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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934

Filed by the registrant  ý

Filed by a party other than the registrant  ¨

Check the appropriate box:
 
 
 
 
 
 
 
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Preliminary proxy statement
 
 
 
Confidential, For Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
ý
 
Definitive proxy statement
 
 
 
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Definitive additional materials
 
 
 
o
 
Soliciting material under Rule 14a-12
 
 
 

QEP RESOURCES, INC.

(Name of Registrant as Specified In Charter)

(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)

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¨
Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
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(3)
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QEP Resources, Inc.
1050 17th Street, Suite 800
Denver, Colorado 80265


April 2, 2020

Dear Fellow Shareholders:

On behalf of the Board of Directors and QEP Resources, Inc. (the Company or QEP), I am pleased to invite you to QEP’s 2020 Annual Meeting of Shareholders (Annual Meeting). The Annual Meeting will be held on May 12, 2020, at 8:00 a.m. (Mountain Daylight Time), at the Company’s offices, 1050 17th Street, Second Floor, Denver, Colorado 80265. As our Annual Meeting approaches, we highlight key 2019 accomplishments and four specific areas of focus: Shareholder Engagement, Response to 2019 Say on Pay Vote, Board Refreshment and Social Responsibility.

2019 Accomplishments Relating to Governance and Social Responsibility
Appointed a new President and CEO at a lower target compensation package than our prior CEO, reflective of the smaller, more focused company we have become;
Separated Chair and CEO roles;
Amended our Bylaws to provide that holders of 25% or more of the Company's outstanding shares have the right to call special meetings of shareholders;
Established 100% formulaic, non-discretionary metrics for the 2019 Annual Incentive Plan;
Reduced our General and Administrative Expense (G&A) by 30%, including a 54% reduction to executive headcount and an overall executive target compensation expense reduction of $10 million;
Distributed more than $483,000 in 2019 to charitable causes across our operating areas, providing support to more than 50 organizations; and
Adopted and integrated a new corporate culture model focused on Transparency, Humility, Inclusion, Alignment and Execution in addition to our core focus on Health, Safety and Environment (HSE).

Our operating and financial accomplishments are described in the "Compensation Discussion and Analysis" section of this Proxy Statement.

Shareholder Engagement
We believe that continuous and transparent communication with you provides critical feedback to our Board and executive management team on a wide range of topics including environmental, social and corporate governance (ESG) matters and executive compensation. In 2019, we contacted shareholders who collectively owned in excess of 75% of our outstanding shares as of June 30, 2019, and spoke with representatives of shareholders representing over 48% of our outstanding shares as of June 30, 2019, including seven of our 10 largest shareholders. We value the feedback you provided us and look forward to continued, open dialogue on key issues relevant to our business.

Response to 2019 Say on Pay Vote
The 2019 Say on Pay proposal received 47% of support from our shareholders, after an average of 92% of support over the last six years. We heard your feedback regarding the Compensation Committee's use of discretion in the calculation of the Asset Sales metric in the CEO/CFO scorecard. In response to the voting outcome and shareholder input received during our shareholder engagement efforts, we have addressed this concern and also made additional appropriate changes to our compensation programs to further align executive pay with shareholder interests and long-term value creation including:



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100% formulaic, non-discretionary incentive plan for all employees;
Elimination of new retention programs related to the 2019 Strategic Alternatives review;
Reduction in overall executive compensation and executive headcount;
Evaluation of TSR metrics; and
Increased disclosure regarding methodology and rationale for our compensation program.

More details concerning our response to the 2019 Say on Pay Vote and our compensation programs can be found in the "Compensation Discussion and Analysis" section of this Proxy Statement. The definition of the 2019 Strategic Alternatives can be found in the "Company Overview and 2019 Business Highlights" section of the "Compensation Discussion and Analysis" section of this Proxy Statement.

Board Composition and Refreshment
In accordance with the terms of the Letter Agreement between Elliott Management Corporation and the Company, dated August 6, 2019 (Letter Agreement), we formed a new Operations Committee of the Board and mutually agreed upon the appointment of two new independent directors: Mr. Joseph N. Jaggers and Mr. Barth E. Whitham.
The purpose of the Operations Committee is to advise and assist the Board in its oversight of the operations of the Company in order to identify best operating practices in the areas of the Company’s operations and to work with management to focus on continuous operational improvement and excellence.
Social Responsibility
We are committed to community investment and engagement, environmental sustainability, operational safety, sound corporate governance and an inclusive corporate culture.
In 2019 and in early 2020, we pursued a variety of initiatives to maintain and/or improve the performance of our ESG initiatives, including changing the name and scope of our Governance Committee to the Governance and Social Responsibility Committee, enhancing our website disclosure concerning health, safety and environmental efforts, strengthening our corporate culture and focus on inclusion and diversity and continuing our long standing commitment to the communities in which we operate. We will continue to focus on ESG initiatives going forward as both the Board and management believe being a good corporate citizen is one of the key tenets of having a successful organization.
More details concerning our focus and efforts on ESG can be found in the "Governance Information" section of this Proxy Statement under "Environmental, Social and Governance."
The Corporate Secretary’s formal notice of the meeting and the Proxy Statement appear on the following pages and provide information concerning the matters to be considered at the Annual Meeting.
Your vote is important. You may attend and vote at the Annual Meeting. We urge you to vote whether or not you plan to attend the Annual Meeting. You may vote by internet (Internet) or by telephone using the instructions in the Notice of Internet Availability of Proxy Materials, or if you received a paper copy of the proxy card, by signing and returning it in the envelope provided.
Due to the emerging public health impact of coronavirus disease 2019 (COVID-19), QEP is planning for the possibility that the Annual Meeting may be held at a different location or the Annual Meeting may be held solely by means of remote communication.  If we take this step, we will announce the decision to do so in advance, and details on how to participate will be set forth in a press release issued by QEP and available in the “Investor Relations” section of our website at www.qepres.com.
All of the public documents, including our 2019 Annual Report on Form 10-K, are available in the "Investor Relations" section of our website at www.qepres.com. The Annual Report does not form any part of the material for solicitation of proxies. I also encourage you to visit our website during the year for more information about QEP.




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We hope you will attend the Annual Meeting, and we welcome the opportunity to meet with you. On behalf of the Board of Directors and management, we express our appreciation for your continued support of QEP.

Sincerely,
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David A. Trice                
Chair of the Board                


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QEP Resources, Inc.
1050 17th Street, Suite 800
Denver, Colorado 80265

 
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held on May 12, 2020

 
To the Shareholders of QEP Resources, Inc.:

The Annual Meeting of Shareholders of QEP Resources, Inc., a Delaware corporation (the Company), will be held on May 12, 2020, at 8:00 a.m. (Mountain Daylight Time), at the Company’s offices at 1050 17th Street, Second Floor, Denver, Colorado 80265. The purpose of the meeting is to:
 
1.
Elect seven directors nominated by our Board for one-year terms, until their successors are duly elected and qualified (Item No. 1);

2.
Approve, by non-binding advisory vote, the compensation of the Company’s named executive officers as disclosed in the accompanying Proxy Statement (Item No. 2);

3.
Ratify the appointment of Deloitte & Touche, LLP as the Company’s independent registered public accounting firm (Item No. 3);

4.
Approve an amendment to our amended and restated certificate of incorporation (Certificate of Incorporation) to effect, at the discretion of our Board:
a.
a reverse split of our common stock, whereby each outstanding ten, fifteen, twenty, twenty-five, thirty, thirty-five or forty shares would be combined, converted and changed into one share of our common stock; and
b.
a proportionate reduction in the number of authorized shares of our common stock (Item No. 4); and

5.
Transact such other business as may properly come before the meeting or any adjournment or postponement thereof.

Due to the emerging public health impact of coronavirus disease 2019 (COVID-19), QEP Resources is planning for the possibility that the Annual Meeting may be held at a different location or the Annual Meeting may be held solely by means of remote communication.  If we take this step, we will announce the decision to do so in advance, and details on how to participate will be set forth in a press release issued by QEP and available in the “Investor Relations” section of our website at www.qepres.com.

Only holders of the Company's common stock at the close of business on March 19, 2020, the record date, may vote at the Annual Meeting or any adjournment or postponement thereof. If you are a record holder, you may revoke your proxy at any time before your proxy is voted. If you have shares registered in the name of a broker, bank or other nominee and plan to attend the meeting, please obtain a letter, account statement or other evidence of your beneficial ownership of shares to facilitate your admittance to the meeting. If you plan to vote at the meeting, you will need to present a valid proxy from the nominee that holds your shares. This Proxy Statement is being provided to shareholders on April 2, 2020.








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Your vote is important. Whether or not you plan to attend the Annual Meeting, please vote as soon as possible. You may vote over the Internet as well as by telephone or by mailing a proxy card. Voting via the Internet, by phone or by written proxy will ensure your representation at the Annual Meeting if you do not attend in person. Please review the instructions you received regarding each of these voting options. Voting over the Internet or by telephone is fast and convenient, and your vote is immediately tabulated. By using the Internet or telephone, you help reduce the Company’s cost of postage and proxy tabulations.
 
By Order of the
 
Board of Directors
 
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Christopher K. Woosley
Executive Vice President, General Counsel and Corporate Secretary
Denver, Colorado
April 2, 2020

Important Notice Regarding the Internet Availability of Proxy Materials for the Annual Meeting of Shareholders to be held on May 12, 2020. The Proxy Statement and Annual Report are available online at www.proxyvote.com.


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ITEM NO. 1 – ELECTION OF DIRECTORS
Director Nominees
Shareholder Engagement and Response to 2019 Say on Pay Vote
Environmental, Social and Governance
Governance and Social Responsibility Committee
Operations Committee
Policies and Procedures for Review and Approval of Related-Person Transactions
Related-Person Transactions

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Demonstrating Responsiveness to Shareholders
Company Overview and 2019 Business Highlights
Summary of 2019 Compensation Committee Actions
Realizable Pay Demonstrates Pay and Performance Alignment
Compensation Philosophy and Objectives
Base Salary
2018 Executive Severance Program
  2019 Executive Retention Program
Compensation Committee's Decision Making Process
Role of the Chief Executive Officer/Other Officers
Role of the Independent Compensation Consultant
Determination of Peer Group
Assessment of Our Executive Compensation Program's Impact on Risk Taking
       Summary Compensation Table
       Grants of Plan-Based Awards for 2019
       Outstanding Equity Awards at Fiscal Year-End 2019
       Option Exercises and Stock Vested in 2019
       Retirement Plans (Pension Benefits Table)
       Savings Plans (Nonqualified Deferred Compensation Table)
       Potential Payments Upon Termination or Change in Control
       CEO Pay Ratio
ITEM NO. 2 – ADVISORY VOTE ON EXECUTIVE COMPENSATION
ITEM NO. 3 – RATIFICATION OF OUR INDEPENDENT AUDITOR
ITEM NO. 4 – APPROVAL OF AMENDMENT TO OUR AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
Shareholder Nominations and Proposals

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APPENDIX A – NON-GAAP RECONCILIATION
APPENDIX B – FORM OF PROPOSED AMENDMENT TO OUR CERTIFICATE OF INCORPORATION

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QEP RESOURCES, INC.

PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
May 12, 2020

GENERAL INFORMATION

The Board of Directors (Board) of QEP Resources, Inc. (the Company or QEP) is soliciting proxies for use at the Annual Meeting of Shareholders (Annual Meeting) to be held on May 12, 2020, beginning at 8:00 a.m. Mountain Daylight Time, at the Company's offices, 1050 17th Street, Second Floor, Denver, Colorado 80265, and any postponement or adjournment thereof. Due to the emerging public health impact of coronavirus disease 2019 (COVID-19), QEP is planning for the possibility that the Annual Meeting may be held at a different location or the Annual Meeting may be held solely by means of remote communication.  If QEP takes this step, QEP will announce the decision to do so in advance, and details on how to participate will be set forth in a press release issued by QEP and available in the “Investor Relations” section of our website at www.qepres.com.

This Proxy Statement and the accompanying notice of annual meeting include information related to the Annual Meeting. Distribution of these proxy solicitation materials is scheduled to begin on April 2, 2020. The following information will help you to understand the voting process.

Proxy Materials

In accordance with rules promulgated by the Securities and Exchange Commission (SEC), we may furnish proxy materials, including this Proxy Statement and our Annual Report to Shareholders, by providing access to these documents on the Internet instead of mailing a printed copy of those materials to shareholders. Most shareholders have received a Notice of Internet Availability of Proxy Materials (the Notice), which provides instructions for accessing our proxy materials on a website or for requesting copies of the proxy materials by mail or email. If you would like to receive an email or paper copy of the proxy materials for the Annual Meeting and for future meetings, you should follow the instructions for requesting such materials included in the Notice.

Entitlement to Vote

Shareholders who owned shares of QEP common stock as of the close of business on March 19, 2020, the record date, may vote at the Annual Meeting. Each shareholder is entitled to one vote for each share of QEP common stock held by such shareholder on that date.

Voting Items

You will vote on the annual election of all seven directors (the Nominees): Phillips S. Baker, Jr., Timothy J. Cutt, Julie A. Dill, Joseph N. Jaggers, Michael J. Minarovic, Mary Shafer-Malicki, and Barth E. Whitham. You will also vote on compensation of the Company's named executive officers (on an advisory basis), the ratification of the appointment of Deloitte & Touche LLP (Deloitte) as the Company's independent registered public accounting firm and the amendment to our Certificate of Incorporation to effect a reverse split of our common stock and a reduction in the number of authorized shares of our common stock.

Board Voting Recommendations

The Board recommends that you vote as follows on the proposals:

1.
FOR the approval of the seven individuals nominated by our Board for one-year terms, until their successors are duly elected and qualified (Item No. 1);

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2.
FOR the approval, by non-binding advisory vote, of the compensation of the Company's named executive officers as disclosed in the accompanying Proxy Statement (Item No. 2);
3.
FOR the ratification of the appointment of Deloitte & Touche LLP as the Company's independent registered public accounting firm (Item No. 3); and
4.
FOR the adoption and approval of the amendment to our Certificate of Incorporation to effect a reverse split of our common stock and a proportionate reduction in the number of authorized shares of our common stock (Item No. 4).

Voting Instructions

You may vote via the Internet. You may vote by proxy over the Internet by following the instructions provided in the Notice or on the proxy card.

You may vote via telephone. You may vote by proxy over the telephone by following the instructions provided on the proxy card.

You may vote by mail. If you received a printed set of the proxy materials, you may vote by completing and returning the separate proxy card in the prepaid, addressed envelope.

You may vote in person at the meeting. All shareholders of record may vote in person by ballot at the Annual Meeting. Written ballots will be passed out to anyone who wants to vote at the meeting.

Shares Held by a Broker, Bank or Other Nominee

If your shares are held by a broker, bank or other nominee (i.e., in street name), please refer to the instructions provided by that broker, bank or nominee regarding how to vote your shares. If you wish to vote in person at the Annual Meeting, you must obtain a valid proxy from the nominee that holds your shares. New York Stock Exchange (NYSE) rules determine whether proposals presented at shareholder meetings are routine or not. If a proposal is routine, a broker or other entity holding shares for an owner in street name may vote on the proposal without receiving voting instructions from the owner. If a proposal is not routine, the broker or other entity may vote on the proposal only if the owner has provided voting instructions. A broker non-vote occurs when the broker or other entity is unable to vote because the proposal is not routine and the owner does not provide instructions. Pursuant to NYSE rules, if you hold your shares in street name and you do not provide instructions to your broker on Item No. 3, your broker may vote your shares at its discretion on this matter. If you hold your shares in street name and do not provide instructions to your broker on the remaining items, your broker may not vote your shares on these matters.

Shares Held in the QEP Resources, Inc. Employee Investment Plan

If you are a participant in the QEP Resources, Inc. Employee Investment Plan (the 401(k) Plan), the enclosed proxy card may also be used to direct Fidelity Management Trust Company (Fidelity), the trustee of the 401(k) Plan, on how you wish to vote the Company's shares that are credited to your account under the 401(k) Plan. If you do not provide your voting instructions to Fidelity by 11:59 p.m., Eastern Daylight Time, on May 11, 2020, Fidelity will vote the Company shares credited to your 401(k) Plan account in the same proportion as all other shares for which Fidelity received instructions.

Proxy Solicitation

The Company is soliciting your proxy and paying for the solicitation of proxies, and will reimburse banks, brokers and other nominees for reasonable charges to forward materials to beneficial holders.

Quorum Requirements

On March 19, 2020, the record date, the Company had 242,182,385 shares of common stock issued and outstanding. A majority of the issued and outstanding shares, or 121,091,193 shares, constitutes a quorum. Abstentions, withheld votes and broker non-votes are counted for determining whether a quorum is present.

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Voting Standards

Election of Directors. Election of the director nominees named in Item No. 1 requires that each director be elected by a majority of the votes cast, meaning that the number of shares voted "for" a nominee must exceed the number of shares voted "against" such nominee. The Company has adopted a director resignation policy whereby any director who fails to receive a majority of the votes cast during an uncontested election must submit his or her resignation to the Board. For purposes of determining the vote outcome for each nominee, abstentions and broker non-votes will not be counted as votes cast and will have no effect on the outcome of this vote. Shareholders may not cumulate votes in the election of directors.

Approval, by Non-Binding Advisory Vote, of the Compensation of the Company's Named Executive Officers. The vote to approve, on an advisory basis, the Company's executive compensation in Item No. 2 requires the affirmative vote of a majority of the shares of our common stock present in person or by proxy at the Annual Meeting and entitled to vote on the matter. For purposes of determining the vote outcome of Item No. 2, abstentions will be included in the vote totals and, therefore, an abstention will have the same effect as a negative vote. Broker non-votes will not be included in the vote totals, and, therefore, will have no effect on the outcome of Item No. 2. Although non-binding, our Board and Compensation Committee will review and consider the voting results when making future decisions regarding our executive compensation program.

Ratification of the Company's Independent Registered Public Accounting Firm. Ratification of the selection of Deloitte as the Company's independent registered public accounting firm for fiscal year 2020 in Item No. 3 requires the affirmative vote of a majority of the shares of our common stock present in person or by proxy at the Annual Meeting and entitled to vote on the matter. If this selection is not ratified by shareholders, the Audit Committee may reconsider its decision to engage Deloitte. For purposes of determining the vote outcome of Item No. 3, abstentions will be included in the vote totals and, therefore, an abstention will have the same effect as a negative vote.

Approval of Amendment to the Certificate of Incorporation. Pursuant to Article X of our Certificate of Incorporation, approval of the amendment to our Certificate of Incorporation to grant our Board the ability to effect a reverse split of our common stock and a proportionate reduction in the number of authorized shares of our common stock, Item No. 4, requires the affirmative vote of the holders of a majority of the outstanding shares of our common stock For purposes of determining the vote outcome of Item No. 4, abstentions will be included in the vote totals, and, therefore, an abstention will have the same effect as a negative vote. Broker non-votes will not be included in the vote totals, and, therefore, will have no effect on the outcome of Item No. 4.

Other than the items of business described in this Proxy Statement, we do not expect any other matter to come before the Annual Meeting. If any other matter is presented at the Annual Meeting, your signed proxy gives the named proxies authority to vote your shares at their discretion. If you submit a signed proxy card that does not include voting instructions, the proxy card will be voted for the election of all nominees under Item No. 1, for Item No. 2, for Item No. 3 and for Item No. 4, unless the shares represented by the proxy card are held in the 401(k) Plan. The trustee for the 401(k) Plan will vote shares for which no direction is given in the same proportion as all other shares for which the trustee received instructions.

Attending the Annual Meeting

Any shareholder of record as of March 19, 2020, may attend the Annual Meeting. If you own shares through a broker, bank or other nominee and you wish to attend the meeting, please obtain a letter, account statement or other evidence of your ownership of shares as of such date and bring it with you so that you may attend the meeting.

Revoking a Proxy

You may revoke your proxy by submitting a new proxy with a later date, including a proxy submitted via the Internet or telephone, or by notifying the Corporate Secretary before the meeting by mail at the address shown on the notice of annual meeting of shareholders. If you attend the Annual Meeting in person and vote by ballot, any previously submitted proxy will be revoked.

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ITEM NO. 1 – ELECTION OF DIRECTORS

You are asked to consider seven nominees for election to our Board. Each nominee would serve for a one-year term until the 2021 Annual Meeting.
Each of the director nominees has consented to being named in this Proxy Statement and to serve as a director if elected. However, in the event that any nominee is unwilling or unable to serve as a director, those named in the proxy may vote, at their discretion, for any other person.

Board Size and Elections

Each Nominee possesses considerable experience and unique knowledge of the Company's challenges and opportunities. We seek a balance of director skill sets, plan carefully for board succession and seek constant improvement through effective board evaluations. All of our directors nominated under this Item No. 1 are independent except for Mr. Cutt. We empower independent directors through frequent board and committee executive sessions. We also annually appoint either a Chair of the Board or, if the Chair of the Board is not independent, an independent lead director. The Board exercises a strong independent oversight function. This oversight function is enhanced by our Audit, Compensation and Governance and Social Responsibility committees, each of which is made up entirely of independent directors.

When evaluating potential director nominees, the Governance and Social Responsibility Committee considers each individual's professional experience, areas of expertise and educational background in addition to general qualifications. The Governance and Social Responsibility Committee works with the Board to determine the appropriate mix of experiences, areas of expertise and educational backgrounds in order to establish and maintain a Board that is strong and well-rounded in its collective knowledge and that can fulfill its responsibilities, perpetuate our long-term success and represent the interests of our shareholders. The Governance and Social Responsibility Committee regularly communicates with the Board to identify professional experiences, areas of expertise, educational backgrounds and other qualifications that affect our business and that are particularly desirable for our directors to possess in order to help meet specific Board needs, including:

Exploration and Production (E&P) experience as current or former executives, which gives directors specific insight into, and expertise that fosters active participation in, the development and implementation of our operating plan and business strategy;

Executive leadership experience, which gives directors who have served in significant leadership positions strong abilities to motivate and manage others and to identify and develop leadership qualities in others;

Accounting and financial expertise, which enables directors to analyze our financial statements, capital structure and complex financial transactions, and oversee our accounting and financial reporting processes;

Enterprise risk management experience, which contributes to oversight of management's risk monitoring and risk management programs and establishment of risk tolerance aligned with our strategy; and

Public company board and corporate governance experience, which provides directors with a solid understanding of their extensive and complex oversight responsibilities and furthers our goals of greater transparency and accountability for management and the Board and protection of our shareholders' interests.

Our Certificate of Incorporation provides for a Board consisting of between seven and 11 directors, with the precise number to be determined by the Board. Currently the Board consists of ten directors, and following Robert F. Heinemann's decision not to stand for re-election and the planned retirements of M.W. Scoggins and David A. Trice, will consist of seven directors after the Annual Meeting. Directors must receive a majority of the votes cast for the election of directors, and any director who fails to receive a majority of the votes cast during an uncontested election must submit his or her resignation to the Board.


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If elected by our shareholders at the Annual Meeting, each Nominee will serve on the Board for a one-year term expiring at the 2021 Annual Meeting.
Director Qualification Table

The following table highlights each Nominee's specific skills, knowledge and experience. A particular director may possess other valuable skills, knowledge and experience not indicated below.

Name
Financial and
Accounting
Exploration & Production
Executive Leadership
Enterprise Risk Management
Public Company
Governance
Phillips S. Baker, Jr.
X
 
X
X
X
Timothy J. Cutt
X
X
X
X
X
Julie A. Dill
X
 
X
X
X
Joseph N. Jaggers
X
X
X
X
X
Michael J. Minarovic
X
X
X
X
 
Mary Shafer-Malicki
X
X
X
X
X
Barth E. Whitham
X
X
X
X
X

Biographical information concerning our directors appears below. Unless otherwise indicated, such individuals have been engaged in the same principal occupation for the past five years. Ages are as of April 2, 2020.


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Director Nominees

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Mr. Phillips S. Baker, Jr., age 60, has served as a QEP director since June 2010. He served as a director of Questar from 2004 to 2010. Mr. Baker is the President, CEO and a director of Hecla Mining Company (Hecla), a gold and silver mining company. He served as Chief Financial Officer (CFO) of Hecla from May 2001 to June 2003, and as Chief Operating Officer of Hecla from November 2001 to May 2003, before being named CEO in May 2003. He has over 30 years of business experience, including 19 years of financial management, more than ten years as CEO of an NYSE-listed company and more than 20 years of directorships of public companies. Mr. Baker has also served as Chairman of the Board for the National Mining Association since October 2017, and has been a Board member since 2010. He has also served as a Board member of the National Mining Hall of Fame and Museum. In concluding that Mr. Baker is qualified to serve as a director, the Board considered, among other things, his financial knowledge and his extensive executive management and financial experience.
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Mr. Timothy J. Cutt, age 59, is the President and Chief Executive Officer of QEP and has served as a director of QEP since January 15, 2019. Prior to joining QEP, Mr. Cutt was the Chief Executive Officer of Cobalt International Energy, a development-stage petroleum exploration and production company (2016 to 2018). Cobalt International voluntarily filed a petition for relief under Chapter 11 of the United States Bankruptcy Code on December 14, 2017, and a plan to sell all the assets of the company was approved on April 10, 2018. Prior to joining Cobalt International, Mr. Cutt served as President of the Petroleum Division of BHP Billiton, a global natural resources company (2013 to 2016), and prior to that he also served as President of Production for BHP Billiton's Petroleum Division (2007 to 2011). Prior to joining BHP Billiton, Mr. Cutt served in various roles at ExxonMobil in the prior 25 years, including President of ExxonMobil de Venezuela (2005 to 2007), President ExxonMobil Canada Energy (2004 to 2005), President Hibernia Management & Development Company (2001 to 2004) and Regional Coordinator, North America. He also served as a Board member of the American Petroleum Institute from 2013 to 2018. In concluding that Mr. Cutt is qualified to serve as a director, the Board considered, among other things, his 35 years of experience in the oil and gas industry.
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Ms. Julie A. Dill, age 60, has served as a QEP director since May 2013 and also currently serves as a director of Rayonier Advanced Materials Inc., Inter Pipeline Ltd. and Southern Star Central Gas Pipeline (a private company). Ms. Dill recently served as the Chief Communications Officer for Spectra Energy Corp. (Spectra) from 2013 until completion of Spectra's merger with Enbridge, Inc. (the Merger) in the first quarter of 2017. She also served on the board of Spectra Energy Partners from 2012 until the completion of the Merger. Ms. Dill has a wealth of experience in the energy sector, having served in a number of executive capacities in the natural gas and power industries. She served as the Group Vice President of Strategy for Spectra and the President and CEO of Spectra Energy Partners, LP from 2012 until 2013, and prior to that she served as President of Union Gas Limited from 2007 until 2011. Previously, she served in various financial and operational roles with Duke Energy, Duke Energy International and Shell Oil Company. Ms. Dill also serves on an advisory board for Centuri Construction (a privately-held company), a subsidiary of Southwest Gas Holdings. She is also a member of the Advisory Council for the College of Business and Economics at New Mexico State University and also serves on the Memorial Hermann Hospital Community Relations Committee. In concluding that Ms. Dill is qualified to serve as a director, the Board considered, among other things, her experience as the President and CEO of a public company, her strong financial background and her more than 35 years of experience in the energy industry.

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Mr. Joseph N. Jaggers, age 66, has served as a QEP director since October 2019. Mr. Jaggers’ energy industry leadership experience spans more than three decades. From 2013 to 2018, he was President, Chief Executive Officer, Chairman and Founder of Jagged Peak Energy in Denver, Colorado. From 2010 to 2012, he was President, Chief Executive Officer and Director of privately-held Ute Energy, LLC in Denver, Colorado. From 2001 to 2010 he held executive leadership roles with Bill Barrett Corp., Barrett Resources and Williams Companies in Denver. From 1981 to 2000, Mr. Jaggers worked for BP Amoco where he held a variety of staff and management positions, culminating in executive responsibility for BP’s Northern North Sea operation. He is a graduate of the United States Military Academy at West Point. He currently serves as a director and member of the Audit and Compensation committees for National Fuel Gas Company. Mr. Jaggers is a past President of the Colorado Oil and Gas Association, Past Executive Director of Independent Producers Association of the Mountain States, a member of the Society of Petroleum Engineers and he has been inducted into the Rocky Mountain Oil and Gas Hall of Fame. In concluding that Mr. Jaggers is qualified to be nominated to our Board, the Board considered, among other things, his experience as the CEO of a publicly-traded independent exploration and production company and his substantial operational and financial expertise in the oil and gas industry.

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Mr. Michael J. Minarovic, age 55, has served as a QEP director since May 2017. Mr. Minarovic is the CEO and co-founder of Arena Energy, LP, an employee-owned exploration and production company. Since its start-up in 1999, the company has invested nearly $4 billion of capital in the federal waters of the Gulf of Mexico and has been the most active driller in this basin for the past five years. Mr. Minarovic is also the co-founder of White Fleet Drilling, a drilling contractor that owns and operates three large jack-up drilling rigs operating in the Gulf of Mexico and is the founder of Rosefield Pipeline, a midstream company that owns and operates over 200 miles of oil and gas pipelines in the Gulf of Mexico. Previously, Mr. Minarovic served as a petroleum engineer with Newfield Exploration Company from 1993 to 1999 and Conoco, Inc. from 1988 to 1993. Mr. Minarovic is an executive director of the United States Oil and Gas Association, is a member of the John Cooper School Board of Trustees and is an active member of the Society of Petroleum Engineers. Mr. Minarovic graduated from the University of Texas at Austin, in 1987, with a bachelor’s degree in petroleum engineering. In concluding that Mr. Minarovic is qualified to be nominated to our Board, the Board considered, among other things, his more than 30 years of oil and gas experience working in the independent, private and public sectors, including his entrepreneurial, executive and operational expertise, as well as his background in negotiating and managing acquisitions and joint ventures with large public companies.

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Ms. Mary Shafer-Malicki, age 59, has served as a QEP director since July 2017 and also currently serves as a director of McDermott International, Inc. and Wood plc. Ms. Shafer-Malicki retired in 2009 after a 26-year career with BP Exploration Operating Company (BP) and Amoco Corporation. She served as Senior Vice President/CEO and Chief Operating Officer/General Manager for BP's operations in Angola from 2005 to 2009 and Director General for BP's operations in Vietnam from 2003 to 2005. Prior to this, she served as the Business Unit Leader for BP's Central North Sea gas business in Scotland from 2001 to 2003, General Manager for support services to all of BP's Continental Shelf upstream operations in the United Kingdom from 2000 to 2001 and President and General Manager for Amoco/BP's Dutch onshore and offshore production and gas storage operations in the Netherlands from 1998 to 2000. Ms. Shafer-Malicki currently serves as a director of the University of Wyoming Foundation, as well as a member of industry advisory boards for the Chemical Engineering departments at the University of Wyoming and Oklahoma State University. In concluding that Ms.Shafer-Malicki is qualified to serve as a director, the Board considered, among other things, her extensive energy industry experience, including her serving in senior executive positions, and her experience as a director on multiple public company boards. Ms. Shafer-Malicki was appointed as a director by the Board in July 2017 as part of the Board's succession-planning process and was recommended as a director candidate by the Company's current Board Chair, who was serving as Lead Director at the time.


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Mr. Barth E. Whitham, age 63, has served as a QEP director since October 2019. Mr. Whitham is currently the President and CEO of Enduring Resources, LLC, co-founded in 2004 for the acquisition and development of energy resources and infrastructure in North America. He was the co-founding officer of Westport Resources Corporation and President and COO from 1991 to 2004 through its merger with Kerr-McGee. Prior to Westport, Mr. Whitham worked extensively in the upstream U.S., international and offshore energy industry in project planning, development and operations. Mr. Whitham is a graduate of the Colorado School of Mines. He serves on the boards of Ensign Energy Services Inc., Intrepid Potash Corp, Jonah Energy (a privately-held company), Children's Hospital Colorado and is a Trustee of Regis University. Mr. Whitham has served on the Board of SPE International, Western Energy Alliance, CSM Board of Governors and Colorado Forum. In concluding that Mr. Whitham is qualified to be nominated to our Board, the Board considered, among other things, his public company executive experience in the oil and gas industry and his substantial operational and financial expertise.


For Item No. 1, the Board recommends that you vote FOR each of the nominees listed above.

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GOVERNANCE INFORMATION

Governance Update

There were several governance developments to highlight from the past year, including:

In conjunction with the retirement of our former CEO and the hiring of Mr. Cutt as our new CEO in early 2019, after thorough review, our Board decided to separate the role of Chair and CEO and appointed Mr. Trice as Chair of the Board in January 2019.
The Board approved amendments to the Company's Bylaws, which were approved by our shareholders, that provide holders of 25% or more of the Company's outstanding shares the right to call special meetings of shareholders.
In October 2019, the Company appointed Mr. Jaggers and Mr. Whitham as independent directors.
In October 2019, the Board approved the formation of a five-person Operations Committee of the Board which is chaired by Mr. Cutt and also includes current independent directors Mr. Jaggers, Mr. Minarovic, Ms. Shafer-Malicki and Mr. Whitham.
In October 2019, the Board approved the following changes to the Company's Corporate Governance Guidelines: (1) limit total company public board service to four boards total (including the Company), (2) limit total company public board service to two boards total for the CEO (including the Company), and (3) provide that the Board has oversight of QEP's programs, policies and practices related to environmental, safety, governance, sustainability and social responsibility issues and impacts.
As noted in the "Shareholder Engagement" section below, the Company continued to focus on its shareholder outreach program during 2019, contacting our top 40 shareholders who collectively owned over 75% of our outstanding shares as of June 30, 2019. The Company is committed to continuing annual shareholder outreach.

General Governance Information

We seek to implement best practices in corporate governance, including a robust Code of Conduct, Corporate Governance Guidelines and committee charters, each of which is available on the Company's website at http://ir.qepres.com/corporate-governance/governance-highlights. These documents provide the framework for our corporate governance. Any of these documents will be furnished in print without charge to any interested party who requests them. The proxy relates to 2019 performance and compensation, neither of which were affected by the COVID-19 pandemic nor the commodity-price impact of the OPEC+ dynamics. The COVID-19 pandemic and commodity prices could significantly impact 2020 financial results and compensation outcomes, and the board and executives are taking actions to address the effects on business operations.


Shareholder Engagement and Response to 2019 Say on Pay Vote

Continuous and transparent communication with our shareholders provides critical feedback to our Board and senior management team on a wide range of topics, including corporate governance matters and executive compensation. Accountability to shareholders is not only a mark of our good governance, but an important component of our success. In 2019, we contacted shareholders who collectively owned in excess of 75% of our outstanding shares as of June 30, 2019, and spoke with representatives of shareholders representing over 48% of our outstanding shares as of June 30, 2019, including seven of our 10 largest shareholders. Also, we spoke with representatives of two proxy advisory firms (Institutional Shareholder Services Inc. and Glass, Lewis & Co.) in the first quarter of 2020 on a variety of corporate governance, executive compensation and ESG issues. Our core engagement team consists of our Governance and Social Responsibility Committee Chair, who is also a member of the Compensation Committee, along with our Executive Vice President, General Counsel and Corporate Secretary; Vice President, Human Resources & Community Investments; Assistant Corporate Secretary and Director, Investor Relations. The Board considered shareholder and proxy advisory firm feedback on numerous corporate governance, health, safety, ESG and executive compensation topics. This feedback was an important factor in the Company's response to the 2019 Say on Pay Vote, which we discuss below and in more detail in the "Compensation Discussion and Analysis" section of this Proxy Statement. In addition and in

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response to feedback from our shareholders, we expect to incorporate ESG as a metric in our 2021 Annual Incentive Program. We value the feedback provided by our shareholders and look forward to continued, open dialogue on corporate governance issues, health, safety, environmental, social, sustainability, executive compensation decisions and other ESG matters relevant to our business.

At our 2019 Annual Meeting of Shareholders (2019 Annual Meeting), QEP’s shareholders approved amendments to our Bylaws to provide holders of 25% or more of the Company’s outstanding shares the right to call a special meeting of shareholders. However, at the 2019 Annual Meeting, a shareholder proposal to allow holders of 10% or more of outstanding shares to call a special meeting of shareholders received over 46% of support from our shareholders. Most of the shareholders that we spoke with during our engagement calls conducted in 2019 preferred that holders of 25% or more of the Company's outstanding shares have the right to call special meetings of shareholders.
The 2019 Say on Pay proposal received 47% of support from our shareholders, after an average of 92% of support over the last six years. We heard the feedback from our shareholders regarding the Compensation Committee's use of discretion in the calculation of the Asset Sales metric in the CEO/CFO scorecard. In response to the voting outcome and shareholder input received during our shareholder engagement efforts, we have addressed this concern and also made additional appropriate changes to our compensation programs to further align executive pay with shareholder interests and long-term value creation including:
100% formulaic, non-discretionary incentive plan for all employees;
Elimination of new retention programs related to the 2019 Strategic Alternatives review;
Reduction in overall executive compensation and executive headcount;
Evaluation of TSR metrics; and
Increased disclosure regarding methodology and rationale for our compensation program.

More details concerning our response to the 2019 Say on Pay Vote and our compensation programs can be found in the "Compensation Discussion and Analysis" section of this Proxy Statement. The definition of the 2019 Strategic Alternatives can be found in the "Company Overview and 2019 Business Highlights" section of the "Compensation Discussion and Analysis" section of this Proxy Statement.

Environmental, Social and Governance

We pursue various efforts to maintain and/or improve the performance of our ESG objectives. Below are a few highlights of our accomplishments in 2019. More information is available on our website at www.qepres.com.

Environmental
Added 100,000 barrels per day (bbl/day) produced water recycling capacity for a total recycling capacity between 180,000 bbl/day and 200,000 bbl/day

Recycled approximately 10.5 million barrels of produced water in 2019

Achieved a 99.997% spill prevention success rate across our assets in 2019

Maintained four company-owned optical gas imaging (infrared) cameras and continued active air emissions monitoring and repair programs in North Dakota and Texas

Utilized dual-fuel systems on drilling rigs to reduce diesel consumption and related emissions
    
Transported a majority of our oil and produced water from our facilities by pipeline which reduces highway traffic, air emissions and risk of accidents

Utilized centralized production facilities which reduces surface impact compared to single well facilities

Utilized solar power for various oil and gas equipment in our daily operations


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Safety
Achieved a Total Recordable Incident Rate for our employees of 0.32 for 2019
    
Suffered only one recordable employee injury in 2019 across more than 600,000 hours worked

Performed an annual emergency response drill with participation by local first responders

Vested our employees and contractors with the authority and the responsibility to stop any job or work that they feel is unsafe or poses a threat to the environment

Diversity & Inclusion
Women accounted for 34% of our total workforce as of December 31, 2019
    
Minorities accounted for 20% of our total workforce as of December 31, 2019

Women hold two of ten seats on our Board of Directors and chair 50% of our Board Committees

Community        Donated more than $483,000 in 2019 to charitable causes across our
operating areas, providing support to more than 50 organizations

Employees volunteered 1,085 hours and personally donated or fundraised an additional $107,000 to causes important to them and to QEP

Honored in 2019 as one of Colorado’s most community-minded companies as part of The Civic 50 Colorado

Culture
Implemented a new culture model, “How We Work Together,” consisting of the following pillars: Transparency, Humility, Inclusion, Alignment and Execution in addition to our core focus on Health, Safety and Environment (HSE)

Surveyed employees about their training and development needs with programs to be implemented in 2020 addressing culture, leadership, professional development, technical training, business education and performance management

As a result of stockholder engagement, we enhanced our website disclosures in 2019 and in early 2020 to better describe our corporate, environmental, sustainability, health and safety, culture, social and corporate governance commitments and practices. We are committed to community investment and engagement, environmental sustainability, operational safety and sound corporate governance, and we describe each of these commitments in detail in the Community, HSE, Careers, Vendors and Investor Relations portions of our website.

In addition, listed below are highlights of actions we have taken in 2019 and in early 2020 as a result of shareholder engagement and in an effort to disclose the Board’s role in oversight of ESG matters:

We updated our Corporate Governance Guidelines in 2019 to provide that our Board is responsible for overseeing the Company’s programs, policies and practices relating to environmental, safety, governance, sustainability and social responsibility issues.
In February 2020, the Board amended the Charter of the Governance Committee, renaming it the Governance and Social Responsibility Committee. Under its revised Charter, the Governance and Social Responsibility Committee expressly assumes certain powers and responsibilities related to ESG matters as noted in the “Governance and Social Responsibility Committee” section below.

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Director Independence

The Board evaluated all relationships between the Company and its directors and determined that all non-management directors currently serving on the Board are independent under all applicable rules and regulations, including the listing requirements of the NYSE, as set forth in Section 303A.02 of the NYSE Listed Company Manual, and the Company's Corporate Governance Guidelines. The Board also determined that no independent director has a material relationship with the Company that could impair the director's independence. The criteria applied by our Board in determining independence is available in our Corporate Governance Guidelines, which are located on the Company's website at http://ir.qepres.com/static-files/b6178067-4202-4829-be93-ca10ee83d11e. The Board evaluates independence on an ongoing basis.

Board Leadership Structure

Based on the Board's experience, considerable engagement with shareholders and an assessment of research on this issue, the Board understands that there are a variety of viewpoints concerning a board's optimal leadership structure; that available empirical data concerning the impact of board leadership on shareholder value is inconclusive; and, accordingly, that there is no single, generally accepted approach to board leadership in the United States. Given the dynamic and competitive environment in which we operate, the Board believes that the right leadership structure may vary as circumstances change.

In the past, our Board has believed that a strong Lead Director and a combined Chair and CEO was the best structure, allowing our Lead Director to provide independent Board leadership and permitting our Chair and CEO to use his knowledge of the Company to focus Board discussions. Further, our shareholders had historically demonstrated support for this approach with a strong majority opposing shareholder proposals in 2013 and 2016 to separate the roles of Chair and CEO.

In conjunction with the departure of Mr. Charles B. Stanley in January 2019 and the hiring of Mr. Cutt as our new CEO, the Board separated the role of Chair and CEO, and appointed Mr. Trice as Chair. The Board believes that having an independent Chair will encourage diversity of thinking, improve board oversight and allow our new CEO to focus on the everyday demands of managing our Company.

Currently, Mr. Trice, an independent director, is the Chair of the Board. In this role, he:

Presides at all meetings of the Board of Directors, including executive sessions of the independent directors;
Serves as liaison between our management and independent directors;
Actively communicates with the CEO and senior management on a wide range of strategic and operational issues;
Approves information sent to the Board;
Approves meeting agendas for the Board;
Approves meeting schedules to ensure that there is sufficient time for discussion of all agenda items;
Has the authority to call meetings of the independent directors; and
Ensures that he is available for consultation and direct communication, if requested by major shareholders.

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Board Committees

Our Board has an Audit Committee, Compensation Committee, Governance and Social Responsibility Committee and an Operations Committee, each of which is composed solely of independent directors, except for the Operations Committee. As noted above, each committee has a charter that can be found on the Company's website at http://ir.qepres.com/phoenix.zhtml?c=237732&p=irol-govhighlights. The Company will provide each charter to any interested party who requests it in print without charge. The following section includes information about our Board committees. The members of our Board and the Board committees on which they currently serve are identified below.
Director
 Audit
Compensation
Governance and Social Responsibility
Operations
Phillips S. Baker, Jr.
X
 
X
 
Timothy J. Cutt
 
 
 
Chair
Julie A. Dill
Chair
 
X
 
Robert F. Heinemann1
X
Chair
 
 
Joseph N. Jaggers
 
 
 
X
Michael J. Minarovic
X
X
 
X
M. W. Scoggins2
X
X
 
 
Mary Shafer-Malicki
 
X
Chair
X
David A. Trice2
 
X
X
 
Barth E. Whitham
 
 
 
X
1 Dr. Heinemann has decided not to stand for re-election at the Annual Meeting.
2 Mr. Trice and Dr. Scoggins plan to retire after the Annual Meeting.
 
Audit Committee

The Audit Committee reviews auditing, accounting, financial reporting and internal control functions, and oversees risk assessment and compliance activities. The Audit Committee has the sole authority to hire, compensate, retain, oversee and terminate the Company's independent registered public accounting firm. The Audit Committee also has the sole authority to pre-approve all terms and fees for audit services, audit-related services and other services to be performed by the Company's independent registered public accounting firm. The Audit Committee also reviews any related-person transactions brought to its attention that could reasonably be expected to have a material impact on the Company's financial statements and determines whether any action is necessary.

The Audit Committee meets all the requirements set forth in Sections 303A.06 and 303A.07 of the NYSE Listed Company Manual. The Board has determined that all members of the Audit Committee satisfy the standards for independence as they relate to audit committees as set forth in Section 303A.02 of the NYSE Listed Company Manual and as set forth in Rule 10A-3 of the Securities Exchange Act of 1934, as amended (Exchange Act). The Audit Committee frequently meets in executive sessions and meets with the internal auditors and independent auditors outside the presence of management. All Audit Committee members qualify as audit committee financial experts.


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Compensation Committee

The Compensation Committee oversees our executive compensation program and benefit plans and policies; administers our short- and long-term incentive plans, including equity-based programs; oversees and annually reviews short- and long-term as well as emergency succession planning; approves compensation decisions for officers; recommends CEO total compensation to the full Board; and annually reviews the performance of the CEO. The Compensation Committee oversees the risk assessment of our executive and non-executive compensation programs. The Compensation Committee also considers and makes recommendations to the full Board regarding compensation for independent directors.

The Compensation Committee meets the independence requirements set forth in Section 303A.02 of the NYSE Listed Company Manual, and each member qualifies as an independent director under Rule 16b-3 of the Exchange Act and as an outside director under Section 162(m) of the Internal Revenue Code of 1986, as amended. The Compensation Committee frequently meets in executive sessions and meets with its compensation consultant outside of the presence of management.

The Compensation Committee has authority to retain and dismiss compensation consultants and other advisors that provide objective advice, information and analysis regarding executive and director compensation. These consultants report directly to, and may meet separately with, the Compensation Committee, and may consult with the Compensation Committee Chair between meetings. The Compensation Committee retained Meridian Compensation Partners, LLC (Meridian) as its independent consultant to advise it as to executive and director compensation in 2019. The Compensation Committee considered the factors outlined by the NYSE and determined that Meridian is independent under those factors, and that Meridian's work in 2019 did not create any conflict of interest with respect to its representation of the Compensation Committee. See the "Compensation Process – Role of Independent Compensation Consultant" in the "Compensation Discussion and Analysis" section of this Proxy Statement for a description of Meridian's duties.

Governance and Social Responsibility Committee

In February 2020, the Board adopted changes to the Governance Committee Charter to (1) change the name of the Governance Committee to the "Governance and Social Responsibility Committee" and (2) amend the Governance Committee Charter to cause the Governance and Social Responsibility Committee to expressly assume certain powers and responsibilities related to ESG matters.

The Governance and Social Responsibility Committee, which also functions as the Company's nominating committee, is responsible for committee assignments; new director searches; drafting and revising the Corporate Governance Guidelines; conducting annual evaluations of the Board, its committees and individual directors; and making recommendations to the full Board on various governance issues. All members of the Governance and Social Responsibility Committee meet the independence requirements set forth in Section 303A.02 of the NYSE Listed Company Manual.

The Governance and Social Responsibility Committee's Charter defines the criteria for director nominees, including nominees recommended by shareholders and nominees selected by the Governance and Social Responsibility Committee. These criteria provide a framework for evaluating all nominees as well as incumbent directors. The key criterion are personal and professional integrity and ethics; experience in the Company's business; experience as a CEO, president, CFO or senior officer of a public company or extensive experience in finance or accounting; currently active in business at least part time or recently retired, with skills and experience needed to serve as a member of the Board; experience as a board member of another public company; willingness to commit time and resources to serve as a director; and good business judgment, including the ability to make independent analytical inquiries. The Governance and Social Responsibility Committee considers candidates who will contribute a broad range of knowledge, talents, skills and expertise, particularly in the areas of the oil and natural gas industry, strategic planning, accounting and finance, corporate governance, management and diversity of the Board in terms of race, gender, ethnicity or professional background, sufficient to provide prudent guidance about the Company's operations and interests. Board nominees must be less than 72 years of age, unless that requirement is waived by the Board.


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The Governance and Social Responsibility Committee also considers any recommendations for director nominees made by shareholders. The Governance and Social Responsibility Committee evaluates nominees recommended by the shareholders using the same criteria it uses for other nominees.

We amended our Bylaws in December 2016 to permit a group of up to 20 shareholders who collectively have owned at least 3% of our outstanding capital stock for at least three consecutive years to submit director nominees for up to 20% of the Board for inclusion in our Proxy Statement if the shareholder(s) and the nominee(s) meet the other requirements in our Bylaws. We further amended our Bylaws in October 2017 to require the Company to provide to the shareholders additional information about director nominees in advance of the annual meeting, and to require that director nominees proposed by both our Board and our shareholders complete and update background questionnaires regarding the director nominee's qualifications; to authorize the presiding person at shareholder meetings to enact rules of conduct and determine if business has been properly brought before the meeting; and to require a majority of directors (instead of two directors) to call a special meeting. Shareholders who wish to nominate directors for inclusion in our Proxy Statement or at an annual meeting should follow the instructions in the "Other Matters - Shareholder Nominations and Proposals" section below.

At the Company's 2019 Annual Meeting of Shareholders, the Company’s shareholders, upon the recommendation of the Company’s Board of Directors, approved the amendments to our Bylaws effective May 14, 2019, to allow one or more shareholders who own at least 25% or more of the Company’s outstanding shares of common stock to require the Company to call a special meeting of the shareholders. Section 2.2 of our Bylaws was amended to specify the procedures for shareholder-requested special meetings.

Operations Committee

In October 2019, the Board approved the formation of a five-person Operations Committee of the Company, which is chaired by Mr. Cutt and also includes current independent directors Mr. Jaggers, Mr. Minarovic, Ms. Shafer-Malicki and Mr. Whitham. The Operations Committee consists of five members of the Board selected in accordance with Section 2(b) of the Letter Agreement, at least four of whom must meet the independence requirements set forth in Section 303A.02 of the NYSE Listed Company Manual.

The purpose of the Operations Committee is to advise and assist the Board in its oversight of the operations of the Company in order to identify best operating practices in the areas of the Company’s operations and to work with management to focus on continuous operational improvement and excellence.

The Operation Committee’s responsibility includes the following:
 
review and monitor the Company’s technical operations performance as compared to our peer companies based upon indicated benchmarks, results and trends;
review and monitor technical matters of operational significance to the Company; and
assist management in ensuring that the Company has the resources necessary to identify best operating practices and drive continuous operational improvement and excellence.

Board Risk Oversight

Our Board, as a whole and through its committees, is responsible for overseeing the Company's risk management and compliance controls. The Company's executive officers are responsible for day-to-day management of the material risks the Company faces. In its oversight role, our Board is charged with satisfying itself that the risk management processes designed by management are functioning effectively and as designed. Our Board and its committees regularly discuss material risk exposures, the disclosure of risks, the potential impact of risks on the Company and the efforts of management to address the identified risks.

A number of Board processes support our risk management program. The full Board regularly reviews operational, regulatory, legal and environmental risks and discusses the Company's enterprise risk management program. The Board reviews and approves the capital budget and certain capital projects, the hedging policy, significant acquisitions and divestitures, equity and debt offerings and other significant activities.

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The Audit Committee plays an important role in risk management by assisting the Board in fulfilling its responsibility to oversee the integrity of the financial statements and our compliance with legal and regulatory requirements. The Audit Committee retains and interacts regularly with our independent auditors and also meets regularly with our internal auditors. The Company has retained an independent oil and gas reserve evaluation engineering consultant to prepare the estimates of its proved reserves. The Audit Committee meets annually with the independent oil and gas reserve evaluation engineering consultant. Additionally, the Audit Committee reviews financial and accounting risk exposure; the Company's proved oil and gas reserves estimation process, reserve estimates, changes to reserve estimates and disclosures regarding reserve estimates; issues related to cybersecurity; and the Company's internal controls. The Audit Committee also oversees ethics and compliance procedures and reporting.

The Compensation Committee reviews the compensation program to ensure it is aligned with our compensation objectives and to address any potential risks it may create. The Compensation Committee has designed our short- and long-term compensation plans with features that reduce the likelihood of excessive risk-taking, including a balanced mix of cash and equity and short- and long-term incentives, an appropriate balance of operating and financial performance measures, a proper balance of fixed and at-risk compensation components, significant stock ownership requirements for executive officers, extended vesting schedules on equity grants and caps on incentive awards.

Our Governance and Social Responsibility Committee's role in risk management includes regularly reviewing developments in corporate governance and reviewing our Corporate Governance Guidelines to recommend appropriate action to the full Board. The Governance and Social Responsibility Committee also provides input as to Board composition, size and committee assignments, and recommends adjustments to ensure that we have appropriate director expertise to oversee the Company's evolving business operations. In addition, the Governance and Social Responsibility Committee provides key oversight of ESG matters and any related risks.

Our Operations Committee's role in risk management is inherent in its purpose to advise and assist the Board in its oversight of the operations of the Company in order to identify best operating practices as more specifically set forth in the Charter of the Operations Committee.

Stock Ownership Guidelines for Non-Employee Directors

Our Board adopted stock ownership guidelines for independent directors to align the interests of our directors with the interests of our shareholders and to promote our commitment to best practices in corporate governance. Within five years of beginning their service, independent directors are required to hold QEP shares with a value equal to five times the amount of each such director's annual cash compensation (excluding any excess Board meeting fees and Board committee related fees). Shares that count toward satisfaction of the guidelines include common stock owned by the director and phantom stock attributable to deferred compensation. Each of the independent directors who have served for five years or longer holds a sufficient number of shares to satisfy these guidelines. The Board reviewed these guidelines again in 2019 and determined these guidelines were appropriate.

Limits on Board Service

Our directors may not serve on the board of directors of more than four public companies, including our Board, at any given time. Our CEO may not serve on more than one board in addition to our Board at any given time. A member of our Audit Committee may not simultaneously serve on the audit committee of more than two other public companies at any given time unless the Board determines that such simultaneous service would not impair the director's ability to serve effectively on our Audit Committee.

Compensation Committee Interlocks and Insider Participation

The members of the Compensation Committee during 2019 were Dr. Heinemann, Mr. Minarovic, Dr. Scoggins, Ms. Shafer-Malicki, Mr. William Thacker (who retired in May 2019) and Mr. Trice. No member of our Compensation Committee was at any time prior to or during 2019, or the first three months of 2020, an officer or

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employee of our Company. Additionally, no member of the Compensation Committee had any relationship with our Company requiring disclosure as a related-person transaction. During 2019, no executive officer of our Company served on the compensation committee of any other entity that had one or more of its executive officers serving as a member of our Compensation Committee. Furthermore, no executive officer of our Company served on the Compensation Committee of another company that had one of its executive officers serve as a member of our Board.

Communications with Directors

Interested parties may communicate with the full Board, non-management directors as a group or individual directors, by sending a letter in care of the Corporate Secretary at QEP Resources, Inc., 1050 17th Street, Suite 800, Denver, Colorado 80265. Our Corporate Secretary has the authority to discard any solicitations, advertisements or other inappropriate communications but will forward any other mail to the named director or group of directors.

Attendance at Meetings

The QEP Board and committees of the Board held the following number of meetings in 2019:
 
Board
Audit  Committee
Compensation
Committee
Governance
Committee
Operations Committee
Number of Meetings
18
7
6
4
1

Each director attended at least 75% of the aggregate of (1) the number of Board meetings held while he or she was a director; and (2) the number of meetings of all committees of the Board held while he or she served as a member of his or her respective committee. Our directors are expected to attend the Annual Meeting. All of the directors attended the 2019 Annual Meeting of Shareholders, except for Dr. Scoggins and Dr. Heinemann.

Family Relationships

No director or executive officer is related to any other director or executive officer.

Director Retirement Policy

Our Board has adopted a retirement policy that permits an independent director to continue serving until the annual meeting following his or her 72nd birthday, provided that the director remains actively engaged in business, financial or community affairs. The Board does not believe that directors who retire, resign or otherwise materially change their position with their employers should necessarily leave the Board; however, they are required to submit a notice of any such resignation or change to the Chair of the Board and Chair of the Governance and Social Responsibility Committee. The Board will then review the continued appropriateness of Board membership under the changed circumstances. The Board may waive its director retirement requirements in certain situations.


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CERTAIN RELATIONSHIPS AND TRANSACTIONS WITH RELATED PERSONS

Transactions with related persons are those that involve our directors, executive officers, director nominees, greater than 5% shareholders, immediate family members of these persons or entities in which one of these persons has a direct or indirect material interest. Pursuant to the procedures described below, we review all transactions that would involve amounts exceeding $120,000 (the current threshold required to be disclosed in the Proxy Statement under SEC regulations) and certain other similar transactions.

Policies and Procedures for Review and Approval of Related-Person Transactions

Pursuant to the terms of our Corporate Governance Guidelines, we require that all executive officers and directors report to our Corporate Secretary or Assistant Corporate Secretary any event or anticipated event that might qualify as a related-person transaction. The Corporate Secretary or Assistant Corporate Secretary then reports those transactions to the Audit Committee. We also collect information from questionnaires sent to executive officers and directors early each year that are designed to reveal related-person transactions. If a report or questionnaire shows a potential related-person transaction, our Audit Committee will review the transaction in accordance with our Code of Conduct. The Audit Committee will review pending and ongoing transactions to determine whether they conflict with the best interests of the Company, impact a director's independence or conflict with our Code of Conduct. If the transaction is completed, the Audit Committee will determine whether rescission of the transaction, disciplinary action or reevaluation of independence is required. If a waiver to the Code of Conduct is granted to an executive officer or director, the nature of the waiver will be disclosed on our website (www.qepres.com), in a press release or on a current report on Form 8-K.

Related-Person Transactions

As of December 31, 2019, Mr. Richard J. Doleshek, former Executive Vice President and Chief Financial Officer of the Company, and his spouse owned debt securities issued by the Company in the following amounts: $450,000 of our 6.875% Senior Notes due 2021 and $20,000 of our 5.375% Senior Notes due 2022. During 2019, we paid Mr. Doleshek and his spouse interest on the Senior Notes held by both of them in the aggregate amount of $44,508. Mr. Doleshek owned $150,000 of the 6.80% Senior Notes due 2020 that were redeemed in 2019.

The Audit Committee determined that the ownership of the Company's Senior Notes and the associated interest payments do not conflict with the best interests of the Company or conflict with our Code of Conduct.

SECURITY OWNERSHIP

The information provided below summarizes the beneficial ownership of our common stock by our named executive officers, each of our directors, all of our executive officers and directors as a group, and persons owning more than 5% of our common stock. "Beneficial ownership" generally includes those shares of common stock held by someone who has investment and/or voting authority of such shares or has the right to acquire such common stock within 60 days. The ownership includes common stock that is held directly and also stock held indirectly through a relationship, a position as a trustee, or under a contract or understanding.


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Directors and Executive Officers

The following table lists the shares of our common stock beneficially owned by each director, named executive officer, and all directors and executive officers as a group as of March 19, 2020, except as indicated below. Shares not outstanding but deemed beneficially owned by virtue of the right of a person to acquire shares within 60 days of March 19, 2020, are included as outstanding and beneficially owned for that person but are not treated as outstanding for the purpose of computing the percentage ownership of any other person. Except as noted in the footnotes below, the holders have sole voting and dispositive powers over the shares. The Company has no knowledge of any arrangement that would, at a subsequent date, result in a change in control of the Company.
 
Amount and Nature of Beneficial Ownership
Name
Common Stock
Beneficially
Owned
 
Common Stock Acquirable Within 60 Days
Total Beneficially Owned
Percent of
Class
12
Timothy J. Cutt
1,136,124

1,3 

 
1,136,124
 
*

 
Richard J. Doleshek4
437,166

2 
240,422

 
677,588
 
*

 
Christopher K. Woosley
555,110

1,3 
96,564

 
651,674
 
*

 
Joseph T. Redman
419,212

1,3 
6,136

 
425,348
 
*

 
Charles B. Stanley5
844,600

2 
679,428

 
1,524,028
 
*

 
Jim E. Torgerson6
332,613

1,2,3 
200,963

 
533,576
 
*

 
Jeffery R. Tommerup7
127,880

1,2,3 
48,784

 
176,664
 
*

 
Phillips S. Baker, Jr.
28,897

 
186,750

8 
215,647
 
*

 
Julie A. Dill
5,525

 
174,569

8 
180,094
 
*

 
Robert F. Heinemann9
7,200

 
172,805

8 
180,005
 
*

 
Joseph N. Jaggers
120,570

 

 
120,570
 
*

 
Michael J. Minarovic
60,000

 
136,488

8 
196,488
 
*

 
M. W. Scoggins9
7,700

10 
292,279

8 
299,979
 
*

 
Mary Shafer-Malicki

 
135,652

8 
135,652
 
*

 
David A. Trice9
180,000

 
210,944

8 
390,944
 
*

 
Barth E. Whitham

 
97,164

8 
97,164
 
*

 
All directors and executive officers
(16 individuals)
4,262,597

11 
2,678,948

11 
6,941,545
11 
2.87
%
11 
1.
Includes the following unvested restricted shares for which the owners have sole voting power, but which cannot be disposed of until they vest: Mr. Cutt owns 1,057,841 shares; Mr. Woosley owns 443,179 shares; Mr. Redman owns 329,705 shares; Mr. Torgerson owned 163,330 shares as of January 2, 2019; and Mr. Tommerup owned 97,228 shares as of August 30, 2019.
2.
Does not include the following phantom stock units held in the QEP Deferred Compensation Wrap Plan: Mr. Doleshek owned 7,223 units as of December 31, 2019; Mr. Stanley owned 53,605 units as of January 14, 2019; Mr. Torgerson owned 6,133 units as of January 2, 2019; and Mr. Tommerup owned 3,449 units as of August 30, 2019.
3.
Does not include the following executives' long-term cash incentive amounts measured in performance share units (PSUs) pursuant to the QEP Cash Incentive Plan, which are subject to a cash payout to the extent certain performance objectives are achieved: Mr. Cutt owns 1,142,310 PSUs; Mr. Woosley owns 473,727 PSUs; Mr. Redman owns 316,501 PSUs; Mr. Torgerson owned 268,900 PSUs as of January 2, 2019; and Mr. Tommerup owned 70,673 PSUs as of August 30, 2019.
4.
Mr. Doleshek's last day of employment with the Company was December 31, 2019. All amounts reflected in the table for Mr. Doleshek are as of December 31, 2019.
5.
Mr. Stanley's last day of employment with the Company was January 14, 2019. All amounts reflected in the table for Mr. Stanley are as of January 14, 2019.
6.
Mr. Torgerson's last day of employment with the Company was January 2, 2019. All amounts reflected in the table for Mr. Torgerson are as of January 2, 2019.
7.
Mr. Tommerup's last day of employment with the Company was August 30, 2019. All amounts reflected in the table for Mr. Tommerup are as of August 30, 2019.
8.
Represents fully-vested phantom stock units held in the QEP Deferred Compensation Plan for Directors, which are payable in cash or shares of QEP common stock (at the director's election) upon termination of the director's service on the Board.


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9.
Dr. Heinemann, Dr. Scoggins and Mr. Trice will no longer serve on the Board following the 2020 Annual Meeting.
10.
Shares are held in a joint account for which Dr. Scoggins has shared voting and dispositive powers with his spouse.
11.
Amount reflects shares owned by Mr. Doleshek, Mr. Stanley, Mr. Torgerson and Mr. Tommerup as of their last day of employment. Excluding the four departed executive officers, the total common stock beneficially owned is 2,520,338; the total common stock acquirable within 60 days is 1,509,351; the total beneficially owned is 4,029,689; and the total percent of class is 1.66%.
12.
The percentage of shares owned is less than 1% unless otherwise stated.


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Certain Beneficial Owners

The following table sets forth information with respect to each person known by the Company to beneficially own more than 5% of our common stock as of March 19, 2020.
Name and Address of Beneficial Owner
Amount and Nature of
Beneficial Ownership
Percent of 
Class
BlackRock, Inc., 55 East 52nd Street, New York, NY 10055
38,042,1221
16.0%
The Vanguard Group, Inc., 100 Vanguard Blvd., Malvern, PA 19355
25,048,2442
10.5%
Dimensional Fund Advisors LP, 6300 Bee Cave Road, Austin, TX 78746
17,564,3583
7.4%
State Street Corporation, One Lincoln Street, Boston, MA 02111
15,043,2684
6.3%
1.
Based on its Schedule 13G filed with the SEC on February 4, 2020, as of December 31, 2019, BlackRock, Inc. had sole voting power of 37,323,957 shares and sole dispositive power of 38,042,122 shares.
2.
Based upon its Schedule 13G filed with the SEC on February 12, 2020, as of December 31, 2019, The Vanguard Group, Inc. had sole voting power of 224,978 shares; sole dispositive power of 24,810,465 shares; shared voting power of 37,411 shares; and shared dispositive power of 237,779 shares.
3.
Based on its Schedule 13G filed with the SEC on February 12, 2020, as of December 31, 2019, Dimensional Fund Advisors LP had sole voting power of 17,429,703 shares and sole dispositive power of 17,564,358 shares.
4.
Based on its Schedule 13G filed with the SEC on February 13, 2020, as of December 31, 2019, State Street Corporation had shared voting power of 14,073,847 shares and shared dispositive power of 15,043,268 shares.

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AUDIT COMMITTEE REPORT

The Audit Committee adopted its Charter in 2010 upon formation of the Company and has amended it from time to time. Audit Committee members are appointed each year by the Board to review the Company's financial matters. The Board has determined that each member of our Audit Committee meets the independence requirements set by the NYSE. The Board has also determined that all members of the Audit Committee are audit committee financial experts as defined by the SEC. No member of the Audit Committee serves as a member of the audit committee of more than three public companies.

We reviewed and discussed with the Company's management the audited financial statements for the year ended December 31, 2019. We discussed with representatives of PwC, the Company's independent registered public accounting firm for the fiscal year ended 2019, the matters required to be discussed by the applicable requirements of the Public Company Accounting Oversight Board regarding communications with audit committees. We have also received the written disclosures and the letter from PwC required by applicable provisions of the Public Company Accounting Oversight Board regarding PwC's communications with the Audit Committee concerning independence, and we have discussed with representatives of PwC its independence from the Company. We have also discussed with the Company's officers and PwC such other matters and received such assurances from them as we deemed appropriate.

Based on our review and discussions, we have recommended to the Board the inclusion of the audited financial statements in the Company's Annual Report on Form 10-K for the year ended December 31, 2019, for filing with the SEC.

By the Audit Committee:

Julie A. Dill, Chair
Phillips S. Baker, Jr.
Robert F. Heinemann
Michael J. Minarovic
M. W. Scoggins

This report shall not be deemed to be incorporated by reference by any general statement incorporating by reference this Proxy Statement into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, and shall not otherwise be deemed filed under such acts.

COMPENSATION COMMITTEE REPORT

We have reviewed and discussed the Compensation Discussion and Analysis with management and, based on our review and discussions, have recommended to the Board that the Compensation Discussion and Analysis be included in this Proxy Statement for filing with the SEC.

By the Compensation Committee:

Robert F. Heinemann, Chair
Michael J. Minarovic
M. W. Scoggins
Mary Shafer-Malicki
David A. Trice

This report shall not be deemed to be incorporated by reference by any general statement incorporating by reference this Proxy Statement into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, and shall not otherwise be deemed filed under such acts.


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COMPENSATION DISCUSSION AND ANALYSIS

This section describes the objectives and elements of the executive compensation programs for our Named Executive Officers (NEOs). Our NEOs for this Proxy Statement include our current and former principal executive officer, our principal financial officer (as of December 31, 2019), our two other executive officers, as well as two additional former officers that would have been among the most highly compensated executive officers had they still been employed by QEP at year end. Our NEOs for 2019 are:

Timothy J. Cutt, President and Chief Executive Officer (CEO)
Richard J. Doleshek, Executive Vice President and Chief Financial Officer (CFO) (departed December 31, 2019)
Christopher K. Woosley, Senior Vice President, Corporate Secretary and General Counsel
Joseph T. Redman, Vice President, Energy
Charles B. Stanley, Chairman, President and Chief Executive Officer (CEO) (departed January 14, 2019)
Jim E. Torgerson, Executive Vice President, QEP Energy (departed January 2, 2019)
Jeffery R. Tommerup, Senior Vice President, Northern Region and HSE (departed August 30, 2019)

Demonstrating Responsiveness to Shareholders

2019 Say on Pay Vote Result, Shareholder Engagement and Board Responsiveness


Shareholder engagement is a continuous and year-round process for the Board and executive management. We value ongoing dialogue with our shareholders, and it is a critical element in the evaluation of our executive compensation programs and other corporate governance matters. We take the shareholder engagement process seriously and take action based on the feedback we receive. We recognize that accountability to our shareholders is the cornerstone of sound corporate governance and essential to the attainment of our business objectives.

Say on Pay Vote

At our 2019 annual meeting, vote Item No. 2 - Advisory Vote on Executive Compensation, commonly known as “Say on Pay,” received a FOR vote of 47% of the shares voted. The 2019 Say on Pay Vote related to our 2018 executive compensation program as disclosed in our 2019 Proxy Statement. This outcome was unusual, as we have historically received strong shareholder support with an average FOR vote of 92% over the last six (6) years prior to 2019 and our core philosophy and design of our executive compensation programs remained materially consistent in 2019. The results for our shareholder support over the previous six (6) years are as follows:
YEAR
FOR VOTE
2013
94%
2014
94%
2015
93%
2016
89%
2017
94%
2018
85%

Although the Say on Pay Vote item is technically advisory, the Compensation Committee took the 2019 results very seriously.





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Engaging With Our Shareholders

In support of the Compensation Committee’s efforts to address the concerns related to executive compensation that were reflected in our 2019 Say on Pay Vote and in addition to our ongoing dialogue with shareholders on our strategy and value proposition, we reached out to shareholders representing more than 75% of our outstanding stock as of June 30, 2019. Our Governance and Social Responsibility Committee Chair, who is also a member of the Compensation Committee, along with key members of management in the areas of legal, investor relations, governance and human resources, then spoke with the representatives of shareholders representing over 48% of our outstanding shares as of June 30, 2019, including seven of our 10 largest shareholders. Our Governance and Social Responsibility Committee Chair solicited and received comments which were discussed with the Compensation Committee during 2019 and early 2020.

Our outreach included the top 40 shareholders who held 75% of our
outstanding stock as of June 30, 2019https://cdn.kscope.io/e3be8868901fd7b8ed23637fcbf121c4-shareholderoutreacha01.jpg
In response to shareholder input, we made appropriate changes to our compensation programs for 2019 and 2020 to further align executive pay with shareholder interests and long-term value creation.

Response to Shareholder Feedback

Discussions with our shareholders through our 2019 outreach process provided the Compensation Committee with constructive feedback on specific concerns relating to our executive compensation program, and shareholder feedback was an essential element of the Compensation Committee’s evaluation of revisions to the program. While many of the outreach sessions covered governance and strategic topics, common themes relating to executive pay emerged from these discussions. The table below summarizes the specific feedback provided by shareholders regarding executive compensation and how we responded.

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What We Heard
What We Did
Some shareholders criticized the Compensation Committee’s exercise of discretion in the calculation of the Asset Sales metric in the CEO/CFO scorecard.

The Compensation Committee had to resolve timing of the AIP payment with our former CEO’s departure in early January 2019. Ultimately, the Williston Basin transaction did not close, which would have impacted the payout of the AIP had it been paid at a later date. The Compensation Committee faced an unusual combination of circumstances but understands that shareholders would prefer less application of discretion in these situations and will consider this feedback in future situations.

In 2019, the Committee established a new 100% formulaic, non-discretionary incentive plan for all executives.
Shareholders voiced a preference not to grant non-variable “retention” awards to executives.
Following implementation of a small retention program for employees across various functions and three named executive officers in early 2019, we have eliminated the implementation of any new retention programs related to the prior strategy review.

In addition to the elimination of retention programs, we have reduced overall executive compensation by $10 million (44%) as a result of reducing executive headcount by 54% in a targeted internal campaign addressing the Company's General and Administrative Expense (G&A).
Some shareholders would like the Compensation Committee to re-consider the design of our long-term incentive program and specifically the structure of Performance Share Units (PSU) including:
   - Incorporating a returns-based metric(s)
   - Considering a more stringent payout scale (TSR
      target)
The Company has a returns-based decision-making process, and the Compensation Committee continues to evaluate how best to incorporate returns-based metrics into the long-term compensation program. The Committee, however, does not expect that 2020 long-term incentive grants will incorporate these additional metrics, as the Committee needs time to evaluate the impact of various metrics based on the Company’s restructured portfolio.

The Compensation Committee has evaluated the TSR payout scale and believes it is appropriate due to the recent addition of absolute TSR caps if the TSR is negative, the incentive for executives to achieve greater results with the upside of the performance scale and the structure of this plan as compared to similar programs at peer group and general industry companies.
Enhance disclosure so that shareholders can better understand the rationale underlying pay decisions.
We have provided increased disclosure regarding methodology and rationale for our compensation programs in this Proxy Statement.

Additional actions taken by the Compensation Committee in 2019 are described below in the “Summary of 2019 Compensation Committee Actions,” and the Compensation Committee will continue to consider the outcome of our future Say on Pay votes when making future compensation decisions for our NEOs.

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Executive Summary

Company Overview and 2019 Business Highlights


QEP is an independent crude oil and natural gas exploration and production (E&P) company with operations in two regions of the United States: the Southern Region (primarily in Texas) and the Northern Region (primarily in North Dakota).

2019 Business Highlights

Our Company delivered significant results and accomplishments in 2019:

Closed on the sale of its assets in Haynesville/Cotton Valley for net cash proceeds of $633.9 million;
Generated a net loss of $97.3 million, or $0.41 per diluted share;
Reported $663.6 million of Adjusted EBITDA (a non-GAAP measure defined and reconciled on Appendix A), a 32% decrease from 2018;
Reported cash provided by operating activities of $566.9 million;
Reported Free Cash Flow (a non-GAAP measure defined and reconciled on Appendix A) outspend of $9.8 million in 2019 compared to Free Cash Flow outspend of $314.9 million in 2018;
Reduced general and administrative expenses by 30% compared to 2018;
Repaid $66.9 million of senior notes, which were due in 2020 and 2021;
Delivered record oil and condensate production of 13.5 MMbbls in the Permian Basin;
Delivered oil equivalent production of 32.2 MMboe;
Incurred capital expenditures (excluding property acquisitions) of $571.5 million, a 51% decrease from 2018; and
Reported year-end total proved reserves of 382.3 MMboe, including proved crude oil and condensate reserves of 254.9 MMbbls.

2019 was a year of significant change for QEP as we shifted our corporate strategy to prioritize profitability and financial discipline over production growth. We were intensely focused throughout the year on right-sizing corporate overhead, improving capital efficiency and reducing operating expenses in the field.

In 2019, QEP's Board commenced and completed a comprehensive review of strategic alternatives to maximize shareholder value and determined that the best alternative for QEP's shareholders was to move forward as an independent company. Additionally, in light of the reduction of the Company's operational footprint, QEP reassessed its organizational needs and significantly reduced its general and administrative expense between 2018 and 2019 by 30% to ensure its cost structure is competitive with industry peers. QEP has already completed general and administrative reduction initiatives which will deliver an additional 40% reduction compared to 2019.

The 2018 Strategic Initiatives and 2019 Strategic Alternatives referenced throughout this Proxy Statement are defined as follows:

2018 Strategic Initiatives: Strategic and financial initiatives to transition the Company to a pureplay Permian Basin Company and to address the significant discount to net asset value in the Company's share price through the following activities:

Strategic Initiatives
Engage financial advisors to assist with the divestiture of the Company’s Williston and Uinta Basin Assets, with data rooms expected to be opened in late March or early April 2018; and
Market remaining non-Permian assets, including the Haynesville/Cotton Valley (Haynesville), in the second half of 2018.


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Financial Initiatives
Use proceeds from asset sales to fund Permian Basin development program, until the program reaches operating cash flow neutrality in 2019, reduce debt and return cash to shareholders through share repurchases
Authorized a $1.25 billion share repurchase program; and
Approved 2018 capital plan of approximately $1.075 billion, of which approximately 65% will be directed toward the Permian Basin.

2019 Strategic Alternatives: Comprehensive review of strategic alternatives to maximize shareholder value through the following activities:
Review of potential merger or sale of the Company or other transaction involving the Company or its assets; and
Reassessment of the Company's organizational needs in light of the reduction of the Company’s operational footprint over the prior 12 month period and intention to significantly reduce its general and administrative expense to ensure its cost structure is competitive with industry peers.

Summary of 2019 Compensation Committee Actions


In addition to the response to specific shareholder feedback as a result of our shareholder engagement following the voting of our advisory Say on Pay proposal discussed in “Demonstrating Responsiveness to Shareholders” section above, the Compensation Committee took the following actions to continue to strengthen our shareholders’ confidence in our executive compensation programs and shareholder return:

Appointed Mr. Cutt as President and CEO at a lower target compensation package than our prior CEO, which is reflective of the smaller, more focused company we are now versus prior years;
Agreed to terms with Mr. Doleshek regarding his termination as Executive Vice President and CFO without Cause effective December 31, 2019, and appointed Mr. William J. Buese as CFO and Treasurer effective January 1, 2020, at a lower target compensation package, which is reflective of his experience and the new company size;
Achieved a 30% reduction in Company General and Administrative Expense as a result of a targeted internal campaign, which included a 54% reduction to executive headcount and an overall target executive compensation expense reduction of $10 million; and
Restructured our peer group to generally reflect similarly-sized public companies with primary operations in the Williston Basin in North Dakota and/or the Permian Basin in Texas.

Ongoing Compensation Program Changes

To continue our focus on operating cost-effectively in a volatile commodities market and to be responsive to shareholders' comments to sharpen our focus on generating profits and strong returns on investments, our Compensation Committee:

Established 100% formulaic, non-discretionary metrics for the 2019 Annual Incentive Plan (AIP);
Added a metric to our 2019 AIP tied to our operating cost per Boe specific to lease operating expense and general and administrative expense for our executives, which ensured focus on profitability and cost control for field-level costs and corporate overhead;
Maintained a total equivalent production metric for our executives, as it is a key component in our ability to deliver targeted returns from capital investment;
Added a metric for total capital expenditures for our executives to ensure we are generating our production economically through a focus on capital spending with a goal of improving free cash flow;
Maintained a drilling rate of return metric in our 2019 AIP for our executives because it is our best leading indicator of capital efficiency and successful capital allocation decisions;
Paid out the 2017 PSU awards at 20% of grant date target based upon our relative total shareholder return (TSR) performance score of 100% from January 1, 2017, to December 31, 2019, and the absolute share price reduction over the same period; and

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Approved an overall 2019 AIP company score of 157.6% for our executives due to the achievement of significant cost reductions, increased capital efficiency and strong environmental and safety performance.

Retention Through 2019 Strategic Alternatives

In conjunction with a small retention program for employees across various functions of the Company, our Compensation Committee implemented a 2019 Executive Retention Program to help retain executive management who were integral to executing our comprehensive 2019 Strategic Alternatives review. The 2019 Executive Retention Program awards were reduced for certain executives as compared to the 2018 program. Additionally, the one-time award values were paid as 50% cash and 50% equity grant unlike the cash-only payments in the 2018 program. Additional information about the program included:
A one-time cash retention payment of $250,000 (payable over time assuming continued service) and a one-time grant of restricted stock of $250,000 for Mr. Woosley and Mr. Redman; and
A one-time cash retention payment of $200,000 (payable over time assuming continued service) and a one-time grant of restricted stock of $200,000 for Mr. Tommerup.

No retention payments or grants were provided to Mr. Cutt, Mr. Doleshek, Mr. Stanley or Mr. Torgerson. These retention payments were designed specifically for the 2019 Strategic Alternatives review and no additional retention plans are anticipated in the near future.

For further details, see the "2019 Executive Retention Program" section below.

Succession and Severance

Our Compensation Committee took actions related to the departures of four named executive officers in 2019 and utilized our succession planning process related to these departures as follows:

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Departing Executive
Replacement
Succession Approach
Severance Benefits
Charles Stanley
Chairman, President and CEO (Departed January 14, 2019)
Timothy Cutt
President and CEO (Appointed January 15, 2019)
Retained an executive search firm to replace the CEO position as a result of having CEO candidates in development but not immediately ready in our succession plan.
Mr. Stanley received benefits similar to those described in his Severance Participation Letter executed in February 2018, as a result of the circumstances around his retirement and in light of his contributions to the Company during his tenure.
Richard Doleshek
EVP and CFO (Departed December 31, 2019)
William Buese
VP, CFO and Treasurer (Promoted January 1, 2020)
Utilized our succession planning process to promote from within.
Mr. Doleshek and the Company agreed to terms regarding his termination without Cause, and he received severance pursuant to the terms of his Separation and Release Agreement, which included severance payments and benefits that were less than his severance entitlements under the Severance Participation Letter executed in February 2018.
Jim Torgerson
EVP, QEP Energy (Departed January 2, 2019)
Joseph Redman
Vice President, Energy (Promoted August 16, 2019)
Used our succession planning process to assign Mr. Torgerson's responsibilities to Mr. Tommerup and Mr. Redman as the Company executed its 2019 Strategic Alternatives with ultimate responsibility in our smaller company being assigned to Mr. Redman with Mr. Tommerup’s departure.
Mr. Torgerson was terminated without Cause and received severance pursuant to the terms of his Severance Participation Letter executed in February 2018.
Jeffery Tommerup
SVP, Northern Region and HSE (Departed August 30, 2019)
Mr. Tommerup was terminated without Cause and received severance pursuant to the terms of his Severance Participation Letter executed in February 2018.
 
For a summary of the terms of the above severance benefits, see the "Compensation Elements - 2018 Executive Severance Program" section below. For the actual payments made to Mr. Tommerup, Mr. Torgerson, Mr. Doleshek and Mr. Stanley, see the "Compensation Tables - Potential Payments Upon Termination or Change in Control" section below and accompanying footnotes.

The Compensation Committee also structured and approved the compensation package for Mr. Cutt, our new President and CEO, whose employment commenced on January 15, 2019, to be positioned at approximately the 25th percentile of our peer group (excluding Mr. Cutt’s make-whole sign-on payment of $350,000 paid on March 1, 2019) and below the prior CEO’s target total compensation package as follows:
2019 Compensation Component
Mr. Stanley
(Prior CEO)
Mr. Cutt
(Current CEO)
Change
Base Salary
$850,000
$750,000
(11.8%)
Target AIP $ (%)
$935,000 (110%)
$750,000 (100%)
(19.8%)
Long-term Incentives
$4,320,0001
$3,600,0002
(16.7%)
Target Total Compensation
$6,105,000
$5,100,000
(16.5%)
1.
Reflects a 10% reduction from 2017.
2.
Equity grant of $3.6 million, comprised of (i) $1.8 million in restricted stock that will vest in equal annual installments over a three-year period ending March 2022, and (ii) $1.8 million in PSUs for a performance period ending on December 31, 2021.


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Mr. Cutt also received our standard Tier 1 relocation program. Mr. Cutt is eligible to receive severance benefits pursuant to our Executive Severance Plan (Change in Control) in the event of certain terminations related to a change in control of the Company and pursuant to the 2018 Executive Severance Program if his employment is terminated without Cause or by Mr. Cutt for Good Reason prior to September 30, 2020, the terms of which are consistent with those available to Mr. Stanley. For further details, see the "Compensation Tables - Potential Payments Upon Termination or Change in Control" section below.

Realizable Pay Demonstrates Pay and Performance Alignment


Our pay programs are designed to align pay outcomes with both short-term and long-term Company strategy and performance, and we believe they are working as designed. Our CEO's actual realizable compensation based on performance has varied significantly from the intended target value within 12 months of being appointed, as illustrated by the graph below. As of December 31, 2019, Mr. Cutt's overall realizable compensation was 31% lower than his target compensation package.
https://cdn.kscope.io/e3be8868901fd7b8ed23637fcbf121c4-ceorealizpaya01.jpg
Grant Price is the fair value on the date of grant for PSUs and restricted stock, as reported in the Summary Compensation Table.

Target Pay includes base salary, target annual incentive and grant date fair value of PSUs and restricted stock.

Realizable Pay includes base salary, actual annual incentive paid (based on 100% formulaic, non-discretionary performance goals), period-to-date PSU performance for the 2019-2021 performance period as of December 31, 2019, and value of unvested restricted stock awards at the December 31, 2019, stock price ($4.50).

The strong correlation between Company performance and our CEO's realizable pay, as reflected in the table above, is a direct function of our CEO's pay mix and the design of our executive compensation programs.

As shown in the graph below (excluding the one-time make-whole sign-on payment awarded to Mr. Cutt), 70.6% of our CEO's 2019 target total pay was tied to stock performance and 50% of our CEO's 2019 target total pay was tied to performance metrics (PSUs and Annual Incentive). This allocation equates to 85% of our CEO's 2019 pay being variable or at risk.

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Based on the CEO's pay mix, changes in stock price over 2019 alone have directly and substantially impacted the CEO's realizable pay, highlighting the link between pay and performance.

In addition to pay mix, the design of both our short-term and long-term incentives aligns realizable pay with Company performance:
Our AIP metrics are based on short-term goals, the achievement of which the Compensation Committee expects will result in improved cash flow, returns on capital and greater shareholder value over time. Generally, the extent to which those goals are achieved directly impacts CEO realizable pay.
Our long-term incentives are based primarily on share price and/or relative shareholder return with absolute measures, meaning that, except for special retention awards and certain payments upon termination, pay is realizable only as and when our stock performs. For example, our total shareholder return was just below the median of our peers (approximately 42nd percentile) for the 2019-2021 performance cycle as of December 31, 2019, but the performance-to-date value of the payout on the PSUs that would be earned by our CEO within 12 months of grant was approximately 67% below the grant date target value due to stock price performance.

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Key Features of Our Executive Compensation Program 


Our Executive Compensation Practices
(What We Do)
ü     Pay for Performance – We structure our CEO's compensation so that at least 85% of our CEO's target total compensation varies based on performance (stock price and performance metrics).
ü     Responsive to Shareholder Feedback – We seek shareholder input on our pay practices and regularly take action on feedback received.
ü     Double-Trigger Severance and LTI Award Vesting – Upon a change in control, LTI awards and cash benefits under our Executive Severance Plan (the CIC Plan) vest or become payable only if the employee is terminated without Cause or constructively terminated within three years following the change in control.
ü     Clawback Policy – AIP awards for our Section 16 Officers are subject to clawback in the event of a financial restatement due to fraud or misconduct, at the discretion of the Compensation Committee.
ü     Executive Ownership Guidelines – Our stock ownership guidelines for our executives and directors are consistent with good corporate governance practices, requiring 6x base salary for our CEO, 3x for our EVP and 2x for other officers.
ü     External Benchmarking – Our Compensation Committee reviews competitive compensation data based on an appropriate group of E&P peer companies prior to making annual compensation decisions.
ü     Independent Compensation Consultant – Our Compensation Committee has engaged an independent executive compensation advisor who reports directly to the Compensation Committee and provides no other services to the Company.
ü     Tally Sheets – Our Compensation Committee reviews comprehensive reports of each NEO's total compensation package prior to making executive compensation decisions.
ü     Annual Risk Assessment of Compensation Practices – Our Compensation Committee conducts an annual risk assessment to consider carefully the degree to which compensation plans and decisions affect risk-taking. We do not believe that any of the compensation arrangements in place encourage unnecessary risk-taking.
Prohibited Executive Compensation Practices
(What We Don't Do)
X      No Golden Parachute Excise Tax Gross-Ups – We do not provide golden parachute excise tax gross-ups in our Executive Severance Plan or elsewhere.
X      No Repricing – Our stock incentive plan does not permit the repricing of underwater stock options without shareholder approval.
X      No Hedging, Pledging or Derivatives Trading of QEP Stock – These practices are strictly prohibited for all officers of the Company.
X      No Excessive Perquisites or Benefits – We offer limited perquisites to our NEOs, consistent with the perquisites offered by our peer companies, to offset the cost of tax return preparation, financial planning and related expenses. Our supplemental retirement programs are limited to restoring the benefits lost under our qualified retirement plans, and eligibility is not limited to executives.
X      No Employment Agreements – We have no employment agreements with any executive officers.

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Compensation Philosophy and Objectives

In designing and administering our executive compensation program, our Compensation Committee is guided by an overall philosophy that emphasizes the following objectives:

Attract, retain and reward effective leaders. Our philosophy is to attract, retain and reward effective leaders by paying our executives competitively with our peers, with a majority of executive pay being earned over time and dependent on Company performance. In order to gauge whether our compensation structure is competitive with our peers, we evaluate the range of current industry compensation practices to provide external benchmarks that help to guide our executive compensation structure. Our Compensation Committee determines individual total compensation targets within this framework to provide compensation that correlates with QEP's relative performance to its peers. We do not, however, target a specific percentile of the peer market data. This approach provides the flexibility needed to manage our executive compensation programs to meet our current business needs. In connection with the 2018 Strategic Initiatives and the 2019 Strategic Alternatives, attraction and retention of executives became of paramount importance.

Incentivize and pay for performance. Our executives should get paid more when the Company and our stock perform well and less when the Company and our stock are not performing well. To create the link between pay and performance, the majority of each of our NEO's compensation is based on the Company's attainment of short-term goals, long-term stock price performance and TSR performance on an absolute basis and relative to our industry peers.

Align our executives' interests with our shareholders' interests. Our executive compensation programs should incentivize our executives to think like shareholders and take into account shareholder concerns. Accordingly, a substantial portion of their compensation is provided in the form of long-term equity incentives that tie executive pay to stock performance. In addition, we require each of our NEOs to meet substantial stock ownership guidelines so that they have an investment in QEP and are incentivized to increase the value of that investment. We also engage in ongoing dialogue with our largest shareholders regarding executive compensation and governance matters, so that our executive compensation programs address any areas of concern.

Ensure appropriate management of risk. Our Compensation Committee believes that effective leadership in the oil and gas business requires taking prudent business risks while discouraging excessive risk-taking. To encourage this balance, our Compensation Committee has structured our compensation to include extended three-year vesting schedules on LTI awards, and generally, to base at least a portion of annual incentive awards on meeting strategic objectives regarding safety, legal and regulatory compliance. Annually, the Compensation Committee's independent compensation consultant conducts an assessment of our compensation programs to ensure that our programs do not encourage executives to take inappropriate or excessive risks that could negatively impact the Company. In addition, we strictly prohibit hedging, pledging or derivatives trading of QEP stock for all QEP officers and directors.

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Compensation Elements

Our compensation program for NEOs aligns with our compensation philosophy and incorporates elements designed to address a variety of objectives. The following table highlights each element of our compensation program and the primary role of such element in achieving our executive compensation objectives. Refer to specific sections of this Proxy Statement for more details on each program.

Compensation Element
Role in Total Compensation
Base Salary
• Provides fixed compensation based on an individual's skills, experience and proficiency, competitive market data and the relative value of the individual's role within the Company; and
• Attracts and retains executive talent and helps the Company remain competitive in our industry.
Annual Incentive Program
• Motivates executives to achieve our strategic direction;
• Rewards annual Company and individual performance;
• Motivates participants to meet or exceed internal and external performance expectations; and
• Recognizes individual contributions to the organization's results.
Long-Term Incentive Program
w Performance Share Units
w Restricted Stock

• Rewards long-term performance, directly aligned with shareholder interests;
• Provides a strong performance-based equity component;
• Recognizes and rewards share performance on an absolute basis and relative to industry peers;
• Aligns compensation with sustained long-term value creation;
• Allows executives to acquire a meaningful and sustained ownership stake; and
• Fosters executive retention by vesting awards over multiple years.
Benefits
w Health & Welfare
w Retirement
w Deferred Compensation
w Other
• Attracts and retains executive talent and helps the Company remain competitive in our industry by offering a comprehensive employee benefits package;
• Provides health and welfare benefits comparable to those provided to all other employees;
• Provides financial security in the event of various individual risks and maximizes the efficiency of tax-advantaged compensation vehicles; and
• Provides limited perquisites consistent with those offered by our peer companies.
Termination and Retention Benefits
w CIC Plan
w 2018 Executive Severance Program
w 2019 Executive Retention Program





• Attracts and retains executive talent as we execute a change in business strategy in a competitive and changing industry;
• Ensures executives act in the best interests of shareholders in times of heightened uncertainty; and
• Ensures retention of executives during the execution of our 2019 Strategic Alternatives review.

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Base Salary


Our base salary program is designed to reward the NEOs with market competitive salaries based upon their role, experience, competence and sustained performance. The Compensation Committee evaluated base salaries in February 2019 and made minimal adjustments at that time in light of Company performance, market rates and implementation of other compensation programs. In August 2019, the Company promoted Mr. Redman and the Compensation Committee increased his base salary to reflect competitive benchmarks for his new role and increased responsibilities as a result of Mr. Torgerson's and Mr. Tommerup's departures from the Company. Salaries for our named executive officers for 2019 were as follows:

NEO
12/31/2018
Base Salary
3/1/2019
Base Salary
% Change
9/1/2019
Base Salary
% Change
Mr. Cutt
$750,000
N/A
$750,000
—%
Mr. Doleshek
$580,000
$580,000
—%
$580,000
—%
Mr. Woosley
$400,000
$412,000
3%
$412,000
—%
Mr. Redman
$325,000
$335,000
3%
$385,000
15%
Mr. Stanley
$850,000
N/A
N/A
N/A
N/A
Mr. Torgerson
$515,000
N/A
N/A
N/A
N/A
Mr. Tommerup
$327,000
$337,000
3%
N/A
N/A

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Annual Incentive Program


Our Compensation Committee approves annual cash awards pursuant to the AIP. As reflected in the table below, in 2019 the Compensation Committee made no adjustments to our NEOs' AIP targets. In August 2019, Mr. Redman's AIP target increased from 60% to 70% to reflect competitive benchmarks for his promotion and new role and increased responsibilities as a result of Mr. Torgerson's and Mr. Tommerup's departures.

NEO
2019 AIP Target
 (% of Base Salary)
2019 AIP Target Award
Mr. Cutt
100%
$750,000
Mr. Doleshek
95%
$551,000
Mr. Woosley
80%
$329,600
Mr. Redman1
64.2%
$247,055
Mr. Tommerup2
60%
$202,200

1.
Mr. Redman's 2019 AIP target is prorated 7 months at 60% and 5 months at 70% due to his promotion in August 2019.
2.
Per the terms of Mr. Tommerup's Severance Participation Letter, his 2019 AIP was prorated at target for the number months employed by the Company through his separation date of August 30, 2019.

For 2019, our Compensation Committee established 100% formulaic, non-discretionary performance goals for our NEOs, which included some key metrics used in prior years as well as new metrics to reflect the strategic direction of the Company. These metrics were focused on company-wide operations and financial health, and new cost metrics related to capital expenditures and lease operating expense and general and administrative expense, which was based on the Compensation Committee's and management's assessment of what will drive success during this strategic transition. The table below summarizes the 2019 AIP metrics. Payout on each of the quantitative metrics ranges from 0% to 200%, with results interpolated between the 50% of target and 200% of target goals.

Metric
What It Is
Why We Used It
How We Set The Target
All NEOs
Adjusted Total Equivalent Production - Million Barrels of Oil Equivalent (MMboe)


Oil, natural gas and natural gas liquids production converted to an oil equivalent at a 6-to-1 ratio as measured in MMboe.
Our production goal was derived from our capital spending program and was a key component in our ability to deliver our targeted returns from capital investment.
Board approved 2019 Operating Plan. Haynesville production excluded as a result of closing the transaction in January 2019.
Set production target at 29.1 MMboe for 2019 as compared to 32.3 MMboe for 2018 actuals. See Adjusted Total Capital Expenditures metric below for correlating reduction in capital expenditures to achieve this production.

Operating Cost per Boe (Adjusted Lease Operating Expense (LOE) plus Adjusted General and Administrative Expense (G&A)) ($/Boe) (Non-GAAP) (NEW)
An operating cost metric calculated as:
LOE (the cost of operating and maintaining property and equipment on a producing oil and gas lease),
plus Adjusted G&A (the cost of operating the Company), divided by Adjusted Total Equivalent Production (see above).
Focus on profitability and cost control for field-based costs and corporate overhead to improve well economics.
Board approved 2019 Operating Plan. Set target at $10.08/Boe for 2019, a 13% improvement compared to 2018 actual result of $11.59/Boe.

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Metric
What It Is
Why We Used It
How We Set The Target
Adjusted Total Capital Expenditures ($ millions) (Non-GAAP) (NEW)
Funds used for the development of oil and gas assets, the acquisition of oil and gas acreage and to acquire, upgrade or maintain physical assets.
Grow production economically with a goal of improving free cash flow.
Board approved 2019 Operating Plan. Haynesville capital expenditures excluded as a result of closing the transaction in January 2019.
Set target at $634.7MM for 2019, which required a 43% reduction in spending compared to 2018 actual result of $1,107.2MM over the same asset base.
Drilling Rate of Return (RoR)

Internal RoR for wells drilled Q4 2018 through Q3 2019. Measure estimated future cash flows based on individual well performance results, before taxes, assuming commodity prices of $55 per bbl and $3 per mcf of gas.
Well-level economics are the best leading indicator of capital efficiency and successful capital allocation decisions.
Set at a level that covers the cost to drill, complete and equip the individual wells drilled in this period and includes a proportionate share of the acquisition costs, which exceeds our weighted average cost of capital. Set target at 35% RoR for 2019 consistent with corporate strategy.
Total Recordable Incident Rate (TRIR)
Number of recordable injuries per 200,000 work hours.
Safety is a critical component of our business. We strive to ensure that all of our employees and contractors go home safely every day.
Based on Bureau of Labor Statistics data as reported in American Petroleum Institute (API) Workplace Injuries and Illness Report.
Environmental Severity Rate (spills) (Produced Fluid Release Rate (PFRR))
Number of barrels released per million barrels equivalent produced.
Our core values include operating in an environmentally responsible manner. We focus on measuring the severity of spills, not the number of spills.
Based on operator data reported in American Exploration & Production Council (AXPC) annual benchmarking survey results.
Hazard Identification and Reporting Rate (HIRR)
Number of near misses and safety observations per 200,000 work hours.
This metric provides a leading indicator of safety awareness and safe behaviors which reduces incidents.
Set by Board based on prior year results.

Executive management's initial assessment of the 2019 performance for the NEOs' scorecard resulted in a total score and score payout percentage of 179.0%, which acknowledged actual oil, gas and NGL production in the total equivalent production, operating cost per Boe and total capital expenditures metrics. Management evaluated the scorecard and adjusted the 2019 results to focus on oil production and minimize the influence of actual gas and NGL volumes on the relevant metrics. The adjustment by the executive management team resulted in negative discretion of 21.4% on the payout of the total scorecard, which was supported by the Compensation Committee. The adjusted assessment of 2019 performance for the NEOs' scorecard is summarized in the following table:

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Metric
Weight
Threshold
50%
Target
100%
Stretch
150%
Max
200%
Result
Score
(Payout %)
Adjusted Total Equivalent Production (MMboe)1
25%
28.1
29.1
31.1
32.2
29.6
114%
Operating Cost per Boe (Adjusted LOE + Adjusted G&A Expense)2
25%
$10.42
$10.08
$9.56
$9.22
$9.21
200%
Adjusted Total Capital Expenditures ($ millions)3
20%
$654.7
$634.7
$594.7
$574.7
$576.8
195%
Drilling Rate of Return4
20%
30%
35%
42.5%
47.5%
38%
120%
Health, Safety and Environment
10%
 
 
 
 
 
 
Total Recordable Incident Rate
 
0.86
0.70
0.60
0.43
0.63
135%
Environmental Severity Rate (spills)
 
67.0
50.0
30.0
15.0
31.0
148%
Hazard Identification Reporting Rate
 
200
225
248
276
374
200%
Total Score
157.6%

1.
To calculate the score for the Adjusted Total Equivalent Production, management with the support of the Compensation Committee applied gas and NGL yields (Yields) from our 2019 Budget to actual 2019 oil and condensate production to determine the gas and NGL production volumes. The Yields were applied to the actual oil and condensate production volumes of 13.5 MMbbl (Permian) and 8.0 MMbbl (Williston), as reported on page 18 of our Annual Report on Form 10-K, to calculate the Adjusted Gas and Adjusted NGL production volumes, which resulted in Adjusted Total Equivalent Production of 29.6 MMBoe, calculated as follows:
 
2019 Budget
Permian
Williston
Oil and condensate (MMbbl)
13.1
8.2
Gas (Bcf)
12.6
11.4
NGL (MMbbl)
2.1
1.9
Total Equivalent Production (MMBoe)
17.3
11.9
Gas "Yield" (Gas/Oil)
0.964
1.402
NGL "Yield" (NGL/Gas)
0.170
0.162
 
2019 Adjusted Actuals
 
Permian
Williston
Oil and condensate (MMbbl)
13.5
8.0
Adjusted Gas (Bcf)
13.0
11.2
Adjusted NGL (MMbbl)
2.2
1.8
Adjusted Total Equivalent Production (MMBoe)
17.9
11.7
29.6

2.
To calculate the score for the Operating Cost per Boe, management with the support of the Compensation Committee made adjustments to Lease Operating Expense to eliminate expenses associated with our divested Haynesville assets (Adjusted LOE) and to General and Administrative expense to eliminate certain restructuring costs and non-cash compensation expense (Adjusted G&A Expense), all of which were anticipated by the Compensation Committee when setting the performance target. The Lease Operating Expense of $182.9 million, reported on page 88 of our Annual Report on Form 10-K, was increased by $0.3 million while the General and Administrative expense of $155.8 million, reported on page 88 of our Annual Report on Form 10-K, was reduced by $50.1 million (restructuring) and $15.7 million (non-cash compensation expense). The adjustments resulted in Operating Costs per Boe of $9.21 per Boe, calculated as follows:


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$ in millions, except per Boe
2019
Lease Operating Expense (LOE)
$
182.9

Plus: Haynesville Adjustment
$
0.3

Adjusted LOE
$
183.2

 
 
Plus: General and Administrative Expense (G&A)
$
155.8

Minus: Restructuring Costs
$
(50.1
)
Minus: Non-cash stock compensation expense
$
(15.7
)
Adjusted G&A Expense
$
90.0

 
 
Total Adjusted LOE plus Adjusted G&A Expense
$
273.2

Adjusted Total Equivalent Production (MMBoe)
$
29.6

Operating Cost per Boe
$
9.21


3.
To calculate the score for the Adjusted Total Capital Expenditures, management with the support of the Compensation Committee made adjustments to Total Accrued Capital Expenditures to eliminate expenditures associated with our divested Haynesville assets, which were anticipated by the Compensation Committee when setting the performance target. The Total Accrued Capital Expenditures, reported on page 76 of our Annual Report on Form 10-K, of $575.0 million was increased by $1.8 million, which resulted in Adjusted Total Capital Expenditures of $576.8 million, calculated as follows:
$ in millions
2019
Total Accrued Capital Expenditures
$
575.0

Plus: Haynesville Adjustment
$
1.8

Adjusted Total Capital Expenditures
$
576.8


4.
The Drilling Rate of Return calculation is constructed to estimate future cash flows based on individual well performance results, before taxes, assuming commodity prices of $55/bbl and $3 per mcf of gas.  It utilizes actual well costs to drill, complete and equip the wells and includes all costs necessary for production.  The facility costs are shared across the full number of wells producing into a common facility at the time of the analysis.  The operating expenses are based upon the year-end reserve report.  Actual production received is loaded into the calculation along with a forecast of future production based upon the most current data for each individual well.  In order to accurately estimate the rate-of-return realized by the Company, a consolidated reserves run is performed with all projects included in the applicable time period and a reserves database calculates an internal rate of return from the consolidated cash flow of all of the projects.

2019 AIP Payouts

In February 2020, our Compensation Committee determined 2019 AIP payouts for our NEOs based on AIP scorecard performance and target individual performance.

The following table shows the 2019 AIP payouts for our NEOs, except for Messrs. Stanley and Torgerson who were not eligible to receive a bonus under the 2019 AIP.
NEO
Target Award
Scorecard Result
Target Award Adjusted for Company Score
Final Award
Mr. Cutt
$750,000
157.6%
$1,182,000
$1,182,000
Mr. Doleshek
$551,000
157.6%
$868,376
$868,376
Mr. Woosley
$329,600
157.6%
$519,450
$519,450
Mr. Redman
$247,055
157.6%
$389,358
$389,358
Mr. Tommerup1
$202,200
N/A
N/A
$134,800
1.
Mr. Tommerup's AIP payout was based on his target AIP award for 2019 and prorated based on the number of months employed with the Company pursuant to the terms of his Severance Participation Letter.
 

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Long-Term Incentive Program


Our long-term incentive (LTI) program is designed to align executive compensation with long-term stock price and TSR performance, both on an absolute basis and relative to industry peers. Our Compensation Committee first determines the total target LTI value for the annual grant to NEOs. In August 2019, the Compensation Committee increased Mr. Redman's LTI target from $500,000 to $900,000 to reflect competitive benchmarks for his promotion and new role and increased responsibilities as a result of Mr. Torgerson's and Mr. Tommerup's departures.

The following table shows the 2019 LTI grant values (excluding retention grants described in the "2019 Executive Retention Program" section below) for our NEOs, except for Messrs. Stanley and Torgerson who were not eligible to receive LTI grants in 2019.
NEO
2018 LTI Grant Value
2019 LTI Grant Value
% Change
Mr. Cutt
$3,600,000
N/A

Mr. Doleshek
$2,360,000
$2,360,000
%
Mr. Woosley
$1,110,000
$1,110,000
%
Mr. Redman1
$500,000
$900,000
80
%
Mr. Tommerup
$550,000
$550,000
%
1.
Amount granted in 2019 includes grant for Mr. Redman of $400,000 issued in connection with his promotion.
 
Our Compensation Committee then determined how to deliver the total target LTI value through a mix of vehicles including PSUs and restricted stock. While stock options had been utilized in years prior to 2018, our Compensation Committee decided again not to grant stock options to executives in 2019 due to a significant decline in the prevalence of stock options in our industry. In 2019, our LTI mix for NEOs was 50% restricted stock and 50% PSUs.

Performance Share Units

PSUs utilize phantom shares of stock that track the value of QEP shares but are typically settled in cash. PSUs align our executive compensation with the Company's TSR performance, both on an absolute basis and relative to our peers in the industry. The value realized for PSUs is dependent on both QEP's stock price and our TSR performance relative to our peers over a three-year period. The following chart summarizes the features of the PSU grants to our NEOs under our Cash Incentive Plan (CIP).

Performance Measure -
Relative TSR
The payout is based on the Company's TSR over the performance period compared to the TSR of a group of peer companies over the same period. TSR combines share price appreciation and dividends paid, if any, to determine the total return to the shareholder. TSR is calculated using the average share price for the quarter immediately prior to the beginning and at the end of the performance period and dividends paid during that period.
Vesting
PSUs vest at the end of a three-year performance period and are payable in cash or shares upon Board certification in the first quarter of the following year.
Target Number of PSUs Awarded
The target number of PSUs awarded is determined by dividing the target dollar amount of LTI to be issued as PSUs by the closing price per share of QEP common stock on the grant date.
Peer Group
For awards with a 2019-2021 performance period, granted in March 2019, the peer group is outlined in the section below titled "Compensation Process - Determination of Peer Group".

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Performance Scale
The performance scale is based on QEP's percentile rank in the peer group, with linear interpolation between each point:
• 90th percentile or above: 200% score
• 70th percentile: 150% score
• 50th percentile: 100% score
• 30th percentile: 50% score
• Below 30th percentile: 0% score
Cap/Floor - Absolute TSR Performance
For awards granted in March 2018 forward, a payout cap and floor applies based on absolute TSR performance. If QEP's TSR is between 0% and -25%, the payout is capped at 150% and if QEP's TSR is less than -25% the payout is capped at 100%. Likewise, if QEP's annualized TSR is greater than 15% during the performance period, the payout will be a minimum of 50%.
Payout Calculation
Cash payouts under the program at the end of the performance period are calculated using the following formula: Target # PSUs awarded times Performance Score times Average Q4 stock price of the final year of the performance period (Note: if awards are to be paid in shares, the same payout formula is used but would exclude the Average Q4 stock price component).
Termination Rules
For terminations without Cause or for Good Reason occurring prior to September 30, 2020, as such terms are defined in the February 2018 Participation Letters for our NEOs, PSUs fully vest and are paid based on actual performance through the last day of the month prior to termination. Otherwise, shares automatically vest only upon an involuntary or constructive termination following a change in control (double trigger) per the terms of our Executive Severance Plan. See the "Compensation Tables – Potential Payments Upon Termination or Change in Control" section below for more information. In the event of retirement, death or disability, the number of PSUs is prorated based on termination date and paid based on actual performance at the end of the applicable performance period.

In our 2019 shareholder engagement, shareholders voiced support of many elements of our PSU Plan, including the percentage allocation of equity compensation to PSUs with our removal of options in 2017 and the performance caps applied based on absolute TSR performance in order to balance absolute and relative performance in the Plan.

2017-2019 PSU Performance Period

The awards granted in February 2017 for the 2017-2019 performance period were eligible to vest upon the end of the performance period on December 31, 2019, subject to our relative and absolute TSR during the performance period as certified by our Compensation Committee. QEP's TSR ranked at the 52nd percentile against our peers, which resulted in a cash payout at 20% of grant date target value for each NEO who was employed as of December 31, 2019, based on the vesting of 100% of the targeted number of PSUs. Our total shareholder return was at the median of our peers and resulted in a performance score of 106%, but the decline in absolute share price resulted in the 100% cap being applied for absolute TSR performance and decreased the payout value of the award as compared to the grant date target value.

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https://cdn.kscope.io/e3be8868901fd7b8ed23637fcbf121c4-psuperform201719a04.jpg
The payout on the PSUs for the 2017-2019 performance period was as follows:
NEO
Target Award Value
Grant Price (2017)
Target PSUs
Performance Score
Vest Price (2019)
Cash Payout1
Cash Payout % of Target Award Value
Mr. Cutt
N/A
N/A
N/A

N/A
N/A

—%
Mr. Doleshek2
$1,180,008
$16.98
69,494

95%
$3.53
$233,051
20%
Mr. Woosley
$400,015
$16.98
23,558

100%
$3.48
$81,982
20%
Mr. Redman
$60,007
$16.98
3,534

100%
$3.48
$12,298
20%
1.
The payout calculation is Target # PSUs x % Performance Score (rounded up to whole shares) x Vest Price (Average Q4 stock price of final year of performance period).
2.
Reflects the amounts provided to Mr. Doleshek under the terms of his Separation Agreement. For additional information regarding payments for other PSU performance periods pertaining to the terms of his Separation Agreement, see the "Compensation Tables - Potential Payments Upon Termination or Change in Control" section below.

Restricted Stock

Restricted stock aligns our executive compensation directly with the Company's market value (or stock price), encourages retention and increases employee ownership in the Company. The following chart summarizes the features of the restricted stock granted to our NEOs. The terms of the restricted stock awards are the same under both the LTSIP and LTIP.
Vesting
The vesting schedule of the grants extends over a three-year period, with one-third of the shares vesting each year, a feature that encourages retention.
Number of Shares Awarded
The number of shares awarded is determined by dividing the target dollar amount of LTI to be issued as restricted stock by the closing price per share of QEP common stock on the grant date.
Dividends
Dividends, if declared, are paid on unvested (restricted) shares.
Termination Rules
For terminations without Cause or for Good Reason occurring prior to September 2020, as such terms are defined in the February 2018 Participation Letters for our NEOs, all unvested shares fully vest. Otherwise, shares automatically vest only upon an involuntary or constructive termination following a change in control (double trigger) per the terms of our CIC Plan. See the "Compensation Tables – Potential Payments Upon Termination or Change in Control" section below for more information.




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2018 Executive Severance Program


In February 2018, our Compensation Committee and Board approved an executive severance program as a part of the 2018 Strategic Initiatives (2018 Executive Severance Program). The goal of the program is to address the uncertainty for executives during and as a result of the Company's transition and retain executive management who are integral to the successful review and execution of our 2018 Strategic Initiatives and 2019 Strategic Alternatives.

Also pursuant to the 2018 Executive Severance Program, each of the Company's named executive officers executed Severance Participation Letters. These letter agreements provide that in the event the executive's employment with the Company is terminated without Cause or the executive resigns his or her employment for Good Reason (as such terms are defined in the Severance Participation Letters) and such termination or resignation occurs prior to September 30, 2020, the executive will be entitled to receive the following severance payments and benefits, subject to the execution and non-revocation of a release of claims agreement containing, among other terms, confidentiality and non-solicitation restrictions, and other customary conditions:

A lump sum cash payment equal to 1.5 times (2.5 times for Mr. Stanley and Mr. Cutt) the sum of the executive's annual base salary and annual target bonus award opportunity;
A pro-rated bonus award for the year of termination, which will be at the target level for all executives, except that for Messrs. Stanley and Cutt, will be based on actual performance for the year;
A pro-rated retention award, if applicable;
Accelerated vesting of all outstanding equity and long-term incentive awards, provided that the vesting of PSUs is based on and subject to the actual level of performance in relation to applicable performance measures through the period ended on the last day of the month prior to the month of termination;
A lump sum cash payment representing 24 months (36 months for Mr. Cutt) of premium payment amounts required to continue the executive's and the executive's covered dependents' medical, dental and vision coverage pursuant to COBRA; and
For executives participating in the Pension Plan and/or the SERP, a cash payment representing two additional years of service credit under such plans, plus interest credited from the date of termination through the date of such payment.

The severance benefits payable under the Severance Participation Letters are in lieu of any other severance entitlements applicable to the participating executives, provided that in the event a change in control of the Company occurs during the term of the Severance Participation Letters, the executives will not receive the benefits under the Severance Participation Letters and will instead be eligible to receive the benefits provided under the CIC Plan as discussed under "Compensation Tables - Potential Payments Upon Termination or Change in Control" below.


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2019 Executive Retention Program


In light of the continued uncertainty surrounding the 2019 Strategic Alternatives review and the vesting of previous retention awards, the Compensation Committee implemented the 2019 Executive Retention Program to help ensure the retention and focus of certain named executive officers during a period of heavy transition for the Company, the value of which the committee believed significantly outweighed the relatively small cost of the program. Following the implementation of this 2019 Executive Retention Program and engagement with our shareholders following our Say on Pay Vote results in 2019, the Compensation Committee determined not to implement additional retention programs for named executive officers at this time.

The additional targeted retention program for Messrs. Woosley, Redman and Tommerup was implemented in December 2018 and became effective March 1, 2019, subject to continued employment and the provisions of the Severance Participation Letter. The additional retention program provided Messrs. Woosley and Redman with a $250,000 restricted stock grant on March 1, 2019, which will vest in full on July 1, 2020, as well as cash retention bonuses of (i) $125,000 payable on August 1, 2019 and (ii) $125,000 payable on December 31, 2019, subject in each case to Messrs. Woosley's and Redman's continued employment through such dates. The additional retention agreement provided Mr. Tommerup with a $200,000 restricted stock grant on March 1, 2019, with a full vesting date of July 1, 2020, as well as cash retention bonuses of (i) $100,000 payable on August 1, 2019 and (ii) $100,000 payable on December 31, 2019, subject in each case to Mr. Tommerup's continued employment through such dates. The portion of Mr. Tommerup’s retention bonus payable on December 31, 2019, was prorated based on the number of months employed by the Company under the terms of his Separation Agreement.

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Compensation Process

Our Compensation Committee is guided by the compensation philosophy described above and utilizes the expertise and objectivity of the independent Consultant (defined below) and competitive benchmarking to ensure our executive compensation programs continue to support our business objectives.

Compensation Committee's Decision Making Process


Our Compensation Committee meets at least once per quarter to evaluate and oversee our compensation programs, with standing agenda items that align with responsibilities outlined in the Compensation Committee Charter and otherwise help the Compensation Committee fulfill its responsibilities.

In the first quarter of each year, the Compensation Committee:

Assesses risks associated with our compensation programs;
Approves key financial, operational and strategic goals and weightings for the current year AIP based on recommendations and input from management;
Selects the peer group for the PSU awards and compensation benchmarking;
Establishes targeted compensation for the NEOs, including base salary, AIP target award and LTI grant value;
Assesses overall company performance against goals in the prior year;
Assesses performance of each NEO;
Determines payout amounts for the prior year AIP, including, in its sole discretion, increases or decreases to individual NEO awards; and
Certifies results for outstanding PSU awards.

With the support of the Consultant, the Compensation Committee recommends total compensation for the CEO, which is approved by all of the independent directors.

At subsequent meetings throughout the year, our CEO provides updates on progress toward our AIP goals and relative TSR performance under outstanding PSU awards. The Compensation Committee also receives updates on governance and regulatory trends and analysis and benchmarking provided by the Consultant.

In the third quarter of each year, the Consultant conducts a benchmarking analysis to use as a reference point for assessing the competitiveness of our executive compensation programs. The peer group benchmarking analysis includes the 25th, 50th and 75th percentiles for each component of compensation (base salary, AIP and LTI) and total compensation for the roles of each of our officers, including the NEOs. Our Compensation Committee does not target a specific percentile from this analysis, but uses all the data points as guidance to allow for informed decisions. This approach provides flexibility to our Compensation Committee to address several different factors such as proficiency in role, scope of role, succession potential and internal pay equity.

To support specific compensation decisions, the Compensation Committee also reviews information provided by tally sheets, including stock ownership levels and calculations of potential payments upon various termination events.


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Role of the Chief Executive Officer/Other Officers


The Compensation Committee considers input from the CEO when assessing overall Company performance, as well as individual performance of our other NEOs. The CEO does not participate in discussions or recommendations regarding his own compensation. Our CEO provides a written assessment of his performance to the independent directors at the end of each year. In the first quarter, the Board meeting agenda includes a discussion of the CEO's performance evaluation. In addition to the competitive analysis and other support provided by the Consultant, the Vice President, Human Resources and Community Investments and her team also provide information to our Compensation Committee to aid the decision-making process, including executives' current compensation information, succession potential, organizational considerations, alignment with internal employee programs and Company performance. The Vice President, Human Resources and Community Investments does not participate in discussions or recommendations regarding her own compensation.

Role of the Independent Compensation Consultant


Our Compensation Committee has engaged Meridian Compensation Partners, LLC (Consultant) as its independent compensation consultant to help ensure that our executive compensation programs are competitive and consistent with our compensation philosophy. In making this decision, the Compensation Committee considered the following:
 
The Consultant's historical performance in supporting the Compensation Committee and its familiarity with our executive compensation programs;
The Consultant's extensive experience and familiarity with compensation programs of our peer companies and sector;
The range of compensation services offered by the Consultant; and
The independence of the Consultant, considering the independence factors outlined by the NYSE.

Our Compensation Committee determined the scope of the engagement, which included:

Providing benchmarking data on executive and outside director compensation for the Compensation Committee to use in its decision-making process;
Providing input into plan design discussions and individual compensation actions, as needed;
Evaluating any risks to our Company due to our executive compensation program;
Reviewing plan design and recommendations periodically;
Reviewing and providing feedback on the compensation-related disclosures in our Proxy Statement; and
Informing the Compensation Committee about recent trends, best practices and other developments affecting executive compensation.

During 2019, the Consultant provided input on our 2019 Say on Pay Vote, shareholder engagement and our responses to shareholder feedback regarding our executive compensation program.

The Consultant does not provide any other services to the Company. The Consultant attended all Compensation Committee meetings, including executive sessions as requested. The Consultant on occasion met with the Chair of the Compensation Committee or with members of management, including the CEO and Vice President, Human Resources and Community Investments, in carrying out these duties, but reported exclusively to our Compensation Committee. The Compensation Committee determined that the Consultant's work in 2019 did not create any conflicts of interest and that the Consultant remains independent.


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Determination of Peer Group


Our Compensation Committee maintains a peer group of companies, which consists of similarly-sized, publicly traded oil and natural gas E&P companies that have similar operating and financial characteristics to us, as they represent QEP's primary competition for executive talent. With the assistance of our CEO and the Consultant, our Compensation Committee reviews the composition of the peer group annually to ensure that companies remain relevant for comparative purposes. The Compensation Committee uses a peer group for determining relative TSR performance under the PSU program and for benchmarking executive compensation.

In preparation for the 2019 compensation cycle, our Compensation Committee reconstructed the peer group in light of the 2018 Strategic Initiatives to transition our Company to a pure-play Permian Basin company. The new peer group generally reflects similarly sized, publicly traded companies with most peers having primary operations in the Permian Basin. The Compensation Committee used the following peer group to determine the compensation package for Mr. Cutt in December 2018 and for executive compensation benchmarking for 2019 in preparation for 2020 compensation decisions. The peer group companies that will be used to determine relative TSR performance for the PSU awards for the 2019 to 2021 performance period are denoted in bold. New companies for 2019 are denoted with an asterisk (*).
2019 Peer Group
Callon Petroleum Co.
Laredo Petroleum Inc.
SM Energy Co.
Carrizo Oil & Gas Inc.
Matador Resources Co.
SRC Energy Inc.*
Centennial Resource Development Inc.
Oasis Petroleum Inc.
Whiting Petroleum Corp.
Extraction Oil & Gas Inc.
PDC Energy Inc.
WPX Energy Inc.*
Jagged Peak Energy Inc.
 
 

Removed for 2019 PSUs as a result of being acquired: Newfield Exploration Co. and Wildhorse Resource Development Corp.

In January 2020, the Compensation Committee approved an adjusted peer group for the PSU Plan as a result of consolidation activity in the market, the outcome of our Strategic Alternatives in 2019 and to ensure the peer group was relevant for a three year plan cycle by focusing on: 1) publicly traded companies, 2) companies with similar financial characteristics, 3) companies with a similar asset mix, and 4) companies with a focus on oil production. The Compensation Committee identified the following peer group for determining relative TSR performance for our PSU awards for the 2020 to 2022 performance period. New companies for 2020 are denoted with an asterisk (*).
2020 Peer Group - Relative TSR
Callon Petroleum Co.
Laredo Petroleum Inc.
PDC Energy Inc.
Centennial Resource Development Inc.
Magnolia Oil & Gas Corp.*
SM Energy Co.
Extraction Oil & Gas Inc.
Matador Resources Co.
Whiting Petroleum Corp.
HighPoint Resources Corp.*
Oasis Petroleum Inc.
WPX Energy Inc.

Removed for 2020 PSUs as a result of being acquired: Carrizo Oil & Gas, Inc., Jagged Peak Energy, Inc. and SRC Energy, Inc.


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Key Executive Compensation Design Policies and Considerations

Following are important policies and factors considered by our Compensation Committee when structuring our executive compensation.

Severance Protections


The 2018 Executive Severance Program provides certain benefits to our executives upon a termination without Cause or a termination for Good Reason that occurs prior to September 30, 2020. The CIC Plan provides certain benefits to our executives upon a qualifying termination after a change in control of the Company. These benefits are based on a review of market practices and do not include any excise tax gross-ups. Our Compensation Committee believes these benefits support our business strategy by encouraging our executive officers to execute on our strategic initiatives and consider other strategic alternatives to increase shareholder value without regard to the impact on their future employment. For additional details regarding these plans, see the "Compensation Tables - Potential Payments Upon Termination or Change in Control" section below.

Executive Share Ownership Guidelines


Our Compensation Committee believes it is important to have stock ownership guidelines for executive officers to promote ownership of our common stock and align the interests of our executive officers with those of our shareholders. Our executives are required to achieve the applicable level of stock ownership within five years of the date the person first becomes an executive officer. Shares that count toward satisfaction of the guidelines include shares owned outright by the executive, restricted shares, shares held in the 401(k) Plan (described below), phantom stock attributable to deferred compensation under the QEP Deferred Compensation Wrap Plan (described below) and PSUs.

The ownership guidelines for our NEOs are currently established at the following minimum levels:
NEO
Guideline
Ownership Status as of 12/31/19
Mr. Cutt
6x base salary
In compliance
Mr. Doleshek
3x base salary
In compliance
Mr. Woosley
2x base salary
In compliance
Mr. Redman
2x base salary
In compliance

Tax and Accounting Considerations


Our Compensation Committee considers tax and accounting rules and regulations when structuring the executive compensation paid to our NEOs, including the following:

Under Section 280G and Section 4999 of the Internal Revenue Code of 1986, as amended (the Code), compensation that is granted, accelerated or enhanced upon the occurrence of a change in control may give rise, in whole or in part, to "excess parachute payments" and, to such extent, will be non-deductible by the Company and will be subject to a 20% excise tax payable by the executive. Our compensation arrangements do not provide for gross-ups for this excise tax.

Section 162(m) of the Code, as modified by the Tax Cuts and Jobs Act of 2017, generally precludes us from deducting for tax purposes compensation paid in excess of $1,000,000 in any taxable year to any "covered employee" (generally, any individual that has ever been listed in the Summary Compensation Table for our 2017 or later proxy statements), unless the compensation is paid pursuant to a written contract that was in existence on or prior to November 2, 2017, and either (i) qualifies as "performance-based compensation" or (ii) is otherwise exempt under certain Section 162(m) grandfathering rules. Our

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policy is primarily to design and administer compensation plans that support the achievement of short- and long-term strategic objectives and enhance shareholder value. Where it is consistent with our compensation philosophy, the Compensation Committee expects that it may issue compensation that is non-deductible.

Section 409A of the Code requires that nonqualified deferred compensation be deferred and paid under plans or arrangements that satisfy the requirements of the statute with respect to the timing of deferral elections, the timing of payments and certain other matters. Failure to satisfy these requirements can expose our employees and other service providers to accelerated income tax liabilities and penalty taxes and interest on their vested compensation under such plans or arrangements. Our Compensation Committee endeavors to structure executive compensation in a manner that is either compliant with, or exempt from the application of, Section 409A of the Code, although there is no guarantee that any particular element of compensation will, in fact, be so compliant or exempt.

Fair Value of Stock-Based Payments – Awards of stock options and restricted stock under the LTSIP and/or 2018 LTIP and awards of performance share units under the CIP are accounted for under Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 718 (FASB ASC Topic 718), formerly referred to as SFAS No. 123(R). FASB ASC Topic 718 requires the recognition of expense for the fair value of stock-based compensation or, in the case of awards settled in cash (such as our PSUs), requires the recognition of expense based on the cash liability of such awards adjusted each measuring period. Our Compensation Committee considers the accounting and financial statement impact in evaluating QEP's executive compensation programs.

Assessment of Our Executive Compensation Program's Impact on Risk Taking


We annually evaluate the major risks to our business, including how risks taken by management could impact the value of executive compensation. Our Compensation Committee reviews a risk assessment (completed by the Consultant) of the Company's executive and non-executive compensation programs. Based on this review, our Compensation Committee believes that while there are certain risks inherent in the nature of the Company's business, the Company's compensation programs do not encourage our executives or our non-executive employees to take inappropriate or excessive risks. The risk-mitigating factors considered by our Compensation Committee included the following:
 
An appropriate balance of strategic, operating and financial performance measures, which generally include operational metrics specifically targeted at the health and safety aspects of the Company's business;
A compensation clawback policy for amounts paid under the AIP (see the "Clawback of Compensation" section below);
An appropriate balance of fixed and Company performance-related compensation components;
A mix of cash and equity, with significant weight placed on LTI awards;
Significant stock ownership requirements and policies prohibiting hedging, pledging and engaging in derivative transactions for all executives;
Extended three-year vesting schedules on equity grants;
Caps and defined thresholds for payout on most incentive awards; and
Compensation Committee authority over plan design and final determination of actual compensation awards.

Our Compensation Committee believes that these factors encourage all of our employees to focus on QEP's sustained long-term performance.







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Prohibition on Hedging, Pledging and Derivatives Trading


The Company has a policy that prohibits directors, executive officers and certain other employees who are in possession of material non-public information from engaging in derivative transactions involving any of QEP's securities for any purpose, including short-term trading, options trading, pledging, trading on margin and hedging.

Clawback of Compensation


Upon the recommendation of our Compensation Committee, our Board of Directors adopted a clawback policy in 2015 in advance of final SEC rules implementing Section 954 of the Dodd-Frank Act. Pursuant to this policy, AIP payouts to our Section 16 officers are subject to clawback in the event of a restatement of our financial statements due to fraud or misconduct, at the discretion of the Compensation Committee. Our Compensation Committee will continue to monitor the status of the anticipated SEC rules to ensure our clawback policy complies with final rules when they are implemented.

Succession Planning


QEP conducts a comprehensive succession planning process that involves assessment across the organization of employee performance and potential and readiness of potential successors for key roles and developmental needs. This process also helps inform our Compensation Committee in making compensation decisions. Our Compensation Committee annually reviews this process with specific focus on the CEO and his direct reports and views this as a critical process to ensure continuity of our business and to provide challenging and rewarding career opportunities for our employees.


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COMPENSATION TABLES

Summary Compensation Table


The following table summarizes the total compensation paid to our NEOs for services rendered during the fiscal years ended 2019, 2018 and 2017, except that only 2019 compensation is summarized for Mr. Cutt, Mr. Redman and Mr. Tommerup, as they were not NEOs in 2018 or prior:
Name and 
Principal
Position
Year
Salary
Bonus
Stock
Awards
1
Option
Awards
2
Non-Equity
Incentive
Plan
Compen-
sation
3
Change in
Pension Value
and
Nonqualified
Deferred
Compen-sation
Earnings
4

All Other
Compen-
sation
5
Total6
(a)
(b)
($)
($)
($)
($)
($)
($)
($)
($)
(c)
(d)
(e)
(f)
(g)
(h)
(i)
(j)
Timothy J. Cutt
President and CEO
2019
690,745

 
350,000

8 
3,600,009

 

 
1,182,000


136,987

5,959,741

2018

 

 

 

 




2017

 

 

 

 




Richard J. Doleshek
Executive Vice President, CFO
2019
635,938

7 

 
4,436,739

9 
13,564

10 
868,376

1,704,176

1,570,653

9,229,446

2018
580,000

 

 
2,360,016

 

 
551,000

417,370

66,997

3,975,383

2017
576,458

 

 
1,888,023

 
428,618

 
394,957

503,763

104,972

3,896,791

Christopher K. Woosley
Senior Vice President and General Counsel
2019
402,300

 
750,000

8 
1,360,011

 

 
519,450


78,892

3,110,653

2018
396,458

 

 
1,110,016

 

 
470,400


71,102

2,047,976

2017
375,500

 

 
800,030

 
181,621

 
386,064


73,224

1,816,439

Joseph T. Redman
Vice President, Energy
2019
325,583

 
750,000

8 
1,150,009

 

 
389,358


59,399

2,674,349

2018

 

 

 

 




2017

 

 

 

 




Charles B. Stanley
Former Chairman, President,
and CEO
2019
158,868

7 

 
8,632,155

9 
392,931

10 

1,942,455

5,837,218

16,963,627

2018
850,000

 

 
4,320,018

 

 
935,000

593,700

99,712

6,798,430

2017
850,000

 

 
3,840,010

 
871,757

 
670,208

844,491

154,703

7,231,169

Jim E. Torgerson
Former Executive Vice President, QEP Energy
2019
68,339

7 
416,667

8 
4,102,967

9 
172,431

10 


1,567,393

6,327,797

2018
515,000

 

 
2,200,014

 

 
489,250


77,756

3,282,020

2017
511,667

 

 
1,760,028

 
399,559

 
350,694


111,531

3,133,479

Jeffery R. Tommerup
Former Senior Vice President, Northern Region & HSE
2019
283,185

7 
620,000

8 
1,706,433

9 
1,941

10 


1,033,719

3,645,278

2018

 

 

 

 




2017

 

 

 

 




1.
Amounts in column (e) include awards of PSUs and restricted stock, in each case calculated based on the grant date fair values determined in accordance with FASB ASC Topic 718 (excluding the effect of estimated forfeitures), as follows for 2019
Name
Performance Share Unitsa,b
($)
Restricted Stockb
($)
Mr. Cutt
1,800,007

1,800,002

Mr. Doleshekc
2,153,889

2,282,850

Mr. Woosley
555,005

805,006

Mr. Redman
450,004

700,005

Mr. Stanleyc
5,758,705

2,873,450

Mr. Torgersonc
2,713,029

1,389,938

Mr. Tommerupc
862,931

843,501

a.
The maximum grant date values of the PSUs assuming the highest level of performance achievement (based upon QEP's common stock price on the date of issuance, assuming that each individual ultimately earns 200% of the total number of PSUs granted, and excluding any amounts attributed to modifications for our departed NEOs as described in footnote c below) are as

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follows: Mr. Cutt, $3,600,014; Mr. Doleshek, $2,360,016; Mr. Woosley, $1,110,010; Mr. Redman, $900,008; Mr. Tommerup, $550,008. Mr. Stanley and Mr. Torgerson did not receive a PSU grant in 2019.
b.
The grant date fair values for the 2019 PSU and restricted stock awards were determined pursuant to FASB ASC Topic 718 (excluding the effect of estimated forfeitures) by multiplying the number of units/shares awarded times the QEP stock price on the date of grant.
c.Pursuant to the terms of their Separation Agreements or Severance Participation Letters as applicable, and as discussed in more detail in note 9 below, the vesting of all unvested PSUs and shares of restricted stock held by Messrs. Doleshek, Stanley, Torgerson and Tommerup as of their last day of employment was accelerated as outlined below:
Name
Unvested PSUs Accelerated
Unvested Restricted Stock Accelerated
Last Day of Employment
Mr. Doleshek
341,858

245,076

December 31, 2019
Mr. Stanley
580,961

336,076

January 14, 2019
Mr. Torgerson
268,900

163,330

January 2, 2019
Mr. Tommerup
70,673

97,228

August 30, 2019

2.
Amounts in column (f) reflect the aggregate grant date fair value of option awards calculated in accordance with FASB ASC Topic 718 (excluding the effect of estimated forfeitures) using the Black-Scholes-Merton method. The following table includes the assumptions used to calculate the aggregate grant date fair value of option awards reported for 2017 (no options were granted in 2018 or 2019):
Grant Date
Assumptions

Volatility
(%)
Expected Life
(Years)
Risk-Free
Interest Rate
(%)
Dividend Yielda
(%)
2/13/2017
43.8
4.5
1.8
0
a.
The Board suspended dividends in early 2016 and reinstated them in 2019.

3.
Amounts in column (g) reflect the annual cash incentive awards (i.e., the AIP awards) for 2019, which were determined by the Compensation Committee in February 2020. and paid out on March 2, 2020. Mr. Tommerup received a prorated portion of his target AIP as part of his severance under the provisions of his Severance Participation Letter; this amount is reported in column (i).
4.
Amounts in column (h) represent the increase in the actuarial present value of benefits under the QEP Resources, Inc. Retirement Plan and the QEP Resources, Inc. Supplemental Executive Retirement Plan. These values are based on discount rate, mortality and other assumptions described in Footnote 5 to the 2019 Pension Benefits Table below, which are consistent with those used in QEP's consolidated financial statements (except for pre-retirement decrements). The increase in the actuarial present value for Messrs. Stanley and Doleshek is primarily due to the fact that both participants have terminated and will receive additional early retirement subsidies that were not reflected in prior years. No other NEOs are eligible to participate in these closed plans. Amounts in column (h) do not include any Nonqualified Deferred Compensation earnings, because such earnings, as reflected in column (d) in the "2019 Nonqualified Deferred Compensation" table included in the "Savings Plans" section do not consist of any above-market or preferential earnings.
5.Amounts in column (i) include the following:
Name
Employer Matches under Savings Plans ($)a
Officer Allowance ($)
Reimbursement of FICA Taxes ($)b
Severance and Other Payments on Termination ($)c
Relocation ($)
Total ($)
Mr. Cutt
22,140

8,500



106,347

136,987

Mr. Doleshek
69,310

8,500


1,492,843


1,570,653

Mr. Woosley
70,392

8,500




78,892

Mr. Redman
50,899

8,500




59,399

Mr. Stanley
4,086


3,799

5,829,333


5,837,218

Mr. Torgerson
2,073


1,412

1,563,908


1,567,393

Mr. Tommerup
42,003

8,500


983,216


1,033,719

a.
Includes employer matches under the 401(k) Plan and the Deferred Compensation Wrap Plan, if applicable. Employer matches under the Deferred Compensation Wrap Plan are as set forth in column (c) of the 2019 Nonqualified Deferred Compensation table.
b.
Amount shown is for FICA taxes specifically related to Deferred Compensation payments. For additional detail, see footnote 5 in the "Savings Plans" section below.
c.
Represents cash severance paid to Messrs. Doleshek, Stanley, Torgerson and Tommerup upon their departure, pursuant to the terms of the applicable Severance Participation Letter or Separation Agreement as discussed in the "Potential Payments Upon Termination or Change in Control" section below. A prorated retention bonus for Mr. Torgerson and Mr. Tommerup is included in column (d) for Bonus.






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6.
As reflected in the Summary Compensation Table above, the salary received by each of our NEOs who remained employed through 2019 as a percentage of his respective total compensation was as follows:
Name
Year
Percentage of Total Compensation
Mr. Cutt
2019
11.6%
Mr. Woosley
2019
12.9%
2018
19.4%
2017
20.7%
Mr. Redman
2019
12.2%

7.
Salary amounts include accrued vacation, which is payable upon termination, as follows: Mr. Doleshek: $31,771; Mr. Stanley: $95,760; Mr. Torgerson: $42,424; Mr. Tommerup: $46,660.
8.
Column (d) reflects the make-whole sign-on payment awarded to Mr. Cutt and the retention payments made under both the 2018 Executive Retention Program and the 2019 Executive Retention Program to Messrs. Woosley, Redman, Torgerson and Tommerup. Mr. Torgerson received a prorated portion of his retention bonus from the 2018 program, and Mr. Tommerup received a prorated portion of his retention bonus under the 2019 plan.
9.
Pursuant to the terms of the Separation Agreements or Severance Participation Letters for Messrs. Doleshek, Stanley, Torgerson and Tommerup, the vesting of all unvested PSUs and unvested shares of restricted stock held by each was accelerated, instead of the awards being forfeited, upon their departure. Modification of the vesting of the PSUs and restricted stock requires the presentation of the fair value of the modified awards as "new" grants in the table as of the modification date determined in accordance with FASB ASC Topic 718. Accordingly, the amounts shown in the Stock Awards column include:
 
(i) the grant date fair value of the PSUs granted on March 1, 2019:
Name
Target PSUs Granted
Grant Date Fair Value ($)
Mr. Doleshek
148,803

$1,180,008
Mr. Stanley

$0
Mr. Torgerson

$0
Mr. Tommerup
34,679

$275,004

(ii) the fair value of those same PSUs and of all unvested PSUs granted in prior years, to reflect the modifications of the PSUs which fair value is based on performance in relation to the applicable performance measures through the applicable date:
Name
PSU Performance Period
Target PSUs Granted
Date Performance Measured Through
Performance Score
Vest Price ($)
Value on Date of Modification ($)
Mr. Doleshek
2017-2019
69,494

November 30, 2019
95
%
 
$3.53
$233,051
2018-2020
123,561

100
%
a 
$436,170
2019-2021
148,803

58
%
 
$304,660
Mr. Stanley
2016-2018
213,439

December 31, 2018
100
%
 
$8.78
$1,873,994
2017-2019
141,343

73
%
 
$905,929
2018-2020
226,179

150
%
a 
$2,978,782
Mr. Torgerson
2016-2018
88,933

December 31, 2018
100
%
 
$8.78
$780,832
2017-2019
64,783

73
%
 
$415,224
2018-2020
115,184

150
%
a 
$1,516,973
Mr. Tommerup
2017-2019
12,957

July 31, 2019
100
%
a 
$6.68
$86,553
2018-2020
23,037

100
%
a 
$153,887
2019-2021
34,679

150
%
a 
$347,487
a. Performance capped due to negative total shareholder return




53

Table of Contents

(iii) the grant date fair value of the shares of restricted stock granted on March 1, 2019:
Name
Restricted Stock Awards
Grant Date Fair Value ($)
Mr. Doleshek
148,803

$1,180,008
Mr. Stanley

$0
Mr. Torgerson

$0
Mr. Tommerup
59,900

$475,007

(iv) the fair value of those same shares of restricted stock and of all unvested shares of restricted stock granted in prior years to reflect the modification on the awards:
Name
Unvested Restricted Stock Awards Accelerated
Value on Date of Modification ($)
Mr. Doleshek
245,076

$1,102,842
Mr. Stanley
336,076

$2,873,450
Mr. Torgerson
163,330

$1,389,938
Mr. Tommerup
97,228

$368,494

10.
Pursuant to the terms of the Separation Agreements or Severance Participation Letters for Messrs. Doleshek, Stanley, Torgerson and Tommerup, as applicable, the vesting of options to purchase shares of common stock was accelerated, instead of the awards being forfeited, upon their departure. Modification of the vesting of the options requires the calculation of the fair value of the modified options as of the modification date in accordance with FASB ASC Topic 718. Accordingly, the amount shown in column (f) for 2019 includes the difference between the fair value before and after modification. The table below shows the number of options for which vesting was accelerated and the assumptions used to calculate the fair value of options on the date of modification:
Name
Grant Date
Modification Date
Option Awards Accelerated
Assumptions