2018 Guide to Effective Proxies

2.17.9 Performance metrics | 439 6 TH EDITION | GUIDE TO EFFECTIVE PROXIES ADVANCED MICRO DEVICES, INC. 2018NOTICEOFMEETINGANDPROXYSTATEMENT CompensationDiscussionandAnalysis (continued) The Compensation Committee used the following financial performance measures and weightings for fiscal 2017todeterminetheamountofeachNamedExecutiveOfficer’s2017annualcashperformancebonusundertheEIP: FinancialMeasure Weighting AdjustedNon-GAAPNetIncome 50% Revenue 25% AdjustedFreeCashFlow 25% The performance levels (threshold, target and maximum) for each financial performance measure were established by the Compensation Committee at the beginning of fiscal 2017, in each case in consultation with senior management. The performance levels were structured to align with our fiscal 2017 financial objectives taking into accountoverallaffordabilityofthebonusopportunitiesprovidedundertheEIPforfiscal2017. The Compensation Committee chose adjusted non-GAAP net income as a performance measure because it reflectsourbottom-linefinancialperformance orprofitability,whichtheCompensationCommitteebelievesisdirectly tied to enhanced stock price performance. The Compensation Committee assigned it a weight of 50% because it is a key short-term financial measure for the operation of our business and is a measure of significant importance to our stockholders.Forpurposesofthe2017EIP,our“adjustednon-GAAPnetincome”wascalculatedbyadjustingourfiscal 2017GAAPnetincomefornon-GAAPfinancialadjustmentsandamountsaccruedforthefiscal2017bonuses. The Compensation Committee chose revenue as a performance measure because it reflects our top-line growth, which the Compensation Committee believes is a strong indicator of our long-term ability to increase profitability, cash flow and improve stock price performance. For purposes of the 2017 EIP, our “revenue” was calculatedasourGAAPnetrevenueforfiscal2017. Finally, the Compensation Committee chose adjusted free cash flow as a performance measure because it believes effective cashmanagement isakey componentofourstrategyandourannualoperatingplan,thesuccessful execution of which should lower indebtedness, increase financial flexibility and ultimately drive improved company valuation and stock price performance. For purposes of the 2017EIP, our “adjusted free cash flow” was calculated by adjustingourGAAPnetcashprovidedby(usedin)operatingactivitiesfor(i)purchaseofproperty,plantandequipment and(ii)cashpaymentsforfiscal2016employeebonusesundertheEIPandourAnnualIncentivePlan,whichwerepaid inMarchandApril2017. Thefollowingtablesetsforththefiscal2017performancelevelsandcomparableactualresultsfortheEIP: 2017ExecutiveIncentivePlan FinancialTargets (inmillions) FinancialMeasure (Threshold) (Target) (Maximum) ActualPerformance AdjustedNon-GAAPNetIncome $ 15 $ 239 $ 497 $ 288 Revenue $4,415 $5,000 $5,731 $5,329 AdjustedFreeCashFlow $ 31 $ 118 $ 212 $ (5) ADVANCEDMICRODEVICES,INC. | 2018ProxyStatement 43 APACHE CORPORATION LeaseOperatingExpense(LOE)andGeneralandAdministrative(G&A)perBOEtargetswereestablishedatPlan for2017,basedonadjustedproduction. WeraisedthebaronourHSSEmeasuresbyestablishingeachtargetatthetopquartileofourindustrypeers.We alsoexpandedHSSEgoalstoincludeacomprehensivequalitativeassessmentofleadingandlaggingmeasures todriveexcellenceinfacetsofHSSEbeyondsafety. 2017 Annual Cash Incentive Bonus Achievement In2017,theresultsofourcorporateobjectivesyieldedthefollowingresults: CorporateObjectives–2017CorporateGoals Weighting Result Achievement TotalPoints OperationalGoals 1.Productionof399ThousandBarrelsofOilEquivalent/Day(MBOED) 10% 381MBOED Betweenthresholdandtarget 6 2.Replace145%of2017Productionat$10.50(Finding&Developmentcost/ BOE)throughExplorationandDevelopmentAdds: 10% Š 145%of2017production 124% Betweenthresholdandtarget 3 Š $10.50Finding&DevelopmentcostperBOE $13.83 Belowthreshold 0 3.MaximizeCashFlowperBarrelSoldthroughCostManagement: 10% Š $9.91LOEperBOE $10.07 Slightlybelowtarget 5 Š $4.49G&AperBOE(GrossG&ASpend/BOE) $4.64 Slightlybelowtarget 4 4.AchieveaBeforeTaxRateofReturnon2017DrillingProgramof15% (threshold of10%) 10% 6% Belowthreshold 0 5.Health,Safety,Security,andEnvironmental* 10% Qualitatively assessed Allleadingandlagging measureswereachieved* 5 StrategicGoals Thestrategicgoalsfor2017weresettocontinuetoshiftthefocusofApache’s portfoliotoNorthAmericaandconsistedofvariousobjectivessuchas: 50% Allstrategicgoalsachieved atorabovetarget** 80 Š FormulatearobustdevelopmentmodelforAlpineHightooptimizelong-term projecteconomicswhileaddressingproductvariationthroughouttheplay, whichrequires:progressinggeographicandstratigraphicdelineationphase toanadvancedstageidentifyingthearealextentofindividualtarget intervals,conductingstrategictestingtodesignpadandbatchdevelopment operations,addressingleaseholdretentionrequirements,anddefining marketingalternatives. Š ReturnPermianBasinoilproductiontoagrowthtrajectory. Š Continuetoadvancemarketunderstandingofourstrategytosustainfree cashflowcapacityfromEgyptandtheNorthSea. Š Delivercashflowwithintheplanfor2017whilemaintainingourcreditrating. Š Activelyassessandmanageassetportfolioutilizingthelong-termviewofour integratedplanningmodel. TotalCorporateGoalAchievement 100% 103 *TheHSSEoperationalgoalisbasedontheachievementof(i)thefollowingleadingmeasures:LeadershipandAccountability(HSSEsite visits),ContractorManagement(audits;contractorengagements),HazardAssessments(training;comprehensiveassessmentsoftop operationalrisk;high-potentialincidentreviews),AssetIntegrity(criticalequipmentandfacilityinspections),andComplianceAssurance (managementofchangeassessment;greenhousegasmanagementassessment;AIMforZERO/STEPassessment;regionsecurityplan assessments)and(ii)thefollowinglaggingmeasures:TotalRecordableIncidentRate(TRIR),DaysAwayRestrictedTime(DART),Vehicle IncidentRate(VIR),LossofPrimaryContainment(spills),andAIMforZERODays(incidentfree).TheAIMforZERODaysgoalwastheonly goalthatwasnotachievedattarget(resultswerebetweenthresholdandtarget). **Weachievedthestrategicgoalsasfollows: ‰ achievedsignificantmilestoneswithAlpineHighin2017,including92drilledwells,72completedwells,74producingwellsadded, production exit rate of 25,000 BOE, water infrastructure – eight pits and 14 milesof gathering, five Central ProcessingFacilities commissionedontimeandwithinbudget(280MMcfperday),45milesof30-inchresiduelinesegmentsinservice,NorthandSouth metertiesinservice,110milesofgatheringsystemsinservice,Midstreamoperationsteambuilt,andfusioncenterforMidstream andUpstreambuilt;completeddelineation,initiatedsales,andrampedupproductionatAlpineHigh(84wellsdrilled,11intervals, commencedfirstsalesinMay2017increasingto25,000BOEperdayinsevenmonths,andconstructedandinstalled22permanent CentralTankBatterieswiththreeexpansions);accomplishedsignificantachievementsontheMidstreaminstallationin2017(five MechanicalRefrigerationUnitsproviding380MMcfperdayofcapacity,57milesofin-fieldgas,22milesofwater,25milesofNGL pipeline,and45milesofhighpressureresidueline);anddeliveredfirstgassalesfromAlpineHighonemonthaheadofschedule; ‰ returnedPermianBasinoilproductiontoagrowthtrajectorywithan18percentincreasefromthesecondquarter2017tofourth quarter2017,exceedingtheplannedgrowth; ‰ expandeddisclosuresbyincludingaquarterlycashflowstatementbycountry,whichwasnotpreviouslyavailable; ‰ exceededplancashflowsby$719millionin2017,whilemaintainingApache’screditrating;and APACHECORPORATION -2018ProxyStatement 43 2.17.9 Performance metrics In evaluating performance-based compensation, investors are keenly interested in knowing the performance goals underlying short- and long-term incentive pay plans, as well as target and actual achievement levels – in other words, the actions and achievements being incented and rewarded. Some companies provide greater detail and specificity than others, and when companies choose not to disclose metrics, there are often sound reasons (e.g., these metrics might reveal key corporate strategies). Metrics range from TSR (absolute or relative) to other strategic and financial metrics, including EPS and ROIC. Particularly when it comes to non-TSR metrics, investors are interested in a) their relevance to the company’s strategy, business model and efforts to grow shareholder value and b) their rigor. Investors also expect these metrics to clearly align with business strategy as articulated through the IR dialogue, in the proxy and elsewhere.