2018 Guide to Effective Proxies

2.17.9 Performance metrics | 441 6 TH EDITION | GUIDE TO EFFECTIVE PROXIES EXECUTIVECOMPENSATION Financials—40Percent • Earnings —2017reportedearningsof$9.2billionand$4.85EPS exceeded Plan. Gains related to U.S. tax reform, higher commodity realizations, continued success in lowering costs, higher volumes, and stronger downstream margins were partiallyoffsetbylowerdivestitureproceeds,impairmentsand other non-cash charges, and unfavorable foreign exchange impacts. Normalized earnings and EPS exceeded Plan, excluding divestitures. The Company’s five-year indexed EPS performance relative to peers was adversely affected by its upstream-weighted (vs. downstream) and oil-weighted (vs.naturalgas)portfolioduetolowercommodityprices. • Net cash flow —Chevron delivered positive cash flow in 2017, drivenbyactionstakentoselectivelysellassets,lowercapital expenditures, and reduce operating expenses. Higher realizations and increased volumes also supported this outcome.Netcashgenerationwas$5.2billion. • Divestitureproceeds —$5.2billioninassetsalesproceedswere realized for the year. Chevron exceeded the mid-point of its targeted $5 billion to $10 billion range in asset sale proceeds overthe2016-2017timeframe.TheSouthernAfricarefining& marketingassetsaleisexpectedtoclosein2018. • Basedonthepreceding,therawscorerangeassignedtothis categoryforthe2017performanceyearwas1.25-1.35outofa maximumof2.0. Capital Management—30 Percent • Return on capital employed —Reported ROCE for 2017 of 5.0 percent exceeded Plan. The Company’s five-year ROCE performance deteriorated at a faster rate than the peer average, reflecting Chevron’s higher weight to upstream and liquidsaswellashighinvestmentleveloverthelastfiveyears. • Capital and exploratory expenditures—2017 C&E totaled $18.8 billion, $1.0 billion, or 5 percent,lowerthanbudget,with activitylevelslargelyasplanned,butaccomplishedwithgreater capital efficiency. This was the fourth consecutive year of reducedcapitalspending. • MajormilestonesperPlan: • Gorgon—Train 3 first LNG production and sustained performance achieved. Equipment and design issues, which intermittentlydelayedTrain1and2cargos,werelargelyresolved. Allthreetrainswereon-linebyyear-end. • Wheatstone—Train 1 was also on-line at year-end. First LNG delayedbyonequarter. • Tengizchevroil Future Growth Project / Wellhead Pressure Management Project—Cut steel for first oil module in the first quarterandcompleteddredgingofcargotransportrouteahead ofschedule.Projectremainson-trackforfirstoilin2022. • Permian—Unit development cost and wells placed on productionbetterthanPlan.FullyearproductionexceededPlan andexternalguidance. • U.S. Gulf Coast Petrochemicals—Completed start-up of polyethylene units. Ethane cracker mechanical completion achieved,butinitialproductiondelayedduetositefloodingfrom HurricaneHarvey. • Other—First production for Moho Nord and Sonam achieved ahead of schedule; Mafumeira Sul and Hebron start-ups were achievedonschedule.AngolaLNGcargosexceededPlan.Big Footfacilitiesreadyforinstallation. • Basedonthepreceding,therawscorerangeassignedtothis categoryforthe2017performanceyearwas0.95-1.15outofa maximumof2.0. Operating Performance—15 Percent • Netproductionof2.755millionbarrelsofoil-equivalentperday in 2017, excluding divestments. Annual growth rate of 6.2%, nearthemid-pointofour4-9percentexternalguidancerange (vs.2016).Productiongrowthwasdrivenbythebasebusiness, shale&tightassets,GorgonTrain3,andAngolaLNG. • Operating expenses and selling, general and administrative expenses totaled $23.9 billion,better than Plan and $1.1 billion lower than 2016. Continued cost reduction efforts and improvedefficiencydrovethisoutcome.Since2014,costshave declined20percent. • Refining unit utilization rates below Plan, primarily due to unplanned shutdowns at non-operated joint ventures and a preemptive shutdown for Hurricane Nate at our refinery in Pascagoula,Mississippi. • Basedonthepreceding,therawscorerangeassignedtothis categoryforthe2017performanceyearwas1.10-1.30outofa maximumof2.0. Health, Environmental and Safety—15 Percent • Maintained industry-leading personal safety rates, better than the Plan on several measures, including the Days Away From WorkRate—matching2016recordlow—andTotalRecordable Incidents Rate. The opportunity for improvements is still evident in lowering the incidence of high-consequence, low-probabilityevents. • Loss of containment performance was better than Plan; spill volumeabovePlan. • Basedonthepreceding,therawscorerangeassignedtothis categoryforthe2017performanceyearwas0.80-1.00outofa maximumof2.0. ChevronCorporation—2018ProxyStatement 41 Total of 02 pages in section 2018PROXYSTATEMENT CompensationDiscussion andAnalysis 52 CALIFORNIARESOURCESCORPORATION 2018 Annual Incentive Design The annual incentive component of our 2018 compensation program was designed to promote the achievement of financial, operating and strategic results that are aligned with creation of stockholder value. Based on feedback from stockholders to reduce the qualitative portion of the award, the performance measures were comprised of quantitative financial and operational measures for 80% of the target annual incentive and qualitative individual objective measures for 20% of the target annual incentive. Aligning performance criteria with our strategic areas of focus for the year, the Compensation Committee approved performance measures designed to encourage decision making that will enhance stockholder value creation. The Compensation Committee approved performance criteria based on expected results under CRC’s business plan at the time they were established in February 2018. Target performance criteria were set at levels that would represent successful execution of the 2018 business plan, and maximum performance criteria were set at levels that would represent significant outperformance against the 2018 business plan. The table below provides the weightings for each performance measure as established by the Compensation Committee. Performance Measure (1) Component Weighting Investment ValueCreation Index (VCI) 20% Operations Production ProductionCostsAbsolute 5% 5% Health,Safety&Environmental (HSE) 10% - Combined IIR (33%) - Spillprevention rate (33%) - Increase in netwater supplied toAg (33%) Liquidity EBITDAX Debt 20% 20% TotalQuantitativePerformanceMeasures 80% Strategic and IndividualObjectives 20% Total 100% (1) Descriptions of the quantitative performancemeasures are as follows: PerformanceMeasure Description ValueCreation Index VCI is calculated at year end as the discounted expected future revenue (using the 5- year Brent strip, held stable after 5 years) from production of reserves added during 2018 net of production operating expenses and taxes other than income taxes, but before any general and administrative charges and income taxes, divided by the discounted capital invested for 2018, each using a 10% discount rate. Production Total production in thousands of barrels of oil equivalent per day (BOEPD) ProductionCosts Absolute production cost HSE –Combined IIR Injury and illness incidence rate of employees and contractors HSE – Spill PreventionRate Ratio of (BOE producedminus net reportable oil spill volume) to BOE produced HSE – Increase in netwater supplied to Ag Water supplied to agriculture divided by freshwater purchased EBITDAX Adjusted EBITDAX (millions) excluding the BSP JV Debt Net debt amount (billions) All executives are subject to the same Investment, Operations, Health, Safety and Environmental, and Liquidity quantitative measures. Total of 02 pages in section CALIFORNIA RESOURCES CORPORATION CHEVRON CORPORATION 2018PROXYSTATEMENT CompensationDiscussion andAnalysis 44 CALIFORNIARESOURCESCORPORATION The table below provides the weightings for each performance measure and the threshold, target, and maximum performance criteria as established by the Compensation Committee. Also shown in the table are the actual 2017 results under each quantitative performance measure and the resulting percentage of target bonus payout. Performance Measure (1) Component Weighting (a) Threshold (50%Payout) Target (100%Payout) Maximum (200%Payout) 2017 Results Component Payout as Percentof Target (b) Resulti g%of TargetBonus Payout (a)x (b) Investment ValueCreation Index (VCI) 5% 1.1 1.3 1.5 1.71 200% 10.00% Operations Production ProductionCostsperBOE G&AExpenses 5% 5% 5% 127 $19.25 $280 130 $18.75 $270 133 $17.75 $250 129.4 $18.68 $268 90% 107% 110% 4.50% 5.35% 5.50% Health,Safety& Environmental (HSE) 5% - Combined IIR (33%) 0.55 0.50 0.45 0.62 0% 0.00% - Spill prevention rate (33%) 99.9993% 99.9995% 99.9997% 99.9999% 200% 3.33% - Increase innetwater supplied toAg (33%) 182% 209% 236% 289% 200% 3.33% Liquidity -EBITDAX - InterestCoverage -Debt 10% 10% 15% $676 1.00 $5.00 $710 1.20 $4.75 $782 1.60 $4.50 $761 1.92 $5.3 171% 200% 0% 17.08% 20.00% 0.00% TotalQuantitative Measures 60% 115.17% 69.09% Strategic and Individual Objectives 40% Multiple IndividualMeasures 0% -200% 0% - 80% RangeofPotentialPayouts 69.09% - 149.09% NegativeDiscretionApplied byCompensation Committee - FinalPayoutRange 69.09% - 149.09% (1) Descriptions of the performancemeasures are as follows: PerformanceMeasure Description ValueCreation Index (VCI) VCI is calculated at year end as the discounted expected future revenue (using the 5- year Brent strip, held stable after 5 years) from production of reserves added during 2017 net of production operating expenses and taxes other than income taxes, but before any general and administrative charges and income taxes, divided by the discounted capital invested for 2017, each using a 10% discount rate. Production Total production in thousands of barrels of oil equivalent per day (BOEPD) ProductionCosts per BOE Adjusted production cost per barrel of oil equivalent (BOE) G&A Expenses Total adjusted general and administrative expense (millions) HSE –Combined IIR Injury and illness incidence rate of employees and contractors HSE – Spill PreventionRate Ratio of (BOE producedminus net reportable oil spill volume) to BOE produced HSE – Increase in netwater supplied to Ag Water supplied to agriculture divided by freshwater purchased EBITDAX Consolidated EBITDAX (millions) per ourCredit Agreement (as perCredit Agreement) InterestCoverage Interest expense ratio (EBITDAX divided by interest expense perCredit Agreement) Debt Debt principal amount (billions) EXECUTIVECOMPENSATION SpecificinputstotheMCC’sevaluationaresummarizedbelow. Category Weight Performancemeasures Year-endresultsvs.Planhighlights “Plan”referstoBoard-approved BusinessPlan Results (1) RawScore (0.00-2.00) Weighted Score Financials 40% Earningspershare(“EPS”, diluted) (2) $4.85reportedEPSand normalizedEPS(excluding divestitures)exceededPlan.5-yr EPSperformancevs.peers adverselyaffectedbyupstream/ liquidsweighting. 1.25-1.35 0.50-0.54 Netcashflow (3) $5.2B,exceededPlan.Achieved cashflowbreakevenin2017,and withoutdivestments. Divestitureproceeds $5.2B;exceededmid-pointof $5-10Bprogramrangetargeted for2016-2017. Capital management 30% Returnoncapitalemployed (4) (“ROCE”) 5.0%,betterthanPlan. Performancevs.peersimpacted byupstream/liquidsweighting andinvestmentlevel. 0.95-1.15 0.29-0.35 Capitalandexploratory expenditures(“C&E”),including equityinaffiliates $18.8B,lessthan$19.8Bbudget. Major milestones Gorgon Train3firstLNGachieved.Some shortfallincargos. Wheatstone Train1firstLNGachievedwith somedelays.Shortfallincargos. FGP/WPMP Cutsteelforfirstoilmodule. Completedcargoroutedredging. Ontrackforfirstoilin2022. Permian Unitdevelopmentcostbetter thanPlan.Exceededproduction guidance. USGC Petrochemicals Start-upofpolyethyleneunits achieved.Ethanecracker achievedmechanicalcompletion; overallstart-updelayeddueto HurricaneHarvey. Other AchievedkeymilestonesforBig Foot,AngolaLNG,Sonam,Moho Nord,MafumeiraSul,andHebron. Operating performance 15% Netproduction,excluding impactofdivestments 6.2%growth;midpointof4-9% guidancerange–Gorgon, Wheatstone,AngolaLNG,and Permiankeycontributors. Permianexceededguidance. 1.10-1.30 0.17-0.20 Operatingexpenses+selling, generalandadministrative expenses $23.9B,betterthanPlan.Down $1.1Bvs.2016. Refiningutilization,including jointventuresandaffiliates ShortofPlanby1.6%. Health, environmental andsafety 15% Personalsafety Industry-leading0.016Days AwayFromWorkRate;gapsin severityremain. 0.80-1.00 0.12-0.15 Processsafetyand environmental LossofContainment performancebetterthanPlan; spillvolumeabovePlan. CorporatePerformanceRatingRange 1.07-1.23 FinalCorporatePerformanceRating 1.20 Notes: (1) Resultsrefertomet/exceededPlan(green),metPlanwithsomegaps(yellow),ordidnotmeetPlan(red). (2) Normalizedtoexcludeimpactoffactorsthatarebeyondthecontrolofmanagement,includingprice,exchangerates,fiscalitems,andothermarketeffects;comparisonmoreaccurately measurescontrollableperformance. (3) Cashflowincludingassetsalesafterdividends=changeincashandmarketablesecuritiesandchangeindebt. (4) See“DefinitionsofSelectedFinancialTerms”inExhibit99.1oftheChevronAnnualReportonForm10-KfortheyearendedDecember31,2017. 40 ChevronCorporation—2018ProxyStatement