of a routine matter on which brokers may vote in this way. Brokers may not vote their customers’ shares on non-routine matters such as the election of directors, the proposal related to executive compensation or the approval of the 2012 Incentive Compensation Plan, unless they have received voting instructions from their customers. Shares held by brokers on behalf of these customers which are not voted on non-routine matters are broker non-votes.

¢ What constitutes a quorum?

Under our by-laws, a quorum is one third of the voting power of the outstanding shares of stock entitled to vote.

 

¢ Will my vote be confidential?

Only the voting records of employee-stock-holders are kept confidential, except as necessary to meet legal requirements and in other limited circumstances such as proxy contests.

 

¢ How will voting be conducted on other matters raised at the meeting?

If any matters are presented at the meeting other than the proposals on the proxy card, the proxy committee will vote on them using their best judgment. Your signed proxy card, or your telephone or Internet vote, gives them the authority to do this. Under our by-laws, notice of any matter to be presented by a stockholder for a vote at the meeting must have been received by our corporate Secretary on or after November 12, 2011 and no later than December 12, 2011, and it must have been accompanied by certain information about the stockholder presenting it. We have not received notice of any matter to be presented other than those on the proxy card.

 

¢ When must stockholder proposals be submitted for the 2013 annual meeting?

Stockholder proposals submitted for inclusion in our 2013 proxy statement must be received in writing by our corporate Secretary no later than the close of business on November 14, 2012. Stockholder proposals submitted outside the process for inclusion in the proxy statement must be received from stockholders of record on or after November 14, 2012 and no later than December 14, 2012 and must be accompanied by certain information about the stockholder making the proposal, in accordance with our by-laws.

 

 

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  The Board of Directors and Governance Matters

 

  On June 30, 2011, we completed the spin-off of our downstream business creating two independent energy companies (the “Spin-off”), Marathon Petroleum Corporation (“MPC”) and Marathon Oil Corporation. As a result, six members of the Board of Directors (the “Board”) tendered their resignations in order to serve as members of MPC’s board of directors. Our Board currently consists of eight directors.

 

  Under our by-laws and the laws of Delaware, Marathon Oil’s state of incorporation, the business and affairs of Marathon Oil are managed under the direction of the Board. The Board met twelve times in 2011 and attendance for Board and committee meetings averaged 95 percent for the full year. Attendance averaged approximately 94 percent for the aggregate of the total number of Board and committee meetings held through June 30, 2011. Following the Spin-off, attendance averaged approximately 95 percent for the aggregate of the total number of Board and committee meetings held for the remainder of 2011. Under our Corporate Governance Principles, directors are expected to attend the annual meeting of stockholders, and in 2011 all of our then-serving directors attended the meeting in person.

 

  The chairman of the Board presides at all meetings of stockholders and the Board. In connection with the Spin-off, we elected a lead director to preside at executive sessions of non-employee directors. Among other things, the lead director is also responsible for reviewing with the chairman and CEO the proposed Board and committee meeting agendas.

 

  Our Corporate Governance Principles require non-employee directors of the Company to meet at regularly scheduled executive sessions. To comply with this directive, an offer of an executive session is extended to non-employee directors at each regularly scheduled Board meeting. In 2011, non-employee directors of the Company held six executive sessions.

 

  In 2011, the Board had four principal committees, all the members of which were independent, non-employee directors. The tables below show the pre-Spin-off and post-Spin-off committee memberships of each director and the aggregate number of meetings that each corresponding committee held in 2011. Effective at the time of the Spin-off, the principal committees’ memberships were re-organized as set forth on page 13.

 

 

Board Committee Memberships -

Prior to June 30, 2011

   Director   

Audit and

Finance
Committee

   Compensation
Committee
     Corporate
Governance and
Nominating
Committee
     Public Policy
Committee
  

 

   Gregory H. Boyce    X    X           X
   Pierre Brondeau       X      X      X
   David A. Daberko    X      X*      X     
   William L. Davis    X         X      X
   Shirley Ann Jackson      X*    X           X
   Philip Lader            X        X*
   Charles R. Lee    X    X           X
   Michael E. J. Phelps    X         X      X
   Dennis H. Reilley       X        X*      X
   Seth E. Schofield    X    X      X     
   John W. Snow       X      X      X
  

 

  

* Chair

               

 

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Board Committee Memberships -

Current

   Director     

Audit and

Finance
Committee

   Compensation
Committee
   Corporate
Governance and
Nominating
Committee
   Health,
Environmental,
Safety and
Corporate
Responsibility
Committee
  

 

   Gregory H. Boyce      X      X*       X
   Pierre Brondeau         X    X    X
   Linda Z. Cook      X    X    X   
   Shirley Ann Jackson        X*    X       X
   Philip Lader            X      X*
   Michael E. J. Phelps      X       X    X
   Dennis H. Reilley      X    X      X*   
  

 

   Number of Meetings in 2011      7    6    6      5**
  

* Chair

**This number includes meetings of the former Public Policy Committee.

  

 

Linda Z. Cook was elected to the Board effective July 1, 2011. On July 27, 2011, she was appointed by the Board to serve on the Audit and Finance Committee, the Compensation Committee and the Corporate Governance and Nominating Committee.

 

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Board and Committee Independence

The principal committee structure of the Board includes the audit and finance, compensation, corporate governance and nominating, and health, environmental, safety and corporate responsibility committees. These committees are comprised entirely of independent directors.

 

  In determining independence, the Board affirmatively determines whether directors have no material relationship with the Company. When assessing materiality, the Board considers all relevant facts and circumstances including, without limitation, transactions between the Company and the director directly, immediate family members of the director, or organizations with which the director is affiliated, and the frequency and dollar amounts associated with these transactions. The Board further considers whether the transactions were at arm’s length in the ordinary course of business and whether the transactions were consummated on terms and conditions similar to those of unrelated parties. In 2011, the Board considered contributions totaling $60,000 made by the Company to not-for-profit organizations, Atlantic Council of the United States and Communities in Schools, of which Philip Lader or his immediate family members are directors, trustees, or affiliates, payments for legal services totaling $74,996 made by the Company to a law firm of which Philip Lader is a partner, and royalty payments totaling $379,743 received by the Company from a wholly-owned subsidiary of a company of which Gregory H. Boyce is chairman and chief executive officer. These transactions did not exceed the thresholds set forth in the categorical standards below.

 

  The Board uses the following categorical standards to determine director independence: (1) not being a present or former employee, or having an immediate family member as an executive officer, of the Company within the past three years; (2) not personally receiving, or having an immediate family member receive, any direct compensation from the Company in excess of $120,000 during any twelve-month period within the last three years, other than compensation for board or committee service, pension or other forms of deferred compensation for prior service, or compensation paid to an immediate family member who is a non-executive employee of the Company; (3) with respect to the Company’s external auditor, (a) not being engaged, or having an immediate family member engaged, as a current partner by the Company’s external auditor, (b) not being a current employee of the Company’s external auditor, (c) not having an immediate family member who is a current employee of the Company’s external auditor and who participates in such firm’s audit, assurance or tax compliance (but not tax planning) practice, or (d) not being engaged or employed or having an immediate family member engaged or employed, within the past three years (but is no longer) a partner or employee of such firm and personally worked on the Company’s audit within that time; (4) not being employed, or having an immediate family member employed, within the past three years as an executive officer of another company where now or at any time during the past three years any of the Company’s present executive officers serve or served on the other company’s compensation committee; (5) not being a current employee, or having an immediate family member who is a current executive officer, of a company that makes or made payments to, or receives or received payments from, the Company for property or services in an amount which, in any of the three preceding fiscal years, exceeded the greater of $1 million, or 2% of the other company’s consolidated gross revenues; and (6) not being an executive officer of a tax-exempt organization of which the Company has within the three preceding fiscal years made any contributions to that organization in any single fiscal year that exceeded the greater of $1 million, or 2% of the tax-exempt organization’s consolidated gross revenues.

 

  Applying these categorical standards, the Board determined that the following directors qualify as independent: Gregory H. Boyce; Pierre Brondeau; Linda Z. Cook; Shirley Ann Jackson; Philip Lader; Michael E. J. Phelps; and Dennis H. Reilley.

 

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Audit and Finance Committee

The Audit and Finance Committee has a written charter adopted by the Board, which is attached hereto as Appendix I and is also available on the Company’s website at http://www.marathonoil.com/Audit_Committee_Charter/. The charter requires the committee to reassess and report to the Board on the adequacy of the charter on an annual basis, which the committee did in 2011. All the members of the Audit and Finance Committee are independent (as independence is defined in Securities Exchange Act Rule 10A-3, as well as the general independence requirements of New York Stock Exchange (“NYSE”) Rule 303A.02).

 

  This committee is, among other things, responsible for:

 

   

appointing, replacing, compensating and overseeing the work of the independent auditor;

 

   

reviewing the fees proposed by the independent auditor for the coming year and approving in advance all audit, audit-related, tax and permissible non-audit services to be performed by the independent auditor;

 

   

separately meeting with the independent auditor, the internal auditors and management with respect to the status and results of their activities;

 

   

reviewing and assuring the rotation of the lead audit partner as required by law and considering whether rotation of the independent auditor firm is necessary;

 

   

reviewing with the chief executive officer, the chief financial officer, and the general counsel the Company’s disclosure controls and procedures and management’s conclusions about the efficacy of such disclosure controls and procedures;

 

   

reviewing, approving and discussing with management and the independent auditor the annual and quarterly financial statements, reports of internal control over financial reporting, the annual report to stockholders, and the Form 10-K;

 

   

reviewing earnings press releases;

 

   

discussing with management guidelines and policies to govern the process by which risk assessment and management is undertaken by the Company;

 

   

reviewing and recommending dividends;

 

   

approving and recommending financings, including the recommendations of action to subsidiaries, partnerships and joint ventures;

 

   

reviewing and reporting on the Company’s compliance with financial covenants and other terms of loans and other agreements;

 

   

reviewing year-end hydrocarbon reserve estimates and tax estimates;

 

   

reviewing legal and regulatory compliance regarding the Company’s financial statements, accounting or auditing matters or compliance with the Code of Business Conduct or Policy for Whistleblowing Procedures; and

 

   

completing an annual performance evaluation of this committee.

 

  The Audit and Finance Committee has the authority to investigate any matter brought to its attention with full access to all books, records, facilities and personnel of the Company, and to retain outside legal, accounting or other consultants.

 

  Audit and Finance Committee Policy For Pre-Approval of Audit, Audit-Related, Tax and Permissible Non-Audit Services

 

 

The Audit and Finance Committee Policy For Pre-Approval of Audit, Audit-Related, Tax and Permissible Non-Audit Services is attached as Appendix II to this proxy statement and is also available on the Company’s website at http://www.marathonoil.com/Policy_PreAppAudit_Tax_NonAudit/. Among other things,

 

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this policy sets forth the procedure for the committee to pre-approve all audit, audit-related, tax and permissible non-audit services, other than as provided under the de minimus exception. Notwithstanding the de minimus exception, it is the intent of the committee that standard practice will be to pre-approve all permissible non-audit services. The committee delegated pre-approval authority of up to $500,000 to the Audit and Finance Committee Chair for unbudgeted items.

 

  Audit Committee Financial Expert

 

  Based on the attributes, education and experience requirements set forth in Section 407 of the Sarbanes-Oxley Act of 2002 and associated regulations, the Board has determined that Michael E. J. Phelps and Dennis H. Reilley each qualify as an “Audit Committee Financial Expert.”

 

   

Mr. Phelps held a number of senior executive positions, including chief executive officer and chief financial officer for Westcoast Energy, Inc. In addition to his master’s of Law degree, he holds a bachelor of arts degree in economics and history.

 

   

Mr. Reilley is a former non-executive chairman of Covidien Ltd. He also served as chairman and chief executive officer of Praxair, Inc. In addition to certifying the effectiveness of internal controls and procedures required by his position as CEO, Mr. Reilley’s experience included serving as former chair of Entergy Corporation’s audit committee. He holds a bachelor of science degree in finance from Oklahoma State University.

 

  Hiring of Employees or Former Employees of the Independent Auditor

 

  This policy provides that the Company shall not hire any employee or former employee of its independent auditor for a position in a financial reporting oversight role if such employee or former employee was the lead or concurring partner, or any other member of the audit engagement team who provided more than ten hours of audit, review or attest services during the one-year period preceding the date of the initiation of the audit. The complete policy statement is available on the Company’s website at http://www.marathonoil.com/Guide_Hire_Employees_Indep_Auditor/.

 

  Policy for Whistleblowing Procedures

 

  The policy for Whistleblowing Procedures establishes procedures for the receipt, retention and treatment of concerns received by the Company regarding accounting, internal accounting controls, or auditing matters, and the confidential, anonymous submission by employees to the Company of concerns regarding questionable accounting or auditing matters. The policy for Whistleblowing Procedures is available on the Company’s website at http://www.marathonoil.com/Policy_Whistleblowing_Procedures/.

 

 

 

Compensation Committee

The Compensation Committee is composed solely of directors who satisfy all criteria for independence under applicable law and the rules of the NYSE and who, in the opinion of the Board, are free of any relationship that would interfere with their exercise of independent judgment as members of the committee.

 

  The Compensation Committee has a written charter adopted by the Board, which is available on the Company’s website at http://www.marathonoil.com/Charter_Comp_Committee/. The charter requires the committee to reassess and report to the Board on the adequacy of the charter on an annual basis, which the committee did in 2011.

 

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  The committee is, among other things, responsible for:

 

   

making recommendations to the Board and to the boards of subsidiaries on all matters of policy and procedures relating to executive compensation;

 

   

reviewing and approving corporate goals and objectives relevant to the chief executive officer’s compensation, and determining and approving the chief executive officer’s compensation level based on the Board’s performance evaluation of the chief executive officer;

 

   

reviewing and approving the frequency with which to submit to stockholders an advisory vote to approve executive compensation, taking into account any prior stockholder advisory vote regarding such frequency;

 

   

reviewing and considering the results of any stockholder advisory votes to approve executive compensation;

 

   

determining and approving the compensation of the other executive officers, and reviewing the succession plan relating to positions held by the other executive officers;

 

   

recommending to the Board and administering the incentive compensation plans and equity-based plans of the Company;

 

   

confirming the achievement of performance levels under the Company’s incentive compensation plans;

 

   

reviewing, recommending, and discussing with management the Compensation Discussion and Analysis section included in the Company’s annual proxy statement; and

 

   

evaluating its performance on an annual basis.

 

  The committee used Meridian Compensation Partners LLC (“Meridian”) to provide consulting services and advice to the committee on executive compensation matters. The consultant reports directly to the committee and provides information on industry trends and practices and updates on regulatory requirements. Meridian provides no other services to Marathon Oil or its executives.

 

  The committee seeks input from the CEO on compensation decisions and performance appraisals for all other executive officers. However, all final executive officer compensation decisions are made by the committee.

 

  The committee meets at least four times a year and is given the opportunity to meet in executive session at each of its meetings. With input from the independent compensation consultant, the CEO, and the Vice President of Human Resources, the chairman of the committee approves the agendas for committee meetings. When possible, the committee previews and discusses significant compensation decisions at one meeting before giving formal approval at a subsequent meeting.

 

  Compensation Committee Interlocks and Insider Participation

 

  The members of the Compensation Committee are Gregory H. Boyce, (Chairman), Pierre Brondeau, Linda Z. Cook, Shirley Ann Jackson, and Dennis H. Reilley. Each person qualifies as an independent non-employee director, and no member has served as an officer or employee of the Company. During 2011, none of the Company’s executive officers served as a member of a compensation committee or board of directors of any other entity, which has an executive officer serving as a member of our Compensation Committee or Board of Directors.

 

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Corporate Governance and Nominating Committee

The Corporate Governance and Nominating Committee is composed solely of independent directors in accordance with the rules of the NYSE. The committee’s primary purpose is to discharge the Board’s responsibility related to the development and implementation of a set of corporate governance principles, the identification of individuals qualified to become Board members, and the review of the qualifications and make-up of the Board membership.

 

  The committee is, among other things, responsible for:

 

   

reviewing and making recommendations to the Board concerning the appropriate size and composition of the Board, including candidates for election or re-election as directors, the criteria to be used for the selection of candidates for election as directors, the appropriate skills and characteristics required of Board members in the context of the current make-up of the Board, the composition and functions of the Board committees, and all matters relating to the development and effective functioning of the Board;

 

   

considering and recruiting candidates to fill positions on the Board;

 

   

considering nominees recommended by stockholders for election as directors;

 

   

considering and recommending non-employee director compensation;

 

   

reviewing and making recommendations to the Board of each Board committee’s membership and committee chairpersons including, without limitation, a determination of whether one or more Audit and Finance Committee members qualifies as an “audit committee financial expert” in accordance with applicable law;

 

   

assessing and recommending overall corporate governance practices;

 

   

establishing the process and overseeing the evaluation of the Board;

 

   

reviewing and, if appropriate, approving any related person transactions;

 

   

reviewing and approving codes of conduct applicable to directors, officers and employees;

 

   

reviewing the Company’s policy statement on stockholders’ rights plans and reporting any recommendations to the Board; and

 

   

evaluating its performance on an annual basis.

 

  A current copy of the Corporate Governance and Nominating Committee’s charter is available on the Company’s website at http://www.marathonoil.com/Charter_CorpGovNom_Committee/.

 

  Director Identification and Selection

 

 

The process for director selection and director qualifications is set forth in Article III, Section (a) of the Company’s Corporate Governance Principles which are available on the Company’s website at http://www.marathonoil.com/Corporate_Governance_Principles/. In summary, the chairman of the Corporate Governance and Nominating Committee, the chairman of the Board and chief executive officer, and the secretaries of the Compensation and Corporate Governance and Nominating Committees should work with a third-party professional search firm to review director candidates and their credentials. At least one member of the committee and the chairman of the Board and chief executive officer should meet with the director candidate. This screening process applies to Corporate Governance and Nominating Committee recommended nominees, as well as nominees recommended by the stockholders in accordance with the Company’s by-laws or applicable law. The criteria for selecting new directors include their independence, as defined by applicable law, stock

 

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exchange listing standards and the categorical standards listed in the Company’s Corporate Governance Principles, their business or professional experience, their integrity and judgment, their record of public service, their ability to devote sufficient time to the affairs of the Company, the diversity of backgrounds and experience they will bring to the Board, and the needs of the Company from time to time. Directors should also be individuals of substantial accomplishment with demonstrated leadership capabilities, and they should represent all stockholders and not any special interest group or constituency. The committee’s charter also gives the committee the sole authority to retain and terminate any search firm to be used to identify director candidates, including sole authority to approve the search firm’s fees and other retention terms.

 

 

 

Health, Environmental, Safety, and Corporate Responsibility Committee

The Health, Environmental, Safety, and Corporate Responsibility Committee assists the Board in identifying and monitoring health, environmental, safety, social and political trends, issues, and concerns which affect the Company. Additionally, the committee analyzes the Company’s global reputation and develops recommendations to strategically position the Company to support its business objectives. A copy of the committee charter is available on the Company’s website at http://www.marathonoil.com/HESCR_Committee_Charter/.

 

  The committee is, among other things, responsible for:

 

   

reviewing and recommending Company policies, programs, and practices concerning broad health, environmental, safety, social, public policy and political issues;

 

   

identifying, evaluating and monitoring the health, environmental, safety, social, public policy and potential trends, issues and concerns, which affect or could affect the Company’s business activities;

 

   

reviewing legislative and regulatory issues affecting the Company’s businesses and operations; and

 

   

reviewing the Company’s political, charitable and educational contributions.

 

 

 

Board’s Role in Risk Oversight

Responsibility for risk oversight rests with the Board and committees of the Board in accordance with the focus areas of each committee:

 

  The Audit and Finance Committee annually reviews the process by which Enterprise Risk Management is undertaken by the Company and the latest assessment of risks and key mitigation strategies. It regularly reviews risks associated with financial and accounting matters and reporting. They monitor compliance with legal and regulatory requirements and internal control systems. They also review risks associated with financial strategies and capital structure of the Company.

 

  The Compensation Committee reviews the executive compensation program to help ensure that it does not encourage excessive risk. It also reviews executive compensation, incentive compensation and succession plans to ensure the Company has appropriate practices in place to support the retention and development of the talent necessary to achieve the Company’s business goals and objectives.

 

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  The Health, Environmental, Safety and Corporate Responsibility Committee regularly reviews and oversees operational risks including those relating to health, environment, safety and security. It reviews risks associated with social, political and environmental trends, issues and concerns, domestic and international, which affect or could affect the Company’s business activities, performance and reputation.

 

  The Board receives regular updates from the committees about their activities in this regard and also reviews risk not specifically within the purview of any particular committee and risks of a more strategic nature. Key risks associated with the strategic plan are reviewed annually at the strategy meeting of the Board and periodically throughout the year.

 

  While the Board and committees of the Board oversee risk management, Company management is responsible for managing risk. The Company has a strong enterprise risk management process for identifying, assessing and managing risk, and monitoring risk mitigation strategies. The governance of this process is effectuated through the executive sponsorship of the CEO and CFO and led by an Assistant Treasurer and a committee of executive officers and senior managers responsible for working across the business to manage each enterprise level risk and to identify emerging risks.

 

 

 

Corporate Governance Principles

Our Corporate Governance Principles are available on the Company’s website at http://www.marathonoil.com/Corporate_Governance_Principles/. In summary, the Corporate Governance Principles address the general functioning of the Board, including its responsibilities, the Board size, director elections and limits on the number of Board memberships. These principles also address Board independence, committee composition, the lead director position, the process for director selection and director qualifications, the Board’s performance review, the Board’s planning and oversight functions, director compensation and director retirement and resignation.

 

 

 

Leadership Structure of the Board

As provided in our Corporate Governance Principles, the Board does not have a policy, one way or the other, on whether or not the roles of the chairman and CEO should be separate and, if they are to be separate, whether the chairman should be selected from the non-employee directors or be an employee. The Board is to make this choice on the basis of what is best for our Company at a given point in time. From the time of the separation of USX Corporation on December 31, 2001 into two independent companies until the Spin-off of MPC on June 30, 2011, we separated the positions of chairman and CEO. Thomas J. Usher served as our chairman, and Clarence P. Cazalot, Jr. served as our President and CEO. Following the Spin-off, Clarence P. Cazalot, Jr. became chairman, president and CEO of our Company. The Board determined that Mr. Cazalot’s knowledge and experience gained as our president and CEO since 2002, along with his membership on the Board since 2000, provided Mr. Cazalot with the right level of experience and skill sets to lead the Board and our Company. His knowledge of our Company and our industry has been and continues to be invaluable to the Board. At this same time, Dennis H. Reilley was appointed lead director. As a former non-executive chairman of Covidien Ltd. and a former chairman, president and CEO of Praxair, Inc., along with service on three other publicly-traded company boards, Mr. Reilley has gained invaluable insight and exposure to many of the major issues we face as a publicly-traded company. As lead director, Mr. Reilley’s duties include presiding at executive sessions of the non-employee directors and reviewing the Board and committee agendas with Mr. Cazalot. We believe the Board leadership structure is appropriate for us at this time.

 

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Diversity

The Corporate Governance and Nominating Committee is responsible for reviewing with the Board the appropriate skills and characteristics required of Board members in the context of the current make-up of the Board. When we have an opening on the Board, we will always look at a diverse pool of candidates. In accordance with our Corporate Governance Principles, the assessment of the Board’s characteristics includes diversity, skills, such as an understanding of financial statements and financial reporting systems, manufacturing processes, technology and international experience. We view and define diversity in its broadest sense, which includes gender, ethnicity, education, experience and leadership qualities. After the Spin-off of MPC on June 30, 2011, Linda Z. Cook was appointed to our board. She has valuable domestic and international oil and gas experience and serves on the boards of three other companies.

 

 

 

Communications from Interested Parties

All interested parties, including security holders, may send communications to the Board through the Secretary of the Company. You may communicate with the Chair of our Audit and Finance, Compensation, Corporate Governance and Nominating, and Health, Environmental, Safety and Corporate Responsibility Committees by sending an e-mail to auditandfinancechair@marathonoil.com, compchair@marathonoil.com, corpgovchair@marathonoil.com, or hescrchair@marathonoil.com, respectively. You may communicate with our outside directors, individually or as a group, by sending an e-mail to non-managedirectors@marathonoil.com.

 

  The Secretary will forward to the directors all communications that, in her judgment, are appropriate for consideration by the directors. Examples of communications that would not be considered appropriate for consideration by the directors include commercial solicitations and matters not relevant to the affairs of the Company.

 

 

 

Code of Business Conduct

Our Code of Business Conduct is available on our website at http://www.marathonoil.com/Code_of_Business_Conduct/. The Code of Business Conduct applies to our directors, officers and employees.

 

 

 

Code of Ethics for Senior Financial Officers

Our Code of Ethics for Senior Financial Officers is available on the Company’s website at http://www.marathonoil.com/Code_Ethics_Sr_Finan_Off/. This code applies to the Company’s principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, and mandates that these officers, among other things:

 

   

act with honesty and integrity, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships;

 

   

provide full, fair, accurate, timely, and understandable disclosure in reports and documents that the Company files with, or submits to, the Securities and Exchange Commission and in other public communications made by the Company;

 

   

comply with applicable governmental laws, rules and regulations; and

 

   

promote the prompt internal reporting of violations of this Code of Ethics to the chair of the Audit and Finance Committee and to the appropriate person or persons identified in the Company’s Code of Business Conduct.

 

  The code further provides that any violation will be subject to appropriate discipline, up to and including dismissal from the Company and prosecution under the law.

 

 

 

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  Compensation of Directors

 

  In 2011, a total of 13 independent, non-employee directors served on our Board for all or a portion of the year. Upon the Spin-off of MPC, six directors (Mr. Daberko, Mr. Davis, Mr. Lee, Mr. Schofield, Mr. Snow and Mr. Usher) left the Board of Marathon Oil in order to join the board of MPC. Following the Spin-off, six non-employee directors remained on our Board (Mr. Boyce, Mr. Brondeau, Dr. Jackson, Mr. Lader, Mr. Phelps and Mr. Reilley). Effective July 1, Ms. Cook joined our Board as a non-employee director.

 

  The Board determines annual retainers and other compensation for non-employee directors. Mr. Cazalot is a director and also an employee of Marathon Oil. Directors who are employees of Marathon Oil receive no additional compensation for their service on the Board.

 

 

2011 Director Compensation Table

 

Name(1)   

Fees Earned
or Paid

in Cash(1)

($)

    

Stock

Awards(2)

($)

     Option
Awards
($)
  

Non-Equity
Incentive

Plan
Compensation

($)

  

Change in
Pension Value
and Nonqualified
Deferred
Compensation
Earnings

($)

  

All Other
Compensa-

tion(3)

($)

    

Total

($)

 

Gregory H. Boyce(4)

     156,000         150,000       0    0    0      0         306,000   

Pierre Brondeau(4)(5)

     150,000         150,000       0    0    0      0         300,000   

Linda Z. Cook(4)(6)

     75,000         75,000       0    0    0      10,000         160,000   

David A. Daberko(7)

     81,000         75,000       0    0    0      8,000         164,000   

William L. Davis(7)

     75,000         75,000       0    0    0      0         150,000   

Shirley Ann Jackson(4)

     165,000         150,000       0    0    0      10,000         325,000   

Philip Lader(4)

     160,000         150,000       0    0    0      10,000         320,000   

Charles R. Lee(7)

     75,000         75,000       0    0    0      0         150,000   

Michael E. J. Phelps(4)

     150,000         150,000       0    0    0      0         300,000   

Dennis H. Reilley(4)(8)

     167,500         150,000       0    0    0      0         317,500   

Seth E. Schofield(7)

     75,000         75,000       0    0    0      0         150,000   

John W. Snow(7)

     75,000         75,000       0    0    0      0         150,000   

Thomas J. Usher(7)(9)

     175,000         50,000       0    0    0      0         225,000   

 

(1) The amounts shown reflect annual cash retainers, chairman fees, lead director fees, and committee chair retainers for 2011. Directors are eligible to defer up to 100% of their $150,000 annual cash retainer fees.
(2) The amounts shown reflect the dollar amount recognized for financial statement reporting purposes for the fiscal year ended December 31, 2011, in accordance with generally accepted accounting principles in the United States regarding stock compensation, for the annual non-retainer common stock award. These amounts are also equal to the grant date fair value of the awards.
(3) The amounts shown represent contributions made on behalf of the directors under our matching gifts program.
(4) The aggregate number of stock unit awards outstanding as of December 31, 2011 for each director is as follows: Mr. Boyce, 24,701; Mr. Brondeau, 5,775; Ms. Cook, 3,012; Dr. Jackson, 71,535; Mr. Lader, 64,801; Mr. Phelps, 21,121; and Mr. Reilley, 68,123. All share and per share data have been adjusted to reflect the effect of the June 30, 2011 Spin-off of MPC.
(5) Mr. Brondeau joined the Board effective January 1, 2011.
(6) Ms. Cook joined the Board effective July 1, 2011.
(7) Upon the Spin-off of MPC on June 30, 2011, Mr. Daberko, Mr. Davis, Mr. Lee, Mr. Schofield, Mr. Snow and Mr. Usher left the Board of Marathon Oil to join the board of directors of MPC. The amounts shown reflect compensation paid while serving on the Board of Marathon Oil. Upon the Spin-off, all outstanding stock unit awards in Marathon Oil were cancelled and replaced with substitute stock unit awards in MPC.
(8) Mr. Reilley was named Lead Director effective July 1, 2011.
(9) Mr. Usher served as Chairman of the Board until June 30, 2011. Mr. Cazalot was named Chairman effective July 1, 2011.

 

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  In 2011, we paid our non-employee directors as follows:

 

Annual Cash Retainer

   $ 150,000      

Annual Common Stock Unit Award

   $ 150,000      

Committee Chair Retainer

   $ 15,000      

Audit and Finance Committee

   $ 12,000       Compensation Committee
   $ 10,000       All other committees

Chairman of the Board Annual Cash Retainer(a)

   $ 350,000      

(discontinued June 30, 2011)

     

Chairman of the Board Annual Common Stock Unit Award(a)

   $ 100,000      

(discontinued June 30, 2011)

     

Lead Director Retainer(b)

   $ 15,000      

(effective July 1, 2011)

     

 

  Directors do not receive meeting fees for attendance at Board or committee meetings.

 

  (a) 

Mr. Usher served as Chairman of the Board through June 30, 2011. Upon the Spin-off of MPC on that date, he left the Board of Marathon Oil to join the board of MPC. Following the Spin-off, Mr. Cazalot was named Chairman, President & CEO of Marathon Oil, effective July 1, 2011. Because Mr. Cazalot is an employee director, he did not receive any additional compensation for his service on the Board.

  (b) 

Following the Spin-off of MPC, Mr. Reilley was named Lead Director, effective July 1, 2011.

 

  Non-employee directors, other than the chairman, received an annual common stock unit award valued at $150,000. The non-employee chairman received an annual common stock unit award valued at $100,000. During 2011, these awards were credited to an unfunded account on a quarterly basis, based on the closing stock price on the grant date. When dividends are paid on our common stock, directors receive dividend equivalents in the form of common stock units. The awards are payable in shares of common stock upon the director’s departure from the Board.

 

  Directors have the opportunity to defer 100 percent of their annual retainer into an unfunded account. This deferred account may be invested in certain phantom investment options offered under the Marathon Oil Corporation Deferred Compensation Plan for Non-Employee Directors, which mirror the investment options offered to employees under our Thrift Plan with the exception of Marathon Oil common stock. When a director leaves the Board, he or she receives cash in a lump sum.

 

  Under our matching gifts program, each year Marathon Oil will match up to $10,000 in contributions made by non-employee directors to certain tax-exempt educational institutions. The annual limit is applied based on the date of the director’s gift to the institution. Due to processing delays, the actual amount paid out on behalf of a director may exceed $10,000 in a given year.

 

  We also have stock ownership guidelines in place for non-employee directors. All non-employee directors are expected to hold three times the value of the annual retainer in Marathon Oil stock. Directors have five years from the commencement of their service on the board to achieve this level of stock ownership.

 

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  Proposals of the Board

 

  The Board will present the following proposals at the meeting:

 

Proposal No. 1

Election of Directors

 

  Our Restated Certificate of Incorporation provides that directors shall be elected for terms expiring at the next succeeding annual meeting of stockholders. Accordingly, we have eight nominees for director whose terms expire in 2012.

 

  Our by-laws require the Board to fix the number of directors, and under our Corporate Governance Principles, the Board is charged with endeavoring to maintain between six and eleven members. The director nominees for election are for a one-year term expiring at the 2013 annual meeting of stockholders. Of the eight current directors, one is an officer of Marathon Oil, six have top executive experience with a wide variety of businesses, one has a distinguished career in academia, business and government, and one has a distinguished career as an international business leader and diplomat. A brief statement about the background and qualifications of each nominee is given on the following pages. If any nominee for whom you have voted becomes unable to serve, your proxy may be voted for another person designated by the Board.

 

  Our by-laws describe the procedures that must be used in order for someone nominated by a stockholder of record to be eligible for election as a director. They require that notice be received by the Secretary at least 90 days, but not more than 120 days, before the first anniversary of the date on which we first mailed our proxy materials for the preceding year’s annual meeting of stockholders. The notice must contain certain information about the nominee, including his or her age, address, occupation and share ownership, as well as the name, address and share ownership of the stockholder giving the notice.

 

  As explained earlier in the question and answer section of this proxy statement, directors are elected by a majority of votes cast. For a director to be elected, this means that the number of shares voted “for” a director must exceed the number of votes cast “against” that director. Abstentions will not be taken into account in director elections. Under our by-laws, if an incumbent director who is nominated for re-election to the Board does not receive sufficient votes to be elected, the director is required to promptly tender his or her resignation to the Board. Our Corporate Governance and Nominating Committee will make a recommendation to the Board as to whether to accept or reject the tendered resignation, or whether other action should be taken. The Board will act on the tendered resignation, taking into account the Corporate Governance and Nominating Committee’s recommendation, and publicly disclose its decision regarding the tendered resignation within 90 days from the date of the certification of the election results. In the event of a vacancy, the Board may fill the position or decrease the size of the Board.

 

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  Nominees for Director

Terms Expire 2013

 

 

LOGO   Gregory H. Boyce    Director since 2008    Age 57
 

 

 

Chairman and Chief Executive Officer of Peabody Energy Corporation

 

Mr. Boyce received a bachelor of science degree from the University of Arizona in mining engineering and completed the Advance Management Program from the Graduate School of Business at Harvard University. Mr. Boyce is Chairman and Chief Executive Officer of Peabody Energy Corporation. He has been a director of Peabody Energy Corporation since March 2005, and was appointed Chairman on October 10, 2007. Mr. Boyce was named Chief Executive Officer Elect in March 2005, and assumed the position of Chief Executive Officer in January 2006. He also served as President from October 2003 until January 6, 2008. Mr. Boyce was Chief Operating Officer from October 2003 to December 2005. From 2000 to 2003, he served as Chief Executive Officer - Energy for Rio Tinto plc, an international natural resource company. Mr. Boyce was President and Chief Executive Officer of Kennecott Energy Company from 1994 to 1999 and President of Kennecott Minerals Company from 1993 to 1994. Prior to serving as President of Kennecott Minerals, he had extensive engineering and operating experience with Kennecott. Mr. Boyce also served as Executive Assistant to the Vice Chairman of Standard Oil from 1983 to 1984. He is Chairman of the National Mining Association and is a Board member of the Business Round Table and the American Coalition for Clean Coal Electricity (ACCCE). Mr. Boyce is a member of the Coal Industry Advisory Board of the International Energy Agency and a member of the National Coal Council. He is also a member of the Board of Trustees of St. Louis Children’s Hospital and Washington University of St. Louis. Mr. Boyce is a member of Civic Progress in St. Louis and is a member of the Advisory Council of the University of Arizona’s Department of Mining and Geological Engineering and the School of Engineering and Applied Science National Council at Washington University.

 

As a chief executive officer, Mr. Boyce’s current position provides him with experience running a major corporation with international operations. This includes developing strategic insight and direction for his company. Global operations require a thorough understanding of different cultures and political regimes. His position as chief executive officer also exposes him to many of the same issues we face in our business, including markets, competitors, operational, regulatory, technology and financial.

 

LOGO   Pierre Brondeau    Director since 2011    Age 54
 

 

 

Chairman, President and Chief Executive Officer of FMC Corporation

 

Mr. Brondeau earned both a bachelor of science degree and a Ph.D from Institut National des Sciences Appliquées of Toulouse in biochemical engineering and received a master’s degree from the University of Montpellier, France in food sciences. He joined FMC Corporation on January 1, 2010, as President and Chief Executive Officer and became Chairman of the Board on October 1, 2010. Mr. Brondeau served as President and Chief Executive Officer of Dow Advanced Materials Division of Dow Chemical Company until September 2009. He was President and Chief Operating Officer of Rohm and Haas Company from May 2008, which was acquired by Dow Chemical in April 2009. From 2006 through May 2008, Mr. Brondeau served as Executive Vice President of electronics and specialty materials of Rohm and Haas Company. He held numerous executive positions during his tenure at Rohm and Haas Company from 1989 through May 2008, in Europe and the United States with global responsibilities for marketing, sales, research and development, engineering, technology and operations. Mr. Brondeau also serves on the Board of Directors of TE Connectivity Ltd. He is a member of the American Chemistry Council’s Executive Committee and Chair of the Finance Committee.

 

Mr. Brondeau’s years of senior executive experience and executive leadership at large multi-national companies and his knowledge of developing technology, finance, acquisitions and mergers, strategic planning and regulatory issues impacting publicly-traded companies provides a valuable resource for our Board. He also has leadership experience serving as chairman of the board and also as a member of the board of an electronics manufacturer with service on its audit committee.

 

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  Nominees for Director (continued)

Terms Expire 2013

 

 

LOGO

 

 

Clarence P. Cazalot, Jr.

   Director since 2000    Age 61
 

 

 

Chairman, President and Chief Executive Officer of Marathon Oil Corporation

 

Mr. Cazalot graduated from Louisiana State University in 1972 with a bachelor of science degree in geology and joined Texaco Inc. that same year as a geophysicist. After holding a number of increasingly responsible management positions, Mr. Cazalot was elected a Vice President of Texaco Inc. and President of Texaco’s Latin America/West Africa Division in 1992. In 1994, he was named President of Texaco Exploration and Production Inc. Mr. Cazalot was appointed President of Texaco International Marketing and Manufacturing in 1997, and in 1998 he was named President - International Production and Chairman of London-based Texaco Ltd. He was elected President of Texaco’s worldwide production operations in 1999. Mr. Cazalot joined USX Corporation as Vice Chairman and Marathon Oil Company as President in March 2000. Effective upon the separation of USX’s steel and energy businesses on January 1, 2002, Mr. Cazalot was named President and Chief Executive Officer of Marathon Oil Corporation. On July 1, 2011, Mr. Cazalot also was named as Chairman of the Board. In May 2007, he was awarded an Honorary Doctorate of Humane Letters from Louisiana State University. He serves on the Boards of Directors of Baker Hughes Incorporated, the American Petroleum Institute and the Greater Houston Partnership. He is a member of The Business Council and serves on the Advisory Board of the World Affairs Council of Houston and the James A. Baker III Institute for Public Policy.

 

As our Chairman, President and Chief Executive Officer, Mr. Cazalot sets the strategic direction of our Company under the guidance of the Board. He has extensive knowledge and experience in the oil and gas industry gained through the executive and management positions with our Company and Texaco. His knowledge and handling of the day-to-day issues affecting our business provide the Board with invaluable information necessary to direct the business and affairs of our Company.

 

LOGO

  Linda Z. Cook    Director since 2011    Age 53
 

 

 

Retired Executive Director of Royal Dutch Shell plc

 

Ms. Cook earned a bachelor of science degree from University of Kansas in petroleum engineering. She served as Executive Director of Royal Dutch Shell plc from August 2004 to December 2009 with responsibilities for global natural gas, trading and technology. Previously, Ms. Cook served as Director, President and Chief Executive Officer of Shell Canada Limited from August 2003 to August of 2004. From January 2000 to July of 2003, she served as Chief Executive Officer for Shell Gas & Power. Ms. Cook also serves on the Boards of Directors of The Boeing Company, KBR, Inc. and Cargill, Inc., a privately held company. She is a member of the Board of Trustees for the University of Kansas Endowment Association and the Advisory Board for the University of Texas Energy Institute. She is a member of the Society of Petroleum Engineers. Within the past five years, Ms. Cook previously served on the Board of Directors of Royal Dutch Shell plc.

 

Ms. Cook has extensive knowledge and experience in the oil and gas industry gained through her position as executive director of Royal Dutch Shell plc and various other executive and management positions with Shell. As a result of these positions, she has valuable experience in the domestic and international oil and gas business. She also gained valuable experience in managing many of the major issues, such as strategic, operational, technology, compensation, management development, acquisitions, dispositions, capital allocation, government and stockholder relations, that we deal with today. Ms. Cook’s service on the boards of two other publicly-traded companies and one privately-held company has provided her exposure to different industries and approaches to governance and other key issues.

 

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  Nominees for Director (continued)

Terms Expire 2013

 

 

LOGO

 

 

Shirley Ann Jackson

   Director since 2000    Age 65
 

 

 

President of Rensselaer Polytechnic Institute

 

Dr. Jackson received a bachelor of science degree in physics in 1968 and a doctorate in theoretical elementary particle physics in 1973 from the Massachusetts Institute of Technology. She was a research associate at the Fermi National Accelerator Laboratory, a visiting scientist at the European Center for Nuclear Research and, from 1976 to 1991, a theoretical physicist at the former AT&T Bell Laboratories. Dr. Jackson was a professor of theoretical physics at Rutgers University from 1991 to 1995. She was Chairman of the U.S. Nuclear Regulatory Commission from 1995 to 1999. Dr. Jackson was named President of Rensselaer Polytechnic Institute in 1999. Dr. Jackson holds 49 honorary degrees, was awarded the New Jersey Governor’s Award in Science in 1993, was inducted into the National Women’s Hall of Fame in 1998 and was named a fellow of the Association for Women in Science in 2004. In 2005, she chaired the American Association for the Advancement of Science, was President in 2004, and currently is a fellow. Dr. Jackson is a member of the National Academy of Engineering and American Philosophical Society, and is a fellow of the American Academy of Arts and Science and of the American Physical Society. In 2009 she was appointed to serve on the President’s Council of Advisors on Science and Technology (PCAST). In 2011, Dr. Jackson was appointed to the International Security Advisory Board (ISAB) at the U.S. Department of State, advising the Secretary of State and the Undersecretary for Arms Control and International Security. She serves on the Boards of Directors of FedEx Corporation, International Business Machines Corporation, Medtronic, Inc. and Public Service Enterprise Group Incorporated. She is also Chairman of NYSE Regulation, Inc. Within the past five years, Dr. Jackson also previously served as a director of AT&T Corp., NYSE Euronext and United States Steel Corporation. She is a member of the Board of the Council on Foreign Relations, the Board of Regents of the Smithsonian Institution, and a life member of the M.I.T. Corporation. Dr. Jackson also serves as the University Vice Chairman of the U.S. Council on Competitiveness, and co-chaired its Energy Security, Sustainability and Innovation initiative.

 

Through her current position as President of Rensselaer Polytechnic Institute, former position as Chairman of the U.S. Nuclear Regulatory Commission and other appointments and positions, Dr. Jackson has managed many of the major issues, such as financial, strategic, technology, regulatory, compensation, personnel development, capital allocation and public relations, that we deal with today. She has particular experience with energy policy, technology and management of large projects. Also, her previous and current board positions on other publicly-traded companies have provided over 30 years of audit committee experience, including as chair, compensation committee experience and governance and nominating committee experience, including as chair. This experience has given her exposure to different industries and approaches to governance and other key issues.

 

LOGO   Philip Lader    Director since 2002    Age 65
 

 

 

Non-executive Chairman of WPP plc

 

Ambassador Lader received a bachelor’s degree from Duke University (Phi Beta Kappa), a master’s degree from the University of Michigan and a Juris Doctor degree from Harvard Law School, and completed graduate studies in law at Oxford University. Awarded honorary doctorates by 14 universities and colleges, he served as U.S. Ambassador to the Court of St. James’s from 1997 through 2001 and was Assistant to the President and White House Deputy Chief of Staff, Deputy Director of the Office of Management and Budget, and Administrator of the U.S. Small Business Administration. Formerly President of Sea Pines Company, Executive Vice President of Sir James Goldsmith’s U.S. holding company, and president of universities in Australia and South Carolina. He currently is non-executive Chairman of WPP plc, the global advertising/communications services company, which includes J. Walter Thompson, Ogilvy & Mather, Young & Rubicam, Hill & Knowlton, Grey Global and Burson-Marsteller, among other international marketing/media services companies. Ambassador Lader is a senior advisor to Morgan Stanley and a partner in the law firm of Nelson, Mullins, Riley & Scarborough. He also serves on the Boards of Directors of AES Corporation and United Company RusAl Plc. Ambassador Lader was Vice Chairman of RAND Corporation and is a member of the Boards of Trustees of the Smithsonian Museum of American History and The Atlantic Council, as well as a member of the Council on Foreign Relations. Within the past five years, Ambassador Lader served as a director for Songbird Estates plc (Canary Wharf) and Lloyd’s (of London).

 

Through his positions as chairman of the world’s largest marketing and media services company, senior-level U.S. government appointments, partner at a major law firm and other appointments and positions, Ambassador Lader has valuable experience and knowledge managing many of the major issues we face as a publicly-traded company. He has extensive experience with public policy matters, which uniquely qualify him to serve as Chairman of our Health, Environmental, Safety and Corporate Responsibility Committee. Ambassador Lader’s other board positions have given him exposure to different industries and approaches to governance and other key issues.

 

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  Nominees for Director (continued)

Terms Expire 2013

 

 

LOGO

 

 

Michael E. J. Phelps

   Director since 2009    Age 64
 

 

 

Chairman and Founder of Dornoch Capital, Inc.

 

Mr. Phelps received a bachelor’s degree from the University of Manitoba, Winnipeg, Canada, in 1967. He earned a bachelor’s degree in Law in 1970 from the University of Manitoba. In 1971, he attended the London School of Economics and Political Science in London and received a master’s of law degree. Mr. Phelps is chairman and founder of Dornoch Capital, Inc., a private investment company based in Vancouver, British Columbia. Prior to forming Dornoch in 2002, he worked for Westcoast Energy, Inc., a natural gas company with operations across North America and interests in international energy companies in Mexico, Indonesia, China and Australia. Mr. Phelps joined Westcoast in 1982 as a corporate development executive. In 1987, he was promoted to chief financial officer and 18 months later, was named president and CEO. In 1992, he was named chairman and CEO, a position he held until the company was sold to Duke Energy Corporation in 2002. Mr. Phelps serves as Chairman of Prodigy Gold Incorporated (formerly Kodiak Exploration Ltd.) and as a director of Canadian Pacific Railway Company and Spectra Energy Corporation. Within the past five years, he served as a director of Canfor Corporation, Duke Energy Corporation and Fairborne Energy Ltd. He also serves as Chairman of Vancouver General Hospital and UBC Hospital Foundation and is a member of the North American Advisory Board of the London School of Economics.

 

Through his position as chairman and founder of a private investment company, chairman and CEO of a natural gas company with international operations, and other executive and management positions, Mr. Phelps has valuable experience dealing with operations in Canada and other international locations. This is extremely beneficial due to our Canadian oil sands and other international operations. His previous and current positions on the boards of six other publicly-traded companies have given him exposure to different industries and approaches to governance and other key issues.

 

LOGO

  Dennis H. Reilley    Director since 2002    Age 58
 

 

 

Former Non-executive Chairman of Covidien Ltd.

 

Mr. Reilley graduated from Oklahoma State University with a bachelor’s degree in finance in 1975. He began working at Conoco, Inc. in 1975 as a pipeline engineer and in 1979 was promoted to executive assistant to the Chairman. Mr. Reilley held many key positions at E. I. Du Pont de Nemours & Company, which purchased Conoco in 1981. He held senior management positions in DuPont’s Chemicals and Specialties business including vice president and general manager of Specialty Chemicals. In May 1999, he was appointed executive vice president and chief operating officer of DuPont with responsibility for pigments and chemicals, specialty polymers, nylon and polyester. Mr. Reilley became chairman, president and chief executive officer of Praxair, Inc. in 2000. From March 1, 2006 through December 2006, he held the positions of chairman and chief executive officer and through April 2007 served as chairman. Mr. Reilley served as non-executive chairman of Covidien Ltd. from June 29, 2007, through September 30, 2008. Mr. Reilley serves on the Boards of Directors of H. J. Heinz Co., Dow Chemical Company and Covidien Ltd. Within the past five years, he served as a director of Praxair, Inc. and Entergy Corporation. Mr. Reilley is a former Chairman of the American Chemistry Council.

 

Mr. Reilley has over 34 years of executive and management experience in the oil, petrochemical and chemical industries. As a result of his positions as chairman, president and CEO of Praxair and other executive and management positions, Mr. Reilley has valuable experience in managing many of the major issues that we face as a publicly-traded company in the oil and gas industry. His service on three other publicly-traded company boards has given him valuable insight and exposure to different industries and approaches to governance and other key issues. Mr. Reilley also has a valuable financial background from his education and work experiences.

 

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  Proposals of the Board (continued)

 

Proposal No. 2

Ratification of Independent Auditor for 2012

 

  The Audit and Finance Committee has selected PricewaterhouseCoopers LLP (“PwC”) an independent registered public accounting firm, as our independent auditor to audit the Company’s books and accounts for the year ending December 31, 2012. PwC served as our independent auditor in 2011 and for many years prior thereto. While the Audit and Finance Committee is responsible for appointing, replacing, compensating and overseeing the work of the independent auditor, we are requesting, as a matter of good corporate governance, that the stockholders ratify the appointment of PwC as our independent auditor for 2012. If the stockholders fail to ratify this appointment, the Audit and Finance Committee will reconsider whether to retain PwC and may retain that firm or another firm without resubmitting the matter to our stockholders. Even if the appointment is ratified, the Audit and Finance Committee may, in its discretion, direct the appointment of a different independent auditor at any time during the year if it determines that such change would be in the Company’s best interests and in the best interests of our stockholders.

 

  We expect representatives of PwC to be present at the meeting with an opportunity to make a statement if they desire to do so and to be available to respond to appropriate questions from our stockholders.

Your Board of Directors recommends that you vote FOR the

ratification of the selection of PricewaterhouseCoopers LLP as the

Company’s Independent Auditor for 2012.

 

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  Proposals of the Board (continued)

 

Proposal No. 3

Say on Executive Pay

Advisory Vote to Approve the Compensation of our Named Executive Officers

 

  We seek your advisory vote to approve the compensation of our named executive officers and ask that you support the compensation of our named executive officers as disclosed in this proxy statement.

 

  Although this vote is non-binding, the Compensation Committee values your opinion and will consider the voting results when making future decisions about executive compensation.

 

  Additionally, we think that constructive dialogue with our stockholders provides meaningful feedback about specific executive compensation practices and programs and encourage stockholders to communicate directly with both management and the Committee about executive compensation. Stockholders may contact the Chairman of the Committee to provide input on executive compensation matters at any time by email: compchair@marathonoil.com.

 

  Stockholders may also contact management to provide input on executive compensation matters at any time by contacting Howard J. Thill, Vice President, Investor Relations and Public Affairs by email: hjthill@marathonoil.com.

 

  As described in the Compensation Discussion and Analysis, the Compensation Committee, comprised entirely of independent directors, has effectively established executive compensation programs that reflect both company and individual performance. Executive compensation decisions are made in order to attract, retain and motivate talented executives to deliver business results and value to our stockholders.

 

  Our Compensation Committee consistently exercises great care and discipline in determining executive compensation. We therefore ask that stockholders approve the compensation of our named executive officers as disclosed in the Compensation Discussion and Analysis and the accompanying tables.

Your Board of Directors recommends that you vote FOR Proposal No. 3 approving

these executive compensation matters.

 

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  Proposals of the Board (continued)

 

Proposal No. 4

Approval of 2012 Incentive Compensation Plan

 

  On February 29, 2012, our Board approved the 2012 Incentive Compensation Plan (the “2012 Plan”) and its submission to the stockholders for their approval.

 

  Although a significant number of shares remain available for grant under the 2007 Incentive Compensation Plan (the “2007 Plan”), our Board believes it is appropriate to propose a replacement plan at this time in order to optimize our tax deduction under Section 162(m) of the Internal Revenue Code (the “Code”), which requires periodic stockholder approval of incentive compensation plans.

 

  If the new 2012 Plan is approved by our stockholders, all granting authority under the 2007 Plan will be revoked and no new grants will be made from the 2007 Plan following the date of stockholder approval.

 

  The following summary of the 2012 Plan is qualified by reference to the full text of the 2012 Plan, which is attached as Appendix III to this proxy statement and incorporated by reference into this proposal. The 2012 Plan is not tax-qualified under Section 401(a) of the Code and is not subject to the provisions of the Employee Retirement Income Security Act of 1974, as amended.

 

  Purposes of the 2012 Plan

 

  The primary purposes of the 2012 Plan are to attract employees and non-employee directors with valuable training, experience and ability, to retain the services of employees and non-employee directors with valuable training, experience and ability and to promote the active interest of such persons in the development and financial success of the Company and its subsidiaries. In accordance with these goals, the 2012 Plan is designed to enable employees and non-employee directors to acquire or increase their ownership of our common stock and to compensate employees and non-employee directors for creation of value for our stockholders. The 2012 Plan provides variable long-term compensation to our employees and non-employee directors, and our Board sees this as a means of further aligning the interests of our employees and non-employee directors with those of our stockholders.

 

  Award Types Available for Grant under the 2012 Plan

 

  The 2012 Plan authorizes the granting of awards, including shares of our common stock, in any combination of the following:

 

   

stock options, including incentive stock options and nonqualified stock options;

 

   

stock appreciation rights (“SARs”);

 

   

stock awards, restricted stock awards and other awards denominated or paid in common stock;

 

   

restricted stock units (which may include dividend equivalents);

 

   

cash awards; and

 

   

performance awards.

 

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  Approval of 2012 Incentive Compensation Plan (continued)

 

 

  Eligibility

 

  All employees of Marathon Oil and its subsidiaries are eligible to receive awards under the 2012 Plan. All of our non-employee directors are also eligible for awards under the 2012 Plan. We expect that awards under the Plan will generally be granted to our officers, managers and technical and professional employees, as well as to non-employee directors.

 

  We anticipate that each non-employee director will receive an annual non-retainer grant of common stock units under the 2012 Plan. All other awards under the 2012 Plan will be granted at the discretion of the committee appointed by our Board to administer the Plan, as appropriate or by the delegate of such committee pursuant to the terms of the 2012 Plan. Therefore, the total benefits that will be received by any particular person or group under the 2012 Plan are not determinable at this time.

 

  Authorized Shares and Limits

 

  Subject to stockholder approval, we have reserved a total of 50,000,000 shares of our common stock for issuance in connection with the 2012 Plan. In connection with the granting of a stock award that is not a stock option or SAR, the number of shares of our common stock available for issuance under the 2012 Plan shall be reduced by 2.41 shares of common stock in respect of each share of common stock with respect to which the stock award is granted. As a result, no more than 20,746,887 shares may be used for stock awards other than stock options or SARs. The number of shares authorized to be issued under the 2012 Plan, as well as individual limits and exercise prices, are subject to adjustment for stock dividends, stock splits, recapitalizations, mergers, or similar corporate events.

 

  The following limitations apply to any awards made under the 2012 Plan:

 

   

During any calendar year, no employee may be granted, stock options or SARs that are exercisable for or relate to more than 3,000,000 shares of common stock;

 

   

During any calendar year, no employee may be granted stock awards or restricted stock unit awards covering or relating to more than 1,000,000 shares of common stock; and

 

   

For any calendar year, no employee may be granted performance awards consisting of cash having a maximum value determined on the date of grant in excess of $30,000,000.

 

  Historical Burn Rates

 

  Our burn rate represents the total number of shares of our common stock subject to equity awards (stock options, stock appreciation rights, restricted stock and restricted stock units) granted in a given year divided by the weighted average number of outstanding shares for such year. Our burn rates for 2011, 2010 and 2009 were 0.74%, 0.76% and 1.51%, respectively. Our three-year average burn rate was 1.00%. Following the Spin-off, we have changed our equity granting practices to be more consistent with those of our new peer group, which is composed primarily of independent exploration and production companies. As a result, we anticipate that our burn rate will increase from our 2009 and 2010 historical levels.

 

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  Approval of 2012 Incentive Compensation Plan (continued)

 

  Potential Dilution

 

  The maximum number of shares of our common stock that may be issued under the 2012 Plan is 50,000,000, which represents approximately 7.1 percent of the total number of shares of our common stock outstanding on February 27, 2012, excluding treasury shares. This level of dilution is comparable to that of companies in our new upstream peer group. The closing price per share of our common stock on February 27, 2012 as reported on the New York Stock Exchange was $35.03.

 

  Administration of the 2012 Plan

 

  Our Board will designate an independent committee to determine the types of awards made under the 2012 Plan and to designate the employees and non-employee directors who are to be the recipients of the awards. The committee will administer the 2012 Plan with respect to awards. The committee has full and exclusive power to administer and interpret the 2012 Plan. The committee may adopt guidelines for administering the 2012 Plan as it deems necessary or proper.

 

  The committee may also correct any defect, supply any omission or reconcile any inconsistency in the 2012 Plan or in any award. Any decision of the committee in the interpretation and administration of the 2012 Plan is within its sole and absolute discretion and is final, conclusive, and binding on all parties concerned.

 

  The committee may, in its discretion, extend or accelerate the exercisability of, accelerate the vesting of, or eliminate or make less restrictive any restrictions contained in any award, waive any restriction or other provision of the 2012 Plan or in any award, or otherwise amend or modify any award in a manner that either is not adverse to the participant or is consented to by the participant.

 

  The committee and our Board may delegate to our chief executive officer and other senior officers their authority under the 2012 Plan. Either may engage third-party administrators to carry out administrative functions under the 2012 Plan.

 

  Awards that are stock options or SARs may not be repriced, replaced, or regranted through cancellation or modified without stockholder approval (except if in connection with a change in our capitalization) if the effect would be to reduce the underlying grant price.

 

  Employee Award Terms

 

  All awards to employees under the 2012 Plan are subject to the terms, conditions, and limitations as determined by the committee. Awards may be made in combination with, in replacement of, or as alternatives to, grants under the 2012 Plan or other plans of our Company or subsidiaries, including plans of an acquired entity.

 

 

A stock option granted to an employee under the 2012 Plan may consist of either an incentive stock option that complies with the requirements of Section 422 of the Code or a nonqualified stock option that does not comply with those requirements. Incentive stock options and

 

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  Approval of 2012 Incentive Compensation Plan (continued)

 

 

nonqualified stock options must have an exercise price per share that is not less than the fair market value of the common stock on the date of grant and, subject to certain adjustment provisions of the 2012 Plan that apply only upon the occurrence of significant corporate events, the exercise price of an option granted under the Plan may not be decreased. The term of a stock option may not extend more than ten years after the date of grant.

 

  A stock appreciation right, or SAR, may be granted under the 2012 Plan with respect to all or a portion of the shares of common stock subject to a stock option or may be granted separately. The exercise price of a SAR may not be less than the fair market value of the common stock on the date of grant and its term shall extend no more than ten years from the date of grant.

 

  Stock awards consist of restricted and non-restricted grants of common stock. Rights to dividends may be extended to and made part of any stock award at the discretion of the committee. The committee may also establish rules and procedures for the crediting of interest or other earnings on deferred cash payments. Subject to earlier vesting upon death, disability, retirement or change in control, stock awards settled in stock that are not performance-based will vest over a minimum period of three years, and stock awards settled in stock that are performance-based will vest over a minimum period of one year.

 

  Restricted stock unit awards consist of awards of units denominated in common stock. Rights to dividend equivalents may be extended to and made part of any restricted stock unit award at the discretion of the committee. The committee may also determine when and if all, or any portion, of an award may be deferred and may also establish procedures for crediting of interest on deferred awards or dividend equivalents. Subject to earlier vesting upon death, disability, retirement or change in control, restricted stock unit awards settled in stock that are not performance-based will vest over a minimum period of three years, and restricted stock unit awards settled in stock that are performance-based will vest over a minimum period of one year.

 

  Cash awards, which consist of grants denominated in cash, may also be granted to employees under the 2012 Plan.

 

  Performance awards consist of grants made subject to the attainment of one or more performance goals and may be intended to meet the requirements of qualified performance-based compensation under Section 162(m) of the Code. The goals intended to satisfy Section 162(m) of the Code must be established by the committee prior to the earlier of:

 

   

90 days after the commencement of the period of service to which the performance goals relate; and

 

   

the lapse of 25% of the period of service.

 

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  Approval of 2012 Incentive Compensation Plan (continued)

 

  A performance goal intended to meet the requirements of Section 162(m) of the Code may be based upon one or more business criteria that apply to the employee, one or more business units of the Company, or the Company as a whole, and may include any of the following: revenue and income measures (which include revenue, gross margin, income from operations, net income, net sales, earnings per share, earnings before interest, taxes, depreciation and amortization (“EBIDTA”), and economic value added (“EVA”); expense measures (which include costs of goods sold, selling, finding and development costs, general and administrative expenses and overhead costs); operating measures (which include productivity, operating income, funds from operations, cash from operations, after-tax operating income, market share, margin and sales volumes); cash flow measures (which include net cash flow from operating activities and working capital); liquidity measures (which include earnings before or after the effect of certain items such as interest, taxes, depreciation and amortization, and free cash flow); leverage measures (which include debt-to-equity ratio and net debt); market measures (which include market share, stock price, growth measure, total stockholder return and market capitalization measures); return measures (which include return on equity, return on assets and return on invested capital); corporate value and sustainability measures (which include compliance, safety, environmental and personnel matters); and other measures such as those relating to acquisitions, dispositions or customer satisfaction. Prior to the payment of any performance award based on the achievement of performance goals pursuant to Section 162(m) of the Code, the committee must certify in writing that the applicable performance goals and any material terms were, in fact, satisfied.

 

  Non-Employee Director Award Terms

 

  All awards to our non-employee directors under the 2012 Plan are subject to the terms, conditions, and limitations as determined by our Board or the committee appointed by our Board to administer the Plan. Awards may be made in combination or in tandem with, in replacement of, or as alternatives to, grants under the 2012 Plan or other plans of Marathon Oil Corporation or its subsidiaries, including plans of an acquired entity.

 

  A stock option granted to a director under the 2012 Plan may consist of a nonqualified stock option that does not comply with the requirements of Section 422 of the Code. Nonqualified stock options must have an exercise price per share that is not less than the fair market value of the common stock on the date of grant and, subject to certain adjustment provisions of the 2012 Plan that apply only upon the occurrence of significant corporate events, the exercise price of an option granted under the 2012 Plan may not be decreased. The term of a stock option may not extend more than ten years after the date of grant.

 

  A stock appreciation right, or SAR, may be granted under the 2012 Plan with respect to all or a portion of the shares of common stock subject to a stock option or may be granted separately. The exercise price of an SAR may not be less than the fair market value of the common stock on the date of grant and its term shall extend no more than ten years from the date of grant.

 

  Stock awards consist of restricted and non-restricted grants of common stock. Rights to dividends may be extended to and made part of any stock award at the discretion of our Board or the committee appointed by our Board to administer the 2012 Plan. The Board or the committee may also establish rules and procedures for the crediting of interest or other earnings on deferred cash payments. Restricted stock unit awards consist of awards of units denominated in common stock. Rights to dividend equivalents may be extended to and made part of any restricted stock unit award at the discretion of the Board or the committee. Our Board or the committee may also establish rules and procedures for the crediting of interest or other earnings on deferred cash payments.

 

  Performance awards consist of grants made subject to the attainment of one or more performance goals. Performance awards to non-employee directors are not required to meet the requirements of qualified performance-based compensation under Section 162(m) of the Code. Our Board or the committee shall determine the terms, conditions, limitations and performance goals with respect to performance awards to our non-employee directors.

 

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  Approval of 2012 Incentive Compensation Plan (continued)

 

  Amendment of the 2012 Plan

 

  The committee or our Board may amend or terminate the 2012 Plan in response to any legal requirements or for any other purpose permitted by law; provided, however, no amendment that would adversely affect the rights of a participant may be made without the consent of the participant, and no amendment may be effective prior to its approval by our stockholders if such approval is required by applicable law. We intend to make awards under the 2012 Plan that comply with, or are exempt from, the requirements of Section 409A of the Code, and the 2012 Plan shall not be amended in a manner that would cause the 2012 Plan or any amounts payable under the 2012 Plan to fail to comply with the requirements of Section 409A of the Code, to the extent applicable, and, further, the provisions of any purported amendment that may reasonably be expected to result in such non-compliance shall be of no force or effect with respect to the 2012 Plan.

 

  Federal Income Tax Consequences of the 2012 Plan

 

  The following is a discussion of material U.S. federal income tax consequences to participants in the 2012 Plan who either are U.S. citizens or residents based on U.S. tax law as in effect as of the date of this proxy statement. This discussion is limited, and does not cover state, local, or foreign tax treatment, and differences in participants’ situations may cause tax consequences to vary.

 

  Participants will not realize taxable income upon the grant of a nonqualified stock option or SAR. Upon the exercise of a nonqualified stock option, the participant will generally recognize ordinary income in an amount equal to the excess of (a) the fair market value of the common stock over (b) the exercise price paid by the participant for the stock. Upon the exercise of a SAR, the participant will generally recognize ordinary income in an amount equal to the excess of (x) the fair market value of the common stock underlying the SAR over (y) the grant price of the SAR. In the case of our employees, we are required to withhold federal income tax on ordinary income. The participant will generally have a tax basis in any shares of common stock received pursuant to the exercise of a SAR, or pursuant to the exercise of a nonqualified stock option, that equals the fair market value of the shares on the date of exercise. Generally, we will be entitled to a deduction for U.S. federal income tax purposes that corresponds as to timing and amount with the compensation income recognized by the participant. Upon a subsequent sale of the shares received upon exercise of a nonqualified stock option, any difference between the net proceeds on the sale and the fair market value of the shares on the date of exercise will be taxed as capital gain or loss (long- or short-term, depending on the holding period).

 

  If a participant pays the exercise price of a nonqualified stock option in whole or in part by the surrender of shares he or she already owns, he or she will not recognize gain or loss on the surrender of such shares to the extent that their fair market value equals that of the shares received. To that extent, the shares received will have a tax basis equal to the basis of the shares surrendered, and the participant’s holding period of the shares received will include the holding period of the shares surrendered. To the extent that the value of the shares received upon exercise exceeds the value of the shares surrendered, such excess, reduced by the amount of any cash paid by the participant, will be ordinary income. Further, the shares received that represent such excess in value will have a basis equal to their fair market value. The participant’s holding period for any excess shares will commence on the day they are acquired.

 

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  Approval of 2012 Incentive Compensation Plan (continued)

 

  Incentive stock options can only be granted to employees. An employee will not have taxable income upon the grant of an incentive stock option. To satisfy the employment requirement, a participant must exercise the incentive stock option not later than three months after he or she ceases to be an employee (one year if he or she is disabled). Upon the exercise of an incentive stock option, the employee will not have taxable income, although the excess of the fair market value of the shares of common stock received upon exercise of the incentive stock option over the exercise price will increase the alternative minimum taxable income of the employee, which may cause the employee to incur alternative minimum tax. The payment of any alternative minimum tax due to the exercise of an incentive stock option may be allowed as a credit against the employee’s regular tax liability in a later year.

 

  If a participant pays the exercise price of an incentive stock option by the surrender of unrestricted shares he or she already owns, he or she will not recognize gain or loss on the surrender of such shares to the extent that their fair market value equals that of the shares received. To that extent, the shares received will have a basis equal to the basis of the shares surrendered, and the participant’s holding period of the shares received will include the holding period of the shares surrendered. To the extent that the value of the shares received exceeds the value of the shares surrendered, those shares received that represent such excess in value will have a basis equal to zero and a holding period that will commence on the day they are acquired. If a participant surrenders shares acquired through the previous exercise of an incentive stock option before the end of the requisite holding period, the participant may recognize ordinary income on the surrender of such shares.

 

  Upon the disposition of stock received upon exercise of an incentive stock option that has been held for the requisite holding period (generally one year from the date of exercise and two years from the date of grant), the employee will generally recognize capital gain or loss equal to the difference between the amount received in the disposition and the exercise price paid. However, if an employee disposes of stock that has not been held for the requisite holding period, the employee will recognize ordinary income in the year of such a “disqualifying disposition” to the extent that the fair market value of the stock at the time of exercise of the incentive stock option, or, if less, the amount realized in the case of an arm’s-length disqualifying disposition to an unrelated party, exceeds the exercise price paid by the employee for the stock. The employee will also recognize capital gain, or, depending on the holding period, additional ordinary income, to the extent the amount realized in the disqualifying disposition exceeds the fair market value of the stock on the exercise date. If the exercise price paid for the stock exceeds the amount realized in the disqualifying disposition, in the case of an arm’s-length disposition to an unrelated party, the excess would ordinarily be a capital loss.

 

  Stock options otherwise qualifying as incentive stock options will be treated as nonqualified stock options to the extent that the aggregate fair market value of the shares with respect to which incentive stock options are exercisable for the first time by a participant during any calendar year (under all of our plans and any of our subsidiaries’ plans) exceeds $100,000. This rule is applied by taking the stock options into account in the order granted.

 

  We are generally not entitled to any federal income tax deduction upon the grant or exercise of an incentive stock option, unless the employee makes a disqualifying disposition of the stock. If an employee makes a disqualifying disposition, we will generally be entitled to a tax deduction that corresponds as to timing and amount with the compensation income recognized by the employee.

 

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  Approval of 2012 Incentive Compensation Plan (continued)

 

  An employee will recognize ordinary income upon receipt of cash pursuant to a cash award or performance award or, if earlier, at the time the cash is otherwise made available for the employee to draw upon it.

 

  A participant will not have taxable income upon the grant of a stock award in the form of units denominated in common stock, but rather will generally recognize ordinary income at the time the participant receives common stock or cash in satisfaction of a stock unit award in an amount equal to the fair market value of the common stock or cash received. In general, a participant will recognize ordinary income as a result of the receipt of common stock pursuant to a stock award or performance award in an amount equal to the fair market value of the common stock when the stock is received; provided, however, that if the stock is not transferable and is subject to a substantial risk of forfeiture when received, the participant will recognize ordinary income in an amount equal to the fair market value of the common stock when it first becomes transferable or is no longer subject to a substantial risk of forfeiture, unless the participant makes an election to be taxed on the fair market value of the common stock when the stock is received.

 

  An employee will be subject to tax withholding for federal, and generally for state and local, taxes at the time the employee recognizes income with respect to common stock or cash received pursuant to a cash award, performance award, stock award or stock unit award. Dividends that are received by a participant prior to the time that the common stock is taxed to the participant are taxed as additional compensation, not as dividend income. A participant’s tax basis in the common stock received will equal the amount recognized by the participant as income, and the participant’s holding period in the shares will commence on the date income is recognized.

 

  To the extent that a participant recognizes ordinary income in the circumstances described above, the participant’s employer will be entitled to a corresponding deduction provided, among other things, that such deduction meets the test of reasonableness, is an ordinary and necessary business expense, is not disallowed by the $1 million limitation on certain executive compensation and is not an “excess parachute payment” within the meaning of Section 280G of the Code.

 

  Section 162(m) of the Code provides that certain compensation received in any year by a “covered employee” in excess of $1 million is non-deductible by the Company for federal income tax purposes. Section 162(m) provides an exception, however, for “performance-based compensation.” The 2012 Plan permits the committee to structure grants and awards made under the 2012 Plan to covered employees as performance-based compensation that is exempt from the limitations of Section 162(m). However, the committee may award compensation that is or may become non-deductible, and expects to consider whether it believes the grants are in the best interest of the Company, balancing tax efficiency with long-term strategic objectives.

 

  We intend to make awards under the 2012 Plan that are either not subject to Section 409A of the Code or that comply with the requirements of Section 409A of the Code. Failure to comply with Section 409A of the Code may subject participants to potentially significant penalties, including current taxation at vesting and a 20 percent penalty tax.

 

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  Approval of 2012 Incentive Compensation Plan (continued)

 

  Effective Date of the 2012 Plan

 

  Subject to stockholder approval, the 2012 Plan will be effective May 1, 2012, and no grants have been, or will be, made under the Plan prior to that date.

Your Board of Directors recommends that you vote FOR Proposal No. 4 approving

the 2012 Incentive Compensation Plan

 

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  Audit and Finance Committee Report

 

  Our committee has reviewed and discussed Marathon Oil’s audited financial statements and its report on internal control over financial reporting for 2011 with Marathon Oil’s management. We have discussed with the independent auditors, PricewaterhouseCoopers LLP (“PwC”), the matters required to be discussed by Public Company Accounting Oversight Board’s AU Section 380 (Communication with Audit Committees). We have received the written disclosures and the letter from PwC required by the applicable requirements of the Public Company Accounting Oversight Board for independent auditor communications with Audit Committees concerning independence. Based on the review and discussions referred to above, we recommended to the Board that the audited financial statements and the report on internal control over financial reporting for Marathon Oil be included in the Company’s Annual Report on Form 10-K for 2011 for filing with the Securities and Exchange Commission.

 

  Shirley Ann Jackson, Chair

 

  Gregory H. Boyce

 

  Linda Z. Cook

 

  Michael E. J. Phelps

 

  Dennis H. Reilley

 

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  Information Regarding the Independent Registered Public Accounting Firm’s Fees, Services and Independence

 

  Independent Auditor Fees and Services

 

  Aggregate fees for professional services rendered for the Company by PricewaterhouseCoopers for the years ended December 31, 2011 and 2010 were:

 

      

2011

(in 000’s)

            

2010

(in 000’s)

       

Audit

     $     6,130            $     10,802      

Audit-Related

       59              776      

Tax

               

Tax Compliance

       396              226      

Other Tax

       -              25      

All Other

       18                4        

Total(1)

     $     6,603            $     11,833      

 

  (1) The Audit and Finance Committee adopted the Audit and Finance Committee Policy for Pre-Approval of Audit, Audit-Related, Tax and Permissible Non-Audit Services. This policy is attached as Appendix II to this proxy statement. The Audit and Finance Committee has pre-approved all the fees and services for 2011 and 2010. The Audit and Finance Committee did not utilize the de minimus exception in either year.

 

  The Audit fees for the years ended December 31, 2011 and 2010 were for professional services rendered for the audit of the consolidated financial statements and audit of internal control over financial reporting of the Company, statutory and regulatory audits, issuance of comfort letters, consents, and assistance with and review of documents filed with the SEC.

 

  The Audit-Related fees for the years ended December 31, 2011 and 2010 were for assurance and related services related to employee benefit plan audits, attest services that are not required by statute or regulation, and consultations concerning financial accounting and reporting standards.

 

  The Tax fees for the years ended December 31, 2011 and 2010 were for services related to tax compliance, including the preparation of tax returns and claims for refund, and tax planning and tax advice, including assistance with and representation in tax audits and appeals, and requests for rulings or technical advice from tax authorities.

 

  The All Other fees for the years ended December 31, 2011 and 2010 were for services rendered for accounting research, internal audit software licenses and other projects.

 

  Compatibility of PricewaterhouseCoopers’ Services with its Independence

 

  The Audit and Finance Committee has considered whether PricewaterhouseCoopers is independent for purposes of providing external audit services to the Company, and the committee has determined that it is.

 

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  Security Ownership of

Certain Beneficial Owners

 

  The following table furnishes information concerning all persons known to Marathon Oil to beneficially own five percent or more of the common stock of Marathon Oil:

 

Name and Address

of

Beneficial Owner

 

Amount and Nature

of

Beneficial Ownership

 

Percent

of

Outstanding Shares

Blackrock, Inc.(1)

40 East 52nd Street

New York, NY 10022

  60,922,317(1)   8.66%(1)

 

  (1) Based on the Schedule 13G/A dated January 20, 2012 (filed: February 10, 2012) which indicates that it was filed by Blackrock, Inc. According to such Schedule 13G, Blackrock, Inc., through itself and being the parent holding company or control person over each of the following subsidiaries: Blackrock Japan Co., Ltd., Blackrock Advisors (UK) Limited, Blackrock Institutional Trust Company, N.A., Blackrock Fund Advisors, Blackrock Asset Management Canada Limited, Blackrock Asset Management Australia Limited, Blackrock Advisors, LLC, Blackrock Capital Management, Inc., Blackrock Financial Management, Inc., Blackrock Investment Management, LLC, Blackrock Investment Management (Australia) Limited, Blackrock Investment Management (Koreas) Ltd., Blackrock (Luxembourg) S.A., Blackrock (Netherlands) B.V., Blackrock Fund Managers Limited, Blackrock Pensions Limited, Blackrock Asset Management Ireland Limited, Blackrock International Limited, and Blackrock Investment Management (UK) Limited, each individually owning less than 5% is deemed to beneficially own 60,922,317 shares, and has sole voting power over 60,922,317 shares, shared voting power over no shares, sole dispositive power over 60,922,317 shares, and shared dispositive power over no shares.

 

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Security Ownership of Directors

and Executive Officers

 

  The following table sets forth the number of shares of Marathon Oil common stock beneficially owned as of January 31, 2012, except as otherwise noted, by each director, by each executive officer named in the Summary Compensation Table and by all directors and executive officers as a group. In calculating the percentage of outstanding stock, each listed person’s stock options or stock-settled stock appreciation rights that are or may be exercisable within sixty days have been added to the total outstanding shares.

 

Name

 

  

Shares

 

  

Restricted
Stock(4)

 

    

Stock Options/
Stock Settled SARs
Exercisable Prior to
04/01/12(5)(7)

 

    

Total
Shares(8)

 

   

% of Total
Outstanding(9)

 

Gregory H. Boyce

   39,546(2)                  39,546        *

Pierre Brondeau

   10,620(2)                  10,620        *

Clarence P. Cazalot, Jr.

   900,328(6)               2,799,903                 3,700,231        *

Linda Z. Cook

   7,857(2)                  7,857        *

Shirley Ann Jackson

   78,723(2)(3)               78,723        *

Philip Lader

   74,549(2)(3)               74,549        *

Michael E.J. Phelps

   25,965(2)                  25,965        *

Dennis H. Reilley

   77,168(2)(3)               77,168        *

Eileen M. Campbell

   70,364(3)            21,230         116,103                 207,697        *

Janet F. Clark

   160,909               76,134         525,052                 762,095        *

Gary R. Heminger(1)

   133,452(1)(3)            445,893                 579,345        *

Sylvia J. Kerrigan

   9,740(3)            31,275         85,000                 126,015        *

David E. Roberts, Jr.

   37,555(3)            127,210         405,193                 367,411        *

All Directors and Executive

Officers as a group (16 persons) (2)(3)(4)(5)(6)

           6,525,397 (7)    *

 

   (1) Information relating to Gary R. Heminger is as of June 30, 2011, and reflects adjustments made upon the Spin-off of MPC, to his Marathon Oil unvested restricted stock awards, vested stock options and vested stock-settled SARs. Also includes shares held in the Marathon Oil common stock fund in the MPC Thrift Plan.
   (2) Includes deferrals of annual retainers into common stock units under the Deferred Compensation Plan for Non-Employee Directors and the 2003 Incentive Compensation Plan prior to January 1, 2006, and non-retainer annual director stock awards in common stock units, including the 2012 award of common stock units, under the 2007 Incentive Compensation Plan, including their respective dividend equivalent rights allocated in common stock units, as follows:

 

Name

 

  

Annual Retainer
Deferred Into
Common Stock Units

 

    

Non-Retainer
Annual
Common Stock Units

 

 

Gregory H. Boyce

     0                     29,546               

Pierre Brondeau

     0                     10,620               

Linda Z. Cook

     0                     7,857               

Shirley Ann Jackson

     23,878                     52,503               

Philip Lader

     17,143                     52,503               

Michael E.J. Phelps

     0                     25,965               

Dennis H. Reilley

     20,465                     52,503               

 

   (3) Includes shares held under the Marathon Oil Thrift Plan, the Dividend Reinvestment and Direct Stock Purchase Plan, and the Non-Employee Director Stock Plan.
   (4) Reflects shares of restricted stock granted under the 2007 Plan, which are subject to limits on sale and transfer and can be forfeited under certain conditions.
   (5) The number of shares shown includes the shares each person would have received had they exercised their stock-settled SARs based on the fair market value (i.e., closing price) of Marathon Oil’s common stock on January 31, 2012.
   (6) Includes 49,450 shares indirectly held by Mr. Cazalot, as trustee of a grantor retained annuity trust, for the benefit of him and his children.
   (7) Includes vested options exercisable within sixty days of January 31, 2012, including the following number of options that are not-in-the-money as of January 31, 2012: C. P. Cazalot, Jr.: 496,630; E. M. Campbell: 30,549; J. F. Clark: 85,846; G. R. Heminger: 126,202; S. J. Kerrigan: 15,247; D. E. Roberts, Jr.: 90,788; and all other executive officers as a group: 50,186.
   (8) None of the shares are pledged as security.
* (9) The percentage of shares beneficially owned by each director or nominee, or each executive officer does not exceed one percent of the common shares outstanding; and the percentage of shares beneficially owned by all directors and executive officers of the Company, as a group, does not exceed one percent of the common shares outstanding.

 

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Section 16(a) Beneficial Ownership

Reporting Compliance

 

  Section 16(a) of the Securities Exchange Act of 1934, as amended, requires that the Company’s directors and executive officers, and persons who own more than ten percent of a registered class of the Company’s equity securities, file reports of beneficial ownership on Form 3 and changes in beneficial ownership on Form 4 or Form 5 with the Securities and Exchange Commission. Based solely on the Company’s review of the reporting forms and written representations provided to the Company from the individuals required to file reports, the Company believes that each of its directors and executive officers has complied with the applicable reporting requirements for transactions in the Company’s securities during the fiscal year ended December 31, 2011.

 

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Compensation Committee Report

 

  Our committee has reviewed and discussed Marathon Oil’s Compensation Discussion and Analysis report for 2011 with Marathon Oil’s management. Based on the review and discussions, the Compensation Committee has recommended to the Board of Directors that the Compensation Discussion and Analysis report be included in the Company’s 2012 proxy statement.

Gregory H. Boyce, Chair

Pierre Brondeau

Linda Z. Cook

Shirley Ann Jackson

Dennis H. Reilley

 

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  Compensation Discussion and Analysis

 

Executive Summary

2011 was a landmark year for Marathon Oil Corporation. With our highest level of rig activity in many years, production available for sale increased by seven percent to 395,000 barrels of oil equivalent per day (excluding Libya due to the significant political unrest that occurred there in 2011). We replaced 212 percent of our 2011 total production from our Exploration and Production and Oil Sands Mining segments, increasing our total proved reserves to 1.8 billion barrels of oil equivalent (boe), up from 1.6 billion boe at year end 2010. Importantly, we achieved these strong operational results while keeping capital spending below our original estimate, excluding acquisitions.

 

  In November 2011, we purchased 141,000 net acres in the Eagle Ford Shale formation in Texas from Hilcorp Resources Holdings, L.P., plus an additional 26,000 net acres in this premier U.S. liquids play. Other key impact exploration activities during 2011 included our entry into the Iraqi Kurdistan Region.

 

  Further, after operating for 87 years as an integrated oil and gas company, our refining, marketing and transportation business became a separate, publicly traded company on June 30, 2011 through the distribution of common shares of MPC to our stockholders. After the completion of this major transaction, Marathon Oil became an independent exploration and production (“E&P”), or upstream company.

 

  Our stockholders benefited from this transformation as evidenced by an increase in our stock price, which was up approximately 30 percent for the year compared to an average decrease of 16 percent among our E&P industry peer companies. When combined with MPC, our stock price was up approximately 24 percent for the year compared to an average increase of 9 percent for integrated oil and gas companies.

We believe the Spin-off of MPC, our acquisitions in the Eagle Ford Shale formation which enhanced our position as an upstream company, as well as our strong operating results for 2011 will position us for success during 2012 and beyond. Decisions made by the Compensation Committee (the “Committee”) of our Board of Directors reflected these achievements. For example, the Committee approved bonus payments significantly above target for named executive officers based on our robust reserve additions, strong production, acquisition activity, as well as the successful completion of the Spin-off.

 

  In 2011, over 70 percent of our stockholders approved our executive compensation programs by voting in favor of our Say On Executive Pay proposal. The Committee considered these voting results and made several adjustments to our programs, including those outlined below. The Committee believes these adjustments further align our executive compensation programs with the interests of our stockholders and current market practices. Additionally, these adjustments continue to advance our governance practices with the aim of further strengthening stockholder support:

 

   

Approved a new group of peer companies that reflects our key competitors for executive talent with primarily upstream operations, following the Spin-off of MPC;

 

   

Continued the practice of awarding our CEO long-term incentives that are aligned with stockholders, comprised only of performance units that require above-median total shareholder return (“TSR”) to vest above target level, and stock options that deliver value only through increases in our stock price;

 

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Increased the stock ownership guideline for our CEO from a multiple of five times base salary to six times base salary; and

 

   

Adopted a new change-in-control plan that eliminates potential tax gross-up payments for newly hired or promoted officers as of October 26, 2011 and provides more limited severance benefits than our existing arrangement while still encouraging officers to engage in transactions that would be advantageous to stockholders.

 

  Overall, the Committee believes that our programs benefit our stockholders through stringent pay-for-performance requirements, while also competing effectively for highly sought executive talent. To further demonstrate this performance philosophy, the following chart tracks our CEO’s pay with changes in our stock price over the last four years. CEO Total Annual Compensation includes all cash compensation received in 2011, as well as the value of the equity that vested in each year.

 

LOGO

 

  For purposes of this graph, CEO Total Annual Compensation is comprised of the components described below:

 

   

Base means base salary paid during each calendar year.

 

   

Bonus means the annual cash bonus paid for each calendar year.

 

   

Equity Vested means the value of the equity that vested each year as of the vesting date. For stock options, the value shown is the difference between an option’s exercise price and the stock price on the vesting date (regardless of whether options were actually exercised); for options the exercise price of which exceeds the stock price on the vesting date, the value shown is $0. (This number differs from the grant date fair value of stock and stock option awards granted in each year which appears in the Summary Compensation Table.)

 

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Performance Units means the value of the performance unit payout made in each year. Performance Units generated zero payout for the 2007-2009 and 2008-2010 performance periods.

 

   

Accelerated Units means the value of the prorated performance unit payout made in 2011 upon the Spin-off of MPC. The original performance periods of these units were 2010-2012 and 2011-2013. This acceleration will reduce total compensation opportunities payable for performance periods ending in 2012 and 2013.

 

   

Adjusted Stock Price per Share means for 2011, the closing price of the Company’s common stock on December 31, 2011. For the years preceding 2011, Adjusted Stock Price per Share means the closing price for December 31 of that year, adjusted for a stock split and dividend distributions. For purposes of this calculation, the Spin-off of MPC was treated as a dividend equal to one-half of MPC’s closing “when issued” share price on June 30, 2011. Cash dividend adjustments were calculated based on the dividend as a percentage of the Company’s closing stock price immediately preceding the ex-dividend date.

 

  Our named executive officers for 2011 are listed below.

 

 

Name

   Job Title

 

Mr. C. P. Cazalot, Jr.

   Chairman, President and Chief Executive Officer

 

Ms. J. F. Clark

   Executive Vice President and Chief Financial Officer

 

Mr. D. E. Roberts, Jr.

   Executive Vice President and Chief Operating Officer

 

Ms. S. J. Kerrigan

   Vice President, General Counsel & Secretary

 

Ms. E. M. Campbell

   Vice President, Public Policy

 

Mr. G. R. Heminger

   Executive Vice President, Downstream (through June 30, 2011)

 

 

 

Compensation Objectives and Processes

Our executive compensation program is designed to achieve the following objectives:
   

Attract talented and experienced executive leaders by providing competitive incentives for them to accept the responsibilities and risks associated with their positions;

 

   

Motivate our executive officers by rewarding them for individual and collective contributions to financial and operational success, including increasing stockholder value; and

 

   

Retain knowledgeable and experienced executive officers who directly impact our current and future success.

 

  Our executive compensation program furthers these objectives by allowing us to retain leaders who possess a high level of technical expertise and a long-term focus, both of which are critical to success in our industry.

 

  All named executive officers are covered by the same compensation plans, policies, and practices, except that Mr. Cazalot, our Chairman, President and Chief Executive Officer, does not receive restricted stock. Mr. Heminger, who is now the President and Chief Executive Officer of MPC, is no longer covered by our compensation programs.

 

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  Components of Compensation

 

  Our executive compensation program for named executive officers consists of the following elements, each of which serves a specific purpose as described below.

 

Component    Primary Purpose    Key  Characteristics
Base Salary    Recognize overall responsibilities, established skills, experience and expertise    Paid in cash, little variance from year to year
Annual Cash Bonus    Reward the achievement of short-term financial, operating and strategic goals that drive stockholder value    Communicate common performance objectives, with specific individual accountabilities
Long-term Incentives            

Performance Units

   Reward total stockholder return (“TSR”) relative to peer companies    Equals between $0 to $2 per unit based on our ranking among a group of peer companies, paid in cash

Stock Options

   Align interests of executives and stockholders by motivating continued growth and value creation    Equals stock price appreciation from grant date to time of exercise, settled in stock

Restricted Stock

   Align interests of executives and stockholders and retain executive talent    Equals value of stock upon vesting, settled in stock

Benefits

   Protect against financial and other risks    Includes benefits provided under broad-based employee plans such as health and retirement benefits

 

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  Variable Compensation

 

  The graphs below illustrate the components of compensation for our named executive officers. Variable compensation, which includes annual cash bonus and long-term incentives, represents 89 percent of total target compensation for Mr. Cazalot, and 77 percent of total target compensation for our other named executive officers (excluding Mr. Heminger).

 

 

LOGO

 

 

 

Governance and Risk Management Highlights

The Committee believes our executive compensation programs do not encourage excessive risk and oversees these programs under high standards of governance, independence and risk management. The Committee has evaluated and considered the role that executive compensation programs play in ensuring that our officers take only appropriate and prudent risks, and that compensation opportunities do not motivate excessive risk-taking. Below are some of the practices we employ.

 

   

All executive compensation decisions are made by the Committee, which is comprised of five independent directors.

 

   

Our Compensation Committee is advised by an independent compensation consultant that performs no other work for executive management or Marathon Oil.

 

   

Our executives do not have employment agreements.

 

   

Our compensation programs are competitive with those of peer companies, and we monitor our programs against trends in executive compensation on an annual basis.

 

   

Our compensation programs appropriately balance short-term and long-term incentives.

 

   

Our annual cash bonus program is based on a balanced set of metrics, which are objective and not driven by commodity prices. In addition, the Committee considers the achievement of individual performance commitments and overall corporate performance.

 

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Annual cash bonuses are paid only after the Audit and Finance Committee of our Board has reviewed our audited financial statements for the performance year.

 

   

Our clawback policy applies to both annual cash bonuses and long-term incentives and would generally be triggered with respect to an executive officer in the event of a material accounting restatement due to noncompliance with financial reporting requirements, or the commission of fraud by such executive officer.

 

   

Our stock ownership guidelines described below encourage our executive officers to focus on creation of long-term value for our stockholders.

 

 

 

Compensation Committee of Our Board of Directors

The Committee is charged with overseeing and approving all compensation for our executive officers. The Committee is comprised only of independent, non-employee directors. The members who currently serve on the Committee are Mr. Boyce, who is the Chairman, Mr. Brondeau, Ms. Cook, Dr. Jackson and Mr. Reilley.

 

  The Committee’s charter requires that it meet at least four times each year, and during 2011, the Committee met six times. At each of its meetings, the Committee has the opportunity to meet in executive session. When practicable, the Committee previews and discusses significant compensation decisions at one meeting before giving formal approval at a subsequent meeting. With the help of its compensation consultant and our staff, the Committee monitors and discusses legal and regulatory developments regarding executive compensation throughout the year.

 

  The Role of the Chief Executive Officer

 

  The Committee seeks significant input from the CEO on compensation decisions and performance appraisals for all other executive officers. However, all final compensation decisions for our executive officers are made by the Committee. The CEO does not provide recommendations or participate in Committee discussions concerning his own compensation.

 

  The Committee’s Independent Consultant

 

  In 2011, the Committee engaged the services of Meridian Compensation Partners LLC (“Meridian”) to provide consulting services and advice to the Committee on executive compensation matters. Meridian provides the Committee with information on industry trends and practices and updates on regulatory requirements. The terms of this relationship are set forth in an agreement between the Committee and Meridian. Meridian provides no other services to Marathon Oil or its executives. The Committee has the right to terminate the services of Meridian and appoint a new compensation consultant at any time.

 

  While the Committee retains Meridian directly, Meridian interacts with several of our officers and employees in carrying out assignments in order to obtain compensation and performance data for the executive officers and our Company. In addition, Meridian may seek input and feedback from members of our management regarding its work product prior to presentation to the Committee in order to confirm that information is accurate or address other issues. We believe that Meridian provides an independent perspective to the Committee.

 

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  Setting Executive Compensation

 

  Due to the technical requirements and long-term capital commitments inherent in our business, we operate in a highly competitive environment for talented executive leadership. Therefore, the Committee believes it is essential to review benchmark information from industry peers.

 

  Peer Groups

 

  We believe the choice of a peer group is foundational in ensuring that the Committee has meaningful information to compare our executive compensation levels and programs with peer companies within our industry with which we most often compete, both in the marketplace and for employee talent. In selecting the peer groups described below, the Committee also considered pertinent financial measures for each company including assets, revenue, market capitalization and total shareholder return.

 

  Pre-Spin Peer Group

 

  Prior to the Spin-off of MPC, our peer group consisted of the upstream, downstream and integrated companies listed below. This group of companies is referred to as our “pre-spin peer group.”

 

Upstream Peers    Integrated Peers    Downstream Peers

 

Anadarko Petroleum Corp.

  

 

Chevron Corp.

  

 

Sunoco Inc.

 

Apache Corp.

  

 

ConocoPhillips

  

 

Tesoro Corp.

 

Devon Energy Corp.

  

 

Hess Corp.

  

 

Valero Energy Corp.

 

Occidental Petroleum Corp.

         

 

  Post-Spin Peer Group

 

  In July 2011, the Committee approved a new peer group which reflects the companies against which we compete as an independent E&P company. This new peer group retains all of the upstream peer companies that were historically included in the pre-spin peer group, as well as one integrated company (Hess). Six new companies (indicated with an asterisk* below) were also added. This group of companies is referred to as our “post-spin peer group.”

 

Peers            

 

Anadarko Petroleum Corp.

  

 

Encana Corp.*

  

 

Noble Energy Inc.*

 

Apache Corp.

  

 

EOG Resources Inc.*

  

 

Occidental Petroleum Corp.

 

Chesapeake Energy Corp.*

  

 

Hess Corp.

  

 

Talisman Energy*

 

Devon Energy Corp.

  

 

Murphy Oil Corp.*

    

 

  *New peer company

 

  Changing peer groups was a significant decision reflecting our transformation from an integrated company to an independent E&P company.

 

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  2010 Competitive Compensation Assessment

 

  In late 2010, the Committee asked Meridian to conduct a comprehensive study and comparison of our executive compensation. Named executive officer positions were compared to comparable positions at select peer companies. This study was based on our pre-spin peer group and included information regarding base salaries, annual bonus levels and the mix and level of long-term incentives. Depending on the specific position, the companies used for comparison varied. Comparative information was available for all six named executive officer positions.

 

  After collecting this data, Meridian assessed the competitiveness of our executive officer compensation programs and presented its analysis to the Committee in October 2010. The Committee used this analysis as one tool in evaluating our compensation practices and competitive pay levels for our named executive officers and making appropriate compensation decisions for 2011.

 

  Our compensation philosophy states that overall, executive compensation is designed to provide total compensation that is at the 50th percentile for average performance and above the 50th percentile when short- and long-term incentive performance goals are exceeded. To accomplish this objective, the Committee reviewed the competitive analysis and made 2011 compensation decisions to establish total target compensation at or near the 50th percentile of the pre-spin peer group. A comparison of total target compensation to the 50th percentile for our named executive officers (except for Mr. Heminger, who left Marathon Oil in connection with the Spin-off of MPC) is shown in the table below. For purposes of this Compensation Discussion and Analysis, we use the term “Market” to refer to the 50th percentile of similar positions within the pre-spin peer group.

 

    Name  

Total Target

Compensation

 

% of

Market

    
 

Mr. Cazalot

  $12,290,000   101.48%   
 

Ms. Clark

  $  3,426,000   95.68%   
 

Mr. Roberts

  $  4,555,000   90.44%   
 

Ms. Kerrigan

  $  1,950,000   93.85%   
 

Ms. Campbell

  $  1,381,500   104.06%   

 

  Decisions regarding base salaries and long-term incentive awards were made in February 2011, and decisions regarding 2011 annual cash bonus awards were made in February 2012, after 2011 business results were completed and measured.

 

 

 

Base Salary

The Committee considered each named executive officer’s current salary as compared to the 50th percentile of the pre-spin peer group, along with individual performance. While we do not utilize internal pay ratios, the Committee evaluates the relative value of each position to Marathon Oil and ensures that compensation levels are both internally equitable and consistent with the value assigned to each position. The Committee does not use a formula to calculate base salary increases for named executive officers.

 

  Based on the above criteria, at its February 2011 meeting the Committee awarded base salary increases to two of our six named executive officers, which were effective in April 2011. Ms. Kerrigan received a base salary increase to align her salary more closely with the Market. The Committee’s philosophy is to increase salaries of recently promoted officers over a multi-year period, and Ms. Kerrigan was promoted to General Counsel in September of 2009.

 

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Name   

Base Salary

Amount as of

January 1, 2011

  

Base Salary

Amount as of

April 1, 2011

   % of Market

Mr. Cazalot

   $1,400,000    $1,400,000    91.06%

Ms. Clark

   $   680,000    $   680,000    102.55%

Mr. Roberts

   $   900,000    $   900,000    83.63%

Ms. Kerrigan

   $   415,000    $   500,000    97.56%

Ms. Campbell

   $   445,000    $   445,000    108.96%

 

  Although Mr. Heminger was only employed by Marathon Oil through June 30, 2011, he received a salary increase in April 2011 from $925,000 to $1,000,000 in anticipation of his becoming President and Chief Executive Officer of MPC and his additional responsibilities related to the Spin-off.

 

 

 

Annual Cash Bonus

The named executive officers’ 2011 cash bonus closely linked annual bonus payments made to our named executive officers to both company performance and each officer’s individual performance for the year. The Committee determined the annual cash bonus for each named executive officer based primarily on the following criteria:

 

   

Company performance, including achievement of the specific performance metrics established by the Committee during the first quarter of 2011;

 

   

Individual performance, including demonstrated leadership and ethics; and

 

   

External competitiveness, with bonus targets set at or near the 50th percentile for similar positions within the pre-spin peer group.

 

  Within the structure of the bonus program, the Committee ultimately uses its discretion to determine bonus payments for our named executive officers. The discussion below provides more information about the named executive officers’ annual cash bonus program for 2011, and the factors that influenced the Committee’s decisions.

 

  2011 Bonus Targets

 

  The Committee used competitive market data to establish a bonus target for each level of officer, expressed as a percentage of year-end base salary. Bonus targets were set at or near the 50th percentile of the pre-spin peer group for comparable positions. For 2011, the bonus targets for the named executive officers (excluding Mr. Heminger) were as follows:

 

    Name   Officer Level  

Bonus Target

(as % of Base Salary)

    
 

 

Mr. Cazalot

  CEO   135%   
 

 

Ms. Clark

  EVP   95%   
 

 

Mr. Roberts

  EVP   95%   
 

 

Ms. Kerrigan

  VP   70%   
 

 

Ms. Campbell

  VP   70%   

 

 

  Although targets are set at competitive levels, actual bonus payments varied from the target amount depending upon company, organizational and individual performance for the year. Mr. Heminger did not receive a bonus from Marathon Oil for 2011 because he was employed by MPC effective July 1, following the Spin-off.

 

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  2011 Bonus Performance Metrics

 

  During the first quarter of 2011, the Committee established the performance metrics outlined in the table below for the upstream segments of our business. As part of this process, the Committee considers information provided by our compensation consultant regarding metrics commonly selected by our peer companies, which provide a meaningful way to measure success in our industry. Due to the significant political unrest that occurred in Libya in 2011, the Committee determined that Libya should be excluded from the E&P Net Production, Proved Reserve Additions, and Finding & Development Cost metrics.

 

  The metrics reflect a combination of financial and operational measures, all of which are important indicators of our success. The Committee determined that a relative metric for net income was more appropriate than an absolute metric because it would not reward our named executive officers solely for high commodity prices.

 

Performance Metric        Description          Type of    
Metric     
   Relative or     
Absolute Metric    
Adjusted Net Income per BOE vs. Peer Group    Measures adjusted income per barrel of oil equivalent as compared to our post-spin peer group         Financial      Relative  
E&P Net Production, MBOED    Measures the rate of crude oil production of our E&P segment         Operational      Absolute  
OSM Net Production, MSCOD    Measures the rate of net synthetic crude oil production of our Oil Sands Mining (“OSM”) segment         Operational      Absolute  
Proved Reserve Additions, MMBOE    Measures the level of recoverable resource added to our proved reserves         Operational      Absolute  
Finding & Development Cost, $/BOE    Measures the cost of finding and developing resource         Financial      Absolute  
Environmental – Spills to the Environment    Measures the volume of spills of produced and chemically treated fluids that enter the environment         Operational      Absolute  
Safety – OSHA Recordable Incident Rate    Measures the number of safety incidents, because safety is a core value of our company as well as a crucial business practice         Operational      Absolute  
Safety – Process Safety Incidents    Measures the most serious process safety incidents that occur at designated facilities         Operational      Absolute  

 

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  The Committee determined the target level of performance for each metric by evaluating factors such as performance achieved in the immediately preceding year, anticipated challenges for 2011, business plan and company strategy. The table below shows both the targets set by the Committee and our performance achieved during 2011. The metrics are described more fully in the footnotes to the table.

 

Performance Metric    Target Performance         Performance    
Achieved
Adjusted Net Income per BOE vs. Peer Group(a)    4th - 6th position out of 12 companies    4th position out of 12 companies
E&P Net Production, MBOED(b)    342    355
OSM Net Production, MSCOD(c)    40    38
Proved Reserve Additions, MMBOE(d)    90    244
Finding & Development Cost, $/BOE(e)    $35/BOE    $33/BOE
Environmental – Spills to the Environment(f)    105    84
Safety – OSHA Recordable Incident Rate(g)    0.50    0.56
Safety – Process Safety Incidents(h)    1    1

 

  (a) Total of 12 companies, including Marathon Oil. E&P segment income was adjusted to include Integrated Gas and Oil Sands Mining segment income. Comparator company income was also adjusted for special items or other like items. The comparator companies for this metric were the companies included in our post-spin peer group (Anadarko, Apache, Chesapeake, Devon, Encana, EOG Resources, Hess, Murphy, Noble, Occidental and Talisman). This is a non-GAAP metric. This metric is calculated as the sum of our E&P segment income, Integrated Gas segment income, and Oil Sands Mining segment income as presented in our audited consolidated financial statements, divided by total worldwide sales. To ensure consistency of this metric when comparing to our comparator companies, adjustments to comparator company segment income are sometimes necessary to reflect certain unusual items reflected in their results.
  (b) E&P Net Production is calculated as production available for sale and then adjusted for pricing effects as a result of production sharing contracts, catastrophic events, and acquisitions and divestitures; also adjusted for project deferrals associated with capital constraints. This number differs from the reported level of average E&P production available for sale of 365,000 barrels of oil equivalent per day, which is from continuing operations and does not include these adjustments. Production available for sale during the year can differ from production sold primarily as a result of the timing of international crude oil liftings and natural gas sales.
  (c) OSM Net Production is calculated as net synthetic crude oil (SCO) production (bitumen after royalties and upgrading, excluding blend-stocks) and then adjusted for price, acquisitions and divestitures; also adjusted for project deferrals associated with capital constraints.
  (d) Proved Reserve Additions exclude dispositions, price related changes, and Oil Sands Mining.
  (e) Finding & Development Cost includes capital expenditures, capitalized interest, and capitalized asset retirement obligations from E&P and Integrated Gas. Reserves exclude dispositions, price related changes, and Oil Sands Mining.
  (f) Spills to the Environment include the number of all produced and chemically treated fluid spills with a volume greater than one barrel outside of secondary containment.
  (g) In the event of a fatality, payout is determined by the Committee. The Occupational Safety and Health Administration (“OSHA”) Recordable Incident Rate is representative of the number of recordable injuries which occurred per 100 man-years of work. It is calculated by taking the total number of OSHA recordable incidents and dividing by the ratio of total number of hours worked over 200,000.
  (h) Process Safety Incidents include those incidents that occurred at Marathon Oil designated facilities which meet the definition of a Process Safety Event Tier 1 as defined by API Recommended Practice 754 (Process Safety Performance Indicators for the Refining and Petrochemical Industries).

 

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  2011 Bonus Organizational and Individual Goals

 

  At the beginning of each year, each named executive officer develops performance goals relative to his or her organizational responsibilities, which are directly related to our business objectives. All performance goals are discussed with and approved by the CEO (and in the case of the CEO, the Board). Examples of named executive officers’ performance goals for 2011 include: rate of production, reserve replacement, income per barrel, cost management, improved safety and environmental performance, financial discipline, development of governmental and community relationships, provision of financial services and systems, and continued evaluation and management of risk.

 

  In evaluating the individual performance of each named executive officer, the most significant factor is achievement of business objectives within his or her organization. At the end of each year, each named executive officer’s performance is measured against his or her previously established performance goals.

 

  Another significant consideration is the named executive officer’s adherence to Marathon Oil’s core values, which emphasize health and safety, environmental stewardship, honesty and integrity, corporate citizenship, high performance, and diversity. These values are essential to our culture and drive how we accomplish our business objectives. For example, our health and safety commitment is reflected in officer performance goals regarding personal and process safety. Additional information about our values and our commitment to social responsibility may be found in the annual Living Our Values Corporate Social Responsibility Report available on our website.

 

  The CEO evaluates the individual performance of all other named executive officers and makes bonus recommendations to the Committee. The Committee then reviews this information with the CEO and determines the bonus award for each named executive officer. The Committee evaluates the CEO’s performance and determines his bonus in an executive session. No formal weightings of individual performance commitments or formulas are used to calculate the annual cash bonus.

 

  2011 Annual Bonus Performance Achievements

 

  In evaluating the contributions made by our named executive officers, the Committee considered the following achievements during 2011:

 

   

Completed the Spin-off of the Refining, Marketing and Transportation business as an independent company.

 

   

Completed on time.

   

Both companies have common stock listed on the New York Stock Exchange.

   

Both companies have investment grade ratings.

 

   

Increased 2011 production available for sale, excluding Libya, by 7 percent to 395,000 barrels of oil equivalent per day (boed).

 

   

Replaced 212 percent of 2011 production.

 

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Continued liquids-focused growth from U.S. resource plays.

 

   

Acquired significant Texas Eagle Ford position of 167,000 net acres largely in the core of this premier U.S. liquids play.

   

Increased resource play holdings to more than 1 million net acres at the end of 2011 compared to 600,000 net acres at the end of 2010.

   

Ramped up activity with 28 drilling rigs and eight hydraulic fracturing crews working at the end of 2011.

   

Spud 126 gross operated wells, compared to 54 wells in 2010.

 

   

Announced two non-operated discoveries in the Iraqi Kurdistan Region and began drilling in Poland.

 

  The Committee also considered the adverse impacts of failure to achieve target performance on our OSHA recordable incident rate for safety. Additionally, the Committee weighed the general competitiveness of our annual cash bonus program in light of our post-spin peer group. Finally, the Committee took into account the specific contributions made by each named executive officer in 2011 in preparing for and completing the Spin-off of our downstream business, as well as our other significant achievements described above.

 

  2011 Annual Bonus Payments

 

  The Committee rewarded our named executive officers with annual cash bonus payments significantly above target for their contributions to our outstanding operating and financial results.

 

 

 

Grants of Long-Term Incentive Awards

Each year, the Committee grants annual awards of long-term incentives in the form of performance units, stock options and restricted stock. While each long-term incentive award type rewards performance over a multi-year period, the primary purpose and structure of the award types differ as described in the table on page 49.

 

  The Committee grants annual long-term incentive awards at its regularly-scheduled February meeting, the date of which is generally set at least one year in advance. The effective date for grants of awards to named executive officers is the date the Committee meets; however, if the Committee grants awards after the market has closed, the grant date is the next trading day. The grant price for stock options is equal to the closing price of a share of our common stock on the grant date.

 

 

Long-term incentive award mix

(based on intended value)

 

CEO:

50% Performance units

50% Stock options

 

Other Named Executive Officers:

40% Performance units

40% Stock options

20% Restricted stock

 

 

  Due to the nature of long-term incentive awards, the actual long-term incentive value realized by each named executive officer depends on the price of the underlying stock at the time of vesting or exercise.

 

  The Committee believes the mix of long-term incentive awards shown in the adjacent box generally provides an appropriate balance between the dual objectives of tying compensation to stock performance and providing retention incentives. The Committee believes that the CEO’s ability to realize compensation from his long-term incentives should depend fully on the performance of our stock; thus, he does not receive any restricted stock.

 

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  February 2011 Grants

 

  After considering competitive market data, the Committee granted long-term incentive awards to each named executive officer on February 23, 2011. These grants were made according to our normal annual grant timeline and grant levels were at or near the 50th percentile of our pre-spin peer group.

 

Name    Total LTI
  Intended Value*   
     % of Market       

Mr. Cazalot

   $9,000,000    104.03%   

Ms. Clark

   $2,100,000    90.49%   

Mr. Roberts

   $2,800,000    97.08%   

Ms. Kerrigan

   $1,100,000    97.38%   

Ms. Campbell

   $   625,000    98.69%   

 

  *The Committee makes its compensation decisions based on intended value. Intended value reflects established valuation methodologies and differs from the grant date fair values determined for accounting purposes under U.S. generally accepted accounting principles and shown in the Summary Compensation and Grants of Plan-based Awards tables. For example, to determine the number of performance units awarded in February 2011, the targeted dollar value was divided by an expected value ratio, which incorporates factors such as stock price volatility and risk of forfeiture.

 

  Mr. Heminger received a long-term incentive award with a total intended value of $2,800,000 in February 2011; however, all of the stock options and restricted stock granted to him in February 2011 were converted to stock options and restricted stock of MPC in connection with the Spin-off.

 

  In 2011, the Committee adopted a new valuation methodology for long-term incentive awards, based on recommendations from its independent compensation consultant. This new methodology is more conservative than our previous methodology and is not based on expected value ratios. Under this new methodology, performance units will be valued at their target value of $1 per unit and restricted stock will be valued based on a 30 day average stock price. When applied to stock options, this methodology will track more closely the Black-Scholes valuation methodology used to determine our book expense under generally accepted accounting principles. This new methodology will apply to grants made after 2011.

 

  Each of our long-term incentive award types is discussed in more detail below.

 

  Performance Units

 

  The Committee believes that a performance unit program based on TSR relative to peer companies offers a valuable complement to stock options and restricted stock.

 

  TSR is determined by taking the sum of stock price appreciation or reduction per share, plus cumulative dividends per share for the performance period, and dividing that total by the beginning stock price per share. For purposes of this calculation, the beginning and ending stock prices are the averages of the closing stock prices for the month immediately preceding the beginning and ending dates of the performance period.

 

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  The target value of each performance unit is $1, with the actual payout varying from $0 to $2 (0% to 200% of target) based on Marathon Oil’s relative TSR ranking for the measurement period. For example, a 100% payout percentage pays out at $1 per unit. Because our TSR ranking for the last two completed performance periods (2007-2009 and 2008-2010) was in the bottom quartile of the peer group, named executive officers did not receive any payout for those performance periods. Payments made in 2011 are described in more detail below.

 

  Performance Units Granted in February 2011

 

  The Committee granted performance unit awards to our named executive officers in February 2011, according to our normal annual grant timeline. While the intention to spin-off MPC had been announced in January, the Committee believed that this annual grant should be made based on the existing program design, given that Marathon Oil was an integrated company at the time the grants were made and completion of the Spin-off was not certain.

 

 

Performance Units Timeline

 

 •

 

December 2010 – Board determines methodology for prorated pay out of existing performance units upon Spin-off

 •

 

January 2011 – Public announcement of intent to Spin-off of MPC

 •

 

June 30, 2011 – Spin-off complete; relative TSR performance measured

 •

 

July 2011 – Existing performance units paid out; performance units granted under new program with new upstream peer group

 

 

  Under the terms of the award agreements, vesting of these units was tied to Marathon Oil’s TSR compared to the TSR of each of the member companies within the XOI for the 2011-2013 performance period. The XOI is a published stock index which represents a cross-section of publicly-traded upstream, downstream, and integrated corporations involved in various phases of the oil and gas industry. This index provided a meaningful benchmark for comparing our stock performance.

 

  Treatment of Performance Units upon Spin-off of MPC

 

  Because we would no longer be an integrated company following the Spin-off and a relative comparison against the XOI group of companies would be less meaningful, the Committee decided to pay out all outstanding performance units based on performance through the date of the Spin-off. This decision was disclosed in the Form 10 Information Statement for MPC, which was initially filed on January 25, 2011.

 

  At the time of the Spin-off, three groups of performance unit grants were outstanding: the 2009 grant for the 2009-2011 performance period; the 2010 grant for the 2010-2012 performance period; and the 2011 grant for the 2011-2013 performance period.

 

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  The Committee determined the value of these performance units by comparing our TSR to the TSR of each company in the XOI in accordance with the original program design. However, the effective date of the Spin-off (rather than the end of each three-year performance period) was treated as the measurement date for the relevant performance period for purposes of this calculation. While the 2009 grant was not prorated, a proration factor was applied to the 2010 and 2011 grants based on the portion of the performance period which had elapsed. The treatment of each outstanding performance unit grant is summarized below:

 

LOGO

 

Performance

Period

  

Total

  Shareholder  

Return

Results

   Relative
  Performance as  
of  6/30/2011
  

Payout

Earned

(200% vesting
percentage)

       Proration  Factor    

2009 – 2011

   116%    #1 of 13 companies    $2.00 per unit    100% (full 36 months)

2010 – 2012

   67%    #1 of 13 companies    $2.00 per unit    50% (18 of 36 months)

2011 – 2013

   45%    #1 of 13 companies        $2.00 per unit          16.67% (6 of 36 months)  

 

  For example, the 2010 grant of performance units was valued based on Marathon Oil’s relative TSR performance from January 1, 2010 through June 30, 2011, which ranked first among the 13 XOI companies, resulting in the maximum payout of $2 per unit. The value of the units was then multiplied by 50 percent to reflect the fact that 50 percent of the original performance period was completed as of June 30, 2011.

 

  Payout details for each named executive officer are shown below:

 

Name   

2009 – 2011

    Performance    

Period

  

2010 – 2012

    Performance    

Period

  

2011 – 2013

    Performance    

Period

       Total  Payout    

Mr. Cazalot

   $11,270,800    $5,615,100    $1,935,500    $18,821,400

Ms. Clark

   $  2,705,000    $1,032,700    $   361,300    $  4,099,000

Mr. Roberts

   $  2,930,400    $1,445,700    $   481,733    $  4,857,833

Ms. Kerrigan

   N/A    $   361,400    $   189,233    $     550,633

Ms. Campbell

   $     648,000    $   335,600    $   107,533    $  1,091,133

Mr. Heminger

   $  3,155,800    $1,342,500    $   481,733    $  4,980,033

 

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  This payout will reduce total compensation opportunities payable for performance periods ending in 2012 and 2013. Grants of performance units following the Spin-off are described below.

 

  Performance Units Granted in July 2011

 

  To continue our strategy of measuring relative TSR performance over multi-year periods, the Committee made two grants of performance units in July: Transition Award #1 for a period of 18 months and Transition Award #2 for a period of 30 months. The performance periods for these transition awards were selected to reflect the remaining periods of the original 2010 and 2011 grants as illustrated below.

 

Original

    Performance    

Period

  

Months

Remaining in
Original

        Performance        

Period

   New Grant Name    New Performance Period
2010 – 2012   

18

(of 36 months)

           Transition Award #1                     July 2011  – December 2012        
2011 – 2013   

30

(of 36 months)

   Transition Award #2    July 2011 – December 2013

 

  To determine the number of units for each transition award, the Committee multiplied the original number of units granted by a proration factor representing the remainder of each original performance period (50% for the 2010 grant and 83.33% for the 2011 grant). This approach maintains the $1 per unit target value of the original awards. The number of units granted to each named executive officer is shown in the table below:

 

     

50% of

Original

Target

  

83.33% of

Original

Target

Name   

Original

        Grant Date        

  

        Performance        

Units

Granted

(original # of

units)

  

Transition

Award #1

        (# of units)        

  

Transition

Award #2

        (# of units)        

Mr. Cazalot

   2/24/2010    5,615,100    2,807,550     
     2/23/2011    5,806,500         4,838,750

Ms. Clark

   2/24/2010    1,032,700    516,350     
     2/23/2011    1,083,900         903,250

Mr. Roberts

   2/24/2010    1,445,700    722,850     
     2/23/2011    1,445,200         1,204,333

Ms. Kerrigan

   2/24/2010    361,400    180,700     
     2/23/2011    567,700         473,083

Ms. Campbell

   2/24/2010    335,600    167,800     
     2/23/2011    322,600         268,833

 

  Under the terms of the award agreements, vesting of these performance unit transition awards is tied to Marathon Oil’s TSR compared to the TSR of each company in our post-spin peer group for the applicable performance period. Other than the change in the peer group, which reflects our transformation to an independent E&P company, the terms of the awards remain the same as those of the original grants.

 

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  Stock Options

 

  Stock options provide a direct link between officer compensation and the value delivered to stockholders. The Committee believes that stock options are inherently performance-based, as option holders only realize compensation if the value of our stock increases following the date of grant.

 

  The grant price of our stock options is equal to the closing sales price per share of our common stock on the grant date, which was February 23, 2011 for the options granted to named executive officers during 2011. Stock options have a three-year pro-rata vesting period and a maximum term of ten years.

 

  Treatment of Stock Options upon Spin-off of MPC

 

  The Board decided that the treatment of stock options upon the Spin-off of MPC would depend on whether the options were vested or unvested at the time of the Spin-off. Vested stock options were split such that the holder of each vested stock option received both MPC and Marathon Oil options. Unvested stock options were adjusted such that Marathon Oil employees received only Marathon Oil stock options and MPC employees received only MPC stock options. The number of stock options and exercise price for each option were adjusted in a manner that was agreed upon with MPC in the Employee Matters Agreement relating to the Spin-off, which generally was designed to preserve the intrinsic value of the option awards as of the time of the Spin-off.

 

  Restricted Stock

 

  The Committee granted restricted stock to the named executive officers, other than Mr. Cazalot, for diversification of the mix of long-term incentive awards and for retention purposes. Restricted stock also provides consistent alignment between executives and stockholders.

 

  Restricted stock awards vest in full on the third anniversary of the date of grant. Prior to vesting, restricted stock recipients have the right to vote and receive dividends on the restricted shares.

 

  Treatment of Restricted Stock upon Spin-off of MPC

 

  All restricted stock is unvested. Therefore, the Board decided that restricted stock would be adjusted such that Marathon Oil employees received only Marathon Oil restricted stock and MPC employees received only MPC restricted stock. The number of shares was adjusted to reflect the Spin-off of MPC as agreed upon with MPC in the Employee Matters Agreement relating to the Spin-off, which generally was designed to preserve the value of the awards as of the time of the Spin-off.

 

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Post-Employment Benefits

Retirement

 

  We sponsor and contribute to both tax-qualified defined benefit and defined contribution retirement plans for a broad-based group of employees. Eligible employees can contribute to our defined contribution retirement plan. We also sponsor retiree medical plans for a broad-based group of employees. Our named executive officers (excluding Mr. Heminger) are eligible to participate in these defined benefit and defined contribution retirement plans, as well as the retiree medical plans.

 

  In addition, our named executive officers participate in unfunded, nonqualified defined benefit and defined contribution retirement plans. Similar nonqualified benefit arrangements are provided by the majority of companies in both our pre-spin and post-spin peer groups. Our Committee has determined that providing retirement benefits on the full amount of an executive’s compensation plays a meaningful role in attracting and retaining qualified executives.

 

  Each named executive officer is also eligible to participate in our elective nonqualified deferred compensation plan. Under this plan, our named executive officers are eligible to defer up to 20 percent of their salary and bonus each year.

 

  Distributions from our nonqualified plans are made following separation from service in the form of a lump sum and are compliant with Section 409A of the Internal Revenue Code to the extent required.

 

  Benefits payable under our qualified and non-qualified plans are described in detail on pages 78-82.

 

  In addition, named executive officers’ stock options immediately vest and become exercisable upon retirement, which is a common practice in our industry. Unvested restricted stock awards are forfeited upon retirement, except in the case of mandatory retirement. For performance units, in the case of retirement where a named executive officer has worked more than half of the performance period, awards may be vested on a prorated basis at the discretion of the Committee.

 

  Mandatory Retirement

 

  Under our mandatory retirement policy, an officer must retire on the earlier of the first day of the month coincident with or immediately following the officer’s 65th birthday. In addition to receiving the vested benefits he or she has accrued under our benefit programs, outstanding restricted stock awards vest in full. Stock options and performance units follow the vesting treatment described above for retirements.

 

  Death or Disability

 

  In the event of death or disability, our named executive officers would be entitled to the vested benefits they have accrued under our standard benefits programs. Long-term incentive awards would immediately vest in full upon the death of a named executive officer, with performance units vesting at the target level. In the event of disability, long-term incentive awards would continue to vest as if the named executive officer remained employed during the period of disability.

 

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  Other Termination

 

  Our named executive officers do not have employment agreements and are not entitled to any special executive severance payments, other than the change-in-control termination benefits described below. Marathon Oil has a policy requiring that our Board seek stockholder approval or ratification of certain severance agreements for senior executive officers that would require payment of cash severance benefits exceeding 2.99 times the officer’s salary plus bonus for the prior calendar year.

 

  Change-in-Control Termination

 

  We believe that our named executive officers should be encouraged to act in the best interests of our stockholders if a change-in-control transaction is under consideration. For this reason, in 2002 we adopted our executive change-in-control severance benefits policy, which provides certain benefits upon a change-in-control of Marathon Oil and is designed to ensure continuity of management through a change-in-control transaction.

 

  No changes, except as necessary to comply with law, have been made to our current executive change-in-control severance benefits policy. However, the Committee adopted a new change-in-control plan for newly hired or promoted officers as of October 26, 2011. This plan provides a more limited severance benefit than our existing arrangement, yet still encourages officers to engage in transactions that would be advantageous to stockholders. The new program includes no provisions to reimburse or “gross-up” tax obligations following a change-in-control.

 

  Under both our current plan and the plan for newly hired or promoted officers, all of our named executive officers’ long-term incentive awards would become fully vested and exercisable upon a change-in-control, which is a common practice in our industry. Outstanding performance units would vest at the target value upon a change-in-control. The benefits payable to named executive officers in the event they are terminated following a change-in-control or in connection with a “potential change-in-control” are outlined on pages 83-86, where our executive change-in-control policy is described in more detail.

 

 

 

Other Benefits and Perquisites

We offer very limited perquisites to our named executive officers. Our named executive officers may seek reimbursement for certain tax, estate, and financial planning services up to a specified annual maximum each year, including the year following death or retirement. Our named executive officers are also offered an enhanced annual physical examination.

 

  Unless otherwise authorized by the CEO (or in the case of the CEO, the Lead Director), our named executive officers may not use corporate aircraft for personal use. Occasionally spouses or other guests will accompany our named executive officers on our aircraft when space is available on business-related flights.

 

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Stock Ownership Requirements and Anti-Hedging Policy

All of our officers who are “executive officers” for purposes of Section 16 of the Securities Exchange Act of 1934, as amended, are subject to our stock ownership requirements, which are intended to reinforce the alignment of interests between our officers and stockholders. The stock ownership requirements are as follows:

 

   

Chief Executive Officer – multiple of six times base salary;

 

   

Executive Vice Presidents – multiple of four times base salary; and

 

   

Vice Presidents – multiple of two times base salary.

 

  Executive officers have five years from their respective appointment dates to achieve the designated stock ownership level. The Committee reviews each executive officer’s progress towards the requirements on at least an annual basis. Executive officers who have not reached the required level of stock ownership are expected to hold the shares they receive upon exercise of stock options (after payment of exercise prices and after taxes) so that they meet their requirement in a timely manner. Our named executive officers currently either meet the stock ownership requirements or are still within five years from their appointment dates.

 

  In order to ensure that officers bear the full risks of stock ownership, our corporate policies prohibit officers from engaging in hedging transactions related to our stock. Officers are also prohibited from pledging or creating a security interest in any Marathon Oil shares they hold, including shares in excess of the applicable ownership requirement.

 

 

 

Tax Considerations

The Committee considers the tax effects to both Marathon Oil and the named executive officers when making executive compensation decisions and has a practice of delivering compensation in a tax-efficient manner whenever reasonable. However, the priority of the Committee is to provide performance-based and competitive compensation. Therefore, some compensation paid to named executive officers is not deductible by Marathon Oil due to the limitations of Section 162(m) of the Internal Revenue Code.

 

  Section 162(m) provides that the amount of compensation that we may deduct each year for our Chief Executive Officer and each of the three most highly paid officers (other than our Chief Financial Officer) is $1,000,000. Elements of compensation which qualify as “performance-based compensation” are deductible even if in excess of this $1,000,000 limit. The Committee approved a base salary for Mr. Cazalot that exceeds the Section 162(m) limitation of $1,000,000, and therefore his base salary is not deductible in full.

 

  As required under Section 162(m), our stockholders approved the material terms of performance goals for awards to named executive officers, which are contained in our 2007 Incentive Compensation Plan. These performance goals include both financial and operational measures. For Section 162(m) tax purposes in 2011, we used both financial and operational goals to establish a bonus pool for named executive officers. However, the determination of actual annual cash bonus payments for named executive officers is described in the Annual Cash Bonus section beginning on page 54.

 

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  Other than time-based restricted stock, long-term incentives awarded to our named executive officers in 2011 were designed to be performance-based compensation and, therefore, fully deductible. However, because the performance period for outstanding performance units was shortened due to the Spin-off of MPC, the performance unit payouts made in July 2011 were not performance-based compensation for purposes of Section 162(m) and are only deductible up to the $1,000,000 limit. To the extent that non-performance-based compensation exceeds $1,000,000, time-based restricted stock awards would not be deductible.

 

  We believe our nonqualified deferred compensation plans and other benefits comply with Section 409A of the Internal Revenue Code. In general, Section 409A imposes additional income taxes, as well as premium interest, unless the form and timing of deferred compensation payments have been fixed in order to eliminate both officer and company discretion.

 

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  Executive Compensation Tables and Other Information

 

  The following table summarizes the total compensation awarded to, earned by, or paid to Mr. Cazalot, Chairman, President and Chief Executive Officer, Ms. Clark, Executive Vice President and Chief Financial Officer, and the other three most highly compensated executive officers of Marathon Oil who were serving as officers at the end of 2011, as well as Mr. Heminger who served as an executive officer through June 30, 2011 upon the Spin-off of MPC (collectively, “named executive officers”) for services rendered as named executive officers during 2011, 2010 and 2009.

 

 

Summary Compensation Table

 

Name

and Principal

Position

   Year      Salary(1)
($)
     Bonus(2)
($)
     Stock
Awards(3)
($)
     Option
Awards(4)
($)
    

Non-Equity
Incentive
Plan
Compensa-

tion(5)

($)

    

Change in
Pension Value
and
Nonqualified
Deferred
Compensation
Earnings(6)

($)

     All
Other
Compen-
sation(7)
($)
    

Total

($)

 

 

C. P. Cazalot, Jr.

Chairman, President and

Chief Executive Officer

    
 
 
2011
2010
2009
  
  
  
    
 
 
1,400,000
1,400,000
1,400,000
  
  
  
    
 
 
3,000,000
2,500,000
2,100,000
  
  
  
    

 

 

0

0

0

  

  

  

    
 
 
6,414,055
4,656,517
2,845,791
  
  
  
    
 

 

18,821,400
0

0

  
  

  

    
 
 
1,617,757
1,397,592
2,458,412
  
  
  
    
 
 
276,207
256,394
225,403
  
  
  
    
 
 
31,529,419
10,210,503
9,029,606
  
  
  

 

J. F. Clark

Executive Vice President

and Chief Financial Officer

    
 
 
2011
2010
2009
  
  
  
    
 
 
680,000
672,500
650,000
  
  
  
    
 
 
1,000,000
775,000
750,000
  
  
  
    
 
 
531,144
425,882
531,186
  
  
  
    
 
 
1,197,162
856,813
683,305
  
  
  
    
 

 

4,099,000
0

0

  
  

  

    
 
 
406,341
355,795
547,779
  
  
  
    
 
 
105,057
103,609
106,881
  
  
  
    
 
 
8,018,704
3,189,599
3,269,151
  
  
  

 

D. E. Roberts, Jr.

Executive Vice President

and Chief Operating Officer

    
 
 
2011
2010
2009
  
  
  
    
 
 
900,000
875,000
775,000
  
  
  
    
 
 
1,200,000
1,000,000
1,000,000
  
  
  
    
 
 
713,111
1,195,970
576,444
  
  
  
    
 
 
1,596,752
599,684
740,196
  
  
  
    
 

 

4,857,833
0

0

  
  

  

    
 
 
466,309
412,145
339,158
  
  
  
    
 
 
136,207
135,227
131,824
  
  
  
    
 
 
9,870,212
4,218,026
3,562,622
  
  
  

 

S. J. Kerrigan

Vice President, General

Counsel & Secretary

    
 
2011
2010
  
  
    
 
478,750
405,000
  
  
    
 
600,000
400,000
  
  
    
 
280,326
148,767
  
  
    
 
627,238
299,842
  
  
    

 

550,633

0

  

  

    
 
516,760
304,974
  
  
    
 
64,628
52,676
  
  
    
 
3,118,335
1,611,259
  
  

 

E. M. Campbell

Vice President,

Public Policy

     2011         445,000         390,000         157,376         356,604         1,091,133         492,516         67,207         2,999,836   

 

G. R. Heminger

Executive Vice President,

Downstream

(through June 30, 2011)

    
 
 
2011
2010
2009
  
  
  
    
 
 
481,250
918,750
900,000
  
  
  
    
 
 
0
1,200,000
950,000
  
  
  
    
 
 
713,110
554,230
619,320
  
  
  
    
 
 
1,596,755
1,113,088
797,088
  
  
  
    
 

 

4,980,033
0

0

  
  

  

    
 
 
0
2,159,968
3,609,445
  
  
  
    
 
 
3,872
144,492
156,399
  
  
  
    
 
 
7,775,020
6,090,528
7,032,252
  
  
  

 

(1) The salaries shown in this column reflect three months at one annual salary rate and nine months at the new annual salary rate for Ms. Kerrigan and Mr. Heminger, which was effective April 1, 2011. Mr. Cazalot, Ms. Clark, Mr. Roberts and Ms. Campbell did not receive salary increases in 2011.
(2) The amounts shown in this column reflect the value of annual cash bonus awards. Because Mr. Heminger became an employee of MPC upon the Spin-off, he did not receive an annual cash bonus award from Marathon Oil.
(3) This column reflects the aggregate grant date fair value in accordance with generally accepted accounting principles in the United States regarding stock compensation. Assumptions used in the calculation of this amount are included in footnote 21 to the Company’s financial statement for the fiscal year ended December 31, 2011, footnote 21 to the Company’s financial statement for the fiscal year ended December 31, 2010, and footnote 23 to the Company’s financial statement for the fiscal year ended December 31, 2009. Upon the Spin-off of MPC, the stock award granted to Mr. Heminger in February 2011 was converted to shares of MPC. Assumptions used in the calculation of these amounts for Mr. Heminger are included in MPC’s financial statement for the fiscal year ended December 31, 2011.
(4) This column reflects the aggregate grant date fair value in accordance with generally accepted accounting principles in the United States regarding stock compensation. Assumptions used in the calculation of this amount are included in footnote 21 to the Company’s financial statement for the fiscal year ended December 31, 2011, footnote 21 to the Company’s financial statement for the fiscal year ended December 31, 2010, and footnote 23 to the Company’s financial statement for the fiscal year ended December 31, 2009. Upon the Spin-off of MPC, the option award granted to Mr. Heminger in February 2011 was converted to shares of MPC. Assumptions used in the calculation of these amounts for Mr. Heminger are included in MPC’s financial statement for the fiscal year ended December 31, 2011.

 

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(5) The amounts shown in this column reflect the vested value of performance units earned by our named executive officers during the performance periods that ended on June 30, 2011, December 31, 2010, and December 31, 2009, respectively. Outstanding performance units for the 2009-2011, 2010-2012, and 2011-2013 performance periods were paid out upon the Spin-off of MPC which occurred on June 30, 2011; our TSR ranking at that time for each of these three performance periods was #1 out of 13 comparator companies. There was no payout for the cycles that ended in 2010 and 2009. See pages 58 to 62 for a more thorough explanation of performance units.
(6) This column reflects the annual change in accumulated benefits under Marathon Oil’s retirement plans. See pages 78-80 for more information about the Company’s defined benefit plans and the assumptions used in the calculation of these amounts. There are no deferred compensation earnings reported in this column because the Company’s non-qualified deferred compensation plans do not provide above-market or preferential earnings. Following the Spin-off of MPC, Mr. Heminger is no longer entitled to any pension benefits under our plans.
(7) Marathon Oil offers very limited perquisites to named executive officers, which together with company contributions to defined contribution plans, comprise the All Other Compensation column. All Other Compensation for 2011 is summarized below:

 

Name   

Personal

Use of
Company
Aircraft(a)
($)

    

Company
Physicals(b)

($)

    

Tax &

Financial

Planning(c)
($)

    

Miscellaneous
Perks &
Related Tax

Gross Ups

($)

    

Company

Contributions
to Defined
Contribution
Plans(d)

($)

    

Total All Other
Compensation

($)

 

C. P. Cazalot, Jr.

     0         3,207         0         0         273,000         276,207   
                                                       

J. F. Clark

     0         3,207         0         0         101,850         105,057   
                                                       

D. E. Roberts, Jr.

     0         3,207         0         0         133,000         136,207   
                                                       

S. J. Kerrigan

     0         3,207         0         0         61,421         64,628   
                                                       

E. M. Campbell

     0         3,207         8,000         0         56,000         67,207   
                                                       

G. R. Heminger

     0         3,207         665         0         0         3,872   
                                                       

 

  (a) The amounts shown in this column reflect the aggregate incremental cost of personal use of Marathon Oil aircraft by our named executive officers for the period from January 1, 2011 through December 31, 2011. Spouses and invited guests of executives occasionally fly on the corporate airplane as additional passengers on business flights. In those cases, the aggregate incremental cost to Marathon is a de minimis amount, and as a result, no amount is reflected in the table.
  (b) All employees, including our named executive officers, are eligible to receive an annual physical. However, officers may receive an enhanced physical under the executive physical program. This column reflects the average incremental cost of the executive physical program over the employee physical program. Due to Health Insurance Portability and Accountability Act (“HIPAA”) confidentiality requirements, the Company cannot disclose actual usage of this program by individual officers.
  (c) This column reflects reimbursement for professional advice related to tax, estate, and financial planning up to a specified maximum, not to exceed $15,000 for a calendar year.
  (d) This column reflects amounts contributed by the Company under the tax-qualified Marathon Oil Company Thrift Plan and related non-qualified deferred compensation plans. See pages 81-82 for more information about the non-qualified plans. All contributions and liabilities related to Mr. Heminger were transferred to MPC or tax-qualified MPC plans upon the Spin-off.

 

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Grants of Plan-Based Awards in 2011

 

  The following table provides information about all non-equity incentive plan awards (performance units) and equity awards (stock options and restricted stock) granted to each named executive officer during 2011. The awards listed in the table were granted under the 2007 Incentive Compensation Plan (the “2007 Plan”) and are described in more detail in the Compensation Discussion and Analysis beginning on page 46. The number of shares subject to equity awards and exercise price of option awards reflects the adjustments made on account of the Spin-off of MPC.

 

             

Estimated Future Payouts Under

Non-Equity Incentive Plan Awards

     All Other
Stock Awards:
    

All Other
Option Awards:

Number of

   Exercise or   

Grant Date

Fair Value

 
Name   Type of Award    Grant
Date
   Unit
Price(1)
($)
   Threshold
($)
     Target
($)
     Maximum
($)
    

Number of
Shares of

Stock or Units
(#)

    

Securities
Underlying
Options

(#)

  

Base Price
of Option
Awards

($)

   of Stock and
Option
Awards(2)
($)
 

C. P. Cazalot, Jr.

  Performance Units    2/23/2011    1      2,903,250         5,806,500         11,613,000               
  Stock Options    2/23/2011                   642,054    30.81      6,414,055   
  Performance Units    7/27/2011    1      1,881,059         2,807,550         5,615,100               
    Performance Units    7/27/2011    1      3,241,963         4,838,750         9,677,500                               

J. F. Clark

  Performance Units    2/23/2011    1      541,950         1,083,900         2,167,800               
  Stock Options    2/23/2011                   119,836    30.81      1,197,162   
  Restricted Stock    2/23/2011                  17,238               531,144   
  Performance Units    7/27/2011    1      345,955         516,350         1,032,700               
    Performance Units    7/27/2011    1      605,178         903,250         1,806,500                               

D. E. Roberts, Jr.

  Performance Units    2/23/2011    1      722,600         1,445,200         2,890,400               
  Stock Options    2/23/2011                   159,835    30.81      1,596,752   
  Restricted Stock    2/23/2011                  23,144               713,111   
  Performance Units    7/27/2011    1      806,903         1,204,333         2,408,666               
    Performance Units    7/27/2011    1      484,310         722,850         1,445,700                               

S. J. Kerrigan

  Performance Units    2/23/2011    1      283,850         567,700         1,135,400               
  Stock Options    2/23/2011                     62,786    30.81      627,238   
  Restricted Stock    2/23/2011                  9,098               280,326   
  Performance Units    7/27/2011    1      121,069         180,700         361,400               
    Performance Units    7/27/2011    1      316,966         473,083         946,166                               

E. M. Campbell

  Performance Units    2/23/2011    1      161,300         322,600         645,200               
  Stock Options    2/23/2011                     35,695    30.81      356,604   
  Restricted Stock    2/23/2011                  5,108               157,376   
  Performance Units    7/27/2011    1      180,118         268,833         537,666               
    Performance Units    7/27/2011    1      112,426         167,800         335,600                               

G. R. Heminger(3)

  Performance Units    2/23/2011    1      722,600         1,445,200         2,890,400               
  Stock Options    2/23/2011                   118,372    41.69      1,596,755   
    Restricted Stock    2/23/2011                                      17,106                   713,110   

 

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(1) This column reflects the target dollar value of each performance unit.
(2) The amounts shown in this column reflect the total grant date fair value of stock options and restricted stock granted in 2011 in accordance with generally accepted accounting principles in the United States regarding stock compensation. With the exception of awards made to Mr. Heminger, the Black-Scholes value used for the stock options granted on February 23, 2011 was $9.99 and the fair market value used for restricted stock awards granted on February 23, 2011 was $30.81. Assumptions used in the calculation of these amounts are included in footnote 21 to the Company’s financial statement for the fiscal year ended December 31, 2011. These values have been adjusted to reflect the Spin-off of MPC.
(3) The restricted stock and stock option awards granted to Mr. Heminger were adjusted upon the Spin-off of MPC and the numbers shown reflect shares of MPC common stock underlying the awards. Similarly, the exercise price shown is the exercise price for MPC stock options. The Black-Scholes value used for the stock options granted on February 23, 2011 was $13.49 and the fair market value used for restricted stock awards granted on February 23, 2011 was $41.69. Assumptions used in the calculation of these amounts are included in MPC’s financial statement for the fiscal year ended December 31, 2011.

 

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  Performance Units (Non-Equity Incentive Plan Awards)

 

  On February 23, 2011, the Compensation Committee granted performance units to our named executive officers under the 2007 Plan. Vesting of these units is tied to Marathon Oil’s Total Shareholder Return (“TSR”) as compared to the TSR of each of the member companies within the AMEX Oil Index (“XOI”) for the 2011 through 2013 performance period. Each performance unit has a target value of $1 and is payable in cash, with payout varying from $0 to $2 per unit based on actual performance. No dividends are paid and no interest accrues on outstanding performance units. If an officer retires after completing half of the performance period, at the Committee’s discretion the officer will be eligible to receive a payout on a prorated basis. In the event of the death of an officer or a change-in-control of Marathon Oil before the end of the performance period, all performance units would immediately vest at target levels. If an officer terminates employment under any other circumstance, the award would be forfeited.

 

  Due to the Spin-off of MPC on June 30, 2011, the performance units granted in February 2011 were prorated and paid out early based on our relative TSR performance as of the date of the Spin-off. Similarly, the outstanding performance units for the 2009-2011 and 2010-2012 performance periods were also paid out upon the Spin-off. To continue our strategy of measuring relative TSR performance over multi-year periods, the Committee made two new grants of performance units in July: Transition Award #1 for a period of 18 months and Transition Award #2 for a period of 30 months. The performance periods for these transition awards were selected to reflect the remaining periods of the original 2010 and 2011 grants. See pages 59-62 for more information about performance units.

 

  Stock Options (Option Awards)

 

  As noted in the table, stock options were granted to our named executive officers on February 23, 2011, under the 2007 Plan. The options will vest in one-third increments on the first, second, and third anniversaries of the date of grant. In the event of the death or retirement of the officer, the options would immediately vest in full. Upon voluntary or involuntary termination, unvested options are forfeited. Following the retirement (whether mandatory or not) or death of an officer, the options would remain exercisable until the earlier of February 23, 2021 or five years from the date of retirement or death. In the event of a change-in-control, the options would immediately vest in full and remain exercisable for the original term of the option. See pages 58 and 63 for more information about stock options and granting practices.

 

  Restricted Stock (Stock Awards)

 

  As noted in the table, the Compensation Committee granted restricted stock to our named executive officers other than Mr. Cazalot on February 23, 2011. The restricted stock awards will vest in full on the third anniversary of the grant date. Dividends are paid on all restricted stock at the same time and in the same manner that dividends are paid to other stockholders. If an officer retires under our mandatory retirement policy, unvested restricted stock would vest in full upon the mandatory retirement date (the earlier of the first day of the month coincident with or immediately following the officer’s 65th birthday). In the event of the death of the officer or a change-in-control, the restricted stock award would immediately vest in full. If the officer retires or otherwise leaves Marathon prior to the vesting date, the award would be forfeited. See page 63 for more information about restricted stock awards.

 

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Table of Contents

 

Outstanding Equity Awards at 2011 Fiscal Year-End

 

  The following table provides information about the unexercised stock options (vested and unvested), vested stock appreciation rights “SARs”, and unvested restricted stock held by each named executive officer as of December 31, 2011. The outstanding MPC stock options and SARs listed below result from awards made prior to the Spin-off of MPC by Marathon Oil. Employees who continued to work for Marathon Oil following the Spin-off and held vested Marathon Oil stock options and SARs received additional MPC stock options and SARs. The vesting and expiration dates of these MPC stock options and SARs are the same as those that applied to the original Marathon Oil stock options.

 

  The number of Marathon Oil shares subject to equity awards and the exercise price of option awards reflects the adjustments made on account of the Spin-off of MPC. Effective June 30, 2011 Marathon Oil and MPC were separate companies. However, because Marathon Oil and MPC were affiliated for part of 2011, we have included outstanding MPC stock options held by named executive officers (except for Mr. Heminger) in the table below.

 

         Stock Option Awards    Stock Awards
Name   Grant Date    Number of
Securities
Underlying
Unexercised
Options/SARs
Exercisable
    Number of
Securities
Underlying
Unexercised
Options/SARs
Unexercisable
    Option
Exercise
Price
   Option
Expiration
Date
   Number of Shares
or Units of Stock
That Have Not
Vested(5)
  Market Value of
Shares or Units of
Stock That Have
Not Vested(6)
           (#)        (#)      ($)         (#)   ($)

C. P. Cazalot, Jr.

                

 

                MRO

 

5/26/2004

5/25/2005

6/01/2006

5/30/2007

2/27/2008

2/25/2009

2/24/2010

2/23/2011

    
 
 
 
 
 
 
 
 
571,278    
336,696    
361,322    
284,289     
212,341    
298,382    
173,026    
0    
2,237,334    
  
  
  
  
  
  
  
  
  
   

 

 

 

 

 
 
 
 

 

0     

0     

0     

0     

0     

250,103 (1)
580,176 (2)
642,054 (3)
1,472,333     

 

  

  

  

  

  

  
  
  
  

 

  10.530
14.930
23.690
38.250
34.060
14.920
18.280
30.810
   5/26/2014
5/25/2015
6/01/2016
5/30/2017
2/27/2018
2/25/2019
2/24/2020
2/23/2021
        

 

                MPC

 

 

5/26/2004

5/25/2005

6/01/2006

5/30/2007

2/27/2008

2/25/2009

2/24/2010

  

 

 
 
 
 
 
 
 
 

 

 

285,639    
168,348    
180,661    
142,144    
106,170    
149,191    
86,513    
1,118,666    

 

 

  
  
  
  
  
  
  
  

 

 

 

 

 

 

 

 

 

 

 

0     

0     

0     

0     

0     

0     

0     

 

  

  

  

  

  

  

  

 

 

14.250
20.200
32.060
51.750
46.080
20.190
24.730

  

 

5/26/2014
5/25/2015
6/01/2016
5/30/2017
2/27/2018
2/25/2019
2/24/2020

        

 

73


Table of Contents

 

Outstanding Equity Awards at 2011 Fiscal Year-End (continued)

 

         Stock Option Awards    Stock Awards  
Name   Grant Date    Number of
Securities
Underlying
Unexercised
Options/SARs
Exercisable
     Number of
Securities
Underlying
Unexercised
Options/SARs
Unexercisable
     Option
Exercise
Price
     Option
Expiration
Date
   Number of Shares
or Units of Stock
That Have Not
Vested(5)
     Market Value of
Shares or Units of
Stock That Have
Not Vested(6)
 
         (#)      (#)      ($)           (#)      ($)  

J. F. Clark

                                                     

            MRO

  1/16/2004 5/25/2005 6/01/2006 5/30/2007 2/27/2008 2/25/2009 2/24/2010 2/23/2011     
 
 
 
 
 
 
 
 
12,694    
112,168    
57,491    
45,509    
40,337    
71,644    
31,836    
0    
371,679    
  
  
  
  
  
  
  
  
  
    

 

 

 

 
 
 
 
 

0     

0     

0     

0     

0     
60,053 (1)
106,753 (2)
119,836 (3)
286,642     

  

  

  

  

  
  
  
  
  

    
 
 
 
 
 
 
 
10.470
14.930
23.690
38.250
34.060
14.920
18.280
30.810
  
  
  
  
  
  
  
  
   1/16/2014
5/25/2015
6/01/2016
5/30/2017
2/27/2018
2/25/2019
2/24/2020
2/23/2021
     
                                          

 

76,134        

 

  

 

    

 

2,228,442        

 

  

 

 

            MPC

 

 

1/16/2004 5/25/2005 6/01/2006 5/30/2007 2/27/2008 2/25/2009 2/24/2010

  

 

 
 
 
 
 
 
 
 

 

 

6,347    
56,084    
28,745    
22,754    
20,168    
35,822    
15,918    
185,838    

 

 

  
  
  
  
  
  
  
  

 

  

 

 

 

 

 

 

 

 

 

0     

0     

0     

0     

0     

0     

0     

 

  

  

  

  

  

  

  

  

 

 
 
 
 
 
 
 

 

14.160
20.200
32.060
51.750
46.080
20.190
24.730

 

  
  
  
  
  
  
  

  

 

1/16/2014
5/25/2015
6/01/2016
5/30/2017
2/27/2018
2/25/2019
2/24/2020

                 

D. E. Roberts, Jr.

                   

 

            MRO

 

 

6/01/2006 6/28/2006 5/30/2007 2/27/2008 2/25/2009 2/24/2010 2/23/2011

  

 

 
 
 
 
 
 

 

 

 

35,979    
22,847    
39,796    
50,992    
77,609    
22,282    

0    

249,505    

 

  
  
  
  
  
  

  

  

  

 

 

 

 

 

 
 
 
 

 

0     

0     

0     

0     

65,052 (1)
74,716 (2)
159,835 (3)
299,603     

 

  

  

  

  

  
  
  
  

  

 

 
 
 
 
 
 
 

 

23.690
25.380
38.250
34.060
14.920
18.280
30.810

 

  
  
  
  
  
  
  

  

 

6/01/2016
6/28/2016
5/30/2017
2/27/2018
2/25/2019
2/24/2020
2/23/2021

     
                                          

 

127,210        

 

  

 

    

 

3,723,437        

 

  

 

 

            MPC

 

 

6/01/2006 6/28/2006 5/30/2007 2/27/2008 2/25/2009 2/24/2010

  

 

 
 
 
 
 

 

 

 

 

17,989    
11,423    
19,898    
25,496    
30,000    

0    

104,806    

 

 

  
  
  
  
  

  

  

 

  

 

 

 

 

 

 

 

 

0     

0     

0     

0     

0     

0     

 

  

  

  

  

  

  

  

 

 
 
 
 
 
 

 

32.060
34.340
51.750
46.080
20.190
24.730

 

  
  
  
  
  
  

  

 

6/01/2016
6/28/2016
5/30/2017
2/27/2018
2/25/2019
2/24/2020

                 

 

74


Table of Contents

 

Outstanding Equity Awards at 2011 Fiscal Year-End (continued)

 

          Stock Option Awards    Stock Awards  
Name    Grant Date    Number of
Securities
Underlying
Unexercised
Options/SARs
Exercisable
     Number of
Securities
Underlying
Unexercised
Options/SARs
Unexercisable
     Option
Exercise
Price
     Option
Expiration
Date
   Number of Shares
or Units of Stock
That Have Not
Vested(5)
     Market Value of
Shares or Units of
Stock That Have
Not Vested(6)
 
          (#)      (#)      ($)           (#)      ($)  

 

S. J. Kerrigan

                                                      

 

            MRO

  

 

6/01/2006 5/30/2007 5/28/2008 5/27/2009 2/24/2010 2/23/2011

  

 

 
 
 
 
 

 

 

 

10,851    
8,568    
6,679    
8,154    
11,141    

0    

45,393    

 

  
  
  
  
  

  

  

  

 

 

 

 

 

 
 
 

 

0     

0     

0     

6,837 (4)

37,358 (2)
62,786 (3)
106,981    

 

  

  

  

  

  
  
  

  

 

 
 
 
 
 
 

 

23.690
38.250
32.060
18.320
18.280
30.810

 

  
  
  
  
  
  

  

 

6/01/2016
5/30/2017
5/27/2018
5/27/2019
2/24/2020
2/23/2021

     
                                           

 

31,275        

 

  

 

    

 

915,419        

 

  

 

 

            MPC

  

 

6/01/2006 5/30/2007 5/28/2008 5/27/2009 2/24/2010

  

 

 
 
 
 

 

 

 

 

5,425    
4,284    
3,339    
4,077    

5,570    

22,695    

 

 

  
  
  
  

  

  

 

  

 

 

 

 

 

 

 

0     

0     

0     

0     

0     

 

  

  

  

  

  

  

 

 
 
 
 
 

 

32.060
51.750
43.380
24.790
24.730

 

  
  
  
  
  

  

 

6/01/2016
5/30/2017
5/27/2018
5/27/2019
2/24/2020

                 

E. M. Campbell

                    

 

            MRO

  

 

6/01/2006 5/30/2007 2/27/2008 2/25/2009 2/24/2010 2/23/2011

  

 

 
 
 
 
 

 

 

 

14,468    
14,852    
15,697    
17,132    
10,347    

0    

72,496    

 

  
  
  
  
  

  

  

  

 

 

 

 

 
 
 
 

 

0     

0     

0     

14,361 (1)
34,698 (2)
35,695 (3)
84,754    

 

  

  

  

  
  
  
  

  

 

 
 
 
 
 
 

 

23.690
38.250
34.060
14.920
18.280
30.810

 

  
  
  
  
  
  

  

 

6/01/2016
5/30/2017
2/27/2018
2/25/2019
2/24/2020
2/23/2021

     
                                           

 

21,230        

 

  

 

    

 

621,402        

 

  

 

 

            MPC

  

 

6/01/2006 5/30/2007 2/27/2008 2/25/2009 2/24/2010

  

 

 
 
 
 
 
 

 

 

7,234    
7,426    
7,848    
8,566    
5,173    
36,247    

 

 

  
  
  
  
  
  

 

  

 

 

 

 

 

 

 

0     

0     

0     

0     

0     

 

  

  

  

  

  

  

 

 
 
 
 
 

 

32.060
51.750
46.080
20.190
24.730

 

  
  
  
  
  

  

 

6/01/2016
5/30/2017
2/27/2018
2/25/2019
2/24/2020

                 

 

G. R.  Heminger(7)

                    

 

            MRO

  

 

5/26/2004 5/25/2005 6/01/2006 5/30/2007 2/27/2008 2/25/2009 2/24/2010 2/23/2011

  

 

 
 
 
 
 
 
 

 

 

 

 

74,456    
73,319    
71,959    
71,024    
55,178    
83,575    
41,359    

0    

470,870    

 

 

  
  
  
  
  
  
  

  

  

 

  

 

 

 

 

 

 

 

 

 

 

0     

0     

0     

0     

0     

0     

0     

0     

 

  

  

  

  

  

  

  

  

  

 

 
 
 
 
 
 
 
 

 

10.530
14.930
23.690
38.250
34.060
14.920
18.280
30.810

 

  
  
  
  
  
  
  
  

  

 

5/26/2014
5/25/2015
6/01/2016
5/30/2017
2/27/2018
2/25/2019
2/24/2020
2/23/2021

                 

 

75


Table of Contents
(1) This stock option grant is scheduled to become exercisable in one third increments over a three-year period. The remaining unvested portion of the grant will become exercisable on February 25, 2012.
(2) This stock option grant is scheduled to become exercisable in one third increments over a three-year period. The remaining unvested portion of the grant will become exercisable in one half increments on February 24, 2012 and February 24, 2013.
(3) This stock option grant is scheduled to become exercisable in one third increments over a three-year period. The unvested portion of the grant will become exercisable in one third increments on February 23, 2012, February 23, 2013, and February 23, 2014.
(4) This stock option grant is scheduled to become exercisable in one third increments over a three-year period. The remaining unvested portion of the grant will become exercisable on May 27, 2012.
(5) This column reflects the number of shares of unvested restricted stock held by our named executive officers on December 31, 2011. All restricted stock grants are generally scheduled to vest on the third anniversary of the date of grant. The only exception is one of the grants made to Ms. Kerrigan on September 1, 2009, which vests in one-third increments over a three-year period.

 

            Name    Grant
Date
         # of Unvested
         Shares
     Vesting        
Date         
 

J. F. Clark

    
 
 
2/25/2009
2/24/2010
2/23/2011
  
  
  
    
 
 

 

 

35,593    
23,303    
17,238    

76,134    

 

  
  
  

  

 

    
 
 
2/25/2012        
2/24/2013        
2/23/2014        
  
  
  

 

D. E. Roberts, Jr.

  

 

 
 
 

 

2/25/2009
2/24/2010
2/23/2011

 

  
  
  

  

 

 
 
 
 

 

 

38,626    
65,440    
23,144    
127,210    

 

 

  
  
  
  

 

  

 

 
 
 

 

2/25/2012        
2/24/2013        
2/23/2014         

 

  
  
  

 

S. J. Kerrigan

  

 

 
 
 

 

9/01/2009
2/24/2010
2/23/2011

 

  
  
  

  

 

 
 
 
 

 

 

14,036    
8,141    
9,098    
31,275    

 

 

  
  
  
  

 

  

 

 
 
 

 

9/01/2012        
2/24/2013        
2/23/2014         

 

  
  
  

 

E. M. Campbell

  

 

 
 
 

 

2/25/2009
2/24/2010
2/23/2011

 

  
  
  

  

 

 
 
 
 

 

 

8,460    
7,662    
5,108    
21,230