DEFA14A: Valero Energy Amends Proxy Statement Following Engagement with Proxy Advisory Firm

Valero Energy Corporation supplements its proxy statement to provide additional compensation-related information following engagement with a proxy advisory firm.

Summary

• Valero Energy Corporation has filed a supplement to its definitive proxy statement initially filed on March 18, 2025.
• This supplement addresses feedback received from a proxy advisory firm regarding the company's compensation program and related disclosures.
• The supplement provides additional information under the 'Compensation Discussion and Analysis' section, specifically regarding 'Elements of Executive CompensationLong-Term Incentive AwardsPerformance SharesTSR Metric' on page 42 of the original proxy statement.
• The company's Human Resources and Compensation Committee reaffirms its report contained in the original proxy statement, as supplemented.
• The changes to the proxy statement involve the TSR metric, including how TSR performance is measured against a peer group and the removal of the Energy Transition Modifier.
• The committee approved an amendment to performance share awards, beginning with 2025 awards and including outstanding tranches of prior awards, such that going forward our performance share awards will vest solely on the basis of relative TSR as set forth in the applicable award agreement, continuing to target above the peer-median TSR and applying an overall cap on vesting at 200 percent of target, but without application of the Energy Transition Modifier or the cap related to negative TSR.
• These changes are designed to better align executive compensation with stockholder returns and the company's business strategy.
• Ongoing engagement with stockholders, stakeholders, and proxy advisory firms on these changes to the relative TSR component design and the overall compensation program design will continue and will be considered in future compensation decisions.

Sentiment

Score: 7

Explanation: The document reflects a proactive approach by Valero to address concerns about executive compensation and align it with stockholder interests. The changes are presented as positive steps towards improving transparency and accountability. However, the need for these changes also suggests potential past issues with the compensation structure.

Positives

• The company is responsive to feedback from proxy advisory firms and stockholders.
• The changes to the compensation program are intended to better align executive pay with stockholder returns.
• The focus on relative TSR aims to incentivize management to deliver peer-leading performance across different margin environments.
• The removal of the Energy Transition Modifier simplifies the compensation structure and focuses on overall company performance.
• The company's ongoing engagement with stakeholders suggests a commitment to transparency and accountability.

Future Outlook

Ongoing engagement with stockholders, stakeholders, and proxy advisory firms on these changes to the relative TSR component design and the overall compensation program design will continue and will be considered in future compensation decisions.

Management Comments

• The Committee believes these changes are aligned with our business strategy of being the lowest cost operator with a proven history of operational excellence and an unwavering commitment to capital discipline, which has enabled us to deliver peer-leading performance and stockholder returns across the highs and lows of margin cycles.
• Also consistent with stockholder feedback, the Committee believes that relative TSR represents stockholder endorsement, or lack thereof, of Valero's strategy and results.
• With regards to the removal of the Energy Transition Modifier, the Committee believes that relative TSR is a metric that measures overall company performance, including not only our refining segment, but also our low-carbon fuels businesses.

Industry Context

The document reflects a trend of increased scrutiny on executive compensation and the importance of aligning pay with performance and stockholder interests. Companies are increasingly engaging with proxy advisory firms and stockholders to address concerns and ensure transparency in their compensation practices.

Comparison to Industry Standards

• The document mentions that the methodology for measuring TSR, specifically using a multi-day historical average stock price, is consistent with many of Valero's peers.
• The document states that the company is targeting above the peer-median TSR.
• The document does not provide specific names of comparable companies or projects.

Stakeholder Impact

• The changes to the compensation program are intended to better align executive pay with stockholder returns, potentially benefiting shareholders.
• The focus on peer-leading performance could impact employees through increased performance expectations.
• The changes could influence the company's strategic decisions and investments, potentially affecting customers and suppliers.

Next Steps

• Stockholders are urged to vote and submit their proxy in advance of the Annual Meeting.
• Ongoing engagement with stockholders, stakeholders, and proxy advisory firms on these changes to the relative TSR component design and the overall compensation program design will continue and will be considered in future compensation decisions.

Key Dates

Keywords

proxy statement, compensation, TSR, Valero Energy, executive compensation, proxy advisory firm, stockholder returns, performance share awards, Energy Transition Modifier