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Section 1: DEF 14A (DEFINITIVE PROXY STATEMENT)

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934 (Amendment No. )

Filed by the Registrant Filed by a Party other than the Registrant      

CHECK THE APPROPRIATE BOX:
  Preliminary Proxy Statement
Confidential, For Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
Definitive Proxy Statement
  Definitive Additional Materials
Soliciting Material Under Rule 14a-12

Altria Group, Inc.

(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)

PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX):
  No fee required.
Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
Fee paid previously with preliminary materials:
Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the form or schedule and the date of its filing.
1) Amount previously paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:


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2018

Notice of
Annual Meeting
of Shareholders
and Proxy Statement










 




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6601 West Broad Street
Richmond, Virginia 23230

Dear Fellow Shareholder:

I am pleased to invite you to join us at the 2018 Annual Meeting of Shareholders of Altria Group, Inc. to be held on Thursday, May 17, 2018 at 9:00 a.m., Eastern Time, at the Greater Richmond Convention Center, 403 North 3rd Street, Richmond, Virginia 23219.

At this year’s meeting, we will vote on the election of 11 directors, the ratification of the selection of PricewaterhouseCoopers LLP as Altria’s independent registered public accounting firm and, if properly presented, one shareholder proposal. We will also conduct a non-binding advisory vote on the compensation of Altria’s named executive officers. We will report on our business, and shareholders will have an opportunity to ask questions.

To attend the meeting, an admission ticket and government-issued photo identification are required. To request an admission ticket, please follow the instructions on page 11 (Question 16). One immediate family member who is 21 years of age or older may accompany a shareholder as a guest.

We use the U.S. Securities and Exchange Commission rule that allows companies to furnish proxy materials to their shareholders over the Internet. We believe this expedites shareholders receiving proxy materials, lowers costs and conserves natural resources. We thus are mailing to many shareholders a Notice of Internet Availability of Proxy Materials, rather than a paper copy of this Proxy Statement and our Annual Report on Form 10-K for the fiscal year ended December 31, 2017. The Notice of Internet Availability explains how to access the proxy materials online, vote online and obtain a paper copy of our proxy materials.

Your vote is very important. I encourage you to complete, sign and return your proxy card, or use telephone or Internet voting prior to the meeting, so that your shares will be represented and voted at the meeting even if you cannot attend.

April 5, 2018

Sincerely,
 

Martin J. Barrington
Chairman, Chief Executive Officer and President


For further information about the 2018 Annual Meeting,
please call 1-804-484-8838


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NOTICE OF 2018 ANNUAL MEETING OF
SHAREHOLDERS OF ALTRIA GROUP, INC.

DATE AND TIME:

Thursday, May 17, 2018 at 9:00 a.m., Eastern Time

PLACE:

     

The Greater Richmond Convention Center
403 North 3rd Street
Richmond, Virginia 23219

ITEMS OF BUSINESS:

1)     

To elect as directors the 11 nominees named in the accompanying Proxy Statement.

 

2)

To ratify the selection of PricewaterhouseCoopers LLP as Altria’s independent registered public accounting firm for the fiscal year ending December 31, 2018.

 

3)

To hold a non-binding advisory vote to approve the compensation of Altria’s named executive officers.

4)

To vote on one shareholder proposal, if properly presented at the meeting.

5)

To transact other business properly coming before the meeting.

WHO CAN VOTE:

You are entitled to vote if you were a shareholder of record at the close of business on March 26, 2018.

VOTING:

We urge you to participate in the meeting, either by attending and voting in person or by voting through other acceptable means as promptly as possible. You may vote by telephone, through the Internet or by mailing your completed and signed proxy card (or voting instruction form, if you hold your shares through a broker, bank or other nominee). Each share is entitled to one vote on each matter to be voted upon at the annual meeting. Your vote is important and we urge you to vote.

MEETING ADMISSION:

If you plan to attend the meeting, you must request an admission ticket in advance. To request an admission ticket, please follow the instructions on page 11 (Question 16) of the accompanying Proxy Statement.

2017 ANNUAL REPORT:

A copy of our Annual Report on Form 10-K for the fiscal year ended December 31, 2017 accompanies this Proxy Statement.

DATE OF DISTRIBUTION:

This Notice, the Proxy Statement and proxy card are first being made available or mailed to shareholders on or about April 5, 2018.


By Order of the Board of Directors,

W. Hildebrandt Surgner, Jr.
Vice President, Corporate Secretary
and Associate General Counsel

April 5, 2018
Richmond, Virginia

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON MAY 17, 2018
Altria’s Notice of Annual Meeting, Proxy Statement and Annual Report on Form 10-K for the fiscal year ended December 31, 2017 are available, free of charge, at www.altria.com/proxy.


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PROXY STATEMENT – TABLE OF CONTENTS

PROXY STATEMENT SUMMARY 1
QUESTIONS AND ANSWERS ABOUT THE 2018 ANNUAL MEETING AND VOTING       7
BOARD AND GOVERNANCE MATTERS 12
Board Responsibility 12
Board Meetings and Attendance 12
Board Composition and Succession Planning 12
Board Leadership Structure and Governance 14
Board and Committee Self-Evaluations 14
Advancement Planning and CEO Succession 15
Director Education 15
Governance Guidelines, Policies and Codes 15
Committees of Our Board of Directors 16
Our Board’s Oversight Role 17
Directors 19
Process for Nominating Directors 19
Director Qualifications and Board Diversity 20
Director Independence Determinations 20
Director Compensation 22
Stock Ownership Guidelines for Non-Employee Directors and Prohibition on Hedging and Pledging 23
AUDIT COMMITTEE MATTERS 24
Annual Evaluation and Selection of Independent Registered Public Accounting Firm 24
Independent Registered Public Accounting Firm’s Fees 24
Pre-Approval Policy 25
Audit Committee Report for the Year Ended December 31, 2017 25
COMPENSATION COMMITTEE MATTERS 26
Introduction 26
Compensation Committee Interlocks and Insider Participation 26
Compensation Committee Procedures 26
Compensation Committee Report for the Year Ended December 31, 2017 27
EXECUTIVE COMPENSATION 28
Compensation Discussion and Analysis 29
Introduction 29
Overview 29
Compensation Philosophy 29
Say on Pay 29
Shareholder Engagement 29
Financial Performance 30
Pay For Performance 32
2017 Performance of NEOs 32
Executive Compensation Design 34
Decision-Making Process 38
2017 Executive Compensation Program Decisions 39
Other Considerations 46
Stock Ownership and Holding Requirements and Prohibition on Hedging and Pledging 46
“Clawback” Policy Regarding the Adjustment or Recovery of Compensation 46
Tax and Accounting Considerations 47

ALTRIA GROUP, INC. – Proxy Statement      i


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PROXY STATEMENT – TABLE OF CONTENTS

Compensation Tables and Other Matters       48
Summary Compensation Table 48
All Other Compensation 49
Grants of Plan-Based Awards during 2017 50
Outstanding Equity Awards as of December 31, 2017 51
Stock Option Exercises and Stock Vested during 2017 52
Pension Benefits 52
Defined Benefit Plans 53
Non-Qualified Deferred Compensation 55
Defined Contribution Plans 56
Payments upon Change in Control or Termination of Employment 56
CEO Pay Ratio 60
PROPOSALS REQUIRING YOUR VOTE 61
Proposal 1 – Election of Directors 61
Proposal 2 – Ratification of the Selection of Independent Registered Public Accounting Firm 67
Proposal 3 – Non-Binding Advisory Vote to Approve the Compensation of Altria’s Named Executive Officers 68
Proposal 4 – Shareholder Proposal Regarding Reducing and Disclosing Nicotine Levels in Cigarette Brands 69
OWNERSHIP OF EQUITY SECURITIES OF ALTRIA 71
Directors and Executive Officers 71
Certain Other Beneficial Owners 72
Section 16(a) Beneficial Ownership Reporting Compliance 72
RELATED PERSON TRANSACTIONS AND CODE OF CONDUCT 73
QUESTIONS AND ANSWERS ABOUT COMMUNICATIONS, ALTRIA DOCUMENTS AND SHAREHOLDER PROPOSALS 74
OTHER BUSINESS 76
ANNEX A – ALTRIA GROUP, INC. NON-GAAP FINANCIAL MEASURES A-1
PRE-REGISTRATION FORM FOR 2018 ANNUAL MEETING OF SHAREHOLDERS

ii     ALTRIA GROUP, INC. – Proxy Statement


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PROXY STATEMENT SUMMARY

This summary highlights information about Altria Group, Inc. (“Altria,” “we,” “our” or “us”) and certain information contained elsewhere in this proxy statement (“Proxy Statement”) for Altria’s 2018 Annual Meeting of Shareholders (the “2018 Annual Meeting” or the “meeting”). This summary does not contain all the information that you should consider in voting your shares. You should read the entire Proxy Statement carefully before voting.

VOTING MATTERS AND BOARD RECOMMENDATIONS

Proposal       Board Vote
Recommendation
      Page
Reference
Proposal 1 – Election of Directors FOR each nominee 61
Proposal 2 –  Ratification of the Selection of Independent Registered Public Accounting Firm FOR 67
Proposal 3 –  Non-Binding Advisory Vote to Approve the Compensation of Altria’s Named Executive Officers FOR 68
Proposal 4 –  Shareholder Proposal Regarding Reducing and Disclosing Nicotine Levels in Cigarette Brands AGAINST 69

CASTING YOUR VOTE

How to Vote   Shareholders of Record
(Shares registered in your name with
Altria’s transfer agent, Computershare)
and Employee Benefit Plan Participants
  Street Name Holders
(Shares held through a Broker,
Bank or Other Nominee)

Internet
Visit the applicable voting website: www.envisionreports.com/altria

www.proxyvote.com


Mobile Device
Scan the QR Code to vote using your mobile device: Refer to voting instruction form.

Telephone
Within the United States, U.S. Territories and Canada, call toll-free: 1-800-652-VOTE (8683) Refer to voting instruction form.

Mail
Complete, sign and mail your proxy card or voting instruction form in the self-addressed envelope provided.

In Person
For instructions on attending the 2018 Annual Meeting in person, please see Question 16 on page 11.

ALTRIA GROUP, INC. – Proxy Statement      1


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PROXY STATEMENT SUMMARY

BOARD NOMINEES

You are being asked to vote on the following 11 nominees for director. All directors are elected annually by a majority of the votes cast. Information about each director’s experiences, qualifications and skills can be found beginning on page 61.

Board 
Committee 
Membership
(1)
Name Age   Director
Since
   Principal Occupation    Independent    AC    CC    EC    FC    IC    NC
John T. Casteen III 74 2010 President Emeritus, University of Virginia Yes
Dinyar S. Devitre 70 2008 Former Chief Financial Officer, Altria Group, Inc. Yes
Thomas F. Farrell II (2) 63 2008 Chairman, President and Chief Executive Officer, Dominion Energy, Inc. Yes
Debra J. Kelly-Ennis 61 2013 Retired President and Chief Executive Officer, Diageo Canada, Inc. Yes
W. Leo Kiely III 71 2011 Retired Chief Executive Officer, MillerCoors LLC Yes
Kathryn B. McQuade 61 2012 Retired Executive Vice President and Chief Financial Officer, Canadian Pacific Railway Limited Yes
George Muñoz 66 2004 Principal, Muñoz Investment Banking Group, LLC and Partner, Tobin & Muñoz Yes
Mark E. Newman (3) 54 2018 Senior Vice President and Chief Financial Officer, The Chemours Company Yes
Nabil Y. Sakkab 70 2008 Retired Senior Vice President, Corporate Research and Development, The Procter & Gamble Company Yes
Virginia E. Shanks 57 2017 Executive Vice President and Chief Administrative Officer, Pinnacle Entertainment, Inc. Yes
Howard A. Willard III (3) 54 2018 Executive Vice President and Chief Operating Officer, Altria Group, Inc. No

(1) AC Audit Committee FC Finance Committee
          CC Compensation Committee IC Innovation Committee
EC Executive Committee NC Nominating, Corporate Governance & Social Responsibility Committee
(2) Presiding Director.
(3) Messrs. Newman and Willard became directors effective February 1, 2018. As of the date of this Proxy Statement, Messrs. Newman and Willard have not been named to any Committee.
                       

2     ALTRIA GROUP, INC. – Proxy Statement


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PROXY STATEMENT SUMMARY

CORPORATE GOVERNANCE HIGHLIGHTS

Annual election of directors
 
Proxy access right
 
10 of our 11 director nominees are independent
 
Directors elected by majority voting
 
Resignation policy for directors in failed elections
 
Director retirement guidelines
 
Independent presiding director
 
All NYSE-required Board committees consist solely of independent directors
Regular executive sessions of independent directors
 
At least 84% Board and Committee meeting attendance in 2017 by all directors
 
Annual Board and Committee self-evaluations
 
Comprehensive new director orientation
 
Ongoing director education programs
 
Comprehensive Code of Conduct and Corporate Governance Guidelines
 
Significant Board oversight of strategic plan development and execution
No shareholder rights plan or “poison pill”
 
Robust political activity disclosure and compliance program
 
Board participation in executive succession planning
 
Strong pay-for-performance philosophy
 
Compensation “clawback” policy
 
Stock ownership and holding requirements for directors and executive officers
 
Policies prohibiting hedging and pledging of our shares

SHAREHOLDER ENGAGEMENT

We value our shareholders’ perspective on our businesses and each year engage with shareholders through numerous activities. In 2017, these included three investor roadshows, three investor conferences, an Investor Day, individual investor meetings and our 2017 Annual Meeting of Shareholders (“2017 Annual Meeting”). We value the shareholder perspectives that we gain through these activities.

Our Investor Relations department is the contact point for shareholder interaction with us. Shareholders may also access investor information about Altria through our website at www.altria.com/investors and through the Altria Investor App. For questions concerning Investor Relations, please call 804-484-8222 or e-mail us from the Contact Us section on our website (www.altria.com/ContactUs).

2017 BUSINESS HIGHLIGHTS

Altria had another strong year in 2017. We delivered outstanding financial performance and continued to focus on rewarding our shareholders. Highlights from 2017 include the following:

We delivered a total shareholder return (“TSR”) of 9.4%, which followed four consecutive years of TSR exceeding 20%. 

2017 Total Shareholder Return Three-Year Total Shareholder Return
Source:      Bloomberg Daily Return (December 31, 2016 – December 31, 2017)       Source:      Bloomberg Daily Return (December 31, 2014 – December 31, 2017)
Note: Assumes reinvestment of dividends as of the ex-dividend date. Note: Assumes reinvestment of dividends as of the ex-dividend date.

ALTRIA GROUP, INC. – Proxy Statement     3


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PROXY STATEMENT SUMMARY

We continued to deliver against our long-term goals of growing adjusted diluted earnings per share (“EPS”) (1) at an average annual rate of 7% to 9% and maintaining a target dividend payout ratio of approximately 80% of our adjusted diluted EPS.
 
Full-year adjusted diluted EPS, which excludes the impact of special items, grew 11.9%, built on strong income growth from our core tobacco businesses, complemented by the effects of U.S. federal income tax reform.
 
We paid $4.8 billion in dividends in 2017. In August 2017, our Board of Directors (“Board of Directors” or “Board”) raised the regular quarterly dividend by 8.2%, our 51st dividend increase in the last 48 years.
 
In 2017, we repurchased approximately $2.9 billion of our shares, at an average price of $70.10 per share.
 
Adjusted Diluted EPS
(12/31/14 - 12/31/17)
Dividend Payments
($ millions)
Share Repurchases
($ millions)

Our core tobacco businesses produced another year of excellent financial results.
 
The smokeable products segment grew adjusted operating companies income (“OCI”) (2) by 7.0%. Philip Morris USA Inc. (“PM USA”) maintained its strategy of maximizing income while maintaining momentum on Marlboro and Black & Mild across key brand metrics, including equity, demographics, profitability and retail share.
 
The smokeless products segment grew adjusted OCI by 11.2%. U.S. Smokeless Tobacco Company LLC (“USSTC”) grew Copenhagen’s retail share by 0.5 share points and improved Skoal’s profitability while investing behind Skoal’s blends and snus products.
 
In wine, Ste. Michelle Wine Estates Ltd.’s (“Ste. Michelle”) adjusted OCI declined by 12.0% primarily due to lower volume.
 
In e-vapor, Nu Mark LLC (“Nu Mark”) grew MarkTen’s volume by approximately 60%. MarkTen had retail share of 12.5% in mainstream retail channels and was present in stores representing approximately 70% of e-vapor category volume in those channels.
 
In heated tobacco, PM USA continued to build its commercialization plans for IQOS, which it will have the exclusive right to sell in the U.S. upon U.S. Food and Drug Administration (“FDA”) authorization.
____________________

(1)

Adjusted diluted EPS is a financial measure not consistent with generally accepted accounting principles in the United States (“GAAP”). See Annex A to this Proxy Statement for information regarding non-GAAP financial measures used in this Proxy Statement and reconciliations of such non-GAAP financial measures to the most directly comparable GAAP financial measures.

(2) Adjusted OCI is a financial measure not consistent with GAAP. See Annex A to this Proxy Statement for information regarding non-GAAP financial measures used in this Proxy Statement and reconciliations of such non-GAAP financial measures to the most directly comparable GAAP financial measures.

4     ALTRIA GROUP, INC. – Proxy Statement


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PROXY STATEMENT SUMMARY

Smokeable Adjusted OCI
($ millions)
Smokeless Adjusted OCI
($ millions)
Wine Adjusted OCI
($ millions)

For more information regarding our 2017 performance, please review our Annual Report on Form 10-K for the fiscal year ended December 31, 2017 (“2017 Annual Report on Form 10-K”).

2017 EXECUTIVE COMPENSATION PROGRAM HIGHLIGHTS

Annual incentive awards for our executive officers named in the Summary Compensation Table on page 48 (“named executive officers” or “NEOs”) reflect our strong 2017 business performance. Stock awards reflected in the Summary Compensation Table were granted in January 2017 and reflect the executive’s individual performance and advancement potential.
 
The Compensation Committee examined the mix of long-term incentives and increased the portion that is performance-based by introducing performance stock units (“PSUs”) as part of the annual grant of equity compensation. Executives received a mix of 60% restricted stock units (“RSUs”) and 40% PSUs. The addition of PSUs, combined with our existing cash Long-Term Incentive Plan (“LTIP”), increased to over 60% the portion of our executives’ long-term incentives that is performance-based.
 
At the 2017 Annual Meeting, nearly 93% of the votes cast approved on an advisory basis the compensation of our NEOs, demonstrating strong alignment of shareholder interests with our executive compensation program and philosophy. Nearly 89% of the votes cast were in favor of maintaining the annual frequency for future advisory votes on the compensation of our NEOs.

ALTRIA GROUP, INC. – Proxy Statement     5


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PROXY STATEMENT SUMMARY

Key Governance Features of Our Executive Compensation Program

The following summary highlights our commitment to executive compensation practices that align the interests of our executives and shareholders:

What We Do      

What We Don’t Do

Pay for Performance - A significant portion of our NEOs’ compensation is at-risk variable compensation. Annual and long-term cash incentives and a significant portion of equity compensation are tied to performance measures.

No Excessive Perquisites - Perquisites represent less than 2% of our NEOs’ compensation.

Multiple Performance Metrics - Variable compensation is based on more than one measure to encourage balanced incentives.

No Single-Trigger Change in Control - Our shareholder-approved 2015 Performance Incentive Plan includes a double-trigger change in control provision.

Stock Holding and Ownership Requirements -All NEOs exceed our robust stock ownership requirements.

No Individual Supplemental Executive Retirement Plans

“Clawback” Provisions - Our policy provides for the adjustment or recovery of compensation in certain circumstances.

No Hedging or Pledging - We do not permit our executive officers to engage in either hedging or pledging activities with respect to their Altria shares.

Award Caps - All our variable compensation plans have caps on plan formulas.

No Employment Agreements - All our NEOs are employed at-will.

Below Average Share Utilization - We have below average run rates for equity compensation, as compared to S&P 500 companies.

No Tax Gross-Ups on Compensation - We do not pay tax gross-ups to our executive officers, except in limited circumstances such as a retirement gift of nominal value or relocation assistance on the same basis offered to all employees.

Tally Sheets - The Compensation Committee reviews compensation tally sheets at least annually as part of making individual compensation decisions for our NEOs.

No Share Recycling

Confidentiality & Non-Compete Agreements - All NEOs are subject to confidentiality and non-compete agreements.

6     ALTRIA GROUP, INC. – Proxy Statement


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QUESTIONS AND ANSWERS ABOUT THE 2018 ANNUAL MEETING AND VOTING

QUESTIONS AND ANSWERS
ABOUT THE 2018 ANNUAL MEETING AND VOTING

       
1. WHY DID I RECEIVE THESE PROXY MATERIALS?

Our Board of Directors is furnishing you this Proxy Statement to solicit proxies on its behalf to be voted at the 2018 Annual Meeting on May 17, 2018 at 9:00 a.m., Eastern Time, at the Greater Richmond Convention Center, 403 North 3rd Street, Richmond, Virginia 23219. The proxies also may be voted at any adjournments or postponements of the meeting.
All properly executed written proxies, and all properly completed proxies submitted by telephone or by the Internet, that are delivered pursuant to this solicitation will be voted at the meeting in accordance with the directions given in the proxy, unless the proxy is revoked before the completion of voting at the meeting.


       
2. WHAT IS A PROXY?

It is your legal designation of another person to vote the stock you own. That other person is called a proxy. If you designate someone as your proxy in a written document, that document also is called a proxy or a proxy card.
Our Board of Directors has designated Martin J. Barrington and Murray R. Garnick as proxies for the 2018 Annual Meeting.


       
3. WHAT IS THE RECORD DATE AND WHAT DOES IT MEAN?

The record date for the 2018 Annual Meeting is March 26, 2018 (the “record date”). The record date was established by our Board of Directors as required by Virginia law. Only shareholders of record at the close of business on the record date are entitled to:

(a)     

receive notice of the meeting; and

(b)     

vote at the meeting and any adjournments or postponements of the meeting.


Each shareholder of record on the record date is entitled to one vote for each share of our common stock held. On the record date, there were 1,894,449,755 shares of our common stock outstanding.


       
4. WHAT IS THE DIFFERENCE BETWEEN A SHAREHOLDER OF RECORD AND A SHAREHOLDER WHO HOLDS SHARES IN STREET NAME?

If your shares are registered in your name on the books and records of our transfer agent, Computershare Trust Company, N.A., you are a shareholder of record.

If your shares are held for you in the name of your broker, bank or other nominee, your shares are held in street name. The answer to Question 12 describes brokers’ discretionary voting authority and when your broker, bank or other nominee is permitted to vote your shares without instructions from you.
It is important that you vote your shares if you are a shareholder of record and, if you hold shares in street name, that you provide appropriate voting instructions to your broker, bank or other nominee as discussed in the answer to Question 12.


       
5. WHAT ARE THE DIFFERENT METHODS THAT I CAN USE TO VOTE MY SHARES OF COMMON STOCK?

By Telephone or Internet: All shareholders of record may vote their shares by telephone (within the United States, U.S. territories and Canada, there is no charge for the call) or by the Internet, using the procedures and instructions described on the Notice of Internet Availability of Proxy Materials, proxy card and other enclosures. Street name holders may vote by telephone or the Internet if their brokers, banks or
other nominees make those methods available. If that is the case, each broker, bank or other nominee will enclose instructions with the Proxy Statement. The telephone and Internet voting procedures, including the use of control numbers, are designed to authenticate shareholders’ identities, to allow shareholders to vote their shares and to confirm that their instructions have been properly recorded.

ALTRIA GROUP, INC. – Proxy Statement      7


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QUESTIONS AND ANSWERS ABOUT THE 2018 ANNUAL MEETING AND VOTING

In Writing: All shareholders also may vote by mailing their completed and signed proxy card (in the case of shareholders of record) or their completed and signed voting instruction form (in the case of street name holders).

In Person: All shareholders of record may vote in person at the meeting. Street name holders must obtain a legal
proxy from their broker, bank or other nominee and bring the legal proxy to the meeting in order to vote in person at the meeting.

See also “Proxy Statement Summary – Casting Your Vote” on page 1.


       
6. WHAT ITEMS WILL BE VOTED ON AT THE 2018 ANNUAL MEETING?

Proposal

      

Voting Choices, Board Recommendation and Voting Requirement

Proposal 1 –
Election of Directors
 (pages 61 – 66)

Voting Choices
Vote for a nominee;
Vote against a nominee; or
Abstain from voting on a nominee.

Board Recommendation
Our Board recommends a vote “FOR” each of the nominees named in the Proxy Statement.

Voting Requirement
Directors will be elected by a majority of the votes cast. A majority of the votes cast means that the number of votes “FOR” a nominee must exceed the number of votes “AGAINST” that nominee.

Any director who receives a greater number of votes “AGAINST” his or her election than votes “FOR” such election is required to offer promptly in writing to submit his or her resignation to our Board in accordance with our Corporate Governance Guidelines. The Nominating, Corporate Governance and Social Responsibility Committee will consider the offer and recommend to our Board whether to accept the offer. The full Board will consider all factors it deems relevant to our best interests, make a determination and publicly disclose its decision and rationale within 90 days after confirmation of the election results.

Proposal 2 –
Ratification of the Selection
of Independent Registered
Public Accounting Firm
(page 67)

Voting Choices
Vote for the ratification;
Vote against the ratification; or
Abstain from voting.

Board Recommendation
Our Board recommends a vote “FOR” this proposal.

Voting Requirement
The selection of the independent registered public accounting firm will be ratified if the votes cast “FOR” exceed the votes cast “AGAINST.”

8     ALTRIA GROUP, INC. – Proxy Statement


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QUESTIONS AND ANSWERS ABOUT THE 2018 ANNUAL MEETING AND VOTING

Proposal       Voting Choices, Board Recommendation and Voting Requirement

Proposal 3 –
Non-Binding Advisory
Vote to Approve the
Compensation of Altria’s
Named Executive Officers
(page 68)

Voting Choices
Vote for the compensation of our named executive officers;
Vote against the compensation of our named executive officers; or
Abstain from voting.

Board Recommendation
Our Board recommends a vote “FOR” this proposal.

Voting Requirement
The compensation of our named executive officers will be approved on an advisory basis if the votes cast “FOR” exceed the votes cast “AGAINST.”

This vote is not binding upon Altria, our Board or the Compensation Committee. Nevertheless, the Compensation Committee values the opinions expressed by shareholders through their vote on this proposal and will consider the outcome of the vote when making future compensation decisions for our named executive officers.

Proposal 4 – Shareholder
Proposal Regarding
Reducing and Disclosing
Nicotine Levels in
Cigarette Brands
(pages 69 – 70)

Voting Choices
Vote for the proposal;
Vote against the proposal; or
Abstain from voting.

Board Recommendation
Our Board recommends a vote “AGAINST” this shareholder proposal.

Voting Requirement
The shareholder proposal will be approved if the votes cast “FOR” exceed the votes cast “AGAINST.”


       
7. ARE VOTES CONFIDENTIAL?

It is our long-standing practice to hold the votes of each shareholder in confidence from directors, officers and employees, except: (a) as necessary to meet applicable legal requirements and to assert or defend claims for or against us; (b) in the case of a contested proxy solicitation; (c) if a
shareholder makes a written comment on the proxy card or otherwise communicates his or her vote to us; or (d) to allow the independent inspectors of election to certify the results of the vote.


       
8. WHO COUNTS THE VOTES?

As we have for many years, we retain an independent tabulator to receive and tabulate the proxies and appoint
independent inspectors of election to certify the results.


       
9. WHAT IF I DO NOT SPECIFY A CHOICE FOR A MATTER WHEN RETURNING A PROXY?

Shareholders should specify their voting choice for each matter. If you sign and return your proxy, yet you do not make a specific choice for one or more matters, unvoted matters will be voted “FOR” the election of each of the nominees for director, “FOR” the proposal
to ratify the selection of PricewaterhouseCoopers LLP (“PricewaterhouseCoopers”), “FOR” the non-binding advisory vote to approve the compensation of our named executive officers and “AGAINST” the shareholder proposal, as applicable.

ALTRIA GROUP, INC. – Proxy Statement     9


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QUESTIONS AND ANSWERS ABOUT THE 2018 ANNUAL MEETING AND VOTING

       
10. HOW DO I VOTE IF I PARTICIPATE IN THE DIVIDEND REINVESTMENT PLAN?

The proxy card includes your dividend reinvestment plan shares.
The answer to Question 5 above explains how you can vote.


       
11. WHAT DOES IT MEAN IF I RECEIVE MORE THAN ONE PROXY CARD?

It means that you have multiple accounts with brokers and/or our transfer agent. Please vote all shares represented by each proxy card. We recommend that you contact your broker or our transfer agent to consolidate as many accounts as possible under the same name and address. Our transfer agent is Computershare Trust Company, N.A. 
Computershare’s address is P.O. Box 43078, Providence, Rhode Island 02940-3078; you can reach Computershare at 1-800-442-0077 (from within the United States or Canada) or 1-781-575-3572 (from outside the United States or Canada).


       
12. WILL MY SHARES BE VOTED IF I DO NOT PROVIDE MY PROXY OR VOTING INSTRUCTIONS?

Shareholders of Record: If you are a shareholder of record (see Question 4), your shares will not be voted if you do not provide your proxy unless you vote in person at the meeting. It is, therefore, important that you vote your shares.

Street Name Holders: If your shares are held in street name (see Question 4) and you do not provide your voting instructions to your broker, bank or other nominee, your shares may be voted by your broker, bank or other nominee but only under certain circumstances. Specifically, under the New York Stock Exchange (“NYSE”) rules, shares held in the name of your broker, bank or other nominee may be voted by your broker, bank or other nominee on certain “routine” matters if you do not provide voting instructions.
Only the ratification of the selection of PricewaterhouseCoopers as our independent registered public accounting firm is considered a “routine” matter for which brokers, banks or other nominees may vote uninstructed shares. The other proposals to be voted on at the meeting are not considered “routine” under NYSE rules, so the broker, bank or other nominee cannot vote your shares on any of these other proposals unless you provide to the broker, bank or other nominee voting instructions for each of these matters. If you do not provide voting instructions on a non-routine matter, your shares will not be voted on that matter, which is referred to as a “broker non-vote.” It is, therefore, important that you vote your shares.


       
13. ARE ABSTENTIONS AND BROKER NON-VOTES COUNTED?

Abstentions and broker non-votes on one or more matters will not be considered votes cast and, therefore, will not affect the outcome of the vote on those matters at the 2018
Annual Meeting. Broker non-votes are described more particularly in Question 12 above.


       
14. HOW CAN I REVOKE A PROXY OR CHANGE MY VOTE?

If you are a shareholder of record, you can revoke a proxy or change your vote before the completion of voting at the meeting by:

(a)     

giving written notice to our Corporate Secretary;

(b)

delivering a later-dated proxy; or

(c)     

voting in person at the meeting.


If your shares are held in street name, you should follow the instructions provided by your broker, bank or other nominee to revoke or change your voting instructions.


       
15.

WHO WILL PAY THE COST OF THIS PROXY SOLICITATION?


We will pay the cost of this solicitation of proxies. In addition to the use of the mail, some of our officers and employees may solicit proxies by telephone or e-mail and will request brokerage houses, banks and other custodians, nominees and fiduciaries to forward soliciting material to the beneficial owners of shares held of record by such persons. We will reimburse such persons for expenses incurred in
forwarding such soliciting material. It is contemplated that additional solicitation of proxies will be made in the same manner under the engagement and direction of our proxy solicitor, D.F. King & Co., Inc., 48 Wall Street, New York, New York 10005, at an anticipated cost of $24,000, plus reimbursement of out-of-pocket expenses.

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QUESTIONS AND ANSWERS ABOUT THE 2018 ANNUAL MEETING AND VOTING

         
16. HOW DO I OBTAIN ADMISSION TO THE 2018 ANNUAL MEETING?

If you plan to attend the meeting, you must request an admission ticket in advance.

Please submit your request for an admission ticket by completing the Pre-Registration Form located on the last page of this Proxy Statement and submitting it, along with your proof of ownership as of the record date, no later than May 11, 2018, using one of the means identified on the Pre-Registration Form.

If your shares are held for you in the name of your broker, bank or other nominee, please provide evidence of your stock ownership as of the record date (such as your voting instruction form, a current letter from your broker, bank or other nominee or a photocopy of a brokerage or other account statement).

If you are a duly appointed proxy for a shareholder, you must provide proof of your appointment and proof of share ownership for the shareholder for whom you are a proxy.
You may bring only one immediate family member as a guest. All immediate family member guests must be 21 years of age or older. If you are a duly appointed proxy for a shareholder, you may not bring a guest.

All meeting attendees must present government-issued photo identification, such as a driver’s license or passport, at the meeting.

The meeting facilities will open at 8:00 a.m., Eastern Time, to facilitate your registration and security clearance. For your security, you will not be permitted to bring any packages, briefcases, large pocketbooks or bags into the meeting. Also, cellular and digital phones, audio tape recorders, video and still cameras, laptops and other portable electronic devices will not be permitted into the meeting. We thank you in advance for your patience and cooperation with these rules.


            
17. MAY SHAREHOLDERS ASK QUESTIONS AT THE 2018 ANNUAL MEETING?

Yes. The Chairman will answer shareholders’ questions during the question and answer period of the meeting. In order to provide an opportunity for everyone who wishes to ask a question, each shareholder will be limited to two minutes. Shareholders may ask a second question
if all others have first had their turn and if time allows. When speaking, shareholders must direct questions to the Chairman and confine their questions to matters that relate directly to the business of the meeting.


            
18. HOW MANY VOTES MUST BE PRESENT TO HOLD THE 2018 ANNUAL MEETING?

In order for us to conduct the meeting, a majority of our outstanding shares of common stock as of the record date must be present in person or by proxy at the meeting. This is referred to as a quorum.

Your shares are counted as present at the meeting if you attend the meeting and vote in person or if you properly return a proxy by Internet, telephone or mail.
Abstentions and shares of record held by a broker, bank or other nominee (“broker shares”) that are voted on any matter are also included in determining the number of shares present. Broker shares that are not voted on any matter will not be included in determining whether a quorum is present.

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BOARD AND GOVERNANCE MATTERS

BOARD AND GOVERNANCE MATTERS

Board Responsibility

The primary responsibility of our Board is to foster our long-term success. In fulfilling this role, each director must exercise his or her good faith business judgment of the best interests of Altria and our shareholders. Our Board has responsibility for establishing broad corporate policies, setting strategic direction and overseeing management, which is responsible for our day-to-day operations.

Board Meetings and Attendance

Our Board holds regular meetings, typically during the months of January, February, May, August, October and December, and holds special meetings when necessary. Our Board’s organizational meeting follows our annual meeting of shareholders. Our Board held six meetings in 2017. Our Board meets in executive session at every in-person Board meeting, which is followed by a session of only independent directors led by the Presiding Director. Directors are expected to attend Board meetings, meetings of the Committees of our Board (the “Committees”) on which they serve and our annual meeting of shareholders, with the understanding that on occasion a director may be unable to attend a meeting. During 2017, all directors then in office attended at least 84% of the aggregate number of meetings of our Board during their respective terms of service and of all Committees on which they served. In addition, all directors then in office attended the 2017 Annual Meeting.

Board Composition and Succession Planning

Our Board currently consists of 13 directors. Directors are elected annually at each annual meeting to serve until the next annual meeting and until their successors are duly elected and qualified, subject to their earlier death, resignation or removal. Each of the nominees currently serves as a director and was elected by the shareholders at the 2017 Annual Meeting with the exception of Mark E. Newman and Howard A. Willard III.

Mr. Newman was brought to the attention of the Nominating, Corporate Governance and Social Responsibility Committee by an executive search firm engaged by management to identify potential director candidates and was unanimously elected as a director by our Board effective February 1, 2018. Also effective February 1, 2018, Mr. Willard, who is currently Altria’s Executive Vice President and Chief Operating Officer, was unanimously elected as a director by our Board. Mr. Willard will become Altria’s Chairman of the Board (“Chairman”) and Chief Executive Officer (“CEO”), effective upon the conclusion of the 2018 Annual Meeting. Mr. Barrington will retire as Chairman, CEO and President the same day. On February 20, 2018, Gerald L. Baliles notified Altria of his decision to retire from Board service following the completion of his current term. Consequently, neither Governor Baliles nor Mr. Barrington will stand for re-election to our Board at the 2018 Annual Meeting.

Biographical information and qualifications of the nominees for director are included under “Proposal 1 – Election of Directors” on page 61.

Our Board has adopted retirement guidelines that require a director who will have attained the age of 75 as of the date of the next annual meeting to tender his or her written resignation to our Board at least six months prior to such annual meeting. If our Board determines that continued service by the director is in the best interests of Altria and our shareholders, our Board has the discretion not to accept the resignation.

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BOARD AND GOVERNANCE MATTERS

We are committed to reviewing periodically our Board’s composition to ensure that we continue to have the right mix of skills, background and tenure. The current composition of our Board is as follows:

Our Board’s composition represents a balanced approach to director tenure, allowing our Board to benefit from the experience of longer-serving directors combined with the perspectives of newer directors.

Our Board has a breadth of skills and experience. As noted in the high-level summary below, we believe that our Board has demonstrated leadership in a variety of positions across various professions and industries. The following table is not intended to be an exhaustive list of each of our director’s skills or contributions to our Board.

Skills and Experience of Our Board of Directors

Skills and Experience
Consumer Products and/or
Consumer Marketing
Industry
Regulated Industries
Chief Executive Officer
Chief Financial Officer
Public Policy
Public Company Board
Leadership in Innovation
Information Technology/Cybersecurity

The Nominating, Corporate Governance and Social Responsibility Committee has the primary responsibility for developing a succession plan for our Board. Using tools such as the annual Board and Committee self-evaluations and our Board retirement policy, it periodically reviews our Board composition and, as further discussed below under “Director Qualifications and Board Diversity,” identifies the appropriate mix of experiences, skills, attributes and tenure for our Board as a whole in light of our strategies and needs with the objective of recommending a group of directors that can best continue our success and represent shareholder interests. The Committee and our Board are committed to developing a diverse pool of potential candidates for future Board service consideration.

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BOARD AND GOVERNANCE MATTERS

Board Leadership Structure and Governance

Our Board believes that it is important to retain the flexibility to allocate the responsibilities of the Chairman and the CEO in a way that it considers to be in the best interests of Altria and our shareholders. After due consideration by the Nominating, Corporate Governance and Social Responsibility Committee and our Board, including an evaluation of the pending transition of leadership from Mr. Barrington to Mr. Willard, our Board has concluded that presently combining the roles of Chairman and CEO is in the best interests of Altria and our shareholders. Our Mission is to own and develop financially disciplined businesses that are leaders in responsibly providing adult tobacco and wine consumers with superior branded products. Our Board believes that the combination of the roles of Chairman and CEO promotes the pursuit of our Mission by allowing the senior-most executive with accountability for our day-to-day operations and execution of our strategic plan, who also possesses significant business, regulatory and industry knowledge, to set Board meeting agendas (in consultation with the Presiding Director), to lead the related discussions and to communicate with one voice to employees, shareholders and other stakeholders. Our Board considers this effective and efficient structure to be particularly appropriate for us given the unique challenges that we have faced and continue to face in our businesses, particularly domestic tobacco, and the enhanced regulatory environment.

Our Board’s strict adherence to sound corporate governance practices, as reflected in our Corporate Governance Guidelines, has promoted, and continues to promote, the effective and independent exercise of Board leadership for Altria and our shareholders. We have a strong and experienced independent Presiding Director, Thomas F. Farrell II. Mr. Farrell promotes dialogue among independent members of our Board and directly, clearly and regularly communicates the views of our Board to management. Moreover, our independent directors convene at each Board meeting in an executive session led by the Presiding Director.
RESPONSIBILITIES OF OUR
PRESIDING DIRECTOR
Preside over executive sessions of the independent directors and at all meetings at which the Chairman is not present
   
Call meetings of the independent directors as he or she deems necessary
   
Serve as a liaison between the Chairman and the independent directors
   
Together with the Chairman, approve agendas and schedules for Board meetings
   
Advise the Chairman of the Board’s informational needs and, where appropriate, approve information sent to our Board
   
Together with the Chair of the Compensation Committee, communicate goals and objectives to the CEO and the results of the evaluation of the CEO’s performance
   
Be available for consultation and communication if requested by major shareholders

Board and Committee Self-Evaluations

Our Board assesses annually its effectiveness and that of its Committees in advancing our Mission. The method for conducting the annual Board and Committee self-evaluations has consisted of individual interviews conducted by the Presiding Director, interviews conducted by the Chair of the Nominating, Corporate Governance and Social Responsibility Committee, third-party interviews and written surveys. More recently, our Board has determined that interviews by the Presiding Director or the Chair of the Nominating, Corporate Governance and Social Responsibility Committee is a highly effective method of conducting the self-evaluations. The Nominating, Corporate Governance and Social Responsibility Committee oversees the evaluation process, including determining the format and delivering to our Board the results of the self-evaluations to identify opportunities to enhance effectiveness. Self-evaluation topics generally include, among other matters, Board composition and structure, meeting topics and process, information flow, Board oversight of strategic planning and risk management, succession planning and access to management. Our Board discusses the results of each annual self-evaluation and, as appropriate, implements enhancements and other modifications identified during the process.

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BOARD AND GOVERNANCE MATTERS

Advancement Planning and CEO Succession

Our Board believes that senior executive advancement and succession is one of its most important responsibilities. The Compensation Committee is responsible for overseeing the development and furtherance of executive succession plans, evaluating and making recommendations to our Board regarding potential candidates to become CEO, and evaluating and approving candidates to fill other senior executive positions. At least annually, the Chairman and CEO meets with the Compensation Committee and our Board to discuss CEO succession planning (including specific candidates). As previously noted, effective upon the conclusion of the 2018 Annual Meeting, Mr. Willard will become Chairman and CEO, replacing Mr. Barrington, who announced his retirement earlier this year. This leadership transition is the result of our Board’s thoughtful and deliberative succession planning process.

The Compensation Committee also considers the procedure for the timely and efficient transfer of CEO responsibilities in the event of an emergency or the sudden incapacity, departure or death of the Chairman and CEO. The Chairman and CEO meets with the Compensation Committee at least annually to discuss the performance of key members of our senior management. These matters are regularly communicated to our Board by the Chair of the Compensation Committee. In addition, our Board has exposure to succession candidates (CEO and otherwise) from across our companies through presentations, site visits and other events.

Director Education

Upon election to our Board, new directors participate in a comprehensive onboarding process to inform them of the operational aspects of our businesses and key issues facing Altria, visit key facilities, introduce key members of senior leadership and review Board governance.

In addition to regular updates on our strategies and developments in our businesses, we provide our Board with information regarding governance, legal responsibilities and compliance matters through regularly-scheduled presentations at Board meetings and, as needed, supplementary reports and materials. Directors also periodically visit our subsidiaries. These efforts allow our directors to interact and ask questions of different leaders across our companies.

We also encourage our Directors to attend third-party hosted director education programs to gain additional perspective. We provide a list of programs, updated regularly, to our directors or they may choose to attend self-selected educational programs.

Governance Guidelines, Policies and Codes

Our Board has adopted Corporate Governance Guidelines. In addition, our Board has adopted a Code of Business Conduct and Ethics for Directors (“Director Code”) that applies to our directors and a policy with regard to reviewing certain transactions in which we are a participant and an officer, director or nominee for director has had or may have a direct or indirect material interest. These documents are available on our website at www.altria.com/governance. We have also adopted the Altria Code of Conduct (“Code of Conduct”) that applies to all our employees, including our principal executive officer, principal financial officer, principal accounting officer or controller, and persons performing similar functions. The Code of Conduct is available on our website at www.altria.com/codeofconduct.

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BOARD AND GOVERNANCE MATTERS

Committees of Our Board of Directors

Our Board has established various standing Committees to assist it with the performance of its responsibilities. Our Board elects the members of these Committees and the Committee Chairs annually at its organizational meeting following our annual meeting of shareholders, based on the recommendations of the Nominating, Corporate Governance and Social Responsibility Committee. The Chair of each Committee develops the agenda for that Committee and determines the frequency and length of Committee meetings. After each meeting, each Committee provides a full report to our Board.

Our Board has adopted written charters for each of these Committees. These charters are available on our website at www.altria.com/governance. The following table summarizes the primary responsibilities of the Committees:

Committee Primary Responsibilities
Audit       The Audit Committee assists our Board in its oversight of (i) the integrity of our financial statements and financial reporting processes and systems of internal control, (ii) the qualifications, independence and performance of our independent registered public accounting firm, (iii) the internal auditors and the internal audit function, (iv) our risk assessment and risk management policies and practices and (v) our compliance with legal and regulatory requirements. The Audit Committee also prepares the Audit Committee report that the rules of the U.S. Securities and Exchange Commission (“SEC”) require us to include in our proxy statement. See pages 24 to 25 for further matters related to the Audit Committee, including its report for the year ended December 31, 2017.
Compensation The Compensation Committee determines and approves CEO compensation and reviews and approves the compensation of the other executive officers, including salary, annual incentive awards and long-term incentive awards. The Compensation Committee also oversees the development of executive succession plans and evaluates and makes recommendations to our Board regarding potential CEO candidates. In addition, the Compensation Committee evaluates the design and effectiveness of our incentive programs and monitors risks related to such design. See pages 26 to 27 for further matters related to the Compensation Committee, including a discussion of its procedures and its report on the Compensation Discussion and Analysis appearing on pages 29 through 47.
Executive The Executive Committee has authority to act for our Board during intervals between Board meetings to the extent permitted by law.
Finance The Finance Committee monitors our financial condition, oversees the sources and uses of cash flow and advises our Board with respect to financing needs, dividend policy, share repurchase programs and other financial matters.
Innovation The Innovation Committee assists our Board in its oversight of the strategic goals and objectives of our subsidiaries’ innovation and marketing strategies, consumer/market understanding and brand plans, technological initiatives and research, development and engineering programs.
Nominating,
Corporate Governance and Social Responsibility
The Nominating, Corporate Governance and Social Responsibility Committee identifies individuals qualified to become Board members consistent with the criteria established by our Board and described in our Corporate Governance Guidelines, and recommends a slate of nominees for election at each annual meeting of shareholders; makes recommendations to our Board concerning the appropriate size, function, needs and composition of our Board and its Committees; reviews non-employee director compensation and recommends changes in compensation to our Board; advises our Board on corporate governance matters; oversees the annual self-evaluation process of our Board and its Committees; and provides oversight of our public affairs, corporate reputation and societal alignment strategies.

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The following table identifies the current members of each of the Committees and the number of meetings held during 2017:

Name      Audit (1)      Compensation (2)      Executive      Finance      Innovation      Nominating, Corporate
Governance and Social
Responsibility (3)
Gerald L. Baliles * Chair
Martin J. Barrington Chair
John T. Casteen III *
Dinyar S. Devitre * Chair
Thomas F. Farrell II * (4)
Debra J. Kelly-Ennis *
W. Leo Kiely III * Chair
Kathryn B. McQuade *
George Muñoz * Chair
Mark E. Newman * (5)
Nabil Y. Sakkab * Chair
Virginia E. Shanks *
Howard A. Willard III (5)
2017 Meetings 9 5 0 4 4 4
____________________
*

Independent Director.

(1)

The Audit Committee consists entirely of non-management directors all of whom our Board has determined are independent within the meaning of the listing standards of the NYSE and Rule 10A-3 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Our Board has determined that all members of the Audit Committee are financially literate and that Mr. Muñoz and Ms. McQuade are “audit committee financial experts” within the meaning set forth in the regulations of the SEC.

(2)

The Compensation Committee consists entirely of non-management directors all of whom our Board has determined are independent within the meaning of the listing standards of the NYSE; are non-employee directors for the purposes of Rule 16b-3 of the Exchange Act; and satisfy the requirements of Internal Revenue Code Section 162(m) for outside directors.

(3)

The Nominating, Corporate Governance and Social Responsibility Committee consists entirely of non-management directors all of whom our Board has determined are independent within the meaning of the listing standards of the NYSE.

(4)

Presiding Director.

(5)

Messrs. Newman and Willard became directors effective February 1, 2018. As of the date of this Proxy Statement, Messrs. Newman and Willard have not been named to any Committee.

Our Board’s Oversight Role

Oversight of Company Strategy

Our Board actively oversees the development and execution of our strategies. Our Board spends several days each year reviewing our long-term strategies and discussing them with management. These strategies encompass both financial and operational strategies related to our operating companies and their products and strategies focused on innovation, technology, talent development, public policy and engagement, legal and regulatory matters. As appropriate during the year, management and our Board may discuss developments that impact the strategic plans. Our Board further monitors strategic execution through standing presentations at regular Board meetings and communications from management in between meetings.

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BOARD AND GOVERNANCE MATTERS

Risk Oversight

Our Board believes it has in place effective processes to identify and oversee the material risks facing Altria and our businesses and that these processes are consistent with, and provide additional support for, the current leadership structure of our Board. Our Board, both acting as a full Board and through its Committees, plays an important oversight role in our risk management processes. Regular Board and Committee meetings cover multiple days. Management from Altria and our subsidiaries and business functions attend each meeting. Board members also conduct periodic site visits to locations of our subsidiaries both in and outside our Richmond, Virginia headquarters. These meetings, site visits and, as appropriate, communications between Board meetings, allow our Board to discuss with management and mid-level management the operational risks facing the businesses of our subsidiaries.

Our enterprise risk management process helps us identify, prioritize and manage risks that have the potential to present the most significant obstacles to achieving business objectives. Management reports annually to our Board on this process.

Our Board, directly or through its Committees, also oversees management of the following risk areas:

Legal and Regulatory Risk: Our Board, both directly and through the Audit Committee, receives regular updates on various legal and regulatory matters, including developments in litigation and developments related to FDA regulation of certain of our subsidiaries, thereby reviewing our management of legal and regulatory risk. In addition, reports to the Audit Committee at each of its meetings by our Chief Compliance Officer and Corporate Audit personnel provide insight into our risk assessment and risk management policies and processes.
 

Financial and Accounting Risk: The Finance and Audit Committees oversee our management of financial, accounting, internal controls and liquidity risks through interaction at each meeting with the Chief Financial Officer, management from our financial, accounting, auditing and treasury functions (as appropriate) and, for the Audit Committee, representatives from our independent registered public accounting firm.
 

Reputational and Governance Risk: Through its interaction with business functions responsible for our public policy and societal alignment activities and

strategies, the Nominating, Corporate Governance and Social Responsibility Committee oversees the ways in which we manage reputational and public policy risk. The Nominating, Corporate Governance and Social Responsibility Committee also oversees risks related to Board organization, membership and structure and other corporate governance matters.
 

Executive Compensation Program Risk: The Compensation Committee considers the extent to which the executive compensation program may create risk for us (see page 38 for a more detailed description).
 

Technology, Intellectual Property and Research and Product Development Risk: The Innovation Committee oversees our management of the risks associated with technology, research and product development, including intellectual property.
 

IT Security Risk: The Audit Committee oversees our IT security program and management of the associated risks.



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Corporate Responsibility Oversight

The Nominating, Corporate Governance and Social Responsibility Committee oversees our corporate responsibility strategies. With the support of our full Board, the Committee is charged with oversight of management efforts to identify, evaluate and understand the environmental, social and governance issues that present risks and opportunities for our businesses. We approach corporate responsibility by understanding our stakeholders’ perspectives, aligning business practices where appropriate and measuring and communicating our progress. In 2017, we published our sixth annual corporate responsibility progress report.

We focus in particular on four corporate responsibility priorities that we believe are important to our stakeholders and key to our continued success.

Priorities Goals

Reducing the Harm of
Tobacco Products

     
Develop tobacco products that may offer lower risk for adult tobacco consumers and engage the FDA constructively about them
Support programs that help reduce underage tobacco use
Provide access to expert quitting information for those who have decided to quit

Marketing Responsibly

Build relationships between brands and their adult consumer audiences while taking steps designed to limit reach to unintended audiences

Managing Our Supply
Chain Responsibility

Work with diverse, high-quality suppliers to innovate and address societal issues within the supply chain

Developing Our Employees
and Culture

Develop high-performing and engaged employees who help us continue to deliver superior results in the future

Other areas for our efforts include minimizing our environmental impact, combatting illicit trade of our products and investing in our communities. More information about our priorities and progress against our goals can be found in our most recent corporate responsibility progress report, which is available on our website at www.altria.com/responsibility.

Directors

Process for Nominating Directors

The Nominating, Corporate Governance and Social Responsibility Committee is responsible for identifying and evaluating nominees for director and for recommending to our Board a slate of nominees for election at the annual meeting of shareholders.

In identifying potential candidates for Board membership, the Committee relies on suggestions and recommendations from directors, shareholders, management and others, including from time to time executive search and board advisory firms. The Committee does not distinguish between nominees recommended by shareholders and other nominees. Shareholders wishing to suggest candidates to the Nominating, Corporate Governance and Social Responsibility Committee for consideration as directors must submit a written notice to our Corporate Secretary following the procedures set forth in this Proxy Statement under “Questions and Answers about Communications, Altria Documents and Shareholder Proposals – How Do I Communicate with Our Board of Directors?” on page 74. Our By-Laws set forth the procedures that a shareholder must follow to nominate directors. The procedures are summarized under the same section in response to the question “How Can a Shareholder Nominate a Director or Submit a Proposal for Next Year’s Annual Meeting?” on page 74.

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BOARD AND GOVERNANCE MATTERS

Director Qualifications and Board Diversity

In reviewing nominee candidates, the Nominating, Corporate Governance and Social Responsibility Committee follows the process described above and, in so doing, considers both (i) our Mission to own and develop financially disciplined businesses that are leaders in responsibly providing adult tobacco and wine consumers with superior branded products and (ii) its four related Mission goals – Invest in People; Drive Positive Change; Deliver Superior Products and Brands; and Create Substantial Value. The Committee has not established any specific minimum qualification standards for nominees to our Board; rather, in evaluating the suitability of individuals for Board membership, the Committee considers the ways in which it believes each nominee can assist Altria in pursuing its Mission and advancing one or more Mission goals.

The Committee evaluates each individual in the context of our Board as a whole, with the objective of recommending a group of directors that can best continue our success and represent shareholder interests through the exercise of sound judgment. The Committee takes into account many factors, including whether the individual meets requirements for independence and whether the individual will enhance the diversity of views and experiences available to our Board in its operations and oversight of the development and execution of our long-term strategies. In determining whether to recommend a director for re-election, the Committee also considers the director’s past attendance at meetings and participation in and contributions to the activities of our Board. In addition, the Committee considers whether our Board has specific needs for certain skills or attributes at a given time (for example, financial or chief executive officer experience). Other criteria for Board membership are set forth in our Corporate Governance Guidelines.

Under “Proposal 1 – Election of Directors,” we provide an overview of each nominee’s principal occupation, business experience and other directorships, together with the key attributes, experience and skills considered by the Committee and our Board as being particularly meaningful in pursuing our Mission.
EVALUATING BOARD DIVERSITY

We are committed to diversity, as reflected in our Mission goals, our Code of Conduct, our leadership development system and our various other policies.

The Nominating, Corporate Governance and Social Responsibility Committee has a long-standing commitment to diversity, rather than a formal diversity policy, and is guided by our diversity philosophy in its review and consideration of potential director nominees. In this regard, our Board and the Committee view diversity holistically. As set forth in our Corporate Governance Guidelines, the Board and the Committee consider:
 

whether the individual meets the requirements for independence;
 

the individual’s general understanding of the various disciplines relevant to the success of a large publicly-traded company in today’s global business environment;
 

the individual’s understanding of our businesses and markets;
 

the individual’s professional expertise and educational background; and
 

other factors that promote diversity of views and experiences such as gender, race, national origin, age and sexual orientation.


Director Independence Determinations

Under the listing standards of the NYSE, our Board must consist of a majority of independent directors. In making independence determinations, our Board observes NYSE and SEC criteria and considers all relevant facts and circumstances. Our Board has also adopted categorical standards of director independence to further assist it in making these determinations. These standards are set forth in Annex A of our Corporate Governance Guidelines, which are available on our website at www.altria.com/governance.

On the recommendation of the Nominating, Corporate Governance and Social Responsibility Committee, our Board has affirmatively determined that each of the following nominees is independent in that such nominee has no material relationship with us: John T. Casteen III, Dinyar S. Devitre, Thomas F. Farrell II, Debra J. Kelly-Ennis, W. Leo Kiely III, Kathryn B. McQuade, George Muñoz, Mark E. Newman, Nabil Y. Sakkab and Virginia E. Shanks. Our Board has also affirmatively determined, on the recommendation of the Committee, that Gerald L. Baliles, who is not standing for re-election to our Board at the 2018 Annual Meeting, is independent. In making its recommendation to our Board, the Committee considered the following business relationships and transactions:

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Business Relationships and Transactions Considered

Mr. Farrell is the Chief Executive Officer of Dominion Energy, Inc. (“Dominion”). A subsidiary of Dominion is a regulated public utility with which Altria or our subsidiaries has a commercial relationship for energy procurement. Amounts paid by Altria or our subsidiaries are set at rates fixed in accordance with the applicable regulatory authority. One of our subsidiaries has an agreement with the same utility under which the subsidiary receives nominal payments in connection with a solar energy program overseen and approved by the same regulatory authority. The terms of the agreement are comparable to those the utility offers to other third parties. Mr. Farrell is neither responsible for, nor involved in, the utility’s dealings with us or our subsidiaries, nor does Mr. Farrell materially benefit directly or indirectly from this relationship.

Altria or our subsidiaries from time to time do business in the ordinary course on terms comparable to those provided to unrelated third parties with entities where Mr. Casteen, Mr. Farrell, Ms. Kelly-Ennis and Mr. Muñoz serve as non-executive directors or where immediate family members (as defined in the our Policy on Related Person Transactions, which is discussed in “Related Person Transactions and Code of Conduct” on page 73) of Governor Baliles, Mr. Casteen, Mr. Farrell, Mr. Kiely and Dr. Sakkab serve as non-executive directors or are employed in non-executive officer capacities. In each case, neither the director nor the immediate family member is responsible for, or involved in, the entity’s day-to-day dealings with Altria or our subsidiaries, and the respective payments made by Altria or our subsidiaries to the entities in the last three fiscal years were significantly less than the greater of $1 million or 2% of any such entity’s consolidated gross revenues. None of Governor Baliles, Mr. Casteen, Mr. Farrell, Ms. Kelly-Ennis, Mr. Kiely, Mr. Muñoz or Dr. Sakkab, or their respective immediate family members, materially benefits directly or indirectly from these relationships.

The Committee has determined that the foregoing business relationships and transactions did not affect the independence of any nominee for director.

In making its recommendation to our Board, the Committee also considered the following philanthropic relationships and transactions between Altria and our subsidiaries and various educational and other charitable entities located in or near our locations or facilities of our subsidiaries. We believe that corporate philanthropy furthers our Mission goal of investing in people, which includes investing meaningfully in the communities in which our employees live and work with the objective of making those communities leading environments where our businesses can succeed. In some cases, these relationships date back for many decades.

Philanthropic Relationships and Transactions Considered

Altria and the University of Virginia (the “University”) have a long-standing relationship that has included employment recruiting and charitable donations. In 2017, Altria or our subsidiaries made certain charitable donations to the University in an aggregate amount of $812,500, with the significant majority supporting the University’s Youth-Nex Center that promotes positive youth development and scholarships. In addition, we made ordinary course trade payments to the University in the aggregate amount of $252,060. The sum of these 2017 contributions and payments represent significantly less than 2% of the University’s consolidated gross revenues. Mr. Casteen is a former President of the University. He now serves as President Emeritus of the University. Mr. Casteen’s son, John T. Casteen IV, joined the University as a lecturer in 2016, and his daughter-in-law, Laura Casteen, is employed by the University as an Associate Dean. Neither Mr. Casteen nor his son or daughter-in-law materially benefits directly or indirectly from this relationship.

In addition, we make various grants and charitable contributions, including matching gifts under our Matching Gift Program, to entities where Governor Baliles, Mr. Casteen, Mr. Farrell, Ms. Kelly-Ennis and Mr. Muñoz and immediate family members of Governor Baliles, Mr. Farrell, Mr. Kiely and Ms. McQuade serve as non-executive directors or trustees or non-executive employees. A substantial majority of these grants and contributions were made to non-profit entities that serve the communities in which Altria and our subsidiaries operate and to nonprofit educational programs and institutions located in and around these communities. In each case, payments by us in the last three fiscal years were significantly less than the greater of $1 million or 2% of any such entity’s consolidated gross revenues. None of Governor Baliles, Mr. Casteen, Mr. Farrell, Ms. Kelly-Ennis, Mr. Kiely, Ms. McQuade or Mr. Muñoz, or their respective immediate family members, materially benefits directly or indirectly from these contributions.

The Committee has determined that the foregoing philanthropic relationships and transactions did not affect the independence of any nominee for director.

ALTRIA GROUP, INC. – Proxy Statement     21


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BOARD AND GOVERNANCE MATTERS

Director Compensation

Our philosophy is to provide competitive compensation necessary to attract and retain high-quality non-employee directors. Our Board believes that a substantial portion of director compensation should consist of equity-based compensation to assist in aligning directors’ interests with the interests of shareholders. Directors who are employees of Altria receive no additional compensation for service as a director.

The Nominating, Corporate Governance and Social Responsibility Committee periodically reviews the competitiveness of director compensation (taking into account our Compensation Survey Group (“CSG”) described on page 38), considers the appropriateness of the form, mix and amount of director compensation and makes recommendations to our Board concerning such compensation with a view toward attracting and retaining qualified directors.

The following table presents the 2017 components of compensation for our non-employee directors:

Type of Compensation       Amount
($)
Annual Cash Board Retainer (1)       110,000      
Annual Cash Retainer for Presiding Director 25,000
Annual Cash Retainer for Committee Chairs
Audit 25,000
Compensation 25,000
Finance 15,000
Innovation 15,000
Nominating, Corporate Governance and Social Responsibility 15,000
Annual Cash Committee Membership Retainer 5,000
Annual Equity Award (2) 175,000
____________________
(1)

Paid in quarterly installments.

(2)

The annual equity award is in the form of fully vested shares of Altria common stock.

A non-employee director may elect to defer all or part of the award of shares of common stock and all or part of his or her cash retainers. Pursuant to the Deferred Fee Plan for Non-Employee Directors, deferred retainers are credited to an unfunded bookkeeping account and may be “invested” in various “investment choices,” including an Altria common stock equivalent account. These “investment choices” parallel the investment options offered under the Deferred Profit-Sharing Plan for Salaried Employees and determine the “earnings” that are credited for bookkeeping purposes to a non-employee director’s account. The non-employee director will receive deferred awards of common stock and cash distributions of deferred retainers either prior to or following termination of service from our Board, as elected by the non-employee director.

In addition to cash payments and stock awards, non-employee directors are covered under our Business Travel Accident Insurance Plan, which is available generally to all employees.

Non-employee directors may also participate in our Matching Gift Program. This program is available to all employees and non-employee directors. We will match eligible donations of a minimum of $25 up to $30,000 per year per employee or non-employee director on a dollar-for-dollar basis to eligible non-profit organizations. In 2017, the following non-employee directors participated in this program: Governor Baliles, Mr. Casteen, Mr. Devitre, Mr. Jones, Ms. Kelly-Ennis, Mr. Kiely, Ms. McQuade and Mr. Muñoz. The aggregate amount of matching payments for these directors in 2017 was $154,708.

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BOARD AND GOVERNANCE MATTERS

The following table presents the compensation received by the non-employee directors for service as directors in fiscal year 2017:

Non-Employee Director Compensation Table

      Name Fees Earned
or Paid in Cash
($)
Stock Awards (3)
($)
All Other
Compensation (4)
($)
Total
($)
     
  Gerald L. Baliles             140,000                   175,053                   27,500                   342,553              
  John T. Casteen III 125,000 175,053 15,750 315,803  
  Dinyar S. Devitre 140,000 175,053 29,573 344,626  
  Thomas F. Farrell II 145,000 175,053 0 320,053  
  Thomas W. Jones (1) 41,703 0 25,000 66,703  
  Debra J. Kelly-Ennis 125,000 175,053 16,400 316,453  
  W. Leo Kiely III 150,000 175,053 7,485 332,538  
  Kathryn B. McQuade 125,000 175,053 30,000 330,053  
  George Muñoz 150,000 175,053 3,000 328,053  
  Nabil Y. Sakkab 140,000 175,053 0 315,053  
  Virginia E. Shanks (2) 78,297 175,053 0 253,350  
____________________
(1)

Mr. Jones retired from the Board effective May 17, 2017, at the completion of his term.

(2)

Ms. Shanks became a director effective May 18, 2017.

(3)

Pursuant to the Stock Compensation Plan for Non-Employee Directors, on May 18, 2017, each non-employee director received 2,481 shares of Altria common stock with an aggregate grant date fair market value of $175,053. The dollar value is slightly higher than $175,000 because the grant is made in whole shares. The fair market value of the shares of $70.5575 per share was based on the average of the high and low trading prices of Altria common stock on May 18, 2017.

(4)

All Other Compensation consists of matching gifts paid in 2017 under our Matching Gift Program to charitable entities designated by the non-employee director, as more particularly described above.

Stock Ownership Guidelines for Non-Employee Directors and Prohibition on Hedging and Pledging

Our Board believes that stock ownership guidelines further align the interests of our Board with those of our shareholders. Our non-employee directors are expected to hold shares of our common stock in an amount equal to the lesser of five times the then-current annual cash retainer or 26,000 shares. Directors are expected to reach this ownership level within five years of being elected to Board membership and to hold the requisite number of shares until retirement. The ownership requirement for non-employee directors may be satisfied with all beneficially owned shares, including deferred shares and share equivalents. As of December 31, 2017, all our directors who had served on our Board for five or more years held a sufficient number of shares to satisfy these guidelines.

Our non-employee directors are not permitted to engage in hedging and pledging activities with respect to our stock.

ALTRIA GROUP, INC. – Proxy Statement     23


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AUDIT COMMITTEE MATTERS

AUDIT COMMITTEE MATTERS

Annual Evaluation and Selection of Independent Registered Public Accounting Firm

In selecting PricewaterhouseCoopers as our independent registered public accounting firm, the Audit Committee conducted its annual evaluation of the firm. This evaluation considers various matters, such as reputation, quality of services, communications (with management and the Audit Committee), technical competence and knowledge of our industry and Altria. The Audit Committee also evaluates the firm’s independence program and quality control procedures, the results of Public Company Accounting Oversight Board (“PCAOB”) and peer reviews of the firm’s quality controls and the appropriateness of the firm’s fees.

In addition to assuring the rotation of the audit partners every five years as required by law, the Audit Committee is responsible for selecting, reviewing and evaluating the lead partner and senior members of the firm and considers whether, in order to assure continuing auditor independence, there should be a rotation of the firm. The Audit Committee also considers the advisability and potential impact of selecting a different firm. The Audit Committee and our Board believe that the continued retention of PricewaterhouseCoopers to serve as our independent registered public accounting firm is in the best interests of Altria and our shareholders.

Independent Registered Public Accounting Firm’s Fees

The Audit Committee has the sole authority to approve all engagement fees and terms associated with the retention of PricewaterhouseCoopers. As noted in the Audit Committee Report on page 25, the Committee pre-approved all fees associated with the services that the firm provided in 2017.

Aggregate fees, including out-of-pocket expenses, for professional services rendered by PricewaterhouseCoopers for fiscal years ended December 31, 2017 and 2016 were comprised of the following (in thousands):

2017
($)
2016
($)
Audit Fees (1)       6,467       6,928           
Audit-Related Fees (2) 678 665
Tax Fees (3) 232 1,397
All Other Fees (4) 0 0
TOTAL 7,377 8,990
____________________
(1)

Fees and expenses associated with professional services rendered by PricewaterhouseCoopers in connection with (a) the audit of our consolidated financial statements and internal control over financial reporting, including statutory audits of the financial statements of our subsidiaries; (b) reviews of our unaudited condensed consolidated interim financial statements; and (c) reviews of documents filed with the SEC.

(2)

Fees and expenses for professional services rendered by PricewaterhouseCoopers for audit-related services, which include certain employee benefit plan audits, accounting consultations and procedures relating to various other audit and special reports.

(3)

Fees and expenses for professional services rendered by PricewaterhouseCoopers in connection with U.S. and foreign tax compliance and planning, and consultation and advice on tax examinations.

(4)

There were no “Other Fees” in 2017 or 2016.

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AUDIT COMMITTEE MATTERS

Pre-Approval Policy

The Audit Committee’s policy is to pre-approve all audit and permissible non-audit services provided by the independent registered public accounting firm. These services may include audit services, audit-related services, tax services and other services. Pre-approval is detailed as to the particular service or category of service and is subject to a specific budget. The Audit Committee requires the independent registered public accounting firm and management to report on the actual fees charged for each category of service at Audit Committee meetings throughout the year.

During the year, circumstances may arise when it may become necessary to engage the independent registered public accounting firm for additional services not contemplated in the original pre-approval. In those instances, the Audit Committee requires specific pre-approval before engaging the independent registered public accounting firm. The Audit Committee has delegated pre-approval authority to the Chair of the Audit Committee for those instances when pre-approval is needed prior to a scheduled Audit Committee meeting. The Chair of the Audit Committee must report on such approvals at the next scheduled Audit Committee meeting.

Audit Committee Report for the Year Ended December 31, 2017

Management has the primary responsibility for Altria’s financial statements and the reporting process, including the systems of internal accounting control. The Audit Committee monitors Altria’s financial reporting processes and systems of internal accounting control, the independence and the performance of PricewaterhouseCoopers and the performance of the internal auditors.

The Audit Committee has received representations from management that Altria’s consolidated financial statements were prepared in accordance with GAAP and that Altria maintained effective internal control over financial reporting, and the Audit Committee has reviewed and discussed the consolidated financial statements with management and PricewaterhouseCoopers. The Audit Committee has discussed with PricewaterhouseCoopers their evaluation of the accounting principles, practices and judgments applied by management, and the Audit Committee has discussed with PricewaterhouseCoopers the matters required to be discussed by applicable standards adopted by the PCAOB.

The Audit Committee has received from PricewaterhouseCoopers written disclosures and a letter required by applicable requirements of the PCAOB regarding PricewaterhouseCoopers’s communications with the Audit Committee concerning independence and has discussed with PricewaterhouseCoopers its independence from Altria and its management. The Audit Committee pre-approved all fiscal year 2017 audit and permissible non-audit services provided by PricewaterhouseCoopers and the fees for those services included on page 24. As part of this process, the Audit Committee reviewed non-audit services and fees to assure compliance with regulations prohibiting the independent registered public accounting firm from performing specified services that might impair its independence.

The Audit Committee discussed with Altria’s internal auditors and PricewaterhouseCoopers the overall scope of and plans for their respective audits. The Audit Committee has met with the internal auditors and PricewaterhouseCoopers, separately and together, with and without management present, to discuss Altria’s financial reporting processes and internal control over financial reporting. The Audit Committee has reviewed significant audit findings prepared by PricewaterhouseCoopers and those prepared by the internal auditors, together with management’s responses.

Based on the reviews and discussions referred to above, the Audit Committee recommended to our Board the inclusion of the audited consolidated financial statements in Altria’s 2017 Annual Report on Form 10-K.

Audit Committee:

George Muñoz, Chair
John T. Casteen III
Debra J. Kelly-Ennis
Kathryn B. McQuade
Virginia E. Shanks

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COMPENSATION COMMITTEE MATTERS

COMPENSATION COMMITTEE MATTERS

Introduction

The Compensation Committee consists entirely of non-management directors all of whom our Board has determined are independent within the meaning of the listing standards of the NYSE. The current members of the Committee are: W. Leo Kiely III (Chair); Gerald L. Baliles; John T. Casteen III; Thomas F. Farrell II; and Kathryn B. McQuade. The Committee’s responsibilities are described below and set forth in the Compensation Committee Charter, which is available on our website at www.altria.com/governance.

Compensation Committee Interlocks and Insider Participation

During 2017, none of our executive officers served on the board of directors or compensation committee of another entity one or more of whose executive officers served as a member of our Board or the Compensation Committee. No member of the Compensation Committee at any time during 2017 or at any other time had any relationship with us that would be required to be disclosed as a related person transaction.

Compensation Committee Procedures

Scope of Authority

The responsibilities of the Compensation Committee are set forth in its Charter and include, among other duties, the responsibility to:

review and approve our overall executive compensation philosophy and design;
 
review and approve corporate goals and objectives relevant to the compensation of our CEO, evaluate the performance of our CEO in light of these goals and objectives and determine and approve the compensation of our CEO based on this evaluation;
 
review and approve the compensation of all executive officers;
 
make recommendations to our Board with respect to incentive compensation plans and equity-based plans, administer and make awards under such plans and review the cumulative effect of its actions;
 
monitor compliance by executives with our stock holding requirement and stock ownership guidelines;
 
monitor risks related to the design of our compensation program;
 
review and assist with the development of executive succession plans, evaluate and make recommendations to our Board regarding potential candidates to become CEO and evaluate and approve candidates to fill other senior executive positions;
 
review and discuss with management our Compensation Discussion and Analysis; and
 
prepare and approve the Compensation Committee’s annual report for inclusion in our annual proxy statement.

In addition, the Compensation Committee determines ratings for Altria’s performance for the annual and long-term cash incentive awards formulas.

In accordance with its Charter, the Compensation Committee may delegate its authority to subcommittees or the Chair of the Committee when it deems appropriate, unless prohibited by law, regulation or NYSE listing standards.

Processes and Procedures for Establishing Executive Compensation

The primary processes and procedures for establishing and overseeing executive compensation include:

Compensation Committee Meetings. The Compensation Committee meets several times each year, including five times in 2017. The Chair of the Committee, in consultation with management and the other members, sets meeting agendas. The Committee reports its actions and recommendations to our Board.

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COMPENSATION COMMITTEE MATTERS

Role of Consultants. As part of our annual compensation process, management engages Hewitt Associates, LLC d/b/a Aon Hewitt (“Aon Hewitt”).

Aon Hewitt conducts a survey of CSG companies. See page 38 for a description of the companies included in the CSG and the criteria and process for their selection. The survey collects compensation data and competitive practices. The Committee reviews the data to help it assess competitive levels of pay and the competitive mix of pay elements.
 
Based on parameters developed by management, Aon Hewitt provides competitive compensation information focused on chief executive officer pay primarily from public filings, including annual proxy filings, by companies within our CSG. The Committee also reviews this data.
 
Aon Hewitt provides background information on companies as reference for evaluating our CSG.

Aon Hewitt also reviews our risk assessment process with respect to its executive compensation program as described on page 38. Aon Hewitt provides neither advice nor recommendations on the form or amount of our executive or director compensation, nor does Aon Hewitt attend any Board or Committee meetings.

Role of Management.

Our management provides input on overall executive compensation program design for the Compensation Committee’s consideration.
 
Each year, our Chairman and CEO presents to the Compensation Committee compensation recommendations for our named executive officers other than himself, as well as certain other officers. The Committee reviews and discusses these recommendations with our CEO and, exercising its discretion, makes the final decision with respect to the compensation of these individuals. Our CEO has no role in setting his own compensation.
 
At the beginning of each year, our Chairman and CEO presents his proposed annual performance goals to the Compensation Committee for its consideration.

Compensation Committee Report for the Year Ended December 31, 2017

The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis contained on pages 29 through 47 of this Proxy Statement with management. Based on its review and discussions with management, the Committee recommended to our Board that the Compensation Discussion and Analysis be included in this Proxy Statement.

Compensation Committee:

W. Leo Kiely III, Chair
Gerald L. Baliles
John T. Casteen III
Thomas F. Farrell II
Kathryn B. McQuade

ALTRIA GROUP, INC. – Proxy Statement     27


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EXECUTIVE COMPENSATION – TABLE OF CONTENTS

COMPENSATION DISCUSSION AND ANALYSIS

INTRODUCTION 29
OVERVIEW 29
Compensation Philosophy 29
Say on Pay 29
Shareholder Engagement 29
Financial Performance 30
Pay For Performance 32
2017 PERFORMANCE OF NEOs 32
EXECUTIVE COMPENSATION DESIGN 34
Principles 34
Elements 35
DECISION-MAKING PROCESS 38
Risk Assessment 38
Benchmarking 38
2017 EXECUTIVE COMPENSATION PROGRAM DECISIONS 39
Salary 39
Annual Incentives 40
Long-Term Incentives 42
Long-Term Incentives: Equity Awards 42
Financial Performance Measures for 2017 PSUs 43
Long-Term Incentives: 2017 – 2019 Long-Term Incentive Plan Awards 44
Perquisites 45
Post-Termination Benefits and Change in Control Payments 45
Retirement of Executive Vice President and General Counsel 45
OTHER CONSIDERATIONS 46
Stock Ownership and Holding Requirements and Prohibition on Hedging and Pledging 46
“Clawback” Policy Regarding the Adjustment or Recovery of Compensation 46
Tax and Accounting Considerations 47
   
COMPENSATION TABLES AND OTHER MATTERS
   
Summary Compensation Table 48
All Other Compensation 49
Grants of Plan-Based Awards during 2017 50
Outstanding Equity Awards as of December 31, 2017 51
Stock Option Exercises and Stock Vested during 2017 52
Pension Benefits 52
Defined Benefit Plans 53
Non-Qualified Deferred Compensation 55
Defined Contribution Plans 56
Payments upon Change in Control or Termination of Employment 56
CEO Pay Ratio 60

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EXECUTIVE COMPENSATION

EXECUTIVE COMPENSATION

COMPENSATION DISCUSSION AND ANALYSIS

Introduction

In this section, we provide a detailed description of our executive compensation program, with a focus on the Compensation Committee’s decisions with respect to our NEOs:

           Name       Position during 2017
Martin J. Barrington Chairman of the Board, Chief Executive Officer and President, Altria Group, Inc.
William F. Gifford, Jr. Executive Vice President and Chief Financial Officer, Altria Group, Inc.
Howard A. Willard III Executive Vice President and Chief Operating Officer, Altria Group, Inc.
Craig A. Johnson President and Chief Executive Officer, Altria Group Distribution Company
Murray R. Garnick Executive Vice President and General Counsel, Altria Group, Inc.
Denise F. Keane Former Executive Vice President and General Counsel, Altria Group, Inc.

Ms. Keane retired as Executive Vice President and General Counsel effective July 1, 2017. Mr. Garnick was appointed Executive Vice President and General Counsel effective July 1, 2017.

Overview

Compensation Philosophy

Our executive compensation program aligns with our Mission and Values, including investing in people and creating substantial value. We believe this requires:

clear alignment of the interests of our executives and shareholders;
 
clear articulation of corporate and individual performance goals;
 
transparent measurement of performance against those goals; and
 
a competitive, financially disciplined executive compensation program that rewards winning results and creates the appropriate incentives to shape the future.

Say on Pay

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”) provides shareholders with an advisory vote (“say on pay”) on the compensation of a company’s named executive officers, as disclosed in the company’s annual proxy statement. We hold this vote annually. At the 2017 Annual Meeting, nearly 93% of the votes cast approved our NEO compensation on an advisory basis. While the Committee acknowledges the consistently strong shareholder support for our executive compensation program, it is also committed to regularly reviewing the program in the context of our compensation philosophy. For example, in 2017, the Committee introduced PSUs to increase the percentage of executive compensation that is performance-based.

The Dodd-Frank Act also requires that at least once every six years companies allow shareholders to vote, on an advisory basis, as to the frequency of future say on pay votes. At the 2017 Annual Meeting, nearly 89% of the votes cast were in favor of annual say on pay votes in the future. The Committee took shareholders’ feedback into consideration and intends to hold these votes annually.

Shareholder Engagement

We periodically engage with large investors to gain their perspectives on our executive compensation programs and corporate governance policies. Shareholders’ feedback has been generally positive, and no significant concerns have been raised.

ALTRIA GROUP, INC. – Proxy Statement     29


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EXECUTIVE COMPENSATION

Financial Performance

Our business performance is a key factor in determining executive compensation. We delivered strong business performance in 2017 as reflected in the “2017 Business Highlights” section beginning on page 3. The following graphs summarize our one-and three-year performance against key financial measures:

Adjusted Diluted EPS
(12/31/2014 - 12/31/2017)

____________________
(1) Compound annual growth rate (“CAGR”) based on 2014 adjusted diluted EPS of $2.57.

Dividend Rate (1)

____________________
(1)

Annualized dividend based on quarterly dividend rate per share of Altria common stock declared in August of each year.

(2)

CAGR based on the annualized dividend rate per share of Altria common stock of $2.08 that was declared in August 2014, with each August dividend similarly annualized.

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EXECUTIVE COMPENSATION

2017 TSR

____________________
Source: Bloomberg Daily Return (December 31, 2016 – December 31, 2017)
Note: Assumes reinvestment of dividends as of the ex-dividend date.

Our 2017 TSR of 9.4% follows four consecutive years of TSR exceeding 20%.

Three-Year TSR
(2015 – 2017)

____________________
Source: Bloomberg Daily Return (December 31, 2014 – December 31, 2017)
Note: Assumes reinvestment of dividends as of the ex-dividend date.

ALTRIA GROUP, INC. – Proxy Statement     31


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EXECUTIVE COMPENSATION

Pay For Performance

The following graph illustrates the relationship between Mr. Barrington’s total pay (including annualized LTIP compensation) and our indexed TSR:

CEO Pay (1) vs. Indexed TSR (2)

____________________
(1)

CEO pay is calculated using an annualized allocation of the LTIP award (based on actual payment for 2015 and 2016, and target for 2017). All other pay elements are based on the Summary Compensation Table values.

(2)

Indexed TSR reflects a December 31, 2014 starting point (with a nominal value of 100) and represents the total growth (including dividends) from that date through each December 31.

2017 Performance of NEOs

The Compensation Committee considered several factors in approving each element of 2017 compensation. For the 2017 Annual Incentive Award plan, the Committee primarily evaluated our financial and strategic performance, as described above and beginning on page 30. The Compensation Committee also considered the individual performance of each NEO, on a five-point scale, for purposes of approving salary increases, annual cash incentive award payments and equity awards. Executives receive variable elements of compensation only after the relevant performance period – whether short- or long-term – has ended and the Compensation Committee has assessed Altria’s actual performance and considered executive performance relative to stated goals.

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EXECUTIVE COMPENSATION

The Compensation Committee concluded that our NEOs’ successes in achieving their performance goals contributed significantly to our overall 2017 performance. We discuss the performance of each NEO below.

Martin J. Barrington. Mr. Barrington provided extraordinary strategic leadership to our Board, the executive team and employees in a dynamic, competitive and highly regulated environment. Mr. Barrington drove execution of our strategy to maximize the core business while innovating for future value creation; pursued long-term strategic options for new revenue and income growth; and strengthened our culture. Specifically, under Mr. Barrington’s leadership, Altria and our companies:
 
rewarded our shareholders by paying out $4.8 billion in dividends and raising our dividend by 8.2%;
 
effectively advocated for the FDA to acknowledge a continuum of risk for tobacco products and support bringing innovative products to market;
 
developed and announced an innovative products aspiration, with strategies and plans to build a leading portfolio of non-combustible nicotine-containing products with the potential for reduced harm;
 
developed effective commercialization plans to launch IQOS in the U.S., pending FDA approval;
 
successfully acquired and integrated Sherman Group Holdings, LLC and its subsidiaries (“Nat Sherman”), a privately held manufacturer of super-premium cigarettes and premium cigars; and
 
drove culture and system changes to improve organizational capability and employee engagement, including a new leadership development framework and continuing efforts to simplify business processes and build diverse and inclusive organizations.
 
William F. Gifford, Jr. Mr. Gifford’s responsibilities included oversight of Finance, Strategy and Business Development, Procurement and Investor Relations functions and Philip Morris Capital Corporation. He effectively managed the balance sheet; helped deliver adjusted diluted EPS growth of 11.9%; and grew adjusted discretionary cash flow (1) by 9.7%. Mr. Gifford also oversaw the strategic acquisition of products and technologies to better compete in key innovative product segments. Under his leadership, we completed an expanded $4 billion share repurchase program. Mr. Gifford also served as an Altria representative on the Board of Directors of Anheuser-Busch InBev SA/NV (“AB InBev”).
 
Howard A. Willard III. Mr. Willard oversaw PM USA, John Middleton Co. (“Middleton”), Nat Sherman, USSTC, Nu Mark, Ste. Michelle and Altria Group Distribution Company (“AGDC”), along with the Consumer Insights & Engagement function of Altria Client Services LLC. Under his leadership, the smokeable products segment delivered strong adjusted OCI growth of 7.0% versus the prior year. The smokeless products segment delivered solid performance, grew adjusted OCI by 11.2% versus the prior year and grew retail share of Copenhagen by 0.5 share points. Nu Mark grew MarkTen’s national retail share 3.6 share points to 12.5% in mainstream retail channels of the e-vapor category, while exceeding its OCI target.
 
Craig A. Johnson. Mr. Johnson’s responsibilities included providing sales, distribution and consumer engagement services to our tobacco operating companies. Under his leadership, AGDC:
 
drove engagement with adult tobacco consumers through enhanced digital marketing platforms;
 
successfully supported the smokeless product recall by restocking retail shelves in short order;
 
enhanced retail visibility and trade programs to defend Marlboro’s share position through display resets and prioritizing display space; and
 
successfully supported the expansion of MarkTen nationally.



____________________
(1)

Adjusted discretionary cash flow is a non-GAAP financial measure. See Annex A to this Proxy Statement for information regarding non-GAAP financial measures and reconciliations of such non-GAAP financial measures to the most directly comparable GAAP financial measures.

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EXECUTIVE COMPENSATION

Murray R. Garnick. Mr. Garnick’s responsibilities included managing diverse litigation challenges, efficiently deploying the resources of the Law department to help Altria and its subsidiaries meet regulatory and business requirements, and managing Regulatory Affairs to support numerous filings and applications with the FDA and to lead our regulatory engagement strategy. Mr. Garnick also effectively managed numerous litigation threats in 2017, including the successful resolution of pending “Lights” cases and proactive management of Engle-progeny cases. Mr. Garnick also successfully managed matters, including litigation, related to the 1998 Master Settlement Agreement and previously-settled state agreements.

After 40 years of exceptional service, Ms. Keane retired effective July 1, 2017. Ms. Keane’s 2017 compensation is reported in the Summary Compensation Table. For information on the compensation that Ms. Keane received or realized specifically in connection with her retirement, see “Retirement of Executive Vice President and General Counsel” on page 45.

In addition to assessing Altria’s and individual performance against stated goals to determine incentive compensation, the Compensation Committee looks at industry compensation market data and tally sheets for each of the NEOs that include their total cash and long-term compensation for the last three years.

Executive Compensation Design

Principles

We strategically design our executive compensation program to promote our Mission, which is to own and develop financially disciplined businesses that are leaders in responsibly providing adult tobacco and wine consumers with superior branded products. In pursuing our Mission, we remain focused on four goals: Invest in People, Drive Positive Change, Deliver Superior Products and Brands and Create Substantial Value.

Our Values guide our behavior as we pursue our Mission and our goals. Our Values are Integrity, Trust and Respect; Passion to Succeed; Executing with Quality; Driving Creativity into Everything We Do; and Sharing with Others.

Our executive compensation program includes multiple performance metrics to assess the efforts of all executives in pursuing our Mission and Values. Specifically, our program is designed to satisfy the following objectives:

promote pursuit of business strategies that create substantial growth and long-term value for shareholders and are executed with integrity;
 
reward quality execution by making a significant portion of our executives’ compensation dependent on the achievement by Altria of key financial and strategic goals and their individual performance;
 
align the interests of shareholders and executives through equity and cash performance-based long-term incentive awards, stock ownership and retention guidelines and anti-hedging and anti-pledging policies with respect to our stock;
 
grow our leadership advantage through our people and culture; and
 
promote internal fairness and a disciplined qualitative and quantitative assessment of performance.

The elements of our executive compensation program serve these objectives with the following design principles (as shown in the chart below):

a mix of fixed and at-risk variable performance-based compensation, with executives at higher levels having a higher proportion of variable compensation;
 
a mix of short- and long-term compensation to appropriately reward and motivate the achievement of both annual and long-term goals and objectives; and
 
a mix of cash and equity compensation that seeks to discourage actions solely driven by our stock price to the detriment of strategic goals and to minimize the potentially dilutive nature of equity compensation on shareholder value.

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EXECUTIVE COMPENSATION

2017 CEO and Other NEOs Pay Mix (1)

____________________
(1)

Includes 2017 actual salary, actual award under the 2017 Annual Incentive Award plan, grant date fair value of long-term equity awards and annualized target cash award under the 2017 – 2019 LTIP. Excludes Ms. Keane due to her retirement and resulting partial-year pay.

Elements

The table below provides a brief side-by-side comparison of the elements of our 2017 executive compensation program.

Long-Term Incentive Awards
   Salary       Annual Incentive       Equity       Cash
 
Form of
Compensation 
Cash Cash RSUs / PSUs Cash
 

Performance
Period

Ongoing

Annual

 

Annual with rolling three-year vesting periods

Three years; end-to-end cycles

 

Award
Criteria

Individual performance

Company and individual performance

Individual performance and advancement potential with additional payment criteria for PSUs based on company performance

Company and individual performance

 

Company
Performance
Alignment

Adjusted diluted EPS growth
Adjusted discretionary cash flow
Strategic initiatives
Stock price appreciation for RSUs
Company performance (50% relative TSR / 50% adjusted diluted EPS growth) and stock price appreciation for PSUs
Adjusted diluted EPS growth
Relative TSR
Strategic initiatives

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EXECUTIVE COMPENSATION

The table below summarizes the elements and objectives of the 2017 executive compensation program for the NEOs. In addition, the general objective of each element is to attract and retain world-class leaders.

2017 Executive Compensation Program

   Element      Summary Description      Objective
 

Annual
Compensation

Salary

Fixed cash compensation based on role at Altria.

Provide financial stability
Recognize individual role, experience, responsibility and performance
 

Annual Incentive Awards

Cash-based incentive plan based on prior year’s performance.

Recognize annual financial and strategic performance after it is delivered
Recognize annual individual performance after it is delivered
 

 

Long-Term Incentive
Compensation

Equity Awards

RSU and PSU awards based on prior year’s individual performance and advancement potential, vesting after a three-year period. PSU payout amount tied to company performance measures.

Align NEOs’ interests with shareholders through company performance and stock ownership
Recognize individual performance after it is delivered and advancement potential
Build stock ownership
Retain talented leaders
 

Long-Term Incentive Plan

Cash-based incentive plan based on three-year financial and strategic goals.

Align NEOs’ interests with shareholders
Recognize long-term financial and strategic performance after it is delivered
Retain talented leaders 
 

Post-Termination
Benefits and Change
in Control Payments

Defined Benefit Plans

Retirement plans providing for the continuation of a portion of compensation upon retirement or separation from service. Generally, employees hired prior to January 1, 2008 are eligible.

Provide opportunity for financial security in retirement
 

Defined Contribution Plans

Annual cash contribution based on a formula related to adjusted diluted EPS growth and, for employees not participating in a defined benefit plan, a supplemental contribution and matching contributions. Includes an Altria stock investment option.

Provide opportunity for financial security in retirement
Provide additional opportunity to build stock ownership

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EXECUTIVE COMPENSATION

   Element      Summary Description      Objective
 

Post-Termination
Benefits and Change
in Control Payments

Change in Control Payments

Payments to executives in connection with a defined change in the ownership of Altria. Change in control provisions are contained in the 2010 and 2015 Performance Incentive Plans.

Allow NEOs to focus on delivering shareholder value in a period of uncertainty
Allow NEOs to receive awards granted for periods of performance before a change in control
 

Termination Payments

For certain types of involuntary separations, potential for severance benefits (including continuation of salary and health insurance based on years of service). Our NEOs are eligible for the same severance benefits as our other salaried employees.

Provide opportunity for protection upon an unexpected event
 

 

Perquisites

 

For the Chairman, CEO and President for safety and security purposes, home security system and, subject to an annual allowance, personal use of our aircraft. For all NEOs, Altria-paid executive physical and leased vehicle (neither is accepted by the Chairman, CEO and President).

Provide security
Provide comprehensive annual preventive health screening
 

Other Benefits

 

Medical coverage, group life insurance and other welfare benefits generally available to all salaried employees.

Promote health and financial security

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EXECUTIVE COMPENSATION

Decision-Making Process

Risk Assessment

A cross-functional team of executives in the Human Resources & Compliance, Law, Corporate Audit and Finance departments annually reviews our compensation program (executive and non-executive) to identify features that could encourage excessive risk-taking by program participants and to assess the potential of such risks to have a material adverse effect on Altria. Management requested that the external compensation consultant, Aon Hewitt, review this risk assessment process, specifically, the features identified as potentially encouraging excessive risk-taking, features that mitigate risk and management’s assessment of those features, to confirm consistency with prevailing best practices.

After reviewing management’s assessment, the Compensation Committee believes that neither the compensation program’s design nor the individual elements of executive compensation encourage employees, including our NEOs, to take unnecessary or excessive risks. The executive compensation program also incorporates risk-mitigating features such as those shown in the chart on the right, which the Compensation Committee considered as part of its assessment. We believe that any risks arising from our compensation policies and practices are not likely to have a material adverse effect on Altria.

Benchmarking

Compensation Strategy

RISK-MITIGATING FEATURES

 
Appropriate compensation mix of fixed versus at-risk variable pay, annual versus long-term pay, cash versus equity and performance-based versus non-performance-based pay
 
Multiple objective performance factors used for annual and long-term cash incentive awards, coupled with the Compensation Committee’s discretion to approve awards at lower than target
 
Caps on annual and long-term incentive plan formulas
 
Peer company benchmarking
 
Significant stock ownership, holding requirements and anti-hedging/anti-pledging policies
 
A “clawback” policy providing for the adjustment or recovery of executive compensation upon the restatement of our financial statements
 
Individual performance assessments that emphasize behavior consistent with our Mission and Values
   

We design our executive compensation program to deliver total compensation (salary, annual and long-term cash awards, equity awards and benefits) upon attainment of performance targets at levels between the 50th and the 75th percentiles of compensation paid to executives in the CSG, discussed below. We believe that this approach is important to giving us our leadership advantage and attracting and retaining world-class leaders to pursue our Mission, particularly given the unique challenges of our industry. Actual total compensation can exceed the 75th percentile or be below the 50th percentile depending on business and individual performance in relation to performance targets.

Compensation Survey Group

We annually compare our executive compensation program with the programs of the companies in the CSG. The purpose of this annual review is to assure that our executive compensation program supports our ability to attract and retain executive talent. When determining the companies to include in the CSG, the Compensation Committee identifies companies that compete with us for talent and:

are direct competitors;
 
have similar market capitalization;
 
are primarily focused on consumer products; or
 
have businesses generally focused within the United States.

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EXECUTIVE COMPENSATION

Based on these criteria, the Compensation Committee included the following companies in the 2017 CSG and used this list for compensation-related decisions during 2017. The list is sorted by market capitalization as of December 31, 2017.

Compensation Survey Group Companies       Market
Capitalization (1)
($B)
         
The Coca-Cola Company 195
PepsiCo, Inc. 171
Philip Morris International Inc. 164
Merck & Co., Inc. 153
3M Company 140
McDonald’s Corporation 137
Altria 136
Bristol-Myers Squibb Company 100
The Kraft Heinz Company 95
Median 93
Eli Lilly and Company 93
Colgate-Palmolive Company 66
Mondelēz International, Inc. 64
Kimberly-Clark Corporation 42
General Mills, Inc. 34
The Hershey Company 24
Kellogg Company 23
Conagra Brands, Inc. 15
Campbell Soup Company 14
Reynolds American Inc. N/A
____________________
(1)

Market capitalization is calculated using shares outstanding as of the most recent public disclosure as of January 2, 2018 per Bloomberg multiplied by the closing stock price as of December 29, 2017.

Reynolds American Inc. was acquired in July 2017 and ceased trading as a public company. As a result, the Compensation Committee made the following changes to the CSG for compensation-related decisions in 2018:

removed Reynolds American Inc. and
 
added Molson Coors Brewing Company and Dr Pepper Snapple Group, Inc., which both meet the criteria discussed above.

2017 Executive Compensation Program Decisions

Salary

The Compensation Committee considers a number of factors when reviewing and setting salaries for our NEOs, including each executive’s individual performance, level of responsibility, experience, the relationship between salaries paid to other Altria executives and the position of the executive’s salary within the applicable salary range. Additionally, as appropriate, the Compensation Committee compares the salaries of our NEOs to others holding comparable positions at CSG companies. The Compensation Committee analyzes all these factors in the aggregate in determining NEO salaries.

Salaries are relevant in establishing annual and long-term incentive target awards and factor into retirement, group life insurance and certain other benefits available to all salaried employees. The Compensation Committee reviews salaries on an annual basis and any adjustments generally are effective March 1.

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EXECUTIVE COMPENSATION

The 2017 salary ranges for our NEOs were as follows:

2017 Salary Range
Band       Minimum
($)
      Maximum
($)
     
A (Mr. Barrington) 910,000 2,090,000
B (Other NEOs) 480,000 1,100,000

The Compensation Committee increased the salaries of our NEOs based on the criteria noted above as follows, effective March 1, 2017:

2017 Salary Changes

Name       2016
Salary
($)
      2017
Salary
($)
     
Martin J. Barrington 1,420,000 1,480,000
William F. Gifford, Jr. 647,000 670,000
Howard A. Willard III 840,000 874,000
Craig A. Johnson 907,000 934,000
Murray R. Garnick 733,600 800,000
Denise F. Keane 943,000 981,000

Annual Incentives

The Annual Incentive Award plan is a cash-based, pay-for-performance plan for management employees, including our NEOs. Participants have an annual award target based on salary band and expressed as a percentage of salary. Our benchmarking process establishes award targets, which are paid only after both business and individual results are assessed against targeted levels of performance. While the Compensation Committee reviews and approves the targets annually, no individual is guaranteed an award.

Each December, the Compensation Committee reviews the financial and strategic performance of Altria as well as the performance of each of our tobacco and wine businesses for that year. The Compensation Committee uses (1) adjusted diluted EPS growth and (2) adjusted discretionary cash flow as the key financial measures in determining awards under our Annual Incentive Award plan because these measures link to our long-term financial goals to:

grow adjusted diluted EPS at an average annual rate of 7% to 9%; and
 
maintain a target dividend payout ratio of approximately 80% of adjusted diluted EPS.

The Compensation Committee believes that the combination of these financial measures provides the best alignment between Altria’s business strategy and our shareholders’ interests: our executives are rewarded when our shareholders are rewarded.

In determining Altria’s financial performance for 2017, the Compensation Committee considered the following:

Key Financial Measures
(millions, except per share data)

      Target Range      

2017
Results

      Rating
(from 0% - 130%)
      Weighting       Weighted
Result
Adjusted Diluted EPS Growth $3.26 - $3.32 $ 3.39       100 % (1)          75 %       75 %   
                         (Rating Range) (80% - 120%)
Adjusted Discretionary Cash Flow $5,299 - $6,477 $ 6,201 109 % 25 % 27 %
                         (Rating Range) (80% - 120%)
Rating for Financial Measures 102 %
____________________
(1)

Adjusted diluted EPS was $3.39, above the target range. The Compensation Committee did not include $0.10 of adjusted diluted EPS, which was the result of a one-time impact from U.S. federal income tax reform.

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EXECUTIVE COMPENSATION

In addition to financial measures, the Compensation Committee evaluates our performance and the performance of each of our tobacco and wine businesses against key strategic initiatives that are designed to promote our long-term success, as well as any significant events during the year. The key strategic initiatives in 2017 included:

brand-building initiatives; 
 

enhancing adult tobacco consumer engagement through digital marketing technologies and consumer insights; 
 

advancing our innovation and harm reduction strategies through an innovative product portfolio and regulatory engagement;
 

enhancing our information technology;
 

productivity and business simplification initiatives; and
 

developing organizational talent, enhancing our leadership system and enhancing our culture to improve diversity and inclusion.

Based on its overall review of financial measures and strategic initiatives, the Compensation Committee assigns an Annual Incentive Award business performance rating for us and each of our business segments. Performance at planned levels receives a rating of 100%. Depending on performance, Annual Incentive Award ratings for business performance can range from 0% to 130%. Performance against the financial measures reflected above resulted in a rating of 102% for 2017. After considering performance against the 2017 strategic measures described above, the Committee assigned an overall Annual Incentive Award business performance rating of 110%. The Committee used this rating, together with individual performance (see “2017 Performance of NEOs” on page 32), in determining the 2017 awards below. The following formula is the basis for determining awards under the 2017 Annual Incentive Award plan.

Salary X Target
(% of salary)
X Business
Performance
Rating
X Individual
Performance
Factor
= Annual
Incentive
Award

2017 Annual Incentive Award Target Percentages, Award Ranges and Actual Awards

Band

Salary
($)

Target
(% of
salary)

2017
Business
Performance
Rating
(0 - 130%)

Individual
Performance
Factor Range
(1)
(% of target)

Award Range
for 2017
Performance
($)

Actual
Award
for 2017
Performance
($)

Name Minimum Maximum
Martin J. Barrington       A       1,480,000       150       110       85       175       2,075,700  -  4,273,500       3,700,000
William F. Gifford, Jr. B 670,000 95 110 85 155 595,128 - 1,085,232 910,000
Howard A. Willard III B 874,000 95 110 85 155 776,331 - 1,415,661 1,165,000
Craig A. Johnson B 934,000 95 110 85 155 829,626 - 1,512,846 1,142,000
Murray R. Garnick (2) B 800,000 95 110 85 155 710,600 - 1,295,800 910,000
Denise F. Keane (3) B 981,000 95 - 462,100
____________________
(1)

The individual performance ranges are stated as a percentage of target and are based on individual performance between the third and fifth level on a five-point scale.

(2)

Mr. Garnick’s actual award was determined by adjusting his target award for the portion of 2017 before July 1 when he was at a salary band C level.

(3)

Ms. Keane received a prorated award (181 of 365 days) based on target business and individual performance in accordance with the terms of the plan. See “Retirement of Executive Vice President and General Counsel” on page 45 for more information.

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EXECUTIVE COMPENSATION

Long-Term Incentives

We have historically awarded long-term incentives to executive officers through a combination of equity awards and performance-based long-term cash incentive awards. Beginning with equity awards granted in 2017, executives received a mix of 60% RSUs and 40% PSUs. The addition of PSUs, combined with our existing cash LTIP, increased the portion of executives’ long-term incentives that is tied to business performance to over 60%.

Target Long-Term Incentive Mix

Long-Term Incentives: Equity Awards

Equity awards focus executives on increasing long-term shareholder value, enhance executive retention and promote executive stock ownership. Awards recognize prior year performance and advancement potential. The awards generally vest three years after the date of the award, subject to earlier vesting on death, disability or retirement on or after age 65 or in connection with a change in control. This vesting period is intended to retain and motivate executives, while promoting long-term performance. PSUs only pay out if specific company performance measures are met. The number of PSUs granted to an executive represents a target number of shares; the actual share payout can range from 0% to 130% of the target based on company performance against specified measures. For RSUs, recipients receive cash dividend equivalents during the vesting period, but for PSUs, dividends are accrued and paid out at the end of the performance period based on the final number of PSUs that vest.

The Compensation Committee annually reviews equity award targets against competitive data. In 2017, following its annual review, the Committee decided to re-balance the long-term incentive mix between equity awards and the cash awards under the 2017 – 2019 LTIP. This resulted in an increase to equity target awards and a corresponding decrease to target awards under the 2017 – 2019 LTIP.

2017 EQUITY AWARD HIGHLIGHTS

60% RSUs / 40% PSUs 
 

Vesting period of three years
 

RSUs: Cash dividend equivalent payments
PSUs: Dividend equivalents accrue until end of performance period
 

NEO awards based on:
 

Executive’s individual performance in year prior to the grant;
 

Executive’s advancement potential;
 

Company performance for PSUs;
 

Compensation Committee discretion; and
 

Competitive benchmarking
 

Number of RSUs and PSUs awarded is based on fair market value of our stock on the date of the grant


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EXECUTIVE COMPENSATION

The targets and equity awards for our NEOs were as follows:

2017 Equity Awards

Name Band Equity
Target
($)
Equity
Award Range (1)
($)
Actual
Equity
Award (1) (2)
($)
Martin J. Barrington       A       5,400,000       Not applicable       6,500,104
William F. Gifford, Jr. B 1,750,000 1,050,000 - 2,625,000 2,250,078
Howard A. Willard III B 1,750,000 1,050,000 - 2,625,000 2,250,078
Craig A. Johnson B 1,750,000 1,050,000 - 2,625,000 1,750,037
Murray R. Garnick B 1,750,000 1,050,000 - 2,625,000 1,237,603
Denise F. Keane B 1,750,000 1,050,000 - 2,625,000 2,250,078
____________________
(1)

Ranges and actual awards are a function of individual performance and, for our NEOs other than Mr. Barrington, advancement potential. Because advancement potential is not a consideration for Mr. Barrington, we do not reflect an equity award range for him. No executive is guaranteed an award and all awards are capped under the 2015 Performance Incentive Plan.

(2)

The amount shown is the aggregate grant date fair value of stock awards determined pursuant to Financial Accounting Standards Board (“FASB”) Codification Topic 718. The number of RSUs and PSUs awarded in 2017, together with the grant date values of the RSUs and the PSUs awarded, is disclosed in the Grants of Plan-Based Awards during 2017 table on page 50. The assumptions we used in calculating the grant date fair values of the RSUs and the PSUs awarded in 2017 are described in Note 2 under “Stock-Based Compensation” to our consolidated financial statements in the 2017 Annual Report on Form 10-K.

The Compensation Committee makes equity awards to our Chairman, CEO and President (salary band A) based on its assessment of our performance and competitive data and its review of our Chairman, CEO and President’s individual performance. The Compensation Committee reviews various equity award scenarios, including advancement potential and past awards of those companies within the CSG, to establish an appropriate range of awards for our NEOs other than our Chairman, CEO and President. The awards are granted on the date of Compensation Committee approval, and no individual is guaranteed an award.

Financial Performance Measures for 2017 PSUs

The Compensation Committee designated (1) adjusted diluted EPS growth and (2) relative TSR (vs. the companies that comprise the S&P 500 Food, Beverage & Tobacco Index as of January 1, 2017 and remain in the index as of December 31, 2019) as the performance measures for the PSUs granted in 2017 because these measures link to our long-term financial goals of:

growing adjusted diluted EPS at an average annual rate of 7% to 9% over the long term; and
 

maintaining a target dividend payout ratio of approximately 80% of our adjusted diluted EPS.

These measures are intended to focus executives on achieving results that contribute to creating long-term shareholder value. The score for each financial measure determines the number of shares payable under the PSUs and may not exceed 130% of target. The Compensation Committee believes that the combination of these measures provides the best alignment between Altria’s business strategy and our shareholders’ interests: our executives are rewarded when our shareholders are rewarded.

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EXECUTIVE COMPENSATION

Long-Term Incentives: 2017 – 2019 Long-Term Incentive Plan Awards

The LTIP is a long-term cash performance plan that uses a three-year, end-to-end performance cycle, an approach consistent with our long-term strategic planning process. At the beginning of each three-year cycle, the Compensation Committee approves long-term financial and strategic performance goals that can only be measured effectively after completion of the cycle. Awards are payable in cash after the end of each three-year cycle, based on an assessment of actual performance during the entire award cycle. Each executive has an award target based on their salary band, expressed as a percentage of each year-end salary over the three-year cycle. The Compensation Committee retains the discretion to adjust awards upward or downward, and no individual is guaranteed an award.

LTIP HIGHLIGHTS
 

Three-year, end-to-end performance cycle
 

Awards based on our performance against long-term financial and strategic goals and individual performance
 

Because no LTIP cycle concluded in 2017 (the current cycle concludes in 2019), total compensation for 2017 shown in the Summary Compensation Table significantly decreased from 2016


Although the Compensation Committee takes our executives’ earnings opportunity under the LTIP into account when setting their compensation each year, those opportunities remain at risk until the end of the three-year performance cycle.

The Compensation Committee periodically considers alternative LTIP design approaches, such as overlapping three-year cycles (with a new three-year cycle beginning each year), resulting in annual payouts versus payouts every three years. Although such an approach would result in less fluctuation in the annual compensation of executives, the Compensation Committee believes that reducing fluctuations is outweighed by the clarity of long-term performance incentives and the retention value of end-to-end performance cycles.

The 2017 – 2019 LTIP performance cycle will conclude on December 31, 2019. This performance cycle will reward achievement of key financial and strategic performance measures (each weighted 50%) intended to create substantial value for shareholders. The financial measures for 2017 - 2019, which have a combined weighting of 50%, are:

Relative 2017 – 2019 TSR versus the S&P 500 Food, Beverage & Tobacco Index
(defined as companies that comprise the S&P 500 Food, Beverage & Tobacco Index as of January 1, 2017 and remain in the index as of December 31, 2019)

Three-Year Adjusted Diluted EPS CAGR

Specific details regarding the strategic performance initiatives were defined for executives, but are not disclosed publicly before the end of the cycle due to their competitively sensitive nature. We will disclose relevant performance metrics for the 2017 – 2019 LTIP performance cycle, as appropriate, after the compensation decisions for the then-current NEOs have been made.

Following the conclusion of the 2017 – 2019 LTIP performance cycle, the Compensation Committee will assess our performance on each of the financial and strategic measures to determine the final LTIP rating, which can range from 0% to 130%. The Compensation Committee, with respect to the CEO, and the CEO, with respect to the other NEOs, will also assess the individual performance of each executive to determine the executive’s individual performance rating, which can range from 0% - 150%. The final LTIP award is then determined based on the following formula:

Year-end
Salaries for
Each Plan Year
X Award Target
(prorated for
time in
salary band)
X Business
Performance
Rating
X Individual
Performance
Factor
= Three-Year
LTIP Award

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EXECUTIVE COMPENSATION

The award target percentages and performance factor ranges for executives in salary band A and B for the 2017 – 2019 LTIP performance cycle are:

Band       Individual
Award
Target (1)
(%)
      Business
Performance
Factor
(%)
      Individual
Performance
Factor
(%)
A 250 0 - 130 0 - 150
B 140 0 - 130 0 - 150
____________________
(1)

Individual award target percentages are applied to each year-end base salary over the three-year performance cycle.

Perquisites

The Compensation Committee believes that a competitive executive compensation package includes reasonable perquisites that supplement our retention efforts. The perquisites we provided to our NEOs in 2017 are set forth in the All Other Compensation table on page 49. In addition to these perquisites, our NEOs received the same benefits that were available to our salaried employees generally. Mr. Barrington is required to use our aircraft for all air travel for purposes of security. Under a time-sharing agreement with Altria, Mr. Barrington agreed to reimburse us for annual personal aircraft usage in excess of $250,000. The Compensation Committee considers the potential value of personal aircraft usage in determining the other components of Mr. Barrington’s total compensation. Mr. Barrington did not accept as a perquisite the company-paid automobile and executive physical in 2017.

Post-Termination Benefits and Change in Control Payments

We provide post-termination benefits to our NEOs, including retirement benefits and termination payments if applicable, as well as payments in connection with a change in control.

Retirement Benefits. Our NEOs participate in certain qualified and non-qualified retirement plans, which we believe promote executive retention and provide the opportunity for financial security in retirement. These retirement benefits are discussed in more detail in the narrative following the Pension Benefits table (pages 53 to 54) and the Non-Qualified Deferred Compensation table (page 56).
 

Change in Control Payments. Our 2015 Performance Incentive Plan (“2015 PIP”) includes a double-trigger provision for vesting or payment of annual incentive awards, equity awards and long-term incentive cash awards, provided that the successor entity continues or assumes the plans and awards or replaces them with substantially similar awards. In contrast, our 2010 Performance Incentive Plan (“2010 PIP”), under which the 2015 stock awards remained unvested at the end of 2017, provides for the vesting and payment of certain elements of compensation immediately upon a change in control. The details of these provisions are discussed in the “Payments upon Change in Control or Termination of Employment” section (pages 56 to 60).
 

Termination Payments. The Severance Pay Plan for Salaried Employees, which is generally applicable to all salaried employees, provides an opportunity for financial protection against the unexpected event of an involuntary termination of employment. The details of this plan are discussed in the “Payments upon Change in Control or Termination of Employment” section (pages 56 to 60).

Retirement of Executive Vice President and General Counsel

After over 40 years of exceptional service, Ms. Keane retired as Executive Vice President and General Counsel effective July 1, 2017. In connection with her retirement, the Compensation Committee approved a prorated cash award under the 2017 Annual Incentive Award plan at target business and individual performance in accordance with the terms of the plan:

Payment       Award
Target
(%)
      Proration       Award
Amount
($)
      Date Paid
2017 Annual Incentive Award plan 95 181 of 365 days 462,100 Feb. 2018

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EXECUTIVE COMPENSATION

In accordance with the terms of the 2010 PIP and the 2015 PIP and the related award agreements, her previously awarded outstanding equity grants vested due to her retirement at age 65:

Grant       Shares
(#)
      Value Realized
on Vesting
($) (1)
1/28/2015 RSUs 28,948 2,155,758
1/26/2016 RSUs 27,563 2,052,617
1/28/2017 RSUs 18,170 1,353,120
1/28/2017 PSUs 12,236 911,215
____________________
(1)

Based on $74.47, the closing price of Altria common stock on June 30, 2017. PSU vesting was based on the target number of shares and also included a $32,113 cash payment of dividend equivalents. Delivery of the shares and cash payment were delayed for six months following Ms. Keane’s retirement under Internal Revenue Code Section 409A.

Ms. Keane is also entitled to payments and benefits under the normal terms and conditions of our benefit plans.

Other Considerations

Stock Ownership and Holding Requirements and Prohibition on Hedging and Pledging

The Compensation Committee has established stock ownership requirements under which executives are expected to hold our common stock until their termination of employment in an amount equal to a multiple of salary, as determined by their salary band. If the stock price declines, an executive may satisfy the requirement by holding a fixed number of shares based on the stock price at the beginning of the executive’s acquisition period. The Compensation Committee set the requirements as 12 times base salary for salary band A (CEO) and six times base salary for salary band B (other NEOs). In addition, we have a stock holding requirement that prohibits executive officers from selling shares received as compensation until they meet their stock ownership requirement.

Stock ownership includes shares held as RSUs and PSUs (at target amount). We expect executives to meet their ownership requirement within five years of becoming subject to the requirement (or three years from a subsequent promotion date and resulting increase in the ownership requirement). As of December 31, 2017, all our NEOs exceeded their stock ownership requirements.

We have policies prohibiting our NEOs from engaging in hedging and pledging activities with respect to our shares.

“Clawback” Policy Regarding the Adjustment or Recovery of Compensation

We have a “clawback” policy providing for the adjustment or recovery of compensation in certain circumstances. If our Board or an appropriate committee of our Board determines that, as a result of a restatement of our financial statements, an executive received more compensation than would have been paid absent the incorrect financial statements, our Board or its committee, in its discretion, will take such action as it deems necessary or appropriate to address the events that gave rise to the restatement and to prevent its recurrence. Such action may include, to the extent permitted by applicable law, in appropriate cases, requiring partial or full reimbursement of any bonus or other incentive compensation paid to the executive, causing the partial or full cancellation of RSUs or PSUs, adjusting the future compensation of such executive and dismissing or taking legal action against the executive, in each case as our Board or its committee determines to be in the best interests of Altria and our shareholders. Our RSU and PSU award agreements also include “clawback” provisions.

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EXECUTIVE COMPENSATION

Tax and Accounting Considerations

In addition to our executive compensation objectives and design principles, we consider tax and accounting treatment when designing and administering our compensation programs. One such consideration is Internal Revenue Code Section 162(m), which limits our ability to deduct compensation paid to each covered officer for tax purposes to $1.0 million annually. Section 162(m) was amended and expanded under the federal tax bill enacted at the end of 2017.

For payments made in 2017, covered officers include the principal executive officer and our next three highest paid executive officers, other than our principal financial officer. For 2017, the Section 162(m) limitation did not apply to performance-based compensation, provided we satisfied certain conditions. We have taken appropriate actions, to the extent feasible, to preserve the deductibility of annual and long-term cash incentive awards paid and equity awards granted in 2017.

For 2018 and subsequent years, covered officers include the principal executive officer, principal financial officer and next three highest paid named executive officers. Compensation paid in 2018 and later years will generally be subject to the deduction limits of Section 162(m), without an exception for performance-based compensation. This includes annual and long-term incentive awards paid and equity awards granted in 2018 and later years.

Although the Compensation Committee considers tax deductibility in making its compensation program decisions, the Compensation Committee’s primary consideration is whether the compensation programs promote our Mission and align the interests of executives with those of our shareholders.

ALTRIA GROUP, INC. – Proxy Statement     47


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EXECUTIVE COMPENSATION

Compensation Tables and Other Matters

Summary Compensation Table

The following table provides the compensation information of our NEOs for 2017, 2016 and 2015.

Non-Equity Incentive Plans
Name and Principal Position    Year    Salary
($)
   Stock Awards
Grant Value (1)
($)
Annual
Incentive
Plan
($)
Long-Term
Incentive
Plan (2)

($)
   Change in
Pension
Value (3)

($)
   All Other
Compensation (4)

($)
   Total
($)
Martin J. Barrington,
Chairman, Chief Executive Officer and
President, Altria Group, Inc.
2017 1,470,000       6,500,104            3,700,000            3,705,592              327,481           15,703,177  
2016 1,408,333 6,500,010 3,900,000 12,060,000 3,363,075 342,148 27,573,566
2015 1,333,333 5,600,071 3,500,000 2,606,735 256,229 13,296,368
William F. Gifford, Jr.,
Executive Vice President and Chief
Financial Officer, Altria Group, Inc.
2017 666,167 2,250,078 910,000 1,379,892 87,482 5,293,619
2016 640,833 1,700,038 950,000 3,700,600 879,815 96,713 7,967,999
2015 594,167 2,650,282 900,000 650,130 76,596 4,871,175
Howard A. Willard III,
Executive Vice President and Chief
Operating Officer, Altria Group, Inc.
2017 868,333 2,250,078 1,165,000 1,746,506 99,599 6,129,516
2016 833,333 1,700,038 1,300,000 5,572,800 1,400,173 120,080 10,926,424
2015 780,333 3,150,551 1,200,000 998,455 106,113 6,235,452
Craig A. Johnson,
President and Chief Executive Officer,
Altria Group Distribution Company
2017 929,500 1,750,037 1,142,000 1,128,270 119,483 5,069,290
2016 901,667 1,275,058 1,219,000 6,331,200 348,405 132,544 10,207,874
2015 871,833 1,275,496 1,100,000 660,369 111,585 4,019,283
Murray R. Garnick,
Executive Vice President and General
Counsel, Altria Group, Inc.
2017 774,133 1,237,603 910,000 259,228 3,180,964
Denise F. Keane,
Former Executive Vice President and
General Counsel, Altria Group, Inc.
2017 616,225 2,250,078 462,100 745,010 78,777 4,152,190
2016 938,500 1,700,038 1,450,000 6,612,000 755,050 139,165 11,594,753
2015 912,667 1,650,289 1,350,000 390,030 125,311 4,428,297
____________________
(1)

The amount shown is the aggregate grant date fair value of stock awards determined pursuant to FASB Codification Topic 718. The number of RSUs and PSUs awarded in 2017, together with their grant date values, is disclosed in the Grants of Plan-Based Awards during 2017 table on page 50. The assumptions we used in calculating the grant date fair values of the RSUs and the PSUs awarded in 2017 are described in Note 2 under “Stock-Based Compensation” to our consolidated financial statements in the 2017 Annual Report on Form 10-K. The table below provides the grant date fair value of the PSUs awarded in January 2017 for each of our NEOs assuming the maximum performance level is achieved.

Martin J.
Barrington
($)
    William F.
Gifford, Jr.
($)
    Howard A.
Willard III
($)
    Craig A.
Johnson
($)
    Murray R.
Garnick
($)
    Denise F.
Keane
($)
3,380,057 1,169,952 1,169,952 910,002 643,505 1,169,952
(2)

The LTIP uses three-year, end-to-end performance cycles. We pay executives in a lump sum cash award only after the end of the three-year performance cycle, based on an assessment of overall corporate and individual performance during the entire award cycle. End-to-end performance cycles result in LTIP compensation shown in this column for 2016 only, and not for 2015 or 2017.

The table below reflects the target 2017 allocation of the 2017 – 2019 LTIP performance cycle, which will conclude on December 31, 2019. This target amount will be adjusted based on actual business and individual performance at the end of the three-year plan period. There is no guarantee of any payment under the plan.

Year Martin J.
Barrington
($)
William F.
Gifford, Jr.
($)
Howard A.
Willard III
($)
Craig A.
Johnson
($)
Murray R.
Garnick
($)
Denise F.
Keane
(a)
($)
2017 3,700,000 938,000 1,223,600 1,307,600 981,151 0
____________________
(a)

Ms. Keane retired as Executive Vice President and General Counsel effective July 1, 2017. She is not eligible to receive a payment under the terms of the plan.

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(3)

The amounts show the change in the present value of each NEO’s pension benefits for each year from December 31 of the prior year to December 31 of the applicable year. The amount shown for Ms. Keane for 2017 represents the change in present value of her pension benefits from December 31, 2016 to July 1, 2017, her date of retirement. The change in 2017 was due to a variety of factors, including growth in benefit due to additional pay and service, passage of time and a change in the discount rate and mortality assumptions. Mr. Garnick was hired after January 1, 2008 and, therefore, is not covered under our pension plans.

(4)

Details of other compensation for each of our NEOs appear in the All Other Compensation table shown below.

   
All Other Compensation
   
Name    Year    Allocation to
Defined
Contribution
Plans
(a)
($)
   Personal
Use of
Company
Aircraft (b)
($)
   Car
Expenses (c)
($)
   Financial
Counseling
Services (d)
($)
   Executive
Physicals
($)
   Other (e)
($)
   Total
($)
Martin J. Barrington 2017      147,000          179,903                                  578        327,481   
2016 169,000 172,593 555 342,148
2015 133,333 122,278 618 256,229
William F. Gifford, Jr. 2017 66,617 17,565 3,300 87,482
2016 76,900 16,513 3,300 96,713
2015 59,417 17,179 76,596
Howard A. Willard III 2017 86,833 12,766 99,599
2016 100,000 16,780 3,300 120,080
2015 78,033 18,016 6,764 3,300 106,113
Craig A. Johnson 2017 92,950 23,233 3,300 119,483
2016 108,200 21,044 3,300 132,544
2015 87,183 19,417 4,985 111,585
Murray R. Garnick 2017 124,220 19,742 3,300 111,966 259,228
 
 
Denise F. Keane 2017 61,623 5,267 3,300 8,587 78,777
2016 112,620 23,245 3,300 139,165
2015 91,267 20,744 10,000 3,300 125,311
____________________
(a)

Amounts represent allocations to tax-qualified and non-qualified supplemental defined contribution plans.

(b)

Personal use of our aircraft reflects incremental costs, including trip-related crew hotels and meals, in-flight food and beverages, landing and ground handling fees, hourly maintenance contracts, hangar or aircraft parking, fuel (based on the average monthly cost of fuel per hour flown) and other smaller variable costs. For purposes of calculating incremental costs, we include the incremental costs of any deadhead flights, or portions thereof, made in connection with personal travel. Fixed costs incurred in any event to operate our aircraft (e.g., aircraft purchase costs, depreciation, maintenance not related to personal trips and flight crew salaries) are not included. Mr. Barrington pays his own taxes on imputed taxable income resulting from personal use of our aircraft.

(c)

Car expenses include the annual cost of providing a leased vehicle and operating expenses, including insurance, maintenance and repairs. Executives pay their own taxes on imputed taxable income resulting from personal use of leased vehicles.

(d)

Effective January 1, 2016, we discontinued reimbursement for financial counseling services.

(e)

For Mr. Barrington, this amount includes security expenses. For Ms. Keane, this amount reflects a retirement gift valued at $4,500 and a tax gross-up of $4,087 related to the retirement gift. For Mr. Garnick, this amount reflects relocation expenses of $75,118 and a tax gross-up of $36,848 related to the relocation expenses.

ALTRIA GROUP, INC. – Proxy Statement      49


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EXECUTIVE COMPENSATION

Grants of Plan-Based Awards during 2017

Estimated Possible Payouts Under
Non-E
quity Incentive Plan Awards
    
Estimated Future Payouts
Under Equity Incentive Plan
Awards
(3)
   All Other
Stock Awards:
Number of
Shares of Stock
or Units (4)

(#)
   Grant Date
Fair Value
of Stock
Awards
($)
Name    Grant Date    Threshold
($)
   Target
($)
   Maximum
($)
Threshold
(#)
   Target
(#)
   Maximum
(#)
Martin J. Barrington 2017 2,220,000 (1) 10,000,000 (1)                 
2017 – 2019 11,100,000 (2) 24,000,000 (2)   
1/30/2017 36,938 48,019 2,600,066 (5)
1/30/2017 54,849 3,900,038 (6)
William F. Gifford, Jr. 2017 636,500 (1) 10,000,000 (1)  
2017 – 2019 2,814,000 (2) 24,000,000 (2)  
1/30/2017 12,786 16,621 900,007 (5)
1/30/2017 18,987 1,350,071 (6)
Howard A. Willard III 2017 830,300 (1) 10,000,000 (1)  
2017 – 2019 3,670,800 (2) 24,000,000 (2)  
1/30/2017 12,786 16,621 900,007 (5)
1/30/2017 18,987 1,350,071 (6)
Craig A. Johnson 2017 887,300 (1) 10,000,000 (1)  
2017 – 2019 3,922,800 (2) 24,000,000 (1)  
1/30/2017 9,945 12,928 700,029 (5)
1/30/2017 14,767 1,050,008 (6)
Murray R. Garnick (7) 2017 760,000 (1) 10,000,000 (1)  
2017 – 2019 3,360,000 (2) 24,000,000 (2)  
1/30/2017 7,033 9,142 495,053 (5)
1/30/2017 10,443 742,550 (6)
Denise F. Keane 2017 931,950 (1) 10,000,000 (1)  
2017 – 2019 4,120,200 (2) 24,000,000 (2)  
1/30/2017 12,786 16,621 900,007 (5)
1/30/2017 18,987 1,350,071(6)
____________________
(1)

Reflects the target and maximum awards under the 2017 Annual Incentive Award plan. Actual awards paid under the 2017 Annual Incentive Award plan are shown in the “Annual Incentive Plan” column of the Summary Compensation Table. The maximum represents the maximum permitted under the 2015 PIP. Awards covered by Internal Revenue Code Section 162(m) are also subject to a maximum amount determined under a formula established by the Compensation Committee, which could have produced a maximum award lower than $10 million.

(2)

Represents the possible lump-sum awards for the full three-year performance cycle of the 2017 – 2019 LTIP to be paid in early 2020. The 2017 – 2019 LTIP performance cycle commenced on January 1, 2017 and will conclude on December 31, 2019. The maximum represents the maximum permitted under the 2015 PIP. Awards covered by Internal Revenue Code Section 162(m) are also subject to a maximum amount determined under a formula established by the Compensation Committee, which could produce a maximum award lower than $24 million.

(3)

Reflects target and maximum PSUs granted to our NEOs on January 30, 2017 that will vest on February 11, 2020. The actual number of units that vest will range between 0% and 130% of target, depending on actual performance during the performance period. Holders of PSUs will accrue dividend equivalents during the performance period, which will be paid at the end of the performance period on PSUs that vest.

(4)

Reflects RSUs granted to our NEOs on January 30, 2017 that will vest on February 11, 2020. Holders of RSUs are entitled to any cash dividend equivalents paid quarterly during the vesting period.

(5)

Reflects the value of the target PSUs granted using a $70.39 grant date fair value, which was determined using 50% of the RSU grant date fair value added to 50% of the TSR fair value. The TSR fair value was calculated by multiplying the RSU grant date fair value by a Monte Carlo simulation fair value factor of 97.99%.

(6)

Reflects the grant date fair value of the RSUs, which was determined using $71.105, the average of the high and low trading prices of Altria common stock on the grant date.

(7)

Mr. Garnick’s actual award under the 2017 Annual Incentive Award plan was determined by adjusting his target award for the portion of 2017 before July 1 when he was at a salary band C level.

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EXECUTIVE COMPENSATION

Outstanding Equity Awards as of December 31, 2017

Stock Awards
RSUs PSUs
Name    Grant
Date
   Vesting
Date
   Number of
Shares or
Units of Stock
That Have Not
Vested
(#)
   Market Value
of Shares or
Units of Stock
That Have Not
Vested
(1)
($)
   Equity Incentive
Plan Awards:
Number of Unearned
Shares, Units or
Other Rights that
Have Not Vested (2)

(#)
   Equity Incentive
Plan Awards:
Market or Payout
Value of Unearned
Shares, Units or
Other Rights that
Have Not Vested (1)

($)
Martin J. Barrington 1/30/2017         2/11/2020                 54,849                 3,916,767                 36,938                 2,637,743        
1/26/2016 2/7/2019 110,123 7,863,883
1/28/2015 2/7/2018 102,650 7,330,237
William F. Gifford, Jr. 1/30/2017 2/11/2020 18,987 1,355,862 12,786 913,048
1/26/2016 2/7/2019 28,802 2,056,751
1/28/2015 2/7/2018 21,080 1,505,323
1/28/2015 2/11/2020 27,500 1,963,775
Howard A. Willard III 1/30/2017 2/11/2020 18,987 1,355,862 12,786 913,048
1/26/2016 2/7/2019 28,802 2,056,751
1/28/2015 2/7/2018 30,250 2,160,153
1/28/2015 2/11/2020 27,500 1,963,775
Craig A. Johnson 1/30/2017 2/11/2020 14,132 1,009,166 9,517 679,609
1/26/2016 2/7/2019 20,673 1,476,259
1/28/2015 2/7/2018 22,373 1,597,656
Murray R. Garnick 1/30/2017 2/11/2020 10,443 745,735 7,033 502,227
1/26/2016 2/7/2019 19,492 1,391,924
1/28/2015 2/7/2018 21,090 1,506,037
1/28/2015 2/11/2020 18,340 1,309,659
Denise F. Keane (3) 1/30/2017 2/11/2020 12,236 873,773
1/30/2017 2/11/2020 18,170 1,297,520
1/26/2016 2/7/2019 27,563 1,968,274
1/28/2015 2/7/2018 28,948 2,067,177
____________________
(1)

Market values are based on $71.41, the closing price of Altria common stock on December 29, 2017, assuming target performance for PSUs.

(2)

Amount assumes target performance goals are achieved. The actual number of units that vest will range between 0% and 130% of target, depending on actual performance during the performance cycle.

(3)

Due to Ms. Keane’s retirement, her PSUs granted in 2017 were no longer subject to performance criteria per the terms of the grant agreement. Accordingly, her January 30, 2017 grant of 12,236 PSUs is shown under the RSUs column. In accordance with the six month delay requirement of Internal Revenue Code Section 409A, all of Ms. Keane’s outstanding equity awards shown in this table were delivered on January 3, 2018 following Ms. Keane’s retirement.

ALTRIA GROUP, INC. – Proxy Statement     51


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EXECUTIVE COMPENSATION

Stock Option Exercises and Stock Vested during 2017

Option Awards Stock Awards
Name       Number of
Shares
Acquired
on Exercise
(#)
      Value
Realized on
Exercise
($)
    Number of
Shares
Acquired
on Vesting
(#)
      Value
Realized on
Vesting
($)
Martin J. Barrington    292,960       20,987,338   
William F. Gifford, Jr. 31,320 2,260,521
Howard A. Willard III 44,930 3,242,823
Craig A. Johnson 37,719 2,702,021
Murray R. Garnick 31,330 2,261,243
Denise F. Keane (1) 135,755 9,971,076
____________________
(1)

In accordance with the six month delay requirement of Internal Revenue Code Section 409A, 86,917 shares ($6,472,709) were delivered on January 3, 2018 following Ms. Keane’s retirement.

Pension Benefits

The Pension Benefits table and the Non-Qualified Deferred Compensation table below generally reflect amounts accumulated as a result of service over the NEO’s full career with Altria and our affiliates. The increments related to 2017 are reflected in the “Change in Pension Value” column of the Summary Compensation Table or, in the case of defined contribution plans, the “Allocation to Defined Contribution Plans” column of the All Other Compensation table. Mr. Garnick was hired after January 1, 2008 and, therefore, is not covered under our pension plans.

Name       Plan Name       Number of
Years of
Credited
Service
(1)
(#)
      Present
Value of
Accumulated
Benefits (2)

($)
      Payments
During Last
Fiscal Year (3)

($)
Altria Retirement Plan        24.67               1,531,797                     
Martin J. Barrington Benefit Equalization Plan – Pre-2005 11.67 1,978,773
Benefit Equalization Plan – Post-2004 24.67 18,877,175
Altria Retirement Plan 23.25 1,036,171
William F. Gifford, Jr. Benefit Equalization Plan – Pre-2005
Benefit Equalization Plan – Post-2004 23.25 4,078,244
Altria Retirement Plan 25.17 1,439,994
Howard A. Willard III Benefit Equalization Plan – Pre-2005 12.17 619,815
Benefit Equalization Plan – Post-2004 25.17 7,173,050
Altria Retirement Plan 26.75 1,596,238
Craig A. Johnson Benefit Equalization Plan – Pre-2005 13.75 2,350,393
Benefit Equalization Plan – Post-2004 26.75 9,279,592
Altria Retirement Plan 40.50 2,483,660 68,407
Denise F. Keane Benefit Equalization Plan – Pre-2005 28.00 2,895,350
Benefit Equalization Plan – Post-2004 35.00 3,055,448
____________________
(1)

As of December 31, 2017, each NEO’s total years of service with Altria and our affiliates were: Mr. Barrington, 24.67 years; Mr. Gifford, 23.25 years; Mr. Willard, 25.17 years; Mr. Johnson, 26.75 years; and Ms. Keane, 40.50 years. Years shown in this column are only those taken into account for benefit accrual purposes under the named plan. Ms. Keane’s years of service taken into account under the applicable formula for the Benefit Equalization Plan (“BEP”) – Post-2004 are limited to 35.00 under the terms of that plan.

52     ALTRIA GROUP, INC. – Proxy Statement


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(2)

The amounts shown in this column are based on a single life annuity (other than for Ms. Keane whose amount is based on the form of payment she selected at retirement, a 50% joint and survivor annuity) and otherwise use the same assumptions applied for year-end 2017 financial disclosure under FASB authoritative guidance relating to retirement benefits, except that (a) the BEP – Post-2004 amount for Mr. Johnson is based on the lump sum required to purchase an annuity providing the after-tax equivalent of the post-2004 pension component of that plan assuming an interest rate of 3.50%, (b) the BEP – Pre-2005 and BEP – Post-2004 amounts for Messrs. Barrington, Gifford and Willard are based on a lump sum form of payment assuming an interest rate of 3.50% (3.37% for Mr. Gifford), (c) in accordance with SEC requirements, all benefits are assumed to commence at the earliest date on which, assuming continued employment, the individual would be eligible for benefits that are not reduced for early commencement and (d) the BEP – Post-2004 amount shown for Ms. Keane is based on the actual payment she received in January 2018 and is net of the accumulated value of prior Target Payments attributable to her supplemental pension benefits. See Note 16 to our consolidated financial statements in the 2017 Annual Report on Form 10-K for a description of the financial accounting assumptions referred to above. As a result of payments previously made to or for certain employees, including our NEOs other than Mr. Gifford, our liabilities or those of our operating subsidiaries under the BEP – Pre-2005 will be less than shown in the table. Our liability for BEP – Post-2004 pension benefits will also be less than that reflected in this column because it is also reduced by the portion of the accumulated value, at the employee’s retirement or other termination of employment, of prior Target Payments attributed to supplemental pension benefits. The amounts by which these prior payments reduce our liabilities will fluctuate over time with investment performance and as credits for the amounts previously paid are reduced to reflect payments to cover taxes on earnings on these amounts. For further discussion, see “Defined Benefit Plans” below.

(3)

In connection with her retirement on July 1, 2017, Ms. Keane received a lump sum payment of her BEP – Pre-2005 benefit in September 2017. Ms. Keane’s BEP – Pre-2005 payment and BEP – Post-2004 amount (which was paid in January 2018) reflect that these amounts were reduced by Funding Payments and Target Payments that were paid to Ms. Keane in prior years (see “Defined Benefit Plans – BEP Pension” section on page 54). The Funding Payments and Target Payments were reported in Altria’s proxy statements for those prior years.

Defined Benefit Plans

Our NEOs, along with the other salaried employees (except those hired after certain dates, including Mr. Garnick, and those who cease to accrue further benefit service), participate in the Retirement Plan, a tax-qualified defined benefit pension plan. In addition, our eligible NEOs and other executives participate in the BEP, which is an unfunded supplemental plan providing benefits in excess of those provided under the Retirement Plan. Additional information regarding the plans follows.

Retirement Plan

The majority of our salaried employees hired prior to January 1, 2008 with at least five years of service are eligible for an annual, lifetime pension benefit from the Retirement Plan, a funded, tax-qualified, non-contributory pension plan. The benefit for the majority of those plan participants, including all our eligible NEOs, is based on the following formula and terms:

Pension
Benefit
=

1.45% of five-year average
compensation (including certain
incentive compensation plan
payments) up to the applicable
Social Security covered
compensation amount

+

1.75% of five-year average
compensation (including
certain incentive compensation
plan payments) in excess of
the applicable Social Security
covered compensation amount

X

Years of
credited service
(up to a maximum of 35,
except in limited
circumstances)

Under the terms of the Retirement Plan, credited service is limited to 35 years if incentive compensation is included in the determination of the five-year average compensation. Five-year average compensation is the highest average annual compensation (annual base salary plus incentive compensation) during a period of 60 consecutive months within the last 120 months of employment. If incentive compensation is not included in the determination of the five-year average compensation, then credited service is not limited to 35 years and the benefit for credited service over 35 years is 1.45% of the employee’s five-year average compensation. Social Security covered compensation is generally an amount equal to the average of the Social Security taxable wage bases for the 35-year period that ends in the year the participant reaches Social Security Full Retirement Age.

ALTRIA GROUP, INC. – Proxy Statement     53


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