Sunoco 2012 Annual Report Download - page 130

to each of these two measures. Payment with respect to earned performance-based restricted units is
made in common units no later than March 15 following the end of the performance period. The
following objective performance goals, assigned weights, and payout factors were approved by the
Compensation Committee for the 2012 plan year:
Total Unitholder Return
(weighted 50%)
Ranking Against
Peer Companies
Payout
Factor
Below 40th Percentile .................. 0%
40th Percentile ........................ 50%
50th Percentile ........................ 100%
75th Percentile ........................ 150%
90th Percentile ........................ 200%
Distribution Coverage Ratio
(weighted 50%)
Distribution Coverage
Ratio Targets
Payout
Factor
Below 1.00 ........................... 0%
1.00 ................................ 25%
1.20 ................................ 75%
1.30 ................................ 100%
1.55 ................................ 150%
1.80 and above ........................ 200%
In selecting total unitholder return and distributable cash flow, as measured by the distribution
coverage ratio, as the performance measures applicable to the payout of performance-based
restricted 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 the peer companies is an important criterion for payout since market
conditions are outside the control of management, and management will realize greater than median
levels of compensation only when we outperform our LTIP Peer Group. Conversely, regardless of
market conditions, management will realize less than median compensation levels when we
underperform as compared to our LTIP Peer Group. 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 metric. 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, distribution equivalent rights were
granted in tandem with the 2012 performance based restricted unit awards. At the end of the
performance period, to the extent that the restricted units are paid out, these distribution equivalent
rights 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).
All of the new LTIP grants made subsequent to the October 2012 Merger are all time-vesting grants
that provide for vesting over a specified time period, conditioned solely upon continued employment
(or Board service) as of each applicable vesting date, rather than vesting based on the satisfaction of
any performance objectives. This change resulted from the Compensation Committee’s determination
that vesting based on continued employment, rather than the satisfaction of performance objectives,
was more generally prevalent with companies in the energy industry. These restricted unit grants
generally provide for vesting over a five-year period at 20 percent each year, subject to continued
employment (or Board service) through each specified vesting date. Each of these restricted unit grants
typically entitle the recipient to receive, with respect to each of our common units subject to such grant
that has not either vested or been forfeited, a cash payment equal to each cash distribution per common
unit made by us on our common units promptly following each such distribution by us to our
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