2018 Guide to Effective Proxies

6 TH EDITION | GUIDE TO EFFECTIVE PROXIES 264 EXXON MOBIL CORPORATION ExamplesofWhyLongRestrictionPeriodsAlignwithExxonMobil’sBusinessModel Example1 ResourceDevelopment atPapuaNewGuinea (PNG) LNG • Investment lead times in theoilandgas industryareoften10 yearsor longer ExxonMobilacquired interest inHides field Effort todevelopHides field to supplya future LNGdevelopment;1997Asian financial crisis anddemanduncertainties led to theproject being suspended Beganeffort todevelopHides fieldgas for supplybypipeline toAustralia;project suspended in2007 PNGLNG full fundingdecisionmade, 16 yearsafter initial investment PNGLNG start-up 1993 Mid-1990s 2004 2009 2014 Example2 TheCommodityPriceCycle • ExxonMobil’s longer restrictionperiodsensure thatexecutivesare required tohold shares through the commodityprice cycle • Analternate, formula-basedprogramwith short-term target settingand three- year vestingwouldenableexecutives tomonetizeperformance sharesatamuch fasterpace • In thisexample, sharesaregranted toanexecutiveeach yearover themost recent 10-yearperiod (2008-2017). In2013,on theeveofagreater-than-50-percent decline in crudeprice,only 8percent ofawardsgranted in theExxonMobilprogram had vested. In thealternateprogramwith three-year vesting, 58percent ofawards grantedwouldhave vested– 7 timesmore than theExxonMobilprogram • ExxonMobilexecutives, through thisdesign featureof longer restrictionperiods, areencouraged to takea long-term view inbusinessdecision-making ExxonMobil 8% Alternate 58% 7x more VestedSharesAvailable toSell ImmediatelyPrior to2013 CrudeOilPriceCollapse (2) Example1ResourceDevelopmentatPapuaNewGuinea(PNG)LNGInvestmentleadtimesintheoilandgasindustryareoften10yearsorlonger1993ExxonMobilacquiredinterestinHidesfieldMid-1990sEfforttodevelopHidesfieldtosupplyafutureLNGdevelopment;1997Asianfinancialcrisisanddemanduncertaintiesledtotheprojectbeingsuspended2004BeganefforttodevelopHidesfieldgasforsupplybypipelinetoAustralia;projectsuspendedin20072009PNGLNGfullfundingdecisionmade,16yearsafterinitialinvestment2014PNGLNGstart-upExample2TheCommodityPriceCycleExxonMobil’slongerrestrictionperiodsensurethatexecutivesarerequiredtoholdsharesthroughthecommoditypricecycleAnalternate,formula-basedprogramwithshort-termtargetsettingandthree-yearvestingwouldenableexecutivestomonetizeperformancesharesatamuchfasterpaceInthisexample,sharesaregrantedtoanexecutiveeachyearoverthemostrecent10-yearperiod(2008-2017).In2013,ontheeveofagreater-than-50-percentdeclineincrudeprice,only8percentofawardsgrantedintheExxonMobilprogramhadvested.Inthealternate programwiththree-yearvesting,58percentofawardsgrantedwouldhavevested–7timesmorethantheExxonMobilprogramExxonMobilexecutives,throughthisdesignfeatureoflongerrestrictionperiods,areencouragedtotakealong-termviewinbusinessdecision-makingVestedSharesAvailabletoSellImmediatelyPriorto2013CrudeOilPriceCollapse(2) 2018ProxyStatement 31 Total of 09 pages in section Performance Share Program Design Principles Shareholderalignment ▪ Bydesign,themajorityofexecutivecompensationisdeliveredinperformanceshares, aligningexecutivepaywiththeexperienceoflong-termshareholders Performance-basedprogramusinghigheststandards ▪ Levelofperformancesharegrantisdeterminedbyrelative Companyperformanceversusindustrypeersinfivepre-establishedperformancemetrics Performancemetricsappliedatgrant ▪ Enablesperformanceandrestrictionperiodsof5years,10years,andlonger. Thisisimportantbecausethealternativeofapplyingperformancemetricsatvestwouldrequirelineofsightto crediblyandpracticallysettargets,thusrequiringshorterperformanceandrestrictionperiods.Shorterperformance andrestrictionperiodswouldbemisalignedwithourbusinessmodelandtheexperienceoflong-termshareholders Promotesretentionandlong-termview ▪ Majorityofcompensationdelayedduetorestrictionperiodsuptothree timeslongerthanindustrypeers,withasignificantportionrestrictedbeyondretirementandatriskofforfeiture.This conventionstrengthensretentionandachievesalignmentwiththeexperienceoflong-termshareholders AnnualProcess toSetPerformanceShareGrantsBasedon BusinessPerformanceandMarketOrientation 2017performance shareaward isover60percentofCEO’s reported2017 compensation,andwas reduced versushis2016performance shareaward, reflecting theCompensationCommittee’sassessmentofCompanyTSRperformance per theprocessoutlinedabove *MarketorientationofCEOpositionover10-yearperiod from2007 to2016 (page33,chart4) 2 CCassessesCompany performance relative to industrypeersbased onpre-established performancemetrics 3 CCaffects futuremarket orientationbydetermining numberof sharesatgrant basedon relativeCompany performanceassessed in Step2 4 Stockpricedetermines finalmarketorientation of compensationatvest, 5 to10+years later 1 CompensationCommittee (CC) setspreliminary award levels,basedon externalbenchmarking 42nd percentile* Median 100th percentile 0 percentile Long Restriction Periods Longestrestrictionsinindustry ▪ Restrictionperiodsforseniorexecutivesfarexceedtypicalthree-yearvestingthatis commonacrossmostindustries Restrictionsalignedwithinvestmentleadtimesofbusiness ▪ Performancesharesvest50percentin5yearsfrom grantdateand50percentin10yearsorretirement,whicheverislater;vestingisnotaccelerateduponretir ment Illustrationoflong-termorientationofperformanceshareprogram 2017 2029 18 19 20 21 2022 23 24 25 27 28 26 30 31 32 33 34 35 36 37 38 2039 AwardsGRANTED—basedonbusinessperformanceandmarketorientation AwardsVEST—valuedat sharepricewhenvested Illustrationshowsretirementatyear-end2029;lastgrantvestsin2039 AnnualProcesstoSetPerformanceShareGrantsBasedonBusinessPerformanceandMarketOrientation1CompensationCommittee(CC)setspreliminaryawardlevels,basedonexternalbenchmarking2CCassessesCompanyperformancerelativetoindustrypeersbasedonpre-establishedperformanceareasandmetrics3CCaffectsfuturemarketorientationbydeterminingnumberofsharesatgrantbasedonrelativeCompanyperformanceassessedinStep24Stockpricedeterminesfinalmarketorientationofcompensationatvest,5to10+yearslater2017performanceshareawardisover60percentofCEO’sreported2017compensation,andwasreducedversushis2016performanceshareaward,reflectingtheCompensationCommittee’sassessmentofCompanyperformancepertheprocessoutlinedabove*MarketorientationofCEOpositionover10-yearperiodfrom2007to2016(page5,chart4)AwardsGRANTED—basedonbusinessperformanceandmarketorientationAwardsVEST—valuedatsharepricewhenvested 30 2018ProxyStatement Executive Summary Key Messages – Why Vote “FOR” Say-On-Pay? Compensation program links Company performance to executive pay • • • • Reduced 2017performance shareawards forCEOandot er NamedExecutiveOfficersdue to10-yearTotalShareholderReturn (TSR) performance that isnot leadingaverageof industrypeers (pages30,34,and35) Industry-leadingperformanceacrossallothermetrics (pages34and35) Increase in2017earnings resulted inannualbonusprogram higher than 2016 (page32) Pay forCEOposition isat42ndpercentileofbenchmarkCEOs (1) (page33) Executive pay tied to shareholder experience • • Over60percentofCEOpaydelivered in the formofperformance shares, with restrictionperiodsof5 years,10 years,and longer (pages30and31) Long restrictionperiodsexposeexecutives to the full impactof th commoditypricecycle,andpreventmonetizationofawardsbefore the impactofbusinessdecisionsbecomes known (pages30and31) Shareholder feedback continues to result in program and disclosure improvements • • • • Confirmed the timeperiod ( 10years )used todetermineCompany performanceagainst keymetrics (pages34and35) Decoupledperformancemetrics for the short-termbonusprogram from the long-termperformance shareprogram (page32) Providedmore specificityas tohow theCompensationC mmit e (CC) determines the sizeofannualperformance shareawards (page30) Clarified relativeCompanyperformanceon keymetricsagainst industry peers (tablebelowandpages34and35) Performance Share Program – Key Metrics and Results Performance Metrics(10-year) Safety& Operations Integrity* ReturnonAverage CapitalEmployed (ROCE)* CashFlowfrom Operationsand AssetSales TotalShareholder Return(TSR) StrategicObjectives, BusinessResults& ProjectExecution AssessmentCriteria vs.U.S.Petroleum IndustryBenchmark RankPosition vs.IndustryPeers RankPosition vs.IndustryPeers vs.Averageof IndustryPeers CCAssessment Status Leading Leading Leading NotLeading StrongResults (seepage35) *HighestprioritymetricsconsideredbyCC CompensationprogramlinksCompanyperformancetoexecutivepayReduced2017performanceshareawardsforCEOandotherNamedExecutiveOfficersdueto10-yearTotalShareholderReturn(TSR)performancethatisnotleadingaverageofindustrypeers(pages2,6,and7)Industry-leadingperformanceacrossallothermetrics(pages6and7)Increasein2017earningsresultedinannualbonusprogramhigherthan2016(page4)PayforCEOpositionisat42ndpercentileofbenchmarkCEOs (1) (page5)ExecutivepaytiedtoshareholderexperienceOver60percentofCEOpaydeliveredintheformofperformanceshares,withrestrictionperiodsof5years,10years,andlonger(pages2and3)Longrestrictionperiodsexposeexecutivestothefullimpactofthecommoditypricecycle,andpreventmonetizationofawardsbeforetheimpactofbusinessdecisionsbecomesknown(pages2and3)ShareholderfeedbackcontinuestoresultinprogramanddisclosureimprovementsConfirmedthetimeperiod(10years)usedtodetermineCompanyperformanceagainstkeymetrics(pages6and7)Decoupledperformancemetricsfortheshort-termbonusprogramfromthe long-termperformanceshareprogram(page4)ProvidedmorespecificityastohowtheCompensationCommittee(CC)determinesthesizeofannualperformanceshareawards(page2)ClarifiedrelativeCompanyperformanceonkeymetricsagainstindustrypeers(tablebelowandpages6and7) 2018ProxyStatement 29 FIRST AMERICAN FINANCIAL CORPORATION CompensationDiscussionandAnalysis 20|2018ProxyStatement FirstAmericanFinancialCorporation 2017PerformanceMetricResults TheNEOannualcashbonusesandannualequitybonuseswerepaidoutat146%oftarget,reflectingthe resultsofthetwofinancialmetricsutilizedbytheCommittee:returnonequityandpretaxmargin.Targetand actualresultsofthesemetricsfor2017aresetforthbelow. Metric Target Actual 2017 Results PretaxMargin 9.3% 10.4% ReturnonEquity 9.9% 12.4% Note: TheCommittee’sdefinitionofpretaxmarginandreturnonequityisdescribedonpage28below.Theactualresultssetforthabovehave beenadjustedtoexclude(frombothmetrics)lossesresultingfromtheterminationoftheCompany’slegacypensionplansand(fromreturnon equity)netincomeresultingfromtaxreformpassedattheendof2017.Thesearenon-GAAPfinancialmeasures.PleaseseeAppendixAfor therationalebehindthepresentationofthesemeasuresandareconciliationoftheseamountstothenearestGAAPfinancialmeasures. TheannualincentiveplangivestheCommitteethediscretiontoadjustthepayoutbyupto30percentage pointstoaccountforfactorsthatmayimpacttheCompany’sreturnonequityorpretaxmarginbutwere unanticipatedorweretheresultofinvestmentsintendedtocreatelong-termstockholdervalue.For2017, theCommitteedidnotmakeanydiscretionaryadjustment. TheCommitteebelievesthattheresultsofthe2017executivecompensationprogram,asdisclosedand discussedherein,reflectitspay-for-performancephilosophy. PayPhilosophy&Objectives TheCompany’sexecutiveofficercompensationprogram,whichisadministeredbytheCommittee,is designedtoenhancestockholdervaluebyprovidingthatasubstantialportionoftheexecutiveofficer’stotal compensationberelatedtotheCompany’sconsolidatedfinancialperformanceandalesserportiontothe Committee’squalitativeanalysisofthecontributionofeachindividualexecutiveofficer.TheCompany’s policyisdesignedtodevelopandadministerprogramsthatwillachievetheobjectivesoutlinedbelow. OURKEYCOMPENSATIONOBJECTIVES AttractandretainexecutivescriticaltotheCompany’slong-termstrategyandsuccess. Providecompensationlevelsthatarecompetitivewithothercompaniesinthetitleinsurance andsettlementservicesindustryandtheCompany’speergroup. Motivateexecutiveofficerstoenhancelong-termstockholdervaluewithouttakingexcessive risktoachieveshort-termgoals. Encouragetheidentificationandimplementationofbestbusinesspractices. CompensationMix TheCommitteeutilizestheparticularelementsofcompensationdescribedbelowbecauseitbelievesthat theyrepresentawell-proportionedmixofstock-basedcompensation,retentionvalueandat-risk compensationwhichproducesshort-termandlong-termperformanceincentivesandrewards.Byfollowing thisportfolioapproach,theCommitteeendeavorstoprovidetheNEOswithameasureofsecuritywith respecttotheirminimumlevelofcompensation,whilemotivatingeachNEOtofocusonthebusiness metricsthatwillproduceahighlevelofperformancefortheCompanywithcorrespondingincreasesin stockholdervalueandlong-termfinancialbenefitsfortheNEO,aswellasreducingtheriskoflossoftop executivetalenttocompetitors. Total of 05 pages in section CompensationDiscussionandAnalysis FirstAmericanFinancialCorporation 2018ProxyStatement|19 Note :ThechartsabovereflectCompanyresultsundergenerallyacceptedaccountingprinciples(“GAAP”).TheCommitteemakescertain non-GAAPadjustmentsinconnectionwithitscompensationprograms,whicharefurtherdescribedbelow. ExecutiononCompanyStrategy DuringtheyeartheCompanysuccessfullyexecutedagainstitslong-term strategicgoals.ThoughmarketshareinitsUnitedStatestitleinsurance businessdecreasedslightly,theCompanycompletedanumberofstrategic acquisitionsdesignedtogrowandstrengthentheCompany’scoretitleand settlementbusinessoverthelong-term. TheCompanyalsoinvestedheavilyintechnologyaimedatincreasingthe efficiencyofitsoperations,reducingriskandenhancingthecustomer experience.Asacomplementtoitstechnologyinvestments,theCompanyalso investedheavilyinitsrealpropertydatabases,alreadythemost comprehensiveoftheirkindintheUnitedStates. OUR VISION Tobethepremier titleinsuranceand settlementservices company TotalRevenues (inbillions) NetIncome (inmillions) $5.6 $5.8 $343.5 $421.9 2016 2016 11.9% 13.0% 11.7% Pre-TaxMargin (TitleSegment) 12.1% ReturnonEquity 2017 2016 2017 2016 2017 2016 2017 2017 Executive Compensation Compensation Discussion and Analysis CD&ARoadmap Page Introduction.................................................................................................................................... 18 ExecutiveSummary....................................................................................................................... 18 ExecutiveCompensationPrograminDetail.................................................................................. 23 CompensationDecisionProcess................................................................................................... 25 PayElements................................................................................................................................. 26 ImpactofTaxandAccounting....................................................................................................... 40 Introduction Inthissection,wedescribeourexecutivecompensationprogramforournamedexecutiveofficers (“NEOs”).Thecompany’sNEOsfor2017were: DennisJ.Gilmore ChiefExecutiveOfficer 25 KennethD.DeGiorgio ExecutiveVicePresident 19 ChristopherM.Leavell ChiefOperatingOfficer,FirstAmericanTitleInsuranceCompany 21 MarkE.Seaton ExecutiveVicePresident,ChiefFinancialOfficer 12 Matthew F.Wajner VicePresident,ChiefAccountingOfficer 9 Executive Summary TheCompensationCommittee(the“Committee”)believestheCompany’smanagementteamachieved excellentresultsin2017andwassuccessfulinexecutingontheCompany’sstrategicobjectives.Executive compensationfortheyearreflectedtheCommittee’spay-for-performancephilosophy. 2017PerformanceResults TheCompany’s2017performancegenerallyimprovedoverastrong2016, withrevenuegrowing3.5%to$5.8billionandnetincomeincreasingfrom$343 millionto$422million.Pretaxmarginforthetitleinsuranceandservices segmentwas12.1%,thehighestintheCompany’shistoryandup40basis pointsovertheprioryear.Returnonequityimprovedfrom11.9%in2016to 13.0%in2017.Bothmetrics,pretaxmarginandreturnonequity,metthe Company’sstatedlong-termobjectives.Reflectingitscommitmenttodrive returnforitsstockholders,duringtheyeartheCompanyincreaseditscash dividendby12%fromanannualrateof$1.36to$1.52pershareandachieved aone-yeartotalstockholderreturnof57.9%. STRONGRESULTS IN2017 IN2017,THECOMPANY ACHIEVEDAONE-YEAR TOTALSTOCKHOLDER RETURNOF57.9% COMPAREDTOTHE S&P500AT21.8% Name PrincipalPosition Tenure (years) 18|2018ProxyStatement FirstAmericanFinancialCorporation