Internal Bulletin
Changes to the Annual Bonus Programs;
A Proposed New Executive Stock Purchase Program
and Performance Bonus Awards
At its March 28 meeting, the Board of Directors
approved some significant changes to Unocal's
incentive programs. These changes are designed
to improve our flexibility to reward
outstanding performance. Some of these
changes, requiring approval by the
stockholders, are described in the current
Proxy Statement, which is being mailed to all
stockholders this week. The Proxy Statement is
also posted on our internal and external web
sites.
Public web site: http://www.unocal.com
Intranet: http://st.unocal.com/76
Annual Bonus Programs
One of the changes affects the operation of our
annual bonus programs -- the Revised Incentive
Compensation Plan (RICP) and the Annual
Incentive Plan (AIP). Currently, the target
payout pool for these plans is entirely
dependent on Unocal's total stockholder returns
(TSR) for the year compared to the returns of
our peer companies. As amended, funding for
the target payout pool for both would be based
on a set percentage of the company's cash flow
provided by operations for the year.
Therefore, these programs could be funded even
in years when external factors beyond our
control reduce share-price performance.
Award allocations under AIP will also change.
Awards to business units and shared resource
groups will continue to be based partially on
our TSR compared to our peer group's, but will
also depend on financial and operating
criteria, such as return on capital employed
(ROCE), free cash flow after capital, and
future-year value creation. This will provide
increased flexibility in adjusting payouts up
or down based on actual operating or financial
results, goal attainment and individual
employee performance.
Executive Stock Purchase Program
The new Executive Stock Purchase Program is
designed to promote the long-term growth and
financial success of the company. Under the
program, senior executives are provided loans
to purchase shares of Unocal common stock.
These are full-recourse, interest-bearing
loans. Full recourse means that the borrower is
personally liable for the full amount of the
loan.
Neither principal nor interest is payable for
the first five years the loans are held, but
dividends paid on the shares will be applied to
interest payments. Interest is charged annually
and accrues on the loan balance. Beginning
with the sixth year, the loans and accrued
interest must be paid in three annual
installments.
Under this program, Unocal's senior officers
have been granted loans, ranging from $2 to $5
million and at an interest rate of 6.8 percent,
with which they have purchased Unocal shares.
These transactions were made with the
understanding that, in the event the
stockholders do not approve this program, the
shares will be resold to the company at the
lesser of the purchase or market price, and the
loans will be immediately due and payable.
(See Item 3 of the Proxy Statement.)
Participants in the Executive Stock Purchase
Program are also eligible for performance bonus
awards under the amended Long-term Incentive
Plan (part of the management incentive
program). Depending on the company's
comparative TSR in the peer group, participants
could receive funds which could be used to pay
off part or all of their loans. If the
company's TSR is poor compared to the peer
group's and if Unocal's share price does not
increase, participants can lose money - their
own money.
Participation in the Executive Stock Purchase
Program demonstrates senior management's
confidence in and commitment to Unocal's future
prospects. It is a high-risk incentive program
that has been adopted by only a handful of
publicly held companies.
This program would provide strong financial
ties between executives and stockholders.
Participants would enjoy the benefit of any
share-price increases during the loan period,
but they would be responsible for the full
amount of the loan principal and interest, even
if the share price declines.
For more information about changes to Unocal's
management incentive compensation programs and
the Executive Stock Purchase Program, please
refer to your Proxy Statement. And remember to
vote your shares.
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Check out the SeventySix intranet page at
http://st.unocal.com/76 for daily stock reports, the 1999
Annual Report and Proxy Statement.
