Sunoco 2014 Annual Report Download - page 120

118
units, consideration was given to a balanced incentive approach, utilizing those measures deemed most
important to our common unitholders, while recognizing the difficulty of accurately predicting market
conditions over time. For these grants, the Compensation Committee believes that performance relative
to our peer companies is an important criterion for payout since market conditions are outside the control
of management, and management should realize greater than median levels of compensation only when
we outperform relative to our peer companies. Conversely, regardless of market conditions, management
should realize less than median compensation levels when we underperform as compared to our peer
companies. Total unitholder return is a measure of investment performance expressed as total return to
unitholders, based upon the cumulative return over a three-year period reflecting price appreciation and
reinvestment of cash distributions during the performance period and is a non-GAAP financial measure.
Total unitholder return is measured using a one-month average stock price at the beginning and end of
the three-year performance period. Similarly, distribution coverage ratio also is a non-GAAP financial
measure that is measured over the same three-year performance period. As an additional incentive to
promote the growth of cash distributions to our unitholders during the performance period, DERs were
granted in tandem with the performance based restricted unit awards. At the end of the performance
period, to the extent that the restricted units are paid out, these DERs entitle the grantee of the restricted
units to receive an amount equal to the cumulative cash distributions that otherwise would have been
paid over the performance period had the grantee been the holder of record of the number of our
common units equal to the number of restricted units paid out. This amount may be taken in the form of
cash or additional common units (fractional units are cashed out).
• Unit Options: The LTIP currently permits the grant of options covering common units. No unit options
have been granted since the inception of the LTIP.
• Accounting and Tax Considerations: We account for the equity compensation expense of our general partner's
employees, including the NEOs, in accordance with GAAP, which requires us to estimate and record an expense
for each equity award over the vesting period of the award. For performance-based restricted units that are paid
out in the form of common units, the value of our common units on the date of grant is used for determining the
expense, with an adjustment for the actual performance factors achieved. Thus, the expense for performance-
based restricted units, payable in units, generally is not adjusted for changes in the trading price of our common
units after the date of grant. For market-based awards, the value is determined using a Monte Carlo simulation.
The expense for restricted units settled in common units is recognized ratably over the vesting period. For cash
compensation, the accounting rules require us to record it as an expense at the time the obligation is accrued.
Because we are a partnership, and our general partner is a limited liability company, Internal Revenue Code
("Code") Section 162(m) does not apply to the compensation paid to our NEOs and, accordingly, our general
partner's Compensation Committee did not consider its impact in determining compensation levels for 2014.
• Equity Grant Practices: Equity awards to employees are approved at meetings of our general partner's
Compensation Committee. In limited situations, however, such awards may be approved by unanimous written
consent of the Compensation Committee. The grant date of an equity award is the date of the Compensation
Committee meeting at which such equity award is approved. The Compensation Committee may, in its discretion,
refrain from approving grants of equity awards to employees if the meeting at which such approval is to be
considered occurs during a period in which management is in possession of material non-public information, in
which case, approval of such equity awards may be deferred to the next Compensation Committee meeting. No
grant approvals were deferred to a later Compensation Committee meeting in 2014. However, the Compensation
Committee approved the December 2014 awards by unanimous written consent on December 5, 2014, following
the meeting of the Compensation Committee on December 3, 2014, in order that the vesting date of such units be
on December 5 of each of 2017 and 2019.
• Unit Ownership Guidelines: Our general partner has established guidelines for the ownership of our common
units, applicable to certain executives of the Partnership with respect to common units representing limited
partnership interests in the Partnership. The applicable unit ownership guidelines are denominated as a multiple of
base salary, and the amount of common units required to be owned increases with the level of responsibility.
Under the current guidelines, the President and Chief Executive Officer is expected to own common units having
a minimum value of five times his base salary, while each of the remaining NEOs are expected to own common
units having a minimum value of three times their respective base salaries. Our general partner and the
Compensation Committee believe that the ownership of our common units, as reflected in these guidelines, is an
important means of tying the financial risks and rewards for our executives to our total unitholder return and
better aligning the interests of such executives with those of our unitholders. Any executive subject to the
guidelines who has not yet met his or her respective ownership guideline must accumulate our common units until
such guideline is met. Except for sales of common units in settlement of tax obligations relating to the receipt and