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Incentive Based Compensation
 12 Months Ended
Dec. 31, 2022
Share-Based Payment Arrangement [Abstract]  
Incentive Based Compensation Incentive Based Compensation
Description of stock-based compensation plans – The Marathon Oil Corporation 2019 Incentive Compensation Plan (the “2019 Plan”) was approved by our stockholders in May 2019 and authorizes the Compensation Committee of the Board of Directors to grant stock options, stock appreciation rights (“SARs”), stock awards (including restricted stock and restricted stock unit awards), performance unit awards and cash awards to employees. The 2019 Plan also allows us to provide equity compensation to our non-employee directors. No more than 27.9 million shares of our common stock may be issued under the 2019 Plan. In connection with the granting of an award under the 2019 Plan, the number of shares available for issuance under the 2019 Plan will be reduced by one share for each share of our common stock in respect of which the award is granted, except the awards that by their terms do not permit settlement in shares of our common stock will not reduce the number of shares of common stock available for issuance under the 2019 Plan.
Shares subject to awards under the 2019 Plan that are forfeited, terminated or expire unexercised become available for future grants. In addition, the number of shares of our common stock reserved for issuance under the 2019 Plan will not be increased by shares tendered to satisfy the purchase price of an award, exchanged for other awards or withheld to satisfy tax withholding obligations. Shares issued as a result of awards granted under the 2019 Plan are generally funded out of common stock held in treasury, except to the extent there are insufficient treasury shares, in which case new common shares are issued.
After approval of the 2019 Plan, no new grants were or will be made from any prior plans. Any awards previously granted under any prior plans shall continue to be exercisable in accordance with their original terms and conditions.
Stock-based awards under the plans
Stock options – We last granted stock options under the 2019 Plan in 2020. Our stock options represent the right to purchase shares of our common stock at its fair market value on the date of grant. In general, our stock options vest ratably over a three-year period and have a maximum term of ten years from the date they are granted.
SARs – At December 31, 2022, there are no SARs outstanding.
Restricted stock – We last granted restricted stock under the 2019 Plan in 2020. The restricted stock awards granted to officers generally vest three years from the date of grant, contingent on the recipient’s continued employment. We also grant restricted stock to certain non-officer employees based on their performance within certain guidelines and for retention purposes. The restricted stock awards to non-officers generally vest ratably over a three-year period from the date of grant, contingent on the recipient’s continued employment. Prior to vesting, all restricted stock recipients have the right to vote such stock and receive dividends thereon. The non-vested shares of restricted stock are not transferable and are held by our transfer agent.
Stock-based performance unit awards – We grant stock-based performance units to officers under the 2019 Plan.
During 2022, we granted 167,043 stock-based performance units to eligible officers, which are settled in shares. The grant date fair value per unit was $34.07, as calculated using a Monte Carlo valuation model. At the grant date, each unit represents the value of one share of our common stock. These units are settled in shares, and the number of shares of our common stock to be paid is based on the vesting percentage, which can be from 0% to 200% based on performance achieved during the performance period and as determined by the Compensation Committee of the Board of Directors (“Compensation Committee”). The performance goals are tied to our total shareholder return (“TSR”) as compared to TSR for a group, which is determined by the Compensation Committee and includes peer companies, the S&P Energy Index and the S&P 500 Index. Also, dividend equivalents accrue during the performance period and will be paid in cash following the end of the performance period based on the amount of dividends credited on shares of our common stock over the performance period multiplied by the number of units that vest.
During 2022, we granted 167,043 stock-based performance unit awards to eligible officers, which are settled in cash. At the grant date for these stock-based performance units, each unit represents the value of one share of our common stock. The benefit amount to be paid is based on the product of (i) the number of units granted, (ii) the vesting percentage and (iii) the average daily closing price of our common stock during the final 30 calendar days ending on the last trading day of the performance period, subject to the banking feature described below. The vesting percentage can range from 0% to 200%, which is based on performance achieved over a two-year performance period. The performance metric is a predetermined amount of cumulative free cash flow, as defined by the award agreement, generated by the Company over the performance period. The units have a banking feature whereby the stock price valuation and vesting percentage are fixed at no less than 50%, and then again at 100%, if achieved during the performance period. Once those milestones are reached, the vesting percentage will not fall below those banked percentage amounts even if cumulative free cash flow subsequently declines during the performance period, subject to the Compensation Committee’s discretion as described below. Dividend equivalents accrue during the performance period and will be paid in cash following the end of the performance period based on the amounts of dividends credited on shares of our common stock over the performance period multiplied by the number of units that vest. As of December 31, 2022, the fair value of each cash-settled performance unit was $26.83. As set forth in the award agreement terms, the Compensation Committee retains discretion to reduce the vesting percentage and any bank values and determine free cash flow achievement for these awards.
Restricted stock units – We maintain an equity compensation program for our non-employee directors. All non-employee directors receive annual grants of common stock units. For units granted between 2012 and 2020, common shares will generally vest following completion of board service or three years from the date of grant, whichever is earlier. For units granted in 2021 and forward, common shares will generally vest following completion of board services or one year from the date of grant, whichever is earlier. However, for any units granted in 2017 or later, our non-employee directors may elect to defer settlement of their common stock units until after they cease serving on the Board. Under the 2019 Plan, we also grant restricted stock units to officers, which, depending on grant agreement terms, generally vest three years from the date of the grant or vest ratably over a three-year period and restricted stock units to certain non-officer employees, which generally vest ratably over a three-year period. Both awards are contingent on the recipient’s continued employment. Grants of restricted stock units to these non-officer employees are generally based on their performance and for retention purposes. Common shares will be issued for these restricted stock units after vesting. Prior to vesting, recipients of restricted stock units typically receive dividend equivalent payments, but they may not vote.
Total stock-based compensation expense – Total employee stock-based compensation expense was $50 million, $43 million and $55 million in 2022, 2021 and 2020. The total related income tax benefit was $11 million for 2022. Due to the full valuation allowance on our net federal deferred tax assets in 2021 and 2020, we did not recognize a tax benefit in the consolidated statements of income during those years. Cash received upon exercise of stock option awards was $32 million in 2022, $5 million in 2021, and $1 million in 2020. The total related income tax benefit was $7 million for 2022. Due to the full valuation allowance on our net federal deferred tax assets in 2021 and 2020, there were no tax benefits recognized for deductions for stock awards settled during those years.
 Stock option awards – During 2020, we granted stock option awards to officer employees. The weighted average grant date fair value of these awards was based on the following weighted average Black-Scholes assumptions:
2020
Exercise price per share$10.47 
Expected annual dividend yield1.9 %
Expected life in years6.14
Expected volatility44 %
Risk-free interest rate1.5 %
Weighted average grant date fair value of stock option awards granted$3.82 
The following is a summary of stock option award activity in 2022.
Number of SharesWeighted Average Exercise PriceWeighted Average Remaining Contractual Term
Aggregate Intrinsic Value
(in millions)
Outstanding at beginning of year4,274,304$22.13 
Granted—$— 
Exercised/Vested(2,176,680)$14.73 
Canceled(419,100)$33.56 
Outstanding at end of year1,678,524$28.86 2 years$5 
Exercisable at end of year1,389,461 $32.69 1 year$— 
Expected to vest289,063 $10.47 7 years$5 
The intrinsic value of stock option awards exercised was $23 million in 2022, $3 million in 2021, and immaterial in 2020.
As of December 31, 2022, unrecognized compensation cost related to stock option awards was immaterial.
 Restricted stock awards and restricted stock units – The following is a summary of restricted stock and restricted stock unit award activity in 2022.
AwardsWeighted Average Grant Date Fair Value
Unvested at beginning of year5,888,242  $10.98 
Granted1,848,387 $22.81 
Vested(2,863,779)$11.99 
Canceled(221,654)$14.61 
Unvested at end of year4,651,196  $14.89 
The vesting date fair value of restricted stock awards and restricted stock units which vested during 2022, 2021 and 2020 was $34 million, $39 million and $49 million. The weighted average grant date fair value of restricted stock awards was $14.89, $10.98 and $11.72 for awards unvested at December 31, 2022, 2021 and 2020.
As of December 31, 2022, there was $35 million of unrecognized compensation cost related to restricted stock awards and restricted stock units, which is expected to be recognized over a weighted average period of 1 year.
Stock-based performance unit awards – During 2022, 2021 and 2020, we granted 167,043, 307,473 and 1,038,676 stock-based performance unit awards to be settled in shares to officers. At December 31, 2022, there were 1,230,274 units outstanding. During 2022 and 2021, we also granted 167,043 and 307,473 stock-based performance unit awards to be settled in cash to officers. At December 31, 2022, there were 463,802 units outstanding. Total stock-based performance unit awards expense was $18 million, $11 million and $5 million in 2022, 2021 and 2020.
The key assumptions used in the Monte Carlo simulation to determine the grant date fair value of stock-based performance units granted in 2022, 2021 and 2020 were:
202220212020
Valuation date stock price$22.89 $11.20 $10.47 
Expected annual dividend yield1.2 %1.1 %1.9 %
Expected volatility73 %71 %39 %
Risk-free interest rate1.4 %0.3 %1.4 %
Fair value of stock-based performance units outstanding$34.07 $18.07 $10.55