Sunoco 2013 Annual Report Download - page 115

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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, distribution
equivalent rights 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 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).
• 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. However, in the future, the Compensation
Committee may grant unit options under the LTIP to employees and directors, containing such terms
as the Compensation Committee shall determine.
• Accounting and Tax Considerations. We account for the equity compensation expense of our general
partner’s employees, including the NEOs, in accordance with U.S. generally accepted accounting principles
(“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 2013. In
deciding to grant long-term incentive awards of restricted units, rather than unit options, our general partner’s
Compensation Committee did consider the tax implications to us.
• Equity Grant Practices. Equity awards to employees are approved at meetings of our general partner’s
Compensation Committee. In exigent circumstances, 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 2013.
• Unit Ownership Guidelines. Our general partner has established guidelines for the ownership of our common
units, applicable to its executives and certain key employees. For executives (including NEOs) and other key
employees, 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. Executive officers who have
not yet met their respective 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 payment of LTIP awards,
such persons are prohibited from disposing of any of our common units until the applicable ownership
guideline has been attained. However, those individuals who have met or exceeded their applicable
ownership guideline may dispose of our common units in a manner consistent with applicable law and our