Notice of the 2007

Annual Meeting and the

2007 Proxy Statement

 

TABLE OF CONTENTS

 

 

Annual Meeting of Stockholders

 

 

Agenda

 

 

Admission

 

All stockholders are invited to attend the Annual Meeting. To be admitted, you will need an admission ticket or proof of ownership of Chevron common stock with a form of photo identification.

 

We will hold the Annual Meeting at Chevron Park in San Ramon, California. Seating will be limited and on a first come basis. Please refer to page 5 of this Proxy Statement for information about attending the Annual Meeting.

 

Voting

 

Stockholders owning Chevron Stock at the close of business on March 12, 2007, or their legal proxy holders, are entitled to vote at the Annual Meeting. Please refer to page 3 of the proxy statement for an explanation of Chevron’s confidential voting procedures.

 

We are distributing this proxy statement, proxy form and Chevron’s 2006 Annual Report to stockholders on or about March 19, 2007.

 

By Order of the Board of Directors,

 

 

Lydia I. Beebe
Corporate Secretary

Chevron Corporation

6001 Bollinger Canyon Road

San Ramon, California 94583-2324

 

March 19, 2007

 

2007 Proxy Statement

 

General Information

 

Your Board is providing you these proxy materials in connection with the solicitation of proxies to be voted at our 2007 Annual Meeting of Stockholders and at any postponement or adjournment of the Annual Meeting. In this proxy statement, Chevron is referred to as “we,” “our,” “the Company” or “the Corporation.”

 

Your Board of Directors asks you to appoint David J. O’Reilly, Charles A. James and Lydia I. Beebe as your proxy holders to vote your shares at the Annual Meeting. You make this appointment by voting the enclosed proxy form using one of the voting methods described below.

 

If appointed by you, the proxy holders will vote your shares as you direct on the matters described in this proxy statement. In the absence of your direction, they will vote your shares as recommended by your Board.

 

Unless you otherwise indicate on the proxy form or through the telephone or Internet voting procedures, you also authorize your proxy holders to vote your shares on any matters that are not known by your Board at the time this proxy statement was printed and that, under Chevron’s By-Laws, may be properly presented for action at the Annual Meeting.

 

Your Board strongly encourages you to exercise your right to vote. Your vote is important. Voting early helps ensure that Chevron receives a quorum of shares necessary to hold the Annual Meeting. Many stockholders do not vote, so the stockholders who do vote influence the outcome of the election in greater proportion than their percentage ownership of Chevron. Please vote.

 

Stockholders of record (you own shares in your own name) can vote by telephone, on the Internet or by mail as described below. Street name stockholders (you own shares in the name of a bank, broker or other holder of record) should refer to the proxy form or the information you receive from the record holder to see the voting methods available to you. We encourage you to record your vote on the Internet. It is convenient, and it saves Chevron, your company, significant postage and processing costs. In addition, when you vote on the Internet or by the telephone prior to the meeting date, your vote is recorded immediately and there is no risk postal delays will cause your vote to arrive late and therefore not be counted.

 

The telephone and Internet voting procedures are designed to verify that you are a stockholder of record by use of a control number and to allow you to confirm that your voting instructions have been properly recorded. If you vote by telephone or on the Internet, you do not need to return your proxy form. Telephone and Internet voting facilities for stockholders of record will be available 24 hours a day and will close at 11:59 p.m., EDT, on April 24, 2007.

 

Voting by Telephone. You may vote by proxy by using the toll-free number listed on the proxy form. Easy-to-follow voice prompts allow you to vote your shares and confirm that your instructions have been properly recorded.

General Information (Continued)

Voting on the Internet. You may vote by proxy on the Internet. The Web site for Internet voting is www.proxyvote.com. As with telephone voting, you can confirm that your instructions have been properly recorded. If you vote on the Internet, you can request electronic delivery of future proxy materials.

 

Voting by Mail. You may vote by proxy by signing, dating and returning your proxy forms in the pre-addressed, postage-paid envelope provided.

 

Voting at the Annual Meeting. The method by which you vote your proxy form will not limit your right to vote at the Annual Meeting if you decide to attend in person. Your Board recommends that you vote using one of the other voting methods since it is not practical for most stockholders to attend the Annual Meeting. If you are a street name stockholder, you must obtain a proxy, executed in your favor, from the holder of record to be able to vote at the Annual Meeting.

 

Revoking Your Voting Instructions to Your Proxy Holders. If you are a stockholder of record and you vote by proxy using the mail, the telephone or the Internet, you may later revoke your proxy instructions by:

 

 

If you are a street name stockholder and you vote by proxy, you may later revoke your proxy instructions by informing the holder of record in accordance with that entity’s procedures.

 

At the close of business on the Record Date, there were 2,155,328,852 shares of Chevron Stock outstanding and entitled to vote at the Annual Meeting. Each outstanding share is entitled to one vote.

 

A quorum, which is a majority of the outstanding shares as of the Record Date, must be present to hold the Annual Meeting. A quorum is calculated based on the number of shares represented at the meeting, either by the stockholders attending in person or by the proxy holders. If you indicate an abstention as your voting preference in all matters, your shares will be counted toward a quorum but will not be voted on any matter.

 

If you are a street name stockholder and don’t vote your shares, your broker can vote your shares at its discretion on any of the matters scheduled to come before the meeting, other than Items 3 through 9 on the proxy form. If you don’t give your broker instructions on how to vote your shares on the stockholder proposals, your shares will not be voted on these matters and will be considered “broker non-votes.”

 

If you have shares in an employee benefits plan and do not vote those shares, your trustee will vote your shares in accordance with the terms of the plan.

 

The required vote and method of calculation for the various business matters to be considered at the Annual Meeting are as follows:

 

Item 1—Election of Directors

 

Each outstanding share of Chevron Stock is entitled to one vote for each of the 14 Director nominees. Each Director nominee who receives a majority of the votes cast (number of shares voted “for” a Director nominee must exceed the number of votes cast “against” that Director nominee, excluding abstentions) will be elected a Director, provided that if the number of Director nominees exceeds the number of Directors to be elected (a situation we do not

General Information (Continued)

anticipate), the Directors shall be elected by a plurality of the shares present in person or by proxy at any such meeting and entitled to vote on the election of Directors. If you do not wish your shares to be voted with respect to a particular Director nominee, you may so indicate in the “Abstain” space provided on the proxy form or abstain as prompted during the telephone or Internet voting instructions. Under the Corporation’s By-Laws, any current Director who receives more “against” votes than “for” votes must submit an offer of resignation to the Board Nominating and Governance Committee, which must consider all relevant facts, including the Director’s qualifications and past and expected future contributions, the overall composition of the Board and whether the Company would no longer meet regulatory requirements without the Director, and make a recommendation to the Board on what action to take with respect to the offer of resignation.

 

Item 2—Ratification of Independent Registered Public Accounting Firm is approved if the number of shares voted in favor exceeds the number of shares voted against.

 

Item 3—Approval of Amendment to the Company’s Restated Certificate of Incorporation to Repeal the Supermajority Vote Provisions is approved if 662/3 percent of the outstanding shares voted in favor.

 

Items 4 through 9—Stockholder Proposals

 

Each proposal is approved if the number of shares voted in favor exceeds the number of shares voted against, except for Item 8 which is approved if a majority of the shares outstanding vote in favor of the proposal.

 

Any shares not voted on any item (whether by abstention, broker non-vote or otherwise) will have no impact on that particular item.

 

Chevron has a confidential voting policy to protect our stockholders’ voting privacy. Under this policy, ballots, proxy forms and voting instructions returned to brokerage firms, banks and other holders of record are kept confidential. Only the proxy solicitor, the proxy tabulator and the Inspector of Election have access to the ballots, proxy forms and voting instructions. Anyone who processes or inspects the ballots, proxy forms and voting instructions signs a pledge to treat them as confidential. None of these persons is a Chevron Director, officer or employee.

 

The proxy solicitor and the proxy tabulator will disclose information taken from the ballots, proxy forms and voting instructions only in the event of a proxy contest or as otherwise required by law.

 

Chevron has retained ADP Investor Communication Services to assist in distributing these proxy materials. Georgeson Inc. will act as our solicitor in soliciting votes at an estimated cost of $25,000 plus its reasonable out-of-pocket expenses. Chevron employees, personally, by telephone, by e-mail or otherwise, may solicit your proxy voting instructions without additional compensation.

 

Chevron will reimburse brokerage firms, banks and other holders of record for reasonable, out-of-pocket expenses for forwarding these proxy materials to you, according to certain regulatory fee schedules. We estimate that this reimbursement will cost Chevron more than $2 million. The actual amount will depend on variables such as the number of proxy packages mailed, the number of stockholders receiving electronic delivery and postage costs. See the “Electronic Access to Proxy Statement and Annual Report” below for information on how you can help reduce printing and mailing costs.

 

ADP Investor Communication Services will be the proxy tabulator and IVS Associates, Inc. will act as the Inspector of Election.

General Information (Concluded)

 

We have adopted a procedure approved by the Securities and Exchange Commission called “householding.” Under this procedure, stockholders of record who have the same address and last name and do not participate in electronic delivery of proxy materials will receive only one copy of the Annual Report and proxy statement. This procedure will reduce our printing costs and postage fees.

 

Stockholders who participate in householding will continue to receive separate proxy forms. Householding will not affect your dividend check mailings.

 

If you or another stockholder of record with whom you share an address wish to receive a separate Annual Report or proxy statement, we will promptly deliver it to you if you request it by writing to the Corporate Secretary at the address listed on page 1 of this proxy statement. If you or another stockholder of record with whom you share an address wish to receive a separate Annual Report or proxy statement in the future, you may telephone toll-free 1-800-542-1061 or write to ADP, Attention Householding Department, 51 Mercedes Way, Edgewood, New York 11717.

 

If you are a street name stockholder, you can request householding by contacting the holder of record.

 

The Notice of Annual Meeting and proxy statement and the 2006 Annual Report and Form 10-K are available on Chevron’s Web site at www.chevron.com.

 

Instead of receiving paper copies of the Annual Report and proxy statement in the mail, you can elect to receive an e-mail that will provide an electronic link to these documents. Opting to receive your proxy materials online will save us the cost of producing and mailing documents to your home or business and also gives you an electronic link to the proxy voting site.

 

If you are a stockholder of record, you may vote on the Internet at www.proxyvote.com. You may also enroll in the electronic delivery service by going directly to www.icsdelivery.com/cvx. You may revoke your electronic delivery election at this site at any time and request a paper copy of the proxy statement and Annual Report.

 

If you are a street name stockholder, you may also have the opportunity to receive copies of the Annual Report and proxy statement electronically. Please check the information provided in the proxy materials mailed to you by the holder of record concerning the availability of this service.

 

Our transfer agent is Mellon Investor Services. All communications concerning accounts of stockholders of record, including address changes, name changes, inquiries about the requirements to transfer shares and similar issues can be handled by calling the Chevron Stockholder Services’ toll-free number, 1-800-368-8357, or by contacting Mellon Investor Services through its Web site at www.melloninvestor.com.

 

In addition, you can access your account through Mellon Investor Services’ Web site. You can view your current balance, access your account history, sell shares held in the Chevron Investor Services Program and obtain current and historical stock prices. To access your account on the Internet, visit www.melloninvestor.com/isd and enter your Investor ID and your PIN. The Investor ID can be found on your account statement or dividend check stub.

 

Your Board does not know of any other matter that will be presented for consideration at the Annual Meeting. If any other matter does properly come before the Annual Meeting, your proxy holders will vote on it as they think best unless you direct otherwise in your proxy instruction.

Information About the Meeting

 

Only stockholders or their legal proxy holders are invited to attend the Annual Meeting. The meeting will be held at the Chevron Park Auditorium, 6001 Bollinger Canyon Road, San Ramon, California 94583-2324. An admission ticket, which is required for entry into the Annual Meeting, is attached to your proxy form if you are a stockholder of record. If you plan to attend the Annual Meeting, please vote your proxy but keep the admission ticket and bring it to the Annual Meeting.

 

If you are a street name stockholder and you plan to attend the Annual Meeting, you must present proof of your ownership of Chevron Stock, such as a bank or brokerage account statement, and a form of photo identification to receive an admission ticket and be admitted to the Annual Meeting. You can also obtain an admission ticket in advance by mailing a written request, along with proof of your ownership of Chevron Stock, to the Corporate Secretary at the address listed on page 1 of this proxy statement.

 

If you arrive at the meeting without an admission ticket, we will admit you if we are able to verify that you are a stockholder. If you are not a stockholder, you will be admitted only if you have a valid legal proxy.

 

We will have listening devices available at the Annual Meeting for stockholders with impaired hearing.

 

No cameras, recording equipment, electronic devices, including cell phones, large bags, briefcases or packages will be permitted in the Annual Meeting.

 

Election of Directors

(Item 1 on the proxy form)

 

Your Board is nominating 14 individuals for election as Directors. A report by the Board Nominating and Governance Committee beginning on page 13 of this proxy statement and the Corporate Governance Guidelines (available on the Chevron Web site at www.chevron.com and available in print upon request) describe the processes used to determine the qualifications and independence of each nominee and the effectiveness of the Board and its committees.

 

The persons named as proxy holders on the proxy form will vote your shares FOR the 14 nominees unless you vote against or abstain in the spaces provided on the proxy form or as prompted during the telephone or Internet voting instructions. Directors are elected annually and serve for a one-year term and until their successors are elected.

 

If any nominee is unable to serve as a Director, which we do not anticipate, the Board by resolution may reduce the number of Directors or choose a substitute.

 

The Chevron Board service described below includes service as a Director of either Chevron or Texaco, as applicable, before the merger of Chevron and Texaco.

 

NOMINEES FOR DIRECTORS
 

Your Board unanimously recommends a vote FOR each of these nominees.

 

an independent research, technology development and commercialization organization, since 1998.

 

Prior Positions Held: Mr. Armacost was a Managing Director of Weiss, Peck & Greer L.L.C. from 1990 until 1998. He was Managing Director of Merrill Lynch Capital Markets from 1987 until 1990. He was President, Director and Chief Executive Officer of BankAmerica Corporation from 1981 until 1986.

 

Public Company Directorships: Callaway Golf Company; Del Monte Foods Company; Exponent, Inc.; Franklin Resources Inc.

 

Other Directorships and Memberships: Bay Area Council; Bay Area Scientific Infrastructure Consortium.

 

 

Prior Positions Held: Ms. Deily was Vice-Chairman of Charles Schwab Corporation from 2000 until 2001. She was previously President of the Schwab Retail Group from 1998 until 2000, and President of Schwab Institutional- Services for Investment Managers from 1996 until 1998. Prior to joining Schwab, she was Chairman, President and Chief Executive Officer from 1990 until 1996 and President and Chief Operating Officer from 1988 until 1990 of the First Interstate Bank of Texas.

 

Public Company Directorships: Alcatel-Lucent; Honeywell International Inc.

 

Other Directorships and Memberships: Greater Houston Partnership; Fulbright Board; Museum of Fine Arts, Houston; Houston Zoo; MD Anderson Board of Visitors.

Election of Directors (Continued)

 

Prior Positions Held: Mr. Denham was Chairman and Chief Executive Officer of Salomon Inc. from 1992 until 1997. In 1991, he was General Counsel of Salomon and its subsidiary, Salomon Brothers.

 

Public Company Directorships: Alcatel-Lucent; Wesco Financial Corporation; Fomento Economico Mexicano, S.A. de C.V.

 

Other Directorships and Memberships: Financial Accounting Foundation; MacArthur Foundation; U.S. Trust Company.

 

 

Prior Positions Held: Mr. Eaton was the Chairman of the Board of Management of DaimlerChrysler AG from 1998 until 2000. He was Chairman of the Board and Chief Executive Officer of Chrysler Corporation from 1993 until 1998. He was Vice-Chairman and Chief Operating Officer of Chrysler Corporation from 1992 until 1993.

 

Other Directorships and Memberships: Fellow, Society of Automotive Engineers; Fellow, Engineering Society of Detroit; National Academy of Engineering.

 

 

Prior Positions Held: Mr. Ginn was Chairman of Vodafone AirTouch, Plc. from 1999 until 2000 and Chairman of the Board and Chief Executive Officer of AirTouch Communications, Inc. from 1993 until 1999. He was Chairman of the Board, President and Chief Executive Officer of Pacific Telesis Group from 1988 until 1994.

 

Public Company Directorships: ICO Global Communications (Holdings) Limited.

 

Other Directorships and Memberships: Franklin Funds; Hoover Institute Board of Overseers; Yosemite Fund.

 

 

Prior Positions Held: Dr. Jenifer was President of the University of Texas at Dallas from 1994 until 2005. He was President of Howard University from 1990 to 1994. Prior to that, he was Chancellor of the Massachusetts Board of Regents of Higher Education from 1986 until 1990.

Election of Directors (Continued)

 

Prior Positions Held: Senator Nunn was a partner of King & Spalding, a law firm, from 1997 until 2003. He served as U.S. Senator from Georgia from 1972 until 1996. During his tenure in the U.S. Senate, he served as Chairman of the Senate Armed Services Committee and the Permanent Subcommittee on Investigations. He also served on the Intelligence and Small Business Committees.

 

Public Company Directorships: The Coca-Cola Company; Dell Inc.; General Electric Company.

 

Other Directorships and Memberships: A Distinguished Professor in the Sam Nunn School of International Affairs at Georgia Tech; Chairman, Center for Strategic and International Studies.

 

 

Prior Positions Held: Mr. O’Reilly was Vice-Chairman of the Board of Chevron from 1998 until 1999. He was a Vice-President of Chevron from 1991 until 1998. He was President of Chevron Products Company from 1994 until 1998. He was a Senior Vice-President and Chief Operating Officer of Chevron Chemical Company from 1989 until 1991.

 

Other Directorships and Memberships: American Petroleum Institute; Eisenhower Fellowships Board of Trustees; Institute for International Economics; The Business Council; The Business Roundtable; JPMorgan International Council; World Economic Forum’s International Business Council; the Trilateral Commission; the National Petroleum Council; the American Society of Corporate Executives.

 

 

Prior Positions Held: Dr. Rice was President and Chief Operating Officer of Teledyne, Inc., from 1993 until 1996. He was Secretary of the Air Force from 1989 until 1993. He was President and Chief Executive Officer of the RAND Corporation from 1972 until 1989.

 

Public Company Directorships: Vulcan Materials Co.; Wells Fargo & Company.

 

Other Directorships and Memberships: Trustee, RAND Corporation; Chairman of the Board of Governors of the Pardee RAND Graduate School.

Election of Directors (Continued)

 

Prior Positions Held: Mr. Robertson was Vice-President of Chevron from 1994 until 2001. He was President of Chevron Overseas Petroleum Inc. from 2000 until 2001. He was the Vice-President responsible for Chevron’s North American exploration and production operations from 1997 until 2000. From 1994 until 1997, he was the Vice-President responsible for strategic planning.

 

Other Directorships and Memberships: Chairman, U.S. Energy Association; U.S.-Saudi Arabian Business Council; U.S.-Russian Business Council; American Petroleum Institute; International House at Berkeley; United Way of the San Francisco Bay Area; Vice-Chairman, Leon H. Sullivan Foundation; Director of Transatlantic Partnership Against AIDS.

 

 

Prior Positions Held: From October 1992 to May 2000, Mr. Sharer served as President and Chief Operating Officer of Amgen. From April 1989 to October 1992, Mr. Sharer was President of the Business Markets Division of MCI Communications Corporation. From February 1984 to March 1989, Mr. Sharer served in numerous executive capacities at General Electric Company.

 

Public Company Directorships: Amgen Inc.; Northrop Grumman Corporation; 3M Company (until May 8, 2007).

 

Other Directorships and Memberships: University of Southern California; Los Angeles County Museum of National History.

 

 

Prior Positions Held: Mr. Shoemate was Chairman of the Board and Chief Executive Officer of Bestfoods, formerly CPC International, from 1990 until 2000. He was elected President and a member of the Board of Directors of Bestfoods in 1988.

Election of Directors (Concluded)

 

Prior Positions Held: Dr. Sugar was President and Chief Operating Officer of Northrop Grumman Corporation from 2001 until 2003. He was President and Chief Operating Officer of Litton Industries, Inc., from 2000 until 2001. He was previously President and Chief Operating Officer of TRW Aerospace and Information Systems.

 

Public Company Directorships: Northrop Grumman Corporation.

 

Other Directorships and Memberships: Aerospace Industries Association; Boys & Girls Clubs of America; Los Angeles Philharmonic Association; National Academy of Engineering; Pearl Harbor Memorial Fund; Royal Aeronautical Society; University of Southern California.

 

 

Prior Positions Held: Mr. Ware was a Senior Advisor to the CEO of The Coca-Cola Company from 2003 until 2005 and was an Executive Vice-President, Global Public Affairs and Administration from 2000 until 2003. He was President of The Coca-Cola Company’s Africa Group, with operational responsibility for 50 countries in sub-Saharan Africa from 1991 until 2000.

 

Public Company Directorships: Coca-Cola Bottling Co. Consolidated; Cummins Inc.

 

Other Directorships and Memberships: Atlanta Falcons; Board of Trustees of Clark Atlanta University; PGA TOUR Golf Course Properties, Inc.

Board Operations

 

 

The Audit, Board Nominating and Governance and Management Compensation Committees are each constituted and operated according to the rules of the New York Stock Exchange (NYSE). In addition, the Audit Committee is a separately designated standing Audit Committee established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934. Each member of the Audit Committee is independent and financially literate as defined in the rules of the NYSE and Rule 10A-3(b)(1)(ii) under the Securities Exchange Act of 1934.

 

 

 

In 2006, your Board held eight regularly scheduled Board meetings, each of which included executive sessions of independent directors, and 24 Board committee meetings, which included 10 Audit Committee, five Board Nominating and Governance Committee, five Management Compensation Committee and four Public Policy Committee meetings. All Directors attended 88 percent or more of the Board meetings and Board committee meetings on which they served during 2006. Chevron’s policy regarding Directors’ attendance at the

Board Operations (Continued)

Annual Meeting, as described in the Corporate Governance Guidelines under the heading ‘‘Board Agenda and Meetings,” is that all Directors are expected to attend, absent extenuating circumstances. Last year, 12 Directors attended the 2006 Annual Meeting.

 

Since 2004, the Board has had a Lead Director who is an independent Director. Currently, Sam Armacost is the Lead Director. As discussed in the Corporate Governance Guidelines, the Lead Director is elected annually by the independent Directors and chairs the executive sessions of the independent Directors and coordinates with the Chairman on the schedule and agendas for Board meetings and other matters pertinent to the Corporation and the Board.

 

 

The Board has affirmatively determined that, as to each current, non-employee Director (Mr. Armacost, Ms. Deily, Mr. Denham, Mr. Eaton, Mr. Ginn, Dr. Jenifer, Sen. Nunn, Dr. Rice, Mr. Shoemate, Dr. Sugar and Mr. Ware) and the non-employee Director nominee (Mr. Sharer), no material relationship exists that, in the opinion of the Board, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director, and that each current, non-employee Director and Director nominee qualifies as “independent” according to the Corporate Governance Rules of the NYSE.

 

In making its determination, the Board adheres to the specific tests for independence included in the NYSE listing standards. In addition, the Board has determined that the following relationships of Chevron Directors are categorically immaterial if the transaction was conducted in the ordinary course of business, and that these standards have been met by all non-employee directors and the non-employee director nominee:

 

 

Chevron has adopted a code of business conduct and ethics for Directors, officers (including the Company’s Chief Executive Officer, Chief Financial Officer and Comptroller) and employees, known as the Business Conduct and Ethics Code. The code is available on the Chevron Web site at www.chevron.com and is available in print upon request. Chevron intends to post any amendments to the code on the Chevron Web site.

 

It is our policy that all employees and Directors, as well as their family members, must avoid any activity that is or has the appearance of conflicting with Chevron’s business interest. This policy is included in our Business Conduct and Ethics Code. Each Director and executive officer is instructed to always inform the Chairman and Corporate Secretary when confronted with any situation that may be perceived as a conflict of interest. In addition, at least annually, each Director and executive officer completes a detailed questionnaire specifying any business relationship that may give rise to a conflict of interest. The Board Nominating and Governance Committee reviews all relevant information, including the amount of all business transactions involving Chevron and

Board Operations (Continued)

the entity with which the Director is associated, and makes recommendations, as appropriate, to the Board.

 

The Audit Committee assists your Board in fulfilling its responsibility to oversee management’s implementation of Chevron’s financial reporting process. The Audit Committee Charter can be viewed on the Chevron Web site at www.chevron.com and is available in print upon request. In discharging its oversight role, the Audit Committee reviewed and discussed the audited financial statements contained in the 2006 Annual Report on Form 10-K with Chevron’s management and its independent registered public accounting firm. Management is responsible for the financial statements and the reporting process, including the system of disclosure controls and internal control over financial reporting. The independent registered public accounting firm is responsible for expressing an opinion on:

 

 

The Audit Committee met privately with the independent registered public accounting firm and discussed issues deemed significant by the accounting firm, including those required by Statements on Auditing Standards No. 61 and No. 90 (Audit Committee Communications), as amended. In addition, the Audit Committee discussed with the independent registered public accounting firm its independence from Chevron and its management and received the written disclosures and the letter required by Independence Standards Board Standard No. 1 (Independence Discussions with Audit Committees) and considered whether the provision of non-audit services was compatible with maintaining the accounting firm’s independence.

 

In reliance on the reviews and discussions outlined above, the Audit Committee has recommended to your Board that the audited financial statements be included in Chevron’s Annual Report on Form 10-K for the year ended December 31, 2006, for filing with the SEC.

 

Respectfully submitted on February 28, 2007, by the members of the Audit Committee of your Board:

 

Charles R. Shoemate,
  Chairperson
Linnet F. Deily
Robert E. Denham
Franklyn G. Jenifer

 

The Board Nominating and Governance Committee is responsible for defining and assessing qualifications for Board membership, identifying qualified Director candidates, assisting the Board in organizing itself to discharge its duties and responsibilities, and providing oversight on corporate governance practices and policies including an effective process for stockholders to communicate with the Board. The Committee is composed entirely of independent Directors and operates under a written charter. The Committee charter is available on the Chevron Web site at www.chevron.com and is available in print upon request. The Committee submits this report to stockholders to report on its role and corporate governance practices at Chevron in 2006.

 

When making recommendations to the Board about individuals to be nominated for election to the Board by the stockholders, the Committee follows the Board membership qualifications and nomination procedures identified in our Corporate Governance Guidelines. Generally, the membership qualifications are that an individual have:

 

Board Operations (Continued)

 

 

The Committee uses a skills and qualifications matrix to evaluate potential candidates in order to insure that the overall Board maintains a balance of knowledge, experience and diversity. The Committee carefully reviews all Director candidates, including current Directors, in light of these qualifications based on the context of the current and anticipated composition of the Board, the current and anticipated operating requirements of the Company and the long-term interests of stockholders. In conducting this assessment, the Committee considers diversity, education, experience, length of service and such other factors as it deems appropriate given the current and anticipated needs of the Board and the Company to maintain a balance of knowledge, experience and capability.

 

Under our Corporate Governance Guidelines, the Committee considers all candidates recommended by our stockholders. Stockholders may recommend candidates by writing to the Corporate Secretary at the address listed on page 1 of this proxy statement, stating the recommended candidate’s name and qualifications for Board membership. When considering candidates recommended by stockholders, the Committee follows the same Board membership qualifications evaluation and nomination procedures discussed above.

 

In addition to stockholder recommendations, the Committee receives Director candidates for consideration for nomination to the Board from other sources. Board members periodically suggest possible candidates and, from time to time, the Committee may engage a third party to assist in identifying potential candidates. In 2006, the Committee did not receive any candidate suggestions from beneficial owners of more than five percent of the Company’s common stock. Since the 2006 Annual Meeting, the Board does not have any new members.

 

In connection with the 2007 Annual Meeting, the Committee evaluated current and anticipated operating requirements and the Board’s current profile and recommended an increase in the Board size from 13 to 14 members. Of the 14 nominees for election as Directors, 13 are current Directors and one is a new nominee who was identified by one of our existing non-management Directors as part of the Committee’s regular process for identifying potential Director nominees. The Committee recommended, and the Board determined, that the 12 non-employee Director nominees met the Board’s definition of independence, none having a material relationship with the Corporation. In making its independence determination, the Board adhered to all of the specific tests for independence included in the NYSE listing standards. In addition, the Committee made recommendations to the Board on the Board Committee assignments, Committee chairperson positions and Audit Committee “financial experts”.

 

The Committee plays a leadership role in shaping Chevron’s corporate governance. At least annually, the Committee surveys corporate governance best practices and reviews Chevron’s corporate governance ratings to identify any opportunities to improve Chevron’s corporate governance. Since the beginning of 2006, the Committee proposed revisions to the

Board Operations (Concluded)

Corporate Governance Guidelines that were subsequently adopted by the Board of Directors. The corporate governance improvements include an annual review of the Corporate Governance Guidelines and other governance documents, a commitment to reconsider any stockholder proposal initially opposed by the Board that received a majority vote of the stockholders with any action taken reported to stockholders in a timely manner, a reaffirmation of the Company’s confidential voting policy for stockholder voting, and a goal for Director compensation to comprise at least 50 percent in equity. Additionally, the Committee proposed, and the Board adopted, amendments to the By-Laws to enact a majority vote standard for uncontested Director elections and to provide that the Chairman be elected annually by the Board. The Committee recommended an amendment to the Certificate of Incorporation to remove the supermajority voting provisions, which the Board adopted and stockholders will consider at the 2007 Annual Meeting. The Corporate Governance Guidelines, By-Laws and the Restated Certificate of Incorporation are available on the Chevron Web site at www.chevron.com and are available in print upon request.

 

The Committee reviewed interested-party communications including stockholder inquiries directed to non-employee Directors. The Corporate Secretary compiles the communications, summarizes lengthy or repetitive communications and provides the Committee periodically with information about the number and type of communications received, the number of responses sent and the disposition, if any. Interested parties wishing to communicate their concerns or questions about Chevron to the Chairperson of the Committee or any other non-employee Directors may do so by U.S. mail addressed to Non-Employee Directors, c/o Office of the Corporate Secretary, at the address listed on page 1 of this proxy statement.

 

The Committee’s assessment is that Chevron has strong fundamental corporate governance practices in place. The Committee acknowledges that good corporate governance requires ongoing self-assessment and the Committee is committed to periodically reviewing and updating the corporate governance practices to ensure Chevron maintains its position at the forefront of corporate governance best practices.

 

Respectfully submitted on February 28, 2007 by members of the Board Nominating and Governance Committee of your Board:

 

Samuel H. Armacost, Chairperson
Sam Ginn
Sam Nunn
Donald B. Rice
Carl Ware

 

The Management Compensation Committee of Chevron has reviewed and discussed with management the Compensation Discussion and Analysis beginning on the following page and, based on such review and discussion, the Committee recommended to the Board of Directors of the Corporation that the Compensation Discussion and Analysis be included in this proxy statement and incorporated by reference into the Corporation’s Annual Report on Form 10-K.

 

Respectfully submitted on February 28, 2007, by members of the Management Compensation Committee of your Board:

 

Robert J. Eaton, Chairperson
Samuel H. Armacost
Ronald D. Sugar
Carl Ware

Executive Compensation

 

 

The Management Compensation Committee

 

The Management Compensation Committee is responsible for Chevron’s executive remuneration programs, authority over which it cannot delegate. The Committee is composed entirely of “independent outside directors”, as defined under Section 162(m) of the Internal Revenue Code, and each member is independent under the applicable rules of the NYSE.

 

The Committee seeks and receives advice from independent, external compensation and benefits consultants. The Committee’s outside consultants are retained by the Committee as necessary to make presentations during the year and conduct an annual review of Chevron’s competitive compensation position. Chevron’s internal compensation staff provides additional counsel, data and analysis as requested by the Committee. During 2006, the Committee made several requests for special studies or reviews regarding the competitiveness of certain elements included in the executive remuneration package. In 2006, the Committee retained Hewitt Associates as its primary independent compensation advisor.

 

In 2006, the Committee continued its practice of reviewing the summary remuneration tables, or tally sheets, for the named executive officers prior to making any change to each executive’s compensation package. These reviews include the potential economic impact to the Corporation for all cash, equity and benefit programs, the economic impacts under various economic growth scenarios and the impact upon retirement benefits for the executives. The resulting total compensation and benefits competitive package, for the entire bonus eligible population, was compared with external benchmarks and the analysis was reviewed by the Committee’s independent consultants. Any incremental change to an executive’s compensation was considered with respect to the total compensation perspective. The Chevron executive compensation and benefit programs were then reviewed with the independent Directors of the full Board.

 

The Committee regularly reviews the Chevron executive compensation and benefit programs with respect to all known applicable regulatory provisions and requirements. The Management Compensation Committee charter (published on the Chevron Web site at www.chevron.com and available in print upon request) is also reviewed to insure that Committee actions are in alignment with the compensation philosophy and objectives stated below, as well as all applicable reporting and compliance requirements. The Committee believes it is functioning within the parameters of, and the Chevron programs are in compliance with, all applicable rules, regulations and requirements.

 

Compensation Philosophy and Objectives

 

The Committee’s general compensation philosophy is that total compensation should vary with Chevron’s performance in achieving financial and non-financial objectives, and that any annual or long-term incentive compensation should be closely aligned with stockholders’ interests. The Committee believes in using one common pay-for-performance philosophy for all employees in its consideration of the design and implementation of executive programs and that benefit programs should be commonly applied across the broad employee population in each country in which Chevron operates.

 

The Committee specifically believes that compensation philosophy and programs of Chevron should:

 

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Key Elements of Executive Compensation

 

Chevron’s executive compensation program consists of four elements: Base Pay, Short-Term Incentives, Long-Term Incentives and Benefits. The Committee’s belief in a common philosophy and reward system applies to the benefit plans as well. There is one common benefit program for Company salaried employees in the United States, which is established based on a career employment model. The benefit plans are designed to encourage retention and reward long-term employment. Further, the Committee believes perquisites for senior executives should be extremely limited in scope and value. The limited perquisites that are offered are believed to have a business basis and return in value for the stockholders.

 

For senior executives, the Committee believes short-term and long-term incentive pay, linked to Chevron’s financial performance, should represent half or more of their total compensation opportunity. The portion of the Chairman and CEO’s compensation in 2006 (base salary, MIP and LTIP grant date fair value) that was at risk was 88 percent and an average 83 percent was at risk for the other named executive officers.

 

The Committee attempts to pay competitively in the aggregate as well as deliver an appropriate balance between fixed compensation (base salary and benefits) versus variable compensation (short-term and long-term incentive grants). If Chevron’s performance exceeds internal objectives, and is superior on a relative basis versus our peer competitors, the Committee believes that the variable pay portion of the package should deliver compensation above the competitive median. The Committee has made the determination to target above the anticipated competitive median award twice in the past five years and to equal the anticipated competitive median once. Conversely, if either internal metrics or Chevron’s relative performance lag, the variable pay components are designed to deliver a total compensation level below the market median. The Committee has utilized this discretion twice in the past five years by setting the annual bonus fund below the previous target level of the competitor companies. If Chevron’s performance is not recognized by the market through stock price appreciation and Chevron’s relative total stockholder return versus our competitor companies is below average, both the non-qualified stock options and the long-term incentive plan performance shares will deliver a value below the target grant value.

 

Competitors

 

When determining executive compensation target levels, the Committee considers the competitive position of other major companies in the energy industry, which include: Anadarko, Hess, BP, ConocoPhillips, Devon, ExxonMobil, Marathon, Occidental, Sunoco, Shell, Tesoro and Valero Energy. For senior executives, the scope and complexity of the operations are taken into account and, therefore, the larger market capitalization competitors have a greater impact on the competitive targets. The major global energy competitors with substantial U.S. operations (BP, ConocoPhillips, ExxonMobil and Shell) are the primary competition in the marketplace where Chevron operates and comprise the competitor peer group for

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determining relative Total Stockholder Return (TSR), which is stock price appreciation plus dividends on a reinvested basis. This competitor group is used to determine relative performance for the long-term incentive plan performance share program.

 

In addition, the Company’s competitive position is reviewed against approximately 25 major capital-intensive international companies spanning a wide range of industries. The general industry comparators were chosen because of their similar business characteristics as well as relatively equivalent scope and complexity of operations.

 

Allocation Among Components

 

No specific formula is used to weigh the various performance factors used in determining the amount of compensation or the allocation of compensation to base salary, bonus and long-term incentives. The weight given each factor with respect to each element of compensation is within the discretion and judgment of the Committee, but is designed to target a median value for each individual component. The Committee also takes the appropriateness of the entire package into account, including the impact on employee benefits, when evaluating each element of compensation. The appropriateness is tested against both energy industry peers and the general industry benchmarks based on data supplied by the Committee’s outside consultant. The Committee recognizes that general industry has historically targeted more value through long-term incentive grants and less through benefit plans, whereas the oil industry historically has targeted less value through long-term incentive grants and more through benefit plans. In this area, the Committee has chosen to follow the oil competitor package.

 

Base Pay

 

 

Within this framework, executive level salary ranges are adjusted, as necessary, to maintain competitiveness with the competitor group. Individual salaries are maintained within the appropriate range for each position, including the CEO position, and are reviewed annually. In determining a competitive base salary for Mr. O’Reilly, the Committee considered his level of responsibility and contributions to the success of Chevron, the size and complexity of the business and his relative compensation position with respect to the peer group, both within the oil industry and general industry. Based on this, as well as the recommendations of the Committee’s compensation consultant, the Committee recommended, and the independent Directors of the full Board approved, an increase of $100,000 for Mr. O’Reilly’s base salary in 2006, which is the

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first increase in base salary since the 2004 salary program. The Committee also reviewed the individual performance and competitive market position for the other named executive officers and approved the following increases in base salary in 2006 from 2005: Mr. Robertson, $50,000; Mr. Crowe, $75,000; Mr. Kirkland, $70,000; and Mr. Watson $50,000.

 

Short-Term Incentive (Management Incentive Plan)

 

 

 

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In determining the corporate fund for the 2006 performance year, the Committee considered the Corporation’s absolute financial results improving for the fourth consecutive year and the improvement in operational earnings, reported earnings and safety, which outpaced the improvement of our major global energy competitors. The aggregate analysis of Chevron’s absolute and relative performance resulted in the Committee concluding that awards comparable to the estimated competitor-average awards would be warranted for the 2006 performance year. Based on these factors, the Committee set the corporate fund at 150 percent of par. Individual salary grade targets are set to deliver a competitive award based on the average competitor values over the past several years. The individual targets as a percent of base pay for the named executive officers for the 2006 award were: D. J. O’Reilly, 120 percent; S. J. Crowe, 75 percent; P. J. Robertson, 90 percent; G. L. Kirkland, 80 percent; and J. S. Watson, 80 percent.

 

The CEO’s award is based solely on Company and individual performance. Based on the Company’s performance noted above and the CEO’s individual performance, and the recommendation of the Committee’s compensation consultant, the Committee recommended, and the independent Directors of the full Board approved, a MIP award for 2006 in the amount of $3,500,000, unchanged from the MIP awarded in 2005.

 

The MIP awards for each of the other named executive officers, shown in the “Non-Equity Incentive Plan Compensation” column of the “Summary Compensation Table,” were also unchanged from the MIP awards in 2005, except for Mr. Crowe whose increase is attributable to his promotion to CFO in January 2005.

 

Long-Term Incentive (Long-Term Incentive Plan)

 

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As discussed above, the Committee attempts to deliver a competitive compensation package both in the aggregated and in each individual component while maintaining an appropriate balance between base salary, annual bonus targets and long-term incentive plan grants. As

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described previously, survey data is presented by the Committee’s independent consultant, and the Committee determines the appropriate target value to deliver to the CEO specifically, and to all other bonus eligible employees by salary grade. Once the appropriate target value is determined, the grant level is calculated based upon:

 

 

The actual grant date values for each of the named executive officers are shown on the “Grants of Plan Based Awards” table below.

 

The total value of the CEO’s direct compensation of $13,280,880 awarded in 2006 (base salary of $1,650,000; MIP award of $3,500,000; LTIP grant value of $8,130,880) was relatively unchanged compared to 2005. The Committee concluded this level of compensation was appropriate relative to Mr. O’Reilly’s peers in the energy industry and in respect of the Company’s 22 percent increase in net income in 2006 over 2005, the third consecutive year of record earnings and annual TSR of 33.8 percent and other positive results of the Company.

 

Benefit Programs

 

Benefit programs for executives are generally common in design and purpose to those for the broad-base of employees in the United States. The same health and welfare programs, including post-retirement health care, that are broadly available to employees in the United States also apply to active executives with no other special programs. Executive retirement programs are comparable to the broad-base retirement programs (traditional defined-benefit pension plan and savings plan) but for the inclusion of executive earnings not permitted in the ERISA qualified retirement plans on account of IRS limitations.

 

Corporate Officer Stock Ownership

 

Because the Committee believes in linking the interest of management and stockholders, the Board approved stock ownership guidelines (as set forth in the Corporate Governance Guidelines) for Chevron executives in 2001, based on a multiple of base salary: CEO, five times; Vice Chairman, Executive Vice Presidents and Chief Financial Officer, four times; all other corporate Officers, two times and other senior executives, one and a half times. Executives are expected to achieve targets within five years of assuming their position. The CEO and all other named executives achieved their ownership guidelines at year-end 2004, or two years ahead of the Committee’s recommended timeline. Based on Chevron’s closing stock price on December 29, 2006, the CEO’s stock ownership multiple of base salary was over nine times, and the rest of the named executive officers averaged over six and a half times. Chevron corporate executives as a whole own approximately four times base salary.

 

Tax Deductibility of Executive Compensation

 

Under Section 162(m) of the Internal Revenue Code, Chevron generally receives an annual federal income tax deduction for compensation paid to the CEO and other four most highly paid executives only if the compensation is less than $1 million or is performance-based. The awards granted under both the Management Incentive Plan and the Long-Term Incentive Plan qualify as performance-based compensation and thus are fully tax-deductible for Chevron. The MIP performance-based criteria were reaffirmed by stockholders in 2002, and the LTIP plan was re-approved in 2004. The Committee intends to continue seeking a tax deduction for all executive compensation, to the extent it is in the best interest of Chevron and its stockholders.

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Compensation Recovery Policies

 

In 2005, the Board requested that the Committee consider adding a “claw-back” provision to the executive compensation programs for cases where, as a result of misconduct, the Company is required to prepare an accounting restatement due to material noncompliance. At that time, Chevron had the ability to recover any indebtedness due the Company from outstanding deferred compensation and other balances upon termination. The Company also had the flexibility to cancel any unexercised or unvested options for any individual at any time.

 

In response to the Board request, the Committee expanded the definition of misconduct under the MIP, LTIP and Deferred Compensation Plan for Management Employees to provide the Board maximum flexibility in recovering gains. As a result, the definition of misconduct was expanded as listed below and a non-compete clause was included:

 

 

In discussions with outside counsel, it was determined that there is no precedent for being able to recover gains or cancel awards retroactively. The expanded definition of misconduct was effective at the time the plan is approved and communicated to employees, which took place in June 2005. These provisions affect the Management Incentive Plan, the Long-Term Incentive Plan and the Deferred Compensation Plan.

 

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The following sets forth the compensation of the Company’s named executive officers in the fiscal year ended December 31, 2006. None of our named executive officers has an employment contract with the Company.

 

 

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Total Pension Benefit Payable to the Named Executive Officers

 

Employees who meet the age, service, and other requirements of Chevron’s pension plans are eligible for a pension after retirement. Plans are different in each country where Chevron operates. In the United States, generally all U.S. salaried employees participate in the Chevron Retirement Plan which is a defined benefit pension plan that is intended to be tax-qualified under Internal Revenue Code section 401(a). The Retirement Restoration Plan is an unfunded nonqualified defined benefit pension plan that is designed to provide benefits comparable to those provided by the Chevron Retirement Plan but which cannot be paid from the Chevron Retirement Plan because of Internal Revenue Code limitations on benefits and earnings and the fact Chevron Success Sharing (bonus) awards for broad based employees are covered by the Chevron Retirement Plan but Management Incentive Plan awards for executives are not. Executives are eligible for benefits from both the Chevron Retirement Plan and the Restoration Retirement Plan.

 

The Chevron Retirement Restoration Plan benefit is paid when employment ends and is a lump sum equivalent of a single-life annuity calculated as follows: the full age-65 single life annuity is the sum of the Management Incentive Plan awards and the base salary earnings for the years 2004, 2005 and 2006, divided by 36, times the benefit accrual service used by the Chevron Retirement Plan, times the 1.6 percent annual accrual rate of the Chevron Retirement Plan minus the Social Security Offset of the Chevron Retirement Plan. The full age-65 single life annuity is reduced for early retirement at zero percent per year to age 60, at five percent per year from age 60 to age 50 and actuarially below age 50, and then converted into an actuarially equivalent single lump sum equivalent. The Internal Revenue Code applicable interest rate and applicable mortality table are used for converting from a single life annuity to an actuarially equivalent single lump sum equivalent. Covered compensation for the

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named executive officers applicable to the aggregate of both plans includes the highest average salary and Management Incentive Plan awards. On December 31, 2006, the covered compensation was: D. J. O’Reilly, $5,095,833; S. J. Crowe, $1,072,917; P. J. Robertson, $2,356,667; G. L. Kirkland, $1,520,167; and J. S. Watson, $1,668,333. The same calculation is made for the Chevron Retirement Plan benefit, except that the monthly average base salary for 2004, 2005, and 2006, as limited by the Internal Revenue Code compensation limitation, is used. Covered compensation on December 31, 2006 for all of the named executive officers for the Chevron Retirement Plan benefit, after reflecting the Internal Revenue Code compensation limitation, was $211,667. The Retirement Restoration Plan benefit is equal to the full benefit lump sum equivalent when employment ends reduced by the Chevron Retirement Plan benefit lump sum equivalent when employment ends.

 

A single life annuity is the normal form of benefit under the Chevron Retirement Plan, but retirees may also elect to receive an equivalent lump sum payment instead of an annuity. A joint and survivor annuity, life and term-certain annuity and uniform income annuity options are also available under the Chevron Retirement Plan. Retirees may elect to receive the Retirement Restoration Plan lump sum payment in a single payment or a fixed number of annual installments.

 

A participant is eligible for an early retirement benefit if he or she is vested on the date employment ends. Generally, a participant is vested after completing five years of Vesting and Eligibility Service. All named executive officers are eligible for an early retirement benefit. The age 65 benefit is reduced by early retirement discount factors of five percent per year from age 60 to age 50 and actuarially reduced below age 50 as prescribed by the Plans. The lump sum equivalent and optional annuity forms of payment are calculated by multiplying the early retirement benefit by actuarial factors, based on age, in effect on the benefit calculation date. The Retirement Restoration Plan commences when employment ends. Employees can elect to have their Chevron Retirement Plan benefit commence prior to normal retirement age, which is age 65, but no earlier than when employment ends.

 

The named executive officers made the following Chevron Retirement Restoration Plan distribution elections: D. J. O’Reilly, P. J. Robertson and J. S. Watson, a lump sum commencing in the first January that is at least one year following separation from service; S. J. Crowe and G. L. Kirkland, five annual installments commencing in the first quarter that is at least one year following separation from service.

 

The Pension Benefits table shows the present value of the accumulated benefit as of December 31, 2006. This is the present value of the benefit determined as though the participant retires at the earliest age when participants may retire without any benefit reduction due to age (age 60, or current age if older, for the named executive officers), using service and compensation as of December 31, 2006. This present value is then discounted with interest to the date used for financial reporting purposes. Except for the assumption that the retirement age is the earliest retirement without a benefits reduction, the assumptions used to compute the present value of accumulated benefits are the assumptions used for financial reporting purposes on December 31, 2006. These assumptions include the discount rate of 5.75 percent; lump sums based on an interest rate of five percent, the Internal Revenue Code applicable mortality table, and an election rate of 90 percent for Chevron Retirement Plan participants and 100 percent for Retirement Restoration Plan participants; and for life annuities the RP2000 mortality table projected 14 years.

 

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