Marathon Oil (MRO)

Compensation Philosophy

Our compensation program for Officers is designed to achieve the following objectives:

·                  Attract talented and experienced Officers by providing incentives for them to accept the risks and burdens of Officer positions;

·                  Motivate Officers by rewarding them for individual and collective contributions to our success, including increasing stockholder value; and

·                  Retain the knowledge and experience of Officers who directly impact our current and future success.

The principal elements of our Officers’ compensation program are:

·                  Base salary;

·                  Annual cash incentive bonus;

·                  Long-term incentive awards (performance awards, stock options and restricted stock);

·                  Post-termination benefits; and

·                  Other benefits.

As described in more detail below, these elements are designed to reward corporate and individual performance. Corporate performance is generally measured relative to stockholder return, certain operational metrics and adherence to corporate values. Individual performance is evaluated based on individual expertise, leadership, ethics and achievement of personal performance commitments. We also put a priority on “living the Marathon values,” which emphasize health and safety, environmental stewardship, business ethics, honesty and integrity.

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Compensation Philosophy

Compensation programs for Marathon officers are designed to attract, retain, and motivate employees who are responsible for making significant contributions to the achievement of corporate goals and objectives. The Committee reviews on an annual basis all elements of officers' compensation, including benefits and perquisites. The Committee believes that the total compensation package offered to officers is reasonable.

The principal elements of our officers' compensation program are:

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Base salary

•

Annual bonus award

•

Long-term incentive awards (performance shares and stock options or stock-settled stock appreciation rights).

Annual bonus and long-term incentive compensation is provided under the stockholder-approved 2003 Incentive Compensation Plan (the "Incentive Plan").

Overall, executive compensation at Marathon is designed to provide total compensation opportunities that are at the median level as compared to our peers. Actual awards earned under our incentive compensation programs will vary based upon the performance of both the Company and the individual officer. When performance goals are exceeded, incentive compensation will be above the median. When performance is below our objectives, incentive compensation, if provided, will be below the median.

The Committee has hired an independent compensation consultant who reports directly to the Committee. The consultant provides them with expert advice and comparative data on executive compensation. With the help of the consultant, the Committee regularly compares the salary, annual bonus and long-term incentive opportunities for the CEO and officers with that of similar positions at comparable companies. To maintain competitiveness, Marathon uses compensation data from companies more similarly situated to Marathon than some of the companies comprising the Standard & Poor's Domestic Integrated Oil Index (see page 41).

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The Committee believes that stock ownership requirements better align the interests of the officers to those of Marathon's stockholders. Consistent with this philosophy, in 2003 the Committee established stock ownership guidelines that require all Marathon officers to acquire and hold significant levels of Marathon common stock. An individual will be allowed up to five years from the implementation of the guidelines or, if later, his or her appointment to an officer position, to reach the minimum required level of Marathon common stock ownership. Requirements are as follows:

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Chief Executive Officer—225,000 shares

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Chief Financial Officer—60,000 shares

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Senior Vice Presidents—42,000 shares

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Vice Presidents—12,000 shares

The Committee is committed to preserving the deductibility of compensation under Section 162(m) of the Internal Revenue Code whenever possible. Section 162(m) of the Internal Revenue Code places a limit of $1 million on the amount of compensation that Marathon may deduct in any one year for the CEO and each of the most highly compensated executive officers as reported in the Proxy Statement. Certain performance-based compensation approved by stockholders is not subject to the deduction limit. However, the Committee awards non-deductible compensation when they believe such grants are in the best interest of the Company.